Denny's Corporation (DENN) Earnings Call Transcript & Summary

Good afternoon, I'm Dennis Geiger, restaurants analyst at UBS. And it's my pleasure to introduce Mark Wolfinger, President of Denny's; and Robert Verostek, CFO. Denny's has plenty of new and exciting developments and recovery opportunities ahead this year and going forward that the team is going to share with us. I'm going to pass it over to Mark. Mark is going to go through some slides and some prepared remarks. And then afterwards, we'll get into kind of a brief fireside chat and take some of your questions. So with that, Mark, thanks for being here, and over to you.

Thank you, Dennis, for the introduction, and it's a real pleasure to provide an update on Denny's. We're obviously an iconic brand. We're born in the early 50s and enjoy incredibly high awareness as America's diner. I want to turn to Slide 2. Before I start today, I would like to remind you that I will be discussing forward-looking statements and non-GAAP financial measures. Please refer to our SEC filings for a discussion of risk factors and quarterly financial releases for an explanation of our non-GAAP reconciliations to the comparable GAAP measures listed on this slide. With that, let's get started. Slide 3, please. Denny's is a 96% franchise brand with both new and multi-generation franchisees committed to evolve, compete and grow. Beyond adjusting to the impact of the pandemic on our business, we are entering the middle stages of our long-term revitalization with many brand-enhancing strategies that remain, and I'll touch on a few of our key investment highlights now. We have consistently grown same-store sales. Our brand revitalization strategies have contributed to 9 consecutive years of domestic system-wide same-store sales growth prior to the pandemic. Our global footprint consists of 1,650 restaurants around the world, including 146 international locations across 13 countries and U.S. territories. This does make us one of America's largest franchised full-service restaurant brands. We have also added to our international and domestic development pipelines through development agent agreements and our refranchising strategy completed in 2019. And 96% of our brand is operated by 227 diversified, experienced and energetic franchisees. Our highly franchised business model generates strong adjusted free cash flow, which we have consistently returned to our shareholders. In fact, over the last 10 years, through 2020, we generated over $418 million in adjusted free cash flow. That is after cash capital expenditures, cash interest and cash taxes. The strong cash flow generated by our business has provided significant flexibility to support brand investments and shareholder returns. Since we first initiated the program back in late 2010, we have allocated approximately $554 million towards share repurchases ahead of a $70 million equity raise completed in July of last year. We do believe Denny's is a durable business focused on the future. We recently transitioned to a more highly franchised model, which reduced business risk. Our proven revitalization strategies have been validated by a record of consistent performance prior to the pandemic, and we are confident that we will drive our brand forward with market share opportunities beyond the pandemic. With that, I'd like to turn to Slide 4, please. I'll spend a few minutes now discussing some high-level results for 2020 and our response to COVID-19, which led to those results. Slide 5, please. Full year 2020 domestic system-wide same-store sales were 69% of 2019 levels. Based on the outstanding balance of our credit facility and recent favorable amendments, we ended the year with approximately $82 million in available liquidity. Despite the extremely challenging environment, our franchisees had the confidence to open 20 new restaurants in 2020, including 4 in the fourth quarter, contributing to 1,650 global restaurants at year-end. Slide 6, please. In this dynamically changing environment, we have been focused on 4 key guest-centric themes: reassurance, value, comfort and convenience. I'll now touch on each of these. Move to Slide 7, please. We understand and appreciate that concerns around general health and the ability to have a safe restaurant dining experience will persist for some time. Therefore, it is important that we reassure our guests of a safe dining experience by consistently upholding our commitment to enhance cleanliness and sanitation procedures at all consumer touch points. We have used broadcast media messaging to not only highlight our enhanced safety procedures but also to communicate options for curbside pickup, contactless delivery, drive-up ordering and outdoor seating. Slide 8, please. Our second area of focus is value. Denny's is known for everyday value, and we believe value will remain important in this economic environment as guests seek to maximize the impact of their dollars on quality food options for the whole family. We understand that value comes in different forms. Our well-known $2 $4 $6 $8 Value Menu focused on price-driven value, it is a brand equity for Denny's. During the pandemic, we introduced and expanded a platform of bundled value shareable family packs, which offer a delicious, convenient and cost-effective