Good afternoon and welcome to today’s Noodles & Company First Quarter 2020 Earnings Conference Call. All participants are now in a listen-only mode. After the presenters’ remarks, there will be a question-and-answer session. As a reminder, this call is being recorded. I will now introduce Noodles & Company’s Chief Financial Officer, Ken Kuick. The floor is yours.

Thank you and good afternoon everyone. Welcome to our first quarter 2020 earnings call. Here with me this afternoon is Dave Boennighausen, our Chief Executive Officer. I would like to start by going over a few regulatory matters. During our opening remarks and in response to your questions, we may make forward-looking statements regarding future events or the future financial performance of the company. Any such items, including details relating to our future performance should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Such statements are only projections and actual events or results could differ materially from those projections due to a number of risks and uncertainties. The Safe Harbor statement in this afternoon’s news release and the cautionary statement in the company’s Annual Report on Form 10-K for its 2019 fiscal year and subsequent filings with the SEC are considered a part of this conference call, including the portions of each that set forth the risks and uncertainties related to the company’s forward-looking statements. I refer you to the documents the company files from time to time with the Securities and Exchange Commission, specifically the company’s Annual Report on Form 10-K for its 2019 fiscal year and subsequent filings we have made. These documents contain and identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. During the call, we will discuss non-GAAP measures, which we believe can be useful in evaluating the company’s operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures is available in our first quarter 2020 earnings release and our supplemental information. Now, I would like to turn it over to Dave Boennighausen, our Chief Executive Officer.

Thanks, Ken and good afternoon everyone. During today’s call, we will be briefly discussing our first quarter results, but the primary focus of our time together will be the impact that the COVID-19 pandemic has had on our business, our response thus far and our strategy moving forward. 2020 was off to a great start on the strength of the company’s operational, culinary and off-premise initiatives. With comparable sales growth system-wide of 5.5% during the first 10 weeks of Q1, including positive traffic, we felt comfortable that the company was on track for another strong year of meaningful top-line and earnings expansion. Of course, that all changed with the onset of the COVID-19 pandemic. Comparable sales during the last three fiscal weeks of Q1 fell 46.3% system-wide, resulting in a comparable sales decline of 7.2% system-wide for the first quarter. At its lowest point, our comparable sales declined 55% at company-owned restaurants during the last week of March. Since then we have been pleased with the consistent sequential improvement in the trajectory of the business as our comparable sales decline improved to 36.1% during the past three weeks and 33.6% during the most recent fiscal week ending yesterday, May 5. Entering this crisis, our initiatives and investments have resulted in a strong off-premise business, which accounted for over 60% of sales during the first 10 weeks of Q1. Our food travels extremely well, and our guests are already accustomed to seamlessly ordering through our digital channels to enjoy the variety and value in our menu, regardless of where they were dining. We have been able to leverage that strength as well as build upon it with our recent initiatives, resulting in the consistent improvement we have seen over the last few weeks. I also believe we are positioning the brand to be stronger over the long term. I will outline some of these initiatives later on in the call. Since Noodles & Company’s first restaurant opened in 1995, our mission has been to always nourish and inspire every team member, guest and community we serve. Never has that mission been more important than it is today. I am immensely proud of and grateful to our teams for their continuous commitment to provide made-to-order healthy meals to guests throughout our communities. Our teams have shown an incredible and unwavering amount of care and love for each other and our guests, whether those guests are healthcare workers on the frontlines fighting this pandemic, for whom we are providing free meals through our new family meal program, or those guests who are families celebrating milestones such as birthdays or graduations virtually online. In my 16 years with this company, I have never been prouder to be part of such a great team or as proud to be part of the restaurant industry. Of course, in those 16 years, we have never encountered anything like this current pandemic. As the severity of the crisis became apparent, we altered our strategy to focus on three key areas: first, ensuring the health and safety of our team members and guests; second, increasing accessibility and convenience for our guests; and third, providing value to the variety inherent in our menu. Our first priority has been to protect our team and our guests. We were one of the first national chains to shift to an off-premise only model and very early on began executing enhanced quality assurance practices at all locations, increasing the cadence of our cleaning procedures, the frequency of mandatory hand washing, and thoroughly disinfecting all surface areas at regular intervals. We introduced an emergency sick leave policy covering up to 14 days of sick pay for team members, and we have been extraordinarily diligent in enforcing our strict illness policy to prohibit team members showing symptoms from working. Additionally, we have been providing face coverings for all team members and are in the process of installing plexiglass shields at our cashier stations, and we have purchased infrared thermometers to allow our teams to perform temperature checks at the start of every shift. These actions have been taken to ensure a safe and healthy environment for all of our team members and guests. As dining rooms eventually reopen, they will be supplemented with measures to facilitate social distancing and ensure the safety of guests dining with us. Our second strategic priority has been to increase accessibility and convenience for our guests. As I noted earlier, we are fortunate that we entered this crisis with a strong off-premise business bolstered by the launch last fall of our new app and online ordering systems, which have enabled a seamless way for guests to enjoy the brand. Our investments in technology have allowed us to execute quickly on key initiatives to address the current pandemic. We have been able to offer easy-to-use curbside service to our guests at over 350 locations. Additionally, in late March, we introduced direct delivery through our digital channels, again making it easier for guests to access and engage with the brand. Finally, in conjunction with the launch of direct delivery, we expanded our partnership nationally with Uber Eats, adding to our existing national presence with DoorDash. The expansion of delivery and the introduction of curbside have further strengthened our off-premise capabilities, and our off-premise sales today in absolute dollars are higher than they were before the crisis. Our third strategic priority has been offering value to our guests during this uncertain time with the variety that’s inherent in our menu. In order to maintain our disciplined approach towards testing of brand new items, we have shifted our culinary strategy for 2020 to leverage all of the great options that are already available at Noodles & Company. In early April, we introduced family meals, which allow guests to cultivate connection, company, and comfort. Guests can choose from one of four family meals, and each meal comes with two sides, ensuring there is plenty to eat for every member of the family with some leftover for lunch the next day. At $40, our family meal serves four people for less than if they were ordered individually. These affordable family meals showcase the great variety in our menu with favorites from kids to adults, healthy to indulgent, and comfortable to adventurous. Additionally, with each family meal purchased, the company is donating a regular-sized entrée to healthcare workers on the frontlines. The success of the family meal has been facilitated by our increasing ability to target and engage with our guests through our rewards program, which has grown to over 3 million members since its launch last fall. We plan to continue enhancing the guest experience by evolving our menu to accommodate dietary preferences and broadening how guests use our digital channels to get the noodles they love from the comfort of their own home. While our strategies over the past several weeks have again focused on safety, convenience, and value, they have allowed us to navigate the current environment from a sales perspective. We have also taken significant steps to improve the overall financial health of the organization. I will now turn it over to Ken to discuss some of these actions in more detail.

