DineEquity, Inc. Reports Successful Fourth Quarter and Fiscal 2014 Results

GLENDALE, Calif., Feb. 25, 2015 /PRNewswire/ -- DineEquity, Inc. (NYSE: DIN), the parent company of Applebee's Neighborhood Grill & Bar^® and IHOP^® restaurants, today announced financial results for the fourth quarter and full year of fiscal 2014. 

"DineEquity delivered successful results for fiscal 2014.  We achieved several significant goals this year, aimed at driving additional shareholder value.  We saw meaningful progress in accelerating same-restaurant sales at both Applebee's and IHOP, as each brand finished the year with great momentum," said Julia A. Stewart, Chairman and Chief Executive Officer of DineEquity, Inc.  Ms. Stewart continued, "We further positioned the Company for long-term success by completing a securitization refinancing to obtain a significantly lower fixed interest rate for the long-term.  The increased financial flexibility paved the way for our new capital allocation strategy, highlighting our commitment to return substantial cash to shareholders.  As we begin 2015, we are executing on our key strategic priorities to sustain strong financial performance and build even stronger brands."

Fourth Quarter 2014 Financial Highlights

• Adjusted net income available to common stockholders was $21.9 million, representing adjusted earnings per diluted share of $1.16, for the fourth quarter of 2014.  This compares to $18.6 million, or adjusted earnings per diluted share of $0.98, for the fourth quarter of 2013, an increase of 18%.  The increase in adjusted net income was mainly due to a decline in cash interest expense and higher segment profit.  These items were partially offset by an increase in general and administrative expenses in the fourth quarter of 2014 compared to the same period of 2013 and higher income taxes.  The fourth quarter financial results reflect the financial impact of the securitization refinancing transaction.  (See "Non-GAAP Financial Measures" below.)
• GAAP net loss was $22.1 million for the fourth quarter of 2014, or net loss per share of $1.18.  This compares to net income available to common stockholders of $17.9 million, or earnings per diluted share of $0.94, for the fourth quarter of 2013.  The net loss was driven by a loss on the extinguishment of debt and higher general and administrative expenses.  These items were partially offset by lower income tax expense, a decline in interest expense, and higher segment profit.
  Income tax expense was lower in the fourth quarter of 2014 compared to the fourth quarter of 2013 due to the write-off of costs associated with our refinancing transaction and the adoption of certain production activity deductions and research credits.
• General and administrative expenses were $43.1 million for the fourth quarter of 2014 compared to $38.6 million for the same period of 2013.  The increase was mainly due to the timing of franchise conference expenses and personnel costs year-over-year.  For fiscal 2014, the increase in general and administrative expenses was $2.3 million, or 1.6%.           

Fiscal 2014 Highlights

• Adjusted net income available to common stockholders was $89.6 million in fiscal 2014, representing adjusted earnings per diluted share of $4.73.  This compares to $81.2 million, or adjusted earnings per diluted share of $4.24, for fiscal 2013, an increase of 12%.  The increase was primarily due to lower cash interest expense and higher segment profit.  These items were partially offset by higher income taxes.  (See "Non-GAAP Financial Measures" below.)
• GAAP net income available to common stockholders was $35.9 million in fiscal 2014, or earnings per diluted share of $1.90, compared to $70.8 million, or earnings per diluted share of $3.70 for fiscal 2013.  The decrease was primarily due to a loss on the extinguishment of debt in fiscal 2014 compared to fiscal 2013.  This item was partially offset by lower income tax expense, higher segment profit, and a decline in interest expense.
• For fiscal 2014, cash flows from operating activities were $118.5 million and free cash flow was $112.5 million.  (See "Non-GAAP Financial Measures" below.)

Same-Restaurant Sales Performance

Fourth Quarter 2014

• IHOP's domestic system-wide same restaurant sales increased 6.1% for the fourth quarter of 2014 compared to the same quarter of 2013.  This is the highest quarterly sales increase since the first quarter of 2004.   
• Applebee's domestic system-wide same-restaurant sales increased 2.8% for the fourth quarter of 2014 compared to the fourth quarter of 2013, representing the strongest quarterly sales increase since the second quarter of 2011.   

Fiscal 2014 Highlights

• IHOP's domestic system-wide same restaurant sales increased 3.9% for fiscal 2014 compared to fiscal 2013, representing the strongest full-year sales increase since fiscal 2004.
• Applebee's domestic system-wide same-restaurant sales increased 1.1% for fiscal 2014 compared to fiscal 2013. 

