Dine Brands Global, Inc. Stock

All right. Thanks for being here. My name is Brian Mullan. I'm the restaurant and food distribution analyst here at Piper Sandler. We're very pleased to have the team from Dine Brands. We've got CEO, John Peyton; and CFO, Vance Chang. We've also got members from the IR team in the audience. Thank you, guys, for being here.

Just want to start with IHOP. Brand got a new leader in January of '25, right, with Lawrence Kim, been a little over 1.5 years. A bit of an open-ended question for you. But John, it would be great to get your perspective. How have you seen the brand evolve in that time? What lies ahead on the priority list for the stand-alone brand?

And I ask that in the context of 3 really solid quarters of outperformance in a row in Black Box to traffic. And so we just would love to hear your big-picture thoughts on that stand-alone, and we'll get to the dual later.

Got it. So IHOP welcomed Lawrence Kim, who came in as President 2 years ago. He has a long career -- had a long career at Yum! Brands and Taco Bell. So we were attracted by his Taco Bell pedigree as well as strong marketing, digital, social. And what you're seeing now in the last couple of quarters of IHOP outperforming Black Box in traffic and most recently in comps is the fruits of 2 years of the strategy that he's put in place along with the team.

And the key components of that, Brian, are, believe it or not, IHOP never had an everyday value menu. And so last year, we went to 5 days of everyday value, this year, 7 days, and that's combo meals for $6. And so it's the lead of the barbell strategy, and it's driving traffic into the restaurants. And then once you're in the restaurant, we do a really good job of merchandising the higher-end, higher-margin more exciting items.

Second thing he's done is he's focused on accelerating menu innovation. And so things like Dubai Pancakes and the Stuffed French Toast that rolled out Monday are examples of the pipeline getting much stronger. And then finally, what he's really good at is digital and social, and we're seeing a big difference there in terms of the way IHOP is playing and appearing in culture on a much more regular basis.

And then as that everyday value platform made that shift from 5 days to 7 days, clearly, it's working. But is it fair to say you're happy with what it's done for the business for Dine, but then also franchisees broadly on board with that as well, sales and profitability, everyone is happy with how that's going?

Yes. Franchisees are on board for a couple of reasons. But one is we've got a very elaborate committee structure where the brand team and the franchisees work together. So IHOP or Applebee's can't and won't put a promotion in place that the franchisees don't agree with in terms of the price point, the margin and the food item itself. And so they're on board from the beginning with everyday value, but it was a sales process that convinced them that the 5 days would generate the incremental traffic. We proved that. Then we went to 7 days, had to prove that, and they voted this year to make it permanent. So it is a process, but they're on board.

Okay. And then sticking to IHOP, just on the -- your most recent earnings call, you discussed off-premise sales. We continue to see growth at IHOP. You also called out catering in particular. Maybe just speak to both of those off-premise demand for IHOP more broadly and then just elaborate a little bit more on the catering opportunity and where that stands.

Yes, sure. And the answer for IHOP is very similar to Applebee's as well. And so just for context, before COVID, off-prem was about 6%, 7%, 8% of sales for both brands. And in the 5 years post pandemic, it's 22%, 23% and growing. And so it's been very consistent there in terms of that opportunity. So the 2 brands both became part of the off-prem consideration set in a way they weren't before.

We had to do a lot to learn how to do that, right? So all those 3,000 restaurants were not built to have 1/4 of their business going out the side door. So there's a lot of MacGyvering back of house in terms of process and procedures in order to carve out the space to effectively do off-prem. We had to look into and improve our packaging because it just wasn't as important when you're only doing 7% or 8% in terms of how the packaging looks, but also how it functions in keeping the food hot. We had to learn how to work with DoorDash and Uber Eats and merchandise our product on the third-party sites, et cetera.

And now your point about catering, it's been double-digit quarter-over-quarter growth since IHOP relaunched its catering program last quarter. There's a technology component to it with the catering-enabled websites. All of our to-go packaging or catering packaging is new and accommodates the larger portions and it's been driving off-prem. And we think there's a lot more upside.

Okay. And then let's switch over to Applebee's. John, you're currently the President. You are already the CEO of the company. So I'm sure you knew a lot about Applebee's before that happened, but maybe since...

I know a little bit more now. Yes, right.

So where I was going with that, what have you learned? What's going well at the brand right now? And then what are your biggest priorities or the brand's biggest priorities for the stand-alone brand over, say, the next 12, 24 months?

Yes, the biggest opportunity for Applebee's that if you step back a moment, the full-service dining or the category that Applebee's competes in is having a bit of a shakeout, right? So there's brands that seem to be fading a little bit like Fridays and Red Lobster. And there's a couple of our competitors have had a really good couple of years or a really good couple of quarters. And we're -- Applebee's is posting 1%, 2% comp sales growth. And that's okay, but not good enough. So what we're focused on, no surprises because the formula is pretty similar.

So we've spent the last 1.5 years really investing in a new menu innovation and not just individual items, but categories and platforms that will be new and can be built out. And you'll see those begin to roll out in the first quarter of next year. We've implemented more new food this year than we have in years because we built up that pipeline. O-M-Cheese Burger in the first quarter was an example of that.

The second thing that we're focused on is our marketing message, which when I got there 2 years ago, we didn't have even an in-house social media team. So now we've got a bunch of kids sitting in a room that are doing social all day long and monitoring everything. A great example of that, Brian, is we weren't even, 2 years ago, doing regular social listening. So an example of that is a week ago, someone we didn't know posted I never -- I haven't eaten Applebee's in 10 years and I never would. And normally, we wouldn't even know that happened. Our guys found it right away. We sent her a Applebee's gift card. She went to Applebee's and did a mea culpa and posted that. It was great, and she didn't realize, 2.5 million views. And we were missing that last -- this time 2 years ago.

So it's been the food, social and bricks and mortar. So the Applebee's restaurants, the last renovation cycle was 2020, beginning of COVID. So we excused it because the franchisees and we were not going to invest in that at the time. So they're now 14 years behind the last renovation. And we're now 2 years into a refresh of all the restaurants. And the franchisees will complete about 1/3 of the portfolio this year on the way to half next year.

So the short answer to your question, coming into it 2 years ago, focus on the bricks and mortar, so the restaurant buildings themselves look fresh and clean; menu innovation; much more contemporary marketing. And the fourth one is just focusing on core operations, which is managers in the front of the house, not in the back of the house, talking to the guests and off-premise accuracy, which is our #1 mistake on off-prem missing items.

Okay. And then I'm going to ask about dual brands, very important part of the story, some really encouraging signs so far. Just give a little context for everyone. And will be a little long-winded, I'm sorry, but I promise there's a question here. Maybe just to go through, there's something like 1,500 Applebee's. There's something like 1,800 IHOPs open today. Majority of those are in the U.S., not all of them, but the majority. So John, that's the context. Maybe give us the background on the dual brand strategy. How does this originate, the logic and the business case? And where are you with that strategy now today?

So there is a bit of a story here. Of our 3,600 restaurants, all but 220 are in the U.S. So we're primarily U.S. for both brands. The dual brand, if you haven't seen it, is having Applebee's and IHOP in the same restaurant. It's one combined menu that goes from breakfast through late night. If you know diners in the Northeast, it kind of looks like a diners menu and subtly cues the 2 brands going from blue to red as the dayparts progress.

The staff are cross-trained. The restaurant itself is a beautiful combination of the IHOP blue and the Applebee's red. And it's one restaurant, but you certainly see both brands there. Guests can choose to sit wherever they want, and they can order from that single menu all day long.

The strategy behind it is it's a daypart play, and it's activating the restaurant all day long. And so when other brands in the past have tried duals like KFC and things like that, they're competing dayparts. What's so compelling about this is Dine Brands just happens to own the premier AM and premier PM brand. IHOP, since it was invented in 1967 (sic) [ 1958, ] has been trying to address dinner as its most difficult daypart. And so for the IHOP franchisees, this is a solution to dinner that they've been looking for, for 60 years. For Applebee's franchisees, it's the morning daypart, which they're closed for. So it's a whole new revenue opportunity they didn't have. And so in terms of making the box more productive 24/7, that's exactly what this does.

The first one was overseas, in the Middle East of all places. And I think when you're 6,000 miles from headquarters, you can do whatever you want and then ask permission later. So they actually designed and opened half a dozen of them on their own before we were even paying attention in Pasadena where we're headquartered. I was hearing great things, and there were a couple in Mexico as well. I flew to see them 2 years ago, came back and said to the team, this is a really big idea. And we opened the first one a year ago, April.

So it's been about 1.5 years outside San Antonio, partnership with a franchisee who's really good at developing and building restaurants. And in 1.5 years, we now have 45 opened, on the way to 80 will be open by the end of the year. All but 3 of those are conversions, meaning the original brand added the second brand.

The economics are, now that we have 45 open, very steady in the sense that it costs about $1 million to add the second brand, a little bit more if you're an IHOP adding an Applebee's because you got to build out the bar and all the equipment with that, a little bit less if you're an Applebee's adding an IHOP. They're seeing consistent revenue growth of 1.5 to 2.5x the original revenue. That was a $2 million IHOP, it becomes a $3 million combo.

And the most compelling thing for me, Brian, is when you talk about innovation, right, no one came to us and said, you should put IHOP and Applebee's in the same building because no one ever think of that. But when you look at the tickets, 2/3 of the tickets in the restaurants are items from both sides of the menu. So in the morning, we're selling pancakes and ribs. And in the evening, we're selling omelets and skillets.

And so guests that are experiencing it are actually taking advantage of it. So we're giving them something they didn't know they wanted. And we've got a very robust pipeline for next year as well. And most of them, Bloody Mary is now available at IHOP via the Applebee's liquor license, yes.

Very good. And then -- that's very helpful. And then maybe just kind of to build upon that answer. If you were to assume an Applebee's unit is up on lease expiration or franchise expiration or you could assume an IHOP unit, either way, maybe just take us through the decision tree for that hypothetical franchisee. It seems like the options are renew it as a stand-alone concept, maybe with the remodel, maybe not, convert it to a dual brand or maybe just naturally some restaurants are going to close. So as you work with your franchisees across the 2 brands on these situations, like how involved are you? And how are you helping them evaluate? And how are these discussions going? And how has that evolved now that you have 45?

It's literally what you just described, right? So we know when leases are up, for example, and we know when franchise agreements are up, as do the franchisees, and those conversations begin 1, 2 years in advance. So it's not sudden, typically, it's not sudden. And that is the conversation, which is, okay, you've been here for 30 years. Does it make sense to continue here? Or has the market moved and you really need to be 10 blocks down the street is always the first conversation.

If it makes sense to continue, which typically it does because 94% or something of our agreements are renewed. So it's a very high renewal rate. Then it comes down to renovate or convert to a dual. I can't remember if I mentioned, but we see 900 opportunities for dual brands in the U.S. And of those 900, 450 are new builds and 450 are conversions, meaning an existing brand adding the second brand.

And when we came up with 900, you can imagine we built a big model back at headquarters that has a lot of assumptions and market conditions and population growth and traffic into all those markets. And we ran the model saying that we're not going to approve any restaurant that would cannibalize an existing restaurant. If we had, for example, said, okay, run it with 5% to 10% impact, it would have been 1,600 restaurants instead of 900.

So many franchisees don't have the opportunity to convert to a dual. So if you're an Applebee's and there's an IHOP 2 miles away, we're not going to approve it, which is why we get to that 900. So you'll continue to see the majority get renovated and the minority of this 900 become...

And point understood, it's not sudden you have visibility. When you get to this, is there -- this is qualitative, is there a lot of nudging and convincing? Or do you feel like you've already kind of got a lot of franchisees where they're aligned? The ones that make sense.

On duals?

Yes, on duals.

So on duals, it's been an interesting process. It has not unfolded exactly as we thought it would. So our initial hypothesis when said we're going to do this is we figured Dine Brands would have to build the first 10 as like proof of concept to demonstrate the numbers to get franchisees on board. And then we probably have to heavily subsidize and incent the first franchisees to go.

So our first one was in partnership with our franchisee in San Antonio, a long-time IHOP franchisee that had 30-plus restaurants there. They actually purchased the Applebee's franchisee in San Antonio, so they then owned the market for both brands and could put a conversion anywhere they wanted to, that made it easy. And so we subsidized that one as we expected to. Then when it opened, we flew the Applebee's and IHOP franchisees that are the typical developers down there, about 20 of them, to see it. And our book of business built right from there.

So we -- as you know, we didn't have to build 10 of them ourselves and our incentive to franchisees in terms of key money has been steadily declining. And what was particularly impressive to us is the guys we flew down there are the restaurateurs who've been doing this for 30 or 40 years and our largest franchisees, Flynn Group, Doherty in New York, Thrive in Kansas, those franchisees own hundreds of restaurants in multiple brands. They saw the concept and they said there's something going on here, and they signed up.

So the answer to your question is it's not a hard sell generally. Of course, the 400 franchisees, there are those that are traditionalists and are still in wait-and-see mode, but more than enough for building the pipeline that we've got.

And I would also add that this is -- we're in the process of creating FDD for the dual brand next year. So everything John said is based on existing franchisee base. Once the FDD is out, we then can have a sales force and go out and pitch to new franchisees.

We're precluded from doing that now.

Yes.

Yes. And that might contribute to the 450 of the 900, yes. Okay. I did not know that.

Yes. So our expectation is that once we have an FDD early next year, and by that time, we'll have 100 open, 30 or 40 of which will have been open for 9 to 12 months, you'll have much better stats to rely on, and we'll bring in fresh franchisees that will probably tackle the open markets.

Okay. That's great. And then more recently, I've heard you discuss fine-tuning the operational model, maybe making the kitchen more efficient. This is to dual still. Can you just elaborate a little bit on what that means, what you're working on? And I think you discussed looking at the next generation of the menu. So is this just learnings from what you have and what's going on there?

Yes. So we're calling it -- what we launched with till now is 1.0, and now we're working on 2.0 based upon the lessons we learned. We think we got it 80% right out of the gate. The biggest learnings we have is that IHOP franchisees need more help in running a bar. And so we've had -- we've been sending our teams in, coaching them real time, and we have to think about the training. They looked at it as another cost center and didn't think about it as much in terms of what is the role of the bartender and in terms of building a culture and welcoming in regulars and helping servers learn how to sell drinks and all of that.

On the Applebee's side, no matter how much we warned them, it was hard for them to anticipate what happens at an IHOP on Saturday and Sunday morning. And the volume of work there is a surprise to them. And what's surprising about it is everything at IHOP is scratch, right? So it's all real eggs. There's nothing formula there. And with breakfast, as you all know, it's all scratch and almost everything is custom. Everybody does something to their eggs differently than the how it's listed on the menu or their pancakes. And that was a whole new way of working for the IHOP kitchen staff -- the Applebee's kitchen staff.

So it's things like that, that were going back at to strengthen the training based upon what we now know is hard. And we've also seen some insights around you need a little bit reconfiguration of the equipment in the kitchen where is the flat relative to fryer based upon the different ways the menus are mixed, and that's all sort of just tweaks going forward.

Okay. And then moving away from the dual, just back to the stand-alone brands. It seems like corporate has an option here sometimes. Dine Brands now owns 118 Applebee's units on -- I think that's the right number, on the balance sheet. That's grown a little bit over the last year or 2. Just understanding that you want to refranchise those over the long term, which you've said. As we look in the near to medium term, do you anticipate maybe taking more restaurants on the balance sheet before you're able to refranchise that? Are there still situations where that might make sense for you?

Brian, John has mentioned that we are comfortable with up to about 5% of the portfolio being company-owned restaurants. There are strategic reasons why it's good for us to have these restaurants play offense and defense at the same time. Having said that, that's not the goal, right? We're just saying we're comfortable up to that point. And even with our existing restaurants, right, we're early in the process of turning them around. But even in our current state, there is already demand for the restaurants already. So what I foresee...

Meaning franchisees have contacted us.

From the franchisees, right? And so what I foresee is this portfolio not really being static. What's going to -- what's likely to happen is we're going to refranchise a bunch of them. We may take on some more and then back and forth. So it will be some inflow and outflow of the portfolio. But the long-term objective is to improve the physical infrastructure of these restaurants and turn around the operations and prove out the remodeling case study, prove out the dual brand case study to the franchisees.

And plus, we build credibility with the franchisees as well. So we get a lot of street cred from the franchisee communities because we know their pain, we understand what they're going through.

Understood. Skin in the game and keep company ownership at or around 5% as it recycles. Okay. Yes. Okay.

And then just, Vance, capital allocation. Board recently authorized another 100 -- it was in May, but another $100 million of share repurchases. I think you've repurchased a sizable chunk of shares on a year-to-date basis. As you move forward, how do you evaluate the opportunity to continue to repurchase shares? What kind of leverage target ratio should investors be mindful of in that context as you sit here today?

Our leverage level is sitting a little bit above 5x right now. And it's because we're really excited about the investment opportunities, not just within the company, but also with our stock. So we've been deploying capital towards CapEx, company restaurants, dual brand initiatives, remodeling incentives as well as buyback of our stock. So as long as there's returns there, I think we're going to keep the current strategy and the playbook at play and while protecting our balance sheet.

You asked the question, what's our long-term leverage level target. We've said -- what we've said in the past is it should be in the mid-4s. We've been at this current leverage level before, and we've worked it down subsequently. So we're going to do that again here. It's going to be done through growth of EBITDA based on turning around company restaurants based on dual brands start contributing to our bottom line, and that's -- we're going to see that soon.

Do you want to talk about the unique nature of our debt?

That's a really good point. So a lot of the investors, especially if you're new, you don't understand sort of the securitization, capital structure that we have, which is very shareholder friendly and it's very flexible. It's covenant-light. It's not like bank debt or the traditional corporate bond market and so high yield.

And so we have access to investment-grade cost of capital, again, like I said, covenant-light and our debt service, DSCR, which is the only really levered covenant that we would lose sleep over. We have over 70% cushion in terms of where the covenant requires and where we're sitting at. So it's less about leverage. It's more about DSCR, and we're comfortably over that, and our bonds are trading at par -- above par. So the market is comfortable with our credit quality.

Okay. Very good. Well, we are actually up on time, that went quick. So thank you guys both for being here. Appreciate it.

Thank you.

Appreciate it, Brian. Thank you.

Good afternoon, everyone. Thank you very much for joining us as we move through day 2 of our conference. I very much appreciate all of your attendance. My name is Jeff Bernstein. I'm the restaurant and foodservice distribution analyst here at Barclays. We are thrilled to have our next presenting company with me on stage. It is Dine Brands.

With me on stage from Glendale, California, we have John Peyton, the CEO, sitting in the middle. We have Vance Chang, the CFO, sitting closest to me. And we have Lawrence Kim at the end, the President of IHOP and the Chief Commercial Officer.

By way of background, for those not familiar, Dine Brands is a portfolio with 2 very large brands that I think everybody knows that would be led by 1,550 Applebee's units. 1,800 IHOP units, and I do not want to underestimate the future opportunity with the 100 Fuzzy's Taco units. They also have -- and that includes the licensing of a combined 240 units outside the United States. So clearly, 2 powerhouse brands, of course, Applebee's and IHOP. Clearly, they have a good look at the consumer, and we're thrilled to have them with us at our consumer conference.

I've got a number of questions for management. So I will kick it off right now. But again, we want to thank Dine Brands for joining us today.

Thanks for having us.

Absolutely.

So being that you do have 2 very large brands that do touch the consumer across the U.S. I was hoping maybe you could just provide some high-level thought on the consumer. Obviously, there's been a lot of talk of pressure on the consumer, different lower income versus higher income or age cohorts or whatnot. Like how would you define the consumer and whether or not that's changed in terms of your view over the past 12 months?

Sure. So just to give you a sense from a demographic perspective, the demographic of the IHOP and the Applebee's guests is pretty similar. Each of them has a household income between $50,000 and $100,000 a year. We span all age ranges fairly consistently. The IHOP guests and the IHOP restaurants tend to be a little bit more urban. They skew urban versus Applebee's. Applebee's is a little bit more rural and suburban. But between the 3,000-plus restaurants, I think we're in almost every ZIP code in the country.

So in terms of consumer behavior, it's been remarkably consistent, not just for 24 months, but for 48 months and into next year. We see our guests as very value-driven, the value message that both of our brands have. At IHOP, it's $6 everyday value. At Applebee's, it's 2 for $25, so 2 entrees and an appetizer for $25. Those messages are super compelling. It's important to attach an innovative or new item to that message in order to keep it fresh. And then when we see them in the restaurant, we do see them, I would say, moderately managing their check. And I say moderately because our average check is pretty consistent in both brands for the last several quarters, yet our franchisees have raised prices 2% to 3%. So there's a little bit of check management.

We're seeing more frequent visits from higher-income guests. And we're seeing a little bit of a wash in terms of losing lower-income guests and then also gaining lower income guests as I think QSR guests are trading up to full service.

And there's lots of talk about food at home versus food away from home, and this is a Staples conference. There are a lot of people saying that food at home is winning. We tend to believe food away from home has been taking share. I believe the statistics support that. But do you believe the most recent value push that you're doing puts your brands and the broader restaurant industry in a position to continue taking share from food at home? Or do you feel like that's an ongoing battle that might kind of go back and forth?

We think it bounces back and forth depending on sort of from a price perspective, who's in the lead. And right now, when you look at the overall increase in prices from, call it, coming out of COVID in the 5 years till today, Applebee's is a little bit lower than food from home in terms of the compounded growth. IHOP is a bit higher in terms of price. So we straddle home. The most important thing about competing with home is that you come to the restaurant for something you can't get at home. So if we didn't have O-M-Cheese Burger at Applebee's, which is a hamburger cut in half in a sizzling skillet of cheese and when you pull it, you get a big cheese pull, you can't do that at home. You can't get a Dubai pancake at home, and you got to give them a reason to want to come as well. It's not just the price benefit.

And I will add one other thing, which is when you have a strong value pipeline like the $6 everyday value menu, some of the comments that we receive is, wow, I can't make that breakfast at home for $6. It's just not just the cost of the ingredients, but it's also the time, the cleaning, the prep and its IHOP quality. So all these part of the value equation are critically important as these families are making decisions.

Being that you've sat through meetings today and meetings perpetually, I'm just wondering, maybe what do you hear -- what questions do you hear most that surprise you? And maybe on the flip side, what question do you wonder why people aren't asking them, maybe they don't fully appreciate?

In terms of questions from investors and analysts?

Investor, yes.

Our CFO gets most of those questions.

I get a lot of the questions around our balance sheet. I get a lot of questions around the company-owned portfolio. The question on the balance sheet is they do a quick Bloomberg view and they say, wow, you're 5x levered, seems really high. Are you worried? Now we have -- because we're so highly franchised, our capital structure is -- we're using securitization. It's a very, very shareholder-friendly capital structure in terms of cost of capital, in terms of cost of light. And so it's -- the leverage level we have is comparable to other highly franchised companies in the sector. So we definitely -- I don't lose sleep over our leverage level.

Now over time, as our company restaurant portfolio improves, as we -- our dual brand takes hold of development pipeline, I think our EBITDA will grow. We will delever. We've been in this leverage level before. So that's one question. On the company restaurant portfolio, right, we have, call it, 130 restaurants that we took back from franchisees. And they're some of the lower-performing restaurants, but we took them back for offensive and defensive purposes. So offensively, we're trying to use this portfolio as a tool, as a way to advance our dual brand and remodeling initiatives.

So we want to showcase to our franchisees that if you spend this much money, this is what you do to the restaurants, and this is what the sort of the lift that you're expecting to see and therefore, you should all do it, right? And so that's one thing. And then defensively, we want to protect the system. We want to improve the reputation of these restaurants within the communities and make sure that we protect our NAF, our marketing fund and make sure that the rest of the system stays healthy. So there are different reasons we're doing it for, and we're making progress, and we're happy with where we are. So that's -- those 2 questions I get a lot.

And then I think, John, we always want to talk about dual brands and that's...

The third question is dual brands particularly in the context of how is it fueling unit growth or growth in general. For those of you that don't know about what a dual brand is, about 3 or 4 years ago, our international division in the Middle East did an experiment. They put Applebee's and IHOP together in the same restaurant with a common menu, a shared footprint and it did really well. And they got to about 20 of them, and we went and visited and said, this is a big idea. And we took it back to the U.S. We opened our first one 18 months ago in Seguin, Texas outside San Antonio.

Today, we have 45 open, and we'll have 80 open by the end of the year with a strong pipeline for next year. And so the concept is not to create a new brand, right? The concept is to take the best of Applebee's, the best of IHOP in one box, imagine a red side and a blue side in terms of the decor. It's an all-day dining menu. So if you're familiar with diners here in the Northeast. It goes from breakfast through evening. The menu suddenly choose IHOP and Applebee's going from blue to red coloring as the day progresses.

The back of house is cross-trained. The front of house is cross-trained. Guests can sit wherever they want and order anything off the combined menu at any time of day. And we're seeing some really compelling numbers come out of it, right? The first is it costs about $1 million to add a second brand to an existing restaurant, a little bit more if you're an IHOP adding an Applebee's because you have to build out the bar, a little bit less if you're an Applebee's adding an IHOP because you've already got the bar.

You're growing your revenue about 1.5 to 2.5x the base revenue of the restaurant, and we're seeing that consistently now with the 45 restaurants. That incremental revenue, call it, an incremental $1 million is flowing through at 2 or 3x the rate of the margin that you'd normally see in that restaurant, right, because the fixed costs are fixed. And the really good thing from a Dine Brands perspective is strategically, it checks a lot of boxes. So one is, we're first movers. Two is, it's a really high walled garden in that we just happen to own the premier a.m. and p.m. brands that we can put together.

If anybody else wants to do it, they've got to go buy one of the other dayparts. And the key to this for franchisees is dayparts, right? When others have done it in the past, like KFC, et cetera, it was 2 dayparts competing with themselves. This is an a.m. brand and a p.m. brand and it activates the box all day long. So it's taking dead space for both brands and activating it. The same way you don't want an airline seat to be empty or a hotel bed to be empty. And our favorite part is one of the interesting insights about innovation is giving consumer or in our case, the guest something they didn't know they wanted. No one asked us to put IHOP and Applebee's together, right? No one knows the same company owns both brands. But 65% of the tickets in the dual-branded restaurants include items from both sides of the menu.

So in the morning, we're selling omelets and ribs. In the evening, we're selling skillets and pancakes. And so when guests have the choice to order from both brands, they do it 2 out of 3 times per ticket. So that's our big growth engine in terms of accelerating our revenues as well as franchisee revenues. And interestingly, unlike in the past, where you would look at us through the traditional lens of unit growth, here, it's about adding incremental revenue to an existing restaurant. But besides that, there's 900 opportunities in the U.S. for dual-branded restaurants that won't ever encroach on an existing restaurant, meaning we have no territorial issues. Of those 900, 450 are new builds, 450 are an existing restaurant adding a second brand. So there's a long runway here in terms of growth for the company.

Do you think that's 900 incremental, 100 units, half of which would be new builds and half is you already have one and you're putting the other in it.

Correct.

Got you. But I was going to say, we've seen others over the past few decades where they have tried this approach. Some have worked, some have not. But to your point, having one that's primarily breakfast-led, breakfast lunch and one's more dinner and layering them together is more efficient in terms of leveraging your fixed costs.

That's right. And we have the endorsement of our franchisees in the sense that we've done a couple of ourselves, but the vast majority are -- have been converted by our existing franchisees who have been in the business for decades. And so when they flew to Seguin to see the first one, they all left saying, this is a big idea. So when you can convince the Doherty's of the world, right, that have 100 restaurants here in New York and New Jersey and the Flynn Group, et cetera, et cetera, when these guys see a product like this and they want to build it, that's an endorsement, not just that we're saying it's a good idea. It's -- Jeffrey, it's about people who really know the business well are converting.

And just as one last topic from a broad industry perspective, there's always lots of questions over the past couple of years in terms of GLP-1 and the implication that has on the restaurant industry. It seems like it's only more prevalent and available and affordable to the consumer, which the concern is that there's less, either you're going out for less occasions or you're going out for the same number of occasions where you're just not ordering as much. Have you seen any sign of that in your business? I don't know how you detect it necessarily, but do you have concerns about that over the next few years or maybe changes to your business to try and address that?

We've been monitoring it closely, as I'm sure most of the industry have. The great part is there are 2 main aspects that we look at. Number one is menu variety. And number two is kind of what you mentioned, which is the occasion. And so Applebee's, IHOP, we are an everyday occasion, but you really look at also the occasions that each brand really targets. So date nights for Applebee's, a huge platform also. But even for IHOP, if you think about the weekends, which is a big percentage of our business and post church, Little League events and soccer games, et cetera. And so those moments, those occasions are still true.

And this -- we have not seen any impact to date yet, but we've been monitoring closely. But to prepare. We also look at the variety of our menu. So at Applebee's, I was just there a few days ago, so many healthier options from salmon and broccoli. And even at IHOP, when you think about -- we were a pancake and breakfast, definitely equity. But we have obviously things like protein pancakes, and we've been emphasizing them. There's 37 grams in our protein pancakes, and there's other variety of options. So we look at the extensive nature of our menus and also our innovation pipeline, and we are planning accordingly as we go into the future, but while staying true to the roots and the equities of our brands.

I think the key insight here is we spend a lot of work talking with GLP-1 users as well as collecting all of the research is that while they are changing or limiting the way they eat, they are not reducing the occasions that they go out to eat. So they might eat differently when they're with us, but they're not changing their lifestyle because they're eating less or eating differently.

Yes. And as we close out on 2026, hard to believe, but we think about 2027, like what do you think is -- what are you most excited about that you think we'll be saying about 2027 when we think about Dine Brands?

For Dine Brands, I'll take 2 of them. One is that dual brands are approaching at the end of '27 200 restaurants and that not only are our existing franchisees participating, but we are attracting new franchisees to the system as a result of the success. And at Applebee's, at the end of '27, we will be talking about that we've introduced more food innovation, new food and new platforms than we have in a decade.

And at IHOP, I would mirror that. We have been focused the past 1.5 years on value and really driving that value equity. Now we have a $6 everyday value menu continues into next year as well. And we've been owning that platform, which is fantastic, not just for traffic, but also just driving that value equity and being accessible to guests and consumers out there. But we have now an extremely strong innovation pipeline. The first one actually starts this coming Monday. So if any of you here in IHOP starting Monday, definitely check it out. You'll see a lot of media. But in '27, we also have a great innovation pipeline ahead as well.

Specific to the brands, the focus is typically first and foremost on comp growth. I think you said most recently that IHOP has now outperformed Black Box for the third straight quarter, which is encouraging. How do we sustain that momentum? What do you think is the primary driver of what's allowed IHOP to see this most recent acceleration?

Yes. It's definitely what I just referred to, which is the balance of value and new news. And new news can come in many different ways from products to marketing and culture buzz driving innovation. But the real focus and the reason why we've outperformed Black Box in sales the past 3 quarters, but traffic the past 6 is because of our focus and dedication to the everyday value platform and the consistency in messaging. So now the consumers really understand IHOP has a $6 value menu, and it's a consistent word-of-mouth and mass media play. But the other thing is we have improved on our operations and -- because you have not just the traffic drivers of value and our core iconic menu items, but it's the operations that we wanted to make sure that we really optimize and improve.

So our speed has improved. Even just since December, even to the current day, we've increased or improved table turn time by over 4 minutes. And also our to-go order product accuracy has also improved just because we've sustained operational excellence. We use tablet technology, KDS. And more importantly, we've simplified some of the back-of-house operations to make it easier for our team members, and it's a constant effort that we take extreme focus on.

You often make the point that you're pushing $6 value all the time. However, it's only 20% of your sales by design.

That's correct. Yes. So value, we like to say you're shouting value from the mountain tops. So mass media, digital channels talk about $6. But when you get into the restaurants, a key important part is getting the check and the profit drivers, I would say, amplified. So POP features, for example, our pumpkin pancakes right now in combos. We have our Stuffed 'N Stacked omelets, so we rebranded that. And we really want -- it's available. It's obviously -- the value is a key part of the message, but it is not magnified in the restaurants. The check drivers and the premium items are, and it's been a great balance, and we sustained that 20% check or 20% of our checks are value items and sustained since we've launched it.

I was going to say value seems like the core of the business. And I know that was a perfect segue. I mean Applebee's with the 2 for $25, I think you told us most recently that value mix there sits in the mid-20% range, and you're saying the IHOP is more in the low 20% range. Do you share the profitability of those? I mean, it sounds like if that got to 30% or 40%, you'd be making some changes to try and shift people to other items. But how do you think about balancing that mix, what the right level is, whether or not you want to have it move from where they are today?

So Applebee's key value message is 2 for $25, which is 2 appetizers and an entree for $25. That's been our value platform for 20 years, but we didn't often talk about it constantly, as Lawrence just described. The last 2 years, we've made the decision that our primary message on television as well as on digital is 2 for $25. What's important about that in terms of profitability is that 65% or so of 2 for $25s are upgraded. So you can add $3 for chicken, you can add $6 for steak, whatever those are. And the franchisees choose which items they want in their tiers. They also choose how many incremental dollars to charge per tier. So you're actually only selling 1/3 of that 25% at $25. The others, depending on the market are $28, $33, $36.

That's what I think investors and the consumer doesn't fully appreciate because we see lots of commercials from lots of brands. It's like, I don't know how IHOP can succeed with a $6 platter. But in reality, it's not the majority of people who are spending $6. It brings them in the door and then ultimately, it's the job of the franchisee to upsell.

And the other reality, excuse me, is the $6 items are still profitable. So we focus on profitable transaction growth. So even if it is an item sold, which is a $6 value item, they are still making money. There is still profit to be made on the product. Of course, as John just mentioned, there's beverage upsell, there's different menu item upsell. And it's that fine balance. And that's the beauty of the variety of the menu that both brands have where you just have a plethora of options. And so ultimately, as you're perusing through the menu and through the -- and you see the beautiful POP in front of you, you are definitely upsold.

Got it. We talked -- these are a lot of comp drivers. But from a unit growth perspective, I think you said if your dual brands 80 or so by the end of the year, maybe it could be 200 by the end of next year. Is it...

For example.

As an example. Is that...

That's not guidance.

