Papa John's International, Inc. (PZZA) Q2 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to Papa John's Second Quarter 2016 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions following at that time. As a reminder, this conference is being recorded. Now, I'll turn the conference over to your host, Lance Tucker, CFO. Please begin. Lance F. Tucker - Senior Vice President, Chief Financial Officer, Treasurer & Chief Administrative Officer: Thank you, Tyrone. Good morning, everyone. Joining me on the call today are our Founder, Chairman and CEO, John Schnatter; and our President and COO, Steve Ritchie, as well as 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 may 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 a replay will be available for a limited time on our website and in downloadable podcast format. Now for a discussion of our second quarter operating results, EPS in the second quarter was $0.61, up 30% over 2015. All areas of the business performed well, driven primarily by strong global comp sales, global unit growth, and favorable commodity trends. Second quarter revenues were up 6%, mostly driven by 5.6% higher comp sales in our domestic corporate restaurants. In addition, domestic franchised revenues were up due to 4.5% comp sales and higher units. And international revenues were up for the same reasons with 5.3% higher comp sales and a greater number of restaurants versus the prior year. We opened 32 net global units in the second quarter, 20 on the international side and 12 in North America. On a business segment basis, operating income for domestic company-owned restaurants increased $700,000 due mainly to 5.6% comp sale increases and lower commodity costs, partially offset by higher non-owned auto insurance expenses. Operating income for the North America franchising segment was up $2.4 million due primarily to increased units, 4.5% comps, and lower sales and development incentives. Operating income for our domestic commissary segment increased by approximately $1 million due primarily to higher volumes. Second quarter operating results for our international segment increased approximately $600,000 due primarily to 5.3% comps and increased units. Foreign currency exchange rates negatively impacted operating results by approximately $500,000. Our unallocated corporate expenses decreased $600,000 due mainly to lower legal expenses. Our effective tax rate was 31.5%, up 2.6% versus the prior year due mainly to the impact of the legal settlement in the second quarter of 2015, which lowered taxable income and, therefore, lowered the effective income tax rate last year. We repurchased $30 million of stock during the quarter and currently have over $107 million of remaining share repurchase authorization. Our free cash flow, a non-GAAP measure we define as cash flow from operations less capital expenditures, was approximately $51 million for the first half of 2016, down versus 2015 due primarily to unfavorable working capital changes associated with the payment of a previously disclosed legal settlement of $12 million as well as higher capital expenditures. Moving onto the remainder of 2016. As noted in our press release, we are updating the following guidance: diluted EPS has increased to a range of $2.35 to $2.45 from the previous range of $2.30 to $2.40, North America comparable sales are increased to a range of 3% to 5% from the previous range of 2% to 4%, and capital expenditures are increased to a range of $55 million to $65 million from the previous range of $55 million to $60 million. We reaffirm all other previously issued 2016 guidance. Now I'd like to turn the call over to our Founder, Chairman and CEO, John Schnatter. John? John H. Schnatter - Founder, Chairman & Chief Executive Officer: Hey, thanks, Lance. And good morning, everyone. Thanks for joining us on the call today as we discuss our second quarter 2016 results. I'm pleased with our solid second quarter results with strong comp sales leading to another quarter of excellent earnings growth. Our strong digital platform, commitment to quality and our consistent approach to growing our global footprint have us well positioned to maintain our momentum throughout the back of 2016 and well into the future. A few highlights from the quarter include the following. EPS in the first quarter was $0.61, up 30% over 2015. These results were driven primarily by the strong domestic and international comp sales and unit growth and favorable commodity trends. In terms of international unit growth, in the second quarter, we announced the opening of our first Dutch store in the Netherlands. It opened July 18 in Amsterdam. We also opened stores in Madrid, Spain and Northeastern France. The new openings show continued momentum behind our expansion strategy in Europe and add to our current base of over 4,900 restaurants in over 40 countries and territories and over 300 units in the United Kingdom. At Papa John's, it all comes down to better ingredients and our most important ingredient is our people. We take care of our people who in turn go above and beyond to take care of our customers. This simple yet winning formula works because we are never satisfied with good enough. But don't take it from us. Papa John's ranked number one in customer satisfaction and product quality among QSR pizza chains in the 2016 American Customer Satisfaction Index. Our Clean Label initiative and our commitment to better ingredients have never been stronger. Last December, we made a promise to never ever serve grilled chicken pizza toppings and poppers raised with human or animal antibiotics by the summer of 2016. And earlier this month, we announced that we have fulfilled that promise by going antibiotic-free. This change was fully implemented on July 1 and reinforces our unwavering commitment to quality and follows through on our promise to deliver better ingredients. As part of that announcement, we also shared our intent to convert to cage-free eggs by the end of 2016. Our commitment to quality guides us in every area, including humane treatment of animals. And we believe this is an important promise to make to ourselves as well as our customers. Papa John's industry-leading efforts in financial investment over $100 million a year to improve our ingredients is very, very clear. We are the first national pizza