J & J Snack Foods Corp (JJSF) 2015 Q1 法說會逐字稿

Welcome to the J&J Snack Foods first quarter earnings conference call. My name is Christine and I will be your operator for today's call.

(Operator Instructions)

Please note that this conference is being recorded. I will now turn the call over to Gerry Schreiber, President and CEO. You may begin.

Thank you, and welcome to our conference call. I'm Gerry Shreiber, and with me today is Bob Radano, our COO; Dennis Moore, our CFO; Ted Shepherd, our CED; Bob Pape, our Vice President of Sales; and in a remote location is Gerry Law, who's Senior Vice President and assistant to me. We also have with us today Charles [Greyhound], who is a financial analyst.

Let me begin with the obligatory statement. 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 may arise after the date hereof.

Results of operations. Net sales increased 5% for the quarter. Excluding sales of PHILLY SWIRL, which was acquired in May of 2014, sales increased approximately 3.5%. For the quarter, our net earnings increased by 9%, to $11.3 million, or $0.60 a share, from $12.4 million, or $0.60 a share, a year ago. That is, our net earnings decreased by $0.06 a share. Our EBITDA for the past 12 months was $147.7 million.

Food service. Sales to food service customers increased 3% for the quarter, in large part due to increased sales to our education and school food service accounts. Soft pretzel sales were up 4% for the quarter, Italian ice and fruit and frozen juice bar dessert sales were unchanged. Churro sales were down 7% in the quarter, and bakery sales were up 8%.

Retail supermarkets. Sales of products to retail supermarkets were up 11% for the quarter, but down less than 1% without the benefit of PHILLY SWIRL. Soft pretzel sales were up 3% for the quarter and sales of frozen juice bars and Italian ices were up 6% in the quarter. Handheld sales, primarily due to one product line, decreased 8% in the quarter.

ICEE and frozen beverages. Frozen beverage and related products sales were up 5% in the quarter. Beverage related sales alone were up 1%, with gallon sales up 2% in our base ICEE business in the quarter. Service revenue, which has been growing steadily over the years, was up 12%.

Consolidated. Gross profit as a percentage of sales in the quarter decreased to 28.7%, from 29.4% last year. The gross profit percentage gained through this year resulted primarily from PHILLY SWIRL higher manufacturing expenses and relatively low volume increases in our food service business.

Total operating expense as a percentage of sales increased to 20.9%, from 20.6% in last year's quarter. Absence a charge for shutdown costs of a Norwalk, California manufacturing facility in last year's quarter, operating expenses increased to 20.9% from 20.2% a year ago. Over 40% of the percentage increase was attributable to PHILLY SWIRL.

Capital spending and cash flow. Our cash and investment securities balances increased $3.9 million in the quarter, to $225.8 million. We continually and actively look for acquisitions as a use of our cash.

We have invested $114 million in mutual funds that seek current income with an emphasis on maintaining low volatility and overall moderate duration. Presently, we estimate annual yield from these funds to be about 3.5%. During the quarter, we invested $11.6 million in fixed or floating perpetual preferred stock with an estimated yield of 5%.

Our capital spending was $10.9 million in the quarter, as we continue to invest in plant efficiencies and growing our business. We are presently estimating capital spending for the year to be $35 million to $40 million or so.

A cash dividend of $0.36 a share, a12.5% increase, was declared by our Board of Directors and paid on January 8, 2015. During the quarter, we bought back 16,164 shares of our stock at a cost of $1.7 million, for a stock price of $105 a share.

Commentary. Our sales growth of soft pretzels in food service slowed 4% this quarter, after being up 14% in FY14. While the sales to restaurants increased slightly this quarter, following two years of robust growth, we continue to develop opportunities, but we do not expect a major pickup in these sales over the short term.

Frozen juices and ICEE sales in food service were flat. Handheld sales in food service were down 19%, on top of being down in 2014.

