DineEquity, Inc. Reports Strong Third Quarter 2013 Results

Dine Brands Global, Inc.
Published: October 29th, 2013

• Third quarter 2013 adjusted EPS (Non-GAAP) of $1.10 and GAAP EPS of $0.97
• Generated strong free cash flow of $98.6 million in the first nine months of 2013
• Third quarter dividend of $0.75 per share of common stock paid and $10.2 million in common stock repurchased
• Approximately $68 million returned to shareholders in the first nine months of 2013 in the form of cash dividends and share repurchases
• Fiscal 2013 adjusted earnings per diluted share expected to be between $4.14 and $4.24
• IHOP third quarter domestic system-wide same-restaurant sales increased 3.6%
• Applebee’s third quarter domestic system-wide same-restaurant sales decreased 0.4%

GLENDALE, Calif. - (BUSINESS WIRE) - Oct. 29, 2013 - DineEquity, Inc. (NYSE: DIN), the parent company of Applebee's Neighborhood Grill & Bar® and IHOP® restaurants, today announced financial results for the third quarter of 2013.

"I am pleased with our same-restaurant sales performance in a challenging economic environment. We are building momentum and are on the right track with consumers. We are continuing to execute on our strategy to differentiate both brands, driving both innovation and change," said Julia A. Stewart, Chairman and Chief Executive Officer of DineEquity, Inc. "During the third quarter, we generated substantial free cash flow, which allowed us to return significant cash to stockholders through the combination of a cash dividend payment and share repurchases. I am confident in our strategy for long-term success."

Third Quarter 2013 Financial Highlights

• Adjusted net income available to common stockholders was $21.0 million, representing adjusted earnings per diluted share of $1.10 for the third quarter of 2013, which includes approximately $3.8 million in non-recurring termination fees arising from the previously disclosed bankruptcy filing by an Applebee’s franchisee. This compares to $18.9 million, or adjusted earnings per diluted share of $1.03, for the third quarter of 2012. The increase in adjusted net income was due to lower cash interest expense and a decline in general and administrative expenses. The increase was partially offset by, as expected, lower segment profit resulting from the refranchise and sale of 137 Applebee’s company-operated restaurants during the third and fourth quarters of 2012, and a higher tax rate. (See "Non-GAAP Financial Measures" below.)
• GAAP net income available to common stockholders was $18.4 million, or earnings per diluted share of $0.97 for the third quarter of 2013, compared to $58.7 million, or earnings per diluted share of $3.14, for the third quarter of 2012. The decrease in net income was primarily due to the impact of 2012 refranchising asset sales and related lower segment profit. These items were partially offset by lower income tax expense, a decline in general and administrative expenses, and lower interest expense.
• Consolidated general and administrative expenses were $35.3 million for the third quarter of 2013 compared to $48.7 million in the third quarter of 2012. The decrease was primarily due to a non-recurring $9.0 million charge recorded in the third quarter of 2012 related to settlement of litigation that commenced prior to our acquisition of Applebee’s and lower personnel costs.

First Nine Months of 2013 Highlights

• Adjusted net income available to common stockholders was $62.5 million in the first nine months of 2013, representing adjusted earnings per diluted share of $3.26. This compares to $62.6 million, or adjusted earnings per diluted share of$3.44, for the same period in 2012. The decrease was primarily due to lower segment profit as a result of refranchising and a higher tax rate. These items were partially offset by lower cash interest expense and a decline in general and administrative expenses. (See "Non-GAAP Financial Measures" below.)
• GAAP net income available to common stockholders was $53.0 million in the first nine months of 2013, or earnings per diluted share of $2.76, compared to $104.3 million, or earnings per diluted share of $5.66 for the same period in 2012. The decrease in net income was primarily due to the impact of 2012 refranchising asset sales and related lower segment profit. These items were partially offset by lower income tax expense, a decline in general and administrative expenses, and lower interest expense.
• Consolidated general and administrative expenses were $105.0 million in the first nine months of 2013 compared to $125.6 million for the same period of 2012. The decrease was primarily due to a decline in compensation costs and a non-recurring $9.0 million charge recorded in the third quarter of 2012 related to settlement of litigation.
• EBITDA was $211.9 million for the first nine months of 2013. (See "Non-GAAP Financial Measures" below.)
• For the first nine months of 2013, cash flows from operating activities were $102.8 million, principal receipts from long-term receivables were $10.3 million, capital expenditures were $4.5 million, principal payments on capital lease and financing obligations were $7.5 million, the mandatory 1% repayment on the Term Loan principal balance was $2.4 million, and free cash flow was $98.6 million. (See "Non-GAAP Financial Measures" below.)

