| UNITED STATES | ||||
| SECURITIES AND EXCHANGE COMMISSION | ||||
| WASHINGTON, D.C. 20549 | ||||
| FORM | ||||
| (Mark One) | ||||
| | ||||
| For the quarterly period ended | ||||
| OR | ||||
| | ||||
| Commission File Number: | ||||
| ||||
| (Exact Name of Registrant as Specified in Its Charter) | ||||
| | | |||
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer | |||
| |
| (Address of Principal Executive Offices, Including Zip Code) |
| ( |
| (Registrant's Telephone Number, Including Area Code) |
| Securities registered pursuant to Section 12(b) of the Act: | ||||
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| | | | ||
| Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. | ||||
| | No ☐ | |||
| Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). | ||||
| | No ☐ | |||
| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company”, in Rule 12b-2 of the Exchange Act. | ||||
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| | ☒ | Smaller reporting company | | |
| Emerging growth company | | |||
| If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ | ||||
| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | ||||
| Yes | No ☒ | |||
| As of July 25, 2023, there were | ||||
Quarter Ended June 27, 2023
| INDEX |
PAGE |
||
| PART I - FINANCIAL INFORMATION |
|||
| Item 1. |
|||
| Condensed Consolidated Balance Sheets (unaudited) – June 27, 2023 and September 27, 2022 |
3 |
||
| 4 |
|||
| 5 - 6 |
|||
| 7 |
|||
| Notes to Condensed Consolidated Financial Statements (unaudited) |
8 |
||
| Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
17 |
|
| Item 3. |
27 |
||
| Item 4. |
27 |
||
| PART II - OTHER INFORMATION |
|||
| Item 1. |
27 |
||
| Item 1A. |
27 |
||
| Item 2. |
28 |
||
| Item 3. |
28 |
||
| Item 4. |
28 |
||
| Item 5. |
28 |
||
| Item 6. |
29 |
||
| 30 |
|||
| CERTIFICATIONS |
|||
PART I. - FINANCIAL INFORMATION
Good Times Restaurants Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share and per share data)
| June 27, 2023 | September 27, 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Receivables | ||||||||
| Prepaid expenses and other | ||||||||
| Inventories | ||||||||
| Total current assets | ||||||||
| PROPERTY AND EQUIPMENT: | ||||||||
| Land and building | ||||||||
| Leasehold improvements | ||||||||
| Fixtures and equipment | ||||||||
| Total property and equipment | ||||||||
| Less accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Total net property and equipment | ||||||||
| OTHER ASSETS: | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Deferred tax assets | ||||||||
| Deposits and other assets | ||||||||
| Trademarks | ||||||||
| Other intangibles, net | ||||||||
| Goodwill | ||||||||
| Total other assets | ||||||||
| TOTAL ASSETS: | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | ||||||||
| Deferred income | ||||||||
| Operating lease liabilities, current | ||||||||
| Other accrued liabilities | ||||||||
| Total current liabilities | ||||||||
| LONG-TERM LIABILITIES: | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Deferred revenues and other liabilities | ||||||||
| Total long-term liabilities | ||||||||
| SHAREHOLDERS’ EQUITY: | ||||||||
| Good Times Restaurants Inc. shareholders’ equity: | ||||||||
| Preferred stock, $ par value; shares authorized, shares issued and outstanding as of June 27, 2023, and September 27, 2022 | ||||||||
| Common stock, $ par value; shares authorized; issued; and outstanding as of June 27, 2023 and September 27, 2022, respectively | ||||||||
| Capital contributed in excess of par value | ||||||||
| Treasury stock, at cost; and shares as of June 27, 2023, and September 27, 2022, respectively | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Good Times Restaurants Inc. shareholders' equity | ||||||||
| Non-controlling interests | ||||||||
| Total shareholders’ equity | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements (unaudited)
Good Times Restaurants Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands except share and per share data)
| Quarter Ended (13 Weeks) | Year-to-Date (39 Weeks) | |||||||||||||||
| June 27, 2023 | June 28, 2022 | June 27, 2023 | June 28, 2022 | |||||||||||||
| NET REVENUES: | ||||||||||||||||
| Restaurant sales | $ | $ | $ | $ | ||||||||||||
| Franchise revenues | ||||||||||||||||
| Total net revenues | ||||||||||||||||
| RESTAURANT OPERATING COSTS: | ||||||||||||||||
| Food and packaging costs | ||||||||||||||||
| Payroll and other employee benefit costs | ||||||||||||||||
| Restaurant occupancy costs | ||||||||||||||||
| Other restaurant operating costs | ||||||||||||||||
| Preopening costs | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total restaurant operating costs | ||||||||||||||||
| General and administrative costs | ||||||||||||||||
| Advertising costs | ||||||||||||||||
| Impairment of long-lived assets | ||||||||||||||||
| Gain on restaurant asset sale and lease termination | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Litigation contingencies | ||||||||||||||||
| INCOME FROM OPERATIONS: | ||||||||||||||||
| Interest and other expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET INCOME BEFORE INCOME TAXES: | ||||||||||||||||
| Provision for income taxes | ( | ) | ( | ) | ||||||||||||
| NET INCOME: | $ | $ | $ | $ | ||||||||||||
| Income attributable to non-controlling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | $ | $ | $ | ( | ) | ||||||||||
| NET INCOME (LOSS) PER COMMON SHARE: | ||||||||||||||||
| Basic | $ | $ | $ | $ | ( | ) | ||||||||||
| Diluted | $ | $ | $ | $ | ( | ) | ||||||||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See accompanying notes to condensed consolidated financial statements (unaudited)
Good Times Restaurants Inc. and Subsidiaries
Consolidated Statements of Shareholders’ Equity (Unaudited)
Year-to-Date June 27, 2023
(In thousands, except share and per share data)
| Treasury Stock, |
Common Stock |
|||||||||||||||||||||||||||||||
| Shares |
Amount |
Outstanding |
Par |
Capital |
Non- |
Accumulated |
Total |
|||||||||||||||||||||||||
| BALANCES, September 27, 2022 |
$ | ( |
) | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||
| Stock-based compensation cost |
- | - | ||||||||||||||||||||||||||||||
| Restricted stock unit vesting |
( |
) | ( |
) | ||||||||||||||||||||||||||||
| Stock Option Exercise |
||||||||||||||||||||||||||||||||
| Repurchases of common stock |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Non-controlling interests: |
||||||||||||||||||||||||||||||||
| Income |
- | - | ||||||||||||||||||||||||||||||
| Distributions |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Contributions |
- | - | ||||||||||||||||||||||||||||||
| Net Income attributable to common shareholders and comprehensive income |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| BALANCES, December 27, 2022 |
$ | ( |
) | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||
| Stock-based compensation cost |
- | - | ||||||||||||||||||||||||||||||
| Repurchases of common stock |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Non-controlling interests: |
||||||||||||||||||||||||||||||||
| Income |
- | - | ||||||||||||||||||||||||||||||
| Distributions |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Purchase of non-controlling interests |
- | - | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
| Net Income attributable to common shareholders and comprehensive income |
- | - | ||||||||||||||||||||||||||||||
| BALANCES, March 28, 2023 |
$ | ( |
) | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||
| Stock-based compensation cost |
- | - | ||||||||||||||||||||||||||||||
| Repurchases of common stock |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Non-controlling interests: |
||||||||||||||||||||||||||||||||
| Income |
- | - | ||||||||||||||||||||||||||||||
| Distributions |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Net Income attributable to common shareholders and comprehensive income |
- | - | ||||||||||||||||||||||||||||||
| BALANCES, June 27, 2023 |
$ | ( |
) | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||
See accompanying notes to consolidated financial statements (unaudited)
Good Times Restaurants Inc. and Subsidiaries
Consolidated Statements of Shareholders’ Equity (Unaudited)
Year-to-Date June 28, 2022
(In thousands, except share and per share data)
| Treasury Stock, |
Common Stock |
|||||||||||||||||||||||||||||||
| Shares |
Amount |
Issued |
Par |
Capital |
Non- |
Accumulated |
Total |
|||||||||||||||||||||||||
| BALANCES, September 28, 2021 |
$ | ( |
) | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||
| Stock-based compensation cost |
- | - | ||||||||||||||||||||||||||||||
| Restricted stock unit vesting |
||||||||||||||||||||||||||||||||
| Common stock grants |
||||||||||||||||||||||||||||||||
| Stock option exercise |
||||||||||||||||||||||||||||||||
| Non-controlling interests: |
||||||||||||||||||||||||||||||||
| Income |
- | - | ||||||||||||||||||||||||||||||
| Distributions |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Net Income attributable to common shareholders and comprehensive income |
- | - | ||||||||||||||||||||||||||||||
| BALANCES, December 28, 2021 |
$ | ( |
) | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||
| Stock-based compensation cost |
- | - | ||||||||||||||||||||||||||||||
| Restricted stock unit vesting |
||||||||||||||||||||||||||||||||
| Stock option exercise |
||||||||||||||||||||||||||||||||
| Repurchases of common stock |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Non-controlling interests: |
||||||||||||||||||||||||||||||||
| Income |
- | - | ||||||||||||||||||||||||||||||
| Distributions |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Net Loss attributable to common shareholders and comprehensive loss |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| BALANCES, March 29, 2022 |
$ | ( |
) | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||
| Stock-based compensation cost |
- | - | ||||||||||||||||||||||||||||||
| Repurchases of common stock |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Non-controlling interests: |
||||||||||||||||||||||||||||||||
| Income |
- | - | ||||||||||||||||||||||||||||||
| Distributions |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Net Income attributable to common shareholders and comprehensive income |
- | - | ||||||||||||||||||||||||||||||
| BALANCES, June 28, 2022 |
$ | ( |
) | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||
See accompanying notes to consolidated financial statements (unaudited)
Good Times Restaurants Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
| Fiscal Year to Date (39 Weeks) |
||||||||
| June 27, 2023 |
June 28, 2022 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
||||||||
| Impairment of long-lived assets |
||||||||
| Stock-based compensation expense |
||||||||
| Loss (gain) on lease termination and disposal of assets |
( |
) | ||||||
| Recognition of deferred gain on sale of restaurant building |
( |
) | ( |
) | ||||
| Deferred income taxes |
( |
) | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Receivables and other |
( |
) | ( |
) | ||||
| Prepaid expense |
( |
) | ( |
) | ||||
| Inventories |
( |
) | ||||||
| Deposits and other |
( |
) | ||||||
| Accounts payable |
( |
) | ||||||
| Net change in ROU assets and operating lease liabilities |
( |
) | ( |
) | ||||
| Accrued and other liabilities |
||||||||
| Net cash provided by operating activities |
||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Payments for the purchase of property and equipment |
( |
) | ( |
) | ||||
| Acquisition of restaurant from franchisee, net of cash acquired |
( |
) | ||||||
| Proceeds from sale of fixed assets |
||||||||
| Purchase of non-controlling interests |
( |
) | ||||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Payment for the purchase of treasury stock |
( |
) | ( |
) | ||||
| Restricted stock vesting settled in cash |
( |
) | ||||||
| Proceeds from stock option exercise |
||||||||
| Distributions to non-controlling interests |
( |
) | ( |
) | ||||
| Contributions from non-controlling interests |
||||||||
| Net cash used in financing activities |
( |
) | ( |
) | ||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS |
( |
) | ||||||
| CASH AND CASH EQUIVALENTS, beginning of period |
||||||||
| CASH AND CASH EQUIVALENTS, end of period |
$ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
||||||||
| Cash paid for interest |
$ | $ | ||||||
| Change in accounts payable attributable to the purchase of property and equipment |
$ | ( |
) | $ | ( |
) | ||
See accompanying notes to condensed consolidated financial statements (Unaudited)
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Tabular dollar amounts in thousands, except share and per share data)
| Note 1. | Basis of Presentation |
The accompanying unaudited condensed consolidated financial statements include the accounts of Good Times Restaurants Inc. (the “Company”) and its wholly owned subsidiaries as well as one partnership in which the Company is the general partner, and five limited liability companies in which the Company was the controlling member during the period of time in which unrelated parties owned membership interests in those limited liability companies. Those memberships were acquired by the Company in January 2023. All significant intercompany balances and transactions have been eliminated in consolidation.
