Q3 2021 Dine Brands Global Inc Earnings Call

Good day and thank you for standing by welcome to the third quarter Dine Brands Global Inc Earnings Conference call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.

Please be advised the today's conference is being recorded if you require any further assistance. Please press stars zero I would now like to hand, the conference over to your Speaker today Executive director of Investor Relations can Zip. Please.

Please go ahead.

Good morning, and welcome.

Third quarter of 2021 conference call.

John.

That's true.

Oh.

President.

[laughter].

Before I turn the call ups. Please.

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Contact.

Details.

Two filings.

The forward looking statements are as of today.

No obligation to update for a supplement.

You may also refer to.

Which are described in our press release and also available on our website with that I'll turn the call over to.

John.

Thanks, Ken and good morning, everyone. John J Vance can I. Appreciate you taking the time to join US. This morning, Q3 was another terrific quarter for die brands for the second consecutive quarter. Both brands beat their competitive set average weekly sales for IHOP and Applebee's exceeded 29 prepandemic levels for the first.

Time, and we recorded a 48% increase in quarter over quarter EBITDA.

<unk> posting results like this for two reasons the resilience of our two world class brands and the value of our asset late model and Q3 reinforced again the benefits of our highly franchise business and driving our strong performance versus our peers. Let me explain why that is.

First our model reduces complexity and it's a significant generator of cash it allows us to keep our operations lean and our movements agile and during moments like this when labour in commodity costs are rising and guests behaviors uncertain due to the pandemic, we deliver less volatile results from period to period.

Said another way asset light allows us to invest in what we do best which is menu innovation marketing and building technology and at the same time Applebee's and IHOP continue to gain share because get trust us They love us and we appreciate that we're focused on delivering delicious food a great value while also providing experiences that are.

Are enjoyable and safe and just like I said to all of you. When I first joined dine brands that when are different better and special and they're able to create emotional connections with guests, particularly during tough times and that's exactly what our brands have been doing all year.

So today I'll share highlights of our fantastic Q3 results I'll talk about our view of this moment in time in the industry and I'll address our thoughts on capital allocation and long term growth on this call as all year, we will be comparing cop sales to the same period in 2019 due to the pandemic distortion of 2020 sales.

So here, we go I'll recap Q3 highlights, including comp sales EBITDA cash flow and development.

First according to Black box, Applebee's, and IHOP again outperformed their segments in Q3.

And for the first time in 2021, both brands average weekly unit sales exceeded prepandemic levels.

We recognized revenue of 229 million and EBITDA 63.3 million, which reflects the compelling resilience of our brands are franchise model and continued progress towards returned to steady state.

For the nine months ended September 2021, we generated approximately $141.6 million of adjusted free cash, we opened 11 restaurants, which signals our franchisees continued confidence in putting their capital investments back into the business.

And we are particularly thrilled at some holdings the third largest owner of restaurants in the U S joined the Applebee's family V. Its acquisition of 131 restaurants through a transaction with Acorn investment another signal of Applebee strong performance.

So now let's put our results in the context of this very unique moment in time, where.

We're certainly enjoying meaningful tailwind first Americans continue to dine out and our numbers indicate that the delta variant did not have a material adverse effect on that trend also our guests continue their recent habit to takeout and delivery.

And while it's certainly unfortunate that 110000 U S restaurants permanently closed this did lead to five points of market share shift from independent to the national chain. According to the Boston Consulting group and.

And as you all know so well, we're also navigating unprecedented headwind such as the shortage of workers and the rising cost of labor the scarcity and rising cost of certain commodities and of course, the lingering uncertainty related to the vaccine testing in math mandates.

Yet I've got to tell you. Despite this extraordinary moment in time, we are unequivocally bullish on our long term strategy.

I'll tell you what first the restaurant industry remains a 485 billion dollar market and the casual and family segments are expected to fully recover by 2023.

U S consumers are increasingly optimistic as we emerged from Covid research tells us that 44% of consumers report that they will increase their visits to restaurants as COVID-19 receipts and an additional 35% tell us they'll go just as often as they did before the pandemic.

And third franchising remains an entrepreneurial engine for launching a business, creating wealth and growing jobs in our country at dining alone. We have 345 franchisees operating more than 3400 restaurants across the country and around the globe and these entrepreneurs employ approximately 125000.

Team members supporting their state and local economies.

Now that we're beginning to see the light at the end of the tunnel. Our teams are focused on our plans for long term growth.

Our approach is simple and straightforward it's to set audacious goals and I will touch on four of those goals right. Now first is the development of new restaurants, we see a path to applebee's returning to net unit growth in 2023 and beyond and we see IHOP doubling its historical unit growth also by 2023, we will achieve.

Those goes through a combination of bricks and mortar stores and goes kitchen.

To drive this growth. We've recently hired two new Vp's of development, Jake Bard and Don Rayburn, who come with terrific experience from RBI Intercontinental Starwood hotels, Brinker and young and these new Vp's will be shepherding, our new prototypes that reflect the learnings and new consumer behaviors that emerged during COVID-19.

Our second focus is meaningful investments and loyalty programs are digital ecosystem and CRM. These tech investments. In addition to our industry, leading menu and marketing innovation will drive consistent theme store sales growth year over year and as I told you before we are leaning into our scale our strategy.

She has to build one common digital architecture for both brands that enables us to do more than either brand could invest on its own.

And we remain on track to have approximately 75% of our digital technology tools Moderniser, new by the end of the year and we expect this advantage and innovation to accelerate in 2022.

In fact, this quarter or digital sales resulted in 20% of total system sales compared to only 6% in the third quarter of 2019.

Third we're investing in new sources of revenue think virtual brands goes kitchen for consumer products that will contribute to our growth into our franchisees bottom line.

And finally, we have a renewed focus on our very profitable international business and the potential to significantly grow our footprint here too we have hired a new VP of international development, Enrique copper with global experience from GNC and Jamba juice he'll be focusing on expanding and four core markets, where we currently enjoy momentum and scale.

We're looking forward to sharing more details on these and other initiatives during our investor confidence in New York City in spring of next year.

So in 2022 and beyond you'll see us invest in growth initiatives to a greater extent that we have in the past.

As a result, you can expect a balanced approach to capital allocation that incorporates returning cash to shareholders judicious Roy driven investments in both organic and strategic growth <unk>.

<unk> management of our debt and maintaining the financial flexibility needed right now to address any remaining uncertainty from the pandemic as well as potential opportunities to pursue scalable acquisitions at the right time.

With that as context or performance year to date and are cautiously optimistic view of the remainder of 21 and 2022 enables us to reinstate both our quarterly dividend in queue for and our share buyback program. We're also able to share EBITDA guidance for the remainder of 2021 and Vance will discuss details on both our guidance and.

Our dividend and share repurchase programs and just a few moments.

I'd like to conclude with an update on our ESG efforts. We've recently issued our initial ESG report entitled Dine, together, which can be found in our dime brands website as we've grown our business. We broadened our vision to include our impact on the environment and society just makes good business sense as it resonates with team members and guests.

Increasingly are looking closely at how businesses and brands contribute to society.

<unk> strategy and report is devoted to four focus areas.

Our our planet our people, our food and our governance and for US our business and our social responsibilities are inextricably linked and while I'm encouraged by the progress. We've made we've got a lot more to do to meet our goals deepened our impact and innovate our systems.

And with that I'll turn it over to Vance to discuss our financial performance.

Thank you John and good morning, everyone.

Start with a review of our operating results.

Franchise revenues for the third quarter $161 $1 million compared to $121.8 million for the same quarter of 2020.

Excluding advertising revenue franchise revenues increased 30%.

I'm really driven by higher domestic franchise restaurant same store sales.

Turning to the company restaurants segment sales for the third quarter were 35 $3 million compared to $27.4 million for the third quarter of 2020 improvement.

Improvement of 29%.

The improvement was mainly due to an increase in customer traffic.

Rental segment revenues for the third quarter of 2021 or $31.3 million compared to $26.2 million for the same quarter of 2020, an increase of $5.1 million. This.

This included an increase in percent rental income based on franchisees retail sales and a decline in level rent adjustments.

Adjust EPS for the third quarter of 2021 was the one dollar and 55.

Compared to adjust to EPS of 80 cents for the same quarter of 2020.

The increase was primarily to hire gross profit, partially offset by higher G&A expenses.

Now regarding G&A gona for the third quarter of 2021 was $43.7 million compared to $36.9 million for the third quarter of 2020.

The increase was primarily due to hire personnel costs associated with our incentive compensation accrual, which will fluctuate based on companies performance.

Regarding our cap effective tax rate.

Are effective tax rate for the third quarter of 2021 was 24.9% expense compared to 894% benefit for the same period of last year.

Are effective tax rate for the third quarter of 2021 varied from the rate for the same period of last year, primarily due to the one time recognition of income tax benefits from the release of unrecognized tax benefits in the third quarter of 2020.

I will now provide highlights from the cash flow statements are highly franchise model generated adjusted free cash flow of $146.1 million for the first nine months of 2021 compared to $35 $6 million for the same period of last year.

Cash from operations for the first nine months of 2021 was 145 $6 million compared to $36.7 million for the comparable period of 2020.

The improvement in both was primarily due to a favorable changing working capital and improvement in gross profit, partially offset by an increase in G&A expenses and the recognition of excess tax benefits on stock based calm.

As of September 30th.

Most all of the $62 million in royalty advertising fees and rent payment deferrals that <unk> provided to 223 franchisees has been repaid.

Repayment of deferred amounts started in the third quarter of 2020.

The collection of these balances during the first nine months of the year had a favourable impact on cash from operations for the first nine months of 2021.

A few comments on our balance sheet and capital structure.

The continued improvement in our business has helped us maintain our strong cash position and financial flexibility. We ended the third quarter with a total unrestricted cash up $304 $2 million. This compares to unrestricted cash of $259.5 million at the end of the second quarter, our leverage ratio as of September 30th.

Was 436 times compared to 494 times as of June 30th with our leverage ratio well below 525 times the quarterly principal payments on accompanying senior secured notes are no longer required.

Our debt service coverage ratio also improved 248 times as of September 30th from four six times as of June 30th.

Turning to the outlook for commodity inflation and Labour challenges, we're seeing its effects on the cost of pork eggs poultry paper and packaging products and.

And based on current conditions, we now expect commodity inflation in the range of approximately 6% on average across both brands or 2021.

This compares to our previous expectations for inflation of approximately 4% to 5% for the year.

Increases in commodity in labor costs at our franchisees owned restaurants could impact us if our franchisees are faced with a sustained decline in the operating margins are company owned restaurants. These costs impact this directly.

As of Q3 21, we owned and operated 69, applebee restaurants, representing 2% of the 3439 restaurants in our system.

Now I'll briefly discuss our 2021 financial performance guidance.

Our guidance, Virginia and capital expenditures remained unchanged, we reiterate expectations for G&A to range between approximately $168 million $178 million, we expect G&A to be near the high end of high end of the range with <unk> being the quarter, reflecting previously discussed differ G&A costs, including professional serve.

Mrs and travel expenses and continuing incentive compensation of course based on company performance.

We also reiterate expectations for capital expenditures to be approximately $19 million inclusive of approximately $7 million related to the company restaurants segment.

Given the strong recovering our business, we now have better visibility to provide additional guidance. Please.

Please see our press release issued this morning for complete details were introduced and guidance on one additional metric adjusted EBITDA.

