Boyd Hoback – President and Chief Executive Officer Ryan Zink – Chief Financial Officer.

David Burdick – Dougherty & Company Stephen Anderson – Maxim Group Will Slabaugh – Stephens Stephen Anderson – Maxim Group.

Good afternoon ladies and gentlemen. Welcome to the Good Times Restaurants, Incorporated Fiscal 2018 Second Quarter earnings call. By now, everyone should have access to the company's second quarter earnings release. If not, it can be found at www.goodtimesburgers.com, in the Investors section.

As a reminder, a part of today's discussion will include forward-looking statements within the meaning of federal securities laws. These forward-looking statements are not guarantees of future performance and therefore, you should not put undue reliance on them.

These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect and, therefore, investors should not place undue reliance on them and the Company undertakes no obligation to update these statements to reflect the events or circumstances that might arise after this call.

The Company refers you to their recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial conditions. Lastly, during today's call, the company will discuss non-GAAP measures, which they believe can be useful in evaluating our performance.

The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with the GAAP and reconciliation to comparable GAAP measures available in our earnings release. Please note, this event is being recorded.

I would now like to turn the conference over to Boyd Hoback, President and Chief Executive Officer. Please go ahead..

Thank you, Gary, thanks everybody for joining us again this afternoon. I have with my today Ryan Zink, our Chief Financial Officer. And as usual I'll cover a summary of our second quarter and current developments and Ryan will get into more details on our financial results for the quarter and as well as some updates on our guidance for fiscal 2018.

We do expect to provide initial fiscal 2019 guidance on our next quarter’s earnings call. In terms of the sales results for our first quarter, they were excellent in both brands with Good Times up 7.1% and Bad Daddy's up 0.7% on same store sales factoring out the Cherry Creek.

Bad Daddy's was slightly below our guidance but as I mentioned last quarter, we opened our firth store in the Charlotte market at the beginning of the fiscal year and it continues to be just do exceptionally well and significantly above our expectations.

Where we saw a little bit of canalization, two other stores in the market particularly which impacted our total same store sales.

We had the same thing happen in Raleigh, we opened a very high volume store, our third store in that market which impacted another very which impacted another very high volume store and the good news is both of those stores are continuing to trend over $3 million.

We opened our fourth Bad Daddy's of the year in Chattanooga, Tennessee on April 2nd and we closed the original Bad Daddy's restaurant in Charlotte for about two and a half weeks in April for a remodel which also impacted our overall same-store sales.

Our ten new Bad Daddy's that have opened in 2017 and early 2018 continue to average above our system average weekly sales during the quarter which is very gratifying.

And Good Times sales during the quarter, same stores sales of positive 7.1% where not really promotionally driven because we were only on media advertising for about three weeks with our new all natural spicy chicken fillet in March.

We attribute this strong sales trend to slightly nicer weather from the prior year particularly during the month of March but also to the core strength in the brand we're seeing from the improvements in our core product we made almost exactly a year ago around hotter, cheesier, juicer burgers.

So our second quarter was consistent with our first quarter which was up 5.9%.

The Cherry Creek Bad Daddy's that's' been a drag on our same store sales is finally turning flat to a year ago in the current third quarter and the hotel adjacent to us is now projecting a July completion, so we anticipate that will no longer be a drag on our overall same-store sales by our fourth quarter.

On January 1, we took price increases of approximately 3% in Colorado and 2% elsewhere at Bad Daddy's and our total revenues for the quarter increased 29% to $23.5 million with the comp sales at Good Times marking the seventh consecutive quarter, sequential comp sales improvement and exceeded the guidance given last quarter of about 3% for the quarter and Bad Daddy's comp sales marking the 12th consecutive quarter, same store sales increases even though they were a little bit below our guidance.

Sales for the Bad Daddy's restaurants for the quarter, total sales for Bad Daddy's increased 42.6% versus last year to $15.9 million and our restaurant level operating profit, a non-GAAP measure, increased to 16.9% as a percentage of sales is compared to 16.1% last year.

