Good day, everyone, and welcome to the Jack in the Box Inc. First Quarter Fiscal 2017 Earnings Conference Call. Today's call is being broadcast live over the Internet. A replay of the call will be available on the Jack in the Box corporate website starting today. At this time for opening remarks and introductions, I would like to turn the call over to Carol DiRaimo, Vice President of Investor Relations and Corporate Communications for Jack in the Box. Please go ahead.

Thank you, Teresa, and good morning, everyone. Joining me on the call today are Chairman and CEO, Lenny Comma; and Executive Vice President and CFO, Jerry Rebel. During this morning's session, we'll review the company's operating results for the first quarter of fiscal 2017, as well as some of the guidance we issued yesterday for the second quarter and fiscal 2017. In our comments this morning, per share amounts refer to diluted earnings per share and operating earnings per share is defined as diluted EPS from continuing operations on a GAAP basis excluding restructuring charges and gains or losses from refranchising. Our comments include non-GAAP measures including operating EPS and EBITDA. Please refer to the reconciliations on our website. Following today's presentation, we'll take questions from the financial community. And please be advised that during the course of our presentation and our question-and-answer session today, we may make forward-looking statements that reflect management's expectations for the future, which are based on current information. Actual results may differ materially from these expectations based on risks to the business. The Safe Harbor statement in yesterday's news release and the cautionary statement in the company's most recent Form 10-K are considered a part of this conference call. Material risk factors as well as information relating to company operations are detailed in our most recent 10-K, 10-Q and other public documents filed with the SEC. These documents are available on the Investors section of our website at www.jackinthebox.com. A few calendar items to note. Jack in the Box management will be attending the UBS Global Consumer and Retail Conference in Boston on March 9 and the Bank of America Merrill Lynch Consumer and Retail Conference in New York on March 14. Our second quarter ends on April 16, and we tentatively plan to announce results on Tuesday, May 16, after the market close. Our conference call is tentatively scheduled to be held at 8:30 AM Pacific Time on Wednesday, May 17. With that, I'll turn the call over to Lenny.

Thank you, Carol, and good morning. Our first quarter performance was a mixed bag with solid results at the Jack in the Box brand offset by lower-than-expected sales and margins at Qdoba. We can point to macroeconomic trends for some of the sales weakness, like a broad-based industry slowdown and lower retail sales in December. But the majority of the shortfall was self-inflicted, which I'll address in a few minutes. Despite the disappointing performance at Qdoba, operating earnings per share grew by 27% versus last year, driven in part by our commitment to reduce G&A and return cash to shareholders. On the Jack in the Box side, system same-store sales increased 3.1% for the first quarter and exceeded the QSR sandwich segment by 160 basis points. We outperformed each of our primary competitors in the burger category. However, sales growth slowed over the second half of the quarter to roughly 1.5%, as we finished the quarter at the midpoint of our guidance range. Q2 is off to a much slower start as same-store sales have abruptly turned negative, which we believe maybe due in part to delayed tax refunds as well as the rains and flooding in California. While we're seeing sales deceleration across the board, when you parse the date, the most severe declines are in areas with lower household income. Our Brunchfast platform, which we launched in late September, created a new differentiated day part, and as intended, it addressed sales softness we have seen between breakfast and lunch. The new platform plays especially well with the all-day anytime availability of our full menu. One of the strategic priorities we discussed last year was additional refranchising of the Jack in the Box brand and increasing the level of ownership to more than 90% of the system. Our franchisees…

Thank you, Lenny and good morning. Before I begin my prepared remarks, I'd like to add a few words about Joe also. When I became CFO at Jack in 2005, Joe was the first analyst to reach out to me. I appreciated his phone call, he introduced himself to me, and from that time on, I knew Joe to be a true gentleman of utmost character. He was a great host on both roadshows and at conferences where we were introduced to his son David early on, who was interning with Joe at that time. And I know David is following in Joe's footsteps. Joe's legacy will live long not only and (9:15) his children but in the people that he's worked with and developed over the years, and we will miss him. Now I'll move on to the prepared remarks. As Lenny mentioned, operating EPS for the quarter was up 27%, even with the disappointing performance at Qdoba. And importantly, adjusted operating EBITDA, excluding franchise gains and restructuring charges, increased by nearly $13 million to $103 million this year from $90 million last year. For Jack in the Box, the 0.6% increase in company same-store sales was comprised of mix benefits of 2% and pricing of approximately 2.9%, offset in part by a 4.3% decline in transactions. Franchise same-store sales grew by 3.9% in the quarter with traffic down 2.1%. The increase in Jack in the Box franchise sales was a big driver of the 270 basis point increase in consolidated franchise margins, which expanded to 54.2% in the first quarter. Despite company sales being below our expectations, Jack in the Box restaurant margins increased by 70 basis points compared to last year, as lower commodity costs helped to offset wage inflation. For Qdoba, Q1 same-store sales decreased 1%…

