Rocky Mountain Chocolate Factory, Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to today's conference call to discuss Rocky Mountain Chaco's financial results for the fiscal third quarter 2024. At this time, all participants are in listen-only mode. As a reminder, this conference is being recorded. Joining us on the call today are the company's CEO, Rob Sarles, and CFO, Alan Arroyo. Please be advised that this conference call will contain forward-looking statements that that are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain known and unknown risks and uncertainties as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. These forward-looking statements are also subject to other risks and uncertainties that are described from time to time in the company's filings with the SEC. Do not place undue reliance on any forward-looking statements. which are being made only as of the date of this call. Except as required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements. The company's presentation also includes certain non-GAAP financial measures, including adjusted EBITDA as supplemental measures of performance of the business. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with the SEC rules. You will find reconciliation tables and other important information in the earnings press release and form 8K furnished to the SEC earlier today, which are currently available on the company's Edgar page on the SEC's website and will be available on the company's best relations section of its website within approximately 24 hours after this call has ended. And now I will turn the call over to the company's CEO, Rob Saltz. Rob, please go ahead.

Thank you, and good morning, everyone. We accomplished a major pivot in our business in the fiscal third quarter with the permit relocation of our consumer packaging functions to a third party world class co-packer in Utah. This co-packer will now handle all of the final assembly of our boxed and toted chocolates, fulfilling a critical need within our simplify and focus strategic objective. Labor availability has been a challenge in Durango for a while. particularly for our labor-intensive packaging operation. It has historically taken anywhere between 15 and 50 people to hand-pack assorted chocolate boxes and other toted items, with manpower needs typically peaking during the holiday season. We had a particularly tough year with labor in 2023, such that we were frequently deploying chocolate manufacturing talent to fill and complete box chocolate needs. This not only reduced our availability to fully meet seasonal holiday production requirements, but also impacted our ability to capitalize on new business opportunities, including e-commerce. This difficult but critically needed transition to third-party co-packing came with additional one-time relocation costs, including additional transportation and expedited production costs to prioritize the delivery of inventory to our franchisee network and omnichannel partners. Although this had a temporary impact on margins, it was an essential step to ensure a positive outcome for our partners and to strengthen our long-term positioning. The combined effects of these factors prevented us from fully capturing anticipated holiday volumes, and we estimate the resulting impact to have been approximately in excess of 1 million in unrealized product sales. Despite the short-term impact, we are pleased with the net result of the packaging move to Utah, and I'm proud of the hard work by our operations and supply chain team to facilitate this relocation effort in the midst of our busiest season. As a consequence, we've eliminated the long-standing production ceiling we faced in Durango, and this move has created substantial additional capacity to meet future demand. As evidence, in December alone, we produced in Durango nearly 50% more pounds of premium chocolate products than we did in the entirety of the fiscal fourth quarter of the prior year. This is a direct result of labor relief in Durango, as our production team can now focus on what they do best, making even more high-quality premium chocolate and confectionery products. This improved configuration empowers us to meet the higher demand volumes we anticipate from new and existing specialty retail omnichannel partners, as well as planned expansion in e-commerce and our franchise network, which we plan to expand in the years ahead. Quickly turning to several other milestones that reflect the ongoing execution of our strategic transformation plans. To do more with less, we once again made meaningful reductions in G&A, marking our third consecutive quarter double-digit sequential improvement. We also made continued progress in growing our product gross margins, with reach to double digits on an adjusted basis for the first time in a year. To amplify and elevate the Rocky Mountain Chocolate brand, we engaged an award-winning retail and hospitality design firm, Design Well Spent Co., to lead the aesthetic refresh of both company and franchisee-owned storefronts. Additionally, as we announced in November, we completed the build-out of our senior leadership team with the addition of Kara Conklin as our VP of Franchise Development, who joins us from Focus Brands. Kara brings nearly 20 years of franchise and operating experience. She has a proven track record with multi-unit