Welcome to Carrols Restaurant Group, Inc.'s Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions on how to ask a question will be given at that time. I would like to remind everyone that this conference call is being recorded today, Thursday, August 11, 2022 at 8:30 A.M. Eastern Time and will be available for replay. I would now turn the conference over to Gretta Miles, Carrols' controller. Please go ahead. You may begin at this time. Thank you, operator, and good morning, everyone. By now, you should have access to our earnings announcement released earlier this morning and our earnings presentation that are both available on our website at www.carrols.com under the Investor Relations section. Before we begin our remarks, I would like to remind everyone that our discussion, including answers to questions posed to management, may include forward-looking statements or comments with respect to our strategies, intentions, or plans and the future direction of revenues, input costs, or other aspects pertaining to our business. These statements are not guarantees of future performance, and therefore, undue reliance should not be placed on them. We also refer you to our filings with the SEC for more details, both with respect to forward-looking statements as well as risks that could impact our business and results, including, among other things, the impact of COVID-19. During today's call, we will discuss certain non-GAAP measures that we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with generally accepted accounting principles, and a reconciliation to comparable GAAP measures is available with our earnings release. With that, I will now turn the call over to our President and CEO, Paulo Pena. Paulo. Thanks, Gretta, and good morning, everyone. We appreciate your time and interest in Carrols. As I mentioned on our May call, I have been focusing our leaders on a few early initiatives. One, raising the bar on operational excellence and overall guest experience. Two, improving productivity and stemming turnover by motivating and engaging our restaurant team members. Three, turning around our most challenged locations using a proven playbook that most of our restaurants already employ. We are already achieving considerable traction with each of these areas. I am confident that you will see our efforts begin to pay off in our financial results over the next several quarters. On our first initiative, operational excellence and the overall guest experience, we began by focusing on improving speed, service, and food quality. Our early efforts have been validated by our guest satisfaction metric at our Burger King restaurants. Our score has improved steadily and is now at its highest since early last year. We also outperformed the Burger King system by approximately 10% on this metric this past quarter. This is a positive accomplishment in the current environment, one that we intend to build on as we move forward. As you would expect, satisfied customers are more likely to return to our restaurants more frequently, leading to higher traffic, so improving this metric is a priority for us. On speed of service, we implemented team member challenges this summer to improve drive-through times across all of our restaurants. We have already seen results, reducing wait times to below 2021 and 2020 levels. Turning to our second initiative, productivity improvements, we are focusing on motivating and engaging our restaurant team members to bring out their very best. We've improved staffing levels at our restaurants, allowing us to gradually expand our store hours. In fact, we have returned to nearly full operations at virtually all of our restaurants. We have also done this while minimizing overtime and premium pay. We are experiencing a strong flow of qualified job applicants that is now above pre-COVID levels, allowing us to upgrade our restaurant staff. Stronger teams lead to enhanced operating execution and a better guest experience. Lastly, on our third initiative, turning around our underperforming restaurants, we are focused on quickly identifying opportunities for improvement. We then mobilize special teams to bring these restaurants up to Carrols' operating standards through specific plans of action and are carefully monitoring the results on an ongoing basis. In our highest-performing restaurants, the common attribute is typically the quality of the local team, supported by excellent restaurant and district managers. When we find restaurants that aren't performing at their potential, this is typically where we focus first. We seek to ensure that the team is well trained, well supported, and operating in accordance with the processes and procedures we have identified. As I mentioned back in May, my team and I are developing a detailed strategy for the business. It will challenge the status quo, and we are confident that it will drive meaningful change to generate profitable growth. This plan is coming into focus, and I look forward to sharing it with you when it's ready. In the meantime, let's dig into our second quarter results. I'll cover the operating highlights, and Tony will cover the financials. We'll also share some thoughts on the second half of 2022. Comparable