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Good afternoon, everyone, and welcome to the Red Robin Gourmet Burgers Incorporated Third Quarter 2024 Earnings Call. This conference is being recorded. During management's presentation and in response to your questions, they 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 reflects management's beliefs and predictions as of today, and therefore, are subject to risks and uncertainties as described in the company's SEC filings. Management will also discuss non-GAAP financial measures as part of today's conference call. These non-GAAP measures are not prepared in accordance with the Generally Accepted Accounting Principles, but are intended to illustrate alternative measures of the company's operating performance that maybe useful. Reconciliations of the non-GAAP financial measures to the mostly directly comparable GAAP measures can be found in the earnings release. The company has posted its third quarter 2024 earnings release on its website at ir.redrobin.com. Now, I would like to turn the call over to Red Robin's President and Chief Executive Officer, G.J. Hart.

Good afternoon, everyone, and thank you for your interest in Red Robin. Our third quarter results were largely in line with our expectations. We continue to be encouraged by the progress of our ability to drive guest interest in our Loyalty 2.0 relaunch and have increased confidence in its ability to be a long-term driver of our business due to positive guest feedback and revisitation of those guests. While the macroeconomic environment remains challenged, we believe the investments we made in this brand over the past 18 months have positioned us well to compete and win. We remain focused on what we can control, which is positioning our iconic brand as a high-quality gourmet burger occasion and delivering a great experience to every guest through our craveable burgers, bottomless fries, and fun and friendly atmosphere. We continue to monitor internal and external proof points to validate the work that we've been doing. I'm proud to share that our overall OSAT scores are up over 13 points since the beginning of the North Star plan. We have the highest Red Robin OSATs since at least 2016 and are above the industry average. I'm even more pleased to share the result that these efforts deliver comparable restaurant revenue that increased 0.6%. This performance exceeded the industry average as measured by Black Box Intelligence and included guest traffic that has closed a 500 basis points gap and is now in line with the industry. With this progress, we believe we will meet or exceed the industry average on traffic through the remainder of the year. Before I dive into more specifics, I'd like to extend a heartfelt thank you to all of our more than 20,000 team members around the country. Your dedication to improving every day and every shift is what drives our success and is key to the revitalization of our beloved brand. Over the course of the past several quarters, we have witnessed the impact of inflation on the consumer. As businesses were forced to raise prices to cover rising input costs, the consumer found their hard-earned dollars did not go as far as they had and had to make trade-offs within their budget, including visits to restaurants. As a result, Black Box Intelligent measures a 4.5% decline in casual dining guest traffic through the first three quarters of 2024. The response across the industry to this traffic decline has been an array of promotions that offer the same food and experience to the consumer at a discounted price. Red Robin's journey and our approach is somewhat different. You may recall when I started as CEO, we did the work to understand why Red Robin's performance had been so challenged for so many years prior. What we found was the value equation that was broken due to a well-intended but misguided cost cutting that degraded the guest experience. Back in 2022, prior to my arrival, Red Robin was engaged in deep discounting as a means to bring the price down to match the level of food and service. This approach and the cycle it creates does not lead to success. When I arrived, we made a decision to step away from the deep discounts and went to work doing a heavy lifting to improve the guest experience and rebuild the value proposition for our guests. I've talked extensively about the investments we have made to improve the quality of our food and service from introducing flat top grills to upgrading over 85% of our menu to deliver a true gourmet burger experience to adding team members to deliver great hospitality. I'm so proud of what our team has accomplished and the great food and experience our guests now receive. Our next step then is to find ways to bring guests into our restaurant to experience these upgrades. We are confident and our data continues to confirm that when a guest experiences the new Red Robin, they are very likely to come back. Recall, we tested higher levels of traditional marketing spending in the first half of this year. The team did great work to prepare this test, and we measured a traffic lift as a result. But our reality is that we do not have the resources to spend at the same level as some of our competitors. That means we have to be more creative, more nimble and deliver a better experience than our competition. During the first half of 2024, we are also prepared and tested other tactics beyond traditional marketing spending to drive guest visits. First is our successful loyalty relaunch that I'll talk about more in a moment. Second, is what we like to call appointment dining. These are selective and targeted promotional offers and currently include Monster Monday, where we serve Monster size items at reduced prices, including a $2 Monster burger patty upgrade, a $4 Monster Milkhake and $5 margaritas. On Tuesdays, guests can enjoy a $10 gourmet cheeseburger with a bottomless side. And on Wednesdays, kids meals are 50% off and include entree bottomless side and a drink. You'll quickly notice that these promotions have a few things in common. First, the promotion targets, days of the week that are less busy and we can drive incremental traffic. Second, the promotions target our ability to up-sell additional items to drive average check and introduce new favorites. And third, and most importantly, the promotions are largely dine-in only. This allows guests to fully experience all the investments that we've made over the past 18 months. Overall, we're pleased with the clear traction in guest traffic from this strategy, and we expect to continue this approach through the fourth quarter. While these types of offers come with a near-term investment, I would draw a clear distinction between our approach and that of our competitors. While they are reducing price for the same food and experience, our approach is designed to encourage new and lapsed guests to give us a try and experience a truly gourmet burger and an overall dining experience. We believe driving guests into experience the new Red Robin will accelerate the curve as we drive to return to traffic growth in 2025. Turning to marketing, we continue to be pleased with the efficiency of our marketing spend that we spoke about last quarter. Through a mix of dynamic digital, social, earned media and harnessing the power of our re-launched Loyalty 2.0 program to reach the right guests at the right time. We've proven that an effective marketing strategy can drive traffic into Red Robin. And we've continued to build on this momentum for the third quarter. We have invested in marketing capabilities including our own customer data platform and more dynamic storytelling in our web-based own channels. We have thoughtfully chosen to communicate and promote the great value already in our menu, such as our under $11 Red's Double Tavern Burger served with a choice of bottom aside and targeted messaging to promote the key appointment dining periods, I mentioned earlier. In addition, our recent creative menu innovations and limited time promotions have driven trial, breakthrough media and social buzz. Perhaps most notable was Our Triple-Patty Gold Medal Burger challenge time to correspond with the 2024 Olympic Summer Games. And we featured our spicy new burger, the Jalapeño Heatwave, a flavor profile that's trending with Gen

