Good afternoon, everyone, and welcome to the Red Robin Gourmet Burgers, Inc., Third Quarter 2020 Earnings Call. This conference is being recorded. During management's presentation and in response to your questions, they 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. Management will also discuss non-GAAP financial measures as part of today's conference call. 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 2020 earnings release on its website at ir.redrobin.com. Now, I would like to turn the call over to Red Robin's new CEO, G.J. Hart.

Hello, and thank you for joining us today. With me is Lynn Schweinfurth, our Chief Financial Officer. After providing some opening remarks, Lynn will review our fiscal third quarter results and financial outlook. I'm very excited to be here as the CEO of Red Robin and my optimism around what this brand can achieve has only grown since assuming the role in early September. Although new to the executive team, I've served on the Board since August 2019, which I believe provides a great deal of continuity during this leadership transition. While I've always been a big fan of this brand over the last several years, I've gained a deeper understanding of the organization, and with that, a heightened appreciation for the culture, values and brand equities that have made Red Robin so iconic for more than five decades. My predecessor, Paul Murphy, is serving as a special adviser to the company through next March, and I want to thank him on behalf of the Red Robin team and Board for his many contributions over the past three years. He's successfully navigated us through the pandemic, while building key platforms of growth that will continue leveraging going forward. On a personal note, I am also grateful to be benefiting from his insights and perspective. Having worked in the restaurant industry for approximately 35 years at both public and private companies, I probably already know many of the people listening to this call. And to those I have not yet met, I look forward to speaking and meeting you over the coming months ahead. By way of background, I most recently served as CEO of Torchy's Taco for almost four years, and prior to that, as the Executive Chairman and CEO of California Pizza Kitchen for over seven years. I was…

Thank you, G.J. For our third quarter results, we grew comparable restaurant revenues by 5.3% compared to 2021 in the third quarter, surpassing the casual dining segment in both sales and traffic as measured by Black Box Intelligence. Compared to 2019, our third quarter comparable restaurant revenues increased 5.9%, marking the third consecutive full quarter of positive comparable restaurant revenues versus pre-pandemic sales. We delivered our 10th consecutive quarter of off-premises sales dollars at more than double pre-pandemic levels, demonstrating the sustainability of our higher off-premises sales channel since 2019. As a percentage of total off-premises sales, third-party delivery represented 53.5% To-Go represented 34.9%, catering represented 7.5% and Red Robin Delivery represented 4.1%. Full year net cash provided by operating activities was $38.8 million, while cash used in investing activities was $18.3 million, and cash provided by financing activities was $14.9 million. During the quarter, we received $8.5 million in final proceeds related to the sale of a restaurant in our Pacific Northwest market. We will opportunistically pursue replacing the restaurant if and when an appropriate site in this trade area is identified and are pleased with the boost to our liquidity. We ended the quarter with liquidity of approximately $75 million, including cash and cash equivalents and $25 million available borrowing capacity under our revolving line of credit. Now, turning to some of the specifics related to the third fiscal quarter. Q3 2022 comparable restaurant revenues increased 5.3%, driven by a 9% increase in average guest check and a 3.7% decrease in guest traffic. The increase in average guest check resulted from a 7.7% increase in pricing, 2.5% increase in menu mix and a 1.2% decrease from higher discounts. Third quarter total company revenue increased 4.2% to $286.9 million, up $11.4 million from a year ago, driven by increased…

