Executives: David J. Boennighausen - Chief Financial Officer M. Kevin Reddy - Chairman & Chief Executive

Officer
Analysts: David Palmer - RBC Capital Markets LLC David E. Tarantino - Robert W. Baird & Co., Inc.

(Broker) Andrew Marc Barish - Jefferies LLC Andrew Strelzik - BMO Capital Markets (United States) Jason West - Credit Suisse Securities (USA) LLC (Broker) Jake Rowland Bartlett - SunTrust Robinson Humphrey, Inc. John Glass - Morgan Stanley & Co. LLC Joseph Terrence Buckley - Bank of America Merrill Lynch Keith R. Siegner - UBS Securities

LLC
Operator: Good afternoon and welcome to today's Noodles & Company First Quarter 2016 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 the Noodles & Company's Chief Financial Officer, Dave Boennighausen. David J. Boennighausen - Chief

Financial Officer: Thank you, Jamie.

Good afternoon, everyone and welcome to our first quarter 2016 earnings call. Here with me this afternoon is Kevin Reddy, our Chairman and Chief Executive Officer. Let me start by going over a few regulatory matters. I'd like to note that 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 our guidance about our anticipated results in 2016 and details related to our future performance should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

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 most recent Form 10-K are considered a part of this conference call. 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 2015 fiscal year. This document contains and identifies important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. Now, I'd like to turn it over to Kevin.

M. Kevin Reddy - Chairman & Chief

Executive Officer: Thanks, Dave, and good afternoon. During our last earnings call, we discussed the strategies we are deploying to create momentum in our results and capitalize on the inherent strengths of the brand. Noodles & Company remains a truly unique differentiated brand with a significant strength with one of the most important and largest future demographic groups, millennial parents and their families. Over the last several months of 2015 and into 2016, we have been making strategic investments in marketing, off-premise, development and operations to create long-term value and build comparative restaurant sales.

We have made progress over the last few quarters, and I'm pleased to see that continue into the first quarter of 2016. Executing these initiatives will position the company to build upon this momentum through the balance of the year. During the first quarter, the company achieved revenue of $114 million, 8% above prior year on flat company-owned comparable restaurant sales. This comparable restaurant sales figure includes a 50 basis point negative impact from the shift of the Easter holiday. Normalizing for that holiday shift, traffic declined 70 basis points during the first quarter, continuing the improvement in traffic trends that we began seeing late last year.

Adjusted loss per share was $0.06 compared with the adjusted earnings per share of $0.03 in the first quarter of 2015. Adjusted EBITDA for the quarter was $5.4 million compared with adjusted EBITDA of $8.8 million in the prior year. Q1 is typically the low point for earnings from a seasonality perspective and these results were in line with our expected earnings cadence for 2016. During the last call, we outlined our strategy in four important areas. Media investment in support of our main different brand positioning, the building of off-premise sales, development of our operations teams and a unit growth strategy focused on the infill of existing markets.

I'd like to update you on the progress of these initiatives starting with our investment in media. In March of this year, we continued our media campaign in select areas, targeting approximately 35% of our restaurants in certain medium and large markets. This media campaign continues our work from last fall incorporating digital, outdoor and radio channels, as well as our first foray into television advertising. We've been pleased with the results in several of these markets, including Washington D.C., Indianapolis and Colorado Springs, all of which have seen improved trends versus the balance of the system and Black Box industry measures. One area where the impact has been lagging however, has been in our Denver market, home of about 15% of our system.

Industry data suggests that restaurant sales have softened significantly in Denver, which has been exasperated by storms in late March and throughout April. This data indicates that the fast casual category faced negative mid-single digit comparable sales during the first quarter. Our performance in Denver has been similar to what the industry has seen, and our media campaign has thus far not been able to break through the headwind the same way it did at the back half of 2015. However, we have recently shifted our marketing message in the Denver area to be a little less brand building and more towards the introduction of our agent exploration menu items. And we've also begun making similar shifts in our message across other markets.

We believe this shift would help drive traffic from lapsed and infrequent users. And excluding the industry headwinds, we are encountering in Denver, we are pleased with the results to date and remain optimistic about the potential of our media efforts, and we will continue to invest in this area during the course of 2016, which Dave will outline later on. This media campaign is particularly important in building awareness for our menu items, where we have made great progress in the last few months. We've mentioned our recent research and that indicated two categories with the most opportunity on our menu, were our Asian and salad line ups. Earlier this year, we introduced a Korean Barbecue Meatballs shareable featuring Gochujang sauce as well as a new Pad Thai, which is a popular dish, where we have the opportunity to improve the flavor profile.

We will follow that introduction later this month with the launch of two new salad offerings, a Chicken Veracruz and a Napa Market Salad. Our test results have been very encouraging on these salads, which will be replacing two other salads currently on the menu. Aside from improving our salad line-ups, this launch will also allow us to reinforce our world kitchen positioning throughout, through the introduction of a spicier Latin American profile in the Chicken Veracruz salad. We will continue to educate the public on our quality ingredients and real cooking and as we do, we continue to receive important third-party recognition for the healthfulness of our menu, including some recent accolades from Health magazine and Men's Health. We've also been working diligently on enhancing our guests' ability to use Noodles for off-premise occasions, which now accounts for 43% of our overall sales.

Our off-premise sales continued its upward trajectory during the first quarter including online ordering increasing to 6% of sales. Online ordering continues to represent a great opportunity for us, given how our food travels for to go occasions as well as its ability to act as a throughput equalizer for our guests relative to the competition. We've been supporting our online ordering through marketing efforts such as our Leap the Line promotion on Leap Day in this February. We're also incorporating into our design of our facilities, certain elements that will make it easier for our guest to order ahead, skip the line and pick up their food quickly and easily. Another element of building off-premise sales is our catering program.

