- Achieved first quarter revenue of $30.5 million; up 12.5% over prior-year period
- Adjusted EBITDA , a non-GAAP measure(1), increased 15.3% to $3.7 million; Restaurant-level EBITDA gained 22.8% to $5.8 million
- Comparable store restaurant sales increased 1.2% in the quarter; sales heavily impacted by harsh winter weather as a result of geographic concentration in the Midwest
- On track for 2014 revenue of approximately $125.0 million to $130.0 million and eleven new restaurants
SOUTHFIELD, Mich., May 9, 2014 (GLOBE NEWSWIRE) -- Diversified Restaurant Holdings, Inc. (Nasdaq:BAGR) ("DRH" or the "Company"), the creator, developer and operator of the unique, full-service, ultra-casual restaurant and bar Bagger Dave's Burger Tavern® ("Bagger Dave's") and one of the largest franchisees for Buffalo Wild Wings® ("BWW") today announced results for its first quarter ended March 30, 2014.
First quarter revenue of $30.5 million was up $3.4 million, or 12.5%, from the first quarter of 2014. Sales growth was primarily driven by the addition of ten new restaurants since last year's first quarter, which included seven Bagger Dave's and three BWW. Comparable-store sales increased 1.2% on a consolidated basis for the first quarter of 2014. There were 36 comparable restaurants for the period, which included 29 BWW and 7 Bagger Dave's. Increased menu pricing and the extra day from the Easter holiday falling in last year's first quarter, offset negative traffic due to severe weather in over 80% of the Company's locations.
"We performed well in the quarter despite the bad winter that heavily impacted our region," commented Michael Ansley, President and CEO of DRH. "More importantly, we remain on track to continue our momentum by opening 11 new locations and execute on our strategic plan in 2014."
At the end of the first quarter, the Company had 54 restaurants, comprised of 18 Bagger Dave's and 36 BWW. This was an increase of 22.7% from 44 restaurants at the end of the prior-year first quarter. DRH expects to end the year with 65 restaurants.
Net income in the first quarter of 2014 was $0.4 million compared with $0.2 million in the same period of the prior year.
First Quarter 2014 Operating Results
Food, beverage, and packaging costs as a percentage of revenue declined to 28.6% compared with 31.7% in the first quarter of 2013. The 310 basis point improvement was due to lower bone-in chicken wing pricing. Average cost per pound for bone-in chicken wings was $1.33 in first quarter of 2014 compared with $2.10 in the first quarter 2013.
Compensation costs increased by $1.0 million, or 13.4%, to $8.0 million. The increase was driven by additional staffing required for the 10 new restaurants. As a percentage of revenue, compensation costs were 26.2% compared with 26.0% in the same quarter last year.
Occupancy costs were up $0.2 million, or 8.0%, to $1.7 million in the quarter mostly as a result of the additional restaurants. Nonetheless, occupancy costs as a percentage of sales decreased 30 basis points to 5.4% in the quarter.
Other operating costs increased by $1.0 million, or 18.3%, to $6.3 million with the additional restaurants. Other operating costs as a percentage of sales increased to 20.6% when compared with 19.6% in the first quarter of 2013. Utility costs were higher with the colder than average temperatures in the Midwest during the first quarter of 2014.
General and administrative ("G&A") expenses increased by $0.6 million, or 38.6%, to $2.1 million in the quarter. G&A expenses as a percentage of sales were up to 6.9% in the 2014 first quarter from 5.6% in the prior-year period due to increased marketing and advertising expense consistent with the Company's increase in sales and favorable timing of expenses in the first quarter 2013.
Pre-opening costs decreased by $0.1 million, or 8.2%, to $0.5 million in first quarter 2014 from $0.6 million in first quarter 2013. The difference in pre-opening costs was primarily due to the timing of new restaurant development. Pre-opening costs as a percentage of sales decreased to 1.8% in first quarter 2014 from 2.2% in first quarter 2013.
Depreciation and amortization increased by $0.5 million, or 35.7%, to $2.2 million in first quarter 2014 from $1.7 million in first quarter 2013. This increase was primarily due to the opening of 10 new restaurants in 2013. Depreciation and amortization as a percentage of sales increased to 7.4% in first quarter 2014 from 6.1% in first quarter 2013 primarily due to the increase in real estate purchases as an alternative to leasing.