Thank you. We will now begin the question-and-answer session. Thank you. Our first question is from John Glass. Your line now is open. John Glass - Morgan Stanley & Co. LLC: First, how certain are you these are industry-related issues versus company-specific issues? So maybe can you speak qualitatively or quantitatively about the weather impact, and can you also just address this gap between company and franchise stores, which seems to have widened during the quarter?

Yes, John, this is Lenny. I don't think we're sharing anything quantitatively about the impact here in California and the weather in other states that would more largely impact Qdoba. But as you've heard not just from us, the impact has been pretty severe, and we certainly have seen it in our sales, particularly in California we've seen the impact. So it's something we know we are dealing with. Don't expect it to continue, but we just got to sort of trot our way through it. As far as the greater industry impact that you've heard about on the tax side of things, that does seem to also be playing out and as we look at, as I said in my prepared remarks, as we look at the lower income areas, we do see a significant difference in the performance there as compared to the performance in other areas. So, we feel quite confident that we're seeing something here that is a little more macro. And then on the self-inflicted part of this, it really comes down to primarily the margin side of things for Qdoba. I would say it's the number one self-inflicted point of pain and most of that comes down to sales – excuse me, labor and food cost controls. And I think some of that is really on me. As CEO, I think I had a very aggressive and high set of expectations for my team to be able to not only restructure the entire company, but to do that while at the same time maintaining a very high level performance in the operations. Particularly for Qdoba, that expectation was probably a little bit too aggressive as they not only had to ramp down the office in Colorado, but they had to hire a whole new team here in San Diego. So, I'm going to own that one and I think what my teams will take ownership of going forward is that now that we're largely through the restructure, they need to refocus their teams on reversing the trajectory of our sales, getting control back in place and showing us the milestones of performance over the coming quarters that would tell us that the brands are performing in a way that will get us to our long-term strategic goals, so I think that's the way we would categorize everything we're dealing with. John Glass - Morgan Stanley & Co. LLC: If I could just ask one follow-up, Jerry, how does this reframe, if at all, your view of the $400 million in EBITDA next year? Do we just sort of carry this through because of the compounding effect or can you bring some of the refranchising benefits forward because you're ahead of that plan? How do you think about 2018 now versus prior?

Yes, so let me talk about that a little bit. John, we're not rethinking our $400 million EBITDA target as of now. And let me tell you why. If you look at where our EBITDA was in 2016, in order to get from that point to the $400 million target, we need to increase EBITDA by about 11% to 12% per year for each of the next two years, 2017 and 2018. If you look at our Q1 results here in 2017, where we missed both our internal expectations and those of the Street, our EBITDA growth was about 14% up to $103 million in the quarter. That's one. The second thing is, the G&A reductions that we described at our Investor Day last May, resulting from our restructuring activities, one, they're a big component of that growth in EBITDA that we expect and they're well on target. So, we don't have any concerns around hitting the G&A targets that we described at that meeting. Third, to Lenny's point – or fourth, to Lenny's point, we believe that the sales declines that we're currently seeing, certainly at the Jack in the Box brand, which is the largest contributor towards our EBITDA is, that those issues right now are largely transitory with the delay in tax refunds, particularly for the low income segment, as well as the rains and the flooding in California. And then lastly the Qdoba margin issues are more impacted by the food cost and the labor control issues that Lenny talked about than they are sales deleverage. And I think that's important because those issues are easier to solve in the near-term than our sales. So I think if you take all this in total, we're still comfortable with the $400 million EBITDA target for 2018. John Glass - Morgan Stanley & Co. LLC: Got it. Thank you.

Thank you. Our next question is from Brian Bittner. Your line now is open. Brian Bittner - Oppenheimer & Co., Inc.: Great, thanks. This is Mike Tamus (20:37) on for Brian. Just Qdoba has kind of been a drag on the model, and I know you're trying to improve that performance here. But are there any options to sort of enhance shareholder value if the profit growth at Qdoba doesn't actually get better?

