Good afternoon, ladies and gentlemen. Welcome to the Good Times Restaurants Inc. Fiscal 2023 Third 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 involve known and unknown risks which may cause the company's actual results to differ materially from results expressed or implied by the forward-looking statements.

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

These risks could also include such factors as a disruption to our business from the COVID-19 pandemic and the impact of the pandemic on our results of operations, financial condition and prospects, which may vary depending on the duration and extent of the pandemic and the impact of Federal, state and local governmental actions and customer behavior in response to the pandemic.

The impact and duration of staffing constraints and wage increases for employees at our restaurants, the impact of supply chain constraints in the current inflationary environment, the uncertain nature and current restaurant development plans and the ability to implement those plans and integrate new restaurants.

Delays in developing and opening new restaurants because of weather, local permitting or other reasons, increased competition, cost increases or shortages in raw food products, and other matters discussed under the Risk Factors section of Good Times annual report on Form 10-K for the fiscal year ended September 27, 2022, filed with the SEC and other filings with the SEC.

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, Abby, and thank you. As mentioned, everyone should now have access to our third quarter earnings release and our 10-Q filing.

We had a quarter of mixed results this month with exciting performance at our Good Times concept, where we turned out another quarter of positive same-store sales in spite of a very wet seasonably cool spring and early summer.

In addition to the positive sales, we were able to significantly improve margin compared to the prior year with the benefit of lower input costs and strong labor controls through improved productivity and leveraging the sales increases.

We believe that the investments we've made and continue to make in technology are driving the top line performance of that brand.

We're excited to launch the next iteration of our mobile app later this month, with the addition of GT Rewards, a points-based loyalty program and app-based payments that our customers can use in the drive-through lane, even if they have not ordered ahead.

The app already provides convenience of order ahead, direct order of delivery and stored value virtual gift card capability.

The addition of loyalty will be an additional incentive for our customers to download and use the app, and we believe over time through a combination of transparent earned rewards and surprise and delight rewards that are based upon rich customer behavior data captured through the customer use of the app.

Last week, we purchased one of Good Times -- We purchased one Good Times restaurant from a former franchisee, including the underlying real estate.

This brings our company-owned Good Times restaurant count back to 24 and though we will lose some of our franchise revenues, we will pick up the incremental restaurant sales and associated restaurant-level operating profit. At Bad Daddy's, operating results were less than we had hoped for.

Despite the favorable cost of sales, labor costs have continued to increase, particularly in the Southeast, and we have purposely added front-of-house labor to grow sales. We completed the remodel of the Greenville, South Carolina restaurant that we purchased from our former franchisee.

As of this call, we've substantially completed construction of our newest restaurant in Madison, Alabama, a western suburb of Huntsville. We began training mid-month and expect to open in the back half of the month. Sales have softened considerably from the second fiscal quarter.

Much of that is attributable to declines in our Atlanta market and also in our Seaboard Station restaurant in Raleigh, which is a high-volume unit that has had substantial road and infrastructure construction in the immediate area to support the addition of several hundred new condominium and apartment units being built.

The long-term impact of that should be very favorable for us in that location, but the construction is creating some very significant short-term pain by limiting access and parking.

Earlier this year, we engaged the marketing agency, MGH to conduct a brand audit for Bad Daddy's and are implementing some tweaks to the brand architecture with a new format of menu being released near the beginning of the new fiscal year, the first overhaul of our menu design in the 6 years that I've been with the company.

We've also partnered with two firms, Liberty Interactive Marketing a relatively new partner of ours and Data Delivers who we've partnered with in various ways over the past 3 years.

To elevate our digital marketing campaign using our customer data to drive location-based social and display ads, something that we've handled mostly in-house previously in which we believe will pay dividends in the future. Matthew Karnes, our former SVP of Finance, left near the end of the quarter.

The finance leader role has been a challenge for the company going back even to 2015 when the company hired its first CFO with the average tenure of that position being just 20 months, including my tenure in the role of just over 2 years. We are evaluating alternatives and being methodical in our assessment of candidates.

In the meantime, we've engaged a high-level consulting resource to provide a level of leadership over Matthew's prior direct reports and to lead some of the projects that Matthew had been working on or was scheduled to attack prior to his departure. I'll now review this quarter's results. Total revenues decreased 2.4% to $35.6 million for the quarter.

Total restaurant sales decreased $0.9 million to $35.4 million for the quarter. Total restaurant sales for Bad Daddy's restaurants decreased $1.1 million to $26.1 million for the quarter.

