Good afternoon, ladies and gentlemen. Welcome to the Good Times Restaurants Inc. Fiscal 2022 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 to 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.

Such risks and uncertainties include, among other things, the market prices of the company's stock prevailing from time to time, the nature of the investment opportunities presented to the company, the company's financial performance and its cash flow from operations, generally economic conditions, which could observe adversely affect the company's results of the operation and cash flow.

These risks also include such factors as the disruption to our business from the novel coronavirus pandemic.

And the impact of the pandemic on our results of operations, financial conditions and prospects which may depending - which may vary depending on the duration and extent of the pandemic and impact of federal, state and local governmental actions and customer behavior in response to the pandemic.

The impact and duration of staffing constraints at our restaurants that the uncertain nature of current restaurant development plans and the ability to implement those plans and integrate new restaurants, delay in development and opening new restaurants because of wealthier local permitting or other reasons, increased competition, cost increase or shortages in raw food production and other matters discussed under the Risk Factors section of Good Times annual reports on Form 10-K.

For the fiscal year in September 28, 2021, filed with the SEC and other filings with the SEC. Lastly, during today's call, the company will discuss non-GAAP measures, which they believe can be useful in evaluating of our performance.

The presentation of the additional information should not be considered in isolation or as a substitute for results prepared in accordance with the GAAP and reconciliation to comparable GAAP measures available in our earnings call. And now I will turn the call over to Ryan. Please go ahead, sir..

Thank you, Danielle, and thank you all for joining us on the call today. And as Daniel mentioned, you should have access to our second quarter earnings release. I'll start by apologizing for the brief delay that we've had starting this call. We've had a little bit of a technical challenge with our conferencing service.

So I appreciate all of your patience this afternoon. I wanted to begin today by mentioning the hiring of our new Senior Vice President of Finance, Matthew Karnes. Matthew joined the company about 2 months ago and brings a strong finance and operations background to the company.

He has extensive financial leadership experience and to welcome addition to lead our finance and accounting capabilities here at Good Times. Most recently, Matthew was - for the City of Denver's Economic Development and Opportunity Agency, where he led finance, accounting, compliance and the oversight of program and project development efforts.

Prior to his time with Economic Development, Matthew led FP&A and procurement efforts at the Denver International Airport, overseeing the creation and management of a $400 million plus operating budget and a $3.5 billion capital plan. Matthew joined us on the call today.

As we discussed during our call last quarter, our results for the second fiscal quarter continued to demonstrate the inflationary pressures that are facing restaurants and the entire economy. We've experienced that with greater force in our Colorado operating market, which affects both of our brands.

Our focus for the past year now, since the industry and again, specifically within Colorado, began experiencing extreme tightness in the workforce, our focus has been to aggressively hire and make efforts to retain talented employees and managers.

Our hourly labor costs reflect increases in hourly wages, including the impact of the 6.1% increase in the minimum wage to $15.87 in the City in County of Denver, which not only affects the 7 restaurants in that jurisdiction, but all of the Good Times restaurants that operate in the greater metro and 12 of our Bad Daddy's restaurants that also operate in the metro.

We have seen some evidence of growing slack in the labor market, but hiring remains challenging for both concepts in nearly all of our operating markets.

Although labor costs are one component of a reduced restaurant margin this quarter, the larger impact has been that of increased product costs with nearly all of our proteins tracking at record highs throughout most of the quarter.

We've seen plateauing in some of those proteins, namely beef and bacon, but continue to see inflationary pressure for chicken breast, which is our primary chicken product. Our price increases in general have aligned with increases in the food away-from-home CPI components.

And we believe that our pricing at the Good Times brand has aligned with our competitive set in Colorado.

When we look at our competitors specific to Bad Daddy's, we believe we've taken less price increases than our direct competitors in our markets, whereas pre-pandemic, we were generally the highest priced among chef-driven craft burger concepts, we now fall closer to the medium among that same group.

This has been a strategic decision, and we believe this decision has translated into stronger multiyear sales performance as evidenced by our comp sales or our same-store sales at the Bad Daddy's brand and the same-store As [ph] which are at all-time highs with nearly 20% of our Bad Daddy's restaurants with a full year operating history, exceeding $3 million average unit volumes and two restaurants that are exceeding $4 million average annual unit volumes on an LTM basis.

Near the end of the quarter, we purchased the previously franchised Bad Daddy's in Greenville, South Carolina, which resulted in all of our traditional Bad Daddy's restaurants being under the direct ownership or operating umbrella of the company.

This restaurant is nearly 10 years old, and we expect to invest some additional capital to bring the restaurant to current brand standards. And even after that incremental investment, though, we expect our return on this acquisition to be similar to that of an average new Bad Daddy's.

