Carrols Restaurant Group Inc. Q1 2023 Earnings Call
Speaker 1: That but that that, that.
Speaker 1: Good morning, ladies and gentlemen, thank you for standing by.
Speaker 1: at that time. I would like to remind everyone that this conference is being recorded today Thursday May 11th, 2023 at 8.30am Eastern Time and will be available for replay.
Speaker 1: I will now turn the conference over to Jeremy Watches, Carol's Senior Director of Finance. Please go ahead.
Speaker 1: turn the conference over to Jeremy Watches, Carol's Senior Director of Finance. Please go ahead. Thank you operator and good morning everyone.
Speaker 2: By now, you should have access to our earnings announcement released earlier today and our earnings presentation that are both available on our website at www.carls.com under the Investor Relations section.
Speaker 2: Before we begin our remarks, I would like to remind everyone that our discussion, including answers to questions posed to management, may include forward-looking statements or comments with respect to our strategies, intentions, or plans in the future direction of revenues, input costs or other aspects pertaining to our business. These statements are not guarantees of future performance and therefore-
Speaker 2: The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with generally accepted accounting principles.
Speaker 2: And a reconciliation to comparable GAAP measures is available with our earnings release.
Speaker 2: With that, I will now turn the call over to our new President and CEO , Deborah Derby.
Speaker 3: Good morning, everyone, and thank you, Jeremy. I'm delighted to be speaking with you this morning on my first call as Carol's new president and CEO . As I just finished up my first week on the job, so to speak, I will keep my initial comments brief and then turn the call over to Tony and Greta to discuss the details of our spectacular first quarter.
Speaker 3: First, I want to reiterate how excited I am to be part of the Carols team during this dynamic period. As some of you may know, I have served on the board of directors of Carols for the past five years, so I am familiar with the opportunities and challenges of the business, as well as the outstanding people that make up the company. I have seen the team persevere during one of the most challenging business environments of our time.
Speaker 3: and it is great to see the results of their hard work finally beginning to flow through to the bottom line. Check in, I want to thank our partners at RBI and Burger King on their recent diligent efforts to reinvigorate and reinvest in the brand and their franchisees. Those efforts are also starting to yield results.
Speaker 3: I spent my first week in Syracuse meeting with our corporate team as well as training and working in the evening shifts to one of our local Burger King restaurants. From that experience, I have renewed appreciation and respect what our team members do. My takeaway from my various interactions last week is that we have an incredible group of talented, engaged, and dedicated employees who are passionate about the company, our brands and our customers.
Speaker 3: And I am confident that this is the foundation which will serve as the springboard for our continued future success and upon which we will continue to grow our business.
Speaker 3: Thank you for your time today, and I look forward to our continued dialogue during future earnings calls. I will now turn the call over to Tony Ho, our CFO and Treasurer.
Speaker 4: Thank you, Deborah, and good morning everyone. We're thrilled with what we were able to achieve in the first quarter of 2023. This included posting 11% growth in total restaurant sales, delivering $30.7 million of adjusted EBITDA and reducing our net leverage ratio to 5.2 times.
Speaker 4: In the first quarter of this year, our comparable sales increase of 11.7% at our Burger King restaurants was driven by menu price increases and lower promotions and discounting, which together resulted in a low teens increase in average check.
Speaker 4: Combined with moderating inflation and our continued focus on operational efficiencies, we were able to flow much of the $46 million year-over-year increase in sales during the quarter into higher adjusted restaurant-level margins, which improved 12.2%. To put this in perspective, this is our best first-quarter restaurant-level margin in the last two decades.
Speaker 4: year and bounce on a revolver and reduced our net debt leverage ratio to 5.2 times. A reduction of almost two full turns relative to the 7.1 times reported at the end of 2022.
Speaker 4: On the sales run, top line growth was aided by the repositioning of promotion of discount strategies by a franchise or with stroke higher sales of full margin products, along with the cumulative impact of menu price increases taken over the past year.
