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Edited Transcript of TACO earnings conference call or presentation 11-Mar-20 8:30pm GMT

Q4 2019 Del Taco Restaurants Inc Earnings Call

LAKE FOREST Mar 25, 2020 (Thomson StreetEvents) -- Edited Transcript of Del Taco Restaurants Inc earnings conference call or presentation Wednesday, March 11, 2020 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* John D. Cappasola

Del Taco Restaurants, Inc. - CEO, President & Director

* Steven L. Brake

Del Taco Restaurants, Inc. - Executive VP & CFO

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Conference Call Participants

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* Alexander Russell Slagle

Jefferies LLC, Research Division - Equity Analyst

* Nerses Setyan

Wedbush Securities Inc., Research Division - Senior VP of Equity Research & Senior Equity Analyst

* Nicole Miller Regan

Piper Sandler & Co., Research Division - MD & Senior Research Analyst

* Peter Mokhlis Saleh

BTIG, LLC, Research Division - MD and Senior Restaurant Analyst

* Raphael Gross

ICR, LLC - MD

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Presentation

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Operator [1]

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Thank you for standing by, and welcome to the Fiscal Fourth Quarter 2019 Conference Call and Webcast for Del Taco Restaurants, Inc.

I would now like to turn the call over to Mr. Raphael Gross, Managing Director at ICR, to begin.

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Raphael Gross, ICR, LLC - MD [2]

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Thank you, operator, and thank you all for joining us today. On the call with me is John Cappasola, President and Chief Executive Officer; and Steve Brake, Chief Financial Officer. After we deliver our prepared remarks, we will open the lines for your questions.

Before we begin, I'd like to remind everyone that part of our discussion today will include some forward-looking statements. These statements are not guarantees of future performance and, therefore, undue reliance should not be placed upon them. We do not undertake to update these forward-looking statements at a later date and refer you to today's earnings press release and our SEC filings for a more detailed discussion of the risks that could impact the company's future operating results and financial condition.

Today's earnings press release also includes non-GAAP financial measures, such as adjusted net income, adjusted EBITDA and restaurant contribution, along with reconciliations of these non-GAAP measures to the nearest GAAP measures. However, non-GAAP financial measures should not be considered as alternatives to GAAP measures, such as net income, operating income, net cash flows provided by operating activities or any other GAAP measure of liquidity or financial performance.

I would now like to turn the call over to John Cappasola, Chief Executive Officer.

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John D. Cappasola, Del Taco Restaurants, Inc. - CEO, President & Director [3]

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Thank you, Raphael, and we appreciate everyone joining us today. Before I get started, I want to address the current coronavirus situation. I can report that, so far, we have not observed any impact on our overall sales and transaction trends, and our fiscal 2020 guidance does not include any adverse impact from coronavirus. That said, we take our commitment to protecting our guests, our team members and our communities very seriously and are monitoring this situation and communicating with our employees and franchisees in real time.

We have been very proactive in reinforcing our safety and sanitation protocols and making sure all restaurants have the right supplies on hand. We have also decided to go above and beyond our highly effective standard procedures by increasing the frequency of our cleaning protocols and expanding our glove-use policy to further protect and provide peace of mind to our guests and team members.

We remain confident in our restaurant safety and sanitation protocols and believe that our drive-through and delivery channels provide our guests options for limited interactions if they so choose. We realize this is a fluid situation and are remaining nimble with our employees and guests at the forefront of our focus.

Now turning to fiscal 2019. Although our performance fell short of our original expectations, we delivered our financial results within our revised expectations for total revenue, restaurant contribution margin, adjusted EBITDA and adjusted diluted earnings per share and made solid progress on a number of strategic fronts to better position us for the future.

Before covering our plans for 2020, let me briefly review 2019 and Q4, starting with comparable restaurant sales. System-wide comparable restaurant sales for fiscal 2019 increased 0.9%, representing our seventh consecutive year of growth and consisted of a franchise comp increase of 1.3% and a company-operated comp increase of 0.5%. System-wide and company-operated comparable restaurant sales for Q4 each increased 0.4%, while franchise comparable restaurant sales increased 0.5%. Company-operated comparable restaurant sales were comprised of 4.1% average check growth with modest menu mix growth mostly offset by a transaction decline of 3.7%. We primarily attribute the negative transaction trends in 2019 to a slowing of heavy user frequency due to weakening value perceptions.

During 2019 and Q4, our restaurant contribution margin and adjusted EBITDA contracted compared to the prior year, reflecting increased 4-wall expenses across food, labor and operating costs, including the impact of the new lease accounting rules that outpaced our modest company-operated comparable restaurant sales growth.

