Delaware | 001-33174 | 16-1287774 |
(State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification No.) |
968 James Street Syracuse, New York | 13203 | |
(Address of principal executive office) | (Zip Code) | |
Registrant’s telephone number, including area code (315) 424-0513 | ||
N/A | ||
(Former name or former address, if changed since last report.) |
By: | /s/ Paul R. Flanders |
Name: | Paul R. Flanders |
Title: | Vice President, Chief Financial Officer and Treasurer |
• | Restaurant sales increased 15.8% to $279.5 million from $241.4 million in the second quarter of 2016, including $53.3 million in sales from 170 BURGER KING® restaurants acquired from 2015 to 2017(1); |
• | Comparable restaurant sales increased 4.6% compared to a 0.7% increase in the prior year period; |
• | Adjusted EBITDA(2) was $27.5 million compared to $27.9 million in the prior year period; |
• | Net income was $6.0 million, or $0.13 per diluted share, compared to net income of $9.4 million, or $0.21 per diluted share, in the prior year period; and |
• | Adjusted net income(2) was $6.6 million, or $0.14 per diluted share, compared to adjusted net income of $8.0 million, or $0.18 per diluted share, in the prior year period. |
(1) | “Acquired restaurants” refer to those restaurants acquired from 2015 through 2017. “Legacy restaurants” include all of the Company’s other restaurants including restaurants acquired before 2015. |
(2) | Adjusted EBITDA, Restaurant-level EBITDA and Adjusted net income are non-GAAP financial measures. Refer to the definitions and reconciliation of these measures to net income or to income from operations in the tables at the end of this release. |
• | Total restaurant sales of $1.05 billion to $1.07 billion (previously $1.03 billion to $1.06 billion), including a comparable restaurant sales increase of 2% to 3%; |
• | Commodity cost increases of 2% to 4% including an 8% to 10% increase in beef costs (previously 1% to 3% including a 2% to 4% increase in beef costs); |
• | General and administrative expenses (excluding stock compensation and acquisition costs) of $53 million to $55 million (previously $54 million to $56 million); |
• | Adjusted EBITDA is still expected to be $90 million to $95 million; |
• | Capital expenditures are still expected to be approximately $65 million to $85 million which includes remodeling a total of 28 to 32 restaurants, the rebuilding of 6 to 8 restaurants and the construction of 10 to 15 new restaurants including 2 or 3 relocations of existing restaurants. Capital expenditures also include $10 million to $12 million for non-recurring investments in new kitchen production and product holding systems, new training systems and certain POS system upgrades; |
• | The closing of 15 to 20 existing restaurants of which 16 had been closed as of July 2, 2017; and |
• | An effective income tax rate of 18% to 20%. |
(unaudited) | (unaudited) | ||||||||||||||
Three Months Ended (a) | Six Months Ended (a) | ||||||||||||||
July 2, 2017 | July 3, 2016 | July 2, 2017 | July 3, 2016 | ||||||||||||
Restaurant sales | $ | 279,478 | $ | 241,368 | $ | 519,330 | $ | 463,887 | |||||||
Costs and expenses: | |||||||||||||||
Cost of sales | 78,724 | 62,117 | 142,960 | 121,137 | |||||||||||
Restaurant wages and related expenses | 87,948 | 73,545 | 169,019 | 145,628 | |||||||||||
Restaurant rent expense | 18,892 | 16,118 | 36,489 | 31,996 | |||||||||||
Other restaurant operating expenses | 41,910 | 37,316 | 81,105 | 73,005 | |||||||||||
Advertising expense | 11,431 | 10,770 | 21,332 | 19,898 | |||||||||||
General and administrative expenses (b) (c) | 14,411 | 14,355 | 29,987 | 27,561 | |||||||||||
