# Dine Brands Global, Inc.: Form 10-Q for the period ended Mar 31, 2024

- Company: [Dine Brands Global, Inc.](/companies/din.md) (CIK 49754)
- Form: 10-Q
- Filed: 2024-05-08
- Accepted by EDGAR: May 8, 2024, 07:31 ET
- Period: 2024-03-31
- Accession: 0001628280-24-021372
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/49754/000162828024021372/din-20240331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/49754/000162828024021372/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $206.2m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2024-01-01 to 2024-03-31 | $108.8m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-01-01 to 2024-03-31 | $97.4m | us-gaap:GrossProfit |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $19.2m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $6.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | $17.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | $1.13 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | $1.13 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 14,980,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | $30.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $3.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2024-01-01 to 2024-03-31 | $7.8m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2024-01-01 to 2024-03-31 | $6.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-03-31 | $145.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $317.2m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $1.70bn | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $410.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $1.94bn | us-gaap:Liabilities |
| Long-term debt | at 2024-03-31 | $1.09bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-03-31 | $100.0m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-03-31 | −$244.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 43,619 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, 2023. 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 close to 3,600 restaurants, 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.

### 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)*

| 2024 | Three Months Ended March 31, 2023 |  | Favorable (Unfavorable) Variance |
| --- | ---: | ---: | ---: |
| Income before income taxes | $24.0 | $36.2 | $(12.2) |
| Income tax provision | (6.6) | (8.8) | 2.2 |
| Net income | $17.5 | $27.4 | $(9.9) |
| Effective tax rate | 27.3% | 24.2% | (3.1)% |
| Net income per diluted share | $1.13 | $1.74 | $(0.61) |
|  |  |  | **% decrease** |
| Weighted average diluted shares | 15.0 | 15.3 | (2.0)% |

The effective tax rate for the three months ended March 31, 2024 was higher than the rate of the prior comparable period primarily due to a lower tax deduction related to stock-based compensation.

The following table highlights the primary components of the decrease in our income before income taxes for the three months ended March 31, 2024, compared to our income before income taxes for the comparable prior period (in millions):

| Decrease in gross profit: | Favorable/ (Unfavorable) Variance Three Months Ended March 31, 2024 |
| --- | ---: |
| Applebee's franchise operations | $(1.3) |
| IHOP franchise operations | (0.1) |
| Fuzzy's franchise operations | (1.8) |
| Company restaurant operations | 0.0 |
| Rental and financing operations | (3.0) |
| Total decrease in gross profit | (6.2) |
| Increase in general and administrative ("G&A") expenses | (1.1) |
| Increase in interest expense, net | (3.4) |
| Change in gain on disposition of assets | 0.3 |
| Change in gain on extinguishment of debt | (1.7) |
| Increase in closure and impairment charges | (0.1) |
| Decrease in amortization of intangible assets | 0.1 |
| Decrease in income before income taxes | $(12.1) |

Total gross profit for the three months ended March 31, 2024 decreased compared with the same period of the prior year, due to decreased revenue from franchise and rental operations and increased franchisor advertising contribution. In addition, income before income taxes for the three months ended March 31, 2024 decreased compared to the prior year period due to a gain on extinguishment of debt in the same period in the prior year, increased interest expense and increased G&A expenses. The increase in interest expense primarily related to higher-rate securitized notes and borrowings from our revolving line of credit. The increase in G&A expenses was primarily attributable to an increase in compensation-related expenses (predominantly stock-based compensation) and an increase in consumer research expenses, partially offset by a decrease in professional services.

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 Months Ended March 31, 2024 and 2023”* 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, IHOP and Fuzzy's 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 and Fuzzy's restaurants, sales of proprietary products.

Our key performance indicators for the three months ended March 31, 2024 were as follows:

|  | Three Months Ended March 31, 2024 Applebee's | IHOP | Fuzzy's |
| --- | ---: | ---: | ---: |
| Sales percentage (decrease) increase in reported retail sales - 2024 vs. 2023 | (5.9)% | 0.2% | (13.1)% |
| % Decrease in domestic system-wide same-restaurant sales | (4.6)% | (1.7)% | (9.8)% |
| Net franchise restaurant reduction (1) | (6) | (5) | (4) |
| Net (decrease) increase in total effective restaurants (2) | (38) | 27 | (9) |

(1) Franchise and area license restaurant closings, net of openings, during the three months ended March 31, 2024.