As I referenced a moment ago, certain 2019 mid-tier value moves to attract heavy users, such as Fresh Faves and various [strategies] for promotions, were unfortunately not sufficiently competitive. That said, we've moved swiftly to reverse these trends with the launch of the new Del's Dollar Deals Menu at the end of January, which I'll discuss in just a moment.

This year, the combination of reinvigorating our category-leading value position and compelling new product innovation are expected to serve as transaction catalysts, while our strategic progress during 2019 on digital initiatives and daypart utilization strategies are expected to improve heavy user frequency.

As we execute this plan, I'm excited to welcome Tim Hackbardt back to Del Taco as our Chief Marketing Officer. Tim has nearly 3 decades of restaurant experience as a marketing executive or brand consultant, having letter advised numerous brands across restaurant categories. Tim is a proven innovator and has a strong track record of driving same-store sales growth. He also led marketing at Del Taco for 4 years, beginning in 1999. And during his tenure, the brand had some of its most successful years. More recently, Tim consulted for us on projects ranging from marketing technology to new restaurant prototype design. He understands our brand and appreciates not only our differentiated QSR+ positioning but the importance of being nimble and innovative. Tim's leadership will play an important role in our strategies to accelerate same-store sales and transaction growth through our focus on value and product innovation, and his keen understanding of our heavy user will help drive frequency through our digital initiatives and daypart utilization strategies.

Now let me provide a brief update in each area, starting with our focus on value. Historically, the price value tier of our menu has been the foundation of our barbell menu strategy to help drive strong value and affordability perceptions, which are key drivers of heavy QSR user frequency. Our ability to deliver a variety of lower-priced products featuring fresh ingredients is what makes Del Taco's QSR+ value proposition so powerful. Since its 2013 introduction, the Buck & Under menu has been our primary price value message. Over time, we believe the effectiveness of Buck & Under eroded, particularly as certain items migrated up in price to the Buck & Change menu, and we slowed new product news on Buck & Under in order to focus more on mid-tier value and premium over the last year or so.

In order to reestablish our commitment to price value with heavy QSR users at the end of January, we replaced Buck & Under with an exciting new value platform. The new Del's Dollar Deals Menu. The Del's Dollar Deals Menu includes 15 freshly prepared items with attractive prices from $0.69 to $1 and is designed to stimulate trial and frequency with a modest check average and margin impact since many guests use the menu as an add-on. The Del's Dollar Deals Menu includes 5 new products consisting of burritos, tacos and nachos crafted with fresh ingredients, along with drink and dessert options, all designed to deliver unmatched craveability, variety and value. We believe this combination of compelling value and variety compared with freshness will stand out versus our competition as we embed this new menu with consumers and support it with strong operational execution to help drive improved frequency and new trial.

We are pleased with our early execution and guest feedback and encouraged by improved transaction trends since the launch, and as expected, offset by softer check average growth. The Del's Dollar Deals Menu and legacy Buck & Change items have mixed at approximately 24% compared to approximately 19% for the legacy Buck & Under and Buck & Change platform. So far, the early transaction, check average and menu mix trends resemble our trends following the successful 2013 debut of Buck & Under.

While the foundation of our menu strategy is price value, relevant mid-tier and premium product innovation will also play a role in our same-store sales and transaction-driving initiatives this year. The short-term investment we are making in the check average to drive trial and frequency with Del's Dollar Deals is manageable over time, particularly as we leverage our barbell menu strategy.

At the end of February, our premium crispy Jumbo Shrimp returned for the Lenten season, which is 1 week earlier this year. This spring, we plan to stimulate check average growth with our planned launch of freshly prepared guacamole that will be available with chips as a side order or with any product on the menu and as part of a relaunch of our Epic Burrito platform.

During 2019, our digital evolution met our initial objectives of 3 fully integrated DSP partners, including Grubhub, Postmates and DoorDash, which were all fully launched in company restaurants as of December. These 3 partnerships allow us to maximize driver coverage and consumer demand for this new sales channel as we enter 2020 and shift our focus toward increased marketing to drive awareness of Del delivery and optimizing our delivery economics through strategic premium pricing. As our delivery volume grows, we continue to experience an average delivery check that is significantly higher than our at-restaurant check average.

