Diversified Restaurant Holdings Reports 20.8% Revenue Increase in Fourth Quarter of 2009; Full Year Revenue Up 64.5% with New Restaurants
Fourth quarter revenue of $4.7 million represents a 20.8% increase compared with revenue of $3.9 million in the fourth quarter of 2008.
Diversified Restaurant Holdings, Inc. (OTCBB: DFRH) (“DRH”), the owner/operator and soon to be franchisor of the unique, full service fast-casual restaurant and bar Bagger Dave’s Legendary Burgers & Fries® and a leading franchisee for Buffalo Wild Wings® (“BWW”), today reported financial results for the 2009 fourth quarter and full year, which ended December 27, 2009.
Fourth quarter revenue of $4.7 million represents a 20.8% increase compared with revenue of $3.9 million in the fourth quarter of 2008. The 2009 fourth quarter contained four fewer days than the 2008 fourth quarter due to the Company’s change to a fiscal year that ends on the last Sunday of the calendar year in order to align itself with restaurant industry standards. The change resulted in a shift of $272 thousand in sales from the reported 2009 year to the 2010 fiscal year.
Food and beverage sales for the fourth quarter increased 23.5% to $4.3 million, compared with $3.5 million in the 2008 fourth quarter; while revenue from management and marketing fees was down slightly to $420 thousand, compared with $425 thousand in the 2008 fourth quarter. The year-over-year increase in food and beverage sales reflects an increase in the number of operating restaurants, offset slightly by the impact of the change in accounting year. Food and beverage sales for the fourth quarter of 2009 were from the operations of two Bagger Dave’s Legendary Burgers and Fries and seven Buffalo Wild Wings restaurants; while the 2008 quarter included sales from six Buffalo Wild Wings, one of which was opened during the 2008 fourth quarter, and two Bagger Dave’s locations. Management and marketing fee income during both the 2009 and 2008 fourth quarters was generated under a service agreement with nine affiliated Buffalo Wild Wings restaurants which the Company subsequently acquired on February 1, 2010. An overall decline in sales at these nine restaurants resulted in the small decline in fee income.
Full year 2009 revenue was $19.1 million, a 64.5% increase compared with revenue of $11.6 million in the 2008 period. Food and beverage sales were $17.3 million, 77.0% above sales of $9.8 million in 2008, primarily due to the greater number of stores operating for a full year. Sales for 2009 included the operations of six restaurants that were opened during 2008 and an additional location that was opened in June 2009. Revenue from management and marketing fees decreased to $1.7 million, compared with $1.8 million in 2008, due to the decline in sales at the managed restaurants.
Net income in the fourth quarter of 2009 was $43 thousand, or $0.001 per fully diluted share, compared with net income of $47 thousand, or $0.002 per fully diluted share, in the same period the prior year. The 2008 fourth quarter benefitted from a significant increase in the deferred federal tax benefit associated with the net operating loss. Full year 2009 net income was $367 thousand, or $0.013 per diluted share, compared with a loss of $323 thousand, or $0.018 per fully diluted share, in 2008.
Michael Ansley, President and Chief Executive Officer of DRH, commented, “The positive results for 2009 are indicative of our ability to grow our top line and profitably manage our operations. The steady operational improvement at our seven stores opened since the beginning of 2008 is particularly noteworthy given the challenges associated with operating in two of the economies most drastically impacted by the global recession; Florida has been adversely impacted by the severe decline in real estate values, and the Southeastern Michigan, area has been affected by significant job losses and the unprecedented decline in automobile sales. We believe our success at these locations reflects not only the hard work and dedication of our team members, but demonstrates the reliability of our site-selection process as we look to establish additional Bagger Dave’s and Buffalo Wild Wings locations in the future.”
