Good afternoon, ladies and gentlemen and welcome to the Good Times Restaurants Inc. Fiscal 2021 First 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 the 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. And now, I would like to turn the call over to Ryan Zink. Please go ahead, sir..

Thank you, Chris and thank you all for joining us on the call today. I think I am in good company in wishing goodbye to calendar 2020.

That said, despite the existential fear that gripped us about 10 months ago, I am both proud and humbled by our team’s ability to overcome the adversity of the calendar year 2020 to learn, adapt and operate our businesses profitably under the demands of our new reality.

During our first fiscal quarter, we continued our trend of growing sales significantly at Good Times and preserving sales at Bad Daddy’s at greater rates than our competitors as measured by Knapp-Track, as well as laying the groundwork for the future of both of our brands.

We experienced the closure of our Colorado dining rooms beginning in mid-November at Bad Daddy’s, and those dining rooms remained closed through the end of the quarter and into early January.

We have prepared for that in September and October by investing in wind breaks and additional heaters for our outdoor patios and in some cases, separate tents with dedicated heating and lighting to expand our ability to serve our customers, making the bet that indoor dining would be severely capacity-restricted or even entirely closed off.

That preparedness enabled us to preserve nearly 90% of prior year same-store sales for the concept despite dining room closures in almost a third of our Bad Daddy’s.

We also saw the closure of dining rooms bolster traffic at Good Times as customers shifted from casual dining options to fast casual and QSR, and in particular, with a preference for drive-through, which is our niche at Good Times.

We continue to recognize that we need to react to changes caused by the COVID-19 pandemic, but we are also preparing ourselves for a post-pandemic post-vaccine business environment.

While we believe many guests who have so far avoided restaurant dining are anxious to enjoy a full-service restaurant experience, we also recognize that we must continue to stay flexible to meet our guests’ needs as we move into the post-pandemic world.

We have watched as consumers have become more comfortable with QR code menus, delivery and carry out, and more than anything, digital interactions with brands. They value the convenience associated with digital ordering, self-payment and the ability to interact with restaurants in multiple different channels and formats.

To support that convenience factor, we are developing mobile apps for both of our brands, through which we expect to offer order and payment capabilities as well as direct integration into our restaurant systems.

This should reduce the friction of ordering associated with placing orders and provide a new ordering means at Good Times where our current digital ordering is limited to delivery service aggregators. And that we hope will significantly improve on the currently optimized user experience that we have with our mobile web interface at Bad Daddy’s.

During our December earnings call, we discussed our new virtual brand, Bad Mama’s Chicken and I am pleased to share that we have rolled that out to 24 of our Bad Daddy’s restaurants.

While not yet a major part of our business, it did contribute approximately 2% of incremental sales in December to those restaurants where we had rolled it out, and it was particularly well-timed in Colorado, where we experienced dining room closures. Bad Mama’s also provides us a platform to experiment with products, pricing and promotion.

And the concept aligns with the Bad Daddy’s brand’s culinary focus using fresh chicken wings and tenders and with our heart-of-house employees’ hand breading those tenders and making sauces from scratch. We recognize that labor pressures will continue to be a challenge for the industry.

With a heavy presence in Colorado, which is a high wage market, we have gained experience in operating with higher wage rates. Our expectation is that longer term, the federal minimum wage will increase and we are working on initiatives to prepare for that change should it come to pass.

At Bad Daddy’s, we have been shifting our pricing approach, having rolled out a-la-carte side pricing in Colorado and the smaller 5 ounce patty option system-wide both of which expand upon our concept’s unique ability to allow each guest to customize their meal exactly to their needs.

We expect to soon begin experimenting in a limited number of restaurants with technology-assisted table service using a technology partner to enable customers to place orders and pay from their own mobile device.

Our vision for this model should prove successful, is to retain a high-touch full-service experience but eliminate time-consuming elements of the process. Again, we are looking at this not just through a lens of improving front-of-house productivity, but also putting more control of the experience directly in the hands of our guest.

Also as discussed during last quarter’s call, we continue to expect to open two restaurants this fiscal year, one during our third quarter and one during our fourth quarter. Let’s review this quarter’s results.

As we review, keep in mind that during fiscal 2020, the fiscal calendar had an extra week in the quarter that occurs approximately once every 5 years. At Bad Daddy’s, restaurant sales during the quarter were $18.7 million compared to $22.8 million during last year’s first quarter.

