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00:02 Good day, and thank you for standing by. Welcome to the Q4 2021 Dine Brands Global, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded.

[Operator Instructions] 00:30 I would now like to hand the conference over to your speaker today, Ken Diptee, Executive Director, Investor Relations. Please go ahead..

00:38 Good morning, and welcome to Dine Brands fourth quarter and fiscal 2021 conference call. I'm joined by John Peyton, CEO; Vance Chang, CFO; John Cywinski, President of Applebee's; and Jay Johns, President of IHOP. 00:54 Before I turn the call over to John, please remember our Safe Harbor regarding forward-looking information.

During the call, 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 different than those expressed or implied.

01:12 Please evaluate the forward-looking information in the context of these factors, which are detailed in today's press release and 10-K filings. The forward-looking statements are as of today and assumes 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 Dine Brands' Investor Relations website. 01:34 With that, I'll turn the call over to John..

01:38 Thanks, Ken, and good morning, everyone. On behalf of John, Jay and Vance, thanks for joining us. We're at a moment in time that reminds me of a Tale of Two Cities, I read in college. In our case a Tale of Two Wins, it’s headwind and tailwinds, both at the same time.

Tailwinds because the guests are back in our restaurants and consumer intent to return to restaurant is at its pandemic period high. Our new largely incremental off-premise business is holding steady at more than two times 2019, and restrictions are largely being rolled back across the country.

02:13 Yet, at the same time, we're combating meaningful macroeconomic headwinds, inflation, the labor shortage, supply chain disruption, and now the war in Ukraine. That said, Dine is stronger than ever and that's because we played both defense and offense during the past two years.

Our investments in tech, menu simplification and off-premise business all position us for additional growth in 2022. COVID did surprised us again late in Q4. Yet, despite Omicron impact beginning in mid-December, we maintained our momentum in Q4 delivering another solid quarter. 02:53 Today I'll share highlights of our Q4 and our full year results.

I'll talk about the impact of Omicron and other macroeconomic challenges. I'll frame-up the ways in which the past two years made Dine stronger than ever before. And I'll recap our most important accomplishments of 2021. So, I'll begin by sharing the quarter’s highlights, including comp sales, EBITDA, cash flow and development.

03:16 First, for the second consecutive quarter average weekly sales for IHOP and Applebee's, both surpassed the comparable quarter for 2019. For the sixth consecutive quarter, Applebee's beat its comp set, while IHOP outperformed its category two out of four quarters last year, according to Black Box.

We recognized revenue of $229.6 million and EBITDA of $60 million, which reflects the momentum of our brands, our franchise model and consumer commitment to returning to restaurants.

For the full year, our brands opened 46 new restaurants globally and closed 96, that's our best net development performance since 2019, and an indication that franchisees are pivoting from defense back to offense.

And for the 12 months ending December 2021, our asset-light model generated $191 million of adjusted free cash, that's an improvement of 79% compared to last year. 04:16 So our Q4 and our full year results are impressive, particularly considering the virus and certain macroeconomic headwinds. I'll address those now.

Beginning in mid-December, Omicron briefly agitated staffing challenges and traffic before bouncing back in mid-February. At this point in time, the impact from Omicron is largely dissipated. We continue to see the impact of inflation on the cost of beef, poultry, pork products, oils and eggs.

And in light of the situation in Ukraine, we're closely following energy costs. 04:51 And while we expect supply chain availability and pricing to moderate throughout 2022, the increases in cost of labor are likely to remain over the long-term. Despite these headwinds, we are increasingly encouraged that we're at the beginning the end of COVID.

And as we transition to the endemic phase of the virus, we're optimistic that the days of mass requirements, proof of vaccination and capacity restrictions are behind us. 05:16 So now let us focus on Dine and how we're emerging as stronger than ever from the past two years. And I think it's important to define what I mean by stronger.

Strength is not only about the number of our brands brick and mortar restaurants. Today, strength is all about in-restaurant technology, digital innovation, loyalty programs, communicating and serving our guests on their terms, when, where and how they prefer. And in that context I'll share examples of what we've done that has made us stronger.

05:46 First, throughout the last two years we've innovated the in-restaurant guest experience. For example, our hygiene and safety protocols are enhanced and will become the new standard. Guests can now put their names on our waitlist and pay their bills with their phones.

Servers are now serving with server tablets, which help them with efficiency and speed of service. They also earn more money. This year we're rolling out IHOP's new POS and Applebee's is projected to follow in 2023.

The new POS includes a new kitchen management system and server tablet integration and provides a boost to front of house and back of house productivity, and improves guest service and help servers earn more. 06:27 The second reason we're stronger is because we've innovated the off-premise experience.

Applebee's and IHOP grew takeout and delivery more than two times versus 2019. This is largely incremental business that we intend to nurture and grow.

To go packaging is also next gen, it keeps food hot longer and it's designed to showcase our menu with supercharged technology investment and adoption, and throughout the year -- throughout 2022 Applebees.com, ihop.com, flipd.com and their associated mobile apps will all be brand new.

07:01 We're changing back of house properties to better accommodate our higher off-premise volumes. For example, we introduce Carside Express at Applebee's and curbside at IHOP. The Applebee's geofencing technology to track guest proximity to the restaurants and shorten hand-off times.

And importantly, we implemented a new CRM and digital platform that has vastly improved our digital marketing and marketing analytics, which serves as the foundation for our loyalty programs.

07:28 Finally, we're stronger because we've streamlined operations and identified new sources of revenue that strength the financial performance of our franchisees. Today, for example, our menus are streamlined by more than a third compared to pre-COVID.

And as a result, our kitchens are more efficient, there's less food waste, faster prep times, improved quality and consistency of those items that remain. 07:51 Second, our franchisees embraced outdoor dining and expanded their seating capacity with minimal investment in capital.

Applebee's launched Cosmic Wings and IHOP is testing virtual brands Thrilled Cheese and Super Magazia in seven test markets, with even more markets coming online, providing incremental revenue to our franchisees. And we work with our franchisees to expand our sales channels via ghost kitchens in the US and abroad.