delivery chain to announce the removal of MSG, preservatives like BHA, BHT, cellulose and partially hydrogenated oils, artificial flavors and synthetic colors and the removal of high fructose corn syrup across the entire food menu. Marketing. In addition to our sports partnerships with MLB and NFL, continuing to drive growth on the local and national levels, we're always exploring ways to connect with new audiences and specifically the Millennials. In July, we teamed up with Sony Pictures on a reboot of the iconic film Ghostbusters. It's done really well. To wrap it up, I'm excited to finish our Q2 strong and carry that momentum to Q3. With that, I'll turn it over to our President, Steve Ritchie, for his comments. Steve? Steve M. Ritchie - President & Chief Operating Officer: All right, thank you, John. And good morning, everyone. I'd like to start by thanking our franchisees and operators around the world for delivering yet another outstanding quarter. As John stated, in the second quarter our domestic comp sales were a strong 4.8% for North America, marking our 23rd consecutive quarter of positive comp sales. We are confident the sales momentum produced in Q2 will continue and have therefore raised our full year comp sales guidance to 3% to 5%. During the quarter, we introduced another national sports partnership, becoming the official pizza of Major League Baseball. With our featured promotion, Papa Slam, where the day after any player hits a Grand Slam, all of America can enjoy any Papa John's pizza for 40% off. We have been very pleased with the Papa Slam promotion, as it is being effectively communicated to consumers through our digital and social channels. The fully integrated promotional campaigns during the quarter included our new bundle deal, with two medium two topping pizzas for $6.99 each; Pepperoni Rolls, a new featured side item; and an LTO reintroduction of our infamous Bacon Cheeseburger Pizza coupled with our new Mushroom and Swiss Burger Pizza. With the NFL season nearly upon us, I am proud to announce we signed a new multi-year partnership deal as the official pizza sponsor of the NFL and the Super Bowl. The NFL has been a great partner for many years and Papa John's continues to be the pizza of choice among avid NFL fans. With the league partnership renewal and our 23 club deals, we look forward to continuing to bring better pizza and better experiences to NFL fans for many years to come. We will continue to leverage our MVP lineup of NFL stars including J.J. Watt and Peyton Manning in conjunction with our NFL sponsorship across our TV, digital, and social marketing channels. But one of the biggest reasons for our success for over three decades has been our focus on delivering not only better pizza, but a better experience to our customers. Our people-powered strategy has developed a passionate culture throughout the brand that has inspired our team members to strive for excellence with each and every customer interaction. As John mentioned earlier, Papa John's was recently ranked number one in customer satisfaction by the American Customer Satisfaction Index for the 15th time in the past 17 years. This is a tremendous accomplishment validating our brand promise and unwavering focus on quality and consistency. I am proud of our franchisees, corporate operators, and in particular our front-line restaurant level team members who consistently deliver day-in and day-out to ensure the best experiences for our customers. This is another proof point to why we continue to invest and develop in our internal culture. Because we know our restaurant level team members will be the next-generation of leaders and a key ingredient to being one of the world's most admired brands. But our work to get better is not done. We will continue to leverage our recently launched customer advocacy program to improve our experience and to set the bar even higher. The 2016 ACSI survey also ranked Papa John's number one in product quality. This is a direct testament to not only our financial investment of over $100 million a year in better ingredients, but also the thousands of hours our R&D, QA, and supply chain team members put in annually to improve the quality of our menu across the globe. Speaking of global, our Q2 international comps were a strong 5.8%, representing our 26th consecutive quarter of positive comp sales. We continue to see robust sales growth in the United Kingdom, Latin America, the Middle East, and across Europe. The overall portfolio continues to produce strong comps quarter-after-quarter and we are excited about the continued expansion of digital ordering capabilities. In fact, we have made a strategic decision to ensure that every new country opening will now have digital ordering capability on day one. This highlights our ability to consistently execute our brand strategy in over 4,900 locations around the world. This leads me to the business development. We opened 20 net global units in the second quarter and reaffirmed our full year guidance of 180 to 210. We've had several new country openings in Western Europe and North Africa and are excited to hit a growth milestone of 5,000 stores before the end of this year. The international business is really taking shape and I am more optimistic than ever about our future growth potential. Our customer-centric approach also extends to our technology efforts. I announce last quarter that we were the first pizza chain to reach 55% online sales mix and are continuing to push even higher. As a leader in the category, we are exploring new digital opportunities from new payment solutions, to new ways for customers to order, to improving our existing platforms, all with the goal of enhancing our overall digital customer experience and driving for growth and efficiency. You will continue to hear more about these efforts over the next few quarters. In closing, we are very proud of our strong Q2 comp sales results and robust earnings growth. Our big ACSI win validates that we are on the right track with our customer-obsessed culture and that our front-line team members remain our key ingredient to long-term success. With that, I'll turn it back over to Lance for questions. Lance F. Tucker - Senior Vice President, Chief Financial Officer, Treasurer & Chief Administrative Officer: Okay. Tyrone, we're ready for questions.

