Del Taco Restaurants, Inc. Reports Fiscal Second Quarter 2021 Financial Results

System-Wide Comparable Restaurant Sales Increased 17.8% Compared to the Prior-Year Fiscal Quarter – Income from Operations Growth of 148.5% Compared to Last Year

Del Taco Restaurants, Inc., (NASDAQ: TACO), the second largest Mexican-American quick service restaurant chain by units in the United States, reported fiscal second quarter 2021 financial results for the 12-week period ended June 15, 2021 and provided a business update.

Management Commentary

John D. Cappasola, Jr., President and Chief Executive Officer of Del Taco, commented, “We generated outstanding revenue and profitability growth during the second quarter as we leveraged our top-line momentum across all key cost inputs. Top-line growth was characterized by system-wide comparable restaurant sales growth versus 2020 in the high teens, representing mid-single digit growth versus 2019. Importantly, compared to 2019 all day parts were positive during the second quarter except for breakfast, which has since improved to flat in the third quarter, while late snack and graveyard were our top performing dayparts compared to 2019, aided by a strong delivery mix that again reached approximately 7% of sales.”

Cappasola continued, “Looking ahead, our focus on driving sales includes plans to introduce innovative new products and platforms along with the launch of our new Del App and loyalty program this September. In fact, just today we introduced a new breakfast platform centered on Double Cheese Breakfast Tacos that is aimed at capitalizing on the continued normalization of morning routines and strong breakfast seasonality as we head into Fall. Later this summer, we will follow this up with yet another exciting platform launch, Stuffed Quesadilla Tacos, which puts us in a great position to generate guest excitement and momentum in the back half of 2021 and entering 2022.”

Cappasola concluded, “We are very encouraged that Del Taco’s franchise led system growth is gaining momentum as we now expect to open thirteen system-wide restaurants in 2021. We recently announced an agreement with a seasoned multi-concept QSR franchise group for 12 restaurants across the Florida panhandle, representing our third franchise development agreement signed this year for a total of 30 future restaurants. We believe these agreements, plus our expanding backlog and other late-stage agreements we are finalizing, put us in a position to deliver system-wide new unit growth of 5% starting in 2023.”

Fiscal Second Quarter 2021 Highlights

  • Comparable restaurant sales results compared to the fiscal second quarter 2020:
    • System-wide comparable restaurant sales increased 17.8%;
    • Company-operated comparable restaurant sales increased 18.3%;
    • Franchise comparable restaurant sales increased 17.2%;
  • Total revenue of $125.0 million, representing 19.5% growth from the fiscal second quarter 2020;
  • Company-operated restaurant sales of $113.0 million, representing 18.6% growth from the fiscal second quarter 2020;
  • Net income of $6.0 million, or $0.16 per diluted share, compared to net loss of $0.6 million, or $0.02 per diluted share, in the fiscal second quarter 2020;
  • Adjusted net income* of $6.1 million, or $0.16 per diluted share, compared to adjusted net loss* of $75 thousand, or $0.00 per diluted share, in the fiscal second quarter 2020;
  • Restaurant contribution* margin of 18.9% compared to 16.4% in the fiscal second quarter 2020;
  • Adjusted EBITDA* of $16.9 million compared to $12.1 million in the fiscal second quarter 2020; and
  • Two franchised restaurant openings.

* Adjusted net income/loss, restaurant contribution, and adjusted EBITDA are non-GAAP measures and defined below under “Key Financial Definitions”. Please see the reconciliation of non-GAAP measures accompanying this release.

Review of Fiscal Second Quarter 2021 Financial Results

Total revenue increased 19.5% to $125.0 million compared to $104.6 million in the fiscal second quarter 2020. Comparable restaurant sales increased 17.8% system-wide, increased 18.3% at company-operated restaurants, and increased 17.2% at franchised restaurants.

Net income was $6.0 million, or $0.16 per diluted share, compared to net loss of $0.6 million, or $0.02 per diluted share, last year.

Adjusted net income*, which excludes various items, was $6.1 million, or $0.16 per diluted share, compared to adjusted net loss* of $75 thousand, or $0.00 per diluted share, last year.

Restaurant contribution* grew 36.9% to $21.4 million compared to $15.6 million in the fiscal second quarter 2020. As a percentage of company-operated restaurant sales, restaurant contribution margin increased 250 basis points year-over-year to 18.9%. The increase from the year-ago period was the result of an approximate 140 basis point decrease in food and paper costs, an approximate 30 basis point decrease in labor and related expenses, and an approximate 80 basis point decrease in occupancy and other operating expenses.

