Good afternoon, ladies and gentlemen. Welcome to the Good Times Restaurants Inc. Fiscal 2021 Third Quarter Earnings Call. By now, everyone should have access to the company's earnings release and 10-Q filing, which are 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. And now, I would like to turn the call over to Ryan. Please go ahead, sir..

Thank you, Paul. And thank you all for joining us on the call today. We are pleased with the performance of both brands this quarter. The solid financial performance we reported doesn't fully do justice to the incredible efforts of our restaurant teams executing each of our concepts daily.

As restrictions on dining rooms have eased, we bet been met with other challenges stemming from a tight labor market in the overall economy that have affected both of our concepts.

This tight labor market has resulted in elevated wage rates at both brands, as we both strive to compete for talent and create an environment where our restaurant level compensations rewarding and meaningful for our managers and our team members.

At our Good Times brand, we primarily focused on wage as a method of attracting hourly team members with a 10% increase in the average wage compared to the prior year.

Whereas the Bad Daddies, we've implemented a multi-pronged approach including limited time retention bonuses, an hour employee holiday bonus program, as well as our increased wages to fairly reward employees in both tipped and non-tipped roles. Our backup house wage rate is up approximately 8% versus the prior year.

And we expect this tight labor market to continue for some time. Yet despite the challenges in the external environment, we continue to focus on speed accuracy and consistent execution at our good times drive thru restaurants.

We believe that this has helped us to retain near prior year volumes rolling over the closure of indoor dining and Colorado last year. We believe firmly that speed is a competitive advantage for us that's created repeat customers and long term loyalty that we expect to stay with us.

Our ongoing strategy is to further improve upon speed, consistently executing in a way that builds a solid reputation and strong association with the customer between speed of service and good times.

We've managed operating hours similar to the prior year, in spite of staffing challenges, and we look to strategically increase those operating hours when there's greater capacity in labor markets. Our hours of operations continue to be reduced compared to 2019 levels a Good Times.

At Bad Daddies, we're operating with a menu that we believe is appropriately sized for our concept. Our menu is modestly smaller than it was pre pandemic. However, compared to many competitors who significantly reduced their menus. Our menu rationalization has been targeted around our assessment of customer demand.

We don't expect to expand our menu from where it currently is. And in doing so, we're looking to set a long term change in menu strategy compared to prior years. Innovation and taste and flavor will continue to play a part in the ongoing evolution of our menu. However, our greater focus is on executing our current more compact menu exceptionally well.

We continue to also believe in a high level of hospitality and serves Bad Daddies and see that as a differentiator and as such focus throughout the quarter on elevating Front of House staffing. And we've seen that translate into sequentially improving comparable sales through the present.

As with Good Times we continue to operate with reduced operating hours compared to 2019. At both brands were in developed have mobile applications to enable native device based mobile ordering, and other Good Times brand we expect to be launching online ordering for the first time early in the first fiscal quarter of 2022.

We continue to monitor technologies and are experimenting with alternative service models at Bad Daddy's in a way to provide greater flexibility in the guest experience based upon their preferences, improving the efficiency of serving our guests, while at the same time not compromising the level of service and hospitality that we believe separates us from the sea of sameness in casual dining.

Separately today, we issued a press release announcing that we expect to launch a tender offer to purchase up to 1,413,000 shares of our outstanding common stock at a price of $4.60 per share, for an approximate total amount of $6.5 million.

This tender offer is expected to commence on August 13 2021 or soon thereafter and remain open for 20 business days. The company expects to fund share purchases from its existing cash and cash equivalents.

While we believe this tender offer, we believe this tender offer to be an effective means to return capital to our shareholders, while also allowing those shareholders who did not participate in the tender offer to share in a higher portion of our future potential.

Let's review this quarter's results at Bad Daddy's restaurant sales during the quarter were $24.4 million, compared with $14.9 million during last year's third quarter.

The increase in sales was attributable to increases in traffic as the combined on and off premise sales exceeded pre pandemic levels and as we rolled over instructions restrictions in dining capacity that were imposed during third quarter of last year.

Same store sales increased 61% during the quarter compared to last year, and 0.7% compared to 2019 with 37 Bad Daddies in the comp base at the end of the quarter. Cost of sales at Bad Daddies were 29.7% for the quarter, a 120 basis point increase from last year's quarter.

The result in a lower mix of sales through our third party delivery services which have a higher selling price, elevated commodity prices and increased packaging costs. During the quarter average menu prices were approximately 3% higher than prior year. With most of those price increases concentrated in Colorado.

We recently took another 2% price increase, this increase more concentrated in the balance of the system. Bad Daddy's labor costs increased by approximately 220 basis points compared to the prior year quarter to 34.3% for the quarter.

This year-over-year increase is primarily due to increased Front of House staffing levels, the company fully opened dining rooms compared against dining room closures and limited capacity in the same quarter last year.

