Boyd Hoback - President & Chief Executive Officer Jim Zielke - Chief Financial Officer Susan Knutson - Controller.

Alex Fuhrman - Craig-Hallum Capital Group Will Slabaugh - Stephens, Inc. Greg McKinley - Dougherty & Company Mark Smith - Feltl and Company.

Good morning, ladies and gentlemen. Welcome to the Good Times Restaurants, Inc. Fiscal 2015 Third Quarter Earnings Call. As a reminder, a part of today’s discussion will include forward-looking statements within the meaning of the Federal Securities Laws.

These statements are commonly identified by words such as "anticipate," "continue," "plan," "expect," "intend," "should," "will," and other terms with similar meanings.

These statements include but will not be limited to statements that reflect the company’s current expectations with respect to the macroeconomic and competitive environment, the financial conditions of the company, results of operations, plans, objectives, future performance including the company’s initiatives and strategy, sales growth, operating margins, costs, expenses, deployment of capital, restaurant development and/or remodels, new market development, franchise development, and other expectations within the course of this call.

Although the company believes the assumptions upon which preliminary or initial results, financial information and forward-looking statements are based are reasonable as of today’s date, these forward-looking statements are not guarantees of future performance and therefore investors should not place undue reliance on them.

Also these statements are based on facts known and expected as of the date of this conference call, and the company undertakes no obligation to update these statements to reflect the events or circumstances that might arise after this call.

Participants on call today should refer to the company’s Form 10-K A and other filings with the SEC for a more detailed discussion of risks, uncertainties, and other factors that could impact the company’s future operating results and financial conditions.

The company has posted its third quarter press release and supplemental financial information related to the quarter’s results on its website at www.goodtimesburgers.com in the Investors section. And now, I would like to turn the call over to Mr. Boyd Hoback, President and CEO of Good Times. Please go ahead, sir..

Thanks, Karen, and thanks everyone for joining us this morning. With me today are Sue Knutson, our Controller; and Jim Zielke, our CFO.

As most of you know, we closed on the acquisition of Bad Daddy’s International on May 7 and since then we’ve had several members of our operating team in Colorado down in North Carolina assisting with the transition, putting in our administrative and accounting systems and training several new employees.

We’re continuing to increase staffing levels in North Carolina restaurants, which are running a bit lean, in anticipation of the sale, so we’re staffing up and deepening our employee level there. Other than that adjustment, the transition is going really as planned and we’re enjoying working with the management teams there in North Carolina.

In addition to the store staffing levels, we’re building management bench strength with new trainees in order to add more stores to the North Carolina market in 2016.

That will increase our labor margin somewhat nominally in this quarter as we get a lot of training done, but that additional labor is being more than made up from sales being ahead of our plan, plus the limited incremental gain and expenses required to support the stores which again are fairly nominal.

So it looks like our expected cash flow from operations from the BDI acquisition will be right on target. We will continue to increase our G&A to position ourselves for some accelerated growth and anticipate promoting the District Manager next month for the Charlotte market.

We’re in the process of hiring a Director of HR to focus on the Bad Daddy’s management recruiting by the end of this month, and then plan on layering in a VP, a store director, real estate later this fall. The Good Times brand continues to perform exceptionally well.

Same store sales of Good Times increased 4.8% during the quarter on top of last year’s increase of 12.5%, and they were impacted this year by record range in May and early June. The 4.8% represents just shy of 35% three-year compound growth rate in same store sales.

And as we discussed last quarter, when we look back at our two year stack in same store sales growth, our sales comps got more difficult beginning in this last third fiscal quarter which was our first comparison to two years of consecutive double-digit growth.

So again we certainly anticipate it will continue to that low to mid single digit same store sales growth, but are obviously thrilled with the 35% three-year compound comp sales stack. Sales in July did pick up a little bit more, with same store sales up 6% at Good Times in the month of July.

We rolled out our new all natural Housemade Pickles with television support this quarter.

We continue to see year over year growth of between 10% and 15% growth each month in the breakfast day part and we have a layered product merchandising strategy for each of our core menu categories, which include right now [indiscernible] shakes, smothered fries, Hatch Valley Green Chili burger and chicken sandwiches and then our rotating customer flavors of the month.