As I said earlier, in addition to having focused traffic catalysts, our plans include driving heavy user frequency through our new Del Taco app and daypart utilization strategies. Our Del Taco app has achieved approximately 950,000 registered users. We will continue to drive customer acquisition and retention in 2020 through targeted offers. And one of Tim's top priorities is to enhance our CRM-targeting capabilities to drive further guest engagement with improved segmentation techniques enabled with scale.

On the daypart front, the fall 2019 launch of the $2 Breakfast Toasted Wrap is proving to be a strong driver of both demand and guest satisfaction. In Q4, breakfast was the top-performing daypart for same-store sales and transactions, and this trend has continued into Q1. We plan to keep the breakfast daypart and this innovative new product top of mind with guests, including strategies, to bounce existing guests back to the breakfast daypart.

Turning now to operations. Our COO, Chad Gretzema, is driving our commitment to people and culture by activating our Proud As Del culture and core values through training, career path planning and employee engagement. We believe success in these key areas will put the brand in a great position to develop and retain top talent. Operations is prepared to play a large role in our transaction-driving plans for 2020 through a narrowed focus on improving our 4-wall guest experience with simplified operations and programs to bolster accuracy, friendliness and speed.

During 2020, restoring stronger same-store sales, particularly transaction growth, is our #1 focus and is also critical to our restaurant margin performance. To help drive same-store sales and manage margins, we plan to carry menu price at least 4% during 2020, and whenever appropriate, we plan to skew our menu merchandising and promotions toward items with favorable margin profiles.

We will also employ tactics to manage our margins, including leveraging a new Ceridian workforce management system that launched in January 2020 and is designed to provide enhanced visibility and controls to help optimize labor scheduling and reduce labor inefficiencies.

Turning to development. In 2019, we opened 24 new system-wide restaurants in 12 states and again saw franchise lead our growth story with 14 franchise openings. We also refranchised a total of 31 restaurants, including 18 restaurants in the fourth quarter, as part of our portfolio-optimization strategy that includes targeted refranchising to help stimulate long-term franchise growth. Our portfolio-optimization progress over the past year includes: acquiring 4 high-volume franchise restaurants in the LA area, closing 5 lower-volume company restaurants, refranchising 13 lower-volume LA area restaurants to 3 existing franchisees, refranchising 8 Reno, Nevada restaurants to an existing franchisee and 10 San Diego restaurants to a new franchisee, whereby, these 2 transactions included development commitments for up to an additional aggregate 31 restaurants.

During the first quarter, we also refranchised 5 restaurants in the Yuma, Arizona and El Centro, California region to an existing franchisee in a transaction that includes a development commitment for 4 additional restaurants.

Looking forward, we continue to expect to refranchise 1 additional noncore Western market in California, and the process to identify the right buyer who will commit to and deliver future new restaurant growth is ongoing.

The completion of our first 3 refranchise markets included 23 total restaurants with AUVs of approximately $1.2 million and results in an approximate $1.5 million reduction in annual adjusted EBITDA, net of future franchise revenues and immediate G&A reductions. We expect our refranchising to drive a narrowed operational focus for company-operated restaurants in our remaining core Western markets that typically feature strong AUVs and restaurant margins, limit future capital needs and lower operational risk, including less California exposure.

Along with these operational and financial benefits, the future franchise growth commitments related to these transactions are intended to enhance our franchise growth prospects and ensure that franchise growth will continue to lead our growth story into the future. This franchise growth momentum has put us in a position to alter our pace of company growth in the near to midterm to reflect a slower and more strategic approach, particularly while high real estate and construction costs persist.

For 2020, we anticipate opening 15 to 20 new restaurants system-wide, including 5 company-operated restaurants, reflecting selective infill in our core Western company markets and limited development in our existing Oklahoma and Atlanta seed markets that were originally designed to support long-term franchise growth. By the end of 2020, we expect to have a meaningful presence with at least 10 company restaurants in Oklahoma and nearly 30 system-wide restaurants in Georgia. This helps us continue to shift our focus towards supporting franchise growth in these geographic regions and activate our new company seed market in Orlando, Florida starting in late 2021. We identified Orlando where we operate 2 franchise restaurants based on strong population and economic growth, combined with its ability to serve as a spoke off of our current Atlanta hub to enable long-term system growth and additional franchise support within the State of Florida.

Before I hand off to Steve, we are squarely focused on growing transaction with the heavy QSR user by dramatically strengthening our value proposition through Del's Dollar Deals, and we are encouraged by its early performance. The new value platform, along with our key top line-driving strategies that I outlined will be supported with strong operational execution and will also serve to improve margin performance during 2020.

And now Steve will review our Q4 financials and 2020 annual guidance.

