Papa John's International, Inc. (PZZA) Q2 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Papa John's Second Quarter 2015 Conference Call and Webcast. At this time, all participants are in a listen-only mode. Later, there will be a question-and-answer session, and instructions will follow at that time. As a reminder, this conference is being recorded. I would now like to turn the conference over to Lance Tucker, Chief Financial Officer. Sir, you may begin. Lance F. Tucker - CFO, Treasurer, Chief Administrative Officer & SVP: Thank you, Shannon. Good morning. Joining me on the call today are our Founder, Chairman and CEO, John Schnatter; President and COO, Steve Ritchie; CMO, Bob Kraut, and other members of our senior management team. After the financial update, John and Steve will have comments about our business, and the management team will then be available for Q&A. Our discussion today will contain forward-looking statements that involve risks related to future events. Actual events may differ materially from the projections discussed today. All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings press release and the risk factors included in our SEC filings. And all statements made on this call are as of today. Please refer to our earnings press release in the Investor Relations section of our website for a reconciliation and other disclosures related to our discussion of non-GAAP financial measures on this call. Unless otherwise noted, all comparisons are versus the comparable periods from a year ago. This call is being taped, and the replay will be available for a limited time on our website and in downloadable podcast format. Now, onto a discussion of our second quarter operating results. In these remarks, we will be discussing our results on a non-GAAP basis, excluding the impact of the preliminary settlement of the Perrin, collective and class action, which is a one-time item that negatively impacted our results about $12.3 million pre-tax in the quarter or $0.20 of EPS. Due to this preliminary settlement, reported GAAP EPS in the second quarter was $0.27. Adjusted EPS in the second quarter was $0.47, up 18% with strong domestic and international comp sales growth and favorable commodity trends. Year-to-date, our adjusted EPS is up 20%. Our second quarter revenues increased nearly 5% versus the prior year due to excellent comp sales of 5.5% for North America and 6.8% for International. Revenues also increased due to a 5.5% increase in the number of units operating globally on a year-over-year basis. These increases were somewhat offset by lower cheese block prices, which drove lower revenues in our PJ Food Service business since we had a constant dollar mark-up on cheese. We opened 35 net global units in the second quarter, with 30 net international openings, and five net North America openings. We have now opened 71 net global units thus far in 2015. On a business segment basis, operating income for the domestic company-owned restaurants increased $4 million in the second quarter, due primarily to 7.4% company-owned comparable sales increases and lower commodity costs. Operating income for the North America franchising segment increased approximately $2.2 million in the second quarter, due primarily to the increase in comparable sales of 4.8%, and reduced performance-based royalty incentives. Operating income for our domestic commissary segment increased by approximately $3.9 million in the second quarter, due primarily to higher restaurant volumes and the higher margin. Operating results for our International segment increased approximately $400,000 in the second quarter, due primarily to 6.8% comps and a higher number of units opened on a year-over-year basis, partially offset by negative foreign currency exchange rates. Our unallocated corporate expenses segment increased $7 million in the second quarter due primarily to higher G&A costs resulting mainly from higher incentive-based compensation, increased health insurance costs and higher legal costs. In addition, our annual operators' conference shifted timing from Q1 to Q2, resulting in a $1.4 million or $0.02 per share increase in second quarter G&A. Our effective tax rate was 28.9% in the second quarter, down 3.1% from 2014. The legal settlement reduced our income tax rate by 2.5% for the quarter and 50 basis points year-to-date. We have now reduced our 2015 full year tax rate guidance by 5% to a range of 30% to 31.5% due primarily to the benefit from various tax planning initiatives including credits related to our manufacturing deduction. We repurchased approximately $27 million of stock during the second quarter and have approximately $69 million of remaining share repurchase authorization. We also increased our full-year dividend about 25% from $0.56 per share to $0.70 per share on an annualized basis. Our free cash flow, a non-GAAP measure we define as cash flow from operations less capital expenditures, was approximately $61.5 million in the first half of 2015, up over $33 million versus the prior year. Our net debt position, defined as total debt less cash and cash equivalents, was approximately $212 million at the end of the second quarter. As noted in our press release, we have updated the following 2015 guidance items. Adjusted EPS is projected to range from $2.04 to $2.10, up from the previous range of $2 to $2.08. International comps are expected to increase 6% to 8%, up from the previous range of 5% to 7%, and our income tax rate is projected to range from 30% to 31.5%, reduced from the prior range of 31.5% to 33%. Now, I'd like to turn the call over to our Founder, Chairman and CEO, John Schnatter. John? John H. Schnatter - Chairman & Chief Executive Officer: Hey, thanks, Lance, and good day to everyone. We really appreciate you joining us on the call today as we discuss our second quarter 2015 results. Years ago, we made it our mission, and I made it my commitment that we would make the best pizza with the best ingredients even though it cost us more. Consumers have recognized the higher quality standards and rewarded our efforts with their loyalty, in turn driving excellent financial returns for our business and our shareholders. We again put up strong results in the second quarter. Here are a few facts about what we achieved. First, our sales momentum continued in Q2 with North America comps up 5.5%. We are well on our way to have a 12th consecutive year of comp sales growth in North America. Second, our digital sales mix continues to grow and averaged over 50% of our domestic sales in the quarter. Third, on the International side of our business, comp sales remained strong at 6.8% for the second quarter, which as Lance noted, has led us to increase our sales guidance for the year, so again, a strong second quarter of continued growth. This is important. Without a doubt, at the heart of our success is our shared commitment to delivering the highest quality pizza with superior customer service. Papa John's has again been recognized for doing just that. For the 14th time in 16 years, the American Customer Satisfaction Index has awarded us the top spot among pizza chains. I'd like to congratulate and thank all of our operators and team members for their outstanding results. You are the reason we continue to deliver better ingredients and better pizza. But our work is never done. We will continue to find ways to improve our pizza and better serve our customers in the coming months. We are finding ways to more effectively communicate our commitment to using the best quality ingredients. They have always been part of what distinguishes Papa John's from the rest. We recently began to showcase our ongoing efforts through a mix of ads and press releases. This is more than a campaign. It's another way we communicate to our customers that we share their passion for superior quality. We also know customers love to see new menu offerings. We recently added Garlic Knots and Cinnamon Knots to our menu, paired with two of our most popular limited-time offers, the Philly Cheesesteak Pizza and the Greek Pizza. Last month, we introduced Papa's Lighter Choices, the same great tasting pizza with fewer calories. We have even more recipes in-store for 2015 and we're looking forward to sharing them. We're committed to making improvements in other areas too. Our digital platforms are such an important piece of our customer service commitment and driving digital mix will clearly remain a priority. To that end, we continually reinvest in our technology. Within the next few weeks, we will complete the rollout of our enhanced website. We continue to make steady progress on the International side of our business. Foreign currency is an ongoing headwind, but our underlying business is strong, and the overall portfolio is performing well. Our reward abroad will be the same customer satisfaction, loyalty, recognition that we enjoy in our domestic business. That's because we're going to grow our International side of our business through our tried and true principles: the best people, the best ingredients, the best pizza, period. We recently celebrated the opening of our 300th restaurant in the UK, another milestone, as more people around the world are enjoying our pizza and embracing our brand. To sum it up, we continue to hit on all cylinders, and have laid a