J & J Snack Foods Corp (JJSF) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the J&J Snack Foods third quarter 2008 earnings conference call. At this time, all participants are in a listen-only mode. Please note that this conference is being recorded.

I will now turn the call over to CEO Mr. Gerald Schreiber. Mr. Schreiber, you may begin.

Good morning, everybody. I'm Gerry Schreiber, and with me today is Dennis Moore, our CFO, Chief Financial Officer and Senior Vice President, Bob Radano, our COO, Mitch Melchiorre, our Executive Vice President and Ted [Shepherd].

I'd like to begin with the obligatory statements. The forward-looking statements contained herein are subject to certain risk and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements which reflect management's analysis only as of the date hereof.

We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof.

Before I begin results of operations, I just want to make a statement as CEO and as a major shareholder that I am getting a little bit tired of reporting less than upbeat news, and I am fully committed and promise to change that just as quickly as possible and hopefully, in this fourth quarter that we're in.

In any event, results of operations, nets sales increased 9% for the quarter and 11% for the nine months. Adjusting for sales related to the acquisitions we have made over the past year, sales increased approximately 7% for the nine months. It's noted that the acquired sales did not benefit sales in this quarter compared to last year.

For the quarter, our net earnings decreased by 13% to $10.8 million, $0.57 a share, from $12.5 million, $0.66 a share a year ago. For the nine months, our net earnings decreased by 23% to $0.88 a share from $1.14 a share in the year-ago period. Our EBITDA for the past 12 months was $72.2 million.

Food Service, sales to Food Service customers increased 12% for the quarter and 14% for the nine months. Without the acquired sales of HomAde Foods, Daddy Ray's and WholeFruit and Fruit-A-Freeze, sales were up 7% for the nine months. Pretzel sales were up about 1% in the quarter and for the nine months as unit sales were flat to declining slightly.

Italian Ice and Frozen Juice Bar dessert sales increased 13% for the quarter and 9% for the nine months. Even without the acquired sales, sales were up 6% for the nine months.

Churro sales were up a strong 20% in the quarter and 15% for the nine months, representing continued growth with that product, as well as some new variations.

Bakery sales, excluding HomAde and Daddy Ray's, were up 25% in the quarter and 12% for the nine months. HomAde sales, primarily Biscuits, were down 16% in the quarter and Daddy Ray's were up 19%.

Retail Supermarkets, sales of products to Retail Supermarkets were down 1% for the quarter and up 9% for the nine months.

Soft Pretzel sales were up 7% for the quarter and 13% for the nine months, although case sales were down 3% in the quarter.

Sales of our Frozen Juice Bars and Italian Ices were down 7% for the quarter and up 6% in the first half, 5% without sales of acquisitions.

Icee and Frozen Beverages, which includes Artic Blast and Slush Puppie, Frozen Beverages and related product sales were up 7% in the third quarter and 6% in the nine months. Beverage sales alone were up 7% for the quarter and 4% for the nine months. Most of the Beverage dollar sales increase resulted from a change in program structure for one customer which resulted in both higher sales and higher cost of sales and operating expenses.

Gallon sales were down slightly in our base Icee business in the quarter, with two customers accounting for almost one-half of the 4% decline.

Service revenues for others was up 44% in the quarter and 28% in the nine months with most of the increase to one customer. Sales of drink machines, frozen carbonated beverage machines, were down $2.1 million in the quarter and $1.6 million for the nine months. So as you can see, Icee, which had a very good quarter, most of that was done with managed service revenue and beverage sales, not with one-time equipment sales.

Consolidated, gross profit as a percentage of sales decreased to 31.5% from 34.3% last year and to 29.1% in the nine months from 32.8% a year ago, primarily because we continued to be impacted by the costs of commodities. We were impacted by over $10 million of higher commodity costs in the quarter and $23 million for the nine months. And we expect to be impacted moving forward. We are cautiously optimistic that the year-over-year increase in costs may start to decline in our fourth quarter.

Total operating expenses, percentage of sales, was 1 percentage point lower in the quarter and 1.4 percentage points lower in the nine months due to higher sales volume and better management and control of expenses. Last year, we spent $600,000 on a national sales meeting in our first quarter which we did not repeat this year.

Additionally, advertising expense in our Retail Supermarket business was lower by about $800,000 in the third quarter and $2 million for the nine months.

