Q3 2019 Earnings Call
Thank you for standing by welcome to the fiscal third quarter 2019 conference call webcast for adult Taco restaurants, Inc. I would now like to turn the call over to Mr. I fail gross managing director at I see our to begin.
Thank you operator, thank you all for joining us today on the call with me is John couple of follow up President and Chief Executive Officer, Steve break Chief Financial Officer. After we go up our prepared remarks, well open the lines for your question.
Before we begin like to remind everyone that part of our discussion today will include some forward looking statements. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon does not undertake to update. These forward looking statement at a later they refer you to that today's earnings press release.
And our filings with the FCC for a more detailed discussion.
[laughter] unpack the company's future operating results and financial condition.
Todays earnings press release also include non-GAAP financial measures such as adjusted net income adjusted EBITDA and that's true <unk> contribution along with reconciliations of these non-GAAP measures to the nearest GAAP measure however, non-GAAP financial measures should not be considered as alternatives to got Margaret.
Net income operating income net cash flows provided by operating activities or any other GAAP measure up liquidity financial performance.
I would now like to turn the call over the Jon Kathol lot Chief Executive Officer.
Thank you Raphael and thank you for joining us on the call today.
Let me first summarize Q3 before focusing on Q4, where we have since experience an improvement in company operated shales and transaction trends due to furthering our transaction driving initiatives as well was made progress on our portfolio optimization strategy and re franchising efforts to help stimulate long term growth.
During Q3 slightly positive comparable restaurant sales a company operated restaurants, coupled with inflationary pressures resulted in a loss of leverage across the piano.
Specifically comparable restaurant sales a company operated restaurants grew 0.4% consisting of average check growth of 4.1%, including approximately 3% to 5% of menu price and a transaction decline of 3.7%.
You may recall in our Q2 conference call, we foreshadowed transaction softness that began in July and then sustained through August until the launch of key transaction driving initiatives helped to restore transaction trends that were similar to our second quarter trends.
Franchise comparable restaurant sales outpaced company operated restaurants during Q3, increasing 1.8% while system wide comparable restaurant sales grew 1.0%.
Turning to restaurant contribution excluding an approximate 70 basis point impact from the new lease accounting rules at approximately 40 basis points of pressure from the timing of advertising expense restaurant contribution margins declined approximately 200 basis points from last year.
This reflects cost inflation across food labor and operating expenses, coupled with slightly positive comparable restaurant sales, which yielded lower restaurant contribution margins and dollars.
Adjusted EBITDA of 14.5 million declined 3.2 million from last year, including an approximate 0.7 million impact from lease accounting.
Given our results to date as well as a more cautious stance on our current 16 week Q4, we have revised our annual guidance.
As we've discussed on recent calls our brand focus this year is to activate and embed our transaction driving initiatives, including our digital transformation value evolution and product innovation.
Beginning with digital I would still characterize our digital initiatives as an early innings relative to the opportunity that we have to establish new channels of transactions, but we're certainly beginning to see encouraging results.
Our go out now exceeds 800000 registered users and all company restaurants are accepting mobile orders through the Dell out for pick up or delivery plus over 100 franchise restaurants are currently live or in the process of adding this capability.
As we mentioned before we are focused on growing our database of consumers in 2019 into a sizable based to leverage as we move into 2020, we will enhance our CRM targeting capabilities to drive further guest engagement and ultimately returns on investment through improved segmentation techniques enabled with scale.
In addition in late fiscal Q3, we launched Postmates across all company restaurants, and immediately realize favorable adoption in fact, we more than tripled our third party marketplace delivery incidents during the recent four weeks compared to the prior run rate, which had only one provider.
We're also encouraged by the over indexing of delivery during our late snacking graveyard dayparts as they typically have significant capacity and also extend past the operating hours of most casual and fast casual brands as well as many QSR who are not opened late night.
As you know our goal is to maximize consumer demand through a multiple DSP approach and by the end of the year, we expect to launch our third DSP door Dash, who continues to expand market share in many of our markets and represents a viable opportunity to further expand our reach in the delivery channel.
Now, let's shift to our value evolution. The first part of our evolution was the addition of fresh saves boxes at key Ford All are five dollar and six dollar price points to fill the mid tier value opportunity, our menu and reinforce everyday value.
