Hello, and welcome to the Third Quarter 2020 Dine Brands Global Earnings Conference Call. My name is Lee, and I will be your conference operator for today. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Please note that this conference call is being recorded. I will now turn the call over to Mr. Ken Diptee, Executive Director of Investor Relations. Sir, you may begin.

Good morning, and welcome to Dine Brands' third quarter conference call. I'm joined by Steve Joyce, CEO; Tom Song, CFO; Jay Johns, President of IHOP; and John Cywinski, President of Applebee's. Before I turn the call over to Steve for opening remarks, please remember our Safe Harbor regarding forward-looking information. During the call, management may discuss the information that was forward-looking and involves known and unknown risks, uncertainties, and other factors, which may cause the actual results to be different from those expressed or implied. Please evaluate the forward-looking information in the context of these factors, which were detailed in today's press release and 10-Q filing. The forward-looking statements are as of today and assume no obligation to update or supplement these statements. You may also refer to certain non-GAAP financial measures, which are described in our press release and also available on our Investor Relations website. With that, I'll turn the call over to Steve.

Thank you, Ken. Good morning, everyone, and thank you for joining us today. I hope you are all safe and doing well. As the industry gradually settles into a new normal for the foreseeable future, the challenges we faced have brought out the best in our franchisees and team members. I am extremely proud of their commitment and fortitude. Additionally, their alignment with our strategy to stabilize our business and restore growth contributed to both brands delivering continued sequential improvements in quarterly comparable sales. I am very pleased to report that our off-premise business at both brands posted strong growth in the third quarter, even as states gradually reopened. Off-premise comparable sales increased by an impressive 144% at Applebee's and 154% at IHOP. The pandemic has caused a shift in consumer behavior and changed how guests access our brands. We believe the convenience of takeout and delivery will remain appealing to our guests even as dining room restrictions are eased across the country. According to a recent McKinsey & Company Consumer Pulse survey related to COVID, 56% of respondents intend to continue using restaurant delivery and 46% intend to continue using restaurant curbside pickup. The survey also showed that 40% of respondents ranked dining indoors at a restaurant or bar as one of their top three activities they are eager to resume following getting together with friends and getting together with family, which are obviously closely linked. In some states that don't have restaurant capacity restrictions but still require social distancing, we are seeing consumer demand exceed capacity in certain cases. With that said, we believe the guests returning to our restaurants for dine-in service will complement our already robust off-premise business and provide additional upside to sales. As we navigate through the pandemic, Dine’s operations team remains fully engaged with local, state, and federal authorities during the reopening process. I would like to highlight that at the end of the third quarter, approximately 3,200 of our domestic restaurants or 97% of the domestic system was open for business. This is up from 95% for the second quarter. We are committed to providing our guests with a welcoming and safe environment to dine with their friends and family, while in accordance with guidelines provided by the CDC as well as state and local governments. The safety of our guests and team members will always be a high priority. To that end, both brands are utilizing best-in-class sanitation practices, including the use of an EPA-registered two-in-one cleaner and sanitizer. Not only will this reduce the number of products used, but we also expect greater efficiencies for our franchisees. In addition to safe food handling procedures and reducing the number of guest touchpoints in the restaurants, this is just one of the several measures taken to help protect the communities in which we operate. We understand that consumers are eager to safely return to indoor dining. In fact, Black Box sales data show significant sales improvement since April 2020 in both categories in which we operate. This trend bodes well for our brands, which outperformed their respective categories in each month of the third quarter, as well as for the full quarter. Jay and John will provide additional details on their respective brands later. While the restaurant industry continues to recover, we believe that both Applebee's and IHOP are well-positioned to stabilize sales and return to growth. I am very confident in our plans, which resulted in significant progress over the last two quarters. We will continue offering our guests an omni-channel experience to meet their dining preferences, whether in-restaurant or off-premise. At the dine level, our business conditions have improved since the first quarter of this year. This coupled with our disciplined approach to G&A management and an asset-light business model enable us to end the quarter with approximately $389.6 million in cash. With that, I'll turn the call over to Tom to provide an overview of the third quarter results. Tom?