operators, an area in which we are focusing on much more in the future, and as importantly, a passion for the transformation and elevation of our brand in the franchise business world. Kara is already out in front of current and prospective franchisees, pushing forward our stated plans to expand our franchise store base over the next several years. Turning to the board, in December, we added the appointment of Steve Craig, a seasoned business strategist and successful retail developer to the board of directors. For nearly four decades, Steve has developed, owned, and operated commercial real estate, primarily outdoor malls for retail shops and restaurants throughout the United States. He brings nearly 30 years of executive and board experience with both public and private companies. Steve is also committed to the development of aspiring entrepreneurial youth having funded an endowment in founding the Stephen L. Craig School of Business at Missouri Western State University. And in fact, the Craig School of Business Center for Franchise Development, which offers training to students interested in franchise ownership, has graduated 33 students who were awarded franchises. But this includes 15 alumni currently operating, actually 10 alumni operating 15 Rocky Mountain chocolate stores, some of which are among our best operators. Steve's direct experience as a multi-unit operator and franchisee of Rocky Mountain Chocolate since 2011 made him an ideal addition to our board. To summarize the quarter, our new management team is fully built and laser focused on executing on our strategic transformation plan. The lessons learned from the holiday season and our relocation of our consumer packaging to Utah have us well equipped to better capitalize on the upcoming Valentine's Day demand cycle and other critical business opportunities going forward, including e-commerce and expanding business with existing and new specialty retail customers with much greater certainty. The hard work continues and we're nearing an inflection point as we prepare to return to growth and profitability in fiscal 2025. I will now hand it over to our CFO, Alan, to discuss our fiscal Q3 financial highlights before returning for closing remarks. Alan?

Thank you, Rob. Please note that all financial results discussed today are for continuing operations, while all variance commentary is on a year-over-year basis unless stated otherwise. Moving on to our results. Total revenue was $7.7 million compared to $8.8 million in the prior year. The decrease was attributable to higher factory overhead and production constraints related to personnel at our Durango facility, the latter of which impacted fulfillment and offset strong holiday seasonal demand. Taking a deeper look at our sales, total product sales were $6.1 million compared to $7.3 million. Royalty and marketing revenue was $1.2 million versus approximately flat over the prior year. Retail sales at our company-operated stores increased 21% to 364,000 compared to 302,000. The increase was a result of opening of a second company-owned store in July 2023. Same-store sales for our company-owned store in Durango decreased 1.1% year-over-year, primarily due to the aforementioned production constraint. Same store sales across all domestic Rocky Mountain Chocolate Factory locations decreased 2.1% during the quarter compared to the prior year. And franchise fee revenue was $41,000 compared to $49,000. Total product and retail gross profit was $0.7 million compared to $1.9 million with a gross margin of 10.2% compared to 24.5%. The decrease was primarily attributable to the previously mentioned constraints, which led to lower product availability and overhead absorption. The decrease in gross margin was also due to one-time costs associated with the relocation of packaging operations to Salt Lake City, Utah. Total operating expenses decreased 7% to $8.5 million compared to $9 million. The improvement was due primarily to a decrease in professional fees related to the costs associated with the contested solicitation of proxies in fiscal 2023. Net loss from continuing operations was $0.8 million or $0.12 per share. compared to a net loss from continuing operations of $0.2 million, or $0.03 per share. Adjusted EBITDA loss was $3 million, compared to adjusted EBITDA of $1.2 million. The decrease was primarily due to lower sales and gross margin, partially offset by lower sales and marketing expenses and franchise costs. Turning to our balance sheet, we ended the third quarter with a cash balance of 2.1 million compared to 4.7 million at the end of fiscal year 2023. The net decrease in cash was primarily due to cash used in operations and the purchase of property and equipment partially offset by the sale of useful assets. For the nine months, through the end of the third quarter, we spent $2.5 million in capital expenditures, the highest level for such time period in over a decade. In the near future, we'll be exploring the use of equipment-based financing as part of our capital structure. We ended the third quarter with total inventories of $3.7 million, roughly flat compared to the year-end fiscal 2023. As of November 30th, 2023, we utilize 1.0 million from our line of credit. However, our balance sheet remains free of any long-term debt. With that, I'd like to turn the call back over to Rob for closing remarks.