What?

That's not guidance.

That's not guidance, but just demonstrates the excitement you have and the opportunity to more than double the footprint that you potentially have at the end of this year going through next year. Just wondering how we should think about the ultimate opportunity, kind of the rate of acceleration, the demand from franchisees to continue that because it historically hadn't been much of a unit growth story, and it seems like there's that opportunity today. So how do we think about that opportunity?

Well, when we announced the program last year, we said there's -- we think there's an opportunity to do 900 over the next 10 years. So that gives you a rough cadence, and we have the ability to support that kind of a cadence. And when you think about how you might model the incremental AUV, half of that is a restaurant adding a second brand. So that's 1.5 to 2.5x their current revenue, $1 million plus and half of them are new restaurants, which should be north of $3 million, more like $4 million. So that gives you a way to sort of think about the way to model our AUV growth due to duals versus traditionally looking at unit growth.

Got it. And otherwise, I know you had mentioned, you got 130 or so company-operated units in this portfolio. Seemingly, this business has historically been built as a franchise model. So I think that over time, that's your intention is to return to more heavily franchised. Just wondering how we should think about the time line that you think is necessary, like you said, to use those as examples to turn around that business to potentially spun those off to franchisees, if there's interest for that, how we should think about that refranchising time line?

We actually have interest from franchisees right now. So it's just a matter of making sure that we place them in the right hands and they're going to invest back into the system like we were planning on doing. So the timing is going to be anywhere between now and a couple of years from now. What I see this portfolio to be going forward is it's not going to be static, right? There's -- likely we're going to refranchise a group of restaurants over time, and then we may take on some more. So there will be inflows and outflows of restaurants as the portfolio develops.

And we're comfortable owning up to 5% of the portfolio, which is about where we are now. It's not our goal to own 5%, but from a strategic and from an opportunistic perspective, we'll take restaurants back when it's the right thing to do. If it's got the ability to be profitable, if we can invest in it and sell it for a gain, if we can convert it to a dual, we'll do those things. It also helps us prove out the case for renovations, the case for dual brands. And so ideally, we'd own 50 to 75 at any given time, which gives us enough skin in the game that we understand the bottom line impact of the decisions we make, franchisees, that's important to them. But the 5% limit, Jeffrey, is where we'll -- where we start to flip faster in order to maintain that 5%.

Yes. When I think about these boxes being franchise-led, there are certain requirements of franchisees to remodel the units. So how do I think about each of your 2 big brands in terms of the portfolio, where we sit today in terms of that remodel need and maybe what cost or sales benefit you get when you do -- when the franchisees do to those remodels?

Applebee's is this year in its second year of a remodel cycle. We missed the last one because the last one fell in 2020, and we forgave it. We didn't do it because of COVID and the restaurants were empty. So it's definitely time because it's been 14 years since the end of the last one. We will have about 1/3 of the portfolio renovated by the end of this year. Our target is about 50% by the end of next year. And the restaurants that have been completed so far, which is 400 or so restaurants are seeing a lift as reported by the franchisee as well as by the ones that we've renovated of 5% to 15%.

Okay. Is that for the broader system or that's Applebee's specific?

It's Applebee's specific for that restaurant.

Got it.

IHOP is in a different spot.

Yes. For IHOP, 80% of the system is up to date with remodels. It's been a constant cycle approximately every 5 years, and the franchisees have been updating them according to the cycle.

Got it. And just the broader -- as we talk about these franchisees, the broader sentiment, I mean, obviously, from a franchisee perspective, they're dealing with persistent kind of food away from home or food inflation, wage inflation. You're asking them to do some certain remodels and whatnot. And then there are some that are trying to do dual brands. How do you think about the overall franchisee sentiment? Presumably, you're talking to your franchisees on a very regular basis. What are they -- how are they feeling the pulse? What are they asking most from you?

I'll start with IHOP. We are in constant communication with the franchisees. We have not just committee meetings, but also like a leadership council that is just in constant. We have quarterly in person. I'm on calls with them probably every day, if not at least once a week. And so the main -- we always are in a focus of clarity with the franchisees and constant communication because it's ultimately a partnership. And right now, the franchisees are excited with the momentum we've seen this past year in particular and outperforming Black Box, but also just the unit economics improving quarter-by-quarter. So there is not just excitement momentum, but the direction we're going and for the future of the brand. So I would say the sentiment is very positive right now.

And the communication interaction with the Applebee's franchisees is the same. It's interesting, I think, to share how we interact with them and both brands have similar structures. We have a -- each brand has got a senior council of franchisees that are elected by their peers for a several year term that are interacting with senior management at the brands on all issues strategic. And below each of those councils is a franchisee technology council, menu council, ops council, marketing council and people council.

And so there are franchisees and members of our brands on each of those councils as well. So there's a lot of interaction. And the Applebee's sentiment right now is that the top line needs to grow a bit more than it is because the cost of goods, particularly beef, is challenging the bottom line more aggressively than it has in the past year. So we know what we need to do.

Got it. And as we think about at the corporate level, Vance, you mentioned that from a capital allocation perspective, that leverage levels, you've been at these levels before, it doesn't make you necessarily lose sleep. How should we think about that going forward? I think you have a $100 million share repurchase program. You were pretty aggressive with that through the first half of the year. The balance of the share repurchase versus the dividend and presumably a potential for debt paydown, how do we think about balancing those different issues?

Yes. It's all about return on capital. So if we feel like our stock is undervalued, I think it's a great place to deploy capital towards versus the cost of capital. And so when the Board authorized the $100 million, it's with that goal in mind. And we will -- I think year-to-date, we've returned almost $30 million through buybacks just in this year alone in addition to the organic investments we're doing with the company restaurants and the dual brand initiatives, et cetera. So that's going to continue to be a key focus area for us.

Is the debt paydown presumably essential in your mind? Or is it more just EBITDA growth will help to ease that multiple?

More EBITDA growth will help ease that because, again, this is investment-grade cost of capital that non-franchise companies don't have access to is covenant light. And so it's very flexible and very shareholder-friendly. So I want to keep that intact and use our capital to grow EBITDA and delever that way.

And we haven't mentioned much about your third brand, which is Fuzzy's, which is clearly -- relatively small compared to the 2 big brands. But it seems like there's a potential opportunity considering the Mexican category is as strong as it is in the fast casual segment. I think you talked about positive comps for the second consecutive quarter, this past quarter, outperforming the industry. What's the vision for that? Because clearly, at this point, it's relatively small. How do you think about Fuzzy's over the next number of years or the potential for a different brand or another brand? Like how do you think about your portfolio?

So Fuzzy's is a relatively small brand compared to our others. It's 110 or so units, half of which are in Texas where it was founded in Dallas. We acquired it a couple of years ago, put our team in place. We put a President/CMO, who was a strong Applebee's marketer, and we put an operator, COO in, who was one of our best IHOP ops guys. And the plan they've been working on for the last 4 or 5 quarters came to fruition this year. And for the first time since we've owned it, as you said, Jeffrey, we've had 2 quarters of positive comps. And it didn't happen by accident, right?

They have revamped not only the menu and the recipes, but the quality of the proteins. They have reengineered the way in which the consumer views the menu, right? And so they were selling more high-margin items. They traded out the franchisee group. That brand, particularly the original franchisees were dentists and doctors and veterinarians who were looking to invest and were not restaurant tours and their restaurants reflected that. And we've got more professionals in there now. So they've done a lot of great work there and are now poised to begin to add units.

That's great. And do you think -- I mean, if you look out a few years, do you think that the portfolio will sit the same as it is today? Or do you periodically look at potential to add another brand to the portfolio? Because clearly, again, the dual brand sounds like one of the most exciting initiatives. The more brands you have in your portfolio, the potential to kind of cross-pollinate those types of things, so...

Yes. And we -- in addition to dual brands, we've built a platform, right? So we've got one technology architecture for our apps, right, for our loyalty programs for CRM, et cetera. And so plugging in a fourth brand is relatively straightforward because we've built it to scale. We're not currently in the market looking for a brand, but we certainly are opportunistic and it is one way to grow. Our focus right now is on Applebee's and IHOP and improving their comps.

Understood. Well, we've run out of our allocated time, but we wanted to thank Dine Brands very much for joining us today, specifically John, Vance and Lawrence. Hopefully, you had a chance to meet with investors and continue to do so throughout the day, and I hope everyone has found it to be productive. Thank you very much.

Thank you so much.

Thank you. Good day and thank you for standing by. Welcome to the Dine Brands second quarter 2026 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. ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Matt Lee, Senior Vice President, Finance and Investor Relations.

Good morning and welcome to DineBrands Global's second quarter fiscal 2026 conference call. This morning's call will include prepared remarks from John Payton, CEO and President of Applebee's, and Vance Chang, CFO. Following those prepared remarks, Lawrence Kim, Chief Commercial Officer and President of IHOP, will also be available, along with John and Vance, to address questions during the Q&A portion of the call. Please remember our safe harbor regarding forward-looking information. During the call, management will discuss information that is forward-looking and involves known and unknown risk, uncertainties, and other factors, which may cause the actual results to be different than 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 filing. The forward-looking statements will be used to evaluate the information that is forward-looking. statements are as of today and we assume no obligation to update or supplement these statements.

We will refer to certain non-GAAP financial measures, which are described in our press release and available on Dynabrand's Investor Relations website. With.

That is my pleasure to turn the call over to Dine Brands CEO, John Payton. Good morning, everyone, and thanks for joining us. Today, I'd like to start with our results, and then I'll share some perspective on what's driving those results at each of our brands before turning it over to Vance for a deeper look at the financials. Our second quarter financial performance reflected the continued resilience of our brands in a dynamic operating environment. IHOP posted positive 1.5% comp sales and delivered its third consecutive quarter of industry outperformance versus Black Box on both traffic and sales. Applebee's reported comp sales of negative 1.8%, shaped by a difficult April comparison period, although we did see improvement in May and June. Fuzzy's delivered positive comp sales for the second consecutive quarter, and our adjusted EBITDA was $54 million, compared to $56 million in the same quarter last year.

With those results as context, let me share some insights on what's driving them. The economic conditions we described at the end of Q1 continued into Q2. Inflation in food away from home, elevated gas prices, and declining consumer sentiment contributed to more deliberate spending behavior. Guests aren't walking away from dining out, but they are making intentional choices of when and where they choose to go. Our results show that when they choose Applebee's or IHOP, they are engaging fully. Average check was slightly up at both brands, and value mix remained consistent with Q1 levels, 26% at Applebee's and 22% at IHOP. We believe this is a result of the commitment we made roughly a year ago to deliver core, consistent value through our everyday value platforms.

Two for $25 at Applebee's and everyday value at IHOP. We're seeing that consistency show up in our Q2 results, and we're encouraged by the early trends in the third quarter. Underpinning all of this is a shared framework across the brands, building long-term equity and everyday value, balancing check with premium options, and driving buzz through innovation. These aren't separate playbooks. They're the same priorities executed through the distinct platforms and personalities of each brand. While we expect the macro environment to remain dynamic throughout the rest of the year, we enter the second half in a stronger position than we were a year ago. Our operations are sharper, our value messaging is more consistent, and our brands are showing up as part of culture, not just reacting to it. Combined with our long-term growth initiatives, dual brands, a refreshed physical footprint, and our company-owned portfolio, and supported by our AcidLight model, we have a strong foundation to build on the momentum we're seeing across the brands and deliver growth for our franchisees and our shareholders.

And so with that, I'll share some updates across the portfolio, beginning with Applebee's. Applebee's comp sales performance this quarter reflects the nature of building momentum, a slower start to gain traction as the period progressed. This April, we were comping against one of the strongest 2 for 25 promotions, the Sizzlin' Skillets campaign, in the same period last year. As the quarter progressed, results improved sequentially, driven by All You Can Eat and Poolio with Don Julio campaigns. This is our barbell strategy and our marketing playbook in action. An accessible, value-driven All You Can Eat campaign anchored in affordability, paired with a culturally resonant, higher-priced indulgence that drove traffic and generated social buzz among the younger audience. Together, these campaigns lifted both food and beverage sales, with liquor comps up 10.5% during the promotional period.

That commitment to cultural relevance isn't limited to just marketing. It shapes how we innovate the menu, too. Our new loaded potato waves, a modern take on loaded potato skins that taps into the nostalgia trend, became our strongest appetizer launch since the pandemic. Looking ahead to Q3, we're seeing a solid performance for both both the Dollarita and the bacon cheeseburger wonton taco on the two for $25 platform, a combination that plays into the strength of our value platform and bar and beverage program. Off-premise sustained its positive momentum with comp sales of 1.5% and a fifth consecutive quarter of double-digit delivery comp sales growth, a meaningful signal of the underlying demand for the brand across different platforms. On the development front, the Lookin' Good remodel program continues to gain momentum. Sixty-six remodels have been completed year-to-date, with over 100 planned for 2026, putting us on pace for approximately one-third of the system to be remodeled by year-end.

These remodels continue to deliver a mid-single-digit sales lift. on average. Alongside the physical transformation, we've remained equally focused on the in-restaurant experience. Manager-guest interactions rose to 75% of dine-in guests in Q2, up from 2025 baseline of 68%, and that's showing up in our guest satisfaction scores, which continued to climb quarter over quarter. Our average Google rating increased to 4.4 out of 5 in q2 that's up from 4.1 a year ago and across a review base that grew more than 23% year-over-year higher ratings on a larger base of reviews is a strong indication that our operational and physical improvements are registering with guests overall we're encouraged by the brand's improved performance as the quarter progressed the continued strength of our off-premise platform and attraction of our operational agenda heading into the second half of the year And now IHOP. For the third consecutive quarter, IHOP outperformed BlackBox industry benchmarks for sales and traffic, specifically beating traffic by mid-single digits. Comp sales grew 1.5 percent, driven by a new value-focused advertising campaign that brought guests in and deliberate check-driving initiatives that kept average ticket moving in the right direction. Q2 was a clear expression of IHOP's barbell strategy, everyday value driving frequency on one end, premium offerings driving check at the other.

In April, we expanded our $6 value menu with the BLTAF, bacon, lettuce, tomato, and fries, responding to our guest demands for complete meals across day parts. Beyond value, our menu continues to balance approachable everyday options with premium offerings, including the promotion of IHOP's signature stuffed and stacked omelets and culturally relevant LTOs. Most recently, we responded to overwhelming fan enthusiasm by bringing back Dubai chocolate pancakes as a national LTO, following a wide-ranging demand for them. widely popular limited release the year prior. In just the first few weeks, it's already over-indexing in sales versus forecast, and we'll have more to share in Q3. IHOP also saw consistent growth in off-premise, delivering its fifth consecutive quarter of positive off-premise comp sales with a 3.5% lift in Q2. Our catering business was a particular standout. Comp sales accelerated 22% in Q2, up from 16% in Q1, reflecting growing demand across the board. across occasions beyond the restaurant.

Operationally, our progress is tangible. Table terms at IHOP improved by four minutes compared to the end of last year, a meaningful throughput gain. And guests are responding. IHOP's average Google rating rose to 4.0 out of 5 in Q2, up from 3.9 a year ago, while its grew by more than fourfold over the same period, reflecting broader guest engagement and consistent in-restaurant experience. IHOP has now outperformed black box benchmarks on both sales and traffic for three consecutive quarters. An early Q3 trend suggests that momentum is continuing. The strategy is working, and the operational foundation behind it is still in place. is stronger than it was a year ago. And Fuzzy's delivered positive comp sales for the second consecutive quarter, outperforming its black box competitive set. The results reflected our sustained effort to strengthen that business by improving technology, streamlining the menu, and enhancing the in-restaurant experience.

Off-premise remains a meaningful and consistent contributor to the brand's quarter-over-quarter improvement. improvement, and we're encouraged by Fuzzy's performance in the first half of the year and remain focused on sustaining and building on this momentum going forward. Now I'll turn to our dual brand initiative. The platform continued its steady expansion in Q2. As a reminder, our target's open 80 dual brands by year end, and as of today, we have 45 domestic dual brand locations open, including seven company owned, with 12 additional locations under construction. With each new opening, we refine our pre-opening process, reduce construction timelines, and sharpen our operational playbook, resulting in a faster path to steady-state performance. The concept is also continuing to reach new markets. In June, we opened our first dual brand in Los Angeles, one of the most competitive restaurant markets in the country.

Opened by an existing franchisee who knows our brands well, the location is already performing at high sales levels, a strong proof point that the concept can win in new markets and that experienced operators are continuing to lean in. We're pleased that franchisee interest in the dual brand program remains strong and our pipeline continues to grow. We see increased engagement from franchisees who are incorporating dual brand conversions into their long-term development plans as a growth vehicle, given the compelling economics versus the prior standalone unit. And taken together, dual brands... and investing in the physical restaurant experience matter, and the early results validate that conviction. Before I turn it over to Vance, I'll reiterate that we're seeing steady performance across our brands, which gives us continued confidence that our near-term priorities are setting us up for long-term growth and value creation.

All right. Thanks, John. On the top line, our total revenues increased 4.4% to $240.9 million in Q2 versus $230.8 million in the prior year. And it's really driven by an increase in the number and timing of when we acquired restaurants from franchisees. So if we take out advertising revenues, franchise revenues in Q2 decreased 6% due to decrease in the number of franchise restaurants, primarily from our restaurant take backs and a decrease in franchise termination fees. Rental segment revenues for the second quarter of 2026 decreased to $26.7 million versus $27.8 million in the prior year period, primarily due to lease terminations. G&A expenses were $55.6 million in Q2 of 2026, up from $50.8 million in the prior year period. in the same period of last year from higher employee-related costs associated with the expansion of company-owned restaurants and dual-brand operations, increased severance charges, and higher transaction expenses from the acquisition of 48 Applebee's restaurants in June of 2026. Adjusted EBITDA for Q2 of 2026 decreased to $54.2 million from $56.2 million in Q2 of 2025. Adjusted diluted EPS for the second quarter of 2026 was $1.16 compared to adjusted diluted EPS of $1.17 for the second quarter of 2025.

Now turning to the statement of cash flows. We had adjusted free cash flow of $3.7 million for the first six months of 2026, compared to $48.7 million for the same period of last year. The decrease was primarily driven by higher capital expenditures, timing of marketing spend, and higher payments related to performance-based compensation and interest expense. Additionally, we continue to provide remodel and development incentives to our franchisees, which also had a negative impact on adjusted free cash flow for the period. The capex through Q2 of 2026 was $23.2 million, compared to $9.3 million for the same period of 2025. The increase is primarily due to our investments in company-owned restaurant remodels and dual-brand conversions. We finished the second quarter with total unrestricted cash of $97.5 million compared to unrestricted cash of $104.2 million at the end of the first quarter.

On buybacks and dividends, we returned $9 million of capital to shareholders in Q2, including $7 million of share repurchases and $2 million of dividends. Year-to-date, we repurchased $29 million of shares, which was approximately 7% of our total shares outstanding at the beginning of the year. We made the board-authorized and additional share repurchase program of up to $100 million. We continue to believe our shares are undervalued and remain committed to share repurchases. Next, let me discuss Applebee's performance. Q2 domestic same restaurant sales decreased 1.8% year over year. Domestic average weekly franchise sales per restaurant were $57.7 thousand, including approximately $13.2 thousand from off-premise, or 22.8 percent of total sales, of which 10.9 percent is from to-go and 11.8 percent is from delivery.

Off-premise saw a positive 1.5% lift in comp sales in 2026 compared to the same period of last year. IHOP's Q2 domestic same-restaurant sales increased 1.5%. Domestic average weekly franchise sales per restaurant were $39,700, including $8,000 from off-premise, or 20.2%. of total sales, of which 7.6% is from to-go and 12.6% is from delivery. Our premise saw a positive 3.5% live-income sales in 2026, compared to the same period of last year. Now turning to commodities. Applebee's commodity cost in Q2 increased by 8.2% and IHOP commodity cost increased by 1.6% versus the prior year. Our co-op supplier, CSCS, continues to expect commodity costs in 2026 at mid-single digits for Applebee's and low single digits for IHOP. The primary driver for both brands' commodity costs is higher beef prices, including the lapping of favorable beef contracts at Applebee's last year.

To date, in 2026, we implemented projects resulting in over $12 million of annualized savings across both systems, and we continue to partner with CSCS to leverage our scale. Lastly, our company-owned portfolio remains instrumental in strengthening brand performance and supporting the overall health of our system, and our goal is to ultimately re-franchise these locations at the right time. At the end of Q2, we own 136 restaurants, which includes seven dual-branded restaurants, totally about 4% of our system. During the quarter, we completed 10 remodels and 3 dual-brand conversions, bringing our total to 30 remodels and 7 dual-brand conversions since taking back these restaurants. Although closures for construction impacted the profitability of our company-owned portfolio, we're making progress. Our dual-brand conversions are averaging approximately two times single-brand sales levels. While we're operating more company-owned restaurants than a year ago, we are actively looking at refranchising some of the restaurants in the portfolio and continue to remain a highly franchised business model.

Before turning the call back over to John for Q&A, I'd like to add that we're maintaining our full year of financial guidance at this time.

With that, I'll hand it back over to John. Thank you all for your time today, and we look forward to taking your questions. Operator, I'll turn it back to you for instructions on how to access the queue.

Thank you. At this time we will conduct a question and answer session. As a reminder, to ask a question, you may need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, press star 1 again. We also ask that you limit yourself to one question and one follow up. Please stand by while we compile the questions. the Q&A roster. Our first question of the day will be coming from the line of Nick St. Jan of Michoosu. Please go ahead.

Hi, thanks for the question. One just kind of bigger picture, it seems like the casual dining category overall has seen a big acceleration through June and here into the Q3 to date. period. I know you guys talked about some solid trends both in June and into Q3. Just given the magnitude of the acceleration of some of your peers, any chance that you would be willing to give us a little bit more color on what kind of trends you're seeing?.

Good morning, Nick. It's John. What we can say about Q3 and obviously July specifically is that we also see the positive trends that are there. I can comment on the the work we've done. So you've already seen in Q3 that Applebee's, for example, launched the cheeseburger wonton taco as part of the two for 25 menu. That's part of our strategy to make sure there's a new menu item each quarter on two for 25. And we also had dollar Rita in July. And so you can point to those launches as programs that drove performance in the third quarter. For IHOP, they launched Dubai chocolate pancakes in the beginning of the third quarter, and that too is performing better than expectations.

So while we can't quantify the quarter so far, we can tell you that we like what we're seeing and we can point to great menu innovation that's driving it.

it. Okay. And on the dual brand conversions, which obviously is a big part of the thesis going forward, I think you guys said two times the sales levels of the... the single branded, you know, the single brands. Is that a level you're comfortable with? Does that imply higher profitability? What are the franchisees seeing? Any color there would be helpful as well.

Yes, Nick, it's John. I can take that as well. So for the dual brand program, we're pleased overall with where we are. Keep in mind that the first dual brand opened about a year and a half ago. And a year and a half later, we've got the 45 open on our way to 80 this year. That's number one. Number two is, yes, the revenue The incremental revenue from adding the second brand is about 2x, and we're pleased with that. We're also pleased with the stabilizing cost of the conversion, which is about a million dollars, plus or minus, depending on which brand you are leading with. And then we're pleased with the pipeline that we're developing for next year as well.

The focus that we have right now is on the operations of the restaurant. So now that we've got 45 open, we can go back in, challenge our assumptions, and we're looking at the cost model. We're looking at the menu mix. We're looking at the way in which... We've designed the menu, et cetera, to improve the profitability. But the profitability, yes, is intended to be incremental on that incremental portion of the revenue.

Thank you. One moment for the next question. And our next question is coming from the line of Todd Brooks of Benchmark StoneX. Please go ahead.

Hey, thanks for taking my questions. First one, on the corporate store portfolio, I was wondering if we could look at that by maybe time that you've owned it back in the portfolio to understand Okay, whatever you want to call the first cohort of reacquired stores. Have they achieved profitability? If you look at that group, have you had enough time on task to improve? Just trying to get a sense for when we should see profitability for owned units improve. And especially, I think, Vance, you talked about maybe some more focus on refranchise. I'm imagining that some of the acquired base has improved nicely and is maybe ready to attack that effort.

Yes, thanks, Todd. Vance will take that question. Hey, Todd. Good to hear from you. The company restaurants were on track to this sort of three-year timeline that we provided to investors. A reminder that we took these restaurants back at little or no cost to dine in terms of purchase price. And the ultimate goal is just to remodel, to reinvest. and re-franchise them back to the system over time. So we're seeing progress with operation improvements, with guest, gets feedback and then by and large we're done with the bulk of the construction work for this year. So we're tracking well, encouraged by it.

And then I think Todd, you mentioned this yourself, which is we're already getting interest from franchisees to re-franchise. And so we're going to consider the inbound interest on a case-by-case basis and we're going to make the right decision for the franchisees and for for our guests.

Okay, great. Good to hear. And then I was wondering, I know you said guidance is unchanged, But we did have a kind of a G&A pop in Q2 relative to, I think, taking back the Applebee's units late in the quarter. I'm just wondering if If there's anything we need to think about kind of shape of the G&A guidance relative to the full year, any nuances that we should be building into our models? Thanks, Lance. Yes, of course. You know, Todd, we're on track to maintaining our guidance, maybe towards the lower end of the guidance, but we're definitely within that range. And let me sort of...

break it down in different components. So starting with EBITDA, right? And there are really two components to this. There's the franchise business and there's the company restaurant piece. On the franchise side, we have very steady base franchise business and we're, as John mentioned earlier, we're very encouraged by what we saw in the second half of Q2 and early Q3. the noise in our EBITDA is really from the turnaround effort of the company restaurant portfolio. We do expect that to moderate, you know, as the portfolio stabilizes and benefiting from, you know, the investment that we've made so far. And, you know, on the GNA front, right, there are actually, what we reported reflects some one-time expenses, such as we had some severance costs, we had transaction expenses related to the acquisition of the restaurants. So that's not going to be recurring.

And then on the CapEx front, most of the CapEx, as I mentioned, is tied to remodels and dual-payment conversions at our company portfolio which we do expect to ease as the program advances and that's how we got to the decision to maintain our our guidance level.

Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone. One moment for the next question. Our next question is coming from the line of Brian Vaccaro of Raymond James. Please go ahead.

Hi, thanks and good morning. To just ask about the sort of comp components that we're seeing, and just confirm that I heard correctly. So at IHOP, I believe you said you outperformed on traffic by mid-single digits. I just wanted to confirm that that would mean traffic was around flat in the quarter. And could you round out sort of the price or check dynamics you're seeing at each brand, both IHOP and Applebee's? Maybe we could start there.

Thanks, Brian. Vance will address the comps for both brands. Hey, Brian. Good to hear from you. So Applebee's menu pricing bump was 3.4%, and IHOP was 3.5%. check a little bit both sequentially and also year over year. IHOP's traffic was pretty close to flat, slightly down, and Applebee's traffic was down.

gives you the breakdown. Okay, that is super helpful. And then I guess kind of following up on Todd's question, just on the guidance, can you help us frame, I know there's a lot of noise related to the company-owned units, and it looks like in the adjusted earnings or an adjusted EBITDA, maybe there were some add-backs of some items related to company-owned stores like pre-opening costs, et cetera. But, so there's a lot of moving pieces, but I guess, is there a way, as we just look at your P&L as you'll report it, can you help us with a ballpark range of the company-owned products portfolio EBIT loss you expect to see this year? Sort of, you know, just staring at the main P&L, the EBIT loss on company-owned, just a ballpark range on that. And is there a way to frame the G&A impact from the company ownership as well? Thank you.

Of course. Vance, you're up again. Sounds good. Brian, so the best place to study the company restaurant performance is in footnote 13 when we have the second reporting, you can see three months, six months, this year, last year. And then, and, you know, what we said before was we were targeting as close to a break even EBITDA level as we can get for the company restaurant portfolio. And that's reflective of GNA, both direct GNA and corporate allocation GNA. And so I think about GNA as the rule of thumb is sort of 6 to 7% of our restaurant, company restaurant top line. percent of sales is sort of the rough guide in terms of how much incremental GMA is added for the incremental portfolio that we add. So that gives you a sense of how you can model it going forward. Brian, we also talked about just on a run rate, once the portfolio we're tracking probably in the low twos right now in terms of AUV.

System average is closer to three. So we want to bridge that gap as much as we can. And then the flow through the incremental sales we can gain is going to be beneficial to the four wall of the portfolio.

restaurants. Thank you. And we have another question in the queue. One moment, please. And that question will be coming from the line of Emily Lee of UBS. Please go ahead.

Hi, good morning. Thanks for the question. I just want to touch on value. You mentioned the All You Can Eat campaign at Applebee's and expanding the value menu at IHOP. I just wanted to share more about how these initiatives resonated among customers, if there was any impact to the mix, and if there's anything in the barbell playbook moving forward that you're excited about.

Thanks, Emily. It's John. I'll start with Applebee's, and then Lawrence can give you some details for IHOP. At Applebee's, that's exactly right. The value focus has been consistent for us since last year, and consistency is super important so that we can break through in the messaging and ensure that our guests and consumers in general are aware aware of the two for 25 platform. And as I mentioned, we keep it fresh with new items. And so in Q2, it's a great example of us doing just that. So we had All You Can Eat, which was a big driver of our performance in the latter part of Q2. That was one end of the barbell. And then at the same time, we also We also offered the new loaded potato waves, and we introduced the sesame salmon bowl and lemon parm chicken, which were more full-price, high-margin items.

And as far as moving forward, that's exactly what our strategy will be for the back half of the year, because our assessment is that our guest remains focused on really good value, which is, we've always talked is more than just the price of the food, it's the quality of the food, it's the abundance, it's the service. And we'll continue to have appealing items at both ends of the barbell that are new and fresh for the rest of the year.

Lawrence, how about IHOP? Yes, absolutely. Hi, Emily. For IHOP, value definitely continues to be our priority, especially the everyday value menu at $6, which we just updated this past April, as John mentioned earlier in the call, and introduced the BLT and Frize to the $6 value lineup. The great part is, that value continues to stay steady at around low 20% of total checks, which has been consistent this past year, especially as we even converted to a six dollar everyday value menu. And similar to Applebee's with our barbell strategy, we balance value with premium offerings as well as product innovation. We have these stuffed and stacked omelets, part of our core menu, breakfast combos, of course our signature coffees, and our LTOs, like our Dubai chocolate pancakes, which we just launched nationally this past June. And so we're going to continue, similar to Applebee's, to have a strong innovation pipeline to complement value so that we maintain our steady value mix while also protecting check. Great, thank you.

Thank you. If you would like to ask a question, please press Star 1 on your telephone. I'm not showing any further questions in the queue. I would now like to turn the call back over to John Payton, Dime Brands CEO. Please go ahead for closing remarks.

Thanks, Lisa, and thanks, everybody, for your questions. We wrapped up on value there. Certainly an important driver for both brands as we go to the second part of the year. But I also want to emphasize we continue to invest in the long term. We're investing in the guest experience through menu innovation in partnership with our franchisees. We're renovating restaurants, and we continue to expand the dual blend platform. So we're very invested in both our short-term performance and our long-term growth.

And we thank you all for your questions today. Have a great day.

Thank you for your participation in today's conference. This concludes the program. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Good day, and thank you for standing by. Welcome to the Dine Brands First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your host, Matt Lee, Senior Vice President, Finance and Investor Relations. Please go ahead, sir.

Good morning, and welcome to Dine Brands Global's First Quarter Fiscal 2026 Conference Call. This morning's call will include prepared remarks from John Peyton, CEO and President of Applebee's; and Vance Chang, CFO. Following those prepared remarks, Lawrence Kim, President of IHOP will also be available along with John and Vance to address questions during the Q&A portion of the call.

Please remember our safe harbor regarding forward-looking information. During the call, management will discuss information that is forward-looking and involves known and unknown risks, uncertainties and other factors, which may cause the actual results to be different than those expressed or implied. Please evaluate the forward-looking information in the context of these factors, which are detailed in today's press release and 10-Q filing. The forward-looking statements are as of today, and we assume no obligation to update or supplement these statements. We will refer to certain non-GAAP financial measures, which are described in our press release and available on Dine Brands' Investor Relations website.

With that, it is my pleasure to turn the call over to Dine Brands CEO, John Peyton.

Good morning, everyone, and thanks for joining us. Today, I'll walk through Dine's Q1 results and share insights on consumer behavior as well as our brand's performance in the current environment, and then I'll hand it over to Vance for a deeper dive into our financials. .

We started the year building upon the momentum from last quarter, achieving flat to positive sales growth across all 3 brands for the first time in several years. This performance reflects progress against our key priorities, which include enhancing the guest experience through operational improvements, strengthening and simplifying our marketing to better connect with guests, particularly through more targeted, culturally relevant engagement and advancing menu innovation and everyday value platforms to meet evolving consumer needs.

As the quarter progressed, the operating environment became more dynamic and in many ways, more challenging as inflation for food away from home and higher gas prices put a strain on households. With consumer sentiment declining to historically low levels, discretionary spending has become harder to justify, prompting some guests to more carefully evaluate lower-cost alternatives across restaurants, grocery and other food channels. we're seeing the most pressure on lower-income consumers. And as a result, this is driving greater focus on offerings that combine compelling price points with quality abundance and differentiated experiences like Applebee's 2 for 25 platform and IHOP's Everyday Value menu.

Against this backdrop, the importance of our strategy and the relevance of our brands becomes even more central to our performance. We operate scaled, well-recognized brands built around value and everyday occasions and offering experiences that can't be easily replicated at home delivered at an accessible price point. This remains a strength of our business even within a more challenging landscape.

And while we recognize there's more work to do to strengthen our financial performance this year, we are pleased with our first quarter sales performance and believe our focus on value cultural relevance and disciplined execution positions us well to compete and deliver sustainable results.

So I'll turn now to our key financial highlights for the quarter. All of our brands outperformed Black Box on comp sales. Applebee's reported a 1.9% increase in comp sales and IHOP posted flat comps despite weather impacting Applebee's by 94 basis points and IHOP by 80 basis points in the quarter. Our EBITDA was $50.8 million compared to $54.7 million in the same quarter last year. Our decreased profitability reflects our investments in our dual brands and company-owned portfolio initiatives, and we expect these current investments to create value over the long term. And last, we returned $24 million of capital back to shareholders. Overall, our results reflect the balance between continued investment in the business and solid top line performance across the portfolio.

