Dine Brands Global, Inc.

Hello, and welcome to the first quarter 2021 DynBrands Global Earnings Conference Call. My name is Christian, and I'll be your conference operator today. After the speaker's presentation, there will be a question and answer session, but we ask that you please limit your question to one and one follow-up. Please also note that today's conference is being recorded. I'll now turn the call over to Mr. Ken Dipty, Executive Director of Investor Relations. Sir, you may begin.

Good morning, and welcome to Dine Grand's first quarter 2021 conference call. I'm joined by John Payton, CEO, Allison Hall, interim CFO and controller, Jay Johns, president of IHOP, and John Sawinski, president of Applebee's. Before I turn the call over to John, please remember our safe harbor regarding forward-looking information. During the call, management may discuss information that is forward-looking and involves known and unknown risks, uncertainties, and other factors which may cause the actual results to be different than those expressed or implied. Please evaluate the forward-looking information in the context of these factors, which are detailed in today's press release and 10-Q filing. The forward-looking statements are as of today and assume no obligation to update or supplement these statements. We may also refer to certain non-GAAP financial measures, which are described in our press release and also available on Dynagrand's website. With that, I'll turn the call over to John.

Thanks, Ken. Good morning, everyone. Thanks for joining us today. When we spoke last quarter, I shared my belief that the industry, and our brands in particular, were on the cusp of a restaurant renaissance. And our headline today is that the renaissance is here. I love this notion of renaissance because it's all about resurgence and creativity and pushing beyond established boundaries. And that's exactly what we're doing at Stein Brands. We're changing the way people think and we are turbocharging creativity and experimentation. A willingness to learn and adapt is flourishing throughout our organization. I see it every day from our franchisees to our company staff to the restaurant teams, our general managers and our servers. And that's why I'm so proud of our company and our franchisees. I'm proud of our management team and I'm especially proud of the thousands of hardworking restaurant team members around the world. Now, as I look back on the first quarter, it's remarkable how we continue to persevere and grow. Our brands posted meaningful improvements during the first quarter, and on this call, Alice and John, Jay and I will be comparing comp sales to the same period in 2019 due to the pandemic's profound distortion of 2020 sales. So let me share those results through the lens of store sales, total revenue, and cash generation, because obviously each one leads to the next. So first, sales. Average weekly sales at both IHOP and Applebee's exceeded pre-pandemic levels several different times during the first quarter. According to Blackbox, and this is impressive, Applebee's increase in same-store sales for Q1 outperformed the casual dining segment. Off-premise. In March, both IHOP and Applebee's off-premise sales reached absolute dollar levels higher, higher than when the restaurants were 100% off-premise in 2020, indicating the staying power of this largely incremental business. Revenue, we achieved revenue of $204.2 million and EBITDA of $58.1 million, reflecting strong underlying performance across our business. Cash, we generated free cash flow of $30.7 million which in part enabled us to repay our $220 million revolver in early March. And also importantly, our franchisees opened 10 new restaurants during the quarter, indicating that they're beginning to pivot towards growth. We're very encouraged by our Q1 performance, and we're certainly optimistic that economic tailwinds will sustain us throughout 2021. You know, contributing to that view is historically high consumer savings, the federal spending that we've been enjoying, as well as a new potential infrastructure bill The unemployment rate is the lowest since the pandemic began. And with vaccinations rising, the economic growth outlook firming, and the strength and resilience of our brand, I'm confident that we'll build on the strong Q1 performance to drive market share gains and deliver profitable growth throughout the year. Now, our fundamental strengths are something many CEOs would love to have. Number one, we are an asset-light 98% franchise model that is a significant generator of cash. Second, we've got two iconic world-class brands that are number one in both the casual and family dining categories. And third, we've got the most talented, most resilient team members in the industry today, along with the next generation of workers still to be hired. And as tough as the past year has been, the pandemic actually gave us new competitive competencies. Here's what we have today that no one could have even imagined pre-COVID. We've got significant incremental off-premise business in both brands. Our teams moved