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spk04: Hello and thank you for standing by. Welcome to the Fiscal Third Quarter 2021 Conference Call and Webcast with Del Taco Restaurants, Inc. I would now like to turn the call over to Mr. Rafael Gross, Managing Director at ICR, to begin.
spk06: Thank you. Good afternoon and welcome. On today's call are John Capasola, President and Chief Executive Officer, and Steve Brake, Chief Financial Officer. After we deliver our prepared remarks, we'll open the lines for your questions. But first, let me remind everyone that part of our discussion today will include forward-looking statements. These statements are not guarantees of future performance, and therefore, under reliance, should not be placed upon them. We do not undertake to update these forward-looking statements at a later date and refer you to today's earnings press release and our SEC filings for a more detailed discussion of the risks that could impact Del Taco's future operating results and financial condition. Today's earnings press release also includes non-GAAP financial measures, such as adjusted net income, adjusted EBITDA, and restaurant contribution, along with reconciliations of these non-GAAP measures to the nearest GAAP measures. However, non-GAAP financial measures should not be considered as alternatives to GAAP measures such as net income or loss, operating income or loss, net cash flows provided by operating activities, or any other gap measure of liquidity or financial performance. Let me now turn the call over to John Capusola, President and Chief Executive Officer.
spk07: Thank you, Rafael, and hello, everyone. We appreciate you all joining us for today's call. I'm very proud of our teams who continue to drive strong restaurant-level execution in this difficult operating environment. Our third quarter performance was in line with our expectations, which I would characterize as a good outcome, particularly in light of well-known cost pressures across the restaurant industry. On the top line, we drove positive, comparable restaurant sales across company-operated and franchise restaurants compared to last year and compared to 2019, as we lap strong performance driven by our very successful launch of Crispy Chicken, and despite the emergence of the Delta variant, along with well-documented staffing challenges in our category. At the same time, the inflationary headwinds impacting our industry were managed through menu pricing, totaling approximately 5%, paired with operational excellence and strong guest satisfaction scores across our drive-through, takeout, and delivery channels. In addition, as you may have read in numerous recent press releases, we have been very active signing four additional new franchise development agreements from coast to coast since July, bringing our year-to-date total to seven new development agreements for 53 future commitments. These new development agreements expand our pipeline and further support our ability to deliver 5% system-wide new unit growth led by franchising beginning in 2023. First, I will briefly review our third quarter highlights before discussing the specifics on these new franchise development agreements. During Q3, system-wide comparable restaurant sales grew 1.8% over the prior year, consisting of a 2% increase at franchise restaurants and a 1.6% increase at company-operated restaurants. During Q3, on a same-store basis compared to 2019, company sales grew at a low single-digit rate, while franchised restaurants grew at a high single-digit rate. Geographically, on a same-store basis versus 2019, our primarily franchised non-California restaurants grew approximately 10%, while California grew at approximately 4.6%. Restaurant contribution margin decreased by 150 basis points to 16.5%, which primarily related to normalized advertising expense of 4% of restaurant sales versus 3% last year. In terms of profit, adjusted EBITDA decreased to $14.1 million from $15.3 million. This reduction was primarily due to the dollar impact of the normalized advertising. Through our quarterly dividend and share repurchases, we returned an aggregate $5.9 million of capital to shareholders and also reduced our outstanding revolver to $106 million from $110 million. Finally, during Q3, we opened one company and three franchise restaurants and closed one company and one franchise restaurant to end with 603 system-wide restaurants. Now let's discuss restaurant development. and specifically how our new agreements with experienced restaurant operators provide momentum for our franchise-led growth. So far this year, franchisees opened eight new restaurants, and the company has opened three company-operated restaurants. Our fourth and final 2021 company opening will be our first new Fresh Flex prototype in our new Orlando seed market, and we expect one additional franchise opening. Following three development agreements for 30 units announced prior to our Q2 call, since July we have signed an additional four new development agreements for another 23 units. These newest agreements cover future restaurants in four states from coast to coast, including