Burger King restaurant sales rose 2.8%, which is on top of the 12.6% increase from the prior year quarter. Average check growth was 9.8%, which reflected many price increases and lower promotional activity. The overall performance was offset by a traffic decline of 6.4%. Turning to our Popeyes restaurants, which represented 5% of total revenues in the second quarter, comparable restaurant sales increased 2% versus a decrease of 5.3% during the same period in the previous year. Our two greatest cost headwinds, labor and commodities, both had significant impact on our Adjusted EBITDA and margins compared to the prior year quarter. Pricing, as well as menu optimization skewed towards full-priced items, mitigated both headwinds somewhat at our Burger King restaurants. We were able to decrease promotional activity, thereby aiding profitability. We are seeing greater digital and print coupon usage, but the coupons have been designed to be more profitable to us than they have been in the past. Our Burger King restaurants had cumulative menu price increases of approximately 9.5% over the past 12 months, including actions we took in early May and in late June. Notably, while traffic in Q2 still trailed Q2 2021, it improved by 110 basis points sequentially over Q1 of this year, despite higher pricing. We are cautiously optimistic that our disciplined incremental approach to pricing is working, and that customers looking for value can find it within our menu. Anecdotally, our conversations with customers on pricing have been constructive. While they certainly do not like paying higher prices for their favorite menu items, so far, they seem unsurprised by it and rather expect it, given general inflationary trends. In September, we expect to take another modest price increase as we begin to lap last year's actions. Turning to labor, average hourly wage rates for our team members before overtime increased by 10% during the second quarter compared to Q2 2021. This represented an improvement from the 13.6% increase we experienced during Q1 of this year. We expect to see hourly wage increases in the mid to high single-digit range for the rest of this year as we lap the beginning of the increases experienced in the third quarter of 2021. On cost of sales, commodity prices have remained elevated for four consecutive quarters. Beef represents about a quarter of our commodity basket and has an outsized impact on this line overall. In Q1, unit beef costs were up 31.9% over Q1 2021. In Q2, they moderated to 19.3% relative to Q2 2021. Commodity inflation overall in Q2, inclusive of higher beef costs, was 18.9% over Q2 2021. This was up from the 17% we reported for last quarter over Q1 2021. We mentioned in May that commodity inflation would likely remain elevated, and we think that still holds true. That said, there are signs that the worst might be behind us. Beef costs have fallen on a per pound basis by a penny or two per week for over a month, and are now the lowest they have been since March. This is despite the seasonally high beef demand typically experienced during the summer grilling season. Inflationary pressures seem to be subsiding across most of our commodity baskets. Our food purchasing cooperative just reduced their 2022 inflation projections for the first time in six months. Still, we continue examining every aspect of our operations to find opportunities to better manage costs. It seems prudent to manage for an ongoing inflationary environment, even if the rate of inflation moderates from its recent highs. We have also been working closely with our franchisors at Restaurant Brands International. In particular, we are actively partnering with Burger King on a comprehensive plan to drive traffic and improve franchisee economics. We are working closely with them to develop and execute a multi-year strategy that addresses restaurant operations, guest experience, employee value proposition, menu, marketing, and technology. Burger King will share details of their plan with franchisees next month. We are eager to partner with them on this important work, and we will keep you apprised of our progress. Before I turn the call over to Tony to review our second quarter financials, let me make two final points. First, we are encouraged that the significant cost inflation that hampered our performance over the past twelve months may be moderating. We are not out of the woods yet, but we believe the margin pressures that have been such a headwind over the past year may start to turn now and provide operating leverage going forward. This, combined with our focus on improving restaurant performance and our franchisors' initiatives to drive profitability and traffic, should benefit our business. Second, in the event of a broad economic downturn, history demonstrates that QSR operators outperform other restaurant segments during recessionary periods. This is because many fast casual and full-service consumers trade down to fast food as they tighten their budgets. Commodity and labor cost pressures tend to moderate during downturns as well. Whether the macroeconomic environment ahead brings us clear sailing or turbulence, I believe that we are well positioned. I will now pass the call over