Diversified Restaurant Holdings, Inc. (Nasdaq: SAUC) ("DRH" or
the "Company"), one of the largest franchisees for Buffalo Wild
Wings® ("BWW") with 64 stores across five states, today announced
results for its fourth quarter and fiscal year ended
December 30, 2018.
Fourth Quarter and Full Year Key Information (from
continuing operations)
- Revenue for the quarter totaled $39.1
million and was $153.1 million for the year
- Achieved same-store sales growth of
2.2% in the fourth quarter; first positive quarter since 2015
- Operating loss of $1.5 million in the
quarter, which included a $2.8 million asset impairment charge;
operating loss was $0.4 million for the year
- Net loss was $2.3 million in the
quarter and $5.0 million for the year
- Restaurant-level EBITDA(1) margin was
14.3% for the quarter and 15.2% for the year
- Adjusted EBITDA(1) was $3.8 million for
the quarter and $15.8 million for the year
- Total debt was down $11.6 million to
$102.4 million at year-end
(1) See attached table for a reconciliation of GAAP net loss to
Restaurant-level EBITDA and Adjusted EBITDA
“We continue to be energized and excited by the changes that are
being implemented by our franchisor and are starting to reap the
early benefits of the new marketing, media and promotional
initiatives,” commented David G. Burke, President and CEO. “We
achieved our first positive quarterly same-store sales result in
three years and we believe there is a lot of room to continue to
build on this momentum as these changes gain traction and future
initiatives continue to roll out. We are especially encouraged with
the early read into 2019. Same-store sales through early March
continue to trend positive, despite severe weather across most of
our regions, with the excitement of March madness in front of
us.
“To capitalize on the NCAA tournament and to complement our
focus to be The Great American Sports Bar, there will be a strong
traffic-driving media strategy alongside a new menu design, new and
improved food offerings and enhanced food presentation. Equally
important are the number of initiatives taking place behind the
scenes, as we implement new training and engagement tools to drive
better team member retention and improve the overall customer
experience. We are on the path to achieve the eagerly awaited
relaunch of the brand this fall.”
Mr. Burke concluded, “We are uniquely positioned to benefit from
Inspire Brands plans to rebuild the Buffalo Wild Wings brand. With
the resurgence of the brand combined with our operating expertise,
we believe we can achieve strong long-term growth and margin
performance.”
DRH announced on February 28, 2019 that it executed an agreement
to acquire nine BWW restaurants located in the Chicago market for
$22.5 million. The Company expects to complete the purchase in the
second quarter, subject to franchisor consent and waiving of its
right of first refusal, as well as customary closing
conditions.
Fourth Quarter 2018 Results (from continuing operations)
(Unaudited, $ in thousands)
Q4
2018 Q4 2017 Change % Change Revenue $
39,074.4 $ 41,927.1 $ (2,852.7 ) (6.8 )% Operating (loss) profit $
(1,498.6 ) $ 1,832.4 $ (3,331.0 ) (181.8 )% Operating margin (3.8
)% 4.4 % Pre-tax (loss) income $ (3,015.6 ) $ 268.1 $ (3,283.7 )
(1,224.8 )% Net loss $ (2,294.2 ) $ (20,245.1 ) $ 17,950.9 (88.7 )%
Diluted net loss per share $ (0.07 ) $ (0.76 ) $ 0.69 (90.8 )%
Same-store sales(1) 2.2 % (6.8 )% Restaurant-level
EBITDA(2) $ 5,585.1 $ 7,163.7 $ (1,578.6 ) (22.0 )%
Restaurant-level EBITDA margin 14.3 % 17.1 % Adjusted EBITDA(2) $