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Steven L. Brake, Del Taco Restaurants, Inc. - Executive VP & CFO [4]

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Thanks, John. Total fourth quarter revenue decreased slightly to $157.1 million from $157.3 million in the year ago fourth quarter. System-wide comparable restaurant sales increased 0.4% and lapped system-wide comparable restaurant sales of 1.9% during Q4 of 2018, resulting in a 2-year increase of 2.3%. Fourth quarter company restaurant sales decreased 1.3% to $144.8 million from $146.7 million in the year ago period. This decrease was primarily driven by fewer company-operated restaurants compared to the fourth quarter last year, partially offset by improved company-operated mix in terms of average unit volume from the refranchising of 31 low-volume restaurants and the acquisition of 4 high-volume restaurants during 2019 as well as company-operated comparable restaurant sales growth of 0.4%.

Fourth quarter company-operated comparable restaurant sales growth was comprised of a 4.1% increase in check, including approximately 0.4% increase in menu mix, mostly offset by a 3.7% decline in transactions. Franchise revenue increased 9.2% year-over-year to $5.8 million from $5.3 million last year. The increase was driven by additional franchise-operated stores as compared to last year, including 31 restaurants that were refranchised during 2019 as well as by franchise comparable restaurant sales growth of 0.5%.

Turning to our expenses. Food and paper costs as a percent of company restaurant sales increased approximately 40 basis points year-over-year to 27.8% from 27.4%. This was driven by food inflation of over 4%, which exceeded our menu price increases plus impact from our Beyond, Carnitas and 2 for $3 Del Taco offerings, which have slightly below average margin percentages.

During fiscal 2020, we expect annual net food inflation of approximately 3%, including more than 5% during the first quarter as we lap favorable food buys and modest inflation during the first quarter last year, followed by food inflation that will sequentially step down in each of the following 3 fiscal quarters.

Labor and related expenses as a percentage of company restaurant sales increased approximately 120 basis points to 32.8% from 31.6%. This was driven by wage inflation from the $1 California minimum wage increase to $12 an hour and lapping the fourth quarter 2018 retroactive elimination of a federal unemployment tax surcharge on California wages, partially offset by reduced workers' compensation based on underlying trends and reduced group insurance expense. Lapping the retroactive elimination during 2018 exaggerated our year-over-year increase. And absent that dynamic, the labor percentage would have increased 60 basis points.

Occupancy and other operating expenses as a percentage of company restaurant sales increased by approximately 140 basis points to 22.0% from 20.6% last year primarily due to approximately 70 basis points from the adoption of the new lease accounting rules and 40 basis points from the impact of third-party delivery fees as well as deleverage from inflationary trends, which outpaced the slightly positive company restaurant sales comp store growth.

Based on this performance, restaurant contribution was $25.2 million compared to $29.8 million in the prior year, and restaurant contribution margin decreased approximately 290 basis points to 17.4% from 20.3%. However, excluding impacts from the new lease accounting rules and the retroactive elimination of the federal unemployment tax surcharge in 2018, restaurant contribution margins declined approximately 160 basis points from last year.

General and administrative expenses were $12.1 million, down from $13.4 million last year. And as a percent of total revenue, G&A decreased by approximately 80 basis points year-over-year to 7.7%. These decreases were primarily driven by reduced performance-based management incentive compensation and lower stock-based compensation expense, partially offset by general inflationary trends.

Adjusted EBITDA was $20.5 million, down from $23.6 million last year. It decreased as a percentage of total revenues to 13.1% from 15.0% last year. Adjusted EBITDA includes an unfavorable impact of approximately $1.0 million for the new lease accounting standard.

Depreciation and amortization expense was $7.8 million, down from $8.2 million last year, and the reduction primarily reflects the reclassification of our build-to-suit leases to occupancy and other operating expense under the new lease accounting rules. As a percentage of total revenue, depreciation and amortization declined 20 basis points to 5.0%.

During the fourth quarter, based on a sustained decrease in the company's market capitalization, the company performed a goodwill impairment test that resulted in a noncash impairment of goodwill charge totaling $118.3 million. This noncash charge does not affect our cash position, cash flow from operating activities or have any impact on future operations.

Interest expense was $2.1 million compared to $3.1 million last year. The decrease was due to the reclassification of our build-to-suit leases to occupancy and other operating expense under the new lease accounting rules, a slightly lower average outstanding revolver balance and a decreased 1-month LIBOR rate compared to last year. At the end of the fourth quarter, $145 million was outstanding under our revolver compared to $159 million at the end of fiscal 2018, and our applicable margin for LIBOR loans remained at 1.75%.