Other operating income was $687,000 less this year's third quarter which had a negative impact on the comparison of this year's operating income compared to last year.

Capital spending and cash flow, our cash and investment securities balance increased $8.1 million in the quarter. During the quarter, we bought back $1.7 million of our stock and $3.5 million in the last nine months. Our capital spending was $6.5 million for the quarter and we estimated to be in the range of 22 to $24 million for the full year.

A cash dividend of $0.0925 a share was declared by our Board of Directors and was paid on July 3, 2008. Our Board had authorized a million shares stock buyback in February. We have since bought back and retired 135,000 shares. At the end of the quarter, we held $35.2 million of auction-market preferred stocks.

As you may know, the market for this type of asset failed beginning in February, with the result that we do not know when we will be able to access all of our holdings. We have reclassified these investments to the long-term assets on our balance sheet, but we do fully expect that we will eventually be paid out in par, full value, and we continue to receive dividend payments at regular intervals ranging from 7 to 35 days. Two issuers redeemed $10 million of the stock that we held during the June quarter. You will note that Note 10 to our 10Q contains a detailed discussion of these investments and why we are treating them as long-term and why we expect to be paid out at par.

Commentary -- our internal sales growth of 9% this quarter, which is significant and notable, resulted from a combination of price increases, unit volume increases and decreases in reduced trade spending in our Retail Supermarket segment. In Food Service, Soft Pretzels and HomAde Biscuits had significant volume declines, while Frozen Juice Bars, (inaudible) Big Bars and other Bakery items had strong, positive unit growth.

Although sales of Soft Pretzels in our retail Supermarket segment were slightly down in the quarter, they are at a healthy 7% for the year. Case sales of Frozen Juice Bars and Ices were down 16% in the quarter, as we sharply reduced trade spending against these products to improve profitability. In combination with lower advertising expense of $800,000, operating income in this segment improved by $1.4 million in the quarter. We are planning to institute a new advertising campaign beginning early next year, next fiscal year.

Our Icee Frozen Beverage segment continues to experience challenges in its base Icee Beverage business. Our service revenue to others continues to grow. It was up 44% in the quarter and 28% in the nine months following a 23% increase for last year as this continues to be a key component of our growth plans going forward. We recently installed the Frozen Beverage machines for Taco Bell's new Frutista Freeze this past quarter. Hopefully, some of you are aware of it as it's being heavily advertised in campaigns.

We also began small initiatives in the Middle East and in China.

Higher commodity costs, once again, are the big story of the quarter and going forward. The increased $10 million-plus in costs -- increases from a year ago in the quarter and $23 million for the nine months is unprecedented in our 36-year history. We expect commodity costs of this magnitude, more or less, to impact us in our fourth quarter. We implemented an additional round of price increase which took effect in April in an effort to recover the impact of the cost increases. We will continue to balance what is beneficial for our business over the long-term versus the impact of perhaps too aggressive pricing over a very short period of time.

We expect our investment income will be moderately higher over the short-term, as our balance of investment securities and cash equivalents is higher than a year ago.

Our estimated income tax rate jumped to 40% in this year's quarter from 35% in last year's quarter due to a combination of factors this year and last.

We believe we are gradually firming against the complex combination of higher costs that hit us like a big wave the past years or so. We believe, and are hopeful, the major shocks are behind us. In an environment of major financial surprises and writedowns across our financial sectors, our balance sheet is pristine and will remain pristine. We are debt-free and continue to generate cash excess to our needs. Our pipeline of new products from innovation and acquisitions are beginning to flow.

I thank you for your continued interest and would like to turn this back to you for any questions or comments.

(OPERATOR INSTRUCTIONS). Did you want to go ahead with the questions?

Yes, yes, let's go to (inaudible) now.

Okay. And we have a question from Mitchell Pinheiro. Please go ahead.

Hey, good morning, everybody.

Good morning, Mitch.

So a couple of things -- so commodity costs hurt by 10 million in the quarter and I'm looking at a flat gross margin. I presume that --

Mitch, I think gross was -- gross margin was down a little bit.

Okay. I had -- well, I had your overall -- your gross margin, but, yes, I'm sorry, your gross profit -- my apologies -- was essentially flat on a dollar basis?

Right.

So that means that somewhere along the long there, you had pricing and other efficiencies recouped the impact. Could you break down how much was pricing and how much may have been cost efficiencies and other maneuvers to keep costs down?