And we speak to each of those individual products at the store level, but really from a broadcast level, we’re continuing to push our brand position of fresh all-natural handcrafted products both in broadcast and social media.

We have a couple new Good Times sites in negotiation for 2016 and we’re currently evaluating two new markets with a pretty deep dive for possible expansion outside of Colorado, evaluating the cost and availability of real estate, the competitive environment and the labor markets in those markets.

And that again is not a core part of our growth plan right now, but maybe an additional opportunity and we’re confident we can explore the Good Times brand from Colorado and still do over $1.2 million in sales on good real estate. Our average weekly sales at our three Bad Daddy’s in Colorado continues to do well.

They average $55,000 during the quarter, the Cherry Creek same store sales increasing 19% over prior year when we closed on the acquisition of BDI on May 7, so the quarter includes a little less than 12 months of operating results from those restaurants.

However, our restaurant level operating profit from Bad Daddy’s still increased to $987,000 during the quarter or 19.4% of sales from a loss of $53,000 last year and that reflects both the relative outperformance of our last two Colorado stores as well as the acquisition of the BDI stores.

Our stated goal is to be able to replicate and scale a 40% unit level cash on cash return on investment in the store’s second year of operation and fortunately we’ve proven we can significantly outperform that in the rare locations. Our two most recent stores opened in Colorado were each on pace.

They generated an annualized store level cash on cash return on investment of well over 50% and that’s factoring out any opening honeymoon sales periods, so they are both performing extremely well.

Same store sales for the Bad Daddy’s stores for those that will be in the same-store sales pool moving forward increased 9.5% during the quarter and that range [indiscernible] flat sales to a high of over 20%, which again we are thrilled with, but certainly not our expectation moving forward.

With our relatively small base of stores, many dynamics that play in each of the locations and with the kind of volumes we are generating from the small facilities, we will be very happy with single digit growth and same-store sales traffic, which is what we got modeled for fiscal 2016.

Average weekly sales for all seven stores that we acquired was $52,400 during the quarter. We did eliminate weekend breakfast in two of the Charlotte restaurants as we don’t believe they were at a profitable level and they were very disruptive to our core business on two of the busiest days of the week.

We are ramping up the level of culinary innovation with Tim Kast, our Executive Chef, and we certainly believe that the culinary heart and soul of the brand is the core differentiator for the Bad Daddy’s concept.

We plan to push the creativity of periodic chef specials as well as further refinement of the core menu and particularly we’re working on the bookings of the menu and appetizers and desserts where we feel there is an opportunity for the innovation in those categories to match up a little bit better with the core menu.

This month, for example, we are using a loaf of sweet corn and palisade peaches for several different specials across the menu categories. We’re building a calendar to keep the menu fresh and innovative in a targeted way and a way that our ops team can execute at a very high level.

Our goal is to not only keep the innovation at a high level, but keep the Bad Daddy’s concept positioned with this much non-chain character as possible with each store having its own characteristics and ties with the community.

Some of that is going to come through in the menu, in the bar menu, in the beer menu, and some will come through in a way that we market each one of the stores. We have three Bad Daddy’s under construction in Colorado and we are awaiting turnover of a fourth site to begin construction in the next month.

In addition, we have two other leases, one of which is signed and the other is nearing execution in Colorado, one that signed in Charlotte and then three additional sites in later stage of negotiation for 2016 development in Charlotte, Raleigh, and South Carolina.

And we may choose to joint venture a couple of those stores in Raleigh and South Carolina markets to take advantage of the existing operator partners we have in place in those markets.

We’re planning on three and possibly four of the new locations to have a rooftop bar and patio, similar to our Northglenn store which continues to be highest volume store in the system and it continues to generate $70,000 to $75,000 in average weekly sales, so exceptional performance.

We believe that rooftop bar and patio is a strong driver of incremental sales, obviously based on the Northglenn performance and it adds to Bad Daddy’s overall appeal, the energy and the personality of the concept and again based on our performance so far it can provide an even more attractive unit level economic model in the right location.

So opportunistically we’re going to be taking advantage of bar and rooftop opportunities.