Thank you, Steve. Good morning, everyone. During the early stages of the pandemic, we took certain precautionary measures to augment our financial flexibility during a time of great uncertainty. To that end, we drew $220 million in March 2020 from a revolving credit facility, all of which remains outstanding as of September 30. As a result of this and other proactive steps, Dine continues to have a strong liquidity position and significant cash on our balance sheet at the end of the third quarter. As Steve mentioned, we had total cash of $390 million, including restricted cash of $80 million. I'd like to highlight that if you exclude the $220 million that we drew, our total cash is nearly the same level as the total cash we had at year-end 2019. This is a notable milestone. As restaurants continue to reopen for dine-in service, weekly comparable sales trends improved for both brands during the quarter. Just to compare, at the beginning of the third quarter, Applebee's was down 22.3% and IHOP was down 40.4% in comps for the week ending July 5. In comparison, for the final week of the quarter ended September 27, Applebee's increased 40 basis points and IHOP decreased 23.5%. These comparable sales figures represent improvements of 23 and 17 percentage points during the quarter for Applebee's and IHOP, respectively. During September, both brands posted their best weekly comp sales performance since the week ending March 1. The solid improvement in comp sales trajectory is primarily due to the progressive reopening of our domestic restaurants, as well as the significant growth in off-premise business that Steve mentioned earlier. Now let's turn to our third quarter financial results. For the third quarter, we reported adjusted earnings per diluted share of $0.80 per share, compared to $1.55 per share for the same period of 2019. We reported $36.9 million in G&A expenses, of which $6 million was non-cash. Our leverage ratio as of September 30 was 6.7x compared to 6.3x as of June 30. We anticipate making an initial quarterly payment of $3.25 million on December 7 and a subsequent payment in the first quarter of next year. I would like to highlight that we continue to have ample cushion in our debt service coverage ratio, or DSCR, at 3.2x as of September 30. The first key DSCR measurement is tripped when the ratio is below 1.75x. In March of this year, in light of the COVID-19 pandemic, Standard & Poor's placed the company on credit watch-negative with respect to our 2019 Class A2 notes. In September, S&P removed the company from credit watch and reaffirmed our BBB rating. We are pleased with this outcome as it reflects the strength of our business and our very strong brands. We will continue to diligently manage our business as we recover from the pandemic. Regarding our tax rate, our GAAP effective tax rate for the third quarter of 2020 was a 9.5% tax benefit compared to a 24.6% expense for the third quarter of last year. The primary reason for the variance was due to the release of unrecognized tax benefits incurred in the third quarter of this year. Just to note, our fourth quarter three months effective tax rate is expected to be significantly higher than the statutory tax rate since overall we expect a low single-digit effective tax expense for the full year. Our adjusted EBITDA for the third quarter of 2020 was $42.7 million compared to $63.4 million for the same period of 2019. Turning to our cash flow statement. Cash from operations for the first nine months of 2020 was $36.7 million compared to $105.6 million for the same period of 2019, while the difference was primarily due to the lower gross profit. We also had an increase in receivables related to the franchisee assistance programs, which provided approximately $56 million in royalty, advertising fees, and rent payment deferrals for our franchisees, primarily in the months of March and April 2020. A total of 30 franchisees representing 94% of Applebee's restaurants deferred payments with repayments scheduled over up to nine months. These repayments began in the third quarter of 2020. As of September 30, the outstanding balance for Applebee's was approximately $24.4 million, with four franchisees having repaid their deferred balances in full. We offered IHOP franchisees the opportunity to defer their royalty, advertising, equipment, rent, and sublease rent payments, primarily for the months of March and April. A total of 193 franchisees, representing 58% of IHOP restaurants participated in this deferral. Repayment of deferred amounts is scheduled over up to 36 weeks, beginning in the third quarter of 2020 as well. As of September 30, the outstanding balance was approximately $20.4 million with 37 franchisees having repaid the deferred balances in full. Overall, a total of $11 million of the original deferrals have been repaid. I would like to note that our bad debt expense for the third quarter was $2.8 million as compared to $5.1 million in the second quarter of this year. Adjusted free cash flow for the first nine months of 2020 was $35.6 million, and we expect to generate positive adjusted free cash flow during the remaining three months of 2020. Now let's turn to our financial performance guidance for the fourth quarter of 2020. This guidance is based on information we currently have, and due to the tremendous uncertainty of the pandemic, we continue to believe that our results could be materially impacted. We expect our domestic system-wide comparable same-restaurant sales for Applebee's and IHOP to gradually improve for the quarter. Domestic development by Applebee's franchisees is expected to result in a net closure of approximately 15 restaurants. We are currently evaluating significantly underperforming domestic IHOP restaurants due to the pandemic's impact and unit-level economics. And Jay will provide more information a bit later on the call. G&A for the fourth quarter is expected to be approximately $45 million, including non-cash stock-based compensation and depreciation expenses, totaling approximately $7 million. While we deferred many expenses and furloughed significant staff over the past several months, we are now fully resourced to support our franchisees in the 97% of restaurants that are open. To sum up, Applebee's and IHOP made significant progress by improving the trajectories of their respective comp sales. Our off-premise business drove solid growth and remained robust even as dining rooms continue to reopen with restrictions across the country. Lastly, our cash position and liquidity remain strong. With that, I'll now turn the call over to John.

