Dine Brands(DIN) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1—Financial Statements This section presents the unaudited consolidated financial statements and comprehensive notes for Dine Brands Global, Inc. and its subsidiaries Consolidated Balance Sheets This section provides a snapshot of the Company's financial position, detailing assets, liabilities, and stockholders' deficit at specific points in time | Metric | June 30, 2025 (Unaudited) (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :--------------------------------------- | :------------------------------- | | Total Assets | $1,789,947 | $1,790,584 | | Total Liabilities | $2,002,492 | $2,006,603 | | Total Stockholders' Deficit | $(212,545) | $(216,019) | - Total assets slightly decreased from $1,790,584 thousand at December 31, 2024, to $1,789,947 thousand at June 30, 2025. Total liabilities also saw a minor decrease from $2,006,603 thousand to $2,002,492 thousand. The stockholders' deficit improved from $(216,019) thousand to $(212,545) thousand[11] Consolidated Statements of Comprehensive Income This section details the Company's financial performance over specific periods, including revenues, costs, net income, and diluted earnings per share | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Revenues | $230,784 | $206,267 | $445,564 | $412,502 | | Total Cost of Revenues | $138,555 | $106,996 | $263,025 | $215,807 | | Gross Profit | $92,229 | $99,271 | $182,539 | $196,695 | | Income Before Income Taxes | $18,931 | $31,224 | $31,726 | $55,270 | | Net Income | $13,814 | $23,182 | $22,011 | $40,655 | | Diluted EPS | $0.89 | $1.50 | $1.41 | $2.64 | - For the three months ended June 30, 2025, total revenues increased by $24.5 million (11.9%) year-over-year, while net income decreased by $9.4 million (40.6%). Diluted EPS also saw a significant decline from $1.50 to $0.89. For the six months ended June 30, 2025, total revenues increased by $33.1 million (8.0%) year-over-year, but net income decreased by $18.6 million (45.8%), and diluted EPS fell from $2.64 to $1.41[14][155] Consolidated Statements of Stockholders' Deficit This section outlines changes in the Company's equity, including common stock, retained earnings, and treasury stock, over specific periods | Metric (in thousands) | Balance at Dec 31, 2024 | Balance at Jun 30, 2025 | | :-------------------------------- | :---------------------- | :---------------------- | | Common Stock Amount | $248 | $247 | | Additional Paid-in Capital | $254,814 | $236,117 | | Retained Earnings | $183,614 | $189,849 | | Accumulated Other Comprehensive Loss | $(76) | $(73) | | Treasury Stock Cost | $(654,619) | $(638,685) | | Total Stockholders' Deficit | $(216,019) | $(212,545) | - The total stockholders' deficit improved from $(216,019) thousand at December 31, 2024, to $(212,545) thousand at June 30, 2025, primarily driven by net income of $22,011 thousand and a decrease in treasury stock cost, partially offset by dividends paid and a decrease in additional paid-in capital[16] Consolidated Statements of Cash Flows This section details the cash inflows and outflows from operating, investing, and financing activities over specific periods | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Cash flows from operating activities | $53,105 | $52,179 | | Cash flows used in investing activities | $(5,185) | $(1,072) | | Cash flows used in financing activities | $(33,314) | $(33,308) | | Net change in cash, cash equivalents and restricted cash | $14,606 | $17,799 | | Cash, cash equivalents and restricted cash at end of period | $263,204 | $218,391 | - Cash flows from operating activities slightly increased by $0.9 million year-over-year. However, cash used in investing activities significantly increased by $4.1 million, primarily due to higher additions to property and equipment and long-term receivables. Net change in cash, cash equivalents, and restricted cash decreased by $3.2 million[20][237][238] Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements, clarifying accounting policies and significant estimates 1. General This section confirms the unaudited financial statements adhere to U.S. GAAP for interim reporting, with management affirming fair presentation - The unaudited consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and do not include all information required for complete annual statements. Management's opinion is that all necessary adjustments have been included for fair presentation[22] 2. Basis of Presentation This section outlines the Company's fiscal quarter end dates and the significant estimates used in preparing the financial statements - The Company's fiscal quarters end on the Sunday closest to the last day of each calendar quarter. Significant estimates are made in areas such as asset impairment, income taxes, doubtful accounts, lease accounting, contingencies, and stock-based compensation, which are evaluated based on historical experience and current conditions[24][26] 3. Recent Accounting Pronouncements This section discusses the adoption of new accounting standards and the evaluation of their potential impact on future financial disclosures - The Company adopted ASU No. 2023-07, "Segment Reporting," effective January 1, 2025, which did not impact the consolidated financial statements. The Company is currently evaluating ASU No. 2023-09, "Income Taxes," and ASU No. 2024-03, "Disaggregation of Income Statement Expenses," for their potential impact on future disclosures[27][28][30] 4. Revenues This section details the Company's revenue recognition policies