PBPB - NASDAQ

Good afternoon, and welcome to Potbelly Corporation's Fourth Quarter and Full Year 2023 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] On today's call, we have Bob Wright, President and Chief Executive Officer; Steven Cirulis, Senior Vice President and Chief Financial Officer; and Adiya Dixon, Senior Vice President, Chief Legal Officer and Secretary of Potbelly Corporation. At this time, I'll turn the call over to Adiya Dixon. Please go ahead.

Good afternoon everyone, and welcome to our fourth-quarter and full-year 2023 earnings call. By now, everyone should have access to our earnings release and accompanying investor presentation. If not, they can be found on the Investor Relations section of our website. Before we begin our formal remarks, I need to remind everyone, certain comments made on this call will contain forward-looking statements regarding future events or the future financial performance of the company. Any such statements, including our outlook for 2024 or any other future periods should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management's views as of any subsequent date. The forward-looking statements involve significant risks and uncertainties and events or results could differ materially from those presented due to a number of risks and uncertainties. Additional detailed information concerning these risks, regarding our business and the factors that could cause actual results to differ materially from the forward-looking statements and other information that will be given today can be found under the headings Risk Factors in our filings with the Securities and Exchange Commission which are available at sec.gov. During the call, there will also be a discussion of some items that do not conform to US generally accepted accounting principles or GAAP. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the appendix to the press release and investor presentation issued this afternoon, both of which are available in the Investors tab of our website. And now, I'll turn the call over to Potbelly's President and CEO, Bob Wright.