We will be making additional platform investments in training and technology early next year that are necessary for us to scale the Bad Daddy’s growth and we believe those tools will reduce our longer term training, operating and store opening costs, but most importantly will help to continue to grow consistency store to store and the overall guest experience at Bad Daddy’s as we grow very rapidly and exponentially off of a relatively small base of stores.

Jim will speak in a minute to our revenue and adjusted EBITDA expectations for fiscal 2015 and 2016, but needless to say we’re building the foundation for a powerful growth engine in Bad Daddy’s that we believe will meet both our 40% annual unit growth over the next several years as well as our 40% unit level cash on cash return model, a target that we’ve got.

We continue to believe that the highest quality growth story and optimum shareholder value will come from a much larger platform of company-operated restaurants and not in franchise unit concept prematurely, but we will look at that opportunistically.

With 10 company-operated Bad Daddy’s opened, we believe we can leverage our existing operating platforms now in Colorado, Charlotte, Raleigh, Winston, Salem and South Carolina to add additional eight to 10 stores over the next 12 to 15 months.

And while that development schedule is important, we’re certainly focused on the longer term and a few stores that are ahead and behind schedule based on these developers’ timetables, we think relatively insignificant to our longer term growth in shareholder value based on the projected pace of our development.

We believe we’ll try and be careful to set as clear expectations as we key in and we will begin to forecast our expectations on total restaurant weeks for each quarter as the individual development schedules become clarified and inevitably move around a little bit.

As of the end of this quarter, we had approximately $15.2 million in cash in our balance sheet and that was after the BDI acquisition, which we believe is sufficient when combined with significantly accelerating cash flow from operations, the addition of conservative level of senior debt to allow us to continue to accelerate our growth and meet all of our CapEx needs through fiscal 2016 and into fiscal 2017.

So we certainly don’t have the need here as we look into next fiscal year for additional capital. Our job right now is solidly on execution of both our brands, while making the appropriate infrastructure investments for sustainable growth and accelerated growth and recruiting talent and management to run the stores.

I’d like to now turn it over to Jim Zielke to review more of our Good Times and Bad Daddy’s financial results in the third quarter.

Jim?.

Thanks, Boyd. It was another solid quarter for us on the Good Times side. As Boyd mentioned, we are lapping two years at double-digit same-store sales growth now and so we are meeting our expectations for low to mid single digit growth.

Our 4.8% growth in the third quarter was comprised of about 1.5% traffic and 3.3% price and our sales were negatively affected by the record rain in Colorado in May and June. Cost of sales at Good Times declined to 32.9% during the quarter from 33.7% last year. These costs remain high, but stable, however, dairy, chicken and bacon have come down.

Egg prices have spiked considerably due to the avian flu crisis, which has affected our breakfast and frozen custard costs, but we are beginning to see some normalizing of the supply chain. Our beef costs in early August were actually down about $0.44 a pound from a year ago.

We did take a 1% price increase on May 1 to cover the cost of introducing all-natural nitrate free bacon which does complete our platform with all of our meat proteins at 100% all natural with no steroids or added biotics and all from humanely raised animals.

We anticipate another small price increase at the beginning of fiscal 2016, which this year was probably driven more by labor cost pressures than commodity costs. Labor cost at Good Times did increase to 30.6% from 30.1% last year, all of which is comprised of an increase in our average wage.

As mentioned last quarter, in addition to Colorado CPI indexed minimum wage, we are seeing the labor market tighten up and are selectively increasing wages to remain competitive on a trade area by trade area basis. However, we have far lower ACA interest cost than originally contemplated that is helping to offset some of that wage increase.

Value remains a very important driver for our customer, so even as we drive our fresh handcrafted all natural brand story deeper, we are still being very cautious of any aggressive price increases.

Restaurant level operating profit at Good Times, as disclosed in the supplemental information in our third quarter release, increased to $1,566,000 from $1,474,000 or 6.2%. The restaurant level operating margin was 20.4% compared to 21% last year, with that decrease related to the increased labor cost and occupancy costs.

We continue to make progress with the reimaging of our older drive-through only stores and have begun the more extensive remodeling of a few stores, including one that was closed for approximately 10 weeks and we reopened just on August 5.

