Red Robin Gourmet Burgers, Inc.

Good afternoon, everyone, and welcome to Red Robin Gourmet Burgers Incorporated Third Quarter 2025 Earnings Call. This conference is being recorded. During management's presentation and in the Q&A session, we will be making forward-looking statements about the company's business outlook and expectations. These forward-looking statements and all other statements that are not historical facts reflect management's beliefs and predictions as of today, and therefore are subject to risks and uncertainties as described in the company's SEC filings. Management will also discuss non-GAAP financial measures as part of today's conference call. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles, but are intended to illustrate alternative measures of the company's operating performance that may be useful. Reconciliations of the non-GAAP financial measures to the most directly comparable gap measures can be found in the earnings release. The company has posted its third quarter 2025 earnings release on its website at ir.redrobin.com. Now, I'd like to turn the call over to Red Robin's President and Chief Executive Officer, Dave Paik.

Good afternoon, everyone, and thank you for your interest in Red Robin. It was just four months ago that we unveiled our first choice plan with a core imperative of establishing Red Robin as the first choice for guests, team members, and investors. Today, I'm pleased to report that in the third quarter, we began to see the early fruit from our efforts. During the third quarter, our traffic trends improved sequentially through the quarter, supported by the launch of our Big Yum promotion and growth in our off-premise business. Equally encouraging are the continued gains in our four-wall operating efficiency, and our team's ability to manage the middle of the P&L, allowing us to beat our expectations for both restaurant level and corporate profitability during the quarter. Going forward, sustaining and extending this improvement requires continued execution across all aspects of our first choice plan. The momentum we're building reinforces my belief that we're on the right track to deliver on our goal to be the first choice for guests, team members, and investors. With that, let me share more detail on our progress and how we're building momentum as we move forward with this first choice plan. First, let's start with hold serve. Our operators have continued to raise the bar on performance. During the quarter, our team once again delivered labor results that beat our internal expectations. It's important to point out that we're achieving the sufficiency gain while maintaining guest satisfaction scores at the improved level we've established last year. This demonstrates that efficiency and hospitality are not mutually exclusive, and our ops team is proving every day that we can deliver both. The numbers also tell the story. The increased efficiency we achieved in the third quarter drove a 90 basis point improvement year over year in restaurant level operating profit, almost entirely driven by improvements in labor. These efficiency gains are being accomplished through a healthy blend of process changes, analytics, and technology combined with the entrepreneurial spirit of our operators who are finding the ways to work smarter and more efficiently while refusing to compromise the guest experience. Our managing partner program also ensures that our partners see the benefits of their efforts in increased compensation as they share in the gains that they are achieving in their restaurants. As we turn to our drive traffic initiative, I want to reemphasize that we're committed to creating sustainable traffic growth that is rooted in improvements across all of the relevant consumer touchpoints, including compelling value for the guest, delivering on our commitment of food quality and great taste, and a welcoming, hospitable, and fun environment. As I outlined on our last call, our plan is to build traffic driving layers, and I'm pleased with our progress. In addressing these elements of our plan, our first priority was to address our competitive positioning in price point value offers. The Red Robin Big Yum Burger deal that we launched at the beginning of the third quarter has performed above our expectations, resulting in approximately 250 basis point sequential traffic improvement from the second quarter to the third quarter. More specifically, we entered Q3 with a traffic run rate of approximately down 7%, and we exited the quarter with that run rate at approximately negative 1.4%, a result that we're extremely pleased with. Our big yum deal resonated strongly with our midweek dining occasions, particularly the lunch day part, and delivers on our commitment to provide our guests the gift of time. On average, we're delivering a complete dining experience in under 45 minutes. This promotion delivers exactly what we were looking for, immediate market relevance and trial generation. To build on this momentum, our team remains hard at work on new menu innovations to accelerate our competitive positioning and price point value offers, and we look forward to sharing updates on our future calls. That brings us to our second traffic driving layer, During the third quarter, we launched our data-driven marketing initiative, incorporating micro-targeting capabilities that will allow us to engage guests more personally, precisely, and efficiently than traditional broad-based messaging. This approach to marketing is intended to more efficiently and effectively reach guests, allowing us to level the playing field against larger, more resourced competitors. These unique and internally developed algorithms help us understand guest decision-making behaviors, and as a result, allow us to specifically target messaging and promotion in ways that resonate more directly with each guest. During our initial rollout of this approach, we saw outsized improvements in traffic and sales for the initial cohort of prioritized restaurants, and we plan to expand our reach to more of our restaurants each period. In addition to the progress we've seen within the four walls of the restaurant, we've also seen a dramatic increase in our off-premise business, driven largely through a significantly expanded approach