Q2 2021 Dine Brands Global Inc Earnings Call

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Ladies and gentlemen, thank you for standing by and walk through the Q2.2021 Dine brands Global earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session need of press star 1 on your telephone if you require any further assistance. Please press star zero I would now.

I'll turn the call over to your host Mr. Kenny you may begin.

Good morning, and welcome to Dine brands second quarter 2021 conference call I'm joined by <unk>, CEO Vance Chang CFO, Jay Shah President of IHOP, and Jonathan risky President of Applebee's.

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 differ from those expressed or implied.

Please evaluate the forward looking information and the context of these factors, which are detailed in today's press release and 10-Q filings.

The forward looking statements are as of today and assumes no obligation to update or supplement these statements.

And also refer to certain non-GAAP financial measures, which are described in our press release and also available on dine brands website.

I'll turn the call over to Chuck.

And Ken Good morning, everyone. Thanks for joining US today, we're pleased with our strong Q2 results and I'm excited for you to hear from advanced Chang our talented new CFO I'll start by defining this moment in time the restaurant minutes conscious clearly driving a rebound at dine brands and Americans are returning to indoor dining and now that Americans are bad.

Jack we're pivoting from triage to acceleration and what I mean by that is we're accelerating the innovation and the reinvention of the guest experience today I'm thrilled to report that our investments and innovation and the resiliency of our franchisees and team members is clearly paying off during Q2, both applebee's and IHOP posted cigna.

Difficult improvements and comp sales and as and this is important both brands are fundamentally improve businesses due to off premise sales and I'm seeing that from myself I've been on the road I've now met with 61 franchisees and toward our restaurant and <unk>.

Ohio, New York City, Connecticut, New Jersey, Vegas, and Atlanta, and each conversation with a franchisee or a team member of restaurant manager.

And forces for me our unique advantage at that ensure our business is built to win.

First we've got 2 iconic brands that thrive based on guest connection collectively applebee's and IHOP has been serving communities from more than 100 years. Both brands are beating their comp set because our guests have long lasting emotional connections that endure even during these tough times.

And our guest satisfaction is strong and that's impressive because many of our restaurants are operating with less labor than they're used to and finally, we work side by side with experienced talented franchisees, who are doing extraordinary things and as a result, our emerging from the pandemic with stable financial fundamentals.

Our brands posted meaningful improvements during Q2 and on this call will be comparing comp sales for the same period and 2019 due to the pandemic and distortion of 2021 results.

So here, we go I'll recap second quarter highlights, including comp sales EBITDA and free cash flow off premise growth and development. So far according to black box and this is terrific applebee's and IHOP each outperform their segments and Q2 and both brands second quarter comp sales improved compared to the first quarter.

Specifically applebee's second quarter comps increased by 10, 5% and IHOP comps declined by 3.4%, which reflects an improvement of 17.8 percentage points compared to the first quarter.

We achieved revenue of $233.6 million and EBITDA of $71.7 million, which reflects the continued strength of our franchise model and a gradual return to steady state.

We generated free cash flow of of $107.3 million. During the first 6 months of the year, which is consistent with dine and track record of generating strong and stable adjusted free cash flow and finally and Q2, we opened 10, new restaurants signaling the growing confidence our franchisees have and our brands and and putting their capital back to work.

Now despite what is still of fluid and unpredictable environment due to the Delta variant and COVID-19, we remain cautiously optimistic and there are there are 2 main reasons why.

First improving consumer confidence is approaching pre pandemic levels. It looks like federal spending will continue at this time of the infrastructure Bill and low unemployment are all meaningful tailwind now that said our optimism is somewhat tempered by continued volatility for example of the labor shortage is affecting wages hours of operation.

And the availability of certain Skus and our supply chain inflation is also and concern for our guests as well as for our network. We're seeing its effect on the cost of paper and packaging oils, poultry and pork products and eggs and based upon current conditions, we now expect commodity inflation and the range of approximately 4% to 5% for the full.

All year and the final unknown of course is the Delta variant, which is largely regional at this time, our outlook would certainly be impacted at large areas of the country returned of lockdowns or restaurant guests become uncomfortable dining out.

And now that kind of at our performance I want to give you a more complete picture of how we're accelerating innovation through digital technology at <unk>.

And we're leaning into our scale our strategy is to build 1 common digital architecture for both applebee's and IHOP that enables us to do more for both brands and either brands could invest time zone. So far just in 2020, 1 we've implemented a new CRM and digital platform that enables sophisticated offer management strength.

And as our digital marketing and marketing analytics and improves our management of customer data, while also serving as the backbone for our loyalty programs.

We've also rolled out upgrades to our App and our website and now we provide a more seamless Stewart food ordering experience. For example, now have more ability to customize their orders and it takes fewer clicks to navigate the menu and these new apps and websites provide us a more comprehensive understanding of our guests purchasing preferences and online behavior. We've also.

At a cool functionality like Geos Geo fencing to track guest arrival and advance of car side or and restaurant pickup and delivery.

And in our call center, approximately 150, applebee's or on our new AI and fully automated voice ordering platform.

And 2021, we've also introduced <unk> to improve the on premise dining experience that includes handheld devices for servers that are now and 500 applebee's restaurants, those handhelds drive faster table turns and additional drink orders and most importantly, 1 of our servers and and Atlanta told me that she and earning more money because he is turning the tables faster.

We also introduced pengo that enables guests to pay at the table using their own device and the digital wallet that allows guests to redeem offers and coupons from their phone.

And finally later this year IHOP will begin to rollout new point of sale and kitchen display technology, we expect the new Pos and <unk> systems to reduce the cost of labor ensure food and serve hot and with improvements and order accuracy and importantly, the new Pos and KBS will integrate order flow between digital and on premise to seamlessly support car side and to go orders.

All of these digital tech capabilities are new and 2021 and by end of the year approximately 75% of our digital technology tools will be modernized where new and this is the most robust delivery of digital tech and Diane history, our franchisees will be adopting the on premise technology and the restaurants throughout 2021 and 2022.

I'll wrap up by emphasizing and our performance our brands and our finances are strong we understand that today's environment remains fluid and we are drawing on our deep experience and guest insights to continue to share to continue to grow share today and in the future.

Our new CFO Vance Chang is going to share more information about our financial results and just a moment, but first let me proudly introduce the newest member of our leadership team advanced spent the past 20 years, and both banking and building high growth consumer and health care companies Vantiv here, because he is and operations oriented CFO he'll lean into our domestic.

And international businesses and work with those teams to fuel growth and improved profitability for dine and for our franchisees Vance is of high impact executive He's got a track record of driving innovation and delivering on execution and that's exactly the profile, we need as we pivot from the crisis to innovation and accelerates our growth so advanced welcome to wheat.

6.

Thank you John for the warm introduction and good morning, everyone.

I'm excited to be here today, and look forward to working with all of you and the months and years of head straight to be with everyone. On my first earnings call as CFO of dine.

And my first months at the company at the meeting with team members and franchisees and reviewing plans.

The boarding process was instrumental and reinforce my confidence and the business and our direction I.

And I spend of past 20 years of my career, advising investing and building high growth consumer health care companies, providing strategic leadership during times of a meaningful change.

While we all continue to emerge from the pandemic. We know there are very real challenges still ahead of us and I recognized the obligation we have of leaders within our industry.

For me, it's a humbling responsibility as we work together to maximize the full potential of the enterprise and to deliver profitable growth from all of our stakeholders, including our shareholders franchisees team members and.

John just highlight of some of our baseline results.

Spend a few minutes talking about the financials.

I'll begin my remarks, with a review of our cash position.

And the continued improvement and our business has helped us maintain our strong cash position. We finished the second quarter with a total unrestricted cash of $259.5 million. This is up 44% increase over the first quarter's unrestricted cash balance of $179.6 million.

Turning to our operating results franchise revenues for the second quarter of $167 million compared to $67.9 million at the same quarter of 2020.

Turning to the company restaurant segment.

Sales for the second quarter were $38.2 million compared to $16.8 million for the second quarter of 2020.

Rental segment revenue for the second quarter of 2021, or $27.4 million compared to $23.7 million for the same quarter of 2020.

The improvement was due to an increasing percentage of rental income.

Based on our franchisees retail sales.

Adjusted EPS for the second quarter of 2021 was $1.94.

Compared to an adjusted net loss per diluted share of <unk> 87 for the same quarter of 2020.

And improvement was due to an increase in gross profit as our business continues to recover from the effects of the pandemic.

Regarding our GAAP effective tax rate.

Our effective tax rate from the second quarter of 2020 was 24% expense compared to 8.2% benefit for the same quarter of last year.

Main reason for the variance was due to the non deductible impairment of goodwill and the second quarter of 2020.

Regarding G&A.

And after the second quarter of 2021 was $39.3 million compared to $39 million at the same quarter of 2020.

The increase was primarily due to higher personnel cost associated with our incentive compensation accrual based on company performance.

Turning to the cash flow statement.

Cash from operations, but at first 6 months of 2021 was $106 million compared to cash used in operating activities for the first 6 months of 2020 of <unk>.

And $10.5 million.

The improvement was primarily due to the recovery of FERC business as discussed earlier.

We believe the positive trends and our liquidity and comp sales will allow us to strategically invest for growth and innovation.

Now I would like to share some thoughts about the back half of the year.

