SAUC Diversified Restaurant Holdings Inc

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 second quarter ended June 30, 2019.

Second Quarter and Year to Date Information (compared with prior-year period unless otherwise noted)

• Revenue totaled $38.9 million, up 5.1% despite one fewer restaurant
• Same-store sales increased 5.8% with both traffic and average ticket up
• Net loss significantly reduced to $0.5 million
• Restaurant-level EBITDA(1) was $5.7 million or 14.6% of sales
• Adjusted EBITDA(1) was $3.9 million or 9.9% of sales
• Total debt of $96.6 million was down $5.9 million for the year-to-date period

(1)

 

See attached table for a reconciliation of GAAP net loss to Restaurant-level EBITDA and Adjusted EBITDA

“We achieved same-store sales growth for the third consecutive quarter, driven by our continued focus on the delivery channel, a favorable sports impact in our core markets and the improvements being made to the brand," commented Michael Ansley, Executive Chairman of the Board, President and Interim CEO. “While we continue to face headwinds around chicken wing prices, labor costs and delivery fees, we have rationalized our operations and overhead and, as a result, expect to better leverage our sales growth with improved earnings as we move forward. We removed $1.5 million in annualized costs and have identified another $0.5 million in additional savings as we have optimized our local marketing spend to more efficiently leverage our franchisor’s national advertising campaigns.”

“Buffalo Wild Wings is getting back to its roots with the fall advertising push and brand relaunch that are underway. There will be increased national advertising focused on football and the introduction this month of significant elements in support of the brand relaunch with the rollout of enhanced chicken products. The new hand-breaded chicken tenders, two new hand-breaded chicken sandwiches and new improved boneless wings are truly a step-change in quality and product offering, and we believe will drive additional traffic. We are also excited about the relaunch of BOGO Wing Tuesday, a long-time staple of BWW customers and an important component of our value proposition. By continuing to focus on delivering quality and value to our customers, we believe we are positioning BWW and DRH for long-term success.”

Mr. Ansley added, “We continue to work with our advisors on our previously disclosed evaluation of strategic alternatives for the business and to restructure our debt.” DRH does not intend to discuss or disclose developments with respect to this process until the Board has approved a definitive course of action.

Second Quarter Results

 

 

 

 

 

 

 

 

(Unaudited, $ in thousands)

 

Q2 2019

 

Q2 2018

 

Change

 

% Change

Revenue

 

$

38,920.2

 

 

$

37,039.1

 

 

$

1,881.1

 

 

5.1

%

Operating profit

 

$

1,040.0

 

 

$

262.8

 

 

$

777.2

 

 

295.8

%

Operating margin

 

2.7

%

 

0.7

%

 

 

 

 

Net loss

 

$

(469.3

)

 

$

(1,172.2

)

 

$

702.9

 

 

(60.0

)%

Diluted net loss per share

 

$

(0.01

)

 

$

(0.04

)

 

$

0.03

 

 

(75.0

)%

 

 

 

 

 

 

 

 

 

Same-store sales

 

5.8

%

 

(6.4

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant-level EBITDA(1)

 

$

5,664.1

 

 

$

5,540.2

 

 

$

123.9

 

 

2.2

%

Restaurant-level EBITDA margin

 

14.6

%

 

15.0

%

 

 

 

 

Adjusted EBITDA(2)

 

$

3,858.1

 

 

$

3,641.2

 

 

$

216.9

 

 

6.0

%

Adjusted EBITDA margin

 

9.9

%

 

9.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Year-to-date Results

 

 

 

 

 

 

 

 

(Unaudited, $ in thousands)

 

YTD 2019

 

YTD 2018

 

Change

 

% Change

Revenue

 

$

79,488.3

 

 

$

76,572.0

 

 

$

2,916.3

 

 

3.8

%

Operating profit

 

$

2,577.5

 

 

$

1,734.6

 

 

$

842.9

 

 

48.7

%

Operating margin

 

3.2

%

 

2.3

%

 

 

 

 

Net loss

 

$

(413.8

)

 

$

(1,012.3

)

 

$

598.5

 

 

(59.1

)%

Diluted net loss per share

 

$

(0.01

)

 

$

(0.04

)

 

$

0.03

 

 

(75.0

)%

 

 

 

 

 