Most importantly, our asset-light model allows us to invest in what we do best, menu innovation, marketing and technology, all for the benefit of our franchisees.

08:29 So our scale is also uniquely dine, our IHOP and Applebee's purchasing co-op for example, procures approximately $2 billion in goods and services annually and this significant market footprint helps to mitigate to some extent supply chain availability and cost dynamics.

And our scale enables us to invest more in technology than either Applebee's or IHOP to do by its own. And finally, our world-class brands are also uniquely dined.

Applebee's and IHOP continued to gain share, because guests trust us, love us and appreciate that we're focused on delivering delicious food at a great value, while also providing experiences that are enjoyable and safe. 09:10 I purposely focus my comment this morning on our results and our 2021 accomplishments.

And John, Jay and Vance, will do the same. That's because we're looking forward to sharing our plans for growth during our Investor and Analyst Day next Wednesday, March 9th at the Westin Grand Central in New York City or via our virtual broadcast. 09:29 And with that, I'll pass over to Vance, who will discuss our financial performance..

09:37 Thank you, John. As John mentioned, we're well positioned for growth, and I'm pleased to share with all of you our financial results. I'll start with a recap of our operating highlights. Then I'll provide a summary of capital allocation for 2021. Finally, I'll review our financial performance guidance for 2022.

09:56 Starting with the income statement. Franchise revenues for the fourth quarter were $162.9 million, compared to $134.8 million for the same period of 2020. And that improvement was primarily due to an increase in royalty revenues, which reflects the significant recovery of our business over the last 12 months.

And without advertising revenues, franchise revenues increased 21%, mostly due to higher domestic franchise restaurant sales. 10:26 Regarding our company restaurant operations, sales for the fourth quarter were $36.6 million, compared to $32.6 million for the same quarter last year.

This was mainly due to an increase in customer traffic, as well as average check. Rental segment revenues for the fourth quarter were $29.1 million, compared to $27 million for the same quarter of 2020.

The favorable variance was the result of an increase in percentage rental income based on franchisees' retail sales and a decline in level rent adjustments. Adjusted EPS for the fourth quarter was $1.32 compared to adjusted EPS of $0.39 for the same quarter last year.

The improvement was from a 43% increase in gross profit, partially offset by higher G&A expenses. 11:20 Now let me provide a little more detail on the increased G&A. As shared on our Q2 '21 call, we expect the G&A to be higher in second half relative to the first half of the year, mainly due to two things.

Number one, higher incentive compensation accrual; and number two, plans of burdened of expenses for professional services and travel until the second half of 2021. Our Q4 G&A was $48.9 million, compared to $39.4 million for the fourth quarter of last year. Approximately 70% of the increase was due to our incentive compensation accrual.

12:02 So now let's move to EBITDA. For 2021 consolidated adjusted EBITDA was $253.3, compared to a $158.7 million in 2020. The increase was primarily due to improvements in our business, which led to increases in both total revenue and gross profit. Consolidated adjusted EBITDA for 2021 was also higher than our performance guidance.

This was mainly due to lower than expected G&A expenses on timing that we have built this into our 2022 performance guidance. 12:36 Now let's get to cash flow. We generated adjusted free cash flow of $191 million in 2021, this compares favorably to $106.6 million for 2020.

Cash from operations for 2021 was $195.8 billion, compared to$96.5 million for 2020. The improvement in both was primarily due to higher gross profit and favorable change in working capital, partially offset by higher G&A expenses.

13:06 It's important to note that as of December 31st, especially all of the remaining balance of the $62 million of deferrals has been repaid to Dine by our franchisee in 2021. This includes royalties, advertising fees and rent paid. It is also a strong indication of financial health of our franchisees.

And of course, a collection of these deferred payments had a favorable impact on cash from operations. CapEx for 2021 was $16.8 million, compared to $10.9 million for 2020, roughly half of our 2021 CapEx was in technology. 13:45 Now let's go to the balance sheet.

Our financial discipline has helped us maintain our strong cash position, gives us the flexibility that we're looking for throughout the pandemic. We ended the fourth quarter with total unrestricted cash of $361.4 million. This compares favorably to unrestricted cash of $304.2 million at the end of third quarter.

Our leverage ratio also improved by half a churn. As of Q4 it was 3.86 times compared to 4.36 times in Q3. This represents Dine's lowest leverage ratios since the fourth quarter of 2015. 14:25 Let me also share with you our inflation outlook at Dine. We continue to be impacted by inflationary pressures, just like the rest of the restaurant industry.

For the fourth quarter of 2021, our year-over-year commodity inflation was approximately 17% on average across both brands. But looking ahead, we anticipate some moderation in commodity costs in the second half of this year.

Based on current conditions and available information, we expect inflation for 2022 to be north of 10% for both brands compared to last year. As a reminder, it takes approximately 2% to 2.5% of menu price increases for our franchisees to cover about 10% of commodity inflation.

15:09 Regarding capital allocation, we continue to create value for our shareholders. We do that by returning capital, along with investing in CapEx and G&A to unlock long-term growth. The steady improvement in our business in 2021 position us to resume returning capital to shareholders.

We paid the fourth quarter cash dividend of $0.40 per share or roughly $6.9 million in aggregate on January 7th. We also repurchased 59,099 shares for approximately $4.5 million in the last 45 days of the year at a weighted average price of $75.81 per share.

As of December 31st, there was approximately $66 million remaining on our current repurchase authorization. And to build on that, so far in Q1 of this year, we have made two significant decisions for our shareholders. Number one, we have stated last quarter that the $0.40 quarterly dividend represented a healthy starting point to grow from.

As you can see from our financial results, our businesses are getting closer to a steady state. This enables us to approve a 15% increase in our quarterly cash dividend to $0.46 per share for first quarter of 2022.