Depreciation and amortization | 13,366 | 11,486 | 26,517 | 22,543 | |||||||||||
Impairment and other lease charges | 432 | 286 | 963 | 508 | |||||||||||
Other expense, net | 29 | 1,479 | 29 | 1,035 | |||||||||||
Total costs and expenses | 267,143 | 227,472 | 508,401 | 443,311 | |||||||||||
Income from operations | 12,335 | 13,896 | 10,929 | 20,576 | |||||||||||
Interest expense | 5,029 | 4,520 | 9,830 | 9,055 | |||||||||||
Income before income taxes | 7,306 | 9,376 | 1,099 | 11,521 | |||||||||||
Provision for income taxes | 1,267 | — | 656 | — | |||||||||||
Net income | $ | 6,039 | $ | 9,376 | $ | 443 | $ | 11,521 | |||||||
Basic and diluted net income per share (d)(e) | $ | 0.13 | $ | 0.21 | $ | 0.01 | $ | 0.25 | |||||||
Basic weighted average common shares outstanding | 35,415 | 35,117 | 35,400 | 35,110 | |||||||||||
Diluted weighted average common shares outstanding | 44,942 | 44,819 | 44,981 | 44,850 |
(a) | The Company uses a 52 or 53 week fiscal year that ends on the Sunday closest to December 31. The three and six months ended July 2, 2017 and July 3, 2016 each included thirteen and twenty-six weeks, respectively. |
(b) | General and administrative expenses include acquisition costs of $448 and $230 for the three months ended July 2, 2017 and July 3, 2016, respectively and $1,166 and $638 for the six months ended July 2, 2017 and July 3, 2016, respectively. |
(c) | General and administrative expenses include stock-based compensation expense of $903 and $606 for the three months ended July 2, 2017 and July 3, 2016, respectively and $1,786 and $1,171 for the six months ended July 2, 2017 and July 3, 2016, respectively. |
(d) | Basic net income per share was computed excluding income attributable to preferred stock and non-vested restricted shares unless the effect would have been anti-dilutive for the periods presented. |
(e) | Diluted net income per share was computed including shares issuable for convertible preferred stock and non-vested restricted shares unless their effect would have been anti-dilutive for the periods presented. |
(unaudited) | (unaudited) | ||||||||||||||
Three Months Ended (a) | Six Months Ended (a) | ||||||||||||||
July 2, 2017 | July 3, 2016 | July 2, 2017 | July 3, 2016 | ||||||||||||
Restaurant Sales: (a) | |||||||||||||||
Legacy restaurants | $ | 226,196 | $ | 217,759 | $ | 428,323 | $ | 421,552 | |||||||
Acquired restaurants | 53,282 | 23,609 | 91,007 | 42,335 | |||||||||||
Total restaurant sales | $ | 279,478 | $ | 241,368 | $ | 519,330 | $ | 463,887 | |||||||
Change in Comparable Restaurant Sales (b) | 4.6 | % | 0.7 | % | 2.1 | % | 3.0 | % | |||||||
Average Weekly Sales per Restaurant: (c) | |||||||||||||||
Legacy restaurants | $ | 27,511 | $ | 26,063 | $ | 25,919 | $ | 25,187 | |||||||
Acquired restaurants | 26,141 | 26,370 | 24,795 | 25,407 | |||||||||||
Restaurant-Level EBITDA: (d) | |||||||||||||||
Legacy restaurants | $ | 34,053 | $ | 37,716 | $ | 58,302 | $ | 66,057 | |||||||
Acquired restaurants | 6,520 | 3,786 | 10,123 | 6,166 | |||||||||||
Total Restaurant-Level EBITDA | $ | 40,573 | $ | 41,502 | $ | 68,425 | $ | 72,223 | |||||||
Restaurant-Level EBITDA margin: (d) | |||||||||||||||
Legacy restaurants | 15.1 | % | 17.3 | % | 13.6 | % | 15.7 | % | |||||||
Acquired restaurants | 12.2 | % | 16.0 | % | 11.1 | % | 14.6 | % | |||||||
All restaurants | 14.5 | % | 17.2 | % | 13.2 | % | 15.6 | % | |||||||
Adjusted EBITDA (d) | $ | 27,484 | $ | 27,898 | $ | 41,361 | $ | 46,380 | |||||||
Adjusted EBITDA margin (d) | 9.8 | % | 11.6 | % | 8.0 | % | 10.0 | % | |||||||
Adjusted net income (d) | $ | 6,585 | $ | 7,955 | $ | 1,763 | $ | 10,176 | |||||||