I was talking about that with Bob just last night and we don't have any real exact hard numbers. We did get some pricing and we have continued to get -- glean some efficiencies, perhaps half and half.

Okay. So if it's like -- I mean, I'm looking here at this quick calculation. If it was all pricing, I think it would up 6%?

Yes, but it wasn't all pricing.

So half and half would mean about 3% pricing and 3% from other? Is that fair?

That's certainly within the ballpark.

Now, I looked -- when I look at some of your commentary as it relates to the Retail Supermarket business, it looks like pricing was up a lot stronger in those channels. It looks like 9 to 10%. Is that -- am I accurate there?

Yes. You took some -- you have -- between the combination of pricing and lower trade allowances, you might be right.

Okay.

And it made it more -- and again -- and this is a comment that we've heard from -- it kind of enhances our belief and support of the brands, the brands having its elasticity of brand value of pricing.

Right. So how concerned are you in the Retail Supermarket with your case sales down 3 on the Soft Pretzel and 16 on the Frozen Novelties? You had alluded that obviously, you're not --

I'm sorry. I'm sorry. Could you repeat that, Mitch? I can't hear you.

Yes, so case sales were down 3% in Retail Supermarket.

Right.

On the Soft Pretzels, 16% decline in the Frozen Novelty. Obviously, some of that had to do with brand support --

Right.

-- from last year and trade promo. Is that -- I mean, 16% is a big number. Is that an anomaly or was the trade promotion just really inefficient last year? And could you talk to sort of that?

I'm going to comment on that and then I'm going to give you to Vince. I want to give Vince to you, okay?

Okay.

But, yes, the trade promotion was very, very aggressive last year, perhaps too aggressive, and if you'll recall, Vince has been on board -- now, it's 13 months. I know that because he says, "Goddamn, it's 13 months I've been here now." And he is wrapping his arms around the sales and the marketing and we're looking at things and we're -- part of what we did was to firm up some of the pricing at retail and took away some of the trade and the other allowances. And the result was profitability. We knew there'd be perhaps a short-term skip on some volume, but we think that over the long-term, we are doing the right thing. Vince?

Yes, I agree with Gerry, Mitch. We were on where I wanted us to be in budget in terms of gross margin and gross profit and profit dollars, and we were very aggressive last year in trade spending, very aggressive. So we pulled that back. We knew we'd see sales decline top-line, but I think we have a much healthier business now and you'll see us be more -- cut the middle a little more in terms of the aggressiveness in trade and make sure we deliver a profit.

How does it have -- does it have any impact with your -- with the retailer? I mean, just they see Frozen Novelty volume down 16%. Is that a factor or how does that play out?

I mean, I think it -- a lot of it in this environment and this is about making money still, so I think it plays a little part in it. And it's not to say we're not doing some aggressive trade commercials. We're doing some. We've just cut back a bit, so it's -- we haven't had tremendous push-back.

Okay. And Gerry, what about on HomAde, what happened in the quarter? Why is that down so big?

Increased competition and perhaps some -- we saw some pricing there too.

Okay.

We (inaudible) that very closely.

So as you look forward in that particular business line, is it going -- are we going to see similar type of declines near term or are there any -- anything that you've done to reverse that?

We're not going to see these kinds of declines going forward.

Okay. On the positive side, Daddy Ray's had a great quarter. What was driving that growth?

It's value channel, Mitch, value channel and we're seeing a lot more traffic in the value channel and we got a good product.

So it wasn't really -- there were no distribution gains, no new accounts, things like that? It was all just basically a strong value channel?

Our business -- when we added Daddy Ray's, for the first time, we began selling to the dollar stores, so to speak. And over the past year with inflation and other concerns and energy, there seems to be more traffic going there. As a matter of fact, Vince is developing a program with some of our other brands that we can pocket-size these for the right size, that we can put some of these other brands in the dollar channel, similar to what Mills and Kellogg's and others have done.

Right. What about -- can you speak to -- as School Food Service is going to start to ramp up here in a month or so, how does that look -- how do you anticipate '09 compared to '08 in Schools?

Bob, do you want to speak to that?

Yes. Hopefully, it'll be a better year and we are -- we have been successful in reformulating our Sweet Stuff, our cookie products, which appeared -- and we just completed a very successful four-day National School Show. And we're also introducing WholeFruit 100% Fruit Juice under our WholeFruit label to schools, so our people are cautiously optimistic about having a much better school year beginning this August.