the east coast of Central Florida and Raleigh-Durham, North Carolina, as well as Fresno, California, and nontraditional casino locations in Las Vegas. These signings demonstrate our growth potential not only in the southeast, which we know has significant room to grow the brand, but also in California and in Las Vegas, where even with our current penetration, we believe there are still strong infill growth opportunities. Importantly, our steady stream of new franchise development agreements has been aided by very strong interest in QSR drive-through development and ultimately made possible by highly desirable Del Taco traits, including our unique QSR Plus positioning, ubiquitous menu that drives broad appeal, strong track record of eight consecutive years of franchise-comparable restaurant sales growth across 15 states, and attractive new FreshFlex prototype, which expands real estate opportunities to help lower net investment and modernizes the guest experience. On a related note, we recently announced a new delivery-only license agreement with Reef, a leader in the growing ghost kitchen space. We expect to open our first Reef outlet in the dense urban mid-city area of Los Angeles later this month, which is the first of several planned outlets. We are excited about this new delivery-only partnership to help expand access to the brand where there is strong delivery demand, particularly in high-density urban areas. As a reminder, we expect a modest step-up in system-wide restaurants in 2022 compared to 2021 as existing franchisees begin to leverage Fresh Flex. However, we believe our growing franchise development pipeline, including seven new agreements for 53 Del Taco restaurants signed this year, puts us in a strong position to deliver on our stated goal of system-wide new unit growth of 5% beginning in 2023. Regarding our test remodel program, we are currently integrating our Fresh Flex prototype into our remodel design and remain on track to complete up to 20 company-operated remodels this year, including 10 extensive remodels of older facilities and 10 remodels of more modern facilities with primarily cosmetic upgrades at a lower investment level. We are excited about the transformative impact these remodels are having on the restaurant and expect to continue to invest in this important brand and AUV driving initiative as we move into 2022. Turning to sales and marketing. We continue to execute on our five sales acceleration drivers, and those are value leadership, menu innovation, brand engagement, digital transformation, and ultimate convenience. These pillars are anchored by our focus for better operations execution strategy, designed to ensure that we provide guests and employees outstanding brand experiences. Let me start with operations. The entire industry is feeling the impact of labor staffing challenges, and we are no exception. For certain restaurants with labor availability challenges, we selectively increase wages and, in some cases, temporarily close dining rooms or limit our late night and early morning hours of operation. The need to reduce operating hours increased throughout Q3 and impacted the company-operated comparable restaurant sales by slightly under 1% during fiscal Q3. We believe this impact has peaked at approximately 1% thus far during fiscal Q4 based on recent improvements from our efforts to combat the labor challenges. Specifically, we are executing our holistic staffing strategy focused on both recruitment and retention. On the retention side, we are showing appreciation for our teams through things like daily pay, free meals, and doubling our referral bonuses. along with special events like Employee Appreciation Month. We have also enhanced our talent acquisition through new digital recruiting efforts to increase our presence on job boards and simplify the application process to reduce friction for applicants. Recently, our actions have begun to translate into increased applicant flow that is allowing hotspot restaurants to return to more normalized operations. As we add staff to these locations, we are also investing in additional training to set the new team members up for success. Turning to sales and marketing. In August, we leveraged our menu innovation, introducing another exciting platform, Stuffed Quesadilla Tacos. which takes our fan-favorite quesadilla and adds creamy queso blanco, folded into the shape of a taco shell and stuffed with grilled chicken, carne asada steak, or crispy chicken, as well as our fresh guacamole as an add-on. These tacos represent a trade-up from our current tacos and have been met with strong consumer demand, mixing at over 6% of sales thus far, which has helped us maintain our positive sales momentum as we lapped a very successful crispy chicken launch a year ago. Next month, we welcome the seasonal return of our authentic tamales menu, which we consider a perfect holiday comfort food. Our tamales are made with seasoned shredded pork and a fire roasted salsa surrounded by a layer of soft stone ground corn masa and wrapped in an authentic corn husk. We will also offer a tamale fiesta pack with 12 tamales to feed the whole