Good afternoon, ladies and gentlemen, and welcome to the Red Robin Gourmet Burgers, Incorporated First Quarter 2017 Earnings Call. Please note that the contents of this call are being recorded. I would now like to turn the call over to Terry Harryman, VP Finance, Planning and Investor Relations. Please go ahead Mr Harryman.

Good afternoon everyone. During the course of this conference call, we may make forward-looking statements about our business outlook and expectations. These forward-looking statements and all other statements that are not historical facts, reflect our beliefs and predictions as of today and, therefore, are subject to risks and uncertainties, as described in the Safe Harbor discussion found in the company's SEC filings. During the call, we will also discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles, but are intended to illustrate an alternative measure of our operating performance that may be useful. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings release available on our website. We have posted our fiscal first quarter 2017 earnings release and supplemental financial information related to the results on our website at www.redrobin.com in the Investors section. And now, I'd like to turn the call over to our Chief Executive Officer Denny Post.

Thanks Terry. Good afternoon everyone and thank you for your continued interest in Red Robin. I'm joined today for prepared remarks by Guy Constant, our Chief Financial Officer; Carin Stutz, Chief Operating Officer, and Terry whom you just heard from, will also be available for Q&A. As we closed the chapter on Q1, on the whole we deemed it a quarter of solid progress in our quest to separate ourselves from the casual dining pack. Total revenues rose 4.1% fueled by new and acquired restaurants. Our same-store sales declined 1.2% for the quarter. As a reminder, our quarter one is 16 weeks long and as such we experienced both the upside and downside of the Easter shift in this quarter. Although comp sales were negative year over year as we expected, we once again outperformed the rest of our peers on traffic, beating them by 120 basis points according to Black Box. Our performance relative to peers was particularly strong in the Mountain Plains and Western markets. The renewed focus on everyday value at $6.99 which we began again last fall now includes four great tavern burger choices with last week's launch of the new Sir Acha Tavern. We reversed and stabilized value perceptions last year and we expect based on traffic trends and menu mix that we are gaining momentum in value perception this year. Being viewed as the affordable choice for every day is one way we can win. We are prepared to invest for the foreseeable future in everyday value, including our bottomless fries, sides, and beverages. Our Chief Marketing Officer Jonathan Muhtar and his team invested in a variety of media and messaging tests in Q1 which will help guide our marketing investments going forward. We are investing to bolster awareness in high penetration company markets,…

Thank you, Denny and good afternoon everyone. As I walk you through the highlights of our financial results for the first quarter, please note that the numbers I present are on a recurring basis excluding special items. As Denny outlined, the first quarter of 2017 represents a solid first step for Red Robin as we seek to separate ourselves from the overall casual dining category. There are a handful of outstanding peers who have already created that separation and their performance is indeed differentiated from the rest of the category. We seek to join them in that separation and while we will share much more on how we will do so at our Analyst Day next week, this quarter is a positive first step towards that goal. And while the Red Robin brand holds the position that is differentiated and advantageous for the category more generally we have much work to do to capitalize more fully on that positioning. As Denny referenced in her remarks, Q1 total company revenues increased 4.1% to $418.6 million, up from $402.1 million a year ago, driven primarily by new and acquired restaurants, partially offset by a 1.2% decline in company owned comparable restaurant sales. The 1.2% decline in comps was comprised of a 1.7% decrease in guest counts and a 0.5% increase in average guest check. Overall price, when taking into account the impact of discounting, increased 1.6% in the quarter. Mix decreased 1.1% primarily driven by the expansion of our tavern value menu which occurred in the third quarter of 2016. Franchise and other revenue decreased $250,000 driven by a lower number of franchise locations as compared to a year ago. Overall restaurant capacity as measured by operating weeks was up 5.3% in Q1 as compared to the first quarter of 2016. Non-comp…

Thanks Guy. To reiterate we see Q1 as positive first step to a full year of improving topline and profits, still weighted towards the back half of the year as our new revenue streams take hold and we begin to implement more cost savings initiatives, many currently in tests. The entire Red Robin leadership team looks forward to hosting those who are joining us next week for our analyst meeting, on behalf of the 29,000 great team members who deliver on the Red Robin promise of making everyone better for being here every day. Thanks again for joining us. With that, Carin, Guy, Terry, and I will take questions.

