Dine Brands Global, Inc. Reports Strong Fourth Quarter and Fiscal 2018 Results

Applebee’s Fourth Quarter Same-Restaurant Sales Increase 3.5%

IHOP Fourth Quarter Same-Restaurant Sales Increase 3.0%

Company Declares and Raises First Quarter 2019 Dividend
New
Share Repurchase Authorization of $200 Million

GLENDALE, Calif.–(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 fourth quarter and fiscal 2018.

“Dine Brand’s strong performance in the fourth quarter and throughout
2018 is the result of a clear strategic vision and unwavering commitment
to sustainable growth. Both Applebee’s and IHOP have outperformed their
respective categories by delivering on comprehensive efforts to drive
their businesses and delight guests. The momentum we are seeing is
bolstered by meaningful improvements in the in-restaurant experience,
ongoing investment in guest-facing technologies, breakthrough marketing
and further extending our off-premise platforms for both brands. I am
very proud of the Dine teams, our franchisees and their operators and
team members for their contributions, hard work and commitment to a
multi-pronged strategy and our collective success,” said Steve Joyce,
Chief Executive Officer of Dine Brands Global, Inc.

Mr. Joyce continued, “As we head into 2019, we are very encouraged by
our outlook and growth opportunities. We have the right strategies in
place to drive long-term momentum and create additional value for our
shareholders.”

Key Highlights

  • Applebee’s comparable same-restaurant sales increased 3.5% for the
    fourth quarter of fiscal 2018, achieving the fifth consecutive quarter
    of sales growth.
  • IHOP’s comparable same-restaurant sales increased 3.0% for the fourth
    quarter of fiscal 2018, achieving the fourth consecutive quarter of
    sales growth.
  • IHOP’s reported system-wide sales for the fourth quarter of fiscal
    2018 increased 4.5% year-over-year to $863.7 million.
  • Gross profit for the fourth quarter of fiscal 2018 increased 41.9%
    year-over-year to $98.4 million.
  • GAAP earnings per diluted share of $1.47 for the fourth quarter of
    fiscal 2018 compares to $3.82 for the fourth quarter of fiscal 2017.
    The decline was primarily due to a tax benefit of $58.8 million in the
    fourth quarter of fiscal 2017, partially offset by a $29.0 million
    increase in gross profit.
  • Adjusted earnings per diluted share increased to $1.70 for the fourth
    quarter of fiscal 2018 compared to $0.48 in the fourth quarter of
    fiscal 2017. (See “Non-GAAP Financial Measures” below.)
  • GAAP net income for the fourth quarter of fiscal 2018 was $27.0
    million.
  • Consolidated adjusted EBITDA for the fourth quarter of fiscal 2018
    increased 66.7% year-over-year to $65.0 million (See “Non-GAAP
    Financial Measures” and reconciliation of GAAP net income to
    consolidated adjusted EBITDA.)
  • IHOP franchisees and area licensees developed 34 net new domestic
    restaurants in fiscal 2018, marking at least a decade of consecutive
    net domestic development.
  • For the twelve-month period ended December 31, 2018, the Company
    repurchased 478,839 shares of its common stock for a total cost of
    approximately $34.9 million and paid quarterly cash dividends totaling
    approximately $51.1 million.

