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

Del Taco Restaurants, Inc., (NASDAQ: TACO), last weekreported fiscal third quarter 2021 financial results for the 12-week period ended September 7, 2021.

Management Commentary

John D. Cappasola, Jr., President and Chief Executive Officer of Del Taco, commented, “We have made significant progress in signing new franchise development agreements, having signed a total of seven so far this year, including four since July, for a total of 53 new future Del Taco restaurant commitments across six states from coast to coast. Accelerating franchise development with experienced operators looking to diversify their portfolios through our unique QSR+ positioning is a critical part of our growth and these new agreements further support our stated goal of 5% system-wide new unit growth led by franchising beginning in 2023.”

Cappasola continued, “We are pleased with our positive third quarter comparable restaurant sales as we lapped strong performance driven by our very successful launch of Crispy Chicken, as well as our momentum thus far in the fourth quarter. Notable product innovation during the third quarter included new Double Cheese Breakfast Tacos and new Stuffed Quesadilla Tacos, and we plan to follow these introductions with the return of our seasonal, limited-time Tamales menu beginning in November.”

Cappasola concluded, “We recently launched our new holistic CRM platform and introduced our new loyalty App called Del Yeah! Rewards, a points-based loyalty program with four tiers that unlock exciting offers, rewards and experiences which increase along with usage of the app. We are confident that the App will enable us to not only strengthen our guest engagement but also increase sales and frequency over time.”

Fiscal Third Quarter 2021 Highlights

  • Comparable restaurant sales results compared to the fiscal third quarter 2020:
    • System-wide comparable restaurant sales increased 1.8%;
    • Company-operated comparable restaurant sales increased 1.6%;
    • Franchise comparable restaurant sales increased 2.0%;
  • Total revenue of $124.3 million, representing 2.9% growth from the fiscal third quarter 2020;
  • Company-operated restaurant sales of $112.0 million, representing 2.2% growth from the fiscal third quarter 2020;
  • Net income of $3.8 million, or $0.10 per diluted share, compared to $5.8 million, or $0.15 per diluted share, in the fiscal third quarter 2020;
  • Adjusted net income* of $4.2 million, or $0.11 per diluted share, compared to $6.0 million, or $0.16 per diluted share, in the fiscal third quarter 2020;
  • Restaurant contribution* margin of 16.5% compared to 18.0% in the fiscal third quarter 2020;
  • Adjusted EBITDA* of $14.1 million compared to $15.3 million in the fiscal third quarter 2020; and
  • One company-operated and three franchised-operated restaurants opened; one company-operated and one franchise-operated restaurant closed.

* Adjusted net income, restaurant contribution, and adjusted EBITDA are non-GAAP measures.

Review of Fiscal Third Quarter 2021 Financial Results

Total revenue increased 2.9% to $124.3 million compared to $120.8 million in the fiscal third quarter 2020. Comparable restaurant sales increased 1.8% system-wide, increased 1.6% at company-operated restaurants, and increased 2.0% at franchised restaurants.

Net income was $3.8 million, or $0.10 per diluted share, compared to $5.8 million, or $0.15 per diluted share, last year.

Adjusted net income*, which excludes various items, was $4.2 million, or $0.11 per diluted share, compared to $6.0 million, or $0.16 per diluted share, last year.

Restaurant contribution* was $18.5 million compared to $19.7 million in the fiscal third quarter 2020. As a percentage of company-operated restaurant sales, restaurant contribution margin decreased 150 basis points year-over-year to 16.5%. The decrease from the year-ago period was the result of an approximate 80 basis points increase in labor and related expense and an approximate 100 basis points increase in other operating expense, due to higher advertising expense and utilities expense, partially offset by an approximate 30 basis points decrease in food and paper costs.

Adjusted EBITDA* was $14.1 million compared to $15.3 million in the fiscal third quarter 2020.

Liquidity

As of September 7, 2021, Del Taco’s debt, net of cash, totaled $102.3 million compared to $106.7 million at the end of fiscal year 2020. At the end of the fiscal third quarter 2021 the Company had $130.6 million of remaining availability under its revolving credit facility.