Speaker 4: These actions combined with renewed brand equity investments from the reclaimed inflame effort and laughing weather-related softness from a year ago resulted in only a slight traffic decline in the face of an average check increase of 13%. This turned out to be a winning formula for us and when we expect we'll continue into Q2 of this year.
Speaker 4: With that, let's discuss the progress we are making in our restaurant operations. The quarter produced continued sequential and year-over-year margin improvement driven by increased flow-through on our higher average check. In fact, our food packaging and labor costs only increased $7 million compared to Q1 of 2022.
Speaker 4: against the $46 million revenue improvement.
Speaker 4: The margin leverage we saw in labor was especially encouraging, considering we also expanded our hours of operations and simultaneously reduced labor hours on a year-over-year basis. Additionally, we saw deceleration in wage increases and a dramatic moderation in team member turnover during the quarter, aiding both efficiency and the guest experience. At the same time, these beneficial operating trends unfolded, and we saw a dramatic variation in the number of workers who were in the labor market.
Speaker 4: We meaningfully improved our guest satisfaction scores during the first quarter as compared to the same period last year, with an increase of over 35% at our Burger King restaurants and over 10% at our Popeyes restaurants.
Speaker 4: Just satisfaction is a priority for us and one we believe is a key driver of repeat visits and incremental traffic growth. Overall we've made substantial progress on operations.
Speaker 4: We're among the top operators in the bircing system, but we continually strive to be the best.
Speaker 4: In terms of capital expenditures, we expect to maintain our spending at approximately $40 million for 2023. However, as a result of the financial subsidies we expect to receive from Burger King as part of their Reclaim the Flame initiatives, we have been able to increase the number of high teams return remodel projects we have undertaken.
Speaker 4: In addition, under our franchiseors World Reset Program, we are able to proactively upgrade our restaurant digital technology over the next eight months and no incremental cost to carols, as long as we match those investments with equivalent spend on restaurant maintenance and improvements.
Speaker 4: Overall, in the past two quarters, we believe we have showcased the power of our operating model when we have sustained solid top-line growth and a renewed focus on operational excellence.
Speaker 4: While we are pleased with our results to date, there is much more to be done. We are excited about the positive momentum in our business and what we believe we can achieve during the remainder of 2023 and the years to come.
Speaker 4: Before I turn over the call to Greta, I'd like to touch on some of our thoughts for the remainder of the year.
Speaker 5: First.
Speaker 4: We are optimistic about the positive traffic impact, the incremental marketing from the claim the flame could have on our business as additional initiatives are rolled out through the remainder of the year by our franchise or.
Speaker 4: Second, as I mentioned before, we have seen our average check improve favorably over the past two quarters driven by reduced discounting and menu price increases.
Speaker 4: This has provided us with an opportunity to expand restaurant margins and drive evit dog growth.
Speaker 4: As we look to the back half of 2023, we do not anticipate the same level of average check benefit for two reasons.
Speaker 4: One, as inflationary pressures ease, we expect that our ability to raise menu prices in tandem will moderate. And two, we will lap our recently improved promotion and discounting profile in the third quarter of 2023. Consequently, we believe that positive changes in the trajectory of traffic trends in the back half of 2023 will increase.
Speaker 4: will be the most meaningful driver of comparable sales growth. Finally, our top priority remains, fortifying our balance sheet and reducing our net debt balances.
Speaker 4: We expect to stay the course on organic growth and do not currently anticipate making any multi-unit restaurant acquisitions, increasing capital expenditures over the approximate $40 million we've already communicated, or returning cash to shareholders in 2023.
Speaker 4: In closing, it has been a pleasure working closely with our talented management and restaurant operations team for the first four months of 2023 as interim CEO .
Speaker 4: I am proud of what we were able to achieve together and look forward to working with Deborah and supporting her efforts to continue to build upon the positive momentum we have generated over the past year.
