Good day, ladies and gentlemen. Welcome to the Good Times Restaurants Inc. Fiscal 2016 Second Quarter Earnings Conference Call. By now, everyone should have access to the Company's second quarter earnings release. If not, it can be found at www.goodtimesburgers.com in the Investors section. As a reminder, a part of today's discussion will include forward-looking statements within the meaning of the federal securities laws. These statements are commonly identified by words such as anticipate, continue, plan, expect, intend, should, will and other terms with similar meanings. These forward-looking statements are not guarantees of future performance and therefore you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect, and therefore investors should not place undue reliance on them and the Company undertakes no obligation to update these statements to reflect the events or circumstances that might arise after this call. The Company refers you to their recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial conditions. Lastly, during today's call, the Company will discuss non-GAAP measures, which they believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP and reconciliation to comparable GAAP measures available in our earnings release. Please note this call is being recorded. At this time, I would like to turn the conference call over to Mr. Boyd Hoback, President and CEO of Good Times. Please go ahead, sir.

Thank you, Jamie, and thank you everybody for joining us again this afternoon. With me today is Jim Zielke, our Chief Financial Officer. I'll cover a summary of our second quarter and current developments, and Jim will then provide more details on our financial results, our fiscal 2016 outlook along with the preliminary top line outlook for fiscal 2017. During the quarter, total revenues increased 76% to $15.3 million with comp sales increasing 0.5 point at Good Times and 1.9% at Bad Daddy's. Jim will provide more color on both of those. The increase at Good Times represents a three-year compound growth of approximately 28%, and the 1.9% increase at Bad Daddy's is in line with our expectations but impacted by some severe weather. Our plan for the balance of fiscal 2016 is for low single digit comps increases at Bad Daddy's, and again that's based on the relatively base of stores in the comp sales group, and about 3% to 4% comp sales increases at Good Times. As we talked about last quarter, weather tends to impact our sales fairly dramatically in the winter months, particularly at Good Times being Colorado-based, which was the case in this second quarter. We saw a really nice bounce in our same-store sales trends during the nice weather weeks, but that mixed weather impact on our sales trend continued to April when Colorado had 40% more snow than average. But our Good Times comps were only down 1% for the month of April, which we felt really good about, having lost a couple of days to snowstorms. However, we've seen also some nice sales acceleration into the first full week of May at Good Times as we've got some more seasonal weather going. Six of the eight Bad Daddy's units in the comp…

Thanks Boyd. As it relates to Good Times brand, despite lapping a two-year comp sales stack of over 26% this past quarter, and as Boyd mentioned, facing a very choppy quarter as it relates to weather, we were able to post 0.5% comps for the quarter, which does mark our 23rd consecutive quarter of comp store sales for Good Times. We had about a 3% year-over-year price increase in place. Traffic was down slightly for the quarter versus last year. Cost of sales for Good Times declined 220 basis points to 31.7% during the quarter from 33.9% last year, and also decreased sequentially from Q1 by about 160 basis points. These costs continued to decline during the quarter, down approximately 30% from last year and down approximately 10% from the previous quarter. However, bacon costs increased by approximately 77% versus last year, reflecting our switch to All-Natural bacon last spring, but did decline versus Q1 by proximately 7%. Custard and egg cost also increased year-over-year, but both commodities decreased slightly versus the prior quarter. At this point, we expect commodity costs to be relatively stable for the balance of 2016, resulting in a benefit to year-over-year margin comparisons for the next two quarters. Total labor cost at Good Times increased 34.1% from 32.3% last year, most of which is comprised by an increase in our average wage rates which increased approximately 6% versus last year. As Boyd mentioned, the Colorado labor market is extremely challenging with a very low unemployment rate as well as the statutory annual minimum wage increases that take place. As discussed previously, much of the increase in wage rates did take place in Q4 of fiscal 2015. So we would anticipate that the negative year-over-year margin impact of labor cost will flatten out in the upcoming…

