din-20200930

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________________

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-15283

Dine Brands Global, Inc.

(Exact name of registrant as specified in its charter)

Delaware

95-3038279

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

450 North Brand Boulevard,

91203-1903

Glendale,

(Address of principal executive offices)

(Zip Code)


(818)			240-6055
(Registrant’s telephone number, including area code)

______________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	DIN	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐

No ☒

As of October 21, 2020, the Registrant had 16,418,749 shares of Common Stock outstanding.

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Dine Brands Global, Inc. and Subsidiaries

Index


		Page
PART I.	FINANCIAL INFORMATION	3
	Item 1—Financial Statements	3
	Consolidated Balance Sheets - September 30, 2020 (unaudited) and December 31, 2019	3
	Consolidated Statements of Comprehensive Income (Loss) (unaudited) - Three and Nine Months Ended September 30, 2020 and 2019	4
	Consolidated Statements of Stockholders' Deficit (unaudited) - Three and Nine Months Ended September 30, 2020 and 2019	5
	Consolidated Statements of Cash Flows (unaudited) - Nine Months Ended September 30, 2020 and 2019	7
	Notes to Consolidated Financial Statements (unaudited)	8
	Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
	Item 3—Quantitative and Qualitative Disclosures about Market Risk	52
	Item 4—Controls and Procedures	52
PART II.	OTHER INFORMATION	54
	Item 1—Legal Proceedings	54
	Item 1A—Risk Factors	54
	Item 2—Unregistered Sales of Equity Securities and Use of Proceeds	55
	Item 3—Defaults Upon Senior Securities	55
	Item 4—Mine Safety Disclosures	55
	Item 5—Other Information	55
	Item 6—Exhibits	56
	Signatures	57

Cautionary Statement Regarding Forward-Looking Statements

Statements contained in this Quarterly Report on Form 10-Q 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. 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. 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. You should consider our forward-looking statements in light of the risks discussed under the heading “Risk Factors,” as well as our consolidated financial statements, related notes, and the other financial information appearing elsewhere in this report and our other filings with the United States Securities and Exchange Commission. The forward-looking statements contained in this report are made as of the date hereof and Dine Brands Global, Inc. does not intend to, nor does it assume any obligation to, update or supplement any forward-looking statements after the date of this report to reflect actual results or future events or circumstances.

Factors that could cause actual results to differ materially from the projections, forecasts, estimates and expectations discussed in this Quarterly Report on Form 10-Q include, among other things: uncertainty regarding the duration and severity of the ongoing COVID-19 pandemic and its ultimate impact on our business; 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, including any insolvency or bankruptcy; credit risks from our IHOP franchisees operating under our previous IHOP business model in which we built and equipped IHOP restaurants and then franchised them to franchisees; insufficient insurance coverage to cover potential risks associated with the ownership and operation of restaurants; 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; risks of food-borne illness or food tampering; possible future impairment charges; 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

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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; delivery initiatives and use of third-party delivery vendors; our allocation of human capital and 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 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 matters in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, many of which are beyond our control.

Fiscal Quarter End

The Company’s fiscal quarters end on the Sunday closest to the last day of each calendar quarter. For convenience, the fiscal quarters of each year are referred to as ending on March 31, June 30, September 30 and December 31. The first fiscal quarter of 2020 began on December 30, 2019 and ended on March 29, 2020; the second and third fiscal quarters of 2020 ended on June 28, 2020 and September 27, 2020, respectively. The first fiscal quarter of 2019 began on December 31, 2018 and ended on March 31, 2019; the second and third fiscal quarters of 2019 ended on June 30, 2019 and September 29, 2019, respectively.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Dine Brands Global, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share amounts)


Assets
	September 30, 2020		December 31, 2019
	(Unaudited)
Current assets:
Cash and cash equivalents	$	309,278	$	116,043


