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

David Burdick – Dougherty Stephen Anderson – Maxim Group.

Good afternoon ladies and gentlemen. Welcome to the Good Times Restaurants, Incorporated Fiscal 2018 Third Quarter earnings call. By now, everyone should have access to the Company's third 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 in reconciliation to comparable GAAP measures available in our earnings release. I would now like to turn the call over to Boyd Hoback. Please go ahead, Sir..

Thank you, Brandon. Thanks, again, everyone for joining us this after. With me today is Ryan Zink, our Chief Financial Officer.

I'm going to cover a summary of our third quarter and some current developments and then, Ryan will step through more details on our financial results for the quarter as well as updates for our fiscal 2018 year-end guidance as well as our initial guidance that we provided in the press release for our fiscal 2019.

We were very pleased again, with our sales results at both brands during the quarter, with Good Times up 3.8% and Bad Daddy's up 0.5% in our same-store sales. Both in line with the guidance we provided last quarter and probably most significantly a two year same-store sale stack about 7.5% for Good Times.

We opened our first Tennessee Bad Daddy's at the beginning of the quarter at Chattanooga, and our second store in Atlanta in the Atlanta market in early June. That store happened to a weekly sales record for any Bad Daddy's we've opened yet, so that was fun to see.

Subsequent to the end of the quarter, we opened our sixth store in the greater Charlotte market and a store in Greensboro, North Carolina, a new market for us. And we're on track to open two more stores by the end of the fiscal year with our second store in Greenville, South Carolina and our third store in the greater Atlanta market.

That will bring a total of nine new restaurants in fiscal 2018. Our guidance for fiscal 2019 is again to open seven to nine new Bad Daddy's, most of which will be in the south east and North Carolina, South Carolina, Georgia, Tennessee and Alabama.

The concept is being very well received in each of the new markets we've entered in 2018, and we certainly believe we can maintain our 40% plus cash on cash return on investment target even as construction costs have increased a little bit due to a shortage of labor for our subcontractor trades.

We're certainly not immune from the industry's labor challenges, which is affecting our average wage for our back-of-the-house employees at Bad Daddy's and for our management compensation in order for us to remain competitive as well as continued escalations in our hourly wage at Good Times.

We plan to be as reasonably aggressive as we can in our pricing for both brands, particularly in Colorado, where we're also sensitive to building a positive traffic as we move forward in fiscal 2019.

Again, we will have opened nine new Bad Daddy's half off of a base of 22 company operated stores this year, which has certainly put some pressure on our management team, particularly with the sales that we've been doing on these new store openings.

However, we feel really good a about the way that we're executing on the openings, and one of our key initiatives for fiscal 2019 is to focus on our management compensation systems and to continue to build a compelling culture, really focused on fun, higher level of recognition and rewards for results, all of which we believe can help our overall execution and quality of life for our management.

Our total revenues increased 21% to just shy of $26 million during the quarter with Good Times, achieving its sixth consecutive quarter positive same-store sales, and Bad Daddy's had its 13th consecutive quarter of same-store sales increase.

Sales for the Bad Daddy's restaurants for the quarter increased just shy of 37% versus last year to $17.8 million and restaurant-level operating profit, a non-GAAP measure, increased to 18.4% as a percentage of sales as compared to 17.2% last year, even with the labor and wage pressures that we've been seeing.

Of the high honeymoon sales we're experiencing during our new store's first four to six months are helping net operating margin, but we've had very good tailwinds in our cost of sales right now with Bad Daddy's cost of sales 1.9% lower than the prior year.

Adjusted EBITDA, another non-GAAP measure, increased just shy of 37% over last year during the quarter. It's increased year-to-date by almost 60% over the same year-to-date period last year. As we have stated during our last two calls, we anticipate increasing our adjusted EBITDA by around 40% over each of the next couple of years.

Ryan will provide more color on that guidance for fiscal 2019, but our target for fiscal year-end adjusted EBITDA run rate is around $10 million from approximately where we think we'll end this year of around $7 million.

