Jack In The Box Inc (JACK) Q1 2024 Earnings Call Transcript

Thank you for standing by, and welcome to the Jack First Quarter 2024 Earnings Webcast Call. I would now like to welcome, Chris Brandon, Vice President of Investor Relations, to begin the call. Chris, over to you.

Thanks operator, and good afternoon, everyone. We appreciate you joining today's conference call, highlighting results from our first quarter of 2024. With me today are Chief Executive Officer, Darin Harris, and our Chief Financial Officer, Brian Scott. Following their prepared remarks, we will be happy to take questions from our covering sell-side analysts. Note that during both our discussion and Q&A, we may refer to non-GAAP items. Please refer to the non-GAAP reconciliations provided in the earnings release which is available on our Investor Relations website at jackinthebox.com. We will also be making forward-looking statements based on current information and judgments that reflect management's outlook for the future. However, actual results may differ materially from these expectations because of business risks. We therefore consider the Safe Harbor statement in the earnings release and the cautionary statements in our most recent 10-K to be part of our discussion. The material risk factors as well as information relating to company operations are detailed in our most recent 10-K, 10-Q, and other public documents filed with the SEC, and are all available on our Investor Relations website. And with that, I would like to turn the call over to our Chief Executive Officer, Darin Harris.

Thank you, Chris. Last month, we hosted our first in-person Investor Day in several years here at our restaurant support center in San Diego, and we appreciate everyone who was able to join us in person or tune in. During the Investor Day, we introduced how we intend to take the next step in our strategy and break out of the box. We communicated our bold ambition, starting with expanding our reach to achieve 2.5% net new restaurant growth based upon the tremendous whitespace we have in new and existing markets. We want to increase AUVs at our two challenger brands by exceeding $2.5 million in sales at Jack and $2 million for Del Taco. Our AUV goals will be supported by achieving 20% digital sales. And lastly, if we can generate 15% four-wall franchise EBITDA with a sub-five-year new restaurant payback, our top-tier restaurant economics will further support our growth strategy. We have entered the next phase of our transformation, and to achieve our ambition, there are three key drivers that will be the focus of our strategy: driving top-tier AUVs, improving restaurant-level economics, and strengthening development capabilities. I'd like to mention a few highlights from the first quarter that support achieving our ambition. Our AUV performance for both brands is driven by steady same-store sales for Jack in the Box and Del Taco. We generated systemwide sales of over $1.3 billion for Jack and nearly $300 million for Del Taco. Our comps at Jack in the Box overcame some meaningful pressure during the last four weeks of the quarter as a result of weather during January. With that said, sales accelerated sequentially on a two-, three-, and four-year stack basis helped by the performance of our burgers, including our ultimate cheeseburger platform, with support from our three-week soft launch of Smashed Jack, our sides, including our Jack wraps and famous tacos, and lastly, our Munchie Meal platform, particularly at late night. Del Taco's sales performance was bolstered by our Birria promotion, a new product we introduced during the quarter. Both brands continued to accelerate digital sales, having now achieved 12% of total revenue with year-over-year growth in all channels and particularly strong growth in first-party web and app ordering. Breakfast continues to be an opportunity we are addressing, starting with bringing back some deleted items that, while good for margins and speed, were too strong of a headwind to sales. I am confident we can improve our breakfast share helped by three tactics. First, making breakfast a regular recurring part of the marketing calendar, innovating