Number two, the Board also approved the new share repurchase program, authorizing the company to repurchase up to $250 million of its common stock. The new authorization will replace the existing plan, which was approved in February of 2019.

16:40 Lastly, I will review the highlights of our financial performance guidance for 2022, which assumes there are no further disruptions to our business due to COVID this year, other than the impact from Omicron in Q1. Please see the press release we issued today for complete details on our guidance.

We believe that the current disruption in the restaurant landscape has created an opportunity for Dine to gain market share. We want to position ourselves to out execute our peers. 2022 is an investment year, we are making upfront investments in technology, development and new revenue channels for both brands.

This will further position Dine for its long-term sustainable growth, even though the benefits of those investments may not be fully seen in this calendar year.

17:28 For 2022, G&A is expected to range between approximately $188 million and $198 million, including non-cash stock-based compensation expenses and depreciation of approximately $30 million. We still have [Technical Difficulty].

17:55 Pardon me. Chang, we cannot hear you. Please check your mute button..

18:08 We projected net unit development to range between 50 and 65 domestic restaurants. We expect unit development between five and 15 net newer Applebee's restaurants, signifying the end of Applebee's plan, portfolio and rationalization.

Lastly, consolidated adjusted EBITDA for 2022 is expected to be between approximately $235 million and $250 million, inclusive of company and restaurants segment EBITDA. 18:37 To close, our business has demonstrated strong improvement.

The continued execution of our growth strategy and ability to consistently generate meaningful adjusted free cash flow makes us enthusiastic about the year ahead. 18:51 Now, I'll turn the call over to John Cywinski, who will provide update to Applebee's.

John?.

18:56 Hey, [indiscernible] excuse me, one second, Vance. I'm going to jump in. There was a technical glitch. And there was about 30 seconds, where we understand that no one could hear you. And we lost you just about the time you were saying that the company has reinstated -- put the new buyback authorization in place of $250 million.

Could you just cover that section, because we missed you for about 30 seconds..

19:19 Sure. I think that was the number two, I said, the Board also approved the new repurchase program authorizing the company to repurchase up to $250 million of its common stock. The new authorization will replace the existing plan, which was approved in February of 2019.

And then lastly, I will review the highlight of our financial performance guidance for 2022, which assumes there are no further disruption to our business due to COVID this year, other than the impact from Omicron in Q1..

19:49 That's good. That's good. That's a good picture to back up..

19:53 All right. Further advance your great both times. So good morning, everyone. Thanks for joining. 2021 was indeed an exceptional year for the Applebee's brand. After the pandemic briefly interrupted our momentum in Q1 of last year, Applebee's delivered comp sales increases of 10.5% in Q2, 12.5% in Q3 and 9.1% in Q4 versus our 2019 baseline.

As with prior quarters, Q4 weekly results were very consistent with comp sales in the plus 9% to plus 13% range. Except for the final two weeks of the year, when Omicron impact was quite evident. 20:34 On a full year basis, '21 versus '19, Applebee's posted a comp sales increase of 6.2%, representing our best performance under Dine ownership.

This performance reflects weekly restaurant sales of $50,500, also representing our highest sales volume under Dine.

While the brand retained record results on multiple fronts, I'm pleased to report that our company restaurant portfolio also delivered its best year in '21, posting an 11% comp sales increase over '19 and ranking number four among our 30 franchise partners.

21:12 And according to Black Box Intelligence, with the exception of only the first week of 2021, Applebee's outperformed the casual dining category for a remarkable 51 consecutive weeks last year by an average of 740 basis points.

I should note that Applebee's also outperformed the category on a '21 versus '20 basis by 960 basis points with the comp sales increase of 38.2%.

In addition to comp sales, Applebee's fundamentals remain rock solid as the brand continues to maintain category leadership on important attributes, such as affordability, menu variety, convenience to go awareness, delivery awareness and overall brand awareness.

21:58 Now, on the off-premise front, Q4 weekly sales remained very stable at $13,800 per restaurant, more than double our pre-pandemic volume, accounted for 27% of total sales. Applebee's Q4 sales mix consisted of 73% Dine, 14% Carside To Go and 13% delivery.

With significant investments over the past few years and continued operational excellence, I'm now more convinced than ever that our off-premise business is a genuine core competency and a very leverable point of difference for the Applebee's brand.

In addition, we will soon be adding our third drive thru pickup window, this one in Columbia, South Carolina with plans for several more throughout the year. Although, a small sample size preliminary results are very encouraging.

22:50 On the delivery front, we started growing as John referenced our Cosmic Wings, virtual brands and DoorDash over the past several weeks on a market by market basis. At present about 1,000 restaurants are now active on DoorDash, with the balance to follow this month.

We anticipate completing Cosmic Wings delivery expansion in Q2 with the addition of GrubHub. 23:13 Now on the development front, we closed 25 restaurants in 2021. That's our lowest closure total in five years, signifying the end of Applebee's plan portfolio rationalization. In addition, we opened five new traditional restaurants last year.

We hope to double this number of new restaurant openings in 2022, with a combination of traditional and ghost kitchen units, marking the beginning of our development escalation moving forward. 23:41 As we methodically reestablished our development pipeline, I expect to achieve net new unit growth beginning in 2023.

As of the end of 2021, Applebee's had 15,078 restaurants in the US. Now, to help address very obvious ongoing labor challenges, we executed our second National Hiring Day on February 8th, with great success. In total, Applebee's secured more than 58,000 applications on a single day, surpassing our 40,000 total from last year.

This along with media muscle and supply chain expertise to represent just a few examples, resale provided Applebee's tremendous competitive advantage. 24:25 Looking forward, we'll continue to leverage culinary, beverage, marketing and media innovation as primary differentiators for the Applebee's brand.

We closed out 2021 by driving awareness of our co-branded partnership with PepsiCo and Cheetos. And we kicked off 2022 by thanking our loyal guests for sticking with us throughout the pandemic.

24:47 As we move through the year, you can expect a mix of targeted occasion based messaging from Applebee's featuring noteworthy innovation and value propositions designed to reinforce to even go in the neighborhood position.