The Company operates and licenses full-service restaurants under the brand Bad Daddy’s Burger Bar that are primarily located in Colorado and in the Southeast region of the United States.
The Company operates and franchises drive-thru fast-food hamburger restaurants under the brand Good Times Burgers & Frozen Custard, all of which are located in Colorado and Wyoming.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles and practices of the United States of America (“GAAP”) for interim financial information. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all of the normal recurring adjustments necessary to present fairly the financial position of the Company as of June 27, 2023 and the results of its operations and its cash flows for the fiscal quarters ended June 27, 2023 and June 28, 2022. Operating results for the fiscal quarter ended June 27, 2023 are not necessarily indicative of the results that may be expected for the year ending September 26, 2023. The condensed consolidated balance sheet as of September 27, 2022 is derived from the audited financial statements but does not include all disclosures required by generally accepted accounting principles. As a result, these condensed consolidated financial statements should be read in conjunction with the Company's Form 10-K for the fiscal year ended September 27, 2022.
Fiscal Year – The Company’s fiscal year is a 52/53-week year ending on the last Tuesday of September. In a 52-week fiscal year, each of the Company’s quarterly periods consist of 13 weeks. The additional week in a 53-week fiscal year is added to the first quarter, making such quarter consist of 14 weeks. The quarters ended June 27, 2023 and June 28, 2022 each consisted of 13 weeks.
Reclassification – Certain prior year balances have been reclassified to conform to the current year’s presentation. Such reclassifications had no effect on the net income.
Advertising Costs – The company utilizes Advertising Funds to administer certain advertising programs for both the Bad Daddy’s and Good Times brands that benefit both us and our franchisees. We and our franchisees are required to contribute a percentage of gross sales to the fund. The contributions to these funds are designated and segregated for advertising. We consolidate the Advertising Funds into our financial statements whereby contributions from franchisees, when received, are recorded and included as a component of franchise revenues. Contributions to the Advertising Funds from our franchisees were $
Receivables – Our receivables typically consist of royalties and other fees due to us from independent franchisees of our brands as well as product rebates and other incentives due to us under agreements with our food and beverage vendors, and payments due to us for sales of gift cards to third party retailers. As of June 27, 2023, total receivables were $
| Note 2. |
Recent Accounting Pronouncements |
The Company reviewed all recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on the Company’s consolidated financial statements.
| Note 3. |
Revenue |
Revenue Recognition
Revenues consist primarily of sales from restaurant operations and franchise revenue, which includes franchisee contributions to advertising funds. Revenues associated with gift card breakage are immaterial to our financials. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer, typically a restaurant customer or a franchisee/licensee.
The Company recognizes revenues in the form of restaurant sales at the time of the sale when payment is made by the customer, as the Company has completed its performance obligation, namely the provision of food and beverage, and the accompanying customer service, during the customer’s visit to the restaurant. The Company sells gift cards to customers and recognizes revenue from gift cards primarily in the form of restaurant revenue. Gift card breakage, which is recognized when the likelihood of a gift card being redeemed is remote, is determined based upon the Company’s historic redemption patterns, and is immaterial to our overall financial statements.
Revenues we receive from our franchise and license agreements include sales-based royalties, and from our franchise agreements also may include advertising fund contributions, area development fees, and franchisee fees. We recognize sales-based royalties from franchisees and licensees as the underlying sales occur. We similarly recognize advertising fund contributions from franchisees as the underlying sales occur. The Company also provides its franchisees with services associated with opening new restaurants and operating them under franchise and development agreements in exchange for area development and franchise fees. The Company would capitalize these fees upon receipt from the franchisee and then would amortize those over the contracted franchise term as the services comprising the performance obligations are satisfied. We have not received material development or franchise fees in the years presented, and the primary performance obligations under existing franchise and development agreements have been satisfied prior to the earliest period presented in our financial statements.
| Note 4. | Goodwill and Intangible Assets |
The following table presents goodwill and intangible assets as of June 27, 2023 and September 27, 2022 (in thousands):
| June 27, 2023 | September 27, 2022 | |||||||||||||||||||||||
| Gross | Accumulated | Net | Gross | Accumulated | Net | |||||||||||||||||||
| Intangible assets subject to amortization: | ||||||||||||||||||||||||
| Non-compete agreements | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Indefinite-lived intangible assets: | ||||||||||||||||||||||||
| Trademarks | - | - | ||||||||||||||||||||||
| Intangible assets, net | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Goodwill | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Goodwill represents the excess of cost over fair value of the assets of businesses the Company acquired. Goodwill is not amortized, but rather, the Company is required to test goodwill for impairment on an annual basis or whenever indications of impairment arise. The Company considers its operations to be comprised of
| Note 5. | Stock-Based Compensation |
The Company has traditionally maintained incentive compensation plans that include provision for the issuance of equity-based awards. The Company established the 2008 Omnibus Equity Incentive Compensation Plan in 2008 (the “2008 Plan”) and has outstanding awards that were issued under the 2008 Plan. Subsequently, the 2008 Plan expired in 2018 and the Company established a new plan, the 2018 Omnibus Equity Incentive Plan (the “2018 Plan”) during the 2018 fiscal year, which was approved by shareholders on May 24, 2018. Future awards will be issued under the 2018 Plan. On February 8, 2022 the Company’s shareholders approved a proposal to increase the number of shares available for issuance under the 2018 Plan from
Stock-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite service period (generally the vesting period of the grant). The Company recognizes the impact of forfeitures as forfeitures occur.
Our net income for the three quarters ended June 27, 2023 and June 28, 2022 includes $
Stock option awards
The Company measures the compensation cost associated with stock option awards by estimating the fair value of the award as of the grant date using the Black-Scholes pricing model. The Company believes this valuation method and the approach used to develop the underlying assumptions are appropriate in calculating the fair values of the stock options awards granted during the three quarters ended June 27, 2023. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the employees who receive awards.
In addition to the exercise and grant date prices of the stock option awards, certain weighted average assumptions that were used to estimate the fair value of stock option grants are listed in the following table:
| Three Quarters Ended June 27, 2023 | Three Quarters Ended June 28, 2022 | ||||||||
| Expected term (years) | |||||||||
| Expected volatility | - | ||||||||
| Risk-free interest rate | - | ||||||||
| Expected dividends | |||||||||
We estimate expected volatility based on historical weekly price changes of our common stock for a period equal to the current expected term of the options. The risk-free interest rate is based on United States treasury yields effective at the time of grant corresponding to the expected term of the options. The expected term is the number of years we estimate that options will be outstanding prior to exercise considering vesting schedules and historic exercise patterns.
The following table summarizes stock option activity for the three quarters ended June 27, 2023 under all plans:
| Shares | Weighted | Weighted Average | ||||||||||
| Outstanding at beginning of year | $ | |||||||||||
| Options granted | $ | |||||||||||
| Options exercised | ( | ) | $ | |||||||||
| Options Forfeited | ( | ) | $ | |||||||||
| Outstanding June 27, 2023 | $ | |||||||||||
| Exercisable June 27, 2023 | $ | |||||||||||
As of June 27, 2023, the aggregate intrinsic value of exercisable options was $
As of June 27, 2023, the total remaining unrecognized compensation cost related to non-vested stock options was $
There were
During the three quarters ended June 28, 2022, the Company granted
There were
Restricted Stock Units
There were
A summary of the status of non-vested restricted stock units as of June 27, 2023 is presented below.
| Shares | Grant Date Fair | ||||||||
| Non-vested units at beginning of year | $ | to | $ | ||||||
| Units granted | $ | ||||||||
| Units vested | ( | ) | $ | ||||||
| Units forfeited | ( | ) | $ | to | $ | ||||
| Non-vested units at June 27, 2023 | $ | to | $ | ||||||
As of June 27, 2023, there was $
Restricted and Unrestricted Common Stock Awards
| Note 6. | Gain on Sale of Assets and Lease Termination |
For the three fiscal quarters ended June 27, 2023, the Company recognized $
| Note 7. |
Prepaid expense and other current assets |
Prepaid expenses and other current assets consist of the following as of:
| June 27, 2023 |
September 27, 2022 |
|||||||
| Prepaid Rent |
$ | $ | ||||||
| Prepaid Insurance |
||||||||
| Other |
||||||||
| Total |
$ | $ | ||||||
| Note 8. |
Other Accrued Liabilities |
Other accrued liabilities consist of the following as of:
| June 27, 2023 |
September 27, 2022 |
|||||||
| Wages and other employee benefits |
$ | $ | ||||||
| Taxes, other than income taxes |
||||||||
| Gift card liability, net of breakage |
||||||||
| General expense accrual and other |
||||||||
| Total |
$ | $ | ||||||
| Note 9. | Notes Payable and Long-Term Debt |
Cadence Credit Facility
The Company and its wholly owned subsidiaries (the “Subsidiaries”) maintain an amended and restated credit agreement with Cadence Bank (“Cadence”) pursuant to which, Cadence agreed to loan the Company up to $
Proceeds from the Cadence Credit Facility, if and when drawn, may be used (i) to fund new restaurant development, (ii) to finance the buyout of non-controlling partners in certain restaurants, (iii) to finance the redemption, purchase or other acquisition of equity interests in the Company and (iv) for working capital and other general corporate purposes.
