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00:07 Welcome to the J&J Snack Foods First Quarter Earnings Call. My name is Annette, and I’ll be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded.

00:37 I will now turn the call over to Norberto Aja. Mr. Aja, you may begin..

00:45 Thank you, operator and good morning everyone. Thanks for joining the J&J Snack Foods fiscal 2022 first quarter conference call. We’ll get started in just a minute with management’s comments and your questions, but before doing so, let me take a minute to read the Safe Harbor language.

01:01 This call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

All statements made on this call that do not relate to matters of historical facts should be considered forward-looking statements, including statements regarding management’s plans, strategies, goals and objectives, anticipated financial performance, industry-wide supply constraints, and the expected impact of COVID-2019 on our business.

01:28 These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

01:47 Factors discussed in our Annual Report on Form 10-K for the year-ended September 25, 2021 and other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward-looking statements made on this call.

Any such forward-looking statements represent management’s estimates since of the date of this call, February 1, 2022, while we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so even if subsequent events cause our views to change.

02:20 In addition, we may also reference certain non-GAAP metrics, including adjusted EBITDA, which is reconciled to the nearest GAAP metrics in the company’s earnings release, which can be found in the Investor Relations section of our website at jjsnack.com.

02:35 With us on the call today are Dan Fachner, Chief Executive Officer; Ken Plunk, Chief Financial Officer; Steve Every, Chief Operations Officer; and Lynwood Mallard, Chief Marketing Officer. Joining remotely are Marjorie Roshkoff, our General Counsel; and James Hamill, Corporate Controller.

Following management’s prepared remarks, we will open the call for question-and-answer session. 03:08 With that, I would now like to turn the call over to Dan Fachner, J&J Snack Foods’ Chief Executive Officer. Please go ahead, Dan..

Luigi’s Flavored Ice, Whole Fruit bars, Dogsters and Icee branded novelties. The retail segment continues to reflect sustained consumer-at-home consumption, given the increase in remote work and evolving consumer preferences. We believe these trends will continue to benefit our retail business going forward.

07:31 Let’s move on to the Frozen Beverage segment. Our business is now starting to produce results consistent with pre-COVID sales, as the theater industry continues to improve and consumers enjoy travel and outdoor activities. Our sales for the quarter exceeded the same period last year by 54% and were 6% above a very strong Q1 2019.

These results were led by strong performances in amusement, convenience, and restaurants as traffic returns to these outlet, and as we gain new QSR and convenience customers. 08:11 In the amusement channel, we continue to see strong growth in the indoor focus venues, as that business segment continues to expand.

I’m also really excited to see theater sales improve steadily throughout the quarter, including a December, where sales were just slightly above or below pre-COVID 2019 levels. The segment growth was once again led by our Icee beverage lineup, which grew 113% versus the prior year and 8% above fiscal Q1, 2019.

08:49 Service revenue increased 16%, the strongest first quarter in our service history, led by an acceleration in our preventative maintenance calls. Equipment sales increased 21%, driven mainly from a large QSR and convenience customers.

With all three of our major business lines posting strong sales growth, we remain optimistic that these positive consumer trends will continue as we move further away from the impact of the pandemic and the recent challenges the variants have brought to all of us.

09:26 As was the case last quarter, our industry continues to experience unprecedented inflationary pressures and higher-than-expected cost increases across many facets of the business. From raw materials and ingredients to transportation, packaging, and labor.

These costs escalated in the back half of the quarter with the onset of the Omicron variant resulting in first quarter fiscal 2022 gross margins of 25%, favorably compared to 21% the prior year, but below the 28% gross margin generated in the comparable 2019 period.

10:08 Like many of our competitors and customers, we are seeing double-digit levels of inflation across a number of areas. Ingredient costs increased over 10% on average, compared with the same period last year. In distribution, expenses were 10.5% of sales in the quarter, compared to 9.5% in the same period last year.

10:33 Our organization continues to focus on specific actions to offset these short-term challenges, and we have identified a number of opportunities to reduce expenses across the business, including procurement, R&D, production and distribution.

In addition, we have four new production lines scheduled to be activated in fiscal 2022, that will leverage automation to improve efficiencies. 11:01 Finally, we are also implementing additional price increases for our products across nearly all of the categories.