way to feed a family of 4. We continue to feature abundant value products like the Super Slam, and we believe the convenience-based value of free delivery when ordering through our website or our mobile app has supported off-premise transactions and induced new customer trial. Slide #9, please. Our third area -- our third area of focus is comfort. We strive to ensure that Denny's is a place where our guests feel welcome and valued. Whether dining with a large family or as a party of one, we believe our guests view the Denny's experience as a time to build connections within an environment that is both inviting and comfortable. After issuing multiple streamlined menus, we began using a full core menu in November, providing more comfort food options even though the menu is 24% smaller than our pre-pandemic core menu. We launched a comparably sized new core menu last month that continues to feature our culinary innovation with new creations within our bowls and melts categories. Our operations team has also reinforced the critical need for comfort by reminding our entire system of the rules we live by, including the expectations that: number one, everyone is welcome to dine at Denny's; number two, everyone is treated like our favorite guest; and number three, everyone is shown kindness and respect. Our established heritage restaurant image has received consistently positive guest feedback largely due to its welcoming and relaxed feel. Despite the pandemic, our system completed 22 remodels in 2020, including 5 in the fourth quarter. In a period of dine-in restrictions, our operators have provided our guests with comfortable outdoor dining solutions as well. On to Slide 10, please. Our fourth area of focus is convenience. We believe guests will continue to expect technology to bring enhanced value to their dining experience, whether in our restaurants or through off-premise options like our Denny's on Demand platform. We have also implemented curbside pickup parking signs to deliver a better experience for our guests and team members while promoting guest-controlled digital ordering from the parking lot. We recently launched Apple Pay for our Denny's on Demand iOS mobile app, and we continue to promote outdoor dining solutions where permitted. Slide 11, please. We were extremely fortunate to already have established off-premise business through our Denny's on Demand platform prior to the pandemic. Average weekly sales for all off-premise transactions have more than doubled since the beginning of the pandemic, growing from approximately $4,000 per week per store a year ago to over $8,000 per week per store through the first 2 weeks in fiscal February 2021. We've been extremely pleased with our ability to sustain this higher level of off-premise sales as dine-in transactions have evolved. Move to Slide 12, please. We are also excited that our test-and-learn culture has yielded 2 virtual concepts that we believe will provide additional market share opportunities. The first of these is called the Burger Den. This new concept allows us to focus on one of our strengths, great burgers, with new varieties using ingredients already in our pantry. Test results have been favorable and suggest a high degree of incremental transactions. Over half our domestic locations have signed up to participate in a 3-phase rollout. 2 phases launched in February, and we anticipate completing the rollout this month. Slide 13, please. The second virtual concept called The Melt Down features handcrafted sandwiches using high-quality ingredients and unique flavor combinations. While this brand is able to utilize approximately 70% of items currently in our pantry, our innovative culinary team has crafted new craveable products such as the Giddy-Up Melt, featuring brisket burnt ends, sharp white cheddar, creamy barbecue sauce and pickles on a grilled artisan bread; and the Talkin' Turkey Melt, made with turkey, bacon, tomatoes, provolone cheese and creamy herb spread. Test results have been similarly encouraging, and over half of our domestic locations expect to go live with The Melt Down in the spring. These brands provide opportunities at dinner and late night to leverage underutilized labor and kitchen space. In fact, over 70% of transactions from The Burger Den occurred during the dinner and late night dayparts. Slide 14, please. We started 2020 delivering domestic system-wide same-store sales of over 2% through January and February before government restrictions on dine-in food service were implemented. Following a low of down 76% for the month of April, we experienced sequential monthly improvement in our same-store sales results to down 26% in October ahead of the latest wave and restrictions, which weighed on our December results. As dining room restrictions evolved, our scrappy franchise and company restaurant operators quickly responded by leaning into curbside initiatives and converting portions of parking lots and sidewalks into outdoor dining rooms where permitted. We have been encouraged by the sequential improvement in January and February as restrictions have started to ease once again. Domestic systemwide same-store sales for the first 2 weeks of February declined 25% compared to 2019, which is a significant improvement from December. As