(2) Change in the weighted average number of franchise, area license and company-operated restaurants open during the three months ended March 31, 2024, compared to the weighted average number of those open during the same period of 2023.

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.

Applebee’s system-wide domestic same-restaurant sales decreased 4.6% for the three months ended March 31, 2024 as compared to the same period of 2023. The decrease in same-restaurant sales was primarily due to a decrease in traffic, partially offset by an increase in menu pricing offset by product mix.

Based on data from Black Box Intelligence, a restaurant sales reporting firm (“Black Box”), Applebee's same-restaurant sales for the three months ended March 31, 2024 underperformed the casual dining segment of the restaurant industry (excluding Applebee's) during the same period.

| Applebee's Off-Premise Sales Data | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Off-premise sales (in millions) (1) | $237.5 | $263.4 |
| % sales mix | 22.1% | 23.1% |

(1) Primarily to-go, delivery and catering sales for comparable 2024 and 2023 restaurants.

IHOP's system-wide domestic same-restaurant sales decreased 1.7% for the three months ended March 31, 2024 as compared to the same period of 2023. The decrease in same-restaurant sales was primarily due to a decrease in traffic, partially offset by an increase in average check. The increase in average check was primarily due to menu pricing increase.

Based on data from Black Box, IHOP's decrease in same-restaurant sales for the three months ended March 31, 2024 underperformed the family dining segment of the restaurant industry (excluding IHOP) during the same period.

| IHOP Off-Premise Sales Data | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Off-premise sales (in millions) (1) | $155.7 | $161.2 |
| % sales mix | 21.0% | 21.7% |

(1) Primarily to-go, delivery and catering sales for comparable 2024 and 2023 restaurants.

### Quarterly Domestic Same-Restaurant Sales - Fuzzy's

Fuzzy's system-wide domestic same-restaurant sales decreased 9.8% for the three months ended March 31, 2024 as compared to the same period of 2023. The decrease in same-restaurant sales was primarily due to a decrease in traffic.

| Fuzzy's Off-Premise Sales Data | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Off-premise sales (in millions) (1) | $18.3 | $19.7 |
| % sales mix | 40.8% | 39.5% |

(1) Primarily to-go, delivery and catering sales for comparable 2024 and 2023 restaurants.

### Restaurant Data

The following table sets forth the number of “Effective Restaurants” in the Applebee’s, IHOP and Fuzzy's 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.

| Applebee's Restaurant Data Global Effective Restaurants(a) | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Franchise | 1,635 | 1,673 |
| Company | — | — |
| Total | **1,635** | **1,673** |
| **System-wide(b)** |  |  |
| Domestic sales percentage change(c) | (5.9)% | 5.6% |
| Domestic same-restaurant sales percentage change(d) | (4.6)% | 6.1% |
| **Franchise(b)** |  |  |
| Domestic sales percentage change(c) | (5.9)% | 9.6% |
| Domestic same-restaurant sales percentage change(d) | (4.6)% | 5.6% |
| Average weekly domestic unit sales (in thousands) | $54.7 | $56.8 |
| **IHOP Restaurant Data** |  |  |
| **Global Effective Restaurants(a)** |  |  |
| Franchise | 1,644 | 1,617 |
| Area license | 156 | 156 |
| Total | **1,800** | **1,773** |
| **System-wide(b)** |  |  |
| Sales percentage change(c) | 0.2% | 11.4% |
| Domestic same-restaurant sales percentage change, including area license restaurants(d) | (1.7)% | 8.7% |
| **Franchise(b)** |  |  |
| Sales percentage change(c) | 0.2% | 11.5% |
| Domestic same-restaurant sales percentage change(d) | (1.9)% | 8.8% |
| Average weekly unit sales (in thousands) | $37.6 | $38.2 |
| **Area License(b)** |  |  |
| Sales percentage change(c) | 0.0% | 10.3% |
| **Fuzzy's Restaurant Data** |  |  |
| **Global Effective Restaurants(a)** |  |  |
| Franchise | 127 | 134 |
| Company | 1 | 3 |
| Total | **128** | **137** |
| **System-wide(b)** |  |  |
| Domestic sales percentage change(c) | (13.1)% | 3.5% |
| Domestic same-restaurant sales percentage change(d) | (9.8)% | (0.4)% |
| **Franchise(b)** |  |  |
| Domestic sales percentage change(c) | (11.9)% | 3.5% |
| Domestic same-restaurant sales percentage change(d) | (9.8)% | (0.5)% |
| Average weekly domestic unit sales (in thousands) | $28.6 | $30.8 |

