Ken Diptee - IR Julia Stewart - CEO Tom Emrey - CFO Gregg Kalvin - Corporate Controller.

Brian Vaccaro - Raymond James John Ivankoe - JP Morgan Michael Gallo - CL King Alton Stump - Longbow Research.

Welcome to the Third Quarter 2015 DineEquity Inc. Earnings Conference Call. My name is Cynthia and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now like to turn the call over to Ken Diptee, Executive Director of Investor Relations. Mr. Diptee, you may begin..

Good morning, welcome to DineEquity’s third quarter 2015 conference call. I’m joined by Julia Stewart, Chairman and CEO; Tom Emrey, the CFO; and Gregg Kalvin, Corporate Controller. Before I turn the call over to Julia and Tom, please renumber our Safe Harbor regarding forward-looking information.

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

We caution you to evaluate such forward-looking information is in the context of these factors, which are detailed in today’s press release and 10-Q filing. The forward-looking statements are 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 also available on DineEquity’s website. With that, I will now turn the call over to Julia Stewart.

Julia?.

Thank you, Ken. And good morning, everyone. Overall we are pleased with our third quarter results, which was marked by several notable achievements.

We posted 25% growth and adjusted earnings per diluted share, generated substantial free cash flow and posted positive comp sales at IHOP for the 10th consecutive quarter, making it a leader in the family dinning segment and among the restaurant industry.

We also recently announced an increase in our quarterly cash dividend to $0.92 per common share reflecting 23% growth since the third quarter of 2014. We continue to have one of the highest, even of the highest dividend yield in the restaurant space.

Additionally, we significantly increased the share repurchase authorization for our common stock to $150 million from the remaining previous authorization of approximately $48 million as of the end of third quarter. Since 2013, we’ve repurchase over $111 million of our common stock and paid approximately $150 million in cash dividends.

These decisions reaffirm our commitment to return the majority of our free cash flow to shareholder and that doing so remains the priority. We are able to do this because of our stable business model that produces strong consistent free cash flow.

Now it was approximately 8 year ago the DineEquity was created over that time we have regularly and reliably delivered on our stated goal and we’ve never stop looking towards the future.

To continue driving the business forward and to lay the ground work for DineEquity’s evolution and future success, we’re currently implementing a strategic initiative designed to address two imperatives across both brands.

Generating additional organic growth across the business and accelerating the development of traditional and non-traditional occasions. These combined with other strategies, we will implement are designed to ensure that IHOP and Applebee’s are positioned at the forefront of consumer relevant.

Now there is no better way to measure consumer relevance than by generating organic growth, we are taking the multi-pronged approach to create deeper engagement with our guests that will translate into greater frequency of use.

Through initiatives focused on menu innovation, [indiscernible] expansion an additional development there are ample opportunities to grow the business organically, at the same time in our efforts to accelerate development we’ve made substantial progress on a number of key initiative, including creating new prototype remodels and designs that will reinforce the power of our brands and better meet the needs of today’s consumers.

As part of this we are also evaluating smaller building footprints to create new opportunities in both traditional and non-traditional locations. We’re encouraged by experiences internationally and fully intend to leverage this knowledge in a way that only a company with our resources and reach can accomplish.

In the end it’s all about bringing our brands to guests where, when and how they want to enjoy them. In support of this plan we've made an important strategic decision designed to help us go further faster to create an organization that is quicker more nimble and more collaborate than we are today.

I'm referring to our decision announced last month to consolidate our core restaurant and franchisees support function in Glendale and wind down operations in Kansas City.

Simply put the historical legacy of two headquarters separated by half tertiary [ph] does not meet the operational capabilities we need to successfully execute our growth plans, and moving now to create an organization that does is a strategic priority for us.

Our talented teams across both brand are excited about the opportunity to work more closely together. So let's to the brand starting Applebee.

