Operator:

Hello, and welcome to the Rocky Mountain Chocolate Factory Third Quarter and 9 Months of Fiscal 2015 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. Some of the statements made during this call may be considered forward-looking statements that involve a number of risks and uncertainties. There are several factors that could cause actual results of Rocky Mountain Chocolate Factory to differ materially from these forward-looking statements. These factors include, but are not limited to, the potential need for additional financing; the availability of suitable locations for new stores; and the availability of qualified franchisees to support new stores; customer acceptance of new products; dependence upon major customers, economic and consumer spending trends and such other factors listed from time-to-time in public announcements and in Rocky Mountain Chocolate Factory's SEC reports. In addition, please be advised that the financial results for the fiscal periods presented in this call do not necessarily indicate the results that may be expected for any future quarters or the upcoming fiscal year. To Rocky Mountain Chocolate Factory's knowledge, the information related in this conference call is correct as of the date of its transmission, and the company does not undertake any obligation to update this information in the future. I would now like to turn the conference over to Franklin Crail, CEO. Mr. Crail, you may begin. Franklin Crail: Thank you. Good afternoon, everyone, and welcome to Rocky Mountain Chocolate Factory's third quarter and 9 months of fiscal 2015 conference call. I'm Frank Crail, President of Rocky Mountain Chocolate Factory and with me here today is Bryan Merryman, the company's Chief Operating Officer. We're going to start the call today with Bryan giving you a summary of both our third quarter and 9 months of fiscal 2015 operating results. And at the conclusion of this presentation, we'll be happy to answer any questions that you might have. So at this time, I'd like to turn the call over to Bryan. Bryan Merryman: Thanks, Frank. I would also like to welcome everyone to our call today. I'm going to start with some highlights from the first 9 months of the fiscal year and then get into some details in the quarter and the 9-month period. For fiscal 2015, our non-GAAP adjusted net income and diluted earnings per share increased 31% in the third quarter, a sequential improvement from the 28% and 25% increase in non-GAAP adjusted net income and diluted earnings per share reported in the second quarter. Our year-to-date non-GAAP adjusted net income and diluted earnings per share increased 9% and 8%. Despite the impact of harsh winter storms upon customer store traffic in the first quarter and higher chocolate prices in the first 9 months of fiscal 2015, we continue to remain optimistic that revenue and non-GAAP adjusted net income and diluted earnings per share for the full year has a potential to increase to record levels. Our adjusted EBITDA, a non-GAAP measure that does not include depreciation and amortization, equity compensation expense and impairment and restructuring charges, increased 51% in the third quarter of fiscal 2015 and increased 22% year-to-date. Adjusted EBITDA from our frozen yogurt operations increased 210% from $477,000 in the 9 months ended November 30, 2014 to $1,480,000 in the current year, validating expectations that the transactions consolidating our yogurt operations would create scale and a profitable company capable of becoming a consolidation force in the frozen yogurt industry. We experienced further international progress with the recent signing of license agreement for the Republic of the Philippines, as well as the execution of the license agreement for the province of British Columbia, Canada by a licensee of U-Swirl, Inc. During the first 9 months of fiscal 2015, we purchased over $2 million of our common stock under a previously announced repurchase authorization. We finished the quarter in excellent financial condition with $7.9 million of cash in the bank. As a result, on November 12, we paid our 46th consecutive quarterly cash dividend, and increased our quarterly cash dividend 9% from $0.11 per share per quarter to $0.12 per share per quarter, and we reset the buyback authorization to $3 million. I'll now get into some of the details from the 9 months. Total revenues for the 9 months increased 7.9%. This was driven by factory sales increase of 2.7%, primarily due to a 33% increase in shipments of products to customers outside our network of franchise retail stores, partially offset by 6.2% decrease in the average number of domestic Rocky Mountain Chocolate Factory franchise stores in operation and a 2.1% decrease in same-store pounds purchased. Royalty and marketing fees increased 33% -- 33.3% in the first 9 months. This was driven by increased franchise units in operation resulting from acquisitions and consolidation of our frozen yogurt operations. Franchise fees for the first 9 months increased 22.9%, primarily the result of 2 international license agreements and the sale of certain company-operated stores and the associated franchisee fees. Retail sales were approximately flat, decreasing 0.8%. This was due to a change in the units in operation caused by the sale of certain company-owned stores and a 0.2% decrease in company-owned same-store retail sales. Franchise Rocky Mountain Chocolate Factory same-store sales were up 1.5% in the first 9 months. Factory adjusted margins decreased 90 basis points, primarily due to higher commodity costs; specifically, cocoa and dairy products have been near historical highs throughout the 9-month period. Adjusted EBITDA was $6,772,000 versus $5,574,000. Non-GAAP adjusted net income was $3,344,000 versus $3,066,000. Non-GAAP adjusted diluted earnings per share increased 8% at $0.52 in the current year versus $0.48 in the prior year. Net income was approximately $2,551,000 compared to $2,906,000. Fully diluted GAAP EPS was $0.40 versus $0.45. We continue to generate excess cash flow. On December 12, the company paid its 46th consecutive quarterly cash dividend of $0.11 per share. The company finished the 9-month period in excellent financial condition with a 2.2:1 current ratio. We opened 34 new locations in the first 9 months, including 21 U-Swirl locations, 4 Cold Stone Creamery co-branded locations, 7 international locations and 2 domestic Rocky Mountain Chocolate Factory franchise openings. With that, I'll get into some detail on the third quarter. Total revenues in the third quarter increased 13.8%. Factory revenues mirrored total revenues and increased 13.8% as well. This was driven by a 105% increase in shipment to customers outside of our system of franchise stores, and a 0.3% increase in same-store pounds purchased by our domestic franchisees. Retail sales decreased 11.3%. This was from the acquisition of 4 company-owned locations, offset by the closing and/or sale of 5 locations. Same-store sales for the quarter at company-owned locations increased 2.8%. Royalty and marketing fees in the third quarter increased 19.4%. This was due to an increase of 60.7% in domestic franchise stores from U-Swirl acquisitions, a same-store sales increase of 1.9% at domestic franchise Rocky Mountain Chocolate Factory units in operation, and partially offset by a 5.8% decline in the number of domestic franchise Rocky Mountain Chocolate Factory units in operations. Franchise fees in the quarter increased 422%. This was due to the execution of 2 international license agreements and the associated license fees. Factory margins increased 110 basis points in the quarter, to 31.9% versus 30.8% in the same quarter last year. This was due to product mix shift to higher margin products, partially offset by higher commodity costs; specifically, cocoa and dairy have been near historical highs. Adjusted EBITDA was versus $2,078,000 versus $1,381,000. Non-GAAP adjusted net income was $1,099,000 versus $841,000. Non-GAAP adjusted diluted earnings per share increased to $0.17 in the quarter versus $0.13 in the prior year. Net income was approximately $962,000 compared to $699,000. Fully diluted GAAP earnings per share was $0.15 versus $0.11. We opened 6 stores during the quarter, 3 of those were U-Swirl stores, 1 Cold Stone co-branded store and 2 international openings. We continue to generate excess cash flow in the quarter and we finished the quarter with approximately $7.9 million in cash. With that, I'll turn it back over to Frank. Franklin Crail: Thanks, Bryan. Well, at this point, we'll open the conference for any questions that someone might have. Operator: [Operator Instructions] And our first question comes from Matt Karr with Symons Capital. Matthew Karr: Just a first quick housekeeping question. Going through the release, the third quarter pretax income number. I'm not exactly sure what's going on here, but I think that there's a calculation error in the press release. It appears that the other net expense is not being deducted from the pretax income, and I just want to make sure I'm not missing anything here because the math doesn't add up. Bryan Merryman: So income from operations in the press release for the 3 month period? Matthew Karr: Yes. Bryan Merryman: It is $1,554,000. Other net is $45,000. Matthew Karr: Yes, I'm talking about income before taxes? Bryan Merryman: $1,509,000? Matthew Karr: Yes, yes. I'm getting $1,464,000. Bryan Merryman: Well, you're not doing it right. Matthew Karr: Okay, fair enough. Second question I guess would just be the big number in outside network sales. Would you guys be willing to comment at all, is that chocolate bars? What exactly is the explanation for that pretty big numbers in new customers chocolate bars, would you be willing to comment on what that is? Bryan Merryman: It's a variety of products, and it is new business and it's existing customers. It's not just chocolate bars. In fact, chocolate bars are a very small percentage of that number. Operator: The next question comes from Bill Chapman with Morgan Stanley. Bill Chapman: On the U-Swirl, could you give us more understanding about your -- the growth potential here in the short and medium term? Bryan Merryman: Happy to address that, Bill. It really depends on future acquisitions and how fast U-Swirl can grow. We've been through -- really we've been through opportunities to acquire most of the larger players in the industry, not all of them, but most of them, and haven't done any recent acquisitions because in the process that was run to sell those companies, the valuations that we believe were appropriate, management and management advisors for those companies thought was too low. And so right now, we don't have any immediate plans to do anymore acquisitions of a significant nature until we see valuations come down further. So I still think U-Swirl can be a major consolidator of frozen yogurt industry and time is on our side, but we're going to be very patient as it relates to future acquisitions. Bill Chapman: Is your cost reduction initiative completed? Bryan Merryman: It was primarily completed in the third quarter. There'll be some further cost reductions that are not too material that will happen before the end of the fiscal year. Bill Chapman: Okay. Are we talking about $1 million north of that or south of that on the total cost reductions when you're done? Bryan Merryman: We haven't disclosed that number but when we report our fiscal year, we will disclose that number, Bill. Operator: The next question comes from Neil Simpkins [ph], a private investor. Unknown Shareholder: I'm Neil Simpkins [ph] here. If my math is correct, it looks as if the drop of 14% in the number of yogurt stores that you have, and if that number is correct, is that a trend we can look forward to in the upcoming quarters in terms of store closing? Bryan Merryman: The nature of the frozen yogurt industry is that the industry has experienced market saturation and declining same-store sales. The