We continue to develop a pipeline for unit growth at Bad Daddy's with our expectation that new unit development will be focused in the Carolinas, Tennessee and Alabama.

Those restaurants are expected to open in fiscal 2023 and the number - the exact number will be based upon a combination of pipeline development, operating cash flow generated in the meantime and other investment decisions affecting the use of cash.

Our new image remodel at our Good Times restaurant at 120th in Colorado, Boulevard in the Denver Metro continues to progress, and we expect construction on that site late in the fiscal year with the remodel completed prior to the end of the fiscal year.

As mentioned last quarter, we also intend to refit existing drive-throughs with new signage and new digital menu boards, important branding and merchandising assets that have aged and do not reflect the quality of product that we serve.

We expect to complete the digital menu board in nearly two thirds of our system this fiscal year with the remaining restaurants during fiscal 2023. And with respect to signage replacements, expect to replace approximately one third of the system this year and the remaining in fiscal 2023.

Additionally, to improve our ability to accurately track speed and report it consistently system-wide, we're expecting to install a new lane timer system in all of our Good Times restaurants prior to the end of the fiscal year that will provide a single source of timing data and that is not subject to the errors that accompany the manual entry of data required with the current system.

We recorded some impairment charges this quarter. The majority of these charges related to the restaurant we opened in Atlanta last fiscal year.

Though that restaurant opened a solid unit volumes, continuing operational challenges in the Atlanta market that we mentioned last quarter, which significantly affected this restaurant, as well as the closure during the most recent quarter of the grocery anchor in the Sandy Plains marketplace caused us to assess the need for this impairment charge.

The impairment charge is at Good Times were at two of our lower-volume units within the city or county of Denver, where profitability has been negatively affected by the significant inflationary pressures.

Our new Bad Daddy's location in Montgomery, Alabama continues to perform well with annualized LTM unit volumes continuing to exceed our $2.5 million system average.

We have previously announced that our Board of Directors has authorized a share repurchase program for the company to buy back up to an aggregate $5 million of its common stock on the open market.

As of March 29, the company has repurchased 75,900 shares of its common stock under this repurchase plan, leaving approximately $4.6 million available to use for repurchases. Our trading volume limits the number of shares we can acquire, but we currently expect to continue the purchase of shares in the open market under this program.

The timing and actual number of future share purchases will be based upon price business and market conditions, as well as other factors affecting our purchasing decisions.

Though this has been a challenging and I would even say a disappointing quarter from a financial performance standpoint, we continue to believe in the strength of both of our brands as we manage these businesses for the long term, not for a single quarter. Our confidence has not been swayed by the magnitude of the current inflationary environment.

We're experiencing nor by supply chain challenges that we see rising again with the COVID prevention measures again in play in parts of China where much of our packaging and other ancillary supplies are manufactured.

As I stated last quarter, we see opportunity to deploy cash in a multifaceted way, including growth development, existing restaurant acquisition as evidenced by the acquisition of the franchised Bad Daddy's restaurant this quarter and the acquisition of company stock at a multiple that is a discount market.

This share repurchase program is a demonstration of our belief in the long-term value creation potential for both of our concepts. And with that, I'll pass it over to Matthew to review this quarter's results..

Thank you, Ryan. I'm excited to be here with you all. To get started, total revenues increased 15.1% to $33.6 million for the quarter compared to the prior year quarter. Total restaurant sales for Bad Daddy's restaurants increased $4.5 million to $25.5 million for the quarter.

The increase in sales was due to a higher demand for dine-in restaurant occasions, as well as continued strength in delivery and online orders, along with the 508 restaurant operating weeks compared to 481 in last year's quarter due primarily to two new restaurants opening near the end of fiscal 2021.

Same-store sales increased 15.5% during the quarter with 37 Bad Daddy's in the comp base at the end of the quarter.

Cost of sales at Bad Daddy's were 31.3% for the quarter, up 330 basis point increase from last year's quarter, which is primarily the result of significantly higher food and packaging costs as seen through inflationary and supply chain pressures.

Bad Daddy's labor cost increased by 100 basis points compared to the prior year quarter to 34.3% for the quarter. This year-over-year increase is primarily due to higher average wage rates paid to attract qualified employees.

Overall, restaurant-level operating profit, a non-GAAP measure for Bad Daddy's was approximately $3.4 million for the quarter or 13.3% of sales compared to $3.8 million or 18.3% last year. The decline is primarily due to increased costs previously mentioned.

Now on to Good Times - Restaurant sales at the Good Times restaurants were $7.9 million at a decrease of $0.1 million, driven by slightly - driven slightly by the increased preference of customers for dine-in compared to this time last year, as well as increased menu pricing.

Food and packaging costs for Good Times were 31.4% for the quarter, an increase of 240 basis points compared to last year's quarter, the result again of significant inflationary pressures on food and packaging material.

