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 second quarter ended
June 26, 2016. The Company also announced today in a
separate release that it intends to split into two separate,
publicly traded companies through the tax-free spinoff of its
Bagger Dave’s business to DRH stockholders.
Second Quarter 2016 Performance (compared with
prior year period, unless otherwise stated)
- Achieved 25.8% revenue growth to $46.4 million
- BWW comparable-store sales decline 2.7% against strong 4.1%
increase in prior-year period; Bagger Dave’s average weekly sales
up 5.1% to $22,600
- Generated operating income of $961,536, a $6.5 million
improvement
- Improved net loss by $3.1 million to loss of $0.2 million, or
$0.01 per diluted share
- Adjusted EBITDA was up 1.9% to $5.7 million (1); Adjusted
EBTIDA(1) margin expanded 4.3 points to 12.2%
- Made additional discretionary principal payments in quarter;
total debt down to $122.3 million
- Strategic priorities remain: Debt reduction, driving unit
sales and increasing restaurant-level cash flow
Michael Ansley, President and CEO, commented, “We continue to
make excellent progress in improving our financial
performance. We increased second quarter sales by nearly 26%,
generated significantly higher operating income and continued to
reduce debt. The strong operating leverage from our expanded
BWW franchise, rationalization of underperforming restaurants,
reduced pace of unit development and cost reduction initiatives are
demonstrating measurable results. Notably, we achieved these
improvements even as our BWW comparable-store sales were off in the
quarter consistent with challenges facing the entire casual dining
sector.
“The Board’s decision to spin off Bagger Dave’s to the over the
counter market will enable us to devote DRH’s energies and
resources on our much larger BWW business, which should drive
increased earnings power, cash generation and franchise expansion
opportunities. Bagger Dave’s, in the meantime, will
independently be able to mature its concept, build its brand and
grow more profitably.
“We have great confidence as well in the on-going potential of
our BWW franchise and the Buffalo Wild Wings brand. With the
largest franchise in the United States, we see the benefit of our
scale, the markets we serve, our successful track record as an
operator and the competitive advantages of BWW being the first in
its category and a leader in its segment. BWW is also making
multiple enhancements in its value proposition, such as special
value-based promotions and delivery service to drive sales
growth. We expect to take full advantage of the brand’s long
runway for growth.”
Second Quarter 2016 Results
$ In thousands |
Q2 2016 |
|
Q2 2015 |
|
$ Change |
% Change |
Revenue |
$ |
46,391 |
|
|
$ |
36,872 |
|
|
$ |
9,519 |
|
25.8 |
% |
Total operating
expenses |
45,430 |
|
|
42,381 |
|
|
3,049 |
|
7.2 |
% |
Operating profit
(loss) |
962 |
|
|
(5,510 |
) |
|
6,472 |
|
117.5 |
% |
Operating margin |
2.1 |
% |
|
(14.9 |
)% |
|
|
|
Net loss |
$ |
(182 |
) |
|
$ |
(3,318 |
) |
|
3,136 |
|
94.5 |
% |
Fully diluted net loss
per share |
$ |
(0.01 |
) |
|
$ |
(0.13 |
) |
|
$ |
0.12 |
|
92.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue grew with the addition of 15 net new restaurants and
increased menu pricing. The Company had 83 total restaurants at the
end of the quarter.
Comparable-store sales for BWW were down 2.7% largely due to
macro factors affecting the casual dining sector nationwide
including over saturation, growing consumer preferences for value
priced options and challenging comparators. This trend was
magnified by warmer than normal weather diverting customers to more
outdoor activities and fewer sporting events of interest to
customers in the Company’s markets. There were 59 comparable
BWW restaurants for the period and a total of 64 BWW at the end of
the quarter, up 22 from the prior-year period.
Average weekly sales volume (“AWV”) for the 19 Bagger Dave’s
restaurants was $22,600, up 5.1%, or $1,100, validating the success
of concept adaptations and the benefit from one new opening during
the quarter.
The acquisition of 18 St. Louis BWW locations in July 2015 drove
many operating expense lines higher. Other major components
of the change in operating expenses include:
- Food, beverage and packaging cost as a percentage of revenue
declined 50 basis points to 28.1% primarily due to some overall
commodity price relief and menu price increases
- Compensation costs as a percentage of revenue were up 20 basis
points to 26.7% due to investments in personnel in the acquired
restaurants and labor inflation
- General and administrative (G&A) expense was down 930 basis
points to 6.1% as a percent of revenue. Closure of
under-performing locations, cost reduction initiatives and
favorable variances relative to $2.0 million of atypical expenses
in 2015 drove G&A expenses down $2.9 million.
