Good day, and thank you for standing by. Welcome to the Dine Brands Second Quarter 2025 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. You may begin.

Good morning, and welcome to Dine Brands Global's Second Quarter Conference Call. This morning's call will include prepared remarks from John Peyton, CEO and President of Applebee's; and Vance Chang, CFO. Following those prepared remarks, Lawrence Kim, President of IHOP, will also be available, along with John and Vance 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 Q3 2025 earnings before the market opens on November 5, 2025, 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. Thanks for joining us today. And today, I will share Dine's Q2 results and discuss trends in consumer behavior. I'll provide updates on our brand's key priorities, and then Vance will discuss our financial results and our updated full year outlook. Dine carried momentum from March into the second quarter, delivering improved sales and traffic across our brands. We achieved this progress by remaining committed to our 3 main priorities: enhancing our menu and value platforms, communicating our brand's value more effectively through improved marketing and elevating the guest experience. This focused approach, along with strategic investments helped us showcase what makes our brand special, a welcoming atmosphere for friends and family, dependable value and craveable food that brings people together. I'll begin by sharing thoughts on consumer behavior. Overall, we continue to operate in a competitive environment. Consumers are still feeling macroeconomic pressure, and as a result, guests continue to manage their check by ordering fewer beverages and appetizers as well as trading down to lower-priced items on our menus. Across Applebee's and IHOP, the value mix decreased versus Q1. At Applebee's, the value mix was approximately 30% in Q2 and at IHOP, the mix was about 19%. With that, I'll walk through our key financial results. Applebee's reported a 4.9% increase in comp sales, and IHOP posted comp sales of negative 2.3%. Applebee's outperformed Black Box in both sales and traffic. Traffic was the primary driver of comp sales and was positive for the first time since Q1 2023. And notably, IHOP achieved its second consecutive quarter of traffic outperformance relative to Black Box. Our adjusted EBITDA was $56 million compared to $67 million in the same quarter last year. Adjusted free cash flow was $49 million compared to $53 million in 2024. And last,…

Thanks, John. On the top line, consolidated total revenues increased 11.9% to $230.8 million in Q2 versus $206.3 million in the prior year. It's primarily driven by an increase in company restaurant sales mainly due to the acquisition of Applebee's and IHOP restaurants prior to the second quarter of 2025 and is offset by a decrease in franchise revenues and a decrease in rental income. Our total franchise revenues decreased 1% to $174.7 million compared to $176.5 million for the same quarter of 2024. Excluding advertising revenues, franchise revenues decreased 0.8%. Rental segment revenues for the second quarter of 2025 decreased compared to the same quarter of 2024, primarily due to lease terminations. G&A expenses were $50.8 million in Q2 of 2025, up from $46.9 million in the same period of last year due to an increase in compensation-related expenses and an increase in professional services fees, both due in part to the G&A expenses related to company restaurant operations as well as dual brand and remodeling initiatives. Adjusted EBITDA for Q2 of 2025 decreased to $56.2 million from $67 million in Q2 of 2024. Adjusted diluted EPS for the second quarter of 2025 was $1.17 compared to adjusted diluted EPS of $1.71 for the second quarter of 2024. Now turning to the statement of cash flows. We had adjusted free cash flow of $48.7 million for the first 6 months of 2025 compared to $52.9 million for the same period of last year, driven by a decrease in principal receipt from notes and equipment contracts receivable and an increase in capital expenditures and is partially offset by an increase in cash flows provided by operating activities. Cash provided by operations at the end of the second quarter of 2025 was $53.1 million compared to cash provided from operations of…

Thanks, Vance. Before we open up the line for questions, a quick summary of what we discussed today. Both brands are enjoying improvements in sales and traffic. Both brands have new value campaigns, new advertising messaging and are racing to improve their social media engagement. And in partnership with our franchisees, both brands are improving operations and growing guest satisfaction. Our strategic priorities are simple and clear, and they're working. As always, we appreciate your time and continued interest in Dine Brands. And with that, I'll turn it over to the operator to open the line for questions.

[Operator Instructions] Our first question comes from the line of Jeffrey Bernstein with Barclays.

This is Pratik on for Jeff. It was really encouraging to see such strong performance at Applebee's during the quarter. John, last call, you mentioned that you're leaning heavier into the 2 for $25 platform. And lately, we've seen 3 iterations with Sizzlin' Steak, All You Can Eat and now Chicken Parm Fettuccine. Just wanted to ask how you sustain good operations with such frequent changes. It just adds too much complexity or is there something there that the operators just can sustain? And you also mentioned that it was around a 30% value mix in the second quarter, which actually declined. Where do you feel the optimal level is? And can you share any learnings in terms of guest feedback, value scores and intent to return?

It's John. Excellent combination of 4 questions in 1, well done. And so -- and you're absolutely right that we had strong performance in both traffic and sales at Applebee's during the first 2 quarters that we saw continue into July, driven exactly by 2 for $25. And so, our strategy is to lean into 2 for $25 as our consistent and primary marketing message for the year. And our strategy in partnership with our franchisees and their enthusiastic support is to introduce a new entree each quarter, as you saw that we did. In terms of complexity, this is what our franchisees do best. They have, in conjunction with us, great processes and great training in order to introduce these new items. We test them in our corporate kitchen. We test them with our franchisees before they roll out broadly. And so, all of the operations shakedown and whatever challenges there might be are worked out before we roll. So, no issues there. In terms of the value mix, we fell slightly to 30%. And in the last about 1.5 years, we've been running at about 1/3 of our menu being the value mix, which is higher than historical. So, I'm not sure exactly what optimal is, but I do know that running at about 1/3 is higher than typical, and we're seeing it begin to slowly tick down just in the last quarter or so. And in terms of guest feedback, I think the traffic speaks for itself. Each of those entrees, the pasta, the Sizzlin' Steak and now the Chicken Parm have been hits that are driving traffic, and we're getting great feedback not only from that signal, but as well as just the research we do when we intercept with guests.