Thanks Jim. As I mentioned last quarter, just due to seasonality and the new stores that have come online the first half of this year, we're on pace to significantly increase our cash flow from operations and our adjusted EBITDA in the last six months of this year, including other margin enhancements, and as Jim mentioned, most importantly, really preparing our pipeline for significant growth in 2017. We're somewhat confounded by our stock price performance, notwithstanding the development that is a little bit behind what we had originally planned, but we anticipate fully making that up in 2017. But our longer-term growth thesis is solidly in place, again with significant white space for development with what we think is a top tier unit economic model for growth. Again, while our fiscal 2016 development pipeline wasn't deep enough to compensate for the sites with late delivery and these delayed shopping center developments, we believe we are going to get ahead of that curve and putting in place a much broader pipeline for 2017 to make up for those delays, and again, that will put us on pace with our original expectations we've had on where we would be by the end of next year. As visibility into that progress and toward that revenue goal increases, we would certainly hope that our valuation become more in the line with small-cap growth peer companies, both as a multiple of revenue as we grow into significantly higher EBITDA as well as a multiple of that projected EBITDA. We don't feel like we're getting much credit at all for the growth that we've got in front of us, and I think as we get to the end of the pipeline and these stores open, hopefully that will significantly change. We appreciate your time with us today. With that, operator, we'll open the call for questions.

[Operator Instructions] Our first question today comes from Will Slabaugh from Stephens Inc. Please go ahead with your question.

Congrats on the quarter. Wanted to ask you on the new Bad Daddy's stores, it sounds like even with the slower period, you're really pleased with what you're seeing so far from a sales perspective. So I'm curious, number one, how you anticipate that sort of playing out through the year given? I'm assuming there's some sort of honeymoon in the stores now, or maybe there's not assuming that the market awareness may not be as high as what I'm thinking. And then second, could you talk about the margins, how they are playing out in the new stores versus maybe what you expected going into a new territory?

Sure. From a sales standpoint, we've been really happy. The first one we opened last fall opened a little bit slow, but since then we've been really happy with the openings. We expect them – they haven't had gigantic honeymoons like our second store that we opened in Colorado had. There's been a little bit of a honeymoon effect but we kind of took that into account as we de-seasonalized and de-honeymooned the trends as best we could with just the experience we have to date. So we anticipate they are going to continue on that trend for the balance of the year and that's what we've got in our projections and our plan. From a margin standpoint, I'll let Jim speak to that a little bit more, but there's really nothing how to whack. We operate pretty closely to our operating metrics within a couple of months after opening the store.

Kind of our need of model is that $2.5 million and for a Colorado market unit kind of mid-teens restaurant level operating cash flow, which we're seeing right around that, again in just the short period of time that we have had these new units open. Again that's really for the Colorado units. And I think we've mentioned before, there was probably a 3%, 3.5%, maybe even closer to 4% labor penalty with be higher minimum wage in Colorado. So if you look at it, the federal minimum wage state, those same stores would be doing 350 basis points better in terms of margin again at those same sales volumes. But all five of these were in Colorado, so they would have slightly lower margins than what we would anticipate for stores going to markets that are at that federal minimum wage rate.

Got it. And then also I'm curious, you mentioned you're building a couple of stores that are going to be JVs, I'm curious why go into that JV format versus building and operating them yourselves?

It's a good question. It's more expensive financing certainly than straight debt financing which we've got access to. The reason really is to be able to leverage the existing operating partners we have in those stores. So we're not going to be doing that on a large scale, but there's a couple more that we'll do in the peripheral North Carolina markets. None of those are in Charlotte but we've got a really good very strong operating partner in Raleigh, got a very strong operating partner in Winston Salem, and as we've got our ops team going to be fully occupied with four to five more in Colorado and other three to four in North Carolina plus two new markets, leveraging those guys we think is well worth it.

Got it. And lastly, just a clarification if I could, I believe you said pricing was 3% at Good Times, if I heard you correctly, just wanted to clarify that. And then could you give what it is at Bad Daddy's, if that's a universal number yet?

So that is, 3% is the average for the quarter year-over-year. At Bad Daddy's, Boyd mentioned the price increase we take, that was about a 2% price increase in December. And in North Carolina only, as we're trying to kind of normalize North Carolina and Colorado pricing, we haven't taken any other pricing at Bad Daddy's. So really for the quarter, we're talking between 1% and 2% on average between Colorado and North Carolina units combined.

And just given – you mentioned the higher labor costs and some other cost in Colorado versus North Carolina and potentially other newer markets. Would you anticipate taking that pricing up a little bit in Colorado given what you've seen?