Churro sales were down 10%, as we lost sales to (Inaudible) restaurant chains converted multiple breakfast items. Excluding that customer, sales were up 9% in the churro segment. We have just begun making shipments of Oreo churros and continue to be excited about its prospect. As I said earlier, the school food service business performed very well, as we introduced products to comply with the new regulations.

Sales of soft pretzels in our retail supermarket segment were modestly higher for the quarter, as we introduced Superpretzel Bavarian soft pretzel bread, and frozen juice and ices were up 6% in this, their slow season. Handheld sales in retail supermarket were down 8%, mainly due to lower sales of one brand to one customer. In frozen beverages, gallon sales were up modestly and service revenue to others was up 12% in the quarter, as this area of our business continues to perform very well.

Operating income dropped $1.4 million from a year ago, with PHILLY SWIRL accounting for $951,000 of the decrease, as this is a seasonal loss quarter for SWIRL. However, the operating income comparison to last year benefited from $800,000 (Inaudible).

Our estimated income tax rate was at 37% this year and 35% last year for the quarter. We are estimating a rate of about 36.5% in FY15.

Although we were slightly disappointed in this quarter's result, we point out that our core products remained fertile, and we look at this quarter as an aberration. We are continually optimistic about our long-term prospects.

I want to thank you for your continued interest and turn it over for questions and (Inaudible).

(Operator Instructions)

Brian [Radman].

Good morning, Gerry.

Good morning, Brian.

I guess you took a dogsled to work this morning, so it's nice to hear you guys out there. I hope everybody is safe. First question --

It wasn't too bad. Actually, last night we (technical difficulty) and do this from home, but the weather eased up and we were all able to get in.

All right. Sounds good, Gerry. Give me a sense -- we've seen a little moderate decline year-over-year in the spot prices of some of your commodity ingredients. Just wondering, one, if that's going to give you any headwind or any tailwind to margins, and then if you guys are going to do anything relative to stockpiling any ingredients or any forward purchases.

[Hi and hi]. This is Dennis. We would anticipate that the ingredient costs compared to last year, at this point, would be relatively benign. We are not expecting a benefit, nor necessarily (technical difficulty).

Okay. All right. Gerry, could you remind us, your purchase of PHILLY SWIRL, what is that in sales revenue. How has it tracked? You almost have a full calendar year.

Well, we don't have a full calendar year. We acquired it in May. And it's a little company in Tampa, Florida. We've watched its sales. We watched it establish a niche. It pretty much was under the radar screen. But that's tracking at about $25 million. And it has a good base of employees. And as a matter fact, Gerry Lewis is down there now, as we're converting their accounting system. But we are anticipating PHILLY SWIRL contributing significant sales and contribution to us.

Gerry, the one thing you guys have been really, really good at is finding these little niche flavorings, ingredients and that, and then bringing them regionally and nationally. How wide a national distribution was PHILLY SWIRL before you guys bought it?

Well, it wasn't. It was primarily in a couple of key areas. They had gotten into Walmart, and the product was really being accepted. It was owned by a private equity company. And we had looked at it several years back and, finally, we were able to conclude the deal. Sometimes it happens like this, Brian. You look at something, you follow it. But we're constantly looking at things. Some of them bigger. All right? But that's what we do. Let's see if we can move on to another question, and, Brian, we'll come back to you.

All right.

Thanks.

John Anderson.

Good morning, everybody.

Good morning, John.

I guess my first question is on the restaurant channel. I know it's been an important driver of your growth over the past several years. For the current quarter to be kind of flat, I'm just wondering if you could provide some more color around what you're seeing in that segment. Are you seeing any menu fatigue for some of the offerings that you've sold into the restaurant channel? Are there new customer additions that maybe just didn't hit this quarter that are in the pipeline? And are you losing any business there? So just more of a lay of the landscape of how you're thinking about that segment, both in the quarter and going forward.