Thank you, Adiya, good afternoon and thank you for joining our call today. So I'm very proud of what our team accomplished in 2023. Our five-pillar strategy maintains our focus on what matters most to our customers and associates, while growing our brand and the benefit of our franchisees and shareholders. We strengthened the Potbelly brand with increased system wide sales driven by 12% same-store sales growth, while simultaneously improving profitability with a 370 basis point improvement to shop margins, achieving 14.2% for the year. We made significant progress with our franchise growth acceleration initiative and ended 2023 with 612 open and committed shops. These development commitments support our target of approximately 10% unit growth in 2024 with growth rates increasing in the coming years. Finally, we fortified our corporate balance sheet by achieving a net cash position through the generation of positive free cash flow and the proceeds from our strategic refranchising efforts. As I mentioned, these successes began three years ago with the introduction of our five-pillar strategy and a unifying objective of traffic-driven profitability and unit growth. Following year-end March 2022, we introduced our three-year targets of achieving average unit volumes of $1.3 million, shop level margins of 16% and 10% annual unit growth. So how have we done? We currently generate average unit volumes of $1.3 million, have the opportunity to achieve 16% shop level margins and have visibility into reaching our 10% unit growth goal. With the achievement of our 2024 targets in sight, we think it is prudent to provide a view of what we believe we can achieve next. Specifically, we are introducing our new long-term growth ranges that we see as a framework, we can sustain over time that also coincides with our path to a 2,000 unit system. We expect to generate the following long-term growth. Same store sales growth in the low to mid-single digits, unit growth in the low-double digits, adjusted EBITDA growth in the low to mid-double digits. We have historically proven that we like to set challenging but achievable targets aligned with how we operate the business. We believe this new long-term growth algorithm has an even better way to understand the power of the Potbelly Corporation as a growth brand in the coming years. Turning back to the fourth quarter now, we delivered strong quarterly results with solid top-line performance and 6.3% same-store sales growth. I feel like a broken record at this point, but again this quarter, I'm proud to say that our strong sales results were driven primarily through traffic growth, demonstrating our ability to grow our traffic share within the fast casual category. In terms of profitability, our team successfully leveraged our food and labor costs, against a strong sales trend resulting in a 150 basis point improvement, in shop level margins year over year at 15.7% for the quarter. And as I've said in the past, these results were made possible through our disciplined strategy and execution over the past many quarters, as we have strategically rebuilt Potbelly for sustainable, long-term success. Let us now dive into the specifics on, how we plan to achieve our new long-term growth targets I laid out earlier, starting with the Potbelly Digital experience. For the quarter, our Digital business represented approximately 40% of our total shop sales, an increase of approximately 150 basis points versus last year, driven by continued progress in our Perks loyalty program. Notably, we continue to see a shift in our Digital business away from third-party channels and towards Potbelly owned app, web and Perks originated orders. Specifically, on Perks, our effort to increase Perks loyalty program member acquisition and activation continues to bear fruit, as we grew Perks acquisition by an impressive 87% during the fourth quarter. In January, we further strengthen our digital platform, as we launched our enhanced Potbelly Perks loyalty program .Our upgraded Perks program celebrates what our customers love the most about Potbelly, great Food. Perks members can now earn rewards faster than ever before and have more of our menu items available for Rewards Redemptions. Previously perks could only be redeemed after 1,000 points were earned, which we believe could take too long and too many visits. Now redemptions can begin and only 200 points. Not only that, we now also offer, 12 different menu items for redemption including Entrees, Sides & Desserts. Additionally, members can accelerate the rate with which they earn coins, as their status moves from Rocky, to PRO, to Boss level. We're excited by the reception thus far, and have already seen substantial redemptions for the new menu options. While Digital is an area of strength for Potbelly, we're not standing still. Now, delighting our customers with Great Food and Good Vibes is always the foundation for sales growth. I continue to be so proud of our company and franchise operators focus on customer experiences and throughput, to drive top line. Additionally, our marketing initiatives continue to fuel our traffic driven sales. As we look into 2024, we intend to sustain our traffic outperformance. To that end, we will continue to strategically invest our brand marketing fund, which is expected to be over 20% larger versus 2023, benefiting from a full year of 3% contributions from company and franchise shops, as well as ongoing system-wide sales growth. We believe this full-court press on marketing will help us further drive growth of our Potbelly Perks loyalty program and Digital channels; all designed to drive traffic, value and excitement for our customers. With that, I'd like to update you on our Franchise Growth Acceleration Initiatives. Our franchising team continues to be very busy at work growing our pipeline of qualified Potbelly franchise candidates, as we made great progress, building toward our goal of 2,000 units in the US. Historically, we've reported new shop commitments to-date, under the Franchise Growth Acceleration Initiative, at the time of our earnings call. This number currently stands at 202 shops. Going forward, starting with our first quarter report, we will begin speaking about shops committed year-to-date, as of quarter end, which we believe, gives investors a better view as to the progress, we are making in achieving commitments for the remaining approximately 1,400 locations still available in the US. For that end, under our new Reporting Framework, we are pleased to have signed several development deals in 2023, bringing our total year end shop commitments to 188 shops. Combined with our 424 open shops, we are ending the year with 612 open and committed shops. We plan to continue reporting quarterly shop commitments as well as total open and committed shops as meaningful measures, of unit growth progress. As we look at our development pipeline, we have visibility into achieving approximately 10% unit growth in 2024. At Illinois in our operations development team worked closely with our franchisees to ensure minimal delays at all stages of the development process. That said, as we've spoken to previously, we expect our new shop openings in 2024 to be heavily weighted in the back half of the year, as we ramp up development sequentially through the year. We look forward to sharing additional updates on both shop development area agreements and new shop openings, as we go through the year. With that, I'll now turn the call over to Steve to detail our financial performance for the fourth quarter.

