Fiesta Restaurant Group Inc (FRGI) 2012 Q4 法說會逐字稿

Good day everyone and welcome to the Fiesta Restaurant Group fourth quarter 2012 earnings conference call. Today's call is being recorded. For opening remarks and introductions

I would like to turn the call over to Lynn Schweinfurth, Chief Financial Officer. Please go ahead.

Good afternoon, and thank you for joining our call. By now everyone should have access to our fourth quarter earnings release, which was issued after the market closed today. If you have not already seen it, it can be found on the corporate website at www.FRGI.com,under the Investor Relations section.

Before we begin our formal remarks I must remind everyone that our discussion today may include statements that are not based on historical information. These forward-looking statements include without limitation, statements regarding our future financial position and results of operation, business strategy, budgets, projected costs and plans, and objectives of management for future operations.

Actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements, and we can give no assurance that such forward-looking statements will prove to be correct. Important factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements can be found in our SEC filings.

And now I would like to turn the call over to Tim Taft, Chief Executive Officer to begin with some opening comments and a brief update on the state of the business.

Thanks, Lynn. Good afternoon everyone. We delivered an exceptional fourth quarter to our shareholders, and are pleased our strategic direction and initiatives are producing the desired effect of strengthening the brands. At the consolidated level we posted strong revenue growth of over 8%, generatedrobust guest traffic growth, leveraged our operating margins, and generated net income of $2.6 million, an improvement over prior year of $2.7 million.

Let me briefly expand upon what we accomplished during the quarter, and then turn to our plans for 2013. Pollo Tropical finished 2012 on a high note, by continuing its enviable track record of generating strong comparable restaurant sales and guest traffic increases on top of strong positive results from the prior year period. Specifically, comp sales in the fourth quarter were 8.3%, our best performance since the first quarter, while comp guest count traffic increased a healthy 6.7%.

On both an absolute and a relative basis, Pollo remains one of the strongest concepts within the fast casual industry, and has now produced positive comparable restaurant sales for 13 consecutive quarters. We could not be more pleased with what the Pollo team and brand have accomplished this career. Pollo recently held its annual general managers conference, and I can tell you the excitement and passion exhibited by the leadership team is something quite extraordinary to witness. Our managers are accountable, engaged, and take great pride in what they do. It is no surprise to us their average tenure is among the highest in the industry, while their team member turnover is among the lowest.

Part of our communications strategy revolves around the message that we serve food our guests feel good about eating. Our teams in turn will tell you that they make food that they are proud to serve. New product innovation and enhancement to existing menu favorites at Pollo have clearly resonated with our guests. In particular we have seen traction introducing new proteins, such as the Spicy Beef and our TropiChop, and portable menu offerings including wraps, sandwiches, and salads for meals on the go. Promotion during the quarter included the Spicy Beef TropiChops as part of our create your own TropiChops offering with a drink for $5.19. The Caldo Gallego soup which was a limited time offer, and a Guava bar for dessert. The promotions all reinforce the compelling value proposition offered at Pollo.

Taco Cabana also added to its track record of consistency and achievement in the fourth quarter. Comp sales growth was 6.8% the highest quarterly results in several years, while comp guest traffic grew 4.2% over the three month period. Taco has now marked ten consecutive quarters of comparable restaurant sales growth, and four consecutive quarters of positive transaction growth, a record we are very pleased with.

Building on what we discussed on our previous call, the sales trend at Taco has demonstrated our ability to move beyond what has been heavily reliant on price increases as a catalyst for comparable sales growth. A strategy which historically has had a negative impact on transactions. Unlike in years past the effective pricing of 2.7% in 2012 did not erode transactions, and in fact transactions rose in spite of our pricing actions. We attribute this directional change to a more defined broadcast message, service level improvements, along with heightened perception by our guests of our value proposition, and overall dining experience due to our remodeling efforts.

Taco's quarterly promotions included Chicken Fajita Bowl and burrito and Favorites under $5, which resonated very well with our guests. In addition our Happy Hour promotion with half-price nachos and margaritas for a total price $3.00 also drove positive transactions during the quarter. Portability has been a key focus of Taco Cabana, and we look to capture more meal occasions for people on the go.

Now that we have discussed our individual brands in some detail, let's turn our attention to the strategic growth platforms, and how we intend to strengthen our model to drive long-term shareholder value. First, across both brands our menus are centered on quality offerings that have both broad appeal and provide every day value. Maintaining a strong product pipeline is also critical to keeping our offerings fresh, and we intend to introduce innovative new items throughout the year to drive further traffic and maximize guest frequency.