Thanks, Dave. I will start by saying that the focus on strengthening our balance sheet and improving our operating model over the past eight quarters put us in a position of strength as we entered the current environment. This included completing the successful and favorable amendment to our credit agreement in late 2019, which increased available liquidity well before the onset of the crisis. Our finance responses centered around preserving liquidity while ensuring that we execute on the strategies that they've mentioned: safety, convenience, and value. Early on during the crisis, we significantly reduced all nonessential spending at both the restaurant and corporate levels. From a CapEx perspective, we have delayed the majority of our planned new unit growth for 2020 and we currently anticipate full year openings of between two and four restaurants. Additionally, we have temporarily postponed the kitchen of the future initiative that we have discussed on prior earnings calls in order to preserve liquidity and to ensure a proper testing environment once we restart the initiative. From the P&L perspective, I'll start with our general administrative expenses. In response to the uncertain environment, we performed a thorough review of our corporate cost structure and meaningfully reduced our corporate overhead. At the restaurant level, given lower sales volumes and the closure of our dining rooms, we moved quickly to optimize our operating model, which included eliminating or postponing most nonessential spending and modifying our labor deployment model to reduce the number of labor hours when restaurants fell below certain sales levels. These measures more than offset the increased costs associated with the crisis, such as the investment made in enhanced cleaning procedures, the transition to all off-premise packaging, and higher costs associated with third-party delivery. Turning to our cash position, as previously announced, we drew down $47 million on a revolving credit facility in March, and in early April, we drew down an additional $8.5 million. As of yesterday, May 5, we had approximately $61.1 million of cash on hand. While the situation continues to evolve, we estimate that the steps we have taken to preserve liquidity will allow us to have adequate cash on hand through 2020 and into 2021. Given the comparable sales decline we have seen in the most recent three weeks of 36%, we estimate that inclusive of all general administrative, CapEx and interest expenses, our cash burn will be approximately $3 million per month. This provides sufficient liquidity for well over a year, even if the recovery is slower than expected. Once dining in is resumed, we believe we can remain cash neutral on an ongoing basis, encompassing all company expenses if comparable sales are down approximately 20% for an extended period. Finally, as previously announced, given the uncertainty of the impact and duration of the COVID-19 pandemic, we have withdrawn our previously issued guidance for fiscal 2020. That said, I share Dave's optimism that in the long term, the strength of our recent initiatives and the improvements made to the economic model over the past several quarters will allow us to successfully navigate this downturn and ultimately emerge even stronger competitively. And with that, I will turn it back over to Dave.

