Carrols Restaurant Group, Inc. (NASDAQ:TAST) Q4 2022 Earnings Call Transcript

Carrols Restaurant Group, Inc. (NASDAQ:TAST) Q4 2022 Earnings Call Transcript February 28, 2023

Operator: Welcome to Carrols Restaurant Group, Inc.’s Fourth Quarter and Full Year 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions on how to ask a question will be given at that time. I would like to remind everyone that this conference call is being recorded today, Tuesday, February 28, 2023 at 8:30 a.m. Eastern Time and will be available for replay. I will now turn the conference over to Jeremy Watchus, Carrols’ Senior Director of Finance. Please go ahead.

Jeremy Watchus: Thank you, operator, and good morning, everyone. By now, you should have access to our earnings announcement released earlier today 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.

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 Interim President and CEO, Tony Hull. Tony?

Tony Hull: Thank you, Jeremy, and good morning everyone. Emotionally, the start of this year has been extremely difficult for all of us at Carrols. Be mourn in the passing of our friend, colleague, and leader Paulo Pena, Paula will be deeply missed by his strategic vision for Carrols remains ingrained in all of us and will continue to shape how we run the business going forward. Turning to our results. We’re pleased with our momentum during the fourth quarter of 2022. Restaurant sales grew 7% representing our strongest quarterly growth of the year, driven by sales of full margin products, reduced discounting and menu price increases. Adjusted EBITDA improved over 80% to $25.4 million over the same period last year, driven by sales leverage on both costs of goods sold and labor.

Furthermore, we generated $14.5 million in free cash flow, representing our best quarterly results in over two years. As we look ahead, we’re excited by what we are seeing on both the top-line and with input costs. We believe we are on track to continue to deliver improved performance moving forward. Let’s dig into the details, starting with restaurant operations. In the fourth quarter of 2022, we experience sequential and year-over-year margin improvement driven by increased flow through on higher average check along with moderation and inflation and greater operating efficiency. We increased hours of operations by approximately 3% of our Burger King restaurants and 4% at our Popeyes restaurants relative to the prior year period, capturing incremental revenue, particularly in our shoulder periods.

The labor environment continues to improve with team member turnover moderating and application volume above pre-COVID levels. We continue to look to strategically add operating hours, especially in the late night day-part where incremental sales volumes warranted. We believe that labor as a percentage of sales will continue to moderate over the course of this year. Our guest satisfaction scores in Q4 improved approximately 25% over the same period last year at our Burger King restaurants and greater than 10% at our Popeyes restaurants. In fact, we achieved new records during the fourth quarter and intend to keep raising the bar going forward. As we start the New Year, our managers and team members will remain focused on operational consistency in our restaurants to further drive improvement.

This is a priority as we believe the guest experience is the key driver of repeat visits and incremental traffic growth. Lastly, our team members were able to more effectively manage food spoilage and waste, allowing us to partially offset some of the elevated commodity inflation we continue to see. Turning now to our growth drivers. Let me begin by discussing pricing and value. Our Burger King restaurants have taken price increases of approximately 9.6% over the past year. The similar increases implemented at our Popeyes restaurants. That said, we are becoming much more geographically refined with our pricing tiers, allowing us to better adjust to local market conditions. Additionally, we remain focused on finding the optimal mix of promotions and discounts across channels to be sure we meet our customer’s desire for affordable value.

Reduced discounting practices have contributed to our revenue growth over the past several quarters at our Burger King restaurants, and this trend is expected to continue in the first half of 2023. As we look to the back half of 2023, we expect that this contributor to comparable sales growth will likely dissipate, as will our ability to raise menu prices at the levels we implemented in 2022. We believe, however, that our efforts on strategic pricing and discounting initiatives that are currently underway should continue to be long-term contributors to comparable restaurant sales growth and profitability. In terms of value, we continue to work to ensure that our actions are designed around the unique needs of our local markets, including the use of a disciplined approach that seeks to carefully balance sales, traffic and margins in our restaurants.