And now with that, I'll share some updates across our portfolio, starting with Applebee's. Building on our sales momentum from 2025, Applebee's posted positive comp sales in the first quarter, outperforming Black Box. The continued focus of our 2 for $25 value platform and new menu innovation serves as our primary sales drivers as these initiatives continue to resonate with our guests.

Our strategy this quarter remained consistent communicating new menu innovation through the high-impact targeted marketing and maintaining strong execution in the restaurants. Rather than relying on broad-based campaigns, we're leaning into our 2 for $25 value platform and demand-led activations tied to cultural moments allowing us to connect more efficiently and compete more effectively for share of wallet.

The OM cheeseburger launch is an example of our value strategy in action. Since its introduction in January, the burger has driven high interest and engagement, supported by its compelling $11.99 price point and inclusion on our 2 for $25 value platform. In just a few months, it became the highest ordered burger on that platform, reinforcing Applebee's everyday value positioning. Because OM Cheeseburger launched in time for Valentine's Day, we further pushed our T4 platform to deliver an affordable yet experiential date night occasion. The OM Cheeseburger news generated more than 9 billion impressions, reached 96 million people on social media and spark nearly 80x more organic reviews typical campaigns.

By providing guests with incredible value during this seasonal moment, it drove the highest single-day sales volume in Applebee's history with the full week ranking among the top 5 sales weeks ever. Across digital channels, off-premise comp sales increased approximately 3.5% in the quarter, supported by third-party delivery and target promotions tied to key occasions like the Super Bowl and the NCAA basketball tournament. From an operations standpoint, our strategy is centered around driving excellence through simplicity, focus and accountability.

We are implementing initiatives that simplify kitchen operations increased manager presence in the dining room and improve off-premise order accuracy. In fact, during the quarter, manager visibility contributed to higher guest satisfaction scores has reflected in improved guest surveys and Google review scores. As part of these efforts, we're also preparing for a system-wide launch of a new toast point-of-sale platform. We expect this to meaningfully increase beverage order incidences, reduce voids and increase tips while providing better data and tools for our teams. Collectively, these efforts position us to operate more efficiently and support long-term growth.

And while April sales have softened against tougher prior year comps our focus on value, targeted marketing and operational discipline will support our performance in a dynamic environment.

And now turning to IHOP. For the second consecutive quarter, IHOP outperformed Black Box in both sales and traffic and that's in a category where traffic remains under pressure. This reflects the brand's focus on great value, product innovation, culture-driven marketing and an improved guest experience, all of which are helping to build momentum. Comp sales were primarily supported by check improvement as we balanced IHOP's everyday value menu with increased awareness of premium offerings. Breakfast combos tied to our bottomless pancakes campaign performed well alongside limited time offerings, including this quarter's featured spotlight stack, New York Cheesecake Pancakes.

This approach continues in Q2 with the promotion of IHOP Signature stuffed and stacked omelettes, including the new bold barbecue pulled pork omelette and the launch of a new proprietary coffee blend, the first new coffee introduced at IHOP in almost 20 years. IHOP continued to see momentum in off-premise with comp sales increasing 2.6% year-over-year largely driven by incremental third-party delivery volume. Beyond driving comp sales, third-party channels enhance brand visibility and enable engagement with guests across multiple channels. Off-premise represents 22% of sales with continued opportunity across delivery, digital ordering and emerging areas like catering.

And while early, we're already seeing an approximately 16% improvement in comp sales and catering and we've made targeted investments over the past year in digital ordering, packaging and local store marketing to further support the catering channel. IHOP's differentiated breakfast offering translates well to group occasions, and we're seeing meaningful upside on this channel as it continues to scale. Beyond expanding how guests access the brand, we're also focused on how to connect with them. We're showing up in culturally relevant moments that have resulted in incredible buzz for IHOP, allowing us to engage with new fans and consumers Initiatives like National Pancake Day and the Bottomless Pancake campaign with NFS [indiscernible] neighbors have been successful in driving engagement and keeping the brand top of mind with guests.

During National Pancake Day, we saw a 316% year-over-year increase in engagement across social channels, demonstrating the effectiveness of our investments to reach a broader audience. Underpinning all of this is a relentless focus on operational excellence and the guest experience. Speed is progressively improving with table turns that are approximately 6% faster than they were in Q4. We guest complaints are down year-over-year, reflecting strong execution and consistency across the system, while investments in our new POS and handholds continue to enhance order accuracy and efficiency in our restaurants.

Overall, IHOP continues to deliver steady performance in a challenging environment with April sales holding steady behind our value menu and barbell strategy with premium offerings.

And now to discuss Fuzzy's, the momentum from our Q4 promotions carried into Q1, and contributing to Fuzzy's posting positive comp sales for the first time in 3 years and enabling brand to outperform its competitors in sales every month in Q1. This progress is a result of the hard work we've done to strengthen the business with a focus on improving technology, streamlining the menu and enhancing the in-restaurant experience. We're encouraged by Fuzzy's performance this quarter and remain focused on sustaining and building on this progress.

And now for dual brands. It's been 1 year since we opened our first domestic dual brand in Seguin, Texas and our confidence in the platform continues to grow. Across the system, most of these restaurants are generating about 1.5 to 2.5x the sales of the original stand-alone restaurant while maintaining a healthy check balance across both brands. The Sagen restaurant is still delivering roughly 2x its preconversion sales levels. Today, we've got 43 dual-brand restaurants open with 13 additional locations under construction, and we remain on track to have approximately 80 open domestically by year-end.

Interest in our dual brands remain strong among existing and new franchisees. In fact, we now have 10 different operators that have opened a dual-brand restaurant. And of these, 2 are new franchisees to the Dine system. The dual remodel provides a flexible path to unlock additional value across our existing footprint. It allows franchisees to reposition lower-performing restaurants, including those that may have otherwise reached the natural end of their life cycle while also enhancing performance at higher sales restaurants. In fact, a long-standing Applebee's franchisee opened its first dual brand in Hawthorne New York just a month ago.

The successful conversion of a high sales single-brand restaurant validate the dual brand model is adaptable and scalable across a range of sales profiles. The unit was already a strong performing restaurant. And since converting and reopening in March, it has delivered an approximately 1.8x sales lift.

During the last few months, we've learned more about these restaurants from a guest perspective, A few highlights include the guests are excited to have the option to choose between 2 complementary iconic brands, 62% of our dine-in tickets contain at least 1 item from each brand. Guests who do purchase from both brands are spending on average 24% more than those who purchased from just 1 brand, leading to an overall higher check average at the dual-brand restaurants. And lastly, sales remain balanced across all day parts, proving our thesis about the complementary nature of these brands.

We also made operational improvements, including updating our online ordering flow to make the experience more seamless for guests which has driven an increase in average off-premise check and improving efficiencies in back of pass operations such as kitchen design. We continue to improve our preopening training at restaurants and are seeing newer restaurants achieve faster table turn times. Taken together, these results reinforce our confidence in dual brands as a big idea and a compelling growth vehicle, driving strong unit economics and continued franchisee demand.

Now turning to our broader development initiatives. We maintained momentum this quarter in new restaurant openings, opening 24, up from 10 at this time last year. We remain on track to meet our full year domestic development guidance. Development remains a key priority for long-term growth, driven by our dual-brand formats, the Applebee's looking good remodel program and targeted investments in our company-owned portfolio. In addition to new unit growth, we're also seeing meaningful opportunity within our existing footprint through relocations and real estate optimization. Two recent new restaurant openings are relocations within their existing markets. And while early, in both cases, sales increased over 50% compared to the prior location, highlighting both the continued relevance of the brand and the importance of site selection in unlocking incremental growth.

We made progress on the Applebee's Looking Good Remodel program, completing 11 remodels this quarter. This program has consistent engagement among franchisees and early results remain encouraging with, on average, a mid-single-digit percent sales lift, and we expect about 1/3 of the system to be remodeled by year-end. At IHOP, we're beginning a 3-year renovation cycle with a fresh modern design called California heritage. It's a light, bright and joy field design that brings a warm, welcoming field to the restaurant while staying unmistakably IHOP.

So before turning the call over to Vance, I do want to note that while we expect to see some near-term headwinds, we remain focused on executing against our priorities and positioning the business to drive sustainable long-term growth in this challenging environment.

And now I'll turn the call over to Vance.

Thanks, John. On top line, consolidated total revenues increased 4.8% to $225.2 million in Q1 versus $21.8 million in the prior year and is primarily driven by the acquisition of company-owned restaurants since Q1 of 2025. And if we take out advertising revenues, franchise revenues in Q1 decreased 2.1%, primarily due to a decrease in proprietary product sales and performance of our international franchisees. Increases in comp sales for the quarter were offset by closures. Rental segment revenues for the first quarter of 2026 were consistent with the prior year period.

G&A expenses were $53.1 million in Q1 of 2026 and up from $51.3 million in the same period of last year due to annualization of last year's investments in training, development and operations to support our remodeling to our brand initiatives and our larger company restaurant portfolio.

Adjusted EBITDA for Q1 of 2026 decreased to $50.8 million from $54.7 million in Q1 of 2025, primarily driven by the following factors: First, IHOP's proprietary product sales decreased due to sales timing to our distribution partners; and second, we have more company restaurants and dual brand restaurant openings than last year that resulted in higher G&A and preopening support costs. In addition, EBITDA was impacted by restaurants taking back since the prior year quarter, which are still in turnaround stage and not yet at steady state. I'll touch further the progress we have seen in our company restaurants, particularly around the dual brand conversions in a moment.

Adjusted diluted EPS for the first quarter of 2026 was $1.07 compared to adjusted diluted EPS of $1.03 for the first quarter of 2025.

Now turning to the statement of cash flows. We had adjusted free cash flow of negative $3 million for the first 3 months of 2026 compared to $14.6 million for the same period of last year, primarily driven by higher CapEx for company restaurants and year-over-year impact of performance plan compensation payments. CapEx through Q1 of 2026 was $12.1 million compared to $3.3 million for the same period of 2025. Nearly 2/3 of the CapEx year-to-date is tied to remodels and dual brand conversions of company-owned restaurants. Our lower adjusted free cash flow and increased CapEx this quarter is timing as we expect to end the year with CapEx being in the range that we previously provided.

We finished the first quarter with total unrestricted cash of $104.2 million compared to unrestricted cash of $128.2 million at the end of the fourth quarter last year. On buybacks and dividends, we returned $24 million of capital to shareholders in Q1, including $22 million of share repurchases, which was approximately 5% of our shares outstanding at the beginning of the year. Our total shares repurchases during Q4 and Q1 were $52 million, which is above what we had committed to on our Q3 2025 call. We continue to believe our shares are undervalued and remain committed to share repurchases.

Next, let me discuss Applebee's performance. Q1 same-restaurant sales increased 1.9% year-over-year. Domestic average weekly franchise sales per restaurant were $56,300, including approximately $13,500 from off-premise or 23.9% of total sales, of which 11.9% is from to go and 12.1% is from delivery. Off-premise saw a positive 3.5% lift in comp sales in 2026 compared to the same period last year.

IHOP's Q1 same-restaurant sales were flat. Domestic average weekly franchise sales per restaurant were $38,300 including $8,300 from off-premise or 21.5% of total sales, of which 7.5% is from to go and 14% is from delivery.

All right. Turning to commodities. Applebee's commodity costs in Q1 increased by 6.3% and IHOP commodity costs increased by 3% versus the prior year. Our supply chain co-op CSCS continues to expect commodity costs in 2026 at mid-single digits for Applebee's and low single digits for IHOP. The primary driver for both brands commodity cost is higher beef prices, including the lapping of favorable contracts at Applebee's. To date, in 2026, we implemented projects resulting in over $4 million of annualized savings across both systems, and we continue to partner with CSCS to leverage our scale.

Lastly, our company-owned portfolio remains instrumental in strengthening brand performance and supporting the overall health of our system. And our goal is to ultimately refranchise the locations at the right time. At the end of Q1, we operated 86 company-owned restaurants, totaling about 2% of our system, which is in line with our asset-light model. And this includes 12 Applebee's restaurants that we opportunistically took back in February of this year in the Virginia area with the potential to complete approximately 5 dual brand conversions out of this portfolio.

As it's been reported, 1 of our franchisees' neighborhood restaurant partners filed for bankruptcy protection and as part of its proposed plan, they're selling approximately 53 restaurants. Dine is stepping in as a stocking horse bidder because we believe that securing these restaurants gives us direct operational insight and allows us to invest in the units through our development initiatives. Although closures for construction impacted profitability of our company-owned portfolio, we're making progress.

In Q1, comp sales outperformed system with close to a mid-single-digit comp sales improvement year-over-year. And during the quarter, completed 6 remodels and 2 dual brand conversions, bringing our total to 20 remodels and 4 dual brand conversions since taking back these restaurants. By the end of 2026, we expect to have completed or under construction over 30 remodels and 8 plus dual brands. While early, we're seeing success at our 4 company dual-brand restaurants with sales lift of approximately 2.5x, which further supports our confidence in our dual brand strategy.

Before turning the call back over to John for Q&A, I'd like to add that we are maintaining our full year financial guidance at this time.

With that, I will hand it back over to John.

Thank you, Vance. To wrap up, we're pleased with the start to the year and are confident that our strategy will enable us to navigate near-term headwinds. We remain focused on deplaned execution, supporting our franchisees and investing in initiatives that position us for sustainable long-term growth. Thank you so much for your time today. We look forward to your questions.

And now operator, I'll turn it back to you for instructions on how to access our queue.

[Operator Instructions] And our first question for today comes from the line of Jeffrey Bernstein from Barclays.

Great. My first question is just on the comp trends more recently. John, I think you mentioned that the Applebee's comps slowed, but you referenced perhaps it was due to a tougher compare. So I'm just wondering how you think about that maybe on more of a relevant 2-year basis kind of what the underlying trend is you did talk about, I guess, the lower income, which is the focus for your brand, perhaps a little bit more vulnerable. So just wondering if you could talk a little bit about that and maybe whether the spike in gas prices you think had an outsized hit or maybe what you've seen in the past in such instances. And then I had 1 follow-up. .

Jeff, it's John. That's exactly the answer. Our value conscious guests, our price-sensitive guest is very sensitive to increases in gas prices and the basics and the cost of living. There's a lot of statistical data broadly and within our company that demonstrates that. And that's exactly what we think we saw happening in April. We're encouraged by even today's news, where it seems to be lessening a little bit.

But more broadly, that just reinforces our strategy around making sure that we have the right value message at Applebee's for those guests that are price sensitive. We continue to lean into the 2 for $25 message strengthened by new and exciting news last quarter was OM Cheeseburger, and then we'll have something new in this quarter as well.

Got it. And my follow-up is just on the asset base. one, just the dual brands, I think you confirmed 80 in the U.S. by year-end. Just wondering where you think that could go over time. seemingly, you're picking some markets where you think it will work best, but clearly, that is a very strong sales lift you're seeing. So will the dual brand mix could go over time? And just more broadly, that franchisee since they're the ones driving it. presumably how their engagement has been of late, whether they seem to be more open to the idea, whether just opening more Applebee's on their own or opening more of the dual brands in future years?

Yes. So we've done work where we've looked at and modeled the opportunities across the country. And we've concluded based upon our analysis and that analysis includes I think what you would expect, right? We look at the size of the market, we look at the demographics, we look at the competition. We look at the traffic in and out of the market during the day, et cetera. And we've identified 900 opportunities in the U.S. to open a dual brand restaurant or convert an existing restaurant to a dual that would have minimal to no impact on an existing restaurant. And of those 900 restaurants, Jeff, 450 would be newbuilds and 450 would be adding a second brand to an existing restaurant, and we think that, that's achievable over the next 8 to 10 years.

In terms of franchisee enthusiasm, it's actually growing. So our pipeline is strengthening. We are very confident in the 8 that we've talked about for this year, and we're building a pipeline that goes into 2027 and beyond. We are -- that pipeline includes franchisees that are going to be new to the dual brand system and is becoming equally balanced between existing Applebee's and existing IHOP franchisees.

And our next question comes from the line of Nick Setyan from Mizuho.

The guidance -- I guess, the EBITDA guidance, can you just update us on approximately how much in terms of investment in company-owned stores is embedded in that guidance?

Yes, Nick, Vance will take that question.

Nick. So with company -- specifically, right, we said we're keeping the guidance and Q1 EBITDA was a little bit softer, but we're maintaining guidance for really 2 reasons, right? So we have the franchise business, and we have a company restaurants, as you said. Overall, the franchise business is steady, right? Even though it's a complicated operating environment, we believe our formula of value targeted marketing and the operational execution will improve the sales trends in the coming quarter. and company restaurants will continue to improve. It's going to -- it's not going to be a straight line, but we have more work to do in terms of construction and in-store execution, et cetera.

So the short-term EBITDA pressure should moderate over time as we start to leverage the investments we've made in our system. Now with company restaurants, one thing worth pointing out is that in Q1, we had 175 close base due to remodels and [indiscernible] conversions. Obviously, this is not going to happen for the rest of the quarter. We'll have less closure days for the rest of the year. So that's what's baked into our guidance.

And in terms of the alcohol licenses, et cetera, is that behind us? Or is that still an ongoing headwind?

That's mostly behind us at this point. So that's a tailwind for us.

Got it. And in terms of just the company-owned mix going up, you talked about sort of potential acquisition post the bankruptcy are we comfortable with the mix now? Or is that something that could continue to go up through the rest of the year and potential for 2027?

Nick, it's John. I'll take that question. The way we think about it are 2 parts I'd answer. The first is, we are certainly more amenable today than we were in years past to taking back restaurants or a portfolio of restaurants in order to strengthen them strengthen the system, prevent closures and then to refranchise them, which we think we can typically do in about 3 years after we acquire them. And so we will continue to do that when we think it's the right portfolio, and it's right for the brand and that we can use those restaurants to advance our initiatives like proving out the remodel, converting to duals, testing our program technology. .

What we've also said is that while our goal is not to get to 5% of company -- of the portfolio that's company-owned, I'm comfortable getting to 5% and still being asset-light and having all of the benefits of being ascilite. So that's about the threshold you should think about in terms of where I'm comfortable going, but that's not the goal to get there.

[Operator Instructions] Our next question comes from the line of Dennis Geiger from UBS.

I wanted to come back to the focus on quality and price points. I guess value in particular, you guys spoke to sort of having the right value message at Applebee's, the 2 for $25, something new coming this quarter as well. I guess the question is where that value mix was -- maybe for both brands in the quarter. And then just kind of on the go-forward again, is 2 for $25 plus something new? Is that kind of going to be the playbook over the balance of the year? Do you think you have to do even more there based on some of the consumer pressures that are out there that you're observing currently? Just any thoughts on that front, please?

Yes, Dennis. It's John. I'll start with Applebee's, and then Lawrence is going to address it for IHOP. In terms of the mix for the quarter, about 26% of our tickets had value items on it, which would either be 2 for $25 or an LTO. That number is down from about 1/3, which is what it's been for many, many quarters. And the reason there is because we had the Ultimate Trio as a national promotion in Q1, and we moved it out of the national price point to being priced individually by franchisees. So technically, we don't count it. .

But I would say in terms of the trend and even what we see in the Ultimate Trio sales, we still are running at about 1/3 of our tickets include some sort of value item, and that's been consistent now for 5, 6, 7 quarters.

When it comes to 2 for $25, yes, that is our primary message in terms of the way we're communicating value to entrees as an appetizer for $25 or $12.50 per person and the way we're keeping it fresh in addition to the consistent message throughout the year is by introducing a new item to it. In addition, we will have LTOs from time to time, including next quarter, also value-driven LTOs designed to drive traffic.

And the last thing I'll mention, which I think is interesting about the 2 for $25 program, Dennis, is that almost 62% of the items on 2 for $25 are the upsell. So it's not the entry-level $25. It's guests that are paying $2 or $3 more for Tier 2 or $2, $3 more for Tier 4. Remember the franchisees set those increments based upon their market. So it's doing what it's supposed to do. It's driving traffic with the 25 message and then 2/3 of the time, it's actually upselling beyond the $25.

And then -- and Lawrence, can you address the value question for IHOP?

Absolutely. Dennis, I was going. In regards to the value mix at IHOP, it has been around 20 -- for Q1, it's 22%. -- slightly higher than Q4, which is at around 20%, but it's remained fairly consistent. The uptick in Q1 was primarily due to a big promotion we had with bottomless pancakes. -- that John referred to earlier. And this promotion is part of our value mix, which our value mix consists of the everyday value menu at $6 in addition to other promotions like the bottomless pancake or the free package promotion that we have on National Pancake Day as well as our senior menu.

In terms of moving forward, we are staying consistent with the $6 value message. It resonates extremely well with our guests. Ever since we launched the $6 value message with House phase which is Monday through Friday and October 24 and then evolved it into the $6 everyday value menu in September 25. And even this past March, we evolve even further by adding a new item or VLT to expand the daypart propositions, we've outperformed Black Box and traffic every month in 2025 and continue to do so into 2026. And we're going to continue that momentum with that everyday value menu.

And similar to Applebee's, we are balancing that with innovation. Not only did we do the BOT adding to the $6 value menu. But with the barbell strategy, we've complemented that with new product introductions, whether it's our stuff and stack unlet new coffee introduction that we had this past March. I'll end there's obviously more to come.

Great. As a quick follow-up, you touched on it some, but we've heard from some of your peers a little bit about check management in recent months. And I know you just kind of touched on kind of the value mix there, so that could certainly someone answered the question, but anything beyond what you just touched on, on check management, thinking about appetizers, beverages, desserts and otherwise that you've observed over the last couple of months in particular? .

In regards to IHOP, and I'll turn that and John [indiscernible]. In to regards check management at IHOP, we have -- in 2025, we were laser-focused on driving value. And my primary messaging across the board was valued because at that time, we do not have a strong equity in the value landscape. And so we maintain that consistency. It's why we've seen our traffic growth, especially in Black Box every month in 2025. As we've gone into 2026, we've now complemented that because we've complemented our value messaging with the barbell strategy in driving our innovation leaders. It's why we see different messaging right now even within our social platforms, PR, et cetera, with that of innovation, whether it's our omelettes.

But we have different layers that we're going to balance with coming up this summer as well as into the fall and winter. And you'll see a cadence of both value combined together with innovation to really go after that barbell strategy and create awareness across both platforms. .

Yes. At Applebee's, Brian, average check remained at about $39. That included a slight menu price increase that the franchisees put in place in -- and we did see some migration toward lower-priced items or at the expense of a drink or an appetizer. But like I said, we did maintain the average check at $39. And our.

Next question comes from the of Brian Mullen from Piper Sandler.

This is Allison Arfstrom on for Brian Mullen. At IHOP on the California heritage remodel. I just wanted to ask in a very open-ended way. But can you talk more about what we should expect to see with the remodel, maybe the cadence or how many units are eligible, how do you expect to do anything like that?

Thanks, Alice. Lawrence will take that. .

Yes. So at or the California heritage redesign, and remodel. This design is based on a platform, which we've seen across international as well as in our dual brands, which is what we incorporated this bright modern unit sign that is distinctively IHOP. And we are very early in the process, actually. And we're working with our franchisee partners on the incentive program similar to that of Applebee's. And we'll have more to come over the next several quarters. But we're excited because we're starting to see some of the remodels happening currently. But again, we're very early in the stage, and we'll have more in the upcoming quarters this year.

And Alice, I would add 2 things. One is, if you haven't had a chance, we have a dual brand video on our IR section of our website. And on that video, when you look at the IHOP portion of the interior, that is the California heritage design. So we'll give you a sense of what it looks like and how fresh and modern and contemporary it is. And since you asked, I'll comment that the Applebee's remodel program refresh program continues. We're in year 2 and the franchisees are enthusiastically participating and we expect that will be at about 40% of the portfolio by the end of this year, that is considered to be current. .

And our next question comes from the line of Todd Brooks from Benchmark Stone.

John, I wanted to start off. I mean, you talked about talking more a situation with the franchisee for the 50-plus units. But if you look at the base, and I guess this applies to both brands your assessment of kind of franchisee health is we're maybe getting to a little tougher consumer environment here? And would you expect to -- you talked about a willingness, not necessarily wanting to force yourself there, but would you expect more growth in the corporate-owned base not necessarily getting to the 5% kind of cap that you talked about, but just with the environment and wanting to keep those stores in operation.

Because at this point, I don't know that there's really a lot to learn from running the stores. It's kind of that willingness to invest and convert to duals. So I just wanted to get the thoughts on use health and if we should see an acceleration in corporate store or corporate taking back franchise locations.

Yes. I'll talk specifically about NRP and some of your questions and Vance can talk more broadly about franchisee. But a couple of thoughts. Todd. The first is that the NRP situation is very specific to that owner and what was going on within their fund and decisions they made about financing. In fact, the restaurants that we're potentially taking back via the stocking horse bid, it's a healthy portfolio. So it will be accretive to us. So I don't think it's appropriate to project the NRP situation onto the portfolio.

The other point you made about is there anything left to learn. Just agree with you there. I think that there is still a lot left to learn from walking in our franchisees shoes and owning restaurants. As many of you know, we have not owned restaurants in the last couple of years, and it's been a while. And so to have 100 or so restaurants that we are running where we can be testing the new POS technology we can be putting our menu innovation into the restaurants faster and sooner than if we're running tests across the country and test kitchens, when we can be rolling in our guest service programming and our training, all of that is beneficial to us, and I have a high value in that.

In addition, as you suggested, to being able to renovate them and convert them to duals. We also think that we can see the progress we're making in the restaurants that we own. They're all trending in positive directions, particularly when it comes to growing EBITDA and profit, and we think that they'll be accretive to us when we refranchise them in the years. So I'm all in on that.

And now I'll pass it to Vance to talk about franchisee health more broadly?

Todd, so with franchisee health reminder, these are franchisees self-reported financials, and we collect them a quarter in the rear, as we've said in the past, based on what we're seeing is that the franchisees have steady margins on average and it's because of the steady sort of sales performance and cost management initiatives that CSCS and the franchisees are doing together our supply chain co-op. Franchisees are aligned with our strategy and they remain committed to growing with us. .

We're also just practically making -- we have workout programs with franchisees to accelerate incentives to accelerate the modeling relocations and the various workout programs to promote and really unlock dual-brand territories, right? So you'll see all of this is happening behind the scene. And ultimately, as John and I have said before, we believe dual brands will that step function change to franchisees in economics outside of normal comp growth. So we're very enthusiastic about pushing that agenda and franchisees as well.

That's great. And just my follow-up, if I can. On the duals, you talked about kind of that range of 1.5, 2.5 type of sales lift relative to the individual branded location. You talked about the strong lift in Hawthorne, which I think you see is a strong restaurant going into the conversion. But what type of lift do you need for the conversion to a dual to really pencil? Does the 1.5x lift get the return that you are franchisees looking for on the dual? Do you need closer to the 2x? Just if you could frame that up a little bit, that would be helpful. .

Vance, you can address that.

Of course. Todd. So the way you think about the economics for the conversion with dual brands is that the flow-through on that incremental sales that you're generating is going to be a lot higher than the traditional 4-wall margin. That's because you're not really paying more rent to -- and you're not necessarily increasing your labor buy that much to compensate for the increase in sales. So that flow-through is probably -- should be north of 30% margin. So if you just take due to simple math of assuming a $2 million restaurant adding another $1 million on top of it, that's a $300,000 flow-through to the Franchisees bottom line. .

And then what we're seeing is that the cost of the conversion is about a little over $1 million. It depends on if there's no deferred maintenance and structural work that you have to do, which is site specific. But just again, using simple math on $1 million with a $300,000 flow-through, that's very attractive payback math for the franchisees and for company restaurants for that matter.

And our next question comes from the line of Brian Vaccaro from Raymond James.

I was hoping if we could just double click on the underlying consumer dynamics that you're seeing. You obviously noted the softness within lower income. But I'm curious if there's anything worth noting from a daypart perspective or even weekday versus weekend for either brand? And then the follow-up question is just also, could you comment on the average check and traffic trends that you saw within the comps in Q1 for each brand? .

Yes, Brian, it's John. On the consumer dynamic, I can talk about both brands since the consumer behaves similarly over time as well as last quarter. The first thing I'll say is reiterating the point that you mentioned, which is when it comes to looking at income cohorts, higher earners, lower earners, the only real change that we've seen this quarter and the last couple of quarters is that our price sensitive, more value-oriented guests seem to be staying home a bit more and/or looking for lower-cost alternatives. .

When it came to other cohorts, we didn't see a significant change in behavior that is worth noting. When we look at day parts, when we look at weekdays, when you look at geography, it's -- there's no pattern there either. It's largely consistent this quarter to the past couple of quarters. And so I would really just target that consumer behavior issue on this -- on the guest that's really most impacted by gas prices and the economy in general.

And then when it comes to average check and traffic trends, I will turn it to Vance.

So Brian, good to be to hear from you. John talked about average check for Applebee's was $39 for IHOP is about $35 menu pricing for Q1 was about 4% for Applebee's and 3% for IHOP. Applebee's actually saw a positive mix this quarter. IHOP was negative mix. And then both brands saw negative traffic, but IHOP black box for every month for the quarter. .

Okay. Great. And then I guess last question for me was just around closures. I just wanted to touch on that. It seemed to step up here a bit in Q1. I think 20 at IHOP and 32 at Applebee's. But I believe you maintained the net development targets for the year. So could you just help us square that up a bit? .

Vance, we'll let you wrap up with that question. .

Sure. Brian, so we've said that closures, usually, what we see is sort of that 1% to 2% of systems the system. That's kind of the average closure rate. In the last year and this year, it's slightly elevated because we do have more franchise agreements come due than normal years. So that's reflected. But also as I've mentioned before, we're proactively making deals work out programs for franchisees to accelerate relocations and unlock dual brand territory.

So that's also reflected in the closure numbers. we're maintaining the net development number because we have a pretty strong pipeline of a brand that we're opening and stand-alone IHOP that we're opening. And so that's what's baked in to our guidance.

One other thing we've said before is that typically, Brian, what we see is the closures that tend to be lower sales volume for restaurants, right? And then the openings are bigger sales restaurants. So it's not one-to-one, right, in terms of unit count. So there is accretion happening there as we relocate and build a new restaurant versus a closing down an old restaurant. That's in the whole part of the town, for example.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to John Peyton, Dine Brands CEO, for any further remarks. .

Jonathan, thank you for guiding us today. Your expertise is valued as always. Thanks, everybody, for your questions. We appreciate it and the time you spent with us and like we said in our release and on this call today, we are pleased with the brand's performance during the quarter despite tough environment, and we've got the plans in place to continue to appeal to our guests, particularly those who are increasingly value-oriented over the next quarter, and you'll see some new news in the next couple of weeks that we think is going to drive a lot of traffic to both brands.

So thanks, everybody, and have a great day.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Great. Good afternoon. I'm Dennis Geiger, restaurants analyst at UBS, and I'm pleased to welcome and excited to have with us on stage, John Peyton, Dine Brands' CEO; Vance Chang, Dine Brands CFO; Lawrence Kim, President of IHOP; and also in the audience and in meetings today, Matt Lee of Investor Relations.

I want to also thank the team for the IHOP Swag mugs. It's a little bit of a gift, I guess, to everyone that's stuck around till 4:30. So we appreciate that team. Dine Brands owns and franchises over 3,500 restaurants globally across family dining, casual dining and the fast casual categories, including over 200 international restaurants. The brand portfolio includes over 1,800 IHOP locations, over 1,500 Applebee's locations and about 100 Fuzzy's Taco Shops, I believe, or so. And with that, John, Lawrence and Vance, thanks so much for being here today. We appreciate it.

Thank you, Dennis.

Maybe we could start just kind of bigger picture, talking about the full-service space, the casual dining space. Moving through 2025 and into 2026 even, what have you been seeing there as you think about the consumer and the casual dining consumer and how, in particular, Applebee's and IHOP have been and are positioned?

Yes. As we think about the consumer, the consumer behavior that we expect in 2026 looks a lot like '25, which looks a lot like '24. So we're not expecting a significant change. And we would characterize that both for IHOP and for Applebee's that have a very similar customer profile, particularly when it comes to financial and household income demographics is that they're very value-oriented, right?

Not a surprise. That's been going on for a couple of years. And the definition is that they want to know the full cost of the meal and no surprises, which is why house everyday value at IHOP, 2 for $25 at Applebee's have been resonating and driving performance the last couple of quarters.

Terrific. Maybe let's shift over to the guidance and 0% to 2% on the same-store sales side of things for both brands despite some of the weather impacts already this year in the first quarter. Can you talk about some of the key drivers supporting that positive same-store sales growth expectation for the year?

Do you want to talk about the guidance, generally?

Yes. I think that the makeup of the guidance, Dennis, what we see -- what we're planning for is flattish traffic with a low single-digit sort of menu price reflected and a slight offset with P mix is kind of the makeup of that guidance.

And you want to talk about the IHOP initiatives that you're planning for the year to drive this traffic?

Yes, absolutely. So for IHOP in the past 1.5 years, you've seen a steady focus on value. It's the first time that IHOP has had a consistent set of value, especially at a single price point. The offering we have right now is a $6 everyday value platform, and that started this past September, which evolved from a Monday through Friday program, which launched in October of 2024.

And we're consistently driving that $6 message even into all of 2026. But of course, that complements -- we have to complement that with our barbell strategy, which are check-driving initiatives from our innovation platforms like we have this coming March with -- I mean, sorry, it's already March now, at the end of this March from -- a new omelette that we're launching a new proprietary coffee blend. That's why you see some coffee mugs here, so please grab one. And of course, throughout the rest of the year, we have a continuous set of innovation streams that complements the value strategy that we have in place today.

Yes. And at Applebee's, a similar approach. So we used to have at Applebee's 10 to 12 marketing periods a year, each with a different message, each with a different item we were promoting a different price point. And when you're only in market 4 or 5 weeks at a time, it's hard for that message to break through. Same is true at IHOP.

