Welcome to the First Quarter 2018 Dine Brands Global, Inc. Earnings Conference Call. My name is Jason and I will be your operator. At this time, all participants will be in a listen-only mode. Later, we will have a question-and-answer session. [Operator Instructions] Also please note, this conference is being recorded. I will now turn the call over to Ken Diptee, Executive Director of Investor Relations. You may begin, sir.

Good morning and welcome to Dine Brands first quarter 2018 conference call. I'm joined by Steve Joyce, CEO; Gregg Kalvin, Interim CFO, Corporate Controller; Darren Rebelez, President of IHOP; and John Cywinski, President of Applebee's. Before I turn the call over to Steve, please remember our Safe Harbor regarding forward-looking information. During the call, management may 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 assumes no obligation to update or supplement these statements. We may also refer to certain non-GAAP financial measures which are described in our press release and also available on Dine Brands press release and website. With that, I'll turn the call over to Steve.

Thank you, Ken. Good morning, everyone. By now you have time to read our press release issued today. I am very pleased to say that our strategy to transition Dine Brands to a growth company is the attraction. I'd like to put to rest false news about the death of casual family dining and the abandonement by millenials of the categories. Our businesses are growing and approximately half of our guests are under the age of 34; and the last time I looked, those are millenials. For the second quarter comps sales for both, IHOP and Applebee's showed sequential grouping. Additionally, each brand achieved positive comp sales and outperformed their respective categories based on industry sales and traffic data. IHOP returned to positive comp sales and was aided by continued improvement in traffic trends which we are working aggressively to sustain and robust growth in highly incremental to those business. Importantly, the brand remains very healthy and accounted for approximately 70% of first quarters [indiscernible] before corporate overhead. Applebee's achieved the highest quarterly comp sales increase since the first quarter of 2011. With positive sales and traffic for the second consecutive quarter, I would like to highlight that Applebee's off premise business also experienced very healthy growth in comp sales and traffic. This is the direct result of the brand's commitment to continually improve the guest experience which includes the recent enhancements to our mobile app and online ordering platform. The overall improvement in both IHOP's and Applebee's comp sales and traffic for the last two quarters can be partially attributed to the continued focus by our franchises as well as our operations and culinary teams on service axles providing abundan value and exceptional menu variety and meeting the ever changing convenience needs of our guests. Many of these initiatives…

Thank you, Steve. Good morning, everyone. I'll begin with a recap of our financial performance for the first quarter of 2018. Our adjusted EPS was $1.11 compared to $1.28 for the first quarter of 2017. The decline was primarily driven by a decrease in gross profit from franchise operation due to an increase in franchise contributions of approximately $13.5 million to the Applebee's national advertising fund offset by our lower federal income tax rate in 2018 and our increases in both brand name restaurant sales. As we discussed in our full year 2018 financial guidance, we plan to meet a one-time $30 million contribution to the Applebee's national advertising fund during the first half of 2018. Given our $13.5 contribution in Q1, we expect to contribute remaining $16.5 million in the second quarter of this year. The decline in frnachise operations gross profit versus Q1 fiscal 2017 was mainly due to the increase in franchise contributions to the ad funds just discussed. The overall decline was partially offset by the increases in both brand same-restaurant sales in Q1 2018. Consolidated revenues were approximately $188 million for the first quarter of 2018 compared to approximately $191 million for the same period of last year. The decline was primarily due to the new franchising of IHOP company-operated restaurants in June of 2017, partially offset by the same restaurant sales increases for both brands. Excluding the IHOP company-owned sales revenues in Q1 2017, franchise revenues increased by $800,000 in Q1 '18 versus the same period of 2017. Turning briefly to G&A; our G&A in the first quarter declined approximately $42 million compared to approximately $50 million in the first quarter of 2017. The decline was primarily due to approximately $9 million of non-recurring cash severance and equity compensation charges related to executive separation…

