Wyman Roberts - Chief Executive Officer, President Joe Taylor - Chief Financial Officer Mika Ware - Investor Relations

Good morning ladies and gentlemen, and welcome to the Brinker International Earnings Conference 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, Holly, and good morning everyone. Welcome to the earnings call for Brinker International's fourth quarter of fiscal year 2019. With me today on today’s call are Wyman Roberts, Chief Executive Officer and President; and Joe Taylor, Chief Financial Officer. Results for the quarter were released earlier this morning and are available on our website at brinker.com. As is our practice, Wyman and Joe will first make prepared comments related to our operating performance and strategic initiatives. In addition we will provide guidance for modeling fiscal year 2020 performance. We will then open the call for your questions. Before beginning 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 risks and uncertainties which could cause actual results to differ from those anticipated. Such risks and uncertainties include factors more completely described in this morning's press release and the company's filings with the SEC. And of course, 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. And with that said, I will turn the call over to Wyman.

Thanks Mika. Good morning everyone and thanks for joining us as we review our fiscal ‘19 performance and share how we're going to build on our momentum into fiscal ‘20. Brinker delivered a strong quarter and a great year with adjusted earnings at a $1.36 for the quarter, up 14%, which took us to $3.93 for the year, up 12%. We drove those results primarily through the strength of Chili's comp sales, which ended the year up 2.3%, 120 basis points fee to the industry, and those sales were driven by comp traffic, up 2.3% a 380 basis points fee to the industry. During fiscal ‘19 we achieved or beat the performance levels we expected and set the business up for strong future performance. So we remain committed to our strategy; first, because it continues to drive results and second, because there's still plenty of upside which gives us confidence in our ability to continue to take share and grow the business. Now when we lay this strategy out, a 1.5 year our objectives were threefold: First, strengthen our value proposition; second, improve our operational execution; and third, leverage digital technology to increase convenience for our guests. In terms of value, we had led the industry for years with two for $20 but we needed to refresh that proposition. We wanted a more flexible platform that would work across both parts, and we've got that now. Three for $10 is a compelling offer at both lunch and dinner. It works within our margin structure and resonates to that segment of our guests who are value driven. It's delivering the right level of performance and preference, mixing in the mid-teens; it's now in our base, we rapped on it and we are continuing to hold cost of sales and are now able to grow the check off this base. From an operations perspective we narrowed our focus and gave our operators world class systems to help them execute our brand standards and become best in class operators. This one is a slower build as any leadership strategy is, but it’s working. We’ve delivered significant improvement across our guest metrics and we're encouraged by our operators continued focus and commitment to our guests. And now we're leveraging our years of investing in technology to accelerate our share gains. With our industry leading database we're increasing the level of personalization used in our digital marketing. We're also using technology to drive financial efficiencies and operational effectiveness, creating better experiences for both guest and team members in our restaurants. And through our e-commerce platform guests can order Chili's takeout easier and faster than anyone else in the category, and that technology has supported growth of our take-out business in the solid teens throughout fiscal ‘19. And we’ve wrapped on that and we're still driving solid growth and we expect that trend to continue in this crucial piece of the business. So, in one fiscal year we introduced a strong value proposition, drove better operational execution and leveraged technology to deliver more convenient and personalized experience for our guests. Looking to fiscal ’20, we're building on our strategy by investing in the growth of our business. First, we are investing to grow frequency in the restaurants. With the strength of our value proposition, now we can layer in innovation and marketing support, targeting the value oriented segment of our guest, which will encourage them to return more often, and with stronger operational execution, our guest are having better experiences and fewer problems which help us drive frequency as we challenge ourselves to take our guest metrics to new heights. We are investing in our operators, both from a compensation perspective with higher bonuses and better systems; systems like our new training program that are now all digital and our new forecasting system that helps managers run the kitchen better. We're also investing to grow our off-premise business. We are using the same e-commerce platform to offer delivery to our guests. Delivery orders integrating to our existing operational system, which provides a seamless experience for our guests and our team members and unlocks the potential to drive significant growth. We've entered in an exclusive agreement with DoorDash and we've already seen significant incremental off-premise growth that’s accretive to margins, and now we're investing to grow our scale. We believe in the brand and our ability to run restaurants. So we're looking forward to welcoming 116 additional Chili's locations into our company owned fleet when we complete the pending acquisition from our biggest domestic franchise partner. We are in the midst of developing plans to invest in these restaurant at an accelerated pace, with proven programs that have driven solid performance in our company owned restaurants. So fiscal ‘19 was a great year and we enter fiscal ’20 from a position of strength. We are confident in our ability to deliver double digit EPS growth again in this very competitive environment, we're excited to share more specifics about our plans and show you examples of what we're planning for fiscal ‘20 and beyond when we see many of you here in Dallas on Thursday for Investor Day. I'd like to thank our operators at both brands for their relentless commitment to make every guest feel special. We said when we introduced this strategy it would be a long build to strengthen the trust and confidence of our guests and you continue to rise to the challenge every day. I'm proud to be on this team and now I’ll turn the call over to Joe who will give you more clarity on our fourth quarter results, walk you through fiscal ‘20 guidance and provide some specifics as it relates to the first quarter. So Joe?

