Good afternoon, everyone. Welcome to the Dave & Buster’s Entertainment Incorporated First Quarter 2019 Earnings Results Conference Call. Today’s is being hosted by Brian Jenkins, Chief Executive Officer. I would like to remind everyone that this call is being recorded and will be available for replay beginning later today.

Now, I would like to turn the conference over to Arvind Bhatia, Senior Director of Investor Relations for opening remarks..

Thank you, James and thank you all for joining us. On the call today are Brian Jenkins, Chief Executive Officer and Scott Bowman, Chief Financial Officer. After comments from Mr. Jenkins and Mr. Bowman, we will be happy to take your questions.

This call is being recorded on behalf of Dave & Buster’s Entertainment Incorporated and is copyrighted.Before we begin our discussion of the company’s results, I would like to call your attention to the fact that in our remarks and our responses to your questions, certain items maybe discussed which are not based entirely on historical facts.

Any such item should be considered forward-looking statements and relating to future events within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated.

Information on the various risk factors and uncertainties has been published in our filings with the SEC, which are available on our website at www.daveandbusters.com under the Investor Relations section.In addition, our remarks today will include references to EBITDA, adjusted EBITDA and store operating income before depreciation and amortization, which are financial measures that are not defined under generally accepted accounting principles.

Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings announcement released this afternoon, which is also available on our website.Now, I will turn the call over to Brian..

International movie with subtle differences in game play, dialogue that responds to the players’ performance and completely different endings, this game entices guests to play multiple times to get the full experience.Turning to F&B, our focus remains on simplification of quality and accessibility.

With a 35% smaller menu today compared to the beginning of last year, we have reduced complexity in kitchen processes and improved our ability to deliver items quicker on busier nights.

Our guest poll scores for speed of service in both the dining room and bar were up in Q1 this year compared to the same period last year indicating our simplification efforts are beginning to payoff. With the strides, we have made in improving culinary efficiency, our commitment to quality remains unchanged.

Our mantra is crafting craveability and we lived into the standard by enhancing techniques for creating craveable flavors and textures using premium choice steaks and chicken, elevating our plated presentations and perfecting final execution to our guests.

Overall, more than 75% of our menu has been re-crafted or re-branded.Importantly, our guests appear to be noticing as we saw an uptick in our food quality scores over the course of 2018, a trend that helped earn in Q1.

That said, we recognized the games are the primary driver of guest visitation and we expect it will take some time to build awareness of our new food offering and enhance our F&B attachment rate. We will look to feature food more prominently in our marketing campaigns in the future.

Now, we wouldn’t be Dave & Busters if we didn’t extend our menu enhancements to flavorful, craveable cocktails. You already know we have added fresh juices and purees system-wide to take our handcrafted cocktails to the next level.

We have also standardized our core cocktail recipes and preparation techniques to our drinks, not only taste better, but are easier to execute on a consistent basis. In terms of enhancing accessibility, we continue to test a quick casual offering in our Dallas store.

And as I mentioned on the last call, the initial response has been slower than expected and we are evaluating ways to increase in store awareness.Our second strategic priority is to enhance guest to guest experience. We are laser focused on improving service by delivering a more friendly, available and memorable experience.

While results of overall service improvements are best evaluated over a long period, we did see a meaningful uptake in our service scores during Q1. Kronos, our new labor scheduling system is important for improving our scheduling efficiency and guest service and we continue to move up a learning curve with this new technology.

The new RFID TAP & PLAY Power Card we rolled out in February is facilitating faster and more accurate game activation and we have recently seen improvement in our guest scores for games working. Meanwhile, we are on track to unveil our new mobile app in the back half of 2019.

Our business must remain digitally relevant to attract and retain our core consumer groups and our new assets being designed to offer greater functionality, convenience and reduce friction for our guests.

We believe that over time our new app will allow us to drive better guest connection and engagement with our brand ultimately leading to greater frequency and spend.Our third strategic priority is to effectively communicate our offering and value.