around new breakfast items while continuing to roll out fan-favorite LTOs such as French Toast Sticks or Mini Cinnis, and testing new breakfast offers, especially through digital channels, to target and reengage the valued guest. Now switching to restaurant-level economics. Jack restaurant-level margin continued to accelerate and serve as a highlight for our business. Coming off a year of 4.5% improvement in 2023, our 23.1% margin in Q1 is a 3.3% increase year-over-year and demonstrates that our margin initiatives are working. We will continue our focus on these financial fundamental initiatives to strengthen restaurant-level EBITDA and gain further franchisee adoption. At Del Taco, our new leadership team of Tom Rose and Sarah McAloon are very focused on both sales and restaurant profitability initiatives, some of which can be realized as soon as this year. We will continue to provide updates on the execution and results as we progress throughout the year. And lastly, our strength in development capabilities enabled a solid start to 2024, highlighted by seven restaurant openings and one closure in Q1 at Jack in the Box. We expanded further into Salt Lake City, now at four restaurants, and Louisville, now at two restaurants, and both markets continue to perform very well. We announced two new franchise agreements. The first one will add an additional 10 restaurants to our Florida expansion, and the second is another new franchisee that will bring Jack to Michigan by signing on to build five restaurants. Our new restaurant pipeline continues to grow, as we now have 91 signed development agreements for 399 future restaurants. We currently have 81 restaurants that are in the construction or permitting phases. I'm also pleased to report we will open our first Jack in the Box restaurant in Mexico next week, our latest new market, and one that we are very excited about given high demand for the brand. At Del, we had flat net unit growth, including three restaurant openings in the first quarter. We currently have 155 development agreements at quarter end and 49 sites that are in the construction or permitting phases. Quarter two will see the systemwide launch of Smashed Jack. Our most exciting burger innovation in nearly a decade, and I may be biased, but it is the best burger I have tasted in QSR. And guests who got their hands on one during the soft launch agreed, as we sold over 70,000 on our very first day with no media support. The full launch, including a bold television campaign featuring real Jack guests, begins this quarter, and we're excited about the potential for this product and building on the positive response we've already received. I'd like to briefly touch on value, a key topic within the industry at the moment. We continue to work with our franchisees and utilize guest insights on the best approach to make value a competitive advantage for both brands. We're seeing solid results from our variety of value offers, such as our $3 Jack Wrap, $5 Jack Pack, our $10 Fan Box, and our $12 Munchie Meals. In today's competitive environment, we are looking to provide even more everyday value. So look for an improved Jack's deal menu, providing a variety of value for the budget-conscious guest. In the meantime, we will continue to utilize our digital channel to provide targeted offers to our most loyal guests and app users. And we continue to attract new users via aggressive offers, such as our famous two tacos for $0.99. At Del Taco, our brand insights have demonstrated that we win on value versus the competition and have an opportunity to go beyond just low price points and offer more food for the money. We will utilize the hook and build strategy and lead with value while growing average check in a healthy way via upsell. I'm also excited about our learnings thus far from our current menu redesign initiative at Del. And once fully rolled out, we expect this to drive both sales and margin improvement. To close, I'd like to thank our franchisees and team members for helping us get off to a good start in 2024 and for their continued passion toward providing remarkable guest experiences. I will now turn the call over to Brian.