Thank you, G.J., and good afternoon, everyone. In the third quarter, total revenues were $274.6 million versus $277.6 million in the third quarter of fiscal 2023. The decline is due primarily to the closure of nine restaurants over the past year. This was partially offset by a comparable restaurant revenue increase of 0.6%, led by an increase in guest check average, outweighing a decline in guest traffic. I would note our guest traffic trends have sequentially improved in each quarter of 2024 and are now in line with the casual dining benchmark, as GJ referenced earlier. We attribute this improving traffic trend to the successful implementation of the North Star plan, the traction of Loyalty 2.0 and the traffic-driving success of the appointment dining promotional offers we executed in the third quarter. Restaurant level operating profit as a percentage of restaurant revenue was 9%, a decrease of 210 basis points compared to the third quarter of 2023. The decline was primarily due to lower guest counts and discount levels that increased approximately 190 basis points as compared to last year. Our team continues to do great work pursuing and capturing thoughtful cost savings that maintain our commitment of parity or better for the guest experience. Cost savings in 2023 and 2024 to date have been primarily captured through our efforts to optimize the supply chain. While we continue to see further opportunity in that area, in addition, we are now actively pursuing operating efficiencies to drive an increase in restaurant level profitability. We expect these efficiencies to come from the reboot of our actual versus theoretical food cost measurements and reporting that we launched earlier this year and a similar relaunch of our Hot Schedules labor management tool in the third quarter. While the North Star plan included an intentional investment in labor that has successfully elevated the guest experience, achieving our objectives requires that we deliver these efficiencies. We are encouraged with the initial traction our operators have demonstrated over the past several weeks, delivering on both more efficient labor and maintaining our elevated guest satisfaction scores. General and administrative costs were $20.8 million as compared to $18.5 million in the third quarter of 2023. We held our Managing Partner conference during the third quarter this year and did not hold a conference in 2023. The gross cost of the conference is recorded in G&A and is partially offset by vendor contributions that are recognized as credits primarily in cost of goods as required by GAAP. Selling expenses were $5.5 million, a decrease versus the prior year of $4 million. The decrease results primarily from a reduction in media in the quarter and intentionally reallocated dollars to support funding the traffic driving promotional discounts. Adjusted EBITDA was $2.1 million in the third quarter of 2024. The $4.7 million decline versus the third quarter of 2023 was driven by lower guest counts, increased discounts and promotional offers, higher labor costs and occupancy costs related to our sale-leaseback transactions. We ended the third quarter with $22 million of cash and cash equivalents, $8.3 million of restricted cash and $20 million available borrowing capacity under our revolving line of credit. At quarter end, the outstanding principal balance under the credit agreement was $187.9 million. On November 4, we executed a third amendment to the credit agreement. This third amendment builds on the second amendment that we executed back in August. The third amendment increases our compliance leverage ratios in the fourth quarter of 2025 and first quarter of 2026 and continues the revolver expansion from $25 million to $40 million through the first quarter of 2026 that was previously scheduled to expire in the third quarter of fiscal 2025. This additional financial flexibility supports our efforts executing the North Star plan. We appreciate the great partnership from our lender group led by Fortress and offer a thank you to everyone