We continued to improve our cost of sales of sales at Bad Daddy's sequentially primarily through purchasing efficiencies, contract negotiations and a little bit of menu engineering and we're implementing additional scheduling tools at both brands to refine our labor hours against each half hour projected sales.

Our commodity costs have come down sequentially from the first quarter but we're essentially flat or slightly above prior year levels on our overall basket of goods at Good Times and slightly lower year-over-year at Bad Daddy's.

We anticipate that beef costs will be lower on a year-over-year basis in the last five periods of the year given last year's spike we saw in beef costs, we saw in beef and bacon but we anticipate beef to be flat or lower.

We signed new long-term distribution agreements during the second quarter and we'll also continue to lower our overall cost structure in both Colorado and the Southeast as we move forward.

Adjusted EBITDA, again a non-GAAP measure, increased 88.5% over last year during the quarter, which was consistent with our first quarter for year-to-date increase-date of 89.8% increase.

Ryan will speak to the guidance for the balance of the year and we won’t release any official guidance for fiscal 2019 until next quarter, however, we're confident our prior expectations of increasing our year-over-year adjusted EBITDA by over 40% not only this year, but also in fiscal 2019, while we maintain a relatively conservative leverage ratio on our balance sheet to support the growth in Bad Daddy's company-owned stores.

We're on track for five additional openings during our third and fourth quarters in addition to the store that we opened at the very beginning of the third quarter in Chattanooga with Greensboro, North Carolina, our sixth store in Charlotte, our second store in Greenville, South Carolina, the third and fourth stores in Atlanta all projected to be open prior to the end of this fiscal year and are all well underway.

The nine new Bad Daddy stores in fiscal 2018 that will open is a 40% growth rate in our company owned store-base for the year and the new restaurants in the brand new markets of Atlanta in Chattanooga are both performing above expectations and above our system average so far which we think really sets the stage well for us for fiscal 2019 and 2020 growth plan.

We have additional leases signed or pending for 2019 development in Atlanta, Nashville, Raleigh, North Carolina, Alabama and South Carolina which is really our target market for the year. You know, we'll provide our expected cadence for those openings in our next call.

As I mentioned in our last quarter’s call, we also expect to sell or sublease a couple of older Good Times Restaurants during the balance of this year. We completed one of those in the second quarter.

The disposition of those few underperforming stores that are in older trade areas is expected to have a positive impact on our income from operations and a slight improvement in our restaurant level operating profit margin at Good Times as we look forward into fiscal 2019.

Our current brand initiatives at Good Times are focused, continued to focus, around improving the quality and execution of our core products and our speed of service along with select new products, only as LTO's, not as permanent menu items including our Burger of the Month Program which has been very successful; all combining to drive our top-line sales.

We're also implementing an improved labor forecasting scheduling tool at Good Times.

At Bad Daddy's we're implementing the same further labor scheduling tools, the utility cost management system, continuing our test of delivery at select stores which is going very well and we have our new online ordering system currently live in three stores and we expect a full deployment by the end of our third quarter which we believe will help increase our takeout sales and will certainly help our in-store efficiencies in filling those orders.

With that in place, we anticipate that we expand our digital and particularly mobile platform in fiscal 2019 for a more targeted marketing to our existing customer base. On May 7 we rolled out a new menu in addition to the price increases we took at the beginning of January.

We have very minor price increases on May 7 but it was really centered around the new calorie posting requirement and we added a few new menu items that we had been successfully in test for the last few months. In Colorado we rolled out a new happy hour food menu, we're testing a Bad Ass Tuesday $5 promotion which is our slowest day of the week.

With labor being our and the industry's biggest challenge, we're also working hard on really deepening Bad Daddy's culture for values and incentive systems at all levels to help reduce turnover and continue to develop strong loyalty amongst our management and team members.

I firmly believe that our core differentiated brand strategy combined with some really strong people oriented culture will continue to have, and continue to drive, outperformance on the top-line as we continue to refine our operating systems and our operating margins.

We signed a settlement agreement with two dissident shareholders during the second quarter and we expect to convene a new board of directors and a reduced board of directors on May 24 subject to shareholder approval at our annual meeting on that same day.