We expect G&A to be higher in Q3, and Q4 relative to the first half of the year. As a reminder, our G&A does include noncash expenses, such as depreciation and stock based comp that we normally add backs of EBITDA, but expect that increase and G&A is primarily driven by 2 factors.

First we pushed professional services and travel expenses to the second half of the year given the uncertainties that we face during the first half of the year.

And second higher incentive compensation is expected and the second half, which is a variable component of the G&A that will fluctuate based on our business performance and.

Additionally, I would point out of that our Q2 financial performance reflects strong pent up demand that we may not experience at the same level in Q3 and Q4.

In addition to the normal trends that we typically experienced and the second half of the year. We also had more restaurants and the first half of them, we will have and Q3 and Q4 due to recent closures.

Turning to our 2021 financial performance guidance I would like to highlight of revision to our G&A guidance, primarily due to the factors discussed earlier, we now expect G&A to range between $168 million and of $178 million.

This compares to our previous expectation for G&A to range between $160 million and $170 million or.

Our guidance for Capex of approximately $90 million for 2020.1 remains unchanged.

Please see our press release issued this morning for complete details.

Moving on to capital allocation.

Proactive measures to enforce of our financial flexibility in early 2020, which included the temporary suspension of our quarterly cash dividend and share repurchase program on past calls when asked about our plans to return cash to shareholders. We have indicated that we wanted to see several quarters of improving performance before of reinstating a dividend.

Buyback program.

Since the start of the year, our fundamentals have continued to improve contributing to our strong adjusted free cash flow position as referenced earlier.

As we enter the back half of the year, we will have a shareholder return strategy to share with you and are considering all options to maximize shareholder return and deliver sustained long term profitable growth for the system.

We will have more details on our third quarter call.

And a few points on our capital structure in early 2020, dine too preemptive steps to mitigate the effects of the pandemic on its operations and its franchisees, including voluntarily increasing the interest reserve for our securitized debt from the required $16.4 million to $32.8 million.

I would like to highlight that due to the improved strong improvement and our business over the last 12 months, we have decided to reduce the interest reserve back to $16.4 million our leverage ratio as of June 30 was 4.9 times compared to 4 times as of March 31.

With our leverage ratio of back below 5.5 times, we will no longer be required to make principal payments on our 2019 class a 2 notes after September.

I would also like to highlight that we continue to have significant cushion and our debt service coverage ratio or SCR at 4.6 times as of June 30, and this.

This is an improvement from the <unk> of 345 times.

<unk> 31.

As a reminder of the first key DSC art measurement is not until the ratio falls below 1.7 and 5 times.

Maintaining our financial flexibility to meet to meet our debt service obligations is 1 of our highest priorities. We will continue our disciplined approach to monitoring liquidity, especially during these times of uncertainty due to the pandemic, we're very pleased with our achievements and remain cautiously optimistic and Barbara.

About our recovery, we've done a lot of the heavy lifting and to build of <unk>.

All of the foundation for long term growth.

Now I'll turn it all of it to Johnson <unk> will provide an update on applebee's business performance, Josh Great job, Vince and welcome to the team your timing is good.

I'm very pleased to report that Q2 was an exceptional quarter for the Applebee's brand when compared with our 2019 baseline April may and June comp sales were positive of 11, 7% positive 8.1% and positive 11, 4% respectively.

This combined plus 10, 5% result marks the best quarterly sales performance throughout our 14 year history of dine brands of <unk>.

Of course that excludes the anomaly of of the 'twenty 1 versus 'twenty pandemic here.

And restaurant sales delivered approximately $53000 per week throughout the quarter. If you put this in proper perspective. The months of March April May and June and sequence rank is applebee's for highest weekly sales months under <unk> ownership.

And particularly proud of our franchisee partners and the entire applebee's team as they continue to showcase their restaurant level excellence within a and obviously challenging environment.

According to Black box intelligence Applebee's has now outperformed the casual dining category on comp sales for 25 consecutive weeks by an average of 596 basis points.

As expected with guests and returning to our dining rooms, we experienced of natural shift from off premise sales to dine in sales and Q2.

To better understand this trajectory dine and mix moved from 67% in April of 272% in June with 16% car side to go and 12% of delivery and June reflecting this gradual migration to a normalized post pandemic mix.

Applebee's off premise weekly sales in June was 14000 and $700 per restaurant.

And as a percentage of total sales, it's reasonable to assume our off premise mix may ultimately settle and the low to mid 20% range I should note. This represents about double our pre pandemic off premise mix of 12% illustrating applebee's enhanced relevance within this convenience driven occasion.

Given the importance of this business we are expanding our initial drive through test to include an additional 6 units in Q4 for a total of 7 dedicated applebee's pickup windows.

Now this off premise mix includes our cosmic wings virtual brand, which we're planning to expand to door dash as you recall and early may however, due to significant chicken wing supply challenges across America, we postponed our door to ash expansion to date to be determined contingent upon supply availability.

We anticipate meaningful incremental demand with its expansion and we.

Want to ensure supply sufficient supply to properly satisfy this demand in the meantime of hold off commenting further on cosmic <unk> results until we pulled this lever with door dash hopefully at the end of Q4.

Turning to restaurant execution Applebee's continues to resonate with our guests on key operational metrics such as guest satisfaction brand affinity and visit intent. This is noteworthy and given persistent labor challenges throughout the industry.

To address this challenge we executed our first national hiring day.

Back on May 17th leveraging our extensive digital assets, we offered a free appetizer and return for and application and interview something we playfully branded applebee's at 4 and App.

Hoping to generate 10000 applications our franchise partners ended up securing more than 40000 applications with a single day events ultimately hiring about 5000, new team members that week of terrific result.

And our success here once again illustrates the benefits of scale and brand reputation and navigating this tough labor environment.

Applebee's continues to lead the casual dining category on affordability menu variety to go awareness brand awareness and advertising awareness, which remain important attributes for us in this competitive landscape.

With smart and strategic media allocation, our teams and reduce the balance of new salads bowls and beverage innovation throughout Q2 with our newest menu hitting restaurants in 2 weeks. We also shifted our brand messaging to focus on the genuine emotional connection applebee's has with its guests of connection we believe is more.

More important and relevant and ever given all of this country has endured over the past 16 or 17 months.

Excuse me our talented marketing team has done a terrific job conveying applebee's unique brand essence.

And in conjunction with the theme songs to tears and welcome back Kotter, almost as though of those alerts were written for Applebee's at this particular point and time.

And I'm proud of the authenticity and residents of this work delivered in Q2 and sense of music is so much part of our brand DNA I also wanted to highlight that the curse of number 1 song and itunes and Billboards top country music is titled Fantasy like from artist Walker Hayes and this is important because of the song.

And Lyrically is all about $8 million of Applebee's and its gone viral and of big way and social media Tictoc Instagram and Youtube.

Providing great buzz for the out of these brands and <unk>.

Additionally, we entered into a very exciting relationship with the Walt Disney Company and support of their current number 1 film jungle cruise as way to celebrate and encourage the return to dinner and a movie this summer.

Wonderfully familiar of part of Americana that.

All of Werent really able to enjoy for a very long time, and hopefully you've had a chance to see our advertising featuring Dwayne the rock Johnson and Emily Blunt set to the classic tunes rock the boat and born to be wild.

Both of those debuted in the NBA Championship game on July 20th.

And to capitalize on the synergy we have also developed of business partnership with Dwayne Johnson and the entrepreneur to introduces new and fastest growing premium tequila brands, Paramount and to all applebee's restaurants and July.

Dwayne has proven to be a tremendous partner as these signatures $7 of mono Margarita and are.

No of available everywhere and proving to be extremely popular with our guests.

And as we look forward you can expect our Q3 and Q4 media spending to remain substantial and favorable when compared with the same quarters in 2019.

To wrap up while applebee's momentum remains strong at would be unrealistic to expect these unprecedented double digit sales to sustain and the back half of this year with that said eating good and the neighborhood has never been more relevant than it is today and I am confident and applebee's ability to continue to thrive in this environment.

I'll now turn it to Jay Johns for an overview of the IHOP business.

Thanks, John and congratulations on another great quarter and good morning, everyone. I am pleased to report that IHOP solid trajectory continued this quarter, our second quarter comp sales improved sequentially by 17, 8 percentage points compared to the first quarter and outperformed the family dining category as well by 150 basis points.

And black box.

Another indication of the health and standard of our business is the growth and domestic average weekly sales every month and the first half of the year for.

For the second quarter average weekly sales were 28% higher than Q1 at.

Average weekly sales per week were approximately 38000 and April and increased to just over 39000 by June reaching high for the quarter of approximately $40000.

As dining room, and the passenger restrictions are eased and consumer satisfied and longing to sit down and Nielsen favorite IHOP, our off premise sales mix moderated as anticipated all.

From a sales accounted for 26, 1 percentage of sales mix for the second quarter compared to 33, 3% for the first quarter.

However, we continue to believe that we will retain the majority of the off premise sales growth of attained over the last 15 months, partly due to changes in consumer behavior.

Turning to of May 2021 survey by Mckinsey and company consumers and tend to continue with many digital behaviors, even after COVID-19, subsides, including restaurant curbside pickup.

In fact, our net off from a sales and dollars improved each month and the second quarter. Additionally off premise comp sales increased 169% and the second quarter of 2021 compared to the same period of 2019.

For the second quarter, our sales mix consists of 73, 9% dine and 13, 9% delivery and 12, 2% to go.