(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, IHOP and Fuzzy's 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 and Fuzzy'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 Fuzzy'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 and Fuzzy's franchise restaurants, Fuzzy's company-operated restaurants, IHOP franchise restaurants and IHOP area license restaurants were as follows:

| Reported sales (in millions) | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Applebee's franchise restaurant sales | $1,120.9 | $1,190.3 |
| IHOP franchise restaurant sales | 803.8 | 802.2 |
| IHOP area license restaurant sales | 77.8 | 77.8 |
| Fuzzy's franchise restaurant sales | 47.3 | 53.6 |
| Fuzzy's company-operated restaurants | 0.3 | 1.1 |
| Total | $2,050.1 | $2,125.0 |

(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.

| Restaurant Development Activity Applebee's Summary - beginning of period: | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Franchise | 1,642 | 1,678 |
| Company | — | — |
| **Beginning of period** | **1,642** | **1,678** |
| Franchise restaurants opened: |  |  |
| Domestic | — | — |
| International | 2 | 2 |
| Total franchise restaurants opened | 2 | 2 |
| Franchise restaurants permanently closed: |  |  |
| Domestic | (5) | (6) |
| International | (3) | (1) |
| Total franchise restaurants permanently closed | (8) | (7) |
| **Net franchise restaurant reduction** | **(6)** | **(5)** |
| **Summary - end of period:** |  |  |
| Franchise | 1,636 | 1,673 |
| Company | — | — |
| **Total Applebee's restaurants, end of period** | **1,636** | **1,673** |
| Domestic | 1,531 | 1,563 |
| International | 105 | 110 |
| **IHOP** |  |  |
| **Summary - beginning of period:** |  |  |
| Franchise | 1,657 | 1,625 |
| Area license | 157 | 156 |
| **Total IHOP restaurants, beginning of period** | **1,814** | **1,781** |

29

| Restaurant Development Activity Franchise/area license restaurants opened: | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Domestic franchise | 5 | 13 |
| Domestic area license | — | 2 |
| International franchise | 2 | 4 |
| Total franchise/area license restaurants opened | 7 | 19 |
| Franchise/area license restaurants permanently closed: |  |  |
| Domestic franchise | (8) | (8) |
| Domestic area license | (1) | (1) |
| International franchise | (3) | (1) |
| Total franchise/area license restaurants permanently closed | (12) | (10) |
| **Net increase (decrease) in franchise/area license restaurants** | **(5)** | **9** |
| **Summary - end of period:** |  |  |
| Franchise | 1,653 | 1,633 |
| Area license | 156 | 157 |
| Company | — | — |
| **Total IHOP restaurants, end of period** | **1,809** | **1,790** |
| Domestic | 1,692 | 1,683 |
| International | 117 | 107 |
| **Fuzzy's** |  |  |
| **Summary - beginning of period:** |  |  |
| Franchise | 131 | 134 |
| Company | 1 | 3 |
| **Beginning of period** | **132** | **137** |
| Franchise restaurants opened: |  |  |
| Domestic | — | — |
| Franchise restaurants permanently closed: |  |  |
| Domestic | (4) | — |
| **Net franchise restaurant reduction** | **(4)** | **—** |
| **Summary - end of period:** |  |  |
| Franchise | 127 | 134 |
| Company | 1 | 3 |
| **Total Fuzzy's restaurants, end of period** | **128** | **137** |
| Domestic | 128 | 137 |
| International | — | — |

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), 11 international Applebee's ghost kitchens and 41 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 and Fuzzy's restaurants, sales of proprietary products. 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 Months Ended March 31, 2024 and 2023

### Financial Results

*(In millions)*

| Revenue 2024 | Three Months Ended March 31, 2023 |  | Favorable (Unfavorable) Variance |
| --- | ---: | ---: | ---: |
| Franchise operations | $175.9 | $180.0 | $(4.1) |
| Rental operations | 29.5 | 32.0 | (2.5) |
| Company restaurant operations | 0.3 | 1.0 | (0.7) |
| Financing operations | 0.5 | 0.8 | (0.3) |
| Total revenue | $206.2 | $213.8 | $(7.6) |
| Change vs. prior period | (3.5)% |  |  |

Total revenue for the three months ended March 31, 2024 decreased compared with the same period of the prior year, primarily due to the decrease in franchise operations revenue and the decrease in rental operations revenue. The decrease in franchise operations revenue was primarily attributable to the decreases in domestic same-restaurant sales and the decrease in the number of Applebee's effective restaurants, partially offset by increases in the number of effective restaurants and proprietary product sales at IHOP. Rental operations revenue decreased primarily due to the lease buyouts during the three months ended March 31, 2023.

