CEC Entertainment, Inc. Reports Financial Results for the 2017 Second Quarter
Company reported a net loss of $5.9 million compared to a net loss of $9.1 million in the second quarter of 2016. Adjusted EBITDA for the second quarter was $40.3 million in 2017 compared to $41.7 million in 2016
CEC Entertainment, Inc. today announced financial results for its second quarter ended July 2, 2017.
- Company reported a net loss of $5.9 million compared to a net loss of $9.1 million in the second quarter of 2016. Adjusted EBITDA (1) for the second quarter was $40.3 million in 2017 compared to $41.7 million in 2016
- Second quarter comparable venue sales declined 3.8% for our Chuck E. Cheese's and Peter Piper Pizza venues
- PlayPass system now deployed in 95% of Company-operated Chuck E. Cheese's venues
- Two new Company-operated Peter Piper Pizza venues and four new international Chuck E. Cheese's franchise venues opened in the second quarter of 2017
"While we are pleased that our cost efforts allowed us to preserve margins, we are disappointed with our revenue performance in the second quarter," said Tom Leverton, Chief Executive Officer. "We experienced traffic declines in walk-in business as well as booked birthday parties during the quarter. To address the issue, we have returned our advertising messaging to our successful 2016 themes which focused on our many improvements to the in-store experience."
Leverton continued, "A strong operating focus and the favorable impact of our recently implemented inventory management system led to Adjusted EBITDA of $40.3 million for the quarter."
Second Quarter Results (1)
Total revenues decreased $4.8 million to $211.8 million during the second quarter of 2017 compared to the second quarter of 2016, primarily driven by a 3.8% decline in comparable venue sales, offset partially by new venue sales.
The Company reported a net loss of $5.9 million for the second quarter of 2017, compared to a net loss of $9.1 million for the second quarter of 2016. The improved results were driven by improved venue level operating margins, lower depreciation, and lower general and administrative expenses, which offset the decline in Company-operated venue sales.
During the second quarter of 2017 Adjusted EBITDA decreased $1.4 million, or 3.3%, to $40.3 million compared to the second quarter of 2016.
Balance Sheet and Liquidity
As of July 2, 2017, cash and cash equivalents were $89.5 million, and the principal outstanding on our debt was $990.3 million, with net availability of $140.1 million on our undrawn revolving credit facility. During the second quarter of 2017, we had capital expenditures of $25.2 million, of which $8.7 million related to our PlayPass initiative and another $6.8 million related to other growth initiatives. In addition, we had $1.8 million in capital expenditures related to IT initiatives, and $7.9 million related to maintenance capital expenditures, primarily game enhancements and general venue capital expenditures.
As of July 2, 2017, the Company's system-wide portfolio consisted of:
|
Chuck E. Cheese's |
Peter Piper Pizza |
Total |
||||
|
Company operated |
525 |
39 |
564 |
|||
|
Domestic franchised |
27 |
62 |
89 |
|||
|
International franchised |
58 |
46 |
104 |
|||
|
Total |
610 |
147 |
757 |
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, over the past 13 years Chuck E. Cheese'shas 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 'the 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, Nevada, New Mexico and Arizona featuring an all new prototype design. As of July 2, 2017, the Company and its franchisees operated a system of 610 Chuck E. Cheese's and 147 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 |
Six Months Ended |
||||||||||||||||||
|
July 2, 2017 |
July 3, 2016 |
July 2, 2017 |
July 3, 2016 |
||||||||||||||||
|
REVENUES: |
|||||||||||||||||||
|
Food and beverage sales |
$ |
97,411 |
46.0% |
$ |
97,404 |
45.0% |
$ |
221,830 |
46.5% |
$ |
219,607 |
44.7% |
|||||||
|
Entertainment and merchandise sales |
109,724 |
51.8% |
114,657 |
52.9% |
245,641 |
51.5% |
262,214 |
53.4% |
|||||||||||
|
Total Company venue sales |
207,134 |
97.8% |
212,061 |
97.9% |
467,471 |
98.1% |
481,821 |
98.1% |
|||||||||||
|
Franchise fees and royalties |
4,649 |
2.2% |
4,560 |
2.1% |
9,272 |
1.9% |
9,118 |
1.9% |
|||||||||||
|
Total revenues |
211,784 |
100.0% |
216,621 |
100.0% |
476,743 |
100.0% |
490,939 |
100.0% |
|||||||||||
|
OPERATING COSTS AND EXPENSES: |
|||||||||||||||||||
|
Company venue operating costs: |
|||||||||||||||||||
|
Cost of food and beverage (exclusive of items shown separately below) (1) |
22,823 |
23.4% |
24,673 |
25.3% |
51,040 |
23.0% |
55,195 |
25.1% |
|||||||||||
|
Cost of entertainment and merchandise (exclusive of items shown separately below) (2) |
6,854 |
6.2% |
8,240 |
7.2% |
15,341 |
6.2% |
16,989 |
6.5% |
|||||||||||
|
Total cost of food, beverage, entertainment and merchandise (3) |
29,677 |
14.3% |
32,913 |
15.5% |
66,381 |
14.2% |
72,184 |
15.0% |
|||||||||||
|
Labor expenses (3) |
60,351 |
29.1% |
60,405 |
28.5% |
126,738 |
27.1% |
129,448 |
26.9% |
|||||||||||
|
Depreciation and amortization (3) |
25,791 |
12.5% |
29,733 |
14.0% |
52,203 |
11.2% |
57,362 |
11.9% |
|||||||||||
|
Rent expense (3) |
23,906 |
11.5% |
24,049 |
11.3% |
47,225 |
10.1% |
48,199 |
10.0% |
|||||||||||
|
Other venue operating expenses (3) |
35,967 |
17.4% |
37,376 |
17.6% |
72,716 |
15.6% |
73,387 |
15.2% |
|||||||||||
|
Total Company venue operating costs (3) |
175,692 |
84.8% |
184,476 |
87.0% |
365,263 |
78.1% |
380,580 |
79.0% |
|||||||||||
|
Other costs and expenses: |
|||||||||||||||||||
|
Advertising expense |
12,237 |
5.8% |
12,162 |
5.6% |
25,619 |
5.4% |
25,261 |
5.1% |
|||||||||||
|
General and administrative expenses |
15,551 |
7.3% |
15,922 |
7.4% |
32,815 |
6.9% |
33,939 |
6.9% |
|||||||||||
|
Transaction, severance and related litigation costs |
490 |
0.2% |
434 |
0.2% |
570 |
0.1% |
1,184 |
0.2% |
|||||||||||
|
Total operating costs and expenses |
203,970 |
96.3% |
212,994 |
98.3% |
424,267 |
89.0% |
440,964 |
89.8% |
|||||||||||
|
Operating income |
7,814 |
3.7% |
3,627 |
1.7% |
52,476 |
11.0% |
49,975 |
10.2% |
|||||||||||
|
Interest expense |
17,061 |
8.1% |
17,121 |
7.9% |
34,123 |
7.2% |
34,182 |
7.0% |
|||||||||||
|
Income (loss) before income taxes |
(9,247) |
(4.4)% |
(13,494) |
(6.2)% |
18,353 |
3.8% |
15,793 |
3.2% |
|||||||||||
|
Income tax expense (benefit) |
(3,317) |
(1.6)% |
(4,442) |
(2.1)% |
7,061 |
1.5% |
6,930 |
1.4% |
|||||||||||
|
Net income (loss) |
$ |
(5,930) |
(2.8)% |
$ |
(9,052) |
(4.2)% |
$ |
11,292 |
2.4% |
$ |
8,863 |
1.8% |
|||||||
|
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) |
||||||
|
July 2, 2017 |
January 1, |
|||||
|
ASSETS |
||||||
|
Current assets: |
||||||
|
Cash and cash equivalents |
$ |
89,462 |
$ |
61,023 |
||
|
Other current assets |
63,342 |
63,938 |
||||
|
Total current assets |
152,804 |
124,961 |
||||
|
Property and equipment, net |
586,043 |
592,886 |
||||
|
Goodwill |
484,438 |
483,876 |
||||
|
Intangible assets, net |
482,192 |
484,083 |
||||
|
Other noncurrent assets |
21,703 |
24,306 |
||||
|
Total assets |
$ |
1,727,180 |
$ |
1,710,112 |
||
|
LIABILITIES AND STOCKHOLDER'S EQUITY |
||||||
|
Current liabilities: |
||||||
|
Bank indebtedness and other long-term debt, current portion |
$ |
7,600 |
$ |
7,613 |
||
|
Other current liabilities |
108,470 |
102,578 |
||||
|
Total current liabilities |
116,070 |
110,191 |
||||
|
Capital lease obligations, less current portion |
13,304 |
13,602 |
||||
|
Bank indebtedness and other long term debt, net of deferred financing costs, less current portion |
966,739 |
968,266 |
||||
|
Deferred tax liability |
182,581 |
186,290 |
||||
|
Other noncurrent liabilities |
228,860 |
225,758 |
||||
|
Total liabilities |
1,507,554 |
1,504,107 |
||||
|
Stockholder's equity: |
||||||
|
Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of July 2, 2017 and January 1, 2017 |
— |
— |
||||
|
Capital in excess of par value |
358,956 |
357,166 |
||||
|
Accumulated deficit |
(136,973) |
(148,265) |
||||
|
Accumulated other comprehensive loss |
(2,357) |
(2,896) |
||||
|
Total stockholder's equity |
219,626 |
206,005 |
||||
|
Total liabilities and stockholder's equity |
$ |
1,727,180 |
$ |
1,710,112 |
||
|
CEC ENTERTAINMENT, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) |
||||||
|
Six Months Ended |
||||||
|
July 2, |
July 3, |
|||||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||
|
Net income |
$ |
11,292 |
$ |
8,863 |
||
|
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||
|
Depreciation and amortization |
55,928 |
60,282 |
||||
|
Deferred income taxes |
(3,589) |
(6,449) |
||||
|
Stock-based compensation expense |
336 |
337 |
||||
|
Amortization of lease related liabilities |
(237) |
23 |
||||
|
Amortization of original issue discount and deferred debt financing costs |
2,273 |
2,273 |
||||
|
Loss on asset disposals, net |
3,716 |
4,073 |
||||
|
Non-cash rent expense |
2,101 |
3,507 |
||||
|
Other adjustments |
9 |
172 |
||||
|
Changes in operating assets and liabilities: |
||||||
|
Operating assets |
(7,117) |
(1,629) |
||||
|
Operating liabilities |
12,043 |
6,286 |
||||
|
Net cash provided by operating activities |
76,755 |
77,738 |
||||
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||
|
Purchases of property and equipment |
(47,045) |
(42,400) |
||||
|
Development of internal use software |
(2,075) |
(6,223) |
||||
|
Proceeds from sale of property and equipment |
237 |
318 |
||||
|
Net cash used in investing activities |
(48,883) |
(48,305) |
||||
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||
|
Repayments on senior term loan |
(3,800) |
(3,800) |
||||
|
Proceeds from sale leaseback transaction |
4,073 |
— |
||||
|
Other financing activities |
55 |
(1,180) |
||||
|
Net cash provided by (used in) financing activities |
328 |
(4,980) |
||||
|
Effect of foreign exchange rate changes on cash |
239 |
484 |
||||
|
Change in cash and cash equivalents |
28,439 |
24,937 |
||||
|
Cash and cash equivalents at beginning of period |
61,023 |
50,654 |
||||
|
Cash and cash equivalents at end of period |
$ |
89,462 |
$ |
75,591 |
||
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's management believes that the presentation of these measures is appropriate to provide useful information to investors regarding its operating performance and its capacity to incur and service debt and fund capital expenditures. Further, the Company believes that Adjusted EBITDA is used by many investors, analysts and rating agencies as a measure of performance. 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 (i) adding back the change in deferred amusement revenue, and (ii) excluding the annualized full year effect of Company-operated and franchised venues that were opened and closed during the year. 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 (loss) to Adjusted EBITDA and Adjusted EBITDA Margin for the periods shown:
|
Three Months Ended |
Six Months Ended |
||||||||||
|
July 2, |
July 3, |
July 2, |
July 3, |
||||||||
|
Total revenues |
$ |
211,784 |
$ |
216,621 |
$ |
476,743 |
$ |
490,939 |
|||
|
Net income (loss) as reported |
$ |
(5,930) |
$ |
(9,052) |
$ |
11,292 |
$ |
8,863 |
|||
|
Interest expense |
17,061 |
17,121 |
34,123 |
34,182 |
|||||||
|
Income tax expense (benefit) |
(3,317) |
(4,442) |
7,061 |
6,930 |
|||||||
|
Depreciation and amortization |
27,623 |
31,284 |
55,928 |
60,282 |
|||||||
|
Loss on asset disposals, net |
1,961 |
1,895 |
3,716 |
4,073 |
|||||||
|
Non-cash stock-based compensation |
186 |
202 |
336 |
337 |
|||||||
|
Rent expense book to cash |
1,856 |
2,592 |
2,836 |
4,840 |
|||||||
|
Franchise revenue, net cash received |
(254) |
271 |
(344) |
162 |
|||||||
|
Impact of purchase accounting |
569 |
356 |
785 |
555 |
|||||||
|
Venue pre-opening costs |
248 |
96 |
488 |
316 |
|||||||
|
One-time and unusual items |
947 |
1,063 |
3,213 |
2,876 |
|||||||
|
Cost savings initiatives |
— |
— |
— |
62 |
|||||||
|
Change in deferred amusement revenue |
(676) |
281 |
4,368 |
682 |
|||||||
|
Adjusted EBITDA |
$ |
40,274 |
$ |
41,667 |
$ |
123,802 |
$ |
124,160 |
|||
|
Adjusted EBITDA Margin |
19.0% |
19.2% |
26.0% |
25.3% |
|||||||
|
CEC ENTERTAINMENT, INC. VENUE COUNT INFORMATION (Unaudited) |
||||||||
|
Three Months Ended |
Six Months Ended |
|||||||
|
July 2, 2017 |
July 3, 2016 |
July 2, |
July 3, |
|||||
|
Number of Company-owned venues: |
||||||||
|
Beginning of period |
560 |
556 |
559 |
556 |
||||
|
New |
2 |
— |
3 |
1 |
||||
|
Acquired from franchisee |
2 |
— |
2 |
— |
||||
|
Closed |
— |
— |
— |
(1) |
||||
|
End of period |
564 |
556 |
564 |
556 |
||||
|
Number of franchised venues: |
||||||||
|
Beginning of period |
191 |
179 |
188 |
176 |
||||
|
New |
4 |
5 |
7 |
9 |
||||
|
Acquired from franchisee |
(2) |
— |
(2) |
— |
||||
|
Closed |
— |
(1) |
— |
(2) |
||||
|
End of period |
193 |
183 |
193 |
183 |
||||
|
Total number of venues: |
||||||||
|
Beginning of period |
751 |
735 |
747 |
732 |
||||
|
New |
6 |
5 |
10 |
10 |
||||
|
Acquired from franchisee |
— |
— |
— |
— |
||||
|
Closed |
— |
(1) |
— |
(3) |
||||
|
End of period |
757 |
739 |
757 |
739 |
||||