CEC Entertainment, Inc. Reports Financial Results for the 2017 First Quarter
Company reports net income of $17.2 million compared to $17.9 million in the first quarter of 2016. Adjusted EBITDA(1) increased 1.3% to $83.5 million over the first quarter of 2016
CEC Entertainment, Inc. announced financial results for its first quarter ended April 2, 2017.
- Company reports net income of $17.2 million compared to $17.9 million in the first quarter of 2016. Adjusted EBITDA(1) increased 1.3% to $83.5 million over the first quarter of 2016
- IRS tax refund delays drove a decrease in first quarter comparable venue sales for our Chuck E. Cheese's and Peter Piper Pizzavenues of 2.8%
- PlayPass system deployed in 355 venues as of April 2, 2017
- One new company-operated Peter Piper Pizza venue and three new international Chuck E. Cheese's franchise venues opened in the first quarter of 2017
"I'm proud that we were able to increase Adjusted EBITDA to $83.5 million in the first quarter of 2017 in spite of the revenue challenges we faced caused by delays in IRS tax refunds in February," said Tom Leverton, Chief Executive Officer. "A strong operating focus and the very encouraging initial impact of our recently implemented inventory management system, led to the improved Adjusted EBITDA."
Leverton continued, "Additionally, we continue to invest in growth and technology initiatives to advance our brand and enhance the experience we deliver to our guests. During the first quarter of 2017, we implemented PlayPass in 87 additional venues. Recently we decided to expand our test of Order Service Kiosks to four additional markets and expand our test of table-side ordering tablets to 50 additional venues. Finally, we successfully opened an additional new Peter Piper Pizza venue during the first quarter, bringing the total to five new Company-operated Peter Piper Pizza venues since the third quarter of 2016, while our franchisees opened three new Chuck E. Cheese's international locations during the quarter. Looking forward in 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."
First Quarter Results (1)
Comparable venue sales for our Company-operated venues decreased 2.8%. Company-operated venue sales for the first quarter of 2017 were negatively impacted by a delay in income tax refunds to much of our core customer base. Company-operated venue sales were also negatively impacted by approximately $4.7 million of incremental deferred revenue when compared to the first quarter of 2016, resulting from the implementation of our proprietary PlayPass card system.
Total revenues decreased $9.4 million to $265.0 million during the first quarter of 2017 compared to the first quarter of 2016. Before the impact of incremental deferred revenue related to PlayPass, total revenues decreased $4.7 million.
The Company reported net income of $17.2 million for the first quarter of 2017, compared to net income of $17.9 million for the first quarter of 2016. The decrease in net income was driven by the decrease in Company-operated venue sales and the impact of incremental deferred revenue, offset by improved Company-operated venue cost margins and lower general and administrative expenses.
During the first quarter of 2017 Adjusted EBITDA increased $1.0 million, or 1.3%, to $83.5 million compared to the first quarter of 2016.
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(1) |
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 April 2, 2017, cash and cash equivalents were $94.9 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 first quarter of 2017, we had capital expenditures of $23.9 million, of which $9.2 million related to our PlayPass initiative and another $4.3 million related to other growth initiatives. In addition, we had $2.1 million in capital expenditures related to IT initiatives.
As of April 2, 2017, the Company's system-wide portfolio consisted of:
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Chuck E. Cheese's |
Peter Piper Pizza |
Total |
|||||||
|
Company operated |
523 |
37 |
560 |
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Domestic franchised |
29 |
62 |
91 |
||||||
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International franchised |
54 |
46 |
100 |
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Total |
606 |
145 |
751 |
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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 venues. As America's #1 place for birthdays, 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, Nevadaand Las Vegas featuring an all new prototype design. As of April 2, 2017 the Company and its franchisees operated a system of 606 Chuck E. Cheese's and 145 Peter Piper Pizza venues, with locations in 47 states and 12 foreign countries and territories.
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CEC ENTERTAINMENT, INC. |
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CONSOLIDATED STATEMENTS OF EARNINGS |
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(Unaudited) |
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(in thousands, except percentages) |
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Three Months Ended |
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April 2, 2017 |
April 3, 2016 |
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REVENUES: |
||||||||||
|
Food and beverage sales |
$ |
124,419 |
47.0% |
$ |
122,202 |
44.5% |
||||
|
Entertainment and merchandise sales |
135,917 |
51.3% |
147,557 |
53.8% |
||||||
|
Total Company venue sales |
260,336 |
98.3% |
269,759 |
98.3% |
||||||
|
Franchise fees and royalties |
4,623 |
1.7% |
4,559 |
1.7% |
||||||
|
Total revenues |
264,959 |
100.0% |
274,318 |
100.0% |
||||||
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OPERATING COSTS AND EXPENSES: |
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Company venue operating costs: |
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Cost of food and beverage (exclusive of items shown separately below) (1) |
28,218 |
22.7% |
30,521 |
25.0% |
||||||
|
Cost of entertainment and merchandise (exclusive of items shown separately below) (2) |
8,487 |
6.2% |
8,750 |
5.9% |
||||||
|
Total cost of food, beverage, entertainment and merchandise (3) |
36,705 |
14.1% |
39,271 |
14.6% |
||||||
|
Labor expenses (3) |
66,388 |
25.5% |
69,043 |
25.6% |
||||||
|
Depreciation and amortization (3) |
26,412 |
10.1% |
27,629 |
10.2% |
||||||
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Rent expense (3) |
23,319 |
9.0% |
24,150 |
9.0% |
||||||
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Other venue operating expenses (3) |
36,750 |
14.1% |
36,010 |
13.3% |
||||||
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Total Company venue operating costs (3) |
189,574 |
72.8% |
196,103 |
72.7% |
||||||
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Other costs and expenses: |
||||||||||
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Advertising expense |
13,382 |
5.1% |
13,100 |
4.8% |
||||||
|
General and administrative expenses |
17,264 |
6.5% |
18,018 |
6.6% |
||||||
|
Transaction, severance and related litigation costs |
80 |
—% |
749 |
0.3% |
||||||
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Total operating costs and expenses |
220,300 |
83.1% |
227,970 |
83.1% |
||||||
|
Operating income |
44,659 |
16.9% |
46,348 |
16.9% |
||||||
|
Interest expense |
17,061 |
6.4% |
17,061 |
6.2% |
||||||
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Income before income taxes |
27,598 |
10.4% |
29,287 |
10.7% |
||||||
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Income tax expense |
10,378 |
3.9% |
11,372 |
4.1% |
||||||
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Net income |
$ |
17,220 |
6.5% |
$ |
17,915 |
6.5% |
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____________________ |
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Percentages are expressed as a percent of total revenues (except as otherwise noted). |
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(1) |
Percentage amount expressed as a percentage of food and beverage sales. |
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(2) |
Percentage amount expressed as a percentage of entertainment and merchandise sales. |
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(3) |
Percentage amount expressed as a percentage of total Company venue sales. |
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(4) |
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. |
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CEC ENTERTAINMENT, INC. |
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April 2, |
January 1, |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ |
94,926 |
$ |
61,023 |
||
|
Other current assets |
65,582 |
63,938 |
||||
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Total current assets |
160,508 |
124,961 |
||||
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Property and equipment, net |
588,531 |
592,886 |
||||
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Goodwill |
483,876 |
483,876 |
||||
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Intangible assets, net |
483,137 |
484,083 |
||||
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Other noncurrent assets |
23,167 |
24,306 |
||||
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Total assets |
$ |
1,739,219 |
$ |
1,710,112 |
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LIABILITIES AND STOCKHOLDER'S EQUITY |
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Current liabilities: |
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Bank indebtedness and other long-term debt, current portion |
$ |
7,600 |
$ |
7,613 |
||
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Other current liabilities |
115,463 |
102,578 |
||||
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Total current liabilities |
123,063 |
110,191 |
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Capital lease obligations, less current portion |
13,457 |
13,602 |
||||
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Bank indebtedness and other long term debt, net of deferred financing costs, less current portion |
967,503 |
968,266 |
||||
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Deferred tax liability |
185,418 |
186,290 |
||||
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Other noncurrent liabilities |
224,833 |
225,758 |
||||
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Total liabilities |
1,514,274 |
1,504,107 |
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Stockholder's equity: |
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Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of April 2, 2017 and January 1, 2017 |
— |
— |
||||
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Capital in excess of par value |
358,767 |
357,166 |
||||
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Accumulated deficit |
(131,045) |
(148,265) |
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Accumulated other comprehensive loss |
(2,777) |
(2,896) |
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Total stockholder's equity |
224,945 |
206,005 |
||||
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Total liabilities and stockholder's equity |
$ |
1,739,219 |
$ |
1,710,112 |
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CEC ENTERTAINMENT, INC. |
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Three Months Ended |
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April 2, |
April 3, |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
$ |
17,220 |
$ |
17,915 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
28,305 |
28,998 |
||||
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Deferred income taxes |
(861) |
(8,287) |
||||
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Stock-based compensation expense |
151 |
135 |
||||
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Amortization of lease related liabilities |
(139) |
12 |
||||
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Amortization of original issue discount and deferred debt financing costs |
1,137 |
1,136 |
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Loss on asset disposals, net |
1,755 |
2,177 |
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Non-cash rent expense |
832 |
1,730 |
||||
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Other adjustments |
1 |
27 |
||||
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Changes in operating assets and liabilities: |
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Operating assets |
(5,006) |
(4,317) |
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Operating liabilities |
15,400 |
4,246 |
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Net cash provided by operating activities |
58,795 |
43,772 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchases of property and equipment |
(22,793) |
(18,823) |
||||
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Development of internal use software |
(1,129) |
(3,625) |
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Proceeds from sale of property and equipment |
105 |
79 |
||||
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Net cash used in investing activities |
(23,817) |
(22,369) |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Repayments on senior term loan |
(1,900) |
(1,900) |
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Other financing activities |
758 |
(578) |
||||
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Net cash used in financing activities |
(1,142) |
(2,478) |
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Effect of foreign exchange rate changes on cash |
67 |
419 |
||||
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Change in cash and cash equivalents |
33,903 |
19,344 |
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Cash and cash equivalents at beginning of period |
61,023 |
50,654 |
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Cash and cash equivalents at end of period |
$ |
94,926 |
$ |
69,998 |
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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 income to Adjusted EBITDA and Adjusted EBITDA Margin for the periods shown:
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Three Months Ended |
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April 2, |
April 3, |
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|
Total revenues |
$ |
264,959 |
$ |
274,318 |
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Net income as reported |
$ |
17,220 |
$ |
17,915 |
||
|
Interest expense |
17,061 |
17,061 |
||||
|
Income tax expense |
10,378 |
11,372 |
||||
|
Depreciation and amortization |
28,305 |
28,998 |
||||
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Non-cash impairments, gain or loss on disposal |
1,755 |
2,177 |
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Non-cash stock-based compensation |
151 |
135 |
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Rent expense book to cash |
980 |
2,249 |
||||
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Franchise revenue, net cash received |
(90) |
(109) |
||||
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Impact of purchase accounting |
215 |
199 |
||||
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Venue pre-opening costs |
239 |
221 |
||||
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One-time and unusual items |
2,267 |
1,813 |
||||
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Cost savings initiatives |
— |
62 |
||||
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Change in deferred amusement revenue |
5,044 |
388 |
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Adjusted EBITDA |
$ |
83,525 |
$ |
82,481 |
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Adjusted EBITDA Margin |
31.5% |
30.1% |
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CEC ENTERTAINMENT, INC. |
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VENUE COUNT INFORMATION |
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(Unaudited) |
||||||
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Three Months Ended |
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April 2, |
April 3, |
|||||
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Number of Company-owned venues: |
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Beginning of period |
559 |
556 |
||||
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New |
1 |
1 |
||||
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Closed |
— |
(1) |
||||
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End of period |
560 |
556 |
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Number of franchised venues: |
||||||
|
Beginning of period |
188 |
176 |
||||
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New |
3 |
4 |
||||
|
Closed |
— |
(1) |
||||
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End of period |
191 |
179 |
||||
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Total number of venues: |
||||||
|
Beginning of period |
747 |
732 |
||||
|
New |
4 |
5 |
||||
|
Closed |
— |
(2) |
||||
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End of period |
751 |
735 |
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