DENN - NASDAQ

Please stand by. We're about to begin. Good day everyone and welcome to the Denny's Corporation First Quarter 2022 Earnings Call. As a reminder today's conference is being recorded. At this time, I would like to turn the conference over to Curt Nichols, Vice President, Investor Relations and Financial Planning and Analysis. Please go ahead, sir.

Thank you, Melinda, and good afternoon, everyone. Thank you for joining us for Denny's first quarter 2022 earnings conference call. With me today from management are John Miller, Denny's Chief Executive Officer; and Robert Verostek, Denny's Executive Vice President and Chief Financial Officer. Please refer to our website at investor.dennys.com to find our first quarter earnings press release, along with the reconciliation of any non-GAAP financial measures mentioned on the call today. This call is being webcast, and an archive of the webcast will be available on our website later today. John will begin today's call with a business update. Robert will then provide a development update and recap of our first quarter financial results before commenting on our guidance. After that, we will open it up for questions. Before we begin, let me remind you that in accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the company notes that certain matters to be discussed by members of management during this call may constitute forward-looking statements. Management urges caution in considering its current trends and any outlook on earnings provided during this call. Such statements are subject to risks, uncertainties and other factors that may cause the actual performance of Denny's to be materially different from the performance indicated or implied by such statements. Such risks and factors are set forth in the company's most recent annual report on Form 10-K for the year ended December 29, 2021, and in any subsequent forms 8-K and quarterly reports on Form 10-Q. With that, I will now turn the call over to John Miller, Denny's Chief Executive Officer. John?

Thank you, Curt. Good afternoon everyone. The future of our business indeed is very bright. We made two exciting announcements today that I am confident will accelerate our momentum. I will cover each of those in a moment, but first let me discuss our sales trends followed by an update on our previously announced transformative investments, which are being skillfully guided by our experience management team and dedicated franchisees. The spike in Omicron cases weighed on our same-store sales in early January, followed by improving trends in February as case counts declined. We anticipated moderating trends in March as we completed our rollover of both the soft start to 2021 and the third round of fiscal stimulus payments. However, global events in March contributed to additional inflation concerns, driving record high gas prices and additional supply chain disruptions, which ultimately weighed on our consumer sentiment and sales trends in March. Despite these challenges, Denny's delivered system-wide same-store sales of positive 23.3% in Q1 compared to 2021. As April gas prices started retreating from mid-March highs, consumer sentiment began to improve and we have experienced a corresponding improvement in sales trends in April. We believe the improving labor market has enabled the consumer to exhibit considerable resilience to date in phase of broad inflation. And while we continue to offer value products, guest remains willing to pay for the full service dining experience they have missed over the last two years. And our check growth has helped to address the inflationary headwinds, which Robert will cover in more detail in a moment. Approximately half of our same-store sales growth in Q1 came from higher guest check average comprised of approximately 6% carryover pricing, approximately 1.5% of additional effective pricing taken in February and nearly 4% of product mix benefits, mostly from higher beverage sales with increased dining transactions and reduced value product incidents. Off-premise sales remain strong at nearly double 2019 levels driven by robust third party channels and our two new virtual brands. And we continue to make steady progress expanding our hours of operation with approximately 51% of our domestic system currently operating 24/7. Approximately 80% of our domestic restaurants were operating at least 18 hours per day at the end of March, which represents an 8 percentage point improvement from the end of fourth quarter. Both hourly and management turnover at our company restaurants remains consistently below industry benchmarks and we believe this is largely due to our comprehensive training programs and competitive wages. In fact, on average, when you include tips, our servers at company restaurants make 165% of the full state minimum wage across the states where we operate company restaurants. With 100% of our company restaurants now staffed with a general manager, we believe other levels of staffing and key metrics will continue to improve as we focus on our retention efforts. This allows us to shift our focus to reminding both new and tenured employees, how we were voted by Newsweek as one of America's most loved workplaces. We estimate that domestic franchise restaurants operating 24/7 have achieved staffing levels similar to pre-pandemic staffing. And limited our franchise restaurants are operating at approximately 80% of the staffing levels they had pre-pandemic. We are encouraged to see applicant flow across the domestic system, continue to run higher than our historical average and believe staffing levels will continue to improve in due course. And turning to our other recently announced strategic initiatives, we are in the rollout stage of our new equipment package that will deliver quality improvements to our current breakfast proteins and breads making bacon crispier, sausage more evenly brown and allowing for freshly baked bread. Currently, we have installed new kitchen equipment at over 300 locations across the domestic system and the balance of installations are expected to be completed later this year. And our new cloud-based restaurant technology platform will soon be entering the beta testing phase and is still on schedule to be rolled out to all domestic locations by the end of 2023. Both the kitchen equipment and the technology platforms are expected to enhance the guest experience and drive operational efficiencies while the former also provides the ability to further upgrade our menu across all day parts. Building on these initiatives today we announced the exciting addition to the Denny's family as we have entered into an agreement to acquire Keke's Breakfast Cafe, a privately held A.M. Eatery concept consisting of 52 restaurants in Florida, including eight company locations. This is an exciting opportunity to participate in the fast-growing A.M. eatery segment through a complimentary brand that we believe our experience team can develop across multiple states with the goal of becoming the A.M. eatery franchisor of choice. The current founders have done a great job, establishing a brand in a category frequently used by millennials and Gen-

