Denny's Corporation (DENN) Earnings Call Transcript & Summary

All right. Good afternoon. I'm David Buckley at Bank of America, and I'm excited to be hosting the Denny's management team this afternoon. With me is President, Mark Wolfinger; and CFO, Robert Rostik. Mark and Robert, I will turn it over to you for the presentation, and then we'll turn it over to questions.

Well, thanks very much, David, for the introduction. Really appreciate that. It's a real pleasure to provide an update on Denny's. An iconic brand, which was born in the '50s, the 1950s, early '50s and enjoys high awareness as America's diner. I want to move on to Slide 2. Before I start, I'd like to remind you that I will be discussing forward-looking statements and non-GAAP financial measures. Please refer to our SEC filings for a discussion of risk factors and quarterly financial releases for an explanation of our non-GAAP reconciliations to the comparable GAAP measures listed on this slide. With that, let's get started. On Slide #3. Denny's is a 96% franchise brand with both new and multigenerational franchisees committed to evolve, compete and grow. Beyond adjusting to the impact of the pandemic on our business, we are entering the middle stages of our long-term revitalization with many brand-enhancing strategies that remain. And I will touch on a few of our key investment highlights now. We've consistently grown same-store sales. Our brand revitalization strategies have contributed to 9 consecutive years of domestic system-wide same-store sales growth prior to the pandemic. Our global footprint consists of 1,650 restaurants around the world, including 146 international locations across 13 countries and U.S. territories. This makes us one of America's largest franchise full-service restaurant brands. We've also added to our international and domestic development pipelines through development agent agreements and our refranchising strategy completed in 2019. And 96% of our brand is operated by 227 diversified, experienced and energetic franchisees. Our highly franchised business model generates strong adjusted free cash flow, which we have consistently returned to our shareholders. In fact, over the last 10 years, through 2020, we generated over $418 million in adjusted free cash flow, after-cash capital expenditures, cash interest and cash taxes. The strong cash flow generated by our business has provided significant flexibility to support brand investments and shareholder returns. Since we first initiated the program back in late 2010, we've allocated approximately $554 million towards share repurchases, ahead of a $70 million equity raise completed in July of last year. We believe Denny's is a durable business focused on the future. We recently transitioned to a more highly franchised model, which reduced business risk. Our proven revitalization strategies have been validated by a record of consistent performance prior to the pandemic, and we are confident that we will drive our brand forward with market share opportunities beyond the pandemic. Now moving to Slide 4. I'll spend a few minutes now discussing some high-level results for 2020 in our response to COVID-19, which led to those results. On Slide 5. Full year 2020 domestic system-wide same-store sales were 69% of 2019 levels. Based on the outstanding balance of our credit facility and recent favorable amendments, we ended the year with approximately $82 million in available liquidity. And despite the extremely challenging environment, our franchisees had the confidence to open 20 new restaurants in 2020, including 4 in the fourth quarter, contributing to 1,650 global restaurants at year-end. Now moving to Slide 6. In this dynamically changing environment, we have been focused on 4 key guest-centric themes: reassurance, value, comfort and convenience. I will now touch on each of these, beginning with Slide 7. We understand and appreciate the concerns around general health, and that the ability to have a safe restaurant dining experience will persist for some time. Therefore, it is important that we reassure our guest of a safe dining experience by consistently upholding our commitment to enhance cleanliness and sanitation procedures at all consumer touchpoints. We have used broadcast media messaging to not only highlight our enhanced safety procedures, but also to communicate options for curbside pickup, contactless delivery, drive-up ordering and outdoor seating. On Slide 8, our second area of focus is value. Denny's is known for everyday value, and we believe value will remain important in this economic environment as guests seek to maximize the impact of their dollars on quality food options for the whole family. We understand that value comes in different forms. Our well-known $2 $4 $6 $8 Value Menu, focused on price-driven value is a brand equity. During the pandemic, we introduced and expanded a platform of bundled value Shareable Family Meal Packs, which offer a delicious, convenient and cost-effective way to feed a family of 4. We continue to feature abundant value products like the Super Slam, and we believe the convenience-based value of free delivery when ordering to our website or our mobile app has supported off-premise transactions and induced new customer trial. Now I'd like to turn to Slide 9. Our third area of focus is comfort. We strive to ensure that Denny's is a place where our guests feel welcome and valued. Whether dining with a large family or as a party of one, we believe our guests view the Denny's experience as a time to build connections within an environment that is both inviting and comfortable. After issuing multiple streamlined menus, we began using a full core menu in November, providing more comfort food options even though the menu was 24% smaller than our pre-pandemic core menu. We launched a comparably sized new core menu last month that continues to feature our culinary innovation with new creations within our bowls and melt categories. Our operations team has also reinforced the critical need for comfort. By reminding our entire system of the rules we live by, including the expectations that, one, everyone has welcomed the dine at Denny's; two, everyone is treated like our favorite guest; and three, everyone is shown kindness and respect. Our established heritage restaurant image has received consistently positive guest feedback, largely due to its welcoming and relaxed feel. Despite the pandemic, our system completed 22 remodels in 2020, including 5 in the fourth quarter. In a period of dine-in restrictions, our operators have provided our guests with comfortable outdoor dining solutions as well. And then moving to Slide 10. Our fourth area of focus is convenience. We believe guests will continue to expect technology to bring enhanced value to their dining experience, whether in our restaurants or through off-premise options like our Denny's on-demand platform. We have also implemented curbside pickup