Q1 2020 Earnings Call

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Good afternoon, and welcome to to de SMET, what else and company first quite <unk> Conference call also dispense I know in elephant on me mode. After the presented shouldn't mikes there will be a question and answer session. I say mine do this call. It's being recorded I don't know introduced me.

Adults and company teeth financial ASCII, Ken week, the smartest yours too.

Thank you in good afternoon, everyone welcome to our first quarter 2020 earnings call here with me. This afternoon, as Dave bending housing or Chief Executive Officer.

I'd like to start by going over a few regulatory matters. During our opening remarks in response to your questions. We may make forward looking statements regarding future events are the future financial performance of the company any such items, including details relating to our future performance should be considered forward looking statements within the meaning of the private security.

Litigation Reform Act.

Such statements are only projections and actual events or results could differ materially from those projections do do a number of risks that uncertainties.

The tape Harbor statement in this afternoon's news release and the cautionary statement in the company's annual report on form 10, K. for its 2900 fiscal year and subsequent phones with the L.C.C. are considered a part of this conference calls, including the portions of each that set forth the risks and uncertainties related to the company's forward looking statements.

I refer to the documents the company files from time to time with the Securities and Exchange Commission specifically the company's annual report on foreign 10, K. for just 2019 fiscal year and subsequent Bylanes we have made.

Documents contain and identify important factors that could cause actual results to defer materially from those contained in our projections for forward looking statements.

During the call we will discuss non get measures, which we believe can be useful in evaluating the companies operating performance.

You should not be considered in isolation or as a substitute for our financial results prepared in accordance with gap.

A reconciliation of these measures to the most directly comparable get measures is available in our first quarter 2020 earnings release, and our supplemental information now I'd like to turn it over to Dave <unk>, Our Chief Executive Officer.

Thanks kind of good afternoon, everyone.

During taste call, we will be briefly discussing our first quarter results, but the primary focus of our time together will be the impact to cope with 19 pandemic has had on our business our sponsors far and our strategy moving forward.

2020 was off to a great start on the great on the straight to the company's operational calling her you know premise initiatives.

With comparable sales growth system wide a 5.5% during the first 10 weeks of Q1, including positive traffic, we felt comfortable that the company was on track for another strong your of meaningful top line in earnings expansion.

Of course that all changed with the onset of the cope with 900 pandemic.

Comparable sales during the last three fiscal weeks a few one thought 46.3% system wide, resulting in a comparable sales decline a 7.2% system wide for the first quarter.

At its lowest point are comparable sales decline, 55% accompany on restaurants during the last week of March.

Since then we've been pleased with the consistent sequential improvement in the trajectory of the business as our count real sales decline improved 36.1% during the past three fiscal weeks and 33.6% during the most recent fiscal week ending yesterday made fat.

Entering this crisis, our initiatives and investments have resulted in a strong off premise business, which accounted for over 60% of sales. During the first 10 weeks of do you want.

Our food travels extremely well.

Master already accustomed to seamlessly ordering through our digital channels to enjoy the variety and value in our menu regardless of where they were dying.

We've been able to leverage that straight as well as build upon it with our research initiatives, resulting in the consistent improvement we have seen during the last few weeks.

I also believe we're positioning the brand to be stronger over the long term outlined some of these initiatives later on in the call.

Since this is a company's first restaurant opened in 1995, our mission has been to always nurse inspired every team member casting community we serve.

Never had that mission been more important than it is today.

I'm immensely proud of ungrateful to our teams for their continuous commitment to provide made the order healthy meals to guess throughout our communities.

Our teams have shown an incredible and unwavering amount of carrying love for each other and our guest.

What are those gas to our health care workers on the front lines finding this pandemic. So we're providing free meals through our new family Mill program.

Or those guess that are family celebrating milestone such as birthdays or graduations virtually online.

Yeah, My 16 years at this company.

I have never been prouder to be a part of such a great team or is proud to be part of the restaurant industry.

Of course, no 16 years, we've never encountered anything like this current pandemic.

As the severity of the crisis became apparent.