During Q1, we promoted our two new game titles Marvel Contest of Champions and Star Trek which launched during the quarter. We have publicly featured that on national cable TV with respect to value. We ran our successful Unlimited Wings Unlimited Video Games promotion on Thursdays and also on select days during March Madness.

In addition, at the end of March, we introduced a new free $10 videogame promotion with the purchase of the $20 power card.

As I mentioned earlier, we must remain savvy to the evolving digital landscape, while national cable TV remains our primary channel, our digital media mix continues to increase compared to last year, including a focus on programmatic social media, search engine marketing and optimization.Finally, I will highlight our fourth and biggest long-term driver of shareholder value and that is to expand our brand geographically.

We have opened 8 stores so far this year, including 5 that are in new markets and 3 in existing markets and in terms of size, 6 of the stores we have opened are large, while the remaining 2 are small.

As I mentioned on the last call, for the full year, our new store openings will skew towards large format stores and new markets, although we are going through smaller D&A this year.

With 8 stores under construction, our confidence in delivering on the full year target of 15 to 16 new stores representing 12% net unit growth remains very high.Including stores under construction, we currently have executed commitments for 23 new sites providing us significant visibility on new store expansion really well into 2020.

We continue to believe our long-term opportunity is 230 to 250 stores in the United States and Canada alone nearly double our current store base and plan to capture this large opportunity by growing units at a stage annual pace of 10% or more while generating excellent returns.

On the international front, we recently terminated our Middle East partnership due to continued delays and missed contractual deadlines from our partners.

While we are disappointed with this turn of events, we continue to believe international represents a good long-term growth vehicle for us and we will continue to pursue potential opportunities.With that, I will turn the call over to Scott to discuss our financial performance and 2019 guidance..

Thank you, Brian and good afternoon everyone. First of all, I would like to say that I feel privileged to be joining such a great company with a great history and long runway for growth.

I am very excited to be a part of the team and look forward to helping drive the company’s future success.Turning to highlights from the first quarter, total revenues increased 9.5% driven by strong contribution from our 28 comparable stores partly offset by a 0.3% decrease in our comparable stores.

As Brian mentioned, our comparable store sales were unfavorably impacted by this year’s Easter calendar shift. Also, the combination of competitive intrusion and cannibalization continued to be a greater headwind compared to the same period last year.

Sequentially, the impact was flattish.Looking at overall sales by categories, amusements grew 11.9% and F&B grew 6.1%. Amusements and other represented 59.2% of total revenues during the quarter, an increase of 130 basis points and mix from the prior year period.

Breaking down comp sales, our walk-in sales were down 0.6% while special events was up 3%. In terms of category comp sales, amusements was up, 1.8%, while F&B was down 3.3%. Within F&B, food was down 2.8% and the bar business was down 0.4%.

The gap between amusements and F&B widened in Q1 relative to Q4 partially due to amusement pricing initiatives taken during the quarter. At the same time, the positive impact of All You Can Eat Wings promo on F&B was less than in Q4, although it was somewhat offset by stronger performance in special events which has the higher mix of F&B.

Total cost of sales was $61.7 million in the quarter and was 20 basis points favorable as a percent of sales.

This is due to an improvement in amusement margins and higher mix in amusement revenue partially offset by a decline in F&B markets.Food and beverage cost as a percent of sales was 30 basis points unfavorable compared to last year as the impact of 2% in food pricing and 1% in beverage pricing was more than offset by the unfavorable impact despite commodity inflation, higher cost associated with the All You Can Eat Wings promotion and timing of vendor rebates.

Cost of amusement and other as a percent of sales was 30 basis points favorable compared to last year. Amusement margins benefited from our pricing initiatives and the continued shift towards simulation games, including our virtual reality games.

Our operating and payroll benefits cost as a percent of sales was 22.8%, a 90 basis point higher year-over-year due to the unfavorable impact of wage inflation, incremental investment in labor-related to virtual reality, and de-leverage on comp stores.Other store operating expenses were up 100 basis points year-over-year largely driven by higher occupancy costs, primarily at our non-comp stores and increased investments in sports programming.

