Good afternoon, everyone and welcome to the Red Robin Gourmet Burgers Incorporated First Quarter 2020 Earnings Call. Please note that today’s call is being recorded. During today’s conference call, management will be making forward-looking statements about the company’s business outlook and expectations. These forward-looking statements and all other statements that are not historical facts reflect management’s beliefs and predictions as of today and therefore are subject to risks and uncertainties as described in the Safe Harbor discussion found in the company’s SEC filings. During today’s conference call, management will also discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles, but are intended to illustrate an alternative measure of the company’s operating performance that maybe useful. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in the earnings release. The company has posted its fiscal first quarter 2020 earnings release and supplemental financial information related to its results on its website at www.redrobin.com in the Investor Relations section. Now, I would like to turn the call over to Red Robin’s CEO, Paul Murphy.

Good morning and thank you for joining us. We hope that you and your families are staying safe and healthy. I am here today with Lynn Schweinfurth, our Chief Financial Officer. After my opening remarks, Lynn will provide a snapshot of our liquidity and related matters before revealing our quarterly financials. The COVID-19 pandemic has presented complex challenges for families, businesses and economies across the globe. As we continue to navigate through these difficult times, our focus remains on the health and safety of our guests and team members. Our team members have done an outstanding job protecting the health and safety of our guests, while also delivering on the Red Robin brand promise. We sincerely thank them for their dedication and commitment to our communities during these difficult times and now how eager they are to welcome our guests back into our restaurants for elevated dining experiences as more dining rooms reopen. Following the onset of the COVID-19 pandemic and the shutdown of dining rooms, we quickly pivoted to an off-premise driven operating model and are emboldened by the continued strong growth in off-premise sales since the onset of COVID-19. In addition as dining rooms have begun to reopen, the early trends are very encouraging and volumes have been building over the past several weeks at our reopened dining rooms. As of June 7, we have reopened 270 dining rooms with limited occupancy and operating hours. These represent 65% of our currently opened company-operated restaurants with more re-openings to come week by week as state by state reopening thresholds are achieved. We attributed our traction in navigating through the pandemic to our ability to adapt and successfully pivot operations, while simultaneously raising the bar on our dine-out and dine-in execution. Our guests agree and have rewarded at us with…

Thank you, Paul. Before I review our first quarter financials, I will discuss a few other relevant topics starting with liquidity. On April 1, we announced that we had drawn down the remaining capacity under our $300 million credit facility. As of the fiscal quarter end on April 19, our liquidity stood at $89 million. And as of June 7, we have total liquidity of $84 million, including $30 million of cash and cash equivalents and $54 million of available borrowing capacity under our revolving line of credit. Given current sales trends that we reported this morning, we now estimate that our average cash burn rate for the fiscal second quarter is between $1 million and $2 million per week, which includes estimated partial rent payments, reopening costs, one-time COVID-19 expenses, and costs associated with finalizing the amendment of our credit facility. This cash burn rate would not have been possible without our previous efforts to preserve liquidity, reduce costs, and strengthen our organizational structure. Note that beginning April 1, we have not made full lease payments under our existing lease agreements to conserve cash, but has continued to recognize expenses and liabilities for lease obligation. Prior to April rents coming due, the company began engaging in ongoing constructive discussions with landlords regarding the potential restructuring of these lease payments. As Paul mentioned, in response to the COVID-19 pandemic, the company undertook several measures to preserve liquidity and reduce costs, some of which are meaningful longer term reductions to better position Red Robin for long-term recovery and growth. We intend to dedicate a significant portion of our free cash flow once achieved over the next several quarters to de-levering our balance sheet. As you know, we recently filed an 8-K disclosing an amendment to our credit facility, which has provided…

Thank you, Lynn. Let me conclude with one key message, I am extremely confident in Red Robin’s ability to move through and pass the current environment, and in the process, emerge stronger as an organization and as a brand. All of our team members have stepped up to the challenges we face and turned them into opportunities to enhance everything we do in serving our guests and communities. Our guests have validated these efforts with record satisfaction scores. And as we move forward, we will build on what we have already accomplished in bolstering our off-premise sales and bringing new and loyal Red Robin guests back into our restaurants as conditions allow. Thank you for your time today and interest in Red Robin. And we would now be happy to take your questions.

