Good afternoon everyone and welcome to the Red Robin Gourmet Burgers Incorporated Fourth Quarter 2024 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 reflects management's beliefs and predictions as of today and therefore, are subject to risks and uncertainties as described 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 the Generally Accepted Accounting Principles, but are intended to illustrate alternative measures of the company's operating performance that may be useful. Reconciliations of the non-GAAP financial measures to the mostly directly comparable GAAP measures can be found in the earnings release. The company has posted its fourth quarter 2024 earnings release on its website at ir.redrobin.com. Now, I would like to turn the call over to Red Robin's President and Chief Executive Officer, G.J. Hart.

Good afternoon everyone and thank you for your interest in Red Robin. As we enter 2024, we laid out our vision to improve traffic in our restaurants and allow our guests to experience the substantial enhancements we have made in our hospitality and food quality over the past 24 months. I'm proud to say we began to see the benefits of our work as we progress through the year culminating in a 600 basis point improvement in traffic trends from the first quarter of the year to the fourth. While our improvement has been substantial, we have not yet reached the potential of our iconic brand and expect to drive further traffic improvements in 2025. Before we dig deeper into our plans for 2025, let's take a look back at the progress we have made last year. Starting with the operations, we continued our progress to deliver an upgraded experience to our guests. Dine in guest satisfaction scores in 2024 increased approximately 8 percentage points compared to 2023 and beat the casual dining average. Satisfaction scores as measured by SMG posted their highest absolute levels since Red Robin launched with SMG in 2017. Scores measured by Technomic are also at the highest since 2017. This guest feedback reflects gains across all aspects of the dining experience from the taste of food to the friendliness and attentiveness of our team to the pace of the experience. The benefit of these efforts shine through in many ways, including that our operators set approximately 1,400 sales record since the launch of the North Star plan. In May, we launched the revamped Red Robin Royalty program and spurred membership growth of approximately 1.5 million members in 2024 to end the year with approximately 14.9 million members. The new program allows guests to earn rewards…

Thank you, G.J, and good afternoon, everyone. In the fourth quarter, total revenues were $285.2 million versus $309 million in the fourth quarter of 2023. The decline is due primarily to the fourth quarter of fiscal 2024, including 12 operating weeks compared to 13 operating weeks in the same period last year. This was partially offset by a comparable restaurant revenue increase of 3.4% excluding the impact of a change in deferred loyalty revenue led by an increase in guest check average, outweighing a decline in guest traffic. As G.J. noted, I would also highlight that our guest traffic trends sequentially improved in each quarter of 2024, which we believe is a testament to the successful implementation of the North Star plan, the traction of Loyalty 2.0, and the traffic driving success of the appointment dining promotions. Restaurant level operating profit as a percentage of restaurant revenue was 11.5%, a decrease of 70 basis points compared to the fourth quarter of 2023. The decline was primarily due to lower guest counts and discount levels that increased approximately 120 basis points as compared to last year. General and administrative costs were $18.4 million as compared to $22.7 million in the fourth quarter of 2023. Selling expenses were $5.7 million, a decrease versus the prior year of $6.4 million. The decrease results primarily from a reduction in media in the quarter intentionally reallocated to support funding the traffic driving promotional discounts. Adjusted EBITDA was $12.7 million in the fourth quarter of 2024, an increase of $2 million versus the fourth quarter of 2023. Adjusted EBITDA increased due to the reduced selling and G&A expenses and overcame the headwind of our fiscal calendar reverting to 12 weeks this year as compared to 13 weeks last year. We ended the fourth quarter with $30.7…

Thank you, Todd. Our commitment has always been to provide our guests with great hospitality, serving delicious food at a great price and creating a fun friendly atmosphere with every visit. We believe the North Star plan is helping us fulfill that promise. The last two years have been transformational at Red Robin and I believe our team has done a tremendous job in executing our strategic plan and successfully transformed this brand into an operations focused company. As we look ahead to 2025 and beyond, the focus of our team will be on bringing back guests into our restaurants for moments of connection over craveable food that only Red Robin can provide. With the strategy we have in place, we believe we are well-positioned to deliver significant value to our guests and shareholders alike. With that, we are happy to turn the call for questions. Operator, please open the lines.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] The first question is from Alex Slagle from Jefferies. Please go ahead.