Thank you, John. And good afternoon, everyone. I will provide a development update and a review of our first quarter financial results before sharing a few details around the Keke's acquisition and guidance comments. Starting with our development highlight the compelling Heritage 2.0 remodel program led franchisees to complete six remodels during the quarter. And we completed three company remodels. Franchisees opened five new restaurants during the quarter, including one international location in Canada and two ghost kitchen locations in Baltimore through our new partnership with REEF Technology. These ghost kitchen locations will serve as a testing ground for new consumer reach in underrepresented metropolitan markets. Details for our new upfront cash development incentive program are coming together and we expect formal signups to begin later this year in connection with an upcoming franchisee lender summit, enabling domestic franchisees to capitalize on market rationalization opportunities. Now turning to our financial results for the quarter. John mentioned, we delivered domestic system-wide same-store sales of positive 23.3% during the first quarter versus 2021. Franchise and license revenue increased 25.8% to $59.1 million primarily due to pandemic related dine-in restrictions and limited operating hours in the prior year quarter. Franchise operating margin was $28.5 million or 48.1% of franchise and license revenue compared to $23.2 million or 49.5% in a prior year quarter. This margin dollar increase was primarily due to the improvement in sales performance at franchised restaurants. I would like to note that while the franchise margin dollar was not significantly impacted due to the kitchen equipment rollout, the franchise margin rate was impacted by approximately two percentage points due to revenue recognition, accounting related to the kitchen equipment rollout during the quarter. More information can be found in our 10-Q. However, we expect this margin rate impact to both increase and persist through the remaining rollout of the kitchen equipment, while still having no impact to franchise margin dollars. Company restaurant sales of $44.0 million were up 31.0% primarily due to the improvement in sales from reduced dine-in restrictions and limited operating hours in the prior year quarter. Company restaurant operating margin was $5.4 million or 12.2%, compared to $3.4 million or 10.1% in the prior year quarter, primarily due to the improvement in sales performance at company restaurants. We experienced commodity inflation of approximately 15% for the quarter and labor inflation of approximately 10%. These inflationary pressures were partially offset by the improving transaction counts, pricing and product mix benefits, which John described earlier. We will continue to monitor this inflationary environment in collaboration with our franchisees to execute effective pricing strategies. And we have additional opportunities to make adjustments throughout 2022 as needed. Total general and administrative expenses were $17.0 million, compared to $16.9 million in the prior year quarter. A benefit from deferred compensation valuation adjustment was offset by increases in share-based compensation expense, and general administrative expenses. As a reminder share-based compensation, expense and market valuation changes are non-cash items and do not impact adjusted EBITDA. These results collectively contributed to adjusted EBITDA of $17.7 million, an increase of $5.9 million compared to the prior year quarter. The provision for income taxes was $8.1 million reflecting an effective income tax rate of 27.1%. Net – adjusted net income per share was $0.11 compared to adjusted net loss per share of $0.01 in the prior year quarter. During the first quarter we generated adjusted free cash flow of $10.7 million compared to $5.2 million in the prior year quarter, primarily due to improvements in sales performance at both company and franchise restaurants. As previously announced, we had expected to acquire an additional parcel of real estate during the first quarter of 2022 through a light kind exchange, however, that transaction did not materialize. Our quarter end total debt-to-adjusted EBITDA leverage ratio was 2.0 times and we had had approximately $184 million of total outstanding debt, including $17.5 million borrowed under our credit facility. During the quarter we allocated $11.9 million to share repurchases