Catering accounted for 1.3% of sales in Q1, 40 basis points above prior year in a quarter that historically is lower from a catering seasonality perspective. During the first quarter, we launched a toll-free line for our catering offering and have also been testing delivery in online programs to further support this initiative. We believe we built a program capable of capturing additional catering business, as we enter the very busy graduation season in upcoming weeks. Additionally, we continue to rollout delivery in a disciplined manner with select partners throughout the United States. While delivery continues to be offered in just under about 10% of our restaurants in our top locations, it is accounted for up to 15% of total sales, and we are looking at expanding this program in future months and are working with our partners to be able to offer it in more locations.

Shifting gears, I'd now like to touch on our development strategy, which Dave will discuss in more detail. There remains significant, long term potential unit expansion for the brand given our national infrastructure, differentiated concept and connection with one of the largest fast and growing demographics in the nation. That said, our focus on infill of our existing markets and being disciplined in our unit growth is the right strategy to allow our initiatives to gain traction and build the foundation for the next stage of growth. The last area that I'd like to discuss is our operational initiatives. The progress we have made in operations over the past several months has been tangible, including the launch of our development program called My Road Trip, which we discussed on the most recent call.

This program incorporates a thorough and consistent pathway for our future leaders to develop important skills as they progress in their careers with Noodles & Company. We've also begun testing a greater use of technology to educate and develop our team members and meet the needs of today's millennial employee. Recognizing and capitalizing on the way that learning styles of our employees have evolved over the years. These efforts are critical as we develop our teams internally in an increasingly challenging labor market. Finally on operations, as we roll out our salads later this month, we are also finalizing the standardization of our recipes throughout the system, which has proven to improve consistency and throughput in our test locations.

I firmly believe that our operations teams are better focused and executing at a consistently higher level than in the recent past. I also believe that our infill unit development strategy will allows us to continue to build a solid bench and better support efficient, brand building locations in our maturing markets. Dave will be discussing our real estate pipeline in more depth shortly as well as the initial results we're seeing from our remodel program. As we discussed at our last earnings call, we have known that the first half of this year would have more year-over-year earnings pressure, as we have not yet lapped our investments in media and the Affordable Care Act. And have had limited pricing in place and have been executing on a front loaded development pipeline, all those have been factors that we expected and were known.

I am pleased that we've begun narrowing that year-over-year gap in earnings and margins with our first quarter in line with our internal expectations and another clear sign of stabilization in the business. We continue to believe that we are well positioned to resume earning expansion later this year and to give more detail on these items, I'd now like to turn it back to Dave. David J. Boennighausen - Chief

Financial Officer: Thank you, Kevin. As Kevin mentioned, revenue in the first quarter of 2016 increased 8% to $114 million driven by new restaurant development offset by the closing on 16 company restaurants during the fourth quarter of 2015.

For the quarter, we reported adjusted net loss of $1.7 million or $0.06 per diluted share and adjusted EBITDA of $5.4 million. In the first quarter, comparable restaurant sales were flat at company restaurants, declined 50 basis points at franchise restaurants and declined 10 basis points system-wide. Company results included pricing of approximately 1% and system-wide results were negatively impacted approximately 50 basis points by the shift in the Easter holiday. From a cadence perspective, excluding the Eastern holiday and short-term weather events, comparable sales results were similar throughout the quarter. During the first quarter, we opened 15 new restaurants system-wide including 14 company owned and one franchise location.

We completed the quarter with 507 restaurants system-wide comprised of 436 company and 71 franchise restaurants. We still anticipate approximately 50 openings system-wide in 2016 including 40 to 45 company openings and 5 to 10 franchise locations. Of the 40 to 45 company restaurants, we expect all but a handful of locations to open before the fourth quarter of this year. As Kevin mentioned, our real estate strategy calls for the infill of existing markets as we look to optimize the profitability and the efficiencies in our current footprint. Along with new sites and maturing markets, we have also begun our remodel program.

As of today, we have remodeled seven restaurants as well as replaced exterior signage at several others. Our initial results are encouraging, but it remains a little too early to understand the sustained benefit from the remodel program. But we are pleased with the initial response from our teams and our guests, and we're taking the opportunity to more fully develop impactful refreshes of to go and merchandizing design elements into future remodels. As we go forward, we still anticipate approximately 75 restaurants to be remodeled nationwide in total through 2017 with an average cost of approximately $100,000. Restaurant level margin in the first quarter declined 290 basis points to 13.3% due to a combination of increased marketing expense, new market and efficiencies, minimal price benefit and wage inflation.

Although, we have continued work to do, a 290 basis point decline in restaurant margin does compare favorably to the 510 basis point decline that we reported during the fourth quarter of 2015. We continue to expect a decline in restaurant margins during the second quarter of 2016 before stabilizing relative to prior year, as we begin to lap our initial investments in marketing as well as the Affordable Care Act. Pricing during the first quarter as mentioned earlier was approximately 1%. We anticipate pricing benefit of approximately 2.5% during the second quarter and just shy of 3% during the second half of 2016. Quarter-to-date comparable sales for the second quarter through May 2 stand at negative 0.2% for company owned restaurants.

The benefit that we have received from the Easter shift and approximately 1% of additional pricing has been muted by three events. Late season snow storms in our Colorado market, a more volatile industry environment and our most challenging comparisons of the year due to the timing of our LTO this year relative to last. Importantly, thus far in Q2, our comparable sales and traffic trends continue to improve relative to the Black Box Fast Casual Index. As we move further into 2016, we continue to anticipate full year low single digit 2016 comparable sales growth, as we are beyond our most challenging comparisons, continue to see momentum in our initiatives and executing our upcoming menu news. Our cost of goods sold of 26.7% in the first quarter was 20 basis points above prior year, the result of modest cost inflation offset by minimal price.