Thanks, Darin, and good afternoon, everyone. I will start by reviewing our two brands individually, followed by details on our consolidated performance and capital allocation. Beginning with Jack in the Box, our first quarter system same-store sales growth was 0.8%, consisting of company-owned comps of 2% and franchise comps of 0.7%. Our overall average check increased in the prior year driven by price. And while transactions were down, we are seeing continued success from our hook and build platforms and certainly saw a nice lift in sales and transactions during the Smashed Jack soft launch period. Additionally, we have continued our positive trends related to operations and speed, posting the sixth consecutive quarter of increasing speed of service with a six-second sequential improvement. Regarding product categories, notable contributors came from burgers and sides. The late-night daypart once again stood out and was the strongest contributor to overall sales. Turning to restaurant count, there were seven restaurant openings and one closure in the quarter. This resulted in a quarter end restaurant count of 2,192, and we remain on track to achieve our net unit growth objectives for the full fiscal year. Jack restaurant level margin expanded year-over-year by 330 basis points to 23.1%, driven primarily by commodity deflation, strong sales leverage, and operational improvements. Food and packaging costs of the percentage of company-owned sales declined 310 basis points to 29.7%, primarily due to lower commodity costs. Commodity deflation was 2.9% for the quarter. Labor as a percentage of company-owned sales fell 50 basis points to 30.8% due to sales leverage partially offset by higher wages and insurance costs. Labor inflation was 2.8% in the quarter, in line with our expectations. Occupancy and other operating costs increased 20 basis points to 16.4% of company restaurant sales. Franchise level margin was $97.5 million, or 41.2% of franchise revenues, compared to $106.8 million, or 44.4% a year ago. The decrease was expected and driven mainly by lapping the $7.3 million fee paid by a franchisee related to their sale of the Hawaii market, along with a prior year $1.5 million bad debt reversal. Turning now to Del Taco. System same-store sales rose 2.2%, consisting of company-owned comps of 1.8% and franchise comps of 2.4%. Average check was up year-over-year, partially offset by lower transactions. Del Taco restaurant count at quarter end was unchanged at 592, with three openings and three closures. Del Taco restaurant level margin was 15.6%, compared to 16.1% in the prior year. The decrease was due to wage and utility inflation, as well as a change in the mix of restaurants, partially offset by higher sales performance and commodity deflation. Food and packaging as a percentage of sales decreased 120 basis points to 27%, which was primarily due to menu price increases and commodity deflation of 0.5%. Labor as a percentage of sales increased 100 basis points to 35.2%, primarily due to wage inflation, which was approximately 3.2% in the quarter. Occupancy and other operating expenses increased 70 basis points to 22.2%, driven primarily by higher utility costs, as well as a change in the mix of restaurants. Franchise level margin was $8 million, or 29.3% of franchise revenues, compared to $6.4 million, or 39.6% last year. The decrease in percentage was driven by higher franchise support costs, and the impact of refranchising transactions was passed through rent and advertising, partially offset by franchise same-store sales growth. While there were no refranchising transactions in Q1, we have signed an agreement to sell 13 Del Taco restaurants later this month. We also signed a letter of intent this week to refranchise an additional 25 restaurants. Both of these transactions include development agreements. We remain on track for 40 to 60 refranchised restaurants this year, and achieving our goal of having Del 90% franchised by the end of 2025. Shifting now to our consolidated results. Consolidated SG&A for the first quarter was $46.4 million, or 9.5% of revenues, as compared to $50.1 million, or 9.5% a year ago. The decline was due in large part to $5.9 million lower legal expenses from a prior year litigation settlement. G&A expenses, excluding net COLI gains and selling and advertising, were 2.5% of total systemwide sales. Consolidated adjusted EBITDA was $101.8 million, down from $108.6 million in the prior year, due primarily to the previously noted prior year Hawaii franchise transaction gain and impacts from the Del Taco refranchising. Consolidated GAAP diluted earnings per share was $1.93, compared to $2.54 in the prior year. Operating earnings per share, which includes certain adjustments, was $1.95 for the quarter versus $2.01 in the prior year. The effective tax rate for the first quarter was 26.9%, compared to 26.7% for the same quarter a year ago. The operating EPS tax rate for the first quarter of 2024 was 27.2%. Cash flows from operations reflect a use of cash of $22.7 million, an $85.1 million decrease from the prior year. There were two primary causes of this change. First, we had $50 million of income tax payments related to 2023 that we deferred into Q1 in connection with a weather disaster relief program. And second, we incurred a $25 million final payment on the Torrez legal settlement. Overall, cash flow in the quarter was consistent with our expectations. During the first quarter, we repurchased approximately 300,000 shares for $25 million as part of our ongoing share repurchase program. We currently have $225 million remaining under our board-authorized program. On February 16, 2024, the Board of Directors declared a cash dividend of $0.44 per share to be paid on March 27, 2024. As a quarter end, we had available borrowing capacity of $172 million under our variable funding notes and credit facility. Our total debt outstanding at quarter end was $1.7 billion, and our net debt to adjusted EBITDA leverage ratio was five times. Related to guidance, we are not providing any updates to our outlook and expectations from what was provided during the earnings call last November. With that, we did provide some updated 2027 targets at our recent Investor Day, which included the following: annual same-store sales growth of 2% to 3%; ramping Jack restaurant-level margin to 23% to 25%; and Del Taco to 18% to 20%; improving operating leverage to drive G&A as a percentage of systemwide sales down to 2.2% to 2.3%; reaching 20% digital sales, and achieving 2% to 2.5% company-wide net unit growth. In closing, I would also like to thank every member of our Jack and Del Taco teams, as well as our outstanding franchise partners, for what they do every day on behalf of our brands. Their efforts are the key to Jack's ability to deliver sustained growth and shareholder value. And with that, we'd be happy to take some questions. Operators, please feel free to open up the line for Q&A.

