Good day, and thank you for standing by. Welcome to Dine Brands' Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Matt Lee, Senior Vice President of Finance and Investor Relations. Sir, you may begin.

Good morning, and welcome to Dine Brands Global's third quarter conference call. This morning's call will include prepared remarks from John Peyton, CEO and President of Applebee's; and Vance Chang, CFO. Following those prepared remarks, Lawrence Kim, President of IHOP, will also be available, along with John and Vance to address questions from the investment community during the Q&A portion of the call. Please remember our safe harbor regarding forward-looking information. During the call, management will 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 we assume no obligation to update or supplement these statements. We will refer to certain non-GAAP financial measures, which are described in our press release and available on Dine Brands' Investor Relations website. With that, it is my pleasure to turn the call over to Dine Brands' CEO, John Peyton.

Good morning, everyone. Thanks for joining us today. As usual, I'll start with an overview of Dine's Q3 performance and key brand updates and then turn it over to Vance, who will discuss our financial results in more detail. Afterwards, I'm going to spend some extra time before the Q&A to share more details about our dual brand program, how it's unlocking a new lever to grow and ultimately, why we're putting our money behind it. Vance will then cover our capital allocation priorities and how our asset-light model is designed to create long-term shareholder value. Now to provide an overview of the third quarter and trends we've seen in consumer behavior. In Q3, we sustained the sales and traffic momentum from Q2, driven by new menu innovation and targeted marketing campaigns. While we continue to operate in a competitive environment, Applebee's and IHOP held their ground, underscoring the strength and relevance of our brands as guests continue to seek value, variety, and an exceptional dining experience. These are the same expectations that have been driving consumer behavior throughout the year. While spending patterns remained relatively consistent, we're observing slightly higher macroeconomic anxiety, leading to more intentional decision-making, where every dollar spent must feel justified across the entire dining experience. Guests continue to manage their check by trading down to lower price for value items on our menus. IHOP's value mix remained at about 19%, while Applebee's value mix slightly increased to about 30% in Q3. Despite the industry headwinds, our focus on everyday value platforms, operational simplification and high-impact guest-centric marketing is delivering results. Lastly, I'll add that we recently completed our annual franchisee conferences that included participation from the leaders of each of our franchisee councils. And across all 3 of our brands, the biggest takeaway is that…

Thanks, John. On the top line, consolidated total revenues increased 10.8% to $216.2 million in Q3 versus $195 million in the prior year, primarily driven by an increase in company restaurant sales, offset by a decrease in franchise revenues. Our total franchise revenues decreased 3% to $161.3 million compared to $166.4 million for the same quarter of 2024. Excluding advertising revenues, franchise revenues decreased 3.6%. Rental segment revenues for the third quarter of 2025 decreased $1 million compared to the same quarter of 2024, primarily due to lease terminations. G&A expenses were $50.2 million in Q3 of 2025, up from $45.4 million in the same period of last year, primarily due to compensation-related expenses and an increase in travel and conference expenses. Adjusted EBITDA for Q3 of 2025 decreased to $49 million from $61.9 million in Q3 of 2024. Adjusted diluted EPS for the third quarter of 2025 was $0.73 compared to adjusted diluted EPS of $1.44 for the third quarter of 2024. Now turning to the statement of cash flows. We had adjusted free cash flow of $68.2 million for the first 9 months of 2025 compared to $77.8 million for the same period of last year, driven by an increase in additions to property and equipment, primarily related to CapEx investments in our company-owned restaurants. Cash provided by operations at the end of the third quarter of 2025 was $83.3 million compared to cash provided from operations of $77.7 million for the same period of 2024. The increase was primarily due to a favorable change in working capital due to the timing of federal tax payments postponed due to wildfire relief and of interest payments postponed in connection with our June 2025 debt refinancing, offset by the decrease in segment profit and higher G&A expenses. CapEx through Q3…

