Brinker International, Inc.

Good morning, ladies and gentlemen, and welcome to the third quarter fiscal year 2020 conference call. At this time, all participants have been placed on listen-only mode, and the floor will open for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Joe Taylor, CFO. Sir, the floor is yours.

Well, thank you, and good morning, everyone, and thank you for joining us. With me on today's call is our CEO, Wyman Roberts, and Micah Ware, VP, Finance and Investor Relations. Now my first comment this morning is we hope everyone participating on today's call is in good health and doing well during this unique time. This morning we released a business update related to the last several weeks of our operations, as well as our results for the recently completed third quarter of fiscal year 20. While once we anticipated this call would detail another strong quarterly operating performance for Brinker, we are for a period of time living in a different environment. As a result, our prepared comments from Wyman will focus primarily on recent business performance and trends, with less commentary devoted to our third quarter results. We will also provide some insight as to the dining room reopening process now beginning in some regions of the country. Following the comments, we'll spend most of our time answering your questions about the business. But before beginning our comments, I would remind everyone of our safe harbor regarding forward-looking statements. During our call, management may discuss certain items which are not based entirely on historical facts. Any such items should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such statements are subject to risks and uncertainties which could cause actual results to differ from those anticipated. Such risks and uncertainties include factors more completely described in this morning's press release, and the company's filings with the SEC. And of course, on the call, we may refer to certain non-GAAP financial measures that management uses in its review of the business and believes will provide insight into the company's ongoing operations. And with that said, I'll turn the call over to Wyman.

All right, thanks, Joe. These are indeed challenging times for the world, our country, our industry, and Brinker. We're focused on moving forward and how to effectively deal with this pandemic But let me first review how we ended third quarter. Third quarter started out strong and was shaping up to be another great quarter for Brinker. If circumstances had remained normal, we'd be marking our eighth consecutive quarter of comp sales growth and a NAP track category beat of 2% to 3%, driven largely by our focus on growing our off-premise business and our commitment to driving traffic. We've been executing that strategy for two years before the pandemic hit. It provided a strong foundation when the world changed. For us, that was March 8, our last day of positive comp sales. But that strategy sets us up as we plan our recovery. Since that day, as we narrowed our focus to effectively deal with the crisis at hand, we strengthened our resolve to remain a strong, viable company through this crisis. To us, that means three things. First, keeping our team members and guests safe. Second, getting the most out of the business we can in this environment, and third, remaining nimble and building on our strengths as we develop our strategy to emerge from this crisis. Our team reacted quickly to protect our business during the first few critical weeks of the crisis. We took significant cost-cutting measures by eliminating nonessential spend and delaying our capital projects. We worked with our vendor partners and our landlords to reduce our near-term spend, and we reduced payroll across our salary team, with the exception of our restaurant managers. With the reduction in sales, we set up a relief fund and spent more than $15 million to support hourly team members we couldn't schedule. We provided them a bridge to government assistance programs. Unfortunately, we had to furlough many of our hourly team members, but we have kept half of the team actively working to support our off-premise business. And with the continued acceleration in sales, we're busy enough that we've already brought back more than 10% of those furloughed team members. As we start to bring our dining rooms back online, we look forward to welcoming even more of our team back. We've navigated through the initial negative working capital environment and we estimate our average weekly burn rate now to be approximately $5 million, while our business is primarily operating as off-premise. We continue to work to ensure we have necessary liquidity to manage our business in this environment. As of the end of last week, our liquidity was approximately $175 million, comprised of cash on hand and revolver availability. We continue to evaluate opportunities to raise incremental capital, including increasing our revolver. And while we're taking advantage of the tax savings and deferrals that are available through the CARES Act, we are not participating in the PPP program. These actions, paired with meaningful, improved operating performance over the past several weeks, give us confidence in our liquidity position as we begin to reopen our dining rooms. For the past two years, we focused on operational execution both on and off premise, which enabled us to pivot quickly in response to the sweeping changes across the US. We became really good, really fast at running a takeout and delivery business. Our managers are on the front lines, engaging our team members and guests during every shift. They are optimizing labor, maximizing flow through, and most importantly, delivering a safe experience our guests can trust. I couldn't be more proud of the work they've been doing. While this is far from an ideal situation or a long-term business model, our team has certainly made the best of it. We're one of the few casual diners that's been able to keep nearly all of our restaurants open, and we've grown our absolute sales every week. Over the past four weeks, Chili's has gone from running close to 35% of our prior year's total sales to more than 50% of our total sales with just takeout and deliveries. This is a testament to the quality of our operators and support teams, our ability to use direct marketing effectively, our strong value propositions, and our reliable and consumer-friendly technology solutions. Our brands are resonating with consumers during this crisis. And as we compare ourselves to the category, we continue to significantly outperform. Black box data shows Chili's gap to casual dining last week at 14%, a gap that widened every week since the crisis started. Part of the reason for that performance is our unwavering commitment to keep our guests and our team members safe during these uncertain times. We've instituted enhanced safety standards to protect our guests and team members and made those efforts visible to the guests to increase their comfort and confidence in us. Our guests received touchless curbside takeout, and we're providing masks and gloves to all our team members. Additionally, our investments in technology offered a competitive advantage for us in this environment. because guests can access us in ways that are quicker and safer for both them and our team members. More than 70% of our restaurant transactions are coming through OLO, which means the majority of our guests are ordering and paying from their own devices. For the remaining few who pay at the restaurant, we're implementing touchless portal payment in the parking lot. As we are beginning to reopen our dining rooms, In parts of the country, we are prepared for an extended recovery. We're working through operational plans to adhere to CDC state and city guidelines. We're setting up our dining rooms and bars for social distancing. We're configuring takeout areas to accommodate both increased volume and safe practices. We're getting our team ready and training them to protect themselves as well as our guests. We have plenty of masks, gloves, and sanitizer, and we're putting our in-restaurant touchless order and payment systems in place. And we're putting systems in place to make sure our team members are healthy so guests can be confident when they dine with us. No one asks for this situation, and no one welcomes the upheaval it's caused in our world, but it's times like these that prove who's strong enough to weather a storm of this magnitude. We are established brands in our communities. Chili's been around for 45 years, and Maggiano's for 25 years. Guests know they can trust us to provide great food at a great value in a safe environment. and our team has demonstrated their strength, resilience, and commitment during this crisis. So I'm confident that whatever environment comes, we will overperform, just like we have over the past few years, and especially during the past couple of months. No one knows for sure what lies ahead, but I know this. If it's a half a dining room scenario, no one will get more out of a half a dining room than we will. When we return to full dining rooms, no one will outperform us. We have the best operators in this business, we've invested in the right model, and we have the technology to respond to ever-changing environments. We walked into this thing strong. We remain strong, and we will emerge strong. And with that, I'll turn it over for your questions.