Diversified Restaurant Holdings, Inc. (NASDAQ: SAUC) ("DRH" or
the "Company"), one of the largest franchisees for Buffalo Wild
Wings® ("BWW") with 65 stores across five states, today announced
results for its fourth quarter and fiscal year ended
December 31, 2017.
Fourth Quarter and Full Year Key Information (from
continuing operations)
- Revenue for the quarter totaled $41.9
million, up 2.8%, and totaled $165.5 million for the year
- Same-store sales declined 6.8% in the
fourth quarter and were down 3.7% for the year
- Operating income of $1.8 million in the
quarter, more than double the prior-year period, and totaled $5.2
million for the year
- Restaurant-level EBITDA(1) margin was
17.1% for both the quarter and full year
- Adjusted EBITDA(1) was $4.9 million for
the quarter and $19.9 million for the year
- Net loss was $20.2 million in the
quarter and $20.3 million for the year after a $19.0 million
write-down of deferred tax assets
- Total debt was down $7.3 million to
$113.9 million at year-end
(1) See attached table for a reconciliation
of GAAP net loss to Restaurant-level EBITDA and Adjusted EBITDA
Fourth quarter sales increased $1.1 million due to an additional
restaurant and the 53rd week in 2017 compared with only 52 weeks in
2016. Same store sales were down 6.8% for the quarter. For the full
year, the $1.1 million decline in revenue was impacted by $0.6
million of lost sales related to Hurricane Irma, $0.4 million
revenue deferral related to the Blazin' Rewards loyalty program, an
unfavorable number of major sporting events in the Company’s core
markets and negative overall traffic, largely offset by the
addition of the 53rd week. Same store sales were down 3.7% for the
year. The Company revalued its deferred tax assets after enactment
of the Tax Cuts and Jobs Act during the fourth quarter of 2017
using the 21% federal statutory income tax rate and re-evaluated
its ability to realize these benefits. As a result, a one-time tax
expense of $19.0 million was recorded.
David G. Burke, President and CEO, commented, "I'm pleased with
the margins that our restaurant teams delivered despite major
headwinds not only from sales but also cost of sales due to record
high fresh, bone-in chicken wing costs well into the fourth
quarter. We also managed significant reductions in our G&A
costs and are implementing on-going changes to our structure to
improve our focus on sales-driving initiatives."
Mr. Burke added, "While recent sales trends were negatively
impacted by a major strategic shift in the franchisor media
strategy during our most critical sports season, we recognize that
our management structure and incentives must be increasingly
focused on enhancing sales within the communities that we
operate."
"With the acquisition of BWW now complete, we're excited about
the changes that are coming for the system, and optimistic that the
powerful Buffalo Wild Wings® brand will emerge fresher and stronger
while returning to its leading-edge position in its markets."
Fourth Quarter 2017 Results (from continuing operations)
(Unaudited, $ in thousands)
Q4 2017
Q4 2016 Change
% Change
Revenue $ 41,927.1 $ 40,801.2 $ 1,125.9 2.8 % Operating income $
1,832.4 $ 854.3 $ 978.1 114.5 % Operating margin 4.4 % 2.1 %
Pre-tax income (loss) $ 268.1 $ (844.5 ) $ 1,112.6 (131.7 )% Net
income (loss) $ (20,321.7 ) $ 186.3 $ (20,508.0 ) (11,008.1
)% Diluted net income (loss) per share $ (0.76 ) $ 0.01 $
(0.77 ) (7,700.0 )% Same-store sales(1) (6.8 )% (5.4 )%
Restaurant-level EBITDA(2) $ 7,163.7 $ 6,727.4 $ 436.3 6.5 %
Restaurant-level EBITDA margin 17.1 % 16.5 % Adjusted EBITDA(2) $
4,933.5 $ 4,459.9 $ 473.6 10.6 % Adjusted EBITDA margin 11.8 % 10.9
%
Full Year 2017 Results (from continuing operations)
(Unaudited, $ in thousands)
2017 2016 Change
% Change Revenue $ 165,462.6 $ 166,520.9 $ (1,058.3 ) (0.6
)% Operating income $ 5,240.7 $ 7,304.0 $ (2,063.3 ) (28.2 )%
Operating margin 3.2 % 4.4 % Pre-tax income (loss) $ (1,286.4 ) $
1,368.3 $ (2,654.7 ) (194.0 )% Net income (loss) $ (20,458.1 ) $
3,639.0 $ (24,097.1 ) (662.2 )% Diluted net income (loss)
per share $ (0.77 ) $ 0.14 $ (0.91 ) (650.0 )%
Same-store sales(1) (3.7 )% (3.0 )% Restaurant-level
EBITDA(2) $ 28,284.7 $ 32,275.0 $ (3,990.3 ) (12.4 )%
Restaurant-level EBITDA margin 17.1 % 19.4 % Adjusted EBITDA(2) $
19,868.1 $ 23,345.2 $ (3,477.1 ) (14.9 )% Adjusted EBITDA margin
12.0 % 14.0 %
(1) Same store sales calculations exclude
related closures in September from Hurricane Irma and the 53rd week
in fiscal 2017
(2) Please see attached table for a
reconciliation of GAAP net loss to Restaurant-level EBITDA and
Adjusted EBITDA
DRH is enthusiastic about the recent acquisition of BWW and the
expected impact of new initiatives and a fresh look at the brand.