3,770.8 $ 4,933.5 $ (1,162.7 ) (23.6 )% Adjusted EBITDA margin 9.7
% 11.8 %
Full Year 2018 Results (from
continuing operations) (Unaudited, $ in thousands)
2018
2017 Change % Change Revenue $ 153,138.2 $
165,462.6 $ (12,324.4 ) (7.4 )% Operating (loss) profit $ (382.5 )
$ 5,240.7 $ (5,623.2 ) (107.3 )% Operating margin (0.2 )% 3.2 %
Pre-tax loss $ (6,686.9 ) $ (1,286.4 ) $ (5,400.5 ) 419.8 % Net
loss $ (5,003.9 ) $ (20,284.2 ) $ 15,280.3 (75.3 )% Diluted net
loss per share $ (0.17 ) $ (0.76 ) $ 0.59 (77.6 )%
Same-store sales(1) (4.6 )% (3.7 )% Restaurant-level
EBITDA(2) $ 23,335.3 $ 28,284.7 $ (4,949.4 ) (17.5 )%
Restaurant-level EBITDA margin 15.2 % 17.1 % Adjusted EBITDA(2) $
15,810.3 $ 19,868.1 $ (4,057.8 ) (20.4 )% Adjusted EBITDA margin
10.3 % 12.0 % (1)
Same store sales calculations exclude
closures in September from Hurricane Irma and the 53rd week in
fiscal 2017, and one unit permanently closed as well as one unit
with special circumstances in 2018
(2) Please see attached table for a reconciliation of GAAP Net loss
to Restaurant-level EBITDA and Adjusted EBITDA
The decrease in sales in the fourth quarter was due to one less
restaurant combined with the prior-year period benefiting from an
extra week as fiscal 2017 was a 53-week year. The full year decline
reflects similar impacts as well as reduced traffic for much of the
year.
General and administrative (“G&A”) expenses as a percentage
of sales decreased 80 basis points to 4.8% in the fourth quarter
due to lower corporate overhead, including lower incentive
accruals. For the full year, G&A was down 10 basis points to
5.4% of sales, despite incurring $0.9 million, or 60 basis points,
of non-recurring items during 2018.
Fourth quarter and full year 2018 food, beverage, and packaging
costs as a percentage of sales decreased 10 basis points and 90
basis, respectively, as lower traditional chicken wing costs helped
to offset the impact of recent promotional activity. Average cost
per pound for traditional bone-in chicken wings, DRH’s most
significant input cost, decreased to $1.76 in 2018 compared with
$2.07 in the prior-year period.
Higher average wages due to a tight labor market, coupled with
sales de-leveraging, resulted in compensation costs as a percent of
sales increasing 160 basis points for both the fourth quarter and
full year 2018.
The Company recognized an impairment and loss on asset disposal
of $2.8 million in the quarter, which reflects the impairment of
certain fixed assets at four locations. For the full year of 2018,
impairment charges at five locations amounted to $3.7 million.
In last year’s fourth quarter, the Company revalued its deferred
tax assets due to the 2017 Tax Cuts and Jobs Act and re-evaluated
its ability to realize these assets. As a result, the Company
recognized a one-time tax expense of $19.0 million.
Balance Sheet and Cash Flow Highlights - Continuing
Operations
Cash and cash equivalents were $5.4 million at December 30,
2018, compared with $4.4 million at 2017 year-end. Capital
expenditures were $1.6 million during 2018 and were primarily for
minor facility upgrades and general maintenance-type investments.
Capital expenditures were $4.7 million for 2017.
DRH does not expect to build any new restaurants or complete any
major remodels in 2019. However, the Company is planning to
complete some corporate initiatives, point-of-sale upgrades and
build outs around open space. As a result, DRH anticipates its
capital expenses will be approximately $2.0 million in 2019.
Total debt was $102.4 million at December 30, 2018, down
$11.6 million for the year.