We plan to continue doing bad to platform with New news like we did in early Q3, which helped drive fresh saves mix of over 6% during the quarter.
The next key part of our evolution is making sure we remain highly relevant on the lower chair of the value spectrum in order to compliment fresh fish and our premium innovation.
During Q4, we recently launched it too for Threed, all are del Taco promotion to enhance our value and affordability perceptions and we plan to maintain a focus on enhancing the lower end of the value spectrum, given a highly competitive value landscaping QSR.
Finally product innovation was led by the late fiscal Q3 debut of the two dollar breakfast hosted route which is a highly portable and craveable, new product featuring Bacon archery, though at a great price point.
This highly relevant new product not only not only quickly became our best selling breakfast product ever in terms of units sold but has also re energize the breakfast day part to become our number one sales comping dayparts since this product launched.
Got it innovation across the barbell will continue to be an important part of our marketing strategy and we've developed a robust pipeline for 2020.
As noted earlier Q4 trends to date for company operated restaurants have sequentially improved compared to fiscal Q3 led by transaction improvement, resulting from our transaction driving initiatives that specifically address the transaction softness in Q3.
They included the successful nude two dollar breakfast toasted wrap that reinvigorated our breakfast daypart the launch of Postmates to expand our presence in this important new sales channel and the recent two for Threed. All are del Taco promotion that uses a hero product to reinforce our value and affordability.
In addition, Q4 is benefiting from the return of our popular Carnitas program and our beyond platform.
Beyond continues to resonate with new and existing gosh mixing it over 6% during fiscal Q3 and at approximately 4% during Q4, despite limited menu merchandising.
Looking ahead, we expect added momentum from the mid November launch of the new authentic pork tamales LTL for the first time to capitalize on the seasonal relevance of this traditional Mexican holiday indulgent as well as the expected late Q4 launch of door dashes, we fully activate our multiple DSP approach to set ourselves up for success in the new.
New year.
On the development front during Q3, we opened two company operated restaurants in our franchisees opened two restaurants.
Including two openings. This week, there will be 15 del Taco system restaurant openings. So far this year and we currently out 12 restaurants under construction of which 10 are expected to open during fiscal 2019.
This would achieve our 2019 development guidance of at least 25, new restaurants skewing slightly toward franchise openings.
During Q3, we also Opportunistically purchased a high volume Southern California franchise restaurant and closed one company operated restaurant.
Turning to our portfolio optimization strategy, we have now executed an asset purchase agreement for one market and if signed letters of intent covering two other markets to be refranchised.
Each noncore western market is now expected to be re franchise to a different franchise group.
Two groups, our existing multi unit multi state franchisees and the other group is a new multi unit multi state and multi concept franchisee.
All three franchise groups are very high quality operators with demonstrated track records in operations and New unit development and each transaction will include a meaningful future store growth commitment in these and adjacent markets.
We currently expect to complete the Refranchising of the first three markets through a series of transactions in late Q4 and into Q1 2020.
Since we're still finalizing definitive purchase franchise and development agreement terms, we're not going to share any transaction specifics, although we will share a relevant financial highlights related to the restaurants themselves.
The 23 restaurants in these three markets currently have an easy of approximately $1.2 million and a company operated restaurant contribution margin of approximately 12%.
Net of future franchise revenues from the existing restaurants and immediate DNA reductions, we expect an approximate 1.5 million dollar annual pro forma reduction in adjusted EBITDA.
Looking forward, we believe the expected completion of these highly scrutinize transactions and their related future growth commitments will not only enhance long term value creation, but also provides increased confidence that franchise growth will continue to lead our growth story into the future.
In addition, upon completion of the planned Refranchising, we expect to gain a sharp and operational focus with a company operated footprint of restaurants with predominantly strong easy's and restaurant margins in our remaining core western markets, a greater Los Angeles, and Las Vegas as well, it's just a strategic presence in our emerging seed market.
Yes.
The emerging seed markets, where originally designed to establish infrastructure to support long term franchise growth and we're pleased that by the end of 2020, we expect to have at least 10 company restaurants in Oklahoma and nearly 30 system wide restaurants in Georgia.
