# Dine Brands Global, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Dine Brands Global, Inc.](/companies/din.md) (CIK 49754)
- Form: 10-Q
- Filed: 2023-11-01
- Accepted by EDGAR: Nov 1, 2023, 07:30 ET
- Period: 2023-09-30
- Accession: 0001628280-23-035792
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/49754/000162828023035792/din-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/49754/000162828023035792/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $202.6m | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $624.8m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $105.3m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $326.5m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $97.3m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $298.3m | us-gaap:GrossProfit |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $20.0m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $54.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $6.5m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $21.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $18.5m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $64.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $1.19 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $4.09 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $1.19 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $4.10 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 15,220,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 15,289,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $79.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $32.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $31.7m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $20.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $98.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $263.8m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $1.66bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $384.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $1.93bn | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $1.08bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $100.0m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | −$273.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 53,346 characters.

You should read the following Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this report and the MD&A contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Statements contained in this report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please refer to the section of this report under the heading “Cautionary Statement Regarding Forward-Looking Statements” for more information. Except where the context indicates otherwise, the words “we,” “us,” “our,” “Dine Brands Global” and the “Company” refer to Dine Brands Global, Inc., together with its subsidiaries that are consolidated in accordance with United States generally accepted accounting principles (“U.S. GAAP”).

### Overview

Through various subsidiaries, we own and franchise the Applebee's Neighborhood Grill & Bar® (“Applebee's”) concept in the American full-service segment within the casual dining category of the restaurant industry, the International House of Pancakes® (“IHOP”) concept in the mid-scale full-service restaurant segment within the family dining category of the restaurant industry, and the Fuzzy's Taco Shop® (“Fuzzy's”) concept in the Mexican limited-service restaurant segment within the fast-casual dining category of the restaurant industry. References herein to Applebee's®, IHOP® and Fuzzy's Taco Shop® restaurants are to these three restaurant concepts, whether operated by franchisees, area licensees and their sub-licensees (collectively, “area licensees”) or by us. With almost 3,600 franchised and company-operated restaurants combined, we believe we are one of the largest full-service restaurant companies in the world.

We identify our business segments based on the organizational units used by management to monitor performance and make operating decisions. We currently have six operating segments: Applebee's franchise operations, IHOP franchise operations, Fuzzy's franchise operations, rental operations, financing operations, and company-operated restaurant operations. We have four reportable segments: franchise operations (an aggregation of each restaurant concept's franchise operations), rental operations, financing operations, and company-operated restaurant operations.

We acquired Fuzzy's in December 2022 and the results of its operations are included herein. However, comparative key performance indicators in the following sections only include the results of operations of Applebee's and IHOP, unless otherwise noted, as prior period data is not available for Fuzzy’s.

### Key Financial Results

The financial tables appearing in this MD&A present amounts in millions of dollars that are rounded from our consolidated financial statements presented in thousands of dollars. As a result, the tables may not foot or crossfoot due to rounding.

*(In millions, except per share data)*

|  | Three Months Ended September 30, 2023 | 2022 | Favorable (Unfavorable) Variance 2023 | Nine Months Ended September 30, 2022 |  | Favorable (Unfavorable) Variance |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Income before income taxes | $24.9 | $28.7 | $(3.8) | $85.6 | $95.4 | $(9.8) |
| Income tax provision | (6.5) | (7.8) | 1.3 | (21.4) | (25.7) | 4.3 |
| Net income | $18.5 | $20.9 | $(2.5) | $64.1 | $69.8 | $(5.6) |
| Effective tax rate | 25.9% | 27.1% | 1.2% | 25.0% | 26.9% | 1.9% |
| Net income per diluted share | $1.19 | $1.32 | $(0.13) | $4.09 | $4.22 | $(0.13) |
|  |  |  | **% decrease** |  |  | **% decrease** |
| Weighted average diluted shares | 15.2 | 15.4 | (1.3)% | 15.3 | 16.1 | (5.0)% |

The effective tax rate for the three and nine months ended September 30, 2023 was different than the rate of the prior comparable periods primarily due to the recognition of higher excess tax benefits from stock-based compensation and lower non-deductible executive compensation.

The following table highlights the primary components of the decrease in our income before income taxes for the three and nine months ended September 30, 2023, compared to our income before income taxes for the comparable prior periods (in millions):

| (Decrease) increase in gross profit: | Favorable (Unfavorable) Variance Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2023 |
| --- | ---: | ---: |
| Applebee's franchise operations | $(1.4) | $(0.6) |
| IHOP franchise operations | 3.3 | 8.7 |
| Fuzzy's franchise operations | 2.8 | 9.6 |
| Company restaurant operations | (1.8) | (5.4) |
| Rental and financing operations | 0.0 | 3.1 |
| Total increase in gross profit | 3.0 | 15.4 |
| Increase in general and administrative ("G&A") expenses | (2.3) | (15.6) |
| Increase in interest expense, net | (3.8) | (5.4) |
| Loss on disposition of assets | (1.7) | (5.3) |
| Other | 1.0 | 0.9 |
| Decrease in income before income taxes | $(3.8) | $(9.9) |

Income before income taxes for the three months ended September 30, 2023 decreased compared to the comparable prior period due to increases in interest expense and G&A expenses (*see* the discussion under the header "G&A Expenses" below), as well as the decrease in company restaurant operations primarily due to the refranchising of the 69 Applebee's company-operated restaurants in October 2022. The increased costs were partially offset by the increase in IHOP franchise operations from increased same-restaurant sales and effective restaurants, and the inclusion of the acquired Fuzzy's Taco Shop® brand.

Income before income taxes for the nine months ended September 30, 2023 decreased compared to the comparable prior period due to increased G&A expenses (*see* the discussion under the header "G&A Expenses" below), interest expense, and loss on disposition of assets. The increased costs were partially offset by the inclusion of the acquired Fuzzy's brand, increase in IHOP franchise operations from increased domestic same-restaurant sales and effective restaurants, and increases in rental and financing operations related to three IHOP lease buyouts.