Adjusted EBITDA was $3.7 million, or 12.2% of revenue, for the 2014 first quarter, compared with $3.2 million, or 11.9% of revenue, in the first quarter of 2013. Restaurant-level EBITDA increased 19.2% to $5.8 million for the first quarter of 2014 from the same period of the prior year. (1)DRH believes that, when used in conjunction with GAAP measures, restaurant-level EBITDA and adjusted EBITDA, which are non-GAAP measures, provide additional information related to its operating performance. (See reconciliation of restaurant-level EBITDA and adjusted EBITDA in the supplemental tables included at the end of this release.)
Balance Sheet
Cash, cash equivalents and investments were $15.6 million at March 30, 2014, compared with $18.1 million at December 29, 2013. The Company believes that its existing cash, cash from operations, and the $63.0 million April 2013 Senior Secured Credit Facility will be sufficient to meet its operational funding, development, and obligations.
Fiscal 2014 Outlook
"We continue to stay ahead of the curve and further differentiate Bagger Dave's. We have recently done so with our new menu introduction, which has been well received by customers, as was our new Fresh Rewards Loyalty Program," commented Mr. Ansley. "We are excited to begin opening our newly designed Bagger Dave's, creating a more upbeat and entertaining environment, evolving our brand even further."
For 2014, DRH reiterated its plans:
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Open eleven new locations in 2014. Eight restaurants will be the Company's original Bagger Dave's concept, while the remaining three will be BWW.
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Revenue for fiscal year 2014 is expected to be in the range of $125.0 million to $130.0 million. This will represent an increase of approximately 15.0% to 20.0% over 2013.
- The Company's adjusted EBITDA is expected to be in the range of $13.5 million to $14.5 million. Restaurant-level EBITDA for 2014 is expected to be around $22.0 million to $23.5 million.
Mr. Ansley concluded, "We are executing a very well planned marketing program in the second quarter as we look to broaden the awareness of our always fresh food, customized bar experience, quality service and friendly atmosphere for all ages. Our differentiators are essential to delighting our guests and driving brand development. We are establishing a solid foundation for continued expansion in the Midwestern region."
Webcast and Conference Call
DRH will host a conference call and webcast on Friday, May 9, 2014 at 10:00 a.m. Eastern Time, during which management will review the financial and operating results for the first quarter and discuss its corporate strategies and outlook. The review will be accompanied by a slide presentation which will be made available prior to the conference call on the Company's website at www.diversifiedrestaurantholdings.com. A question and answer session will follow.
The teleconference can be accessed by calling (201) 493-6780. The webcast can be monitored on the Company's website at www.diversifiedrestaurantholdings.com.
A telephonic replay will be available from 1:00 p.m. Eastern Time on the day of the teleconference through Friday, May 16, 2014. To listen to a replay of the call, dial (858) 384-5517 and enter the conference ID number 10000465, or access the webcast replay via the Company's website at www.diversifiedrestaurantholdings.com, where a transcript will also be posted once available.
About Diversified Restaurant Holdings
Diversified Restaurant Holdings, Inc. (Nasdaq:BAGR) ("DRH" or the "Company") owns and operates Bagger Dave's Burger Tavern, a full-service, family-friendly restaurant and full bar with a casual, comfortable atmosphere specializing in custom-built, proprietary, fresh prime rib recipe burgers, famous all-natural turkey burgers, hand-cut fries, locally crafted beers on draft, hand-dipped milk shakes, salads, black bean turkey chili, and much more. Currently there are 18 company-owned Bagger Dave's restaurants in Michigan and Indiana. DRH will open eight additional company-owned locations during 2014 in Indiana and Michigan. For more information, visit www.baggerdaves.com.
The Company also operates 36 Buffalo Wild Wings Grill & Bar franchised restaurants in Indiana, Illinois, Michigan and Florida, with an Area Development Agreement to open an additional 13 locations by 2017. DRH will open three more units in Michigan, Indiana and Florida in 2014.
The Company routinely posts news and other important information on its website at www.diversifiedrestaurantholdings.com.