prior to suspending repurchases as we considered a Keke's transaction. Accordingly we had approximately $206 million remaining under our existing repurchase authorization at the end of the quarter. Since beginning our share repurchase program in late 2010, we have allocated over $596 million to repurchase approximately 57 million shares at an average purchase price of $10.51 per share, reducing our total net share count by approximately 38%. Now I would like to provide some additional comments around the Keke's Breakfast Cafe acquisition. As we have mentioned in previous earnings calls, our financial flexibility provides the opportunity to continue our longstanding practice of returning capital to shareholders while also investing in the business. This has included previously announced brand investments to optimize our real estate portfolio, transform the technology in our restaurants, modernize our kitchen equipment, as well as the new cash development incentive program. Our asset like business model converts approximately 50% of adjusted EBITDA into adjusted free cash flow. And our financial flexibility has now allowed us to enter into an agreement to acquire 100% of the assets of Keke's Breakfast Cafe at a purchase price of $82.5 million, utilizing both cash on hand and a revolving credit facility. This purchase price represents a multiple of approximately 12 times Keke's EBITDA. The expected adjusted EBITDA contribution of between $6.5 million and $7 million is driven by average unit volumes of approximately $1.9 million across the 44 franchise and eight company restaurants with company margins in the high teams to low 20% range. The transaction will be settled in cash and finance through additional borrowing under our revolving credit facility. Accordingly, we are adjusting our target leverage range to be between 2.5 times and 3.5 times our adjusted EBITDA. Let me now take a few minutes to expand on the business outlook section of our earnings release. Given the volatility around commodity inflation and labor availability, we cannot reasonably provide a business outlook for full fiscal year 2022 at this time. However, the following estimates for our fiscal second quarter, 2022, ending June 29, 2022, reflect management's expectations that the current economic environment will not materially change. Additionally, the following estimates do not include any material impact from the Keke's transaction, which is expected to close late in the second quarter. With that said, we anticipate second quarter domestic system wide same store sales to be between 3% and 5%. Our expectations for total general and administrative expenses are between $18.5 million and $19.5 million, including approximately $4.0 million related to share based compensation expense, which does not impact adjusted EBITDA. Based on the guidance I just described, we anticipate adjusted EBITDA of between $17 million and $19 million, including approximately $4 million related to cash payment for share based compensation associated with awards granted in 2020, which will fully best and be awarded to participants in May. Our model generates a considerable amount of adjusted free cash flow, which will be enhanced by the acquisition of Keke's and I want to reiterate our commitment to return capital share – capital to shareholders through our successful share purchase program. In closing, we are well on our way through the recovery curve, and I am excited about the bright future with all the opportunities in front of us to extend our operating hours with improved staffing, to elevate the guest experience through Heritage 2.0 Remodel, to grow the collective footprint of Denny's and Keke's locations to upgrade products through updated kitchen equipment and to create a more seamless digital experience through restaurant technology upgrades. I want to thank our dedicated franchisees and Denny's team members who have remained focused on serving our guest, while progressing on an exciting revitalization initiative. Finally, I want to welcome the Keke's Breakfast Cafe franchisees and Denny and team members to the Denny's family. I want to reiterate John's appreciation for Mark's consistent leadership and wise council over the last 17 years. And I want to express how thrilled we are that Kelli Valade will become our next CEO and President. That wraps up our prepared remarks. I will now turn the call over to the operators to begin the Q&A portion of our call.