parking signs to deliver a better experience for our guests and team members while promoting guest-controlled digital ordering from the parking lot. We recently launched Apple Pay for our Denny's on-demand ISO mobile app, and we continue to promote outdoor dining solutions where permitted. I want to move on to Slide 11. We were fortunate to already have an established off-premise business through our Denny's on-demand platform prior to the pandemic. Average weekly sales for all off-premise transactions have more than doubled since the beginning of the pandemic. Growing from approximately $4,000 per week per store a year ago to over $8,000 per week per store through the first 2 weeks in fiscal February 2021. We've been pleased with our ability to sustain this higher level of off-premise sales as dining and transactions have evolved. I'd like to move to Slide 12. We are also excited that our test and learn culture has yielded 2 virtual concepts that we believe will provide additional market share opportunities. The first of these is called The Burger Den. This new concept allows us to focus on one of our strengths, great burgers, with new varieties using ingredients already in our pantry. Test results have been favorable and suggest a high degree of incremental transactions. Over half of our domestic locations have signed up to participate in a 3-phase rollout. Two phases launched in February, and we anticipate completing the rollout this month, in the month of March. Slide 13, please. The second virtual concept called The Melt Down features handcrafted sandwiches using high-quality ingredients and unique flavor combinations. While this brand is able to utilize approximately 70% of items currently in our pantry, our innovative culinary team has crafted new craveable products such as the Giddy-Up Melt, featuring brisket burnt ends, sharp white cheddar, creamy barbecue sauce and pickles on a grilled artisan bread. And the Talkin' Turkey Melt, made with turkey, bacon, tomatoes, provolone cheese and creamy herb spread. Test results have been similarly encouraging, and over half of our domestic locations expect to go live with The Melt Down in the spring. These brands provide opportunities at dinner and late night to leverage underutilized labor and kitchen space. In fact, over 70% of transactions from The Burger Den occurred during the dinner and late night dayparts. I'd like to move on to Slide 14, please. We started 2020 delivering domestic system-wide same-store sales of over 2% through January and February before government restrictions on dine-in foodservice were implemented. Following a low of down 76% for the month of April, we experienced sequential monthly improvement in our same-store sales results to down 26% in October ahead of the latest wave of restrictions, which weighed on our December results. As dining room restrictions evolved, our scrappy franchise and company restaurant operators quickly responded by leaning into curbside initiatives and converting portions of parking lots and sidewalks into outdoor dining rooms where permitted. We've been encouraged by the sequential improvement in January and February as restrictions have started to ease once again. Domestic system-wide same-store sales for the first 2 weeks of February declined 25% compared to 2019, 2019, which is a significant improvement from December. As of February, 98% of our domestic system was open, including over 1,000 restaurants offering with open dining rooms. This is an increase of almost 25% from the end of December. Turning to Slide 15. However, we still have only approximately 1/3 of our domestic franchise restaurants operating 24 hours a day, 7 days a week. While we cannot control state and local restrictions and the related impact on our sales trends, we have been working diligently with our franchisees to analyze the incremental sales and profitability potential from expanding their operating hours. Domestic restaurants, which were opened 24 hours in the fourth quarter, experienced a same-store sales decline of approximately 23% compared to a decline of approximately 39% at domestic restaurants operating with limited powers. While we estimate that our overall same-store sales results in Q4 were impacted by approximately 8 to 10 percentage points from restaurants operating with limited hours, we were encouraged that sales through the first 2 weeks of February declined only 6% for the approximately 375 restaurants operating 24 hours with open dining rooms. Slide 16, please. Our franchisees were generally in good financial standing going into the pandemic. On average, levered between 2x and 3x EBITDA. To support our franchise system during this challenging period, we provided over $15 million of royalty, advertising and rent relief, nearly half of which was forgiven through abatements. Additionally, we deferred scheduled remodels, extended new store development commitments and secured relief from key vendors in primary third-party lenders. Finally, we encouraged our franchisees to secure critical stimulus support through the Paycheck Protection Program, or PPP, as it's known, and 99% of all domestic franchise restaurants were successful. We are currently supporting our franchisees in their efforts to secure another round of PPP funding in connection with the latest approved stimulus, and we believe they will be successful again. From a cost savings perspective, we suspended nonessential travel and field meetings, placed holds on open positions, adjusted our company restaurant staffing, temporarily reduced compensation for our Board and multiple levels of management, furloughed approximately 25% of our restaurant support team members and, ultimately, separate around half of those. Additionally, we recognized approximately $2.6 million in tax credits associated with the CARES Act in 2020. We set forth to further fortify one of the strongest balance sheets in the industry by raising approximately $70 million in proceeds from a public offering of common stock during the third quarter. We subsequently paid down our credit facility with those proceeds. We also secured amendments to our credit facility, which temporarily weighed financial maintenance covenants through the first quarter of 2021, followed by the introduction of favorable covenant levels in the second and third quarters of 2021. Finally, we suspended share repurchases in February, but look forward to an opportunity to return cash to shareholders beginning in the fourth quarter of 2021 in accordance with our recent amendments. Slide 17, please. We believe our conservative leverage philosophy going into the pandemic served us well. Proceeds from our successful refranchising strategy were used in part to pay down our credit facility, reducing our ratio of total debt to adjusted EBITDA to 2.7x at the end of 2019. We reduced the outstanding balance on our credit facility to $210 million as of year-end 2020, as indicated on this slide. After