Consolidated adjusted EBITDA for the year is expected to range between approximately $245 million and $250 million demonstrating continued strong recovery from 2020 that we have been experiencing the last few quarters moving.

Moving to capital allocation jumped discussed earlier, we have seen several quarters of improvement in performance, which has positioned us to declare a quarterly cash dividend 40 cents per share for the fourth quarter R. Capital allocation priorities are to maintain an attractive dividend yield while I'm currently making additional capex and G&A investments in the business to support long term.

We also intend to opportunistically repurchase our shares our level of repurchases will primarily be based on our analysis of the company's intrinsic value at.

At the end of the third quarter, there was $70.2 million remaining on our current will be purchase authorization.

We believe our strategic priorities will continue to drive additional shareholder value.

Two close we're very encouraged by our strong results this year through the third quarter, including the improvement in our comp sales are robust our premise business and significant generation of adjusted free cash flow.

Now I'll turn the call over to Josh will provide an update on the progress Applebee's John Thank.

Thank you Vance and good morning, everyone.

I'm really proud of our team and our franchise partners as they delivered another exceptional quarter for the Applebee's brand after posting at 10.5% Com sales increase in queue to Applebees delivered a 12.5% increase in Q3, when compared with our 2019 baseline.

This marks applebee's best quarterly comp sales performance under dine brands ownership.

By sequential improvement throughout the quarter. Additionally.

Additionally, R Q3 year to date comp sales increase of 5.3% has surpassed a record setting 2018 performance.

I am also pleased to report that our company restaurant portfolio is now our number four ranking comp sales performer throughout the system.

To put all this in proper perspective, according to Black box intelligence Applebee's is now outperformed the casual dining category for 35 consecutive weeks by an average margin of more than 600 basis points.

I attribute are sustained success to three primary factors superior restaurant level execution breakthrough marketing innovation and are genuinely relevant brand positioning.

<unk> is that affordable little escape from your everyday in a turbulent world, where that's familiar and comfortable place right around the corner, where you can simply come as you are.

In many respects will kind of like a good friend, which clearly resonates with America in this environment.

Most importantly America trusts Applebee's, we consistently see this in our data and it's certainly evident in these unprecedented results.

This momentum is also reflected in our brand attribute where applebee's continues to rank number one with within casual dining on brand awareness affordability menu variety convenience to go and delivery awareness and advertising awareness.

In addition to Applebee's continues to outperform the category average on key metrics such as overall experience staff makes me feel valued family friendly great tasting food brand affinity and importantly visit attempt.

As a breakdown quarter weekly restaurant sales averaged $51000 in fact March through September sales have been remarkably consistent with each month delivering record high volumes under Diana ownership.

Applebee's Q3 sales mix consisted of 73% dining 15% car side to go and 12% delivery.

A particular note is the fact that our weekly off premise volume continues to hold very steady at about $14000 per restaurant.

So off premise volumes more than double R. Prepandemic level and supported by ongoing technology investments in our call Center I've arrived notification in new kitchen printers, which significantly assist team members with order accuracy, well reassuring our guests that we have it right.

I should also note that dining room volumes continue to escalate as they are now approximately 90% of prepandemic levels, reflecting guest demand for dining out again.

Our dining business is also bolstered by relevant investments in QR code menus paying go mobile payment and handheld server tablets, making it easier for our guests and our team members as we expand these initiatives in 2022.

Additionally, one of the interesting insights from my perspective throughout the pandemic is the shift in our age demographic dining guests to become even younger well not surprisingly are boomer guests have shifted their behavior to more off premise stunning.

At present about 51% of Appleby's guests are under the age of 35 with millennials being our largest segment at 33%.

Looking forward to next year, we still have meaningful headroom with our late night, we can business, which remains a bit constrained dude labor challenges. After midnight in about 500 restaurants I fully expect this current late-night headwind to become a meaningful opportunity and a very leverageable tailwind in 2022.

Two.

As I stated previously having a sophisticated supply chain is a huge point of difference in this environment.

Our supply chain organization is indeed, best in class and a real difference maker in navigating the current challenges facing the industry.

Bottom line, those with scale and strong supply chains will likely prosper moving forward, while others struggle to compete this is more evident today than ever before and one of the reasons I absolutely loved <unk> position in the market.

Now the big part of our Q3 success was the innovation behind Disney's Jungle cruise Dwayne Johnson's tear amount of tequila and what the today show dubbed the song of the summer fancy like which has since become known as the Applebee song.

It's rare that an artist writes a song about your brand and its relevance in everyday life, but that's precisely what happened. This summer is Walker Hayes showcased date night at Applebee's and it connected with America like nothing I've seen before after 18 months of Lockdowns. Our objective was simple make America's smile. So we partnered with <unk>.

Walker created a couple of ads featuring real folks across the country, letting loose and having some fun and as they say the rest is history. It's a lucky strike extra Walker Hayes and his family have always been loyal Applebee's guests, that's effect and I honestly can't think of a better embodiment of who we are and what we stand for as a brand similar.

Lyrics to the song.

For a little context, a media front Q3 included a favorable spending comparison versus Q3 of 2019.

And I expect a favorable comparison in queue for as well to close out the year.

Needless to say because of sales performance in collections, we are well positioned hitting hitting into next year from a national media perspective.

As John referenced on the development front 2021 represents the conclusion of our planned portfolio optimization looking forward, we plan to close less than 1% of our restaurants in 2022, while returning applebee's net new unit growth and twenty-three with annual acceleration thereafter.

In closing Applebee's business momentum is steady and strong and our fundamentals remain rock solid franchisee financial health confidence and optimism in our future are equally strong even in the face of labor and supply challenges Bottomline Applebee's is exceedingly well positioned to thrive in this environment and we've.

Very much look forward to 2022.

With that I'll turn to my partner J for an overview of the IHOP business. Thanks, John and congratulations on the impressive results again this quarter. Good morning, everyone. I asked business continued to improve third quarter Com sales were essentially flat relative to the same quarter of 2019. This reflects a sequential improvement of three <unk>.

<unk> points compared to the previous quarter.

A strong results led to IHOP outperforming the family dining category for the second consecutive quarter. According to black box.

I am excited reports of domestic average weekly sales unit.

Sales are back above our prepandemic levels for the first time this year.

Weekly sales for the third quarter were slightly above $36000 per week exceeding the average for the same quarter of 2019.

Approximately 83 per cent of our domestic restaurants are open for standard operating hours or greater and approximately 27% of our operating 24, seven which trails prepandemic levels of approximately 45% that were operating 24 seven previously we believe that the additional upside is more restaurants regime standard operating ours as well as overnight.

For the third quarter off premise sales accounted for 23% of sales mix, which is more than double the mix for the third quarter of 2019 and reflect significant retention compared to the same quarter of 2020 with restricted indoor capacity.

Stricter indoor capacity restrictions and governmental mandates related COVID-19 were in effect. We believe we can retain most of our off premise dollar volume and we're confident that are strong off premise business will be complemented by the demand for an restaurant dining.

For the third quarter, our sales mix consisted of 76, 7% dining $13, 1% delivery and 10.2% to go.

To build on our achievements and remain the leader in family dining we're going to continue to focus on what we can control.

This framework includes a new approach to marketing launching loyalty program development and virtual brands.

I'll briefly touch on each of the starting with marketing.

Consumers are generally more tech savvy now than ever before we believe the shift in our media strategy place a greater emphasis on digital marketing will greatly leveraged our guest connection IHOP and drive in criminal visitation.

This regime tour engaging loyalty program.

Going to a study by data essential nearly 50% of those surveyed said that loyalty incentives are critical when choosing a brand.

We're focused on leveraging our investments in CRM and consumer facing technology doubling down on our commitment to modernize our guest relationships and importantly drive incremental visits.

We're optimistic about our very creative and fun loyalty program, which we plan to launch over the next few months.

Regarding development since early 2020 consumers dining behaviors have changed significantly as a result, I haven't been able to quickly pivot and adapt simply put.

We're focused on meeting gas and the channels that they frequent and trust either in our restaurants or off premise.

Are you just wanted to access the brand in ways that are most convenient for them, we believe that slipped by IHOP or new innovative fast casual concept that leverages IHOP equities and brand affinity will meet the evolving needs of guests.

I am happy to report that our first flipped by IHOP open on September 21 in Lawrence Kansas.

And while it's too early to share any of the results. We look forward to providing more information in the months ahead.

We expect to open our second location in New York City, and very near future. We've expanded our pilot strategy for flipped which was originally focused on locations only in large metropolitan cities to now include suburban areas and non traditional venues as well.

Or laser focus on doubling our historic unit growth and believed that flipped will nicely complement our three other development vehicles, which include our traditional formats non traditional and a new small prototype scheduled the tests later this year.

Importantly, all of these formats can be done and conversions, which we believe amplifies the opportunity.

Due to the impact of the pandemic there are more potential sites to develop in areas. We may not have had prior.

Turning out a virtual brands, we see a lot of potential and flexibility with virtual we continue to see this is a huge industry trend with the opportunity to drive incremental sales in a cost effective manner, especially at non peak hours like pm.

More details as our progress continues on testing.

Changing gears to technology innovation at IHOP, it's imperative that we reach our guests on their terms and with approximately 56% of my app's gas being aged 34 or younger technology is a key factor in becoming and staying more relevant.

Today's guest expect us to offer services that make their lives easier such as the ability to pay with their own phones and IHOP being available on all the major delivery service providers platforms.

We've invested in innovation to enhance against experience, whether they're in our restaurants off premise and across all day parts.

One of our biggest opportunities has become more relevant for more occasions.

Great food and menu innovation or permanent staples at IHOP.

We're known for providing freshly serve high quality food, while also allowing guests the option to customize the orders, particularly breakfast items.

Without I'm very pleased to report that our breakfast a par comp sales for the third quarter increased 8% relative to the same period of 2019. This is a testament to the execution of our strategy, we focused on providing abundant value and variety while also increasing IHOP appeal across other day parts. Besides breakfast.

This brings me to providing gas with great value understandably.

Understandably value plays increasingly major Roland dining decisions in part because many consumers still remain under financial pressure do the pandemic.

We have research that shows that our guest equate value with affordability.

A great example, this or IHOP ER menu, which was introduced in September 2020 desires first ever afternoon, and evening focus value oriented menu I am pleased to say, it's been well received and generated incremental traffic for our franchisees.

Last September marked the one year anniversary of IHOP yard, which continues to drive incremental traffic generating approximately eight percentage point lift and traffic and sales during the available hours.

This is actually equates to a low to.

Mid single digit increase in overall sales.

Lastly, in conjunction with our Halloween pancakes for option, we announced that Ray on was the winter of our third annual Kid Chef contest, which is coordinated with children's Miracle Network Hospital. The event was a huge success and supports a great cause.

The clothes, we have several reasons to be optimistic off from a sales dollar volume remains robust we outperformed the family dining category. According to black box for the second consecutive quarter, we're focused on strong unit growth.

Overall, we've made great progress this year and I'm looking forward to returning deposit comp sales and I will turn the call back over to Jon Payton for is closing comments, thanks, Jay and congratulations to Kid Chef Rayon were super proud of him and thanks, John and think Vance and to your entire team for all the hard work and delivering on our solid quarter.

The road to recovery from the pandemic has certainly been a winding one for all of us and despite the twist and turn we dine know where we're going we're focused on both the here and now of supporting our franchisees and giving guessed the experiences they know and love and we're also focused on the long term plans and actions that we need to undertake.