Thank you, sir. [Operator Instructions] And we'll take our first question from Michael Tamas with Oppenheimer.

Hi, thanks. Good afternoon. So first congratulations to John and Mark on their retirements and Kelli when she joined. Just regarding the Keke's Breakfast Cafe acquisition, I mean, first, can you sort of walk through the thought process and why you were looking to acquire something like Keke's and specifically in the breakfast day part, which you obviously already compete in pretty well. And then you mentioned using your capabilities as a franchise focused business to help grow Keke. So can you expand on that? Is that you're going to tap into your existing franchisees to grow that brand or are you just going to lend all of your capabilities and expertise to their franchisees to let them grow? Thanks

Thank you. Great question and I appreciate that. The thought process sort of you look out there to see what's going on in the landscape in the – one of the hottest categories in full services, the AME category, we compete as an all-day diner and which has its own benefits. We're a scaled brand that's going to continue to grow and improve and modernize. But at the same time with 50 plus of these brands out there in some size or another, the most scaled being first watch, and then smaller brands that are growing. It is a hot category and so right now they tend to skew to higher-end neighborhoods where we're not. So on the one hand using sort of the Lexus, Camry analogy, you see that our franchisees when they're close to home in certain markets, they want to continued expand and some trade areas that they're reluctant to go into with Denny's where historically the higher incomes they might have been looking for a different experience, and we have value based products and lower pricing, what those neighborhoods bear, different plate ware, different finished detail, different expectations. And so to have a brand to be two things at the same time is a little more challenging, and it just made sense to have something that they could fill in those markets. So one real big benefit to our current franchise base is that they right now buy, they would be excluded from another breakfast. They would not be allowed to compete in this, in their current franchise agreement. This would give them permission under their current franchise order to do so. So you can see that the benefits, so benefit number one is they don't have to go as far from home or have as many other brands in their portfolio. If there are multiple brand franchisee to expand they've got a trusted Franchise order. I think many of these folks prefer doing business with use Denny's the Denny's way. So there's benefit number two. Benefit number three is in these deeply penetrated markets like LA, San Francisco, Las Vegas, San Diego, Phoenix there's room for Denny's to continue to grow, but we're deeply penetrated there. So the challenges of growth are – let's say, it's a headwind to grow materially more in those markets with some of our best franchisees operating there looking for an opportunity to grow, they can now do it inside the same family. And then finally, they just don't compete. We've pressure tested this where other AMEs have opened it in and around Denny's that have a higher average household income, we see very little impact. And then we've seen that there's just no impact on the Keke's overlay with the Denny's customer. I guess, and then finally the higher – the higher household average household income tends to hold onto employment longer. I wouldn't say recession proof per se, but much more recession resistant. So having those both in the Denny's portfolio, we felt like made a lot of sense. I think that pretty much gets to the answer. Though the other question about managing it, obviously the idea here is to keep them very independent. So when it comes to product development, marketing, merchandising, training, learning and development structures, brand leadership all will be completely isolated and independent, but support services, there are some synergies and benefits to having a very expert development franchising group that we have here at Denny's to having a world class technology support group, tax and treasury, HR compliance and so there are a number of areas where we have expertise in scale, and top industry talent that can support a small and emerging brand. Procurement for will be independent at launch.

Thank you, sir. Next we'll hear from Nick Setyan with Wedbush Securities.