The Cadence Credit Facility includes customary affirmative and negative covenants and events of default. The Cadence Credit Facility also requires the Company to maintain various financial condition ratios, including minimum liquidity, an amended maximum leverage ratio and an amended minimum fixed charge coverage ratio. In addition, to the extent the aggregate outstanding balance under the Revolver exceeds $
In connection with the Cadence Credit Facility, the Company and the Subsidiaries entered into an Amended and Restated Security and Pledge Agreement (the “Security Agreement”) with Cadence. Under the Security Agreement, the Cadence Credit Facility is secured by a first priority security interest in substantially all the assets of the Company and the Subsidiaries.
As of June 27, 2023, the interest rate that would have been applicable to borrowings under the Cadence Credit Facility would have been
| Note 10. |
Net Income (Loss) per Common Share |
Our basic earnings per share calculation is computed based on the weighted-average number of common shares outstanding. Our diluted earnings per share calculation is computed based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued. Potentially dilutive securities for this calculation consist of in-the-money outstanding stock options, restricted stock units and warrants (which were assumed to have been exercised at the average market price of the common shares during the reporting period). The treasury stock method is used to measure the dilutive impact of in-the-money stock options.
The following table reconciles basic weighted-average shares outstanding to diluted weighted-average shares outstanding:
| Quarter Ended |
Year-to-Date |
|||||||||||||||
| June 27, 2023 |
June 28, 2022 |
June 27, 2023 |
June 28, 2022 |
|||||||||||||
| Weighted-average shares outstanding basic |
||||||||||||||||
| Effect of potentially dilutive securities: |
||||||||||||||||
| Stock options |
||||||||||||||||
| Restricted stock units |
||||||||||||||||
| Weighted-average shares outstanding diluted |
||||||||||||||||
| Excluded from diluted weighted average shares outstanding: |
||||||||||||||||
| Antidilutive |
||||||||||||||||
| Note 11. | Contingent Liabilities and Liquidity |
The failure of banks where we maintain deposits in excess of the limits insured by FDIC or other government or quasi-government agencies could materially affect our financial position and operating results.
The Company maintains deposits with certain banks in excess of the maximum insured limits by the FDIC. The significant interest rate increases by the Federal Reserve have caused recent bank failures. Although in certain of those cases, depositors have been protected from loss by government intervention, no assurances can be made in the case of any failure of a bank in which the Company has uninsured deposits, that the Company would be similarly protected against loss of such uninsured deposits.
There may be various claims in process, matters in litigation, and other contingencies brought against the company by employees, vendors, customers, franchisees, or other parties. Evaluating these contingencies is a complex process that may involve substantial judgment on the potential outcome of such matters, and the ultimate outcome of such contingencies may differ from our current analysis. We regularly review the adequacy of accruals and disclosures related to such contingent liabilities in consultation with legal counsel. While it is not possible to predict the outcome of these claims with certainty, subject to our disclosure immediately below, it is management’s opinion that any reasonably possible losses associated with such contingencies would be immaterial to our financial statements.
The Company is the defendant in a lawsuit styled as White Winston Select Asset Funds, LLC and GT Acquisition Group, Inc. v. Good Times Restaurants, Inc., arising from the failed negotiations between plaintiffs and the Company for the sale of the Good Times Drive Thru subsidiary to plaintiffs. The lawsuit was initially filed on September 24, 2019 in Delaware Chancery Court, and Company removed the case to federal court in the US District Court for the District of Delaware on November 5, 2019. On July 30, 2021, the plaintiffs moved the Court for leave to amend their complaint and add new causes of action and a claim for $
The plaintiffs filed a notice of appeal of the Court’s January 25, 2023 decisions. Good Times, in turn, filed a notice of appeal of the Court’s previous dismissal of its counterclaim against the plaintiffs. The parties are now conducting appellate briefing. On May 18, 2023, the plaintiffs filed their opening brief. On June 23, 2023, Good Times filed its brief in response to the plaintiffs’ opening brief and Good Times’s own opening brief regarding its appeal of the dismissal of its counterclaims against the plaintiffs. The plaintiffs’ deadline for the reply brief in support of their appeal and response to Good Times’s appeal is August 7, 2023. Good Times’s deadline to file a reply brief in support of its appeal is August 28, 2023. At that time, briefing will be closed, and the court of appeals may render a decision at any time.
The Company previously recorded an accrual for contingent litigation expense in the fiscal quarter ended March 28, 2022 in the amount of $
| Note 12. | Leases |
The Company determines if a contract contains a lease at inception. The Company's material long-term operating lease agreements are for the land and buildings for our restaurants as well as our corporate office. The initial lease terms range from
Operating lease assets and liabilities are recognized at the lease commencement date for material leases with a term of greater than 12 months. Operating lease liabilities represent the present value of future minimum lease payments. Since our leases do not provide an implicit rate, our operating lease liabilities are calculated using our estimated incremental borrowing rate based on a collateralized borrowing over the term of each individual lease. Minimum lease payments include only fixed lease components of the agreement, as well as variable rate payments that depend on an index, initially measured using the index at the lease commencement date.
Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepaid or accrued lease payments, initial direct costs and lease incentives. Lease incentives are recognized when earned and reduce our operating lease asset related to the lease. They are amortized through the operating lease assets as reductions of rent expense over the lease term.
Operating lease expense is recognized on a straight-line basis over the lease term. Certain of the Company’s operating leases contain clauses that provide for contingent rent based on a percentage of sales greater than certain specified target amounts. Variable lease payments that do not depend on a rate or index, escalation in the index subsequent to the initial measurement, payments associated with non-lease components such as common area maintenance, real estate taxes and insurance, and short-term lease payments (leases with a term with 12 months or less) are expensed as incurred or when the achievement of the specified target that triggers the contingent rent is considered probable.
Some of the leases provide for base rent, plus additional rent based on gross sales, as defined in each lease agreement. The Company is also generally obligated to pay certain real estate taxes, insurance and common area maintenance charges, and various other expenses related to properties, which are expensed as incurred.
Components of operating lease costs are as follows for the fiscal quarters ended June 27, 2023 and June 28, 2022:
| Lease cost | Classification | June 27, 2023 | June 28, 2022 | |||||||
| Operating lease cost | Occupancy, Other restaurant operating costs and General and administrative expenses, net | $ | $ | |||||||
| Variable lease cost | Occupancy | |||||||||
| Sublease income | Occupancy | ( | ) | ( | ) | |||||
| $ | $ | |||||||||
Weighted average lease term and discount rate are as follows:
| June 27, 2023 | June 28, 2022 | |||||||
| Weighted average remaining lease term (in years) | ||||||||
| Weighted average discount rate | % | % | ||||||
Supplemental cash flow disclosures for the three fiscal quarters ended June 27, 2023:
| June 27, 2023 | June 28, 2022 | |||||||
| Cash paid for operating lease liabilities | $ | $ | ||||||
| Non-cash operating lease assets obtained in exchange for operating lease liabilities | $ | $ | ||||||
Supplemental balance sheet disclosures:
| June 27, 2023 | September 27, 2022 | |||||||||
| Right-of-use assets | Operating lease assets | $ | $ | |||||||
| Current lease liabilities | Operating lease liability | $ | $ | |||||||
| Non-current lease liabilities | Operating lease liability, less current portion | |||||||||
| Total lease liabilities | $ | $ | ||||||||
Future minimum rent payments for our operating leases for each of the next five years as of June 27, 2023 are as follows:
| Fiscal year ending: | Total | |||
| Remainder of 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total minimum lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
The above future minimum rental amounts exclude the amortization of deferred lease incentives, renewal options that are not reasonably assured of renewal, and contingent rent. The Company generally has escalating rents over the term of the leases and records rent expense on a straight-line basis.
| Note 13. | Impairment of Long-Lived Assets and Trademarks |
Long-Lived Assets. We review our long-lived assets including land, property, and equipment for impairment when there are factors that indicate that the carrying amount of an asset may not be recoverable. We assess recovery of assets at the individual restaurant level and typically include an analysis of historical cash flows, future operating plans, and cash flow projections in assessing whether there are indicators of impairment. The recoverability of assets to be held and used is measured by comparing the net book value of the assets of an individual restaurant to the fair value of those assets. This impairment process involves significant judgment in the use of estimates and assumptions pertaining to future projections and operating results.
During the quarter ended June 27, 2023 there were
Trademarks. Trademarks have been determined to have an indefinite life. We evaluate trademarks for impairment annually and on an interim basis as circumstances warrant by comparing their fair value with their carrying amount. There was
| Note 14. | Income Taxes |
We account for income taxes using the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value. Deferred tax assets are reviewed periodically for realizability and valuation allowances are adjusted as necessary.
The Company’s effective income tax rate for the three months ended June 27, 2023 was (
During the second quarter of this fiscal year, the Company entered into a transaction in which it purchased the non-controlling interests in several joint ventures that have historically collectively generated significant income. Due to this transaction and a recent history of cumulative earnings, management believes the Company is now in a position to realize its tax benefits beginning in the current year, as well as in future years, and as such, has released the full valuation allowance recorded.