To accelerate our growth.

Most importantly, we never lose sight of the fact that the key to hospitality is those very special intimate human connections between our guests and our team members, however, and wherever those connections occur and with that we're looking forward to taking your questions.

As a reminder to ask a question you will need to breath, sorry, one on your telephone can we draw your question, perhaps get down please.

Please limit your questions and one question and one follow up.

We stand by while we compiled thank you any of Austin.

Our first question comes from the line is Brian Mullen.

Your line is now open.

Okay. Thank you congrats on good quarter John in your prepared remarks, you reference we recently hired a VPN building that I have you made me remind us is this a new position iguana and was this replacing someone was an IHOP. When you joined and then related can you just talk about your expectations for the physician what the person brings to the table.

Highlight any a few things you'd like to see him he'll change moving forward I know you want a double the historical unit growth pace by 2023, any tangible action items you can highlight for us.

Sure sure Brian Thanks for the for the question I mentioned, we hired three vice President of development. So I'll specify on all three the VP of development at Applebee's.

Is that new position it was a shared position in the past personal multiple responsibilities were now devoting one senior role only two development. The same is true for international we've had an international leader of the business that was responsible for both development and operations now we've added in a senior leader who is only responsible for developing.

And at IHOP to your point it was a replacement of a of a leader who we had.

And are are.

<unk> and expectations for Jake and for all of our Vps is to take is to bring a strategic approach to the way in which we developed our restaurants and the way in which we work with our franchisees and when I say strategic I think that we can be much more assertive as an organization and bringing opportunities to our franchisees and doing.

Extensive analyses of the markets to demonstrate the potential for new restaurants, and that we can move from being.

Order takers to bringing the market and the opportunities to our franchisees. That's my expectation not only of Jake but of our other two development leaders as well.

Yes. This is J Johns at IHOP.

John had said it as a replacement position and we really want to become more strategic with our development is not just about hitting certain numbers. It's about how we doing the market planning to add additional restaurants to the markets were already in how do we start developing and territories, maybe we haven't been in before this is where some of our new vehicles may come into <unk>.

Why you think about flipped the smaller prototype star.

To open up some other territory that we may not have nanci before so we needed some new thinking some fresh thinking and that's where we're going with that.

Okay. Thank you and then follow up on IHOP J, you mentioned I think 27% of the locations are now 24, seven I think you said it was 45% prior to the pandemic you my questions.

<unk> anticipate that going all the way back to where it was and it is staffing the only issue here or are there perhaps other considerations for franchisees are there some franchisees, who who maybe don't want to for whatever their reasons, maybe any color would be.

Brian I think that.

It's a combination of a few factors obviously staffing is part of it just the economics as part of it as well right. When the pandemic happened people were trying to cut costs. They are trying to make things easier to execute because you have less staff. That's also important things are easier to do and they.

Tightened down on what hours they were operating I think we've seen it slowly coming back, but it's not going to all come back at once this is going to be location by location and franchisee by franchisee as they get staffed as they see the ability to get back open more hours youll see that and I think what <unk>.

Typically what happened no different and sometimes in a new restaurant opening.

Almost what this has been like the franchisees have had almost reopen the restaurants from doing to go and off premise only two now you get the dining room open next stage will be how do you get to usually what we call 2004, two which is stay open 24 hours on just Friday, and Saturday night, where the busiest opportunity is.

And then you expand from there. So I think we will get back a lot closer to where we were I just can't give you a timeline on when that's going to be but it will continue week by week and month by month as we move forward until we get back much closer to where we were in the past.

Thank you.

Our next question comes from the line of Jake Bartlett with <unk> with <unk> Securities. Your line is now open.

Great. Thanks for taking my questions.

My first one.

The comment on <unk>.

<unk> sure.

Got it right, but I think you mentioned quarter to date.

Same store sales were five 3%, maybe if you can just confirm that.

Comments on the fourth quarter to date.

Sales level and if thats right.

What would have driven the deceleration we saw pretty consistent monthly improvement throughout the third quarter. So maybe just some comments there and then also on the on the <unk>.

Beside any anything to share on the quarter to date would be helpful.

Hey, Jake Good morning, this is John.

Year to date through Q3 comp sales figure for Applebee's, plus five 3%.

Within the quarter 12, 5% increase versus 19.

Those are both versus 19 and sequential improvement throughout we love the trajectory and the momentum and it's.

And it's what we expected and as.

<unk> obviously create.

Creating a very healthy environment for our franchise partners.

Yes. This is Jay on the IHOP side.

Again, we've been making improvements throughout the year and getting very close to flat. This past quarter were still down a little over 8% for the total year first quarter was still pretty tough for us, but we've been making progress ever sense and would look for.

Sure.

That to continue to improve as staffing improves et cetera.

We're not sharing anything about fourth quarter right now.

Got it got it and just to say look this is on the applebee side as I look at the cadence throughout the quarter there was an improvement.

Mentioned as you guys mentioned, which is different than other concepts and seen so I'm trying to understand.

What drove that you mentioned the summer marketing kind of viral hit there.

Any reason to think that that wouldn't continue to accelerate just.

Given your marketing plan or was there something unusual.

In the quarter from a marketing perspective that maybe shouldnt be replicated.

Jake.

Progression was solid from a low 12% range to the high 12% range as I mentioned remarkably consistent since March all all time highs under dine ownership.

It's fundamentally restaurant execution and innovation, not just marketing innovation culinary innovation technology innovation advertising media.

You name it the team is locked in and partnership with their franchisees.

<unk>.

And we have visibility to a.

2022 plan and it quite frankly fires us up so I'm not going to speculate.

On a future look but suffice it to say the brand is probably a tighter partnership.

In a more optimistic partnership with its franchisees than I've seen in my five year tenure.

Great and then last question is just on really getting down to a franchise profitability and some of the drivers. There you mentioned, 6% commodity inflation for the year could you remind us what that within what inflation was for the third quarter, what that implies for the fourth.

And then given I assume that the accelerating pressure.

What are franchisees doing to offset that how much pricing might be taking.

How is there.

Gibson, whether there their profitability is taking a hit here or there is offset such as less discounting or pricing or what have you.

Thanks for the question Jake So look on inflation generally speaking I'd say it takes about two to two five points of menu pricing to cover 10% of commodity inflation for our franchisees.

We do provide pricing lasted city tools to our franchisee partners to help them with pricing decisions and depending on the franchisee they've been tracking anywhere between 1% to 3% of menu pricing increase per year in the past two years to cover inflation.

Yes.

Jake This is Jon on the Applebee side I would say if you look generally speaking full year.

'twenty, one versus year ago, 6% bump in commodity costs, our franchisees continue in their independent operators. So they take independent actions.

They tend to be highly strategic.

And measured.

In how they apply pricing.

If I look at 'twenty, one versus 'twenty as an example, the average price increase throughout applebee's from our franchisees would be about 3%.

And historically as Vince referenced typically between 1% and 2% on an annual basis.

Got it thank you very much appreciate it.

Our next question comes from the line of Brian Vaccaro with Raymond James Your line is now open.

Thanks, and good morning.

Does it started on the applebee's advertising and obviously saw some huge successes in this quarter, but John can you help also just frame how much the spend was up say versus Q3, 19, and just ballpark your expectations on where spend levels might shake out moving through 'twenty, two I imagine Q1, 'twenty two will be up.

A lot versus Q1 of 'twenty, one because he didn't spend much this year, but just any context you can provide on the year overall would be appreciated.

Hey, Brian Yes, good question I, probably won't quantify for you to the extent.

You'd like me to.

Recall in Q1, we pulled back on spending in 'twenty, one so naturally the full years kind of back loaded Q2, Q3, and Q4 elevated versus actually not so much Q2, but certainly Q3 and Q4 elevated versus that 19 baseline.

And then on a full year basis, a pretty comparable media allocation again.

We pulled back in Q1, we are well positioned balance of year and then as I look forward for the reasons I've referenced.

I anticipate the brand being in really great shape.

As we move into 'twenty, two from a media perspective.

I like our position.

Alright, Thats helpful and I guess shifting gears, a little bit just a little context on staffing levels at each brand. Maybe you can provide some perspective on where average levels are but also help us with the pockets of tightness, maybe what percent of units might there'll be meaningful meaningfully below 19 levels. However.

It might define that.

Is it possible to frame kind of a comp drag you might be seeing at either brand due to staffing challenges.

Hey, Brian This is Jay Johns I'll start with IHOP, and then turn it over to John.

<unk>.

Franchisees theres still haven't staffing issues.

There's probably several hundred restaurants that are more impacted than others.

You can see that in some of them they still have some reduced hours of operations.

Most of that is because of staffing levels. So once they can get enough staff are they fully intend to get back to regular operating hours.

And that is causing a little bit of a drag on our business do you think about earlier, where we're talking about the overnight hours, where I'm still missing almost half of my over nine hours. So.

Were probably impacted by a couple of percentage points just on reduction of hours compared to 2019 and that is staffing related.

Making progress and we get more restaurants to open a few more hours weekly.

But again, it's somewhat of a slow process right now.

And it's very fluid you get ahead in the next week you're back behind US another restaurant across the Street is also short staffed and it's a competitive very competitive world out there and people will move quickly for an extra dollar an hour in this marketplace. So it's going to take a little more time before this gets back but.

Right now I would say that our restaurants are probably in the 85% staff range.

And I would say, Brian on the applebee side, very similar where we feel it most.

Naturally as you would expect would be on the Friday on.

On Friday, and Saturday nights late night think 11 o'clock to 12 o'clock even into the one a M. Our tough.

Parts of the weekend staff, it's coming back.

And I would argue that.

Brands with.

It's not just trust from a guest perspective brands, who have a clear reputation in the market and our trusted by team members.

And franchisees, who have very strong culture, and I would say our 30 partners have.

Exceptional culture.

There are sophisticated they know how to recruit and retain with the best of them.

But I'd be lying to suggest we're 100% staffed we're not at the moment weekend late nights is where we feel it it's getting better but it remains a priority and a challenge throughout the industry.

Okay, and then more broadly just on the labor environment are you hearing and kind of the recent conditions are you hearing from your franchisees, but they are starting to see any green shoots of improvement as delta concerns seem to be easing.

<unk> seen application flow increase or maybe turnover declining any color on those dynamics.

I wouldn't I wouldn't this is John I wouldn't quantify anything Brian.

Marketplace is improving generally speaking.

And in.

In those late night hours, where we specifically see the challenge.

And one would have to imagine that.

Each and every brand in this industry approaches this challenge differently I do love. The fact that we have strong culture, we have an aspirational brand and we have sophisticated franchisees, who know how to navigate.

I believe we are very well positioned on this front relative to others in the category.

Okay, and then just one quick clarification, if I could just on the franchisee profitability comment you made at Applebee's is it right that the strong sales leverage youre seeing versus 19, and some of the ops improvements I think you rolled out as well is it right that that's sufficient to offset.

What are the near term Cogs and labor pressures we're all.

Aware of.

Store margins and profitability can sustain solidly above 19 levels in your view moving through next year.

Yeah, Brian cash is flowing well.

Certainly revenue is a big part of that we were working both sides of the equation revenue growth.

Which are our franchisees in a terrific position, but we are all also work on the cost side.

Productivity throughput efficiency technology, taking steps.

To reduce cost.

<unk> heard us reference in the past some pwc work that we've done historically at applebee's that.