Good question, John. If I wanted to describe it as one animal, in one animal sound, I would say baa. But to answer your question, we're not losing share to anybody. But we have seen a little bit of menu fatigue with a couple of customers. But we have lots of opportunities are out there. And our people, our salespeople, together with our R&D team, are working on multiple opportunities. So we certainly believe that this is more of a slowdown, if not an aberration. And we expect it, hopefully, to be back on track as soon as possible.

Okay. Can you remind me how, generally speaking, what kind of run rate this restaurant business has achieved? And I think you did say in your prepared comments that you didn't expect a major pickup in the short-term. What kind of timeframe should we be thinking about perhaps for an acceleration from the level we saw in the current quarter?

We have been estimating that run rate at about $50 million a year. Now of course, we talk about discontinued churros in there, and that took a healthy piece in there. But we have some other opportunities that we're developing. Our products are niches. They're properly priced. They're quality products. And most of them, as you are aware, are unique. So we want to build on those benefits as we continue to build on the business.

Okay. And then on the churros business, obviously, we've known about the Taco Bell shift. But the core, or ex Taco Bell, part of the business grew nicely in the quarter. And I'm not sure, did that include any contribution from the new Oreo churros?

Not really. Not really. We've gotten an unusual amount of publicity on the Oreo churro. But the fact of the matter is, it was introduced at a show, at a convenience store show in October, and we really didn't even begin shipping product until December in there. So we're not going to be able to have any kind of measurables on that probably well into the second or third quarter.

Okay. My last question is on the gross margin, which did come in shy of our expectation. I understand the PHILLY SWIRL dynamic. There were a couple of other items cited, specifically the lower volume in the food service segment, but also higher manufacturing expenses. And I'm just wondering, was there anything that was one-time or unusual in nature with respect to manufacturing expenses in the quarter?

John, listen to my words. We can and will fix that. It was just a matter of volume mix.

Okay. Thank you, guys. Good luck.

Robert [Castello].

Hello, Gerry.

Bob, how are you?

Good. Could you give us some -- are you going to stick primarily with, on the churros product, with food service or might we see it in retail in the near future?

Well, I won't use the word near future, but right now our emphasis is on food service. We do have a retail customer. Let me turn it over to Bob Pape here who can comment on that, because we're going ahead with a test with one customer.

Yes. We're working on a retail execution for the churro products, to be able to test the product to see how it performs. And then from there, we would work against that to see if there's a business proposition for us on a wider geographic area.

Okay. Thanks.

How many stores?

The rollout's roughly 2,000 stores.

And that should happen this spring, Bob. So it's something that we've looked at and we've focused on, and we wanted to make sure that we had our ducks in a row in there before we introduced it. Because without the ducks in a row, it could be all over the place.

Right. You mentioned that the bakery was up 8%. Could you give a little more specificity to where the growth came from or how you got it? Was it price, units?

All volume, Bob. And based on -- Dennis was saying -- bakery specific. So it's really all over. Daddy Ray's had some growth. We continue to grow with Wawa, and we've had some growth with our major customers, including Walmart.

Right. Last question. How many stores are you servicing down in Florida right now with Wawa?

I believe it's in the low 50s, and we're serving them with the Philly style federal pretzel. And we really enjoined a co-packer down there that we've had a relationship with for the past year, and it seems to be going well.

All right. Thank you.

Thank you.

Herman Kay (sic).

This is Herman Gay, actually, at Towerview. Just a quick question. In terms of the PHILLY SWIRL business, obviously, you had a loss this quarter, seasonal and so forth. Do you have a sense of what the potential is for that to reverse going forwards? And over time, do you have any sense of the target profit margin for that business relative to the company as a whole?

This is Dennis. It's not a matter of terming. The first quarter, they will lose money almost every year because of seasonal issues. But we do expect it to be profitable the next nine months of our year, and to be more profitable than it was down in the first quarter. So we expect marginal economics out of that business (technical difficulty) fiscal year.

