CEC Entertainment Results

CEC Entertainment, Inc. Reports Financial Results for the 2016 Fourth Quarter

CEC Entertainment

CEC Entertainment, Inc. today announced financial results for its fourth quarter ended January 1, 2017. 

  • Total revenues increased 3.1% over the prior year fiscal fourth quarter, excluding the impact of the extra week of operations in 2015 (1), to $204.6 million
  • On a fiscal period basis, excluding an extra week of operations in 2015, fourth quarter same venue sales for our Chuck E. Cheese's and Peter Piper Pizza venues increased 3.1% over the 2015 fiscal fourth quarter 
  • Fourth quarter same venue sales for our Chuck E. Cheese's and Peter Piper Pizza venues, excluding the extra week of operations in 2015, decreased 1.6% on a same calendar week basis, compared to the prior year 
  • Fiscal year 2016 same venue sales, excluding the impact of the extra week of operations, finished up 2.8% on a calendar week basis and 3.0% on a fiscal week basis 
  • The new PlayPass system was deployed in 268 venues as of January 1, 2017

"In the fourth quarter, we continued to make great progress in advancing our brand and enhancing the experience we deliver to our guests," said Tom Leverton, Chief Executive Officer. "Throughout 2016 we introduced PlayPass to 227 venues, implemented our labor and inventory management systems, launched a national lunchtime buffet program and continued to refine our marketing messaging. Additionally, we successfully opened the first four new Company-operated Peter Piper Pizza venues since we purchased the brand in 2014, and our franchisees opened 14 new international locations. Looking into 2017, we expect to complete the PlayPass implementation nationwide and expand our Peter Piper presence further, while continuing to further refine our food and entertainment offerings and continually enhance our in-store experience."

Fourth Quarter Results (1)

Same venue sales for our Company operated venues increased 3.1%, and total revenues increased $6.3 million to $204.6 millionduring the fourth quarter of 2016, excluding the impact of the additional week of operations in the fourth quarter of 2015.  The extra week contributed $24.7 million of revenue to the 2015 quarter which resulted in total revenue in the 2015 quarter of $223.1 million. In addition to the extra week, the shift of the Christmas and New Year's holidays from Friday in 2015 to a Sunday in 2016 negatively impacted revenue, offset by the increase in same venue sales at both our Chuck E. Cheese's and Peter Piper Pizza brands on a 52-week fiscal period basis. Additionally, Company venue sales for the fourth quarter of 2016 were impacted by approximately $2.5 millionof incremental deferred revenue compared to the 2015 quarter, as a result of the implementation of our proprietary PlayPass card system. 

The Company reported a net loss of $10.1 million for the fourth quarter of 2016, compared to a net loss of $14.2 million for the fourth quarter of 2015. The Company estimates the extra week of operations in fiscal 2015 benefited the fourth quarter of 2015 net income by $3.5 million.  In addition to the extra week of operations in 2015, net income was impacted by improved results of operations on a 52-week basis, and a decrease in Merger related litigation costs and marketing costs, offset by $2.5 million in incremental deferred revenue as a result of the implementation of PlayPass. 

Fourth quarter 2016 Adjusted EBITDA increased $3.2 million, or 9.5%, to $36.9 million excluding the estimated $11.5 million attributable to the extra week of operations in 2015. For the 14-week period in the fourth quarter of 2015, Adjusted EBITDA was $45.2 million.

 

_______________________ 

(1) 

Our fiscal year ending January 1, 2017 (fiscal 2016) consisted of 52 weeks and our fiscal year ended January 3, 2016 (fiscal 2015) consisted of 53 weeks. As a result of the 53-week fiscal year in 2015, our 2016 fiscal year began one calendar week later than our 2015 fiscal year. In order to provide useful information and to better analyze our business, we have provided same venue sales presented on both a fiscal week basis and calendar week basis. Same venue sales change on a calendar week basis compares the results for the period from October 3, 2016 through January 1, 2017 (weeks 40 through 52 of our 2016 fiscal year) to the results for the period from October 5, 2015 through January 3, 2016 (weeks 41 through 53 of our 2015 fiscal year). We believe same venue sales change calculated on a same calendar week basis, excluding the additional week of operations in fiscal 2015, is more indicative of the operating trends in our business. However, we also recognize that same venue sales change calculated on a fiscal week basis is a useful measure when analyzing year-over-year changes in our financial results.

(2)  

For our definition of Adjusted EBITDA, see the financial table "Reconciliation of Non-GAAP Financial Measures" included within this press release.