We had approximately 27 fewer store weeks this quarter versus the same quarter last year, reflecting 1 fewer week in the fiscal calendar partially offset by a greater number of restaurants opened for the full quarter.

The decline in sales was also affected by reduced traffic accompanying closed and reduced capacity dining rooms associated with the COVID-19 pandemic as well as changes in consumers’ general holiday shopping behavior. Same-store sales declined 11.8% during the quarter, with 33 Bad Daddy’s in the comp base at the end of the quarter.

Cost of sales at Bad Daddy’s were 28.7% for the quarter, a 150 basis point decrease from last year’s quarter, the result of higher average menu pricing associated with a greater share of sales to our third-party delivery services, partially offset by increased packaging cost, reduced waste associated with menu optimization and generally favorable commodity pricing.

Note that prior year cost of sales for Bad Daddy’s have had the cost of packaging reclassified from other operating expenses which conforms with the current year presentation.

We made this classification adjustment at Bad Daddy’s reflecting our belief that the increased carryout and delivery sales we’ve seen is a structural change and these sales no longer are merely incidental to our business. Bad Daddy’s labor cost decreased by approximately 600 basis points compared to the prior year quarter to 33.5%.

This year-over-year decrease is primarily due to reduced front-of-house staffing levels, accompanying limited occupancy of dining rooms, improved back-of-house productivity and the reduction of management staffing from an average of 5 managers per restaurant to 4 managers per restaurant as well as a reduced number of managers in training.

In prior years, the cost of restaurant managers in training for existing restaurants was treated as a general and administrative expense, where it is now treated as a part of restaurant costs. We made this change as these costs are directly attributable to restaurant staffing.

Prior year amounts have also been reclassified to conform to this year’s presentation. Overall, restaurant-level operating profit, a non-GAAP measure, for Bad Daddy’s was approximately $3 million for the quarter or 15.8% of sales compared also to $3 million or 13.1% of sales last year.

This is due to improvements in cost of sales and labor, partially offset by sales de-leverage of fixed costs, including rent, as well as increased delivery commissions, accompanying a higher mix of delivery sales.

Restaurant sales at Good Times were $8.4 million, an increase of $0.6 million, driven by the strong 22.1% positive same-store sales during the quarter, offset by the reduced number of operating weeks during the quarter, and the closure of 1 Good Times near the beginning of December.

Food and packaging costs for Good Times were 29.6% for the quarter, a decrease of 140 basis points compared to last year. Good Times had relatively similar blended commodity costs to the prior year, offset by higher menu pricing and improvements in product waste. Total labor costs for Good Times decreased to 31.2% from 38.3% for the quarter last year.

This is the result of leveraging increased sales, our focus on staffing for volume and our speed of execution focus, which has improved labor productivity. Good Times restaurant-level operating profit increased by $1.7 million for the quarter.

As a percent of sales, the restaurant-level operating profit increased by 930 basis points versus last year to 20.6%, again due primarily to higher sales and the leveraging of fixed costs, accompanied by lower cost of sales, lower cost of labor, but partially offset by higher costs associated with delivery commissions.

General and administrative expenses were $2.1 million during the quarter or 8% as a percent of total revenues. This represents an increase of $0.1 million versus the prior year quarter and a 130 basis point decrease rather increase as a percent of sales.

G&A expenses increased versus the prior year due to a one-time executive bonus, the addition of finance and technology leaders to the senior leadership team, increased professional fees and excess medical claims costs associated with the company’s partially self-funded health care plan.

These costs then were partially offset by lower multi-unit supervision costs due to greater spans of control at Bad Daddy’s and reduced costs associated with the company’s annual GM conference. Our net income to common shareholders for the quarter was $0.8 million versus a loss to common shareholders of $0.8 million in the first quarter last year.

Despite significantly lower sales at Bad Daddy’s, incremental sales at Good Times, improvements in operating efficiencies at both brands and minimal pre-opening expenses during the current year quarter allowed us to deliver significantly better bottom line results.

Adjusted EBITDA for the quarter, a non-GAAP measure, was $1.8 million compared to $1.5 million for the first quarter of 2020. We finished the quarter with $10 million in cash, approximately $4 million outstanding on our credit facility with Cadence Bank and $11.7 million in outstanding Paycheck Protection Program loans.

Note that during the quarter we began paying our broadline food suppliers on discounted payment terms of approximately 3 days versus approximately 21 days previously, which we estimate reduces our outstanding accounts payable balance on an ongoing basis by between $1.3 billion and $1.5 million.

