Good day and thank you for standing by. Welcome to the Dine Brands First Quarter Earnings Conference Call. [Operator Instructions] 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 Dine Brands Global's first quarter fiscal 2024 conference call. This morning's call will include prepared remarks from John Peyton, 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 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 Dine Brands CEO, John Peyton.

Good morning, everyone, and thank you for joining us for our first quarter earnings call. Today, I'll share Dine'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 then Vance will 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 macroenvironment 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%…

Thank you, John. While the quarter was not as strong as we had anticipated due to external headwinds, we remain committed to our guidance for the full year. On the top line, consolidated total revenues decreased to $206.2 million in Q1 versus $213.8 million in the prior year, primarily driven by the negative comp sales growth across our brands. Our total franchise revenues decreased 2.3% to $175.9 million, compared to $180 million for the same quarter of 2023. Excluding advertising revenues, franchise revenues decreased 2.2%. Rental segment revenues for the first quarter of 2024 decreased compared to the same quarter of 2023, primarily due to prior year lease buyouts. G&A expenses increased 2.2% to $52.2 million in Q1 of 2024, up from $51.1 million in the same period of last year, mostly due to an increase in stock-based compensation and an increase in consumer research costs offset by a decrease in professional services. Adjusted EBITDA for Q1 of 2024 decreased to $60.8 million from $66.4 million in Q1 of 2023. Adjusted diluted EPS for the first quarter of 2024 was $1.33, compared to adjusted diluted EPS of $1.97 for the same period of last year. Now let's turn to the statement of cash flows. We had adjusted free cash flow of $29.7 million for the first 3 months of 2024, compared to $2.3 million for the same period of last year, driven by an increase in cash from operations and a decrease in CapEx as we concluded our technology initiatives from last year. Cash provided by operations at the end of the first quarter of 2024 was $30.6 million, compared to cash provided from operations of roughly $16.1 million for the same period of 2023. The increase was primarily due to a favorable increase in working capital. CapEx through Q1…

Thanks, Vance. To wrap up, thank you to our franchisees and team members for their ongoing work and commitment to growing our brands and serving our guests. In an environment in which our guests remain price sensitive, our brands are known for delivering abundant value. We're confident our recipe for growth and our focused development strategy will generate sustainable value over the long term for our shareholders and franchisees. And so, now we'll open up the call for questions and turn it back to the operator.

[Operator Instructions] Our first question comes from the line of Eric Gonzalez of KeyBanc.

I just want to go back to the guidance. You're reiterating the 0% to 2% comp guidance for Applebee's. If I were to look at the midpoint of that range, that really implies that you need to comp in the 3s for the remainder of the year. That 3% level, that's clearly above where the industry seems to be running the last few months. So, I just want to talk about maybe some of the drivers of why you think you can get to that level or sustain at that level if you're already there, what you saw in March and as we got into April and early May that tells you that you can hit that range? And then I think you mentioned in your prepared remarks, this is a related question, but you said 28% of orders were on LTO. If you could put that into context, I think you said 19% last quarter, last year, but I'm not really sure where you were before COVID. And are you comfortable with that range and what's the ideal range for the value mix there?

Eric, it's John. I'll talk about the guidance at a high level and ask Tony to fill in the plans for the year that also add to our confidence. As I mentioned in the prepared remarks, we saw Applebee's performance improving month-over-month as well as improving versus Black Box month-over-month, and that continued from March into April. So, we're encouraged by the trend, and we're also encouraged by the plan for the year, which includes additional menu innovation that Tony will describe. The 28% LTO context, it was 18% the quarter before and tends to run in the middle in the mid-teens. One of the reasons it was accelerated in Q1 is because Applebee's ran 3 promotions during the quarter that Tony can give you some more detail on. And so, that does drive up the number somewhat. We're comfortable with that number because it's what we think is necessary now in an environment where the guest is so promotion driven across the segment. And then Tony, I think it'd be helpful if you fill in a little bit more color and what you've got planned for the year.