Thanks Wyman, and good morning everyone. Our fourth quarter ended fiscal year ‘19 in good form with the company reporting another quarter of top line and EPS growth. Additionally, our restaurant operators did a good job of positively impacting operating margins in areas they control. Brinker’s fourth quarter company sales of $805 million, up 1.7% from prior year were driven by positive comp sales of Chile's up 1.5%. On a combined basis, Brinker recorded positive comp sales for the quarter of 1.2%, which also represents a successful start to lapping positive comp sales from the same quarter last fiscal year. Our adjusted earnings per share for the quarter increased by 14.3% to $1.36. For the fiscal year, we reported adjusted earnings per share at the high end of our guidance range of $3.93, a 12.3% increase over the prior year. As it relates to Chili's quarterly comp sales performance, let me comment on the underlying composition as detailed in our press release. The comp sales for the quarter included a pricing impact of 3.9%. This is a reflection of a year-over-year decrease in our promotional direct marketing activity. The improved performance of our base business allowed us to meaningfully reduce promotional activity and the related comp expense. As we have mentioned before we account for year-over-year changes in comp expense as an adjustment to price. In this case the lower comp expense in the fourth quarter resulted in an increase in net price. Now the actual menu price increase for the quarter was 3.3%. Following the short run, this is higher than our target annual pricing range of 1.5% to 2%. It reflects the year-over-year timing differences to when we took price as opposed to a change in our pricing strategy. Our annual menu price for fiscal year ‘19 is right at the top-end of our target range and we expect to maintain annual price increases in the same 1.5% to 2% range as we move forward. Our restaurant operating margin as a percent of company sales, decreased in the quarter to 14.9% due to the impact of the sale leaseback financing and the adoption of the revenue recognition accounting standard. Excluding the impact of these two items, restaurant operating margin would have increased to 16.5% in the fourth quarter. Positive contributions to the brand's operating margins came from sales leverage, our continued shift to more efficient and effective digital marketing, the positive impact of our certified shift leaders program and improved employee health experience. Produce related commodity inflation, the negative year-over-year mix impact of our three for $10 platform, and hourly wage rate increases where the primary headwind wins to operating margin for the quarter. Our cash flow for the fourth quarter and the fiscal year remains strong with EBITDA of $110 million and $374 million respectively. The level of cash generation from our restaurants allowed us to significantly invest back into the business through restaurant development, our ongoing reimage program and industry leading technology development. We also maintained a comfortable and stable leverage position with funded debt leverage at 3.25x EBITDA and lease adjusted leverage at 3.96x EBITDA at fiscal year-end. Turning to our outlook for the current fiscal year, our specific guidance of a number performance estimates can be found in this morning's press release and on the investor relations area of our website Brinker.com. This incorporates our existing view of the casual dining industry, our strategy to drive positive performance at our brands and our cash flow driven capital allocation programs. As noted in our press release, our guidance incorporates the previously announced acquisition of 116 Chili's restaurants from one of our franchise partners. We anticipate closing the acquisition a bit later in this first quarter. For the fiscal year we are currently forecasting comp sales growth of positive 1.75% to positive 2.5%, revenue growth of 9% to 10%, driven primarily by the increased capacity from the aforementioned acquisition. We expect our restaurant operating margin for the fiscal year to be in the range of negate 20 basis points to flat. We expect capital expenditures for the year of $140 million to $150 million. We will continue to reimage our reimage program and expect to complete between 140 and 160 restaurants this fiscal year. Free cash flow is estimated between $160 million and $175 million, returning us to a stronger and more typical level available for capital allocation. Finally, our adjusted earnings per share guidance for fiscal year ‘20 is a range of $4.15 to $4.35. Let me wrap-up my comments by providing some insight to certain impacts to our anticipated first quarter performance. We are seeing positive comp sales performance in the quarter, in a manner that captures market share to comparatively superior traffic performance to our peer group. Assuming the successful closing of the ERJ acquisition, we will start to see favorable year-over-year impact to company sales from the additional capacity, likely contributing incremental capacity in the range of 2% to 3% for the quarter, beyond the revenue growth anticipated from comp sales. Conversely we will see a reduction in franchise and other revenue as the acquired restaurants shift from generating royalty payments to company sales. We anticipate a year-over-year reduction of 12% to 13% for this quarter. From an earnings perspective, this is the last quarter that we’ll have a year-over-year negative impact from the incremental rent related to the sale leaseback financing close last August. As of this month, we are lapping the completion of that transaction and it is now part of our operating margin base. For the first time in recent history we are required by vesting positions of certain senior executives to take the full annual expense of stock based compensation programs in the first quarter as opposed to over the course of the full year. The year-over-year increase to stock based compensation expense is approximately $3.5 million. This is purely a timing change as the annual differential for this expense is expected to be flat. Taking all this into consideration we anticipate our first quarter adjusted earnings per share to be below last year's first quarter in a range of $0.05 to $0.08. Naturally, this is all incorporated into our annual guidance for earnings per share. Now with my comments complete, we can move to your questions which will last until the top of the hour. Holly, I will turn it back to you to facilitate.

Thank you. [Operator Instructions]. Your first question is coming from Chris O’Cull. Chris, please announce your affiliation, then pose your question. Chris O’Cull: Good morning. The comp guidance for this year implies a pretty healthy improvement from the fourth quarter as you lapped up for comparison. As we've seen the segment shows some significant softness in recent weeks, so can you speak to maybe the current trend and what give you confidence that this performance can be achieved in ’20?