considering cash on hand, the remaining capacity of our credit facility and current liquidity covenants, we have approximately $82 million of available liquidity as of year-end 2020. The pandemic has affirmed for us the value of a conservative leverage philosophy. Prior to the pandemic, we would have targeted long-term leverage somewhere between 3x and 4x adjusted EBITDA. We are currently more comfortable with a range of between 2x and 3x. I'd like to go to Slide 18, please. Sound strategies and effective leadership teams with a long-term focus have contributed to Denny's 67 years of endurance. I will now share a few key components of our ongoing brand revitalization as we look into the future. Slide 19, please. Our revitalization strategy has been focused on delivering a differentiated and relevant brand and consistently offering great restaurants through continual improvements in our food, our service and our atmosphere. Each playing a role in revitalization and same-store sales growth. On Slide 20, we have been responding to our customers' desire for better quality and more cravable products by consistently improving our core menu since our revitalization efforts began in 2011. We have made improvements in our breakfast and lunch platforms, and we are starting continue to enhance our dinner category. We will continue to enhance our product quality across the smaller core menu aimed at simplifying menu complexities to improve speed and consistency. Slide 21, please. We have made investments in training and training talent, tools and strategies such as Ignite e-learning and our latest Delight and Make It Right service programs to deliver further operational improvements and guest satisfaction. Through close collaboration with our franchisees led to a new and improved annual training process to drive improvements in speed of service and margins. And turning to Slide 22. Our Heritage remodel program, represented by the image in the middle of this slide, further reinforces the enhancements we've made to date in our food and service with dramatic improvements in our dining atmosphere. The program was launched at the start of 2014 after extensive testing with our franchisees. The Heritage remodels have consistently generated mid-single-digit sales lift, yielding attractive returns on investment and received positive customer feedback. After extensive testing with our franchisees prior to the pandemic, we started rolling out the next remodel prototype, which is represented the image at the top of this slide. This new prototype, which we are calling Heritage 2.0 was developed based on consumer research and features more attention-grabbing exterior elements, relaxing neutral colors with vibrant accents, modernized booths and community tables to name a few. The Heritage 2.0 prototype is ready to go, and we believe remodels will be a tailwind for our brand for years to come as we relaunch this program on the other side of the pandemic. Slide 23, please. The refranchising initiative we completed in 2019 yielded development commitments for 78 domestic Denny's restaurants. While those have been delayed, we fully expect to bring those restaurants online in due course as economic conditions improve. At the same time, we believe our overbuilt industry will suffer an unfortunate and meaningful rationalization of seats due to the pandemic, largely at the expense of small independent full-service operators. While we certainly don't celebrate this prediction, we believe brands that survive will have an opportunity to gain market share. We have a proven record of converting existing spaces into Denny's locations. In fact, over 60% of our new Denny's restaurant openings since 2011 have been conversions. These less capital-intensive opportunities provide enhanced ROIs for franchisees, and our experienced development team is already assessing the landscape for future Denny's locations. I'd like to go to Slide 24, please. The success of our brand initiatives is supported by an environment of strong collaboration with our franchise partners. Our executive team meets regularly with the Denny's Franchisee Association Board, and we conduct joint Board meetings with the Denny's Board of Directors. Our brand advisory councils are comprised of management and franchisee leaders to address functional areas of the business, including marketing, operations, supply chain, development and technology. These highly engaged advisory councils and the constant communication with the Denny's Franchisee Association Board members have been critical in our ability to quickly adapt our business in this challenging environment. This will be equally critical as we drive our business forward beyond the pandemic. Slide 25, please. Since beginning our brand revitalization strategy in early 2011, and we delivered 9 consecutive years of domestic system-wide same-store sales growth and steadily grew adjusted EBITDA as represented by the black trend line. Over the last 10 years, we've also generated over $418 million of adjusted free cash flow, after-cash capital expenditures, cash interest and cash taxes. Our 2019 results included the impact from the sale of restaurants with our refranchising initiative, approximately $11 million related to the acquisition of real estate through like-kind exchanges, and cash taxes associated with the gain on sale of restaurants. Excluding these items, our adjusted free cash flow would have been approximately $60 million, delivering roughly $0.60 of adjusted free cash flow for every dollar of adjusted EBITDA. Slide 26, please. So in closing, allow me to summarize key investment highlights as it relates to Denny's. Our brand revitalization efforts focused on enhancements to our food, service and atmosphere have yielded consistent same-store sales growth. While we are entering the middle stages of our revitalization, many brand-enhancing strategies yet remain, including ongoing product innovation, the expansion of our proven remodel programs and the launch of virtual brands such as The Burger Den and The Melt Down. Our global footprint is supported by a strong domestic presence and a pipeline of domestic and international development commitments from our seasoned franchisees. Our highly franchised business, led by our experienced management team, generates strong cash flows, allowing us to generate compelling shareholder returns. Finally, Denny's is a durable business focused on the future with lower risk, highly franchised business model, which is supported by proven revitalization strategies, a pattern of consistent financial performance leading into the pandemic and a well-fortified balance sheet equipped to weather current challenges and take advantage of opportunities that will exist on the other side of the pandemic. And in the final slide, Slide 27. With that, I want to thank you for your interest in Denny's. And now we'll be happy to answer some questions. Thank you very much.

All right. Great. Thank you, Mark. Audience, feel free to submit any questions. I will kick it off. First, Mark, just would love to hear your thoughts on the consumer demand broadly. How do you see demand coming back as virus counts have dropped, vaccine distribution continues to increase and more stores are able to increase capacity?

Yes, David, that's a great question because I think it really captures what's on the other side of this pandemic. And so -- and Robert will probably jump here towards the end. But I think our view is that there's a tremendous amount of pent-up demand. I go back to that comp sales number that I gave as far as in the month of February, those with open dining rooms and operating 24/7. I think that was a negative 6% comp that I mentioned in my notes. And so what we are feeling very good about are a number of things. One is that the vaccine is being more widely distributed. We're starting to see that impact certainly in the state of South Carolina as well as numerous other states. And clearly, that's been ramped up even further, I think, with the most recent distribution on the Johnson & Johnson product. We believe as far as impact on customer base, that's going to certainly have a positive impact on the boomer generation because in many states like South Carolina, those vaccines are obviously going to the, I would say, the higher age brackets. And right now, as an example, in the state of South Carolina, age 55 and up are all being considered as a group for a dose 1 and dose 2 of the vaccine. That's the first piece. I think the second piece is that, as I mentioned in some of the previous conversations I've had, we are now on round 2 of PPP. And so we talked about the early stages of that in our mid-February year-end earnings call. It's now 3 weeks later, and we're beginning to see that second round of money being pushed through the systems, including our franchise system. So we view that as a tailwind as well. And as we mentioned, in round one, of PPP, about 99% of our store base basically got PPP money, and we are certainly optimistic and believe that it will be similar around 2. And the last piece, specifically for our brand is, obviously, we're closely following the reopenings that's going on state by state. There's been considerable movement in a number of states. As an example, Nevada has moved to 35%. And announced that I think by mid-March, they'll be a 50%. We, obviously, have a significant presence out there on the company side in Vegas, but also on the franchise side in the state overall. And then it's well known about our brand, a significant portion of about 25% of our stores sit in the state of California. We're starting to see some movement in California as well, both in the outdoor dining, but the indoor dining section as well. And so clearly, that's a good sign for our brand. Robert, anything else on the demand side?

Yes. So Mark, I think you hit it spot on with regard to the demand. I think the other piece that you need to juxtapose against that is the supply side. And I think what has happened through the pandemic, and it's been documented pretty well in the media is that there will be -- and this is not -- this is actually very heartbreaking to say, but many restaurants, particularly independents, will have gone by the wayside as we have worked through this pandemic. So while the demand is there, the supply will have dramatically been reduced compared to prior due to pandemic. So not only will -- is the demand there and our ability to meet that demand by ramping back up our units as restrictions are eased, we will also be able to further go into a supply side. We have been looking at expanding our footprint. We -- if you look back through history, for us, the -- and you look at our new unit openings, 2/3 of those have come through the conversion of different space. It was prior to -- it was something else. It was not a new build, ground-up new build. It was some other establishment, be it some retail or other restaurant. So we should be able to take advantage of that. So you look at demand, you look at the reduced supply and you look at our ability over the mid- to longer term to ramp additional supply into those spaces that will become available. And this is a pretty interesting setup for Denny's.

And Robert, you said survive and thrive, right? And that's really what you just described.

Very much so. And we are trying to shake off the survive aspects of this every single day to move into the thrive category.

Got it. That's really helpful. Just building on that last topic. Is there a way to quantify the opportunity that you see from seat rationalization and just thinking about the domestic development opportunity over the next few years?

Well, David, I think that's another very good in-depth question. I look at it and say, what we do know is the way that the full-serve dining category lays out between, I'll say, major brands and independent operators, it's about -- it's almost 70% made up of independent operators. So I'd say independent mom-and-pops, small regional players. And so I think to Robert's point, we see that as a big open horizon for what the opportunity could be for the Denny's brand. And again, we look at our footprint. We know that, obviously, we're heavily penetrated in states like California, Texas, Florida, but there's a number of DMAs in a number of states where we have significant opportunity for new unit growth. And so our view again is this is pretty significant. And I go back to your question about demand and the level of pent-up demand, that's pretty exciting to us.

Okay. Great. Following the growth in your off-premise business over the last year now, where do you see the size of off-premise shaking out in the post-pandemic world?

Yes, David, excellent question. So I mean, for context, and Mark spoke to this, we've doubled our off-premise business over the course of the pandemic going from $4,000 a unit prior to the pandemic breaking out to over $8,000 a unit now. So that's where we've kind of come from and where we exist today. That is really before any of the real material benefits from the 2 virtual brands that we are in the middle of launching right now. One called The Burger Den and the other called The Melt Down. The Burger Den is the one that is in process of being rolled out at the moment. We described having more than half the system launch each of these brands when fully rolled out. We described The Burger Den going in 3 tranches. We have completed 2 of those 3 tranches to date with the third anticipated to be rolled out before the end of the month of March. So again, we've gone from $4,000 to $8,000 prior to really any significant benefit from the virtual brands, which should be a catalyst to go beyond. I am curious, candidly, to understand the impact of the restrictions easing and going away and how that ultimately impacts off-premise. The only logical way to see that is it could be a drag to that doubling that I've described. But again, I don't think we lose nearly -- I don't think we'd lose at all clearly, but it will be interesting to see how much that weighs on that when people can come out and experience a Denny's meal and sit down in California Denny's again. I'll be curious to see how that all vets out. On the margin, I think it has a minor tick to the downside. But again, that's before any of the benefits from the virtual brands coming more fully online. So we'll -- we talked through some of our meetings today that we look to discuss more and put more information out as things become more mature as restrictions ease as the virtual brands become more fully baked into our system. So we can share that. But right now, it's probably a little early, but we are reading that day-by-day and look to talk about that more as likely on our Q1 earnings call towards the end of April.

Okay. That's great. Just staying on the virtual brands for a moment, how much of a factor will these be for the industry and Denny's moving forward? And just talk about your confidence level that these will generate incremental sales and not cannibalize your existing business.

