Noodles & Company (NDLS) Q2 2017 Earnings Report, Transcript and Summary

Good afternoon, and welcome to today's Noodles & Company Second Quarter 2017 Earnings Conference Call. All participants are now in a listen-only mode. After the presenters' remarks, there will be question-and-answer session. As a reminder, this call is being recorded. I would now introduce Noodles & Company's Interim Chief Financial Officer, Sue Daggett. Susan Daggett - Noodles & Co.: Thank you, and good afternoon, everyone. Welcome to our second quarter 2017 earnings call. Here with me this afternoon are Paul Murphy, our Executive Chairman; and Dave Boennighausen, our Chief Executive Officer. Let me start by going over a few regulatory matters. I'd like to note that during our opening remarks and in response to your questions, we may make forward-looking statements regarding future events or the future financial performance of the company. Any such items, including our guidance about our anticipated results in 2017 and details relating to our future performance, should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are only projections, and actual events or results could differ materially from those projections due to a number of risks and uncertainties. The Safe Harbor statement in this afternoon's news release and the cautionary statement in the company's most recent Form 10-K and subsequent filings with the SEC are considered a part of this conference call, including the portions of each that set forth the risks and uncertainties related to the company's forward-looking statements. I refer you to a document that the company files from time to time with the Securities and Exchange Commission, specifically the company's Annual Report on Form 10-K for its 2016 fiscal year and subsequent filings we have made. These documents contain and identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. During this call, we may discuss certain non-GAAP financial measures. In our press release and our filings with the SEC, each of which is posted on our Investor Relations website, which may be found at investor.noodles.com, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures. Now, I would like to turn it over to Dave. David James Boennighausen - Noodles & Co.: Thank you, Sue, and hello, everyone. This afternoon, we look forward to discussing our performance in the second quarter of 2017 as well as our go-forward plan to increase shareholder value. Before Sue and I go into those details, I would like to take this opportunity to officially welcome Paul Murphy to the Noodles & Company team. As many of you know, Paul comes to us with extensive experience in the restaurant industry and a strong track record of success in the organizations that he had led. As I take on the permanent role of Chief Executive Officer, I look forward to partnering with Paul to help us improve momentum and reach the brand's potential. With that, I'd like to turn it over to Paul for some initial thoughts before we dive into our recent results. Paul J. B. Murphy - Noodles & Co.: Thank you, Dave, and good afternoon, everyone. I'm excited to be with you. In my short time here at Noodles, I've been impressed with the team as well as the inherent strengths of the brand. While there is certainly work to be done, I've always believed that Noodles & Company is a unique differentiated brand that resonates with today's consumer. As I've spent more time understanding the business, I'm encouraged by the solid foundation of profitable restaurants to grow from as well as the passion and skill of the team. I believe that Noodles & Company has a tremendous opportunity to significantly increase shareholder value and return to being one of the leaders in the restaurant industry. As I've been touring restaurants and meeting with members of our team in various areas, Dave and I are formulating specific short and long-term plans to address our issues and develop our opportunities. I'm excited and look forward to working closely with the board of directors, Dave and the team, and contributing to the execution of our transformation strategy. I'll now hand it back to Dave to discuss that strategy and our Q2 results. David James Boennighausen - Noodles & Co.: Thank you, Paul. Earlier this afternoon, we reported Q2 2017 financial results, including adjusted net income of approximately $300,000 and adjusted EBITDA of $8.7 million, which was a 16% increase over the prior year. Total revenue was $112.8 million, a decrease from prior year due primarily to closures during the first quarter of 2017. As you may remember, during the first quarter of 2017, the company completed two important steps that have allowed us to sharpen our focus on improving the performance and profitability of our go-forward portfolio. First, the company completed two private placements, strengthening our balance sheet through $50 million of gross proceeds raised. Using a portion of these investments, we also completed our second important step, the closing of 55 underperforming restaurants that have been a persistent burden on the company's human and financial capital. We are already seeing many of the benefits with the closures of these underperforming restaurants. Again, adjusted EBITDA grew 16% in the second quarter relative to the prior year, and restaurant-level margin improved 130 basis points to 15%. Aside from strengthening our go-forward profitability, the first quarter closures have also allowed our team the opportunity to renew our focus on delivering consistently excellent restaurant-level execution, particularly during the highly competitive lunch revenue period. During the past year, we have taken several steps to increase operational efficiency and consistency, from streamliner menu to improving many of the processes and procedures that our teams follow to make it easier to execute the brand. We have already seen significant benefit from these actions, including improved guest satisfaction, turnover and employee engagement metrics. Still we are not satisfied. With the closures behind us and our leadership team strengthened, we are moving more aggressively to close the gaps in execution and efficiency. In the coming months, we will recalibrate processes, procedures and expectations within our restaurant teams and close any gaps in training that may have occurred during our period of rapid growth. Additionally, we are investing in tools to improve team member efficiency. As an example, we are rolling out an iPad-based learning management system that has made it considerably easier to train new team members and calibrate performance. We are also implementing guest bussing stations in all of our restaurants, which we are confident will improve cleanliness, execution, and most importantly, our guest experience. While we continue to focus on our in-restaurant execution, we also recognize that guest patterns and expectations are changing. We