to our Chief Financial Officer, Anthony Hull. Thank you, Paulo. Beginning with our top line, second quarter total restaurant sales increased 4.1% to $441.9 million compared to $424.5 million in the prior year. While the overall Burger King comp rose 2.8%, in terms of the monthly trends, April comparable sales were negative but turned positive in the last two weeks of the month. While both May and June generated mid-single digit comp increases. We believe that April was still impacted by lapping the stimulus payments from last year, while May and June were for the most part unaffected by this. In July, we continued to see mid-single digit comparable sales growth. In terms of service channels, drive-thru is trending back towards pre-pandemic levels and is now approximately 76% of sales, while dining room usage has increased to about 17%. We believe this trend is due to improved operating hours. Digital sales increased to 7% of total revenue. Delivery sales in particular increased 15.9% compared to the same period last year. The average check for Burger King delivery rose to $18.22 from $18.07 sequentially, while the average check overall, including delivery, rose to $9.89 this past quarter compared to $9.69 in the first quarter. By daypart, lunch, evening, and late night were our strongest time periods, while breakfast modestly declined given its relatively strong performance last year. On a regional basis for our Burger King restaurants, we saw positive trends in comparable restaurant sales across all regions, with the strongest performances in the South and Southeast. During the second quarter, we outperformed the U.S. Burger King system in comparable restaurant sales by 230 basis points. We believe that this is a continuation of many years of system outperformance this past quarter, and it was driven by improvement in hours, operations, and guest experience at our restaurants that we mentioned earlier. As far as Popeyes is concerned, we outperformed the Popeyes U.S. system by 170 basis points, which we believe is related to a resumption of normal restaurant operating hours. Because of the inflationary challenges experienced during the second quarter, Adjusted EBITDA decreased $14.2 million- $15.1 million, while our Adjusted EBITDA margin decreased 350 basis points to 3.4% of restaurant sales. Cost of food, beverage, and packaging was 31.7% as a percentage of net sales and increased 190 basis points, primarily because of higher beef, chicken, and potato costs. These higher commodity costs were partially offset by menu price increases and lower promotional activity. As referenced earlier, beef costs are a major driver of our profitability. Beef averaged $2.80 per pound during the second quarter, up from $2.35 in the same period last year. However, as discussed earlier, beef prices are currently moderating. We estimate that a 30 cent decrease in beef costs would increase EBITDA by about $14 million on an annual basis, or about $4.7 million per 10 cents decrease in the price per pound we pay for beef, all else remaining equal. Restaurant labor expense was 33.8% as a percentage of net sales and rose 140 basis points in the second quarter compared to the same quarter a year ago. Productive labor costs increased $7.2 million, primarily due to higher hourly wage levels relative to last year. Restaurant rent expense held steady as a percentage of sales compared to the prior year period. Other restaurant operating expenses increased 30 basis points due to a number of factors, including insurance premiums, higher repair and maintenance expenses, and utility rate increases. We also now have smart safes in the majority of our locations that provide for labor efficiencies, faster cash collection, and greater security, but this initiative has added to operating expenses. General and administrative expenses basically held constant as a percentage of sales compared to the prior year period. Overall, our year-over-year margin pressure improved by 50 basis points sequentially from Q1 to Q2 of 2022. Our net loss was $26.5 million in the second quarter, or $0.52 per diluted share, compared to a net loss of $9.6 million, or $0.19 per diluted share in the prior year period. The net loss includes an $18.2 million non-cash impairment charge in the second quarter. The charge primarily reflects a write-down of $16.7 million before tax related to the elimination of goodwill assigned to the Popeyes restaurants at the time of their acquisition as part of our Cambridge transaction in May of 2019. On an adjusted basis, excluding the impairment charge and certain other non-operating items, second quarter adjusted net loss was $8.9 million, or $0.18 per diluted share. In the prior year period, adjusted net income was $16,000, or $0.00 per diluted share. Free cash flow for the second quarter was a use of $5.7 million, compared to a source of $4.2 million in the prior year period. The greater outflow in this year's second quarter was due to reduced earnings relative to the same period last year and the second six-month interest payment on the senior notes we issued in June 2021 of $8.8 million. We expect that the absence of the bond interest payment and certain seasonally strong working capital