Vance Chang: John, I’ll take it. There is still Flip related that just sits in franchise operations. It’s not part of G&A.
Nick Setyan: Got it. And so just so I can reconcile sort of the reiterated guidance with the software top line. So the G&A guidance and the EBITDA guidance you guys gave in Q1, it already incorporated the Flip closure or the Flip charge?
Vance Chang: No, it did not.
Nick Setyan: Okay.
Vance Chang: Did the guidance reflect that? No.
Nick Setyan: Okay. Okay. The other question is around the IHOP gross margin. It seems like bad debt Q2 versus Q1, I think it’s – is that sort of the new run rates or is there anything special in Q2 that we should be aware of and we should think about? I think the gross margin going back up again to above 80% for the rest of the year on the IHOP side.
John Peyton: The IHOP gross margin is impacted by – for this quarter, it’s primarily by sort of the dry mix costs and so the cost of goods sold for that, that’s – that’s flowing through our franchise expenses. So that’s really driving the gross margin for this quarter. Another you mentioned bad debt, this applies to both brands. The bad debt for last year, this quarter or lower than normal because we had some recovery of bad debt. So this quarter is more reflective of normal runway margin level. Is that helpful?
Nick Setyan: Yes. Yes. So it is more reflective of sort of a go-forward margin level.
John Peyton: Yes. Put aside the dry mix piece, which is little bit volatile given Russia and et cetera, but otherwise, it’s a fairly normal quarter. Yes.
Nick Setyan: Okay. Thank you very much.
Operator: Thank you. One moment please. Our next question comes from the line of Brian Mullan from Piper Sandler. Please proceed.
Brian Mullan: Hey, thank you. Just question I have, net new opening guidance was reiterated at 45 to 60 units. Can you just speak to your degree of confidence you’ll be able to achieve that this year on a net basis? And related to that, maybe could you just talk about how much construction costs inflation taking place and how you’re getting the franchisees to overcome that and go ahead and keep developing, at least in the U.S.?
John Peyton: Yes, thanks Brian. I suggest Jay.
Jay Johns: Yes, I was going to say, this is Jay. Thanks Brian. Look on the net development number, obviously we reiterated guidance. We’re still confident within that range. Obviously you look at the numbers, you may question how you’re going to get there, et cetera. But as in many years, a lot of the openings are back loaded into the year and it tends to pick up as the year goes on. So we are reiterating the guidance and we think that we will still get there. So to the second question, I think the key for us is we have, it is an expensive time to do direction out there. And the ways we have worked with our franchisees to try to help them with that is number one is we have multiple ways they can develop. It’s not just a full size traditional restaurant.
We have non-traditional opportunities for them. We’ve developed a small prototype that they can develop, which cuts out on costs. And most importantly, we’ve really unlocked this ability to do conversions pretty quickly. That’s the other thing that actually helps you speed up and you can find a prop and within the same year you can open that restaurant instead of trying to source new ground and do a complete buildup, et cetera. So conversions are a much better speed to market way to get your development, and they’re also much more economical. And as you heard John say at the beginning, we’ve had about 75% of our new openings and our pipeline that are these conversions that are reusing a previously existing property of some sort.
Brian Mullan: Okay. Thanks a lot.
Operator: Thank you. One moment, please. Our next question comes from the line of Andrew Wolf of CL King. Please proceed.
Andrew Wolf: Thanks. Good morning. Wanted to ask about kind of franchise behavior and how you work with them. With missionary background, as a few things, I’m sure there are cumulative costs to run their restaurants, including ingredients and labor and so on have been up more than the AUV since 2019. So, like most other restaurants, their margins are down, their profit margins. So, how do you work with them to kind of balance them wanting to maybe made a little more whole, keeping for costs and maybe even their price increases even in a deflationary environment, to widen their profit margins versus what – at least in the short run is probably more in the interest of a franchisor, which is to promote and get the sales up. So could you just tell us about, what is sort of the current state of the franchisees, kind of their mindset and how you work with them on that?