Operating income increased measurably over the prior-year
quarter due to significant cost savings from the closure of
underperforming locations and operating leverage from higher
sales.
Interest expense was up $0.9 million to $1.4 million, reflecting
increased debt from the St. Louis BWW acquisition and higher
interest rates.
Business Performance
|
|
Three Months Ended |
|
|
June 26, 2016 |
|
Percent of sales |
|
June 28, 2015 |
|
Percent of sales |
BWW revenue |
|
$ |
40,951,181 |
|
|
88.3 |
% |
|
$ |
29,610,702 |
|
|
80.3 |
% |
BWW Comparable-store
sales |
|
(2.7 |
)% |
|
|
|
4.1 |
% |
|
|
Bagger Dave's
revenue |
|
5,439,865 |
|
|
11.7 |
% |
|
7,261,136 |
|
|
19.7 |
% |
Bagger Dave's AWV |
|
$ |
22,600 |
|
|
|
|
$ |
21,500 |
|
|
|
|
|
|
|
|
|
|
|
|
BWW (restaurant-level
EBITDA) |
|
$ |
8,200,741 |
|
|
20.0 |
% |
|
$ |
6,314,677 |
|
|
21.3 |
% |
Bagger Dave's
(restaurant-level EBITDA) |
|
17,325 |
|
|
0.3 |
% |
|
61,758 |
|
|
0.9 |
% |
Restaurant-Level EBITDA |
|
8,218,066 |
|
|
17.7 |
% |
|
6,376,435 |
|
|
17.3 |
% |
|
|
|
|
|
|
|
|
|
General and
administrative expenses |
|
(2,814,979 |
) |
|
(6.1 |
)% |
|
(3,724,963 |
) |
|
(10.1 |
)% |
Non-recurring
expenses |
|
269,894 |
|
|
0.6 |
% |
|
265,242 |
|
|
0.7 |
% |
Adjusted
EBITDA |
|
5,672,981 |
|
|
12.2 |
% |
|
2,916,714 |
|
|
7.9 |
% |
Restaurant-level EBITDA margin improved 40 basis points as a
result of cost savings measures from the closure of underperforming
locations.
Balance Sheet Highlights
Cash and cash equivalents were $5.5 million at June 26,
2016 compared with $14.2 million at December 27, 2015.
Capital expenditures were $11.7 million during the first six months
of 2016 and were for new restaurant development, restaurant
refreshes and revamping four BWW restaurants to the Stadia
design. There are now 28 Stadia concepts of the 64
restaurants and all will be converted by 2020.
Total debt decreased $4.0 million to $122.3 million at the end
of the second quarter from December 27, 2015. The Company has
been making additional discretionary principal payments with
available cash.
Fiscal 2016 Guidance
In the 2016 second quarter, the Company opened three restaurants
including two BWW restaurants in Bradenton, Florida and Coral
Gables, Florida, and a Bagger Dave’s in West Chester, Ohio.
The Company has slowed its new restaurant development and does not
plan to open any additional restaurants in 2016. The Company
expects the following for 2016:
- Revenue of $185 million to $190 million compared with the
previous expectation of $194 million to $200 million
- BWW sales are expected to be $164 million to $168 million
- Bagger Dave’s sales are expected to be $21 million to $22
million
- Total G&A expense, excluding one-time spin off costs, is
unchanged at approximately 6% of sales; the spinoff is expected to
result in $1.5 million to $2.0 million in G&A savings for
DRH
- Adjusted EBITDA is expected to be approximately $21 million to
$23 million based on the new sales forecast compared with previous
expectations of $24 million to $26 million, excluding the impact of
the spin off
- Consolidated restaurant-level EBITDA is expected to be $33
million to $35 million, revised down from prior guidance of $36
million to $38 million; Post spinoff BWW restaurant-level EBITDA is
expected to be in the range of $33 million to $35 million
- Capital expenditures guidance is unchanged from approximately
$14 million to $16 million
Webcast and Conference Call
DRH will host a conference call and live webcast on Thursday,
August 4, 2016 at 5:00 p.m. Eastern Time, during which management
will review the financial and operating results for the second
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 Thursday,
August 11, 2016. To listen to the archived call, dial
(858) 384-5517 and enter the conference ID number 13640553, 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 StatementThe information made
available in this news release and the Company’s August 4, 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 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.