The Company is subject to taxation in various jurisdictions within the U.S. The Company continues to remain subject to examination by U.S. federal authorities for the years
| Note 15. | Non-controlling Interests |
Non-controlling interests are presented separately in the shareholders’ equity section of the condensed consolidated balance sheet. The amount of consolidated net income or loss attributable to non-controlling interests is presented on the face of the condensed consolidated statement of operations. Changes in a parent’s ownership interest in a subsidiary not resulting in deconsolidation are equity transactions, while changes in ownership interest that do result in deconsolidation of a subsidiary require gain or loss recognition based on the fair value on the deconsolidation date.
The equity interests of the unrelated limited partners and non-controlling members are shown on the accompanying consolidated balance sheet in the shareholders’ equity section as a non-controlling interest and is adjusted each period to reflect the limited partners’ and non-controlling members’ share of the net income or loss as well as any cash contributions or distributions to or from the limited partners and non-controlling members for the period. The limited partners’ and members’ share of the net income or loss in the subsidiary is shown as income or expense attributable to non-controlling interests in the accompanying consolidated statement of operations. All inter-company accounts and transactions are eliminated.
The following table summarizes the activity in non-controlling interests during the three quarters ended June 27, 2023 (in thousands):
| Bad Daddy’s | Good Times | Total | ||||||||||
| Balance at September 27, 2022 | $ | $ | $ | |||||||||
| Income | ||||||||||||
| Purchase of Non-controlling Interests | ( | ) | ( | ) | ||||||||
| Distributions | ( | ) | ( | ) | ( | ) | ||||||
| Contribution | ||||||||||||
| Balance at June 27, 2023 | ||||||||||||
Non-controlling interests at the end of the quarter consisted of one limited liability partnership, currently involving
| Note 16. |
Segment Reporting |
All of our Bad Daddy’s Burger Bar restaurants (Bad Daddy’s) compete in the full-service segment of the restaurant industry while our Good Times Burgers and Frozen Custard restaurants (Good Times) compete in the quick-service segment of the dining industry. We believe that providing this additional financial information for each of our brands will provide a better understanding of our overall operating results. Income from operations represents revenues less restaurant operating costs and expenses, directly allocable general and administrative expenses, and other restaurant-level expenses directly associated with each brand including depreciation and amortization, pre-opening costs and losses or gains on disposal of property and equipment. Unallocated corporate capital expenditures are presented below as reconciling items to the amounts presented in the consolidated financial statements.
The following tables present information about our reportable segments for the respective periods (in thousands):
| Quarter Ended (13 Weeks) |
Year-to-Date (39 Weeks) |
|||||||||||||||
| June 27, 2023 |
June 28, 2022 |
June 27, 2023 |
June 28, 2022 |
|||||||||||||
| Revenues |
||||||||||||||||
| Bad Daddy’s |
$ | $ | $ | $ | ||||||||||||
| Good Times |
||||||||||||||||
| $ | $ | |||||||||||||||
| Income from operations |
||||||||||||||||
| Bad Daddy’s |
$ | ( |
) | $ | ( |
) | ||||||||||
| Good Times |
$ | $ | ||||||||||||||
| $ | $ | |||||||||||||||
| Capital expenditures |
||||||||||||||||
| Bad Daddy’s |
$ | $ | ||||||||||||||
| Good Times |
||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| June 27, 2023 |
September 27, 2022 |
|||||||
| Property and equipment, net |
||||||||
| Bad Daddy’s |
$ | $ | ||||||
| Good Times |
||||||||
| $ | $ | |||||||
| Note 17. |
Subsequent Events |
None.
| MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This Form 10-Q contains or incorporates by reference forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the disclosure of risk factors in the Company’s Form 10-K for the fiscal year ended September 27, 2022 and subsequent filings with the SEC. Also, documents subsequently filed by us with the SEC and incorporated herein by reference may contain forward-looking statements. We caution investors that any forward-looking statements made by us are not guarantees of future performance and actual results could differ materially from those in the forward-looking statements as a result of various factors, including but not limited to the following:
| (I) |
The COVID-19 pandemic and the associated government response, change in consumer behavior, labor market effects and supply chain impacts significantly affected the results of operations and financial condition of our business. Though the effects of this specific pandemic have mostly subsided, the risk of similar government and consumer response to future pandemics or other public health concerns, and the risk of similar impacts within the labor markets and global supply chain, could cause significant disruption to our business. |
| (II) |
We compete with numerous well-established competitors who have substantially greater financial resources and longer operating histories than we do. Competitors have increasingly offered selected food items and combination meals, including hamburgers, at discounted prices, and continued discounting by competitors may adversely affect revenues and profitability of Company restaurants. |
| (III) |
We may be negatively impacted if we experience same store sales declines. Same store sales comparisons will be dependent, among other things, on the success of our advertising and promotion of new and existing menu items. No assurances can be given that such advertising and promotions will in fact be successful. |
| (IV) |
We may be negatively impacted if we are unable to pass on to customers through menu price increases the increased costs that we incur through inflation experienced in our input costs including both the cost of food and the cost of labor. Recent metrics have indicated that increased levels of price inflation are prevalent throughout the economy which have resulted in increases in commodity, labor and energy costs for both concepts as well as increased product substitutions, elevated freight costs, and increased variability in product quality. Further significant increases in inflation could affect the global and U.S. economies, which could have an adverse impact on our business and results of operations if we and our franchisees are not able to adjust prices sufficiently to offset the effect of cost increases without negatively impacting consumer demand. |
We may also be negatively impacted by other factors common to the restaurant industry such as: changes in consumer tastes away from red meat and fried foods; increases in the cost of food, paper, labor, health care, workers’ compensation or energy; inadequate number of hourly paid employees; increased wages and salaries for hourly and salaried employees; and/or decreases in the availability of affordable capital resources. We caution the reader that such risk factors are not exhaustive, particularly with respect to future filings. For further discussion of our exposure to market risk, refer to Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 27, 2022.
Overview.
Good Times Restaurant Inc., through its subsidiaries (collectively, the “Company” or “we”, “us” or “our”) operates and franchises/licenses full-service hamburger-oriented restaurants under the name Bad Daddy’s Burger Bar (Bad Daddy’s) and operates and franchises hamburger-oriented drive-through restaurants under the name Good Times Burgers & Frozen Custard (Good Times).
We are focused on targeted unit growth of the Bad Daddy’s concept while at the same time growing same store sales and improving the profitability of both the Bad Daddy’s and the Good Times concepts.
Macro-Economic Factors and Operating Environment.
During the three quarters ended June 27, 2023, high rates of inflation have been seen globally which have also resulted in increases in commodity, labor and energy costs for both concepts. Further significant continued increases in inflation could affect the global and U.S. economies, which could have an adverse impact on our business and results of operations if we and our franchisees are not able to adjust prices sufficiently to offset the effect of cost increases without negatively impacting consumer demand.
The Company maintains deposits with certain banks in excess of the maximum insured limits by the FDIC. The significant interest rate increases by the Federal Reserve have caused recent bank failures. Although in certain of those cases, depositors have been protected from loss by government intervention, no assurances can be made in the case of any failure of a bank in which the Company has uninsured deposits, that the Company would be similarly protected against loss of such uninsured deposits.
Although we conduct all of our restaurant operations within the USA, worldwide product supply chains have been impacted by international conflicts. Specifically sunflower oil and wheat, which are fungible commodities, are used as ingredients in our raw materials and purchased by our suppliers, have significant supplies that typically outside of the USA. The lack of availability of supplies of such products may impact the availability and supplier pricing for products purchased by us for use in our business, which could result in higher food and packaging costs or reduced revenues.
Growth Strategies and Outlook.
We believe there are significant opportunities to grow customer traffic and increase awareness of our brands. In 2019 we reduced our development profile as we sought to improve our financial position, and while we believe there are unit growth opportunities for both of our concepts, we continue to evaluate that in-line with the inflationary impact currently seen in the restaurant industry. We have been focused on organic growth of sales in our existing restaurants, but have also recently acquired certain franchisee restaurants and repurchased noncontrolling interests in certain partnerships where we are the controlling partner. We may opportunistically make similar acquisitions in the future. We anticipate the opening of one new restaurant in August 2023 in the greater Huntsville, Alabama market and are developing a pipeline for greater growth in 2024 and beyond.
Restaurant locations.
As of June 27, 2023, we operated, franchised, or licensed a total of forty Bad Daddy’s restaurants and thirty-one Good Times restaurants. The following table presents the number of restaurants operating at the end of the fiscal quarters ended June 27, 2023 and June 28, 2022.
Company-Owned/Co-Developed:
| Bad Daddy’s |
Good Times Burgers |
Total |
||||||||||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
2023 |
2022 |
|||||||||||||||||||
| Alabama |
2 | 2 | - | - | 2 | 2 | ||||||||||||||||||
| Colorado |
11 | 12 | 23 | 23 | 34 | 35 | ||||||||||||||||||
| Georgia |
5 | 5 | - | - | 5 | 5 | ||||||||||||||||||
| North Carolina |
14 | 14 | - | - | 14 | 14 | ||||||||||||||||||
| Oklahoma |
1 | 1 | - | - | 1 | 1 | ||||||||||||||||||
| South Carolina |
4 | 4 | - | - | 4 | 4 | ||||||||||||||||||
| Tennessee |
2 | 2 | - | - | 2 | 2 | ||||||||||||||||||
| Total |
39 | 40 | 23 | 23 | 62 | 63 | ||||||||||||||||||
One company-owned Bad Daddy’s restaurant closed, due to a termination by the landlord, for redevelopment in March 2023.
Franchise/License:
| Bad Daddy’s |
Good Times Burgers |
Total |
||||||||||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
2023 |
2022 |
|||||||||||||||||||
| Colorado |
- | - | 6 | 6 | 6 | 6 | ||||||||||||||||||
| North Carolina |
1 | 1 | - | - | 1 | 1 | ||||||||||||||||||
| Wyoming |
- | - | 2 | 2 | 2 | 2 | ||||||||||||||||||
| Total |
1 | 1 | 8 | 8 | 9 | 9 | ||||||||||||||||||
Non-Traditional*
| Bad Daddy’s |
Good Times Burgers |
Total |
||||||||||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
2023 |
2022 |
|||||||||||||||||||
| Colorado |
- | 1 | - | - | - | 1 | ||||||||||||||||||
| Total |
- | 1 | - | - | - | 1 | ||||||||||||||||||
*The non-traditional Bad Daddy’s Burger Bar location, where we operated the kitchen under our Bad Daddy’s brand for a local brewery’s taproom, closed in 2022.