So I think the last – as I answered to John, Mike (20:56) the way that we're looking at it is, we've got an opportunity to grow the Qdoba brand. And I've mentioned in previous conversations with the investment community that not only for Qdoba, but for the entire company, we'll continue to look at what are the right channels to do business, and would we – and the answer is yes, would we look at other channels and other opportunities to grow shareholder value? We'll continue to see business through that lens and you've seen that commitment through what we've done with the Jack in the Box brand in increasing the franchise percentage there, and also reducing G&A and other measures that continue to increase shareholder value. So I think we're going to remain open to that, but the way I'd like to think about the business right now is that we have just gotten to the point where our operations teams, our brand teams can focus on executing the strategy versus restructuring the company. And I would like to see them in the coming quarters show us some, as I said earlier, some of the milestones of performance that would have us continue to gain confidence about the growth-oriented strategic goal of Qdoba. So, of course, if we're not seeing that progress then we're going to have our minds open to what we can do. Brian Bittner - Oppenheimer & Co., Inc.: Okay. Thanks. And then you kind of touched on the near-term trends being slow and weak, but the question is kind of is there anything – and you hope that gets better throughout the year, but is there anything you can point to that's certainly concrete that gives you confidence that trends will actually get better?

Well, I think ultimately, if we were not seeing in the lower income markets a big difference in sales versus the other markets we're in, we may not feel as optimistic. But when you look at that and then you see the compounding effect of the weather, it does give us some optimism that, look, this is largely transitory, we'll get past it. And then on the internal side, the things that we control, we do have pretty aggressive marketing calendar through the remainder of the year, including some good new news for the Qdoba brand that gives us a lot of reason to be confident there as well. Brian Bittner - Oppenheimer & Co., Inc.: Thank you.

Thank you. Next question is from Dennis Geiger. Your line now is open.

Great. Thanks for the question. Can you talk a little bit more about some of the recent sales softness at Qdoba? I guess specifically, beyond the macro, how much of it might be execution versus perhaps some increased competition? And I guess just as a follow-up to that, just a little more on the execution within the store against the new products, and in general overall, as it relates to sales. Are you now pretty comfortable where you are at from an execution standpoint on that front?

Yeah. Dennis, I would say the answer to that is no, to your last question. We're not comfortable with where the execution is. And here's just a little more color on that. We essentially execute two things in the Qdoba brand. One would be, sort of the chef-inspired items where there is a menu item that's preset, and the crew has to essentially build it to the recipe. I don't think we do a great job of executing that. I think with Knockout Tacos we showed some disruption there. So, I don't feel comfortable in that space, yet that we're executing at a high rate. When we add things to the line that are within the same operating mode that we've traditionally been in, which we would call more of a point-and-click, right, the consumer points to what they want and we build the item, we do really well there. So, I think what you're going to see from and execution standpoint is that we're going to focus less on chef-inspired in the short term until we can raise the capabilities, operational capabilities of our teams, and we'll focus more on the point-and-click type things to execute going forward. So, when you look at the marketing calendar for the remainder of the year, you're not going to see a lot of chef-inspired type activities that would disrupt the execution, so we would expect far greater execution in the back half of the year. And then, as far as how the competition is impacting us, I think a lot of things are happening there. We're seeing a lot of information that shows us that across many segments of the industry, we are all sharing guests more so now than ever before. And so, I think it's fair to say that there's going to be not only the competitive impact within our own segment, but even beyond that. We know that we're going to have to have an awareness about how those competitors are potentially impacting us.

Thank you.

Thank you. Next question is from Chris O'Cull. Your line now is open.

Thanks. Jerry, just as a follow-up to the question earlier, what was your expectation for EBITDA contribution for each of the segments, the $400 million goal?

Yes, so we don't disclose that specifically. But I would say, if you look at the Jack in the Box brand and the G&A overall, across the entire enterprise that those two pieces were the biggest components of that and then Qdoba coming in behind that.

Okay. And then Lenny, you mentioned the Qdoba margin issues related to execution issues. Are franchisees experiencing similar issues and margin pressure as the company store locations?

I think what you'll really see Chris is driving this is some of the disruption that occurred during our restructuring and largely what we identified and an unattended consequence of restructuring quickly is that our field leadership teams were not as equipped as we would've liked them to be in managing those controllables, and some of the – I'll just call it crutches that we had in place to alert them to their issues and allow them to react and as we restructured some of those infrastructure pieces went away, and our operations teams, our field operations teams were not ready to carry that ball. So, we do have some new leadership in place on the company operations side, who they're very quickly addressing some of those capabilities issues. And I think we'll be able to get the controllables in line. And I'd say our focus if we were to prioritize it, labor will be the primary focus right now followed by food cost.

Yes, Chris, this is Jerry. Just a follow on to that, we're not hearing from our franchise owners at Qdoba that they're having the same control issues around food costs and labor that both Lenny and I have described earlier today.

