Good day, and welcome to the Denny's Corporation Q1 2021 earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Curt Nichols, Vice President, Investor Relations and Financial Planning and Analysis. Please go ahead. Thank you, Tony. Good afternoon, everyone. Thank you for joining us for Denny's first quarter 2021 earnings conference call. With me today from management are John Miller, Denny's Chief Executive Officer, Mark Wolfinger, Denny's President, and Robert Verostek, Denny's Executive Vice President and Chief Financial Officer. Please refer to our website, investor.dennys.com, to find our first quarter earnings press release, along with a reconciliation of any non-GAAP financial measures mentioned on the call today. This call is being webcast. An archive of the webcast will be available on our website later today. John will begin today's call with a business update. Mark will then provide some comments around restaurant capacities, our franchisees, and development. Robert will provide a recap of our first quarter financial results and current trends. After that, we'll open it up for questions. Before we begin, let me remind you that in accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the company notes that certain matters to be discussed by members of management during this call may constitute forward-looking statements. Management urges caution in considering its current trends and any outlook on earnings provided during this call. Such statements are subject to risk, uncertainties, and other factors that may cause the actual performance of Denny's to be materially different from the performance indicated or implied by such statements. Such risks and factors are set forth in the company's most recent annual report on Form 10-K for the year ended December 30th, 2020, and in subsequent Forms 8-K and quarterly reports on Form 10-Q. With that, I will now turn the call over to John Miller, Denny's Chief Executive Officer. Thank you, Curt, good afternoon, everyone. I hope each of you have remained safe and healthy since we last shared an update on Denny's. While the first quarter started off with uncertainty about the pace of reopenings due to expanding vaccine deployment, the easing of restrictions, and federal stimulus, I'm happy to say that we are quickly approaching 2019 sales levels in April. I'm even more encouraged by the stickiness of our off-premise business as dining rooms have reopened. This is a testament to the hard work and dedication of our teams to balance near-term labor challenges while welcoming guests back into our dining room safely and still maintaining focus on growing our off-premise business. We remain focused on our four key guest-centric themes, reassurance, value, comfort, and convenience, and I'll now touch briefly on each. As guests return to our restaurants, it is more important than ever that we ensure the health and safety of our teams and guests. We are committed to reassuring our guests that Denny's provides a safe dining experience by consistently executing our enhanced cleanliness and sanitation procedures at all consumer touchpoints. Our second area of focus is value. We understand that value comes in different forms and has a different meaning for each type of guest. We consider our value approach to be a comprehensive balance between price, abundance, convenience, and bundled value. Our third focus area is comfort. We strive to ensure that Denny's is a place where our guests feel welcome and valued. Whether dining with a large family or as a party of one, we believe our guests view the Denny's experience as a time to build connections in an environment that is both inviting and comfortable. This is reflected in our new Bowls & Melts, as well as our established Heritage restaurant image, which received consistently positive guest feedback, largely due to its welcoming and relaxed feel. Additionally, even as we face hiring challenges, our operations team continues to reinforce the critical need for comfort by reminding our entire system of the rules we live by, including the expectation that, number one, everyone is welcome to dine at Denny's. Number two, everyone is treated like our favorite guest. Number three, everyone is shown kindness and respect. Our final area of consumer focus is convenience. We believe guests will continue to expect technology to bring enhanced value to their dining experience, whether in our restaurants or through off-premise options like our well-established Denny's On Demand platform or our new virtual brands. We've been pleased with our ability to retain off-premise sales, which have more than doubled since the start of the pandemic, even as dine-in transactions have evolved. Turning to virtual brands, I'm excited to say that we substantially completed our rollout of The Burger Den in April. This concept allows us to focus on one of our strengths, great burgers, with new varieties using ingredients already in our pantry. During testing, we established a success criteria for sales of $650 per week per restaurant. Results during the test were encouraging and gave us the confidence to initiate a national rollout of the brand. Robert will give more specifics on the performance of these restaurants. However, these transactions are highly incremental and leverage underutilized labor to maximize kitchen efficiency. Our second virtual concept, called The Meltdown, is a DoorDash exclusive brand that features handcrafted sandwich melts with fresh ingredients and unique flavor combinations. While this brand is able to utilize approximately 70% of the items currently in our pantry, our innovative culinary team has crafted new craveable products with premium ingredients, such as slow-smoked brisket burnt ends. Test results have been similarly encouraging for The Meltdown, and over half of our domestic locations will be launching during the second quarter. In fact, we've already launched over 175 locations, and an additional 175 are expected to launch this week. These brands provide opportunities not only at dinner and late night to leverage underutilized labor and kitchen space, but we are also seeing a meaningful number of transactions during the week versus the weekend. In closing, we are simply delighted to see the return of guests to our dining rooms. We are still the place where people can come in, sit down, and connect with one another over great food, but also a place with a continued focus on the health and safety of our guests, employees, and suppliers. With sales approaching pre-pandemic levels, the launch of two new virtual brands, market share opportunities on the horizon, an extraordinary group of franchisees, and our exceptional Denny's team members, I'm very optimistic about the future of this brand. With that, I'll turn the call over to Mark Wolfinger, Denny's President, to discuss more about our franchisees and development. Mark? Thank you, John. I want to echo your comments about our outstanding Denny's team and franchise system. I too look forward to what this brand can accomplish during the balance of this year. While we currently have 11 domestic restaurants that are temporarily closed, I'm very pleased to say that nearly all of our operating domestic restaurants have opened dining rooms with an effective capacity of approximately 75%. This is very encouraging considering just two months ago, we had only 70% of our domestic restaurants with open dining rooms at an effective capacity of approximately 45%. We experienced slight improvement in our 24/7 operations during the quarter. However, we still only have approximately 1/3 of our domestic franchise restaurants operating 24 hours a day, seven days a week. As John mentioned, we are facing labor availability challenges. This is the primary headwind preventing franchisees from opening at late night. To assist our franchisees with the estimated 20,000 employees that need to be hired, we've engaged