Webcast, Conference Call and Presentation
DRH will host a conference call and live webcast on Friday,
March 8, 2019 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 15, 2019. To listen to the
archived call, dial (412) 317-6671 and enter replay pin number
13686205, 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 64 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 8, 2019 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 franchisor
waiving its right of first refusal, our ability to obtain financing
for the acquisition, the success of initiatives aimed at improving
the Buffalo Wild Wings brand, 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 30,2018
December 31,2017
December 30,2018
December 31,2017
Revenue $ 39,074,438 $
41,927,106 $ 153,138,219 $
165,462,612 Operating expenses
Restaurant operating costs (exclusive
ofdepreciation and amortization shown separatelybelow):
Food, beverage, and packaging 11,406,832 12,269,817 43,795,044
48,799,718 Compensation costs 10,500,070 10,600,978 41,111,404
41,726,264 Occupancy 2,944,660 3,018,219 11,607,378 11,720,147
Other operating costs 8,637,775 8,874,402 33,455,134 35,062,833
General and administrative expenses 1,885,626 2,357,429 8,246,709
9,081,866 Pre-opening costs — — — 405,448 Depreciation and
amortization 2,356,809 2,966,022 11,532,662 13,115,072 Impairment
and loss on asset disposals 2,841,235 7,884 3,772,431
310,536
Total operating expenses
40,573,007 40,094,751 153,520,762
160,221,884 Operating (loss)
profit (1,498,569 ) 1,832,355
(382,543 ) 5,240,728 Interest expense
(1,551,223 ) (1,592,573 ) (6,416,531 ) (6,633,709 ) Other income,
net 34,161 28,279 112,155 106,586
Income (loss) from continuing operations
beforeincome taxes
(3,015,631 ) 268,061 (6,686,919 ) (1,286,395 )
Income tax benefit (expense) of
continuingoperations
721,460 (20,513,209 ) 1,682,995 (18,997,756 )
Loss
from continuing operations (2,294,171 )
(20,245,148 ) (5,003,924 )
(20,284,151 ) Discontinued operations
Loss from discontinued operations
beforeincome taxes
— (82,701 ) — (238,253 ) Income tax benefit of discontinued
operations — 6,137 — 64,328 Loss from
discontinued operations
— (76,564 ) —
(173,925 ) Net
loss $ (2,294,171 ) $
(20,321,712 ) $ (5,003,924 )
$ (20,458,076 ) Basic and diluted loss
per share from: Continuing operations $ (0.07 ) $ (0.76 ) $ (0.17 )
$ (0.76 ) Discontinued operations — — — (0.01
) Basic and diluted loss per share: $ (0.07 ) $ (0.76 ) $ (0.17 ) $
(0.77 )
DIVERSIFIED RESTAURANT HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 30, 2018 December 31, 2017
ASSETS Current assets Cash and cash equivalents $
5,364,014 $ 4,371,156 Accounts receivable 654,322 653,102 Inventory
1,526,779 1,591,363 Prepaid and other current assets 511,835
408,982
Total current assets 8,056,950
7,024,603 Property and equipment, net 34,423,345
48,014,043 Intangible assets, net 2,198,685 2,438,187 Goodwill
50,097,081 50,097,081 Other long-term assets 408,761 185,322
Total assets $ 95,184,822
$ 107,759,236 LIABILITIES AND
STOCKHOLDERS' DEFICIT Current liabilities Accounts
payable $ 4,273,133 $ 4,561,939 Accrued compensation 1,830,415
1,854,127 Other accrued liabilities 2,946,738 2,404,942 Current
portion of long-term debt 11,515,093 11,440,433 Current portion of
deferred rent 427,479 411,660
Total current
liabilities 20,992,858 20,673,101 Deferred
rent, less current portion 2,385,961 2,208,238 Deferred income
taxes 1,220,087 2,759,870 Unfavorable operating leases 438,944
510,941 Other liabilities 1,587,821 2,346,991 Long-term debt, less
current portion 90,907,537 102,488,730
Total
liabilities 117,533,208 130,987,871
Stockholders’ deficit:
Common stock - $0.0001 par value;
100,000,000 shares authorized;33,200,708 and 26,859,125,
respectively, issued and outstanding
3,182 2,625 Additional paid-in capital 27,021,517 21,776,402
Accumulated other comprehensive income (loss) 355,293 (283,208 )
Accumulated deficit (49,728,378 ) (44,724,454 )
Total