We altered our strategy to focus on three key areas.

First ensuring the health and safety of our team members in guest.

Second increasing accessibility inconvenience for our gas in third providing value to the variety inherent in our menu.

First priority of course has been to protect our team and our guest.

We were one of the first national chains to shift to an off premise only model and very early on began executing enhance quality assurance practices and all locations locations, increasing the case of our cleaning procedures the frequency of mandatory handwashing and thoroughly disinfecting all surface areas at regular intervals.

We introduced in emergency Similarly policy covering up to 14 days of sick pay for team members and we had been extraordinarily diligent enforcing are strict illness policy to prohibit team member showing symptoms working.

Additionally, we have been provided face covering sprawled team members entering the process of installing plexiglas shields at our cashier stations and we have purchased infrared thermometers to allow our teams were found temperature checks at the start of every shift.

These actions have been taken to ensure a safe and healthy environment for all of our team members and guess.

Dining rooms, eventually real thin they will be supplemented with measures superstar facilitate social distancing and ensure the safety of gas dining with us.

Our second strategic priority has been to increase accessibility inconvenience for our gas.

As I noted earlier, we were fortunate that we entered this crisis with a strong off premise business.

Bolstered by the launch last fall of our new apps and online ordering systems, which have enabled a seamless way for gas to enjoy the brand.

Our investments and technology have allowed us to execute quickly on key initiatives to address the current pandemic.

We've been able to offer easy to use curbside service to our gas that over 350 locations.

Finally, and late March we introduce direct delivery through our digital channels again make it easier for gas to access engage with the brand.

Finally in conjunction with the launch a direct delivery, we expanded our partnership nationally with two breeds, adding to our existing national presents with door dash.

The expansion of delivery introduction of curbside has further strengthened our off premises capabilities and our off premise sales today and absolute dollars are higher than they were before the crisis.

Our third strategic priority has been offering value toward gas during this uncertain time to the variety that's inherent in our menu.

In order to maintain our discipline approached horse testing a brand new items. We have shifted are calling every strategy for 2020 to leverage all of the great options that are already available at noodles in company.

In early April we introduce family meals, which allow gas to cultivate connection company and comfort.

Guess can choose from one of four family meals in each meal comes with two sides.

Hurting there's plenty to eat for every member of the family was some leftover for lunch the next day.

At $40 or family meal serve for people for less than if they were ordered individually.

These affordable family meal showcase the great variety and her menu with favorites from kids to adults healthy too indulgent uncomfortable to adventurous.

Additionally, with each family meal purchase the company is donating a regular sized entree to healthcare workers on the front lines.

The success of the family meal listen facilitated by our increasing ability to target and engage with our desks through our rewards program.

Which has grown to over 3 million members since its launch last fall.

We plan to continue enhancing the guest experienced by evolving our menu to accommodate dietary preferences and broadening how guess he's our digital channels to get the noodles. They love from the comfort of their own home.

Bar strategies over the past several weeks again safety convenience and value.

Have allowed us to navigate the current environment from a sales perspective, we've also taken significant steps to improve the overall financial health of the organization.

Not for nobody can to discuss some of these actions in more detail.

Thanks, Dave I'll start by saying that the focus on strengthening our balance sheet and improving our operating model over the past eight quarters put us in a position of strength as we entered the current environment. This included completeness successful and favorable amendment to our credit agreement in late 2019, which increased available liquidity well before the onset.

The crisis.

Our financial responses centered around preserving liquidity, while ensuring that we execute on the strategies that Dave mentioned safety convenience in value.

Early on during the crisis, we significantly reduce all non essential spending at both the restaurant in corporate levels from a cat backs perspective, we have delayed the majority of our planned new unit growth for 2020, and we are currently we currently anticipate for your open aims of between two and four restaurants.

Recently, we have temporarily postpone the kitchen of the future initiative that we have discussed a prior earnings calls in order to preserve liquidity as opposed to ensure a proper testing environment. Once we restart the initiative.

From a penal perspective, I'll start with our general administrative expenses.