This progress will allow us to limit future company growth in these markets as we focused on supporting franchise growth in these in surrounding areas as well as planned for future seed markets.
Our plan to Refranchising transactions and continued franchise growth focus also provides us with the opportunity to alter our pace of company growth to reflect a slower and more strategic approach in the near near to midterm, particularly while high real estate and construction cost persist.
Specifically starting in 2020, we expect to annually opened five to 10 company operated restaurants, reflecting selective in fill in our in our remaining core Western company markets.
Limited development in existing seed markets and development into new seed market starting in late 2021.
For 2020, we currently anticipate opening up to 20, new system wide restaurants, again slightly skewing toward franchise with a 1% system wide closure rate.
The refranchising transactions paired with a slower pace of company development will help generate near term capital and preserve capital as we move forward, enabling us to enhance existing restaurant performance through continued investments in technology and equipment as well as test remodels to optimize the design cost and return profile.
Transactions are also expected abroad provide greater means to enhance total shareholder returns through debt repayment and opportunistic share repurchases and our current authorization has $22.3 million remaining as of the end of fiscal Q3.
Finally, I want to congratulate Chad Reitsma, who was recently promoted to chief operating officer.
This is a new leadership role at del Taco and one from which I believe Chad will lead our restaurant teams and brand to even greater success.
Chad has been an invaluable asset and contributor to our company over the past seven years, having successfully led strategic planning innovation operation support training and facilities support.
He is someone who knows how to help teams deliver superior results and has also been a passionate voice ensuring strong cross functional franchise support to help our franchise partners successfully grow their businesses, which will be even more critical as we expand our focus on franchise operations and development.
And now Steve will review, our Q3 financials. Thanks, John beginning with our topline total third quarter revenue rose, 2.0% to 120.2 million from 117.8 million in the year ago third quarter system wide comparable restaurant sales increased 1.0% and lab system wide comparable.
Restaurant sales of 1.4% during the third quarter.
Last year, resulting in a two year increase of 2.4%.
Third quarter company restaurant sales increased 1.4% to 111.1 million from 109.6 million in a year ago period, which was primarily driven by an improved mix of company operated restaurants in terms of average unit volume, including impact from the first quarter Refranchise of 13 low volume restaurant.
Okay and acquisition of three high volume franchise restaurants third quarter company operated comparable restaurant sales increased 0.4% and were comprised of a 4.1% increase in check, including an approximately 0.6% increase the menu mix, partially offset by 3.7% decline.
Transactions franchise revenue increased 4.2% year over year to 4.5 million from 4.3 million last year. The increase was driven by additional franchise operated stores as compared to last year, including 13 restaurants that were re franchised in early 2019 as well as by franchise comparable.
Well restaurant sales growth of 1.8% turning to our expenses food and paper cost as a percentage of company restaurant sales increased approximately 70 basis points year over year to 27.7% from 27.0%. This was driven by food inflation of over 4%, which exceeded menu price.
These increases of approximately 3.5% plucks impact from or beyond offerings, which have is slightly lower than typical margin percentage. Looking ahead. During Q4, we expect net food inflation of over 3% as well as impact from new products or Elk Hills that feature a lower than typical margin percentage.
Including or beyond products, the breakfast toasted around the two for three del Taco promotion and carnitas.
Expected fiscal 2019 inflation is now approximately 3% and we currently anticipate slightly less food inflation in 2020 absent a more material impact from African swine fever, which we continue to monitor.
Labor and related expenses as a percentage of company restaurant sales increased approximately 50 basis points to 32.7% from 32.2%. This was driven by wage inflation from the one dollar, California minimum wage increase to $12 an hour, partially offset by reduced workers compensation expense based on underlying.
Trends reduce group insurance any favorable change in our California payroll tax rate compared to 2018 recall that we experienced the most favorability in our California payroll tax rate in Q1 with much less in Q2 in Q3, and we will lap the full benefit in Q4 of approximately 80 basis.
Points that was realized last year.
Looking ahead, we expect fiscal 2020 labor and related inflation of up to 6% primarily driven by a one one dollar increase in California minimum wage from 12 to 13, an hour and although our pricing strategy will be informed by consumer competitive and macroeconomic trends. We currently expect elevate.