From an operational standpoint, we seek to leverage variable costs while also realizing the positive impact of sales increases on fixed costs. Our supply chain management efforts have positively affected food costs, and while also improving quality, consistency, and yield. While we do expect modest pressure on commodities as a percentage of sales this year, we are managing our exposure through locked agreements on key items and pricing, along with specific packaging initiatives to further reduce cost. We are investing in an ergonomic time motion study to refine our labor model and reduce costs, managing our menu mix to improve throughput, product quality, and profitability.

Other notable initiatives include establishing new equipment maintenance practices and processes, as we ramp up our restaurant development, renegotiating equipment costs to leverage multiple purchases. Above all, we are executing financial discipline on key cost categories and throughout our entire enterprise. Our elevated brand position continues to resonate with guests, and includes enhancements in ambiance, decor, plateware, flatware, and service standards. We continue to look at opportunities to refine costs so that investment of entry is lower, and the return that can be generated is higher.

We opened two Taco Cabana restaurants in the fourth quarter in the Dallas market and one Pollo Tropical in north Florida, completing our development for the year with a total of ten new restaurants. This is an increase from six new restaurants that were developed in 2011. This year we are planning to increase our new restaurant openings to 14 to 17 company-owned restaurants across both brands, with about two-thirds of the restaurants being Pollo, and the remaining one-third being Taco.

On February 1 of this year we opened our first Nashville area restaurant in Smyrna, Tennessee. Later in the year we are planning to build a second Nashville area restaurant specifically in Cool Springs. We will also continue to expand Pollo's presence in Atlanta with at least two new locations this year. The balance of 2013 openings will be in markets across Florida. Taco Cabana's development will be concentrated in Texas this year, although over time we foresee both brands operating successfully in the same markets, as Pollo moves west and Taco heads east.

New restaurant opens will be in high profile areas with higher household incomes that we have targeted in the past, as we position our concepts for a mainstream audience. We are still in the very early stages of franchise development. We plan to add to our international presence this year, with at least ten Pollo Tropical franchise restaurants, including our first location in India. Our research shows that we have the ability to tap geographies such as this, and other markets where non-fried chicken products are very popular. As our brand continues to expand internationally, and more people become familiar with it, we think there will be further opportunities to expand outside of our traditional franchise footprint in the Caribbean and central America.

While company owned operations are a primary concern, we are building out our franchise teams to position us for greater international expansion as we approach this component of our business. We don't intend on signing up every franchisee that knocks on our door. Rather, we plan on being very selective with our franchise partners, and insuring that our growth is strategically aligned with our overall business objectives.

Turning to domestic franchising. Our near term goal is a proactive approach towards the expansion of both Pollo and Taco in non traditional licensing venues, such as arenas, airports, and university campuses, where we already have a modest presence. In terms of traditional domestic franchising, while we believe that both concepts are capable of producing sizeable franchise footprints, we have a desire and obligation to provide a tight business model for franchising, that incorporates the myriad of cost saving initiatives currently being pursued, prior to recruiting any franchise operators. We have not yet formally completed our strategy in this regard, and we will look forward to discussing this topic in the near future when appropriate.

On the remodeling front we are concentrating on updating Taco Cabana restaurants in San Antonio and Houston this year, which markets includesome of the oldest restaurants in the system. We intend to complete the upgrades of the Taco system in 2014, as we balance the pace of this important initiative with developing new restaurants.

In terms of completing the Fiesta management team, we recently announced the appointment of Nancy Clark, our Chief People Officer effective last month. Nancy is a highly-regarded human resource business leader with over 15 years of experience at several high profile and diverse organizations, and will be instrumental in helping to execute our strategic growth plan. We now have about 20 full-time employees here at the new Company headquarters here in Madison, Texas, and as we build out our in-house capabilities across various functional areas this year, we would expect that number to more than double by the end of the year. The greater Dallas area provides an exceptional talent pool from which to attract qualified restaurant industry resources, and it is our intention that this office will serve as an efficient and effective support center and hub to serve the corporate needs of both brands. As you know we plan to complete most of our transition from Carrols by the end of this year.

Finally we recently unveiled the total makeovers of our websites, Pollo Tropical and Taco Cabana, as part of our initiative to elevate our brand positioning across all guest touch points, and seek to be on the cutting edge of the social media component of brand marketing. We think these websites look fantastic, and we encourage you to sign up for the respective Eclubs, so that you can keep up with what we are doing on products and the promotional front.