We expect cost of goods sold of approximately 26.5% during the balance of 2016. Labor increased 170 basis points from prior year to 33.2%. While this marks improvement from the increases we had seen during the fourth quarter, wage inflation continues to hover around 5%, causing approximately two-thirds of the increase that we are seeing year-over-year. As we discussed at the last call, inflation of this magnitude has been factored into our annual guidance and puts an incremental $2.5 million of labor pressure on the P&L or approximately $0.05 of EPS. We expect labor to become more in line with prior year during the back half of 2016 as we lap some of the significant structural increases, such as the implementation of the Affordable Care Act, as well as due to increased pricing activity relative to the first quarter of this year.

During the first quarter, occupancy cost increased as a percentage of sales by 10 basis points to 11.8% and operating cost increased 100 basis points as a percentage of sales to 15%. The increase in operating cost was directly related to an increased level of marketing spend. Marketing spend in the first quarter was 1.5% of sales, an 80 basis point increase from prior year. As Kevin mentioned, excluding macro headwinds in Denver, we continue to be encouraged by the initial benefit we are seeing from increased marketing spend and expect an increase in 2016 to approximately 1.7% to 2% of sales. Again, much of the P&L pressure year-over-year will occur during the first half of 2016 as media began in earnest during the second half of 2015.

Our general and administrative expense of 8.8% of sales in the first quarter was an 80 basis point increase over the prior year due primarily to the supported marketing initiatives, increased labor expense and the filling of vacant positions in the field. For the next two quarters, we anticipate G&A expense to be similar to last year on a percentage of sales basis before we gain leverage during the fourth quarter of 2016. Our tax rate in 2016 will be influenced by the accounting treatment of our deferred tax assets from Canada. While we are very pleased with the performance of our initial two locations in Toronto, particularly with guest acceptance, satisfaction scores and team engagement, which are some of the highest in the system, we have chosen to take evaluation allowance in Q1 on these deferred tax assets, which given a relatively low overall provision causes an outsized impact to our tax rate. As a result of this allowance, we estimate our effective tax rate for 2016 to be approximately 50% on a GAAP basis.

Excluding this allowance, we continue to estimate a rate between 38% and 40%. Importantly, while this accounting treatment will impact our overall tax rate, we do not anticipate there being any cash outlay of federal tax for full year 2016. As of the end of the quarter, there were $74.1 million in debt outstanding on a revolving credit facility and cash-on-hand was just over $1.9 million. We recorded $1 million in restaurant impairment, closure costs and asset disposals in Q1 of 2016, primarily the result of the lease extinguishment expenses related to the closure of 16 restaurants during Q4 of 2015. Our results in the first quarter, which typically has the most earnings pressure due to low seasonality, we're on target with expectations for our previously announced guidance for full year 2016, which includes revenue of between $505 million and $515 million, low single digit comparable restaurant sales, restaurant level margin of between 14% and 16%, adjusted EBITDA of between $38 million and $40 million or flat to 5% growth, and adjusted diluted EPS of between $0.04 and $0.08.

We are pleased with the progress that we made during the first quarter and continue to have confidence that we are positioned well if the margin profile becomes more favorable during the second half of 2016. I'd now like to turn it over to Kevin for final remarks. M. Kevin Reddy - Chairman & Chief

Executive Officer: Thanks, Dave. I would like to start my closing remarks by first thanking Phil Petrilli, our AVP of operations, who will be retiring from Noodles & Company.

Our search is underway for his replacement. Phil leaves a strong legacy and a very solid bench in our operations teams and Phil will be working closely with the team as we execute a strong transition plan and we wish him and his family as well. In closing, I would like to reinforce the following comments. The Noodles & Company brand remains one of the truly unique differentiated concepts with an industry leading connection to the most important and largest future demographic groups millennial parents and their families, a very real compelling position for the long-term. We are making the right investments to create long-term value and build same store sales, particularly in the areas of media, promotion, off-premise, people development, remodeling our older restaurants, as well as smart targeted infill growth in the right markets.

We have created the right plan focused on the most important objectives to build real enduring growth which is generating the positive momentum and green shoots already evident in this extremely competitive environment. And lastly, I'm pleased and confident with the teams' continued focus, objectivity, intensity and ability to remain persistent towards executing our shared expectations and making improvements. As always everyone, thank you for your time. We appreciate it and respect it very much. And operator, will you please open the lines for Q&A.

Operator: Thank you. And our first question comes from David Palmer with RBC Capital Markets. Your line is now open. David Palmer - RBC Capital

Markets LLC: Great. Thanks.

Good afternoon. I was wondering if you could touch on how you're trending with regard to take-out versus dine-in and dinner versus lunch?
David J. Boennighausen - Chief

Financial Officer: Sure, Dave. So from a take-out perspective, we continue to see increases primarily in the online ordering platform. That's been a little bit more driven in the lunch occasion as we've been trying to really target those folks that speed of service is so critical and really as we said online ordering is the throughput equalizer for us.

We've had a little bit more traction on that front. That's how we continue to believe there is a lot of opportunity in both day parts, actually to go is a little bit higher for us at dinner than it is for lunch because of families coming home and getting it on-the-go. So, we think there's opportunity across all day parts. David Palmer - RBC Capital

Markets LLC: And just building on that... M.

Kevin Reddy - Chairman & Chief

Executive Officer: Right now, most of that is being driven by online and the app with some organic growth in that. I think as we make some of the physical plan changes in that area we have to go and pickup that will help accelerate it as well. David Palmer - RBC Capital

Markets LLC: And just building on that. I know your – you will try to improve the prospects of getting delivery going. Could you talk about the future of delivery for Noodles, obviously your food travels well.

What are the challenges and opportunities you see with delivery? Thanks. David J. Boennighausen - Chief

Financial Officer: Sure. So, it's a somewhat fragmented marketplace when you think of all the different partners that are out there doing delivery. We do have a very strong partner in Olo, which is our online ordering platform.