FINANCIAL TABLES FOLLOW
DIVERSIFIED RESTAURANT HOLDINGS, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENT OF
OPERATIONS
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 26, 2016 |
|
June 28, 2015 |
|
June 26, 2016 |
|
June 28, 2015 |
Revenue |
|
$ |
46,391,046 |
|
|
$ |
36,871,838 |
|
|
$ |
94,803,845 |
|
|
$ |
76,312,170 |
|
|
|
|
|
|
|
|
|
|
Operating
expenses |
|
|
|
|
|
|
|
|
Restaurant operating
costs (exclusive of depreciation and amortization shown separately
below): |
|
|
|
|
|
|
|
|
Food, beverage, and packaging
costs |
|
13,058,782 |
|
|
10,561,270 |
|
|
26,754,325 |
|
|
22,009,173 |
|
Compensation costs |
|
12,378,780 |
|
|
9,754,171 |
|
|
24,890,721 |
|
|
19,908,963 |
|
Occupancy costs |
|
3,051,165 |
|
|
2,432,350 |
|
|
6,221,920 |
|
|
4,804,817 |
|
Other operating costs |
|
9,684,253 |
|
|
7,811,480 |
|
|
19,723,097 |
|
|
15,772,029 |
|
General and
administrative expenses |
|
2,814,979 |
|
|
5,674,963 |
|
|
5,477,737 |
|
|
8,171,850 |
|
Pre-opening costs |
|
649,119 |
|
|
576,390 |
|
|
921,483 |
|
|
1,669,890 |
|
Depreciation and
amortization |
|
4,402,183 |
|
|
3,250,701 |
|
|
8,709,900 |
|
|
6,408,023 |
|
Impairment and loss
(gain) on asset disposal |
|
(609,751 |
) |
|
2,320,059 |
|
|
(543,623 |
) |
|
2,468,467 |
|
Total operating
expenses |
|
45,429,510 |
|
|
42,381,384 |
|
|
92,155,560 |
|
|
81,213,212 |
|
|
|
|
|
|
|
|
|
|
Operating
profit (loss) |
|
961,536 |
|
|
(5,509,546 |
) |
|
2,648,285 |
|
|
(4,901,042 |
) |
|
|
|
|
|
|
|
|
|
Interest expense |
|
(1,440,562 |
) |
|
(559,035 |
) |
|
(2,885,502 |
) |
|
(991,258 |
) |
Other income, net |
|
39,633 |
|
|
727,258 |
|
|
84,905 |
|
|
744,261 |
|
|
|
|
|
|
|
|
|
|
Loss before
income taxes |
|
(439,393 |
) |
|
(5,341,323 |
) |
|
(152,312 |
) |
|
(5,148,039 |
) |
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
(256,967 |
) |
|
(2,022,980 |
) |
|
(400,291 |
) |
|
(2,092,338 |
) |
|
|
|
|
|
|
|
|
|
Net income
(loss) |
|
$ |
(182,426 |
) |
|
$ |
(3,318,343 |
) |
|
$ |
247,979 |
|
|
$ |
(3,055,701 |
) |
|
|
|
|
|
|
|
|
|
Basic earnings per
share |
|
$ |
(0.01 |
) |
|
$ |
(0.13 |
) |
|
$ |
0.01 |
|
|
$ |
(0.12 |
) |
Fully diluted earnings
per share |
|
$ |
(0.01 |
) |
|
$ |
(0.13 |
) |
|
$ |
0.01 |
|
|
$ |
(0.12 |
) |
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding |
|
|
|
|
|
|
|
|
Basic |
|
26,379,065 |
|
|
26,151,853 |
|
|
26,338,549 |
|
|
26,150,518 |
|
Diluted |
|
26,379,065 |
|
|
26,151,853 |
|
|
26,338,549 |
|
|
26,150,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIVERSIFIED RESTAURANT HOLDINGS, INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS |
|
June 26, 2016 |
|
December 27, 2015 |
|
|
(unaudited) |
|
Current
assets |
|
|
|
|
Cash and cash
equivalents |
|
$ |
5,537,822 |
|
|
$ |
14,200,528 |
|
Accounts
receivable |
|
508,245 |
|
|
620,942 |
|
Inventory |
|
1,872,057 |
|
|
1,934,584 |
|
Prepaid assets |
|
1,307,165 |
|
|
1,618,429 |
|
Total current
assets |
|
9,225,289 |
|
|
18,374,483 |
|
|
|
|
|
|
Deferred income
taxes |
|
14,630,653 |
|
|
13,320,177 |
|
Property and equipment,
net |
|
81,162,442 |
|
|
79,189,661 |
|
Intangible assets,
net |
|
3,388,585 |
|
|
3,638,716 |
|