Thanks, Tom, and good morning, everyone. Good afternoon, if you are on the East Coast, I've often stated that Applebee's is at its best in times of adversity, and this couldn't be any more evident than it is today. After seven extraordinarily challenging months, we've come full circle from closing our dining rooms in March to achieving our first week of positive comp sales in September. This has been a remarkable story of overcoming adversity and returning Applebee's to its vibrant leadership position in casual dining. After being down 49.4% in Q2, Applebee's comp sales were down 13.3% in Q3. Sequential improvement throughout the quarter was very clear as we moved from minus 18.4% in July to minus 15.2% in August to minus 7.4% in September. I am very pleased to report that this strong trajectory has accelerated here in early Q4 with comp sales at minus 1.9% through the first four weeks of October. Now to put this performance in proper context. According to Black Box intelligence, Applebee's has now outperformed the casual dining category over the past 17 consecutive weeks. This terrific momentum coincides with our return to national marketing, if you recall back in mid-June after a self-imposed 90-day hiatus at the peak of the pandemic. This is also a strong indicator as to the current health of the brand. Recognizing we still have several geographies impacted by COVID lockdowns, creating natural variability throughout the system, as you might expect. Additionally, our franchisees have been remarkably consistent in paying the royalty and advertising fees, including our March, April deferrals, which are being paid back over nine months as Tom referenced beginning in August. Importantly, our 99% collection rate beginning in May has allowed us to quickly reestablish our economic model, which is very important to us, as well as our ongoing national media presence. While I'm certainly proud of Applebee's performance, what I'm most proud of is our franchise partners and their relentless fixation around restaurant execution, sanitation, guest safety, and guest reassurance throughout this pandemic. This is most evident in our very favorable brand affinity and visit intent metrics. From my perspective, the most important currency in the restaurant industry right now is trust. Our franchise partners have earned the trust of their teams and the trust of their guests with each and every restaurant visit, whether that's a dining room experience or a curbside to-go occasion. Simply stated, America trusts Applebee's now more than ever, and that's perhaps the single most important point of difference a brand can have in this environment as we look to 2021. At present, we have approximately 1,600 U.S. restaurants open for business, averaging between $44,000 and $45,000 per week with a mix of about 70% dine-in, 20% parkside to-go, and 10% delivery. Now regarding government and post-capacity constraints, we feel this impact most noticeably with Friday and Saturday dinner, where demand is abundant, but restrictions have limited our ability to fully satisfy this demand. This, of course, varies by geography. It's also worth noting that Applebee's is disproportionately penetrated in the Midwest and Northeast, where these restrictions are most prevalent. Now the good news here is that many geographies have been gradually easing these restrictions, with 20 states having removed all capacity restrictions as of this call, while our own rigorous safety and sanitation standards remain firmly in place. However, as we've certainly seen, the landscape remains volatile and subject to change. On the off-premise front, we continue to innovate in the form of relevant occasion-based digital marketing. We are also launching tamper-evident delivery packaging throughout the system, coming up here in November as a new brand benefit and yet another form of guest reassurance. On the rapidly evolving beverage front, Applebee's signature Mucho Cocktail to-go is now available digitally in about 30 states. They have become very popular given the surge in off-premise dining. As an example, our proprietary Spooky Sips are featured here in October in our branded Mucho to-go 20-ounce cups, properly mixed and properly garnished and ready to take home as part of your bumbled meal. Our off-premise innovation will also extend our virtual brand, currently called Neighborhood Wings by Applebee's, which is currently being piloted in about 700 restaurants in partnership with Grubhub. As of Q1 next year, this initiative will be meaningfully repositioned for greater relevance and visibility and then expanded throughout the entire system. Additionally, I'd like to thank our supply chain organization, which has simply been a tremendous asset in mitigating suppliers for both brands in this turbulent environment, while enabling a pipeline of innovation with truly impressive agility and rock-solid expertise. Also after furloughing a portion of our team in early Q2, I'm very thankful this exceptionally talented Applebee's and Dine team is once again reunited. As we head into our annual franchise meeting next week, of course, that will be a virtual meeting. Who would have thought that we’d be celebrating Applebee’s 40th anniversary in the middle of a global pandemic, but that's precisely where we are today. I'm proud of our team's response to this ongoing challenge. I'm also excited about next week's franchisee session because of our accelerating business momentum, as well as early alignment around our 2021 strategic plan, albeit with significant built-in flexibility given the current environment. Importantly, I should also note that Applebee's Franchise Business Council and Franchise Marketing Committee have unanimously agreed to continue our 4.25% national ad fund contribution throughout 2021, and I anticipate aligning all of our franchise partners on the subject in early November. This is terrific news for the brand. In summary, we are extraordinarily well-positioned moving forward. While the effects of COVID remain uncertain, I genuinely expect Applebee's to thrive next year, as we fully leverage our sizable brand scale, buzzworthy innovation, and restaurant excellence, of course, in partnership with our franchisees who have exhibited remarkable courage, resilience, and most importantly belief in navigating the past seven-plus months. After being knocked down, I believe Applebee's is truly symbolic of America as we get back up, dust ourselves off, and get back on that horse. On behalf of the entire team, I can tell you it sure feels good to be back in that saddle again. With that, I'll turn it to Jay.

