Dine Brands Global, Inc. — Q3 2021 Form 10-Q
Business and reporting period. Dine Brands owns and franchises Applebee’s and IHOP; approximately 98% of its 3,439 restaurants were franchised. The filing covers the third quarter and nine months of 2021. The company’s fiscal third quarter ended October 3, 2021, although its financial statements and comparisons are labeled as of September 30.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $228.7 million | $176.6 million | $666.5 million | $493.2 million |
| Gross profit | $94.6 million | $66.8 million | $278.8 million | $181.3 million |
| Gross margin | 41.4% | 37.8% | 41.8% | 36.8% |
| Net income (loss) | $23.1 million | $10.0 million | $78.1 million | ($102.4 million) |
| Diluted EPS | $1.33 | $0.60 | $4.52 | ($6.34) |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $145.6 million | $36.7 million |
Revenue mix and performance. Q3 franchise revenue was $161.1 million, company restaurant sales $35.3 million, and rental revenue $31.3 million. Q3 revenue rose 29.5%; nine-month revenue rose 35.1%. Domestic same-restaurant sales increased year over year in Q3 by 27.7% at Applebee’s and 40.1% at IHOP. Compared with 2019, however, the Q3 change was +12.5% at Applebee’s and -0.4% at IHOP. Results benefited from reopened capacity and easier pandemic-affected comparisons.
Cash flow and capital spending. Nine-month investing activities provided $7.5 million, including $14.8 million of principal receipts, partly offset by $7.9 million of capital expenditures. Adjusted free cash flow, a company-defined non-GAAP measure, was $146.1 million versus $35.6 million in 2020. The company attributed much of the operating cash flow improvement to working-capital changes, including collection of franchisee deferrals.
Debt and liquidity. Long-term debt, net of issuance costs, was $1.279 billion at September 30, down from $1.492 billion at year-end 2020. The company repaid $220 million drawn on its revolving facility in March 2021; $221.7 million remained available at quarter-end, with no borrowings outstanding. Cash and cash equivalents were $304.2 million; restricted cash was $81.1 million. The company reported a 4.36x leverage ratio and approximately 4.8x debt-service coverage ratio. It said available cash, operating cash flow, and facility capacity should support liquidity for the next 12 months.
Material changes and unusual items
- The prior-year nine-month loss included $124.5 million of closure and impairment charges, including $92.2 million of Applebee’s goodwill impairment and $11.0 million of tradename impairment. 2021 nine-month charges were $5.0 million; no goodwill or tradename impairment was recorded in 2021.
- Q3 2021 franchise expenses benefited from a $2.0 million bad-debt credit; the company cited improved franchisee receivable aging and reduced credit-loss reserves.
- Q3 general and administrative expense increased 18.5% to $43.7 million, primarily from personnel costs and incentive compensation. Management also noted higher food, labor, and delivery costs at company restaurants in Q3.
- IHOP’s recovery remained uneven versus 2019: same-restaurant sales were down 0.4% in Q3, and many locations had not resumed prior overnight operating hours.
Outlook, risks, and contingencies
The filing provides no specific financial guidance. Management cautioned that COVID-19 duration, variants, possible renewed dining restrictions, consumer spending, and franchisee health could affect results and liquidity. Other cited risks include indebtedness, refinancing, covenant compliance, labor and commodity costs, supply interruptions, technology and cybersecurity, and litigation.
Debt notes have anticipated repayment dates of June 2024 and June 2026; failure to repay or refinance by those dates can trigger additional interest and rapid amortization provisions. The company disclosed potential Applebee’s lease-guarantee liability of $229.3 million, or $43.4 million excluding unexercised lease options. It reported ordinary-course litigation and stated it did not expect current proceedings to have a material adverse impact, while noting outcomes cannot be assured.
After quarter-end, the board declared a $0.40-per-share dividend payable January 7, 2022, and the company announced plans to resume repurchases under its existing program, with $70.2 million of authorization remaining at September 30.
Key facts for investors to verify
- Whether sales and traffic momentum persisted after pandemic-related reopening comparisons normalized, particularly IHOP’s performance against 2019.
- Whether rising food, labor, and delivery costs affected company restaurant profitability and franchisee financial health.
- Whether franchisee receivable collections and the favorable bad-debt credits are sustainable.
- Liquidity, leverage, covenant headroom, and refinancing plans ahead of the 2024 and 2026 anticipated repayment dates.
- The cash-flow effect of resumed dividends and share repurchases, alongside lease guarantees and other commitments.