Collectively, we expect these initiatives to improve our gross profit margins progressively over the second quarter of fiscal 2022 and really into the back half of the fiscal year.

11:20 And while we’re being proactive and taking necessary steps to best navigate the current inflationary environment, the work we are doing to build and evolve our brands also continues. We have over 10 iconic brands that are leaders in their respective segments, and in some cases, these brands even define this segment.

So there are a number of significant opportunities to leverage these brands and grow organically. 11:48 Within Food Service, we are very bullish on Churros and expect to launch a new branded Churros product to target major Food Service customers in fiscal 2022.

We are also expanding our powerful SuperPretzel and Bavarian Pretzel brands with individually wrapped salted pretzels and filled pretzels. 12:10 In Retail segment, we are leaning on the super brands, including SuperPretzel, Luigi’s and Dogsters, to both create and grow market share through new products, flavor extensions and improved packaging.

12:26 Finally, in our Frozen Beverage segment, we remain focused on expanding our Icee brand and have recently introduced Icee products into QSRs and fast casual dining. As previously reported, we have seen great success on this front in places like crystal’s restaurants and Golden Corral.

12:46 We have a good pipeline with customers testing the Icee products and I am pleased to report that our customers are already seeing marked upticks and beverage consumption. 12:58 As it relates to inorganic growth, we continue to be very vigilant on the front and remain disciplined in our criteria and approach.

We will not do acquisitions that are not accretive to our business, overpay for assets or buy something outside of our area of expertise. We have a long and successful track record on the acquisition front, and we intend for that to continue to be the case.

13:24 In closing, an important aspect of our business that has shown through more than ever before during the past 18 months to 24 months has been the resilience and power of our products and brands.

The changes brought on by the pandemic have created tailwinds for many of our brands as people have sought to create moments of enjoyment, comfort and even companionship during these unprecedented times. Challenges create opportunities for strong brands to get even stronger and that is what I firmly believe is happening here.

14:00 On the back of various initiatives, I mentioned earlier in the strong demand environment we continue to experience, we are in a much stronger competitive position today. We are well positioned to continue to drive long-term growth and shareholder value for the company.

14:18 I would now like to turn the call over to Ken Plunk, CFO to review our financial performance.

Ken?.

14:26 Thank you, Dan, and good morning everyone. Our fiscal 2022 first quarter results reflect the continued success of our operating strategies and the power of our unique brands, as well as improving trends in the macroeconomic environment and across the majority of the customer segments we serve.

14:48 Like Dan mentioned, they also reflect some of the challenges and headwinds, we continue to experience as it relates to our supply chain in cost of goods.

Revenues for the first quarter of fiscal 2022 increased by a healthy 32% to $318.5 million versus the prior year period, and compares favorably versus the first quarter of fiscal 2019, with an increase of 17% in sales. 15:18 Breaking revenue down, Food Service revenue grew 32% to $211.7 million or 67% of our total sales.

It was led by a 69% growth in churros, bakery and soft pretzels enjoyed 21% and 54% growth, respectively versus Q1 of fiscal 2021. And frozen novelties grew 34% for the quarter and handheld’s grew in mid-single-digits.

15:50 Retail increased over 9% to $42.7 million or 13% of total sales and soft pretzels frozen novelties and biscuit sales increased 17%, 16%, and 8% respectively. Handheld’s in our retail segment declined 54%, driven by proactive discontinuations of margin dilutive products.

I would like to point out that retail was lapping a 33% sales growth in last year’s first quarter as consumers stayed at home.

16:27 Regarding our third segment, Frozen Beverages, revenues increased 54% to $64.1 million or 20% of total sales versus Q1 of fiscal 2021, reflecting healthy sales growth across all sub-segments, including 113% increase in beverage sales and 16% and 21% increase in maintenance and machine sales respectively.

This led to a gross profit of $79.4 million or an increase over 58%, compared to the previous year period and a gross margin rate of 24.9%, an improvement of over 400 basis points above Q1 of fiscal 2021.

17:14 As Dan pointed out, our industry continues to face historic inflationary challenges and it certainly impacted our cost and margin expectations for the quarter. As Dan discussed, we are confident in our plans to manage these headwinds as we move forward.

