Tim Mullany - Chief Financial Officer Scott Crane - Chief Executive Officer.

Good day, and welcome to the RAVE Restaurant Group Reports Third Fiscal Quarter Financial Results Conference Call. All participants will be in listen-only mode [Operator Instructions]. After today's presentation, there'll be an opportunity to ask questions [Operator Instructions]. Please note this event is being recorded.

I would now like to turn the conference over to Tim Mullany, Chief Financial Officer. Please go ahead..

Okay, thank you. Good afternoon, and thank you for joining the RAVE Restaurant Group’s fiscal third quarter 2018 earnings conference call. Everyone should have access to our fiscal third quarter 2018 earnings release that was published today. The press release can also be found at www.raverg.com in the Investor Relations section.

Before we begin, I would like to remind everyone that part of our discussions today will include forward-looking statements. 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. We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition.

Please note that during today’s conference call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating our performance. Any discussion of such information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.

A reconciliation of comparable GAAP measures is available in our earnings release. With that, I will turn the call over to Scott Crane, our CEO..

Thanks for joining us everybody to discuss our third quarter results as well. I’m really encouraged and we are encouraged that at both Pizza Inn and Pie Five that we’ve seen the targeted transition plan that we’ve been working on, which is progressing and yielding a great foundation for continued future growth.

The overall improvements to our net loss, as well as the comparable sales increase at Pizza Inn shows that our committed focus to the franchises producing sustainable results. Pizza Inn is strengthening and it continues to gain momentum, extremely excited about this.

And it’s a fifth straight quarter of increased same store sales, it’s really been a great trend for us as opposed to the industry over the last 18 months. So the third quarter of fiscal '18, our same store sales were -- comp sales increased 2.3% compared to the same period last year.

But during January, we had some really bad weather on the East Coast with the Easter out there that impacted revenue. And we had 51 days of closures on the East Coast at some of our highest volume markets for the -- go get the comp sales days, so a big issue there.

But despite those bad weather challenges, Pizza Inn still closed the third quarter on a strong note and continues to see growing traffic and revenue.

Also the huge focus on top line growth for the new initiatives like All-Day Buffet, the enhanced online ordering program, the restaurant remodels, they’re all generating incremental sales and traffic for the brand.

Also, we’re seeing new interest in the franchise system for new unit growth with new franchisees, as well as the existing franchisees, as I just mentioned, remodels with existing franchisees. And that’s our first time that all three of those have been working in tandem for many, many years.

During the fiscal third quarter, the number of Pizza in domestic units declined from 156 to 152, and that’s basically driven by the closure of some lower volume non-buffet locations. But overall, Pizza Inn has productive base for new development and a great runway for restaurant refreshed projects and new growth.

PIE, our new concept we introduced in November, has been actually really well received, very quickly and starting to gain a lot of traction.

As introduced last quarter, the complement to the existing Pizza Inn model and the new concept, the last Pizza Inn, to diversify its footprint in convenient stores, malls, travel centers and airport sittings and it serves as a great way to reach new customers and a faster service model, while still serving the same iconic, variance driven quality pizza our guests have come to expect.

And our first location, coincidently, opens next week or we’re tracking it open it next week, in the Fort Lauderdale Airport with many more signed at this point in time.

Additionally, Pie Five continues to capitalize on growth, delivery and health-based consumer trends with a really nice surprise for us as we introduce our cauliflower crust in the last quarter, and as a limited time offer.

And it was so widely received that we extended the limited time offer and then now we’ve made it a permanent menu item, and it’s been a huge success for us and increased traffic and revenue in as far as the product itself.

Comp sales for Pie Five decreased 12.5% in the third quarter when compared to the same period last year, but have been very encouraged by the response to our new menu test programs, continuing with the cauliflower crust initiative and also the great guest response on that.

The large 14 inch pizzas we just recently rolled in the last quarter, delivery in the last six months in sandwiches, have already shown increases in the guest frequency and traffic and incidents.

In addition to new menu additions, Pie Five has also shifted to a franchise model that allows us to focus on branding initiatives and the success of our franchisees. And we’re going to continue to refranchise company locations as we see great opportunity to do so to simple our business model and ultimately improve profitability.

In the third quarter of this fiscal '18, two franchise Pie Five restaurants were opened, while one company-owned and three franchise restaurants were closed, bringing the quarter end total to 78. Both brands we have brought efforts and attention to areas where we expect to see the most impact.

Our supply-chain shift has allowed us to intensify our focus on reducing cost across both systems. This new simplified approach to supply chain management has provided more transparency and better service to our franchise community, while also allowing us the opportunity to streamline our corporate cost structure.

I am going to turn the call back over to Tim to discuss the financial results in further detail. Thank you..

All right. Thank you, Scott. Total consolidated revenue decreased to 59% to $2.7 million compared to $6.5 million in the third quarter of fiscal 2017. Year-to-date total consolidated revenues decreased 40.7% to $12.3 million compared to $20.7 million for the first nine months of fiscal 2017.

