Operator: Good afternoon, and welcome to today’s Noodles & Company Third 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 Executive Vice President and General Counsel, Melissa Heidman.

You may begin.

Melissa Heidman: Thank you, and good afternoon, everyone. Welcome to our third quarter 2020 earnings call. Here with me this afternoon is Dave Boennighausen, our Chief Executive Officer. I’d 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 that 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 third quarter 2020 earnings release and our supplemental information. Now, I would like to turn it over to Dave Boennighausen, our Chief Executive Officer.

Dave Boennighausen: Thanks, Mel, and good afternoon, everyone. I look forward to sharing with you today the continued progress that Noodles & Company has made since the onset of the COVID pandemic and our excitement with the opportunities that lie ahead. Before I discuss that though, I would like to share how incredibly proud I am of our team members and partners for their continued commitment to providing delicious meals prepared safely, quickly and consistently at our restaurants across the country. Our team has never been stronger and their dedication has allowed us to navigate through these challenging times and gives us confidence in our ability to take advantage of the opportunities ahead. Of course the health and well-being of our team members and guests remains our company’s top priority, we continue to actively monitor and follow local and Federal mandates related to COVID-19 and are committed to remaining a leader in the fast casual space in our health and safety protocols.

We believe that our approach has increased trust and brand equity with our consumers which is evidenced by our sales recovery, as well as improvements in guest sentiments that has occurred during the past several months. Although there remains uncertainty around the duration and severity of COVID-19, I have never had greater confidence in our opportunity to thrive and accelerate growth in the years to come. Today, I’d like to focus on three key areas of our strategy to take advantage of this opportunity. First, continued differentiation of our concepts to appeal to a broad range of lifestyle, convenience and dietary needs. Second, activating our brand, particularly through our digital assets and marketing strategy, and third, accelerating unit growth to take advantage of the operating model, we feel is perfectly suited for a post-COVID world.

I’ll start with how we intend to capitalize on the unique strength of the brand. As you know, we are the only national chain delivering world flavors through a core menu focused on noodles and pasta. The variety inheritance of our menu has been and will continue to be a meaningful strength of the brand as we offer favorites from kids to adults healthy to indulge in and flavors both familiar and new. Aside from the great variety in our menu, unlike many of our competitors, our food travels extremely well and given our relatively low price point and strong speed of service, Noodles is particularly well suited to take advantage of the increased need for convenience from today’s consumer. As we discussed in the past, 60% of our sales were off-premise even prior to the COVID pandemic.

Clear evidence of how well our concepts and menu meet that need for convenience. While during the initial stages of the COVID pandemic we are focused on amplifying our core menu we sense we return to our standard disciplined process for menu innovation. We believe there remains significant opportunity for us to broaden reach and frequency through menu innovation, while at the same time simplifying our existing menu and reducing our necessary execution hurdles for our operations teams. The item currently in trust that we are most excited about is our cauliflower gnocchi, which we expect to roll out nationally during the first quarter of 2021. For years, our guests have requested a gnocchi offering and what we particularly love about the item we are testing is that meets all of the flavor and texture expectations the guests had come to expect from Noodles & Company, but also offer some additional plant based alternative on our menu which is low carb, low calorie, gluten free and contains a full serving of vegetables in each regular portion.

The gnocchi will be well suited for many of our classic pasta sauces and will be featured with our roasted garlic sauce which has the highest taste of food score of all sauces on our menu. We are confident that the cauliflower gnocchi will broaden the appeal of our brand, particularly with our attractive target market. Noodles & Company’s core audience is comprised of individuals who see great flavors delivered fast and easy. The brand over indexes with both millennials and generation Z with notable strength with young families. This overall variety of our menu, the ease and quality with which our food travels and our natural appeal to families have been evident during the pandemic, especially as it relates to our dinner sales.

