Dine Brands Global Inc (DIN) 2014 Q3 法說會逐字稿

Good morning, and welcome to the third-quarter 2014 DineEquity, Inc. earnings conference call. My name is Brandon and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

And I will now turn it over to Ken Diptee, Executive Director of Investor Relations. You may begin, sir.

Good morning, and welcome to DineEquity's third-quarter 2014 conference call. I am joined by Julia Stewart, Chairman and CEO; Tom Emery, CFO; and Gregg Kalvin, Corporate Controller.

Before I turn the call over to Julia and Tom, let me remind you of our Safe Harbor regarding forward-looking information. During the call, management may discuss information that is forward-looking, and involve known and unknown risks, uncertainties, and other factors which may cause the actual results to substantially differ from those expressed or implied. We caution you regarding such forward-looking information in the context of these factors, which are detailed in today's press releases, as well as in our most recent Form 10-Q filings.

The forward-looking statements made are as of today, and assumes no obligation to update or supplement these statements. We may also refer to certain non-GAAP financial measures, which are described in our press release, and also available on DineEquity's Investor Relations website.

With that, I will now turn the call over to Julia Stewart.

Good morning, everyone, and thank you for joining us today. This morning, I'll review our third-quarter performance highlights, and provide a recap of the progress at both IHOP and Applebee's. Then I'll turn the call over to Tom for a summary of the financial results. I will then close with a discussion of our capital allocation strategy. We've got a lot to cover this morning before we take your questions, so let's get started.

By now, you have read our third-quarter earnings press release and dividends declaration press release. We've delivered another strong quarter. Adjusted earnings per diluted share increased $1.14 from $1.10 in last year's third quarter. We continue to generate strong free cash flow of approximately $45 million of which $14 million was returned to shareholders in the form of a third-quarter cash dividend.

Year-to-date, we generated free cash flow of roughly $95 million, and returned a combined total of nearly $73 million or 77% of free cash flow to shareholders in the form of dividends and share repurchases. We have also made good progress on our international growth strategy. I will provide more details on that shortly.

Now let's review the third-quarter performance of our two brands. I am pleased to say that same-restaurant sales were positive for both IHOP and Applebee's. Our strategies are having a positive impact. To build even stronger partnerships, we held our two franchise conferences this month to meet with our IHOP and Applebee's franchisees. I am pleased to say that both meetings were successful, and we continue to have very strong alignments with all of our franchisees.

Turning now to IHOP's results. IHOP same-restaurant sales were positive for the sixth consecutive quarter. For the third quarter, domestic systemwide sales increased 2.4%, supported by solid performance from our three new signature dishes that showcased IHOP taking innovation to the next level. I would also like to point out that sales were positive across all dayparts for the third consecutive quarter.

IHOP continues to significantly outperform the family dining segment, based on industry sales and traffic data, which is a testament to the hard work and dedication of both our brand teams and our franchisees. While we are pleased with these results, we are not going to be complacent. There is still more that we can do to sustain our current momentum.

I challenged the team to work aggressively on differentiating IHOP as much as possible. Their hard work and dedication have yielded some real wins, such as the new menu designs, understanding our consumers better than ever before, and significantly improving in-restaurant operations.

We will continue to think boldly and build on our achievements. Our ability to do so will be aided by our recently-completed comprehensive segmentation study, giving us very specific insights into which target segments are the most relevant to drive sales and traffic; what our target guests want us to differently; what motivates consumers to visit our restaurants; and how we can entice our existing guests to return more frequently.

Now let's switch gears to Applebee's. Applebee's domestic systemwide sales increased 1.7% in the third quarter, representing the second consecutive quarter of positive sales. Importantly, sales were positive across all dayparts. Delivering consistent and sustainable positive sales and traffic is imperative to long-term success. Here, too, our segmentation study has provided us with valuable information into what needs to be done to achieve our goal of not just retaining our number one position in casual dining, but building an insurmountable lead.

As I said before, we have very strong alignment with our franchisees. They are enthusiastic about the road ahead, and the side key pillars of our reset strategy. And just to refresh your memory, they are -- achieving consistent operations excellence; being number one in brand perception with our target segments; delivering daypart strategic growth; providing a personalized experience; and defining the Applebee's of the future.