G&A expenses were $16.8 million, up 7% from the prior year, reflecting increases in support of growing store base in higher technology and legal expenses partially offset by lower stock-based compensation expense. As a percent of sales, G&A was down 10 basis points in the quarter.

EBITDA increased 3.2% to $88.9 million and was 24.4% of sales reflecting a reduction of 150 basis points versus the prior year. Adjusted EBITDA was $98.2 million and was up 2.4%.

EPS was $1.13 per share, up 8.8% over the prior year.Shifting to the balance sheet, we had approximately $443 million of outstanding debt at quarter end resulting in leverage of approximately 1.6 times EBITDA.

The new lease accounting standard that went into effect at the beginning of the quarter resulted in the recognition of $880 million in operating lease right-of-use assets and $1.1 billion in operating lease liabilities. From a P&L standpoint, this change has an immaterial impact on our net income and cash flows in the quarter.

During the quarter, we repurchased approximately 1.3 million shares of our common stock at an average price of approximately $49 and currently have over $200 million remaining under the existing authorization. Since its inception, we have repurchased 7.6 million shares on average price of slightly under $52.

We paid our third quarterly cash dividend of $0.15 per share during Q1.Now, turning to guidance, based on year-to-date trends, we are revising our fiscal year 2019 guidance as follows.

Total revenues are expected to be in the range of $1.365 billion to $1.39 billion versus prior guidance of $1.37 billion to $1.4 billion reflecting growth of 8% to 10% versus the prior year. Comp store sales are expected to be in the range of negative 1.5%, a positive 0.5% compared to previous guidance of flat to up 1.5%.

We are projecting net income to be in the range of $103 million to $113 million versus prior guidance of $105 million to $117 million. Guidance was based on an effective tax rate of 22% to 22.5%, which is unchanged.

Finally, EBITDA is expected to be in the range of $283 million to $295 million versus prior guidance of $285 million to $300 million.Thank you for your interest in Dave & Buster’s. Now, I will turn the call back over to Brian..

Well, thank you Scott. I just want to close by reiterating our firm commitment to the four strategic priorities our team is focused on. These priorities are fundamental to enhancing our brand positioning and for driving long-term shareholder value.

Our proprietary and exclusive games’ ability to promote our offering through national advertising, attractiveness for landlords and ability to attract the best talent are only a few advantages that set us apart from the competition.

As always, I want to thank our entire D&B team for their continued hard work and to our shareholders for your continued support and interest in Dave & Buster’s. James, at this time, please open the line for Q&A..

Thank you. [Operator Instructions] And we will take our first question today from Andrew Barish with Jefferies..

Hey, guys.

Just wondering on the comp guidance, as we maybe it’s a bigger picture question around virtual reality also as you lap the launch coming up, is it getting you kind of the movement in traffic and interest that you wanted and are we seeing the second half of the 1Q trends kind of continue here into the 2Q, is that part of the reason why we are seeing the lower guidance overall on same-store sales for the year?.

Rod, I think it’s a couple of questions in there. And just in terms of what VR is doing for our business, clearly, we have featured proprietary titles here in Q1, our comp in amusements were positive just under 2%. And part of that is due to price part of that is due to VR itself and obviously that’s a incremental forecast spend for us.

And we are seeing some uptick in percent that VR represents of our overall amusement when we introduced it the title here recently. So, I think we are still – one of the primary avenues that we have on that platform to introduce proprietary contents that we can feature on TV.

That said, I don’t think that amusements and alone can drive the whole bus here. So, we have clearly focused on food and bev, trying to drive that attachment rate we need to pull that back in and working very hard to do that drive the awareness and build that business back and close the gap.

The choppiness of kind of how we – we actually ended the quarter April was strong month, because spring break and Easter – and Easter and spring breaks fell into April, start of the quarter may have been choppy for us, particularly up the Eastern seaboard in particular. And so that gives rise to the guidance change of kind of down 1 point.

And we missed out fundamentally what we were setting out to achieve in Q1..

And just can you quantify the Easter spring break shift in just kind of how you are – how you looked at that in the last quarter?.