Approximately 85% of our domestic restaurants are open for standard operating hours or greater and approximately 27% our operating 24.7.

We believe that having more restaurant operating on standard hours or longer reduce capacity restrictions and higher vaccination rates could be of potential tailwind and the second half of the year.

To drive traffic and sustainable long term growth, we are executing against our multi pronged strategy. This includes our new approach to marketing and launching a loyalty program developments and virtual brands.

I'll provide some color on each of these starting with marketing.

We are adopting of new marketing tone aimed at leveraging the emotional connection of our guests that they have for IHOP. Our new creative is designed to remind consumers why they love the brand.

We're taking a multichannel approach to better utilize our resources such as increasing our digital exposure. We believe doing so will allow for more effective 1 to 1 marketing and better targeting and messaging to different audiences and.

I'm pleased to say the marketing transformation is already underway.

Regarding our loyalty program, we plan to launch a loyalty program and the fourth quarter to increase guest engagement. Our goal is to drive trial, and importantly incremental visits from existing IHOP guests.

At IHOP, the pandemic forced us to reflect and refocus on our relationships with our guests within of transforming restaurant industry. At the same time, we actually grew our investments and CRM and customer facing technologies, doubling down and our commitment to modernize our guest relationships.

Over the past 12 months, we've invested and CRM loyalty and digital experiences.

While much of this work has been foundational we expect to see some of these elements coming to life later this year.

Regarding development, we're focused on returning to strong unit growth I highlighted last quarter, we have the advantage of being able to provide our franchisees with 4 platforms to accommodate their development needs. These include our traditional platforms non traditional and new small prototypes of scheduled to test this year.

And our first flipped by IHOP locations, which we plan to open in the next few months.

Regarding flipped and we now plan to open our first location and Lawrence, Kansas and the third quarter. This location will be approximately 3500 square feet and as of freestanding structure with 55 seats.

Our second flip location is now scheduled to open late in the third quarter, and New York City Dislocations conversion space, there will be approximately 800 square feet with only 25 seats.

Both locations while at the same menu that will address all 3 day parts, while leveraging the equity of IHOP for Gaslog.

Importantly, I'll provide franchisees with conversion opportunities across all of these platforms, which can be very cost effective and of the sites. We've approved for the future of this year approximately 42% our convergence.

For 2021, we believe the brands and develop 40 to 50 new restaurant.

Looking ahead and the next 3 years, our development strategy includes a blend of our core development platforms and.

And with the addition of flipped and the introduction of small prototype, we believe the brand and significantly exceed its historical annual run rate over the last decade.

Turning to virtual brands.

While our focus so far this year has been and restarting and I'll have strong development. We believe the time is appropriate to start evaluating third parties with several brands to partner with <unk>.

And given that approximately 70% of our domestic restaurants had 2 full kitchens, we have capacity that can accommodate multiple virtual brands.

We're currently reviewing our day part strategy and assessing how to best utilize our existing capacity.

And to the fact 1 of them.

And every stage of this of too early to discuss who we may work with us of virtual brand partner.

And we've made good progress over the last year, our business has improved significantly all from a sales remained strong even as dining room capacity restrictions were generally eased. The majority of our domestic restaurants are operating on standard hours or longer and we believe there is additional upside as well as restaurant resume standard operating hours.

Later in the year, we of a multi pronged plan in place for long term growth. The road ahead for IHOP looks price and I'm very pleased with our position ill now turn the call back over to John Peyton John Thank.

Thank you Jay Great results. Thank you, John and Vance for and your entire teams from all the great work you did.

Past quarter to lead to our terrific results and with that we are looking forward and taking your questions and we'll turn the call back over to the operator.

Ladies and gentlemen of the sale of a question or comment at this time. Please press. The Star then the 1 key on your Touchtone telephone. If your question has been answered or you wish to move yourself from the queue. Please press the pound key and we also ask that you limit yourself to 1 question and 1 follow up.

First question comes from Brian most of Deutsche Bank.

Hey, thanks, everyone and congrats on a good quarter.

Jonathan.

Last call you shared some really helpful goals of numbers. So you challenge each brand president and to get to from a gross openings perspective over the next several years, so with those longer term goals out there John and I'm wondering if we could zero in on your net unit growth expectations rather than gross.

Do you expect dine to experience domestic net unit growth and 2022 and do you expect at at each brand and then longer term, what's the right way to think about the net unit growth potential is at 2 percentage of 3% just any thoughts would be great.

Yeah. Thanks, Brian So when it comes to net unit growth what I mentioned last time and can reinforce this time is that particularly when it comes to IHOP.

And I believe that they can improve on the page that based on and which is historically about 40 or 50, new restaurants, a year and that.

Net unit growth.

For IHOP and for Dine overall will.

And we will be positive in 2022.

When it comes to Applebee's, we are concluding.

Purposeful 3 year effort too.

Work with our franchisees to close those restaurants that were underperforming or at the market and moved away from them. We're now at the end of that process that John Kalinsky really of expertly manage over the last 3 years and would expect applebee's to begin to return to net positive growth more like 2023.

And beyond versus IHOP and 2022.

Great. Thank you and then as a follow up IHOP. It was great to see the brands get close to 2019 levels and June on that 2 year stack basis, I believe California, only fully opened on June 15th.

Wondering if it's safe to assume that you maybe exited the month of June better than that and might it might even be back to flat or better.

At this point and Julien.

Well at this point, we're not going to talk anything beyond the end of the second quarter as far as how things are trending or anything, but but I think your fax arrived that California was not open and the entire quarter.

So.

Nearly helped us oil and gas at June and everything did open up.

Alright, thanks, Congrats again.

Thank you.

Our next question comes from Jake Bartlett of true Securities.

Great. Thanks for taking the question.

My first 1 was on or I guess, I had 1 and Nepal.

My question is just on IHOP and just trying to understand.

The impact of the.

The more limited operating hours.

And the less.

2004.7.

And just kind of what your normalized.

Late at night sales mix is and what Youre seeing now and maybe just so we can understand the opportunity as staffing levels.

Proven and you're in your <unk>.

And those sales.

And this is.

Jay This is Jay Johnson.

And.

And on IHOP, obviously, we have some restaurants that are still not fully back to their standard operating hours.

And most of that is the later at a time of the day it's at the.

The evening and and and our overnight. So we don't have as many restaurants during 2007 as we get and 2019. So those are the opportunities for us and we're making progress every week slowly, but surely as people are staffed and capable of expanding their hours of the franchisees are doing that and we're confident we'll get.

Pulling back there, but I can't predict for you exactly when that's going to happen.

Et cetera, but we're doing we're doing very well and.

At the breakfast day part even at the lunch margin.

And remember for us launches oftentimes late and breakfast so everything up through launch we're doing really well at is just the the hours at some of the restaurant. So we've got to get back before we can get.

Fully back to those PM and overnight hours.

To help our business.

Okay.

And then I guess I had a question on.

And just to make the operating cost inflation that you're seeing.

And the business in the back half of the year.

You gave guidance for good.

Commodity inflation for the year could you can you, let us know what commodity inflation was in the first half. So we can understand what you expect at the back half and then if you could talk about any sort of.

Cost efficiencies that you expect to offset some of those pressures and especially from the perspective of franchisees. So that we can feel good that their margins are are solid and up to reaccelerate growth and maybe within that question, what kind of pricing level youre expecting.

Hey, Jason of defense, So I think John made.

Reference to this earlier, but we're expecting our and inflation costs.

To go between 3% to 5%, 4% to 5% for the year versus last year.

At a hole so that is that as part of the headwinds at that.

And that's kind of that we're facing.

All of a savings side, we've talked about tablets with talk about.

The technology innovation all of those things step by step will help with the operating cost of the franchisees.

A lot of these initiatives are newer and so we're still monitoring.

But we're making progress towards that.

And Jake this is.

John segments ski with Applebee's.

You asked a question about franchisees, we've eased a bit.

And what I'll characterize as.

Discounting.

And we've been leaning into core equities with full margin.

The returns of dine in and in particular I guess.

<unk>, 2 who are choosing to indulge a bit with appetizers and.

And drinks.

And I referenced.

Has helped our check and that's really without the late night business coming back and weakens and.

So they've been able to mitigate to the best of their ability they've always been very responsible on pricing.

And they understand it's a long term game and particular applebee's is of value oriented brand with value oriented demographics. So.

We will navigate this just fine.

Great just to clarify what was the what was the commodity inflation and the first half of the year.

Yes, the first half year, we said it was about 2%.

Great. Thanks, a lot.

And next question comes from mentioned.

I should mention 1 other point and I think applies to both brands and anticipating the environment that we've been in both brands aggressively simplified the operation of their menu.

<unk> eliminated.

Products and complexities that challenged margins and so we hedged well in advance of what we're seeing right now and the commodity front.

And which has helped a great deal.

Thank you.

And next question comes from Brian Vaccaro with Raymond James.

Thanks, and good morning.

And on Applebee's, gentlemen, I think you said you don't expect to sustain double digit comps and the second half and I guess it seems like segment trends remain pretty robust through the through the July period, and I'm just trying to understand why at the brand wouldn't continue to outperform can you just help us understand what some of the puts and takes are in that second half comment.

And are you seeing that in the quarter to date period or is it just sort of layering and the degree of conservatism.

Brian you always have a this is John at which had a wonderful way of.

And edging into a question we won't answer so.