for franchise fees, royalties, advertising fees, and company restaurant sales - Franchise revenues are recognized over the term of the franchise agreement for fees, and when franchisee sales occur for royalties and advertising fees. Company restaurant sales are recognized when food and beverage items are sold[32][36][38] Franchise Revenue by Type (in millions) | Franchise Revenue Type (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Royalties | $82.1 | $80.6 | $158.4 | $160.7 | | Advertising revenues | $73.5 | $74.5 | $144.0 | $149.8 | | Proprietary product sales and other | $16.4 | $18.9 | $33.4 | $36.9 | | Franchise and development fees | $2.7 | $2.5 | $5.1 | $5.0 | | Total franchise revenues | $174.7 | $176.5 | $340.9 | $352.4 | - Total franchise revenues decreased by $1.8 million (1.0%) for the three months ended June 30, 2025, and by $11.5 million (3.3%) for the six months ended June 30, 2025, compared to the prior year periods[39] 5. Receivables and Current Expected Credit Losses ("CECL") This section explains the Company's methodology for measuring expected credit losses on financial instruments and details various receivable types - The Company applies the CECL methodology to measure expected credit losses on financial instruments, establishing specific reserves for at-risk franchisee accounts and an allowance for others based on historical losses, current conditions, and forecasts[40] Receivable Type (in millions) | Receivable Type (in millions) | June 30, 2025 | December 31, 2024 | | :---------------------------- | :------------ | :---------------- | | Accounts receivable | $79.1 | $72.0 | | Gift card receivable | $7.0 | $34.7 | | Notes receivable | $16.9 | $14.7 | | Equipment leases receivable | $9.5 | $13.2 | | Real estate leases receivable | $17.6 | $18.3 | | Other receivables | $1.1 | $2.9 | | Less: allowance for credit losses and notes receivable | $(6.4) | $(4.7) | | Total Long-term receivables | $33.5 | $35.9 | - The allowance for credit losses increased from $4.7 million at December 31, 2024, to $6.4 million at June 30, 2025, primarily due to bad debt expense of $3.2 million, partially offset by write-offs of $1.3 million[49] 6. Leases This section details the Company's lease arrangements as both a lessee and lessor, primarily for restaurant properties - The Company acts as both a lessee and lessor, primarily leasing real property for IHOP and Applebee's restaurants. As of June 30, 2025, the Company leases 488 IHOP franchisee-operated restaurants and 70 company-owned restaurants[51] Lease Cost (in millions) | Lease Cost (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Finance lease cost | $1.4 | $1.4 | $2.8 | $2.8 | | Operating lease cost | $20.5 | $18.3 | $40.4 | $36.5 | | Variable lease cost | $2.0 | $2.0 | $4.0 | $4.0 | | Sublease income | $(25.4) | $(26.6) | $(49.9) | $(53.8) | | Total Lease income (cost) | $(1.5) | $(4.9) | $(2.6) | $(10.5) | - Total lease income (net of costs) decreased from $(4.9) million to $(1.5) million for the three months ended June 30, 2025, and from $(10.5) million to $(2.6) million for the six months ended June 30, 2025, primarily due to decreased sublease income and increased operating lease costs[54] 7. Long-Term Debt This section details the Company's long-term debt structure, including fixed-rate senior secured notes and variable funding notes, and recent refinancing activities Long-Term Debt Component (in millions) | Long-Term Debt Component (in millions) | June 30, 2025 | December 31, 2024 | | :------------------------------------- | :------------ | :---------------- | | Series 2019-1 4.723% Fixed Rate Senior Secured Notes, Class A-2-II | $— | $594.0 | | Series 2022-1 Variable Funding Senior Notes, Class A-1 | $— | $100.0 | | Series 2023-1 7.824% Fixed Rate Senior Secured Notes, Class A-2 | $500.0 | $500.0 | | Series 2025-1 6.720% Fixed Rate Senior Secured Notes, Class A-2 | $600.0 | $— | | Series 2025-1 Variable Funding Senior Notes, Class A-1 | $100.0 | $— | | Unamortized debt issuance costs | $(13.0) | $(7.4) | | Long-term debt, net of debt issuance costs | $1,187.0 | $1,186.6 | | Less: current portion of long-term debt | $(100.0) | $(100.0) | | Total Long-term debt | $1,087.0 | $1,086.6 | - In June 2025, the Company refinanced its debt, issuing $600 million of Series 2025-1 6.720% Fixed Rate Senior Secured Notes and establishing a new $325 million revolving Credit Facility (2025 Class A-1 Notes). The proceeds were used to repay the $594.0 million outstanding balance of the 2019 Class A-2-II Notes. The Company's leverage ratio was approximately 4.25x as of June 30, 2025, suspending quarterly principal payments on Class A-2 Notes[62][61][68][72] - The Company recognized a $0.9 million loss on extinguishment of debt related to the write-off of unamortized debt issuance costs from the repaid 2019 Class A-2-II Notes[87][88] 8. Stockholders' Deficit This section details changes in stockholders' deficit, including dividends declared and paid, and share repurchase activities Dividend Metric | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Dividends declared per common share | $0.51 | $0.51 | $1.02 | $1.02 | | Dividends paid per common share | $0.51 | $0.51 | $1.02 | $1.02 | | Total dividends paid (in millions) | N/A | N/A | $15.8 | $15.7 | - The Board of Directors declared a cash dividend of $0.51 per share for both the first and second quarters of 2025. Under the 2022 Repurchase Program, the Company repurchased 309,778 shares of common stock for $7.6 million during the six months ended June 30, 2025, with $125.7 million