Dine Brands Global, Inc. Reports Second Quarter 2020 Results

Dine Brands Global, Inc. (NYSE: DIN), the parent company of Applebee's Neighborhood Grill + Bar® and IHOP® restaurants, today announced financial results for the second quarter of 2020.

“As we continue to navigate through the challenges currently facing our industry, we have remained resolute in our focus to return to growth. Throughout the second quarter, weekly comparable sales and traffic at both Applebee’s and IHOP improved as state and local governments began to ease restrictions on dining room operations. This, coupled with the significant growth of our brands’ off-premise business, contributed to the progress made during the quarter,” said Steve Joyce, chief executive officer of Dine Brands Global, Inc.

Mr. Joyce added, “I’m confident in our long-term strategy and ability to quickly adapt to the ever-changing industry landscape. We have strong liquidity with approximately $342 million of cash, of which $279 million is unrestricted cash. We’ve been through challenging times before, and I believe we are well-positioned to emerge from the pandemic and restore our momentum.”

Domestic System-Wide Comparable Same-Restaurant Sales Performance

Second Quarter of 2020

• Applebee’s comparable same-restaurant sales improved 11 out of 13 weeks through the week ended June 28, 2020 from a decrease of 77.0% to a decrease of 17.8%, representing an increase of 59.2 percentage points during this period.

• IHOP’s comparable same-restaurant sales improved sequentially for 12 consecutive weeks out of 13 through the week ended June 28, 2020 from a decrease of 81.5% to a decrease of 34.4%, representing an increase of 47.1 percentage points during this period.

• Comparable same-restaurant sales for the second quarter of 2020 declined at both Applebee’s and IHOP primarily due to the impact of COVID-19 and related governmental restrictions on restaurant operations at the federal, state and local levels, which resulted in a meaningful decline in traffic for the second quarter of 2020.

• As of June 30, 2020, 3,154 of our domestic restaurants, or 95%, were open for either dine-in service or off-premise service comprised of take-out and delivery.

Off-Premise Sales Growth Comparison

• Off-premise sales at both Applebee’s and IHOP increased significantly primarily as a result of governmental mandates, which placed restrictions on dine-in service as well as the favorable impact of the Company’s digital initiatives.

• Applebee’s off-premise sales accounted for 60.5% of sales mix for the second quarter of 2020, as compared to 16.3% of sales mix for the first quarter of 2020 and 13.0% of sales mix for the fourth quarter of 2019.

• Applebee’s delivery sales accounted for 16.8% of sales mix and take-out sales accounted for 43.8% of sales mix for the second quarter of 2020.

• Applebee’s online sales as a percentage of total sales increased by 17.8 percentage points in the second quarter of 2020 to 22.9%. This compares to 5.1% of total sales for the first quarter of 2020.

• IHOP’s off-premise sales accounted for 53.6% of sales mix for the second quarter of 2020, as compared to 12.8% of sales mix for the first quarter of 2020 and 10.1% of sales mix for the fourth quarter of 2019.

• IHOP’s delivery sales accounted for 23.4% of sales mix and take-out sales accounted for 33.5% of sales mix for the second quarter of 2020.

• IHOP’s online sales as a percentage of total sales increased by 27.8 percentage points in the second quarter of 2020 to 34.7%. This compares to 6.9% of total sales for the first quarter of 2020.

Second Quarter of 2020 Summary

• GAAP net loss per diluted share of $8.04 for the second quarter of 2020 compared to earnings per diluted share of $1.18 for the second quarter of 2019.
  
  This variance was primarily due to non-cash impairment charges totaling $106.5 million related to the write-downs of Applebee’s goodwill and other intangible assets as a result of the impact of COVID-19 on the Company’s operations. These items were partially offset by a deferred tax benefit of $3.4 million attributable to the other intangible assets charge.
  
  Additionally, gross profit decreased primarily due to a significant decline in customer traffic as a result of governmental measures to stem the spread of the coronavirus and related changes in consumer behavior.

• Adjusted net loss per diluted share of $0.87 for the second quarter of 2020 compared to adjusted earnings per diluted share of $1.71 for the second quarter of 2019. (See “Non-GAAP Financial Measures” and reconciliation of GAAP earnings per diluted share to adjusted earnings per diluted share.)

• General and administrative expenses for the second quarter of 2020 declined 21.6% year-over-year to $30.9 million. The improvement was mainly due to lower compensation expenses.

• Net loss of $134.8 million for the second quarter of 2020 compared to net income of $21.4 million the second quarter of 2019.