And particularly for brands like ours, which we're not coffee. So we're not seeing our guests 4, 5, 6 days a week. We're seeing them 2, 3, 4 times a year, and they were missing messages. So we've reduced our marketing messages to 6 to 8 a year and focusing at Applebee's on 2 for $25, which is 2 entrees and an appetizer for $25 -- and that's our value message throughout the year, which we think is important right now.

And to keep it fresh and exciting, adding a new entree and a new appetizer each quarter. So back in Q4, we added the Grilled Cheese cheeseburger, which quickly became our best-selling burger of all time. And then in Q1, we added the O-M-Cheese Burger, which is a cheeseburger cut in half and served in a sizzling skillet. So when you pull it up, you get a cheese pull. That is now our best-selling burger of all time, selling 35 burgers per restaurant per day, which is a big number for us and rivals things like the appetizer Trio and boneless wings and is really good for a new product launch.

And it checked all those boxes around what menu innovation is supposed to do, right? You can't make it at home. It's experiential. It was photographable and unique. And so that's -- our plan is to have that throughout the year in a way to highlight the 2 for $25 menu.

Terrific. For John, you and for Lawrence, maybe just unpacking value a little bit, some compelling offers for sure. Where would you say the brand is right now on value scores? Are you kind of where you want to be on value? Is it going to take marketing, maybe more on the value push to get there? How would you kind of summarize each of the brand's position right now on value?

Yes, I'll start with that. So as I mentioned, because our value journey started really 1.5 years ago, the name of the game was consistency because the consumer can only take so many messages in at one time. And so for IHOP, in particular, we wanted to really nail the $6 message. If you think about it, it is difficult to make a breakfast at home, especially for a young family and all of a sudden, now you have a $6 platform, it resonates extremely well with the guests.

And so we have continued to hone in on this. And even at this upcoming end of March, we are evolving the everyday $6 value platform with a different offering as well. And so this evolution that we work closely with our franchisees is a critical next step. And it is a core part of our marketing focus as well. Almost all -- majority of our primary message in the marketplace is around the $6. It is what's driving traffic. It's why we've outperformed Black Box in traffic every month in 2025, and it continues into 2026, and we want to continue that momentum moving forward.

Yes. I would add, Dennis, a couple of things. One is what is the definition of value right now? One is they want to know the full cost of the meal, whether it's $6 or $25 for 2. They all -- when you talk to guests and you talk to just diners in general, the experience in the restaurant is super important and shows up from guests in a much more significant way than in the past.

So we've talked about that value is also about the vibe, right? So good price, great food, good portion and the experience of being served and taken care of by somebody else. And guests are looking for all of that right now. I think also implied in your question is, do we think the value portion of our sales is going to grow? Is it too big? Is it too small? And we've been asked that question a couple of times today as well. And our answer there is we don't have a target ceiling or floor for what mix of our menu sales should be value.

It's driven by our guests, right? And so if the guest are coming to us and they're choosing from those portion of our menus, and that's what they need right now, then we're fine with that because the value portion of our menus are profitable. We design them in partnership with our franchisees. They often upsell, right? So 2 for $25, you can add $2 for steak, $3 for the next category. And so that's how we think about it. Interestingly, the portion of our tickets that include value items, about 30% for Applebee's, 20% for IHOP has been super steady now for quarter after quarter after quarter after quarter. So that seems to be the current state.

Yes. Great. How about on the menu innovation side? You guys both touched on it a little bit there. But if we unpack that, I guess, how would you say that '26 differs relative to '25 as it relates to new menu innovation and maybe just even going forward, just going forward look a lot different than what we've seen in past years?

Well, I'll start with IHOP. Innovation is part of our DNA. And when you look at especially the core items that IHOP stands for, which are amazing breakfast equities, we want to make sure we complement the value menu with breakthrough innovation. So when you think about the trends that are out in the marketplace today, whether they're global domestic or whatever TikTok unleashes on you, you grasp on to these. And it's also some of the power of AI as well because you can start extracting from your portfolio and your mix and work with your culinary team go, what is going to drive attraction, -- what is going to drive buzz in the marketplace.

And so we look at a quarter-to-quarter basis, but we're staying focused on our core and complementing the value menu together with these innovation streams. I mentioned we have a proprietary new coffee because we truly believe you better match your world's best pancake with the world's best coffee. And so we have a proprietary blend exclusively designed just for IHOPs, and it really complements that of our breakfast items that's coming out later this March.

We have a new barbecue pulled pork omelettes, because our guests and the feedback have just been climbing towards some kind of barbecue dish, and we've paired it perfectly with our omelettes. And as we go further into the second half of the year, we've got a few surprises. And we've got to, of course, keep that suspense, but I can just give a quick highlight that we're going to be bringing back a fan favorite that has just been really top of mind and saw a lot of exciting news coming back in the back half of the year.

And at Applebee's, Dennis, one of the things we've had to work on the last 2 years is building a pipeline of innovation. So it's fair to say we weren't particularly or regularly innovative. And so we spent most of '24 and '25 building out what we now have is an 8-quarter pantry of new entrees for 8 quarters and new appetizers for 8 quarters that will introduce, as I mentioned, via 2 for $25. And the burger that I talked about last year and O-M-Cheese Burger are examples of what's now coming out of the pipeline, and there'll be more of that as the year progresses.

Great. Lawrence, I want to touch on dayparts with you. Just as we think about the broader macro and breakfast, generally speaking, for the industry now being under a bit more pressure purely related to the macro, I would argue, how you think about that in the context of a key daypart for you? And then maybe just some of the other important -- where you see the other most important daypart maybe outside of breakfast.

The fascinating great part about breakfast is that if you look in the past few years of breakfast behavior, breakfast used to be associated only in the morning hours. But now breakfast items are associated with all dayparts. And if you even look because most of our restaurants are 24/7, 60% to 70% of all items ordered during any part of the day are breakfast-specific items. And so that's opened up the aperture, especially when you look at how delivery and off-premise and all those areas of different channels and accessibility have made breakfast, and I use it in quotes, but breakfast items accessible and relevant for all parts of the day.

So we have stayed focused on our core. We know those are what's most craveable for our guests. You look at even opportunities, as you just kind of alluded to late night. And I think about my old college days and the behavior of going into IHOP, and I go into IHOP, so my tours across the nation, and I go into late nights and I work those shifts as well. And I see restaurants crowded with students, people coming from their night shifts. And of course, what you see them ordering are breakfast items. And so we are looking not just from the off-premise channels, but also in restaurants to really create a distinctive niche within the late nights to drive that part of our business moving forward.

Great. I want to touch on ops. I think you both might have alluded to it a little bit. But as far as the operations go for each brand, where we are in 2026 and beyond, what kind of opportunity do you think operations can be for each brand?

I can start. So Applebee's is focused on the -- what we believe is the biggest driver of improving guest satisfaction in the restaurant and the biggest driver of improving guest satisfaction outside the restaurant because 22%, 23% of our sales are off-premise. So the #1 guest complaint for off-premise is missing item in the bag, whether it's a soda or it's a pack of ketchup, that's the #1 missing item.

So our relentless focus in 2026 is on improving the missing item incidence, in the restaurant, we've done a lot of research that demonstrates when the more the general manager of the restaurant is in the front of the house, interacting with guests and directly supervising, coaching, correcting staff, the higher the guest satisfaction scores are as well. So we're doing a lot of work to help general managers get out of the back of the house where they tend to migrate because they're going to expedite and that's where they want to speed things up and get them to the front of the house.

And that's not just telling them to do that, right? A lot of the data that they're looking at is in the back of the house. And so we're trying to get data on their phones and things like that so that they can spend time in the front of the house. One of the -- I think one of the most interesting statistics in guest that, which is true in our industry, it was true when I was at Starwood Hotels for a long time, is guests that experience a problem that is corrected give you a better satisfaction score than guests that experience no problem at all. And those addressing a problem typically happens when there's a manager in the front of the house.

Yes. And I'll complement you with 2 other things. So accuracy, no question, 20% of our business at IHOP is off-prem. And so accuracy is a critical part in making sure that the guests get the right products, the right butter, syrup, et cetera, that complements that of our products. The other area is speed because I have 2 young kids and nobody wants to wait 20 minutes for your food. And so we've been laser-focused on this so much so that in 2025, we've already taken off 6 minutes plus from our table turns, and that continues to be a focus just because there's always low-hanging fruit that we've identified. And finally is we are a service brand. We call it -- specifically in IHOP, we have a program called iHospitality.

And it's important that hospitality, that service resonates with our guests because it keeps them coming back over and over again. It's why there are certain restaurants like in Pasco, Washington, where I visited a few months ago, I met a family, the Ochoas, they come to the restaurant over 360 times a year. So I mean, you just take a few days away from that, you got the full year covered. And that's because they really appreciate the service, this hospitality, the iHospitality and the magic that comes to the IHOP experience. So we're trying to make sure.

They come to the same daypart 363 times.

They come mostly in the breakfast, but sometimes they mix it up. Yes. I love the consistency.

How about on marketing, both brands, big, big marketers, sizable budget, good creative. Can we just talk about what '26 looks like from a marketing perspective, if any changes in strategy overall on marketing versus what we've seen?

Yes. So for IHOP, we have this mantra where we work at the speed of culture. And it's why IHOP and Applebee's, we have an in-house set of social teams, but also for IHOP, we have an in-house creative team. It's so that we can act and react at the speed of culture, meaning if a trend pops up, for example, Mr. Fantasy is a big influencer. We realized he was gaining a lot of traction in the space and especially with Gen Z. So we quickly connected with the creative custom content and tied them in with National Pancake Day on March 3, past March 3.

And at the same token, we're constantly creating new social material. Our engagements in 2025 versus 2024 was almost 4x. And that momentum continues into 2026 because we have an in-house team that reacts at the speed of culture. The second is we're optimizing the way we drive mass awareness. So we have -- similar to Applebee's, as we've compressed the number of windows that we needed, we've also optimized our production dollars, meaning we've taken the savings from there and applied it to working media. So we've had 15% more dollars in working media, which means greater awareness, greater number of eyeballs, better buys across scale. And ultimately, that drives you not just top of mind, but of course, traffic.

And finally, I think is you've got to be real time when it comes to cultural activations. And that's why certain programs and launches like we did, for example, with Malik Nabers for those of you who are New York Giants fans, Star Wide receiver, we want to make sure that we bring programs like that to life, especially with bottomless Pancakes and National Panic Day, and we've got a lot more to come in 2026.

And for Applebee's, I would just add, in addition to having fewer messages in market longer, we have also leaned into digital/social in a big way. 2026 will be the first year when we have more of our marketing budget dedicated to digital and social than we do to television. And television still moves the market in this category. But we think that mix makes sense for us. And we're focused on really leveraging 2 things. One is when we've got exciting new products like these 2 burgers, that's what you're going to see is the hero in our TV spots. And we're also leaning into some of the equity we've built in the Date Night Pass.

If you remember a couple of years ago, we did the Date Night Pass. We like to claim we broke the Internet and people registering. This year, we linked it to Club Applebee's, which means you had to be a member of Club Applebee's in order to participate. So in addition to a couple of million people that are in Club Applebee's, we registered over 300,000 new people. And so we can see extending the Date Night Pass. There's other passes, family pass, holiday pass that one could do, and that's going to be part of our marketing as well.

That's great. How about on loyalty, how you think about the program benefits and the opportunity that exists from a loyalty perspective?

Loyalty is a key priority for us. We have over 12.5 million users on our loyalty platform today at IHOP. It's a 23% increase versus the previous year. And similar to all different trends, you're constantly listening. You're evaluating just based on loyalty behavior, the user behavior and also just reading threads from Reddit and all the different social feeds, how to make the platform better. So we have something called the Stack Market, where you leverage your coins or your PanCoins to really redeem some of the best offers that we can at IHOP, and we work closely with our franchisee partners to evaluate what the next evolution of that is going to be. So we're constantly listening. There's a lot of white space opportunity, in my opinion, and we're going to continue to drive the platform and create that stronger connection with the guests and the loyalty users.

Yes. Applebee's has a program we call Club Applebee's, also has 8 million or 10 million members, many -- most of which allow us to contact them and give us their e-mail or their text. It's not a point-based earn and redeem system. It's more about insider access to getting promotions and special deals ahead of others. The challenging thing about loyalty in terms of the traditional loyalty programs when you think about it like airlines or hotels for coffee in our space is, like we mentioned before, is that we're not a 3, 4 -- except for your family that you met in D.C. Washington, we're not a 3-, 4-, 5-, 6-day a week purchase, right? We're maybe once a quarter purchase. So points are not a motivator when you're only participating 3, 4, 5 times a year. And so we're thinking about how do you engender loyalty in a way that doesn't require you to accumulate points.

That's great. And then you both, I believe, touched on off-prem. I believe it was earlier last year in '25, you talked about maybe being able to get a little sharper, a little better from an off-premise perspective. So just kind of maybe where are we? I know you gave some metrics, but on off-prem now, do we think it can go much higher? Is there a target that you think about on the off-premise side?

For IHOP, off-prem, as I mentioned earlier, accounts for around 20% of our business. And really, it's broken down a few layers. Number one, delivery; number two, catering; number three, online channels like IHOP.com. And for delivery, in particular, which accounts for more than half of that 20% we have been working with the aggregators and delivery partners to really create a strong strategy in regards to promotion. Even this quarter versus previous quarter, we've had 15% more promotions planned.

And so you see a very strategic focus in regards to driving the right proposition for our guests, and it's obviously resonated extremely well with these partners. But the one I'm really excited about is catering. If you think about your breakfast options in catering today, just think through the normal ones that you would normally have for breakfast. -- have you had IHOP catering, our world famous pancakes, our bacon eggs and just syrup, everything that comes with it. And I know because when I take IHOP catering to events, it is such a huge hit because it is so distinctive, it is so different.

And so we didn't just want to do it blindly. So what we did was we took a step back and looked at our catering platform last year. We looked at, okay, what packaging do we need? So we have proprietary packaging. We looked at what's the angle of positioning and marketing behind it. And there's a lot more focus, and we're working with our franchisees now to deploy these catering kits, these even local store marketing toolkits to get the word out and get them out to like hotels and conferences and schools, and we're really excited because this has a lot of upside potential this year and beyond.

Off-prem for Applebee's is 22%, 23% of sales. And we thought that was the ceiling. And this year, we grew 6.5%. And we did it 2 ways. One was we weren't including nationally advertised promotions on our off-prem channels. So that was a bit of a no-brainer once we started to do that, and you had the marketing behind it that made a difference.

And then the basics just around the classic analytics and A/B testing about what -- so we just got much more purposeful and data-driven in managing it.

So we still continue to believe that there's upside there. I think the broader picture on off-prem, Dennis, for both brands is that -- before the pandemic, both brands were less than 10% of their sales were off-prem. Now they're 20%, 21%, 22%, 23%. And what's great about that is -- number one, it's largely incremental business because we know that our off-prem customer generally doesn't eat in the restaurant.

So we like that. It's competitive with QSR and fast casual because we weren't necessarily considered a convenient buy, right, before the pandemic.

But now 20% of our guests view us as equally convenient to the off-prem people to the QSR. And what we're focused on now is how much can we direct business to our own channels versus the third parties.

Right. Terrific. I want to shift over to development and in particular, the exciting dual brand opportunity. You only left 19 minutes for dual brand. We say the best for the middle, I guess, right? So let's talk about that opportunity and why it's so exciting. Maybe what have you learned so far? And how do you compare those dual brand locations to single-brand locations?

Sure. So give you some numbers first for those that don't know, there's almost 40 of them open outside the U.S. They went first, and that's where we tested the concept. In February of last year, we opened the first one outside San Antonio, Texas. We have now 35 or 36 open in the U.S., and we've said we'll have 80 open by the end of the year, and we're on track to do that.

So one compelling thing is in 2 years and 3 months, we went from 0 in the U.S. to having 80 by -- in the pipeline by the end of the year. So it's really compelling. The concept is -- and Applebee's and IHOP in the same building, a common menu that goes from breakfast to dinner. So if you're here in the Northeast, a sort of like a diner where it has the best of both brands each of our respective brands has about 120 items on the menu.

The combined restaurant has about 120. So we make sure that the kitchen isn't taxed by adding in everything from both brands. Inside the restaurant, there's a core red area for Applebee's, which is around the bar and then wrapped around that is the blue area for IHOP. And what we're seeing is that guests are sitting wherever they want regardless of daypart.

And our new favorite statistic is that 62% of guests or 62% of tickets, tabletops are ordering items from both menus, right? And so 1 of the definitions of innovation is to give guests in our case or consumers something they didn't know they wanted, right? No one came to us and said, "Gosh, you should put an Applebee's and IHOP under the same roof. .

But when you invite them into the restaurant, 2 out of 3 times, they're ordering from both sides, which tells you from a guest perspective that it's got a lot of legs.

Financially for the franchisee when they add the second brand because most of these have been adding a second brand to an existing restaurant through a $1 million or so renovation, they're increasing their revenue 1.5 to 2.5x and they're increasing the flow-through on their margin for that incremental revenue by about 3 or 4x because they don't have -- fixed costs don't change, rent is still rent. And for Dine, this will show up as incremental royalty fees as the revenue of these combined restaurants grows.

And so you touched on I think some of the most important numbers there. But what is the feedback from the franchisees so far, the overall demand? How would you kind of size it up now? Early days still, of course, but...

A couple of things. The fact that we're going from 0 to 80% in -- within 2 years of opening the first one tells you a lot.

The second thing is the franchisees that are building these are larger, more experienced, more development-oriented people -- companies that have been in this business for decades for each of them. And they see it and they're investing their own money in it because they see the potential.

And they're not unlike consumers, right? When we said to them, let's -- we think we have this dual brand idea. They were reluctant and they were skeptical.

Once we opened the first 1 and they -- we flew them down to see it, one of our very large franchisees said, I came down here highly skeptical, and I'm leaving highly intrigued, right, and is now building one, and that's a really big franchisee of ours.

So they are in the business of making money. And this can add $1 million or more to their top line flowing at a couple of hundred thousand dollars on that $1 million.

Terrific. And what do we think long-term potential, again, maybe it's too early to say so far, but as you look at kind of the 12-month ramp, what's the latest you've been sharing on what the potential for this could be.

So we've been talking about the potential for 900 additional restaurants to tackle at some point over the next decade.

And of those 900, they're free and clear, meaning you can add the second brand without tripping over somebody's territorial protection on their current restaurant. Of that 900, 450 are new builds, meaning there's no IHOP and no Applebee's. It's a greenfield and you can build a new restaurant with no conflicts. The other 450 are either an Applebee's or an IHOP adding the second brand without having a conflict.

So call those the easy ones. After that, you can horse trade. So for example, our franchisee in San Antonio, who is a long-time IHOP franchisee, who's got 30 IHOPs bought the Applebee's franchisee in San Antonio. So now he owns the market for both brands and can dual anywhere he wants without having to worry about conflicts.

Terrific. And based on those growth targets. How about the pipeline? What does that look like? And what kind of visibility do you have even at a high level looking out over the next couple of years? And what else, I guess, goes into some of those development targets as we think about returns and some of the key metrics that matter as you look at development. .

Do you want to talk about the pipeline in development?

Yes. I mean we -- to start, the 50 that we're going to build is off of the pipeline that we had a year ago. And that pipeline is evolving and is growing. And so John talked about the fact that the franchisees get to trade markets.

And the company restaurants is actually -- think of it as almost like a clearinghouse for that process because we get to take back restaurants and then refranchise them out to franchisees and opening up territories, et cetera. So the pipeline is definitely growing. Your second question was.

Anything on the returns to support the growth looking ahead to support that -- those development expectations over the coming years, maybe.

Cash and cash returns for the franchisee.

Yes, however you want to take it, as specific as that would be terrific, of course. And obviously, dual brand looks different than single brand. But yes, if anything that you guys have shared and are comfortable sharing on that front?

There are a few ways you can think about this. So most -- John mentioned this earlier, most of the dual brands that we've built so far are probably lower AUV units that are adding a second brand, and they're doing 1.5 to 2.5x. So on average, if you say added about $1 million of top line, the flow-through on that is probably 30% to 40%. And -- and so John also mentioned the cost to convert is about $1 million plus or minus a few depends on the location.

And so that's -- that's a 3-year payback, right, which is a very, very attractive return profile for the franchisees. On top of that, the way we think about this is these are not new brands that haven't been tested -- these are 2 brands that've been through many, many cycles. The IHOP is 65 years old, Applebee's 55, 60 years old. So the risk profile for this return is lower than a brand-new, hot, exciting concept that the franchisees are building.

Yes. Makes really good sense. How about just broadly the development environment, not even thinking about dual but just -- what are you seeing there? Obviously, macro challenges, et cetera, aside to some extent. Anything that you'd frame up on between build costs and time to get approvals and how that has kind of impacted the development trajectory over the -- looking ahead?

So the 2 biggest challenges coming out of COVID were cost and red tape and getting permits and et cetera, from the local jurisdiction. The cost to build remains largely elevated, which is why we've been focused on not only duals, but we've got multiple ways to develop a restaurant.

IHOP opens 30-plus restaurants a year, 40 last year, and 80% of them or more are conversions of other concepts, right? And so that's a great vehicle for growth as well.

The cost of materials is if it's going to come down, it's going to be very low. So that's sort of still elevated. What's gotten much better is municipalities, counties, et cetera, have rehired with all the people that sort of disappeared during COVID.

So getting things approved is faster with the exception we're learning of liquor licenses, which depending on the state or jurisdiction can take months and months and months.

Great. How about on remodels and once again, let's put dual brand aside. As we think about remodels. I think you've got the looking good prototype on the Applebee's side of things. How do we think about and how are franchisees thinking about remodels from here over the coming years, what that cycle perhaps looks like if you've got that visibility?

Yes. So Applebee's has fallen behind what we would consider best practice in terms of renovations. And there's a lot of reasons for that. But at the moment, 20% of Applebee's we would consider current, which is why we are so focused on the renovation process and to their credit, why the franchisees are now focused on that as well because as we've now gotten back into normal time, and we can really focus on what the guest is telling us, part of what they're telling us is that the restaurants, some of them are tired and that we've got to focus on the bricks and mortar.

So we're now in year 2 of a renovation process. Our goal is to have 1/3 of the portfolio renovated by the end of this year, and then we'll go on to the next phase from that.

IHOP on the other hand has a history of staying current, they're 80% current, and you never really get to 100%. It's sort of like painting the Golden Gate Bridge as soon as you finish, you start again. So you start to work on the next 20%.

Yes. How about on the international side as you think about the international opportunity, maybe just the performance of international, some of your key markets in general and then how you think about the development from an international perspective?

In addition to IHOP, big news, Lawrence is now overseeing international as well. So you can take there.

The recent change, super exciting just to look at the opportunity for international. Our primary areas of growth are in the Americas because you definitely see scale when you think about Canada, North America and then LatAm.

And we have a big presence, for example, in Mexico, we have a big presence in Canada and in some of the Caribbean islands. So we're also looking at scale opportunities within the global kind of aspects. So when there's scale innovation, there's scale marketing, can those be leveraged across the globe? And if so, how do we best approach it? So there's a lot of great upside that we see in terms of opportunity for international, and we're working through that plan and strategy right now into 2026.

Terrific. Lawrence, I want to ask you kind of another 1 maybe. Actually, I'll ask both of you kind of as we think about tax refunds and just the beneficial macro perhaps.

How are you guys thinking about that? How did that weigh into guidance at all? I know there's a whole lot of macro crosscurrents out there right now. But any kind of expectation that you folks have had or have as it relates to stimulus this year and what kind of benefit the brands may see?

I would answer the same way for both, which is we expect the stimulus to make a difference in our guests ability to spend because particularly for guests that earn $100,000 a year, which is our sweet spot, that couple of hundred or a couple of thousand dollar refund makes a difference. .

And so we do expect that. We didn't build a specific moment into the calendar for when we think that spending will go through. But we do know it will have an effect to some extent because we know from history that our traffic can mirror gas prices, for example.

When we built our budget last year, we didn't know that gas prices would be affected as they are today. So -- so major macro events like that, we tend not to build into a budget because they're just so hard to predict.

Yes. It makes really good sense. I want to shift over to G&A and CapEx, maybe and Vance, maybe I'll target you with those questions. You've talked in the past just about the benefits of the model and the low operating leverage and all the return capital opportunities. I guess first just on the G&A side of things. How do you think about G&A going forward about the efficiencies and maybe some of the opportunities also to invest at the same time?

The way we try to benchmark our G&A target is, call it, 2.5% of system sales is sort of where we want to be. And to the extent that we have new areas of investment we wanted to grow into, for example, the dual brands and development function within the company. We tend to reallocate.

So we would find efficiency and savings elsewhere and push our resources towards the growth area. So that's how we've been able to sort of keeping the G&A spend relatively flat over time, even in the middle of our investment in new capabilities.

How about same question, but from a CapEx perspective, given the importance of free cash flow, but also the importance of making the investments and keeping the brands healthy, how should investors think about that CapEx going forward?

We provided specific guidance on CapEx in the $20 million to 30 -- $25 million, $35 million range. And that's part of that is the company restaurant portfolio. So the core franchisor based business, usually, the CapEx for that business is sort of in the $15 million to $20 million range. And anything on top of that is company restaurants related.

And specifically, it's earmarked for remodeling and for dual-brand construction process. Broader question in terms of capital allocation, we do -- we allocate our capital towards the highest ROI usage, right? Organic investments, whether it's CapEx or G&A is part of that algorithm.

And after investments, as you think about capital allocation, how do you think about the other -- under the investment line, the other uses of capital and how you prioritize those?

A big part of it is capital return. So in 2025, we returned $90 million back to shareholders, $60 million of which was through buybacks and $30 million of which was dividends. And we think as long as there's a disconnect between where the stock is trading versus where we think the stock should be traded at. I think we're going to be aggressive with buybacks.

Great. You touched on the company-owned stores, the company-owned portfolio. How do we think about that going forward? And we've gotten a lot of questions here in recent quarters, are there opportunities to do more of that, the current portfolio of company-owned, -- what's the latest and greatest and how we should think about the go forward on that front?

The strategy with company restaurants is to prove out the initiatives that we're trying to -- that's important to us, first, being remodeling, the second is dual brands. And with -- specifically with the restaurants that we have currently, there are operational improvements that we're working on as well in terms of training employees and staffing restaurants the right way. Ultimately, the goal is to refranchise them back to franchisees. In fact, obviously, we're not there yet.

We're not finished with fixing restaurants yet, but we're already getting inbound interest from franchisees that wanted to build dual brands and take some of the restaurants from us. So what you will likely see in the next few years is that this portfolio is not going to be static.

We're going to have restaurants that we refranchise out, but we may take on a few more as well. So it will be a lot of in and out. But again, the ultimate strategy is to turn them around, refranchise them for a proper return on capital for our shareholders.

Makes good sense. I've been asking most of the companies this just given the investor focus on GLP-1s and if you've seen anything to date and how you're sort of planning for the next few years of that. So maybe, John, thoughts there?

We haven't, in either brand, seen anything to date that materially affects our numbers. And as we think about it for the future, we think about it a couple of ways. One is because we are occasion-driven brands and people frequent us 3, 4, 5 times a year, that, that provides some protection versus if we were the exception of your friends in Washington versus people are visiting us 3, 4, 5 days a week. So that's number one.

Number 2 is we -- both brands have protein friendly carb-light choices, right? You can get an egg white omelette, and vegetables at IHOP, you can get our salmon and broccoli.

And so what we like about that is that -- we also think that we just want to make sure that we're not vetoed by the 1 person in the family who might be, right, thinking about their weight loss journey. And so that we've got a way to offer that to others. And we continue to focus our innovation on making sure that we have enough of our menu that will appeal to them, but we're not radically changing the menu for those reasons.

Terrific. We are just out of time. So John, Vance, Lawrence and Matt, I want to thank all of you very much for your time sharing the insights. We really appreciate it.

Thank you. Thanks for having us. We really appreciate it.

Thank you very much.

All right. Good afternoon, everyone. I'm Brian Vaccaro, the restaurant analyst here at Raymond James, and we're excited to continue day 1 of our conference with the team from Dine Brands. Of course, the Dine Brands franchise is 2 of the largest full-service restaurant concepts, both IHOP and Applebee's combined sales of over $7.5 billion. Today, we're joined by CEO, John Peyton and CFO, Vance Chang. So gentlemen, thanks so much for joining us today.

So John, you just reported your fourth quarter results last week, maybe for anyone that might be newer to the story in the room, maybe just kick us off with the high-level state of the union, and then we'll get into some specifics.

Thank you, Brian. Hey everybody. Just high level to understand our company, we are 3,500 restaurants that generate that $7.5 billion in revenue, and we're split almost 50-50 between IHOP and Applebee's. There's about 100 more IHOPs and Applebee's and all but 200 of those restaurants are here in the U.S.

And in terms of most recent performance, 2025, including Q4 was a whole lot better than 2024. We're proud of IHOP because it beat its comp set in traffic every month of the year, including having absolute traffic growth in the fourth quarter. And Applebee's had positive comp sales for the year in 2025, which it had not done in more than a year.

And like we said on the call, none of those things happened by accident. They were the results of focusing on a value message that guests are looking for right now that's 2 for $25 at Applebee's, which is 2 entrees and an appetizer for $25. And everyday value at IHOP, which is 4 All You Can Eat combo -- 4 combos at $6 or $7 on the coast, wrapped up in new marketing, new social media and a big emphasis on restaurant renovations. And that programming drove the good performance of '25 that we've seen roll into the first quarter of this year as well.

That's great. Maybe before getting into brands, we'll talk another high level just on the industry and the consumer. You have a pretty good purview of the U.S. consumer across different income and age cohorts. Just curious what trends you're seeing in your businesses that relates to the lower, middle and upper income consumer? And anything worth noting sort of the younger generation versus older generations that you're highlighting?

We do have good insight into consumers. $7.5 billion of revenue looks something like $150 million or $200 million -- 250 million people coming to the restaurants every year. And our sweet spot is a household income of about $50,000 to $100,000 to give you a sense of what that looks like. You could sort of think about it as the Walmart shopper.

And what we've seen since 2024 is an increasing focus on value, and really the definition of value has changed. In the past, where you could represent a promotion that was some version of a, call it, a discount on an appetizer, right? Buy one, get one free, $0.50 wings, All You Can Eat apps wasn't enough to move the market in '24 and '25, guests wanted to know the full cost of the meal, which is why you see everyone from QSR to full-service dining, advertising some version of the sandwich, the fries and the beverage for one price. And our guests has been exactly the same.

So our 2 for $25 menu represents about 1/3 of the tickets. So 1/3 of our customers are taking of the value menu, 20% of IHOP. And when it comes to consumer behavior, it's been remarkably steady now for almost 2 years in terms of pursuing value, we're seeing gains in the top end of the income. So we're gaining more guests who are earning over $100,000 than we are losing lower income guests. So that's -- the net effect of that is what's been driving our traffic. And to your point, they're very specific about when they spend their dining dollars, and how they spend their dining dollars.

All right. That's helpful. So we'll touch on -- we'll dig into a couple of the individual brands, and maybe we'll start with Applebee's if that's all right. So comps, like you mentioned, up 1.5% in 2025. You saw some good traction on new value promotions, 2 for $25. One thing we also noticed was that takeout really accelerated and really just the strength of the off-premise channel. So maybe you could touch on, first, what some of the strategies have been within off-premise? And then also just on broader menu innovation as well?

Sure. To go is actually a success story coming out of COVID, if one could put the word success with COVID together in that before the pandemic, both IHOP and Applebee's had off-prem sales of about 6%, 7%, 8% of total sales. And in the last couple of years, we are at 22%, 23% of total sales, including the absolute dollar value growing as well.

And we became part of that off-premise consideration set in a way that we weren't before the pandemic. And so the good news is that for our business, that business has stuck with us, and we've learned a lot about how to package our food to go. We used to put pancakes and eggs together in the same container and everything sort of came wet and mushy. And so we've innovated a lot about how we deliver our food off-prem.

And the other thing that's really significant is the vast majority of that off-premise business, that off-premise customer is incremental and does not typically dine with us in the restaurant. So these are new guests who are enjoying our food outside of the restaurant because that's the way they like to do it.

When it comes to menu innovation, Applebee's is a good example of that. We've now built out an 8-quarter view of what our new entrees and appetizers will look like, and we introduced a new entree and a new appetizer each quarter via the 2 per $25 menu.

So in Q4, we introduced the Grilled Cheese cheeseburger, which sounds exactly like what it is. It's a burger and a grilled cheese put together. That became our best-selling burger ever in Q4 and was a big part of Applebee's success at the end of the year, and it only lasted that long because in January, we introduced the O-M-Cheese Burger, which is, if you know Applebee's, we have our sizzling skillets and you fill the sizzling skillets with sizzling cheese, you cut a burger in half and you put it in the cut side down so that when you lift it up, you get this big cheese pull. That's now become our best-selling burger ever because it ticks a lot of the boxes that particularly young people are looking for.

It's very Instagramable because of the experiential nature of it. It is unique because you can't replicate that at home, and it's on trend. We actually found that idea in Japan, where they've been doing it for the last year or 2. And so we brought it here in a mass way. And we're now selling 35 of those O-M-Cheese Burgers per restaurant per day, which is a big number for us for any individual menu item, particularly for a new product advancement.

So our goal is to have menu innovation like that in both brands every quarter to make sure we have new news in conjunction with the everyday value message and the 2 for $25 message.

That's a good segue into my next question. Just around -- I think you said around 1/3 of sales mix at Applebee's is on some sort of value platform, which is sort of towards the upper end of casual dining peers. But at the same time, through '25, your mix was down only 30, 40 basis points. Vance, correct me if I'm wrong on that, but in that 30, 40 bps. So just elaborate sort of where some of the offsets are that's keeping mix more balanced. What's the other end of the barbell, if you will, or how you're achieving that?

The other end of the barbell is our beverage items, which we have -- we've also had a lot of innovations in as well as appetizers. And so the idea is use the 2 for $25 and everyday value on the IHOP side to -- as a customer acquisition tool. And then once they're in, there's training, there's technology involved in terms of how to upsell our guests on the higher-margin items and enhance the experience that they have inside the restaurants.

So you're seeing some increased attach on some other categories that helped to offset that essentially?