*(In millions)*

| Gross Profit | Three Months Ended March 31, 2024 | 2023 | Favorable (Unfavorable) Variance |
| --- | ---: | ---: | ---: |
| Franchise operations | $89.4 | $92.6 | $(3.2) |
| Rental operations | 7.6 | 10.4 | (2.8) |
| Company restaurant operations | 0.0 | 0.0 | 0.0 |
| Financing operations | 0.4 | 0.7 | (0.3) |
| Total gross profit | $97.4 | $103.7 | $(6.3) |
| Change vs. prior period | (6.0)% |  |  |

Total gross profit for the three months ended March 31, 2024 decreased compared with the same period of the prior year, primarily due to decreased gross profit from franchise operations and rental operations. The franchise operations gross profit decreased primarily due to Applebee's and Fuzzy's decreased franchise revenue and increases in franchisor advertising contributions. The rental operations gross profit was primarily due to decreased rental revenue.

*(In millions, except number of restaurants)*

| Franchise Operations Effective Franchise Restaurants:(1) | Three Months Ended March 31, 2024 | 2023 | Favorable (Unfavorable) Variance |
| --- | ---: | ---: | ---: |
| Applebee’s | 1,635 | 1,673 | (38) |
| IHOP | 1,800 | 1,773 | 27 |
| Fuzzy's | 127 | 134 | (7) |
| Franchise Revenues: |  |  |  |
| Applebee’s franchise fees | $43.4 | $45.6 | $(2.2) |
| IHOP franchise fees | 54.3 | 53.7 | 0.6 |
| Fuzzy's franchise fees | 2.9 | 3.6 | (0.7) |
| Advertising fees | 75.3 | 77.0 | (1.7) |
| Total franchise revenues | 175.9 | 179.9 | (4.0) |
| Franchise Expenses: |  |  |  |
| Applebee’s | 0.6 | 1.6 | 1.0 |
| IHOP | 9.3 | 8.6 | (0.7) |
| Fuzzy's | 1.3 | 0.2 | (1.1) |
| Advertising expenses | 75.3 | 77.0 | 1.7 |
| Total franchise expenses | 86.5 | 87.4 | 0.9 |
| Franchise Gross Profit: |  |  |  |
| Applebee’s | 42.7 | 44.0 | (1.3) |
| IHOP | 45.0 | 45.2 | (0.2) |
| Fuzzy's | 1.6 | 3.4 | (1.8) |
| Total franchise gross profit | $89.3 | $92.6 | $(3.3) |
| Gross profit as % of franchise revenue (2) | 50.8% | 51.5% |  |
| Gross profit as % of franchise fees (2)(3) | 88.9% | 90.0% |  |

(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 March 31, 2024 decreased 4.8% as compared with the same period of the prior year, primarily due to the unfavorable impact on royalties of a 4.6% decrease in domestic same-restaurant sales and the decrease in the number of effective franchise restaurants.

Applebee's franchise expenses for the three months ended March 31, 2024 decreased $1.0 million as compared with the same period of the prior year, primarily due to a decrease in bad debt expense.

IHOP's franchise fee revenue for the three months ended March 31, 2024 increased 1.1% as compared with the same period of the prior year, primarily due to an increase in the number of effective franchise restaurants and an increase in proprietary product sales, partially offset by a 1.7% decrease in same-restaurant sales.

IHOP's franchise expenses for the three months ended March 31, 2024 increased $0.7 million as compared with same period of the prior year, primarily due to an increase in franchisor advertising contribution.

Fuzzy's franchise fee revenue for the three months ended March 31, 2024 decreased $0.7 million compared with the same period of the prior year, primarily due to a 9.8% decrease in domestic same-restaurant sales and decrease in the number of effective franchise restaurants.

