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spk10: Good afternoon, and welcome to today's Noodles and Company's first quarter 2021 earnings conference call. All participants are now in a listen-only mode. After the presenter's remarks, there will be a question and answer session. As a reminder, this call is being recorded. I will now introduce Noodles and Company's chief financial officer, Carl Lukacs. You may begin.
spk04: Thank you, and good afternoon, everyone. Welcome to our first quarter 2021 earnings call. Here with me this afternoon is Dave Benninghausen, our Chief Executive Officer. I'd like to start by going over a few regulatory matters. During our opening remarks and in response to your questions, we may make forward-looking statements regarding future events or the future performance of our company. Any such items, including details relating to our future performance, should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Such statements are only projections and actual events or results could differ materially from those projections due to a number of risks and uncertainties. The safe harbor statement in this afternoon's news release and the cautionary statement in the company's annual report on Form 10-K for its 2020 fiscal year and subsequent filings with the SEC are considered a part of this conference call, including the portions of each that set forth the risks and uncertainties related to the company's forward-looking statements. I refer you to the documents the company files from time to time with the Securities and Exchange Commission, specifically the company's annual report on Form 10-K for its 2020 fiscal year and subsequent filings we have made. These documents contain and identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. During the call, we will discuss non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial performance prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our first quarter 2021 earnings release and our supplemental information. Now, I would like to turn it over to Dave Beninghausen, our Chief Executive Officer.
spk03: Thanks, Carl, and good afternoon, everyone. We are so excited to be here today to share with you our strong start to 2021 and provide an update on the progress we have made towards the accelerated growth objectives that we outlined in our prior earnings call. In summary, we're very pleased with our first quarter results. Our financial performance improved sequentially throughout the quarter, allowing us to surpass the comparable restaurant sales expectations that we laid out during our prior earnings call. We're also pleased with our restaurant contribution margin expansion, which improved 290 basis points during the quarter relative to 2020. This also represented a 100 basis point improvement relative to Q1 of 2019, even as the company absorbed a significant increase in expenses related to delivery fees. Perhaps more telling of the health of our business were our averaging volumes, which increased 6.1% in our company-owned restaurants compared to 2019, and 12.7% when compared to 2020. And the momentum that we experienced during the first quarter has continued into Q2, with all-time record high company average unit volumes for the past four weeks of 1.35 million, a nearly 13% increase versus the same timeframe in 2019. Importantly, in our fiscal month of April, digital accounted for 57% of sales, even as we recovered a meaningful percentage of sales in restaurant. While we recognize that there remains uncertainty surrounding COVID and that the industry has likely benefited from recent government stimulus, we continue to feel very confident about our trajectory and remain convinced that we are an even stronger business coming out of the pandemic than we were a year ago entering it. As most of you are aware, in late February, we laid out our accelerated growth objectives. which include annual system-wide unit growth of at least 7% annually beginning in 2022 and quickly reaching 10% annually on a path to at least 1,500 units nationwide, average unit volumes of $1,450,000 by 2024, and in that same year, restaurant-level margin of 20%. To meet those objectives, we remain focused on three main strategies. The first is the continued differentiation of our concept to appeal to a broad range of lifestyles, convenience, and dietary needs. Second, activating our brand, particularly through our digital assets and marketing strategy. And third, accelerating unit growth to take advantage of an operating model that we feel is ideally situated for a post-COVID world. I would like to start with our ongoing success in executing a disciplined strategy of culinary innovation that is on trend, resonates with guests, and builds brand love and loyalty. Noodles & Company remains the only national chain of flavors for noodles and pasta, and our menu is perfectly suited to meet the needs of today's consumer. As we've noted in the past, our food travels extremely well, and we have a considerable strength with the variety inherent in our menu, as we offer favorites from kids to adults, healthy to indulgent, and flavors both familiar and new. During the first quarter, we introduced our low-carb, gluten-free cauliflower gnocchi nationwide. We've been very pleased with the results thus far from this launch, as the Miyoki has outperformed its results in tests and reinforced noodles and company's ability to meet the varied dietary preferences of our guests. As you know, beginning with the launch of zucchini noodles in 2018, we have made significant strides in delivering a great lineup of lower-carb, lower-calorie alternatives. And our mix of healthier items on our menu is now at 14% of guests, a significant increase from just a few years ago. We continue to believe there remains meaningful upside to our healthier platforms and are currently innovating around improvements to our salad and vegetable noodle offerings. As we innovate around healthier alternatives, we also continue to lean into the strengths of our core menu. As we discussed last quarter, our current test of tortelloni has been our best performing test in the 17 years that I've been at Noodles & Company. For years, stuffed pasta has been the most requested item from our guests. and we're extremely excited to meet that request through our three-cheese tortelloni with specialty ingredients like caramelized onions and a blend of ricotta, mozzarella, and Parmesan cheeses. During the past few months, we've been optimizing the offering, operational procedures, and marketing strategy for tortelloni, and we'll be introducing it nationwide later in Q2. As we continue to further differentiate the brand for today's environment, I would like to discuss our second strategy, focusing on activating the brand. particularly through our digital capabilities and improved marketing effectiveness. Our results thus far in 2021 give us great confidence that we will be able to retain the digital sales growth that we have earned during the COVID pandemic, even as guests return to in-restaurant dining. We achieved record digital sales in March, and we set a new record again during our April fiscal month, particularly impressive given that in April, In-restaurant sales recovered to 60% of pre-COVID levels. We're also elevating our digital properties, including the recent introduction of Google Food Ordering in select markets. As we strengthen our digital assets, we're reaping the benefits of increased data and guest insights from our rewards program. Frequency amongst our rewards members is growing, and we are seeing increases in both our overall brand awareness as well as conversion from trial to repeat guest. We still believe we are in the early innings of utilizing data to create more personalized, targeted engagement with our guests. And we are excited at the opportunity to further harvest these insights to optimize our marketing strategy on our path to $1,450,000 of junior volumes. Next, I'd like to touch on our delivery strategy, which showed 30.9% of our sales in the first quarter of 2021. While delivery as a percentage of total sales is beginning to decline, Absolute daily volumes from delivery remain steady through the first quarter and thus far in Q2. We continue to see great upside and opportunity in the delivery