Yeah Chris, yeah the fourth quarter was a little soft. It was especially soft early, for the category right, so April was not a great month, and then with the category we continue to improve as well. Its continuing to kind of take share and find that differential that we've been kind of running for most of the year as we kind of move through the quarter. So sequential improvement through the quarter was good, and we ended the quarter in really good shape and we start this quarter in really good shape. The things that give us confidences that we can continue to see, you know the kind of sales improvement in comps that we guided to are really three fold and we talked about them. First, there is still opportunity with us in the strength of our value proposition and the marking that we can now put into that. The delivery program kicked off now. It's not in last year's numbers to any great degree and we're seeing some really good movement off of that program and very excited about how that's working for us both, from a top-line perspective, but also from an operational perspective and we’ve turned on all of our restaurants basically overnight and integrated the DoorDash system into our system and it was seamless. So feeling really good about our potential there and we – you know we've just got Phase 1 of that program in gear right now. We’ve got some very exciting things to continue to push on there, and then our operators are executing at a level that we have never seen before. Our guest metrics are as high as they've ever been. We ended the fourth quarter with the best guest metrics we've ever achieved at Chili's and so those things give us confidence that we can continue to move forward even though there have been some softer pockets here if you will in the casual dining space over the last couple of quarters. Chris O’Cull: Just as a follow up, can you give any color as to what you are seeing, what kind of demand response you are seeing from the delivery initiative?

Go ahead Joe.

Chris, we are very encouraged by what we're seeing coming out of delivery. Again, we are early on and we are just about two months into the process. It is performing as we expected it to perform. It is delivering the incrementality at very high levels, right in line with what our test shows. It is delivering a better check and it's delivering a better PPA. One of the things I want to make sure is that everybody understands from a profitability standpoint is we are not offering three for $10 on the delivery platform right now. So again that’s additive from a check standpoint and helps in that regard. I think it's clearly a good driver out of the gate. There has been a lot of commentary around the month of July that I've seen out there. You know July was not a weak month for us when we look at that commentary and I think delivery was one of the reasons besides the other ones that Wyman has mentioned in coming out of the gate this quarter, right in line with where we expect to be based on the guidance we just provided you. Chris O’Cull: Great! Thanks guys.

Alright Chris, thanks.

Your next question is coming from Will Slabaugh. Please announce your affiliation, then pose your question.

Its Stephens, thanks guys. I had a follow-up question on value on your comment Wyman. You said you feel that you still have a big opportunity with your value platform. Can you talk a little bit more about that both in terms of how well you would say you are doing today on value, versus what you look to do and maybe with that opportunity might look like?

Well, we know the proposition is extremely powerful, right, so we know that we've got a great proposition and now our opportunity is two-fold. One is to increase awareness, so even though we've been focused this year on keeping our operators life simple, so now – we didn’t do an LTO, no promotional activity, no new initiatives, we let our operators really run their systems and get much more comfortable at running the day-to-day business and that paid a lot of dividends for us, both from a guest perspective and from an operations perspective. What we've got now is the opportunity to take that value message and build on the awareness of them. Even though we've been out there for a year with it, there is still a lot of people that don't know about it. We know that based on our research and then we also have the opportunity now to add some life to it by adding some innovation and we are exciting about some of the things that are in test today that could make that platform work even harder for us and continue to build off of the strength of that idea. So there's room to go and it works within the model that we are now under.

And well, two data-points I’d add to that response to is, one it is an offer that works well both dining in and to go. It’s helping drive both of those businesses. Again, as we’ve see more and more commentary around the off-premise preferences of our guest, having a value platform that plays well on that side of the equation is playing right into the strength where we see the consumer going. And the other piece of the equation, so we talked. I mean obviously for a long time in the industry about casual dining being a lower frequency business. You see higher frequency from our value guest, which makes them a much more valuable guest, you know when you think about moving that frequency of visits, its working exactly how we’d like to see that happen.

And as Joe mentioned, we're not even using it in delivery. And so, that’s a vehicle that we could play with, but we got levers to pull as it relates to how do we continue to build on that value proposition and I think value is going to be important as we look to the future.

Thanks, and a quick follow- up on the guidance if I could. I know you gave us the restaurant level margin guide, which looked a little better than what we were expecting. I wonder if you could talk about what type of commodity inflation and maybe what you're thinking on the protein, as far as what’s incorporated there into the guide.

Sure Will. Incorporated into that is we do expect a low level, and again, I think it's a single digit, let’s say 1% to 3% commodity inflation impact to this year. Obviously they are watching a number of things very closely, but we've also taken the steps to make sure we are taking the volatility and protecting the guidance through the contracting side of the question. We are probably at a – we are at a more aggressively contracted position, along those things that you can contract, particularly in the protein space. Chicken and pork in particular contracted out through the year. Overall we are contracted right now for the year and pushing up close to 70%. We do expect some produce inflation. That’s an area that the industry has kind of dealt with for the last couple years. That's incorporated into the guidance. But you know right now you know the markets are not reacting too much out of norm. We got some good news on the corn crops just yesterday when you look at some of the dynamics it will be interesting to see how that plays back through the space. But I think you know coming off a very low commodity cycle, it's prudent for us to expect you know a little bit of low level inflation into it and also make sure we protect against any spikes that might hit the system from time to time.

Great, thanks for that.

Your next question is coming from Brian Vaccaro. Please announce your affiliation then pose your question. Brian your line is live.

Hello.

Hey Brian.

Brian, your line is live.

Hello! A - Wyman Roberts: Hey Brian.

Can you guys hear me?

We can Brian.

Fantastic, thank you. Just wanted to circle back on today’s comments. Did I hear correctly that you said quarter-to-date comps are in line with your annual guidance implying 175 or higher.