After five consecutive quarters of positive comp sales Applebee's third quarter comp sales declined slightly by 0.5%, make no mistake this is unacceptable to us and we're working to restore consistent and sustainable positive performance.

After careful analysis it's clear that the work we've done to date on the Applebee's brand has not been enough, while necessary and fundamentals to the brand our strategy has been too subtle and incremental. We simply have to move faster, think bigger and differently.

The consolidation which is not about saving cost, will help us to achieve these objectives. We’re currently working on a few big ideas, it has the opportunity to separate us from the past in casual dining.

For competitive reasons I won't share specifics today, but I tell you that were going to execute very aggressive very focused playbook and we expect to see some of the results during 2016.

And over the last two years we've engaged in the most comprehensive research in Applebee's history and will employ the insights we gained, be assured we've not only alignment and full support but a mandate from our 33 franchisees to move ahead boldly.

Having all in 33 franchising owners is a huge advantage for Applebee and we’ll work more closely than ever to ensure we’re nimble, quick and proactive. Simply could we’re going to change the story at Applebee.

We’re taking a deep look at where we are, where we need to be and what it will take to get there, and our roadmap is based four critical areas of focus that we believe will begin to change perception in both the near and long-term.

Our internal measures tell us we've made significant strides in improving the quality of our food and service, but it's not happening for every guest on every visit. To correct this we’re focused on in restaurant training to improve speed of service and consistency.

Additionally, we are also working on new platforms in the front and back of the house to elevate the guest experience.

Our brand reinvention efforts are well underway in addition to our newly implemented menu platform, we’re testing several initiatives including bar revitalization as discussed on the last call, a new building prototype and the remodel. I believe it's going to require substantially more work on the menu and the atmosphere.

Today the restaurant experience goes well beyond food, service and environment. We know technology is playing a bigger role in the overall experience.

As we continue our work on guest enabling technology we realized that today's guest is technologically savvy than ever before and their needs and desires must be at the center of all decisions and strategies.

All of these areas of focus are designed to generate organic growth we also need to grow by accelerating new restaurant development, while still a work in progress we’ve seen measurable results on multiple initiatives and continue to look at opportunities to extend the reach of the brand both domestically and internationally.

As we previously shared I've assumed the role of brand president for Applebee and I will remain in the position until we’re back on course. I have extensive knowledge of the Applebee's brands and a long history with the franchisees, so I'm looking forward to working closely with the management team and principal to execute our strategy.

I've even more confidence in our ability to succeed after recently completing another great Applebee's franchise conference.

I can tell you that our 33 franchisees are 100% aligned and fired up about the bold initiatives we are undertaking in 2016 to change the story at Applebee, to further differentiate ourselves from the competition and to change the perceptions of the brand. Now let's turn to IHOP.

I'm very pleased to announce that IHOP posted a solid 5.8% increase in third-quarter comp sale. The impressive performance was partially driven by elevated guest service at our successful Summer Stacks pancakes and double dipped French toast promotion, both of which drove strong sales mix.

IHOP, by the way, is the brand that has offered all-day breakfasts for 57 years, achieved positive comp sales across all day parts. Our ongoing drive to innovate and to focus on flawless execution are at the heart and are driving forces of our success and momentum.

Rest assured IHOP’s solid performance has not made us complaisant, in fact we are more energized than ever. Our focus on flawless execution has allowed us to improve consistency in terms of the restaurant experience, addressing guest satisfaction, food quality and speedy of service resulting in ongoing momentum.

Nearly 10 years ago we implemented our AB grading system to measure our franchisees operational performance and over the years, while continually raising the bar, we have seen significant improvements and consistency of operational standard from restaurant to restaurant.

The ongoing focus on operations improvement translated into not only the highest yet loyalty index scores in the last five years, so also positive year-to-date traffic. Getting to market faster helps keep us ahead, it helps drive sales and traffic and helps to continue differentiating ourselves from the competition.

