Ken Diptee - Executive Director, IR Julia Stewart - Chairman & CEO Tom Emrey - CFO.

John Ivankoe - JPMorgan Peter Saleh - Telsey Advisory Group.

Good day ladies and gentlemen and welcome to the First Quarter 2014 Dineequity Incorporated Earnings Conference Call. My name is Regina and I will be your conference operator for today. (Operator Instructions). I would now like to turn the conference over to your host for today, Mr. Ken Diptee, Executive Director of Investor Relations.

Please go ahead Mr. Diptee..

Thank you operator. Good morning and welcome to DineEquity’s first quarter of 2014 conference call. Today, I’m joined by Julia Stewart, Chairman and CEO; Tom Emrey, CFO; and Gregg Kalvin, Corporate Controller. Before I turn the call over to Julia and Tom, let me remind you of our Safe Harbor regarding forward-looking information.

Today, management may discuss information that is forward-looking and involves known and unknown risks, uncertainties and other factors, which may cause the actual results to be materially different than those expressed or implied.

We caution you to evaluate such forward-looking information and the context of these factors, which are detailed in today’s press release, as well as in our most recent 10-K filing. The forward-looking statements are made as of today and assume no obligation to update or supplement these statements.

We may also refer to certain non-GAAP financial measures, which are described in our press release and are also available on DineEquity’s website. With that, I will now turn the call over to Julia Stewart.

Julia?.

Thanks Ken. Good morning everyone and thank you for joining us today. By now you have had time to review the press release which we issued this morning. Tom and I will provide some additional details on first quarter’s results then we will be happy to take your question.

We’re pleased to start fiscal 2014 with a strong first quarter delivering a 11% increased and adjusted EPS compared to the same period last year. We generated over 50 million in free cash flow of which approximately 58% was returned to our shareholders to our first quarter cash dividends and share repurchases.

Now during the last year we accomplished a great deal in many areas and as a reminder we achieved all of our objectives since acquiring Applebee’s in 2007.

We have transitioned to a 99% franchise company, substantially lower G&A, significantly paid down debt, continue to generate strong and stable free cash flow, return capital to shareholders, revitalize the Applebee’s brand, restore positive same restaurant sales at IHOP and continue to be the leader in our respective categories.

Our plan is to build on our accomplishments as we continue to focus on several key strategic objectives. These include refinancing our debt, returning cash to shareholders, driving consistent and positive sales and traffic.

Delivering profitable organic growth for our franchisees, facilitating franchisee development and continuing to boldly differentiate our brand. Since the acquisition we have achieved every goal that was set and our intention is going forward no different. To that end we continue to evaluate when would be the right time to refinance.

We’re committed to several key growth initiatives including our franchisees developing both domestically and internationally. We’re assessing our international development strategy. I will get back to you with an update before the end of this year.

We’re hitting the reset button at Applebee’s and I will discuss that in more detail shortly and we will continue to collaborate with our franchisees which remain supportive and aligned with our goals and lastly we will focus on being bolder than ever about differentiating our two number one brands through innovative advertising, enhancing our menus and bar offerings, achieving operational excellence each day and keeping our restaurants relevant.

I would like to now provide a brief review of IHOP’s first quarter performance and then I will shift to Applebee’s. IHOP overwhelmingly outperformed the Family Dining segment based on industry sales data. IHOP’s domestic sales increased 3.9% with positive sales performance across all day part.

I’m pleased to say it's IHOP’s fourth consecutive quarter of positive same restaurant sales. The increase in sales reflected a higher average guest check partially offset by a very slight decline in traffic.

Over the balance of the year we will introduce new and improved menu items, continue to renovate the look and feel of the menu and maximize the potential of each category within the menu. This category renovation allows us to address a great deal of simplification on both the menu and the back of the.

Simplification incorporates the reduction of SKUs or limiting single use items, delivering freshness and quality and focusing on ingredient cross-utilization. By reducing complexity we can simplify the menu. In order to truly transform the menu it has to evolve. So this will be a journey throughout 2014 and beyond.

The objectives of our three core menu enhancements in 2014 are to introduce new and improved products further simplify the menu and improve the actual menu design. The releases will transform the menu section by section.

So the February menu that happened this past quarter included the expansion of our crepes offering, our sweet cream cheese crepe promotion highlighted the great flavors in this growing category that aren’t widely available at other restaurants.

We continue to delight guest by introducing three new crepes to our menu including one sweet and two savory crepes. We also added a number of bolder option throughout the menu for guest desiring something with a spicier flavor. It included things like new omelets and a chicken chorizo burrito.