Receivables, net of allowance of $12,221 (2020) and $3,138 (2019)	122,148		136,869
Restricted cash	47,511		40,732
Prepaid gift card costs	25,690		36,077
Prepaid income taxes	13,831		13,290
Other current assets	5,942		3,906
Total current assets	524,400		346,917
Other intangible assets, net	552,943		575,103
Operating lease right-of-use assets	355,766		366,931
Goodwill	251,628		343,862
Property and equipment, net	195,105		216,420


Long-term receivables, net of allowance of $9,854 (2020) and $8,155 (2019)	69,898		85,999
Deferred rent receivable	62,458		70,308
Non-current restricted cash	32,800		15,700
Other non-current assets, net	25,918		28,271
Total assets	$	2,070,916	$	2,049,511
Liabilities and Stockholders’ Deficit
Current liabilities:
Current maturities of long-term debt	$	13,000	$	—
Accounts payable	28,930		40,925
Gift card liability	114,495		159,019
Current maturities of operating lease obligations	75,470		72,815
Current maturities of finance lease and financing obligations	13,116		13,669
Accrued employee compensation and benefits	17,498		23,904
Dividends payable	—		11,702



Deferred franchise revenue, short-term	7,862		10,086
Accrued advertising expenses	28,338		8,760
Other accrued expenses	22,402		17,032
Total current liabilities	321,111		357,912
Long-term debt	1,494,538		1,288,248
Operating lease obligations, less current maturities	351,927		359,025
Finance lease obligations, less current maturities	72,349		77,393
Financing obligations, less current maturities	34,488		37,682
Deferred income taxes, net	83,502		98,499
Deferred franchise revenue, long-term	54,101		56,944

Other non-current liabilities	15,264		15,582
Total liabilities	2,427,280		2,291,285
Commitments and contingencies
Stockholders’ deficit:
Preferred stock, $1 par value, 10,000,000 shares authorized; no shares issued or outstanding	—		—
Common stock, $0.01 par value; shares: 40,000,000 authorized; September 30, 2020 - 24,883,124 issued, 16,416,695 outstanding; December 31, 2019 - 24,925,447 issued, 16,521,921 outstanding	249		249
Additional paid-in-capital	255,907		246,192
(Accumulated deficit) retained earnings	(53,992)		61,653
Accumulated other comprehensive loss	(56)		(58)
Treasury stock, at cost; shares: September 30, 2020 - 8,466,429; December 31, 2019 - 8,403,526	(558,472)		(549,810)
Total stockholders’ deficit	(356,364)		(241,774)
Total liabilities and stockholders’ deficit	$	2,070,916	$	2,049,511

See the accompanying Notes to Consolidated Financial Statements.

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Dine Brands Global, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended						Nine Months Ended
	September 30, 2020						September 30, 2020
	2020		2019		2020		2019
Revenues:
Franchise revenues:
Royalties, franchise fees and other	$	69,820	$	88,686	$	191,915	$	275,912
Advertising revenues	51,932		67,514		142,750		211,882
Total franchise revenues	121,752		156,200		334,665		487,794
Company restaurant sales	27,353		30,548		75,427		100,034
Rental revenues	26,194		28,970		78,910		89,559
Financing revenues	1,344		1,687		4,237		5,280
Total revenues	176,643		217,405		493,239		682,667
Cost of revenues:
Franchise expenses:
Advertising expenses	51,932		67,514		142,750		211,882
Bad debt expense (credit)	2,845		(662)		8,416		(1,254)
Other franchise expenses	5,858		7,724		15,999		23,159
Total franchise expenses	60,635		74,577		167,165		233,787
Company restaurant expenses	28,303		30,361		79,774		93,131
Rental expenses:
Interest expense from finance leases	1,106		1,351		3,453		4,325
Other rental expenses	19,692		21,251		61,121		63,841
Total rental expenses	20,798		22,602		64,574		68,166
Financing expenses	123		145		393		437
Total cost of revenues	109,859		127,685		311,906		395,521
Gross profit	66,784		89,720		181,333		287,146
General and administrative expenses	36,873		38,922		105,351		121,105
Interest expense, net	16,844		15,238		49,143		45,233
Impairment and closure charges	168		157		124,521		640
Amortization of intangible assets	2,659		2,925		8,240		8,774

