Dine Brands Global, Inc.

Good day, and thank you for standing by. Welcome to the dying brand second 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Matt Lee, Senior Vice President, Finance and Investor Relations. Please go ahead.

Good morning, and welcome to Dine Brands Global's second 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 Moralejo, 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 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 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 Dine Brand's Investor Relations website. For calendar planning purposes, we are tentatively scheduled to release our Q3 2024 earnings before the market opens on November 6, 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 Dyn Brand's CEO, John Payton.

Good morning, everyone, and thank you for joining us for our second quarter earnings call. Today, I'll share Dyn's Q2 results and discuss trends in consumer behavior. I'll also discuss operational highlights across the portfolio, and in advance, we'll discuss our financial results and provide an update on our full-year guidance. Dyn began Q2 with a strong strategy to address economic challenges broaden our appeal to guests, and build on the positive momentum we experienced toward the end of Q1. Despite this, we saw a pullback from guests as the second quarter unfolded. While this affected our top line growth, we were able to maintain our bottom line performance. We recognize that our guests are in a tough spot in this economic cycle. And our data indicates that guests are reducing their restaurant visits industry-wide and choosing to eat more at home. When guests do choose to dine at our restaurants, they're managing their check by trading down from higher-priced menu items to less expensive options. This has been a consistent trend over the past few quarters, and we, along with our franchisees, have been actively managing our offerings to adapt to evolving guests' needs and behaviors. we deliver value through competitive pricing, generous portions, and exceptional experiences. This approach has earned our brands enduring trust. Our strategy extends beyond temporary discounts, focusing on long-term guest satisfaction. Our franchisees are well-versed on how to adapt to evolving market conditions. This isn't the first time we've collectively had to navigate choppy waters, and we have a deep arsenal of profitable promotions, menu innovation, and marketing campaigns that we can deploy in the near term while remaining focused on positioning ourselves for sustainable value creation in the long term. We're making strategic refinements and real-time adjustments to respond to changes in guest behavior by shifting toward more value-driven promotions for the remainder of the year. We'll continue to refine our approach to address the unique dynamics of the market and the consumer today. Our asset-light model and iconic brands give us a solid foundation to tackle the current headwinds. And this is the strategic advantage of the Dyn platform. And you'll hear today how we're leveraging this in the best interest of our guests and our franchisees to create value for all stakeholders. It's also important to remember that the underlying fundamentals of our business model remain solid and continue to perform with limited impact to our bottom line. Our cash flow is strong and improved year over year. Our margins continue to remain solid and our leverage remains steady. And while we're taking a disciplined approach to manage what we can control around this tough market cycle, we remain focused on our long-term growth objectives and continuing to return value to our shareholders. Now, for an overview of the numbers from this quarter, we generated EBITDA of $67 million compared to $67.3 million in the same quarter last year. Our Q2 revenue is down 1% from the same quarter last year. Applebee's reported negative 1.8% comp sales, IHOP posted negative 1.4% comp sales, and adjusted free cash flow was $23.2 million. In light of our performance to date in 2024 and our expectation that market pressures will continue throughout the remainder of the year, we are revising our full-year financial and development guidance, Vance will speak to our guidance in greater detail later in the call, but I'll first say that although we're disappointed in the slow momentum on our top line growth, it's driven largely by market conditions. We're applying our learnings from the last two quarters to refine our strategies, and we're committed to pulling all available levers to support the top line through the remainder of the year. So with that, I'll turn to brand updates, and I'll begin with Applebee's. In Q2, Applebee's delivered an improvement on comp sales and traffic versus Q1. Key promotions and limited time offers, like America's favorite boneless wings, resonated with our guests, allowing us to outperform black box traffic for the third quarter in a row. However, the macroeconomic headwinds we experienced at Applebee's this quarter were significant, putting pressure on the growth and momentum we started to develop at the end of Q1. During the second quarter, we ran a diverse range of promotions that showcased how value at Applebee's extends beyond price while also ensuring that the price is right. This helped us attract the consumer and drive traffic while also testing new menu innovations such as the whole lot of bacon burger, which will remain on the menu following the success of its performance as an LTO. In June, we unlocked the opportunity for new capabilities with hand-breaded chicken in our restaurants. The launch of our brand new hand-breaded chicken sandwich to our menu exemplifies Applebee's commitment to menu innovation and paves the way for further menu expansion. And as we look toward the second half of the year, we're