Fuzzy's franchise expenses for the three months ended March 31, 2024 increased $1.1 million compared with the same period of the prior year, primarily due to an increase in franchisor advertising contribution.

*(In millions)*

| Advertising Revenues and Expenses | Three Months Ended March 31, 2024 | 2023 | Increase |
| --- | ---: | ---: | ---: |
| Applebee’s | $45.2 | $47.1 | $(1.9) |
| IHOP | 29.1 | 28.9 | 0.2 |
| Fuzzy's | 0.9 | 1.0 | (0.1) |
| Total advertising revenues and expenses | $75.3 | $77.0 | $(1.7) |

Applebee's and Fuzzy's advertising revenue and expense for the three months ended March 31, 2024 decreased 4.1% and 1.6%, respectively, compared to the same period of the prior year primarily due to the decrease in their respective domestic franchise same-restaurant sales and decrease in effective restaurants. IHOP advertising revenue and expense for the three months ended March 31, 2024 increased 0.6% compared to the same period of the prior year, primarily due to the increase in the number of effective franchise restaurants, partially offset by a 1.7% decrease in 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 March 31, 2024 | 2023 | Favorable (Unfavorable) Variance |
| --- | ---: | ---: | ---: |
| Rental revenues | $29.5 | $32.0 | $(2.5) |
| Rental expenses | 22.0 | 21.6 | (0.4) |
| Rental operations gross profit | $7.6 | $10.4 | $(2.8) |
| Gross profit as % of rental revenue (1) | 25.7% | 32.4% |  |

(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 March 31, 2024 decreased as compared to the same period of the prior year, primarily due to lease buyouts in the prior year.

*(in millions)*

| Company Restaurant and Financing Operations Company Restaurant Operations | Three Months Ended March 31, 2024 | 2023 | Favorable (Unfavorable) Variance |
| --- | ---: | ---: | ---: |
| Company restaurant sales | $0.3 | $1.1 | $(0.8) |
| Company restaurant expenses | 0.3 | 1.1 | 0.8 |
| Total company restaurants operations | $0.0 | $0.0 | $0.0 |
| Financing Operations |  |  |  |
| Financing revenues | $0.5 | $0.8 | $(0.3) |
| Financing expenses | 0.1 | 0.1 | 0.0 |
| Total financing operations | $0.4 | $0.7 | $(0.3) |

For the three months ended March 31, 2024, company restaurant operations included one Fuzzy's restaurant, compared to three Fuzzy's restaurants in the prior comparable period. 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 three months ended March 31, 2024 and 2023.

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 sales and use taxes related to IHOP equipment leases. Financing revenue and gross profit for the three months ended March 31, 2024 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 March 31, 2024 | 2023 | Favorable (Unfavorable) Variance |
| --- | ---: | ---: | ---: |
| Total G&A expenses | $52.2 | $51.1 | $(1.1) |

G&A expenses for the three months ended March 31, 2024 increased 2.2% compared to the same period of the prior year, primarily due to an increase in compensation-related expenses (predominantly stock-based compensation) and an increase in consumer research expenses, partially offset by a decrease in professional services.

*(In millions)*

| Other Income and Expense Items | Three Months Ended March 31, 2024 | 2023 | Favorable (Unfavorable) Variance |
| --- | ---: | ---: | ---: |
| Interest expense, net | $18.1 | $14.7 | $(3.4) |
| Gain on extinguishment of debt | — | (1.7) | (1.7) |
| Closure and impairment charges | 0.6 | 0.5 | (0.1) |
| Amortization of intangible assets | 2.7 | 2.8 | 0.1 |
| (Gain) loss on disposition of assets | (0.2) | 0.1 | 0.3 |
| Total | $21.2 | $16.4 | $(4.8) |

#### Interest expense, net and gain on extinguishment of debt

Interest expense, net for the three months ended March 31, 2024 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.

During the three months ended March 31, 2023, the Company purchased $67.9 million of its 2019 Class A-2 Notes under par and recognized a $1.7 million gain on extinguishment of debt. For additional details, refer to Note 7, Long-Term Debt, in the Notes to Consolidated Financial Statements.