With that, let me turn the call back to Lynn.

Thanks Tim. I am extremely pleased with our fourth quarter and full year operating results reported this afternoon. In addition the Company continues to deliver and build on three long-term growth platforms, building new Company restaurants, growing the base business, and franchise development.

In terms of the fourth quarter, which ended on December 30, 2012, our revenue grew 8.2%,driven by robust comparable restaurant sales growth at both brands. For both the quarter and the full year, both brands generated comparable restaurant sales growth that exceeded industry trends. In the fourth quarter, Pollo delivered 8.3% comp sales, while Taco generated 6.8% in comp sales. As Tim mentioned, this growth was driven by strong comp guest traffic increases of 6.7% and 4.2% for Pollo and Taco respectively.

We opened ten new restaurants in 2012, and expect to open 14 to 17 new restaurants in 2013. We continue to look for ways to accelerate the pace of new restaurant development, while maintaining the discipline necessary to maximize profitability. In addition to identifying investment cost reduction opportunities and optimizing labor efficiencies, as we refine our new restaurant prototype, we are also building our operations bench strength in refining our training and opening processes, to accommodate more new restaurant openings in the future which is essential to our growth strategy. We continue to work with new and existing franchise partners to enable the Company to grow, primarily internationally, or as Tim mentioned, in non traditional US venues,such arenas, universities, and transportation facilities. This year we made good progress including executing a 10 restaurant development agreement with our new franchise partner in India, and a five restaurant development agreement with a new franchise partner in Guatemala.

In 2012 we opened six new franchise restaurants, five internationally, and are planning to open in excess of 10 new franchise restaurants this year, while continuing to search for new quality franchisees to further our growth in coming years. I will not reiterate what is included in the press release issued this afternoon, that summarizes fourth quarter P&L expense line item results, and related drivers of performance. Instead let me share some additional perspective.

First in the fourth quarter cost of sales as a percent of restaurant sales came in 40 basis points better than prior year. We continue to focus on opportunities to offset commodity cost increases, and this quarter was no exception. While menu pricing helped drive our favorable comparison year-over-year, it is important to know that we want to be judicious in implementing price increases, so that we can continue to offer a great guest experience at a compelling value. We also continue to focus on opportunities that mitigate the impact of cost increases in other ways. And current supply chain initiatives that Tim mentioned are beginning to take hold as we enter 2013.

As highlighted in our press release in the fourth quarter other restaurant operating expenses were slightly higher than the prior year period, as new restaurant opening costs were partially offset by sales leverage on fixed costs and lower utility rates. We will continue to see the impact of expenses associated with the timing of opening new restaurants going forward.

Many of our P&L comparisons are being impacted by the qualification of certain leasing transactions for leaseback accounting treatment upon the date of the spinoff. In today's earnings release you can see the impact of this treatment on rent expense, depreciation and amortization expense, and interest expense,both on a consolidated basis, and on an adjusted segment EBITDA basis compared to last year. We will continue to point out this year-over-year impact of this accounting treatment on these line items through the first half of 2013, when we lap the anniversary of the spinoff. We have also added a table at the end of the release that provides in part adjusted numbers for past periods including the fourth quarter and full year 2011 and 2012, that assumes the current lease accounting treatment for all periods prior to the spinoff.

So let me turn to full year results. Revenue grew 7.3% in 2012 compared to 2011. Pollo delivered 8.1% in comparable restaurant sales growth, which was better than our original target of 6% to 7%. This growth was driven by guest traffic which increased 6.6% on a comparable restaurant basis, and average ticket increased 1.5%.

Taco generated 4.7% comparable restaurant sales growth which was within our targeted range of 4% to 5%. This growth was driven by guest traffic which increased 1.9% on a comparable restaurant basis, and average ticket increased 2.8%.

Turning to operating expenses. Cost of sales as a percent of restaurant sales was essentially the same as the prior year, primarily due to menu price increases that offset commodity cost increases. Restaurant wages and related expenses as a percent of restaurant sales were approximately 40 basis points favorable to prior year, primarily due to sales leverage on fixed labor costs. Other restaurant operating expenses as a percent of restaurant sales were 30 basis points favorable to prior year,primarily due to lower utility rates. Advertising expenses as a percent of restaurant sales were slightly better in 2012 than in the prior year.

