Dine Brands Global, Inc. [DIN] Filings

10-Q 1 din-20230331.htm 10-Q din-20230331

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-15283

Dine Brands Global, Inc. IHOP and Fuzzy Logos.jpg

(Exact name of registrant as specified in its charter)

Delaware

95-3038279

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

10 West Walnut Street, 5th Floor

91103

Pasadena

(Address of principal executive offices)

(Zip Code)


(818) 240-6055
(Registrant’s telephone number, including area code)

______________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	DIN	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐

No ☒

As of April 25, 2023, the Registrant had 15,663,733 shares of Common Stock outstanding.

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Dine Brands Global, Inc. and Subsidiaries

Index


		Page
PART I.	FINANCIAL INFORMATION	3
	Item 1—Financial Statements	3
	Consolidated Balance Sheets - March 31, 2023 (unaudited) and December 31, 2022	3
	Consolidated Statements of Comprehensive Income (unaudited) - Three Months Ended March 31, 2023 and 2022	4
	Consolidated Statements of Stockholders' Deficit (unaudited) - Three Months Ended March 31, 2023 and 2022	5
	Consolidated Statements of Cash Flows (unaudited) - Three Months Ended March 31, 2023 and 2022	6
	Notes to Consolidated Financial Statements (unaudited)	7
	Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
	Item 3—Quantitative and Qualitative Disclosures about Market Risk	38
	Item 4—Controls and Procedures	38
PART II.	OTHER INFORMATION	39
	Item 1—Legal Proceedings	39
	Item 1A—Risk Factors	39
	Item 2—Unregistered Sales of Equity Securities and Use of Proceeds	39
	Item 3—Defaults Upon Senior Securities	39
	Item 4—Mine Safety Disclosures	39
	Item 5—Other Information	39
	Item 6—Exhibits	40
	Signatures	41

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Cautionary Statement Regarding Forward-Looking Statements

Statements contained in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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. You can identify these forward-looking statements by words such as “may,” “will,” “would,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan,” “goal” and other similar expressions. You should consider our forward-looking statements in light of the risks discussed under the heading “Risk Factors,” as well as our consolidated financial statements, related notes, and the other financial information appearing elsewhere in this report and our other filings with the United States Securities and Exchange Commission. The forward-looking statements contained in this report are made as of the date hereof and Dine Brands Global, Inc. does not intend to, nor does it assume any obligation to, update or supplement any forward-looking statements after the date of this report to reflect actual results or future events or circumstances.

Factors that could cause actual results to differ materially from the projections, forecasts, estimates and expectations discussed in this Quarterly Report on Form 10-Q include, among other things: uncertainty regarding the duration and severity of the ongoing COVID-19 pandemic (including the emergence of variant strains) and its ultimate impact on our business; general economic conditions; our level of indebtedness; compliance with the terms of our securitized debt; our ability to refinance our current indebtedness or obtain additional financing; our dependence on information technology; potential cyber incidents; the implementation of restaurant development plans; our dependence on our franchisees; the concentration of our Applebee’s franchised restaurants in a limited number of franchisees; the financial health of our franchisees, including any insolvency or bankruptcy; credit risks from our IHOP franchisees operating under our previous IHOP business model in which we built and equipped IHOP restaurants and then franchised them to franchisees; insufficient insurance coverage to cover potential risks associated with the ownership and operation of restaurants; our franchisees’ and other licensees’ compliance with our quality standards and trademark usage; general risks associated with the restaurant industry; potential harm to our brands’ reputation; risks of food-borne illness or food tampering; possible future impairment charges; trading volatility and fluctuations in the price of our stock; our ability to achieve the financial guidance we provide to investors; successful implementation of our business strategy; the availability of suitable locations for new restaurants; shortages or interruptions in the supply or delivery of products from third parties or availability of utilities; the management and forecasting of appropriate inventory levels; development and implementation of innovative marketing and use of social media; changing health or dietary preference of consumers; risks associated with doing business in international markets; the results of litigation and other legal proceedings; third-party claims with respect to intellectual property assets; delivery initiatives and use of third-party delivery vendors; our allocation of human capital and our ability to attract and retain management and other key employees; compliance with federal, state and local governmental regulations; risks associated with our self-insurance; natural disasters or other serious incidents; our success with development initiatives outside of our core business; the adequacy of our internal controls over financial reporting and future changes in accounting standards; and other matters in the “Risk Factors” section of this report and our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and in our other filings with the Securities and Exchange Commission, many of which are beyond our control.