occasion, particularly as it relates to introducing the brand to new guests in markets where we may not have as much brand awareness. Restaurants and markets that have seen a larger percentage of delivery than average continue to see outsized overall sales growth. With our increase in delivery sales, there of course remains increased pressure to the P&L through delivery fees. We've been able to mitigate much of that pressure through the balance of the P&L, particularly in labor, and we expect that the impact of delivery fees on our overall margin will moderate as delivery normalizes as a percentage of sales. On the whole, we see delivery and digital strengths as a great opportunity to increase awareness in newer trade areas and less saturated markets. giving us even more confidence in our third strategy, which is to accelerate unit growth. We continue to believe in our opportunity to ultimately operate at least 1,500 restaurants domestically, supported by at least 7% system-wide unit growth in 2022, and soon thereafter reaching an annual growth rate of at least 10%. Our restaurants opened in 2019 and 2020 remain the best performing classes in the history of the company, with performance well above the company average, both in average unit volumes and in restaurant-level margin, supporting our target of at least 30% cash-on-cash return for new units. As we've discussed in the past, many of these restaurants include order-ahead drive-through pickup windows, which are instrumental in meeting the increased need for speed and convenience from today's consumer. Our new restaurants also operate in a lower-surface footprint with a more efficient seating layout, perfectly suited for today's environments. We continue to anticipate 10 to 15 openings system-wide 2021, not including two ghost kitchen restaurants that will open later in Q2. These ghost kitchens will open in dense residential urban areas and give us great insights in the opportunity to build the brand in a low-cost, efficient manner that can be particularly effective in expanding our footprint for both company, infill, and franchise markets alike. Over the last few months, we've made significant progress in our company pipeline for 2022, and we expect to meet or exceed our target of at least 70% of these units being equipped with our order-ahead drive-through pickup window. From a franchising perspective, we're pleased with the progress we're making in building our new franchisee pipeline. We anticipate two to four franchise restaurant openings in 2021, including one in South Carolina this summer, which will mark our first new franchise market in several years. That said, as we build the franchisee pipeline, we do expect company restaurants to do the majority of openings during the next few years, with a target of at least 50% of our new units being opened by franchisees beginning in 2024. We believe the brand's improved menu, digital, and off-premise strengths, evidenced by the performance and economics achieved by our most recent classes, have meals and company well-positioned to attract prospective franchisees as well as achieve our company growth objectives. and we are extremely excited with the unit growth opportunity ahead of us. For each of our three strategies, continued differentiation of our unique brand strengths, activating the brand through our digital and marketing channels, and accelerating unit growth, the importance of our team cannot be overstated. Before I turn it over to Carl, I would like to thank them for their efforts and dedication over the past 12 months. Our metrics across all aspects of the organization continue to improve. And I'm convinced that the significant common denominator has been our people-oriented strategy, resulting in a servant leadership culture that supports each other as well as our guests. Our turnover continues to decline, and the gap between our people metrics and the industry benchmarks continues to widen. We've also built a dedicated, robust pipeline of future leaders who will be instrumental in helping us achieve our targeted goals for 2024. I've never been prouder of our team or more excited at what the future will bring. And with that, I'd like to turn it over to Carl to walk through our financials.
spk04: Thank you, Dave, and good afternoon, everyone. In terms of the financial highlights, total revenue during the first quarter increased 9.2% to $109.6 million. Comparable restaurant sales increased 10.7% system-wide, comprised of a 10.5% increase at company-owned locations, and an 11.7 percent increase at franchise restaurants. Compared to 2019, we recorded average unit volumes of 1.17 million for the quarter, representing a 6.1 percent growth rate. Average unit volumes grew throughout the quarter, particularly in March, where the first half of the month saw a 5 percent growth rate relative to 2019, and the second half of the month was 10 percent. As Dave noted, our momentum has continued into April. where we are seeing company record average unit volumes of 1.35 million months to date, representing a growth rate of nearly 13% compared to 2019. Total revenue was partially reduced by continuation of temporary COVID-related restaurant closure days for health and safety. These closure days declined relative to the fourth quarter of 2020, but did show a slight increase at the end of March and into April. coinciding with increases in COVID cases seen at a national level. On a restaurant contribution basis, our restaurant-level margins were 13.6 percent in the first quarter, compared to 10.7 percent last year, representing an increase of 290 basis points. Relative to 2019, which we believe to be a more relevant comparison, contribution margins increased 100 basis points, which is particularly encouraging given a 460 basis point increase in third-party delivery fees versus 2019. The first quarter historically is a lower restaurant margin level quarter for the brand, and we saw sequential improvement throughout the quarter, culminating in restaurant-level margins above 18% during the final fiscal period of Q1. These levels are much more indicative of where we would expect restaurant-level margins in the second quarter and throughout 2021, as we execute against our accelerated growth target of 20% contribution margins by 2024. Reviewing margin drivers in a bit more detail, for the first quarter, our cost of goods sold was 25%, which represents a 50 basis point improvement from last year. The improvement was driven by our increased menu pricing and more efficient promotional strategies. We were also encouraged by minimal commodity cost inflation throughout the quarter. In terms of offsets, our packaging costs remained elevated, even as dining rooms opened in some capacity at nearly all of our restaurants. As off-premise remains, a high portion of our channel mix and meals sold to our dining guests continued to be packaged in to-go containers. Labor was 31.8% of sales during the quarter. a 290 basis point improvement from last year. The improvement was primarily driven by realized labor model efficiencies through our Kitchen of the Future initiative, particularly a reduction in front-of-the-house hours. We are pleased with our continued execution against our labor hours management and remain encouraged by turnover trends, which have resulted in lower training costs compared to last year. As planned, in March we began the rollout of our steamers equipment initiative, we have completed 87 installs to date, or 23% of the company's portfolio, and continue to expect a full rollout by the end of the year. Early results have been in line with our test, resulting in improved cook times, reduced labor hours, and better taste of food scores. We expect to continue to benefit from labor savings as this initiative gets rolled out throughout the balance of the year. Other operating costs for the quarter were 18.8% of sales, compared to 16.9% last year, due primarily to higher delivery fees in the quarter, as this channel remains a critical avenue to drive brand awareness for new guests and ultimately convert guests into brand loyalists. And as mentioned before, the growth of our third-party fees were more than offset by efficiencies in labor and cost of goods sold, where coupled with sales leverage, we ultimately realized net margin