We are working harder to accelerate the introduction of new initiative, new menu items and platforms to the market place sooner in order to stay ahead of the competition, we have a relentless focus on growing our business organically through our marketing our ongoing menu renovation and continuous operations improvement.

Accelerating development and getting to market faster are also very important parts of our strategy, to this end we are working to create a prototype and remodel package to further accelerate development. Both are at very stages of testing with consumers, but we are excited by the initial feedback from our guests and our franchisees.

Our IHOP franchisees are very supportive and committed to development as evidenced by their stable history of building between roughly 150 and 70 new restaurants gross each year for the last decade. As a complement to our organic growth we look to new restaurant development to grow market share as we’ve done consistently for the last nine years.

I’m very proud of the hard work being done in our restaurants and our restaurant support center, I’m thankful to our team members and franchisees, for their hard work to make this a successful eventful quarter.

Having just completed a very successful IHOP franchise conference, I’m pleased to say that we have very strong alignment with our franchisees and their ongoing support. We are more engaged and focused on our shared goals than ever before. Looking ahead I’m incredibly confident in our team, our franchisees and our future.

With that I’ll turn the call over to Tom to walk you through the third quarter’s financial results.

Tom?.

Thanks Julia. So I’ll start with a brief discussion of our financial highlight beginning with the income statement. We are very pleased to report a 25% increase in third quarter adjusted EPS of a $1.43 compared to a $1.14 for the same quarter last year.

The solid gain was primarily due to significantly lower interest expense as a result of our debt refinancing that was completed in fourth quarter of 2014, in addition higher gross profit due to an increase in IHOP’s domestic sales and IHOP restaurant development over the last 12 months were solid contributors.

Total revenues were flat from the prior year’s third quarter mainly due to the impact from the previously announced sale of the remaining 23 company operated Applebee’s, completed in late July, this transaction resulted in roughly $9 million in gross proceeds and the financial statement gain of approximately $2 million.

Regarding G&A, G&A in the third quarter was approximately $42 million, G&A would have been $38 million but for approximately $4 million in non-recurring consolidation charges.

The $38 million reflects an increase of $4 million over the third quarter of last year primarily due to higher personnel related costs and increase in expenses for professional services and consumer research as well as prior depreciation.

Regarding the consolidation, we had initially estimated that the move would results in approximately $3 million of non-recurring pre-tax charges this year. Based on updated estimates for severance and other personnel cost, we now estimate that the total cost in 2015 will be approximately $5 million pre-tax.

The variance is due to slightly different mix of personnel who are remaining with the company as well as some cost planned for 2016 for relocation and recruiting that will now occur in 2015.

You can see the standby of our guidance for the full year and expect G&A to range between $149 million and $153 million excluding that roughly $5 million in consolidation cost expected during fiscal 2015.

Now regarding the tax rate our effective tax rate for the third quarter of 2015 was 38.7% compared to 36.5% for the third quarter last year, the slight increase is due to timing of certain income tax [ph] differences. We reiterate our tax guidance for the full year of approximately 38%. Now a few comments on the cash flow statement.

Cash flows from operating activities were $78.6 million for the first nine months of 2015, compared to $102.4 million in the same period last year. The main reason was the decline and changes in working capital partially offset by the positive impact of significantly lower interest expense in higher gross profit.

The change in working capital for the first nine months of 2015, compared to the same period of 2014 was due to three factors, one, $28 million related to the timing of interest payments on our long term debt, two, $18 million related to the timing of advertising and marketing related accruable and three, higher estimated income tax payments in 2015 compared to 2014.

Now an update on returning cash for shareholders. Year-to-date we've returned approximately $100 million to shareholders in cash dividend and share repurchases combined. Turning to our performance guidance for fiscal 2015, I want to highlight a few changes so please see our press release for more details.

We now see cash from operations for the full-year turning to the low end of the guidance range of between $115 million and $125 million however with favorability in CapEx and hiring net receipts from note and equipment contracts receivable, we now expect free cash flow to increase between $120 million and $130 million, and this excludes the proceeds from the sale of 23 company operated Applebee’s which is available to return to shareholders.