Thanks. John and mark you'll be missed. I mean just an amazing career and contribution with Denny's. Good luck on whatever it is that you guys are going to pursue next. I do want to focus on the Q2 margin guidance or the EBITDA guidance. Can you maybe just bridge that gap from the comp guidance of 3% to 5% to that EBITDA guide if possible, in terms of maybe the unit level margin that we should expect in Q2, the franchise margin?

Hey, Nick, this is Robert. Yes, thanks for that question. I reiterate all those sentiments about John and Mark that that you expressed, and I'm sure they appreciate that. So when you look at the guidance, right, so let break it down a little bit to make sure we understand that that $17 million to $19 million is being impacted by that $4 million of share based compensation, it's pretty technical, but the shares that are utilized for withholding purposes are cash hit in our adjusted EBITDA calculation. So when you add that back to the midpoint, you get to about a $22 million number roughly. So just to right size that piece of the conversation before we get started that in that if you recall that share based compensation was a function of a pandemic grant that was happened in May of 2020, so a of off cycle for us. We didn't have one in January that year, and it matured on a two year cycle as opposed to three year cycle. We'll get back to the grant this year in January of this year, was back on our normal three year cycle as the one in 2021. So just to right-size all of that first, with regard to the margin improvements, we still will be impacted, right? It's choppy out there, you can't underestimate that impact of the labor inflation that I quoted in my script a 10% in the commodity inflation of about 15%, that all went into the, the expectation that, that setting of that expectation of that $17 million to $19 million range within there. We do expect that that likely will continue into Q2, but we don't believe that is ultimately persistent long-term. We just don't know when that begins to abate. We do have a sense commodities [indiscernible] in the back half of the year, but would more want to under promise and over deliver there than to get out a full guide there. We haven't given the exact percentage with regard to the company margin. We did improve year-over-year with that 2 percentage points, i.e., and do believe that we will continue making progress there. We have effectively priced. We do have two pricing cycles that get opportunities again in June and October to address any additional inflation that we may not be seeing. So we continue to drive beyond the 12% in this quarter, although we have not hit within a specific number there but, do really see a bright future ahead. We consider these roadblocks and temporary challenges that that we're experiencing, but really believe in that bright future that we hit upon multiple times in our scripts.

Thank you, sir. Next we'll hear from Jake Bartlett with Truist Securities.

Great. Thanks for taking the question, and again Mike congrats to John and Mark. My question is on the 2Q guidance as well and the sales guidance. Looking back, there's been a pretty large divergence between average weekly sales growth and same store sales growth, which is how we model it and kind of look at the difference there. And it makes it a little tough to understand exactly how the same store sales is impacting average weekly sales. For instance, in the first quarter, obviously the sales grew faster than same-store sales. And so, in the context of the 3% to 5% same-store sales, I'm hoping you can maybe get us a little closer to what you expect for revenue. Maybe if you could frame it in average weekly sales or expected unit volumes, but just there is two things going on here and you gave us one piece. I just want to make sure we're on the same page as to kind of what you're really expecting for the top-line here.

Yes. Hi, Jake. This is Robert again, happy to try to address that one too. So when you look at it, I think it's in on the – our investor deck that we put out. We do have the average weekly sales per restaurant and it will go in there and talk about the $33.1 million – $33,100 per restaurant per week that is comprised of that, that split between on-prem and off-prem that doubling of the effect that that we've held onto during the pandemic timeframe. But what you'll also kind of note within there is the cadence of the average weekly volumes, right. So if you look at it, Q2 and Q3 tend to be somewhat higher volumes whereas Q1 tends to be the lowest volume. So when you look at that 3% to 5%, you need to be applying it to the record rate. I would imagine you are, but again they're much higher, the Q2 and Q3 quarters are much higher. The other thing to take into account with regard to – that I imagine you're completely getting this is the 23.3 that we delivered in Q1 was still benefiting from the rollover of highly impacted COVID implications in the like California, Washington that were much more slowly to evolve out of their COVID restrictions. So that – we are actually now entering into what will be considered more normalized same-store sales as we move into Q2 and the guides will look more normalized. I don't know if I can add much more than that at the moment.