with a vendor that will enhance our online recruiting to allow them to post open positions on our career website in order to provide greater visibility to potential applicants. Additionally, we will be hosting a national hiring event in June. That's next month. We believe these staffing challenges are temporary, and we are confident in our ability to reestablish our historical position as America's 24-hour diners. Turning to development, franchisees opened three restaurants during the quarter, including two international restaurants. Additionally, franchisees closed four restaurants during the quarter, yielding a net decline of only one restaurant, bringing our total number of restaurants to 1,649 locations. This deceleration in net unit declines underscores the confidence and future opportunities our franchisees see within the brand. I would now like to take a few moments to update you on the health of our franchise system. With off-premise sales remaining strong even as dining rooms reopen, we are very pleased to see franchisee profitability continue to improve. In the month of April, over 80% of our domestic franchised restaurants exceeded the 70% of 2019 sales threshold required to cover both fixed and variable costs, and over 40% of the domestic system generated positive sales. We are also currently supporting our franchisees in their efforts to secure funding through the second round of PPP and the Restaurant Revitalization Fund. Franchisees representing approximately 98% of the domestic franchise restaurants have applied for the second round of PPP, and approximately 60% of those restaurants have received funding to date. Improving sales, additional federal stimulus available to franchisees, and the net decline of only one restaurant during the first quarter gives us confidence in our franchise system's ability to prevail and emerge on the other side of the pandemic, more focused and driven than ever. We look forward to seeing this historic recovery unfold and returning to net restaurant growth in the future, backed by our existing domestic and international development commitments, including over 75 commitments from our recently completed re-franchising strategy. Additionally, while we do not celebrate the disproportionate impact of closures to small chains and independent restaurants, we do believe it will present an opportunity to capture additional market share and convert vacated space into Denny's locations as we move through 2021 and beyond. We have a proven record of converting existing spaces into Denny's locations. In the last 10 years, approximately 60% of our openings have been conversions. These less capital-intensive opportunities provide enhanced ROIs for franchisees, and our experienced development team is already assessing the landscape for future Denny's locations. I'll now turn the call over to Robert Verostek, Denny's Chief Financial Officer, to discuss the quarterly performance. Robert? Thank you, Mark, and good afternoon, everyone. I would now like to share a brief review of our first quarter results and current trends. As a reminder, I will be comparing our 2021 domestic system-wide same-store sales to 2019, as we believe this comparison will provide a more consistent and informative representation of our recovery. Additionally, we will continue our standard practice of comparing to the 2020 prior year in our press release. Domestic system-wide same-store sales during the first quarter declined 20% compared to 2019. We experienced sequential improvement on a monthly basis during the first quarter as stay-at-home orders and capacity restrictions began to ease. While transactions are steadily improving with only slight pricing, we are seeing higher check mostly from mix changes. Specifically, we streamlined our 2-4-6-8 menu and are seeing trades into more lunch and dinner items. However, California, where approximately 25% of our domestic restaurants are located, was restricted to off-premise only through the middle of fiscal March. Consequently, California restaurants weighed on the total domestic system-wide same-store sales results by approximately six percentage points during the first quarter. Same-store sales at domestic restaurants operating with open dining rooms of various capacities declined approximately 11% during the first quarter, compared to a decline of approximately 42% at those domestic restaurants operating with closed dining rooms. These results were heavily weighted towards January and February prior to the easing of restrictions. In addition to the weight of government-imposed restrictions on our business, we have also discussed the impact of stores operating with limited hours during the pandemic. As Mark mentioned, the availability of labor continues to challenge our path towards 24-hour operations, with only one-third of our domestic restaurants open 24/7. Domestic restaurants which were open 24 hours in the first quarter had a same-store sales decline of approximately 10% versus 2019, compared to a decline of approximately 27% at domestic restaurants operating with limited hours. We estimate that our overall same-store sales results in Q1 were impacted by approximately 8 percentage points-10 percentage points from restaurants operating with limited hours. With that being said, the easing of dine-in restrictions, coupled with the fiscal stimulus and rollout of our two new virtual brands, yielded preliminary April same-store sales results within 2 percentage points of pre-pandemic sales levels. We were also encouraged that preliminary sales results for April increased 11% for the 565 restaurants operating 24 hours with open dining rooms. I want to spend a few moments providing more detail on the launch of our virtual brands. As John mentioned, these transactions are highly incremental and leverage underutilized labor to maximize kitchen efficiency. In fact, approximately 70% of transactions from The Burger Den occurred during the dinner and late-night day parts, compared to approximately 35% of transactions for the Denny's base brand. Not only are we leveraging underutilized day parts, but The Burger Den also overindexes during the weekdays compared to the Denny's base brand, providing additional opportunities to leverage underutilized labor. Approximately 75% of The Burger Den transactions occurred during the weekday, compared to approximately 65% from the Denny's base brand. Over 1,100 locations are live with The Burger Den, with an average check similar to Denny's off-premise transactions. These locations are generating average weekly sales per restaurant of approximately $900. While these transactions being highly incremental and overindexing at dinner and late night compared to Denny's base brand off-premise sales, margins range from the mid-20% to the low 30% after considering product costs, delivery fees, and labor efficiencies. Now turning to our first quarter results, franchise and license revenue decreased 13.6% to $47.0 million compared to the impact of COVID-19 on sales at franchise restaurants and fewer equivalent units. Franchise operating margin was $23.2 million, or 49.5% of franchise and licensed revenue, compared to $25.2 million, or 46.4%, in the prior year quarter. This decrease in margin dollars was primarily due to the impact of COVID-19 on sales and fewer equivalent units, partially offset by abatements and bad debt expense recorded in the prior year quarter. Company restaurant sales of $33.6 million were down 20.6% due to the impact of the pandemic on sales and fewer equivalent units. Company restaurant operating margin was $3.4 million, or 10.1%, compared to $6.2 million, or 14.6%, in the prior year quarter. This change in margin was primarily due to the impact of the COVID-19 pandemic on sales and fewer equivalent units. Total general and administrative expenses were $16.9 million, compared to $7.7 million in the prior year quarter. This change