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.

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.

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…

Thanks, Bryan. Well, at this point, we'll open the conference for any questions that someone might have.

[Operator Instructions] And our first question comes from Matt Karr with Symons Capital.

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.

So income from operations in the press release for the 3 month period?

Yes.

It is $1,554,000. Other net is $45,000.

Yes, I'm talking about income before taxes?

$1,509,000?

Yes, yes. I'm getting $1,464,000.

Well, you're not doing it right.

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?

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.

The next question comes from Bill Chapman with Morgan Stanley.

On the U-Swirl, could you give us more understanding about your -- the growth potential here in the short and medium term?

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.

Is your cost reduction initiative completed?

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.

Okay. Are we talking about $1 million north of that or south of that on the total cost reductions when you're done?

We haven't disclosed that number but when we report our fiscal year, we will disclose that number, Bill.

The next question comes from Neil Simpkins [ph], a private investor.

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?

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.

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?

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.

Our next question comes from David Lupke [ph] with J.P. Turner.

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?

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.

The next question is a follow-up from Matt Karr with Symons Capital.

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?

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.

The next question is a follow-up from Neil Simpkins [ph], a private investor.

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?

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.

So has that number changed or is it still a $1 million cap?

There is no number related to the new $3 million that allows management to sell back for the company.

So theoretically it could be a very large percentage of it, is that correct?

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.

We show no further questions at this time. I would like to turn the conference back over to management for any closing remarks.

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.

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