Thank you. [Operator Instructions] Thank you. And our first question is coming from the line of Alex Slagle with Jefferies. Please proceed with your questions.

Hi, thank you. Good morning.

Good morning Alex.

Both of you. So how should we – how should we think about the cadence from here for dining room reopenings? And also interested in how you’re balancing the six-foot spacing restrictions with the broader capacity limits. And do you have enough space here to get to 50% in all cases and any more comments on what you think needs to happen to get to 75%?

Alex, this is Paul. And I know it’s a bit early on the West Coast. So, appreciate you joining so early. But we – all of the – basically, all the dining rooms that are reopened are at 50% capacity and we have been able to do that relatively easily, in fact, and we are currently working on that for the 75% model and I do not anticipate any issues with that. As to kind of the cadence of it, right now, we’re a bit over 60% with the dining rooms reopened. We feel like over the next 40 to 45 days, that number will move up to a bit over 80% of the dining rooms being opened. I think the great news on that is that the majority of the locations that are just now coming online for us are on the West Coast and in the Pacific Northwest and those are our higher volume restaurants. So we’re extremely excited about that. Frankly every day, we’re more and more encouraged with the sales. I think, as an example, this past Monday, restaurants with the dining rooms reopened and even at a 50% capacity, we are only negative just a titch over 17% in those locations. So, we are seeing the business continuing to build. We feel like that as we get into the end of July, early August substantially, we should be close to the 100% level at 50% and then beginning to move certain localities up to 75% as they start to ease their restrictions and feel comfortable with that. And also something that we’ve heard a little bit about, we’re feeling just great about our ability to staff the restaurants at the 50% – at the 75% and even 100%. I know there’s been a lot of concern about would the team members be coming back and we’re seeing that being a – we have local issues in a couple of areas. But for the most part, that has been a real plus for the brand and I think it just shows the strength of the Red Robin team members and their connection not only with the restaurants, but the communities.

That’s great. And then I had a question on the productivity initiatives and how the current environments opened your eyes to additional opportunities or ways to operate more efficiently and profitably. It sounds like the menu changes, represents one immediate opportunity, if you could comment on anything else you are seeing?

I think also the implementation of the total guest experience model is, as I look back on my career, the rollout of a TGX, the new service or hospitality model, we did it virtual with our restaurants and in the restaurant industry it’s typically been, we think that that has to be very hands-on and somebody has to – we have to have these big team meetings or area meetings and people flying around the country and I think that some great learning from that was our training team and our operations team together with IT, did just a fantastic job of getting that rolled out virtually to the restaurants. I think that’s going to enable us over time to rethink how we do those things that are far more cost efficient. You did mention the simplified menu certainly helps on a lot of fronts. We’re seeing it really impact the guest experience from faster cook times, higher quality food, the food has been frankly hotter, but it’s impacted waste, we’re seeing a reduction on the waste side and we believe that over time, it will help us on the supply chain side as we have less SKUs that we’re having to manage and worry about the velocity through the distribution houses.

Makes sense. Thank you.

Thank you, Alex.

Our next question comes from the line of John Glass with Morgan Stanley. Please proceed with your questions.

Thanks and good morning.

Very good morning, John.

Two questions. First just on, as you reopen the dining rooms, how is the – how are consumers behaving? In other words, are you full at 50% capacity all week long or is this still primarily, you’re at capacity on the weekends, but the week days are lighter, and you’ve seen obviously the sales improvement is starting when it’s reopened? Other casual diners, I think, have seen a greater improvement over the same – similar weeks and the data is scant still, but to the extent we can see it, it has been. Do you think it’s something different about Red Robin maybe because it’s a family oriented business, maybe there is some hesitancy – more hesitancy from your customers to go back, any comments around that?