And it will decline and our respectfully and any.

Q2, or Q3 visibility.

Certainly with July.

So hard to forecast and when we talk a lot about this as a team.

In this environment.

Given that these $53000 sales volumes per week.

Unprecedented.

It's hard to gauge we're outperforming the category by 600 basis points. So we know that execution and innovation and driving a lot of that but there is also there is some.

Some benefit from.

From the environment and government stimulus and all of that and Toronto at a double digit rate would be.

And would be unprecedented it's hard to forecast where naturally conservative.

And our view.

And I know I'm not answering your question directly but as.

And as John and I and the team talk about this.

<unk>.

It's hard to frame and specific expectation in Q3 and Q4 at this stage with that said, we love of Q2, yes. It Jonathan.

That wasn't good answer I think you did answer the question, John which is which as Brian and folks.

As of Q2 was a fantastic quarter.

And when it came to <unk>.

Our results, particularly at Applebee's and we're recognizing the fact that it was there was a lot of.

Atlas.

And the economy at that time from the fed as well as from Americans, returning leaving their homes on mass and the restrictions and so.

We have.

We have.

And strong expectations of the remainder of the year.

Just wanted to send the message that Q2 was particularly strong.

Alright, understood and then system.

Follow up I think and your comments you mentioned, a lower unit count and the second half and I think you said given recent closures. So I just wanted to clarify was that something that was recent same quarter to date or are you just more so referencing what you saw moving through the first half in terms of closures.

It's mostly quarter to date or year to date.

And going forward, we expect the closure of rate to be at the same pace and the past nothing nothing standing out.

Alright, Thank you I'll pass it along.

And next question comes from Eric Gonzalez from Keybanc capital.

And just as a follow up to maybe Jake's question earlier I was wondering if you can comment.

And each brands.

Same store sales performance of the stores that are opened late night or maybe of the IHOP stores that are open 24 hours how much of a delta is there and comp performance between those 2.

Those 2 versions.

This is Jay I can I just speak from the IHOP business. Obviously, we've got 24 hour restaurants, and I think we're back to.

27% or something like that Theyre going 24, so now clearly their performance is much better and they just got more hours of their operating so when you look at the Delta between those opened 24, 7 and does not you do see a delta between those 2 but that's pretty natural and when youre going to be up and more hours to operate and you've taken and more business.

And your sales are going to be higher and that was true pre pandemic of that it will be true post pandemic.

24, 7 is not so for us it is not a contract contractual requirement that people are open and $20.7.

And that is something that franchisees decided to do if they believe that this is beneficial for them and.

So we think we'll have a lot more of that get back to that.

Compared to where we have right now but.

Slowly, but surely those are coming online and like I said before every week, we're getting just a few more restaurants to kick into 24, 7 and then we also call at 2004, 2 we have another place that we're missing some restaurants from 2019 is we have people that don't need 27, all week, but they'll do 24 hours on the weekend.

So were miss and few of those right now as well so as those come back those will help also.

And Eric on the and this is John and the Applebee's side.

While each day part lunch afternoon dinner is performing quite well that late night and day part is impacted in particular by Friday night and.

And Saturday and I think kind of 11% to 2 am and particular kind of after midnight.

And that incremental lift will come much of that is driven by operator of the judgment related to labor.

Labor challenges and so it'd be hard to.

To specify when that fully be realized of capture it will be.

And I'll resist quantifying that but there's a lift there when it does happen.

Got it.

And then just a lot of a question into advanced you talked about how you may and valley of capital allocation strategy and third quarter.

Just wondering what the decision was maybe at an operating at the dividend and you have 2 and $60 million and unrestricted cash and balance sheet and just curious is there still any.

We will often see the breakdown that dividend and youre seeing the business at.

And may cause you to hold off on that at the current where we are today and then as you think about that dividend payout ratio and the past it was.

40, plus percent I'm wondering if you're thinking about moving back to that level or.

Start off something less than that.

Yes, I would like to first highlight that we've had a strong track record returning capital to our shareholders and that.

And will remain 1 of our top priorities now.

And you pointed out we do have a healthy cash position there are still uncertainties remain due to the emergency the emergence of delta area and the potential impact back of surge and the back half of the year. So so.

That said I think the approach we'll have more details for you next next quarter, but the approach is going to be balancing between the use of <unk>.

Such and back Reinvestments, and the business technology innovation and returning capital to shareholders.

It's at a holistic approach that we would take.

And I'm not answering your question, specifically and we'll have more details and next quarter, but that's going to be our approach going forward.

Okay fair enough.

Our next question comes from Brett Levy with MK and partners.

Great. Thanks for taking my question you.

And you actually just touched on where I want it to go.

Each of the balance of investments and technology. When you think about that how should we think about it in terms of magnitude and the pacing of the investments and what's going to be.

What obligation to the franchisees had in terms of how they're investing in it.

And are contributing to at what kind of partnerships you are seeing on those fronts and also have you seen any lift that you want to share that from from any of the tests.

So Brett it's John I'll take the I'll take the beginning of that question. So.

We talked last quarter of App, and we did increase our our capex investment and technology.

This year and we are now we're now at a.

Capex run rate of about $19 million of year, which includes the physical restaurants, and the Carolinas, but we added about.

And last time, 3 or $4 million of it was in addition to our tech spend will be able to be more clear and another quarter of about what our tech spend for 'twenty, 2 and beyond and looks like.

So I think we've got more work to do and that and that in that area.

When it comes to the the way in which the investment of shared or not with our franchisees. When it comes to the centralized systems like I alluded to our new apps are upgraded apps are operated websites, our new CRM platform, our data and analytics platform. That's all that's all of the investment that we make.

Our teams here use and benefit the brands when it comes to something physical like the handheld and applebee's or the new.

Point of sales system at IHOP.

That installation.

Born by the franchisees.

And I would say Brett this is John John and see.

I agree with John's comment.

Everything we do from a technology perspective.

And pilot and validate and partnership with our franchisees and together, we develop a business case and they have always proven to be tremendous partners and we'll invest and any initiative that provides a return of in this case these technology initiatives enable innovation they.

Prove the guest experience, they favorably impact food and labor and restaurant level P&L.

And it just requires a little bit of time to validate because we'd like to do so of our 12 month time frame as opposed to at a shorter time frame and we do so and partners.

Partnership so.

Anticipate as John referenced some investments coming forward that will really unlock at enable.

And some cool activity from the brands.

Thank you and next question comes from mix and with Wedbush Securities.

Alright, thank you.

As for John and see if I may.

And you commented on the strong dollars in terms of marketing spend and the second half.

And maybe too early but do you anticipate 22.

Growing in terms of marketing dollars versus 21.

So Nick and insightful question.

As you know.

And 21, we pulled back in Q1, given the environment given the resurgence of.

Of the virus and.

So back half as and a pretty favorable position collections are outstanding.

Meaning add from collections from our franchise partners I anticipate that continuing and 'twenty..2 we did have the benefit of some carryover from last year and 20.

And we didn't spend because we also pulled back end marketing to 'twenty, 1 may not have that benefit and 'twenty, 2 and I expect us to be in great shape, Nik with respect to the AD fund.

Comparable basis Okay.

Nick This is Jay Johns as far as IHOP same same thing we had pulled back from her as part of the year at didn't make any sense to spend a lot of marketing driving people to restaurants and were partially open and.

Maybe not as fast wonderfully so.

So each of them the timing had been right to do that we obviously pick that back up and the second quarter and I think if you think about how and how the AD fund Morris and changes how we do of budgets for our marketing and it's relative to how much of that $10. We're going to have we get a percentage of the sales and sales go up you'd have more money to spend.

As you know our sales for the first quarter, we didn't have as much spend we didn't have as much money as sales of improve our AD spending has increased and for the second half of the year and on into next year it'll be relative relative to what our sales are the highest sales sales of more AD fund money we've got.

Yes.

Perfect and Jay.

And I hate to come back to this but it's important just because of premise.

And over index at too late at night so much.

Can you, maybe just contextualize and I think you said, 27% now.

Now at 2047, what was that percent pre COVID-19.

On a typical basis, we've got passed at a little over half of our restaurants that operate at 24, 7 and then theres another percentage that another small percentage on top of that as of June 2042.

Okay, Okay, and I mean, the function of that virtual brands et cetera, and theyre going to benefit from from the late night hours and Thats why I think a lot of us went out and get our arms around this question.

And then just lastly.

Thank you said, obviously you gave us the gross openings number on IHOP implied second half.

Positive metal openings.

Do you think Q3 will be positive net openings or is that going to be largely weighted to Q4.

Sure.

I don't think we're going to disclose kind of the timetable on all of this obviously I did just say for the first time that I think we're going to get to between 40 and 50, new restaurants. This year and you already know our closures from the first 2 quarters. So.

All of that math and you also her advances and our closures going forward would be at more of a typical run rate that we always do as there is no.

Bulk of colors, and we already did that I announced we thought we'd do 100, we've really only good 41 and.

And so we're in good shape and that event that happened to do those big closures that's behind US now so we.

And we'll be back to kind of normal closure rates and again my growth rate looks like 40% to 50 for the year is what we're looking at so hopefully you can kind of use that.

To think about what that looks like.

Fair enough. Thank you.

And im not showing any further questions at this time I would like to turn the call back to John for closing comments.

Okay.

We appreciate your questions as always great conversation and thanks also to Ken and Jay and John and Vance for a great quarter and thank you everybody have a great day.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

[music].