Balance Sheet and Liquidity

As of January 1, 2017, cash and cash equivalents were $61.0 million, and the principal outstanding on our debt was $1.0 billion, with net availability of $140.1 million on our undrawn revolving credit facility. During the fourth quarter of 2016, we had capital expenditures of $23.8 million, of which $7.5 million related to our PlayPass initiative and another $10.0 million related to other growth initiatives. In addition, we had $1.5 million in capital expenditures related to IT initiatives. 

As of January 1, 2017, the Company's system-wide portfolio consisted of:

 

Chuck E. Cheese's

Peter Piper Pizza

Total

Company operated

523

36

559

Domestic franchised

29

62

91

International franchised

51

46

97

Total

603

144

747

About CEC Entertainment, Inc.

For 40 years, CEC Entertainment has served as the nationally recognized leader in family dining and entertainment with both its Chuck E. Cheese's and Peter Piper Pizza restaurants.  As the place where a million happy birthdays are celebrated every year, Chuck E. Cheese's goal is to create positive, lifelong memories for families through fun, food, and play and is the place Where A Kid Can Be A Kid®. Committed to providing a fun, safe environment, Chuck E. Cheese's helps protect families through industry-leading programs such as Kid Check®. As a strong advocate for its local communities, Chuck E. Cheese's has donated more than $14 million to schools through its fundraising programs and supports its national charity partner, Big Brothers Big Sisters. Peter Piper Pizza, with its neighborhood pizzeria feel, features dining, entertainment and carryout. The solution to 'family night out', Peter Piper Pizza takes pride in delivering a food first, parent friendly experience that reconnects family and friends. Expanding nationally, Peter Piper Pizza recently opened locations in Oklahoma and Nevada featuring an all new prototype design.  As of January 1, 2017 the Company and its franchisees operated a system of 603 Chuck E. Cheese's and 144 Peter Piper Pizza venues, with locations in 47 states and 12 foreign countries and territories. 

CEC ENTERTAINMENT, INC. 

CONSOLIDATED STATEMENTS OF EARNINGS 

(Unaudited) 

(in thousands, except percentages)

Three Months Ended

Twelve Months Ended

January 1, 2017

January 3, 2016

January 1, 2017

January 3, 2016

REVENUES:

Food and beverage sales

$

93,469

45.7%

$

99,170

44.5%

$

415,059

44.9%

$

408,095

44.2%

Entertainment and merchandise sales

106,277

51.9%

119,657

53.6%

490,255

53.1%

497,015

53.9%

Total Company venue sales

199,746

97.6%

218,827

98.1%

905,314

98.0%

905,110

98.1%

Franchise fees and royalties

4,898

2.4%

4,238

1.9%

18,339

2.0%

17,479

1.9%

Total revenues

204,644

100.0%

223,065

100.0%

923,653

100.0%

922,589

100.0%

OPERATING COSTS AND EXPENSES:

Company venue operating costs:

Cost of food and beverage (exclusive of items shown separately below) (1)

23,613

25.3%

26,225

26.4%

104,315

25.1%

104,434

25.6%

Cost of entertainment and merchandise (exclusive of items shown separately below) (2)

7,010

6.6%

8,120

6.8%

32,014

6.5%

31,519

6.3%

Total cost of food, beverage, entertainment and merchandise (3)

30,623

15.3%

34,345

15.7%

136,329

15.1%

135,953

15.0%

Labor expenses (3)

60,256

30.2%

64,179

29.3%

251,426

27.8%

250,584

27.7%

Depreciation and amortization (3)

28,287

14.2%

28,630

13.1%

113,316

12.5%

115,236

12.7%

Rent expense (3)

23,688

11.9%

23,971

11.0%

96,006

10.6%

96,669

10.7%

Other venue operating expenses (3)

36,726

18.4%

37,643

17.2%

148,869

16.4%

143,078

15.8%

Total Company venue operating costs (3)

179,580

89.9%

188,768

86.3%

745,946

82.4%

741,520

81.9%

Other costs and expenses:

Advertising expense

9,365

4.6%

10,807

4.8%

46,142

5.0%

47,146

5.1%

General and administrative expenses

16,041

7.8%

17,381

7.8%

67,264

7.3%

66,003

7.2%

Transaction, severance and related litigation costs

(50)

— %

7,976

3.6%

1,299

0.1%

11,914

1.3%

Asset impairments

778

0.4%

— %

1,550

0.2%

875

0.1%

Total operating costs and expenses

205,714

100.5%

224,932

100.8%

862,201

93.3%

867,458

94.0%

Operating income (loss)

(1,070)

(0.5)%

(1,867)

(0.8)%

61,452

6.7%

55,131

6.0%

Interest expense

16,326

8.0%

18,550

8.3%

67,745

7.3%

70,582

7.7%

Loss before income taxes

(17,396)

(8.5)%

(20,417)

(9.2)%

(6,293)

(0.7)%

(15,451)

(1.7)%

Income tax benefit

(7,270)

(3.6)%

(6,259)

(2.8)%

(2,626)

(0.3)%

(2,941)

(0.3)%

Net loss

$

(10,126)

(4.9)%

$

(14,158)

(6.3)%

$

(3,667)

(0.4)%

$

(12,510)

(1.4)%

 

________________________ 

Percentages are expressed as a percent of total revenues (except as otherwise noted). 

(1)

Percentage amount expressed as a percentage of food and beverage sales.

(2)

Percentage amount expressed as a percentage of entertainment and merchandise sales.

(3)

Percentage amount expressed as a percentage of total Company venue sales.

Due to rounding, percentages presented in the table above may not sum to total. The percentage amounts for the components of cost of food and beverage and the cost of entertainment and merchandise may not sum to total due to the fact that cost of food and beverage and cost of entertainment and merchandise are expressed as a percentage of related food and beverage sales and entertainment and merchandise sales, as opposed to total Company venue sales. 

 

CEC ENTERTAINMENT, INC. 

CONSOLIDATED BALANCE SHEETS 

(Unaudited) 

(in thousands, except share information)

January 1, 

2017

January 3, 

2016

ASSETS

Current assets:

Cash and cash equivalents

$

61,023

$

50,654

Other current assets

63,938

67,434

Total current assets

124,961

118,088

Property and equipment, net

592,886

629,047

Goodwill

483,876

483,876

Intangible assets, net

484,083

488,095

Other noncurrent assets

24,306

13,929

Total assets

$

1,710,112

$

1,733,035

LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities:

Bank indebtedness and other long-term debt, current portion

$

7,613

$

7,650

Other current liabilities

102,578

106,463

Total current liabilities

110,191

114,113

Capital lease obligations, less current portion

13,602

15,044

Bank indebtedness and other long term debt, net of deferred financing costs, less current portion

968,266

971,333

Deferred tax liability

186,290

201,734

Other noncurrent liabilities

225,758

222,265

Total liabilities

1,504,107

1,524,489

Stockholder's equity:

Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of January 1, 2017 and January 3, 2016

Capital in excess of par value

357,166

356,460

Accumulated deficit

(148,265)

(144,598)

Accumulated other comprehensive loss

(2,896)

(3,316)

Total stockholder's equity

206,005

208,546

Total liabilities and stockholder's equity

$

1,710,112

$

1,733,035

 

CEC ENTERTAINMENT, INC. 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

(Unaudited) 

(in thousands)

Twelve Months Ended

January 1, 

2017

January 3, 

2016

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

$

(3,667)

$

(12,510)

Adjustments to reconcile net loss to net cash provided by operating activities:

  Depreciation and amortization

119,569

119,294

  Deferred income taxes

(15,521)

(16,748)

  Stock-based compensation expense

689

838

  Amortization of lease related liabilities

(448)

87

  Amortization of original issue discount and deferred debt financing costs

4,546

4,634

  Loss on asset disposals, net

8,520

7,729

  Asset impairments

1,550

875

  Non-cash rent expense

6,873

8,218

  Other adjustments

(70)

(951)

Changes in operating assets and liabilities:

Operating assets

(5,036)

(6,433)

Operating liabilities

1,682

(4,420)

Net cash provided by operating activities

118,687

100,613

CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisition of Peter Piper Pizza

(663)

Purchases of property and equipment

(88,680)

(73,034)

Development of internal use software

(10,455)

(4,802)

Proceeds from sale of property and equipment

696

308

Net cash used in investing activities

(98,439)

(78,191)

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayments on senior term loan

(7,600)

(9,500)

Other financing activities

(2,495)

(72,099)

Net cash used in financing activities

(10,095)

(81,599)

Effect of foreign exchange rate changes on cash

216

(1,163)

Change in cash and cash equivalents

10,369

(60,340)

Cash and cash equivalents at beginning of period

50,654

110,994

Cash and cash equivalents at end of period

$

61,023

$

50,654

 

CEC ENTERTAINMENT, INC.  

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES  

(Unaudited)  

(in thousands, except percentages)

Non-GAAP Financial Measures

Certain financial measures presented in this press release, such as Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") and Adjusted EBITDA as a percentage of revenues ("Adjusted EBITDA Margin") are not recognized terms under accounting principles generally accepted in the United States ("GAAP"). The Company believes that the presentation of these measures is appropriate to provide additional information to investors about certain material non-cash items and about unusual items that the Company's management does not expect to continue at the same level in the future, as well as other items. Further, the Company believes that these measures provide a meaningful measure of operating profitability because the Company's management uses them for performance evaluations and compensation measures for the Company's executives, to supplement GAAP measures of performance in the evaluation of the effectiveness of the Company's business strategies, to make budgeting decisions and to compare the Company's performance against that of other peer companies using similar measures. The Company also presents Adjusted EBITDA because it is substantially similar to Credit Agreement EBITDA, a measure used in calculating financial ratios and other calculations under our debt agreements, except for the Change in deferred amusement revenue. By reporting Adjusted EBITDA, the Company provides a basis for comparison of its business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance.

The Company's definition of Adjusted EBITDA allows for the exclusion of certain non-cash and other income and expense items that are used in calculating net income from continuing operations. However, these are items that may recur, vary greatly and can be difficult to predict. They can represent the effect of long-term strategies as opposed to short-term results. In addition, certain of these items can represent the reduction of cash that could be used for other corporate purposes. These measures should not be considered as alternatives to operating income, cash flows from operating activities or any other performance measures derived in accordance with GAAP as measures of operating performance, or cash flows as measures of liquidity. These measures have important limitations as analytical tools, and users should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, the Company relies primarily on its GAAP results and uses Adjusted EBITDA and Adjusted EBITDA Margin only supplementally.

The following table sets forth a reconciliation of net loss to Adjusted EBITDA and Adjusted EBITDA Margin for the periods shown:

 

Three Months Ended

Twelve Months Ended

January 1, 

2017

January 3, 

2016

January 1, 

2017

January 3, 

2016

Total revenues

$

204,644

$

223,065

$

923,653

$

922,589

Net loss as reported

$

(10,126)

$

(14,158)

$

(3,667)

$

(12,510)

Interest expense

16,326

18,550

67,745

70,582

Income tax benefit

(7,270)

(6,259)

(2,626)

(2,941)

Depreciation and amortization

29,402

29,697

119,569

119,294

Non-cash impairments, gain or loss on disposal

3,001

3,191

10,070

8,934

Non-cash stock-based compensation

167

106

689

838

Rent expense book to cash

1,375

2,021

7,852

9,100

Franchise revenue, net cash received

(14)

895

113

1,217

Impact of purchase accounting

654

398

1,380

995

Venue pre-opening costs

702

253

1,591

792

One-time items

686

10,333

5,146

22,448

Cost savings initiatives

682

62

2,187

Change in deferred amusement revenue

2,033

(512)

4,388

851

Adjusted EBITDA

$

36,936

$

45,197

$

212,312

$

221,787

Adjusted EBITDA Margin

18.0%

20.3%

23.0%

24.0%

 

 

CEC ENTERTAINMENT, INC. 

VENUE COUNT INFORMATION 

(Unaudited)

Three Months Ended

Twelve Months Ended

January 1, 

2017

January 3, 

2016

January 1, 

2017

January 3, 

2016

Number of Company-owned venues:

Beginning of period

557

556

556

559

New (1)

2

2

6

5

Closed (1)

(2)

(3)

(8)

End of period

559

556

559

556

Number of franchised venues:

Beginning of period

185

173

176

172

New (2)

5

4

16

12

Closed (2)

(2)

(1)

(4)

(8)

End of period

188

176

188

176

Total number of venues:

Beginning of period

742

729

732

731

New (3)

7

6

22

17

Closed (3)

(2)

(3)

(7)

(16)

End of period

747

732

747

732

 

____________________ 

(1) 

The number of new and closed Company-operated venues during the fourth quarter of 2015 and the 2015 fiscal year included one and two venues, respectively, that were relocated.

(2) 

The number of new and closed franchise venues during the 2015 fiscal year included two venues that were relocated.

(3) 

The number of new and closed venues during the fourth quarter of 2015 and the 2015 fiscal year included one and four venues, respectively, that were relocated.



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