Thank you, Lynn. Before we take your questions, I wanted to conclude my prepared remarks with the leadership changes taking place here at Red Robin. As we announced in our press release earlier this week, Lynn has decided to retire from Red Robin at the end of 2022. For nearly four years, she has served us well, spearheading our finance organization through some of the most challenging periods of Red Robin's history. During her tenure, we welcomed in a new CEO in Paul Murphy, who has dealt with the challenges of the pandemic and most notably, established a new credit facility. I want to thank Lynn for her dedication, her commitment and her leadership and wish her the very best that she pursues her aspirations outside of Red Robin. Lynn will continue to play a role here through the end of the year as we transition her responsibilities to our new EVP and CFO, Todd Wilson, who will start next week. Todd brings a wealth of financial management experience to Red Robin, and we are eager for him to join us. Most recently, he served as the CFO for Hopdoddy Burger Bar. He also held the role of Vice President, Finance and Investor Relations at Jamba Juice and served as division and CFO for Carrabba's Italian Grill and Fleming's Prime Steakhouse, while spending 10 years at Bloomin' Brands. In addition, Darla Morse, EVP and Chief Information Officer and Jonathan Muhtar, EVP and Chief Concept Officer, will also be leaving us to pursue other personal and career interests. Darla joined us in March of 2021 and helped to lead the launch of our new Red Robin app last year as well as the introduction of HotSchedules platform in 2022. Jonathan joined Red Robin in December 2015 as Senior Vice President and…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Alex Slagle with Jefferies. Please go ahead.

Thank you. Good afternoon. G.J., great to have you on the call and in this seat. Hi, Lynn, best wishes on your next chapter, we'll miss you for sure.

I appreciate that. Thank you.

Good to hear from you, Alex.

Yes. And G.J., I guess with all your past experience in the casual dining segment and a couple of very different situations, I'd love to just dig a little deeper and hear some more of your views on the current strategy at Red Robin and how you think that should play into the current macro backdrop and perhaps any learnings from your past experience, leading other organizations that resonate as you approach your new role at Red Robin.

Sure. Well, first, let me say, I've been here just on -- not even eight weeks, almost eight weeks. So, I am still learning a ton. So much of this is what I've believed thus far and what I believe that we can do. Look, I think Red Robin has been an iconic brand for five decades. And over the years, it's -- if you look at the core guests and the core guest expectations back in the heyday, to be honest, if you look at that and you look at what our guests are expecting today, I think it's very, very similar. They may look different, but they expect the same things. And I think over the time, for whatever reason, Red Robin, some of those things have slipped away or changed or they vanished completely. So, we're taking a long look at that and taking a long look at what we can do to bring back the fun, playful nature of Red Robin, execute at a higher level as an example. We have gourmet burgers on every building that we have out there and really challenging ourselves, or I'm challenging the team, are we producing a gourmet burger that we all are very, very proud of? Or is it just average or is it better than average. We want to be the best that we can be. So, really challenging the norm. We do a great job when our burgers are prepared today, but I think we can improve upon that. In addition to that, I think we need to have a full barbell menu strategy, where from appetizers to entrees that there's a wide range. And we've got a pretty limited entree section. Today, it's really about fish and chips. We have three items in total. And…

Yes. That's very helpful and actually answered a couple of my other questions. But on the guidance, Lynn, maybe you could help with that. It didn't seem like the inflation and pricing outlook's changed a whole lot in G&A, a touch lower, but the EBITDA outlook is slightly lower. Is the shortfall due to the commodities or maybe a lower implied revenue outlook or maybe utilities? Just a little more clarity on what drove that.

Yes, the majority of the change is really commodities and other operating costs that we experienced in the third quarter and then looking to improve some of those costs as we move through fourth quarter, but they were higher than we expected.

Okay. And on Donatos, again, really strong results coming out of this program. And G.J., your thoughts maybe on Donatos and the pace of the rollout now. I mean, I guess the goal is to get to 20 -- 250 company units this year. And I don't know if you have any updated thoughts or initial views on what the rollout for 2023 could look like?

Yes, at this point, it's a little bit too early to tell. I will tell you this, though, that we have some work to do on our existing restaurant base. We need to do some refreshes, some deferred maintenance that's going to be a priority. Clearly, we are having great success with Donatos, so we want to continue to expand it. But it's a little too early for me to say exactly how we'll allocate that capital. But I will tell you that we do think that getting it as fast as we can will make sense, but we do need to give priority to our existing restaurant base.

Make sense and helpful. Thank you. I’ll pass it on.

Thanks Alex.