Okay. So maybe just a little bit below the Company average, but maybe as you build volume, your goal would be to get that up over time?

For sure. For sure.

Yes. Okay.

Herman, can I get who you're with? I heard you say it, but your name --

Yes. So Towerview. It's T-O-W-E-R-V-I-E-W Investment Management. We're out of Milwaukee and we are institutional shareholders of yours.

Great. Nice to meet you, sir.

Yes. Nice to meet you.

[Akshai] [Natali].

Good morning, Akshai.

Good morning. How are you?

Okay. I've got to let you know, you kept me up late last night, as I read and reread -- well, actually, this morning -- as I anticipated your note.

Yes. Well, I'm glad. That's flattering. I'm glad to know that you're reading our notes. So at least there's one person who is reading it, other than us.

No, no. Dennis reads it. The Bull reads it. Gerry Law reads it.

Well, I'm flattered. Again, we obviously downgraded the stock on valuation, but --

I know that you did.

Yes. But you've obviously done a great job. So it's partly a pat on your back, because the stock's done so well. And I expect, longer term, for it to continue to do well.

But in terms of my question for you, can you start with handhelds business? Just give us an update where you are with it. Obviously, there's performance -- just the actual sales of the handheld business. And I'm assuming the margins haven't gone as well as you probably would've hoped. And I know you had hired somebody to run that business, and I'm just curious to know how that's going and what the plan is, as we speak?

Good question, Akshai. And obviously, it has not gone according to our plans. That was about a $50 million business when we acquired it. And it's now running at an annual rate of about $40 million to $45 million. Most of the decline this year came from one product segment, a price product in the Patio brand. And we did hire a guy full time for that. And we're not satisfied with our results that we're getting yet. So we will continue to put emphasis on the product and on the selling initiative. But as a further note, we have added a pretzel capacity to the West Coast plant, the Weston plant. We're making good utilization of the plant assets.

Right. So in terms of the handheld business, the plants were a strategic part of why you bought it, obviously. And you've put that to good use. And that's not as visible, I guess, in the sales numbers. But without those plants, you wouldn't be able to support the soft pretzel growth that you're seeing. Right?

I'm sorry, I didn't mean to interrupt you. But beyond that, the plants gave us some immediate credibility, as far as USDA ability. And we think we're still looking for ways to maximize that potential. But you're right. It gave us more flexibility for soft pretzel production and better distribution channels throughout the country.

Okay. And then just going back to soft pretzels and just the overall restaurant initiative. So you've had great success there, and I know you've added some leadership over the last four or five years there that has done really well there. And how would you -- what inning would you say you are in capturing that opportunity for your overall product portfolio? And this quarter, is it just a short-term issue where we saw a little slowdown, the comps were tough, nothing to really read into, in that regard?

Well, I don't know if I could say what inning. We're certainly somewhere in the middle of the game and we're not in the eighth inning, so to speak. We believe we have numerous opportunities out there. And sometimes they develop at a rapid pace and sometimes (technical difficulty), but we're still cautiously optimistic. I might take out the word cautiously. We're still very optimistic about that channel as a whole. And as of today, our people are making presentations and working with several of the fast food chains to get a product or products on a menu, first on a limited basis, and, second, perhaps on a more permanent basis.

Okay. And just one last one. It's again a little bit of a broader question. But I'm trying to get my arms around the opportunity for licensing brands and using your manufacturing prowess to capture some of those opportunities in retail. So Oreo churros, obviously, are the headliner in that regard. Oreo churros are the headliner there. I'm guessing there's more in the works, in terms of licensing partnerships with other larger conglomerates.

But broadly speaking, is that an opportunity similar to where the restaurant opportunity was three years ago? Could it be that good? And are you in that stage right now where we're just starting to capitalize on it, like you did three or four years ago in restaurants?