Is removed 200 basis points of cost from the P&L, we very much took a hiatus on that initiative over the past 18 months, we will be activating that again in 2022, which represents meaningful opportunity. So yes revenue would be the biggest lever there and as a result, they are in very good shape.

Alright, I'll pass it along thank you.

Thanks, Brian.

Our next question comes from the line of Eric Gonzalez from Keybanc capital markets. Your line is now open.

Hey, thanks.

Great results at its core.

Just wondering if I could ask you about the recently announced capital allocation strategy. The payout ratio is maybe towards the lower end of what one might expect from.

From our highly franchise business. So should we think about that as a starting point.

Or is that 25% or so payout ratio likely to be maintained over the next few quarters and maybe you can give us a little more color on how we should think about the share repurchase.

The level of share repurchases, we should think about as we model going forward. Thanks.

Thanks for the question Eric.

As you know we've had a really strong track record of returning capital to our shareholders and that will remain one of our top priorities.

If a dividend we think that the 40 <unk>.

Quarterly dividend represents a healthy dividend yield and payout ratio as a starting point to grow from as you pointed out.

Going forward, we will continue to evaluate and balance our capital allocation strategy focusing on the things that John talked about earlier, which is investments in business and technology and other growth initiatives, returning capital to shareholders that management and more importantly, maintaining financial flexibility to address any remaining uncertainty.

From the pandemic now.

The buybacks our goal is to support the stock Opportunistically with ROI in mind right based on our view of the intrinsic value of dine in and we'll do that with our <unk> one plan.

The other consistent supporting our stock.

Yes, Eric.

I would add the keyword is our approach here is to be prudent.

And I said to you the last couple of quarters.

When we got comfortable that we've had some sequential quarters of predictable and sustainable performance, we would return to the dividend and that's what we did and now we want to see another couple of quarters of predictable and sustainable growth as we think we're on the other side of the pandemic and that will enable us to look at the dividend.

And potentially increase it over time, but we think it's best to be prudent right now given given this point of time.

Understood Yes.

Earlier in the call I think maybe was Jake who asked about the inflation implied inflation for the fourth quarter. So maybe you can comment on on that and maybe an early outlook on what you think inflation might be into next year.

Any comments on hedging.

Contracts that you have outstanding.

Based on what we can see second half inflation is about 10% and I talked about earlier just.

Generally speaking.

It takes about two to two five points of menu price increase to cover a 10% hit on commodity inflation pricing. So.

So.

John and Jay both talked about the fact that the past year or two our franchisees have been taken anywhere between 1% to 3% of pricing increase per year. So so that.

That's covered what what we've seen so far.

And the second part of your question about next year, we're going to we're going to wait until next quarter, Eric when we do our guidance for 2022 to talk about.

Costs in all of our guidance as part of one conversation.

Great. Thanks, I'll pass it on.

Okay.

Our next question comes from the line of Brett Levy with MK M. Brightman Reshape your line is now open.

Great. Thanks for taking the call.

On the development side when you think about your approach how are you thinking in terms of new versus existing.

How are you thinking about anything in terms of with your capital allocation, maybe buying in franchisees to drive some consolidation and how are we thinking about company ownership.

Yes.

I'll speak on the Applebee's front since we're kind of newest to the game.

You know we've spent the better part of the past four years optimizing the brand pruning up the system. We closed about 300 underperforming low volume restaurants. So we're ready for growth we plan to close a few.

More than 1%.

Our portfolio next year, we've lined up.

A number of franchise partners and plan to build.

<unk> plus new restaurants in the near term as soon as we can activate.

Those sites with our new development partner done rate rent as John referenced.

And some of those will be traditional some of those will be conversions there's.

There is a high level of enthusiasm there and then I do expect that to accelerate.

Moving forward for the Applebee's brand, which is refreshing we've been building to this.

In setting the system up for this new level of growth in this very modest closure rate for quite a while.

Pandemic got in the way of us activating them that we are ready now and we're moving forward beginning next year.

Brad This is Jay at IHOP.

We've been doing development quite some time and as I just referenced earlier is that we're going to try to be more strategic about this and how we develop markets. How do we have franchisees that already have multistory development agreements. So obviously there'll be some of that Theres territories, where there are no <unk>.

Development agreements at this point, so that's a possibility in those areas.

A lot of existing franchisees that we believe will like to get into the development game post pandemic, especially if the economics are right to do that.

The amount of conversion opportunities that are out here. Obviously, the economics are very good on conversions and we've been seeing about half of the pipeline over the last year or so has been conversion opportunities. We've got about 600 restaurants in our system now that are conversions. So we're very good at doing this we've got a lot of experience doing it.

And then we've got our new platforms I have been talking about with flipped in our small prototype and I think that's going to open up more territories still and I think in some markets. There is a lot of opportunity to bring in some new franchisees as well into the system. Besides the ones that we already have.

And Brad It's John Pete just wanted to address two of the to the question that you asked as well, which is you asked about our own funding and if we would use that to potentially.

Consolidate franchisees and the answer to that is no. We're much more likely to use our funding, though to encourage franchisees to develop in the form of key money or incentives and we've got a program like that already in the marketplace for for flipped you also asked about our inclination to own restaurants.

And there are two I would say, we're not inclined to own additional restaurants.

One of the reasons, we're performing so well this year is because of the asset light model that I mentioned in the opening comments and our intention is to remain a highly franchised business.

Just following up on that.

With the existing units that you have in place what are your thoughts on your company operated is that something you see as a.

Good fertile testing ground and you want to hold onto it.

Or is that something that you'd look to get yourself back to the 100% level.

Yes, certainly a fertile testing ground, while we have them.

Perspective, we continue to believe the best form of loyalty as while that guests every hour hour and a half the repair.

And ensure high degree of affinity for the brand and loyalty and repeat visitation. So we we believe in restaurant execution and it's one of the reasons. The brand is performing so well.

Thank you.

Thank you.

Our next question comes from the line of <unk>.

The Wedbush Securities. Your line is now open.

Thank you.

Congrats on an incredible quarter.

Just given the momentum we're seeing here in Q3 and out of Q3.

The guidance just given the year to date EBITDA in queue for implies stepped down in in queue for maybe even a little bit above the step up and G&A. So I guess I just wanted to kind of get the puts and takes around implied Q4 EBITDA.

Sure. Nick Good question, we do expect queue for performance to hold strong, but we also do anticipate higher G&A costs from activities such as.

Assuming research and product development franchisees support services and head counts travel expenses et cetera that we.

More or less passed by until now and plus the continuing incentive compensation accrual based on company performance.

So you're reading right and.

And that's that's that's.

That's our guidance so far for it this year.

John P. I'll give you a good example that we're we're happy to have which is R. Applebee's annual conferences back on in November will have 350 people, who are really excited to come together and celebrate the brand they haven't gotten together in almost two years and and Nick in my mind that that's an expense worth having in the fourth quarter to bring the team back together.

Either and all of our franchisees after a two year absence.

Yeah makes sense.

When you talk about sort of doubling the IHOP historical unit growth rate bye bye twenty-three.

Can you just give us.

Just point to what what that exactly means.

2019, I think it was sub 1%, but before that it was 3%. So are we talking about.

Five 6% potentially unit growth in 2003 or are we talking about a different number.

Well I've talked about this typically it's J I've talked about this typically in our units we've developed so to put it in perspective.

I think historically over the last decade, we've developed about 40, new restaurants a year.

So two double that you're looking at more like 80 restaurants.

By the time, you get to 23 so.

We're not doing future guidance that far out on exactly what those numbers look like does that gives you a ballpark idea of what we're talking about as far as amount of development.

That's very helpful. Thank you and I am just last question.

Cosmic waive any update their.

Nick I know you'd be asking about this is John.

We love Cosmic wings.

Ah referenced that we held.

Held off on a very meaningful expansion to door dash the number one delivery player.

Because of supply challenges in particular around boneless wings and bone and wings.

I anticipate.

Expanding cosmic wings.

From a delivery perspective, two door dash and very early Q1 that supply of product will be there in the reason, we're being prudent and thoughtful on that front is we're going to generate some incremental demand there won't be able to satisfy it and then the final points I'll leave you with is a little Ts.

They are in a couple of weeks, there's going to be some meaningful news on the cosmic wings front, so stay tuned in.

There'll be something Buzzworthy that comes across the transom very soon.

Don't forget looking forward to it thank you very much.

Thank you.

Our next question comes from the line is Jeffrey Bernstein with Barclays. Your line is now open.

That's quite a teaser look forward to the news on cosmic wings.

Two bigger picture questions.

John P. I think you mentioned that.

Research showed 110000 restaurant closures Mike.

My guess is that's a number since the start of the pandemic that would work out to be north of 15% of the industry. My math just curious if you would say that's a similar mix and I'm just wondering what your thoughts are the operator of two of the biggest brands in America in terms of the outlook for Reopenings of love those clothes restaurants, maybe.

An outsized acceleration for growth in 22, just wondering Europe kind of bigger picture thoughts being your contacts in real estate and development and your touch around the country any thoughts on the reopening opportunity for all those units across the industry.

Yes, Jeff.

Thanks for the for the question is so number one your math is right. There's multiple sources on restaurant closures since the beginning of the pandemic and it's about 10% to 15% the number isolated on the call today was from from BCG.

The sources of data will also show that unfortunately.

It was disproportionately independents that closed during the pandemic and so it's less likely that those restaurants will reopen.

Because of what we know about the economic nature of independence, and we see that.

While it's while our heartbreaks through the independent it is an opportunity for the big change like ours and that's why we are leaning into development and that's why we've hired three new development leaders that we think.

Are are world class and upgrade the talent that we have and it's taking advantage of an opportunity at this moment in time.

Understood and.

And then my other question is just as you think about the broader portfolio, obviously 2021.

Good luck trying to find any rhyme or reason to trends that we saw like you said, but as we think about 2022 2023.

King Ah more normalized and we can kind of forecast our own comps and to give some color on the unit growth, but assuming there is some modest January leverage, which I am just curious your thoughts on what we should think about over the next few years in terms of more normalised EBITDA in EPS growth not looking for specific guidance per se, but just what you think the model.

And generate over over the next couple of years on a more steady state basis on the bottom line. Thank you.

Yes, Jeff we will get into more guidance.

<unk>.

R Q4 announcement, but we are taking a more balanced approach going forward in terms of how we manage our G&A investments and and the goal is to investing organic.

And strategic growth and also looking continuing to look at acquisitions. So so.

This is an asset light model there is leverage to be half with our infrastructure, but there is potentially more that we see with with prudent investment and growth.

And in terms of potential for bottom line growth over the next few years in terms of the portfolio.

Top line and bottom line.

Without getting into specific guidance on numbers. We think there is growth because this is again. This is an asset like model R. J infrastructure can be leverage.

Exactly what I think.

All right.

<unk>.

[laughter].

All right. Thanks, guys. We appreciate the time and and your questions and look forward to speaking with you next.

Next quarter have a great day.

This concludes today's conference call. Thank you for participating you may now disconnect.

[music].

[music].

Good day and thank you for standing by welcome to the third quarter Dine Brands Global Inc Earnings Conference call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.

Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today Executive director of Investor Relations can get.

Please go ahead.

Thank you.

Good morning, and welcome to Dine brands third quarter 2021 conference call I'm joined by John Peyton.

Vance Chang CFO, Jay Johns President of IHOP, Jonathan Buskey 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 are forward looking.