strong foundation for meaningful and measurable growth. But we cannot and will not rest. Every day is an opportunity for us to build on our progress, and we will, because that's the culture we built throughout the organization, and that's why I'm proud of this company. The role of business in society is to help people improve their lives by providing products and services that create value, and that's exactly what we've done at Papa John's. True talent is a scarce resource. To that end, I'd like to congratulate Steve Ritchie on his promotion to President and Chief Operating Officer of Papa John's. Steve embodies his commitment to excellence and continuous improvement. And I'm confident that Steve, myself, ELT (11:08) and the rest of this great company will continue to drive excellent results for many years to come. With that, I'll turn it over to our President, Steve Ritchie. Steve? Steve M. Ritchie - President & Chief Operating Officer: Thank you, John. And I'd like to start by expressing my sincere appreciation to you, John, and the entire Papa John's family for the vote of confidence and continued support. From my first day on the job in 1996 as a CSR at one of our local stores, I recognized there was something uniquely special about the Papa John's brand. Over the last 19 years, I've witnessed a passionate commitment to the highest standards of quality in everything we do as a brand. Today, I am more excited than ever about the future of the Papa John's brand around the world. Now, on to our Q2 results. The 5.5% comps in North America represent our 19th consecutive quarter of positive comp sales domestically. I continue to be extremely impressed with the performance of our domestic franchisees and corporate operators. Our strong sales and operating efficiencies have produced tremendous profitability for our franchise and corporate stores through the first half of 2015, driving the most recent increase to our full year adjusted EPS guidance. This all validating, that in a very competitive category, a continuous focus on delivering high-quality products with excellent customer service and a simple digital ordering experience are key ingredients of our success. Our customer-first strategy driven by a team member first approach is why we are once again recognized as a category leader in customer satisfaction by ACSI. At Papa John's, we don't just talk about customer experience, we are customer experience obsessed. John discussed our digital performance for the quarter, and we will continue to focus on and leverage our technology advantage to drive our digital sales mix steadily higher. As John mentioned, our digital sales mix is over 50% and steadily growing, with our strongest growth coming from our mobile channels, accounting now for over 50% of the total digital mix. Our mobile growth can be credited to evolving consumer behaviors and our continuous investments to enhance the mobile experience. Of note, we recently launched our new iOS app and our new responsive web design/website is in the process of being implemented. Our innovation roadmap is very robust and will keep Papa John's as a category leader in technology. On the development front, we've now opened 71 net units in 2015, most of which have come on the International side of the business. We continue to steadily grow scale around the globe, leading to better unit economics for our international franchisees as we are now fast approaching 1,500 stores in over 40 countries. On the subject of our International business, our Q2 comps of 6.8% represent our 22nd consecutive quarter of positive comp sales. Our United Kingdom market continues to lead the way with a second consecutive quarter of double-digit comp growth. The overall portfolio is strong driven by talented international franchisees that have consistently produced strong sales growth in a current development pipeline of over 1,000 stores. Beijing still remains work-in-progress, but we feel we have largely stopped the bleeding. We continue to evaluate how to best move this business forward, and as previously discussed, we should be in a position to give a more detailed update later in 2015. And in closing, our focus remains the same. We will continue to execute our Better Ingredients. Better Pizza. brand promise, implement technology that improves the customer experience and consistent grow units around the world. This proven formula has worked for a very long time, and we expect it to work well into the future. And with that, I'll turn it back over to Lance for questions. Lance? Lance F. Tucker - CFO, Treasurer, Chief Administrative Officer & SVP: All right, Shannon. I think we're ready for questions.