Speaker 4: With that, I will now pass the call over to our Controller and Assistant Treasurer, Greta Miles, for a detailed discussion of our financial results.
Speaker 6: Thank you, Toni, and good morning, everyone.
Speaker 6: Restaurant sales in the first quarter increased 11.4% to $445.2 million compared to $399.5 million in the first quarter of 2022.
Speaker 6: For the quarter, comparable restaurant sales at our Burger King restaurant increased 11.7 percent comprised of a 13 percent increase in average track, which was partially offset by a 1.1 percent decline in traffic.
Speaker 6: Comparable restaurant sales at our Popeye's restaurant increase 9.5%, comprised of a 10% increase in average track and a 50 basis point decrease in traffic. Turning to our expenses, our cost of food, beverage, and packaging improved 260 basis points.
Speaker 6: the 28.2% of restaurant sales as commodity inflation of approximately 8% was more than offset by the positive benefit from pricing actions and lower promotional discounting.
Speaker 6: Beef averaged $2.53 per pound during the quarter, which was a 7% decrease from the same period last year, but has risen to the mid-280s in the last few weeks. From where we stand today, we expect commodity inflation to be in the mid-to-high single digits for the second quarter of 2023.
Speaker 6: Restaurant labor expense decreased 260 basis points to 32.9% of restaurant sales as labor inflation was more than offset by reduced labor hours and the impact of pricing actions and lower discounting. Average hourly wage rates for our team members before overtime increased by 5.6%
Speaker 6: million dollars and decreased by about 80 basis points to 15.5% of sales.
Speaker 6: The dollar increase was driven by higher royalties on higher sales as well as higher utility costs. Rent expense decreased 60 basis points year-over-year as a percentage of sales compared to the prior year period, primarily from the benefit of higher sales on fixed rental agreements.
Speaker 6: General and administrative expenses of the percentage of sales increased 30 basis points year over year due to incentive compensation accrues that were absent in the prior year period.
Speaker 6: excluding non-regorant costs as well as stock compensation expense and including the impact of higher incentive compensation across this year relative to last year. We anticipate 2023 GNA expense of 23 to $24 million per quarter.
Speaker 6: or 1 cent per diluted share compared to net loss of $21.3 million or 42 cents per diluted share in the prior year period.
Speaker 6: On an adjusted basis, first quarter net income was $7,000 compared to an adjusted net loss of $17.1 million, or 34 cents per diluted share in the prior year period.
Speaker 6: Free cash flow for the first quarter was $1.1 million, a significant improvement compared to negative free cash flow of $39.1 million in the same period last year. As a reminder, our first quarter cash flow included our final $10.8 million repayment of the deferred FICA obligation.
Speaker 6: In the first quarter of 2023, we used free cash flow generated along with cash on hand to pay down our outstanding revolver balance of $12.5 million in full. Cash in cash equivalents was $4.9 million at the end of the quarter and long-term debt, including the current portion and financial lease liabilities, was $478.7 million. Our overall interest rate on our debt this past quarter was 5.8%
Speaker 6: to answer any questions that you may have. In addition to Deborah, Tony, and myself, Joe Hoffman, our Chief Restaurant Officer, is also available during the Q&A session. Operator, please open the line for questions.
Speaker 1: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. If at any time you wish to remove your question from the queue, please press star 2.
Speaker 4: for participants using speaker equipment, and maybe necessary to pick up your handset before pressing the star keys. Our first question is from Joshua Long with Stevens. Great. Thank you for taking my question. It was hopeful we could talk through the underlying competitive environment and also some of the operating initiatives that you've been working through. It seems like.
Speaker 4: getting some momentum there and was curious just any sort of trends you can share by day part what you're seeing by you know from the consumer and Just how generally the first quarter shaped up versus your expectations
Speaker 5: Sure.
