Rocky Mountain Chocolate Factory, Inc. (RMCF) Earnings Call Transcript & Summary

[Audio Gap] Since June '22, I was the Board Chair. On May 14, I was asked to step in as interim CEO, which I accepted. And at that time, consistent with our company policy about separating the CEO and the Chair role, I stepped down. We asked Starlette Johnson to step in, which she did. Thankfully, she's provided excellent leadership for us. Prior to May 15, for the last 17 years, I've been the CEO of Global Value Investment Corp., which is an investment firm that happens to own today about 16-plus percent of Rocky Mountain Chocolate Factory. I also sit on the Board of a public company in New Jersey that's involved in technology called Climb Global Solutions. I joined their Board in February 2018, and I happened to be the Chairman there. I'm the guy who always raises his hand. It wasn't me [indiscernible]. I'll do. And then I also sit on the University of Wisconsin Department of Economics Advisory Board. It's nonprofit, of course. I'm a UW Grad, studied Economics, which is coming handy over the years. So that's just a little bit of background why I'm sitting here today. I think we make a product, which is really the reason. And we have some of this on the table, so don't be shy. And anyway rate, I'm really happy to have everyone here. This is a new era for the company. I'm glad to usher that in, an era of openness, transparency, active engagement with investors in the public, and we've really tried hard to reach out to people and get everyone involved. Although, to the people in town today, I apologize. I was told by Tracy earlier that we may have been a little delinquent in getting notice of this meeting out. I'm glad everybody is here. Next year, we'll try and do a little bit better on that. So for those people, I apologize. I want to recognize a couple of franchisees that we have here, which is Robin [ Fryer ]; and then Jeanne Bria, her husband, Steve. If you guys can just raise your hands real quick, so they -- Yes. And both Robin and Jeanne happened to sit on our Franchise Advisory Council, what we call the FAC. We established the FAC maybe 18 months ago as a mechanism for the company to engage with its customer, and our franchisees are really our customer and we wanted to have an open dialogue where we could really ask advice, seek input, what are we doing right? What are we doing wrong? What can we do better? When I joined -- I think it had been on a quarterly basis to say, "Guys, I could talk to you every month." And so we started out, and we had an hour, and we had this huge agenda." And everyone's like, "Oh, we got to meet more than 1 hour." I said, "Okay, have about an hour and a half?" And Jeanne the other day said to me, "We can do 2 hours." I said, "I'll go as long as you guys want." But I really appreciate it. You're volunteering your time. And I had 12 people across our system, round numbers, we have about 105 unique franchisees. So these are really representatives for them speak to us. And so the 1.5 hours or 2 they give us every month, it's just a fraction of the time because I understand other franchisees call you or you call them to kind of query what's working and what's not. So appreciate that. And to the other 10 who aren't here, and I assume most of them are on our Zoom call webcast today, thank you guys a lot. It really is extremely helpful. It's instant feedback for us, and you've given us some great ideas. And hopefully, it's been a mechanism for us to communicate back to you on some of the sticky issues that invariably rise in a franchise or a franchisee relationship, so thank you. I'd also like to recognize the Board of Directors. Currently, the company has a Board of 5. Starlette Johnson, I mentioned earlier, raise your hand. She's our Board Chair. Charles Arnold, who is joining us today, is our newest member, also Chairs our Audit Committee, which is a really important position on the Board, helping us to be compliant with the SEC and keeping our finances in order. Mark Riegel and Steve Craig were unable to join us, but to all 4 of you, and I'm the fifth Director. But I'm considered a non-independent director. The other 4 independent as an Operator as a CEO or interim CEO, I'm no longer an independent. So to the 4 of you, thank you so much for your support. For all of your input and your advice, it's really important. And I know you guys do a lot of work behind the scenes, too. And most importantly, to all of our stockholders who are here today, I thank you. Thank you for your support. This meeting is for you. We know that you guys own the business. Ultimately, we work for you. All right. On an annual basis, the stockholders elect directors, the 5 of us. The director's job is really twofold: number one, hire a CEO; number two, approve a strategic plan. And then as governors, your job is to enforce that, make sure we achieve the plan. If not, fire the CEO. It's pretty simple. That's your job. And I'm a little conflicted as both CEO and Director, but in fact, if I do a bad job, you guys should fire me. And as stockholders and the owners really -- and the quintessential relationship, I work for you. You tell us what to do. If you're not happy, let us know, call the Board, you should do that. And we're going to work our rear ends off to try and get it right. Now everyone up here is in a play, and most everyone up here is also a stockholder, says this weird dichotomy and Tracy in the back of mind [ to me ]. "I'm a stockholder, too." And I said, "Yes, you are." We're accountable as operators to stockholders. And you, as stockholders, you got to hold us accountable. So you got to look in the mirror and say, "I'm holding you accountable getting the job done." And it's right. It's kind of a weird dichotomy, but that's exactly right. As operators, we all let service to all of our stockholders. So with the meetings being held in person and via Zoom, for those who couldn't make it, it's still a little tricky to get up to Durango. For everyone who made it -- who traveled into town, I appreciate it. When I came here on May 15, I looked at my wife, and Starlette and I had a conversation. I hung up with Starlette, and I said, "Dear, what do you think about moving to Durango for a while?" She said, " how long it's away." I said, "I don't know." But sure sounds like an adventure. And I think what we learned over time is that it was really important to have the guys that were running the company be here and interact on a daily basis. And Al Harper, who's on our new shareholders, and I met maybe 2 weeks into it, he called me up, he said, "Do you want to have breakfast?" I said, "Sure." He said -- and we met and he said, "I want the company." I said, "We're not for sale." But I'd love to have you as a stockholder. He said, "I accept that. But where do you live?" I said, "Well, I'm front Charleston, but I live here now." He said, "No, but I mean where do you live?" I said, "No, really I live here, I moved here." He said, "Really. You're the first guy, and I can't remember how long has lived here." And it has been so important. And all you guys can attest, I show up to the plant every day. I walk around the office every day. It's so easy to walk on someone's office and say, "I got an issue. I know we can do it on Teams, but anyone who uses Teams or video, it's not the same." And I go downstairs -- like 95% of the days I've been here, I've been downstairs. I know 80% of those guys by first name. I understand what we're doing downstairs. Critically important, when Tyson says to me, "We need to replace this piece of equipment." All of a sudden, I can say, "Oh, I understand because I've been walking around and looking at this since the last 90 days. And I see it's an important piece of equipment. And if it breaks, we're in trouble." So having boots on the ground here is important. What I've said to the guys, the guys collectively, the men and women who work here, is I'm going to stay as long as it takes to get this to stabilize and back in a really profitable position, but whoever comes in after me is going to live here. They have to. It's not negotiable. And we hired Carrie as our CFO recently. One of the criteria, you have to live here. You got to show up. Now there's exceptions to those, of course, in particular business consultants and the people that report up to Donna. I need to put them out in the field. I need them close to their end customer, either whether it's Colorado Springs or Lodi, California or Charlotte, North Carolina. Better to have those guys remote. It's a little bit of a trade-off. But having most of the people here and showing up every day is critically important. And anyway, the purpose of this meeting is really, for us, as your operators, we work for you, to share our views about where we are today, where we're going in the future. This should be a dialogue really. This isn't a sales pitch. There's no PowerPoint. There's no slides. We're not here to woe you. We're here to explain to you what we think the business looks like, where we can go, where the opportunities are, what we need to do in order to execute? We have a good business plan in place right now. So I've kind of penciled in 2.5 hours. I have taught 3 universities. I know I can go 2.5 hours, but I won't -- and I want everyone here to have an opportunity to talk to you guys. And so you have a better understanding really the depth of this experience and the skills and the knowledge that everyone here represents. Because I'm the newest guy and I often say to my executive team, "I don't know anything about making chocolate. I'm a finance guy, but I do know something about managing business, and I definitely know a lot about what a good business looks like." I'm going to hold all these guys accountable because the Board is holding me accountable, and you're holding the Board accountable to getting this right. So we'll go 2.5 hours. I promise we'll break in between. If you need to leave a little bit early, when you go out, make sure you grab a box of chocolate on the way. I think this to be a dialogue. So at any point, you have a question, just raise your hand. It's just a small intimate group, so feel free to ask. And they have coffee and stuff around here. So before I ask, Sean, sorry to read our legal disclosure. I do want to queue this up. We're going to talk about really 4 themes. And shortly after I got here, I have this group and probably another 10 or 15 people, there must have been 20 people that have called together, either in person or remotely, I said guys, "We got to figure this out. We got to figure out what really matters." And we distilled it down to 4 items: number one, data and analytics. We need really good data in order to make analytical decisions about how to run the business; number two, revenue generation, got to increase the top line. We've got to figure out where we sell, where we can be effective at selling; number three, production efficiency and output, which was saying to TYSON & COMPANY, guys, we got to get more capacity. We've got to figure out what can we do better downstairs to manage labor, to manage output, to improve margin; and number four, its financial stability and strength. And as everyone here is probably aware, we lost [ round ] numbers $4.5 million last year. We lost almost $6 million the year before. We lost $1.6 million in Q1. So the day I showed up the mandate was get this fixed, make sure we're cash flow positive, which meant, that's where we're sitting in this room. There's some amount of dexterity here. And everyone said, "You're going to bring your investors in the kitchen." I'm like, "Well, look, I'm not going to spend $1,000 to go over the DoubleTree." Why would I? And I think it's an important message to you. We're locking it down where we can squeeze expense. We are not because we want to be cheap, but because we've got a business to run. Then if I were sitting out there, I would say, "Hey, Jeff, squeeze expense? You're losing money. Figure it out here." So thematically, throughout this conversation today, we can hit on those items, data and analytics, revenue generation, production efficiency and financial stability. With that, Sean, can you unmute? Hey, Sean, I'm sorry, are you out there?

Yes, I'm here. Can you hear me?

Yes, you should be here. Sean?

Can anyone hear me?

Okay. Sean Mansouri is the CEO of Elevate IR, which is our external Investor Relations firm. We have to conduct ourselves according to SEC and NASDAQ rules, and they require us to read the safe harbor disclosure. So Sean, if you would do that, please?

Sure. This presentation may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact that address activities, events or developments, which we expect will or may occur in the future are forward-looking statements, including statements regarding the intent, belief or current expectations of the company and members of our management team. The words will, believe, intend, expect, anticipate, estimate, predict and similar expressions are also intended to identify forward-looking statements. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks and uncertainties. These risks and uncertainties include, without limitation, the timely availability acceptance of new products, product mix, market conditions as well as factors that affect the chocolate confectionery industry in general, among other factors. The forward-looking statements contained herein are also subject generally to other risks and uncertainties that are described from time to time in our filings with the SEC, including our annual report on Form 10-K. Actual results may materially from those contemplated by the forward-looking statements, and we undertake no obligation to update or revise our forward-looking statements to reflect future events or circumstances. In addition to U.S. GAAP financial measures, this presentation may include certain non-GAAP financial measures. These non-GAAP financial measures are in addition to and are not a substitute or superior to measures of financial performance prepared in accordance with U.S. GAAP. A presentation and reconciliation to the most directly comparable GAAP measures can be found in the company's filings with the SEC. With that, I'll turn it back to Jeff.