attributes in the third quarter of 2022 will be beneficial to free cash flow generation in the back half of the year. We ended the second quarter with cash and cash equivalents of $8.1 million and long-term debt, including the current portion and finance lease liabilities of $510.6 million. There was $27 million of borrowings drawn and $9.6 million of letters of credit issued under our $215 million revolving credit facility at the end of the quarter. Including the cash balance, we had $186.5 million of cash and unused revolver balance at the end of the second quarter of 2022. We currently believe Adjusted EBITDA generated during the third quarter, coupled with favorable working capital, will enable us to deploy free cash flow to pay down a significant portion of our revolving credit facility by the end of September. As a reminder, our ability to utilize the available balance of $178.4 million under our revolver at quarter end is not currently restricted due to any covenants in our senior credit facility. Only when more than 35% of the available capacity or $75 million is being used are we required to be in compliance with our one senior secured leverage ratio in order to borrow under our revolver. We were $48 million below that threshold at the end of the quarter and consequently had no covenant requirement or limitation to borrow. We expect that our revolver borrowings will not rise for the foreseeable future to levels that would require measurement of our senior secured leverage ratio. We are now forecasting that net capital expenditures for 2022 will be approximately $40 million, a reduced level from $50 million in annual expenditures in 2020 and 2021. This reduction was driven by a renewed focus on high ROI projects. Capital is being deployed for critical maintenance needs and required equipment purchases for our restaurants, as well as for completing remodeling projects that began in late 2021. Our CapEx plan also includes six new Burger King restaurants that have or will open during the year, four of which began construction in 2021. Any remaining capital generated for the time being is being utilized to repay revolver borrowings, making mandatory amortization payments on our Term Loan B, and building our cash balances until we obtain a clear view of the business environment. We are seeing an improving picture of our business as restaurant sales are performing well, commodities are stabilizing, our labor is being more tightly managed, and we are executing better operationally. We believe that these trends will result in reduced leverage levels, which coupled with our strong liquidity position and disciplined capital allocation, affords us the space to operate given the ongoing uncertainties. With that, operator, let's go ahead and open the lines for questions. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question comes from the line of Jake Bartlett with Truist Securities. You may proceed with your question. Great. Thank you. You know, I just want to start out with a clarification or maybe a little more detail on your outlook for COGS. You mentioned that your RBI lowered the 2022 projection, but you didn't say to what. You know, we had about 18% commodity inflation in the first half of the year. You know, what do you expect for the full year so we can get an idea as to your expectation for a deceleration in the back half? This is Tony. Morning, Jake. How are you? Good morning. We're expecting that Q2 was the highest that we're gonna see for the year. You know, as the year progresses, we'll go back to Q1 levels and then we think sort of low teens, low- to mid-teens in the fourth quarter. You know, as we lap this phenomenon and even though inflation was higher than we thought at the beginning of the year it was gonna be, it's trending in the right direction right now. If you look back on. You know, it's interesting if you look back at charts that show what happened to commodities during you know the eighties inflation period. You can see that most commodities you know at least sort of source commodities like soybean, wheat, corn, that sort of thing really fell dramatically you know after they peaked. You know, we don't know for sure if that's gonna be what happens this time around. It's always different. We are encouraged that it's you know that all of our commodities in the basket are moving in the right direction, except for one really, which is pork. Everything else looks like it's you know it's heading in a good direction. Great. Then just lastly on that COGS question. For the pricing in the third and the fourth quarter, maybe just help us understand what absolute level of your pricing you expect in the third and the fourth quarter? We haven't landed on a number yet. You know, we're working on it. You know, when we do price increases, we look carefully at what the competition's doing, what the other Burger King stores in our DMAs are, you know, what levels they're at. We think for sure it's gonna be very strategic. It's not gonna be just a blanket type increase, but it's gonna be strategic where we think there's still opportunity and we're not, you know, we just don't wanna get ahead of the competition. Great. You know, Paulo, you know, one kind of bigger