Fiscal Quarter End

The Company’s fiscal quarters end on the Sunday closest to the last day of each calendar quarter. For convenience, the fiscal quarters of each year are referred to as ending on March 31, June 30, September 30 and December 31. The first fiscal quarter of 2023 began on January 2, 2023 and ended on April 2, 2023. The first fiscal quarter of 2022 began on January 3, 2022 and ended on April 3, 2022.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Dine Brands Global, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share amounts)



	March 31, 2023		December 31, 2022
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	181,606	$	269,655


Receivables, net of allowance of $4,587 (2023) and $4,806 (2022)	93,119		119,981
Restricted cash	37,098		38,929
Prepaid gift card costs	23,717		30,235
Prepaid income taxes	—		3,063
Other current assets	12,831		17,901
Total current assets	348,371		479,764

Non-current restricted cash	16,400		16,400
Property and equipment, net	158,715		145,277
Operating lease right-of-use assets	290,859		289,123
Deferred rent receivable	39,772		42,329
Long-term receivables, net of allowance of $5,908 (2023) and $5,529 (2022)	37,831		39,697
Goodwill	254,120		253,956
Other intangible assets, net	594,333		597,028



Other non-current assets, net	17,668		17,917
Total assets	$	1,758,069	$	1,881,491
Liabilities and Stockholders’ Deficit
Current liabilities:
Current maturities of long-term debt	$	100,000	$	100,000
Accounts payable	39,085		52,067
Gift card liability	140,769		171,966
Current maturities of operating lease obligations	57,655		59,071
Current maturities of finance lease and financing obligations	7,265		7,542
Accrued employee compensation and benefits	13,862		23,456
Accrued advertising expenses	18,665		24,157
Dividends payable	—		8,017



Other accrued expenses	27,871		24,446
Total current liabilities	405,172		470,722
Long-term debt, net, less current maturities	1,174,564		1,241,914
Operating lease obligations, less current maturities	279,766		275,120
Finance lease obligations, less current maturities	33,256		30,377
Financing obligations, less current maturities	28,029		28,358
Deferred income taxes, net	67,351		74,651
Deferred franchise revenue, long-term	41,204		42,343

Other non-current liabilities	17,410		19,090
Total liabilities	2,046,752		2,182,575
Commitments and contingencies
Stockholders’ deficit:
Preferred stock, $1 par value, 10,000,000 shares authorized; no shares issued and outstanding	—		—
Common stock, $0.01 par value; shares: 40,000,000 authorized; March 31, 2023 - 24,915,372 issued, 15,674,739 outstanding; December 31, 2022 - 24,959,972 issued, 15,599,239 outstanding	249		250
Additional paid-in-capital	248,187		259,339
Retained earnings	103,931		84,538
Accumulated other comprehensive loss	(64)		(65)
Treasury stock, at cost; shares: March 31, 2023 - 9,240,633; December 31, 2022 - 9,360,733	(640,986)		(645,146)
Total stockholders’ deficit	(288,683)		(301,084)
Total liabilities and stockholders’ deficit	$	1,758,069	$	1,881,491

See the accompanying Notes to Consolidated Financial Statements.