Safe Harbor Statement
The information made available in this news release contains forward-looking statements which reflect DRH's current view of future events, results of operations, cash flows, performance, business prospects and opportunities. Wherever used, the words "anticipate," "believe," "expect," "intend," "plan," "project," "will continue," "will likely result," "may," and similar expressions identify forward-looking statements as such term is defined in the Securities Exchange Act of 1934. Any such forward-looking statements are subject to risks and uncertainties and the Company's actual growth, results of operations, financial condition, cash flows, performance, business prospects and opportunities could differ materially from historical results or current expectations. Some of these risks include, without limitation, the impact of economic and industry conditions, competition, food and drug safety issues, store expansion and remodeling, labor relations issues, costs of providing employee benefits, regulatory matters, legal and administrative proceedings, information technology, security, severe weather, natural disasters, accounting matters, other risk factors relating to our business or industry and other risks detailed from time to time in the Securities and Exchange Commission filings of DRH. Forward-looking statements contained herein speak only as of the date made and, thus, DRH undertakes no obligation to update or publicly announce the revision of any of the forward-looking statements contained herein to reflect new information, future events, developments or changed circumstances or for any other reason.
FINANCIAL TABLES TO FOLLOW
| DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES | ||
| CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) | ||
| Three Months Ended | ||
|
March 30 2014 |
March 31 2013 |
|
| Revenue | $ 30,473,014 | $ 27,079,114 |
| Restaurant operating costs (exclusive of depreciation and amortization shown separately below): | ||
| Food, beverage, and packaging costs | 8,705,423 | 8,576,047 |
| Compensation costs | 7,993,667 | 7,048,902 |
| Occupancy costs | 1,655,551 | 1,533,005 |
| Other operating costs | 6,280,095 | 5,306,634 |
| Total restaurant operating costs | 24,634,736 | 22,464,588 |
| Gross Profit | 5,838,278 | 4,614,526 |
| Gross Profit Margin | 19.2% | 17.0% |
| General and administrative expenses | 2,112,562 | 1,524,130 |
| Pre-opening costs | 544,021 | 592,726 |
| Depreciation and amortization | 2,247,460 | 1,655,484 |
| Loss on disposal of property and equipment | 156,065 | 35,074 |
| Total operating expenses | 5,060,108 | 3,807,414 |
| Operating profit | 778,170 | 807,112 |
| Operating Profit Margin | 2.6% | 3.0% |
| Interest expense | (476,401) | (469,211) |
| Other income, net | 13,030 | 2,319 |
| Income before income taxes | 314,799 | 340,220 |
| Income tax provision (benefit) | (53,058) | 101,820 |
| Net income | $ 367,857 | $ 238,400 |
| Basic earnings per share | $ 0.01 | $ 0.01 |
| Fully diluted earnings per share | $ 0.01 | $ 0.01 |
| Weighted average number of common shares outstanding | ||
| Basic | 26,048,805 | 18,959,846 |
| Diluted | 26,153,595 | 19,094,786 |
| DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES | ||
| CONSOLIDATED BALANCE SHEETS | ||
| ASSETS |
March 30 2014 (unaudited) |
December 29 2013 |
| Current assets | ||
| Cash and cash equivalents | $ 8,524,841 | $ 9,562,473 |
| Investments | 7,119,976 | 8,561,598 |
| Accounts receivable | 582,022 | 1,248,940 |
| Inventory | 1,091,811 | 1,017,626 |
| Prepaid assets | 304,484 | 555,144 |
| Total current assets | 17,623,134 | 20,945,781 |
| Deferred income taxes | 1,227,742 | 1,162,761 |
| Property and equipment, net | 60,933,254 | 58,576,734 |
| Intangible assets, net | 3,059,419 | 2,948,013 |
| Goodwill | 8,578,776 | 8,578,776 |
| Other long-term assets | 143,303 | 121,668 |
| Total assets | $ 91,565,628 | $ 92,333,733 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| Current liabilities | ||
| Accounts payable | $ 2,360,215 | $ 4,416,092 |
| Accrued compensation | 1,576,736 | 2,060,082 |
| Other accrued liabilities | 1,499,214 | 809,104 |
| Current portion of long-term debt | 8,850,549 | 8,225,732 |
| Current portion of deferred rent | 370,098 | 306,371 |
| Total current liabilities | 14,656,812 | 15,817,381 |
| Deferred rent, less current portion | 3,218,520 | 3,420,574 |
| Unfavorable operating leases | 757,930 | 759,065 |
| Other liabilities | 443,540 | 327,561 |
| Long-term debt, less current portion | 38,005,669 | 38,047,589 |