Common Stock Repurchase Program

Del Taco repurchased 449,324 shares of common stock at an average price of $9.87 per share for a total of $4.4 million during the fiscal third quarter 2021. At the end of the fiscal third quarter approximately $10.6 million remained under the $75 million repurchase authorization.

Dividend Announcement

The Board of Directors has authorized a quarterly cash dividend of $0.04 per share of common stock payable on November 24, 2021 to shareholders of record at the close of business on November 3, 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 third quarter 2021, one company-operated and three franchised-operated restaurants opened, and one company-operated and one franchise-operated restaurant closed.

Since July, the Company signed four development agreements for a total of 23 restaurants. These agreements followed three development agreements announced earlier this year for 30 units. In total, Del Taco has signed seven development agreements to date in 2021 for 53 restaurants, featuring new franchisees across six states from coast to coast. The four recent new development agreements cover future restaurants in four states from coast to coast, including the east coast of Central Florida and Raleigh/Durham, North Carolina, as well as Fresno, California and non-traditional casino locations in Las Vegas.

Also, the Company recently announced a new delivery-only license agreement with REEF, who is a leader in the growing ghost kitchen and delivery restaurant space. The collaboration will initially kick off later this month with the first location in the dense urban Mid City area of Los Angeles, the first of several planned delivery-only locations.

Based on the current development pipeline, including the seven franchised development agreements signed this year, Del Taco expects system-wide new unit openings will continue to be led by franchisees and will increase modestly in 2022 compared to the thirteen expected system-wide new unit 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 2%, inclusive of approximately 5% inflation in the fiscal fourth quarter compared to the prior year;
  • Labor and related inflation of approximately 6%;
  • Menu price increase of approximately 4.6%;
  • 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%;
  • Capital expenditures up to $30 million, 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 franchised restaurant openings, of which eight have already opened, for 13 system-wide openings.
Del Taco Restaurants, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share data)
         
    September 7, 2021   December 29, 2020
    (Unaudited)    
Assets        
Current assets:        
Cash and cash equivalents  

 $

                        3,384

 

 $

                        7,912

Accounts and other receivables, net  

                           5,292

 

                           5,463

Inventories  

                           2,952

 

                           2,799

Prepaid expenses and other current assets  

                           4,191

 

                           2,078

Assets held for sale  

                           1,468

 

                           1,495

Total current assets  

                         17,287

 

                         19,747

Property and equipment, net  

                       146,276

 

                       146,706

Operating lease right-of-use assets  

                       243,595

 

                       249,071

Goodwill  

                       108,979

 

                       108,979

Trademarks  

                       208,400

 

                       208,400

Intangible assets, net  

                           8,870

 

                           9,754

Other assets, net  

                           6,260

 

                           4,652

Total assets  

 $

                    739,667

 

 $

                    747,309

         
Liabilities and shareholders’ equity        
Current liabilities:        
Accounts payable  

 $

                      20,830

 

 $

                      18,683

Other accrued liabilities  

                         46,739

 

                         45,413

Current portion of finance lease obligations and other debt  

                                59

 

                              190

Current portion of operating lease liabilities  

                         21,286

 

                         22,648

Total current liabilities  

                         88,914

 

                         86,934

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

                       105,578

 

                       114,418

Operating lease liabilities, excluding current portion  

                       246,220

 

                       251,958

Deferred income taxes  

                         63,547

 

                         61,485

Other non-current liabilities  

                         19,626

 

                         19,760

Total liabilities  

                       523,885

 

                       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; 36,392,418
     shares issued and outstanding at September 7, 2021; 36,828,237
     shares issued and outstanding at December 29, 2020
 

                                  4

 

                                  4

Additional paid-in capital  

                       324,269

 

                       333,712

Accumulated other comprehensive loss  

 —

 

 —

Accumulated deficit  

                     (108,491

)

 

                     (120,962

)

     Total shareholders’ equity  

                       215,782

 

                       212,754

Total liabilities and shareholders’ equity  

 $

                    739,667

 

 $

                    747,309

Del Taco Restaurants, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(In thousands, except share and per share data)
                 
    12 Weeks Ended   36 Weeks Ended
    September 7, 2021   September 8, 2020   September 7, 2021   September 8, 2020
                 
Revenue:                
Company restaurant sales  

 $

                    111,981

 