For example, in the fourth quarter, we increased mix and match pricing from $6 to $7 and from $10 to $12 in 20% of our Burger King restaurants. We have additional local value opportunities currently being rolled out that we look forward to discussing on future calls. Finally, I want to touch on Burger King’s Reclaim the Flame Initiative. We are encouraged by what we’ve seen thus far on the marketing side, and we are optimistic about the impact it can have on our business where specifically Burger King launched the You Rule tagline in October, and we have seen great reception in our restaurants, both with our customers as well as with our employees. As part of that campaign, we’ve seen the Whopper Whopper jingle go viral, helping keep Burger King top of mind with customers of all ages, but specifically with younger generations.

While the Reclaim the Flame plan is still in its early stages, we’re excited to see the impact this campaign and other elements of the plan will have on Burger King’s brand equity and our traffic trends, particularly in the back half of 2023. On the plans reinvestment opportunities, we intend to keep our 2023 capital expenditure spend at $40 million, which we believe is a prudent level of spend in the current environment. Nevertheless, we plan to increase the number of remodel projects we undertake this year as a result of the financial subsidies we expect to receive from our franchisor. Reclaim the Flame also allows us to proactively upgrade our restaurant digital technology at many of our stores at no cost to us as long as we continue our normal restaurant maintenance spend cadence .

Before I turn the call over to Gretta, I’d like to touch on some of our thoughts about the upcoming year. First, we are optimistic about the momentum we have seen and the positive impact Reclaim the Flame can have on our traffic as we move through the year. We believe this can provide an offset to expected average check normalization in the second half. Second, we are expecting to see continued moderation of both commodity and labor inflation over the course of the year relative to the elevated levels in 2022. Finally, we have a number of initiatives underway, uncontrollable operational levers that we expect will have a positive impact on both gross margins and efficiency. With that, I will now pass the call over to our Controller and Assistant Treasurer, Gretta Miles, for more detailed discussion of our financial results.

Gretta Miles: Thank you, Tony, and good morning, everyone. Restaurant sales in the fourth quarter increased 7% to $445.1 million compared to $416.1 million in the fourth quarter of 2021. For the full year, Carrols generated $1.73 billion in total revenue, which was an increase of 4.7%. For the quarter, comparable restaurant sales at our Burger King restaurants increased 6.2%, comprised of a 13.3% increase in average check, which was partially offset by a 6.2% decline in traffic. Our average check in the quarter benefited from lower promotional discounting as well as the impact of pricing actions we took during the year. Comparable restaurant sales at our Popeyes restaurants increased 9.2%, comprised of a 6.4% increase in average check and a 2.7% increase in traffic.

Turning to some detail on expenses. Cost of food, beverage and packaging improved a 100 basis points to 29.9% of restaurant sales as commodity inflation of approximately 12% was offset by the positive impact from pricing actions and reduced discounting as well as to a lesser extent reduced inventory spillage. The most meaningful contributors to food inflation were higher potato shortening and bakery costs during the quarter relative to last year. Beef averaged $2.54 per pound during the quarter, a 6% decrease from the same period last year. Overall, commodity inflation has moderated from the levels we saw earlier in 2022, but still remains elevated from a historical perspective. From where we stand today, we expect commodity inflation to be in the high single digits for the first half 2023.

Photo by S O C I A L . C U T on Unsplash

Restaurant labor expense decreased 130 basis points to 32.7% of restaurant sales with labor inflation offset by reduced labor hours and the impact of pricing actions and lower discounts. Average hourly wage rates for our team members before overtime increased by 6.3% during the quarter compared to the prior year period, representing a continuation of the sequential moderation we have seen in labor inflation this year. As we look ahead, we expect wage inflation in the mid-single digit in 2023 compared to the high single digit we saw last year. Other restaurant operating expense increased by about 20 basis points to 15.7% of sales. While we saw leverage from higher sales than many components of OpEx, insurance and repair and maintenance expenses outpaced our restaurant sales increases.