17:31 Moving down the income statement, total operating expenses increased from $49.5 million to $64.5 million and were 20.2% of sales for the quarter. This compares favorably to the same quarter of fiscal 2021, even while distribution costs continue to escalate. Distribution expenses were 10.5% of sales, compared to 9.5% of sales in fiscal 2021.

Marketing expenses and administrative expenses were well managed for the quarter and below prior year. 18:09 Overall, operating income improved from $0.6 million to $14.8 million for the quarter, compared to the prior year. With income taxes of $4 million, compared to $0.2 million in Q1 of fiscal 2021.

Net earnings increased by over 524% to $11.1 million, resulting in diluted earnings per share of $0.58 a share, compared to $0.09 in the prior period. And on an adjusted EBITDA basis, we saw an improvement of 77% to $27.5 million in Q1 of fiscal 2022 versus Q1 of fiscal 2021.

18:55 Taking a look at our balance sheet and liquidity position, we are pleased that even on the back of these challenging last few quarters that we continue to have a healthy balance sheet and overall liquidity was a $283 million in cash and marketable securities and zero debt. Our company is well-positioned for continued investment and growth.

19:17 In closing, our first quarter results reflect the diversification strength of our brands and products. Financially, we’re confident in the short-term plans to manage through the current environment and excited about our long-term strategy to grow sales and profits.

We have an incredible portfolio of brands and products and a proven team committed to continue the growth legacy of the company. 19:42 I would now like to open the call to questions.

Operator?.

19:48 Thank you. [Operator Instructions] And we have some people in the queue already. Okay, this call is from Rob Dickerson, and please excuse if I’m mispronouncing your name. Please go ahead, please..

20:39 Great, thanks so much. Good morning..

20:43 Good morning, Rob..

20:45 Hey, Dan, how are you?.

20:47 Great..

20:49 I guess, first question I have is just on the Food Service side, you know, I – the results are impressive, I think it’s the best first quarter you’ve actually posted on the revenue side.

So, I’m just curious, if you could provide any more color, kind of, like what do you think in your opinion, is driving that? I mean is that, like just, kind of, black and white new distribution, picked up a new customer? Or do you think it’s just, kind of, more consumer behavior driven just with respect to traffic in these certain channels be it convenience what have you?.

21:24 You know what, I think there is a little bit of all of that you mentioned, Rob. We are excited about what Food Service is doing and the growth that it’s having. I do think there is a little bit of pent up demand that’s going on out there. But I also think that our products are a product that people are now starting to search out.

21:44 And, you know, what’s exciting to me, probably more than anything is I’m seeing some great growth on our core products, if not just new things that we’re introducing, but it’s really some of our core products like the pretzels and the churros that are really having some strong improvement over the quarter.

And that’s encouraging as we get deeper into the year. So, I really am encouraged by what we’re seeing and anticipate for us to be able to continue to have growth in that category or segment..

22:18 All right. Got it. And then I guess just quickly, you know, historically, your second quarter on the revenue line at least seems to be fairly similar, relative to Q1 given seasonality. Q1 is very strong, you know, realized guide for the year.

But, I mean, it doesn’t seem as if there would be anything kind of one-off in Q1 that wouldn’t necessarily hopefully repeat in Q2, right, which, kind of, stages you for kind of a solid year given back half you would assume would be stronger given amusement park traffic etcetera?.

22:50 Well, we absolutely think that – we think that Q2 as a chance of mirroring what you saw in Q1, right. And then getting some really strong help as we end Q2 and into Q3 and Q4 with some of the initiatives that we’re doing regarding the costing side of things and supply chain. So, we’re encouraged, we’re really encouraged by the year..

23:16 Rob, I would just add – even with the strong Q1 in revenues, which we’re quite proud of, I think it’s good for us all to remember that Omicron and the impact of that on travel and on getting out, particularly in December, probably impacted our sales from being even bigger in the quarter and as we hopefully get beyond that, we’re very optimistic that the trends from Q1 and then maybe even as we get past Omicron that that environment improves even further for us..

one, how we feel about the end of the year, exit rates? And then two, just, kind of, broadly speaking, how we are thinking about, kind of, gross margin in a normalized environment?.

25:30 All right. Let me start and then I’ll let Ken add to that as well.