Thank you, Vance. Now I know we've talked about our dual brand strategy before, but today, I'd like to provide more insight into the opportunity we see, what it is, why it's unique and why we and our franchisees are excited about it. We've done extensive research into how exactly dual brands fit into our long-term growth without cannibalizing the independent growth trajectories of the individual brands. The results, as I'll walk through today, are compelling. To start, we are the only franchisor with 2 iconic full-service brands that serve guests across all dayparts, IHOP in the earlier hours of the day and Applebee's in the later hours. Our thesis is that combining these 2 complementary daypart brands into 1 dual-branded restaurant will drive higher sales and create efficiency, resulting in increased profits for our franchisees and growth for Dine through higher system sales and unit growth. After an early prototype in Detroit, we began testing this idea in earnest internationally 2 years ago. And since then, we've opened 20 international dual-branded restaurants that have proved our thesis. These restaurants are delivering 1.5x in sales versus single branded restaurants and are generating significant incremental margin. This year, we're on our way to doubling our international dual-branded restaurant count to 40. With these compelling results, we brought this concept to the U.S. in February. For those who haven't yet had a chance to see it from the exterior, both brands are prominently displayed around the building, and there is one shared entrance. Inside, the aesthetics and seating for each brand are represented in different sections, one being Applebee's iconic red and the other is IHOP's iconic blue. The guest can choose to sit on either side and is presented with one menu organized by daypart that has been simplified to include…

Thanks, John. Given that we are one of the largest franchisors in the full-service restaurant segment, our asset-light model generates best-in-class return on invested capital and margins. We take a disciplined approach to capital allocation to drive shareholder value, focusing on 3 key priorities: organic investments, balance sheet management, and returning capital to shareholders. This financial strength gives us the flexibility to invest in our brands, our company-owned restaurant portfolio and development pipeline while also returning meaningful capital to our shareholders, something we have consistently done over the past several decades, and that will not change. Current time, however, we believe our stock price is currently undervalued, which represents a unique opportunity to be more aggressive with share repurchases to create long-term shareholder value. As a result, the Board has declared the reduction of our dividend from $0.51 per share per quarter to $0.19 per share per quarter, which would imply an annual dividend yield of approximately 3% based on today's stock price. This will continue to generate one of the highest yields amongst our peers. We allocate our capital towards a larger share repurchase program. We will commit to buy back at least $50 million of shares over the next 2 quarters, which will represent a share reduction of approximately 11% to 13% at the current price. This is on top of the approximately 8.5% shares that we have repurchased year-to-date, which would total a nearly 20% reduction in shares versus the beginning of 2025. We're maintaining our current investments into the franchise system either as an ongoing or as needed basis, such as our Applebee's good remodel incentives or IHOP franchisee egg subsidy earlier this year. I want to reiterate that the dividend reduction, increased share repurchases and investments into our business are proactive changes we're making to our shareholder return strategy to drive increased shareholder value. It demonstrates confidence in our plan and our principal view that the stock is undervalued, affirming the Board's alignment with investors. With the momentum that we continue to see in the business and the alignment and shared excitement from our franchisees, now is the right time to be aggressive in investing in our own stock. I will now pass it back to John to close.

Thank you, Vance. I'll end the call by summarizing our key initiatives that will create long-term value for our shareholders. At the brand level, our focus is on menu innovation, high-impact marketing and social media, simplified operations, and enhanced guest experience. In terms of development, we will drive unit growth by capitalizing on our dual-branded opportunity, continuing to open single branded restaurants, especially at IHOP, which has for over a decade, consistently opened double-digit restaurants every year and introducing a new lower-cost Applebee's prototype. And last, we will remain prudent with our capital allocation and accelerate share buybacks to take advantage of a significant discount in our valuation, which we believe will be highly accretive to our shareholders. Now with that, we'll turn the call back to the operator and open up the line for Q&A.

[Operator instructions] Our first question comes from the line of Eric Gonzalez with KeyBanc.

Congrats on the positive traffic in both brands. I want to ask about the company-owned stores. You had a decent sized loss, maybe $4 million or $5 million in the quarter. I recognize we had some catch-up expenses in repair and maintenance and training and remodels, et cetera. But do you have a sense of how much of a drag we should expect from these stores going forward and maybe when you kind of -- when that maybe goes away?

Thanks, Eric. Vance can address that question.