Okay. Last question, I'll yield the floor. If commodity costs begin -- the increases -- if the commodity cost increases begin to decline in the fourth quarter, does that mean -- and when you combine that with your pricing efforts and other cost-saving efforts, does that mean that the gross margin could possibly expand, or at least flatten out, in the fourth quarter, or is that too much to ask for?

You know what? That's the plan.

Okay. And the only thing that would -- and the monkey wrench in the plan is what, is just that commodity costs spike here and energy continues to go high --

(Inaudible) they all come down or (inaudible) the consumer takeaway would be the one wild card, which we're seeing the convenience store sector -- we're seeing some of the destination type of events and we're seeing people who are slowing in their travel, that might have an impact on takeaway in some of our locations.

Okay. All right. Well, thank you.

Thank you, Mitch.

Our next question is from Bob Costello. Please go ahead.

Hi, Gerry.

Hi, Bob.

With regards to acquisitions, you added the WholeFruit in the last year. Is there any other small bolt-ons that you see in the pipeline coming down in the next 12 months that because of your cash position and what-not that you talked about?

We're looking at things, Bob. We're pleased with the WholeFruit acquisition which was just about a little over a year ago and we think that we're -- that that's starting to really help us expand and it's building its brand awareness. We're looking at a few other things too and as you know, and others know in there, we are --

You're usually a [bomb]. You usually pick things up when the market's in the -- because of your cash position. Is that something now that you see happening?

No, we're not waiting until something has bottomed, so to speak. Right now, we're looking for opportunities that we could fit within our portfolio that fit our strategic plan that our people can embrace.

Right. And with regards to the stock buyback, you authorized a million shares and you bought 100-and-some-thousnand, you mentioned?

Right.

Any reason why you didn't buy more when the stock was down in the 20s?

I got chicken-(expletive) when Bear Stearns collapsed, so what can I tell you? And that's the truth. I pulled back for a couple of days and then we jumped up, but I didn't know what was happening in the financial market and--

Right, well, a lot of people were in that position. You're not any different. The question, locally in the metro area, there was a convenience store that changed how their bakery production for rolls was done, with going from fresh to bake-off that I read about. Is that a trend you see happening more?

I don't -- what particular chain?

It was Wawa.

All right. When you say the bakery roll, what they were using for their hoagie rolls or something?

Yes, exactly.

As a trend, I think what Wawa is doing and looking to provide a fresher product to the stores by having it baked that -- going to frozen and then having it baked that day. Wawa does food service better than any other convenience store chain in the country and they're a terrific partner. We're not making the rolls for them. We aren't involved in the fresh channel process and it's something that they've just initiated, I believe, this February. And their intent is to provide their guests a fresher product overall and we'll see how that works.

But it doesn't affect you directly with the company at all?

No, we have been providing them with fresh bakery goods, bagels, [fancies], doughnuts, muffins, pretzels on a continual basis for several years now and we're still doing the same thing. We're just using some of our experiences and expertise to help them with the challenges of the hoagie rolls and what-not. So it's kind of like a combination joint partnership.

Right. When it look at the product portfolio and you look at how it's sold through C-Store through Supermarket, and you look going forward in the next couple of years, where do you see the opportunities more so than -- and where it might be less?

Bob?

I think both. I think opportunities in C-Stores, more people there. I mean, I think both. I think C-Stores and retail. I don't think -- I don't --

Is that where you think you can add product to the distribution channels that would benefit the Company?

Yes, I think restaurants, whether it's casual dining, USRs, restaurants are the place where we have the biggest incremental opportunity.

Right. And that would be with like the Frozen Icee type product?

All of our lines, all of our lines. We have -- whether it's baked products, frozen products, novelties.

Right. And right now, you don't have a lot of sales in that segment at all.

I think that was just down (inaudible).

Yes, that's right, that's right.

All right. Thank you very much.

Thanks, Bob.

Our next question is from Sarah Lester. Please go ahead.

Good morning.

Good morning, Sarah, how are you?

I'm good, how are you?

Good.

I wanted to talk about the Taco Bell deal. Can you just talk about that? Are you in all of their stores and also are you able to sell them your service contracts?