Fourth Quarter of Fiscal 2018 Financial Highlights

  • GAAP net income available to common stockholders was $26.1 million, or
    earnings per diluted share of $1.47, for the fourth quarter of fiscal
    2018. This compares to net income available to common stockholders of
    $67.8 million, or earnings per diluted share of $3.82, for the fourth
    quarter of fiscal 2017. The decrease in net income was primarily due
    to a tax benefit of $58.8 million in the fourth quarter of fiscal
    2017. The tax benefit was mainly a result of the revaluation of our
    deferred tax assets and liabilities due to a future reduction in our
    corporate tax rate following the enactment of the Tax Cuts and Jobs
    Act tax legislation in December 2017. There was no similar tax benefit
    from the revaluation of our deferred tax assets and liabilities in the
    fourth quarter of fiscal 2018. This item was partially offset by an
    increase in gross profit of $29.0 million, which was due to lower bad
    debt expense and cash collections of previously unrecognized royalty
    revenues, a lower advertising fund deficit, increases in Applebee’s
    and IHOP domestic system-wide comparable same-restaurant sales and
    IHOP restaurant development.
  • Adjusted net income available to common stockholders was $30.3
    million, or adjusted earnings per diluted share of $1.70, for the
    fourth quarter of fiscal 2018. This compares to adjusted net income
    available to common stockholders of $8.6 million, or adjusted earnings
    per diluted share of $0.48, for the fourth quarter of fiscal 2017. The
    increase in adjusted net income was mainly due to higher franchise
    segment profit as the result of increases in Applebee’s and IHOP
    domestic system-wide comparable same-restaurant sales, lower bad debt
    expense and cash collections of previously unrecognized royalty
    revenues. These items were partially offset by an increase in general
    and administrative expenses. (See “Non-GAAP Financial Measures” below.)
  • General and administrative expenses were $45.3 million for the fourth
    quarter of fiscal 2018 compared to $40.0 million for the fourth
    quarter of fiscal 2017. The increase was primarily due to higher
    personnel-related costs and business acquisition costs related to 69
    Applebee’s restaurants acquired by the Company in December 2018. These
    items were partially offset by a decline in costs related to
    conferences and professional services.

Fiscal 2018 Financial Highlights

  • GAAP net income available to common stockholders was $77.6 million, or
    earnings per diluted share of $4.37, for fiscal 2018. This compares to
    a net loss available to common stockholders of $336.0 million, or a
    net loss per diluted share of $18.96, for fiscal 2017. The increase in
    net income was primarily due to non-cash impairment charges totaling
    $531.6 million in fiscal 2017 related to the write-downs of Applebee’s
    goodwill and other intangible assets as well as higher gross profit.
    The non-cash impairment charges were partially offset by a tax benefit
    of $85.6 million in 2017 primarily because of a fourth-quarter
    revaluation of our deferred tax assets and liabilities due to a future
    reduction in our corporate tax rate.
  • Consolidated adjusted EBITDA for fiscal 2018 was $230.6 million. This
    compares to adjusted EBITDA for fiscal 2017 of $221.3 million. (See
    “Non-GAAP Financial Measures” and reconciliation of GAAP net income to
    consolidated adjusted EBITDA.)
  • Adjusted net income available to common stockholders was $95.5
    million, or adjusted earnings per diluted share of $5.37, for fiscal
    2018. This compares to adjusted net income available to common
    stockholders of $72.5 million, or adjusted earnings per diluted share
    of $4.09, for fiscal 2017. The increase in adjusted net income was
    mainly due to lower income tax expense as well as higher franchise
    segment profit, driven by increases in Applebee’s and IHOP domestic
    system-wide comparable same-restaurant sales, lower bad debt expense
    and cash collections of previously unrecognized royalty revenues.
    These items were partially offset by an increase in general and
    administrative expenses. (See “Non-GAAP Financial Measures” below.)
  • General and administrative expenses were $166.7 million for fiscal
    2018 compared to $165.7 million for fiscal 2017. The increase was due
    to higher costs of stock-based and other incentive compensation,
    partially offset by a decline in professional services costs.
  • Cash flows from operating activities were $140.3 million for fiscal
    2018 compared to $65.7 million for fiscal 2017. Adjusted free cash
    flow was $140.9 million for fiscal 2018 compared to $63.0 million for
    fiscal 2017. (See “Non-GAAP Financial Measures” below.)