Just as a follow-up, can you talk a little bit about just the disparity between the franchise margin and the company margin? I mean, what is the gap right now roughly?

We haven't – for Qdoba?

Yes.

We have not shared that and I don't think we – we have not published our FDD yet for last year.

Okay. Fair enough. Thanks, guys.

Thank you.

Thank you. Next question is from Andrew Charles. Your line now is open. Andrew Charles - Cowen & Co. LLC: Great thank you. Can you talk a little bit about the gap to the NPD you saw this quarter? I mean in the past, you've offered up some more color in terms of just the weeks that were running positive, or just the – trying to get a sense obviously just with the beginning of the quarter, thinking that's where the outsized outperformance came, but anything that kind of tweaks in (29:13) the quarter in terms of that gap would be helpful.

Sure, Andrew. If you look at the overall gap for the quarter was about 160 basis points. As we said earlier, we were tracking roughly at 5 points for the first part of the quarter and roughly 1.5 point. And so the industry for the entire quarter was about 1.5 point for the entire quarter. So I think we turned to the pack a little bit in the back half. Andrew Charles - Cowen & Co. LLC: Okay. And then just from an earlier question, just wondering if you could talk a little bit more about the confidence behind the $400 million in adjusted EBITDA, if Qdoba remain status quo? I know it's the smallest contributor to the target, but how should we think about it if the improvements you're looking for don't come to fruition as quickly?

Yeah. Andrew, it's always tough when you have a multi-variant equation here to look at one variable and say, if this doesn't work, what happens to everything else. Because I think if we saw Qdoba not improving on their margin levels, which again I believe most of that is in the self-inflicted nature, we would do other things with respect to G&A as well as other areas we would have opportunities to take a look at. So, I don't know that it's fair to say what happens if Qdoba doesn't turn this around. Andrew Charles - Cowen & Co. LLC: Great. And one more if I could sneak it in, Lenny, just talked about the plans to improve operations of Qdoba. I mean you mentioned obviously moving away from kind of chef-inspired to more to kind of the assembly line point-and-click, but how does that factor in with just the greater focus on labor costs? I mean is that going to be an enhancement to operations just to make cooks in the kitchen, or is this something that you're having to balance between the two?

I think, first off, on the labor side of things, I think, a lot of what we dealt with was really twofold. One was, keep in mind that when we have a snow day for Qdoba, which we had many of throughout the quarter, we still have to bring in a certain number of employees to cook enough food to fill the line. And then if that day doesn't produce sales, we're going to essentially see zero return on that investment that day. So, we have to be better at managing those types of disruptions to the business when there's volatile sales because of weather. We've got to be able to deal with it, when we have holiday periods. We need to make sure that we're scheduling appropriately for those types of things as well. So I think some of what we're dealing with is really just an awareness and a managing in the moment. When it comes to the complexity across the line, really what we're seeing is less of a labor impact to chef-inspired, versus point-and-click, more so what we're seeing is a disruption to the speed of service and the friendliness, because our cruise are challenged, they're essentially disrupting the flow of the line when they're building chef-inspired. So, I don't think it'll be a labor issue, but it certainly is something that would disrupt the guest service side of things.

Andrew, let me come back and just add a little color on to the Qdoba piece here. So, with a 350 basis point reduction in margin, if that continued, yes that would create a problem with the $400 million EBITDA target, but because again most of that we believe is on the controllable side of things and not really tied to sales deleverage, that's where we continue to have the confidence in being able to turn that around. Andrew Charles - Cowen & Co. LLC: That's helpful. Thank you.

Thank you. Next question is from Jeffrey Bernstein. Your line now is open.

Great. Thank you very much. Two questions, just one on the Jack in the Box brand. All things considered I think you did slightly over a 3% system comp, which was right in the heart of your guidance for the quarter. And that's despite presumably getting hit pretty hard with weather in California, and like you said, the lower income impact from a tax standpoint. In the last quarter you had said you were also expecting some aggressive competitive response to your recent successes. So I'm just wondering whether maybe you didn't see much of that, or maybe how would you just size up the competitive landscape, considering you did what you did despite the headwinds that you faced. It doesn't seem like the competition really had much of a negative impact, all things considered, and then I had one follow-up.

