DineEquity, Inc. Reports Solid First Quarter 2013 Results

DineEquity, Inc. Reports Solid First Quarter 2013 Results

  • First quarter 2013 adjusted EPS (Non-GAAP) of $1.14 and GAAP EPS of $0.93

  • First quarter dividend of $0.75 per share of common stock paid

  • Strong free cash flow of $59.0 million

  • General and administrative expenses reduced by 14% year-over-year

  • Senior secured credit facility re-priced to lower term loan interest rate

    • Interest expense reduced by 16% year-over-year

  • Reiterates financial performance guidance for fiscal 2013

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

"DineEquity started 2013 by delivering solid financial results in the first quarter. Significant strides were made against our strategic priorities. As promised, we announced our capital allocation strategy, which returns significant free cash flow to shareholders through a combination of a meaningful dividend and a $100 million share repurchase authorization," said Julia A. Stewart, Chairman and Chief Executive Officer of DineEquity, Inc. "We successfully re-priced our senior secured credit facility, lowering the interest rate of the term loan to 3.75% from 4.25%. In addition, modifications to debt covenants were made to reduce limitations on our capital allocation options. We are laser focused on managing our capital structure and G&A. In addition, we remain steadfast in our strategic plans for both IHOP and Applebee's, designed to drive consistent and sustainable same-restaurant sales and traffic growth in a challenging consumer environment."


First Quarter 2013 Financial Highlights

  • Adjusted net income available to common stockholders was $21.8 million, representing adjusted earnings per diluted share of $1.14 for the first quarter of 2013. This compares to $24.6 million, or adjusted earnings per diluted share of $1.36, for the first quarter of 2012. The decrease was mainly due to, as expected, lower segment profit as a result of DineEquity's ownership of significantly fewer Applebee's company-operated restaurants compared to the same quarter of 2012. The decline was partially offset by lower general and administrative expenses and lower cash interest expense. (See "Non-GAAP Financial Measures" below.)

  • GAAP net income available to common stockholders was $17.9 million, or earnings per diluted share of $0.93 for the first quarter of 2013, compared to $29.9 million, or earnings per diluted share of $1.64, for the first quarter of 2012. The decrease was primarily due to lower asset disposition gains and, as expected, lower segment profit resulting from refranchising. These items were partially offset by lower income taxes, a decline in general and administrative expenses, and lower interest expense.

  • EBITDA was $73.7 million for the first quarter of 2013. (See "Non-GAAP Financial Measures" below.)

  • Free cash flow was $59.0 million for the first quarter of 2013 compared to $44.0 million in the first quarter of 2012. (See "Non-GAAP Financial Measures" below.)

  • Consolidated general and administrative expenses were $34.0 million for the first quarter of 2013 compared to $39.6 million in the first quarter of 2012. The decrease was primarily due to lower personnel costs as a result of refranchising and the Company's comprehensive restructuring initiative, and lower stock-based compensation.

Same-Restaurant Sales Performance

Following a slow start to 2013 for the restaurant category due to an uneven U.S. macroeconomic environment, overall consumer sentiment remains mixed.

  • Applebee's domestic system-wide same-restaurant sales decreased 1.3% for the first quarter of 2013 compared to the first quarter of 2012. The decline in same-restaurant sales reflected a decrease in traffic, partially offset by a higher average guest check.

  • IHOP's domestic system-wide same restaurant sales decreased 0.5% for the first quarter of 2013 compared to the same quarter of 2012. The decline in same-restaurant sales reflected a decrease in traffic, partially offset by a higher average guest check.

Re-Pricing of Senior Secured Credit Facility

On February 5, 2013, DineEquity announced the completion of the re-pricing of its senior secured credit facility, including its senior secured revolving credit facility, which remained at $75 million. In addition, modifications to certain covenants were made to provide added flexibility. As a result of the re-pricing, interest is computed at LIBOR plus 2.75% with a LIBOR floor of 1.00%, or a current term loan interest rate of 3.75%.

Financial Performance Guidance for Fiscal 2013

DineEquity reiterates its financial performance guidance for fiscal 2013 contained in the press release issued on February 27, 2013.

Investor Conference Call Today

The Company will host an investor conference call on Thursday, May 2, 2013, at 11:00 a.m. Eastern Time / 8:00 a.m. Pacific Time to discuss its first quarter 2013 results. To participate on the call, please dial (888) 713-4218 and reference pass code 68288754. International callers, please dial (617) 213-4870 and reference pass code 68288754. 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=PC3EPEFCK

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 Investor Information 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 May 9, 2013 by dialing (888) 286-8010 and referencing pass code 18517223. International callers, please dial (617) 801-6888 and reference pass code 18517223. An online archive of the webcast also will be available on the Investor Information 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 17 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 impairment and closure 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 retirement of debt, depreciation and amortization, impairment and closure 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 dividends paid 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.