Increases in commodity, labor and other restaurant operating costs experienced at restaurants owned and operated by our franchisees could impact us to the extent our franchisees are adversely impacted by a sustained decline in their operating margins. At company operated restaurants, when applicable, increases in commodity, labor and other restaurant operating costs impact us directly.

See “*Consolidated Results of Operations - Comparison of the Three and Nine Months Ended September 30, 2023 and 2022”* for additional discussion of the changes shown above.

### Key Performance Indicators

In evaluating the performance of each restaurant concept, we consider the key performance indicators to be the system-wide sales percentage change, the percentage change in domestic system-wide same-restaurant sales (“domestic same-restaurant sales”), net franchise restaurant development and the change in effective restaurants. Changes in both domestic same-restaurant sales and in the number of Applebee's and IHOP restaurants will impact our system-wide retail sales that drive franchise royalty revenues. Restaurant development also impacts franchise revenues in the form of initial franchise fees and, in the case of IHOP restaurants, sales of proprietary pancake and waffle dry mix. As noted above, the comparative key performance indicators in the following sections only include the results of operations of Applebee's and IHOP, unless otherwise noted, as prior period data is not available for Fuzzy’s.

Our key performance indicators for the three and nine months ended September 30, 2023 were as follows:

|  | Three Months Ended September 30, 2023 Applebee's | IHOP | Nine Months Ended September 30, 2023 Applebee's | IHOP |
| --- | ---: | ---: | ---: | ---: |
| Sales percentage (decrease) increase in reported retail sales - 2023 vs. 2022 | (3.2)% | 4.2% | 0.3% | 6.6% |
| % (decrease) increase in domestic system-wide same-restaurant sales - 2023 vs. 2022 | (2.4)% | 2.0% | 0.9% | 4.2% |
| Net franchise restaurant (reduction) increase (1) | (9) | 4 | (26) | 13 |
| Net (decrease) increase in total effective restaurants (2) | (16) | 28 | (10) | 32 |

(1) Franchise and area license restaurant closings, net of openings, during the three and nine months ended September 30, 2023 and 2022.

(2) Change in the weighted average number of franchise, area license and company-operated restaurants open during the three and nine months ended September 30, 2023, compared to the weighted average number of those open during the same periods of 2022.

The change in total effective restaurants for each brand reflects both permanent closures, net of openings, over the past 12 months as well as the weighted effect of restaurants temporarily closed during each period.

### Domestic Same-Restaurant Sales

Applebee’s system-wide domestic same-restaurant sales decreased 2.4% for the three months ended September 30, 2023 and increased 0.9% for the nine months ended September 30, 2023 as compared to the same periods of 2022. The decrease for the three months ended September 30, 2023 was primarily due to a decrease in traffic, offset by an increase in average check. The increase for the nine months ended September 30, 2023 was primarily due to an increase in average check resulting from the successful promotional food offerings and menu price increases by franchisees, offset by a decrease in traffic.

| Applebee's Off-Premise Sales Data | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Off-premise sales (in millions) (1) | $221.4 | $259.0 | $729.3 | $837.7 |
| % sales mix | 21.5% | 24.2% | 22.4% | 25.8% |

(1) Primarily to-go, delivery and catering sales for comparable 2023 and 2022 restaurants.

Based on data from Black Box Intelligence, a restaurant sales reporting firm (“Black Box”), Applebee's same-restaurant sales for the three and nine months ended September 30, 2023 underperformed the casual dining segment of the restaurant industry (excluding Applebee's) during the same periods of 2023.

IHOP's system-wide domestic same-restaurant sales increased 2.0% for the three months ended September 30, 2023 and 4.2% for the nine months ended September 30, 2023 as compared to the same periods of 2022. The improvement was due to an increase in average check, offset by a decrease in traffic. The increase in average check was primarily due to an increase in menu prices as well as a general increase in consumer spending due to larger party sizes and greater spending per person.

| IHOP Off-Premise Sales Data | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Off-premise sales (in millions) (1) | $143.2 | $143.6 | $460.6 | $464.4 |
| % sales mix | 19.5% | 20.4% | 20.6% | 22.0% |

(1) Primarily to-go, delivery and catering sales for comparable 2023 and 2022 restaurants.

Based on data from Black Box, IHOP's increase in same-restaurant sales for the three and nine months ended September 30, 2023 underperformed the family dining segment of the restaurant industry (excluding IHOP) during the same periods of 2023.

### Restaurant Data

The following table sets forth the number of “Effective Restaurants” in the Applebee’s and IHOP systems and information regarding the percentage change in sales at those restaurants compared to the same period of the prior year. Sales at restaurants that are owned by franchisees and area licensees are not attributable to the Company and, as such, the percentage change in sales at Effective Restaurants is based on non-GAAP sales data. However, we believe that presentation of this information is useful in analyzing our revenues because franchisees and area licensees pay us royalties and advertising fees that are based on a percentage of their sales, and, where applicable, rental payments under leases that partially may be based on a percentage of their sales. Management also uses this information to make decisions about plans for future development of additional restaurants as well as evaluation of current operations.

*(Unaudited)*

| Applebee's Restaurant Data Global Effective Restaurants(a) | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Franchise | 1,654 | 1,601 | 1,663 | 1,604 |
| Company | — | 69 | — | 69 |
| Total | **1,654** | **1,670** | **1,663** | **1,673** |
| **System-wide(b)** |  |  |  |  |
| Domestic sales percentage change(c) | (3.2)% | 3.2% | 0.3% | 5.9% |
| Domestic same-restaurant sales percentage change(d) | (2.4)% | 3.8% | 0.9% | 6.3% |
| **Franchise(b)** |  |  |  |  |
| Domestic sales percentage change(c) | 0.4% | 3.1% | 4.0% | 5.8% |