In terms of capital structure, we plan to have a continued focus on maintaining net debt to adjusted EBITDA balance sheet leverage in the low to mid-2x area and continue to view share repurchase as a relevant long-term lever to help enhance long-term shareholder returns.

Net loss was $114.1 million or a loss of $3.08 per diluted share compared to net income of $5.6 million or $0.15 per diluted share last year. We are also reporting adjusted net income, which excludes impairment of goodwill and long-lived assets, restaurant closure charges, executive transition costs, sublease income for closed restaurants, other income and loss on disposal of assets and adjustments to assets held for sale. Adjusted net income in the quarter was $6.7 million or $0.18 per diluted share compared to $7.2 million or $0.19 per diluted share last year.

We are issuing the following guidance for the 52-week fiscal year ending December 29, 2020. System-wide comparable restaurant sales growth of low single digits; total revenue between $503 million and $513 million; company restaurant sales between $459 million and $469 million; restaurant contribution margin between 16.2% and 16.7%. As noted, we expect to carry menu price of at least 4% and expect net food inflation of approximately 3% this year, which starts at more than 5% during the first quarter and sequentially steps down in each of the following 3 quarters.

Labor and related inflation is expected to increase 6% primarily driven by a $1 increase in California minimum wage to $13 an hour, general and administrative expenses between approximately 8.6% and 8.9% of total revenues, effective tax rate of approximately 27% to 27.5%, adjusted diluted earnings per share of approximately $0.35 to $0.40, adjusted EBITDA between $57 million and $60 million, 15 to 20 gross system-wide new unit openings, including 5 company openings and an estimated 1% system-wide closure rate and net capital expenditures between $33 million to $38 million, which includes approximately $7 million to $9 million for new unit construction.

Finally, our company-operated comparable restaurant sales in the first quarter-to-date are positive, approximately 1%, with transaction trends that have sequentially improved compared to the fourth quarter, yet transactions remain negative.

Looking ahead, we expect fiscal 2020 to reflect the following financial cadence: improving comparable restaurant sales trends, particularly as we continue to embed the new Del's Dollar Deals Menu with guests and improved check average trends through new product innovation, digital and daypart strategies; improved food cost inflation, following the more than 5% during the first quarter that will sequentially step down in each of the following 3 fiscal quarters; labor and related and operating expense trends that will improve as a percent of restaurant sales commensurate with the accelerating comparable restaurant sales trends, including the activation of elevated menu pricing.

Based on this, our restaurant contribution and adjusted EBITDA performance is expected to shift from dollar and percent contraction during the first half of the year to expansion by the fourth quarter of fiscal 2020. To conclude, we are excited to enter 2020 with a compelling new value menu, a pipeline of new product innovation and a stronger digital capability to help drive same-store sales and transaction growth.

As always, thank you for your interest in Del Taco, and we are happy to answer any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Nicole Miller with Piper Sandler.

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Nicole Miller Regan, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [2]

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I have 3, but I promise they're quick and painless. I understand current comp trends of 1% less negative traffic. But I thought earlier you said this new value menu was weighing on mix shift. So then that's not calculating for me because I would get more negative transaction. Could you help me out with that?

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Steven L. Brake, Del Taco Restaurants, Inc. - Executive VP & CFO [3]

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Sure, Nicole. This is Steve. Certainly, the Del Dollar Deal is launched at the start of our second period, so week 5 of the fiscal quarter. So first period was trends prior to that new value menu. So where we are, definitely, the Del's Dollar Deal, as expected, has caused some negative mix to happen, especially in the initial days of its launch, which weighs on check, which does remain positive but does have some negative mix. As you know, we're carrying price on that mid- to high-3% area. So that's where we are in terms of check and mix. And then, of course, traffic, as we've said, is still negative. So think about check being certainly positive, somewhat offset by negative traffic that is improved from Q4, and that takes you to that 1% area, thus far, first quarter.

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Nicole Miller Regan, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [4]

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Okay. I got you. One prior to the menu and one after, I think that connects the dots. I understood that you've now, in 1Q, then refranchised 5 more stores. Want to make sure we get right for modeling purposes. And do you still have 23 of those aggregate 31 prior that can come through the rest of the year? Or is it these 5 now and then it kind of -- there's not necessarily anything on the horizon?