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Dine Brands Global, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended
	March 31,
		2023		2022
Revenues:
Franchise revenues:
Royalties, franchise fees and other		$	102,925	$	90,349
Advertising revenues		77,037		70,883
Total franchise revenues		179,962		161,232
Company restaurant sales		1,057		39,416
Rental revenues		31,951		28,807
Financing revenues		797		968
Total revenues		213,767		230,423
Cost of revenues:
Franchise expenses:
Advertising expenses		77,037		70,883
Bad debt expense (credit)		923		(299)
Other franchise expenses		9,406		7,448
Total franchise expenses		87,366		78,032
Company restaurant expenses		1,079		37,408
Rental expenses:
Interest expense from finance leases		709		768
Other rental expenses		20,899		21,355
Total rental expenses		21,608		22,123
Financing expenses		98		107
Total cost of revenues		110,151		137,670
Gross profit		103,616		92,753
General and administrative expenses		51,087		41,548
Interest expense, net		14,709		15,533
Closure and impairment charges		467		146
Amortization of intangible assets		2,774		2,665

Gain on extinguishment of debt		(1,661)		—
Loss (gain) on disposition of assets		71		(1,296)
Income before income taxes		36,169		34,157
Income tax provision		(8,759)		(9,307)
Net income		27,410		24,850
Other comprehensive income net of tax:

Foreign currency translation adjustment		1		(1)
Total comprehensive income		$	27,411	$	24,849
Net income available to common stockholders:
Net income		$	27,410	$	24,850
Less: Net income allocated to unvested participating restricted stock		(679)		(598)
Net income available to common stockholders		$	26,731	$	24,252

Net income available to common stockholders per share:
Basic		$	1.75	$	1.45
Diluted		$	1.74	$	1.45
Weighted average shares outstanding:
Basic		15,304		16,722
Diluted		15,339		16,758

See the accompanying Notes to Consolidated Financial Statements.

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Dine Brands Global, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Deficit

(In thousands except shares)

(Unaudited)


	Three Months ended March 31, 2023
	Common Stock							Accumulated Other Comprehensive Loss		Treasury Stock
	Shares Outstanding	Amount		Additional Paid-in Capital		Retained Earnings				Shares	Cost		Total
Balance at December 31, 2022	15,599,239	$	250	$	259,339	$	84,538	$	(65)	9,360,733	$	(645,146)	$	(301,084)
Net income	—	—		—		27,410		—		—	—		27,410
Other comprehensive expense	—	—		—		—		1		—	—		1
Repurchase of restricted shares for taxes	(46,630)	—		(3,527)		—		—		—	—		(3,527)
Net issuance of shares for stock plans	2,030	—		—		—		—		—	—		—
Reissuance of treasury stock	194,960	(1)		(8,575)		—		—		(194,960)	9,160		584
Purchase of Company common stock	(74,860)	—		—		—		—		74,860	(5,000)		(5,000)
Stock-based compensation	—	—		1,718		—		—		—	—		1,718
Dividends on common stock	—	—		91		(8,017)		—		—	—		(7,926)
Tax payments for share settlement of restricted stock units	—	—		(859)		—		—		—	—		(859)
Balance at March 31, 2023	15,674,739	249		248,187		103,931		(64)		9,240,633	(640,986)		(288,683)


	Three Months ended March 31, 2022
	Common Stock							Accumulated Other Comprehensive Loss		Treasury Stock
	Shares Outstanding	Amount		Additional Paid-in Capital		Retained Earnings				Shares	Cost		Total
Balance at December 31, 2021	17,163,946	$	250	$	256,189	$	35,415	$	(59)	7,828,329	$	(534,602)	$	(242,807)
Net income	—	—		—		24,850		—		—	—		24,850
Other comprehensive loss	—	—		—		—		(1)		—	—		(1)
Repurchase of restricted shares for taxes	(22,972)	—		(1,745)		—		—		—	—		(1,745)
Net issuance of shares for stock plans	21,860	—		—		—		—		—	—		—
Reissuance of treasury stock	171,302	—		(7,778)		—		—		(171,302)	8,019		241
Purchase of Company common stock	(588,108)	—		—		—		—		588,108	(41,445)		(41,445)
Stock-based compensation	—	—		4,341		—		—		—	—		4,341
Dividends on common stock	—	—		96		(7,749)		—		—	—		(7,653)