We're working very closely with them to be one of their initial, if not their absolute initial first client to be able to utilize their platform from a delivery perspective. From the challenge perspective, I'd love Kevin to way in as well. I mean the most important thing is absolutely making sure that the guest experience is right. And that the food gets delivered correctly on time and hot. So that's something that we certainly are betting very closely with all of our perspective partners.

M. Kevin Reddy - Chairman & Chief

Executive Officer: Yeah. I think there is two realities. One as Dave mentioned, the third parties are a bit fragmented, it's a small percentage of the system, but where it can, it works well. The other area of opportunity is when does it make sense for us to deliver internally.

And we have – we've made adjustments to our policies to insurance coverages, we're putting some catering leads in restaurants, some local field community sales, specialist to help us to take advantage to mine those opportunities. And we now have the ability for some key team members to be able to participate in the delivery of some of those catering orders and to be compensated a little differently for that. I believe that's going to see us remove some of the current barriers that existed to that, and will give us a little more incremental lift and accelerate it at a slightly faster pace. David Palmer - RBC Capital

Markets LLC: Thank you.

Operator: Thank you.

And our next question comes from David Tarantino with Robert W. Baird. Your line is now open. David E. Tarantino - Robert W.

Baird & Co., Inc. (Broker): Hi. Good afternoon. Dave, could you clarify some of the components of what you're seeing so far in Q2. I think you mentioned that Easter benefit and then also extra pricing that you're expecting in Q2, so could you talk about what's in the number so far and then if you have an impact for the estimated weather impact, perhaps you could talk about that as well?
David J.

Boennighausen - Chief

Financial Officer: Sure, David. So, as a reminder, where we sit quarter-to-date from a company-owned perspective, we are at negative 0.2% from same-store sales. The Easter shift has been a benefit of, a little bit over a 100 basis points thus far in the quarter, then from a pricing perspective somewhat similar in terms of the benefits. Where we are seeing some drop has been, little bit in the industry environment, which as we look at our channel checks, as we look at Black Box has been showing some softening. We have seen our trends relative to Black Box actually improve from both the traffic and a comparable sales perspective.

The actual quantification of weather, haven't done a lot with that yet. I can tell you that Colorado in particular had snow about twice with the averages. I mean, it's unfortunately been coming on Fridays and Saturdays, which are our too busiest days, but we've not fully quantified that yet. David E. Tarantino - Robert W.

Baird & Co., Inc. (Broker): Got it. That's helpful. M. Kevin Reddy - Chairman & Chief

Executive Officer: Yeah.

David, this is Kevin. I think too, I mean, we think over the last four, four-and-half weeks, with the Easter shift and a couple of those storms in there, there's been a fair amount of volatility on a day-today basis. What we do feel comfortable with is that, the guidance that we had previously put out there is the right guidance and we should hold that guidance for the year. David J. Boennighausen - Chief

Financial Officer: Yeah.

The one final thing I'd mention when you think of the components of the quarter-to-date same-store sales is that our comparison was the most challenging that we have actually for the full year of 2015, if you look at the comparison – sorry, comparison was a positive 1.5%, quarter-to-date till yesterday and that gets softer as we go through the balance of Q2. David E. Tarantino - Robert W. Baird & Co., Inc. (Broker): Great.

That's helpful. And then I guess the comments implied that you haven't yet taken the price increase in Q2 or if you did, you took it very recently. So, I guess... David J. Boennighausen - Chief

Financial Officer: We took it recently.

That's correct. David E. Tarantino - Robert W. Baird & Co., Inc. (Broker): Okay.

Thank you for clarifying that. And I guess given the desire to get back to positive traffic and how choppy the industry has been, perhaps could you talk about kind of what's given you the confidence to take such a level of price increase, kind of move it up towards 2.5% and at this stage of the game and why not be more patient on that front until you see signs that traffic is starting to come back in a positive way?
M. Kevin Reddy - Chairman & Chief

Executive Officer: David, this is Kevin. I think we have been – historically I think you're aware, we've been very patient, we probably ran six years just slightly above 1% a year. What allows us to feel somewhat comfortable is we've got a lot of detail on our customer, OSAT scores, we read a lot of the comments, we stay close to the guests.

So, we see those improving. We also have been announcing some new menu news and new ingredients, improved ingredients, some more premium products in our newer recipe. So, we feel there's value there and we have some room based on both research and reaction within our test markets. So, it's a very good question, we're cautious about it, we don't think we've been piggish about it. We think it's also necessary in some of these markets with greater labor pressure.

David J. Boennighausen - Chief

Financial Officer: Yeah. And to add to that, I mean as a reminder, we actually went about 15 months without increasing price at all until the very, very tail-end of Q4, we did a modest increase. We introduced the Kids Meal. That was a very important part as Kevin mentioned with the menu and that really has had a very strong impact on our value proposition.

We did do a modest price increase. As we've shifted our strategy to have kind of three smaller chunks during the course of the year instead of one larger one, we should shift that strategy and have our first one really at the beginning of Q1. We monitored very closely to see how did that impact traffic, how did that impact mix, did not see a negative response to that, and that's continuing in the few weeks that we've had this most recent price increase, even as we've had that increase our gap relative to Black Box from a traffic perspective has improved. David E. Tarantino - Robert W.

Baird & Co., Inc. (Broker): Great. Thank you very much.

Operator: Thank you. And our next question comes from Andy Barish with Jefferies.

Your line is now open. Andrew Marc Barish -

Jefferies LLC: Hey, guys. Can you give us kind of where you stand on the investment sort of back into some food items and how that will shake out with the overall commodity basket for the full year?
David J. Boennighausen - Chief

Financial Officer: So from a food items perspective, we're about 80% contracted right now Andy. There's some produce items that we're not able to do so.