Restaurant rent expense decreased 30 basis points year-over-year as a percentage of sales compared to the prior year period, primarily from the impact of higher sales on fixed rental agreement. Adjusted restaurant level EBITDA totaled $46.9 million, an increase of over 37% compared to last year, sequentially from the third quarter to the fourth quarter of 2022. Adjusted restaurant level EBITDA margins improved 200 basis points due to the improvements I just mentioned. General and administrative expenses as a percentage of sales improved 30 basis points year-over-year as we saw leverage on higher sales compared to the prior year period, excluding non-recurring costs as well as stock compensation expense, G&A as a percentage of revenue was 4.9%.

We anticipate 2023 G&A expense, excluding stock compensation expense and any non-recurring cost of approximately $22 million per quarter. Adjusted EBITDA was $25.4 million in the fourth quarter and represents the sequential improvement of over 43% compared to our third quarter’s results, which given the impact of holidays in our fourth quarter would normally be a seasonally stronger quarter. For the fourth quarter, our net loss was $19.1 million or a $0.38 per diluted share compared to a net loss of $16.4 million or $0.33 per diluted share in the prior year period. On an adjusted basis, fourth quarter net loss was $2.5 million or $0.05 per diluted share compared to an adjusted net loss of $7.5 million or $0.15 per diluted share in the prior year period.

Free cash flow for the fourth quarter was $14.5 million and improvement compared to $8.8 million in the same period last year. Improved year-over-year EBITDA as well as timing of capital spend contributed to the strong cash generation in the quarter. In the fourth quarter of 2022, we used free cash flow generated along with cash to reduce our net debt balances by $14.4 million. Cash and cash equivalents was $18.4 million at the end of the quarter and long-term debt, including the current portion and finance lease liabilities was $493 million. Our overall interest rate on our debt this past quarter was 5.6% as approximately 90% of our debt was fixed at the end of the quarter. In the first quarter of 2023, we made our final repayment of the deferred FICA obligation totaling $10.8 million and our first of two semi-annual interest payments on our senior note of $8.8 million.

This, along with a seasonally low sales period for the company is expected to use the cash we had on hand at year end and may require some modest short-term revolver borrowing. Our balance sheet continues to provide us with significant liquidity, a long runway in terms of debt maturities and stable and manageable debt service obligation. At the end of the quarter, there were only $12.5 million in revolver borrowings being used in $9.6 million about standing letters of credit, leaving us with $211.2 million of total liquidity at the end of the year. As of January 1st, our senior secured net debt leverage ratio stood at 2.63 times compared to its limit when applicable of 5.75 times. We continue to forecast that net capital expenditures for 2023 will be approximately $40 million, which includes approximately $20 million for restaurant maintenance, new restaurant equipment purchases, and corporate information systems.

The remainder primarily relates to new Burger King restaurants we expect to open this year as well as restaurant remodels. We expect the first year returns on these activities to be in the mid-to-high teens after accounting for franchise or subsidies. Following our reinvestment in our businesses, our remaining capital priorities for the foreseeable future include making debt amortization payment of approximately $2 million per quarter, reducing our revolver balance and building on our cash balances. And with that, this concludes our prepared remarks. We’d like to thank you again for your interest in Carrols and we are now happy to answer any questions that you may have. In addition to Tony and myself, Joe Hoffman, our Chief Restaurant Officer is also available during the Q&A session.

Operator, please open the line for questions.

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Q&A Session

Operator: Thank you. Our first question is from the line of Jake Bartlett with Truist Securities. Please go ahead.

Jake Bartlett: Great. Thank you so much for taking the question. My first was on Tony, I think you used the word momentum a couple times, momentum, I think heading into 2023 and I’m hoping you can help us, maybe quantify, just how that momentum that you saw in the fourth quarter has carried into the first quarter here and in your early 2023 on the top-line?

Tony Hull: Sure. We, in January and February so far we’ve seen some very strong results. Part of its because we’re lapping, especially in January, we lapsed some big storms last year, but in February, even when we haven’t lap storms, we think we’re going to, come out at the high end of mid single-digit on comp growth, in the first quarter. So that’s a continuation of momentum we saw in Q4 and really the same kind of factors, on the average check are still in play, which is we’re still getting the benefit of the price increases we took last year and we’re getting the benefit of lower discounting as well. So those things, that’s the momentum we’re seeing.

Jake Bartlett: Great. I appreciate it. And there’s a number of sales drivers that you have, I’m hoping that you can maybe give some a little more detail on each. And one is hours of operation. So, you mentioned kind of looking at late night, maybe kind of bringing some of that back. You got anything, 3% higher hours for Burger King in the fourth quarter, what kind of opportunity is there in 2023 versus the average in 2022, just on the hours expansion? The second is on the discounting, level of discounting is down, significantly, maybe if you could tell us what it was typically that comes out in the filings, but you could, if you could help us out now just in terms of promotions and discounting in the fourth quarter and whether you think that absolute level holds.

And then I think that the third driver is the you reclaim the flame and the U Rule the whopper all that. You mentioned that you’re encouraged by it, but, how are you, I mean, how’s that translating into sales? And kind of how confident are you that is it going to be a material driver of comps in 2023?

Tony Hull: Wow, that was a lot, Jake.

Jake Bartlett: I know, sorry, sorry.

Tony Hull: But I will endeavor to answer all three questions. Actually, I’ll turn the third one over to Joe, when after I, let me do the last two first. So on discounting, our discounting came down from about 19% in Q4 of 2021 to about 14% in Q4 of 2022. So that’s 500 basis points. And what’s driving that is there were a lot of promotions, in the fourth quarter 2021 that really got priced better or just went away. We’re still very focused on affordable value for our guests, but we’ve just taken away some of the pricing, we’ve just increased our gross margin on some of the items that compared to a year earlier and sort of changed the mix. So those things, and that was really largely driven by, I would say the franchisee profitability focus of, BKC.

So, I think that which is part of Reclaim the Flame. So, I think that’s kind of the first part that we’re definitely getting the benefit from. In terms of how long it lasts, I mean, we will see this benefit on discounting at least until we start lapping it in the late third quarter, fourth quarter of this coming year. But I think until then we’re going to see that benefit continue in terms of our average check increase. So that was one thing on the Reclaim the Flame. I mean the thing that excites me most about Reclaim the Flame is, the process and the sequencing of events that they’re doing, they’re holding rallies now with employee, with managers of our stores and our managers are participating to a high degree. The increase in advertising, which they talked about in Q4, that’s really going to be much more present in Q2 and Q3.

So, I think that’s going to help, with traffic in those periods. So, I think plus the reinvestment part of Reclaim the Flame, which we’re taking full advantage of, for our physical assets, that’s important too, but I think the most exciting thing to me is the increased level of advertising that we’re going to see later in the year, which everyone knows about. But when you see it sort of, when you see the numbers and you see how the magnitude those numbers, it’s pretty exciting. And I’m going to turn it to Joe to talk about, the other aspect in terms of, how we drive momentum in the stores and that sort of thing.

Joe Hoffman: Good morning, it’s Joe here. Talking about the late night day part, I guess I would start off by all of our day parts. Were positive on a relative basis, however, evening and late night was the greatest strength. So going forward, I think there’s areas of opportunity especially as our staffing levels increase, so we’re going to pay special attention to those last few hours of the day and where it’s strong, we will continue to extend our hours. We’ve seen a big momentum in the ability to go to late night hours. So, I think there’s plenty of opportunity out there and will remain focused on being able to be a late night player.

Jake Bartlett: Great. I really appreciate it.

Tony Hull: Thanks, Jake.