very excited to work with one of the world's strongest brands, the National Football League. The opportunity to combine dining with entertainment, socializing, and connections through our NFL partnership is certainly timely and it's exciting and fun. As the official grill and bar of the NFL, we'll partner with the league to enhance the guest experience and build loyalty for our nearly 8 million Club Applebee's members, and we'll provide exciting menu items and engaging content all season long. Now, moving on to IHOP. Similar to Applebee's, sales and traffic improved versus the first quarter. As the quarter progressed, though, Q2 performance was challenged by the increase in competitive pressures and the promotional environment. So in response, IHOP successfully pivoted during the quarter to meet our guests' needs, leveraging our operational agility and barbell promotion strategy to offer more affordable, value-priced menu items. Our barbell strategy is simple. It balances our offerings to provide both premium menu options, like our Breck Feast, while appealing to our value-conscious customers via our $6 2x2x2 combo. In the first three weeks of the 2x2x2 promotion, which launched in mid-June, IHOP outperformed the family dining segment in sales, traffic, and check. Looking at the second half of the year, we have the support of our franchisees to be more aggressive with our value-driven strategies, and we've built a purposeful calendar to help drive sales and traffic. We also plan to deliver personalized offers to our nearly 10 million loyalty members. Our data shows that our promotions are most impactful with our loyalty guests who overall frequent IHOP more often. And importantly, our internal data also shows that IHOP guest satisfaction scores are improving. This is validated by the results of the 2024 American Customer Satisfaction Index Restaurant and Food Delivery Study, which showed that IHOP's guest satisfaction score increased 8%, while our peers remained flat. On the retail front, demand for our CPG Coffee line remained strong, bolstered by the recent launch of two new varieties, now available in retail locations nationwide and on Amazon.com. And last month, we also expanded our partnership with Kraft Heinz to introduce IHOP Syrup to grocery shelves nationwide, Currently, the syrups are available in 3,500 Walmart stores, with distribution expected to expand to an additional 3,600 retail locations nationwide. Overall, while we're not satisfied with the performance of the quarter, we're actively pursuing initiatives to mitigate the ongoing headwinds and continue to believe in the long-term opportunity for the brand. Turning now to Fuzzy's. The brand was also impacted by market conditions during the second quarter, but was in a better position to respond as a result of integration with the Dime platform and our value-driven expertise. Building on the success of its first-ever value promotion in Q1, Fuzzy's launched a new Cali-style steak taco this quarter, paired with a 32-ounce soft drink for $5, which was well-received by guests and franchisees. We leveraged insights from successful promotions at Applebee's and IHOP to create this offering at Fuzzy's. Using the proven formula from IHOP and Applebee's, we'll pair future Fuzzy's promotions with exciting innovations in the pipeline for additions to the Fuzzy's menu. A recent example of this is last week's launch of Fuzzy's Hot Honey Chicken Tacos and Spicy Watermelon Margarita Combo, developed in collaboration with country music star Thomas Rhett's tequila company, Dos Primos. On the marketing side, we announced at the end of April the appointment of Patrick Kirk as Fuzzy's chief marketing officer. Patrick previously served as vice president of bar and beverage for Applebee's, and we see a significant opportunity to expand Fuzzy's bar and beverage platform, and having Patrick's expertise will be critical in supporting that initiative. Patrick has hit the ground running with work to continue to develop the Fuzzy's brand across all channels. On the international side of the business, we have strong momentum and recently opened two new dual-branded restaurants in Saudi Arabia and Kuwait. These dual-brand locations are a significant point of optimism as they generate on average approximately twice the revenue of standalone IHOP or Applebee's restaurants of the same size. We're pleased to see that international dual-brand locations are performing according to our thesis, supporting our strategy for future expansion of dual-brand locations domestically. In fact, we have 15 sites approved for potential domestic dual-brand deals, with a target of the first restaurant opening as early as Q1 2025. Speaking of our development strategy, we're continuing to build our internal capabilities to support development across the entire Dyn platform, and the team is actively reviewing opportunities for new sites, both traditional and non-traditional, and working closely with franchisees to expand their plans. As shared last quarter, our support team has introduced incentives for our franchisees to make restaurant development more approachable with new programs to provide access to capital. We remain pleased by the cross-pollination of franchisees looking for new opportunities across the Dines system, an important pillar to the Dines development thesis. The industry is still experiencing headwinds from longer lead times and higher costs for construction and borrowing rates, which has impacted our timeline for openings. As Vance will expand on in a moment, we've adjusted IHOP's full-year development guidance to address these shifts and openings. However, we remain focused on the long-term development opportunity for all three brands to unlock further growth. And so with that, I will turn the call over to Vance.