Goodwill |
|
50,097,081 |
|
|
50,097,081 |
|
Other long-term
assets |
|
1,141,900 |
|
|
1,152,377 |
|
Total
assets |
|
$ |
159,645,950 |
|
|
$ |
165,772,495 |
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
Current
liabilities |
|
|
|
|
Accounts payable |
|
$ |
5,601,690 |
|
|
$ |
7,807,552 |
|
Accrued
compensation |
|
2,763,165 |
|
|
3,087,883 |
|
Other accrued
liabilities |
|
3,153,133 |
|
|
3,663,211 |
|
Current portion of
long-term debt |
|
9,843,746 |
|
|
9,891,825 |
|
Current portion of
deferred rent |
|
334,637 |
|
|
396,113 |
|
Total current
liabilities |
|
21,696,371 |
|
|
24,846,584 |
|
|
|
|
|
|
Deferred rent, less
current portion |
|
3,036,979 |
|
|
2,826,210 |
|
Unfavorable operating
leases |
|
631,400 |
|
|
671,553 |
|
Other long-term
liabilities |
|
6,186,273 |
|
|
4,463,631 |
|
Long-term debt, less
current portion |
|
112,461,267 |
|
|
116,364,165 |
|
Total
liabilities |
|
144,012,290 |
|
|
149,172,143 |
|
|
|
|
|
|
Commitments and
contingencies (Notes 9 and 10) |
|
|
|
|
|
|
|
|
|
Stockholders'
equity |
|
|
|
|
Common stock - $0.0001
par value; 100,000,000 shares authorized; 26,619,811 and
26,298,725, respectively, issued and outstanding |
|
2,586 |
|
|
2,584 |
|
Additional paid-in
capital |
|
36,335,496 |
|
|
36,136,332 |
|
Accumulated other
comprehensive loss |
|
(2,420,504 |
) |
|
(1,006,667 |
) |
Accumulated
deficit |
|
(18,283,918 |
) |
|
(18,531,897 |
) |
Total
stockholders' equity |
|
15,633,660 |
|
|
16,600,352 |
|
|
|
|
|
|
Total
liabilities and stockholders' equity |
|
$ |
159,645,950 |
|
|
$ |
165,772,495 |
|
|
|
|
|
|
|
|
|
|
DIVERSIFIED RESTAURANT HOLDINGS, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH
FLOWS
|
|
Six Months Ended |
|
|
June 26, 2016 |
|
June 28, 2015 |
Cash flows from
operating activities |
|
|
|
|
Net income (loss) |
|
$ |
247,979 |
|
|
$ |
(3,055,701 |
) |
Adjustments to
reconcile net income (loss) to net cash provided by operating
activities |
|
|
|
|
Depreciation and amortization |
|
8,709,900 |
|
|
6,408,023 |
|
Amortization of debt discount and
loan fees |
|
117,238 |
|
|
14,214 |
|
Amortization of gain on
sale-leaseback |
|
(78,604 |
) |
|
(78,604 |
) |
Impairment and loss (gain) on asset
disposals |
|
(543,623 |
) |
|
2,468,467 |
|
Share-based compensation, net |
|
187,710 |
|
|
162,563 |
|
Deferred income taxes |
|
(582,136 |
) |
|
(1,929,924 |
) |
Changes in operating assets and
liabilities that provided (used) cash |
|
|
|
|
Accounts receivable |
|
112,697 |
|
|
1,187,273 |
|
Inventory |
|
62,527 |
|
|
(135,234 |
) |
Prepaid assets |
|
311,264 |
|
|
(369,353 |
) |
Intangible assets |
|
(394,483 |
) |
|
(129,426 |
) |
Other long-term assets |
|
10,477 |
|
|
(778,071 |
) |
Accounts payable |
|
(1,201,271 |
) |
|
(955,715 |
) |
Accrued liabilities |
|
(1,175,727 |
) |
|
1,780,743 |
|
Deferred rent |
|
149,293 |
|
|
17,169 |
|
Net cash
provided by operating activities |
|
5,933,241 |
|
|
4,606,424 |
|
|
|
|
|
|
Cash flows from
investing activities |
|
|
|
|
Proceeds from sale of
investments |
|
— |
|
|
2,952,302 |
|
Proceeds from sale of property and
equipment, net of fees |
|
1,134,717 |
|
|
— |
|
Purchases of property and
