Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________________________________________ FORM 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2019 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to | --- | --- | |----------------------------------------------------------------------- ...

Financial Data and Key Metrics Changes - The company reported adjusted EPS of $1.70 for Q4 2018, a significant increase from $0.48 in Q4 2017, primarily driven by a 46% increase in franchise segment profit and a decline in bad debt expense [20][21][22] - For fiscal 2018, adjusted EPS was $5.37 compared to $4.09 in 2017, attributed to lower income tax expense and higher franchise segment profit [21][22] - Adjusted free cash flow for 2018 was approximately $141 million, up from $66 million in 2017, due to increased cash from operations and favorable changes in working capital [26] Business Line Data and Key Metrics Changes - Applebee's achieved a 3.5% comp sales growth in Q4 2018, marking the fifth consecutive quarter of positive growth, and a full-year comp sales increase of 5%, the best in 25 years [37][39] - IHOP reported a 3% comp sales growth in Q4 2018, with a full-year growth of 1.5% and total revenue growth of 3.9%, the best performance since 2015 [49][50] Market Data and Key Metrics Changes - Off-premise comp sales for Applebee's and IHOP increased by approximately 32% and 30% respectively in 2018, driven mainly by double-digit traffic growth [16] - Approximately 7% of the company's restaurants are located outside the U.S., with ongoing interest in international expansion, including new openings in Thailand, Peru, and Ecuador [17] Company Strategy and Development Direction - The company is focused on enhancing brand relevance and building momentum at Applebee's and IHOP, with a multi-pronged strategy aimed at returning to growth [7][8] - Plans include exploring opportunities in urban and rural areas, leveraging non-traditional formats, and enhancing technology to improve guest experience [15] - The company aims to maintain a strong return of capital to shareholders, with a new share repurchase authorization of up to $200 million [29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's trajectory for 2019, highlighting a strong foundation for growth and improved franchisee financial health [13][64] - The company anticipates comp sales growth of 2% to 4% for both Applebee's and IHOP in 2019, supported by ongoing sales and traffic-driving initiatives [31][32] Other Important Information - The company completed a $30 million contribution to Applebee's national advertising fund, which is non-recurring, and improved visibility into royalty collections [14] - G&A expenses for Q4 2018 were approximately $45.3 million, up from $40 million in the same period last year, primarily due to higher personnel-related costs [23] Q&A Session Summary Question: Opportunities for Applebee's moving forward - Management highlighted the return to profitability and growth, with plans to explore off-premise opportunities and new unit openings by the end of the year [66][68] Question: Clarification on delivery units - Management confirmed that the number of Applebee's units offering delivery has increased to over 1,100, with plans to expand further [76][77] Question: Improvements in in-restaurant experience - Management noted significant reductions in variability between top and bottom performers, leading to improved guest satisfaction and operational metrics [78][79] Question: Franchise segment profitability - Management indicated that franchisee profitability is improving, with expectations for continued margin enhancement despite rising labor costs [108][109]

Company Operations - Dine Brands Global operates 3,668 restaurants, with 82% of total 2018 revenues generated from franchise operations, comprising 1,768 Applebee's and 1,831 IHOP restaurants[14][13]. - As of December 31, 2018, Dine Brands had 676 IHOP franchised restaurants and one Applebee's franchised restaurant under rental operations[13]. - The area licensee for Florida and Georgia operated 150 IHOP restaurants as of December 31, 2018, while the British Columbia licensee operated 12[46]. - As of December 31, 2018, Applebee's franchisees operated 1,624 restaurants, with the ten largest franchisees owning 1,175 restaurants, representing 72% of all franchised Applebee's restaurants in the U.S.[117]. - Approximately 680 of the 1,555 IHOP domestic franchise restaurants as of December 31, 2018, have building property lease/sublease agreements and/or notes and equipment contract obligations outstanding, increasing credit risk[119]. - The total number of restaurants at the end of 2018 was 3,668, a slight decrease from 3,722 in 2017[190]. - The company acquired 69 Applebee's restaurants in December 2018, marking a strategic move to own and operate these locations temporarily[56]. Financial Performance - Total revenues for the fiscal year 2018 were $780.9 million, an increase from $731.7 million in 2017, representing a growth of approximately 6.5%[189]. - Total franchise revenues reached $643.9 million in 2018, up from $594.4 million in 2017, indicating an increase of about 8.5%[189]. - Net income for 2018 was $80.4 million, a significant recovery from a net loss of $342.8 million in 2017[189]. - The