[Operator Instructions] We will first go to Alex Slagle with Jefferies.

So nice to see the sales driving and ops initiatives really starting to click here. One, I had a question on the everyday value and if you could provide some more granularity on what you're seeing in terms of guest response to the new additions to the tavern menu and perhaps what they're mixing now as a percentage of sales, and are you comfortable with that you can kind of keep that incremental frequency going and not cannibalize your more premium offerings?

So far through our testing and then what we've seen in our national launch, it's playing out pretty much as we expected. So tavern mix as a percentage of guests is now up about 250 basis points to just over 10%. That’s of course with the three that we had through Q1. As I mentioned, we just launched a fourth which is the Sir Acha Tavern. We have some expectation that that might drive mix somewhat higher but again with that we have also tested and seen increased traffic. So overall we continue to believe there is value in news. With the four that we have now we've probably covered pretty much every flavor spectrum that you can, and we will continue to look to see whether or not we might have either LTOs or other things that we can move in and out of that price point, but $6.99 remains a compelling price point, it does bring guests in and then there's ample opportunity for them to explore other items that we now have displayed on our promo card. We are trying to regularly carry a piece of news in gourmet as well as in finest and we see the guests shopping across that entire barbell spectrum. That helped?

Yes, that does. One last question, in your prepared remarks, you talked about record low turnover and I just want to get some more color on how you see that you're driving that?

Carin, do you want to share?

Yes, just be happy to, we're really excited about that and I think that's one of the things that those of us who've been in this industry for a long time when someone says what keeps you up at night, you always talk about retaining your top talent. And so, it’s a focus that I've had and I know that Denny shares, in that we really spend a lot of time with our top talent. I think some of the differentiators for us, as Denny talks about, is better for being here culture is that we don't stop at training, like a lot of brands do. We really invest in continued development of our team members to really help them become better leaders. And again, I think that really starts to make a big difference in people feeling like that there's growth within the positions that they're in, right? That I can be a general manager for a restaurant, but I'm still growing personally and professionally and I think that makes a big difference for us.

And that certainly creates better culture at the restaurant level, that's where we're really seeing advances.

We’ll go next to John Glass with Morgan Stanley.

Thanks very much. First, can you, maybe Denny, just talk a little bit more about what you mean by invest in value and how that might get reflected on the P&L? And I guess specifically looking at your mix this quarter, it wasn't down -- I don't have it the year ago, but the last two quarters’ mix was down more. So what was the dynamic that makes actually -- even though you've invested more in value, your mix was actually less of a drag this quarter at least in the last two quarters.

There's some related to certainly a bit of pricing that we took coming into the quarter and then again continuing to have that balance of news in finest and gourmet, our add-ons across the board; we're seeing that. I think the biggest watch out for all of us as we move forward is as To Go comes up, you definitely do not see the beverage sales associated with To Go or carry out. Our alcohol PPA has also maintained year over year which helps us definitely. Our alcohol PPA has actually improved; our mix has maintained year over year. So there's a lot of moving pieces within this. I think we'll see as To Go starts to take a greater role in our business, what we see there because managing so far what I've seen and third party research is telling me that delivery in particular used to a single occasion, I'm home alone eating, therefore I want something brought to me and that tends to be a smaller overall check than what we see in the restaurant. But even at that point what we see in delivery in To Go is people then adding on items sometimes to reach a minimum that they may need to achieve or et cetera. So a lot of moving parts here but I think in terms of your essential question which is how do we continue to invest primarily by continuing to reinforce our bottomless value and making sure that we're delivering on that as a restaurant and offering guests refills et cetera by investing on making sure people are aware of our $6.99 offerings and coming into the restaurant for those. And then just kind of keeping that mix right in terms of the various items they see in terms of promotional items and news.

And then you mentioned the To Go and in the prepared remarks you talked about online being 15% of To Go. So how much did To Go grow this quarter, how much is it as a percentage sales for example? And is that online percentage, is that an incremental layer on the To Go or is that just substituting what would have been maybe a phone order, how did those two play out?

