Dine Brands Global, Inc. Reports Third Quarter 2022 Results

Applebee’s and IHOP Post Seventh & Sixth Consecutive Positive Comparable Restaurants Sales Quarters, Respectively

GLENDALE, Calif., November 02, 2022--(BUSINESS WIRE)--Dine Brands Global, Inc. (NYSE: DIN), the parent company of Applebee's Neighborhood Grill + Bar® and IHOP® restaurants, today announced financial results for the third quarter of fiscal 2022.

"The third quarter reflected Dine’s collective strength and resiliency. Despite persistent economic headwinds, our performance demonstrated outstanding execution of our plan and our deep commitment to deliver on our strategy and create shareholder value," said John Peyton, chief executive officer of Dine Brands Global, Inc.

Vance Chang, chief financial officer, added, "Our results continued to display the strength of our asset-light business model. With less than one quarter remaining in 2022, we have narrowed our EBITDA and G&A guidance to better incorporate our year-to-date progress and our prospects for the remainder of the year."

Domestic Restaurant Sales for the Third Quarter of 2022

  • Applebee’s year-over-year comparable same-restaurant sales increased 3.8% for the third quarter of 2022. Off-premise sales accounted for 24.2% of sales mix, representing per restaurant average weekly sales of approximately $12,800.

  • IHOP’s year-over-year comparable same-restaurant sales increased 1.9% for the third quarter of 2022. Off-premise sales accounted for 20.4% of sales mix, representing per restaurant average weekly sales of approximately $7,700.

Third Quarter of 2022 Summary

  • Total revenues for the third quarter of 2022 were $233.2 million compared to $228.7 million for the third quarter of 2021. The increase was primarily due to positive comparable same restaurant sales growth at both brands.

  • Consolidated adjusted EBITDA for the third quarter of 2022 was $63.6 million, slightly ahead of the $63.3 million for the third quarter of 2021. The increase in revenues was offset by ongoing inflation across our company restaurants and higher franchise-level expenses. (See "Non-GAAP Financial Measures" and reconciliation of GAAP net income to consolidated adjusted EBITDA.)

  • General and Administrative ("G&A") expenses for the third quarter of 2022 were $46.3 million compared to $43.7 million for the third quarter of 2021. The variance was primarily due to continued strategic growth investments and a return to normalized operations, including higher professional services expenses and travel-related costs to support franchisees.

  • GAAP earnings per diluted share of $1.32 for the third quarter of 2022 compared to earnings per diluted share of $1.33 for the third quarter of 2021. The variance was primarily due to higher franchise, company restaurant and G&A expenses, offset by increased revenues and lower share count.

  • Adjusted earnings per diluted share of $1.66 for the third quarter of 2022 compared to adjusted earnings per diluted share of $1.55 for the third quarter of 2021. The variance was primarily due to lower share count. (See "Non-GAAP Financial Measures" and reconciliation of GAAP earnings per diluted share to adjusted earnings per diluted share.)

  • Development activity by Applebee’s and IHOP franchisees for the third quarter of 2022 resulted in the opening of 10 new restaurants and the closure of 11 restaurants.

First Nine Months of 2022 Summary

  • Total revenues for the first nine months of 2022 were $701.4 million compared to $666.5 million for the first nine months of 2021. The increase was primarily due to strong comparable same restaurant sales growth at both brands.

  • Consolidated adjusted EBITDA for the first nine months of 2022 was $194.9 million. This compares to $193.2 million for the first nine months of 2021. The increase was primarily due to strong comparable same restaurant sales growth at both brands offset by strategic growth investments as well as higher expenses associated with a return to normal operations. (See "Non-GAAP Financial Measures" and reconciliation of GAAP net income to consolidated adjusted EBITDA.)

  • G&A expenses for the first nine months of 2022 were $131.9 million compared to $122.9 million for the first nine months of 2021. The variance was primarily due to continued strategic growth investments and a return to normalized operations, including higher travel-related costs and professional services expenses to support franchisees.

  • GAAP earnings per diluted share of $4.22 for the first nine months of 2022 compared to earnings per diluted share of $4.52 for the first nine months of 2021. The variance was primarily due to higher income tax expense and an increase in G&A expenses, partially offset by an increase in gross profit and a decrease in closure and impairment charges.