You heard very well, yes, we are moving though this quarter, right in-line with what we would expect to do for that guidance level we provided you.

Alright, thank you. I had a question on the ERJ acquisition. What have you assumed in terms of EPS accretion? Could you help us with sort of the building block, AUV’s, store margins and also any incremental G&A needed to support these units?

Yeah, I think you know and obviously on Thursday at the Analyst Day we’ll go into a little bit more detail. What I will tell you today is one, all of those are incorporated in those numbers. I think you can think of the accretive nature, it is accretive even after taking into consideration you know the debt we are taking on for that, in fact we will pay that debt down over the years back to our current target rate. It’s – you know I would think mid-single digit to a little bit about that would be your thinking from an accretion stand point. Haven't closed it yet, obviously we are well down the path and right on track to close it here in a couple of weeks, which will also give us the opportunity to get more directly involved in the restaurant's and really understand where are some of the opportunities. We are not baking into this guidance you know a lot of upside from those restaurants until we have a better feel for where we can impact that in the short run. And they will be held as non-top restaurants during this fiscal year too. So their performance is not assumed in that comp guidance we gave you.

Okay and when you say mid-single digit, you're talking about as a percentage of – you are talking about EPS accretion percentage or are you talking mid-single digit EPS pennies?

Pennies. Thank you for the clarification. Yeah.

Okay, alright. And then on the G&A guide for fiscal ’20, last one from me, but the fiscal ‘20 G&A guidance is flat in dollars. I assume there's some inflation in there. I assume there's some level of incremental G&A on ERJ, maybe in regional infrastructure. Can you help us with what some of the offsets to maintain flat dollars would be into fiscal ’20?

Yeah, I think it’s important to remember the incentive compensation piece of the equation, and I'm glad you raised the point. The F’19 performance allowed incentive compensation programs to pay out on the profit sharing side at a nice pace. When you move above target, there's like most of the programs there's multipliers in there. So there is an over $7 million year-over-year incremental payout related to profit sharing in the F’19 numbers, a little over $4 million of that was in the fourth quarter. So we are happy to be able to see performance that you know pays our team members out at that rate, but then we bring it back to the target for next year. It’s very similar to what we talked about on the manager bonus side of the equation. So resetting that target, resetting that amount to target, you know is a big piece of managing. Yes, there is some other inflation in there, there is not much incremental G&A required from ERJ perspective in that equation; in fact we think we can bring some efficiency to the equation over time. But that’s the biggest delta. It's important to understand the expense that flowed through F‘19 and how that now sets back in a positive way.

Very helpful. Thank you.

Your next question is coming from John Ivankoe. Please announce your affiliation then pose your question.

Hi, thank you. A couple questions on the composition of the comp please. Could you remind us, especially just in terms of the price in the fourth quarter, and I'm sorry if I missed that. How much of that price was driven by you know the lapping of the My Chili's rewards from the prior year?

John, there's about it 60 basis point impact from that year-over-year changing in comp expense.

Okay, and as we go through fiscal ’20, I mean how much do you think that will be? I mean will we get three quarters of that? Do you expect any change and why?

Three quarters of the…

Of the 60 basis point benefit in comp expense.

No, I think it will come in you know definitely below that. I mean again it depends on some of the decision making we do to relative to any quarter-over-quarter and when we may or may not run promotional. So our expectation is it's going to be less than that 60 basis point. You'll start to see the impact from price again move down over the next couple of quarters, back into that 1.5% to 2% range. I think over time you're going to get a fairly neutral – you should get a fairly neutral impact between gross and net pricing. We would like it to be in a smaller range. Last year we had a – in the fourth quarter we had a big differential, you're seeing some big differentials this year. So that will normalize over the year, but we are comfortable of being in that 1.5% to 2% range.

And the – go ahead Wyman, sorry.

Sorry John. I was just saying that we also offset that last year, obviously a lot of mix shifts with three for $10 being in for the whole year. You know that’s in the base now, so you won't have that offset either. So the price flow through more evenly, the mix will not be as dramatic probably this year as last year, and then we’ll play the marketing comp if you will, and the loyalty program really to the market right now. Again, we're not fully – we're not as aggressive as we could be or we – with our loyalty program. We are kind of saying “Hey listen, we like the trends we’re on now and we don't have to be kind of pedal to the metal on the loyalty” and so we are saving some of that for maybe a future date if we need it.

That's great, and actually the next question was exactly on mix. As we fully lap three for $10, I mean is there any reason you to believe that mix isn't something like flat in fiscal’ 20, you know just as we lap three for $10 and you know secondly, I mean we've talked about value and the possibility of maybe doing a little bit more with that. Do you have an opportunity elsewhere in the menu for some of your higher income customers, maybe introduce some higher pricings or maybe more opportunity for trade up. We’ve obviously seen other brands that have given opportunity for trade-up that have actually been surprised at the success of that. So where are we thinking in mix for fiscal ‘20 in terms of where you’d like to live?

Yeah, I think you kind of hit it John. We are doing the same thing, right. We are going to address the different segments of the audience and our guests with appropriate. So we will probably continue to put three for $10 out there with some innovations, some target marketing to those guest and value oriented families and those folks that are really kind of more focused on that aspect of it, but we're also going to have messaging and offers that appeal kind of on the other end of the menu if you will from a quality perspective in terms of bigger portions and maybe more abundant, and then we've got this whole delivery channel that’s got a whole different mix associated with it. So we are looking at the various guest segments and going to put offerings out there that are we think appropriate and compelling for each of those, and that drives the business. Hello! Are you there?