was due primarily to an increase in share-based compensation expense and market valuation changes in our deferred compensation plan liabilities, both of which are non-cash items and do not impact adjusted EBITDA. As a reminder, in the prior year quarter, we reversed a meaningful amount of expense related to both our short-term and long-term incentive compensation plans, given the uncertainty of both the duration and magnitude of the pandemic. These increases were partially offset by a $900,000 decrease in corporate administrative expenses, primarily due to cost savings initiatives implemented after the start of the pandemic. We estimate that approximately $3.5 million of permanent annualized savings have been realized over the last 12 months, which is reflected in this improvement. These results collectively contributed to adjusted EBITDA of $11.8 million. The provision for income taxes was $8.1 million, yielding an effective income tax rate of 25.9%. Adjusted net income per share was $0.01, compared to adjusted net income per share of $0.17 in the prior year quarter. I am very pleased to say that during the first quarter, we generated our highest adjusted free cash flow of $5.2 million since the beginning of the pandemic, bringing a significant portion of every adjusted EBITDA dollar to the bottom line. In our adjusted free cash flow was cash capital expenditures, which included maintenance capital of $1.6 million, compared to $2.8 million in the prior year quarter. We ended the quarter with approximately $230 million of total debt outstanding, including $215 million under our credit facility. After considering cash on hand, the remaining capacity under our credit facility, and current liquidity covenants, we had approximately $87 million of total available liquidity at the end of the first quarter. The pandemic has certainly affirmed for us the value of a conservative leverage philosophy. Prior to the pandemic, we would've targeted longer-term leverage somewhere between three times and four times adjusted EBITDA. However, we are currently more comfortable with a range of between 2x and 3x. As such, subsequent to the end of the first quarter, we paid down an additional $15 million on a revolving credit facility, bringing our current outstanding balance to $200 million. Turning to our business outlook, given the dynamic and evolving impact of the COVID-19 pandemic on our operations, and uncertainty about the timing and extent of an anticipated recovery, we cannot reasonably provide a business outlook for the fiscal year ending December 29th, 2021, at this time. As we work to overcome near-term staffing challenges and return more stores to 24/7 operations, we are optimistic about building upon our ongoing sales trends. With that said, costs associated with recruiting, hiring, and training new employees may precede additional sales growth and, as a consequence, could have a temporary impact on margins. Additionally, excluding the deferred compensation valuation adjustments, which move with the market, for the second quarter, we expect our core G&A, corporate incentive compensation, and share-based compensation will be in line with Q1 results. As a reminder, on December 15th, 2020, we entered into the third amendment to our existing credit facility. This reduced the revolver commitment to $375 million and has an additional step-down to $350 million on the first day of the third quarter of 2021. Financial maintenance covenants are waived through the first quarter of 2021, followed by the introduction of more favorable covenant levels in the second and third quarters of 2021. Under the amendment, capital expenditures are restricted to $12 million from mid-May 2020 through the third quarter of 2021. We have utilized approximately $4 million through the first quarter, with an additional $8 million available. We are prohibited from paying dividends, making stock repurchases, and other general investments until we deliver our third quarter results. We intend to deploy cash towards paying down our revolver as we continue to enhance our overall liquidity position. We look forward to emerging from these constraints during the fourth quarter and continuing our longstanding practice of returning capital to shareholders while also investing in the business. I want to mention how proud I am of our franchisees and the entire Denny's team, who have remained focused on safely serving our guests, whether dine-in or off-premise, while continuously managing business costs to support Denny's post-pandemic recovery. We have and will continue to leverage the strength of our asset-light business model and fortified balance sheet to ensure the success of our dedicated franchisees and this brand. That wraps up our prepared remarks. I will now turn the call over to the operator to begin the Q&A portion of our call. Thank you. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure the mute function is turned off to allow your signal to reach our equipment. Once again, that is star one if you'd like to ask a question. We'll take our first question from James Rutherford from Stephens Inc. Please go ahead. Hey, thanks for taking the questions, and congrats on the improvement, especially here in April. That's really impressive. Thanks, James. Yeah. I wanted to ask about the I think I heard a comment that virtual brands are running in the mid-20s% to low 30s% margin. I just wanted to ask for clarification on that, whether that includes the delivery fees? As a broader question on the virtual brands, how are you marketing those today? What level of marketing investment do you think is necessary to sustain those for the long term? Hey, James, I'll start. This is Robert. With regard to that clarifying question, I can tell you that the mid-20s% to low 30s% does include the impact from the fees related to that. It's inclusive of that. It does leverage that underutilized labor that we're talking about, as it has a focus into those dinner and late night day parts where we typically seek to have some traffic gains. I'll pass it over to John for the marketing question. Hey, James, it's a great question. The marketing brand advisory council with our franchisee association chair, who used to work on the corporate side, Sam Wilensky, h e leads the Marketing Brand Advisory Council. He works with our Chief Brand Officer, John Dillon. Those are the kind of topics that come up. We want to build equities, deep equities in our brand for quality food and move consumer along the channels. There are some that sort of may resist family dining. It's a category they skip or they just are experimental, and when they go online to DoorDash and other outlets, they're looking for something new and interesting, and they have fatigue from being at home during COVID. There is going to be a high trial period where people are exploring new brands. We think we've got the balance just right here of promoting these two virtual brands, where it is disclosed that they're prepared by Denny's, but it's sort of a soft touch. It's not the headline, but it's there if you're looking for it. We're using the Denny's brand building fund. These are sales that are generated through a Denny's and through social media and other ways we are promoting these brands mildly. The Meltdown is through DoorDash only, they're sort of assisting in that launch by being exclusive on the front side. Over time, we believe even with a melt promotion going on in the core brand Denny's right now, that some of these things can show up in our menu and build core equities to the brand, both as a virtual brand and inside Denny's at the same time. That's helpful. On the 11% + comp for the restaurants open 24/7 in April, do you feel like that kind of a result will be replicated by the rest of the system when they open 24/7? Or is it something unique about those? Well- How long do you think that you can sustain that sort of level of