Thank you. First question is from David Carlson of KeyBanc. Your line is open.

Okay. Thank you very much. Hope all is well with you guys. Lance, a question for you. Just trying to understand the guidance for the full year. You guys – your earnings per share 27% in the first half, but when we – based on the midpoint of the revised range here, it looks like you're only anticipating about 3% of growth in the second half, and this seems an acceleration in the comp in the second half relative to the first half. Understandably, cheese prices have increased, but what are some of the costs you anticipate in the second half that would cause EPS growth to slow so dramatically? Lance F. Tucker - Senior Vice President, Chief Financial Officer, Treasurer & Chief Administrative Officer: Sure, David. I'll take that one. First of all, we're on track for mid to possibly high-teens growth for the year, so we're obviously real pleased with our full year guidance. And as you know, our business is subject to pretty sizable volatility on a quarter-to-quarter basis and we're seeing some of that this year. So to kind of hit the two halves of the year a little bit, as you requested. In the first half, we did have several tailwinds and that helped us to grow at an outsized 27%. There was a lot of G&A tailwinds, largely driven by high legal expenses in the first half of 2015 that we did not have in the first half of 2016. We also had a high marketing spend in the first half of 2015 that's not coming until the second half of 2016 and that's in our international business over in the U.K., had a little bit lower incentive compensation costs in the second half. So on the G&A side alone, we were down 70 basis points from 2015. And we've commented that we feel like G&A's going to be flatter, maybe slightly down as a percent of sales so, obviously, we expected those year-over-year G&A improvements to moderate a little bit. In addition, you mentioned cheese. Cheese was down $0.13 or $0.14 in the first half. Now it's actually expected to be a headwind of $0.07 or $0.08 in the second half, so certainly that's not going to help us quite as much as it did. In the second half, a couple of other costs we do expect to contend with cheese and U.K. marketing I've already mentioned. FX rates are going to likely continue to be a drag, particularly with the U.K. and what we've just seen with the Brexit vote. The G&A investments we're going to make in our IT and international areas are going to drive that G&A back up a little bit. And as you know, those are the main drivers of our long-term growth. So if we need to make investments, those are certainly the areas where we're going to do so. And then even though it's not going to be as material as it probably was in the first half of the year, we're going to take a pretty cautious approach as to how we project our insurance costs. It did give us a pretty good hit in the first half and we were able to overcome it. And we don't think it's going to be as high in the second half, but we're going to be a little cautious around that. So to wrap up, we've noted we expect to maintain our current sales momentum, as you mentioned. We are going to have an outstanding full year 2016 result, with mid to maybe even high-teen EPS growth. And while we're doing that, we're going to continue to lay the groundwork for many years of consistent growth ahead with the investments we're making. So all-in-all, a pretty good year. Steve M. Ritchie - President & Chief Operating Officer: Yeah, David. It's Steve. I think Lance did a great job summarizing the full year and of course the back half. I think a couple of key things that I'll just highlight. Momentum. So we certainly have momentum if you look at our second quarter results. You know our history of EPS growth. We've averaged roughly 18% EPS growth over the last several years. The guidance indicates 13% to 17%. But the key thing is momentum and we're really good at producing consistent results year-over-year. So, a lot of optimism on the full year.