Well, let's see what I could talk about. We're in the Taco Bell stores that are selling the drink, the Frozen Beverage drink, which is called Frutista. And we are on a service-type of award and it's -- I understand it's going -- it's early and it was just introduced, but it's not our beverage. It's not our concentrate that we're selling them, but we are their infrastructure partner to make sure that the install went as good as possible and we want to establish and maintain a reliable service system for them.

Okay. I think that's all I have. Thank you.

Our next question is from Ryan [Rapid]. Please go ahead.

Good morning, Gerry.

Good morning, Ryan.

Let me ask you with the battle you guys have done with certainly the commodity inflation the last two or three years, has that impacted at all or delayed product launches, differentiations, flavorings, anything?

Not really. It's changed some of the pricing structure and initiatives with that, particularly when we want to add a certain type of filling to our Churro or doing another Cheese (inaudible) Pretzel and at a time we go through our innovation lab and into production in there, the cost maybe jumped 25%. But it hasn't delayed anything; it hasn't --

Okay. On the Supermarket side, you kind of said in the past in kind of the Frozen Juice area, the Italian Ices at $3.00 was kind of an elasticity point. Are you seeing -- with the consumer migrating to more value choices, are you seeing any encroachment by Supermarket private label brands or generics competing for shelf space?

Ryan, that's a good question. What we're doing -- we're reasonably well balanced and by that, I mean we're in the food service channel. We're in grocery; we're in bakery. We're now making some inroads in the economy channel, including dollar stores and [McGee] outlets. We also are doing some of the private label for some of these bigger groceries when it comes to Soft Pretzels or, for that matter, Fruit Bars. On Italian Ices, we have a huge share, a huge share of the market, and we're hopeful we'll continue to expand that market.

Is your margin structure equal to, as good, slightly less than your national brand stuff on the private label?

Private label?

Yes.

Our overall gross margin is probably not as good, but we don't have the selling expenses and you want to get back down to the contribution, I would say it's good.

Okay. Okay. Okay. If we have, at some point going forward, the economy, the malaise that we've seen move from Wall Street to Main Street, if we have a rollover in commodity prices, is your thought process that you hold your prices? Do you think there will be some pricing give-back, more trade allowances? If we see a rollover in that, what's your thoughts?

Well, we're not seeing any rollover and I guess if we get to that point, we'll be glad to give it the proper consideration in there, but right now, we've been fighting the rising costs and some other inflationary energies and what-not. So let us get to that point and it'll give us at least something else to concentrate our energies on.

You'll fight that battle, okay. If you go back, say, two or three years, give us a sense of magnitude, maybe across some of your feedstocks, eggs, shortening, corn sweetener, butter. What are you up if you go back two or three years?

I'll give you one. We're up almost 100% in flour, right?

Okay.

Eggs have moved in both [contra] directions, but our basic ingredient, all right, we're up 100% and look at it, there's $23 million over nine months. On a real quick calculation, that would be $0.08, $0.09 a share net.

Yes, yes, yes. Okay. Okay. You talked about -- and you guys have done a great job certainly in not shrinking size. There's been a lot of repackaging and holding prices and giving you eight ounces when you get a 10 ounce product. In what you guys call -- I think you refer to it as a pocket-size in the dollar stores, how many of your SKUs or what percentage of your product lines do you think you can send into that channel and reconfigure volume sizes?

Well, if you asked me this question -- that's an interesting question. Right now, we have a couple of our Frozen Novelty lines. Of course, we're doing our Fruit Bar lines and we're looking at three or four other different products. We want to make sure that, one, we protect the brand and two, that we get to the marketing price value that is good for them and we'll still have our margins too.

Okay. Okay. Your install base, give me -- just for edification, what is the unit machine install base for Icee, Arctic Blast, and Slush Puppie?

Dennis, what -- are you talking -- yes, I guess you're assuming net, right?

Right.

We must have netted 500 to 600 this year. Total?

Yes.

Well, we own, service or have installed close to 40,000, Dennis?

(Inaudible).

So we have quite a -- I'm not sure of that exact number, but between equipment that we own and have installed or have sold to others, we're servicing something over 40,000.

Okay. Okay. Let me ask you, Gerry, on the --

That is supported by a first-class organization system of service technicians all across the country from 120 branches.

Okay. Okay. Let me ask you on kind of the sports, the stadium, the arena side, are you seeing any elasticity with consumers at the baseball game or the football game relative to items per transaction or less dollar spending per visit to the kiosk in your products versus, say, the Supermarket or another channel?