The sales decline was a combination of reduced sales associated with the closure of the Cherry Creek restaurant earlier in the year, the temporary closure of approximately 3 weeks during the quarter for the remodel of the formerly franchised Greenville, South Carolina location, an approximate 4.3% menu price increase and the decline in same-store sales of 1.4% during the quarter, with 39 Bad Daddy's in the comp base at the end of the quarter.

We expect same-store sales to continue in the flat to low single-digit negative range for the fourth quarter. Cost of sales at Bad Daddy's were 31.1% for the quarter, a 140 basis point decrease from last year's quarter with benefits from costs versus 2022 across our basket of goods.

Though there's some upward pressure on beef, we believe there is otherwise some general stability in our commodity basket and expect similar results in Q4. Commodity indices indicate that beef prices will likely rise over the next 12 to 18 months from their current level, which is already elevated from a long-term historical perspective.

Bad Daddy's labor costs increased by 50 basis points compared to the prior year quarter to 34.7% for the quarter. This increase as a percentage of sales reflects higher wage rates and higher levels of staffing compared to 2022.

Occupancy costs at Bad Daddy's increased 10 basis points to 6.5%, the result of higher property taxes and lower sales leverage. Bad Daddy's other operating costs increased by 60 basis points compared to the prior year quarter of 14.4% for the quarter the result of a continued increase in off-premises mix.

Overall, restaurant-level operating profit, a non-GAAP measure, for Bad Daddy's was approximately $3.5 million for the quarter or 13.3% of sales compared to $3.6 million or 13.3% of sales last year. Restaurant sales at Good Times were $9.3 million, an increase of $0.2 million.

The average menu price increase during the quarter was approximately 10.5% over the same prior year quarter. Same-store sales increased 2.1% for the quarter.

As I mentioned earlier, weather during the quarter was unfavorable to the prior year with significantly more late season snow than 2022, the most June rain in Denver on record and the latest date on record to post an 80-degree plus temperature in Denver.

We're very pleased with the sales results at Good Times, given the unfavorable weather comparables. Sales have trended similarly as we approach the midpoint of our fourth quarter, and we expect flat to positive low single-digit same-store sales during the fourth quarter.

With some modest upside potential as we can escape the current weather pattern of rain at peak dinner hours, which we've been seeing nearly every day for the past 3 weeks. Food and packaging costs for Good Times were 30.3% for the quarter, a decrease of 200 basis points compared to last year's quarter.

Again, as we saw a relief on beef prices and started to roll tougher comps compared to last year. As the case with Bad Daddy's, the longer-term forecast indicates resume pressure on beef prices from current levels.

Total labor costs for Good Times decreased to 31.1% of sales, a 190 basis point improvement from the 33.0% we ran during last year's quarter due to increased productivity that partially offset by the higher wage rates driven by the overall labor market pressure in Colorado and the 8% increase in the statutory minimum wage in Denver.

We expect continued year-over-year favorability, but some sequentially higher costs as a percent of sales as we roll off our seasonally highest indexing sales quarter. Occupancy costs at Good Times were 7.9%, an increase of 20 basis points from the prior year quarter, driven primarily by higher real estate taxes.

Good Times other operating costs were 11.4% for the quarter, an increase of 30 basis points due primarily to higher delivery costs. Restaurant-level operating profit at Good Times increased by $0.3 million for the quarter to $1.8 million.

As a percent of sales, restaurant-level operating profit increased by 340 basis points versus last year to 19.4% due primarily to higher sales and the improvements in cost sales, labor and other operating costs previously discussed.

Combined G&A or General and Administrative expenses were $2.4 million during the quarter or 6.6% as a percent of total revenues. G&A expenses were relatively flat in nominal terms compared to last year. We expect for General and Administrative costs to run at approximately 7% to 7.5% of sales on a full year basis.

We've added some additional multi-unit leaders at Bad Daddy's to help us provide greater leadership strength over the Atlanta and the combined Alabama and Tennessee market as well as the South Carolina market.

as we've recognized the former market was too large individually, both geographically and in terms of store count, particularly with the addition of the Madison Alabama restaurant and to prepare for future growth as otherwise, we were at the threshold at which another multi-unit leader would be needed in the Carolinas.

We recorded impairment charges of approximately $1.0 million primarily related to 1 restaurant in the Atlanta market. As we've discussed during prior calls and earlier on this call, that market has suffered sales declines.

We've recently replaced nearly the entire management team in that market and have appointed a dedicated area director over the market with roots in the Atlanta area in our turnaround efforts.

