Earnings Transcript for TAST - Q1 Fiscal Year 2022

Operator: Welcome to Carrols Restaurant Group, Inc.'s First Quarter 2022 Earnings Conference Call. [Operator Instructions]. I would like to remind everyone that this conference call is being recorded today, Thursday, May 12, 2022, at 8

Gretta Miles: Thank you, operator, and good morning, everyone. By now, you should have access to our earnings announcement released earlier this morning and our earnings presentation that are both available on our website at www.carrols.com under the Investor Relations section. Before we begin our remarks, I would like to remind everyone that our discussion, including answers to questions posed to management, may include forward-looking statements or comments with respect to our strategies, intentions or plans and the future direction of revenues, input costs or other aspects pertaining to our business. These statements are not guarantees of future performance, and therefore, undue reliance should not be placed on them. We also refer you to our filings with the SEC for more details, both with respect to forward-looking statements as well as risks that could impact our business and results, including, among other things, the impact of COVID-19. During today's call, we will discuss certain non-GAAP measures that we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with generally accepted accounting principles, and a reconciliation to comparable GAAP measures is available with our earnings release. With that, I will now turn the call over to our new President and CEO, Paulo Pena. Paulo?

Paulo Pena: Thanks, Gretta. Good morning, everyone. I'm excited to be speaking with you this morning on my first call as Carrols' new President and CEO. I'll be leading a proud company through some challenging times, and I very much appreciate the confidence the Board has placed in me to lead this company. My goals for today are modest. I want to introduce myself, and I want to share with you my early impressions after 5 weeks on the job. I look forward to engaging with you as well as with many of our shareholders and bondholders individually and in greater depth as I settle into my new role. By way of background, I come to Carrols with more than 2 decades of experience in the hospitality, quick service restaurant and beverage industries. Most recently, I served as the COO of Selina, one of the world's fastest growing hospitality brands. Prior to that, I led operations for over 800 company-owned restaurants at McDonald's. Earlier in my career, I oversaw a portfolio of over 200 franchised and managed hotels in 20 countries for Wyndham Hotel Group and worked on strategic partnerships and operations to Starwood Hotels and Resorts. My first 2 roles were both international finance positions, first at Ernst & Young and then at The Coca-Cola Company. Since joining Carrols in early April, I've been conducting a listening and learning tour. I've visited many of our restaurants and met with a broad cross-section of team members at our headquarters in Syracuse and throughout our 16 regions. I've been hearing their ideas, concerns and suggestions for strengthening our company and evolving our business. The insights they've given me will prove invaluable as we set our strategy in the weeks ahead. It's been particularly gratifying for me to see firsthand some of the up and coming talent we have within our organization. For example, and this is just one of many, I recently met with 4 of our newest general managers, all of whom started as restaurant crew members when they were in high school. They are all highly energetic, ambitious and eager to contribute as they advance in their careers. My mission will be to harness their passion and can-do attitude to drive our future success. It's too early to lay out a detailed strategy but a few points are coming into sharp focus. Probably the most urgent is the inflationary pressure we are feeling in both commodities and labor. Even if inflation moderates in the back half of this year, we're likely to feel its impact on our cost structure for some time. To deal with it, we are going to need to adapt and evolve as never before, and to do that, we are going to need to look at all aspects of our operations with fresh eyes. Pricing actions alone will not be sufficient to restore margins. In the weeks ahead, my team and I will be diving deeply into every facet of how we operate our business. While COVID has already dictated that we make a number of fundamental changes, the post-pandemic environment will demand still more. We will be challenging the status quo to drive meaningful changes and to generate profitable growth. I look forward to sharing details with you later on this year. I've also been engaging with our franchisors at Restaurant Brands International and in particular, with Tom Curtis, President of Burger King's U.S. and Canada markets. RBI is putting together a plan to drive traffic and improve franchisee profitability by addressing all elements of successful restaurant operations

Anthony Hull: Thank you, Paulo. I know that I speak for everyone when I say that we are pleased to have you onboard and look forward to working with you to drive improvements in our business and create value for all of our stakeholders. Turning to the quarter. I will start by addressing our 2 greatest cost headwinds, labor and commodities, both of which had significant impacts on our adjusted EBITDA margins compared to the prior year quarter. These inflationary challenges impacted our results in the latest quarter in a similar manner to what we experienced in the fourth quarter of 2021. To be sure, we are attempting to partially offset these inflationary pressures through pricing actions, menu innovation and lower promotional discounts, which are helping to alleviate margin pressure to some degree, but there's more that can be done. This is why, as Paulo indicated, we need to rethink our operations more broadly and examine other ways to manage our cost structure as we adapt to this new inflationary reality. Pricing for our Burger King restaurants was increased approximately 7.7% during the first quarter, inclusive of actions taken late in 2021 and earlier this year. The promotional and pricing initiatives Burger King has implemented over the past 9 months have contributed to a meaningful reduction in our discount levels against gross revenue and have aided our profitability. On the labor front, given the continuation of wage pressures that emerged last year, average hourly wages of our team members increased by 13.6% in the first quarter compared to the prior year period before overtime. However, this sequentially improved from the 14.2% increase we incurred during the fourth quarter last year. As we said back in February and are reiterating today, hiring pressures are stabilizing as we are seeing an increase in application flow while our turnover stats are starting to retreat from the peaks we saw in the back half of last year. More importantly, the average hourly rate we pay only increased about 1.5% from January through April of this year. In terms of cost of sales, we are still feeling the inflationary impacts of higher commodity prices as we have since the third quarter of 2021. Beef represents about 1/4 of our commodity basket, and its cost increased 31.9% in the quarter compared to the prior year period, although it held steady on a sequential basis. Domestic food and paper producers and distributors supplying most of our commodities are dealing with labor constraints and higher fuel costs themselves, which they are in turn passing on to us. As a result, commodity inflation overall was approximately 17% this past quarter compared to the prior year quarter, including the impact of higher beef costs. This was up from 16.2% in the fourth quarter. We believe that commodity inflation will remain elevated until the fourth quarter of this year. Turning to the top line. Total restaurant sales for the first quarter increased 2.4% to $399.5 million compared to $390 million in the prior year. Comparable Burger King restaurant sales rose 1.6% during the quarter. Average check growth came in at about 9.9%, which reflects menu price increases and lower promotional activity, partially offset by a traffic decline of 7.5%. Contributing to this change in traffic were fewer operating hours, which declined 2% from the year earlier due to lingering staffing shortages. Our monthly results fluctuated dramatically over the 3-month period. As discussed on our last call, January was down about 1.4% due to lower traffic given headwinds from 3 major snowstorms that hit most of our larger markets and staffing issues caused by the spread of the Omicron variant. We were up in February in the low double digits due to favorable traffic comparisons relative to the impact of severe storms in 2021. March was down in the low to mid-single digits as we lapped the stimulus checks from last year. For April, comparable sales trends turned positive in the last 2 weeks of the month, and that has continued into May. Looking ahead, Burger King commenced an aggressive promotion to officially launch the Royal Perks mobile app. This promotion offers a free order of fries to members on a weekly basis for the remainder of 2022 and is designed to drive digital sales. In addition, we increased menu prices 3% last week, which should also improve comparable sales levels in the upcoming quarters. This increase was tied to inflation, and we've been careful not to get ahead of the competition in making these changes. Delivery contributed 6.1% to our Burger King sales mix this past quarter, up from 5% in the fourth quarter of last year. The average check for delivery rose to $18.07 from $17.58 between those 2 periods while the average check overall, including delivery, rose to $9.69 this past quarter compared to $9.57 in the fourth quarter of last year. In terms of sales trends at Burger King by daypart, the dinner and evening periods gained some momentum while our 2 smallest dayparts, late night and breakfast, modestly declined. This past quarter, we once again outpaced the U.S. Burger King system in comparable restaurant sales. On a calendar comparison basis, our comparable Burger King restaurant sales for the first quarter exceeded the U.S. Burger King system by approximately 160 basis points. We believe that the delta between our performance and that of the system narrowed in the latest quarter given the earlier timing of our actions to take price and return to normal restaurant operating hours. Turning to our Popeyes restaurants, which represented 5.4% of total revenues in the first quarter. Comparable restaurant sales increased 2.2% versus an increase of 0.5% during the same period in the previous year. We outperformed the Popeyes U.S. system by 610 basis points in the first quarter due to our geographic concentration in areas that were hard hit by storms last year. As a result of the inflation challenges experienced in the first quarter, adjusted EBITDA decreased $15.6 million to $4.3 million while our adjusted EBITDA margin decreased 400 basis points to 1.1% of restaurant sales. Note that our first quarter has historically been and remains the weakest of the year due to business seasonality. This in turn results in reduced revenue levels against fixed and semi-variable costs during the period. While not providing guidance, we believe that this year's first quarter is not representative of our expectations for our full year 2022 results. Cost of food, beverage and packaging, which was 30.8% as a percentage of net sales, increased 160 basis points primarily because of higher beef, chicken and other commodity costs, partially offset by higher menu prices. The cost of beef is a major driver of our profitability. In March, beef was at $2.75 per pound compared to $2.44 per pound on average for the full year in 2021. Looking ahead, our food cooperative expects beef prices will moderate beginning later this summer. While we can't predict the future, we would expect a $0.30 decrease in beef cost to increase EBITDA by about $15 million on an annual basis or about $5 million per $0.10 decrease in the price per pound we pay for beef, all else remaining equal. Restaurant labor expense rose 220 basis points as a percentage of restaurant sales in the first quarter compared to the same quarter a year ago. Productive labor costs increased $7.8 million primarily due to higher hourly wage levels relative to last year. The remainder of the labor cost increase was due to the necessity of paying team members premiums to take on additional responsibilities such as opening and closing our restaurants and higher management labor expense due to salary increases for assistant managers to improve retention, which was implemented last year. We did see a sequential deleveraging of labor cost to sales of about 150 basis points this past quarter relative to the fourth quarter of last year mainly due to seasonality causing lower first quarter revenue levels. Restaurant rent expense held as a percentage of sales compared to the prior year period. Other restaurant operating expenses increased 70 basis points due to a number of factors, including utility rate increases, along with higher insurance and repair and maintenance expenses. We also now have smart safes in the majority of our restaurants that provide for labor efficiencies, faster cash collection and greater security but this initiative has added to operating expenses. General and administrative expenses held constant as a percentage of sales compared to the prior year period. Our net loss was $21.3 million in the first quarter or $0.42 per diluted share compared to a net loss of $7.2 million or $0.14 per diluted share in the prior year period. On an adjusted basis, excluding certain nonoperating items, first quarter adjusted net loss was $17.1 million or $0.34 per diluted share. In the prior year period, adjusted net loss was $6.5 million or $0.13 per diluted share. Free cash flow for the first quarter was a use of $39.1 million compared to a use of $3.6 million in the prior year period. The greater outflow in this year's first quarter was due to reduced earnings relative to the same period last year, along with the repayment of 1/2 of the FICA deferral of $10.8 million we benefited from in 2020 and the first 6-month interest payment on the senior notes we issued in June 2021. We expect the absence of these clustered payments will be beneficial to free cash flow generation in the back half of this year. We ended the first quarter with cash and cash equivalents of $8.5 million; and long-term debt, including the current portion, and finance lease liabilities of $499.7 million. There was $20 million of borrowings drawn and $9 million of letters of credits issued under our $215 million revolving credit facility at the end of the quarter and remains at about that level today. This left $186 million of unused availability and when added to our cash balance, provided us with $194 million of liquidity at the end of the first quarter of 2022. We expect to repay what we have drawn on our revolver in the back half of 2022. As a reminder, our ability to utilize the available balance of $186 million under our $215 million revolver at quarter end is not currently restricted due to any covenants in our senior credit agreement. Only when more than 35% of the available capacity or $75 million is being used are we required to be in compliance with one senior secured leverage ratio in order to borrow under our revolver. We were $55 million below that threshold at the end of the quarter and consequently had no covenant requirement or limitation to borrow. We expect that our revolver borrowings this year will increase modestly in Q2 before declining as the year progresses, and we believe that borrowings under our credit facility will not rise to levels that would require measurement of our senior secured leverage ratio. Our senior secured leverage ratio was at 2.6x at the end of the first quarter so we were not limited from using our current available revolver capacity even if the 5.75x covenant limitation had been in effect. Capital allocation for the time being is focused on repaying revolver borrowings, making mandatory amortization payments on our term loan B and building our cash balances until we get past this current challenging business environment. Net capital expenditures for this year are expected to be under $50 million, similar to the last 2 years. We expect to deploy capital for critical maintenance needs and required equipment purchases for our restaurants, along with completing remodeling projects that we had already begun in late 2021. The CapEx plan includes 6 new Burger King restaurant openings that have or will open during the year, 4 of which began construction in 2021. To conclude, we are working hard on a number of initiatives, some independently and some with the support of our franchisor, to significantly improve our profitability prospects. This will not happen overnight but we believe that beginning later in 2022 and in 2023, we will see improvement. In the meantime, we believe we have the balance sheet and capital structure to weather this challenging period given our full access to our existing ample level of untapped liquidity. And with that, operator, let's go ahead and open the lines for questions.

Operator: [Operator Instructions]. And our first question comes from the line of Jake Bartlett with Truist Securities.

Jack Corrigan: It's actually Jack on for Jake. First, I wanted to ask about staffing levels and operating hours as they compare to pre COVID in 2019. I guess how did those trend through the first quarter? And where are they staying currently? I'm just trying to understand how much of a tailwind that could be to sales from here.

Anthony Hull: Thanks, Jack. Yes, staffing has become a lot less challenging than it was a year ago, and turnover has come down as well. And that definitely improved every month during the quarter, and sitting here today, we're actually operating at more hours than we did in 2019, I think, in the first quarter. So I think the operating hours are back, and it did take a little bit -- we mentioned in the script that we lost about 2% of traffic due to hours limitations based on Omicron and storms and that sort of thing and staffing stresses that were there earlier in the quarter. But we're seeing application flow like triple from where it was late last year. So that part of the business is improving and yes, should be helpful to the quarters ahead.

Jack Corrigan: Great. That's helpful. And just quickly, do you have all of your dining rooms open as well?

Anthony Hull: Yes, yes. All the dining rooms are open.

Jack Corrigan: Okay. That's great. And then just a clarification on the pricing actions you've taken. You took 3% at the end of the quarter. Can you give what you would expect pricing to be in the second quarter and then also in the third and fourth quarter as pricing rolls off from the prior year?

Anthony Hull: Well, I can give you second quarter. We expect menu pricing to be up about 9% for the quarter. Because -- we just took that 3% last week, like last Monday or Tuesday. We didn't see any discernible adverse impact on traffic. So we're pretty happy about that. But in terms of the next 2 quarters, we do expect to have more price increases in -- over the summer. We'll obviously be evaluating the market and what the competition is doing in terms of price increases, but I think we're in pretty good shape in terms of rolling over some of those price increases we made last year in Q3 and Q4. And obviously, the average check is going up. It's not like the average check is going to go down when we don't do a price increase. The average check is going to stay at elevated levels from the actions we've taken over the last 18 months or so. So -- but I don't have specific numbers for you for Q3 and Q4.

Jack Corrigan: Okay. That's fair. And then just lastly, you talked about evaluating operations and to find efficiencies to offset these cost pressures that you're seeing. First, are you solely looking at restaurants? Are you looking at G&A savings as well? And then my impression is that you guys are on a pretty tight ship in your restaurant. So can you give us some idea of what types of operational changes you might be looking at? You also mentioned that there was a number of restaurants in the system that you classified as challenged. Would you be able to give what percent of your system you would classify as challenged currently that you really need to take a deeper look at?

Paulo Pena: It's Paulo. Thanks for the question. So as I've come into the company, Carrols has a legacy of strong operations, and I've certainly found that to be the case. And so what we'll be doing in the coming months is focusing on the key levers on operations around speed of service and guest satisfaction. We'll be working to continue to improve turnover. And so these aren't new things. These are things the company has done well over time. We'll be very focused on those specifically. And as the environment has changed quickly over the last few months, there are a portion of the stores -- a relatively small portion of the stores that haven't kept up with the environment. And so we'll be focused on those to bring them up to the standard we expect at Carrols and that we certainly see in other parts of the portfolio. And so that's going to be the primary focus, really working through the performance of the restaurants and ensuring that we're getting the most out of their operating capability and profitability.

Anthony Hull: And Jack, I just want to answer your question on G&A. I don't see any -- we're not talking about efficiencies there. I think it's -- most of the banning for our buck can come from even modestly improving efficiencies at our restaurants. And I think we need the support of the regional staff to really make those things work. So I don't see us taking any actions on the G&A line at this point, which I think it's pretty critical to keep those folks totally engaged in improving the operations of those -- some of the restaurants that aren't quite up to snuff.

Operator: Our next question comes from the line of William Reuter with Bank of America.

William Reuter: My first question, about the performance of different markets and certain challenged stores. Are there certain attributes or certain regions that are experiencing more difficulty across the portfolio than others? And I guess what would those attributes be of those stores, whether they're more urban or suburban, et cetera?

Paulo Pena: Look, when we see high-performing restaurants, the common attribute is typically the team we have -- the local team we have on the ground, both at a district level and at a restaurant manager level. And so when we find restaurants that aren't performing at that level, that's typically where we focus first, ensuring the team is well trained, the team is understanding of the routines we expect. And that's -- and we have -- one of the things that I found as I've traveled around to many restaurants at this point is that we have a very strong team at Carrols with a legacy of training -- strong training programs in place and strong operating procedures in place. And so it's ensuring that in the restaurants that perhaps were impacted during this challenging cycle, that we have those teams well supported, well trained and operating to the processes and procedures we have defined.

William Reuter: Okay. And then, clearly, across the industry, with so much turnover over the last handful of years, I'm sure productivity in stores with regard to labor hours has been a little bit under pressure. I guess what type of a tailwind do you think we could see if turnover rates decline in terms of labor costs per location? Is this a meaningful potential opportunity over the next year or 2?

Anthony Hull: Yes. I think the opportunity is -- a lot of our labor increases have come from paying premium pay to some team members for acting as managers to open and close the restaurant. I think as the turnover on the manager side retreats a little bit, I think that's where we're going to save those costs that we pay to team members to open and close. I think it will be -- I think it will definitely help our labor costs as staffing sort of normalizes over the -- continues to normalize over the next several quarters. So I think it will be a positive on labor as a percentage of revenue type stats.

William Reuter: Got it. And then just lastly for me. It seems like you feel comfortable with liquidity and that -- maintaining the ample liquidity and availability on your ABL this year. In terms of over the next couple of years, you do have some opening requirements with regard to stores. Is there any ability to delay those in the event that your capital constraints and kind of free cash flow required you to be a little more conservative?

Anthony Hull: Yes. We're in constant communication with BKC on our development plans. I mean it's an ongoing dialogue, and we're traveling with them a lot during the quarter. We're just in -- it's a very productive relationship we have with them, and they know where we are and where we're focusing. And we're totally in sync in terms of they're focusing on maximizing ROI for their franchisees, and that's where we're looking. And they're -- they understand the current headwinds, and they're very focused on franchisee profitability right now. So I don't see it as an issue at all for us to be able to have a dialogue with them about delaying some of the numbers we have in the ADA in terms of deadlines for building stores. So I think it should be a nonevent.

Operator: Our next question comes from the line of Jeremy Hamblin with Craig-Hallum.

Jeremy Hamblin: Welcome to the team, Paulo. Nice to have you. So I wanted to just start by asking or getting a clarifying question about the same-store sales trend. So I think, Tony, you've said that April was positive for the month and that it had turned positive the last couple of weeks of the month and then that's continued in May. Can you just clarify that for me?

Anthony Hull: Sure. March was -- obviously, there was a lot going on, on the macro side of the world. But specifically, for us, the one thing that was apparent was that the stimulus last year in the -- pretty much from the beginning of March through the second week of April, which is when the checks went out, had an artificial positive impact on our numbers or at least not a sustainable one, I guess, is a better way to say it. So that was something that was concerning to us, the average check going up but the traffic was definitely coming down and then literally like lights on, lights off, I don't know -- I guess because we lapped those last stimulus checks coming out. Starting in the second week of April, we've seen improvement in comps overall. I mean it's just going from sort of flattish and kind of dull to solid low to mid-single-digit type numbers. So -- and it's just -- it's been every day, honestly, since mid-April. And so we're feeling really good about that. And there was a coupon drop last week, and you could immediately see another sort of step up in the dinner time hour and folks using those coupons. So the consumer is clearly value conscious, but it seems like we're -- we didn't see that trade-down occur in March because we were -- there was a lot of noise, but I think we're seeing some opportunity for us for the trade-down market. So I'm really -- we're really encouraged by that. And even with the coupon drop, price is going -- is continuing to be strong. And we saw no blip on the screen at all from the 3% increase we saw last -- we did last week in terms of changes to traffic patterns and stuff like that. So really feeling good about sort of mid-April and forward at this point.

Jeremy Hamblin: Great. That's encouraging. Just wanted to clarify too. In the Q1 ground beef cost per pound, did you give a number on that? Was it $2.70?

Anthony Hull: $2.75.

Jeremy Hamblin: Okay, $2.75. And what is your expectation? I know you said that you think, in the second half of the year, the co-op believes it's going to come down, hopefully, $0.30, $0.40 a pound. But what type of number are you looking at in Q2, probably a similar number?

Anthony Hull: Yes. It's a moving target, Jeremy, because we actually in the last couple of -- I think, 3 weeks maybe, we've seen it come down below where our food co-ops forecasted it to be. So it seems to be coming down. And it's -- for a couple of weeks, it was $0.01 or $0.02, and then it was like a $0.05 last week. So it seems to be coming down at a good pace. So I think it's going to be -- whatever we thought it was going to be, I think it's going to be a little better in Q2.

Jeremy Hamblin: Great. And then I wanted to ask just a thought on the operating hours and where wage prices are today. Has there been any thought about the operating hours that you have restaurants open? I know everything is reopened at this point, but the wage rates are really high on an absolute basis. Has there been any consideration on whether or not to taper those endpoint hours just to make the restaurants more efficient or possibly to go the other way, that you're doing enough business on those off-peak hours to increase the hours?

Anthony Hull: Yes. We look at that on a store-by-store basis and provide district managers with all the information they need, all the tools they need to make that data-driven decision. But obviously, it's the regional manager who makes those determinations at the end of the day. So we have a consistent process throughout the company to do that. And actually -- and the model we use is sort of a quarterly run rate so it has all the higher labor costs and commodity costs in there and has sort of fresh sales numbers in there. So it's a data-driven decision. And on the -- at the late night, we're looking to open -- it's mostly we think we can afford and it's profitable to open for more hours at night and go back to almost some pre-COVID type numbers. And we're actually running a test in Rochester right now to do the opposite. The other end of the spectrum is maybe we don't need to open at 6

Jeremy Hamblin: Great. Last one for me. So in terms of trade-down that typically happens when you have a weaker economic environment, with a $9.69 or almost $10 average ticket, do you still feel like the relative value offered with the brand is where it needs to be to see that happen and then kind of take advantage of the opportunity that comes when you have a softer economic environment?

Paulo Pena: It's Paulo. It's difficult to predict how consumers will respond, and obviously, consumers have been impacted across the full spectrum of the economy. As you said, it's the relative value to other options. We do think, based on the traffic patterns that we've seen particularly over -- as Tony mentioned, since the middle of April, that customers do continue to find value in our products; and even though the average check is higher than it's been, that it's good relative value. And of course, we continue to run promotions and have value options on the menu and particularly through digital and giving our Royal Perks members options and particularly limited-time offers that appear to be working.

Operator: And our next question comes from the line of Oliver Grossman with Jefferies.

Oliver Grossman: In terms of the revolver and how you mentioned how you want to pay it back in the second half of the year, free cash flow isn't there. Would you consider raising some secured debt to fulfill that? And I guess just how much secured debt capacity do you think you have today?

Anthony Hull: I don't think we're in the needs position to raise any debt. Again, we're only using $20 million of the revolver. It's -- we have $185 million or so available. So I don't see a scenario where if we had $20 million, $30 million, then down to 0 on the revolver, we'd need to ever -- or even if we kept having $30 million on the revolver, we'd have to raise more secured debt. So I don't think -- debt raising is not something that we need to do given our capital structure. The way it's -- and we just have a lot of liquidity in our current bank line and obviously have great relationships with those banks. So that money is available to us, and we're going to -- if we need it, we'll use it. But we're -- it's only -- I don't think we'll need it, and that's not what our forecast shows.

Oliver Grossman: Got it. Makes sense. And in terms of CapEx, I guess, compared to what you're run rating for this year versus what you would ideally want to do in a more normalized environment, can you help us reconcile that so that we get a better sense for what future CapEx looks like?

Anthony Hull: Yes. I think it depends largely on how fast our EBITDA recovers over time. But I know that the bookend that we -- the bookend of the high end was 2019. I know we're never going near that number again. I can never -- I know never is a big word. But as long as I'm here, we're not going to go to that number anyway. So I think the current level is -- maybe, at most, we go $20 million or $30 million more if things were looking really, really positive and our EBITDA leveraged up because of some of the turnarounds we're seeing. But I think we're a ways away from having to -- that's a high-class problem and clearly, another thing we're talking to RBI and the Burger King folks about all the time. So they're very sensitive to that and working with us to make sure that we're not extending ourselves -- they're not making us extend ourselves at any time.

Oliver Grossman: Got you. Makes sense. And then just lastly, in terms of commodity and labor, it seems like you're a little hopeful that commodity pressures will come down in the back half of the year. But by and large, just margin-wise, should we expect kind of a similar margin headwind for the rest of this year?

Anthony Hull: No, no. I think our view is that we should start to see maybe some leveraging in the back half of the year, mainly in the fourth quarter. But I don't think the comparisons in the third quarter are going to start to get a lot, I guess, less challenging because we started seeing these headwinds in the third and fourth quarter of last year. So I'm pretty -- this business can move pretty -- as you've seen the leverage down, it can -- the leverage works the other way when traffic starts to build and commodity prices retreat a little bit and labor gets to be a normalized kind of 2% to 3% growth thing. You could see a good margin improvement pretty quick coming for us -- or coming to us if everything aligns well.

Operator: [Operator Instructions]. Our next question comes from the line of Carla Casella with JPMorgan.

Carla Casella: You talked about your performance at your Burger Kings being better than the systemwide average. Can you just talk about what that's attributed to? And are you showing or featuring different menu items? Or are you taking a different tack to store hours than the average chain?

Anthony Hull: Yes. They're catching up to us because, in the fourth quarter of last year, we were like 400, 500 basis points ahead of the system and this past quarter, we're a couple of hundred basis points. So I think the rest of the system is kind of catching up to us. But the reason for the sort of the big disconnect back in the fourth quarter, the big separation that we did a lot more than they did in the fourth quarter was we were pretty quick to open the restaurants to full 6 a.m. to 11 p.m. operating hours and put menu prices through in the fourth -- late third quarter, fourth quarter. So that helped us outperform. But the rest of the system kind of caught up to us a bit in the first quarter of this year. So that's why the outperformance narrowed a bit in the latest quarter. But I think it's just -- we're not -- I just think we're operating with more discipline. So I think that helps us outperform. It's kind of basic blocking and tackling type of stuff.

Carla Casella: And I'm wondering about just the relationship between Restaurant Brands. Are they kind of leaning on you having more, I guess, focus groups with franchisees to kind of figure out the market? Are you hearing a lot of the same thing from the other franchisees? Or how much collaboration is there right now? Has this stepped up given the turbulence?

Paulo Pena: It's Paulo. Since I've been here over the last few weeks, I've been speaking and meeting quite regularly with Tom and the leadership team at Burger King. And so I can tell you that there is ongoing dialogue, and there is -- the dialogue is productive. And we are working together to build a plan that's going to drive traffic and improve franchisee profitability. And I'm encouraged with what they're working on and the team that Tom is building.

Carla Casella: Okay. Great. And then just wanted -- I may have missed it, but did you give what maintenance CapEx is? I know you've cut it back. Have you cut it back all the way to the maintenance level? Or could you go further?

Anthony Hull: I mean it's about $15 million a year, and we haven't cut that back. It's important to keep the stores obviously operating. From a -- the stuff that goes on the CapEx is really roofing and HVAC and driveways and stuff like that. So we work pretty hard to -- we keep that -- we keep up on that spending.

Operator: We have reached the end of the question-and-answer session. I'll now turn the call back over to CEO, Paulo Pena, for closing remarks.

Paulo Pena: Great. Thank you, operator. Thank you again for joining us this morning and for all of your questions. While the first quarter was a challenging one, we are now looking ahead. We're acutely focused on driving improved operating and financial performance. We intend to be very disciplined when it comes to capital allocation, and we feel good about the future of our business and our strong liquidity position. We appreciate your time and look forward to speaking with you all again next quarter. Thanks very much.

Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.