We don't expect any substantive changes to our strategic plan given the performance of both brands, given our development pipeline for fiscal 2019 and our expectation that we can increase our projected fiscal year end 2018 EBITDA run rate from around $7 million by over 40% as we look into 2019.

However, as we discussed during last quarter’s call, we will certainly be discussing all alternatives and ideas to better build long-term shareholder value. Ryan's going to provide a little bit more detail on our guidance. I'd like to now turn the call over to him..

Thanks, Boyd. At our Good Times brand restaurant sales increased 7.2% from approximately $6.9 million last year in the second quarter to just under $7.4 million in the current year, driven by 7.1% comps which was better than our guidance of 0.3% to 0.5%. For the quarter traffic is measured by check counts increased 2.0% at our comparable units.

We have a year-over-year menu price increase of approximately 4.5% with then approximately 0.6% of favorable mix shift.

On a year-to-date basis, Good Times Restaurant sales increased from $13.7 million to just shy of $15 million, driven again by a combination of strong comp sales and sales from our Greeley Restaurant, partially offset by lost sales from the closure of one restaurant.

Food and packaging costs at Good Times were 32.4% for the quarter, an increase of 0.7% versus last year second quarter but a sequential decline of 1.4% from the first quarter of this year. At our Good Times concept we began to see our purchase prices for our all natural beef fall and coupled with an approximately 1.9% price increase taken in January.

Year-to-date food and packaging costs at Good Times were 33.1%, an increase of 1.1% versus the last – the same period last year.

And that’s the result of slightly higher year-over-year beef and bacon cost on a year-to-date basis coupled with a little bit of mixed shift into the West Coast burger and kids meals as well as improvements, the cost of improvements to our core products throughout the system that we made in the third and fourth quarters of 2017 which we've begun to lap in that year-over-year impact should phase out over the next two quarters.

Total labor costs at Good Times increased to 36.2% from 35.7% for the second quarter of last year. The year-over-year increase was primarily driven by an increase in the average wage rate, which was approximately 8.5% for the quarter versus the same quarter last year.

Although the Good Times average wage rate is already well above the statutory minimum as we’ve discussed before the extremely competitive labor market we experienced here in Colorado creates upward pressure on wages and the statutory wage increase in January of 2018 really cascaded almost on a one to one basis throughout our entire hourly wage pool which drove an approximate $0.90 year-over-year increase in our average wage.

Year-to-date labor costs increased to 35.7% from 35.3%. Restaurant level operating profit, a non-GAAP measure, at Good Times decreased approximately $20,000 from the same quarter last year to approximately 9,600.

As a present to sale restaurant level operating margin declined 1.2% versus last year, primarily as a result of the higher cost of sales and labor as well as the impact of a one-time non-cash rent charge of $48,000, which related to the recognition of future lease liability.

For the Good Times Restaurant, that we closed near the beginning of the third quarter, or I'm sorry, near the beginning of the second quarter. Year-to-date restaurant level profit is just slightly down on a year-over-year basis to $1.96 million and that's also impacted by that same $48,000 one-time non-cash rent charge.

At Bad Daddy's, sales increased 43% versus last year from $11.2 million to $15.95 million for the quarter. This was due to the seven new units opened since the end of last year’s fiscal second quarter resulting in 92 more store weeks this year quarter versus the same quarter last year.

We achieved positive 0.2% comps for the quarter or seventh-tenths when you back out the impact of the Cherry Creek Restaurant which was lower than our guidance from last quarter.

We had strong sales in January but we saw negative same-store sales in February which we attributed primarily to the Winter Olympics and to a lesser extent to the timing of Lent with Easter weekend which is particularly soft weekend for Bad Daddy's falling in the last quarter, or I'm sorry, the last week of the second quarter versus early in the third quarter for fiscal 2017.

We subsequently experienced a return to positive comps though not at the same level we saw in January generally consistent with what we reported in the first quarter. As Boyd mentioned, we've seen some cannibalization in the Charlotte market since the opening of our Concord, North Carolina location in October.