Thank you, Sean. So let's get started here. I want to start with the leadership team or executive team. And -- to preface this, these guys are VPs, senior VPs. They provide input and advice to me. As I've said, I'm not making these decisions in isolation, guys, although I'm responsible for it. I'm definitely going to seek your input. They help develop strategy, and I hold them accountable for the execution of it, much like you hold me accountable for the execution of it. So our CFO is Carrie Cass. She's been here 5 weeks; Senior VP, Information Technology, Ryan McGrath, 15 years; VP, Franchise Development, Kara Conklin, 10 months; VP, Production, Tyson Snider, 2 years; VP, Marketing, Kelsea Ferrato, 15 years; VP, Supply Chain and Logistics, Andy Black, 25 years; VP, Franchise Business Support, Donna Coupe, 30 years; and VP, Franchise Operational Support, Lisa Taylor, 25 years. There's -- it's interesting because we have about half of [ this group ], including me, I'm like 4 months. About half -- 8 of the -- or 4 of the 9 are relatively new, under 2 years. Everyone else is relatively long tenured here. It creates a nice environment for us because the long tenured people help us preserve the legacy, the history, the nostalgia of the company. And the new guys are, of course, all come in and asked the stupid question. "Why are we doing it that way?" Which is important because it helps us kind of bring honesty and integrity to the process. It's not -- we've always done it that way. So, if we've always done it that way, why? Because it doesn't really seem to be the smartest way to do it. And sometimes they say, "Well, this is actually the smartest way." But we've got a great balance here. I think everyone has listened to, everyone's respected, everyone has a voice at the table. And culturally, it's really important. And I say to anyone, "My door is open. You got an issue, you got a concern, come in." Someone are not on this group, the other day and walked in, and said, "Hey, Jeff, I didn't do this last time. I'm doing it this time. I think we got a problem." I listened to him, we reacted right away. So that's a big change in culture. So thank you, guys all. And everyone up here, except Andy, is going to have us talk about a little bit later, but stay alert, I might call on you. [indiscernible] in the back in my call. [indiscernible]. All right. So I want to start by talking about our business and what is our business really, and this might be a little bit of a surprise to you. And I'm going to couch it in terms of what resources, but the question is, what do we sell? And when I asked the guys early on, it was like, "Well, we sell chocolate, I said, hmmm, We sell confections, hmmm, apples, yeah, Joy is 1 on the answers." I said "yeah, maybe." but I said, guys, are we a franchise company? We're in the business of selling franchises. That's what we do. We file a franchise disclosure document, or FDD, every year with the FTC on June 30. We just finished filing it, and that gives us a license to sell a retail concept where we have premium confections. That's our business. Now it's not the lion's share of the driver, but it is the [ hook and ] stock of what we do because we need new stores in order to expand, in order to sell more products. And we definitely do supply the stores with chocolate and other products. But we're a franchise business. We make a great product, which I want to put it out on the table for everybody to try, except the caveat, the Rocky Pop is addictive. And I just said, "We're not selling it on e-comm." He said, "Are you kidding? You've got to be selling this." It's like selling Coca-Cola or what other addictive products, cigarettes or we got to sell this stuff. It's really -- and it's good by the way. But -- so what do we make downstairs, which is an important question? And we really start by bringing in bulk chocolate from Guittard, which is a California supplier, and they make a really good product for us, by the way. And then we created the bulk, which is what you're looking at here. This is like raw product that does typically shipped to store and it's sold in a glass cabinet. But we also put same product in a box, which -- when you walk out of here today, you'll get that. Not all of it lands itself to being put in the packet. Some of it we put in a tote. Some of it can really only buy in the store. And then if you go to one of our stores, you'll see, at the store, we also sell store-made products, which primarily is an apple. Is it Granny Smith? Yes, it's mostly Granny Smith, and I remember there was a time when we were short on Granny Smith's around the country. So we're trying other apples, and the feedback was like, "Oh, you got to get back to Granny Smith." Wasn't our issue, it was like the apple growers issue. But -- and those we dipped in caramel, and then we put all sorts of stuff on it. And there's no limit to what you can put on these. And if you haven't had one, it was a big day [indiscernible]. I would never eat an apple, and I tried one, and I'm like, "This stuff is good, especially with what they put on top of it." The apples are really good. But in the store, we also make fudge and different flavors. We also dip a lot of other products. They all have to be dipped with Guittard. But this is a really important point, and it's going to come up again a little bit later. The franchisees, now Vermont, I said we have like 104, 105 unique franchisees, some franchisees, like Robin and her brother, Jason, run a couple of stores. We have a handful of franchisees that are multi-unit operators, which is important for us. But I look at it and I say we have -- in round numbers, we have 150 stores. So I have 150 petri dishes out there guys that are experimenting with what they can make. And we give them really good product. But part of these -- a few of us is a franchisee or is a franchisor, I could say to someone like Robin. You want to be in business? You can go to McDonald's. They're going to tell you everything to do all day long, but I've heard from the franchisees and listen to them. There's an element of fun. There's an element of creativity. There's an element of innovation that really gets our franchisees excited to get up and come to work every day. And I don't want to diminish that. It's really important. So when we did a pivot here maybe 6, 8 weeks ago, and I said, "Instead of us discouraging the stores from making their own products, we're doing 180. We're going to encourage you." And I said, the petri dish, I said I got 150 R&D departments out there, but these guys are making product. Why won't we, as a company, want to say, "If you can think of a really cool product, send it over here. I'll create nutritionals, I'll create an ingredient list, and I'm going to give you the blessing to sell that in your store. Every once in a while, we're going to have like this rockstar product that gets developed out in the field at one of our stores. Why wouldn't we do that? Previously, we said, "No, we got an R&D department. We know everything." So it was -- again, the culture. It was a complete shift? And then we -- so we created a franchise product innovation group, which we call the FIG. We have 5 people on it. Now and again, these are 5 people that are volunteering their time, and I'm really, really grateful for that. But they'll come on, and I brought my R&D guys and they said, "Okay, and Justin is in the back. It's so he can to attest this." Let's not -- you're going to get some really good ideas from the field. These are people that are selling to the end consumer. They're going to tell you what they want. So again, the cultural shift. It's been a big one for us. A lot of adjustment inside because never do it that way. So trust me, let's try this for a while. And so far, the feedback has been good. You guys agree on the FIG? Yes, yes. Steve, too. Yes, good. But that's new for us. But -- so if you think about that, again, there's 105 people out there that are they all come from some careers. Some people -- like Robin has been doing this for 20 years, and Jeanne and Steve have been it for 20 years. We have some newer people that have come in, and I've talked to them and said, "Well, I used to be in marketing. I used to be in advertising. I've done socia media." So I called Kelsea the other day, and he said, "Hey, when we did something like the FIG and called it like the social media development group that could -- again, I've got 4 or 5 guys, who are willing to volunteer time every month. So I feel like I got these extra employees out there for free. And then I get Kelsea and our internal guys to say, "Share what you're seeing." And so we don't have to develop -- we don't have to do all the heavy intellectual here. Let other people help us out on it. And the cost is 0, and we can reject the ideas. So I see 0 downside of it. But if you've got the innovation group, you got to meet social media group, the possibilities are unlimited. And it's a group of franchisees grow from 105 to something larger, which is, well, if we execute our strategy, we're going to bring in a lot of talent. And I might even say that [ Carrie ] over here was excellent in developing new franchisees. She's really, really good, and I got to give her credit for that." I might say to her someday. Carrie, what we need in a new franchisee is a guy that -- or a gal that does X, Y or Z. So part of the profile of the new franchisee should fill in the blank for where we, as a corporation, have a weakness. So we have a kink in our armor that we can fund at no cost and get outside support. So -- and I know some of this is new to everybody. It's a little bit experimental, and I present them going along with it. But any questions on that so far?

Yes, sir. The former CEO made a big point by going around and seeing all the franchisees during this short opportunity here. And it seems like you're putting out geographically as far as the consultants to see what's the -- behind that strategy?