Thank you. Our first question comes from Alex Slagle with Jefferies. You may begin.

Thanks. Congrats, guys. Lance F. Tucker - CFO, Treasurer, Chief Administrative Officer & SVP: Thanks.

Lance, I had a question on G&A. In your prepared remarks, you mentioned the magnitude at the operators' conference, but I still get the sense that G&A is trending higher than many of us might have expected. And I just wonder if you could talk to what else drove that higher in the quarter and how we should think about for the full year? Lance F. Tucker - CFO, Treasurer, Chief Administrative Officer & SVP: Of course. So, given the size of the increase of Q2 G&A, I think we'll go into a little more detail here than we typically would. So, first of all, let me hit the big picture. In terms of both the magnitude in increase over the prior year and the percent of revenues, we do expect Q2 G&A to be an anomaly barring something unexpected. For the rest of 2015, we expect G&A to come down in absolute dollars versus the first half. We also expect it to come down as a percentage of revenues and in terms of year-over-year growth. We will still be up versus 2014 on an annual basis in the range of 80 basis points to 100 basis points. But where SG&A was 10.5% of revenues in the second quarter, we expect that percentage to be down a little bit in Q3 and then down more significantly in Q4, averaging 9.5% of revenues or lower in the second half of the year. These projections are baked into our guidance, which we've raised from $2.04 to $2.10, meaning we expect to be close to a 20% annual EPS growth in 2015. So, some of the details around the Q2 increase, Alex, nearly one-third of the increase was due to timing and rollover issues. So, as you mentioned, we called out that our operators' conference was partially held in Q2. That added about $1.4 million to Q2 G&A. We also had a non-recurring reduction in equity comp last year due to an executive departure that we did not have this year, so that impacted our comparisons. Higher health insurance costs, mainly on the claims side, as well as higher legal expenses made up another quarter or so of the increase. As you guys know, these are somewhat unpredictable costs, but our expectation is that the legal side should slow down and we're optimistic that health insurance claims will stabilize. On the growth side, we do continue to invest some of the resources we need to grow the business in a long-term sustainable manner. That includes some added resources mainly on the international and technology pieces of our business, as well as continued marketing spending internationally along with increased salary and benefit cost for our existing employees. These investments accounted for another pretty decent sized piece of the increase. And then finally, store level bonuses and increases to performance-based incentive comp made up another piece of the increase, but these amounts were well below 20% of the increase in G&A, actually closer to 10% than 20%. So to wrap this up, much of the Q2 increase in G&A were items that were either timing or that we do think will moderate. With that said, I want to stress that we'll continue to balance driving strong increases in profitability with making the resource investments we feel are necessary to drive the long-term growth of the business. So, I hope that gives you a little more color. John H. Schnatter - Chairman & Chief Executive Officer: Alex, this is John. This operator's conference, it is expensive but it's real important. It's how we communicate, it's how we share our vision for the future, and it's how we get everybody in the whole world on the same page. And frankly, it helped Q1 this year, it hurt Q2 a little bit, and I think we could've done a better job communicating that frankly.

Okay. Big picture, kind of looking at the EPS guidance, I mean should we – thinking about the gives and takes, should we kind of think of the lower tax rate essentially offsetting with the higher G&A outlook overall for the year? Is that magnitude-wise how to think about it? Lance F. Tucker - CFO, Treasurer, Chief Administrative Officer & SVP: Alex, this is Lance. I'd say that'd be pretty close. I mean, you can see our overall guidance is up from $2.04 to $2.10. So, despite the increased G&A headwinds on a full year basis, we have raised our guidance; that would equate to roughly 20% EPS growth. And in addition, we had guided at the beginning of the year that we thought our pre-tax income margin would be up 30 basis points to 50 basis points. We do expect to be at the top end or exceed that. So, I'd say the tax rate is contributing, but I think the rest of the business is contributing as well to that increased guidance of getting close to 20% EPS growth.

Great. And just one follow-up on the International business, really great momentum you're seeing there. I just wonder if you could talk to some of the trends you're seeing in some of the specific regions. You mentioned the UK and Beijing, but maybe some of the other key regions there. Steve M. Ritchie - President & Chief Operating Officer: Sure, Alex. It's Steve. I'll comment on that. And really more of the same in terms of the successful markets are really driving the overall International portfolio. As you did reference UK, we've been extremely pleased with the growth there. And as we always talked about, the scale being the overall driver to our success in the UK, now over 300 stores and kicking off national media campaigns with exciting promotion is driving success there. We continue to have a tremendous success over the Latin America region. And it's not one or two markets, it's really all of our markets throughout Latin America that have been big components of the overall comp growth. Another region that we have spoken to in the past is kind of the GCC in the Middle East. We continue to do very favorable in those markets despite some geopolitical issues. The performance of the Papa John's brand has done quite well. So those regions in addition to some of the other markets within Europe are really the drivers of the continued growth in the 6.8% Q2 comp, but more impressively, a two-year roll of 15.4%, and now a three-year roll on the International business of 22.2% for the quarter.