are making solid progress on our off-premise initiatives, which have particular relevance during the busy lunch rush as well as the more family-oriented dinner occasion. During the second quarter, our overall mix of off-premise sales grew to 47% of total sales, an increase of over 200 basis points from the prior year. We believe that given our menu and our guest demographics, including our strong family business, we are well positioned to capitalize on industry and consumer trends and grow this area significantly. Only a small segment of our growth versus the prior year has been from third-party delivery, which is currently just over 10% of our company-owned restaurants. However, we continue to see tremendous opportunity in the delivery platform. In our restaurants that currently offer delivery, the program is averaging 6% of sales with several restaurants well north of 10%. By year-end, we anticipate that delivery will be offered at over one-third of our company restaurants. We also continue to test an easier platform to remove friction from the to-go experience by selectively placing shelving units in our restaurants for guests that paid ahead of time so they can skip the line to pick up their order. Finally, in mid-July, we launched nationally our NoodlesREWARDS Program, which we believe will benefit the organization across many levels. Our REWARDS program is a surprising delight program in which we specifically target communication and offers to guests based on their interests and buying behaviors. By specifically targeting and growing our loyal guest base, we hope to drive more frequent visits to the REWARDS program. We believe this program will also foster deeper, more personal connections with our guests. Moreover, the program will help facilitate online ordering, easing pressure on the front of house and improving throughput and convenience by allowing our guests to skip the line to pick up their order. We are incredibly pleased with the initial response to the REWARDS program with guest signups and check-ins easily surpassing our original targets. In closing, during the first half of 2017, we've completed important steps to solidify our balance sheet, our restaurant portfolio, and our leadership team. That is now behind us. With our intense focus on execution of the brand, particularly during lunch and off-premise dining occasions, we are confident that we can regain momentum and position the brand to take advantage of the sizable growth opportunity ahead. Now I'd like to turn the call over to Sue Daggett, our Interim Chief Financial Officer. Sue has been a great asset to Noodles & Company during her 12 months with the brand, bringing to our company a tremendous amount of operational finance experience across many different disciplines. As we continue our search for a permanent CFO, looking at both internal and external candidates, I'm excited the contributions that Sue will make in her current role. Over to you, Sue. Susan Daggett - Noodles & Co.: Thank you, Dave. During the second quarter, comparable restaurant sales decreased 3.4% system-wide, including a 3.9% decline at company-owned restaurants and a 0.4% decline at franchise locations. In the second quarter, the gap between company and franchise comparable sales performance widened, which we believe is partially a result of our franchise community being farther along the curve in executing the operational excellence initiatives that Dave discussed. Comparable restaurant sales included a 1.5% price increase and a modest benefit from menu mix shift to average check. We anticipate running approximately 2% of price during the balance of 2017. From a cadence perspective, as mentioned on our prior call, April got off to a rough start, and despite seeing some modest momentum in May, we continued to see volatility in the back half of the quarter. Restaurant-level contribution margin in the second quarter was 15%, a 130 basis point improvement over the prior year. We saw significant benefit from the restaurant closures, but we also saw improvements related to the implementation of labor savings initiatives and lower marketing spend during the second quarter versus the prior year. While we anticipate some commodity inflation as we enter 2018, during the second quarter, we experienced a neutral to slightly favorable impact. During the second quarter, five new restaurants opened system-wide, including four company-owned restaurants and one franchise location. Through the second quarter, we opened a total of 11 company restaurants. As we moderate growth, we anticipate only two additional company openings during the second half of 2017. We also anticipate two additional franchise openings later this year. Encouragingly, our class of 2017 continues to significantly outperform prior classes. Volumes have maintained well above company average, as have restaurant-level margins. We attribute this success to more disciplined real estate selection as well as the streamlining of the menu and procedures that we enacted over the past 12 months. While we still anticipate a modest growth rate in the near-term as we enact the initiatives that Dave discussed, recent results give us confidence in the longer-term growth opportunities still ahead of us. Turning to the remainder of 2017, we are optimistic that we will continue to benefit from recent restaurant closures as well as the continued execution of our REWARDS program and operational initiatives. We are maintaining our guidance of low-single digit negative company-owned comparable restaurant sales as well as adjusted EBITDA of $31 million to $35 million. We also anticipate that we will continue to see solid margin expansion relative to prior year, resulting in a restaurant-level contribution margin of 13.5% to 14.5% for the year. With that said, given the continued sales pressure that we are seeing in the industry, we currently believe that we are more likely to fall into the lower end of our comparable restaurant sales and adjusted EBITDA ranges. Now I would like to turn it over to Dave for some final remarks. David James Boennighausen - Noodles & Co.: Thank you, Sue. Noodles & Company remains an incredibly solid brand. And we made progress on many fronts thus far in 2017. We have strengthened our balance sheet, we've eliminated the financial and human capital burden of underperforming restaurants, and we have straightened our leadership, all while making it easier for our talented teams to execute the brand. I am confident at speaking on behalf of the entire team as we solidified our foundation with the passion and drive to execute our strategy in winning this competitive environment. There remains a sizeable growth opportunity for the company, both in improving our existing portfolio and in expanding the brand. I look forward to working with Paul and the team to reach that potential. Jonathan, now, could you please open it up to Q&A?