Yes, absolutely, John, happy to. So, from a big picture perspective, I'm not going to get into the details of our entire strategy, but it's important to have the right value proposition to work for your guests. That means we're going to make sure our promotional strategy continues to resonate with our guests. We'll have new compelling value-based promotions and mixed in with some of our fan favorites. We'll ramp up, as you've already seen in Q1 and Q2, our culinary and beverage innovation really across the entire barbell of menu platform. We're going to continue to focus on our off-premise business, which improved in Q1. We'll continue to focus on our operational efficiency, and we'll make sure that we elevate our operations and refresh our restaurants. Now that's a big picture recap of our strategy. The confidence that we have for the balance of the year is that we moved in the right direction, at the end of Q1 and certainly at the beginning of Q2. The America's Favorite Boneless Wing campaign, which we offered wings at $0.50, it helped us significantly in March, and that trend extended into early April. And so it was a very disruptive campaign that really changed the trendline that we saw from January and February. And then we obviously followed that campaign with the Whole Lotta Bacon Burger that John referenced in his opening comments. And that was at $9.99, which again, is tremendous value when you consider the quality of that product. And then a week ago, we launched DOLLARITA. And DOLLARITA is another abundant value campaign that has a really strong history of sales and traffic performance, and that promotion will run for the entire month of May. So, look, it's a difficult road, as you pointed in your question, and there's going to be some bumps down the road, but we've got the right promotional strategy, and that's why we've reaffirmed our guidance today.

And Tony, it's John. The last comment I would make is that the guest satisfaction OSAT for Applebee's and for IHOP as well improved each month during the quarter and into April as well, reflecting that during tough times like this, our restaurants really focused on the guest experience, which is a big part of distinguishing ourselves from alternatives and drawing them into the restaurants.

Our next question comes from the line of Nick Setyan of Wedbush.

That was really helpful color on the promotional cadence around Applebee's. Can we just have that same discussion on IHOP as well coming out of the quarter and maybe quarter-to-date, how you feel the trends, and what's driving it?

Sure. Short answer on that, Nick, is that IHOP also was improving sequentially throughout the quarter, which is encouraging. And we'll go right to Jay for his counter response to Tony's comments.

Nick, it's Jay. Just to put that in context, I think Tony said that really well, value is critically important when you get these economic times. As the question was posed before, what gives you confidence you're going to be able to finish the year well? And in our position, we had 2 big impacts that John spoke about in his opening comments. And you had a weather impact which we don't think is going to repeat, obviously, as we get into the next quarter. And then you've got, for us, we had this rollover of our Nextbite virtual brand concepts that closed down at the end of Q2 last year. And we do have replacements for those coming with new virtual brands that we have been launching starting in about February. And they've been cascading into our restaurants continuously until now also. So, a February through May launch for those. Those should help replace those lost sales. From that, you eliminate the weather impact, you still have the economic challenges. But we were not quite as aggressive on the price-pointed value as Applebee's was. And I think you'll see us do a little more of that and plan through the year. This is not a reaction to what's going on. We intentionally went for a little more of an abundant value play in March with promoting our very popular omelets. But I think what we found was the guests are in a position where price-pointed value may be more important to them than even abundant value at this point. So, I think you'll see a little bit a correction on that as we move through the rest of the year. But that was preplanned already. Just timing-wise, when we try to do certain things during the year, we have a strategy that we always want to pulse in, not only price-pointed value, but abundant value, innovations with new menu items. We just launched a new promotion this week actually with the movie IF with a Kids Eat Free promotion with that. And family movies, in particular, when we have a Kids Eat Free promotion tied with them and unique food offerings tend to do very well for us. And that's what we're moving into right now. So, we're also very confident that we're going to see improvement as we get through the year. And we were rolling over 8.7% from last year in the first quarter. We knew that was going to be a tough lap, probably the toughest for the year.

And then just for both concepts, what was the pricing in Q1 and what's the expected pricing in Q2 and for the full year?

Nick, I'll take that for both brands. We've talked for a long time about how the historical price increases that our franchisees take before this inflationary period was about 2% to 3%. And then we saw over the last 6 or 8 quarters that spiked anywhere from 5% to 8% or 9% on an annual basis. Because, as Vance mentioned in his remarks, we're seeing the cost of goods into the restaurants stabilize at around that flat rate and because we're also seeing labor stabilize a bit, with the exception of California, franchisee margins are improving, beginning to improve, and so we expect that they'll begin to move back toward that historical 2% to 3% over time. Can't tell you exactly when, but the pressure for them to raise prices above the historical run rate is beginning to ease.

Our next question comes from the line of Dennis Geiger of UBS.

I wanted to see if you could talk a little bit more about franchisee sentiment, perhaps at both Applebee's and IHOP right now, which sounds pretty encouraging as you make some of those comments around margins. Curious, though, just with respect to how they're managing in the current environment, particularly as we think about value incidents, at least that Applebee's, picking up. Just any commentary or your thoughts on everything going on in the environment. And again, maybe what that means from a development demand perspective, please.

Sure. So, why don't we begin, Vance, with you talking about margins, and then we can ask Tony and Jay to talk about specifically how their franchisees are reacting in this environment.