Costs related to the hourly employee holiday pay and incentive compensation programs that are aimed at improving retention as well as higher average wages paid hourly employees. Our back of house wage of Bad Daddy's is approximately 8% versus last year.

As a reminder, the cost of restaurant managers in training for existing restaurants is now included as a part of restaurant labor costs. And last year's amounts have been reclassified to the current year presentation.

Overall, restaurant level operating profit, which is the non GAAP measure for Bad Daddies was approximately $4.3 million for the quarter, or 17.8% of sales compared to $2.3 million, or 15.4% last year.

This is due to the leveraging of fixed costs on higher sales, as well as reduced delivery fees as a percent of total restaurant sales, partially offset by increased cost of sales and labor.

Restaurant sales at good times were $9.3 million, approximately the same as prior year, driven by 2.9% same store sales increased during the quarter offset by a reduced number of operating weeks, resulting from the previously reported closure of one good times that occurred in the first quarter of the year.

Same store sales a good time compared to 2019 are 14.3%. Food and packaging costs for good times were 29.4% for the quarter, a decrease of 70 basis points compared to last year's quarter. Modest increase in input costs during the quarter were offset by higher menu pricing. Average menu price during the quarter was up approximately 4.5% versus 2020.

Total labor cost for good times increase to 31.0% from 28.1% for the quarter last year. This increase is due to wage increases compared to the prior year, the result of comparing against salaries and wages that had been reduced during the pandemic, as well as general increases in market wages due to labor shortages.

Good Times Restaurant level operating profits decreased by $0.3 million for the quarter to $2.2 million. As a percent of sales restaurant operating profit decreased to 23.6%, due primarily to higher wage costs and rolling over some rent forgiveness that certain landlords had granted to us in the prior year.

General and administrative expenses were $2.5 million during the quarter, or 7.4% as a percent of total revenues. This represents an increase of $0.8 million versus prior year quarter.

G&A expenses increased versus the prior year due to increased legal and professional fees, increased costs associated with multi-unit and senior management incentive compensation, higher manager training costs and elevated systems to technology costs.

Our net income to common shareholders for the quarter was $13.6 million, or $1 and 4% per fully diluted share versus net income to common shareholders of $0.2 million last year or $0.02 per share in the third quarter last year, which includes the current year amount includes an approximate $11.8 million gain from the forgiveness of PPP loans.

For the year-to-date period, our net income to common shareholders was $16.8 million, or $1.21 per fully diluted share, versus a loss of $15.4 million or $1.23 per share for the prior year to date period. Adjusted EBIDTA for the quarter was $3.1 million, compared to $2.4 million for the third quarter of 2020.

For the year-to-date period, our adjusted EBIDTA was $7.2 million versus $4.7 million for the same period in fiscal 2020. Note that adjusted EBIDTA is a non GAAP measure. Also note that the same period of fiscal 2021 or fiscal 2020 was 40 operating weeks, versus 39 operating weeks in the current year period.

We finished the quarter with $10.3 million in cash and no long term debt. At the current time, we expect to primarily finance future development with cash flow generated by the business. And we believe that even as we expect to open one more Bad Daddy's restaurant this year, we will continue to have a solid balance sheet.

We opened our Bad Daddy's in Marietta, Georgia in early June, which is currently posting average weekly sales of approximately $45,000 per week. And our next restaurant in Montgomery, Alabama is scheduled to open during September. We expect to open approximately two new Bad Daddy's restaurants in fiscal 2022.

With those likely to occur during the late second half of the year. We provided guidance of net income for the full fiscal 2021 year of between $16.5 million and $17.0 million and adjusted EBIDTA between $9.5 million and $10.0 million. For fiscal 2022 in light of the pandemic, we've not provided a complete financial support.

But we commented that we believe our current annualized run rate net income attributable to common shareholders, is approximately $4.0 million to $4.5 million. Again, we're very pleased with this quarter's results which sets us up well for the final quarter of the year. With that Paul, we'll open the call for questions..

[Operator Instructions] Our first question today will come from Roger Lipton with Lipton Financial Services. Please go ahead. .

Hi, Ryan.

Just interested in the comparisons of your some operating numbers from 2019, in terms of, if you have them near your fingertips, if not, we could give them another time but our mission in the cost of goods and labor in this most recent quarter versus the same quarter in 2019; just to get an idea of how the businesses changed over a couple of years..

Yes, so I don't have those numbers at my fingertips in terms of the margin numbers. However, what I would say is I believe on both concept, we've exceeded at least a couple 100 basis points of margin improvement on a quarter to quarter basis on a two year look back.

I think what's more important kind of from a go forward basis is that kind of these metrics are more in line with what we expect for the future.