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

I'll turn the call over to John.

Thanks, Ken and good morning, everyone, John J Vance, Ken and I. Appreciate you taking the time to join US. This morning, Q3 was another terrific quarter for dine brands for the second consecutive quarter, both brands beat their competitive set.

Average weekly sales for IHOP, and Applebee's exceeded 29 pre pandemic levels for the first time.

And we recorded a 48% increase in quarter over quarter EBITDA.

<unk> posting results like this for two reasons the resilience of our two world class brands.

And the value of our asset light model and Q3 reinforced again the benefits of our highly franchised business and driving our strong performance versus our peers. Let me explain why that is.

First our model reduces complexity and as a significant generator of cash it allows us to keep our operations lean and our movements agile and during moments like this when labor and commodity costs are rising and guest behavior is uncertain due to the pandemic, we deliver less volatile results from period to period.

Said another way asset light allows us to invest in what we do best which is menu innovation marketing and building technology and at the same time Applebees and IHOP continued to gain share because guests trust us They love us and they appreciate that we're focused on delivering delicious food a great value, while also providing experiences that.

Our enjoyable and safe and just like I said to all of you. When I first joined dine brands that win are different better and special and they're able to create emotional connections with guests, particularly during tough times and thats exactly what our brands have been doing all year.

So today I'll share highlights of our fantastic Q3 results I'll talk about our view of this moment in time in the industry and I'll address our thoughts on capital allocation and long term growth on this call as all year, we will be comparing comp sales for the same period in 2019 due to the pandemic distortion of 2020 sales.

So here, we go I'll recap Q3 highlights, including comp sales EBITDA cash flow and development.

First according to Black box, Applebee's, and IHOP again outperformed their segments in Q3.

And for the first time in 2021, both brands average weekly unit sales exceeded pre pandemic levels, we recognized revenue of $229 million and EBITDA of $63 3 million, which reflects the compelling resilience of our brands our franchise model and continued progress towards a return to steady state.

<unk>.

For the nine months ended September 2021, we generated approximately $141 $6 million of adjusted free cash, we opened 11 restaurants, which signals our franchisees continued confidence in putting their capital investments back into the business and we're particularly thrilled that Sun holdings, the third largest owner of restaurants in the U S.

Join the Applebee's family <unk> acquisition of 131 restaurants through a transaction with Icahn investment another signal of Applebee strong performance.

So so now let's put our results in the context of this very unique moment in time.

We're certainly enjoying meaningful tailwind first Americans continue to dine out in our numbers indicate that the delta Varian did not have a material adverse effect on that trend.

Also our guests continue their recent habit to takeout and delivery.

And while it's certainly unfortunate that 110000 U S restaurants permanently closed this did lead to five points of market share shift from independent to the national chains. According to the Boston Consulting group and.

And as you all know so well, we're also navigating unprecedented headwinds such as the shortage of workers and the rising cost of labor.

<unk> and rising cost of certain commodities and of course, the lingering uncertainty related to the vaccine testing in mass mandates.

Yes, I've got to tell you. Despite this extraordinary moment in time, we are unequivocally bullish on our long term strategy.

I'll tell you what first the restaurant industry remains a $485 billion market and the casual and family segments are expected to fully recover by 2023.

U S consumers are increasingly optimistic as we emerge from Covid research tells us that 44% of consumers report that they will increase their visits to restaurants as COVID-19 receipts and an additional 35% tell us. They will go just as often as they did before the pandemic.

And third franchising remains an entrepreneurial engine for launching a business, creating wealth and growing jobs in our country at dine alone. We have 345 franchisees operating more than 3400 restaurants across the country and around the globe and these entrepreneurs employ approximately 125000.

Team members supporting their state and local economies.

Now that we're beginning to see the light at the end of the tunnel. Our teams are focused on our plans for long term growth.

Our approach is simple and straightforward it's to set audacious goals and I'll touch on four of those goals right now.

First is the development of new restaurants.

We see a path to applebee's returning to net unit growth in 2023, and beyond and we see IHOP doubling its historical unit growth also by 2023, we will achieve those goals through a combination of bricks and mortar stores and ghost kitchens.

To drive this growth, we recently hired two new Vps of development, Jake Barden, and Don Rayburn, who come with terrific experience from RBI Intercontinental Starwood hotels, Brinker and young and these new vps will be shepherding, our new prototypes that reflect the learnings and new consumer behaviors that emerged during COVID-19.

Our second focus is meaningful investments in loyalty programs, our digital ecosystem and CRM. These tech investments. In addition to our industry, leading menu and marketing innovation will drive consistent same store sales growth year over year and as I've told you before we're leaning into our scale our strategy.

As to build one common digital architecture for both brands that enables us to do more than either brand could invest on its own.

And we remain on track to have approximately 75% of our digital technology tools modernize their new by the end of the year and we expect this advantage and innovation to accelerate in 2022.

In fact this quarter our digital sales resulted in 20% of total system sales compared to only 6% in the third quarter of 2019.

Third we are investing in new sources of revenue think virtual brands ghost kitchen to consumer products that will contribute to our growth and to our franchisees' bottom line.

Finally, we have a renewed focus on our very profitable international business and the potential to significantly grow our footprint here too we've hired a new VP of international development and retake hopper with global experience from GNC and Jamba juice, you'll be focusing on expanding in four core markets, where we currently enjoy momentum and scale.

We're looking forward to sharing more details on these and other initiatives during our Investor Conference in New York City in spring of next year.

So in 2022 and beyond Youll see us invest in growth initiatives to a greater extent than we have in the past.

As a result, you can expect a balanced approach to capital allocation that incorporates returning cash to shareholders judicious ROI driven investments in both organic and strategic growth diligent management of our debt and maintaining the financial flexibility needed right now to address any remaining uncertainty from the vendor.

<unk> as well as potential opportunities to pursue scalable acquisitions at the right time.

With that as context, our performance year to date and are cautiously optimistic view of the remainder of 'twenty, one and 2022 enables us to reinstate both our quarterly dividend in Q4, and our share buyback program. We're also able to share EBITDA guidance for the remainder of 2021 and Vance will discuss details on both our guidance.

And our dividend and share repurchase programs in just a few moments.

I'd like to conclude with an update on our ESG efforts. We have recently issued our initial ESG report entitled Dine, together, which can be found in our dine brands' website as we've grown our business. We've broadened our vision to include our impact on the environment and society.

This makes good business sense as it resonates with team members and guests to increasingly are looking closely at how businesses and brands contribute to society.

Our ESG strategy and report is devoted to four focus areas.

Our planet, our people, our food and our governance and for US our business and our social responsibilities are inextricably linked and while I'm encouraged by the progress. We've made we've got a lot more to do to meet our goals deepen our impact and innovate our systems and with that I'll turn it over to Vance to discuss our financial performance.

Yes.

Thank you John and good morning, everyone.

I'll start with a review of our operating results franchise.

Franchise revenues for the third quarter were $161 1 million compared to $121 8 million for the same quarter of 2020.

Excluding advertising revenue franchise revenues increased 30%, primarily driven by higher domestic franchise restaurants same store sales.

Turning to the company restaurant segment sales for the third quarter were $35 3 million compared to $27 4 million for the third quarter of 2020 improvement of 29%.

The improvement was mainly due to an increase in customer traffic.

Rental segment revenues for the third quarter of 2021 or $31 3 million compared.

Compared to $26 2 million for the same quarter of 2020, an increase of $5 1 million.

This included an increase in percent rental income based on franchisees retail sales and a decline in level rent adjustments.

Adjusted EPS for the third quarter of 2021 was the $1 55 compared to.

Adjusted EPS of <unk> 80 for the same quarter of 2020 the.

The increase was primarily due to higher gross profit, partially offset by higher G&A expenses.

Now regarding G&A G&A for the third quarter of 2021 was $43 7 million compared to $36 9 million for the third quarter of 2020.

The increase was primarily due to higher personnel costs associated with our incentive compensation accrual, which will fluctuate based on the company's performance.

Regarding our cap effective tax rate.

Our effective tax rate for the third quarter of 2021 was 24, 9% expense compared to a nine 4% benefit for the same period of last year.

Our effective tax rate for the third quarter of 2021 varied from the rate for the same period of last year, primarily due to the onetime recognition of income tax benefits from the release of unrecognized tax benefits in the third quarter of 2020.

I will now provide highlights from the cash flow statement, our highly franchise model generated adjusted free cash flow of $146 1 million for the first nine months of 2021 compared to $35 6 million for the same period of last year.

Cash from operations for the first nine months of 2021 was $145 6 million compared to $36 7 million for the comparable period of 2020.

The improvement in both was primarily due to a favorable change in working capital and improvement in gross profit, partially offset by the increase in G&A expenses and the recognition of excess tax benefits on stock based comp.

As of September 30, it's almost all of the $62 million in royalty advertising fees and rent payment deferrals that dine brands provided two 223 franchisees has been repaid.

Repayment of deferred amounts started in the third quarter of 2020.

The collection of these balances during the first nine months of the year had a favorable impact on cash from operations for the first nine months of 2021.

A few comments on our balance sheet and capital structure.

The continued improvement in our business has helped us maintain our strong cash position and financial flexibility. We ended the third quarter with a total unrestricted cash of $304 $2 million. This.

Theres two unrestricted cash of $259 $5 million at the end of the second quarter our.

Our leverage ratio as of September 30 was 436 times compared to 494 times as of June 30, with our leverage ratio well below five five times the quarterly principal payments on the company's senior secured notes are no longer required.

Debt service coverage ratio also improved to four eight times as of September 30th from four six times as of June 30.

Turning to the outlook for commodity inflation and labor challenges.

Were seeing its effects on the cost support eggs poultry paper and packaging products.

And based on current conditions, we now expect commodity inflation in the range of approximately 6% on average across both brands for 2021.

This compares to our previous expectation for inflation of approximately 4% to 5% for the year.

Increases in commodity and labor costs at our franchisee owned restaurants could impact us if our franchisees are faced with a sustained decline in the operating margins at company owned restaurants these costs impact us directly.

Q3, 'twenty, one we owned and operated 69, applebee restaurants, representing 2% of the 3439 restaurants in our system.

Now I'll briefly discuss our 2021 financial performance guidance, our guidance for G&A and capital expenditures remain unchanged, we reiterate expectations for G&A to range between approximately $168 million to $178 million.

We expect G&A to be near the high end high end of the range with Q4 being the quarter, reflecting previously discussed deferred G&A costs, including professional services and travel expenses and continued incentive compensation accruals based on company performance. We also reiterate expectations for capital expenditures to be approximately $19 million.

Inclusive of approximately $7 million related to the company restaurant segment.

Given the strong recovery in our business, we now have better visibility to provide additional guidance.

Please see our press release issued this morning for complete details, we're introducing guidance on one additional metric adjusted EBITDA.

Consolidated adjusted EBITDA for the year is expected to range between approximately $245 million and $250 million demonstrating the continued strong recovery from 2020 that we have been experiencing in the last few quarters.

Moving to capital allocation as John discussed earlier, we have seen several quarters of improvement in performance, which has positioned us to declare a quarterly cash dividend of <unk> 40 per share for the fourth quarter. Our capital allocation priorities are to maintain an attractive dividend yield while concurrently, making additional capex and G&A investments in the business to support long term.