We expect to complete one additional drive-through only store reimage in the fourth quarter, two major remodels in the first quarter of fiscal 2016 and six more reimages and remodels in 2016.

Our Bad Daddy’s restaurants generated $983,000 of restaurant level operating profit or 19.3% restaurant level operating margin, with the restaurants acquired from BDI generating about $560,000 in that total in less than two months and the three Colorado Bad Daddy’s restaurants generating approximately $423,000 of the total, as our newest store in the Southglenn shopping center has matured and operating costs have normalized.

In addition, we had [$445,000] of royalties from the Charlotte airport license during the period. So prior to any G&A allocation or acquisition costs, the BDI acquisition provided over $600,000 of cash flow in just less than two months.

We do continue to run at 100 basis points to 250 basis points lower on our cost of sales on a store by store basis in Colorado than in North Carolina and we anticipate we’ll be able to begin the move in North Carolina restaurants closer as we put in place further purchasing economies and operating systems.

However, our North Carolina restaurants will always run a slightly higher bar cost just due to the liquor laws there. Total cost of sales for all Bad Daddy’s was 31.7% during the quarter.

Our Colorado stores have an approximate 300 basis point labor disadvantage when applied to all front of the house hours due to our state mandated higher tip credit minimum wage.

But we have made a lot of that margin out just with a slightly different and more efficient labor and management model that will be incorporated into North Carolina restaurants over time.

It does involve cross-training the management team and slightly different scheduling and compensation system for front house employees which to date has not been the model in North Carolina restaurants.

We won’t capture all of that margin difference in the North Carolina stores and it will take all of next year to evolve the management structure in each of those stores. Our current Colorado labor expense continues to include slightly elevated management expenses at the stores as we do carry fully trained management for future restaurants.

Total labor expenses for all Bad Daddy’s restaurants were 34.5% of sales during the quarter and we expect those to increase slightly during the next two quarters as we increase our staffing levels in North Carolina and until we have the next four restaurants opened in Colorado which will reduce the amount of excess management carry.

Total restaurant level operating profit, again a non-GAAP measure as defined in our third quarter earnings release, increased to $2,549,000 from $1,421,000 last year, reflecting the acquisition of BDI, the new Colorado restaurants and continued improvement in Colorado Bad Daddy’s restaurants’ operating margins.

General and administrative expenses increased to $1.1 million during the quarter from $647,000 last year, but remained 8.6% of revenue.

The G&A increase consist of higher salaries, cash and stock based compensation expenses, investor relations expense, directors’ expenses and legal and accounting expenses as we gear the company for accelerated growth.

We anticipate that G&A expenses will begin to decline as a percent of revenues in the latter part of fiscal 2016 and beyond as we expand our base of restaurants, even as we increase the G&A spend in key areas.

Our net income for the quarter was $107,000, which did include $156,000 in preopen costs, $365,000 in one-time acquisition cost and $165,000 of stock-based compensation expense. As a result, our adjusted EBITDA, as disclosed in the supplemental information in our third quarter release, more than doubled to $1.2 million compared to $500,000 last year.

We do expect approximately $14 million of sales and $900,000 to $1 million of adjusted EBITDA in our fourth fiscal quarter, with approximately $375,000 of preopening expense in the quarter.

In addition to low single digits same store sales increases at both brands, we do expect to open two additional Good Times Restaurants in fiscal 2016 and eight to 10 additional Bad Daddy’s restaurants, generating total revenues of $68 million to $73 million and total adjusted EBITDA of $4.8 million to $5.5 million for the fiscal year, including approximately $2.5 million of preopening expenses.

The non-GAAP adjusted EBITDA calculation is also described in the supplemental information in our release. As Boyd mentioned, we have over $15 million of cash.

So conservatively with our cash flow from operations, cash on hand and the addition of a relatively conservative level of senior debt, we anticipate we can support our growth in new Good Times, the continued remodeling of Good Times, additional information technology investments and our planned new Bad Daddy’s development well into fiscal 2017, absent any acceleration of that growth.

The biggest variables in our expectations are the timing of new stores coming online and the sales volumes at these new stores off a relatively small base of stores.

We are confident in our ability to generate our targeted unit level margins once the store has been opened 90 to 120 days with a very defined line-item operating expense metrics for annual sales volumes ranging from $2 million to over $3.5 million.