29

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Domestic same-restaurant sales percentage change(d) | (2.4)% | 3.6% | 0.9% | 6.3% |
| Average weekly domestic unit sales (in thousands) | $52.1 | $53.5 | $54.4 | $54.2 |
| **IHOP Restaurant Data** |  |  |  |  |
| **Global Effective Restaurants(a)** |  |  |  |  |
| Franchise | 1,631 | 1,602 | 1,626 | 1,594 |
| Area license | 156 | 157 | 156 | 156 |
| Total | **1,787** | **1,759** | **1,782** | **1,750** |
| **System-wide(b)** |  |  |  |  |
| Sales percentage change(c) | 4.2% | 3.7% | 6.6% | 9.1% |
| Domestic same-restaurant sales percentage change, including area license restaurants(d) | 2.0% | 1.9% | 4.2% | 7.2% |
| **Franchise(b)** |  |  |  |  |
| Sales percentage change(c) | 4.5% | 3.6% | 6.9% | 9.2% |
| Domestic same-restaurant sales percentage change(d) | 2.0% | 1.6% | 4.2% | 7.3% |
| Average weekly unit sales (in thousands) | $37.8 | $36.8 | $38.3 | $36.5 |
| **Area License(b)** |  |  |  |  |
| Sales percentage change(c) | 1.1% | 5.2% | 4.0% | 8.4% |

(a) “Effective Restaurants” are the weighted average number of restaurants open in each fiscal period, adjusted to account for restaurants open for only a portion of the period. Information is presented for all Effective Restaurants in the Applebee’s and IHOP systems, which consist of restaurants owned by franchisees and area licensees as well as those owned by the Company. Effective Restaurants do not include units operated as ghost kitchens (small kitchens with no store-front presence, used to fill off-premise orders).

(b) “System-wide sales” are retail sales at Applebee’s restaurants operated by franchisees and IHOP restaurants operated by franchisees and area licensees, as reported to the Company, in addition to retail sales at company-operated Applebee's restaurants. System-wide sales do not include retail sales of ghost kitchens. Sales at restaurants that are owned by franchisees and area licensees are not attributable to the Company. An increase in franchisees' reported sales will result in a corresponding increase in our royalty revenue, while a decrease in franchisees' reported sales will result in a corresponding decrease in our royalty revenue. Unaudited reported sales for Applebee's domestic franchise restaurants, Applebee's company-operated restaurants, IHOP franchise restaurants and IHOP area license restaurants were as follows:

*(Unaudited)*

| Reported sales (in millions) | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Applebee's domestic franchise restaurant sales | $1,048.5 | $1,044.5 | $3,303.9 | $3,176.2 |
| Applebee's company-operated restaurants | — | 38.2 | — | 117.2 |
| IHOP franchise restaurant sales | 801.0 | 766.8 | 2,425.9 | 2,270.3 |
| IHOP area license restaurant sales | 74.3 | 73.5 | 228.1 | 219.3 |
| Total | $1,923.8 | $1,923.0 | $5,957.9 | $5,783.0 |

(c) “Sales percentage change” reflects, for each category of restaurants, the percentage change in sales in any given fiscal period compared to the prior fiscal period for all restaurants in that category.

(d) “Domestic same-restaurant sales percentage change” reflects the percentage change in sales in any given fiscal period, compared to the same weeks in the prior fiscal period, for domestic restaurants that have been operated during both fiscal periods that are being compared and have been open for at least 18 months. Because of new restaurant openings and restaurant closures, the domestic restaurants open throughout both fiscal periods being compared may be different from period to period.

*(Unaudited)*

| Restaurant Development Activity Applebee's Summary - beginning of period: | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| **Franchise** | 1,661 | 1,604 | 1,678 | 1,611 |
| Company | — | 69 | — | 69 |
| **Beginning of period** | **1,661** | **1,673** | **1,678** | **1,680** |
| Franchise restaurants opened: |  |  |  |  |
| Domestic | 2 | — | 3 | 2 |
| International | 2 | 1 | 5 | 1 |
| Total franchise restaurants opened | 4 | 1 | 8 | 3 |
| Franchise restaurants permanently closed: |  |  |  |  |
| Domestic | (12) | (3) | (28) | (9) |
| International | (1) | (1) | (6) | (4) |
| Total franchise restaurants permanently closed | (13) | (4) | (34) | (13) |
| **Net franchise restaurant reduction** | **(9)** | **(3)** | **(26)** | **(10)** |
| **Summary - end of period:** |  |  |  |  |
| Franchise | 1,652 | 1,601 | 1,652 | 1,601 |
| Company | — | 69 | — | 69 |
| **Total Applebee's restaurants, end of period** | **1,652** | **1,670** | **1,652** | **1,670** |
| Domestic | 1,544 | 1,571 | 1,544 | 1,571 |
| International | 108 | 99 | 108 | 99 |

31

| Restaurant Development Activity (continued) IHOP Summary - beginning of period: | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Franchise | 1,634 | 1,608 | 1,625 | 1,595 |
| Area license | 156 | 156 | 156 | 156 |
| **Total IHOP restaurants, beginning of period** | **1,790** | **1,764** | **1,781** | **1,751** |
| Franchise/area license restaurants opened: |  |  |  |  |
| Domestic franchise | 5 | 5 | 27 | 20 |
| Domestic area license | — | 1 | 2 | 2 |
| International franchise | 5 | 3 | 11 | 10 |
| Total franchise/area license restaurants opened | 10 | 9 | 40 | 32 |
| Franchise/area license restaurants permanently closed: |  |  |  |  |
| Domestic franchise | (5) | (5) | (23) | (12) |
| Domestic area license | — | (1) | (2) | (2) |
| International franchise | (1) | (1) | (2) | (3) |
| Total franchise/area license restaurants permanently closed | (6) | (7) | (27) | (17) |
| **Net franchise/area license restaurant additions** | **4** | **2** | **13** | **15** |
| Refranchised by the Company | — | — | — | — |
| Franchise restaurants reacquired by the Company | — | — | — | — |
| **Net increase in franchise/area license restaurants** | **4** | **2** | **13** | **15** |
| **Summary - end of period:** |  |  |  |  |
| Franchise | 1,638 | 1,610 | 1,638 | 1,610 |
| Area license | 156 | 156 | 156 | 156 |
| Company | — | — | — | — |
| **Total IHOP restaurants, end of period** | **1,794** | **1,766** | **1,794** | **1,766** |
| Domestic | 1,681 | 1,665 | 1,681 | 1,665 |
| International | 113 | 101 | 113 | 101 |

As of September 30, 2023, 47 franchise groups operated 137 Fuzzy's restaurants in 18 states within the United States and we had one company-owned restaurant in Texas, totaling 138 restaurants. Fuzzy's average weekly sales for the three and nine months ended September 30, 2023 were $30,628 and $31,575, respectively.