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[music].

Hello, Ladies and gentlemen, thank you for standing by and look at the Q2.2021 Dine brands Global earnings call at.

At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session need to press star 1 on your telephone if you require any further assistance. Please press star zero I would now like to turn the call over to your host Mr. Ken Dennard you may begin.

Good morning, and welcome to Dine brands second quarter 2021 conference call I'm joined by <unk>, CEO and CFO, Jay Johns President of IHOP, and Jonathan Mirsky, President of Applebee's before I turn out and 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 and different from those expressed or implied.

Please evaluate the forward looking information and the context of these factors, which are detailed in today's press release and 10-Q 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 website with that I'll turn the call over to chop and good morning, Ken and good morning, everyone. Thanks for joining US today, we're pleased with our strong Q2 results and I am excited for you to hear from advanced Chang our talented new CFO I'll start by day.

Finding this moment in time, the restaurant and at times is clearly driving a rebound at dine brands and Americans arent attorney of indoor dining and now that Americans are back we're pivoting from triage to acceleration and what I mean by that is we're accelerating the innovation and the reinvention of the guest experience today I'm thrilled to report that.

Our investments and innovation and the resiliency of our franchisees and team members is clearly paying off during Q2, both applebee's and IHOP posted significant improvements and comp sales and as and this is important both brands are fundamentally improve businesses due to off premise sales and I'm seeing that from myself I've been on the road.

And now net was 61 franchisees and toward our restaurant.

Ohio, New York City, Connecticut, New Jersey, Vegas, and Atlanta, and each conversation of the franchisee or a team member of restaurant manager reinforces for me are unique advantages that ensure our business is built to win.

First we've got 2 iconic brands and <unk>.

And based on guest connection collectively Applebee's and IHOP has been serving communities from more than 100 years. Both brands are beating their comp set because our guests have long lasting emotional connections at endure even during these tough times.

And our guest satisfaction is strong and that's impressive because many of our restaurants are operating with less labor than they're used to and finally, we work side by side of his experienced talented franchisees, who are doing extraordinary things and as a result, our emerging from the pandemic with stable financial fundamentals.

Our brands posted meaningful improvement during Q2 and on this call will be comparing comp sales for the same period of 2019 due to the pandemic distortion of 2021 results.

So here, we go and I'll recap second quarter highlights, including comp sales EBITDA and free cash flow off premise growth and development. So first according to black box and this is terrific applebee's and IHOP each outperform their segments and Q2 and both brands second quarter comp sales improved compared to the first quarter.

Specifically applebee's second quarter comps increased by 10, 5% and IHOP comps declined by 3.4%, which reflects an improvement of 17.8 percentage points compared to the first quarter.

We achieved revenue of $233.6 million and EBITDA of $71.7 million, which reflects the continued strength of our franchise model and a gradual return to steady state.

We generated free cash flow of of $107.3 million. During the first 6 months of the year, which is consistent with dine and track record of generating strong and stable adjusted free cash flow and finally, and Q2, and we opened 10, new restaurant signaling and growing confidence, our franchisees have and our brands and and putting their capital back to work.

Now despite what is still of fluid and unpredictable environment due to the Delta variant and COVID-19, we remain cautiously optimistic and there are there are 2 main reasons why first improving consumer confidence is approach and pre pandemic levels. It looks like federal spending will continue at this time via the infrastructure Bill and low unemployment are all.

And meaningful tailwind now that said our optimism is somewhat tempered by continued volatility for example, the labor shortage is affecting wages hours of operation and the availability of certain skus and our supply chain inflation is also and concern for our guests as well as for our network. We're seeing its effects on the cost of paper.

And packaging oils poultry for products and eggs and.

And based upon current conditions, we now expect commodity inflation and the range of approximately 4% to 5% for the full year and a final of known of course is the Delta variant, which is largely regional at this time, our outlook will certainly be impacted and large areas of the country returned of lockdowns or restaurant guests become uncomfortable dining out.

And now that I've covered our performance I want to give you a more complete picture of how we are accelerating innovation through digital technology at <unk>.

And we're leaning into our scale our strategy is to build 1 com and digital architecture for both Applebee's and IHOP. It enables us to do more for both brands and other brands that invest time zone and so far adjusted 2021, we've implemented a new CRM and digital platform that enables sophisticated offer management strength.

Our digital marketing and marketing analytics and improves our management of customer data, while also serving as the backbone for our loyalty programs.

We've also rolled out upgrades to our apps and our websites now we provide a more seamless store food ordering experience for example, GAAP now have more ability to customize their orders and it takes fewer clicks to navigate the menu and these new apps and website to provide us a more comprehensive understanding of our guests purchasing preferences and online behavior. We've also.

Got it cool functionality like Giovanni Geofence, Inc to attract guests arrival and advance of car side or and restaurant pickup and delivery.

And and our cost center, approximately 100 of the applebee's or on our new AI and fully automated voice ordering platform.

And 2021, we've also introduced <unk> to improve the on premise dining experience that includes handheld devices for servers that are now and 500 applebee's restaurants, those handhelds drive faster table turns and additional drink orders and most importantly, 1 of our service at Atlanta at told me that she is earning more money because he is turning the tables faster.

We also introduced paying and go that enables guests to pay at the table using their own device and the digital wallet that allows guests to redeem offers and coupons from their phone.

And finally later this year IHOP will begin to rollout new point of sale and kitchen display technology, we expect the new Pos and <unk> systems to reduce the cost of labor and share food is served hot and with improvements and order accuracy and importantly, the new Pos and <unk>, we will integrate order flow between digital and on premise to seamlessly support car side and to go orders.

All of these digital tech capabilities are new and 2021 and by ended the year approximately 75 percentage of our digital technology tools will be modernized where new and this is the most robust delivery of digital tech and Diane history, our franchisees will be adopting the on premise technology and the restaurants throughout 2021 and 2022.

I'll wrap up by emphasizing and our performance our brands and our finances are strong we understand that today's environment remains fluid and we're drawing and our deep experience and guest insights to continue to share to continue to grow share today and in the future.

Our new CFO Vance Chang is going to share more information about our financial results and just a moment, but first let me proudly introduce the newest member of our leadership team Vance spent the past 20 years, and both banking and building high growth consumer and health care companies Vantiv here, because he's and operations oriented and CFO he will lean into our domestic.

<unk> and international businesses and work with those teams to fuel growth and improved profitability for dine and for our franchisees and Vance is of high impact executive who has got a track record of driving innovation and delivering on execution and that's exactly the profile, we need as we pivot from the crisis, the innovation and accelerates our growth So advanced welcome Phil.

6.

Thank you John for them and warm introduction and good morning, everyone.

And I'm excited to be here today, and look forward to working with all of you and the months and years ahead, it's great to be with everyone. On my first earnings call as CFO of dine.

During my first months at the company at a meeting with team members and franchisees and reviewing plans.

The on boarding process was instrumental and reinforce my confidence and the business and our direction I.

And I spent the past 20 years of my career, advising investing and building high growth consumer healthcare companies, providing strategic leadership during times of a meaningful change.

While we all continue to emerge from the pandemic. We know there are very real challenges still ahead of us and I recognized the obligation we have of leaders within our industry.

For me, it's a humbling responsibility as we work together to maximize the full potential of the enterprise and to deliver profitable growth from all of our stakeholders, including our shareholders franchisees and team members.

John just highlighted some of our baseline results, let me spend a few minutes talking about the financials.

I'll begin my remarks, with a review of our cash position.

The continued improvement and our business has helped us maintain our strong cash position. We finished the second quarter with a total unrestricted cash of $259.5 million. This was at 44% increase over the first quarter unrestricted cash balance of $179.6 million.

Turning to our operating results franchise revenues for the second quarter of $167 million compared to $67.9 million, but at the same quarter of 2020.

Turning to the company restaurant segment sales for the second quarter were $38.2 million compared to $16.8 million for the second quarter of 2020.

Rental segment revenue for the second quarter of 2021, or $27.4 million compared to $23.7 million and by the same quarter of 2020.

The improvement was due to an increasing percentage of rental income.

Based on franchisees retail sales of.

Adjusted EPS for the second quarter of 2021 was $1.94.

Compared to an adjusted net loss per diluted share of <unk> 87 for the same quarter of 2020.

The improvement was due to an increase in gross profit as our business continued to recover from the effects of the pandemic.

Regarding our GAAP effective tax rate.

Our effective tax rate from the second quarter of 2020 was 24% expense compared to 8.2% benefit from the same quarter of last year.

Main reason for the variance was due to the non deductible impairment of goodwill and the second quarter of 2020.

Regarding G&A.

<unk> of the second quarter of 2021 was $39.3 million compared to $30.9 million for the same quarter of 2020.

The increase was primarily due to higher personnel costs associated with our incentive compensation accrual based on company performance.

Turning to the cash flow statement of.

Cash from operations for the first 6 months of 2021 was $106 million compared to cash used in operating activities for the first 6 months of 2020 of $10.5 million. The improvement was primarily due to the recovery of FERC business as discussed earlier we.

We believe the positive trends and our liquidity and comp sales will allow us to strategically invest for growth and innovation.

Now I would like to share some thoughts about the back half of the year, we expect G&A to be higher in Q3, and Q4 relative to the first half of the year as of <unk>.