Thank you, John. Good morning, everyone. I hope you're all doing well and staying safe out there. IHOP’s third quarter comp sales declined 30.2%, which represents a sequential improvement of 28.9 percentage points compared to the second quarter of 2020. The brand's performance continued to be impacted by the effects of governmental mandated restrictions on dining room operations and soft traffic across the daypart as consumers continue to mainly work from home. I'd like to highlight that the overall breakfast category, in general, remains challenged as the morning meal has oftentimes been replaced at home due to the diminished work transit. At the start of the third quarter, our performance in July reflected the resurgence of coronavirus cases and dining room restrictions put in place by state and local governments due to the spike. Also, we did not utilize national media through the first three weeks of July. As a reminder, we opted to discontinue our marketing late in the first quarter, except for some basic local marketing and a brief off-premise campaign. Our weekly comp sales and traffic both improved 10 out of 13 weeks respectively during the 13-week period ending September 27. This included our best performing week since early March. I'm pleased with our trajectory and the good progress that we've made. IHOP’s third quarter comp sales continue to be in line with the overall family dining category according to Black Box. I'm delighted to report that IHOP outperformed family dining after trailing the category for the second quarter. We're very focused on recouping the remaining 25% decline in comp sales. The opportunities we’re addressing to restore sales include reopening units, safely reaching higher capacity in our restaurants, driving traffic to the non-peak dayparts, plus continuing to push into go business channels. To broaden IHOP’s appeal to consumers across dayparts other than breakfast, we launched IHOPPY Hour on September 28. This is the brand's first-ever afternoon and evening-focused value-oriented menu. The offers available every day between 2:00 PM and 10:00 PM or longer, depending on the location. Guests can choose from a variety of meals at an attractive price point of $5 or $6 depending on the market. The value platform is part of IHOP’s daypart experience and strategy to build on the breakfast innovation we’re known for while strengthening and expanding our PM business. While the launch is still in its early stages, we are seeing very encouraging results. We believe IHOPPY Hour will attract guests into our restaurant and increase traffic as governmental restrictions on dining rooms are eased and states gradually reopen. IHOPPY Hour is a strategic longer-term play for us, which focuses on influencing guests to think about IHOP for great value options during non-peak periods when we typically don't have capacity issues. One of our goals for the platform is to drive frequency and loyalty. We've done a great deal of work and research on IHOPPY Hour for over a year. Now that we have most of our domestic dining rooms open for business, it made sense to launch it. I'm pleased to say that as of September 30, approximately 95% of the domestic system is open with some restrictions, as many states have gradually eased capacity limits. This compares to approximately 92% of our domestic system open for business as of June 30. As Steve mentioned earlier, surveys have shown that some consumers are eager to return to indoor dining. In fact, we're seeing certain places of consumer demand outpacing restaurant capacity restrictions, especially during the weekend breakfast daypart. We estimate that the weekend capacity impact is over 5% on total sales for the week. Now a fair percentage of respondents also find it appealing to use delivery or restaurant curbside pickup to meet their dining needs. According to a data essential coronavirus study, 76% of respondents said they feel safe and comfortable getting restaurant food through curbside pickup or delivery. While we look forward to welcoming guests back into our dining rooms in accordance with governmental guidelines, as well as our own procedures, this consumer sentiment on off-premise can be a potential tailwind for IHOP. Turning to our to-go business. IHOP’s off-premise comp sales experienced continued solid growth in the third quarter, increasing 154.1% driven primarily by traffic. Our online sales remained strong even as dining rooms gradually reopened, making up 22% of total sales. Delivery accounted for 15.7% of the third quarter sales mix, and takeout accounted for 18.3% of sales mix. Due to consumers becoming more familiar and comfortable with IHOP’s off-premise channels, we believe we can retain much of these sales, even as dining room restrictions are eased over time. Turning briefly to our unit guidance for IHOP closures disclosed in today's press release. Given the impact of the pandemic on individual restaurant-level economics, we are evaluating only significantly underperforming restaurants that we currently believe are not viable coming out of the pandemic. These restaurants are generally some of the lowest performing units in the system based on sales and franchisee profitability. As Tom mentioned, based on our current information, we expect the evaluation could result in the closure of less than 100 restaurants over the next six months. However, we're confident that we will eventually replace these severely underperforming locations with better performing restaurants that have volumes closer to our pre-COVID average unit volumes of approximately $1.9 million. To close, IHOP remains in a position of strength with a strong marketing plan for the remainder of the year, and into 2021 to support our seasonal promotional windows. Looking ahead, we are focused on restoring sales and traffic to pre-COVID levels by first providing guests with a safe and comfortable environment in our restaurants. We understand that more than ever, guests are placing greater emphasis on restaurant cleanliness and safety. Secondly, we'll continue to grow our off-premise business, which we believe will be complemented by the return of in-restaurant dining. Third, we will provide compelling value and innovation propositions to attract guests back into our restaurants. With that, I'll now turn the call back over to Steve for closing comments.