Based on that internally generated cash flow and our access to senior debt, we believe we can maintain similar growth rate in our adjusted EBITDA with relatively conservative leverage as we build our pipeline of sites for fiscal 2020 as well.

As we move into 2019, we anticipate we'll have slightly less media weight this fall for Good Times, primarily due to the elections, the impact on the availability of cable and network TV inventory, but we plan to rule both new product in a few prior LTO's that have worked well in the past, and we continue to merchandise a two-tier strategy of what we think are premium, certainly, differentiated products, along with certain price points that reflect value and price choice without getting into the low-end value game.

At Bad Daddy's, we plan to continue to merchandise our monthly chef specials, which have been very well-received and including recipes that accelerate the use of local ingredients and partnering with iconic local brands.

As I mentioned previously on May 7, we rolled out a new menu with minor price increases and a few new menu items that we had successfully tested.

We've expanded our delivery service through DoorDash, and we're finalizing our rollout of online ordering through Olo to all of our stores, and that will lay the foundation that we expect to have a more robust digital and mobile platform for Bad Daddy's for fiscal 2019.

Ryan will now provide a little bit more detail on our financial results and further guidance..

Thanks, Boyd. At our Good Times brands, restaurant sales decreased $321,000 from around $8.5 million to around $8.2 million in the current year. Due to sales losses from two closed restaurants as well as lower year-over-year sales at our Greeley restaurant, partially offset by a 3.8% increase in same-store sales.

For the quarter, we have a year-over-year menu price increase of approximately 4.5%. On a year-to-date basis, Good Times restaurant sales increased from $22.3 million to $23.2 million, driven by strong comp sales, partially offset by lost sales from the closure of two restaurants.

Food and packaging costs of Good Times were 32.3% for the quarter, a decrease of 0.4% versus last year's third quarter. We had similar commodity pricing last year at our Good Times concept, which was offset by the impact of higher menu pricing.

Year-to-date, food and packaging costs at Good Times were 32.8% an increase of 0.6% versus 32.2% for the same year-to-date period last year.

This is the result of higher year-over-year beef and bacon costs, coupled with unfavorable mix shift into the West Coast Burger during the first quarter, which was then offset by the impact of a 4.4% average menu price increase during the year-to-date period.

Total labor cost at Good Times decreased to 33.0% from 33.3% for the third quarter last year. This year-over-year decrease is primarily driven by leveraging higher menu pricing, partially offset by the impact of a 9.5% increase in the average hourly wage.

Although the Good Times average wage is already well above the statutory minimum, we continue to experience upward pressure on wages, and our weighted-average hourly wage increase by more than the nominal minimum wage increase. Year-to-date, labor costs increased to 34.8% from 34.5%.

Restaurant-level operating profit, a non-GAAP measure, at Good Times decreased $22,000 from the same quarter last year to just over $1.5 million. As a percent of sales, the restaurant-level operating margin increased by 0.4% versus last year, primarily the result of lower cost of sales.

Year-to-date restaurant-level profit is down $26,000 on a year-over-year basis to just shy of $3.5 million. At Bad Daddy's, sales increased 37% versus last year to $17.765 million for the quarter.

This was due to the six new units opened since the end of last year's fiscal third quarter, resulting in 88 more store weeks this quarter versus the same quarter last year. We achieved positive 0.5% comps for the quarter in line with our guidance from the last quarter.

The original Bad Daddy's on East Boulevard in Charlotte was closed for three weeks during the quarter for some remodel work, and those weeks are excluded from the comp sales calculation. 16 Bad Daddy's restaurants were included in the comp base for the entire quarter. Two additional restaurants will enter the comp base in the fourth quarter.

For the quarter, we were sitting on a weighted-average menu price increase of approximately 4.6%, with slightly higher price increases in Colorado compared to our non-Colorado restaurants. Year-to-date, sales of Bad Daddy's have increased from $33.7 million last year to approximately $48.7 million in Q3 of 2018, in the year-to-date period.

