Mika Ware - VP, Finance & IR Wyman Roberts - President & CEO Joe Taylor - CFO

Sara Senatore - Bernstein Gregory Francfort - Bank of America Merrill Lynch Jeffrey Bernstein - Barclays Chris O'Cull - Stiefel Robert Derrington - Telsey Advisory John Glass - Morgan Stanley Stephen Anderson - Maxim Group Jeff Farmer - Wells Fargo David Palmer - RBC Capital Markets Andrew Strelzik - BMO Capital Markets Joshua Long - Piper Jaffray

Good morning, ladies and gentlemen, and welcome to the Brinker International Q2 Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Mika Ware. Ma'am, the floor is yours.

Thank you, Kate. Good morning, everyone. This is Mika Ware, Vice President of Finance and Investor Relations and welcome to the earnings call for Brinker International's Second Quarter Fiscal Year 2018. Results for the second quarter were released earlier this morning and are available on our website at brinker.com. Wyman Roberts, Chief Executive Officer and President, and Joe Taylor, Chief Financial Officer; join me this morning here in Dallas. During our comments portion of the call, Wyman and Joe will provide a more detailed overview of the second quarter and will update the progress if our strategic initiatives underway at the Company. Of course, before we begin our comments, please let me remind everyone of our Safe Harbor regarding forward-looking statements. During our call, management may discuss certain items, which are not based entirely on historical facts. Any such items should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such statements are subject to risk and uncertainties, which could cause actual results to differ from those anticipated. Such risk and uncertainties include factors more completely described in this morning's press release and the Company's filings with the SEC. Additionally on the call; we may refer to certain non-GAAP financial measures that management uses in its review of the business and believes will provide insight into the Company's ongoing operations. Now, I will turn the call over to Wyman.

Thanks, Mika. Good morning, everyone, and thanks for joining us to review our second quarter performance and highlight the next steps in our Chili's turnaround strategy. From an earnings perspective, second quarter was solid for us, taking into account the benefit of the new tax structure, as well as the growth in our business; Brinker delivered adjusted earnings per share of $0.87. Looking ahead, while the lower tax rate will help our earnings, we will also invest back into the business by accelerating our reimage project and will invest in retaining an attracting top talent with performance-based bonus incentives and new benefits like our advanced education program, which offers team members opportunities ranging from English as a second language, all the way to an associate's degree, all in no cost to them. We just introduced the program and we're already seeing a lot of interest. We're excited to offer unique benefits that differentiate our brand and attract team members who are passionate about delivering a great guest experience. When we look at our business on an apples-to-apples basis, net of the tax impact on the quarter, we saw good earnings growth with Maggiano's strong holiday season leading the way. Maggiano has delivered record sales during the brand's most important quarter of 1.8%, driving improvements across the business, dining room, banquets, takeout and delivery. We also turned the corner on our global business, returning to positive sales despite ongoing headwinds in the Middle East. At Chili's this was the first full quarter in our turnaround strategy and we continue to see sales and traffic trans move in the right direction. Operation's execution is improving and we are delivering food faster and hotter, we've cut the number of our longest ticket times by half and we are seeing meaningful improvements in our key guest satisfaction methods. And our teams appreciate the simpler menu and back to our route strategy as we've seen decreases in turnover and stronger engagements course. So we're encouraged by the momentum, but we're not satisfied. As we continue our laser focus on bringing back guests with higher quality food and better service, we're also pushing harder to strengthen our overall value proposition and get consumers even more reasons to come back to Chili's. Moving forward, we're dining up the intensity on key aspects of our business we believe will increase relevancy and drive top line. For example, we still have marketing power to bring the bear [ph] especially into digital space. We're already recognized as digital leader in the category with our cutting edge Chili's app and digital curve side platform and with the recent promotion of our Wade Allen to Chief Digital Officer. He and the team will leverage the infrastructure we built to elevate our ability to connect with guests. We believe there is significant wide space here to further differentiate our story and increase our traffic momentum by targeting consumers uniquely with offers to meet their specific needs and compel them to visit Chili's more often. A great example of the power of digital marketing is the growth we've seen in our to-go business. We delivered positive to-go sales during the second quarter driven by double-digit increases in online ordering. And now that the franchise system is on board, we have significant upside potential with the to-go business. Starting at the back half of the year, we will leverage the power of our national marketing channels and focus our teams on delivering a great to-go experience. We also recognize the increasing importance of delivery to our guests. We've learned a lot over the last 10 years since we've developed our own delivery model with Maggiano's. We've driven year-over-year growth every year since we started. And now we are taking the Maggiano's knowledge, as well as what we're doing with multiple third party vendors like Amazon who can leverage our shared older platform to develop the most efficient model that delivers a great off-premise Chili's experience and just like with to-go, once we get the model right, we'll aggressively drive that daypart. We've taken a similar strategic approach to dayparts with the introduction of our simplified menu. We're seeing solid momentum in our dinner and weekend business and now we're working to build our lunch daypart. We know we can better-meet the challenging needs of today's lunch users, so we've developed new food and operational enhancements to deliver more compelling value for lunch guests which we are implementing starting this quarter and supporting with national marketing efforts. We're also continuing to improve the quality of our food, as well as pursuing product innovation target around burgers, ribs and fajitas. We believe infusing new menus into our core menu will preserve the simplicity in our operations while attracting new guests and giving our loyal guests reasons to return more often. And for the past year, we've been working to develop a new look for Chili's and we've created a remodel that delivers a more relevant atmosphere and meets our return hurdles. We're able to use some of the incremental cash generated from tax changes to accelerate this program while still maintaining our dividend insurer purchase targets. So starting in Q1 of F'19, we're investing in a brand-wide reimage program that will impact every restaurant over the next three years. What I'd like you to take away from today is that we're excited about the work we're engaged in. everyone in the organization is focused on delivering a better guest experience and driving traffic at Chili's. And now, I'll turn the call over to Joe to give you more insight into the second quarter results. Joe?