Yes, Jeff, I think what we saw is, early in the quarter, probably not as aggressive a response. And in the back half of the quarter and into quarter two, it's as if all hell broke loose on the discounting and the aggressive nature of what's happening across the whole industry let alone just our segment. So, we're back to what would be seen as all-time highs on discounting and promotional activities from the competition and it's happening across the segment, and it's also happening not only in value , but also in the mid-tier at the calendar and it's even happening at some of the competitors that are big coffee sales and others that are getting into the food business and now for the first time are not only promoting their new items, but they have price-related promotions, which are things that we haven't seen from those individuals in the past. So it's extremely aggressive. I think everybody is experiencing the macro impact. And I think there's always early questions when you're experiencing that macro impact, you're wondering, hey, is it just us? Or what's happening with our business versus everyone else? And as you start to see everybody else report and you're seeing sort of confirmation that this is a macro thing then potentially you back off of some of the aggressive nature of what you're doing. That's what we hope to see happen with competitors. But as of right now, it couldn't be more aggressive than it is.

Does that change your strategy? I know a few quarters ago at the analyst day and post, it was more focused on the premium products to elevate the Jack brand. Now if everyone is kind of getting extremely aggressive all of a sudden, I don't know whether you kind of revert back and change the marketing strategy in coming months or quarters, or whether you're going to stick to your guns in terms of kind of the longer-term vision of more premium-oriented products at Jack?

I think you were a fly on the wall, Jeff, to some of the conversations we've been having. So, in my conversations with our Brand President, Frances, we have talked about that very thing and what her teams are looking at is a change in the balance of premium versus value-oriented promotions, and you'll see us go on air with more value-oriented messages as our primary promotion for that particular quarter. We always have a primary and secondary, but oftentimes the primary is the premium item and the secondary is value. You'll see more of the primary going to value. And keep in mind what I said over the last couple of quarters is that we're happy losing the bottom tier of our menu, those transactions. We're happy to donate those to the competition over the short term, as we've raised the price of our tacos now to a minimum $1.19 and we knew that we were going to lose some of the transactions there. But with what we've been able to do with overall sales and margins, that was a healthy mix. But I've said that if we ever see that it's not just the bottom side of our menu, that it's actually starting to impact now the mid-tier of our menu that you would see us respond. And I think it has come to that point in time where we have to respond, so you will see the balance shift a little bit here.

Got you. And I think you guys both mentioned on Qdoba side, catering, delivery, loyalty. I know they're in the early stages, but are there any metrics that we can ascribe to any of those quantitatively in terms where they're at or how they've grown, or anything along those lines?

Here's what I would say about that. We are testing delivery in both our brands, we're testing digital. We've actually launched digital and are in early phases of that with Qdoba, and are building the digital capabilities for Jack. In every one of those environments whether it'd be a new launch or a test environment, we are seeing that there's great opportunity there for both brands. And then catering continues to be high single-digit mix for the Qdoba brand, and so again with food that travels as well as Qdoba, we think we not only have an opportunity to grow the catering business, and we've actually just brought in some additional talent to lead that business as well. But we not only think there's an opportunity there, but that food travels well on the delivery front too. So, we think those are definitely future sales layers for both brands. And what's interesting about it is a lot of what we are seeing in – particularly in delivery is that it's incremental, so feeling very good about that.

Great, thanks for the color.

You got it.

Thank you. Next question is from Greg Francfort. Your line now is open.

Hey, guys. Can you just talk about the tax delay impact that you're seeing? Are you assuming that some of that or all of that swings back later in the quarter in your guidance?

Yes, so if you look at where we're currently trending to where the guidance is, yes, we would assume some of that comes back. Our information and studies that we've seen in the past would say that roughly 5% of discretionary income comes into restaurants and if you're looking at from the IRS data about a $63 billion reduction in tax refunds this year versus same time last year, that puts a little north of $3 billion of discretionary income into what would typically go into the restaurant space. So, yes, we are assuming that we'll get some benefit back from that as well as some relief in the rain. And I know being a longtime East Coaster myself, when you talk about rains and people not going outside, you kind of think that we're probably wimpy out here and you would be correct. But when it rains like it has been here, people literally do not go out of the house, (40:04) they are not out there eating. So we strongly believe that that will help us turn that around.

Got it. And then just, Lenny, your comments on the industry sharing guests recently more than it has in the past, I found that interesting. Can you just elaborate on what you mean exactly, and what you think maybe driving that?