expansion. As Dave noted, the guests return to in-restaurant dining, and we remain encouraged by the strength of our off-premise and digital channels, which continue to increase on an absolute dollar basis sequentially through the first quarter and into April. Consequently, while we anticipate that delivery fees as a percentage of sales will moderate as overall volumes increase, we expect absolute delivery fees to remain fairly consistent over the next several months. G&A for the quarter was $10.9 million compared to $10.6 million last year. Excluding non-cash stock compensation, G&A for the quarter decreased modestly to $10.1 million compared to $10.2 million last year. For the full year, we continue to anticipate modest growth in G&A dollars. As efficiencies gained through our organizational review during the COVID pandemic are offset by our investment to support our unit growth strategy, as well as a more normalized incentive compensation. Our adjusted net loss, which excludes the impact of impairments, divestitures, and closure costs, was $0.8 million, or a two-cent loss per diluted share, compared to an adjusted net loss of $3.9 million, or a nine-cent loss per diluted share. Switching now to the 2021 outlook, The uncertainty of COVID continues to make it difficult to provide our typical full 2021 guidance. However, we are very encouraged by the average unit volumes we saw during the first quarter and throughout April. For the second quarter of 2021, we anticipate total revenues between 120 and 125 million, inclusive of the potential negative impact of temporary closure days related to COVID. We are very pleased with our unit growth pipeline for this year and beyond. We continue to anticipate 10 to 15 new restaurant openings system-wide in 2021, including 8 to 11 new company restaurants. We also expect full-year capital expenditures to be approximately 20 to 24 million. As we mentioned on the last earnings call, we did close six restaurants during the quarter, all of which were restaurants that continued to underperform, even as sales recovered across the system. the majority of these restaurants were at or nearing their lease end date, and we feel they were not well positioned by virtue of either being in urban office-oriented locations or overly resilient on retail generators. Following these closures and the completion of a thorough review of our unit portfolio, we remain confident that our real estate is well positioned for future consumer trends. We expect minimal closures going forward. With a review of the real estate portfolio as it relates to the COVID impact behind us, and as Dave mentioned, we are intensely focused on unit growth. From a balance sheet perspective, we feel very good about our current liquidity position. At quarter end, we have cash and cash equivalent of $3.1 million and a total debt balance of approximately $37.1 million. Our net debt of $34 million was $1.6 million below our net debt balance at the end of Q1 2020. as the team did an excellent job navigating the COVID pandemic while improving our liquidity position. We anticipate that we will produce positive free cash flow throughout the remainder of 2021, and our ability to maintain strong liquidity throughout the pandemic has positioned us to meet our growth objectives in the years to come. With that, I would like to turn the call back over to Dave for final remarks.
spk03: Thanks, Carl. Rules & Company is uniquely positioned to be a clear winner in the post-COVID environment. which we feel is reflected in our results thus far in 2021. The brand remains differentiated with the menu that is on trend and resonates with a wide variety of guests and occasions. Our digital and off-premise strengths are perfectly suited for today's consumer environment with continued upside as we increase our personalized engagement with our guests. And there is a significant expansion opportunity both for company and franchise developments. as we have an operating and economic model well-suited to support strong return on investment. The company is intensely focused on achieving our accelerated growth objectives, and I would like to reiterate my thanks to our teams throughout the country. I continue to be humbled at the opportunity to work with them and look forward to taking the next step of our journey together. With that, Amanda, please open the lines for Q&A.
spk10: My pleasure. To ask a question, Please press star followed by the number one on your telephone keypad. That is star one to ask an audio question. To withdraw your question, press the pound key. We will now pause to compile that Q&A roster. And your first question comes from Jake Bartlett with Trust.
spk15: I wanted to start with current sales trends and try to understand you know, the acceleration you're seeing in April. And I guess how much of the current trend do you think is due to a temporary lift from stimulus tracks versus, you know, pent-up demand as the economy reopens and some of your own sales initiatives like the gnocchi?
spk03: You know, certainly I think acknowledge that many of us in the industry have seen that the industry has seen an increase in dining out due to the stimulus. At the same time, four things give me great confidence in terms of where we'll head from here. First, we were receiving momentum even prior to the stimulus, and even now that we're a few weeks beyond that, we're not seeing any slowdown in momentum. In fact, it's increasing a bit. Third thing, metrics across the board for us, all of the leading indicators are extremely positive. So whether it be turnover and tenure at the restaurant level, cook times, guest satisfaction, all the operational people, brand metrics look so great across the board that we think even as you potentially have a little bit of a waning off of the benefit from stimulus or pent-up demand, noodles would be a clear winner. And finally, it is those initiatives. So with tortelloni coming in later this quarter, as well as several of our other initiatives, particularly around digital, we feel the brand is extremely well positioned. So difficult to assign an exact number on what the benefit of the stimulus and pent-up demand has been. We feel extremely confident that we'll be able to continue our outperformance.
spk15: Great, great. And then... I guess you're having the dining rooms open, and it seems like you're seeing a sales mix shift back into the dining rooms a little bit for digital, even as digital is growing. But is that having an impact on a higher average check as that mix is shifting back?
spk03: We're seeing overall check continue to be roughly the same as what we saw during the initial parts of the COVID pandemic, so certainly a little bit higher than expected. are then what we have historically. What we're super excited about is the fact that those digital sales continue to break records even as we recover 60% of the dine-in sales. So I think it'll still be a while before we understand what the long-term check dynamics will be from the consumer. But what is encouraging is that we're seeing that that digital occasion has been very sticky.
spk15: Great. And just one last one on on unit growth. Can you give any update on, you know, the progress you're making with franchisees and building the pipeline there?
spk03: Yes. As we said, we do have a franchisee opening restaurant in South Carolina. Later this summer will be our first new franchise market in a few years, actually. We're really excited with the momentum that our head of franchise sales, John Ramsey, we brought on a few months ago. I see some great candidates that are really excited with the, performance of our most recent restaurants as well as the overall trajectory of the business. So it will take time. As always, we ensure that it's a pretty robust process in terms of ensuring it's the right fit between ourselves as well as that franchisee. But we're very encouraged with the momentum that we're seeing, particularly in the target markets that we have, which are primarily in the South and Southwest.
spk15: Great. Thank you.
spk10: And your next question comes from Nicole Miller with Piper Sandler.
spk12: I think you said 57% in the quarter. Can you break that down, the pieces of digital, and in particular delivery direct versus indirect in the marketplace, please?