Akshai, we have a couple of licensing opportunities that we're in the middle of now. Minute Maid for years, Oreo churro, which has just started. There's a couple of others that we looked at that would have helped the handhelds, too. But when we dug deeper and deeper into it and measured the impact of royalty and the limited impact of what they'd done, it just did not make for good business deals.

One of them was in participation with a restaurant chain that was out there. And one of them was taking an old favorite image of -- but we looked at these things and we ran through running samples and meeting with management. And for one reason or another, but probably more another, we decided not to proceed. And that was pretty much a business decision. However, however, we are still looking at these opportunities and we expect to add a license or two over the next couple years. But it will not be -- even the results of those licenses are not equal what we're getting out of the restaurant industry, fast food industry with respect to sales contributions.

Okay. Great. I'll pass it on. And continue the great work you are doing.

Thank you.

Francesco Pellegrino.

Hello, Francesco Pellegrino.

How is everything going, Gerry?

Good.

Just wanted to follow up with you about your response to one of Ashkai's questions in regards to the in-house guy you're now employing for the frozen handheld business. You mentioned that you're not currently happy with what you're seeing out of the line. Are we trying to catch a falling knife? Where do you want this line to be 12 months from now, 24 months from now? I know when you initially acquired the line, there was lofty expectations of about $80 million in the annual sales. But being reasonable, what would make you happy now?

Well, what would make me happy, if we improved our performance across the board with this. And catching a falling knife, I've got to make sure that I don't get something cut off in there. We think that we may have overestimated the potential of this business for the near-term, perhaps overestimated the category. And Bob and his group are going through -- Bob Pape, that is -- are going through some strategic evaluations. Now that may just sound like fluff words, but we're really taking a look at it as far as the possibility of licensing and as the possibility of perhaps shrinking our offering so that we can concentrate on some of the more profitable opportunities.

All right. I guess one of the things -- I know you guys had a 4.5% revenue growth year-over-year. A lot of what I'm hearing now is lower gas prices is going to mean more money in consumers' pockets. Maybe you could touch on the relatively high coupon redemptions that we've seen over the past three quarters. Is there a regroup, or where maybe consumer discretionary spending is going, given the exposure a lot of your products have to the food service industry, whether it's products in arenas, and maybe with higher coupon redemptions, are you worried at all about maybe limitations in passing on higher prices to consumers?

Well, we spoke about that last night. And, quite honestly, I was unprepared to answer you then. Bob Pape.

One thing I think we do see --

Can you get a bit closer?

-- some additional disposable income on the part of consumers. And I think that's obviously helping drive some more retail purchases --

We're spending more --

-- in coupons.

But we're spending more -- what is our convert rate? Is it running less than 1%?

I would say as an average for the total US, yes.

All right.

When we spoke last night, I mentioned to you that oftentimes, the expense gets in front of the sales.

Right.

Maybe by several periods or several months. And we did introduce two new varieties of pretzel products, pretzel sticks, pretzel rolls, and pretzel cuckoos in there. We spent a fair amount of money in advertising these things that probably hit in our fourth quarter, and we're still -- our sales, even though they're growing, it hasn't made for a good ratio yet.

Right. And I only asked because third quarter last year, you had coupon redemption of about a little bit over 40%. Q4 it was still over $1 million, and this quarter it was just about an increase of 60%. So I know you said coupon redemptions tend to be a couple months ahead of when you start to realize the incremental revenue. I just wasn't sure if maybe a new trend was developing. But I appreciate the answer.

But maybe one other thing we could hit on, just switching topics for a minute, is can we look at, attach a number to what food service sales into schools on a percentage basis increased year-over-year? Do you have that available?

It's probably a mid-level single digit, which is significant, 6% to 7%.

Right. I understand all the product reformulations that you guys did. So it looks as if that's starting to pay dividends.