And with that I'll now turn the call back over Julia for closing comments..

Thanks Tom. To close we had a strong quarter highlighted by healthy growth in adjusted-EPS. We continue to generate substantial free cash flow and reaffirmed our commitment to return the majority of it to shareholders during increased quarterly dividend and share repurchase authorization.

We're taking aggressive steps to drive additional organic growth and development from our brand, at IHOP we’re relentlessly working on several initiatives to sustain the strong momentum we build. And at Applebee's we’re focused on the brand reinvention to further differentiate ourselves and build an insurmountable lead in the category.

Of course we remain committed to innovation at both brands and building the platform for sustainable growth. Including the potential acquisition that is the strategic fit and doesn't compete with our future brands.

We've a great team in place, the right resources, a solid track record of achieving our aggressive goals and solid collaboration with our franchisees who are some of the best operators in the business. And now Tom and I would be pleased to answer your questions.

Operator?.

Thank you. [Operator Instructions]. Our first question comes from Brian Vaccaro with Raymond James. You may begin. .

Just wanted to ask about Applebee's and the com softness you're seeing there.

And can you give some perspective, maybe talk about trends through the quarter, maybe comment on lunch versus dinner versus nonpeak and maybe any pockets regionally that stood out to you in the quarter?.

There wasn't really a marked difference in the quarter and wasn’t a marked difference by the area of the country nor was there a marked difference by lunch or dinner or any other day parts. There's nothing really to comment that is extraordinary one way or the other. That was pretty consistent..

I guess more broadly Julia, any perspective on broader consumer backdrop anything you're seeing in your data that might help explain why industry trends have flipped to slightly negative in recent weeks. That will be great too..

As you know we don't comment on inter quarter, but I would say in third quarter we know that Applebee's did not do as well as the rest of the casual dining category, and that’s unusual as you know we have been better than the category for many, many, many, many months, and so this was a change in third quarter, but I think it really demonstrate what I talked about earlier which is this notion that we have to be much bolder we’re so big and we produce so much that I think we've got to think differently about how we step out of the box of incremental menu items as are like and really begin thinking differently.

And I think that’s the really focus for us. .

Shifting gears, I know it's still very early on only a couple of months since your new VP development joint, but can you give an update on where you're thinking is on the potential domestic growth going forward.

You mentioned the new prototypes and designs and that’s sort of thing, but is that something we could see as we move into ’16 and to ’17 possibly as an incremental growth driver domestically?.

Right, it's a fair question. I think there is two things that I should be prepared to do by the next earnings call which will be year-end, which is in February.

I think we’ll be able to give you a better sense of how much you can escalate the existing development, more to the 4,900 square footprint to both brands in 2015 and then what nontraditional work can get done as well and how much of the remodel of both brands can get done. I think we'll have a better sense of not only the what, but the how. .

Alright we look forward to that. And then just Tom, one last numbers question. The charges you mentioned the shift the old charges were expected to 3 million in 2015 and 10 million in 2016 on the consolidation.

So the total hasn't changed, it’s just really a timing shift is that right?.

At the outside it could be that we see a little bit more next year but there isn't anything significant, it's really a timing thing and its different mix of people. .

And can you just remind us of those say $13 million roughly of charges sort of the cash versus non-cash components in that?.

This is Gregg, well a significant haul of it will be cash in the future, but some of that $10 million next year related to lease -- remain payments on the lease of 2021..

Pulling ahead of the lease payments from Kansas City..

Yes but for next year and this year about half of that would be cash that wouldn’t apply to year ‘17 or ‘21..

That's right..

And our next question comes from John Ivankoe with JP Morgan. You may begin..

Julia early on in your prepared remarks, when you were discussing the two imperatives and one which is additional organic growth, did I hear you correctly, that you talked about day part expansion and to what brands would you be referring and how big of an opportunity is that if I heard that correctly?.