Tax payments for share settlement of restricted stock units	—	—		(953)		—		—		—	—		(953)
Balance at March 31, 2022	16,746,028	$	250	$	250,150	$	52,516	$	(60)	8,245,135	$	(568,028)	$	(265,172)

See the accompanying Notes to Consolidated Financial Statements

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Dine Brands Global, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Three Months Ended
	March 31,
	2023		2022
Cash flows from operating activities:
Net income	$	27,410	$	24,850
Adjustments to reconcile net income to cash flows provided by (used in) operating activities:
Depreciation and amortization	9,222		9,938
Non-cash closure and impairment charges	459		45
Non-cash stock-based compensation expense	1,718		4,341
Non-cash interest expense	1,171		714
Gain on extinguishment of debt	(1,661)		—
Deferred income taxes	(2,901)		(873)
Deferred revenue	(1,193)		(1,177)
Loss (gain) on disposition of assets	71		(1,296)

Other	(308)		(1,766)
Changes in operating assets and liabilities:
Accounts receivable, net	(2,369)		(3,567)
Deferred rent receivable	2,557		1,977
Current income tax receivables and payables	224		2,352
Gift card receivables and payables	(2,310)		(2,180)
Other current assets	5,024		(3,365)
Accounts payable	(7,579)		(11,683)
Operating lease assets and liabilities	340		(2,909)
Accrued employee compensation and benefits	(11,801)		(26,646)
Accrued advertising	(5,067)		6,929
Other current liabilities	3,069		(3,474)
Cash flows provided by (used in) operating activities	16,076		(7,790)
Cash flows from investing activities:
Principal receipts from notes, equipment contracts and other long-term receivables	3,345		4,848
Net additions to property and equipment	(16,030)		(5,298)
Proceeds from sale of property and equipment	—		2,862
Additions to long-term receivables	—		(669)
Other	(54)		(30)
Cash flows (used in) provided by investing activities	(12,739)		1,713
Cash flows from financing activities:

Repayment of long-term debt	(66,574)		—



Dividends paid on common stock	(15,971)		(14,588)
Repurchase of common stock	(5,000)		(41,585)
Principal payments on finance lease obligations	(1,870)		(2,340)
Proceeds from stock options exercised	584		241
Repurchase of restricted stock for tax payments upon vesting	(3,527)		(1,745)
Tax payments for share settlement of restricted stock units	(859)		(953)
Cash flows used in financing activities	(93,217)		(60,970)
Net change in cash, cash equivalents and restricted cash	(89,880)		(67,047)
Cash, cash equivalents and restricted cash at beginning of period	324,984		425,353
Cash, cash equivalents and restricted cash at end of period	$	235,104	$	358,306
Supplemental disclosures:
Interest paid in cash	$	16,702	$	15,869
Income taxes paid in cash	$	11,937	$	7,945

See the accompanying Notes to Consolidated Financial Statements.

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Dine Brands Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

1. General

The accompanying unaudited consolidated financial statements of Dine Brands Global, Inc. (the “Company” or “Dine Brands Global”) have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the twelve months ending December 31, 2023.

The consolidated balance sheet at December 31, 2022 has been derived from the audited consolidated financial statements at that date but does not include all of information and footnotes required by U.S. GAAP for complete financial statements.

These consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

2. Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries that are consolidated in accordance with U.S. GAAP. All intercompany balances and transactions have been eliminated.

The preparation of financial statements in conformity with U.S. GAAP requires the Company’s management to make assumptions and estimates that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, if any, at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates may include the calculation and assessment of the following: impairment of goodwill, other intangible assets and tangible assets; income taxes; allowance for credit losses on accounts and notes receivables; lease accounting estimates; contingencies; and stock-based compensation. On an ongoing basis, the Company evaluates its estimates based on historical experience, current conditions and various other assumptions that are believed to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates.