 

 

 

 

Same-store sales(1)

 

5.0

%

 

(7.5

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant-level EBITDA(2)

 

$

12,043.0

 

 

$

12,438.3

 

 

$

(395.3

)

 

(3.2

)%

Restaurant-level EBITDA margin

 

15.2

%

 

16.2

%

 

 

 

 

Adjusted EBITDA(2)

 

$

8,355.6

 

 

$

8,712.9

 

 

$

(357.3

)

 

(4.1

)%

Adjusted EBITDA margin

 

10.5

%

 

11.4

%

 

 

 

 

   

(1)

 

Please see attached table for a reconciliation of GAAP net loss to Restaurant-level EBITDA and Adjusted EBITDA

The increase in revenue reflects higher delivery sales and a number of favorable major sporting events in the Company’s core markets, partially offset by the impact of the Easter holiday where the DRH restaurants are closed. Easter fell within the first quarter of 2018 versus the second quarter of 2019.

General and administrative ("G&A") expenses as a percentage of sales decreased 100 basis points to 4.9% due to lower corporate overhead and other efficiency initiatives, partially offset by higher incentive accruals. For the full year of fiscal 2019, the Company is targeting G&A expenses below 5% of sales, excluding non-recurring items.

Food, beverage, and packaging costs as a percentage of sales increased 80 basis points to 29.3% primarily due to higher traditional chicken wing costs. Average cost per pound for traditional bone-in chicken wings, DRH’s most significant input cost, increased to $2.10 in the second quarter of 2019 compared with $1.66 in the prior-year period.

Higher average wages due to a tight labor market resulted in compensation costs as a percent of sales increasing 10 basis points to 27.6%.

Other operating costs as a percentage of sales decreased 60 basis points to 20.9%, which reflects the Company's ongoing focus on lessening the impact of third party delivery fees and IT cost saving initiatives.

Balance Sheet Highlights

Cash and cash equivalents were $3.3 million at June 30, 2019, compared with $5.4 million at the end of 2018. Capital expenditures were $1.2 million during the first six months of 2019 and were for minor facility upgrades and general maintenance-type investments, but also included approximately $0.2 million invested in the plate ware upgrades introduced in March. DRH does not expect to build any new restaurants or complete any major remodels in 2019. As a result, the Company anticipates its capital expenditures will approximate $2.0 million in fiscal 2019.

Total debt was $96.6 million at the end of the quarter, down $5.9 million since 2018 year-end.

Webcast, Conference Call and Presentation

DRH will host a conference call and live webcast on Thursday, August 15, 2019 at 10:00 A.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) 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 Thursday,

August 22, 2019. To listen to the archived call, dial (412) 317-6671 and enter replay pin number 13692782, 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 August 15, 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

 

Six Months Ended

 

 

June 30, 2019

 

July 1, 2018

 

June 30, 2019

 

July 1, 2018

Revenue

 

$

38,920,245

 

 

$

37,039,073

 

 

$

79,488,329

 

 

$

76,572,030

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

Restaurant operating costs (exclusive of depreciation and amortization shown separately below):

 

 

 

 

 

 

 

 

Food, beverage, and packaging costs

 

11,410,718

 

 

10,563,039

 

 

23,095,113

 

 

21,695,416

 

Compensation costs

 

10,746,736

 

 

10,167,398

 

 

21,653,029

 

 

20,332,053

 

Occupancy costs

 

3,002,484

 

 

2,806,370

 

 

5,940,538

 

 

5,750,210

 

Other operating costs

 

8,138,118

 

 

7,962,070

 

 

16,826,279

 

 

16,356,025

 

General and administrative expenses

 

1,923,022

 

 

2,169,732

 

 

4,162,969

 

 

4,423,660

 

Depreciation and amortization

 

2,643,959

 

 

3,100,745

 

 

5,209,329

 

 

6,267,245

 

Loss on asset disposal

 

15,191

 

 

6,946

 

 

23,576

 

 

12,797

 

Total operating expenses

 

37,880,228

 

 

36,776,300

 

 

76,910,833

 

 

74,837,406

 

 

 

 

 

 

 

 

 

 

Operating profit

 

1,040,017

 

 

262,773

 

 

2,577,496

 

 

1,734,624

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(1,477,397

)

 