The restaurant counts and activity presented above do not include one domestic Applebee's ghost kitchen (small kitchens with no store-front presence, used to fill off-premise orders), 10 international Applebee's ghost kitchens and 38 international IHOP ghost kitchens.

The closures presented in the tables above represent permanent closures of restaurants. Temporary closures, which can occur for a variety of reasons, are not reflected as reductions in this table and are included in the summary counts at the beginning and end of each period shown. Temporary closures are reflected in the weighted calculation of Effective Restaurants presented in the preceding Restaurant Data table.

Closures of restaurants adversely impact our system-wide retail sales that drive our franchise royalty revenues as well as, in the case of IHOP restaurants, sales of proprietary pancake and waffle dry mix. Further, with certain restaurants, we own or lease the underlying property and sublease it to the applicable franchisee. Thus, our rental income also could be adversely affected due to the loss of such income, as well as our obligation to make rental or other payments for such properties.

### CONSOLIDATED RESULTS OF OPERATIONS

### Comparison of the Three and Nine Months Ended September 30, 2023 and 2022

### Financial Results

*(In millions)*

| Revenue | Three Months Ended September 30, 2023 | 2022 | Favorable (Unfavorable) Variance 2023 | Nine Months Ended September 30, 2022 |  | Favorable (Unfavorable) Variance |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Franchise operations | $172.5 | $164.9 | $7.6 | $530.4 | $494.4 | $36.0 |
| Rental operations | 29.1 | 29.2 | (0.1) | 90.5 | 87.1 | 3.4 |
| Company restaurant operations | 0.3 | 38.2 | (37.9) | 1.8 | 117.2 | (115.4) |
| Financing operations | 0.6 | 0.9 | (0.3) | 2.0 | 2.8 | (0.8) |
| Total revenue | $202.5 | $233.2 | $(30.7) | $624.7 | $701.5 | $(76.8) |
| Change vs. prior period | (13.1)% |  |  | (10.9)% |  |  |

Total revenue for the three months ended September 30, 2023 decreased compared with the same period of the prior year, primarily due to the decrease in company restaurant operations primarily as a result of refranchising the Applebee's company-operated restaurants, partially offset by an increase in IHOP franchise operations revenue and the inclusion of Fuzzy's franchise operations revenue.

Total revenue for the nine months ended September 30, 2023 decreased compared with the same period of the prior year, primarily due to the decrease in company restaurant operations as a result of refranchising the Applebee's company-operated restaurants, partially offset by increases in Applebee's and IHOP franchise operations revenue and the inclusion of Fuzzy's franchise operations revenue.

*(In millions)*

| Gross Profit | Three Months Ended September 30, 2023 | 2022 | Favorable (Unfavorable) Variance 2023 | Nine Months Ended September 30, 2022 |  | Favorable (Unfavorable) Variance |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Franchise operations | $89.4 | $84.6 | $4.8 | $271.6 | $253.8 | $17.8 |
| Rental operations | 7.4 | 7.2 | 0.2 | 24.9 | 21.1 | 3.8 |
| Company restaurant operations | 0.0 | 1.7 | (1.7) | 0.0 | 5.4 | (5.4) |
| Financing operations | 0.5 | 0.8 | (0.3) | 1.7 | 2.5 | (0.8) |
| Total gross profit | $97.3 | $94.3 | $3.0 | $298.3 | $282.8 | $15.4 |
| Change vs. prior period | 3.1% |  |  | 5.5% |  |  |

Total gross profit for the three and nine months ended September 30, 2023 increased compared with the same periods of the prior year, primarily due to the increased revenue from franchise operations, partially offset by the refranchising of Applebee's company-operated restaurants.

*(In millions, except number of restaurants)*

| Franchise Operations Effective Franchise Restaurants:(1) | Three Months Ended September 30, 2023 | 2022 | Favorable (Unfavorable) Variance 2023 | Nine Months Ended September 30, 2022 |  | Favorable (Unfavorable) Variance |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Applebee’s | 1,654 | 1,601 | 53 | 1,663 | 1,604 | 59 |
| IHOP | 1,787 | 1,759 | 28 | 1,782 | 1,750 | 32 |
| Franchise Revenues: |  |  |  |  |  |  |
| Applebee’s franchise fees | $41.7 | $43.1 | $(1.4) | $131.7 | $131.1 | $0.6 |
| IHOP franchise fees | 54.1 | 50.1 | 4.0 | 161.8 | 146.6 | 15.2 |
| Advertising fees | 73.4 | 71.7 | 1.7 | 226.4 | 216.7 | 9.7 |
| Fuzzy's franchise fees | 3.3 | — | 3.3 | 10.5 | — | 10.5 |
| Total franchise revenues | 172.5 | 164.9 | 7.6 | 530.4 | 494.4 | 36.0 |
| Franchise Expenses: |  |  |  |  |  |  |
| Applebee’s | 1.0 | 0.9 | (0.1) | 3.7 | 2.5 | (1.2) |
| IHOP | 8.3 | 7.6 | (0.7) | 27.8 | 21.4 | (6.4) |
| Advertising expenses | 73.4 | 71.7 | (1.7) | 226.4 | 216.7 | (9.7) |
| Fuzzy's | 0.5 | — | (0.5) | 0.9 | — | (0.9) |
| Total franchise expenses | 83.1 | 80.3 | (2.8) | 258.8 | 240.6 | (18.2) |
| Franchise Gross Profit: |  |  |  |  |  |  |
| Applebee’s | 40.7 | 42.2 | (1.5) | 128.0 | 128.6 | (0.6) |
| IHOP | 45.8 | 42.5 | 3.3 | 134.0 | 125.3 | 8.7 |
| Fuzzy's | 2.8 | — | 2.8 | 9.6 | — | 9.6 |
| Total franchise gross profit | $89.4 | $84.6 | $4.8 | $271.6 | $253.9 | $17.7 |
| Gross profit as % of franchise revenue (2) | 51.8% | 51.3% |  | 51.2% | 51.3% |  |
| Gross profit as % of franchise fees (2)(3) | 90.2% | 90.8% |  | 89.3% | 91.4% |  |

(1) Effective Franchise Restaurants are the weighted average number of franchise and area license restaurants open in each fiscal period, adjusted to account for restaurants open for only a portion of the period.