Good morning, Eric. Just to give you a little bit more context on the sort of the disruption. So year-to-date, we had close to 50 restaurants without liquor license for 30-plus weeks per restaurant. And then on the construction side, year-to-date, we had approximately 500 days of construction closures across 30-plus restaurants or if you do the average math of roughly 15 days of closure per restaurant So that's what happened year-to-date. I point that out to let you know that although that's noise and the headwinds this year, we're comping -- by and large, those factors won't be there next year, right? So it's a onetime investment that we're making to improve the restaurants. For this year, we're expecting roughly $9 million to $10 million of segment profit hit from the company restaurants to answer your question specifically. And then that includes about $2 million of D&A. So hopefully, that helps.

Then maybe just a question on the IHOP side. Again, congrats on the positive traffic. But the overall comps they were down a little bit. So just wondering, you're leaning pretty heavily on value. What are you doing to address the check side? And do you think you can get that mix up in the quarters ahead?

Thanks, Eric. Lawrence will take that.

Eric, so as I shared probably in earlier calls or earnings calls, we have a 3-pronged approach when it came to driving transactions and traffic. The first was, of course, launching the value platform, which we did last October. And actually, we've now evolved, as John shared earlier, where we launched an everyday value menu this past September. So we're continuing to drive that transaction. And as John shared, we've continued to do so since the beginning of this year. But to your question, in regards to check and overall sales, the third phase of it is actually balancing the value and the transaction growth from that with our barbell strategy to drive check. And so we're doing that in multiple ways from upsell strategies with our tablets and our servers, but of course, also featuring some premium priced items such as our premium priced pancakes, like our pumping spice and our coffee cakes pancakes in addition to combo features, which are primarily displayed in our restaurants with POP, like our recent breakfast, which performed really well last year. So we brought them back this past September a few weeks ago as well. So this is helping to already drive our check balance, improve check flow and overall profitability for our restaurants, and we're going to continue to drive this as we drive value in the next quarter.

Eric, it's John. I would just add one more point to what Lawrence said, which is since they moved into Phase 3, which is driving the barbell strategy and featuring the higher-priced items in the restaurants, the incidence of the value was 25% of checks weekdays. And since they started this new program, it's fallen to 15%. So we're seeing a good response to the program to upsell once they're in the restaurant.

Great. Maybe just the last one for me. I think you said 3Q momentum sustained. Did you talk about fourth quarter at all yet? I think you said momentum sustained, but I couldn't tell if that was either an Applebee's and IHOP comment or both.

Vance?

Eric, so what we're seeing is that the sales volume for Applebee's really sustained from Q3 into Q4, and then it's accelerated for IHOP from Q3 into Q4.

Our next question comes from the line of Dennis Geiger with UBS.

Encouraging to hear some of the insights there on the dual-branded concepts. I appreciate that. And what sounds like good franchisee demand. Could we unpack a little more the franchisee demand? Are there certain characteristics for those that have kind of signed up already for the dual-branded box? And then maybe what are the biggest hurdles that you're finding from those that you feel should but aren't yet? Do they just want to see the proof point? Anything on that, John, would be great.

Yes. Sure, Dennis. Happy to talk about that. So in terms of franchisee demand, I would characterize the initial wave of dual brand restaurants as, #1, conversions versus new build, which makes sense. #2, more IHOPs than Applebee's. And we attribute that to the fact that Applebee's -- I'm sorry, that IHOP is currently open for dinner, right? And dinner has always been a challenge for that brand. So to add an Applebee's solves an existing challenge for that brand. For Applebee's, they're not open for breakfast. So they're not trying to "fix an issue". And so it's a different decision for an Applebee's to add the IHOP and grow the revenue. What we're seeing now in what I would call sort of Phase 2 as we move toward a robust pipeline of at least 50 for next year is we're seeing our Applebee's franchisees begin to explore 1 or 2 opportunities among the more major franchisees. In terms of the hurdles, I think it's less about the franchisee and more about what we're learning as we go. So for example, we're learning that IHOP franchisees who don't typically have bar experience, we need to give them extra training and support to run a really great bar, which is a key element of an Applebee's. And so we're learning things like that along the way, which is the kind of things we expected to learn and that we can address with our training and our coaching.

Then one more, if I could. Just more broadly, I guess, you touched on it some, but in thinking about franchisee sentiment more broadly in this environment that we're in, you touched on the commodities piece. Just if you could touch on that, both across Applebee's as well as IHOP right now. And maybe just tying broader new open demand in and how you're kind of thinking about net growth maybe longer term, if there's anything to share there across either closures as well as gross opens, would appreciate anything there.