Thanks, Wyman, and good morning, to everyone. Let me continue the overview of our second quarter by providing additional insight into our operating performance, highlight some of the more meaningful tax reform impacts and update certain aspects of our annual guidance due to those impacts. The second quarter marked the implementation of the Chili's turnaround strategy focused on food investment and a simplified menu. In addition, it was an important quarter for Maggiano's with the continuation of their menu strategy, enhanced banquet offerings and more aggressively-promoted carry-out business. Both brand's efforts in the quarter combined to support solid earnings performance which reported adjusted EPS of $0.87, including approximately a $0.10 positive impact from the change in our effective tax rate due to the recently passed tax legislation. Factoring out this rate change and the other adjustments related to the tax legislation, our adjusted earnings per share would have been $0.77 for the quarter, an improvement of 8.5% by compared to the second quarter last fiscal year. Since I've already started the discussion of the tax legislation impact, let me highlight a couple meaningful aspects of the legislation for us. First, our GAAP earnings include a provision charge of approximately $8.7 million, adjusting the valuation of our deferred asset accounts to reflect the reduction in the statutory rate. Next and as you know, the US statutory rate decreased from 35% to 21% effective January 1. Now, for June 2018 Fiscal Year tax payers such as Brinker, the statutory rate for our current fiscal year is a blended 28%, basically half the year at 35% and half at 21%. As a result, we now expect our effective tax rate for this fiscal year to be between 20% and 22%, down from our previous guidance of 27% to 29%. I would note the second quarter ETR of 19.5% is slightly below what we expect for the remainder of the year and that includes a provision benefit effectively cashing up the provision for the higher ETR expense in the first quarter. For comparative purposes, had we been able to benefit from the new statutory rate of 21% for the entire year, our effective rate for this year would have been in the 14% to 16% range. Lastly, our earnings per share will increase this fiscal year as a result of the tax legislation. As such, we are increasing our fiscal year earnings per share guidance range to be $3.42 to $3.52, up from our original guidance range of $3.25 to $3.35. This new guidance range reflects the utilization of a meaningful portion of the tax change benefit for this year for team member compensation and support programs as Wyman highlighted during his remarks. As we have likely set an all-time record for the time devoted to tax during an earnings call, let me provide some insights as to the earnings performance reported this morning. For the quarter, Brinker reported comp sales of negative 1%, based on brand comp sales with Maggiano's positive 1.8% and Chili's negative 1.5%. I would note the weather impact for the quarter was approximately 20 basis points for each of these figures. These results represent a change in the trajectory of our sales and are supported by sequential traffic improvement from the first quarter of 2.8% at Maggiano's and 4.3% at Chili's. Underlying those numbers, we improve traffic at Chili's in the important Thursday to Sunday timeframe by more than 5%, driven by the initial effectiveness of the strategy at dinner for those days. As Wyman indicated earlier, the improved performance Chili's is encouraging for this initial quarter of the strategy. However, we are not satisfied with the pace and level of the improvement. We believe the initiatives Wyman described will build on the initial momentum and more aggressively grow sales on the second half of the year. Further down the P&L, restaurant operating margin of 14.9% for the second quarter decreased year-over-year by 20 basis points, primarily due to our food investment and increased hourly wage rates. The impact of wage rate increases both merit and market inflation during the quarter was approximately 60 basis points, partially offset by savings from employee healthcare and managerial bonus accruals, resulting in overall increase of 40 basis points for restaurant labor, when compared to the second quarter of fiscal year '17. Cost of sales were in-line with our expectations, resulting in an increase of 20 basis points. Investment in our core food equities and a mixed shift to those items as a result of our new menu were the principle drivers of the increase. For the quarter, we generated $43 million to free cash flow, bringing our year-to-date total to $71 million. During the quarter, we've repurchased 947,000 shares, ending the quarter with $46.9 million diluted weighted average shares. Our quarter ending adjusted leverage ratio was 3.8%. In conclusion, the second quarter is most notable for the start of the turnaround strategy for the Chili's brand. Much planning, research, training and operational alignment went into the efforts to refocus the brand around its strength. The Brinker leadership team is thankful to the many teammates who have worked tirelessly to formulate and start implementation of the strategy. It's been a good start, but we have much work still to do to build on the initial momentum. Sequential improvements and positive sales growth are central to our plans and we believe very attainable. Now with our prepared comments complete, let me turn the call back to Kate to moderate your questions.