Good fiscal 2020 menu pricing of at least 4%.
Occupancy and other operating expenses as a percentage of company restaurant sales increased by approximately 200 basis points to 22.9% from 20.9% last year. This outcome included approximately 40 basis points of higher advertising expenditures due to timing.
And approximately 70 basis points from adoption of the new lease accounting rules as well as a proxy 90 basis points of de leveraged from inflationary trends, which outpaced the slightly positive comparable restaurant sales.
Based on this performance restaurant contribution was 18.6 million compared to 21.8 million in the prior year and restaurant contribution margin decreased approximately 310 basis points to 16.8% from 19.9%. However, excluding impacts from the lease accounting rules and timing of average.
Pricing restaurant contribution margins declined approximately 200 basis points from last year.
General and administrative expenses were 10.4 million up from 9.6 million last year as a percentage of total revenue DNA increased by approximately 50 basis points year over year to 8.7%.
This increase was primarily driven by increased legal and related expenses, including reserves recorded in connection with an ongoing complaint filed by the equal up employment opportunity Commission and executive transition costs, partially offset by reduced performance base management incentive compensation and lower stock based compensation.
<unk> expense.
Adjusted EBITDA was 14.5 million down from 17.7 million last year and decreased as a percentage of total revenues to 12.0% from 15.0% last year note that adjusted EBITDA. This quarter includes an unfavorable impact of approximately zero point sevenmillion from the adoption of a new leases.
Accounting standard.
Depreciation and amortization expense was consistent at approximately 5.9 million each year, reflecting the larger company operated restaurant base offset by the reclassification of our build to suit leases to occupancy and other operating expense under the new lease accounting rules as a percentage of total revenue depreciation and.
Amortization declined 10 basis points to 4.9%.
Interest expense was 1.7 million compared to 2.1 million last year. The decrease was due to the reclassification of our build to suit leases to occupancy and other operating expense under the new lease accounting rules, partially offset by an increased one month LIBOR rate compared to last year that the into Q3 150 million was outstanding.
Under our revolver and are applicable margin for LIBOR loans remained at 1.75% early in fiscal Q4, we refinanced our revolver to extend its term and achieve improvements to the pricing grid, an additional covenant and other flexibility.
Our refranchising progress required a third quarter balance sheet reclassification to held for sale care option to reflect the carrying value related to these restaurants, including their property and equipment and associated amount of goodwill totaling 14.8 million a noncash adjustment of 7.9 million was also recorded.
Within loss on disposal of assets no adjustments to assets held for sale through reduced the reclassified goodwill within assets held for sale to net realizable value net of direct selling costs and estimated somebody's assets and liabilities.
This adjustment contributed to third quarter pre tax loss and also impacted our effective tax rate. Specifically this 14.8 million reclassification of nondeductible goodwill created an unfavorable permanent difference and our resulting third quarter income tax expense was approximately two.
Point 6 million, despite a pretax book loss as compared to 1.8 million during the third quarter of 2018 for an effective tax rate of 23.3%.
Net loss was 7.7 million or a loss of 21 cents per diluted share compared to net income of 5.9 million or 15 cents per diluted share last year. In addition, we're reporting adjusted net income, which excludes restaurant closure charges. Other income sub lease income for closed restaurants.
Impairment of long lived assets executive transition costs and loss on disposal of assets and adjustments to assets held for sale. Adjusted net income in the quarter was 3.7 million or 10 cents per diluted diluted share compared to 6.0 million or 15 cents per diluted share last year.
Finally, as John referenced we updated our fiscal 2019 annual guidance.
Including our current expectation that to Refranchising transactions are finalized during the second half of fiscal fourth quarter on our Q2 conference call. Although we discussed an unexpected traffic driven slowdown which began in early July we believed our transaction driving initiatives will provide momentum as the year progressed.
Although momentum has materialized, it's timing and magnitude lagged our expectations and our results to date and current outlook now warrants revise guidance. These revisions include expectations for fiscal 2019, systemwide comparable restaurant sales of approximately 1% with franchise outperformance.
Consistent with our results to date as well as reduced total revenues and company restaurant sales, reflecting comparable restaurant sales trends new store opening delays and impact from the sale of to Refranchise markets currently expected to occur during the second half of Q4.