Definitely. Yes.

Okay. Okay. Great. Great. Sticking with Applebee's, just on pricing. I think that's been stepping up at Applebee's through the year, just if we think about gross pricing within average check and I know that's the franchisees that are making the pricing decisions. But now the system faces sort of mid-single-digit food inflation in 2026. So I guess, how do you think the average franchisee is approaching pricing as they think about 2026? And how do you walk the line of maintaining value while insulating against some of these inflationary pressures?

Well, what we've seen the franchisees do, and it's been like -- it's been this way for 1 year, 1.5 years now is they've brought many pricing back down to low single-digit menu inflation range. And that's important to us because even though, right, we as a franchisor collect 4%, 4.5% off the top line, we want to make sure that we keep the core guest traffic by not pricing the menu too high. And so that's been a lot of discussion.

So the way the franchisee -- franchisees protect their margins is, one, driving traffic by not pricing the menu too high; two, we have the supply chain co-op that does all the franchisees buying in terms of food market baskets. And so we're constantly tweaking and fine-tuning in terms of restaurant profitability initiative to protect franchisee margins by switching different SKUs or using technology to drive efficiency out of the restaurants. And so the combination between top line improvement and margin refinement, I think, is allowing them to stay healthy and protecting margin bottom line.

It's also worth noting that we have an extensive committee structure of franchisees that work with us. So we've got a committee of franchisees on the menu committee, on the operations committee. And so any food item or promotion or campaign that we put into the market, we do after extensive discussions with the franchisees around the profitability target that they're looking for and we construct when we've got 1/3 of our menu, for example, it's 2 for $25. That is constructed to be at the profit level franchisees are looking for. And the 2 for $25 is the entry, right? Then you can get $2 more, you get this $3 more, you get steak. And their service are all geared towards upselling beyond the $25. So there's nothing that we do that the franchisees are not aligned with, particularly when it comes to the cost of items of what we promote.

A lot of companies that are offering these value platforms 2 for $25, they're seeing quite a bit of trade up to the higher-priced tiers. What do you see on that? The percentage of folks who are ordering 2 for $25 versus trading up within the platform?

It's about 50% that trade up from $25 to $25 plus $2, $25 plus $4.

Okay. Okay. Got you. Last one on Applebee's, big marketing budget and that's across both brands, you have a big marketing budget, I think almost $300 million. But at Applebee's, you talked about seeing traction on social media and other digital channels. Are you seeing tangible evidence that you're attracting more younger consumers maybe reintroducing them to the brand to some degree. Any metrics you could share around that? And then as a follow-up, maybe more broadly, how you see that spend and focus sort of shifting to digital and maybe a little bit away from traditional channels?

Both Applebee's and IHOP have a similar approach to the way in which they manage their marketing funds. So number one, as an example, in 2025, Applebee's for the first time, reached an inflection point where more spend was going to digital and social channels than TV. We were 48% TV, 52% digital and other. And that's the first time in this long journey from television to digital.

When it comes to social, both Applebee's and IHOP built and full-time teams in our office last year, we've always been relying on agencies for that and weren't getting the results we needed. So we've now got the young pierce tattooed 25-year-olds that you would imagine, excel on social media who are in the office sitting together, watching the screens all day long, and they're just posting and generating content, and our engagement scores and our reach scores have literally gone up 100% to 200% in both brands in just 6 months since we started doing that.

And we do know that while our brands do skew older, we're growing the fastest in the younger segments and the younger age categories. And that's because of our effectiveness now on social media. The O-M-Cheese-Burger is a great example of that. It really was pushed on social, and that's what drove a lot of the younger traffic into the restaurants.

I took my piercing off for the foot of record for this conference today.

I love that, Vance. All right. Well, let's transition to IHOP for a moment if we can. Maybe we'll just start highest level talking about the broader breakfast category, full service, broader breakfast category or the overall category, including women as well. But some of the challenges over the last few years, and just curious to get your view on the category overall heading into '26?

The category that IHOP competes in breakfast or family dining, which is full-service dining without alcohol versus Applebee's, which is in casual dining, full service plus alcohol. The breakfast category is more challenged than casual dining, I would say, for 2 reasons.

The first is coming out of COVID, we were all working from home. And so even today, many companies are not back to 5 days a week in the office. So the weekday breakfast business for breakfast concepts like ours did take a hit in the years coming out of COVID and is now returning to where it once was, but it's still not quite at 100% compared to 2019.

The second challenge for the breakfast category is unlike casual dining, there have been a bunch of new entrants over the last 10 or 15 years. First Watch is an example, and Broken Egg as an example. And so it's puts even greater challenge on a brand like ours, if you want to call it a legacy brand. IHOP was invented in 1967 in L.A.

And so when you're a brand that's almost 70 years old, you've got to work hard to stay fresh and stay relevant. And we're doing just that, not only in the way the restaurants are being physically renovated but certainly in the way it shows up on social.

So IHOP has gotten really good at what they call stunt moments that get -- they just generate a lot of buzz. Last summer, they set the Guinness Book of World Records for cooking and serving the most pancakes in a day, right? So that was huge for us on social. Later last year, they launched their Dubai pancake, while it was in all the restaurants in L.A., New York and Austin, there was a $300 version of the pancake that included edible gold, right? That was huge for us.

And then we've most recently had a big moment with the neighbors of the giants who was in everybody's draft pick, got hurt on day 1, blew up all their fantasy leagues. And if you follow a fantasy, sometimes the punishment for losing is you've got to spend 24 hours at an IHOP and have a pancake stack every hour. We don't view that as a punishment. But working with him, we had a really fun time sort of turning that on its head. So they've gotten really good at free publicity, mostly through social, and that's also driving a lot of the younger guests.

All right. Well, great. I guess transitioning a little bit to your recent trends at IHOP, so you mentioned fourth quarter, slightly positive comps, but importantly, the second quarter of positive traffic. Talk about the traction you're seeing on the value House Faves platform, the every day. And I know it's pressuring check a little bit, but -- how do you think about stabilizing mix into 2026? What are the levers you're pulling on the other ends of the menu? And what do you think you could see positive check growth? At what point does that happen sometime in '26 or where you like it to...

So believe it or not, up until a year ago, the only value portion of the IHOP menu was the senior citizen menu. And that only led to about 2%, 3% of sales. And like we said at the beginning, the consumer in the U.S., particularly at our price point, is very much looking for the full price of the meal and a much more accessible, attainable and thorough value proposition.

So early in 2025, we introduced House Faves, which is these 4 combo meals for $6 or $7. We evolved that and to everyday value, we changed the name, changed the marketing because everyday value is clearly more meaningful on its own to a consumer than House Faves. And based upon the success of 5 days a week, the franchisees agreed with us and voted to extend it to 7 days a week, which we did in the fall.

And so we view that as Phase 1 of our attempt to drive traffic and ultimately, check and comp sales at IHOP. And we did just that, right, Brian, as you mentioned, IHOP had positive traffic versus Black Box, which is how we measure market share, our fair share all year and then had actual absolute traffic growth at the end of the year.

Now we're focused on taking that everyday value message, using it to drive guests into the restaurant. We take the everyday value portion, and we put it on the back page in fairly small print. And when we get to the restaurant, between the menu, between the window clings, the tabletop collateral is all about pushing the higher-end, higher-margin products, and that's literally the barbell strategy.

So Brian, in fact, Q4's check was higher than Q3's check for IHOP and then Q1 so far is higher than Q4. So we're seeing that progress already.

Okay. All right. That's great to know. I guess we can ask one on commodity inflation. Obviously, an outsized year of inflation last year, and it's kind of flipping, right? You had eggs to deal with last year, now we've beef to deal with this year a little bit. But maybe just walk through the commodity outlook for each brand quickly and then we'll touch on dual brand as well?

Yes. You got it right. I think this year, Applebee's we're expecting slightly higher inflation cost pressure for Applebee's than IHOP. IHOP, we're probably looking at low single digit, and Applebee's, we're looking at mid-single digit because of beef. What's driving IHOP's is there's a beef component to it as well, but it's coffee for IHOP.

Got it. All right. So moving on to the dual brand strategy, where you're bringing Applebee's and IHOP under one roof. So talk more about the concept, where you see it working best, sort of what types of markets? And then just the investment proposition to your franchisee base who might be -- some might be operating a unit that's underperforming? Or how could this improve results there?

So dual brand is a really big idea. If you haven't seen it or it's helpful to visualize it, we have a video on the IR portion of our website at dinebrands.com. But the idea is exactly that, which is take an Applebee's and an IHOP and put it together in the same roof -- under the same roof, the front of the building is co-branded as both restaurants, where there's 1 front door, 1 greeter, when you walk inside the center of the restaurant around the bar is Applebee's decor and it's wrapped in IHOP. So you've got the red section, you've got the blue section. By design, we're not creating a third brand here. There's no purple brand. It's both -- it's the best of both brands in the restaurant.

It's 1 all-day dining menu where we've taken the best products from both menus and created a combined menu that's the same number of items as any of the individual brands and everything from pancakes to ribs and [indiscernible] are available all day long from morning through evening when the restaurant closes, if it does close.

We've got 30 restaurants opened outside the U.S., and that's where we tested and sort of perfected the brand. We brought it to the U.S. with the first one opened in Seguin, Texas in February of last year. We now have 32 open here in the U.S. We'll open 50 more this year, so we'll have 80 by the end of the year, which is a lot in a short amount of time.

And the economics are what makes the case here. So when an existing Applebee's or an existing IHOP adds the second brand, the revenue is growing 1.5x to 2.5x the original restaurant. The margin on that incremental revenue is flowing through at 4x or 5x the rate of the original revenue because we're adding revenue with not adding fixed cost, right? The rent is still the same, et cetera.

The cost of the renovation is about $1 million. So guests -- franchisees are recovering that investment in 3 years or less, which is a very compelling investment for them. And guests love it. So one of the things about innovation, Brian, is giving consumers or in our case, guess, something they didn't know they wanted or needed.

No one came to us and said, "Gosh, guys, you should put Applebee's and IHOP in the same building". But once the guest comes to the building, they're actually ordering items off of both menus 2 out of 3 times, 2 out of 3 tickets have items from both menus. So we're satisfying a need for them that they're really enjoying. The average check is $4 more than IHOP alone, $2 more than Applebee's alone. So they're enjoying more of the menu as well.

And it's a great competitive advantage for us because Dine Brands is the only company that has the premier AM brand and one of the premier PM brands put together. The dayparts are entirely complementary and they're not cannibalizing each other. And so you're taking a restaurant that if it was an IHOP is primarily a morning business. If it was an Applebee's, it's primarily a PM business and you're now activating all 5 dayparts, including late night and overnight.

And the sales mix in the restaurants right now that are open is about 52% Applebee's, 48% IHOP, which is essentially perfect in terms of the way the dayparts are spreading out. So we do think this is a big idea. And we've mentioned on our calls that we see 900 opportunities for these additional dual brands that are the easy ones to go for because there's no conflict in the market. So of those 900, 450 are in markets where there are currently no Applebee's and no IHOP. So you can build a new restaurant and not be in conflict with an existing restaurant.

Another 450 are in existing restaurants today that could add the second brand and not be in conflict with another restaurant. So it'll take us 8, 9, 10 years to do those 900. And at the same time, you can also do some horse trading like give me your IHOP in that market, so I can open this restaurant, and we can do those as well. But the opportunity is very large. And our franchisees on both sides are -- have built already a very significant pipeline for '26 and '27.

All right. That's great. Well, we're almost out of time. So I'll just put this down and see if there's any questions from the field. Yes, Tony. Maybe speak up. I'll try to...

[indiscernible]

Maybe repeat the question?

Yes. So the question was there's a trend, particularly among younger guests to drink less alcohol. How is that affecting us? And the second question is about the weight loss drugs and how is that affecting us?

So on the alcohol part of the equation, yes, we are seeing less alcohol consumption, particularly among younger guests. Our response to that has been to aggressively develop our non-alcohol menu. We're doing that in a bunch of different ways. One version of that is dirty sodas in partnership with Pepsi and their products, as well as the things we're concocting in the restaurant themselves. And we're seeing an uptick in sales of nonalcoholic items.

One of the benefits of the dual brand is IHOP can now have a liquor license, and it's serving boozy weekend brunch alcohol. So they can do Bloody Mary's, they can do mimosas, which IHOP couldn't do before. The other thing we're seeing is at the dual-branded restaurant, the absolute dollar of alcohol sales is greater than the typical Applebee's or the Applebee's it was before. So because of IHOP, in particular, they're selling more alcohol as a dual than they were before, which is offsetting that loss.

When it comes to the weight loss drugs, our approach is not to shrink portion size, but to ensure that we have menu items that appeal to those that are either focusing on protein or focusing on lower calories. So we are continuing to innovate healthier for you category. We just introduced 2 new salads under 600 calories, and then it might be surprising to some, but Applebee's has a grilled salmon and broccoli, right, which is a very friendly sort of item for someone who is thinking about managing what they eat. We just want to make sure that we don't lose the veto vote and then we've got something for everybody.

Any other quick ones? One in the back?

[indiscernible]

[indiscernible] from each other. We are Applebee's -- Applebee's point-of-sale system for the last 25 years has been a homegrown system that is held together by rubber bands and Band-Aids and there's too many people on the planet [indiscernible] was written in. So we are in the process of converting to Toast at Applebee's as our nationwide point-of-sale system. We're in 50 restaurants now as our alpha and are on our way to having the whole system, including handheld devices for servers by the end of the year.

We are one of Toast's larger and first enterprise-wide clients. So we're learning together. What we can say about Toast is extraordinarily professional, very buttoned up, very talented teams and the product itself is very user friendly. It's easy to configure and it's easy for servers to learn how to use the new handheld where we're collaborating a lot is on the training and what training is needed, how much of it needs to be delivered by a human, how much of it can be chopped up into 30, 60, 90-second videos that servers can watch on their phones, et cetera. But so far, sir, it's been actually very, very smooth in terms of both sides working together.

All right. Well, unfortunately, we're out of time, but we'll continue in the breakout. Thank you.

Well, thanks, everyone.

Good day, and thank you for standing by. Welcome to the Dine Brands' Fourth Quarter and Fiscal Year 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

And now I'd like to introduce your host for today's program, Matt Lee, Senior Vice President, Finance and Investor Relations. Please go ahead, sir.

Good morning, and welcome to Dine Brands Global's Fourth Quarter and Fiscal 2025 Conference Call. This morning's call will include prepared remarks from John Peyton, CEO and President of Applebee's; and Vance Chang, CFO. Following those prepared remarks, Lawrence Kim, President of IHOP, will also be available along with John and Vance to address questions from the investment community during the Q&A portion of the call.

Please remember our safe harbor regarding forward-looking information. During the call, management will discuss information that is forward-looking and involves known and unknown risks, uncertainties and other factors, which may cause the actual results to be different than those expressed or implied. Please evaluate the forward-looking information in the context of these factors, which are detailed in today's press release and 10-K filing. The forward-looking statements are as of today, and we assume no obligation to update or supplement these statements.

We will refer to certain non-GAAP financial measures which are described in our press release that is available on Dine Brands' Investor Relations website.

With that, it is my pleasure to turn the call over to Dine Brands' CEO, John Peyton.

Good morning, everyone, and thanks for joining us today. As usual, today, we'll discuss Dine's Fourth quarter and full year 2025 financial results. I'll share some key insights into what we learned in 2025 and how we'll leverage those learnings to extend our strategy in the year ahead, and Vance will then discuss our financial results and 2026 guidance.

Our brand's 2025 performance improved compared to 2024, and that was no accident. It was driven by deliberate execution against our clear set of priorities, enhancing the guest experience through operational improvements, strengthening our marketing to better connect with guests and advancing menu innovation and everyday value platforms across our brands. In parallel, we, along with our franchisees, continue to invest in the bricks-and-mortar experience of our restaurants through dual brand openings, supporting Applebee's remodels and improving the look and feel of our company-owned portfolio. These initiatives built trust with our guests and started translating into tangible results with improving unit level performance driven by positive sales and traffic trends and higher guest engagement scores across our brands.

This progress came amid a still challenging consumer environment with guests remaining highly intentional about how they spend their discretionary dollars, value remains a critical driver in that decision-making. Of note, in the fourth quarter, both the casual and family dining categories experienced some softening in comp sales and traffic as we moved into December. Overall, the value mix remained steady for both brands with Applebee's at 34% and IHOP at 20%, despite IHOP's value menu increasing from 5 to 7 days. Over the past few years, we've been intentional in evolving how we define and deliver value, ensuring that we have compelling everyday offerings that are available at all of our brands anywhere, anytime. For us, value is not simply -- it's an all-encompassing experience that includes portion size, food quality and most importantly, the overall guest experience. We refer to that as the vibe. And that focus on the vibe, the food, the service, the atmosphere, represents a meaningful opportunity to drive traffic and strengthen brand relevance. We believe this approach positions us well for sustained positive performance in 2026 and beyond.

And as we look to 2026, we're staying in the course. The progress we made throughout 2025 validated our strategy, and our focus is on disciplined execution, continuing to drive steady improvement and building on the positive momentum we established.

So with that, I'll walk through our financial results. For the full year, we generated $219.8 million of adjusted EBITDA compared to $239.8 million last year. In Q4, adjusted EBITDA was $59.8 million compared to $50.1 million in the same quarter last year. Adjusted free cash flow was $62 million. And in terms of comp sales, Applebee's comp sales were positive 1.3% for the full year compared to 2024's comp sales of negative 4.2%. And in Q4, Applebee's reported negative 0.4% in comp sales. IHOP had full year comp sales of negative 1.5% compared to comp sales of negative 2% in 2024. For the quarter, IHOP posted comp sales of positive 0.3%, driven by positive traffic.

So now I'll share some updates across our portfolio, starting with Applebee's. In 2025, Applebee's returned to positive sales growth as we sharpened our focus on value, marketing and the guest experience. While the environment remained competitive, performance was in line with our expectations, underscoring our confidence in the strategy and momentum that we're building. In the fourth quarter, the 2 x 4 platform represented approximately 22% of transactions, supporting both off-premise demand and check growth. The new Grill Cheese Cheeseburger launched in Q4 was our highest selling stand-alone burger ever and our highest selling 2 x 4 burger of all time, reinforcing the strength of the platform.

Also, our Ultimate Trio, which we launched in August remained the best-selling appetizer of Q4, representing approximately 11.5% of transactions.

In January, we launched our OM Cheeseburger available on both the 2 4 platform and also individually at $11.99. This new burger was an instant hit and is now the newest highest-selling burger of all time on our 2-4 platform Sale These launches highlight the momentum of our only at Applebee's menu innovation strategy and reflects strong guest demand for menu offerings that can't be replicated at home.

Off-premise was a source of growth in 2025 as guests increasingly chose the convenience of eating with us outside the restaurant. In the fourth quarter and full year, off-premise comp sales increased 6.2% and 6.5%, respectively, with delivery up 10.5% for the year.

On the digital marketing and social media front, Applebee's delivered year-over-year growth across key platforms in 2025, outperforming our organic social growth targets. Social media accelerated throughout the year, highlighted by an 84% increase in posting cadence and 107% lift in engagement in the back half of the year compared to the front half. Additionally, Club Applebee's, our data-driven personalization program, is driving higher engagement among members.

Looking ahead to 2026, we'll focus on core fundamentals that directly enhance the guest experience and drive profitability. Specifically, we're emphasizing manager visibility in the dining room, which is linked to higher guest satisfaction and more consistent execution and improved off-premise order accuracy, a key lever for cost reduction and repeat business. We're confident that the Applebee's strategy is working, and we'll continue to build on this progress. Since the start of the year, we've seen positive sales trends despite the severe weather, which position us well as we look to carry 2025's momentum into 2026.

And now for IHOP. In 2025, IHOP's back to basic strategy delivered meaningful progress and traffic is the clear highlight. Traffic improved throughout the year. And in the fourth quarter, IHOP delivered positive traffic and sales outperforming Black Box in both metrics. Notably, this performance came during a year when the family dining segment remained under pressure. IHOP outperformed Black Box and traffic every month of the year and that outperformance accelerated meaningfully in the fourth quarter. This is a strong signal that guests are responding positively to IHOP's approach and breakthrough marketing.

In September, we launched the IHOP value menu, an expanded and rebranded version of House phase now available 7 days a week. This gives guests greater confidence that they can access meaningful value any day of the week while preserving a balanced menu mix.

At IHOP, value is designed to drive traffic, not replace full margin items and that's exactly what we're seeing. The value menus drawing guests into the restaurant. And once they're here, guests are also choosing premium offerings such as our break feast, combos and LTOs, like our Pumpkin Spice and Coffee Cake pancakes. As a result, average check comp improved [ 130 ] basis points during Q3 to Q4.

Off-premise also contributed to IHOP's steady sales growth and a positive 4.5% comp sales increase in Q4. Targeted promotions through third-party supported delivery, resulting in delivery comps that reached low double digits throughout much of the quarter. These efforts extended the reach of our platform through digital channels and allowed us to meet guests where they are.

Marketing and digital engagement also kept IHOP top of mind for our guests throughout the year. Social impressions and views increased significantly, and overall engagement increased over 300% year-over-year. These results reinforce IHOP's relevance with younger guests and reflect the effectiveness of our investments in social media to reach broader audiences.

Operationally, we remain focused on strengthening the fundamentals and in partnership with our franchisee committees, we are constantly evaluating different ways to improve efficiency and execution. Recall that at IHOP, we completed a full rollout of our new POS and handhelds in 2024. These tech enhancements, combined with process improvements, supported better throughput and guest flow, delivering a roughly 7-minute or 12% improvement in table turn times versus 2024. At the same time, guest complaints declined for the second consecutive year, underscoring progress in the in-restaurant experience.

And although we ended the year slightly below our comp sales expectations, the positive trajectory for IHOP continued into January despite the impact from the winter storm. As we move into 2026, our focus at IHOP is on disciplined, consistent execution, driving traffic through accessible value and culture-driven marketing, protecting margins through balanced menu mix and continuing to improve restaurant operations to deliver an incredible guest experience every day.

Now at Fuzzy's. We saw encouraging progress beginning in Q3 that extended into Q4 and rolled into 2026 as different initiatives around our key priorities, improving the technology, engineering a more profitable menu and enhancing in-restaurant experience started to gain traction. Enhancements to our off-premise offerings, including a revamped online ordering platform and expanded third-party delivery partnerships contributed to modest improvements in sales and traffic with the brand outperforming the Black Box comp set in sales every month in Q4.

Additionally, Fuzzy has expanded its Houston footprint by opening 2 additional Fuzzy's Taco and marks fast casual plus prototypes. This new hospitality service model is already encouraging higher beverage attachment and driving a noticeable shift toward premium Taco category orders.

And now turning to international. We ended the year with 32 international dual-brand restaurants, an increase of 14 for the full year. Dual brands have proven to be an effective capital-efficient way to expand our footprint and introduce our brand into new markets with meaningful white space across our core international regions of Canada, Mexico, Latin America and the Middle East, we see our dual brand platform as an opportunity to drive international growth over time.

And to speak more about development, we accelerated the pace of total gross new openings with 80 new restaurants globally in 2025 versus 68 in the prior year. Restaurant openings remain a key growth lever as we head into 2026. From dual brands and the Applebee's looking good remodel program to targeted investments in our company-owned portfolio, we're working to strengthen the physical experience of our brands and improve unit level performance.

So I'd like to provide an update on dual brands. As we discussed last quarter, dual brands represent a meaningful long-term opportunity for net unit growth. In 2025, we established the foundation, proving out the model, refining the operating playbook and building confidence with our franchisees. The results further reinforce our conviction on the importance of dual brands. As of today, we've opened 32 dual-brand restaurants in the U.S., including 3 company-owned locations with an additional 9 dual brands under construction. These restaurants continue to outperform single-brand locations, delivering approximately 1.5 to 2.5x higher revenue. We continue to see evidence that the dual brand concept is highly complementary with balanced performance by both brands across all 4 dayparts. At the same time, we're identifying opportunities to streamline operations, including reducing table turn times and refining kitchen layouts that improve throughput and efficiency.

Based on feedback from our franchisees, we continue to expect payback periods of less than 3 years. Franchisee interest remains strong and the pipeline is expanding as operators see the benefits of the model firsthand. Based on our current pipeline, we expect to achieve at least an incremental 50 dual-brand openings in 2026, bringing us close to 80 domestic dual-brand restaurants by the end of this year.

As we move into 2026, our focus with dual brands is on disciplined expansion, scaling thoughtfully, applying what we've learned and ensuring we can deliver consistent results as the concept grows. Dual brands are not the right solution for every market, but where they make sense, they are powerful incremental unit growth and profit drivers for us as well as the franchisees.

Beyond dual brands, we also made meaningful progress with the Applebee's Looking Good Remodel program. We ended the year with 103 remodeled restaurants more than our initial goal. And early results are encouraging with on average mid-single-digit lift in sales when remodels are combined with marketing as well as improvements in operations and the overall guest experience.

Refreshing the physical environment remains an important part of improving brand relevance and guest experience. Based on this progress, the remodel program continues in 2026 with the goal of remodeling another 100, if not more locations this year. Development is an increasingly important part of our growth story. The progress we made in 2025 strengthens our foundation and positions us well to drive steady, disciplined growth in 2026 and beyond.

And so now I'll turn the call over to Vance.

Thanks, John. We made meaningful progress in 2025. Applebee's returned to positive comparable sales for the year, and IHOP exited the year with 2 consecutive quarters of positive traffic. We also completed our debt refinancing in June and continue to return capital to shareholders, all while maintaining a strong balance sheet.

On the top line, consolidated total revenues increased 6.2% to $217.6 million in Q4 versus $204.8 million in the prior year, primarily driven by the timing of when we took back restaurants from franchisees. It is offset by a decrease in franchise revenues, primarily due to the take back of restaurants and closures. For the full year, we generated $879.3 million in total revenues, which was 8.2% higher than the prior year, resulting from the timing of when we took back company restaurants, partially offset by a decrease in franchise revenues from the restaurants taking back and a decrease in rental income.

Excluding advertising revenues, franchise revenues in Q4 decreased 2.8%. For the full year, franchise revenues, excluding advertising revenues decreased 3% due to the decrease in IHOP domestic same -- restaurant sales, the company taking back restaurants from franchisees closures and merchandise sales.

Rental segment revenues for the fourth quarter of 2025 decreased compared to the same quarter of 2024, primarily due to lease terminations and the impact of company-acquired IHOP restaurants in March of 2025.

G&A expenses were $51.5 million in Q4 of 2025, down from $52.3 million in the same period of last year, primarily driven by the recovery of fees from the franchisee. We ended the year with $203.8 million, up from $196.7 million last year due to an increase in compensation-related expenses, predominantly incentive compensation and professional services fees, partially offset by the fee recovery.

Adjusted EBITDA for Q4 of 2025 increased to $59.8 million from $50.1 million in Q4 of 2024. The increase in adjusted EBITDA for Q4 2025 includes the timing of national advertising fund benefit. Adjusted EBITDA for 2025 decreased to $219.8 million, down from last year's $239.8 million. Our 2025 EBITDA was unfavorably impacted by $10 million from our company-owned restaurants due to the investments and transitory costs we've discussed previously.

Adjusted diluted EPS for the fourth quarter and full year of 2025 was $1.46 and $4.45, respectively, compared to adjusted diluted EPS of $0.87 and $5.34 for the fourth quarter and full year of 2024, respectively.

Now turning to the statement of cash flows. We had adjusted free cash flow of $61.5 million in 2025 compared to $106.4 million for the same period of last year, driven by Company restaurant operations, including restaurant CapEx and the launch of our remodel incentive program. CapEx for 2025 was $35.6 million compared to $14.1 million for 2024. The higher CapEx includes the cost from our company-owned restaurants, of which 70% is related to deferred maintenance and with modeling costs and 30% is related to dual-brand conversion costs.

We finished the fourth quarter with total unrestricted cash of $128.2 million compared with unrestricted cash of $168 million at the end of the third quarter. Regarding capital allocation, we returned $92 million of capital to shareholders in 2025 through buybacks and dividends. Due to the significant discounting on our stock price on our Q3 2025 call, we committed to repurchasing at least $50 million of shares during Q4 of 2025 and Q1 of 2026. In Q4, we repurchased $31 million, which was slightly over 7% of our shares outstanding. For the full year, we bought back approximately 2.4 million shares or 15% of our shares. We continue to believe our shares are undervalued and remain committed to our goal.

In 2025, Dine System sales were approximately $7.8 billion, demonstrating the scale and size of our brands.

Applebee's 2025 same-restaurant sales increased 1.3% year-over-year. Average weekly franchise sales per restaurant in 2025 were $54,300, including approximately $12,400 from off-premise or 23% of total sales of which 11.8% is from to-go and 11% is from delivery. Off-prem saw a positive 6.5% lift in comp sales in 2025 compared to the same period last year.

IHOP's 2025 same-restaurant sales were negative 1.5%. Average weekly franchise sales per restaurant in 2025 were $38,700, including $8,000 from off-premise or 21% of total sales, of which 7.5% is from to-go and 13.1% is from delivery.

Turning to commodities. Applebee's commodity cost in Q4 increased by 0.5% and IHOP commodity costs increased by 3.5% versus the prior year. For the full year, Applebee's commodity costs increased 0.1% due to inflation while IHOP saw a 6.4% inflation, primarily driven by the higher egg prices in the beginning of 2025. Excluding eggs, IHOP's commodity inflation was 3%.

Our supply chain co-op CSCS expects commodity costs in 2026 at mid-single digits for Applebee's and low single digits for IHOP. The primary driver for both brands' commodity costs is higher beef prices, including the lapping of favorable beef contracts at Applebee's and the impact of tariffs, more broadly on our market baskets.

Our franchisee health remain resilient. Our most recent quarter indicates an improvement in both margin percent and dollars for our franchisees, driven by improved sales and cost management. CSCS continues to work across both systems to identify additional cost savings opportunities and support restaurant profitability initiatives through both operational improvements and input costs. In 2025, we implemented projects resulting in over $46 million of annualized savings across both systems and we continue to partner with CSCS to leverage our scale and make progress on our cross-functional restaurant profitability initiatives.

Lastly, our company-owned portfolio remains instrumental in strengthening brand performance and supporting the overall health of our system. Operating these restaurants also helps us maintain a presence in key markets while providing us the ability to reinvest directly in the business, test and refine initiatives and create proof points that can scale across the system, all while maintaining our asset-light business model. At the end of 2025, we operated 72 company-owned restaurants, including 2 new dual-band restaurants we just built, just about 2% of our system. In 2025, we completed 14 remodels and 2 dual-brand conversions. Given the positive results we're seeing from these investments, in 2026, we expect to remodel approximately 23 restaurants as well as complete approximately 8 dual-brand conversions.

While we invest in the physical aspects of the restaurants, we are seeing sequential improvements with key operational scores such as reduced guest complaints and improve table turns since we have taken over the restaurants. Our approach and focus remains the same, which is to improve performance, strengthen brand fundamentals and ultimately refranchise these locations at the right time.

Before turning the call back over to John for Q&A, I'd like to share our financial guidance for 2026. On development, we anticipate that we're moving closer towards a period of returning to combined net positive unit growth for our domestic Applebee's and IHOP brands. It's also important to note that the average unit sales of new restaurant openings are greater than older closed restaurants and it's not a 1:1 ratio. For the Applebee's brand, we're expecting 15 to 5 net fewer domestic restaurants. This reflects an increase in gross openings from both stand-alone and dual-brand openings, offset by a similar amount of closures as prior years.

For the IHOP brand, we're expecting between 10 net fewer domestic restaurants and 10 new domestic openings. This reflects continued growth of stand-alone locations, nontraditional and dual-brand locations, offset by expected closures as a result of natural expirations or franchise agreements.

In 2026, we're expecting domestic system-wide comp sales for Applebee's to range between 0% and 2%. The comp sales range reflects current trends as well as our ongoing focus on menu and Bar innovation, marketing optimization and growth in our off-premise channel. At IHOP, we're expecting domestic system-wide comp sales to range between 0% and 2%. The comp sales range reflects current trends and the continued evolution of our IHOP value menu, check-driving initiatives and increase engagement across channels. We're forecasting a G&A range of $205 million to $210 million, including noncash stock-based compensation and depreciation of approximately $35 million. This reflects a slight year-over-year increase primarily tied to investment in our dual-brand initiatives, given the strategic rationale and strong results we're seeing.

On EBITDA, we're guiding to a range of $220 million to $230 million. Our outlook reflects the positive trends in our franchise business and modest improvement in our company-owned restaurants, which is based on our existing portfolio. To the extent portfolio changes, we'll update our shareholders.

We anticipate 2026 CapEx to be in the range of $25 million and $35 million, which is slightly lower than 2025. Our CapEx reflects continued investment in our company-owned restaurants including capital for dual-brand conversions.

With that, I'll hand it back over to John.

Thanks, Vance. I'll close just with a brief recap. 2025 was a meaningful improvement for all of Dime rooted in strong partnerships with our franchisees driven by focused priorities across our brands and executed against clear long-term goals to generate value for the future. We will remain disciplined with capital allocation, accelerating share repurchases to capitalize on what we see as a meaningful valuation discount. Given the strong start to Q1, we're optimistic for the year ahead and achieving additional growth led by improved comp sales, improved traffic and net unit development.

And so with that, I will turn the call over to the operator for questions and answers.

[Operator Instructions] And our first question for today comes from the line of Jeffrey Bernstein from Barclays.

Great. My first question is just on the comp trends. You seem encouraged by the strengthening fundamentals of both brands. I know both brands fell short of, I guess, the sell-side consensus for the fourth quarter comp, but I'm assuming that's just us perhaps not modeling it very well. I'm just wondering how the fourth quarter compared to your internal expectation? And then just to clarify, I want to make sure that the first quarter, I think you said strong start at both brands despite the weather. So is it fair to assume both brands are running within that flat to plus 2% that you guided to for the full year?

Jeff, it's John. Vance will take you through the comp trends in the first quarter.

Jeff, this is Vance. For both of our brands, the momentum that we saw, we talked about in Q3, continue to build into Q4. But as you noticed with the beast in the industry, we did experience some temporary softening in December. So that's the inter-quarter trend. But we're now seeing that momentum building back up in Q1 despite the winter storms and both brands have recovered to the pre-winter storm trend of positive trajectory, which allows us to provide the guidance that we just did.