Reminder, our G&A does include noncash expenses, such as depreciation and stock based comp that we normally add back of EBITDA, but the expected increase in G&A is primarily driven by 2 factors.

First we pushed professional services and travel expenses to the second half of the year given the uncertainties that we face during the first half of the year.

Second higher incentive compensation is expected in the second half of which is a variable component of G&A that will fluctuate based on our business performance.

Additionally, I would point out of that our Q2 financial performance reflects strong pent up demand that we may not experience at the same level in Q3 and Q4. In addition to the normal trends that we typically experienced in the second half of the year.

We also have more restaurants, and the first half of them. We will have in Q3 and Q4 due to recent closures.

Turning to our 2021 financial performance guidance.

I'd like to highlight of revision to our G&A guidance, primarily due to the factors discussed earlier, we now expect G&A to range between $168 million and $178 million.

This compares to our previous expectation for G&A to range between $160 million and $170 million.

Our guidance for Capex of approximately $19 million for 2020.1 remains unchanged.

Please see our press release issued this morning for complete details.

Moving on to capital allocation.

Proactive measures to reinforce our financial flexibility in early 2020, which included a temporary suspension of our quarterly cash dividend and share repurchase program on past calls when asked about our plans to return cash to shareholders. We have indicated that we wanted to see several quarters of improving performance before of reinstating a dividend.

Our buyback program.

Since the start of the year, our fundamentals have continued to improve contributing to our strong adjusted free cash flow position as referenced earlier.

As we enter the back half of the year, we will have a shareholder return strategy to share with you and are considering all options to maximize shareholder return and deliver sustained long term profitable growth for the system.

We will have more details on our third quarter call.

And a few points on our capital structure in early 2020, dine preemptive steps to mitigate the effects of the pandemic on its operations and its franchisees, including voluntarily increasing the interest reserve for our securitized debt from the required $16.4 million to $32.8 million.

I would like to highlight that due to the end true strong improvement of our business over the last 12 months, we have decided to reduce the interest reserve back to $16.4 million.

Our leverage ratio as of June 30 was 4.9 times compared to 4 times as of March 31.

With our leverage ratio of back below 5.5 times, we will no longer be required to make principal payments on our 2019 class a 2 notes after September.

I would also like to highlight that we continue to have significant cushion and our debt service coverage ratio or day SCR at 4.6 times as of June 30.

This is an improvement from the SCR of 345 times as of March 31 as.

And as a reminder of the first key <unk> measurement is not revenue until the ratio falls below 1.7 and 5 times.

Maintaining our financial flexibility to meet to meet our debt service obligations is 1 of our highest priorities. We will continue our disciplined approach to monitoring liquidity, especially during these times of uncertainty due to the pandemic. We're very pleased with our achievements and remain cautiously optimistic about our recovery will be.

<unk> done a lot of of the heavy lifting and $2 a solid foundation for long term growth.

Now I'll turn it off of the 2 charts, which Steve will provide an update on applebee's business performance, Josh great job, Vince and welcome to the team and your timing is good.

Very pleased to report that Q2 was an exceptional quarter for the Applebee's brand when compared with our 2019 baseline.

And from May and June comp sales were positive of 11, 7% positive 8.1% and positive of 11, 4% respectively. This combined plus 10, 5% result marks the best quarterly sales performance throughout the 14 year history of Dine brands.

And of course that excludes the anomaly of of the 'twenty 1 versus 'twenty pandemic here.

Restaurant sales delivered approximately $53000 per week throughout the quarter and puts us in proper perspective. The months of March April may and June and sequence rank is applebee's for highest weekly sales months under <unk> ownership.

I'm, particularly proud of our franchisee partners and the entire applebee's team as they continue to showcase their restaurant level excellence within a and obviously challenging environment. According to Black box intelligence Applebee's has now outperformed the casual dining category on comp sales from 25 consecutive weeks.

And by an average of 596 basis points as.

As expected with guests returning to our dining rooms, and we experienced the natural shift from off premise sales to dine in sales and Q2.

To better understand this trajectory dine and mix moved from 67% in April of 272% in June with 16% car side to go and 12% of delivery and June reflecting this gradual migration to a normalized post pandemic mix.

Applebee's off premise weekly sales in June was 14000 and $700 per restaurant.

And as a percentage of total sales, it's reasonable to assume our off premise mix may ultimately settle and the low to mid 20% range I should note. This represents about double of our pre pandemic off premise mix of 12% illustrating applebee's enhanced relevance within this convenience driven occasion.

Given the importance of this business we are expanding our initial drive through tests to include an additional 6 units in Q4 for a total of 7 dedicated applebee's pickup windows.

This off premise mix includes our cosmic wings virtual brands, which we're planning to expand to door dash as you recall and early may however, due to significant chicken wing supply challenges across America, we postponed our door dash expansion to a date to be determined contingent upon supply availability.

We anticipate meaningful incremental demand with this expansion and we were.

Want to ensure supply sufficient supply to properly satisfy this demand in the meantime of hold off commenting further on cosmic <unk> results until we pulled this lever with door dash hopefully at the end of Q4.

Turning to restaurant execution Applebee's continues to resonate with our guests on key operational metrics such as guest satisfaction brand affinity and visit intent. This is noteworthy given persistent labor challenges throughout the industry.

To address this challenge we executed our first national hiring day.

Back on May 17, and leveraging our extensive digital assets, we offered a free appetizer and returned for and application and interview something we playfully branded applebee's at 4 and App.

Hoping to generate 10000 applications our franchise partners ended up securing more than 40000 applications with a single day events ultimately hiring about 5000, new team members that week of terrific result.

And our success here once again illustrates the benefits of scale and brand reputation and navigating the tough labor environment and.

Applebee's continues to lead the casual dining category on affordability menu variety to go awareness and brand awareness and advertising awareness, which remain important attributes for us in this competitive landscape.

With smart and strategic media allocation of our teams introduced the balance of new salad bowls and beverage innovation throughout Q2, with our newest menu of hitting restaurants in 2 weeks. We also shifted our brand messaging to focus on the genuine emotional connection applebee's has with its guests of connection we believe is more of.

And more important and relevant and ever given all of this country has endured over the past 16 or 17 months.

Excuse me, our talent and marketing team has done a terrific job conveying applebee's unique brand essence.

In conjunction with the theme songs to tears and welcome back Kotter, almost as though of those alerts were written for Applebee's at this particular point in time and.

I'm proud of the authenticity and residents this work delivered in Q2 and.

And since music is so much part of our brand DNA I also wanted to highlight that the curse of number 1 song and itunes and Billboards top country music is titled Fantasy like from artist Walker Hayes and this is important because this song Lyrically is all about $8 million at Applebee's and its gone viral and.

And a big way and social media, Tictoc, Instagram and Youtube, providing great buzz for the out of these brands and.

Additionally, we entered into a very exciting relationship with the Walt Disney Company and support of their current number 1 film jungle cruise as way to celebrate and encourage the return to dinner and a movie this summer.

Wonderfully familiar part of America.

All of Werent really able to enjoy for a very long time, hopefully you've had a chance to see our advertising featuring Dwayne the rock Johnson and Emily Blunt set to the classic tunes rock the boat and born to be wide.

Both of those debuted in the NBA Championship game on July 20th and to capitalize on the synergy. We have also developed of business partnership with Dwayne Johnson and the entrepreneur to introduces new and fastest growing premium tequila brands terramara into all of Applebee's restaurants, and July Dwayne has proven to be a tremendous.

Partner as these signatures $7 amount of Margarita and are now available everywhere and proving to be extremely popular with our guests.

As we look forward you can expect our Q3 and Q4 media spending to remain substantial and favorable when compared with the same quarters in 2019.

To wrap up while applebee's momentum remains strong and it would be unrealistic to expect these unprecedented double digit sales to sustain and the back half of this year and with that said in good and the neighborhood has never been more relevant than it is today and I am confident and applebee's ability to continue to thrive in this environment.

I'll now turn it to Jay Johns for an overview of the IHOP business.

Thanks, John and congratulations on another great quarter and good morning, everyone. I am pleased to report that IHOP solid trajectory continued this quarter, our second quarter comp sales improved sequentially by 17, 8 percentage points compared to the first quarter and outperformed the family dining category as well by 150 basis.

Points according to black box.

Another indication of the health and standard of our business is the growth and domestic average weekly sales every month and the first half of the year for.

For the second quarter average weekly sales were 28% higher than Q1.

Average weekly sales per week were approximately 38000 and April and increased to just over 39000 by June reaching a high for the quarter of approximately $40000.

As dining room, and the passenger restrictions are eased and consumer satisfied and longing for a sit down and be able to favorite IHOP, our off premise sales mix and moderated as anticipated.

All from a sales accounted for 26, 1 percentage of sales mix for the second quarter compared to 33, 3% for the first quarter.

However, we continue to believe that we will retain at the majority of the off premise sales growth of attained over the last 15 months, partly due to changes in consumer behavior.

According to a May 2021 survey by Mckinsey and company consumers and intend to continue with many digital behaviors, even after COVID-19, subsides, including restaurant curbside pickup and in fact, our net alternative sales and dollars improved each month and the second quarter and.

Additionally, off premise comp sales increase of 169% and the second quarter of 2021 compared to the same period of 2019.

For the second quarter, our sales mix consists of 73, 9% dine and 13, 9% delivery and 12, 2% to GAAP approach.

Approximately 85% of our domestic restaurants are open for standard operating hours or greater and approximately 27% our operating 27.