Results of Operations
Fiscal quarter ended June 27, 2023 (13 weeks) compared to fiscal quarter ended June 28, 2022 (13 weeks):
Net Revenues. Net revenues for the fiscal quarter ended June 27, 2023 decreased $877,000 or 2.4% to 35,620,000 from $36,497,000 for the fiscal quarter ended June 28, 2022. Bad Daddy’s concept revenues decreased $1,070,000 while our Good Times concept revenues increased $193,000.
Bad Daddy’s restaurant sales decreased $1,087,000 to $26,085,000 for the fiscal quarter ended June 27, 2023 from $27,172,000 for the fiscal quarter ended June 28, 2022. Sales were negatively affected by the closure of the Cherry Creek location and the temporary closure one restaurant for remodeling. Sales were also affected by reduced customer traffic, particularly in the Atlanta market, partially offset by menu price increases. The average menu price increase for the fiscal quarter ended June 27, 2023 over the same prior-year quarter was approximately 4.3%.
Good Times restaurant sales increased $198,000 to $9,291,000 for the fiscal quarter ended June 27, 2023 from $9,093,000 for the fiscal quarter ended June 28, 2022. The average menu price increase for the fiscal quarter ended June 27, 2023 over the same prior-year quarter was approximately 10.5%.
Franchise revenues increased $12,000 to $244,000 in the fiscal quarter ended June 27, 2023 compared to $232,000 in the fiscal quarter ended June 28, 2022. This increase is due primarily to the additional royalties generated from higher restaurant level sales at our franchised and licensed units.
Same Store Sales
Sales store sales is a metric used in evaluating the performance of established restaurants and is a commonly used metric in the restaurant industry. Same store sales for our brands are calculated using all company-owned units open for at least eighteen full fiscal months and use the comparable operating weeks from the prior year to the current year quarter’s operating weeks. The calculation of same store sales for Bad Daddy’s excludes the results of one restaurant for the April fiscal month due to that restaurant’s extended remodel closure.
Bad Daddy’s same store restaurant sales decreased 1.4% during the fiscal quarter ended June 27, 2023 compared to the same thirteen-week period ended June 28, 2022, primarily driven by weaker traffic, particularly in the Atlanta market, partially offset by menu price increases. There were thirty-nine restaurants included in the same store sales base at the end of the current quarter.
Good Times same store restaurant sales increased 2.1% during the fiscal quarter ended June 27, 2023 compared to the same thirteen-week period ended June 28, 2022, primarily due to menu price increases, offset by lower traffic associated with more precipitation and cooler temperatures in the Denver metro area compared to the prior-year quarter. There were twenty-three restaurants included in the same store sales base at the end of the current quarter.
Restaurant Operating Costs
Food and Packaging Costs. Food and packaging costs for the fiscal quarter ended June 27, 2023 decreased $844,000 to $10,923,000 (30.9% of restaurant sales) from $11,767,000 (32.4% of restaurant sales) for the fiscal quarter ended June 28, 2022.
Bad Daddy’s food and packaging costs were $8,106,000 (31.1% of restaurant sales) for the fiscal quarter ended June 27, 2023, down from $8,832,000 (32.5% of restaurant sales) for the fiscal quarter ended June 28, 2022. This decrease is primarily attributable to a combination of lower restaurant sales during the current fiscal quarter versus prior fiscal quarter to lower purchase prices for chicken, oil-based products, and other food commodities.
Good Times food and packaging costs were $2,817,000 (30.3% of restaurant sales) for the fiscal quarter ended June 27, 2023, down from $2,935,000 (32.3% of restaurant sales) for the fiscal quarter ended June 28, 2022. This decrease is primarily attributable to the higher menu prices and reduced purchase prices across most of our commodity basket.
Payroll and Other Employee Benefit Costs. Payroll and other employee benefit costs for the fiscal quarter ended June 27, 2023 decreased $355,000 to $11,940,000 (33.8% of restaurant sales) from $12,295,000 (33.9% of restaurant sales) for the fiscal quarter ended June 28, 2022.
Bad Daddy’s payroll and other employee benefit costs were $9,054,000 (34.7% of restaurant sales) for the fiscal quarter ended June 27, 2023 down from $9,296,000 (34.2% of restaurant sales) for the fiscal quarter ended June 28, 2022. The $242,000 decrease is primarily attributable to lower restaurant sales during the current quarter compared to the same quarter in the prior year partially offset by slightly higher average pay rates. As a percent of sales, payroll and employee benefits costs increased by 0.5% primarily attributable to higher average wage rates paid to attract qualified employees.
Good Times payroll and other employee benefit costs were $2,886,000 (31.1% of restaurant sales) in the fiscal quarter ended June 27, 2023, down from $2,999,000 (33.0% of restaurant sales) in the same prior-year period. The decrease as is due primarily to increased labor productivity as measured in sales per labor hour.
Occupancy Costs. Occupancy costs for the fiscal quarter ended June 27, 2023 increased $49,000 to $2,432,000 (6.9% of restaurant sales) from $2,383,000 (6.6% of restaurant sales) for the fiscal quarter ended June 28, 2022.
Bad Daddy’s occupancy costs were $1,700,000 (6.5% of restaurant sales) for the fiscal quarter ended June 27, 2023, up from $1,684,000 (6.2% of restaurant sales) for the fiscal quarter ended June 28, 2022.
Good Times occupancy costs were $732,000 (7.9% of restaurant sales) in the fiscal quarter ended June 27, 2023, up from $699,000 (7.7% of restaurant sales) in the fiscal quarter ended June 28, 2022. The increase was primarily attributable to increased property taxes and insurance costs.
Other Operating Costs. Other operating costs for the fiscal quarter ended June 27, 2023, increased $58,000 to $4,811,000 (13.6% of restaurant sales) from $4,753,000 (13.1% of restaurant sales) for the fiscal quarter ended June 28, 2022.
Bad Daddy’s other operating costs were $3,750,000 (14.4% of restaurant sales) for the fiscal quarter ended June 27, 2023 up from $3,742,000 (13.8% of restaurant sales) for the fiscal quarter ended June 28, 2022. The increase as a percent of sales was primarily attributable to a higher mix of delivery and other off-premises sales.
Good Times other operating costs were $1,061,000 (11.4% of restaurant sales) in the fiscal quarter ended June 27, 2023, up from $1,011,000 (11.1% of restaurant sales) in the fiscal quarter ended June 28, 2022. The increase was primarily attributable to increased overall sales and increased delivery and off-premises sales.
New Store Preopening Costs. In the fiscal quarter ended June 27, 2023, preopening costs were $80,000 compared to no preopening costs for the fiscal quarter ended June 28, 2022. These costs primarily relate to training costs incurred as part of our new Bad Daddy’s location in Madison, Alabama and re-training costs incurred as part of our closure and remodel of our Greenville, SC Bad Daddy’s location.
Depreciation and Amortization Costs. Depreciation and amortization costs for the fiscal quarter ended June 27, 2023, decreased $74,000 to $919,000 from $993,000 in the fiscal quarter ended June 28, 2022. These decreases at both concepts are due to assets performing past their estimated usable lives and the prior-year impairment of assets, partially offset by new asset additions in existing restaurants.
Bad Daddy’s depreciation and amortization costs for the fiscal quarter ended June 27, 2023 decreased $78,000 to $768,000 from $846,000 in the fiscal quarter ended June 28, 2022.
Good Times depreciation and amortization costs for the fiscal quarter ended June 27, 2023 increased $4,000 to $151,000 from $147,000 in the fiscal quarter ended June 28, 2022.
General and Administrative Costs. General and administrative costs for the fiscal quarter ended June 27, 2023, decreased $19,000 to $2,365,000 (6.6% of total revenues) from $2,384,000 (6.5% of total revenue) for the fiscal quarter ended June 28, 2022.
This decrease in general and administrative expenses in the fiscal quarter ended June 27, 2023 is primarily attributable to:
| ● |
Increase in costs associated with multi-unit supervisory roles of $172,000 |
| ● |
Increase in administrative, accounting, and technology costs of $116,000 |
| ● |
Increase attributable to underwriting gains/losses on the company’s health plan of $15,000 |
| ● |
Decrease in recruiting and training related costs of $96,000 |
| ● |
Decrease in home office payroll and benefits costs of $94,000 |
| ● |
Decrease in professional services of $62,000 |
| ● |
Decrease in insurance related costs $53,000 |
| ● |
Decrease in stock compensation costs of $45,000 |
| ● |
Decrease in general travel-related costs of $24,000 |
| ● |
Net increase in other costs of $57,000 |
Advertising Costs. Advertising costs for the fiscal quarter ended June 27, 2023, decreased to $751,000 (2.1% of total revenue) from $807,000 (2.2% of total revenue) for the fiscal quarter ended June 28, 2023.
Bad Daddy’s advertising costs were $384,000 (1.5% of restaurant sales) in the fiscal quarter ended June 27, 2023 compared to $448,000 (1.6% of total revenue) for the fiscal quarter ended June 28, 2022. The decrease is primarily due to lesser recognition of commissions earned by third parties on gift cards sold through large-box retailers. Bad Daddy’s advertising costs consist primarily of a combination of menus and other point of purchase materials, digital advertising, and commissions incurred for placement of gift parties at third party retailers, as well as local store marketing efforts.
Good Times advertising costs were $367,000 (3.9% of restaurant sales) in the fiscal quarter ended June 27, 2023 compared to $359,000 (3.9% of total revenue) in the fiscal quarter ended June 28, 2022.
Good Times advertising costs consist primarily of radio advertising, social media, and on-site and point-of-purchase printing costs. Advertising costs are presented gross, with franchisee contributions to the fund being recognized as a component of franchise revenues.
Gain on Restaurant Asset Sales and Lease Termination. The gain on restaurant asset sales and lease termination for the fiscal quarter ended June 27, 2023 was $10,000, compared to $9,000 for the fiscal quarter ended June 28, 2022.