But you’re right, we have some hefty goals out there for us as a company, and have been working really, really hard on the business and some initiatives that we think will take hold as we get into the later half of the second quarter and then stronger in the third, and even stronger in the fourth.

And then some long-term ones as we’ve talked about with some of the distribution and the frozen plans that we’re looking at across the country. 26:04 We do believe that we can get back to those pre-COVID gross margin levels. We are convinced that we can get there.

There are challenges in front of us and some headwinds that we’re facing like we just faced in this quarter and some that we may not see yet, but if it was normalized absolutely believe that we can get ourselves back to the margins that you had seen before. And then of course my goal would be to be better than that.

Ken, you want to touch on that some?.

26:34 Yes, Rob I would say similar to what we said come out of Q4 and heading into Q1, we’ve got to get to this period where we execute the price increases.

We have done that on the Icee side and they’re going to probably say, if not the largest, one of the largest price increases that we’ve passed-through as the industry has done that work has been done and was done in January. And we have very specific plans over the next three months to execute that on the Food Service side.

27:08 We had a number of customers that had 60, 90-day notice causes and that sort of thing, but the plans are there.

So, I think what I mentioned going into Q1 is, we really feel like back-end of Q2 and particularly into Q3 and Q4, the pricing actions, the cost actions will start to bear fruit and I expect those in the back half of the year to get back to those margins that you’re used to seeing in those Q3 and Q4 periods.

27:42 And the other thing I would add, I mean, the team has been working exceptionally hard and I probably said here and I think Dan would say the same thing, more confident in kind of the rigor behind our plans, whether that’s cost reduction initiatives, that’s the new lines we’re implementing, that’s the pricing action, there are very specific plans and timing around those, many of which are happening now, many of which will happen over the next few months.

28:12 So, I think again, continue to look at very late Q2 back half back to, kind of what we would expect, assuming nothing else crazy around distribution expense, inflation and raw materials continues..

28:29 All right. Super. Thank you so much. I’ll pass it on..

28:31 Thank you, Rob..

28:34 All right. Excuse me. Our next question is from Todd Brooks. Your line is open..

28:43 Hey, good morning, everyone.

How you all doing?.

28:45 Good morning. We are doing great.

How about you?.

28:48 I’m doing well. Thanks. A couple of quick gross margin questions to follow-up on Rob’s line of questioning.

If we go back and look at Q1, can you maybe talk about how much pressure you were seeing in gross margin, pre-Omicron and then that last month of the quarter, how much inflationary cost pressures accelerated to hit the gross margin?.

29:11 Well again, we’ll tag team this some, but certainly soft pressures throughout the quarter, but it definitely peaked as you got into the later half of the quarter. Omicron, one of the things it did is effect labor and with the sales that we’re experiencing and not wanting to – not be able to ship everything that we can.

29:31 There were some labor increases that happened towards the end of the quarter with people calling out sick and having to bring in temp labor and overtime hours and things like that and working really hard to make sure that we’re continuing to produce the products that we want to produce and get them out to our customers.

29:49 So, it certainly peak throughout the quarter. Distribution was a big piece of that and distribution was a rising cost all across the quarter. I don’t know that it peak throughout it. I think it was just a rising cost all across the quarter and continue to get worse.

So Ken, you want to talk about that some?.

30:11 Yes, I’ll just, kind of, start where Dan ended, on distribution, again some of the quick as fast as escalation of costs that I’ve seen in my career. Just to give you one idea, one of our biggest line items is outbound freight and from Q4 to Q1 that continue to increase just under 20%.

30:39 So, if you look at that level of cost increase just within three or four months, plus as we got in December, there’s a huge revenue line for us. And our first commitment as it relates to the business both in the quarter and long-term is to continue to invest in getting our sales growth back and get market share.

31:02 So, you know, there are things that we did to ensure from a product availability standpoint. We did to drive those sales and that was part of the reason why we had such a great quarter. There are specific plans in place around distribution.

31:16 We mentioned before, we brought in a third-party expert around logistics management and they are just now starting to get engaged, they have already taken responsibility for one of our biggest warehouse and pickup locations that will continue very quickly in Q2.

But you know, distribution and the escalation of those costs certainly had an impact. 31:44 And then the same thing on raw materials.

