Welcome to the J&J Snack Foods Fourth Quarter Earnings Conference Call. My name is James, 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] And also note, this conference is being recorded. I’d now like to turn the call over to Norberto Aja, Investor Relations. Norberto, please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining the J&J Snack Foods Fiscal 2021 fourth 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. 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, our anticipated financial performance, supply constraints and the expected impact of COVID-19 on the business. 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, identified by forward-looking statements. Factors discussed in our annual report on Form 10-K for the year-ended September 26, 2020, 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 at the date of this call. 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. In addition, we may also reference certain non-GAAP metrics, including adjusted EBITDA which is reconciled to the nearest GAAP metric in the Company’s earnings release, which can be found in the Investor Relations section of our website at jjsnack.com. With us on the call today are Dan Fachner, Chief Executive Officer; Ken Plunk, Chief Financial Officer; [Technical Difficulty], our Chief Operations Officer of ICEE. Joining remotely today are Marjorie Roshkoff, our General Counsel; Lynwood Mallard, our Chief Marketing Officer; and James Hamill, Corporate Controller. Following management’s prepared remarks, we will open the call for your questions and answers. 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.

Thank you, Norberto, and good morning, everyone. Thank you for joining us today. Let me first and foremost thank the entire J&J Snack Foods team. We’ve all been through a lot these past 18 months, including on a personal level. And throughout it all, our team has delivered for our customers and partners. You’ve demonstrated dedication and resilience, and you’re the reason for our success. So, thank you very much. Taking a quick look at our results. We are pleased with the strong finish to the year and the positive trends we see across our business, including exceeding pre-COVID sales levels in the fourth quarter. This was accomplished despite an incredibly challenging operating environment due to the rising costs across supply chain, including commodities, logistics and wages. While fiscal 2019 was one of our strongest years, net sales for the fiscal ‘21 fourth quarter increased 4% compared to the same period in fiscal 2019 driven by a 6% rise in our Food Service segment and a 29% growth in our Retail segment as traffic across many of our customers, venues and outlets continue to rebound. On a year-over-year basis, Q4 ‘21 net sales of $323.1 million increased 28%. Gross profit as a percentage of sales was 28.4% in Q4 ‘21 compared to 21.4% in Q4 ‘20, reflecting the operating leverage benefit of increased sales, favorable product mix and corresponding margin efficiencies. Despite industry-wide freight and distribution cost increases, strong top line growth drove a 543% rise in operating income, a 187% increase in net earnings and a 69% increase in adjusted EBITDA. And our adjusted EBITDA margin of approximately 12% improved 293 basis points over the prior year period. As it relates to our three business segments, let me begin with Food Service. This segment represented approximately 62% of our…

Thank you, Dan, and good morning. As Dan laid out, we delivered strong results in the fiscal fourth quarter which reflects the continued success of our operating strategies and the power of our unique brands as well as improving trends in the microeconomic environment and across the majority of our customer segments we serve. Revenues for the fourth quarter of fiscal 2021 increased by a healthy 28% to $323.1 million, resulting in a 12% increase in full year fiscal 2021 revenue growth. Breaking revenue down, Food Service revenue grew 35% to $199.8 million, led by 121% growth in churros. While the largest sales contributors in Food Service, bakery and soft pretzels, enjoyed a 10% and 62% growth, respectively, versus Q4 of fiscal 2020, frozen novelties grew 39% for the quarter. Retail supermarket revenue was down just over 9% as flattish soft pretzel sales were offset by low-single-digit declines across frozen novelties and a 16% decline in biscuits. Retail was lapping a 41% sales growth in last year’s fourth quarter as consumers stayed at home. Regarding our third segment, Frozen Beverages, we saw revenue increased by 46% versus Q4 of fiscal 2020 as flattish sales in repair and maintenance and machine sales were bolstered by a 104% increase in beverage sales from $23.4 million to $47.8 million. This led to a gross profit of $91.7 million or an increase of over 70% compared to the previous year period and a gross margin of 28.4%, an improvement of over 700 basis points over Q4 of fiscal 2020 and reflecting both, a healthy top line growth as well as the leverage we are achieving across our cost of goods line. Moving down the income statement. Total operating expenses increased $50 million -- sorry, increased from $50 million to $66.5 million, reflecting increases in…

[Operator Instructions] And our first question is from Ryan Feld (sic) [Bell].

Good morning, Ryan.

Hi. Ryan Bell. Just a quick question. Growth during the fourth quarter came in strong and managed to exceed the same during 4Q ‘19. Can you talk about your perspective about how you see each of the business units performing during fiscal 2022? Expecting some improvement for Food Service and Frozen Beverages, but could you also maybe touch on where the foot traffic is relative to historical levels?