As we move into fiscal 2016, we will tighten up on our quarterly expectations and guidance, as the new store schedules become clear and our pipeline horizon is extended into 2017. Now, I’d like to turn the call back over to Boyd..

Thank you, Jim.

As I mentioned in our call last quarter, our story right now is a pure growth story and we’re focused on disciplined site selection, hiring good people, not over-growing our operating capabilities and most importantly maintaining our unit level economic models, [indiscernible] taking Good Times out of the Colorado market, but I do want to be realistic about the risk reward profile of developing a freestanding QSR concept in a new market versus Bad Daddy’s full-service concept that’s been proven in multiple metropolitan markets now as the strategic implications for growing the concepts are very, very different, but we are exploring the experience of Good Times alongside Bad Daddy’s very aggressive growth plan.

We now have really good strong operating platforms for Bad Daddy’s, again in Denver, Charlotte, Raleigh, Winston, Salem, South Carolina from which to grow and I am anticipating that all of our growth in 2016 will be in and around those markets as we begin to look – and our new site pipeline for 2017 which we’re working on right now that will include some new metropolitan markets.

While we’re exceeding our expectations and target for the Bad Daddy’s concept, I also want to reiterate that our model is to be able to generate $2.5 million average sales out of about 3600 to 3800 square feet, with the restaurant operating level margin in the mid to high teens.

If we keep our net investment after landlord contributions to under $1 million, which I think we can, that model produces our targeted 40% unit level cash on cash ROI or better than that.

We’ve got a big push coming up in the next eight months with our anticipated six new Bad Daddy’s opening in Colorado, but the good news is we have some really good strong operators in place that are gaining good seasoning time in our existing stores.

Jim has been a great addition to our management team as CFO and we will continue to recruit talented people for key positions to support that growth and our operations team has really done an admirable job in both North Carolina and Colorado and we intend to really developing a high-performance people oriented culture over the coming years.

I appreciate your time with us today. With that operator, we will open the call to questions..

[Operator Instructions] Our first question comes from the line of Alex Fuhrman from Craig-Hallum..

I had a quick question for Boyd on the strategic expansion and then just a couple of follow-ups on the guidance as well, just for clarity.

Boyd, I think you mentioned you’re looking at two specific new markets for Good Times, I’m not sure if you said which markets those are, are they adjacent to Colorado? And then would that be incremental to the two stores you talked about opening next year, could we actually see those opened next year or are we talking of a two, three year opportunity on new markets?.

They’re adjacent to Colorado. We started with five, we’ve narrowed it to two and that would be incremental to the two planned openings in Colorado next year. And again, it’s more strategically evaluating what our risk profile is. Good Times has developed a really strong niche in Colorado, which is one of the most competitive markets in the country.

The other side of that is we have over 20 years brand equity that we’ve built for Good Times. And again, freestanding QSR burger business is very competitive, but we think that if we can prove it out in a market and do so mitigating our risk that it could be a larger franchise platform for us on Good Times.

So we anticipate that we could have a couple of stores opened in those new markets in 2016, should we choose to go ahead and move down that path. That’s why I wanted to clarify that and qualify that, probably that’s really not part of our core growth plan right now.

So I don’t want to [indiscernible] expectations, but with Good Times’ performance, the way it is, the economics, we think there maybe some more opportunity there..

Looking at the guidance for next year, $68 million to $73 million in revenue, it’s a fairly wide range, would you say the delta between the high end and the low end, is that mostly the productivity of the new Bad Daddy’s units are going to have coming on or whatever you could share there would be helpful.

And then baked into that assumption, what are you assuming for Good Times’ comps for next year?.

We’re assuming low single digit comps for Good Times, in the 3% range. And yes, most of that delta between $68 million and $73 million is all driven by the timing of the new Bad Daddy’s stores and again wanting to be somewhat conservative on our approach both in terms of the total number of stores and the timing of those stores.

We’ve assumed that we can continue to open $2.5 million Bad Daddy’s and so that’s in our core assumption, but variability between the low and the high is really based on the timing of those openings.