The commodity environment in general is relatively favorable. Where you'll see us mostly do investment is going to be in the steak product actually and I think you'll see in the summer actually us launch an antibiotic-free, naturally raised, actually a different cut that we feel really good, it's been testing incredibly well. So, that's going to be our next step from an investment in our food quality. As we said on the call, we still expect that we'll be able to actually get some leverage on the COGS line and get down to about 26.5% for the balance of the year, and that includes even the investment in steak. M.

Kevin Reddy - Chairman & Chief

Executive Officer: And we've factored that into the guidance and what we're forecasting in it. It's actually, I think in the environment that we're in and the outstanding work the supply chain team is doing, we're getting a good outcome to accelerate some of our objectives there. Andrew Marc Barish -

Jefferies LLC: And can you give a quick update on sort of Kids Meals and what impact that's had on the business if you care to quantify and then does marketing coverage kind of move up as you move through the year from that 35% to a somewhat higher level down the road?
David J. Boennighausen - Chief

Financial Officer: I'll address the Kids Meal and then if Kevin can talk on media and if we're going to expand beyond the 35%. From the Kids Meal, we have been very pleased with some of the results we're seeing in terms of increasing frequency, because we have seen that value proposition and the value scores from our family guest increase.

Difficult to qualify the absolute overall impact on same-store sales, but we have seen of those guests that are ordering Kids Meals that they are coming a little bit more frequently. M. Kevin Reddy - Chairman & Chief

Executive Officer: Yeah. On the 35% of the market, restaurants that are really receiving some of the more traditional broader media, that number is probably going to stay close to the same, maybe a tad of increase. We are touching a greater part of the system because we are clearly doing social, digital, and other channels, our EClub, and that's being activated across the entire system.

So, we're reaching probably closer to 45%, 50% easily of all of our restaurants, and it's only our smallest ones where we're really driving through local relationship marketing. David J. Boennighausen - Chief

Financial Officer: I think it's an important part of our infill strategy because what we're going to see as we develop and execute on that strategy is you'll have a lot more markets that will start getting into the economies of scale necessary to do more media. So, I'd expect over time that will continue to go up. Andrew Marc Barish -

Jefferies LLC: Thanks, guys.

Operator: Thank you. And our next question comes from Andrew Strelzik with BMO Capital Markets. Your line is now open. Andrew Strelzik - BMO Capital Markets (United States): Hey, good afternoon, everyone. M.

Kevin Reddy - Chairman & Chief

Executive Officer: Good afternoon. Andrew Strelzik - BMO Capital Markets (United States): I wanted to first ask, are there many metrics that you can provide about the Asian exploration and also the renovated Pad Thai? It seems like particularly on the Asian exploration it's more aggressive from a taste profile perspective than maybe some of the recent LTOs prior to that. And I'm wondering is that a bigger differentiator such that you're getting better performance and now you're talking about with the Veracruz, another kind of more aggressive taste profile. Is that kind of where the innovation is going because you're seeing better performance there?
David J. Boennighausen - Chief

Financial Officer: Yeah, it's a bit early to release product mix numbers and everything else, but what we are seeing, clearly I think a stronger profile.

We're reaching a little bit further in terms of the taste profile, spice levels, excitement around that, that is what we're hearing back from our guests is that they appreciate that, they like it, it's making the dishes a little more unique and a lot more craveable. So, I think you'll see the culinary team continue to push the envelope a little bit, still serve the mainstream with a twist. And you'll see that definitely in the Veracruz salad and the Napa salad. Andrew Strelzik - BMO Capital Markets (United States): And then you mentioned the pricing coming with menu news and now it's going to be accelerating. Should we read that as the pipeline of innovation is more robust or there's pretty significant news on the horizon or is there really no correlation there?
David J.

Boennighausen - Chief

Financial Officer: There is going to be absolutely more innovation. I think the Gochujang sauce that we incorporated into the Korean Meatball absolutely has other applicability through our menu. So, we are currently looking at an item that we could be launching in later this summer. And we will be going into more of a consistent, maybe a trimester approach to our LTOs, focusing on the salads next and then introducing potentially Gochujang sauce based item later on in the year as well. As Kevin mentioned, we're not going to sacrifice, though, some of the inherent strengths of the brand.

We have that with the Mac & Cheese, with the Pesto Cavatappi, and some other dishes. So, we felt that it was most critical to fix the Asian and salad lineups, which we really have actively done. And then you might see us move more towards really reinforcing some of the inherent strengths in some of those comfort items. Andrew Strelzik - BMO Capital Markets (United States): And then my last question you mentioned the first foray into TV. And I'm wondering, your perception of how that was received and if may be that might open up new or maybe more select, but still new marketing opportunities going forward? Thank you.

David J. Boennighausen - Chief

Financial Officer: Yeah. I think it does. We're running in a midsize market. Certainly, I think what – when you can impact all the senses of sight and sound, and everything else through TV, I think our food and experience communicate in a much more impactful way and we're looking for ways in some of those medium to small markets where we can buy that channel more efficiently to maybe put some more muscle behind because we definitely are seeing awareness go up and traffic go up in a measurable way.

M. Kevin Reddy - Chairman & Chief

Executive Officer: Yeah. And I think that the brand positioning that we launched last fall was made different and then that's what we think makes us so special. And TV is a great avenue for us to really get across those aspects as Kevin mentioned. Andrew Strelzik - BMO Capital Markets (United States): Great, very helpful.

Thank you very much.

Operator: Thank you. And our next question comes from Jason West with Credit Suisse. Your line is now open. Jason West - Credit Suisse Securities (USA) LLC (Broker): Yeah.

Thanks, guys. Dave, I just want to clarify the pricing comments. I though you said you're running 1% quarter-to-date, but you took the price increase a few weeks ago. Just trying to understand if I heard that right?
David J. Boennighausen - Chief

Financial Officer: Yes.