Yes, I think what's happening is you've got casual dining really trying to change the trajectory of its business. So they'd become way more value oriented. They have a lot more grab and go efficiencies built into their model and they know have delivery, so essentially they are going to start to bleed over into the fast casual space. You then have on the QSR side of things, regardless of the brand, there has been an improvement in food quality and so when you look at what you're getting for the money, you've got QSR I think putting a squeeze on fast-casual and then you've got fast-casual really being the place where they're sort of setting new trends with food that's available through a fast-casual setting, meaning I can get it quickly and I can get it at a reasonable price and I probably can't get anything like it in QSR, so they are pushing the envelope. So everyone is really starting to bleed over a little bit into each other's space, and I think with some of the macro impact, the deal seekers are far less loyal as they're seeing everybody put these great deals on the table in every segment, so they're just hopping around for whatever deal is available to them. So and we have seen historically where the deal seekers are not loyal. So we don't think that what's currently happening will last over the long-term from the standpoint of value, but I do think that sharing of our consumers even after the value slows down there'll still be I think a good chunk of that that will remain.

All right. Great, Thank you.

Thank you. Next question is from David Tarantino. Your line now is open. David E. Tarantino - Robert W. Baird & Co., Inc.: Hi, good morning. Lenny, I think you mentioned that you had opportunity to improve execution or fix execution errors of both brands. And I know the subject of the call has been about Qdoba, but can you talk about what the opportunity is at Jack in the Box, and perhaps how quickly you think you can address whatever issues you are addressing?

Sure. For those of you who were following the story back when Jack in the Box had some speed of service issues, we really talked about improvements in speed of service being a potential sales layer for us, because what we had seen in our business was that, we had essentially allowed our business to be slower than it should have been and we've sort of convinced ourselves that with the complexity of our menu it was okay to have that wide sort of variance in our performance around speed. But as we started to study the best performers or what we call the bright spots in our chain, we found that if we can raise the level of capabilities across all of our operating teams, we can actually reduce the variance in speed of service and actually grow sales. It'd be a great sales layer. So we are looking at the inconsistency in other guest metrics across Jack in the Box brand, actually delivering the same types of sales layers. And we've been able to study this enough to see that in the restaurants that have much sort of tighter operations, meaning that there's not a big variance in what the guest experiences from day-to-day or shift-to-shift, day part to day part that those locations are all performing better than the ones who have bigger variances in guest performance. So, we're going to go attack that. Our brand president is actually bringing her operating teams together here in the spring, and it will all be to address that issue and get them out there executing more consistently. So, I think our teams have identified the opportunity, and just in a few short months they'll bring the field into sort of a training and development atmosphere so that they can learn and then go back out there and execute better. David E. Tarantino - Robert W. Baird & Co., Inc.: And Lenny, how should we all think about when you might start to move the needle on this, or at least when you're thinking of seeing progress on this? Is this a 2018 initiative, or is it something that you think you can hit this year?

What I would hope to see this year from our brand team is that they're getting some early traction in Q3, especially as we get through the first wave of refranchising, because keep in mind right now what's happening and some folks have asked about the disparity of the sales gap between franchise and company, there is an impact to our teams with the refranchising initiative. I just met with a bunch of our district managers, and there is a significant amount of anxiety for those individuals and their restaurant managers because no one knows, which of those restaurants at this time is going to be sold, and they're not quite sure if their geography is impacted, if they're going to be left for the job. So, we certainly have some distractions in the field. If we get past those distractions and get the first wave of refranchising under our belt here, and then as we get into Q3, we can get the company operations focused on executing and the franchise teams, especially those impacted by taking on additional restaurants would then be able to focus on ops. So, like to see improvement in Q3, at least some early signs, and then in Q4, I think it'd be nice to hit our stride, so we can go into 2018 stronger. David E. Tarantino - Robert W. Baird & Co., Inc.: Great, thank you.

You got it.

Thank you. Next question from Alex Slagle. Your line now is open.

Thanks. A question on the refranchising now with LOIs for 75 restaurants, should we take this as increased visibility on getting toward the previous outlook for 90 stores to be refranchised, or does this suggest an implied upward or a downward revision? And then maybe if you could just comment on your satisfaction with the development agreements that have come with that.

So, Alex, let me take the first part of that. So the 75, I would say, gives us confidence to do at least the 90 and they very well get north of that 90 as we continue to work on deals with other franchise groups. So, if I had to make a call right now, I would say it would be somewhat north of 90. And then with the development agreements, I think those are being structured pretty well. I believe we're getting in the 40-ish restaurant development agreements or 40 restaurants in the restaurant development agreements out of these roughly 75 units that we have LOIs signed so far. So we're pretty pleased with where we are right now.