We're not putting a firm date or time line on net unit growth, Dennis, but we're getting close. That's for sure. What we like about our program now is we have multiple products and almost a product to fit every situation. So to develop a single unit IHOP, which we've been doing 30 to 40 a year for the last several years, 80% of those are conversions. So IHOP is a great conversion brand and a good solution for opportunities to repurpose buildings. As I mentioned, Applebee's, we've got a new prototype that takes about $1 million in cost out of it for a much better return, and we're going to build one of those next year to prove that out. On the international side, same thing. We've been opening about 40 restaurants a year consistently, increasingly dual-branded restaurants there. And now we have the dual brand concept here in the U.S. And each market is unique and each solution has to make sense for that market. But the dual brand is giving us a catalyst to get back to net unit growth sooner rather than later.

Dennis, this is Vance. One more point I would add is that even without net development growth, just the context is that the closures that we've had are obviously lower AUV boxes, right? So they're averaging sort of 1.2, low 1s. And then the new restaurants we're opening are $1.8 million, $2 million. So it's not a 1:1 ratio, even though the net development number, as you pointed out, has not been positive. So I just want to make sure that point is clear.

Our next question comes from the line of Jeffrey Bernstein with Barclays.

First question is just on the broader consumer backdrop, hearing from lots of restaurants as they look at their data. More and more companies, I guess, have data on the age of their consumer, the income level, the ethnicity, and there's been seemingly a big change in trend in recent quarters. I'm wondering, one, whether you have any degree of data on any of those cohorts and whether you've noticed any change in trend among any of those for better or for worse? And then I had a follow-up.

Yes. Sure, Jeff, it's John. I can take that and speak to both brands because our observations are consistent with both IHOP and Applebee's. We're seeing a slight shift in the guest mix this quarter. We've had more higher-income guests joining us than lower income guests leaving us, which is what's -- the net of that is what's driving our traffic growth. So that is good news. The 2 cohorts that we're seeing who are most price sensitive right now are the lower-income guests and Gen Z. They're dining out less than they have in the past. But all of our guests, that being said, are hyper focused on value, and that hasn't changed all year or for last year as well. And that's our plans for the future as we think that that focus on value is what's going to be on consumers' minds throughout the rest of this year and into next. And that's why we believe the everyday value program at IHOP and the Super 25 program enhanced at Applebee's is driving our traffic right now because it's the match that consumers are looking for.

Then just following up on that value mix. I think you kicked off your commentary by saying Applebee's was at 30% mix depending on the way you define it. But you said that was up modestly. So just curious what that was up from. And IHOP at 19%, I think you said was unchanged, which was surprising considering the negative check, which seems significant. So just wondering how to kind of balance the significant negative check with no increase in their value sales mix.

So Applebee's is at 30%, which is pretty close to where it's been. It's been 28%, 29% last quarter. So consider that about flat. We define value. We calculate that as the 2 for 25 menu plus LTOs. So any incidence of those as a ticket is about 1/3, 30% of what we see. At IHOP, just to clarify, the value mix grew to 19%. It wasn't down. It grew to 19% during the quarter because of the rollout of House Faves and then turning that into everyday value. So it grew to 19%, and we expect that 19% to be a little bit higher next quarter because we're going to 7 days a week, and that only happened the last 2 weeks of the quarter.

It grew to 19% from what was the number that you most recently talked about?

Last quarter, I'm going from memory.

It was like 18.9% to 19.1%, slight increase.

But pre-everyday, pre-House Faves, it was more like 10%, right before we introduced.

Yes, yes, about low to mid-teens last year is where we're averaging.

Just lastly, just to clarify, you said the dual brands that there would be 30 open or under construction by year-end this year. So I'm just curious how many actually you think would be open by the end of this year? And then you said something about 50 for next year. I wasn't sure if that's just the cumulative total number or whether that's incremental openings. So just trying to get a sense for how many actually will be open end of this year and how many in total will be open end of next year.

So it's 30 plus 50 for a total of 80. And in terms of this year, the vast majority of that 30 will be open. But as you know, sometimes opening dates slip from December to January. So not giving a precise number, but the openings will be much closer to 30 than not.