Speaker 4: So on the day parts, you know, we made a concerted effort to increase our hours of operation.
Speaker 4: So I think from a competitive standpoint in terms of our results we saw a pretty significant
Speaker 4: increase in traffic from the 8 p.m. on time periods. So that's been very well received and well executed. So that's both operational and competitive, I think.
Speaker 4: From the consumer standpoint, we're seeing a continuation of what we saw last quarter, which is...
Speaker 4: The number of items per transaction is pretty much flat, maybe down a percent or so. We're seeing a little bit of reduction in soda add-on. That's one end of the spectrum. Higher coupon usage, higher digital coupon usage.
Speaker 4: We think that's trade down, which is obviously going to, we think is going to continue to be a positive driver throughout the year.
Speaker 4: And the other thing that's continuing to show strength in the first quarter was delivery. So really, you know, you're seeing, you know, sort of both ends of the spectrum on our customer.
Speaker 4: changing behavior slightly, but it's all working in our favor. So we're excited about that.
Speaker 4: That's helpful. Thank you. And maybe digging into some of the additional hours and maybe that late night day part that you talked about things in the past, we talked about part of that was going to be a staffing.
Speaker 4: pick up or just a normalization of the staffing environment, but I also believe that you had shared previously that you were able to do more with less in terms of just being more efficient with a smaller number of team members at the store level and really focusing on just utilization, efficiency, etc. Can you talk about that and what's the staffing environment look like at the store level and just what would your operational initiative?
Speaker 4: able to actually reduce labor hours by about three to four percent. So you know that's really you know discipline coming out of COVID on the you know more productivity at the restaurants you know at the same time as we're you know increasing hours. But I'll turn over to Joe about the whole you know the overall labor environment.
Speaker 4: Yeah, I think from an operational standpoint, everything kind of clicked this course. The application flow has continued to be pre-coded level as of now. As the turnover continues to go down, the stability is greater in the restaurants than their former bar? fish.
Speaker 4: Great, that's helpful. One follow-up for me, Tony, to your comment on restaurant-level margins.
Speaker 4: strong results here in the first quarter. And then as we think through the back half of the year, it feels like some of your comments were pointing to the fact that maybe some of those year of year gained night moderate, but should we still be able to expect to see some, at least upside, as we think about, up on a year of a year basis in the second half of...
Speaker 4: on that restaurant level margin line item perhaps upside, but maybe just somewhat moderated versus what you printed in the first quarter here. Yeah, I think it's really, it's an unknown right now what the back half is going to look like if things continue to click the way they.
Speaker 4: for traffic, you know, the softer economy, I think we'll get more trade down. So it's really, you know, we've sort of locked in the benefit of lower discounting and price increases, I think, for the year. Now that's a question of, you know, what's going to, you know, how strong is the traffic and the response to reclaim the flame and also our operational.
Speaker 4: the softer economy, I think we'll get more trade down. So it's really, you know, we've sort of locked in the benefit of lower discounting and price increases, I think, for the year. Now it's a question of, you know, what's going to, you know, how strong is the traffic going to respond to reclaim the flame and also our operational improvements.
Speaker 5: Great. Thank you. Our next question is from Jeremy Hamlin with Greg Hallam. Thanks and congratulations on the strong results. Debra, welcome to the team.
Speaker 5: Thank you, Jeremy. I wanted to start just by making sure that I understood expectations around menu pricing for the remainder of the year. So, you talked about menu price average check, I think, was up 13% here.
Speaker 5: In Q1, I wanted to understand where menu pricing was specific to Q1, and then what you're thinking in terms of menu pricing in Q2 and then the back half of the year. Sure. I'll take that. And.
You know, menu pricing was 9.7% to put a five-member on it in the first quarter. We did, you know, included in that was about a 3% increase we did in the latter part of March. So I think that 3% is going to continue to help us obviously in the second quarter.