Thanks, Greg and good morning, everyone. We're certainly pleased with our progress at Applebee's and very optimistic about our future. Q4 momentum has continued into Q1 with a healthy 3.3% increase in comp sales, our mission has been to generate organic growth and we've achieved this over the past six months by driving incremental traffic at the expense of our competitors. Throughout this timeframe Applebee's has consistently outperformed the CDR category on both traffic and sales; now for context this represents the best sustained traffic performance that Applebee's has achieved in more than a decade. Now, we recently met with our franchisees and not surprisingly, they are proud of their progress to date. Most importantly, they are confident about our strategic plan moving forward while the results can be attributed to multiple variables. From my perspective, it all starts with a genuine culture of franchisee collaboration. The certain piece of this partnership is a disciplined process around guest, operations and financial validation. We have very sophisticated and engaged franchisee partners, and we actively seek data driven assessment, discussion, debate and alignment as part of any initiative that we pursue. In addition, our talented Applebee's leadership team is now firmly in place and frankly, making a big difference. Our brand leaders are savvy industry veterans with 8 of 10 being new enroll over this past year. This team expects to succeed and they thrive in the results oriented culture of accountability that we've established here at Applebee's. The chemistry and credibility they quickly developed with one another and franchisees is really quite remarkable. The most recent addition to the team as Steve Joyce referenced is Steve Levigne, our Vice President of Consumer Insights & Business Analyst. Steve is a highly regarded executive who held a comfortable leadership position for McDonald's USA…

Thanks, John and good morning, everyone. IHOP's first quarter comp sales increased 1% driven by a strong performance in our new day involved Iowa's [ph] offerings. The popular $3.99 All You Can Eat Pancakes promotion and solid growth in our off premise business. Notably, our comp sales improved sequentially from the second consecutive quarter despite several lower easters [ph] in March. Additionally, we outperform the category in the first quarter based on industry data for comp sales, traffic and guest experience. Over the last two quarters, IHOP's comp sales has improved by over 400 basis points. Now let me provide some color on the recent momentum. We experienced very impressive growth in our all-timers business with first quarter to go comp sales up a strong 31%. To go accounted for 6.5% of total sales at the end of the first quarter, up 150 basis points compared to the same quarter last year. Solid performance by very compelling value propositions including $3.99 All You Can Eat Pancakes mentioned earlier which marked the first time we attached a national price point to this campaign. We sharpened our focus on all aspects of the guest experience and operational improvements which included rolling out a new measurement system and hospitality training platform to be more guest set. Over the past year, we significantly enhanced our marketing strategy with the addition of industry veteran, Brad Haley, as IHOP CMO. Brad joins us from CKE Restaurants where he served as CMO and was responsible for all facets of marketing and public relations for the call junior and Harvey's brains. Additionally, we partnered with Top Tier ad agency, Droga [ph] to launch new and edgy creator. We've implemented more effective and efficient media buying easing steady to our analytics tools. And lastly, as part of our National…

Thanks, Darren. To close, I believe the shifts in our Company's philosophy will have a significant positive impact on further developing a performance based culture. We are a company that believes that community happens when people eat together and Dine Brands nurtures and grows the worlds most loved restaurant brands while united communities have a great food and memorable dining experiences. Our culture will be driven by accountability, transparency, collaboration and innovation while recognizing it's celebrating our franchisees and team members. Our growth strategies for both brands are gaining traction and we are very encouraged by the early results this year. We are laser focused on driving long-term sustainable positive sales and traffic. We know the path of success is a marathon and not always a sprint. I applaud the great work being done by franchisees and team members who execute our strategy everyday. We will continue to leverage the benefit of our highly desirable 100% franchise business model to invest in the long-term success of our brands. We're taking the necessary steps to further strengthen IHOP and Applebee's and position them to built insurmountable leaps in their respective categories. At the corporate level, we are prudently working to improve our balance sheet and we'll score strategically expanding or brand portfolio. So sum us; the outlook for dinning brand is great. We've set high goals for ourselves which I'm very confident we can and will achieve. Now we'll be pleased to open the call for any question you might have. Operator?