Thank you, Bob. Good afternoon everyone. Revenues in the fourth quarter increased approximately 4.7% to $125.7 million, partially offset by the short-term revenue impact of our recent refranchising transactions and benefiting from the impact of the 53rd week. Average weekly sales were approximately $24,960. Our system-wide sales of $147.5 million grew by approximately 11.4%. Same-store sales growth of 6.3% in the quarter, excludes the effect of the 53rd week to better align compares against holiday timing. Traffic continues to be a strong contributor to that same-store sales growth, as we drive demand with our compelling value proposition and impactful marketing through our digital channels. Turning to expenses. Food, beverage and packaging costs were 27.2% of shop sales, a 150 basis point improvement versus the prior year period. Overall, Q4 commodity inflation was greatly improved at negative 110 basis points versus last year. Our grocery category, which includes produce, soups, condiments and chips for the largest input cost increases, with meat primarily chicken retreating year-over-year. Labor expenses were 28.8% of sales, a 200 basis point improvement versus the prior year period. This improvement is attributed to sales leverage along with ongoing optimization of our hours based labor guides. Occupancy was 10.5% of sales, a 70 basis point improvement versus the prior year period. The improvement was driven by top-line leverage and the refranchising of our New York City market earlier in the year, which carried higher than average occupancy costs. Other operating expenses were 17.7% of sales, a 260 basis point increase versus the prior year period. This was predominantly due to increased brand fund spend. Overall, shop level margins in the fourth quarter were 15.7%, an increase of 150 basis points year-over-year. General and administrative expenses were 11.9% of revenue. The year-over-year increase in G&A was driven primarily by higher bonus accruals, as we outperformed our targets in the quarter, stock compensation and increased payroll costs to fuel our development efforts. As we discussed in recent quarters, we continue to believe general and administrative expenses as a percent of system-wide sales is a more applicable to view our business, as we become more franchise-based over time. For the fourth quarter, general and administrative expenses were approximately 10.1% of system-wide sales. Fourth quarter adjusted EBITDA was $7.5 million, or 5.9% of total revenue. This was approximately flat year-over-year, driven by the impact of refranchising, bonus accrual and investments in development G&A mostly offset by a 150 basis point improvement on shop level margin. We reported net income of $2.7 million for the quarter. Adjusted net income was $0.7 million, a $1.9 million decrease versus the prior year period. This decrease was primarily due to similar drivers affecting adjusted EBITDA, as well as higher stock compensation, interest and depreciation compared to 2022. As we announced a few weeks ago, we recently signed a new three-year $30 million revolving credit facility led by Wintrust Bank. This new facility provides us with significant financial flexibility to pursue our growth ambitions under our five pillar strategy, as well as approximately $2 million in net cash interest savings versus a year ago. Finally, I would now like to provide you with the following guidance items. For the full year 2024, we anticipate the following. Same store sales growth in the low to mid single digits, unit growth of approximately 10% and adjusted EBITDA growth in the high-single to low double-digits. The EBITDA growth expectations for 2024 overcoming the effects of refranchising 33 shops and the 53rd week in 2023. The impact of refranchising on our EBITDA growth rate is most pronounced in the first three quarters of 2024, as the majority of our refranchised sales occurred in the second half of 2023. With the strength of our operational model and management team, we expect to be able to achieve high single to low double-digit adjusted EBITDA growth despite these headwinds. For the first quarter of 2024, we anticipate following: same-store sales growth of between negative 25 basis points and positive 50 basis points, including the impact of weather to start the quarter and adjusted EBITDA of between $4.4 million and $5.2 million. Finally, as Bob mentioned today, we introduced the following long-term growth ranges, same-store sales growth in the low to mid single-digits, unit growth in the low double-digits and adjusted EBITDA growth in the low to mid double-digits. With that, I'll turn the call back over to Bob.

Thanks, Steven. Let me end by thanking all of our Potbelly associates for their continued hard work and commitment to this unique brand from our frontline associates to our support center employees. For the past two years, we've been working tirelessly to provide our guests with the Potbelly experience and their tenacity. It's what drove our success in 2023, paving the way for us to meet our 2024 growth targets. As we look ahead, we are excited with what we can accomplish over the long-term. We've laid the foundation for success as a growth company and with our five-pillar strategic plan, we are on the right track to capitalize on the opportunities ahead and maximize long-term shareholder value. I look forward to another great year of carrying out our mission to delight customers with great food and good vibes into achieving our vision to be the most loved sandwich brand in every neighborhood. With that we're happy to answer your questions. Operator, please open the line for questions.

We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Jeremy Hamblin with Craig-Hallum Capital Group. Please go ahead.

Thanks for taking the questions. Congrats on a really strong year and significant progress. I wanted to start by just making sure that I understood the FY 2024 guidance on adjusted EBITDA. So just in terms of the table and how it was presented, was the guide a high single-digit to low double-digit growth rate or as a percent of total revenue?

Yeah. Hey, how are you Jeremy? Good to hear your voice again. Yeah. The guidance of high single-digit to low double-digit those are growth rates on EBITDA, adjusted EBITDA dollars.

Got it. Super helpful. And then just coming back to the target on your restaurant level margins approaching here 16% for 2024. If you look across your line items, where do you see the biggest contributors to making progress towards that target this year, roughly almost 200 basis points of improvement year-over-year?

Sure. I'll take that one. I think we will certainly benefit from sales leverage in achieving that 16% margin. But we also continue to benefit from efficiencies on the labor side, the ops team does a nice job continuing to optimize our space labor guide. We are obviously keen to continue to roll our PDK shops. There's some efficiencies in there as well. We have expanding aspirations for our catering business which will also help those margins. And really when you look down the shop P&L, the occupancy piece will be leveraged quite a bit and into the other OpEx side less leverage but certainly some leverage. I think we've talked in the past about 50% of that other OpEx gets leveraged with sales. So we're if you could see the velocity we came out of Q4 into 2024 with that 16% margin is certainly within our sights.