Certainly. Our first question comes from the line of Jake Bartlett from SunTrust. Your question, please.

Hey. Thanks for taking the questions. First, just some book-keeping and also just any indication. So first is traffic. You didn't – you explicitly provide that if you could for the second quarter at company stores, that'd be helpful. David James Boennighausen - Noodles & Co.: Sure. So, Jake, in terms of sales, again, we're negative 3.9% on the company side with about 1.5% of price. Menu mix was pretty negligible. So, as you look at traffic, it was in that negative 5.5% range.

Okay. And then in the past you've shared kind of quarter-to-date trends in July. Could you share those to see how you're doing so far in the quarter? David James Boennighausen - Noodles & Co.: No, as we – as Sue talked about, there is a lot of volatility. And what we're seeing in particular, there's volatility as we lap over discounting this year. It's something we've talked about in some prior calls about the heavy amount of discounting that we've been getting away from. So we've seen actually a significant amount that we've been lapping over the last several weeks as we got into Q3. So I don't think it's prudent at this moment to really be talking about quarter-to-date given that volatility.

Okay. And then in terms of your comp drivers, your sales drivers like the new guest bussing stations and menu simplification, some of the other marketing initiatives I think you've done a rollout soon. But can you just remind us where you are with all of those? How many stores have the new bussing stations? Maybe specifically, what the franchise stores have that the companies don't that might be accounting for that differential? David James Boennighausen - Noodles & Co.: Sure. There's a few things in there, Jake. So I'd ask Sue to carry on where I was misplaced. First, talking about the franchise side, aside from implementing some of our initiatives, I think potentially the bigger place that they're ahead of our curve is in the turnover and people engagement side. If you look back a year ago, we've talked in the past that at the company level, we are approaching kind of 200% team member level turnover on an annualized basis, manager turnover was 50%. Those numbers significantly improved now at industry average. The franchise community never had that. So, from a pure cadence of operational execution ensuring the standards are met, they've been able to kind of pick up the pace faster than we have on that. The good news is where we're at from a company side. As I mentioned in the prepared remarks, we're now able to really calibrate the processes and getting tightened up to ensure consistency. It's not necessarily as much the initiatives surrounding bussing stations and quicker pickup that they've been implementing as much. It's just the standards and pure execution. To answer a few more of your questions in terms of where we're at with the initiatives such as bussing stations, we had to wait until we had the capital raised earlier on in the year before truly implementing these. Bussing stations are really only in a couple dozen locations as we sit today. We do expect that those will be rolled out through the balance of this year, maybe a little bit into early next as well. From the REWARDS program that is now nationwide, I'm very excited with the initial response we've had from that program. So I think that's absolutely going to be a big opportunity for us to drive some sales as we go forward. From the culinary side, you've heard us talk a lot, Jake, in the last year or so about coming back to some of the inherent strengths of the brand. One of those that we think we really should own is macaroni and cheese. As many of you know, that's our number one seller. And it's one that, as I look at the brand and I've been with the brand for 13 years, I feel like we lost a little bit of our focus on this core strength. The recipe got a little bit away from us in terms of really having the crave-ability that should be a hallmark of the brand. I'm very excited about we're going to have coming up in Q4. We've really revisited the recipe. We'll be launching not just kind of the new reformulated macaroni and cheese, which we think has kind of that back-to-basic amazing crave-able flavor that really gets people connected with and emotionally hooked on the brand, but also introducing a permanent macaroni and cheese menu where we'll go narrow but deep with this strength, introducing some items such as the Truffle Mac, which has been the most requested item for us to bring back in our history, as well as Buffalo Chicken Mac and the Barbecue Pork Mac. So I'm particularly excited as we look into the balance of this year at the opportunity that that can bring, which should be launched in early October.