In total, I expect national media allocation to be very healthy this year and slightly favorable last year from an absolute dollar perspective. 25:09 To summarize, 2021 represent the culmination of our strategic brand optimization work over the past several years.

As expected, 2021 provide us the opportunity to really unlock Applebee's full potential, providing a glimpse as to what's possible moving forward. I'm proud of our team, and I'm very proud of our franchise partners. I mean, Applebee's is now exceeding well positioned to flourish on a sustained basis.

25:36 With that, I'll turn it over to my partner Jay for an overview of the IHOP brand..

25:40 Thanks, John. Congratulations on another great quarter. Good morning, everyone. Average weekly unit sales improved each month of the fourth quarter. Sales remained strong, averaging approximately $37,500 per week, in line with the same quarter of 2019.

Although IHOP's comp declined 3% in the fourth quarter, we view this as isolated and not a change in our solid fundamentals. There were several factors that adversely affected performance.

26:08 The most impact will include the surge in the Omicron variant in mid-December, along with standard operating hours in some restaurants due to labor shortages, rolling over the hugely successful tie-ins with MGM's animated film, Addams Family, which was IHOP's strongest promotion window during 2018 and 2019.

Additionally, a four week core menu print mismatch and day or week holiday mismatched for both Christmas and New Year's Day was both fell on Saturdays in fiscal 2021. Weekday if it's on holidays are very advantageous for our brands. 26:42 As mentioned earlier, COVID continues to affect the labor supply.

With that said, IHOP remains approximately 85% to 90% staffed nationally. The percentage of our domestic restaurants that are opened for standard operating hours are greater improved by 3 percentage point at 86% compared to Q3, approximately 26% are opened and operating 24/7, which is consistent with our previous quarter.

27:08 We believe that having any additional restaurants opened for standard operating hours could have a positive effect on our dine-in business, which is 76% of our sales mix for the fourth quarter. Our off-premise business remained steady, accounted for 24% of sales in Q4.

Average weekly off-premise sales volumes for the fourth quarter of 2021 were approximately $9,300. This compares to sales volume of approximately $9,200 for Q4 of 2020. 27:37 To enhance our one-to-one guest engagement, we will be launching our new loyalty program by the end of Q1 this year.

It's a true earning burn program that allows our guests to collect and redeem rewards when they dine with us. We believe this program will be a fun and appealing way for securing even stronger connections with our guests, build brand loyalty and drive incremental visits.

28:01 We've evolved our strategy to adapt to the changes in consumer behavior brought on by the pandemic.

As a result, our plans to grow sales extend beyond traditional brick-and-mortar locations, expanding our presence through virtual brands out of our existing domestic restaurants, provide an opportunity to drive incremental sales with lower capital requirements.

28:21 In the fourth quarter, we started setting two virtual brands in nine restaurants across Ballast Fortworth, Phoenix and Lexington, Kentucky. The early results are encouraging, and we recently launched a beta test in approximately 50 restaurants.

These virtual brands, which intentionally do not compete with our breakfast day part business, require minimal new SKUs and some require new equipment to execute. We're enthusiastic about this flexible lower cost options to meet the convenience needs of our guests and look forward to providing updates on our progress. 28:54 Turning to development.

Our franchisees opened 40 new restaurants globally in 2021, of which 37 were domestic openings. We remain confident in our ability to significantly expand our unit growth through our four development formats, which include traditional, non-traditional, a small prototype and Flip by IHOP, all of which that can be done in conversions.

29:18 Within our our second flip location in December in New York City, the unit is approximately 1,800 square feet and seating capacity is about 20 seats. We'll provide more details on flips later in the year. In addition to growing our domestic presence, we're also focusing on key opportunities outside the US.

We recently announced our first franchisee deal in the Caribbean. The first IHOP location in Nassau. The Bahamas was scheduled to open in late 2022 through an agreement with Bahamas Limited, which calls for opening 59 IHOP restaurants over the next several years.

Additionally, we announced a deal within status IHOP franchise in the US, to develop both IHOP and Applebee's restaurant in the UAE. We also have the IHOP's first ghost kitchen in North America in partnership with Ghost Kitchen brands. Our guests in Toronto can now enjoy a wide selection of portable menu items for off-premise consumption.

30:11 To wrap up, I'm very proud of what we've accomplished in 2021. We outperformed our category in Q2 and Q3 by an average of 183 basis points relative to the comparable quarters of 2019, according to Black Box Intelligence.

We adapted to the changes in consumers behavior by launching an array of highly portable items such as our new hand crafted melts. We maintained a strong off-premise business even as guests return to in-restaurant dine-in.

We elevated our omni-channel approach to utilize our marketing resources better and are franchise opened 40 new restaurants, including the first two flip by IHOP applications. 30:48 I'd like to thank our team members and our franchisees for their valuable contributions to make all that happen.

Looking ahead, I'm optimistic about a strong unit growth potential and expanding our presence through virtual vehicles. Lastly, we're optimistic that new cases of COVID-19 started to decline and staffing will return to pre-pandemic levels. 31:09 I'll now turn the call back over to John Peyton for his closing comments.

John?.

31:16 Thanks. Thanks, Jay. Appreciate it. Great quarter for both IHOP and Applebee's. And before we have closing comments, I think we're going to take some questions..

31:29 [Operator Instructions] Our first question comes from the line of Brian Mullan from Deutsche Bank. Your line is now open..

31:53 Hey, thank you. Just in reference to the 2022 guidance. I can appreciate you're not guiding same-store sales by brand today. But I think it would be helpful to understand the underlying assumptions on the top line that might lead one to either the high end or the low end of that EBITDA guidance.

However, you'd like to talk about that that would be helpful, either average weekly sales in relation to 2019? Or any other ways that would help people know the underlying revenue assumptions that you're making?.