Cost of sales at Bad Daddy's were 29.2% for the quarter, a decrease of 1.9% versus last year's third quarter. We took a 0.8% sequential price increase in May driving a lower cost as a percent of sales that were on costs that were generally lower on a year-over-year basis.

Year-to-date cost of sales declined from 30.9% to 29.9%, again, driven by a combination of higher menu pricing and lower weighted-average commodity cost for the year-to-date period. Bad Daddy's labor costs were flat on a year-over-year basis at 36.2% for the quarter, a slight decrease from the prior year to 37.0% on a year-to-date basis.

The relative stability and labor costs represent a combination of leveraging increasing average unit volumes in our Colorado stores and development of restaurants outside of Colorado, the combination of which was approximately equal to the wage-inflationary impact of the tight labor market and unfavorable statutory minimum wage in the Colorado locations during the quarter.

Overall, restaurant-level profit, again, a non-GAAP measure, for Bad Daddy's was $3,266,000 for the quarter, or 18.4% of sales compared to $2,235,000, or 17.2% last year at a net increase of just over $1 million over the last year.

The result of improved cost of sales, partially offset by higher occupancy and other operating costs, the latter of which being driven substantially by third-party delivery fees. Year-to-date, Bad Daddy's restaurant-level profit increased to $8.3 million in fiscal 2018, from – just shy of $5.5 million in fiscal 2017.

And as the percent of sales improved to 17.1% versus 16.2% in the prior year, again, driven primarily by improved cost of sales compared with the prior year.

General and administrative expenses increased to $2,069,000 during the quarter from $1,831,000 in the same quarter last year, but declined as a percent of total revenues from 8.4% in Q3 of last year to 7.9% in this year's third quarter. Year-to-date, G&A expenses increased to $5,884,000 or 8.1% from $5,222,000 or 9.2% last year.

As we continue to highlight on these calls, while we expect G&A spending to increase in dollar terms, we 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 income for common shareholders for the quarter was $304,000 or $0.02 a share, which compares to a net loss of $247,000 or loss of 2% – $0.02 per share last year in the third quarter.

This increase of approximately $550,000 was primarily due to increased restaurant-level operating profit from restaurants added since Q3 of 2017 as well as improved costs of sales and lower preopening expenses, partially offset by increased G&A, advertising and interest expense.

Preopening expenses for the quarter were $610,000 compared with $819,000 in the same quarter last year. Our adjusted EBITDA for Q3 of fiscal 2018 increased 36.6% to $1.9 million. Year-to-date, our net loss of $710,000 or $0.06 a share compares with a net loss of nearly $1.6 million or $0.13 a share last year.

Adjusted EBITDA year-to-date is nearly $4 million compared with just under $2.5 million year-to-date last year. For a reconciliation of restaurant-level profit and adjusted EBITDA to net loss, please refer to the press release issued earlier today. During the third quarter, we closed one Good Times in Denver, Colorado.

We had previously recorded an impairment charge of $72,000 for this restaurant during the quarter, which was substantially all of the net book value of the assets associated with the restaurants that wouldn't be transferred to profitable locations.

Concurrent with making the decision to close this restaurant, we entered into a sublease agreement, whereby we would receive sublease income equal to our rent expense. As such, we do not expect any subsequent noncash charges related to the recognition of the remaining lease liability associated with this closed location.

During the second quarter, we had closed a Good Times restaurant in Aurora and had recognized an impairment charge related to that location at the end of the 2017 fiscal year. We continue to expect that we'll be able to sublease that location and receive sublease income approximately equal to our cash rent.

Should we not be able to find a suitable tenant at the terms we desire, a charge related to the remaining lease liability may be incurred in the fourth quarter. But at this time, we don't see that as likely.

We have a very small number of slightly unprofitable or marginally profitable Good Times locations, and we continue to evaluate whether to continue or operate those specific locations or to sublease the property to a third-party.