Adjusted diluted net income per share (d) | $ | 0.14 | $ | 0.18 | $ | 0.04 | $ | 0.22 | |||||||
Number of Restaurants: | |||||||||||||||
Restaurants at beginning of period | 788 | 717 | 753 | 705 | |||||||||||
New restaurants | 1 | 2 | 2 | 2 | |||||||||||
Restaurants acquired | 17 | 6 | 60 | 18 | |||||||||||
Restaurants closed | (7) | (2) | (16) | (2) | |||||||||||
Restaurants at end of period | 799 | 723 | 799 | 723 |
At 7/2/2017 | At 1/1/2017 | ||||||
Long-term debt (e) | $ | 282,717 | $ | 223,559 | |||
Cash | 33,721 | 2,002 |
(a) | For 2017 we have modified our groupings of restaurants for reporting and analysis purposes. Acquired restaurants represent the 171 restaurants acquired in 17 acquisitions from 2015 through 2017. Legacy restaurants represent all other restaurants including restaurants acquired before 2015. |
(b) | Restaurants are generally included in comparable restaurant sales after they have been operated for 12 months. The calculation of changes in comparable restaurant sales is based on the comparable 13-week or 26-week period. |
(c) | Average weekly sales per restaurant are derived by dividing restaurant sales for the comparable 13-week or 26-week period by the average number of restaurants operating during such period. |
(d) | EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Restaurant-Level EBITDA, Restaurant-Level EBITDA margin and Adjusted net income are non-GAAP financial measures and may not necessarily be comparable to other similarly titled captions of other companies due to differences in methods of calculation. Refer to the Company's reconciliation of net income to EBITDA, Adjusted EBITDA and Adjusted net income, and to the Company's reconciliation of income from operations to Restaurant-Level EBITDA for further detail. Both Adjusted EBITDA margin and Restaurant-Level EBITDA margin are calculated as a percentage of restaurant sales for the respective group of restaurants. Adjusted diluted net income per share is calculated based on Adjusted net income and reflects the dilutive impact of shares, where applicable, based on Adjusted net income. |
(e) | Long-term debt (including current portion and excluding deferred financing costs) at July 2, 2017 included $275,000 of the Company's 8% Senior Secured Second Lien Notes, $1,203 of lease financing obligations and $6,514 of capital lease obligations. Long-term debt (including current portion and excluding deferred financing costs) at January 1, 2017 included $200,000 of the Company's 8% Senior Secured Second Lien Notes, $13,500 of outstanding revolving borrowings under the Company's senior credit facility, $3,020 of lease financing obligations and $7,039 of capital lease obligations. |
(unaudited) | (unaudited) | ||||||||||||||
Three Months Ended (a) | Six Months Ended (a) | ||||||||||||||
July 2, 2017 | July 3, 2016 | July 2, 2017 | July 3, 2016 | ||||||||||||
Reconciliation of EBITDA and Adjusted EBITDA: (a) | |||||||||||||||
Net income | $ | 6,039 | $ | 9,376 | $ | 443 | $ | 11,521 | |||||||
Benefit for income taxes | 1,267 | — | 656 | — | |||||||||||
Interest expense | 5,029 | 4,520 | 9,830 | 9,055 | |||||||||||
Depreciation and amortization | 13,366 | 11,486 | 26,517 | 22,543 | |||||||||||
EBITDA | 25,701 | 25,382 | 37,446 | 43,119 | |||||||||||
Impairment and other lease charges | 432 | 286 | 963 | 508 | |||||||||||
Acquisition costs (b) | 448 | 230 | 1,166 | 638 | |||||||||||
Gain on partial condemnation and insurance proceeds from fire (c) | — | (456 | ) | — | (906 | ) | |||||||||
Litigation settlement (d) | — | 1,850 | — | 1,850 | |||||||||||
Stock-based compensation expense | 903 | 606 | 1,786 | 1,171 | |||||||||||
Adjusted EBITDA | $ | 27,484 | $ | 27,898 | $ | 41,361 | $ | 46,380 | |||||||