And maybe just for my last question, a company that's historically done a lot of acquisitions. I know this isn't something that we spoke about last night on the phone, Gerry, but could you maybe give us a little bit of color in terms of what you're seeing on the acquisition landscape and maybe opportunities currently out there that would align well with the Company? I know that you had said something about big premium brand names being available. Could you just expand a little bit more on that?

Well, I think the question last night had to do with us buying little companies that had been dumped -- that we were a junk feeder or something like that.

I've heard the term dumpster diver. But that's not my word.

And you might be right. We've bought some things over the years rather economical -- I don't want to use the word cheap -- and we've had a unique, uncanny ability to fix them. We may continue to do that. But I also said to you, we're now looking at a couple of companies that are more premium, not necessarily premium names, but premium in value, with real EBITDA in there and a lot bigger. And that's what, at least over the near term, like in the near term, over the next six to 12 months that we're going to be concentrating our efforts on.

We have the ability to make these acquisitions. We have the cash in our coffers. It certainly doesn't burn a hole in our pockets. We look at these opportunities, and I have a close confidante of people that look at them and will be sometimes very critical of them, no matter how good it looks in there. But we all have our input. And I would be hopeful and cautiously optimistic that we're going to bring one, perhaps two of these things, home in the not too distant future.

All right. Thanks again for the follow-up. I appreciate it. Thanks again.

Did you get home safely last night from New York?

Yes, I did, after writing insanely to write that note. But I appreciate the time you guys spent with me.

I've got to admire you. You're in New York. You're an analyst, and you were available at 7 o'clock on the phone.

Yes. I appreciate the time you gave me. So thanks again, guys, on a great quarter.

Brian [Radman].

Yes. Gerry, maybe a question for Dennis. You talked about $35 million, $40 million in CapEx. Can you discuss from a strategic view, is that primarily operating efficiencies, or is it capacity expansion? And then could you give us a sense maybe some of the plants where you might be adding some of that CapEx?

Well, I'll start off. We're adding it in Pennsauken, which is our home plant, our largest plant, and in Belmawr. And what we're adding is not only efficiency, but for expandable growth and to refresh the line. Some of the lines were as much as 30 years old. It'll give us more flexibility.

And, quite frankly, in looking at the logistics part of this, we do have tremendous firepower around the country in other plants. But when you've got to move something from Oregon to the Northeast in there, there's a big, big factor called freight expense. And what we're trying to do now is to ratchet up our ability to make different products here in Pennsauken and bring in some of the things that have been doing well in here. And these projects will last probably for the next year or so. But I think overall they will add to our efficiencies, our flexibilities, and, ultimately, to our bottom line.

Okay. If anyone questions your PHILLY SWIRL purchase, you can just tell them about Daddy Ray's.

Give me a sense out of Moscow Mills. What's the business doing at Daddy Ray's? Are you adding any flavors, any different formulations or anything? Because that's certainly one over the years that you guys have really grown good organically after you bought it.

Brian, if somebody didn't know, you might think that we practiced this, six, four, three. We bought Daddy Ray's about seven years ago, and it was about a $15 million business. We've grown it and expanded it and added some product lines and whatnot. It'll do -- Dennis, $60 million this year? And it's a significant contributor to our overall success.

But there's other, multiple examples like that. We bought a little sleepy company up in Moosic, PA in 1988. It was doing about $1.5 million at the time. We've added brands at Minute Maid and Luigi's. And Whole Fruit, which Bob has a whole campaign for to expand this year, that company is now producing sales at an annual rate of $100 million. So there are multiple stories like that within the confines of J&J Snack Food, and we're looking to find other little pieces of coal that we can turn into diamonds.

Okay. It may be a little off-season, but can you talk a little bit -- you've added Paradise and Slush Puppie to the ICEE and the frozen drink area. Can you talk a little bit about some of those other flavors, not so much ICEE that everybody knows about, but how are Slush Puppie and Paradise and some of those other smaller brands doing?