Yes. So with regard to that, I do think what we've done has been pretty intelligent. And again, not to toot our own horn, but we really stayed in -- stayed within our confined of what we are really good at. So if you think about The Burger Den, we have a -- we've had for quite some time an existing lineup of gourmet burgers. They're 6.6-ounce patties that are hand smashed on the grill. The Burger Den just kind of takes that and camps that up, takes it to a different place, different types of builds, lots of Mozza Burger that's built with mozzarella sticks, for instance. So things that are more creative, a little beyond what you would expect on the core Denny's menu. That's very similar with The Melt Down, where we have really kind of amped up various sandwiches. So we've always had the Grand Slamwich or the Moons Over My Hammy, for instance. And what I described to you a little bit earlier today, David, is the -- our Giddy-Up sandwich, which is a burnt ends, barbecue sandwich, smothered in barbeque sauce with sharp white cheddar cheese, served on a new artisan bread that we procured. And so it takes what we are good at and amps it up. And the important part of that is our cooks within our restaurants have that muscle memory to prepare food of this type, to prepare burgers, to prepare melt. And predominantly, where these items play would be in our dinner and late night dayparts. So again, in areas that we have capacity in our kitchen. So again, we are pretty deliberate about how we went about this. We didn't want to kind of get outside of what would be our core competencies. And I think for us, that will prove out to be -- to really kind of answer your question, it will pay benefits for a longer period of time, again, because we'll be able to execute these in a very effective and efficient manner. The cannibalization is an interesting question. I think being these new virtual brands, we have been very transparent within the third-party platforms that these are brands and I think the moniker is crafted by Denny's. It is not -- it is obvious, but not the most significant part of the logoing within there. So again, we want to be transparent for our guests. But again, they kind of stand on their own, which we believe then will lead to a much, much higher level of incrementality. They're only on third-party sites. This wouldn't have been a guest that was coming to Denny's to see this otherwise. So we believe the incrementality of this will be very, very high. Thus adding to the bottom line dollar margin. They will be similar in rate margin as other third-party transactions. So that mid- to upper teens to low to mid-20s, somewhere in that range. So from a rate margin, they're not necessarily as rate-effective as guest coming back and sitting inside Denny's. But clearly, they will increase the profitability of our [ agreements ].

Have you guys talked at all about the details of the customer that you're attracting, age, income, demographics from the virtual brands versus the difference of the core Denny's customer?

Not really with regard to the virtual brands themselves. But historically, we've talked about our third-party platform aging down. So it would get into that millennial group. It's disproportionately weighted towards that millennial and gen X-er, whereas the on-prem guests in dining room guests then skews more towards -- on a continuum, more towards the boomer, I think it's on Slide 11. 60% of our online transactions are from guests 18 to 44 years of age. So again, third-party platforms, in general, skew younger, although we really haven't broken that out with regard to the virtual brands themselves.

Okay. Got it. That's helpful. Just want to ask one question on franchisees. Just given your largely franchise model, can you just talk about the relative financial strength of your franchisees and just the general state of the relationship with them?

Yes. I love to. I mean I think, David, we have been blessed over the years. We just have a tremendous franchise system. I can't say enough about each and every one of our franchise groups. And it's astounding to me how closely this brand works together between franchisor and franchisee. Their energy, their creativity and stamina to get through this is just so impressive and humbling to work with them. I think the good news about our franchise system, and we've talked a little bit about this in previous calls, is that going into the pandemic, I think from a financial standpoint, many of our franchise groups were sort of in that 2x to 3x leverage type of structure or ratio. Obviously, that changes as you go through a pandemic, but ultimately, as opposed to a more highly leveraged status quo going in, that certainly works in their favor. I think the -- it's interesting. We talk about pent-up demand with the consumer. I would describe that we have pent-up demand in our franchisees. They're very anxious to get back out there, to get reopened, to get their operating hours up, and they're anxious to basically prove how great this brand is, the success of the Heritage remodel program, the virtual brand rollout that Robert talked about, the questions you've asked about the virtual brands and to really welcome people back into the restaurants. So I just think we're very fortunate and blessed to have the franchise system we have. They're also anxious to grow, and that's the new unit piece that Robert referenced in the conversion opportunities for us. So obviously, we're excited about the thrive side of this equation.

That's great. All right, guys. We're coming up at the end of our time here. I just want to take a minute. Thank you both again for joining us this afternoon and really appreciate it.

Yes. Certainly, our pleasure, David. thank you for hosting us.

Thank you. Thank you so much.

All right. Thank you.