to catering. The off-premise portion of our business represents approximately 25% of sales in the third quarter and delivered traffic growth of 2.9%, a signal that our guests love our food and want to enjoy it in more places than just the dining room. We expect to continue to aggressively grow this segment of our business as we move forward. Next is our Find Money initiative. I'm pleased to report another quarter where adjusted EBITDA beat our expectations, which continues to reinforce our confidence in the operational improvements we've implemented. In addition, thanks to our corporate efficiency initiatives, we continue to expect between $3 to $4 million benefit in G&A in 2025, with a $10 million run rate expected to be achieved in 2026. These savings are critical as we balance our investment priorities with delivering profitability. Regarding our capital structure, we're exploring all elements that I discussed when I introduced our first choice plan. This includes taking a comprehensive and proactive approach through multiple initiatives to give us optionality as we work to strengthen our balance sheet and position the company for long-term success. We've launched four primary tactics to accomplish this. First, as part of this process, we announced today a six-month extension to the term of our current credit agreement, with the loan now maturing in September of 2027 as compared to March of 2027 previously. This extension provides helpful time to optimize the value of the other efforts. Second, we've engaged Jefferies to assist us in refinancing our debt to further optimize our capital structure. Jefferies is an industry leader in this space, and we expect to work quickly and effectively with them to deliver a successful outcome on this effort as soon as practicable. Third, Today, we announced the establishment of an at-the-market or ATM program, which allows us to sell up to $40 million in equity open market transactions. While we may or may not execute against this option, we put this in place so that we have the option to generate funds if needed and to be in a position to move quickly where we may see compelling opportunities. Fourth is our refranchising effort. We continue to have great interest and engagement from both existing and potential new franchisees developed through our partnership with Brookwood Associates. We're encouraged by the level of interest in our brand, and we remain committed to a thoughtful process that maximizes value for our shareholders in both the short and long term. Refranchising is yet another important option to have in our tool belt, as we optimize our overall financing structure and work to strengthen our balance sheet. We'll continue to share updates as these projects progress. Supported by the gains we've seen in our operating results through the first three quarters of the year, we believe these actions will provide us with the options and flexibility to create the best long-term financing structure for Red Robin, while also assisting us with resources to reinvest in the business. Next, let me provide you with an update to our fixed restaurants efforts. As I mentioned on our last call, we identified the need to invest in critical deferred maintenance to better align our restaurant atmosphere with competitive standards. I'm pleased to report that we successfully completed refreshes in 20 restaurants across four markets during the third quarter. As a reminder, these are relatively light touch refreshes from a capital perspective and not full re-imaging projects, averaging approximately $40,000 per refresh in the third quarter. We've prioritized these investments by targeting areas that we believe will directly benefit the guest experience. This includes flooring updates, internal finishings, furniture repairs, and lighting, coupled with exterior improvements including signage, paint, lighting, and landscaping, all of which will directly benefit guest perceptions and experience. While results are still early, we're already seeing measurable improvements in both sales and traffic performance at these 20 locations. These results further support our thesis that well-executed improvements that enhance the guest's first impression and overall dining atmosphere can deliver measurable results relatively quickly. The success of these actions has helped us fine-tune our investment priorities as we look to expand the number of restaurants that we can touch. Our goal is to offer an environment that matches the quality of food and hospitality that our teams deliver every day. And we'll continue to take a disciplined approach as we expand this initiative further across our system. Lastly, let me briefly touch on our Win Together plan. As I've continued to travel the country, visiting our restaurants and meeting with restaurant teams, I'm hearing increasingly positive feedback from our team members who see that we're delivering on the promises we made earlier this year. They wanted a value offering, and we delivered the big yum deal. They asked for help addressing longstanding maintenance and repair issues, and we successfully refreshed 20 restaurants during the quarter with more to come. They asked for better technology and tools to execute more efficiently, and we're continuing to roll out additional technology with more planned ahead. It's encouraging to see that our team is embracing our guest-centric culture, and when combined with the strength of our operating results, we believe it's prudent to modestly raise our CapEx guidance for the year as we further accelerate some of these key initiatives that directly support our team members and their ability to deliver a great guest experience. Encouragingly, we've continued to see our team member turnover rates come down each period to a point where we're now at levels below industry benchmarks. As we look ahead, we believe this collaborative team approach will further strengthen our culture and position us favorably to attract and retain the best talent in the industry. To the almost 20,000 Red Robin team members across the country, I want to extend a heartfelt thank you for your dedication and hard work. I'm proud of what we've accomplished so far and excited about what's still to come. With that, Todd will now review our third quarter results.