Understood. So it's safe to say that both are now positive and within that 0% to plus 2% despite the inclement weather?

That's correct.

Understood. And then my follow-up, Vance, the share repurchase, you talked about the acceleration in '25 versus 24%. I think it was north of $60 million in '25, which like you said, I think it's like 15% of the market cap. I think you had already implied that between the fourth quarter and the first quarter, you're looking at a combined $50 million, which would leave, I guess, $20 million for this first quarter. Just wondering what your plans are for full year '26 with your view that such a significant valuation discount how we should think about the share repurchase plans for the full year '26.

Jeff, our capital allocation priority is the same. We're going to invest organically to drive dual-brand development to drive company restaurant improvement. But a key part of it is capital return, and we are net buyers in this -- at this price. So we're going to continue that buyback program as long as we believe there is a discounting our share price versus the price where we think the company should be at.

And our next question comes from the line of Dennis Geiger from UBS.

This is Paul on with Dennis. And my first one is just wondering if you guys have noticed any change in consumer behavior by different income or each cohort? And I think I recall last quarter, you guys mentioned there's some higher income shifting in some lower income shifting out. Just wondering if you are still seeing that happening in fourth quarter and maybe into first quarter.

Paul, it's John. I can answer that on behalf of Applebee's and IHOP because we see very similar consumer behavior in both brands. The way I would characterize the consumer broadly for 2025 is that they were looking for both the value and the vibe. And by value, we mean obviously, the price of the item, but also the taste, the quality and abundant serving. And most importantly, the vibe, which is a really good service. And we see that trend continuing to '26.

In terms of specific consumer behavior, it was pretty consistent through all 4 quarters of last year. The value portion of tickets at Applebee's was about 1/3, and that number was about 20% at IHOP. And you're correct, of all of our cohorts, both brands saw growth in the higher income guest. The other income categories were relatively stable. And then both brands also attracted new guests in the fourth quarter, which we attribute to our product innovation and our marketing. On the Applebee's side, that would be the Grilles, Cheeseburger and the Ultimate Trio via 2 for '25. And at IHOP, the everyday value menu expanding to 7 days a week and all the promotion we had behind that.

Great. And then just on the dual brand openings, I think you guys talked about like at least 50 in 2026. And I think the net opening between the 2 brands is about maybe down 25 units to plus 5 units. Is that correct? And does that imply that there's going to be about like 45 to maybe 75 total closures? And how should we think about development and closures going maybe a little bit beyond 2026 based on the current projections on that pipeline?

Sure, Paul, it's John again. I'll take that in terms of the development strategy. And then perhaps, Vance, you can follow up with more detail about the net numbers. So when it comes to development, our strategy the last couple of years has been to make sure that we have multiple products available to our franchisees and to other developers so that we have the right product for the right franchisee in the right market. And at this point, of course, that includes the dual brands. It also includes individual Applebee's and IHOP. And it includes both newbuilds and conversions.

As we've mentioned in the past, more than 80% of new IHOPs are actually conversions. And so as we look at our total pipeline, that's been accelerated by our dual brands, as you referenced. We see an inflection point coming where we get to positive net unit growth sometime in the next 12 to 24 months, and that's fueled certainly in part by the interest in the deals and the pipeline that we're building.

Vance, can you speak more specifically to the unit count question and the closures that Paul referenced?

Sure. Paul, good to hear from you. So the way we think about closures, we've said this before for a system our size. We typically see closures in the 2% to 3% of our portfolio in that range. So you can probably model it the same way going forward. That closure rate hasn't changed dramatically. In fact, it probably as -- in the next few years, it should come down primarily because of, one, the dual-brand possibility, two, the natural expiration of the franchise agreement is going to come down over the next few years. So we see that. But aside from that, I think -- the other side of the equation is opening. So you can net out the math to get to the net numbers you're talking about. And so that's -- for this year globally, I think we opened 80 restaurants this year, and that number will continue to go up as we build our dual-brand pipeline.

And specifically, Vance, just to connect that last dot is that the closures are expected to decline because the dual brand is now serving as a mechanism to "save" lower revenue restaurants that might have otherwise closed. But now that they can add the second brand, it puts them back into a healthy space.

And our next question comes from the line of Brian Mullan from Piper Sandler.

This is Alison Arfstrom on for Brian Mullen. Curious what you're seeing at IHOP with the changes on value on the weekend. Is it bringing -- is bringing on the weekend working for franchisees? Or any other color would be helpful there.

Alison. That sounds good question for Lawrence.

Alison, as in all promotions and programs, we partner closely with our franchisee partners before bringing a program like that's life, and that is, in particular, even with the everyday value menu. And as we converted the house phase, which is a Monday through Friday program into the everyday value menu, which launched this past September, we obviously tested this prior in key several markets to understand the incidence on the weekend impact. And the great news is that even on the weekends, our incidents remained at around 10% of total checks even as it expanded from Monday to Friday into the weekend.

And so in partnership with our franchisee partners, we've continued to maintain momentum of the everyday value menu. We're actually extending it all throughout 2026, and we're excited for the momentum it's bringing, especially in regards to traffic.

[Operator Instructions] Our next question comes from the line of Nick Setyan from Mizuho.

In 2025, obviously, there was a big pivot towards value at both brands. which stabilized to accelerated traffic trends. How are we thinking about 2026 is or the cadence of value? Is it enough now? Is there anything that we need to do more, whether it's in value or in addition to value, how are we thinking about incremental comp drivers in 2026.

And then the second question is just on the operating cash flow side. Any reason why it should be -- it shouldn't be in line to above 2025, given the EBITDA guidance?

Nick, it's John. I'll address Applebee's first, and then Lawrence will take IHOP and Vance will take cash flow. So our strategy for Applebee's is to, number one, have fewer promotions in market for longer periods of time. And so in the past several years, we might have 10 to 12 different promotions in a given year. In '26 and at the end of '25, we're focused more on 6 to 8. And our primary message is the 2 for 25 menu, which on its own accounts for 22% of our tickets. We think that communicating that program more consistently and more often is exactly what guests are looking for in 2026 just as they were in 2025.

The second component of that is that as we communicate 2 for 25 each quarter, we will introduce a new entree and a new appetizer so that we also have exciting new news and innovation along the way. And so as an example, when we introduced the Grill Cheese Cheeseburger in Q4, that became our #1 selling burger of all time and drove the performance that we saw toward the end of the year before we slowed in December. And in January, as Vance referenced, we introduced the OM Cheeseburger, which if you haven't seen it, is a burger, cut in half and served in a skillet of bubbling cheese. And that quickly became our #1 best-selling burger ever, blew up on social media and has been a big driver of our performance in Q1. And so our strategy for the year is to leverage 2 for 25, and we have other exciting new entrees like the OM Cheeseburger plan for the rest of the year.

Lawrence?

Yes. And similar to Applebee's, for IHOP, we also, in the same light, have fewer promotions with longer period of times in terms of sustaining those promotions. As you know, our current primary messaging is around the $6 everyday value menu and you're going to continue to see that trend. But as mentioned in a prior call, we are complementing that with our barbell strategy. And this is including other promotions, for example, like our latest bottomless pancake promotion, which we tied in with a very strong cultural moment with Fantasy Football. But also we have a great line of innovation. And you have to complement that with new news to balance that equation of value plus innovation and bring that excitement and awareness to new consumer bases as well.

So we're constantly listening to our guests, looking at different trends. And coming into 2026, we're in complement to our everyday value menu with, for example, a new proprietary coffee because you got to have the best copy in the world together with the best pancakes in the world. But also we're going to be innovating around our Omni platform. So this March, we're also going to introduce a new barbecue pool pork omelette which we're excited because it's something our guests have been asking for. And then, of course, as you go further into the year, we have a whole lineup of innovation to balance that. But we're staying extremely focused and vigilant in terms of our key strategies of maintaining value as a core and driving that and complementing that together with innovation.

Nick, this is Vance. Good have you back, man. So for free cash flow, in this quarter, we -- there were some timing issues. So we actually had to pay 2 quarters of interest expense -- and that's part of our -- that's impacting the cash flow. We also had higher remodeling incentives. And obviously, you saw the nonoperating part of the CapEx and some of the working capital changes that's impacting this year's cash flow. But we do expect next year to be back on a more normalized basis. And given the higher EBITDA guidance, we expect cash flow to improve next year as well.

And our next question comes from the line of Brian Vaccaro from Raymond James.

Just back to the fourth quarter comps, could you walk us through the traffic and check dynamics for each brand?

Sure, Vance can do that.

So fourth quarter, let me see, so we had a negative 0.4% comp for Applebee's, Check was up about 3%, and then the rest was traffic for Applebee's. IHOP comp was 0.3% and then our check was slightly down, call it flattish and then the traffic goes up. So that's the makeup.

All right. And in the quarter or in the year of the Company operations, I think the EBIT loss was about $8 million, which I think was a little bit ahead of your expectations. But I'm just curious what kind of an EBIT loss have you layered into your 26% EBITDA guidance for Company operations?

Brian, so basically -- so you're talking about EBIT and then we kind of -- what we're thinking about it in terms of EBITDA with a similar trend, but basically, we're expecting Company restaurant portfolio to be at a breakeven level for '26. And in 2025, if you're backing out depreciation, Company restaurant and backing out some of the onetime stuff transitory cost type of things, Company restaurant portfolio was negative $10 million of EBITDA. So should -- we're expecting to see a meaningful swing in performance.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to John Peyton, Dine Brands' CEO, for any further remarks.

Jonathan, thank you for moderating, and thank you, everybody, for your questions this morning. I'll just summarize with where we started and that we're pleased that 2025 performed better than 2024. We certainly don't think that was an accident. We think it was because both of the big brands focused on marketing and social media with new messages and new plans, both of them really put the value programs front and center in front of consumers and backed it up with great menu innovation like we discussed today. And we also make great experience in the guest experience in terms of operations and OSAT, which we didn't talk about this morning, but both guests improve their reviews in terms of guest satisfaction. So thank you all for your time this morning, and look forward to talking to you next time.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Thanks, everyone, for joining us. We're here with the full team from Dine Brands. We've got Lawrence, Kim, we got Vance, we got Matt, John. So welcome, everybody. Maybe we'll just start off, discuss the key drivers as we look out into 2026. What do you see as the key drivers for both brands, Applebee's and IHOP? And how do you believe your brands are positioned from a competitive standpoint?

Eric, I'll talk generally and a little bit about Applebee's and then Lawrence will fill in for IHOP. In terms of the big picture, the macro and sort of what the guest is thinking and what our guests in particular is thinking who is in that sweet spot of $50,000 to $75,000 a year in household income is that value still matters. It's mattered now for 1.5 years, and we expect in 2026 that our guest is going to be looking for value.

But the definition of value has changed over the last couple of quarters. It started about 1.5 years ago when inflation really kicked in where guests wanted to know the full cost of the meal. And that's when you started to see all of the burger, fries and a soda for $10, $11, $12 -- but what we're seeing now in addition to that, as we do our guest intercepts and all of our research is they're equally focused on what they're calling the vibe, and that's literally a word that they're using over and over again and what they say to us.

And their point of view is when I make a decision to leave my house to eat, which is a big decision these days given how they're feeling about the economy and their own personal situation, I not only want great value in terms of good food and abundant fortune at a great price, I want to be served and entertained and taken care of in a fresh, clean, fun restaurant. And so that's the big picture.

At Applebee's specifically, our reflection of that is the 2 for $25 value platform that we have. It's 2 entrees in an appetizer for $25 or $12.50 per person. That's easy math to do. And that is a great value, and that's what we will be communicating as our primary platform throughout 2026 as we did in the back half of '25. And to keep it fresh and top of mind, each quarter, we'll introduce a new entree and a new app so that we've got the innovative and the what's new piece as well. And Lawrence, I'll turn to you for IHOP.

Yes. Thanks, John. Yes, similar for IHOP, there are 3 key areas that we focus on this year, and those will extend into 2026 as well, which is great food. No question, our world famous pancakes, our innovation. We have a pantry of over 1,000 items that we can pull from that are exciting innovation and part of our road map. And then great service, which we've dedicated a lot of time focusing on our operations, improving our speed, our cleanliness of our restaurants and what we call hospitality.

But as John's alluded to, is this anchor on value as well. And so we launched House Faves, which is our $6 value menu last October in 2024. That was a Monday through Friday program. And then we've evolved that because based on consumer research, I'm in restaurants pretty much every week, travel all across the country and talk to guests.

That $6 price point, it's one of the guests even said it's cheaper to go to IHOP than it is to make this at home at $6. And so that's been a very core strategic insight that we've just been anchored on. And we evolved the platform this past September to go to everyday value in partnership with our franchisees, and we're going to continue into that into 2026.

Yes. And Eric, the fact that IHOP has beat Black Box, its comp set in traffic all year and posted absolute positive traffic gains in the third quarter, which hasn't done in years and years. And Applebee's has had positive comps the last couple of quarters, they're no accident, right? It's because of the focus on this new definition of value and the experience in the restaurants that we are certain is driving the stronger results this year.

I'm going to ask 2 follow-up questions from something you said, John, about 2 for $25 being the core platform. I think it was a couple of quarters ago, you talked about -- just correct me if I'm wrong, but my memory, I thought you were talking about maybe going more towards individual. Like how do you cater to that individual guy that comes in buying stuff he doesn't want to order on the 2 for $25 engine.

And Lawrence, on the IHOP side, the $6 value menu, I always go back to this like independent diners are so expensive. Like it is so much more expensive to get an anomaly at a diner. It could be $20, $20-plus. So I have such a good value. So is this just about communicating that value in a more effective way? So 2 different questions there, but just related to what you guys just talked about.

Sure. Go ahead, Lawrence. You're going to roll, let's start with IHOP.

Yes. So you're right. The great part of our menu is value is one component. And when we first launched House Faves past October, our value incidence was higher. It's around 30% of our checks. And because it resonates extremely well, right? I mean we just talked about it, how amazing is the $6 item, which is 2 pancakes, 2 bacon, 2 eggs, and we have 3 other dishes that come along with that as well.

But we were strategically focused on our barbell strategy and looking at our menu innovation tied to our other core products like our omelette, like our breakfast combos and that value incidence actually has gone down to around 15%, so half as we've launched everyday value, which is part of the strategy in the core.

But the beautiful part about our menu and our offerings is that we have that balance. It's not just one price point for all items. That balance across our menu and our scope is a clear strategic priority for us and in partnership with our franchisees. But we want to provide our guests, especially in these uncertain times with that consistent, and I'd like to say our distinctive value. I think it's the best in the biz in our category. And right now, our guests are just loving it. So we're going to continue to evolve and amplify how we bring that messaging to life. If you haven't seen our current ad because it's all over the place right now, it's fantastic. It's like this dream state, this [ blissful ] state of pancakes and breakfast offerings, it just stands out from the competition. And so we're -- our creative team is already looking at the next evolution of that, and it's super exciting.

And it's fair to say, Lawrence, you're using the $6 promotion to drive guests into the restaurant. Once they get there, everything you put in front of them from a tabletop display collateral perspective is high-priced full margin items.

That's right. I would like to say we shout value from the mountain tops, get them into the restaurants. As John mentioned, traffic has been just improving every quarter and you get them in and some more value, but they see all the other items out there, and they're attempted and they're loving them.

Yes. And Eric, to your point about Applebee's, we decided to lead with 2 for $25 because -- when you look at what's in the marketplace at literally QSR, fast casual and full-service dining, the categories we compete in, the overwhelming majority of what's being promoted right now is some version of, right, burger, a soda and fries. And so we think the 2 for $25 is unique and breaks through in that regard. It's also consistent with Applebee's long-time message about being a place, a date night place and a place for groups to go.

That said, we also have and we launched earlier this year, the Ultimate Trio, which is choosing 3 apps out of 10, 3 sauces out of 10. They are slightly smaller portions. When you put that all together, it functions as an entree, and we see that many singles are using that platform, which is great. And yes, we're continuing to look at a [ "14" ] and we will have news there earlier next year.

I was thinking about like being the third wheel -- being like an odd table 2 for $25.

Well, the hope is that the third wheel buys the steak.

Right i guess or Ultimate Trio.

Right, exactly.

What is the experience of the Ultimate Trio -- because it feels a lot like the triple dipper, but it is a few bucks cheaper. So...

It's a few bucks cheaper. And what's unique about it is the choice, right? And so there's over 80,000 combinations between those 3 appetizers and 3 sauces, and it's literally designed based upon what we know about how young people like to eat, right? They like to customize their food. They like to share their food. They like -- they wanted to be innovative and trendy in some way, and they want to be able to photograph it. And it's literally designed for that. And the 80,000 combinations and what's your combination, right, is literally designed for social media and for them to share their combos.

I want to maybe take a step back and just think about the casual dining industry, and I recognize that your brands have been outperforming on various metrics in their respective categories. But full service is actually having a little bit of a moment here. It's undeniable. So why do you think that is?

And how can you sort of maximize your share of that moment as maybe it's consumers kind of looking away from fast food has got this perception that's gotten too expensive and you're providing a service and just a better value in a full-service meal. How much longer can these good times continue to roll on?

I think there's 2 parts to what's happened now. The first one you alluded to, which is the price of fast food, right, the $18 Big Mac in the Northeast was certainly good for us, right? Because as their pricing approaches our pricing, our burger and fries are so much better than what you can get from fast food. You don't have to eat out of a bag in the car, and you can sit down for 45 minutes or an hour and be served by great people in a great environment and really feel special for an hour.

And so that pricing -- that price collapse has been certainly helpful in the micro. I think the macro explanation, Eric, it's still after all these years goes back to COVID. And I think we're finally getting back to that equilibrium that have existed for years and years and years and years, which is it took a really long time coming out of COVID, right, because people were in QSR and then in fast casual.

And human beings are, by our nature, social beings, and we want to be together, and we want to sit down and we want to celebrate. And we're seeing in 2025, what is sort of normal and what casual and what full-service dining has always been. And I think it's just taken us a couple of years to get back here.

It certainly feels like -- how do you -- what are your expectations for the holiday season? I recognize this isn't -- it's not like you're in the retail segment where you have to deal with Black Friday and those sort of seasonal volatility. But what -- do you have any expectations for the holiday season, like the consumer, how do you feel is faring this season so far?

From the data that we look at, and I know that you and many listening to this call look at data as well, particularly for our guests, right, who's earning in this $50,000-plus range, the fall has gotten a little bit slower across multiple retail categories, and we're seeing that, too. And our -- we're not economists, but our interpretation of that is as we head into the holidays and guests continue and consumers continue to feel the pinch on their wallets, right, because of their perception of the economy, they're making choices between buying gifts and going bowling or going out to a bar going out to a restaurant. And so I think that's a little bit of the softness that you see this fall, and we expect it to strengthen again once we get past the holidays.

Do you have any expectations for some of the stimulus that's coming? Like how does no tax on tips and maybe the 40,000 so deduction, like how does that impact your consumer? I'm assuming the 40,000 thing is probably more of a higher-end luxury than some of your lower-income consumers. But maybe the no tax on tips is a big deal because that money gets spent in the restaurants and small nuances. How are you thinking about that?

It's definitely -- it's a tailwind, right? So it should be helpful. And even the 40,000 mortgage deduction, we saw it in the last couple of quarters, a greater percentage of our guests who are earning $100,000 and above, right? And that's a sign, too, that the economy is -- they're feeling the pinch as well. And the reason why our brands overperformed is because we gained more 100,000 plusers than we lost 50,000 and less at the bottom. So I think it's -- I think other than the fact that we think it's a tailwind, it's awfully hard to predict because I think many Americans don't realize what they're going to -- what's coming in the tax package. And so it's going to be very real time.

Yes. We've talked a lot about check management, too. That's been a topic that's come up on your conference calls. So do you think that trend has gotten worse over time? Or are you starting to see any normalizing there?

Yes. I think in general, I think, Vance, you can address that for both brands, right?

Yes. Eric, in terms of check management, we are seeing our guests managing their check as they have been for the past few quarters, but the P mix of that check has been down. But check overall has been fairly steady because sort of the low moderate menu inflation has sort of offset the negative P mix. So that sort of made sure that the check average has been fairly consistent for both of our brands, up and down a little bit, but it's not something that we're worried about.

Maybe we'll pivot to your -- our favorite topic, the dual brand strategy. For those who aren't familiar, maybe you could touch on that and just your expectations. I know it's only -- what is it? -- one -- how many do you have that 1 or 2?

20 are open in the U.S.

I'm sorry, I know you had the one in Texas, but you could talk about the early read on that and why you think this is such a good opportunity for the brands.

Sure. Thank you. So we have -- I'll define it in a moment, but first, the numbers. We have 40 dual brands open outside the U.S. We have 20 open now in the U.S. on the way to 30 by the end of the year. And we've stated that we see a path toward at least another 50 next year. So it will be a total of 80 in the U.S. And the concept is an Applebee's and an IHOP in the same box. And so anyone who has the time you can go to our IR website at dinebrands.com. We've got a great video that really shows you the inside and the outside of the restaurant, and it's really helpful to see it to understand it. But the outside is co-branded. There's one front door. You walk in and you're seated by a greeter. Imagine generally the blue side of the restaurant for IHOP and the red side for Applebee's and they blend together in the middle.

It's one all-day dining menu that starts at breakfast and ends at dinner. There's 105 items on that menu, which is the same number of items that we have at an individual IHOP or an individual Applebee's. So we've taken the best of both brands and put them together. We also have only available with the dual brands a half a dozen mash-up items, so you can get Buffalo Chicken omelets at the dual brand. So the Applebee's boneless chicken in an IHOP omelet, which has already become the best-selling omelet at the dual brands, cross-trained back of house, cross-trained front of house.

And most importantly, what we're seeing when an Applebee's adds an IHOP or an IHOP adds an Applebee's, that they are increasing their revenue by 1.5 to 2.5x, and they're increasing and the flow of that incremental revenue to profit is about 3x the margin of the restaurant before. So we think this is a big idea, Eric, for several reasons. One is it's transforming the economics of the box for the franchisee. The guest feedback has been terrific, both sort of from traditional feedback about I love having the ability to order from both menus.

And from a social media perspective, right, the young folks are having a really good time talking about is it Apple Hop or is it IHOPlebee's, and it's none of those things. It's Applebee's and IHOP in one under one roof. And for Dine Brands, it's a big fuel and catalyst for our growth of new units. We're the only company that happens to own a premier AM brand and a premier PM brand and you can put them together.

So this is all about complementary dayparts and not having dayparts that conflict with one another as others have tried in the past. And the last thing I'll say is we look at the country, we run our analysis. We see 900 opportunities for dual brands over the next decade or so. Of those 900, Eric, 450 are, call it, white space, meaning there's no Applebee's and there's no IHOP. So an existing franchisee or a new one can come in and build a restaurant. And we also see 450 opportunities with our existing restaurants to add an IHOP or add an Applebee's.

And those can be done without having to worry about the territory of a new -- of an adjacent brand. So Applebee's adding an IHOP, they can do it free and clear because there's no IHOP near them. So it's a big opportunity. And based upon just the pipeline that I shared, franchisees are excited about it and are moving pretty assertively into that space.

Is it -- talk about the difference between adding an IHOP to an Applebee's or adding an Applebee's to an IHOP.

Yes. So if an Applebee's adds an IHOP, the cost of the franchisee is about $750,000 to $1 million, and they'll drive $1 million plus in additional revenue. So that's a 3-year or less payback, which is excellent. If it's an IHOP adding an Applebee's, it's more expensive. It's $1 million to $1.2 million. And the difference is the IHOP has to add the bar, right? So you got the plumbing, the electric equipment that already exists in an Applebee's. And same thing, when you add the Applebee's, you actually add a little bit more revenue. And so they too have got a 3-year payback.

Sorry, it was how much more for -- I didn't catch that.

So $750,000 to $1 million for an Applebee's to add an IHOP...

IHOP, yes.

And $1 million to $1 million in a quarter for an IHOP to add an Applebee's because of the added expenses of our...

And then there's the liquor license and all that other stuff, too, I would imagine.

Yes, yes, which are all -- those are onetime costs and things like that. But what's interesting is it enables IHOP now to have a Boozy Brunch menu, right? So they can do [ Monsters ] and Bloody Mary's using the Applebee's glassware, et cetera. And so our -- the Mucho Margarita at Applebee's and that gigantic glass is now a Bloody Mary on something morning at IHOP.

Well, it sounds like if you do this over the next decade, it's going to be really hard to sell one of the brands. I think they're tied to get via 900 stores, it's going to be hard to dismantle Dine Brands, so...

Good thing that's not our plan.

It doesn't sound like it. No, but it really is interesting. And have you done any corporate units? Would you -- is this an opportunity for you to do that in some of the company-owned stores?

Eric, it is. In fact, we've got 2 so far, and the plan is to get to about 10 to 12 company-owned dual brands. And the 2 that we have there in Kentucky, they are doing sort of north of 2x in sales and early days and still a lot of fine-tuning we need to do, but they're performing above our expectation. We're really happy with the results.

And what's the -- do you have to shut down if you were to add on like an IHOP to an Applebee's, do you have to shut down the Applebee's fully?

It's a gut renovation. We got to redo the whole thing. And so part of the reason why we saw some noise with company restaurants it's the construction with dual brands and construction with our remodeling, both require full shutdowns...

And are there any other costs or just the cost consistent with just adding the volume that you would expect? Like is the extra $1 million in sales the same as if Applebee's just grew that organically? Or is there other costs that we should think about?

No, I think it's primarily -- if you think about it, right, it's the same brand, same labor, as John mentioned. So the flow-through, the reason why it's so much higher than normal 4-wall margin from a new opening of a regular restaurant is because you're just leveraging the fixed cost that much better. It's mostly your gross margin that's flowing through, right? And so that's why the math is we're changing sort of the algorithm of the unit economics for our restaurants for our franchisees.

But maybe some upfront training costs and things like that.

There are some training cost is with any restaurants. And then doing construction, right? So if the restaurants are -- at least the way we're doing it, the different franchisees may have different perspectives on this. For the company-owned restaurants, when the restaurants are closed, we don't let go of the team. We keep the team.

And so making sure that they're trained while the restaurant is down. And so that when the restaurant is ready to open, they're back right away versus have to re-recruit the whole team from scratch. So that's sort of this hidden cost that you have to bear in the meantime during construction.

Are there any just sort of interesting insights around consumer behavior when they're in a dual brand restaurant versus like the restaurant that was there before? Like are people getting pancakes all day that were typically irregulars that would come in for a steak, now they're getting pancakes or vice versa? Or just anything that surprised you that you're seeing with this -- with the experiment?

Yes. A couple of things come to mind. The first surprise was we assumed that based upon the reason they were going out to eat, right, whether it was daypart or breakfast or dinner that guests would prefer or indicate I want to sit on the Applebee's side or the IHOP side. We're seeing that's not the case. The restaurant is beautiful, and they're happy to sit on either side and because they had access to the full menu.

In terms of behavior, what's interesting, Eric, is the off-period brand. So think IHOP at night and Applebee's in the morning, average sells less than 15%. So to your point, at 10:30 in the morning, we're selling a lot of pancakes and omelets, but we're also selling ribs and burgers from the Applebee's portion of the menu and the reverse is true at night.

Never less than 15% of the total mix.

Correct. Of the mix during that daypart. And the other thing that's compelling about it is the overall dayparts are very evenly distributed. So if you think breakfast, lunch and then dinner/late night, it's about 1/3, 1/3, 1/3. And so it's very good for the operators because they have a consistent approach to staffing and scheduling when you see the business fall that way.

I would be more concerned of the trade down to pancakes than I would the trade up to the stake. I guess that's something you need to manage.

Well, IHOP has always been open for dinner 24/7. So we continue to sell -- and we've always sell pancakes and I would sit dinner at IHOP. That's what we need to.

Yes. I guess that makes sense. Okay. Maybe just pivoting to just the overall -- the macros here again. The commodity basket, can you talk about what your expectations are for the rest of this year? And then as you look out into next year, I was on with Brinker yesterday, we're talking about the Brazil tariffs rolling off. I don't know if that's going to be a little bit of a relief pressure release for you guys, but does that impact your franchisees' P&L at all?

Yes. I mean, look, the rest of this year is -- the year is already over. So for this year, things are definitely more stabilized for our franchisees. The 3 baskets, the 3 items that are sort of a close lookout for us is eggs, coffee and beef. That's not -- that's the same across whole industry. We will have more details next year as we provide guidance for 2026. But so far, we're sort of expecting next year to not be meaningfully different than this year. Tariffs aside, we're looking at low to mid-single-digit sort of inflation environment for our market baskets, and it's really back to normal, fingers crossed.

And the tariff, do you have a lot of exposure to Brazil? You said it was coffee, eggs and beef. Those are where the Brazil tariffs impact you? I -- so I guess this is more of a benefit relative to your prior expectations. Is that...

Yes. I mean it is a fluid situation. So in the past sort of 6 months, it's gone good guys, bad guys...

Yes. I mean coffee, in particular, is helpful with the Brazil tariffs being relieved. But big picture, Eric, and Vance, to make sure I get this right, about 85% of what we procure -- 85% to 90% of what we procure for -- of goods and services into the restaurants, whether it's food or paper products, et cetera, is from the U.S. And of that remaining 10% to 15%, more than half is from Mexico and Canada, which maintain the most favorable tariffs through all of this. And so our exposure to outside the U.S., Mexico and Canada is fairly minimal. And one of the bigger ones there was coffee in Brazil, which we just got relief on.

All right. And what are you thinking -- do you have an early read on franchisee profitability in 2025? I mean you had decent comps, at least at the Applebee's side and certainly improving comps at IHOP. Do you expect when you finish out the year that the number is going to be higher than 2024?

We've already seen that in the past few quarters. Franchisees financials are improving versus 2024. The biggest part of the driver is just because of comps. Comps has been healthier than '24. And -- but we also talked about just the restaurant profitability initiatives that we were constantly working on to drive efficiencies out of the 4 walls of the restaurants in conjunction with the franchisees. And it helps when commodity costs are stabilizing, right? Still expensive.

Everything is still expensive, labor and food items. But at least they're more predictable now. And so -- which is reflected in how franchisees price menu as well. Everything sort of become more stabilized and back to that low mid-single-digit sort of level. So when franchisees feel better about predictability of their menus of their cost, that translates into pricing and then that translates into how the consumers see it, right? And so hopefully, this is a positive trend for us and the consumers going forward.

Great. The off-premises business, this was a big deal during the pandemic, but maybe it's less of an emphasis today. Just what is the status of your off-premises business? And -- there were some companies they toyed with virtual brands, and that bad seemed to fade a little bit. But how are you guys thinking about that opportunity? Is that still a growing part of the business and something you want to allocate resources towards?

Lawrence, do you want to begin?

Yes, absolutely. So off-premise is around 20% of the IHOP overall sales. And we've been fairly consistent the past few years. But at the fundamental angle of it is we want to be where the consumers are. And so for example, with delivery and off-premise in that channel, as consumers continue to engage with the delivery providers, we're going to be where they are. And so we've actually amplified our programs this year to not just drive more awareness within those off-premise channels, but also just to continue to engage and drive more offerings together with our partners there.

And so we're continuing to amplify or continue to, again, be where consumers are. Catering is a new part of our platform. And when you think about the offerings, especially during the breakfast hours, there aren't too many. You think about the same different offerings for breakfast when you go to like an event. And so pancakes and when we bring our catering items and it's a bigger focus for us in 2026. It's just a very distinctive offering that only IHOP can provide. And so that's one of the key areas that we're going to be looking into and amplifying in 2026 as well. But yes, like I mentioned, we're going to be where the consumers are, and that's one of our focal points.

Pre-COVID, Eric, for both IHOP and Applebee's, off-prem was 7%, 8%, 9%. And now it's 20% at IHOP, 22%, 23% at Applebee's. What's really interesting about that is that most of that off-premise guest is incremental and are unique to off-prem, and it's a fairly large distinction between them and those who dine in the restaurant. So that's incremental business we didn't have before with a guest that prefers to order out and not come into the restaurant.

Applebee's grew off-prem this year 5%, and that wasn't an accident either, right? So internally, we reorganized at the beginning of the year. We put the loyalty program, CRM and off-prem under one team and one leader because the common denominator there is the guest data. And so they can -- they're working with that as a way to be much more targeted in terms of how we promote and reach out to our guests with special offers and invitations.

And we've also changed our strategy up until very recently, the nationally advertised campaigns and promotions were not available on our off-prem channels. We changed that. They now are. So they're benefiting from all of that marketing muscle behind it. And we've gotten better at merchandising and working with the algorithms on the third parties. And so that's led to a really strong year for us, and we expect it to grow again next year.

So if you have these value platforms on these third-party platforms, I mean, how does the profitability compare to the franchisee?

The profitability is close to the same because the fees are on top of the cost of the item, right? They're charging the full menu cost and then there's a delivery fee on top or a Uber Eats fee on top. The difference there is the packaging, right, the to-go packaging and some restaurants have also added -- the better restaurants, the better performing restaurants have added staff that just focus on the to-go package and the accuracy of what goes in it. So it's still -- it is a profitable business. And like I said, it's an incremental business. And so it's an important business. At Applebee's, it's almost $900 million, which I like to round to $1 billion and say that's a $1 billion business, our off-prem, and it's equally significant at IHOP.

I do want to have IHOP, our $6 value menu is not available in the delivery channels, and that was intentional decision that we made with our franchisee partners.

Okay. That would be really generous of you to sell for $6 and deliver to my house. I would love it if you would do that. Maybe to close it out, just a quick one on Fuzzy's Tacos. What's the state of the union with that brand? What's the plan and the strategy for kind of nursing that brand back to health and setting it up as a growth vehicle in the future?

Yes. And that's a fair setup. We are giving it some TLC right now and refining it and reinventing itself. We like it because we wanted to learn more about fast casual and compete in that space. And we particularly like the Taco space. The Fuzzy's Taco is a Southern California-inspired Taco. And so it's tests well across the country in terms of the ability for national expansion. We've recently put in place a year ago a President/CMO that was one of our best Applebee's marketers, and we put in place a COO that was one of our best IHOP operators, both with long-time tenures with dine and headquarters.