And we believe that having more restaurant operating on standard hours or longer reduced capacity restrictions and higher vaccination rates could be of potential tailwind and the second half of the year.

To drive traffic and sustainable long term growth, we are executing against our multi pronged strategy. This includes our new approach to marketing launching of loyalty program developments and virtual brands.

I'll provide some color on each of these starting with marketing.

We're adopting a new marketing tone aimed at leveraging the emotional connection of our guests that they have our eye on our new creative is designed to remind consumers why they love the brands were.

Taking a multichannel approach to better utilize our resources such as increasing our digital exposure. We believe doing so will allow for more effective <unk> and marketing and better targeting and messaging to different audiences.

I am pleased to say the marketing transformation is already underway.

Regarding our loyalty program, we plan to launch of loyalty program and the fourth quarter to increase cash engagements. Our goal is to drive trial, and importantly incremental visits from existing IHOP guests.

And at IHOP, the pandemic forced us to reflect and refocus on our relationships with our guests within of transforming restaurant industry. At the same time, we actually grew our investments and CRM and customer facing technologies selling down our commitment to modernize our desk relationships.

Over the past 12 months, we've invested and CRM loyalty and digital experiences while much of this work has been foundational we expect to see some of these elements coming to life later this year.

Regarding development, we're focused on returning to strong unit growth I highlighted last quarter, we have the advantage of being able to provide our franchisees with 4 platforms to accommodate their development needs. These include our traditional platforms non traditional and new small prototypes at scheduled to test this year and.

And our first flipped by IHOP locations, which we plan to open the next few months.

Regarding flipped and we now plan to open our first location and Lawrence, Kansas and the third quarter. This location will be approximately 3500 square feet and as of freestanding structure with 55 seats.

Our second flip location is now scheduled to open late in the third quarter and in New York City Dislocations conversion space, there will be approximately 800 square feet with only 25 seats.

Both locations while at the same menu that will address all 3 and day parts, while leveraging the equity of IHOP and Gaslog.

And importantly, I'll provide franchisees with conversion opportunities across all of these platforms, which can be very cost effective as of sites. We've approved for the future of this year approximately 42% our convergence.

For 2021, we believe the brands and develop 40 to 50 new restaurant.

Looking ahead of the next 3 years, our development strategy includes a blend of our core development platforms.

And with the addition of flipped and the introduction of small prototype, we believe the brand and significantly exceed its historical annual run rate over the last decade.

Turning to virtual brands.

And while our focus so far this year has been and restarting and I'll have strong development. We believe the time is appropriate to start evaluating third parties with several brands to partner with <unk>.

And given that approximately 70% of our domestic restaurants had 2 full kitchens, we have capacity that can accommodate multiple virtual brands. We're currently reviewing our day part strategy and assessing how to best utilize our existing capacity.

Due to the fact, where unemployment of every stage of this of too early to discuss who we may work with at the virtual brand partner. We've made good progress over the last year. Our business has improved significantly all from a sales remained strong even and dining room capacity restrictions were generally eased the majority of our domestic restaurants are operating on standard hours.

Or longer and we believe there is additional upside as well as restaurant resume standard operating hours later in the year, we of a multi pronged plan and flex for long term growth. The road ahead for IHOP, It looks price and I'm very pleased with our position I will now turn the call back over to John Peyton John Thank.

Thank you Jay Great results. Thank you, John and advance 4 and your entire teams for all of the Great work you did.

Past quarter to lead to our terrific results and with that we are looking forward and taking your questions and we'll turn the call back over to the operator.

Ladies and gentlemen of the sale of a question of our comment at this time. Please press the star them of 1 key on your Touchtone telephone. If your question has been answered or you wish to move yourself from the queue. Please press the pound key and we also ask that you limit yourself to 1 question and 1 follow up.

Our first question comes from Brian <unk> from Deutsche Bank.

Hey, thanks, everyone and congrats on a good quarter.

John Payne.

Last call you shared some really helpful goals of our numbers.

Challenge each brand president to get to from a gross openings perspective over the next several years, so with those longer term goals out there John and I'm wondering if we could zero in on your net unit growth expectations rather than gross.

You expect dine to experience domestic net unit growth and 2022 and do you expect it at each brand and then longer term, what's the right way to think about the net unit growth potential is at 2% is at 3% just any thoughts would be great.

Yeah. Thanks, Brian so when it when it comes to net unit growth what I mentioned last time and can reinforce this time is that particularly when it comes to <unk>.

And I believe that they can improve on the pace that they've done which is historically about 40 or 50, new restaurants, a year and net new.

Net unit growth.

For IHOP and for Dine overall.

Will be positive in 2022, when it comes to Applebee's, we are concluding.

And for 3 year effort too.

Work with our franchisees to close those restaurants that were underperforming or at the market and moved away from them. We're now at the end of that process that John's Lynskey really of expertly managed over the last 3 years and would expect applebee's to begin to return to net positive growth more of like 2023.

And beyond.

<unk> of IHOP and 2022.

Great. Thank you and then as a follow up IHOP. It was great to see the brands yet.

Get close to 2019 levels and June on that 2 year stack basis, I believe California, only fully opened on June 15th.

Wondering if it's safe to assume that you maybe exited the month of June better than that and might it might even be back to flat or better.

At this point in July.

Well at this point, we're not going to talk anything beyond the end of the second quarter as far as how things are trending or anything, but but I think your fax arrived to that California was not open the entire quarter.

And so clearly helped us when we got to June and everything did open up.

Alright, thanks, and congrats again.

Thank you.

Our next question comes from Jake Bartlett of true Securities.

Yes.

Great. Thanks for taking the question.

My first 1 was on or I guess I wanted to follow up but my question is just on IHOP and trying to understand.

The impact of the.

The more of limited operating hours and.

And the less towards 2000, and 407 can you remind us kind of what your normalized.

Late night sales mix is and what Youre seeing now and maybe just so we can understand the opportunity as staffing levels improvement and you regain those sales.

And this is Jay.

Jay This is Jay Johns.

And on IHOP, obviously, we have some restaurants that are still not fully back to their standard operating hours.

And most of that is the later at a time of the day.

<unk> and our overnight. So we don't have as many restaurants during 2007 as we get and 2019. So those are the opportunities for us and we're making progress every week slowly, but surely as people are staffed and capable of expanding their hours of the franchisees are doing that and we're confident we'll get.

Fully back there, but I can't predict exactly when that's going to happen.

Et cetera, but we're doing we're doing very well and.

And at the breakfast day part even at the lunch margin.

Remember for us launches oftentimes late and breakfast so everything up through launch we're doing really well at is just the.

The hours at some of the restaurants, and we've got to get back before we can get.

Fully back to those PM and overnight hours to.

And to help our business.

Okay.

And then I guess.

Question on.

And then just sneak the operating cost inflation that you're seeing.

And the business in the back half of the year.

You gave guidance for commodity inflation for the year could you can you, let us know what commodity inflation was and the first half. So we can understand what you expected and the back half and then if you could talk about any sort of.

Cost efficiencies that you expect to offset some of those pressures, especially from the perspective of franchisees. So that we can feel good that their margins are are solid at up to 2 weeks.

Celebrate growth and maybe within that question, what kind of pricing level youre expecting.

Hey, Jay because of fans.

John made reference to this earlier, but we're expecting our of inflation costs.

To go between 3% to 5%, 45% for the year versus last year.

At a whole so that is that and part of the headwinds at that.

And thats kind of that we're facing.

And the savings side, we talked about tablets and talked about.

The technology innovation all of those things step by step will help with the operating cost of the franchisees.

A lot of these initiatives.

New York, So we're still monitoring.

But.

We're making progress towards that.

And Jake this is <unk>.

<unk> segment SKU with Applebee's.

And you asked a question about franchisees, we've eased a bit on at what I'll characterize as discounting.

And we've been leaning into core equities with full margin.

The returns of dine in and in particular.

Guests, who are choosing to indulge a bit with appetizers and.

And drinks.

Tara and I referenced.

<unk> has helped our check and that's really without the late and that business coming back and weakens and so they've been able to mitigate to the best of their ability they've always been very responsible on pricing.

I understand it's a long term game and particular applebee's is of value oriented brands with value oriented demographics. So.

We will navigate this just volume.

Great just to clarify what was what was the commodity inflation in the first half of the year.

Yes, the first half of the year, we said it was about 2%.

Great. Thanks, a lot.

Your next question comes from mentioned.

You'd mentioned 1 of the point.

And plus co brands and anticipating the environment that we've been in both brands aggressively simplified their operation and their menu, which eliminated those.

And those products and complexities that challenged margins and so we hedged well in advance of what we're seeing right now and the commodity front, which has helped a great deal.

Thank you.

And next question comes from Brian Vaccaro with Raymond James.

Thanks, and good morning of an Applebee's, John and I think you said you don't expect.

Sustained double digit comps and the second half and I guess at it seems like segment trends remained pretty robust through the through the July period, I'm, just trying to understand why at the brand continued to outperform can you just help us understand what some of the puts and takes are in that second half comment and are you seeing that in the quarter to date period or is it just sort of layering in a day.

And of conservatism.

Brian you always have a and this is John you have a wonderful way of.

And the 1 question, we won't answer so will decline of respectfully and any Q2 or Q3 visibility.

Certainly with July.

And so hard to forecast and when we talk a lot about this as a team.