And yes, December as it relates to cost of goods and margin and results was our toughest month and I think it was because of the combination of the things I mentioned and as that escalate over the quarter, as well as the labor situation that Dan mentioned..

32:05 That’s helpful. Thanks, Ken.

And then can I follow-up with obviously rolling out of a strong month in December into the beginning of the year? Just what’s kind of the current experience as far as Omicron staffing levels? Do volumes drop enough that you’re not having to chase the same magnitude of labor? So, maybe not the same pressure as we’re working our way through this variant?.

32:28 It’s getting better, Todd, and as you said, January isn’t December. However, we’re still seeing nice increases year-over-year and believe that we’ll continue to do that, but the labor issues that we experienced towards the end of December or in the mid-December through the end of the year aren’t as challenging as they are today.

However, I think it could be challenging all year long, to some extent..

32:57 Okay, great.

Can we, kind of, talk about pricing and maybe break it into, I know it’s across segments, so it’s hard to just give a blanket statement on pricing, but maybe talk about where we stood on blended pricing in Q4? What you tried to put an effect over Q1 and then magnitude of what you’re trying to put in over this next 60-day to 90-day period in the Food Service business?.

33:23 Well, we’ve always tried to be sensitive when it comes to pricing to our customers and consumers, right? And so probably our first go around with an increase that would have taken effect. We might have been a little bit more conservative than we should have been. And so, we have gone back and looked at that, really, really hard.

33:45 We’ve taken pricing with the Icee side that became effective January and probably some of our largest pricing that we’ve ever taken and we’ve gone back and done that on the Food Service side.

33:59 You’ve heard me talk about our new Senior Vice President of Sales, on the Food Service are in the J&J side of our business, Bjoern Leyser and he’s on the call today.

But you’ve heard me talk about him and he has really led the team on pricing right out of the [chute] [ph] and so we felt really good about where we’re at with that, that will take effect end of this quarter, some happens in this quarter, but really end of this quarter and then really mainly in the third quarter..

34:32 So….

34:33 And again pricing probably at a larger rate then we have taken in the past..

34:39 So, Ken, if we use, kind of, Rob’s constructive cost stable from here, how much gross margin should you recapture from the pricing increases, if they fully implement?.

34:52 Well, it will scale its way through time. But, yes, I’m going to kind of leave it at this. I mean, you know, the level of increase is double what we took last year.

So, you’re looking at probably on average 6%-plus depending on product, customer, composition of products, flour for example is a big commodity for us and it’s one of the ones that continues to inflate double-digits. 35:26 So, yes, it does vary by product, customer, etcetera.

You know, we’ll enjoy some of that benefit in Q2, but I would call it marginal, but somewhat improvement over Q1. But the bulk of that will play out entirely in Q3 and Q4.

And that in combination with the cost reduction initiatives that we just mentioned is going to enable us to get back to more of that 30% gross margin range, assuming the double-digit inflationary environment doesn’t continue, which at least right now, we’re not expecting that..

36:10 Okay, great. And then if I can ask one more and I’ll jump back in queue. Obviously great revenue performance and relatively flat sequentially, which we don’t typically see December quarter versus September quarter.

And maybe if we can parse the strength between – and Dan you point to maybe brand discovery versus new introductions? And then secondly, if we can talk just about the recovery and the theater business across the course of the quarter? And what kind of the forward outlook for that business is giving the release schedule? Thanks..

36:45 Well, really proud of all three segments. All three of them had good increase in sales across the board. And I think, I mentioned this to you already, most of that increase is coming from our core products and that’s really encouraging to see.

We’re seeing in our pretzels increase, we’re seeing churros increase, we’re seeing our frozen novelties in the retail side increase. And we’re seeing an increased distribution in all of those channels.

37:13 The frozen beverage side, it was great to see the theater business come back and it really came charging back in December, a lot of times, that’s really based on the movies that are being released. And the timing of those movies and we had a great one released in December and we saw that immediate jump across the whole channel.

37:32 So, really encouraging to say in the midst of Omicron continuing to grow in December when the theaters released a good movie, the people were out there to see it. And so encouraged by that. And that’s what I would tell you about the theater business going forward for the rest of this year.