Loss on extinguishment of debt	—		—		—		8,276
Loss on disposition of assets	1,087		746		2,630		1,187
Income (loss) before income taxes	9,153		31,732		(108,552)		101,931
Income tax benefit (provision)	865		(7,815)		6,119		(24,981)
Net income (loss)	10,018		23,917		(102,433)		76,950
Other comprehensive income (loss) net of tax:

Foreign currency translation adjustment	2		(1)		2		—
Total comprehensive income (loss)	$	10,020	$	23,916	$	(102,431)	$	76,950
Net income (loss) available to common stockholders:
Net income (loss)	$	10,018	$	23,917	$	(102,433)	$	76,950
Less: Net income allocated to unvested participating restricted stock	(329)		(795)		(420)		(2,621)
Net income (loss) available to common stockholders	$	9,689	$	23,122	$	(102,853)	$	74,329
Net income (loss) available to common stockholders per share:
Basic	$	0.60	$	1.38	$	(6.34)	$	4.35
Diluted	$	0.60	$	1.36	$	(6.34)	$	4.27
Weighted average shares outstanding:
Basic	16,221		16,762		16,229		17,095
Diluted	16,283		17,055		16,229		17,432

See the accompanying Notes to Consolidated Financial Statements.

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Dine Brands Global, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Deficit

(In thousands)

(Unaudited)


	Three Months ended September 30, 2020
	Common Stock									Accumulated Other Comprehensive Loss	Treasury Stock
	Shares Outstanding	Amount		Additional Paid-in Capital		Accumulated Deficit					Shares		Cost		Total
Balance at June 30, 2020	16,418	$	249	$	254,429	$	(64,010)	$	(58)	8,483	$	(559,181)	$	(368,571)

Net income	—	—		—		10,018		—		—	—		10,018
Other comprehensive income	—	—		—		—		2		—	—		2

Reissuance of treasury stock	16	—		(709)		—		—		(16)	709		—
Net issuance of shares for stock plans	(11)	—		—		—		—		—	—		—
Repurchase of restricted shares for taxes	(6)	—		(309)		—		—		—	—		(309)
Stock-based compensation	—	—		2,523		—		—		—	—		2,523

Other	—	—		(27)		—		—		—	—		(27)
Balance at September 30, 2020	16,417	$	249	$	255,907	$	(53,992)	$	(56)	8,467	$	(558,472)	$	(356,364)


	Nine Months ended September 30, 2020
	Common Stock									Accumulated Other Comprehensive Loss	Treasury Stock
	Shares Outstanding	Amount		Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)					Shares		Cost		Total
Balance at December 31, 2019	16,522	$	249	$	246,192	$	61,653	$	(58)	8,404	$	(549,810)	$	(241,774)
Adoption of credit loss accounting guidance (Note 3)	—	—		—		(497)		—		—	—		(497)
Net loss	—	—		—		(102,433)		—		—	—		(102,433)
Other comprehensive income	—	—		—		—		2		—	—		2
Purchase of Company common stock	(460)	—		—		—		—		460	(26,527)		(26,527)
Reissuance of treasury stock	397	—		2,658		—		—		(397)	17,865		20,523
Net issuance of shares for stock plans	(7)	—		—		—		—		—	—		—
Repurchase of restricted shares for taxes	(35)	—		(2,438)		—		—		—	—		(2,438)
Stock-based compensation	—	—		9,193		—		—		—	—		9,193
Dividends on common stock	—	—		507		(12,715)		—		—	—		(12,208)
Other	—	—		(205)		—		—		—	—		(205)
Balance at September 30, 2020	16,417	$	249	$	255,907	$	(53,992)	$	(56)	8,467	$	(558,472)	$	(356,364)

See the accompanying Notes to Consolidated Financial Statements.