[Operator Instructions] Our first question today is coming from Sara Senatore. Please announce your affiliation and then pose your question.

I guess I just have two questions. One is just trying to understand. You said you're pleased with seeing some improvement, but perhaps not satisfied with the pace. Could you maybe quantify that? Is it just where you thought your comps would be in the quarter versus where ended up? Is it about a gap to the industry? Are there other metrics that maybe you can talk about in terms of what you might have expected versus what materialized and then what the specific initiatives that you mentioned that address those? My second question was about the margins and again, I know you've talked about offsets to wage inflation. I'm very impressed at the ability to manage expenses so tightly. Could you maybe remind us a little bit around what you've done around in particular labor? I think you've talked about just scheduling and that kind of thing, but just a little sense of whether it's reducing labor hours or just being more efficient and how much more you have on that front? Thanks.

Okay, Sara. Let us unpack that and let me start with the second part of your question. We'll go back to the first once we're through with that. Again, our operators continue to do a very effective job in the restaurants of particularly managing the labor and their overall expenses. It's not just the labor of one; it's across the number of restaurant expenses. We give them a lot of tools to do that. We've developed business rules to help in that capacity, but in a restaurant, performances helped maintain those margins as we move through this environment. We obviously continue to look at opportunities. We've talked in prior calls about handheld devices and things of that nature that can help us as we move forward and are going to continue to look for those opportunities where they present themselves.

Sara, this is Wyman. Just on the overall how do we see it; it is that we are encouraged about the change that we've seen with the implementation of the Chili's turnaround strategy. We have fundamental belief that improving the quality of the menu and the food was central to moving forward and delivering more consistently especially on the hard and fast metrics and we've seen the directional movement that we were looking for in the business on both those key metrics. So our metrics around hard and fast and around traffic both improved. We'd like to see more and we think as we mentioned one example is the lunch day part. That's not moving and needs to be probably more specifically addressed and that is going to happen this quarter relatively quickly here. The initial introduction of the menu was much more dinner-focused. Not unexpected, but just continue to move down the path towards this strategy of making Chili's much more compelling around the food-based more consistent delivery proposition.

Just to clarify, so the dinner business was kind of in-line with expectations. This is maybe the lunch day part that was a little bit of a lag versus what you would hope?