These revenue revisions also necessitated reductions in restaurant contribution margins adjusted diluted earnings per share and adjusted EBITDA.
Looking ahead to next year, we believe we are well positioned as we expect to enter 2020 with a stronger digital capability, including a full year benefit of Threed delivery service providers as well as an exciting pipeline to product innovation to move up to provide transaction in menu mix opportunities as noted we currently expect slightly lower.
Our food inflation and elevated menu pricing compared to 2019, and we also expect to benefit from a healthier company portfolio as a result of our portfolio optimization program and the pending refranchising transactions as always thank you for your interest in del Taco and we are now happy to answer any questions you may have.
Jeff.
Thank you well now be conducting a question and answer session. If you like to ask a question. Please press star one I know telephone keypad confirmation total indicate your line is in the question Q. Your first started to if he would like to remove your question from the Q for participants isn't speaker equipment and maybe another.
Third after handset before pressing the star keys, well known leaves only poll for questions.
And thank you. Our first question comes from the line of Greg Badishkanian with Citi. Please proceed.
Hi, This is actually Spencer Hannesson for Greg I'm, just wondering if you could just provide a little additional color on the comp deceleration in the third quarter and then can you quantify the Q4 today trends that you're saying.
So yeah, let me, let me give you a little bit more color. Obviously, what we said it was the initiatives that we've added in the last couple of months.
Specifically address the key areas that drove the softer traffic in July and August and Weve performed similar to Q4 travelers Q2 traffic sense.
So let me walk you through that a bit we really saw a tipping point in some key markets with third party delivery this summer and launching Postmates as I said nearly tripled our delivery incidents and we should further improve in that area with the launch adored ash late this year as well. We also saw breakfast lagging the other or the other day parts as we add more.
The focus on lunch and dinner driven initiatives with beyond in fresh phase and the launch of the breakfast toasted wrap along with an intense operational focus really turned breakfast into the top performing dayparts. So.
As we've seen historically breakfast can be a strong performer for the brand when value and innovation are aligned and then obviously, we followed these initiatives which are a carnitas LTL in mid September and then the two for three del Taco promotion.
I'm not one in particular was deployed to shore up the low price end of the value spectrum, which should we felt was not as strong as it could have been over the summer as we cycled over the launch of the dollar chicken snack are and we were more focused on premium with beyond burritos and mid tier initiatives with fresh fast. So there's a little more color on the Q on Q3 traffic softness.
And kind of why we are seeing traffic improvements in Q4, so far that's really returning to the type of traffic that we saw in Q2.
Make sense and then can you just talk a little bit more about the beyond platform. I think you mentioned in the prepared remarks that you're now mixing at 4% in Q4 to date versus 6% in Threeq. You can you just talked about why that youre seeing little bit of slow down there.
Yes, having mainly we've taken it off of the main marquee of merchandising. So it's gone from a primary message down to a secondary message.
And it's got some diminished in merchandising so we traditionally and typically see that happened with programs. Once we start to diminish the merchandising we still think the 4% is actually a really healthy sales mix relative to other programs that we've done in the past one that's so when that similar type of merchandising dynamic has happened and ultimately we continue to be X.
Added about the beyond program. We think it's definitely has the ability to continue to drive sales as the market and consumers continue to become more familiar with plant based protein as well as of course those that are looking for alternatives to stay animal protein and for US don't forget. It's also price in a premium so delivers a higher check average so moving forward you're going to.
Continue to see a role for beyond our menu. It is a nice differentiator for us in the Mexican LSR space and and we do believe that again that consumer familiarity with plant based protein will continue to grow.
Perfect. Thank you.
Got it.
Thank you. Our next question comes from line of Alex Slagle with Jefferies. Please proceed.
Thanks, That's my follow up on the beyond commentary if you add any additional insight I guess now weve added out a few months and I'm sure you've been they ended the metrics and understanding a little better, but just anything else on guest satisfaction levels or differences, you've seen sort of in different consumer groups using the product.
Our geographic differences.
Yes, let me just just trying to hit at the top level for yes, Alex the majority of the sales increases related to beyond that really drove the next came from existing users essentially trading up and trying the product and although these get existing gas. We found a really pleased with the product base our guest.