However, due to the unknown timing of any impact, it has elected to
not provide specific financial guidance for 2018.
Balance Sheet and Cash Flow Highlights - Continuing
Operations
Cash and cash equivalents were $4.4 million at December 31,
2017, compared with $4.0 million at 2016 year-end. Capital
expenditures were $4.7 million during 2017 and were primarily for
one new restaurant, two remodels and restaurant refreshes. Capital
expenditures were $12.5 million for 2016.
In 2018, the Company anticipates its capital expenses will range
between $1.0 million and $1.5 million, and will be for minor
facility upgrades and general maintenance-type investments. DRH
does not expect to build any new restaurants nor is it expected to
complete any major remodels in 2018.
Total debt was $113.9 million at December 31, 2017, down
$7.3 million for the year. The Company entered into a revised
agreement with its lenders on February 28, 2018, which both waived
its financial covenant compliance requirements for the fourth
quarter of 2017 and reset the required levels for quarterly
compliance through the end of 2019.
Webcast, Conference Call and Presentation
DRH will host a conference call and live webcast on Friday,
March 9, 2018 at 10:00 A.M. Eastern Time, during which management
will review the financial and operating results for the fourth
quarter and full year period, and discuss its corporate strategies
and outlook. A question-and-answer session will follow.
The teleconference can be accessed by calling (201) 389-0879.
The webcast can be monitored at www.diversifiedrestaurantholdings.com. A
presentation that will be referenced during the conference call is
also available on the website.
A telephonic replay will be available from 1:00 P.M. ET on the
day of the call through Friday, March 16, 2018. To listen to the
archived call, dial (412) 317-6671 and enter replay pin number
13676375, or access the webcast replay at http://www.diversifiedrestaurantholdings.com,
where a transcript will also be posted once available.
About Diversified Restaurant Holdings, Inc.
Diversified Restaurant Holdings, Inc. is one of the largest
franchisees for Buffalo Wild Wings with 65 franchised restaurants
in key markets in Florida, Illinois, Indiana, Michigan and
Missouri. DRH’s strategy is to generate cash, reduce debt and
leverage its strong franchise operating capabilities for future
growth. The Company routinely posts news and other important
information on its website at
http://www.diversifiedrestaurantholdings.com.