Moreso, yes.

Thank you. Our next question today is coming from Will Slabaugh. Please announce your affiliation, then pose your question.

Thanks. It's Stephens, and apologies for the voice. Is anybody pour us out the lifts you got from the new menu versus the industry getting better in the quarter? Especially as it relates to traffic? And then the second part of the question, can you talk about value on the menu after the change of this quarter and if this means what you saw tells you that you need more everyday value and then you just given the traffic still lagging a little bit.

Well, I'm not sure I've tracked on your first part.

Sure. [Indiscernible] lifts you got from the new menu versus just the industry getting better in terms of your sequential improvement?

Yes. I think from a traffic perspective, you can do the net math and see that there is an incremental difference between our traffic movement and the industry's movement and where we were training with the industry prior to the roll out. So yes, we definitely out performed where we were relative to the industry, pre versus post roll out. Again, we've got work to do, we're continuing to put initiatives in place that will close the gap from an absolute perspective, but we definitely have seen movement on that metric relative to implementation of the menu. From a value perspective, we have seen guests told us that they're recognizing the improvements to the menu, especially on key categories. Again, burgers, ribs and fajitas, the work that has been done to improve the quality of the burgers has been noticed and we're selling a lot more burgers. So those are things that will continue to gain momentum, we believe as more and more guests get exposed to that. That's one way the value proposition is being enhanced. We're looking at other ways -- investments back in the quality of either parts of the menu as well as pricing strategies and promotional strategies. All of that is still in the works. Specifically, again, that lunch day part that we've talked about has yet to really be addressed. Again, that's coming.

Thank you. Our next question today is coming from Gregory Francfort. Please announce your affiliation and pose your question.

Hey, guys. Two questions. Just the first is I didn't see an update in the release on the full year guidance on comps and does that mean you guys are still expecting you get to flat up 1%? And sort of what do you think is the trajectory of how we get there? And then my second question is just on the non-productive media. I know you guys have been making a move to remove some aspects of that and reinvesting the savings back on the business. Can you remind us what impact that's having on the restaurant expense line and when that program was started?

Greg, this relates to your first question. We obviously are very aware of the challenge and the build in the back half of the year to competitive market and we're very understanding of the lift we have ahead of us. We are focused on the opportunities, the initiatives that we discussed today for growing traffic and growing sales as we move through the next year and that's where we're going to keep our focus to build the business. And the second question?

It was just on the non-productive media, and removing that, and the timing of it, how much you're saving on the restaurant expense line from that?

Roughly it's in 10 basis point range for the quarter when you look at the accrual -- remembering we have an accrual based expensing system for advertising.

Thank you. Our next question today is coming from Jeffrey Bernstein. Please announce your affiliation, then pose your question.

Calling from Barclays, two questions; maybe just one, talking about the fiscal '18 guidance. It seems like the fundamental components are unchanged with the flat to +1% comp, which I'm guessing you're hopeful, but then you could be doing a 2% plus comp in the back half to achieve that. But if those fundamental components are unchanged, I'm assuming that the increase to the earnings guidance is purely -- I think the midpoint was like $0.17 increase -- was purely tax. I'm just wondering if I think in the second quarter, you said it was $0.8 or $0.9 benefit from tax. I presume that there was no reinvestment made because we assume the remaining, these are $0.9 in the back half is evenly split between the third and the fourth and that the offset is what you're talking about in terms of significant labor reinvestment. Is there any way to quantify that?

I think the timing that you're referencing, Jeff, is applicable as you go forward and yes, the reinvestment piece of the equation will take place in the second half of the year since it's obviously been designed since the tax reform, past and at the end of December, I think you're on-pace with the timing.

Got it. And then just -- can you maybe provide a little bit more color on the remodels that I think you said a good portion of your tax saving is going forward would be to start this aggressive three-year remodel program. So I'm just wondering any insight -- I think you said you had a good template already, so what the course of that are, maybe the sale expectations, whether or not you have the franchise buy-in for whatever number of units they're going to be doing? Any color on the remodels would be great.