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Steven L. Brake, Del Taco Restaurants, Inc. - Executive VP & CFO [5]

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Sure. So our refranchising was aimed at 4 noncore markets. Two closed in the fourth quarter, towards the end of the fourth quarter that accounted for 18 restaurants refranchised in the fourth quarter. And then recently, during the first quarter, 1 more being our third market was refranchised for 5 restaurants. So that takes you to a total of 23 that have now been sold across those 3 markets. One final market remains for sale, and that market has 14 restaurants, which we continue to expect to sell later this year.

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Nicole Miller Regan, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [6]

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All right. That -- I had a disconnect on total company sales, so that fixes that, and I appreciate it. And then just the last question. It's really helpful to get a coronavirus update, so I really applaud and thank you for that. Is -- [delivery] is the best alternative for limited transactions? What is the pricing strategy? Do you price low, so that you get all of that traffic? Do you price higher to protect the margin? How do you think that might fall out?

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John D. Cappasola, Del Taco Restaurants, Inc. - CEO, President & Director [7]

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Yes. I mean right now, as we said, we're not seeing any impact in the business related to coronavirus when we look at our transaction trends or same-store sales trends. So that's good news and, knock on wood, hopefully, that trend continues. So I think our strategy, as we move through this is to just keep a close eye on the consumer; keep a close eye, obviously, on our guests and our employees and make sure that they are safe. And wherever we can, we're going to leverage our assets. We do believe that, assuming there's not a widespread outbreak and it is operating more business as usual as consumers feel like they want a little bit less contact, we've got a great asset in the drive-through, which we talked about. And we've also got really buttoned-up procedures with the delivery service providers and our partners there now that we're up and running with all 3 major shifts. So I think those will our -- those will be the things that we focus on with, of course, the primary focus is going to be keeping our employees and our guests safe.

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Steven L. Brake, Del Taco Restaurants, Inc. - Executive VP & CFO [8]

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And if consumer trends do shift, I would suggest it's probably a lot less about price sensitivity, more about personal preferences is certainly the way our brand is positioned. Especially on the heels of the Del's Dollar Deal value menu launch, I think we're very well priced for everyone. So we don't have any plans to alter pricing.

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Operator [9]

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Our next question comes from the line of Alex Slagle with Jefferies.

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Alexander Russell Slagle, Jefferies LLC, Research Division - Equity Analyst [10]

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I had a follow-up on delivery. I might have missed some of the details. But I just want to know what you saw in terms of delivery mix and sales lift after turning on DoorDash in the 4Q, and then if you've seen any shift in the delivery or carryout business in recent weeks with the coronavirus.

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John D. Cappasola, Del Taco Restaurants, Inc. - CEO, President & Director [11]

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Okay. Yes, let me take -- I'll take that. So now that we have all 3 DSPs up and running in, call it, Q1-to-date, we're running roughly 3% of sales on delivery in company restaurants. And we're also pretty pleased with how guests are taking to our operational program, whereby, our team's done a great job in coming up with a strategy where we're double bagging and sealing the bags at the restaurant with an oversized branded Del delivery sticker. And so far, overall satisfaction scores on delivery are over-indexing to the good as well, performing actually better than our already-high restaurant level of overall satisfaction scores. So we're very pleased with that. We think we've developed a strong capability here. And of course, I think we mentioned on a call or 2 ago, we're also seeing some over-indexing on late night and those shoulder dayparts, late night, late snack, and we think that we're open. It's a great point to leverage, and we'll leverage that through some delivery marketing as we move through 2020. So those are the kind of the more color on the headlines around delivery.

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Alexander Russell Slagle, Jefferies LLC, Research Division - Equity Analyst [12]

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Got it. And nothing really in the last week or 2 in terms of shifts in the business? Or any more color there?

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John D. Cappasola, Del Taco Restaurants, Inc. - CEO, President & Director [13]

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Yes. No, we haven't seen any material shifts on delivery, thus far. No spikes just yet.

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Alexander Russell Slagle, Jefferies LLC, Research Division - Equity Analyst [14]

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Okay. And then just a question on innovation and the plans to launch fresh guacamole, if you could comment on the timing or -- and how we should think about that fitting into the menu?

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John D. Cappasola, Del Taco Restaurants, Inc. - CEO, President & Director [15]

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Yes. Yes, sure. We -- fresh guac is slated for a spring launch at this point. So final day, TBD, but it's likely late spring. I think it's going to be a great complement for us as you think about us really driving value focus this year with Del's Dollar Deals. It's a great way for us to flex that barbell and reinforce that QSR+ position. We do plan to offer fresh guac in both new products. As I said, we're relaunching the Epic Burrito platform concurrent with this, and we'll feature fresh guacamole, and we'll merchandise and offer it as a way to modify products on the menu as well.