This decline in revenues was primarily due to the transfer and closure of company-owned Pie Five units. Pizza Inn domestic comparable store retail sales increased 2.3% and 2% respectively for the three and nine month periods ended March 25, 2018 compared to the same period of the prior year.

As Scott mentioned, we are pleased that Pizza Inn continues to see steady comp growth quarter-after-quarter. Pizza Inn total domestic retail sales declined 3.6% and 2.6% respectively for the three and nine month periods ended March 25, 2018 compared to the same periods of the prior year.

The decrease was primarily a result of closures of underperforming non-buffet units. For Pie Five comparable store retail sales decreased by 12.6% for the most recent fiscal quarter compared to the same period of the prior year.

Year-to-date Pie Five system wide retail sales decreased 18.5% compared to the same period in the prior year, primarily driven by 12.8% decrease in the average units open. Comparable store retail sales decreased by 14.9% during the first nine months of fiscal 2018 compared to the same period of the prior year.

The highly competitive quick casual restaurant industry landscape has attributed to the declines in the Pie Five retail sales. Also, as Scott discussed briefly, we are addressing the industry pressures through new menu offerings, technology additions, brand consistency, heightened focus on our loyal guest base and new revenue channels.

Pie Five system-wide retail sales decreased 19.6% for the third quarter of fiscal 2018 when compared to the same period in the prior year, primarily driven by 17.7% decrease in average units opened, as well as lower comp sales.

For the three and nine month periods ended March 25, 2018, the Company reported an improvement in net loss by $1.5 million to $0.5 million for the third quarter of fiscal '18 compared to a loss of $2 million for the same quarter of the prior year, primarily due to closures of underperforming company Pie Five units, lower closed store expenses, decreased losses from sales of assets, lower impairment expenses, lower lease termination expenses, and reductions to G&A expenses as well.

We believe our strategic business shifts and refranchising, supply chain simplification and overall business model simplification, are driving improvements in net loss.

On a fully diluted basis, the loss was $0.3 per share and $0.11 per share respectively for the third quarter and year-to-date of 2018 compared to a loss of $0.18 per share and $1.07 per share for the same periods of the prior year. Adjusted EBITDA of negative $0.2 million was positive $0.4 million, better than the same quarter of the prior year.

The improvement in adjusted EBITDA was driven by improvements from company-owned stores and reductions in corporate expenses. Company-owned Pie Five operating cash flow improved $0.1 million during the third quarter of fiscal '18 compared to the same period the prior year.

For the first nine months of '18, company-owned pie five operating cash flow decreased to $0.1 million compared to the same period of prior year.

Cash and cash equivalents increased by $500,000 over nine months ended March 25, 2018, while $4.4 million of cash was consumed by operating activities, $0.8 million in cash was provided by investing activities, and $4.1 million in cash was provided by financing activities.

The primary drivers of the $4.4 million in operating cash consumption during the nine month period were lease termination payments, timing with net working capital related to the discontinued Norco food and supply chain distribution division and an overall reduction in our accounts payable.

The $0.8 million in cash provided by investing activities was primarily attributed to the sale of assets of transferred company-owned pie five units, partially offset by capital expenditures for one new company-owned Pie Five unit and corporate projects.

And the $4.1 million in cash provided by financing activities was primarily the result of the sale of stock in connection with the shareholder rights offering that closed in September 2017, plus stock sales and an at-the-market offering, partially offset by the repayment of $1 million in short term promontory notes.

Finally, as Scott mentioned, we are in a process of refranchising our remaining company-owned units. This strategy, when successfully completed, will allow us a greater predictability at company-wide cash flow, as well as income profitability.

As a reminder, we disclosed a great deal of brand-specific financial and operating performance in our quarterly earnings release, tables and in our SEC filings. This information includes brand specific comp and non-comp, restaurant average unit volumes and income statement line items details, and earnings explanations.

Our Form 10-Q is filed with the SEC earlier today for your reference. In closing, our committed franchise focus is streamlined operations are strengthening both brands. Shifting our strategy towards the franchise model is producing sustainable results.

We plan to continue initiatives that they are geared towards driving operational performance and not being at a steadfast future for both Rave brands. With that, I’ll turn it to the operator for any questions you may have..

[Operator Instructions] Our first question comes from [Dennis Wilden], a Private Investor. Please go ahead..

Thank you for taking my questions, I have two.

Could you tell me if the Company is currently, or has received notification from NASDAQ that they are in complete continued listing requirement?.

Yes, so we are -- obviously, currently in full compliance with all NASDAQ listing requirements. We’ve completed their evaluation period so there is no further communications going back and forth between us and NASDAQ..

So they don't need to send out a notice indicating that you are in full compliance right now..

I believe they have. They have in the past sent us communications that we are in compliance, and they’ve agreed that our explanations for our assumptions forecasting our future compliance are reasonable and acceptable. So we’re no longer in their watch system..

And the second question, could you explain whether or not the Company has any preferred stock and if it does has any of the that’s been retired, or are there plans to retire it and pay it off?.

No the Company doesn’t. We don’t have any preferred stock..

[Operator Instructions] This concludes our question-and-answer session. The conference has also concluded. Thank you for attending today's presentation. You may now disconnect..