Yes, we're seeing growth overall, I can't really parse it with regard to whether or not online is trading out from the To Go order or call. I'll tell you that we want to get another quarter under our belt before we're real clear because in some cases they're promotional items and other things that are being offered. So we will have a much better view for that to share with you, with John when we get to the Q2 call.

And then Guy, is G&A still $100 million for the year? I think that was your guidance; is that still right or is it – I know it's shifting but is it also the same number?

It is the same number, John.

We’ll next go to Gregory Francfort with Bank of America.

Hey guys, can you break down the $0.39 of upside, I guess, versus what you’d expected out? How much of that was driven by operating performance and how much of it was driven by what I guess will be transitory G&A issues?

So the G&A is about $0.07, Greg. So we expect that to flip in the future quarters primarily the second quarter. So that was that component of it. The balance of it was operating performance and really for the most part across the board which I think is a testament to the work that Carin’s team has done as well as the efforts of the people in culinary as they work on the menu and design the recipes, that I think really across the board food cost, labor, other operating expenses, we really have small beads across the board that all contributed to the end result.

And then just going back to John's question on the average check during the quarter, I think improved quicker than I had expected, because you guys lapped the big declines in the third quarter and the fourth quarter. Should we expect that to improve as we go throughout the year or I mean do you expect to take more pricing? How are you thinking about just the cadence of check throughout 2017?

This quarter we took pricing a little bit earlier than we did a year ago, so that contributed to I think a higher price -- higher component of the overall comp sales results being comprised of price than we expected to be as we go forward here for the next few quarters. So we did benefit a little bit from the change in timing. You kind of had a few weeks where you had the effect of two price increases basically benefiting price where you would have seen that at a similar timing only one. So we would expect, later in the year obviously we will be looking at price or early again next year as we look forward but we would expect the pricing benefit to be lesser in the coming quarter.

And then maybe if I can sneak one last one in. Can you talk about the profitability of delivery versus To Go versus in-store and then are there minimum checks that you need to have on the To Go side of the delivery side to make it a profitable order? How do you think about that?

Guy and I are both looking at each other. We think about this -- we're thinking about this every day. So the third party delivery services and this is part of why it's really hard to -- we have to be cautious about proceeding with them, is they're moving around right now on the percentage that -- that we're having to pay them as well as the minimums that they are requiring from the guests and the prices they are charging from the guests. Our flow-through is definitely better on an online order than it is on a third party delivery, can certainly assure you of that. And we're believing as we start to ramp up our online ordering and overall To Go, we get great efficiency from a To Go specialist who can turn and do multiple orders in an hour. So we're learning about that. Guy, do you have more commentary in terms of how we compare these?

No, I agree with what you said, Denny. The only piece I guess I'd add is we're probably more willing to live with that lower flow-through, the higher the incrementality of that delivery occasion it is. And so that's really I think the key to this discussion, if we're simply trading out somebody from an in restaurant or carry-out experience to a delivery, then we don't love the economics on delivery.

And so far we're not seeing really -- we don't see that it’s being trade-out but the question is how long –

Yes, all the data points it being highly incremental but it's early and I think we'd really like to understand that better as well as addressing the other operational issues that Denny mentioned earlier before we decide that we really want to go after this with the same sort of aggression we want with the other parts of our business.

Do you have a number on that incrementality -- like 80, 90 sort of what number would that be?

Well, you look at data it is very high but again I think we're looking at those numbers with a healthy skepticism just to make sure we understand it well and understand the source of where that data comes from before we make sure we buy into that number.

We’ll next go to Peter Saleh with BTIG.

Great, thanks. I just want to ask about -- the marketing expense, looks like it went up a little bit this quarter versus this time last year. So just talk about the cadence on the selling and marketing expense throughout the year, how you see that playing out for the rest of the year?