In response to the uncertain environment, we performed a thorough review, our corporate cost structure and meaningfully reduced our corporate overhead.

At the restaurant level, given lower sales volumes in the closure of our dining rooms, we moved quickly to optimize or up pretty model, which included eliminating or postponing most non essential spending and modifying our labor deployment model to reduce the number of labor hours when restaurants spell below a certain sales levels.

These measures much more than offset the increased costs associated with the crisis such as the investment made in enhanced cleaning procedures the transition to all off premise packaging and higher costs associated with third party delivery.

Turning to our cash position as previously announced we drew down $47 million on a revolving credit facility in March and an early April we drew down an additional eight and a half a million dollars.

As of yesterday may 5th we had approximately $61.1 million up cash on hand.

And while the situation continues to evolve we estimate that the steps we've taken to preserve liquidity will allow us to have adequate cash on hand through 2020 and into 2021.

At the comparable sales decline we've seen in the most recent three weeks, 36%, we estimate that inclusive of all general administrative cat backs and interest expense are Casper and we'll be approximately $3 million per month, given us sufficient liquidity for well over a year even at the recovery is lower than expected.

Once dining in his resumed we believe we can remain cash neutral on an ongoing basis encompassing all company expenses, if comparable sales are down approximately 20% for an extended period of time.

Finally, as previously announced given the uncertainty of the impact and duration of the Coby 19 pandemic, we have withdrawn or previously issue guidance for fiscal 2020.

Bedside I shared Dave's optimism that in the long term the strength of our recent initiatives any improvements made to the economic model over the past several quarters will allow us to successfully navigate this downturn and ultimately emerged even stronger competitively.

That turn it back over to Dave.

Thanks can.

The covert 19 pandemic has cost of destruction and our business greater than anything we've seen in my 16 years, the noodles and company.

Watson heartbreaking to see the impact that the crisis has had on the restaurant industry and the cursor what the future will bring particularly for noodles and company I.

I do believe that when All's said and done are strong business will actually becoming stronger.

Are strong I premise business will be able to me changing consumer behavior store continued investment in initiatives like direct delivery and curbside.

Are strong connection and loyal to with our gas will deepen as we engage with them through our rewards program on our digital platforms.

And hopefully soon when we welcome them back into our restaurants.

When in restaurant dining returns our guests will find a safe in clean environment for sharing a meal with their family and friends, which not only meets all regulatory requirements, but also surpasses their expectations.

Are strong unit in earnings opportunity in the long term will actually be enhance the relief organization position to take advantage of a more favorable costs environment.

Finally, and most importantly.

A strong culture built around care love and pride in operational excellence has been galvanized business event.

As a team has risen to nurse inspire every team member casting to me we serve.

I'm, so proud of our team and all of our business partners in how they've addressed this unprecedented about.

Throughout the past few years, we've successfully position the brand from a coronary operational and off premise perspective, allowing us to navigate this downturn.

Well, there's much hard work ahead, I feel breed about our position today and I looked forward to capitalizing on new opportunities as the economy recovers.

You like to again, thank you for joining us on the call today and will now turned over to any to open the lines for Tonight.

Ladies and gentlemen, if you have a question I just find please press the star and then to number one key on your thoughts tone telephone you kept question has been <unk> are you wished anymore, just sounds from the queue <unk>.

Consensus we have a first question from and the various from Latin calf with your lighting else. Okay. Yeah me I feel question.

Yeah, I hope you're doing well.

Just wanted to see if you had.

Seen anything different in sort of sales mix.

In this during the crisis, some any an increase in that sudler Collie noodle mix, you know kind of stay healthier items or or consumers kind of still staying with a balance and you don't want their comfort food like Mac and cheese, you know from time to time as well.

No. It's a good question area and so at the very onset of this first of all I think it as a whole we didn't see a tremendous shift.

The menu mix itself, but as a whole at the first couple of weeks, Yes, you did see people gravitate a bit more.

Towards the items that were a bit more on the comfort side of the ledger, we have seen that transition over the past few weeks to be much more on the healthy side, particularly around the doodles Macaulay poodles.