Subsequent to the end of the year – rather the end of the quarter, we amended our Cadence credit facility, which provides a new maturity date of January 31, 2023, and will ultimately reduce the commitment to $8 million by July 1, providing us with financial flexibility, but while better aligning with our new point of view around appropriate leverage.

At the current time, we expect to finance future development primarily from cash flow generated by the business, and we believe that even as we expect to open 2 new Bad Daddy’s restaurants this year, we can continue to strengthen our balance sheet by further reducing leverage.

Due to the continued uncertainty associated with the COVID-19 pandemic as well as some indications that regulatory wage changes may take place even during our fiscal year, we did not provide guidance for the balance of the year.

In our press release, we reported same-store sales increase of 24% for Good Times and same-store sales decline of 8% for Bad Daddy’s during the month of January. We expect as restriction ease, same-store sales will sequentially improve at Bad Daddy’s and will moderate at Good Times.

We also expect some margin compression as additional front-of-house staff are added back in Colorado as dining rooms open and as capacity restrictions across the country are relaxed as we upgrade our off-premises packaging at Bad Daddy’s and as we anticipate some commodity pressures later in the year.

In summary, we are pleased with this quarter’s results. It has set us up well for the balance of the year. With that, Chris, we will open the call for questions..

[Operator Instructions] Our first question comes from Roger Lipton with Lipton Financial. Please go ahead, sir. .

Yes. Hi, good afternoon. Nice to talk to you guys. Good, impressive, impressive management of the problem, especially the lower payroll cost and cost of goods at Bad Daddy’s.

Could you talk a little bit about the – at Bad Daddy’s off-premise versus in-store, maybe reflecting back on what it used to be and what it’s been running lately in off-premise and sort of including delivery, the delivery component?.

Yes, certainly. So I’ll probably speak – it’s best spoken of in terms of mix. And I would say, before the pandemic our total off-premise was roughly in the 12% to 15% of total sales. Now – and certainly, back in March, April and May, when most of our dining rooms were closed, that number went to 100%.

And I would say more recently though what we have seen with all of the dining rooms open is that we’re still running approximately 35% to 40% total off-premise as a percent of total sales. And of that, roughly, just shy of, I’d say, 40% of that number then is delivery..

Okay.

And you – how do you do delivery, third-party?.

Yes. So we have a couple of ways for our customers to access delivery. One is we do use the aggregators. So we have partnerships with DoorDash, Grubhub, Postmates and soon to be Uber Eats. And that is one mechanism for our customers to access it. We also allow delivery through our website, and we then – but we don’t service that internally.

It’s a little more economical for us than the customer if they do it through our website. And then through our partnership with Olo and their Rails product, we’re able to source delivery drivers through those same providers..

Alright. And I think you made reference to the margins being affected by the third-party guys. Your net margins are lower on that..

Yes, certainly. I mean, if you look at other restaurant operating costs as a percent of sales, those are both higher than the prior year. And a good chunk of that increase as a percent of sales is directly attributable to the delivery service fees..

And lastly on this subject, is that extra cost decreasing as these guys compete with each other to get your business or was it….

So what we are – I would say we spent – even before the pandemic, we spent a lot of time working with them to negotiate commission rates that could work with our economic model. I would say that competition hasn’t really driven improvements in the rates as much as regulation has.

And we have seen in a couple of jurisdictions where we do business where rates have been capped at a ceiling of 15%. That, I would say, is less than 20% of our stores. But I somewhat envision that that will – we will see more of that throughout our markets and potentially throughout the rest of the country..

Yes. I think so too. Alright, I will drop off for a sec. I will come back if – I’ll give somebody else a chance here. Thank you..

Alright. Thanks, Roger..

Okay..

[Operator Instructions] At this time we are showing no further questions in the queue. And I would like to turn the call over to Ryan again for any closing remarks..

Thanks again, Chris. We’ve started this quarter with strength, even despite continued challenges in the operating environment. Our team continues to put forth great effort to anticipate changes, proactively adapt the business to demands from our customers as well as regulators.

And each and every day I continue to be more impressed by what our team is able to accomplish. And I want to take this time to thank them all for their tireless efforts to improve our business. It’s very much appreciated. And with that, we will conclude today’s call. I thank you all for joining us today..

Conference has now concluded. Thank you for attending today’s presentation. And you may now disconnect..