We ran 1% during Q1. And then when you compare Q1 to Q2, we layered on an additional about 1.5%. So the full quarter for Q2 is going to be in the neighborhood of 2.5% year-over-year and then we might have a very modest price increase one more time later on this year. Does that help or...?
Jason West - Credit Suisse Securities (USA) LLC (Broker): Yeah but the other 1.5%, the new 1.5% was taken earlier in April, it sounds like. David J.

Boennighausen - Chief

Financial Officer: That's exactly right. It happened a couple of weeks ago. Jason West - Credit Suisse Securities (USA) LLC (Broker): Okay. Got it. And then bigger picture, it'd be helpful to get your guys' perspective on what you think is happening with the industry.

Is the weakness you've seen in April, was that similar to what you saw in March, you were already seeing that, or is this a new phenomenon? Do you think it's really concentrated in the weather markets, like Denver? Are you seeing a more broad-based industry trend in this direction and in some of the other markets where you guys operate? I think you guys have better visibility on the segment Black Box and things like that than we do. David J. Boennighausen - Chief

Financial Officer: Yeah. I mean, there is so much noise when you look at just a four-week or five-week timeframe. You had the Easter shift, which has its own impact there has just on that particular day, but that can often linger in for a little while after that.

Weather certainly has hit in some of our markets. March was relatively strong. So we didn't see any softening necessarily there, I can't say as we talked about the Black Box Index and indicate some softness during Q2, I think some of our other folks in the industry have also been pointing to a little bit of softness as well. But again, it's only four weeks to five weeks, Jason. So we don't – we've seen a little bit of momentum in the right direction in the last several days, but it's a pretty small sample size.

Jason West - Credit Suisse Securities (USA) LLC (Broker): Yeah, I think the assumptions within your question are more right and wrong. Clearly, it's the deceleration was it – happened a little more in April and not so much in March. A little more skewed towards markets that had some severe weather and some storms. And I think the other industry factor is that the promotional activity and levels tended to pick-up much more aggressively in April across the sector as instead of the first quarter with maybe the notable exception of one brand that's been heavily discounted. M.

Kevin Reddy - Chairman & Chief

Executive Officer: Yeah. The only other thing I would add to that was when you look at the comparisons in two year growth, this was our most difficult comparison was in April. And I think the industry also probably had some more challenging comparison. So, I think from a two year perspective, it might not be as off as it may first appear. Jason West - Credit Suisse Securities (USA) LLC (Broker): Okay.

That's helpful. And then you mentioned there another large brand that's had some issues. On the last quarter you said if you look, you're not seeing any real statistical difference when you're near that brand or not. Just if you can give an update on if you're seeing any benefit or detriment as Chipotle is trying to fix their issues? Thanks. David J.

Boennighausen - Chief

Financial Officer: Again, we have a large amount of our restaurants that are within a quarter mile to Chipotle and as we've sliced and diced and analyzed our restaurants that are in their trade areas, we have not seen any difference in their performance relative to others. So, we don't currently see anything, Denver is an interesting case study I think for the entire fast casual space. At the same time, when you look at Black Box, it had been slowly declining before any news broke out last fall. So, it's hard for me to really gauge if there has been an impact. M.

Kevin Reddy - Chairman & Chief

Executive Officer: Yeah. I don't think we have any more specific data to come to a different conclusion than that. Jason West - Credit Suisse Securities (USA) LLC (Broker): That's helpful. Thanks.

Operator: Thank you.

And our next question comes from Jake Bartlett with SunTrust. Your line is now open. Jake Rowland Bartlett - SunTrust Robinson Humphrey, Inc.: Great. Thanks for taking the question. Dave, just to start, and I hate to go back to the pricing, but I'm still a little bit confused about the cadence of when you took the pricing, because feels like second quarter, if you just took 1.5 point and you started with 1 point, then you're not going to have 2.5% as an average throughout the quarter.

But the real reason for the question is because it seems like you're taking less pricing than you intended to as of the last call. So is that right, that before I had it that you were going to take 2% to 3% in the second quarter, had taken some additionally in the first quarter. Maybe just clarify those two things, whether you've dialed back your pricing strategy a little bit and maybe just clarify exactly when you're taking this pricing?
David J. Boennighausen - Chief

Financial Officer: Yeah, sure. Absolutely.

So, the 2.5% – we're running really just barely north of that as we said two day, like 2.6%, 2.7% in that range. So, the 2.5% that you see is a weighted average for the second quarter. From dialing back, yeah, there was a little bit, we expressed it, the range of where we expect that we could land. We did ultimately decide to go on the low end of that range, looking at some of our traffic trends that were going in the right direction, we wanted to continue that momentum, the commodity environment was becoming more favorable. So, we did end up on the lower end of the range that we discussed at the last call.

Jake Rowland Bartlett - SunTrust Robinson Humphrey, Inc.: Okay. And then to clarify the Black Box data out of Colorado and Denver, is that indicating that fast casual is losing share from the overall pie and others, like QSR, are gaining share?
M. Kevin Reddy - Chairman & Chief

Executive Officer: It's so hard to tell because fast casual, Black Box has a very large presence there, but at the same time, they don't have one or two of the largest names. So, I think I'd be – it would be inappropriate for me to say what's going on from the overall category perspective. Jake Rowland Bartlett - SunTrust Robinson Humphrey, Inc.: Okay.

And then maybe if you could talk about some of the changes you're making on the marketing front and the messaging. It sounds like you're going more towards product-specific traffic driving message. But you also made the comment that you're thinking of doing that in some of the other markets. Maybe just discuss the reasoning for that. Are you moving away from the Made Differently message or the more wholesome food message or anything like that, or anything we should read to your marketing strategy?
M.

Kevin Reddy - Chairman & Chief

Executive Officer: Yeah. It's a good question for clarification. We deeply believe in how we launched or made different brand positioning. That is going to live through everything that we do. We clearly have it online and in video and social and digital.