As we mentioned on the last call, because these locations are truly borderline or specking profitability, such decisions would we made on a case-by-case basis, and we'd only make a decision to close any of these restaurants if the economic merits and confidence of subleasing outweighed our projections of future profitability.

In the earnings release, we updated our guidance for fiscal 2018 with revenues of $99 million to $100 million, but still with an annualized revenue run rate at the end of the fiscal year of $110 million. The revenue estimate includes same-store sales assumptions of flat to positive 1.0% for Good Times and Bad Daddy's in the fourth quarter.

Including the restaurants that opened in July, we've opened seven Bad Daddy's restaurant so far this year and expect to open two more Bad Daddy's in the remaining weeks of the fourth quarter.

Of those restaurants that we will open in the fourth quarter, one of those restaurants – one that was opened during July was a joint venture restaurant, in which we own a 51% interest.

We are raising our guidance of adjusted EBITDA for fiscal 2018 to a range of $5.4 million to $5.6 million, and we continue to project a fiscal year annualized EBITDA run rate of about $7 million. We expect approximately $7.9 million of G&A expenses or 7.9% of sales, including approximately $500,00 in noncash equity compensation expense.

We also expect preopening expenses of approximately $2.7 million and capital expenditures of approximately $8.5 million to $9 million. We expect our year-end balance on our senior credit facility to be between $9.0 million and $9.5 million.

We are also providing our initial guidance for the 2019 fiscal year with projected sales between $120 million and $123 million into 2019 year-end run rate of approximately $130 million.

This includes the opening of between seven and nine new Bad Daddy's restaurants and same-store sales of approximately 1% for Bad Daddy's and approximately 2% for Good Times, except during Q2 when we're projecting flat comps for Good Times, rolling over the traffic benefit of an exceptionally warm and dry winter in fiscal 2018.

We project those sales will deliver adjusted EBITDA for fiscal 2019 of between $7.6 million and $8.1 million. Included in this guidance are approximately $8.7 million to $9.0 million of G&A expenses, which include $600,000 of stock option expense.

Preopening costs between $2.5 million and $3 million and capital expenditures net of TI of $11 million to $11.5 million. At the end of fiscal 2019, we expect our debt balance on our facility to be between $13.0 million and $13.5 million.

We finished the third quarter with $3.2 million in cash within our targeted cash balance and $5.1 million of borrowing against our $12 million credit facility with Cadence.

We continue to believe that 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 fiscal 2018 as well as development for most of the restaurants to be opened in fiscal 2019.

We're in preliminary discussions with Cadence to expand the total capacity of our facility to allow for our continued development of Bad Daddy's restaurants at a similar pace into 2020 and beyond, which we expect to provide a longer-term improved pricing and slight using of covenants in addition to the expansion.

Now I'd like to turn the call back over to Boyd..

Thanks, Ryan. We're thrilled to be opening really very high-volume new Bad Daddy's restaurants to manage $80,000 to $100,000 weekly sales out of our small facilities of only about 3,700, 3,800 square feet with brand-new team members has just been a huge challenging task.

And so I'd just like to give credit and thank our management teams, our opening teams and our support staff for all their hard work. I appreciate your time with us today. With that operator, we'll open the call for questions..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Jeremy Hamblin with Dougherty. Please go ahead..

Hey guys. This is actually David on for Jeremy. Thanks for taking my questions and nice job on the quarter..

Thanks David..

So first, just wanted to ask if you could give us a little color on the run rate's on the newer units? And kind of how those are performing?.

Sure. So our class of fiscal 2018 stores have all, almost without exception, there's one store that opened a little bit slower but have opened up with very high-volume. We're seeing about a four to six month honeymoon period on stores and on average, they're settling in slightly above our system average, which is great.

So in the southeast that relates to – that comes to about $2.7 million on our average unit volume that the new stores are settling into similar to where our class of 2017 stores. They were a little bit lower including the ones in Colorado, but overall, we've been thrilled with what we've got opened here so far.