result is that many lower volume stores may face economic pressures causing them to close. When we evaluate potential acquisitions, we understand this trend and reflect that in the price we're willing to pay. So these closures that we experienced in the third quarter were expected and anticipated. That level of -- what the level of closure will be in the future, don't have an exact number for it but we will continue to see closures in our system and in the industry. Unknown Shareholder: A follow-up to that, do you have -- or had, I think, a franchisee or licensee in the Midwest, I believe Iowa, who closed a number of stores, including one of the top 20 best performing stores from a revenue standpoint. My question is at what point does the company acknowledge that there's been an impairment to franchisee, licensee and royalty payments and need to take a charge to account for foreclosings and the loss of that future earnings [ph] stream to the company? Bryan Merryman: We conduct impairment tests annually or in the event of an impairment indicator as it relates to goodwill. Franchise rights are considered to have a 20-year life and we conduct an impairment test annually or in the event of an impairment indicator. We do not believe we have an impairment of goodwill on our franchise rights currently. Operator: Our next question comes from David Lupke [ph] with J.P. Turner. Unknown Attendee: For the record, I'm a registered representative not an analyst. The price of cocoa has been a headwind for some time, it looks like it will continue to be, but one thing I didn't realize until reading the press release is the transportation costs were down. And of course, since the end of November, the price of fuel has gone down even more. Can you comment on the significance of that, those 2 headwinds and tailwinds? Bryan Merryman: Well, I'll just say that cocoa continues to be high, dairy products continue to be high. Commodities, in general, that we experience, tend to move in different directions. One year almonds will be up, the next year they will be down. But as a basket, we don't expect that transportation costs -- our transportation costs, about 1/3 of those costs are fuel. So looking forward that's definitely going to help us if commodities go down and chocolate and dairy prices come down from their highs, and we have low transportation costs that could be materially positive for the company. However, just fuel alone, I'm not anticipating that, that will move the needle that much next year. Operator: The next question is a follow-up from Matt Karr with Symons Capital. Matthew Karr: Sorry, about that on the pretax income question, the presentation just threw me off a little bit, and now I'd remembered looking back at you guys' releases that presentation had messed with my model before. So I apologize, your number is correct. That's my fault. But I wanted to ask about, for clarification, question on the yogurt store closures. Just kind of some back of the envelope map from, call it, end of third quarter 2014 to the current quarter presentation. Considering like the large jump in yogurt stores between those 2 quarters, it looks around on a net basis probably around, like, a 17% reduction in overall yogurt stores from period-to-period, starting with the fourth quarter of 2014 to present, and you guys have said before that maybe as much as 30% of the yogurt stores that you acquire in any given deal might be closed. So would you be willing to comment and say, I know that you're not willing to talk about the pace of store closures, but would you maybe be around halfway done through the closures of the stores that you have acquired since that point, does that question make sense? Bryan Merryman: It make sense, but I'm not going to elaborate any more than we have in terms of what our expectations are. I think, I actually said, 30% to 40% of the stores in any given deal could close and that we're pricing that in. For the first 9 months, we opened 21 yogurt stores and we closed 44. So that net loss of stores, whether that continues or not, we don't know, or exactly how that plays out quarter-to-quarter, we don't know. Operator: The next question is a follow-up from Neil Simpkins [ph], a private investor. Unknown Shareholder: I'll make this brief. It looks like in the prior couple of quarters, there was some meaningful, if not, very high percentage of stock buyback done by the company from the management team. And can you comment on what levels of stock we can expect management to continue to sell back to the company with the stock buyback plan? Bryan Merryman: In previous authorization of $3 million for buybacks, $1 million of that was designated to be allowed for management to sell back to the company. The board designated $1 million of that buyback. I have no comments on insider sales in the future. Unknown Shareholder: So has that number changed or is it still a $1 million cap? Bryan Merryman: There is no number related to the new $3 million that allows management to sell back for the company. Unknown Shareholder: So theoretically it could be a very large percentage of it, is that correct? Bryan Merryman: No, there's no percentage of it that is designated for management to sell back to the company. The new $3 million authorization does not have a feature where management can sell back to the company. Operator: We show no further questions at this time. I would like to turn the conference back over to management for any closing remarks. Franklin Crail: Thank you, operator. Again, thank you very much for attending our conference call. We look forward to talking with you again at year end. Have a good day. Thank you, again. Goodbye. Operator: To access the digital replay of this conference, you may dial 1 (877) 344-7529 or 1 (412) 317-0088 beginning at 5:45 p.m. Eastern Time today. You'll be prompted to enter a conference number, which will be 10058178. Please record your name and company when joining. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.