Adjusted EBITDA* grew 39.5% to $16.9 million compared to $12.1 million in the fiscal second quarter 2020.

Liquidity

As of June 15, 2021, Del Taco’s debt, net of cash, totaled $103.0 million compared to $106.7 million at the end of fiscal year 2020. At the end of the fiscal second quarter 2021 the Company had $126.6 million of remaining availability under its revolving credit facility.

Common Stock Repurchase Program

Del Taco repurchased 210,401 shares of common stock at an average price of $10.07 per share for a total of $2.1 million during the fiscal second quarter 2021. At the end of the fiscal second quarter approximately $15.0 million remained under the $75 million repurchase authorization.

Dividend Program Announcement

The Board of Directors has authorized a quarterly cash dividend of $0.04 per share of common stock payable on August 25, 2021 to shareholders of record at the close of business on August 11, 2021.

Del Taco intends to pay quarterly cash dividends for the foreseeable future, however, all subsequent dividend payments will be reviewed quarterly and declared by the Board of Directors at its discretion.

Restaurant Portfolio and New Development Agreements

During the fiscal second quarter 2021, two franchised restaurants opened.

The Company recently signed a new franchise development agreement for 12 restaurants across the Florida panhandle with an experienced multi-concept quick-service franchise group. This represents the third development agreement Del Taco has signed in 2021 for a total of 30 restaurants, all in the Southeast.

Based on the current development backlog, the three newly signed development agreements and additional agreements the Company expects to announce shortly, Del Taco expects system-wide openings will continue to be led by franchisees and will increase modestly in 2022 compared to the 13 expected system-wide openings in 2021, followed by system-wide new unit growth of 5% beginning in 2023.

Fiscal Year 2021 Guidelines

  • Annual commodity inflation compared to the prior year of up to 2% (up from 1% previously), inclusive of approximately 5% inflation in the fiscal third quarter compared to the prior year and approximately 4% inflation in the fiscal fourth quarter compared to the prior year;
  • Labor and related inflation of approximately 6%;
  • Menu price increase of approximately 4%;
  • Modest restaurant contribution margin* expansion compared to the 16.1% achieved during fiscal 2020;
  • General and administrative expenses, inclusive of stock-based compensation, at approximately 9.0% of total revenue;
  • Effective tax rate of approximately 29% (up from 27% previously);
  • Capital expenditures in the low $30 million range, including expenditures to maintain or enhance existing restaurants, company-operated restaurant openings, the test remodel program, and various discretionary technology and restaurant level investments;
  • Four company-operated restaurant openings, of which three have already opened; and
  • Nine (up from eight previously) franchised restaurant openings, of which seven have already opened, for 13 (up from twelve previously) system-wide openings.
 
Del Taco Restaurants, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share data)
         
    June 15, 2021   December 29, 2020
    (Unaudited)    
Assets        
Current assets:        
Cash and cash equivalents  

$

6,580

 

$

7,912

Accounts and other receivables, net  

6,553

 

5,463

Inventories  

2,557

 

2,799

Prepaid expenses and other current assets  

2,405

 

2,078

Assets held for sale  

1,468

 

1,495

Total current assets  

19,563

 

19,747

Property and equipment, net  

145,638

 

146,706

Operating lease right-of-use assets  

246,258

 

249,071

Goodwill  

108,979

 

108,979

Trademarks  

208,400

 

208,400

Intangible assets, net  

9,144

 

9,754

Other assets, net  

5,772

 

4,652

Total assets  

$

743,754

 

$

747,309

         
Liabilities and shareholders’ equity        
Current liabilities:        
Accounts payable  

$

17,221

 

$

18,683

Other accrued liabilities  

46,338

 

45,413

Current portion of finance lease obligations and other debt  

88

 

190

Current portion of operating lease liabilities  

21,612

 

22,648

Total current liabilities  

85,259

 

86,934

Long-term debt, finance lease obligations and other debt, excluding current portion, net  

109,525

 

114,418

Operating lease liabilities, excluding current portion  

249,198

 

251,958

Deferred income taxes  

62,225

 

61,485

Other non-current liabilities  

19,453

 

19,760

Total liabilities  

525,660

 

534,555

         
Shareholders’ equity:        
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; no shares issued and outstanding  

 

Common stock, $0.0001 par value; 400,000,000 shares authorized; 36,548,895 shares issued and outstanding at June 15, 2021; 36,828,237 shares issued and outstanding at December 29, 2020  

4

 

4

Additional paid-in capital  

330,419

 

