Dine Brands Global, Inc.

Good day and thank you for standing by. Welcome to the Dine Brands first quarter earnings conference call. At this time, all participants are in a 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 again. We ask that you limit yourself to one question and one follow-up. 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 Dian Brands Global's first quarter fiscal 2024 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 10Q filing. The forward-looking statements are as of today, and we assume no obligation to update or supplement these statements. We will refer to certain non-GAAP financial measures, which are described in our press release and available on Dying Brands Investor Relations' website. For calendar planning purposes, we are tentatively scheduled to release our Q2 2024 earnings before the market opens on August 7, 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 DynBrands CEO, John Payne.

Good morning, everyone, and thank you for joining us for our first quarter earnings call. Today, I'll share Dyn's Q1 results and discuss trends in consumer behavior and discuss operational highlights across our portfolio. I'll also provide an update on our development strategy, and in advance, we'll discuss our financial results and capital allocation plans in more detail. During the first quarter, like others in our industry, We saw large areas of the country experience poor weather, impacting sales and traffic. And consumer caution with respect to economic conditions persisted in the post-holiday period. As a result, the consumer has become more price sensitive, as indicated by the response to our limited-time promotions. For example, at Applebee's, 28% of our transactions were tied to a limited-time offer or promotion, which was up from 19% in the previous quarter as well as the prior year. We also continue to see guests trade down from higher-priced items at both IHOP and Applebee's, another indicator that guests are managing their wallet. Despite the volatile macro environment causing a slower start to 2024 than we anticipated, we are encouraged to see that our value-driven strategy helped to mitigate some of the challenges in Q1 and, importantly, drive sequential improvements throughout the quarter. Our approach was validated by guest response to our LTOs and enthusiastic reactions to our continued menu innovation and reinforced by strong marketing calendars and brand relevancy. So with that, I'll walk through our key financial highlights, recognizing that we're comping over a strong Q1 2023. In Q1, our EBITDA was $60.8 million compared to $66.4 million in the same quarter last year. Revenues were down 3.5% for Q1. Applebee's reported a 4.6% reduction in comp sales, lapping last year's positive 6.1% Q1 comp sales growth. IHOP posted negative 1.7% comp sales, lapping a positive 8.7% increase in comp sales the same time last year. And adjusted free cash flow was $29.7 million, which was an increase of $27.5 million. Overall, despite the slow start to the year, we remain committed to our guidance for the full year. I'll turn now to highlights of Applebee's performance. In Q1, Applebee's results were impacted by challenges I referenced related to weather and consumer pullback after the holiday season. However, the brand's performance steadily improved throughout the quarter, supported by effective marketing and promotional campaigns, which contributed to Applebee's outperforming black box traffic in Q1. Applebee's innovation pipeline was particularly strong in Q1, with three limited-time offerings strategically spaced throughout the quarter and Thank you so much for having me. offered guests over $1,500 in dining value for the unbeatable price of just $200. It sold out within minutes, demonstrating the strong connection the brand holds with its guests. The date night pass and the media coverage was outstanding, generating more than 2.4 billion impressions, and the social conversation around Applebee's and date night increased by more than 115%. Turning now to March, following a national double-blind taste test of our classic buffalo-sauced boneless wings, Applebee's was crowned with the title of America's favorite boneless wings, and we leveraged this to spotlight the brand and draw guests to our restaurants. This was the basis of our national campaign that ran during March Madness, where we offered guests 50-cent boneless wings. It was the first time we extended a disruptive value promotion to also to be available via to-go, which resulted in improved off-premise volumes while also maintaining a steady dine-in business. As we continue to look for new ways to reach our guests where they are, we're working to enhance our off-premise offerings, and we're pleased to see initial success with our boneless wings. This dine-in and off-premise combination drove a strong finish to the quarter, outpacing Black Box five times in Q1, four of which were the last four weeks of