spk16: Sure. Go ahead, Carl.
spk04: Yeah, sure. So the 57% for digital, for the total digital. If I break that down, that number is actually more indicative of the fourth period, so what we saw into April. And as I look at that, we saw the third-party mix is around just a level over 25%, with the direct delivery closer to 4%. So the remainder there, the total delivery around just over 30%. As I think of the remainder, it's still our quick pickup and curbside that takes us to around 57%.
spk03: What we're seeing, Nicole, is that that delivery occasion still continues to be just over half digital sales. I'm seeing some progress in terms of moving people to direct delivery. Still a lot of upside there. But in general, we're seeing kind of growth across all channels of digital from an absolute dollar perspective.
spk12: Okay. And then you had mentioned margins benefiting, you know, my words, not yours, but less discounting. What was kind of an average discount back in the day and what is it today? Because it sounds like yourself and most other brands don't need the same discounting efforts in this environment.
spk03: So how we look at discounts, I know it differs a little bit depending on the restaurant concept. It ultimately ends up hitting your cost of goods sold. However, what we look at it as is a percentage of retail sales. And what we are running right now is kind of in that 2.5% to 3% of sales. So think of it as a 70, 80 basis point impact to COGS. That's almost half of what we were a few years ago. So you're seeing a definite decline in the amount of promotional activity that we have. And it's actually more so, Nicole, that it's just more targeted, more effective, much more efficient as we utilize that rewards program. versus historically where you weren't able to engage in that personalized or targeted level.
spk12: That makes a lot of sense. That's very helpful. Last question. The margin numbers are awesome. It sounds like, you know, we can think about 18% as a run rate. In terms of the pieces, on labor in particular, you know, when you hit 100% of let's call it pre-pandemic sales, did you have the staffing you need? And probably more importantly, up 13%. Are you running a little short and you need to do some hiring and make it up? And should we be careful about the pieces, like how we model the margin going forward? Or is labor not a concern in that way of staffing?
spk03: Sure. I'll let Carl talk in a bit about where we expect kind of the overall labor line item to go. No question we're seeing one of the most competitive labor environments that I've seen in my 17 years in noodles and company. At the same time, our people metrics, our culture, I think Nicole is stronger than ever. So our turnover is down significantly versus where we were a year ago. Management turnover is almost half of what it was a few years ago. So we feel like we've got a great pipeline and a culture that supports a lot of retention. That said, as we continue to have new units coming through the pipeline, as we continue to have increases in our average unit volumes, we're certainly focused on ensuring that we continue to have a significant application flow to support those restaurants. We definitely feel we're in a better position than most of the industry, given just the strength of that team below. Overall, as you look versus the pre-COVID pandemic, certainly I think the staffing environment is even more challenging than it was then, but I think the brand itself is better positioned than it was before. Specific to members, I don't know what you'd add, Carl.
spk04: Yes, sure. Nicole, if you think about the Q1 margin level and a bridge to 18% and where we would expect to go forward, it's really three factors in increasing importance. It starts with sales leverage as the most important one, then labor, and then shift to a higher margin channel. So the sales leverage is going to impact all of the margin expense lines going down. The labor is probably going to be the most impactful, reason being that we took a lot of efficiencies in 2020, and we're expecting further in 2021 with steamers. That's going to begin to get more illuminated as we start seeing that sales leverage shine through. So really that specific line item that you're going to see most of the improvement. And then finally, as we shift to higher margin channels, As we mentioned, third-party remains to be an important channel for us, and these third-party fees are going to stick. But as a percentage of sales, that margin is going to get a little bit tighter because we're going to see some sales leverage offsetting that, and we're shifting to more higher-margin channels like dine-in.
spk11: Thank you very much.
spk10: And again, if you would like to ask a question... please press star followed by the number one on your telephone keypad. That is star one to ask an audio question. Your next question comes from Andy Barish with Jeffrey.
spk06: Hey, guys. How's it going?
spk02: Excellent. Thank you, Andy. How are you?
spk06: Good, thanks. Actually, just on the labor during the first quarter, I thought it ran a little heavy, at least versus my model. Obviously, it sounded like it got a lot better in March. Was there anything going on early in the year, you know, ramping up with dining rooms reopening or some incremental training, you know, with Neoki, just to kind of put the overall quarter in perspective for
spk03: Yeah, honestly, Andy, I would not be nervous at all about what you saw from the Q1 perspective with labor. So if you go back historically with Middles and Company, Q1, as Carl alluded to, significantly lower volumes from a seasonality perspective, particularly January and February. The overall effectiveness and efficiency of the team, even as we reopen the dining rooms and increase the labor models to incorporate that part of the business, it's one of the best labor opportunities labor percentages we've brought probably in Q1 since I've been here. So what you will see is just naturally as we move into a timeframe where we will have better leverage on that volume, labor will come down meaningfully.
spk04: And Andy, the only thing I'll mention is as we bridge that to what we saw at the end of Q1, so closer to 18% total contribution margins, a lot of that's going to come into the labor models, the labor lines specifically. That's where we see most of the leverage.
spk06: Gotcha. And then can you give us an update on rewards, numbers, kind of where you are on the journey, personalization, anything you have as other fast casuals have done where maybe there's a digital-only product or something like that that you're thinking about to activate more rewards members?
spk03: Yeah, so one thing we're excited about, Andy, is we're seeing increases both in the number of guests that are in the program, which is now above 3.6 million, about 20% above where we were a year ago, but also we're seeing increases in the frequency of those guests as they just become more and more engaged and active with the brand. Specific to any type of activities, I actually think there is a good opportunity that with our upcoming introductions that you might see a particularly particularly good reason for you to be a rewards member of Needles & Company. So it's something that we definitely think is a vehicle for us to continue to engage with our guests and give them great reasons to be loyal to our brand and look for something, I think, in the next couple weeks that maybe fulfills your prophecy.
spk05: Sounds good, guys. Thank you.
spk10: And there are no further questions. I would now like to turn the call back over to the management team for any closing remarks.
spk03: I just want to appreciate everybody's time. We know it's an extremely busy earnings season. Very excited with where the Mills & Company brand is today and even more excited about where we're going in the future. So thanks again for your time. I look forward to catching up soon.