Holly, is there a next question.

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

Yes, from Maxim Group. One name hasn’t been discussed on this call has been Maggiano's. I just wanted to ask, you know you're not looking for any new unit growth there. I just wanted to see like what you're planning to do to drive top-line there and I just wanted to hear more, what you have going on with delivery as well?

Okay Stephen, well let me just talk about Maggiano. So Maggiano's had a good year, you know they ended the year with positive comp sales. It was a year with you know New Year, and so Kelly Baltes comes in and he is really now focused this year on how to grow organically at Maggiano's, both within the four walls of the existing restaurants and then we're also very excited about some of the ideas about how we can take Maggiano’s to new locations, both traditional and non-traditional. This year we opened our first airport location Maggiano's and it’s done extremely well. There's a lot of energy around that brand. It’s such a powerful brand, so kind of the love by its guests that we continue to just have a lot of excitement about the potential for Maggiano's to continue to grow, and this team is working on initiatives, both again from a perspective of how to grow inside the four walls of the restaurants we have today, but also where we can take it to get the brand spread out, because we have 53 locations, tons of wide space for Maggiano's.

Great, thanks.

Your next question for today is coming from Eric Gonzalez. Please announce your affiliation, then pose your question.

Hi thanks, its KeyBanc. Just two quick ones here. If you can go back to the ERJ acquisition and the margin guidance, can you maybe talk about what the margin impact is from ERJ and then separately, you know with the 3.3% price that you had this quarter, can you talk about when that is expected to normalize in fiscal ‘20 and what the pricing impact was in the quarter-to-date comp if you will. Thanks.

Eric, I missed the last piece of that, but the ERJ margin actually, as ERJ right now, again we do need to close the acquisition and you know get a little bit more in the weeks on a day-to-day basis, but we are looking at it from actually a fairly neutral margin perspective. From a four walls operating perspective they do run margins a little bit behind us, not radically different. You know some of that is based on the states that they are in, on the cost dynamics of the states, but they are slightly below, but right in line with what we would have expected to see their. But you also have a ROM impact, because in essence is some of the reversal of what you saw last year with the change in accounting standards. So we’re there, marketing contributions ended up you know being moved over on to the other revenue, franchise and other revenue side of the equation not impacting ROM, because now they're coming back into the company's sales side of the equation, the support for marketing that will emanate from the 116 restaurants, will actually flow through ROM and have a neutral effect due to that year-over-year, you know that change in presentation. So all-in-all, it's a – you know as we bring them on board we are expecting a fairly neutral overall impact on the ROM line.

The second question was just related to the comp and how the pricing impact is expected to roll-off given that you had a higher level of pricing in the fourth quarter than your target range? Just wondering when that's expected to normalize and has that had any impact on the quarter-to-date comp?

Yeah, I think you'll see it normalized over the first couple quarters. Again it's, that is the timing aspect of when you take price versus when other price rolls off. So as you kind of move through, it will come down and probably be still a little bit above that target range in this quarter and then you know normalize more as we get into the second quarter.

Thanks.

Your next question for today is coming from David Palmer. Please announce your affiliation, then pose your question.

Thanks, Evercore ISI. Just with regard to your comp for this fiscal ’20. I would imagine that people are wrestling with the big three, which would be the industry comp and how you are going to lap the three for $10 and the incrementality of delivery, maybe you have another big variable in there, but on the industry comp front, I think there would be investor concern that the comparisons look about a point tougher in the coming quarters and then of course there's concerns about the economy. So could you perhaps talk about what your industry same-store sales space expectation is for your guidance?

David, well hi, and again we don’t give specifics on some of those drivers, but we do start with a negative believe around the industry. You know clearly over the course last six months to nine months we’ve seen some volatilities up and down, so you know that we expect that will probably continue to go forward. But again we think we’ve developed a based business and incremental drivers that work in all of those economic environments. So again, we continue to currently drive through which you have all talked about from an industry perspective, recently in a positive four. Particularly as we start to see the impacts of delivery come in. But you know reiterating some of Wyman’s is, we are comfortable at looking at the multiple levels, and as we build that comp, it's built off a very specific insight and confidence we have around what we can control in moving that comp forward. So delivery to go, value, you know driving the base business from a CRM perspective are all levers that come into play and we think can drive through you know a variety of economic conditions.

I guess the other two major things that I mentioned in that three for $10, you are now some weeks into lapping the second phase of that from last year, and delivery as you mentioned, that's been in place for a couple months now. So if those are maybe the other big two in terms of variables, it’s fair to say that you have pretty good visibility on those two and that means you – that really the big variable from here is whether are those things paid as helpers or perhaps three for $10 becomes more difficult, or if this industry comp just falls apart later in the fiscal year?

Yeah, I think you've got it David. I mean we are sitting here today, seven weeks into the year and we have wrapped on three for $10 for quite a while now and we've got a couple months of delivery under us and our operators are executing at a high level, and we are excited about some other things we have to still kind of bring forward. So that's why we gave the guidance we gave. Now you know the industry has seen a couple of soft spot, specifically April and July are not great months for the category. But we continue to weather through and we're confident that we will continue to be able to do that, and we are excited about the things that we're bringing forward. So that's kind of where we're at.

