SOUTHFIELD, Mich., Nov. 08, 2016 (GLOBE NEWSWIRE) -- Diversified Restaurant Holdings, Inc. (NASDAQ:SAUC) ("DRH" or the "Company"), the largest franchisee for Buffalo Wild Wings® ("BWW") and creator and operator of Bagger Dave's Burger Tavern® ("Bagger Dave's"), today announced results for its third quarter ended September 25, 2016.
Third Quarter 2016 Performance (compared with prior-year period, unless otherwise stated)
- Achieved stable total revenue of $46.7 million
- Operating expenses improved 5.4% on lower commodity costs, strong cost control and Bagger Dave’s rationalization
- Significantly improved operating loss and net loss to $0.8 million and $1.4 million, respectively
- Restaurant-level EBITDA increased 8% to $7.9 million; Restaurant-level EBITDA margin expanded 140 basis points to 16.9%(1)
- BWW restaurant-level EBITDA margin of 19.4%, up 10 basis points
(1)Please see the attached table for a reconciliation of GAAP net loss to Restaurant-level EBITDA
David G. Burke, President and CEO, commented, “We were very pleased with our overall performance as we continued to execute our strategy to grow our Buffalo Wild Wings business and improve our financial position and performance. We made significant improvements over the last year in our cost structure with the rationalization of underperforming restaurants and implementing productivity initiatives that are driving improved operating profitability.
“We also took steps to combat near-term sales challenges and better position the business as we spin off Bagger Dave’s, capitalize on our strong operational expertise and leverage our leading position as the largest franchisee of Buffalo Wild Wings. We successfully rolled out the BWW half-price wings promotion and remodeled more of our stores to the Stadia design while also testing the new BWW Blazin’ Rewards program and expanding online ordering and home delivery.
“In 2017, with our focus solely on the BWW business, we believe we can accelerate our positive momentum and further strengthen our financial performance and balance sheet, and grow shareholder value.”
Bagger Dave’s Spin Off
The proposed spinoff of Bagger Dave’s is moving along with the goal to complete the transaction by the end of 2016. Bagger Dave’s filed its Form 10 with the Securities and Exchange Commission (SEC) on October 4, 2016. It is currently under review, so the timing of the spinoff is subject to the DRH’s ability to satisfy the SEC’s requests in a timely manner, which the Company feels confident in achieving.
Third Quarter 2016 Summary Results
$ In thousands | Q3 2016 | Q3 2015 | $ Change | % Change | ||||||||||||||||
Revenue | $ | 46,689 | $ | 47,078 | $ | (389 | ) | (0.8 | )% | |||||||||||
Total operating expenses | 47,491 | 50,218 | (2,727 | ) | (5.4 | )% | ||||||||||||||
Operating loss | (802 | ) | (3,140 | ) | 2,338 | 74.5 | % | |||||||||||||
Operating margin | (1.7 | )% | (6.7 | )% | ||||||||||||||||
Net loss | $ | (1,389 | ) | $ | (3,582 | ) | 2,193 | 61.2 | % | |||||||||||
Fully diluted net loss per share | $ | (0.05 | ) | $ | (0.14 | ) | $ | 0.09 | 64.3 | % |
- Comparable revenue reflects a net reduction of five restaurants since last year’s third quarter; DRH had 83 total restaurants, 64 of which were BWW at the end of the quarter.
- Comparable-store sales for 59 BWW were down 1.8% largely due to macro factors affecting the casual dining sector nationwide including over saturation.
- Average weekly sales volume (“AWV”) for the 19 Bagger Dave’s restaurants improved 10% to $20,500.
- Operating expenses declined $2.7 million, or 5.4%, to $47.5 million, which was largely due to lower average wing costs, cost reduction initiatives, and improvement in productivity from the closures of underperforming Bagger Dave’s.
- Interest expense was down $400 thousand to $1.4 million, which was largely due to recognizing the disposal of old loan fees in the prior-year period.
Business Performance
Three Months Ended | |||||||||||||||||||||||||||
$ In thousands | September 25, 2016 | Percent of sales | September 27, 2015 | Percent of sales | |||||||||||||||||||||||
BWW revenue | $ | 41,625 | 89.2 | % | $ | 41,034 | 87.2 | % | |||||||||||||||||||
BWW Comparable-store sales | (1.8 | )% | 1.5 | % | |||||||||||||||||||||||
Bagger Dave's revenue | 5,063 | 10.8 | % | 6,044 | 12.8 | % | |||||||||||||||||||||
Bagger Dave's AWV | $ | 20.5 | $ | 18.5 | |||||||||||||||||||||||
BWW restaurant-level EBITDA | $ | 8,062 | 19.4 | % | $ | 7,853 | 19.3 | % | |||||||||||||||||||
Bagger Dave's restaurant-level EBITDA | (2 | ) | 0.0 | % | (211 | ) | (4.9 | )% | |||||||||||||||||||
Restaurant-Level EBITDA | 7,910 | 16.9 | % | 7,313 | 15.5 | % | |||||||||||||||||||||
General and administrative expenses | (3,285 | ) | (7.0 | )% | (4,027 | ) | (8.6 | )% | |||||||||||||||||||
Non-recurring expenses | 408 | 0.9 | % | 810 | 1.7 | % | |||||||||||||||||||||
Adjusted EBITDA | $ | 5,033 | 10.8 | % | $ | 4,096 | 8.7 | % |
Balance Sheet Highlights
Cash and cash equivalents were $4.3 million at September 25, 2016 compared with $14.2 million at December 27, 2015. Total debt decreased $4.9 million to $121.3 million at the end of the third quarter from 2015 year-end.