Again in the quarter I think our expense was up about 12% but we actually had fewer weeks on air. So what we're looking at is more concentrated on spending in the weeks -- in our national advertising and in more localized spending which is definitely investment -- I think we reached about where we say, Jonathan, between incremental television, outdoor, radio, digital about 40% of our restaurants, got some 45% -- got some added effort. We're looking at how that's going to play out over the year but we have gone to higher wage in more concentrated fashion versus where we've been in prior years.

Peter, as you know even holding the percent of revenue flat, just simply growing revenue by 5% would imply that we're going to see growth in our marketing spend for the year. And so we do expect that new units in the revenue associated with that helps fuel the opportunity for incremental marketing spend. Right now we don't anticipate any sort of unique growth or decline in any particular quarter. But we certainly expect overall that we'll spend more on marketing simply because of the percentage of the higher revenue base.

And we do have a bit of a commitment to a fourth quarter investment, or we put a bit of a national marketing in the fourth quarter, because that's also when we'll be really leaning in and be feeling really great about To Go as a message. So we'll have the news to share there. But that's only in a national basis, local we’ll move at around by this.

And then on the delivery, I think you said -- if I heard you correctly, 138 units with delivery, just wondering if you guys would give us a sense of where you’d think the delivery is working best maybe regionally or type of store? And will you be delivering -- I am assuming not out of mall stores, just any sort of insight into that would be helpful.

So I can't -- I don't know exactly in 138 that are currently reached. I can tell you we've had some really good success in our very well penetrated markets like Seattle, for. Example. We've done very well with Amazon in that market and specifically the location -- we have a unique location there that is down the water, urban locations and the volumes there have exceeded our expectations. And I think it's largely folks accessing us and excited to be able to access Red Robin who would never make the effort to come down to the waterfront to dine whether it be lunch or dinner .So we're serving -- broadly serving out of urban area and doing so very effectively. We've also seen it though in Seattle in our Northgate location, in all some suburban locations are doing very well with that as well. Beyond that, our other two partners GrubHub and DoorDash, I'm not sure I know of any specific outstanding cases, I know DoorDash did well in northern California for us for a while but again we're digging into understand where they're each really doing well and why, because that could indicate a lot of things for us about growth and new models in the future.

We’ll next go to Brian Vaccaro with Raymond James.

I just had a question about the guidance. Obviously the EPS guidance was raised by $0.10 despite a little higher interest expense. But in your prepared remarks you talked about some issues with the third-party delivery and then you talked about a little more pressure on COGS. And I guess I was just curious have the under -- some of these underlying factors have anything -- has anything changed beneath the surface in terms of your core comp and food cost and labor cost inflation expectations for the year?

Not materially, Brian. The biggest difference between what we saw in the first quarter and the balance of the year was the interest expense that you mentioned and the G&A timing. In terms of the challenges with delivery, I think we understood what the economics of delivery were going into the year, we still don't love it, we understand it. And so we were able to account for that in the model. Now if at some point we decide to change based on our experience of delivery that could impact the model. Then the only other factor that I cited was the recent spike that I think everybody is seeing in beef prices which just given the dislocation in the market we're not sure if it's sustainable but at least for now given that we can't forward contract on ground beef, we do expect some impact of that in the second quarter and we could update that if this dislocation lasts longer than we expected to. At least right now we are only projecting that to be a Q2 additional expense for now.

And I guess as a matter of policy, if there's not a specific update on a certain line item in your guidance, we should just assume that the most previous or most recent guidance you provided is still in place by line item; is that fair?

That's fair. Yes, Brian.

And then a couple of clarifications on the comps in the first quarter. Can you give us some color on the cadence that you saw through the quarter and maybe talk about it as well through sort of the lens of your relative performance versus peers as you move through?

Yeah, we're not keen on giving a lot of in-quarter guidance. I’ll remind you though that I gave Jonathan the gifts when he arrived last year, it’d be double tavern double plus, which was our one foray into bundled a meal which we began last year with. And while it was not very profitable for us, it did deliver significantly on traffic particularly when we messaged our own guests. We didn't get a lot of guests coming in from the television but we got a lot from our Red Robin Royalty group et cetera. So we had a tough road to hell in the first part of the quarter. But again we're excited about the news we've got on $6.99. The guest is responding to it as they did in test market and we'll continue to see that as we play out some more product news over the course of the year.