Great. Thank you. Steve M. Ritchie - President & Chief Operating Officer: Thank you, Alex.

Thank you. Our next question comes from Chris O'Cull with KeyBanc. You may begin.

Yeah. Thanks. This is a clarification on the last G&A question. And Lance, thanks for that guidance, that's very helpful. But you mentioned G&A in the back half of the year I think averaging a certain percentage of revenue. Is there any way you can provide that if you exclude the commissary or if you can maybe give us some – because the commissary business obviously fluctuates with cheese prices? Lance F. Tucker - CFO, Treasurer, Chief Administrative Officer & SVP: Yeah. Chris, I'm not prepared to give that on the call here I think. Hopefully, the overall guidance of 9.5% or below for the second half – again, it will be higher in Q3 than it will be in Q4. The one piece of information I can share for you that may help some, the lower revenues, or the lower commissary revenues, is probably adding 25 basis points to 35 basis points as a percent of sales of that G&A, so I can give it to you that way.

I'm assuming commissary – the year-over-year change in commissary revenue is probably going to be similar in the back half as we saw in the first half. Is that reasonable? Lance F. Tucker - CFO, Treasurer, Chief Administrative Officer & SVP: That is in fact reasonable.

Okay. And then, John, one of your competitors discussed plans to add a loyalty program. Do you think – I mean, the Papa Rewards program is very unique in the industry. Do you think that the program may need to evolve in response to that or how should we think about the potential of other loyalty programs coming into the category? John H. Schnatter - Chairman & Chief Executive Officer: Well, Chris, frankly, if you don't evolve every aspect of your business, it's not long before you're in trouble. So, absolutely, we're definitely moving forward, innovating, improving, getting better. We have a pretty in-depth study going on right now with not only what we're doing but with the competitor that you referred to. Steve or Bob, you want to jump in on this one? Steve M. Ritchie - President & Chief Operating Officer: Sure, John, I'll jump in. John H. Schnatter - Chairman & Chief Executive Officer: Yeah. Steve M. Ritchie - President & Chief Operating Officer: It's Steve. I think the key part of this, Chris, is obviously we were the first to launch a loyalty program in the category back in 2010. Scale being a big factor, so we've got a tremendous head start in that area. We've been doing a lot of innovation within the program, but not losing sight of simplicity being the key component of a successful loyalty program. But as we always look at the customer experience and that being key components of having a successful program, are aware they're taking a look at that. So I'm not surprised; in fact, surprised maybe there wasn't a launch of a loyalty program sooner given some of the success that we've had. John H. Schnatter - Chairman & Chief Executive Officer: Yeah. Chris, they've given us a nice head start on the loyalty program because we know so much more about that aspect of our business this year than we did a year ago. And we even had matrices where we can compare how we do to how our competitors do because they're testing it in their market up in Detroit. So, we know exactly what they're doing, and we're watching it very closely. And it's like anything else. You got to figure out how you're going to compete against them, and we'll figure it out.

Is there opportunities to increase the awareness of the Papa Rewards program, or how do you drive, I guess, conversion from just an online order to the rewards program? I'm trying to figure out if there's a way that that conversion can be accelerated at all? John H. Schnatter - Chairman & Chief Executive Officer: Steve or Bob, I'll let you handle that. Robert C. Kraut - Chief Marketing Officer & Senior Vice President: Yeah. John H. Schnatter - Chairman & Chief Executive Officer: But be careful. Bob, go ahead. Robert C. Kraut - Chief Marketing Officer & Senior Vice President: Yeah, this is Bob Kraut. A couple things, we're looking at conversions from all points of the business and Papa Rewards is one point that contributes to that. And we're seeing some success in that area. Regarding rewards, John had referenced that we're studying different ways to enhance value of the program, and we'll only come out with improvements that are good for customers. And at some point in time, when we look to create news to the program, you'll probably see a stronger effort in the marketplace to promote Papa Rewards, increased acquisition and membership, and along with conversions.

Okay. Great. Thanks, guys.

