Welcome to the First Quarter 2019 Dine Brands Global Earnings Conference Call. My name is Paulette and I will be your Operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Ken Diptee, Executive Director of Investor Relations. You may begin.

Thank you. Good morning and welcome to Dine Brands first quarter conference call. I'm joined by Steve Joyce, CEO; Tom Song, CFO; 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 are 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 make reference to certain non-GAAP financial measures, which are described in our press release and also available on our website. With that, I'll turn the call over to Steve.

Thanks, Ken; good morning, everyone. Following very strong results for fiscal year 2018, Dine Brands started the year with a very impressive first quarter. Our performance reflects taking a long-term approach to managing the business and focusing on growth drivers that deliver sustainable positive results through industry and economic fluctuations. We've implemented multi-pronged strategies at both Applebee's and IHOP that essentially address every aspect of the guest experience, which includes how our guests engage with the brands, meeting their convenience needs either in our restaurants or off-premises as well as meeting their culinary expectations through innovation. Our holistic strategy has provided a solid foundation to drive positive performance and has led to marked improvement in results for both Applebee's and IHOP. With that, I'm pleased to report continued comp sales growth at both brands in the first quarter of 2019. Applebee's posted its sixth consecutive quarter of comp sales growth, and IHOP posted its fifth. I'd also like to highlight that both brands achieved comp sales growth despite industry headwinds in February, which had an adverse impact on the overall industry traffic. John and Darren are going to provide updates on the strategies being implemented at their respective brands a little bit later. Now let's switch gears to the corporate level. Our work to restore growth at both brands has led to continued improvement in our core business as reflected in robust first quarter adjusted EPS of $1.90, which compares very favorably to $1.11 in the first quarter of last year. In the first quarter, we experienced positive results in several key metrics. Franchise segment gross profit increased by approximately 21% in the first quarter of 2019 compared to the same quarter last year. Total revenues, excluding advertising revenues were up 32% compared to the first quarter of 2018. Combined…

Thank you, Steve. Good morning, everyone. Our solid first quarter results reflect the continued positive performance of our two category-leading brands and a sharpened focus on elevating the guest experience through investments in guest-facing technology, culinary innovation and operations excellence in our restaurants. With the performance-based culture we have developed at Dine and our analytic approach to decision making, we believe our trajectory is sustainable over the long-term. Now, let's turn to a brief recap of the first-quarter highlights starting with the notable changes on the income statement. For the first quarter of 2019, adjusted EPS was $1.90 compared to $1.11 for the same quarter of 2018. The 71% increase was primarily due to higher gross profit, since the $13.5 million franchise wide contribution made to the Applebee's national advertising fund in the first quarter of 2018 did not recur this year. Additionally, the operations 69 company-operated Applebee's restaurants, which we acquired last December, favorably impacted gross profit by $4.2 million, partially offset by approximately $1.4 million in foregone royalties. I'd like to highlight four drivers that are also contributing to the significant increase in franchise operations gross profit. Applebee's franchise fee revenue in the first quarter of 2019 increased by approximately 6% compared to the same quarter a year ago, primarily due to the improvement in collections, as a direct result of a much healthier franchisee base. IHOP franchise revenue grew by 4% in the first quarter compared to the same quarter of 2018, primarily due to higher sales of product mix and an increase in effective franchise restaurants as the result of net restaurant development over the previous 12 months. And both brands benefitted from the strong comp performance over the past year. Regarding total franchise operations expenses, the overall decline was due to both the lack of…

Thanks, Tom, and good morning everyone. Applebee's momentum continued in Q1 as we posted our sixth consecutive quarter of positive comp sales growth. We delivered a plus 1.8% comp sales performance in Q1 on top of last year's plus 3.3% performance resulting in very healthy two-year comp sales of plus 5.1% for the quarter. The full quarter reflects strong January and March results with a challenging February sandwiched in between. As we look back, it's clear that February was an anomaly within the quarter, largely due to unfavorable weather and absence of an overt value proposition, which we did have in January with all-you-can-eat and in March with three-course meal. As with each of the past six quarters according to Black Box, Applebee's has outperformed the casual dining category on comp sales. This is particularly noteworthy in Q1 as we're lapping a plus 3.3 totalfrom a year ago, while the category excluding Applebee's was lapping a relatively easy minus 0.4. Yet we still outperformed the CDR category by 115 basis points. Now on the asset front, we're winding down our 3-year strategy of closing underperforming restaurants as we expect about 20 to 30 closures in 2019 with most of those being domestic. For context, we had four closures in the U.S. in Q1. This is very good news for the brand as we transition to a predictable closure rate of approximately 1% annually beginning next year. Additionally, in Q1, our top three comp sales performers are the newest entities within the Applebee's system including our recently acquired company restaurants in North and South Carolina. With only four months under our belt, we're very pleased with our results and the progress we've made to date. We're proud of the fact that we've retained 92 of 96 general managers and 100% of…