Fair enough. And then, John, Lance, Steve, either one of you. The midpoint of the revised comp guidance would suggest that you expect further acceleration in the comp. What gives you confidence the comp will improve from the second quarter result? And has the third quarter started out strong? John H. Schnatter - Founder, Chairman & Chief Executive Officer: Hey, Steve, why don't you take that one? Steve M. Ritchie - President & Chief Operating Officer: Sure, John. And thank you, David, for the question. And, I indicated on the last call, I spoke to a little bit of a rough start to the first couple of months of the first quarter, a lot of momentum coming towards the tail end of the first quarter. That momentum really picked up throughout the second quarter and we're seeing momentum indicating from the second quarter that we feel very confident the full year can be within that range of 3% to 5%. I think you know our two-year stacks, we produced a double-digit comp of just over 10% for the second quarter and we're rolling a 3% in the third quarter and roughly a 2% for the fourth quarter. So some of that's just the cyclical nature of the quarter stacks. But it's more related to the momentum that we have in the promotional cadence. So we feel really good about the Major League Baseball partnership that we started in the second quarter. If you look at the promotions that I had spoken to in my prepared remarks with the mediums, that promotion has performed quite well for us. And the LTOs that we've done from time to time throughout the year continue to perform very well for us. So we look at our promotional calendar for the duration of 2016, that's really what's driving a lot of the momentum. I guess the last thing that I would state is you hear me talk a lot about customer experience and that's something that we're very passionate about. And the execution at the restaurant level is what's driving that. And we just keep getting better and better quarter after quarter with execution, which is why we continue to have momentum about the upside on top-line sales. John H. Schnatter - Founder, Chairman & Chief Executive Officer: Yeah, Dave. This is John. We didn't have a good quarter this quarter because of what we did this quarter. We had a great quarter because of what we did in the last two years, three years, four years. And so two years or three years from now, we're going to have another great quarter and it's because of what we're doing this quarter. So, Sean Muldoon, why don't you talk a little bit about the ingredients and what we're doing with our ingredients to even further differentiate ourselves from our competition and how that reflects into the Millennials. This is our Chief Ingredient Officer, Sean Muldoon.

Hi, David. This is Sean. Good to talk to you this morning. So as John mentioned earlier, we're really proud of the position that we've got right now from a quality perspective. Within our category, we think we've got the cleanest label in the industry. And as John mentioned, we were the first in the industry to remove several key ingredients including, as John mentioned, MSG, trans-fats, partially hydrogenated oils and artificial flavors, colors, on and on. Earlier this year, we were very proud to announce, as John mentioned, that we removed high fructose corn syrup. The first, again, in the pizza industry to do that. And as John mentioned, earlier this month, the RWA chicken, raised without antibiotic chicken, the first in the pizza industry to do that. So it's part of a long journey that we've been on. We keep hitting these milestones and we've got a lot in the pipeline in terms of future milestones that we're going to hit. As alluded to earlier, later this year we're going to remove cage-free eggs from our menu. Again, going to be the first in the pizza industry to do that. As well as we're going to deliver on our promise from last year in terms of removing 14 unwanted ingredients. We made that announcement at the end of last year. So we think all of this is very important to some of our core demographics, particularly moms with kids, and Millennials, as John mentioned. Those are hugely important demographics for us. And it's very important for these demographics for us to be transparent, for them to know what's in their ingredients, where they come from. And we think that shows in terms of our consumer satisfaction, and particularly in terms of the ACSI. We think that plays into winning that 15 out of the last 17 years.