Same-Restaurant Sales Performance

Third Quarter 2013

• Applebee’s domestic system-wide same-restaurant sales decreased 0.4% for the third quarter of 2013 compared to the same quarter of 2012. The decrease in same-restaurant sales reflected a decline in traffic, partially offset by an increase in average guest check.
• IHOP’s domestic system-wide same restaurant sales increased 3.6% for the third quarter of 2013 compared to the same quarter of 2012. The increase in same-restaurant sales reflected a higher average guest check, largely due to a favorable shift in product mix. The increase was partially offset by a decline in traffic.

First Nine Months of 2013

• Applebee’s domestic system-wide same-restaurant sales decreased 0.1% for the first nine months of 2013 compared to the same period in 2012. The decrease in same-restaurant sales reflected a decline in traffic, partially offset by an increase in average guest check.
• IHOP’s domestic system-wide same restaurant sales increased 1.7% for the first nine months of 2013 compared to the same period in 2012. The increase in same-restaurant sales reflected a higher average guest check, partially offset by a decline in traffic.

Financial Performance Guidance for Fiscal 2013

• Revised Applebee’s domestic system-wide same-restaurant sales performance to range between negative 0.5% and positive 0.5%. This reflects a narrowing of the range from our previous expectations of between negative 1.5% and positive 1.5%.

• Revised IHOP’s domestic system-wide same-restaurant sales performance to range between positive 2.0% and positive 3.0%. This reflects an increase from previous expectations of between negative 1.5% and positive 1.5%.
• Revised Applebee’s franchisees to develop between 25 and 30 new restaurants, the majority of which are expected to be opened in the U.S. This reflects a reduction from previous expectations of between 40 and 50 new restaurants.
• Reiterated IHOP franchisees and its area licensee to develop between 50 and 60 new restaurants, the majority of which are expected to be domestic openings.
• Revised Franchise segment profit to be between $329 million and $331 million. This reflects an increase from previous expectations of between $312 million and $325 million.
• Revised Company Restaurants segment profit to breakeven. This is net of approximately $2 million of depreciation and amortization. The profit revision reflects a reduction from previous expectations of approximately $1 million on an annualized basis. DineEquity will operate its remaining company-operated restaurants to primarily test new products, operational improvements, technology, and service platforms.
• Revised Rental and Financing segments are expected to generate approximately $40 million in combined profit. This reflects an increase from previous expectations of between $34 million and $35 million in combined profit.

• Revised expectations for consolidated general and administrative expenses to between $142 million and $144 million, including non-cash stock-based compensation expense and depreciation of approximately $16 million.
• Revised expectations for consolidated interest expense to be approximately $101 million. Approximately $6 million is expected to be non-cash interest expense.
• Reiterated the income tax rate to be approximately 38%.
• Revised consolidated cash from operations is expected to range between $102 million and $116 million. This reflects an increase from previous expectations of between $88 million and $102 million. The increase is primarily due to improvements in net income and net working capital.
• Reiterated the structural run-off of the Company’s long-term receivables is expected to be approximately $14 million.
• Reiterated the principal payments on capital leases and financing obligations will be approximately $10 million.
• Revised consolidated capital expenditures are expected to be approximately $7 million. This reflects a reduction from expectations of capital expenditures between $8 million and $10 million.
• Reiterated a mandatory annual repayment of 1% on the current outstanding Term Loan principal balance will be $4.7 million.
• Revised consolidated free cash flow (see "Non-GAAP Measures" below) to range between $93 million and $108 million. This reflects an increase from previous expectations of $77 to $93 million. Consolidated free cash flow is defined as consolidated cash from operations, plus principal receipts from long-term receivables, less principal payments on capital leases and financing obligations, consolidated capital expenditures, and the mandatory annual repayment of 1% on our Term Loan principal balance.
• Reiterated net income allocated to unvested participating restricted stock is expected to total approximately $1.5 million.
• Revised weighted average diluted shares outstanding are expected to be approximately 19.1 million. This reflects an increase from the prior year primarily due to the fourth quarter 2012 conversion of the Series B Convertible Preferred Stock into the Company's common stock. No estimate is made in this number for any potential share repurchases.
• Adjusted earnings per diluted share for fiscal 2013 are expected to be between $4.14 and $4.24.

Investor Conference Call Today

The Company will host an investor conference call on Tuesday, October 29, 2013, at 11:00 a.m. Eastern Time / 8:00 a.m. Pacific Time to discuss its third quarter 2013 results. To participate on the call, please dial (888) 679-8035 and reference pass code 18020176. International callers, please dial (617) 213-4848 and reference pass code 18020176. Participants may also pre-register to obtain a unique pin number to join the live call without operator assistance by visiting the following Web site:

https://www.theconferencingservice.com/prereg/key.process?key=PGV9RUDHQ

A live webcast of the call will be available on DineEquity's Web site at www.dineequity.com, and may be accessed by visiting Calls & 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 through 11:59 p.m. Pacific Time on November 5, 2013 by dialing (888) 286-8010 and referencing pass code 85927053. International callers, please dial (617) 801-6888 and reference pass code 85927053. An online archive of the webcast also will be available on the Investors section of DineEquity's Web site.