So think about it as what we have done in the past with things like slices of avocados and Queso Blanco, you'll be able to add fresh guac to any product on the menu, and operations will be very focused on that. We haven't quite nailed down pricing on the modification piece yet. We'll get to that here shortly, but we do expect the Epic lineup will start at a great value of around $5 when we launch in the mid-spring to late spring time frame.

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Operator [16]

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Our next question comes from the line of Nick Setyan with Wedbush Securities.

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Nerses Setyan, Wedbush Securities Inc., Research Division - Senior VP of Equity Research & Senior Equity Analyst [17]

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I appreciate the quarter-to-date comp, just given kind of the importance of the value launched. Or is there any way to parse out comp trends pre and post the launch?

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Steven L. Brake, Del Taco Restaurants, Inc. - Executive VP & CFO [18]

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We -- basically, since the launch, we've seen an improvement in traffic and a reduction in check average through negative mix. That said, fortunately, we are seeing the check average and negative mix pretty quickly improve, not yet to flat. But as we, for instance, launch our seasonal shrimp promotion during the Lenten season, we're starting to really see that check average move in the right direction. And very similar to what we experienced back in 2013 with the initial debut of Buck & Under, as we noted, we're seeing similar trends where there's a short-term investment here in check average in a touch of margin percentage to drive traffic. And we are seeing that traffic definitely move in the right direction. And certainly, just with the shrimp move and here, so as John touched on guacamole, growth in delivery, which, as you know, has a higher check, we feel very good about being able to, over the course of the year, work that check back into a more typical healthy level that we historically run. And at the same time, obviously, it's all about execution and further innovation in product development and further embedding Del's Dollar Deals with the guests to make sure that traffic continues to accelerate. So very happy, thus far.

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Nerses Setyan, Wedbush Securities Inc., Research Division - Senior VP of Equity Research & Senior Equity Analyst [19]

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And then, John, I mean, anything different around marketing? I mean I appreciate you guys saying maybe the value perception has declined in 2019. But is there anything else in terms of just the way you're communicating whatever message it is you're communicating that could change going forward?

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John D. Cappasola, Del Taco Restaurants, Inc. - CEO, President & Director [20]

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Yes. It's a good question, Nick. And I'd say, obviously, we've got new leadership in the seat here in the most -- in really recent weeks, and the initial focus there is exactly what I outlined. I mean we want to maximize the traffic-driving capability of Del's Dollar Deals this year, and we're going to do that through a real focus on marketing and product innovation to drive that heavy user traffic and really start to build that stronger value focus and foundation that's created with their frequency.

We want to make sure that we're leveraging and refining our strategy to strengthen frequency through our digital platform as well. I mean we spend a lot of time over the last 16 months building up our scale in that area. We have 950,000 registered app users now. So moving to 7 figures and a full complement of delivery service providers now, and we want to make sure that, that is capitalized upon, again, driving frequency, getting those heavy users back in more often.

And then the last piece of this initial focus for Tim as he comes in is making sure we're fully leveraging both the mid-tier and the premium products and those daypart strategies to complement these efforts. So of course, I expect that over a reasonable amount of time, Tim is going to want to touch a lot of other pieces in regards to our marketing and our brand strategy. And we'll be moving very quickly in that regard, not ready to -- for prime time just yet, but those are the initial priorities as he really hit the ground running as he moved into the seat just a few weeks ago.

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Nerses Setyan, Wedbush Securities Inc., Research Division - Senior VP of Equity Research & Senior Equity Analyst [21]

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Okay. And then just kind of last question. If there this draconian scenario, to what extent is the CapEx? Do you have the ability to kind of push that out, if necessary? To what extent are the costs variable in the short term? And I also understand that there's -- there hasn't been much of an impact to date, but I know you guys have like a couple of maybe 4 stores in the State of Washington. Have those stores not seen an impact either?

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Steven L. Brake, Del Taco Restaurants, Inc. - Executive VP & CFO [22]

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Sure, Nick. It's Steve. I'll take those maybe in reverse order. So Washington, yes, we do have 5 restaurants as of through yesterday. Their trends really haven't changed to the good or the bad individually or in aggregate, so nothing to report out of our 5 units in Washington.

As far as capital, I mean, certainly, a good portion of our capital is discretionary and/or delayable should you need to. Obviously, so far, no impact on the business. So I would say, capital, we do reserve some flexibility there that is certainly notable.