As we said, we were kind of – we were up 1% in the first 7 weeks heading into the really big weeks. Week 9 was Easter, the prior year, lot of spring breaks and it pushed back 3 full weeks into week 11, 12. As we look at sort of the – and you have to kind of look at the spring break Easter time and associated weather during that time.

Obviously, we would like a rainy spring break. The combination of the two weeks, we track at about 150 bps of headwind that we have. So, it’s between the two in the quarter..

Okay, thank you..

Thank you..

Next we hear from Joshua Long with Piper Jaffray..

Great. Thank you for taking my questions. Just curious on the mobile app and what you believe you could accomplish there as you rolled that up the back half of the year, I think high level you mentioned increased opportunity for connection with your guests.

And I think in prior calls and over – we have talked about your guests coming a few times a year.

So just curious how you think you might be able to bridge that gap and develop more touch points or maybe even increased frequency with that gap going forward?.

Yes.

Clearly, we will provide some more details on the functionality as we get closer to that app launch which will be in the back half of the year, but in general, our focus areas with the app are to reduce friction, with the guests improved experience with the guests, improve our ability to communicate and connect with them and really be a platform that will culminate new features over the course of the years.

So, we will be focusing on and I think I have said this last call creating a true guest account of first party data relationship with our guests, streamlining the mobile payment, connected with our loyalty program and also have some easy recharge features.

So there is a number of features and there is some others, but we think the app over time will be a good deal flow for us, because as you said and we have said previously, our visit frequency is very low with the brand. It is a big opportunity and we do not know enough about our guests on the first party data basis.

And that’s something that we want to leverage over time and are working. The IT and the marketing team are highly focused on that initiative right now..

Great. Thank you for that. And then one quick one if I could on the competition piece, it seems like that’s still weighing on the overall environment, is the messaging that it’s flat more or less quite sequentially, but still on a year-over-year basis you are still having that year-over-year impact.

Can you imagine when do you expect to see that year-over-year impact level off and providing sort of qualitative details on other venues or areas you are particularly seeing that to impact in your system?.

Well, I mean the competitive environment is something that we are tracking regularly trying to read over two dozen brands out there building some form of combined dining and entertainment space and we are doing our best to track their indications about stores that they are opening.

And right now, we think that headwind is going to increase over the balance of the year just in this past quarter. We have about 40% of our comp stores were either competitive or one of our own stores is open on them.

So it’s a meaningful headwind for us and our most recent intelligence on at least indicated openings by the competitive set is a number of units is going to be increasing year-over-year. So that’s something we don’t see abating for some time. I think what we have to do is focus on what we do best.

We have a large nucleus in our stores that are very healthy. Our guest metrics are improving. And as we think about the competitive set for the long haul – long-term, I am not convinced that all the brands that are building towards will have sustainability. Many of them are small independent players.

And candidly, we have significant advantages over them. We have a strong proven business model which is why I think we see a lot of investment in the space. We have some of the best AUVs, margins and returns in this space. We have scale. We have access to real estate, human capital and we have a great balance sheet as well.

So a lot of flexibility to invest in my view, very well positioned for the long-term and I am confident that we are working on the right thing as a brand to sustain the leadership position here..

Great. Thank you..

Thank you..

Andrew Strelzik with BMO Capital has our next question..

Hey, guys. This is actually Dan on for Andrew today. Thanks for taking the question.

Firstly I guess just understanding that there has been a lot of evolution in the food and beverage business over the last year or two, what’s the reasonable timeline to expect the food business to improve and do you think you can improve it independently of the game business maybe through shifting advertising spend or through some other initiatives?.

Really good question. We have – we do believe we are pursuing the right F&B strategy really for the long-term of this brand. We have new leadership and the team is extremely passionate about food. And we are proud of the changes we have made.

We have simplified our menus significantly, have made a substantial quality improvements and our execution is improving. We are seeing results from that on a qualitative basis. In other words, food quality scores, speed of service and value scores are all improved. And obviously we want that to translate the better quantitative performance.