And they're making a big difference this year. We're seeing some really encouraging green shoots. They have streamlined the menu. They have upgraded the quality of the proteins. They're focusing the menu on tacos and margs. And most importantly, we just opened what we're calling a fast-casual-plus model. And the elements -- and we did that in Houston, the key difference is Fuzzy's historically, you went to the counter, you ordered your taco and beer, you got a buzzer, you sat down, the buzzer rang, you pick up your food, you ate it and you left. And the restaurants are built like almost like a sports bar, right, with a bar and lots of TVs and a reason to stick around for a while, but we were closing out the ticket so early. They weren't staying. So now you sit down at the table, you're getting -- you're placing your order with a server at the table, keeping your ticket or your check open, and we're seeing second rounds of tacos and second rounds of beers and margaritas.

And the franchisees are encouraged by that. We've got about 6 of them that are signing up to develop this new model. So I would describe it as green shoots, and we think that this new model has potential, but we've got the next year to prove it out and to continue to tweak it. But that's the direction we're headed.

Got it. Well, I think we're coming up on time here. So thanks for that, and happy holidays, everybody, and really appreciate the time this week.

Thank you. Appreciate you including us.

Thank you. Bye.

Good afternoon, everyone. My name is Jeff Bernstein, and I'm the restaurant and foodservice distribution analyst here at Barclays. I hope everyone had a good lunch.

Our next fireside chat is with Dine Brands. With us on stage from Glendale, California, we have John Peyton immediately to my left, you're right, the CEO; Vance Chang, the CFO. And in the audience, we have Matt Lee, who's the SVP of Finance and IR.

By way of background, for those not familiar, Dine is a portfolio company. I guess as you've heard of a couple of these brands, Applebee's has 1,550 units. IHOP has 1,800 units. They also own Fuzzy Tacos, where they have just over 100 units. And that portfolio within those numbers includes 200 and some odd units outside of the U.S. But Dine Brands is effectively a franchise business. So the Applebee's, IHOP and Fuzzy Taco are run by franchisees.

We do have the largest square footage Applebee's directly across the street if anybody wants to grab something after work today, right on 49th between 7th and Broadway, which I know is popular here at Barclays. I have some questions, which I'm going to pose to management, but then I will definitely pause near the end. And if there are any questions from the audience, we will take them then. But with that said, we want to thank John and Vance for joining us and look forward to our conversation.

Welcome.

Thank you. Thank you for having us.

Absolutely. Being that you do have two of the largest restaurant brands in the world within casual dining and family dining, I should say, I think you have a pretty good pulse on the consumer. So I just wanted to start with a couple of bigger picture questions. We get a lot of restaurants that are talking about the consumer more broadly, which I'd love to hear your view. But also within that, over the past couple of quarters, there's been lots of talk of maybe individual cohorts, certain income levels, certain age groups, certain ethnicities that maybe are performing better or worse than others.

So wondering, one, your view on the consumer; and two, whether you've seen any divergent change in trend among any of the different cohorts that you focused on?

Yes, the consumer state of mind has been fairly consistent, I would say, over the last 6 or 8 quarters. The first big change we saw was in 2024, our guests and guests in general, wanted to know what the full cost of the meal was. So for example, Applebee's for years and years and years had historically been promoting some version of a discount on an appetizer. While you can eat this, $0.50 wings, half off that. But by '24, when inflation took that big jump, they wanted to know what's going to cost for the burger, the fries and the soda. And you saw everyone across all categories, quick serve, select-serve and us, all putting together these everyday value menus where they knew the full cost.

This year, specifically at Applebee's and IHOP, the behavior of our guests is the same, so I can speak for both brands. Number one, in the last 2 quarters, we're seeing a greater movement of higher-income guests into our brands. And we define that as over $100,000 a year in household income. And we've also seen some guests leaving us at the lower end of the income band. Those guests tend to be Gen Zs and also earning under $50,000. The good news for our 2 brands is that we've had more joining us from the top of the funnel than leaving us, which is why both brands have grown traffic this year.

So it's a bit of a mixed data points, right? We've grown traffic, yet we do know that the guest is feeling more stressed than in the past. And when they're with us, Jeff, Applebee's has an everyday portion of its menu, value menu that's called 2 for $25. So it's an appetizer and 2 entrees for $25. About 1/3 of our tickets contain that item, which is as high as it's been, but steady now for several quarters.

On the IHOP side, we've just recently introduced everyday value, which is 4 full entrees for $6 or $7 on the coast. It's brand new, so I don't think we have a stable number yet, but it's growing up towards 20% after just a quarter or 2.

Yes. I've seen a fair amount of the commercials for the IHOP -- the advertisements does look like a very compelling offer for $6 to have a full meal. So I would assume that's going to drive traffic. We also get a lot of questions just about food at home versus food away from home, especially in this environment where over the past couple of years, supermarkets have raised prices, restaurants have raised prices, the debate of who's raised more, maybe sending consumers more to at-home or more to away from home.

Just wondering how you think about your restaurants and the industry positioning from that value perspective as we battle food at home versus food away from home?

Yes. So it's important to keep in mind, because we're 98% franchised, we don't establish the pricing, but we can report on in the aggregate, what our franchisees have done. If you look at Applebee's since COVID, right, which seems to be the reference point for everyone, Applebee's has raised prices less over the last 5 years than the comp set has and less than dining at home.

IHOP has raised prices a bit more than the comp set and a bit more than dining at home, yet we're seeing both brands grow their traffic. To your point, I think a big part of that for IHOP, especially where they took more price is this everyday value, this everyday value menu. So IHOP is an almost 68-year-old brand and interestingly, has never had an everyday value portion of its menu, except for its over 55 -- age 55, which is supposed to be the senior menu. I'm 58. I find it highly insulting that 55 is considered the senior menu, raise that age exactly. But now they have this everyday value, that seems to be a compelling offer that our guests are looking for right now, and it's making up a bit for that issue.

When I think about IHOP, and we've had others here that focus more on breakfast than brunch, I know IHOP has a full day menu. But do you find that IHOP is more vulnerable? Breakfast seems to be a daypart that some consumers say, I can pull back on eating out breakfast. It's easy to replicate at home. Do you see any change in behavior IHOP versus Applebee's from that perspective?

So again, coming out of COVID, the last daypart to recover was weekday breakfast to your point. And weekday breakfast is still not at the pre-COVID levels. It's in the mid-90s. The brand overall for in-restaurant dining is getting close to 100%, but not quite there, 100% of what it had before. Where they make up for it and why the traffic is growing is both brands have grown their off-premise business. So pre-COVID, Applebee's and IHOP, off-prem was 6%, 7%, 8% of sales. Now it's 20% for IHOP and 22%, 23% for Applebee's. And that's largely a new incremental customer because most of that off-prem business does not dine in with us. So we became part of the off-prem consideration set during COVID and have maintained that business since.

And when I look at our coverage universe of casual diners at least, they are all company-owned and operated with the exception of being all franchised. I'm wondering whether that might be the answer to this question. But as you meet with investors, like what question are you surprised you don't get or the question you get that maybe you think the company is misunderstood. Clearly, when I talk to investors, they just say, they're all on casual dining. But you are more like a QSR in reference to the ownership model, more like a casual diner or a family diner in terms of the product you're selling and the experience. So I'm just wondering whether that is and just how you address those questions.

Yes. Jeff, the thing that we really want to make sure investors understand is that because we're franchised, we're asset-light. So that's a different margin profile, that's a different cash flow profile. That's also a different capital structure, right? Because we're franchised allows us to have access to whole business securitization, which is investment-grade cost of capital. It's higher leverage -- allows us to have higher leverage, lower cost of capital and covenant light. And so it's not -- we can't look at our capital structure as apples-to-apples versus other company-owned concepts in our segment.

And the other thing I would point out is that, again, because we're highly franchised, we're actually a lot bigger than people realize. So the two brands combined, we do about $8 billion in system sales a year. And I think we go through about $2 billion a year in terms of the supply chain goods and services that we purchase with our franchisees on behalf of our franchisees. And so if you look at the supply chain benefit, the cost of capital benefit, the scale benefit in terms of our marketing campaigns is much bigger than people realize than our market cap would indicate.

And to your point, investors sometimes lump us more often than not in with the wholly owned restaurants, brands and companies and don't appreciate the different model in terms of the cash we generate, the margin that we have, et cetera. That is the #1 question or conversation we have with people are just walking them through...

We've asked that question several times, but the fact that, right...

To have $8 billion in system sales, but then when you're just taking a royalty off of that, it's a much higher margin percentage, but it's a much lower margin dollars. Therefore, your market cap tends to be smaller because it's just what you're bringing in. So it requires a little bit of handholding. But clearly, there are positives and negatives to both sides of things.

My last question from a broader industry perspective, GLP-1s get a lot of attention or did a couple of years ago. That trend really seemed to have slowed down. We didn't hear much about it over the past year. It seems to be ramping up again, whether it's because it's become more affordable or covered by insurance potentially or in a soluble pill form. It just seems like it's the most formidable challenge the restaurants have from a diet or fat perspective. I'm just wondering what data you look at, whether it's something you see as something you can address or it's a concern over the next few years?

So to date, we haven't seen a notable impact on our business. But as you said, we're certainly aware of the way it's changing in terms of -- and how available it may become, particularly for our guests, right, where as it becomes more affordable. So we sort of think about it 2 ways. One is, yes, from an innovation standpoint and from a menu standpoint, we're thinking about higher protein entrees. We're thinking about smaller portions. We're thinking about lower calorie entrees and just as -- to anticipate the demand for that.

But at the same time, it's also important to keep in mind that many of the reasons to come to Applebee's or IHOP are special occasion. And we're also not -- we're not fast food, right? And we're not fast casual. It's not an everyday thing, every day at lunch thing. So people come to have a date night. They come because the Little League team won. They come after church. And so I don't think the occasion of dining out and human beings want to come together to celebrate and be together changes even with the weight loss drugs, although we do need to make sure that we're not vetoed by someone who's got that point of view.

Yes. Jeff, the other thing is that if you think about this, IHOP has been 60, 65 years old. Applebee's is 50-some-odd years old. We've been through so many cycles of other dietary sort of facts before. And so again, to John's point, the way people view us, the way people interact with us has been so consistent over many, many cycles. And we have yet to see any sort of evidence otherwise.

Yes. Right. And with only a few weeks left in 2025, obviously, you guys are looking to 2026. I'm just wondering what are you most excited about for Dine Brands as we think about the next 12 months relative to 2025?

We're most excited about what we call dual brands, which is our big idea. So we have a product now where we have Applebee's and IHOP in the same restaurant. So it's the same square foot. Imagine an IHOP adding an Applebee's or an Applebee's adding an IHOP.

When you enter the restaurant, there's the red side and the blue side and guests can co-mingle and eat on either side. We have one combined menu. So it's an all-day dining menu that goes from breakfast through late night. So sort of the IHOP blue to the red part of the menu. And we've got 40 open outside the U.S. and we brought it to the U.S. for the first time this year in San Antonio, we opened one in February. We'll have 30 by the end of the year and we'll have another 50 that we can see line of sight to in next year. And the economics of it are what are so compelling, Jeff.

So it's adding 1.5x to 2.5x the revenue when you add the second brand into the box. And that incremental revenue flows at 30% to 40% because there's -- the fixed costs are the same. The guests love it. And even when you look at dayparts, the off brand, so Applebee's in the morning, IHOP in the evening, never sell less than 15%. So at 10:30, people are ordering steak and ribs in the morning. And at night, they're ordering pancakes and omelets. And so the franchisees are intrigued by it because of the improved economics.

Guests are enjoying the best of both brands. And clearly, it's good for us because it fuels unit growth as well as royalty revenue for us. And it also helps us even rescue some closures, right? In a system our size, you've got 1% to 2% of restaurants that close every year because they built themselves 30 years ago, the contract is ending or maybe they're not as profitable as they once were. A lot of them are adding this brand in order to -- the second brand in order to keep going. So go ahead.

Jeff. The best way to experience it is to be there. But short of that, I do encourage investors to check out our website. We have a video on our website that gives you a sense of what it feels like to be inside of our restaurants. You get to see a glimpse of the menu, how the guest experience will be like, and it's really the best way to know what we're talking about.

And what's unique about it from a strategic standpoint, right, is it's -- not only is it a big idea, it's hard to replicate. So 20 years ago, IHOP happened to buy Applebee's and create Dine brands. And we happen to be the only company that owns a premier AM brand and a premier PM brand. And when you put those 2 together, you're programming all 4 dayparts without cannibalizing one or the other. So we uniquely are able to do that, and it's a competitive advantage, right? It's a pretty high walled garden.

I think about the years of looking at this space, I think of Dunkin who has Baskin and they tried that and I thought it was a home run and yet most franchisees ultimately said, you know what, we want to be one or the other. So it's an interesting dynamic.

Yes. And there have been other combinations of fast food like KFC and things like that. But the issue there was they were all -- they were the same daypart competing with one another, where this is purely additive. Applebee's does not serve breakfast today. IHOP has opened 24/7 or 24/2, but dinner is its historically weakest daypart. So to be able to add Applebee's to dinner makes a big difference for them.

By the way, so now IHOP gets to serve mimosas and Bloody Marys in the morning when we couldn't do that before because of the liquor license.

Got you. So if I walked into one and I got a combined menu for the two. So I can say on either side, look at a menu that has some of each item. But if I ordered a burger, which both of your brands have and then said I wanted a short -- I mean you could just -- they can do it whatever you want it, and they have chefs that can just handle it all.

Yes. For those of you who are from the Northeast, it's like a diner, right? It's an all-day dining menu. And we have settled cues like the earlier daypart of the menu is more blue and the later daypart is more red and a nod to both of the brands. But it's exactly that. And people are literally mixing and matching. We had a hypothesis that people would come into the restaurant and prefer to eat on one side or the other. They don't care. They just want access to the menu.

We've also invented mashup items of the two only available at the dual brand. So for example, if you've been lying awake at night wondering when someone is going to come up with a Buffalo Chicken omelet, we have that now, right? So it's the IHOP Boneless Buffalo Chicken wings in an Applebee's Omelet, it's actually the #1 selling omelet in the dual brand restaurants.

Interesting. So you're saying there are -- there was one in February. And at the end of this year, there will be 30 -- so these are just quick conversions, obviously, that you're able to go from 1 to 30 in 10 months.

Round 1 is entirely conversions. When we look at the potential landscape, right? So like many companies, we have a tool and a model that can evaluate every market in the country, and we put our inputs in, does it have 50,000 people -- what's the household income? How much traffic goes in and out during the day, that kind of thing. We see an opportunity for 900 of these, 450 of the 900 are in what we would call white space. So there's no Applebee's, there's no IHOP. There's no local franchisee. And so it's just have at it. And then there's another 450 that are targets for our existing restaurants. So an existing IHOP or Applebee's franchisee could add the second brand because there isn't a competitor around and the market would support it.

So you really have an incremental 450 boxes you can get from this, but another 450 boxes is just converting or adding the other one.

The new builds would be the 450 boxes and then adding the brand on to the other 450 would be driving average unit AUV and royalty revenue.

So there'll be 30 at the end of this month. And next year, you'll add an incremental 50, so we'll be up to 80?

Yes.

It seems like that is a at least growth vehicle for a company that has struggled at times to put up new unit growth when you're so mature?

Yes. The -- what investors are telling us they're looking for is unit growth and comp sales. And so this is a vehicle to drive unit growth that we haven't had before, and it certainly is driving unit growth at a much quicker pace than we've had the last couple of years.

So just that jumps to my unit growth question, which, again, historically has been a challenge for a lot in casual dining because it's a fairly mature segment. But your ability over the next few years or your confidence to see net unit growth either at each individual brand or as a portfolio. I know it's been a number of years where on a net basis, it ends up being modest closures. How should we think about the next few years from a net unit growth perspective?

So we haven't put an exact date on when we expect to return to net unit growth, but we are at short term, not medium or long term. You got to think about the components that we have. So we have -- you can build a single unit IHOP, which our IHOP franchisees have been doing, opening 30 to 40 new restaurants a year for years. You could build a new Applebee's. We have a new prototype that costs about $1 million less to build than the current one, which we're going to build ourselves next year to prove out the economics. And we've got the dual brand as an option. And by the way, 80% of new IHOPs are conversions. So it's a great conversion brand.

So we like to think that we have an option for almost every market. And particularly with the dual brands, we can see driving towards short term -- in the short-term net unit growth. The challenge for brands like ours, as you mentioned, because they're mature, is that when you've got 3,500 restaurants, you have a 1% to 2% close every year, which is normal. So we have to open 100 to net plus 10 or plus 20 because we'll close 8 a year. And again, that's because 30-year contracts have run out, landlords have made different decisions. The market has moved away from where that restaurant is.

Got it. Well, the other question that obviously gets a ton of attention is the comp growth, which Applebee's reverted positive most recently. IHOP is still negative. But seemingly, you guys appear to be encouraged by both brands' trajectories. So I'm just wondering your ability or your confidence to forecast sustaining that positive comp growth at Applebee's and the time frame with which to get back to positive comp growth at IHOP?

Sure. So Applebee's had a tough 2024 as the consumer mindset changed around wanting to know the full cost of the meal. And so as we've leaned into 2 for $25, as I mentioned, that's made a big difference in driving traffic and comps. So the last 2 quarters have been positive after 6 quarters of negatives. We think that is sustainable and notable because the 2 for $25 option on our menu has been on the menu forever but we didn't advertise it. And we didn't advertise it interestingly because over time, each of the franchisees had established their own entry-level price. Some were $25, some were $26, $27, $28. So you can't advertise that nationally unless you have at least 80% of them in the same place.

So earlier this year, all the franchisees agreed to $25. And since we've been focusing on that message primarily, you're seeing the change. We've got other things in the work. And to keep it fresh, we have a pipeline of innovation. So each quarter, we'll introduce a new entree at the $25 level and a new app so that not only are we communicating the value message, but we're communicating innovation and something new and fresh to come in for. IHOP, same story, the everyday value that I mentioned is Phase 1 of a 2-phase effort.

So Phase 1 was putting together a program that will drive traffic into the restaurants, which the everyday value is clearly doing. IHOP's traffic has grown every month this year versus its comp set. And in the last quarter, had absolute traffic growth for the first time in a decade, which is tremendous. We said publicly several years, but it's a decade.

So that's tremendous. Phase 2 is converting that traffic to higher ticket items once in the restaurants. So as we were driving the traffic in the first couple of months, we had all of our tabletop displays and promotional items highlighting the $6 and $7. Now, which is sort of classic retail strategy, right, the $6 and $7 is in the back of the menu and all of our in-restaurant collateral around the high-margin, high-ticket items, which is now driving guests to the higher items. And we don't want guests that didn't know about it to find it. We want them to come in and order the higher-priced items. And we're beginning to see the needle move on that.

I'm sorry, but Phase 2 of that for IHOP is now that's what we're in.

Underway. Underway.

Okay.

Jeff, the other thing is -- so John talked about the customer acquisition strategy, right? So part of the customer retention strategy is operations and remodeling, right, to improve the guest experience. What I mean by that is, right? So in terms of operations, the key focus is going to be consistency and simplicity, meaning John and Lawrence have reduced the number of windows that we have going from 10 to 12.

Advertising messages.

Advertising messages down to 6 to 8. And what that does is it simplifies not just in terms of marketing team, they don't have to set up each campaign separately and allows the media dollars to be spent more efficiently because you got to be on air more frequently, less dark period.

But for the franchisees, it's easier to learn the operations of it because you don't have to learn a new menu item as much as frequently. We're not adding complexity to it. And so that improves the table turn order accuracy and reduces the guest complaint. So that's on the ops side. And then the piece about remodeling is that, as we know, value is a function of what you're paying for versus what you're getting. And what you're getting is not just the food, it's also the experience. And the ambience, the vibe of the restaurants is hugely important to our guests.

So we have a big incentive program out there to encourage our franchisees to remodel. And so that the combination between good service first and also the ambience of the restaurant will ensure the return -- the guest retention part of this equation.

And because we do talk a lot about franchisees and oftentimes, mom-and-pop franchisees could be under greater pressure than larger players. I think it's somewhat unique to your situation, at least with Applebee's. Maybe just if you were to summarize the health of those franchisees and through difficult periods, their confidence to grow and willingness to remodel and spend and whatnot, how would you characterize the health of the franchise system in each of the 2 brands?

I'll talk a little bit about the characteristics of the franchisees and Vance can talk about the franchisee health. Very different franchisee profiles, considering that both portfolios are more or less the same size, right? So 1,700 IHOPs, 1,550 Applebee's. IHOP has 265 franchisees, 50% of whom own 5 or fewer restaurants. And those that 50% that own 5 or fewer are legit owner operators, right? There's -- the 4 or 5 family members are in the restaurants, cooking, serving, cleaning and it's a family -- true family business.

On the Applebee's side, we have only 30 franchisees and the largest one owns 420 of the restaurants, so basically 1/4 of the portfolio. And they are, generally speaking, more professional organizations with human resources and technology and revenue management. And so very different profiles. On the Applebee's side, as a result of that, you've got a pretty healthy franchisee base with deep pockets, deep resources and things like that.

On the IHOP side, we always have to pay attention. But as revenue is growing, that's good because it's improving margins in both brands this year.

Yes. Jeff, as John mentioned, sales sort is the cure for everything, generally speaking. What we're experiencing is that labor and commodity cost market baskets have come under control now. It wasn't like earlier in the year or last year where sales were going down and costs are going up. Although still elevated, but they've sort of maintained about a flattish level for both labor and food costs and sales are improving. So as that sort of -- you have that situation happening, franchisees margins are improving, and we're seeing that across the system.

As any system would have, right, we have this normalized bell curve. So we have the tail of restaurants that are underperforming versus system average, and then we have the head of it where it's over performing better than average. And we have dedicated operations team and initiatives designed in place to help those franchisees with the lower-performing restaurants to take out costs, find efficiency. And -- but what's really interesting is that there is a very strong correlation to profitability and guest complaints, negative correlation. The lower the guests complaint, the higher the margin.

So a key part of the focus is just about guest service and making sure that managers are visible to our guests, making sure that orders are done right and accurate and fast, making sure that the restaurants are remodeled, and that, over time, will drive the profitability of the lower-performing restaurants.

Right. And being that it is a franchise model, we're not as much talking about food and labor because that's from a franchisee's perspective. But when you said flattish, maybe just remind us what the inflation level was for food and labor in '25 and what you think that is going to be in '26?

I think -- so easier to project for food, we're looking at flat to, I think in the case of Applebee's, potentially slightly deflationary sort of environment for market basket for Applebee's still a little bit probably low single-digit inflation for IHOP because of eggs and coffee.

And on the labor side, it's really region-specific. And because that's not done on a centralized basis, it's franchisee by franchisee. It's a little harder to quantify. But I would say that we're hearing a lot less complaints about labor now from the franchisees, and we're seeing that in their P&Ls. The other issue that we -- the franchisee had before that we don't have anymore is just the availability of labor. They used to have a hard time staffing the restaurants properly no matter what...

Coming out of COVID.

Coming out of COVID, and we don't have that anymore.

So a couple of things. One, do you get the franchise, on what frequency do you get the franchisee P&L that you can see how they appraise in quarter?

But a quarter in the rear. So right now, we just got the Q3.

Got you. Okay. And I'm surprised you say Applebee's is flat to modest deflation for next year because I would have thought beef, beef is what percentage of the Applebee's commodity basket is it not...

Probably so it's not a fixed sort of portion, but roughly in the 10-ish percent, I think, is what we're looking at. But it's flexible because we -- it's part of our menu, but we can adjust our promotions depending on what's expensive, what's not.

Because we also -- both all -- IHOP and Applebee's jointly participate in a national purchasing co-op that the franchisees own and we all sit on the board of, they're pumping $2 billion a year of goods and services into the restaurants. And so at any given time, 60% to 80% of commodities are contracted. And so because of that volume in that organization between the two brands, the purchasing co-op, it's called CSCS has got forward pricing locked in for beef and other things. It doesn't mean we're not exposed, but we are hedging it better than others that way because of the scale there.

So 60% to 80% of your commodity basket for the portfolio is pretty well locked for next year and a flattish type number is not likely to...

At least through mid next year. And so based upon what we know about what's locked in and at what rates enables Vance to say, Applebee to be flattish, IHOP will be up a couple of single digits.

Yes. And below the operating level at the restaurant level is the G&A, which in a franchise model really garners a lot of the attention because that's the costs that are primarily in your control. I think it's roughly 2.5% of sales.

Of system sales.

System sales. That is among the lowest in the industry. Again, depending on who you're comparing yourself to because if you look at your QSR peers, they're also in the 2s, casual diners with company-operated models would dream of being that low. But what is your -- what do you think is the right level for that G&A versus the 2.5% today? Maybe where do you see that over the next couple of years?

I think 2.5% is probably the right way to think about it because we are a franchise model. The G&A that we have is primarily designed to support the franchisees in terms of menu innovation, operations, marketing, et cetera. And if you think about the margin profile of Dine as a whole, put aside the marketing part of it, marketing revenue, marketing expense, which is a pass-through, we're like a 50-ish percent EBITDA margin business, right? So G&A is sort of the only sort of cost structure we have because otherwise, it's just royalty stream.

And as we grow our dual brand footprint, I do see us able to leverage the G&A infrastructure. So I do see this as a short-term sort of target, but longer term, we should see more efficiency out of our platform.

We're deceptively small from the outside in, right? So if you're looking at us from the outside in, you see 3,500 restaurants, you see $8 billion in revenue. But because we're a franchisor, we have 500 people at corporate. And half of those people are in the field servicing restaurants, et cetera. Now that we own 70 restaurants, yes, we've got employees there. But running this $8 billion business is a 500-person endeavor and 120 of them are in technology, that kind of thing. So it's a very -- it's a lean operation relative to the size of the business.

Well, we do have a few more minutes, but I wanted to pause and see if there are any questions in the audience before I continue.

I will wrap it up with my last couple of questions. One, Fuzzy's hasn't come up at all. When you have 2 very large brands, I could see how a third brand of a smaller size doesn't get as much attention. What is the future of Fuzzy's? Will it play a much bigger role in the entity? Or is it just kind of more of a smaller one-off?

Yes. So Fuzzy's is our taco concept, tacos and margaritas. There's about 120 of them, half of them are in Texas and then the others are in another 12 states in and around Texas. Started as a Dallas-based brand. We bought it a couple of years ago because, number one, we wanted to diversify out of full-service dining, and that was the objective there to get into fast casual. We liked the Mexican concept in tacos, which are growing. We particularly like the Fuzzy's version because it's not a Mexican style taco as much as it's a Southern California-inspired taco, which when we did our testing was really liked sort of across the country.

So we go to the Northeast, the South, the Midwest. And since we purchased it, we've learned a lot, and we have some fixing up to do. So for example, it was overbuilt in Dallas. We've got a cold to hurt a little bit. Several of the original franchisees were not restaurateurs, but they were doctors and dentists who were looking to invest, but they didn't really know how to run a restaurant. All of that had to be cleaned up.

And what we're most excited about is the new business model. So the business model today at Fuzzy's is you go to the counter, you order your tacos and you drink, you get a buzzer, you sit down, you pick it, you close out your ticket and you're done. What that doesn't allow for since your ticket has been closed, it makes it more difficult for the guests to order a second round of tacos, a second margarita, watch the TV screens because it looks -- it feels kind of like a sports bar. And so now we are -- we just opened our first new concept restaurant in Houston.

We're calling it fast casual plus, where we take your order at the table, leave the ticket open, run the food to you, and we're already seeing what we wanted to see, which is second drink orders, second taco orders. And we've got half a dozen franchisees excited by that new model that are looking to build the same. So we still think there is there, but we're working on it before we declare success.

And with a franchise business model, I would be remiss if I didn't ask a little bit about capital allocation because you do generate a fair amount of cash and your CapEx relative to that is relatively low. So as we think about capital allocation, $30 million to $40 million in CapEx, I don't know if that's a reasonable run rate. So how you think about that? I think it's more like $20 million assumed in the long term. So presumably, there's some short-term company ownership that's maybe driving it higher. But if you could talk about that. And then the dividend versus share repurchase, I know you recently lowered the dividend. How you think about balancing those two things relative to ultimately your use of leverage?

So I'll start by explaining sort of our capital allocation priorities. The most important thing is organic investments, which is the CapEx piece you're referring to, and I'll break into that a little bit more. The second piece is capital return, which is the dividend versus buyback discussion. The third piece is just protecting the balance sheet.

So in terms of organic investments, assuming we're 100% franchise business, our typical technology CapEx is, call it, $15 million a year, upgrading, refreshing systems and et cetera, et cetera. The incremental CapEx budget outside of that $15 million or so is currently spent in company restaurants. I'd say the breakdown of that is, call it, 70%-30%, 70% of that -- the incremental CapEx is remodeling and dual brand construction. The 30% of it is, I will call it, deferred maintenance, things that we probably should have done a while ago to make sure the restaurants are franchisees should done, make sure that the restaurants are in good operational to top shape.

So that's -- but that's not going to be ongoing because we're going to refranchise these restaurants out in due time. So that's for the time being and especially for the construction piece of it, it's a onetime thing. And once it's done, it's done, right? So that's the CapEx portion. That gives you a sense of the building blocks of what makes up the CapEx piece.

The second bucket, which is the capital return math, right, given where the stock is trading at, given the multiples we're trading at and given the momentum that we're seeing with the base business that we're experiencing, seems like there is a disconnect between where we're trading versus where we should be trading. So it's just a more efficient way for us to return capital to shareholders is through buybacks while still maintaining a very healthy dividend yield based on where we're trading right now.

So that's how we think about it. It's not necessarily a fixed dollar amount of budget is how we think about it. It's sort of a relative discussion based on where the stock is trading at, and there's this ROI math that we're constantly doing.

And the leverage as a component of that, like the leverage levels you're at today and where you'd like to be over time?

So we are in the 4s right now. So we feel comfortable to be in the 4s to 5s leverage level, generally speaking. And if you compare us to other franchise brands, they're usually in the 5x to 6x levered. We don't think we should be at that level because we're not a QSR. We're a full-service dining. So we should be 1 or 2 turns lower than them. But we shouldn't be compared against other casual dining restaurants because they're usually in the 1 to 2 turns leverage level, but they're company-owned. So it's completely different ownership model, different cash flow profile.

Our capital structure is supported by the royalty streams in a securitized sort of entity. So as I said earlier, it's investment-grade cost of capital, it's covenant light, and it's super flexible.

So you're in the 4s and you're happy to remain in the 4s?

Yes.

Got you. Well, that's great. Well, I think we've wrapped up on time, but we wanted to thank Dine Brands and specifically John and Vance for joining us. And hopefully, you have a good day of meetings. And feel free to catch them in the halls. But otherwise, thank you all for joining us today.

Great. Thank you.

Thank you.

Thanks, Jeff.

Good day, and thank you for standing by. Welcome to Dine Brands' Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your host today, Matt Lee, Senior Vice President of Finance and Investor Relations. Sir, you may begin.

Good morning, and welcome to Dine Brands Global's third quarter conference call. This morning's call will include prepared remarks from John Peyton, CEO and President of Applebee's; and Vance Chang, CFO. Following those prepared remarks, Lawrence Kim, President of IHOP, will also be available, along with John and Vance to address questions from the investment community during the Q&A portion of the call.

Please remember our safe harbor regarding forward-looking information. During the call, management will discuss information that is forward-looking and involves known and unknown risks, uncertainties and other factors, which may cause the actual results to be different than those expressed or implied. Please evaluate the forward-looking information in the context of these factors, which are detailed in today's press release and 10-Q filing. The forward-looking statements are as of today, and we assume no obligation to update or supplement these statements. We will refer to certain non-GAAP financial measures, which are described in our press release and available on Dine Brands' Investor Relations website.

With that, it is my pleasure to turn the call over to Dine Brands' CEO, John Peyton.

Good morning, everyone. Thanks for joining us today. As usual, I'll start with an overview of Dine's Q3 performance and key brand updates and then turn it over to Vance, who will discuss our financial results in more detail. Afterwards, I'm going to spend some extra time before the Q&A to share more details about our dual brand program, how it's unlocking a new lever to grow and ultimately, why we're putting our money behind it. Vance will then cover our capital allocation priorities and how our asset-light model is designed to create long-term shareholder value.

Now to provide an overview of the third quarter and trends we've seen in consumer behavior. In Q3, we sustained the sales and traffic momentum from Q2, driven by new menu innovation and targeted marketing campaigns. While we continue to operate in a competitive environment, Applebee's and IHOP held their ground, underscoring the strength and relevance of our brands as guests continue to seek value, variety, and an exceptional dining experience. These are the same expectations that have been driving consumer behavior throughout the year.

While spending patterns remained relatively consistent, we're observing slightly higher macroeconomic anxiety, leading to more intentional decision-making, where every dollar spent must feel justified across the entire dining experience. Guests continue to manage their check by trading down to lower price for value items on our menus. IHOP's value mix remained at about 19%, while Applebee's value mix slightly increased to about 30% in Q3. Despite the industry headwinds, our focus on everyday value platforms, operational simplification and high-impact guest-centric marketing is delivering results. Lastly, I'll add that we recently completed our annual franchisee conferences that included participation from the leaders of each of our franchisee councils. And across all 3 of our brands, the biggest takeaway is that our franchisees are aligned with our strategy and remain committed to grow. Reinforcing this sentiment is the fact that franchisee health remains resilient with clear improvement in Applebee's, given the sales growth we're seeing and encouraging momentum at IHOP.

Now while there's still more work ahead, I'm grateful to our team and franchisees for their ongoing dedication and unrelenting belief in the strength and potential of our iconic brands. So with that, I'll walk through our financial results for the quarter.

Applebee's reported a 3.1% increase in comp sales and IHOP posted comp sales of negative 1.5%. Notably, positive comp traffic was an important driver for both brands. Our adjusted EBITDA was $49 million compared to $61.9 million in the same quarter last year, and year-to-date adjusted free cash flow was $68.2 million compared to $77.8 million in the same quarter last year.