Fiscal 2018 Same-Restaurant Sales Performance

  • Applebee’s domestic system-wide comparable same-restaurant sales
    increased 5.0% for fiscal 2018.
  • IHOP’s domestic system-wide comparable same-restaurant sales increased
    1.5% for fiscal 2018.

GAAP Effective Tax Rate

Our effective tax rates for the fourth quarter and fiscal 2018 were
15.8% and 27.4%, respectively. The fourth quarter effective tax rate was
15.8% primarily due to the revaluation of state deferred taxes due to
the December 2018 acquisition of Applebee’s 69 restaurants in North
Carolina and South Carolina and state legislative changes enacted in
2018. The effective tax rates were impacted by the Tax Cuts and Jobs Act
(the “Tax Act”) enacted in December 2017, which lowered the federal
statutory corporate tax rate from 35% to 21%, beginning in 2018.

During fiscal, 2018, we increased our tax provision by $5.1 million
related to adjustments resulting from IRS audits for tax years 2011
through 2013. This increased our effective tax rate from what would have
been an estimated combined federal and state rate of 25% (reflecting the
reduction in the federal tax rate from the Tax Act) to approximately
27.4% for fiscal 2018. Completion of the IRS audits for tax years 2011
through 2013 will allow us to accelerate the collection of certain tax
benefits recognized in prior years. As a result, we expect to receive a
cash refund of approximately $12.5 million within the next 12 months.

Capital Allocation

The Company’s board of directors approved a 10% increase in its
quarterly cash dividend to $0.69 per share of common stock. The dividend
for the first quarter of fiscal 2019 will be payable on April 5, 2019 to
the Company’s stockholders of record at the close of business on March
20, 2019.

The board of directors also approved replacing the Company’s existing
share repurchase authorization for its common stock, effective
immediately, with an authorization of up to $200 million.

Financial Performance Guidance for Fiscal 2019

The following financial performance guidance for fiscal 2019 is based on
management’s expectations as of February 21, 2019. The projections are
as of this date, and the Company assumes no obligation to update or
supplement these estimates.

  • Applebee’s domestic system-wide comparable same-restaurant sales
    performance is expected to range between positive 2.0% and
    positive 4.0%.
  • IHOP’s domestic system-wide comparable same-restaurant sales
    performance is expected to range between positive 2.0% and positive
    4.0%.
  • Development activity by Applebee’s franchisees is expected to result
    in net closures between 20 and 30 restaurants globally, the majority
    of which are expected to be domestic closures.
  • IHOP franchisees and area licensees are expected to develop between 35
    and 55 net new restaurants globally, the majority of which are
    expected to be domestic openings.
  • Total segment profit, excluding the company restaurants segment, is
    expected to be between approximately $373 million and $394 million.
  • General and administrative expenses are expected to range between
    approximately $165 million and approximately $170 million, including
    non-cash stock-based compensation expense and depreciation totaling
    approximately $40 million. This projection includes approximately $6
    million of general and administrative expenses related to the company
    restaurants segment.
  • GAAP net income is expected to range between approximately $104
    million and approximately $113 million.
  • Consolidated adjusted EBITDA is expected to range between
    approximately $268 million and approximately $277 million. This
    projection includes company restaurants segment EBITDA, which is
    expected to be between approximately $9 million and approximately $11
    million. (See “Non-GAAP Financial Measures” and reconciliation of GAAP
    net income to consolidated adjusted EBITDA.)
  • GAAP earnings per diluted share is expected to range from $6.15 to
    $6.45.
  • Adjusted earnings per diluted share is expected to range from $6.90 to
    $7.20. (See “Non-GAAP Financial Measures” and reconciliation of GAAP
    earnings per diluted share to adjusted earnings per diluted share.)