I think there is probably an opportunity to optimize at Applebee’s and an opportunity to expand at IHOP, we think there is something that we could be doing especially with the dinner daypart that we haven't done before and then we think there are some opportunistic things that we can be doing that we haven't done to date.

So it's a little bit of both, so I think in terms of expansion it’s probably more at the IHOP domestic business..

Okay.

And in terms of selling more non-breakfast food at IHOP, I can remember that being new kind of focused plan, that brand probably 10 or 15 years ago, so what could be different and I think all stores, I don't know if they are all open 24 hours but you’re certainly there are all open for the dinner daypart already, so can you elaborate a little bit more just in terms of how significant that could be, what you could do?.

Well, it’s funny that you say that because right before I joined IHOP, they actually were very focused on doing different food types and I think the reality is this notion that we are the only people who have been serving breakfast all day for 57 years and we do get some credit for that, we think there is some real opportunity within that, maybe not the item, but the notion of the date part into dinner, said different offering breakfast all day and doing somethings differently as the dinner daypart could be really intriguing in terms of interest level some consumers or at least that’s the preliminary work that we’ve done to suggest, we could be doing expanding the daypart not necessarily by dinner items, but different types of items at the dinner daypart, that’s intriguing, there is always an opportunity to get more people on 24/7 about three quarters of the brands is on 24/7 now, but there is always an opportunity a lot of that's driven by the trade area, there is always opportunities to do a little bit more of that.

And we think there is some expansion opportunities there, and obviously some of the other areas which we didn’t talk too much about, but think about it as being highly competitive in different spaces than we have been today, including coffee..

Okay and secondly, if I may, on Applebee is also referencing your prepared remarks, where you mentioned needing more menu and atmosphere work, obviously paraphrasing that but the price value didn’t come up, I mean should we assume that kind of both you being aggressive at Applebee’s and trying to turn around the brand, you can incur without some of kind of price investment, or more lowering prices or focusing on national price points, what have you, or can that be done just simply no menu and atmosphere, would you maintain or even increasing your average ticket?.

Yes, I think we are very focused on price value, which is you know is not just about price, but about what you provide the consumer, and we think we know there is a huge opportunity at Applebee’s to give people a $20 experience for $10 and we are incredibly focused on that and Applebee’s through the work we are doing with proper training, the work we’re doing with the bar reinvention, the work we’re doing on the menu, the work we’re doing throughout the restaurant, there is a tremendous opportunity and we know this for a fact that consumers would love to have a $20 experience for $10, we think we have some very specific ways to do that it, I don't want to share too much of that for competitive reasons, but we think there is a lot of upside there..

Of course and then finally if I may, obviously understanding I don't think operate any stores, any more, but in terms of working with your franchisees, labor cost per hour is going up and we know that.

So what and how are you and the franchisees working together, to kind of to moderate that cost and is there anything from a technology or procedure point of view that actually may allow them to do the bright service job and actually reduce the number of labor hours that are in the store?.

So, that's absolutely correct.

That cost of labor is going up, I think first and foremost I would give us an A++ for what we’ve been able to do on the food cost side of the business, to minimize any inflation through this $2 billion purchasing cost, which has been incredibly successful and we are now launching into non-food, everything from equipment, furniture, small wares, gift cards.

So we’ve been relentlessly focused on that, continue to do so, and I think the franchisees are thrilled with the result, because that enables them to pass that savings on to the consumer.

On the labor side, there is a couple of things that we are looking at working with our franchisees to collaborate some of the best demonstrated process that we’re seeing across the country, not to mention some additional work we can do and certainly they've challenged to look at that technology and we’ll certainly take a look at that, but part of that is the simple notion of recognizing that we along with the rest of the country may have to take some price increases, and we've been very mindful of that, and trying to be very thoughtful about what that looks like, and minimize the impact of the consumer but recognizing everyone may have to take a price increase.