Fifteen Bad Daddy's Restaurants were included in the comp base for the entire quarter and then beginning in this third quarter our Fort Collins store entered the comp base with positive comp sales.

For the second quarter we were sitting on a weighted average year-over-year menu price increase of approximately 4.0% and as Boyd mentioned, we took slightly higher price increases in Colorado compared to our non-Colorado restaurants.

Year-to-date sales at Bad Daddy's had increased from $20.7 million in the second quarter of 2017 to $30.9 million in the second quarter of this year. Cost of sales at Bad Daddy's were 29.6% for the quarter, a decrease of 1.0% versus last year's second quarter and a decrease sequentially over the previous quarter by 1.3%.

During the quarter, we continued to see declines in beef partially offset by some elevated pricing on bacon. We also saw beef prices slightly rise toward the end of the quarter. Year-to-date, cost of sales declined from 30.8% to 30.2%.

Bad Daddy's labor costs decreased to 37.4% from 30.7% last year for the same quarter and we had the same decrease on a year-to-date basis. These declines are due to a combination of leveraging increasing average unit volumes in our Colorado stores and development of restaurants outside of Colorado.

The combination of which was greater than the wage inflationary impact of the tight labor market and the unfavorable statutory minimum wage in the Colorado locations. Overall, restaurant level profit, again a non-GAAP measure, for Bad Daddy's was $2.7 million for the quarter or 16.9% of sales compared to $1.8 million or 16.1% of sales last year.

A net increase of nearly $900,000 over last year, the result of improved cost of sales and labor. Year-to-date, Bad Daddy's Restaurant level profit increased to $5.05 million in fiscal 2018 from $3.02 million in fiscal 2017.

General and administrative expenses increases to about $1.9 million during quarter, from $1.7 million in the same quarter last year but declined as a percent of total revenues from 9.6% in the second quarter of last year to 8.1% in this year's second quarter.

Year-to-date G&A expenses increased to $3.8 million or 8.3% as a percent of sales from $3.4 million or 9.7%. Although we currently expect G&A spending to increase in dollar terms, we do anticipate that G&A expenses will continue to decline as a percentage of revenues in fiscal 2018 and beyond as we expand our base of restaurants.

Our net loss for the quarter was $431,000 or $0.03 a share versus the net loss of $711,000 or $0.06 a share last year in the second quarter.

This $290,000 reduction in net loss was primarily due to increased restaurant level operating profit for restaurants added since the second quarter of 2017, as well as improved cost of sales and lower pre-opening expenses partially offset by increased G&A, advertising and interest expense.

Preopening expenses for the quarter were $496,000 compared with $567,000 in the same quarter last year and our adjusted EBITDA for the second quarter increased 88.5% to $1.167 million from $692,000 in the same quarter last year.

Year-to-date our net loss of just over $1 million or $0.08 a share compares with the net loss of $1.34 million or $0.11 a share last year. Adjusted EBITDA year-to-date 2018 is $2.04 million compared with $1.07 million year-to-date last year.

For reconciliation of restaurant level profit and adjusted EBITDA to net loss, please refer to the press release issued earlier today. During the second quarter as we disclosed on last quarter’s call, we closed one Good Times Restaurant in Aurora, Colorado.

Included in rent expense in this quarter, the second quarter, is approximately $48,000 of non-cash rent charges consistent with GAAP treatment for disposable activities. This represents the present value of rent expense, less estimated subleased income for the balance of the lease.

Subsequent to the end of the second quarter we closed one Good Times Restaurant in Denver. We recorded an impairment charge of $72,000 for this restaurant during the quarter which is substantially all of the net book value of the assets associated with this restaurant that won't be transferred to profitable locations.

Concurrent with making the decision to close this restaurant, we entered into a sublease agreement for the location whereby we expect subleasing equal to our rent expense and as such we do not expect any subsequent non-cash rent charges similar to the one we recorded for the Aurora location.

We have a very small number of slightly unprofitable or marginally profitable Good Times locations as Boyd alluded to earlier in older trader areas and we continue to evaluate whether for that limited number of locations to continue to operate or to sublease the property to a third-party.