who contributed to completing this work. Turning now to our 2024 guidance. We have updated our guidance to the following. Total revenue of approximately $1.25 billion, restaurant-level operating profit of at least 10.5%, inclusive of investments in the guest experience and rent expenses related to the sale-leaseback transactions. Adjusted EBITDA of $35 million to $37.5 million. As a reminder, as is historical practice for Red Robin, our reported adjusted EBITDA and our adjusted EBITDA guidance do not add back non-cash stock-based compensation expenses, which we estimate will total approximately $7 million in 2024. We are evaluating reporting adjusted EBITDA with stock-based compensation added back in 2025 to better align with the adjusted EBITDA used in our credit agreement and peers in the industry. Finally, capital expenditures, we expect approximately $25 million. The change to the restaurant level operating profit and adjusted EBITDA guidance is driven by the additional discounting we now anticipate related to the promotional offers G.J. discussed earlier. While we have been very encouraged by the improving comparable traffic and sales trajectory, we anticipate the offers will carry a net cost in the near term. In the longer term, we believe they will help achieve our goal of returning traffic to positive growth in 2025 and drive increased profitability. Our expectations for the fourth quarter are as follows. We anticipate three key components will drive our comparable restaurant sales. We expect traffic will decline approximately 4%, PPA will increase approximately 6% and a reduction in deferred loyalty revenue will be a 1.5% headwind. Notably, the traffic and PPA expectations are grounded in the results that we have seen during the first four weeks of the fourth quarter. As it relates to deferred loyalty revenue, recall in the second quarter of this year, we reported a notable increase due to the timing of the launch of Loyalty 2.0. A large portion of that revenue was accelerated from its more typical fourth quarter timing. As a result, we anticipate an approximately $4.5 million reduction in loyalty revenue in the fourth quarter of 2024 as compared to 2023. As we've shared previously, our fiscal calendar reverts to a 52-week fiscal year in 2024 as compared to 53 weeks in 2023. This change occurs in the fourth quarter with our more typical 12-week quarter in 2024 versus a 13-week quarter in 2023. We expect this will result in an approximate $25 million reduction in restaurant sales and $3 million reduction in adjusted EBITDA as compared to 2023. We expect gift card breakage will decline approximately $2 million as compared to the fourth quarter of 2023 based on redemption rates now stabilizing after declines for the past several quarters. We expect favorable factors to offset a portion of these headwinds. The PPA benefit of 6% I mentioned earlier represents the net impact we expect from menu price increases and discounts. We anticipate a combined reduction of approximately $11 million in selling and G&A expenses, as compared to the fourth quarter last year, and we expect to continue to capture cost savings in supply chain and in our operations, as I mentioned earlier. While there are different moving parts with our near-term expectations and modeling, the key financial takeaways are: first, guest satisfaction continues to demonstrate guests see and value the upgrades to our food and hospitality. Second, we have demonstrated an ability to drive guest traffic back into our restaurants with both our loyalty relaunch and promotional offers. The team is focused on increasing restaurant level profitability through both top line growth and operating expense management. Fourth, the credit agreement amendment supports our financial flexibility to execute the North Star plan. All of these factors, along with the dedication I see every day from our operators and support center team members, make me confident in our direction and the comeback of this iconic brand. With that, I'll turn the call back over to G.J.