Alex, this is Lenny. The one piece of color I would give that sort of lends some credibility to Jerry's optimism on the pace, keep in mind that all of the deals that we have LOIs on so far are the tougher deals because we're signing development agreements and as I stated on the last call and when I last visited with you guys live, the franchisees needed a little bit of time to go out to the markets where they were going to be signing development agreements to see what the opportunity really was, and to then put a proposal on the table. So it took a little bit more time to structure those deals, and they – the franchisees, it's not a one-size-fits-all because the markets are different and they're all structuring the deals to what they think they can accomplish. As we look at the remainder of the deals as far as less of that type of complexity, so that makes us feel good about where we are at this point.

Got it, thank you.

Got it.

Thank you. Next question is from Jake Bartlett. Your line now is open.

Hi, thanks for taking the question. Just following up on that last comment. Does that imply, Lenny, that there is going to be less commitments for the remaining deals that you're going to sign?

Not necessarily. I think we're going to continue to try to work with the franchisees to sign development agreements even on the remainder, but the first wave, I think really what's different about that is we had more of the under penetrated markets involved in those deals, and so maybe, a little bit more opportunity going on. So that's really what I was intending to share there.

Great. But to think about kind of a two-for-one ratio, is that the right way to think about it, or would that be aggressive kind of thinking about the fact you got 40 commitments (49:24)

I would say this. Keep in mind that when we went into this negotiation with our franchisees, we had certain numbers in our own mind, but then we have the reality check of spending time in those marketplaces with the franchisees and figuring out a couple of things, what the opportunity – what we believe the opportunity is and then also taking a look at what their sort of wherewithal is financially to go ahead and move those things at a pace that makes sense. So, I wouldn't suggest that you model what the back half of this is. I think you should let us do that evaluation and just bring to you that number, because even if I had given you a swag at this even on the first round, after franchisees got involved, I would've turned out to be wrong on that guess. So I would just say, proceed with caution on any modeling on the future once.

Okay. And then you mentioned kind of getting behind these refranchisings in the third and the fourth quarter. When should we expect these 75 to get actually sold?

A little too soon to tell now. But I will tell you, they are proceeding as we have planned them to at this point. But you never really know exactly when these things are going to close and some of this will depend upon financing on the part of the franchisees and when they can get these deals closed, but no reason for caution as of now.

Okay. And then you've talked about particular weakness in lower income markets. Why wouldn't that be reflective of the promotional environment more, those kind of value seekers and the fact that post holidays, things get very promotional, and therefore you're mostly disadvantaged in this kind of environment, in those markets, right? How confident are you that it's more about the tax refunds than just the fact that those consumers respond more to the deep value environment that we have right now?

Yes, I think a couple things to think about, as Jerry said, 5% of the discretionary income is spent eating out and ultimately if that money is not there, that's spending level is simply going to be down. And then when you look at some of the deals that are in the marketplace, some of the deals are so aggressive that they're actually going to negatively impact average check and top-line, so it isn't necessarily an easy equation to solve, particularly with those folks that have less money in their pockets, but certainly as they do get that money we hope to see them reengage.

But I would say the slowdown that we've seen in February as we talked about in the release, we've seen it across restaurants and retail.

And are you basing that on the kind of the weekly Crest data that you get, that kind of thing?

Multiple data points, I'll say.

Okay and then lastly, just as we try to parse out what the different factors, could you help us out with how California performed versus other big markets, like say, Texas? The company-owned stores are much of higher exposure in California. Was that part of the differential between the company and the franchise?

California was still our best performing market in the first quarter.

Yes. True.

And then lastly, is there – I know you have a fairly high percentage of your consumer that's Hispanic. Is there any evidence that some of the integration initiatives that are going on right now and some of the concern that community has is impacting their spending behavior?

We don't have any evidence of that. So, I don't think we could comment based on what we're seeing.

Okay. Thank you very much.

Thank you. Next question is from Bob Derrington. Your line now is open.

Thank you. A lot of my questions have been answered, but one of the things I am curious about, Lenny, as you look at the development for the Qdoba brand, essentially looking at, as we work through our model, the difference between same-store sales trends and essentially average unit sales implies that the class of stores that have opened up over the last say 12 months or so look to be weakening versus the system average. And I know that historically, they generally start lower, but can you give us any kind of color about how those newer stores are performing as a class?

Yes. So, Bob, one of the things that you'll see particularly in the first quarter is, we saw those units trending down with respect to AUVs in the quarter. The first quarter tends to be the lowest level of AUV within the Qdoba brand. It tends to be a bit more seasonal in nature than what the Jack in the Box brand does, and we've also had – it also is the quarter where we see – where we have the greater impact from weather and store closures because of weather. So, we actually see it more around that seasonality, and also weather than we do a down cycle in the overall performance of the newer restaurants.