333,712

Accumulated other comprehensive loss  

 

Accumulated deficit  

(112,329

)

 

(120,962

)

Total shareholders’ equity  

218,094

 

212,754

Total liabilities and shareholders’ equity  

$

743,754

 

$

747,309

         
 
Del Taco Restaurants, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(In thousands, except share and per share data)
                 
    12 Weeks Ended   24 Weeks Ended
    June 15, 2021   June 16, 2020   June 15, 2021   June 16, 2020
                 
Revenue:                
Company restaurant sales  

$

113,004

 

$

95,261

 

$

216,582

 

$

195,594

Franchise revenue  

5,604

 

4,520

 

10,809

 

8,911

Franchise advertising contributions  

4,189

 

2,783

 

8,014

 

5,994

Franchise sublease and other income  

2,174

 

2,006

 

5,097

 

3,881

Total revenue  

124,971

 

104,570

 

240,502

 

214,380

Operating expenses:                
Restaurant operating expenses:                
Food and paper costs  

28,797

 

25,642

 

55,449

 

53,937

Labor and related expenses  

37,214

 

31,609

 

72,722

 

66,545

Occupancy and other operating expenses  

25,605

 

22,389

 

50,447

 

46,797

General and administrative  

11,382

 

9,432

 

22,643

 

19,298

Franchise advertising expenses  

4,189

 

2,783

 

8,014

 

5,994

Depreciation and amortization  

5,984

 

6,285

 

11,931

 

12,422

Occupancy and other – franchise subleases and other  

2,092

 

1,727

 

4,970

 

3,322

Pre-opening costs  

59

 

63

 

255

 

296

Impairment of goodwill  

 

 

 

87,277

Impairment of trademarks  

 

 

 

11,900

Impairment of long-lived assets  

 

 

 

8,287

Restaurant closure charges, net  

386

 

499

 

798

 

993

Loss on disposal of assets and adjustments to assets held for sale, net  

52

 

435

 

54

 

557

Total operating expenses  

115,760

 

100,864

 

227,283

 

317,625

Income (loss) from operations  

9,211

 

3,706

 

13,219

 

(103,245

)

Other expense (income), net:                
Interest expense  

701

 

1,281

 

1,422

 

2,789

Other income  

 

 

(373

)

 

Total other expense, net  

701

 

1,281

 

1,049

 

2,789

Income (loss) from operations before provision (benefit) for income taxes  

8,510

 

2,425

 

12,170

 

(106,034

)

Provision (benefit) for income taxes  

2,508

 

3,001

 

3,537

 

(2,990

)

Net income (loss)  

6,002

 

(576

)

 

8,633

 

(103,044

)

Other comprehensive income:                
Reclassification of interest rate cap amortization included in net income (loss), net of tax  

 

7

 

 

52

Total other comprehensive income, net  

 

7

 

 

52

Comprehensive income (loss)  

$

6,002

 

$

(569

)

 

$

8,633

 

$

(102,992

)

Earnings (loss) per share:                
Basic  

$

0.16

 

$

(0.02

)

 

$

0.24

 

$

(2.78

)

Diluted  

$

0.16

 

$

(0.02

)

 

$

0.23

 

$

(2.78

)

Weighted average shares outstanding                
Basic  

36,709,588

 

37,086,962

 

36,735,629

 

37,081,511

Diluted  

37,269,233

 

37,086,962

 

37,229,694

 

37,081,511

                 
 
Del Taco Restaurants, Inc.
Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA
(Unaudited)
(In thousands)
                 
    12 Weeks Ended   24 Weeks Ended
    June 15, 2021   June 16, 2020   June 15, 2021   June 16, 2020
Net income (loss)  

$

6,002

 

$

(576

)

 

$

8,633

 

$

(103,044

)

Non-GAAP adjustments:                
Provision (benefit) for income taxes  

2,508

 

3,001

 

3,537

 

(2,990

)

Interest expense  

701

 

1,281

 

1,422

 

2,789

Depreciation and amortization  

5,984

 

6,285

 

11,931

 

12,422

EBITDA  

15,195

 

9,991

 

25,523

 

(90,823

)

Stock-based compensation expense (a)  

1,519

 

1,413

 

2,919

 

2,638

Loss on disposal of assets and adjustments to assets held for sale, net (b)  

52

 

435

 

54

 

557

Impairment of goodwill (c)  

 

 

 

87,277

Impairment of trademarks (d)  

 

 

 

11,900

Impairment of long-lived assets (e)  

 

 

 

8,287

Restaurant closure charges, net (f)  

386

 