picture question, and that's just really Burger King's positioning, you know, in this environment. You know, I believe the perception, I think it's probably somewhat true, is that Burger King is, you know, has more exposure to a, you know, slightly lower income consumer than maybe, Hamburger QSR as a whole. Maybe if you can, you know, confirm that and just your perception of how the brand is positioned now versus during the last recession, maybe from a value platform perspective. You know, any commentary there would be helpful. Yeah. Hi. Hi, Jake. As I mentioned in the comments, we are working and partnering with Burger King on a number of initiatives across, you know, various areas, including marketing and sort of how we approach the coming period and value. You know, I think that the work that's ongoing there is moving in the right direction and that the brand is well-placed. You know, as the architecture of the menu is such that it appeals to consumers that are looking for value, and that you know, if economic conditions lead us to a point where that's where consumers are, I do think that the brand is well-placed, and the initiatives that are coming will sit well in that environment. Great. Then the last one, you know, real quickly. You know, I understand that you're switching out the Ch'King or that Burger King is switching out the Ch'King for the Royal Crispy Chicken Sandwich, and I believe you've been testing it in a handful of markets. One question is, you know, I think the probably the biggest benefit of this would be margins and operational simplicity. You know, how material an impact would that kind of a change, you know, make on your costs and your margins in the back half of the year? And any feedback in terms of the sales impact in test markets for the Royal Crispy Chicken Sandwich? Look, I think so just on a, as a general comment, you know, Burger King is constantly working on menu innovation and testing different products. This is, as you mentioned, a test that has run. I think we'll see how the next few weeks develop. The brand is looking to make an announcement soon in terms of what direction we will go. In terms of the, you know, the products that are in the pipeline, they have tested positively and we think that any changes that are made will help us in the back half of the year. Great. Thanks a lot. I appreciate it. Thanks, Jake. Our next question comes from the line of Sara Senatore with Bank of America. You may proceed with your question. Hi. Thanks for taking my questions. First, you mentioned beef inflation decelerated, but overall commodity inflation accelerated in the quarter. Can you just touch on which commodities drove that acceleration? Really was across the board, Sara Senatore. The biggest ones were chicken, potatoes, you know, cheese, shortening. It was. You know, we had headwinds from all the commodity basket. You know, beef was. The beef increase was, you know, a third of what, if you add up all the other ones, turned out to be. That's why the overall, you know, the overall inflation number went up from Q1- Q2. Got it. On the CapEx reduction, what projects are you delaying or forgoing, as a result of that reduction? I mean, it's really some remodeling projects that, you know, that given the current input costs to the restaurants, you know, made less sense as we progressed in the year from an ROI perspective. We're really focused on the, you know, on the high ROI. You know, honestly, for Burger King, we're just completing the remodels we started last year. We're doing one remodel for Popeyes that we started this year, and the rest is related to the, you know, the six restaurants we're opening. Again, four of those six started last year. But the, you know, the ROIs we've seen for opening restaurants, even in this higher inflationary environment, have been, you know, very encouraging. I think we're being super cautious on remodeling and in constant communication with the BK folks about that, given the current environment. Got it. Lastly, will you just touch on what you expect will be driving that favorable working capital in the third quarter that will allow you to repay your revolver? Sure. Well, I guess the biggest thing is that we've made our two annual, you know, our two semiannual coupon payments on our notes by the end of the second quarter. We don't have that, you know, $8.8 million, you know, number in Q3 or Q4. That helps. The second one is, you know, we get rebates from some of our vendors, and they mainly come in the third quarter. That is, you know, we generally show positive working capital if you look back in third quarter periods because of that. It's just a. You know, in the income statement, they're spread evenly during the year, but from a working capital standpoint, they come twice a year, but the big payment is in April. I mean August. Great. Thanks very much. I didn't mean to say April. I meant August. Sorry. Okay, great. Thank you very much. Our next question comes from the line of Fred Wightman with Wolfe Research. You may proceed with your question. Hey, guys. Good morning. I just wanted to touch on the top-line momentum. It looks like if we sort of go back and look at comps on the three-year trend, it