We've got two more stores coming this quarter and then two stores first quarter of fiscal 2019 that are under construction..

So, yes, I was just going to ask on the 2019 units.

Can you just talk about the progress? And then how we should kind of think about the cadence of those openings throughout the year?.

Yes, generally, we've got two stores that are under construction right now. So those opening dates are pretty well locked and loaded for our first fiscal quarter. The balance of the stores, I think, will be probably a little more back-end loaded between Q3 and Q4, pretty evenly.

Q2, which is when we don't really like to open restaurants anyway, because the middle of the winter time will be a little bit light for us, which actually, operationally, is a good thing to take a little bit of a breath and catch up from a – just from a training and bench strength standpoint.

So most of the development in 2019 will be Q3 and Q4 other than the two that we got lock and loaded for Q1..

Yes. David, I would – the guidance, if you would where to just pick the midpoint of our $7 million to $9 million and say let's model $8 million. I think the way I modeled that is kind of 2-1-3-3 and of the two, both of those would be kind of in the second and third months of the quarter..

Okay, perfect. And then three to four additional new areas you talked about in the press release.

Can you just give us a little more details on where those are?.

Sure. So we've got leases signed right now for our first Nashville restaurant and we're working on a couple more in Nashville. We have one opened in Chattanooga right now.

We're working on a deal for in Alabama, for both Birmingham and Huntsville, and we anticipate both of those being developed in the back half of 2019 and then additional stores in those markets in fiscal 2020, and then, additional stores in South Carolina.

We are opening one here this quarter in Greenville, but then we’re finalizing a lease in Columbia, South Carolina and we have a lease signed for our first store in Charlotte, South Carolina. And so still focused largely on the Southeast. We’ll have another North Carolina store – South Carolina.

Georgia, we've got a couple of more Atlanta stores, but the new markets are going to be Alabama and Nashville..

Okay, great. And then since those are getting kind of – the Southeast ones are getting higher AUVs.

Are you seeing kind of overall better economics for the units?.

Yes. I mean, the labor margin alone is over five points on the store margin. So that's why we halted 18, 24 months ago. We stopped development in Colorado and really shifted to the Southeast. So it's fairly dramatic, both in terms of the average volume and the labor margin.

All of the other costs in the income statement and development costs are really largely the same, it's simply labor that's the huge advantage..

And I’d say, as Boyd mentioned, there is about 500 to 550 as we lapped kind of yet another round of minimum wage increases here in Colorado, 500 to 550 basis points.

I would say that just based upon product purchasing and distribution agreements, there is a slight – the Southeast has a slightly elevated cost of sales, maybe 0.5 to 0.75 versus Colorado.

But I think if you're kind of looking at the P&L for next year and trying to model it, I would basically take this year's and – on the cost of sales side, we try to be a little conservative. And I add – compared to the current quarter add a point or so, a point or so to that.

And on the labor side I think relatively consistently – relatively consistent on the Bad Daddy's side. As I think just like we saw this year, there's some balancing between the overall inflationary pressures and Colorado impact versus our development in the lower-cost region, I think that's going to balance out.

I would say on the Good Times side, we're going to see a little bit of an elevation as a percent of sales on the labor..

Okay, great. Thanks, guys. I appreciate you taking the questions..

[Operator Instructions] Our next question comes from Stephen Anderson with Maxim Group. Please go ahead..

Yes, good afternoon. Just I want to first touch on Bad Daddy’s. And I know last quarter you spoke about some of the initiatives you are looking at to possibly drive traffic on weekdays at Bad Daddy's.

Can you give us some comments about that?.

Yes. We tested and expanded happy hour food menu, and then certain day of the week, drink specials in Colorado, and we're still playing around with that. We haven't seen anything dramatic from that, Stephen.

Colorado sales generally have been strong, but it's really not been driven by those weekday activities as much as just some very strong performance, some of our existing stores that I think are beginning to mature and just showing year-over-year increases.