stockholders’ deficit (22,348,386 )
(23,228,635 ) Total liabilities and
stockholders’ deficit $ 95,184,822
$ 107,759,236
DIVERSIFIED RESTAURANT HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Fiscal Year Ended December 30, 2018
December 31, 2017 Cash flows from operating
activities Net loss $ (5,003,924 ) $ (20,458,076 ) Loss from
discontinued operations — 173,925 Net loss from
continuing operations (5,003,924 ) (20,284,151 )
Adjustments to reconcile net loss from
continuing operations to net cashprovided by operating
activities:
Depreciation and amortization 11,532,662 13,115,072 Amortization of
debt discount and loan fees 296,385 294,103 Amortization of gain on
sale-leaseback (199,834 ) (131,617 ) Impairment and loss on asset
disposals 3,772,431 310,536 Share-based compensation 653,119
418,096 Deferred income taxes (1,706,853 ) 18,943,427 Changes in
operating assets and liabilities that provided (used) cash Accounts
receivable (1,220 ) (376,864 ) Inventory 64,584 109,241 Prepaid and
other assets 50,847 896,954 Intangible assets (20,000 ) (48,806 )
Other long-term assets 1,987 48,217 Accounts payable (300,702 )
555,089 Accrued liabilities 313,195 (1,357,970 ) Deferred rent
193,542 182,477 Net cash provided by operating
activities of continuing operations 9,646,219 12,673,804
Net cash used in operating activities of discontinued
operations — (173,925 )
Net cash provided by operating
activities 9,646,219 12,499,879
Cash flows from investing activities Purchases of
property and equipment (1,623,355 ) (4,687,242 )
Net cash used
in investing activities (1,623,355 )
(4,687,242 ) Cash flows from financing
activities Proceeds from issuance of long-term debt — 4,650,965
Repayments of long-term debt (11,622,559 ) (12,116,623 ) Proceeds
from employee stock purchase plan 83,122 65,200 Proceeds from
issuance of common stock 4,579,781 — Tax withholding for restricted
stock (70,350 ) (62,149 )
Net cash used in financing
activities (7,030,006 ) (7,462,607
) Net increase in cash and cash equivalents 992,858 350,030
Cash and cash equivalents, beginning of period 4,371,156
4,021,126
Cash and cash equivalents, end of period
$ 5,364,014 $ 4,371,156
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 30,2018
December 31,2017
December 30,2018
December 31,2017
Net loss $ (2,294,171 )
$ (20,321,712 ) $
(5,003,924 ) $ (20,458,076
) + Loss from discontinued operations — 76,564 — 173,925 +
Income tax (benefit) expense (721,460 ) 20,513,209 (1,682,995 )
18,997,756 + Interest expense 1,551,223 1,592,573 6,416,531
6,633,709 + Other income, net (34,161 ) (28,279 ) (112,155 )
(106,586 ) + Impairment and loss on asset disposal 2,841,235 7,884
3,772,431 310,536 + Depreciation and amortization 2,356,809
2,966,022 11,532,662
13,115,072
EBITDA $ 3,699,475
$ 4,806,261 $
14,922,550 $ 18,666,336 +
Pre-opening costs — — — 405,448 + Non-recurring expenses
(Restaurant-level) — — 166,023 131,000 + Non-recurring expenses
(Corporate-level) 71,355 127,250
721,694 665,333
Adjusted EBITDA
$ 3,770,830 $ 4,933,511
$ 15,810,267 $
19,868,117 Adjusted EBITDA margin (%) 9.7 % 11.8 %
10.3 % 12.0 % + General and administrative 1,885,626 2,357,429
8,246,709 9,081,866 + Non-recurring expenses (Corporate-level)
(71,355 ) (127,250 ) (721,694 )
(665,333 )
Restaurant–Level EBITDA $
5,585,101 $ 7,163,690
$ 23,335,282 $
28,284,650 Restaurant–Level EBITDA margin (%) 14.3 %
17.1 % 15.2 % 17.1 %
Restaurant-Level EBITDA represents Net loss plus the sum of
non-restaurant specific general and administrative expenses,
restaurant pre-opening costs, impairment and 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, impairment and 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 (loss), 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: https://www.businesswire.com/news/home/20190307005748/en/
Investor and Media Contact:Deborah K. PawlowskiKei
Advisors LLC716.843.3908dpawlowski@keiadvisors.com
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