remaining authorization[94][97] 9. Income Taxes This section provides details on the Company's effective tax rate and unrecognized tax benefits - The effective tax rate for the six months ended June 30, 2025, was 30.6%, higher than the 26.4% for the same period in 2024, primarily due to a lower tax deduction related to stock-based compensation[99] - The total gross unrecognized tax benefit was $2.8 million as of June 30, 2025, with an estimated decrease of $0.1 million over the next 12 months due to settlements and statute of limitations expirations[100] 10. Stock-Based Compensation This section details the Company's stock-based compensation expense and unrecognized compensation for various awards Stock-Based Compensation Expense (in millions) | Stock-Based Compensation Expense (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Equity classified awards expense | $3.3 | $3.9 | $6.7 | $8.8 | | Liability classified awards expense | $(0.5) | $(0.6) | $(0.2) | $0.1 | | Total stock-based compensation expense | $2.8 | $3.3 | $6.5 | $8.9 | - Total stock-based compensation expense decreased for both the three and six months ended June 30, 2025, compared to the prior year periods. Unrecognized compensation expense totaled $20.9 million for restricted stock/units and $1.6 million for stock options as of June 30, 2025[105] 11. Net Income per Share This section presents the basic and diluted net income per common share and related weighted average outstanding shares Net Income per Share (in thousands, except per share data) | Net Income per Share (in thousands, except per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income available to common stockholders - basic | $13,213 | $22,479 | $21,092 | $39,449 | | Weighted average outstanding shares of common stock - basic | 14,879 | 14,943 | 14,907 | 14,962 | | Basic EPS | $0.89 | $1.50 | $1.41 | $2.64 | | Diluted EPS | $0.89 | $1.50 | $1.41 | $2.64 | - Basic and diluted net income per common share decreased significantly for both the three-month ($0.89 vs. $1.50) and six-month ($1.41 vs. $2.64) periods ended June 30, 2025, compared to the prior year[113] 12. Segments This section outlines the Company's four reportable segments and their respective operating performance - The Company operates with four reportable segments: franchise operations (Applebee's, IHOP, Fuzzy's), company-owned restaurant operations, rental operations, and financing operations. The CODM uses revenue and operating profit to assess segment performance and allocate resources[116] Segment Operating Profit (in millions) | Segment Operating Profit (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Franchise | $55.3 | $60.3 | $108.1 | $117.7 | | Company Restaurants | $(4.6) | $0.0 | $(6.4) | $0.0 | | Rental | $6.4 | $7.4 | $11.8 | $14.9 | | Financing | $0.2 | $0.4 | $0.5 | $0.8 | | Total Segment Operating Profit | $57.3 | $68.0 | $114.1 | $133.4 | - Total segment operating profit decreased by $10.7 million (15.7%) for the three months and $19.3 million (14.5%) for the six months ended June 30, 2025, primarily due to declines in franchise, company restaurant, and rental operations[120][123][126][128] 13. Closure and Impairment Charges This section details the charges incurred from restaurant closures and asset impairments, including strategic realignment activities Closure and Impairment Charges (in millions) | Charge Type (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Closure charges | $1.0 | $0.4 | $3.8 | $1.1 | | Other asset impairment charges | $0.2 | $— | $3.2 | $— | | Total | $1.2 | $0.4 | $7.0 | $1.1 | - Total closure and impairment charges significantly increased to $7.0 million for the six months ended June 30, 2025, from $1.1 million in the prior year, primarily due to the acquisition and closure of certain IHOP restaurants in the Cincinnati market as part of a strategic realignment[130][132][133] 14. Fair Value Measurements This section discusses the fair value of the Company's financial instruments, particularly long-term debt, and the inputs used for their measurement - The Company does not have material financial assets or liabilities measured at fair value on a recurring basis, nor material derivative financial instruments. The fair values of long-term debt (excluding the Credit Facility) were $1,104.9 million at June 30, 2025, and $1,095.5 million at December 31, 2024, determined using Level 2 inputs[134][135] 15. Commitments and Contingencies This section outlines the Company's involvement in legal proceedings and potential liabilities from lease guarantees related to refranchised restaurants - The Company is involved in various lawsuits and administrative proceedings in the ordinary course of business. In connection with refranchising Applebee's restaurants, the Company has guaranteed or has potential continuing liability for lease payments totaling $331.8 million as of June 30, 2025, with a potential liability of $85.1 million excluding unexercised option periods[136][137] 16. Cash, Cash Equivalents and Restricted Cash This section provides a breakdown of the Company's cash, cash equivalents, and restricted cash balances, including their primary components Cash Component (in millions) | Cash Component (in millions) | June 30, 2025 | December 31, 2024 | | :--------------------------- | :------------ | :---------------- | | Total cash and cash equivalents | $194.2 | $186.7 | | Total current restricted cash | $47.0 | $42.4 | | Non-current restricted cash | $22.0 | $19.5 | | Total cash, cash equivalents and restricted cash | $263.2 | $248.6 | - Total cash, cash