2019 Diluted Net Income Available to Common Stockholders Per
Share
(1), As Adjusted

Reconciliation Guidance Table

 

Net income available to common stockholders per diluted share

     

$6.15 – $6.45

Closure and impairment charges

0.14

Amortization of intangible assets

0.61

Non-cash interest expense

0.27

Income tax provision for above adjustments at 26%

(0.27)

Diluted net income available to common stockholders per share,
as adjusted

$6.90 $7.20

(1)

The adjustments to net income available to common stockholders per
diluted share are midpoint estimates.
 

2019 Net Income to Consolidated Adjusted EBITDA Reconciliation
Guidance Table
(1)

($ in millions)

 
Net income       $104 – $113
Interest charges 74
Income tax provision 38
Depreciation and amortization 36
Non-cash stock-based compensation 14
Impairment and closure charges 2
Consolidated adjusted EBITDA (Non-GAAP) $268 277

(1)

The adjustments to net income are midpoint estimates.
 

Fourth Quarter and Fiscal 2018 Conference Call Details

Dine Brands will host a conference call to discuss its results on
February 21, 2019 at 6:00 a.m. Pacific Time/9:00 a.m. Eastern Time. To
participate on the call, please dial (888) 771-4371 and reference
passcode 48199137. International callers, please dial (847) 585-4405 and
reference passcode 48199137.

A live webcast of the call will be available on www.dinebrands.com and
may be accessed by visiting Events and Presentations under the site’s
Investors section. 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. A telephonic
replay of the call may be accessed from 8:30 a.m. Pacific Time/11:30
a.m. Eastern Time on February 21, 2019 through 8:59 p.m. Pacific
Time/11:59 p.m. Eastern Time on February 28, 2019 by dialing (888)
843-7419 and referencing passcode 48199137#. International callers,
please dial (630) 652-3042 and reference passcode 48199137#. 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 the
Applebee’s Neighborhood Grill & Bar and IHOP brands. With approximately
3,700 restaurants combined in 18 countries and approximately 380
franchisees, 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: general
economic conditions; 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 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
or other series 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 Company’s Annual and
Quarterly Reports on Forms 10-K and 10-Q and in the Company’s other
filings with the Securities and Exchange Commission. The forward-looking
statements contained in this release are made as of the date hereof and
the Company 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 (Loss)

(In thousands, except per share amounts)

           
Three Months Ended Twelve Months Ended
December 31, December 31,
(unaudited)  
2018 2017 2018 2017
Revenues: (as adjusted) (as adjusted)
Franchise revenues:
Royalties, franchise fees and other

$

99,865

$

88,266

$

375,640

$

360,253

Advertising revenue   74,737     55,785     268,294     234,165  
Total Franchise revenues 174,602 144,051 643,934 594,418
Rental revenues 30,642 30,585 121,934 121,437
Financing revenues 1,870 2,072 7,979 8,352
Company restaurant sales   7,084         7,084     7,518  
Total revenues   214,198     176,708     780,931     731,725  
Cost of revenues:
Franchise expenses:
Advertising expenses 76,033 64,716 269,590 243,096
Other franchise expenses   11,429     19,549     61,029     50,890  
Total Franchise expenses 87,462 84,265 330,619 293,986
Rental expenses 22,345 22,927 90,756 90,592
Financing expenses 148 149 597 598
Company restaurant expenses   5,872     31     5,872     7,838  
Total cost of revenues   115,827     107,372     427,844     393,014  
Gross profit 98,371 69,336 353,087 338,711
Impairment of goodwill and intangible assets 531,634
General and administrative expenses 45,260 39,978 166,683 165,679
Interest expense 15,576 15,483 61,686 61,979
Amortization of intangible assets 2,592 2,502 10,105 10,009
Closure and other impairment charges 1,988 162 2,107 3,968
Debt refinancing costs

(9

)

2,523
Loss (gain) on disposition of assets   910     138    

(625

)

 

(6,249

)

Income (loss) before income tax (provision) benefit 32,054 11,073 110,608

(428,309

)

Income tax (provision) benefit  

(5,073

)

  58,827    

(30,254

)