Thanks, Ken. The COVID-19 pandemic has caused a disruption in our business greater than anything we have seen in my 16 years at Noodles & Company. While it’s been heartbreaking to see the impact of the crisis on the restaurant industry, I'm encouraged about what the future will bring, particularly for Noodles & Company. I do believe that when all is said and done, our strong business will actually become even stronger. Our strong off-premise business will be able to meet changing consumer behaviors through our continued investment initiatives like direct delivery and curbside. Our strong connection and loyalty with our guests will deepen as we engage with them through our rewards program on our digital platforms and hopefully soon when we welcome them back into our restaurants. When in-restaurant dining returns, our guests will find a safe and clean environment for sharing a meal with their family and friends that not only meets all regulatory requirements but also surpasses their expectations. Our strong unit and earnings opportunity in the long term will actually be enhanced through a leaner organization positioned to take advantage of a more favorable cost environment. Finally, and most importantly, our strong culture built around care, love, and pride in operational excellence has been galvanized during this event, as the team has risen to nourish and inspire every team member, guest, and community we serve. I'm so proud of our team and all our business partners for how they've addressed this unprecedented event. Throughout the past few years, we have successfully positioned the brand from a culinary, operational, and off-premise perspective, allowing us to navigate this downturn. While there is much hard work ahead, I feel great about our position today and I look forward to capitalizing on new opportunities as the economy recovers. We would like to again thank you for joining us on the call today. I will now turn it over to Andy to open the lines for Q&A.

Presenters, we have a first question from Andy Barish from Jefferies. Your line is open. You may ask your question.

Yes, guys, hi. I hope you are doing well. Just wanted to see if you had seen anything different in sort of sales mix during the crisis, any increase in the Zoodle or Caulifloodle mix, kind of to healthier items or if consumers are still staying with balance and wanting their comfort food like Mac & Cheese from time to time as well?

No, it’s a good question. So at the very onset of this, first of all, I think as a whole we didn’t see a tremendous shift in the menu mix itself, but in the first couple of weeks, yes, you did see people gravitate a bit more towards the items that were a bit more on the comfort side of the ledger. We have seen that transition over the past few weeks to be much more on the healthy side, particularly around the Zoodles and the Caulifloodles which gives another reason why we are starting to see some pickup in our momentum, actually looking at our next evolution of the family meal being one that really highlights that Caulifloodle and the zucchini noodle itself. So, to long story short, yes, we saw a little bit of a shift towards comfort early on and now it’s swinging back towards health.

And then on how you are getting food to the guest, are you anticipating, I guess, slowly opening some dining rooms, because curbside continued to play a part? Is that something you will continue to do on a regular basis in the majority of stores where you can do it?

Yes, we absolutely are very excited with what we see with curbside. It was on the initiative list actually before this crisis even started. So, I think our teams have executed well, and the guests are certainly responding. We do anticipate curbside to stay, except for in certain locations where the facility itself just doesn’t allow it.

Our next question comes from Andrew Strelzik from BMO Capital. Your line is open.

Hey, good afternoon. This is actually Dan on for Andrew today. Thanks for taking the question. I was hoping you could just provide a little more color on the comp insurance of any geographical differences in performance you may be seeing as well as any difference in performance by daypart or weekend versus weekday, just kind of curious how the mix is shifting in the current environment and if there is anything worth pointing out?

I think I am glad you asked that question. We have actually been somewhat surprised over this whole crisis that in almost all geographies and dayparts, you have seen a really similar impact across the board. We do see certain markets that are not currently experiencing as much from the restrictions on the stay-at-home orders and so on that seemed to be performing a little bit better, but it’s overall pretty consistent results across the geographies. From a daypart perspective, we typically have done a bit more dining business on the weekends. So, correspondingly, we have seen a little bit more declines during the weekends than we have done in weekdays. But interestingly over the last few weeks, a lot of the momentum that we have been seeing has been kind of at that more traditional dine-in timeframe, whether it be dinners or even on the weekends.

Great. Appreciate the color there. And then I know it’s a relatively smaller part of your business from a unit count perspective. Could you maybe just provide some additional insights on how your franchisees are doing? Maybe can you speak a little bit more about the ongoing communications between yourself and the franchisees, what they are telling you or asking for as well as any actions you are taking to support them from a liquidity or operational perspective? Thanks.

Yes, I think we are very fortunate, Dan, that we have a very strong and capable and passionate franchise organization that fortunately has seen the strengthening in the business that we saw prior to this crisis. As a reminder, we really don’t have too many franchisees; they tend to be larger entities that are more well capitalized. That said, we certainly recognize the impact that the crisis has had on their businesses as well, so we have allowed them to defer franchise fees and royalties for the time being to help them shore up their liquidity position. But I am immensely proud of how our franchise community has risen to this challenge as well.