As we have the right movies released, we’ll see a nice return to that business again. And pretty similar to what I’ve said to you in the past, I think by the end of the year, we could be in that 85% range of what it was in 2019.

38:11 Our business particularly might be greater than that, because of their reduction in their SKUs, in their places we sell more per location than we used to sell in 2019.

So, we may be at a higher level than that, but encouraged, I would just say this, I am encouraged by the theater business that when there is a good movie release, people are willing to go see it in the midst of the pandemic even..

38:38 Okay, great. Thanks, I’ll pass along..

38:40 That’s a big deal – in my view, again we mentioned December was just a hair under FY 2019. So, to me, that’s even more encouraging and probably three or four months ago, because when you see the product there you see the right kind of movies in the theaters. The consumers are coming back.

And that’s really encouraging as we look to more of those kinds of movies coming out, Top Gun, The Batman, I think there is a lot of product buildup in inventory, so that’s encouraging..

39:17 That’s great, thanks. I’ll jump back in queue..

39:20 Thanks, Todd..

39:22 Okay..

39:23 And our next question comes from Ryan Bell. Go ahead please..

39:30 Good morning, Ryan..

39:30 Good morning. I just had a question sort of about the impacts with elevated COVID cases at the end of calendar 2021 and sort of beginning of this year.

Just trying to understand if you had any sort of quantification about what that impacts might have been on the businesses and then seeing potentially relief from that, as we’re getting the cresting over the Omicron?.

39:57 Ken, I don’t know if you can identify a percentage or a number there, but what I would tell you, Ryan, is the biggest impact we had of the COVID cases was on the labor side of our business. We continue to have strong sales all the way through the quarter and all the way through December.

40:16 So, it wasn’t as affected at the customer consumer level, but where we really saw the impact is in the labor shortages and what we needed to do to cover for those labor shortages, both on the snack food side of the business, the J&J side and on the Icee side with our many service technicians out in the field and some of them suffering from the variant and having to cover that with over time or additional labor..

40:48 Okay, thanks, that’s helpful. And then I think when you’re talking about some of the pricing has been taken so far this year. I may have misheard this, but it was that, it’s about, or at least 6% so far this year.

And does that not include some of the Food Service pricing?.

41:07 No, let me try to clear that up a little bit. One point that Dan made was the price increases we took, last year in hindsight, we probably should have been more aggressive.

Those are probably on average 3% to 4%, call it the price increases that we’ve taken at Icee already and the ones that we are in the process of taking on the Food Service retail J&J side of things.

41:40 We’ll be call it double that again the specifics are different based on customer and product and that sort of thing, but kind of just thinking averages. But that’s the magnitude of not just us what everybody in the industries having to look at is as costs have gone up double-digits.

And so, that’s why we keep emphasizing as we get through that, you know in this quarter, along with the other things that we’re doing. We feel really good about, one we have the sales where you want it, and growing it, we’ve got great programs, new innovation and as we get the margins backup, we feel really confident about the back half of the year..

42:28 Thanks, that’s helpful. And then structurally the retail supermarket business is in a lot better place than it was in calendar 2019.

How much of the base that’s increase do you think will hold going forward? And where do you see maybe opportunities to hold that base or expand a little bit more?.

42:47 We’re encouraged by retail. We feel like we’ve got some really good things going on in that group. We’ve got some great products, some good introduction to even some newer products. We feel like we can hold on to where we’re at today and potentially grow that.

We have some good new distribution happening with one of the largest mass merchandisers out there with our frozen novelty group and the Dogsters specifically, but we’re really excited about what’s happening in retail and don’t expect that dip its nose anytime soon..

43:25 And then just a last one for me, in terms of capital allocation, obviously your balance sheet is incredibly strong.

Is there anything you’re thinking about in terms of strategies for deploying some of that capital? And then I don’t know if you’ve talked about this before, but is there potentially a leverage range that you’d be thinking about if potential acquisitions comes direct?.

43:50 Well, we are fortunate to have a really strong balance sheet and we’ve worked really hard to have that type of thing and we want to continue to be vigilant in the way that we look at it.

We’ve looked at all aspects of what to do with that cash, but probably our biggest interest is some type of acquisition out there and we’ve been really active on that front.