We've had that same discussion, Will, and we're considering that. We need to be a little careful just based on our competitive set. We don't want to lose our value proposition. But we think we've got some room to take some smaller price increases here and recapture some of that margin. Phoenix is an example. It's a little bit lower wage than Colorado but higher than the federal minimum, but it's got big development opportunity for us. So we're anticipating maybe taking some price as we enter that market down there. It's a very, very strong market, and competitively for our concept, we think we'll do very well down there. And it's a big market, like Denver is, where we can do 10 and 12 stores. So long-winded answer, yes, we may take some pricing to make up some of that margin.

Got it. Thanks guys.

Our next question comes from Mark Rosenkranz from Craig-Hallum. Please go ahead with your question.

You mentioned in the press release and in the call the two new markets that are in your pipeline beyond the Colorado and the North Carolina [indiscernible]. Just wondering if you could expand a little more on those two markets and kind of what you're seeing and what's driving you there, is it more kind of brand fits or are you seeing better cost competitiveness versus North Carolina and Colorado, just kind of expand a little more on what you're seeing there?

It's really more the former than the latter. We think that both those markets are a very good brand fit for Bad Daddy's, both in terms of what's happening with the craft microbrew – Colorado again we're doing just shy of 20% of mix in our bar mix with most of that being craft microbrew. Nashville and Phoenix particularly are growing markets on that side. They are both fairly sophisticated foodie markets. And competitively, we try to do a pretty deep dive on other casual theme operators in both of those markets. The other thing quite honestly is, as we look into 2018 and 2019 as our platform for growth, we can maintain our same backdoor costs in both of those markets from a distribution standpoint versus hopscotching to another market. And Tennessee for example gives us the opportunity to then go down into Huntsville and Birmingham, which are both good markets, and up into Louisville and Lexington, Kentucky. Phoenix, out in the West, the markets tend to be a little bit more isolated and kind of captive. But the Arizona market is a real strong one that offers the opportunity for us to build a dozen stores there. So we looked at everything from the Midwestern markets to Salt Lake City, Omaha, Kansas City, Oklahoma City, Tulsa, Wichita, and we think Phoenix is a good one from a brand fit standpoint. A little bit higher cost structure but we think hopefully proportionately more on the top line.

Okay, great. And then we've talked about this before but I was just wondering if you could talk a little more on the Bad Daddy's locations. You mentioned previously how these three in North Carolina tend to be around kind of the lifestyle centers, the more retail heavy versus one of your Colorado I believe [indiscernible] and that's one of your highest volumes. Just maybe talk, what are you seeing in those two locations in terms of what's really driving, are you seeing more people reach out for the brand or does it come down more to competitiveness in the area of what's really driving people to stores?

It's all of the above. What we're finding is, I think the example we gave, for the non-retail based location, two of our highest volume stores, one here and one in Raleigh, North Carolina, they both have really strong daytime employment for good lunch volume. They are not super high-end from a demographic standpoint, so they are upper middle income, but they've got really, really strong density. And probably the best leading indicator for us is competitive volumes and the competitors do very well and we're certainly not enlarging the pie, the food pie, we're simply going in and taking share. And so we're even finding on the most recent stores that we've opened here, even though they have more retail, they also have a lot of penetration with the casual theme concepts and a [indiscernible] sameness. So we're able to go into those markets and cut out a fairly sizable pie and take that share from other concepts.

Our next question comes from Jeremy Hamblin from Dougherty & Company. Please go ahead with your question.

Wanted to ask you about the unit development math and make sure that I understood, the 10 to 12 additional locations that you talk about between now and 2017, I think that puts you on pace for 2016 and 2017 combined to do 15 to 17 total new units. First, do I have that correct and how you're looking at the calculation, and secondly, that's consistent with what you were originally expecting nine months ago?

Yes, that's exactly right, you have the numbers exactly right. We had originally expected to be able to do we've said 8 to 10 in 2016 and then with a comparable number in 2017. So we're anticipating around that 16 store number for the two years combined. With the five stores we've already opened and then another 10 to 12 will be exactly in that 15 to 17 range. Obviously it's been very frustrating as we had deals done really over almost a year ago that we certainly anticipated being delivered to us that haven't been. Our mistake was not having other deals that we could then slide in as those got delayed. I think we're trying to make up for that in 2017, and with that 10 to 12 we'll certainly have more deals than that done and ready to go as things begin, as they inevitably shift around, but we just didn't have the backlog this year that we intend to have going into 2017. But your numbers are exactly right.