And then Denny, you also mentioned your relative performance was particularly strong in the Mountain Plains and the Pacific Northwest. So what do you attribute that stronger performance?

Well, I think overall one, if you look at the performance, Carin, you’d say this as well, so really the California, the Northwest and the Mountain Plains and those are the areas that are doing the very best on our net promoter score and service.

If you follow our trajectory on the NPs metrics, it’s amazing how correlated the markets are performing based on what the guests are telling us. And so the West Coast, Pacific Northwest are where they're discharging hard and really providing a great guest experience. But we’re recapping and recouping the benefits.

I think the other thing is that many of those are the most highly penetrated markets where we went to invest versus localized investment. So we couldn't afford it everywhere, spending to call LA, a local market, you can't afford to do much there but you can do well in some of those other California markets and the Northwest. And so we did make some incremental investments there, that paid off.

And then last one I just want to ask about the menu pricing. Can you talk about – I understand you took earlier this year than you did last year but how much did you take in the period and sort of how was it implemented, was that across the board or perhaps concentrated in some higher wage inflation states? And then what – how should we think about menu price factor year on year in Q2, Q3 et cetera?

Yeah, we took 1.9%, it was a few weeks earlier, probably because we just had the opportunity to take a menu change and do some things. In terms of -- we are now operating five tiers, somebody correct me four or five -- five different tiers of pricing. So again we try to price particularly with Carin support where our costs of doing business are the highest. So we try to attack those folks a little more heavily than the rest. Looking forward we'll watch basically cost of sales and cost of goods and if we see continued increase we can always reserve the right to take pricing later in the year. But right now I think we're pretty well set for the year. And when you look back, when we took this 1.9, and then we look back and over compared to our peers we have not taken as much pricing, it's something we'll talk about a little bit at analyst day but contextually we've been more conservative than most. And as our guest wants us to be affordable, so as much as we can stay on that affordable and I'm so glad we got a barbell because that makes all the difference.

So you took 1.9 -- And that I wanted to ask about -- when you originally provided guidance, was that the level of pricing that was originally embedded in your expectations for the year?

Yes.

We’ll take a question from David Carlson with KeyBanc.

Hey, Guy, looking at the cost line [ph], really made a lot of improvement despite the negative comp trends. If you’d particularly call out about that or that rate of decline is something we should expect to continue or decline even further if comp trends show improvement?

I wouldn't expect it to decline further, David. I mean we did see a decline in general liability claims which hits that line and then obviously we had some store closures last year and as you might imagine the stores that certainly have the highest occupancy as a percent of revenues tend to be the ones that are higher on your list for store closures. So that benefit will continue but no, I don't see that accelerating from where it was in Q1.

And I heard you comment on the – I think it was the 4.23 times lease adjusted, I think it was down from 4.35. Can you remind us what the targeted lease adjusted leverage ratio is, is that unchanged?

We haven't actually set a target. We will talk about one on the Analyst Day. So we will announce that next week but I think as I've talked with many people over the past few months we have talked about a target being somewhere in the neighborhood of 3 to 3.5 times on a lease adjusted basis. So that would be consistent with what to expect.

We’ll next go to Will Slabaugh with Stephens Incorporated.

Can you give us an idea of what that growth rate was at To Go for the quarter and what seems to be working there, where the opportunities are and then kind of taking point, you’ve seen what we're banking on that growth to do in the back half of the year expectation?

Well, if you remember we started -- from when we started measuring like 5, 5.5 somewhere like that, really low. So we're really low compared to the category. The category at best we can measure is at about 15%, it's really hard to tell how much of that is pure To Go and which has catering mixed in, et cetera. So we're striving for that kind of double digit growth over the course of the next couple of years that we can achieve it. We just barely turned on online ordering in the quarter. I mean we got six weeks of it, so we did an uptick on To Go overall with the minimal effort that we've made. But again as I said before we want to wait until we've got a full quarter under our belt to talk about the growth to make sure it’s sustained. We have done nothing more than the messaging I mentioned which is a super or graphic on the television ad. It now occurs -- shows up as a link in our e-mail messaging in much of our digital, right, Jonathan. But we have not done any active promotion, we've tested some trial promos in a couple of markets that we will be using in coming quarters. So the only other place we'll look to invest in kind of discounting aside from our everyday value which is not a discount and our Red Robin Royalty Program which is an earned discount, will be in to drive trial on To Go but we're gearing up for all of that midyear or so before you'll see a lot of activity there.