Operator: Thank you. Our next question is from the line of Joshua Long with Stephens Inc. Please go ahead.

Joshua Long: Great. Thank you for taking the question first. My condolences to you and the team for your loss. Our thoughts continue to be with you, but appreciate the time to be able to talk about the 4Q results today. When we think about just a lot of the momentum that you, you talked about here in particular, you noted the opportunity for geographic pricing and how that had kind of worked out favorably and there was some excitement there. Where are you at in the terms of the opportunity to see the full expression of that? Just any sort of context there would be helpful and then I had a follow-up.

Tony Hull: Well, I think we’ve seen a lot of it. We’re looking, the team is working on now really pushing hard on that for, an anticipated March price increase. We want to do it strategically and make sure we do it with a minimal impact on traffic. So I think we’ll be able to talk about those things in the future, but it’s definitely much more scientific and pinpointed than it’s been the past. We’ve gotten, we’ve really sharpened up our skills on pricing in this environment, because that really wasn’t a thing before, it was a pretty routine thing before last year. So I just think, we continue to make it strides and our franchisors also investing a lot in that area too, so we’re looking forward to getting their insights. So we think we have ways to go in terms of doing that without doing it strategically. So, we don’t hurt traffic while we do it. So, Joe, do you want to add anything to that or?

Joe Hoffman: No, I think you’re right. I think, I would just add that as far as geographically it €“ we need to look at each one of our areas and make sure that the pricing makes sense for that particular location.

Joshua Long: Thank you. That’s helpful. When we think about the labor environment, you mentioned a couple times that your kind of human capital focus and your team structure was in a good place. Could you add a little bit more context there in terms of either just pure staffing levels, retention, turnover, however you think about kind of contextualizing the improving labor environment?

Joe Hoffman: Yes, this is Joe again, I €“ our applicant flow remains strong, and we’re able to hire where needed. I think the labor market as a whole is seemingly rationalizing itself, but the biggest benefit to us has been the reduced turnover, which I think helps us become more efficient. Once we can begin to retain the employee long enough to continue to do cross-train them and then we find where their strengths are, the better we can create for the guest experience.

Joshua Long: That makes sense. Thank you. And then last one for me, when we think about the COGS outlook and the opportunity for moderating inflation over the course of the year, can you remind us particularly on the beef sourcing or where you source your beef, it seems like there’s some pushes and pulls there in the overall environment, which could lead to some increases in price of whether it’s on the exporting or side of the table. But just curious if we could get a little recap in terms of how you go about your sourcing? Thank you.

Tony Hull: Sure. Our sourcing is through our food co-op and they source it for the entire U.S. Burger King system. There are really two elements, we use internationally sourced beef to sort of depending on €“ depending on pricing can be about a third, I’d say of our beef. Those contracts we have good visibility into for several quarters because, we put the €“ they RSI puts those contracts in place ahead of time. On the U.S. part of the equation, it’s more spot market. It’s not really viable to hedge. So, we are looking carefully at what’s going on with the culling of the herd that has been talked about for several quarters. It’s supposed, its taking place now. So that could reduce the supply right at the time when the demand goes up as we get into the summer months.

So, we think beef is one of the areas that could show an increase this year, but a pretty modest increase. We think it’ll be pretty much on par for the full year versus last year, maybe up a couple percentage points. But obviously when we use the amount of beef we use, that’s a very important that’s a big increase in costs. I’d say the other €“ the other view on commodities right now is, is at least in the first half of the year, we still think that we’re going to be in the high single-digit kind of range. I mean, inflation for us in Q4 was at about 12%, so low teens and it was mid-teens for the full year. So obviously moving in the right direction and we think it’s going to be come below kind of the 10% level in the first half of this year.

So, and then the outlook for the back half of the year is really, is a bit harder to pin down, but given the increase we’ve seen €“ we should see some relief on a lot of commodities in the back half of the year.

Joshua Long: That’s helpful. Thank you. On the third of beef source internationally, where €“ what regions does that typically come from?

Tony Hull: It’s mostly Australia and New Zealand where they have a very €“ they’re at a favorable place in terms of their supply demand because, they went through their calling like three years ago, so they’ve built up the herd and obviously we have a stronger dollar. So those things are creating an opportunity for good pricing on that piece of the equation. But thank you for following up on that. I should have mentioned that.

Joshua Long: Great. Thank you.

Operator: Thank you. Our next question is from the line of Mary Gresla with Bank of America. Please go ahead.

Mary Gresla: Hi, thanks for taking my questions. So first your EBITDA generation is very strong in the quarter, do you expect this to continue and think it’s possible that you could reach your $100 million annual EBITDA target sooner than expected?

Tony Hull: It’s really, the first half of this year we feel good about, again the back half is a little more difficult to predict. So, I would view it as pretty unlikely that we’ll hit that this year. But we’re looking maybe a couple years, beyond we could reach that it’s really going depend on the success of the traffic driving forces from Reclaim the Flame and the investment they’re making in the brand equity there. So, I think it could €“ we’re on a good trajectory to get there. But this year would be €“ that’d be a stretch, I think.

Mary Gresla: Okay. And then is there any change in your openness to acquiring units from other operators that may be struggling? Or are you sort of fully focused on organic growth in the near term?

Tony Hull: We’re primarily focused on organic growth, because that’s going to drive, I €“ we don’t want any certainly on a sort of multi restaurant operator. We don’t want to have the distraction that, that could cause from us not hitting some of our operational efficiency goals and our leveraging goals for COGS and labor. So, and then other operating expenses, we’re working on a number of those as well to rationalize those and to improve the, compared to sales on those costs. So, I think until we get to four times leverage on a total debt basis, I think we’re going to stay focused on organic growth.

Mary Gresla: Got it. Thank you very much.

Operator: Thank you. Our next question is from the line of Fred Wightman with Wolfe Research. Please go ahead.

Fred Wightman: Hey guys, good morning. I was hoping that you could just give us a little bit of context. If we look at some of the management changes in management commentary coming out of RBI and sort of BKC, it seems like there’s this real emphasis and desire to be evaluated on franchisee profitability. And I’m wondering from where you guys sit, if that is actually a change in how they’re communicating with you and actually the franchisee system broadly? And maybe just your thoughts on whether that could improve, I guess the performance of the system and sort of your operational capabilities just with the parent company apparently more focused on franchisee profitability.

Tony Hull: Yes, I mean we, Fred, we’re really excited about the trajectory of the Burger King brand based on what we’ve heard and what we’ve spoken to those folks about in our meetings with them. And then, for our investors, it’s going to be a huge positive we think because we’re going to obviously participate in that in a big way and that improvement. So I think the most important thing is they’re just not talking, they’re actually doing on these things. So I think the discounting was huge in 2022 and because they were clearly a high discounter during COVID and before, and the fact they’ve gotten that down 500 basis points in the fourth quarter is tremendous for our bottom line. So €“ and the fact that they’ve hit €“ they’ve talked about targets that obviously our investors would be very happy, we’ll be very happy when we had 175,000 good target that they put out for us next year.

And we’re excited that their actions are aligned with ours because they’ve made that public commitment and the actions they’re taking are to support that, our ability to get to that number. So whether it’s them paying for the incremental marketing over the next couple years to them helping us with remodels on subsidies basis to they’re not going to do something to drive traffic that reverses some of the progress they’ve made because if they do that, that could if for instance, they went back to €“ if they increased discounting that would obviously make it more challenging for us to or for the system to hit that 175,000 per store. So we’re very aligned on how we €“ what the target is and what the good guys and the bad guys are to get to that target, so they know to stay away from the bad guys on that and to focus on the good guys.

Fred Wightman: Makes sense. And I guess just following up on the customer satisfaction metrics that you guys gave across the two brands, nice to see them both positive but also sort of a big disconnect between Burger King and Popeyes. I’m wondering when you look at that Popeyes number, what the biggest laggard is it speed of service? Is it something else? Anything else that you guys sort of things could be corrected and maybe close that gap?

Tony Hull: I mean, the improvement was better for Burger King than for Popeyes. That’s the number we talked about. But having said that, it’s €“ we are the team, the Popeyes team is working really hard to improve their customer satisfaction scores. They had some labor challenges that were probably more dramatic during post COVID 2021. So their operating hours are growing faster as you saw in the numbers that we gave in the script. So I don’t know, Joe, if there’s anything else, but it’s a huge focus for them to get neck and neck with our Burger King numbers.

Joe Hoffman: Yes, there’s no doubt. There’s a real focus on that. And I think that as we continue to drive it, the €“ where we saw the most improvement was accuracy. So we’ll continue to drive that as we move forward.

Fred Wightman: Perfect. Thank you so much.

Tony Hull: Thanks, Fred.

Operator: Thank you. Our next question is from the line of Joseph Farricielli with Cantor Fitzgerald. Please go ahead.

Joseph Farricielli: Good morning. Two questions. Can you give me €“ can you give us some guidance on the cadence of CapEx over the course of the year? And then my second question will be on the pricing we could discuss the CapEx first.

Tony Hull: Sure. Sure. So the $40 million CapEx is going to be back half weighted just because we’re just gearing up on a lot of the remodeling effort. I mean, obviously, the maintenance piece of it is pretty constant throughout the year, but the growth piece of CapEx, the remodeling piece of CapEx will increase as the year progresses. So it’ll start out slow and then get some higher numbers in the back half of the year.

Joseph Farricielli: And is that the gross or the net number because at least as it relates to Burger King, they do subsidize a portion. So

Tony Hull: Yes. That’s a net number.

Joseph Farricielli: Okay. And how do we see that roll through your cash flow statement? Do you spend it and then get reimbursed a quarter later? How do we think of it from a cash flow perspective?

Tony Hull: I would say that that is not completely locked down yet, but worst case scenario, it’ll be a month or so after the remodel is completed. But our goal is to make sure we get all the subsidy money in against the spend in 2023 to get to that $40 million net number.

Joseph Farricielli: And it is a reimbursement, not an offset to another fee or something I guess maybe that’s what I was trying to.

Tony Hull: No, they are reimbursements.

Joseph Farricielli: Yes. Okay. Okay. And then the next question, during your prepared remarks, I’m trying to go through my notes. You made a comment about I think it was 20% of the Burger King’s €“ you’re changing your pricing or doing less discounting, how do you do that geographically without having the customer pick up that if I go to the one on the East side of town versus the West side of town, or vice versa like, how do you keep them from picking up on these price changes?

Tony Hull: I’m not sure the consumers that savvy to go from one restaurant to the next. But the one exception is if it’s a nationally advertised promotion, then we all have to be in sync with that national advertised number. So that you’ll see among different restaurants. But if we’re charging a different number for the mix and match, which is not nationally advertised, then one of our competitors I don’t think they’ll really see that. But Joe, I don’t if you have any further.

Joe Hoffman: Well, I would just add where those prices are higher. It’s done by DMA that the area, so all those restaurants in that particular market would be doing the same. So you wouldn’t necessarily see the difference in the market.

Joseph Farricielli: You may the DMA

Joe Hoffman: Yes. With a different franchisee, however, in most cases, the market would be doing the same thing.

Joseph Farricielli: Okay. Okay. Got it. Thank you for the time.

Tony Hull: Thanks.

Operator: Thank you. Ladies and gentlemen, we have reached the end of today’s question-and-answer session. I would like to turn the call back over to Mr. Tony Hull for closing remarks.

Tony Hull: Thank you again for joining us this morning and for your interest in Carrols. We appreciate your time and we look forward to speaking with you next quarter. Thank you.

Operator: Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.