Great. Thank you very much.

Thank you. Our next question comes from the line of David Palmer from RBC. Your question, please.

Hey, Dave. Just a follow-up question on your – on delivery, takeout and pushing that. I'm a fan of your concept when it comes to that, and it seems that you're trying to push on that lever. Could you talk about that mix and how cannibalistic that is, whether it's delivery on takeout or takeout the in-store business? And then also when it comes to value, when it comes to a delivery order or a takeout, oftentimes the bar gets higher for value because you're getting into family orders, and that check size can swell and become – it's a little bit of a sticker shock. Can you talk about trying to make that value work for a family in particular, as they – as you try to grow that delivery and takeout business? Thanks. David James Boennighausen - Noodles & Co.: Sure. Well, thanks, David, for the question. First, I want to step back and say why we believe this is such a great opportunity for us. Again, we're approaching 50% of our sales that are coming off-premise. And our concept, by virtue of our strength with families in that dinner occasion, the variety we have, the fact especially when you look at items like the Asian category, we generally lend ourselves well to the off-premise occasion. That said, it hadn't been much of a focus in the organization past several years, or maybe not as much of a focus as it should have been. When we look at cannibalization versus incremental business, where we see particular incremental business is, right now, when you look at that occasion where speed is of the essence. When we can get our guest to order online, that's something that allows them to skip the line and really becomes a throughput equalizer for us. We still see, of our off-premise business, the majority of it is people that are coming into our restaurants, waiting in line, ordering, and then waiting for their food. As a reminder, everything is made to order. So, as we push forward and get more and more folks to get online ordering and skipping that line, online ordering now about 8% of sales, which is up from 6% in the prior year, I think you'll see us do more and more of a focus on this. We'll utilize the REWARDS program as well. That really does become a throughput equalizer and gets us back into the decision set for some occasions that maybe we haven't been as much at the forefront of our guest's mind as we would like to be. The one that's probably the least cannibalistic is delivery. Delivery is one that when we look at the restaurants that we've been testing in, which is about 10% of our system, we do see nice same-store sales lists from those restaurants. Wouldn't necessarily quantify it just because a lot of those are early on in their phase with delivery. But it does seem to be highly incremental, certainly a guest that is craving that type of convenience. As many of you know, the economics aren't quite as clean and as favorable on the delivery side. So we're really focused on how do we make sure that that is the incremental business and something that's additive to the brand. Your final question, I believe, was on families and our price point and do we believe there's opportunity there. Now that we've got the streamlining of our menu down, as we went from 26 menu items to 18 last year, and we're really focused on menu optimization, really look forward to working with Paul and then myself now in my new role. We're going to be looking at optimizing the menu, and we will be looking at that whole value schema. In particular, is there a place for us to be playing with family meals? We're trying to make it a little bit easier for our guest to use us for that occasion as well as potentially a little bit more affordable. So while there's nothing necessarily in test right now, David, it is something we're looking very closely at and think there's a lot of opportunity.