So I think we'll see maybe a slightly lower number in the second quarter, because we're rolling off a May increase in the second quarter, May increase from 22. But still in a high single digit type area. For the back half of the year, we're eyeing September as the next time we do a price increase, but really that's gonna be highly dependent on what the inflation picture looks like and what the consumer behavior's looking like. So if we're in a softer economy and inflation, commodity inflation is starting to come down as we expect, or maybe more than we expect.
We probably have less ability to raise prices. And I think at that point, the focus would be on a little more value offering to our consumer affordable values. So that's sort of how the year played out. But I would say the most.
The most striking thing, you know, and I also say in the back app, we're we're gonna still be at this nice discounting level. So we don't expect that to change and in our discussions, we don't, you know, with our franchise or we don't expect that to change. So, you know, I think the back app will get a really strong foundation on the average check side. So...
we'll be able to flex depending on what the environment throws our way, the economic environment throws our way. But I would point out Jeremy that the fact that we were able to have that price, the average check increase in Q1 of 13% with only a modest.
very modest traffic impact. We were pretty happy about that. That was more than, you know, it was definitely above our expectations on both such to that equation. So we were really happy with the results. And we're really happy with the sequential traffic, you know, that we're seeing at quarter to quarter. So.
Definitely feeling it, you know, in a good spot for the rest of the year. Just to clarify what that meant, you're saying the traffic has improved slightly from Q1? No, no, I was saying Q4, if you want.
feeling it you know in a good spot for the rest of the year. Just to clarify what that meant you're saying the traffic has improved slightly from Q1? No no I was saying Q4 to Q1. I see.
So then I wanted to ask about the reclaim, the flame, and the media spend that's on tap. It hasn't really been turned on yet.
But I was hoping you might be able to provide a little bit more insight. We heard from Parent Company. Clearly there's quite a bit of enthusiasm. There's quite a bit of, you know, social media buzz around the BK brand which, you know, really has been, you know, been kind of a market share loser over the last several years.
It does feel like there's a little bit of inflection happening here, maybe across the quick service industry, but certainly for the BK brand. I was wondering if you could just provide a little bit more insight as to how you think that is going to impact the market.
results and where you think the thrust of that spend is likely to come and benefit you know BK franchisees like you guys.
I'll jump in here. I think we're pretty excited with the results that we've seen so far from their initiatives in the first part of the year. And we know that's actually a relatively minor part of the spend and that more of that's going to come in the second half. So I think there is some good energy around that in terms of the timing. I believe there is one coming in mid-May that we're going to see shortly. And then...
to be coming up against with the traffic, with the discounting and other things there. So like I said, very optimistic about it.
Great. And then one also asks you just about, you know, food costs, it does sound like you're continuing to see some moderation on food price inflation. One see, you know, one I might have missed this, but you know, what was the ground beef per pound in Q1?
kind of where is it tracking so far in Q2? And then are there any changes in terms of, kind of the mix in business, obviously, media spend and marketing has really been centered around the Whopper, but are there any other changes that we need to think about in terms of your...
your food cost basket, other proteins that are meaningfully changing one way or another.
baskets, other proteins that are meaningfully changing one way or another.?.
Importantly, beef has been doing exactly as we expected for the year and it's continuing in the path that we had anticipated. In the prepared remarks we did mention $2.53 per pound for beef in the first quarter and that was about 7% less than the first quarter of last year. We have seen that rise to the mid-280s in the last few weeks.
to the mid-280s. That's right. Okay. I mean, again, that's what's just happened because of the supply-demand dynamics happening in that industry. We're a little bit sheltered versus some of our QSR competitors. We're a little bit sheltered versus some of our QSR competitors.
because, you know, a good chunk of our beef is kind of pre-purchased on a, you know, internationally. So we don't get the whole brunt of it, but we're definitely seeing the USB market do what we thought we would do, which is, you know, there was a calling of the herds, so that put a damper on supply, and then we get, as we get into the summer months.