Okay. Thanks for the explanation. I just had one other short one. In the 10-Q, you guys indicated that comps were negative in China. How much of a drag has China been on the international segment profitability year-to-date and any update on the divestiture process there? John H. Schnatter - Founder, Chairman & Chief Executive Officer: Yeah, David. This is John. The Asian Pacific region is very difficult at this time. Steve or Lance, do you want to enhance that? Lance F. Tucker - Senior Vice President, Chief Financial Officer, Treasurer & Chief Administrative Officer: This is Lance, David. I'll take that. So first of all, as far as the divestiture process goes, we're in the middle of that and we still expect to get a transaction completed this year. But I really don't want to go into much more detail than that. As far as the number goes, it is in the neighborhood of a couple of pennies. We won't put the exact number out there, but it's right in that neighborhood.

Thank you, guys.

Our next question is from Alton Stump of Longbow Research. Your line is open.

Good morning and great job on the quarter, guys. Steve M. Ritchie - President & Chief Operating Officer: Thanks, Alton.

Two questions. A, of course you talked on the first quarter call, an awful lot about, like, shifting your promotional strategies towards the end of the first quarter, obviously, which played out very well for you in 2Q. And so, as we move into the back half of the year, even into 2017, is the plan to focus a bit more on promotional price points or is it just kind of a read as you're watching the competitive environment and responding to that? John H. Schnatter - Founder, Chairman & Chief Executive Officer: Go ahead, Steve. Steve M. Ritchie - President & Chief Operating Officer: Yeah. Sure, Alton, it's Steve. Thanks, John. I think what you've seen in the second quarter and obviously you can watch TV now and see what we've done in July and then kicking off in August back with the medium. So fairly consistent strategy plan for the duration of 2016. The competitive environment doesn't necessarily play a big role in what we do from a promotional standpoint. We are always thinking the long-term at Papa John's. Obviously, we do command a premium price within the category and we've been able to do that now for 13 consecutive years of flat to positive sales growth here. So, I'd say, continuation is what you have seen, it's what's planned for 2016. I don't want to get too far out into 2017. The competitive environment just related to price, obviously, has been impacted by lower cheese pricing within the commodity market, I think, has made it slightly more aggressive, at least in the first half of this year. As you can see, cheese pricing has edged back up on the block market and is indicating that it will continue to go up in the back half of the year. So I do anticipate a little softness in the competitive pricing throughout the broader category. But we're going to remain consistent with what we do and we'll build off the momentum that we had in the second quarter.

That's helpful. And actually a question which I think you already answered, which is effectively we are seeing cheese block prices come back up. Obviously a lot of your smaller independents are probably buying on a much higher percentage of spot versus contract. And so are you starting to see them get a bit more rational or, I should say, a bit less irrational because of the fact that we are seeing cheese move back up here recently? John H. Schnatter - Founder, Chairman & Chief Executive Officer: Lance, why don't you talk a little bit about our hedging? And then we'll talk a little bit more about what we think the competition is doing with regarding the price of cheese. Steve M. Ritchie - President & Chief Operating Officer: Want to talk about the hedging program, Lance? Lance F. Tucker - Senior Vice President, Chief Financial Officer, Treasurer & Chief Administrative Officer: Oh, I'm sorry. I didn't understand that. Alton, it's Lance. So real quick on cheese hedging just so you're aware and then I'll turn it over to Steve. We have hedged a little bit more aggressively this year, as you know we only do that on the corporate side and typically we are keeping it under 50%. With the low cheese we saw earlier this year, we did hedge a little bit above that. I won't go into the specific numbers. But that takes the volatility out for us, gives us some predictability and protects the downside. Relative to what that's doing to the competitive marketplace, I'll pitch that over to Steve. Steve M. Ritchie - President & Chief Operating Officer: Sure. And Alton, it's Steve. So I tell you that I've been in the pizza business, been at Papa John's for 20 years and the pizza business a little bit longer than that, actually, It's always been extremely competitive in terms of price. In fact, 20 years ago, the price on a promotion is pretty consistent with what it is today. With that being said, in recent years, let's talk about the last five years, we have seen the overall category shift, consolidation and movement to more share moving to some of the national players, ourself included in that. I think there's a number of factors that have played into that from a standpoint of the digital growth obviously being a leader – Papa John's being the leader in the overall online sales mix at 55% and quickly approaching 60% in the coming years. I'd say that's an emergence that's been a share steal with the independents. The commodity volatility for 2016 I haven't seen any significant shift from some of the promotional cadence throughout the independents. I would just say that you're going to continue to see a consolidation and a slight shrinking of independents within the category.