Now I'll share some updates across our portfolio, starting first with some leadership updates at Applebee's. In September, we welcomed our new Chief Marketing Officer, Michelle Chin; and Chief Operating Officer, Jay Wong, to Applebee's. Both leaders are passionate fans of the Applebee's brand, and they bring fresh perspectives to elevate the guest experience as well as strengthen franchisee and team member relationships. Michelle spent 2 decades shaping consumer marketing and brand strategy for global brands like Starbucks, Godiva and Unilever, where she built high-performing teams and launched impactful insight-led campaigns. And Jay has led global teams and transformations at top-tier brands, including Four Seasons, Starwood Hotels, and Exclusive Resorts. His focus on seamless guest experiences will help Applebee's further enhance how we serve our guests. I'm looking forward to working closely with both of them to continue to promote innovation, operational excellence and long-term brand relevance.

Now into the Applebee's results. In Q3, Applebee's achieved its second consecutive quarter of positive comp sales and traffic, continuing the gains in traffic that started in March. New menu items are driving this traffic by appealing to core Applebee's fans while also attracting new guests. Guests should expect to see this continued menu innovation, driven by a robust menu pipeline, with a new appetizer and a new entree added to our menu each quarter.

As we shared last quarter, we're introducing new entrees via the 24 section of our menu, which is a pillar of our everyday value platform. In Q3, we launched Chicken Parmesan Fettuccine, which became our best-selling stand-alone pasta dish, representing approximately 13% of transactions and was a key contributor to our traffic and sales growth. Another important menu innovation from this quarter was the launch of our new Ultimate Trio appetizer sampler as part of our second season as the official grill and bar of the NFL. This offer has over 80,000 flavor combinations, highlighting the power of choice that younger guests love without adding more SKUs or complexity to the kitchen, and it's been wildly popular. The Ultimate Trio has become one of the best-selling appetizers, averaging 13.5% of transactions and contributing meaningfully to check growth.

As a part of our off-premise strategy, the Ultimate Trio is also available for to-go and delivery, contributing to a 9% increase in off-premise sales in Q3, building on 3.7% growth in Q1 and 7.6% growth in Q2. Our success in the off-premise channel is driven by pairing LTOs with digital promotions to encourage off-premise occasions. Our off-premise remains a growth opportunity for Applebee's, and we're pleased with the momentum and our capabilities to meet guests where they are.

An important way to connect with both our dine-in and off-premise guests is reaching them on social media. Throughout the year, we've expanded our marketing capabilities and social media prowess to deepen engagement and reach a broader audience. Since Q3 2024, Applebee's has increased postings by over 300%. And as a result, we've seen a 266% increase in engagement, proving that we are more effectively reaching our guests in real time. And this ties into our ongoing efforts to modernize the brand and elevate the guest experience. Over the past year, guest satisfaction scores are improving, and it's a direct result of our focus on efficiency across both the front and back-of-house functions.

The look and good remodel program also continues to progress. Franchisees are reporting strong post-remodel sales lifts and an increase in guest frequency. Approximately 80 restaurants have been remodeled to date, and we expect to exceed our 100-remodel target by year-end. There's more to do and plenty of opportunity ahead, and we're committed to strengthening the brand's relevance, sharpening our competitive edge and driving long-term growth.

Now moving to IHOP, where positive traffic trends continue to be the highlight for the brand. IHOP outperformed Black Box traffic metrics every month in 2025, making Q3 our third straight quarter of traffic outperformance versus industry benchmarks. More importantly, this was IHOP's first quarter of positive traffic in many years. I want to take a moment to fully recognize the significance of IHOP returning to positive traffic comps. This is a big win, especially in a category where traffic has been challenged for years. Traffic is a core indicator of customer connection and demand.

Our steady industry outperformance, now further supported by positive absolute gains, shows that we're successfully connecting with guests -- especially as they seek exceptional value, abundance, and a great dining experience. In fact, recent third-party research on search trends identified IHOP as the most searched diner chain in the U.S., underscoring its continued relevance with consumers.

As it relates to traffic trends, the momentum really accelerated when we launched our IHOP Value menu and expanded and rebranded version of the House Faves menu now available 7 days a week. Notably, this is the first time IHOP has introduced an everyday value menu as part of its core offering. Early results are strong with positive impacts on sales and traffic since its launch in mid-September, and we're seeing continued momentum into the fourth quarter. The IHOP Value menu is one of the largest launches in the brand's history, made possible through strong partnership with our franchisees. As always, this platform was designed and tested to be profitable, and we continue working to improve margins and protect profitability for our franchisees.

While our value offerings are important for bringing guests through our doors, we're also focused on increasing check and margin. In Q3, our updated barbell strategy improved check month-over-month by drawing more attention to some of our higher-priced menu offerings, resulting in a decrease in value incidents on weekdays from about 25% of checks to roughly 15%. Looking ahead, we're continuing to optimize check through upselling sides and introduce premium offerings, like our limited time breakfasts in Q4. Operationally, we remain focused on strengthening our foundational basics. As a result, table turn times have reached multiyear lows, and we continue to identify potential for further improvement.

Now to discuss Fuzzy's. We saw modest improvements across sales and traffic at Fuzzy's as we work diligently alongside our franchisees to improve technology, streamline the menu, and enhance the in-restaurant experience for our guests. In Q3, new delivery campaigns exceeded expectations, driving growth in off-premise channels. This is one of the many benefits of our multi-brand platform, the ability to use learnings from one brand and apply it to another to enable further growth.

Turning to our international business. We continue to have positive engagement with both new and existing international franchisees around development, and we remain on track to double our total international dual brand restaurants by the end of the year. The increase in unit growth is helping offset some macroeconomic headwinds impacting sales, and we remain bullish on the growth opportunities across our key international markets.

Now I'll quickly touch on our company-owned portfolio. As a reminder, we now have 70 company-operated restaurants, representing approximately 2% of our total restaurant count. Our strategy is to invest in these restaurants to improve the health of our brands, but ultimately refranchise the restaurants back to our franchisees. We're seeing our strategy deliver results at our company-operated restaurants with sequential comp sales improvement versus Q2.

Assuming all restaurants have alcohol licenses, Applebee's locations are now performing in line with the system average and IHOP locations are now outperforming the system average. Although profitability in the quarter continues to be impacted by temporary closures for remodels and dual brand conversions and onetime costs related to catch-up of repairs and maintenance and training, we are optimistic about the upside potential of these initiatives. 12 restaurants have now been remodeled, and we are seeing traffic-driven sales growth, validating the brand's core strength when paired with refreshed physical environment. Additionally, 60% of restaurants now have alcohol licenses, which is supporting check growth.

We also recently completed our first company-owned dual brand conversion and -- while early, are excited to see sales increase to 4x pre-conversion levels. This further adds to our confidence around the potential of dual brands, which I will detail later.

So now I'll turn the call over to Vance.

Thanks, John. On the top line, consolidated total revenues increased 10.8% to $216.2 million in Q3 versus $195 million in the prior year, primarily driven by an increase in company restaurant sales, offset by a decrease in franchise revenues. Our total franchise revenues decreased 3% to $161.3 million compared to $166.4 million for the same quarter of 2024. Excluding advertising revenues, franchise revenues decreased 3.6%.

Rental segment revenues for the third quarter of 2025 decreased $1 million compared to the same quarter of 2024, primarily due to lease terminations. G&A expenses were $50.2 million in Q3 of 2025, up from $45.4 million in the same period of last year, primarily due to compensation-related expenses and an increase in travel and conference expenses. Adjusted EBITDA for Q3 of 2025 decreased to $49 million from $61.9 million in Q3 of 2024. Adjusted diluted EPS for the third quarter of 2025 was $0.73 compared to adjusted diluted EPS of $1.44 for the third quarter of 2024.

Now turning to the statement of cash flows. We had adjusted free cash flow of $68.2 million for the first 9 months of 2025 compared to $77.8 million for the same period of last year, driven by an increase in additions to property and equipment, primarily related to CapEx investments in our company-owned restaurants. Cash provided by operations at the end of the third quarter of 2025 was $83.3 million compared to cash provided from operations of $77.7 million for the same period of 2024. The increase was primarily due to a favorable change in working capital due to the timing of federal tax payments postponed due to wildfire relief and of interest payments postponed in connection with our June 2025 debt refinancing, offset by the decrease in segment profit and higher G&A expenses. CapEx through Q3 of 2025 was $21.3 million compared to $10.3 million for the same period of 2024 due to investments into our company-owned restaurants. We finished the third quarter with total unrestricted cash of $168 million compared with unrestricted cash of $194.2 million at the end of the second quarter.

Regarding capital allocation, I'll provide an update and a more detailed overview of our framework later in the call, but I want to mention that we continue to make progress on our key initiatives, including remodeling the Applebee's system, which includes providing an early adopter incentive for franchisees and remodeling and/or converting company-owned restaurants to dual brand restaurants.

On buybacks and dividends, we repurchased $22.5 million in stock and paid $7.8 million in dividends in Q3 of 2025. As a reminder, as a franchisor, we obtained debt financing through the whole business securitization market, which allows us to have investment-grade cost of debt capital. This is evidenced by the successful refinancing a few months ago of our $600 million senior secured notes with a fixed rate coupon of 6.72%. We continue to monitor the WBS market, and we'll look to refinance our 2023 senior secured notes when the economics are more favorable given the current make-whole premium of approximately $20 million, and the par call window does not open until December of 2026.

Next let me discuss Applebee's performance. Q3 same-restaurant sales were positive 3.1%. Average weekly franchise sales in 2025 were $52,600, including approximately $12,000 from off-premise or 22.9% of total sales, of which 11.7% is from to-go and 11.1% is from delivery. Off-premise saw a positive 9% lift in comp sales in Q3 compared to the same period last year. IHOP's Q3 same-restaurant sales were negative 1.5%. Average weekly franchise sales were $36,700, including $7,500 from off-premise or 20.4% of total sales, of which 7.8% is from to-go and 12.5% is from delivery.

Turning to commodities. Applebee's commodity costs in Q3 increased by 0.3% and IHOP commodity costs increased by 5.7% versus the prior year. Our supply chain co-op CSCS, now expects commodity costs in 2025 at Applebee's to be roughly flat versus prior outlook of flat to slightly down due to higher beef and seafood costs. At IHOP, we continue to expect commodity costs to increase by mid-single digits for the full year, driven by elevated egg pricing, pork and coffee.

As we mentioned on our prior call, the tariff situation remains fluid. As a result, our forecast for commodity costs incorporates the effects from existing tariffs to date, but do not reflect the potential impact of future tariff changes or trade policy. CSCS continues to work across both systems to identify additional cost savings opportunities and support restaurant profitability initiatives through both operational improvements and input costs. To date, in 2025, we have implemented projects resulting in over $42 million of annualized savings across both systems, and we continue to partner with CSCS to leverage our scale and make progress on our cross-functional restaurant profitability initiatives.

Before turning the call back over to John, for a strategic update on our dual brand opportunity and our capital allocation framework, I'd like to add that we are maintaining our full year financial guidance at this time. Specifically, with our EBITDA guidance, we are anticipating to be on the low end of the range due to investments to improve our company restaurants, which includes remodeling and dual brand conversion process.

In Q3, approximately 10% of our restaurants were temporarily closed due to remodeling and dual brand conversion for a portion of the quarter, impacting our performance, and we expect an even greater number to be temporarily closed in Q4.

With that, I'll hand it back over to John.

Thank you, Vance. Now I know we've talked about our dual brand strategy before, but today, I'd like to provide more insight into the opportunity we see, what it is, why it's unique and why we and our franchisees are excited about it. We've done extensive research into how exactly dual brands fit into our long-term growth without cannibalizing the independent growth trajectories of the individual brands. The results, as I'll walk through today, are compelling.

To start, we are the only franchisor with 2 iconic full-service brands that serve guests across all dayparts, IHOP in the earlier hours of the day and Applebee's in the later hours. Our thesis is that combining these 2 complementary daypart brands into 1 dual-branded restaurant will drive higher sales and create efficiency, resulting in increased profits for our franchisees and growth for Dine through higher system sales and unit growth. After an early prototype in Detroit, we began testing this idea in earnest internationally 2 years ago. And since then, we've opened 20 international dual-branded restaurants that have proved our thesis. These restaurants are delivering 1.5x in sales versus single branded restaurants and are generating significant incremental margin. This year, we're on our way to doubling our international dual-branded restaurant count to 40.

With these compelling results, we brought this concept to the U.S. in February. For those who haven't yet had a chance to see it from the exterior, both brands are prominently displayed around the building, and there is one shared entrance. Inside, the aesthetics and seating for each brand are represented in different sections, one being Applebee's iconic red and the other is IHOP's iconic blue. The guest can choose to sit on either side and is presented with one menu organized by daypart that has been simplified to include the best of both brands. The menu also includes some dual brand exclusive items like our popular Buffalo Chicken Omelet. To experience our dual brand concept, you can find a video explaining and touring the first 2 domestic locations on the Dine Brands investor website.

There are several key highlights that support our belief in this opportunity. First, from the restaurant operator's perspective, there is one kitchen, POS, a cross-train staff, and the same number of menu items as a single branded restaurant. The simplification of operations allows our team members to focus on our guests and ensure they have a great experience that is representative of both brands' core values.

From a guest perspective, feedback is strong. In particular, they're enjoying the expanded choice provided by the combined menu from both brands. In fact, for each daypart, the off brand represents at least 15% of sales. For example, Applebee's items represent at least 15% of sales in the morning and IHOP items represent at least 15% of sales in the evening. And so far in terms of financial performance, we have seen sales performance approximately 1.5x to 2.5x higher post conversion. Sales are relatively consistent throughout the day with no daypart exceeding 1/3 of total sales, further showcasing the complementary nature of the 2 brands.

We're seeing a meaningful increase in franchisee profitability with 4-wall margins nearly doubling, and we've seen a reduction in construction costs and time lines for dual brand conversions as the process becomes more efficient and standardized, which we expect will result in a payback period of less than 3 years. Our initial target was to have 12 to 14 domestic dual-branded restaurants open in 2025. And as of today, we can share that we expect to have approximately 30 opened or under construction by year-end and that we expect to achieve at least 50 dual brand openings in 2026.

From a long-term perspective, our internal analysis of the U.S. white space opportunity shows potential for approximately 900 dual-branded restaurants over the next decade. While near-term openings will primarily be conversions, we also see potential for approximately 50% of these opportunities to be new builds. It's important to note that dual-branded restaurants are only one strategic development lever for us. It's not a solution for all markets, and we continue to greenlight single-brand restaurant concepts.

To summarize, the dual-branded opportunity is a big one. Guest and franchisee feedback is strong. It significantly enhances the unit economics for a franchisee by potentially doubling 4-wall revenue and margin. It represents an approximately 900-unit white space opportunity. We expect to have approximately 30 open or under construction by year-end, and we expect to achieve at least 50 dual-branded openings in 2026.

Now I'll pass the call back to Vance, who will discuss our updated capital allocation.

Thanks, John. Given that we are one of the largest franchisors in the full-service restaurant segment, our asset-light model generates best-in-class return on invested capital and margins. We take a disciplined approach to capital allocation to drive shareholder value, focusing on 3 key priorities: organic investments, balance sheet management, and returning capital to shareholders.

This financial strength gives us the flexibility to invest in our brands, our company-owned restaurant portfolio and development pipeline while also returning meaningful capital to our shareholders, something we have consistently done over the past several decades, and that will not change. Current time, however, we believe our stock price is currently undervalued, which represents a unique opportunity to be more aggressive with share repurchases to create long-term shareholder value. As a result, the Board has declared the reduction of our dividend from $0.51 per share per quarter to $0.19 per share per quarter, which would imply an annual dividend yield of approximately 3% based on today's stock price. This will continue to generate one of the highest yields amongst our peers.

We allocate our capital towards a larger share repurchase program. We will commit to buy back at least $50 million of shares over the next 2 quarters, which will represent a share reduction of approximately 11% to 13% at the current price. This is on top of the approximately 8.5% shares that we have repurchased year-to-date, which would total a nearly 20% reduction in shares versus the beginning of 2025. We're maintaining our current investments into the franchise system either as an ongoing or as needed basis, such as our Applebee's good remodel incentives or IHOP franchisee egg subsidy earlier this year.

I want to reiterate that the dividend reduction, increased share repurchases and investments into our business are proactive changes we're making to our shareholder return strategy to drive increased shareholder value. It demonstrates confidence in our plan and our principal view that the stock is undervalued, affirming the Board's alignment with investors. With the momentum that we continue to see in the business and the alignment and shared excitement from our franchisees, now is the right time to be aggressive in investing in our own stock.

I will now pass it back to John to close.

Thank you, Vance. I'll end the call by summarizing our key initiatives that will create long-term value for our shareholders. At the brand level, our focus is on menu innovation, high-impact marketing and social media, simplified operations, and enhanced guest experience. In terms of development, we will drive unit growth by capitalizing on our dual-branded opportunity, continuing to open single branded restaurants, especially at IHOP, which has for over a decade, consistently opened double-digit restaurants every year and introducing a new lower-cost Applebee's prototype. And last, we will remain prudent with our capital allocation and accelerate share buybacks to take advantage of a significant discount in our valuation, which we believe will be highly accretive to our shareholders.

Now with that, we'll turn the call back to the operator and open up the line for Q&A.

[Operator instructions] Our first question comes from the line of Eric Gonzalez with KeyBanc.

Congrats on the positive traffic in both brands. I want to ask about the company-owned stores. You had a decent sized loss, maybe $4 million or $5 million in the quarter. I recognize we had some catch-up expenses in repair and maintenance and training and remodels, et cetera. But do you have a sense of how much of a drag we should expect from these stores going forward and maybe when you kind of -- when that maybe goes away?

Thanks, Eric. Vance can address that question.

Good morning, Eric. Just to give you a little bit more context on the sort of the disruption. So year-to-date, we had close to 50 restaurants without liquor license for 30-plus weeks per restaurant. And then on the construction side, year-to-date, we had approximately 500 days of construction closures across 30-plus restaurants or if you do the average math of roughly 15 days of closure per restaurant So that's what happened year-to-date.

I point that out to let you know that although that's noise and the headwinds this year, we're comping -- by and large, those factors won't be there next year, right? So it's a onetime investment that we're making to improve the restaurants. For this year, we're expecting roughly $9 million to $10 million of segment profit hit from the company restaurants to answer your question specifically. And then that includes about $2 million of D&A. So hopefully, that helps.

Then maybe just a question on the IHOP side. Again, congrats on the positive traffic. But the overall comps they were down a little bit. So just wondering, you're leaning pretty heavily on value. What are you doing to address the check side? And do you think you can get that mix up in the quarters ahead?

Thanks, Eric. Lawrence will take that.

Eric, so as I shared probably in earlier calls or earnings calls, we have a 3-pronged approach when it came to driving transactions and traffic. The first was, of course, launching the value platform, which we did last October. And actually, we've now evolved, as John shared earlier, where we launched an everyday value menu this past September. So we're continuing to drive that transaction. And as John shared, we've continued to do so since the beginning of this year. But to your question, in regards to check and overall sales, the third phase of it is actually balancing the value and the transaction growth from that with our barbell strategy to drive check. And so we're doing that in multiple ways from upsell strategies with our tablets and our servers, but of course, also featuring some premium priced items such as our premium priced pancakes, like our pumping spice and our coffee cakes pancakes in addition to combo features, which are primarily displayed in our restaurants with POP, like our recent breakfast, which performed really well last year. So we brought them back this past September a few weeks ago as well.

So this is helping to already drive our check balance, improve check flow and overall profitability for our restaurants, and we're going to continue to drive this as we drive value in the next quarter.

Eric, it's John. I would just add one more point to what Lawrence said, which is since they moved into Phase 3, which is driving the barbell strategy and featuring the higher-priced items in the restaurants, the incidence of the value was 25% of checks weekdays. And since they started this new program, it's fallen to 15%. So we're seeing a good response to the program to upsell once they're in the restaurant.

Great. Maybe just the last one for me. I think you said 3Q momentum sustained. Did you talk about fourth quarter at all yet? I think you said momentum sustained, but I couldn't tell if that was either an Applebee's and IHOP comment or both.

Vance?

Eric, so what we're seeing is that the sales volume for Applebee's really sustained from Q3 into Q4, and then it's accelerated for IHOP from Q3 into Q4.

Our next question comes from the line of Dennis Geiger with UBS.

Encouraging to hear some of the insights there on the dual-branded concepts. I appreciate that. And what sounds like good franchisee demand. Could we unpack a little more the franchisee demand? Are there certain characteristics for those that have kind of signed up already for the dual-branded box? And then maybe what are the biggest hurdles that you're finding from those that you feel should but aren't yet? Do they just want to see the proof point? Anything on that, John, would be great.

Yes. Sure, Dennis. Happy to talk about that. So in terms of franchisee demand, I would characterize the initial wave of dual brand restaurants as, #1, conversions versus new build, which makes sense. #2, more IHOPs than Applebee's. And we attribute that to the fact that Applebee's -- I'm sorry, that IHOP is currently open for dinner, right? And dinner has always been a challenge for that brand. So to add an Applebee's solves an existing challenge for that brand.

For Applebee's, they're not open for breakfast. So they're not trying to "fix an issue". And so it's a different decision for an Applebee's to add the IHOP and grow the revenue. What we're seeing now in what I would call sort of Phase 2 as we move toward a robust pipeline of at least 50 for next year is we're seeing our Applebee's franchisees begin to explore 1 or 2 opportunities among the more major franchisees.

In terms of the hurdles, I think it's less about the franchisee and more about what we're learning as we go. So for example, we're learning that IHOP franchisees who don't typically have bar experience, we need to give them extra training and support to run a really great bar, which is a key element of an Applebee's. And so we're learning things like that along the way, which is the kind of things we expected to learn and that we can address with our training and our coaching.

Then one more, if I could. Just more broadly, I guess, you touched on it some, but in thinking about franchisee sentiment more broadly in this environment that we're in, you touched on the commodities piece. Just if you could touch on that, both across Applebee's as well as IHOP right now. And maybe just tying broader new open demand in and how you're kind of thinking about net growth maybe longer term, if there's anything to share there across either closures as well as gross opens, would appreciate anything there.

We're not putting a firm date or time line on net unit growth, Dennis, but we're getting close. That's for sure. What we like about our program now is we have multiple products and almost a product to fit every situation. So to develop a single unit IHOP, which we've been doing 30 to 40 a year for the last several years, 80% of those are conversions. So IHOP is a great conversion brand and a good solution for opportunities to repurpose buildings.

As I mentioned, Applebee's, we've got a new prototype that takes about $1 million in cost out of it for a much better return, and we're going to build one of those next year to prove that out. On the international side, same thing. We've been opening about 40 restaurants a year consistently, increasingly dual-branded restaurants there. And now we have the dual brand concept here in the U.S. And each market is unique and each solution has to make sense for that market. But the dual brand is giving us a catalyst to get back to net unit growth sooner rather than later.

Dennis, this is Vance. One more point I would add is that even without net development growth, just the context is that the closures that we've had are obviously lower AUV boxes, right? So they're averaging sort of 1.2, low 1s. And then the new restaurants we're opening are $1.8 million, $2 million. So it's not a 1:1 ratio, even though the net development number, as you pointed out, has not been positive. So I just want to make sure that point is clear.

Our next question comes from the line of Jeffrey Bernstein with Barclays.

First question is just on the broader consumer backdrop, hearing from lots of restaurants as they look at their data. More and more companies, I guess, have data on the age of their consumer, the income level, the ethnicity, and there's been seemingly a big change in trend in recent quarters. I'm wondering, one, whether you have any degree of data on any of those cohorts and whether you've noticed any change in trend among any of those for better or for worse? And then I had a follow-up.

Yes. Sure, Jeff, it's John. I can take that and speak to both brands because our observations are consistent with both IHOP and Applebee's. We're seeing a slight shift in the guest mix this quarter. We've had more higher-income guests joining us than lower income guests leaving us, which is what's -- the net of that is what's driving our traffic growth. So that is good news.

The 2 cohorts that we're seeing who are most price sensitive right now are the lower-income guests and Gen Z. They're dining out less than they have in the past. But all of our guests, that being said, are hyper focused on value, and that hasn't changed all year or for last year as well. And that's our plans for the future as we think that that focus on value is what's going to be on consumers' minds throughout the rest of this year and into next. And that's why we believe the everyday value program at IHOP and the Super 25 program enhanced at Applebee's is driving our traffic right now because it's the match that consumers are looking for.

Then just following up on that value mix. I think you kicked off your commentary by saying Applebee's was at 30% mix depending on the way you define it. But you said that was up modestly. So just curious what that was up from. And IHOP at 19%, I think you said was unchanged, which was surprising considering the negative check, which seems significant. So just wondering how to kind of balance the significant negative check with no increase in their value sales mix.

So Applebee's is at 30%, which is pretty close to where it's been. It's been 28%, 29% last quarter. So consider that about flat. We define value. We calculate that as the 2 for 25 menu plus LTOs. So any incidence of those as a ticket is about 1/3, 30% of what we see. At IHOP, just to clarify, the value mix grew to 19%. It wasn't down. It grew to 19% during the quarter because of the rollout of House Faves and then turning that into everyday value. So it grew to 19%, and we expect that 19% to be a little bit higher next quarter because we're going to 7 days a week, and that only happened the last 2 weeks of the quarter.

It grew to 19% from what was the number that you most recently talked about?

Last quarter, I'm going from memory.

It was like 18.9% to 19.1%, slight increase.

But pre-everyday, pre-House Faves, it was more like 10%, right before we introduced.

Yes, yes, about low to mid-teens last year is where we're averaging.

Just lastly, just to clarify, you said the dual brands that there would be 30 open or under construction by year-end this year. So I'm just curious how many actually you think would be open by the end of this year? And then you said something about 50 for next year. I wasn't sure if that's just the cumulative total number or whether that's incremental openings. So just trying to get a sense for how many actually will be open end of this year and how many in total will be open end of next year.

So it's 30 plus 50 for a total of 80. And in terms of this year, the vast majority of that 30 will be open. But as you know, sometimes opening dates slip from December to January. So not giving a precise number, but the openings will be much closer to 30 than not.

Our next question comes from the line of Brian Vaccaro with Raymond James.

I just had a quick question on the guidance, Vance. I just wanted to confirm, has there been any change to your previously communicated comp guide at either Applebee's or IHOP or any change to your unit growth expectations that you gave us in the second quarter?

No, those are staying the same. No change to guidance, yes.

I guess I heard some of your comments about how IHOP has accelerated and Applebee's seems to be holding in. I guess if I do the quick math on Applebee's, and I think my notes are right on this, but I think your previous guide on comp was down 2% to up 1% at Applebee's, if I have my notes correct. So that would embed, I think -- go ahead, sorry. Basically trying to get at what is -- yes, what's a reasonable expectation for 4Q on comps, just to level set, because we didn't have the guide in the release.

Yes. The Applebee's guidance, we actually bumped it up from positive 1% to positive 3%. So that didn't change. We changed that last quarter. And then for IHOP it's negative 1% to positive 1%, and we didn't change that either. So that implies a sort of a decent Q4 for Applebee's and a strong Q4 for IHOP.

Great. You also obviously highlighted the traffic being positive at both brands. Could you firm up just the comp components within that sort of where average check was versus traffic for each brand in Q3?

Yes. So for Q3, I think our check -- so let's see. So traffic was positive for both brands. We have negative P mix for IHOP and sort of flat P mix -- no, actually negative P mix for Applebee's as well. And then about 2-ish percent menu price increase. So that kind of gives you the rough breakdown.

Great. Then last one for me. You talked about the Applebee's remodel program with over 100 planned for this year, I think you said. I'm just curious how you see that potentially accelerating into '26 and beyond? What sort of a reasonable rate on remodels might be?

Yes, Brian, it's John for that question. Yes, we said over 100 this year, and we expect to do at least that number next year, if not more. And our goal is to have 2/3 of the portfolio renovated by the end of '27.

Our next question comes from the line of Nick Setyan with Mizuho.

Just on the remodels, I'm not sure if I missed this, but did you say the kind of lift you're seeing?

Nick, it's John. Welcome back. We're glad you're here. Vance will take that question.

Nick, so it's obviously early days, right? A lot of the restaurants that's been remodeled are pretty new, but we're -- franchisees are very happy with what they're seeing. And from company restaurants, the ones that we've done, we're seeing sort of double-digit lifts for our own portfolio. Now again, one caveat is early. Two is that I think the starting point for our restaurants are a little bit lower than system average. So I'm not underwriting that sort of lift for the entire portfolio. But so far, we're very encouraged by what we're seeing as well as the franchisees.

Vance, it's fair to say that -- I'm sorry, Nick, it's fair to say that the franchisees that have renovated recently following the renovation package that we have are seeing lifts that more than cover the cost. The return is good.

Definitely.

Thank you for the kind words, John. It's good to be back.

Yeah, good to have you back, Nick.

You've had a couple quarters to think about it.

Well, I mean 4x on the deal conversion, that's a great number. In terms of just the number of like actual conversions, where it gives you confidence that that kind of lift is possible, is that something that we can commit to? Or is that also kind of too early and the numbers of conversions are too small to really be able to project that out?

Well, we can't speculate on forward-looking data, right? And we can't make a firm commitment. All we can do is report on what we've seen so far. What we've seen so far in the close to 40 international dual brands is a 1.5x improvement in revenue or more. And what we're seeing here in the 15 or so that are open in the U.S., we're seeing a range of 1.5 to 2.5 in sales lifts. But again, it's a sample set of 15 in the U.S.

Then just in terms of pricing and how we're thinking about just menu price versus mix going into 2026. Is there any kind of early indication you can give us in terms of what we can think of as the right price number in 2026 for both brands?

Vance can provide an update there.

Nick, as you're seeing and as we're seeing sort of with menu pricing right now, we're -- both sets of franchisees are in the low -- around low middle -- low single-digit range, which we do expect that to be the case going forward, given the fact that commodity costs have sort of come under control, egg pricing is still elevated, but it's come under control and it's getting better. So that's what we're expecting. Now obviously, the disclaimer we always have is that we don't control pricing. So it's the franchisees that said this. But there's -- we're not anticipating any outsized menu pricing for next year though, having said that.

[Operator Instructions] Our next question comes from the line of Todd Brooks with The Benchmark Company.

Vance, I wanted to start off with the capital allocation update and just walk me through why we needed to cut the dividend to fund the $50 million in share repurchase. Is there a third component around additional franchise keeping firepower dry for additional franchisee location acquisitions. I think you guys said you'd be willing to take that portfolio up to maybe a couple of hundred at a premium? Or just kind of walk me through why one lever had to be pulled to accomplish the share repurchase.

Sure, Todd. So first of all, our dividend yield implies a dividend yield of approximately 3%, as we said, and it's still one of the highest amongst our peers, right? And second, our asset-light model really generates healthy free cash flow. So it allows us to return meaningful capital to shareholders consistently, and that's not going to change. So it has nothing to do with cash flow or ability concerns on that matter.

Lastly, the goal -- to hit your point, the goal is always for us to deliver strong returns to shareholders. Currently, given how undervalued the stock is, right, especially given what we're seeing with the momentum with our business, the best way to increase TSR over time is through buybacks. And while we invest in company restaurants and franchisee restaurant remodeling and development. So we just think at this point in time, this is the most efficient way to increase shareholder return over time.

So price dependent, obviously, but this -- you signed up for the 2-quarter commitment, but it sounds like share repurchase is a bigger component of returning capital to shareholders going forward?

Price dependent, but that's a fair statement, price dependent, yes.

Great. Then I wanted to ask Lawrence about with House Faves expanding to 7 days a week, how has the brand been able to handle that operationally? I know that typically, those weekend periods are peak periods for IHOP to begin with. Now you're bringing potentially a value-seeking customer to try to get to the box during those peak periods as well. How are the units handling it? And is there an efficiency gain to happen as we get more than 6 weeks into having the menu available 7 days a week?

Yes. So thanks for the question, Todd. One thing that we're very methodical about is ensuring our franchisees and our restaurants are equipped to handle any new type of promotion and especially when it comes to something like an everyday value menu. So we tested this across several months and across different markets to ensure not just is it a transaction and traffic driving, but also profitable program for the franchisees. And also, that ties to your question, which is the operational capabilities.

So the main focus of our value platform, in particular, is leveraging core items. So I cook a lot in the restaurants and it's back with the cooks and the chefs back there. And we want to make sure they focus on our core items, pancakes, eggs, bacon, omelets, items that from a speed standpoint, could be managed thoroughly and have no impact whatsoever in terms of speed. And so that's why, as John alluded earlier, our speed has actually improved continuously even with the everyday value menu because we've optimized it based on our core. And so from a cooking standpoint, they're just masters at the trade there.

Just a follow-up there, Lawrence. If customers were coming anyway on the weekend and the House Faves is focused around core items, that kind of transference into the value bucket, is that greater on the weekends at peak periods? Is it less? Is it pretty consistent with what you've seen during the week?

It's still early as we've only been in the everyday value menu launch since mid-September. And so we're continuously tracking. But even throughout the test data as we did it for several months, it stayed fairly consistent. Actually, with the barbell strategy, we are seeing potentially value increasing on the weekends, but the check counter, which is our barbell strategy, introducing new premium items and featuring them on the table with POP and even with the menu inserts, we're seeing a good balance in terms of check growth, even including on weekends.

Ladies and gentlemen, I'm showing no further questions at this time. I would now like to turn the call back to John Peyton, Dine Brands' CEO, for closing remarks.

Thanks, Towanda, for taking such good care of us, as you always do. And thanks, guys, for your questions. I'll just sum up with a few key points. We know we've got more work to do, but we are pleased with the effects of the retooling and the refocus that both brands have put in place. We're pleased with the performance from the last 2 quarters. We're pleased with the potential that dual brands is posing to accelerate our return to net unit growth.

As Vance mentioned, our stock is undervalued in our opinion, and we are directing our shareholder return strategy through this buyback program because we believe in our strategy, we believe in the future of the company, and we think that's a very good investment right now. So I appreciate your questions and look forward to talking to you later today.

Ladies and gentlemen, that does conclude today's conference call. Thank you for your participation. You may now disconnect.