Good day and welcome to the RAVE Restaurant Group's Incorporated Reports Fourth Quarter and Fiscal Year 2019 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will 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 Mr. Bob Bafundo, President of RAVE Restaurant Group. Please go ahead..

Good afternoon and thank you for joining RAVE Restaurant Group’s fourth quarter and fiscal year 2019 earnings conference call. Everyone should have access to our fourth quarter and fiscal 2019 earnings release that was released this morning. The press release can 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 conditions.

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 discussions 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. Also since fiscal 2019 included 53 weeks and fiscal 2018 included 52 weeks, to improve comparability we have included the first week of fiscal 2019 and both annual periods in the presentation of total retail sales and comparable store retail sales.

And with that, I’m very pleased to share our fourth quarter and full year financial operating results. During the past year, we made important major improvements in leadership and overall strategy at both RAVE brands and we continue to remain focused on the two primary levers of our business; growing same-store sales and adding new restaurants.

In addition, we are impacting each brand by strengthening communication with our franchisees and by strategically adding support talent that will provide immediate results. As you may know, Scott Crane departed as CEO in July.

I continue my role as President and I feel great about the incredible leadership team we have assembled and that is in place and helping us drive results. We've got stability in critical roles including pizza and operations, development, construction, and the marketing of both Pizza Inn and Pie Five brands.

We've also added new leadership in operation services, international operations, and additional resources and development over the past 18 months. A new team member of that team is Scott Black who we brought in as Vice President of operations for Pie Five.

Scott has a proven track record of success with over 30 years of experience in the food and beverage industry, specifically in the Pizza segment and as a restaurant owner.

Scott will be instrumental in sharpening our distinctive service model to create a guest experience that capitalizes on customization, approachability, and speed of dining with Pie Five. We are very excited to welcome Scott to the team. The past two years at RAVE have held challenges, but we feel confident about where we are and the path we're on.

With a growing legacy brand, a shored up balance sheet, and improving cash position, and improved results from continuing operations, we are making progress. But the best days are still ahead for RAVE, our franchisees and our guests.

Pizza in total domestic and comparable store retail sales increased 0.8% and 2.2% respectively during the fourth quarter of fiscal 2019 compared to the same period of the prior year. This now brings us to 10 consecutive quarters of positive same-store sales at Pizza Inn and we see those trends that suggest this momentum will continue.

I couldn't be more pleased with the results of Pizza Inn and the people that are making that happen. Our franchise system is aligned on our key brand objectives and we are moving forward with common goals that are driving results.

We are moving the needle by bringing a focus to quality products and elevated services and engagements that treats our guests in our communities like they are members of our own family. With existing franchisees now signing on for multiunit development agreements, Pizza Inn is also outperforming our recent pace of development.

We expect new development to keep the pipeline full for the coming quarters. Pie Five total domestic and comparable retail sales decreased by 22.1% and 7.3% respectively for the fourth quarter of fiscal 2019 compared to the same period of the prior year. At Pie Five we are taking restaurant level approach to growing sales.

One of the key elements of that plan is to build community relationships and focus on local restaurant marketing. We see this as the most cost-effective and efficient way to build both long-term sales and consumer loyalty for the brand.

This is very much like the strategy that we took at Pizza Inn over three years ago now, and as a result, we know that it can work. We continue to experience strong interest in new restaurant development of Pie Five. With our Goldilocks model we have lowered the new store development investment as well as ongoing occupancy costs.

This strategy has begun to show some positive results in improving restaurant fundamentals. Nontraditional development is surpassing projections for Pie Five and as we leverage these opportunities we expect this success to continue.

Consolidated revenues for the fourth quarter of fiscal 2019 were $3.1 million compared to $2.8 million in the same period of the prior year driven by increased revenue among all four of our reporting segments; Pizza Inn franchising, Pie Five franchising, company-owned restaurants and corporate administration.

The company's net loss of $0.8 million in the fourth quarter of fiscal 2019 or $0.05 five per diluted share was a decrease of $4.2 million or $0.26 per diluted share compared to the same period of the prior year.

The decrease in net income in the fourth quarter of fiscal 2019 over the prior year was largely due to increases in non-cash impairments of long-lived assets and other lease charges totaling $1.1 million in addition to a decreased tax benefit of $3.1 million compared to the same period of the prior year.