But as I said on the call, increasing guest awareness of the changes that we have made in food and bev really improving that attachment rate to amusement, I think it’s going to take some time since guests are primarily coming in for amusements and our visit frequency is low. And we are going to work hard to drive that awareness.

We have just launched our new craveable combo promo, which is going to be combined offer of some of our new craveable items along with game play. And we are also encouraged by what we have seen as the strong guest response in a dining room repositioning that we have made in our Dallas store. We have done a couple of tests in that store.

In this particular store, we have created what we call formally a wide wall, basically a 15/50 foot multi-projector, laser projector screen. And we have seen a fairly significant uptick in food comps in that store. So, that’s an area that we are going to explore further as a brand over the balance of this year..

Great. That’s helpful. Thanks.

And then just one follow-up on the amusement side, I guess I am just curious how did customers react to the increase in the VR pricing I guess was there any noticeable or measurable impact on traffic or anything you guys noticed maybe qualitatively after the price increase?.

Yes. As we mentioned, we took amusement price increase, basically a $1 increase and little over half of our store base after doing some testing. And anytime you take the price, you are going to see a little better traffic decline, which we did but incrementally it has been additive to our comps.

The price increase in our view is we will begin to think about how we package multiple VR experiences in one package and we have not done that yet, but there are some opportunities for us to think about how we package price, multiple experiences.

We think that was the right move after looking at what many others are doing in the VR space and I think it was the right strategic move..

Great. That’s helpful. Thanks so much..

You are welcome..

Next, we will hear from Jeff Farmer with Gordon Haskett..

Thank you.

You guys have been more aggressive with your value-oriented offers, but I am just curious what has worked, what hasn’t worked and where do you see the opportunity moving forward?.

Good question, Jeff. I think the value – our work in driving the promotional engine is the continued effort on the part of the marketing team.

And we have been focused I would say primarily on some of the off-peak offers around our Wednesday offer and most recently, our Unlimited Wing Video Play on Thursdays which was our strongest day of the week in terms of the first quarter.

So we are going to continue to look for ways to drive traffic, particularly off-peak, we have a lot of capacity and we are going to be more – we are going to clearly be more thoughtful and careful about how we lean into discounting and value related things on our peak times.

We did introduce a national promo free video, free $10 video, a $20 power cord in the first quarter, didn’t really see the traction we were hoping for on that. That was a broad offer across the chain. And so this is an effort work that we are continuing to try to unlock.

We clearly believe value starts first with the numerator and the question the offering the experience and the service level that we provide and that we are moving the needle on in our view. But we know we are going to need to terrifically and maybe in some cases more broadly put in value to drive traffic particularly around off-peak daypart..

Okay.

And just one more sort of a follow-up question, so the same-store sales guidance reduction, lot of moving pieces there, so in terms of what proved to be the greatest surprised to you relative to the expectations that you set in April was just a traffic shortfall you alluded to this was just more about the food and beverage gap being greater than you expected.

What did prove to be the greatest surprise relative to what you had expected back in April?.

Clearly, we were – in our guidance was expecting a stronger first quarter than flat. We were up one. We were counting on a good spring break Easter calendar and that didn’t prove to be the case. So the miss to our internal estimates for Q1 is not at an insignificant part of the 1 point decline in the top end of our new guide right on comps.

And then there is more choppy start to the first quarter – I am sorry the second quarter. So we have a lot of the year in front of us. We have a lot of things that we are working on to drive the positive comps where we have a huge sense of urgency in this team to do so.

And we have a lot of this quarter left to go big weeks, summer weeks and kids are out of school and we are doing everything as a management team we can to drive the comps to a positive place..

Right. Thank you..

We will now hear from Jake Bartlett with SunTrust..

Great. Thanks for taking the question. Brian, I wanted to better understand the comments around Easter. You have talked about the impact of the calendar shift.

I am just trying to understand whether it was a calendar shift that impacted it or whether it was just worst results during the spring break period or the Easter period maybe due to competition or other factors, just trying to understand what – how the shift aspect impacted the results?.