Our next question comes from the line of Brian Vaccaro with Raymond James.

I just had a quick question on the guidance, Vance. I just wanted to confirm, has there been any change to your previously communicated comp guide at either Applebee's or IHOP or any change to your unit growth expectations that you gave us in the second quarter?

No, those are staying the same. No change to guidance, yes.

I guess I heard some of your comments about how IHOP has accelerated and Applebee's seems to be holding in. I guess if I do the quick math on Applebee's, and I think my notes are right on this, but I think your previous guide on comp was down 2% to up 1% at Applebee's, if I have my notes correct. So that would embed, I think -- go ahead, sorry. Basically trying to get at what is -- yes, what's a reasonable expectation for 4Q on comps, just to level set, because we didn't have the guide in the release.

Yes. The Applebee's guidance, we actually bumped it up from positive 1% to positive 3%. So that didn't change. We changed that last quarter. And then for IHOP it's negative 1% to positive 1%, and we didn't change that either. So that implies a sort of a decent Q4 for Applebee's and a strong Q4 for IHOP.

Great. You also obviously highlighted the traffic being positive at both brands. Could you firm up just the comp components within that sort of where average check was versus traffic for each brand in Q3?

Yes. So for Q3, I think our check -- so let's see. So traffic was positive for both brands. We have negative P mix for IHOP and sort of flat P mix -- no, actually negative P mix for Applebee's as well. And then about 2-ish percent menu price increase. So that kind of gives you the rough breakdown.

Great. Then last one for me. You talked about the Applebee's remodel program with over 100 planned for this year, I think you said. I'm just curious how you see that potentially accelerating into '26 and beyond? What sort of a reasonable rate on remodels might be?

Yes, Brian, it's John for that question. Yes, we said over 100 this year, and we expect to do at least that number next year, if not more. And our goal is to have 2/3 of the portfolio renovated by the end of '27.

Our next question comes from the line of Nick Setyan with Mizuho.

Just on the remodels, I'm not sure if I missed this, but did you say the kind of lift you're seeing?

Nick, it's John. Welcome back. We're glad you're here. Vance will take that question.

Nick, so it's obviously early days, right? A lot of the restaurants that's been remodeled are pretty new, but we're -- franchisees are very happy with what they're seeing. And from company restaurants, the ones that we've done, we're seeing sort of double-digit lifts for our own portfolio. Now again, one caveat is early. Two is that I think the starting point for our restaurants are a little bit lower than system average. So I'm not underwriting that sort of lift for the entire portfolio. But so far, we're very encouraged by what we're seeing as well as the franchisees.

Vance, it's fair to say that -- I'm sorry, Nick, it's fair to say that the franchisees that have renovated recently following the renovation package that we have are seeing lifts that more than cover the cost. The return is good.

Definitely.

Thank you for the kind words, John. It's good to be back.

Yeah, good to have you back, Nick.

You've had a couple quarters to think about it.

Well, I mean 4x on the deal conversion, that's a great number. In terms of just the number of like actual conversions, where it gives you confidence that that kind of lift is possible, is that something that we can commit to? Or is that also kind of too early and the numbers of conversions are too small to really be able to project that out?

Well, we can't speculate on forward-looking data, right? And we can't make a firm commitment. All we can do is report on what we've seen so far. What we've seen so far in the close to 40 international dual brands is a 1.5x improvement in revenue or more. And what we're seeing here in the 15 or so that are open in the U.S., we're seeing a range of 1.5 to 2.5 in sales lifts. But again, it's a sample set of 15 in the U.S.

Then just in terms of pricing and how we're thinking about just menu price versus mix going into 2026. Is there any kind of early indication you can give us in terms of what we can think of as the right price number in 2026 for both brands?

Vance can provide an update there.

Nick, as you're seeing and as we're seeing sort of with menu pricing right now, we're -- both sets of franchisees are in the low -- around low middle -- low single-digit range, which we do expect that to be the case going forward, given the fact that commodity costs have sort of come under control, egg pricing is still elevated, but it's come under control and it's getting better. So that's what we're expecting. Now obviously, the disclaimer we always have is that we don't control pricing. So it's the franchisees that said this. But there's -- we're not anticipating any outsized menu pricing for next year though, having said that.