decelerated as you moved through the quarter. Can you just sort of touch on, you know, A, if that's the case, and B, what you think is driving that? Is it a change in the consumer behavior that you're sort of noticing, or is it just sort of broader industry type dynamics? I don't feel that they decelerated during the quarter. I actually think they improved during the quarter. You know, we were lapping the stimulus in April, at least on the one-year comp. We saw, you know, once we were past that, once we lapped it, we saw, you know, mid-single-digit type comp numbers for May and June, and that continued into July. You know, I think on a three-year comp basis, it's pretty much. You know, we made most, you know, we're up in the high single digits% on the three-year, you know, in the third quarter on a three-year basis, which is mostly driven by higher average check offset by some traffic, you know, traffic loss. We didn't see any deterioration during the quarter. Okay. I guess just the other comment that you guys made on higher coupon usage, I understand sort of the margin ramifications. Maybe it's not as dilutive as it would've been previously. Can you just sort of touch on where you're seeing more uptick on that, if there's a big divergence across income cohorts or geographies or sort of where you're seeing the most, usage on the coupon side? I think it's across the board. You know, I just think the response to coupons, whether they're digital or paper, has been very strong. You know, we, Burger King have reduced the number of offers pretty significantly on the coupons, but the ones that are still out there are getting good traction, and I think it's, you know, it's pretty much across the board. I don't think it's regionally focused, not that I've seen or, you know, focused on any income group or anything like that. Okay, fair. Then, maybe for Paulo. I guess as you look forward, how would you sort of want people to evaluate the business? Do you feel like more of the levers here are sort of Carrols specific in terms of improving some of the turnover and bringing up that lower performing cohort? Do you feel like this BK brand announcement in September at the franchisee convention is gonna be the bigger catalyst? What do you sort of view the relative importance of company specific versus brand specific? I think that there are three areas that will provide us operating leverage going forward. From a Carrols-specific, it is the things that we're focused on around improving, continuing to improve operations, lifting the bottom performing restaurants, as I mentioned. I do think that the work that the Burger King brand is doing and will announce shortly at the convention in September will provide momentum for the brand, which will certainly help us. Then the, you know, the cost and wage headwinds that we mentioned that are moderating, I think when you combine all those three, you know, we see the business benefiting in the latter part of the year. Great. Thank you. Our next question comes from the line of Jeremy Hamblin with Craig-Hallum Capital Group. You may proceed with your question. Thanks for taking the call, or the questions. Wanted to come back to beef prices for a minute here, and it sounds like they're tracking maybe down in the $2.70-a-pound range. I wanted to see if we could get clarification on that. Then in terms of thinking about where we can get to by Q4 based on the co-op forecast, you know, are you looking at down to $2.50 a pound? You know, I mean, if it's just coming down a penny or two a week, then that might be a bit too far. Wanted to get a sense for what the expectations are in there. As we look at food costs overall, you know, is it better to think about this if you had 31.7% in Q2, that it's gonna be in the mid-31s% again here in Q3 and maybe a slight tick down from there in Q4? The answer to your first question is $2.70 is right on the mark where we are right now. The answer to your second question is, you know, we expect it to track down to, you know, more like the $2.60 level, $2.55-$2.60 level as the year progresses, and agree with your assessment on COGS as a percentage of sales in Q3. Got it. In thinking about labor, you know, here you've made some pretty nice progress there in making it more efficient. You're carrying quite a bit of menu price here. I think you said that you expected mid-single-digit to high single-digit hourly wage, you know, increases year-over-year for the second half of the year. Do you feel like you're in a position where, you know, labor as a percent of sales can be flat or slightly levered in the back half of the year? I mean, that'll depend on sales, but I think the absolute spending on labor is a big area of focus because, you know, COVID continues to have repercussions that we've learned to deal with that are still going on. I mean, obviously not from, you know, staffing shortages or anything like that anymore. More like how the restaurant managers and how the district managers and how the regional managers sort of cope with, you know, how do we optimize staffing at the restaurants. So I think we've made a lot of progress on eliminating overtime, eliminating premium pay, and getting back to the way the world was