In terms of 4-wall operating costs, really, what we have there is nearly 85% of our restaurant-level costs are variable in whole or in parts with just over 15% being truly fixed cost, much of that, of course, being occupancy costs. So that's kind of the way it lands in terms of cost structure, if that's helpful.

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Operator [23]

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Our next question comes from the line of Peter Saleh with BTIG.

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Peter Mokhlis Saleh, BTIG, LLC, Research Division - MD and Senior Restaurant Analyst [24]

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John, I just wanted to ask. I want to come back to the comments around the coronavirus. I know you guys aren't seeing it in the sales. It's good to hear that you're not seeing it in the State of Washington either. But are you hearing anything through your supply chain or your suppliers about any maybe supply issues that they're expecting or anything that you may be seeing? And then second, Steve, are you guys adding any additional labor to the restaurants or any additional capital to, I guess, maybe for -- to guard against or add some more labor to keep it cleaner? Anything of that nature that may be weighing on the margins in 2020?

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Steven L. Brake, Del Taco Restaurants, Inc. - Executive VP & CFO [25]

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Sure. Peter, it's Steve. Let me -- let's flip the order of those. But in terms of supply chain, let me cover that one. We're remaining in very close contact with our supplier partners, monitoring for any potential direct or indirect impacts on our supply chain related to coronavirus as well as looking at the preparedness plans that our suppliers have in place. So as of now, we really have not experienced any supply shortages at all and currently do not anticipate any immediate risk of food or nonfood categories.

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John D. Cappasola, Del Taco Restaurants, Inc. - CEO, President & Director [26]

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Yes, and I'll take that first part of your question there, Peter. And I'll just say, obviously, we've been all over this for the last few weeks and been very communicative with our system in preparing and getting the information right and making sure that we're doing our best to protect our guests and our employees. We did recently make a few adjustments at the restaurant level that we think will play really well with both our employees and our guests as they are our #1 priority. As I said, we have moved 2 more frequent cleaning procedures in the restaurants. And that piece and some restaurants will require some additional labor. I think the overall impact of that, we'll see. But we are asking restaurants to clean more frequently, use the supplies that are on hand, and we have put a cadence out that both our franchise owners agree -- have agreed to as well as our company operations. At the end of the day, sitting here today, I don't think it's going to be material on the labor number in the short run, but we'll continue to monitor that and determine if it's enough.

We've also done things like we've asked our cashiers to begin wearing gloves, as that's become a policy. We've done things like moved our lemons for the iced tea and the condiments, including our sauces and any unwrapped utensils, behind the front counter. And we're just reemphasizing drive-through and delivery procedures in case those guests choose to use those channels more frequently.

So those are some of the more incremental changes, I guess, that we've made in the last few days. I think put us in a great position to continue to move forward and operate the business in a way that, again, protects our guests, protects our employees.

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Peter Mokhlis Saleh, BTIG, LLC, Research Division - MD and Senior Restaurant Analyst [27]

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No, very helpful. I appreciate that. Can you also give us an update on the Beyond platform? I think last we spoke, you guys are talking about a 4% mix in the month of maybe October. I think that was down a little bit from the third quarter. So where do you guys stand today on the Beyond product?

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John D. Cappasola, Del Taco Restaurants, Inc. - CEO, President & Director [28]

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Sure. We -- first off, we continue to believe the Beyond program is a good program for Del Taco, and we're working -- we're actually working to further optimize the program. It's just a matter of priorities right now. Right now, we're focused on value, and we've got fresh guac coming. But certainly, behind the scenes, there's work happening on Beyond because we do believe in it. We think it's a nice differentiator for us as we think about Mexican limited service restaurant at the moment. And it also gives us the ability to continue to drive sales as the consumer goes through that adoption curve and becomes more familiar with plant-based protein.

As far as the mix goes, we wound up in Q4 in that mid-3.5% kind of ish range for the quarter. Thus far in 2020, quarter-to-date, we're running just shy of 3%. So it seems to be fairly stable around that 3%-ish area, which incidentally is a higher run rate on a sales mix perspective than we were running with Turkey over time. So there's definitely demand there, and we're going to continue to try to optimize the program as appropriate.

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Operator [29]

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There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

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John D. Cappasola, Del Taco Restaurants, Inc. - CEO, President & Director [30]

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All right. Well, thank you, everyone, for your interest today in Del Taco. We certainly appreciate you taking the time, and we look forward to sharing our progress on future calls. Have a great day.

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Operator [31]

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Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.