[Operator Instructions.] The next question comes from Todd Brooks with Benchmark Company. Please go ahead.

Hey thanks for taking my question. G.J., welcome aboard and Lynn, again, best wishes on next steps for you as well.

Thank you.

A couple of questions here. And G.J., you just talked about having to prioritize work that you want to do on the existing base. I saw capex was guided up a few million in Q4. Is there a real need identified from a deferred maintenance standpoint of what you're looking to tackle in the existing base that you could think about what's -- or maybe communicate what sort of claim on capital that may be to get the base where you want it to grow from?

No. Again, Todd, we haven't done all that work yet. We have done an assessment with our operators and our maintenance teams to understand what deferred maintenance needs to be done. So, we're looking to prioritize that. As many companies through the pandemic clearly cut back some of that spending, and we need to make sure that we're taking care of these facilities. So, it's a little bit early to tell you exactly how much of that capital we'll allocate, but as soon as we do get that plan, we'll share it.

Okay, great. And then secondly, and I'm just trying to put the pieces together as far as what does the profitability model look like for Red Robin as we get to 2023 at the restaurant level. Hearing about improved quality and signature items, and I don't know how much additional that costs on the food cost side to get you where you want to be, improved staffing, including salaried managers. I guess if you're looking at the recovery in restaurant level margins, importance of maybe investing in labor and food cost for a couple of your key initiatives versus maybe trying to harvest quick wins on restaurant-level operating profit as we're looking out to fiscal 2023? Is it more of an investment year to cement the programs that you've identified?

Well, listen, as we -- we're not going to -- not to go into some of these initiatives without testing them and understanding what the ramifications and/or investment dollars are. If you take, as an example, the management complement there is significant, in my opinion, there will be significant improvement on how we train employees in terms of how we hire employees, the turnover in the restaurants, the amount of overtime that we're currently spending. So, all those factors will be offset by the investment -- the additional investment. In addition, when you're paying more attention to guests and you're allowing our management teams to work with our teams to continue to coach them and be on the floor and be present when we're open, then I believe that we will grow sales. We're going to learn all that. So, it's not just pure investment dollars. We believe there's a return, and we will definitely look at what those returns will be, and we'll share some of that information as we go forward. So, it's -- I wouldn't say it's a total investment year. We recognize that we're going into a challenging economic environment. But I also believe that some of these things are necessary for this brand to get back in the direction that we all wanted to from where we've been in some of the decisions of the past, we have to correct those in my opinion.

Okay, great. And then just one final kind of higher-level question. And I don't know if you formulate an opinion on this, but obviously, we've got a corporate-owned model to a large extent, but there is a franchisee base. And as you're looking beyond -- and I don't know if you're looking beyond stabilization of the brand now to future growth, do you see that being corporate-driven, franchise-driven, still trying to figure it out? Just would love to get your thoughts at that level, and I'll hop back in the queue after that. Thanks.

Sure. No problem. So, I think it's a combination of both. We -- it's a little bit -- we have a great group of franchise partners. And as we make some of these changes and have success, I believe that they'll get excited as well. And so, they may want to invest and grow their units. But prior to that, we have a lot of work to do before we start to get on the growth path on the company side. As we just talked about some of the deferred maintenance needs a refresh, a lot of testing, I want to get some of those things out of the way and learn from those and then we'll start thinking about opening new restaurants. We do have some backlog of new units. The one unit that we've opened this year is doing extremely well. And so, there's some good learnings there, but we have a lot of work to do around what does the prototype look like of the future, what does our kitchen look like in the future? What's the menu look like in the future. So, we have a whole lot of work to do first before we start talking about significant growth here on the company or the franchise side. I will say that early -- my early conversations with our franchise partners, I think they are excited about where we can go in the future and some of the things I've just shared with you all, I've shared with them. And I can tell you that so far, it seems like they're pretty excited about it.

Okay, great. I'll hop back in queue. Thanks.

As there are no further questions, this concludes the question-and-answer session and today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.