family with a simple trip through our convenient drive-thrus or delivery channels. On the day part front, Delivery remains a key driver of sales growth, representing over 7% of sales during the third quarter. Delivery is particularly well-suited to capitalize on guest demand for convenience and value during our late-night hours of operation when delivery over-indexes, and it's helping to drive outsized one- and two-year growth in our late-night day parts. Turning now to digital transformation. Last month, we successfully launched our new holistic CRM platform and introduced our new loyalty app called Delia Rewards. Delia Rewards is a point-based loyalty program featuring four tiers named Queso, Scorcho, Inferno, and Epic that unlock exciting offers, rewards, and experiences, which increase along with the usage of the app. The LEL Rewards also enables us to unlock our customer data to drive personalized and valued experiences by delivering unique messages and offers in a way that members are most apt to respond to. We are very excited by the launch of this loyalty program and look forward to sharing more on its impact to the business on future calls. Finally, reflecting our commitment to deliver shareholder returns, We paid our third quarterly cash dividend of 4 cents per share in late August, and today announced our fourth quarterly dividend of 4 cents per share, which will be paid on November 24th. We also repurchased approximately $4.4 million of common stock during the quarter as part of our buyback program. Looking ahead, although the current environment continues to present staffing challenges and inflationary pressure, Our relevant QSR plus positioning, use of innovation and ability to deliver value across our barbell menu strategy provides us with significant pricing power that we will utilize to manage inflation as we exit 2021 and enter 2022. This focus, along with our strong foundation, which now includes our new Delia rewards program and an expanding group of franchisees eager to invest in our brand for the long term, have set us up for continued growth and expansion. Now I'll turn the call over to Steve to review our Q3 financial results and outlook.
spk03: Thanks, John. For the third quarter, total revenue increased 2.9% to $124.3 million from $120.8 million in the year-ago period. Company restaurant sales increased 2.2% to $112 million from $109.5 million in the year-ago period, which was primarily driven by positive comparable restaurant sales and, to a lesser extent, new company-operated restaurants. Franchise revenue increased 8.1% year-over-year to $5.6 million from $5.2 million last year. The growth was primarily driven by the increase in franchise comparable restaurant sales coupled with additional franchise-operated restaurants compared to last year. As John said earlier, system-wide comparable restaurant sales increased 1.8%, consisting of a 1.6% increase at company-operated restaurants and a 2.0% increase at franchise restaurants. Turning to expenses, food and paper costs as a percentage of company restaurant sales decreased approximately 30 basis points year-over-year to 26.2% from 26.5%. This was primarily driven by a menu price increase of approximately 5% that exceeded food inflation of just over 4%. As expected, inflationary pressure materialized during the second half of 2021, and our projected Q4 food inflation is approximately 5%, resulting in full-year inflation of approximately 2%. To help manage this inflation, we accelerated the timing and magnitude of our fall price increase and now expect menu price of 5.5% in the fourth quarter. Looking ahead, we believe our QSR Plus positioning and the attractive price points we offer across our barbell menu strategy drives a compelling value proposition and provides us with significant pricing power that we plan to utilize in the new year to help manage food inflation that will likely extend into the first half of 2022. Labor and related expenses as a percentage of company restaurant sales increased 80 basis points to 33.2% from 32.4%, driven primarily by minimum wage increases in California and Nevada, as well as wage rate pressure from restaurants with labor availability challenges where we selectively increased wages. These impacts were partially offset by the impact from our positive comparable restaurant sales, including elevated menu pricing, effective management of variable labor, and a reduction of workers' comp expense based on favorable underlying trends. Occupancy and other operating expenses as a percentage of company restaurant sales increased by approximately 100 basis points to 24.1% from 23.1% last year. This increase was primarily due to higher advertising expense, which normalized at 4% of restaurant sales, compared to 3% in the prior year quarter and higher utility expense. Restaurant contribution decreased 6.3% to 18.5 million compared to 19.7 million in the prior year, while restaurant contribution margin decreased approximately 150 basis points to 16.5% from 18.0%, primarily due to the aforementioned higher advertising compared to last year. General and administrative expenses were $11.2 million, up from $10.8 million last year, and as a percentage of total revenue held steady at 9.0% compared to last year. The increase was primarily driven by increased non-cash stock-based compensation, travel expense, and general inflationary trends, partially offset by lower management incentive compensation expense. Adjusted EBITDA decreased 8.0% to $14.1 million compared to $15.3 million last year and decreased as a percentage of total revenues to 11.3% from 12.7% last year. Depreciation and amortization was $6.0 million down from $6.1 million last year due to the impact of fully depreciated assets and decreased 20 basis points to 4.8% as a percent of total revenue. Interest expense was $0.7 million compared to $0.9 million last year. The decrease was due to a lower average outstanding revolver balance and lower interest rate compared to 2020. During the third fiscal quarter, our outstanding revolving credit facility borrowing was reduced from $110 million to $106 million, and the remaining availability under the revolving credit facility was $130.6 million. Along with this debt reduction, we also repurchased 449,324 shares of common stock at an average price of $9.87 per share during the third quarter for a total of $4.4 million and paid our third quarterly cash dividend, totaling $1.5 million. At the end of the fiscal third quarter, approximately $10.6 million remained under our $75 million repurchase authorization. Net income? was $3.8 million or $0.10 per diluted share compared to $5.8 million or $0.15 per diluted share last year. We also reported adjusted net income, which excludes items identified in our earnings release in the financial tables. Adjusted net income was $4.2 million or approximately $0.11 per diluted share compared to $6.0 million or $0.16 per diluted share last year. In today's earnings press release, we formally announced our fourth quarterly dividend of $0.04 per share of common stock that will be paid on November 24, 2021 to shareholders of record at the close of business on November 3, 2021. Through the first five weeks of our 16-week fiscal Q4, our company-operated comparable restaurant sales are up approximately 3%, and franchise comparable restaurant sales are up over 4%, despite the impact from reduced operating hours that John referenced. Please refer to today's earnings press release for our fiscal 2021 guidelines. That concludes our formal remarks. As always, thank you for your interest in Del Taco, and we are happy to answer any questions.
spk04: And at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we call for questions. Our first question is from Alex Slagle with Jefferies. Please proceed with your question. Great. Thank you.
spk05: On things for sales, just wanted to walk through some of the drivers, trying to think through some of the biggest tailwinds and headwinds. And it sounds like the trends improved pretty good here quarter to date. But maybe first just on the intro of the CRM platform and loyalty program and just how we should think about that in terms of directly impacting the comps in the early stages, if at all, or how should we think about that piece?
spk07: Yeah, it's early, Alex. I mean, we're seeing some really good directional trends, but we're only four weeks in. So as a reminder, we launched on September 9th. And then we did the hard launch, which was point of purchase materials at the restaurant, starting to do some of the marketing on September 16th, so just a few weeks ago. And then really our second wave campaign, which was really a focus on marketing and acquisition and getting folks to transition. not only get new members, but get folks to transition from the old app to the new app, kicked off here on October 4th with some tags on television and radio and promoting it through our direct mail and FSI drops, and we've also got some digital media acquisition going. So it's early days, but what I would say is that directionally, You know, what's happening is kind of what we wanted to have happen, which was, you know, you look at the motivation that occurs with both current and new members related to the point-based system and that structure designed to motivate and reward behavior. So we've seen, you know, there's unique active users already in the first four weeks perform at a similar level that we had with our old app. And that's before we've even completed the migration, right? You've still got guests that are moving into the new app from the old app. The other kind of piece that we thought was really telling and interesting was that nearly 40% of the members coming into Deliaw Rewards are actually new members. So these are folks that were not in the old app. So, again, you know, just kind of speaks to the motivation around that app not just being an offer engine. There's reasons to be involved with the brand and engage with the brand in that, and certainly being able to earn, you know, points and move up into loyalty tiers is a big part of that. So we feel great about the first four weeks. Execution's been good, and a lot more marketing to come, you know, in regards to that app as we move to the back end here of Q4 and into, obviously, 2022.