Because these restaurants are truly borderline respecting profitability, such decisions will be made on a case-by-case basis and we would only make a decision to close any of these restaurants if the economic merits and our confidence of subleasing outweighed our risk adjusted projections of future profitability of each individual location.

In the earnings release, we reiterated our guidance for fiscal 2018 generally with revenues of $99 million to $101 million but still with a revenue run rate at the end of the fiscal year of approximately $109 to $111 million.

This revenue estimate includes same store sales assumptions for the year of approximately 3.5% for Good Times in each of the remaining quarters of the year and we're projecting excluding the impact of the East Boulevard location, comparable sales of 0.5% to 1.0% in each of the remaining quarters for Bad Daddy's.

As Boyd mentioned during the third quarter, and I would clarify, I think Boyd may have mentioned that this had an impact on comp sales, the east location closure will have an impact on comp sales for the third quarter of the year and the impact of that would be roughly about 1.5% of 1.0% but our guidance factors that out.

And just so we're clear on that, the guidance of 0.5% to 1.0% excludes the impact of that closure.

Including the Chattanooga restaurants t that opened in April, we've open four Bad Daddy's restaurants so far this year and expect to open five additional Bad Daddy's restaurants during the remainder of fiscal 2018 with one of the remaining five being a joint venture unit in which we own a controlling interest of just more than 50%.

We expect to open one additional unit beyond the Chattanooga restaurant in the third fiscal quarter and four units in the final quarter of the year.

We are raising the lower end of our guidance of adjusted EBITDA to a new range of $5.2 million to $5.5 million and we continue to project the year-end annualized EBITDA run rate of approximately $7 million.

We expect approximately $7.7 million to $7.9 million in G&A expenses or about 7.8% of sales which includes an approximate $600,000 of non-cash equity compensation expense. We also expect preopening expenditures of approximately $2.6 million to $2.7 million and capital expenditures of approximately $9 million to $9.5 million.

Due to the increased sales and increased profitability we expect our year-end balance on our senior credit facility to be between $10.0 million and $10.5 million. We finished the quarter with $3.9 million in cash and $5.1 million drawn against our $12 million credit facility with Cadence Bank.

Our internal target is to maintain a balance of $3.0 million to $3.5 million of book cash which provides a layer of operating cushion above our $2.5 million minimum liquidity covenant. Our quarter-end balance was slightly higher than our target due to expenditures that would be made immediately following the quarter end.

We continue to believe our cash flow from existing units coupled with our excess cash balance and our credit facility will support our total CapEx needs related to new stores, minor remodels and recurring CapEx through the end of this fiscal year including costs for development of some restaurants to be opened in fiscal 2019.

We also believe that we'll be able to expand the total capacity of our facility to allow for our continued development of a similar pace into 2019 and 2020. Now I'll turn the call back turn the call back over to Boyd. .

Thank you, Ryan. Obviously it takes a lot of talented people and a lot of hard work to execute our growth in both brands. And I'd again like to make sure I thank our management team for their focus and dedication in making that happen. We appreciate your time with us today. With that operator, we'll open the call for questions..

We will now being the question-and-answer session. [Operator Instructions] The first question comes Jeremy Hamblin with Dougherty & Company. Please go ahead..

Hey guys this is David Burdick on for Jeremy. Thanks for taking my questions. And congrats on a nice quarter. .

Thank you..

Thanks David..

So just starting out on unit development, I know a couple of the Q4 units were planned to come on late in the quarter.

Just wanted to get an update on where those stand and I know it's still early but how is your pipeline for FY’19 looking as well?.

We'll – answer those in reverse order I guess. Our pipeline for 2019 is looking really strong. I mentioned the markets that we got lease is either signed or pending which is really everything in the southeast including quite a bit of expansion into South Carolina and entrants into Alabama.

So Georgia, Tennessee, Alabama, South Carolina with one additional, one or two additional stores, in North Carolina and that pipeline is really strong and, again, we'll provide more guidance on what that cadence will be.

We expect a fairly even cadence over the course of the year and we've got a couple of those that will open in the first quarter of 2019 as well. The balance of this year to get to our nine total, those are all underway in various forms of development.