The next question comes from Peter Saleh with BTIG. You may begin.

Hi. Great. Thank you. So, just wanted to ask about the labor lines. So, great top line performance, great same-store sales, yet, we're getting some deleverage on the labor line and also we had the investment on the point of sale system over the past year. So, maybe you could just talk a little bit about what kind of benefits do you think the point of sale is going to have and when we should start to see that flow through and how we should think about the labor line for the rest of the year and into 2016? John H. Schnatter - Chairman & Chief Executive Officer: Yeah, Peter. I'll talk at a high level, and then Lance, you or Steve can jump in here. We're not successful because one or two things we do, Peter, we're successful because of the thousand things we do, and I think we would end this year with a 13% to 18% EPS growth that's up closer to 19% or 20% already. And so, if you just keep doing the little things, the thousand little things, then sooner or later they add up and you're able to raise – I think, this is two quarters in a row, Lance, we raised our estimates for the year. Lance F. Tucker - CFO, Treasurer, Chief Administrative Officer & SVP: Correct. John H. Schnatter - Chairman & Chief Executive Officer: And that's what happens when you do the little things right. Lance F. Tucker - CFO, Treasurer, Chief Administrative Officer & SVP: Peter, this is Lance. I'll jump in, and then I'll toss the efficiency side over to Steve here in a moment, but just relative to the actual numbers, so we were in fact delevered a little bit on the salary and benefits line there on corporate restaurants. A good bit of that, as you might imagine was comp related and incentive bonuses and whatnot at the restaurant level. And then that line does include benefits and other things that are bigger this year than they were last year. Steve M. Ritchie - President & Chief Operating Officer: Sure. Lance, thanks. And Peter, it's Steve. I'll just comment on the efficiency side. And I'll just tell you that the rollout is working as designed. As I said in my opening remarks, our focus is on customer experience. We are customer experience-obsessed. The efficiencies that are coming from the POS platform are key components that are driving the overall top line sales. So, as we continue to drive top line sales and take market share, we'll be paying out more bonus through our general managers, and that equation is working perfectly at this point. Efficiencies on the labor line will continue to happen over time, however, there will be continued wage pressures that are happening throughout the countries, so there'll be offsetting mechanisms that take place. But again, key is drive top line sales and leverage the technology to do so. John H. Schnatter - Chairman & Chief Executive Officer: And Peter, this is John again. The bonuses and incentives and merit increases, you know, this is just staffing bonuses and things we do are $16 million a year. Now, that's a big number on $185 million profit. But our corporate restaurants have doubled in profits, the last four years or five years, doubled. So, if you take care of your people and you let them work their way through the system, it comes back and stays.

Got it. Thank you. And then just real quick on the commodities side. I know cheese has been a nice tailwind this year. And as I understand it, you guys may have some of your cheese exposure locked at least on the company side. Can you talk about where you stand with the franchisees in terms of what franchisees look to lock more of their cheese going forward? And is it too early to talk about 2016 and could you lock any of the exposure given where commodities are right now for 2016? John H. Schnatter - Chairman & Chief Executive Officer: Philosophically, Lance, I'll talk – this is John, I'll talk about how we approach the cheese hedging and how our franchisees do it. The thing about cheese is that it's 35% to 40% of our cost. So, if that were to jump to $2.60 or $2.80 a pound, that would put our year in jeopardy with Wall Street, and we can't do that, so we like to hedge cheese. This year we're hedging it, we're a little negative and we're fine. We're fine hedging at $1.80 and the cheese goes to $1.60. I think that's a win. Our franchisees they don't like to hedge. They like to take the risk, and as we say, we think if you cover the downside, the upside takes care of itself. Lance? Lance F. Tucker - CFO, Treasurer, Chief Administrative Officer & SVP: Thanks, John. So, John, really from a – really explained it very well, Peter, from a theoretical standpoint. We do have a pretty decent amount of our cheese fixed this year. And relative to 2016, it's actually not too early to be out thinking, at least, into the first half of 2016, what we may do. So, I won't share any of the figures with you, but we have relatively low amounts of cheese locked in at this point for both Q1 and Q2 as well. We try to stay anywhere from 9 months to 12 months out in front and by decreasing amounts as we go out further.