| Total liabilities | 57,082,471 | 58,372,170 |
| Stockholders' equity | ||
| Common stock -- $0.0001 par value; 100,000,000 shares authorized; 26,051,123 and 26,049,578, respectively, issued and outstanding | 2,580 | 2,580 |
| Additional paid-in capital | 35,375,590 | 35,275,255 |
| Accumulated other comprehensive loss | (191,962) | (245,364) |
| Accumulated deficit | (703,051) | (1,070,908) |
| Total stockholders' equity | 34,483,157 | 33,961,563 |
| Total liabilities and stockholders' equity | $ 91,565,628 | $ 92,333,733 |
| DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES | ||
| CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | ||
| Three Months Ended | ||
|
March 30 2014 |
March 31 2014 |
|
| Cash flows from operating activities | ||
| Net income | $ 367,857 | $ 238,400 |
| Adjustments to reconcile net income to net cash provided by operating activities | ||
| Depreciation and amortization | 2,268,985 | 1,655,484 |
| Realized loss on sales of investments | 19,175 | -- |
| Loss on disposal of property and equipment | 156,065 | 35,074 |
| Share-based compensation | 85,320 | 79,052 |
| Deferred income taxes | (92,337) | 76,607 |
| Changes in operating assets and liabilities that provided (used) cash | ||
| Accounts receivable | 666,918 | (25,823) |
| Inventory | (74,185) | (251,045) |
| Prepaid assets | 250,660 | 172,167 |
| Intangible assets | (27,849) | (20,416) |
| Other long-term assets | (21,635) | 20,542 |
| Accounts payable | (1,175,071) | (933,248) |
| Accrued liabilities | 368,723 | (572,387) |
| Deferred rent | (138,327) | 372,023 |
| Net cash provided by operating activities | 2,654,299 | 846,430 |
| Cash flows from investing activities | ||
| Purchases of investments | (2,500,600) | -- |
| Proceeds from sale of investments | 3,955,969 | -- |
| Purchases of property and equipment | (5,626,473) | (3,388,638) |
| Net cash used in investing activities | (4,171,104) | (3,388,638) |
| Cash flows from financing activities | ||
| Proceeds from issuance of long-term debt | 2,240,580 | 2,842,337 |
| Repayments of long-term debt | (1,657,683) | (1,336,862) |
| Payment of loan fees | (118,739) | -- |
| Proceeds from employee stock purchase plan | 15,015 | -- |
| Net cash provided by financing activities | 479,173 | 1,505,475 |
| Net decrease in cash and cash equivalents | (1,037,632) | (1,036,733) |
| Cash and cash equivalents, beginning of period | 9,562,473 | 2,700,328 |
| Cash and cash equivalents, end of period | $ 8,524,841 | $ 1,663,595 |
| DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES | ||
| Reconciliation between Net Income and Restaurant-Level and Adjusted EBITDA | ||
| Three Months Ended | ||
|
March 30 2014 |
March 31 2014 |
|
| Net income attributable to DRH | $ 367,857 | $ 238,400 |
| + Income tax provision | (53,058) | 101,820 |
| + Change in fair value of derivative instruments | -- | -- |
| + Interest expense | 476,401 | 469,211 |
| + Other income, net | (13,030) | (2,319) |
| + Loss on disposal of property and equipment | 156,065 | 35,074 |
| + Depreciation and amortization | 2,247,460 | 1,655,484 |
| EBITDA | 3,181,695 | 2,497,670 |
| + Pre-opening costs | 544,021 | 592,726 |
| + Non-recurring expenses (restaurant level) | -- | 140,000 |
| Adjusted EBITDA | 3,725,716 | 3,230,396 |
| Adjusted EBITDA margin (%) | 12.2% | 11.9% |
| + General and administrative | 2,112,562 | 1,524,130 |
| Restaurant–Level EBITDA | $5,838,278 | $4,754,526 |
| Restaurant–Level EBITDA margin (%) | 19.2% | 17.6% |
| Restaurant-Level EBITDA represents net income (loss) attributable to DRH plus the sum of non-restaurant specific general and administrative expenses, restaurant pre-opening costs, loss on property and equipment disposals, the change in fair value of derivative instruments, depreciation and amortization, other income and expenses, interest, taxes, income attributable to noncontrolling interest and non-recurring acquisition related expenses in Q1 2013 and non-recurring expenses related to the NASDAQ listing in Q2 2013. Adjusted EBITDA represents net income (loss) attributable to DRH plus the sum of restaurant pre-opening costs, loss on property and equipment disposals, the change in fair value of derivative instruments, depreciation and amortization, other income and expenses, interest, taxes, income attributable to noncontrolling interest, and non-recurring expenses. We are presenting Restaurant-Level EBITDA and Adjusted EBITDA, which are not presented in accordance with GAAP, because we believe they