.

And our next question comes from Michael Gallo with CL King. You may begin. .

I just wanted to delve in a little bit on IHOP, obviously it's another strong quarter. You’ve had great momentum in that brand for some time.

I was wondering when you pass out the trends at IHOP where you're seeing the greatest strength, is it the core breakfast, are you seeing good growth outside of launches, is it mid-week, is it just across the board? Thanks..

Michael I'm so glad you asked that question because I get to tell you it's everywhere. Breakfast, lunch, dinner, late night, its every day part, it’s throughout the day, it’s everything at IHOP, it's single, it’s traffic, it’s all doing extremely well across the country, across the board. I would call it an A++..

And just a follow-up to that, I you know took -- we’re able to get the marketing, the TV dollars of this year over last year, would you expect to be able to have another increase in the dollars allocated to TVs, as you look 2016?.

I may not have been clear in prior calls that’s a three-year commitment it's all of ’15, it's all of ’16, and it's all of ’17. It's the same increase for three years..

Our next question comes from Alton Stump with Longbow Research. You may begin. .

I guess just as far as your all competitive environment, obviously there is been couple of bar and grill focused names, have put up some weak comps here for calendar 3Q.

How much worse did you see competition get? Is it more internal or is it some more of an external factors you think that you’re the weak performance for Applebee?.

I have answered this answer before and I know this probably frustrates everyone. We don't see a real difference in our sales or traffic driven by competitive sets. The large majority of the category is independent, and the truth of the matter is when we steal share, we’re going to steal share from largely than independents.

We don't see a lot of shift one way or the other because a competitor went on television and said something or drove a price point, that's not really what our nemesis is, or our focus.

It's really us differentiating ourselves in the category, what our consumer tell us is, they see in general in casual dining categories, a lot of sameness and our whole focus is really on differentiating ourselves from everyone else in the category.

And that’s what I was speaking to earlier, this notion of being bigger and bolder is really focused on once and for all just separating us from the entire category.

That’s what we’re really seeing it's not anything that’s particularly price point or promotion or that’s just not what we’re seeing at all and that hasn’t been for some time, that's really not been our issue..

And then I guess one quick follow-up and I'll hop back in the queue and this more of a conceptual question. But obviously, used to be a success IHOP, Applebee's has turned the other way, to your way.

Is there anything as you kind of think about what has driven success with IHOP, whether it's driving some mix with better appetizers showing, obviously it is a different concept and it is subcategories than Applebee, but is there anything you can use or if you'll learn from your success at IHOP and hope to carryover to Applebee..

It's a couple of very specific things. One is a very focused, management team and a very focused group of franchisees. We don't try to do 20 things, but do a couple of things outstanding. That’s the focus we've had at IHOP that’s the focus we’re going to get at Applebee's, that’s number one.

Number two is, it's not any one thing, it's all of those things in combination, so it’s the effort on operation, it’s [indiscernible] focused on advertising, it's focused on innovation, it's doing all those things simultaneously, it’s not sequential it’s doing them all at once and getting maniacally focused on doing things well.

I never want to underestimate the power of the execution on the IHOP side and doing that same execution on the Applebee side, and quite candidly there is this huge advantage on the Applebee side. It's not 365 franchisees like it is on the IHOP side, it’s 33 franchises who own all the restaurants in the domestic U.S.

and getting them maniacally focused and the great news is, I couldn't be more complementary of the work, the effort, and the commitments these franchisees have to do whatever it takes to break out of them all and that’s the best news of the day.

I just literally came from being with all of them in Miami Florida and they are maniacally focused on doing just that, so that the best news of the day..

And we have no further questions at this time. I will now turn the call over to Julia Stewart for closing remarks..

Thanks operator. And thank you all for joining us today. We're scheduled to report the fourth quarter on February 24th, if you have questions in the meantime please feel free to call myself or Tom or Ken. Thanks again..

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating, you may now disconnect..