General and administrative expenses were $6.4 million higher than the prior year. Primarily due to various costs to implement the Fiesta spinoff from Carrols, company management and team additions, and infrastructure implementation. In addition we recognized $0.6 million inexpense associated with retirement agreements entered into in the third quarter. The net impact of the qualification for sale treatment of certain sale-leaseback transactions on completion of the spinoff had a net benefit on pretax income of $4.1 million compared to the prior year.

To break out the pieces, rent expense was negatively impacted by $4.4 million, while depreciation and amortization expense and interest expense were positively impacted by $1.4 million and $7.1 million respectively. Impairment and other lease charges during the year of approximately $7 million were driven primarily but our decision to exit the New Jersey market in the first quarter of 2012, resulting in the closure of five Pollo restaurants. Interest expense was $0.4 million higher than the prior year due primarily to our refinancing activities in the third quarter of 2011, partially offset by the elimination of interest expense associated with the qualification for sale treatment of certain sale-leaseback transactions upon the spinoff.

Our effective tax rate was 34.2% in 2012, compared to a rate of 32.7% in 2011. Primarily due to the negative impact of the expiration of the work opportunity tasks tax credit in 2012, partially offset by other discrete tax adjustments. As noted in our press release, in early 2013 the work opportunity tax credit was reinstated for the period beginning January 1, 2012, with a new expiration date of December 31, 2013. Because the credit was reinstated after Fiesta's fiscal year end, the work opportunity tax credit is not included in the 2012 provision for income taxes. Therefore we now expect the 2013 annual effective tax rate to be approximately 32% to 34%, which includes the impact of these tax credits that apply to both 2012 and 2013.

2012 net income was $8.3 million, which was $1.3 million lower than the prior year. As noted in our release the effect of the spinoff and related costs including establishing a new public company and corporate infrastructure, in addition to impairment more than offset the profitability generated by our sales growth and the net benefit from the impact of our lease accounting change upon the spinoff date. As previously mentioned at the end of our release, we included a table that adjusts 2011 and 2012 results to reflect current lease accounting treatment for all periods prior to the spinoff. In addition we have also removed the impact of impairment and other lease charges, which were much higher this year due to our exit of the New Jersey market. These adjusted numbers were provided to serve as a baseline for comparison in future periods.

During the fourth quarter the Company completed sale-leaseback transactions related to four properties, and sold one excess property. In addition, and as previously announced, the Company sold two restaurants in New Mexico to our franchisee that now operates a total of four Taco Cabana restaurants in Albuquerque. These transactions together generated approximately $7.9 million in cash proceeds during the quarter. As of year end we had a cash balance of $15.5 million. There were no outstanding borrowings under the senior credit facility, and we were in compliance with all covenants related to our indenture and senior credit facility. After reserving $9.4 million for letters of credit guaranteed by the senior credit facility, $15.6 million was available for borrowing.

In 2012 cash interest payments on our notes were $18.7 million. Cash interest paid on lease financing transactions were $2.4 million, and cash taxes were $3.5 million. We continue to believe cash generated from our operations, availability under our senior credit facility, and proceeds from any sale-leaseback transactions we may choose to do, will provide sufficient cash to cover our anticipated working capital needs, capital expenditures, and debt service requirements in 2013.

We continue to be bullish about our long-term financial growth trajectory. As Tim touched on, we are greatly focused on operations excellence, brand differentiation, and effective product development and marketing execution to drive transaction growth. In addition, several initiatives are under way to optimize our cost structure in areas including restaurant operating expenses, maintenance, and new restaurant investment costs. The team is building the capability and capacity to accelerate new restaurant growth over time,by developing a robust real estate pipeline and restaurant staffing capabilities.

Lastly we are making considerable progress building out an efficient and effective corporate team and infrastructure, with which to execute our strategic plan. With that, let's open up the line for questions.

Thank you. (Operator Instructions). We will take our first question from Bryan Hunt with Wells Fargo Securities.

Good afternoon Tim and Lynn. This it Kevin McClure standing in for Bryan.

Hi, Kevin.

Hi. A couple of questions. Tim, you mentioned how you plan to eventually expand outside of Texas, and move Taco east, and move Pollo west, and operate in the same markets. You are also expanding into higher income or more favorable demographic areas. Can you talk about the AUVs at your new stores, and possibly give us an estimate as to the run rate outperformance relative to your legacy stores, at Pollo for instance?

