Dine Brands Global, Inc.

Good day, and thank you for standing by. Welcome to the Dine Brands Global Fourth Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 once again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Matt Lee, Senior Vice President, Finance and Investor Relations. Please go ahead.

Good morning, and welcome to Dying Brands' fourth quarter and fiscal 2023 conference call. This morning's call will include prepared remarks from John Payne, CEO, and Vance Chang, CFO. Following those prepared remarks, Tony Miralejo, President of Applebee's, and Jay Johns, President of IHOP will also be available to address questions from the investment community during the Q&A portion of the call. Please remember our safe harbor regarding forward-looking information. During the call, management will discuss information that is forward-looking and involves known and unknown risk, 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-K filings. The forward-looking statements are as of today, and we assume no obligation to update or supplement these statements. We will also refer to certain non-GAAP financial measures, which are described in our press release and also available on Dine Brand's investor relations website. For calendar purposes, we are tentatively scheduled to release our Q1 2024 earnings before the market opens on May 8, 2024, and to host a conference call that morning to discuss the results. With that, it is my pleasure to turn the call over to Dine Brand's CEO, John Payton.

Good morning, everyone, and thank you for joining us. On today's call, I will share Dine's fourth quarter and full year 2023 results. I'll discuss our strategy to increase the pace of restaurant openings, share the current outlook for our brands, and Vance will discuss in detail our financial results, capital allocation plans, and provide guidance for 2024. 2023 was a year of significant work in progress for Dine. First, Applebee's and IHOP both delivered another year of positive comp sales growth For Applebee's, 2023 was the third year of consecutive positive comps. Second, we generated year-over-year EBITDA growth. Third, we integrated Fuzzy's into our system, realizing our long-term objective to add an emerging, high-growth potential brand to the Dime portfolio. We opened our eighth IHOP Applebee's dual-branded restaurant internationally, gaining experience and knowledge as we contemplate introducing this concept in the U.S., And finally, we refinanced our debt while returning $210 million back to equity and bond investors. Of course, our success in 2023 would not have been possible without the hard work of our franchisees, their commitment to excellence, and their relentless focus on delivering a fantastic guest experience. As our franchisees focused on what they do best, so did we. We stayed focused on our recipe for growth, which is designed to drive long-term sustainable value creation for our brands, for our franchisees, and for our investors. Throughout 2023, we largely completed investments in technology to drive efficiencies and improve the guest experience. We leveraged our resources and scale to drive revenue and EBITDA growth. and we introduced menu innovation and marketing campaigns that drove traffic at IHOP and established a pipeline of new menu items and innovative offerings that will roll out this year to Applebee's. As we advanced our innovation agenda, we did so with the needs of our guests top of mind. During the year, we found that guests limited their discretionary spend in response to economic pressures and that this value-conscious behavior continued in the fourth quarter. While this certainly creates challenging and dynamic market conditions, it also allows us to leverage our expertise in delivering exceptional value. Our brands are known for delivering abundant value, and we are able to meet the guest at the right intersections, even in a price-sensitive environment. We successfully built our limited-time offerings and other offers throughout the year to ensure our promotions were highly visible and appealing to our guests. That's why it's no surprise that our 2023 top-performing campaigns included Applebee's Dollarita and All-You-Can-Eat Wings and IHOP's Kids Eat Free and All-You-Can-Eat Pancakes. We expect that the consumer will remain cautious in 2024, and we're planning for it with a compelling calendar of LTOs and value-driven promotions across our brands. We know our guests, and our strategy is grounded in consumer insights that differentiate us in the market and deliver an exceptional experience for our guests. In addition to our focus on driving traffic, we'll also place particular emphasis on strengthening our development capabilities. As we recently announced, Scott Gladstone has stepped into the newly created role of Chief Development Officer and will coordinate our development strategy. We are thrilled to have Scott in this role. He's a dying veteran who knows our business inside and out from his time at Applebee's, as well as his work in strategy, business analytics, and consumer insights. Scott will continue to serve as the leader of our international business. I'll discuss our development strategy and Scott's work to build out our development capabilities in more detail later on in the call. So with that, I'll walk through our key financial highlights. In 2023, we generated $256 million of EBITDA, which was up from $252 million in 2022. In Q4, our EBITDA was $62.2 million, compared to $57 million in the same quarter last year. Excluding the re-franchising of the 69 company-owned Applebee's units in October of 2022, our revenues were up 5% for the full year and up 4% in Q4. IHOP achieved full-year comp sales growth of 3.5%, on top of 2022's comp sales growth of 5.8%. And for the quarter, IHOP posted its 11th consecutive quarter of positive comp sales, with a Q4 increase of 1.6%. Applebee's delivered positive 0.6% comp sales for the full year, maintaining momentum from 2022's comp sale growth of 5.1%. And in Q4, Applebee's reported a slight decline of negative 0.5% in comp sales. And adjusted free cash flow was $103.3 million in 2023, which was an improvement from 2022's adjusted free cash flow of $64.6 million. Turning now to Applebee's. The highlight for Applebee's in Q4 was the success of our Dollarita promotion, which tapped into the promotional mindset of our guest and drove strong comp sales and positive traffic in October, helping Applebee's outperform BlackBox in traffic in Q4. Dollar Reader was supported by strong social media pickup, and more importantly, it was welcomed by our franchisees because it drove profitable sales and traffic. In fact, 93% of Dollar Reader purchases had an additional menu item attached. Dollar Reader also expanded our demographic reach, attracting a younger age group, many of whom visited Applebee's for the first time. We'll continue to execute on this successful formula via our Q1 partnership with Brian Cranston and Aaron Pauls Stoth Ombre's brand, and