Good afternoon, everyone, and welcome to the Red Robin Gourmet Burgers, Inc. First Quarter 2022 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 may be 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 2022 earnings release on its website at ir.redrobin.com. Now I would like to turn the call over to Red Robin's CEO, Paul Murphy.

Hello. Thank you for being with us today. I am joined by Lynn Schweinfurth, our Chief Financial Officer, who will review our results for fiscal first quarter in detail and update our financial outlook after I provide some general commentary along with an update on our ongoing business initiatives. Let me begin by expressing how pleased we are that the economy is now fully reopened. This has led to positive sales momentum characterized by improving dine-in sales while our off-premise sales dollars are continuing to hold at more than double pre-pandemic levels. We will continue to monitor the situation closely. But at this point, we are continuing to experience top line momentum despite macroeconomic and consumer headwinds. Because our brand is all about moments of connection at an affordable value for friends and family across a diverse and multigenerational demographic we are well suited to address pent-up demand. This is true even as economic pressures persist, such as navigating the inflationary environment that has been further impacted by the continuing more in the Ukraine and related global supply chain challenges. Our craveable LTO product promotions are selling at record levels. And if conditions were to change, we have proven value-oriented promotions on the shelf that can be added as needed. As dine-in demand has increased, we have also maintained our GM and restaurant management staffing levels who are focused on attracting and retaining quality team members. By improving net staffing, we are best able to capitalize on the incremental opportunity for dine-in sales and grow profitability. We are also deploying increased targeted marketing support to take advantage of rising staffing levels. Most of this expenditure is digital because it is more targeted and cost-effective and importantly, is driving record engagement levels. As part of this support, we will begin to…

Thank you, Paul. I remain confident in our future, given our improving dine-in sales trajectory, incremental off-premise sales channels and continued dedicated execution of our business strategy, together creating value for our shareholders. Turning to first quarter results. The 19.7% increase in first quarter comparable restaurant revenues compared to 2021 was primarily driven by operating our dining rooms at higher capacity. As Paul mentioned, we have seen positive sales momentum in Q1 as the country emerges from the COVID-19 pandemic. Our full quarter comparable restaurant revenues increased 3.9% compared to the same period in 2019, marking the first full quarter of positive comparable restaurant revenues to pre-pandemic sales. We delivered our eighth consecutive quarter of off-premises sales dollars at more than double pre-pandemic levels, demonstrating the lasting improvements made in our off-premises sales channel since 2019. As a percentage of total off-premise sales, third-party delivery represented 55%, to-go represented 36.7%, catering represented 4.3% and Red Robin Delivery represented 4%. Full year net cash provided by operating activities was $13.3 million while cash used in investing activities was $9.5 million, and cash provided by financing activities was $15.4 million. During the first quarter, we paid approximately $8.8 million, representing approximately half of the payroll taxes, we were able to defer during the COVID-19 pandemic. We will pay the remaining balance of approximately $8.9 million in early 2023. We completed a new 5-year credit agreement, which gives us financial flexibility to execute our long-term strategic plan. We ended the quarter with liquidity of approximately $55.8 million including cash and cash equivalents and available borrowing capacity under our revolving line of credit. We intend to continue to effectively manage our bottom line and are dedicating free cash flow over the next several quarters to reinvesting in our restaurants and infrastructure, while maintaining flexibility…

Thank you, Lynn. We have our arms around the business and are pleased with our current momentum. Dine-in sales are returning, and we are maintaining our off-premise sales. We have the strategic initiatives to drive market share and frequency and can certainly pivot should there be changes in consumer behavior. As you heard Lynn say, we are maintaining our 2022 adjusted EBITDA guidance while navigating the inflationary pressures challenging the industry. When we have pulled our brand promise and deliver a consistent quality guest experience, we make Red Robins anonymous with connecting family, friends and fun through memorable moments over great food. This is why we are so focused on ensuring that we are properly staffed to serve our guests. Our team has always demonstrated an incredible passion for Red Robin and are always eager to find ways to do what we do even better in pursuit of top line growth, profitability and long-term shareholder value. They are why I'm so optimistic on our future and why so greatly applaud their efforts and all they do on our behalf. And with that, let us now open the call for questions.

And our first question comes from the line of Alex Slagle with Jefferies. Please proceed with your question.

All right, thanks. Paul, Lynn, congrats on the progress.

Thank you, Alex.

Thanks, Alex.

How are you doing?

Pretty Good. This is day-to-day. We think earnings season was over, but not so. So I just wanted to start on the consumer. And it sounds like you're not really seeing anything. I just wanted to dig a little more into that if you're seeing any changes in how consumers are using the brand or managing check at all or even changes in behaviors of the rewards member versus non-rewards member? Or anything we can kind of start to look at there?