Capital expenditures were $13.9 million during the first nine months of 2016 and were for new restaurant development, restaurant refreshes, and revamping six additional BWW restaurants to the Stadia design. 27 of the 64 BWW restaurants have now been upgraded to the Stadia design, and the Company expects the remainder to be completed by 2020.
Fiscal 2016 Guidance
Upon completion of the spinoff of Bagger Dave’s, the Company expects to treat it as discontinued operations for its fourth quarter and full year 2016 results. As a result, the following outlook for 2016 will comprise just the BWW business.
- Revenue from continued operations of $164 million to $168 million
- Restaurant-level EBITDA of $33 million to $35 million
- Adjusted EBITDA between $21 million to $23 million
- Total G&A expense, excluding one-time spin off costs, at approximately 6% of sales; the spinoff is expected to result in $1.5 million to $2.0 million in future G&A savings for DRH
- Capital expenditures of approximately $14.5 million to $15 million. No new restaurants are planned to be opened in the fourth quarter.
Webcast and Conference Call
DRH will host a conference call and live webcast on Tuesday, November 8, 2016 at 5:00 p.m. Eastern Time, during which management will review the financial and operating results for the third quarter and discuss its corporate strategies and outlook. A question-and-answer session will follow.
The teleconference can be accessed by calling (201) 689-8562. The webcast can be monitored on the Company’s website at www.diversifiedrestaurantholdings.com.
A telephonic replay will be available from 8:00 p.m. ET on the day of the call through Tuesday, November 15, 2016. To listen to the archived call, dial (858) 384-5517 and enter the conference ID number 13645496, or access the webcast replay at www.diversifiedrestaurantholdings.com, where a transcript will also be posted once available.
About Diversified Restaurant Holdings, Inc.
Diversified Restaurant Holdings, Inc. operates 64 BWW franchised restaurants in key markets in Florida, Illinois, Indiana, Michigan and Missouri. The Company also owns and operates 19 Bagger Dave's restaurants in Indiana, Michigan and Ohio. 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 and the Company’s November 8, 2016 earnings conference call contain 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 spinoff, 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 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.
Investor and Media Contact: |
Deborah K. Pawlowski |
Kei Advisors LLC |
716.843.3908 |
dpawlowski@keiadvisors.com |
FINANCIAL TABLES FOLLOW
DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES | ||||||||||||||||
CONSOLIDATED STATEMENT OF OPERATIONS | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
Sept 25 | Sept 27 | Sept 25 | Sept 27 | |||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Revenue | $ | 46,688,629 | $ | 47,077,816 | $ | 141,492,474 | $ | 123,389,986 | ||||||||
Operating expenses | ||||||||||||||||
Restaurant operating costs (exclusive of depreciation and amortization shown separately below): | ||||||||||||||||
Food, beverage, and packaging costs | 12,909,954 | 13,505,404 | 39,664,279 | 35,514,577 | ||||||||||||
Compensation costs | 12,224,965 | 13,035,995 | 37,115,686 | 32,944,958 | ||||||||||||
Occupancy costs | 3,437,155 | 3,529,935 | 9,659,075 | 8,334,752 | ||||||||||||
Other operating costs | 10,206,848 | 10,480,932 | 29,929,945 | 26,252,961 | ||||||||||||
General and administrative expenses | 3,284,634 | 4,027,338 | 8,762,371 | 12,199,188 | ||||||||||||
Pre-opening costs | 96,316 | 653,789 | 1,017,799 | 2,323,679 | ||||||||||||
Depreciation and amortization | 5,174,075 | 4,452,436 | 13,883,975 | 10,860,459 | ||||||||||||
Impairment and loss (gain) on disposal of property and equipment | 157,082 | 532,124 | (386,541 | ) | 3,000,591 | |||||||||||
Total operating expenses | 47,491,029 | 50,217,953 | 139,646,589 | 131,431,165 | ||||||||||||