Thank you, Todd. In closing, we remain confident in our North Star plan and the direction of this brand. While the macroeconomic backdrop has made our comeback more challenging, it will only make us stronger as we come out on the other side. Our team has remained focused on what we can control, which is centered around delivering a great guest experience to every guest through our high-quality gourmet burgers and our family-friendly atmosphere. With the positive proof points showcasing that guests are beginning to give us credit for the new Red Robin, we believe we are on the right path to drive sustainable long-term growth and return this great brand to the prominence in the industry. We're now happy to take questions. So operator, please open the lines.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] The first question is from Todd Brooks from The Benchmark Company. Please go ahead.

Hey. Thanks and good evening, everyone. Two quick questions for you. Hey guys. Two quick questions, if I may. One, I saw that the Cheeseburger Day Triple Play, so that Tuesday promotion is now expanding to Monday and Wednesday as well, is that stacking on top of the existing kind of Monster Mondays and the 50% off for kids on Wednesdays? And is that kind of that incremental discounting that you're factoring into the guidance? That's question one. And question two is just a quick one on Royalty 2.0. Based on the timing of the launch, we're kind of through our first 90-day expiration window potentially for gifts. Just wondering what the experience was around triggering return visits and frequency with expiring gifts coming up and your excitement about that as a lever that you didn't have in the old -- the old program going forward? Thanks.

Yes. The answer to the first question, Todd, is yes it is stacked on top of the Monster Mondays and Kid's days on Wednesdays.

Yes. On question two, Todd, this is Todd. On question 2, I'd say, overall, you heard the headlines from G.J. on the call, but we are exceedingly pleased with what we've seen out of Royalty so far. We've seen, obviously, the return visits that we quoted the stats around. I think you're referring to kind of the reward redemption as well. And I'd say that, that has frankly been ahead of our internal modeling in terms of what we expected there. So we really couldn't be happier with what we've seen out of the loyalty program.

Yes. Just clarifying on that one, Todd. What I was referring to is I thought there was a 90-day expiration window once points are earned. And if we launched in May, we should have in the quarter, gotten through our first expiration cycles. I'm just wondering about the success in triggering visitation that you had by messaging, listen, we don't want you to lose your points, come back into the restaurant today and redeem them.

Yes, that's -- sorry, Todd, I'll try to expand though. That's the piece really across the board, but including on that piece in terms of our guests when they earn a reward, are they using them? They absolutely are on the whole. We're seeing a small amount of breakage. I think in fairness, we probably want to give it a little bit longer before we kind of share a deeper number there. But I'd say, in total, we want to see people using and benefiting from those rewards. And on the whole, we very much are.

Okay. Great Thank you both.

The next question is from Alex Slagle from Jefferies. Please go ahead.

Hey, thanks. Congrats on the improving trends. Very nice to see. I wanted to just ask on the level of discounting where you are now versus, say, pre-COVID kind of where you think it should be? Or what's an appropriate level for the brand at this point?

Yes, Alex, Todd here. I'll start. I'll go back maybe prior to the North Star plan, just given I wasn't here prior to COVID, and I think the world did change a little bit there. But if you go back to 2021, 2022, the brand was generally around 4% discounts as a percent of sales. And we had taken steps to, frankly, pull that down a little bit as we stepped away from the discounts, did the hard work that G.J. referenced. And so we actually saw that come down a little bit for a while there. But I think in part due to the strategic reasons that G.J. referenced of, look, we want to get people in. We know if we get them in, they're going to have a great experience. And certainly, partially in response to the competitive environment, we felt like taking a step back into that was the right thing to do to get people in, get trial and then confident our operators are going to earn their business to bring them back in the future.

Got it. Makes sense, definitely having an impact. And on the 70 underperforming units that you're taking a look at, any color on the math of what that is to annual EBITDA or just to frame that up?