There is a bit of an exact science to some of that stuff, Jake, but what we look at – what we did look at – and again being coming into the Easter calendar shift through week 7 we were up a lot. So we had some confidence in how the quarter was going to end up.

When we take week 9, week 11, 12 and we look at some of those weeks where spring breaks were shifting, we lost and our estimation about 150 bps was some of that competition, really hard to keep that up. Clearly, the competitive headwind is good for us.

But a lot of this has to do, because later Easter calendar spring break calendars can work through our favorite and work against this and a lot of it has to do with the combination of the timing of the Easter and spring breaks and the associated weather at that time.

And as it turned out for us, we had our earlier colder spring break time period in 2018 followed by later and unfortunately better weather, warmer weather and sometimes it can go the upper way, a rainy spring break in April shower so to speak. We can have big weeks.

So, it just didn’t fall on our way, I am not saying that’s the whole thing for the quarter, but it was a headwind for us..

Got it. And you mentioned the big summer weeks that are coming up and wanted to gain ground, but how confident are you or can you provide us any insight as to the gains that you have coming up, you are right about now starting to lap Jurassic Park, but last year you had Halo, which was I think a pretty successful game in late July.

Anything you couldn’t talk about in terms of your content that you have that will – should give us some confidence that those big summer weeks will really come through?.

Well, I mean, clearly we just launched Men in Black, which is an impressive title, very telegenic and we will continue to try to drive business with our VR platform over the course of the summer. And we are going to be looking at our offer – promotional offers.

We have launched our craveable combo offer here just yesterday really trying to drive consumption of both parts of our offering. This particular offer will also include a potential to upgrade to unlimited video for just $8.

So we are trying to drive traffic with both combination of content, but as I said my view is we will need to do it with two batches this year..

Got it.

And then lastly I am wondering just the differential between amusements and the food and beverage, how much of that might have been attributed to just the shift in your consumers, so maybe more families, less adults as a mix of your business and whether that’s more of a longer term problem than kind of shorter term?.

Well, I am not going to mince words on the food and bevs but our challenge we have. We have had a fairly significant gap for some time. It was significant early part of last year and closed with some of our Wing offering, particularly in Q4 to wide and back out somewhat in Q1.

That is why we are looking at trying to do things in combination where we are trying to drive attachment rate of both offerings in Wings that has been very successful in doing that, narrow a lot. We didn’t have as many days. We did that around footfall. We want to be careful not to have that offer grow stale.

But you are going to see us continue to look at ways to drive the combination of both offerings over the course of the summer to try to narrow that gap, but obviously the best thing we do about comps is drive amusements up first, but the gap we need to narrow as well..

Got it. Thank you very much..

Yes..

Next, we will hear from Brian Vaccaro with Raymond James. Mr. Vaccaro, your line is open..

Sorry, still learning that mute button. Thank you and good evening.

I just wanted to circle back to the first quarter comp performance and I am curious if you are seeing a noticeable difference in your mall versus non-mall locations and Brian, back to your quarter-to-date, you said I think the Eastern seaboard was maybe a soft patch or particularly soft, curious what you think is driving that is competitive intrusion concentrated there or something else you call out?.

I guess first on mall stores, two questions in there. The long-haul, our mall stores have outperformed in Q1 they did under perform and have kind of for the last 2 years. So they did our trail, inline stores and freestanding stores in Q1. In terms of Eastern seaboard, you know weather was – in fact, I think I saw ships went out yesterday, Brian on May.

The Eastern seaboard for us unfortunately on some Memorial Day weekend and the week following was extremely dry relative to what we saw in the prior year. So, I think I have even showed on your analysis. So we struggled on the East Coast, up and down, particularly around Memorial Day weekend..

Okay.

And on the malls could you remind us what percentage of your comp base is mall based and would you be willing to quantify the differential that you saw this quarter just kind of gauge the range that you see in the last several quarters between the two cohorts?.

I am not going to probably answer the latter, but our mall stores are about 33% of our overall comp stores and about 39%, 40% of our overall store base..

Okay, great. That’s helpful.