Great. Thank you. And then just the last question, congrats to Steve on the promotion. I just wanted to ask how the responsibilities will change with the promotion and with the increased title. Steve M. Ritchie - President & Chief Operating Officer: Sure, Peter. This is Steve. John H. Schnatter - Chairman & Chief Executive Officer: Well, go ahead. Steve M. Ritchie - President & Chief Operating Officer: Go ahead, John. John H. Schnatter - Chairman & Chief Executive Officer: No, you go ahead, Steve. Steve M. Ritchie - President & Chief Operating Officer: Okay, well, you jump in as well as, John. So, thank you, Peter, first of all for that. So the responsibility is really – for the most part remain the same. I have now picked up the Information Systems part of the responsibilities in that department as the alignment with our IS team in technology, just the synergies with the operation side of the business are really key, obviously, to our overall success. But the other departments in terms of global operations, research and development, the supply chain, quality assurance in addition to our PJ Food Service business globally, will continue to report to me. John H. Schnatter - Chairman & Chief Executive Officer: Yeah, we've been through this exercise before. And Peter, good judgment comes from bad judgment. And bad judgment comes from our experience. We – this is really the first President we've had that understands the operational side of the company. And that's a huge advantage because when you understand what happens at restaurant level, it just takes a lot of wear and tear off me on having to give daily instructions on why we make certain decisions. So – and I can tell you that the building and the field are extremely excited about Steve getting the job because he's one of them. But Steve probably takes 10% of my time as much as the couple of the other Presidents we've had.

Great. Thank you very much.

Thank you. Our next question comes from Alton Stump with Longbow Research. You may begin.

Hey, guys, it's actually Brittany Whitman on for Alton today. I was just wondering if you had any prediction or guidance for corporate and other costs for the back half of the year. Lance F. Tucker - CFO, Treasurer, Chief Administrative Officer & SVP: We typically – Brittany, this is Lance.

Hi, Lance. Lance F. Tucker - CFO, Treasurer, Chief Administrative Officer & SVP: We typically wouldn't go into that kind of line-item detail. We did give a little more around G&A...

Yeah. Lance F. Tucker - CFO, Treasurer, Chief Administrative Officer & SVP: ...given the increase in Q2, but we're not going to get into those particular line-items again. The overall pre-tax income margin will be up at least 30 basis points to 50 basis points, and we've spoken a couple times that our EPS should be $2.04 to $2.10. And you have our comp guidance, so hopefully, you can kind of...

Okay. Lance F. Tucker - CFO, Treasurer, Chief Administrative Officer & SVP: ...make it through from there.

Okay. Great. And then just quickly, how has the competitive environment changed in 2Q versus 1Q, if at all? John H. Schnatter - Chairman & Chief Executive Officer: Steve. Why don't you take that one, Steve? Steve M. Ritchie - President & Chief Operating Officer: Sure. Brittany, it's Steve. And I think really relatively the same; if you think about the two national players really the promotional activity is pretty similar to what we have seen in the past. Our promotional pricing and our overall strategy is really the same as well. There is a cyclical nature of the overall nature of the business. But you look at two-year and three-year rolls, the range between our two-year and three-year rolls are really relatively consistent. So, not seeing anything significantly different in the competitive environment than what we saw in Q1.

Okay. Great. Thank you. John H. Schnatter - Chairman & Chief Executive Officer: And Brittany...

Oh, sorry, go ahead. John H. Schnatter - Chairman & Chief Executive Officer: This is John. We, of course, respect our competitors, but our biggest competitor is ourselves. When we wake up every day and we innovate and we tinker and we get better and we provide more value, more quality for our customers, we do extremely well. And that's – we wake up every day doing that. It's just part of our culture; it's how we're organized.