We've refined our new menu positioning and developed a pipeline of new items, which we expect to roll out in 2015. We are adjusting our media strategy to better communicate with our target segments. And we have a strategic roadmap with a long-term vision for the brand. We are working to ensure that our external initiatives are aligned with our new consumer insights.

Now turning to our international expansion of both brands. We have completed much of the foundational work and research to enhance our value propositions for international franchisees. The team has completed the largest international research project to date, and developed a robust long-term strategic plan for growth. The hard work has already yielded some results. Year-to-date, we have signed five new international development agreements, representing 28 new restaurants. In the last nine months, our international franchisees have significantly exceeded the rate of development compared to the same period in 2013.

In addition, we recently completed our international brand positioning study, which showed strong acceptance in key international markets for our two great brands. To establish a solid sustainable international growth platform, our plan will focus on building a development pipeline by enhancing restaurant profitability with our existing partners, and attracting qualified new partners; creating new innovative and flexible footprints; and developing a relevant market-specific and differentiated positioning for each brand.

We are off to a good start. We are pleased with our progress, and we are optimistic about our growth prospects. I will continue to provide periodic updates, so stay tuned.

And with that, I would like to turn the call over to Tom for a third-quarter financial review.

Thanks, Julia, and good morning, everyone. I will begin with an overview of the third-quarter financial highlights, and then discuss our updated 2014 performance guidance. I will then comment on the completion of our securitization refinancing.

As Julia said, we had another strong quarter. Third-quarter adjusted earnings per diluted share increased to $1.14 from $1.10 in the third quarter 2013, mainly due to lower G&A expenses. The decline in G&A was partially offset by slightly lower segment profits, which mainly resulted from a decline in termination and other related fees related to franchised restaurants in the same quarter a year ago.

I would like to point out that the total of such fees was approximately $546,000 in the third quarter of 2014 compared to roughly $4.9 million in the third quarter of 2013. Regarding G&A, G&A expenses declined slightly to approximately $34 million from $35 million in the third quarter of 2013, mainly due to decreases in costs associated with travel, consumer research, and professional services.

Some of the favorability in travel expenses was due to the timing of our annual franchise conferences, which occurred in the fourth quarter of this year compared to the third quarter of 2013. And it is worth noting that G&A is expected to be higher in the fourth-quarter 2014 than it has been historically, mainly because of the timing of various expenses such as personnel, professional services, the franchise conferences for both brands in the fourth quarter, and brand projects aimed at future growth. We continue to actively manage our G&A.

Turning briefly to the balance sheet, the cash balance as of September 30, 2014 increased to approximately $133 million compared to $106 million at December 31, 2013. The higher cash balance is primarily due to the timing of the pending October interest payment on the 9.5% senior notes, and cash allocated for deposit in certain interest and principal reserve accounts to satisfy requirements under the third securitization refinancing.

On free cash flow, we generated very strong free cash flow of approximately $45 million in the third quarter, and returned over $14 million of it through a third-quarter cash dividend. Our dividend is the centerpiece of our capital allocation plan. In the first nine months of 2014, we returned a substantial portion of free cash flow through quarterly dividend payments and share repurchases. And we believe this demonstrates our ongoing commitment to create value for our shareholders.

Now regarding our updated 2014 guidance, I urge you to review our earnings press release for complete details, but I would like to touch on a few highlights here. Profitability-wise, we revised guidance upwards on our business segments. Franchise segment profit is expected to range between $331 million and $334 million. Interest expense for 2014 was revised downward and is now forecasted to be roughly $97 million.

For the fourth quarter alone, we expect interest expense to be approximately $22 million, inclusive of roughly $6 million of interest expense from the 9.5% bonds we are retiring. The timing of the redemption of the old 9.5% bonds resulted in one month of interest payable following the completion of the securitization financing. Please refer to our September 30th press release.

Cash from operations was revised upwards, and is expected to range between $120 million and $130 million. And the increase is a result of expected higher profits and lower interest expense. And lastly, free cash flow was revised higher, and is expected to be between $109 million and $119 million.