spk05: How many members are you up to now?
spk07: So we have nearly 250,000 members in the first four weeks. So, again, that's a combination of those new folks I referenced, nearly 40%, and then folks migrating over from the old app into the new app. So, again, just to underscore, when you see the unique active users, performing at a similar level in the first four weeks in aggregate, in totality on that 250,000 number, compared to the 1.5 million that we had in the old app, that's pretty impressive, and I think it speaks to the frequency and usage that's happening within the new loyalty program.
spk05: Okay. And then thinking about some of the other drivers, staffing, obviously you talked about that being a 100 basis point sort of impact and I guess working that down and then just in terms of menu innovation and promotional lacks, I mean, kind of what would you call out as the biggest driver for us to think about in terms of changing the trajectory and accelerating the comps?
spk07: I think it's important to remember that Q3 was positive going over positive for both the company and franchise same-store sales trends. Q4 thus far, as we noted, is also positive going over positive for company and franchise. It's important to remember that we were able to achieve same-store sales growth in Q3 and Q4 2020, despite the pandemic. And we just happened to roll over in Q3 one of the more successful product launches in the history of the company, which was the Crispy Chicken Taco or the Crispy Chicken menu in 2020. I think overall, What I'd say on this front is the product launches with Stuffed Quesadilla Tacos and Double Cheese Breakfast Tacos, along with LAI Rewards, which will continue to build momentum, are driving improved year-on-year same-store sales trends as we look at the first five weeks of Q4 compared to Q3. And that's really despite those operating in a more challenging environment year-on-year. Due to some of those staffing challenges that we referenced in those hotspot stores. So overall, we expect to finish 2021 with six consecutive quarters of same-shore sales growth in both the company and franchise. And that's basically going back to, obviously, the last negative quarter was Q2 of 2020. which was the first quarter of the pandemic. So, you know, overall, you know, we feel good about the trend and the programs that we've launched recently, and we think that that's, you know, they're going a long way in helping us continue to drive same-store sales growth.
spk05: Just a last question I just wanted to see on delivery, if you're seeing any changes in demand or anything now that we're kind of moving past the potential benefits of stimulus and extended unemployment benefit to be seen anything there.
spk03: We continue to see delivery for the system. Both company and franchise continue to grow modestly. Both company and franchise were north of 7% during fiscal Q3, which we view as a good sign, especially since we did implement another slight uptick to our menu price premium for delivery on the company side. Company restaurants at about 22.5%. Franchisees also in that low to mid 20% area. So we Feel good about the model and the trend. Thank you.
spk04: Our next question is from Nick Sechin with Wedbush Securities. Please proceed with your question.
spk02: Thank you. What was the overall average track in the quarter, Steve?
spk03: It was in the mid-high nines.
spk02: Got it. And, you know, 5.5% pricing in Q4, you know, assuming it kind of stays in that 5% range, like in the first half of 22, you know, you guys kind of gave us 5%, you know, food cost inflation in Q4. I mean, does that imply, like, we should see COGS as a percentage of sales come down in Q4 versus Q4 of last year, or is there some mixed shift that we should think about?