Okay. Great. Thanks, guys. Steve M. Ritchie - President & Chief Operating Officer: Thanks, Alton.

Next question is from Peter Saleh of BTIG. Your line is open.

Great. Thanks. I just wanted to come back to the NFL partnership. Glad to hear that that's been renewed but back half of the year, you won't have Peyton Manning this year. Is there a plan to replace those spots? Or is it all J.J. Watt, or do you guys have somebody else that will be in the commercials? John H. Schnatter - Founder, Chairman & Chief Executive Officer: Steve, is this Peter? Steve M. Ritchie - President & Chief Operating Officer: It is Peter. John H. Schnatter - Founder, Chairman & Chief Executive Officer: Okay. Peter, this is John. All the film is shot all the way through the end of this year, so all the film is in the can. We'll never replace Peyton Manning because Peyton Manning is not replaceable. Peyton Manning's in the spots. So we have no idea or desire to ever replace Peyton Manning. Peyton Manning is the Michael Jordan of football. Period. End of conversation. Steve M. Ritchie - President & Chief Operating Officer: And, Peter. It's Steve. I would just add that to John's point on Peyton. So as you may recall, Peyton is a partner of ours. He's a joint venture partner in Denver. And the market has done very well for him and us in that partnership. And we look forward to that to being a long-term partnership with Peyton. Obviously, Peyton's not a player anymore, so he'll play a different role in the creative. And I think you'll see some very fun and interactive ways that the marketing team, led by Robert Thompson, has utilized Peyton in the spots, John and Peyton and J.J. as a partner. We have some unique things to show you guys for this NFL season.

Excellent. And just on the international side, are you guys seeing any weakness in the U.K. post the Brexit vote? John H. Schnatter - Founder, Chairman & Chief Executive Officer: The U.K. has just really been a diamond in the rough. Steve, why don't you highlight some of the things we're doing in the United Kingdom? Because that is just a fantastic success story. Steve M. Ritchie - President & Chief Operating Officer: Sure, Peter. And thanks for the question. And we've highlighted this, I guess the last several quarters, the success that we've had in the U.K. As you may be aware, we own the Quality Control Center in the U.K., that distribution piece there. So that's been a hub and spoke of the growth development story that we've had there over the last 10 years. We're now well over 300 stores in the U.K. That being driven by the same store sales growth that's producing outstanding profitability for our franchisees. When the franchisees are making more money, they're inspired to grow. And it has been the biggest growth driver in our international story. The Brexit vote, to your question, has not had any negative impact on our sales performance in the U.K. Obviously there has been some foreign currency exchange implications that are immaterial to our overall numbers and we've got that built into our guidance. In the next couple of years, we'll see how this unfolds with Brexit. Obviously, there's some caution to that point just in terms of trade and supply chain, but we're well equipped to have multiple paths to mitigate those kinds of challenges. But all is good in the U.K. and the business continues to grow.

