Wingstop's (WING) CEO Charlie Morrison on Q1 2020 Results - Earnings Call Transcript

Wingstop Inc. (NASDAQ:WING) Q1 2020 Earnings Conference Call May 6, 2020 10:00 AM ET

Company Participants

Charlie Morrison – Chairman and Chief Executive Officer

Michael Skipworth – Executive Vice President and Chief Financial Officer

Conference Call Participants

David Tarantino – Baird

Katherine Fogertey – Goldman Sachs

Jeffrey Bernstein – Barclays

John Glass – Morgan Stanley

Andy Barish – Jefferies

Andrew Charles – Cowen and Company

Jeff Farmer – Gordon Haskett

Nicole Miller – Piper Sandler

Michael Tamas – Oppenheimer

Chris O'Cull – Stifel

Jon Tower – Wells Fargo

Andrew Strelzik – BMO Capital Markets

Nick Setyan – Wedbush

Brian Vaccaro – Raymond James

Peter Saleh – BTIG

Jake Bartlett – SunTrust

Matt Difrisco – Guggenheim

James Sanderson – Northcoast Research

Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Wingstop Inc. Fiscal First Quarter 2020 Earnings Conference Call. Please note that this conference is being recorded today, Wednesday, May 6, 2020.

On the call, we have Charlie Morrison, Chairman and Chief Executive Officer and Michael Skipworth, Executive Vice President and Chief Financial Officer.

I would now like to turn the conference over to Michael. Please go ahead.

Michael Skipworth

Thank you, and welcome. Everyone should have access to our fiscal first quarter 2020 earnings release. A copy is posted under the Investor Relations tab on our website at ir.wingstop.com. Our discussion today includes forward-looking statements.

These statements are not guarantees of future performance and are subject to numerous risks and uncertainties that could cause our actual results to differ materially from what we currently expect. Our SEC filings described various risks that could affect our future operating results and financial condition. We use certain non-GAAP financial measures that we believe can be useful in evaluating our performance. The presentation of such information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are contained in our earnings release.

Today, we will be discussing preliminary sales results for the first four weeks of the second fiscal quarter. We have not completed closing procedures for the second quarter in our independent registered public accounting firm has not reviewed our results. Accordingly, all preliminary results discussed today are subject to change pending finalization, and actual results could differ materially.

Lastly, for the Q&A session, we ask that you please each keep to one question and a follow-up to allow as many participants as possible to ask a question.

With that, I would like to turn the call over to Charlie.

Charlie Morrison

Thank you Michael, and good morning, everyone. We appreciate your joining us for our call this morning and hope everyone is safe and well. These are certainly unprecedented times, especially for Wingstop and those in the restaurant business.

Before I comment on recent trends and how Wingstop is navigating the ever-changing COVID-19 crisis, I would like to thank the thousands of team members working in Wingstop restaurants around the world for their continued commitment to our mission to serve the world flavor. These amazing people have been on the frontline providing safe access for our guests to continue to enjoy the bold and craveable flavors of our fresh, cooked to order wings, fries and sides.

I'd also like to thank our franchisees whom we affectionately refer to as our brand partners who have done an exceptional job navigating this challenging situation by adhering to the strict standards we have implemented to ensure the safety of our guests and our team members.

On April 7, I issued an open letter outlining how Wingstop is navigating its journey through the COVID-19 crisis. And this morning we are providing an update that includes recent trends for the first four weeks of the second quarter, which Michael will share in more detail later.

While we're still early into our second quarter, recent trends in sales highlights the resiliency of the Wingstop brand and the continued hard work of our team members, brand partners and supplier partners to address the demand we have seen from our guests. We remain truly humbled by the results and we'll continue our efforts that are intended to help mitigate the spread of COVID-19.

I mentioned in my open letter that we truly believe our success has been the result of anchoring our response to the pandemic in our core values, which include maintaining our authenticity, remaining steadfast in our service minded attitude and respecting our entrepreneurial roots.

We refer to our value system as the Wingstop way, I believe at any time, but especially in times like these, our shared behaved values are the best indicator of the past, present, and future success of any company. For Wingstop authenticity not only speaks to our high quality cook to order food, but includes our aspiration to be transparent and genuine in every decision we make. We formed the COVID-19 task force that met every day and included team members from all parts of the organization. As information becomes available in this ever changing climate, it has been rapidly assessed and disseminated to our team members, brand partners, and guests in an authentic and transparent manner, while recognizing those things we can and cannot control.

To be service-minded means that the needs and safety of all our stakeholders are at the forefront. We have placed a sense of urgency to ensure that we acted quickly in every implementation, cascading our communications frequently and with necessary repetition, so that clarity was achieved by all involved.

Our brand partners have expressed to us their pleasure with the increased frequency and clarity of our communications that help them act quickly at the restaurant level to implement changes responsive to the COVID-19 crisis. And finally, our business has been built on the backs of entrepreneurs, including our founder and our brand partners. Our roots remain strong to the original format of our great brand. Our focus on simplicity, scratch recipes and the takeout orientation have served us well in this difficult time.

Entrepreneurs make decisions quickly by relying on clarity over certainty. At Wingstop, we embraced our entrepreneurial spirit to pivot quickly to modify our operations and service approach, redirect our advertising and implement rapid changes to our technology that ensure our guests experience meets the needs of this extraordinary time. Leveraging our core values, our response to the crisis focused on three key priorities which include supporting the wellbeing and safety of our team members, brand partners and guests. Continuing to serve our Wingstop fans flavor in a safe and clean environment and giving back to our communities where we operate. These remain the foundation of our operations for our 1,400 plus global restaurants each day as we navigate through this crisis.

As I mentioned, we made the decision to close our domestic dining rooms and offer carryout and delivery only on March 16, 2020, which represented approximately 80% of our domestic sales prior to that time. As we shared in our business update on April 7, we saw a slight acceleration in our domestic same-store sales during the last two weeks of the first quarter. The first four weeks of the second quarter were even stronger. Prior to the outbreak of COVID-19 digital sales consisted of just over 40% of our sales. Since closing our dining rooms, digital and delivery orders now account for more than 65% of our sales.

We believe that the strategic investments that followed our strategy to build a world class digital platform plus the rollout of national delivery in 2019 provided a strong foundation for us and have led to the success we have seen during this time. To quantify the impact, our domestic same-store sales growth exceeded 30% for the first four weeks of the second quarter, which is well beyond even our own expectations.