[Operator Instructions] And first we have Stephen Anderson from The Maxim Group.

I wanted to ask about your off premise, and more specifically about your delivery strategy. We've got some note from one of your peers talking about how the delivery is actually influencing the same restaurant sales growth and they want into the franchise rather the company-owned versus franchise numbers showing that there is a discrepancy. I think it might be the fact that more concentration of these companies on units in markets. I wanted to ask; in the areas we've want delivery so far -- so first of all I want to see what your penetration is to-date? And what your strategy is with partnering with a third-parties?

Okay. So I'm going to let the [indiscernible] the question. Obviously, deliveries are very important component for us. We are actually focused primarily on takeout. However, we're going to deliver wherever the guest want and if that's through delivery, we can't. Obviously based on the size of our system, we're continually trying to be expand our coverage which is in the 40 plus percentage basis point at this point and we've got relationships with several of the key delivery folks. But let me let the brand talk stuff that their business.

Steve referenced that 40% to 50% of the citizen can access delivery at the moment; so that be your approximate coverage; we have very specific partnerships with Jordache [ph], Amazon. We're astronauts and deliver logic and certainly in dialogue with we've reached 200 and 300 of our restaurants are actively leveraging delivery in a timely incremental; so that would be the context from an Applebee perspective.

I would really echo just what John said, it's essentially the same here. We're testing delivery right now in about 100 restaurants with Amazon [indiscernible] and we do have some franchisees engaging with Uber Eats as well. [Technical Difficulty].

Next we have Michael Gallo from C.L. King.

Good morning, and congratulations on the improved momentum. I guess question for John; John obviously you've had the benefit year-over-year of the additional contributions made to the advertising fund, and certainly, you have a continuation of that here in the second quarter. I was wondering your confidence level -- how you plan to bridge as we get into the second half of the year and beyond as you won't have the benefit of having that increased level of contribution? And what are you doing in terms of incremental franchisee advertising, contribution and national that will help you maintain similar advertising wage [ph]? Thanks.

So we remain very confident to your first point of the question. And then I would assume that there our advertising contribution rate remains the same, we had extensive discussions with our frnachisees and we have some advertising commitments contingent upon performance and therefore I'm not concerned about back half of the year if that's your ultimate question.

And then, I guess John what I think about some of the success you've had -- you've been able to kind of go back to some of the historically successful items such as Riblets [ph], you mentioned you doing a lot more analytics; should we think about from your analysis that there are a lot of other opportunities to perhaps bring back some items that might have some meaningful brand equity, and item like -- obviously, Riblets [ph] which was enormously successful early in the year; should we think about that coming back in different forms and different flavors later in the year? Thanks.

Michael, I think that's accurate. For me Applebee is a bit of reservoir of untapped equity and potential innovation around those equities and I don't believe there are any constraints around what's possible so long as we stay focused on our core guest and don't lose sight of who we are and stand for in everything that we do. So yes, you can expect continued innovation but smart validated innovation -- validated from not only a guest perspective but operations and financial.

Our last question comes from John [ph] from JPMorgan.

According to the notes, I guess the transcript -- I mean, it looks like the first quarter ended a lot softer or so much softer than where it began in the quarter. So hoping that we could talk about kind of inter-quarter comp trend, especially relative to the industry that seem to have done the opposite which has strengthened as the quarter went on. I'm asking this question really in the context of the variability that your LTOs are putting into the business, I mean if that's something that you guys are comfortable with that, the LTOs are doing what they're supposed to in the month of which you're running them or if we can kind of migrate having more permanent platforms and permanent promotions, maybe take some of that volatility out of the business?