3. Accounting Standards Adopted and Newly Issued Accounting Standards Not Yet Adopted

Accounting Standards Adopted in the Current Fiscal Year

Additional new accounting guidance became effective for the Company as of the beginning of fiscal 2023 that the Company reviewed and concluded was either not applicable to its operations or had no material effect on its consolidated financial statements in the current or future fiscal years.

Newly Issued Accounting Standards Not Yet Adopted

The Company reviewed all other newly issued accounting pronouncements and concluded that they either are not applicable to the Company's operations or that no material effect is expected on the Company's financial statements when adoption is required in the future.

4. Revenue

Franchise revenue and revenue from company-operated restaurants are recognized in accordance with current guidance for revenue recognition as codified in Accounting Standards Topic 606 (“ASC 606”). Under ASC 606, revenue is recognized upon transfer of control of promised services or goods to customers in an amount that reflects the consideration the Company expects to receive for those services or goods.

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Dine Brands Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

4. Revenue (Continued)

Franchise Revenues

The Company franchises the Applebee's Neighborhood Grill & Bar® (“Applebee's”) concept in the American full-service restaurant segment within the casual dining category of the restaurant industry, the International House of Pancakes® (“IHOP”) concept in the family dining mid-scale full-service category of the restaurant industry, and the Fuzzy's Taco Shop® (“Fuzzy's”) concept in the Mexican food segment within the fast-casual dining category of the restaurant industry. The franchise arrangement for the brands is documented in the form of a franchise agreement and, in most cases, a development agreement. The franchise arrangement between the Company as the franchisor and the franchisee as the customer requires the Company to perform various activities to support the brands that do not directly transfer goods and services to the franchisee, but instead represent a single performance obligation, which is the transfer of the franchise license. The intellectual property subject to the franchise license is symbolic intellectual property as it does not have significant standalone functionality, and substantially all the utility is derived from its association with the Company’s past or ongoing activities. The nature of the Company’s promise in granting the franchise license is to provide the franchisee with access to the respective brand’s symbolic intellectual property over the term of the license. The services provided by the Company are highly interrelated with the franchise license and as such are considered to represent a single performance obligation.

The transaction price in a standard franchise arrangement for the brands primarily consists of (a) initial franchise/development fees; (b) continuing franchise fees (royalties); and (c) advertising fees. Since the Company considers the licensing of the franchising right to be a single performance obligation, no allocation of the transaction price is required. Additionally, all domestic IHOP franchise agreements require franchisees to purchase proprietary pancake and waffle dry mix from the Company.

The Company recognizes the primary components of the transaction price as follows:

•Franchise and development fees are recognized as revenue ratably on a straight-line basis over the term of the franchise agreement commencing with the restaurant opening date. As these fees are typically received in cash at or near the beginning of the franchise term, the cash received is initially recorded as a contract liability until recognized as revenue over time;

•The Company is entitled to royalties and advertising fees based on a percentage of the franchisee's gross sales as defined in the franchise agreement. Royalty and advertising revenue are recognized when the franchisee's reported sales occur. Depending on timing within a fiscal period, the recognition of revenue results in either what is considered a contract asset (unbilled receivable) or once billed, accounts receivable, and are included in “receivables, net” on the balance sheet;

•Revenue from the sale of proprietary pancake and waffle dry mix and other proprietary products is recognized in the period in which distributors ship the franchisee's order; recognition of revenue results in an accounts receivable included in “receivables, net” on the balance sheet.

In determining the amount and timing of revenue from contracts with customers, the Company exercises significant judgment with respect to collectability of the amount; however, the timing of recognition does not require significant judgments as it is based on either the term of the franchise agreement, the month of reported sales by the franchisee or the date of product shipment, none of which require estimation.