Yes, it's a good question. Let me answer it 2 ways. The business consultants have always been out there in the field. So Donna's team has existed forever. And in fact, we'll talk a little bit later about the royalty, but the royalty payment in my mind is the fee for service for us to put a business consultant inside of a store twice a year and provide a host of other issues. To answer -- so that's going on. When Rob was here, he want to go see 50 stores in 15 weeks or something like that, and he did to his credit. That was hard. When I showed up and said, "You know what, I'm going to work inside out. I've got to make sure I've got financial stability. I've got the data." As I mentioned, I had to get the mothership fixed. So that's number one. Number two, then I had to get all the people that worked here to buy into where we're going because it's one thing for me to say, it's another thing for everyone to start shaking their heads. And I was working 7 days, I still do. I just -- it's just like -- this is a full-time job. And I can't visit with these guys [indiscernible]. And I get -- I come in at 6:00, 6:30. As soon as they start showing up, I'm walking around the office and meeting and talking to a political issue because it's -- I'm trying to get buy-in. So then once I get that, and I think I do, right, then I said, "Okay, now it's time to go up. Now I got to go visit my customer." But I wasn't just going to run around and see 50 guys. During that -- the first 4 months, it probably established phone-on-phone relationships with 20, 30 people. And I've encouraged everybody. And this is new. I've encouraged that all the franchisees on the -- either the franchise advisory call, and we also have a business advisory call once a month, which everybody is invited to. I've encouraged everybody. Here's my phone number. You have -- if you got a question, call me any time. I can't go see all of you all the time. But I want to have the dialogue. So my strategy was let's go inside out. And we only have a couple of franchisees here today, but my experience to date, and I'd ask maybe Starlette and Charles and some other people that interface, Kara interfaces. I think we're hearing really positive feedback from the franchisees, and they haven't seen me, but they've heard me and they've heard the message. They've seen the changes we're making, and we're making changes as recently as this morning, we were -- the way that the franchisees order really needed to be reviewed. And we implemented that today, especially Wednesday morning, 8 to 9 a.m, we took that second one. We brought it back up. And for the first time, since I don't know when, we said, if their product get out of stock and you go to the online ordering, you can no longer order it. In the past, we allowed that to be ordered. And then we said, "And if it's out of stock, shame on us. We should have all of them in stock, but it happens." We're going to put the estimated date of when we'll be back in stock. And then rather than saying, "Wow, that's a revolutionary." I'm like, "This just seems to me to be a basic business." But -- and then also to top it off, we said, -- and if you want, put your e-mail address it here, and we'll send you an e-mail to let you know how it's back in stock. So that's a little thing, believe it or not, -- that was a huge lift, it took a lot of time and effort, and Jeanne, who's sitting in the back, just raise your hand Jeanne. He has done a huge help with this, and he totally owned it. He's like, "I'm accountable for this." Which is great, and that's kind of culture here, I'm saying to the guys, who is responsible for this? It really matters. So any other questions? All right. So then the next thing I want to talk about is how do we deliver and who is our customer and who is the consumer? This is a little bit of a nuance. Our customer is the franchisee, their customer is a person that shows up in the store. That person that shows up in the store is a consumer, but they're not my customer, my customers is the franchisees. So I've got to make sure that I take care of my customer and then now take care of their customer, which is our consumer. Now routinely, when we sell product through a franchise store that's our relationship. But we also have this underdeveloped e-commerce. And e-commerce gives us an opportunity to go direct-to-consumer. At that point, I'm potentially selling product directly to one of my franchisees' customers. And we're really sensitive to that. And it's been a little bit of a pushing point. So it was -- and the FAC where we have that push and tug. I said, "Guys, it's 2024. We have to be online." It's a critical part of our strategy that we only do $1 million of $30 million needs to get corrected. We compete easily in my mind, and this will be forward-looking, so don't hold on to this. We could pretty use do $10 million of e-comm business, and it's not a huge lift for us. We have the capacity. We have the infrastructure. There are a lot of things we could do. But the challenge will be to say to Robin, our franchisee, if your customer comes and buys on my site, and I feel like I'm running around you, can we work something out? And so what we've developed and we're still thinking about is, is there a way that we can have a revenue share? So that if your customer, as defined by like a geographic area, shows up on our site and we sell them product, I'm going to share the revenue with you." It's not perfect, but it's at least it's an acknowledgment that I'm selling product directly to customer. The other would be if your customer who's part of your loyalty program shows up on my site, I'm going to share revenue but at a much higher level. And they say, "Why the differentiation?" Because I think only 21 of our stores -- some small number of our stores have a loyalty program. The evidence suggests if you have loyalty programs, you sell more product. So I want to create a carrot that says to the stores, "Put a loyalty program in place." And they might say, "Well, we've never done it that way." So you don't have to. But if you do and your loyalty customer shows up on our site, you get a much bigger slice of the pie. And I think most everyone is probably saying, " Oh, really, how do we get a loyalty program in place?" Robin's store has 32,000 customers. Is that right? 32,000, loyalty. That's real. And if they happen to show up on our website, she's not done anything. She has 0 risk here. Other than having shared the loyalty information with us, they're getting money. So this is a win-win because we can deliver an e-comm, and [indiscernible] Dylan is going to talk a little bit later about e-com, but it's an important source of revenue for us, and we haven't really developed that very well. I want to go back to the stores. So we have 140 stores today, which includes 2 company-owned stores. One is right down here, Durango, one's over in Corpus Christi, Texas. 145 franchise stores, 3 of which are out of the country, in the Philippines. I'm not really sure how that was developed, but the fact that we've got guys in the Philippines means there is a way that we can develop this concept on a global basis. Now to be clear, plenty of whitespace in the United States. I'm not feeling like I got to do with Philippines or somewhere else to grow the business. The fact that it's working, and I just confirmed the other day, Lindsay, you're here, right? I just confirm with Lindsay, the other more services, we ship product to them. Not that often, but we do. And they sell it, and we collect the royalty and not in Korean won, we collect in U.S. dollars. So it's kind of an interesting concept. And Donna and I have talked a little bit about how do we identify the unique opportunity on an international basis? I don't want to spend too much time on that. But what I do want to talk about is this distribution network. And I said to the guys not long ago, someone called me up who wants to buy the business. And I said, "What's your interest in this? I said, "You don't sell anything that looks like chocolate." they said, "We want the distribution." I said, "Oh, that's interesting. And you're willing to pay us for it?" They said, "You bet." So -- and I said, "We're not for sale, at least not under those terms." But here's the interesting thing. If we have 150 and that locations, and I'm sending a refrigerated truck out twice a month, every 2 weeks to all those stores across the country, and that has value because although we're putting chocolate in there today, there are other things we might put into that distribution network in the future, and it would be driven by brand continuity, but most importantly, margin. Is there a way that we can take the same truck, the same fuel, the same distribution and drive more margin out of it by putting different product into? And I don't know the answer to that, but I make that point because the network is worth something. And I'm going to suggest to you, it's a hockey-stick-like relationship. If I go from 150 to 300 to 600 to 1,200, that's not going to be a linear relationship. The value of our network at 1,200 stores versus 150 is going to be infinitely larger. And I don't know the math, that's just Jeff thinking out loud, but I'm just sensing it would be. Now Andy, who takes care of procurement and logistics, has a map in his office like you'd expect, and he's got all these pins in where all our stores are. And I said, "How do we ever open a store up here or way over here? There's not another store within 300 miles of that." And I can't speak to past strategy. But what I said to Kara, "Just come in his office, take a look at all those pins." You can open stores anywhere you want as long as it's between 2 pins because I got a truck that already goes that way, but I do not want another store up here or down here because it's very expensive to send that truck off the beaten trail. Can we open -- were 150 stores today, round numbers. Can we get to 300? Definitely. And I want to say 2008, Lisa, you might hold me accountable to this, I think in 2008, we were 336 stores. We have shrunk since then. We only have one real competitor, a company that I would look at. And say these guys are like kind of a mirror image. They don't do it as well as us, but this is Kilwins, they're up in Michigan. They're mostly east of the Mississippi, but about maybe 1 year, 1.5 years ago, they were bought out by Southern California PE firm, which I embraced. They said, "Good, now we have real competition." Some of them wants to grow and is going to challenge us. They're expanding, and they're expanding this way. They're opening up in Colorado Springs, I just found out. We're opening up in Charleston. I think do we have a lease on that? I'm sorry, I'm stealing your thunder, but this is important. We're opening up a Charleston, which is where I live and Kilwins is there and every time I walk by just [ dolls ] me because I know we can do much better. They're going to challenge us more in Charleston. So I think the competition is going to be really good for us, and here's why. If you're a prospective franchisee and you call on Kilwins and you look at Kilwins offering, you have to look at us unless you're brain dead, and if you brain dead, we don't want you as a franchisee. But you should look at us as an alternative. And I think we have a better offering, frankly. And part of that offering is how do we differentiate ourselves where I started. We're going to give you the opportunity to be a small business owner, and it's not paint by numbers, it's mostly paint by numbers, but we're going to give you the ability to have some fun, to be creative, to be innovative, to be part of a company, an organization that really values you as a franchisee. We really want to listen to you what you do and your ideas. So -- and I want to talk just for a second about the store locations, but more equally as important, and there are 2 parts to this. What makes a good store? It has to be a good location, you know that. But better -- more importantly, we need good operators. And what's a good operator look like? This is Jeff speaking. It has to be financially sophisticated because you're running a business. It has to be well capitalized because I don't want a franchisee that can only open one store. I want a franchisee that can open 5 or 10 or 20 stores. And why is that? Because I love the 105 people I have to double the business. I don't want to have to get to know another 105 people. I'd rather just get to know like 10 or 15 people that each own 10 or 20 stores, and then we can double the business. So for us -- for me, the concept is, let's find really good operators. You got to have capital because -- and franchisees plug your ears here, we can expand using other people's capital. So when you think about our business model, it is asset-light. I can grow from 150 to 300 stores. And how much CapEx do I have? Virtually 0. All I've got to do is say to Tyson, you got to be able to increase your production by 50%, 100%, which we can do. But I don't know own a lease. I don't have any inventory. I don't have any employees. It's kind of interesting. So we doubled the business. And where is our risk? It's just can we deliver to the -- to our franchisees. So getting the right location was number one. Kara will talk about that a little later, but getting the right franchisees is equally important. So that's our core business, and we generate revenue by opening stores we're going to see selling product into the store, and there's some amount of margin when we sell chocolate, too. But the important part -- the most important in my mind and the most interesting piece of this is the royalty. And this is a SaaS-like -- Software as a Service-like opportunity for us. And think about this for a second. I have 150 stores, and we've taken, I think, $6 million, $7 million a quarter and now annually for royalties. If I send to Donna and her group, go to that same group of stores and increase sales by 5%. And I'll say -- and our revenue will go up by 5%. Our royalty revenue go up by 5%. And I would say to Donna, how much more do that cost me, and she's going to say nothing. I didn't have to hire anyone else. I don't have to go to other stores and even 0 extra. So it turns out, and I was saying this to those guys, I said, one of our most profitable lines of business here is our royalties and margin that's close to 50%. And that was like, really, I said, yes. And you know what? We can expand that if we work really hard with the stores. So the business consultants, we shifted their whole mandate Donna, when your business consultants go in the store, they've got 2 mandates here, increase sales and improve profitability. She said, why? I said because we increased sales, we're going to see increased royalty and they'll have more money to invest back in the business, which is eventually going to send you guys a dividend. But number two, increase profitability, how are we going to do that, better merchandise, better marketing, business planning. So I want my business consultants to go in the store and help them start owners have a strategy, have a business plan in place, and my supposition is if these star owners start increasing sales and improving profitability and making more money, a couple of things are going to happen. Either they're going to call me up and say, I want more. I want another store or they're going to refer a friend to us and say, I don't want another store myself, but I got a friend who wants a store. And by the way, the quality of their life is going to improve because they're making more money running one of our stores. And I don't see any downside to that. And it really just takes Donna and our -- kind of our field team to go out and deploy slightly -- a slightly different conversation with our franchisees. And we've talked about this a little bit. I'm just kind of in it's infancy in terms of how do we execute on this. but it's really a shift again culturally in terms of how do we interface with our franchisee. And it's all in deference to the fact you're sending us a royalty, you should get something for it. It's not like this perpetuum of income that we don't deliver to. So when I came in, I sat down with Donna, I said, let's define deliverable and have to revisit the stores twice a year. We have a mystery shopper in twice a year. That's something that shows up, it's not identified at all. They have a little checklist of things that they look at. They come back to Donna and her team and say, "Here's what we saw. No one knew we were there." It's really -- it's good for us --- feedback helps us keep our franchisees accountable because they don't know who that person is. And then we have 1% national marketing. So every once a year 1% of our annual revenue. And I'll just give you kind of round numbers here. We have 150 stores. The average unit volume is about $600,000, and this is all public information, which means the back of the envelope, we generate about $90 million at retail, and that's not us worth about $30 million, but retail is $90 million, but we get 1% of that. That comes to Kelsea for national, but we also ask our franchisees to spend 1% local. So we have no opportunity to kind of leverage that marketing -- and both Kara and Kelsea will talk a little bit about like our brand refresh and how we're thinking about store redesign and really interfacing with our customer and their consumer. All right. Any questions? I'm going over a lot of stuff. And I'm really treating you guys. You're the business owner here. You stop me at any point if you have questions. Yes, sir?

What's your time frame for 300 stores and then maybe getting ahead of myself? But do you have a slide that shows when the franchisee contracts roll off?

I don't have that on the slide. I have that as data. I don't think we make that public. But generally, our franchisees signed a 10-year agreement with 2 5-year renewals. And it's mutual. At the end of 10 years, right, they can either not renew or I can elect not to renew them, which is pretty important here because we want to make sure that we're bringing guys who want to keep going along. And I don't have any slides here, sorry to disappoint you. I just want to have a conversation with you guys today. And what was the first part of your question? Oh, the 300 stores. We haven't said really. And I don't want to get out ahead of myself here. In concept, we have -- ran 336 stores. So physically, I know we can provide products for that number of stores.

Can I follow on?

Yes, sir.

Can you tell me how many franchisees have left in the last 5 years?

I don't know that number. No, I don't know, but it's probably part of our franchise disclosure document. Yes, yes. I don't know that -- but what's your name? Are you Kevin? Kevin, it's an important point. So I assume that somewhere along the way, we might have had a franchisee -- are you with the Durango Herald?

No.