Hey David, you know one thing that's interesting about the discussion around lapping three for $10 is I think that there is a belief in that discussion that that’s a promotional lap. What we view it as you know a core value platform that we have, you know well over 10 years’ experience on how to manage that and bring that forward. They have the ability to grow. We’ve seen it, we've done, we expect that as we move forward. We have confidence in the incrementally we can bring out of a of a value platform and how we can lean into those guests as I've mentioned before. We see increased frequency come out of that, which we would expect to continue to pick up as we move forward. So we don't think of it maybe in the same vein that I think underlines that question as being a lap of promotional activity. It's a solid base business that we can grow as we move forward.

Thank you.

Thanks David.

Your next question is coming from John Glass. Please announce your affiliation and pose your question.

Hi, it's Morgan Stanley. I wonder if you could talk about labor for a moment. I think it was more favorable versus our view at least on your labor ratios and you cited a few things, including managerial labor. I think that's part of your certified shift leader program. Where are we on that journey? Is this accelerating at this moment or – and how many quarters you have to go before it's lapped or is it not that very concert to think about it. What else within the labor line may have been offsetting that wasn't you know structural, in other words no healthcare or whatever with that one-time benefit etcetera.

Let me talk about it.

Yeah.

From a CFL standpoint that certified shift leader program we’re getting close to kind of the target, which means from, again we just talked about laps, so which means we still have a lot of potential favorability in the first half of this year for that program before we get kind of full up to full up. But you know in the next couple of quarters we should be fully certified if you will with all of our shift leaders kind of out there at the target levels that we want them to be at, and that program is providing… Really, what it’s done beyond you know the financial impact, it really has changed our belief about where do we develop and recruit new leaders and we went from significantly external recruits to now mostly internal recruits and what that has also done is its proven to be much more effective. The turnover is lower, the results from all of our guests’ metrics are better and now we have a career path for key members that start at our level to move into management and then move their way all the way up through the operational ranks to some really nice career options. So we kind of really love the program and it’s probably about half way fully rolled if you will, if you think about this year.

Yeah John, I think as I mentioned, besides certified shift leader we saw a year-over-year benefit from the employee health experience, the expenses related to that. You know going forward we continue to feel that that's an inflationary market. You know we build that into our thought process, the current guidance and now we are again continuing the work programs and wellness opportunities to try and manage and mitigate through that. It is an expense that you do see some volatility in because it’s based now you know significantly on that, in the quarter experience as they develop, so you know so that was definitely one of the other items I cited in there.

Okay, and then Joe just following up on your free cash flow guidance. What is the use of the free cash? What are your assumptions built into the guidance on buyback, you know maybe just in a dollar sense. How much leverage or how much deleveraging? What do you expect to get on your balance sheet from a target leverage perspective during fiscal 2020? Thanks.

Yeah John, we don’t typically give a dollar amount. Again, we do anticipate being in the buyback market this year. Obviously we have the acquisition to complete here in the short run. That will be financed in the short run under the revolver. We're going to – we will return over the course of the year, by year end to that right around four times level that we ended the fiscal year, so year-over-year and we should be relatively similar from a debt leverage perspective. We will use obviously the free cash flow from a dividend payout scenario as we kind of move from when we just approved the dividend, which is part of the press release you saw there and we’ll continue to use that and then the rest will be available for share purchase. So we will be back in the market as it moves throughout the year.

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

Alright, thank you very much, BMO. I'm curious how you're expecting a delivery business to interact with To Go. You know was it your experience that those are different customers. What are seeing so far given that To Go has been such a nice contributor to comps?

Yeah, I think there are significantly different today, especially because most of the delivery is coming through DoorDash's marketing channels right, so there's a very little crossover and the future you know will be pushing some initiatives that may have more direct relationship or more direct contact with our guests that we know are our current guests and so we may see some tradeoffs there, but we think the tradeoffs are going to be well worth it and we’ll monitor that as we go forward, but right now we like the incrementality that we've seen, both in tests… And you know it's funny we introduced this DoorDash's partnership, but it comes after over two years of testing delivery with all of the big players and over an extended period of time from multiple different channels. So I feel like we – the team has done a great job setting ourselves and our operators up for success with delivery. We've got the right model, we've got the right partner and we're excited about its ability to grow the business and not cannibalize at a level that has us too concerned.

And then on the My Chili's rewards program, your just over 12 months post the relaunch there. Could you kind of take a step back and give us your assessment of how that's gone? Are you happy with the sign ups, the deal constructs? How do you plan to leverage the data incrementally going forward now that you have a little bit of hindsight on the program?

Now we’re extremely happy with the work that's been done to build My Chili's rewards. The level of engagement with our guests in that program is fantastic. It continues to be a real strong element to our marketing program and continuing to drive traffic. We are able to flex in and out of that program with the additional offers, but the base offer is in our mix now and is manageable, so we like all the things about it and we're just getting smarter and smarter. It seems just now with more and more information, more and more data point, the ability to you know bring in machine learning and some artificial intelligence to help us better understand exactly what each of those guests would like to motivate them more to come into the restaurant is there and the team’s using it and we’ll just, we’ll continue to kind of move forward to grow that aspect of the marketing program as we look forward to F’20.

Great, thank you very much. The next question for today is coming from Dennis Geiger. Please announce your affiliation, then pose your question.

Thanks, its UBS. Just another one on your margin guidance beyond what you've already mentioned. Just wondering if you could talk a bit more about how to think about the impact from the different efficiencies that you have looking into this year. This year’s sale program, I think you covered it pretty well, but also just on technology, marketing efficiency, as well as any kind of year-over-year tailwinds relative to a little bit of a rebase this year. And the just the last piece of that, if there's any thought with an update to what kind of comparables you are thinking about to kind of hold margins flat if you care to address that today. Thanks.