I probably won't give you as much color as you're asking for here because we're just moving it forward. It's a program that we've been working on really over a year. We've been keeping you up to date, we got almost 40-50 restaurants now finished in the New England area and we're seeing good returns on the investments we've made. With regard to how much of the tax savings we'll invest, it's not a significant amount, it's not going to change our capital structure than that much, so we don't see this as a changing models, if you will, from a cash flow standpoint in a dramatic way. We won't start the re-image program until the first quarter of '19, that's when we'll actually start building them out, right now we're permitting and getting ready, but we're excited about the look, we're excited about the returns we've seen and the ability to keep the brand relevant and keep reinvesting back in the Chili's to stay competitive. The franchisees are totally engaged and aware of the remodel program. We haven't yet mapped out the roll out for them.

Jeff, I think underlying your question, probably it's a thought process as to what does it do for go-forward capital expenditure progress which we'll deal with obviously when we get into the fiscal '19 rollout and the guidance we provide for that. But one of the things I would let you know is one, there is some incremental cash benefit obviously coming from the tax piece of the equation which does allow our capital allocation programs to remain fairly consistent and our thought process is there. You also have to remember, this year, already in our CapEx budgets. Roughly $20 million, but this year it's associated with the re-image program that Wyman mentioned primarily to New England restaurants. Typically when you get into the re-image program, there are some dollars that support that program from your R&M side of the equation. I think if you're thinking about CapEx, there are already dollars in our CapEx budgets today that will support a meaningful amount of that re-image spend as we move forward, in addition to some of this cash savings from the tax side of the equation.

Thank you. Our next question today is coming from Karen Holthouse. Please announce your affiliation, then pose your question.

This is actually Jared on for Karen with Goldman Sachs. Just a question on the remodels again. The remodel push last time meant CapEx average about $150 million a year. Is that a fair ballpark to think about the spending over the next three year push? And how does that fit into some of the testing you guys have done around your bar remodels?

Jared, good morning. Again, I don't want to get into specifics as to go forward in CapEx. You're accurate in your assessment from the prior program, but again I think as we indicated, a meaningful amount of the spend we would anticipate is going to be supported by current levels of CapEx spend that we do and the ability to shift some of those dollars around those buckets and the tax levels. We do not view incremental CapEx spending getting out of line in any way, shape or form.

If I could just switch gears a little bit then. You guys mentioned a double-digit increase in online spending heeling to go. Could you frame that for us a little bit and remind us what your current to-go mix is and how much of the ordering has migrated online? How you think that kind of compares to what your peers has been talking about? Maybe a little bit higher?

Again, I think from a total mix standpoint, we're pushing up into the high 10% range, that pushing towards 11% from a total mix stand and a lot of that improvement is driven off of the mobile ordering application we put in place. We've been running double digit increases in that piece of business, feeling the positive gains we're making on the to-go side of the equation. We had a relatively good base to start from. I think larger than some peers -- not as large as some other peers -- but it's a good base that we're growing off and it's a positive growth that we're doing.

And Jared, again, I think one of the key things is we haven't put a lot of marketing support behind this yet. Getting our franchisees on our system has been a priority and now that they're there, we will start to put more aggressive and national advertising behind this; just getting the awareness about how easy it is to order and take up to-go at Chili's.

Thank you. Our next question today is coming from Chris O'Cull. Please announce your affiliation, then pose your question. Chris O'Cull: Thanks, Stiefel. Good morning, guys. Joe, you mentioned 10 basis points to savings and advertising, but can you provide some more detail on what drove the remaining year-over-year improvement on that line and then do you expect a similar improvement, the balance of the year?

It's actually a number of different things that run across those margin accounts and restaurant expense. Again, when I referred to the job that our restaurant management teams are doing, it really does run across advertising, R&M spend, some IT spends, things of that nature. There's the number of things. The consistent one and the most meaningful one is that advertising side of the equation, we would anticipate that maintaining itself has moved through the rest of the year. Chris O'Cull: Are you lapping any unusual comparisons on that line? Because I think last year, you saw some pretty big increases as a percentage of sales, which may have been due to the comp, but is there anything unusual on the back half that you're lapping?

There's nothing really unusual and you're right, the deleverage impact was probably the more meaningful issue last year. Chris O'Cull: And then one last one. I apologize if I missed this, but what do you expect the check average growth to be the remaining quarters of the year?