Fantastic. And then just I noticed in your cash flow statement, it looked like you saw nearly $5 million of proceeds from refranchising in Q4. Pretty healthy step up from what you had seen earlier in the year. I think it implies that you had sold maybe 13 units to franchisees in the quarter. Just wanted to confirm that number. And then with the $5 million, is that all related just to the 13 locations sold or were there some trailer fees on prior deals that you guys had already agreed to?

Sure. I think, first of all first of all, we sold four shops in Columbus that hit that quarter. And then we had our Seattle shops as well, which were 12 shops. And the majority of the proceeds certainly came from the sales of those shops. And we've talked in the past with our refranchising, we don't we don't necessarily have a target for refranchising. We got a few deals done in the fourth quarter, which make us pretty excited given the additional unit counts that will come with those on the franchise side but that the proceeds definitely came from the sale of those shops. And as we go forward with refranchising we've discussed to it, it's going to be much more selective in terms of the deals that we might that we might do.

So in terms of thinking about that that number that you had laid out before, I think it was roughly 100 locations over a three year period. Is that now a number that you expect maybe to be a little bit less of that target?

Yeah, Jeremy, I think we always said we'd be willing to sell 100 and we still would be, we're just going to be a lot more selective about when and where we do it. It was always for the purpose of development and getting the unit count development that went with it. And if it made sense for a particular market or group of shops to let those go then, we knew that was part of the long-term play. And we just think that as the sales pipeline has strengthened, franchise candidate interest has strengthened certainly the business, the underpinning business has strengthened that. We're in a position to be more selective and probably take our time in getting to those. And it gives us a chance to make sure that we're more focused on growth. We never saw it as a financial engineering goal. And that's why we've been -- we haven't guided to the exact target on an annual basis. But as we said, we're going to be just much more selective with whom and when and how many units as we go forward because we can be.

Great. Thanks for taking the questions. I'll hop out of the queue.

Thanks Jeremy.

The next question is from Mark Smith with Lake Street Capital Markets. Please go ahead.

Hi. This is Alex Sturnieks on the line for Mark Smith today. Thank you for taking my questions. The first one for me, just looking at the pipeline for new franchise units, it’s growing very strong. Are the current units developing? And are there any headwinds for franchisees they're facing anything now getting into a new restaurant?

Yeah, thanks. We're excited about the pipeline at all levels. And I think we've shared in previous calls, our visibility into each step of the process is where our confidence comes from. And so I think the other element to reverse of that confidence is our concern that we might see along the way. And frankly we're very involved from the time of franchising to deal structure, the size and layout of those SDAA’s that we're talking about. We then go as we've previously shared we go straight into target area planning and mapping for those targeted trade areas in partnership with the franchisee that puts their master broker and their brokers focused on the trade areas that can be potentially most successful for them and they can they can shop all of those trades at the same time with those real estate brokers. Our pre-approved architectural engineering firms that, franchisees work with gives us visibility there. I think, we've shared in the past that we do site inspections before the franchisee signs the lease, which does two things. It empowers them, if they have issues. And we are -- we believe that we will have far fewer surprises when you get to the permitting phase and you get into the construction phase, and it really sets up our contractors to be much more efficient. If you use those designers then, of course, you're going to get your designs approved by us in a much more expedient fashion. So, look from all along the way, I think we -- we see each of those steps and we're building confidence in our pipeline as a result of it. So no significant slowdowns that we'd be reporting at this point.

Very helpful. And then I'll just take one more from me on. Kind of going back to the restaurant level margin, what's your outlook for commodity prices and anything we should be watching? And also any commentary on labor costs going forward?

Sure. Well, certainly, we benefited in 2023 from a little bit of deflation, honestly on the commodity side in Q4, down about 110 basis points. For the year ahead, we're looking at low single digits for our commodity cost increases. And with wage inflation, it's really sort of stabilized. We had a lot of movement in -- late 2021, 2022 and into early 2023. But I think over the last several quarters, we've seen a stabilization in terms of wage inflation. It's still inflating, but it's inflating kind of in that low to mid-single-digit range consistently, and it's not moving around certainly as much as the commodities have moved around on us.

Thank you, guys.

Yeah. Thanks, Alex.

The next question is from Matt Curtis from William Blair. Please go ahead.