Total labor costs for Good Times increased to 35.6%, up from 33.1% for the quarter last year due primarily to higher wage rates to attract qualified employees. Good Times Restaurant-level operating profit decreased by $0.6 million for the quarter to $0.9 million overall.

As a percent of sales, restaurant-level operating profit decreased by 730 basis points versus last year to 11.6%, due primarily to higher cost and slightly lower sales for the quarter. Combined general and administrative expenses were $2.6 million during the quarter or 7.7% as a percent of total revenues.

This represents an increase of $0.2 million versus the prior year quarter.

G&A expenses increased versus the prior year due to increased legal and professional services, increased cost in technology, insurance and travel-related costs and was slightly offset by decreased multiunit management incentive cost and a decrease in administrative related payroll costs, which in the prior quarter included a stock compensation expense associated with a onetime option grant to the company's CEO.

We recorded impairment of long-lived assets of $1.8 million during the quarter. $0.5 million was attributed to the impairment of two Good Times restaurants and $1.3 million was related to one Bad Daddy's restaurant. No impairment costs were recorded in the prior year quarter.

Our net loss to common shareholders for the quarter was $2.2 million or negative $0.17 a share versus income to common shareholders of $1.1 million or $0.09 per share in the second quarter last year.

For the year-to-date period, our net loss to common shareholders was $1.8 million or negative $0.15 per share versus income of $1.9 million or $0.15 per share in the prior year two quarters ended. Adjusted EBITDA for the quarter was $0.8 million compared to $2.3 million for the second quarter of 2021.

And for the year-to-date period, our adjusted EBITDA was $2.3 million versus adjusted EBITDA of $4.1 million for the same period in fiscal '21. We finished the quarter with $7.1 million in cash and zero debt. And with that, I'll now hand it back over to Ryan..

Thank you, Matthew, for your review of our financials for the quarter. With that, Daniel, we will open the call for questions..

Certainly. [Operator Instructions] First question comes from Marc Becker of Evercore..

Hey, guys. It's Marc Becker, Becker Boards.

How are you going to do stock buybacks when you're running cash flow negative?.

So a couple of pieces there, Marc. One would be, I would say, from a cash flow standpoint, we would estimate that the balance of the year, we are going to - cash flow positive. I would also say we have a substantial amount of cash on the balance sheet already, approximately $7 million.

But I think this quarter that we just ended is seasonally our softest. It always has been.

And while, again, I think - I said it earlier, I am disappointed in the financial performance this quarter, I think sequentially, we expect to see slightly better restaurant level margins for the balance of the year and the higher unit volumes will translate into positive cash flow..

Because your sales were good, but the expenses just went up so much.

So you would expect - I mean, how are you going to make up the difference unless you raise prices dramatically?.

Well, I think from a labor standpoint, we will be able to leverage the higher unit volumes without incremental hours or without comparably incremental hours, which will translate into what we hope to be sequentially lower labor costs as a percentage of sales. I think we are somewhat stuck with for the short term kind of this level of food cost.

I do expect we will raise prices marginally throughout the balance of the year, although, as I mentioned earlier, we are strategically kind of aligning our prices with our competitive set, certainly not going above and beyond what our competitors are charging..

Okay.

But do you expect like next quarter, you would be cash flow positive or at least breakeven with whatever efforts you're doing?.

Yeah. From an EBITDA standpoint, I would expect us to generate greater EBITDA in this coming quarter than we did in the quarter that we just reported and really for the balance of the year. In terms of cash flow, we expect to invest cash in some of the things I mentioned in terms of investments in existing assets.

There may be some other things that we're looking at to invest in. And so I do not look for necessarily the cash balance on the balance sheet to grow. But I think the business will generate enough cash that we can accomplish all of these things without eating into our cash reserves substantially..

Okay. So operationally profitable, but excluding like the investments that you're having to make in grades and that type of thing..

That's right..

Okay. Good.

And then can you just give everyone an update on the lawsuit?.

We don't comment on pending or active litigation..

Okay. All right. Thank you, guys..

Thanks, Marc..

Thank you. There are currently no further questions registered at this time. So I will pass it back over to the management team for closing remarks..

Thanks again, Daniel. No, I would, again, generally characterize this as a disappointing quarter, particularly in light of some of our more recent quarters. I do expect sequential improvement in margins as we roll over into a seasonally stronger sales period, and I continue to be impressed with the sales results that both concepts are generating.

Our ops team continues to focus on running great restaurants, delighting customers and providing our guests with memorable experiences through great food. And as always, I express my sincere thanks and appreciation to the entire team that worked exceptionally hard each and every day to execute both of our two brands.

With that, we will conclude today's call. Thank you all for joining us today..

That concludes the conference call. Thank you for your participation. You may now disconnect your lines..