Thank you.

Thank you. Our next question comes from the line of Andy Barish from Jefferies. Your question, please.

Hey, guys. On the items that came off the menu with the simplification, any preference or impact on comps that was greater or less than you expected, or was that generally kind of in line as those were lower mixing items for you? David James Boennighausen - Noodles & Co.: Yes, Andy, there were certainly lower mixing items, particularly in sandwiches. Very little resistance, if any, from that, and we saw an immediate improvement in our throughput in our operational metrics as we remove those. The one that we talked about last quarter was the one that surprised us a little bit, which was as we removed the Whole Grain Tuscan Fresca, definitely we saw some feedback from our guests about wanting that Fresca sauce and our Fresca profile, which is why we did bring back the Pasta Fresca nationally just a couple months later. It was actually already in the works, but we just accelerated its movement into the restaurants. I wouldn't necessarily quantify much of an impact on same-store sales. And if so, it would have been in Q1, not Q2. But overall, I think the streamlining of the menu has helped certainly more than hurt in terms of just improving our ability to execute operationally.

And then on the food cost side, are you starting to see inflation in the back half, and what are you specifically contracted or knowing about right now to look out to 2018 and thinking that that's going to be inflationary at this point? Susan Daggett - Noodles & Co.: Hi, Andy. This is Sue. We are contracted out on all of our commodity-based ingredients through the balance of the year. But we are watching for 2018, the preliminary forecasts are indicating that it's going to be a modestly inflationary year next year. One of the things that we're watching closely, things like durum wheat which had tough – no rain, drought, hot weather up in the Dakotas and Northern Montana. So we're watching those very closely, but we feel confident for the balance of 2017 and now looking into 2018.

Okay. Thank you very much.

