DineEquity, Inc. Reports Successful Second Quarter 2014 Results

 

 

Second quarter 2014 adjusted EPS (Non-GAAP) of $1.16 and GAAP EPS of $1.00 - Adjusted EPS (Non-GAAP) increased 14% compared to the second 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 second quarter of fiscal 2014.

  • Second quarter 2014 adjusted EPS (Non-GAAP) of $1.16 and GAAP EPS of $1.00
  • Adjusted EPS (Non-GAAP) increased 14% compared to the second quarter of 2013
  • Generated strong free cash flow of $50.0 million in the first six months of 2014
  • Over $29 million returned to shareholders in the form of a second quarter cash dividend of $0.75 per share of common stock and share repurchases
  • Second quarter domestic system-wide same restaurant sales increased 3.2% and 0.6% at IHOP and Applebee’s, respectively
  • Both IHOP and Applebee’s ranked number one by Nation’s Restaurant News for the seventh consecutive year in their respective categories based on last fiscal year’s U.S. system-wide same-restaurant sales

“We delivered successful results for the second quarter, driven by the continued focus on our strategic objectives,” said Julia A. Stewart, Chairman and Chief Executive Officer of DineEquity, Inc. Ms. Stewart added, “We are very pleased to announce that IHOP and Applebee’s reported positive same-restaurant sales and outperformed their respective categories based on industry sales data. We are doing the work necessary to drive long-term success at both of our brands. In addition, we continue to generate substantial free cash flow, tightly manage our general and administrative expenses, and return significant cash to shareholders. We remain clearly focused on maximizing shareholder value and driving sustainable growth.”

Second Quarter 2014 Financial Highlights

  • Adjusted net income available to common stockholders was $22.1 million, representing adjusted earnings per diluted share of $1.16 for the second quarter of 2014. This compares to $19.7 million, or adjusted earnings per diluted share of $1.02, for the second quarter of 2013. Adjusted earnings per diluted share increased by 14% compared to the second quarter of 2013. The improvement in adjusted net income was due to higher segment profit, lower general and administrative expenses, and lower cash interest expense. These items were partially offset by higher income taxes. (See “Non-GAAP Financial Measures” below.)
  • GAAP net income available to common stockholders was $18.9 million, or earnings per diluted share of $1.00, for the second quarter of 2014. This compares to $16.6 million, or earnings per diluted share of $0.87, for the second quarter of 2013. Earnings per diluted share improved by 15% compared to the second quarter of 2013. The increase in net income was primarily due to higher segment profit, lower general and administrative expenses, and a gain on the disposition of assets in the second quarter of 2014 compared to a loss in the same period of 2013. These items were partially offset by higher income tax expense and an increase in closure and impairment charges.
  • General and administrative expenses were $34.8 million for the second quarter of 2014 compared to $35.6 million for the same period of 2013.

First Six Months of 2014 Highlights

  • Adjusted net income available to common stockholders was $46.1 million in the first six months of 2014, representing adjusted earnings per diluted share of $2.43. This compares to $41.5 million, or adjusted earnings per diluted share of $2.16, for the same period in 2013. Adjusted earnings per diluted share for the first six months of 2014 rose by 13% compared to the same period in 2013. The increase was primarily due to higher segment profit, lower general and administrative expenses, and a decline in cash interest expense. These items were partially offset by higher income taxes. (See “Non-GAAP Financial Measures” below.)
  • GAAP net income available to common stockholders was $39.3 million in the first six months of 2014, or earnings per diluted share of $2.07, compared to $34.5 million, or earnings per diluted share of $1.80 for the same period in 2013. Earnings per diluted share for the first six months of 2014 improved by 15% compared to the same period in 2013. The increase was primarily due to higher segment profit, debt modification costs that occurred in the first six months of 2013 that did not recur in the first six months of 2014, and a decline in general and administrative expenses. These items were partially offset by higher income tax expense and a loss on the disposition of assets in the first six months of 2014 compared to a gain in the first six months of 2013.
  • General and administrative expenses were $69.0 million in the first six months of 2014 compared to $69.7 million for the same period of 2013.
  • EBITDA was $149.4 million for the first six months of 2014. (See “Non-GAAP Financial Measures” below.)
  • For the first six months of 2014, cash flows from operating activities were $56.0 million and free cash flow was $50.0 million. (See “Non-GAAP Financial Measures” below.)