spk03: Well, the commentary is, you know, looking at both food inflation, you know, and menu price, you know, both being in that, you know, 5-plus percent area, which would, you know, imply slattish for Q4 on a year-over-year basis, which is, you know, I think directly correct. You know, as you know, your waste and efficiencies can somewhat play into the food line as well, not to mention, you know, product mix. But, you know, in general, that would be a slattish implication for Q4 year-over-year.
spk02: And I guess the same question on labor. You know, Q3, we saw about 5%, assuming 6% inflation. You know, we saw about 80 bits of labor deleverage. Just given the level of pricing, you know, perhaps, you know, I would have thought it would have been a little less. Is there like overtime pay? Is there just kind of maybe go through the puts and takes on labor that we should think about in terms of, you know, how to think about the Overall, maybe hourly growth versus just inflation. How should we think about that as we kind of think about how to model the labor line?
spk03: Yeah, on labor, as typical with our California-heavy and Nevada-heavy footprint, the main driver of inflation is California and Nevada minimum wages. That is working against us. I would say the operational efficiency has been very good at the restaurant level, so that's been a positive. Operators are executing that very well. But, again, back to the minimum wage, that's the main driver. And then John touched on it. It's more on a limited basis, but there are kind of hot spot restaurants, if you will, which are minority, but those are situations where we are paying a higher prevailing wage as appropriate. And then, in addition, some of the labor availability challenges that John touched upon, that, of course, does play into not just some curtailment of operating hours, but also, indeed, you hit the nail on the head, an increased uptick in overtime. So all of that serves to boost up average effective wage, which includes the impact of overtime. Any given year, average wage will continue to tick up during the course of the year. This year, that additional rate of growth has been higher intra-year than we've seen before. That said, on a long-term basis, as you know, average wage with a California footprint is We are on a path towards $15 an hour where minimum wage culminates in California starting January 1, just a few months from now. In fact, that $15 level will then be maintained through 2023. So it's certainly possible that some of this end-year uptick in wage we're experiencing may be more of a timing issue when you think about the long-term. That said, it was pressuring us a bit in Q3. It played into that 80 pips of deleverage that you saw. And, you know, given the trend, that'll continue into Q4. But we'll again expect, you know, deleverage on that line, you know, and again with the low single digit, you know, call it same sort of sales trajectory. That's what leads to the deleverage overall.
spk02: Understood. And just last question. You kind of commented that, you know, more recently you've seen some of the labor pressure come down. First, is that a correct interpretation? And second, you know, I understand that you don't really have a crystal ball, but I guess what's your internal estimate or expectation or, you know, how you're strategizing for, you know, for when the timeframe for when that, you know, may normalize? Is it by then the Q4? Is it more like, you know, the middle of 22 in terms of the staffing issues?
spk07: So, Nick, it remains very fluid. It's hard to predict exactly what's going to happen, but I'll say we've got a very holistic strategy that we talked about on a couple of calls now in regards to how we're thinking about both acquiring quality talent as well as keeping quality talent and making sure that we're training and developing them and Overall, I think our operators and our franchisees are just doing an outstanding job leading in this environment with our people's first focus and navigating a very challenging time. That said, the hotspot restaurants where we've reduced operating hours by an hour or more or so, that roughly represented somewhere in the mid- to high teens as a percent of restaurants. You know, kind of as you look at it week to week, it changes a little bit week to week depending on the situation with the restaurants we are managing it. Our operators and our franchisees are managing it daily and weekly. But the commentary around it peaking, you know, so far in Q4 at about 1%, that's due to a really nice improvement in applicant flow coming into the system in the last few weeks. And, you know, that is related to, you know, a digital recruitment campaign that we are investing into that we have the ability to kind of really target on a zip code basis and put extra dollars into stores that need more help and take some dollars away from stores that don't need quite as much help. And that's actually improved the applicant pool for us by 4X over the last few weeks. So those quality applicants coming into the system, that's step one for these hotspot restaurants. Then getting those folks trained properly and developed properly to create great guest experiences, that's step two. But certainly we've seen some of these hotspot restaurants start to return back to more normalized operating hours, I should say, in recent weeks.