Reconciliation of Restaurant-Level EBITDA: (a) | |||||||||||||||
Income from operations | $ | 12,335 | $ | 13,896 | $ | 10,929 | $ | 20,576 | |||||||
Add: | |||||||||||||||
General and administrative expenses | 14,411 | 14,355 | 29,987 | 27,561 | |||||||||||
Depreciation and amortization | 13,366 | 11,486 | 26,517 | 22,543 | |||||||||||
Impairment and other lease charges | 432 | 286 | 963 | 508 | |||||||||||
Other expense, net | 29 | 1,479 | 29 | 1,035 | |||||||||||
Restaurant-Level EBITDA | $ | 40,573 | $ | 41,502 | $ | 68,425 | $ | 72,223 | |||||||
Reconciliation of Adjusted net income: (a) | |||||||||||||||
Net income | $ | 6,039 | $ | 9,376 | $ | 443 | $ | 11,521 | |||||||
Add: | |||||||||||||||
Impairment and other lease charges | 432 | 286 | 963 | 508 | |||||||||||
Gain on partial condemnation and insurance proceeds from fire (c) | — | (456 | ) | — | (906 | ) | |||||||||
Litigation settlement (d) | — | 1,850 | — | 1,850 | |||||||||||
Acquisition costs (b) | 448 | 230 | 1,166 | 638 | |||||||||||
Income tax effect on above adjustments (e) | (334 | ) | (726 | ) | (809 | ) | (794 | ) | |||||||
Benefit from deferred income tax assets (f) | — | (2,605 | ) | $ | — | $ | (2,641 | ) | |||||||
Adjusted net income | $ | 6,585 | $ | 7,955 | $ | 1,763 | $ | 10,176 | |||||||
Adjusted diluted net income per share | $ | 0.14 | $ | 0.18 | $ | 0.04 | $ | 0.22 |
(a) | Within our press release, we make reference to EBITDA, Adjusted EBITDA, Restaurant-Level EBITDA and Adjusted net income which are non-GAAP financial measures. EBITDA represents net income before benefit for income taxes, interest expense and depreciation and amortization. Adjusted EBITDA represents EBITDA as adjusted to exclude impairment and other lease charges, acquisition costs, stock-based compensation expense and other non-recurring income or expense. Restaurant-Level EBITDA represents income from operations as adjusted to exclude general and administrative expenses, depreciation and amortization, impairment and other lease charges and other income. Adjusted net income represents net income as adjusted to exclude impairment and other lease charges, acquisition costs and other non-recurring income or expense. |
(b) | Acquisition costs for the periods presented include primarily legal and professional fees incurred in connection with restaurant acquisitions, which were included in general and administrative expense. |
(c) | Other expense, net for three months ended July 3, 2016 includes a gain of $0.5 million related to an insurance recovery from a fire at one of our restaurants. Additionally, for the six months ended July 3, 2016, we recorded a gain of $0.5 million related to a settlement for a partial condemnation on one of our operating restaurant properties. |
(d) | Other expense, net for the three months ended July 3, 2016 includes expense of $1.85 million related to a litigation settlement. |
(e) | The income tax effect related to the adjustments for impairment and other lease charges, acquisition costs and gain on partial condemnation during the periods presented was calculated using an effective income tax rate of 38%. |
(f) | Prior to the fourth quarter of 2016, the Company recognized a valuation allowance on all of its net deferred income tax assets. This valuation allowance was reversed in the fourth quarter of 2016. For comparability, when presenting Adjusted net income, this adjustment reflects the benefit that would have been realized from deferred income tax assets during the three and six months ended July 3, 2016 if such valuation allowance on net deferred income tax assets had been reversed prior to 2016. |