  85,559  
Net income (loss)

$

26,981

 

$

69,900

 

$

80,354

 

$

(342,750

)

Net income (loss) available to common stockholders:
Net income (loss)

$

26,981

$

69,900

$

80,354

$

(342,750

)

Less: Net (income) loss allocated to unvested participating
restricted stock
 

(917

)

 

(2,095

)

 

(2,711

)

  6,768  
Net income (loss) available to common stockholders

$

26,064

 

$

67,805

 

$

77,643

 

$

(335,982

)

Net income (loss) available to common stockholders per share:
Basic

$

1.49

 

$

3.82

 

$

4.43

 

$

(18.96

)

Diluted

$

1.47

 

$

3.82

 

$

4.37

 

$

(18.96

)

Weighted average shares outstanding:
Basic   17,446     17,745     17,533     17,725  
Diluted   17,785     17,764     17,789     17,740  
 
Dividends declared per common share $ 0.63   $ 0.97   $ 2.52   $ 3.88  
Dividends paid per common share $ 0.63   $ 0.97   $ 2.86   $ 3.88  
 

Dine Brands Global, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

       
December 31, 2018 December 31, 2017
(as adjusted)
Assets
Current assets:
Cash and cash equivalents

$

137,164

$

117,010

Receivables, net 137,504 140,188
Restricted cash 48,515 31,436
Prepaid gift card costs 38,195 40,725
Prepaid income taxes 17,402 43,654
Other current assets   3,410     12,615  
Total current assets 382,190 385,628
Long-term receivables, net 103,102 126,570
Other intangible assets, net 585,889 582,787
Goodwill 345,314 339,236
Property and equipment, net 240,264 199,585
Deferred rent receivable 77,069 82,971
Non-current restricted cash 14,700 14,700
Other non-current assets, net   26,152     4,135  
Total assets

$

1,774,680

 

$

1,735,612

 
 
Liabilities and Stockholders’ Deficit
Current liabilities:
Current maturities of long-term debt

$

25,000

$

12,965

Accounts payable 43,468 55,028
Gift card liability 160,438 164,441
Dividends payable 11,389 17,748
Current maturities of capital lease and financing obligations 14,031 14,193
Accrued employee compensation and benefits 27,479 13,547
Deferred franchise revenue, short-term 10,138 11,001
Other accrued expenses   24,243     16,001  
Total current liabilities 316,186 304,924
Long-term debt, less current maturities 1,274,087 1,269,849
Capital lease obligations, less current maturities 87,762 61,895
Financing obligations, less current maturities 38,482 39,200
Deferred income taxes, net 105,816 117,669
Deferred franchise revenue, long-term 64,557 70,432
Deferred rent payable 62,744 69,112
Other non-current liabilities   27,319     18,071  
Total liabilities   1,976,953     1,951,152  
Commitments and contingencies
Stockholders’ deficit:
Common stock, $0.01 par value; shares: 40,000,000 authorized;
December 31, 2018 – 24,984,898 issued, 17,644,267 outstanding;
December 31, 2017 – 25,022,312 issued, 17,993,124 outstanding
250 250
Additional paid-in-capital 237,726 276,408
Retained earnings (accumulated deficit) 10,414

(69,940

)

Accumulated other comprehensive loss

(60

)

(105

)

Treasury stock, at cost; shares: December 31, 2018 – 7,340,631;
December 31, 2017 – 7,029,188
 

(450,603

)

 

(422,153

)

Total stockholders’ deficit  

(202,273

)

 

(215,540

)

Total liabilities and stockholders’ deficit

$

1,774,680

 

$

1,735,612

 
 

Contacts

Investor Contact
Ken Diptee
Executive
Director, Investor Relations
Dine Brands Global, Inc.
818-637-3632

Media Contact
Thien Ho
Executive
Director, Communications
Dine Brands Global, Inc.
818-549-4238

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