Adjusted EBITDA of $0.3 million for the fourth quarter of fiscal 2019 was a $0.6 million improvement over the same period of the prior year pointing to our improved operating results.

Annually, Pizza Inn's domestic comparable store retail sales increased 2.6% in fiscal 2019 compared to the prior year while total domestic retail sales increased by 1.8%. Pie Five's comparable store retail sales decreased 4.4% in fiscal 2019 from prior year while total system-wide retail sales decreased by 14.6%.

Total consolidated revenue decreased 18.5% in fiscal 2019 to $12.3 million primarily as a result of lower company-owned restaurant count. The company's net loss of $0.8 million in fiscal 2019 were $0.05 cents per diluted share was a decrease of $2.7 million or $0.18 per diluted share compared to the prior year.

The decrease in net income for fiscal 2019 compared to the prior year was primarily due to decreased tax benefit of $3.3 million partially offset by a $0.2 million improvement in continuing operations before taxes and the absence of the prior year's $0.4 million in net loss from discontinued operations.

The company maintained its valuation allowance against net deferred tax assets in fiscal 2019 compared to a partial reversal in the prior year that resulted in the $3.3 million tax benefit. Annual adjusted EBITDA of $1.2 million was an increase of $0.6 million compared to the prior year.

Domestic Pizza Inn units increased by 2 during the year bringing domestic total units open at the end of 2019 fiscal year to 155. International Pizza Inn units decreased by 10 during the year bringing the international total units open at the end of the 2019 fiscal year to 48. Pie Five ended the 2019 fiscal year with 58 open units.

We continue rolling out Pizza Inn Express or PIE with one new opening in the fourth quarter of the fiscal 2019 year bringing the unit count to 9 at the end of the quarter. Our pipeline of potential multiunit PIE licensees is growing. PIE is one of the only restaurant branded concepts in the convenience store space and it continues to gain traction.

Only 18 months ago we started with a blank slate and took a year to develop this nontraditional model and define operational systems. Today, we have a concept that provides a seamless customer experience with the same quality pizza found in our traditional restaurants. The development opportunities for this concept are both promising and significant.

The company's cash-on-cash equivalents increased to $2.3 million as of June 30, 2019, $0.9 million improvement over the prior year end.

The increase in cash and cash equivalents resulted from $0.7 million in cash provided by operating activities, $0.1 million in cash provided by investment activities, and $0.1 million in cash provided by financing activities.

As a reminder, we disclose 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 item details and variance explanations.

Our Form 10-K was filed with the SEC earlier today. In closing, we're proud of the progress we've made, recognize the challenges that still remain in front of us, and believe we have the people and the plans in place to overcome them and achieve results. With that, let's open the line for questions..

We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Scott Banks [ph] Investor. Please go ahead..

Thank you. Bob, couple of questions for you.

The first question is, you talk about Pizza Inn Express and the promising developments in terms of the pipeline, can you provide more color around that? And maybe also talk about where you see this brand going longer term? I mean how big can something like this become? That's question one and I have a followup question..

Okay. Well, the convenience store businesses is massive and continues to grow domestically. So we feel like we're very well positioned to take advantage of that.

We feel like what makes this so intriguing Scott is the fact that you've got a top tier of players in the convenience store industry that are continuously raising the bar with quality of hot food offerings and variety in hot food offerings.

So when you look at players like QT, Sheetz, Wawa, or players like that on a national basis, I joke and say that these guys are actually developing restaurants that happen to sell gas. So because of that we see is that the middle tier of C-store operators, folks that own let's say 25 to 50 locations, they are scrambling to keep up with the big guys.

And because of that, they continue to look for ways to add hot foods, which typically carry a higher profit margin than the packaged goods that they are typically selling and they are scrambling or look for ways to do that.

Because they are not big enough to have their own R&D department, they tend to lean on brands as a way to create brand awareness and create trial with the consumer. So we feel those are the key reasons we're excited about this opportunity. In terms of how big can it be for us, that would be a pure guess on my part Scott.

So it would be hard for me to throw out some specific numbers. I will say we're working with many groups that have put their toe in the water if you will with PIE with one or two locations, but own significantly more locations and if the business model proves itself out, then we're pretty confident we're positioned for expansion with those clients..

And then on the Pie Five side, in terms of the Goldilocks model, is the interest coming from existing franchisees, are you seeing interest from new groups? And then just lastly on the balance sheet, obviously as we kind of extrapolate things out you guys are generating cash, if that cash on the balance sheet continues to grow any thoughts on how the company would utilize it from a capital allocation standpoint?.