Safe Harbor Statement
The information made available in this news release and the
Company’s March 9, 2018 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,
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 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 STATEMENTS OF
OPERATIONS (Unaudited)
Three Months Ended Twelve Months Ended
December 31, 2017
December 25, 2016
December 31, 2017
December 25, 2016
Revenue $ 41,927,106 $ 40,801,180 $ 165,462,612 $
166,520,925
Operating expenses Restaurant operating
costs (exclusive of depreciation and amortization shown separately
below): Food, beverage, and packaging 12,269,817 11,912,429
48,799,718 46,794,091 Compensation costs 10,600,978 10,195,132
41,726,264 41,307,718 Occupancy 3,018,219 2,930,147 11,720,147
11,370,223 Other operating costs 8,874,402 9,036,117 35,062,833
34,845,059 General and administrative expenses 2,357,429 2,368,613
9,081,866 9,265,432 Pre-opening costs — (54,758 ) 405,448 599,279
Depreciation and amortization 2,966,022 3,484,290 13,115,072
14,696,846 Loss on asset disposals 7,884 74,935
310,536 338,306
Total operating expenses
40,094,751 39,946,905 160,221,884
159,216,954 Operating
profit 1,832,355 854,275 5,240,728
7,303,971 Interest expense (1,592,573 ) (1,438,919 )
(6,633,709 ) (5,763,684 ) Other income (expense), net 28,279
(259,886 ) 106,586 (172,031 ) Income (loss) from
continuing operations before income taxes 268,061 (844,530 )
(1,286,395 ) 1,368,256 Income tax (provision) benefit (20,513,209 )
1,030,816 (18,997,756 ) 2,270,792
Income (loss)
from continuing operations (20,245,148 )
186,286 (20,284,151 ) 3,639,048
Discontinued operations Loss from discontinued operations before
income taxes (82,701 ) (5,633,088 ) (238,253 ) (10,226,996 ) Income
tax benefit of discontinued operations (6,137 ) (585,467 ) (64,328
) (585,467 )
Loss from discontinued operations
(76,564 ) (5,047,621 ) (173,925
) (9,641,529 )
Net loss $ (20,321,712 ) $
(4,861,335 ) $ (20,458,076 )
$ (6,002,481 ) Basic earnings (loss)
per share from: Continuing operations (0.76 ) 0.01 (0.76 ) 0.14
Discontinued operations — (0.19 ) (0.01 ) (0.37 ) Basic net
loss per share (0.76 ) (0.18 ) (0.77 ) (0.23 )
Fully diluted
earnings (loss) per share from: Continuing operations (0.76 )
0.01 (0.76 ) 0.14 Discontinued operations — (0.19 ) (0.01 )
(0.37 ) Fully diluted net loss per share (0.76 ) (0.18 ) (0.77 )
(0.23 )
Weighted average number of common shares
outstanding Basic 26,845,643 26,663,482 26,717,910 26,491,549
Diluted 26,845,643 26,663,482 26,717,910 26,491,549
DIVERSIFIED RESTAURANT HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, 2017
December 25, 2016
ASSETS Current assets Cash and cash equivalents $
4,371,156 $ 4,021,126 Accounts receivable 653,102 276,238 Inventory
1,591,363 1,700,604 Prepaid and other current assets 408,982
1,305,936
Total current assets 7,024,603
7,303,904 Deferred income taxes — 16,250,928 Property
and equipment, net 48,014,043 56,630,031 Intangible assets, net
2,438,187 2,666,364 Goodwill 50,097,081 50,097,081 Other long-term
assets 185,322 233,539
Total assets $
107,759,236 $ 133,181,847
LIABILITIES AND STOCKHOLDERS' DEFICIT Current
liabilities Accounts payable $ 4,561,939 $ 3,995,846 Accrued
compensation 1,854,127 2,803,549 Other accrued liabilities
2,404,942 2,642,269 Current portion of long-term debt 11,440,433
11,307,819 Current portion of deferred rent 411,660 194,206
Total current liabilities 20,673,101
20,943,689 Deferred rent, less current portion
2,208,238 2,020,199 Deferred income taxes 2,759,870 — Unfavorable
operating leases 510,941 591,247 Other liabilities 2,346,991
3,859,231 Long-term debt, less current portion 102,488,730
109,878,201
Total liabilities 130,987,871
137,292,567 Stockholders' deficit Common stock
- $0.0001 par value; 100,000,000 shares authorized; 26,859,125 and
26,632,222, respectively, issued and outstanding 2,625 2,610
Additional paid-in capital 21,776,402 21,355,270 Accumulated other
comprehensive loss (283,208 ) (934,222 ) Accumulated deficit
(44,724,454 ) (24,534,378 )
Total stockholders' deficit
(23,228,635 ) (4,110,720 )
Total liabilities and stockholders' deficit $
107,759,236 $ 133,181,847
DIVERSIFIED RESTAURANT HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Fiscal Year Ended December 31, 2017
December 25, 2016 Cash flows from operating
activities Net loss $ (20,458,076 ) $ (6,002,481 ) Net loss
from discontinued operations 173,925 9,641,529 Net