Finally, regarding the refinancing of our debt. For the last year and a half, we have been intensely focused on refinancing the debt to lower our cost of capital. As previously announced, it was a successful process that led to a new securitized debt structure. This new debt structure gave us the best way to lock in a low fixed rate for a long duration.

We believe that seven years at 4.277% was a very good outcome. The new debt structure increases our financial flexibility and is a very good match for our business model. With the securitization transaction completed, the redemption of our 9.5% senior notes on or about October 30th will conclude the final phase of the refinancing, which will result in annual interest savings of about $34 million pretax.

And now back to Julia to share the details on how this will positively impact our capital allocation strategy. Julia?

Thanks, Tom. Our new capital structure dramatically improves our ability to enhance shareholder value. As we promised, now is the right time to announce our new capital allocation strategy, which balances our commitment to return a significant portion of free cash flow to shareholders with our desire to invest for strategic growth.

Reflecting our confidence in the business, our plan to return cash to shareholders is in two parts. Part one is an increase in the quarterly cash dividend by a meaningful 17%, effective with the fourth-quarter 2014 dividend, payable on January 9, 2015 to shareholders of record on December 3, 2014.

Part two is a significant increase in the share repurchase authorization for our common stock to $100 million from the remaining previous authorization of approximately $40 million. While we did not conduct any share repurchases during the third quarter due to the debt refinancing process, we repurchased approximately 779,000 shares under the prior authorization at a total cost of roughly $60 million through June 30, 2014.

It is also our intention to explore the potential of investing in a growth vehicle beyond our current two brands. We believe that our scalable shared services infrastructure can accommodate a smaller concept to drive long-term shareholder value. Our eager-to-develop franchisees and our core competency in franchising convinced us that another concept can help drive long-term growth and leverage our G&A.

An ideal strategic fit would be an emerging concept with the potential for domestic and international expansion. Additionally, it would not compete directly with our existing brands, and would need to be a very attractive development opportunity for our current franchisees. I want to emphasize that while we are evaluating this growth option, we do not have a timetable, we are not in a rush, and a transaction is not imminent. We don't have anything today on our radar.

Regarding debt reduction, we believe that it does not make economic sense to delever from current levels for this foreseeable future. We recognize our commitment to a sustainable capital allocation program of which the dividend is the cornerstone of our plan. We expect to use the majority of our remaining free cash flow, after dividend payments, for share repurchases. We think that our new capital allocation strategy is sustainable and will build long-term shareholder value. Of course, we will continue to review our program on an ongoing basis.

To close, we accomplished a great deal this quarter. We delivered strong third-quarter results; we successfully completed our refinancing to secure a low fixed interest rate for the next seven years; and we delivered on our promise to enhance shareholder value, with the announcement of our new capital allocation strategy. We are turning the page on a new chapter, and I am very optimistic about the road ahead.

Now with that, Tom and I would be pleased to answer your questions. Operator?

(Operator Instructions). Raymond James, Bryan Elliott.

Question for you, Julia, particularly in light of the research that you've recently completed. Question is basically -- to what do you attribute the recent improvement in casual dining demand? And more importantly, what factors do you think are necessary to make it sustainable?

Gosh, Brian, you know what? I do think this notion of GAAP prices and disposable income -- certainly those two things are having an impact. I think people's sort of general feelings of things are getting better, whether they are or not; just a sense of this, generally, things are getting better. I think all those things contribute.

And I think, as I have often said, in casual dining, the most critical piece of success is differentiating yourself and truly being unique in the category. And that, frankly, is what we have spent all of our time and effort on. And hopefully, you will really see the effects of that in 2015 in every aspect of the business, trying to really differentiate ourselves so that we are unique, and people say, gee, it's just different at Applebee's than everyone else.

That's really our focus. But certainly, I think some of the economic indicators would suggest there may be a slightly positive impact overall in the category in the industry.

Would it be fair to characterize Applebee's as having a -- sort of a more economically-challenged core customer relative to casual dining at large? And therefore, if the category is coming back, it's probably being driven by those folks being able to come back into the market, and maybe come more frequently, or return from not being able to come? And that that might allow you to widen your gap relative to that, if that underlying market scenario or sector scenario unfolds?