of February, 98% of our domestic system was open, including over 1,000 restaurants operating with open dining rooms. This is an increase of almost 25% from the end of December. Slide 15, please. However, we still only have approximately 1/3 of our domestic franchise restaurants operating 24 hours a day, 7 days a week. While we cannot control state and local restrictions and the related impact on our sales trends, we've been working diligently with our franchisees to analyze the incremental sales and profitability potential from expanding their operating hours. Domestic restaurants, which were opened 24 hours in the fourth quarter, experienced a same-store sales decline of approximately 23% compared to a decline of approximately 39% at domestic restaurants operating with limited hours. While we estimate that our overall same-store sales results in Q4 were impacted by approximately 8 to 10 percentage points from restaurants operating with limited hours, we were encouraged that sales through the first 2 weeks of fiscal February declined only 6% for the approximately 375 restaurants operating 24 hours with open dining rooms. Slide 16, please. Our franchisees were generally in good financial standing going into the pandemic, on average levered between 2x to 3x EBITDA. To support our franchise system during this challenging period, we provided over $15 million of royalty, advertising and rent relief, nearly half of which was forgiven through abatements. Additionally, we deferred scheduled remodels, extended new store development commitments and secured relief from key vendors and primary third-party lenders. And finally, we encouraged our franchisees to secure critical stimulus support through the Paycheck Protection Program, or PPP, as it's known, and 99% of all domestic franchise restaurants were successful. We are currently supporting our franchisees in their efforts to secure another round of PPP funding in connection with the latest approved stimulus, and we believe they will be successful again. From a cost savings perspective, we suspended nonessential travel and field meetings, placed holds on open positions, adjusted our company restaurant staffing, temporarily reduced compensation for our Board and multiple levels of management, furloughed approximately 25% of our restaurant support team members and, ultimately, separate about half of those. Additionally, we recognized approximately $2.6 million in tax credits associated with the CARES Act in 2020. We set forth to further fortify one of the strongest balance sheets in the industry by raising approximately $70 million in proceeds from a public offering of common stock during the third quarter. We subsequently paid down our credit facility with those proceeds. We also secured amendments to our credit facility, which temporarily weighed financial maintenance covenants through the first quarter of 2021, followed by the introduction of favorable covenant levels in the second and third quarters of 2021. And finally, we suspended share repurchases in February but look forward to an opportunity to return cash to shareholders beginning in the fourth quarter of 2021 in accordance with our recent amendments. Slide 17, please. We believe our conservative leverage philosophy going into the pandemic served us well. Proceeds from our successful refranchising strategy were used in part to pay down our credit facility, reducing our ratio of total debt to adjusted EBITDA to 2.7x at the end of 2019. We reduced the outstanding balance on our credit facility of $210 million as of year-end 2020, as indicated on the slide in front of you. After considering cash on hand, the remaining capacity in our credit facility and current liquidity covenants, we have approximately $82 million of available liquidity as of year-end 2020. The pandemic has affirmed for us the value of a conservative leverage philosophy. Prior to the pandemic, we would have targeted long-term -- longer-term leverage anywhere somewhere between 3x and 4x adjusted EBITDA. We are currently more comfortable with a range of between 2x and 3x. I'd like to move on to Slide 18. Sound strategies and effective leadership teams with a long-term focus have contributed to Denny's 67 years of endurance. I will now share a few key components of our ongoing brand revitalization as we look to the future. Slide 19, please. Our revitalization strategy has been focused on delivering a differentiated and relevant brand and consistently operating great restaurants through continual improvements in our food, our service and our atmosphere. Each playing a role in revitalization and same-store sales growth. Slide 20. We have been responding to our customers' desire for better quality and more craveable products by consistently improving our core menu since our revitalization efforts began in 2011. We have made improvements in our breakfast and lunch platforms, and we are starting to enhance our dinner category. We will continue to enhance our product quality across a smaller core menu aimed at simplifying menu complexities to improve speed and consistency. Moving to Slide 21. We have made investments in training talent, tools and strategies such as Ignite e-learning and our latest Delight and Make It Right service programs to drive further operational