32:23 Thanks, Brian. As you pointed out, we're not guiding on comp, but what goes into our guidance reflects the, say, initiatives that we're working on that are from comp growth, development growth and new revenue channels.

There's still -- I think the margin expansion will happen over time beyond 2023, after some of these initiatives are realized, but it is an investment year for us. So that's why we're not specifically guiding on comp performance.

But, again, having said that, we are seeing Omicron mostly behind us, so anything beyond Q1, it's sort of growth-based focus for our restaurant going forward..

33:18 Okay, thank you. And then just a question on IHOP. It sounds like the percentage of locations that were in 24/7 didn't change much from the third quarter to the fourth quarter, if I heard you right, Jay, in the pared remarks.

So just wondering if you could update us on your current thinking on that topic today? I imagine as a franchisor, you want to get that fully restored.

What is the franchisee perspective right now? And how are those conversations going?.

33:45 Well, I'm confident we'll get back to the pre-pandemic level, but I just can't give you an answer to exactly when that will be. Clearly, the pandemic is waning.

I think that staffing is improving slowly, and we're getting back to full standard operating hours as you heard me say, that improved 3%, it is improved three more percent in the quarters right now as we sit today. So it is slowly getting better.

And I think that once we get to kind of the full operating hours of the standard business, you'll have franchisees that will start opening more and more. The way our franchisees historically do this even for, say, if new restaurant open, they typically don't start 24/7 on the first show.

And they start standard hours, then they'll move to what we call 24/2. So they'll go to 25 hours just on a weekend, begin with. And that way they can slowly build as they get staffed. And I would expect that's how we see it this time around..

34:45 Thank you..

34:46 And Brian, it's John Peyton. I'll add that on a national basis, the last two quarters, Q3, Q4 of last year, you all may recall, we were saying that based upon canvasing franchisees, we were about 85% staffed versus what was needed.

What we're hearing now from our franchisees as we ended the first quarter -- in the first quarter this year is that we're now approaching 90%, even a little bit better. So we are seeing an improvement in staffing nationally after stalling last year..

35:19 Understood. Thank you very much..

35:22 Thank you. Our next question comes from the line of Jack Corrigan from Truist Securities. Your line is now open..

35:31 Good morning, guys. Thanks for taking the questions. My first question is on G&A and the guidance for '22.

Can you just give a little more detail on the drivers of that? And maybe if anything is unique in '22 that might ease in '23 and going forward? And then also within that, could you quantify any level of permanent savings that you found during the pandemic?.

35:56 Hey, Jack, it's John. I'll take it at a high level, and then I'll turn it over to Vance for a little bit more specific on the numbers.

But when it comes to G&A in '22, as we enter my second year as well is, there are a couple of things that we want to invest in, and these investments we believe will pay off over the long-term, and they're not a permanent increase to our G&A, but there's certainly investments that we think are necessary next year or right now this year in 2022.

36:23 One of them is technology, whether it's restaurant-based technology, back-of-house or front-of-house, we've got ambitious plans and for the consumer-facing technology and all we want our guests to be able to do on their phones. We also have an ambitious plans there.

So there's certainly a tech investment we're making in 2022 that we began last year that we think will pay off over the long-term. We're also investing in accelerating unit growth, our loyalty program and some other things like that.

36:55 And Vance, can you sort of specifically repeat the data behind that?.

37:01 Yeah. I think the 2022 guidance really reflects the appropriate level of infrastructure that we need to unlock the growth potential of our brand. We do not anticipate another big increase in G&A beyond what we currently plan for this year. We'll cover more of this on our Investor Day next week.

But ultimately, as I mentioned earlier, we do see margin expansion over time as a result of the expected growth from comp and development and new revenue channels that we're investing in.

37:31 John talked about earlier just now, but the investments are primarily related to technology initiatives designed to support growth, franchisees support to improve operations and guest experience and unit development-related support costs.

And I guess, one last thing I'll mention is that, we do have open positions in different departments at different projects in consumer research and product development and travel expenses, that were planned for 2021, that we'll still pursue in 2022, and that’s also be built into our 2022 G&A guidance..

38:11 Great. Thanks. That's really helpful color. And my second question is really on the health of your franchisees.

And maybe, could you talk about what the franchisee store level profitability was in 2021 versus pre-COVID? And then given your comments that you expect 10% plus inflation, do you expect that to be pressured materially in 2022?.

38:35 Well, I'll comment on the inflation point first. As I mentioned in my prepared remarks, I think the average inflation for the year we're expecting north of 10% or more specifically about 13% for Applebee's and 9.5% for IHOP for this year, with some automation in the second half of the year versus the first half.

Our franchisees are -- I think the best way we can explain our financial health for our franchisees is based on the fact that all of the deferral has been repaid. And we see that -- they're very interesting development again, -- development growth again. So that's also a reflection of the relative confidence from our franchisees.

And then -- but we haven't historically disclosed franchisee financial information specifically..

39:35 Jack, this is John Cywinski. I would state very clearly, Applebee's franchisee financial health is better than at any point in my five year tenure here coming back a second time. They had a terrific year. And then with respect to covering inflation, they're smart and strategic, and then they'll be very responsible on pricing.

And I view this as a market share opportunity going forward..

40:04 Great. Thank you..

40:07 Thank you. Our next question comes from the line of Nick Setyan from Wedbush. Your line is now open..

40:15 Thank you. Congrats on a new solid Q4. But I think the EBITDA guidance, obviously, is a bit of a concern, because you're going down year-over-year. And understanding it's a year of investment, and we have a big step-up in G&A.

Maybe you can give us a sneak peak of your longer-term expectation around EBITDA growth beyond 2022, if that's possible?.

40:53 Hi Nick, this is Vance. We will cover a lot more of this on our Investor Day. But you said that 2022 is an investment year for us. And the reason why the margin is sort of going down year-over-year is, because we're making upfront investments in the business while the benefits of these initiatives are happening over time.