Impairment of Long-Lived Assets Costs. The costs associated with impairments for the fiscal quarter ended June 27, 2023 was $965,000, which primarily consists of assets in one Atlanta-area restaurant, compared to $303,000 for the fiscal quarter ended June 28, 2022.
Litigation Contingency Costs. There were no litigation contingency costs in either of the fiscal quarters ended June 27, 2023 or June 28, 2022.
Income from Operations. Income from operations was $444,000 in the fiscal quarter ended June 27, 2023 compared to income from operations of $821,000 in the fiscal quarter ended June 28, 2022.
The change in the income from operations for the fiscal quarter ended June 27, 2023 is due primarily due to matters discussed in the “Net Revenues,” “Restaurant Operating Costs,” “General and Administrative Costs”, “Advertising Costs”, “Gain on Restaurant Sales and Lease Termination”, “Impairment of Long-Lived Assets Costs”, and “Litigation Contingency Costs” sections above.
Interest Expense. Interest expense was $18,000 during the fiscal quarter ended June 27, 2023, primarily related to the amortization of loan initiation fees, compared with $12,000 during the fiscal quarter ended June 28, 2022.
Provision for Income Taxes. Provision for income taxes was a $551,000 benefit for the fiscal quarter ended June 27, 2023, compared to $1,000 provision for income taxes for the fiscal quarter ended June 28, 2022. This most significant driver of this provision was related to changes in the projections of full-year net income and available tax credits.
Net Income. Net income was $977,000 for the fiscal quarter ended June 27, 2023 compared to net income of $138,000 in the fiscal quarter ended June 28, 2022.
The change from the fiscal quarter ended June 27, 2023 to the fiscal quarter ended June 28, 2022 was primarily attributable to the matters discussed in the relevant sections above.
Income Attributable to Non-Controlling Interests. The non-controlling interest represents the limited partners’ or members’ share of income in the Good Times and Bad Daddy’s restaurants during the periods of time non-controlling partners owned interests in these restaurants.
For the fiscal quarter ended June 27, 2023, the income attributable to non-controlling interests was $135,000 compared to $339,000 for the fiscal quarter ended June 28, 2022.
Of the quarter’s income attributable to non-controlling interests, none is attributable to Bad Daddy’s joint-venture restaurants, compared to $183,000 in the same prior year period. This decrease is due to the Company’s purchase of all the Bad Daddy’s non-controlling membership interests during the fiscal quarter ended March 28, 2023, as described in Note 15 to the unaudited, consolidated financial statements included in this report.
Of the current fiscal quarter’s income, $135,000 is attributable to the Good Times joint-venture restaurants, compared to $155,000 in the same prior year period. This decrease is primarily due to reduced restaurant level profitability in the current fiscal quarter at the restaurants involved in the joint-venture partnership.
Fiscal three quarters ended June 27, 2023 (39 weeks) compared to fiscal three quarters ended June 28, 2022 (39 weeks):
Net Revenues. Net revenues for the three quarters ended June 27, 2023 increased $789,000, or 0.8%, to $103,799,000 from $103,010,000 for the three quarters ended June 28, 2022. Bad Daddy’s concept revenues increased $368,000 while our Good Times concept revenues increased $421,000.
Bad Daddy’s restaurant sales increased $382,000 to $77,592,000 for the three quarters ended June 27, 2023 from $77,210,000 for the three quarters ended June 28, 2022. Sales were positively impacted by increases in sales primarily due to higher average menu prices as well as the purchase of a previously franchised Bad Daddy’s location that occurred in March 2022. The average menu price increase for the three quarters ended June 27, 2023 over the same prior-year quarter was approximately 4.4%.
Good Times restaurant sales increased $436,000 to $25,531,000 for the three quarters ended June 27, 2023 from $25,095,000 for the three quarters ended June 28, 2022, primarily due to increased menu prices. The average menu price increase for the three quarters ended June 27, 2023 over the same prior-year quarter was approximately 9.6%.
Franchise revenues decreased $29,000 to $676,000 in the three quarters ended June 27, 2023 compared to $705,000 in the three quarters ended June 28, 2022. This decrease is primarily due to the acquisition, during the second fiscal quarter of 2022, by the Company of one Bad Daddy’s restaurant previously owned by a franchisee, partially offset by increased royalties arising from higher restaurant sales at franchised and licensed locations.
Same Store Sales
Sales store sales is a metric used in evaluating the performance of established restaurants and is a commonly used metric in the restaurant industry. Same store sales for our brands are calculated using all company-owned units open for at least eighteen full fiscal months and use the comparable operating weeks from the prior year-to-date period to the current year-to-date period’s operating weeks. The calculation of same store sales for Bad Daddy’s excludes the results of one restaurant for the March and April fiscal months due to that restaurant’s extended remodel closure.
Bad Daddy’s same store restaurant sales increased 1.8% during the three quarters ended June 27, 2023 compared to the same three quarters ended June 28, 2022, primarily driven by strong off premise sales and menu price increases, partially offset by traffic declines, particularly in the Atlanta market, during the third fiscal quarter. There were thirty-nine restaurants included in the same store sales base at the end of the current quarter.
Good Times same store restaurant sales increased 4.1% during the three quarters ended June 27, 2023 compared to the same three quarters period ended June 28, 2022, primarily due to menu price increases, slightly offset by lower traffic. There were twenty-three restaurants included in the same store sales base at the end of the current quarter.
Restaurant Operating Costs
Food and Packaging Costs. Food and packaging costs for the three quarters ended June 27, 2023 decreased $265,000 to $32,185,000 (31.2% of restaurant sales) from $32,450,000 (31.7% of restaurant sales) for the three quarters ended June 28, 2022.
Bad Daddy’s food and packaging costs were $24,131,000 (31.1% of restaurant sales) for the three quarters ended June 27, 2023, down from $24,615,000 (31.9% of restaurant sales) for the three quarters ended June 28, 2022. This decrease is primarily attributable to lower purchase prices on food and paper goods, and menu price increases, offset by decreased traffic in the third fiscal quarter.
Good Times food and packaging costs were $8,054,000 (31.5% of restaurant sales) for the three quarters ended June 27, 2023, up from $7,835,000 (31.2% of restaurant sales) for the three quarters ended June 28, 2022. This increase is primarily attributable to the impact of higher sales, and as a percent of sales the increase is primarily attributable to higher year-to-date purchase prices on food and paper goods partially offset by the impact of an 9.6% increase in menu pricing.
Payroll and Other Employee Benefit Costs. Payroll and other employee benefit costs for the three quarters ended June 27, 2023 increased $450,000 to $35,477,000 (34.4% of restaurant sales) from $35,027,000 (34.2% of restaurant sales) for the three quarters ended June 28, 2022.
Bad Daddy’s payroll and other employee benefit costs were $26,951,000 (34.7% of restaurant sales) for the three quarters ended June 27, 2023 up from $26,450,000 (34.3% of restaurant sales) for the three quarters ended June 28, 2022. The $501,000 increase is primarily attributable to higher restaurant sales during the current quarter versus the same quarter in the prior year, as well as slightly higher average pay rates. As a percent of sales, payroll and employee benefits costs increased by 0.4% primarily attributable to higher average wage rates paid to attract qualified employees.
Good Times payroll and other employee benefit costs were $8,526,000 (33.4% of restaurant sales) in the three quarters ended June 27, 2023, down from $8,577,000 (34.2% of restaurant sales) in the same prior-year period. The $51,000 decrease was attributable to improved labor productivity.
Occupancy Costs. Occupancy costs for the three quarters ended June 27, 2023 increased $230,000 to $7,318,000 (7.1% of restaurant sales) from $7,088,000 (6.9% of restaurant sales) for the three quarters ended June 28, 2022.
Bad Daddy’s occupancy costs were $5,124,000 (6.6% of restaurant sales) for the three quarters ended June 27, 2023, up from $5,011,000 (6.5% of restaurant sales) for the three quarters ended June 28, 2022. The increase was primarily attributable to additional lease costs associated with the purchase of our Bad Daddy’s Franchisee in the second quarter of fiscal 2022.
Good Times occupancy costs were $2,194,000 (8.6% of restaurant sales) in the three quarters ended June 27, 2023, up from $2,077,000 (8.3% of restaurant sales) in the three quarters ended June 28, 2022. The increase was primarily attributable to increased property taxes and insurance costs.
Other Operating Costs. Other operating costs for the three quarters ended June 27, 2023, increased $571,000 to $14,129,000 (13.7% of restaurant sales) from $13,558,000 (13.3% of restaurant sales) for the three quarters ended June 28, 2022.
Bad Daddy’s other operating costs were $11,084,000 (14.3% of restaurant sales) for the three quarters ended June 27, 2023 up from $10,696,000 (13.9% of restaurant sales) for the three quarters ended June 28, 2022. The $338,000 increase and the increase as a percentage of sales was attributable to higher overall sales, increased third party delivery fees, increased utility costs, and a general increase in restaurant supplies.
Good Times other operating costs were $3,045,000 (11.9% of restaurant sales) in the three quarters ended June 27, 2023, up from $2,862,000 (11.4% of restaurant sales) in the three quarters ended June 28, 2022. The increase was primarily attributable to increased sales and general price inflation in supplies costs.
New Store Preopening Costs. New store preopening costs were $110,000 for the three quarters ended June 27, 2023, primarily associated with training costs associated with our new Bad Daddy’s in Madison, Alabama and re-training costs in connection with the remodel of our Greenville, SC Bad Daddy’s, compared to $50,000 for the three quarters ended June 28, 2022.
Depreciation and Amortization Costs. Depreciation and amortization costs for the three quarters ended June 27, 2023, decreased $250,000 to 2,740,000 from $2,990,000 in the three quarters ended June 28, 2022.
Bad Daddy’s depreciation and amortization costs for the three quarters ended June 27, 2023 decreased $161,000 to $2,303,000 from $2,464,000 in the three quarters ended June 28, 2022.
Good Times depreciation and amortization costs for the three quarters ended June 27, 2023 decreased $89,000 to $437,000 from $526,000 in the three quarters ended June 28, 2022.
