DineEquity, Inc. Reports Strong First Quarter 2014 Results

 

 

First quarter 2014 adjusted EPS (Non-GAAP) of $1.26 and GAAP EPS of $1.08 - Adjusted EPS (Non-GAAP) increased 11% compared to the first quarter of 2013

DineEquity

DineEquity, Inc. (NYSE: DIN), the parent company of Applebee's Neighborhood Grill & Bar® and IHOP® restaurants, today announced financial results for the first quarter of 2014.

“DineEquity started 2014 with a strong first quarter, building on our accomplishments from the prior year. We continue to execute on our strategy and generate strong free cash flow,” said Julia A. Stewart, Chairman and Chief Executive Officer of DineEquity, Inc.

Ms. Stewart continued, “IHOP’s same-restaurant sales were positive for the fourth consecutive quarter and overwhelmingly outperformed its category, reflecting our focus on menu enhancements, innovative advertising, and higher operating standards. At Applebee’s, we are conducting a comprehensive assessment of the brand, with the goal of achieving consistent and positive same-restaurant sales and traffic. We have the foundation to build momentum at both brands and maintain our commitment to create additional value for our shareholders.”

First Quarter 2014 Financial Highlights

  • Adjusted net income available to common stockholders was $24.0 million for the first quarter of 2014, or adjusted earnings per diluted share of $1.26. This compares to $21.8 million, or adjusted earnings per diluted share of $1.14, for the same period of 2013. The increase in adjusted net income was due to higher segment profit and lower cash interest expense. These items were partially offset by higher income taxes and a slight increase in general and administrative expenses. (See “Non-GAAP Financial Measures” below.)
  • GAAP net income available to common stockholders was $20.5 million for the first quarter of 2014, or earnings per diluted share of $1.08. This compares to $17.9 million, or earnings per diluted share of $0.93 for the same period of 2013. The increase in net income was primarily due to higher segment profit and debt modification costs that occurred in the first quarter of 2013 that did not recur in the first quarter of 2014. These items were partially offset by a loss on the disposition of assets in the first quarter of 2014 compared to a gain in the same period of 2013 and a modest increase in general and administrative expenses.
  • EBITDA was $77.6 million for first quarter of 2014. (See “Non-GAAP Financial Measures” below.)
  • For the first quarter of 2014, cash flows from operating activities were $52.8 million, principal receipts from long-term receivables were $3.4 million, capital expenditures were $2.0 million, principal payments on capital lease and financing obligations were $2.7 million, the mandatory 1% repayment on the Term Loan principal balance was $1.2 million, and free cash flow was $50.3 million. (See “Non-GAAP Financial Measures” below.)

Potential Refinancing of Indebtedness

The Company is actively evaluating debt refinancing options. DineEquity continually monitors, among other things, prevailing interest rates and the economic environment to determine the optimal timing of a transaction. The Company anticipates refinancing some or all of its long-term debt in 2014 if financial market and economic conditions are favorable to do so.

Same-Restaurant Sales Performance

  • Applebee’s domestic system-wide same-restaurant sales decreased 0.5% for the first quarter of 2014 compared to the same quarter of 2013.
  • IHOP’s domestic system-wide same restaurant sales increased 3.9% for the first quarter of 2014 compared to the same period of 2013.

Financial Performance Guidance for Fiscal 2014

DineEquity reiterates its financial performance guidance for fiscal 2014 contained in the press release issued on February 26, 2014.

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. 