 $

                   109,522

 

 $

                 328,563

 

 $

                305,116

Franchise revenue  

                           5,586

 

                          5,169

 

                      16,395

 

                     14,080

Franchise advertising contributions  

                           4,170

 

                          4,001

 

                      12,184

 

                       9,995

Franchise sublease and other income  

                           2,534

 

                          2,090

 

                        7,631

 

                       5,971

Total revenue  

                       124,271

 

                      120,782

 

                    364,773

 

                   335,162

Operating expenses:                
Restaurant operating expenses:                
Food and paper costs  

                         29,315

 

                        29,051

 

                      84,764

 

                     82,988

Labor and related expenses  

                         37,210

 

                        35,450

 

                    109,932

 

                   101,995

Occupancy and other operating expenses  

                         26,989

 

                        25,302

 

                      77,436

 

                     72,099

General and administrative  

                         11,218

 

                        10,841

 

                      33,861

 

                     30,139

Franchise advertising expenses  

                           4,170

 

                          4,001

 

                      12,184

 

                       9,995

Depreciation and amortization  

                           6,021

 

                          6,055

 

                      17,952

 

                     18,477

Occupancy and other – franchise subleases and other  

                           2,354

 

                          1,766

 

                        7,324

 

                       5,088

Pre-opening costs  

                              152

 

                               63

 

                           407

 

                          359

Impairment of goodwill  

 — 

 

 — 

 

 —

 

                     87,277

Impairment of trademarks  

 — 

 

 — 

 

 —

 

                     11,900

Impairment of long-lived assets  

 — 

 

 — 

 

 —

 

                       8,287

Restaurant closure charges, net  

                              690

 

                             413

 

                        1,488

 

                       1,406

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

                                37

 

                             140

 

                             91

 

                          697

Total operating expenses  

                       118,156

 

                      113,082

 

                    345,439

 

                   430,707

Income (loss) from operations  

                           6,115

 

                          7,700

 

                      19,334

 

                   (95,545

)

Other expense (income), net:                
Interest expense  

                              660

 

                             941

 

                        2,082

 

                       3,730

Other income  

 — 

 

 — 

 

                          (373

)

 

 —

Total other expense, net  

                              660

 

                             941

 

                        1,709

 

                       3,730

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

                           5,455

 

                          6,759

 

                      17,625

 

                   (99,275

)

Provision (benefit) for income taxes  

                           1,617

 

                             962

 

                        5,154

 

                     (2,028

)

Net income (loss)  

                           3,838

 

                          5,797

 

                      12,471

 

                   (97,247

)

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

 — 

 

 — 

 

 —

 

                            52

Total other comprehensive income, net  

 — 

 

 — 

 

 —

 

                            52

Comprehensive income (loss)  

 $

                        3,838

 

 $

                       5,797

 

 $

                   12,471

 

 $

                (97,195

)

Earnings (loss) per share:                
Basic  

 $

                          0.11

 

 $

                         0.16

 

 $

                       0.34

 

 $

                    (2.62

)

Diluted  

 $

                          0.10

 

 $

                         0.15

 

 $

                       0.34

 

 $

                    (2.62

)

Weighted average shares outstanding                
Basic  

                  36,455,883

 

                 37,293,390

 

               36,642,380

 

              37,152,419

Diluted  

                  36,786,635

 

                 37,420,043

 

               37,082,007

 

              37,152,419

Del Taco Restaurants, Inc.
Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA
(Unaudited)
(In thousands)
                 
    12 Weeks Ended   36 Weeks Ended
   

September 7, 2021

 

September 8, 2020

 

September 7, 2021

 

September 8, 2020

Net income (loss)  

 $

                        3,838

 

 $

                        5,797

 

 $

                      12,471

 

 $

                   (97,247

)

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

                           1,617

 

                              962

 

                           5,154

 

                        (2,028

)

Interest expense  

                              660

 

                              941

 

                           2,082

 

                          3,730

Depreciation and amortization  

                           6,021

 

                           6,055

 

                         17,952

 

                        18,477

EBITDA  

                         12,136

 

                         13,755

 

                         37,659

 

                      (77,068

)