What we believe is more appropriate is to tell that story in conjunction with new menu news. So, what we're doing is making it more – we're building on that same foundation with specific new menu news, new product launches, new and improved ingredients where it make sense. We believe those more specific messages tend to fall more into traffic driving and promotional activity than more simply brand building. So, that's how we're doing it. We're not leaving it, but we're making it more specific and elevating it to a more actionable place.

So, we see it as the natural continuation of the brand positioning. Jake Rowland Bartlett - SunTrust Robinson Humphrey, Inc.: Great. And then last question, I might have just missed it, but did you mention what you expect or what you've seen from the remodels and what impact you've had on sales, the sales lift, and also whether these 75 units are going to be all company-owned over the next two years?
David J. Boennighausen - Chief

Financial Officer: So, the 75 restaurants you're referencing are on the company side. We're working with our franchise community, sharing our best practices in what we've learnt, so they will be able to follow suite.

We haven't disclosed what the actual overall impact is. I think generally the research that we've done and when we've done re-models in the past as you'd be looking for about a 5% lift on $100,000 type investment, and we're right in the ballpark there where we'd expect to be and we think we can actually increase that as we start incorporating more merchandising and to go elements but unfortunately Jake, it is little bit too early to really understand what the overall impact is going to be on the system from a sustained perspective. Jake Rowland Bartlett - SunTrust Robinson Humphrey, Inc.: Got it. Thank you very much.

Operator: Thank you.

And our next question comes from John Glass with Morgan Stanley. Your line is now open. John Glass - Morgan Stanley & Co. LLC: Thanks very much. Just first back to the second quarter, based on your comments where pricing is now and quarter-to-date comps, is it your expectation that traffic will be declining at a higher rate than in the first quarter and the second quarter?
M.

Kevin Reddy - Chairman & Chief

Executive Officer: Yeah, I think ultimately John, I think it's early to tell. There has been so much movement from an Easter perspective and some of the holiday shifts. And again the comparison gets significantly easier as you go through the balance of the quarter. So I would not necessarily say that we expect to have a traffic decline. Quarter-to-date through Q2, relative to Q1, yes, the math absolutely shows there has been a decline, but I think from a two year perspective, we've been pretty consistent.

So we think the full quarter absolutely could still be showing the upward momentum. John Glass - Morgan Stanley & Co. LLC: Okay. And if Denver is a little off from a market perspective, were the other markets, or what other markets were offsetting it from an improvement standpoint this quarter, last quarter?
M. Kevin Reddy - Chairman & Chief

Executive Officer: Where we're seeing the most positive momentum has been in the markets where we're either doing the infill strategy and building brand awareness and those efficiencies or they've been in the markets where we've been doing media.

Those have been the two areas and one reason why we're continuing to execute that strategy that we've described earlier. David J. Boennighausen - Chief

Financial Officer: And I just want to make a quick comment about Colorado because, it means clearly a market that's under a little more pressure nationally and within the sector, but a couple of reasons why, I'm confident we're going to show improvement in Colorado and consistently throughout the rest of the year. I mean, first and foremost, I mean it's a market where we have excellent top of mind awareness. We really have outstanding real estate here and a great footprint.

I think we're entering the summer with one of the strongest operating teams we've had in the last few years. We're clearly supporting a competitive environment with media and promotion and the remodels that we're doing, I think are smart and targeted. So, all those things on top of a market that may be under pressure. But at its core and foundation is an excellent market with good brand awareness and excellent economies of scales. It gives me confidence that we got the right things within a very difficult environment to improve over our peer group.

John Glass - Morgan Stanley & Co. LLC: Then just lastly, 2017 development, I know you talked about early this year, front loading it, and you said it's going to be lower next year. Where are you in the thought process about 2017 now? Has there been changes on how you think about what you want to spend on restaurants on a per restaurant basis or finding prototypes, just given maybe a newer reality of lower EVs? Any thoughts on either of those, please?
M. Kevin Reddy - Chairman & Chief

Executive Officer: Sure, so we'll start with the 2017 pipeline in general. So, we absolutely are shifting some of our capital allocation from new restaurants into more remodels.

You can expect a slower growth rate in 2017, John, than what we saw, what we expect to see in 2016, it'll still be meaningful, it'll still be in that mid-to-high single-digit range. That said, we're focusing on the infill of existing markets. And when you have an infrastructure that already has 35 states, as well as Toronto, really talking about one restaurant per market on average and most of the markets not having any more than maybe two. So, feel very comfortable with where that pipeline is. From a prototype perspective, of course we constantly evaluate where we have opportunity to improve the economics and the efficiencies of our build-out.

We have been doing more food courts, and we've been very pleased with some of the results that we've been seeing there. So that's something that we are pursuing a little bit more aggressively, but overall, we feel like the box economics are in a reasonably good spot as we look at the infill of existing markets. John Glass - Morgan Stanley & Co. LLC: And just lastly – go ahead. M.

Kevin Reddy - Chairman & Chief

Executive Officer: I was going to say the development team has done a very, very good job at being predictable and hitting the numbers that are in the RESAC package, and they're continuing to look for efficiencies, not just to lower the cost of the investment, but as we look longer term with the labor pressures, it's an area for us to make sure that the back of the houses are as small, as efficient as possible, that we have equipment that allows us the highest productivity and the amount of steps between each station of what you need is as tight as possible. So, there's clearly a lot of critical thinking going on there. But not a conscious effort to say we need a smaller box, because AUVs are stabilizing, we still expect to build AUVs and we want to build the appropriate size box for that opportunity. John Glass - Morgan Stanley & Co. LLC: And I'm sorry, I promise my last one.