Growth, we also intend to opportunistically repurchase our shares our level of repurchases will primarily be based on our analysis of the company's intrinsic value at the end of the third quarter. There was $72 million remaining on our current repurchase authorization.

We believe our strategic priorities will continue to drive additional shareholder value.

To close we're very encouraged by our strong results this year through the third quarter, including the improvement in our comp sales are robust off premise business and significant generation of adjusted free cash flow.

Now I will turn the call over to John <unk> will provide an update on the progress at Applebee's John Thank.

Thank you Vince and good morning, everyone I'm really proud of our team and our franchise partners as they delivered another exceptional quarter for the Applebee's brand.

After posting a 10, 5% comp sales increase in Q2 Applebee's delivered a 12, 5% increase in Q3, when compared with our 2019 baseline.

<unk> Applebee's best quarterly comp sales performance under dine brands ownership.

By sequential improvement throughout the quarter.

Additionally, our Q3 year to date comp sales increase of five 3% has surpassed our record setting 2018 performance.

I'm also pleased to report that our company restaurant portfolio is now our number four ranking comp sales performance throughout the system.

To put all this in proper perspective, according to Black box intelligence Applebee's has now outperformed the casual dining category for 35 consecutive weeks by an average margin of more than 600 basis points.

I attribute our sustained success to three primary factors superior restaurant level execution breakthrough marketing innovation and are genuinely relevant brand positioning.

Applebee's is that affordable little escape from your everyday in a turbulent world, where that's familiar and comfortable place right around the corner, where you can simply come as you are.

In many respects, we're kind of like a good friend, which clearly resonates with America in this environment.

Most importantly America trusts Applebee's, we consistently see this in our data and it's certainly evident in these unprecedented results.

This momentum is also reflected in our brand attributes where applebee's continues to rank number one with within casual dining on brand awareness affordability menu variety convenience to go and delivery awareness and advertising awareness.

In addition to Applebee's continues to outperform the category average on key metrics such as overall experience staff makes me feel valued family friendly great tasting food brand affinity and importantly visit intent.

As I break down the quarter weekly restaurant sales averaged $51000. In fact March through September sales have been remarkably consistent with each month delivering record high volumes under <unk> ownership.

Applebee's Q3 sales mix consisted of 73% dining 15% car side to go and 12% delivery.

A particular note is the fact that our weekly off premise volume continues to hold very steady at about $14000 per restaurant.

So off premise volumes more than double our pre pandemic level and supported by ongoing technology investments and our call Center I've arrived notification and new kitchen printers, which significantly assist team members with order accuracy, while reassuring our guests that we have it right.

I should also note that dining room volumes continue to escalate as they are now approximately 90% of pre pandemic levels, reflecting guest demand for dining out again.

Our Diamond business is also bolstered by relevant investments and QR code menus paying go mobile payment and handheld server tablets, making it easier for our guests and our team members as we expand these initiatives in 2022.

Additionally, one of the interesting insights from my perspective throughout the pandemic is the shift in our age demographic dining guests have become even younger while not surprisingly our boomer guests have shifted their behavior to more off premise dining.

At present about 51% of Applebee's guests are under the age of 35 with millennials being our largest segment at 33%.

Looking forward to next year, we still have meaningful headroom with our late night weekend business, which remains a bit constrained due to labor challenges after midnight and about 500 restaurants I fully expect this current late night headwind to become a meaningful opportunity and a very leverages both tailwind in 2022.

<unk>.

As I've stated previously having a sophisticated supply chain is a huge point of difference in this environment.

Our supply chain organization is indeed, best in class and a real difference maker in navigating the current challenges facing the industry.

Bottom line, those with scale and strong supply chains will likely prosper moving forward, while others struggle to compete.

This is more evident today than ever before in one of the reasons I absolutely loved <unk> position in the market.

Now the big part of our Q3 success was the innovation behind Disney's Jungle cruise Dwayne Johnson's tear amount of tequila.

Today's show dubbed the song of the summer fancy like which has since become known as the Applebee's song.

It's rare that an artist writes a song about your brand and its relevance in everyday life, but thats precisely what happened this summer as Walker <unk> showcased date night at Applebee's interconnected with America like nothing I've seen before after 18 months of Lockdowns. Our objective was simple make America smile. So we partnered with Walker.

<unk> created a couple of ads featuring real folks across the country, letting loose and having some fun and as they say the rest is history.

Lucky strike extra the Walker Hayes and his family have always been loyal Applebee's guests, that's effect and I honestly cant think of a better embodiment of who we are and what we stand for as a brand and the lyrics to this song.

For a little context on the media front Q3 included a favorable spending comparison versus Q3 of 2019.

And I expect a favorable comparison in Q4 as well to close out the year.

It was to say because of sales performance and collections, we are well positioned hitting heading into next year from a national media perspective.

As John referenced on the development front 2021 represents the conclusion of our planned portfolio optimization looking forward, we plan to close less than 1% of our restaurants in 2022, while returning applebee's to net new unit growth in 'twenty three with annual acceleration thereafter.

In closing Applebee's business momentum is steady and strong and our fundamentals remain rock solid franchisee financial health confidence and optimism in our future are equally strong even in the face of labor and supply challenges Bottomline Applebee's is exceedingly well positioned to thrive in this environment and we are.

Very much look forward to 2022.

With that I'll turn to my partner <unk> for an overview of the IHOP business. Thanks, John and congratulations on the impressive results again this quarter.

Good morning, everyone.

This business continued to improve third quarter comp sales were essentially flat relative to the same quarter of 2019. This reflects a sequential improvement of three percentage points compared to the previous quarter.

Our strong results led the IHOP outperforming the family dining category for the second consecutive quarter. According to black box.

I am excited to report that domestic average weekly sales unit.

Sales are back above our pre pandemic levels for the first time this year.

Weekly sales for the third quarter were slightly above $36000 per week exceeding the average for the same quarter of 2019.

Approximately 83% of our domestic restaurants are open for standard operating hours or greater and approximately 27% of our operating 24, seven which trails pre pandemic levels of approximately 45% that we're operating 27 previously.

We believe that the additional upside as more restaurants resumed standard operating hours as well as overnight.

For the third quarter off premise sales accounted for 23% of sales mix, which is more than double the mix for the third quarter of 2019 and reflects significant retention compared to the same quarter of 2020 when restricted indoor capacity.

Stricter indoor capacity restrictions and governmental mandates related to COVID-19, where in effect. We believe we can retain most of our off premise dollar volume and we're confident that our strong off premise business will be complemented by the demand for in restaurant dining.

For the third quarter, our sales mix consisted of 76, 7% dine in 13, 1% delivery and 10, 2% to go.

To build on our achievements and remain the leader in family dining we're going to continue to focus on what we can control. This framework includes a new approach to marketing launching a loyalty program development and virtual brands.

I'll briefly touch on each of these starting with marketing.

Consumers are generally more tech savvy now than ever before we believe the shift in our media strategy to place a greater emphasis on digital marketing will greatly leveraged our guest connection IHOP and drive incremental visitation.

This brings me to our engaging loyalty program.

To a study by data essential nearly 50% of those surveyed said that loyalty incentives are critical when choosing our brands.

We're focused on leveraging our investments in CRM and consumer facing technology doubling down on our commitment to modernize our guest relationships and importantly drive incremental visits.

We're optimistic about our very creative and fund loyalty program, which we plan to launch over the next few months.

Regarding development since early 2020 consumers dining behaviors have changed significantly as a result, IHOP has been able to quickly pivot and adapt simply put.

We're focused on meeting gas in the channels that they frequent and trust either in our restaurants or off premise.

Our guests want to access the brand in ways that are most convenient for them, we believe that slipped by IHOP, our new innovative fast casual concept that leverages IHOP equities and brand affinity will meet the evolving needs of guests.

Happy to report that our first slipped by IHOP opened on September 21 in Lawrence Kansas.

And while it's too early to share any of the results. We look forward to providing more information in the months ahead.

We expect to open our second location in New York City in very near future. We've expanded our pilot strategy for flip which was originally focused on locations only in large metropolitan cities to now include suburban areas and non traditional venues as well.

We're laser focused on doubling our historic unit growth and believe that flipped will nicely complement our three other development vehicles, which include our traditional formats non traditional and our new small prototype scheduled the tests later this year importantly.

Importantly, all of these formats can be done in conversions, which we believe amplifies the opportunity.

Due to the impact of the pandemic there are more potential sites to develop in areas. We may not have had prior.

Turning now to virtual brands, we see a lot of potential and flexibility with virtual we continue to see this as a huge industry trend with the opportunity to drive incremental sales in a cost effective manner, especially at non peak hours like pm.

We'll have more details as our progress continues on testing.

Changing gears to technology innovation at IHOP, it's imperative that we reach our guests on their terms and was approximately 56% of IHOP gas being aged 34 or younger technology is a key factor in becoming and staying more relevant today.

Today's guests expect us to offer services that make their lives easier such as the ability to pay with their own phones and IHOP being available on all the major delivery service providers platforms.

We've invested in innovation to enhance the guest experience.

They are in our restaurants off premise and across all day parts.

One of our biggest opportunities become more relevant for more occasions, great food and menu innovation, our permanent staples at IHOP.

We're known for providing freshly serve high quality food, while also allowing guests the option to customize the orders, particularly breakfast items.

With that I am very pleased to report that our breakfast day part comp sales for the third quarter increased 8% relative to the same period of 2019. This is a testament to the execution of our strategy, we focused on providing abundant value and variety while also increasing IHOP appeal across other day parts. Besides breakfast.

This brings me to providing guests with great value understandably.

Understandably value plays increasingly major role in dining decisions in part because many consumers still remain under financial pressure due to the pandemic.

We have research that shows that rguest equate value with affordability.

A great example of this our IHOP menu, which was introduced in September 2020 does <unk> first ever afternoon, and evening focus value oriented menu I am pleased to say, it's been well received and generated incremental traffic for our franchisees.

September marked the one year anniversary of IHOP yard, which continues to drive incremental traffic generating approximately eight percentage point lift in traffic and sales during the available hours.

This is actually equates to a low.

Mid single digit increase in overall sales.

Lastly, in conjunction with our Halloween pancakes for option, we announced that Ray on was the winner of our third annual Kid Chef contest, which is coordinated with children's Miracle Network Hospital. The event was a huge success and supports a great cause.

To close we have several reasons to be optimistic off premise sales dollar volume remains robust we outperformed the family dining category. According to black box for the second consecutive quarter, where focus on strong unit growth in <unk>.

Overall, we've made great progress this year and I'm looking forward to returning to positive comp sales and I will turn the call back over to Jon painter for his closing comments, thanks, Jay and congratulations to Kid Chef Rayon, and we're super proud of him and thanks, John and Thanks Vance until your entire team for all the hard work in delivering on our solid quarter.

The road to recovery from the pandemic has certainly been a winding one for all of us and despite the twist and turns we at Dine know, where we're going we're focused on both the here and now of supporting our franchisees and giving guests the experiences they know and love and we're also focused on the long term plans and actions that we need to undertake.

To accelerate our growth.

Most importantly, we never lose sight of the fact that the key to hospitality is those very special intimate human connections between our guests and our team members, however, and wherever those connections occur and with that we're looking forward to taking your questions.

As a reminder to ask a question you will need to breath star one on your telephone can withdraw your question press the pound key.

Limit your question to one question and one follow up please.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Brian Mullan with Deutsche Bank. Your line is now open.

Hey, Thank you congrats on a good quarter John in the prepared remarks, you referenced you recently hired a VP of development at IHOP.