Okay. I invited them to come over. I was expecting Tyson to show up. The -- they're good locations. They're good operators, they're bad locations, they're bad operators. If we have a good location and a bad operator, I've said to Kara, I want to create the Rocky Mountain franchisee marketplace. We've never done this before. I want to be the intermediary. I want to take an operator that wants out, that's got a good location, and they could be regardless of the operator. If they want out and it's good location, I want to keep that store and I want to match them up with another good operator, someone I can bring in. So early on, part of that mandate about revenue, #2 on that list, and those weren't in order of importance because revenue is very important. But if I can preserve a store, why not? So I'd rather not lose any stores. And the evidence that I'm going to need to provide to every one of you as stockholders here that our plan is working is, we actually have a year-over-year increase in store count. And I think for the last 10 years, probably every year, we've lost stores. So we got to do a better job. And that's -- ultimately, that's why I'm here, as we got to figure out how do we deliver a better product, to better service and grow this. And by the way, during that same 10-year period, tailwinds went from 50 to 150. And everyone gave me the excuse, "oh it was the economy, it was this, it was that" I said, "What about Kilwins? They were able to do it during the same environment, essentially the same product or the same format, so it can be done. We just have to try harder. And we will get that right. And you'll know it. And I'm not going to promise you, but you'll know because you look at our quarterly report, and you say, store count is up. And once we -- if we can get -- and I said to Kara, all I want is positive store count because if we can figure out how to stop the bleed and get the count growing, that means we've unlocked the box. And if we can do that, I know we have a really good offering here. We can add 15, 20, 30 stores a year. I won't be here when that's happening, I assume, unless they really want me to stay on as interim. But -- so this is a multiyear project. But this business at scale is very profitable. And we're not too far away from scale here. And once we get way beyond scale, then the question is, in addition to making chocolate, the only other thing you make here is money, what are you going to do with it? And that will be a different discussion. We're not ready to have that today, but we will. Any other questions?

Can you elaborate a little more on your somewhat recent [indiscernible] share of stocks. Are they also selling product? What are they involved [indiscernible]?

Yes, that's a question. And I'm sorry, what's your name?

Jody.

Jody, Allen and his son, John, run American Heritage Rail. They own a whole bunch of really interesting assets around the country. We know them mostly for the Durango & Silverton train, very entrepreneurial. He'll tell you he's in the entertainment business, not the train business. And I think he's right about that. He called me shortly after I got here. Kelsea warned me. She said, he's going to want to buy the business, but you should go have breakfast with them anyway, which I did and turned off. I walked in and he said, "Hi, I'm Allen I want to buy your business." I said, "okay, it's nice to meet you, we're not for sale. But we should talk anyway." And then the second question, you may have come in after. The second question he said is, where do you live? I said I live here. He says, "No, I mean permanently. I said, "Well no, I moved out of here. He said really because that's what this company has been lacking. We need boots on the ground here. You needed somebody to show up every day. By and by, I got to know Allen pretty well. Buy and buy I knew we needed to raise equity. I called out to people that I knew that I thought would be interested in owning some equity here. And I had a list a really good qualified potential investors. So then it was a question of -- could I get most strategic investor? Given that they're in Durango and that were a company, and I've to told Harold explicitly where Durango were staying and the Harold said, well, you moved your operations up to Salt Lake City. I said -- got it. We're staying. You sold the piece of land over there. I said, got it noncore. You sold off a bunch of your trucks. Not my decision. We need trucks. And so I think I got the Herald understanding, we're going to stay here. And that was music to Al's ears too. He's like, good because we think you guys can be an important part of the community. And by the way, there are a couple of public companies in town. We're the only public company in town that's headquartered here, and we've never taken advantage of that. And part of it is we got to be better corporate citizen. So Al said, "Look, I'll introduce you to the [ Ford ]. I'll introduce you to Durango Herald. I'll introduce you to anybody else. And by the way, you're going to get calls from all sorts of nonprofits. When they call, let me know, I'll tell you which ones you should give to. So it's been a good relationship with him so far. And they own 13% of the business today. They're long term. They completely understand what we do. In fact, when I showed up there at the first day, he said, if you sell the company to me, I've already developed a business plan. I know exactly what we do with it. You and I should have breakfast more often because I'd love to understand what's in that plan. He said, well, we paid a lot of money for it. But eventually, I'll get him to tell me what's in the plan. And he's a smart guy. He's a very creative guy, really -- he's a real entrepreneur. So does that answer your question about American Heritage?

Right. [indiscernible]

We're talking about it, and they sell a lot of confections through their business. And then I'm going to talk a little bit later about specialty markets, which is the third leg of wheel. If we have the revenue from the store is -- that's key. E-com is second. Third is specialty markets. The American Heritage would fall into specialty markets. It's not our core business. We would love to be able to sell product to them, but I'm always going to sell product to my franchisees first. And if you shop online, I'm going to sell it to you before I supply it to anybody else, which could be [indiscernible] Williams-Sonoma or someone else. They got to be third line because we're a franchise business, and we have to deliver to our franchisees. But with that said, we've had some conversations about products that we might be able to supply for them. So thanks for the question, Jody. Any other questions? How are we doing on time here? It's 9:45. Why don't I go maybe another -- let me just finish up my part, then we'll take a 10-minute break. Does that sound all right? Okay. From the stores, about 60% of what gets sold in the stores is product that we make in Durango, which means the other 40% of that revenue at the store is either product stores make themselves or product that they source from the third party, and I'll give you a good example. The stores aren't sugar-free. Sugar-free product is very cumbersome. It's very expensive for us to make. We happen to have a relationship with the guy out in Indie. I forget where they are, somewhere out in the Midwest, who makes really good sugar-free products. So we said to our franchisees, "If you want sugar-free in your store, and it's only like 2% of our store sales, so it's not meaningful, but it's important for a guy that walks in the store and says the only thing -- I'm diabetic. You got to give me some sugar-free. And he brings -- he or she brings all their kids and they want to buy stuff. So it's important for us to recognize that. So we allow the stores to go to third parties to buy a product, but only 60% of that comes from here, and I'm bringing that up because if we double from 150 to 300, it's not the -- there's -- I'm only obligated to 60% routinely of what gets sold in the store. So I've got a little bit of operating leverage there. Now of course, I'd like it if the stores would buy more from us. But frankly, at the end of the day, it doesn't matter to us. We're going to collect royalty. We're going to expand stores, we've got capacity downstairs. We'll fill up downstairs. At some point, we'll be full downstairs. So that's how we're going to grow on a forward basis. I mentioned you earlier, this capital-light model, really the only CapEx here or capital expenditures that we would have as a company is replacing stuff downstairs. And as you know, when I -- when Starlette and I came in, we probably had maybe $3 million, $4 million that we committed in CapEx downstairs that we needed to pay for. We haven't completely thought through how we're going to pay for it. We figured that out. That's part of the reason we sold the land and some other things. But we've got all that paid for. Tyson and I visited recently. He said it probably needs another $1 million, $1.5 million in the foreseeable future, got to figure out how to pay for that. I'm assuming we'll be profitable, we'll be able to. But with that, we can take our productive capacity downstairs up by about 30%. But more importantly, the equipment that he's telling me we'd need to replace is pretty old, and I can't afford to lose any equipment downstairs. I just can't afford to have stuff breakdown that produces product. And everything we sell out of here is pretty important. So -- but that's our only CapEx as we grow, that's all we have to think about funding. Recently, we changed our franchise agreement to an agreement where we get paid a royalty on 100% of the store sales, which will simplify things. We have our 1% national marketing fee, which I discussed a little bit earlier. And we're just wrapping up our investment in our consumer insights and brand repositioning, which is important because that's going to unleash care, you go out and sell more stores. It's helpful with Kelsea and some of our marketing efforts. We haven't -- I had hoped by today, we'd have something to share with you tangibly the best laid plans, right? So we don't, but you'll see more of that in the future. And this isn't months off. This is yes, either days like weeks, 4, 6 weeks from now, we should have a new product or new designs. And the fact, the guy in South Carolina -- we have a guy in South Carolina that's already said, "hey give me the plan." So we've got that. We have a guy down in Brandon near Tampa. Yes, we've got a kiosk that's going in. So pretty soon, we're going to start to share with you, we've got new stores going up. And I think that's proved positive. I still have some stores, I'm going to lose, Kevin, to your point, some that I can't help. They're just bad locations. Never should have been opened. But at some point, all of those will be gone and we'll be opening new stores and the new store design that I've seen, it's really cool. I say it's really sexy. I'm not sure of that sexes, but it's really is sexy. Look, it's like "Oh, wow, I would want to go in there." And I think when that happens people are going to walk by and say, "Oh, wow, I want one of those, too." So we'll drive traffic. We'll drive average unit volume. Royalties will go up, but more importantly, we'll expand stores. And part of the consumer insights, I might be stealing what you're going to say later, Kelsea, is apparently, premium chocolate is no longer like an indulgent treat, it is now an everyday snack. And the demographic that we're targeting, every day snacks 3x a week, which I find to be very interesting. Because -- so this chocolate is a snack. Yes, which means we have an opportunity to kind of engage with our consumer differently. Because in the past, we said like this is coming once or twice a year, now we're considerably saying we're going to see it 3x a week. And that's a paradoxical for us. And the Rocky Pop I said to the guys, when you walk by one of our stores and you sell that caramel, you smell our store before you see our store. It's like, "where is that coming from?" I wanted to do a panel full of caramel when you walked in here, today and they said, "it's going to be really hard to do." I said how about the Rocky Pop? We're supposed to have this caramel aroma, they didn't. But that smell, in terms of the senses, you can see, you can talk, you can hear, you can smell, the sense of smell is pretty powerful. We need to do better with that. With all the stores and Ross is opening the store in Charleston said, "I want a fan. I just want to blow it out, the smell out on to the street, yes, to lure people in." So there are a lot of cool things we can do here. As you can tell, I'm still pretty excited about what's going on. I've got a great team of people here. I want to turn it over so that you can hear from them. But why do we do this? It's 9:52. We've going 52 minutes. Why don't we take like 8 to 10 minutes. The men's and ladies room are down this way. You just want to get up and stretch a little bit, feel free to. We'll be here if you want to ask us questions, we'll reconvene at the top of the hour. Thanks, guys. [Break]

Well, thank you, everyone, for being very attentive and for your good questions. Jody asked a good -- Jody you guys had now? Before you leave, Yes. So Jody, asked a good question, and that is about our Bloomer Sales. And that's where we take our imperfect product and we sell it to the public at discounted prices, and it's very popular. The first time I showed up at the airport and said I was from Rocky Mountain, the guy at the [ Hertz desk ] said I love your Bloomer sales? I said what's a Bloomer sale? But -- and from time to time, regrettably and as part of manufacturing, you have product that's out of spec. It's not bad. I get a box of it every day, and it's good. But Jody said, "when are you bringing the Bloomer Sale back?" And I go to the gym over here, so does my wife, she does yoga, the ladies say, "When are you bringing the Bloomer Sale back." So I said to the guys, this is -- we got to do this. We should do it every month and we should do it here. Historically, we did it once a year, we rented a place downtown, it was a nightmare. It was very -- logistically, it was very challenging. I said we have a building, we have a cash register, we have people, we have a parking lot. And a lot of people in Durango don't know we're here. When I say I work for Rocky Mountain. They say, "Oh, down here Main Ave. I said no, actually up in Bodo Park, which is where we are. Like Bodo Park, you guys have a place of Bodo Park. I'm like, "Yes, we do actually." So we're going to do the Bloomer sale. We tentatively don't hold me to it. He's [indiscernible]. And then we're going to set it up out here. We're going to say, "I'm going to put an ad in the paper. I said I already told the Herald, first time we'll do a full page ad, second time half page, third time, we'll go to quarter pages and we'll let everybody know. The Bloomer sale is back one day limited quantities, drive up to the plant and we'll sell your product. So that's coming back. And if you need to run, I understand, but I just wanted to address that. So moving on here. The question is, what makes Rocky Mountain special? And I'm going to ask Kelsea to jump in and talk about that. So Kelsea?