*(In millions)*

| Income Taxes | Three Months Ended March 31, 2024 | 2023 | Favorable (Unfavorable) Variance |
| --- | ---: | ---: | ---: |
| Income before income taxes | $24.0 | $36.2 | $(12.2) |
| Income tax provision | $6.6 | $8.8 | $2.2 |
| Effective tax rate | 27.3% | 24.2% | (3.1)% |

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 Months Ended March 31, 2024 and 2023."*

Our effective tax rate for the three months ended March 31, 2024 was higher than the rate of the prior comparable period primarily due to a lower tax deduction related to stock-based 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 March 31, 2024 and 2023.

#### 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 — Long-Term Debt* 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 March 31, 2024, our leverage ratio was approximately 4.3x. 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 March 31, 2024, there was no make-whole premium associated with voluntary prepayment of the 2019 Class A-2-II Notes. As of March 31, 2024, the make-whole premium associated with voluntary prepayment of the 2023 Class A-2 Notes was approximately $35.5 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 March 31, 2024, 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 March 31, 2024 was approximately 3.5x.

#### 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 March 31, 2024, 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 March 31, 2024. 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 three months ended March 31, 2024 was 7.95%.

### Capital Allocation

#### Dividends

Dividends declared and paid per share for the three months ended March 31, 2024 and 2023 were as follows:

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Dividends declared per common share | $0.51 | $0.51 |
| Dividends paid per common share | $0.51 | $1.02 |

During the three months ended March 31, 2024 and 2023, the Company paid dividends of $7.8 million and $16.0 million, respectively.

On February 26, 2024, the Board of Directors declared a first quarter 2024 cash dividend of $0.51 per share of common stock, paid on April 5, 2024 to the stockholders of record as of the close of business on March 20, 2024.

#### 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”).

During the three months ended March 31, 2024, the Company repurchased 128,479 shares of common stock at a cost of $6.0 million. Cumulatively, the Company has repurchased 1,724,257 shares at a cost of $110.7 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 three months ended March 31, 2024.

### Cash Flows

In summary, our cash flows for the three months ended March 31, 2024 and March 31, 2023 were as follows:

*(In millions)*

|  | Three Months Ended March 31, 2024 | 2023 | Variance |
| --- | ---: | ---: | ---: |
| Net cash provided by operating activities | $30.6 | $16.1 | $14.5 |
| Net cash used in investing activities | (1.2) | (12.7) | 11.5 |
| Net cash used in financing activities | (17.8) | (93.2) | 75.4 |
| Net decrease in cash, cash equivalents and restricted cash | $11.6 | $(89.8) | $101.4 |

37

#### 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 restaurant. Cash provided by operating activities increased $14.5 million during the three months ended March 31, 2024 compared to the same period of the prior year. This increase was primarily attributable to a favorable increase in working capital from a shift in timing of income tax payments and the collection of an income tax settlement and accounts receivable, partially offset by a decrease in gross segment profit as discussed in the preceding sections of this MD&A.

#### Investing Activities

Investing activities used net cash of $1.2 million for the three months ended March 31, 2024 compared to investing activities provided net cash of $12.7 million for the three months ended March 31, 2023. The decrease was primarily attributable to a decrease in capital expenditures compared to the same period of the prior year. The Company increased spending in information technology and other projects in fiscal year 2023.

#### Financing Activities

Financing activities used net cash of $17.8 million for the three months ended March 31, 2024. The decrease in cash used by financing activities of $75.4 million was primarily due to the repayment of long-term debt of $66.6 million and two dividend distributions during the three months ended March 31, 2023. There was no repayment of long-term debt and one dividend distribution during the three months ended March 31, 2024.

### 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)*

|  | Three Months Ended March 31, 2024 | 2023 | Variance |
| --- | ---: | ---: | ---: |
| Cash flows provided by operating activities | $30.6 | $16.1 | $14.5 |
| Principal receipts from notes and equipment contracts | 2.5 | 2.2 | 0.3 |
| Net additions to property and equipment | (3.3) | (16.0) | 12.7 |
| Adjusted free cash flow | $29.8 | $2.3 | $27.5 |

Adjusted free cash flow for the three months ended March 31, 2024 improved compared to the same period of the prior year due to the increase in cash flows provided by operating activities, decrease in capital expenditures and an increase 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, 2023.

### 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, 2023. During the three months ended March 31, 2024, 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, 2023.

## 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, 2023.

Filed May 8, 2024.
Source: SEC EDGAR, the filing index for accession 0001628280-24-021372. Last ingested by Listed: Nov 4, 2026, 07:39 ET. No prices; not investment advice.