Good afternoon, ladies and gentlemen. Welcome to the Good Times Restaurants Inc. Fiscal 2020 Second Quarter Earnings Call. By now, everyone should have access to the company’s earnings release, which is available in the Investors section of the company’s website.

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, including risks related to the COVID-19 pandemic.

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. Please note, this event is being recorded. And now I would like to turn the conference over to Ryan. Please go ahead..

Thank you, Chad. I would like to thank you all for joining us on the call today. Our earnings release contained a letter from me provided an update on our business and our response to the COVID-19 pandemic. At the onset of this pandemic, there was tremendous lack of visibility to what the future might hold, we took immediate action to ensure survival.

Our actions included the reduction of pay of all management-level team members with greater reductions in pay for our senior leaders. It also included initially reducing staffing at our restaurants to nearly bare bones at Bad Daddy’s as we did not know whether or not to expect an increase in our off-premise sales.

Our Board members waived their fees, we requested longer payment terms from our vendors, which were almost universally granted, and we’ve had productive discussions with many of our landlords in deferral or abatement of rents. We drew down our credit facility to provide immediate liquidity in what we believed would be a rapid cash burn environment.

We are fortunate to have two brands with different service models in times like these. As our portfolio of restaurants have some balance and resilience as people shift dining behavior.

And although initially, we saw sharp declines in our Good Times Restaurants’ sales, we have recently seen a return to positive comps and are encouraged by operating trends that are drive-through concept, which is well positioned for a market already focused on convenience, but now with greater interest in social distancing and a service model with quick limited interaction with others.

At Bad Daddy’s, we closed our dining rooms as a result of both state orders and our guest expectations.

And under a delivery and carryout model have grown sales from a near $15,000 per week at the outset of the pandemic to nearly $25,000 per week at the end of April, and have restaurants doing in excess of $35,000 per week, exclusively in off-premise business.

We have since opened dining rooms in 10 company-owned restaurants and are looking forward to opening the remaining ones in Colorado and North Carolina. Our franchisee in South Carolina has also reopened its dining room. We have done this all with the health and safety of our team members and our guests in mind.

As expected, there are definitely mixed feelings in the public domain about reopening, but we have found that our guests are comfortable because of the safety measures we have put in place and are believe to be able to enjoy dining in a restaurant again.

We could not have done this without an amazing team, all of whom made sacrifices of various sorts. We applied for loans under the CARES Act, Paycheck Protection Program, and those loans were funded last week. This program was critical to restore pay to our team members and to rehire employees as our sales increase and as we reopen dining rooms.

As a result, we’re comfortable with our current liquidity position and with very recent increases in sales trends, are no longer in a significant net cash burn position.

The focus of our Good Times brand is to continue to build on the momentum we have through continued focus on our speed of execution initiative, combined with increased focus on a wholesome, clean and healthy appearance, exemplified by our employees and the increased care and maintenance of our facilities.

We continued advertising via radio during the Colorado stay-at-home order, although with reduced spending and partially attribute that to our sales resurgence and restriction to east.

At Bad Daddy’s, we successfully pivoted from our longer-term strategy to survival tactics, but some of our core strategy was never abandoned, retaining high potential talent and developing our team members at all levels. Our teams have grown tighter and closer, even as we have had to physically increase our distance from one another.

We collectively have learned much about our concept and our individual and combined capabilities. As we reopen dining rooms, we are doing so with our prior strategy of assigning department ownership and accountability with even more stringent focus on health and safety.

Nevertheless, casual dining will be changed in the short run, and even in the long run, some changes may persist.

With an increased focus on off-premise, we are committed to maintaining a higher level of off-premise execution than our competition and ensuring that our customers can experience our best regardless of whether that is through a dine-in experience, a carryout order or by having Bad Daddy’s delivered to their door. Let’s review this quarter’s results.

At Bad Daddy’s, restaurant sales during the quarter were $19.3 million compared to $20.4 million during last year’s second quarter. We had approximately 53 more store weeks this quarter versus the same quarter last year, offset by the sharp decline in sales during the last three weeks of the quarter.

29 Bad Daddy’s were in the comp base at the end of the quarter. Cost of sales at Bad Daddy’s were 28.8% for the quarter, a 30 basis point increase from last year’s second quarter.

Although we have thus far been successful in avoiding product shortages, pricing for proteins has been volatile, and we would expect sequential increase in beef and bacon costs during the next quarter. Bad Daddy’s labor costs increased by approximately 50 basis points compared to the prior year quarter to 38.1% in the current year quarter.

This year-over-year increase is primarily due to deleveraging of sales in the last three weeks of the quarter, as we have made progress in our objective to improve labor costs prior to the COVID-19 pandemic.