Vince was looking at that, at least through June, the other day, and Vince, you want to comment on that one?

I would say a little bit of elasticity, but not as much as you see in other channels. I think when folks go to a game and they have it in their head that they're going to have a product, and not to say that I take it for granted, but the elasticities have been low. There have been some, but they've been low.

Okay. So the consumer has been a little more freer to spend in that channel then specifically?

Yes.

Okay. Okay.

You know what? It's a mind set too. Families may tighten that budget when they go to that supermarket or maybe when they're just doing their day-to-day things, but they're going to go to the event and a baseball game. They're going to take in a Phillies-Mets game and what-not and it is an event and dad or mom or their big brother will somehow find that extra $20. Now, maybe they only have two beers instead of three, or maybe one instead of two in there, but hopefully, with our pretzels and some of our other products being good value in there, we will be impacted less. There's no question when (inaudible) the pricing goes up, the volume has a tendency to be shadowed by it.

Okay. Let me ask you guys in the supermarket, there's been a lot more with the time constraints on the consumer and convenience. You're seeing a lot of kind of end-cap areas where you can get one-off sodas or one-off premade sandwiches. Is there any thought to you guys maybe breaking up your Italian Ices in single-serving sizes for the consumer because most of your stuff is in boxes of six or boxes of eight, that type of thing.

About two years ago, we were successful in putting in our Italian Ice, replacing a name brand in Wawa stores and we private label for Wawa. And that's really the only one-up or the single product that we're selling, but I know that more recently, we've looked to other ways that we can take that and our Minute Maid items and our WholeFruit and get them into the secondary and tertiary ice cream distribution system.

Okay. Okay. What are you seeing as multiples of EBITDAs? Some of the private equity may have dried up. Are you seeing multiples come down, Gerry? Is it about the same? Give us a sense of what you see in the deal pipeline.

Dennis makes a good point that in our level, it really hasn't dried up. We've always been a fairly conservatively pricing motivated in there and, hey, for -- I don't know if you're going to see any 12 to 20 times EBITDAs like what was going out there maybe three, four years ago when anybody's money was everybody's money, and lending institutions helped ferment or feed what -- the issues that we have now. We're pretty structured in our valuation, and unless there's something that really, really makes a whole lot of immediate sense and has some long-term value, we're not going to do anything that's going to be aggressively [mistaken].

Okay. Relative to some of the things that you're looking at, is there any sense or pattern? Are you looking at companies that -- where you've got to kind of resurrect the brand? Are you looking at opportunities where you can leverage the amount of flavors or the amount of iterations to the product? Is there any commonality?

More towards the latter.

Okay. Okay. All right, guys, super job. You guys are hanging in there. It'll get better. Thanks.

It will get better.

And our next question is from Andrew [Cash]. Please go ahead.

Hi, congratulations on the Frutista Freeze deal with Taco Bell.

Thank you, Andrew.

I've only tried them. They taste great. I brought some to my kids and they loved them. I think they liked the strawberry a little bit better. But could you talk about how many machines you have in there with Taco Bell now and how that might roll out and just give us an order of magnitude? Could this be $5 million in revenue over time? Could it be $10 million of revenue? Just how big --

You know what, Andrew? (Inaudible). Keep in mind what we're doing. This is our Managed Service Group out of our Icee Group in there and we're installing the machine for a fee, providing point-to-point service and preventive maintenance. And it's really, really too early to tell. It strengthens a business segment that we got into about five years ago and now, which represents about $45 million overall revenues of Icee and that's from a green-grass field of zero about five years ago.

Well, could you speak to how many machines you have with Taco Bell today and how many you might have a year down the road?

Taco Bell, we install the machines for Taco Bell. They're not our machines.

Right.

And Dennis is just pointing out that it may be a couple of thousand machines in there and we're not sure of the revenue numbers yet. It just started (inaudible) just started. It's like in May.

Okay. So just to clarify, it's only a one-time fee. You're not getting a service contract on those machines?

A one-time fee for install and then we're going to be providing ongoing service.

Okay, got you. All right, very good. Well, thank you.

Thank you.

At this time, we have no further questions.

I want to thank everybody for joining us today in our third quarter conference call and I look forward to talking to you three months from now. Bye now.

Thank you, ladies and gentlemen. That concludes today's conference. Thank you for participating. You may all disconnect at this time.