Shifting gears just to the COGS outlook and I wanted to ask about amusement cost specifically and could you walk through the impact of China tariffs and remind us what percentage of your amusement costs are imported from China and of that, what percentage might be impacted by tariffs events, have you or are you planning to make any changes in how you source certain items as a result?.

Yes, I will start off on that. As we look at tariffs, what we have seen so far, we have made some adjustments internally and also working with the vendors, we have been able to offset – mostly offset the impact of what we have seen so far. It’s mainly in our redemption area category that applies to.

And so far what have seen we have been mostly able to mitigate or offset. Now for future tariffs who knows I mean, there is still kind of that lingering tariff out there that could or could not be put into place, 25% tariff on the remaining $350 billion or so of goods. So obviously that would be a larger impact.

We would be able to mitigate some of that, but much tougher as you could imagine with that amount of goods coming in.

So, right now we are in pretty good shape, but we will continue to monitor the possibility in the magnitude of the future tariffs down the road and give those updates when the possibility and timing is more clear, but we will continue to monitor it and put plans in place to mitigate best we can..

Alright, thank you.

And then just last one if I could, I think your updated EBITDA guidance in the past when comps have been soft, there has been declines in store level and corporate bonuses in G&A, curious if you had bettered any assumptions on either of those explicitly in the rest of your guidance on either labor or G&A?.

Well I mean we have lowered the top end of the EBITDA guide by about 5 million a share, there is some adjustment in that correction, implicit in that $5 million reduction and as on the lower end of the range. So that’s inclusive of that guide..

Alright. Thank you..

Thank you..

Next, we will hear from Jon Tower with Wells Fargo..

Great. Thanks. Just on the marketing side of the equation, I know you are pivoting a little bit more towards digital mix relative to years passed, but one could argue that perhaps your brand awareness is where it needs to be there and that could also argue that you need to take up the actual marketing spends.

Could you talk about that and your thoughts around where the marketing spend optimally could be for the business over time?.

Well, it’s a very good question and something we discuss and debate regularly, the corporate marketing spend. It’s clearly been an area that we have leveraged as we have grown our store base over the years. And from a national payroll standpoint, we are advertising the majority of the weeks already.

So what we are doing and we did spend more money marketing in Q1, primarily on digital and that is a, let’s move from essentially no spend, no allocation, a few years ago to a meaningful allocation, but in our view, this is sort of a test and measure kind of activity. We are looking for real results when we go out digitally.

It does allow us to be more targeted in our view with both message as well as where we go and we would like to get traction in that area and have great reason to continue to invest, but you make a valid point, the marketing team is continuing to evaluate both the mix and the spend. And right now, we are pivoting it to digital..

Jon, this is Scott. I will just hang on to that with one other comment. As we talk about the mobile app I mean that’s all tied into kind of our strategy around digital marketing.

And one of the things that we have clearly put a lot of work into and when we thought about the mobile app, there is how do we connect with customers, how do we acquire customers through that vehicle. And so from the way that we look at it that mobile app will be a great intake mechanism for customers.

It will help them as they use that app inside the store, reduce friction and so forth, but it will also provide us wealth of customer data to be able to use that in the future to be more segmented and targeted marketing to our customers to what’s the most relevant to them.

And that’s not just promo, that’s also just informational type things of what’s new and so forth. And I have seen that in my past work be very effective. And so I think we are on the right track with that and that will just accelerate digital market even more as we build that customer database..

Can you just remind us what percentage of sales marketing is today?.

It’s just slightly over 3% of sales..

Okay.

And then just pivoting a little bit here, but in terms of thinking about the balance of the unit growth versus say shareholder payouts given where the stock is traded over time in discount to a lot of the peer group, it looks like public investors aren’t necessarily willing to pay you for the unit growth that you are putting up at that double-digit level that you have been at.

So why continue to grow units at this pace if these public market investors aren’t willing to pay for it versus say slowing the unit growth in more aggressively attacking same-store sales growth and in the interim perhaps enhancing shareholder payouts?.