Thanks. Congrats on the progress. I wanted to sort of ask about sort of the balance you're trying to work with here, just trying to -- the big focus on driving frequency with the promotions and loyalty efforts and how to improve margins, which clearly you're doing. There is a good bit of pricing behind that in this quarter and I guess as you said sort of like threading a needle and just sort of making sure you're not taking too much pricing. So, I guess just wanted to get thoughts on that. I mean maybe you don't need as much maybe that'll come down as the year goes on and you have these incremental labor and supply chain efforts yielding some benefits, but maybe you can kind of talk about that balance?

Yes. Hey, Alex. Relative to the pricing, much of the pricing that we took in the fourth quarter was really on the West Coast, where we've done a lot of benchmarking and had some opportunity, which carries over into 2025. And on our pricing thoughts through 2025 is in a 1% area. And so definitely we're taking all that into consideration. In terms of threading the needle, one of the things as we continue down the path to get ourselves real traction around traffic growth, which we believe we are getting and starting to get that to balance the cost side, there's just a lot of work. You have to remember that during this whole comeback process and journey, we've had we've hired 800 managers. We've had to train those folks. We've had to retrain every single person in the company on not only what we're doing and its expectations from a hospitality perspective, but how do we cook product and all of that. And so it carries -- so all that work's been done over the last couple of years and so we believe we can get a ton of efficiency, particularly in the labor line as we go through 2025. And we saw some of that in the fourth quarter of 2024, but we believe there's a lot more to get and we're working hard to get it. None of which will affect the guest experience by any imagination. So, there's so much opportunity here in a journey of comebacks or turnarounds. We're at the point now where we can definitely start to ramp up the pressure that we put in terms of the expectations on financial performance. Hopefully that gets to what you were looking for.

No, that's certainly encouraging. And I guess as we look at like the sequential improvements you've seen in the menu mix and the discounts recently, the components of the comp, do you think this will continue to improve into 1Q and beyond? And if so, I'm kind of curious where that would come from? Or it would just seem like that would be more of a challenge just with the promotional efforts underway to drive traffic?

Yes. Hey, Alex, Todd here. I'll talk about the discounts in particular of if you go back, it was really the third quarter of 2024 that we really launched the appointment dining. So, I do expect in that comp detail, you'll probably see discounts increase year-over-year in Q1 and Q2, but then become much more normalized in Q3 and Q4. So, that's the way we're thinking about it right now at least. On the mix side, I'd say, we've been pretty encouraged with all of the different headlines out there. We've talked about this in prior quarters that we tend to look at add ons right in terms of the health of the consumer. Are people still adding appetizers? Are they still buying desserts? Are they still buying beverages? And we see all of those measures at parity or better to what they were previously. So, there's always a little bit of mix impact as we make changes to the menu. We've been promoting our tavern lineup, which is a more value lineup in recent quarters, but the add on items in particular have held up quite well, which gives us a lot of confidence in the state of the consumer that's walking into our doors.

Great. Thanks guys.

Thank you.

The next question is from Jeremy Hamblin from Craig-Hallum. Please go ahead.

Thanks and congrats on the improved results. I want to start by just getting a little more color on quarter-to-date trends you noted, some momentum as you entered into the year and wanted to just get a sense of where things stand maybe on a quarter to date basis. I know this is effectively a four-month quarter for you and I think February across the industry has been a little bit lighter than what you maybe saw in January, but wanted to get a sense for what Red Robin has seen?