The floor is now open for your questions. Our first question comes from Brian Bittner with Oppenheimer & Co. Please go ahead.

Thank you. Hey, good afternoon, guys. Just as it relates to Jack in the Box, your full year guidance for same-store sales for Jack in the Box is low to mid-single digits, which you kept intact. You did a 0.8% in the first quarter, so I'm just curious, how do you anticipate your sales trends at Jack in the Box to unfold following this quarter into the rest of the year? I know that weather impacted you guys in the first quarter, and I also realize you're very excited about the Smashed Jack burger that's coming in March and pulsing in some value with that. So, is that kind of what's underpinning your confidence on the Jack in the Box comps moving forward, just the weather impact and then the new catalyst coming or anything you could unpack there would be helpful? Thanks.

So, I'll turn it to Brian. Well, first of all, good to talk to you, Brian, but I'll turn it to Brian Scott in a second. But I think the first comment I would say is we're really excited about Smashed Jack and what it can do for the year. We knew this going into the year that we had tough comps that we were lapping over in Q1 and Q2, and that we had a good marketing plan for the back half of the year with Smashed Jack and some of the other things we have coming. So we took that into account as we built our plan and we provided guidance. As you mentioned, I think the industry as a whole has seen some softness at the start of the year. We've experienced the weather, as you mentioned, that probably impacted us somewhere between half a point in sales for the quarter. But we do know that going into the year we had a strong back end plan with our marketing calendar. Brian, what would you add?

Thank you for the summary, Brian. As Darin mentioned, we experienced some challenges in January due to the weather, but we've reviewed our plan for this year. We anticipated that the comparisons in the first half of the year would be tougher. As Darin noted, we expect the second half to be stronger, not just because of Smashed, but also due to our overall marketing strategy. The comparisons will become easier as we progress through the year. Additionally, we anticipate some price increases as we approach the implementation of AB 1228. It’s still a bit early for us to accurately predict what the entire year will look like, so we’ve maintained our current projections, and we believe we can achieve a result within that range. However, we expect more developments over the coming months. As we exit the first quarter, February has been slightly weaker than we anticipated, and it seems to reflect a broader trend in the industry as others are reporting similar issues. Currently, we're experiencing a slight negative year-over-year trend, but with Smashed launching soon and other initiatives aimed at attracting value-conscious guests, we feel optimistic about turning this around in the coming weeks.

The only thing I would add to what Brian said is, as he mentioned, we're seeing similar trends industry-wide. And at Del, we're seeing flat comps at this point.

Okay. And pricing, I mean, I know you're planning on pricing 6% to 8% this year for the company. But I think over the last four years, you've taken 4%, 5%, 6% less pricing than a lot of your large QSR competitors. Are you seeing that show up in value scores or anything else in the business where you might see a leading indicator that might be improving traffic going forward?

Greg, I think that where I would go with this question is more around, we're seeing on the franchise side of it, pricing more in line with the competition. The company needs to catch up from a pricing standpoint. We do see some room there. We also see some room where our franchises in California have not taken as much price compared to the competition. So we do think with what's happening with AB 1228 coming up, that we do have some room to take anywhere from 2% to 3% additional price heading into April.

Got it. Thanks. And just maybe any thoughts on the consumer, anything you're seeing in the business in terms of trade-down or utilization of beverages or attach that might give you a read on flow through from pricing to the comps or any changes on that front? Thanks.

I think we are experiencing similar trends as most of our competitors. The consumer segment earning $75,000 and below, especially those earning $45,000 and under, is facing challenges with attach rates. Therefore, our priority is to ensure we offer the right breakfast items, effective deals through digital channels, and a strong value menu. We aim to understand our consumers across different segments and times of day. From a value perspective, we have several options available, such as our $3 wrap, the Jack Pack, $10 Fan Phase, and $12 Munchie Meals. Additionally, we are offering promotions like two tacos for $0.99 and are becoming more aggressive in this area to foster loyalty. Furthermore, we are excited about a value menu we are testing, which we plan to launch this year, featuring a revised Jack deals menu that we believe will perform well. Regarding Del, we are pleased with what we are achieving through our menu redesign, as we have observed improvements in both sales and margins during our initial tests. We still need more time to finalize these tests, and as we have done with Jack, we will implement our hook and build strategy since we already know we earn loyalty at Del. Now, our goal is to attract customers and increase their attach rates.

Thanks, Darin.

Our next question comes from a line of Sara Senatore with Bank of America. Please go ahead.

Thank you. I have a follow-up regarding your comments about the consumer and your efforts to reengage value guests. Can you discuss the various dayparts, specifically whether there’s been softness in the breakfast segment that necessitates further investment, or if it’s simply becoming more competitive? You mentioned that burgers performed well this quarter. Are your price points sharper in that area, or is the overall industry doing better? I'm trying to understand how much of this is influenced by industry trends versus consumer behavior and the aspects that are within your control.