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 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 debt modification costs, and any gain or loss related to the disposition of assets. 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 or 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 and for the return of cash to stockholders pursuant to our capital allocation strategy, after the receipts from long-term receivables, and the funding of operating activities, capital expenditures and debt service. 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,
2014     2013
Segment Revenues:
Franchise and restaurant revenues $ 131,795 $ 128,329
Rental revenues 30,753

31,003

Financing revenues 4,653   3,837  
Total segment revenues 167,201   163,169  
Segment Expenses:
Franchise and restaurant expenses 45,678 44,476
Rental expenses 23,866 24,269
Financing expenses 585    
Total segment expenses 70,129   68,745  
Gross segment profit 97,072 94,424
General and administrative expenses 34,185 34,032
Interest expense 24,969 25,295
Amortization of intangible assets 3,071 3,071
Closure and impairment charges 200 838
Loss on extinguishment of debt 6 20
Debt modification costs 1,296
Loss (gain) on disposition of assets   927   (318 )
Income before income taxes 33,714 30,190
Income tax provision (12,890 ) (11,951 )
Net income $ 20,824   $ 18,239  
Net income available to common stockholders:
Net income $ 20,824 $ 18,239
Less: Net income allocated to unvested participating restricted stock (343 ) (329 )
Net income available to common stockholders $ 20,481   $ 17,910  
Net income available to common stockholders per share:
Basic $ 1.09   $ 0.95  
Diluted $ 1.08   $ 0.93  
Weighted average shares outstanding:
Basic 18,794   18,911  
Diluted 19,054   19,193  
 
Dividends declared per common share $ 0.75   $ 0.75  
Dividends paid per common share $ 0.75   $ 0.75  
 
 
DineEquity, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
           

March 31,

2014

December 31,

2013

(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 133,218 $ 106,011
Receivables, net 91,493 144,137
Prepaid income taxes 4,708
Prepaid gift cards 39,559 49,223
Deferred income taxes 26,501 23,853
Other current assets 8,092   3,650  
Total current assets 298,863 331,582
Long-term receivables 194,066 197,153
Property and equipment, net 264,855 274,295
Goodwill 697,470 697,470
Other intangible assets, net 791,033 794,057
Other assets, net 108,960   110,085  
Total assets $ 2,355,247   $ 2,404,642  
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of long-term debt $ 4,720 $ 4,720
Accounts payable 39,857 40,050
Gift card liability 111,020 171,955
Accrued employee compensation and benefits 10,099 24,956
Accrued interest payable 31,671 13,575
Income taxes payable 12,890
Current maturities of capital lease and financing obligations 12,577 12,247
Other accrued expenses 22,940   16,770  
Total current liabilities 245,774   284,273  
Long-term debt, less current maturities 1,203,247 1,203,517
Capital lease obligations, less current maturities 108,533 111,707
Financing obligations, less current maturities 46,848 48,843
Deferred income taxes 334,195 341,578
Other liabilities 98,470   99,545  
Total liabilities 2,037,067   2,089,463  
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value, shares: 40,000,000 authorized; March 31, 2014 - 25,284,475 issued, 19,155,078 outstanding; December 31, 2013 - 25,299,315 issued, 19,040,890 outstanding 253 253
Additional paid-in-capital 274,557 274,202
Retained earnings 343,095 336,578
Accumulated other comprehensive loss (170 ) (164 )
Treasury stock, at cost; shares: March 31, 2014 - 6,129,397; December 31, 2013 - 6,258,425 (299,555 ) (295,690 )
Total stockholders’ equity 318,180   315,179  
Total liabilities and stockholders’ equity $ 2,355,247   $ 2,404,642  
 