Yes. Hey, Jeremy, Todd here again. I'll start and G.J. can certainly add on. But I think I would build on G.J.'s comments in the script, right, where you said, hey, it's been a good start to the year and I would certainly reiterate that. For us, we always expected the first part of the quarter to be the best. If you recall for us, with our West Coast footprint, the West Coast had some really tough weather events in the first quarter of 2024 and really depressed our first quarter. So, we always expected the start of this quarter to be frankly the best part of the quarter and potentially even the year, just given the easier comparison. So, we expected to be a good start and it has been. So, that's been encouraging. I think the way I talk about the February, there was weather across a lot of the country in February. We've seen it in the industry numbers. That's embedded in what G.J. said in terms of the first eight weeks. So, you're always going to have some ups and downs. We try not to get caught up on the weeks. The last piece I'd share, we're really thinking probably more about the quarter. And so we expect the first part of the quarter to be the best. We expected the second part of the quarter to be more normalized. As we think about it, I'll tell you, we're kind of at the mid-range of our thinking is call it a plus three same-store sales on the quarter. Obviously, the weather has to cooperate and we still have, as you said, eight weeks to go, but that's the way we see the quarter coming together as we sit here today. And so that's the top line side. I'll try to be brief here, but on the profitability side, I'll give you a sense of how we're thinking about that as well. We a simple way to think about it, if you look at Q4, we basically generated a little over $1 million a week of adjusted EBITDA. In a 16-week Q1, that'll get you to about $16 million and then obviously we did make the change with adding back stock based compensation and that's another $2 million to $3 million on the quarter. So, again, eight weeks to go in the quarter here, but that's kind of the simple way we're thinking about top and bottom-line.

Got it. Great. And then let's just come back to some of the initiatives here on driving restaurant level margin. So, kind of roughly 100, maybe 200 basis points during the year. And it sounds like you have some great labor initiatives going on. I wanted to get a sense for of that range of improvement from the 10.8% that you saw in 2024. What portion of that do you expect to come from labor versus COGS or other line items?

Yes, the vast majority, Jeremy, will come from labor. Our COGS generally are at a point, they're pretty low in the first place. So, I don't expect a lot of it to come from there. The majority will come from labor.

Got it. And then coming back to kind of trends and what you've seen, you noted that you've seen a lot of strength in the dine in portion of your business, which I think implies that kind of takeaway or takeout has been a weak spot and wanted to get a sense for initiatives that you're looking at there to drive that whether that's going to be helped by enhanced digital engagement or what you think you might be able to do to improve that business? I think it's what 20%, 25% of total sales?

Third-party is more like 15% of sales and we are very pleased with where we sit to-date on what we're doing with third-party. It is things like digital initiatives. As you know, in third-party, it's where you sit and where you come up in the algorithms. And we some of that is how much you invest with these third party folks. And so we plan for that in 2025. And our results in terms of where we sat from a year ago are very good. And I'm very hopeful in terms of where a third-party can and what it can do for us in 2025.

Last one for me, just in terms of other marketing changes. I think last year your budget was around $30 million or so on marketing. You're making some changes kind of at the top of that division of your business. In terms of thinking about that pivot, what should we expect? We know a year ago you had some fairly expensive marketing during March Madness. I don't think you're planning to repeat that, but wanted to see if there's any additional color you can share there?

Sure. Yes. So the numbers are about the same in terms of that. Jeremy, one of the things that we're doing is really having a comprehensive program around marketing. So, everything from local store marketing to digital, social to just more traditional media. We are currently in a test from a media and a very balanced approach in three markets and too early to talk about results of those markets, but we are optimistic around that. That if we find out that we're getting a great return on that investment, we'll invest more in marketing because it'll be pretty immediate in terms of the return. So, that's something we're definitely looking at. I would say that last year too, we did a similar thing last year where you have it up to your point, there around March Madness and we do not see all the success, but there were some mitigating circumstances around that in terms of where media was placed and just other things that we didn't see the kind of results that we would have expected. So, again, I'll go back to what we're doing this year, more to come on that, but I would tell you that we're cautiously optimistic of what that can do for us.

Thanks so much for the color and good luck.

Thanks Jeremy.