I would say that your assessment of the quarter is not that accurate. I would say we are very early within the quarter and I want to talk month by month but we had variability within the quarter but there was no deceleration during the quarter and in fact, based on promotions which we think are highly effective as our driving traffic and riding additional opportunities for our franchises to drive profit. We were very satisfied with the way the quarter played out, both at the beginning and the end. And the momentum that has continued into the second quarter. So I would say that you should look at our progress as being relatively steady and consistent and the momentum continues to build.

But did you begin the quarter with a five -- I mean, wasn't that something that you talked about a couple months ago?

We did it for Applebee's.

Yes, and I'm sorry if that wasn't clear, that's what I was talking about. I apologize; I mean, it was specifically -- my question was 100% related to the Applebee's business.

Obviously, the January results were driven by a very successful LTO in the Riblets [ph] and Blue Moon, and so that was particularly well received. But I would also say to you that as we look at where we are, there is no deceleration but there is variability based on the motion providing and the acceptance of them all of which are positive -- so which are more positive than others, and so I was -- I think I would view rather look at it as January is a really strong month and as we talked about but we're having other strong months as well and we expect to continue to do that based on the promotions.

Plus every tactical event and promotion tends to have a slightly different objective and strategy; I would tell you from a traffic perspective, we're very pleased with our business and our moment throughout the quarter.

And then secondly, I mean you guys obviously are big enough within casual dining and family dining, that you must have a lot of thoughts about the way that kind of the consumer is going to play out over the next year. And certainly in the first quarter there are some very uneven weather and lot of consumers really just starting to see the benefit from taxes and their paycheck maybe in the middle of the first quarter and there could have been some relief rally or some reaction to that but is it kind of possible for you to talk about your overall outlook for branded casual dining -- same-store traffic as we kind of move throughout the next year? I mean, whether your analytics telling you just in terms of the baseline of what your plan is built on?

I don't want to represent the casual dining category but we're all seeing the same thing which is a consumer confidence level that's robust, we're seeing enhanced spending very low on employment -- I think record unemployment. In household incomes increasing which maybe driving some of that; so it may be a bit early to flag a tailwind in the category but certainly from my perspective it has improved which may bode well for the future but it's a little early to call that.

I'd add on those comments as well and I'd still say from a family dining perspective, we still view this as a market share of situation where consumers hold it in a little bit better shape and so they have some more money. But we're still having to take traffic and incremental business from our nearing competitors to compete; so we told you this as highly competitive environment and we're going to take share for our competitors.

And then the final question; I know before we had talked about 300 basis points potentially coming from the PwC work in another place that have 200 to 300 basis points coming from the PwC work. And I think some of the comments on this call be related to the run rate in fiscal '18 perhaps equaling 100 basis points from the PwC work. One, just wanted to get a sense of kind of what the end game is, you know, others margin savings at the PwC work will deliver franchisees? And then secondly, how much of that cost savings do you think will be reinvested in some way back in the system whether few portions or less pricing or labor or what have you?

Insightful question; so franchisees, the 33 or so that we have in the Applebee system are very enthusiastic at this. So this is a profit optimization initiative, it's a multi-year journey having had experience with other brands, in particular, with PwC. You're right that on an annualized basis, a 100 basis points at Applebee's will -- on an annualized basis be captured in '18. And then I would expect that ultimately the big bold goal is -- and most of that by the way would be in food related initiatives but some of this would lead into labor and 200 plus basis points perhaps 300 would not be an unrealistic objective overtime.

We have the same initiatives going with PwC and similarly we see opportunities in both food and labor. The run rate is really contingent on the ability to capture this stuff and then at various times in the year you actually start to realize the savings on an annualized run rate. But it kind of begins at different points throughout the year and so that run rate will start to build overtime as these opportunities are brought to fruition.

And that concludes our question-and-answer session.

Well, thank you again for your time today. We are scheduled to report results for the second quarter on August 1. And we'll look forward to speaking with you then. Have a good day.