spk02: Understood. Thank you.
spk04: And our next question is from Todd Brooks with CL Keen Associates. Please proceed with your question.
spk01: Hey, good afternoon, guys. Good job navigating a tough environment here. I want to lead off with just kind of same-store sales progression for the comparison. Obviously, Crispy Chicken, a massive platform for you guys. Good success with new products. during Q3 allowing you to still comp positively even with the headwinds from labor. How does the kind of comparison look across the back half of the fourth quarter relative to what you've talked about comparing against in that 3%, 4% range so far in the quarter? Does it ease at all if you move farther into the crispy chicken lunch?
spk03: For the system, Todd, both the company and franchise, we had a 16-week fourth quarter. The second, the later eight weeks did perform better a year ago than the first eight weeks. So the compare, if you will, will get a little bit more difficult as we round out the back half of the quarter.
spk07: But I think at the same time... At the same time, just note that the burn-off from Crispy Chicken started to occur. We were maintaining higher sales mix, but that initial excitement around Crispy Chicken really was burning off in September. And now, obviously, having some of these new platforms that we've launched, you know, and hope to continue to see gaining momentum along with our tamales LTO that happens, you know, kind of in November. We think we're in a pretty good position, you know, to obviously have a positive same-store sales on the company and the franchise business in Q4 and, you know, put up a nice result.
spk01: Great. And you do have the benefit of Del Yad now, which you did not have last year as a driver. Definitely. Okay. Great. Secondly, can you give us some details behind the reef partnership? How does that work? Is that a royalty arrangement? And I guess if you look at the markets that you're operating in, I know you're about to open the first later this month, but what's the potential of kind of densely urban markets that you could see if this works, dropping a reef ghost kitchen into?
spk03: Yeah, we're excited about it. You know, the first outlet will open later this month, a very dense urban area of L.A. You know, really the purpose here is, you know, expand access to the brand, you know, particularly in dense areas where there's a lot of guests and occasions that we're just not servicing today. So we're excited about that. You know, as we mentioned, you know, there are several more planned events. Overall, to your question, it really is very akin to franchising. It's a licensed deal, very similar to a franchise arrangement, although it does feature a reduced marketing contribution, which is appropriate based on the nature of this delivery-only channel. So really, the focus right now is having a good, successful launch here, moving forward with the additional planned openings down the road. And, you know, really learn from it and then decide from there, you know, in partnership with Reef, you know, what the future looks like. So we're excited. A lot more to come, including, you know, performance out of the first of several outlets.
spk01: Okay, great. And then a final one for me, real acceleration in your franchising activity here in the third quarter with larger scale partners too, which is great to see. I guess two questions on this front. How does kind of the pipeline look behind it? Are there people that are conditioning their decision to go on seeing kind of the first Fresh Flex come out of the ground in Florida this quarter? And secondly, with the types of partners that you're signing with, my sense is the bandwidth is there that a signed deal, if it works, could grow pretty dramatically. Could you talk about maybe other brand nameplates that these partners are running and a 10-unit deal and the potential for it to grow into something if it really works for them. Thanks.