General and Administrative Costs. General and administrative costs for the three quarters ended June 27, 2023, decreased $621,000 to $7,040,000 (6.8% of total revenues) from $7,661,000 (7.4% of total revenue) for the three quarters ended June 28, 2022.
This decrease in general and administrative expenses in the three quarters ended June 27, 2023 is primarily attributable to:
| ● |
Increase in administrative, accounting, and technology costs of $362,000 |
| ● |
Increase in costs associated with multi-unit supervisory roles of $258,000 |
| ● |
Decrease in professional services of $759,000 |
| ● |
Decrease in insurance related costs $163,000 |
| ● |
Decrease in stock compensation costs of $103,000 |
| ● |
Decrease attributable to underwriting gains/losses on the company’s health plan of $97,000 |
| ● |
Decrease in recruiting and training related costs of $55,000 |
| ● |
Decrease in general office expenses of $21,000 |
| ● |
Decrease in general travel-related costs of $15,000 |
| ● |
Net decrease in other costs of $28,000 |
Advertising Costs. Advertising costs for the three quarters ended June 27, 2023, increased to $2,423,000 (2.3% of sales) from $2,260,000 (2.2% of total revenue) for the three quarters ended June 28, 2023.
Bad Daddy’s advertising costs were $1,414,000 (1.8% of restaurant sales) in the three quarters ended June 27, 2023 compared to $1,228,000 (1.6% of total revenue) for the three quarters ended June 28, 2022. The increase is primarily due to recognition of commission earned by third parties on gift cards sold through large-box retailers. Bad Daddy’s advertising costs consist primarily of menu development, printing costs, local store marketing and social media.
Good Times advertising costs were $1,009,000 (3.9% of restaurant sales) in the three quarters ended June 27, 2023 compared to $1,032,000 (4.0% of total revenue) in the three quarters ended June 28, 2022.
Good Times advertising costs consist primarily of radio advertising, social media, and on-site and point-of-purchase printing costs. Advertising costs are presented gross, with franchisee contributions to the fund being recognized as a component of franchise revenues.
Gain on Restaurant Asset Sales and Lease Termination. The gain on restaurant asset sales and lease termination for the three quarters ended June 27, 2023 was $32,000, compared to $666,000 for the three quarters ended June 28, 2022. The prior-year gain included the gain on termination of a lease associated with a Good Times restaurant.
Impairment of Long-Lived Assets Costs. The costs associated with impairments for the three quarters ended June 27, 2023 was $1,041,000, which primarily consists of the impairment of one Bad Daddy’s restaurant, compared to $2,056,000 for the three quarters ended June 28, 2022.
Litigation Contingency Costs. There were no litigation contingency costs in the three quarters ended June 27, 2023, compared to $332,000 for the three quarters ended June 28, 2022.
Income from Operations. Income from operations was $1,368,000 in the three quarters ended June 27, 2023 compared to income from operations of $188,000 in the three quarters ended June 28, 2022.
The change in the income from operations for the three quarters ended June 27, 2023 is due primarily due to matters discussed in the “Net Revenues,” “Restaurant Operating Costs,” “General and Administrative Costs”, “Advertising Costs”, “Gain on Restaurant Sales and Lease Termination”, “Impairment of Long-Lived Assets Costs”, and “Litigation Contingency Costs” sections above.
Interest Expense. Interest expense was $56,000 during the three quarters ended June 27, 2023, primarily related to the amortization of loan initiation fees, compared with $41,000 during the three quarters ended June 28, 2022.
Provision for Income Taxes. Provision for income taxes was a $10,503,000 benefit for the three quarters ended June 27, 2023, compared to $9,000 provision for income taxes for the three quarters ended June 28, 2022. This most significant driver of this provision was the release of the valuation allowance during previously assessed on the deferred tax assets.
Net Income. Net income was $11,815,000 for the three quarters ended June 27, 2023 compared to net income of $147,000 in the three quarters ended June 28, 2022.
The change from the three quarters ended June 27, 2023 to the three quarters ended June 28, 2022 was primarily attributable to the matters discussed in the relevant sections above.
Income Attributable to Non-Controlling Interests. The non-controlling interest represents the limited partners’ or members’ share of income in the Good Times and Bad Daddy’s joint-venture restaurants.
For the three quarters ended June 27, 2023, the income attributable to non-controlling interests was $479,000 compared to $1,489,000 for the three quarters ended June 28, 2022.
Of the three quarters’ income attributable to non-controlling interests, $219,000 is attributable to Bad Daddy’s joint-venture restaurants, compared to $1,024,000 in the same prior year period. This $805,000 decrease is primarily due to a one-time special allocation to the non-controlling partners in these partnerships of approximately $516,000 in the fiscal quarter ended December 28, 2021 related to a rebate of payroll costs, and to the company’s purchase of all the Bad Daddy’s non-controlling membership interests during the fiscal quarter ended March 28, 2023, as described in Note 15 to the unaudited, consolidated financial statements included in this report. Of the current quarter’s income, $260,000 is attributable to the Good Times joint-venture restaurants, compared to $464,000 in the same prior year period at the restaurants involved in the joint-venture partnership. This $204,000 decrease is primarily due to decreased restaurant level profitability in the current fiscal quarter.
Adjusted EBITDA
EBITDA is defined as net income (loss) attributable to common shareholders before interest, income taxes and depreciation and amortization.
Adjusted EBITDA is defined as EBITDA plus non-cash stock-based compensation expense, preopening expense, non-recurring acquisition costs, GAAP rent in excess of cash rent, and non-cash disposal of assets. Adjusted EBITDA is intended as a supplemental measure of our performance that is not required by or presented in accordance with GAAP. We believe that EBITDA and Adjusted EBITDA provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and operating results. Our management uses EBITDA and Adjusted EBITDA (i) as a factor in evaluating management's performance when determining incentive compensation and (ii) to evaluate the effectiveness of our business strategies.
We believe that the use of EBITDA and Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the Company's financial measures with other fast casual restaurants, which may present similar non-GAAP financial measures to investors. In addition, you should be aware when evaluating EBITDA and Adjusted EBITDA that in the future we may incur expenses similar to those excluded when calculating these measures. Our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies do not calculate Adjusted EBITDA in the same fashion.
Our management does not consider EBITDA or Adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of EBITDA and Adjusted EBITDA is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company's financial statements. Some of these limitations are:
| ● |
Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; |
| ● |
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; |
| ● |
Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; |
| ● |
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; |
| ● |
stock based compensation expense is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as an expense when evaluating our ongoing performance for a particular period; |
| ● |
Adjusted EBITDA does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and |
| ● |
Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. |
Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as a supplemental measure. You should review the reconciliation of net loss to EBITDA and Adjusted EBITDA below and not rely on any single financial measure to evaluate our business.
The following table reconciles net loss/income to EBITDA and Adjusted EBITDA (in thousands) for the fiscal quarter ended June 27, 2023:
| Quarter Ended (13 Weeks) |
Year-to-Date (39 Weeks) |
|||||||||||||||
| June 27, 2023 |
June 28, 2022 |
June 27, 2023 |
June 28, 2022 |
|||||||||||||
| Adjusted EBITDA: |
||||||||||||||||
| Net Income (loss) attributable common shareholders, as reported |
$ | 842 | $ | 469 | $ | 11,336 | $ | (1,351 | ) | |||||||
| Depreciation and amortization1 |
924 | 951 | 2,691 | 2,933 | ||||||||||||
| Interest expense, net |
18 | 12 | 56 | 41 | ||||||||||||
| Provision for income taxes |
(551 | ) | 1 | (10,503 | ) | 9 | ||||||||||
| EBITDA |
1,233 | 1,433 | 3,580 | 1,632 | ||||||||||||
| Preopening expense |
80 | - | 110 | 50 | ||||||||||||
| Non-cash stock-based compensation |
15 | 60 | 104 | 208 | ||||||||||||
| Asset Impairment |
965 | 303 | 1,041 | 2,056 | ||||||||||||
| GAAP rent-cash rent difference1 |
(135 | ) | (103 | ) | (450 | ) | (286 | ) | ||||||||
| Gain on restaurant asset sales and lease termination2 |
(10 | ) | (9 | ) | (32 | ) | (528 | ) | ||||||||
| One-time special allocation to Bad Daddy’s partnerships3 |
- | - | - | 516 | ||||||||||||
| Litigation contingencies |
- | - | - | 332 | ||||||||||||
| Adjusted EBITDA |
$ | 2,148 | 1,684 | $ | 4,353 | $ | 3,980 | |||||||||
| 1 |
Depreciation and amortization expense and GAAP rent-cash rent difference together have been reduced by amounts attributable to non-controlling interests of $17,000 and $63,000 for the quarters ended June 27, 2023 and June 28, 2022, respectively. Depreciation and amortization expense and GAAP rent-cash rent difference have been reduced by amounts attributable to non-controlling interests of $107,000 and $133,000 for the three quarters ended March 28, 2023 and March 29, 2022, respectively. |
| 2 |
Gain (Loss) on restaurant asset sales and lease termination had no impact from amounts attributable to non-controlling interests in the three quarters ended June 27, 2023 and June 28, 2022. Gain (loss) on restaurant asset sales and lease termination had no impact from amounts attributable to non-controlling interests in the three quarters ended June 27, 2023 and was reduced by $138,000 for the three quarters ended June 28, 2022. |
| 3 |
Represents the portion of a payroll cost rebate attributable to the non-controlling partners in these partnerships. |
Liquidity and Capital Resources
Cash and Working Capital
As of June 27, 2023, we had a working capital deficit of $6,421,000. Our working capital position benefits from the fact that we generally collect cash from sales to customers the same day, or in the case of credit or debit card transactions, within a few days of the related sale. Although we have negotiated payment terms of up to four weeks with many of our vendors, we pay some of our primary foodservice vendors on 1-3 day payment terms to take advantage of early pay discounts and generally pay most outstanding accounts payable upon review for accuracy and validity. In addition, our working capital position includes the recognition of the current portion of lease liabilities as we lease substantially all of our real estate and have both short-term and long-term obligations to our landlords. We believe that we will have sufficient capital to meet our working capital, recurring operating costs and recurring capital expenditure needs throughout fiscal 2023. As of June 27, 2023 we had $206,000 of commitments outstanding related to a construction contract for the Bad Daddy’s restaurant currently under development in greater Huntsville, Alabama. Construction began in early April 2023 and the restaurant is expected to open in the late fourth quarter of this fiscal year. This construction and the expected resulting expenditures are not anticipated to materially impact the Company’s liquidity or operations.