So it's more of a timing mismatch. And we think 2023 and beyond is more reflective of our run rate business, which is -- we think that this is year is a year to be aggressive in how we think about the future of the business for the next few years, setting ourselves up for longer-term sustainable growth.

But at the same time, we have a very healthy capital return program plan for our shareholders as well. So we're trying to take that more balanced approach with how we think about our capital..

41:55 Understood.

Have you purchased any shares year-to-date?.

42:02 We have an active repurchase program that's previously approved, that we initiated in late Q4 of last year, and we continue to do so this year. And we obviously announced the new $250 million share repurchase program that will be, in fact, coming up and we'll continue to do so.

It's a big part of our capital return program and part of our overall strategy to increase our earnings per share over time..

42:33 Okay. And then you guys talked about 2% to 2.5% menu price across the system, if I understood correctly.

Do you think that will be higher as the year progresses, just given the inflation that you're talking about?.

42:50 Hey, Nick. John Cywinski here, with respect to Applebee's. I don't know if this is a fluid environment. As I said, our franchise partners tend to be very strategic and disciplined and conservative in their pricing in viewing this as a market share opportunity. I don't see an overreach on that part. I see at some point moderation in pricing.

It would be hard to forecast at this point..

43:23 Thank you..

43:26 Thank you. Our next question comes from the line of Eric Gonzalez from KeyBanc Capital. Your line is now open..

43:33 Hey. If I can maybe follow up on some of the G&A and even the CapEx investments. I'm wondering about the technology side of it.

Is there a way that you're planning to recoup that investment in terms of fees charged to franchisees or any type of transaction fee in the future?.

43:52 Yeah. Hey, Eric. I'll take that. It's John Peyton. The answer is no. The value that we add as a franchisor is the tech platform that we built. So generally speaking, the cost of building the platform are ours and the cost -- annual service fees and maintenance once we roll it out are the franchisees.

And we view this as part of our value proposition, which is the investments we make in tech on their behalf. And because Applebee's and IHOP are part of Dine, we can do more for both brands and either brand could do on their own when it comes to investments in tech..

44:30 Okay. Fair enough. And then on the inflation commentary, I think you said maybe slightly higher than 10%.

Can you maybe comment on what you might have locked in for the year and how much visibility you have in that 10%, how that compares to prior years?.

44:46 So on the inflation point, prior year, I think in 2021, what we saw was about close to 7% for Applebee's and 6% for IHOP. We don't control menu pricing for our franchisees. Our franchisees do so on their own. And so, it's a fluid situation.

I think the best example I can give is -- was in my prepared remarks, which is 2% to 2.5% of menu pricing increase covers about 10% of inflation cost. So our franchisees are aware of the math and then we'll look at it -- we will take a very disciplined approach to menu pricing increases going forward..

45:32 Eric, this is John Cywinski. I would just argue both brands are extraordinarily well positioned to navigate an inflationary environment given our scale..

45:43 All right. Thanks..

45:48 Thank you. Our next question comes from the line of Jeffrey Bernstein from Barclays. Your line is now open..

45:54 Great. Thank you very much. First, I just wanted to follow up on that last comment about the 2% to 2.5% price. Clearly, that's the math of what it takes to mitigate, I guess, 10% basket inflation. Just wondering if you'd share what the actual pricing is? I know the franchisees get to make their own decisions.

And like you said, encouraged to hear that they're disciplined in terms of being cautious and strategic.

But what's the pricing perhaps in the first quarter of '22 looking like for each brand?.

46:25 Yeah. Hey, Jeff, it's John Peyton. Let me just sort of jump in on behalf of both brands. What we can tell you is, -- and we haven't seen Q1 yet for this year. But what we can tell you is, typically franchisees in both brands raise prices 1% to 3% a year. Last year, particularly in the back half, it was 3% to 4%.

So they did increased 100 basis points or so, what they had historically done. And so when Vance gives you that math of 2.5% increase covers a 10% increase in inflation.

It just -- it gives you the sense that they are at least mathematically covering their cost of goods and probably also a bit of the inflation that's built into labor costs as well as a result of the last year. 47:15 And then the important thing to keep in mind is that, both of our brands are value brands, and that's particularly important right now.

And while our franchisees make their pricing decisions independently of us, they are aligned on balancing this bit of a tight rope between maintaining value for our customers, as well as protecting their margins as best they can in this environment..

47:40 Understood. And then a couple of questions just on the cash usage. One, just related to the CapEx spend, it looks like guidance is for it to roughly double versus '21.

I'm just wondering what the biggest components of the incremental spend are in '22? Whether that's some components of the technology or the company operated side of the business? Just trying to get a gauge for the increase in CapEx guidance?.

48:03 Yeah, that's a good question for Vance to walk through the components..

48:07 Yeah. The key investment areas for CapEx is on-premise and off-premise technology to improve guest experience and operational efficiency. That's probably the bigger piece. We're spending money on loyalty program, on CRM infrastructure. And then there is a piece that's on our company-owned restaurants..

48:27 Got it. And just lastly, as it relates to cash usage beyond CapEx. I know you mentioned your leverage, I think you said it is the lowest since 2015. So with that as a backdrop, I'm just wondering what your outlook is for that? And specifically, I know you raised the dividend. You got a little share repurchase.

Just wondering whether this is now kind of the more normal steady-state dividend we should expect or whether you think there's further upside to go on that dividend? I know the initial dividend you established a quarter or two ago was more a starting point, this was the bump up.

Just trying to get a gauge again for your leverage view and the return of cash, which is your priority? Thank you..

one, investment in business and technology as we said; two, is returning capital to shareholders. We did mention making sure our leverage level is appropriate.

And fourth is maintaining the financial flexibility to address any remaining uncertainty from the pandemic or inflation in labor, supply chain issues that we're seeing right now, right? And then lastly, just any strategic M&A opportunity. On this specifically, we increased our cash dividends by 15% last quarter.

We currently have about 2% to 3% dividend yield, depending on the stock price we used for that calculation. We do believe this is an attractive yield relative to our peers, but we have plans to further increase our dividends over time. And on share repurchases, we talked about this new $250 million program that we just started.