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Dine Brands Global, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Deficit

(In thousands)

(Unaudited)


	Three Months ended September 30, 2019
	Common Stock									Accumulated Other Comprehensive Loss	Treasury Stock
	Shares Outstanding	Amount		Additional Paid-in Capital		Retained Earnings					Shares		Cost		Total
Balance at June 30, 2019	17,252	$	249	$	240,555	$	33,832	$	(59)	7,697	$	(489,702)	$	(215,125)
Net income	—	—		—		23,917		—		—	—		23,917
Other comprehensive loss	—	—		—		—		(1)		—	—		(1)
Purchase of Company common stock	(524)	—		—		—		—		524	(42,717)		(42,717)
Reissuance of treasury stock	73	—		582		—		—		(73)	3,151		3,733
Net issuance of shares for stock plans	(11)	—		—		—		—		—	—		—
Repurchase of restricted shares for taxes	(4)	—		(347)		—		—		—	—		(347)
Stock-based compensation	—	—		2,326		—		—		—	—		2,326
Dividends on common stock	—	—		242		(11,810)		—		—	—		(11,568)

Balance at September 30, 2019	16,786	$	249	$	243,358	$	45,939	$	(60)	8,148	$	(529,268)	$	(239,782)


	Nine Months ended September 30, 2019
	Common Stock									Accumulated Other Comprehensive Loss	Treasury Stock
	Shares Outstanding	Amount		Additional Paid-in Capital		Retained Earnings					Shares		Cost		Total
Balance at December 31, 2018	17,644	$	250	$	237,726	$	10,414	$	(60)	7,341	$	(450,603)	$	(202,273)
Adoption of new lease accounting guidance	—	—		—		(5,030)		—		—	—		(5,030)
Net income	—	—		—		76,950		—		—	—		76,950
Other comprehensive income	—	—		—		—		—		—	—		—
Purchase of Company common stock	(1,067)	—		—		—		—		1,067	(90,073)		(90,073)
Reissuance of treasury stock	260	(1)		(736)		—		—		(260)	11,408		10,671
Net issuance of shares for stock plans	(23)	—		—		—		—		—	—		—
Repurchase of restricted shares for taxes	(28)	—		(2,589)		—		—		—	—		(2,589)
Stock-based compensation	—	—		8,220		—		—		—	—		8,220
Dividends on common stock	—	—		737		(36,395)		—		—	—		(35,658)

Balance at September 30, 2019	16,786	$	249	$	243,358	$	45,939	$	(60)	8,148	$	(529,268)	$	(239,782)

See the accompanying Notes to Consolidated Financial Statements.

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Dine Brands Global, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Nine Months Ended
	September 30,
	2020		2019
Cash flows from operating activities:
Net (loss) income	$	(102,433)	$	76,950
Adjustments to reconcile net (loss) income to cash flows provided by operating activities:
Impairment and closure charges	124,469		640
Depreciation and amortization	32,053		31,515
Non-cash stock-based compensation expense	9,193		8,220
Non-cash interest expense	1,990		2,722

Deferred income taxes	24,172		(2,890)
Deferred revenue	(5,067)		(6,590)
Loss on extinguishment of debt	—		8,276
Loss on disposition of assets	2,630		1,187

Other	1,173		(4,584)
Changes in operating assets and liabilities:
Accounts receivable, net	(27,849)		4,233
Current income tax receivables and payables	(41,426)		7,101
Gift card receivables and payables	(1,980)		(15,868)
Other current assets	(2,034)		(3,519)
Accounts payable	6,777		359
Accrued employee compensation and benefits	(6,406)		(6,069)

Accrued advertising	19,579		(1,366)
Other current liabilities	1,887		5,282
Cash flows provided by operating activities	36,728		105,599
Cash flows from investing activities:
Principal receipts from notes, equipment contracts and other long-term receivables	15,731		16,156
Net additions to property and equipment	(9,088)		(13,360)
Proceeds from sale of property and equipment	517		400
Additions to long-term receivables	(1,475)		(6,955)