Thank you. We do have another question from the line of Jake Bartlett from SunTrust. Your line is open.

Great, thanks for taking the questions. First Ken, I'm sorry to do this, but my line went dead for about a minute, same with my associate on another line, so I am assuming it might have been the same for others, but it happened right when you were starting to talk about G&A, and I think you were getting into the G&A then the CapEx discussions. So I missed all of that if you could maybe just recap it real quick?

Yes, sure, Jake. Not a lot of detail in it, but from our G&A perspective, we went through every line item in our cost structure and took meaningful reductions where we could. I'd say that we really utilized the old definition of fixed versus variable expenses and significantly reduced what we could, so I feel comfortable with the G&A savings that we're seeing.

Yes, I'd say that a lot of it we were able to find just in the non-labor type expenses, whether it be at the restaurant level or at the corporate level. So we talked about coming out of this crisis as a leaner organization, and a lot of that comes from some of the services, consulting, and other travel expenses that we feel we don't necessarily need in the long term.

I think right before the burn rate discussion, I heard that part, but I think everything for about a minute cut off, so we can talk about it later. Assuming you feel it’s important, I missed what maybe the next caller can see if they also missed it or the next questioner. But can you hold our hand at all in terms of what you think G&A will do versus 2019, meaning how much lower you would expect it to be?

Yes. I think, Ken, maybe you can talk through a little bit the cash burn as we talk through at our current levels. We expect that with the current same-store sales metrics, we would lose roughly $3 million a month. Ken can you walk through some of components of that?

Yes, sure. So the $3 million cash burn, just a quick overhaul: from a restaurant perspective, we would expect that the restaurant would be generally slightly cash positive. We expect G&A to run around $2.5 million on a monthly basis, and then our CapEx would run approximately $800,000, somewhere in that range.

Yes, and those are all-in cash basis.

Yes, that's all cash.

Great. That's really helpful. And then can you maybe talk about what actions you are taking from here to keep the improvement going? I’m wondering whether you're planning to add to more than 350 stores for curbside. When should we expect some of these new family meals to come down the line, anything like promotions; and in answering that, can you remind us how long you were doing the free delivery offers? I think it was initially planned on lasting through March, but is that kind of a new tactic you could try again to keep this momentum going?

Yes, there's ample things to impact there, Jake. So whatever I miss, please follow up on. From the overall industry perspective, I'm very proud of how the team has responded to accelerating some initiatives that we really already had in the pipeline but just really fit for the needs of today's consumer. What you can expect on an ongoing basis will still be doing quite a bit of emphasis around our rewards program, around our digital capabilities and digital media as well that would just continue to move forward. Curbside itself, 350 restaurants is probably the vast majority of our system; that's probably where we will ultimately land because certain restaurants don't have the facilities. You will see us continue with curbside, and we will enhance the technology and how it's used at the restaurant. From a family meal perspective, probably just in the next few weeks, you'll see us introduce a healthier version. We will still be doing some innovation around how to cater to dietary preferences, whether you are someone who uses Paleo or Keto or whatever type of diet you are on. I think the trends that we have seen over the last couple of years about diets becoming more personalized will just continue to accelerate over the next several weeks and months.

Okay. And then lastly, this is for you, Dave. I should probably give you a chance to get your voice back, but what is the strategy in terms of reopening stores? You have a number of stores in markets in which you are allowed to, any sort of pace that you could share with us now, or maybe sort of broader gates that you expect before you do that?

Yes, we are not in a rush necessarily to open the dining rooms, Jake, because we have such a strong off-premise business as it is. That said, we are actually prepared to open dining rooms and provide our guests and team members a safe and healthy environment that again meets the regulations and surpasses guest expectations. We are ready to do that reasonably soon as markets open up. But what we are going to look at is we are going to take our cues from not just the regulatory agencies, but also from the guests. We have been one of the first national chains to shift to an off-premise only model and very early on began executing a lot of practices that then became common in the industry. Those will remain in place or be bolstered by additional safeguards such as plexiglass and temperature checks. We are pretty much ready to provide a really great and safe environment for our guests, but we don’t necessarily feel the need to rush into it given that we already have such a strong off-premise business.

Great. I appreciate it. Congrats on the improvements.

Thank you.

There are no further questions from the line. Presenters, I will now turn the call back to Dave.

Now, I just want to say I appreciate everybody taking the time to join the call today. I am very excited about what the future will bring, obviously unbelievably changing times, but I think the brand is rising to the challenge with a greater future ahead. Please stay safe.

Ladies and gentlemen, this concludes this conference call. You may now disconnect. Thank you for participating.