The upcoming June menu renovation will focus on evolving our lunch and dinner offerings with a launch of new items. To update our sandwich category we will introduce four new sandwiches across different cooking platform and a new burger to appeal to a wide variety of guests.

Our new sandwiches and burger offer unique and popular flavor profiles further adding to the variety on the menu within these categories. We’re also enhancing in the June menu are salad category, with the introduction of three new salads. Our signature salads are made to order with flavorful ingredients and fresh mixed greens.

The third menu slated for November of this year will concentrate on our kids menu. As a leader in family dining we know providing options for families with kids is important so we will add a variety of customizable entrees for younger guests. We believe this will appeal to parents also who want healthier options.

Now a word regarding National Pancake Day. The 9th Annual National Pancake Day took place last month, well actually March to benefit Children’s Miracle Network Hospitals and other local charities. I’m happy to say that we collectively achieved our goal of raising $3 million.

I would like to thank our franchisees and team members for their support of this very special event which garnered a great deal of media attention. There were 34,000 @IHPO mentions on Twitter, 9000 likes on Facebook and we achieved a record 4000 media hits.

It's extremely gratifying to know we’re making a difference in the communities in which we serve. Now looking ahead to drive the brand forward we’re executing on the four key pillars that we discussed before. These include a sharp focus on the menu innovation, operational excellence, effective advertising and media and our value proposition.

Our plan has yielded promising results while remaining focused on generating sustainable positive sales and traffic.

Our strategy includes renovating the new and improved core menu three times per year, improving operations and training to ensure that franchisees continue to meet or exceed our high standards using persuasive advertising and media that resonates with both existing and potential guest and providing better value which we define as more than just price point, this includes providing superior service, great ambience and high quality food.

Our objective is to capitalize on IHOPs strengthens and opportunities to broaden the brands appeal across key growth demographics such as like Millennials and Baby Boomers. And with that let’s switch gears to Applebee's first quarter performance. Applebee’s first quarter domestic same sales declined 0.5%.

The decrease reflected a decline in traffic partially offset by a higher guest check. As I mentioned earlier we are hitting the reset button at Applebee’s, I’m very involved with our new leader of Applebee’s, Steve Layt and the entire team. I’m very confident in our ability to aggressively execute.

We’re going to come back to you later in the year with an update on our progress, our franchisees are on-board and with us every step of the way. We have the largest casual dining brand in the U.S.

We have to continue to evolve, move faster and think bigger in order to break through and differentiate our brand from the category while gaining market share. We continue to collaborate with the purchasing co-op to create opportunities for all of our franchisees to save money in the middle of the P&L.

This also includes a thorough review of opportunities in non-food areas such as vendor consolidation and lastly the Applebee’s remodel program is currently on track to be near completion this year. Applebee’s franchisees remodel 64 restaurants in the first quarter.

At the end of the quarter we now are 75% complete and we project that 95% of the domestic system will be done by the end of this year. With that I would like to turn the call over to Tom, our CFO to provide the first quarter’s financial highlights.

Tom?.

Thank you Julia. Good morning everyone. After ending fiscal 2013 on a strong note we’re very pleased to carry that momentum forward. Adjusted earnings per diluted share increased to a $1.26 compared to a $1.14 for the first quarter last year primarily driven by higher franchisee segment profits.

Financing segment revenues increased to 4.7 million from 3.8 million mainly due to $1.4 million in fees associated with the early termination of two leases. I would like to highlight that such lease terminations are rare. Total segment revenues increased to a $167.2 million from a $163.2 million primarily due to higher royalty revenues.

Turning to the balance sheet, the cash balance as of March 31, 2014 was approximately $133 million this includes roughly $65 million of cash held for gift card programs and advertising funds.

I would like to highlight that the cash balance at the end of the first quarter was higher than at December 31, 2013 mainly because of pending interest and estimated tax payments that were made in April.

Cash flows from operating activities declined by approximately $18 million in the first quarter compared to the same period in 2013 because of the timing of rent payments and an increase in compensation related payments.

We continue to generate very strong free cash flow of $50.3 million in the first quarter returning a significant amount of cash to shareholders. To provide additional color we repurchased roughly a 179,000 shares or $15 million of our common stock and we paid out $14.3 million in the first quarter quarter cash dividend.

Regarding the anticipated refinancing of our debt, the plateauing of bond make-whole in October is a motivator to act this year in order to take advantage of favorable market conditions. We’re actively evaluating all aspects of our various refinancing option.