Hi. Good afternoon. I think you guys took a price increase recently. So I just wanted to ask how much price you're carrying now and then how much of the price benefit you have embedded in your full year guidance? And then separately for the first quarter guidance, I was just wondering, if you could quantify the weather penalty that's in that negative 25 basis points to plus 50 basis points guidance?

Sure. I'll start. So Matt, with Q4, we carried in about $0.03 point into that quarter. We raised private not to see what else we -- we had a gross price increase of 3.8%, so it was 3.5% in Q4, plus -- so 0.3% on the carry forward and an additional 3.5% or 3.8% for Q4. As we look ahead to this year, we're going to have a bit more story with our price increases, low, low single-digit price increases, three of them similar timing to what we had last year. We just had one in the quarter. We're carrying into this quarter, let's see, it looks like about 3.3% of price into Q1.

Okay. Great. And then for the weather penalty for the first quarter?

Yeah, I think we're not probably not even able to break out weather impact, because everyone is experiencing, and I think we saw a similar impact, given the geography that we have that you may have seen with other fast casual and QSR brands. I think the key with the discussion around weather is what's happened with the trajectory since January. We saw some nice stabilization in February and continue to be pleased with the trajectory as we kind of moved through the quarter. So it's not a very -- it's a little more art than science to try to peg exactly what you think weather impact has been. But you can certainly see it, when you're experiencing during that January period.

Okay, understood. And then separately for the recent perks update Bob you walk through some of the customer-facing aspects of it, but could you tell us anything about what you may have done on the back end to improve your ability to incentivize visits or execute targeted offers more effectively for other what is driving engagement?

Yes, it's a great question, Matt. Because I think the beauty of some of the changes that we made when you make those kind of pro customer changes with your loyalty program, it means that you unlock a number of things that we can do on the backend. You know with 12 menu items versus the one on trade that you could exchange or perks points for today, we're already seeing the kind of behavioral shifts among our Perks consumers and what their preferences are when they like to redeem something and for what they want to trade it for. We're very pleased with the balance across those categories and across those menu items. And it's very early going. Because you have two different things happening with our consumers we have customers Perks members that are able to earn those rewards at several different stages. We have many more things we can communicate with the Perks members about when they're getting close to something if they're there near the next level with the three on -- the three levels of performance with some with achieving Boss level for example at the at the peak level we can start to speak to our Perks members when they're getting close to leveling up to the next level. And what that means for them and their ability accelerate their coins and the earning of their coins. So the nurturing flows that come in on the back end is one of the best advantages of this. And I think the primary number I shared in the prepared remarks to tell you why we're excited about it. They have an 87% increase in Perks member acquisition year-over-year during the quarter. It means that we're developing that relationship deeper and deeper with more and more of our customers as they move from consumer to customer from customer and member and from member to even more active member. So there's a lot ahead of us still with the Perks program. But so far we're very, very pleased with the transition from.

Okay. Sounds good. Thanks very much.

Thank you.

The next question is from Todd Brooks with The Benchmark Company. Please go ahead.

Hey, good afternoon, gentlemen. Hope you are well? I have a few questions left here at the tag. And first of all, Bob you talked about roughly a 20% increase in the brand fund year-over-year in 2024 versus 2023. I know there's a certain scale that you want to get to before maybe opening up other channels of spending to support and grow the brand, but can you talk about how you how you anticipate putting those additional dollars to work if it's any new channels? Is it is it more on more breadth of what we're doing through kind of digital channels would just love to hear how those incremental assets are being put to work?

Yes. Thanks. Thanks. We're excited about that. I mean it's the best of both worlds because of the overall top-line growth we simply get more flow on the percentage contribution made by all of our shops. And then of course the net average higher contribution in a full year of 3%. It's a meaningful impact to our brand fund. So it's exactly the right question. And one that David Daniels and the rest of the team are asking ourselves as well, we won't go into the specifics of exactly where we're investing that money. We think that's part of our competitive advantage in our digital space. But I can tell you that, you would you would see us exploring the distribution of those investments across media as well as up and down the funnel as we as we go higher up in the funnel to more awareness driving you would use different media to do that. And if we remain consistent or maybe even increase or decrease our spend deeper in the funnel, then we're going to go for more of that traffic driving activity. I think what you see as a consumer is a propensity to want to continue to balance that and do more of all of the above to the extent that they deliver at least three to one, we love to get to five to one on our return on investment. Steve mentioned, the impact on our shop margins at the other operating expense levels, primarily driven by the brand fund contribution, but the fact that we've got the leverage throughout the rest of the P&L, we expect any incrementality in here to be margin expansive. And so far we're very, very pleased with that. So I think there's a lot more we can do and we know that at 3%. We're still well behind most of the industry. So as we learn how to do it well, we're going to we're going to keep pushing.