improvements and guest satisfaction. Close collaboration with our franchisees has led to a new and improved annual training process to drive improvements in speed of service and margins. Slide 22. Our Heritage remodel program represented by the images in the middle of this slide further reinforces the enhancements we have made to date in our food and service with dramatic improvements in our dining atmosphere. The program was launched at the start of 2014 after extensive testing with our franchisees. The Heritage remodels have consistently generated mid single-digit sales lifts, yielded attractive returns on investment and received positive customer feedback. After extensive testing with our franchisees prior to the pandemic, we started rolling out the next remodel prototype, which is represented in the images at the top of this slide. This new prototype, which we are calling Heritage 2.0, was developed based on consumer research and features more attention-grabbing exterior elements, relaxing neutral colors with vibrant accents, modernized booths and community tables to name a few. The Heritage 2.0 prototype is ready to go, and we believe remodels will be a tailwind for our brand for years to come as we relaunch this program on the other side of the pandemic. We're going to move to Slide 23 now. The refranchising initiative we completed in 2019 yielded development commitments for 78 domestic Denny's restaurants. While those have been delayed, we fully expect to bring those restaurants online in due course as economic conditions improve. At the same time, we believe our overbuilt industry will suffer an unfortunate and meaningful rationalization of seats due to the pandemic, largely at the expense of small independent full-service operators. While we don't celebrate this prediction, we believe brands that survive will have an opportunity to gain market share. We have a proven record of converting existing spaces into Denny's locations. In fact, over 60% of new Denny's restaurant openings since 2011 have been conversions. These less capital-intensive opportunities provide enhanced ROIs for franchisees, and our experienced development team is already assessing the landscape for future Denny's locations. Moving to Slide 24. The success of our brand initiatives is supported by an environment of strong collaboration with our franchise partners. Our executive team meets regularly with the Denny's Franchise Association Board, and we conduct joint Board meetings with the Denny's Board of Directors. Our brand advisory councils are comprised of management and franchisee leaders to address functional issues, functional areas of the business, including marketing, operations, supply chain, development and technology. These highly engaged advisory councils and the constant communication with the Denny's Franchise Association Board members have been critical in our ability to quickly adapt our business in this challenging environment. They will be equally critical as we drive our business forward beyond the pandemic. I'll now move to Slide 25. Since beginning our brand revitalization strategy in early 2011, we delivered 9 consecutive years of domestic system-wide same-store sales growth and steadily grew adjusted EBITDA as represented by the black trend line. Over the last 10 years, we've also generated over $418 million of adjusted free cash flow. That's after cash capital expenditures, cash interest and cash taxes. Our 2019 results included the impact from the sale of restaurants with our refranchising initiative, approximately $11 million related to the acquisition of real estate through the like-kind exchanges and cash taxes associated with the gain on sale of restaurants. Excluding these items, our adjusted free cash flow would have been approximately $60 million, delivering roughly $0.60 of adjusted free cash flow from every dollar of adjusted EBITDA. I'm going to move to Slide 26, please. So in closing, allow me to summarize our key investment highlights. Our brand revitalization efforts focused on enhancements to our food, service and atmosphere have yielded consistent same-store sales growth. While we're entering the middle stages of our revitalization, many brand-enhancing strategies yet remain, including ongoing product innovation, the expansion of our proven remodel programs and the launch of virtual brands such as The Burger Den and The Melt Down. Our global footprint is supported by strong domestic presence and a pipeline of domestic and international development commitments from our seasoned franchisees. Our highly franchised business, led by our experienced management team, generates strong cash flows, allowing us to generate compelling shareholder returns. And finally, Denny's is a durable business focused on the future with a lower risk, highly franchised business model, which is supported by the following: proven revitalization strategies, a pattern of consistent financial performance leading into the pandemic and a well-fortified balance sheet equipped to whether current challenges and take advantage of opportunities that will exist on the other side of the pandemic. And with that, I want to thank you, and thank you for your interest in Denny's and happy to take some questions at this point, Dennis, for Robert and me.