spk10: That does conclude today's call. Thank you for your participation. You may now disconnect. you me. Thank you. Bye. So, Thank you. Thank you. Good afternoon and welcome to today's Noodles and Company's first quarter 2021 earnings conference call. All participants are now in a listen-only mode. After the presenter's remarks, there will be a question and answer session. As a reminder, this call is being recorded. I will now introduce Noodles and Company's Chief Financial Officer, Carl Lukacs. You may begin.
spk04: Thank you and good afternoon, everyone. Welcome to our first quarter 2021 earnings call. Here with me this afternoon is Dave Benninghausen, our Chief Executive Officer. I'd like to start by going over a few regulatory matters. During our opening remarks and in response to your questions, we may make forward-looking statements regarding future events or the future performance of our company. Any such items, including details relating to our future performance, should be considered forward-looking statements within the meaning of the Private Security Litigation Reform Act. Such statements are only projections and actual events or results could differ materially from those projections due to a number of risks and uncertainties. The safe harbor statement in this afternoon's news release and the cautionary statement in the company's annual report on Form 10-K for its 2020 fiscal year and subsequent filings with the SEC are considered a part of this conference call, including the portions of each that set forth the risks and uncertainties related to the company's forward-looking statements. I refer you to the documents the company files from time to time with the Securities and Exchange Commission, specifically the company's annual report on Form 10-K for its 2020 fiscal year and subsequent filings we have made. These documents contain and identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. During the call, we will discuss non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial performance prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our first quarter 2021 earnings release and our supplemental information. Now, I would like to turn it over to Dave Benninghausen, our Chief Executive Officer.
spk03: Thanks, Carl, and good afternoon, everyone. We are so excited to be here today to share with you our strong start to 2021 and provide an update on the progress we have made towards the accelerated growth objectives that we outlined in our prior earnings call. In summary, we're very pleased with our first quarter results. Our financial performance improved sequentially throughout the quarter, allowing us to surpass the comparable restaurant sales expectations that we laid out during our prior earnings call. We're also pleased with our restaurant contribution margin expansion, which improved 290 basis points during the quarter relative to 2020. This also represented a 100 basis point improvement relative to Q1 of 2019, even as the company absorbed a significant increase in expenses related to delivery fees. Perhaps more telling of the health of our business were our averaging volumes, which increased 6.1% in our company-owned restaurants compared to 2019 and 12.7% when compared to 2020. And the momentum that we experienced during the first quarter has continued into Q2, with all-time record high company average unit volumes for the past four weeks of 1.35 million, a nearly 13% increase versus the same timeframe in 2019. Importantly, in our fiscal month of April, digital accounted for 57% of sales, even as we recovered a meaningful percentage of sales in restaurant. While we recognize that there remains uncertainty surrounding COVID and that the industry has likely benefited from recent government stimulus, we continue to feel very confident about our trajectory and remain convinced that we are an even stronger business coming out of the pandemic than we were a year ago entering it. As most of you are aware, in late February, we laid out our accelerated growth objectives. which include annual system-wide unit growth of at least 7% annually beginning in 2022 and quickly reaching 10% annually on a path to at least 1,500 units nationwide, average unit volumes of $1,450,000 by 2024, and in that same year, restaurant-level margin of 20%. To meet those objectives, we remain focused on three main strategies. The first is the continued differentiation of our concept to appeal to a broad range of lifestyles, convenience, and dietary needs. Second, activating our brand, particularly through our digital assets and marketing strategy. And third, accelerating unit growth to take advantage of an operating model that we feel is ideally situated for a post-COVID world. I would like to start with our ongoing success in executing a disciplined strategy of culinary innovation that is on trend, resonates with guests, and builds brand love and loyalty. Noodles & Company remains the only national chain of flavors for noodles and pasta, and our menu is perfectly suited to meet the needs of today's consumer. As we've noted in the past, our food travels extremely well, and we have considerable strength with the variety inherent in our menu, as we offer favorites from kids to adults, healthy to indulgent, and flavors both familiar and new. During the first quarter, we introduced our low-carb gluten-free cauliflower gnocchi nationwide. We've been very pleased with the results thus far from this launch, as the Miyoki has outperformed its results in tests and reinforced noodles and company's ability to meet the varied dietary preferences of our guests. As you know, beginning with the launch of zucchini noodles in 2018, we have made significant strides in delivering a great lineup of lower-carb, lower-calorie alternatives. And our mix of healthier items on our menu is now at 14% of guests, a significant increase from just a few years ago. We continue to believe there remains meaningful upside to our healthier platforms and are currently innovating around improvements to our salad and vegetable noodle offerings. As we innovate around healthier alternatives, we also continue to lean into the strengths of our core menu. As we discussed last quarter, our current test of tortelloni has been our best performing test in the 17 years that I've been at Noodles & Company. For years, stuffed pasta has been the most requested item from our guests. and we're extremely excited to meet that request through our three-cheese tortelloni with specialty ingredients like caramelized onions and a blend of ricotta, mozzarella, and Parmesan cheeses. During the past few months, we've been optimizing the offering, operational procedures, and marketing strategy for tortelloni, and we'll be introducing it nationwide later in Q2. As we continue to further differentiate the brand for today's environment, I would like to discuss our second strategy, focusing on activating the brand. particularly through our digital capabilities and improved marketing effectiveness. Our results thus far in 2021 give us great confidence that we will be able to retain the digital sales growth that we have earned during the COVID pandemic, even as guests return to in-restaurant dining. We achieved record digital sales in March, and we set a new record again during our April fiscal month, particularly impressive given that in April, In-restaurant sales recovered to 60% of pre-COVID levels. We're also elevating our digital properties, including the recent introduction of Google Food Ordering in select markets. As we strengthen our digital assets, we're reaping the benefits of increased data and guest insights from our rewards program. Frequency amongst our rewards members is growing, and we are seeing increases in both our overall brand awareness as well as conversion from trial to repeat guests. We still believe we are in the early innings of utilizing data to create more personalized, targeted engagement with our guests. And we are excited at the opportunity to further harvest these insights to optimize our marketing strategy on our path to $1,450,000 of junior volumes. Next, I'd like to touch on our delivery strategy, which shows 30.9% of our sales in the first quarter of 2021. While delivery as a percentage of total sales is beginning to decline, Absolute daily volumes from delivery remain steady through the