All right, thank you John. Good morning everyone. I'm pleased to report that IHOP's comp sales for the first quarter rose 1.2%. This marks the fifth consecutive quarter that IHOP posted positive sales growth and outperformed the family dining category based on comp sales according to Black Box data by over 150 basis points. Our off-premise business continues to be a solid contributor to IHOP's sales growth. Off-premise comp sales in the first quarter increased by a healthy 54% and off-premise traffic increased by approximately 40%. By comparison off-premise comp sales and traffic growth were approximately 31% and 22% respectively for the first quarter of 2018. We've implemented a fully integrated online ordering system through our enhanced website and IHOP's mobile app to create a complete omnichannel experience for our guests and additional touchpoints for the brand. The implementation of guest-facing technology has enabled us to grow our off-premise business to 9% of total sales up from 5% in the first quarter of 2018. We believe to-go can increase to the low teens as a percentage of total sales over the next few years. IHOP's first-quarter sales growth reflects the execution of our comprehensive strategy underpinned by four key pillars. We believe our overall performance was adversely impacted by the unfavorable impact of Easter shifting into the second quarter of this year. Turning to the four key pillars of our broad-based strategy, these encompass reinventing the guest experience, running great restaurants, driving traffic and being where the guest is. Regarding the first pillar of reinventing the guest experience, we know that IHOP's Rise N' Shine remodel program plays a big part in influencing perceptions of the brand. The remodel program has helped to successfully reshape the consumer experience with a layout that feels more welcoming and appealing. Our franchisees completed…

Okay. Thanks, Darren. To recap, we started the year with a solid quarter highlighted by significant improvement in our core business. We're enthusiastic about the remainder of 2019 as we continue to execute against our multi-pronged strategy, which has delivered positive results and positioned us for long-term success. Now, with that, we'd be pleased to open the call for questions. Operator?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Brian Vaccaro from Raymond James. Please go ahead.

Thank you and good morning. Just wanted to revisit the comp cadence at Applebee's, if we could. And I think February was slower, I'd assume due to the weather and lacking the value promo that you mentioned, John. But I guess outside of weather, how do you view the underlying trend in the business, was March similar to January? Can you give any perspective there? Has the promotions performed versus expectations? And then were there any advertising mismatches that might have had an impact on the quarter?

Hey, Brian this is John. The promotions absolutely performed as expected. We kicked off the year with all you can eat a combination of proteins. As I mentioned, February was probably a bit self-inflicted and that we didn't have an overt value proposition in place and certainly had the impact that many have experienced in February from a weather perspective. And then March three course meal very successful so pleased with the quarter. It was a bit of an up and down ride so to speak, but we're pleased with the result and the outcome. Our franchisees are very pleased with that quarter.

Okay. And on Easter, could you quantify the impact that that had at IHOP and was there any impact one way or the other at Applebee's?

Yeah, Brian this is Darren. Yeah, we quantify that Easter mismatch impact is about 40 basis points on our overall comp sales.

And Brian from an Applebee's perspective, we wouldn't see perhaps the same impact that IHOP would see from a quarter-to-quarter basis in terms of Easter.

Okay. And on the guidance, I just wanted to confirm that that includes reiterating your comp guidance for each brand. And if that's the case, could you walk through the primary sales drivers either product or technology or just the primary sales drivers that you see having an impact as you move through 2019 at Applebee's? And perhaps give an update on what you're seeing quarter-to-date at each brand?