provide an additional metric by which to evaluate our operations. When considered together with our GAAP results and the reconciliation to our net income, we believe they provide a more complete understanding of our business than could be obtained absent this disclosure. We use Restaurant-Level EBITDA and Adjusted EBITDA, together with financial measures prepared in accordance with GAAP, such as revenue, income from operations, net income, and cash flows from operations, to assess our historical and prospective operating performance and to enhance the understanding of our core operating performance. Restaurant-Level EBITDA and Adjusted EBITDA are presented because: (i) we believe they are useful measures for investors to assess the operating performance of our business without the effect of non-cash depreciation and amortization expenses; (ii) we believe investors will find these measures useful in assessing our ability to service or incur indebtedness; and (iii) they are used internally as benchmarks to evaluate our operating performance or compare our performance to that of our competitors. | ||
| Additionally, we present Restaurant-Level EBITDA because it excludes the impact of general and administrative expenses and restaurant pre-opening costs, both which are non-recurring at the restaurant level. The use of Restaurant-Level EBITDA thereby enables us and our investors to compare our operating performance between periods and to compare our operating performance to the performance of our competitors. The measure is also widely used within the restaurant industry to evaluate restaurant level productivity, efficiency, and performance. The use of Restaurant-Level EBITDA and Adjusted EBITDA as performance measures permits a comparative assessment of our operating performance relative to our performance based on GAAP results, while isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. Companies within our industry exhibit significant variations with respect to capital structure and cost of capital (which affect interest expense and tax rates) and differences in book depreciation of property and equipment (which affect relative depreciation expense), including significant differences in the depreciable lives of similar assets among various companies. Our management team believes that Restaurant-Level EBITDA and Adjusted EBITDA facilitate company-to-company comparisons within our industry by eliminating some of the foregoing variations. | ||
| Restaurant-Level EBITDA and Adjusted EBITDA are not determined in accordance with GAAP and should not be considered in isolation or as an alternative to net income, income from operations, net cash provided by operating, investing, or financing activities, or other financial statement data presented as indicators of financial performance or liquidity, each as presented in accordance with GAAP. Neither Restaurant-Level EBITDA nor Adjusted EBITDA should be considered as a measure of discretionary cash available to us to invest in the growth of our business. Restaurant-Level EBITDA and Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies and our presentation of Restaurant-Level EBITDA and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual items. Our management recognizes that Restaurant-Level EBITDA and Adjusted EBITDA have limitations as analytical financial measures, including the following: | ||
| • Restaurant-Level EBITDA and Adjusted EBITDA do not reflect our current capital expenditures or future requirements for capital expenditures; | ||
| • Restaurant-Level EBITDA and Adjusted EBITDA do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, associated with our indebtedness; | ||
| • Restaurant-Level EBITDA and Adjusted EBITDA do not reflect depreciation and amortization, which are non-cash charges, although the assets being depreciated and amortized will likely have to be replaced in the future, nor do Restaurant-Level EBITDA and Adjusted EBITDA reflect any cash requirements for such replacements; | ||
| • Restaurant-Level EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; | ||
| • Restaurant-Level EBITDA and Adjusted EBITDA do not reflect disposals or other non-recurring income and expenses; | ||
| • Restaurant-Level EBITDA and Adjusted EBITDA do not reflect changes in fair value of derivative instruments; | ||
| • Restaurant-Level EBITDA and Adjusted EBITDA do not reflect restaurant pre-opening costs; and | ||
| • Restaurant-Level EBITDA does not reflect general and administrative expenses. | ||