I know there was probably a lot of intuitiveness about your comments. I may have historically agreed with that, but I think the lengthy work that we have done this year with the segmentation study would say that we have some real opportunities with some key target segments, to really drive successful traffic into our restaurants. And they are economically sound and have the wherewithal.

So I would tell you that the key target segments that we are working on are not necessarily hamstrung with their pocketbook. What I would say is they are incredibly, maniacally focused on value for the money. And we have to make certain that everything we do gives them the value for their money, but they are able to go out to eat. That's not so much the issue; but they are very value-conscious -- some of our target segments.

And I think what we need to do is make certain that we are very focused on that and communicating it the right way. I don't want to give away trade secrets here, but there's a couple of really key items we learned about price value through this most recent research that you will begin to see -- oh, I'd say immediately.

Okay. And I guess you have to be encouraged that, with a couple of large competitors giving away food, those value customers still came to Applebee's, rather than go get the free food -- or almost free food. So, that's encouraging as well. Thanks a lot.

I would agree. Thanks, Bryan. And I think this is our last call with you. I think we -- aren't you semi-retiring there in -- soon?

It's -- that is -- still not yet been finalized.

(laughter) All right. Well, then we look forward to talking to you on our next call.

Longbow Research, Alton Stump.

Good morning and great job on the quarter.

Thank you.

I�d say the question -- obviously, there has been a lot of talk about overall industry demand getting better. You know, faux gasoline prices certainly been a key part of that. But as you look at the third-quarter result, which, as I see here, was the best for Applebee's from a comp growth perspective than we have seen in a couple of years.

What internally did you do, whether it was a pricing LTO's? Or how much of the comp growth is traffic? Any color that you could provide as to what you did internally to drive such a good number on the comp front in 3Q?

So, I think it's a fair question. I would tell you that the All-You-Can-Eat Crosscut Ribs was a very successful promotion for us, with a strong sales mix and a retail rate. But more importantly, the communication was very strong. It was a new unique product; there is no such thing in the industry as a Crosscut Rib. It has a unique flavor profile, unique sauces.

And I think, frankly, with both brands, you are seeing our innovation and our creativity really taking us to a whole new level. When you're the first in a category with a new product, that's worthy of talking about.

So, that word-of-mouth, I think, is having a fairly positive impact on Applebee's. At the same time that we are talking to the consumer, and some of these new target customers -- and I was speaking with Bryan earlier -- but also that we are doing it in sort of a unique way and trying to continue to differentiate ourselves. That is a fancy way of saying whether it's media, whether it's the social digital, whatever it is, we are really focused on those target segments.

Makes sense. And then just a real quick follow-up to that. Just on a traffic standpoint, any breakout for both concepts, but particularly Applebee's, as to how that did in the quarter?

Yes. Slightly negative still on the traffic for Applebee's, and now troughed -- now we are -- and just slightly negative on the traffic. And on IHOP, positive sales and positive traffic.

Okay, great. Thanks so much, Julia.

Wells Fargo, Jeff Farmer.

Handful of questions, but just quickly on the model, I am curious if you are willing to give us a better sense as to what you expect the quarterly interest expense run rate to be as we enter the first quarter of 2015?

This is Gregg Kalvin. Well, the cash interest rate on the new debt is $14 million a year. So that is the run rate right now, is the $1.3 billion at the new rate.

Okay, $14 million?

That's securitized debt only. There's a few other pieces in our yearly guidance on debt that we give. But that comment's (inaudible) debt.

Okay. And then just on the potential pursuit of a third concept. Again, recognizing that you are just starting to do this, but I am curious what your parameters are in terms of either unit count or geography? And I guess more specifically, would a 50-unit concept be any more or less attractive than a 500-unit concept? How are you thinking about this right now?

Yes. It's really early on. And thank you for the question. And the way we think about it is something that doesn't compete with our current two brands. So it wouldn't be in family dining and it wouldn't be in casual dining.

And quite candidly, it's really all about our franchisees being able to develop it. So it has to have a whole bunch of white space or it doesn't make sense. So that's why something small and something unique is what we would probably look for. But it is something that our franchisees would want to develop, and would welcome, and that it had a great four-wall economic kind of look-out.

Okay. And then just on the question -- again, I think you briefly touched on this, but thinking about Applebee's marketing strategy, and where it stands today across TV, radio, digital, and the like, print? Again, just sort of core, I guess looking at where you are today, and thinking about where potentially you could be in 2015 and 2016, how do you expect the marketing strategy to evolve here? I mean, you've pointed out the environment is changing, but how will your media message change with the slightly more dynamic backdrop of casual dining?

So I'm trying to answer this question carefully, because I don't want to give away the moon and the stars here competitively. There is no question that TV is still the most effective way on a broad spectrum to reach consumers. However, having said that, we will continue to target that television much more effectively, given some of the recent feedback that we got from the target segmentation study.

In addition, we are looking at very unique ways that we can reach some of those targets through social and digital in a much more effective way than we ever have before. And that's really the focus -- is getting very creative and very strategic in reaching those target segments. And additionally, besides TV, social, and digital, there's obviously opportunity for one-on-one marketing. So when you think about that mix, it can be very powerful.

All right. Thank you.

JPMorgan, John Ivankoe.

I have a couple of questions as well. I will ask them one at a time. Firstly, Gregg, I think you were the one talking about this, but can you tell us the GAAP interest rate on that securitized financing?

We are not guiding on the GAAP interest rate right now. We have to -- in the fourth quarter, we have to go through accounting on the extinguishment of the debt. So that remains to be determined as to what the non-cash interest is. But the cash interest is -- let me clarify on the last comment, because we gave a quarterly number; the $14 million is quarterly. You multiply that times four, it's $56 million a year on the cash interest.

So that is the cash interest on the new debt. And the non-cash interest, we will guide on at the year-end call. It is not going to be significantly different, likely, from what we have now; or maybe a little lower.

Okay. And secondly, Julia, you were mentioning third concept, and you would specifically want it to be grown by your current franchisees. And there is a big school of thought that's out there that suggests that you want to have your franchisees focused on one brand. And that might even exclude other ancillary businesses that they may have; in other words, having them exclusive to your brand.

So could you help us kind of philosophically understand what the advantages and disadvantages would be to open up or allow your franchisees to do other concepts, other than the core IHOP or Applebee's businesses?

Absolutely. We have had a lot of interest from our existing franchisees. And probably the way to think about it is right of first refusal. I mean, if they don't -- if they certainly don't want to grow or they have other interests, then we would certainly allow that. But I think the most important thing is our franchisees have been very good to us over the years. We have a great partnership with them.

I would absolutely want to make certain that if they wanted to develop that third concept, that they would be given the first opportunity. If they didn't, we would certainly recruit outside our current bandwidths. But we have some terrific franchisees.

And you know, just like we are trying to leverage our shared services, our infrastructures, so are our franchisees. They want to leverage their G&A just like we do. So that's been their sort of focal point to us, is they want to have that opportunity. So I would certainly give them the first-in-line. And if they didn't, then we would certainly have a -- probably a cadre of people interested in growing.

But especially for those that are sort of reaching their maximum capability within a particular D&A or trade area, this provides them that white space -- and internationally as well. So, again, it's early stages, but a concept not our brand, something small, something unique. It could be fun. And, again, not in any hurry; don't have anything on the horizon.

Okay, understood. I guess within your existing two brands, how are your organizational capabilities around G&A? In other words, you have done a very good job of keeping G&A at very moderate levels of growth. I mean, is that what you see going forward? Or does it make sense for you to begin to invest for some additional capabilities?

That's a great question. I think that is something that we have been talking about internally. In fact, in Tom's prepared remarks when he talked about a few of the brand projects that we are working on, just that fact, that how do we accelerate this to market, marketing capabilities?

So, certainly, we will continue to look at the G&A. And right now, I would tell you organizationally, we are pretty set. We feel pretty good about our infrastructure, but we are constantly looking and evaluating it, where there may be some unique opportunities. And frankly, that comes largely from this notion of differentiating the brand.

And I think as I mentioned last quarter, we are actively looking for an IHOP President. And, of course, we are looking to replace Steve Layt when he was Senior Vice President of Operations at Applebee's. So those two are current searches.

So, we are always looking. But I think we feel very good about the infrastructure we've built, and frankly, the scalability and the leveragability of it. But you're always looking for unique and better opportunities -- especially, frankly, in that whole front of how to differentiate yourself.

Understood. (multiple speakers)

(technical difficulty)

And finally for me, I mean, obviously, commodities were a big theme in the third quarter of 2014 for a bunch of different companies. I obviously understand you're 100% franchised, so we didn't see an impact on your P&L. But, I mean, with your co-op in place, what kind of commodity pressure perhaps did the franchisees see in the third quarter of 2014? And if it's possible to maybe give an initial view on 2015 and how that might be influencing their attitude towards menu pricing?

Yes. I will let Tom try to grab the numbers for the co-op, but I will come back at the end of the --.

(multiple speakers) For 2014, they are both basically low single-digits; nothing dramatic, obviously. The protein stuff is higher. We are in the process of actually looking at next year right now, and revising our forecast. So I don't have one for you yet. But we are in the process of going through that right now. But for 2014, it's low-single digits.

And all the print (multiple speakers) -- sorry, Julia, go ahead.

No, what I was just going to say is, in general -- I know it sounds like a standard line that I always say, but -- both brands certainly have the capability to price with inflation. And franchisees have either held to that or slightly less historically. There is nothing on the horizon that would indicate they would do more than that.

Okay. Thank you.

Yes.

KeyBanc, Chris O'Cull.

(multiple speakers) Julia, can you help us understand how you are thinking about the dividend growth going forward? I mean, obviously, the 17% increase was a big increase. But should we expect it to grow through a combination of free cash flow growth and an increase in the payout ratio going forward? Or how should we think about it?

I think that is a good way to think about it. But we will continue to look at increasing the dividend as we continue to get more cash over time. I think what you just said is a good way to think about it.

So the payout ratio could increase as well over the next years?

Yes.

Okay. And then, Tom (multiple speakers) --? Oh, go ahead.

No, no. I was just going to say -- I think that, over time, we will look at the growth rate. And today, we have a -- I think the second, almost the first highest yield in the industry. So we'll continue to look.

Okay, great. And then, Tom, I had a follow-up to your G&A outlook. Did you expect it to be relatively -- did I hear you say relatively flat year-over-year in the fourth quarter? Or --?

I didn't really actually say. We guided on the whole-year G&A number. It's in the back of the release.

The reason we did (multiple speakers) is --

But we do see the (multiple speakers) -- go ahead.

(multiple speakers) Yes, what I was just going to say is the reason we guided is because fourth-quarter is going to be higher than it has been historically because of conferences. We are in fourth quarter this year, and historically, they are always in the third quarter. So, we didn't want you to take the run rate and run it through the year. (multiple speakers)

(multiple speakers) That's -- yes, that's why I made that remark.

Yes. Right.

But you can get there with the guidance number for the year in the back there.

Okay. So you provided -- I didn't see the G&A guidance for the year. I'm sorry. And then (multiple speakers) --

It's still unchanged. It's between [144] and [147] for the full year.

Okay.

It's just you won't get there when you look at the first three quarters. That is why we guided, but we also reminded you the fourth quarter was going to be higher than usual.

Okay. Now that would imply a pretty big tick-up in the fourth quarter relative to the run rate and year-over-year. Is that reasonable?

Yes. I mean, we -- based on the fact that we have the franchise conferences in the fourth quarter that were in the third quarter in prior years, and so forth, and the other things that we talked about, you know --.

Yes, you've got -- you're hiring two execs; you've got two major conferences that were in fourth quarter -- yes. That's why we guided that way.

The other part of that guidance, it looked like, was in $18 million in stock-based comp -- initially. That was the initial guidance. That is clearly running below that now. Is that still relevant?

We are not ignoring you; we are looking.

That's fine.

A little less than $18 million.

For the full year.

For the full year.

Okay. Okay. And then franchise expenses were up about 13.5% year-over-year in the quarter, which was a tick-up, obviously, in the rate of growth from the previous two. Should we -- how should we think about going forward, that level of growth?

Yes. That's -- I think you shouldn't necessarily predict that for next year. That is some increase in the advertising on the IHOP side.

Right.

Yes. That was some voluntary franchisee increase on the advertising. So, we will guide on that for 2015.

Okay. (multiple speakers)

See how it runs through the P&L?

Okay. Yes. Okay. (multiple speakers)

Shows through as 100 cents on the dollar and (multiple speakers) --

Yes.

-- on the (multiple speakers) side and 100 cents on the dollar on the expense side on the IHOP brand.

We will get back to you for 2015 (multiple speakers) --

Okay, great. Thanks, guys.

-- when we guide in February. (multiple speakers)

Thanks, guys.

Yes, no problem.

CL King, Michael Gallo.

Julia, question on -- can you update us on the loyalty program tests and where that stands?

We are a work-in-progress like the country-western song. We are working on it. We are taking our time. We are looking at, right now, the big test -- and I know you know this -- you do need to take your time on the algorithms, and what the implications are of that. So we are in process.

We have tests going at both brands; some very, very robust testing, in multiple-hundreds of restaurants, but really doing the thorough analytics on the algorithms. Should have more to talk about in early 2014. But when you're a largely franchised system, you have got to make sure those algorithms make sense to be able to go back to the franchisees, and make sure it makes sense for them. So we are being very thoughtful and planful in our testing.

Okay, great. And then also my recollection is you also have a 2-for-25 test. Is that something that's still being evaluated? Or what's the early read there?

I think the early read is there are some franchisees picking it up. I don't think we're -- at this point, I don't think Steve and the team have necessarily a massive plan that they are going to do it for the system. But there are some franchisees in parts of the country that are picking it up and running with it. It works for some. But I don't know -- at this point, I wouldn't say it is a national run.

All right. Okay, great. Thanks very much.

Yes, very much; very much welcome.

Telsey Advisory Group, Peter Saleh.

Thanks and congrats on the quarter. (multiple speakers) I wanted to ask about the tablets. And if you could just give us an update on the tablets for Applebee's, and what the implications have been for the topline and for the margin for the franchisees? And any thoughts you have on rolling out tablets to the IHOP system as well?

So, we still -- nothing has changed from our original indication that we would be continuing to roll out and have the tablets produced. And should be finished at some point mid to later -- a little bit later in the year, next year. It's too soon on the actual indicators and what we see in terms of check average and upsell and so forth.

I think the bigger issue -- the IHOP side, because we are doing some other work on the infrastructure for PLS, I don't know if we'll go to pay at the table. We may skip that technology and do some other things. We are doing some testing for (multiple speakers) --

(multiple speakers) We're evaluating it now.

-- and looking at it all now. But we are evaluating it right now. That's a great question to ask me early next year.

Okay. I'll keep that in mind. And then the other question I had -- last quarter, you mentioned there was a significant opportunity to gain some share at the bar for Applebee's. Any update on your progress there?

There is a lot; I just can't probably competitively talk about it. I think the important thing to note is that every aspect of that bar program is either in tests or in the process of going into tests, with a lot of excitement and energy from the franchise community.

It's a huge focus.

It's a huge focus. I feel very good about it. And I will be in a much better position to talk about that next year. But we have a great deal of testing going on right now. And when I say every aspect, I really mean every aspect as you think about the bar -- whether it is the drink offerings, the food offerings, the bartenders, beyond beyond -- sort of every aspect of the bar. And, yes, we still believe very much that there is an opportunity to sell share.

Great. Thank you very much.

And our last question is a follow-up from Bryan Elliott with Raymond James. Please go ahead.

I just wanted to take a moment, and for the record and the transcript, to clarify the Raymond James research situation. So, Brian Vaccaro, as many folks know, has been promoted to my partner, and we are together fully engaged and committed, and remain so. Thank you.

Thank you, Bryan. Thank you for that clarity.

And congratulations to the other Brian.

And congratulations to the other Brian.

Thank you. We will now turn it back to Julia Stewart for final remarks.

I want to thank all of you for participating on the call. The reporting date for fourth-quarter results is now scheduled for Wednesday, February 25, 2015. If you have any questions in the interim, please contact Ken, Tom, or myself, and make it a great day. Thank you so much.

Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.