Good afternoon, everyone, and welcome to the Red Robin Gourmet Burgers, Incorporated Third Quarter 2021 Earnings Call. Please note that today’s call is being recorded. During today’s conference call, management will be making forward-looking statements about the company’s business outlook and expectations. These forward-looking statements and all other statements that are not historical facts reflect management’s 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 today’s conference call, management 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 the company’s 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 the earnings release. The company has posted its fiscal third quarter 2021 earnings release on its website at ir.redrobin.com. Now, I would like to turn the call over to Red Robin’s CEO, Paul Murphy.

Hello everyone, and thank you for being with us today. I am joined by Lynn Schweinfurth, our Chief Financial Officer, who will review our third quarter results in detail after my opening remarks. Let me begin our discussion with our most recent sales trends before providing an update on our business initiatives and the strategic progress we are making that will position us for long-term success. Although, sales were softer than we expected due to the spread of the COVID-19 Delta variant and continued staffing challenges. We are optimistic about the positive trajectory we are seeing in our sales trends including 4% comparable restaurant revenue growth in the last period of the third quarter versus 2019. We experienced a continuation of this momentum with growth to 4% in the first fiscal period of the fourth quarter, compared to 2019 inclusive of a negative 1 to 2 percentage point impact of storms on the West Coast and the Halloween shift. We believe that there’s even more opportunity for upside through the rest of the quarter. As we address the staffing headwinds that face our industry. During Q3, we estimate that reduced seating capacity and limited hours due to staffing challenges and team member exclusions resulted in a 2.2% impact to our quarterly comp sales compared to 2019. While our decision to reduced hours and seating capacity impacts short-term sales. We believe prioritizing a quality guest experience and supporting a workload for our team members that prioritize the satisfaction and retention are the two most critical considerations for the future success of our brand. Importantly, restaurants that one of the top 75% quartile for sales ended the quarter with staffing levels at or above 2019. And we are executing a prescriptive plan for each restaurant below the levels needed. Staffing is our…

Thank you, Paul. While our Q3 results were certainly impacted by the Delta variant and industry staffing and supply chain challenges, I am confident in our future. This is because our improving dine-in sales trajectory, incremental off-premises sales channels and continued dedicated execution of our business strategy together will drive meaningful long-term shareholder value. Turning to third quarter results. The 34.3% increase in the third quarter comparable restaurant revenues was primarily driven by operating our dining rooms at increasing capacities compared to the third quarter of 2019 comparable restaurant revenue was up 0.6% with a sales trajectory that improved through the quarter. We delivered our sixth consecutive quarter of off-premises sales mix at more than double pre-pandemic levels of approximately 14%, comprising 30.8% of total food and beverage sales compared to 40.7% and 13.2% in 2020 and 2019 respectively. Importantly, we have been able to retain the same level of third quarter off-premises sales dollars in 2021 as 2020 are approximately $81 million. As a percentage of total off-premises sales, third-party delivery represented 52.2% to-go represented 39.6%, catering represented 4.5% and Red Robin Delivery represented 3.7%. Year-to-date, net cash provided by operating activities was $37.6 million, while cash used in investing activities was $20 million and cash used in financing activities was $16 million. Since the end of 2019, we have paid down $50.5 million in debt while intentionally waiting 2021 discretionary investments to the back half of the year. We ended the quarter with liquidity of approximately $75.2 million, including cash and cash equivalents and available borrowing capacity under our revolving line of credit, which includes the impact of a $30 million capacity reduction on our revolving line of credit pursuant to term of the second amendment to our credit facility. We intend to continue to effectively manage our…

Thank you, Lynn. The foundation upon which we can create and build long-term shareholder value through growth and profitability drivers remains firmly in place. In the near-term, we are contending with increasing staffing and retention costs and other inflationary pressures. But at the same time, the underlying business recovery is continuing and we remain focused on delivering the highest quality guest experience, which will drive growth for the long-term. I think it goes without saying that we are blessed with a great team, who have a great passion for this brand. They have certainly stepped up in enabling us to execute our business strategy and position us for even better days ahead. And their accomplishments during these rather unusual times are why I am bullish on Red Robin. I cannot thank them enough for all that they do on our behalf. And with that, let us now open the call for questions.

Thank you. And at this time, we’ll be conducting our question-and-answer session. [Operator Instructions] Our first question comes from Alex Slagle with Jefferies. Please state your question.

Hey, thank you. How you doing Paul, Lynn?

Hi, Alex.

Hey, Alex, how are you today?

Very good.

Good.

I wanted to dig into the acceleration in the same-store sales trends into September and October. It’s a significant jump relative to the peer benchmarks and now actually outperforming. Maybe, first you kind of give us some granularity on how much is like improved staffing versus specific growth initiatives like Donatos or the virtual brands and marketing. Just maybe piece those out a little bit, where you kind of see the acceleration coming from.