first quarter and thus far in Q2. We continue to see great upside and opportunity in the delivery occasion, particularly as it relates to introducing the brand to new guests in markets where we may not have as much brand awareness. Restaurants and markets that have seen a larger percentage of delivery than average continue to see outsized overall sales growth. With our increase in delivery sales, there of course remains increased pressure to the P&L through delivery fees. We've been able to mitigate much of that pressure through the balance of the P&L, particularly in labor, and we expect that the impact of delivery fees on our overall margin will moderate as delivery normalizes as a percentage of sales. On the whole, we see delivery and digital strengths as a great opportunity to increase awareness in newer trade areas and less saturated markets. giving us even more confidence in our third strategy, which is to accelerate unit growth. We continue to believe in our opportunity to ultimately operate at least 1,500 restaurants domestically, supported by at least 7% system-wide unit growth in 2022, and soon thereafter reaching an annual growth rate of at least 10%. Our restaurants opened in 2019 and 2020 remain the best-performing classes in the history of the company, with performance well above the company average, both in average unit volumes and in restaurant-level margin, supporting our target of at least 30% cash-on-cash return for new units. As we've discussed in the past, many of these restaurants include order-ahead drive-thru pickup windows, which are instrumental in meeting the increased need for speed and convenience from today's consumer. Our new restaurants also operate in a lower-surface footprint with a more efficient seating layout, perfectly suited for today's environment. We continue to anticipate 10 to 15 openings system-wide 2021, not including two ghost kitchen restaurants that will open later in Q2. These ghost kitchens will open in dense residential urban areas and give us great insights in the opportunity to build the brand in a low-cost, efficient manner that can be particularly effective in expanding our footprint for both company, infill, and franchise markets alike. Over the last few months, we've made significant progress in our company pipeline for 2022, and we expect to meet or exceed our target of at least 70% of these units being equipped with our order-ahead drive-through pickup window. From a franchising perspective, we're pleased with the progress we're making in building our new franchisee pipeline. We anticipate two to four franchise restaurant openings in 2021, including one in South Carolina this summer, which will mark our first new franchise market in several years. That said, as we build the franchisee pipeline, we do expect company restaurants to do the majority of openings during the next few years, with a target of at least 50% of our new units being opened by franchisees beginning in 2024. We believe the brand's improved menu, digital, and off-premise strengths, evidenced by the performance and economics achieved by our most recent classes, have meals and company well-positioned to attract prospective franchisees, as well as achieve our company growth objectives. and we are extremely excited with the unit growth opportunity ahead of us. For each of our three strategies, continued differentiation of our unique brand strengths, activating the brand through our digital and marketing channels, and accelerating unit growth, the importance of our team cannot be overstated. Before I turn it over to Carl, I would like to thank them for their efforts and dedication over the past 12 months. Our metrics across all aspects of the organization continue to improve. And I'm convinced that the significant common denominator has been our people-oriented strategy, resulting in a servant leadership culture that supports each other as well as our guests. Our turnover continues to decline, and the gap between our people metrics and the industry benchmarks continues to widen. We've also built a dedicated, robust pipeline of future leaders who will be instrumental in helping us achieve our targeted goals for 2024. I've never been prouder of our team or more excited at what the future will bring. And with that, I'd like to turn it over to Carl to walk through our financials.
spk04: Thank you, Dave, and good afternoon, everyone. In terms of the financial highlights, total revenue during the first quarter increased 9.2% to $109.6 million. Comparable restaurant sales increased 10.7% system-wide, comprised of a 10.5% increase at company-owned locations, and an 11.7 percent increase at franchise restaurants. Compared to 2019, we recorded average unit volumes of 1.17 million for the quarter, representing a 6.1 percent growth rate. Average unit volumes grew throughout the quarter, particularly in March, where the first half of the month saw a 5 percent growth rate relative to 2019, and the second half of the month was 10 percent. As Dave noted, our momentum has continued into April. where we are seeing company record average unit volumes of 1.35 million months to date, representing a growth rate of nearly 13% compared to 2019. Total revenue was partially reduced by continuation of temporary COVID-related restaurant closure days for health and safety. These closure days declined relative to the fourth quarter of 2020, but did show a slight increase at the end of March and into April. coinciding with increases in COVID cases seen at a national level. On a restaurant contribution basis, our restaurant-level margins were 13.6% in the first quarter, compared to 10.7% last year, representing an increase of 290 basis points. Relative to 2019, which we believe to be a more relevant comparison, contribution margins increased 100 basis points, which is particularly encouraging given a 460 basis point increase in third party delivery fees versus 2019. The first quarter historically is a lower restaurant margin level quarter for the brand, and we saw sequential improvement throughout the quarter, culminating in restaurant level margins above 18% during the final fiscal period of Q1. These levels are much more indicative of where we would expect restaurant level margins in the second quarter and throughout 2021, as we execute against our accelerated growth target of 20% contribution margins by 2024. Reviewing margin drivers in a bit more detail, for the first quarter, our cost of goods sold was 25%, which represents a 50 basis point improvement from last year. The improvement was driven by our increased menu pricing and more efficient promotional strategies. We were also encouraged by minimal commodity cost inflation throughout the quarter. In terms of offsets, our packaging costs remained elevated, even as dining rooms opened in some capacity at nearly all of our restaurants. As off-premise remains, a high portion of our channel mix and meals sold to our dining guests continued to be packaged in to-go containers. Labor was 31.8% of sales during the quarter. a 290 basis point improvement from last year. The improvement was primarily driven by realized labor model efficiencies through our Kitchen of the Future initiative, particularly a reduction in front-of-the-house hours. We are pleased with our continued execution against our labor hours management and remain encouraged by turnover trends, which have resulted in lower training costs compared to last year. As planned, in March we began the rollout of our steamers equipment initiative, we have completed 87 installs to date, or 23% of the company's portfolio, and continue to expect a full rollout by the end of the year. Early results have been in line with our test, resulting in improved cook times, reduced labor hours, and better taste of food scores. We expect to continue to benefit from labor savings as this initiative gets rolled out throughout the balance of the year. Other operating costs for the quarter were 18.8% of sales, compared to 16.9% last year, due primarily to higher delivery fees in the quarter, as this channel remains a critical avenue to drive brand awareness for new guests and ultimately convert guests into brand loyalists. And as mentioned before, the growth of our third-party fees were more than offset by efficiencies in labor and cost of goods sold, where coupled with sales