equivalents, and restricted cash increased from $248.6 million at December 31, 2024, to $263.2 million at June 30, 2025. Current restricted cash primarily consists of securitized debt reserves and Applebee's advertising funds, while non-current restricted cash represents interest reserves for securitized debt[140][141][142] 17. Business Acquisition This section details the Company's recent acquisitions of IHOP and Applebee's restaurants, including the resulting bargain purchase gain and goodwill - In March 2025, the Company acquired 10 IHOP restaurants for $0.2 million, resulting in a $0.2 million bargain purchase gain. In May 2025, it acquired 12 Applebee's restaurants for $1.3 million, resulting in $1.6 million in goodwill. These acquisitions are part of a strategy to invest in the system, improve operations, and create a blueprint for franchisee success[143][144][145][147] 18. Subsequent Event This section reports on the enactment of the One Big Beautiful Bill Act (OBBBA) subsequent to the quarter end and its potential impact - Subsequent to the quarter end, on July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted, amending U.S. tax law. The Company is currently evaluating the impact of OBBBA on its consolidated financial statements[150] Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations This section offers management's analysis of the Company's financial condition and operational results, covering key performance indicators, consolidated revenues, gross profit, segment performance, and liquidity Overview This section introduces Dine Brands Global as a major full-service restaurant company, detailing its brands and reportable segments - Dine Brands Global operates as one of the largest full-service restaurant companies globally, owning and franchising Applebee's, IHOP, and Fuzzy's Taco Shop concepts. The Company has four reportable segments: franchise operations, rental operations, financing operations, and company-owned restaurant operations[153] Key Financial Results This section highlights the Company's core financial outcomes, including income before taxes, net income, effective tax rate, and diluted earnings per share Key Financial Results (in millions, except per share data) | Metric (in millions, except per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Variance (Unfavorable) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Variance (Unfavorable) | | :------------------------------------------ | :------------------------------- | :------------------------------- | :--------------------- | :----------------------------- | :----------------------------- | :--------------------- | | Income before income taxes | $18.9 | $31.2 | $(12.3) | $31.7 | $55.3 | $(23.5) | | Net income | $13.8 | $23.2 | $(9.4) | $22.0 | $40.7 | $(18.6) | | Effective tax rate | 27.0% | 25.8% | (1.3)% | 30.6% | 26.4% | (4.2)% | | Net income per diluted share | $0.89 | $1.50 | $(0.61) | $1.41 | $2.64 | $(1.23) | - Income before income taxes decreased by $12.3 million for the three months and $23.5 million for the six months ended June 30, 2025, primarily due to decreased gross profit, increased G&A expenses, and a loss on extinguishment of debt. The effective tax rate increased due to a lower tax deduction related to stock-based compensation[155][156][157] Key Performance Indicators This section presents crucial metrics such as system-wide sales, same-restaurant sales, and restaurant development for each brand - Key performance indicators include system-wide sales percentage change, domestic system-wide same-restaurant sales, net franchise restaurant development, and change in effective restaurants, which directly impact royalty and advertising revenues[160] Key Performance Indicators by Brand | Metric | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :------------------------------------------------ | :------------------------------- | :----------------------------- | | Applebee's | | | | Sales percentage increase (decrease) in reported retail sales | 2.8% | (0.5)% | | % Increase (decrease) in domestic system wide same-restaurant sales | 4.9% | 1.3% | | Net franchise restaurant reduction | (21) | (41) | | Net decrease in total effective restaurants | (50) | (44) | | IHOP | | | | Sales percentage increase (decrease) in reported retail sales | (2.3)% | (2.6)% | | % Increase (decrease) in domestic system wide same-restaurant sales | (2.3)% | (2.5)% | | Net franchise restaurant reduction | (18) | (28) | | Net decrease in total effective restaurants | (11) | (6) | | Fuzzy's | | | | Sales percentage increase (decrease) in reported retail sales | (17.0)% | (16.9)% | | % Increase (decrease) in domestic system wide same-restaurant sales | (11.8)% | (12.0)% | | Net franchise restaurant reduction | (1) | (4) | | Net decrease in total effective restaurants | (14) | (14) | - Applebee's domestic same-restaurant sales increased by 4.9% for the three months and 1.3% for the six months ended June 30, 2025, outperforming the casual dining segment for the three-month period. IHOP's domestic same-restaurant sales decreased by 2.3% and 2.5% for the respective periods, underperforming the family dining segment. Fuzzy's domestic same-restaurant sales significantly decreased by 11.8% and 12.0% for the respective periods[164][165][168][169][171] CONSOLIDATED RESULTS OF OPERATIONS This section provides a detailed analysis of the Company's consolidated financial performance, including revenue, gross profit, and segment-specific results Events Impacting Comparability of Financial Information This section highlights