Well, Alex, as I mentioned in my remarks, at this point, we're not seeing it. We've still see that the off-premises business is holding. We mentioned that. So we haven't seen really any decline there. We're seeing this kind of consistent build of the dine-in sales. Our LTOs, this is the third one in a row that basically set a record and are continuing to perform very strongly. I mean I think the main change is it's against a reduced menu, but it's -- there's a burger, there's an appetizer, nonalcoholic beverage and alcoholic beverage and a shake. And those together, we're seeing an extremely high take rate and more in the premium category of pricing. And quite honestly, they just continue to accelerate. All that being said, if we do start to see it, we have some things that are not only off the shelf, but that are going into test that we'll be ready if the consumer does start to back half kind of back off at all. And quite honestly, I think in our segment, when we take a look at our PPA versus what the rest of the casual dining segment is we're -- we have a lower PPA. So I think our value proposition is still a very strong in conjunction with the bottomless aspect of it. So I think we're well set up. And I think the last thing I'd add is the whole digital ecosystem that we're now able to bring to bear on the business, both with our royalty members and the general public is bearing fruit for us. So we're we feel like we're in a good place and going to be able to basically meet any challenges that come our way the balance of the year.

Makes sense. What's the PPA or average ticket for dine-in like now versus pre-COVID, is it similar or any changes on that front?

Yes. I mean overall PPA has gone up certainly quite a bit. As we mentioned, I think pricing is up about 10% compared to 2019 as a data point. So we're seeing PPA being driven by pricing of that magnitude in addition to mix because we have been promoting more premium-priced items within our restaurants and in our marketing.

Okay. And on operations, I wonder if you could comment on just recent guest metrics and if you see any opportunities to refine the model further now that capacity is sort of expanded and fallen up to dining room a bit more?

Well, I think from a metric standpoint, we still see opportunity on expansion of the dine-in business, Alex. We're not we're not to where we were in terms of 2019. I mean, obviously, theoretically, some of that offset is in off-premises. But I do believe that there's just more room. And I think that's a --just to be frank, tied to the improvements we're making in our overall capacity or staffing inside the restaurants. We're seeing that as, as that continues to improve, we're improving the dine-in business. And so I think that there's actually more room for growth there. And fortunately, the dine-in business is our most profitable channel. So we think that the most growth we have coming forward is in a very profitable channel for us.

Great. Thanks.

And our next question comes from the line of Brian Vaccaro with Raymond James. Please proceed with your question.

Thanks, and good evening. I wanted to ask about the updated EBITDA guidance. And I think you've maintained your EBITDA guide you raised your commodity inflation expectations. And I was just curious what the offsets were there? Did you raise your sales expectations that were embedded in your prior guide? Or perhaps there were some cost lines that moved to help offset that or maybe some incremental savings initiatives? Just a little more color on the puts and takes there would be great.

Yes. I would say, to a great extent, we updated all of our cost expectations. Sales, we actually did adjust sales, but not by a meaningful amount. But we did adjust some labor expectations associated with transactions that we're seeing from a trending perspective, which did take down expenses a little bit. But then the big offset from a cost standpoint was in the commodity line item, and we increased that from high single digits to low double digits for the year.

Okay. And also on the SG&A guidance, it's something I just always want to check in with you on the $145 million to $155 million. Could you just help us, what does that assume in terms of selling costs versus G&A? And rest of the year, do you expect selling costs to be fairly evenly spread the rest of the year? It's been a little moving around a little bit in recent quarters. Just wanted to make sure we're all on the same page in terms of forecasting that line item.

Yes. No, thank you for the question. We were a little bit lower in terms of selling expenses in the first quarter. That was the result of Omicron and also marketing a little bit less as we were staffing our restaurants. So that number will go up in quarters 2 and 3 and then probably go up a little more in the fourth quarter based on our current expectations. The actual number will be anywhere from, say, $52 million to $56 million and then the balance will be G&A. And from a cadence for G&A, we will expect to see higher G&A in the third quarter, which corresponds to the timing of our GM conference this year.

Okay. That's very helpful. And then 2 quick ones, if I could, on the labor front. Paul, I think you mentioned that operating hours improved in the first quarter versus the fourth quarter. I guess could you help quantify the degree of improvement that you've seen? And to what degree that is still constraining your recent sales volumes?

I'll jump in on that one. I mean, we have certainly improved our operating hours by quite a bit. So we don't expect that, that will have a meaningful impact on a go-forward basis, and it didn't have as much impact in this first quarter compared to fourth quarter.

Okay. And then last one for me on wage inflation. Sorry if I missed it, but what was your year-on-year wage inflation maybe specifically on the hourly side in the first quarter? And are wage pressures starting to moderate as the supply of labor seems to continue to improve?

Our inflation for the first quarter year-over-year was roughly 11% in the first quarter. We do expect that to continue into the second quarter, but then it should go down a little bit in quarters 3 and 4 when we saw inflation rise in the prior year. I would say right now, we're seeing wages being more consistent, not necessarily getting worse or getting better.

But sort of stabilizing and then you got some...

That's a good way to characterize it, Brian.

Stabilizing. Okay. And maybe for the year, it will -- your wage inflation year-on-year would be somewhere maybe in the high single digits, ballpark?

That's correct, yes.

Yes.

Okay, great. Thank you, I pass it on.

And we have reached the end of the question-and-answer session and also concludes today's conference, which you may disconnect your lines at this time. Thank you for your participation.