Great. Terrific. Thanks, Mark, for that overview and update on the business and the opportunities ahead. I think I speak for probably many that are listening on the webcast that some of those pictures made me quite hungry. So I appreciate you sharing that. And maybe if we could start, I have some questions and have gotten some e-mails across as well. Maybe starting with the revitalization efforts, and you've improved most of the core menu at this point through that process with a focus on quality and differentiation. Can you talk about the customer response to those efforts to date? Have you gained new customers? Has this frequency increased as a result? And the second part to that, I think you've highlighted dinner and some other opportunities from here and where you could still go. But maybe a little more detail on the opportunities that still lie ahead for that revitalization process.

Dennis, this is Robert. Yes, great question, and thank you for that. Coming through the pandemic, it was really kind of a bifurcated goal with regard to our menu strategy. One, simplifying the menu. So as we came through the pandemic, it was easier for our cooks to execute upon that. And we -- during the heart of the pandemic, we had really slimmed down that menu to something very dramatic. It is something that you could see on one back and forth piece of paper. It works well. It did allow for ease of execution and ease of the supply chain through that. Again, when you're -- when your volumes are moving around pretty dramatically, keeping the supply chain stocked appropriately proved to be a challenge. And limiting the SKUs that you were dealing with was clearly something that we were looking to achieve. But then as we kind of work through the pandemic and got to the back part of the year and as we move now into 2021, we are really focused on a new core menu and it's about 75% of the items that are on that menu prior to a menu that you would have seen prior to the pandemic. And we're really focused upon, as you would expect, items that really encourage new trial within our restaurants. So we just launched into a recently new menu and we have launched into a series of new melts and bowls. To give you a sense, one of them is the Big Dipper Melt that is on the core menu, a kind of pulled roast beef, that pot roast, Swiss cheese on Texas toast to serve with a side of au jus, really just a hearty sandwich. That's coupled with the Nashville Hot Melt, the Chick 'N' Shroom Melt. And that really kind of leads into the concept that you mentioned there about having capacity at our dinner and late night dayparts. Those are plates that will play into that space, along with the new bowls that we have launched, the Chicken Addiction Bowl and the Mama D's Pot Roast Bowl. Again, those plates and the way the consumer wants to eat these days, right, bowl meals are really on trend with the consumer. So we're focused on providing what our consumer is looking for as we move back into it. One of my favorite actually is what we're calling the Signature Skookie, which is basically a hot chocolate chip cookie with ice cream and hot caramel sauce. So they're all just fantastic plates. And again, as you think about it, as we maneuver through the pandemic, we're first trying to figure out how to execute when at the depth of this, 80% of our units were -- or we had 80% of our same-store sales loss and we have since migrated back to down 25% in February. The management of that, again, through menus -- through ensuring that we could execute it and keep the supply chain filled now to the stages of luring our consumers back to try us. And that's really what the opportunity is, right, with all of the rationalization of the seats in the market, trying to garner new trial of the Denny's restaurant brand. And we have many core products that remain. Our buttermilk pancakes are wonderful. We're the largest procurers of buttermilk in the U.S. right now, and that was a change that we made several years back to really make that all out of fresh ingredients. So that existed several years ago. That will be a pull forward kind of juxtaposed with these new products that play to these dinner and late night dayparts. So we're really excited about this as restrictions ease and we can launch into these new products.