Well, Slush Puppie is doing okay for its purpose. We're also doing some things with Slush Puppie on licensing. And I also should note that our overall ICEE sales volume in gallons was up close to 2% this year; and that's after the big cola people, both Pepsi and Coca-Cola, have reported down gallonages.

One of the big successes of the ICEE business over the last 10 years is its managed service for others. That started out about in the year 2000, taking care of some maintenance and partnership with Coke as their infrastructure partner. Now that business has grown, and I think, Dennis, is that business a $55 million a year business for us now? So it's the ICEE machines out there, the Arctic Blast machines, the Slush Puppie machines, our partnerships with Coca-Cola, and to a lesser extent Pepsi-Cola, but you compound that and suddenly it is a $55 million business, throwing off good contribution.

Yes. Okay. Gerry, you talked a little bit about some of your licensing, Oreo churros, and you guys have done Barq's root beer and Minute Maid lemonade and that over the years. I came across a couple of selective candies, I don't remember what they were, from my kids. But is candy a licensing area? You've got such a strong brand name with anybody under 10 years of age, kids and that, is candy an outlet for licensing for J&J?

You know what, we've looked at candy. And I don't want to mention names, but I personally would think so. We did have an ICEE candy at one point. And we'll continue to look at candy again. But with candy comes the mom says it's bad for you, or if it's not mom, it's the people who are writing articles for moms. But there are some really exciting candy brands out there. And even though I'm not a candy eater, per se, but I've been a proponent of at least looking at and exploring the candy licensing opportunities.

Okay. All right, Ger. You guys have dipped your toe back into some of these, call it a fixed floating rate perpetual. Anybody that's owned the stock, obviously you had certainly what everyone else, the issues back in 2008 and 2009, with some of the, I think, recip preferreds that you had. Is that something that is a different security than you had in the past? And then what's your thought process of the mix of those preferreds relative to what you have in the, it looks like, money market mutual funds?

I'm going to let Charles or Dennis answer that.

Yes, Brian. They are a different type of security. We certainly do not anticipate any liquidity issues with them over time. However, they're roughly a little less than 10% of our investment portfolio, and we wouldn't expect them to be substantially higher than that.

Okay. And then just one in closing, Gerry. What is your -- you talked a little bit about potential acquisitions. How are you seeing pricing as multiples of EBITDA going into 2015, for whether it be, you guys have been very good at turnarounds. I wouldn't call it bottom feeders, because you guys have a unique ability to resurrect brand names versus something that may be something firing on all cylinders.

I would say they're higher, all right? And that's something that we are getting a little more comfortable with. But obviously, as the acquisition world, influenced by private equity and others, and the economy improves, the multiples are obviously going to go up. You don't find three or four times multiples anymore, and even the five to seven range is scarce. There are people asking significantly higher than that, nine, 10, 11, 12. Whether or not they're going to get it is another thing.

We once paid a 12-times multiple for a little sleepy churro company out in California. There were a lot of people that thought that we overpaid for that. We thought it was a unique brand and a unique setting that combined with what we were already doing, and we wound up paying for that acquisition inside of two years with its return.

Yes. Okay. And then from a strategy standpoint, Gerry, much like you did PHILLY SWIRL, what has been your experience in actually retaining or keeping the management team, the employee, that type of thing? How important is that, and what's been your experience?

(Technical difficulty) particularly when we feel that person is something that we want to add to our star-studded cast. We lost a guy from PHILLY SWIRL almost right away. When we acquired that day, he left us in November, on good terms and we were able to plug that hole before it became a hole. There are some guys that like to go around and work for much smaller companies and private equity groups, and unfortunately, they look at us today as a big company, and we're really not. But I think, by and large, we have retained most of the people that we certainly wanted to.

Right. Sounds good. Thanks, guys. Good job.

Thank you. And we have no further questions.

Well, I want to thank everybody for participating in this conference call and I look forward to talking to you all again. Thank you.

Thank you. And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.