equipment |
|
(11,716,557 |
) |
|
(12,646,471 |
) |
Acquisition of business, net of
cash acquired |
|
— |
|
|
— |
|
Net cash used
in investing activities |
|
(10,581,840 |
) |
|
(9,694,169 |
) |
|
|
|
|
|
Cash flows from
financing activities |
|
|
|
|
Proceeds from issuance of long-term
debt |
|
7,109,154 |
|
|
7,551,319 |
|
Repayments of long-term debt |
|
(11,134,717 |
) |
|
(4,000,000 |
) |
Repurchase of stock |
|
— |
|
|
(98,252 |
) |
Proceeds from employee stock
purchase plan |
|
20,782 |
|
|
40,360 |
|
Tax withholdings for restricted
stock units |
|
(9,326 |
) |
|
— |
|
Net cash (used
in) provided by financing activities |
|
(4,014,107 |
) |
|
3,493,427 |
|
|
|
|
|
|
Net decrease in
cash and cash equivalents |
|
(8,662,706 |
) |
|
(1,594,318 |
) |
|
|
|
|
|
Cash and cash
equivalents, beginning of period |
|
14,200,528 |
|
|
18,688,281 |
|
|
|
|
|
|
Cash and cash
equivalents, end of period |
|
$ |
5,537,822 |
|
|
$ |
17,093,963 |
|
|
|
|
|
|
|
|
|
|
DIVERSIFIED RESTAURANT HOLDINGS, INC. AND
SUBSIDIARIES |
Reconciliation between Net Income (loss) and
Restaurant-Level and Adjusted EBITDA |
|
|
|
|
|
|
|
|
|
Three Months
Ended (unaudited) |
|
Six Months Ended (unaudited) |
|
June 26, 2016 |
|
June 28, 2015 |
|
June 26, 2016 |
|
June 28, 2015 |
Net income
(loss) |
$ |
(182,426 |
) |
|
$ |
(3,318,343 |
) |
|
$ |
247,979 |
|
|
$ |
(3,055,701 |
) |
+ Income tax
benefit |
(256,967 |
) |
|
(2,022,980 |
) |
|
(400,291 |
) |
|
(2,092,338 |
) |
+ Interest expense |
1,440,562 |
|
|
559,035 |
|
|
2,885,502 |
|
|
991,258 |
|
+ Other income,
net |
(39,633 |
) |
|
(727,258 |
) |
|
(84,905 |
) |
|
(744,261 |
) |
+ Loss (gain) on
disposal of property and equipment |
(609,751 |
) |
|
2,320,059 |
|
|
(543,623 |
) |
|
2,468,467 |
|
+ Depreciation and
amortization |
4,402,183 |
|
|
3,250,701 |
|
|
8,709,900 |
|
|
6,408,023 |
|
EBITDA |
4,753,968 |
|
|
61,214 |
|
|
10,814,562 |
|
|
3,975,448 |
|
+ Pre-opening
costs |
649,119 |
|
|
576,390 |
|
|
921,483 |
|
|
1,669,890 |
|
+Non-recurring expenses
(Restaurant level) |
(39,272 |
) |
|
— |
|
|
543,295 |
|
|
— |
|
+Legal reserve |
— |
|
|
1,950,000 |
|
|
— |
|
|
1,950,000 |
|
+Non-recurring expenses
(Corporate level) |
309,166 |
|
|
329,110 |
|
|
— |
|
|
403,320 |
|
Adjusted EBITDA |
5,672,981 |
|
|
2,916,714 |
|
|
12,279,340 |
|
|
7,998,658 |
|
Adjusted EBITDA margin
(%) |
12.2 |
% |
|
7.9 |
% |
|
13.0 |
% |
|
10.5 |
% |
+ General and
administrative |
2,814,979 |
|
|
3,724,963 |
|
|
5,477,737 |
|
|
6,221,850 |
|
+Non-recurring expenses |
(269,894 |
) |
|
(265,242 |
) |
|
— |
|
|
(339,452 |
) |
Restaurant–Level EBITDA |
8,218,066 |
|
|
6,376,435 |
|
|
17,757,077 |
|
|
13,881,056 |
|
Restaurant–Level EBITDA
margin (%) |
17.7 |
% |
|
17.3 |
% |
|
18.7 |
% |
|
18.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
(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
noncontrolling 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 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.
For more information, contact:
Investor and Media:
Deborah K. Pawlowski
Kei Advisors LLC
716.843.3908
dpawlowski@keiadvisors.com
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