income (loss) from continuing operations (20,284,151 ) 3,639,048
Adjustments to reconcile net income (loss) to net cash provided by
operating activities Depreciation and amortization 13,115,072
14,696,846 Amortization of debt discount and loan fees 294,103
238,784 Amortization of gain on sale-leaseback (131,617 ) (128,782
) Loss on asset disposals 310,536 338,306 Share-based compensation
418,096 435,845 Deferred income taxes 18,943,427 (2,270,792 )
Changes in operating assets and liabilities that provided (used)
cash Accounts receivable (376,864 ) (28,915 ) Inventory 109,241
(102,225 ) Prepaid and other assets 896,954 8,527 Intangible assets
(48,806 ) (73,150 ) Other long-term assets 48,217 753,960 Accounts
payable 555,089 (1,771,388 ) Accrued liabilities (1,357,970 )
1,143,880 Deferred rent 182,477 107,737 Net cash
provided by operating activities of continuing operations
12,673,804 16,987,681 Net cash used in operating
activities of discontinued operations (173,925 ) (5,863.807 )
Net cash provided by operating activities 12,499,879
11,123,874 Cash flows from investing
activities Purchases of property and equipment (4,687,242 )
(12,499,507 ) Net cash used in investing activities of continuing
operations (4,687,242 ) (12,499,507 ) Net cash used in investing
activities of discontinued operations — (907,890 )
Net
cash used in investing activities (4,687,242 )
(13,407,397 ) Cash flows from financing
activities Proceeds from issuance of long-term debt 4,650,965
11,109,154 Repayments of long-term debt (12,116,623 ) (16,134,717 )
Payment of loan fees — (197,889 ) Proceeds from employee stock
purchase plan 65,200 40,603 Tax withholding for restricted stock
(62,149 ) (12,392 ) Capital infusion to discontinued component —
(2,000,000 )
Net cash used in financing activities
(7,462,607 ) (7,195,241 ) Net
increase (decrease) in cash and cash equivalents 350,030
(9,478,764 ) Cash and cash equivalents, beginning of
period 4,021,126 13,499,890
Cash and cash
equivalents, end of period $ 4,371,156
$ 4,021,126 DIVERSIFIED
RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES Reconciliation
between Net Loss and Adjusted EBITDA and Adjusted Restaurant-Level
EBITDA Three Months Ended
(Unaudited) Fiscal Year Ended (Unaudited)
December 31, 2017
December 25, 2016
December 31, 2017
December 25, 2016
Net loss $ (20,321,712 )
$ (4,861,335 ) $
(20,458,076
) $ (6,002,481 ) + Loss from
discontinued operations 76,564 5,047,621 173,925 9,641,529 + Income
tax expense (benefit) 20,513,209 (1,030,816 ) 18,997,756 (2,270,792
) + Interest expense 1,592,573 1,438,919 6,633,709 5,763,684 +
Other (income) expense, net (28,279 ) 259,886 (106,586 ) 172,031 +
Loss on asset disposal 7,884 74,935 310,536 338,306 + Depreciation
and amortization 2,966,022 3,484,290
13,115,072 14,696,846
EBITDA
$ 4,806,261 $ 4,413,500
$ 18,666,336
$ 22,339,123 + Pre-opening costs — (54,758 )
405,448 599,279 + Non-recurring expenses (Restaurant-level) — —
131,000 71,184 + Non-recurring expenses (Corporate-level) 127,250
101,179 665,333
335,655
Adjusted EBITDA $ 4,933,511
$ 4,459,921
$ 19,868,117 $ 23,345,241
Adjusted EBITDA margin (%) 11.8 % 10.9 % 12.0 % 14.0 % +
General and administrative 2,357,429 2,368,613 9,081,866 9,265,432
+ Non-recurring expenses (Corporate-level) (127,250 )
(101,179 ) (665,333 ) (335,655 )
Restaurant–Level EBITDA $ 7,163,690
$ 6,727,355 $
28,284,650 $ 32,275,018
Restaurant–Level EBITDA margin (%) 17.1 % 16.5 % 17.1 % 19.4 %
Restaurant-Level EBITDA represents net income (loss) plus the
sum of non-restaurant specific general and administrative expenses,
restaurant pre-opening costs, loss on property and equipment
disposals, depreciation and amortization, other income and
expenses, interest, taxes, and non-recurring expenses. Adjusted
EBITDA represents net income (loss) plus the sum of restaurant
pre-opening costs, loss on property and equipment disposals,
depreciation and amortization, other income and expenses, interest,
taxes, 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
additional metrics 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, which is non-recurring. 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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20180308006152/en/
Investor and Media Contact:Kei Advisors LLCDeborah K.
Pawlowski, 716-843-3908dpawlowski@keiadvisors.com
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