You may be remind us is this a new position of dine or just replacing some of it was at IHOP. When you joined and then related can you just talk about your expectations from a physician what the person brings to the table just highlight a few things you'd like to see them help change moving forward I know you want to double the historical unit growth pace by 2023 any tangible acts.

And items you could highlight for us.

Sure Brian Thanks for the question I mentioned, we hired three vice presidents of development. So.

Specify on all three.

VP of development at Applebee's.

The new position it was a shared physician in the past personally on multiple responsibilities. We are now devoting one senior role only to development. The same is true for international we've had an international leader of the business that was responsible for both development and operations now we've added in a senior leader who is only responsible for development.

And at IHOP to your point it was a replacement of a of a leader who we had.

And our hopes and expectations for Jake and for all of our Vps is to take is to bring a strategic approach to the way in which we develop our restaurants and the way in which we work with our franchisees and when I say strategic I think that we can be much more assertive as an organization and bringing opportunities to our.

Franchisees and doing extensive analysis of the markets to demonstrate the potential for new restaurants, and that we can move from being.

Order takers to bringing the market and the opportunities to our franchisees. That's my expectation not only of Jake but of our other two development meters as well.

Yes. This is Jay Johns at IHOP.

John had said it is a replacement position, we really want to become more strategic with our development. It's not just about hitting certain numbers. It's about how are we doing the market planning to add additional restaurants to the markets. We're already in how do we start developing and territories, maybe we haven't been in before this is where some of our new vehicles may come into <unk>.

Play you think about flipped the smaller prototype this starts to open up some other territories that we may not have gone to before so we needed some new thinking some fresh thinking and that's where we're going with that.

Okay. Thank you and then follow up on IHOP, Jay You mentioned I think 27% of the locations are now $24. Seven. Thank you said it was 45% prior to the pandemic. So my question is do you anticipate that going all the way back to where it was.

It's definitely the only issue here or are there perhaps other considerations for franchisees are there some franchisees, who maybe don't want to for whatever their reasons, maybe any color would be helpful.

Thanks, Brian I think that.

It's a combination of a few factors to obviously staffing is part of it just the economics as part of it as well right. When the pandemic happened people were trying to cut costs. They are trying to make things easier to execute because you have less staff. That's also important things are easier to do and the.

<unk> tightened down on what hours. They were operating I think we've seen it slowly coming back, but it's not going to all come back at once this is going to be location by location and franchisee by franchisee as they get stacked as they see the ability to get back open more hours, you'll see that I think will what Tim.

<unk> would happen no different and sometimes in a new restaurant opening.

Almost what this has been like the franchisees have had almost reopening their restaurants from doing to go and off premise only two now you get the dining room open next stage will be how do you get to usually what we call 2004, two which is stay open 24 hours on just Friday, and Saturday night, where the busiest opportunity is.

And then you expand from there. So I think we will get back a lot closer to where we were I just can't give you a timeline on when that's going to be but it will continue week by week and month by month as we move forward until we get back much closer to where we were in the past.

Thank you.

Our next question comes from the line of Jake Bartlett with <unk> with <unk>.

Your line is now open.

Great. Thanks for taking the question.

My first job was.

And then the comment on Applebee's.

Sure.

I got it right.

You mentioned quarter to date.

Same store sales were five 3%, maybe if you could just confirm the comments on the fourth quarter to date same.

Sales level and if thats right.

What would have driven the deceleration we saw pretty consistent monthly improvement throughout the third quarter. So maybe just some comments there and then also will be on the IHOP side any anything to share on the quarter to date would be helpful.

Hey, Jake.

Good morning. This is John the year to date through Q3 comp sales figure for Applebee's plus five 3%.

Within the quarter 12, 5% increase versus 19.

Those are both versus 19 and sequential improvement throughout we love the trajectory and the momentum and it's.

And it's what we expected and as.

Is obviously.

Creating a very healthy environment for our franchise partners.

Yes. This is Jay.

On the IHOP side.

Again, we've been making improvements throughout the year and getting very close to flat.

This past quarter were still down a little over 8% for the total year first quarter was still pretty tough for us, but we've been making progress ever sense and would look for for.

That should continue to improve as staffing improves et cetera.

We're not sharing anything about fourth quarter right now.

Got it got it and just to say look this is on the applebee side as they look at the cadence throughout the quarter there was an improvement.

You mentioned as you guys mentioned, which is different than other concepts, we've seen so I'm trying to understand.

What drove that you mentioned the summer marketing kind of viral hit there.

Any reason to think that that wouldn't continue to accelerate.

When Youre marketing plan or was there something unusual in the quarter from a marketing perspective that maybe shouldnt be replicated.

Jacob the progression was solid from a low 12% range to the high 12% range as I mentioned remarkably consistent since March all all time highs under dine ownership.

It's fundamentally restaurant execution and innovation, not just marketing innovation culinary innovation technology innovation advertising media.

You name it the team is locked in and partnership with their franchisees.

<unk>.

And we have visibility to a.

2022 plan and quite frankly fires us up so I'm not going to speculate on the future look but suffice it to say the brand is probably a tighter partnership and.

On a more optimistic partnership with its franchisees than I've seen in my five year tenure.

Great and then last question is just on.

Really getting down to a franchisee profitability in some of the drivers there you mentioned, 6% commodity inflation for the year could you remind us what that would what completion was for the third quarter, what that implies for the fourth.

And then given I assume that the accelerating pressure.

What are franchisees doing to offset that how much pricing might they be taking.

How is there.

Since weather there.

Profitability.

Taking a hit here or there is offset such as less discounting or pricing or what have you.

Thanks for the question Jake So look on inflation generally speaking I'd say it takes about two to two five points of menu pricing to cover 10% of commodity inflation for our franchisees.

We do provide pricing lasted city tools to our franchisee partners to help them with pricing decisions and depending on the franchisee they've been tracking anywhere between 1% to 3% of menu pricing increase per year in the past two years to cover inflation.

Yes.

Jake This is Jon on the Applebee's side I would say.

If you look generally speaking full year.

'twenty, one versus year ago, 6% bump in commodity costs.

Franchisees continue in their independent operators, so they take independent actions.

They tend to be highly strategic and measured.

And how they apply pricing and if I look at 'twenty, one versus 'twenty as an example, the average price increase throughout applebee's from our franchisees would be about 3%.

And historically as Vince referenced typically between 1% and 2% on an annual basis.

Got it thank you very much appreciate it.

Our next question comes from the line of Brian Vaccaro with Raymond James Your line is now open.

Thanks, and good morning, I wanted to started on the Applebee's advertising, obviously saw some huge successes in this quarter, but John can you help also just frame how much the spend was up say versus Q3, 19, and just ballpark your expectations on where spend levels might shake out moving.

Through 'twenty two I imagine Q1, 'twenty two will be up a lot versus Q1 of 'twenty one because he didn't spend much this year, but just any context you can provide on the year overall would be appreciated.

Hey, Brian Yes, good question I, probably won't quantify for you to the extent.

You'd like me to re.

Call in Q1, we pulled back on spending in 'twenty, one so naturally the full years kind of back loaded Q2, Q3, and Q4 elevated versus actually not so much Q2, but certainly Q3 and Q4 elevated versus that 19 baseline.

And then on a full year basis are pretty comparable.

Media allocation again.

We pulled back in Q1, we are well positioned balance of year and then as I look forward for the reasons I've referenced.

I anticipate the brand being in really great shape.

We move into 'twenty, two from a media perspective.

I like our position.

Alright, Thats helpful and I guess shifting gears a little bit.

A little context on staffing levels at each brand maybe you can provide some perspective on where average levels are but also help us with the pockets of tightness, maybe what percent of units might still be meaningful meaningfully below 19 levels. However, you might define that.

Is it possible to frame kind of a comp drag you might be seeing at either brand due to staffing challenges.

Hey, Brian This is Jay Johns I'll start with IHOP, and then turn it over to John.

The franchisees theres still haven't staffing issues.

There's probably several hundred restaurants that are more impacted than others.

You can see that in some they still have some reduced hours of operations.

Most of that is because of staffing levels. So once they can get enough staff.

They fully intend to get back to regular operating hours.

And that is causing a little bit of a drag on our business do you think about earlier, we were talking about the overnight hours, where I'm still missing almost half of my over nine hours. So were probably impacted by a couple of percentage points just on <unk>.

Duction of hours compared to 2019 and that is staffing related.

We're making progress and we get more restaurants and opened a few more hours weekly.

But again, it's somewhat of a slow process right now and it's very fluid you get ahead in the next week you're back behind US another restaurant across the Street is also short staffed and it's a competitive very competitive world out there and people will move quickly for an extra dollar an hour in this marketplace. So.

It's going to take a little more time before this gets back but right now I would say that our restaurants are probably in the 85% staffed range.

And I would say, Brian on the applebee side, very similar where we feel it most.

Quite naturally as you would expect would be on the Friday.

On Friday, and Saturday nights late night think 11 o'clock to 12 o'clock even into the one <unk> tough.

Parts of the weekend staff, it's coming back.

I would argue that.

Brands with.

It's not just trust from a guest perspective brands, who have a clear reputation in the market and our trusted by team members.

And franchisees, who have very strong culture, and I would say our 30 partners have exceptional culture.

There are sophisticated they know how to recruit and retain with the best of them.

But I'd be lying to suggest we're 100% staffed we're not at the moment weekend late nights is where we feel it it's getting better but it remains a priority and a challenge throughout the industry.

Okay, and then more broadly just on the labor environment are you hearing and kind of the recent conditions are you hearing from your franchisees that they are starting to see any green shoots of improvement as delta concerns seem to be easing or you've seen application flow increase or maybe turnover declining any color on those dynamics.

I wouldn't I wouldn't this is John I wouldn't quantify anything Brian.

Market place is improving generally speaking.

And.

In those late night hours, where we specifically see the challenge.

And one would have to imagine that.

Each and every brand in this industry approaches this challenge differently I do love. The fact that we have strong culture, we have an aspirational brand and we have sophisticated franchisees, who know how to navigate.

I believe we are very well positioned on this front relative to others in the category.

Okay, and then just one quick clarification, if I could just on the franchisee profitability comment you made.

<unk> is it right that the strong sales leverage youre seeing versus 19, and some of the ops improvements I think you rolled out as well is it right that that's sufficient to offset sort of the near term Cogs and labor pressures we're all.

Aware of where the store margins and profitability can sustain solidly above 19 levels in your view and are moving through next year.

Yeah, Brian cash is flowing well.

Certainly revenue is a big part of that we were working both sides of the equation revenue growth.

Which are our franchisees in a terrific position, but we are all also work on the cost side.

Productivity throughput efficiency technology, taking steps.

To reduce cost.

<unk> heard us reference in the past some pwc work that we've done historically at applebee's that.

Is removed 200 basis points of cost from the P&L, we very much took a hiatus on that initiative over the past 18 months, we will be activating that again in 2022, which represents meaningful opportunity. So yes revenue would be the biggest lever there and as a result, they are they are in very good shape.

Alright, I'll pass it along thank you.

Thanks, Brian.

Our next question comes from the line of Ericsson's analyst from Keybanc capital markets. Your line is now open.

Hey, thanks.

Great results this quarter.

I'm just wondering if I could ask you about the recently announced capital allocation strategy. The payout ratio is maybe towards the lower end of what one might expect from.