We'll talk about, Chris, is just our pricing strategy. So we definitely know that last year was one of the most aggressive pricing years for us for various reasons. We are focused on keeping our pricing in that one and-a-half range, tighter than we've been in the last 12, so that's the biggest driver to our check increase now. Promotionally what we do from a mixed standpoint, that can obviously also impact the check. But just from a pricing perspective, we think getting past the more aggressive pricing and lapping on that is another key to getting the traffic momentum back. That's going to happen as we get more in that one and-a-half percent pricing range.

Thank you. Our next question today is coming from Robert Derrington. Please announce your affiliation, then pose your question.

Yes, thank you, Telsey Advisory. A couple of questions, if I may. Wyman, as you think about the increased efforts at lunch time to try and drive traffic and sales during that week or day part, is there some risk or have you tested? Is there a risk that you may be cannibalizing your dinner sales which have a higher check average?

Bob, it's a great question. The beauty of Chili's is the difference between price points on the base menu -- well, on the menu. At lunch and dinner are not that dramatic. The biggest difference frankly in the check is probably the beverage component where obviously a lot more alcohol being sold at dinner. No, we don't worry about that. We also know that most people have a lunch restaurant and they have a dinner restaurant and their lunch restaurant tends to be closer to their work and their dinner is closer to home which makes all the sense in the world. So you're not trading out occasions as easily as I think it might appear on the surface. We've got a lot of insight into the lunch business. We've obviously grown the business nicely. What we're really seeing is some macro kind of demographic issues around how consumers are using in lunch -- they part in casual dining. We're addressing those and the value proposition to speed, the consistency, all those things are critical and we're excited about what we're bringing forward.

Okay, thank you. And Joe, question on the tax rate. Within the release, it talks about subsequent years the federal statutory rate being 21%; you know, is it reasonable to expect that you will still be getting some FICO tip wage [ph] credits that should lower that effective rate more into that roughly 15% range?

Yes. I indicated in my script that if we have had the statutory rate this fiscal year at 21% for the entire year as opposed to the blended 28%, we would have been in that 14% to 16% effective tax rate. A lot of that driven, obviously, one of the major tax expenditures we utilize is the FICO tip credit.

So it's probably more reasonable that we use a rate within that vicinity for our projections going forward in the out year?

Obviously with that providing guidance, I would understand that utilization. Yes.

Thank you. Our next question today is coming from John Glass. Please announce your affiliation, then pose your question.

Thank you, it's Morgan Stanley. I just have a few follow ups. First, just on the question of the reinvestment in wages. The P&L reinvestments or the CapEx reinvestment, did you in fact quantify what that will be and do you think those are contained within this year as more one-time? What's the ongoing nature of the reinvestment that you're likely to make?

Hi, John. I think you can do the math and you could see it's in that 40% range in terms of reinvestment this year. The biggest component of that in incentive program [indiscernible] at the restaurant operators towards the initiatives and the objectives that we're so focused on. So that and then we've talked about the education program as well, which is again, that's a more ongoing. So it's a little bit of both. Some of it is more in this year and we'll decide next year as to whether or not we continue that incentive program or we change it and modify the annual incentive program. And then obviously we're committed to the education program. For the most part, it's mixed, gives us some flexibility over the next year.

Yes. And then the question on mixed. The mixed was lower than in prior quarters. It wasn't clear on your answer. Is that a function of the new menu so the mix will just be lower because you're trying to drive traffic even if it's at a lower mixed average? Or is that just a promotional activity this quarter and that's an anomaly?

I don't look at it as an anomaly. I think it will be more than the normal scenario moving forward. Again, there's a combination of menu and promotional activity that we'll utilize as we go forward.

Okay. And then just finally on the advertising front, you noted that there was less advertising spending in Chili's and that there was some efficiency gained. But do you plan on the second half a greater amount of advertising to emphasize the new menu? The new products on the menu? Or is there a rated change in advertising rate in the back half versus the first half?

John, what I want to be clear about is we talk about the advertising saving that is based on the accrual nature of how we account for on the P&L. We use an accrual basis that basically straight lines are advertising costs throughout the year as opposed to the actual cash spend. I think we've talked in previous calls that our campaign was designed for incremental spend a the back three quarters at the year with that savings under spend in the first quarter and that plan remains in place and we'll continue forward.

John, I would say from a marketing perspective, the weight levels, which is really the most important thing are comparable in the back half, but we are really challenging ourselves on medium mix. With the changes that are taking place in traditional broadcast TV, how much can you put into digital? How much can you put into social? How does it all play out to deliver the most effective and efficient marketing plan that we could come up with? Things have been working really hard and we're trying and testing a lot of different approaches as to how we spend the marketing dollars.

Thank you. Our next question today is coming from Jeff Farmer. Please announce your affiliation, then pose your question. Mr. Farmer, your line is live.

We lost Jeff.

Our next question today is coming from Stephen Anderson. Please announce your affiliation, then pose your question.

Yes, from Maxim Group. One thing I've noticed, I think it was now tracking some of the other indicators. I've seen Texas has been an outperformer, relative to the rest of casual dining's. I wanted to see if you can parse out what you've seen in Texas and some of the energy markets where you would lag in the last couple of years?

Yes, Steve, great observation. We talked about the energy markets for far too long. It was actually nice to have a call where we weren't talking about the drag on any of the market than we are actually seeing some rebound in those markets. So I think it started to stabilize and now with some lift in oil prices and I think just a better overall economy, you got the unemployment rate and some better income numbers. It's playing out well in places like Texas and Oklahoma and we're starting to see that obviously when you look at our mix of restaurants. That's important. So we're excited to see those markets stabilize and actually now start to move themselves back into a growth mode.

And also with some of the proceeds you're getting from the lower taxes, have you discussed maybe potentially looking at some of your debt, maybe looking at paying down some of that?

Steve, that's really not something we have looked at in the short run. I think we've talked about what we've done this year on the call as we get into '19. Obviously the tax scenario continues forward and we'll look at those a number of different opportunities. We're very comfortable with the leverage position that we're maintaining right now. So frankly, I would view that fairly far down the priority list.

Thank you. Our next question today is coming from Jeff Farmer. Please announce your affiliation, then pose your question.

Wells Fargo. I do have a couple of quick follow ups. You guys have been offering these $6.99 burger and fries, I think for roughly four months. I'm just curious, how have consumers now responding? Any surprises? And then from a second question perspective, just looking at your tax reform or the guidance for your free cash flow for FY '18, in terms of thinking about how tax reform could impact that number or even a number in '19, any guidance for us on that?

Just on the burger front, we introduced the menu back in October with $6.99 burgers, but then we moved the messaging to fajitas in December. So the initial reaction to the $6.99 burgers was great. I think I've mentioned earlier on the call our overall response to the changes we've made in the burger category. Both in the increasing preference, a number of burgers were selling. It's up significantly and the guest response and feedback on the changes we've made to the burgers is very positive, the burger category is doing very well for us.

As it relates to the cash flow, there are some benefits from a cash tax perspective as you move towards the end of the fiscal year. Some of those dependent upon the timing, obviously when we make various cash tax payments. Obviously the bigger more annualized benefit of that will be as we move into F'19.

Thank you. Our next question today is coming from David Palmer. Please announce your affiliation, then pose your question.

Thanks. A couple of quick follow ups as well. Good morning. The first thing was the Fiscal 2Q earnings that goes with the 342 to 352, I don't think that's the $0.87 which includes the deferred tax evaluation. Correct, Joe?

That is the $0.87 number. The guidance you're provided is for adjusted earnings on a go-forward basis.

So, 342 to 352 is using $0.87 for the second quarter and that includes the impact of the deferred tax rebound?

Correct. And it's utilizing the guidance we provided, the 22% effective tax rate for the year on a go-forward basis, and obviously we've also indicated that it's netting the reinvestment discussion that we had also.

Got it. And then the follow up, just on the basic business. You had the core value message that you did in two phases -- the burgers, then the fajitas. I know you're [indiscernible] by the improvement and your trend through the quarter and in some ways you can squint through the numbers and see customer satisfaction scores and other things, but it feels like some of your competitors were more dramatic in their improvement and more sharp on price point and maybe they're not running the long term race, but are there some tweaks that you're thinking about that you can make to your value message to make it more impactful, more dramatic in terms of sparking a traffic trend change?

David, there are some competitors out there that are more aggressively promoting with some offers that are pretty amazing, actually, in terms of just the magnitude of the discount and the offer. Our approach is to strategically build back business at Chili's through sustainable efforts around quality foods and better execution. And driving value that way, while we will continue to look at value promotions and limited time offers and other marketing tactics that help do that, we're going to do those things in a way that we think is sustainable and consistent with where the brand sits. That's really probably the difference. There may be some folks out there that can drive some shorter term sales and traffic with some very aggressive offers, but we don't think those are sustainable and especially in a company-owned restaurant environment, we see the P&L impact to all of those kind of things first-hand. So we're very aware what's sustainable and what isn't.

Thank you. Our next question today is coming from Andrew Strelzik. Please announce your affiliation, then pose your question.

Hi, good morning. BMO. Two questions for me: first on the G&A guidance. I just want to confirm, are you still expecting that you're going to hit the previously provided range and just understand what is driving that step up in the back half of the year? Obviously you're tracking well below that. You're in the front half of the year. And my second question, on the Thursday to Sunday delta from a traffic perspective that you mentioned, is there anything that you can provide in terms of the types of customers, frequent customers and frequent customers, how they're using the menu and any kind of color that we can better understand what's going on those days of the week? Thank you very much.

Andrew, good morning first of all; and as it relates to the G&A, there is really no new news there. From that perspective, I think one of the principal differences year-over-year would be related to incentive compensation and the accrued levels. These will be the targets for that compensation, there was a meaningful decrease related to that last year.

And then, Andrew, with regard to the strength we're seeing Thursday through Sunday, again, it just really more aligns up with the introduction of the new menu at Chili's, was more dinner-oriented, right. So between the fajitas, the burgers and all the -- ribs, burgers and fajitas and margaritas and the messaging that we were focused on was primarily a dinner-oriented message. Although again, guests see our menu at both day parts fairly well, but it wasn't lunch specific and we are now pivoting to a lunch-specific messaging around the same strategy. That was really the big different. There's no major shift in user type or component of the guest mix.

Thank you. Our next question today is a follow up from Chris O'Cull. Your line is live. Chris O'Cull: Thank you. Joe, I'm trying to understand why the earnings growth in the back half of the year would not be greater than the first half, given the lower tax rate. Is there anything in terms of just the sales trend that we need to be thinking about that would cause that not to be improving?

I think as it relates to that, again, I think what we've talked about in an ongoing basis is that our plan was to continue to incrementally grow sales which will have that impact to earnings. You do have some lapses that relates to the expenses. One I just mentioned was the incentive side of the equation. There are some expense lapse that do have an impact as you kind of move through the second half, Chris, that come into play.

Thank you. Our final question for today is coming from Joshua Long. Please announce your affiliation, then pose your question.

Great, thank you. It's Piper Jaffray. My question was back on the pricing front, Wyman. When you talked about moving past some of those higher than historical levels of pricing, getting back down to that one and-a-half percent, I was curious if that's something that you reached this year or if that's more of a run rate number and that's something we see more so in 2019.

Yes, our historic number has always been in that 1% to 2% range. Really, one and-a-half is the sweet spot that because of some of the specific things we have to address in the last year, we hit a little bit over that target. We're really moving back to where we have traditionally and strategically think is the best place to be from a consumer standpoint.

Understood. And then as we think about the investments in and around the to-go platform, you mentioned that you've been really trying to get those up and ready before putting marketing to it. Any other sort of investments that needs to be put in there? Or should we think about the systems being in place that's more about learning about them in the real environment as they've been invested in and you start using them now with some of that marketing support?

We're continuing to invest in our infrastructure with regard to digital marketing. But nothing structural that's holding us back now. Now it's just kind of incrementally finding ways to move forward. So we can now -- especially that the franchise organization is aligned, we can start marketing more aggressively the capabilities that we already have and we will continue to look for new capabilities and be a little bit more of the leader in this area because we think this is how we can really provide a differentiated value to our guest and leverage the strength of [indiscernible].

Thank you. We have no further questions in the queue at this time.

Well, thank you, everybody, for joining us this morning. We are scheduled for our next earnings call on May 1, so we look forward to talking to you all then, and have a good day. Thank you.

Thank you. Ladies and gentlemen, this does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.