Dennis, this is Vance. So, as we mentioned in the prepared remarks, both systems are in good shape based on the financials that are shared with us from our franchisees. Of course, not all of them are back to 2019 levels yet, but their financial health, a lot of it is driven by the strong AUV growth that we've seen. And then we talked about commodity inflation easing. So, their cost of goods sold as a percentage of sales is really trending towards pre-COVID levels at this point. And then labor availability is better, and labor percent of sales is also roughly par to pre-COVID levels. So, all that equates to their 4-wall dollars trending towards pre-COVID levels and seeing growth year-over-year. And so, those are good setups for our franchisees in both systems.

Appreciate that, Vance. Maybe just 1 more. I appreciate the color on some of the customer behaviors and spending patterns that you observed in the quarter. Is there anything else, and maybe I missed it, but anything else by customer cohorts, thinking about income, demographics, etcetera, where that shifted? Is it still lower income, where the most pressure is being observed? Has that risen at all to middle? Any kind of other observations on the customer in the quarter would be curious.

Yes, Dennis, it's John. That's exactly right. We see the biggest movement, and by movement, we see less business from, less visits from the lower cohort, which we define as $50,000 and below. And the higher you go in the income ranges, the more consistent the performance has been quarter-to-quarter. And we've also observed that when our guests are in the restaurant, again, particularly our lower income consumers, they're more aggressively managing their check, finding our value-oriented items, etcetera. And that's been consistent the last couple of quarters, but more pronounced in Q1.

[Operator Instructions] Our next question comes from the line of Todd Brooks of The Benchmark Company.

I know you don't talk current quarter same-store sales trends. I'm just wondering with how unique Q1 was with the difficult compares, a lot of that being Omicron emergence earlier in the quarter, the weather compares. Would you be willing to talk exit rates to same-store sales in March for both brands, so that we can get a sense of where things normalized as we moved farther away from some of those pressures earlier in the quarter?

Sure. Vance, I'll defer to you in terms of what we can share there.

Of course, yes, Todd. So, first of all, just a quick reminder, Todd, that on a 2-year basis, Q1 was actually positive comps for both of our brands. But of course, this is not the quarter we like to post. But generally speaking, as John and Jay and Tony mentioned, the sequential improvement throughout the quarter, it's been encouraging and that trend has continued well into Q2. So, we won't quantify exactly the month-to-month, but it's encouraging to see this positive momentum in both comps and traffic for both our brands.

Okay, great. And then my second question, given the difficult environment, just the lens that you look at your G&A spend through, and we've been at a $200 million-plus type of level now for a few years. Would love to know what initiatives are maybe within G&A that couldn't be delayed some, and especially thinking other potential uses of capital, including maybe some accelerated share repurchase at historically low valuations if we were a little bit more efficient with G&A, would love to get the thoughts on that.

Sure. So the G&A level we have right now is what we believe the right level to run the company going forward with the growth plan that we have in mind. As we talked about before, the technology initiatives, we've concluded with that. So, that's impacting G&A and CapEx both, right? But within G&A, we're redeploying those, the G&A resources towards development now. So, we're keeping G&A at a fairly constant level, but we're investing in the development capabilities, and that includes a lot of the functionalities that John talked about before, which is to source deals in a different way, to support the franchisees in a different way on a more centralized fashion. And so, that's what we plan on doing going forward. One other reminder is just that for this quarter, if we do not count the noncash items, which is stock-based comp and depreciation and amortization within our G&A, the cash portion of the G&A is actually $2 million to $3 million lower versus the year before. So, we have been and we will always be very disciplined with G&A management. And then your second part of the question in regards to buybacks, we believe that there's growth potential with the stock and with the company, and there's opportunities to create shareholder value for us in the long term. So, we have been, and we will always be in the market when we see that there is a disconnect with the intrinsic value of the company and where the shares are trading at. So, that will always be an important part of how we return capital to shareholders.

Our next question comes from the line of Brian Vaccaro of Raymond James.

Just a few follow ups, if I could. I believe you said that Applebee's traffic outperformed in the first quarter. Just to make sure we're on the same page. Could you level set where average check was for each brand in the first quarter?

Sure. I don't have that data in front of me. Vance, can you address that question?

Sure, yes. Brian, so average check for Applebee's is slightly positive, offsetting the negative traffic. But the traffic, we did beat Black Box for the quarter. For IHOP, average check was probably in more the high-single-digit range given the menu pricing increase, the effect of menu pricing increase in Q1. So, that's the context.

Okay. So check slightly positive at Applebee's and IHOP in the high-single digits. Okay. Might have misheard it, but I think your comments on franchisee profitability, were those as of the fourth quarter? I guess that's the most recent quarter you have visibility on, you have financials on.

Yes.