Thank you, Dave, and good afternoon, everyone. In the third quarter, total revenues were $265.1 million versus $274.6 million in the third quarter of fiscal 2024. Comparable restaurant revenue beat our expectations for the quarter and are in line with last week's announcement at a decline of 1.2%. This result includes a 1.7% increase in net menu price, offset by a 3% decline in guest traffic. Guest traffic trends improved sequentially through the quarter and delivered a 250 basis point trend improvement as compared to the second quarter. We attribute this improvement to the success of our Big Yum Burger deal that launched in July and continued traffic strength in our off-premise business. Restaurant level operating profit as a percentage of restaurant revenue was 9.9% an increase of 90 basis points compared to the third quarter of 2024. This was driven by the continued success of our operations team, delivering significant gains in labor efficiency. I would also note, while cost of goods increased due in part to beef inflation that we anticipated, our commitment to deliver value for the guest is also reflected with this increase, with the goal that this value ultimately contributes to delivering increasing guest traffic. General and administrative costs were $16.9 million as compared to $20.8 million in the third quarter of 2024. The reduction is primarily due to not holding a partner conference event in 2025 as we did in 2024. In 2024, this cost was mostly offset with vendor contributions credited to other parts of the income statement. Selling expenses were $6.8 million an increase as compared to $5.5 million in the third quarter of 2024. The increase is primarily due to additional investment in third party delivery platforms and other channels. Adjusted EBITDA was $7.6 million in the third quarter of 2025, an increase of $3.4 million versus the third quarter of 2024. Adjusted EBITDA increased due to cost efficiency gains, particularly in labor, and the benefit of menu price increases. We ended the third quarter with $21.7 million of cash and cash equivalents, $9.2 million of restricted cash, and $29 million available borrowing capacity under our revolving line of credit. Turning to our outlook, we will now provide the following guidance for 2025. First, Total revenue of approximately $1.2 billion is unchanged from our prior guidance. This incorporates expectations that comparable restaurant sales will decline approximately 3% in the fourth quarter, and we will end 2025 with 386 company-owned restaurants in operation. Second, restaurant-level operating profits of at least 12.5% as compared to our prior guidance of 12 to 13%. Third, we now expect adjusted EBITDA of at least $65 million as compared to 60 to $65 million previously. Finally, we now expect capital expenditures of approximately $33 million as compared to approximately $30 million previously as we continue to execute against the first choice plan and make investments back into our restaurants and technology. As added commentary on our guidance, I would note the following points. In recent weeks, we have seen guest traffic trends slow from where we exited the third quarter. We attribute this to intentional timing shifts in our marketing spend and the consumer impact of the government shutdown. While our guidance is grounded in expectation for both traffic and comparable restaurant sales to decline approximately 3% in the fourth quarter, We are optimistic traffic trends will regain traction as our marketing spend levels increase in the remainder of the quarter. On the margin side, we expect cost of goods in the fourth quarter to be similar to the third quarter. For the other operating cost categories, we expect marginal improvement in the fourth quarter as compared to the third as we leverage fixed costs with higher seasonal sales in the fourth quarter. Overall, we are very pleased with our progress, capturing cost efficiencies while delivering a great guest experience. We have made significant gains, increasing restaurant-level profitability, reducing debt, and growing EBITDA. Initial results from the launch of the Big Yum are encouraging, and we look forward to the great value at Red Robin delivering growing guest counts. In closing, I'd like to offer a tremendous thank you to our operators, our restaurant teams, and the team at the Restaurant Support Center. This great progress in the business is a result of your hard work, and I'm excited for what's next. Dave, I will now turn the call back to you.