Operating profit (loss) | (802,400 | ) | (3,140,137 | ) | 1,845,885 | (8,041,179 | ) | |||||||||
Interest expense | (1,439,227 | ) | (1,842,640 | ) | (4,324,729 | ) | (2,833,898 | ) | ||||||||
Other income, net | 12,819 | 34,475 | 97,724 | 778,736 | ||||||||||||
Income before income taxes | (2,228,808 | ) | (4,948,302 | ) | (2,381,120 | ) | (10,096,341 | ) | ||||||||
Income tax benefit | (839,683 | ) | (1,366,767 | ) | (1,239,974 | ) | (3,459,105 | ) | ||||||||
Net loss | $ | (1,389,125 | ) | $ | (3,581,535 | ) | $ | (1,141,146 | ) | $ | (6,637,236 | ) | ||||
Basic earnings per share | $ | (0.05 | ) | $ | (0.14 | ) | $ | (0.04 | ) | $ | (0.25 | ) | ||||
Fully diluted earnings per share | $ | (0.05 | ) | $ | (0.14 | ) | $ | (0.04 | ) | $ | (0.25 | ) | ||||
Weighted average number of common shares outstanding | ||||||||||||||||
Basic | 26,625,615 | 26,251,621 | 26,434,238 | 26,184,219 | ||||||||||||
Diluted | 26,625,615 | 26,251,621 | 26,434,238 | 26,184,219 |
DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES | |||||||||||||
CONSOLIDATED BALANCE SHEETS | |||||||||||||
September 25 | December 27 | ||||||||||||
ASSETS | 2016 | 2015 | |||||||||||
Current assets | |||||||||||||
Cash and cash equivalents | $ | 4,254,669 | $ | 14,200,528 | |||||||||
Accounts receivable | 476,500 | 620,942 | |||||||||||
Inventory | 1,814,624 | 1,934,584 | |||||||||||
Other assets | 2,392,158 | 1,618,429 | |||||||||||
Total current assets | 8,937,951 | 18,374,483 | |||||||||||
Deferred income taxes | 15,286,918 | 13,320,177 | |||||||||||
Property and equipment, net | 77,985,060 | 79,189,661 | |||||||||||
Intangible assets, net | 3,339,942 | 3,638,716 | |||||||||||
Goodwill | 50,097,081 | 50,097,081 | |||||||||||
Other long-term assets | 240,728 | 1,152,377 | |||||||||||
Total assets | $ | 155,887,680 | $ | 165,772,495 | |||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||||
Current liabilities | |||||||||||||
Accounts payable | $ | 5,702,825 | $ | 7,807,552 | |||||||||
Accrued compensation | 1,842,645 | 3,087,883 | |||||||||||
Other accrued liabilities | 2,632,650 | 3,663,211 | |||||||||||
Current portion of long-term debt | 10,224,450 | 9,891,825 | |||||||||||
Current portion of deferred rent | 334,637 | 396,113 | |||||||||||
Total current liabilities | 20,737,207 | 24,846,584 | |||||||||||
Deferred rent, less current portion | 3,041,891 | 2,826,210 | |||||||||||
Unfavorable operating leases | 611,324 | 671,553 | |||||||||||
Other liabilities | 5,602,282 | 4,463,631 | |||||||||||
Long-term debt, less current portion | 111,120,286 | 116,364,164 | |||||||||||
Total liabilities | 141,112,990 | 149,172,143 | |||||||||||
Stockholders' equity | |||||||||||||
Common stock - $0.0001 par value; 100,000,000 shares authorized; 26,633,161 and 26,298,725 respectively, issued and outstanding | 2,587 | 2,584 | |||||||||||
Additional paid-in capital | 36,509,603 | 36,136,332 | |||||||||||
Accumulated other comprehensive loss | (2,064,457 | ) | (1,006,667 | ) | |||||||||
Accumulated deficit | (19,673,043 | ) | (18,531,897 | ) | |||||||||
Total stockholders' equity | 14,774,690 | 16,600,352 | |||||||||||
Total liabilities and stockholders' equity | $ | 155,887,680 | $ | 165,772,495 |
DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES | |||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
Nine Months Ended | |||||||
September 25, 2016 | September 27, 2015 | ||||||
Cash flows from operating activities | |||||||
Net loss | $ | (1,141,146 | ) | $ | (6,637,236 | ) | |
Adjustments to reconcile net loss to net cash provided by operating activities | |||||||
Depreciation and amortization | 13,883,975 | 10,860,459 | |||||
Amortization of debt discount and loan fees | 178,287 | 60,574 | |||||
Amortization of gain on sale-leaseback | (117,907 | ) | (272,454 | ) | |||
Impairment and loss (gain) on asset disposals | (386,541 | ) | 3,000,591 | ||||
Share-based compensation | 351,377 | 285,823 | |||||