Our level of annual repurchases will be opportunistic and based on our view of the company's intrinsic value and where things are trading. But it's also just going to be a part of our overall strategy to increase our earnings per share over time.

50:25 Hope that answers your question?.

50:27 Yeah. It did..

50:28 And Jeff, it's John Peyton. I'll just put a little bit of a bow on that, if I can. I think what's implied in the question is, is $400-plus million the cash balance that we intend to sit on over the long-term. And the answer to that is, no, this is just certainly a moment in time.

We -- as you know, we were accumulating cash during the two years of the crisis to make sure that we had what we needed, not knowing what the future would bring. And then last year, the recovery happens much more quickly than the industry anticipated. So we had a good year last year as well.

So as Vance said, we're now looking over the next couple of quarters to take a very holistic, but balanced approach to how we work with that cash balance..

51:18 Great. Look forward to seeing you next week..

51:23 Thank you. Our next question comes from the line of Brett Levy from MKM Partners. Your line is now open..

51:30 Great. Thank you for taking my question. I guess, just building on Jeff's question there, as you think about the initiatives and the investments.

How should we think about what kind of savings and contributions we can see from some of these tech investments, especially as it relates to labor and also what kind of drivers we could see from some of your initiatives that you discussed, whether it's on or off-premise? Thank you..

51:58 The labor initiatives will impact the franchisee financials, and we're -- we obviously have better interest to make sure that the health of our franchisees are taken care of. You probably won't see that in Dine's financials.

But the result of the investments will happen over time, ghost kitchens and the virtual plans that we're working on will happen throughout the year. Comp will continue and all will continue. So that's where the growth of our investment will come in hopefully in the course of the next 12 months to 18 months.

52:42 I think, as I mentioned earlier, 2022 calendar year guidance looks up just because of the fact that we're making upfront investments from the start and then the -- again, the result of the expected growth is happening over time. So please come to our Investor Day.

We'll get into more details on '23 and beyond the targets that we're shooting for the company. And you have also get a sense of a more detailed plan from each one of our brands on what we'll do over the next few years..

53:18 And Brett, it's John Peyton. I'd like to add that technology is meant to do two things. Vance was clear that at the franchisee level and at the restaurant level, it's certainly going to help with cost by making back-of-house and front-of-house more efficiency. The benefit to Dine is on the top line.

We're helping franchisees grow their business, which obviously helps us grow our franchise revenue. So the investment we're making, for example, in the technology to support IHOP's soon to be announced loyalty program is going to, we believe, drive traffic which benefits us.

The investment we're making in apps and off-premise to grow and nurture that business increases revenue to franchisees, that benefits us. And even handhelds for servers, which makes the restaurants more efficient. Also helps IHOP, for example, on weekends when they've got 90 minute weights turn table faster. That benefits us as well.

So the technology benefits Dine, as well as the franchisees..

54:18 Thank you..

54:22 Thank you. Our next question comes from the line of Todd Brooks from the Benchmark. Your line is now open..

54:28 Hey, good morning, everybody. I just want to, first of all, go back. I think the call cut out in a different spot than maybe, John, where you reset it to. For us on this and it cut out as soon as Vance started talking about G&A, $188 million to $198 million.

And then the next 30 seconds were gone after that, I didn't know if you wanted to take a second here to get that into the transcript of the call here?.

54:55 Yeah. So, I was saying G&A is $188 million, $198 million, including non-cash stock-based comp and depreciation of approximately $30 million. I mentioned that the range is inclusive of G&A related to the company restaurant segment. And our projection also includes some G&A spend from 2021 that was pushed to 2022. That was the comment I made on G&A.

55:19 And then CapEx, I said, we're expecting to raise between $33 million and $38 million, and that reflects the additional investments in the business that we discussed earlier. We expect upside to development at IHOP compared to prior years, with projected net unit development to range between 50 and 65 domestic restaurants.

And we expect unit development between five and 15 net newer Applebee's restaurants signifying the end of Applebee's plan for further rationalization..

55:53 Okay. Great. Thanks, Vance. Appreciate it. Can you quantify for us that amount that slid out of kind of Q4 '21 and into '22 as we're evaluating.

Maybe what the component of the jump is that you had intended to spend this year, but weren't able to?.

56:12 It's open positions in different departments that form fill and projects and consumer research and product development and travel expenses that are still pursuing 2022 is not a material amount, but it is -- it does make up some of the 2022 guidance..

56:32 Okay, great. And then John, on Cosmic Wings, I know you spoke to the rollout, I think, on the second platform in Q2.

So I guess, what will the presence be across the two platforms when that's completed? And just thoughts and I'm sure you'll share more details next week on what type of sales layer Cosmic could be for after this?.

56:58 Sure, Todd. Good morning. The -- it's tough to gauge at this point in time, because we had a -- I think I referenced on the prior call, we had a supply interruption on the wings front, and so we really couldn't put that to metal. Think about it this way. We started with Uber Cosmic Wings deployments with Uber in February, March of last year.

We are now currently expanding to the largest provider -- delivery provider, DoorDash. And then we will follow over the next month or so with GrubHub. And so by the time we get into Q2, we will have full deployment across all three of the largest delivery providers.

At that point, we'll have a very clear view as to the full potential of Cosmic Wings in terms of average weekly sales and incremental -- sustained incremental impact on the business, right? I'll quantify that, because it's just too early, quite honestly, at our investor call -- at our investor conference next week..

58:01 Okay. Fair enough. And then, Jay, just a quick question. Can you walk through loyalty timing again maybe a little bit on the structure of the program, how the customer gains points? And when we should start to see whatever revenue benefit we would see from loyalty hitting in IHOP? Thank you..

58:18 Yeah. Thanks, Todd. The program like you said, should -- we should get that launched probably this Q1. So at the end of this month basically, right. So we're very close to that being launched and I hope to be able to share some more details with you next week as well on specifics. But as I said, it's kind of been a call earning firm program, right.