We had one store that has been delayed by the landlord on the renovation of an existing strip center that's taking longer but other than that, we're pretty well on schedule.

Our next store that will open will open the first week of June in Smyrna, a suburb of Atlanta, our second store and then we've got two more coming in Atlanta before the end of the year. .

David just in terms of kind of your model four that would be opened in the fourth quarter I kind of think about those and one each month and then one in the last months or a second one in the last month of the year. I think we feel very confident that we will get all four of those in.

We're in construction, I believe, in all of our units for this year except for one which is out to bid and so absent any very unexpected delays, I think there's enough cushion in the guidance that will get all of those and if by chance one of those were to push over into the next fiscal year, it really wouldn't affect the P&L very much at all..

Okay, great. And then just wanted to touch on commodity costs. It seems like they're easing a little bit and then I know you've been refining the labor model at Bad Daddy's locations, have you seen any improvements there and how should we think about labor in the back half here? Boyd E.

Yeah, in terms of the commodity environment, it is easing particularly sequentially from fourth quarter last year and the first quarter of this year and some further easing even from the second quarter.

We're still, you know, if you remember, it was the last five months of the last fiscal year and our first quarter that things really spiked particularly with beef and bacon costs, it impacted us by about $800,000 in the last five months.

That's not the case this year and we feel really good about the projections for the balance of the year particularly on beef, bacon and chicken. And so there really isn't anything on the horizon that we're terribly concerned about. We think that we'll be overall lower as we lap that spike from last year in our third and fourth quarter.

Do you want to speak to labor?.

Yes and I will just clarify the cost of sales comments a little bit because I agree with Boyd. I think we've seen recently some slight lifts in our angus beef that we use at Bad Daddy's. And so kind of in the guidance is an assumption of sequentially slightly higher cost of sales or we think that's a conservative view.

In terms of labor, I think we are managing the hours very effectively.

I think what we're seeing from a – just an overall challenge particularly as we're looking at the back of the house, is that for a lot of the things that we're able to make up on the hours front and improve the efficiency, we tend to be losing that almost in a complete offset in the hourly wage that we're having to pay and that's not just in Colorado, that's also in North Carolina and to a lesser extent in Georgia and Tennessee and we don't think that we're alone in that in the industry.

We think that's kind of an industry-wide and maybe kid of countrywide phenomenon is just there is increasing wage pressure but I would say to the extent that we're – we have a heightened sense around that and we are managing wage to the best that we can and then we're doing a lot around hours, management and efficiency to be able to offset that..

I alluded to in my comments, we are implementing at both brands a forecasting tool that helps us get a little bit tighter and a little bit more refined on the man hours by position, by half hour increments throughout the day based on the historic 30 minute sales history that we've got.

So we're I think putting as much technology as we can, as I – when I blanked in our last quarters call, we really are committed to the full service model on Bad Daddy's and as others are making much more aggressive moves on labor, we have a really compelling unit economic model on Bad Daddy's that we don't want to compromise and so we're continuing to refine but as we look forward, as Ryan mentioned, I think there's kind of an offset between wages and the hourly efficiencies that we're finding.

.

Okay, great. Thanks guys and good luck..

Thank you..

Thank you..

The next question comes from Stephen Anderson with Maxim Group. Please go ahead..

Yes, thank you and thank you for answering my questions actually on the revised unit outlook at Bad Daddy's.

A couple of questions I do have on sort of the broader outlook and just want to see, with regard to Bad Daddy's, what kind of impact are you seeing particularly in states that have maybe seen tax reforms, some of the refund checks come in, maybe a little bit of a lift from tax reform, lower tax, in some of these states.

Have you seen that result in maybe increased traffic? And I have a follow-up?.

Boy, it's almost impossible for us to parse that out. You know, overall, we've got quite a wide range excluding the impact of the cannibalization that we had in North Carolina, we're still running positive in our same store sales, flat more or less on traffic to down a little bit.

That said, we have stores that are up high single-digit, low double-digit on their sales so trade area by trade area that may be some impact from the tax reform but broadly we really can't tell..