Thank you, sir. Next we'll hear from Todd Brooks with The Benchmark Company.

Hi. I also want to share by congratulations with John and Mark, both job well done, so congrats. Question…

Thank you.

You're welcome, John. Just wondering if we could talk about franchisee health, I mean, the beauty of the Denny's model highly franchised as you are impacted or protected from a large amount of this inflationary pressure. Obviously, it hits the corporate store margins, but you're highly franchised. If you look at the franchisee level, I guess, what are we seeing as far as the inflation that they're having, having to absorb if you have any compare kind of on the – a benchmark on franchisee pricing versus what you're running in the corporate store right now? And any kind of view that you can give us into the health of the franchisees, just given this kind of historic intra quarter inflation that we're seeing currently?

Right. So these are great questions. Of course, we've got the pulse of our franchisees. There's considerable access in the Denny's brand and this is a tradition that's carried on for years. So I can't say we're give ourselves a pat on the back for expert yet, but we are, I'd say, pretty good listeners with ear to the ground to the pulse of the franchisees. We just completed a meeting in San Diego, which we call our Annual Allied Partner Summit, which we conduct once a year with vendors. And the mood was really high. There's a lot of excitement about investments. There is a lot of conversation about margin and pricing and value strategies and new menu introductions and getting everything just right for each day part. But I'd say there's general confidence. On the slider end of the equation, we had a few more closings in the quarter. And so you see sort of that purge much like we had during the pandemic we saw in this quarter a little bit more of an acceleration of what might have happened over a longer period of time, but other than that franchisees taking the opportunity to just sort of take a hard look at their portfolio. You see a lot of the confidence in the brand. So I don't know if that gets to the heart of the question. There – the larger of franchisees did not get the same PPP benefits that smaller ones did. The smaller ones tend to be going into the year in really good shape balance sheet and confident about their investments, many paying cash for their new ovens. And then the larger franchisees, I'd say, are a little bit more tempered. They want to get through the winter and they're looking forward to the spring.

Thank you, Mr. Brooks. Next we'll hear from Eric Gonzalez with KeyBanc Capital Markets.

Hi, thanks for the question and John and Mark congrats and best of luck on your future endeavors. Maybe you could talk about the health of the consumer, given your demographic SKU, are you seeing any shifts in consumer behavior? I know you mentioned the gas prices. Wondering maybe why the consumer might react to gasoline and not to higher food prices in terms of their willingness to dine out? And then secondarily there was some improvement in average hours this quarter, but maybe you could talk about what it's going to take before we see a much bigger inflection in the number of 24 hour units. Thanks.