Maybe just elaborate a little bit in terms of giving us confidence on hitting those numbers, obviously there are things you can control and those that you cannot, but looking forward into next year and maybe some of the disappointment, maybe some of what's reflected in the share price is about not hitting some of the unit development goals that people were expecting six to nine months ago, would you say that you have enough visibility to feel confident that those additional locations in 2017, we're definitely going to hit them and potentially exceed them, how should I be thinking about that?

We don't want to be eating crow again and I think you're exactly right. Jeremy, it's probably somewhat, some part of what's reflected in our stock price. I think that there's other macro issues at play. But that visibility, we intend to get significantly and confidently ahead of that curve and that's why we've announced the two markets that we're going into. Two-thirds of that development is still on new and redeveloped shopping center development, which is not in our hands. We've gotten our development down with our – we've been ready to go on each one of these sites and it takes less than 90 days for us to build a store. So we're fully designed and permitted and entitled by the time it's turned over to us. But when you look at sites in both peripheral North Carolina markets as well as our core markets of Charlotte, Raleigh and Denver and the delays in those, between Charlotte, Raleigh, Denver, peripheral North Carolina markets, Phoenix and Nashville, we are very confident based on where we are on signed deals, final lease negotiations and signed LOIs, that we'll be able to meet that schedule in 2017. As Jim mentioned, on our next call we'll give a little bit more color to how we expect that to flow in 2017, but it's on pace of approximately one a month. It certainly won't fall that way. The advantage that we have is we have two operating teams in two different markets and additional multiunit guys we're bringing on to be able to manage that growth. So we'll have more capacity than what we had this year. But it really is driven on the real estate side and it's not really been a lack of deal-making capacity. We've got good broker relationships in each of those markets. It's just not having a backlog of enough sites and we are correcting that and getting ahead of that curve.

Building upon that, you mentioned tripling your Bad Daddy's store base. I assume that you were talking about fiscal 2019, because you talked about a three-year period, but I think by my math that will put you a little over 50 units by then. Do I have that correctly, I don't want to overstate it?

I think we were talking about 2016, 2017 and 2018, where we started 2016 essentially with 10 stores. We'll be able to do over 30 stores is our anticipation by the end of 2018, and more than triple I think is what I said. So certainly if we're going to do 10 to 12 in 2017, we think we've got the debt, both the capital capacity to our debt facility at a fairly conservative level, and from a development capacity standpoint to exceed that. So it's more than tripling from 2016, 2017 and 2018.

Okay. And then there was a follow-up question. That is going to be the capital structure chosen to fund future growth?

Correct. Based on our cash flow this year, our cash that we still have in the bank, our projected cash flow next year and in 2018, we think we've run all kinds of sensitivities to that analysis, we think that we can be able to get there with a relatively conservative level of debt capital and I think Cadence Bank is confident in that as well. It's obviously dependent on the Bad Daddy's continuing to perform, but as long as our model is reasonably within range, we've just got such a robust unit economic model on Bad Daddy's, we believe we can get there with a reasonable level of debt capital.

Our next question comes from Mark Smith from Feltl and Company. Please go ahead with your question.

Just revisiting the timing of opening, I just want to make sure that we understand the rest of this fiscal year's openings, you've opened one already in the June quarter and you expect to open one more through the remainder of the fiscal year, am I looking at that correct?

Right. We got the one that we just opened here in early April and then one more Good Times unit and one more Bad Daddy's unit by the end of the fiscal year. And both of those would be relatively late in the fiscal year.

Okay. And then your guidance of the 10 to 12 through the end of 2017, I assume that the April restaurant opening is included in that 10 to 12, so we're looking for…

No, it's not included in that. The one coming up in the summer is included in that but the one in April is not. So as the prior guy had asked and said, the 10 to 12, plus the five we've already opened, would be 15 to 17 total from 2016 and 2017.

Perfect. Boyd, can you just go over again kind of the comps quarter to date you achieved as you look at April and primarily Bad Daddy's but also Good Times, if you could give us the delta between Colorado and North Carolina again?

Sure. So for Bad Daddy's, the comps – I'll let Jim…

So we were up over 4% for Bad Daddy's for April. You just talked about April, right Mark?

Yes.