You earn the rewards by spending money, right. So it's not just a pure discounting program, right. You're actually driving sales, traffic, et cetera, for people to spend money to actually earn the ability to redeem that for other food items, et cetera. 59:00 And there will probably be some chances for them to do things other than just food.

We have the opportunity sometimes to do special programs with vendors, et cetera, where they might be able to get reward to they are more experience-based and think what we might be able to do for that. So a lot more details to come on this. But we think the guests are really going to be excited about the program.

It's going to be very unique, I think, in our segments. And I believe, it's really going to help us drive guest behavior. And it's a way also for us to engage with our fans, we will say at breakfast and get them to come at another time of the day, so we can expand our base to other dayparts..

59:46 Okay, perfect. Look forward to seeing you all next week. Take care..

59:51 Thank you..

59:52 Thank you. Our next question comes from the line of Brian Vaccaro from Raymond James. Your line is now open..

60:00 Thanks, and good morning. I was hoping you could just clarify, back to the G&A and the CapEx guidance.

Thinking about the increase in each, is there a way to ballpark sort of how much of the increase is related to corporate infrastructure investments versus, call it, direct co-investments at the store level, whether it be helping to pay for new POS or other equipment? And also, does it include any new unit growth incentives to franchisees?.

60:32 Thanks, Brian. So the CapEx guidance does not include incentive program. But it's -- and then to your question on the co-investment, the way we're working out with our franchisees typically is that, we invest in the infrastructure part of the technology. They will pay for the ongoing maintenance, the licensing fee part.

So it's the co-investment from that perspective, but we're not necessarily paying for the hardware costs, the tablets or the POS hardware themselves..

61:13 Okay. That's helpful. And this new range, we're talking about in '22, $188 million to $198 million just so I'm clear.

Did you say that that's a new normal level of spend expected going forward? Or are there one-timer investments in '22, where G&A dollars could be expected to decline from this level in '23 and beyond? Can you just clarify that?.

61:34 Yeah. What I -- I think what I said was, we don't expect another increase in G&A going forward. The increase is a mix of people that we hired, services projects that we're looking to do. And so it's investments that in the infrastructure to unlock the growth that we think we can achieve.

Overall, I think margin expansion will happen and then the revenue growth will outpace our G&A growth and -- for 2023 and beyond. Numbers will make more sense that you see our goals that we set for ourselves going forward..

62:23 Okay. And sorry, two more on G&A.

The incentive comp piece of it, how much was that -- how much incentive comp was included in 2021? Can you just level set how much higher versus a normal year? Is that just to help us frame the comparison into 2022? I heard your comment on the fourth quarter, I think you said it was up $7 million or $8 million of the increase in G&A might have been related, just if my quick math is right, maybe it was up $7 million to $8 million.

Is that representative of an outsized incentive comp and we should expect incentive comp to go down in '22? Just can you help level set that?.

63:04 Yeah, you should definitely expect incentive comp to not repeat at the same level of '21. What happens is, we do have catch-up of G&A that we cut in 2020 that we have to make up in '21 and '22. So the catch-up roughly offsets the sort of the higher incentive comp that we experienced in '21..

63:35 Okay. Great. And just --.

63:38 Just to clarify, I think I said we shouldn't expect incentive comp. I think that point wasn't made on the performance of the company, this 2021 was an exceptional year. So that was the --.

63:51 Correct. Understood. Sorry, last one on G&A that you could help me clarify, hopefully. The guidance you said includes stock-based comp and D&A of $30 million. I think historically, when the company has guided G&A, that stock comp and D&A component has been $40 million to $45 million.

Can you help understand what's driving that difference? Is there some difference in how you're defining that or accounting for that? Or any help there?.

64:21 I think part of it was the type of investments we're doing in terms of company restaurants versus corporate restaurants. And there's math for stock-based compact goes into it as well. There's no strategic or big changes in estimates other than sort of how the plan kind of work out for us for the year..

64:49 Okay. And then last one, sorry. This is just -- I wanted to ask about the balance sheet leverage. And what are your targets, Vance, in terms of leverage? Do they differ at all from the company's historical leverage sort of in that five times debt to EBITDA? I know you're a little lower than that now.

And then could you just remind us, too, when does the make whole expire on your existing notes? And is there an opportunity to refi at some pint moving through '22?.

65:16 Yes. Let me hit the refi point and I'll talk the leverage point. So a quick reminder, our 2024 bonds becomes noncallable at par and at par our 2026 bond becomes callable at 101 in June of 2022. We have a one year window for us to exercise the call option. So the market is volatile right now, but we'll monitor it very closely.

And we will only refinanced as the whole business securitization market is in our favor in terms of rate and structure. But is it a call option for us. It's not -- we don't happy to the short on is not so. We think we're at the right long level right. 65:57 And our businesses have covered nicely.

We do benefit from the relatively affordable securitization market without overextending our level. We mentioned this before, our CDR peers are in the low 3s leverage. And then our highly franchise peers are in the mid- to high 4s and work in between those two process. And our DSCR is 4.7 times this year.

So we're really in a good position, and we will naturally delever over time as EBITDA grows, obviously, but we're really happy with where we are..

66:37 Thank you. At this time, I'm showing no further questions, I would like to turn the call back over to John Peyton for closing remarks..

66:46 Thanks so much. Thanks, everybody, for joining our call today. Big thank you to our management team on the call today and across the country, to our franchisees and our team members for their hard work to deliver another strong quarter. And I'll tell all of you, we're looking forward. Our entire leadership team will be in New York next week.

We'll have members of our Board there. We'll have some leaders from our franchisee community. I look forward to spending time with you telling you our story about the future at our Investor Conference in New York City and also sharing with you some of the best of IHOP and Applebee's cuisine, so come for breakfast and lunch as well.

So thanks very much, and look forward to seeing you next week..

67:31 This concludes today's conference call. Thank you for participating. You may now disconnect..