44:14 Ken and I over the last three months or so and feel like we’re storing up some pretty good opportunities and hope that would be the area that we would be able to use that cash. Ken want to touch [or add-on] [ph]..

44:30 Yes. The other thing, Ryan you’re seeing or see it even on the financials this quarter is we’re investing even more in our plants, you know, and that’s, we mentioned four new lines coming in, those lines are all focused on core product areas, whether it’s frozen novelties churros, pretzels, and those will improve efficiencies and innovation.

There’s three other lines coming in, in Q1, Q2 next year. And then – so that pipeline of things that we need to do to get better and get more automated we’re investing in. So, we’re using money for that. 45:10 Dan mentioned, we’re very aggressive in looking at the acquisition opportunities and I think that’s just a matter of time.

So, yes, we’re maintaining cash for that. In terms of leverage, I don’t know, those specific number out. But we have, you know, we have a clear support from the Board that depending on the opportunity if we need to go, leverage the balance sheet a bit, you know, we can go do that..

45:45 Great, thanks so much. That’s it from me..

45:48 Thank you, Ryan..

45:48 Okay. Give me a minute here, I have to name this line. Okay, and this call is from Robert Costello. Go ahead please..

46:30 Hello..

46:31 Good morning, Robert..

46:32 Hi, I have a question. Number of years ago, Jerry outlined where he thought the best growth opportunities percentage was in Food Service.

And with your expansion of your product lines that you mentioned on CapEx, is that continuing? Could you be a little more specific on what you think, where you are reinvesting the money for the future growth is coming from what areas of the company?.

46:57 Yes. Robert when we’re talking about Food Service, as I mentioned earlier, we’re seeing great growth in our core products. Core products meaning the pretzels, the churros, and the frozen novelties and as we’re looking at lines of expansion right now, we’re looking at the opportunity of being able to expand our production on that core.

I still believe to this day, if that was Jerry’s answer in the past with pretzels and churros and frozen novelties, if that’s how he answered it before, I would tell you, I still believe today that that’s our biggest opportunity for growth right now..

47:33 Right, with the CapEx budget, is there any change that you’re anticipating with the inflation versus the beginning of the year versus now in your cost? And what is going to cost you did expand the product line or is it pretty much the same as you anticipated?.

47:49 Well there is some slight inflation in that. Most of the ones that we’ve approved, we locked in on the pricing for that – for those lines, but I’m sure there’ll be some if things don’t change. I’m sure, there’ll be some inflation that will go along with the lines as we start to put them in..

48:09 Yes, the other thing, Robert to keep in mind is, you know, and we’ve mentioned this before, we have a capital committee and so each of these investments go through rigorous review, strategic fit, operational and then financial modeling and within each of those.

You know, we don’t make these decisions unless we believe very strongly that they’re going to drive accretive returns. So that level of rigor is behind a lot of these decisions, as well as investing, you know, putting the lines in the right places, which are really focused primarily on our core products..

48:54 All right.

Two quick questions on the churros you mentioned, new product lines, could you be more specific, is it a new product category or how are you anticipating doing this?.

49:05 We’re seeing great growth today in the churros business and that’s one of the areas that we’re going to continue to look at potential new lines to be able to keep up with that and maybe even some regional production, I’ll call it, so that we’re not things across the country that we’re making them in the spots where they’re selling them, but we’re seeing some great growth when it comes to churros and good demand out there with customers..

49:37 Last question, your cash, with interest rates slightly rising over the year, what do you – what is the cash invested specifically?.

49:50 Well, most of it is in very liquid cash money markets. There is still some bonds that are older that most of those are maturing like most every other company given where rates were over the last year to 18-months, we’ve been waiting to see what the market does.

And so, now the rates come back up, we’re evaluating that option of investment along with using that money for capital, using that money for dividends, using that money for acquisitions..

50:27 Right, but you don’t have it in bond funds right now, is that the case, or you have which have been cash and individual bonds?.

50:34 The majority of it is in cash and very short-term liquid. There is only – probably, I don’t know 20 million to 30 million that’s in corporate bonds that we’ve had for a number of years that most of those I think are maturing, probably in the next 12-months..

50:55 All right, thank you..

50:57 Thank you, Robert..

51:00 Okay. And we have Todd Brooks again.

Did you have another question?.

51:07 Sure I did..