Our brand partners, supplier partners led by our friends at performance food group and our delivery partner DoorDash have not missed a beat with a substantial change in volume. We are humbled by our performance and remain confident in the solid positioning of our brand in life during and after the COVID-19 pandemic. Our international business, however, has been adversely affected by COVID-19. As of the end of the first quarter, our international footprint consisted of 160 restaurants in nine countries outside the U.S. Our model has relied more heavily on dining rooms for locations in larger malls or in Mexico, casual dining sports bars.

Despite the adversity, our international team and brand partners have reacted well by leveraging our domestic experience and our core values to swiftly provide access to take out and delivery in markets where restaurants are allowed to remain open. We have also worked closely with our international brand partners by providing financial support to help mitigate the impact of lower sales levels so they can reemerge stronger and well positioned for continued unit growth.

This pandemic has further validated our international growth strategy we unveiled in January, which prioritizes future growth in markets that can support higher off-premise sales, our premium price positioning and leverages our efficient operating model to deliver a high quality flavor experience similar to our domestic operations. Our strong domestic top-line performance comes at a time when prices for bone in wings have been at record lows, falling below $1 per pound for a short period.

Over the past week, however, with shortages and meat supply across the country, we have seen prices begin to rise but still well below levels pre-COVID 19. Thus, our domestic brand partners are seeing strong four wall performance in their restaurant. With this good fortune and anchored in our commitment to corporate responsibility, we launched a flavor for good week beginning April 19 and lasting through April 25. During this time, we engaged our brand partners as well as the support of Wingstop charities to identify ways to give back and serve the world flavor. The teachers, healthcare workers, and first responders in our communities who are on the front lines of this pandemic.

Our generous brand partners along with Wingstop charities provided more than 1 million meals to those impacted by the pandemic through cash and food donations. In addition to our community outreach, we supported our brethren in the restaurant industry by joining forces with the National Restaurant Association Educational Foundation and Guy Fieri to support the Restaurant Employee Relief Fund. Wingstop donated $1 million to the Restaurant Employee Relief Fund to provide access to $500 grants per person for restaurant workers who will desperately need aid in the coming weeks and months as our industry gets back on its feet.

I'm truly humbled by the generosity of our team and our brand partners. While we are humbled by our results at the beginning of the second quarter, there remains uncertainty about shelter in place orders, reopening timing for businesses, school reopenings and so many other factors. Thus, we do not have clarity around the ongoing magnitude of the impact of this pandemic on our performance or the restaurant industry. Because of the lack of clarity, we are withdrawing our 2020 guidance. We believe our recent performance validates the strength of our brand. However, trying to predict the outcome of this unprecedented year would not prudent.

We will maintain our typical level of transparency as a means to provide clarity as to how our business is performing and provide timely updates to our trends when we feel it is necessary. I would like to close by again thanking our team members, brand partners, supplier partners and guests for their continued support of Wingstop. I would also like to thank our shareholders, many of whom have been with us for our five years as a public company for your support and confidence during this time. At Wingstop, we recognize the responsibility we have to all the various stakeholders we serve, including our team members, brand partners, supplier partners, shareholders, and the communities in which we operate. We appreciate how all of these stakeholders have come together in a supportive way to enable us to continue our mission to serve the world flavor and achieve our vision of becoming a top 10 global restaurant brand.

With that, I'll turn it over to Michael.

Michael Skipworth

Thank you, Charlie. Today, I will provide brief highlights on our first quarter results, but focus most of my comments on our performance for the first four weeks of the second quarter of 2020. In the first quarter, we opened 28 net new restaurants resulting in 1,413 system-wide restaurants. Royalties, franchise fees and other revenue increased by $2.9 million to $24.2 million for the first quarter, driven primarily by our domestic same-store sales growth of 9.9% and 137 net franchise openings since the year ago comparable period.

Company-owned restaurant sales increased $1.7 million to $15.2 million for the first quarter. This increase is due primarily to same-store sales growth of 6.2%. The acquisition of one franchise restaurant since the second quarter of 2019 and the opening of two company-owned restaurants in the Kansas City market. These revenue increases translated to adjusted EBITDA, a non-GAAP measure of $16.4 million representing an increase of 17.8% over the same period in the prior fiscal year.

There was a reconciliation table between adjusted EBITDA and net income. It's most directly comparable GAAP measure included in our earnings release. Net income in the first quarter was $8.1 million or $0.27 per diluted share, up from $0.22 in the prior year first quarter. Please refer to today's press release for additional details on the first quarter.

With that, I would like to provide more detail on our performance and preliminary domestic same-store sales growth for the first four weeks of the second quarter. As a reminder, we experienced a slight uptick in domestic same-store sales in the last weeks of the first quarter. And as you heard from Charlie, the first four weeks of April have been even stronger.

Domestic same-store sales increased 33.4% in the first four weeks of the second quarter, far exceeding our own expectations. Company-owned restaurant, same-store sales increased 32.6% during this same time period. When we closed our dining rooms in mid-March, we initially experienced a decline in transactions. While we did not initially replace all of those transactions with off-premise orders, we did see a higher average check as most of our dine-in sales have a smaller average check and support individual guests more than group occasions.

As April progressed, we experienced an acceleration in our same-store sales growth. This acceleration was due primarily to average check growth resulting from a higher mix of digital and delivery channels, which typically have a $5 higher average check than our traditional channels. When compared to dine-in transactions, digital transactions can be as much as $10 higher. The strategic investments we have made to establish a world class digital platform along with the rollout of national delivery in 2019 provided a strong foundation for our brand during this time and has led to the success we have seen.

We entered 2020 with a national TV advertising campaign focused on highlighting our unique flavor experience and showcasing delivery as a new way to experience the brand through wingstop.com and our Wingstop app. This was the first time we leveraged national advertising to promote delivery as a channel. As we navigated the initial days of this crisis, we quickly pivoted and partnered with DoorDash to offer free delivery via wingstop.com and our Wingstop app to ease the burden of delivery fees for guests.

The promotion continued through April 30. We ended the first quarter with 47% of our sales through digital channels. We saw this accelerates to over 65% of sales during April. We believe that the message of delivery will play a key role as we continue to execute against our goal of digitizing every transaction as the 100% of delivery orders are digital.