sales? Thank you. Sure. Well, obviously, it's a little early to guide. We're feeling our way through where we are. It is very promising. We're pleased that third shows like it does. The pace at which we can staff will be the challenge. As staffing challenges abate and the ability to cover those shifts more fully and to open expand those hours, we expect them to become, obviously, it's a capacity issue, you become a lot more positive. We're also pleased to see this higher trial period with people used to being at home after 5:00 and ordering to go after 5:00, a day part that doesn't have deep equities in our positioning. The trial going on in both our virtual brands and then also in our late night day part is promising. Part of that is the fact that they're open and available to serve to-go food, and part of it is that they're staffed and available to do that, and the guest is getting a good experience. Both from a culinary expectation and an availability of capacity expectation, it does look promising. It's too early to guide how the whole system will perform. Okay. I appreciate those thoughts. Thank you. Thanks, James. Thank you. I'll take our next question from Nick Setyan with Wedbush Securities. Please go ahead. Thank you. Good to see April trends almost in line with pre-COVID levels. Obviously, we were going through refranchising in 2019. Post refranchising, there was an expectation that the company- owned margins should be closer to 18%. With sales back to pre-COVID levels or substantially there, how should we think about margins in the post-COVID world, company- owned margins specifically? Yeah. Hey, Nick, this is Robert. Good to hear your voice. Yeah, you are correct that during the refranchising process of 2019, we did talk about those 18%-19% margins. A handful of puts and takes right now with regard to that. The first to the good side would be that we are experiencing mixed benefits, more dinner and late night plates being sold, moving away from some of that value. We're seeing that come through mixed benefits. Check is up, but not really through pricing, but more through that mix. We'll need to understand how that evolves as we move through the pandemic. We don't have crystal clarity on that. The other kind of puts and takes there, we do have commodity inflation. Historically, we would tell you that that's between 1% and 3%. We've priced through that pretty efficiently historically. Again, not too many surprises there, although, again, not looking to guide on that point. Labor is one of those areas that will have both a give and a take in it. With regard to that, the benefit would be leveraging these underutilized day parts with these virtual brands and driving traffic into these dinner and late night day parts. That's just a gain, that leveraging of efficiency, just putting more traffic through there. Conversely, in the short term, as we mentioned, there will be the cost of restaffing these units, getting them up to speed. John just talked about the need to staff to get to 24/7. Mark talked about our June staffing initiative, our staff up day. That'll be a near term hit. You have the administration talking about minimum wage increases, that we will be dealing with on a longer term timeframe. Packaging, we are very pleased to see that the off-premise is holding, even as we've moved into April. Looking at chart slide 11 in the investor deck, about $9,000 - $10,000 still of off-premise sales, which was very similar to what we were seeing throughout the pandemic. That's holding. That comes with an increased cost. That will weigh on margins. Great margins, although penny profit has definitely benefited from those. That doesn't even account all of the various initiatives that we worked through over the course of the pandemic. Our op services group was finding various ways to save money. We saved some meaningful amounts on the waste line, which would be an offset to commodity. There's a lot of puts and takes right now that we're dealing with that we don't have perfect clarity towards, that we look to gain clarity and be able to ultimately re-guide. I think the best I can give you is to give you a sense of how we're thinking about the various components. That's very helpful. Can you maybe tell us how April trends progressed? I guess what I'm trying to ask is, did we exit April in positive territory? I think we were talking about down two, so we're two points at the pre-pandemic level. April's pretty choppy, Nick. Brad wouldn't give you as much insight as you think because we're rolling over a two-week between 2019 and 2021, a two-week kind of offset in the way Easter spring break rolled out. There's some choppiness in the way April kind of progressed. That's why we didn't give it, and it's probably not as helpful as you might think at this point. Okay. On G&A, I guess for the year, and I appreciate the Q2 commentary, for the year, how should we think about G&A? What we did speak to, again, is we said pretty much Q2 would look a lot like Q1. We did capture, if you go and look at the chart on slide 33 in the investor deck, we talked about the permanent cost reductions that we captured from the refranchising of approximately $7 million. We talked about on that chart $7 million of pandemic savings, of which, in my script, we talked about half of that being permanent. While we were really kind of comfortable giving that next quarter, not really calling it out too far into the future. Again, we will speak to about ramp ups there and when things begin to move around and we start moving around the country. Again, not trying to be coy, we really wanted to focus on the next quarter. Okay. Thank you very much. Thanks, Nick. Thank you. We'll now take our next question from Todd Brooks from C.L. King & Associates. Please go ahead. Hey, good afternoon, everybody. Congratulations on the bounce back here. Great to see. Yeah. Thanks, Todd. Not putting a clock on you guys for when you get there. You look at franchise volumes kind of in that 1.6-1.7 range in fiscal 2019 pre-pandemic, what are you guys looking to build back to as far as how much off-premise are you hoping to retain if we take what looks like the incrementality of the virtual brands? What does Denny's come out of the pandemic looking like relative to what it went in? Without burdening it on a specific year. Yeah, that's a great question. It's John. I think from a brand and its relationship with the consumer, I'll speak at 30,000 ft for just a second. Our goal is to sort of be that home away from home, America's diner with four active, productive day parts to do different things for consumers, but in the same neighborhood. You got breakfast, and then you have weekend breakfast. You have lunch and weekend lunch. You got dinner and the weekends, and then you have late night. All four do slightly different things. Where the last eight or nine years, we focused on sort of the foundational appeal of the environment, getting the service model right for breakfast and lunch. We invested in pancakes and fresh buttermilk and put in a better burger program and better shakes and a few things, expanded our omelet line, put in some value propositions to assure some frequency on the weekends. So we built some positive momentum, basically focused on one and a half day parts, right? So now our goal is to sort of transform the brand to build deep equities and credibility for all four day parts as a diner. I think to unlock traffic building potential on all four day parts is the goal. When and how fast we get there, it's just sort of hard to guide from where we stand right here post-pandemic at the end of Q1. I would like to be able to continue to provide more color on that very question. We're not quite ready to answer your question specifically, but my view is the upside potential compared to other marketplace evidences of smaller brands with less buying power and advertising capabilities. Once