Thanks, Jay. To wrap up, we've achieved meaningful improvements in both Applebee's and IHOP comparable sales, but we know that more needs to be done. Our off-premise business continued to drive solid growth, which we believe the majority of what we can retain as consumers continue to take advantage of our to-go services. We again ended the quarter with a strong cash position and liquidity, which positions us to meet our debt obligations and withstand current industry conditions. Lastly, we have a plan in place to restore Dine’s growth trajectory. I have great confidence that our management team, with the continued support of the Board, will successfully achieve our goals. I am very optimistic about the road ahead for Dine, for our franchisees, and for our team members. Now, with that, we would be pleased to open the call to any questions you may have. Operator?

And your first question comes from Jake Bartlett from Truist. Your line is now open.

Great. Thanks for taking the questions. My first is on Applebee's and just the strong trajectory of the improvement in weekly same-store sales. What do you attribute that to? Maybe if you could give us some examples of what's really driving that trajectory? And I'm wondering whether the addition of plexiglass dividers, the addition of outdoor dining, the marketing obviously has helped since mid-June. But what is the trajectory, what's driving the trajectory since then?

Sure, Jake. This is John. Good question. I think you referenced a couple of the points there. First and foremost, I'd say our franchisees and restaurant teams have been very overt in visibly demonstrating safety and sanitation practices through our internal research. It clearly is building a level of trust that’s essential in this environment. I referenced, I believe in my remarks, brand affinity and revisit intent. We see those – we track those metrics versus a year ago and we track them versus a subset of competition. In both cases, we're seeing significant improvement. Our final point, the marketing activity has certainly resonated. We started out with a very appropriate tone in welcoming America back to Applebee's. If you recall, we featured Welcome Back Kotter music, and then the theme song from Cheers. We coupled that with value propositions that were broadly appealing. We narrowed our menu, making it easier for our restaurants to execute. You add all that up and in the face of these headwinds that all brands face, we have a very solid trajectory and a very optimistic and hopeful franchisee community as we look to next year.

Great. That's helpful. Obviously, a focus for investors today in the market, but just assessing the risk of imposing new restrictions being imposed on restaurants. Can you tell us what the performance has been at – same-store sales performance at stores that have indoor dining and stores that do not have indoor dining? See how that – how in position of restrictions could impact results.

I think from an Applebee's perspective, Jake, we are fundamentally indoor dining at this point. We have restrictions there. There is variability that is tied directly to the restrictions. You'll see a delta from one state to the next – that delta. The good news is all metrics are moving in a northern direction and that delta between those with heavy restrictions and those with almost no restrictions is getting tighter and tighter. So I won't quantify beyond that.