the impact of recent restaurant acquisitions on the comparability of the Company's financial results - The Company's financial results for the three and six months ended June 30, 2025, were impacted by the acquisition and operation of 47 Applebee's restaurants in November 2024, 10 IHOP restaurants in March 2025, and 12 Applebee's restaurants in May 2025, which are now reported as company-owned[182] Financial Results This section presents a breakdown of total revenue by operating segment and analyzes the changes year-over-year Revenue (in millions) | Revenue (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Variance (Unfavorable) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Variance (Unfavorable) | | :-------------------- | :------------------------------- | :------------------------------- | :--------------------- | :----------------------------- | :----------------------------- | :--------------------- | | Franchise operations | $174.7 | $176.5 | $(1.8) | $340.9 | $352.4 | $(11.5) | | Rental operations | $27.5 | $29.0 | $(1.5) | $54.2 | $58.5 | $(4.3) | | Company restaurant operations | $28.2 | $0.3 | $27.9 | $49.8 | $0.6 | $49.2 | | Financing operations | $0.3 | $0.5 | $(0.2) | $0.6 | $1.0 | $(0.4) | | Total revenue | $230.8 | $206.3 | $24.5 | $445.6 | $412.5 | $33.1 | - Total revenue increased by $24.5 million (11.9%) for the three months and $33.1 million (8.0%) for the six months ended June 30, 2025, primarily due to the newly acquired company-owned restaurants, partially offset by decreases in franchise and rental operations revenue[185][187] Gross Profit This section analyzes the Company's gross profit performance across its operating segments and the factors influencing changes Gross Profit (in millions) | Gross Profit (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Variance (Unfavorable) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Variance (Unfavorable) | | :------------------------- | :------------------------------- | :------------------------------- | :--------------------- | :----------------------------- | :----------------------------- | :--------------------- | | Franchise operations | $88.3 | $91.5 | $(3.2) | $173.3 | $180.9 | $(7.6) | | Rental operations | $6.4 | $7.4 | $(1.0) | $11.8 | $15.0 | $(3.2) | | Company restaurant operations | $(2.7) | $0.0 | $(2.7) | $(3.1) | $0.0 | $(3.1) | | Financing operations | $0.2 | $0.4 | $(0.2) | $0.5 | $0.8 | $(0.3) | | Total gross profit | $92.2 | $99.3 | $(7.1) | $182.5 | $196.7 | $(14.2) | - Total gross profit decreased by $7.1 million (7.1%) for the three months and $14.2 million (7.2%) for the six months ended June 30, 2025, primarily due to decreased gross profit from franchise, rental, and company restaurant operations. Company restaurant gross profit turned negative due to investments in newly acquired restaurants[188][189] Franchise Operations This section details the performance of the Company's franchise segment, including effective restaurant counts, revenues, and gross profit by brand Franchise Metric (in millions, except restaurants) | Franchise Metric (in millions, except restaurants) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Variance (Unfavorable) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Variance (Unfavorable) | | :------------------------------------------------- | :------------------------------- | :------------------------------- | :--------------------- | :----------------------------- | :----------------------------- | :--------------------- | | Effective Franchise Restaurants: | | | | | | | | Applebee's | 1,525 | 1,627 | (102) | 1,537 | 1,631 | (94) | | IHOP | 1,781 | 1,802 | (21) | 1,789 | 1,801 | (12) | | Fuzzy's | 110 | 124 | (14) | 112 | 126 | (14) | | Franchise Revenues: | | | | | | | | Applebee's franchise fees | $45.7 | $43.0 | $2.7 | $86.7 | $86.4 | $0.3 | | IHOP franchise fees | $52.6 | $55.3 | $(2.7) | $105.1 | $109.7 | $(4.6) | | Fuzzy's franchise fees | $2.9 | $3.6 | $(0.7) | $5.2 | $6.5 | $(1.3) | | Franchise Gross Profit: | | | | | | | | Applebee's | $41.6 | $43.7 | $(2.1) | $80.7 | $86.4 | $(5.7) | | IHOP | $44.2 | $46.0 | $(1.8) | $88.0 | $91.0 | $(3.0) | | Fuzzy's | $2.6 | $1.9 | $0.7 | $4.6 | $3.5 | $1.1 | - Applebee's franchise fee revenue increased due to higher domestic same-restaurant sales and termination fees, despite a decrease in effective franchise restaurants. IHOP and Fuzzy's franchise fee revenues decreased due to lower domestic same-restaurant sales and fewer effective franchise restaurants. Applebee's franchise expenses increased due to higher bad debt expense and refranchising costs, while IHOP and Fuzzy's expenses decreased due to lower advertising contributions and bad debt[191][192][193][195][196][197][198][199][200] Advertising Revenues and Expenses This section analyzes the trends in advertising revenues and expenses, highlighting the impact of restaurant counts and same-restaurant sales Advertising (in millions) | Advertising (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Increase (Decrease) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Increase (Decrease) | | :------------------------ | :------------------------------- | :------------------------------- | :------------------ | :----------------------------- | :----------------------------- | :------------------ | | Applebee's | $44.2 | $44.3 | $(0.1) | $85.9 | $89.5 | $(3.6) | | IHOP | $28.5 | $29.2 | $(0.7) | $56.5 | $58.3 | $(1.8) | | Fuzzy's | $0.8 | $1.0 | $(0.2) | $1.6 | $2.0 | $(0.4) | | Total | $73.5 | $74.5 | $(1.0) | $144.0 | $149.8 | $(5.8) | - Total advertising