Scores and experience ratings most of their Incrementality clearly came from average share gains and not necessarily visit so it was a trade up opportunity for those folks and a mixed into their act into their menu options as they came into del Taco versus necessarily making incremental visits to del Taco because.
The platform degree of that represents the most outside of course in regard to incremental visits are does much lighter users of the category that we talk a little bit about on the last call and general those folks. Those Vegas is vegetarians are not heavy category is or is there very light users and they're just a smaller population. So although we did receive high.
Landmarks and incremental and Thats from from that hurt the folks there just wasn't enough volume to register against overall transactions with accurate.
Okay, and then on the low price and the value offerings. The two for three sounds like a good start what else do you have that you think you could do here on on that end of the barbell.
Yes, so we think.
Well one of the barbell as really complementary to what we're doing with the fresh frames program right. Now we think frustrates clearly fill that void on our menu strategy in regards to mid share value and in addition to programs like two for three del Taco, There's really hit that lower anymore more value price value sensitive user we have other programs similar.
To that that are in test and or getting ready to be used in 2020. We also believe buck and under can continue to play a role. So there is there is now as innovation that's happening against the Bakken under platform right. Now we think bucket under can be really nice as far as a one two punch as you think about the barbell within the barbell and that has the.
While and all that far price would barbell with within the barbell, a buck and better and that ability to trade into a box at a four or five or six dollar price point. We think we think that can be a nice value. Once you pass. So that's how we're thinking about it right now moving into 2020.
Got it thank you.
Thank you. Our next question comes on line of Nick Setyan with Wedbush Securities. Please proceed.
Thanks, John This is a question for you I guess kind of for take a step back I just think about the category. The QSR category, we seem quite a bit extracts from some of the competition.
As of their sales trends I guess, you know what do you think that's driving their strengths and why do you think you are lagging.
And what can you do that's a little different.
To kind of catch up I guess to the rest of the category relative to what your expectations have been for example.
Great.
Sure you know I think you originate Nick you're right I mean, we're competing for share snack listen fierce limited service restaurant competition and we're all in a transformational cycle driven by technology right now and I think that we continue to believe that we are doing the right thing is to continue to position the brand.
For same store sales growth in traffic, we're focused on leveraging technology throughout our innovation and the digital and delivery development that will continue to build and close the gap with the larger competitors, while we continue to leverage our barbell, which gives us many levers to pull can you maybe even more powerful as we think about bringing in a key part of our strategy.
This is new product development of course, all that much respire QSR plus positioning so listen we feel good about our ability to compete admittedly, we're playing a little bit of catch up on the digital fraud.
I said, we're in early innings, but we feel good about the progress that we're making and as we move into 2020, we're going to be that much stronger in that area.
Yeah, I mean, I look forward to kind of what we see once you want to store dash for in terms of Postmates specifically, what's the Incrementality you see on can you can you maybe talk about average check whether it's driving more mix versus transaction, if it's driving both mix and transactions how are you kind of.
Breaking the results out there.
Nick It's Steve in terms of Postmates no real happy with their in addition, as we mentioned in the most recent four weeks versus back when we had only one provider you we've more than tripled our all caught our per store per day delivery incident. So.
It really nice uptick there the la area is a very strong lead market for Postmates. So excited what we're seeing we continue to have check average in that one and a half to two times area on the delivery Tran transactions as we mentioned before and we are taking a modest 10% area price.
Premium for third party deliveries, which goes a good way is towards managing the impact of that commission. So we're two steps into our three like journey here and with that I adored as Sean deck to launched by the end of this year really as we get in the next year, where they fully built out program.
That point, well being a better position and talk about more broad metrics in terms of the absolute per store per day metrics et cetera, but so far very encouraged with the progression.
And then just last question on the 4% pricing in 2020 or are we taking that at some point in Q4, so Q4 pricing be above 3.5%.
We're going to end this year right now we're carrying a little over 3.5% Thats about where we'll end the year is we get into the first quarter or mid quarter. So we'll begin to lap.
Last years first quarter price increase and that's the point, where we will have a chance to begin to step up on the level price. We're carrying that at least 4% is a goal for all of 2020, we won't be there day one in January but over the course of the year that absolutely is the the intention.