As we reported in October 1st, our company comparable restaurant sales in September returned positive with a 1.1% increase. Despite continued limitations on our dine-in capacity, our afternoon and dinner dayparts have been especially strong with growth of 4.8% and 7.3% respectively in September. Our dinner strength gives us increased confidence and we will be well positioned for outside sales growth as consumer patterns ultimately normalize in a post-COVID world. While we do expect that there will remain a work from home trend that continues after the pandemic, resulting in continued industry pressured lunch, we are actively working on a refresh of our salad category to position us to capitalize on increased lunch demand for those who do return from more traditional lunch patterns. While we do not anticipate our salad category refresh to be launched until late spring of 2021, in the mean time we are utilizing the launch of fruit ordering, as well as other digital enhancements to meet the increased needs of those working from home or doing online learning with their children.

As we continue to further differentiate the brand for today’s environment, I would now like to move to our second strategy surrounding activating the brand, particularly through our digital capabilities. Digital sales during the third quarter increased to 151% versus the prior year and accounted for 61% of total sales. We continue to elevate our digital properties during the third quarter including the aforementioned launch of group ordering. Our digital assets have allowed us to improve the effectiveness of our marketing strategy as we better target our guest and more effectively engage with them through our rewards program despite a cluttered social media environment, we have seen a meaningful increase in the open rates of our email communications, a decrease in the cost per acquisition of our media spend, and improved engagement with our social media content. While our rewards program has grown to over 3.2 million members, we still feel we are in the very early stages of utilizing the program to understand and engage with guests at a more personal and targeted level.

We expect the program will be an important catalyst for sales growth over the next few years, as we elevate our engagement and form deeper, more personalized relationships with our guests. During the third quarter, about half of our digital sales came through delivery with the remainder coming from order ahead quick pickup and curbside channels. We continue to optimize all of our digital channels and anticipate technological enhancements to our curbside pickup, as well as continued optimization of our digital marketing mix during the fourth quarter. Importantly, digital momentum remains strong thus far in October with digital mix at 58% of sales. With our increase in delivery sales there of course comes increased pressure to the P&L through delivery fees.

During the third quarter, delivery fee cost was 5.5% of sales, an increase of 390 basis points versus the prior year. Currently, we maintain an approximate 10% price premium for guests that are ordering through third-parties that was launched in Q4 of last year. We’ve not seen resistance to that price premium and are currently testing an additional 5% price premium that we expect to expand nationally by the end of 2020. As a reminder, we do not currently incorporate a price premium for delivery orders that are made directly through our own digital properties and we continue to optimize to move delivery orders into our own channels which bring with an improved guest engagement, as well as lower costs. Although delivery has definitely placed some pressure on our margin, we remain pleased with our delivery in digital in general had accelerated brand awareness throughout the country, particularly in markets where we have less saturation.

New customers are being attracted to the brand as this access has increased. As an example, our Northern California and Arizona markets which has nine and five restaurants only respectively, recorded comparable sales of 35% and 32% during September. The ability to use technology to activate the brand and increase awareness in newer trade areas or less saturated markets gives us even more confidence in our third strategy which is to accelerate our unit growth. We continue to believe that there will be meaningful disruption in the real estate environment for restaurants in coming years. And we are excited about the opportunities for us to take advantage of that disruption with a more efficient off-premise oriented footprint.

Our new restaurants continue to be our best performing class in the history of the company, bolstered by two restaurants open thus far in October, that have performed strongly including one restaurant in Wisconsin that has set new records for sales during our first seven, 14 and 21 days of operations. Like many of our new restaurants, this particular restaurant includes our order ahead drive-thru pickup window, which has proven very beneficial in meeting increased need for speed and convenience from today’s consumer. 78% of digital orders for this location have been processed through the drive-thru window and average time has been an impressive 62 seconds despite their tremendous volume. We continue to target at least 70% of new restaurants to include the order ahead drive-thru window in their construction. These types of numbers gives us greater confidence not just in a reduced square footage in general, but additionally in the potential for test materially cost-effective build outs that only incorporate off-premise and/or digital sales.