revenues and expenses decreased for both the three and six months ended June 30, 2025, primarily due to fewer effective franchise restaurants (partially offset by company restaurant acquisitions) and decreases in IHOP and Fuzzy's domestic franchise same-restaurant sales, despite an increase in Applebee's[201] Rental Operations This section details the revenues, expenses, and gross profit from the Company's rental operations, including factors affecting performance Rental Operations (in millions) | Rental Operations (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Variance (Unfavorable) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Variance (Unfavorable) | | :------------------------------ | :------------------------------- | :------------------------------- | :--------------------- | :----------------------------- | :----------------------------- | :--------------------- | | Rental revenues | $27.5 | $29.0 | $(1.5) | $54.2 | $58.6 | $(4.4) | | Rental expenses | $21.1 | $21.7 | $0.5 | $42.4 | $43.6 | $1.2 | | Rental operations gross profit | $6.4 | $7.4 | $(1.0) | $11.8 | $15.0 | $(3.2) | - Rental operations gross profit decreased by $1.0 million for the three months and $3.2 million for the six months ended June 30, 2025, primarily due to operating lease terminations and a decrease in percentage rent from lower system sales[204][205] Company Restaurant and Financing Operations This section analyzes the performance of company-owned restaurant operations and financing operations, including revenues, expenses, and gross profit Company Restaurant and Financing Operations (in millions) | Metric (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Variance (Unfavorable) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Variance (Unfavorable) | | :-------------------------------- | :------------------------------- | :------------------------------- | :--------------------- | :----------------------------- | :----------------------------- | :--------------------- | | Company Restaurant Operations: | | | | | | | | Company restaurant sales | $28.2 | $0.3 | $27.9 | $49.8 | $0.6 | $49.2 | | Company restaurant expenses | $30.9 | $0.3 | $(30.6) | $52.9 | $0.6 | $(52.3) | | Total company restaurants operations | $(2.7) | $0.0 | $(2.7) | $(3.1) | $0.0 | $(3.1) | | Financing Operations: | | | | | | | | Financing revenues | $0.3 | $0.5 | $(0.2) | $0.6 | $1.0 | $(0.4) | | Financing expenses | $0.1 | $0.1 | $0.0 | $0.1 | $0.2 | $0.1 | | Total financing operations | $0.2 | $0.4 | $(0.2) | $0.5 | $0.8 | $(0.3) | - Company restaurant operations generated negative gross profit due to expenses associated with newly acquired Applebee's and IHOP restaurants. Financing revenues and gross profit declined due to a progressive decrease in interest income as note balances are repaid[206][207] G&A Expenses This section details the changes in general and administrative expenses, identifying key drivers such as compensation and professional fees G&A Expenses (in millions) | G&A Expenses (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Variance (Unfavorable) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Variance (Unfavorable) | | :------------------------- | :------------------------------- | :------------------------------- | :--------------------- | :----------------------------- | :----------------------------- | :--------------------- | | Total G&A expenses | $50.8 | $46.9 | $(3.9) | $102.1 | $99.0 | $(3.1) | - General and administrative (G&A) expenses increased by $3.9 million (8.3%) for the three months and $3.1 million (3.1%) for the six months ended June 30, 2025. This increase was primarily driven by higher compensation-related expenses, professional service fees, and costs associated with company restaurant operations and dual brand/remodel initiatives[208][209] Other Income and Expense Items This section covers various non-operating income and expense items, including interest, debt extinguishment losses, and impairment charges Other Items (in millions) | Other Items (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Variance (Unfavorable) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Variance (Unfavorable) | | :------------------------ | :------------------------------- | :------------------------------- | :--------------------- | :----------------------------- | :----------------------------- | :--------------------- | | Interest expense, net | $17.8 | $17.9 | $0.1 | $35.5 | $35.9 | $0.4 | | Loss on extinguishment of debt | $0.9 | $— | $(0.9) | $0.9 | $— | $(0.9) | | Closure and impairment charges | $1.2 | $0.4 | $(0.7) | $7.0 | $1.1 | $(5.9) | | Amortization of intangible assets | $2.7 | $2.7 | $0.0 | $5.4 | $5.4 | $0.0 | | Loss (gain) on disposition of assets | $0.0 | $0.2 | $0.2 | $(0.1) | $(0.1) | $0.0 | | Total other income and expenses | $22.5 | $21.2 | $(1.3) | $48.7 | $42.3 | $(6.4) | - Interest expense, net, slightly decreased due to lower interest rates on the Credit Facility. A $0.9 million loss on extinguishment of debt was recognized from the repayment of the 2019 Class A-2-II Notes. Closure and impairment charges significantly increased due to the strategic realignment of the IHOP Cincinnati market[211][212][213][214] Income Taxes This section analyzes the Company's income tax provision and effective tax rate, noting factors influencing changes Income Taxes (in millions) | Income Taxes (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Variance (Unfavorable) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Variance (Unfavorable) | | :------------------------- | :------------------------------- | :------------------------------- | :--------------------- | :----------------------------- | :----------------------------- | :--------------------- | | Income before income taxes | $18.9 | $31.2 | $(12.3) | $31.7 | $55.3 | $(23.5) | | Income tax provision | $5.1 | $8.0 | $2.9 | $9.7 | $14.6 | $4.9 | | Effective tax rate | 27.0% | 25.8% | (1.3)% | 30.6% | 26.4% | (4.2)% | - The effective tax rate for the three and six months ended June 30, 2025, was higher than the prior comparable periods, primarily due to a lower tax deduction related to stock-based compensation[215] Liquidity and Capital Resources This section evaluates the Company's ability to generate and manage cash, detailing its debt instruments, covenants, and capital allocation strategies Instruments This section describes the Company's long-term debt instruments, including various series of fixed-rate notes and its revolving credit facility - The Company's long-term debt includes $500 million of Series 2023-1 7.824% Fixed Rate Senior Secured Notes, $600 million of Series 2025-1 6.720% Fixed Rate Senior Secured Notes, and a $325 million revolving Credit Facility (2025-1 Variable Funding Senior Notes, Class A-1)[218][219] Maturity This section outlines the legal final maturity and anticipated repayment dates for the Company's various debt series and credit facility - The 2023 Class A-2 Notes have a legal final maturity in March 2053, with an anticipated repayment date in June 2029. The 2025 Class A-2 Notes have a legal final maturity in June 2055, with an anticipated repayment date in June 2030. The Credit Facility has a renewal date in June 2030, with options for two additional one-year extensions[220][221] Payment of Principal and Interest This section details the requirements for principal and interest payments on Class A-2 Notes and the conditions for their suspension - Quarterly principal and interest payments are required on Class A-2 Notes, but principal payments can be suspended if the leverage ratio is less than or equal to 5.25x. As of June 30, 2025, the Company's leverage ratio was approximately 4.25x, so principal payments are not currently required[222] - The Board authorized a debt repurchase program of up to $100 million in February 2023 to reduce future cash interest payments and amounts due at maturity[224] Make-whole Premiums This section explains the make-whole premiums associated with voluntary or mandatory prepayments of the Company's debt instruments - Voluntary prepayment of the 2023 Class A-2 Notes would incur a make-whole premium of approximately $23.9 million as of June 30, 2025. For the 2025 Class A-2 Notes, this premium was approximately $42.4 million. Mandatory prepayments due to rapid amortization events or asset dispositions would also trigger make-whole premiums, which are considered immaterial derivatives[225] Covenants and Restrictions This section outlines the customary covenants and restrictions on the Company's long-term debt, including the Debt Service Coverage Ratio (DSCR) thresholds - The long-term debt is subject to customary covenants, including maintaining a Debt Service Coverage Ratio (DSCR). A DSCR below certain thresholds (e.g., 1.75x, 1.20x, 1.10x) can trigger a Cash Trapping Event, Rapid Amortization Event, Manager Termination Event, or Default Event. The Company's DSCR was approximately 3.3x as of June 30, 2025[226][227][230] Credit Facility This section details the Company's revolving credit facility, including its outstanding balance, available capacity, and weighted average interest rate - The $325 million Credit Facility allows for variable funding notes and letters of credit. As of June 30, 2025, $100 million was outstanding, with $0.6 million pledged for letters of credit, leaving $224.4 million available. The weighted average interest rate for the period was 6.93%[228][229] Capital Allocation This section describes the Company's capital allocation strategies, including dividend payments and share repurchase programs Dividend Metric | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Dividends declared per common share | $0.51 | $0.51 | $1.02 | $1.02 | | Dividends paid per common share | $0.51 | $0.51 | $1.02 | $1.02 | | Total dividends paid (in millions) | N/A | N/A | $15.8 | $15.7 | - The Company paid $15.8 million in dividends during the six months ended June 30, 2025. Under the 2022 Repurchase Program, 309,778 shares were repurchased for $7.6 million, with $125.7 million remaining authorization[231][234] Cash Flows This section analyzes the Company's cash flows from operating, investing, and financing activities, highlighting key changes year-over-year Cash Flow (in millions) | Cash Flow (in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Variance | | :---------------------------------------- | :------------------------------- | :------------------------------- | :------- | | Net cash provided by operating activities | $53.1 | $52.2 | $0.9 | | Net cash used in investing activities | $(5.2) | $(1.1) | $(4.1) | | Net cash used in financing activities | $(33.3) | $(33.3) | $0.0 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $14.6 | $17.8 | $(3.2) | - Operating cash flows increased slightly by $0.9 million due to favorable working capital changes. Investing activities used $4.1 million more cash, primarily due to increased property and equipment additions and long-term receivables. Financing activities remained consistent year-over-year[237][238][240] Adjusted Free Cash Flow This section presents the Company's adjusted free cash