Solid Operating Results on Expanding Revenue
| (in thousands) | Three Months Ended | Increase | Percent | |||||||||
| Dec. 27, 2009 | Dec. 31, 2008 | (Decrease) | Change | |||||||||
| Food and beverage costs | $ | 1,298 | $ | 1,054 | $ | 244 | 23.2 | % | ||||
| % to food and beverage sales | 30.1 | % | 30.2% | |||||||||
| G&A expense (thousands) | $ | 1,213 | $ | 1,016 | $ | 197 | 19.3 | % | ||||
| % to food and beverage sales | 28.1 | % | 29.1% | |||||||||
| Operating income | $ | 197 | $ | (53) | $ | 250 | N/A | |||||
| Operating margin | 4.2 | % | -1.4% | |||||||||
2009 Review
| (in thousands) | Twelve Months Ended | Increase | Percent | |||||||||
| Dec. 27, 2009 | Dec. 31, 2008 | (Decrease) | Change | |||||||||
| Food and beverage costs | $ | 5,326 | $ | 2,930 | $ | 2,396 | 81.7 | % | ||||
| % to food and beverage sales | 30.8 | % | 30.0% | |||||||||
| G&A expense | $ | 4,693 | $ | 3,320 | $ | 1,373 | 41.4 | % | ||||
| % to food and beverage sales | 27.1 | % | 33.9% | |||||||||
| Operating income | $ | 984 | $ | (289) | $ | 1,273 | N/A | |||||
| Operating margin | 5.2 | % | -2.5% | |||||||||
DRH generated operating income in 2009, compared with an operating loss in 2008, due primarily to increased revenue and improved efficiency at maturing restaurants.
Interest expense for 2009 was $446 thousand, 53.9% above interest expense of $290 thousand during 2008, due to higher borrowings associated with the opening of new restaurants in 2008 and 2009. A significant portion of the $81 thousand in other income in the first nine months of 2009 was related to a $67 thousand reduction in an interest rate swap liability.
Balance Sheet
Cash and cash equivalents were $650 thousand at December 27, 2009, compared with $334 thousand at September 30, 2009 and $134 thousand at December 31, 2008. DRH generated $324 thousand in cash from operations during the fourth quarter of 2009, compared with cash from operations of $169 thousand in the 2008 fourth quarter. For full year 2009, the Company generated $1.7 million in cash from operations, compared with $495 thousand generated during 2008. The increase in 2009 was attributed to improved net income, the realization of deferred tax benefits, and the timing of accounts payable and receivable.
Capital expenditures in the fourth quarter of 2009 were $957 thousand, primarily for furnishings and equipment for the Company’s third Bagger Dave’s location in Novi, Michigan, which opened in February 2010, compared with $1.1 million in the fourth quarter of 2008, which also included a store opening. For full year 2009, capital expenditures were $1.2 million, compared with $5.4 million in 2008, when DRH opened six new restaurants. Capital expenditures, mostly related to store openings, are expected to be approximately $3.0 million for 2010.
Outlook
During 2010, DRH plans to open two additional Buffalo Wild Wings restaurants in Marquette and Chesterfield, Michigan, in addition to the recently opened Bagger Dave’s in Novi, Michigan. These new locations, along with the nine Buffalo Wild Wings stores acquired when DRH exercised its purchase option in February of this year, would bring the Company’s total restaurant count to 21, including 13 Buffalo Wild Wings and three Bagger Dave’s locations in Michigan, and five Buffalo Wild Wings locations in Florida. The acquisition of the nine previously-managed stores allows DRH to eliminate the burden of management fees and fully capture the economic benefits of the acquired stores in 2010 and beyond. On a pro forma basis, DRH’s 2009 revenue and EBITDA would have been $41.8 million and $4.4 million, respectively, compared with $19.1 million and $2.2 million, respectively, as reported under generally accepted accounting principles (GAAP). DRH uses non-GAAP EBITDA as a financial measure because management believes that it provides investors with information that is more useful in understanding the Company’s financial performance, its performance trends, and financial position. (See reconciliation of pro forma results to GAAP results in the attached table).
Mr. Ansley noted, “Our newest Bagger Dave’s, opened last month in Novi, Michigan, is performing exceptionally well and so far our first-ever breakfast menu has been well received. In addition, our immediate growth plans include the opening of up to three Buffalo Wild Wings stores in Michigan in 2010 as part of our 22 store Area Development Agreement with Buffalo Wild Wings International. We continue to evaluate additional locations in Michigan and Florida for other franchised stores under the agreement, which doesn’t expire until 2017. We will also realize the full economic benefits of our acquisition of the nine Buffalo Wild Wings restaurants we previously managed, which will add significantly to our revenue this year.”
Mr. Ansley concluded, “The expansion opportunities with Bagger Dave’s are equally promising and will be comprised of a mix of DRH-owned and franchised locations in Michigan, Ohio and Indiana. Longer term, we will investigate prospects for additional market-leading franchise opportunities or other BWW restaurant acquisitions outside the regional markets in which we currently operate. Based on our success with Bagger Dave’s, we are increasingly confident in our abilities to develop other unique restaurant concepts to drive additional growth and establish DRH as an industry-leading restaurant management company.”
About Diversified Restaurant Holdings
Diversified Restaurant Holdings, Inc. owns and operates its own unique, full-service restaurant concept, Bagger Dave’s Legendary Burgers and Fries®, which falls within the fast-casual dining segment and was launched in January 2008. Bagger Dave’s® offers a full-service restaurant and bar at a fast casual price point for friends and families in a casual, comfortable atmosphere. The menu features freshly made burgers (never frozen) accompanied by more than 30 toppings from which to choose, fresh-cut fries, and hand-dipped milkshakes. Signature items include Sloppy Dave’s BBQ®, Train Wreck Burger®, and Bagger Dave’s Amazingly Delicious Turkey Black Bean Chili™. Currently, there are three locations in the state of Michigan and franchise registrations recently filed in the states of Michigan, Indiana and Ohio. The concept focuses on local flair with the interior showcasing historic photos of the city in which it resides. There’s also an electric train that runs above the dining room and bar areas. All current and future locations will be smoke-free.
DRH also is a leading Buffalo Wild Wings® franchisee handling the operations of 16 Buffalo Wild Wings restaurants: five in Florida and 11 in Michigan. The Company has received franchise awards for the Highest Annual Restaurant Sales and operates four out of the top 25 franchise restaurants in sales volume in the Buffalo Wild Wings system.
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DIVERSIFIED RESTAURANT HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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| Three Months Ended | Twelve Months Ended | ||||||||||||||
| Dec. 27 | Dec. 31 | Dec. 27 | Dec. 31 | ||||||||||||
| 2009 | 2008 | 2009 | 2008 | ||||||||||||
| Unaudited | Unaudited | Unaudited | Audited | ||||||||||||
| Revenue | |||||||||||||||
| Food and beverage sales | $ | 4,316,949 | $ | 3,494,583 | $ | 17,317,996 | $ | 9,783,391 | |||||||
| Management and advertising fees | 420,368 | 425,229 | 1,744,505 | 1,803,173 | |||||||||||
| Total revenue | 4,737,317 | 3,919,812 | 19,062,501 | 11,586,564 | |||||||||||
| Operating expenses | |||||||||||||||
| Compensation costs | 1,396,337 | 1,283,912 | 5,724,053 | 4,007,685 | |||||||||||
| Food and beverage costs | 1,297,509 | 1,053,518 | 5,325,825 | 2,930,445 | |||||||||||
| General and administrative | 1,212,863 | 1,016,413 | 4,693,219 | 3,319,582 | |||||||||||
| Occupancy | 292,918 | 257,489 | 1,132,364 | 740,745 | |||||||||||
| Depreciation and amortization | 341,200 | 361,471 | 1,203,337 | 877,206 | |||||||||||
| Total operating expenses | 4,540,827 | 3,972,803 | 18,078,798 | 11,875,663 | |||||||||||
| Income (loss) from operations | 196,490 | (52,991 | ) | 983,703 | (289,099 | ) | |||||||||
| Interest expense | 111,187 | 107,815 | 445,820 | 289,681 | |||||||||||
| Other expense (income), net | (6,341 | ) | 253,326 | (80,706 | ) | 264,982 | |||||||||
| Income (loss) before income taxes | 91,644 | (414,132 | ) | 618,589 | (843,762 | ) | |||||||||
| Income tax (provision) benefit | (48,612 | ) | 461,214 | (252,064 | ) | 520,777 | |||||||||
| Net income (loss) | $ | 43,032 | $ | 47,082 | $ | 366,525 | $ | (322,985 | ) | ||||||
| Basic earnings (loss) per share | $ | 0.002 | $ | 0.003 | $ | 0.020 | $ | (0.018 | ) | ||||||
| Fully diluted earnings (loss) per share | $ | 0.001 | $ | 0.002 | $ | 0.013 | $ | (0.018 | ) | ||||||
| Weighted average number of | |||||||||||||||
| common shares outstanding | |||||||||||||||
| Basic | 18,254,227 | 18,070,000 | 18,114,909 | 17,988,525 | |||||||||||
| Fully diluted | 29,020,000 | 29,020,000 | 29,020,000 | 28,938,525 | |||||||||||
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DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS
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| December 27 | December 31 | ||||||
| 2009 | 2008 | ||||||
| ASSETS | Unaudited | Audited | |||||
| Current assets | |||||||
| Cash and cash equivalents | $ | 649,518 | $ | 133,865 | |||
| Accounts receivable - related party | 254,540 | 192,889 | |||||
| Inventory | 125,332 | 157,882 | |||||
| Prepaid Assets | 103,452 | 52,440 | |||||
| Accounts receivable - Other | 11,219 | 192,000 | |||||
| Other Asse | |||||||
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