Go ahead John. A - Joe Taylor: Again, we do think there’s continued opportunities to work at efficiencies around margins. I think alignments talked a little bit about the marketing aspects, the continued move we have to the digital side of the equation, which has efficiency to it, but it's also a more effective pace. Sales leverage is a big piece of the equation. We've been seeing sales leverage move through the margins for the last couple of quarters. I think now as some of the other aspects, as we lap through sale leaseback, accounting changes, thinking of that you're probably getting – you're seeing it a little more directly, so that's obviously a piece of the equation. There’s variability that’s builds into our margins from an incentive compensation standpoint on both restaurant operating margin and G&A and that’s the manager bonuses and profit sharing piece of the equations that flexed with the business. So it's something that maybe will not be as appreciated as much as we look at it, so again if performance is there, because we set these to targets in your guidance. The performance is there, we will pay out under those programs, you know close to or at above the targets. If performance is not there and it's top line and flow through performance and guests’ metrics, it all combines into that. You’ll see some below target pay-outs which protect the margins to that extent and you'll see that both in the restaurant operating margin and the G&A side of the equation. So there's a flex point in there that I think may not be quite as appreciated. So again, we continue to operate the business at a high level. Managers are looking for those efficiencies. We’re making sure we're taking care of the restaurants, disciplines around R&M spend, things of those nature that can get away from us if you're not careful and if you don't have the systems in place which JRC spends a lot of time and effort in making sure that the systems are in place to help guiding and control those spends.

And i just would add, I think you know again if you just think about last year in relationship to this year, the introduction and the three for $10 in the platform, right now it had some impact on the mix and the margins fully anticipated and kind of where we want to be, but we won't have that kind of margin challenge as we move forward. So our pricing and our merchandising and the things we do to kind of lift-check and help margins will flow through at a much higher rate and that'll help as well.

Thank you.

Yeah.

The next question is coming from Jon Tower, please announce your affiliation, then pose your question.

Great! Wells Fargo. Thanks for talking the questions. Just pretty much two clarifications. First, Joe on the comment about first quarter earnings being down $0.05 to $0.08 year-over-year, are you talking about off of the $0.47 base from last year, and then secondly Wyman, I think you mentioned earlier in the call, developing plans for the 116 acquired stores, including the potential to invest in the store base. On that potential investment, are you speaking about potential margin investment or potential CapEx and if so, are either of those captured in your fiscal ‘20 guidance? Thanks.

The first quick answer, yes, that’s off the adjusted $0.47 from last year.

Okay, so with regard to the acquisition, yeah we think there's similar to the acquisition we made a few years ago of a franchise partner. I think there's some opportunity both with the remodel program that we've got now, two cycles on, some of these restaurants haven't experienced. So we know there's power in that program. So where they fall into that, you know Joe mentioned in his comments that we are going to continue our reimage program, where these new restaurant fall into that cycle, and then we may move some of them up to the front a little more. And then there are some technology investments, as well as some other investments that will make that, you know we know have shown proven results in our company owned restaurants that we are very excited about bringing to the restaurant. These restaurants have been well run. I don't want to give the impression that they're not great restaurants; they are great restaurants. It’s a great franchise partner, you know Junior Bridgeman, you couldn’t have had a better franchise partner than Junior. So they've chosen to kind of move in a different direction to their company and we were just excited to get the opportunity to bring 116 Chili’s back into the company owned, because it really fits our strategy around scale, we believe in this market and this environment right now scale, it's powerful and you can bring so much more to the restaurants when you can leverage these investments in technology across the broader base for example. So that's what we're talking about, they are in the numbers. You know we factored those in and this is going to be a surprise in the third or fourth quarter with, “oh! We need some more capital to go do this,” but we are excited about bringing those restaurants in.

Thanks Jon. Holly, I think we have time for a couple more questions as we’re come up against 10 o’clock.

The next question is coming from Nicole Miller. Please announce your affiliation, then pose your question.

Piper Jaffray. Thank you, good morning. On that last question, could you talk a little bit more specifically about the CapEx buckets for this year? I imagine like you just said, the big ones are remodeled technology and then also maintenance. Just kind of compare and contrast with the year just ended, what might be going up. Can't imagine they are even more necessarily going down. Thanks.

The same big buckets are in place, I think for 2020 as opposed to ’19. We do have a little bit larger spend targeted for a new restaurant development. Again we think we have the – with the new prototype coming to the market, we think we have incremental opportunity to increase capacity and nothing you know radically different than in the past, but we’ll start to take that up a notch or two. The reimage program is continuing along, you know pretty much at the established level. I think the overall spend for reimage ‘20 versus ’19, it's actually probably going to be down a little bit. We’ve been able to reengineer as we move through that program, some of the cost dynamics of it, so it’s still getting the same positive response to it. We just want to be able to be as efficient as we can. And again, the R&M spend and the IT spend continuing along at those levels that we’ve talked about on a combined basis, those two buckets are typically in that $60 million to $70 million range, which we think is necessary to keep the condition of the fleet as it should be and also you know continue to move the technology basket forward, so those are the big things. One thing that falls out of the equation is the CapEx accounting that was associated with the new headquarters building. Which was part of the ‘19 bucket is not in the ‘20 bucket since we've already done that and moved in and incorporated in that is some expectation around spend for ERJ that fits into those buckets I’ve just talked to you about. So again, we are in that 140 to 150 range, you know in accomplishing all those programs as we kind of go forward.