spk07: Yeah, sure, Todd. So first off, from a pipeline perspective, we've been building, obviously building pipeline with a great group of existing franchisees for some time now. And I think our existing group that really is the foundation of our pipeline is has done a nice job and is really excited about Fresh Flex and continues to build opportunities. And especially now, as you look at having, with our menu and venue strategy, more and more assets to grow with than we had before. It's not the old kind of cookie-cutter model anymore. Now we've expanded the asset group to be drive-through only, which is a smaller footprint. Perhaps gives you the opportunity to access trade areas you couldn't have accessed before. all the way up to more of a standard prototype with a dining room. So that existing group has been and will continue to build pipeline and be a good part of our growth story. And then what you referenced is the seven new deals for 53 units that we signed this year. Obviously, those will start to come to fruition here over the next 18 to 24 months as those initial stores are opening. And to your point, We are absolutely taking a quality over quantity type of an approach with these groups. We certainly see some operators that we've signed that have some big brand nameplates, to your point, and have capability and current store counts in the market. you know, the multi-dozen range and more. And we know that with success begets, you know, begets excitement and more success, and that's what we're intent on delivering and supporting these partners to do. So to your point, there's definitely some upside, but we need to execute, we need to deliver the brand, and we need to give our new partners the support for them to be able to kind of get to that next level of growth, if you will.
spk01: Okay, great. Thanks, John.
spk07: Got it.
spk04: And, again, as a reminder, if anyone has any questions, you may press star 1 on your telephone keypad. Doing so will ensure you're spotting the question and answer queue. And our next question is from Nicole Miller with Piper Sandler. Please proceed with your question.
spk00: Thank you so much, and good afternoon. Just a couple quick ones. On the fourth quarter price, 5.5%, did that start day one before queue, or is that coming now?
spk03: It is. It'll evolve slightly throughout the quarter, but throughout the quarter, we will be maintaining somewhere between five and six based on the timing of what we're rolling over. So essentially, day one, we're in the five-plus area.
spk00: Okay. I was just trying to true it up to the commentary of the quarter-to-date comp, so I appreciate that to see how much more price is on the comp against difficult compares given the earlier question. And then second on comp, And this is probably maybe just nuanced, but company-owned improvement could reflect easing comparers, but franchise comp gets more challenging and they're doing much better. We know price could be a factor. Is there anything else you would point to? Any other channel, day part, regional trend that we should be aware of?
spk03: Yeah, we still have a fairly pronounced theme of geographic differences. So the company is heavily California, Southern California specifically, and Las Vegas, whereas franchisees are operating across the 15-state footprint. So we continue to see on a one- and two-year basis differences. Really outsized, very strong performance, particularly outside of California, which is largely in favor of our franchise community, where we share markets with franchisees. And so the California performance is much more aligned with much more modest franchise outperformance. So really that geographic theme continues to be fairly pronounced in favor of franchises.
spk00: Okay, thanks. And then just the last one. I mean, I was just kind of listening to the presentation and thinking at a very high level. This is really about swapping and refranchising some stores for a high flow-through EBITDA stream, right? And so I know there's mention of like 2% revenue growth, but I'm looking at what was like 5% total system sales growth. and up almost or more than 10% versus 2019. So have I characterized that properly? And the system's probably growing faster than just looking at that total revenue line, right?
spk03: Yes, a metric like system-wide sales, you know, which capture, you know, normal sales of the 600-unit system, it certainly would reflect, you know, the more robust growth you're describing, whereas, you know, in the company P&L, the revenue line, you know, is so heavily influenced by, you know, company restaurant sales, you know, that are certainly comping positive and growing, you know, but at a lower rate compared to franchise, you know, whereas franchise revenue does show that robust growth that you alluded to.
spk00: Yeah, and you've sloughed off some stores, right, and that's the plan. So, again, in favor of a recurring royalty stream. So I guess I just want to make sure, like, we're all, you know, making that comparison as well. So just ticking and tying, and I think that's it for me. Thank you for taking my questions tonight. Appreciate it.
spk04: You're welcome. Thanks, Nicole. And we have reached the end of the question and answer session, and I'll now turn the call back over to the management for closing remarks.
spk07: Okay. Thank you, Operator. And we certainly appreciate everyone taking the time today with us, and we thank you for your interest in Del Taco. It's exciting to accelerate growth, and we feel great about our prospects on that front. So we look forward to sharing our progress on future calls. Have a great day.
spk04: Thank you for joining us today. You may disconnect your line at this time. Thank you, and have a good day.
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