It's the fun part of this. I'm going to talk about numbers. What makes this special. So who here is not familiar with how Rocky Mountain Chocolate Factory was founded? All right. So this gentleman is going to get a history lesson, needs to. Then many of you have probably already heard. But Frank Crail, who is our founder, decided that he wanted to raise a family in a small town. He was living in Southern California, so kind of a hustle and bustle. I want to have a large family of children. He had a young daughter at the time. And so he did a tour of the West and landed on Durango. When he got here, he said, "I want to start a business because I want to get to know people." He was one of the most friendly, outgoing people you'll ever meet. He loved getting to know anyone and everyone. And so he walked up and down Main Avenue. If you've been in Durango for a couple of hours, you've probably seen our quaint in Main Avenue. And he asked people, "What kind of business do you need in this town?" And if you're thinking a chocolate shop, you're wrong. They said, carwash. And Frank said, "I don't think that's maybe the business for me. What other kind of business would you like to start?" And eventually, it came out that we could use a candy shop. So Frank didn't know anything about making candy. He brought somebody from Southern California that he had known who had run a candy shop in Southern California called Everett Seeley, he had a company called Seely's Candy. And he brought Ever in to help him learn how to make a candy. He worked sometimes with some professors at Fort Lewis, some chemistry professors, to learn some things about making fudge at altitude in making candy way up here. So we're the highest manufacturer of chocolate in the United States set this altitude, and that can actually provide -- create some challenges when we're shipping all over the U.S. to altitudes that are much lower. So it is an art form to create chocolate up here at this altitude. Frank went on to have 7 children, many of them were -- have been involved in the business in various capacities over the years, being franchise owners, working on Donna's team, doing -- working for the corporate office or doing a variety of different jobs here. And then as you saw, we have a ton of history in the room and all the way down to our manufacturing floor. So we have folks in the business. Bill, who has been here almost since the beginning, that trained with Everett, that trained with our Master candymaker, [ Randy Pollack ] that have been around and are continuing to produce our candies according to these generations old recipes, the old-fashioned way. If you've ever been in our kitchen, we still do a ton of production here by hand. We are one of the few major manufacturers in the United States that making candy at large scale by hand and not completely automated. So many people will have a machinery pour ingredients in one end and out the other end comes a wrapped foiled piece of it. We're not doing. There is a lot of artistry and craftsmanship that still goes into what we're making, and there is this legacy of that experience across generations. When Frank started making the business, he had -- or started the business, he had 2 business partners, and they quickly decided maybe we want to own a business, too, like this. And so after some time, he opened -- he said, "well, we could open another store somewhere else." And so we started to franchise, and [ Robin Stanley ] had actually one of our very first franchises in the system in Colorado Springs, and the store is still is open today. And we have many franchisees and many staff members who have multiple generations that have been involved in the business. So Robin's parents ran the business and now Robin and her brother are running the business. Steve and Jeanne's children have been involved in the business in various ways, either running stores, working in our field consultant team. And so this business to us feels similar to a family. There's some dysfunction in that at times, but mostly we just really care about each other. For us, this community is our home. And as Jeff mentioned, many of us have grown up here in Durango. Many of us live, work and play here because we love Durango. We're involved in a variety of different nonprofit capacities or philanthropic things in the community, and we take it very seriously that it is our responsibility to, from the lowest line level worker up to the shareholders in this room, to steward this business in a responsible way and to show up in the community in a responsible way. We have a really dedicated workforce here in the factory. It is sometimes a challenge for us because as you who arrived here today have noticed it's not easy to get here. If you don't live in Dallas, Phoenix or Denver, you've got to go to somewhere else to get here. And it's a challenge because it's a pretty expensive high-priced place to live. So -- we -- Tyson will tell you a little bit about what we're doing to combat some of the labor challenges that we've experienced here. And as the Durango Herald kind of asked Jeff about moving to Salt Lake, it's simply our packaging department at the holiday season where we spike the amount of people that we need to really make the packaging work is just a challenge in this area. But the manufacturing, the assets that we have here in this building and the importance of Durango and our heritage to the business are so core to who we are. And so core to who the brand would be moving forward that. As Jeff mentioned, we're not going anywhere. And I'm grateful because I grew up here. Additionally, as you mentioned, we're the only publicly traded and headquartered company in Durango. And so we are going to be taking that much more seriously in the way that we show up in a philanthropic way and the ways that we support things in the region and the things that matter most to the business moving forward. And then finally, I think there's been a bit of maybe tug and pull about this kind of perennial question of, are you a franchisor or a manufacturer? And with Jeff's leadership coming in, we've really clarified, as he said, that we are a franchisor. And if you look at old interviews with Frank, I've been going through a lot of historical footage that we've had, reading things, looking at video, Frank really believed that the function of the manufacturing facility was to support franchise retail expansion. Because he wanted to control the production of the product to make sure that the product quality remain intact, that we had traceability, that we were able to get things in and out of Durango, which is not where you put a plant today, so that's why we developed the transportation and infrastructure that we have in place to ensure that we had the best quality product going to our stores at all times. But he really says, "the core of our business is franchise retail." So we're getting back to the heart of that right now, and we are working to reevaluate who our core customer and consumer are, make sure that we're in alignment from top to bottom. So I have a tender heart in my place for the Crail's. I grew up next door to their children, and had candy club with them, which basically means we had a suitcase in a tree furrow full of chocolate and candy. And this business, I think, there's something very special when you're here in the building, when you're here in Durango, when you see the folks that are so invested in this business and our franchisees, there's something very, very special and magical about it. And so I'm very grateful that you're all here today, that you're all here on this journey with us, and that you came to Durango. So thank you.

Thanks, Kelsea. [indiscernible] Kara and Dylan, are you out there?

Can you hear me?

You have to talk a little bit about our growth opportunities.

Absolutely. So obviously, thank you guys so much for being here today. I'm super happy to see all these faces, new and old. To the franchisees, obviously, you guys mean the world to me, and we could not do it without you. So thank you guys so much. Obviously, there's a couple of things. When I came into this role that were really important to me, really wanting to come into a business that was unique. And what we're striving to do, obviously, here is be the franchisor of choice. And so since Jeff has come on and his team has been here, we are evolving. There's some change that needs to happen. The other thing that we strive to be here is the confectioner of choice. When I look to this opportunity, my husband actually blindfolded me and made me taste chocolates from all different brands, every single one, I picked Rocky, not kidding. And I was like, "Why is it so good? Why is this product so good? What is it?" So then when I came and met with them in person, and Rob, our former CEO, said to me, he's like, "Well, both Steve and us, we get our product from Guittard, but ours is a couple of grades higher." And he's like, it's the taste. I knew it. I'm not crazy here. So anyway, let's talk about the expansion. So we have some target markets that we're looking at. We basically are planning to expand in Boston, New York, Charleston, Tampa, Chicago, Portland and Seattle. We've already done some deals in Charleston. We have a current franchisee who exists in our system who is going to open a location on [ Kings Street ] where Jeff is from. So Jeff is really thrilled about that. They plan to open up that market. We're very successful already in North Carolina, but South China is untapped for us. So that's obviously very exciting for us. In addition to that, we're doing a deal in Chicago. We have an existing franchisee, Tyson Minnick, who is going to open on State Street. Just finished that deal yesterday. So feeling really good about it. And then also, we have Willie Zamora, who is in Tampa, who currently operates in the Premium Outlet. He's actually opening in Brandon Mall. And it's a really, really great kiosk opportunity for him. So those are actually 3 that we're doing. We actually are also currently about to open in Edmond. We're actually ahead on our construction schedule, which is not normal. So I was very happy to hear that yesterday, and that is actually a new franchisee into our system. They currently are Cold Stone franchisees, but I'm not sure if you guys are familiar with that, but we are co-branded with Cold Stone. We have a little over about 104, 105 locations, and those are licensees for us. So that's another piece of the business that you may have seen out there. So it's a little bit different. But this particular situation, this franchisee was like, "You know what, Kara, I really love this brand. I don't want to do a co-brand, I just want to do Rocky. I want to bring it to [ EdsMin's ] let's figure this out." And we found a really, really great site. So we're really excited about that. We are actually not only focused on street side, but also looking at nontraditional opportunities, airports, travel centers, power malls, premium outlets, lifestyle centers. Our target franchisee, as Jeff mentioned earlier, is a sophisticated operated, well-funded. Franchisees buy into a system. They thrive for consistency. As we analyze our business, we're using data to make decisions. It is so, so important that we're mindful of where we develop, who we develop to and how we build this business. We take our vetting process seriously as we look to bring new folks into the system. One thing that I always stress to the team and anybody coming into this, responsible franchising is really important. We have to make sure we make the right decisions, we find the right people to invest in our business. We ensure that the site selection process and unit level economics makes sense. We're uber-focused on those unit-level economics to increase profitability. We also -- the one thing that I really take pride in is we do have a low labor model. I've been in other systems where it's very, very hard, especially when you're getting into like -- okay, we'll use California, the QSRs right now. They have to pay $20 an hour. So we personally do not have to do that. We're not a QSR. Franchisers -- franchisees and franchisors are struggling with that because now they can't afford to pay their staffs. The thing that's unique about us is, as you guys know, most of our products are produced downstairs. Yes, they produce apples in stores. Yes, they produce the store made. Robin, obviously, is a great example of that she's one of our innovators, coming up with creative store-made products and then obviously going through that approval process to get those things approved to figure out, will this sell? Is this something that we want to bring and offer it throughout the system? We also will be using the data analytics to market and drive traffic to our locations. From a site selection standpoint, we currently use SiteZeus, basically helps us make sure that we're pinpointing the right locations, we're looking at all the demographic population, cellphone pings, anything and everything to make sure we're making the right choice. Like Jeff said earlier, we cannot make the wrong decision with real estate. If you have a bad location, you're not going to succeed. I'm -- some of the franchisees get frustrated with me. I'm like, "No, you're not doing that site." We've got to keep looking. Wait, just be patient. We'll find the right location. It's very, very important." Another tool we are actually adding is a tool called [indiscernible] which will help both marketing and development to make informed decisions where we use our spend. For e-commerce, obviously, that's for Kelsea and her team. Also DoorDash spend. A lot of our stores are in DoorDash, some are not. I'm like, guys, we got to get on DoorDash. It's a no-brainer." It's either gets delivered for you or they just come and pick it up. Sales just skyrocket. Franchisee that recently purchased the location for us in Sacramento -- the franchisee that originally had that store guys, he is in our system for 40 years. It's just -- he's like, "Kara I'm too old, can't do DoorDash." She takes it over. She's [ $2 billion ] a month in DoorDash, just by turning it on. That's it, not rocket science. In addition to that, we want to be with their local store marketing. This tool is actually going to show us from a ZIP code personality of these people of lapsed users. These people are coming in, these people are not. So when they go to do their spend, our team can basically go in there and show them who they need to target, where we need to target. So we are not wasting those marketing dollars. We also will be using, I lost my chain of thought -- as we do -- we've come through an extensive consumer insight study with LWM payment and design spend which we'll talk a little bit more later. Any questions for me on site selection or any big expansion plans?