leverage, we ultimately realized net margin expansions. As Dave noted, the guests return to in-restaurant dining, and we remain encouraged by the strength of our off-premise and digital channels, which continue to increase on an absolute dollar basis sequentially through the first quarter and into April. Consequently, while we anticipate that delivery fees as a percentage of sales will moderate as overall volumes increase, we expect absolute delivery fees to remain fairly consistent over the next several months. G&A for the quarter was $10.9 million compared to $10.6 million last year. Excluding non-cash stock compensation, G&A for the quarter decreased modestly to $10.1 million compared to $10.2 million last year. For the full year, we continue to anticipate modest growth in G&A dollars. As efficiencies gained through our organizational review during the COVID pandemic are offset by our investment to support our unit growth strategy, as well as a more normalized incentive compensation. Our adjusted net loss, which excludes the impact of impairments, divestitures, and closure costs, was $0.8 million, or a two-cent loss per diluted share, compared to an adjusted net loss of $3.9 million, or a nine-cent loss per diluted share. Switching now to the 2021 outlook, The uncertainty of COVID continues to make it difficult to provide our typical full 2021 guidance. However, we are very encouraged by the average unit volumes we saw during the first quarter and throughout April. For the second quarter of 2021, we anticipate total revenues between 120 and 125 million, inclusive of the potential negative impact of temporary closure days related to COVID. We are very pleased with our unit growth pipeline for this year and beyond. We continue to anticipate 10 to 15 new restaurant openings system-wide in 2021, including 8 to 11 new company restaurants. We also expect full-year capital expenditures to be approximately 20 to 24 million. As we mentioned on the last earnings call, we did close six restaurants during the quarter, all of which were restaurants that continued to underperform, even as sales recovered across the system. the majority of these restaurants were at or nearing their lease end date, and we feel they were not well positioned by virtue of either being in urban office-oriented locations or overly resilient on retail generators. Following these closures and the completion of a thorough review of our unit portfolio, we remain confident that our real estate is well positioned for future consumer trends. We expect minimal closures going forward. With a review of the real estate portfolio as it relates to the COVID impact behind us, and as Dave mentioned, we are intensely focused on unit growth. From a balance sheet perspective, we feel very good about our current liquidity position. At quarter end, we have cash and cash equivalents of $3.1 million and a total debt balance of approximately $37.1 million. Our net debt of $34 million was $1.6 million below our net debt balance at the end of Q1 2020. as the team did an excellent job navigating the COVID pandemic while improving our liquidity position. We anticipate that we will produce positive free cash flow throughout the remainder of 2021, and our ability to maintain strong liquidity throughout the pandemic has positioned us to meet our growth objectives in the years to come. With that, I would like to turn the call back over to Dave for final remarks.
spk03: Thanks, Carl. Mills & Company is uniquely positioned to be a clear winner in the post-COVID environment. which we feel is reflected in our results thus far in 2021. The brand remains differentiated with the menu that is on trend and resonates with a wide variety of guests and occasions. Our digital and off-premise strengths are perfectly suited for today's consumer environment with continued upside as we increase our personalized engagement with our guests. And there is a significant expansion opportunity both for company and franchise developments. as we have an operating and economic model well-suited to support strong return on investment. The company is intensely focused on achieving our accelerated growth objectives, and I would like to reiterate my thanks to our teams throughout the country. I continue to be humbled at the opportunity to work with them and look forward to taking the next step of our journey together. With that, Amanda, please open the lines for Q&A.
spk10: My pleasure. To ask a question, Please press star followed by the number one on your telephone keypad. That is star one to ask an audio question. To withdraw your question, press the pound key. We will now pause to compile that Q&A roster. And your first question comes from Jake Bartlett with Trust.
spk15: I wanted to start with current sales trends and try to understand the acceleration you're seeing in April. And I guess how much of the current trend do you think is due to a temporary lift from stimulus tracks versus, you know, pent-up demand as the economy reopens and some of your own sales initiatives like the gnocchi?
spk03: You know, certainly I think acknowledge that many of us in the industry have seen that the industry has seen an increase in dining out due to the stimulus. At the same time, four things give me great confidence in terms of where we'll head from here. First, we were receiving momentum even prior to the stimulus, and even now that we're a few weeks beyond that, we're not seeing any slowdown in momentum. In fact, it's increasing a bit. Third thing, metrics across the board for us, all of the leading indicators are extremely positive. So whether it be turnover and tenure at the restaurant level, cook times, guest satisfaction, all the operational people, brand metrics look so great across the board that we think even as you potentially have a little bit of a waning off of the benefit from stimulus or pent-up demand, noodles would be a clear winner. And finally, it is those initiatives. So with tortelloni coming in later this quarter, as well as several of our other initiatives, particularly around digital, we feel the brand's extremely well positioned. So difficult to assign an exact number on what the benefit of the stimulus and pent-up demand has been. We feel extremely confident that we'll be able to continue our outperformance.
spk15: Great, great. And then I guess you're having the dining rooms open, and it seems like you're seeing a sales mix shift back into the dining rooms a little bit for digital, even as digital is growing. But is that having an impact on a higher average check as that mix is shifting back?
spk03: We're seeing overall check continue to be roughly the same as what we saw during the initial parts of the COVID pandemic, so certainly a little bit higher than expected. are then what we have historically. What we're super excited about is the fact that those digital sales continue to break records even as we recover 60% of the dine-in sales. So I think it'll still be a while before we understand what the long-term check dynamics will be from the consumer. But what is encouraging is that we're seeing that that digital occasion has been very sticky.
spk15: Great. And just one last one on on unit growth. Can you give any update on, you know, the progress you're making with franchisees and building the pipeline there?
spk03: Yes. As we said, we do have a franchisee opening restaurant in South Carolina. Later this summer will be our first new franchise market in a few years, actually. We're really excited with the momentum that our head of franchise sales, John Ramsey, we brought on a few months ago. I see some great candidates that are really excited with the, performance of our most recent restaurants as well as the overall trajectory of the business. So it will take time. As always, we ensure that it's a pretty robust process in terms of ensuring it's the right fit between ourselves as well as that franchisee. But we're very encouraged with the momentum that we're seeing, particularly in the target markets that we have, which are primarily in the South and Southwest.
spk15: Great. Thank you.
spk10: And your next question comes from Nicole Miller with Piper Sandler.
spk12: I think you said 57% in the quarter. Can you break that down, the pieces of digital, and in particular delivery direct versus indirect in the marketplace, please?