Financial Performance Guidance for Fiscal 2015

The Company's financial performance guidance reflects the impact of a 53^rd operating week in fiscal 2015, in which the last month of the fiscal fourth quarter contains six weeks.

• Applebee's domestic system-wide same-restaurant sales performance is expected to range between positive 1.0% and positive 4.0%. 
• IHOP's domestic system-wide same-restaurant sales performance is expected to range between positive 2.0% and positive 5.0%. 
• Applebee's franchisees are projected to develop between 30 and 40 new restaurants, the majority of which are expected to be opened in the U.S. 
• IHOP franchisees and its area licensee are projected to develop between 50 and 60 new restaurants, the majority of which are expected to be domestic openings.
• Franchise segment profit is expected to be between $345 million and $358 million.   
• Rental and Financing segments are expected to generate roughly $39 million in combined profit.   
• General and administrative expenses are expected to range between $149 million and $153 million, including non-cash stock-based compensation expense and depreciation of approximately $18 million.
• Interest expense is expected to be roughly $63 million.  Approximately $3 million is projected to be non-cash interest expense. 
• The income tax rate is expected to be approximately 38%.
• Capital expenditures are projected to be about $9 million.  
• Free cash flow (See "Non-GAAP Financial Measures" below.) is expected to range between $114 million and $124 million.  For fiscal 2015, "Free cash flow" for a given period is defined as cash provided by operating activities, plus receipts from notes and equipment contracts receivable, less capital expenditures. 
• Weighted average diluted shares outstanding are expected to be approximately 19 million. 

Investor Conference Call Today

The Company will host a conference call to discuss its results on the same day at 11:00 a.m. Eastern Time / 8:00 a.m. Pacific Time.  To participate on the call, please dial (800) 708-4540 and reference pass code 38800553.  International callers, please dial (847) 619-6397 and reference pass code 38800553.

A live webcast of the call will be available on DineEquity's Web site at www.dineequity.com, and may be accessed by visiting Calls & Presentations under the site's Investors section.  Participants should allow approximately ten minutes prior to the call's start time to visit the site and download any streaming media software needed to listen to the webcast.  A telephonic replay of the call may be accessed from 10:30 a.m. Pacific Time on February 25, 2015 through 11:59 p.m. Pacific Time on March 2, 2015 by dialing (888) 843-7419 and referencing pass code 38800553#. International callers, please dial (630) 652-3042 and reference pass code 38800553#.  An online archive of the webcast will also be available on the Investors section of DineEquity's Web site.

About DineEquity, Inc.

Based in Glendale, California, DineEquity, Inc., through its subsidiaries, franchises and operates restaurants under the Applebee's Neighborhood Grill & Bar and IHOP brands. With more than 3,600 restaurants combined in 18 countries, over 400 franchisees and approximately 200,000 team members (including franchisee- and company-operated restaurant employees), DineEquity is one of the largest full-service restaurant companies in the world. For more information on DineEquity, visit the Company's Web site located at www.dineequity.com.

Forward-Looking Statements

Statements contained in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by words such as "may," "will," "should," "expect," "anticipate," "believe," "estimate," "intend," "plan" and other similar expressions. These statements involve known and unknown risks, uncertainties and other factors, which may cause actual results to be materially different from those expressed or implied in such statements. These factors include, but are not limited to: the effect of general economic conditions; the Company's indebtedness and risks associated with the timing and our ability to refinance the Company's indebtedness; risk of future impairment charges; trading volatility and the price of the Company's common stock; the Company's results in any given period differing from guidance provided to the public; the highly competitive nature of the restaurant business; the Company's business strategy failing to achieve anticipated results; risks associated with the restaurant industry; risks associated with locations of current and future restaurants; rising costs for food commodities and utilities; shortages or interruptions in the supply or delivery of food; ineffective marketing and guest relationship initiatives and use of social media; changing health or dietary preferences; our engagement in business in foreign markets; harm to our brands' reputation; litigation; fourth-party claims with respect to intellectual property assets; environmental liability; liability relating to employees; failure to comply with applicable laws and regulations; failure to effectively implement restaurant development plans; our dependence upon our franchisees; concentration of Applebee's franchised restaurants in a limited number of franchisees; credit risk from IHOP franchisees operating under our previous business model; termination or non-renewal of franchise agreements; franchisees breaching their franchise agreements; insolvency proceedings involving franchisees; changes in the number and quality of franchisees; inability of franchisees to fund capital expenditures; heavy dependence on information technology; the occurrence of cyber incidents or a deficiency in our cybersecurity; failure to execute on a business continuity plan; inability to attract and retain talented employees; risks associated with retail brand initiatives; failure of our internal controls; and other factors discussed from time to time in the Company's Annual and Quarterly Reports on Forms 10-K and 10-Q and in the Company's other filings with the Securities and Exchange Commission. The forward-looking statements contained in this release are made as of the date hereof and the Company assumes no obligation to update or supplement any forward-looking statements.