Overall, restaurant-level operating profit, a non-GAAP measure, for Bad Daddy’s, was $2.4 million for the quarter or 12.2% of sales compared to $3.2 million or 15.8% last year.

This is due to a combination of higher mix of delivery sales by driving increased delivery commissions and the deleveraging impact of lower sales associated with the COVID-19 pandemic.

Restaurant sales at Good Times increased slightly to $6.7 million, driven by the strong positive comparable sales during the first 11 weeks of the quarter, offset by substantial declines in the last two weeks of the quarter.

Food and packaging costs for Good Times were 30.8% for the quarter as a percent of sales, a decrease of 110 basis points compared to last year’s second quarter. As we discussed last quarter, Good Times has continued to benefit from improved menu pricing, adjustments to our customers’ lineup and improvements in product waste.

Similar to our comments on Bad Daddy’s, we have so far avoided product shortages, but expect volatility and higher protein costs in the third quarter. Total labor costs for Good Times decreased to 37.7% from 39.0% for the quarter last year.

This is the result of leveraging increased sales, along with our focus on staffing for volume and our speed of execution focus, which has improved labor productivity. Good Times restaurant-level operating profit increased nearly $240,000 for the quarter.

As a percent of sales, the restaurant-level operating profit increased by 340 basis points versus last year to 10.5%, due primarily to lower cost of sales and lower cost of labor, partially offset by the higher cost of delivery commissions. General and administrative costs were $1.6 million during the quarter or 6.2% as a percent of total revenues.

This represents a decrease of $0.4 million versus the prior year quarter and a 140 basis point decrease as a percent of revenues. This quarter’s G&A expenses decreased due to slightly larger spans of controls at Bad Daddy’s and lower manager training costs as well as reduced restaurant support center staffing.

We recorded significant impairments, both of long-lived assets and of goodwill related to our Bad Daddy’s business. We evaluate both at least on an annual basis, but also when there are indicators for us to review.

The COVID-19 pandemic, combined with the sustained decline in our stock price during and subsequent to the end of the quarter, represented such indications.

The restaurant asset impairments at Bad Daddy’s related to restaurants, which already have below average cash flow, and when evaluated in connection with the impacts of COVID-19, we believe long-term asset value would not be recovered.

Our assessment of goodwill attributable to Bad Daddy’s similarly was evaluated in light of the company’s total market capitalization, our reduced unit growth, and additionally, the uncertainties associated with the COVID-19 pandemic. Both of these charges are noncash, have no impact on our cash position or future cash flows.

Although there are market risks, which factored significantly into this impairment charge, we continue to have great confidence in the Bad Daddy’s concept and look to the growth of off-premise sales during the pandemic as a demonstration of its strength.

I am optimistic that we will deliver on our long-term strategies despite the short-term uncertainties related to COVID-19. Our net loss for the quarter was $14.9 million versus a net loss of $0.5 million in the second quarter last year. This net loss is primarily driven by the long-lived asset and goodwill impairments taken.

Our adjusted EBITDA for the quarter was $0.8 million versus $1.1 million in the prior year quarter. This decline significantly influenced by events during the month of March. We finished the quarter with $4.1 million in cash and $16.8 million drawn against our credit facility with Cadence Bank.

As mentioned in one of our recent SEC filings, we recently obtained approximately $11.6 million of additional cash through Paycheck Protection Program loans. In the earnings release, we withdrew our outlook due to the continued uncertainties around the COVID-19 pandemic.

At this time, such uncertainties prevent a reasonable estimate of results for the balance of the year.

While the pandemic has affected our overall financial results and at Bad Daddy’s has caused us to make course corrections related to our strategies, our entire organization’s focus on operations excellence and fiscal discipline has served us well during this crisis and allowed us to be here today serving great food and genuine hospitality to customers of both of our brands.

With that, operator – Chad, we will open the call for questions..

Certainly, thank you, sir. We will now begin the question-and-answer session. [Operator Instructions].

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At this time, I’m showing no questions. So I’d like to turn the conference back over to you, Ryan, for any concluding remarks..

Thank you, Chad. I cannot thank our team members enough for their grit and their determination during the past eight weeks. We’ve endured a storm unlike any of us have ever seen before, and we’ve survived.

We look forward not just to surviving though, but learning and adapting and ultimately thriving as we continue to provide great food and genuine hospitality to customers of both of our brands in a rapidly changing environment. It is not any one individual, but the collective team that has made it happen and will continue to do so.

I am honored to work with each and every one of you. We will now conclude today’s call. Thank you all for joining us today..

And thank you, sir. The conference has concluded. You may now disconnect your lines. Take care..