Good afternoon ladies and gentlemen. Welcome to the Good Times Restaurants Inc. Fiscal 2019 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 GAAP and reconciliation to comparable GAAP measures available in our earnings release. And now, I would like to turn the call over to Boyd Hoback. Please go ahead, sir..

Thanks Brandon and thanks everybody, for joining us again today. I've got Ryan Zink, our Chief Financial Officer with me. And I'll again begin with a high level overview of our quarterly results and progress on various initiatives.

For the second quarter, total revenue grew 15% and includes a 1.3% increase in comp restaurant sales at Bad Daddy', and that's inclusive of losing 12 operating days to the Balm cycling event, weather event in Colorado.

And we also had a 7.1% decrease in comp restaurant sales at Good Times and that's 5.9% adjusted for 30 lost operating days due to that Balm cycle and weather event where we lost all of our stores for a day and some for a few days.

Aside from that weather event, Good Times sales were again impacted by fairly dramatic year-over-year weather comparisons for the second quarter in a row, but the prior year having above-average temperatures and below-average precipitation and this year being exactly the opposite. We're also comparing to a 7.1% increase in comp sales last year.

The good news is that subsequent to the end of the quarter, we've bounced back nicely with a slightly more seasonable weather and with positive comps of approximately 4% on Good Times so far this quarter.

We anticipate that we'll be able to sustain positive comp sales at both brands for the balance of the year, but those comp declines at Good Times, obviously, have had a significant effect on our financial results for the first two quarters.

At Bad Daddy's, we're continuing to refine our menu offerings and continue to elevate the use of local brand partners and local ingredients in each of our markets on a quarter-to-quarter basis. And in May, we're introducing Niman Ranch lamb burger for this quarter's chef special.

We're also rolling out a new menu in mid-May with approximate 0.8% price increase with slightly higher prices than that in Colorado. That's our second price increase of the fiscal year. Off-premise sales continue to grow, and we're finalizing the rollout of DoorDash delivery in all of Bad Daddy's stores this month.

And we have been testing six Good Times stores. And based on our initial results, we plan to roll it to the balance of the Good Times stores by June. Total off-premise sales are now averaging over 10% of sales at Bad Daddy's, ranging from a low of about 8% to over 20% at a few stores.

We're in the process of modifying our packaging to better accommodate those takeout orders and we're working on advising some of our internal processes to improve execution on -- particularly on order accuracy and the speed of service.

We've also implemented a higher price menu for delivery at the end of last month, and we're going to continue to evaluate where the optimum pricing strategy is for margins balanced against transaction growth, particularly on those delivery sales.

We opened a second store this year in Raleigh in January, and it continues to run over 20% above our average weekly sales in its fifth operating month.

Our average weekly sales during the quarter were $47,600 versus $49,300 last year, and that reflects the large honeymoon periods we had in several stores last year as well as two of the more recent stores that have open at, at lower sales.

On a deseasonalized basis, our average annual sales is approximately $2.5 million per year for all the stores that we have open currently.

We expect all of the stores, except for one, to be cash flow positive at their current sales levels and to hit our new store targeted cash-on-cash return model of approximately 40% at that $2.5 million average sales level. That represents operating margin in the high-teens.

Our development costs for the new stores have gone up slightly due to increases in construction costs, but we're still below $1.1 million in net investment after landlord contributions.

In addition to the purchase of the non-controlling interest in three stores during our second quarter, our total development plan for fiscal 2019 of 5 stores is on track with the remaining three opening this summer in Murfreesboro, Tennessee; Huntsville, Alabama; and North Charleston, South Carolina with one additional store in our first quarter of fiscal 2020 in Colombia, South Carolina.

Our expected fiscal 2020 growth will be in existing and new markets in Georgia, Alabama, Kentucky, North, and South Carolina. Let's check the status on a few of our top initiatives for the balance of this year, my review in most of these last quarter and just to give you a little update on them.

We're continuing to focus on refining our site selection model and in site selection on new sites trend orient more towards destination-oriented sites with shopping, dining, entertainment and upscale retail co-tenancy with good, strong daytime employment.

We now have eight of our 34 Bad Daddy's not including the airport location that will do over $3 million in annualized sales this year. So, obviously, site selection is key on not only avoiding lower volume stores about continuing to try and optimize the opportunities with 25% of our stores over $3 million now.

Number two, we wanted to continue our same-store sales. We've got a lot of culinary and bar innovation in the works. We're doing some selected menu eliminations and really trying to elevate the execution of quality with a number of new products in the testing pipeline.

After our new menu implementation in May, this month, we're rolling out a new line of summer cocktails in June and then planning another update to our cocktail lineup in the fall for wintertime. Number three is our margin improvement and really working on finding labor efficiencies and simplification throughout our operation.