• Consolidated adjusted EBITDA for the second quarter of 2020 was $12.1 million. This compares to $68.0 million for the second quarter of 2019. (See “Non-GAAP Financial Measures” and reconciliation of GAAP net income to consolidated adjusted EBITDA.)

• Cash used in operating activities for the first six months of 2020 was $10.5 million. This compares to cash flows from operating activities of $69.3 million for the first six months of 2019. The decrease mainly was due a significant decline in customer traffic at our restaurants that adversely impacted our segment operations as well as payment deferrals we offered to our franchisees primarily for the months of March 2020 and April 2020.

• The Company had negative adjusted free cash flow of $12.4 million for the first six months of 2020. This compares to adjusted free cash flow of $66.0 million for the first six months of 2019. (See “Non-GAAP Financial Measures” and reconciliation of the Company’s cash provided by operating activities to adjusted free cash flow.)

• GAAP net loss available to common stockholders was $130.0 million, or net loss per diluted share of $8.04, for the second quarter of 2020. This compares to net income available to common stockholders of $20.7 million, or earnings per diluted share of $1.18, for the second quarter of 2019. The decrease in net income was primarily due to the impairment charges and decline in gross profit discussed above. These items were partially offset by a decline in general and administrative expenses.

• Adjusted net loss available to common stockholders was $14.0 million, or adjusted net loss per diluted share of $0.87, for the second quarter of 2020. This compares to adjusted net income available to common stockholders of $30.0 million, or adjusted earnings per diluted share of $1.71, for the second quarter of 2019. The decrease in adjusted net income was primarily due to lower gross profit for the reasons described above. This item was partially offset by fewer weighted average diluted shares outstanding and lower general and administrative expenses. (See “Non-GAAP Financial Measures” below.)

Cash Position

Dine Brands has taken precautionary measures to increase the Company’s financial flexibility due to the conditions caused by COVID-19. As previously disclosed on March 19, 2020, the Company borrowed $220 million from its revolving financing facility, all of which remains drawn as of June 30, 2020. As of June 30, 2020, $2.8 million was pledged against the revolving financing facility for outstanding letters of credit.

As of June 30, 2020, the Company had $342.5 million of total cash, including restricted cash of $64.0 million. The Company believes that its asset-light business model and cash position will continue to provide strong liquidity during the pandemic.

The Company makes $16.4 million of quarterly interest payments on its Series 2019-1 Class A-2-I, Fixed Rate Senior Secured Notes and Series 2019-1 Class A-2-II, Fixed Rate Senior Secured Notes (the “Class A-2-I Notes”, together with the “Class A-2-II Notes”, the “Class A-2 Notes”). In addition, the Company anticipates making a principal payment of $3.25 million in the fourth quarter of 2020. The quarterly principal payments under the Class A-2 Notes may be voluntarily suspended when the leverage ratio for the Company and its subsidiaries is less than or equal to 5.25x. As of June 30, 2020, the Company’s leverage ratio was 6.30x.

The Company voluntarily doubled its interest reserve on its Class A-2 Notes during the second quarter of 2020 to $32.8 million to enhance its securitization structure. This increased restricted cash by $16.4 million.

GAAP Effective Tax Rate

Our effective tax rate for the second quarter of 2020 was an 8.2% tax benefit compared to a 26.4% expense for the second quarter of 2019. The variance is primarily due to the non-deductibility of the Applebee’s goodwill impairment discussed earlier.

Financial Performance Guidance for 2020 Withdrawn

The Company disclosed on March 19, 2020 that it believes its consolidated financial results for 2020 could be materially impacted by the global impact from COVID-19. As a result, the Company withdrew its 2020 financial performance guidance issued on February 24, 2020. The Company assumes no obligation to update or supplement its financial performance guidance issued on February 24, 2020.

Applebee’s Reopening Update

Applebee’s restaurants began reopening their dining rooms on April 27, 2020. As of June 30, 2020, out of 1,639 domestic Applebee’s franchise restaurants, 1,523 were open for in-restaurant dining, 70 were open for only off-premise sales, comprised of take-out and delivery, and 46 were temporarily closed.

IHOP Reopening Update

IHOP restaurants began reopening their dining rooms on April 21, 2020. As of June 30, 2020, out of 1,695 domestic IHOP franchise and area license restaurants, 1,485 were open for in-restaurant dining, 76 were open only for off-premise sales, comprised of take-out and delivery, and 134 were temporarily closed.

Second Quarter of 2020 Earnings Conference Call Details

Dine Brands will host a conference call to discuss its results on July 29, 2020 at 9:00 a.m. Pacific Time. To participate on the call, please dial (833) 528-0602 and enter the conference identification number 4180997. International callers, please dial (830) 221-9708 and enter the conference identification number 4180997.