Yes. We gave the 215 basis point drag in the prepared comments, Alex, I'm sure you picked that up. If you just look at those 70 restaurants on a trailing 12-month basis, the restaurant level financials point to a loss of a little over $6 million. That's in terms of the income statement. There's obviously CapEx that is allocated to those restaurants as well. And so that's one that we're looking at of -- we believe in those restaurants. In some cases, they are in challenged geography or challenged locations, I should say. But we believe in our operators there. We're supporting them as they execute a plan to turn around those restaurants, but it is one that obviously we're keeping a close tab on.

All right. Thanks very much.

The next question is from Mark Smith from Lake Street Capital. Please go ahead.

Hey, guys. You got Alex Sturnieks on the line for Mark Smith today. First one for me. Just wondering if you could give any more breakdown on the comps here in the first couple of weeks in Q4, just traffic, price and then also any changes in consumer behavior you're seeing? Any additional color you can give us would be great.

Yes. Hey, Alex, Todd here. I'd point you to the comments I had in my script or prepared remarks of really our guidance for Q4 is very much grounded in what we've seen in the first four weeks. Meaning over these first four weeks of the quarter, traffic has been down about 4% and the overall PPA, meaning inclusive of menu prices and discounts has been up about 6% for a net 2% through the first four weeks. Now keep in mind that deferred loyalty impact that I've talked about. But in terms of business trend, PPA and traffic, that is very much reflective of what we've seen in the first four weeks here.

Yes. And I would say that we haven't seen any major changes in consumer behavior, but we are very optimistic given what we've talked about here on the loyalty platform, the repeat visits, the frequency that's going up. We're really pleased with those numbers. So we do anticipate that we'll continue to build momentum. And I think now that the election is behind us, I think we'll start to see some stability and some confidence come back into the consumers. So we're somewhat optimistic in terms of the rest of this quarter.

Got it. That's helpful. And then last one for me. Just in terms of restaurant level margins on a forward-looking basis, just curious on the challenges here that you're seeing, but also curious on any levers you think you can pull where you can see these margins go higher into 2025?

Yes. So well, first and foremost, driving positive traffic is going to improve sales. So that's first and foremost. We're continuing to -- we make comments around our productivity relative to labor, and we are very optimistic with our relaunch of hot schedules with the teams and the operating teams really drilling down, getting more trained from where we were on a lot of the hiring and the investments we made over the last 18 months. So we're happy with those trends. So we'll continue to see improvement there. In terms of controllable expenses, we continue to monitor every single line item. We've done a really, really good job in our supply chain group of reducing costs, things like utility costs, et cetera in a fairly inflationary environment. So we're pleased that we believe we still have some room around that. We're also optimistic around our third-party business. We've learned that how we need to invest to make sure that we're getting the right placement within the third-party providers. We're seeing big improvement there. So we think that will help us as well. And then lastly is just continuing to be very prudent and diligent around our G&A expenses and being very careful in terms of how we invest our marketing dollars, making sure that we have an ROI associated with that. So all those things said, we're optimistic. And again, we mentioned that we need to see improvement in those bottom 70 restaurants because they're pulling down the system 215 basis points. So you put all that together, and we think we've got a nice way and pathway to improve margins pretty significantly.

Excellent. Thank you, guys.

Thank you.

The next question is from Jeremy Hamblin from Craig-Hallum Capital Group. Please go ahead.

Hey, guys. Will Forsberg [ph] on for Jeremy today. I guess looking ahead to the holiday season, what is the typical seasonality in Q4 kind of in terms of business that comes before Thanksgiving versus those last five weeks of the holiday period?

Yes. Hey, Will. It's certainly -- you're alluding to it clearly in your question. It's certainly a backloaded quarter, meaning the vast majority of the -- certainly, the profitability comes in that final, call it, Thanksgiving to Christmas window or really New Year's window. We are in a period that for our business, at least, our seasonality is one that really does trough in Q3 -- so we are coming back up out of that, but it really does kick in, in those last four, five, six weeks of the year. As I say that, you may be alluding to Thanksgiving is obviously late this year, and I know that's been a topic across retail. As we look back, it's not one that we feel like is a significant shift for our business, but it is something we've looked at.

Great. And then in regards to the loyalty program kind of from a marketing perspective, how does this impact your kind of overall marketing budget?