Okay. So with sales mix on value promotions jumping now into the high 20s, can you speak to the impact that's having on franchisee profitability? It sounds like you've got a good guide on the commodity side insulating. But to what degree has that jump in promotion impacted profitability? And is this level sustainable in your view?

Brian, it's John. I'll start with that and Vance, fill in if I miss anything you think is important. The most important thing about our approach, meaning all 3 brands' approach to promotions, Brian, is that they are profitable promotions as they're designed. And that is the case, and it's ensured by the fact that we construct promotions with input from our franchisees and they're onboard with doing them. A good example is even DOLLARITA. A margarita for $1 is profitable in itself. And the last time we ran it in the fall, 90%-plus of those DOLLARITA tickets included other items, which is exactly what it's designed to do. So, we believe that as long as the promotions are constructed to drive profit as a standalone, to be profitable standalone, and then drive additional business, that is the strategy that we're following in conjunction with our franchisees. Vance, is there any color you can add that would be helpful?

Yes, Brian, so as John mentioned, it's all about driving incremental profitable traffic. So, another detail I would add on the DOLLARITA is that it's more than just the DOLLARITA itself. There are different shots, flavors, different additions we're offering that adds to the margin of that drink in addition to the food attachment rate of that order, right? So the point of it is to drive the lifetime value of that guest and increase the long-term market share of the brand. So, we're not giving things away. These are prudent, methodical, creative campaigns that we're running.

Okay. And then just the last 1 for me. In the first quarter, just looking at the financials, it looked like advertising accrual at Applebee's was down 4% or so. And is that representative of the actual spend or TRPs in the market in the first quarter? I know sometimes there can be differences versus what's in the financials versus actual spend. But if that was the case, did that have a negative impact on your comps? And just thinking more broadly, in the more competitive value environment, what's a reasonable expectation on advertising at Applebee's for the rest of the year? Might that be down as well or just any color there would be great.

John, I can take it. So, on a very high-level basis, think of advertising spend as roughly -- it should trend similarly as comps, right? So if sales are up, advertising spend will be up; if sales are down, advertising spend will be slightly down. But what you're referring to also is driven by timing. So, the dollar spend isn't exactly tying to -- it just depends on payment timing, depends on the campaigns we're running, depends on things we'll work out with our agency. So, there's going to be some of that noise in there, but for the most part, it should be fairly consistent with sales trends.

And then, Vance, I think it would be helpful if Tony addressed the advertising strategy overall for Brian.

Yes. Happy to, John. Hey, Brian. I can't get into specific plans, obviously due to competitive reasons, but we feel really confident where our calendar sits for the remainder of the year. We're not going to be spending less money. We are spreading it out over more calendars and windows. And we're changing our mix a little bit between traditional media and digital. But the strategy remains the same. And the volume, the breadth and depth of the marketing plan remains the same. We're going to provide our guests with value, especially during these inflationary times. And we'll lean hard on our award-winning advertising and our robust fund to support the entire portfolio of propositions that you'll see for 2024.

Our next question comes from the line of Jeffrey Bernstein of Barclays.

This is Pratik on for Jeff. I just had a quick modeling question and then a real question. I apologize if it's already out there, but are we going to get 4 quarters worth of historical results for Fuzzy's now that the brand is fully integrated, or will we just continue to get quarterly updates with the current quarter and the prior year quarter?

I can answer that. So, the reason why we didn't provide comps the year before is because last year was the first year we've owned the company. And so, going forward, we'll provide quarterly comp performance versus last year. But we wouldn't provide last year's comp because we didn't own the company the year before that, if that makes sense.

Got it. Yes. Understood. And then my real question was really following up on Dennis's question. Your brands have obviously always been positioned for value, and there's been a lot of talk from your peers the past few days about consumers feeling pressured. Can you just talk about if you've seen a meaningful change in the types of guests that you're seeing in your brands? Like maybe some at the low end have been trading out, but maybe some other guests have been trading into your brands. Just any color on what you're seeing right now would be really helpful.

Pratik, it's John. Yes, I don't know that we have that much more to add to what we've already said in that we are -- what I can clarify, though, is that we're seeing more change in terms of our lower income guests having less visits with us than we are in seeing growth in the upper tiers of our income band, meaning we're not seeing as much trade down into the brands. We're seeing some. But the most impactful change in consumer behavior is clearly at the $50,000 and below segment.

I am showing no further questions at this time. I would now like to turn it back to John Peyton, Dine Brands CEO, for closing remarks.

Julia, thank you for your expert moderation. We appreciate it. Thanks to Jay, Tony, and Vance. And thank you guys for joining us this morning and asking us your questions. We'll talk to you throughout the quarter and look forward to next August call. Have a great day, everybody.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.