We are also exploring virtual restaurant or those kitchen alternatives which could provide certain high density or rental opportunities that we did not feel viable even a few months ago. We are directly building a robust development pipeline and have recently bolstered our team with three new hires to advance both our company and franchise development strategy. We continue to target at least 10 to 15 restaurants open system-wide during 2021 with a target of at least 7% annual unit growth beginning in 2022. In the current environment while it’s difficult to reliably anticipate exactly how the recent disruption will influence timing and availability of real estate, we do feel well positioned to take advantage of additional growth opportunities as they arise. This opportunity is supported by our strong balance sheet.

During the third quarter, we paid down a significant amount of our borrowings and as of September 29, the company had $8.6 million of cash on hand, net borrowings of $44 million. The company currently has $52.3 million available for borrowing under our revolving credit facility. Our net debt of $35.4 million at the end of Q3 was a small increase relative to the end of Q2, but did incorporate catch up on rent and other obligations after the completion of generally favorable negotiations with our landlords and vendors. Just as importantly, our growth opportunity is supported by our strong team. For the past few years, we’ve invested in building our pipeline and culture as a competitive strength.

We continue to see significant improvements in our turnover trends and have built a dedicated robust pipeline of future leaders with great tenure and knowledge of the Noodles brand. We continued this investment in our teams through targeted, relevant and industry-leading benefits. To that end, we recently announced several benefit enhancements including the availability of free in-person and virtual counseling to support mental health supporting team members growing families by offering six weeks of paid maternity and paternity leave, as well as providing assistance for surrogacy and adoption. Our strategies around further differentiation of the concepts, activation of the brand, and accelerated unit growth would not be possible without our tremendous team members, but I am extremely humble that the opportunity to work alongside them should meet our collective tremendous potential. Now I’d like to turn this in detail on our third quarter results and expectations for the balance of 2020.

As we pre-announced on October 1st, we reported revenue of $106 million, a 10% decline over the prior year. Comparable sales declined 3.8% system-wide for the quarter compared to the 3.6% decline at company-owned restaurants and the 5% decline at franchise locations. Our company comparable sales decline included a 150 basis point negative impacts due to closing for the 4th of July weekend. As noted in our earnings release, comparable sales improved throughout the quarter culminating in a 1.1% comparable sales increase and a 2.4% increase in average unit volumes over prior year in September. I am happy to report that in over half of our markets, we continued to see sequential improvements in trends from September through to October despite increasing COVID trends throughout the country.

Comparable sales are roughly flat quarter-to-date and we continue to see average unit volume growth versus prior year. Currently, just over 85% of our restaurants are open for limited in-restaurant dining and while we expect there may be more restrictions in coming weeks and months, we remain very confident in our ability to navigate those restrictions and be positioned for outside sales growth in a post-COVID environment. Third quarter restaurant-level margin was 15.4%, a decline of 170 basis points versus the prior year. Like comparable restaurant sales, margins did improve throughout the quarter with restaurant-level margin flat year-over-year at 16.5% in September. We are proud of the efforts of our teams to improve efficiencies throughout the operating model as that has allowed us to overcome much of the impact of the increased delivery fees associated with digital sales, which as I noted earlier increased 390 basis points versus prior year to 5.5% of sales in the third quarter.

In the third quarter, the company recorded adjusted EBITDA of $7.7 million and adjusted earnings per diluted share were $0.01. Looking to the balance of 2020, of course there remains uncertainty in the current environment, and we remain focused on building sales volumes and optimizing our model, while making the appropriate adjustments for COVID-related restrictions and capacity constraints. While we are pleased with our continued momentum, we do see early uncertainty surrounding COVID, makes it difficult to provide comparable sales guidance for the remainder of 2020. As a reminder, during the fourth quarter, total revenue year-over-year will continue to be impacted by nine locations that were refranchised earlier in 2020, as well as six restaurants that have closed since the beginning of Q4 2019, primarily sites rather approaching their lease end and were not well situated to meet the changes – changing needs of the consumer trends. Few additional locations that are located in areas that have been particularly impacted by the restrictions in place remain closed.