Thank you.
Thank you. Our next question comes on line of Peter slow with de T.I.E.G. Please proceed.
Great. Thanks.
It sounds like 2020 will be a.
Similar here into 2019 at least on the inflationary aside from the food costs that.
And labor and maybe amount of pricing that you're taking so.
I guess strategically how are you guys attacking next year to be maybe different are you doing anything different on marketing side, they sort of changing your plans on LCOS.
Maybe just come out this a different way given it looks like the environment's going to look very much. The same that's why it's 20 assisted in 2019.
Yes, Peter we're going to continue to be focused on our transaction momentum strategy and like I said earlier, the digital transformation will be an ongoing focus for us both through del out and improving our capabilities on the CRM side or the data sciences side of that I think we've got some opportunity there to continue to grow into.
As we get scale in that database, obviously, Steve mentioned delivery on the value transformation piece, you'll see some more aggressive lower end value news coming from the brand as we move through 2020, I talked a little bit about additional programs like the two for three del Taco as well as sorting out some new innovation in.
The Bakken under platform to help really complement threat, what we're doing with fresh fabs that will be part of our marketing mix with new news there and then obviously product development and we continue to innovate and develop the deep pipeline of new product news to really help altera as a barbell strategy in Q1, we are planning.
Looking at new exciting agreement, which will come with some some new products that will leverage as we move throughout the year as well so new news product innovation overall innovation through technology, and then Youve coupled out with no. We made recently with with Chad coming into the CLL were all our discipline.
And on the operating side of the fence are really re answer our combined solutions model and a more meaningful way and I think we feel good about our ability to continue to keep compete for easy.
Great and then can you just give us an update on.
We are in terms of service time drive.
I asked that.
They did this year as it kind of flat line.
What do you see Kelly.
Of course 2020.
Yes overall, Peter its its plateaued at from what we have seen over the last couple of years. So I'd say 2019 in 2018 looks similar in regards to speed. We are fast we're not getting much faster or doing some things now in regards to.
Second technology testing at the drive through with an L. without new platform that is an outside order take our platform that we've been testing and that we may expand into the right high volume situations and 2020, it could be some investment that we're making to help improve speed and throughput.
For the drive to we think that's still a key component.
And then as we think about I'm getting better order accuracy as plateaued a bit as well. This year. So that's one of chad's lead charges is really working with our franchisees in our company operations.
Make sure that we are delivering that experience.
Through the accuracy at the window as well as in the dining room and free delivery by the way so.
Those are the areas that will focus as we move into the back end of this year and 2023 or four walls.
Right.
The last question.
Thank you said that the beyond platform a secondary message.
Versus I guess the primary massive threeq.
Oh.
Why is that.
Just you know you guys want to shift Dollarstwo.
Different platform or did you feel like you weren't getting quite you had expected out of the beyond platform.
Well remember we launched beyond in essentially in April right and so it's been you know kind of think about it May June July August we really kept it as as a pretty primary focus so call. It for four months or so so no new news is a big driver in this category and we've got to keep the barbell fresh across our consumer.
Our base in order to make sure that were.
Turning a healthy level, oh transactions across that kind of broadly appealing QSR plus strategy that we have deployed so being able to launch breakfast in a meaningful way as a primary message was was it was a great way to get that Daypart reinvigorated and able to highlight carnitas as an LTL another great way to bring consumer.
First ended del Taco, So it's choices that we have to make and even though it's a secondary message and it's been diminished a bit on the merchandising. It's still present man it absolutely if you're if you're driving up to drive you're walking into the dining room, you're going to see beyond on the menu and and you've likely.
Been able to experience it over the last several months so its top of mind. It should be there and then if you're one that wants to choose it it's absolutely going to be merchandise. So that's just.
How we how we think about I understand theres multiple priorities and we've got to make sure that we're focused on the ones that are going to do the best for the business in the short term.
Great. Thank you very much we've got to.
Thank you. Our next question comes on line of Josh along with Piper Jaffray. Please proceed.