Well, I think we are attacking comp sales growth. That is major focus for the team here and that’s why we are focused on three of our strategic priorities of the four are focused clearly on that. And so to say we are not focused on it wouldn’t be so, we definitely are.

Our view is right now that this business generates a significant amount of free cash flow that our returns on the stores are extremely high. If you look at our historical track record and in our view, it doesn’t make sense to slow down that growth as we can accommodate it with the team.

We certainly have the cash flow to accommodate it and more than enough left over to continue to return value to shareholders and we can do all things.

And then I think that to the extent that we allow competitor or someone else looking to take what we view as a market fit is on our radar and get there in front of us and it does inform our go-forward plan in the market.

So we are not really looking to handover the keys to some of these markets many names that are out there trying to build sites right now..

Okay. Thank you..

[Operator Instructions] We will now hear from Stephen Anderson with Maxim Group..

Yes, good afternoon.

Two quick questions mostly regarding your test locations, first of all, you say the taco trust testing really hasn’t had great deal of awareness at this point, but have you given any thought ultimately broadening the menu to maybe appeal to more of the guests, so there can be maybe somewhat higher guest attraction? And I have a follow-up..

We have considered that. And we may in fact do that. But we did two tests in Dallas. One was our wide wall TV and one was taco truck. Our guest research focus group works at fast casual. There are a meaningful number of people that were looking for that. And we expected that to perform better than it has.

So, we are exploring what to do with the taco trucks, what to do with the particular offering. And so I hear you.

The flipside is the other test looks to be more impact so far and that is the wide wall we made an investment and we do need to increase the energy in my view in our dining rooms, but really the lowest utilization space in our stores and that test is performed very well and it’s something….

Has that resulted to increase in F&B?.

Yes, it has. Dallas is essentially one of our top performing stores in the system right now so. And Texas in general is performing well but it’s comp pacing. So, this is an area that we are going to look to expand and a few more stores over time..

With regard also to the some of the – actually, I went to go visit by location, I saw there are two VR machines in operation there, which I haven’t seen rollout to any other store at this point.

Is there another test you are doing or is that something that you continue on a case-by-case basis?.

Yes. We have two VR machines. And I believe it’s roughly 10 stores. We did that at launch stores that with some higher volumes we elected to put through machines in to be able to handle peak capacity. And Dallas happens to be one of them and there are few others as well..

Okay.

And in terms of like the labor considerations, are they running mostly in line with some of the other locations that one VR machine in operation?.

No, I would say they are going to tend to be a little higher, because we have each machine requires two dedicated people – I am sorry, require dedicated person in that peak. Sometimes we run more than that.

So I would – I don’t have those numbers in front of me, I would say they run a little less efficiently, but from a profitability – overall bottom line profit, we elected to do that, because we think it’s incremental to overall profit..

Alright. Thank you..

We have a follow up from Jake Bartlett with SunTrust..

Great, thanks. I just wanted to ask about your philosophy on the balance sheet and taking leverage up a little bit here.

Is there a level of leverage that you are comfortable with maybe taking that up through buybacks – a little more aggressive buybacks going forward?.

We haven’t really given a targeted range on our leverage with where it is right now 1.6 we are fairly comfortable with where that is.

And so we don’t think at least near-term on the base business is really going to flush away a lot from kind of where we are today, but as we say that we will continue to look for opportunities in buyback and things like that, so that could fluctuate somewhat just based on how things trend in the near future, but we are fairly comfortable with where it is with the base business..

Okay, thanks..

And Jake currently we have been pretty active in Q1. When you repurchase 1.3 million shares over $63 million, I think that’s our most active of any course so far obviously with the multiple in the stock the way it is, but so we have been pretty active with our share repurchase program which is as you know our board authorized an expansion of that.

So we have little up whatever $200 million available to us right now..

Great. I appreciate it..

That will conclude today’s question-and-answer session. At this time, I would like to turn the conference over to Brian Jenkins for closing remarks..

Well, thank you for your time this afternoon. We look forward to reviewing our second quarter results with you in September. You guys have a great evening..

That will conclude today’s conference call. Thank you for your participation..