Hey Jake. This is Jay Johns at IHOP. I'll answer the same question. I think it's probably pertinent. It's very different across the Board, as you know, if you just look kind of state by state right now, we've got about 18 states that we would say are 50% or less in restrictions. So typically that’s 15% or 25%. You've got about nine states that are over 50%, so basically they are at 75% most of the time. Then you got about 22 states with no restrictions. But there is still social distance restriction in some of these locations. So even though the state may be fully open depending on the social distance, six feet at your table, you're still kind of limited to about a 50% capacity when you think of it like that. And then California is the X factor. It's very regional and very different. We've had a very big footprint in California. So some places have 25%, some are 50%, a large part of California is still completely closed down in tabular dining only. As far as our footprint, we've got about 20%, 25% of our restaurants predominantly in warm weather states that the prototypes already had patios on them. So they already have the advantage of a patio, and it’s there all the time. We probably have another 20% or so that added on some type of supplemental patio. Again, most of those were in warmer weather climates, which you'll be able to continue that for some time. There are patios that are up in the Northeast and East. We will have some impact, but the grand team of the size of our organization and the amount of them that are in cold weather places, we just don't think it's going to be that material. The bigger issue is governmental capacity restrictions that states are closing down completely. Then you've really got to double down again on off-premise.

Got it.

I think one of the things that gives us some confidence is if you look at the geographic dispersion of both brands, both brands are heavily distributed in markets that have fairly heavy restrictions. So we're already dealing with those capacity restraints in a lot of the markets we're in and we'll have to wait and see. Obviously, we're going to follow whatever the government tells us to do and make sure that we keep our customers and team members safe. But we already are at the numbers we're achieving in the markets that aren't as strong or aren't as open as a lot of the markets.

Got it. And then my last question is just on the closures at IHOP. And I am wondering if this is similar to the effort at Applebee's a few years ago where you’re waiving any penalty for closing stores. Is there a kind of concerted effort to kind of clean up the system here and provide some relief for the franchisees that are operating those underperforming stores? And related to that, how confident are you that that 100 is the maximum number of closures over the next six months?

Well, I think the first – this is Jay, again. I think the first thing I would say is that we are looking at significantly underperforming restaurants that were probably going into the pandemic in a much weaker state than other locations. So this isn't a broad franchisee issue. Our Applebee's and IHOP had very different kinds of systems. I've got almost 300 franchisees; 100 of them have only one or two locations. The ability to weather this kind of pandemic may be very different for a single unit franchisee. This is their job and their livelihood as opposed to a franchisee with 25 restaurants where they have one restaurant that's causing them issues. So we're doing that assessment right now. We really just wanted to make sure that we informed all of you and the street that we're working on this, and we think that up to 100 is the right number at this point for what we know. There'll be more to come in the future on that.

Great. Thank you very much. I appreciate it.

Your next question comes from the line of Nick Setyan from Wedbush Securities. Your line is now open.