Well, John, we have been doing research as we’ve been going through the pandemic, so about every 2 or 3 weeks, we actually have been out there doing research. We have over 9 million members in our royalty program. So we’ve been engaging with them and really asking them, what are they looking for from Red Robin to feel comfortable and ready to come back into the dining rooms, and we frankly have seen kind of three classifications of guests and in terms of their attitude. So kind of the first 20% or so, they are not as concerned about the COVID and whether it’s Red Robin or restaurants in general, they would just be going out and we think that certainly is and have been driving some of the business across the industry. What we are seeing is that we are now entering into that 60% kind of a large middle group that is a bit more reticent. They pay closer attention to your health and safety protocols and the procedures and it’s certainly my belief that, as a brand at Red Robin, we have done some of the best work out there and we’re hearing that from not only team members, but our guests out there. So we are just now seeing entering into that kind of phase of the consumers and how they are dealing with it and we’re getting really strong feedback from our guests that we are doing the things that are making them comfortable. And I think that’s standing out. I think as we look into the future in how guests are going to want to interact with restaurants; health and safety, obviously, has moved up the priority list. I think it’s going to stay there for a while as the pandemic – as…

Could I just follow up just one? Then on the break – what is the comp decline that’s required or AUV required to get to breakeven at the restaurant level? Understanding the first quarter was a bit mixed between sales results, so maybe that’s not right benchmark. So where do you think you can breakeven on a comp decline or average unit volume in the current cost environment things you’re doing to go mix, etcetera say, in the second or third quarter?

Yes, I would say in the current cost environment, 20% to 25%, but with fully loaded cost, that gets down to the lower end of that range.

So 20% at the restaurant level, maybe down – I’m sorry. So – say that again.

No, that’s – thank you for the clarifying question. That’s at the enterprise level. So, right now at down 30%, we believe we’re cash flow positive in the current environment.

At the restaurant level, at the enterprise level, as Lynn mentioned, it’s high-teens, low 20%s that we will get the enterprise level there and we’re approaching that.

Got it. Okay, thank you.

Thanks, John.

Thank you. [Operator Instructions] The next question is from the line of Greg Francfort with Bank of America. Please proceed with your questions.

Hey, thanks for the question. I just had a couple. The first is, by my math from what you said, I think you’re doing – I think one thing people are looking for is kind of how much of your off-premise gains that you got over the past couple of months are going to stay with us sort of post COVID and my math is that you are retaining like two-thirds of your off-premise sales that you had in those reopened stores. Is that the right number? And I guess how are you calculating it if it’s not?

Yes, I think for the restaurants that we have dining rooms opened, those are running about 40% of their sales as off-premise. Now when we look at the system, on a consolidated basis, what’s been encouraging is we’ve seen our off-premise sales actually peak at about 3 times pre-COVID levels. But as we’ve been opening up dining rooms, it’s been between 1.5x to 2x.

Okay. And then just in terms of the corporate positions, I think, you talked about removing 50 positions. How many of those do you expect to be permanent versus, as things open back up, maybe adding back some of those positions?

We were very strategy [indiscernible] organization, certainly you know because of the circumstance, but based on how we thought through our organization and our infrastructure, we are planning for those positions to be permanently eliminated. Now, as business comes back, there will be business needs and we’ll adjust accordingly. But that’s really the intention today.

And then just on the loyalty program, I have been trying to think through what changes could be permanent to the business. And besides, off-premise I’m curious, I think you said the loyalty program was around 9 million members. I think that was similar to where it had been running. But have you seen any inflection or change in terms of sign-ups in that program around people kind of shifting online?

Well I didn’t hear the last part.

Is people – sorry Greg.

Just you’ve seen any sort of acceleration in the loyalty program growth or loyalty program base as people have shifted toward digital, I’d be curious.

Yes, I don’t know we’ve seen a measurable difference. However, what we have seen and we’re very encouraged about is our dining room royalty members shifted to off-premise many for the first time. So, we certainly saw their loyalty in terms of when the dining rooms were closed, and so now we’ve introduced another occasion for those guests.