we get our momentum toward these things, much like we did over the last several years on breakfast and lunch, I think we can really unlock some power in this brand. Okay, great. Thanks, John. The second question I have is around the labor availability standpoint. Understanding it was highlighted from not being able to reopen many more stores in the 24/7 model. Two questions. One, is it a current pinch for operations at all? Is it requiring any kind of overtime or labor inefficiency to service the spike in demand that you've seen over the course of late March into April? Secondly, is the expectation that this is fairly transitory, and when we get to September and the expiration of the enhanced benefits that you're expecting to see the market really, hopefully ease, and that you can really start to make a push against the 24/7 reopenings? Thanks. No, I think that's exactly right. What you just described is exactly what's going on. We have a broad array of circumstantial or situational headwinds depending on the area or the store, the strength of the general manager, or the C managers cooking in late night shifts to cover. Some of those say, "Well, I can't do it until I get staff. I got to invest in a daytime cook until I can convert them to a nighttime cook, so let's limit those hours for now until we're really ready. I don't want to abuse the guest." Some say, "Let's try it," and guest complaints go up a little bit, so they pull back. There are some overtime consequences or not. It's sort of all over the map. We do think some have the view that it'll mitigate earlier than September, as people say back to school is not normally a strong hiring period for full service. People won't want to wait till the last minute to grab one of those cook or server jobs. Others say wait till a few weeks after it expires before you'll see people highly motivated. It's hard to know. We have a third of the system already there, yes, that's 2/3 missing, and because of their outperforming the rest of the system, our franchisees are highly motivated to move in that direction as soon as they're able. We do think this will pass in due time. I don't know if you had a P&L or modeling related question for Robert or no, just verify I answered it. No, it's really just operational pinch now as people are scrambling to get through at the restaurant level. It was kind of a view into when you thought it might mitigate. That was great. Thanks. Thank you. We now move on to our next question from Michael Tamas with Oppenheimer & Company. Please go ahead. Hi, thanks. Hope everybody's doing well. Hey, Michael. Hey, guys. When I look across the system in April and just kind of focus on the sales volumes that you disclose for on-premise and compare that to April of 2019, the math roughly says that you're doing a little bit better than the capacity at 75% would have implied on-premise. Just wondering, is that fairly accurate? Why do you think that is? It seems to be a common theme we're seeing across restaurants. How do you think you're able to sort of generate higher sales and what's your capacity on premise, again, separating the off premise from that? Thanks. Yeah. I think that's in sort of the funny flow of a week. All day parts are not equal. A Monday night, whether it's 25% capacity or 100% capacity, you probably need 13% of your total capacity to be even with 2019. That was a made-up number, but for illustration. Whereas on the other hand, when you're at only 75% on Saturday from 10 - 2, you're still compromised in the number of people you can serve. Throughout the course of Q1, you have until late in the quarter, California still not open. It's a real tricky set of math to figure out exactly. A 45% capacity for the whole quarter is a funny number. You have to apply it to where the day parts are the busiest, you have to see the third parties really helped after five and late night, and then you have to see how our footprint is sort of overweight towards states that compared to most national chains, we have a higher percentage of our total footprint in more restricted areas. I think that helps answer it. If you turn to the earnings release, I think there's a table in there that really helps to explain some of how that unfolds. I probably added confusion instead of clarity, but I tried. No, no problem at all. Just on the unit closures, they were really low, and they were great to see in the first quarter. Just wondering, is there any update that you guys have in terms of where you think that ultimately shakes out? Was that just sort of a timing in the first quarter, or has the sales boost that we've seen recently helped the unit economics to the point where maybe some of those closures that were on the table are no longer on the table? Thanks. Yeah, Michael. Hi, it's Mark. I'll try to address your question here. I think, first of all, just to repeat the number, and you've dived in on this. We had four closures in first quarter. We opened three stores. The net loss was one unit. We obviously, like anybody else, we went back in history to take a look at that, and that's actually the lowest closure number we've had in the last eight years in Q1. We actually closed 16 in Q1 of 2020, that was last year. If you recall, we closed 73 stores in total during 2020. At this point, obviously, we haven't given any guidance or outlook towards closures. Certainly part of that, we believe, although obviously there's not a lot of data to prove it, but certainly a lot of that is the fact that the number of closures when it reaches 73, that's double a normal year for us. First comment. Second comment is obviously we're in round two of the PPP support and other type of government support programs, which have worked very well for our franchise system. We talked about nearly 100% of our franchisees received round one of PPP. Round two of PPP is close to finishing, it's not entirely finished yet. Clearly, that's an encouraging part, and perhaps it led to only four closures in Q1. I would tell you again, just as a matter of recall, last year, you'll remember that of the 73 closures, about 67 of those were low volume, and really much the same pattern of the four that we closed, which were all domestic closures, but those four were on the low volume side as well. Again, like to give you clearer guidance, can't at this point, perhaps sometime in the future quarters, but it gives you a little bit of a commentary behind the closure number. Yep, makes sense. Thank you very much. I might also add real quick that we just completed our April meeting with our franchisees, the first time we were together live since February of last year. The positive outlook among both our vendor community and our franchisees, it was quite positive and enthusiastic about our strategic initiatives and the overall direction of the brand. I think there's a desire to sort of hold on to locations. Again, that's not guidance as much as it is the sentiment of our system. Thanks again. Thanks, Michael. Thank you. We'll take our next question from Jake Bartlett with Truist Securities. Great. Thanks for taking the question. My first was on the off-premise sales and just looking at the chart that you referenced which is pretty impressive to see March and April off-premise sales remaining high as the on-premise sales are increasing so much. I'm just wondering whether there's anything particular you did to support off-premise sales as we're emerging, as restrictions are ending. Anything like special offers or not? Then maybe in answering that question, if you have any idea or any expectation of where off-premise sales could really settle out. Hey, yeah, this is Robert. Yeah, it is an impressive chart. We are very pleased with that chart, actually, Jake. With regard to was there any promotional activity, I was looking over at Curt. We believe that there was a two-week stint in there where we had a free delivery program going