About DineEquity, Inc.

Based in Glendale, California, DineEquity, Inc., through its subsidiaries, franchises and operates restaurants under the Applebee’s Neighborhood Grill & Bar and IHOP brands. With more than 3,600 restaurants combined in 19 countries, over 400 franchisees and approximately 200,000 team members (including franchisee- and company-operated restaurant employees), DineEquity is one of the largest full-service restaurant companies in the world. For more information on DineEquity, visit the Company's Web site located at www.dineequity.com.

Forward-Looking Statements

Statements contained in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by words such as "may," "will," "should," "expect," "anticipate," "believe," "estimate," "intend," "plan" 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: the effect of general economic conditions; the Company's indebtedness; risk of future impairment charges; trading volatility and the price of the Company’s common stock; the Company's results in any given period differing from guidance provided to the public; the highly competitive nature of the restaurant business; the Company's business strategy failing to achieve anticipated results; risks associated with the restaurant industry; risks associated with locations of current and future restaurants; rising costs for food commodities and utilities; shortages or interruptions in the supply or delivery of food; ineffective marketing and guest relationship initiatives and use of social media; changing health or dietary preferences; our engagement in business in foreign markets; harm to our brands' reputation; litigation; third-party claims with respect to intellectual property assets; environmental liability; liability relating to employees; failure to comply with applicable laws and regulations; failure to effectively implement restaurant development plans; our dependence upon our franchisees; concentration of Applebee's franchised restaurants in a limited number of franchisees; credit risk from IHOP franchisees operating under our previous business model; termination or non-renewal of franchise agreements; franchisees breaching their franchise agreements; insolvency proceedings involving franchisees; changes in the number and quality of franchisees; inability of franchisees to fund capital expenditures; heavy dependence on information technology; the occurrence of cyber incidents or a deficiency in our cybersecurity; failure to execute on a business continuity plan; inability to attract and retain talented employees; risks associated with retail brand initiatives; failure of our internal controls; 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 assumes no obligation to update or supplement any forward-looking statements.

Non-GAAP Financial Measures

This news release includes references to the Company's non-GAAP financial measures "adjusted net income available to common stockholders (adjusted EPS)," "EBITDA," "free cash flow," and "segment EBITDA." "Adjusted EPS" is computed for a given period by deducting from net income (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 debt modification costs, any one-time litigation settlement charges, any general and administrative restructuring costs, net of savings, any gain or loss related to the disposition of assets, and any state income tax impact of deferred taxes due to refranchising incurred in such period. This is presented on an aggregate basis and a per share (diluted) basis. The Company defines "EBITDA" for a given period as income before income taxes less interest expense, loss on extinguishment of debt, depreciation and amortization, closure and impairment charges, non-cash stock-based compensation, gain/loss on disposition of assets and other charge backs as defined by its credit agreement. "Free cash flow" for a given period is defined as cash provided by operating activities, plus receipts from notes and equipment contracts receivable ("long-term notes receivable"), less principal payments on capital lease and financing obligations, the mandatory 1% of Term Loan principal balance repayment, and capital expenditures. "Segment EBITDA" for a given period is defined as gross segment profit plus depreciation and amortization as well as interest charges related to the segment. Management utilizes EBITDA for debt covenant purposes and free cash flow to determine the amount of cash remaining for general corporate and strategic purposes after the receipts from long-term receivables, and the funding of operating activities, capital expenditures and dividends. Management believes this information is helpful to investors to determine the Company's adherence to debt covenants and the Company's cash available for these purposes. Adjusted EPS, EBITDA, free cash flow and segment EBITDA 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 United States generally accepted accounting principles.

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Reconciliation of the Company's cash provided by operating activities to "free cash flow" (cash from operations, plus receipts from notes, equipment contracts and other long-term receivables, less consolidated capital expenditures, principal payments on capital leases and financing obligations and the mandatory annual repayment of 1% of our Term Loan principal balance):

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Restaurant Data

The following table sets forth, for the three and nine months ended September 30, 2013 and 2012, the number of "Effective Restaurants" in the Applebee’s and IHOP systems and information regarding the percentage change in sales at those restaurants compared to the same periods in the prior year. Sales at restaurants that are owned by franchisees and area licensees are not attributable to the Company. However, we believe that presentation of this information is useful in analyzing our revenues because franchisees and area licensees pay us royalties and advertising fees that are generally based on a percentage of their sales, and, where applicable, rental payments under leases that may be partially based on a percentage of their sales. Management also uses this information to make decisions about future plans for the development of additional restaurants as well as evaluation of current operations.

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Source: DineEquity, Inc.

Contacts:

Investors

DineEquity, Inc.
Ken Diptee
Executive Director
Investor Relations
818-637-3632

Media

Sard Verbinnen & Co.
Lucy Neugart
415-618-8750

Samantha Verdile
212-687-8080