499

 

798

 

993

Amortization of favorable and unfavorable lease assets and liabilities, net (g)  

(85

)

 

(66

)

 

(171

)

 

(115

)

Pre-opening costs (h)  

59

 

63

 

255

 

296

Sublease income for closed restaurants (i)  

(269

)

 

(248

)

 

(525

)

 

(498

)

Executive transition costs (j)  

 

 

 

287

Other income (k)  

 

 

(373

)

 

Adjusted EBITDA  

$

16,857

 

$

12,087

 

$

28,480

 

$

20,799

                 
(a) Includes non-cash, stock-based compensation.
(b) Loss on disposal of assets and adjustments to assets held for sale, net includes adjustments to reduce the carrying amount for assets held for sale to estimated fair value less cost to sell, remeasurement losses for assets held for sale reclassified back to held for use, loss or gain on disposal of assets related to sales, retirements and replacement or write-off of leasehold improvements or equipment in the ordinary course of business, net gains or losses recorded associated with the sale of company-operated restaurants to franchisees, gains from the write-off of right-of-use assets and operating lease liabilities related to the termination of leases and net gains or losses recorded associated with sale-leaseback transactions.
(c) Includes non-cash charges related to impairment of goodwill.
(d) Includes non-cash charges related to impairment of trademarks.
(e) Includes non-cash charges related to impairment of long-lived assets.
(f) Restaurant closure costs include rent expense, non-lease executory costs, other direct costs associated with previously closed restaurants and future obligations associated with the closure of a restaurant.
(g) Includes amortization of favorable lease assets and unfavorable lease liabilities.
(h) Pre-opening costs consist of costs directly associated with the opening of new restaurants and incurred prior to opening, including restaurant labor, supplies, cash and non-cash rent expense and other related pre-opening costs. These are generally incurred over the three to five months prior to opening.
(i) Includes other sublease income related to closed restaurants that have been subleased to third parties.
(j) Includes costs associated with the transition of former Company executives, such as severance expense.
(k) During 2021, other income consists of a legal settlement related to construction defects at a company-operated restaurant.
 
 
Del Taco Restaurants, Inc.
Reconciliation of Company Restaurant Sales to Restaurant Contribution
(Unaudited)
(In thousands)
                 
    12 Weeks Ended   24 Weeks Ended
    June 15, 2021   June 16, 2020   June 15, 2021   June 16, 2020
Company restaurant sales  

$

113,004

 

$

95,261

 

$

216,582

 

$

195,594

Restaurant operating expenses  

91,616

 

79,640

 

178,618

 

167,279

Restaurant contribution  

$

21,388

 

$

15,621

 

$

37,964

 

$

28,315

Restaurant contribution margin  

18.9

%

 

16.4

%

 

17.5

%

 

14.5

%

                 
                 
                 
Del Taco Restaurants, Inc.
Reconciliation of Income (Loss) from Operations to Restaurant Contribution
(Unaudited)
(In thousands)
                 
    12 Weeks Ended   24 Weeks Ended
    June 15, 2021   June 16, 2020   June 15, 2021   June 16, 2020
Income (loss) from operations  

$

9,211

 

$

3,706

 

$

13,219

 

$

(103,245

)

Less:                
Franchise revenue  

(5,604

)

 

(4,520

)

 

(10,809

)

 

(8,911

)

Franchise advertising contributions  

(4,189

)

 

(2,783

)

 

(8,014

)

 

(5,994

)

Franchise sublease income and other  

(2,174

)

 

(2,006

)

 

(5,097

)

 

(3,881

)

Plus:                
General and administrative  

11,382

 

9,432

 

22,643

 

19,298

Franchise advertising expenses  

4,189

 

2,783

 

8,014

 

5,994

Depreciation and amortization  

5,984

 

6,285

 

11,931

 

12,422

Occupancy and other – franchise subleases and other  

2,092

 

1,727

 

4,970

 

3,322

Pre-opening costs  

59

 

63

 

255

 

296

Impairment of goodwill  

 

 

 

87,277

Impairment of trademarks  

 

 

 

11,900

Impairment of long-lived assets  

 

 

 

8,287

Restaurant closure charges, net  

386

 

499

 

798

 

993

Loss on disposal of assets and adjustments to assets held for sale, net  

52

 

435

 

54

 

557

Restaurant contribution  

$

21,388

 

$

15,621

 

$

37,964

 

$

28,315

Company restaurant sales  

$

113,004

 

$

95,261

 

$

216,582

 

$

195,594

Restaurant contribution margin  

18.9

%

 