So April we were up about 4.9% on the Bad Daddy's side. Now the switch between Easter between March and April, that helped April comps by about 1.8%. So normalized, April comps were a shade over 3% for April for Bad Daddy's. We didn't really breakdown the difference between Colorado and North Carolina, although the Carolina units, again six of the seven are in the comp base. Just two of that Colorado units were in the comp base for April. Then for the Good Times stores, we were down 1% for April, and as Boyd mentioned, being all Colorado-based heavily dependent on the choppy weather for April, and so we're down 1%. So our kind of guidance for 3% to 4% for the balance of the year kind of includes the negative 1% that we ran in April and we do anticipate then returning to positive comps for the balance of the year to average between that 3% and 4% for the last two quarters.

And I don't know if you've got it in front of you, the comps, did they get sequentially easier as we went from kind of April through June last year to get to that I think it was 4.8%?

So the comps for rolling over last year, we ran 4.8% last year in Q3 versus we just rolled over 8.2% in Q2. But then if you recall, last year the month of May was the rainiest months in the history of Colorado. So that caused some of the smaller comps in May last year that we're rolling over right now. But then we did have a pretty good 6.8% in Q4 rolling over.

We do have an additional question from Greg Fontana from Convergent Capital Partners. Please go ahead with your question.

I just thought I'd ask one that you mentioned, Boyd, but you didn't get into any detail on it. You mentioned no advertising has been done on any of the Bad Daddy's. I totally get they are new, you don't really need to do it, but to some extent it keeps them more as local restaurants and not as a chain. So I'm wondering what your thoughts are on advertising around the Bad Daddy's in the Denver area within the second half of this fiscal year or maybe next year.

Greg, we don't have anything planned for the balance of this year. We're continuing to run even in Carolina where they've got a longer history, continuing to run positive. We're really focusing at the local store level. We do a lot of social media, so we do spend some advertising dollars on social media at a radius around every restaurant. We're spending a lot of time on really pushing the culinary forward, part of the concept with monthly chef specials in each of our menu categories and local brand partnerships and PR opportunities, our chef goes on local television programs to do burgers for events and that sort of thing. But we don't have any [canned media buys] [ph] planned right now for this year. We will see in the next year. That would be an easy lever to pull. I think you hit it on the head, we're really goosy about wanting to maintain what we think is really the differentiating point of Bad Daddy's, which is it feels, each store almost feels like a one-off and a local restaurant, and all the way down to where we're limiting how many logos we put in the restaurant and we don't have our employees in Polo shirts and blue jeans and we just don't want to look anything like an Applebee's, Chili's, Red Robin, T.G.I. Friday's or any of those. Nothing against those guys but we think that's where our business is coming from. And so we want to do kind of the exact opposite and really push the envelope for the brand itself. Going on multimedia advertising with radio and TV would be an easy way to get some short-term bump I think from an awareness standpoint, but long-term I'm not sure that's the right thing to do. I would probably, the closest analogy I can give is maybe Texas Roadhouse who doesn't really do much in the way of advertising with heavy local store community involvement, and that's really where we plan to amp up our involvement even more than what we're doing.

Great. I agree 100%. Thanks.

At this time, I am showing additional question from Norman Gross from Global Capital Group. Please go ahead with your question.

Boyd, since the Bad Daddy's is obviously your growth brand and not Good Times, have you given some thought to the potential synergy that would be available from a pub-co rebranding from GTIM to BDBB which is available on NASDAQ and switch it to Bad Daddy's at some point?

That's very prophetic, Norm. Yes, we have thought about that, and as Bad Daddy's even beginning this quarter is now bigger than Good Times in terms of its revenues, it certainly will become much larger as a percentage of what we do. We'll probably figure out how to rename it. We certainly anticipate keeping the two brands together. There's the opportunity probably at some point if we wanted to monetize the Good Times brand, it's a really tidy, very profitable handsome opportunity, but right now with the synergies that we've got on G&A and its contributions, we think it's smarter to keep that as one, but we may rename the public entity here at some point.

Great. Just for your verification, from my understanding, I think you can reserve a four-digit NASDAQ symbol like for 180 days, maybe even longer. Just thought I'd bring that up.

Appreciate that. Thank you.

At this time, I'm showing no additional questions. I'd like to turn the conference call back over to management for any closing remarks.

Just thanks everybody for joining us again. Look forward to next quarter's call. With just the seasonality of our business, we anticipate really strong results and certainly a lot more color into the pipeline and the development for fiscal 2017 on Bad Daddy's. Thanks for your listening and for your questions. Have a good afternoon.

Ladies and gentlemen, at this time we'll conclude today's conference call. We do thank you for attending. You may disconnect your telephone lines.