On January 31, 2022, the Company‘s Board of Directors authorized a $5.0 Million share repurchase program which became effective February 7, 2022. The authorization to repurchase will continue until the maximum value of shares is achieved or the Company terminates the program. The timing and amount of repurchases will depend upon the Company’s stock price, economic and market conditions, regulatory requirements, and other corporate considerations.
Financing
Cadence Credit Facility
The Company and its wholly owned subsidiaries (the “Subsidiaries”) maintain an amended and restated credit agreement with Cadence Bank (“Cadence”) pursuant to which, Cadence agreed to loan the Company up to $8,000,000, has a maturity date of April 20, 2028 (the “Cadence Credit Facility”). The Cadence Credit Facility amended and restated the Company’s prior credit facility with Cadence in its entirety. The Cadence Credit Facility accrues commitment fees on the daily unused balance of the facility at a rate of 0.25%. The loans may from time to time consist of a mixture of SOFR Rate Loans and Base Rate Loans with differing interest rates based upon varying additions to the Federal Funds Rate, the Cadence prime rate or Term SOFR. Interest is due at the end of each calendar quarter if the Company selects to pay interest based on the base rate and at the end of each LIBOR period if it selects to pay interest based on LIBOR. The Cadence Credit Facility includes provisions for the Administrative Agent of the facility to amend the facility to replace LIBOR with an alternate benchmark rate, which may be (but is not required to be) SOFR, at such point in time when appliable LIBOR rates are no longer available or no longer reliable. Each of the Subsidiaries are guarantors of the Cadence Credit Facility.
Proceeds from the Cadence Credit Facility, if and when drawn, may be used (i) to fund new restaurant development, (ii) to finance the buyout of non-controlling partners in certain restaurants, (iii) to finance the redemption, purchase or other acquisition of equity interests in the Company and (iv) for working capital and other general corporate purposes.
The Cadence Credit Facility includes customary affirmative and negative covenants and events of default. The Cadence Credit Facility also requires the Company to maintain various financial condition ratios, including minimum liquidity, an amended maximum leverage ratio and an amended minimum fixed charge coverage ratio. In addition, to the extent the aggregate outstanding balance under the Revolver exceeds $4.0 million, the Company is required to meet a new specified leverage ratio, on a pro forma basis, before making further borrowings as well as certain restricted payments, investments and growth capital expenditures.
In connection with the Cadence Credit Facility, the Company and the Subsidiaries entered into an Amended and Restated Security and Pledge Agreement (the “Security Agreement”) with Cadence. Under the Security Agreement, the Cadence Credit Facility is secured by a first priority security interest in substantially all the assets of the Company and the Subsidiaries.
As of June 27, 2023, the interest rate that would have been applicable to borrowings under the Cadence Credit Facility would have been 8.07%.
Cash Flows
The table below summarizes our cash flows from operating, investing, and financing activities for each period presented (in thousands):
| Year-to-date period ended |
||||||||
| June 27, 2023 |
June 28, 2022 |
|||||||
| Net cash provided by operating activities |
$ | 4,707 | $ | 4,418 | ||||
| Net cash used in investing activities |
(7,572 | ) | (1,606 | ) | ||||
| Net cash used in financing activities |
(2,357 | ) | (1,964 | ) | ||||
| Net change in cash and cash equivalents |
$ | (5,222 | ) | $ | 848 | |||
Operating cash flows
Net cash provided by operating activities increased by $289,000, primarily due to decreased general and administrative costs, offset by slightly lower restaurant-level profitability as presented on the Condensed Consolidated Statements of Cash Flows.
Investing cash flows
Net cash used in investing activities for the three quarters ended June 27, 2023 was $7,572,000 which primarily reflects the purchases of property and equipment of $3,178,000, and the net purchase of all non-controlling interests in our Bad Daddy’s locations of $4,394,000. Purchases of property and equipment is comprised of the following:
| ● |
$1,901,000 for miscellaneous capital expenditures related to our existing Bad Daddy’s restaurants, primarily related to the remodel of the Greenville, South Carolina restaurant and the construction of the new restaurant in Madison, Alabama; |
| ● |
$1,277,000 for capital expenditures related to our existing Good Times restaurants, primarily related to new signs, menu boards and lane timers, and the replacement of HVAC and other restaurant equipment. |
Net cash used in investing activities for the three quarters ended June 28, 2022 was $1,606,000 which primarily reflects the general purchases of property and equipment of $1,623,000 and an acquisition of a restaurant from franchisee, net of cash acquired, for $728,000, as well as $745,000 for the proceeds of the sale of a fixed asset. Purchases of property and equipment is comprised of the following:
| ● |
$936,000 for miscellaneous capital expenditures related to our existing Bad Daddy’s restaurants, including the payment of amounts in accounts payable at September 29, 2021 associated with the construction of one new Bad Daddy’s restaurant near the end of fiscal 2021 |
| ● |
$471,000 for miscellaneous capital expenditures related to our existing Good Times restaurants |
| ● |
$216,000 for miscellaneous capital expenditures related to our restaurant support center, primarily initial development costs for the computer software underlying our two brands’ mobile apps and automotive assets used by our internal maintenance team |
Financing cash flows
Net cash used in financing activities for the three fiscal quarters ended June 27, 2023 was $2,357,000, which includes proceeds from stock option exercises of $5,000 and distributions to (net of contributions by) non-controlling interests of $563,000, $92,000 in restricted stock vesting paid in cash, and $1,720,000 in payments for the purchase of treasury stock.
Net cash used in financing activities for the three fiscal quarters ended June 28, 2022 was $1,964,000, which includes distributions to non-controlling interests of $1,449,000, payment for the repurchase of the Company’s common stock of $605,000 and proceeds from stock option exercise of $90,000.
Impact of Inflation
Commodity prices, particularly for key proteins, have recently been at near-record highs and have exhibited extreme volatility. Though we have seen some moderation in certain commodities, we continue to experience higher year-over-year prices on many goods, including food and beverage items, paper and packaging, other restaurant supplies, and energy (utilities) costs. Due to the volatility in commodity pricing, we are unable to reasonably predict the impact of future inflationary pressures.
In addition to food cost inflation, we have also experienced the need to meaningfully increase wages to attract workers in our restaurants. While we are hopeful that wage rate inflation moderates, the persistent shortage of qualified workers, rather than statutory wage rate increases, which have traditionally created rate pressure, is the primary factor creating upward pressure on wages, as demand for labor is currently significantly exceeding the supply of qualified workers.
We have historically used menu price increases to manage profitability in times of inflation, however the current unusually high rate of inflation, both of goods and labor, exceeds what we believe we can reasonably pass through to our customers without negatively affecting frequency and trial by our customers.
Seasonality
Revenues of the Company are subject to seasonal fluctuations based on weather conditions adversely affecting Colorado restaurant sales primarily during the months of December, January, February, and March.
| QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not required.
| CONTROLS AND PROCEDURES |
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Based on an evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this report on Form 10-Q, the Company’s Chief Executive Officer (its principal executive officer and principal financial officer) have concluded that the Company’s disclosure controls and procedures were effective as of June 27, 2023.
Changes in Internal Control over Financial Reporting
There have been no significant changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended June 27, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
| LEGAL PROCEEDINGS |
For a discussion of material legal proceedings affecting the Company, see Note 11 to the unaudited condensed consolidated financial statements included in this report.
| RISK FACTORS |
The risk factor below updates the risk factors contained in Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 27, 2022 and subsequent filings with the SEC.
The inability of the company to successfully negotiate extended terms on leases reaching end-of-term may reduce future profitability.
The company leases the real estate underlying substantially all of its restaurants. While our leases generally have options for extension of the initial term, in the case of some of our Good Times restaurants, we have exercised all of the options granted to us under the lease. Additionally, some options are set at fair market rental rates, and in the case of one Bad Daddy’s restaurant, no option to extend exists in the lease. Furthermore, many of our Good Times leases are at rates below current market prices. Although the Company has generally been successful in negotiations with our landlords, the risk that we are unable negotiate additional lease term on expiring leases at reasonable rental rates could materially impact our future profitability.
| UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
The Company‘s Board of Directors authorized a $5.0 Million share repurchase program which became effective February 7, 2022. The authorization to repurchase will continue until the maximum value of shares is achieved or the Company terminates the program. The timing and actual number of shares repurchased will depend on a variety of factors, including price, general business and market conditions, and alternative investment opportunities. As of June 27, 2023 the Company has purchased 951,048 shares of its common stock pursuant to the share repurchase plan leaving approximately $2,326,000 available for repurchases under the plan.
Repurchases of common stock under the share repurchase plan during the fiscal quarter ended June 27, 2023 were as follows:
| Period |
Total number of |
Average price |
Total number of |
Maximum dollar |
||||||||||||
| 3/29/2023 – 4/25/2023 |
21,879 | $ | 2.76 | 21,879 | ||||||||||||
| 4/26/2023 – 5/23/2023 |
32,707 | $ | 2.82 | 32,707 | ||||||||||||
| 5/24/2023 – 6/27/2023 |
69,037 | $ | 3.17 | 69,037 | ||||||||||||
| Total |
123,623 | 123,623 | $ | 2,326,000 | ||||||||||||
| DEFAULTS UPON SENIOR SECURITIES |
None.
| MINE SAFETY DISCLOSURES |
Not applicable.
| OTHER INFORMATION |
None.
| EXHIBITS |
(a) Exhibits. The following exhibits are furnished as part of this report:
| Exhibit No. |
Description |
| 3.1 |
|
| 10.1 |
|
| 10.2 |
|
| *31.1 |
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 |
| *31.2 |
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 |
| *32.1 |
Certification of Chief Executive Officer and Principal? Financial Officer pursuant to Section 906 |
| 101.INS |
Inline XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
| *104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
*Filed herewith
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| DATE: August 3, 2023
|
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| GOOD TIMES RESTAURANTS INC. |
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| Ryan M. Zink Chief Executive Officer (Principal Executive Officer) |
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