flow, detailing its components and the factors influencing its change Adjusted Free Cash Flow (in millions) | Adjusted Free Cash Flow (in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Variance | | :------------------------------------ | :------------------------------- | :------------------------------- | :------- | | Cash flows provided by operating activities | $53.1 | $52.2 | $0.9 | | Principal receipts from notes and equipment contracts | $4.8 | $7.5 | $(2.7) | | Additions to property and equipment | $(9.3) | $(6.8) | $(2.5) | | Adjusted free cash flow | $48.7 | $52.9 | $(4.2) | - Adjusted free cash flow decreased by $4.2 million to $48.7 million for the six months ended June 30, 2025, primarily due to decreased principal receipts from notes and equipment contracts and increased capital expenditures, partially offset by higher operating cash flows[242] Contractual Obligations and Commitments This section confirms that there were no material changes to the Company's contractual obligations since the last annual report - There were no material changes to the contractual obligations as disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024[243] Critical Accounting Policies and Estimates This section confirms the consistency of the Company's critical accounting estimates with those outlined in the previous annual report - The Company's critical accounting estimates, including those for asset impairment, income taxes, and lease accounting, remained consistent with those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024, with no significant changes during the six months ended June 30, 2025[244][245] Item 3—Quantitative and Qualitative Disclosures about Market Risk This section confirms no material changes in market risk disclosures compared to the prior annual report - No material changes were reported regarding quantitative and qualitative disclosures about market risk compared to the previous Annual Report on Form 10-K[246] Item 4—Controls and Procedures This section outlines the Company's assessment of disclosure controls and procedures and reports on any changes in internal control over financial reporting Disclosure Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures at a reasonable assurance level - The Company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025[247] Changes in Internal Control Over Financial Reporting This section reports that no material changes occurred in the Company's internal control over financial reporting during the quarter - There were no material changes in the Company's internal control over financial reporting during the fiscal quarter ended June 30, 2025[248] PART II. OTHER INFORMATION Item 1—Legal Proceedings This section details the Company's involvement in various legal and administrative proceedings, which management deems unlikely to have a material adverse impact - The Company is subject to various legal proceedings, but management does not currently believe any will have a material adverse impact on the Company[250] Item 1A—Risk Factors This section confirms no material changes to the risk factors previously disclosed in the Company's annual report - No material changes were reported regarding risk factors compared to the previous Annual Report on Form 10-K[251] Item 2—Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's equity security purchases, including shares repurchased under public programs and those tendered for tax withholding Equity Security Purchases | Period | Total number of shares purchased (a) | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs (b) | | :------------------------------ | :----------------------------------- | :--------------------------- | :--------------------------------------------------------------------------------- | | March 31, 2025 - April 27, 2025 | 626 | $20.23 | — | | April 28, 2025 - May 25, 2025 | 790 | $23.84 | 104,810 | | May 26, 2025 - June 29, 2025 | 3,109 | $24.75 | 140,099 | | Total | 4,525 | $24.35 | 244,909 | - During the quarter ended June 30, 2025, the Company repurchased 244,909 shares under its publicly announced program and 4,525 shares from employees for tax withholding, with an approximate dollar value of $125,667,000 remaining under the repurchase program[253] Item 3—Defaults Upon Senior Securities This section confirms that no defaults occurred upon senior securities during the reporting period - No defaults upon senior securities were reported[254] Item 4—Mine Safety Disclosures This section clarifies that mine safety disclosures are not relevant to the Company's operations - Mine safety disclosures are not applicable to the Company[255] Item 5—Other Information This section reports no adoption, modification, or termination of securities trading plans by directors or executive officers during the quarter - No Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or officers during the fiscal quarter ended June 30, 2025[256] Item 6—Exhibits This section lists all exhibits accompanying the Form 10-Q, including indentures, agreements, and certifications - The report includes exhibits such as the Second Amended and Restated Base Indenture, Series 2025-1 Supplement, Class A-1 Note Purchase Agreement, Fourth Amended and Restated Management Agreement, and certifications from the CEO and CFO[257] Signatures This section contains the required signatures of the Company's CEO, CFO, and Chief Accounting Officer, certifying the report's filing - The report is signed by John W. Peyton (CEO), Vance Y. Chang (CFO), and Allison Hall (Chief Accounting Officer) on August 6, 2025[261]