Any opportunity to refranchise those sub scale markets? Is there a market to refranchise those markets so that you don't bear that cost of building it out?
M. Kevin Reddy - Chairman & Chief

Executive Officer: We've looked at and continued to look at the markets to make sure that is it worth the investment to get economies of scale. Can we get there in a reasonable timeframe? We're talking to both new franchisees and existing franchisees where we think we may grow slower. And it might make more sense for somebody else to have a more efficient G&A, but nothing specific on the horizon going forward. We still believe that we'll be predominantly company-owned, but we are fortunate to have a small but exceptionally impressive group of entrepreneurs and we think we'll just keep looking for those great entrepreneurs and find the right fit, when we come across them.

John Glass - Morgan Stanley & Co. LLC: All right. Thank you.

Operator: . And our next question comes from Joe Buckley with Bank of America Merrill Lynch.

Your line is now open. Joseph Terrence Buckley - Bank of America

Merrill Lynch: Thank you. Just a couple of follow-ups. I think you mentioned it was an LTO mismatch in the second quarter, somewhat behind the relatively slow sales in April. Is that correct? And if so, could you just elaborate on that a little?
David J.

Boennighausen - Chief

Financial Officer: Sure, so last year at this time, Joe, we did launch the BUFF Bowls. I mean our BUFF Bowls have had a nice steady niche audience. We did a good amount of promotion when we originally launched those at the very beginning of Q2 of last year. This year the salad launch that Kevin discussed, that is going to be later on in May. So from a timing perspective they didn't quite overlap; one reason why we had the tougher comparison during April.

Joseph Terrence Buckley - Bank of America

Merrill Lynch: Okay. And then would you have handy what, I think you mentioned off-premise sales were up to 43% and online sales 6% in the first quarter. Do you know offhand what those percentages were in the first quarter a year ago?
M. Kevin Reddy - Chairman & Chief

Executive Officer: Sure. So from an online perspective it was about 3.5% and overall to go was in the 41-ish% range, since it's been up a couple hundred basis points.

Joseph Terrence Buckley - Bank of America

Merrill Lynch: Okay. And it seems like you are promoting the online pretty aggressively. Could you talk a little bit more about that and how you're trying to convert more of those off-premise customers to doing it online? And maybe connected to that, is the catering, can you do the catering online yet or is that still the toll-free number?
M. Kevin Reddy - Chairman & Chief

Executive Officer: We do have catering online and we are definitely promoting it through the website and everything else. The targets to build it really, we mentioned Leap the Line and the Tax Day Promotion, those have been very strong.

So, we're going to continue doing that. We're clearly targeting high volume lunch businesses. We've got our teams talking to those guests. We're pinging them where we can through social, digital media. So, it's really a much more aggressive outreach targeted to that super heavy user of that space.

And I think we'll just continue to see it grow organically. David J. Boennighausen - Chief

Financial Officer: Yeah. The only thing I would add to that, on the catering side, there are platforms that do delivery on catering. Our food does do well when it's the small, we call it a-la-carte catering.

When you have a full buffet though, like when we're doing a very large group, when you're doing a graduation party, something along those lines, we do think the human touch of being able to be there, set it up, talk to the guests, make sure that everything is going well, that's something that you don't necessarily want to outsource. So from that perspective, we're still developing more so on the internal mechanisms, internal processes that allow us to execute the catering offering. Joseph Terrence Buckley - Bank of America

Merrill Lynch: Okay. And just last one, you mentioned delivery at some of your best stores, it's a 15% mix. What kind of stores are those? Are those urban stores or any particular characteristics standout?
M.

Kevin Reddy - Chairman & Chief

Executive Officer: Generally, they're central business district locations, college locations also we see some nice success from a delivery perspective. Joseph Terrence Buckley - Bank of America

Merrill Lynch: Okay. Okay, that's helpful. Thank you. M.

Kevin Reddy - Chairman & Chief

Executive Officer: Thanks, Joe. David J. Boennighausen - Chief

Financial Officer: Thank you, Joe.

Operator: Thank you. And our last question comes from Keith Siegner with UBS.

Your line is now open. Keith R. Siegner - UBS

Securities LLC: Hey. Just a quick one on value. With the fourth quarter numbers, you talked about how the value scores had gotten better, after lagging, the kids meals had helped to kind of cement in that value proposition.

First quarter, we saw a huge change in the industry's approach to value, significantly more competitive behavior. You talked about you're taking less pricing than you originally discussed, but it's still a good amount of pricing. How do you think you stand in terms of relative value position now? Do you have any contingency plans in case this tough value focus continues a little longer against weakening industry conditions? Where do you stand on value and what's the plan? Thanks. David J. Boennighausen - Chief

Financial Officer: So, I would start off.

I think certainly we do have a pretty smart and really nice plan when it comes to promotion. So, you saw some that Joe alluded to in terms of our online promotions that we've been using with our email database we have been utilizing a little bit more direct mail. So, from a promotional perspective, without discounting the brand to the extent that it would impact the value proposition, we certainly have been very targeted from that perspective. Also we're in the nascent phases of a loyalty program, which we've looked at actually be potentially testing in the next couple of months. That's something we think would be absolutely a very important vehicle and really driving home the value proposition and building guest engagement with our customers.

M. Kevin Reddy - Chairman & Chief

Executive Officer: Yeah. And we believe from the research and data that we're collecting is that, our kids meal has really strengthened the value with probably one of the most price sensitive groups out there, which is the family. So, we feel good about what we've seen there and the reality is I know there's always a lot of talk between how related is price to value. There is certainly correlated but we also have seen that strong operations, exhibiting the behaviors that create great hospitality and becoming someone's favorite restaurant that better your core operations are the better you are at those areas.

They positively impact value ratings. So it's not just price, we're keenly watching that indicator, but as our other measures around customer satisfaction and OSAT scores improve, we feel confident there. The right metrics are headed in the right direction. Keith R. Siegner - UBS

Securities LLC: Thank you.

Operator: Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day. David J.

Boennighausen - Chief

Financial Officer: Thank you, Jamie. M. Kevin Reddy - Chairman & Chief

Executive Officer: Thank you.