Yeah. I think a lot of what we're seeing with breakfast is consumer. And we've got to make sure that we have a very competitive plan. We also know that when we market to the consumer for breakfast that we see it benefit our business. So we'll make sure that's a part of our marketing calendar. We also know that we will bring back some items that we took off the menu that we thought were beneficial to margin and speed, but we found it was too much of a headwind to sale. So we'll bring back some of the items, not all. And so again, with breakfast, I think it's one of the more competitive areas right now that we have to make sure we're competing heavily in and having the right offerings. So I think that's one that we have to lean into and be more aggressive. With LTOs, like we've just introduced a new French Toast Stick with a cinnamon churro flavor and then our Mini Cinnis that performed well. And then as it relates to burgers, I think for the quarter, it was more about a difference in what we promoted last year was more of a chicken focus versus burger focus. So that's more of why we had stronger performance out of our burgers this quarter versus last year at this time. And then also, Smashed Jack, which we've talked about, it more than outperformed our expectations. And so we're excited about the launch of Smashed Jack in March.

Thank you.

Our next question comes from the line of Alton Stump with Loop Capital. Please go ahead.

Thank you. Good afternoon. I would like to ask Darin about the late night business. This certainly doesn't diminish the efforts of some of your competitors trying to enter the late night market, but it's clear that establishing a foothold in this time slot takes time. Are you noticing any competition? You have clearly outperformed others in this time frame for quite a while now in your late night business. Overall, are you seeing any indications of a slowdown, or do you believe you are continuing to gain market share, especially during this time period?

We're very aware of what the competition is doing, and we want to make sure that we continue to own late night, which we've done for years. And so we're seeing hours of operation benefiting still some of our regions. We're seeing transactions positive year-over-year for the sixth straight quarter at late night. And our Munchie Meals were a very solid contributor to Q1. And so I think we have the right offerings at the right time. And so we know that the competition wants to challenge us, and so we'll be ready for it through innovation and other marketing opportunities that we see available at late night.

Got it. Great. Thanks so much. I'll hop back into the queue.

Our next question comes from the line of Dennis Geiger with UBS. Please go ahead.

Great. Thanks, guys. I just wanted to ask a little bit more on the Smashed Jack. Clearly a great product, I think, for those of us fortunate enough to have tried it thus far. You saw great results there in the soft launch. I guess the question is specific to it being sort of on the premium end of the barbell strategy there. As you think about this environment where a portion of the industry consumer is acting a bit more cautiously, how do you think about that dynamic? Is this just that much of a hero new item based on what you've seen in soft launch that this is going to be that strong for however long? Do you do anything different around marketing the product, knowing maybe a portion of that customer base is a bit softer? Any kind of comments on Smashed Jack and then relative to the environment to add? Thank you.

Yeah. Any day of the week I'll take the best tasting product out there over the competition. And so I think from a differentiation standpoint, Smashed Jack is that differentiated and that much tastier than a lot of what's out there in the marketplace. So we feel really good about what Smashed Jack can do to our business. So I think it does have the ability to overcome some of the challenges that we see with the consumer just because the product is so good. That's what we saw in test. It's what we saw in our soft launch. And we believe that it can help us throughout the year really outperform what we anticipate with some of the headwinds that we're facing right now. So Smashed Jack is by far something that we are leaning into and very excited about. And we can't wait to roll out our marketing campaign where we really tell an authentic story about what Jack has done differently with the burger to make it the best in QSR.

Appreciate it. Thanks, Darin.

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

Thanks, guys. Do you think there'll be additional opportunities like the nine units you took over in Detroit where you sort of end up with the small portfolio involving markets again that you fixed up and refranchised? It didn't seem like you were heading that way or that was on the radar at this point, but curious if you think there's more opportunity there.

I'll let Brian handle this question.

Yeah. This was a very unique situation. As you know, we're on a path towards refranchising Del Tacos. And as we mentioned in prepared remarks, we actually just signed a deal and have another one in the works here. In this particular case, it's a good market. We happen to have a franchise operator that wanted to disengage from the franchise. And so we took it back now. We're already seeing improving trends as we've invested more in operations and extending hours and are absolutely intent to, at some point, refranchise that market. So we don't really look at this as a new trend that we're going to start to take back more restaurants, but in a case like this, we absolutely think it's a good market to be in. We can grow. And the next operator that we partner with there, we think, will grow that market as well.