We have the next six pretty well locked and loaded here in Colorado and we got the balance sourced for 2016 well along their way from a negotiated standpoint, either signed or in negotiation to have signed leases.

But not sure, particularly since almost all of these developments are new developments, and so we don’t control when they get turned over to us. So we wanted to provide a range based on when we think those developments will actually happen..

Our next question comes from Will Slabaugh from Stephens..

I wanted to ask about Bad Daddy’s and the constraint that you saw in the quarter. It was quite a bit stronger than what we were anticipating.

So I’m wondering if you can talk about what’s driving that and if you’re seeing that more in the Colorado markets or North Carolina markets, or if it’s across the board?.

It’s really across the board, Will. But understand, it’s a very small base of stores. And so even though stores that have been opened more than a year, that’s a pretty small number of stores, but as I mentioned, it range from – we are generating some really high volumes.

So it range from a store being flat to a store being up over 20% and none of that was Colorado, that was all North Carolina. So a very wide range and the dynamics are very different that’s fueling some of that same store sales growth.

So while I know it’s a very important metric and we certainly want to maintain that positive off of this very small base, it’s going to probably continue to be a pretty wide range and that may fluctuate. And again I say said, I think our expectation in the low single digits on same store sales given the volume we are doing on these stores..

And then just kind of a broader question on Bad Daddy’s now that you’ve had a little bit more time to digest what you’ve seen in North Carolina, it’s original market, is there anything that you can point out that you’ve learnt or maybe that’s different than you would have thought or any sort of confidence gained or lost in terms of the potential of the concept over time?.

Since we’ve been under the covers for the last couple of years, I don’t think there’s been any surprises.

And I think as I mentioned last quarter, the good news is that I think we see it as a little broader consumer base than what we originally thought, both on how our Northglenn store is performing, which is not a terribly high-income area, but it’s all the upper middle income.

I think it’s anchored and cemented our belief that we’ve got a big long runway for Bad Daddy’s and our sweet spot is suburban upscale [indiscernible] and really not urban at all. I think, if anything, it’s probably confirmed that.

We are in six different major metropolitan markets right now and we really look at the highest volume stores and where they’re performing best, I think we’ve been able to narrow down to that upper middle income suburban real estate where Bad Daddy’s has some stronger points of difference than in some of the urban markets where quite honestly there is just a lot of very cool concepts.

When we go out into all of the areas that we are going into and believe that we are just taking significant share from the existing casual theme market, Bad Daddy’s is really resonating is very highly differentiated both in terms of the food, the atmosphere, the service model that we got and the consumers willing to pay to $2 to $3 more per person from the experience that they are getting into traditional casual theme..

And one quick follow-up, if I could, on Bad Daddy there, as far as pricing, just to kind of wrap back what you said earlier, the inflation of the community front looks to be a little bit better than what you may have thought, labor inflation obviously is there as well.

Can you talk about what year over year pricing is on the menu right now and then is considering that inflation outlook, both on labor and food, what the pricing may look like going forward?.

Historically, we’ve taken nominal, if any, price increase, so all that same-store sales growth was really in traffic and average check and some of the menu engineering that we’ve done.

But in terms of just absolute price increases, I can’t quantify because we don’t know in North Carolina, but we’ve taken one very small – I think it was 1% price increase in Colorado over the last year.

We are seeing some really nice help on the commodity side right now, particularly with beef stabilizing and coming down and I think respectively probably more E’s coming on the beef side and really not a lot of pressure points on the commodity side at all.

So we’re anticipating we’re probably going to be having low single digit price increases as we move forward. We’re probably going to be more impactful on overall menu engineering in absolute price increases as we really take a look at lunch mix, dinner mix and our ability to move some things around.

As an example, we sold very, very few desserts at Bad Daddy’s. We think there is an opportunity there to boost check a little bit without touching pricing..

Our next question comes from the line of Greg McKinley from Dougherty..

Just getting back to Bad Daddy’s growth plans for a moment, you said you have six stores, are they currently under construction in Colorado or the leases are signed?.

Three are under construction, one will start construction next month and then the other two leases are signed, but we haven’t started – one is signed and one is 99% of the way there, but it’s not signed and neither of those are under construction yet..