on in there, but nothing completely out of the norm for the way that we've run that segment of our business over the last year. Nothing that would be propping that up significantly as online or on-premise transactions came back. Again, that's still a very encouraging result there. The other part of your question, I'm sorry, was where that'll eventually cap out. That's the million-dollar question, right? Because we are not back to a complement of 100% of our units open completely. What I can tell you, and this was some interesting information that we've captured here over the last little bit, is the way some of the segments have moved. Our Boomers, interestingly, we thought that that may have been an area of concern, but on a percentage basis of our transactions, they actually held up quite well over the pandemic timeframe. This is information from some consumer insight information that we received that they held on. Largely, some of the insight that we captured was that they were less impacted by things such as furloughs and requiring a job. In large part, they've come through. We believe that they will move back in more aggressively to on-prem dining as they become more and more vaccinated. There's an upside there. Conversely, the area that we thought may be less susceptible to the pandemic itself, actually in our consumer insight, the Millennial group actually trailed. Compared to the Boomers, they actually were impacted by job reductions, furloughs, and losing jobs. As a percentage of our makeup, they actually trailed slightly. They are now coming back. They are utilizing the off-prem. Again, if you think about how we've talked about off-prem historically, on-prem dining was predominant to Boomers, or when you looked at that chart from left to right, younger to older, on-prem skewed older, off-prem skewed younger. It's moving back towards that. Again, I thought that was pretty interesting information. All that to say is we're still working through that, right? Again, not trying to be coy here either. We just don't know where that's going to land. We are very optimistic. If you think about the virtual brands, particularly The Burger Den that I gave details on, 1,100 units with $900 a week per unit in sales. We are very encouraged by that. We are very encouraged by what we're seeing on the chart here on Slide 11. Again, just don't know where to guide that, where that will ultimately fall out. Just wanted to convey some optimism here. Got it. No, I appreciate it. It would've been impressive if I actually knew the answer to that question. My next question is about, there's some particular forces at work here, namely the 24/7 operations that are limiting sales versus what we're hearing from a number of other casual dining concepts. I'm wondering also whether the exposure to breakfast, whether that is still a meaningful drag versus the concepts that don't rely on breakfast. How would you frame how breakfast sales have been trending as we've started to open up here? This is John again. Right now, and again, it varies by operating hours. As we've improved sales, breakfast looks good because we're open for breakfast. Yeah. That daypart's actually performed pretty well for us year to date. Weekend breakfast is our best performing daypart overall, and that's where we have the deepest equities. Then, of course, with virtual brands, dinner and late night's done really well. It's a great question, but so far what I'd say is the more people want to do breakfast and all the complication of managing an all-day menu with a breakfast, go ahead and give it a go, and go loud on air and advertise it, and you'll help us out quite a bit in selling some of our breakfast. We're happy to see these initiatives unfold. Great. Just last question on the labor piece, and I understand there's pressures now, and you're anxious to get people hired. Does that have a long tail effect, meaning one question is how you're attracting those people. If it's purely higher wages, I guess you can't lower the wages when the market eases. Do you think this is really a longer-term impact the near-term pressure that we're seeing now? Jake, this is Robert again. I would say that we will work through this. I don't think that in large part it has been salary or wages that has been the issue getting staffed at this point in time. We just can't even really find the individuals to interview currently. As Mark spoke to, we will have a hiring day in June. We have deployed additional recruiters and consultants to help the franchisees staff. I'm not sure that it's the wage issue at hand. The near term will be the staffing up, the training, and all that. We'll work through that. Candidly, in the current periods, across both the company and franchise, we're running less labor than what we would like, so the labor line's actually probably leveraging more than what we would even care for. Longer term, I think the question really is beyond what the pandemic will bring, but the general approach to how wages and minimum wages will evolve. We do believe in a moderate increase in minimum wage in a tempered way. We'll look at that, and we'll continue to focus upon that and work through that to understand how that'll impact us. I think that's the bigger influence than what the longer-term pandemic will throw at us. Got it. Makes sense. I appreciate it. Thanks, Jake. Thank you. We'll hear next from Jon Tower with Wells Fargo. Great. Thanks. Guess I'll jump around maybe into the cost side of the equation, and the model for sticking in there, if I may. It looks like some of the franchise occupancy costs have kind of leveled out here and below where you've been trending, at least in late 2019 and in early 2020, and even some of the direct costs, which maybe was tied to bad debt expense. I'm curious if you could help us think about, particularly the occupancy side, where that could settle out over time. That's my first question. Hey, Jon, this is Robert. When you think about our portfolio of real estate that we own and then we sublease to franchisees, we have about 82 units that we own. I believe about 68 of those sit under the franchise units, and then we have another 220 or so that we are on the master lease and sublease to our franchisees. What's happening there, it's a pretty consistent pattern. We roll off about 20 of those leases every year, 20 - 25 of those leases. You'll lose the corresponding revenue, and the corresponding occupancy expense on the franchise P&L. Those kind of work in concert. Over 2020, what you were working with were various deferrals that we had put in place. That'll make that year look pretty choppy. The franchise margin itself year-over-year is a function of the deferrals that we made and the corresponding assumptions that we've made around bad debt with regard to those. I think that there's a $1.5 million of liability that we put on over the course of 2020 related to those deferrals. As we have moved into 2021, and those deferrals have begun to be repaid, we can roll off some of that bad debt expense that we had put up. I think there's a $250,000 margin improvement for the bad debt expense that we had rolled off in the current quarter that we had booked in the prior year. A lot of moving pieces in there, but isolated to the occupancy expense, nothing overly dramatic other than the general peel off of about 10% of those master leases every year, those subleases that we are on the master. Okay. Yeah, I'm just trying to figure out in terms of thinking about that franchise profit line going forward and the margin percentage, I guess. It does seem like an ability to get back to, say, 2019 levels is not out of the question at all anytime soon. I think it was 48.8% in 2019, if I'm not mistaken. The other piece, and we were just talking about it in the room, too, another complicating factor is the way the marketing is flowing through there because of the way RevRec came in, on a lower base of advertising dollars that were collected last year and into this year. It makes the margin percent look higher. As we move back to a more permanent full level of collections of royalties and advertising, that may put some pressure on that. Again, the advertising is dollar cost neutral, but it makes that rate look pretty funky. Prior to RevRec, our EBITDA franchise margins were 80%. Again, the movement within that advertising line can make that look pretty odd from time. Okay. Just thinking about the cost side of the equation of the virtual brands, obviously, knowing exactly where sales will settle out is challenging. Sounds like you're having some great success early on, which is great. In terms of thinking about, particularly late night, what sort of incremental costs might need to come in as those sales grow? Maybe you need another cook in the kitchen and perhaps supplies, but is that 20% - 30% or so incremental margin that you're seeing on these transactions with all the fees today, is there an ability essentially to see that move higher over time, or are there some governors in place that'll keep that kind of in check? Yeah. There's no governor per se, just a traditional fixed variable model. Labor will come. You get more labor for all the transactions you get is fundamentally how restaurant scheduling works, Denny's being no exception. The more transactions, forget check for a minute, the more labor needs to be allocated. The more transactions that come in during a soft day part, the more leverage you get, and that margin could improve. Then it stair steps when you finally sort of reach the threshold to add another cook, it may step down for a moment, but it's still incremental pennies in all cases. The fact that it's highly incremental, we like the idea of having a couple virtual brands around so long as they're complementary to the station and the complexity of what a cook sort of has to learn and manage. They're not really operating multiple brands within a brand. They're the kinds of things that we sell and sort of in our wheelhouse, so to speak. In that sense, they're incremental no matter what. I understand you're trying to get some precision around the model. What's the fixed variable model here on virtual brands? That's the complicated. Any of these are new and therefore complicated. I think over time, they'll prove not to be, and you treat them in the near term, I think like any to-go transaction. Whether they're a Denny's or a virtual transaction, they're to go. They're not as profitable as dine-in, but they're profitable and beneficial and incremental. I don't know if Robert wanted to add anything to the margin side. Yeah, John. With regard to that, John, I would suggest that we've called it out previously that the Denny's On Demand transactions, things from the base brand run high teens to mid-20s% with regard to margin. We've called out the mid-20s% to low 30s% with regard to the virtual brand. In that, we did take into account the fact that we are leveraging day parts where labor has not been the most efficiently deployed for us. We have to have cooks on the line regardless of the number of people that come into the unit, so that is the differential. In large part, we have accounted for that underutilized, capturing the efficiency of that underutilized in that 20% to low 30% range. Got it. I appreciate that color. Lastly, just kind of following up to some of the unit conversation earlier, I think we talked a little bit about the closure piece of it, but I'm curious more on the opening side. Mark, I think you in the prepared remarks, had talked about the idea of there are some units coming out there or some stores perhaps on the conversion side that might be out there and tempting. Have you started having conversations with franchisees about an appetite picking up for re-accelerating unit growth, or is it still kind of too early in the recovery phase for those discussions to be taking place? I'm going to answer the question in two pieces, then maybe John will jump in here as well, having just come off the conference he referenced with the franchisees. Jon, it is early still, but at the same time, as I mentioned, all of the assistance has come obviously in the two rounds of PPP. The fact that, obviously, we've seen this sales turnaround that we discussed both in the month of March, but also April specifically. You can imagine out there, the energy's really building in our franchise system. As we've said before, we're really, over the last decade, as far as new unit openings, we're really pretty much a conversion machine as a brand. I think we've talked about the fact that nearly 60% of our new unit openings over the last decade have really been conversions of an existing building. We know there's a lot of real estate out there. There's a lot of opportunity. Interest rates are still low. There's a lot of flexibility in landlords, and we've got a brand and a franchise system that is building in a dynamic way as we go through this recovery. Not a specific answer to your question, but just more of a tone, I think, of what we're saying. John? I agree with that. The only thing I'd add is you remember in Mark's script that we talked about, he said over 75 of these development commitments came from refranchising effort. I believe it was 78 precisely. Those will unfold in time. To your question about timing, it is a little early for us to go lean hard and say, "Hey, let's step up to these commitments." There was some grace around remodels and restarting the development program. It will come in time. The unit economics are solid, and because of the conversion opportunities, we believe that those will favor our development numbers, but it's too early to predict when that kicks in. Got it. I appreciate the time and taking the questions. Thanks. Thanks, Jon. Thank you. We'll take our next question from Eric Gonzalez with KeyBanc Capital Markets. Thanks for the question, good evening, everyone. Good evening, thanks. I'm curious about your marketing plans this year. If demand exceeds supply right now and staffing may not be in a position to keep pace with sales, how are you altering your spending on marketing and advertising? Can you save the funds for a time that it makes sense? Just curious about how much flexibility you have to run surplus in that ad fund. Yes. As you can imagine, getting through 2020, we tested the limits with advertising buyers, both digital and broadcast, on how far to press commitments and to parlay that into wait, stop, delay, pick these weeks instead of those. We've done quite a bit of that. I think generally you want to advertise fish when the fish are biting. We are staffed at breakfast generally, and we're having stronger breakfast response and recovery. That's where the deep equities of our brand are. We're not afraid to push out some of our breakfast initiatives right now. During the first quarter, we had a couple of weeks with free delivery and a couple of weeks with free pancakes. Those sort of, we're supporting to go, which made sense. Third party delivery during Q1 while people are still not getting out, and there weren't as many restrictions lifted just quite yet. I think we're trying to time things with the expectations of how the year unfolds. As we get into the holidays, there's usually holiday specific promotions, pies and holiday entree specials and turkey dinners and the like, and we expect that we will be staffed by then. If not, then we'll balance the media plan accordingly. That's helpful. Just another one on labor. I'm wondering how the current labor conditions change the economic model of that late night business. Presumably, you may have to pay some overtime or perhaps add some other incentives to staff that day part. I was wondering how the addition as you look to build back the late night day part and the rest of your store base, wondering how that could impact those store level margins in the current environment. No, you've described it accurately. It is a process of adding back personnel for that day part with the view that when you open, you'll have the transactions to support that labor. First, those folks have to come on as incremental to another day part, get trained, and then moved on the roster. It's a step function change. We've been a 24-hour operation, save for a handful of locations in our system, for 60 + years. It is a staffing rigor and scheduling challenge that's familiar to our brand. It would not be done by stretching people too far or excess overtime. It would be done by filling the roster with regularly filled positions during those day parts. Near term, because of staffing challenges, clearly there are some overtime challenges for the entire industry, not just Denny's. Got it. Maybe just the last question from me on capital allocation. Now that sales are seemingly at a full recovery versus or close to a full recovery versus 2019, I'd imagine that the EBITDA recovery will follow over the next year or so. With that, could you discuss maybe your current thinking on capital allocation in the past? I know there are plans to take the leverage above 3x. Just wondering if the pandemic has made you more cautious or perhaps more confident having stress tested the model that you might consider moving above that 3x level once it's permissible to do so later this year. Hey, Eric, this is Robert. Yeah, excellent question. I appreciate the opportunity to talk on that. With regard to our near term philosophy, the pandemic really did cement for us, at least in the near term, that we really benefited from the lower leverage profile that we had in place. Coming through the refranchising strategy of 2019, we talked about taking leverage up. We talked about a 3x-4x range. I talked today about really being comfortable in the 2x-3x range. The reality is, as you point back, as sales come back, EBITDA will come back. Well, our hands, because of the debt amendment that we signed, we signed one in May and then followed up in December just to give us ultimate flexibility. Our hands are tied from returning value capital to shareholders until we report our Q3 earnings. That will put us into Q4, so the EBITDA that we are generating, the cash that we are generating off of that, we will deploy against our credit facility. That is where it can go. Our hands are tied with returning value to shareholders, capital to shareholders. To a degree, they are tied with CapEx. As I noted, we paid down an additional $15 million on a revolver post the balance sheet date. We sit at $200 million with regard to our credit facility currently. Again, to what you said, yes, as sales return, EBITDA will continue to grow. We will use that cash to pay down our revolver short term. We will reassess beyond that, but we do really value returning capital to shareholders. On slide 39, which is a slide that we're very proud of in our investor deck, we talk about the $554 million that we returned to shareholders beginning in 2010. That represented a 44% net reduction in our outstanding shares, and that price was just over $10 in doing so. We are very proud of that chart and look to add to that chart once we have that flexibility to do so beginning in Q4. That's very helpful. Thank you for the questions. Thank you. Thank you. We'll take our final question from Brett Levy with MKM Partners. Great. Thanks for taking the question. Good job on the numbers. Thank you. I guess two different questions. One is if you could just give a little bit more granular numbers on the virtual brands and 24/7. You gave us some good insights into the average numbers, but what are you seeing from those that have been established earliest in terms of 24/7 or in terms of the virtual brand? The second question is, with respect to remodels and Heritage, you've given yourself a little bit of a pause in the ability to open them. Does this change any thoughts in what you might need or might want to do given the success you're seeing with on-demand and virtual? Let me start with the portfolio, Robert, and then if you don't mind, you can answer the 24/7 virtual. Sure. On the remodels, we did give a pause. We felt like that it was important for our franchisees to regain their footing, and over the long term, those relationships and the sensitivities to their challenges, we think is critically important. While PPP played a tremendous role in assuring confidence that they'd come through it, you don't know as you're coming through it how long things will last. Obviously, there's a lot more light at the end of the tunnel and a silver lining from the PPP program. We're just now entering into those discussions about where things go from here. We do have, again, in the regular development brand advisory council meetings, where a certain group of franchisees are dedicated to representing our entire franchise body on all things related to development. They focus on prototype imagery, they focus on Heritage remodel schemes, they focus on cost optimization of those, and they focus on what parts sort of matter to the guests and the consumer insight data. While we've taken this pause, we've sort of enriched the amount of data that we're able to share with that body on how powerful the Heritage remodel and the next round of remodel programs can be. They continue to return mid-single-digit lifts over a modest investment. Our franchisees are committed. There's no objection. They like the program, and they like the process in which we engage them in creating remodel scopes. It's really just a matter of timing to get back on track, and again, we haven't guided yet. Robert, if you want to talk about providing a little more precision around 24/7 and the balance of the question. Yeah. Hey, Brett, this is Robert. With regard to the virtual brands and 24/7, I give you some additional specificity with regard to the virtual brands. You can see on slides 26 and 27, we put the bullet chart or kind of map charts within there that show where the brands are rolled out. The reality is, it's really exciting with regard to The Burger Den specifically, 90% of the 24/7 units, the 565 units that I talked about, have actually deployed The Burger Den. 90% of that 565 have deployed The Burger Den. Again, it helps to talk about, they lead into that 11% + number that we had seen in the month of April coming from that, because again, it adds strength into those dinner and late-night day parts, the areas where- Helps them staff. Yeah, it helps them staff, helps the sales within there. It's really exciting with regard to that. Again, just to reiterate the point, we have deployed 1,100 of those units, of The Burger Den units, and the sales, the average weekly sales amongst those units, as you can see on slide 11 here, are $900 per unit per week. The simple math would suggest almost $1 million a week coming from The Burger Den itself. We will provide additional clarity with regard to The Meltdown. We are as equally excited about that brand, but we just have rolled out the first 175 of those or so and getting ready to launch into the next 175 very soon. As you can see, as we promised on previous calls, that once the data matured, that we would provide insight. We did that with The Burger Den. That will be the same as we work through The Meltdown. Thank you. With that does conclude our question and answer session. I'd like to turn the conference back over to Mr. Nichols for any additional closing remarks. Thank you, Cody. I'd like to thank everyone again for joining us on today's call. We look forward to speaking with you on our next earnings conference call in early August. During which we will discuss our second quarter 2021 results. Thank you all, and have a great evening. Thank you. That does conclude today's conference. We do thank you all for your participation. You may now disconnect.