Finally, we continue to experience temporary restaurant closures related to the restrictions and the COVID pandemic, typically only for a day or two as we ensure the ongoing safety of our team members and guests. Collectively, we expect these circumstances to negatively impact revenues year-over-year by approximately $6 million to $7 million during the fourth quarter. Of course, as we lap closure and refranchising activity and ultimately exit the pandemic, these temporary impacts will abate and position the brand for meaningful revenue growth. As a reminder, averaging these volumes which normalize for these impacts were roughly flat year-over-year during Q3 and our AUVs are growing versus prior year thus far in October. From a margin perspective, assuming no meaningful change in restrictions related to the current pandemic, we expect our margins in the fourth quarter to be modestly below prior year with significant improvements in labor and our overall model being offset by the impacts of increased delivery fees.

We do feel that we remain well positioned as we optimize our operating model, particularly regarding delivery channel to have a more efficient and profitable economic model in a post-COVID world than we enter in the pandemic. Before we open the call to questions, I would like to reiterate my thanks to our teams throughout the country and my confidence in the future of Noodles & Company. We have a differentiated concept, particularly well suited for short and long-term consumer trends. The digital strength further activate the brand and the tremendous growth opportunity ahead of us. While 2020 has certainly been a remarkably challenging year for the country, I do feel that Noodles & Company has risen to the challenge, cemented our brand with our team members and our guests and positioned ourselves to be a clear winner for the years to come.

With that, Suwanda, please open the lines for Q&A.

Operator: [Operator Instructions] Our first question comes from the line of Jake Bartlett with Truist. Your line is open.
Jake Bartlett : Great. Thanks for taking the questions.

Dave, my first one is on the October quarterly or month-to-date of flat and you mentioned that 50% of the markets are doing better and 50% are doing worst. Can you give any more detail around that? Maybe what is – can you comment with the stores that are doing worse than net average?

Dave Boennighausen: Sure. I think, we’ll start from the geographic perspective. So, obviously, Jake, as you follow the industry and others who follow the industry, the segments of the country are behaving differently in terms of their impact on the restaurant space, well known that the northeast particularly impacted. The upper Midwest has been probably right behind the northeast in terms of the impact the COVID has had on sales and there were recent restrictions that were implemented in several counties in Illinois.

What we are seeing is that we have a large number of our restaurants that are in the upper Midwest states, particularly in Minnesota, Wisconsin and Illinois. They continue to lag beyond the rest of the country just as we are seeing with the rest of the industry. I think encouragingly, we are not seeing any change in the trajectory of their business from October versus September. So that gives us quite a bit of encouragement. Where we are seeing particular strength on the other side of the equation continues to be those markets that don’t have much planned awareness that people are really beginning to understand, discover and gain affinity and loyalty to our brands.

So I had mentioned Northern California and the Phoenix markets, those continue to be great strong points as our several other areas that we are seeing that brand awareness really start to kick in.
Jake Bartlett : Got it. And I think as of the last business update that you gave in early October, you mentioned that you would just reopen some company-owned stores for indoor dining. Just by the commentary in October it doesn’t seem like that had a huge impacts, maybe if you could just give us a feel for how the stores have performed as you’ve reopened indoor dining? And I think within that maybe you could frame what the risk is if restrictions come back?

Dave Boennighausen: Sure. Ultimately, dine-in still only was about 5% to 10% of our sales during the third quarter and we continue to see that thus far in Q4.