Brian this is John. We will continue our multi-pronged strategy, so our culinary innovation with a keen emphasis on abundant value is of primary importance to us. We have some significant innovations coming soon here within the brand. Our beverage program activation will continue on a monthly basis, and then of course our off-premise business. And probably the one item we're most proud of is franchisee execution at the restaurant level. I mentioned a year, year and a half ago the amount of variability we had in the system. That's tightened significantly. We've refined our portfolio and in effect have removed the bottom 10% of the system. We've closed underperforming restaurants and our franchise partners today are achieving again on overall satisfaction and value for the money all-time high scores. So those are the fundamental components that will drive results. We're in a far better position than we have been for three years quite frankly.

Yeah, Brian on the IHOP side, we're really looking at some culinary innovation and platform news that will be layered in throughout the year. We feel very good about that. We'll continue to drive our off-premise business, we had really solid comps in this last quarter, plus 50%. We may not be able to maintain a plus 50 but we expect it to be very strong throughout the balance of the year. And then getting further into our CRM platform with MyHop, we believe will be a contributor as well. So, between those three we expect to be well within our guidance range for the year.

Okay. And any comments on quarter-to-date directionally? Are you maintaining a positive gap to the industry? Any color there?

We feel good about where we are, but we really don't want to get too granular on quarter-to-date performance.

All right. I'll pass it along.

Thanks Brian.

Thank you.

Our next question comes from Nick Setyan from Wedbush Securities. Please go ahead.

Thank you. When you talk about the operating initiatives at franchisees and the 100 basis point or so target there, can you maybe talk about some of the details around what those initiatives are and where those 100 basis points are sort of coming from?

Sure Nick. I won't provide too much color, but suffice it to say -- this is John. On Applebee's front, the -- we're well on track to achieve our 100 basis points. As I mentioned, some of that will be reinvested back into the business in particular on the menu front. The vast majority of those savings are leveraging scale and come in the form of menu. And a portion of those we're beginning to move into the labor front which we hadn't tackled previously. So, primarily food secondarily labor. These are what I would categorize as low-hanging fruit opportunities and in some cases, these are opportunities where we actually improve quality and reduce cost. We do this in partnership with our supply chain organization and our franchisees and it's a distinct competitive advantage. It's something I you know fundamentally believe smaller brands would have a difficult time even attempting. It requires discipline and you're seeing it from both brands here.

In terms of the EBITDA guidance in range, can you maybe give us some idea of what the variability there is with respect to if the comp isn't within the guidance range, is there some leeway there to still get to EBITDA targets for the year?

Nick this is Tom. I think you're seeing that reflected in Q1 with respect to both you know when the comps fall out of that range, but earnings flow through is still very, very strong. I think it reflects our franchise business model. And frankly let's not forget that we do have a small portion of the business which we recently acquired. That business was performing very strong and contributed to both gross profit and obviously the EBITDA line as well.

And I know you don't want to really comment around April trends, but at least directionally, does April play a meaningful part in your reiterated guidance?

Yes, we haven't seen anything that would warrant a change in that guidance. Does that answer your question?

Yes. Thanks very much. Appreciate it.

Our next question comes from Stephen Anderson from The Maxim Group. Please go ahead.

Yes, good morning. I just wanted to maybe ask if I can dig a little deeper into the comps. You're looking at trends. I wanted to see if you saw any regional differences. Also wanted to ask if there were any shifts where you saw more strength on weekends versus weekdays. And maybe throw a little color also on the off-premise trends within that. Thank you.

Sure, this is Darren. I'll go ahead and start. Yes, I would say from a geographic difference, we saw the biggest drag on our comps in the Midwest and we would attribute that to weather. And that was -- when we modeled that out as a total impact on our overall comp sales, it was about 80 basis points overall, but the Midwest in particular was hit the hardest. That obviously slowed us down both in restaurant and with off-premise to a certain extent. But I think off-premise was able to help offset that to a certain extent, so it probably would have been worse had we not had this strong foundation with our meals-to-go program.

And Stephen on the Applebee's side really haven't seen any distinction between weekday and weekend. They have both performed well for the brand which is something that we had worked at. And then similar to what Darren outlined for IHOP on the Applebee's front the Midwest in the month of February in particular is where we saw the kind of geographic disparity. Secondarily, I'd say the Northeast and that again concentrated in the month of February.

Thank you.

And we have no further questions. I will now turn the call over to Steve Joyce for closing comments.

Thank you. So, we are very pleased obviously with the quarter we had. We appreciate your time today. We're scheduled to report results for the second quarter on July 31st and we look forward to talking to you about progress then. Have a great day.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating and you may now disconnect.