That's great, Robert. Appreciate that color. I've gotten a bunch of e-mails on a couple of topics that I want to touch on. Maybe just first on off-premise. And Mark, you spoke to essentially average weekly off-premise more than doubling or doubling -- more than doubling from pre-pandemic levels. What more can you kind of share around where that goes as we get to the other side of the COVID situation? I know it's a question that it's hard for the industry to kind of really wrap our arms around. But how are you thinking about that based on what you've seen to date, depending on where capacity is right now, et cetera?

Yes. Thanks, Dennis. I think on the off-premise side, this is Mark. I -- as we outlined, it obviously doubled during the pandemic. And when you look at the latest -- sorry, the latest numbers there, we've really held on to that increase, which is obviously encouraging. And the question that was asked about where we see that going from here and the impact as more and more dining rooms open up or the capacity is increased in dining rooms, the part -- I mean, we like a couple of things about the off-prem that we think is long-term beneficial. One is we've been able to attract, I would say, a younger customer base. And so about 60%, I think, of our customers in that off-prem category are in that 18 to 44 age bracket range. So again, it allows us to touch another part of the U.S. demographic that we really appreciate and certainly appreciate the fact that they're strong users of Denny's. I think the second part for us is, obviously, we've doubled the off-prem, and this is before there's really any substantial enhancement in there from these virtual brands. And we're obviously very excited. We're about to roll the final stage of Burger Den as we outlined, and we've obviously got The Melt Down coming next. But again, we view those as some pretty sticky options here as far as potentially driving that business even more forward further out. And obviously, we've been receiving a lot of questions about the success and test of those virtual brands. At this point in time, we've not disclosed that publicly. We may provide a little bit more information on our upcoming earnings call after Q1 on that. But again, our view is that -- I'd say the other part that there's so many learnings that come out of a crisis situation. And unfortunately, the pandemic has been just a tragic situation for so many. But I look at the expertise around off-prem that's been enhanced within the Denny's brand, the endorsement coming from our franchise system, the support coming from our IT group, the support that's coming from our third-party providers. And I think -- look at the progress that's made in the last 12 months in that particular category of our business, it's pretty exciting. And again, we launched Denny's on Demand less than 4 years ago, late spring 2017. So we've made great progress there. And I think we'll continue to make progress in that category for us.

No, no, no. That's great. And you mentioned the virtual brands there, and then you talked about it on your prepared remarks and presentation and recognizing there's more to come that you folks are going to share on that in coming months. Anything more you can share right now, just as far as, ultimately, the opportunity for the 2 brands? And thus far, you kind of talked about where it's rolling across the system. How much further you think you can go beyond that? Anything additional on future brands? I mean, how are you -- sort of how many additional you could potentially bring to market? So I'm not sure if there's anything else that you're able to share on that opportunity at this point.

Right. And again, we talked about the fact that both of those brands, each one of them will be rolled to a little -- probably a little bit more than half of our system. And again, Burger Den is nearly done with full rollout there. But I think one of the questions we received earlier today, Robert, was about the Denny's brand association with these virtual brands. And so you spoke to that and whether the Denny's logo, the Denny's branding actually is affiliated with Burger Den and Melt Down. You may want to speak to that and why we've decided to do that.