the quarter, setting us up well for Q2. Our innovation pipeline is designed to drive steady cadence of exciting developments to showcase the brand and give guests more reasons to come back to Applebee's. Some highlights currently rolling out include the Whole Lotta Bacon Burger, which launched in April, our recently announced NFL sponsorship as the official grill and bar of the NFL, followed by the return of Dollarita just last week that features a new appetizer, our loaded chicken fries. Also of note, since the launch of Applebee's new website and mobile app in December, we've seen the highest conversion rates of the last two years. In fact, we're seeing a higher percentage of guests choosing to place their orders digitally, as well as higher check averages compared to our prior site and app. Applebee's performance improved throughout the quarter, and we're encouraged by the continued positive momentum so far in Q2, supporting our guidance for the year. Now, moving on to IHOP. While the top line experienced a slight pullback for the first time in three years, we maintained a steady flow of timely, relevant campaigns that helped offset the modest weather-related headwinds a tough comp rollover due to the closure of our virtual brand partner, Nexbyte, and the impact of the economic pressures our guests are facing. Our strategy to focus on the guest experience, menu innovation, and targeted marketing executed in a very nimble and creative way will allow us to deliver positive comps for the full year. We had a great run of sequential growth with 11 quarters of positive comps leading up to this quarter, and we're confident we will return to that pattern. And now for a review of activity in the quarter. We started the year with the return of our guest favorite, Rudy Tutti Fresh and Fruity, featuring a new combo that allowed guests to customize their orders at a value price point of $7. As a result, IHOP's comp sales outperformed the Black Box family dining segment in four out of six weeks during the promotion. In February, we launched our new Pancake of the Month, where each month we're introducing a new pancake flavor and the opportunity for members to earn bonus loyalty points to keep guests engaged and coming back. In April, we launched national TV advertising to support the campaign, and sales have trended in line with our most popular flavored pancakes after only two months. This is also a good example of how we pair new menu launches with exclusive loyalty benefits to continue to grow that platform. Our loyalty program sign-ups steadily increased during the quarter, and as of today, we are at 9 million members. In February, we also celebrated IHOP's National Pancake Day. This year was particularly special as we served over 1 million pancakes to our guests, and we launched a new nationwide community platform called Stacking Up Joy, designed to bring people together in the communities we serve. The Stacking Up Joy platform garnered 2.3 billion impressions and raised enough money to donate over a million meals to people facing hunger. As I mentioned earlier, the closure of our virtual brand partner, Nextbyte, impacted our year-over-year comp sales. However, we still see opportunity with virtual brands that target IHOP's off-peak hours and utilize kitchen capacity outside of our traditional day part to support incremental sales growth. In partnership with Virtual Dining Concepts, we recently introduced two new virtual brands, Refuel Tenders and Burgers, developed in collaboration with NASCAR, and MLB Ballpark Bites, created in partnership with Major League Baseball. Over 1,000 restaurants now offer at least one of these brands, and 50% offer two or more as of May. Outside of our IHOP restaurants, our CPG coffee line is on more than 30,000 retail shelves across the U.S. and continues to grow, with two new varieties launching soon. This past quarter, we announced our limited-time partnership with Lay's, to launch the IHOP Rudy 2D fresh and fruity flavored Lay's potato chip, which reinforced brand awareness and was a sellout in retail channels. Operationally, our point of sale rollout is nearly complete, and we are now starting to shift our focus to tablets and payment devices. More than 50% of the IHOP system has implemented tablets and payment devices to date, and we are encouraged to see that transactions taken on tablets with payment devices have a higher beverage attachment rate, improved table turn times, decreased voids, and higher tips for servers. As you can tell, there's a lot going on at IHOP. While the performance was obscured by tough conditions and the virtual brand rollover in Q1, these initiatives give us confidence for improved performance through the remainder of the year. Turning out of fuzzies. As a refresher, we acquired fuzzies in December 2022 Thank you. As of Q1 2024, Fuzzy's is a 128-unit brand in a highly concentrated geographic footprint with more than half of its locations in