[Operator Instructions] Our next question comes from the line of Todd Brooks with The Benchmark Company.

Vance, I wanted to start off with the capital allocation update and just walk me through why we needed to cut the dividend to fund the $50 million in share repurchase. Is there a third component around additional franchise keeping firepower dry for additional franchisee location acquisitions. I think you guys said you'd be willing to take that portfolio up to maybe a couple of hundred at a premium? Or just kind of walk me through why one lever had to be pulled to accomplish the share repurchase.

Sure, Todd. So first of all, our dividend yield implies a dividend yield of approximately 3%, as we said, and it's still one of the highest amongst our peers, right? And second, our asset-light model really generates healthy free cash flow. So it allows us to return meaningful capital to shareholders consistently, and that's not going to change. So it has nothing to do with cash flow or ability concerns on that matter. Lastly, the goal -- to hit your point, the goal is always for us to deliver strong returns to shareholders. Currently, given how undervalued the stock is, right, especially given what we're seeing with the momentum with our business, the best way to increase TSR over time is through buybacks. And while we invest in company restaurants and franchisee restaurant remodeling and development. So we just think at this point in time, this is the most efficient way to increase shareholder return over time.

So price dependent, obviously, but this -- you signed up for the 2-quarter commitment, but it sounds like share repurchase is a bigger component of returning capital to shareholders going forward?

Price dependent, but that's a fair statement, price dependent, yes.

Great. Then I wanted to ask Lawrence about with House Faves expanding to 7 days a week, how has the brand been able to handle that operationally? I know that typically, those weekend periods are peak periods for IHOP to begin with. Now you're bringing potentially a value-seeking customer to try to get to the box during those peak periods as well. How are the units handling it? And is there an efficiency gain to happen as we get more than 6 weeks into having the menu available 7 days a week?

Yes. So thanks for the question, Todd. One thing that we're very methodical about is ensuring our franchisees and our restaurants are equipped to handle any new type of promotion and especially when it comes to something like an everyday value menu. So we tested this across several months and across different markets to ensure not just is it a transaction and traffic driving, but also profitable program for the franchisees. And also, that ties to your question, which is the operational capabilities. So the main focus of our value platform, in particular, is leveraging core items. So I cook a lot in the restaurants and it's back with the cooks and the chefs back there. And we want to make sure they focus on our core items, pancakes, eggs, bacon, omelets, items that from a speed standpoint, could be managed thoroughly and have no impact whatsoever in terms of speed. And so that's why, as John alluded earlier, our speed has actually improved continuously even with the everyday value menu because we've optimized it based on our core. And so from a cooking standpoint, they're just masters at the trade there.

Just a follow-up there, Lawrence. If customers were coming anyway on the weekend and the House Faves is focused around core items, that kind of transference into the value bucket, is that greater on the weekends at peak periods? Is it less? Is it pretty consistent with what you've seen during the week?

It's still early as we've only been in the everyday value menu launch since mid-September. And so we're continuously tracking. But even throughout the test data as we did it for several months, it stayed fairly consistent. Actually, with the barbell strategy, we are seeing potentially value increasing on the weekends, but the check counter, which is our barbell strategy, introducing new premium items and featuring them on the table with POP and even with the menu inserts, we're seeing a good balance in terms of check growth, even including on weekends.

Ladies and gentlemen, I'm showing no further questions at this time. I would now like to turn the call back to John Peyton, Dine Brands' CEO, for closing remarks.

Thanks, Towanda, for taking such good care of us, as you always do. And thanks, guys, for your questions. I'll just sum up with a few key points. We know we've got more work to do, but we are pleased with the effects of the retooling and the refocus that both brands have put in place. We're pleased with the performance from the last 2 quarters. We're pleased with the potential that dual brands is posing to accelerate our return to net unit growth. As Vance mentioned, our stock is undervalued in our opinion, and we are directing our shareholder return strategy through this buyback program because we believe in our strategy, we believe in the future of the company, and we think that's a very good investment right now. So I appreciate your questions and look forward to talking to you later today.

Ladies and gentlemen, that does conclude today's conference call. Thank you for your participation. You may now disconnect.