Same-Restaurant Sales Performance

Second Quarter 2014

  • Applebee’s domestic system-wide same-restaurant sales increased 0.6% for the second quarter of 2014 compared to the second quarter of 2013.
  • IHOP’s domestic system-wide same restaurant sales increased 3.2% for the second quarter of 2014 compared to the same quarter of 2013.

First Six Months of 2014 Highlights

  • Applebee’s domestic system-wide same-restaurant sales remained flat for the first six months of 2014 compared to the same period in 2013.
  • IHOP’s domestic system-wide same restaurant sales increased 3.6% for the first six months of 2014 compared to the first six months 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, except for IHOP’s domestic system-wide same restaurant sales. The Company revised IHOP’s sales performance guidance to range between positive 1.0% and positive 2.5%. This reflects an increase from the previous expectations of between positive 0.5% and positive 2.0%.

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 Six Months Ended
June 30, June 30,
2014     2013 2014     2013
Segment Revenues:
Franchise and restaurant revenues $ 126,444 $ 124,153 $ 258,239 $ 252,482
Rental revenues 30,709 30,731 61,462 61,734
Financing revenues 3,368   3,230   8,021   7,067  
Total segment revenues 160,521   158,114   327,722   321,283  
Segment Expenses:
Franchise and restaurant expenses 42,155 42,308 87,833 86,784
Rental expenses 23,653 24,535 47,519 48,804
Financing expenses 240   245   825   245  
Total segment expenses 66,048   67,088   136,177   135,833  
Gross segment profit 94,473 91,026 191,545 185,450
General and administrative expenses 34,816 35,641 69,001 69,673
Interest expense 24,942 24,956 49,911 50,251
Amortization of intangible assets 3,070 3,069 6,141 6,140
Closure and impairment charges 637 324 837 1,162
Loss on extinguishment of debt 6 16 12 36
Debt modification costs 1,296
(Gain) loss on disposition of assets (130 ) 64     797   (254 )
Income before income tax provision 31,132 26,956 64,846 57,146
Income tax provision (11,965 ) (10,019 ) (24,855 ) (21,970 )
Net income $ 19,167   $ 16,937   $ 39,991   $ 35,176  
Net income available to common stockholders:
Net income $ 19,167 $ 16,937 $ 39,991 $ 35,176
Less: Net income allocated to unvested participating restricted stock (307 ) (298 ) (649 ) (627 )
Net income available to common stockholders $ 18,860   $ 16,639   $ 39,342   $ 34,549  
Net income available to common stockholders per share:
Basic $ 1.00   $ 0.88   $ 2.09   $ 1.82  
Diluted $ 1.00   $ 0.87   $ 2.07   $ 1.80  
Weighted average shares outstanding:
Basic 18,776   18,953   18,785   18,932  
Diluted 18,955   19,222   19,003   19,207  
 
Dividends declared per common share $ 0.75   $ 0.75   $ 1.50   $ 1.50  
Dividends paid per common share $ 0.75   $ 0.75   $ 1.50   $ 1.50  
 