Texas. We've completed our integration and are starting to see the benefit of leveraging the capabilities and expertise of the DIME platform, particularly as it relates to Fuzzy's introduction of value-driven promotions and marketing. While the quarter was impacted by weather, and high pricing from franchisees, we are executing near-term initiatives to support our long-term growth strategy for Fuzzy's. For example, during the quarter, we tested a new advertising campaign, a first of its kind for Fuzzy's, highlighting the launch of its Primo Baja menu. We're pleased with the initial results and will continue to explore additional opportunities to grow the brand. While we're not yet giving development guidance for Fuzzy's, we'd like to provide an update given its strategic relevancy to Dyn's overall growth. Over the past year, Fuzzy's has been focused on cleaning up its system, which included some strategic closures. We're excited to share that we recently signed two multi-unit deals. An existing Fuzzy's franchisee has committed to developing 15 restaurants, and an IHOP franchisee has committed to develop 25 Fuzzy's restaurants over the course of the next several years. While we won't see impact in 2024, these deals speak to the potential of Fuzzy's as our growth brand in 2025 and beyond. We're pleased with the opportunities we're seeing post-integration and will continue to focus on driving brand awareness and supporting new functions. On the international side of the business, we're impacted by geopolitical conflict in some regions, and we remain focused on our long-term growth plans for the quarter. Our international dual-branded Applebee's IHOP concepts are doing well and serve as a testing ground for future domestic application. Overall development remains steady with four new openings and six planned closures in Q1 for a net closure of two restaurants. We remain optimistic about our international growth and strategically scaling our global footprint. And finally, to touch on our development strategy, we're continuing to establish a strong foundation to efficiently scale our development programs And we've made great progress this quarter, building our internal capabilities to support development across the entire Dyn platform, investing in non-traditional development, marketing, and making several key hires. The team is actively in market, reviewing opportunities for new sites, both traditional and non-traditional, and working closely with franchisees to support their growth plans that are aligned with our previously disclosed pipeline and guidance. We're creating a support team and developing incentives for our franchisees to make restaurant development more approachable with new programs to provide access to capital. We continue to see and are very pleased by the cross-pollination of franchisees looking for new opportunities across the Dine system, an important pillar to the Dine development thesis. We're also looking to accelerate new builds by responding to the demand for dual-branded restaurants domestically. we're receiving from franchisees about the dual branded concepts are all very positive. Of course, there's still plenty of work and research to be done around this concept, and we're glad to see positive engagement from guests and franchisees alike. This quarter, we also launched the Dine Forward franchise program, known as Dine Forward. Dine Forward is aimed at incentivizing potential franchisees from underrepresented communities to establish restaurants within our system and provide enhanced operational and financial support. We're thrilled to announce that our first participant, a general manager who's been in the IHOP system for over 20 years, will open his first restaurant in D.C. later this month. It's important to reiterate that enhancements to our development function and the Dine Forward program are funded by reallocating costs within Dine's existing cost structure and not by increasing overall spend. Now, to provide brand development updates from the quarter. As a reminder, we do not give quarterly guidance, but the following commentary is to offer context to how we remain in line with our annual domestic development guidance goals. First, at Applebee's, we're making progress on the freestanding prototype, which is currently in phase one of a nine-month effort to significantly take out construction costs. In Q1, Applebee's had net domestic closures of five, and we were on track with our domestic guidance of 25 to 35 net closures. These were planned closures and built into our guidance. For Q1 at IHOP, domestically, we opened five restaurants and closed nine for a net closure of four restaurants. As is standard in IHOP's development cycle, we see more closures earlier in the year with new openings concentrated toward the latter half of the year. We remain on target for our full year guidance with net 15 to 25 new domestic restaurants. And with that, I'll turn the call over to Vance.