We’re still playing around with different menu initiatives, including some day of the week drink specials. And we have rolled a test on Bad Ass Tuesday’s that we’re refining and continuing to work with those..

Okay.

Shifting to Good Times, I saw the – you're looking at about 1% comp for the quarter, is that correct?.

That’s right..

Okay. Now that would seem to apply deceleration in what your two-year comp you've been running, right, or lower 7% now implies it's just under 5%.

And can you explain why like you – have you seen any weakness that has been going sequentially from the last quarter? And what you would see to do to maybe get that momentum going again?.

Yes, we've been a little lighter on our television schedule, which I think is leading into part of that. And then as we come into the election season, we're going to be off TV just because costs go through the roof. So we've allowed for a little bit of that.

I think sequentially that we're again trying to be conservative, but there – we anticipate a little bit of softening. I can't point to anything other than kind of a continued aggressive discounting nature of the promotions from all our competitors.

And generally, a couple of those larger competitors have been doing well, but really nothing specific, and we're continuing, as I mentioned in my comments, we've got some new LTOs that we're going to be rolling and continuing to pound kind of a two-tier strategy on what we think are attractive price points and price choice for Good Times as well as new news..

Now continuing on that the theme, I remember you guys – it's been a couple of years now since you've opened that new prototype location in Greeley, and do you see yourself maybe restarting your growth of maybe one more store just to see how that works before you consider anymore expansion?.

Yes, we would like to build some more. We're having a difficult time in Colorado. I think the larger issue is do we take the times out of Colorado and we have not yet pulled that strategic trigger. Just difficulty in finding locations here in Colorado. So that's the short version..

I think the other thing, Stephen, that I would add to that is I think in terms of the – in terms of our capital structure, I mean, while we have availability on our debt – our credit facility, we are capital constrained to a bit and so we really focus our capital deployment, our highest returns, and that's really going to be in – Bad Daddy's in the Southeast.

And so while we think we could get a good return by potentially expanding Good Times, our focus is really how can we grow Bad Daddy's as quickly as possible..

Okay.

And with the – your commodity outlook for fiscal 2019, and looking at the some of the EBITDA numbers, what kind of run rate are you looking at for commodities next year?.

I think – we're anticipating fairly benign just because we're so heavily weighted towards beef and bacon on both concepts. Beef, bacon and dairy are really the three, and we don't see a lot of pressure on either – on anyone of those three..

Final question on delivery.

Now is that just for the Bad Daddy's where you've entered the agreement on – with DoorDash? Or have you done that for Good Times as well?.

That's just for Bad Daddy's. We did do a limited test on Good Times, and we just didn't really see the incremental that we're seeing on Bad Daddy's. I think the economics are a lot more difficult for delivery in QSR than they are on casual theme. But we're seeing pretty good results from the DoorDash delivery with Bad Daddy's..

Are you seeing –.

Go ahead, Stephen..

Are you seeing any cannibalization from the dining customer?.

So far I would say not substantially. If there is been any, it's really been some cannibalization from existing take-out. That said, we've recently, as Boyd mentioned, we've expended that service.

We are going to offer delivery in – through DoorDash in all of our Colorado restaurants, and that's kind of a progression of the methodical pace that we've taken to really explore this. We do have a handful of small number of units, two or three in the Southeast, where we offer delivery.

But I'll tell you on the Bad Daddy's concept, we are really focused on, how do we deliver a great, in-store experience and how do we offer the choice and flexibility for those guests who want to experience Bad Daddy's, but may not want to have an in-store visit.

It's really about how do we make sure that we keep the quality and the service at the level that we really want, and that's our primary focus, not necessarily just can we expand delivery as quickly as possible..

The other thing that we're working to complete is the integration between Olo and DoorDash, so that is more seamless from an operation standpoint and from a consumer standpoint..

All right, thank you..

Thanks, Stephen..

[Operator Instructions] At this time, I'm seeing no further questions. So this concludes our question-and-answer survey as well as today's conference. Thank you for attending today's presentation. You may now disconnect..