In addition to the message of delivery, we also quickly pivoted and repositioned advertising that was initially planned for life sports to areas such as video streaming and gaming platforms, social and paid search, and other areas where we believe guests would be consuming content while sheltering at home.

While we enjoyed strong same-store sales growth in our domestic business, we did have a small number of restaurants that temporarily closed as a result of the closing of casinos, malls and college campuses due to local and state guidelines. Outside of the U.S. there are currently 26 restaurants temporarily closed. However, across our entire global system, temporary closures represent less than 3% of all system restaurants.

In addition to the strong top line performance, we also experienced the good fortune of strong retail demand for chicken breast meat which created an excess supply of jumbo chicken wings resulting in deflation of wing prices. This provides an immediate P&L and cash benefit to our brand partners as we purchase wings off the spot market weekly.

We are making investments both at the restaurant level in our team members and our communities during this time of crisis including frontline incentive pay and enhanced sick leave policies for our team members. Investments in critical supplies to protect our team and guests such as thermometers, face coverings and gloves and charitable contributions and outreach. Our team member incentive pay for full time and part time workers where team members can earn up to an extra $150 a week, started in March and was initially planned to end in April, but has been extended through the end of May to continue to support our restaurant team members on the front line.

I also want to highlight for modeling purposes the $1 million contribution to the National Restaurant Associations, Restaurant Employee Relief Fund that Charlie referenced earlier will hit SG&A in the second quarter. As Charlie mentioned, the majority of our international restaurants rely more heavily on dining rooms and have been adversely impacted by this pandemic. Most international restaurants are experiencing self declines in the 50% range due to the dining room closures.

With the uncertainty surrounding the developments of COVID-19 and as a precautionary measure in mid-March, we borrowed $16 million under our outstanding variable funding note to enhance our cash position, providing us with an unrestricted cash balance of approximately $31 million at the end of the first fiscal quarter. We have not had a need to access that capital, but out of an abundance of caution, we do not currently intend to repay the variable funding note. We remain committed to returning capital to shareholders through our quarterly dividend, which is targeted at 40% of free cash flow.

Our Board of Directors have declared a dividend of $0.11 per share of common stock. This dividend totaling approximately $3.2 million will be paid on June 25 to stockholders of record as of June 18. We are consistently evaluating the best use of excess capital and we feel our quarterly dividend is an important part of our commitment to our shareholders.

I would also like to comment on two transactions expected to close in the second quarter that you will see disclose in our 10-Q. Subsequent to the end of the first quarter, we entered into two separate arrangements to refranchise two company-owned restaurants in the Houston market and five company-owned restaurants in the Kansas City market for aggregate proceeds of approximately $4.8 million.

At closing, the Kansas City transaction will include a development agreement for an additional 20 restaurants in that market. We are encouraged by the resiliency of the Wingstop business model as we have navigated this crisis and our humbled by our overall results. This combined with our strategy continue to support our confidence and our long-term growth and our vision of becoming a top 10 global restaurant brand.

With that, I would like to turn the call over for Q&A.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from David Tarantino with Baird. Please go ahead.

David Tarantino

Hi. Good morning. I hope you both are doing well. And congratulations on the results you are delivering, truly impressive. My question Charlie is really on the sales strength you've seen in April. And I'm wondering if you could give your thoughts on the sustainability of some of the sales gains you've had. It seems like there are a lot of cross currents. There's government stimulus potentially helping. So just wondering if there's anything inside your data that could help us understand how much of the sales gain you might be able to hold on to as you exit this period? Thanks.

Charlie Morrison

Good morning, David. Certainly hope this finds you well as well. Thank you for the question. Yes, we were certainly encouraged by the pace at which our same-store sales grew in the month of April. And I think largely that was driven by a couple of factors. Number one, growth related to delivery. As we had mentioned before and in the script, we introduced free delivery during the month of April and late part of March as well, and saw a great take rate from our guests, both new and existing guests on the delivery. And as we've mentioned before, that delivery check is substantially higher than a traditional dine-in occasion that we see. In fact, a delivery against dine-in alone can be as much as $10 higher. That has absolutely fueled the check growth for the brand while also achieving transaction growth through the offer of free delivery.

We exited that promotion at the end of April. But we're still encouraged by all of the different drivers that can continue to help Wingstop grow into the future. Certainly things like the stimulus money have probably had a factor in this as for others in our space. But really we think that our preparation for the migration to a heavy digital format even losing the dine-in business, which only represented about 20% of our sales is a key indicator for what we think the future holds for the brand.

David Tarantino

Thanks for that. And one quick follow-up. On the surge you've seen I guess and delivery sales, is there any way for you to determine that, whether those are new customers to the brand that are perhaps being introduced in the system for the first time or anything in your data that that would be helpful to understand what type of consumer dynamic is going on underneath the surface?

Charlie Morrison

Sure. To remind you, prior to the rollout of delivery advertising this year, we experienced about an 80% to 20% mix of marketplace orders to what we call wingstop.com or dispatch orders we call them internally. That mix has shifted rather nicely to about 50:50 during the month of April. Driven by the fact that we did this promotion on wingstop.com orders only. And when we do that, we gain all of the insights of who the consumers are that are choosing delivery. We have found that a large number of these are new guests to our business but also existing customers as well. And so that rich information we gained from that 50:50 split between the marketplace and the wingstop.com orders encourages us that we are bringing new guests into the business.

David Tarantino

Great. Thank you very much.

Operator

The next question comes from Katherine Fogertey with Goldman Sachs. Please go ahead.

Katherine Fogertey

Great. Thank you. Hope everybody is doing well. My question is around the franchisee system here. You alluded to the wing price deflation being helpful for their economics, but can you kind of help us quantify the benefit that they're seeing here, both from that and then are they eligible here to get a PPP under the cares program. And if you could also talk about how that then squared away for the pipeline for unit growth, just remind us what the average profile is of your franchisee and if there's any caps on how big a franchisee can get. Thank you.

Charlie Morrison

Good morning, Katie. Hope you're well as well. Let me answer those in order. So the strength of the unit economics for our brand partners is great right now. They're experiencing strong top line growth as well as substantially improved economics through food costs driven by those lower wing prices. And as we noted in the call those were somewhat temporary, but they're still well below where we were pre-COVID. To give perspective, pre-COVID and wing prices were hovering in the $60 a pound range. They fell as far as $0.97 a pound. And I think today have risen back with some of the tight meat supply back into the mid dollar twenties. So they're experiencing – they can experience anywhere from three to six points of improvement in food costs during that timeframe, which is meaningful.