Yes Greg, this is Paul. One thing I would say is that having a program of that size really, it enabled us to quickly pivot and through the digital world engage with them. We were able to work with the third-party delivery companies to incent the off-premise behavior very quickly. So my view is that we had a built-in audience that we are able to do a great job of, so these were heavily dine-in guests that now we think are excited to be able to use us not only for dine-in in the future, but we are now a strong off-premise alternative. My view is that what the pandemic has done is it has taught people how to use off-premise. It’s teaching people how to effectively order, pay, use delivery for in a sense almost a meal replacement. So we are – we think that the size of the program, and now with the dine-in, it’s easier to as they’re reopening, it’s easier to start to add new members to that program. But from our perspective, we think it’s actually a built-in advantage for Red Robin in having a constituency that we can speak to almost each and every day in a cost-effective fashion.

Thank you, guys.

Thank you. Great, thanks.

[Operator Instructions] The next question comes from the line of Brian Vaccaro with Raymond James. Please proceed with your questions.

Hi, good morning.

Good morning.

Good morning, Brain.

Good morning. So just circling back on your comments regarding consumer attitudes, I’m curious if your data is on a regional or a state basis across your restaurants. And if so, are you seeing significant variability in terms of the consumer appetite to return to dine-in?

It’s a little regional but what we’re seeing is, across the regions, it does fall into the three groups I mentioned. So I’m just giving you rough percentages. The 20% or so that, quite frankly, they just would come in any way, then about 60%, the middle, that want to understand your protocols, your safety procedures. What we heard out of that group is, they don’t want just to read it or hear about it, they want to see it in action in the restaurants and that’s certainly one of the reasons that we have a team member on each shift that’s just dedicated to sanitizing the public spaces, the door handles at the front door, the rest room areas. And then there is that back end, 20% or 25% that have said, hey, it’s going to take us a bit of time to feel comfortable again using a dining room, still going to participate in the off-premise world, but it’s going to take us a little bit longer." What we do see is regionally, there are some regions that that first group is a little larger than in other areas. I would say maybe the Southeast has been a little larger than what we’ve seen initially and attitudes maybe like in the Northwest or the West Coast. However, we’re – so far the re-openings out there are seeing very strong results, but people are more in that 60% group than may be in the 20% group in some of the areas that frankly have been more impacted by the COVID-19 virus. So there is a bit of regionality to it, but we see that basically people fall into one of those three groups.

Alright, that’s helpful. And I wanted to clarify your comment on G&A. You obviously had to make some difficult decisions during COVID in streamlining the organization, but what is the current G&A run rate weekly or monthly, currently. And can you also ballpark where you see normalized G&A settling out in a post COVID world?

Well, Brian, obviously there is a few moving pieces here. But roughly, I would say we see G&A in roughly maybe a 7% neighborhood on a normalized basis, but we’re kind of reintroducing some costs over time in our current projections for 2020.

Brian, I think also another way to look at the question is, we certainly, as we have been going through this, especially with telecommuting, there is a bit of kind of re-imagination organizationally of how is this going to work post COVID as we look at not only office routines at the restaurant support center, but just also some of the routines that we have in the field. So I don’t see us, you know from where we are today adding – really adding to the G&A line that we have today for the – except, I mean, obviously we took a salary – temporary salary cuts of approximately 20%. So we certainly will be dealing with that as we move forward, but obviously the leverage that we would obtain by the increase in sales should minimize that impact.

Alright, great. And then I also just wanted to clarify the rent situation and can you help us with what percent of rent payments have been deferred and over what period? And then, when do you expect to return to paying full rent as you reopen dining rooms. Can you just help us with that dynamic?

Yes, of course. Thanks Brain for the questions. So, before April rent payments were due, we actually reached out to our landlords to proactively start discussions around restructuring leases. So in April and May, we provided only partial rent payments, similar to June. Now, as we’ve been having additional conversations with landlords, we are expecting the actual occupancy costs going out to be higher starting in July. And then once we fully negotiate our leases, we should be at a full understanding and 100% payments based on those understanding really in the back half of the year.

Okay. I’ll pass it along. Thank you.

Thank you.

Okay. Thank you, Brian.

Thank you. Ladies and gentleman that concludes our conference call for this morning we thank you for your participation and have a great day.

Great thank you

Thank you.