 
DineEquity, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
        Three Months Ended
March 31,
2014     2013
Cash flows from operating activities:
Net income $ 20,824 $ 18,239
Adjustments to reconcile net income to cash flows provided by operating activities:
Depreciation and amortization 8,783 8,836
Non-cash interest expense 1,642 1,503
Deferred income taxes (10,031 ) (8,253 )
Non-cash stock-based compensation expense 3,143 3,189
Tax benefit from stock-based compensation 3,524 2,228
Excess tax benefit from share-based compensation (4,455 ) (966 )
Loss (gain) on disposition of assets 927 (318 )
Debt modification costs 1,282
Other (196 ) 1,806
Changes in operating assets and liabilities:
Receivables 52,887 47,216
Current income tax receivables and payables 18,020 16,528
Other current assets 8,913 16,678
Accounts payable 775 1,659
Accrued employee compensation and benefits (14,857 ) (11,482 )
Gift card liability (60,936 ) (54,332 )
Other accrued expenses 23,877   27,413  
Cash flows provided by operating activities 52,840   71,226  
Cash flows from investing activities:
Additions to property and equipment (2,039 ) (1,495 )
Proceeds from sale of property and equipment 681
Principal receipts from notes, equipment contracts and other long-term receivables 3,415 3,810
Other (55 ) 68  
Cash flows provided by investing activities 2,002   2,383  
Cash flows from financing activities:
Repayment of long-term debt (1,200 ) (1,200 )
Payment of debt modification costs (1,282 )
Principal payments on capital lease and financing obligations (2,695 ) (2,483 )
Repurchase of DineEquity common stock (15,002 )
Dividends paid on common stock (14,293 ) (14,512 )
Repurchase of restricted stock (1,831 ) (2,590 )
Proceeds from stock options exercised 6,623 3,018
Excess tax benefit from share-based compensation 4,455 966
Change in restricted cash (3,692 ) (2,681 )
Cash flows used in financing activities (27,635 ) (20,764 )
Net change in cash and cash equivalents 27,207 52,845
Cash and cash equivalents at beginning of period 106,011   64,537  
Cash and cash equivalents at end of period $ 133,218   $ 117,382  
 
 

NON-GAAP FINANCIAL MEASURES

(In thousands, except per share amounts)

(Unaudited)

Reconciliation of (i) net income available to common stockholders to (ii) net income available to common stockholders excluding closure and impairment charges; loss on extinguishment of debt; amortization of intangible assets; non-cash interest expense; debt modification costs; and gain/loss on disposition of assets, all items net of taxes (as appropriate), and related per share data:

        Three Months Ended
March 31,
2014     2013
Net income available to common stockholders, as reported $ 20,481 $ 17,910
Closure and impairment charges 200 838
Loss on extinguishment of debt 6 20
Amortization of intangible assets 3,071 3,071
Non-cash interest expense 1,642 1,503
Debt modification costs 1,296
Loss (gain) on disposition of assets 927 (318 )
Income tax provision (2,221 ) (2,436 )
Net income allocated to unvested participating restricted stock (61 ) (77 )
Net income available to common stockholders, as adjusted $ 24,045   $ 21,807  
 
Diluted net income available to common stockholders per share:
Net income available to common stockholders, as reported $ 1.08 $ 0.93
Closure and impairment charges 0.01 0.02
Loss on extinguishment of debt 0.00 0.00
Amortization of intangible assets 0.10 0.10
Noncash interest expense 0.06 0.05
Debt modification costs 0.04
Loss (gain) on disposition of assets 0.03 (0.01 )
Net income allocated to unvested participating restricted stock (0.00 ) (0.00 )
Rounding (0.02 ) 0.01  
Diluted net income available to common stockholders per share, as adjusted $ 1.26   $ 1.14  
 
Numerator for basic EPS-income available to common stockholders, as adjusted $ 24,045 $ 21,807
Effect of unvested participating restricted stock using the two-class method 3   3  
Numerator for diluted EPS-income available to common stockholders after assumed conversions, as adjusted $ 24,048   $ 21,810  
 
Denominator for basic EPS-weighted-average shares 18,794 18,911
Dilutive effect of stock options 260   282  
Denominator for diluted EPS-weighted-average shares and assumed conversions 19,054   19,193  
 
 
DineEquity, Inc. and Subsidiaries
Non-GAAP Financial Measures
(In thousands)
(Unaudited)
 

Reconciliation of U.S. GAAP income before income taxes to EBITDA:

           