Although certainly there are cost pressures that other restaurant companies are experiencing as are we, I think we feel confident that we'll be able to manage cost of sales reasonably well with menu price, and we think that our menu price is competitive, and actually, in the Bad Daddy system, I think we feel like we've got a little bit of room for additional price, we've been purposefully I wouldn't say slow, but controlled in many price adjustments.

I think the labor is the challenge and that is kind of a function of rate driven by the lack of supply of talent in the market. But, kind of to your point, I think what you've seen is meaningful improvement, versus our financials, prior to the pandemic.

And we have learned a lot about how to manage our business more effectively, more efficiently compared to 2019 and before..

Okay, well, that's, that would be the hope. So it sounds that way.

One last question, what's the off premise percentage at Bad Daddies, how's that changed over the last couple of years?.

So during, obviously, when we were completely when our dining rooms were completely shut down during the third quarter last year, we went to 100% mix. As on premises returned, our sales of off premise have remained strong.

And we still have in terms of all methods of off premise, which currently include customer pickup delivery through the aggregators. And then we also offer delivery through our website, which is managed through third parties. All of those combined, we were running high 20% almost 30% mix in off premise..

And how much roughly what might had been running couple years ago?.

We were running 12% to 14% off premise in 2019..

Okay, that's interesting. Thanks very much. .

And our next question will come from William James with Maher Investment [ph]. Please go ahead..

Hi, Ryan, just going forward with regarding to Bad Daddy's. The CapEx involved in opening up a new Bad Daddy's divided by the run rate EBIDTA at the restaurant level.

Is the payback, they're going to be running 3 to 3.5 times do you think?.

Yes, I mean, I think the way the way we look at that is our model calls for investment net of landlord contribution of approximately about approximately $1.3 million. Currently, we've seen some increase in construction costs due to due to tightness in the market just like everything else.

And operating profits of high teens 16% to 17% on our target, we can generate restaurant level cash flow of approximately $400,000 so just shy of kind of three times or three year payback, just shy [ph] of that..

Great.

Do you think the idea of going forward would be to keep the balance sheet just clean into just take all the excess cash flow and put them in these time paybacks of Bad Daddy's?.

Yes, I think our approach from a growth perspective is primarily focused on Bad Daddy's. As I mentioned, I think our intent is to finance Bad Daddy's development primarily through cash flow, not to incur a meaningful amount of debt and to as you say, keep a rather clean balance sheet. That's our aim as it as it pertains to development..

And Ryan, you guys have really brought a refreshing pragmatic management to this company is just outstanding to see the EBIDTA finally materialize in the restaurant margins at the operating level materialize just so terrific job. .

Thank you. I appreciate that..

[Operator Instructions] Our next question will come from [indiscernible]. Please go ahead..

Hi, how are you? Thanks for taking my question. I guess I had two questions.

One was do you project that your restaurant level margins are going to kind of maintain the current run rate with the increase in costs but also by the normalization of demand?.

So I think the best way to answer that, I think is long term, we do believe we'll be able to manage that I think there may be some short term volatility, in light of some of the extreme pressure that everybody is seeing in the market right now that we expect to continue, at least through the end of the far fiscal year.

And I think there's the potential for it to continue through the end of the calendar year. But I do believe that long term, we believe that we'll be able to achieve these margins. But again, I think short term, there'll be some volatility..

Okay, thank you. And then my other question was, you know, obviously, the normalization has occurred more recently, and these things can take some time to develop in your restaurant.

But how do you foresee kind of longer term, maybe three to five years out, the ability to grow?.

Yes, I mean, I think the best way to explain that because that, because we're not really providing firm guidance, either for next year on a three to five year basis. But I would say that I think our expectation is that the lion's share of the growth would come from the Bad Daddy side of the portfolio.

And, and there's a good chance that development primarily comes from a company owned. However, I think there's also the possibility that we could explore a combination of company and franchise owned model in the future..

Okay, thank you. .

And this will conclude our question and answer session. I'd like to turn the conference back over to Ryan for any closing remarks..

Thanks Paul. As we've entered the homestretch for our fiscal year, we continue to develop a culture of both of our concepts that we believe will enable us to effectively compete in the labor market for high quality, talented individuals that share our values. The staffing market in our industry is currently as challenging as it has ever been.

And I could not be more proud of the restaurant general managers and therefore management teams that both of our brands.

As we continue to execute those brands continue to build an organization that creates loyal guests at good times, through the convenience and better fast food platform, including all natural beef and chicken, and that our Bad Daddy's brand through genuine hospitality, delicious scratch made burgers and salad in an all-inclusive environment.

I could not be more proud to be a team member with more than 200 restaurant and capability leaders we have more than 2000 total employees that each day come to work to create great experiences for our customers. With that, we will conclude today's call. I thank you all for joining us today..

The conference is not included. Thank you for attending today's presentation. You may now disconnect your lines..