The Company does not incur a significant amount of contract acquisition costs in conducting franchising activities. The Company believes its franchising arrangements do not contain a significant financing component.

Company Restaurant Revenues

Company restaurant revenues comprise retail sales at company-operated restaurants. Sales by company-operated restaurants are recognized when food and beverage items are sold. Company restaurant sales are reported net of sales taxes collected from guests that are remitted to the appropriate taxing authorities, with no significant judgements required.

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Dine Brands Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

4. Revenue (Continued)

The following table disaggregates franchise revenue by major type for the three months ended March 31, 2023 and 2022:


	Three Months Ended
	March 31,
		2023		2022
		(In thousands)
Franchise Revenue:
Royalties		$	83,438	$	75,242
Advertising fees		77,037		70,883
Pancake and waffle dry mix sales and other		17,262		12,931
Franchise and development fees		2,225		2,176
Total franchise revenue		$	179,962	$	161,232

Accounts and other receivables from franchisees as of March 31, 2023 and December 31, 2022 were $68.7 million (net of allowance of $2.8 million) and $69.0 million (net of allowance of $1.3 million), respectively, and were included in receivables, net in the Consolidated Balance Sheets.

Changes in the Company's contract liability for deferred franchise and development fees during the three months ended March 31, 2023 were as follows:


	Deferred Franchise Revenue (short- and long-term)
	(In thousands)
Balance at December 31, 2022	$	49,493
Recognized as revenue during the three months ended March 31, 2023	(2,117)
Fees deferred during the three months ended March 31, 2023	925
Balance at March 31, 2023	$	48,301

The balance of deferred revenue as of March 31, 2023 is expected to be recognized as follows:


	(In thousands)
2023 (remaining nine months)	$	7,277
2024	6,572
2025	5,803
2026	4,952
2027	4,059
Thereafter	19,638
Total	$	48,301

5. Current Expected Credit Losses (“CECL”)

The CECL reserve methodology requires companies to measure expected credit losses on financial instruments based on the total estimated amount to be collected over the lifetime of the instrument. Under the CECL model, reserves may be established against financial asset balances even if the risk of loss is remote or has not yet manifested itself. The Company records specific reserves against account balances of franchisees deemed at-risk when a potential loss is likely or imminent as a result of prolonged payment delinquency (greater than 90 days past due) and where notable credit deterioration has become evident. For financial assets that are not currently deemed at-risk, an allowance is recorded based on expected loss rates derived pursuant to the Company's CECL methodology that assesses four components - historical losses, current conditions, reasonable and supportable forecasts, and a reversion to history, if applicable.

The Company considers its portfolio segments to be the following:

Accounts Receivable (Franchise-Related)

Most of the Company’s short-term receivables due from franchisees are derived from royalty, advertising and other franchise-related fees.

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Dine Brands Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

5. Current Expected Credit Losses (Continued)

Gift Card Receivables

Gift card receivables consist primarily of amounts due from third-party vendors. Receivables related to gift card sales are subject to seasonality and usually peak around year-end as a result of the December holiday season.

Notes Receivable

Notes receivable balances primarily relate to the conversion of certain past due Applebee's franchisee accounts receivable to notes receivable, cash loans to franchisees for working capital purposes, a note receivable in connection with the sale of IHOP company restaurants, and IHOP franchise fee and other notes. The notes are typically collateralized by the franchise. A significant portion of these notes have specific reserves recorded against them amounting to $7.4 million as of March 31, 2023.

Equipment Leases Receivable

Equipment leases receivable primarily relate to IHOP franchise development activity prior to 2003 when IHOP typically leased or purchased the restaurant site, built and equipped the restaurant, then franchised the restaurant to a franchisee. Equipment lease contracts are collateralized by the equipment in the restaurant. The estimated fair value of the equipment collateralizing these lease contracts are not deemed to be significant given the very seasoned and mature nature of this portfolio. The weighted average remaining life of the Company’s equipment leases is 3.7 years as of March 31, 2023.