Great questions and this is one that it's like a big circular reference, this thing between real disposable income and consumer confidence, and then the pace at which the market can be disrupted all at once for our brand and I can't speak for everybody that has sort of the footprint we have, but sort of a middle income middle America consumer, I'd say, many of which are working class, not all, but our customers represent America and their – and so when they – when their confidence is a little lower, they eat, they stay, they go to the grocery store a little more, a brown bag a little bit more often. So with Omicron, with Delta, with high gas price peaking all at once any of these things we tend to have a reactive consumer that sort of pulls back. So you heard us say in the script, look, we were counting on March, continue to accelerate. We had momentum coming through the quarter and then decelerated and missed our internal expectations for sure. And then April went as people go, okay, well, that's the price of gas. It came down a little, but it didn't come down to where it was. And people go, okay, I got out over the shock, back to normal, but we do tend to have a little bit of a confidence hit and a reaction as the sort of leading edge. On the other hand is, people have real disposable income growth at or beyond the level of inflation. So I'd say wage growth has been solid. It gives some sense of confidence to the future savings rates and money to spend. On the other hand, some things, interest rates but we will have to adjust more rate mortgage and when will gas come back down. It has our customer a little nervous. And so –but that's improving in April and we expect it will continue to improve. The kind of way we look at it and forgive the long answer here, but you sort of – you look at all these different buckets. There is food inflation might drive some quick serve or value orientation, but we're not staffed. So again, all these – so as we staffed more fully, we're willing to go back to our playbook of more value promotions to drive more transactions. We've not done that in a while. We've actually – us in our category, I wouldn't say fully advanced in it, but we've really left that to quick serve the grocery. So all these things in our playbook that are yet to operationalize are just now coming back into consideration. So our confidence that we know what to do, but just aren't there yet. We did come back with a value promotion with an endless breakfast and a little modest media, we floated it out there. We didn't merchandise it as strongly as we have 2, 4, 6, 8 in the past. It's got a real strong barbell to add proteins at the other end of it to give our franchisees confidence. But we'll work back into those as we become more fully staffed. We'll add hours. We'll add you know confidence and our consumers are going to continue to come back as a result. On the – but yes, they kind of took a hit and now they're coming back. I'd say nothing to worry about, but enough for us to say there's too many pieces in the suit here, let's guide next quarter, rather than this one. On the hours, we do believe there's momentum, both in staffing and training and retention, even though you hear about a great resignation, that is true, we'll have a higher number of people to start and then decide what I'll go back on unemployment, but we do have – but that seems to get it improving. So the momentum is building and it sort of has a doubling rate out there another quarter or so down the road. It's slower than we had originally hoped, but we think that pace will continue to quicken to add hours and quality staffing and good training programs before we add those hours, so that we come back with some confidence. So it's all coming in the right direction. It's just a bit delayed.

Thank you, sir. [Operator Instructions] Next, we'll hear from Brett Levy with MKM Partners. Mr. Levy, your line is open. Please go ahead. Hearing no response. We'll move on to Jake Bartlett with Truist Securities.

Great. Thanks for taking the follow up. Robert, I'm wondering maybe just to help me, I'm going back to the question I had asked before. And I just want to better understand when I look at a three-year geometric stack for same-store sales, so you calculate geometrically, there's the 4% implies a pretty sharp deceleration from the first quarter. So just remind me why that might be happening? I there a nuance as to how you calculate same-store sales, just so I can understand how that might be happening? Or maybe if you could also confirm, guessing that answer, but confirm that that April sales levels, like average week the sales have improved already from the first quarter,

Hey, Jake, this is Robert again. Yes, we're all looking a little quizzical in the room because our Q2 3% to 5% would not – from our perspective here in the room, would not necessarily represent a deceleration in comps. Looking back at an anchor point, I don't know if you're looking at 19 or 20 or how that stack looks in your world, but we don't see that deceleration that you are referencing there. I can confirm, as John mentioned it in script that we did accelerate from March into April in a meaningful way. So, we were pleased with that. So again, we're not seeing what you're seeing, so I don't know exactly how to answer that question.

Okay. Got it. Can I ask a follow-up here?

Please, yes.

Am I still there? Good, because you cut me off before, so I just want to make sure about that. But another question on the impact of the cash stock components, obviously a big impact on your guidance for adjusted EBITDA. Can you just remind us, help us – that's having a big impact, having had a big impact in the first quarter as well, just versus expectation, so can you just make sure we're on the same page about when – are there may be other grants that we should be aware of as we're making our estimates going out or typically these hit in the first quarter should it be about the same? I mean, anything kind of that we should be aware of as we project forward beyond the second quarter?