(1,609,987

)

 

(2,982,732

)

 

(3,256,031

)

Other income, net

 

17,185

 

 

20,576

 

 

57,239

 

 

53,216

 

Loss before income taxes

 

(420,195

)

 

(1,326,638

)

 

(347,997

)

 

(1,468,191

)

 

 

 

 

 

 

 

 

 

Income tax benefit (expense)

 

(49,062

)

 

154,468

 

 

(65,819

)

 

455,891

 

Net loss

 

$

(469,257

)

 

$

(1,172,170

)

 

$

(413,816

)

 

$

(1,012,300

)

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share

 

$

(0.01

)

 

$

(0.04

)

 

$

(0.01

)

 

$

(0.04

)

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

Basic and diluted

 

32,081,710

 

 

26,474,297

 

 

32,003,616

 

 

26,664,010

 

   

As a result of the Company’s adoption of the new lease standard (ASU 2016-02), certain prior year amounts have been reclassified for consistency with the current year presentation.

 

 

DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

 

ASSETS

 

June 30, 2019

 

December 30, 2018

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

3,305,200

 

 

$

5,364,014

 

Accounts receivable

 

408,445

 

 

654,322

 

Inventory

 

1,419,142

 

 

1,526,779

 

Prepaid and other assets

 

599,201

 

 

556,480

 

Total current assets

 

5,731,988

 

 

8,101,595

 

 

 

 

 

 

Property and equipment, net

 

30,536,736

 

 

34,423,345

 

Operating lease right-of-use assets

 

49,863,338

 

 

52,303,764

 

Intangible assets, net

 

2,065,205

 

 

2,106,489

 

Goodwill

 

50,097,081

 

 

50,097,081

 

Other long-term assets

 

242,363

 

 

408,761

 

Total assets

 

$

138,536,711

 

 

$

147,441,035

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

3,787,837

 

 

$

4,273,133

 

Accrued compensation

 

1,583,311

 

 

1,830,415

 

Other accrued liabilities

 

3,489,788

 

 

2,821,235

 

Current portion of long-term debt

 

96,644,175

 

 

11,515,093

 

Current portion of operating lease liabilities

 

6,303,830

 

 

6,670,227

 

Total current liabilities

 

111,808,941

 

 

27,110,103

 

 

 

 

 

 

Operating lease liabilities, less current portion

 

46,879,840

 

 

48,956,491

 

Deferred income taxes

 

1,305,711

 

 

1,220,087

 

Other long-term liabilities

 

316,369

 

 

343,075

 

Long-term debt, less current portion

 

—

 

 

90,907,537

 

Total liabilities

 

160,310,861

 

 

168,537,293

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

Common stock - $0.0001 par value; 100,000,000 shares authorized; 33,274,180 and 33,200,708, respectively, issued and outstanding

 

3,204

 

 

3,182

 

Preferred stock - $0.0001 par value; 10,000,000 shares authorized; zero shares issued and outstanding

 

—

 

 

—

 

Additional paid-in capital

 

27,330,358

 

 

27,021,517

 

Accumulated other comprehensive (loss) income

 

(273,430

)

 

355,293

 

Accumulated deficit

 

(48,834,282

)

 

(48,476,250

)

Total stockholders’ deficit

 

(21,774,150

)

 

(21,096,258

)

 

 

 

 

 

Total liabilities and stockholders’ deficit

 

$

138,536,711

 

 

$

147,441,035

 

   

As a result of the Company’s adoption of the new lease standard (ASU 2016-02), certain prior year amounts have been reclassified for consistency with the current year presentation.

 

 

DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

 

 

Six Months Ended

 

 

June 30, 2019

 

July 1, 2018

Cash flows from operating activities

 

 

 

 

Net loss

 

$

(413,816

)

 

$

(1,012,300

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

Depreciation and amortization

 

5,209,329

 

 

6,267,245

 

Amortization of operating lease assets

 

3,081,552

 

 

3,112,476

 

Amortization of debt discount and loan fees

 

128,167

 

 

144,717

 

Loss on asset disposals

 

23,576

 

 

12,797

 

Share-based compensation

 

320,908

 

 

387,785

 

Deferred income taxes

 

41,411

 

 

(456,087

)

Changes in operating assets and liabilities that provided (used) cash:

 

 

 

 

Accounts receivable

 

245,877

 

 

374,226

 

Inventory

 

107,637

 

 

135,680

 

Prepaid and other assets

 

(196,421

)

 

(212,605

)

Intangible assets

 

—

 

 

(20,000

)

Other long-term assets

 

(59,028

)

 

(19,504

)

Accounts payable

 

(605,487

)

 

(1,021,198

)

Operating lease liabilities

 

(3,084,174

)

 

(2,936,762

)

Accrued liabilities

 

245,143

 

 

79,595

 

Net cash provided by operating activities

 

5,044,674

 

 

4,836,065

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Purchases of property and equipment

 

(1,184,821

)

 

(920,762

)

Net cash used in investing activities

 

(1,184,821

)

 

(920,762

)

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Proceeds from issuance of long-term debt

 

 

 

 

Repayments of long-term debt

 

(5,906,622

)

 

(5,758,311

)

Proceeds from employee stock purchase plan

 

43,801

 

 

41,950

 

Tax withholdings for restricted stock

 

(55,846

)

 

(50,006

)

Net cash used in financing activities

 

(5,918,667

)

 

(5,766,367

)

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(2,058,814

)

 

(1,851,064

)

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

5,364,014

 

 

4,371,159

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

3,305,200

 

 

$

2,520,095

 

   

As a result of the Company’s adoption of the new lease standard (ASU 2016-02), certain prior year amounts have been reclassified for consistency with the current year presentation.

 

DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES

Reconciliation between Net loss and Adjusted EBITDA and Adjusted Restaurant-Level EBITDA

 

 

 

 

 

 

 

 

 

Three Months Ended (Unaudited)

 

Six Months Ended (Unaudited)

 

June 30, 2019

 

July 1, 2018

 

June 30, 2019

 

July 1, 2018

Net loss

$

(469,257

)

 

$

(1,172,170

)

 

$

(413,816

)

 

$

(1,012,300

)

+ Income tax (benefit) expense

49,062

 

 

(154,468

)

 

65,819

 

 

(455,891

)

+ Interest expense

1,477,397

 

 

1,609,987

 

 

2,982,732

 

 

3,256,031

 

+ Other income, net

(17,185

)

 

(20,576

)

 

(57,239

)

 

(53,216

)

+ Loss on asset disposal

15,191

 

 

6,946

 

 

23,576

 

 

12,797

 

+ Depreciation and amortization

2,643,959

 

 

3,100,745

 

 

5,209,329

 

 

6,267,245

 

EBITDA

$

3,699,167

 

 

$

3,370,464

 

 

$

7,810,401

 

 

$

8,014,666

 

+ Non-recurring expenses (Restaurant-level)

41,944

 

 

—

 

 

69,615

 

 

—

 

+ Non-recurring expenses (Corporate-level)

116,987

 

 

270,693

 

 

475,585

 

 

698,218

 

Adjusted EBITDA

$

3,858,098

 

 

$

3,641,157

 

 

$

8,355,601

 

 

$

8,712,884

 

Adjusted EBITDA margin (%)

9.9

%

 

9.8

%

 

10.5

%

 

11.4

%

+ General and administrative

1,923,022

 

 

2,169,732

 

 

4,162,969

 

 

4,423,660

 

+ Non-recurring expenses (Corporate-level)

(116,987

)

 

(270,693

)

 

(475,585

)

 

(698,218

)

Restaurant–Level EBITDA

$

5,664,133

 

 

$

5,540,196

 

 

$

12,042,985

 

 

$

12,438,326

 

Restaurant–Level EBITDA margin (%)

14.6

%

 

15.0

%

 

15.2

%

 

16.2

%

   

As a result of the Company’s adoption of the new lease standard (ASU 2016-02), certain prior year amounts have been reclassified for consistency with the current year presentation.

Restaurant-Level EBITDA represents net loss plus the sum of non-restaurant specific general and administrative expenses, loss on property and equipment disposals, depreciation and amortization, other income and expenses, interest, taxes, and non-recurring expenses. Adjusted EBITDA represents net loss plus the sum of 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 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/20190814005691/en/

Investor and Media: Deborah K. Pawlowski Kei Advisors LLC 716.843.3908 dpawlowski@keiadvisors.com