CEC Entertainment, Inc. Reports Third Quarter 2019 YTD Comparable Venue Sales Growth

CEC Entertainment, Inc. today announced financial results for its third quarter ended September 29, 2019.

Nine-Month and Third Quarter Results (1)

For the nine months ended September 29, 2019, comparable venue sales increased 2.7% over the prior year period. Total revenues for the nine months ended September 29, 2019 increased from $693.2 million to $706.1 million. Comparable venue sales declined 0.9% in the third quarter of 2019 compared to the third quarter of 2018. For the third quarter of 2019, total revenues decreased $3.3 million, or 1.5%, to $217.6 million, compared to $220.9 million in the third quarter of 2018. The decrease in revenues for the third quarter was primarily attributable to the decline in comparable venue sales, and a net Play Pass revenue deferral of $0.7 million, compared to $1.7 million in net breakage for the third quarter of 2018.

The Company reported a net loss of $15.3 million for the third quarter of 2019, compared to a net loss of $9.5 million for the third quarter of 2018. The net loss for the current quarter was impacted by the decrease in Company-operated venue sales and an $8.2 million impairment charge related to some of our less profitable locations compared to a $5.3 million impairment charge in the prior year. Additionally, the net loss was impacted by a $2.9 million loss on debt extinguishment in connection with the refinancing of our senior secured debt facilities, and an increase in interest expense driven by a higher average interest rate on our variable rate debt. These negative impacts were partially offset by lower venue level operating costs and expenses.

“Revenue was up for the first nine months of 2019, driven by an increase in comparable venue sales,” said Tom Leverton, Chief Executive Officer. “While we had five consecutive quarters of comparable venue sales growth coming into this quarter, we fell short of our goal for the third quarter, but recent trends have returned solidly positive. I am encouraged to see that our comparable venue sales growth for October is approximately 2.5%.”

Adjusted EBITDA (1) for the nine-month period ended September 29, 2019 increased $9.1 million, or 6.3%, to $153.4 million from $144.3 million for the nine-month period ended September 30, 2018. For the third quarter of 2019, Adjusted EBITDA increased $0.4 million, or 0.9%, to $38.9 million from $38.5 million for the third quarter of 2018.

Balance Sheet and Liquidity

As of September 29, 2019, the Company had cash and cash equivalents of $105.1 million with net availability of $105.5 million on the undrawn revolving credit facility. There is $1.0 billion of principal outstanding on the Company’s long-term debt.

On August 30, 2019, the Company entered into a new credit agreement that provides senior secured financing consisting of (i) a $114 million revolving credit facility with a maturity date of August 30, 2024 (the “revolver maturity date”), and (ii) a $760 million term loan facility with a maturity date of August 30, 2026 (the “term loan maturity date”).  The net proceeds from the term loans, plus cash on hand, were used to repay loans outstanding under the Company’s existing secured credit facilities and to pay related fees and expenses. The new credit agreement includes a springing maturity clause whereby in the event that more than $50 million of the Company’s 8% senior notes due February 15, 2022 remain outstanding on the date that is 91 days prior to the stated maturity date of the notes, the revolver and term loan maturity dates will spring to such earlier date.

During the third quarter of 2019, the Company made $26.2 million of capital expenditures, of which $12.0 million related to growth initiatives, $1.7 million related to IT initiatives, and $12.5 million related to maintenance capital expenditures, primarily consisting of game enhancements and general venue capital expenditures.

________________

(1)      

For our definition of Adjusted EBITDA, see the financial table “Reconciliation of Non-GAAP Financial Measures” included within this press release.

As of September 29, 2019, the Company’s system-wide portfolio consisted of:

Chuck E. Cheese

Peter Piper Pizza

Total

Company operated

514

39

553

Domestic franchised

25

61

86

International franchised

71

28

99

Total

610

128

738

About CEC Entertainment, Inc.

CEC Entertainment, Inc. is the nationally recognized leader in family dining and entertainment with both its Chuck E. Cheese and Peter Piper Pizza restaurants. As the place where a million happy birthdays are celebrated every year, Chuck E. Cheese’s goal is to create positive, lifelong memories for families through fun, food, and play and is the place Where A Kid Can Be A Kid®. Committed to providing a fun, safe environment, Chuck E. Cheese helps protect families through industry-leading programs such as Kid Check®. As a strong advocate for its local communities, Chuck E. Cheese has donated more than $16 million to schools through its fundraising programs and supports its new national charity partner, Boys and Girls Clubs of America. Peter Piper Pizza features dining, entertainment and carryout with a neighborhood pizzeria feel and “pizza made fresh, families made happy” culture. Peter Piper Pizza takes pride in delivering quality food and fun that reconnects family and friends. With a bold design and contemporary layout, an open kitchen revealing much of their handcrafted food preparation, the latest technology and games, and beer and wine for adults, Peter Piper Pizza restaurants appeal to parents and kids alike. As of September 29, 2019, the Company and its franchisees operated a system of 610 Chuck E. Cheese and 128 Peter Piper Pizza venues, with locations in 47 states and 15 foreign countries and territories.

CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except percentages)

Three Months Ended

Nine Months Ended

September 29,
 2019

September 30,
 2018

September 29,
 2019

September 30,
 2018

REVENUES:

Food and beverage sales

$

92,645

42.6%

$

94,023

42.6%

$

302,111

42.8%

$

308,658

44.5%

Entertainment and merchandise sales

119,688

55.0%

121,611

55.0%

386,778

54.8%

368,633

53.2%

Total company venue sales

212,333

97.6%

215,634

97.6%

688,889

97.6%

677,291

97.7%

Franchise fees and royalties

5,261

2.4%

5,311

2.4%

17,194

2.4%

15,917

2.3%

Total revenues

217,594

100.0%

220,945

100.0%

706,083

100.0%

693,208

100.0%

OPERATING COSTS AND EXPENSES:

Company venue operating costs and expenses (excluding Depreciation and amortization):

Cost of food and beverage (1)

21,302

23.0%

22,520

24.0%

69,239

22.9%

72,774

23.6%

Cost of entertainment and merchandise (2)

10,113

8.4%

9,874

8.1%

31,311

8.1%

27,676

7.5%

Total cost of food, beverage, entertainment and merchandise (3)

31,415

14.8%

32,394

15.0%

100,550

14.6%

100,450

14.8%

Labor expenses (3)

63,213

29.8%

65,028

30.2%

199,693

29.0%

194,994

28.8%

Lease costs (3)

27,559

13.0%

23,851

11.1%

82,102

11.9%

72,615

10.7%

Other venue operating expenses (3)

34,586

16.3%

38,232

17.7%

102,536

14.9%

113,363

16.7%

Total company venue operating costs and expenses (3)

156,773

73.8%

159,505

74.0%

484,881

70.4%

481,422

71.1%

Other costs and expenses:

Advertising expense

10,803

5.0%

11,058

5.0%

34,033

4.8%

38,010

5.5%

General and administrative expenses

13,051

6.0%

13,193

6.0%

42,944

6.1%

39,519

5.7%

Depreciation and amortization

24,622

11.3%

24,739

11.2%

73,074

10.3%

76,804

11.1%

Transaction, severance and related litigation costs

371

0.2%

(263)

(0.1)%

402

0.1%

463

0.1%

Asset impairments

8,202

3.8%

5,344

2.4%

9,487

1.3%

6,935

1.0%

Total operating costs and expenses

213,822

98.3%

213,576

96.7%

644,821

91.3%

643,153

92.8%

Operating income

3,772

1.7%

7,369

3.3%

61,262

8.7%

50,055

7.2%

Interest expense

22,029

10.1%

19,069

8.6%

61,816

8.8%

56,740

8.2%

Loss on extinguishment of debt

2,910

1.3%

—%

2,910

0.4%

—%

Loss before income taxes

(21,167)

(9.7)%

(11,700)

(5.3)%

(3,464)

(0.5)%

(6,685)

(1.0)%

Income tax benefit

(5,833)

(2.7)%

(2,213)

(1.0)%

(642)

(0.1)%

(454)

(0.1)%

Net loss

$

(15,334) 

(7.0)%

$

(9,487)

(4.3)%

$

(2,822)

(0.4)%

$

(6,231)

(0.9)%

________________

Percentages are expressed as a percent of total revenues (except as otherwise noted).

(1)

Percentage amount expressed as a percentage of food and beverage sales.

(2)

Percentage amount expressed as a percentage of entertainment and merchandise sales.

(3)

Percentage amount expressed as a percentage of total company venue sales.

Due to rounding, percentages presented in the table above may not sum to total. The percentage amounts for the components of cost of food and beverage and the cost of entertainment and merchandise may not sum to total due to the fact that cost of food and beverage and cost of entertainment and merchandise are expressed as a percentage of related food and beverage sales and entertainment and merchandise sales, as opposed to total company venue sales.

CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share information)

September 29,
2019

December 30,
2018

ASSETS

Current assets:

Cash and cash equivalents

$

105,059

$

63,170

Restricted cash

212

151

Other current assets

62,429

83,411

Total current assets

167,700

146,732

Property and equipment, net

525,107

539,185

Operating lease right-of-use assets, net (1)

536,057

Goodwill

484,438

484,438

Intangible assets, net

469,218

477,085

Other noncurrent assets

16,794

18,725

Total assets

$

2,199,314

$

1,666,165

LIABILITIES AND STOCKHOLDER’S EQUITY

Current liabilities:

Bank indebtedness and other long-term debt, current portion

$

7,600

$

7,600

Operating lease obligations, current portion (1)

49,203

Other current liabilities

122,497

98,982

Total current liabilities

179,300

106,582

Operating lease obligations, less current portion (1)

522,380

Bank indebtedness and other long-term debt, net of deferred financing costs, less

current portion

 

958,986

 

961,514

Deferred tax liability

102,721

107,058

Other noncurrent liabilities

196,030

248,440

Total liabilities

1,959,417

1,423,594

Stockholder’s equity:

Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of September 29, 2019 and December 30, 2018

Capital in excess of par value

359,930

359,570

Accumulated deficit

(118,482)

(115,660)

Accumulated other comprehensive loss

(1,551)

(1,339)

Total stockholder’s equity

239,897

242,571

Total liabilities and stockholder’s equity

$

2,199,314

$

1,666,165

_______________

(1)

Effective December 31, 2018, the Company adopted ASC 842 using the modified retrospective approach. Under the modified retrospective approach, the comparative information has not been restated and continues to be reported under the accounting standards in effect for that period.

CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)

Nine Months Ended

September 29,
 2019

September 30,

2018

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

$

(2,822)

$

(6,231)

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

  Loss on extinguishment of debt

2,910

  Depreciation and amortization

73,074

76,804

  Asset impairments

9,487

6,935

  Deferred income taxes

(4,261)

(3,314)

  Stock-based compensation expense

1,985

169

  Amortization of lease related liabilities

(749)

  Amortization of original issue discount and deferred debt financing costs

3,544

3,284

  Debt refinancing costs

694

  Loss on asset disposals, net

2,903

2,551

  Non-cash lease costs

2,438

4,109

 Change in operating lease liabilities

(1,219)

 Other adjustments

(170)

531

Changes in operating assets and liabilities:

Operating assets

2,518

(1,547)

Operating liabilities

24,563

(67)

Net cash provided by operating activities

115,644

82,475

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(60,388)

(55,202)

Development of internal use software

(787)

(1,992)

Proceeds from sale of property and equipment

160

464

Net cash used in investing activities

(61,015)

(56,730)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from senior notes

479,449

Repayments on senior term loan

(473,749)

(5,700)

Payment of debt financing costs

(15,375)

(395)

Other financing activities

(2,999)

(2,561)

Net cash used in financing activities

(12,674)

(8,656)

Effect of foreign exchange rate changes on cash

(5)

51

Change in cash, cash equivalents and restricted cash

41,950

17,140

Cash, cash equivalents and restricted cash at beginning of period

63,321

67,312

Cash, cash equivalents and restricted cash at end of period

$

105,271

$

84,452

CEC ENTERTAINMENT, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited)
(in thousands, except percentages)

Non-GAAP Financial Measures

Certain financial measures presented in this press release, such as Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) and Adjusted EBITDA as a percentage of revenues (“Adjusted EBITDA Margin”) are not recognized terms under accounting principles generally accepted in the United States (“GAAP”). The Company’s management believes that the presentation of these measures is appropriate to provide useful information to investors regarding its operating performance and its capacity to incur and service debt and fund capital expenditures. Further, the Company believes that Adjusted EBITDA is used by many investors, analysts and rating agencies as a measure of performance. The Company also presents Adjusted EBITDA because it is substantially similar to Credit Agreement EBITDA, a measure used in calculating financial ratios and other calculations under our debt agreements, except for excluding (i) the annualized full year effect of Company-operated and franchised venues that were opened and closed during the year, and (ii) the projected annualized run-rate expected to be achieved from major remodels under development. By reporting Adjusted EBITDA, the Company provides a basis for comparison of its business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance.

The Company’s definition of Adjusted EBITDA allows for the exclusion of certain non-cash and other income and expense items that are used in calculating net income from continuing operations. However, these are items that may recur, vary greatly and can be difficult to predict. They can represent the effect of long-term strategies as opposed to short-term results. In addition, certain of these items can represent the reduction of cash that could be used for other corporate purposes. These measures should not be considered as alternatives to operating income, cash flows from operating activities or any other performance measures derived in accordance with GAAP as measures of operating performance, or cash flows as measures of liquidity. These measures have important limitations as analytical tools, and users should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, the Company relies primarily on its GAAP results and uses Adjusted EBITDA and Adjusted EBITDA Margin only supplementally.

The following table sets forth a reconciliation of our net loss to Adjusted EBITDA and Adjusted EBITDA Margin for the periods shown:

Three Months Ended

Nine Months Ended

September 29,
 2019

September 30,
 2018

September 29,
 2019

September 30,
 2018

Total revenues

$

217,594

$

220,945

$

706,083

$

693,208

Net loss as reported

$

(15,334)

$

(9,487)

$

(2,822)

$

(6,231)

Interest expense

22,029

19,069

61,816

56,740

Income tax benefit

(5,833)

(2,213)

(642)

(454)

Depreciation and amortization

24,622

24,739

73,074

76,804

EBITDA

25,484

32,108

131,426

126,859

Asset impairments

8,202

5,344

9,487

6,935

Loss on asset disposals, net

920

513

2,903

2,551

Unrealized loss (gain) on foreign exchange

168

(412)

(469)

283

Non-cash stock-based compensation

(111)

(58)

2,000

169

Lease costs book to cash

783

945

2,481

5,133

Franchise revenue, net cash received

464

(30)

1,634

712

Impact of purchase accounting

31

31

Venue pre-opening costs

170

81

386

105

One-time and unusual items

2,781

44

3,566

1,511

Adjusted EBITDA

$

38,892

$

38,535

$

153,445

$

144,258

Adjusted EBITDA Margin

17.9%

17.4%

21.7%

20.8%

SOURCE CEC Entertainment, Inc.