If you’re going to develop eight to 10 stores in 2016, would two of four of those be in the Carolina markets then or would those also....

Yes. That’s exactly right. Two to four will be in both North Carolina and South Carolina, again, hopefully we will be able to exceed that pace of development, but right now that’s our expectation with – in addition to this six that we have under development in Colorado, we will probably do one to two more with the balance being in the Carolinas..

Boyd, in your prepared remarks you talked about patios as a component of the stores under development, can you remind us what you said there and when we look at those eight to 10 stores, how many of them will have a patio feature?.

Right now, we have two that are actually signed and underway that have rooftop patios and we have one to two more in negotiation that could have rooftop patios on them.

Obviously, our experience is limited to Northglenn right now, but based on its performance and just the consumer feedback, we think it’s a great amenity for the brand and more than makes up for the incremental investment that it takes to do a rooftop patio.

We’ve been able to get to landlords to contribute largely towards that incremental investment, give them a small percentage of rent participation, so it ends up being a win for both sides, a huge win for us, but a return for them on the same square footage..

And then you also talked about maybe exploring joint venture operations in the Carolinas as opposed to straight ownership, I just want to make sure I understood that comment and the reasoning behind looking at it that way?.

The sole reason for doing that, Greg, would be to leverage our existing joint venture operating partners that we already have in North Carolina and then we’re also looking at our South Carolina operator who we have two franchise store with, but he’s a very good operator and may be an opportunity for us to accelerate our company-owned operations by using those operators under a joint venture.

Those operators and investors, meaning in Raleigh, for example, where we have a good solid operating team and existing joint venture partners, they would like to do some more stores as joint venture partners.

From our standpoint, we would have a little better return than we would have under our fully company-owned store and it doesn’t preclude us from our own investment in company-owned stores in anyway..

And so those might be a component of – couple of those may be component of the eight to 10 you described for next year?.

Correct..

And those would still be at investment levels for you that would result in being consolidated?.

Yes, we would still have majority control over 50% fully consolidated, but have some minority interest associated with them. So from a pure financing standpoint, again, it doesn’t dilute anything we would be doing and actually slightly better return on our capital in same-store as if we did 100% company-owned..

Jim, in the comments you talked about G&A dollars climbing here as you fill out some needed positions, wondering if you can just remind us the areas that you see a particular need to invest in? And then I wanted to make sure I heard it correctly, are you expecting G&A certainly to climb in dollars, but also as a percentage of sales in 2016?.

Well, I will answer that in order here. So generally, we’re looking at the HR position, possibly some help on the real estate side which should be a new position for us.

Certainly just from a multi-unit managers’ standpoint, as we grow stores, we’re going to need to add those guys especially ahead of the growth, so those are key personnel positions that we will be making some changes in.

We do need to spend some money in the investment or in the information technology area as we probably are due to move to a new ERP system in the next year, so that’s another area of increased spending as well as just get the basic support staff here in the corporate office to support the current units as well as the growth in units.

In terms of the absolute dollar amount for G&A, we do see that continuing to increase. I think my comment was that as a percent of revenue that would start decreasing in the latter part of fiscal 2016, so it would be relatively flat for the next couple of quarters as a percent of revenue.

And then as we add more stores and be able to leverage that G&A as a percent of sales, we start to see it decrease then in the latter part of 2016 and beyond..

And then just last question, when you’re looking at your Q4 guidance for this year, can you tell us what the puts and takes are in terms of same-store sales expectations or timing of store openings, anything that we should be aware of in terms of how you add up to that $14 million?.

One of the things I think is certainly not clear from the guidance, but one of the areas we are still trying to understand being in these two separate markets is just the seasonality of the Bad Daddy’s sales.

And right now, it appears we’ve got about a 7%, I’ll just put a nice round number, about 7% premium in the quarter that just ended versus what we would expect in the fourth quarter, just based on that normal seasonality.

And so that’s certainly one area where if you’re trying to extrapolate from this quarter’s sales to next quarter, you do need to build a decrease in just for the normal seasonality on the Bad Daddy’s side. There really is a little bit of seasonality on the Good Times side going from Q3 to Q4, but it’s only about a point.