Dylan, you out there?

Can you hear me?

We do hear you. Go ahead, Dylan. We'll have a picture here in a second. And I should say Dylan has been with the company 6 years. He's our Marketing Manager. Works very closely with Kelsea. We will have him talked a little bit about our e-commerce initiatives.

Thank you, Jeff. Thank you, everyone, for joining us today. E-commerce presents an exciting opportunity to serve our existing loyal customers and reach new customers who have yet to experience our brand. Our e-commerce platform is a crucial touch point for providing omnichannel delivery to our consumers and driving traffic to our stores. Remarkably, 60% of e-commerce sales come from customers within a 20-mile radius of our stores. The remaining 40% of sales come from areas without a nearby store. We have a clear opportunity, as Kara alluded to, about this data to focus on areas of high demand and strategically expand our store footprint to better serve emerging markets. Ultimately, our e-commerce strategy is designed to drive traffic to our stores. Our franchisees are central to our customer relationships and for customers to experience the in-store Rocky Mountain Chocolate Factory experience that so much of us have come to love with our brand. To support this, we are creating a revenue sharing model with our franchisees, as Jeff alluded to earlier, based on customers' association with a specific store. This revenue-sharing model will link e-com purchases to a specific store based on ZIP code and through a new loyalty program. Additionally, we will be introducing a curated selection of seasonal items and Gourmet Caramel Apples online, but with a strategic twist. We will feature select seasonal items in a 4-packet customer favorite Caramel Apples while also promoting the full lineup of items available in-store only. This not only encourages excitement online, but it drives foot traffic to our stores for customers to explore our complete offering of products. Lastly, our e-commerce data provides valuable insights for future growth. We have a clear opportunity to utilize this data to pinpoint where our next door should be located based on customer demand. In summary, e-commerce is not merely a sales channel, it's a strategic asset that provides omnichannel delivery to our customers, promotes our stores and store visits and leveraging data for planning our expansion. I thank you for your time, and I look forward to continuing to innovate and grow together. Back to you, Jeff.

I appreciate it. Any questions on e-com? Yes, ma'am.

Actually located?

You're down in Indianapolis?

I'm in Indianapolis.

And soon to be a proud father of his first child. Daughter?

Daughter. Thank you Jeff. I appreciate that.

Yes, sure. Any other questions?

They're planning to make a push over holiday season for the e-commerce?

Dylan?

I'm sorry, I didn't fully hear that question.

Holiday plans?

Holiday plans, yes, we will be launching fall gift basket here that features our -- some of our in-store only items on fall. We do have several e-mail and marketing campaigns that we'll be going through, through our e-commerce subscription service that is promoting our in-store-only items at our franchisee locations. And then we do -- we will be launching our holiday Christmas line in the middle of October, end of October.

And important to remember, Matt, that our first customer is a franchisee to the extent we have excess product, we can lever up the e-com pretty quickly. So -- we've got to make sure all of our franchisees get their inventory first. Any other questions? Thanks Dylan. Tyson, again I turn it over to you to talk about production, where we are with that?

A lot of exciting stuff. So how are we going to execute it, right? So that's where I come in. A lot of you have been on the floor. Who's been on the floor in here? Majority? I promise you, if you go on the floor today completely different from the last time, even if you were here 2 weeks ago. So franchisees got nervous when they heard we're not going to be running production for a week. Last week, was it last week? It feels like a month ago. Shut the plant down, had to turn the power off for 6, 8 hours. Weren't cooling the building. Why did we do that? Well, I had 2 chillers, 1 died last year, and the other one was about 12, 14 years past its useful life. That chiller goes down, not only you guys cook [indiscernible]. I got a lot of chocolate in the factory that I can't cool. It's a big problem. Afterthought has nothing to do with production kind of does. I have 2 tunnels that cool the chocolate after [indiscernible] based on that. So we had to invest in $1 million -- well, just under $1 million after some negotiation on 2 chillers. If you drive past Home Depot, they're actually sitting up waiting for this lab report. We're on a temporary chiller right now. We're a month ahead of schedule. But right now, walk around the building, is it little cooler? Some of you are freezing, which I'm okay. Sorry, Tracy. I'll get you a sweatshirt promise. It will warm her back up. But also electrical upgrade. So bringing in these new equipment and everything. The maintenance manager and I talked about it, and he's like, yes, which one do you want to do? It's like, well, my plan is to do all of them. He's like pick one because we don't have enough power. We're actually already tapping into our reserves. You have to have some reserves. So when you bring everything up, you pull more power than when you were just running consistently, so had to completely look at our entire electrical system that hasn't been touched in decades. All that was done last week with very little hiccup and actually, like I said, ahead of schedule. So now we can get into the fun of talking about a new [ bar ] line, new molding line, new [ bear ] machine. So how is the bear consistency right now? Let me ask the franchisees.

You're ride. -- going to -- it is a known issue. And [indiscernible] can tell you one of the first piece of equipment, I showed you downstairs was what we call our bear machine, if you guys look at what it was really designed for, we bought it from Hershey. It was an old Hershey Kiss machine that we've had turned into what our bear machine is today and the way we repair it is we go to Home Depot and we buy plumb fittings. That is how we are operating 4 of our top 10 items, I think. So very, very important piece of equipment. It takes 2 to 3 people in the kitchen to put all these bears on trays. They set for a day or 3 to get to the right temperature and consistency. And then it takes 3 people to put it on a belt. One person to separate it because we're putting it on the belt by hand, and then another 2 to 3 people to pack. That's how we make our bears. I presented it to Jeff. There's a piece of equipment out there that other candy makers are using to automate all that. Kelsea talked about automation, we don't do that. I'm not completely taking away the artisan, but I'm allowing the bears to be more uniform and they're not every nut is created equal. So it will still have its own unique shape each and every one, but you'll have caramel nuts go into a hopper. It gets a nice bed, that goes through its own cooling tunnel, nuts are recuperated and goes through a vacuum system and the uncoated bears go into the rover, completely hands-free, where normally I would have had 5 to 6 hands touching it before. So does that mean I get to eliminate 5 or 6 heads? No, I just get to repurpose something goodness because to run my 5 lines, I need about 50 heads right now because I have to cut the caramel by hand. I have to melt chocolate by hand. I have to dip haystacks by hand. So of those 50, how many am I currently employing? It changes day to day, I will be honest. Hoping I can say I have 42 workers right now. I'm hoping to have 42 come tomorrow morning. And I was talking with Kevin earlier, where does most of my workforce come from? Durango's population I think is 18,000, very expensive place to work. My starting wage right now is $16.50. I'm not pulling a lot of labor from Durango, 60% or higher actually comes from New Mexico. So any piece of equipment that I bring in has to reduce labor. It's just the nature of the [indiscernible] where we are right now. And when I first came, I was given a model on what we can produce, and it was a very large quantity number. I was like, "Oh, great. Well, we're extremely undercapacity, how do we get that back up? Did my own calculation came within 5% of the actual number? I'm like, yes, it looks great on paper. Once you start going down to the floor and you apply a little more what I'll call [ 1b2 ] and reality -- I wasn't going to say that. Logic, I'll say. The number doesn't make sense because I have a lot of people putting candy on a belt, taking candy off the belt, and that's 75% to 80% of my workforce is just doing that. And so we brought in a piece of equipment that was allowing us to take one of our lines from 24 inches to 36 inches. So I should get X number of more output, right? I'm still hand dependent. I'm still body dependent. You can give me a 6-foot belt. I'm not producing anymore. So trying to get smarter on the equipment that we bring in, and trying to get away from when Kelsea wants a new product, I don't say, no. So I think when we sat together earlier this year, I was like, I won't say no to you. And I think I've held true to that so far, right?

Yes.

So that's the worst thing in business, right, is when manufacturing is selling sales, no, because that revenue and sales. So working a lot closer with sales and marketing, R&D do not know about what is it going to need to take? Is it going to take another piece of equipment, more bodies, maybe a change in a product, can the product be a little bigger and Jeff is talking about expanding e-com. And when you buy stuff on e-com, it's a lot smaller, right? I want to produce really large things because it's much easier. My pounds per man hour go up. So there has to be a happy median. And so what piece of equipment can I accomplish, all those things? So that's, first and foremost, anything that I think about, including no afterthought like the chillers, a dishwasher. I don't have an automatic washer, I have people. And my sanitation crew is anywhere from 11 to 15 people. And when I looked at the turnover rate of all the department, the dishwasher title we were hiring 15 people a year. I only ever employ 1 person. So I was turning that position over more than once a month. And goodness right now, I have a rockstar and after about 2 weeks of him doing, I will give him a raise, I don't really care what it is, give him a raise because even if we give him a $5 raise, which is incredibly insane, which we didn't do. But he did get -- he's out on paternity leave with his second child right now. It's cheaper keeping him on board with a raise, than hiring in his replacement in 2 weeks and then hiring another person in 3 or 4 weeks. But we have a dishwasher coming from Switzerland, [indiscernible]. Now we can put stuff on a cart, put it in the dishwasher, pull it out 12 to 15 minutes completely cleaned. We're washing everything by hand right now. And when I talk about the bears, did the math, on average, just to make our large bears, not even our small bears, we do about 50,000 trays a year. Those trays are handled by the kitchen, then by production, then my sanitation and a circle. And that's not taking into consideration caramels marshmallows, small bears, creams. So we're washing hundreds of thousands of trays a year. So the dishwasher will greatly improve our efficiency. And actually can change production a little bit because now I don't have to wait an entire day for those to be returned back to production. I can wait a couple of hours. So it actually changes how we can schedule, which is exciting. So I've been talking quickly because I don't actually know how much time. Jeff didn't give me a limit, I could stand up here and talk about for hours about all the exciting stuff going on. But any questions? Anything I've shared here?

What's your pound produced per head, say, 5 years ago? What's -- now what's your goal?

When I came in, I was told that we could do 5 million pounds downstairs. On paper, I can show you that that's true, but it's heavily dependent on what I'm producing, that pale on there or its giant cousin or much rather produce a giant cousin, so that changes it, what line. We're doing about [ 1.8 ] right now. So Jeff wants to go to from 150 stores to 300, just double it to [ 3.6 ], which it's not apples-to-apples. I told you Jeff, that's about at the top of my capacity. I feel about mid- to low 3s is my capacity here with our -- my current equipment.

Same amount of do that? Or are you thinking anything like per head wise?

So I mentioned that number 50. The plan I presented to Jeff is give me this capital and let me get more output, and I can reduce my head count to 40.

40.

So. Yes.

Then how much for the mid-3s you think you'll need head count?

Mid-3s, I mean somewhere in the 40, same equipment, better output.

[indiscernible].