Market conditions can’t change and we’re monitoring the interest rate environment to determine the optimal timing of a transaction. To close we’re very pleased with our first quarter performance.

We believe that the results reflect our commitment to create value for our shareholders and as Julia mentioned earlier we’re focusing on several key initiatives which we’re confident will drive performance, further evolve our brands and facilitate gaining market share. And with that I will now turn the call back to Julia for closing comments..

Thanks Tom. And to recap after delivering solid results for fiscal 2013, we started 2014 with a strong quarter. We generated strong free cash flow in excess of $50 million of which approximately 58% was returned to our shareholders through our first quarter cash dividend and share repurchases.

We continue to build momentum at IHOP and we’re taking bold new steps at Applebee’s. I’m confident in our long term growth strategic for both brands. We will continue to look at bold new ways to differentiate ourselves from the competition.

We accomplished a great deal and I’m very excited about the rest of 2014 and beyond and with that Tom and I will be pleased to answer your questions.

Operator?.

(Operator Instructions). Your first question today comes from the line of John Ivankoe with JPMorgan..

Julia, in the past, we have talked about you increasing the convenience and the speed attributes of both brands, Applebee's and IHOP, and especially in terms of driving lunch business and maybe perhaps in direct response to fast casual.

So can you talk about how far along, by brand, you are in these initiatives as it relates to things like product, operating platforms, and your ability to market that maybe something is or could be different at Applebee's or IHOP?.

Absolutely. The work has just begun at both brands and I think as I mentioned earlier hitting the reset button at Applebee’s and determining if the work we were doing was the right work or we need to hit the reset button and do things differently.

There is no question that speed of service at lunch at Applebee’s is far more important than any other day part and we have to take a look at whether what we were doing was right or if we need to hit as I think I said earlier the reset button and do some things differently. So I should have more for you next quarter on that.

On the IHOP side that is a work in progress, we’re making some real progress in terms of testing. We’re an alpha on a variety of areas for both speed of service and getting it to the table in a much more expedited fashion where all product comes to the table at once, hot food hot, cold food cold.

So again, in both brands I will have more of that information next quarter..

And Julia, I assume that would include things like tabletop ordering and payment? Is that still a firm thing for Applebee's by the end of the year, or might that be delayed?.

I don’t think it's delayed I think it's all work in progress. The way you should think about it John is parallel processing both the testing of online ordering, pay us a table, all of those variety of technological advancements including work in the back of the house.

Think of all of that is were parallel processing but I know as I said before it will go in a 2015 completion..

Your next question comes from the line of Peter Saleh with Telsey Advisory Group..

Julia, I was hoping you could give us an update on where you stand with the tablets, where they are rolled out currently. And just -- I know you said that it may be a parallel process and maybe a little bit changing. But just give us an update on where we are with the tablets today..

Yes. We’re early on in the process but we had a couple of delays at the beginning, anytime you’re rolling out technology it shouldn’t surprise anyone since there are glitches but we have every confidence in the balance of this year and next year that we will begin the process more thoroughly of rolling. We’re just starting the beta testing.

I mean not beta testing but the next 100 to 200 restaurants to be rolled out..

Then just on the commodity environment and how that would relate to menu pricing, just give us an update on where -- what you are seeing on the inflationary side right now with both labor and food going up, and what your franchisees are saying in terms of taking price or raising price this year?.

So from a commodities perspective right now we see the inflation forecast increase on the Applebee’s side around 2% and a slight decline on the IHOP side. So I have always said that franchisees will tend to price with inflation and there are certainly opportunity.

I think it's fair to say that price is certainly a part of this year but the p-mix has also been working in our favor in both brands. So I think you will see a little of it but candidly if I go back the last couple of years we’re a 1% or 2% sort of every year. I don’t foresee any major lift.

A lot of the increases I have mentioned before on the IHOP side is coming from p-mix and I’m seeing some of that from Applebee’s as well.

But certainly there is opportunity to price and since we don’t dictate that franchisees will do what’s right for their business but they are also very smart business people who are not going to take excessive pricing it. It doesn’t behoove them..

Ladies and gentlemen this concludes the question and answer portion of today’s broadcast. I would like to turn the call back over to Julia Stewart for any closing remarks she would like to make..

Well I would like to say thank you. That might be a record for the least amount of questions, that just means we’re doing a great job. Thanks again for participating. Our next reported date is scheduled for July 29th. In the interim if you’ve any questions please feel free to call Ken, Tom or myself. Thanks again..

Ladies and gentlemen thank you so much for your participation in today’s conference. This does conclude our presentation and you may now disconnect. Have a great day..