Right. That's great. That's all I had. Thanks, guys. John H. Schnatter - Chairman & Chief Executive Officer: Thank you, Brittany.

Thank you. Our next question comes from Mark Smith with Feltl and Co. You may begin.

Morning, guys. First off, can you guys talk about your appetite for company-operated restaurant growth domestically? And also, are there opportunities for you guys to buy some franchise restaurants? John H. Schnatter - Chairman & Chief Executive Officer: Steve? Steve M. Ritchie - President & Chief Operating Officer: Sure, Mark. It's Steve. I'll take that. So, I mean, I think the way – you know, the way we look at the business, we've talked about this in the past. We are very opportunistic as we look at corporate acquisitions. Just in the last couple of years, we have acquired a couple of markets, Denver and Minneapolis of note. Those were markets that were underperforming. And now, they're doing quite well. So, I think, if you look at a quarter-to-quarter basis on how we look at the opportunities corporately to acquire, the optimism that we have on our abilities to turn markets is obviously pretty high given the success that we've had over the – really, the last three years in our corporate business. However, on the flipside, we've got very good franchisees. The vast majority of our franchise markets are performing very well, and the tailwinds that are occurring in 2015 from a commodity standpoint, our franchisees have been making the right investments to drive the sales growth and improve their overall unit economics. So, it's something that we just continue to look at day-to-day when the opportunities do arrive. John H. Schnatter - Chairman & Chief Executive Officer: And Lance, specifically, do we give out pre-tax profit on corporate stores? Lance F. Tucker - CFO, Treasurer, Chief Administrative Officer & SVP: No. We don't. What they can see and you can look at the face of the P&L and see we had over a 20% operating margin in the second quarter, it's actually almost 21%. John H. Schnatter - Chairman & Chief Executive Officer: Yeah. Mark, if you just looked at it from a financial perspective, as we – maybe you can make more or less on capital, if we did – we were 100% franchised, but there's more to it than that. I just couldn't imagine leading the franchisees if we didn't have corporate stores. And with 650 stores that perform, just on every matrices is better than the franchisees, we have tremendous clout on guiding the system and influence the system and leading the system. We have a competitor that has a franchisee with like 1,000 stores, 1,200 stores and in that situation, the tail is wagging the dog, and it's just not healthy.

Okay. And next question, looking at your exposure to international markets and primarily currency, how big of an impact does the Canadian dollar make versus the rest of the basket of currencies especially given where that's kind of reported, did we miss some of that in North American or domestic operations. John H. Schnatter - Chairman & Chief Executive Officer: Lance? Lance F. Tucker - CFO, Treasurer, Chief Administrative Officer & SVP: Yeah. Mark, this is Lance. So in the big scheme of things, it's really a – still a pretty small number. We do report Canada as you're probably aware in our North America segment. But just order of magnitude, our overall international revenues are less than 10% of our total revenues and our overall international profit is closer to 5%. So any given currency unless it were happening China, the UK, Russia can move us a little more than some of the others because it's a significant store base there, but Canada by itself wouldn't be meaningful for discussion.

Okay. Did you guys give or have you given in the past ex-currency shifts, what the – what impact that had on earnings this quarter? Lance F. Tucker - CFO, Treasurer, Chief Administrative Officer & SVP: We actually said in the first quarter that it was a little bit over $0.01. And this quarter, overall, it was about $0.01. And what we have said is for the full year, we think it'll be anywhere from probably $0.02 to $0.04.

Okay. Great. Thank you.

Thank you. Lance F. Tucker - CFO, Treasurer, Chief Administrative Officer & SVP: All right. Shannon, so it sounds like we're wrapped?

Okay. I'm showing no further questions at this time. I'd like to turn the call back over for closing remarks. Lance F. Tucker - CFO, Treasurer, Chief Administrative Officer & SVP: All righty. Thank you so much. Thanks for everybody for being on the call. John H. Schnatter - Chairman & Chief Executive Officer: Thank you. Good day.

Ladies and gentlemen, this concludes today's conference. Thanks for your participation and have a wonderful day.