quickly and aggressively to add the tech and operations capability needed to nurture and sustain this new business. Second, we leaned heavily into ghost kitchens and virtual brands like Cosmic Wings and others on the horizon that offer new sources of revenue for dine and our franchisees, all of that due to the creativity and talent of our people. And we advanced our digital platform and loyalty programs that will increase our share of wallets. So with COVID-19 vaccine appointments now more widely available and capacity restrictions being eased across the country, we are seeing increased traffic in our restaurants. A couple of questions that might be on your mind. First is about hiring, and that is certainly a challenge in the industry today and all around the country. So I want you to know that we are aggressively working to help our franchisees recruit adequate staffing to accommodate the increase in demand. And this is a great example of where Dyn's scale makes a big difference. We're launching national campaigns for two recruiting days next week. Applebee's and IHOP are collaborating with their franchisees on the 17th and 19th with the goal of hiring more than 20,000 new team members. And we're making it easy to apply via text, email, and in person. And both brands are leveraging very creative social campaigns to generate interest. Your second question today might be around procurement, and I want you to know that we're working to secure the continuity of our supply chain. During the past few months, the surge in guests going out to eat created demand that has outpaced supply. This is actually not a terrible problem to have, as we see it as just a moment in time. Nonetheless, our purchasing co-op remains heavily engaged with both brands, and we've adjusted our full-year food forecast slightly upward due to generally higher commodity and input costs. However, we expect prices to fall back to equilibrium as our suppliers adjust to the new demand forecasts over the remainder of the year. We want the world to know right now that Applebee's and IHOP are open for business, so our marketing plans encompass national TV, digital media, social media platforms, and one-to-one marketing. And of course, as we welcome guests back, we remain focused on providing them with a welcoming and safe environment. Both IHOP and Applebee's have standard operating procedures in place, and our employees have done a terrific job of adhering to best practices like QR code menus upon request, tables that aren't set until the guest is seated, the proper use of masks, and enhanced cleaning protocols. And so with safety in place, we're doubling down on innovation to fuel the renaissance. And specifically, we've got five growth platforms that build on Dyn's competitive advantage. Number one, We're developing and investing in new, smaller restaurant prototypes for both brands. Flip is a good example of our new thinking. Number two is off-premise enhancing technology, like Flyby. Number three, virtual brands. Think Cosmic Wings. Number four is Ghost Kitchens. For IHOP, they're up and running in Dubai, Kuwait, and Saudi Arabia. And for Applebee's and Cosmic Wings, we're up and running in LA, Philadelphia, and coming soon in Miami. And as always, we're focused on new culinary creations like IHOP's burritos and bowls. So I know that you're waiting for our comprehensive long-term growth plan. And I can tell you that we're currently conducting a top-to-bottom strategic review of the business. And as part of that process, we're embracing a bigger, more holistic vision for our future. But in the near term, I can tell you that we've already decided to lean into three incremental investments that I know will make a difference, and since we spoke last quarter. First is technology that enhances the guest experience. We're accelerating the redesign of IHOP.com and the IHOP app. We're accelerating the Flipped website and its app, as well as the platform needed to support our loyalty programs for IHOP and Applebee's. Second, we're leaning into Flipped by IHOP. We'll increase investment to accelerate the launch of this IHOP sister brand. And on that topic, I can just say stay tuned for some news coming soon. And third, we're making investments to improve the guest experience in our portfolio of 69 company-owned Applebee's restaurants in the Carolinas, which, by the way, consistently rank among the top performers in the domestic Applebee's system based on sales. So these three investments that I just mentioned are largely an investment in CapEx, and they represent an additional $5 million in CapEx since we last spoke. We don't expect them to alter our previously issued G&A guidance. So I'm confident in our plans and very confident in our management team. We've identified the building blocks for the restaurant renaissance, and we'll use those as a way for all of you to continue to follow the progress of our story. An important part of our story is a strong balance sheet because it enables us to create that future, and Allison will now give you an update on that as well as on our financial results.