I have to add what Brian said. Before Brian joined us, we had a term called evolving markets that we used related to Jack where we were bringing them in, operating them corporately for a period of time, and preparing them for refranchising, and that's exactly what we'll do at Detroit, as Brian has mentioned.

Okay. Thanks. And just to clarify on the softer comps in February's weather piece of that, I know being here in California, it's been pretty wet January and February.

Yeah. We do think it's been a part of the story with the storms that have continued to persist here and different weather patterns in some other markets as well. So it's a combination of that as well as just some of the consumer behavior. And we have to align our marketing to that. We're on the track to do that right now. And that in conjunction with the launch of Smashed next month, we feel like we've got a good strategy in place to turn that around here.

Great. Thanks.

Our next question comes from the line of Drew North with Baird. Please go ahead.

Great. Thanks for taking the question. I was hoping you could provide an update on some of the various cost savings initiatives you have in place and perhaps your level of confidence in reaching that 15% unit level EBITDA target at Jack in the Box. It seems like commodities are providing a bit of a tailwind on the food cost line so far this year. I guess, do you see that continuing in the near term and maybe more broadly, what are the key risks that you see related to your ability to achieve that 15% target over the next several years?

We believe our target of achieving 15% unit level EBITDA at Jack in the Box is realistic. Before inflation, we were nearing 13% to 13.5%, and we've been able to mitigate some of the inflation impacts we experienced in 2022 through our financial fundamentals initiatives, which aimed for an improvement of 200 to 300 basis points. We have implemented these initiatives, and they are beginning to show positive results. Additionally, we’re benefiting from favorable commodity prices and some deflation. We feel confident that reaching our target is achievable, although we haven't set a specific timeline. The current performance on the Jack corporate side, with the RLM at 23.1%, indicates that our initiatives are effective. Our focus will remain on driving top average unit volumes, enhancing our digital innovation, and continuously challenging our economic model to improve it. We believe that our pricing, supply chain, and operational strategies will collectively support growth in new restaurant openings.

What I would add is that as we examine some of the newer markets we are entering, we see the strong average unit volume, which is another aspect of how we plan to achieve higher margins. Continuing on this path will help us. Our crave strategy and the new restaurant designs are significant factors in this regard. Looking forward to opening more restaurants with these designs and our menu innovations, along with the higher average unit volumes that result from them, will also contribute positively. Lastly, as we mentioned during Investor Day, we are increasing our investment in technology. Implementing a new point of sale system at Jack is foundational to unlocking numerous opportunities for more automation and efficiency within the restaurant's operations. As we roll this out over the next couple of years, we know there is much we can do in the stores to enhance efficiency, whether in food products or staffing, which will also support our goal of achieving a 15% margin.

Thank you for all the color.

Sure.

Our final question comes from the line of Eric Gonzalez with KeyBanc Capital Markets. Please go ahead.

Hey, thanks for letting me in the queue here. My question is about the labor environment in California with fast food wages going up to $20 in the next few months. Have you seen other industries start to advertise a similar wage? And I think when this was first contemplated, I think you talked about being proactive with regards to advertising the higher wage at Jack versus other industries. So I'm wondering if that gap has closed at all and whether you're seeing an influx of demand for these positions or whether we're a bit early on this.

I think we're still in the early stages. We haven't noticed a significant increase in competition for wages yet. We anticipate that will change as we prepare to promote our wage offerings. We've heard reports of some movement in the healthcare sector, particularly in foodservice and healthcare, where minimum wages are rising even above $20. There is discussion about this in the market, but it remains early.

Okay. And if I could squeeze one more in. On the refranchising, I think you said you were going to sell 13 later this month and have an agreement to sell 25 more, which puts you pretty close to the low end of that 40 to 60 target. So I'm wondering maybe if there's a little bit of upside, given that we're only in the second quarter here and you're kind of approaching that, the bottom end of the range.

That's why I mentioned the range we feel confident about. We have a lot of interest, and we're being strategic in how we approach these markets and choose our partners, ensuring they are good operators and development partners. There's definitely an opportunity for us to hit that range, and if we wanted to exceed it, we probably could, but we're going to do it in a disciplined manner.

Got it. Thank you very much.

Thanks, Eric.

This concludes today's call. You may now disconnect.