Great. Thanks for taking the question wanted to start a little high level and just see if you could share some comments on what you're seeing across the industry in terms of competition you haven't strong value offering and you have strengthened that with some of the different initiatives and products you mentioned during the call, but just curious on what you're seeing where you're seeing the most pressure where you think you have the most opportunity to compete going into the ended the year and beginning.
The next year.
Yes, so I'd, just a little bit more color on the category I mean, we're still seeing the category it kind of negative on transactions generally speaking right and there's a few folks that are that are not but generally the category at large is displaying negative transactions with those that are driving same store sales or job doing at three check and essentially.
So so what what that's led to is on the value side, we've seen some some loss leader type approaches on value, where you're seeing kind of low margin type offers in the marketplace try to spur that that highly frequent value user in the market I'm looking at low priced deals essentially so we've seen some of that happened over the summer.
Months and with some brands not all brands, but with some brands. We've also seen a big obviously move into the digital especially with the larger.
Scaled brand. So you see that really leveraging that scale ball through delivery and just digital in general on transaction. So.
Josh that's where we will that's where we've seen no. The biggest moves this year relative to the competitive set the l'oreal reinforce its exactly why we're doing the things that we're doing and you know I think were plan a pretty good offense in regards to our strategic development here and we just need to get all these initiatives.
End of the market and make sure that we're embedding them and continuing to create kind of familiarity with them with the consumer.
Absolutely and then thinking about the opportunity around the addition of a COO committed role there how should we think about that it sounds like order accuracy is on the lifted things to be focused on but also you talked about the opportunity to lean into some restaurant technology, new maybe some new equipment or remodel testing should we think of it.
As an acceleration into those opportunities just maybe more of a dedicated focus.
By the new COO and his team.
It definitely is partly what you just mentioned I think it's it is a strategic role for us and as you know as we move forward and continue to focus on both company and franchise operations in needs associated with both I think it's critical that the structure.
Efficient as possible to support those different needs and and nuances to come with Sporting company and franchise restaurants. You know there's there's there's different agenda is sometimes between a franchisee in a company operator, we can bring those two together and collaborate and make sure that we're putting the right programs market to improve the four walls and to invest in the right areas and that's what I think.
Chad will bring to the table it will be very strategic and ill be an opportunity for us to certainly doing to set and move some of these key programs forward.
Great. Thank thank you and one last one for me it at a high level industry perspective, it seems like in California and home State. We've had some legislation going through two is targeting some of these some of the gig economy players, but also seems like it might wrap up some of the franchise or restaurant relationship there in terms or just how.
Employees are being categorized between the franchisees and franchise or I imagined a lot of things still to come there.
Still to evolve, but just curious if you could provide some high level commentary around what this could potentially mean for restaurants, your brand and or kind of just how do we should be thinking about this at this time.
Josh It's Steve I would say definitely something we're watching carefully at this juncture still very much too early to tell but absolutely that in other legislated threats that arise from time to time.
There are things that we continue to watch.
Got it thank you.
Hi, Thanks.
Thank you. Our next question comes on line as Stephen Anderson with Maxim Group. Please proceed.
Good afternoon, another high level question.
Sure it better advantage point than I am.
On the East Coast I, just wanted to ask about what's going to California, certainly with these spiking gasoline prices whether this is hurting some of your I mean, the some of the lower economic and I guess and whether they have maybe reduce their order frequency Morris and see what you're seeing.
Yes, I mean, it's Steven.
We've you know what we have noticed in California is competition definitely being more aggressive on pricing across the board and you know you think about that to offset regulatory driven wage increases that we've been facing gas prices in California have been high for some time in leading kind of the nation. So.
It's it thats not necessarily Nunez I think the consumer here is used to that sort of thing happening in that cycle, certainly elevated right now, but we're not really seeing dramatic difference in traffic in California at this point compared to other markets. So yeah. There's there's definitely factors here in California that we're keeping a close eye on.
That could be influential and call. It the short to midterm, but that's certainly nothing that is causing us heartburn or concern today.
Thanks.
Thank you.
Weve no further questions in queue at this time limit to hand, the floor back over to management for closing remarks.
Okay, well. Thank you everyone for your interest in del Taco, We certainly appreciate it and we look forward to sharing our progress on future calls have a great day.
Thank you. Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time and thank you for your participation.
Yeah.