Again I am just trying to think through, are you satisfied with the average unit sales that you are seeing on the development front for Qdoba? We've heard from a lot of companies that have talked about, Jerry, higher development costs, and so I am just trying to think through the unit economics, and obviously you've slowed some of the newer stores that you're opening.

Yes. I'd say that the slowing of the newer stores, Bob, is more about giving the Qdoba operations team to focus more on improving what our current operations look like rather than being disappointed with new store performance or new store sales growth. So I think it's more around that just to give them some opportunity to fix the operations, if not eliminating those restaurants, just delaying those restaurants.

Bob, I'd just add to that, if you look at the controllables as part of the equation for the new stores, if all the controllables were right where we wanted them, we would be celebrating how well we are doing in new stores, first year out as compared to what we were doing five years ago with new stores. And we would be expecting to be able to ramp up the sales from there over time as we are now. So, I think there's some sort short-term impact to the sales. There's a much bigger impact I think on the controllables. And ultimately, if our desire is strategically to use Qdoba as a growth vehicle and invest our own capital in it, we will need to see that we can operate these strong enough to get a return on that investment. If we're not seeing that in all the markets, then we'll also have to look at if we continue to want to grow this thing, do we change the mix a little bit and focus more on the franchise growth. And the reason I bring up the franchisees is because I've actually been out in the field and have met with all of our franchise operators from the Qdoba brand within the last quarter. And in those conversations, we see a very strong desire for our franchise group to reengage in growing new units. So, I think ultimately if we look at the biggest part of the strategy is our desire to grow and then we've got to perform in a way that has us investing that money ourselves or look to have franchisees take over more of that growth down the line.

Terrific. And last if I may, essentially listening to the discussion on the refranchising, it sounds directionally like, should we assume probably a first tranche not really taking place until the second half of the fiscal year?

There's opportunity for us to get some of these deals closed within the lateral portion of Q2, Bob.

Okay, terrific. Thanks, Jerry.

Operator, I think we have time for one more question.

Thank you. Your last question is from Jeff Farmer. Your line now is open.

Thank you for that Carol. Looking out for me hopefully, but two quick follow-up questions. Lenny, you did touch on this but some of your peers have shifted a portion of their promotional focus away from these bundled value offers we've seen over the last two years, and you're starting to see a lot more of these significant price discounts on the single items. The question is, what are your thoughts on that shift and that strategy, and does it present potentially a greater traffic headwind for the Jack in the Box concept?

Good question. I think first off, we are going to be extremely cautious about doing that. There are other brands out there that have had for example $5 promotions on particular items, single items within their brand. And they've lost some of their core equities along the way because the consumer at a certain point just looks for the price. And we don't want to tear down our brand because in the short-term we're trying to protect a loss in transactions because over the long-term it's really hard to recover from that as you've seen from other brands that have had some real stickiness with a $5 price point and not been able to get above it. And we think that that strategy is probably not the right way to go. However, as I said in some of the previous conversations, where we feel like the mid-tier and premium products are under attack, we will get more aggressive to save those transactions and so you are going to see us stick to value bundles, but we will do that in a very aggressive way and in a way that protects our lunch and dinner day part, which is where we're seeing a lot of the promotions right now.

And just last quick question, so just looking for your thoughts on wage rate inflation beyond minimum wage? And what I mean by that is any headwinds again from that tighter job market, which a lot of your peers have talked about over the last couple quarters? But also potentially higher hourly turnover, how all that's impacting both the company and franchise restaurant level P&Ls?

So let me deal with the wage issue. We're looking at roughly 6% wage inflation across both brands. It's higher in the California market for Jack in the Box and even in the Qdoba locations with Denver and some of the markets, and Seattle area of Washington, we're seeing a lot of wage inflation driven by minimum wage. And I would say the other piece of the wage inflation that we are seeing is just compression as those minimum-wage job goes up and so do the team leaders and assistant manager pay. So, I think that's where we're seeing the 6% piece across both brands.

Just talking a little bit about turnover, as we meet with our franchisees and I spent a lot of time with franchisees from both systems, they don't seem to be experiencing as much of the turnover issue as our company operations. They are seeing it, but not to the degree that we describe in our company operations and we think a lot of the turnover we are seeing in our company operations can be attributed to anxieties around the refranchising efforts. So we need to get past that to see how this thing shakes out because there's a little bit of noise in what we're seeing today.

All right. Thank you very much.

Got it.

Thanks everyone for your attention today. We look forward to seeing you on the road here in the next couple of weeks.

Thank you. And that concludes today's conference call. Thank you all for joining. You may now disconnect.