Three Months

Ended

Twelve Months

Ended

March 31, 2014
U.S. GAAP income before income taxes $ 33,714 $ 114,141
Interest charges 28,952 115,888
Depreciation and amortization 8,784 35,302
Non-cash stock-based compensation 3,143 9,318
Closure and impairment charges 200 974
Gain on sale of assets 927 1,022
Other 1,858   4,301
EBITDA $ 77,578   $ 280,946
 
 

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):

        Three Months Ended
March 31,
2014     2013
Cash flows provided by operating activities $ 52,840 $ 71,226
Principal receipts from long-term receivables 3,415 3,810
Additions to property and equipment (2,039 ) (1,495 )
Free cash flow before debt service 54,216 73,541
Principal payments on capital lease and financing obligations (2,695 ) (2,483 )
Mandatory 1% of Term Loans principal balance repayment (1,180 ) (1,180 )
Free cash flow 50,341 69,878
Dividends paid on common stock (14,293 ) (14,512 )
Repurchase of DineEquity common stock (15,002 )  
$ 21,046   $ 55,366  
 
 
DineEquity, Inc. and Subsidiaries
Non-GAAP Financial Measures
(In millions)
(Unaudited)
 

Reconciliation of U.S. GAAP gross segment profit to segment EBITDA:

 

Three months ended March 31, 2014

                                   

Franchise -

Applebee's

   

Franchise -

IHOP

   

Company

Restaurants

   

Rental

Operations

   

Financing

Operations

    Total
Revenue $ 50,753 $ 64,741 $ 16,301 $ 30,753 $ 4,653 $ 167,201
Expense 1,400   27,973   16,305   23,866   585   70,129
Gross segment profit 49,353 36,768 (4 ) 6,887 4,068 97,072
Plus:
Depreciation/amortization 2,621 524 3,344 6,489
Interest charges     100   3,860     3,960
Segment EBITDA $ 51,974   $ 36,768   $ 620     $ 14,091   $ 4,068   $ 107,521
 
 

Three months ended March 31, 2013

                               

Franchise -

Applebee's

Franchise -

IHOP

Company

Restaurants

Rental

Operations

Financing

Operations

Total
Revenue $ 50,733 $ 61,131 $ 16,465 $ 31,003 $ 3,837 $ 163,169
Expense 1,484   26,703   16,289   24,269     68,745
Gross segment profit 49,249 34,428 176 6,734 3,837 94,424
Plus:
Depreciation/amortization 2,760 529 3,408 6,697
Interest charges     94   4,092     4,186
Segment EBITDA $ 52,009   $ 34,428   $ 799   $ 14,234   $ 3,837   $ 105,307
 
 

Restaurant Data

The following table sets forth, for the three and three months ended March 31, 2014 and 2013, 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.

        Three Months Ended
March 31,
2014     2013

 

(unaudited)

Applebee's Restaurant Data
Effective Restaurants(a)
Franchise 1,985 2,006
Company   23     23  
Total   2,008     2,029  
 
System-wide(b)
Sales percentage change(c) (0.7 )% (0.4 )%
Domestic same-restaurant sales percentage change(d) (0.5 )% (1.3 )%
 
Franchise(b)(e)
Sales percentage change(c) (0.7 )% 7.2 %
Domestic same-restaurant sales percentage change(d) (0.5 )% (1.2 )%
Average weekly domestic unit sales (in thousands) $ 49.5 $ 49.3
 
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        Three Months Ended
March 31,
2014     2013

 

(unaudited)

IHOP Restaurant Data
Effective Restaurants(a)
Franchise 1,439 1,408
Area license 169 167
Company   11     12  
Total   1,619     1,587  
 
System-wide(b)
Sales percentage change(c) 6.5 % 2.4 %
Domestic same-restaurant sales percentage change(d) 3.9 % (0.5 )%
 
Franchise(b)
Sales percentage change(c) 6.4 % 2.3 %
Domestic same-restaurant sales percentage change(d) 3.9 % (0.5 )%
Average weekly domestic unit sales (in thousands)



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