First of all, we are currently looking to move Taco east and Pollo west, and we are currently looking at property in all markets in between. We have with Pollo, we only have a couple of them that are comparable outside of, in our new style or elevated concept, and those that have gotten comp is are in excess of our system average volume.

Taco Cabana we are building in new locations that we say is a target that would have to exceed what our system average unit amongst seven is, if we are going to build one of those restaurants. The restaurant concept that we will be building outside of Texas will be a slight departure from what we are currently operating in Texas. Specifically we won't be looking at a 24-hour operation, and be focusing mostly on just a lunch and dinner with a tweaked or refined menu.

Okay. So for instance, say you move into Nashville or Atlanta with Taco, do you see them operating generally within the same zip codes, vicinities? How do you think about your expansion plans?

Well, Kevin.

Can you reveal anything?

Kevin, I think it is the research has indicated to us that the consumer for both Taco and Pollo are very similar. So where might you see those restaurants. They could conceivably be operating side by side. Again, both concepts, we have done research with Kumar, and he has indicated, and all of the feedback has been that our customer is a higher check average, a higher household income than we have previously targeted. But we see as the two markets grow towards one another, the size of the buildings and cost of the buildings, aside from the real estate needed to build a restaurant are going to be very similar with one another. So there will be some interesting discussions in the future as to whether a particular location should be a Taco or a Pollo.

Got it. Thank you. A couple of restaurant companies have kind of guided towards a soft start to Q1, they list a number of factors. Hike in the payroll tax. Weather. Tough comparisons. Have you guys experienced any of that softness, or does your customer profile, are they a little bit more insulated from those pressures?

Kevin, I would say that our guests are not the exempt from the pressures you talked about that affected most every other restaurant company so far in Q1. But a little context. Last year in January and February Texas had phenomenal weather . This year we had at least three significant weather events, snow, ice, and a whole lot of rain. Even with all of that compared to flawless weather a year ago, for the first eight weeks of the year Taco is up a positive percentage point. Pollo is rolling over record numbers from a year ago on top of record numbers the year before, and they are still a positive 3% through the first eight weeks of the year.

Great.

Given the pressures that everybody is feeling out there we feel good about our start.

Got it. And lastly, Lynn, the outlook for inflation particularly as it relates to beef and chicken, you guys have given some indication as to your strategy, and how you try to lock in costs to the greatest extent possible, but what are you seeing out there in terms of inflation, and have you taken additional action since the end of the year?

Yes, we have. Let me start with originally we had provided an expectation for this year compared to last of 50 to 60 basis points worse cost of sales as a percent of sales over the prior year. Since that time, we have made some headway. I think on our last quarterly call we indicated our chicken contracts had not been executed. We have since been able to lock in our chicken. And that has benefited our expectation for the year a little bit.

In addition as Tim mentioned in his opening comments, we have seen great traction associated with some changes in our delivery by our distribution company, where we are receiving deliveries of fresh products sooner, which allows us to really improve yields associated with our beef fajita and chicken meat. So all of that being said, while we still think there will be a modest increase in terms of cost for our cost of sales this year, I think we are making some additional headway.

Great. I will hop back in the queue. Thank you.

We will go next to Nick Setyan with Wedbush Securities.

Hi. Thank you. I believe the last time we talked about 2013 was at your ICR presentation. At the time if I am not mistaken, the Pollo guidance for 2013 on the comp side was 5% to 6%. Taco was 2% to 4%. COG Inflation was 3%. G&A ex stock comp was $44 million to $46 million. Can you maybe update give us an update around some of those metrics for 2013? How we should think about 2013?

Well, what I would suggest is we have got eight weeks of the fiscal year under our belt from a sales standpoint, and the numbers that came in were a little bit softer than what we expected. So that will influence the sales numbers for the year. I have already alluded to the fact that we think we will come in a little bit better than what I mentioned on the cost of sales front. I think for the other categories, all of the prior communicated expectations are still expected by the Company.

Got it. So is that a little softer on both brands?

Yes.

Okay. You guys talked about acceleration in terms of unit growth beyond 2013 obviously. How should we think about 2014 as we look out, in terms of maybe if not number of stores, target percentages in 2014 for Pollo and for Taco, in terms of unit growth percentage?

We haven't announced any of those numbers. I think if you take a look at last year, we developed six restaurants, the year before last year we developed 10, and this year we are saying between 14 and 17. I think that kind of acceleration certainly is a target right now. But again we haven't given any hard and fast numbers in that regard.