Real Estate Leases Receivable

Real estate leases receivable relate to IHOP franchise development activity prior to 2003. IHOP provided the financing for leasing or subleasing the site. Real estate leases at March 31, 2023, comprised 40 leases with a weighted average remaining life of 10.6 years, and relate to locations that IHOP is leasing from third parties and subleasing to franchisees.

Distributor Receivables

Receivables due from distributors are related to the sale of IHOP’s proprietary pancake and waffle dry mix to franchisees through the Company’s network of suppliers and distributors and are included as part of Other receivables.


	March 31, 2023		December 31, 2022
	(In millions)
Accounts receivable	$	72.0	$	67.5
Gift card receivables	6.3		34.6
Notes receivable	15.9		17.2
Financing receivables:
Equipment leases receivable	24.8		26.6
Real estate leases receivable	17.2		18.5


Other	5.2		5.6
	141.4		170.0
Less: allowance for credit losses and notes receivable	(10.5)		(10.3)
	130.9		159.7
Less: current portion	(93.1)		(120.0)
Long-term receivables	$	37.8	$	39.7

The Company's primary credit quality indicator for all portfolio segments is delinquency.

Changes in the allowance for credit losses during the three months ended March 31, 2023 were as follows:



	Accounts Receivable		Notes receivable, short-term		Notes receivable, long-term		Lease Receivables		Equipment Notes		Other (1)		Total
	(In millions)
Balance, December 31, 2022	$	1.2	$	3.5	$	5.3	$	0.1	$	0.1	$	0.1	$	10.3
Bad debt (credit) expense	1.0		(0.2)		0.1		(0.0)		(0.0)		0.0		0.9
Advertising provision adjustment	0.6		(0.3)		0.3		—		—		—		0.6
Write-offs	—		(1.3)		—		—		—		—		(1.3)
Recoveries	—		—		—		—		0.0		—		0.0
Balance, March 31, 2023	$	2.8	$	1.7	$	5.7	$	0.1	$	0.1	$	0.1	$	10.5

(1) Primarily distributor receivables, gift card receivables and credit card receivables.

Table of Contents

Dine Brands Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

5. Current Expected Credit Losses (Continued)

The delinquency status of receivables (other than accounts receivable, gift card receivables and distributor receivables) at March 31, 2023 was as follows:



	Notes receivable, short-term		Notes receivable, long-term		Lease Receivables		Equipment Notes		Other (1)		Total
	(In millions)
Current	$	4.4	$	11.5	$	17.2	$	24.8	$	0.1	$	58.0
30-59 days	—		—		—		—		—		—
60-89 days	—		—		—		—		—		—
90-119 days	—		—		—		—		—		—
120+ days	—		—		—		—		—		—
Total	$	4.4	$	11.5	$	17.2	$	24.8	$	0.1	$	58.0

(1) Primarily credit card receivables.

The year of origination of the Company's notes receivable and financing receivables is as follows:



	Notes receivable, short and long-term		Lease Receivables		Equipment Notes		Total
	(In millions)
2023	$	0.5	$	—	$	0.2	$	0.7
2022	1.5		8.3		—		9.8
2021	10.0		2.5		—		12.5
2020	0.4		1.3		—		1.7
2019	—		0.7		—		0.7
Prior	3.5		4.4		24.6		32.5
Total	$	15.9	$	17.2	$	24.8	$	57.9

The Company does not place its financing receivables in non-accrual status.

6. Leases

The Company engages in leasing activity as both a lessee and a lessor. The Company currently leases from third parties the real property on which approximately 520 IHOP franchisee-operated restaurants and one Applebee's franchisee-operated restaurant are located; the Company (as lessor) subleases the property to the franchisees that operate those restaurants. The Company also leases property it owns to the franchisees that operate approximately 50 IHOP restaurants and one Applebee's restaurant. The Company leases from third parties the real property on which three Fuzzy's company-operated restaurants are located. The Company also leases office space for its principal corporate office in Pasadena, California and restaurant support centers in Leawood, Kansas, and Irving, Texas. The Company does not have a significant amount of non-real estate leases.

The Company's existing leases/subleases related to IHOP restaurants generally provide for an initial term of 20 to 25 years, with most having one or more five-year renewal options. Leases related to Applebee's restaurants generally have an initial term of 10 to 20 years, with renewal terms of five to 20 years. Option periods were not included in determining liabilities and right-of-use assets related to operating leases. Approximately 275 of the Company's leases met the sales levels that required variable rent payments to the Company (as lessor), based on a percentage of restaurant sales during the three months ended March 31, 2023. Approximately 40 of the leases met the sales levels that required variable rent payments by the Company (as lessee), based on a percentage of restaurant sales during the three months ended March 31, 2023.

Table of Contents

Dine Brands Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

6. Leases (Continued)

The Company's lease (income) cost for the three months ended March 31, 2023 and 2022 was as follows:


	Three months ended March 31,
		2023		2022
		(In millions)
Finance lease cost:
Amortization of right-of-use assets		$	0.6	$	1.1
Interest on lease liabilities		0.7		1.3
Operating lease cost		19.2		21.1
Variable lease cost		1.9		1.7
Short-term lease cost		0.0		0.0
Sublease income		(29.5)		(26.4)
Lease income		$	(7.1)	$	(1.2)

Future minimum lease payments under noncancellable leases as lessee as of March 31, 2023 were as follows:


	Finance Leases		Operating Leases
	(In millions)
2023 (remaining nine months)	$	6.3	$	45.8
2024	7.8		76.8
2025	6.4		66.3
2026	6.0		58.3
2027	4.9		40.1
Thereafter	20.3		122.2
Total minimum lease payments	51.7		409.5
Less: interest/imputed interest	(12.2)		(72.0)
Total obligations	39.5		337.5
Less: current portion	(6.2)		(57.7)
Long-term lease obligations	$	33.3	$	279.8

The weighted average remaining lease term as of March 31, 2023 was 6.2 years for finance leases and 6.2 years for operating leases. The weighted average discount rate as of March 31, 2023 was 9.3% for finance leases and 5.6% for operating leases.

During the three months ended March 31, 2023 and 2022, the Company made the following cash payments for leases:


	Three months ended March 31,
		2023		2022
		(In millions)
Principal payments on finance lease obligations		$	1.9	$	2.3
Interest payments on finance lease obligations		0.7		1.3
Payments on operating leases		20.8		23.0
Variable lease payments		2.1		2.1

The Company's income from operating leases for the three months ended March 31, 2023 and 2022 was as follows:


	Three months ended March 31,
		2023		2022
		(In millions)
Minimum lease payments		$	27.2	24.4
Variable lease income		4.3		3.9
Total operating lease income		$	31.5	$	28.3

Table of Contents

Dine Brands Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

6. Leases (Continued)

Minimum payments to be received as lessor under noncancellable operating leases as of March 31, 2023 were as follows:



	(In millions)
2023 (remaining nine months)	$	78.0
2024	95.9
2025	83.2
2026	69.0
2027	51.2
Thereafter	131.0
Total minimum rents receivable	$	508.3

The Company's income from real estate leases for the three months ended March 31, 2023 and 2022 was as follows:


	Three months ended March 31,
		2023		2022
		(In millions)
Interest income		$	0.3	$	0.4
Variable lease income		0.1		0.1
Total real estate lease income		$	0.4	$	0.5

Minimum payments to be received as lessor under noncancellable real estate leases as of March 31, 2023 were as follows:



	(In millions)
2023 (remaining nine months)	$	3.1
2024	2.6
2025	1.8
2026	1.8
2027	1.8
Thereafter	12.4
Total minimum rents receivable	23.5
Less: unearned income	(6.3)
Total net investment in real estate leases	17.2
Less: current portion	(