Non-GAAP Financial Measures

This news release includes references to the Company's non-GAAP financial measures "adjusted net income available to common stockholders (adjusted EPS)," "EBITDA," "free cash flow," and "segment EBITDA."  "Adjusted EPS" is computed for a given period by deducting from net income or loss available to common stockholders for such period the effect of any closure and impairment charges, any gain or loss related to debt extinguishment, any intangible asset amortization, any non-cash interest expense, any incremental Senior Note interest, any debt modification costs and refinancing expenses not capitalized, any income tax adjustment considered unrelated to the respective current period and any gain or loss related to the disposition of assets.  This is presented on an aggregate basis and a per share (diluted) basis.  The Company defines "EBITDA" for a given period as income before income taxes less interest expense, loss on extinguishment of debt, depreciation and amortization, closure and impairment charges, non-cash stock-based compensation, gain or loss on disposition of assets and other charge backs as defined by its credit agreement.  For fiscal 2014, "Free cash flow" for a given period was defined as cash provided by operating activities, plus receipts from notes and equipment contracts receivable ("long-term notes receivable"), less principal payments on capital lease and financing obligations, the mandatory 1% of Term Loan principal balance repayment, and capital expenditures.  For fiscal 2015, "Free cash flow" for a given period is defined as cash provided by operating activities, plus receipts from notes and equipment contracts receivable ("long-term notes receivable"), less capital expenditures.  "Segment EBITDA" for a given period is defined as gross segment profit plus depreciation and amortization as well as interest charges related to the segment. Management utilizes EBITDA for debt covenant purposes and free cash flow to determine the amount of cash remaining for general corporate and strategic purposes and for the return of cash to stockholders pursuant to our capital allocation strategy, after the receipts from long-term receivables, and the funding of operating activities, capital expenditures and debt service. Management believes this information is helpful to investors to determine the Company's adherence to debt covenants and the Company's cash available for these purposes. Adjusted EPS, EBITDA, free cash flow and segment EBITDA are supplemental non-GAAP financial measures and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with United States generally accepted accounting principles.

NON-GAAP  FINANCIAL MEASURES
(In thousands, except per share amounts)
(Unaudited)

Reconciliation of net income available to common stockholders to net income available to common stockholders, as adjusted for the following items: loss on extinguishment of debt; amortization of intangible assets; incremental Senior Note interest; closure and impairment charges; non-cash interest expense; gain or loss on disposition of assets; refinancing expenses not capitalized; debt modification costs; the combined tax effect of the preceding adjustments, and income tax adjustments considered unrelated to the respective current period operations, as well as related per share data:

DineEquity, Inc. and Subsidiaries
Non-GAAP Financial Measures
(In thousands)
(Unaudited)

Reconciliation of the Company's cash provided by operating activities to "free cash flow" (cash provided by operating activities, plus receipts from notes, equipment contracts and other long-term receivables (collectively, "long-term receivables"), less additions to property and equipment, principal payments on capital lease and financing obligations and mandatory debt service payments):

DineEquity, Inc. and Subsidiaries
Non-GAAP Financial Measures
(In thousands)
 (Unaudited)

Reconciliation of U.S. GAAP gross segment profit to segment EBITDA: 

Restaurant Data

The following table sets forth, for the three and twelve months ended December 31, 2014 and 2013, 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 periods in the prior year. Sales at restaurants that are owned by franchisees and area licensees are not attributable to the Company. 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 generally based on a percentage of their sales, and, where applicable, rental payments under leases that may be partially based on a percentage of their sales. Management also uses this information to make decisions about future plans for the development of additional restaurants as well as evaluation of current operations.