Our next question comes from the line of Brian Mullan with Piper Sandler.

Wanted to ask about IHOP and the House Faves platform. With what you've seen thus far, are you happy with how this has impacted the franchisee profitability at the store level? And I imagine the answer is yes because you're expanding it to 7 days a week now. So, if you could just give a little more color behind that decision and why extending it to the weekend is the right one for IHOP.

Brian, Lawrence will take that question.

Yes, as you just mentioned and as John mentioned earlier, we are expanding later this year from 5 days, which we started, I would say, late last year in October. And then we've continued the House Faves Monday through Friday program. And so, based on the tests that we did in Q2, which tested the 7-day everyday value, we did see both positive results in traffic and sales. So, our franchisees are supportive along with the brands and delivering an everyday platform.

Okay. And just a follow-up that I have, I guess, Lawrence, while we have you is just I think one of your focus is reducing operational complexity. With another couple of months in the role, just give us a sense of where you are in that journey? Any early wins? And then, looking forward, anything particularly big or impactful that you are focused on right now?

Yes, absolutely. So, when I joined the organization earlier this year, one of the key focus areas from operations was to reduce complexity. And so, I've been on a ton of restaurant visits around the nation, talking to team members, general managers and franchisees. And there are a few key areas that we identified as an operations team to just get laser-focused on. Number one is create -- I guess, reduce complexities in the back of house. And so, just in all the analyses that we've done over the past few months, we've identified, number one, speed improvement areas, which we've leveraged our technology platforms like our tablets, which now are in 96%-plus of our restaurants. and that's helped our team members, our servers, just amplify speed and just get the orders accurate. The second is for our cooks. It is complex. There are quite a few number of items in our menu. But last year and the year prior, we had over 20-some LTOs, and we've reduced that by more than half. And that, of course, has created just ease and more of a greater muscle memory for our cooks. And so that has also improved in just reducing complexity and improved their speed and cook time. And that's why our results in terms of speed and table turns have improved by over 4 minutes this quarter.

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

I want to focus on the path forward with the corporate-owned stores. And just, John, as you're thinking about maybe the duration and the steps that need to be taken to get these stores back to profitability, what sort of window are you looking for us to judge that effort against? How long do you think it will take?

Yes, when it comes to the owned stores, as I said, we've got 70 restaurants now, which is about 2% of our portfolio. And we've put in place a strong operating team to manage them, and we're pleased with the progress we're seeing. We've moved from, for example, the bottom tier in terms of sales and profitability to about the mid-tier among all of the franchisees. And I think in terms of how long you should think about holding them, we think plus or minus 3 years in terms of what it would take to improve operations to the point that we can refranchise the restaurants for an appropriate valuation. And I imagine over the next couple of years, we'll have portfolios entering and leaving at different times and always having somewhere around this 2%, 3% ownership.

Yes. I guess I didn't ask the question well, John. I was asking more within how those sit on the income statement now. When do you see that base of 70 units getting to at least neutral profitability on the Dine income statement.

Thanks. Understood. I'll have Vance address that.

Todd, here's how we think about it, right? So, as John mentioned, right, we took these back at little or no cost to Dine in terms of purchase price. And the goal is to remodel, to reinvest to refranchise these over time. And these restaurants, they're in good markets with great potential. But in the meantime, during this transition period, right, the performance is a little choppy, primarily due to 3 things. And the first portion is liquor sales. During this transition period, we have to reapply for liquor sales for our restaurants, and that takes some time. And in the meantime, before the liquor license is granted, we can't sell liquor, and that's a good portion of our revenue and profit for each restaurant. So that's driving it. And as of Q2, about half of the portfolio has liquor, right? So, you can imagine as we get this liquor back; profitability, comps, everything else will come with it. The second thing that's causing some of the noise in the meantime is constructions. So, we have to close these restaurants for remodeling and do a brand conversion. And so while we -- while the restaurant is closed, we still have fixed costs, right? But it's all one-time transitory in nature. We're going to get over that path and then profitability will be here. And then the third thing -- the third portion is investing in staffing and training. The restaurants, again, like I said, have great potential, but they've been understaffed and undertrained. So, we need to improve the fundamentals and making -- we're making great progress, but it does create some noise in the meantime. The disruptions are sort of one-time in nature, transitory in nature, but we fully expect to improve the operations, the guest experiences and profitability…

[Operator Instructions] I'm showing no further questions in the queue. I would now like to turn the call back over to John Peyton, Dine Brands' CEO and President of Applebee's for closing remarks.

Thanks, Towanda. I just want to check one more time if there's questions because we do see that we had some people join just in the last minute or 2 that have not asked a question. I just want to check if there's one more round of questions. Are we all good Towanda?

I'm showing no further questions in the queue.

Okay. Well, thanks, everyone, for joining this morning. Appreciate the questions. And as Vance and I and Lawrence and I tried to articulate today, our franchise business is performing very well. We're pleased with the progress that Applebee's and IHOP have made and the momentum that they both demonstrated this year, and we're making some very purposeful and strategic investments in our owned portfolio in an effort to advance the dual brand program and the renovations of the Applebee's. So good day, everyone. Take care.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.