Thank you. Our next question comes from the line of John Glass from Morgan Stanley. Your question, please. John Glass - Morgan Stanley & Co. LLC: Thank you. David, you just – stepping back and looking at the sales trajectory of the business, now it stepped down a bit in the first half of this year, and there's a lot of the factors at work, and I'm sure distraction and focus on other things is one of them. But how do you think about what your sales driving initiatives are? What is rank – if you could rank order, kind of what you think will help sales the most in the next two quarters? How would you handicap or rank those initiatives? David James Boennighausen - Noodles & Co.: Sure. I think from the short-term, I would say that the REWARDS program is one that we continue to believe will allow us to not just increase frequency but target our guests. In the past, when we talked about the heavy promotion that we've been trying to get away from, one challenge that I had with the heavy promotion was that we didn't quite have the tools at our disposal to have those messages be really targeted based on guest behavior and based on their profile. So I do think from a short-term perspective, the REWARDS program absolutely can be a driver as we look into the back half of the year. As a reminder, the REWARDS program started in mid-July, John. Medium term, though, and what we think is probably the biggest thing we need to get done is operational execution and continuing to calibrate with our teams to just ensure that that guest experience is as strong of an execution of our brand as it can be. We've made a lot of progress in the last year, and it really has set us – set the foundation. I think this is also a place where I really am excited to be working with Paul. Those of you that don't know Paul, he's had such a great track record over the years, and coming up through the operations ranks earlier on in his career, I think he's already seeing – we're seeing impact on just the way that we're thinking about the business from an execution perspective. So I do believe we'll accelerate our consistency from an operational side. Finally, from a rank order perspective, I do believe the macaroni and cheese LTL – or not LTL, becoming a permanent menu is meaningful. Those who have followed the story know that we have done some macaroni and cheese LTLs in the past. With this one, I think two special pieces of information. One, bringing back the Truffle Mac, which was one that's really been a successful one in the past for us. And the second thing is, again, bringing the formulation to have a sharper cheddar profile, a much more craveable macaroni and cheese, still will absolutely be able to hit on the 20% of people that are already ordering mac and cheese. But I think we'll bring back a lot of people to the brand that we've lost over the years as we've maybe lost some focus on that recipe. John Glass - Morgan Stanley & Co. LLC: And how does marketing play into this plan? I know the rewards, and so direct marketing is important and it's efficient. But in different times in the past, you've talked about marketing and sort of building brand awareness. Where are you now in marketing spend and – or is it too early to do that? You want to figure out the operations before you spend more on marketing? David James Boennighausen - Noodles & Co.: Yes. So, ultimately, marketing is still something that we think before we go heavy and start competing with those that are in our segment that are spending quite a bit more, we want to make sure we have operations as consistent as possible. From a marketing spend perspective, we've been looking at about 50 basis points, 60 basis points less than we had done in the prior year. So, still, you're looking at spend that's really just north of 1%, much lower than what we see in most of our competitors. What you'll see, John, is the focus over the next three months to six months I think for sure will be on the REWARDS program, really being innovative and how we approach that and bring back some guests that maybe are lapsed users or don't have the frequency that we know they can get to. That said, there is a great brand awareness opportunity for Noodles & Company. We are a brand that is unique. It's different. And by differentiation (29:56), it does require a bit more work to get brand awareness in our markets. And so we know there is a tremendous opportunity there. That said, we don't think it is a wise use of capital and then it wouldn't really have the return on investment for shareholder value in the long-term if we were to try to push the accelerator too much on media and more traditional marketing in the next three months to six months. John Glass - Morgan Stanley & Co. LLC: That's helpful. Just one modeling question. If you were to pull out the closed store margins in both periods, what did store level margin do year-over-year excluding the closed stores? How much of a benefit was there? How much did store margins decline if you pull those out or if they did? David James Boennighausen - Noodles & Co.: John, I'll turn it over to Sue for that one. But as we look at it, we've talked about in the past that the lift is about 280 basis points, 290 basis points. So without those closures, again, margins expanded by about 130 basis points. So correct me if I'm wrong, Sue, but I believe we're still at about 150 basis point of degradation. That said, when you looked at where our margins were degrading before then, you actually just see a pretty significant uptick in terms of where our performance has been, so not where we needed to be in terms of not leverage year-over-year for our go-forward portfolio, but the gap certainly did narrow. Susan Daggett - Noodles & Co.: Yes. And just as a little bit of clarification. In Q2, we saw our first year-over-year margin increase in many quarters, which we were very excited about, obviously impacted by the restaurant closures. And alluding to what Dave was talking about that we remember that prior to Q2, in 2016, we've been running about 300 basis points margin decline year-over-year. So while we're having some sort of near-term experience with headwinds, we're very confident in our trajectory moving forward. David James Boennighausen - Noodles & Co.: Yes, definitely. Susan Daggett - Noodles & Co.: Yes. John Glass - Morgan Stanley & Co. LLC: Got it. Okay. Thank you.