spk16: Sure. Go ahead, Carl.
spk04: Yeah, sure. So the 57% for digital, for the total digital, if I break that down, that number is actually more indicative of the fourth period, so what we saw into April. And as we look at that, we saw the third-party mix is around just a level over 25%, with the direct delivery closer to 4%. So the remainder there, the total delivery around just over 30%. As I think of the remainder, it's still our quick pickup and curbside that takes us to around 57%.
spk03: What we're seeing, Nicole, is that that delivery occasion still continues to be just over half digital sales. I'm seeing some progress in terms of moving people to direct delivery. Still a lot of upside there. But in general, we're seeing kind of growth across all channels of digital from an absolute dollar perspective.
spk12: Okay. And then you had mentioned margins benefiting, you know, my words, not yours, but less discounting. What was kind of an average discount back in the day and what is it today? Because it sounds like yourself and most other brands don't need the same discounting efforts in this environment.
spk03: So how we look at discounts, I know it differs a little bit depending on the restaurant concept. It ultimately ends up hitting your cost of goods sold. However, what we look at it as is a percentage of retail sales. And what we are running right now is kind of in that two and a half to three percent of sales. So think of it as a 70, 80 basis point impact to COGS. That's almost half of what we were a few years ago. So you're seeing a definite decline in the amount of promotional activity that we have. And it's actually more so, Nicole, that it's just more targeted, more effective, much more efficient as we utilize that rewards program. versus historically where you weren't able to engage in that personalized or targeted level.
spk12: That makes a lot of sense. That's very helpful. Last question. The margin numbers are awesome. It sounds like, you know, we can think about 18% as a run rate. In terms of the pieces, on labor in particular, you know, when you hit 100% of let's call it pre-pandemic sales, did you have the staffing you need? And probably more importantly, up 13%. Are you running a little short and you need to do some hiring and make it up? And should we be careful about the pieces, like how we model the margin going forward? Or is labor not a concern in that way of staffing?
spk03: Sure. I'll let Carl talk in a bit about where we expect kind of the overall labor line item to go. No question we're seeing one of the most competitive labor environments that I've seen in my 17 years in noodles and company. At the same time, our people metrics, our culture, I think Nicole is stronger than ever. So our turnover is down significantly versus where we were a year ago. Management turnover is almost half of what it was a few years ago. So we feel like we've got a great pipeline and a culture that supports a lot of retention. That said, as we continue to have new units coming through the pipeline, as we continue to have increases in our average unit volumes, We're certainly focused on ensuring that we continue to have a significant application flow to support those restaurants. We definitely feel we're in a better position than most of the industry, given just the strength of that team below. Overall, as you look versus the pre-COVID pandemic, certainly I think the staffing environment is even more challenging than it was then, but I think the brand itself is better positioned than it was before. Specific to members, I don't know what you'd add, Carl.
spk04: Yes, sure. Nicole, if you think about the Q1 margin level and a bridge to 18% and where we would expect to go forward, it's really three factors in increasing importance. It starts with sales leverage as the most important one, then labor, and then shift to a higher margin channel. So the sales leverage is going to impact all of the margin expense lines going down. The labor is probably going to be the most impactful, reason being that we took a lot of efficiencies in 2020, and we're expecting further in 2021 with steamers. That's going to begin to get more illuminated as we start seeing that sales leverage shine through. So really that specific line item that you're going to see most of the improvement. And then finally, as we shift to higher margin channels, As we mentioned, third-party remains to be an important channel for us, and these third-party fees are going to stick. But as a percentage of sales, that margin is going to get a little bit tighter because we're going to see some sales leverage offsetting that, and we're shifting to more higher-margin channels like dine-in.
spk11: Thank you very much.
spk10: And again, if you'd like to ask a question... please press star followed by the number one on your telephone keypad. That is star one to ask an audio question. Your next question comes from Andy Barish with Jeffrey.
spk06: Hey, guys. How's it going?
spk02: Excellent. Thank you, Andy. How are you?
spk06: Good, thanks. Actually, just on the labor during the first quarter, I thought it ran a little heavy, at least versus my model. Obviously, it sounded like it got a lot better in March. Was there anything going on early in the year, you know, ramping up with dining rooms reopening or some incremental training, you know, with Neoki, just to kind of put the overall quarter in perspective? Yes.
spk03: Yeah, honestly, Andy, I would not be nervous at all about what you saw from the Q1 perspective with labor. So if you go back historically with Middles and Company, Q1, as Carl alluded to, significantly lower volumes from a seasonality perspective, particularly January and February. The overall effectiveness and efficiency of the team, even as we reopen the dining rooms and increase the labor models to incorporate that part of the business, it's one of the best labor opportunities labor percentages we've brought probably in Q1 since I've been here. So what you will see is just naturally as we move into a timeframe where we will have better leverage on that volume, labor will come down meaningfully.
spk04: And Andy, the only thing I'll mention is as we bridge that to what we saw at the end of Q1, so closer to 18% total contribution margins, a lot of that's going to come into the labor models, the labor lines specifically. That's where we see most of the leverage. Gotcha.
spk06: And then can you give us an update on rewards, numbers, you know, kind of where you are on the journey, personalization, anything you have as other, you know, fast casuals have done where maybe there's a, you know, digital only product or something like that that you're thinking about to activate more, you know, more rewards members?
spk03: Yeah, so one thing we're excited about, Andy, is we're seeing increases both in the number of guests that are in the program, which is now above 3.6 million, about 20% above where we were a year ago, but also we're seeing increases in the frequency of those guests as they just become more and more engaged and active with the brand. Specific to any type of activities, I actually think there is a good opportunity that with our upcoming introductions that you might see a particularly positive particularly good reason for you to be a rewards member of Needles & Company. So it's something that we definitely think is a vehicle for us to continue to engage with our guests and give them great reasons to be loyal to our brand and look for something, I think, in the next couple weeks that maybe fulfills your prophecy.
spk05: Sounds good, guys. Thank you.
spk10: And there are no further questions. I would now like to turn the call back over to the management team for any closing remarks.
spk03: Nice. We appreciate everybody's time. We know it's an extremely busy earnings season. Very excited with where the Mules & Company brand is today and even more excited about where we're going in the future. So thanks again for your time. We look forward to catching up soon.
spk10: That does conclude today's call. Thank you for your participation. You may now disconnect.
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