(2) Percentages calculated on actual amounts, not rounded amounts presented above.

(3) From time to time, advertising fee revenue may be different from advertising expenses in a given accounting period. Over the long term, advertising activity should not generate gross profit or loss.

Applebee's franchise fee revenue for the three months ended September 30, 2023 decreased 3.2% as compared with the same period of the prior year, primarily due to the unfavorable impact on royalties of a 2.4% decrease in domestic same-restaurant sales. Applebee's franchise fee revenue for the nine months ended September 30, 2023 increased 0.5% as compared with the same period of the prior year primarily due to an increase in termination fees, an increase in international revenue and the favorable impact on royalties of a 0.9% increase in domestic same-restaurant sales and increase in the number of effective franchise restaurants.

Applebee's franchise expenses for the nine months ended September 30, 2023 increased $0.1 million as compared with the same period of the prior year primarily due to an increase in costs related to franchisee support fees offset by a decrease in bad debt expense. Applebee's franchise expenses for the nine months ended September 30, 2023 increased $1.2 million as compared with the same periods of the prior year primarily due to increases in bad debt expense and costs related to franchisee support fees.

IHOP's franchise fee revenue for the three and nine months ended September 30, 2023 increased 8.0% and 10.3%, respectively, as compared with the same periods of the prior year, primarily due to favorable domestic same-restaurant sales and an increase in the number of effective franchise restaurants which resulted in higher sales of proprietary products and increased royalties.

IHOP's franchise expenses for the three and nine months ended September 30, 2023 increased $0.7 million and $6.4 million, respectively, as compared with same periods of the prior year, primarily due to an increase in cost of proprietary products and increases in bad debt expense and costs related to franchisee support fees.

Advertising revenue and expense by brand for the three and nine months ended September 30, 2023 and 2022 were as follows:

*(In millions)*

| Advertising Revenues and Expenses: | Three Months Ended September 30, 2023 | 2022 | Increase 2023 | Nine Months Ended September 30, 2022 |  | Increase |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Applebee’s | $43.7 | $44.0 | $(0.3) | $136.4 | $133.8 | $2.6 |
| IHOP | 28.7 | 27.7 | 1.0 | 87.0 | 82.9 | 4.1 |
| Fuzzy's | 1.0 | — | 1.0 | 2.9 | — | 2.9 |
| Total advertising revenues and expenses | $73.4 | $71.7 | $1.7 | $226.3 | $216.7 | $9.6 |

Applebee’s advertising revenue and expense for the three months ended September 30, 2023 decreased slightly compared to the same period of the prior year, primarily due to the 2.4% decrease in domestic franchise same-restaurant sales. IHOP advertising revenue and expense for the three months ended September 30, 2023 increased compared to the same period of the prior year, primarily due to the 2.0% increase in domestic franchise same-restaurant sales and an increase in the number of effective franchise restaurants.

Applebee's and IHOP's advertising revenue and expense for the nine months ended September 30, 2023 increased 1.9% and 5.0%, respectively, compared to the same period of the prior year primarily due to the increase in their respective domestic franchise same-restaurant sales.

It is our accounting policy to recognize any deficiency in advertising fee revenue compared to advertising expenditure or any recovery of a previously recognized deficiency in advertising fee revenue compared to advertising expenditure in the fourth quarter of our fiscal year.

*(In millions)*

| Rental Operations | Three Months Ended September 30, 2023 | 2022 | Favorable (Unfavorable) Variance 2023 | Nine Months Ended September 30, 2022 |  | Favorable (Unfavorable) Variance |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Rental revenues | $29.1 | $29.2 | $(0.1) | $90.5 | $87.1 | $3.4 |
| Rental expenses | 21.7 | 22.0 | 0.3 | 65.6 | 66.0 | 0.4 |
| Rental operations gross profit | $7.4 | $7.2 | $0.2 | $24.9 | $21.1 | $3.8 |
| Gross profit as % of revenue (1) | 25.4% | 24.6% |  | 27.5% | 24.2% |  |

(1) Percentages calculated on actual amounts, not rounded amounts presented above.

Rental operations relate primarily to IHOP franchise restaurants. Rental income includes sublease revenue from operating leases and interest income from real estate leases. Rental expenses are costs of prime operating leases and interest expense on prime finance leases.

Rental operations gross profit for the three months ended September 30, 2023 increased from the same period of the prior year, primarily due to operating lease renewals and extensions.

Rental operations gross profit for the nine months ended September 30, 2023 increased as compared to the same period of the prior year, primarily due to lease buyouts and operating lease renewals and extensions.

### Company Restaurant Operations

|  | Three Months Ended September 30, 2023 | 2022 | Favorable (Unfavorable) Variance 2023 | Nine Months Ended September 30, 2022 |  | Favorable (Unfavorable) Variance |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Effective Restaurants** | 1 | 69 | (68) | 1 | 69 | (68) |
|  | **(In millions)** |  |  |  |  |  |
| Applebee's company restaurant sales (1) | $— | $38.2 | $(38.2) | $— | $117.2 | $(117.2) |
| Applebee's company restaurant expenses (1) | — | 36.5 | 36.5 | — | 111.8 | 111.8 |
| Fuzzy's company restaurant sales (2) | 0.3 | — | 0.3 | 1.8 | — | 1.8 |
| Fuzzy's company restaurant expenses (2) | 0.3 | — | (0.3) | 1.8 | — | (1.8) |
| Company restaurant gross profit | $— | $1.7 | $(74.1) | $— | $5.4 | $(225.4) |
| Gross profit as % of revenue (3) | (4.9)% | 4.5% |  | 0.3% | 4.6% |  |

(1) Related to 69 Applebee's company-operated restaurants that were still operating through October 2022.