And if I could shift to G&A quickly that came in as you mentioned nicely [ph] where we expected. Can you talk about the improvements you’ve made there recently and any more commentary there around what’s sustainable in terms of the improvement and what specifically is growing on to 2Q or beyond?

Will, specifically in Q1 the improvement was – as I’d mentioned in the prepared remarks, more related to timing. So project work that in the original plan we expected would occur in Q1 that we're now expecting to occur in Q2 or later in the year. But overall clearly G&A is a focus for us, our intent is to manage that line, the growth of that line at a level that's much lower than revenue growth, so that we have the opportunity to leverage that line while revenue is growing, which I think is an important way to manage that line. And essentially where we're going to get to long term, Will, is a point where you'll be happy to see G&A growth because that will mean we're paying out a bigger bonus which means we have had good results. And if we have significant declines in G&A, it won't be the good news story because it will mean we've paid out poor bonuses because we have poor results. So it is an active line that we're managing but I would not attribute the Q1 beat to significant changes that we made in that line just yet.

And lastly on the labor model, I know you guys mentioned the pressure you're seeing as well as everyone else in the industry. Does it make sense to think about a complete revamping of how you're doing things, maybe moving toward a shared services model or something similar, or there are simple tweaks here and there that make more sense and any sort of insight into what you're working on there to make that line more efficient, that would be helpful.

This is Carin. We are working on really several front of the house tests that we're going to talk about at the analyst meeting next week. Look, we're watching this trajectory on this line and we know that it's just not sustainable to see these rates of increases. Where I will give credit is to the teams in the restaurant they are managing productivity, I mean just really I can't ask for more from them with the labor model that we have. Our labor model is fairly sophisticated, connectivity based labor model. So everything that our teams do is really accounted for. So I think a couple of things, if you're looking at this escalation of wage rates especially at the hourly level right now, that's where Jonathan Muhtar and I really team together to think about is menu simplification, prep simplification and those type of things that are ultimately going to make a difference, because the real pressures are in the heart of the house. And that's where I think we still have opportunity throughout the year to try to make a greater impact.

But I agree, I think we all anticipate there’s going to have to be a breakthrough here for us to separate and the one thing is that there is a generation coming up who have a different view of what service means and what they expect. And so we're really trying to tap into that and start to figure out what do they want to control and pay at the table is a great example. I mean that was the last opportunity we really had was when we gave them the opportunity of pay at the table as they asked and that worked very well for us. So we'll continue to look for those opportunities. Breakthroughs will be needed.

[Operator Instructions] We’ll next go to Steve Anderson with Maxim Group.

I want to ask about the adjusted EBITDA guidance, the guidance you’ve given in the most recent few quarters, last time it was between $145 million and $150 million. So I ask if there has been any change to that and I have a follow up.

No, Stephen, we still expect the EBITDA to fall in that range that we guided to three months ago.

And in terms of the off-premise percentage at the end of 2016, it was 4%, with the increase the last six weeks, you’ve got to accelerate online ordering. Has that overall off-premise increase – off-premise percentage increase at all?

It did increase but again we will share more about that and we've got – what – does anybody know exactly the kind of where we model for our goal for the year end? I'm trying to remember exactly, I should remember this. We did exactly the way -- we haven't shared that guidance, that would be in the non-disclosure part. But again we're between where we started and 14 is a target, we'll share where we are on that track at the end of Q2. End of Q&A

It appears there are no further questions in the queue. At this time, I’d like to turn the conference back to Ms. Post.

Thank you all for joining us this afternoon and again we appreciate your interest in Red Robin. And we look forward to seeing most, if not all of you next week. And we will have some really interesting discussions and some great, great food then. So we look forward to -- come hungry.

That concludes today's conference and thank you for your participation.