  • Adjusted earnings per diluted share of $4.85 for the first nine months of 2022 compared to adjusted earnings per diluted share of $5.22 for the first nine months of 2021. The variance was primarily due to higher income tax expense and an increase in G&A expenses, partially offset by an increase in gross profit and lower share count. (See "Non-GAAP Financial Measures" and reconciliation of GAAP earnings per diluted share to adjusted earnings per diluted share.)

  • Cash flows from operating activities for the first nine months of 2022 were $63.5 million. This compares to cash provided from operating activities of $145.6 million for the first nine months of 2021. The decline was primarily due to the change in working capital, resulting from payments related to higher incentive compensation earned in 2021 but paid in the first quarter of 2022, one-time collection of franchisee deferrals in the first nine months of 2021 (that did not recur in 2022) and the timing of marketing disbursements.

  • The Company had adjusted free cash flow of $52.4 million for the first nine months of 2022. This compares to adjusted free cash flow of $146.1 million for the first nine months of 2021. (See "Non-GAAP Financial Measures" and reconciliation of the Company’s cash provided by operating activities to adjusted free cash flow.)

  • Development activity by Applebee’s and IHOP franchisees for the first nine months of 2022 resulted in the opening of 35 new restaurants and the closure of 30 restaurants.

Key Balance Sheet Metrics (as of September 30, 2022)

  • Total cash, cash equivalents and restricted cash of $424.2 million, of which $355.3 million was unrestricted cash.

  • Leverage ratio of 3.90x compared to 4.27x as of June 30, 2022.

  • Debt service coverage ratio was 4.15x compared to 4.31x as of June 30, 2022.

  • Capacity under the revolving credit facility of $221.6 million available, with a $100 million draw down in August 2022 and $3.4 million pledged.

GAAP Effective Tax Rate

The Company's effective tax rate was 26.9% for the nine months ended September 30, 2022, as compared to 16.4% for the nine months ended September 30, 2021. The effective tax rate for the nine months ended September 30, 2022 was higher than the rate of the prior comparable period primarily due to the recognition of excess tax benefits on stock-based compensation related to the departure of the Company’s previous chief executive officer in the first quarter of 2021.

Capital Return to Shareholders

The Company repurchased 140,997 shares of its common stock in the third quarter of 2022 for a total of approximately $9.5 million, with $113.6 million repurchased through the first nine months of 2022.

On September 9, 2022, the Company announced that its Board of Directors declared and approved a quarterly cash dividend of $0.51 per share of common stock. The dividend was paid on September 30, 2022, to the Company’s stockholders of record at the close of business on September 20, 2022.

Financial Performance Guidance for 2022

The Company adjusted a number of its fiscal 2022 guidance items:

  • Domestic development activity by Applebee’s franchisees of between 5 and 15 net fewer restaurants is reaffirmed.

  • Domestic development activity by IHOP franchisees and area licensees is now expected to be between 35 and 45 net new openings (compared with between 50 and 65 restaurants as was previously guided). The change is primarily due to new openings being moved to 2023 as a result of permitting delays and supply chain issues.

  • Consolidated adjusted EBITDA range is narrowed to between approximately $243 million and $248 million, versus the previous $235 million and $250 million range. This new guidance reflects our third quarter performance and our planned strategic investments in the fourth quarter, along with the impact from refranchising our company-owned restaurants.

  • G&A expenses are now expected to be reduced to a range of between approximately $185 million and $190 million versus the $188 million and $198 million range provided earlier in the year. This total includes non-cash stock-based compensation expense and depreciation of approximately $30 million. This range reflects incremental investments in technology and operational initiatives as well as unit development and is inclusive of G&A expenses related to the company restaurants segment.

  • Capital expenditures is left unchanged in a range between $33 million and $38 million, reflecting incremental investments in the business to support sustainable growth.

Third Quarter of 2022 Earnings Conference Call Details

Dine Brands will host a conference call to discuss its results on November 2, 2022 at 9:00 a.m. Eastern time. To access the call, please click this conference call registration link, and you will be provided with dial in details. A live webcast of the call, along with a replay will be available for a limited time at https://investors.dinebrands.com/investor-overview.

Participants should allow approximately ten minutes prior to the call’s start time to visit the site and download any streaming media software needed to listen to the webcast. An online archive of the webcast will also be available on Events and Presentations under the Investors section of the Company’s website.

About Dine Brands Global, Inc.