We're making very good progress on our cost of sales, that Ryan will touch on and we're currently evaluating several different pieces of equipment that will hopefully, actually, improve the quality and consistency of our products while reducing kitchen man-hours, decreasing ticket times for our guests and improving our peak hour throughput capacity at lunch and dinner when we have full restaurants.

We're strongly of the belief that technology is going to have to be a part of the equation to offset the continued labor pressures that we're facing and our industry is facing. So, we've got a lot in the work on that side.

We're continuing to improve our management and back-of-the-house key employee retention with enhanced rewards, recognition, and feedback tools. And finally, continue to really work on embedding hospitality and management training as a competitive advantage and deepening our training tools and communications to best-in-class.

We want to try and continue to leverage our full-service hospitality model as many of our competitors, particularly in casual theme, moved toward some lower levels of service and hospitality. Given that, Ryan will provide more detail on our financial performance during the quarter and update our guidance for the balance of the year.

I'll turn it over to him now..

Thanks Boyd. At Bad Daddy's, restaurant sales during the second quarter were $20.4 million, and the increase of 27.8% versus $16.0 million during last year's second quarter.

We had approximately 105 more store weeks this quarter versus the same quarter last year due to an additional nine units opened since the end of last year's fiscal second quarter, partially offset by overall lower average unit volumes. We achieved positive 1.3% comps for the quarter in line with our prior guidance.

21 Bad Daddy's restaurants were included in the comp base during the entire quarter, with one additional restaurant that we -- that will enter the comp base during our third quarter.

Cost of sales at Bad Daddy's were 28.5% for the quarter, a decrease of approximately 110 basis points versus last year's second quarter and a decrease sequentially over the previous quarter by approximately 40 basis points. We've had stable commodities over the past several months and have benefited from slight menu price increases.

We expect for cost of sales to be similar as a percent of sales for the balance of the year as we expect to make improvements in alcohol cost of sales and benefit from core menu price increases we expect to take later this month, which we believe will offset any minimal pressure associated with some slightly elevated commodity prices.

Bad Daddy's labor costs increased by approximately 20 basis points compared to the year-ago quarter, but decreased sequentially by 70 basis points to 37.6% for the quarter.

This moderate year-over-year increase is due to increasing wage inflation for back of the house employees where the wage rate was up approximately 6.0% on a year-over-year basis on top of the statutory front of the house wage increases in Colorado, and that was mostly offset by improved productivity, particularly in the Colorado market.

As we look to the balance of the year, we continue to expect pressure in the back of the house. But we expect the sequential improvements from menu pricing, which coupled with seasonally higher weekly sales should drive sequentially lower labor costs as a percent of sales.

Overall, restaurant level profit a non-GAAP measure for Bad Daddy's was $3.3 million for the quarter or 16.3% of sales compared to $2.7 million or 16.9% last year, a net increase of $620,000 over the last year.

That's the result of greater sales due to new restaurants and favorable cost of sales offset by the impact of higher labor, occupancy, and other restaurant operating costs as a percentage of sale due to a combination of lower original volumes and approximately $190,000 of commissions earned during the quarter by delivery service providers.

As Boyd mentioned, we are experimenting with different levels of elevated delivery pricing to improve our margins on the delivery sales as we try to optimize the profitability of our off-premise business.

At our Good Times brand, restaurant sales decreased by approximately $800,000 to $6.6 million, driven by one fewer opened restaurants during the full quarter coupled with a 7.1% decline in same-store sales. Note that as adjusted for the March storm Boyd mentioned comparable sales would've declined 5.9%, in line with our guidance.

For the quarter, adjusted for the storm, traffic as measured by check counts decreased 9.7% at our comparable units. We have a year-over-year menu price increase of approximately 2.8% and approximately 1% of favorable mix shift.

Additionally, one restaurant temporarily closed late in the quarter for an extensive remodel and will be closed for approximately eight weeks of the third quarter. Comparable sales exclude stores closed for remodels during the fiscal month in which they're closed.

Food and packaging costs at Good Times were 31.9% for the quarter, a decrease of 50 basis points versus last year's second quarter and a sequential improvement of 80 basis points. We have benefited from improved menu pricing as well as improved focus on elimination of kitchen waste.

We expect similar continued cost of sales improvements for the balance of the year as we continue to implement initiatives to improve product mix and eliminate waste. Total labor cost at Good Times were 39.0% for the quarter.

This quarter should be the highest indexing quarter in labor costs due to abnormally lower sales, again related to the weather, and further has been affected by a combination of an average wage increase of approximately 11.6% for the quarter versus the same quarter in fiscal 2018.

Restaurant level operating profit at Good Times decreased approximately $450,000 from the same quarter last year to $509,000.

As a percent of sales, the restaurant level operating margin declined by 5.3% versus last year to 7.7% primarily as a result of the higher cost of labor, deleveraging on the lower sales and higher occupancy expenses, partially offset by lower cost of sales.