Got it. So it is not unreasonable to expect somewhere close to 20 to 22 stores on the Pollo side in 2014, just judging from that type of acceleration?

I think the 14 to 17 remember this year of the 14 to 17, two-thirds of them are going to be Pollo, and one-third is going to be Taco Cabana. We are in the process of building our pipeline with this new target that essentially we are starting from scratch, so we want to see acceleration. We just, I think when we open up additional markets that is going to help the pace of our openings as well.

Got it. And then could you maybe give us some kind of update on the national stores performance? At least in preliminary performance metrics?

It was on March 1 this Pollo Tropical Caribbean style restaurant was in the middle of a blinding snowstorm, so we had this really neat looking restaurant covered in snow, but what the pictures don't show is that three hours prior to the store opening there were people standing in line in 19 degree weather. It opened up the first restaurant, the first week was around $75,000, and through ice and sleet and snow it has been holding numbers that are close to that. So that was a pleasant surprise for us, as that was not the restaurant that we wanted to lead with in Nashville. Cool Spring is actually the one that we wanted to lead with, but timing being what it was, Smyrna was the first one out of the box. We are happy with the response thus far.

Fantastic. Thank you very much.

At this time we have one question remaining in queue. (Operator Instructions). We will take our next question from Andrew Gadlin with CJS Securities.

Thank you. You mentioned in your discussion about franchising, signing agreements in non conventional areas. Was that geared towards domestic franchising?

Yes, Andrew. Traditionally what we have been is pretty passive with regard to non traditional, airports and universities and arenas. In 2013 you are going to see us take a more proactive approach towards that, and really marketing both brands to that audience. And that is domestic, yes.

And are you already in conversations with various parties?

We are.

Great. Thank you. Any sense for the international franchising with locations, the ten stores that will be opened, is that going to be first half of the year loaded, second half loaded?

Well, it is interesting we should have the first one in India open by it should be first quarter. Their timeline does not often reflect the timeline that we have in the United States. They are running into some issues with construction. But the heavy lifting really has been done, and that is getting all of the supply chain lined out and approved for the marketplace, and I think that you will start seeing them open up a restaurant probably one every six months, so in the first quarter, and then probably in the third or fourth will be the second one.

Okay. And then finally on this January effect, or January and February there has been some talk in the industry of some more value messaging from some of your competitors. Has that had an impact for you?

I don't think so. I mean for starters our menu revolves around a value proposition to begin with. And Taco it wasn't until really the beginning of this year that we really focused on a price point. It has been a couple of years since we did that. That is where we make our hay anyway, is talking about value and price points. I don't think I have really seen it make an impact on us. Pollo as we mentioned although a bit softer than what we originally thought it would be, still to be up 3 points in this environment is something we are proud of.

Absolutely. What was the metric for Taco Cabana?

We are up a point.

One point. Okay. Thank you very much.

And we will go next to Michael Friedman with Cumberland.

Good afternoon, Tim and Lynn. Good quarter. Tim, I just wanted to follow-up with you on the other side of the US franchising that you alluded to, that you would be open to more traditional franchising once you button down the numbers a little bit, I think you said. I was just wondering if you might be able to elaborate a little bit on that, in terms of timing for kind of refining what would be I guess the cost model on the franchise pitch, and how you might think about it? I mean obviously areas outside kind of the southeast Texas area that would be corporate, but are there any areas in particular you target, would you go with area or regional developers? Just anything else to think about that?Thanks.

Michael, I think we included that part in the discussion today, because more often than not we end up getting that question. This management team is not opposed to participating in a franchise model. There is a lot that this team is currently working on right now, in just getting the spinoff from Carrols complete by the end of this year. Building out the management team here, as we mentioned a myriad of cost reduction activities, time motion studies in our restaurants, value engineering the buildings, building the pipeline, and so we included that as part of the discussion to let you know that, A, it is on our horizon. It is not something that we are actively looking at, but it is something that we recognize that we have to as you say button down the numbers, and get a tighter economic model, prior to us even contemplating that and that is a good year and a half off before we would even really begin that discussion in earnest.

Fair enough. Thanks, and keep up the good work.

Thank you Michael.

Next to Jeff with Davenport & Company.

Good afternoon. Just a clarification on one of the earlier comments related to some of the earlier of the new prototype openings and their performance. I just want to make sure I caught that right. So these would be the units such as in Jacksonville, I think you indicated they are comping above the system currently?

Yes.

Thank you very much.

My pleasure.

And this does conclude today's conference. Thank you for your participation.