I think one thing that’s important to note is that, as we enter the winter months, we already talked about the preponderance of restaurants that we have in the upper Midwest. Our brand actually becomes less – on dine-in when you get to the winter months as we see more people shift towards off-premise and enjoy the food in their own homes. We already have significant strength there. So, and I am not sure we’ve not seen a significant – we’ve seen some incremental lunch business from the opening of dining rooms if that potentially were to go the other direction, we feel very comfortable that we are well positioned to actually still maintain some nice improvement in our sales trajectory.
Jake Bartlett : Got it.

And then, last question is moving on the drivers of same-store sales from here going forward. Wondering if you could frame kind of what you think are going to be most impactful. Whether it’s menu innovation with gnocchi coming on? Or whether it’s kind of finally be able to really utilize your customer segmentation in your rewards database? Maybe just kind of give us some of the drivers and what you think are going to be most impactful?

Dave Boennighausen: Yes. I think, I’ll start with what’s the foundation and the foundation is our team members and our operational strength which we would put up against any in the industry and very happy with our team and how they continue to rise for the challenge. And specific to new initiatives, I would expect that our marketing channel mix will just continue to improve.

We have had some great success in terms of lowering cost per acquisition and improving our email open rates, improving the content engagement. But we are at the very early stages. So there remains quite a bit of upside that I think will carry us through not just Q4, really several years into the future. Also honestly feel we are in the early stages of some culinary innovation. I think the gnocchi that the cost for our gnocchi I discussed on the call really can be a very meaningful driver for us given its, not just health profile but its taste profile as a plant-based alternative that is low carb, that is low cal, gluten free, full serving of vegetables.

So, I think there is culinary innovation there really across every segment of the business, we continue to see there being opportunity from the digital engagement to culinary innovation to even things like, reducing some of the friction from our curbside experience.
Jake Bartlett : Great. Thanks a lot. I appreciate it.

Operator: Thank you.

Our next question comes from the line of Nicole Miller with Piper Sandler. Your line is open.
Nicole Miller : Thank you very much. A quick housekeeping and then, I’ll get to a question if that’s okay please?

Dave Boennighausen: Absolutely, Nicole. Nicole Miller : On October flat for the system, if I go back and piece together the pre-release and then what I heard today, can that still imply company is up and franchise is down a little?

Dave Boennighausen: Not necessarily.

There is some geographic impacts. As we said the upper Midwest. It is similar kind of company relative to franchise, but the geographies continue to be a challenge on that franchise number. As a reminder, we have a smaller segment of franchise restaurants that are in the same-store sales base and one of those are in the upper Midwest. But ultimately, you can assume that – kind of that comparison of company to franchise is similar.

Nicole Miller : Okay, great. And then, price and mix within comp, I think you’ve been talking about those together. It’s been running around 3% to 4%. Has anything changed there?

Dave Boennighausen: Yes. This number is one Nicole that I think for the entire industry has become a bit more challenging to really understand and it’s lost of a little bit of its relevancy certainly like the rest of the industry, we were seeing outsized growth in average check than what you would typically see.

And it remains volatile enough, but I don’t and I fairly think it’s appropriate to disclose what the exact numbers are. But I do want to provide some facts here. To show how it’s kind of an unusual environment where the check mix dynamics aren’t what they normally are. Delivery through third-parties, roughly 25% of our sales during the third quarter, we have a 10% price premium. Certainly see this is effective price increase that is much more substantial than you see in a normal environment.

So, ultimately while we don’t think that typical mix is as relevant as it has been in the past. It is safe to say that we are seeing a significant amount of check growth similar to others in the industry.
Nicole Miller : Yes. That is fair and I hear you on that. Maybe turning to getting ready to reaccelerate development, I was comparing and contrasting tonight’s results in terms of the AUV runrate 1.187 wasn’t that much different frankly to the last growth cycle.

So, how do you expect these new units to come on in terms of the percentage of a mature volume?