In this environment given that these $53000 sales volumes per week are unprecedented.

It's hard to gauge we're outperforming the category by 600 basis points, So and we know that execution and innovation and driving a lot of that but there's also there's some.

Some benefit from.

From the environment and government stimulus and all of that and Toronto at a double digit rate would be.

And would be unprecedented it's hard to forecast, where naturally conservative and our view.

And I know I'm not answering your question directly but is.

And as John and I and the team talk about this.

Yes.

It's hard to frame and specific expectation on Q3 and Q4 at this stage with that said, we love Q2, Yes, it's Jonathan.

That wasn't good answer I think you did answer the question, John which is which as Brian and focuses is Q2 was a fantastic quarter.

And when it came to <unk>.

Our results, particularly at Applebee's and we're recognizing the fact that it was there was a lot of stimulus.

And the economy at that time from the fed as well as from Americans, returning leaving their homes and an unmatched and the restrictions and so.

We have.

We have.

Strong expectations of the remainder of the year.

Just wanted to send the message that Q2 was particularly strong.

Alright, understood and Vince just to.

Follow up I think and your comments you mentioned, a lower unit count in the second half and I think you said given recent closures. So I just wanted to clarify was that something that was recent day quarter to date or are you just more so referencing what you saw moving through the first half in terms of closures.

It's mostly quarter to date or at year to date.

And going forward, we expect of closure rate to be at the same pace and the past nothing nothing standing out.

Alright, Thank you I'll pass it along.

And next question comes from Eric Gonzalez from Keybanc capital.

And just as a follow up too and maybe Jake's question earlier I was wondering if you can comment for each brand.

Same store sales performance of the stores that are opened late night or maybe the IHOP stores that are open 24 hours how much of a delta is there and comp performance between those 2.

Those 2 versions.

This is Jay I can I just speak from the IHOP business. Obviously, we've got 20 for our restaurants and I think we're back to <unk>.

27% or something like that Theyre going 'twenty, we're selling now clearly they're performing.

<unk> is much better and they just got more hours of their operating so when you look at the Delta between those opened 24, 7 and does not you do see a delta between those 2 but that's pretty national and when youre going to be up and more hours to operate and you've taken and more business. Your sales are going to be higher and that was true pre pandemic of that will be true post cash.

Okay.

24, 7 is not so for us it is not at.

Contract contractual requirement that people are up and 27.

And that is something that franchisees decided to do if they believe that this is beneficial for them and.

So we think we will have a lot more of that get back to that.

Compared to where we have right now but.

Slowly, but surely those are coming online and like I said before every week, we're getting just a few more restaurants to kick into 24, 7 and then we also call at 2004, 2 we have another place that we're missing some restaurants from 2019, and we have people that don't need 27, all week, but they'll do 24 hours on the weekend.

And so we're missing a few of those right now as well so as those come back those will help also.

And Eric on the and this is John and the Applebee's side.

While each day part lunch afternoon dinner is performing quite well that late night and day part is impacted in particular by Friday night and.

And Saturday and I think kind of 11% to 2 of and in particular kind of after midnight.

And that incremental lift will come much of that is driven by operator judgment related to labor.

Labor challenges and so it'd be hard to.

To specify when that fully be realized to capture it will be and I'll resist quantifying that but there's a lift there when it does happen.

Got it.

And then just a lot of of question into advanced you talked about how you may and valley and capital allocation strategy and the third quarter.

Just wondering what the decision was made at an operating at the dividend and you have $250 million and unrestricted cash and balance sheet and just curious is there still any.

Reluctantly to bring net debt to EBITDA and you think youre seeing the business at.

And it may cause you to hold off on that at the current where we are today and then as you think about that dividend and the payout ratio and the past it was.

40, plus percent I'm wondering if you're thinking about moving back to that level or.

Start off something less than that.

Yes, I would like to first highlight that we've had a strong track record of returning capital to our shareholders.

And will remain 1 of our top priorities now although as you pointed out we do have a healthy cash position. There are still of uncertainties remain due to the emergency the emergence of delta area and the potential impact at the surge and the back half of the year. So so.

That said I think that the approach we'll have more details for you next next quarter, but the approach is going to be balancing between the use of.

Such as back Reinvestments, and the business technology innovation and returning capital to shareholders.

It's at a holistic approach that we would take.

Again, I'm not answering your question, specifically and we'll have more details and next quarter, but that's going to be our approach going forward.

Thanks Donna.

Our next.

Comes from Brett Levy with MK and partners.

Okay. Thanks for taking my questions you actually just touched on where I want it to go.

Each of the balance of investments and technology. When you think about that how should we think about at in terms of the magnitude and the pacing of the investments and what's going to be.

And what obligations to the franchisees have in terms of how they are investing and it had.

They're contributing to at what kind of partnerships you are seeing on those fronts and also have you seen any lift that you want to share of that from from any of the tests.

So Brett at John I'll take the I'll take that.

And beginning of that question so.

And we talked last quarter of App, and we did increase our capex investment and technology.

And this year and we're now we're now at at <unk>.

Capex run rate of about $19 million of year, which includes the physical restaurants, and the Carolinas, but we added about of.

And last time, 3 or $4 million of it was in addition to our tech spend we will be able to be more clear and another quarter of at what our tech spend for 'twenty, 2 and beyond and looks like.

Although I think we've got more work to do and that and that in that area.

When it comes to the way in which the investment is shared or not with our franchisees. When it comes to the centralized system like I alluded to our new apps are upgraded apps are operated websites, our new CRM platform, our data and analytics platform. That's all that's all of the investment that we make.

Net.

And your use and benefits of the brands when it comes to something physical like the handhelds and applebee's or the new point of sales system at IHOP.

That installation is borne by the franchisees.

And I would say, Brian This is John and John C agree.

And I agree with John's comment.

Everything we do from a technology perspective.

And we pilot and validate and partnership with our franchisees and together, we develop a business case and.

They have always proven to be tremendous partners and we will invest and any initiative that provides a return of in this case. These technology initiatives enable innovation they improve the guest experience they favorably impact food and labor and restaurant level P&L.

And it just requires a little bit of time to validate because we'd like to do so over a 12 month timeframe as opposed to a shorter time frame and we do so.

And partnerships, so anticipate as John referenced some investments coming forward that will really unlock at enable.

Some cool activity from the brands.

Thank you and next question comes from mix.

Bush of Securities.

Thank you.

This is for John and see if I may.

You commented on the strong dollars in terms of marketing spend and the second half.

And maybe too early but do you anticipate 22.

Growing in terms of marketing dollars versus 21.

So Nick insightful question.

As you know.

And regarding 2001, we pulled back in Q1, given the environment given the resurgence.

Of the virus and so.

So back half as and a pretty favorable position collections of our outstandings.

And then add from collections from our franchise partners and.

Anticipate that continuing and 'twenty 2 we did have the benefit of some carryover from last year and 20 money.

And we didn't spend because we also pulled back end marketing to 'twenty 1.

<unk> not had that benefit and 'twenty 2 I expect us to be in great shape, Nik with respect to the AD fund.

Parable basis, Hey, Nick This is Jay Johns as far as IHOP same same thing we had pulled back and first part of the year at didn't make any sense of spend a lot of marketing driving people to restaurant and were partially open and maybe not fast wonderfully. So.

So each of the timing had been right to do that we obviously pick that back up and the second quarter and I think if you think about how and how the AD fund Morris and changes and how we do of budgets from our marketing at its relative to how much of that $10 and we're going to have we get a percentage of the sales of sales go up you have more money to spend.

As you know our sales for the first quarter, we didn't have as much and we didn't have as much money as sales of improve our AD spending has increased and for the second half of the year and on into next year and it'll be relative relative to what our sales are the highest sales go the more ads on money and we've got.

Perfect and Jay.

Thank you.

Hate to come back to this but it's important just because of <unk>.

Emmis over index to late night and so much.

Can you, maybe just contextualize and I think you said, 27%.

Now at 2007, what was that percent pre COVID-19.

And on a typical basis, we've got passed at a little over half of our restaurants that operate at 24, 7 and then theres another percentage.

And another small percentage on top of that as of June 2042.

Okay, Okay and.

I mean, the function of that virtual brand et cetera, and theyre going to benefit from from the late night hours and that's why I think of lot of US went out and get our arms around this question.

And then just lastly, I think you said, obviously you gave us the gross openings number on IHOP implied second half.

Positive net openings.

Do you think Q3 will be positive net openings or is that going to be largely weighted to Q4.

Sure.

I don't think were going to disclose kind of the timetable on all of this obviously I did just say for the first time that I think we're going to get to between 40 and 50, new restaurants. This year and you already know our closures from the first 2 quarters. So.

All of that math and you also heard advances and our closures going forward would be at more of a typical run rate that we always do theres no.

Bulk of closure, we already did that I announced we thought we'd do 100, we really only did 41 and so we're in good shape and that event that happened to do those big closures that's behind us now so.

We will be back to kind of normal closure rate and again my growth rate looks like 40% to 50 for the year is what we're looking at so hopefully you can kind of use that to.

To think about what that looks like.

Fair enough. Thank you.

And I'm not showing any further questions at this time I'd like to turn the call back to John Payne for closing comments.

Okay. Thanks.

Thanks, Scott and we appreciate your questions as always great conversation and thanks also to Ken and Jay and John and Vance for a great quarter and take everybody have a great day.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.