Thank you. Our next question comes from the line of Nicole Miller from Piper Jaffray. Your question, please. Nicole M. Miller Regan - Piper Jaffray & Co.: Thank you. Good afternoon. Just two quick ones for me. How does delivery play a role in terms of mix? Like, I would think that would contribute to mix in a positive fashion in terms of a potentially higher check, yet mix is kind of flattish. So, can you just help me reconcile that train of thought? David James Boennighausen - Noodles & Co.: Sure. On that one, Nicole, I think it's just a lot being a small number right now. So it's only 10% of our restaurants during Q2. It's only – was 6% of sales. So you're really talking about an average check lift that was really only impacting about six-tenths of our overall revenue. But you are correct. Average check is higher for the delivery occasion. Now, we currently do not add or increase our prices for delivery, which several concepts do. So that's one element that we maybe have not seen as much average check lift with some other staff. But I think you will see average check and more benefit as we expand this to a third of our restaurants. Nicole M. Miller Regan - Piper Jaffray & Co.: Excellent. Understood. Thank you. And then just the last one, I think it's interesting that you use the term recalibrate many of the processes and procedures. So, thinking about growth – higher growth and then lesser degree of growth and a lot of marketing spend and now lesser degree of marketing spend, I think a lot of what you're talking about today is very encouraging. So what is a fair timeline so that we can calibrate the stock? If the question doesn't make sense, I'll just apologize in advance. But when would we see the performance – the result of these initiatives talking about? Meaning, how much time do you want us to give you until it's where you want it to be? David James Boennighausen - Noodles & Co.: Yes. So, I mean – obviously, it's very tough to put a complete timetable on it. Here's what I would say, though. When we had the period of rapid growth during the past few years, one thing we saw, and as we bring – dial back to a year ago, was that we had a lot of people that hadn't been trained maybe as well as we'd like. The bench had been considerably thinned out. And it was pretty challenging to operate the restaurants in terms of being more complex than we'd like it to be. So our first priority was really in just stemming the turnover challenges that we have. And from that perspective, we're very happy with the team we have in terms of the engagement and the lower levels of turnover. When it comes to momentum and how do we look at that, I think your best proxy is probably the franchise community and what their performance has been relative to the companies because you're starting to see a gap there. But that said, I think it is going to be a little bit difficult to assign an absolute timeframe to it. I will say we're moving very aggressively on it. Paul, myself and a few others will be traveling and really touching nearly everyone of our general managers and assistant general managers over the next several weeks to recalibrate on tools and processes that we think are actually very good, but maybe weren't trained as effectively as they could have been during our period of rapid growth expansion. So I apologize for not really answering the question, Nicole. I do – I can't tell you that seeing how the franchise community has been performing relative to the company results. I do feel very confident that we'll get there. Nicole M. Miller Regan - Piper Jaffray & Co.: That's a very fair answer. Thank you.

Thank you. Our next question comes from the line of Andrew Strelzik from BMO Capital Markets. Your question, please.

Hey, good afternoon, guys. A couple of questions. First one, you talked about the strength with families. I'm wondering if you try to parse out the day parts, are you seeing that the evenings maybe are a little stronger? Are you seeing that that's manifesting itself in the current trends or is it a little more consistent across the board? David James Boennighausen - Noodles & Co.: We do see a little bit more strength at dinner than we see at lunch, Andrew. And I think that part of that is just competitively a lot of fast casual that's been building up over the years that's had a little bit more of a lunch day part. And part of it's in the operational execution. In terms of the lunch, there ultimately is probably a little bit less room for air. And we probably lost some mind share and some ability to be in the decision set by not executing quite as crisply as we think we should. The other thing I would add to that is that those that have been in the restaurant space for a long time know that how strong your execution is at dinner is often a very clear reflection of how well you executed at lunch because it sets you up for the full day being very successful. So that's another reason why we continue to focus on lunch from an execution perspective, but at the same time, feel that the off-premise occasion delivery, how we're approaching faster pickup, that's really going to resonate with families.