A similar question, look at the broader bar and grill segments, I know you don't compete directly with that but are you starting to see some pretty significant discounts on some of the items like $1 drinks or $2 drinks and just want to see if that has affected traffic at all since those have been implemented?.

That's a good question and again, it's kind of hard for us to parse out cause and effect directly on that. We don't think that we compete that directly and I think we're more impacted by other upscale polish casual competition that opens around us.

As an example in Colorado Lazy Dog came into the market with two really nice restaurants that are very close to two existing high-volume stores. We felt the short-term impact from that but we're also now seeing that come back. We operate literally next door and down the block from all of the guys you're mentioning on Applebee's, Chili's, Red Robin.

We really don't see a lot of week-to-week, period-to-period, quarter-to-quarter impact from their discounting.

I know that overall I think the casual dining traffic has gotten better in these last couple of weeks particularly there's been better traffic trends then in the last several months which is encouraging and I think that will help rising tags floats all boats. I think that will help us as well as everyone.

But similarly on Good Times, we just don't – since we don't play in that game, we're not a value player, I don't think that's the way people think of us and so I don't think we're impacted by that directly..

Thank you..

The next – pardon me. [Operator Instructions] The next question comes from Will Slabaugh with Stephens. Please go ahead..

Okay, thanks guys. I apologize for the background noise. I had a question on Bad Daddy's and I appreciate the commentary on the successful new openings you've had. Curious if you can talk a little bit more about the different cohorts within Bad Daddy’s.

You touched on this in your remarks, but can you talk about the performance there from a high level, have they been open for kind of one, two, three years and how that looks versus your expectations?.

Sure. I think I understand your question. I'll do the best I can anyway.

You know, I think the stores that have been opening very recently have been opening at very high volume and certainly some of those honeymoon but we're seeing even as they settle in, settling in above our expectations and that includes several of the stores in 2017 as well as the 2018 stores.

You know, I think we had our last couple of stores in Colorado and then very successful and those are the older stores that go back to a little more than two years ago now but we have one that's still trending towards $3.5 million, in the low threes anyway so we have another one that's treading over our system average.

Those were the last two that were opened in Colorado. And then everything opened – we've had a couple of bar burners that I've alluded to; one in Charlotte, one in Raleigh. We've had one in the new market outside in North Carolina and it's a little bit lower demographically, it's running a little bit under our average. That's really been the only one.

Atlanta and Chattanooga have come out of the shoots hot. We had expected those to take a little bit longer to build but they've come out at really attractive sales volume. So, that's really the commentary on all of 2017 and 2018, the class of those stores that we're averaging above our system average, even factoring out the honeymoon periods..

Yes, well I'm not sure if I – I'm not sure if I was understanding your question correctly but in terms of kind of stratifying the stores into different age buckets, I would say that I don't think there's really a meaningful – any sort of meaningful correlation that can be drawn there because we have, you know, very strong performing stores in units of all age groups, stores that are three, four years old are doing – we have stores that are doing extremely well and we have new stores that are doing extremely well.

I think some of, you know, some of the variation is just in trade area by trade area and market by market.

I would say that we've seen particular strength in Colorado and we – when we opened up some of these restaurants in 2015, 2016, some of those restaurants performed kind of below our expectations in terms of new unit volumes and we've seen really strong comp store sales in some of those units as we've executed well and continued to build awareness around our brand in this market..

Yes, that's helpful. That's what I was getting at so thanks for that.

And then also curious on the labor scheduling tools that you mentioned, what all does that involve, I guess, from a day-to-day perspective from a manager or hourly perspective, what does that involve versus what they're previously and what might we see as the benefit from our perspective?.

I'll give a broad overview and Ryan can jump into the details on it but historically we've scheduled based on projecting kind of daily volume and projecting our front of the house and back of the house at Bad Daddy's particularly labor based on that expected volume.

The next step that we're implementing helps us to forecast on a day-by-day basis but also then within that day, half hour by half hour and we have a matrix design then on the number of servers those bartenders, wine cooks that it takes to execute a certain level of volume and so it will help us to compare our forecasted versus actual scheduling on a half hour by half hour basis.