Some franchisees have reinvested that money into their payroll line to help provide incentives for their team members to retain their staff and thank them for their hard work and commitment during this difficult time. So there's a little bit of fluctuation in the P&L in that regard. And you'll see that in the company store performance as well. But overall it does point to strong cash flow which then, the question is what do they do with that?

And once the market starts to open back up, and specifically what we mean by that is the ability to build restaurants, to obtain permits, to obtain the – all the licenses and everything we need to operate. We do expect to see our franchisees get right back into the swing of things on delivery. There's going to be a temporary slow down in that as we've noted simply because of things we cannot control. But on the backside of this looking out longer term, certainly all of this points to the strength of the Wingstop brand, its resiliency and its ability to continue to grow even during the most difficult times.

To your question on the PPP loans, like anyone else, yes, I believe our franchisees are eligible as any small business would have been during this timeframe. So certainly there's eligibility.

Katherine Fogertey

Great. Thanks. Just one followup. If the free delivery promotions were working so well. What is the thought behind stopping those here?

Charlie Morrison

Well, I think we wanted to better understand how much of a stimulus this was for the business. It does come with a cost because those fees have to be born by our franchisees and or the company. And so we wanted to, while we love the promotion taking in all of those fees and paying for those on behalf of the guest is can be rather expensive. So we liked what we saw during this process. We want to see what the business can sustain from there and then use that as an opportunistic promotion down the road as needed.

Katherine Fogertey

Great. Thank you.

Operator

The next question comes from Jeffrey Bernstein with Barclays. Please go ahead.

Jeffrey Bernstein

Great. Thank you very much. Two questions. One just on the heels of COVID scary enough, but it seems like recession is on the come. I would seem like most of your peers, not that they would welcome that, but their comps likely wouldn't fall as much to the same magnitude as the impact from COVID, whereas in your case it does seem like the comps are currently tremendous. But I would think you would be more vulnerable targeting a lower income customer, especially if we were to see like 20% unemployment, which people are talking about. So here's talk about the transition from COVID headwinds we see today to a potential recession going forward. Maybe any past experiences you've seen in a slowdown or any concerns you have around that lower income vulnerability. And then I had one followup.

Charlie Morrison

Thanks Jeff. Good morning. I don't believe this brand has any more or less risk necessarily associated with the potential of a recession. If you look back at our experience during 2008, 2009, the brand grew through that timeframe as well. And I think the differentiator for Wingstop is that we do exist in a category all by ourselves. We don't have a direct competitor. We tend not to have to fight a price war if one exists in an environment like that. And our customers clearly tell us and we've researched this even during this timeframe, the reason they come to Wingstop is because of that crave, because of that unique product positioning that nobody else has. And so it becomes a real advantage for us. So we're pretty confident we can grow through this and I think our current performance, even if it were to subside slightly would still be fantastic for our franchisees.

Jeffrey Bernstein

Absolutely. And then just to follow up on an earlier question regarding franchisee development, presumably when development is permitted once again I mean your results remind me of another chicken chain with very strong results. And for you that's without actually a new product launch. So all the more impressive. So I'm just wondering the thoughts on the franchise demand for new unit growth and then you guys talk about 10% plus annually, but is that something that you look to kind of cage at that 10% level or greater high quality demand? Is there that's not something that you would cap at 10%? What would keep you from allowing that growth to accelerate from here? Thanks.

Charlie Morrison

Yeah, it's a fantastic question. The feedback we're hearing from our brand partners is very bullish and confident. I'm excited to get back in and develop restaurants. Certainly as I mentioned before and you mentioned as well, we have to wait for “the markets to open” to be able to get that done. But there are a few ways we can capitalize on that. One is we can assist our franchisees if needed to help accelerate the pace of development with our strong position and potentially our cash similar to what we've done in the Kansas City market as an example, which Michael commented on. That gives us an opportunity to look at select markets as opportunities to accelerate growth and re-franchise if we choose to do so. So I think we're evaluating all the possible opportunities, but it goes without saying that this appears to be for Wingstop a great opportunity to accelerate the pace of growth.

Jeffrey Bernstein

Thank you very much.

Operator

The next question comes from John Glass with Morgan Stanley. Please go ahead.

John Glass

Thanks. Good morning. Good to hear everyone's voices. Charlie, can you just help maybe just understand a little bit more on what the components of the comp growth in April were from a check and profit standpoint? I know you don't have broken it out specifically, but these are unusual dynamics and unusual times. So can you just help maybe just unpack and you gave us some pieces around that, but is it largely check growth? And this is just family meal replacement? Or any way to better understand underneath the 30%.

Charlie Morrison

Hi John. Good morning. Great to hear your voice as well. Let me paint this picture as best I can without – we don't cite specifics as you know. But I'll give you some context to it. Certainly the majority of our growth in the comp is associated with check lift. But to give some added perspective, we shut down our dining rooms, lost all of our dine-in business and that represents about 20% of our sales. On a one to one almost trade off, we replaced that with carryout business.

And so if you look at delivery, delivery is really the big growth driver for the brand and it comes at a very nice high check average and that can be as much as $10 as I mentioned before, $10 higher than a dine-in occasion, a pure dine-in occasion, not the average occasion for the brand, but a dine-in occasion. So that is feeling two things. One new customers coming into the business by way of transaction growth but at a much higher check than we normally see. So again, just to rephrase, carryout growth replace the dine-in loss delivery is the big driver. Delivery comes with a very high check. That's how to reconcile the growth.

John Glass

Perfect. That's helpful. Thank you. And then just, you talked about new users coming to the brand, do you have numbers around what percentage of transactions to the extent or are impacting your users to the brand and how you intend to retain those customers? I presume this is a very valuable time because customer acquisition cost has dropped presumably fairly dramatically.

Charlie Morrison

Yes. Excellent question. It's too early right now, John, to give any numbers to that. But directional indication is that there are definitely new users coming into the business. Hopefully we can quantify that a little bit better when we get into our next readout. Just a little early with only one month under our belt to really quantify that.

John Glass

Okay. Thank you.

Operator

The next question comes from Andy Barish with Jefferies. Please go ahead.