And so there is, again, no new stores opening in Q4 on either Bad Daddy’s or Good Times, we did have up to seven BDI stores they were in place for 55 out of the 91 days of the quarter and so we will have them for a full quarter in Q4. But I think that seasonality piece is probably the biggest difference as you’re trying to extrapolate Q3 to Q4..

What do you think the driver of the seasonality is and what might we think of same-store sales implied in your Q4 guide?.

So low single digit comp store sales is the assumption. And in terms of the cause of the seasonality, well, I could tell you for the Northglenn, certainly the rooftop patio probably lessens in attraction in September here in Colorado.

It is some of the normal back to school seasonality that we see in both brands in September that makes that one kind of a lighter month than the rest of the summer.

But it is fairly, again, just looking Carolinas which has a little bit longer history on those stores, we’re seeing a decrease of 6% from Q3 to Q4 just historically in the Carolina units as well. So it’s not just Colorado, but it’s across the brand..

[Operator Instructions] Our next question comes from the line of Mark Smith with Feltl and Company..

First off, just following up on the last question, can you give us more insight on current trends in comps, Boyd, did you say that you’re currently seeing about 6% comp growth at Good Times in July?.

Yes, July finished up 6% on Good Times and we’re seeing that or little better in August so far and slightly less than what we had in Q3 Bad Daddy’s, [not 9.5%] but again, very positive on the Bad Daddy’s side. And as Jim mentioned, we’ve assumed in our modeling for this quarter low single digits on both brands..

You guys have talked a lot about opening schedules little bit, but just can you confirm the cadence for us no Bad Daddy’s this quarter and is it two to three in Q1 and then the rest build out through the year or anymore insight on cadence of openings?.

Based on now that we’re finally under construction and been turned over the sites, there should be about one a month beginning in October, November and December and then the balance of 2016..

And then lastly, just looking at Bad Daddy’s, can you talk about restaurant operating profit and the delta between the best Bad Daddy’s and that with the lowest margin and how these restaurants are performing as they move out of honeymoon period?.

It’s a bit all over the board, obviously as we get more experience, we’ll be able to model that a little bit better. These last two stores we’ve had in Colorado, our second store had an enormous honeymoon, opened at just huge volume and it’s settled in a very good volume and it’s matured there.

Our third store also opened at pretty high volume, but didn’t have an extraordinary honeymoon. It just opened up and stayed there, which is great.

Whereas when we look at a couple of the North Carolina stores, they’ve had more of a one-year maturation cycle to them, the first Raleigh store for example, first year it opened up, I think it did around $2.1 million. This year, it’s on pace to do $2.9 million.

And it’s just a big bump as it lapped its first year and it’s one of the stores that’s up very, very significantly. So we’re not sure quite what to expect, I anticipate these stores in Colorado will be more of the honeymoon [it’ll open up big] and then settle in after the first 60 to 90 days or so.

Typically after about 90 to 120 days, we see towards at least settling in on its initial volume..

Outside of volumes, just on restaurant operating profit at those stores, are they opening even with the high volume restaurants, are they still at fairly inefficient on food waste and labor, are you able to come out of the gate with pretty strong margins when they’re opening with a good honeymoon?.

Assuming if they’re coming out at $50,000 a week or better, we’re able to come out at pretty strong operating margins. We take our excess labor for the first 60 days or so and put the truly excess labor into preopen. So our store level operating margin is somewhat normalized pretty quickly.

And so we have both for front of the house and back of the house, we have a weekly countdown on expected labor inefficiencies that being itself off over the next 60 to 90 days with some, but not all of that, going into preopen.

So there’s a little bit of inefficiency, there’s not much on the food cost side, we pretty quickly get to our target in food cost in the first few weeks. So again, it’s all volume based; if they’re doing the volume, we see the operating margins kick in really within the second month..

That concludes the question-and-answer session for today. I would like to turn the conference back over to Boyd Hoback for any closing comments..

Thank you, Karen. Thank you all for joining us again. Appreciate your time. We’re real excited obviously about the progress we’re making on Bad Daddy’s and continued progress on Good Times. We look forward to talking to you next quarter. Thank you..

Thank you. Ladies and gentlemen, thank you for participation in today’s conference. This does conclude the program and you may now disconnect. Everyone, have a good day..