Our net income to common shareholders for the quarter was $0.8 million or income of $0.07 per share versus net income of $0.4 million or $0.04 per share in the second quarter last year. Approximately $0.5 million of income tax benefit was recognized during the quarter.

Adjusted EBITDA for the quarter was $2.1 million compared to $1.7 million for the third quarter of 2022. We finished the quarter with $3.7 million in cash and no long-term debt. With that, Abby, we can open the call for questions..

[Operator Instructions]. Our first question comes from the line of David Bastian from Kingdom Capital Advisors..

Appreciate it.

Ryan, Real quick, Could you give us some color on maybe future development opportunities for Bad Daddy's and what you're seeing in the market right now?.

So we are starting to see a little bit of opening up in terms of landlord flexibility on rents. I think as I talked about in prior calls, landlords have been sticking to fairly high levels of rent rates. And that was somewhat deterring us from kind of proceeding with rapid succession in LOIs and leases.

We are looking and have -- we're under negotiations in the LOI phase with a handful of restaurants in North Carolina, particularly in the Charlotte area and also with a couple of restaurants in the Birmingham area. I would expect and while I would say we would try to get some of those open in 2024, our fiscal year.

I think realistically, that's probably an early fiscal 2025 endeavor at this point..

Okay. So we could think that there's maybe a cadence of 3 to 4 restaurants coming end of '24, early '25 ..

I think that's fair. I mean I would say we would probably try not to open all of those at the same time and would try and spread those out. And so we would likely start with those towards the end of '24 or early '25 with more coming throughout fiscal '25. ..

Got it. That makes sense.

And then it sounds like you've -- in terms of capital allocation, you're also seeing opportunities buying back another franchise interest, I guess, how are you thinking about your potential return to your buying back stock versus buying franchises, versus opening new restaurants and kind of what are the most attractive options why? ..

Well, I think each alternative provides its own unique kind of challenges and own unique opportunities.

I think from a share buyback perspective, while I won't kind of give a specific target price, I think we continue to believe that the current share price where it was trading even up to the mid-3s continues to be an attractive price for us to buyback shares.

I think the opportunity for us to repurchase the franchisee I mentioned or to purchase the restaurant from the franchisee I mentioned during this call was also a unique opportunity to avoid -- in spite of using a cliche term, I'd say it was definitely a win-win in terms of the franchisee was looking to monetize that property for himself, and we saw it as an opportunity where the store had started to turn around in an attractive way.

And we felt that the price was a good value for us. I think we would -- we consider those opportunistically. We do not have, per se, a position where we are actively trying to repurchase franchisee interests. However, as those pop up, we consider them and may move forward may not.

I think as it pertains to Bad Daddy's development, it all depends upon rents for -- to a great deal and also to availability within the target trade areas that we're really looking for.

In Charlotte, there are about 3 target trade areas that we're really trying to get into and are being patient, trying to wait for the right opportunity within each trade area. And I would say in Birmingham, that has been more of a rent based situation. There have been opportunities for us to go into certain trade areas.

We've just not liked the high rent load in the particular opportunities that were available. And so we're excited about that brand and excited to continue to develop that. We're certainly looking forward to the opening of the Madison location and its potential. But I think we're excited about expanding that brand.

We just want to make sure that the real estate is right..

Got it. That makes sense. Last question for me. Is there any update available on the ongoing Good Times legal case? ..

So I would refer you to our recent filing, which updates the filing of the 10-Q, which updates the procedural history. At a high level, the matter is in the appeals process. Both parties have filed one briefing on the matter and other briefings are due. And again, I'd refer you to for the specifics to the filing of our 10-Q. ..

Thank you, Ryan. I appreciate your time..

There are no further questions at this time. Mr. Ryan Zink, I turn the call back over to you..

Thanks again, Abby. Despite the flat restaurant level margins at Bad Daddy's, we're encouraged by this quarter, in particular, by the rationalization of cost of sales at both brands, the sales performance at Good Times and in many restaurants at Bad Daddy's as well.

We have made a lot of investments this year in both brands, and we look for that rate of investment in existing units to slow and shift more towards growth starting in late fiscal 2024.

I'd like to reiterate my thanks for the entire team of leaders and individual contributors who worked diligently to advance both of our brands in the restaurant support center and in the field. Our business is built from the hard work and the dedication of this entire team, whom I'm grateful to be in a position to lead.

Thank you all for joining our call today..

This concludes today's conference call. You may now disconnect..