Thank you. Yes, two questions. First, are there still things assuming capacity constraints don't continue to – these are still things that are potentially implementable to increase sales, whether it's the continued implementation of dividers or the continued rollout or maybe tents in the parking lot, et cetera? Are there sort of store specific things that we can continue to do?

Nick, this is John. I think our franchisees, frankly, for both brands have proven not only resilient but extraordinarily entrepreneurial in maximizing square footage with social distancing parameters. So there’s no stone unturned on that front. We continue to innovate, so outside of the physical space constraints that you're referencing. We continue to innovate and provide relevant messages for our guests. Even in those situations where the outdoor seating, which is a great example of that kind of entrepreneurial spirit, may be hampered a bit by cold weather, you couple that with the easing of restrictions in many geographies, not all, but many, and that tends to offset that adverse impact of losing some outdoor seating.

I think on the IHOP side, Nick, I think it's a very similar story. The franchisees – remember what I just said about the makeup of my franchisees. These are truly entrepreneurs. These are people that this is their job. It's their career. In many cases, it's their life savings. They get really creative on how to solve problems when these things come up. They've already – even in cold weather areas, they’ve been working with their local governments on how do you put in five seaters, how do you stay open as long as you can. I think on a macro level, one of the things you've got to remember, I know there's a lot of thought and question about losing outdoor dining, but there's also a counterbalance for our system. Think about Arizona; they can't use their outdoor patios when it's 118 outside very easily, right? People don't want to be out there. Well, as you get into winter, those capacities actually improve and they increase. You start to have puts and takes around the country for our system. We have individual franchisees though that we've got to help them and share best practices. When someone figures out a new way to do things, be it on improvements on Carside or improvements on how you heat tents on your patio, we’ll share those.

So I think, Nick, if you think about it in terms of the levers, obviously one of the biggest levers that would help us would be decreased restrictions. So we’ll have to play that out. But we’ve got lots of other levers to pull. We’ve got expanded hours because we're still operating at a lesser hour rate for most restaurants. As people return to some level of school, that will drive some business. As there are some returns to offices, that will drive some business. What we’re finding is municipalities are doing a lot to work with us to let us tent parking lots and take over sidewalks and do all sorts of things because they’re interested in their businesses surviving and they will get tax revenue. So even if we don’t get a lot of restrictions, there are other levers we can pull. In addition to that, we’re pushing heavily into digital, which will help us. We're doing different things with some of the delivery companies, all of which we think will help push off-premise and delivery more.

Nick, I guess the – this is John. The final point here, it’s a very interesting note outside of everything that we do, and we control, we have found guest behavior to modify here. They’re very savvy, and so while business historically has been concentrated in a tight, 5:30 to 7:30 dinner window and a tight 11:30 to 1 o'clock lunch window, we have found guest behavior to modify here. They are choosing kind of the fringe dayparts, if you will, earlier dinners, later dinners, mid-afternoon. What that does for us, it allows us to fully leverage capacity and those other dayparts. We’re not trying to filter out as many guests quite honestly at the peak dinner hours, and that helps.

Thanks for all the detail. It's very helpful. And on the margin side, the bad debt expense, obviously we saw the sequential decline there. Is that going to continue to decline? Do you think, is there any visibility around, where those levels head from here? And also, if some of the bad debt expense over the last couple of quarters is recoverable?

Yes. Those are all good questions, Nick. I’ll start from kind of the leading indicators of how you think about bad debt. One is obviously sales levels, performance of our franchisees, franchisee health. We indicated in our scripted portion some of the other leading indicators, which are on that deferral balance because that doesn't represent them. We're sensitive to the fact that those represent increased payments during that very, very tough period, when a lot of the country was on lockdown, we did provide the deferrals. We thought it was an industry-leading deferral program. The repayments on that program have been very, very strong. We had a number of franchisees repay the balances in full. We feel that's a very good leading indicator as is our collection rate on both brands, which remains very, very strong. We think that trajectory will continue, Nick. It's good that you did note the sequential improvement, and while you never know given all the uncertainties that continue in the market, we hope that's going to continue to improve.

Thank you, and good morning. I want to just follow up on that IHOP capacity topic and sorry if I missed it. But did you say how many units currently have the partitions installed? And do you have line of sight into how many might have it by the end of the year within the next six months or some timeline you have in mind?