Yes, Dennis. So we -- to be very transparent, we have the moniker with regard to both the Burger Den and The Melt Down have been labeled with the Crafted By Denny's labeling in the middle of the logo. It is clearly in a smaller font, but in the spirit of being transparent, and the reality is, is we have these 2 brands, and they leverage exactly what we wanted them to leverage, right? So we were very intentional about why these 2 brands were the ones that were brought to market. We have experience with both burgers. Our premium burgers are 6.6 ounce patties hand smashed on the grill. We had that platform prior to launching into The Burger Den, and we just leveraged that across, so across into this new brand but then amped up the build. So they're -- they would be nontraditional builds. So they're beyond a mushroom Swiss burger or a double cheese burger. There's lots of mozza burgers with mozzarella sticks in marinara sauce on a burger build. So again, we've leveraged core competencies. Very similar to The Melt Down, we have made melt sandwiches for quite some time. Those hot, warm sandwiches, cheese, with the ooey-gooey cheese on them. So you're looking -- think about the Grand Slamwich. Think about the Moons Over My Hammy. So it's a core competency of ours. And they play into the space, that dinner and late night daypart. I talked a little bit about that with the core menu. These also play into that dinner and late night space where we have capacity, where the cooks have the capacity to cook these products. 70% of the burgers that come through The Burger Den right now are in the dinner and late night dayparts. So we were very intentional about those 2 brands that we rolled out here in the early part, particularly The Burger Den of Q1. The Melt Down will be more in Q2 of this year. And while we have -- we clearly, as you would expect, contemplate other virtual brands, we just don't know if they'll ever come to fruition. Again, we're leveraging core competencies and leveraging dayparts, and that will be key to -- if and when we ever do anything else in that space.

Yes, Dennis, I mean -- it's Mark. We've always had great burgers to Robert's point. I think this just enhances that category for us. But I would describe these melts, too, as just craveable with a giant capital C. I mean their outstanding product and we're really excited about it. And like Robert said, they enhance our dinner and late night business, which is important to us. And that's a business where we've seen a lot of competitors actually shorten their operating hours. And so again, that later on business, early evening, late night business for us, we see that as a great opportunity for the Denny's brand.

That's great. I know in talking to some of your larger franchisees across the system, there's a lot of excitement around those brands. So good to see. Maybe if we kind of shift over to the breakfast daypart and you talked about some of the drivers for you at that daypart. As we think about moving throughout the year and maybe as mobility comes back, certainly, that's a tailwind for your business, of course. Depending on what -- on the competition and how much they lean in on breakfast with marketing or promotions or whatever it might be, how do you think about the return of the daypart for the industry? What that means from a competitive standpoint? And if there's anything that you folks have to do differently? If there is a whole lot more focus from the industry and on other brands on the daypart as things reopen.

So it's another good question category for us. We were in a discussion earlier today about the -- obviously, our QSR competitors and their focus on breakfast. And I won't mention any specific names except one. But you recall that when McDonald's rolled out all-day breakfast several years ago, they began to test it in certain markets. And one of the markets they tested it in was the San Diego market where we do have a strong penetration and presence as far as the Denny's brand. And I think we saw some initial impact there. But ultimately, what we saw is it raised awareness of breakfast as a daypart. And we certainly view -- McDonald's is obviously a terrific brand as all our competitors are. But I think our view was raising awareness of breakfast is a positive thing. We certainly believe that within our Heritage remodel scheme in the atmosphere and now Heritage 2.0 coming online, that we offer a different experience versus QSR, a full-serve experience and we continue to believe that breakfast, obviously, is going to be one of our core aspects. But I believe that, that awareness level is going to go up, and that probably long-term will continue to benefit Denny's.

Yes. I know that makes a lot of sense. And I wanted to touch -- we have about 6 or 7 minutes or so, and then a few questions that have come in via e-mail that I want to get to. I do just want to touch on value. And certainly, the brand has seen a lot of success with the value strategy that you have. As we kind of look ahead, I think of the $2 $4 $6 $8 Value Menu, I think you recently said it was about 15% or so of guests are visiting maybe because of it. How do you think about that going forward? The optimal sort of value part of the menu? And just the situation that the consumer is in and will be in this year? And ultimately, how you think about your strategy there and your positioning from a value perspective, looking ahead?