That's another reason why we're starting to see some pick up in our momentum actually looking at our next evolution of the family meal being one that really highlights that call. It's literal in the sixties it'll itself. So long story short, yes, so little bit of shift towards compare early on and now it's swing back towards how.

And then on the sort of how your getting food to the gas are you.

Anticipate I guess, you know slowly opening some dining rooms does curbside continued to play a part is that something you will you will continue to do on a on a regular basis in those.

A majority of stores, where you can do it.

Yeah, we absolutely we're very excited with what we see with curbside. It was on the initiative Blessed actually before this crisis. Even started so I think our teams have executed welcome the gas or certainly responding so Andy we do.

Despite the it'll stay except for in you know certain locations, where the facility itself just doesn't allow it.

Okay. Thanks, guys.

I mean, everyone. If you would like to ask this question at this time, please specify and then to number one key on your attached on telephones.

Our next guest since comes from blind off and chose to take some be in most hobbies.

They're like it's open.

Hey, good afternoon, it's actually identified for Andrew today. Thanks for taking your question I was hoping you could just provide a little more color on the cop in terms of any geographical differences in performance, maybe seeing as well as any differences in performance by date or or a weekend very sweet day, it's kind of curious how mixers shifting into current environment and if there's any.

Yep.

You know I think there that I'm glad you asked that question and we've actually been somewhat surprised over this whole crisis that.

In almost all geography is dayparts, you've seen a pretty pretty similar impact across the board, we do see certain markets.

That are not back currently having as much from the restrictions on the stayed home orders and so on that seemed to be performing a little bit better, but it's overall pretty consistently.

Pretty consistent results across the geography is from a day perspective, we tended to do a bit more dine in business on the weekends. So correspondingly.

A little bit.

Word declines during the weekend somebody during the weekdays.

Just singly over the last few weeks a lot of the momentum that we've been.

Seeing has been kind of it that more traditional dine in timeframe, whether it be dinners or even on the weekends.

Great appreciate the color there and then.

Two weeks smaller part if your business. That's part of your account perspective could you maybe just provide insights and how your France I.D.'s are doing you can you speak a little bit more about the ongoing communication between yourself and the franchisees what they're telling you were asking for as well as any actions are taking a support them from according to your operational perspective. Thanks, Yeah.

I think we're very fortunate down and then we have a very strong and capable and passionate franchise organization that Fortunately they've seen the strengthening in the business that we saw prior to this crisis. As a reminder, we really don't have too many franchisees they tend to be a larger entities.

That are more well capitalised that said, we started may recognize the impact that the crisis has had on on their businesses as well. So we have we have allowed them to differ.

Franchise fees is we're and royalties for the time being to help them to shore up their liquidity position.

Immensely proud of how our franchise community has risen to this challenge as well.

Thank you very much.

Thank you we don't have imagined question from the line.

By led from fund Chess your lines open.

Great. Thanks for taking the questions.

First Ken I'm, starting to do this but my line wings that went out for for about a minute and see with my associate in the second on on another line. Some I'm, assuming it may be happened to others, but it happened right when you're starting to talk about G.N.A. and and.

I think you're thinking about for G.N.A., you're you're going into the genie than the cap X. discussion. So I missed all that it could maybe just recap of real quick.

Yeah sure J. not a lot of detail in it but from a Genie perspective, we went through every line item in our costs structure I took meaningful reductions, where we could say that you know the old.

Definition of fixed versus variable expenses, we dug into that and and beat that up pretty good so feel comfortable with G.N.A. savings that we're seeing.

I'd say that I mean, a lot of it we were able to find just in the non labor type expenses, Jake as well whether it be at the restaurant level or at the corporate level. So we we talked about coming out of this crisis as a leaner organization a lot of that comes from some of the services and consulting another travel et cetera that we that we feel.

We don't necessarily need in the long term.

Where did you pick do do you know where you picked up on.

Pick the I can call for the burnt right before the burden rate I'm talking about the burden rate discussion.

So I heard that part, but I didn't I think everything between it's about a minute that was it was blink.