pre-COVID in terms of staffing our restaurants. The biggest change that we're seeing is you know, pre-COVID, we were at 23-24 team members per day per store. You know, during COVID, obviously, we went down to as low as, like, 15. You know, as of our last call, it was, like, at 19, I think, but we're now back to 21. I think you know, the staffing, you know, post-COVID is probably gonna stay at this 21 level. I think we've hit the number that you know, the operators are comfortable with in terms of running the stores. They're doing that in a more you know, disciplined basis, so they really are eliminating you know. They're just, you know, covering the hours, increasing the hours, but doing it with more straight time and, you know, just, and better staffing during the peak hours and all that sort of thing. We're sort of. Again, it's another normalization post-COVID that we're adjusting to because, you know, in the first quarter, they were still, you know, scrambling to get staffing. Now, you know, the applicant flow has really improved and the quality of team members we can select from is much better than it was. We're just trying to go back to, you know, the way it was pre-COVID with a lower staffing requirement to run the stores. Just to reinforce, you know, Tony's comments. We have a lot of focus and discipline, you know, at a restaurant by restaurant level, ensuring that our labor is very tightly aligned to our demand throughout the day and throughout the week. We are returning to that discipline that obviously existed at Carrols pre-COVID, and that's very much a focus for us now. Got it. In terms of same-store sales here in the mid-single-digit performance in July, do the compares ease from here? Do they get a little bit tougher for the remainder of the quarter? I think the price component gets tougher because we had some fairly sizable increases in July and August of last year that are gonna roll off as the quarter progresses. We believe the traffic should ease a little bit because we had some promotions that were pretty aggressive last year through Labor Day, and you know, those went away last year. I think the comps, you know, as we lap that will get easier on traffic. I don't know if that answers your question, but those are the-- that's kind of the yin and yang of what we're thinking about. Yeah. No, I was just talking about, you know, the absolute, on an absolute basis. I mean, you guys had a 2.7 comp in Q3 last year, which was a pretty significant downtick from the first half of the year when you were lapping much easier comps, you know, because of the COVID impact in 2020. I was just trying to get a sense of context on the, you know, the mid-single digit in July, you know, how that kinda compares on a relative basis and what you have going forward in August and September, whether or not those, the absolute comps in August and September were better or worse than what they were in July of 2021. No, they were better last year because of these. Got it. Promotions. Okay. All right. A little tougher comparison. Okay. And then last thing is, you know, just getting a sense for what you're seeing out there. You've reduced your promos. What are you seeing out there from the competition? You know, obviously inflation's pretty rampant, you know, everywhere. Are you seeing what types of competitive changes are you seeing from promotions or the, you know, types of items that you're seeing promoted, changes to bundling, et c? Look, the industry remains a very competitive environment. It's hard to sort of pinpoint any specifics. You know, like we mentioned earlier, from a pricing standpoint, we're looking very closely at competition and making sure that we are in line with the competition on a market-by-market basis. Then in terms of promotions, you know, we do, and the brand certainly does, keep a close eye on what competitive offers are out there around the country. You know, we stay very much aware of what's out there and how our brand plays into the competitive landscape, but it's hard to pinpoint any specifics. Yeah, I mean, I think so far it's been mostly we've been able to, you know, pull back on promotions and discounts in this environment because the competition has also done that. So far that's benefited. I think the one thing that, you know, each of the major competitors have is sort of a, you know, a very, you know, the value, you know, one value meal, you know, the Your Way Meal we have and, you know, our competitors have similar type, you know, offerings. I think as long as we have, you know, one of those and they have one of those, that's sort of where we are right now. That could change, you know. But we don't see any sort of near-term movement on that. I think everyone's staying pretty disciplined on promos and discounts across the industry right now because they can. Got it. All right, thanks for the color and good luck in the second half of the year. Thanks, Jeremy. Our next question comes from the line of Jake Bartlett with Truist Securities. You may proceed with your question. Hi. Thanks for taking the follow-up here. I just want to clarify one thing. Paulo, in your prepared remarks, you mentioned the expected operating leverage going forward. I think