Well, it's all part of the overall spend within the marketing budget, but it's certainly much more efficient because we have the ability to be very targeted in our messaging, which we historically have not been able to do. We talked about that in our prepared comments. And so it's certainly more efficient than doing the more traditional media type work.

Great. Thanks.

Thank you.

The next question is from Andrew Wolf from C.L. King. Please go ahead.

Great. Thank you. Good afternoon. I just wanted to follow up on the same-store sales improvement in trends. We've heard from others in the foodservice channels that more recently, there has been some strengthening in their trends versus earlier in the October to now. Is that the case for Red Robin? Or was it your -- the number you're giving us a little more kind of smooth between the beginning of the quarter, fourth quarter and where things are now?

No, we're seeing the same thing.

Okay. Good. Would you care to expand how much differential there is in that? -- or just leave it what you said.

Hey Andy, Todd here. I think probably at this point, we'd say we're pleased to see the first four weeks up 2% in terms of same-store sales, again, excluding that loyalty adjustment I talked about. I don't want you to miss that. I think pleased to up 2%. And look, we'll take it one day at a time, one step at a time, and we'll talk to you in a couple of months here, but we're optimistic with the path that we're on for Q4.

Good. Could you just expand a little on the operations changes in the restaurants, like how you're measuring efficiency or savings? Or is it dollars? Is it rates? And how you're monitoring to make sure you don't impact the guest experience and satisfaction?

Yes, Andy, I'll call out a few things there. Just in terms of the cost savings, as G.J. alluded to, a lot of that to date has been in supply chain. And so that measurement is fairly straightforward, right? Whether it's a shipping cost that comes down, we're able to -- you've heard us use the different examples. We're able to get twice as many pounds of ground beef for one case fee. Those types of things are very dollar-driven. We've talked about the actual versus theoretical food cost launch that I'm sure you know typical in the industry there and really just measuring on a dollar basis and percentage basis, what would the recipe have called for and then what did we use. And in terms of the labor management that we addressed, hot schedule is, again, an industry leader in terms of helping restaurants manage labor that really isn't hours driven, right? Given the frequency or the pattern of guests coming in, how many hours would you expect to use and then how many hours do you use, right? There's good learning and teaching that comes on a restaurant-by-restaurant basis with that. But I think it's -- to some degree, it's all of the above, right? GJ said, we're looking at every line item, and that's our commitment to this business is to help our operators succeed. And so, those are a few of the highlights, but I hope that's helpful as you think about it.

The other thing that we're doing, too, Andy, is taking a look at like-for-like restaurants, so the cohorts and how they're performing within each of those line items, specifically around labor and making sure that you tie that together with the scheduling and the pro formas and making sure that everyone is understanding where they sit against the other and then sharing best practices amongst each other. So that's another good way that we're doing it. And lastly, we're taking a long, hard look. We have a heavy concentration of restaurants on the West Coast. And so as you -- as everyone certainly knows that labor costs on the West Coast are significantly higher than they are in the rest of the country. And then what's the ability for us just to continue to improve that productivity, as well as taking a look at our pricing consistently against others, as well as the market in general to making sure that we're keeping pace because that is the biggest difference that we have on the West Coast. So, all those kind of things that we're measuring and really taking a long hard look at and have better metrics than we've ever had to be able to make adjustments and improvements.

And Andy, I'll go back to the last part of your question. In terms of the guest experience, we do quote overall satisfaction through SMG. So we look at that at all levels, restaurant level, regional level across the company. We use Google reviews, Yelp reviews. We were able to use our loyalty database to survey that group to get feedback there. And so that's one of the -- so a lot of different mechanisms of feedback, but that is one of the things that we felt was important to call out of as the operators have done such a good job of getting traction on labor management with this hot schedules relaunch. Yes, we see the more efficient labor, but we also see the team maintaining the really high levels of guest satisfaction. And so we're very conscious of both sides of that.

Got it. All right, that’s why I was asking about. Thank you.

This concludes the question-and-answer session. I would like to turn the floor back over to G.J. Hart for closing comments.

All right. Thank you very much. We certainly appreciate you guys joining with us today. We look forward to reporting our next quarter results and with continued improvement. Take care.