Dave Boennighausen: What’s exciting for us is that we are seeing that, our restaurants has been opened in the last two years are actually meaningfully above the company, but from a sales perspective, as well as a margin perspective. And I attribute it to a handful of reasons different from where we were at during the last growth cycle. First and foremost would be the concept itself is in a much stronger position in terms of how we’ve been able to in a pre-COVID world really build average unit volumes still with a margin profile. Our brand is, I think more clear in our guest mind and the net promoter score is a test to that. Additionally, I would add the discipline that goes towards to our site characteristics, our economic model.

There aren’t compromises being made through that and you see that in the effectiveness of those new restaurants that has opened. Third the model itself, we streamlined quite a bit of the operations. It’s easier to train. It’s easier to operate. The drive-thru pickup windows are a game changer in terms of increasing the amount of convenience.

As I said that restaurant that set all those daily records were just opened in October, very large percentage of their sales are going through that window and only averaging just over a minute per transaction. But I think, all three of those are important. The fourth one, which is the one that gives me the most excitement, if you will is our pipeline. So, Nicole, the people - the people pipeline. The bench strength that we have within our teams is so much stronger than it was during our last growth cycle in terms of – and opening these new restaurants with top performers that know the brand.

Our turnover, our operation metrics, our people metrics at new restaurants are dramatically better than where they were during the last growth cycle. And they are actually better than the company average. So, the combination of a better concept that’s easier to run an economic box and an operating box, that is much more suited for consumer trends. And then a very, very strong people pipeline gives us a lot of confidence that we’ll be able to enter this next phase of accelerated growth in a much more favorable position.
Nicole Miller : That actually is very helpful.

Thank you. Last question and I’ll mute myself, what can you share on the CFO search front? Thanks, Dave.

Dave Boennighausen: That I say we are in the final stages and we’ll hope to be able to make an announcement somewhat in the next several days.
Nicole Miller : Alright. Thanks again.

Congrats to you and your team.

Dave Boennighausen: Thank you, Nicole.

Operator: Thank you. Our next question comes from the line of Andrew Strelzik with BMO Capital Markets. Your line is open.

Unidentified Analyst: Hey, David. It’s actually Dan on for Andrew tonight. Thanks for taking the questions. First, you talked about the opportunity to reaccelerate unit growth over the next couple of years and you touched on some of the potential real estate opportunities that could emerge moving forward. I guess, I am just wondering, are you beginning to see any sort of uptick in real estate opportunities already today? And if you are, what kind of sites are becoming available? And are they properties that could work for the brand?

Dave Boennighausen: Yes.

We are already seeing some nice benefit, Dan, and very excited with how the pipeline is shaping up. I do think there is a reality of – good sites are – great sites are great sites and particularly the box that we are very well suited for which is that small square footage with the drive-thru circulation. Those remain in high demand. One thing we are excited about is the conversations we are having with developers and landlords around where some of the disruption in the industry, how properties would be redeveloped to be much more suited for that box, which really just fits in the wheelhouse of where Noodles & company does great. So, they think there is some time for that to settle out, if you will, because the availability of the exact title box we want will take a bit of time, but we are seeing already really strong green shoots in terms of that pipeline being able to develop, not to mention we continue to explore items like the off-premise only, potentially at those kitchen as well.

We continue to see some really nice opportunities from those fronts as well.

Unidentified Analyst: Got it. That’s actually pretty interesting. And then, just you touched on Noodles rewards program a little bit. It sounds like you are pretty pleased with how it’s worked for you during the pandemic.

I guess, I was just wondering if there is anything you could share in terms of just maybe more specific learnings from the program so far and anything you are looking at in terms of maybe a change strategically in terms of how you are engaging with customers moving forward.

Dave Boennighausen: Yes. I think, going forward, what you’ll see, Dan is, quite a bit more customization, personalization and targeted, not just communications, but ultimately even the appearance of the menu and how that overall experience from the beginning to end will be more personalized. Now that’s a journey and it will take us sometime to get there. Right now, we are focusing much more on reducing friction.