Andy Barish

Hey guys. Anything different on the menu with promotionally during this period other than the free delivery assuming you skewed more family meals, but was there any additions to the menu from that side? And then it's your thoughts on, as additional restaurants kind of reopen, what you guys are thinking with your own dining areas or maybe more importantly, just how other restaurant options become available. What do you think that looks like going forward for your off premise sales pace?

Charlie Morrison

Good morning, Andy. First of all, as it relates to the product question, we really have done nothing different product wise during this timeframe other than we've seen a definitely mix shift from individual occasions where they might get an eight-piece or 10-piece Wing combo to much more of a family pack, which might have a mix of bone-in and boneless Wings or tenders. And the various flavors to provide to the family. Our internal research suggests that that really is a key driver for people to choose Wingstop. There's no negotiation over a pizza. It's not a drive through, but yet it gives everybody flexibility to order. And I think that's always been a real strong point for the positioning of our menu and the brand. But no other changes there.

As it relates to the reentry of dining room-oriented brands or casual dining and the rest, I really don't know that it's going to have big impact. It certainly could take away some occasions just based on the fact that there were only a few convenient options and it may have been more difficult to go to those concepts. But going back to that research we have, I really feel strong that our consumers come to our brand because of our products and because of the ease and simplicity of ordering and most of the research would suggest that people are going to be still quite tentative to get back out into dining rooms. That's a good reason why we are going to hold back as long as we need to, probably longer than most to reopening our dining rooms because we feel like the occasion that we're providing is the safest compared to a dining occasions.

And I think consumers support that.

Andy Barish

Thanks guys. Be well.

Charlie Morrison

You too, Andy. Thank you.

Operator

The next question comes from Andrew Charles with Cowen and Company. Please go ahead.

Andrew Charles

Great. And glad to hear that you guys are staying safe. You mentioned supply chain hasn't missed a beat. And I just think just given what's going on with some parts of the protein market, if we could just dive in and just talk about the assurances that you have in place for your vendors. But the supply of bone-in wings, which are obviously never frozen and thus can't be stockpiled as much as if they were, as well as white meat for boneless will be secured and just cheers as well.

I know you are not giving guidance, but to the degree you can share, what are you hearing from vendors on their outlook for the inflation in chicken? Thanks.

Charlie Morrison

Good morning, Andrew. Thanks for the question. Yes, I mentioned they didn't miss a beat and I have to certainly continue to pay a compliment to all of our supplier partners, as well as Performance Food Group. All of them have been hit pretty hard by the shutdown and all of them have been fantastic in their support of Wingstop as we've been growing. We have been bringing in more chicken than we've ever brought before. And they really haven't missed a beat.

As it relates to the strength of our supply chain we have a very diversified approach to our supply. While we have maybe nine different companies that supply chicken, that chicken comes from almost 20 different places. So, the risk of any sort of impact to a particular plant is mitigated by the availability of supply in other areas. So we've built this chain to be diverse. And while we don't prefer to have frozen wings in our system, we do have the ability to get those if we need to and stockpile those. So I just want to clarify that point. It is a product that we can do that with if needed. It's not our preference, but it is possible.

And then the indication from our suppliers is really centered around making sure that they have availability of supply, which we are comfortable with. As it relates to the prognostication – prognosticators and what they think about the market, hard to tell. It will all have to do with the supply of chicken against the competing meats of beef and pork. Chicken supplies appear to be re-emerging after a pullback. Beef and pork still seem to be dropping. So chicken is always a substitute for that. But we're confident we're going to have supply into our restaurants as needed during this challenge.

Andrew Charles

That's helpful. Thank you.

Operator

The next question comes from Jeff Farmer with Gordon Haskett. Please go ahead.

Jeff Farmer

Good morning. Just a couple of follow-ups from some earlier questions. So I did hear your comments on free delivery and stimulus payments being some of the things that were obviously helping April to be quite strong. But in terms of the impacts that we could see moving forward from people beginning to get out and about more driving more, going back to work and coming months, how do you think that dynamic with the consumer will play out on your business?

Charlie Morrison

Well, again I think Andy asked a similar question. It is a hard to say of course, but again, I go back to the research that we have done with our own guests as to why they chose Wingstop. And the things that stand out above and beyond, there's nothing else open, for example, has everything to do with convenience, accessibility, delivery, quality, craveability, those are the things that are driving the occasions into Wingstop more so than everybody else's closed.

And so we're going to stay confident that our brand is able to remain resilient even as the market opens back up. And I would say one other comment just to add to this, we did note that we ended the first quarter even before a lot of this COVID impact at 9.9%, same-store sales growth. So the brand was already performing at a very high level.

Jeff Farmer

That's helpful. And just one more that again you touched on but just a little bit more granularity. So I completely understand that most of your traditional advertising options are completely off the table with virtually every sports league on the planet shut down right now. Nice pivot to delivery that did very well for you guys over the last two months and some other things. But in terms of thinking about the balance of 2020, any high level strategy in terms of staying in front of these customers over the balance of the year without having to too heavily rely on the free delivery?

Charlie Morrison

Yes Jeff, I think, if anything, the strength and performance of the brand during this time is perhaps the best indicator of something that I know I've been trying to say for many, many years. But sadly we get positioned against other Wing oriented sports bars that aren’t relevant. But Wingstop doesn't need the sports occasion in order to be strong. And I think there's no better testament to that than what's happening right now.

If you go back to our Analyst Day presentation in January, we called out very clearly that our approach strategically was to capture a huge segment of the population that are heavy QSR users that are generally unaware or not users of Wingstop and convert them into our brand. If anything, I would say, that strategy is sound and effective.

Now, during this timeframe, we did have some media positioned against sports, but the vast majority of our media is pointed towards lifestyle occasions. And so this gave us a great opportunity to pivot even more dollars as we could towards places like Twitch, Hulu and other places where people are consuming content right now.

So again, just to reinforce, this is an example of the strength of this brand and not being one that has to be tied to sports occasions.

Jeff Farmer

All right, thank you.

Operator

The next question comes from Nicole Miller with Piper Sandler. Please go ahead.

Nicole Miller

Thank you. Good morning. I wanted to ask about April, same-store-sales in terms of what time of day the comps are coming at. So I'm curious if they are still coming at peak meal periods or essentially being spread out to different parts of the day. And to the extent they are at peak meal periods then that is amazing throughput. And I too was thinking back to your January Analyst Day and the presentation where you have a very target approach to building your talent. So what are you learning about your teams right now? Thank you.

Charlie Morrison

Good morning and thank you for the questions. I do want to talk about the talent. But first let me address the other question. I think that from a day part perspective we have seen growth across all day parts. Fairly consistently the only area where we saw less growth was in late night. And only because many of our brand partners wisely closed their restaurants earlier than normal. So our typical operating hours are 11:00 a.m. to 12:00 midnight. Many have changed their hours during this time to a 10:00 p.m. closure, which has just taken away those last couple hours and reduced our growth. So I don't consider that indicative of anything other than that decision that they made wisely.

On the people side I mentioned in my commentary we've always believed we have a solid and strong culture here. And Donnie Upshaw did a great job of presenting what it is that makes this place so unique. And I got to tell you, I'm really, really proud of our team and how fast we reacted, how quickly we came together, how seamless the process was to immediately provide information to our brand partners in the field and prepare them for navigating this change. And without the strength of the culture we have here at Wingstop, the transparency, the trust, the things that are necessary for any business to be highly successful, I don't know that we would have been in the same position.

So I think it has everything to do with the strength and success that we've seen during this time.

Nicole Miller

Thank you.

Operator

The next question comes from Michael Tamas with Oppenheimer. Please go ahead.

Michael Tamas

Hey thanks. A quick question on the digital side of the business, obviously you guys and a lot of other restaurants are seeing huge surge in digital sales during this. So what are some of the key things you guys can do coming out of this as consumer start to have like other choices, other ways to order and get their food take to keep consumers on the digital platform and to keep coming back to you guys through that platform?

Charlie Morrison

Good morning. Well, I think if you look back over our history, we've only been growing our digital platform and we've done it organically. Meaning we have not provided an incentive prior to our free delivery promotion. And with that, we moved digital mix up to a 65% during the month of April, which is squarely right in the position of large pizza chains as a competitor, right.

And I think if you look at other brands, they certainly will be fortifying their digital efforts. For Wingstop we've made substantial investments over the past few years to position ourselves this way. So I think coming out of this we'll take some of the learnings which really have more to do with how we can tweak, enhance and make it better for the guest so that that experience is pretty seamless. But the good news is, we walked into this situation with an app rating that was above 4.5 stars typically, as well as our web ordering platforms. So our team has done an exceptional job of making it easy, which again, I go back to the research we've done, guests are commenting on that now. It's very easy to order, Wingstop.

Michael Tamas

Got you. Thanks. And quick follow-up. I think you had mentioned that you have greater confidence in the international growth in this off-premise type of model. Just curious, any thoughts on timing of that relative to what you're thinking at the Analyst Day and if that opportunity sort of been pushed out maybe a little bit with everything going on? Just any general thoughts, there, thanks.

Charlie Morrison

Yes, and you phrased it properly. We are confident in modifying our approach to new markets and existing markets with our growth and international. Certainly those markets out there today have been adversely affected by COVID-19 with the closure of a lot of dining rooms and/or just mandatory closures in markets like the UK and France.

Those two markets, for example, have reopened but only for digital and delivery, off-premise occasions, but they are coming back nicely. So I think it just speaks to the strength of that approach. So we will see a delay simply because we have to wait for those markets to reopen to move forward. But again, I think, the strategy is sound in terms of where we'll go next. So slight delay, but I'm excited to get back and reopen those markets and start to grow aggressively.

Michael Tamas

Great, thank you. Best of luck.

Operator

The next question comes from Chris O'Cull with Stifel. Please go ahead.

Chris O'Cull

Thanks. Good morning guys. Charlie, did the free delivery promotion generate a good return for the weeks it was available or do you need to seek continued follow through from the guests that used the promotion to justify the return on that type of promotion?

Charlie Morrison

Yes, it's a good question. I would say it did a great job of anchoring the business in delivery and building the business arguably faster than we would have expected under our pre-COVID-19 strategy. So I would call that a fantastic return on investment. We certainly do need to see repeat. The beauty of it is most of that, all of that business in the free delivery was through wingstop.com, which means we have complete access to who those customers are. We can engage our CRM platform to market directly to them and encourage them to come back. So time will tell, but it's certainly, squarely how we're going to approach this strategically.

Chris O'Cull

Great. And then I assume the national marketing fund is seeing more growth than you guys expected given the sales list. So I was wondering if you need to spend at the same rate as the contribution growth or if you can save some of the funds for more strategic periods.

Charlie Morrison

We could do either/or quite frankly. And to be determined, but we're getting into the planning mode for the back half of the year as well as 2021. So we'll be making those decisions here pretty quick. The possibility exists for both, but we haven't made a determination of what would change.

Chris O'Cull

Great, thanks guys.

Operator

Next question comes from Jon Tower with Wells Fargo. Please go ahead.

Jon Tower

Great, thanks. Just a few from me. Quick, I think you mentioned earlier in the call potentially providing some assistance to international franchisees. Can you just elaborate on that specifically and then just a couple after?

Charlie Morrison

Sure. There are a number of ways we can support them. One is through a royalty deferrals which is very common in our industry to do, to just say, hey, you know what, when you are ready and things reemerge, we can start to receive royalties again. That helps split cash in their pockets. The other is leveraging our supply chain capabilities, providing access to food products as needed with the deferred payment schedule. So those are two examples of things we can do to help provide cash infusions into our franchisees hands.

Jon Tower

Okay. And then in the U.S., I believe at your Investor Day, you talked about going forward, the potential mix of new stores in kind of captive locations stepping up like sporting arenas, or airports, et cetera. Does this crisis either alter that thinking or perhaps just delay those types of new store openings?

Charlie Morrison

Well many of those types of venues, notably the sporting – the sports stadiums, the casinos, malls, places like that had been closed down. So that's where we're experiencing actually restaurants that had to close because of this temporarily. However, it does reinforce our thinking around dark kitchens or cloud kitchens as they're called in some cases. And we've already been heading down that path and we consider that a nontraditional location, but it certainly helps to confirm our thinking that restaurants without seats can be easily deployed in the Wingstop system and with great results.

I've mentioned earlier, but we already have one in the UK that's doing well. We have some planned here in the U.S. So a little more color on that will come in future calls. But we are, excited about the opportunity of formats that have fewer seats.

Jon Tower

Great. And then just lastly from me, I know historically the company has paid a special dividend when leverage levels kind of hit in that 4% to 5% – just under 4% or four times range. And given the pace of growth of the business, bow just curious to see how you are thinking about a potential special dividend given that balancing cash preservation against the idea that your business is growing at such a rapid clip.

Michael Skipworth

Hey John, this is Michael. I think as it relates to our leverage level in light of the current situation we don't have our traditional, I guess, as we signaled earlier in the year that we would likely explore increasing our leverage the middle of this year at this time in light of the backdrop I don't think that's something we currently have planned. That being said, obviously we continue to pay a regular dividend as part of our overall return of capital strategy for our shareholders. And our Board of Directors did announce or declare a dividend this morning as you, as you saw on our release.

That being said we'll continue to monitor the situation. But at this time we don't have any immediate plans to increase our leverage.

Jon Tower

Great. Thank you. Good luck.

Operator

The next question comes from Andrew Strelzik with BMO Capital Markets. Please go ahead.

Andrew Strelzik

Hey, good morning and thanks for taking the question. With the strong confidence in the advertising pivots, have you had the opportunity to take a look at kind of broadly how brand awareness levels have changed? And within that, maybe can you give a little bit of color around what you're seeing in terms of fortress markets versus newer markets in terms of whether it's comps, or digital penetration or any other metrics?

Charlie Morrison

Yes, I think, one, it's only been a month, maybe six weeks, eight weeks, and so hard to gauge where awareness levels have modified during this time. We will know more and we tend to look at that at the end of each quarter. And so we can look at Q1, but that's really not relevant to the COVID-19 experience. So more to come on that as it relates to the differentiated markets of fortress, non-fortress, and so on and performance, I would only say that performance has been really consistent across all markets. There have only been one or two markets where we've seen any sort of meaningful change.

And we've addressed those by way of supporting the markets through some value offerings. Good example of that would be very far South Texas near border communities, as well as Las Vegas where they shut down the entire casino strip, right. So those are two extreme examples. Otherwise it's been very consistent across all markets.

Andrew Strelzik

Great, thank you very much.

Operator

The next question comes from Nick Setyan with Wedbush. Please go ahead.

Nick Setyan

Thank you. I guess the question I want to ask is in April, can you just maybe talk about the cadence of the April comp, right. We start out sort of another, maybe low teens, the way we ended or mid-teens and accelerate. And then the second question is you guys have talked about a strategy to maybe mitigate the volatility around Wing costs. And where are we with best strategy and maybe just an update there?

Charlie Morrison

Yes, so to give you perspective on the comp acceleration, it did accelerate through the month somewhat readably week by week, to give perspective coming out of the first quarter. And then can you repeat your second question? I was looking at data on that.

Michael Skipworth

I will jump in from the Wing cost volatility, I mean, obviously that's something we're very familiar with, as well as our brand partners. And as we've talked about before, we've obviously built our model to be able to weather that type of volatility. And as you heard earlier on the call from Charlie, our brand partners when Wing prices fell, near the dollar per pound range, our brand partners were seeing food costs roughly 30%. So really enjoying strong four-wall margins, but at the same time are our brand partners, are aware of that's a temporary change. And so we've got them, I guess, familiar with that type of volatility and how to continue to execute the business.

Nick Setyan

Thank you.

Operator

Your next question comes from Brian Vaccaro with Raymond James. Please go ahead.

Brian Vaccaro

Thanks, and hope everyone is well and healthy. Just wanted to follow-up on the pace of U.S. development this year, could you provide a little more context on the impact of construction and permitting constraints you are currently seeing? Were there any openings in April and maybe what a reasonable range of potential openings might be over the next couple of quarters? Thank you.

Charlie Morrison

Hey Brian. I can give you as much as possible, but essentially things have pretty much shut down. I will say and compliment one of our entrepreneurial team members who actually got a restaurant open in California by way of FaceTime video inspections, which I thought was genius. So we're doing everything we can to try and get restaurants open, but it's hard. Some municipalities just aren't working or doing anything and so it's very difficult to get them out to sites.

We opened three restaurants in the month of April. I was thrilled with that, two in the U.S., one international. And as we see things start to reemerge, markets reopening through the month of May, maybe in June, July we start to see some restaurants come back online. But as you can imagine, there's going to be a glut of demand put upon a lot of these municipalities. And so it's hard to say how fast they will react, but know that we will be out there as aggressively as we can.

And the only other thing is, as you know, the banks have really stopped a lot of development oriented funding so that they can be out there helping support stimulus plans. That is a small impact but not a big one. We can offset that with our balance sheet strength if need be in areas where we feel like we want to accelerate growth, as I mentioned before. So we're watching it every single day. We're going to move as aggressively as we can to get back.

Brian Vaccaro

All right, that's helpful. Thanks Charlie.

Operator

The next question comes from Peter Saleh with BTIG. Please go ahead.

Peter Saleh

Great, thanks. And thanks for taking the question. I hope you guys are doing well. I just wanted to come back to the conversation around digital mix. I think you guys said April digital and delivery 65% of the sale, I think that's, three times almost what it was two years ago. What is your anticipation on how much of that digital mix you will be able to hold onto once you kind of pull back a little bit on the more aggressive delivery offers? And as we go forward, do you anticipate holding onto most of that? I mean historically, have you seen consumers switch to digital, stick with it or is there a little bit of a switch back and forth?

Charlie Morrison

Well I definitely think there's a stickiness to switching to digital. It's easier for the guest. It's easier for the team and the restaurant. And a lot of it is just training consumer behavior in this regard. And again, I go back to the research we did where guests complemented the fact that it was so much easier to execute a digital transaction, it's hands off, it's simple. For us it comes with a higher check average, so it's a win-win.

I would also remind us of our stated goal, which is to digitize every transaction in Wingstop. So my hope is that it sustains and grows. I'd love to see it at a hundred percent. And I think that's achievable. Over the long term over the long run.

Peter Saleh

Just wanted to follow-up, I know a couple quarters ago they were talking about the new kitchen equipment process that reduce cook times. Given – but it sounded like you pulled back a little bit on how aggressive you may want to be with, saying it's maybe unnecessary. Do you feel now that with the surge in sales that are you revisiting a process, or are you still of those same mind?

Charlie Morrison

Well, I'll remind us of the positioning of that equipment. It has more to do with locations that would fall into nontraditional spaces or areas with very high footfall so that we can provide a faster transaction in terms of the individual transaction speed to our guests. But as it relates to whether or not that has an impact going forward for the traditional domestic business, we have restaurants that are operating in the $3.5 million to $4 million a year sales range with a very similar footprint to what our typical restaurant is. So we don't believe we have a capacity constraint, nor have we seen a capacity constraint with this strong comp growth. I think we're far from it.

So we don't need that cooking platform to help alleviate any strain in the business. However, it does create a great opportunity for us to put restaurants in areas like airports and other types of high density locations that we normally would not have done. That's really what it's positioned for.

Peter Saleh

All right thank you. I appreciate that.

Operator

Next question comes from Jake Bartlett with SunTrust. Please go ahead.

Jake Bartlett

Great, thanks for taking the question. Michael, my first question is really on G&A, I know there's a lot of uncertainty about the business with the COVID outbreak going on, but in terms of G&A, is there a little more certainty there besides $1 million charitable contribution you made, should we kind of think of prior guidance as valid going forward?

Michael Skipworth

I think Jake, I think there's still a fair amount of unpredictable components within G&A. Examples would be how quickly we hire and fill roles in this new environment, as well as how quickly we turn travel back on. And so without clarity at this time, kind of into kind of how those components of G&A will play out, we're going to continue to monitor it. And as we said earlier on the call, as soon as we have a little bit more clarity into that, we'll definitely make sure that we provide updates.

Jake Bartlett

Okay. And then the next question is just on restaurant level margins and some of the moving pieces I know they kind of the near term increase in hourly pay and also the big surge in delivery. But anyway, you can help us maybe kind of frame what at a given level of conflict, what margins would be or maybe help us in terms of what a percentage of comp is worth in terms of restaurant level margins in the current structure?

Michael Skipworth

Yes Jake, I think probably everything we know today, I would probably say 2018 is probably a good proxy for restaurant margins.

Jake Bartlett

Okay. Thank you very much. I appreciate it.

Michael Skipworth

Thank you.

Operator

And that's the question comes from Matt Difrisco, Guggenheim. Please go ahead.

Matt Difrisco

Thank you. Thank you very much. Congratulations on a strong quarter. I'll keep this somewhat quick. It was just regarding delivery. I know you've been saying 65% digital. Is that correct then to assume almost all of that is delivery or can you sort of break that out on how much is walking up and getting that digitally preorder?

Charlie Morrison

Yes, I appreciate the question. And the answer is roughly 30% during the month of April of our sales was delivery, so the rest was a carry out.

Matt Difrisco

Excellent. And then I guess just last question with respect to that digital and the delivery component obviously you've said you were going to look at may be stores with less seating, almost no seating in a couple of U.S. openings as well. I think that's obviously something from COVID, you're learning from here, or that you're succeeding very well with that. Is there also then – are you seeing a growing number of franchisees looking to do their own delivery and maybe to improve on speed, time or even lower some of the cost associated with delivery or the fees related to DoorDash?

Charlie Morrison

Yes to the answer of franchisees and our focus on restaurants with fewer seats driving more off premise mix, I think, is going to be something we will explore into the future here. But as it relates to delivery on our own no discussion on that, very happy with our partnership with DoorDash, thrilled with their execution, especially if you think about how much their business had to adjust and execute during this tough time. I think they did a fantastic job for our business. There's always opportunity to get better on all fronts, but I was really pleased with our partnership there in a great investment we made in committing to that awhile back.

As it relates to where we go from here on that. I think that you will continue to focus on building and deepening that relationship to improve our service times. Our margins already, as it relates to digital, are quite strong or delivery – quite strong compared to anybody else. And a lot of that's driven by the high check average that I mentioned before that Wingstop enjoys.

But also we've done a lot of work internally and in partnership with DoorDash to minimize the amount of wait time in the restaurant and also minimize therefore the delivery time with our guests. We share a lot of information, we monitored every single day. And I think we can only get better with our approach here. So I don't see a need for us to have to do it on our own.

Matt Difrisco

Do you mind, since you brought it up to sharing that wait time? I know we hear from the pizza guys sometimes that number is always around 30 minutes or 20 minutes as their goal. What is your wait time right now for a round-trip on a DoorDash delivery order?

Charlie Morrison

Yes, let me break down my comment a little bit. So one of the elements of wait time is how long the DoorDash driver, what they call their dashers has to wait in a Wingstop restaurant to get their order and leave. And we try to get that down to almost none, but we try to keep it under two minutes as best we can. Then once they get to the consumer, we try to make that timing somewhere around 14 to – 20 minutes tops, because we restrict the trade areas. So all in, we target somewhere around 35 minutes, which has been pretty consistent on average.

Matt Difrisco

That's fine. Thank you so much.

Operator

Next question comes from James Sanderson with Northcoast Research. Please go ahead.

James Sanderson

Hey guys, congratulations on a great start to quarter two. I just wanted to get a little bit more feedback on the international segment. I think you mentioned that sales volumes were down about 50% if I understood correctly and that 27 stores were still closed. Just wanted to do, if you could help us understand how that trend has slowed over the past four to six weeks, and whether you anticipate any type of drag on operating cash flow from any type of royalty relief for your international partners.

Charlie Morrison

Good morning. Thank you for the question. The answer is we’re not sure how long some of those stores will remain closed. We hope that they will reopen. And during the month of April, we did see improvement across the international platform in a number of markets, some of which associated with complete closures like in London, as well as in France that have reopened with off-premise only occasions and they're emerging from that. So we're pleased with that.

But we don't really have good visibility into markets like Mexico and Indonesia, our two biggest markets as to when reopening will occur. The one thing we're happy about is that they have invested previously in delivery and off-premise by way of digital transactions that's helping their business. But certainly they rely on the dining room. So more to come on that.

As it relates to the cash drag, don't expect that to be a material at all. That's still a smaller part of our business. But at the same time, we're going to do what is right and necessary to take care of our international brand partners so that they can emerge strong and ready to grow.

James Sanderson

Hey Charlie, can I ask just one quick follow-up question that would be, you've got a great example of a ghost kitchen in the UK. Any feedback on how that business has performed over the past four to six weeks as well?

Charlie Morrison

Again, it had to close like everything else.

James Sanderson

Okay.

Charlie Morrison

But it has re-emerged and is building back its volume. But again, it was doing very well prior to COVID-19. So we're really encouraged by what the potential is there.

James Sanderson

Thank you.

Charlie Morrison

Take care.

Operator

This concludes our question-and-answer session also concludes the conference. Thank you for attending today's presentation. You may now disconnect.