So so but we can chat about it later if there's anything you feel it's important I missed and maybe maybe the next color can see a big I'll also missed it. Our next question here, but it can you hold their hand it all in terms of what you think gene they will do versus 2019, meaning meeting how much how much lower you'd expect it to be.

Yeah, I think it can maybe you can talk for a little bit on the couch on the Casper and as we talked through our current levels. We expect the current same for sales metrics that we would lose roughly $3 million a month can come up here. Some of the components are that yeah sure. So the $3 million cash for interest to quick overall.

Also from a restaurant perspective, we'd expect the restaurants to be generally slightly cash positive.

We expect originator on around two and a half million. This is on a monthly basis.

And then our cat backs would run approximately 800000 somewhere that range, yeah, and those are all on cash basis, Yeah, that's very hush.

Great that that's really helpful and then yeah.

Can you may be talking about what what actions you were taking you know from here to keep the improvement going in and I'm wondering whether you you're going to your cleaning and adding to more than 350 stories added me on you know the curbside.

When we should expect some these new family meals to come down. The line you know any anything like that maybe some promotions in in you know maybe.

In answering that if you could reminder, how long how long you were doing the free delivery offered I think was initially planned on lasting through March but he's had it's kind of a.

You could try again to to to to keep this momentum going.

Yeah, there's ample takes a impact or take so whatever I missed please follow up on from the overall innocent perspective, I'm very proud of how the team has responded to accelerating. So this is that we really already had in the pipeline, but just really fit for the the needs of today's consumer which you can expect.

On an ongoing basis will still be doing quite a bit of emphasis around our rewards program around our digital digital capabilities digital media as well that will just continue to move forward curbside itself 350 restaurants is probably I mean, then that's the vast majority of our system, that's probably wherever ultimately land because.

[noise] excuse me because.

Certain restaurants don't have the facilities.

[noise] apologize for that.

Well, but you will see is on the curb side, we will continue to enhance the technology and how it's used at the restaurant.

From a family male perspective, probably just in the next few weeks you'll see us.

Introduce that healthier version, but it will still be doing some innovation around.

To use this from a dietary preference, whether you're somebody's paleo or Quito.

Whatever type of diet, you're on I think the trends that we've seen over the last couple of years about diet is becoming more and more personalized we'll just continue.

To accelerate over the next several weeks and months.

Okay, and then and then lastly Ah. This is for you gave I should probably give you a chance to.

You get your voice back but.

What is the strategy in terms of reopening stores you you have a number of stores in in market said, which you're allowed to you know any sort of pace on that you could share with US now you know any maybe sort of kind of broader you know I'm sure.

Gate Gate, you expect you you want to see before you do that.

Yeah, we're not I'll tell you were not in a rush necessarily to open the dining rooms, Jake because we have such a strong off premise business as it is.

That said, we're actually prepared to open dining rooms provide our guest.

Team members of safe and healthy environment that again needs the regular regulations and surpasses guest expectations, we're ready to do that.

Reasonably soon as markets open up but well we're going to look at is we're going to take our cues from not just the regulatory agencies, but also the gas we've been one of the for we're one of the first national chains to shift to an off premise only model very early on began executing a lot of practices that then because.

Came commonplace throughout the industry those will remain in place or there'll be boat bolstered by additional safeguards that just plexiglass temperature checks.

We're pretty much ready to provide a really great and safe environment for our gas, but we don't necessarily feel the need to rush into it.

Given that we already have such a strong on premise business.

Great I appreciate it.

Congratulate improvements.

Thank you.

I can everyone I question, you will need.

Brass are one.

Oh, your thoughts tone telephone again that into the star one on your Batstone telephone.

They're not find a question from the lime consensus I will know tend to fall back today huh.

No. We just want to say appreciate everybody, taking the time to join the call today.

Excited about what the future will bring obviously unbelievably challenging times, but I think the brand has risen to the challenge with a greater future ahead. Please stay safe.

<unk>, let's do these conference calls give me now disconnect. Thank you for speeding.

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