Based in Glendale, California, Dine Brands Global, Inc. (NYSE: DIN), through its subsidiaries, franchises restaurants under both Applebee's Neighborhood Grill + Bar® and IHOP® brands. With over 3,400 restaurants combined in 16 countries and 338 franchisees as of December 31, 2021, Dine Brands is one of the largest full-service restaurant companies in the world. For more information on Dine Brands, visit the Company’s website located at www.dinebrands.com.

Forward-Looking Statements

Statements contained in this press release may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You can identify these forward-looking statements by words such as "may," "will," "would," "should," "could," "expect," "anticipate," "believe," "estimate," "intend," "plan," "goal" and other similar expressions. These statements involve known and unknown risks, uncertainties and other factors, which may cause actual results to be materially different from those expressed or implied in such statements. These factors include, but are not limited to: uncertainty regarding the duration and severity of the ongoing COVID-19 pandemic and its ultimate impact on the Company; the effectiveness of related containment measures; general economic conditions, including the impact of inflation; our level of indebtedness; compliance with the terms of our securitized debt; our ability to refinance our current indebtedness or obtain additional financing; our dependence on information technology; potential cyber incidents; the implementation of restaurant development plans; our dependence on our franchisees; the concentration of our Applebee’s franchised restaurants in a limited number of franchisees; the financial health of our franchisees; our franchisees’ and other licensees’ compliance with our quality standards and trademark usage; general risks associated with the restaurant industry; potential harm to our brands’ reputation; possible future impairment charges; the effects of tax reform; trading volatility and fluctuations in the price of our stock; our ability to achieve the financial guidance we provide to investors; successful implementation of our business strategy; the availability of suitable locations for new restaurants; shortages or interruptions in the supply or delivery of products from third parties or availability of utilities; the management and forecasting of appropriate inventory levels; development and implementation of innovative marketing and use of social media; changing health or dietary preference of consumers; risks associated with doing business in international markets; the results of litigation and other legal proceedings; third-party claims with respect to intellectual property assets; our ability to attract and retain management and other key employees; compliance with federal, state and local governmental regulations; risks associated with our self-insurance; natural disasters, pandemics, epidemics, or other serious incidents; our success with development initiatives outside of our core business; the adequacy of our internal controls over financial reporting and future changes in accounting standards; and other factors discussed from time to time in the Corporation’s Annual and Quarterly Reports on Forms 10-K and 10-Q and in the Corporation’s other filings with the Securities and Exchange Commission. The forward-looking statements contained in this press release are made as of the date hereof and the Corporation does not intend to, nor does it assume any obligation to, update or supplement any forward-looking statements after the date hereof to reflect actual results or future events or circumstances.

Non-GAAP Financial Measures

This press release includes references to the Company's non-GAAP financial measure "adjusted net income available to common stockholders", "adjusted earnings per diluted share (Adjusted EPS)", "Adjusted EBITDA" and "Adjusted free cash flow." Adjusted EPS is computed for a given period by deducting from net income or loss available to common stockholders for such period the effect of any closure and impairment charges, any gain or loss related to debt extinguishment, any intangible asset amortization, any non-cash interest expense, any gain or loss related to the disposition of assets, and other items deemed not reflective of current operations. This is presented on an aggregate basis and a per share (diluted) basis. Adjusted EBITDA is computed for a given period by deducting from net income or loss for such period the effect of any closure and impairment charges, any interest charges, any income tax provision or benefit, any non-cash stock-based compensation, any depreciation and amortization, any gain or loss related to the disposition of assets and other items deemed not reflective of current operations. "Adjusted free cash flow" for a given period is defined as cash provided by operating activities, plus receipts from notes and equipment contracts receivable, less capital expenditures. Management may use certain of these non-GAAP financial measures along with the corresponding U.S. GAAP measures to evaluate the performance of the business and to make certain business decisions. Management uses adjusted free cash flow in its periodic assessments of, among other things, the amount of cash dividends per share of common stock and repurchases of common stock and we believe it is important for investors to have the same measure used by management for that purpose. Adjusted free cash flow does not represent residual cash flow available for discretionary purposes. Additionally, adjusted EPS is one of the metrics used in determining payouts under the Company’s annual cash incentive plan. Management believes that these non-GAAP financial measures provide additional meaningful information that should be considered when assessing the business and the Company’s performance compared to prior periods and the marketplace. Adjusted EPS and adjusted free cash flow are supplemental non-GAAP financial measures and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with U.S. GAAP.