Yes, that's a really good question, Jake. So, the grant in 2020, was different than any other grant that we had done previously, that that was a two-year grant. And it was delayed given the effects of the COVID pandemic launching in there in March, everything was delayed to get a sense of where we were. So that was granted in May. It was a two-year grant. Historically, for us, the three-year grants typically granted late January, early February runs on a three-year cycle. So you see that three-year impact. So we do now, and this is all on the proxy. A portion of the grants are now in restricted stock units. So in 2021, that was one third of that grant, in 2022, that was 40% of that grant. Those mature on the RSUs are a one year maturity. They pay out the following January. So you'll see that piece trickle into January of 2023, although there will not be a significant payout because the grant in 2020 matured here in May and thus will not impact January of 2023, although you will see some, the majority of – the bigger component of that is sitting back here in May. So kind of skipping a cycle, and I know this is a long complicated answer, but the next bigger piece will now sit out into January of 2024. And again, I know this is complicated, this is all within the proxy, so we'll be able to speak to this more clearly to get you the exact cadence of those payments.

Great. Thanks a lot. I appreciate it.

But one time only not to be repeated in May.

Correct. The pandemic two-year grant with a one-time RSU grant, we have gone back to our high performance-based grants, subsequent to that [indiscernible].

Thank you, sir. And we'll take a follow-up question from Todd Brooks with the Benchmark Company.

Hey, thanks for the follow-up. I was just wondering, can we talk to virtual brand performance, what type of sales layer it was, how sturdy those businesses seem to be as dine-ins reopening and just outlook for any further rollout across the base? Thanks.

Yes, well, Robert…

Go ahead John.

Robert is going to grab some numbers there. Great question. All in all, it's modest momentum in both brands, there is a really strong consumer reaction and our franchise base likes it because it's another storefront without brick-and-mortar to get some product credibility that will have a long-term benefit to the Denny's reputation for product quality, the artisan bread, the high quality ingredients and some of these are starting to work their way into the Denny's menu under a same or similar name, or same in the merchandising the fact that these are coming from a Denny's is out there as well. So, we like what they have done. These are products we think deserve a spot as a hero on our menu. And so at the end of the day, when you blend the two efforts together, it's not an additional skew. There are a few right now, but at the end of the day, this will be something we think fits our diner positioning, but it also has Burger Den in and Meltdown, second brand where people might discover us there. They weren't shopping for Denny's. Denny's has an all-day breakfast reputation. We're building our diner all-day, day part reputation. But in the meantime, someone might find a burger or a sandwich somewhere else. And our franchisees that participate, tend to like the exposure.

And Todd, just to give you some sense of the numbers, and this is in our investor presentation, Slide 6, but it's representing about 3% between The Burger Den and The Meltdown that has been very consistent at that level. And we're really quite excited about that. Any initiative that we can come up with, that will drive 3% in sales, we'll launch those all day long. So really excited about that. And the fact that it's been very consistent since launch.

Great, thanks, Robert.

And there are no further questions at this time. We'll turn the conference back over to you for any additional or closing remarks.

All right, thank you for joining us on today's call. We are pleased with the progress we have made navigating a noisy recovery and are encouraged by the level of adjusted EBITDA and adjusted free cash flow generated by our highly franchise business model during the first quarter, despite the inflationary headwinds. We are making steady progress with staffing levels and extending operating hours, which will provide additional potential for our brand. Our off-premise sales remains strong and nearly double to 2019 levels, driven by robust third-party channels and our two new virtual brands. We believe the meaningful investments we are making in kitchen equipment and restaurant technology platforms will prepare our business forward with exciting high quality product opportunities and an enhanced guest experience. And we are excited to relaunch our successful Heritage remodel program along with the opportunity to enhance our existing development pipeline to our new franchise incentive program, our partnership with REEF and a new complimentary brand that we believe will accelerate our growth. And finally, we have a new energetic and experienced CEO joining shortly representing the culmination of a thoughtful succession plan by our Board of Directors. And she will be supported by an exceptionally talented management team. So I believe our future is indeed very bright, and we look forward to our next earnings conference call in early August, when we will discuss our second quarter 2022 results. So thanks everybody and have a great evening