Okay. And clearly, the excitement – you can feel the excitement around the reward side. In the restaurants where you tested that, the 50 stores initially, how did you really see that manifest itself? What were the learnings from that that has you so excited? And I think you even – seems like you're rolling it out maybe a little bit faster than you had initially planned. Maybe that's splitting hairs. But I guess I'm wondering what pieces you've seen that maybe you can give some color to make us as excited as you are. David James Boennighausen - Noodles & Co.: Absolutely. It's hard to get as excited as I am because I'm pretty excited. But really, the REWARDS program is something our guests have been asking for for a long time. We started testing it in October in several of our restaurants. I don't want to necessarily pin a same-store sales lift to it, but we definitely did see that as restaurants had an increased level of check-ins and an increased level of engagement from the REWARDS program, we did see their sales results improve. And then that's really frequency from our existing guests, maybe users that have become either lapsed or they've become more frequent than they were in the past. I think what's particularly exciting for me is that, really, we did put such a large focus on this during the testing phase that of all the launches that I've been a part of in my 13 years here, I think this was potentially the most flawless in terms of the level of execution at our restaurants, the level of execution at our own current team. But we are seeing nice lifts to same-store sales and average check from the restaurants that have tested it. While we're still only a few weeks in to this current – to the program being nationwide, I'm very excited with what we're going to see here. Susan Daggett - Noodles & Co.: And that's -

And then, my last question, wondering about the supply side dynamics. Have you seen the competitive activity from a unit growth perspective and the number of competitors out there? Has that continued to accelerate? Have you see any shakeout at all that maybe that's starting to ease a bit? Wondering – in your most important markets, how you're seeing that play out? David James Boennighausen - Noodles & Co.: Yes. I think, ultimately, as you can imagine, we're focused on what we can control, which is the guest experience and ensuring that we're executing the brand as well as we possibly can. I do believe that the unit growth is starting to moderate. We're seeing that in certain markets like Colorado where we're starting to see improved results versus prior quarters. So I do think it's moderating. At the same time, really, our focus is on what we can control. And the fact that we are so differentiated, it still gives me a lot of confidence that even as you have new entrants into the space, we should be one of those that win.

Great. Thank you very much.

Thank you. Our next question comes from the line of – it's a follow-up from the line of Jake Bartlett from SunTrust. Your question, please.

Thanks. Thanks for taking the follow-up. Dave, on the delivery in the 10% of the stores that have it and the 6% mix I believe that you mentioned, did that build over time? I'm thinking about the prospect of getting to a third of the stores by the end of the year. I mean, it seems like the math would imply that that could be up to a 2% boost to comps in 2018. Is there something wrong with that thinking, like the stores that you initially did it with are just particularly well suited for delivery? David James Boennighausen - Noodles & Co.: Yes. I mean, that would be the only – not necessarily a flaw, but the only caveat to that thinking is that certainly our initial focus was on locations that tended to be their central business district. Collegiate, they tended to be those types of ones that are a little bit more applicable for the delivery experience. But we absolutely do think there's a big up – there is a nice upside here over the long-term. So it hasn't grown over time at those restaurants. Yes, with the typical volatility that you would see from especially the college restaurants where it goes up during school and then fades off a little bit during summer.

But it's kind of leveled off around that mix? David James Boennighausen - Noodles & Co.: Yes. I mean, again, it's 45 restaurants and the sample size gets a little small. Some restaurants, it just continues to grow, grow and grow. We see that especially in California. Other markets that are more collegiate in nature, again, tend to have leveled off.

Okay. And then lastly, you've mentioned in the past that you have been exploring potentially refranchising some stores. Any more thoughts on that, any changes to your thinking? And maybe – I think you framed potentially 10% of the stores. Is that still what you're looking at? David James Boennighausen - Noodles & Co.: Yes. Certainly, as we've talked about in the past, we've expected that this would be somewhat of a lengthy process going through 2017 and through 2018 as well. Still believe that franchising and refranchising has a good opportunity for us. At the same time, as Paul has come on board and as we've been spending time calibrating, this is something we'll look at. But again, no changes to our thinking right now that we still expect to do refranchising, but it'll be more of a late-2017, 2018 opportunity.

Great. Thanks a lot.

Thank you. And this does conclude the question-and-answer session as well as today's program. Thank you, ladies and gentlemen, for your participation. You may now disconnect. Good day.