General and administrative expenses were $2.2 million during the quarter or 8.1% as a percent of sales. Most of our increases in G&A costs were attributable to additional costs for Bad Daddy's associated with hiring and training new managers for a greater number of restaurants compared to the prior year.

We anticipate that G&A expenses will be low as a percentage of revenues in the second half of the fiscal year as we leverage seasonally higher unit volumes during the spring and summer seasons. Our net loss for the quarter was $450,000 versus a net loss of $431,000 last year in the second quarter.

This slightly widened net loss was primarily due to higher restaurant level operating profit and a lesser amount of preopening costs compared to the year ago quarter offset by increased G&A, depreciation, and interest expense. Preopening expenses for the quarter were $193,000 compared with $496,000 in the same quarter last year.

Our adjusted EBITDA for Q2 of fiscal 2019 decreased slightly to $1.147 million. In the earnings release, we reiterated our revenue guidance for fiscal 2019 with revenues of between $112 million and $114 million and a revenue run rate at the end of fiscal year 2019 of approximately $120 million.

The revenue estimate includes same-store sales assumptions for the balance of the year of approximately 1% to 2% for Good Times, reflecting our optimism on our recent return to positive same-store sales. We continue to project comparable sales of between positive 1% and 2% for Bad Daddy's for the balance of the year as well.

We expect our next Bad Daddy's restaurant to open in the mid-fourth quarter and to be subsequently followed by two additional openings prior to the end of the fiscal year. We also reiterate our prior guidance of adjusted EBITDA in the range of $6 million to $6.5 million.

We finished the second quarter with $3.4 million of cash and $12 million drawn against our $17 million debt facility with Cadence Bank.

We 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 fiscal 2019 and on into fiscal 2020. Now, I would like to turn the call back over to Boyd..

Thanks Ryan. While we've gone through what we believe a temporary blip in Good Times comp sales trend in our first and second quarters, we believe we're back on track with a little help from Mother Nature.

We're also laying the foundation at Bad Daddy's to again accelerate our growth into fiscal 2020 and beyond and expect to provide broader guidance for our longer-term growth plans next quarter. We appreciate your time with us today. And 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 Will Slabaugh from Stephens Inc. Please go ahead..

Thanks guys. I had a question on Bad Daddy's. I appreciate that the extra color you gave on Good Times. I was curious if you would follow that up with some color on the Bad Daddy's side.

How sales may have trended throughout that quarter? And then if you would be willing to give quarter-to-date update in terms of how sales have been trending on April and early May?.

Well, you're talking about how Bad Daddy's for this current quarter, is that what you're asking?.

The current quarter, correct..

Yes. We're -- again, depending on weather. It's -- we're continuing our trend that we saw in our second quarter. We've flattened out a little bit depending on week to week. But we expect again to kind of maintain that same trend that we've been on..

Great. And on the development side and how it relates to CapEx and the balance sheet, Ryan, I know you mentioned you'd be able to sort of self-fund out after the end of this year, it sounds like. What might that development acceleration look like in broad strokes for 2020? I know you've said you're going to give us more color on the next call.

But just trying to get some sort of idea of how to model 2020 and how that pipeline is shaping up in general..

We haven't given guidance on that one, yet, Will. I'm a little reluctant to lay too much out there. But we anticipate it will be more than what it was here in fiscal 2019 and probably somewhere between this year and what it was last year. We opened nine stores last year and five this year.

So, my guess it will be -- probably be somewhere in the middle of that..

Fair enough. And then just a housekeeping question on pricing.

Where was pricing at both brands in the second quarter? And where do you expect it for 3Q and 4Q with the additional pricing you mentioned that may role on?.

So, during the quarter, at Good Times, I used -- because I kind of laid out for Good Times, are you speaking to Bad Daddy's?.

Yes. Bad Daddy's, please..

So, for Bad Daddy's, we had approximately 1.7% of price during the quarter and that's kind of blended between our two geographies. As Boyd mentioned, we have kind of slightly higher price level at Colorado -- in Colorado than we do in the rest of the system. So, if you kind of want to break that out, our costs, 1.3%., we had 1.7% of price.

We actually had positive track, 0.2%. And so mix shift of just -- that would be 0.6% of unfavorable mix shift. We are taking -- and we've been I think fairly moderate with our pricing. We haven't been very aggressive on the Bad Daddy's side with our pricing this year. And so we're taking another 0.8% in this coming quarter.

And we think that's going to be sufficient for -- combined with some other things that we're doing around kind of alcohol cost as well as other kind of mix management that we're trying to do to keep cost of sales kind of at or slightly below where they are currently..

Great. Thank you..

[Operator Instructions] At this time, I'm showing no further questions. I would like to turn the conference back over to Boyd Hoback for any closing remarks..

I just want to thank everybody again for joining us today and certainly look forward to our call next quarter where we anticipate continuing to have some better news based on our trends as well as a much further color on our development plans as we move into fiscal 2020. Thanks very much..

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