Very helpful, thank you. On the 116 units acquired, how have they been comping? Is it similar or higher or lower than your company owned system or if you want to compare it to the franchise system, I'm not sure what’s best. And then help us think about when they do fall on the comp base going forward, why would they be higher or lower? Would they essentially comp in line? Thank you.

One, and again just so we are clear, we're going to hold them as non-comp. So I’ll talk a little about that, but I just want to make sure that people don’t embed that into the thinking around the comp guidance we provided. They have been positive comps over the course of really you know more than a year now. They have been kind of the low single digit, kind of in that range that you expect they drive the comp that you've seen of the franchise network, again the largest piece of that equation. So you know that was one of the things we've been pleased about in working with them as franchise partners and now understanding the restaurants that we will be taking as the momentum they've been building into those restaurants from a comp perspective.

Thank you.

Your next question is coming from Sara Senatore. Please announce your affiliation, then pose your question.

Hi, its Bernstein. I just, I wanted to ask a couple of quick follow-ups on the delivery business. You said it was accretive to margins. I just want to make sure I understand, and presumably that's because it's incremental as opposed to having sort of a similar margin profile as on-premise, unless you're able to sort of minimize the amount of labor associated with it in the store and in that way offset the delivery charges, the delivery fee. So I guess that's the first, if you can just sort of clarify the accretive nature of it. Is it only accretive because its highly incremental and then also on the higher PPA, I know you said no three for $10. I was just a little surprised, because I would have thought you might get less attached, you know beverages and deserts and that kind of thing. So it sounds like though you are seeing that just higher check because you have bigger groups that are doing delivery, but also higher per person orders? Thanks.

Yes, thanks Sara. It’s definitely in our mind and these equations obviously you will analyze and watch an ongoing basis, but through the testing we've done and early on in the process, it is a profitable piece of business. And that starts with the deal that we negotiated, again you know kind of the base cost structure is in our minds the best in the industry and we're very comfortable with that commentary. Incrementality plays a big role in it and we're seeing incrementality at very high levels, in excess of 80% and that’s what we saw in our testing and that's what we are continuing to see as we roll it forward. But it also has a lot – I mean there are a lot of costs. You fully allocate costs to answer the restaurant, the different channels. There are a lot of cost associated with in-a-restaurant dining that don't get applied you know when you are thinking about to go or delivery. So they each have a different cost attributes and we look at a fully allocated basis. The mix piece of the equation and not having three for $10 and obviously helps in that regard too. Delivery place, you know frankly probably to a different target customer. The to go customer has a higher preference for value, which I think basically equates the fact that if I'm a value oriented guest looking for that stronger of an offer, just probably some willingness to get on it on a To Go basis. I think playing deliveries is probably playing to a lesser value oriented customer, which we have significant numbers of and I think there's a lot of responsiveness to the ability to get that from a delivery and less sensitivity to maybe some of those charges to go with it. But it is a very profitable guest, you know driven by number different attributes now. Now you watch that over time and the incrementality and shifts in the business will be a piece of the equation that you watch closely.

And marketing channel: You know again, we are just running though one marking channel right now, basically the DoorDash for delivery. So we’ll see what happens as we open up additional channels and as we really start to market and partner more aggressively with them.

Thank you.

One more question.

Your last question is coming from Jeffrey Bernstein. Please announce your affiliation, then pose your question.

Great! From Barclays, thanks very much. Just one question for me. Wyman you talked about being excited to bring in ERJ and how scale is powerful. Just wondering on the flip side obviously you are reducing your franchise mix. I recognize that you view yourselves as restaurant operators and prefer the company operating model. I'm just wondering, is there demand from new or existing franchisees if you were interested in refranchising. Just wondering if you’d examine the implications of refranchising, which would seemingly help to insulate against the sales volatility you mentioned earlier and labor and potential commodity inflation. I'm just wondering, not that you are pursuing it now, but whether there's interest from existing or new franchisees and why you would not actually consider that going forward?

Jeff, you know I think with the power of our brands, there's always interest and being part of that this business, it’s a good model and it’s a busy good business. I think strategically we look at casual dining and you know we think that you know being an operator in casual dining at least to a large degree, you know whether it's 100% company owned or a significant portion of your restaurant’s company owned is important. I think that, again bringing scale to the organization into the brand is powerful and when you when you end up franchised into two smaller units, it makes it difficult. Speed is important in this day and age and I think in our - we're able to move more quickly when we have a large restaurant base that are company owned. So the strategic reasons that we like the company owned model as a predominant model for us, but that doesn't mean there aren't people interested in being part of the organization if we were to put the brand out at a franchised. We just strategically think it’s a better model to be company owned predominantly. And we love our franchise partners that are out there, and they also, because we are so embedded in the operations of the business, day-in and day-out not just driving top line sales, not just what promotions, but you know what's going on in the kitchens, what's going on with the service models that we have a partnership that I think is as deep as you can get. And its starts with you know, with all of us kind of focusing on the overall aspect of this business from the top line, all the way down to the bottom line.

Understood, thank you.

Alright thanks Jeff.

Alright, thank you everyone, thanks for joining us today - we appreciate it, and we look to seeing many of you here in Dallas on Thursday for our Investor Day. Bye.

Thanks everybody.

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!