Hey, Dennis. This is Robert again. Value has really been core to Denny's since its inception and remains an integral part of what we provide to our consumer, that value play. So whether it's the $2 $4 $6 $8 Value Menu or the Super Slam, the $6.99 Super Slam or the meal packs that were developed throughout the pandemic that were -- that could feed a family of 4, the reality is, is that has been a key part of what we have done. And it will continue to be so, right? I don't think that we can get away from that, although we continue to evolve that $2 $4 $6 $8 Value Menu in some places now such in the higher-wage markets, where our menu pricing strategies are higher. It is a starting-at pricing on that menu. So you can have $4.49 pricing or $4.99 pricing. So we have been -- we have evolved it even within the pricing strategy itself or the items that are offered on that menu. But the reality is that 15% to 20% of our guests are always looking for some type of price value. Conversely, though, that means 80% of our guests are just looking for that abundant value or that quality value. And many of the plates that we offer, our signature breakfast plates, for instance, or our pancakes, I think our pancakes are absolutely fantastic. I think the Cinnamon Crunch Pancakes are wonderful. The Banana Berry Pancakes are wonderful. I just think while the value place will always play a place and we've leveraged those during the appropriate time of the year, typically, as we move in after the holidays and the first part of the year, that tends to be a highly value-oriented season. That back-to-school time frame has always been a value-oriented season late August into September. I think that will remain consistent, and we will have to continue to evolve to ensure that our price value represents exactly what the consumer is seeking. But the converse is absolutely true, too, where we have to have quality value and abundant -- and abundant value for those that are not looking for that price value. And I think that balance will perpetuate as we move beyond the pandemic.

Yes. That's great color, Robert. Appreciate that. I did get a question on kind of development, and maybe I'll summarize it. Just as it relates -- you spoke to it some on the presentation. As far as what the pipeline looks like from a new restaurant, a new opens perspective and thinking about markets on -- that look most attractive, maybe you could just kind of talk a little bit about the opportunity there from a new opens perspective. U.S., what you want to touch on and in international, just how you're thinking about that looking ahead?

Yes, happy to, Dennis. It's Mark. I mean, I think, again, I'll echo some of my comments and expand on those. We -- we've been very fortunate from a development standpoint with the kind of support we receive from our franchise community. So again, in the domestic business, we have between 75 and 80 development commitments that came out of the refranchising strategy of 2018 and '19. The normal development commitment are usually works from a timing standpoint that the first store after a refranchising transaction closes, that first store in the development agreement probably opens 18 to 24 months out. And then if it's a multi-store development agreement, the next store, the second store would open probably 12 to 18 months after the first store opens. So again, if you think about the time line, those development agreements stretch on into '22 and then on -- really ramp up '23 and beyond. And as I mentioned, we have postponed those development agreements and working with our franchise community, given the stress that they were going through the pandemic. So on the domestic side, we've got existing development agreements, and that's before we talk about these conversion opportunities and really driving growth in these areas where there's facilities available to convert and make into a brand-new Denny's. On the international side, we ended the year with just under 150 locations, I think it was 146 range. And again, we've got the development agent agreements that exist with our Canadian, our large Canadian franchisee and our Philippines franchisee. So those are development agents where we basically split the fees, they bear the cost and they find additional and new franchisees in those parts of the world. But again, we've seen some great growth on the international side. We believe the domestic business has significant opportunity. And as I mentioned, we have existing development agreements in the U.S. that are close to 80 in number that came out of the refranchising strategy back in '18 and '19.

That's great. I appreciate that, Mark. And then actually, we're actually out of time. But Mark and Robert, I really want to thank you very much for taking the time, walking through the latest update and the latest opportunities for the business. And also, thanks to Curt and to Kayla, I appreciate you folks being here. Great story. And thanks very much for your time, guys.

Thank you, Dennis.

Yes, I appreciate the opportunity, Dennis.

Great. Thanks, folks.