There's increased demand as there is every year. So we expect that to continue for maybe a few months. And then...
It will start to, as it has typically, start to come down starting the third quarter and the fourth quarter. Got it. But fair to assume that your cost of sales percent would track up here in Q2.
probably more than 100 basis points I would assume. There's a lot. I mean, if that's what you think, that's great. I'm sorry, I didn't hear that answer.
I'm just saying there's a lot of moving parts in that equation so I wouldn't jump to that conclusion necessarily.
And the impact of the lower pommels and discounts had a huge impact in our cross-stays margins. So like we said, I mean, we saw like an 8% commodity inflation in the quarter, but it was more than offset by the positive impact we had from price and pommels and discounts and getting our average checkup to a place to kind of offset all the inflation we've seen in the last quarter. So here's the quarter's adventure.
Great, thanks for taking the questions and best of luck on the continued momentum. Thanks, Erin. Thank you. Our next question is from Jake Bartlett with Truist Securities. Great, thank you so much for taking the question and also welcome, Deborah. Great to have you on board. My question is on the momentum in the business and if you could help us understand...
We had a pretty catchy jingle throughout the quarter, early in the quarter. So I'm just wondering on momentum and specifically whether that's continued quarter to date.
Yeah, I would say the monthly
you know, the monthly results aren't that informative because we had some weather lapping and you know some huge weather in January 22 plus COVID, believe it or not, was still pretty rapid in January 2022. But anyway, so I just it was pretty even month to month, you know, if you take those facts.
You know, we think this quarter is going to be a high single digit type number based on what we've seen sort of halfway through the quarter sofa.
Great. That's really helpful. And then, you know, I know there's a lot of moving pieces here, but I'm wondering if you can kind of rank order the drivers to the same for sales in the first quarter. I remember, I think it was the fourth quarter that you attributed most of the improvement to less discounting. So I heard you talked about it. I think it was three and a half percent more hours. There is still a lot less discounting year over year. So I'm wondering if you can kind of rank order the drivers to the same for sales in the first quarter. I think it was three and a half percent more hours. There is still a lot less discounting. So I heard you talked about it. I think it was three and a half percent more hours.
You do have the reclaimed flame promotion or campaign kicking in. How would you rank quarter the drivers to the strong things you're selling in the first quarter? Number one was menu price increases. Number two was lower discounting.
or campaign kicking in. How would you rank quarter of the drivers to the strong, the fencer sales in the first quarter? Number one was menu price increases. Number two was lower discounting.
And I think the other, you know, I think customer service, which is what we can draw operationally, has been dramatically improved. So I think that was very helpful.
Obviously, our cooperation improving was there. And then I think that the most from an operational stimulus to be for Joe, but I think that the consequential positive impact of lower turnover.
is going to be where we add to the traffic the most between happy customers and repeat customers. I think that's going to really help drive our numbers for the rest of the year.
Right. And then my last question is on the commodity outlook. It sounds like you're expecting commodity inflation to be about the same in the second quarter versus the first. Any more visibility on the back half, just the year as a whole, whether you... I think my expectation is that commodity inflation is going to...
decelerate for you by the back half of the year, but I just wanted to get your perspective and you know is that a valid assumption or you know is it still very much up to me or your view? We would agree with with your conclusion on that or your assumption on that, sorry. It's going to decelerate, we think it's going to decelerate in the back half. Okay, would you think it would decelerate but remain?
inflationary or I mean is there is there a possibility that we I mean I don't you know I guess the answer is you know I think it's going to be the economy you know it's going to be the economy that I mean if we go into some sort of
in that period. But either way, I think it's going to decelerate.
Got it, great. And then really the last question is, I think it's going to come out in the queue, but what was the level of the percentage of promotional sales discounts? I think last first quarter was 18%. I have 14% in my model, but what was the actual number in the first quarter? I know it improves seven off the basis.