I think that – and this is a rough estimate of where we are right now. These numbers change all the time as people keep making changes. But we think there's about 20% of our restaurants that have added on some type of outdoor dining or partitions or whatever, based on what the local restrictions and/or requirements are for them to invest the money to do that to help expand the capacity.

Okay. So that would be – I think you mentioned 20% outdoor or partitions, just kind of broader initiatives to expand capacity.

Yes. And in a lot of cases, those tend to be similar across the board, right? A lot of those are at the same locations. Just the way the government restrictions are. Those restrictions on indoor dining, some of those are in the same states and same municipalities that allow both of those.

Great. Thank you very much. A couple of questions. My first one, just specific to the Applebee's brand. John, I think you mentioned a talk of a virtual brand, like that's the theme this morning with your largest peer, perhaps pursuing something similar, although it seems like you guys are using Grubhub. I'm just wondering if you can give any color. I think you said 700 units thus far and the entire system in the first quarter of next year, but whatever you could share in terms of early feedback on sales or margins, or incrementality, whatever early learnings you have would be very helpful? And I have a follow-up.

Sure, Jeff. I think we probably see some differences between brands. I know you’re referencing another competitive brand specifically. We’ve kind of dipped our toe in the water here in this initial 700 restaurant pilot. We have some very good learning, I won’t share results. I will tell you that the learning is leading us to fundamentally reposition in terms of relevance and menu and branding. That’ll take place in Q1 probably towards the back half of Q1. At that point in time, I’ll share more information in terms of everything from delivery partners to naming to menu and marketing. We believe it’s a significant incremental lever that we just haven’t pulled yet with any meaningful activity, but the learning is robust.

Okay. And then just in terms of the broader industry. There’s lots of talk about independent closures, and I know this came up last quarter on your call. Obviously, significant independent closures would presumably be a silver lining for the larger chains, allowing for some market share gains. I think last quarter, you've mentioned a very large forecast. I'm just wondering three months having gone by now, what you're seeing thus far in terms of industry-wide independent closures. Obviously, you've got touch points in pretty much 50 states. So any color you could provide in terms of the closure outlook thus far would be great.

So clearly, we're not hoping that other people are suffering through this crisis. However, if you look at the industry forecast from the various associations, there’s a significant number of closures that have occurred and that will continue to occur as this extends out. Those numbers range broadly based on the study, and it is mostly believed to be an independent restaurant issue. You’ve also seen a bunch of chains that are struggling. We’re not sure what the total fallout is. Clearly, when there are empty restaurants, it could be an opportunity for us. We're not hoping to gain on other people's losses. However, it will be an opportunity for us, as those numbers are substantial. And in terms of restaurants, the numbers range in the 30 percentage points, and in terms of independence, they range higher than that. So those are the general numbers we're seeing. We don't have any insight other than what we're seeing from the industry studies and that’s what we hear.

Yes. And I think the National Restaurant Association has published that they are currently seeing about a 100,000 closures in the industry. They haven’t categorized that by category. They haven’t defined whether the breakout there is around independence and chains. I think Steve brings up a very good point. Don't make the assumption that this thing is just impacting independence. It’s impacting vulnerable chains to be clear winners. Certainly, our brands will be at the top of that list, and there'll be others that struggle because they don't have the scale or the infrastructure or the talent that some of these more formidable brands like Applebee's and IHOP have.

Understood. And then just lastly, it’s been great working with Steve over the past number of years. I know you guys talked about at some point a transition to a new CEO in early 2021. Just wondering, well, perhaps a delicate topic, just if there’s any update in terms of how that search goes or whether Steve decides he’s going to stick with us for the next few years.

Actually, it’s not that delicate at all. The process is the same. The Board is working diligently on the process. They will make an announcement at some point when they decide on the final positioning of it. Obviously, I'm here working surprisingly full-time as we continue on this process, and I’ll do that until we've got somebody new to report to you. That’ll come in and hopefully build the brands from here.

Thank you. We appreciate your time. Appreciate the questions. Obviously, we feel pretty good about where we are, but it is cautious optimism based on what we might face going forward. However, we think we're in a great position with a great business model, great brands, great franchisees. We'll look forward to speaking with you again in hopefully a healthier and more profitable new year.

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