(2) Related to three Fuzzy's company-operated restaurants that were acquired in December 2022 of which two restaurants were refranchised in April 2023.

(3) Percentages calculated on actual amounts, not rounded amounts presented above.

Applebee's company restaurant gross profit for the three and nine months ended September 30, 2023 decreased 100% compared to the same period of 2022, due to the refranchising of the company-operated restaurants in October 2022.

For the three and nine months ended September 30, 2023, company restaurant operations included three Fuzzy's restaurants, following the acquisition of Fuzzy's in December 2022 of which two out of three restaurants were refranchised in April 2023.

Company segment restaurant expenses may include costs associated with reacquired restaurants in the process of being refranchised. There were no reacquired restaurants expenses during the nine months ended September 30, 2023.

### Financing Operations

Financing revenues primarily consist of interest income from the financing of IHOP equipment leases and franchise fees as well as interest income on notes receivable due from franchisees. Financing expenses are the cost of taxes related to IHOP equipment leases.

Financing revenue and gross profit for the three and nine months ended September 30, 2023 declined compared to the same period of the prior year, primarily due to progressive decline in interest income as note balances are repaid.

*(In millions)*

| G&A Expenses | Three Months Ended September 30, 2023 | 2022 | Favorable (Unfavorable) Variance 2023 | Nine Months Ended September 30, 2022 |  | Favorable (Unfavorable) Variance |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Total G&A expenses | $48.6 | $46.3 | $(2.3) | $147.5 | $131.9 | $(15.6) |

G&A expenses for the three months ended September 30, 2023 increased 4.9% compared to the same period of the prior year, primarily due to an increase in personnel-related costs as well as increases in travel, conference and software maintenance expenses partially offset by a decrease in occupancy and recruiting costs. Included in total G&A expenses for the three months ended September 30, 2023 was $1.2 million of expense related to Fuzzy's, which was acquired in December 2022.

G&A expenses for the nine months ended September 30, 2023 increased 11.8% compared to the same period of the prior year, primarily due to increases in professional services and personnel-related costs, the stopping of our IHOP Flip'd initiative, and increases in software maintenance, travel and conference expenses. Included in total G&A expenses for the nine months ended September 30, 2023 was $4.3 million of expense related to Fuzzy's, which was acquired in December 2022.

*(In millions)*

| Other Income and Expense Items | Three Months Ended September 30, 2023 | 2022 | Favorable (Unfavorable) Variance 2023 | Nine Months Ended September 30, 2022 |  | Favorable (Unfavorable) Variance |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest expense, net | $19.1 | $15.3 | $(3.8) | $51.5 | $46.2 | $(5.3) |
| Loss on extinguishment of debt | — | 1.2 | 1.2 | 0.0 | 1.2 | (1.1) |
| Closure and impairment charges | 1.8 | 1.6 | (0.2) | 3.1 | 3.1 | — |
| Amortization of intangible assets | 2.7 | 2.7 | — | 8.2 | 8.0 | (0.2) |
| Loss (gain) on disposition of assets | 0.2 | (1.5) | (1.7) | 2.3 | (3.0) | (5.3) |
| Total | $23.7 | $19.3 | $(4.5) | $65.1 | $55.4 | $(11.9) |

#### Loss on extinguishment of debt and interest expense, net

On August 12, 2022, the Company established a new revolving financing facility and the debt financing costs related to the previous credit facility were expensed for the three and nine months ended September 30, 2022. For additional details, please refer to Note 7, Long-Term Debt, in the Notes to Consolidated Financial Statements.

The Company repaid the entire outstanding balance of approximately $585.1 million of its 2019 Class A-2 Notes during the nine months ended September 30, 2023 and recognized a $1.7 million loss on extinguishment of debt from the write-off of the related remaining issuance costs. This loss was offset by a $1.7 million gain on extinguishment of debt from the purchase of $67.9 million of its 2019 Class A-2 Notes under par value during the nine months ended September 30, 2023.

Interest expense, net for the three months ended September 30, 2023 increased compared to the same period of the prior year primarily due to the higher interest rate on our refinanced securitized notes as well as borrowings from and the increase in interest rate on our Credit Facility, partially offset by the increase in interest income from improved yields. Interest expense, net for the nine months ended September 30, 2023 increased compared to the same period of the prior year primarily due to borrowings from and the increase in interest rate on our Credit Facility as well as the higher interest rate on our refinanced securitized notes, partially offset by the increase in interest income from improved yields.

#### Loss (gain) on disposition of assets

There were no individually significant asset dispositions during the three months ended September 30, 2023. The loss on disposition of assets for the nine months ended September 30, 2023 primarily related to the disposition of certain IHOP Flip'd assets. The gain on disposition of assets for the three and nine months ended September 30, 2022 primarily related to the sale of land and buildings for three IHOP restaurants located on sites owned by us and termination of an IHOP restaurant lease.

*(In millions)*

| Income Taxes | Three Months Ended September 30, 2023 | 2022 | Favorable (Unfavorable) Variance 2023 | Nine Months Ended September 30, 2022 |  | Favorable (Unfavorable) Variance |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Income before income taxes | $24.9 | $28.7 | $(3.8) | $85.6 | $95.4 | $(9.8) |
| Income tax provision | $6.5 | $7.8 | $1.3 | $21.4 | $25.7 | $4.3 |
| Effective tax rate | 25.9% | 27.1% | 1.2% | 25.0% | 26.9% | 1.9% |

Our income tax provision or benefit will vary from period to period in our normal course of business for two reasons: a change in income before income taxes and a change in the effective tax rate. Changes in our income before income taxes were addressed in the preceding sections of “*Consolidated Results of Operations - Comparison of the Three and Nine Months Ended September 30, 2023 and 2022."*

Our effective tax rate for the three and nine months ended September 30, 2023 was different than the rate of the prior comparable periods primarily due to the recognition of higher excess tax benefits from stock-based compensation and lower non-deductible executive compensation.

### Liquidity and Capital Resources

Key provisions of our long-term debt potentially impacting liquidity are summarized below. See Note 7 - Long-Term Debt, of the Notes to the Consolidated Financial Statements, for additional detail on long-term debt, including the balances outstanding at September 30, 2023 and 2022.