Well, Alex, I think it’s a combination. I think that our staffing has been improving and that certainly has allowed us to from a capacity standpoint and from really having all channels of business open improve that. But also staffing, we’ve seen that turnover has actually begun to slow down also as we came out of the third quarter into the fourth quarter. So that’s obviously helping our staffing efforts also. The LTOs that we’ve done in Q3 and into Q4, as I mentioned, are performing extremely well seem to be hitting – really hitting the mark with our customers. I think a real level of comfortability there. The digital – really the pivot to digital marketing just seems that with the segmentation work that we did in 2020, and I think of refined in 2021, our messaging is more direct and more on target with the different segments in the marketplace. So I think it’s a balance of all three. But I would be disingenuous if I didn’t say that staffing has been a big part of that and we’re happy to report that it just continues to get better. So that’s why, we said we were certainly bullish and we felt like those results could grow as we move through the fourth quarter.

Got it. I guess, on the staffing and you do seem confident about that. What’s the effective capacity level? What does that look like now versus maybe the start of the third quarter and just maybe how much more you have to do in terms of hiring to get where you want?

I think, we mentioned earlier, our top 75 or 75th percentile of restaurants are at or better than our 2019 staffing. And so our opportunity has really been the bottom quarter. So that has impact our capacity. And I’d say, our capacity is roughly running between 85% and 90%.

Got it. Maybe on the same-store sales, cadence, just some color on the pricing. I guess, it sounds like it was around 3.5% through the end of the third quarter. And then you added price at some point during that final period P11 or in October.

Yes. We took our incremental price at the beginning of Period 11, correct, at the beginning of the fourth quarter. So we carried that 3.5% third quarter pricing throughout the quarter. Once you blend all of our quarters together, that’ll bring us to a little above 3.5% for the full year. I think I said specifically 3.6%. And the other thing of note is we’re rolling off 1.5% pricing of the prior year at the beginning of the fourth quarter.

Okay. And what was the restaurant level margin or what did it look like exiting the quarter? Just to give us some sense for how to think about the fourth quarter, I know, how that’s going to evolve.

Yes. Well, I will say that our dine-in sales did follow some seasonality that we’ve seen in the past. So on Period 10 is our lowest period from a seasonal standpoint. So margins actually went down throughout the quarter, but that was in something we expected. So as we go through the fourth quarter the opposite will happen. So margins should get better through the fourth quarter.

Got it. Yes, and just trying to think through the incremental pricings coming on, and then you’ll be balancing that with, I assume higher commodities and labor. Maybe you could kind of comment on the commodity pieces the visibility there.

Yes. We saw – I think mid-single digit wage inflation. In fact, it was probably a little bit mid-single digit plus in wages at about 7% in the third quarter. And then from a commodity standpoint, we were at about almost 9% inflation for the third quarter. Now taken to account that we started the year with very favorable pricing. So when we provided the full year guidance of mid-single digit inflation, it benefited from the early part of the year and then we’ll see increasing inflation through the back half of the year.

Great. Thanks. I pass it along.

Thank you. Our next question comes from Brian Vaccaro with Raymond James. Please state your question.

Yes. Thanks, and good evening. I wanted to circle back on the monthly cadence that you saw and I appreciate the same-store sales and the comparison back to 2019. But could you maybe provide some context on how AWS or average weekly sales dollars trended through the quarter and perhaps just a level set where we are through October where average weekly sales in October were as well.

Yes. As I mentioned with seasonality or average weekly sales started the quarter at the highest level and kind of tended or trended down through the quarter. We started at 56,000 in – let me get, yes, 56,000 in P8 and then that ramp down to about 51,000 in P10.

Okay. And then P11 is it in that ballpark of 51 or any color on where P11 is…

Yes. It starts to go a little bit up, as I mentioned earlier, the entire quarter starts to trend upward.

Okay. That’s helpful. Thank you for that. And on your commodity outlook for the year just to make sure we’re all on the same page. Could you just give us what – where you expect 4Q commodity inflation and wage inflation to be specifically just to tie into that annual outlook?

Sure. Fourth quarter commodity inflation should be around 15%. And then in the fourth quarter wage inflation should be between 7% and 8%.

Okay. And the temporary cost that you noted the $3.1 million, can you help us sort of allocate that between labor and other OpEx by chance?

Yes. I – what I would say is the majority did hit the labor line item.

Okay. I guess given that, that, that other OpEx line, it looked like it moved up quite a bit sequentially $4 million or so, $4 million, $4.5 million. Could you walk through kind of the puts and takes of the cost pressures that you saw in the other OpEx line?

Yes. I think certainly there were higher off-premise sales in the current quarter. So that we actually ramped a little bit up in terms of off-premise sales. So that impacted the commission expenses that we recognized in that line item. And then while the majority of the transitory costs we talked about did fall to the labor line item. There was a piece certainly within other operating expenses. So that included some of our hiring awards.

Okay. And then last one for me on the credit facility amendment. Can you remind us the reduction that was put into in terms of the capacity, where is the new capacity on that facility? Or did it reduce to – reduce down to?

Yes. The revolving – the – so there’s a term loan and a revolver. The revolver reduced to $100 million.

All right. Great. Thanks very much.

Thanks, Brian.

Thank you. Ladies and gentlemen, there are no further questions at this time. And that does conclude today’s call. Thank you for attending and all parties may now disconnect. Have a great day.