From a highly franchise business. So should we think about that as a starting point.

Or is that 25% or so payout ratio likely to be maintained over the next few quarters and maybe you can give us a little more color on how we should think about the share repurchase.

The level of share repurchases, we should think about as we model going forward. Thanks.

Thanks for the question Eric.

As you know we've had a really strong track record of returning capital to our shareholders and that will remain one of our top priorities.

If a dividend we think that the 40 <unk>.

Quarterly dividend represents a healthy dividend yield and payout ratio as a starting point to grow from as you pointed out.

Going forward, we will continue to evaluate and balance our capital allocation strategy focusing on the things that John talked about earlier, which is investments in business and technology and other growth initiatives, returning capital to shareholders that management and more importantly, maintaining financial flexibility to address any remaining uncertainty.

From the pandemic now.

The buybacks our goal is to support the stock Opportunistically with ROI in mind right based on our view of the intrinsic value of dine and we'll do that with our <unk>.

<unk> one plan.

<unk>.

We'll be out there consistently supporting our stock.

Yes, Eric.

I would add the keyword is our approach here is to be prudent.

To you the last couple of quarters when.

When we got comfortable that we've had some sequential quarters of predictable and sustainable performance, we would return to the dividend and that's what we did and now we want to see another couple of quarters of predictable and sustainable growth as we think we're on the other side of the pandemic and that will enable us to look at the dividend and <unk>.

<unk> increase it over time, but we think it's best to be prudent right now given given this point of time.

Understood Yes.

Earlier in the call I think Jake who asked about the inflation implied inflation for the fourth quarter. So maybe if you can comment on on that and maybe an early outlook on what you think inflation might be into next year.

Putting any comments on hedging.

Contracts that you have outstanding.

Based on what we can see second half inflation is about 10% and I talked about earlier just <unk>.

Generally speaking.

It takes about two to two five points of menu price increase to cover a 10% hit on commodity inflation pricing. So.

So.

John and Jay both talked about the fact that in the past year or two our franchisees have been taken anywhere between 1% to 3% of pricing increase per year. So so that.

Thats covered what what we've seen so far.

And the second part of your question about next year, we're going to we're going to wait until next quarter, Eric when we do our guidance for 2022 to talk about.

Costs in all of our guidance as part of one conversation.

Great. Thanks, I'll pass it on.

Our next question comes from the line of Brett Levy with MK and Brian. Your line is now open.

Great. Thanks for taking the call.

On the development side when you think about your approach how are you thinking in terms of new versus existing.

Are you thinking about anything in terms of with your capital allocation, maybe buying in franchisees to drive some consolidation.

How are you thinking about company ownership.

Yeah.

I'll speak on the Applebee's front since we're kind of newest to the game.

As you know we've spent the better part of the past four years optimizing the brand pruning up the system, we closed about 300 underperforming low volume restaurants.

So we're ready for growth we plan to close a few.

More than 1%.

Our portfolio next year, we've lined up.

A number of franchise partners and plan to build.

<unk> plus new restaurants in the near term as soon as we can activate.

Those sites with our new development partner done rate room as John referenced.

And some of those will be traditional some of those will be conversions.

There's a high level of enthusiasm there and then I do expect that to accelerate.

Moving forward for the Applebee's brand, which is refreshing we've been building to this.

In setting the system up for this new level of growth in this very modest closure rate for quite a while.

Pandemic got in the way of us activating it but we are ready now and we're moving forward beginning next year.

Brad This is Jay at IHOP.

Honestly, we've been doing development quite some time and as I. Just referenced earlier is we're going to try to be more strategic about this and how we develop markets. How do we have franchisees that already have multistory development agreements. So obviously there'll be some of that Theres territories, where there are no <unk>.

Development agreements at this point, so that's a possibility in those areas. We have a lot of existing franchisees that we believe will like to get into the development game post pandemic, especially if the economics are right to do that.

The amount of conversion opportunities that are out here. Obviously, the economics are very good on conversions and we've been seeing about half of the pipeline over the last year or so has been conversion opportunities. We've got about 600 restaurants in our system now that are conversions. So we're very good at doing this we've got a lot of experience doing it.

And then we've got our new platforms I have been talking about with flipped in our small prototype and I think thats going to open up more territories still and I think in some markets. There is a lot of opportunity to bring in some new franchisees as well into the system. Besides the ones that we already have.

Brad It's John just wanted to address two of the to the questions that you asked as well, which is you asked about our own funding and if we would use that to potentially.

Consolidate franchisees and the answer to that is no. We're much more likely to use our funding, though to encourage franchisees to develop in the form of key money or incentives and we've got a program like that already in the marketplace for for flipped you also asked about our inclination to own restaurants.

And there are two I would say, we're not inclined to own additional restaurants.

One of the reasons, we're performing so well this year is because of the asset light model that I mentioned in the opening comments and our intention is to remain a highly franchised business.

Alright, just following up on that.

With the existing units that you have in place what are your thoughts on your company operated is that something you see as a good fertile testing ground and you want to hold onto it.

Or is that something that you'd look to get yourself back to the 100% level yes.

Yes, certainly a fertile testing ground, while we have them.

And we will have them.

Because of Covid right are our intention to sell them has been delayed. We're proud of is we purchased the portfolio that was underperforming and because of the management team. That's been in place. There. It's now one of our top five performing portfolios. Both in same store sales improvement as well as guest improvement.

Originally the company said well hold them for two or three years two years of Covid has delayed that and so we've got another year or two to go and then we'll report back on where we are.

And then just on.

Moving into another direction.

Can you talk a little bit more about how youre thinking about the pacing of your loyalty rollout not just at IHOP, but also as it makes its way over into applebee's.

This is Jay.

As far as IHOP goes we're actually going to be in test and piloting this.

At the end of the year here in the fourth quarter and our intention is to roll this out.

System wide, probably first half of next year.

And Brett on the Applebee's front, we have significant investments on the.

In terms of personalization customization from a CRM perspective, we continue to believe the best form of loyalty is while that guests every hour hour and a half.

Sure.

And insure.

High degree of affinity for the brand and loyalty and repeat visitation. So we.

We believe in restaurant execution and it's one of the reasons the brand is performing so well.

Thank you.

Thank you.

Our next question comes from the line of Nick You said Dan.

With Wedbush Securities. Your line is now open.

Thank you.

And congrats on an incredible quarter.

Just given the momentum we're seeing here.

Q3.

Out of Q3.

Yes, the EBITDA guidance, just given the year to date EBITDA in Q4 implies a step down in Q4, maybe even a little bit above the step up in G&A. So.

I guess I just wanted to kind of get the puts and takes.

Around the implied Q4 EBITDA.

Sure. Nick Good question, we do expect Q4 performance to hold strong, but we also do anticipate higher G&A costs from activities, such as consumer research and product development franchisee support services and head counts travel expenses et cetera that we <unk>.

More or less passed until now and plus the continued incentive compensation accrual based on company performance.

So you're reading it right in.

And that's that's.

That's our guidance so far for this year, yes. It is John P. I'll give you a good example of that where we're happy to have which is our applebee's annual conferences back in November we will have 350 people who are really excited to come together and celebrate the brands haven't gotten together in almost two years and Nick in my mind.

It's an expense worth having in the fourth quarter to bring the team back together and all of our franchisees after a two year absence.

Yes, it makes sense.

When you talk about sort of doubling the IHOP historical unit growth rate, but by.

By 'twenty three.

Can you just give us.

I'll just point to what that exactly means.

2019, I think it was sub 1%, but before that it was 3%. So are we talking about.

5% to 6% potentially net unit growth in 'twenty, three or are we talking about a different number.

Well I've talked about this typically that's J I've talked about this typically in our units we've developed so to put in perspective.

I think historically over the last decade, we've developed about 40, new restaurants a year.

So to double that Youre looking at it more like 80 restaurants.

By the time, we get to 'twenty three so.

We're not doing future guidance that far out on exactly what those numbers look like but that gives you a ballpark idea of what we're talking about as far as amount of development.

That's very helpful. Thank you and then just last question.

Cosmic ways any update there.

Nick I know you'd be asking about this is John.

We love Cosmic wings.

I referenced that we.

Held off on a very meaningful expansion to door dash the number one delivery player.

Because of supply challenges in particular around boneless wings and bone in wings.

We anticipate.

Expanding cosmic wings.

From a delivery perspective to door dash and very early Q1 that supply of product will be there and the reason we're being prudent.

Thoughtful on that front as we're going to generate some incremental demand there we want to be able to satisfy it and then the final point I'll leave you with is a little tease that out.

A couple of weeks, there's going to be some meaningful news on the cosmic winds fronts. So stay tuned in.

It will be something buzzworthy that comes across the transom very soon.

Don't forget looking forward to it thank you very much.

Thank you.

Our next question comes from the line of Jeffrey Bernstein with Barclays. Your line is now open.

That's quite a teaser look forward to the news on cosmic wings.

Two bigger picture questions.

John P. I think you mentioned that.

Research showed a 110000 restaurant closures Mike.

Guess is that's a number.

Since the start of the pandemic that would work out to be north of 15% of the industry by my math just curious if you would say that's a similar mix I'm just wondering what your thoughts are as the operator of two of the biggest brands in America in terms of the outlook for reopening of a lot of those closed restaurants, maybe an outsized acceleration for growth in <unk>.

Two just wondering Europe kind of bigger picture thoughts being your context in real estate and development and you touched around the country any thoughts on the reopening opportunity for all of those units across the industry.

Yes, Jeff.

Thanks for the question. So number one your math is right. There is multiple sources on restaurant closures since the beginning of the pandemic and its about 10% to 15% the number of isolated on the call today was from from BCG.

<unk>.

The sources of data will also show that unfortunately.

It was disproportionately independents that closed during the pandemic and so it's less likely that those restaurants will reopen.

Because of what we know.

About the economic nature of independents, and we see that.

While it's while our heartbreaks through the independent it is an opportunity for the big change like ours and Thats why we are leaning into development and that's why we've hired three new development leaders that we think.

Our our world class and upgrade the talent that we have and it's taking advantage of an opportunity at this moment in time.

Understood.

And then my other question is just as you think about the broader portfolio, obviously 2021.

Good luck trying to find any rhyme or reason to trends that we saw like you said, but as we think about 2022 2023.

A more normalized I mean, we can kind of forecast our own comps and you gave some color on the unit growth, but assuming there is some modest January leverage which I'm just curious your thoughts on what we should think about over the next few years in terms of more normalized EBITDA and EPS growth not looking for specific guidance per se, but just what you think the model can generate.

Over the next couple of years on a more steady state basis on the bottom line. Thank you.

Yes, Jeff we will get into more guidance.

<unk>.

Our Q4 announcement, but we are taking a more balanced approach going forward in terms of how we manage our G&A investments and and the goal is to invest in the organic.

And in strategic growth and also looking continuing to look at acquisitions. So so.

This is an asset light model there is leverage to be half with our infrastructure, but there is potentially more that we see with with prudent investment in growth.

And in terms of potential for bottom line growth over the next few years in terms of the portfolio.

Both topline and Bottomline.

But without getting into specific guidance numbers. We think there is growth because this is again. This is an asset light model, our G&A infrastructure can be leveraged.

You are exactly right.

Alright, thank you.

Alright. Thanks, guys. We appreciate the time and your questions and look forward to speaking with you next.

Next quarter have a great day.

This concludes today's conference call. Thank you for participating you may now disconnect.