Yes. And just with the nature of how old some of this equipment is, the training is very intense sometimes. And back in the '80s and '90s, sanitation and maintenance was an afterthought when building equipment, that's like the first thing a vendor will tell you. This is why your sanitation department will love this. This is why your maintenance team will love this because they have better access. And also, this is why your operators because a lot user-friendly. So we have tempering units downstairs that are not on board with some of our [indiscernible]. Some of them are and one of my newer all-star operators, her name is Diana. We moved her from one of the more challenging lines because she was so good that one of the -- new line just so she could get familiar with it. And I asked her on day 3, how she was doing? And her comment was she was bored, which I love. I was like, all right, well, I can find something for you to do it in the meantime. But that's going to test to what new equipment can do, but I just want to make sure that my operators are happy and not bored. So we've got to find some other creative things, and we have a system called [indiscernible] downstairs it tracks productivity on a minute-by-minute basis, and it's amazing how often they look to see if they're red, green, yellow and what the line beside them are doing. So if the line beside them is green and they're red, they start squawking each other. We need to get this turnaround. So some friendly competition is never a bad thing.

When was that put in?

Last September and so it was wasn't probably really impactful until November. And at that point, we were running around like chickens with our heads cut off. So really January and February really got to sit down and go through the communication tools. You can put quality specs in it. Now if we have a quality issue, like, hey, this has been a concern. I'll go to someone, build that quality check and I want that checked every half hour and then it alerts them. It blinks at them, "Hey, are you checking your weights? Are you checking the bottoms? Very creative on what you can do with it.

Yes. Shipping everything to be boxed, sufficient and that works pretty well?

We're reevaluating that for sure. Right now, it's a third party. We're talking internally does it make more sense for us to have an off-site facility that we manage where we have more say where we are the priority, and we know more what's going on at the ground level. But chocolate and candy will always be made here. Do we put 1 line somewhere else where we can do to something more challenging like sugar-free or white or something that has more changeovers? Possibly. Yes, ma'am?

Are you able to sell your workforce here from Durango?

Order forms?

Workforce.

Workforce, yes, I have to be more competitive with the likes of McDonald's and Walmart, which we're working on, which got with Carrie and Jeff and HR and I'm actually going to be rolling something out that's very favorable to the people on the floor. I was going to announce it this morning. I'm holding off, probably get with them next week. But it's going to be more of a tiered system where it's -- I really work as my #1 turnover is, you can guess, is my new people. If I can keep people here for usually 6 to 9 months, I have a really good chance of keeping them. So you hear -- heard all of our tenure. It's very similar to the floor. I have -- I can think of 5 people off the top of my head downstairs that have been here for 15 years. And another one that's been here since the '80s, I'd say 3. But then I have a lot of what we call yellow hats. So we have different color of hairnets and you wear a yellow hairnet on the floor until you reach your 30 days. And so there are times you go down there and like, wow, it's a lot of yellow hairnets down there. And the visual aspect of it is nice because like why is there 3 yellow hairnets on that line and not on this line? Can we switch that. So it helps us better train them and so they're going to get a reward after 30 days, after 90 days, 180. And also, we have a training plan and kind of a buddy system that we're implementing. But then also, I have leads and supervisors and operators, they have more responsibility, more skilled and they'll be on a different tier system. So it's very culturally different. When I started here, we had 1 supervisor for the entire floor. She was responsible for 70-plus people as a supervisor not even a manager. She went on maternity leave, elevated an operator who is very competent. In about 4 weeks, she was in my office in tears. It was just too much. And so I went down there on the floor and worked with her. I was like, "how can I support you? Do I need to be hands here? Do I need to be making decisions here?" And after 2 weeks, I was like, how did Melissa do this? Was she superhuman work? So we've divided and conquered. Right now, I have a manager who has 2 supervisors under her and then 4 to 5 leads under them, and they break up into teams and have different responsibilities on the floor.

If you want to come. And now I have Lynn to talk a little bit about customer service.

Hello, everyone. I'm [ Lindsay Parish ]. I'm the Customer Service Manager here at Rocky Mountain Chocolate. I've been here for 12 years. I come from a little town just West of here called Kayenta, Arizona. I went to school here at Fort Lewis, and I did an internship here at Rocky Mountain, and I decided to stay because I really enjoy the people that I work with. And most of all, I really enjoy the franchisees that I got to know over the years. In customer service, what we do is we handle any issues, feedback, questions that franchisees have or even our end customers. We receive that feedback through e-mail, calls and rmcf.com. Right now, how do our stores get our yummy chocolate into their stores? What they do is they first go on our catalog site and they place their biweekly customer order. We then arrange it to have it shipped on our trucks to their stores. And with that, they can either decide to have their orders shipped through our trucking system or we can have it arranged to ship via UPS or via FedEx. It really depends on what they would like. One of our most exciting changes that happened and actually happened this week is on our catalog site, we connected our items to show the on-hand inventory that we have. We haven't done this in the past, and this is just something that we did just 2 days ago. And this allows our franchisees to have the assurance that when they place an order for an item, it will show up on their order for the truck. Vice versa, if we're out of an item, it will not ship on their trip, and they will know ahead of time. According to the website, they should also have an ETA of when that item gets back in stock or they have the option to put their e-mail -- sign up for an e-mail of when the item is back in stock. So this will help us -- it will help us with calls because most of the times we get calls from our franchisees. They're like, "when will this be out of stock -- back in stock" We have to reach out to production. But we're all working together as a team and we keep this site and maintained, the franchisees will know what we know. Another exciting change that will be coming up is we're going to start using Salesforce. It's a platform that will help us better communicate with our franchisees. It will also help us monitor any feedback or issues that franchisees have, and not only our franchisees but our end customers as well. We're excited for these new changes, and we look for more positive change in the future. Do you guys have any questions?

[indiscernible]

Welcome to Durango, if you forgot my name, I'm Donna Coupe. I oversee support and training for the company. And I'm just going to talk briefly. Jeff covered almost all my bullet points, but I'll reiterate them. My team is really excited because we're doing some different things in support this year. My team consists of 4 business consultants that are spread out across the United States. I'm getting ready to hire our fifth one that will be based on the East Coast. And their regions range anywhere from 27. Our high right now is 35 stores. And so that will be with the fifth person, okay? We are looking at our store visits now with a dual mandate in mind. And what that means is we're going to be focused on upping store sales and increasing store profitability. So those are the things that we're really going to try to help the stores with. We're going to do that with a series of deliverables like 2 physical visits from the field -- or the business consultant. I need a buzzer on me that you can just hit, Jeff, business consultant physically, twice a year in a store. And then from there, we're going to go through a very in-depth business plan on the phone with the franchisees, going through the things that they're doing in store, the things they are not doing, a deep dive into sales, where they want to be, how they're going to get there and how we help. So we're all very excited about this, and we're going to start those calls next week. From that business plan call, quarterly we will call to chart progress with the franchisees. So they'll get 3 more calls from us, and we'll figure out how they're doing, where they might be falling behind, celebrate the successes and so we're excited about that as well. And then there'll be 2 mystery shops that will go out to the stores from our vendor, and we will call them when they receive it, and we will hopefully celebrate their 100% or we will talk about why they got 20%, and how we can help them with that. But my team just -- we're just really excited right now because Jeff's got a lot of exciting things going on, and we're just starting to institute some of them, and we're just happy. So can I answer anything for you?

What are they doing before with the business? And what is it different?

We've tried lots of different things. Before actually Jeff got here, we were doing some like -- we would try to get to the stores once a year. We've tried on-demand visits. We've tried a series of things. This time, in all of the history I've been here, we have never hit stores twice, but we will. So that's very exciting.

Two questions. So certainly more appropriate for Kara, but -- and I'm sorry, this is a look-back question. I'm trying to get about the business. But last year, franchise costs were up 41% and franchise fees and the royalty and marketing fees were down. How does that happen? And what's being going to fix it? And then I have a kind of a follow-on?

How about this, Kevin, can I back to you on that? The numbers you decided to make sure we -- and anyone else has questions will follow-up from there.

Cold Stone relationship, do you have a contract with the parent company and then you go hunt the -- for co-branded stores? Or how does that work? And is there a term to it?

Yes. So we work with [indiscernible], but they're franchisor. They license our Rocky Mountain Chocolate Factory name. So they really nicely do all the work, right? So we train them and get them set up and then we train their people to train their franchisee.

So they're pushing your franchisees?

Yes. And they have, as you know, like 17 different brands under their umbrella.

And from a development perspective, typically, they will reach out to our to [indiscernible] aspect there is a -- she is my best in right arm to me the women in the room. On top of that, basically, we obviously will make sure there's no impact on the site selection process. And obviously, you don't want to cannibalize our current location. So we really take that very seriously when designing that. And Kahala is a very good partner. We really enjoyed working with them. The great thing about it is, right now, we're in about [ 104, 105 FTEs ]. So it's just nice for us to have that. And to them, especially when they're in full weather location, it helps their sales. When they suffer in those winter months in Northeast, in Chicago, stuff like that. But they're actually all over the country. I mean, we have -- you could be in Phoenix, you would be -- I mean, pretty much anywhere. But we do like the partnership with them and we're continuing to develop.

So how many Kahala stores are there in total in the U.S.? And then is there a term to that contract?

[indiscernible] Yes, second holiday is also great such us to reap the -- go ahead. All right. but go ahead.

I was going to say just because I don't -- all right. Sorry, to interrupt. Well, the truth of the co-brand license is in conjunction with their license with their franchise agreement with Kahala. It's an amendment to their franchise. So term same amount of time as their franchise agreement, which I believe they're on 5-year term.

They're in 5, I believe. Yes.

Okay. So they are on 5-year terms. So if they transfer in between it's the same sort of deal, they still come to training, usually for co-brand training [indiscernible] and all that. But yes, we do most of the life [indiscernible] not cannibalize.

So the contract with Kahala is in [indiscernible]?

Yes.

[indiscernible] coming about last -- and we've or so -- thanks appreciate it. This also include opportunity services and operational services and other support to the franchises.

Yes. I'll be pretty brief. I actually am one of those people that started out on the franchise side. My family were franchisees. They own the 2 stores in the Denver National Airport when the airport relocated in '94. So I started out as a clerk behind the counter, helped my family manage their 2 locations, and then made a jump over to the corporate office. And that time was mostly spent in Donna Coupe franchise support area, doing a lot of store openings, store training, store visits, working directly with the franchisee. So this operational services is a new role, and the main purpose of that role is to really shore up a lot of the data that we're using to make decisions here at the factory. We're doing a lot of technology updates and we're trying to show up that our historical that is accurate. And then going forward, use that data to do better business planning, performance evaluation and modeling, for not only our franchise system, but other initiatives that we develop and really support Kara and Donna in their strategic plan to grow the business. So that's what we're driving into, and it kind of covers lots of different areas. But over the next year, we're going to be really robust with it. So hopefully, we can spend less time trying to get at the data and more trying making decisions about the data.

I'm going to jump over to Ryan to talk about some [indiscernible].