Okay. So let me back up, so we're going to talk first about….

About the Goldilocks and the interest there?.

Goldilocks, sorry. So I think primarily the interest we're getting on Goldilocks Scott is coming from new franchisees. So those are typically folks that have a strong interest level in the fast casual pizza segment. They are looking to bring that type of concept to their market or their town.

And so, I would say that's where our primary interest lies right now with Pie Five and that's a big part of the interest we continue to generate in the brand. In terms of improving operations, efficiency of operations and driving cash, at this point we continue to look for ways to eliminate challenges that we still have.

We continue to work through lease termination obligations we have from our move to refranchise and close company restaurants over the last couple of years, so I'd say that's still our primary objective is getting it up behind us..

Great, thank you. Best of luck..

Thank you..

[Operator Instructions] Our next question is Mike Disler [ph] with M&X. Please go ahead..

Good afternoon Mr. Bafundo.

How are you?.

Good Mike..

I've been following RAVE for many years and you are fortunate to step into what I think is a company that you've kind of architected the turnaround over the last few years in Pizza Inn certainly, so thank you for that.

In general, I'm just an individual, but I stand and speak for a fair number of strong shareholders who want to be better shareholders. So just a couple of quick points, I did go through the 10-K today pretty much all day.

I was looking to see if there was an accrual for some sort of severance for the former CAO, Andrea Allen, and the former CEO in terms of the severance accruals and I didn’t notice any. So I assume that that's all taken care of.

Is that a fair assumption?.

No there were no accruals for either..

Okay, now that's one down, thank you. Number two, you just addressed Scott prior to my getting on like here.

I'm guessing that you've instituted some sort of aggressive incentives for the existing Pizza Inn franchisees who are considering crossing over to Pie Five in addition to keeping your current Pizza Inn as some sort of incentive you can build into a program like that, would that be a fair assumption as well?.

Well, good thinking on your part. Actually, we have not instituted an aggressive incentive, but that is happening kind of on its own. So, for example we just reopened a Pie Five location in Lubbock, Texas with one of our best Pizza Inn operators and we've had additional conversations ongoing throughout the system..

Okay, especially in light of your robust, I guess re-energized Take It To Texas program that you've instituted I suspect right in your backyard you could be utilizing some of those aggressive incentives and see if they work to move the needle.

And then finally, just as a strong shareholder with a bunch of others who I know are strong holders, not to mention your two largest shareholders, I just have a question about the way the stock price seems to get manipulated and I'll be brief, I think we could actually just involve NASDAQ and/or FINRA and just alert them that some sort of price suppression seems to go on at the close of business every day.

And I'm just passing that along.

I don’t know, I know many people have brought it to the attention of management as well as the Board in the past and I'm just reiterating that call?.

Well, thanks for bringing that up and thanks for the feedback. I appreciate it..

Okay, keep up the good work. Thank you..

Thanks..

[Operator Instructions] At this time, we have one financial question from Brent Masters [ph] an Investor. Please go ahead..

Hey there Bob, thanks for the opportunity here, I appreciate your time. Just some quick questions on Pie Five, and you've done a -- as Mike mentioned you've done a great job with Pizza Inn. You've got Scott Black coming on now.

We've seen Pie Five over the last three to four years in decline and purging stores and for good reason trying to get to profitability. What do you foresee this year? It looks like according to the website that I looked at today the locations, I know you opened up one, but it looks like you closed one as well.

So it came out net even on that number of locations.

What do you foresee against stated 10% growth rate in locations, how do you foresee that playing out remainder of 2019?.

Thanks Brent [ph], good question. Yes, we continue to work very closely with existing franchisees to help improve store level profitability. So besides being focused on same-store sales growth is one of our primary objectives.

We're also simultaneously working closely with existing franchisees through a quarterly business review process that we've implemented on the Pie Five side to help them analyze opportunities to improve cash flow. Our hope is that through that program and through more close management that we can slowdown the rate of closures on the Pie Five side.

And I think that should help us hopefully maintain net zero this year as we grow stores. I think we have to be realistic that there are going to be more closings and we're going to work through that to the best of our ability..

Okay thanks, Bob..

[Operator Instructions] This will conclude the question-and-answer session as well as today's conference. Thank you for attending and you may now disconnect..