the launch of three new Mezcal margaritas, along with our $5 Tipsy Cupid Mucho and $6 Blue Moon. This builds on the success of Dollarita and recognizes the promotional mindset of our guest, as evidenced by 19% of transactions in Q4 were attributed to an LTO or promotion. Applebee's also has a full pipeline of new menu products and exciting marketing partnerships. The culinary team has now tested over 200 new menu concepts and and we're excited to start rolling out the top-performing items to Applebee's nationwide in Q2. We want to continue to be at the forefront of guest minds, and in an increasingly crowded space, being culturally relevant is essential, which is why we will be increasing the number of on-air weeks in our marketing calendar. Our approach is to weave together a strategic mix of promotions, new menu items, and to drive traffic, frequency, and check. In Q4, we also took a big step forward improving our guests' digital experience. In December, Applebee's launched its new website and mobile app, which features a fresh design and offers guests a personalized and elevated ordering experience. Applebee's site and app now allow guests to pick up their orders using CarSite2Go, in-restaurant pickup, or have it delivered straight to their door. Since the launch of the new website and mobile app, we've seen a higher percentage of guests choosing to place their order digitally, higher conversion rates, and increased check averages compared to our prior site and app. Now, while the off-premise side of the business remains above pre-pandemic levels, it has softened somewhat, and we believe that there are opportunities to improve on our off-premise offering and execution. We have new initiatives to drive this segment of our business. Our job in 2024 is to build on this progress by delivering innovative menu, technology, and marketing to propel this iconic brand in an increasingly value-driven market. We're optimistic about Applebee's continued performance and expect to deliver positive growth for Applebee's throughout 2024. Now moving on to IHOP. In the fourth quarter, we delivered our 11th consecutive quarter of positive comp sales. average weekly sales over $50,000 for the first time in the last week of December, and we opened 46 new IHOP restaurants domestically last year. IHOP is truly a growth brand, and its success reflects our steady and consistent investments in menu and marketing innovation, technology enhancements, and the build-out of the loyalty program. To expand a bit more on the loyalty program, when we embarked on the International Bank of Pancakes, it was based on the theory that loyalty drives frequency, and the results have surpassed our own goals. Last year, we enrolled over 3.5 million new members, bringing our total loyalty members to 8 million people. Our dine-in loyalty members are, on average, visiting nearly twice as often as non-members, and they spend, on average, 5% more than non-loyalty members. The IHOP app is being downloaded 8,000 times per day, and Newsweek, for the second year in a row, recognized our loyalty program as one of the best in America. I believe that there is much more upside here. Notwithstanding the quick growth of the program, loyalty only accounts for approximately 6.5% of total sales for IHOP, up from less than 3% in 2022. We're just beginning to scratch the surface in terms of the loyalty program's ability to drive incremental traffic and sales, and we're also starting to learn the purchasing habits of our loyalty members that will lead to more personalized marketing. 2023 was also an important year for IHOP's menu, With the knowledge that 70% of our sales are breakfast items, including at dinner, we added the new categories of biscuits and benedicts and refreshed the French toast and crepes categories. These additions all sustained their performance during the fourth quarter, and both the menu items and the visual design of the new menu were industry award winners. Under marketing, IHOP's omnichannel approach to marketing connects with guests, focusing on limited-time promotions and the basics of great value. For example, our fourth quarter partnership with Warner Brothers, Wonka, included a film-inspired limited-time menu that enhanced brand awareness and drove sales. In fact, IHOP outperformed Black Box in family dining and comp sales four out of five weeks during Q4's Wonka campaign. On the technology front, 92% of our IHOP restaurants have implemented the new POS system and server tablets. Our preliminary data shows that franchisees that have fully enabled their server tablets are experiencing a higher beverage attachment rate, improvement in ticket time, higher average check, and higher tips for servers. Last year, IHOP also made significant strides in advancing our consumer packaged good program. According to Kraft Heinz, our IHOP coffee became one of the fastest growing new launches in dry coffee, over-indexing with Gen Z and Millennials. Momentum continues to grow as marketing support and social media ramp up. Additional sizes are being added in Q1, and new flavor innovations and formats are on track for Q2. The new-to-market iced lattes offer cafe-style beverages at home, making inroads with younger consumers. Kraft Heinz gained exclusive distribution of the new IHOP iced lattes in Walmart in 2023, and we launched nationally in 2024. Overall, IHOP solidified its market leadership last year, and we expect its momentum to continue in 2024, supported by ongoing innovation and operational enhancements. Turning now to Fuzzy's. The highlight here, of course, is that the integration process was completed last year, and Fuzzy's is now set up to benefit from Dine's shared resources. We're excited about the cross-pollination underway, as existing Dine portfolio franchisees are looking to opportunities across all three brands in the Dine family portfolio. Alongside integration, we've also been applying IHOP and Applebee's tried and tested insights and expertise, including menu optimization and innovation and analytics to improve pricing and to drive smarter data-informed decisions. We're pleased that Fuzzy's LTOs last year, such as the Margarita Shrimp Taco, Chicken Elote, and its newest Berea Taco Bowl and Queso, were the best in the brand's history. Already in Q1, Fuzzy's has launched its new traditional Baja fish taco and premium Baja menu category. This is the first step of bringing the Baja program to life in 2024. Starting Q1 2024, we will provide more details on Fuzzy's performance. And finally, our international division had a strong year of growth in 2023, with a total of 23 openings for the year, resulting in 11 net new restaurants. Our IHOP and Applebee's dual branded prototype continues to perform well in its markets. And we opened our eighth dual branded restaurant in January in Leon, Mexico, which represents a compelling opportunity for further growth since Mexico is one of our largest international markets. And with that, I'll hand the call over to Vance.