#### Instruments

Our long-term debt includes two series of fixed rate senior secured notes, the Series 2019-1 4.723% Fixed Rate Senior Secured Notes in an initial aggregate principal amount of $600 million (the “2019 Class A-2-II Notes”) and the Series 2023-1 7.824% Fixed Rate Senior Secured Notes, Class A-2 in an initial aggregate principal amount of $500 million (the “2023 Class A-2 Notes” and, together with the 2019 Class A-2-II Notes, the “Class A-2 Notes”). The Series 2019-1 4.194% Fixed Rate Senior Secured Notes, Class A-2-I (the “Class A-2-I Notes”) were voluntarily repaid in full on April 17, 2023. For a description of the 2019 Class A-2-I Notes, refer to Note 8 of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Our long-term debt also includes a revolving financing facility, the 2022-1 Variable Funding Senior Notes, Class A-1 (the “Credit Facility”) that allows for drawings up to $325 million of variable funding notes on a revolving basis and the issuance of letters of credit.

#### Maturity

The final maturity of the 2019 Class A-2-II Notes is in June 2049, but it is anticipated that, unless repaid earlier, the 2019 Class A-2-II Notes will be repaid in June 2026.

The final maturity of the 2023 Class A-2 Notes is in March 2053, but it is anticipated that, unless repaid earlier, to the extent permitted under the Indenture, the 2023 Class A-2 Notes will be repaid in June 2029.

The renewal date of the Credit Facility is June 2027, subject to two additional one-year extensions at the option of the Company upon the satisfaction of certain conditions.

#### Payment of Principal and Interest

While the Class A-2 Notes are outstanding, payment of principal and interest is required to be made on the Class A-2 Notes on a quarterly basis. The payment of principal on the Class A-2 Notes may be suspended when the leverage ratio for the Company and its subsidiaries is less than or equal to 5.25x. As of September 30, 2023, our leverage ratio was approximately 4.6x. Therefore, quarterly principal payments are not required.

Exceeding the leverage ratio of 5.25x does not violate any covenant related to the Class A-2 Notes.

On February 16, 2023, our Company's Board of Directors authorized a debt repurchase program of up to $100 million. Repurchases of the Company’s debt, if any, are expected to reduce future cash interest payments, as well as future amounts due at maturity or upon redemption. Under the authorization, the Company may make repurchases of the Company's debt from time to time in the open market or in privately negotiated transactions upon such terms and at such prices as management may determine.

#### Make-whole Premiums

We may voluntarily repay the Class A-2 Notes at any time; however, if repaid prior to certain dates we would be required to pay make-whole premiums. As of September 30, 2023, there was no make-whole premium associated with voluntary prepayment of the 2019 Class A-2-II Notes. As of September 30, 2023, the make-whole premium associated with voluntary prepayment of the 2023 Class A-2 Notes was approximately $35.3 million. We also would be subject to a make-whole premium in the event of a mandatory prepayment required following certain rapid amortization events or certain asset dispositions. The mandatory make-whole premium requirements are considered derivatives embedded that must be bifurcated for separate valuation. We estimated the fair value of these derivatives to be immaterial as of September 30, 2023, based on the probability-weighted discounted cash flows associated with either event.

#### Covenants and Restrictions

Our long-term debt is subject to a series of covenants and restrictions customary for transactions of this type, including maintenance of a debt service coverage ratio ("DSCR"). In general, the DSCR ratio is net cash flow for the four quarters preceding the calculation date divided by the total debt service payments of the preceding four quarters. The complete definitions of the DSCR and all calculation elements are contained in the indenture, and subsequent amendments thereto, under which the Class A-2 Notes were issued.

Failure to maintain a prescribed DSCR can trigger the following events:

- DSCR less than 1.75x - Cash Flow Sweeping Event
- DSCR less than 1.20x - Rapid Amortization Event
- Interest-only DSCR less than 1.20x - Manager Termination Event
- Interest-only DSCR less than 1.10x - Default Event

Our DSCR for the reporting period ended September 30, 2023 was approximately 3.7x.

#### Credit Facility

In August 2022, the Co-Issuers entered into the Credit Facility that allows for drawings up to $325 million of variable funding notes on a revolving basis and the issuance of letters of credit. The applicable interest rate under the Credit Facility depends on the type of borrowing by the Co-Issuers. The applicable interest rate for advances is generally calculated at a per annum rate equal to the commercial paper funding rate or one-, two-, three- or six-month Secured Overnight Financing Rate (“SOFR”), in either case, plus 2.50%. The applicable interest rate for swingline advances and unreimbursed draws on outstanding letters of credit is a per annum base rate equal to the sum of (a) the greatest of (i) the prime rate in effect from time to time; (ii) the federal funds rate in effect from time to time plus 0.50%; and (iii) SOFR for a one-month tenor in effect at such time plus 0.50% plus (b) 2.00%.

As of September 30, 2023, the outstanding balance of the Credit Facility was $100 million. The amount of $3.4 million was pledged against the Credit Facility for outstanding letters of credit, leaving $221.6 million of the Credit Facility available for borrowing at September 30, 2023. It is anticipated that any principal and interest on the Credit Facility outstanding will be repaid in full on or prior to the quarterly payment date in June 2027, subject to two additional one-year extensions at the option of the Company upon the satisfaction of certain conditions. The letters of credit are used primarily to satisfy insurance-related collateral requirements. The weighted average interest rate on Credit Facility borrowings for the period outstanding during the nine months ended September 30, 2023 was 7.60%.

### Capital Allocation

#### Dividends

Dividends declared and paid per share for the three and nine months ended September 30, 2023 and 2022 were as follows:

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Dividends declared per common share | $0.51 | $0.51 | $1.53 | $1.48 |
| Dividends paid per common share | $1.02 | $1.02 | $2.04 | $1.88 |

During the nine months ended September 30, 2023 and 2022, the Company paid dividends of $31.7 million and $30.8 million, respectively.

On September 7, 2023, the Board of Directors declared a third quarter 2023 cash dividend of $0.51 per share of common stock, paid on September 29, 2023 to the stockholders of record as of the close of business on September 19, 2023.