Dine Brands Global, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2022

2021

2022

2021

Revenues:

Franchise revenues:

Royalties, franchise fees and other

$

93,215

$

90,417

$

277,712

$

265,138

Advertising revenues

71,692

70,709

216,686

203,918

Total franchise revenues

164,907

161,126

494,398

469,056

Company restaurant sales

38,248

35,275

117,175

109,418

Rental revenues

29,207

31,273

87,080

84,797

Financing revenues

858

1,045

2,784

3,266

Total revenues

233,220

228,719

701,437

666,537

Cost of revenues:

Franchise expenses:

Advertising expenses

71,692

70,709

216,686

203,918

Bad debt credit

(77

)

(1,962

)

(523

)

(4,246

)

Other franchise expenses

8,649

6,922

24,402

20,197

Total franchise expenses

80,264

75,669

240,565

219,869

Company restaurant expenses

36,513

33,867

111,802

101,510

Rental expenses:

Interest expense from finance leases

740

822

2,254

2,677

Other rental expenses

21,268

23,645

63,720

63,359

Total rental expenses

22,008

24,467

65,974

66,036

Financing expenses

104

113

317

356

Total cost of revenues

138,889

134,116

418,658

387,771

Gross profit

94,331

94,603

282,779

278,766

General and administrative expenses

46,335

43,704

131,946

122,891

Interest expense, net

15,300

15,712

46,192

47,956

Closure and impairment charges

1,636

443

3,093

5,024

Amortization of intangible assets

2,664

2,664

7,994

8,015

Loss on extinguishment of debt

1,161

9

1,161

34

(Gain) loss on disposition of assets

(1,502

)

1,299

(3,032

)

1,436

Income before income taxes

28,737

30,772

95,425

93,444

Income tax provision

(7,789

)

(7,661

)

(25,665

)

(15,368

)

Net income

$

20,948

$

23,111

$

69,760

$

78,076

Net income available to common stockholders:

Net income

$

20,948

$

23,111

$

69,760

$

78,076

Less: Net income allocated to unvested participating restricted stock

(575

)

(502

)

(1,852

)

(1,920

)

Net income available to common stockholders

$

20,373

$

22,609

$

67,908

$

76,156

Net income available to common stockholders per share:

Basic

$

1.32

$

1.34

$

4.23

$

4.55

Diluted

$

1.32

$

1.33

$

4.22

$

4.52

Weighted average shares outstanding:

Basic

15,377

16,911

16,049

16,752

Diluted

15,403

16,971

16,079

16,858

Dividends declared per common share

$

0.51

$

$

1.48

$

Dividends paid per common share

$

1.02

$

$

1.88

$

Dine Brands Global, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

September 30, 2022

December 31, 2021

Assets

(Unaudited)

Current assets:

Cash and cash equivalents

$

355,288

$

361,412

Receivables, net of allowance of $4,205 (2022) and $4,959 (2021)

89,529

119,968

Restricted cash

52,517

47,541

Prepaid gift card costs

24,595

28,175

Prepaid income taxes

3,502

10,529

Other current assets

11,075

6,728

Assets held for sale

109,280

Total current assets

645,786

574,353

Other intangible assets, net

526,989

539,390

Operating lease right-of-use assets

298,102

335,428

Goodwill

247,002

251,628

Property and equipment, net

135,368

179,411

Deferred rent receivable

44,306

50,257

Long-term receivables, net of allowance of $5,498 (2022) and $6,897 (2021)

43,245

42,493

Non-current restricted cash

16,400

16,400

Other non-current assets, net

14,823

10,006

Total assets

$

1,972,021

$

1,999,366

Liabilities and Stockholders’ Deficit

Current liabilities:

Current maturities of long-term debt

$

100,000

$

Accounts payable

40,781

55,956

Gift card liability

126,161

165,530

Current maturities of operating lease obligations

65,174

72,079

Current maturities of finance lease and financing obligations

8,402

10,693

Accrued employee compensation and benefits

20,786

40,785

Accrued advertising

38,804

33,752

Dividends payable

6,919

Other accrued expenses

22,975

25,016

Liabilities held for sale

96,023

Total current liabilities

519,106

410,730

Long-term debt, net, less current maturities

1,281,318

1,279,623

Operating lease obligations, less current maturities

279,620

320,848

Finance lease obligations, less current maturities

31,439

59,625

Financing obligations, less current maturities

28,572

31,967

Deferred income taxes, net

74,681

76,228

Deferred franchise revenue, long-term

42,616

46,100

Other non-current liabilities

16,263

17,052

Total liabilities

2,273,615

2,242,173

Commitments and contingencies

Stockholders’ deficit:

Preferred stock, $1 par value, 10,000,000 shares authorized, no shares issued or outstanding

Common stock, $0.01 par value; shares: 40,000,000 authorized; September 30, 2022 - 24,966,452 issued, 15,682,061 outstanding; December 31, 2021 - 24,992,275 issued, 17,163,946 outstanding

250

250

Additional paid-in-capital

256,508

256,189

Retained earnings

81,179

35,415

Accumulated other comprehensive loss

(68

)

(59

)

Treasury stock, at cost; shares: September 30, 2022 - 9,284,391; December 31, 2021 - 7,828,329

(639,463

)

(534,602

)

Total stockholders’ deficit

(301,594

)

(242,807

)

Total liabilities and stockholders’ deficit

$

1,972,021

$

1,999,366

Dine Brands Global, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Nine Months Ended

September 30,

2022

2021

Cash flows from operating activities:

Net income

$

69,760

$

78,076

Adjustments to reconcile net income to cash flows provided by operating activities:

Depreciation and amortization

28,870

29,995

Non-cash stock-based compensation expense

12,128

8,572

Non-cash closure and impairment charges

2,975

4,949

Non-cash interest expense

2,210

2,146

Deferred income taxes

(1,376

)

(9,156

)

Deferred revenue

(3,773

)

(5,808

)

Loss on extinguishment of debt

1,161

34

(Gain) loss on disposition of assets

(3,032

)

1,436

Other

(3,816

)

947

Changes in operating assets and liabilities:

Accounts receivable, net

(734

)

8,398

Deferred rent receivable

5,951

4,629

Current income tax receivables and payables

7,361

4,544

Gift card receivables and payables

(16,752

)

(9,215

)

Other current assets

(5,948

)

(2,645

)

Accounts payable

(6,855

)

9,678

Operating lease assets and liabilities

(8,286

)

(13,994

)

Accrued employee compensation and benefits

(18,738

)

9,569

Accrued advertising expenses

5,052

32,232

Other current liabilities

(2,668

)

(8,791

)

Cash flows provided by operating activities

63,490

145,562

Cash flows from investing activities:

Principal receipts from notes, equipment contracts and other long-term receivables

13,502

14,795

Net additions to property and equipment

(19,495

)

(7,923

)

Proceeds from sale of property and equipment

3,908

946

Additions to long-term receivables

(1,069

)

Other .

(255

)

(357

)

Cash flows (used in) provided by investing activities

(3,409

)

7,461

Cash flows from financing activities:

Repayment of long-term debt

(9,750

)

Borrowing from revolving credit facility

100,000

Repayment of revolving credit facility

(220,000

)

Payment of debt issuance costs

(6,286

)

Dividends paid on common stock

(30,765

)

Repurchase of common stock

(113,862

)

Principal payments on finance lease obligations

(7,001

)

(7,772

)

Proceeds from stock options exercised

241

25,016

Repurchase of restricted stock for tax payments upon vesting

(2,601

)

(1,543

)

Tax payments for share settlement of restricted stock units

(955

)

(9,783

)

Cash flows used in financing activities

(61,229

)

(223,832

)

Net change in cash, cash equivalents and restricted cash

(1,148

)

(70,809

)

Cash, cash equivalents and restricted cash at beginning of period

425,353

456,053

Cash, cash equivalents and restricted cash at end of period

$

424,205

$

385,244

Dine Brands Global, Inc. and Subsidiaries
Non-GAAP Financial Measures
(In thousands, except per share amounts)
(Unaudited)

Reconciliation of net income available to common stockholders to net income available to common stockholders, as adjusted for the following items: Closure and impairment charges; amortization of intangible assets; non-cash interest expense; gain or loss on disposition of assets; other EBITDA adjustments; and the combined tax effect of the preceding adjustments, as well as related per share data:

Three Months Ended

Nine Months Ended

September 30,

September 30,

2022

2021

2022

2021

Net income available to common stockholders .

$

20,373

$

22,609

$

67,908

$

76,156

Closure and impairment charges

1,636

443

3,093

5,024

Amortization of intangible assets

2,664

2,664

7,994

8,015

Non-cash interest expense

774

719

2,210

2,146

(Gain) loss on disposition of assets

(1,502

)

1,299

(3,032

)