Okay, great. Thanks, Bob. A few follow-up on these may be more of Steve's ally, you talked about G&A being 10.1% of system-wide sales in the quarter. And I think you've talked about this being -- there is a period as we're going through refranchising where this will reach a peak level and then start to lever going forward. Where are we in that process? And are we at a peakish level here at just north of 10%? Or how should we be thinking about how this tracks over the course of 2024?

Yes. I think that the G&A for us is important, because it reflects an investment that we're making in our growth. And there's the development piece is certainly embedded in that in that G&A number, as we continue to put the infrastructure in place to trigger and launch those new units that we're expecting. And as we've also kind of made the transition from refranchising some of our shops, you tend to see some of the G&A impact there. We are, I would suggest in a year of 2024, an another year where you're going to see probably some of that close to double-digit G&A as a percent of our company sales, you will start to see some of our system sales numbers though start to move well below that number of 10%. So if that's exciting for us to see, because as we get into 2025 and as we get to 2026, you'll start to see those G&A as a percent of system sales dropped even further as we get those new units opened up. So it's exciting for us, because that's the business model that we're building. And that's a business model that's going to create the value.

Okay, great. And then just a couple of education questions, can we talk about what the value of the 53rd week was in the fourth quarter? And sometimes it matches up where it's turns into a higher volume period for people. Sometimes it's a below average week from a sales standpoint. And then there's margin repercussions of that. Can we just talk about what the contribution from the 53rd week per share?

Well, just to remind everyone for us that 53rd week included both the Christmas holiday as well as New Year's Eve. So from a system wide sales standpoint, the additional week actually added dollar, right? So we added about $7.5 million, $7.6 million in sales even though it's a lower volume week. So on a average weekly sales basis, it probably was an impact -- a negative impact of about $500, meaning if it were a regular week, right, instead of kind of a slow holiday week, our average weekly sales would have been better. So, it had and related, right, when you're getting lower volume and you're going to see some shop margins impact from that as well.

And is that something with the shop margin impact, because we already exit at such a robust rate with the impact that we've given there, and if there's a little bit of a drag period, not much closer to the 16% hurdle?

It was just a slight headwind on shop margin, not much but it did have a bit of a drag because we do have some good flow through there. And just to keep everyone kind of aligned for how we're thinking about things going forward, as we're going to report comps and we're going to report comps for 2024 on a calendar aligned basis or a trailing 52 basis. So that, the holiday weeks aligned for the most part those that are repeated in the same weeks year-over-year, and everybody kind of goes through these the 53rd week every five or six years, and so this is one for us. Just to remind everyone as well our same-store sales for the quarter four did not include the 53rd week. But our AUVs, our system sales are shop margins included the 53rd week for 2023.

Okay, perfect. And just a final housekeeping one, and then I'll jump back in. How do we think about tax rate for fiscal 2024, both how we would use it for adjustments to adjusted EPS and adjusted EBITDA? And then on a reported basis, I assume it will still be relatively de minimus.

Yes. I think the good news is as we continue to increase our profits right, we'll start to generate income taxes. Again, we had a lot of NOLs that offset our tax liability this year but not all of it, right. You can't you can't offset everything. And there are some jurisdictions that actually put a cap on the dollar amount that you're able to use. And so, the increase in our tax expense from 2023 in the fourth quarter reflects that incremental tax that we can't offset with it -- with an NOL. The way that we report our tax rate, right, doesn't show you the cash benefit we get from those NOLs are actually showing the tax rate reflective of the ways the business is moving right on a basis. That is a better compare in terms of the amount of revenue and profit that we're generating. As you look at your model, the tax rate range sort of in the low to mid-30% range for 2024 is likely where we're going to end up here. But on the cash side, right, you'll see something different because of the NOLs that we're able to utilized.

Okay. Perfect. Thanks a lot, Steven.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn the call back over to Mr. Bob Wright for closing remarks.

Thank you, operator, and thank you, everyone once again for joining us today. We are very pleased with the year and the quarter as you can tell from our comments and delighted that you joined us for the call today. Thanks to our team for their efforts in driving the business. And once again, thanks to our franchisees for helping us grow. Have a great afternoon.