Dine Brands Global, Inc. — Q2 2021 Form 10-Q
Business and period. Dine Brands owns and franchises Applebee’s and IHOP, with most locations operated by franchisees. The filing’s reported three- and six-month comparisons are for periods ended June 30; under the company’s fiscal calendar, fiscal Q2 2021 ended July 4, 2021. Amounts below are in U.S. dollars.
Financial results and position
| Metric | Three months 2021 | Three months 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $233.6 million | $109.7 million | $437.8 million | $316.6 million |
| Gross profit | $98.9 million | $30.1 million | $184.2 million | $114.5 million |
| Income (loss) before tax | $38.7 million | ($146.8) million | $62.7 million | ($117.7) million |
| Net income (loss) | $29.4 million | ($134.8) million | $55.0 million | ($112.5) million |
| Diluted EPS | $1.69 | ($8.33) | $3.19 | ($6.96) |
- Revenue increased 112.9% in the quarter and 38.3% for the six months. The recovery primarily reflected reopened restaurants and relaxed dining restrictions, against unusually weak 2020 comparison periods.
- Gross margin was approximately 42.3% for the quarter and 42.1% for the six months, versus approximately 27.5% and 36.2%, respectively, a year earlier. These consolidated margins include advertising revenue and matching advertising expense, which are pass-through amounts.
- Operating cash flow was $106.0 million for the six months, versus cash used of $10.5 million in 2020. Investing activities provided $6.3 million; financing activities used $220.4 million, mainly due to repayment of the $220 million revolver draw. Adjusted free cash flow, a company-defined non-GAAP measure, was $107.3 million versus negative $12.4 million.
- At June 30, cash and cash equivalents were $259.5 million; restricted cash was $88.5 million. Current assets were $461.2 million and current liabilities $344.9 million.
- Long-term debt, net of issuance costs, was $1.282 billion, plus $3.3 million current maturities. The $220 million revolving facility borrowing was repaid in March; $221.7 million remained available at June 30. Leverage was 4.94x and debt-service coverage was approximately 4.6x.
- Total liabilities were $2.179 billion, and stockholders’ deficit was $282.8 million. Operating lease obligations totaled $395.8 million, including current amounts.
Changes and management commentary
- Domestic dining capacity improved substantially: as of June 30, 98% of domestic Applebee’s and IHOP restaurants were operating at full capacity and 99% were open. In June 2020, only 3,138 of 3,572 system restaurants had dining rooms open, often with restrictions.
- Domestic same-restaurant sales rose 102.2% at Applebee’s and 120.1% at IHOP in the quarter versus 2020, but compared with 2019 were up 10.5% at Applebee’s and down 3.4% at IHOP. The company attributes the 2021-versus-2020 increases chiefly to improved operating status, traffic and average check; it also cited stimulus payments as a possible contributor.
- The 2020 quarter included $124.4 million of impairment and closure charges, including $92.2 million of Applebee’s goodwill impairment and $11.0 million of tradename impairment. 2021 charges were $2.6 million for the quarter and $4.6 million for six months, primarily IHOP closure reserves and long-lived asset impairments. No goodwill or intangible-asset impairment indicators were identified in 2021.
- G&A expense increased to $39.3 million for the quarter and $79.2 million for six months, chiefly from personnel costs and higher bonus and equity-based incentive compensation. Six-month bad-debt expense was a credit of $2.3 million, compared with expense of $5.6 million in 2020.
- The company said existing cash, operating cash flow and available revolver capacity should provide adequate liquidity for the next 12 months. Dividends and discretionary share repurchases remained suspended after Q1 2020; no program repurchases occurred in the reported 2021 periods.
Outlook, risks and contingencies
- No specific earnings, revenue or other financial guidance is provided in the supplied filing text. Management cautions that COVID-19’s duration, variants, vaccination, possible renewed restrictions and effects on consumer spending remain uncertain and could affect results and liquidity.
- Debt is secured by substantially all domestic revenue-generating assets and domestic intellectual property held by specified securitization entities. Debt-service coverage or other indenture events can trigger cash-flow retention, accelerated amortization, manager termination or default remedies. The notes have anticipated repayment dates in June 2024 and June 2026; failure to repay or refinance by those dates can increase interest and trigger rapid amortization.
- The company had guaranteed or potential continuing liability for $234.8 million of assigned Applebee’s franchisee leases, the maximum potential future payments; excluding unexercised options, the amount was $40.1 million. Litigation and other claims arise in the ordinary course; management did not believe current proceedings would have a material adverse impact, but cannot assure that outcome.
- Other disclosed risks include franchisee financial health and concentration, restaurant closures and development, supply availability, cybersecurity and information technology, food safety, regulatory compliance, insurance and self-insurance, and the ability to refinance debt. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Investor verification points
- Confirm the fiscal-period dates and that reported year-over-year sales gains reflect the severe pandemic restrictions in 2020; assess performance against 2019 as well as 2020.
- Review franchisee payment capacity, collections of deferred fees, bad-debt assumptions and restaurant closure trends.
- Check liquidity, cash-flow sustainability and revolver availability, while distinguishing restricted cash from funds available for general use.
- Monitor leverage, debt-service coverage, securitized-debt triggers and the 2024/2026 anticipated repayment dates and related refinancing costs.
- Assess lease commitments and guarantees, including potential payments if franchisees default, and the status of litigation and other contingencies.
- Verify the durability of IHOP and Applebee’s sales recovery, cost pressures and the company’s capital-allocation plans; no formal forward guidance is provided here.