Some of the things we are seeing is that the conversion rate of when people go into our website or through our App for ordering continues to increase. We are seeing a lot of people come into the phone that are new guests and again I come back to some of those newer markets and less saturated markets. We are seeing that growth be particularly instrumental in our sales recovery and then we are seeing our loyal guest increase their frequency meaningfully. So there still is, kind of that swap in the middle where we think it’s going to be a tremendous growth opportunity for us as we continue to enhance and develop that program. So, what you’ll see is, I think just our overall strategy become much more - targeted much more personalized than it is today.

We’ve already made good progress. And the team has done a very nice job and we are in the very early innings.

Unidentified Analyst: Okay. Great. Appreciate the color and thanks for taking the questions.

Dave Boennighausen: Absolutely.

Operator: Thank you. Our next question comes from the line of Andy Barish with Jefferies. Your line is open. Check that if you are on mute.

Andy? Our next question comes from the line of Marshall Pittman with Jefferies. Your line is open.

Marshall Pittman: Hi. How is it going? It’s for Andy, I think we had a little tuck issue just now. Got a sort of quick question on G&A, it’s about $2 million or so higher sequentially and I was just wondering if you guys could break that down and if this is a level of G&A we should think about going forward at least in the near-term?

Dave Boennighausen: Yes.

From a G&A perspective and we will be filing the Q early in the morning some of that detail. You also see it in our release itself. A lot of those were non-recurring items, particularly from the stock compensation side, and as well as some of the severance line items you did have some non-recurring expense that occurred kind of quarter-over-quarter, if that’s what you are seeing in the comparison. But from a normalized - so from a normalized basis, if you look to Q2 to Q3, excluding those events, actually Q2 to Q3 roughly flat.

Marshall Pittman: Okay.

Great. And just lastly on labor, obviously, you are seeing a lot of efficiencies now and I believe you said, next quarter should be little lower than last year for a total margin. But just on the labor, just wondering if you could elaborate on, if you think we could see the same kind of efficiencies next quarter and just what you think going out to next year?

Dave Boennighausen: Very modest uptick, Marshall, as you have dine-ins open. There is a little bit more labor that does come into the system. But it should be relatively modest, because we have been able to find efficiencies throughout all of our processes, implemented lot of those really over the last year even just during COVID.

But additionally, we have 60% of your sales coming through digital channels. You just don’t need as much front house, as much front house presence as we had in the past. Those we expect will continue to carry forward into a new world. Additionally, we spend quite a bit of investment in the training of new hires. We think that’s a very critical part of our success as we have seen turnover go down meaningfully over the last, really couple of years, but particularly in the last several months of COVID.

We would expect that will carry through, as well. So, on the net labor it should be relatively similar, Q3 to Q4 as a percentage of sales, potentially a little bit of an uptick just to accommodate the dining rooms that are reopened.

Marshall Pittman: Got it. Thank you.

Operator: Thank you.

[Operator Instructions] Our next question comes from the line of Todd Brooks with CL King & Associates. Your line is open.
Todd Brooks : Hey, great. Thanks guys. Couple questions for you.

One, you talked about the northern tier exposure of the brand and it’s an opposite of the lot of other concepts that have that small exposure through the southern states. If you think about the northern tier, and you think about competing concepts in that market and how much that they have benefited from the ability to create capacity without door dining. As you are looking forward to Q4 and Q1 in those markets, do you feel there is share that comes back to Noodles as other competitors aren’t able to service customers the incremental outdoor capacity?

Dave Boennighausen: Yes, absolutely. So, patio is obviously we have, significant amount of patios in those upper Midwest, Todd. But that has that – Tennessee that I saw the historical trend that I talked about in the earnings call where during the winter months we are just not nearly as reliant on dine-in business as we are during the other seasons.