A ton of the teams talked about how do we know it, where do we know it and the importance of data and analytics? In the past and as Rocky Mountain has grown, we've had a mix of market systems and organically built tools. In this newest -- call it, in our newest phase in our cultural ship, what we're bringing in are some bigger tool sets so that we can share data near real time, make better decisions and keep everybody informed. We're taking a 3-pronged approach right now. One of them is our ERP. It's our corporate internal source of truth. It lets us measure and metric manufacturing. It's where we track our financials. It's where we measure sales, take orders and manage our customers. The second piece is the POS. We traditionally, for probably the last 7, 8 years, have had a mix of vendors in the POS market. We did that primarily to keep costs down using competition to provide the benefit of franchisees. With retail changing, with customer expectations changing, how they get product, when they get product, we have found it's very valuable to have a consistent source of truth in the retail operation. So the POS lets us measure that. It gives us a consistent source of data. It's something we can have a conversation with the franchisees about as well as inform the manufacturing teams and the sales teams about what's going on. The third leg, Lindsay talked about, it was Salesforce. It's our CRM. It's how we're connecting the franchise relationship up with Donna's business consultants and with the corporate business. That's where we share data. That's where we keep everybody informed it's going to give us the opportunity in the future to really gather up all the insights, all the data that we have in one place and provide it out to large team. Superfast, but if anybody has questions, would love take them. Kevin?

Ryan, can you talk about how each of those 3 will be complete? And then a follow on, what is the additional annual OpEx for each?

Good questions. So the ERP is in progress now. The lift is moving off a 30-year-old system. The anticipated go-live date would be 1st of next year. We recently calendar year right at the beginning of January. There's a balancing act from a data and financial standpoint when you bring a system like that online, you can't just do it any day of the week. I've recently moved that project back just the sheer volume of things that we need to check. We want to make sure we get it right. It's not something we can get wrong. So ERP will be -- I guess, that's -- it's one of the bigger milestones. Salesforce is in process. It's been in place in 1 iteration and another for a couple of years. The latest version right now, we're pushing very hard on. POS just started this year. We expect to have critical mass, I'd say, spring next year, but it will be ongoing as well. There's several of our operators for one operational challenge or another can't convert right now. But the stores that can. We're helping them move over. We get great partners in the mix. Annual OpEx for us, corporately, we're looking at somewhere between $200,000 and $300,000 in subscription fees and licensing for that.

All 3?

Yes. Yes. We don't -- so most of the POS is funded through the franchise system and support partners and how we process credit card payments, the ERP and sales force are licensing contracts with those vendors.

And I'd just add. The real cost of not having data is very high. I have the analytics as we've been [indiscernible]. So this is going to be evolutionary for us. and also culturally this is about having the information, pushing it down to the lowest level where people can use it to make real decision. And that's been a big cultural shift. And it's always trust and verify. So [indiscernible]. Carrie, can you talk a little bit about financial.

Absolutely. As Jeff said, I'm the newest member of the team. I've been here for just a little over a month, so it's like drinking from a fire hose. Learning as much as I can, as fast as I can because it's very important that I get up to speed. We are operating on an old counting system as Brian mentioned, and we are going through that conversion to the new ERP. I'm a Certified Public Accountant and spent 15 years in auditing. So that's one of my strengths. I will be digging through all the numbers so that we can get back to the data and analytics that have been mentioned as a very important part of what we're going to be doing. We need to grow our revenue so that we can reinvest back in business, invest in our franchisees and then get back to where our margins are expanding and our stock portfolio is healthy and it's going to be my job to make sure that we are actually complying with all the rules and regulations that we need to and keep everything operating the way it should. So that -- if there's anything else that you guys want to know about, I'll be happy to answer any questions.

We know Kevin, would have a question.

[indiscernible] can get in place by September 30? And where will that emanate from.

We actually expect to have that in place. We are working with a lender to negotiate a contract now. It is not finalized, but we do expect that to have that done. And I'm not sure whether we've released that publicly or not.

All we said publicly is [indiscernible] before September 30.

That's likely to be straight debt. And will Wells Fargo extend beyond September 30?

[indiscernible] into the future but based on the circumstances [indiscernible]. Good question.

Wells, if you're not set by September 30 with non-money center [indiscernible] extend beyond September 30?

We haven't talked about it, we have good relationship with them. We have regular dialogue and keep them the best. It's our expectation on that debt line [indiscernible]. Guys, we're just about 2 hours. I just some closing comments that we have to make. I see it looks a little bit [indiscernible], you give me another 5 minutes, 10 minutes?

Yes. Okay. The last part of this is really is what's next. We plan to grow -- we put together a 3-year business plan. We'll update that on a really regular basis. So we'll have on a rolling forward basis. The company today generates round numbers about $30 million in sales. We peaked at $40 million and this is probably in the last 6, 7 years. We have 147 Rocky Mountain stores, 115 co-brand, 1 of 4 of those are cultural and premium, the other 11 iteration of U-Swirl or Yogurtini one of the previous yogurt brands that we still do business with. We operate in 36 states in the Philippines. We have 1 production facility with substantial capacity to increase -- and I think Tyson, when we talked about where we were today and how we could expand, we're budgeting like [ 1.2 million-ish ] in the next 12 to 18 months that should bring us to, we think, about [ GBP 4.5 million ] that is. So we'll do this in lockstep with some minimum amount of CapEx. We've got a terrific group of employees, some who are here almost 40 years. And not just 1 or 2. There are bunch of people who have been around here 35, 40 years. They're excited. They're motivated. And I think everyone is really eager and ready to see the company grow. I've had more than 1 person come in and say it's really refreshing to actually have a vision that works out a couple of years. It's not mine alone, it's definitely been collaborative. And as I said earlier, it's important that we get everybody to buy in Remarkably, we have extraordinarily loyal group of franchisees, and I said remarkably because I think we've given them every opportunity to work and they've hung in there with us. And for that, I'm really grateful and I want to deliver for you guys. So we're going to do our best to make this a really good experience again. We have a distribution system that begs for additional growth and efficiencies. Most importantly, I think we got a great product. And please there -- I see a lot of products still on the table. You can take a box and you go home, but if this doesn't get picked up, feel free to throw in the bag and take it with you. We have opportunities to expand our store count. We've updated the franchise agreement, which I think is far more economically attractive. Being a finance guy, I look at the agreement and say, "What would I be willing to sign?" The agreement that we have out there today, I'd sign it in a minute. I think it's very fair -- we have a new and appealing store design. We're repositioning our brand, and Kelsea talked down a little bit. And in deference to time, I cut part of her presentation out. But more to follow on that as it becomes available. We have a logistics network that begs to be filled in and in other words we are sending those trucks out if I can stop 3 places, instead of 1 place between here and Charlotte, why not? We have available plant capacity. We're continuing to evolve our product offerings, as I discussed a little bit earlier with the innovation group. And Kevin, you asked about how quickly we can get to 300 stores? I don't know yet. But when we put those numbers out there, I'll let you know. And it will be iterative. We'll be 150 to 175 to [ 275 ] and so on, but we are going to continue to evolve as a company. My view on this and probably some of the financial guys near Global Value or Abernathy, I think at scale, we have 10% to 12% EBITDA margins. I think we have 15% return on equity. We've done that in the past. So I'm not telling you anything that we haven't done historically. I think we have a more disciplined group of people. I think we're putting culture in place that's going to allow us to grow in a very disciplined and methodical way. Most importantly, we're building a leadership team in Durango. And since the day I've shown up, I said, "Hey, I'm moving to Durango. I'm going to work here. I have expectations that most everyone else that needs to is going to be up here. And it's made a big difference being able to walk around the plant every day. And I'll just close by saying, I'd really appreciate the support of all the stockholders. I know a lot of you have been really, really patient with us over the years. It hasn't been a good ride. We peaked at $15. We troughed recently, I think, at [ $1.50 ] , the stock might be trading between $1.75 and $2 right now. But what I would say is an experienced guy from Wall Street is stock price follows performance. I'm going to concentrate on getting the performance right. We'll communicate with our stockholders, we report out quarterly, but we're going to drive really hard to make this a very profitable business. And when we do, your stock price will go up. And if we get it really right, your stock price will go up a lot, and I expect to get it really right here. So thanks for your time and interest in the company, your continued support, buy stock if you're so inclined. And we're happy to answer any last questions right. I think we're probably just after 11, we had planned to do a Q&A. It looked like were -- some of you were getting a little drowsy. So I thought we'd wrap it up soon. So any closing questions?

[indiscernible]

That's a good question, Sterling. You know that off and No, Tracey, I don't know. My guess is probably, it depends. If you're in a fund versus someone that reports out separately, my guess is probably about 500 unique shareholders. Although Fidelity was a shareholder at one point. We were in their small cap fund, $150,000 or something. But we routinely -- I routinely talk to maybe 5, 6 investors who track this pretty closely. Some of our investors are index funds. So it doesn't matter.

No analysts covered.

No, we don't. At some point, we will. I can call up 3 guys tomorrow and say cover us, but we've got to get our story straight, and then we'll do that. So there's the element of how do we interface with Wall Street versus how do we just run the business? We'll get the business fixed, then we'll go to tell Wall Street our great story. We'll ring the bell on the NASDAQ. We'll have to put our ticker symbol up in Time Square, all that good fun stuff. We got a lot of work to do before that happens. So, yes, any other questions? Yes, Kevin?

I just wanted to ask you to franchisees in the room. I got my facts wrong, but I thought you took out a 15% increase in price June 1. Was that across the board? What's the impact of that? What was the reaction to that?

Yes. Is that your question? Just want to make sure. Yes, we did on June. While we put a 15% price hike in. But there's great elasticity of demand. Remember, I'm an economist, I'll talk about that a little bit. If you can raise your price, when did you start to cannibalize your demand. We have high elasticity of demand. I don't think we saw -- from my perspective, I saw like 0 impacted. Well, someone -- some of the alert franchisees saw that coming because we had to notify in 30 days in advance. So they bought forward. So we had a little bit of like a rate and a python here and a little bit of a lull here. But we came out of that, I haven't seen any impact. Do you guys? No which kind of begs, well, maybe we should raise the price a little bit more, but we won't. [indiscernible] Was that?

I just had a follow on. It's kind of a wild question, but have you heard anything from the franchisees about [indiscernible] effect about cutting back on your product because that?

Can I answer that because we just finished going through our consumer insight studies and we completed both in-store with consumers as well as through our online database of consumers. So we had a pretty robust study. And then the target audience [indiscernible] really focused on this younger female millennial consumer who is really using chocolate to reward herself on a regular basis. She is buying across categories from lower-level chocolate like [indiscernible] all the way up to very high premium [indiscernible] chocolate, and she's purchasing them pretty much standardly every week, all week long. She usually has 3 different categories of chocolate in her home at all times. So we -- our target consumer is really not the person who is living in a different world. And we are going to be leading into that further. So I never heard, but maybe Jennie or Steve or Robin could comment, but we have not experienced that our [indiscernible] reward space is being really affected by that we're not playing into the health content space.

Matt, do you have questions?

I was wondering if there's an opportunity to see the floor today for those of us that haven't seen that or there is not?

Let's talk about that afterwards. Yes. Any other questions?

Just have a follow-up [indiscernible]. I need to be educated on this. I know I think with the new investment, you're over the $10 million in shareholder equity mark. Do you have to meet any of the other requirements that were mentioned in your filing?

No, We don't. We've submitted a plan to NASDAQ. They like what we had to say. So we should be good there. Yes. We need to concentrate on making money to keep that equity higher, a lot higher. Ladies and gentlemen, thanks so much for joining us today. We'll do this again in the future. I hope it was valuable. And at any time, if you have questions, feel free to reach out to the company directly and I'm always available. So thank you.