The next question is from Andrew Wolf from C.L. King. Please go ahead.

Thank you. Hi. Good afternoon. I wanted to ask about the Loyalty 2.0. Good afternoon again. So, I think you said you had a 13% increase in transactions with loyalty members. Could you just maybe parse it out a little on how that varied between new users and increased utilization from existing members? And kind of what growth outlooks are for the program and how you see it evolving over the I guess coming year or two?

Yes. So, I would say that we are seeing nice growth from lapsed users as well as new users. I will tell you that 25% of our visits are new users and 20% from lapsed users. So, we're seeing really, really good improvement on all levels, which again gives us reason to believe in what we're doing here in the future. And so we feel great about that. And again, if you start to do some math around what the loyalty can do for us, it's pretty significant. If you increase that average frequency on a fairly average guest that comes three times a year, you get some of those lapsed users and you can continue to get sign ups. We continue to be very robust in terms of our efforts around sign up and we have a big target for this year to be able because we're having so much success. And so far we're on track with that and feel great about that.

Good. Thanks. Would you kind of ascribe the sequential pickup in the guest traffic trends and the two-year stack gives a little better as well. Can you describe that more to loyalty or more to the overall service and discount? I mean, how do you -- it's almost an impossible question, but do you have at least a qualitative sense of that? How you would -- is that doable or you just think it's kind of the whole?

It's really hard. I mean, I would tell you, my answer is going to be pretty vanilla. It's really a little bit of all. And clearly, the experience is better. We talked about that, but and clearly loyalty is really helping us. So, it's hard to say the percentages on that, but it's all the above.

Okay, fair enough. But I assume that the loyalty is a growing component of that and pretty significant and boosting traffic, getting it moving in a better direction?

That's correct.

All right. And just one more, this is most likely just for Todd. I know you don't have formal guidance on free cash flow, but I think you mentioned it as in your plan. And I think that would be a change from burning cash. So your CapEx, if I were $25 million to $30 million. So, is that imply you expect to have cash from operations above that figure like a traditional free cash flow measured or are you thinking when free cash flow includes maybe selling some assets or something?

No, Andy, your first interpretation was correct, meaning achieving our guidance means we will have some free cash flow in what I would consider the most traditional sense, meaning from operations, funding our CapEx as you alluded to. We do think that that will generate some free cash flow this year. A number that we hope will build in time. So, you can do the math on call it $60 million to $65 million of EBITDA to your point $25 million to $30 million of CapEx and cash interest for us this year, we think will be around $24 million is kind of our midpoint. So, it's a number that we'll look to grow in time, but that's a metric that I expect you'll hear us talk more about going forward. It's been a bigger focus for us internally. And as I alluded to, paying down the debt as a means to then refinance that is certainly top of mind for me.

Okay. Thanks. That's good to hear.

Thanks Andy.

The next question is from Mark Smith from Lake Street Capital. Please go ahead.

Hi, guys. First off, just wanted to clarify and make sure I heard right. On closings, you guys are kind of building into the guidance and expecting 10 to 15 this year. And any insight into kind of the timing of that and does that include kind of these asset sales here in Q1?

Yes, you're spot on all of that, Mark. We -- the three restaurants that were alluded to as asset sales are included in that 10 to 15. Those we expect -- those are under full contract, we expect that'll be a Q1 event. But in terms of the 10 to 15, we frankly expect it to be pretty spread over the course of the year. It's not necessarily concentrated in one quarter, even with those three in Q1. So that is embedded in the guidance as you noted.

Okay. And then just any shifts in commodities that we should be thinking about anything on contract that's rolling off, any just insights into kind of cost of sales would be great?

Yes, absolutely, Mark. I'd say our commodity basket broadly is pretty, what I would consider to be standard inflation. We think the commodity basket is call it 3% in total. Ground beef for us is always a big part of that. And we do see that's the one we see the most inflation in, which means we have offsetting deflation in other areas. But in total, G.J. alluded to it, our cost of goods, we feel pretty comfortable with where that's at. We'll find opportunities where we can, but that's one that from a price value standpoint, we were conscious of not driving too low. But in terms of the commodities, we do expect kind of that 3% range. I'll maybe tag onto that and just build on a comment G.J. made earlier. From a price standpoint, I believe he referenced 1%, which is the incremental action we expect in 2025. We will have, as he alluded to, the actions that we took in 2024 will carry over to 2025 as well. I would expect we would expect that you'll see that pricing roll off in terms of the headline number through the course of the year from we expect we'll probably carry a good 8% percent or so of price in Q1, ramping that down to about 2% by Q4. And that includes the what the only additional increase this year of 1% that G.J. Mentioned. But obviously that will have an impact on cost of goods as well. But that certainly helps to cover the commodity inflation.

Excellent. Very helpful. Thank you guys.

Thanks Mark.

The next question is from Todd Brooks from Benchmark Company. Please go ahead.

Hey, good evening everybody. And that's a nice way to end a year full of progress for you. So, congrats.

Thanks, Todd. Appreciate that.

Few tag-in questions, if I may. You talked about some of the menu newness coming in 2025 G.J. and wanted to maybe drill down some more on the Hot Honey platform. And also remind us what it's competing against year-over-year when it launches in March? And is this a LTO or is this something that you can foresee based on performance flowing directly into permanent menu items?

Yes, Todd, from the Hot Honey perspective, that's pretty -- the whole sort of sweet and savory together is something that's hot and we're trying to capitalize on that. And so far it's tested well. So, we're excited about what that can do. I don't believe we're going up against anything from a year ago, Todd. So, there's nothing really there. And yes, it's basically our first menu roll of two menus that we'll do during the year with some LTOs sprinkled in. Is that helpful?

Okay. Yes, that is. Thank you. Secondly, can you talk through -- and you talked through seeing kind of attach rates hold, but if you look at the same store sales performance in the quarter, which was very strong, did you see a spread or any sort of changes when you look by income cohort? Just wondering if there's any variability maybe in that lower income cohort or if they have responded to the value and hung in from a transaction standpoint?

If I understand your question, I would tell you that as Todd just talked about a minute ago, we're pretty pleased with what's happening in terms of what people are ordering. We're still seeing nice lift on our gourmet burger line, more premium products, as well as we're seeing that lift on the Tavern and some of the value stuff. So, I don't think we've seen any significant movement during the quarter. We did, as we commented on from an overall comp perspective, it got better throughout the quarter.

Yes, I didn't know if you looked at the sub-$50,000 household versus higher-income tranches if the performance was more variable with the lower-income customer? That's why I was asking.

I don't think there's anything to note there at all. Yes. Agree.

That's great to hear. And then a final one, I know you shared some of the meaningful progress you drove in satisfaction scores over the course of this year. Just wondering as you're looking at the individual components, how are customers rating you as far as scores on value metrics? You've got the three pillars now Monday through Wednesday. How are customers responding and scoring you on value? And if you look at the overall competitive environment, I imagine, but I don't want to put words in your mouth, you feel pretty good that the value offering is competitive and traffic driving at this point and maybe no need to add more as things stand out?

Yes, I would agree with your last statement that we are happy with the value that hopefully some of the stuff that the noise that's out there around value will start to dissipate through 2025. And in terms of the first part of your question around -- that you're trying to get at value in respect to what we are going to do in the future or let me make sure I understand--.

It's more of a part of satisfaction. Customers when they're scoring you on value with the appointment--

Yes, I'm sorry, I got you. So, when you look at our satisfaction levers and value being one of them, every metric has gone up, value included. I would tell you that that's good news from our perspective because a little over two years ago that number was continuing to go down. So, we've made progress there.

Perfect. Thank you, both.

Thanks Todd.

There are no further questions at this time. I would like to turn the floor back over to G.J. Hart for closing comments.

All right. Well, thank you all for joining us tonight. We look forward to reporting on the next quarter. Thank you very much. Good evening.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.