So seven. Wow. For Burger King and for seven other basis ones. So it's it's it's it's it was low. It was low. It was low. Double digits, you know, low teams.
Wow, okay, and do you think that level is going to continue for the rest of the year? You know plus or minus, you know.
I think it's going to continue, plus or minus a small number, it's going to continue. Again, we don't think that's going to change dramatically as the year progresses. It's great to have that. We view that as the...
it. Our next question is from Hale Holden with Barclays. Hey good morning I had to
sounds like you work nights most of the week but any thoughts?
Well, first of all, nice to meet you, Hal. Very excited to be here at this time. I think there's just great momentum in the business already. It's an exciting time, both from internally at Carol's and what's going on and some of the initiatives that Joe and his team are working on, and also simultaneously what's going on with our franchise or and the whole Reclaim the Flame. So like I said, in the five years that I've been on the board, this is probably the most exciting.
the company. I think there's opportunities for cost efficiencies and leveraging our economies of scale. So at a very high level, those are the types of things I think we'll be digging deeper into. There's been great work done in the past by both, you know, Apollo and others to kind of identify some of the operational issues and we'll be fine tuning those and really
focusing on those that are going to deliver the biggest impact and going from there. Great. The other question I had was, it would seem to me as we go forward, whether there's a shallow, no recession, deep recession, however you want to define it, that the level of promotional intensity that you might have in the back half of the year will be probably one of the bigger drivers in terms of where margins go. I was wondering if you could talk about your ability to hold promotional cadence at the depth of promotion that you're seeing it now, or do we think it's going to possibly...
deepen or increase? You know, I think we're very aligned with our franchisor. Obviously, they're very interested in keeping the, you know, they worked hard to get to the promotion level we are at now and they are focused on, you know,
So I think we're all aligned. So I feel really good that, you know, if it does change, as I said in the last answer, I think it's going to be, you know, a point or two, not 600 points or something like that. So, you know, I just think it's great that we're all aligned. And I think that's going to keep, you know, and that is something that, you know.
it's something they they control but I think we're I think we're on the same page on that one so I feel very confident that that'll go our way. I think another thing to remember is that we always focus on our competitors as well to make sure that our price point and our average track is providing a good value for a customer.
that could impact that, but we feel like we're in a very competitive place with our direct competitors on our price.
Great, thank you so much. I appreciate the time. Thanks. Ladies and gentlemen, as a reminder, to ask a question please press star 1.
Our next question is from carlic casselllo with J P Morgan hi most of my business questions have been answered if there's just one debt question you mentioned that you've locked in some rates on the term moment I'm wondering if the interest rate hedges you put in place limit you from kind of prepaying term loan if you look to repay thatb and you've.
I mean, yes, we could pay down some more, but not very much, as you're pointing out, because we want to take advantage of the rub, and we don't want to be exposed beyond our outstanding on the terminal B on the hedge. So – Let me make sure I welcome George Explwinger here, because we've done an interview recently
I think the one message that we want to make sure comes across is that we're going to continue to focus, we're going to stay the course on deleveraging. It may be deleveraging because of increasing cash, which is netted out of the net debt number. At this point, we haven't really, that's really the most we've discussed with the board is stay the course. You know, it's not.
Ladies and gentlemen, we have reached the end of today's question and answer session. I would like to turn the call back over to Deborah Derby for closing remarks. Thank you again, everyone, for joining us this morning and for your interest in CARLS. We appreciate your time and we look forward to speaking with you next quarter.
Ladies and gentlemen, we have reached the end of today's question and answer session. I would like to turn the call back over to Deborah Derby for closing remarks. Thank you again, everyone, for joining us this morning and for your interest in CARLS. We appreciate your time and we look forward to speaking with you next quarter.
Thank you. This concludes today's conference. Thank you for your participation. You made this connector lines at this time. Thank you.