A live webcast of the call will be available on www.dinebrands.com and may be accessed by visiting Events and Presentations under the site’s Investors 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 from 12:00 p.m. Pacific Time on July 29, 2020 through 12:00 p.m. Pacific Time on August 5, 2020 by dialing (855) 859-2056 and entering the conference identification number 4180997. International callers, please dial (404) 537-3406 and enter the conference identification number 4180997. An online archive of the webcast will also be available on Events and Presentations under the Investors section of the Company’s website.

About Dine Brands Global, Inc.

Based in Glendale, California, Dine Brands Global, Inc. (NYSE: DIN), through its subsidiaries, franchises restaurants under both the Applebee's Neighborhood Grill + Bar and IHOP brands. With approximately 3,600 restaurants combined in 17 countries and approximately 370 franchisees, Dine Brands is one of the largest full-service restaurant companies in the world. For more information on Dine Brands, visit the Company’s website located at www.dinebrands.com.

Forward-Looking Statements

Statements contained in this press release may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You can identify these forward-looking statements by words such as “may,” “will,” “would,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan,” “goal” 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: uncertainty regarding the duration and severity of the ongoing COVID-19 pandemic and its ultimate impact on the Company; the effectiveness of related containment measures; general economic conditions; our level of indebtedness; compliance with the terms of our securitized debt; our ability to refinance our current indebtedness or obtain additional financing; our dependence on information technology; potential cyber incidents; the implementation of restaurant development plans; our dependence on our franchisees; the concentration of our Applebee’s franchised restaurants in a limited number of franchisees; the financial health of our franchisees; our franchisees’ and other licensees’ compliance with our quality standards and trademark usage; general risks associated with the restaurant industry; potential harm to our brands’ reputation; possible future impairment charges; the effects of tax reform; trading volatility and fluctuations in the price of our stock; our ability to achieve the financial guidance we provide to investors; successful implementation of our business strategy; the availability of suitable locations for new restaurants; shortages or interruptions in the supply or delivery of products from third parties or availability of utilities; the management and forecasting of appropriate inventory levels; development and implementation of innovative marketing and use of social media; changing health or dietary preference of consumers; risks associated with doing

business in international markets; the results of litigation and other legal proceedings; third-party claims with respect to intellectual property assets; our ability to attract and retain management and other key employees; compliance with federal, state and local governmental regulations; risks associated with our self-insurance; natural disasters, pandemics, epidemics, or other serious incidents; our success with development initiatives outside of our core business; the adequacy of our internal controls over financial reporting and future changes in accounting standards; and other factors discussed from time to time in the Corporation’s Annual and Quarterly Reports on Forms 10-K and 10-Q and in the Corporation’s other filings with the Securities and Exchange Commission. The forward-looking statements contained in this press release are made as of the date hereof and the Corporation does not intend to, nor does it assume any obligation to, update or supplement any forward-looking statements after the date hereof to reflect actual results or future events or circumstances.

Non-GAAP Financial Measures

This press release includes references to the Company's non-GAAP financial measure “adjusted net income available to common stockholders”, “adjusted earnings per diluted share (Adjusted EPS)”, “Adjusted EBITDA” and “Adjusted free cash flow.” 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 gain or loss related to the disposition of assets, and other items deemed not reflective of current operations. This is presented on an aggregate basis and a per share (diluted) basis. Adjusted EBITDA is computed for a given period by deducting from net income or loss for such period the effect of any closure and impairment charges, any interest charges, any income tax provision or benefit, any non-cash stock-based compensation, any depreciation and amortization, any gain or loss related to the disposition of assets and other items deemed not reflective of current operations. “Adjusted free cash flow” for a given period is defined as cash provided by operating activities, plus receipts from notes and equipment contracts receivable, less capital expenditures. Management may use certain of these non-GAAP financial measures along with the corresponding U.S. GAAP measures to evaluate the performance of the business and to make certain business decisions. Management uses adjusted free cash flow in its periodic assessments of, among other things, the amount of cash dividends per share of common stock and repurchases of common stock and we believe it is important for investors to have the same measure used by management for that purpose. Adjusted free cash flow does not represent residual cash flow available for discretionary purposes. Additionally, adjusted EPS is one of the metrics used in determining payouts under the Company’s annual cash incentive plan. Management believes that these non-GAAP financial measures provide additional meaningful information that should be considered when assessing the business and the Company’s performance compared to prior periods and the marketplace. Adjusted EPS and adjusted free cash flow 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 U.S. GAAP.

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