company reported a gross profit of $353.1 million for 2018, compared to $338.7 million in 2017, reflecting a gross margin improvement[189]. - Advertising revenue increased to $268.3 million in 2018 from $234.2 million in 2017, marking a growth of approximately 14.6%[189]. - Cash flows provided by operating activities were $140.3 million in 2018, significantly higher than $65.7 million in 2017[189]. - The company declared dividends of $2.52 per common share in 2018, down from $3.88 in 2017[189]. - Long-term debt stood at $1,274.1 million at the end of 2018, a slight increase from $1,269.8 million in 2017[189]. - The cumulative total stockholder return for Dine Brands Global, Inc. was 101.97 as of December 31, 2018, compared to 150.34 for the S&P 500[187]. - The company’s stock performance over five years shows a return of 74.25, indicating a decline compared to the Restaurant Index which reached 200.74[187]. Franchise Operations - Dine Brands emphasizes ethical business practices and corporate social responsibility, focusing on environmental care and community support[18]. - Franchise agreements for Applebee's typically include a 20-year term with a royalty fee of 4% of monthly gross sales, while IHOP franchise agreements also have a 20-year term with a royalty fee of 4.5% of weekly gross sales[32][34]. - IHOP franchise agreements typically allocate 2.0% of weekly gross sales to local advertising and 1.0% to a national advertising fund[40]. - Approximately 90% of franchise segment revenue for the year ended December 31, 2018 consisted of royalties and advertising revenue from Applebee's and IHOP[47]. - The company is significantly franchised, with almost all Applebee's and all IHOP restaurants operated by franchisees, making financial performance contingent on franchisee success[111]. - Franchisees may face financial difficulties, impacting their ability to make royalty and other payments, which could adversely affect the company's financial condition[111]. - Franchise agreements have expiration dates, with a substantial number set to expire between 2020 and 2028, which may result in reduced royalties if successor agreements are not established[112]. Growth and Expansion - The company aims to accelerate profitable growth and create significant value for shareholders and franchisees through strong brand evolution and same-restaurant sales growth[15][16]. - Dine Brands continues to explore small investments and acquisitions to innovate and evolve its existing brands[17]. - The company plans to add new brands through mergers and acquisitions, potentially increasing the number of company-operated restaurants[57]. - As of December 31, 2018, there were commitments from IHOP franchisees to build 290 new restaurants over the next 15 years, including 25 in Peru and 12 in Ecuador[51]. - The company is pursuing international franchising for both Applebee's and IHOP, focusing on qualified franchisees with necessary resources[48]. Risks and Compliance - The company is subject to various federal and state labor laws, which could impact the economic viability of its restaurants if minimum wage or other employee-related costs increase significantly[80]. - The company is subject to various privacy and data protection laws globally, which may affect its business operations[81]. - The company faces risks associated with franchisee performance, including the potential for negative impacts on brand reputation and financial health due to franchisee actions[113]. - The company is exposed to regulatory risks globally, which could result in monetary liabilities and affect operations[141]. - The company is subject to extensive federal, state, and local regulations, including those related to food safety and labor laws, which could impact profitability[150]. - Compliance with nutritional content and menu labeling laws may lead to increased costs and operational complexity[153]. - The company is involved in various lawsuits and legal proceedings, which could divert significant operational resources and management time[142]. - There has been a rise in employment-related lawsuits, which may negatively impact the company's business and operating results[143]. Marketing and Customer Engagement - Dine Brands has invested in technology and marketing initiatives to enhance customer access and drive traffic, including online ordering and delivery partnerships with DoorDash and Grubhub[17][26]. - The company relies on effective marketing strategies, including social media, to attract customers, but failures in these areas could adversely affect business results[136]. - The increase in domestic same-restaurant sales was primarily due to an increase in customer traffic[211]. - There was also an increase in average customer check contributing to the sales growth[211]. Economic Influences - The company’s operations are influenced by general economic conditions, which could lead to a decline in sales if customers' disposable income decreases[92]. - The company’s financial performance may be adversely impacted by negative publicity related to food quality or health concerns, affecting brand reputation[126]. - The company is subject to various risks associated with international operations, including economic and political conditions, which could affect profitability[140].