Deferred income taxes | (1,421,818 | ) | (3,553,903 | ) | |||
Changes in operating assets and liabilities that provided (used) cash | |||||||
Accounts receivable | 144,442 | 775,735 | |||||
Inventory | 119,960 | (226,568 | ) | ||||
Other assets | (773,729 | ) | (1,249,065 | ) | |||
Intangible assets | (26,986 | ) | (239,621 | ) | |||
Other long-term assets | 911,649 | (846,583 | ) | ||||
Accounts payable | (1,393,754 | ) | 2,992,491 | ||||
Accrued liabilities | (2,621,955 | ) | 641,756 | ||||
Deferred rent | 154,205 | 183,365 | |||||
Net cash provided by operating activities | 7,860,059 | 5,775,364 | |||||
Cash flows from investing activities | |||||||
Proceeds from sale of investments | — | 2,952,302 | |||||
Proceeds from sale of property and equipment | 1,134,717 | — | |||||
Purchases of property and equipment | (13,936,969 | ) | (19,776,752 | ) | |||
Acquisition of business, net of cash acquired | — | (54,041,489 | ) | ||||
Net cash used in investing activities | (12,802,252 | ) | (70,865,939 | ) | |||
Cash flows from financing activities | |||||||
Proceeds from issuance of long-term debt | 8,609,154 | 67,753,463 | |||||
Repayments of long-term debt | (13,634,717 | ) | (5,666,667 | ) | |||
Payment of loan fees | — | (556,157 | ) | ||||
Stock options exercised | — | 74,999 | |||||
Repurchase of stock | — | (98,252 | ) | ||||
Proceeds from employee stock purchase plan | 31,223 | 58,232 | |||||
Tax withholdings for restricted stock units | (9,326 | ) | — | ||||
Net cash (used in) provided by financing activities | (5,003,666 | ) | 61,565,618 | ||||
Net decrease in cash and cash equivalents | (9,945,859 | ) | (3,524,957 | ) | |||
Cash and cash equivalents, beginning of period | 14,200,528 | 18,688,281 | |||||
Cash and cash equivalents, end of period | $ | 4,254,669 | $ | 15,163,324 |
DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES | |||||||||||||||
Reconciliation between Net loss and Restaurant-Level and Adjusted EBITDA | |||||||||||||||
Three Months Ended (unaudited) | Nine Months Ended (unaudited) | ||||||||||||||
September 25, 2016 | September 27, 2015 | September 25, 2016 | September 27, 2015 | ||||||||||||
Net loss | $ | (1,389,125 | ) | $ | (3,581,535 | ) | $ | (1,141,146 | ) | $ | (6,637,236 | ) | |||
+ Income tax benefit | (839,683 | ) | (1,366,767 | ) | (1,239,974 | ) | (3,459,105 | ) | |||||||
+ Interest expense | 1,439,227 | 1,842,640 | 4,324,729 | 2,833,898 | |||||||||||
+ Other income, net | (12,819 | ) | (34,475 | ) | (97,724 | ) | (778,736 | ) | |||||||
+ Loss (gain) on disposal of property and equipment | 157,082 | 532,124 | (386,541 | ) | 3,000,591 | ||||||||||
+ Depreciation and amortization | 5,174,075 | 4,452,436 | 13,883,975 | 10,860,459 | |||||||||||
EBITDA | 4,528,757 | 1,844,423 | 15,343,319 | 5,819,871 | |||||||||||
+ Pre-opening costs | 96,316 | 653,789 | 1,017,799 | 2,323,679 | |||||||||||
+ Non-recurring expenses (Restaurant level) | — | 787,604 | 543,295 | 874,031 | |||||||||||
+ Legal reserve | — | — | — | 1,950,000 | |||||||||||
+ Non-recurring expenses (Corporate level) | 408,220 | 810,312 | 717,386 | 1,149,763 | |||||||||||
Adjusted EBITDA | 5,033,293 | 4,096,128 | 17,621,799 | 12,117,344 | |||||||||||
Adjusted EBITDA margin (%) | 10.8 | % | 8.7 | % | 12.5 | % | 9.8 | % | |||||||
+ General and administrative | 3,284,634 | 4,027,338 | 8,762,371 | 12,199,188 | |||||||||||
+ Non-recurring expenses | (408,220 | ) | (810,312 | ) | (717,386 | ) | (3,099,763 | ) | |||||||
Restaurant–Level EBITDA | 7,909,707 | 7,313,154 | 25,666,784 | 21,216,769 | |||||||||||
Restaurant–Level EBITDA margin (%) | 16.9 | % | 15.5 | % | 18.1 | % | 17.2 | % |
(1) 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 non-controlling interest and non-recurring expenses related to acquisitions, equity offerings or other one-off transactions. 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 non-controlling 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.