DineEquity, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended

March 31,

2013

2012

Segment Revenues:

Franchise and restaurant revenues

$

128,329

$

209,294

Rental revenues

31,003

32,005

Financing revenues

3,837

4,283

Total segment revenues

163,169

245,582

Segment Expenses:

Franchise and restaurant expenses

44,476

111,815

Rental expenses

24,269

24,537

Financing expenses

655

Total segment expenses

68,745

137,007

Gross segment profit

94,424

108,575

General and administrative expenses

34,032

39,632

Interest expense

25,295

30,221

Amortization of intangible assets

3,071

3,075

Impairment and closure charges

838

722

Loss on extinguishment of debt

20

2,611

Debt modification costs

1,296

Gain on disposition of assets

(318

)

(16,733

)

Income before income taxes

30,190

49,047

Income tax provision

(11,951

)

(17,703

)

Net income

$

18,239

$

31,344

Net income available to common stockholders:

Net income

$

18,239

$

31,344

Less: Net income allocated to unvested participating restricted stock

(329

)

(796

)

Less: Accretion of Series B Convertible Preferred Stock

(668

)

Net income available to common stockholders

$

17,910

$

29,880

Net income available to common stockholders per share:

Basic

$

0.95

$

1.69

Diluted

$

0.93

$

1.64

Weighted average shares outstanding:

Basic

18,911

17,682

Diluted

19,193

18,651

DineEquity, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

March 31, 2013

December 31, 2012

Assets

(Unaudited)

Current assets:

Cash and cash equivalents

$

117,382

$

64,537

Receivables, net

81,587

128,610

Prepaid income taxes

16,080

Prepaid gift cards

41,410

50,242

Deferred income taxes

20,048

21,772

Other current assets

8,050

13,214

Total current assets

268,477

294,455

Long-term receivables

208,322

212,269

Property and equipment, net

289,723

294,375

Goodwill

697,470

697,470

Other intangible assets, net

803,067

806,093

Other assets, net

110,601

110,738

Total assets

$

2,377,660

$

2,415,400

Liabilities and Stockholders' Equity

Current liabilities:

Current maturities of long-term debt

$

4,720

$

7,420

Accounts payable

32,197

30,751

Accrued employee compensation and benefits

10,954

22,435

Gift card liability

107,358

161,689

Accrued interest payable

31,580

13,236

Current maturities of capital lease and financing obligations

11,246

10,878

Other accrued expenses

28,294

21,351

Total current liabilities

226,349

267,760

Long-term debt, less current maturities

1,204,422

1,202,063

Financing obligations, less current maturities

52,010

52,049

Capital lease obligations, less current maturities

121,482

124,375

Deferred income taxes

352,195

362,171

Other liabilities

100,203

98,177

Total liabilities

2,056,661

2,106,595

Commitments and contingencies

Stockholders' equity:

Common stock, $0.01 par value, shares: 40,000,000 authorized; March 31, 2013 -
25,359,057 issued, 19,352,128 outstanding; December 31, 2012 - 25,362,946
issued, 19,197,899 outstanding

254

254

Additional paid-in-capital

267,038

264,342

Retained earnings

325,761

322,045

Accumulated other comprehensive loss

(156

)

(152

)

Treasury stock, at cost; shares: March 31, 2013 - 6,006,929; December 31, 2012 -
6,165,047

(271,898

)

(277,684

)

Total stockholders' equity

320,999

308,805

Total liabilities and stockholders' equity

$

2,377,660

$

2,415,400

DineEquity, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

Three Months Ended

March 31,

2013

2012

Cash flows from operating activities:

(Unaudited)

Net income

$

18,239

$

31,344

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

Depreciation and amortization

8,836

10,463

Non-cash interest expense

1,503

1,529

Loss on extinguishment of debt

20

2,611

Impairment and closure charges

840

445

Deferred income taxes

(8,253

)

(9,626

)

Non-cash stock-based compensation expense

3,189

3,789

Tax benefit from stock-based compensation

2,228

4,000

Excess tax benefit from stock options exercised

(966

)

(2,421

)

Gain on disposition of assets

(318

)

(16,733

)

Other

2,228

(353

)

Changes in operating assets and liabilities:

Receivables

47,216

35,545

Current income tax receivables and payables

16,528

23,724

Other current assets

16,678

173

Accounts payable

1,659

1,660

Accrued employee compensation and benefits

(11,482

)

(8,594