16.4

%

 

17.5

%

 

14.5

%

                 
 
Del Taco Restaurants, Inc.
Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss)
(Unaudited)
(In thousands, except per share data)
                 
    12 Weeks Ended   24 Weeks Ended
    June 15, 2021   June 16, 2020   June 15, 2021   June 16, 2020
Net income (loss), as reported  

$

6,002

 

$

(576

)

 

$

8,633

 

$

(103,044

)

Sublease income for closed restaurants (a)  

(269

)

 

(248

)

 

(525

)

 

(498

)

Impairment of goodwill (b)  

 

 

 

87,277

Impairment of trademarks (c)  

 

 

 

11,900

Impairment of long-lived assets (d)  

 

 

 

8,287

Restaurant closure charges, net (e)  

386

 

499

 

798

 

993

Loss on disposal of assets and adjustments to assets held for sale, net (f)  

52

 

435

 

54

 

557

Other income (g)  

 

 

(373

)

 

Executive transition costs (h)  

 

 

 

287

Tax impact of adjustments (i)  

(45

)

 

(185

)

 

13

 

(5,809

)

Non-GAAP adjusted net income (loss)  

$

6,126

 

$

(75

)

 

$

8,600

 

$

(50

)

                 
Earnings (loss) per share (as reported):                
Basic  

$

0.16

 

$

(0.02

)

 

$

0.24

 

$

(2.78

)

Diluted  

$

0.16

 

$

(0.02

)

 

$

0.23

 

$

(2.78

)

Weighted average shares outstanding (as reported):                
Basic  

36,709,588

 

37,086,962

 

36,735,629

 

37,081,511

Diluted  

37,269,233

 

37,086,962

 

37,229,694

 

37,081,511

                 
Adjusted earnings per share:                
Basic  

$

0.17

 

$

(0.00

)

 

$

0.23

 

$

(0.00

)

Diluted  

$

0.16

 

$

(0.00

)

 

$

0.23

 

$

(0.00

)

Shares used in computing adjusted earnings per share:                
Basic  

36,709,588

 

37,086,962

 

36,735,629

 

37,081,511

Diluted  

37,269,233

 

37,086,962

 

37,229,694

 

37,081,511

                 
(a) Includes other sublease income related to closed restaurants that have been subleased to third parties.
(b) Includes non-cash charges related to impairment of goodwill.
(c) Includes non-cash charges related to impairment of trademarks.
(d) Includes non-cash charges related to impairment of long-lived assets.
(e) Restaurant closure costs include rent expense, non-lease executory costs, other direct costs associated with previously closed restaurants and future obligations associated with the closure of a restaurant.
(f) Loss on disposal of assets and adjustments to assets held for sale, net includes adjustments to reduce the carrying amount for assets held for sale to estimated fair value less cost to sell, remeasurement losses for assets held for sale reclassified back to held for use, loss or gain on disposal of assets related to sales, retirements and replacement or write-off of leasehold improvements or equipment in the ordinary course of business, net gains or losses recorded associated with the sale of company-operated restaurants to franchisees, gains from the write-off of right-of-use assets and operating lease liabilities related to the termination of leases and net gains or losses recorded associated with sale-leaseback transactions.
(g) During 2021, other income consists of a legal settlement related to construction defects at a company-operated restaurant.
(h) Includes costs associated with the transition of former Company executives, such as severance expense.
(i) Represents the income tax associated with the adjustments in (a) through (h) that are deductible for income tax purposes.
 
Del Taco Restaurants, Inc.
Restaurant Development
                 
    12 Weeks Ended   12 Weeks Ended
    June 15, 2021   June 16, 2020   June 15, 2021   June 16, 2020
Company-operated restaurant activity:                
Beginning of period  

297

 

296

 

295

 

300

Openings  

 

 

2

 

2

Closures  

 

(1

)

 

 

(2

)

Sold to franchisees  

 

(1

)

 

 

(6

)

Restaurants at end of period  

297

 

294

 

297

 

294

Franchise-operated restaurant activity:                
Beginning of period  

302

 

300

 

301

 

296

Openings  

2

 

 

5

 

1

Closures  

 

(2

)

 

(2

)

 

(4

)

Purchased from Company  

 

1

 

 

6

Restaurants at end of period  

304

 

299

 

304

 

299

Total restaurant activity:                
Beginning of period  

599

 

596

 

596

 

596

Openings  

2

 

 

7

 

3

Closures  

 

(3

)

 

(2

)

 

(6

)

Restaurants at end of period  

601

 

593

 

601

 

593