#### Stock Repurchases

On February 17, 2022, the Company's Board of Directors authorized a new share repurchase program, effective April 1, 2022, of up to $250 million (the “2022 Repurchase Program”). In connection with the approval of the 2022 Repurchase Program, the 2019 Share Repurchase Program terminated effective April 1, 2022.

During the nine months ended September 30, 2023, the Company repurchased 318,356 shares of common stock at a cost of $20.0 million. Cumulatively, the Company repurchased 1,467,945 shares at a cost of $98.7 million under the 2022 Repurchase Program.

From time to time, we also repurchase shares owned and tendered by employees to satisfy tax withholding obligations on the vesting of restricted stock awards. Shares are deemed purchased at the closing price of our common stock on the vesting date. See Part II, Item 2 for detail on this stock repurchase activity during the nine months ended September 30, 2023.

### Cash Flows

In summary, our cash flows for the nine months ended September 30, 2023 and September 30, 2022 were as follows:

*(In millions)*

|  | Nine Months Ended September 30, 2023 | 2022 | Variance |
| --- | ---: | ---: | ---: |
| Net cash provided by operating activities | $79.3 | $63.5 | $15.8 |
| Net cash used in investing activities | (26.6) | (3.4) | (23.2) |
| Net cash used in financing activities | (218.0) | (61.2) | (156.8) |
| Net decrease in cash, cash equivalents and restricted cash | $(165.3) | $(1.1) | $(164.2) |

#### Operating Activities

Cash provided by operating activities is primarily driven by revenues earned and collected from our franchisees, and profit from our rental operations, financing operations and our company-owned restaurants. Cash provided by operating activities increased $15.8 million during the nine months ended September 30, 2023 compared to the same period of the prior year. This increase was primarily attributable to a decrease in payment for incentive compensation for the 2022 fiscal year paid in 2023, tenant improvement reimbursements received, financing activities prepaid in 2022, and the increase in gross segment profit as discussed in the preceding sections of this MD&A, offset by an increase in advertising and marketing spend primarily due to the utilization of carryover advertising fund balances from prior periods.

#### Investing Activities

Investing activities used net cash of $26.6 million for the nine months ended September 30, 2023 compared to investing activities provided net cash of $3.4 million for the nine months ended September 30, 2022, an unfavorable change of $23.2 million. Capital expenditures of $32 million was partially offset by principal receipts from notes, equipment contracts and other long-term receivables of $6.7 million.

#### Financing Activities

Financing activities used net cash of $218.0 million for the nine months ended September 30, 2023. The net increase in cash used by financing activities was primarily due to the repayment and issuance of long-term debt of $159.7 million during the nine months ended September 30, 2023. This was partially offset by a decrease of repurchase of common stock of $93.8 million.

#### Cash and Cash Equivalents

Our total cash balances, net of revolving credit facility borrowings, as of September 30, 2023 and December 31, 2022 were as follows:

*(In millions)*

|  | September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Cash and cash equivalents | $98.2 | $269.7 |
| Restricted cash, current | 41.9 | 38.9 |
| Restricted cash, non-current | 19.5 | 16.4 |
| Total | $159.6 | $325.0 |
| Less: Revolving credit facility borrowing | (100.0) | (100.0) |
| Total cash, restricted cash and cash equivalents, net | $59.6 | $225.0 |

Cash and cash equivalents include $67.5 million and $96.6 million of cash held for gift card programs and advertising funds as of September 30, 2023 and December 31, 2022, respectively. The decrease in cash and cash equivalents between September 30, 2023 and December 31, 2022 was primarily due to repayment of long-term debt, additions to property and equipment, payments to repurchase common stock, dividend payments and other payments including employee bonuses and advertising.

We believe that our unrestricted cash and cash equivalents on hand, cash flow from operations and the borrowing capacity available under our Credit Facility will provide us with adequate liquidity for at least the next twelve months.

### Adjusted Free Cash Flow

We define “adjusted free cash flow” for a given period as cash provided by operating activities, plus receipts from notes and equipment contract receivables, less additions to property and equipment. Management uses this liquidity measure in its periodic assessment of, among other things, payment of cash dividends on 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.

Adjusted free cash flow is a non-U.S. GAAP measure. This non-U.S. GAAP measure is not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies. Non-U.S. GAAP measures should be considered in addition to, and not as a substitute for, the U.S. GAAP information contained within our financial statements. Reconciliation of the cash provided by operating activities to adjusted free cash flow is as follows:

*(In millions)*

|  | Nine Months Ended September 30, 2023 | 2022 | Variance |
| --- | ---: | ---: | ---: |
| Cash flows provided by operating activities | $79.3 | $63.5 | $15.8 |
| Principal receipts from notes and equipment contracts | 6.7 | 8.4 | (1.7) |
| Net additions to property and equipment | (32.0) | (19.5) | (12.5) |
| Adjusted free cash flow | $54.0 | $52.4 | $1.6 |

Adjusted free cash flow for the nine months ended September 30, 2023 improved compared to the same period of the prior year due to the increase in cash flows provided by operating activities, partially offset by the increase in capital expenditures and a decrease in receipts from notes and equipment contracts receivable.

### Contractual Obligations and Commitments

There were no material changes to the contractual obligations as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

### Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions affecting the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenues and expenses in the reporting period. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. We continually review the estimates and underlying assumptions to ensure they are appropriate for the circumstances. Accounting assumptions and estimates are inherently uncertain and actual results may differ materially from our estimates.

A summary of our critical accounting estimates is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2022. During the nine months ended September 30, 2023, there were no significant changes in our critical accounting policies or in our critical accounting estimates.

## Market risk

As filed, 143 characters.

There were no material changes from the information contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

## Controls and procedures

As filed, 1,084 characters.

### Disclosure Controls and Procedures.

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective at the reasonable assurance level.

### Changes in Internal Control Over Financial Reporting.

There have been no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 174 characters.

There are no material changes from the risk factors set forth under Item 1A of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Filed Nov 1, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-035792. Last ingested by Listed: Oct 29, 2026, 17:26 ET. No prices; not investment advice.