that was for restaurant level margin operating leverage going forward. I just want to make sure that the message is loud and clear that you expect, you know, restaurant level margins to expand, year-over-year, you know, starting in the third quarter. It is. Yes, I was referring to restaurant level operating leverage going forward as we, you know, as sales expand and our cost headwinds moderate. Great. Just within that, you know, I look at labor per operating week, just to kind of, you know, figure out, you know, how that's really trending. It looks like it, you know, spiked up in the, you know, versus the first quarter. I think that's seasonal. I'm wondering, is there still any, you know, outsized costs in labor, in the second quarter, meaning, you know, some training or overtime that would moderate from here? Or is this kind of a, you know, level of spending per operating week that should continue going forward? There still was some premium pay, and we were still lapping some increases we gave to our managers. Not lapping some increases in managers' pay, but that laps in the third quarter. We've, you know, operationally, you know, taken over, you know, sort of managed our overtime and premium pay down to almost nothing. I think those two things will be beneficial in Q3. Okay. Then lastly, you've mentioned, Paulo, you mentioned, you know, some of these new initiatives and focusing on underperforming stores and, you know, productivity initiatives. You know, when do you think that should be material or maybe it already has begun, but material to margins? I'm just wondering what the opportunity is there. Is that a back half of 2022 story? Is that really more about 2023 and beyond? I think, look, in terms of the initiatives that we deployed over the last couple of months, you know, we are seeing some benefit of what we've started. As that gains momentum into the back end of the year, I think we'll see increasing benefit. I think it's, you know, as we go into 2023 and have stabilized the operating environment and these initiatives begin to really take hold, that will see more of the benefit. Okay. You know, sorry, one more. You know, this goes to—I guess you're probably just gonna be something maybe you'll be able to tell us later. Our impression, you know, is that part of the turnaround, you know, for the Burger King brand, you know, is remodels and, you know, maybe some incentive or co-investment by RBI, but, you know, that's to come. You know, do you see a scenario where, you know, you enter, you know, a really comprehensive remodel program in the next few years? Or is that just not something that you wanna talk about yet before the announcement from Burger King? I think it's too early to make comment prior to Burger King's announcement. Look, what we'll be doing, what we are doing and will be doing going forward is prioritizing our spend on higher ROI projects. That's our focus. We're working with you know, with Burger King on that. As we see opportunity to generate high ROI through remodels and other capital spend, that's where we'll focus our capital. Yeah. Great. I appreciate it. Oops, sorry. Yeah. I just wanna make sure that, you know, I wanna emphasize that we've made, you know, we've had a lot of discussion with the Burger King folks in Miami about this and the whole mindset on remodel has shifted from when the franchise agreement is up to where are you gonna get the most bang for your buck by doing a remodel? 'Cause obviously it helps them 'cause of higher royalties, and it helps us 'cause of we're spending money on high ROI projects. I think that's something that's already evolved, you know, even pre whatever's gonna happen in September. That whole change in philosophy has been a pretty dramatic change over the last, you know, since the beginning of this year. I think that's important to keep in mind in terms of where our activity will be focused going forward. Great. I appreciate it. Ladies and gentlemen, we have reached the end of today's question and answer session. I would like to turn this call back over to Mr. Paulo Pena for closing remarks. Thank you, operator. Thank you again for joining us this morning and for your questions. I've been in this role for just over four months. The more I learn about Carrols, the more optimistic I become about our future and what we can accomplish. I now better appreciate the strong and seasoned operating leaders we have within this organization, and I'm already seeing positive signs that we are on the right path. My immediate goal is to implement across our organization a new and improved version of basic blocking and tackling appropriate for the current operating environment. As we mentioned, in parallel, we are developing our long-term strategic plan and partnership with our franchisor. I do believe that these efforts, combined, we will meaningfully improve the margins and earnings that we generate from our restaurant portfolio. All of this makes me highly confident in our future. I like the trajectory that we're on as we seek to generate meaningful long-term value for our shareholders. We appreciate your time, and I look forward to speaking with you next quarter. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.