That’s particularly amplified in the upper Midwest and people do shift towards off-premise in general. So the combination of maybe some of the other concepts that don’t have that off-premise capability and then our particular strength in it gives us confidence and ultimately that trend is going to reverse. We have seen, not just ourselves in the industry as a whole that upper Midwest be under a bit more pressure throughout the COVID pandemic. We do feel that we are positioned probably better entering these winter months than most of our competitors.
Todd Brooks : And do you have any early reads on the benefit of curbside in those markets? And the thought of creating new occasions for customers that don’t have to get out of their car.

But want to fill up and grab their noodles at a specific time.

Dave Boennighausen: Sure.
Todd Brooks : What you have on the increments salary?

Dave Boennighausen: Huge increment salary, actually. We don’t expect it would necessarily be an enormous percentage of sales. But all of our analysis has shown that it is a nice driver of incremental versus other channels.

And I think in the upper Midwest, you particularly will see it. I’ve obviously visited a lot of our restaurants. Colorado and the Mid-Atlantic often aren’t – don’t behave that much differently. Eastern has some parking lots that of the 15 available parking spots, six of them are taken up by snow and that maintains for a significant amount of the season. So, continuing to reduce friction for curbside.

Certainly, the drive-thru windows as we continue to build those out in new restaurants, the few percent that we’ll be able to retrofit from a company side, those will all be huge benefits. And to put some tangible aspect by what was it was curbside, we have a good program right now, Todd, that you can order digitally, select curbside, say what kind of car you are at. But we do have the friction of when you get to the restaurant, you actually have to call a number and call the restaurant. That is the type of friction that we are going to be eliminating in the next several weeks to allow that that particular channel and that particular experience to be more improvement and even better than it is today.
Todd Brooks : Great.

And then a final question, you talked about third-party delivery fees and the pricing actions that you are taking. But the platform is being an important source of Noodles customers and that’s a reduction to the brand. If you look at your digital platforms and kind of coming into maybe, let’s hopefully have the second half of the pandemic here, what are the thoughts around efforts to drive these new to brand customers to Noodles native digital platforms or online platforms? So that the service fee burden is there. What’s the trigger duration that you need to see out of the behavior before you try to migrate them?

Dave Boennighausen: Yes. I think we want to migrate them to the second – from the time that they discover the brand, we want to migrate them over immediately.

So, what you see is, take the opportunity to message those particular guests in the way that we are able to – we do offer, as an example, free delivery. We currently are launching purely through our own channels. So, you can do free delivery if you go to our App or through our website. But not if you go through the third-party aggregators. We do feel those third-party aggregators, as I said are extremely important in terms of getting people to discover the brand and there is certainly will be guest, but that’s how they continue to use restaurant brands for delivery.

But the combination of different price premiums, different delivery mechanisms or promotions, the rewards program itself and just communicating them, we want that process to start immediately.
Todd Brooks : Will you message more aggressively against it when the premium on the menu price becomes greater later this year?

Dave Boennighausen: That is not currently part of the plan to aggressively promote the price disparity. We don’t think that’s necessarily the right path to do it. But they will see, significant benefits of just the overall rewards program. And clearly that, I mean, it does show up for those that are ordering that there is a better economic answer for them than going to the third-party aggregator.

Todd Brooks : Okay. Great. Thanks, Dave.

Operator: Thank you. I am showing no further questions in the queue at this time.

I would now like to turn the call back over to Mr. Dave Boennighausen for closing remarks.

Dave Boennighausen: I appreciate that Suwanda. Appreciate everybody’s time. I said it to several folks before that I do think as challenging as 2020 has been, in a couple of years, we will look back at this from a Noodles & Company perspective and say, yes, 2020 was challenging.

Yes, it was scary times early on in the pandemic, but it really will become an inflection point and an ability for us to accelerate growth from a brand awareness, averaging its volume margin, unit growth perspective, faster than we probably would have otherwise. And so, extremely proud of the team for how they positioned us to be able to say that. And look forward to finishing off this year and then 2021 and beyond. Thank you again for your time.

Operator: Ladies and gentlemen, this concludes today’s conference call.

Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.