           
DineEquity, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
 

June 30,

2014

December 31,

2013

(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 100,350 $ 106,011
Receivables, net 91,187 144,137
Prepaid gift cards 40,459 49,223
Prepaid income taxes 4,708
Deferred income taxes 28,874 23,853
Other current assets 12,323   3,650  
Total current assets 273,193 331,582
Long-term receivables, net 190,380 197,153
Property and equipment, net 261,201 274,295
Goodwill 697,470 697,470
Other intangible assets, net 788,105 794,057
Other assets, net 108,740   110,085  
Total assets $ 2,319,089   $ 2,404,642  
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of long-term debt $ 4,720 $ 4,720
Accounts payable 41,138 40,050
Gift card liability 108,046 171,955
Accrued employee compensation and benefits 14,404 24,956
Accrued interest payable 13,622 13,575
Income taxes payable 10,812
Current maturities of capital lease and financing obligations 12,936 12,247
Other accrued expenses 19,098   16,770  
Total current liabilities 224,776   284,273  
Long-term debt, net (less current maturities) 1,202,995 1,203,517
Capital lease obligations (less current maturities) 105,212 111,707
Financing obligations (less current maturities) 46,815 48,843
Deferred income taxes 330,525 341,578
Other liabilities 98,173   99,545  
Total liabilities 2,008,496   2,089,463  
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value, shares: 40,000,000 authorized; June 30, 2014 - 25,277,373 issued, 18,967,460 outstanding; December 31, 2013 - 25,299,315 issued, 19,040,890 outstanding 253 253
Additional paid-in-capital 276,636 274,202
Retained earnings 348,026 336,578
Accumulated other comprehensive loss (56 ) (164 )
Treasury stock, at cost; shares: June 30, 2014 - 6,309,913; December 31, 2013 - 6,258,425 (314,266 ) (295,690 )
Total stockholders’ equity 310,593   315,179  
Total liabilities and stockholders’ equity $ 2,319,089   $ 2,404,642  
 
     
DineEquity, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
Six Months Ended
June 30,
2014       2013
Cash flows from operating activities:
Net income $ 39,991 $ 35,176
Adjustments to reconcile net income to cash flows provided by operating activities:
Depreciation and amortization 17,498 17,636
Non-cash interest expense 3,315 3,054
Deferred income taxes (16,047 ) (15,335 )
Non-cash stock-based compensation expense 5,508 5,842
Tax benefit from stock-based compensation 3,578 2,943
Excess tax benefit from share-based compensation (4,455 ) (1,567 )
Loss (gain) on disposition of assets 797 (254 )
Debt modification costs 1,281
Other (867 ) 1,072
Changes in operating assets and liabilities:
Receivables, net 54,225 34,670
Current income tax receivables and payables 16,004 8,716
Prepaid expenses and other current assets 7,156 16,476
Accounts payable 1,911 8,089
Accrued employee compensation and benefits (10,552 ) (7,612 )
Gift card liability (63,911 ) (59,936 )
Other accrued expenses 1,841   5,178  
Cash flows provided by operating activities 55,992   55,429  
Cash flows from investing activities:
Additions to property and equipment (4,086 ) (2,953 )
Proceeds from sale of property and equipment 681
Principal receipts from notes, equipment contracts and other long-term receivables 6,066 7,063
Other 75   11  
Cash flows provided by investing activities 2,736   4,121  
Cash flows from financing activities:
Repayment of long-term debt (2,400 ) (2,400 )
Payment of debt modification costs (1,281 )
Principal payments on capital lease and financing obligations (5,570 ) (5,018 )
Repurchase of DineEquity common stock (30,006 ) (14,504 )
Dividends paid on common stock (28,518 ) (28,885 )
Repurchase of restricted stock (1,944 ) (2,841 )
Proceeds from stock options exercised 6,658 3,348
Excess tax benefit from share-based compensation 4,455 1,567
Change in restricted cash (7,064 ) 1,564  
Cash flows used in financing activities (64,389 ) (48,450 )
Net change in cash and cash equivalents (5,661 ) 11,100
Cash and cash equivalents at beginning of period 106,011   64,537  
Cash and cash equivalents at end of period $ 100,350   $ 75,637  
 
         
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 or loss on disposition of assets, all items net of taxes, and related per share data:

 
Three Months Ended Six Months Ended
June 30, June 30,
2014     2013 2014     2013
Net income available to common stockholders, as reported $ 18,860 $ 16,639 $ 39,342 $ 34,549
Closure and impairment charges 637 324 837 1,162
Loss on extinguishment of debt 6 16 12 36
Amortization of intangible assets 3,070 3,069 6,141 6,140
Non-cash interest expense 1,673 1,551 3,315 3,054
Debt modification costs 1,296
(Gain) loss on disposition of assets (130 ) 64 797 (254 )
Income tax provision (1,997 ) (1,909 ) (4,219 ) (4,345 )
Net income allocated to unvested participating restricted stock (55 ) (60 ) (116 ) (137 )
Net income available to common stockholders, as adjusted $ 22,064   $ 19,694   $ 46,109   $ 41,501  
 
Diluted net income available to common stockholders per share:
Net income available to common stockholders, as reported $ 1.00 $ 0.87 $ 2.07 $ 1.80
Closure and impairment charges 0.02 0.01 0.02 0.04
Loss on extinguishment of debt 0.00 0.00 0.00 0.00
Amortization of intangible assets 0.10 0.10 0.20 0.20
Noncash interest expense 0.06 0.05 0.11 0.10
Debt modification costs 0.04
(Gain) loss on disposition of assets (0.01 ) 0.00 0.02 (0.01 )
Net income allocated to unvested participating restricted stock 0.00 0.00 0.00 (0.01 )
Rounding (0.01 ) (0.01 ) 0.01    
Diluted net income available to common stockholders per share, as adjusted $ 1.16   $ 1.02   $ 2.43   $ 2.16  
 

Numerator for basic EPS-income available to common stockholders, as adjusted

$ 22,064 $ 19,694 $ 46,109 $ 41,501
Effect of unvested participating restricted stock using the two-class method 1   1   3   4  
Numerator for diluted EPS-income available to common stockholders after assumed conversions, as adjusted $ 22,065   $ 19,695   $ 46,112   $ 41,505  
 
Denominator for basic EPS-weighted-average shares 18,776 18,953 18,785 18,932
Dilutive effect of stock options 179   269   218   275  
Denominator for diluted EPS-weighted-average shares and assumed conversions 18,955   19,222   19,003   19,207  
 
           
DineEquity, Inc. and Subsidiaries
Non-GAAP Financial Measures
(In thousands)
(Unaudited)
 

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

 

Six Months

Ended

Twelve Months

Ended

June 30, 2014
U.S. GAAP income before income taxes $ 64,846 $ 118,317
Interest charges 57,741 115,591
Depreciation and amortization 17,498 35,217
Non-cash stock-based compensation 5,508 9,030
Closure and impairment charges 837 1,487
Gain on sale of assets 797 828
Other 2,154   3,453  
EBITDA $ 149,381   $ 283,923  
 

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):

 
Six Months Ended
June 30,
2014 2013
Cash flows provided by operating activities $ 55,992 $ 55,429
Principal receipts from long-term receivables 6,066 7,063
Additions to property and equipment (4,086 ) (2,953 )
Free cash flow before debt service 57,972 59,539
Principal payments on capital lease and financing obligations (5,570 ) (5,018 )
Mandatory 1% of Term Loans principal balance repayment (2,360 ) (2,360 )
Free cash flow 50,042 52,161
Dividends paid on common stock (28,518 ) (28,885 )
Repurchase of DineEquity common stock (30,006 ) (14,504 )
$ (8,482 ) $ 8,772  
 
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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 June 30, 2014

Franchise -

Applebee's

Franchise -

IHOP

Company

Restaurants

Rental

Operations

Financing

Operations

Total
Revenue $ 50,039 $ 60,731 $ 15,674 $ 30,709 $ 3,368 $ 160,521
Expense   1,294   25,331   15,530     23,653   240   66,048
Gross segment profit 48,745 35,400 144 7,056 3,128 94,473
Plus:
Depreciation/amortization 2,615 495 3,314 6,424
Interest charges       99     3,721     3,820
Segment EBITDA $ 51,360 $ 35,400 $ 738   $ 14,091 $ 3,128 $ 104,717
 

 

Three months ended June 30, 2013

 

Franchise -

Applebee's

 

Franchise -

IHOP

Company

Restaurants

Rental

Operations

Financing

Operations

Total
Revenue

 

$

50,223

 

$

57,773



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