51:08 Okay, go ahead..

51:10 Thank you.

Just want to follow-up and see if we’re to the point where some of these efficiency opportunities are clear enough that, Ken, can you start to manifest total savings from efficiency efforts that the company is targeting or are there any bigger projects in here where you can maybe size the targeted savings? So that we can look at these costs offsets against, what could be some persistent inflationary pressures?.

51:43 Yes, Todd, just to reiterate what I’ve said a little bit ago. The one thing that gives me more confidence than I’ve ever had in these calls is these plans are very specific.

I mean, you know our operations, supply chain leaders have done a great job of really putting very concrete things together and laid out by month, they’re laid out by quarter. So yes, there is a lot of realness to that. 51:43 We’ve mentioned before in the areas of distribution.

On an annualized basis, Todd, once we move our logistics management this third-party leverage their capability, technology, there is a conservative $4 million benefit there and that’s an annualized number. 52:39 As you look at like procurement, we’ve got a number of initiatives in place there that once those start to bear fruit.

You know, we think there is low single-digit million dollar opportunities over the next few quarters. There is some work, we had to go to tie together, but those just give you some high level numbers, but the plans are specific in terms of ownership, in terms of estimates, in terms of timing.

And we’re just really getting that going in terms of launching those and initiating this..

53:24 Todd, I’d just add to that, we’re focused on distribution, we’re focused on procurement, R&D, production even regional production, as I talked about earlier, and pricing and really encouraged by what we think that is out there in those efficiency side. So, as the year progresses, we feel really comfortable with that..

53:48 That’s great and then just a final one from me, since we have Lynwood available on the call, I’d love to get your thoughts on the brands being a more recent arrival to J&J? And thoughts on looking at this portfolio and the ability to really extend these brands to start to drive a little bit more of a new product or a product extension engine to help enhance the revenue growth rate over time? Thanks..

54:17 Todd, that’s a great question. Lynnwood is sitting right here next to me and anxious to be a part of this. So, Lynwood I’ll turn it over to you..

54:23 Yes. Hi, Todd. Thank you for getting me involved. I appreciate it.

We have a lot of confidence in these brands, in our core brands and the ability to stretch these brands into some new spaces, starting with Icee and its ability to extend further into Food Service to stretch and innovate in novelties or novelties continue to be a promising overall category.

54:51 We have a lot of confidence in SuperPretzel and just inherent strength of that brand across channels both Food Service, as well as retail. And we see the innovation opportunity in retail to continue to be a positive space for us in our pretzel bites, followed by up pretzel nuts later in the year.

55:15 Then when you get further into our novelty brands, we have brands like Whole Fruit, which has just tons of upside fantastic brand, big distribution outside. Dan mentioned Dogsters and with Dogsters we’re seeing green shoots as we speak with brand new distribution with some of our largest customers.

Honestly, I think the upside on Dogsters in the blooming pet industry space is just enormous. 55:50 The last one, I’ll call out is Luigi’s, where we have leadership in the Italian Ice category. There is a lot left to do with Luigi’s and it’s not just about expansion, so it’s about growing into new spaces like a natural place for Luigi’s is Gelato.

So, we have a lot of confidence, that’s just a few top line thoughts. I’ll leave it there, Dan, anything to….

56:16 No, you could just touch on Gelato a little bit more if you want to. We haven’t mentioned that yet, that was a good time to introduce that..

56:21 Yes, it’s a fantastic product. I can tell you, it’s just a natural fit. It’s a real genuine Italian Gelato, it’s consistent with that brand’s positioning and we’re launching. We’ve been launching three flavors as early as next month in March. So, we’re very excited about that..

56:43 I’m very hungry listening to it. So, I can’t wait to get my hand on it..

56:49 I guess [Indiscernible]..

56:51 Yes, I do. Thank you. Thank you all for the time and appreciate it..

56:56 Thank you, Todd, really appreciate the questions..

56:57 Thank you, Todd..

57:00 Okay. And at this time there are no more questions in the queue..

57:06 Great. Well thank you everyone for joining us on the call today. We appreciate your interest and continued support and look forward to updating you on our progress during our second quarter call. Thank you very much and look forward to speaking with you soon. Have a great afternoon..

57:23 Thank you. Ladies and gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect..