Denny's Corp (DENN) 2004 Q4 法說會逐字稿

Good afternoon. My name is Tasha and I will be your conference facilitator today. At this time I would like to welcome everyone to the Denny's fourth quarter 2004 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [OPERATOR INSTRUCTIONS]. Thank you. I would now like to turn the call over to Vice President and Treasurer of Denny's, Mr. Ken Jones. Go ahead, sir.

Thank you. And good afternoon or early evening for those of you on the East Coast. And thank you for joining us. Today with us from management, as usual, we will have Nelson Marchioli, Denny's President and CEO, and Andrew Green, Denny's CFO. Nelson will provide an update on the business and then general overview of the quarter and year. Andrew will then provide a financial review of our fourth quarter's results, as well as provide a business outlook for 2005. We will follow that up with our standard Q&A period.

But before we begin let me remind you that in accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, the Company knows that certain matters to be discussed by Members of Management during this call may constitute forward-looking statements. Such statements are subject to risks, uncertainties, and other factors that may cause the actual performance of Denny's to be materially different from the performance indicated or implied by such statements. Such risks and factors are set forth in the Company's annual report on Form 10-K for the year ended December 31, 2003, and in any subsequent quarterly reports on Form 10-Q. With that I will now turn it over to Nelson Marchioli, Denny's President and CEO.

Thank you, Ken and hello, everyone. And thank you for joining us today. Looking back on 2004, it is gratifying to see that the investments we have made in the Denny's brand and all of the hard work being performed throughout our organization are starting to show in our financial results. Denny's same-store sales for 2004 were our best in over a decade. Our Company restaurant margins increased 2 percentage points over the prior-year. We were able to leverage these operational improvements into a recapitalization that has put Denny's in its strongest financial position in 15 years. Not only have we reduced our leverage and our interest expense we greatly increased our financial flexibility, which will allow us to continue making the necessary investments in our facilities and operations to position Denny's for consistent long-term growth.

The recapitalization and our improved earnings are allowing us the opportunity to really invest in this business. And that is not a luxury that this brand has had in many, many years. While we have seen strong sales growth this year, we believe Denny's has the capacity for continued growth over the next three to five years as we make additional investments in our business. With all the progress we have made over the last four years, of which we are quite proud, we still have work to do. We still have restaurants, both company and franchise that need to be remodeled. We're increasing the pace of our remodels from 60 the past few years, to 80 in 2005. Our franchisees are expected to increase their remodel pace as well. We clearly have a very energized franchise system at this time, as they enjoy the success of this great Denny's brand.

We need to increase our average unit volumes, which were just under $1.6 million in company restaurants and 1.3 million in franchise units in 2004. Though these are all-time highs for this brand they need to be higher. In our restaurants we realized significant sales leverage as average unit volumes grow. While we are clearly top-of-mind in the breakfast day part, we need to continue making investments in order to build our credibility at lunch and dinner. The goal of increasing lunch and dinner business will not happen over night or even over a year. We are taking a measured approach that is focused on long-term growth. Our one key driver for expanding these day parts is to upgrade our menu offerings.

Our dinner menu has the furthest to go. But our Product Development Team is hard at work coming up with some exciting new items that will meet Denny's demands for quality and value. For example, we recently introduced a grilled Tilapia fish to our menu, which is now, excuse me, which is a great new nonfried fish offering. For lunch we offer a strong lineup of burgers and sandwiches, but we are always evaluating new items and new combinations that will be appealing to our guests. Another driver for our lunch and dinner business is to improve our speed-of-service. We will continue to invest in labor and systems to help us turn more tables and serve more guests. This year we will roll out a new point-of-sales system that, in addition to many other benefits, will speed order entry, as well as checkout times.

To support our growth initiatives we are strengthening our development infrastructure. We recently hired a vice president of franchise development and he is currently building his team and programs. We have increased the number of franchise operations managers in the field. These FOMs serve as partners and consultants to our franchisees. They used to cover close to 40 restaurants each. With additional staff that number is down to approximately 25 restaurants each. They used to visit every franchise restaurant once a quarter. Now they are in each restaurant two to four times a quarter. We feel the franchise system really benefits from this additional support, as do our guests.

2004 will be remembered as a milestone year for Denny's. Not because of our strong performance, but because it sets a stage for even greater success in the future. The Denny's brand has been re-invigorated and is poised to go to the next level. As always I thank you so much for your interest in Denny's. It is now my pleasure to turn the phone over to Andrew Green, our CFO, who will take you through our financial review.

Thank you, Nelson, and good afternoon. This is Andrew Green. Let me start by reviewing our fourth quarter same-store sales results, which Nelson mentioned in his remarks. I am pleased to report that our strong sales momentum continued through the fourth quarter as our Company restaurant same-store sales were up 5.8 percent. This increase was comprised of a 6 percent higher guest-check average, partially offset by a slight drop in guest count of 0.2 percent. The drop in guest-traffic was primarily from our decision to reduce a couponing program that we have run in the fourth quarter each of the last several years.

Now turning to the P&L. Sales at Denny's Company-owned restaurants decreased 7 million to 221 million in the fourth quarter. We were pleased with our strong same-store sales in the quarter. But they did not offset the $21 million impact of the additional week of operations that we had in 2003, as well as an 8-unit decline in company restaurants during the year. We were also pleased that fourth quarter company restaurant operating margin improved 2 percentage points compared with last year's fourth quarter. This improvement is summarized in the margin analysis table in our Press Release.

The largest contributor to the margin improvement was a 1.3 percentage point decline in payroll and benefits costs. As we have mentioned on earlier calls the two primary contributors to our labor and benefit savings this year have been a redesign of our medical benefits plan, which resulted in a 1.4 percentage point decline in group insurance costs for the quarter. And more efficient labor scheduling, which contributed 0.3 percentage point decline in restaurant payrolls for the quarter. The margin improvement in restaurant labor has lessened through the year as we started rolling over labor efficiency improvement that began to take effect in the second half of 2003. Now, partially offsetting these cost savings was a 0.4 percentage point increase incentive compensation for restaurant management, as a result of our strong performance this year.

Product costs for the fourth quarter improved 0.7 percentage points as higher commodity costs were mitigated by proactive menu management, as well as selective price increases. We are pleased with our efforts to hold food cost margins steady, given an extremely volatile year for commodity costs in 2004. While we have taken selective price increases to offset rising food costs, we have tried to keep them as small as possible. And so far, we have not met with significant resistance from our customers. We believe this is because we continue to offer a strong value to the consumer based on an abundance of food at an attractive price point.

Franchise and licensing revenue in the fourth quarter was down approximately 800,000 to 22.5 million. As on the Company side, strong franchise same-store sales of 5.9 percent did not offset the impact of the additional week of operations in 2003 and a 28-unit decline in franchise restaurants in '04. Franchise costs were basically flat year-over-year.

Turning to G&A. Our expenses in the fourth quarter increased approximately $7.7 million over last year, due in large part to the occurrence of approximately 5.2 million of stock-based incentive compensation expense attributable to stock options and restricted stock units. In addition, our strong sales in earnings this year resulted in a higher incentive compensation in the quarter of approximately 2.8 million, as our bonus payments for 2004 far exceeded our 2003 bonuses. Operating income in the fourth quarter increased 1.6 million compared with the fourth quarter of 2003, reflecting higher sales and improved margins.

Regarding the bottom line, we reported a net loss of 14.1 million for the fourth quarter, compared with a net loss of 13 million in the fourth quarter of 2003. This quarter's net loss was impacted by 12.2 million of debt repurchase premiums and other costs attributable to our financial recapitalization.

Moving on to capital expenditures. Our cash capital spending for the fourth quarter was approximately 14 million, bringing the year-to-date total to 36 million. Now, earlier this month we released our January same-store sales, which were up 8.3 percent, marking our 17th consecutive month of positive sales. While we do not expect the full-year to continue at this pace, we were very encouraged by such a strong result, particularly given that we were comparing against a 5.7 percent increase last year. January, 2005 sales did benefit from the inclusion of New Year's Eve as January 2004 did not include this holiday. Now, that wraps up my review of our financials for the fourth quarter. I will now address the business outlook included in our earnings release.

As many of you know, we have not given formal operating guidance in the past and to do so now was a big transition for us. We have spent three plus years investing in the business and building the Denny's brand. This hard work has begun to show a return, but has now been indicated there is still work to do and investments to make. 2004 was a milestone year for same-store sales growth at Denny's and that sales growth clearly contributed to Denny's profitability increase in 2004. At this time our expectation for same-store sales in 2005 is 2 to 3 percent growth. This is a conservative estimate reflecting the tough comps we will roll over during the year. With our 2 to 3 percent same-store sales increased estimate we expect total operating revenue of 975 to 985 million for 2005.

In general, we anticipate our restaurant portfolio activity to be very similar to 2004. We expect to open two to three new company units, depending primarily on our ability to negotiate acceptable real estate terms in the flagship markets we are targeting. With regard to franchise development, we expect 15 to 20 new franchise openings in 2005. Franchise development has not been a primary focus for Denny's over the past several years as we labor to improve our existing portfolio, both company and franchise. Now that we have made significant progress in our operational initiatives we are putting more attention on development. As Nelson mentioned we are strengthening our franchise team and expect that new openings will begin to increase through this year and into 2006. However, keep in mind there is approximately a 12-month lead time on developing a new unit. Our growth plans going forward will continue to be guided by our commitment to elevating the brand rather than simply growing unit counts.

Now with regard to earnings guidance we are not yet comfortable providing EPS guidance, particularly as we transition from a net loss to net income. Frankly, we believe at this time EBITDA is a more appropriate measure of our operational performance. As noted in our release, we estimate reported EBITDA to fall between 110 and 115 million. That figure includes approximately 10 million of stock-based compensation expense and other noncash and nonoperating items, which we adjust for financial covenant purposes, as well as internal performance measures. These items are available for your review on the EBITDA reconciliation page in our earnings release.

As for cash capital spending, we anticipate approximately 55 to 65 million, which includes investments in a new point-of-sales system and 2 to 3 new company units. The detail behind this capital projection is 27 to 30 million for basic facilities capital; 12 million for approximately 80 restaurant remodels; 12 million for the new POS -- with by the way another 5 million for POS expected in 2006 as we complete the rollout; 2 to 6 million for new unit construction costs, depending on the type of real estate transaction we do; and another 2 to 5 million for corporate and information systems needs. That concludes my financial review. I will now turn the call back to Ken Jones.

Thank you, Andrew. But before we go to the Q&A period I wanted to mention one notable capital structure item. As many of you are aware coming out of our recap, we ended up with a relatively high amount of floating rate bank debt. As a result, subsequent to year-end, we entered into an interest rate swap for 75 million to hedge a portion of this floating rate debt. It is a standard interest rate swap where Denny's will pay a fixed rate of 3.76 percent on the 75 million notional amount, and will receive three-month LIBOR for a term ending 9/30/2007. The swap effectively increases our ratio of fixed rate debt from 38 percent of total debt to about 51 percent. At this time we do not anticipate entering into any more interest rate swaps or hedging transactions for the balance of the year.

Regarding interest expense, post recapitalization, and taking into account the interest rate swap, we expect interest expense for 2005 to range from approximately 53 to 55 million, which could fluctuate depending on the direction of short-term interest rates, namely, LIBOR. This estimate includes approximately 7 million of noncash interest expense, such as, amortization of deferred financing costs and other noncash interest items. With that I will turn it back to the Operator and begin the Q&A portion of our program.

[OPERATOR INSTRUCTIONS]. Your first question comes from Karen Eltrich.

Hi, good evening, guys.

Hi, Karen.

With regards to menu strategy our -- for example, the fruit-filled pancakes, did you keep it on the menu? And if so, what kind of hold are you seeing? And how many -- are you going to continue the 4.99 promotion through the year? And how many rotations of product do you expect to have?

Gosh, don't you have any more questions, Karen? [Laughter]. Well, it is nice to hear your voice. We were very successful with our fruit-filled pancakes. Yes, at this time we are looking at 4.99 in our current module. It is holding on quite well. It will remain on our menu until such time that we don't feel it is no longer of value. We are testing some other price points, as you may have heard me mention in other calls and other conferences to see if there is another place for us to go. But at this time it is 4.99.

And for the year can we anticipate that you will be mainly spending your advertising dollars on breakfast or are you going to experiment with other day parts again?

We will primarily stay in breakfast for the four modules for the remainder of the year and we may do some experimenting as we go along to see what we can do and what we can't do. But our primary focus will be on breakfast.

And can you give us any taste for new product introductions that you have in the pipeline?

For competitive reasons, I probably won't.

Okay. That's what I figured but I had to try.

[Laughter] Good try, but you know Module 2 will start soon and you might see something.

Okay. Thank you very much.

Thank you.

Your next question comes from Eric Wold.

Hi, good afternoon. Just -- obviously, you are ramping up the number of remodels this year to 80 from 60. Maybe give us an update on what you've seen out of the remodels, maybe especially out of the ones in the Chicago market? And then -- second one just on unit base, you gave us the opening numbers for this year. Maybe some indication of what level of closings you might expect from both the Company and franchise for this year?

Well, Eric, we are often asked about the remodels and the rate-of-return and the sales lift we get from remodels. And historically we have been very cautious on that. Because we view, particularly for Denny's that was underinvested in capital for so long, we do view remodels as a cost of doing business, and we largely do, 14 basic elements. Its carpet and booths, and wallpaper, and lights and the basics of the dining room. And that is just part of being in the restaurant business.

With that said, we have tended to see on average, and it does vary a lot by unit, 3 to 5 percent increases from remodels. Probably a little bit more towards the higher end of that for our Chicago remodels in our Vision III concept. But again, we largely view that as sort of the core business to keep doing those. As far as closings, I made the comment that I expect something similar in '05 as occurred in '04. Essentially, the Company has, back in '01 and '02 really closed a lot of units. So we talk about 5 to 10 a year. It's sort of a normal run rate for a brand this size and I think on the Company side that I can predict that much better.

The franchise side becomes more difficult. Because they are going through still some of the rationalization that we went through on the Company side a couple of years ago. So at this point, I really -- it is hard for me to project what the franchisees will do. But I expect we will see something similar perhaps in '04.

Okay. Just a follow-up on the remodel. Obviously, franchisees have been a little hesitant or a little slow in the past to ramp up their remodels; and you indicated, obviously, they are going to increase this year. What -- are you hearing from them that they are getting more and more encouraged by, to spend the money -- the 160,000 plus or minus on the remodel and that they are actually now getting more encouraged about the returns they will see from that? Can you give us some more sense on that?

There is nothing like 6 percent positive same-store sales to encourage and make franchisees feel better than they certainly do right now. We saw significantly increased activity in franchise remodels in 2004 and I think that will be the same again in 2005. So, yes, we are seeing a lot of remodels coming out of the franchise system.

Perfect. Thanks, guys.

Thank you.

Thank you, Eric.

Your next question comes from Farukh Farooqi.

Hi, good evening.

Hi, Farukh.

Okay, my first question is on earnings sensitivity. I am trying to understand this. Maybe you can clarify this? From your -- if I look at the guidance that you provided, your EBITDA margin on the lower end is 11.3 at the high-end is 11.7. But for 10 million of incremental sales you have got 5 million of incremental EBITDA. So I am just trying to reconcile that. Can you shed some light?

I am trying to think through your numbers, Farukh, what you --

Well, 985 minus 975 is 10 million of sales. And 115 minus 110 is 5 million of EBITDA. So I am just trying to understand what is driving that. Is that some sort of --?

You know, I am not sure I would quite go about it that way in terms of the ranges. You could say 5 million on 10 million and that is a 50 percent flow through, that's not out of the ordinary. But I would be hesitant for you to do it that exacting as in your guidance.

I understand now. The other question I had was the EBITDA again, you said that there were about $10 million of noncash stock compensation in there. Can you give us some color on, in terms of the magnitude of the other noncash items that you have added in there, in your EBITDA items?

The other stuff really nets out to zero. There is some items going in both directions. But it really is very little else.

Okay. Thank you. I will get back in queue.

Thanks.

Your next question comes from Mark [Ventripe.]

Hello guys. So I also wanted to talk a little bit about the EBITDA guidance and clarify a couple of things. First of all, I mean, you would agree, that we should be adding back the 10 million and then in fact the guidance was 120 to 125 on the basis that we have been thinking about EBITDA in the past. So, if I look at 2004, where you generally did 120 million in EBITDA or 119 or something like that. If you add back the charge to this fourth quarter, that compares to about 107 in 2003. And in order to achieve that 12 million EBITDA improvement you needed a revenue increase of 20 million from 940 to 960.

So now that you are guiding to, let's keep it simple, in the mid point 980 in revenues, you are saying that EBITDA is going to be flat to up 5 million. And you just said that, this 50 percent flow through explains the difference between the, well the 10 million, or I am sorry, rather the 5 million EBITDA difference on the 10 million revenue spread. So I am just trying to figure out. I mean, it seems like you should have more flow through from those revenues to EBITDA than you are suggesting.

Yes, I think, you are going at it real technically, Mark, in terms of looking at the 10 million of revenue increase and then trying to correlate directly. In our business [indiscernible] there are so many moving parts in terms of the franchise side of the business, the company side of the business, I don't know that you can go about it quite the way you have. So I am not sure exactly how to guide you further.

Well, I am just suggesting that -- I am not talking about the $10 million spread in your guidance. What I am talking about is, 2004 results versus 2003 results showed growth in EBITDA on a similar increase in revenues that was much more significant than the guidance you are providing for '05 EBITDA. So I am just wondering why I should think that the flow through would decelerate so much?

I don't want to get into specifics, but one thing we have talked about on the calls is the labor change, for example, from '03 to '04. And we have now settled it down into what I would consider a normal run rate. That might be one thing that you might want to look at in that regard. And frankly for everyone in the past, we have never given formal guidance. And we think it is important, Nelson and I in talking through this, that we want to give numbers that we are comfortable with, that we believe are achievable. And as we transition to giving guidance these are the numbers that we are comfortable and believe are achievable.

Right. Just to sort of clarify, one more time. As you've pointed out, your momentum in terms of comp store sales is clearly higher than the 2 or 3 percent that you are suggesting. You would classify that as a conservative number and clearly the flow through or the incremental margin to EBITDA has also been significantly higher than is implied in your guidance. So perhaps you are conservative on that front as well and it translates into a conservative number overall?

I will leave that as your assessment. The only thing I would say, is that we are in the first quarter of the year, it is our lowest volume quarter. January is our lowest volume month of the quarter. So, the summer and our high season is still to come. And at this point in the year, we are pleased to be giving you guidance and we will build upon that as the year goes on.

Okay. Thank you very much.

Thank you, Mark.

Your next question comes from Stuart [Kwan.]

Yes, hi guys. I just had a couple of questions. What should we be thinking about in terms of company-owned restaurant margins for '05?

So you are speaking of just in the company stores, excluding franchise, G&A and everything else?

Correct. If I did my numbers correctly, you had a 13.3 percent company restaurant margin. Just taking the 871, less the 755.

Yes, as I look at the margins in '04, the big change was on my payroll and benefit line, and I think that now has settled down to a normal run rate. So while there are certainly areas that Nelson and the operators keep working on to make us more cost effective and we are committed to being a low-cost provider -- I don't see dramatic cost reductions.

So I think where you are going to get the margin improvement is as sales go up. You are going to get the -- and there is good operating leverage. So I hope that, as we go into '05, you will see some improvement upon that 13.3 that you talked about. But I would be hesitant to give it more than a few tenths.

Well, in the third and fourth quarter you were running at 13.5.

Yes, but it is a weighted average of the full-year. And as I mentioned the first quarter is the lowest volume quarter. So you have to weight it all out and the summer is the highest volume. So.

Okay. And in terms of the cost, just in looking at the cost side of the equation on franchise sales is that going to change materially?

No, it should not change materially.

Okay. And then finally, on SG&A, how should we be thinking about that? On a normalized adding back the stock-based comp and the transaction costs of 10.6 million you were running at about 56 million for the year?

I think that is pretty close. If you, I think within a couple of million, you are probably just about right.

Okay. And what was the total performance-based comp in '04?

The performance-based compensation in the G&A was 9.3 million.

9.3 million?

Yes.

Okay. And this is excluding any stock-based?

Correct. That was our corporate incentive plans were about 9.3 million in comparison to virtually nil in 2003.

Okay. And in '05 what have you budgeted for that line item?

I figure at a full path, it is about 7 million.

Okay, 7 million. Okay. So if we calculate and look at all these line items with company, with the 97 -- on the low-end of the guidance 975 million of revenue and 120 million of EBITDA, you have got margins dropping 20 basis points. I am just trying to -- where, if SG&A is relatively flat we are going to pick up 20 basis points on restaurant operations. Where are we losing that margin?

I of course am not looking at your model, which is probably on a computer in front of you. And it is just too hard on a conference call like this really to reconcile that with you. I think we, again, have provided directionally, the guidance we are comfortable with.

Okay. And last question was just -- I missed the first part of the break out of CapEx. You said it was 2 to 5 for corporate and IS, 2 to 6 for new units, 12 for POS, and what were the other buckets?

Let me look it up here. Okay, CapEx I said 55 to 65 in total, of which 27 to 30 for basic facilities capital, 12 million for remodels, 12 million for new POS, 2 to 6 for new units, and 2 to 5 for sort of corporate and other information systems.

Great. Thank you.

Bye.

Your next question comes from Ken Bann.

Good evening. Could you tell us what you spent on advertising in 2004 and what the plans are for '05? And also, could you talk about what your expectations are for food costs this year?

For competitive reasons, I really prefer not to go into that. You can look in our Press Release and there is some marketing information there. But I don't want to speak specifically to advertising.

Are you going to increase it in '05 or is it going to remain flat or?

We contribute as do our franchisees as a percentage of sales. So we do have a larger budget as our sales go up.

What is your outlook for your food costs? Do you expect any [indiscernible] there?

I am sorry. Outlook for what?

Food costs.

Outlook for food costs. 2004 was a -- obviously, a volatile year for ourselves, as well as all restaurant companies. And we do expect 2005 to be less volatile than last year. But that doesn't mean we are seeing declines. If anything, we are seeing a slight increase over 2004, but again not the volatility that we have experienced. But at this point, we are not projecting any significant declines.

Have you locked in any particular costs, such as, beef or chicken?

Yes, we do lock in, probably about half of our purchases. So that gives you a feel. The good thing about us is the diversification of our menu. We are not so tied in to any one item. We have a big spread, across pork and beef, and eggs and cheese, and so, we are not as subject as some companies may be to one particular commodity going south.

Next question?

Your next question comes from Andrew Ebersole.

Good evening. I was wondering if you could discuss of the 6 percent increase in your average check, how much of that related to menu mix and how much related to price?

There were multiple things going on in the quarter. I mentioned we did less couponing, so that increased our check a little bit too. We took 1 percent pricing in October, if I remember correctly, so you had a percent there, and earlier in '04 we had taken 2. So I don't have the numbers in front of me. But if I just say we have taken 3 percent pricing, then you had some impact of the coupon, and then the balance would have been mix.

That's all I needed. Thank you.

Thank you.

Your next question comes from Jonathan Feldman.

My questions have been answered.

Thank you.

You have a follow-up question from Farukh Farooqi.

Hi. The -- you guys talked about again, in the outlook, I believe the expectation of 2 to 3 units, new units company-owned, and 15 to 20 new franchise. What is the net number right now that you are looking for?

As far as I went on that, Farukh, would be to say that I expect something comparable to '04. We are not giving guidance on -- because the closures are so hard to predict, which is what I think you are asking. And I can't say more than I said earlier when I indicated that '04 is probably a reasonable assumption.

And then just one final question here, can you talk about -- sort of the sense I am getting is that the -- and it is early in the year, and so your guidance is more on the conservative side. But can you talk about sensitivity? In other words, you are projecting 2 to 3 percent, and based on that you are giving us these numbers. If the results were, let's say, if the same-store sales were 100 basis points higher than that range, where -- what do you -- what would be the impact on the EBITDA numbers?

Farukh, I can't give you that. I really don't want to expand upon the guidance we have already given.

That's all, I have. Thank you.

Thank you. Next question?

Your next question comes from Ruth [Upton.]

Hi, I have two questions. First, I was wondering if you could quantify the impact in the January sales comps of the inclusion of New Year's this year?

We think it was about 1.5 cents.

Okay. And secondly, I want to go back to -- you guys had a conference call last October to kind of get people up to speed after you finished your recapitalization and you were talking about some goals. And at that time you said that your target for your consolidated EBITDA margin was 14 percent. And I am not remembering now, what time frame was that over, 3 years, 2 years? When were you hoping you could hit a 14 percent EBITDA margin?

I think we said over the next couple of years. I don't know that we were specific. As someone mentioned earlier when you [technical difficulty]. I don't know, Ruth, whether you are talking about for company stores or overall. But last year for company stores, at the store level, was 13.3, as someone mentioned earlier. And I suggested that that -- I saw some modest improvement in that, basically from sales leverage. But were you speaking more of --?

I had written down in my notes that it was the 14 percent EBITDA margin target and it was a point in the conference call where you clearly were talking about leverage statistics. So I assume that meant the consolidated EBITDA number.

Yes, I would say over the next three years, if you want to look at it on a total EBITDA margin.

Okay. Thanks.

Nice to hear from you, Ruth.

Your next question comes from Chris Pike.

Hi, guys. How are you? Inverted guidance, I was just wondering if you could tell me on an apples-to-apples basis what the 2004 EBITDA number would be if you calculated it in the same way that you are showing the 2005 number?

We are looking at each other figuring out --

What metric are you talking about?

By the way, that was a good question. Because --

In what metric are you specifically talking about, Chris?

Well, you say EBITDA of 2005 of between 110 to 115; and then you have the 10 million of anticipated EBITDA from stock-based compensation expense, non-cash items. So if you add that back you would have 120 to 125. I guess, again, on an apples-to-apples basis what would 2004 EBITDA be?

119.6.

119.6. Okay. And I guess in regard to the 10 million of stock-based compensation non-cash, how much is that is stock-based compensation? And in thinking about modeling that quarterly through '05, should we expect to take the majority of that stock-based compensation in the fourth quarter?

No, it should be spread during the year. Part of it is going to be fixed and part of it is actually variable based on the stock price. So that becomes a little difficult to model. And in regard to the other items in that 10 million, as I mentioned earlier, they actually net out against each other.

So of the 10 million, you are saying we should expect a stock-based compensation expense of approximately 10 million?

Yes.

Okay. Thank you.

Thank you. Next question?

Your next question comes from Chad [Glitson.]

Hey, guys, could you tell us where you stand on the status of the NASDAQ listing?

It will be, we expect to be able to apply on March 17 roughly, and then it will take about 30 to 45 days to go through the application process.

Okay. And is that correct, you are going to be at the Bear Stearns Conference here in a couple of weeks?

Yes. We are looking forward to it.

Okay. Thanks.

Your next question comes from Todd Rosen.

Hello?

Mr. Rosen, your line is open.

Mr. Rosen went to dinner, at Denny's.

There are no further questions.

Well, we thank all of you for joining us today. We certainly appreciate your interest. And have a great day.

Excuse me?

Thank you.