Sure. Ryan, we feel really good about our momentum going into 2022. If you look at all 3 of the business units, the ICEE, the beverages side, but I guess the ICEE side of it, we like what we have in the pipeline and what we’ve installed and some good ones right behind it. I might even mention one of them, we’re in test with Mo’s right now, and that looks really strong for us. So we like where that’s heading. We like the recovery on the beverage side. In regards to the service for a full year, where when we started off the year, we were kind of cut off on the service side. And we like where the equipment piece is heading with some potential new customers with that, too. So feeling good about the ICEE piece of it. The Retail, we believe we’ll have some really good momentum, like I said in my opening statement. We like some of the new products that we’ve released. We’re encouraged by the growth in the Dogster brands. The Luigi brand looks strong. And we have a couple of new product flavors coming out this year that we’re really encouraged by. And the Whole Fruit continues to grow for us. And then, on the Food Service side, very pleased with that as we opened up that to begin with. We have some really great new customers coming on line, and we see the traffic continuing to come back. And some of -- great growth in our core products like churros and pretzels which is nice to see, with some new customers coming up. So, we’re feeling good about all three legs as we enter into 2022, with some chances for some opportunity sales, too, as the theaters continue to come back and look strong. For example, when you’re talking to the theaters, they had a great October and believe that their best six weeks are yet to come. And so, we’re encouraged by what’s happening there.

Thanks. And do you have any insights that you could offer what’s happening quarter-to-date, specifically in Food Service and Frozen Beverages, maybe sort of what’s happened in October? And if you had any information about where November is heading?

Ken, do you want to answer that?

Well, I think what I would say about October is one of the things we were clear on in here is the theater industry is still recovering, Ryan. As we got out of Q3, COVID kind of bore itself a little bit again there for a few weeks. We’re better off than we were back say in early September. And the early indications in October, as we’ve seen better theater releases, is that business is starting to look a little bit more promising, even than probably what we would have seen 30 to 45 days ago. And we had two meetings with leading theater companies in the last 30 days or so, and they were also very optimistic about that. So think about -- I made a point that I think frozen continues to gain ground on pre-COVID levels. Really the only thing holding it back is theaters. We’ve gone and grabbed new business in QSR. When that theater business comes back, that’s going to really enable us to really move frozen faster. And so, I would say coming out of October that is one area that we’re very excited about. And when you look at amusement, you look at QSR, convenience, sports arenas, people are getting out. They’re getting out in droves, they’re getting out in more volume, and they’re spending more. So, October has us feeling pretty confident as we go forward into 2022.

And in terms of some of the inflationary pressures and some of the potential offsets that you could do as a result of that. You’d alluded to taking some pricing. Any details you can provide on the pricing side in terms of magnitude and sort of how [Technical Difficulty]

I’ll add a little color to it and then let Ken speak into it as well. The inflationary pressures are real. When it comes to commodity and labor and distribution, they are real. And I know everybody on the call knows that we are working really diligently to keep up with those and to monitor those and make sure that we are doing the right things internally, so that we are making sure that we deliver the margins that are important to us. So, we feel like we’ve been out there with one price increase this year already, and we’ll probably look at a secondary one coming up in our second quarter or first quarter of this coming year.

Yes. I would add. I know those on the phone, on yourself, you read every day what the industry is facing. Two more articles I read this morning, somebody said they’re taking significant price increase. Another one mentioned double-digit increases in distribution. Our distribution costs have gone up over 30% since 2019. And they’ve gone up 20% on an equivalent basis since Q3 of this year. So, that has everybody in the industry continuing to sharpen its pencil, and we’re doing the same thing. And we’re looking at it really on both ends. We’re looking at what we need to do in terms of price relative to each customer segment, relative to each channel, and then, we’re also looking on the cost side. And Dan alluded to various initiatives in logistics. And we talked about, even on this call before, the investments we’re making in automation. We’ve invested in six or seven new lines over the last year. Some of those are still being built out. But those will help us drive efficiency. And then, we’ve also centralized our procurement organization. And they’ve got a kind of go-get as it relates to cost savings. They’re already starting to find $2 million, $3 million or $4 million in things like buying gloves centrally. So, we’ve got a pretty hard-pressed focus on both, the pricing side and the cost side. And the other thing Dan and I were talking about in this meeting is the first thing we focus on, particularly coming out of COVID, is to get sales right, to make sure we got product, to make sure we can produce and provide for the demand out there. And we’re obviously seeing that start to happen as sales start to exceed ‘19. That’s going to put us in a really good position as we drive through some of these margin initiatives to really start to see that come to fruition probably later in Q1, early in Q2 of 2022.

And I’m sorry, we dropped Ryan off the question queue. [Operator Instructions]

Maybe put him back in queue and move on, if you want to, James?

We have Ryan here.

Okay.

Ryan, did you hear that?

I did, I did hear that. Thank you. Just overall, as we’re balancing all the moving parts, obviously, there’s a lot of them, more volumes coming back for Food Service, Frozen Beverages. How are you just thinking about overall gross margins for fiscal 2022? I know you normally don’t provide guidance, but just given the full -- the degree to which there are so many moving parts in terms of all the cost impacts, parts of your business coming back on line and sort of the moving parts there, would you be able to provide any context?

Yes. Only that we mentioned before. I mean, our goal is to run a business, is kind of in that 30% range. I mean, it does fluctuate for us based on seasonality in the quarter. But, that’s kind of what we’ve got our eye on. We’ve got to work through some of the things I just went through, to grab some of that rate back. But, we’re going to get some of that leverage coming through higher sales as well. But, that’s kind of the ultimate goal. And again, you’ll see that if you look quarterly. Seasonality plays a role in that. But, that’s what we’re focused on.

[Operator Instructions] And we have no more questions.

Okay. Well, listen, I want to thank everybody on the call. We appreciate your interest in the J&J Snack Foods Company. We are encouraged by our numbers and where we’re heading. And we look forward to talking to you next quarter. Thank you very much, and you have a great day.

Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for your participation. You may now disconnect.