It's really just a tighter refinement from what we've already been doing.

Ryan, do you want to add onto that?.

Yes, I mean I think – I'd break it into what we're changing at the Good Times Brand and what we're changing at Bad Daddy's and so we're implementing hot schedules which is the kind of the industry leader in terms of restaurant scheduling and labor management software and at Good Times we did not have that before and so it is – it's the adoption of not just kind of advanced forecasting capability based upon an automatic feed into this tool.

It's actually the ability of the servers and the managers to create the schedule using this tool which should improve their efficiency, improve their use of time as well as provide just a better experience for employees. But on top of that is what comes with that that we had not implemented at Bad Daddy's before but are implementing now.

We had hot schedules at Bad Daddy's, we used it basically as scheduling templates.

And so now we're implementing this advanced forecasting where the hot schedule software takes the data out of the POS and applies logic that we've defined including things like minimum servers on a shift or minimum shift link and then number of people per dollar of sales; takes those metrics and spits out an actual schedule.

This should be optimized based upon the rules that we built. That's kind of what we're designing, that will go into place. It actually has gone into place at Good Times and we're in the process of implementing it for Bad Daddy's. .

Got it. And then lastly I wanted to ask a clarification question on delivery.

You mentioned – obviously it's early there but I'm curious on your initial takeaways, do you talk about if you've seen any sort of same store sales list or either a lift in check and then also curious who you're using there?.

We're using DoorDash and we're in formal tests with DoorDash in stores here both in Colorado and in North Carolina. So far I would characterize the results as generally very positive.

We've got some stores that are doing a lot of delivery business that appears to be very incremental to the takeout business we were already doing at that store and it appears to not be cannibalizing any dine in business or existing takeout business.

So, it varies quite a bit in terms of the absolute volume we're doing on the delivery business based on the style of store and trade area dynamics, level of daytime employment for example, you know, I think it's a big driver to that and just the sheer density within the immediate area around the store.

We want to make sure we can execute that at our food travels as well as they can and so we're continuing to dial in those things but we anticipate we're going to continue to expand that test and really try and measure as best we can.

As you know, it's not an inexpensive proposition, the delivery cost is very high so it has to truly all be incremental sales for it to be profitable. But so far I think we would say it is largely all incremental or probably 80% at least incremental..

Yes, the one thing that I would say is I think we have a lot of variants in terms of the initial off premise, primarily takeout business in our restaurants ranging from very low single digits to high single digits to even low double digits.

And the thing that's been consistent is we've rolled out delivery and we've rolled out generally with DoorDash is the partner that we've used. We've generally even a lift in our total off-premise of somewhere between 50% and 70% within a 90-day window of launching this service.

And as Boyd mentioned, very, very little of that we have seen so far to be cannibalized or cannibalizing, I should say..

Great, thank you..

Thanks Will..

The next question is a follow-up from Stephen Anderson with Maxim Group. Please go ahead..

Yes, just – want to switch gears to talk about Good Times.

I know you've been spending most of this year looking at some of the underperforming locations but going back to last year when you opened the new prototype in Greeley, Colorado, I just want to ask if you're essentially looking at sites perhaps for fiscal 2019 or 2020 pipeline?.

We're looking for additional opportunities in the Colorado market. Right now we're not looking at taking Good Times outside of Colorado, we are working on a couple of new site opportunities here in Colorado as we can find them.

So we'll be opportunistic on that with 38 restaurants along the front ranges there's not – we're fairly well penetrated and particularly given our demographic and so that's kind of the short answer.

We’ll continue to - there's a couple, as Ryan mentioned, kind of marginally profitable stores that we may be able to sublease at a profit and will continue to work on those. At the same time, there are some new store opportunities in trade areas that we think we have an opportunity in..

All right. Thank you..

This concludes our question-and-answer session. I would like to turn the conference back over to Boyd Hoback for any closing remarks..

Thank you all again for joining us and appreciate your questions and your support. Have a good day..

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect..