Diversified Restaurant Holdings Reports First Quarter 2018 Results
Revenue totaled $39.5 million; Same-store sales declined 8.5%
Diversified Restaurant Holdings, Inc. (NASDAQ:SAUC), one of the largest franchisees for Buffalo Wild Wings with 65 stores across five states, today announced results for its first quarter ended April 1, 2018.
First Quarter Information (from continuing operations)
- Revenue totaled $39.5 million; Same-store sales declined 8.5%
- Net income was $0.2 million, or $0.01 per diluted share
- Restaurant-level EBITDA(1) was $6.9 million, or 17.4% of sales
- Adjusted EBITDA(1) was $5.1 million
- Total debt was reduced by $2.9 million to $111.1 million at quarter end
(1) See attached table for a reconciliation of GAAP net income to Restaurant-level EBITDA and Adjusted EBITDA
“It was a challenging quarter with difficult weather, calendar shifts and promotional changes. However, new ownership at Buffalo Wild Wings is working to create a renewed energy and excitement around the brand. We are seeing progress behind the scenes on many fronts including marketing, advertising, information technology, menu and more. We expect that these efforts will begin to be realized in our results later in the year as the changes are implemented and gain traction. Our first quarter results do not have that benefit and are more reflective of the corporate promotional, marketing and media strategies carried over from the latter half of 2017,” commented David G. Burke, President and CEO. “There are a number of initiatives currently being tested and evaluated that give us confidence, and early indications and feedback have been positive. We just need to be patient and allow the efforts to take hold.”
Mr. Burke added, “Over the past 18 months, in addition to our efforts focused on driving high level customer satisfaction and improving the top line, we have implemented significant, sustainable reductions of overhead to improve our profitability and financial strength. With a new and improved media strategy roll-out planned for this fall in concert with additional traction from other initiatives, we anticipate achieving higher average unit volumes in the future. And, importantly, we expect to see measurable leverage from our leaner and more efficient organization along with the improved commodity cost environment.”
| First Quarter Results (from continuing operations) | |||||||||||||||
| (Unaudited, $ in thousands) | Q1 2018 | Q1 2017 | Change | % Change | |||||||||||
| Revenue | $ | 39,533.0 | $ | 44,338.0 | $ | (4,805.0 | ) | (10.8 | )% | ||||||
| Operating income | $ | 1,503.8 | $ | 2,366.6 | $ | (862.8 | ) | (36.4 | )% | ||||||
| Operating margin | 3.8 | % | 5.3 | % | |||||||||||
| Net income | $ | 191.8 | $ | 795.6 | $ | (603.8 | ) | (75.9 | )% | ||||||
| Diluted net income per share | $ | 0.01 | $ | 0.03 | $ | (0.02 | ) | (66.7 | )% | ||||||
| Same-store sales | (8.5 | )% | (0.3 | )% | |||||||||||
| Restaurant-level EBITDA(1) | $ | 6,898.1 | $ | 8,424.6 | $ | (1,526.5 | ) | (18.1 | )% | ||||||
| Restaurant-level EBITDA margin | 17.4 | % | 19.0 | % | |||||||||||
| Adjusted EBITDA(1) | $ | 5,103.7 | $ | 6,157.7 | $ | (1,054.0 | ) | (17.1 | )% | ||||||
| Adjusted EBITDA margin | 12.9 | % | 13.9 | % | |||||||||||
(1) Please see attached table for a reconciliation of GAAP net income to Restaurant-level EBITDA and Adjusted EBITDA
There were significant unfavorable calendar shifts in the quarter, as Easter, a holiday on which each of the DRH restaurants is closed, fell within the 2018 first quarter versus the second quarter in 2017. This shift added an additional 1.0% to our same-store sales decline in the quarter. Additionally, the week between Christmas and New Year's Day, a significant sales week given the sports calendar, fell into the first quarter of 2017 but not in the first quarter of 2018 as a result of the 53rd week in fiscal 2017.
Balance Sheet Highlights - Continuing Operations
Cash and cash equivalents were $4.5 million at April 1, 2018, compared with $4.4 million at 2017 year-end. Capital expenditures were $0.5 million during the first three months of 2018 and were for minor facility upgrades and general maintenance-type investments, as well as improvements to prepare an open space for sub-lease adjacent to one of our restaurants. DRH does not expect to build any new restaurants nor is it expected to complete any major remodels in 2018. As a result, the Company anticipates its capital expenses will approximate $1.5 million or less in fiscal 2018.
Total debt was $111.1 million at the end of the quarter, down $2.9 million since 2017 year-end.
About Diversified Restaurant Holdings, Inc.
Diversified Restaurant Holdings, Inc. is one of the largest franchisees for Buffalo Wild Wings with 65 franchised restaurants in key markets in Florida, Illinois, Indiana, Michigan and Missouri. DRH’s strategy is to generate cash, reduce debt and leverage its strong franchise operating capabilities for future growth.
FINANCIAL TABLES FOLLOW
|
DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES |
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|
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) |
||||||||
| Three Months Ended | ||||||||
| April 1, 2018 | March 26, 2017 | |||||||
| Revenue | $ | 39,532,957 | $ | 44,337,964 | ||||
| Operating expenses | ||||||||
| Restaurant operating costs (exclusive of depreciation and amortization shown separately below): | ||||||||
| Food, beverage, and packaging costs | 11,132,377 | 13,038,426 | ||||||
| Compensation costs | 10,164,655 | 10,965,530 | ||||||
| Occupancy costs | 2,943,840 | 2,893,852 | ||||||
| Other operating costs | 8,393,955 | 9,029,876 | ||||||
| General and administrative expenses | 2,221,969 | 2,356,966 | ||||||
| Pre-opening costs | — | 31,370 | ||||||
| Depreciation and amortization | 3,166,500 | 3,633,254 | ||||||
| Loss on asset disposal | 5,851 | 22,059 | ||||||
| Total operating expenses | 38,029,147 | 41,971,333 | ||||||
| Operating profit | 1,503,810 | 2,366,631 | ||||||
| Interest expense | (1,646,044 | ) | (1,575,954 | ) | ||||
| Other income, net | 32,640 | 27,167 | ||||||
| Income (loss) from continuing operations before income taxes | (109,594 | ) | 817,844 | |||||
| Income tax benefit (expense) of continuing operations | 301,423 | (22,264 | ) | |||||
| Income from continuing operations | 191,829 | 795,580 | ||||||
| Discontinued operations | ||||||||
| Income from discontinued operations before income taxes | — | 36,535 | ||||||
| Income tax expense of discontinued operations | — | (995 | ) | |||||
| Income from discontinued operations | — | 35,540 | ||||||
| Net income | $ | 191,829 | $ | 831,120 | ||||
| Basic earnings per share from: | ||||||||
| Continuing operations | $ | 0.01 | $ | 0.03 | ||||
| Discontinued operations | $ | — | $ | — | ||||
| Basic net earnings per share | $ | 0.01 | $ | 0.03 | ||||
| Diluted earnings per share from: | ||||||||
| Continuing operations | $ | 0.01 | $ | 0.03 | ||||
| Discontinued operations | $ | — | $ | — | ||||
| Diluted net earnings per share | $ | 0.01 | $ | 0.03 | ||||
| Weighted average number of common shares outstanding | ||||||||
| Basic | 26,853,724 | 26,629,974 | ||||||
| Diluted | 26,853,724 | 26,629,974 | ||||||
| DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES | ||||||||
| CONSOLIDATED BALANCE SHEETS (Unaudited) | ||||||||
| ASSETS |
April 1, 2018 |
December 31, |
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| Current assets | ||||||||
| Cash and cash equivalents | $ | 4,468,997 | $ | 4,371,156 | ||||
| Accounts receivable | 294,935 | 653,102 | ||||||
| Inventory | 1,594,300 | 1,591,363 | ||||||
| Prepaid and other assets | 445,444 | 408,982 | ||||||
| Total current assets | 6,803,676 | 7,024,603 | ||||||
| Deferred income taxes | — | |||||||
| Property and equipment, net | 45,314,523 | 48,014,043 | ||||||
| Intangible assets, net | 2,391,470 | 2,438,187 | ||||||
| Goodwill | 50,097,081 | 50,097,081 | ||||||
| Other long-term assets | 487,574 | 185,322 | ||||||
| Total assets | $ | 105,094,324 | $ | 107,759,236 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 3,188,283 | $ | 4,561,939 | ||||
| Accrued compensation | 2,588,593 | 1,854,127 | ||||||
| Other accrued liabilities | 2,871,373 | 2,404,942 | ||||||
| Current portion of long-term debt | 11,505,571 | 11,440,433 | ||||||
| Current portion of deferred rent | 413,049 | 411,660 | ||||||
| Total current liabilities | 20,566,869 | 20,673,101 | ||||||
| Deferred rent, less current portion | 2,205,505 | 2,208,238 | ||||||
|
Deferred income taxes |
2,481,462 |
2,759,870 |
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| Unfavorable operating leases | 490,865 | 510,941 | ||||||
| Other long-term liabilities | 1,872,428 | 2,346,991 | ||||||
| Long-term debt, less current portion | 99,595,544 | 102,488,730 | ||||||
| Total liabilities | 127,212,673 | 130,987,871 | ||||||
| Commitments and contingencies (Notes 3, 10 and 11) | ||||||||
| Stockholders' deficit | ||||||||
| Common stock - $0.0001 par value; 100,000,000 shares authorized; 27,136,514 and 26,859,125, respectively, issued and outstanding | 2,643 | 2,625 | ||||||
| Additional paid-in capital | 21,986,499 | 21,776,402 | ||||||
| Accumulated other comprehensive income (loss) | 425,134 | (283,208 | ) | |||||
| Accumulated deficit | (44,532,625 | ) | (44,724,454 | ) | ||||
| Total stockholders' deficit | (22,118,349 |
) |
(23,228,635 | ) | ||||
| Total liabilities and stockholders' deficit | $ | 105,094,324 | $ | 107,759,236 | ||||
| DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) | ||||||||
| Three Months Ended | ||||||||
| April 1, 2018 | March 26, 2017 | |||||||
| Cash flows from operating activities | ||||||||
| Net income | $ | 191,829 | $ | 831,120 | ||||
| Net income from discontinued operations | — | 35,540 | ||||||
| Net income from continuing operations | 191,829 | 795,580 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities | ||||||||
| Depreciation and amortization | 3,166,500 | 3,633,254 | ||||||
| Amortization of debt discount and loan fees | 72,434 | 52,443 | ||||||
| Amortization of gain on sale-leaseback | (31,959 | ) | (34,794 | ) | ||||
| Loss on asset disposals | 5,851 | 22,059 | ||||||
| Share-based compensation | 234,758 | 123,082 | ||||||
| Deferred income taxes | (301,423 | ) | 23,259 | |||||
| Changes in operating assets and liabilities that provided (used) cash | ||||||||
| Accounts receivable | 358,167 | 187,782 | ||||||
| Inventory | (2,937 | ) | 69,039 | |||||
| Prepaid and other assets | (36,462 | ) | 313,204 | |||||
| Intangible assets | (20,076 | ) | (18,915 | ) | ||||
| Other long-term assets | 429,104 | 2,084 | ||||||
| Accounts payable | (1,325,034 | ) | (208,157 | ) | ||||
| Accrued liabilities | 758,293 | (577,438 | ) | |||||
| Deferred rent | (1,344 | ) | 23,353 | |||||
| Net cash provided by operating activities of continuing operations | 3,497,701 | 4,405,835 | ||||||
| Net cash provided by operating activities of discontinued operations | — | 35,540 | ||||||
| Net cash provided by operating activities | 3,497,701 | 4,441,375 | ||||||
| Cash flows from investing activities | ||||||||
| Purchases of property and equipment | (496,061 | ) | (1,430,201 | ) | ||||
| Net cash used in investing activities | (496,061 | ) | (1,430,201 | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance of long-term debt | — | 1,217,621 | ||||||
| Repayments of long-term debt | (2,879,156 | ) | (2,879,156 | ) | ||||
| Proceeds from employee stock purchase plan | 18,974 | 11,498 | ||||||
| Tax withholdings for restricted stock units | (43,617 | ) | — | |||||
| Net cash used in financing activities | (2,903,799 | ) | (1,650,037 | ) | ||||
| Net increase in cash and cash equivalents | 97,841 | 1,361,137 | ||||||
| Cash and cash equivalents, beginning of period | 4,371,156 | 4,021,126 | ||||||
| Cash and cash equivalents, end of period | $ | 4,468,997 | $ | 5,382,263 | ||||
| DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES | |||||||
| Reconciliation between Net Income and Adjusted EBITDA and Adjusted Restaurant-Level EBITDA | |||||||
| Three Months Ended (Unaudited) | |||||||
| April 1, 2018 | March 26, 2017 | ||||||
| Net Income | $ | 191,829 | $ | 831,120 | |||
| + Loss from discontinued operations | — | (35,540 | ) | ||||
| + Income tax expense (benefit) | (301,423 | ) | 22,264 | ||||
| + Interest expense | 1,646,044 | 1,575,954 | |||||
| + Other income, net | (32,640 | ) | (27,167 | ) | |||
| + Loss on asset disposal | 5,851 | 22,059 | |||||
| + Depreciation and appreciation | 3,166,500 | 3,633,254 | |||||
| EBITDA | $ | 4,676,161 | $ | 6,021,944 | |||
| + Pre-opening costs | — | 31,370 | |||||
| + Non-recurring expenses (Restaurant-level) | — | 14,300 | |||||
| + Non-recurring expenses (Corporate-level) | 427,525 | 90,097 | |||||
| Adjusted EBITDA | $ | 5,103,686 | $ | 6,157,711 | |||
| Adjusted EBITDA margin (%) | 12.9 | % | 13.9 | % | |||
| + General and administrative | 2,221,969 | 2,356,966 | |||||
| + Non-recurring expenses (Corporate-level) | (427,525 | ) | (90,097 | ) | |||
| Restaurant–Level EBITDA | $ | 6,898,130 | $ | 8,424,580 | |||
| Restaurant–Level EBITDA margin (%) | 17.4 | % | 19.0 | % | |||