Good to hear. Just a couple more. Can you guys remind us what is the threshold internationally for certain markets to do more TV or more national advertising? Is it 200 units? Is it 300 units? And what's the next market that we should start to see some more significant advertising push in internationally? John H. Schnatter - Founder, Chairman & Chief Executive Officer: Hey, Steve, you or Robert field that question, please? Steve M. Ritchie - President & Chief Operating Officer: Sure, Peter. It's Steve, I'll start with that. Robert can jump in if he'd like to. So in the U.K., we did come on TV just shortly after about 250 stores. What I'll tell you and you might not like this answer, Peter, it's going to vary very wildly. Depending on the size of the market and the cost for media in each of those countries, it does vary significantly. So we've got markets that are as small as 20 stores that have TV. And obviously in the U.K. it took us a significantly higher amount of stores to be able to get cost effective in media. We do have TV in several markets on national exposure, but still the vast majority of our markets are using digital and social and more traditional forms of local store marketing via print is their primary forms of marketing. So as I had spoken to also in my prepared remarks that we really are starting to emerge in the digital side of the business just in terms of online ordering capability. And really that's where consumers are going. TV will play a part in our future marketing strategy from international, but we'll be more focused on moving the digital opportunity. In fact, the U.K. is actually our highest online mixing (32:41) market in the world. It outpaces the U.S. So just shows the opportunity that we have broadly in international.

Excellent. All right, just last question for me. Lance, I think you mentioned lower development incentives. Are you guys pulling back on development incentives? Or is there something else that we're unaware of here? Lance F. Tucker - Senior Vice President, Chief Financial Officer, Treasurer & Chief Administrative Officer: Peter, we really haven't pulled back. We have redirected some of those funds, so the numbers are showing up in a different line. We've done some print drops and some things as opposed to some of the straight incentives we would go into franchisees. So, overall, not a big difference in what we've done in the past from a financial standpoint, it's just showing up in different lines on the P&L, and we'll continue to do what we need to do to make sure we're getting that development and driving those franchisees to take the right actions.

Great. Thank you very much, and congrats on the quarter. Lance F. Tucker - Senior Vice President, Chief Financial Officer, Treasurer & Chief Administrative Officer: Thank you. Steve M. Ritchie - President & Chief Operating Officer: Thank you, Peter.

Thank you. Next question is from Mark Smith with Feltl and Company. Your line is open.

Morning, guys. Just real quick, can you just give any update or thoughts on your use of cash, kind of the balance between dividend, buybacks, investments, back in the business, and maybe potential to buy franchisees? Lance F. Tucker - Senior Vice President, Chief Financial Officer, Treasurer & Chief Administrative Officer: Yeah, Mark. This is Lance. I'll take that one, as you might expect. We think what we've been doing here over the last few years works very well. Obviously we do a fairly significant amount of buybacks. This year's guidance is $100 million to $150 million a year and we're going to do that at the right valuation, so we won't be buying evenly all the time, but we feel like that's the biggest component to returning cash. Of course, we also have the dividend. We just announced earlier this week – or actually at the end of last week, pardon me – that the dividend was going from $0.70 to $0.80 on an annualized basis, so we're going to continue to return cash to shareholders in the form of a dividend as well. And then beyond that, be it CapEx or restaurant purchases, we'll be opportunistic. We'll certainly make the investments we need to make, particularly to drive the technology area. On CapEx, that's where you'll see most of the spend coming and making sure that our stores are kept looking good. And then beyond that, I think it's going to be more of the same and more of what you've seen.

Okay. And the CapEx, raising the CapEx guidance this year at the high-end. Was that pure IT spending? Or was there anything else? Lance F. Tucker - Senior Vice President, Chief Financial Officer, Treasurer & Chief Administrative Officer: We've got a couple of big things going on, including a new commissary down in the Southeastern U.S., as we've mentioned before. The raise really was just because of a couple of technology things that we are doing; take us a little bit higher than we thought we might be when we put that initial guidance out there. But no individual project or anything that's noteworthy to call out.

Okay. That's helpful. Thank you.

Thank you. There are no further questions at this time. I'd like to turn the conference over to Lance Tucker for any closing remarks. Lance F. Tucker - Senior Vice President, Chief Financial Officer, Treasurer & Chief Administrative Officer: All right, thank you, Tyrone, and thank you, everyone, for being on the call. Have a good day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day.