Stock-based compensation expense (a)  

                           1,427

 

                           1,267

 

                           4,346

 

                          3,905

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

                                37

 

                              140

 

                                91

 

                             697

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)  

                              690

 

                              413

 

                           1,488

 

                          1,406

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

                              (72

)

 

                              (70

)

 

                            (243

)

 

                           (185

)

Pre-opening costs (h)  

                              152

 

                                63

 

                              407

 

                             359

Sublease income for closed restaurants (i)  

                            (282

)

 

                            (247

)

 

                            (807

)

 

                           (745

)

Executive transition costs (j)  

 —

 

 —

 

 —

 

                             287

Other income (k)  

 —

 

 —

 

                            (373

)

 

 —

Adjusted EBITDA  

 $

                      14,088

 

 $

                      15,321

 

 $

                      42,568

 

 $

                     36,120

(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   36 Weeks Ended
   

September 7, 2021

 

September 8, 2020

 

September 7, 2021

 

September 8, 2020

Company restaurant sales  

 $

                    111,981

 

 $

                    109,522

 

 $

                  328,563

 

 $

                    305,116

Restaurant operating expenses  

                         93,514

 

                         89,803

 

                     272,132

 

                       257,082

Restaurant contribution  

 $

                      18,467

 

 $

                      19,719

 

 $

                    56,431

 

 $

                      48,034

Restaurant contribution margin  

16.5

%

 

18.0

%

 

17.2

%

 

15.7

%

                 
                 
                 
Del Taco Restaurants, Inc.
Reconciliation of Income (Loss) from Operations to Restaurant Contribution
(Unaudited)
(In thousands)
                 
    12 Weeks Ended   36 Weeks Ended
    September 7, 2021   September 8, 2020   September 7, 2021   September 8, 2020
Income (loss) from operations  

 $

                        6,115

 

 $

                        7,700

 

 $

                    19,334

 

 $

                    (95,545

)

Less:                
Franchise revenue  

                         (5,586

)

 

                         (5,169

)

 

                     (16,395

)

 

                       (14,080

)

Franchise advertising contributions  

                         (4,170

)

 

                         (4,001

)

 

                     (12,184

)

 

                         (9,995

)

Franchise sublease income and other  

                         (2,534

)

 

                         (2,090

)

 

                       (7,631

)

 

                         (5,971

)

Plus:                
General and administrative  

                         11,218

 

                         10,841

 

                       33,861

 

                         30,139

Franchise advertising expenses  

                           4,170

 

                           4,001

 

                       12,184

 

                           9,995

Depreciation and amortization  

                           6,021

 

                           6,055

 

                       17,952

 

                         18,477

Occupancy and other – franchise subleases and other  

                           2,354

 

                           1,766

 

                         7,324

 

                           5,088

Pre-opening costs  

                              152

 

                                63

 

                            407

 

                              359

Impairment of goodwill  

 —

 

 —

 

 —

 

                         87,277

Impairment of trademarks  

 —

 

 —

 

 —

 

                         11,900

Impairment of long-lived assets  

 —

 

 —

 

 —

 

                           8,287

Restaurant closure charges, net  

                              690

 

                              413

 

                         1,488

 

                           1,406

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

                                37

 

                              140

 

                              91

 

                              697

Restaurant contribution  

 $

                      18,467

 

 $

                      19,719

 

 $

                    56,431

 

 $

                      48,034

Company restaurant sales  

 $

                    111,981

 

 $

                    109,522

 

 $

                  328,563

 

 $

                    305,116

Restaurant contribution margin  

16.5

%

 

18.0

%

 

17.2

%

 

15.7

%

Del Taco Restaurants, Inc.
Reconciliation of Net Income (Loss) to Adjusted Net Income
(Unaudited)
(In thousands, except per share data)
                 
    12 Weeks Ended   36 Weeks Ended
    September 7, 2021   September 8, 2020   September 7, 2021   September 8, 2020
Net income (loss), as reported  

 $

                        3,838

 

 $

                      5,797

 

 $

                    12,471

 

 $

                  (97,247

)

Sublease income for closed restaurants (a)  

                            (282

)

 

                          (247

)

 

                          (807

)

 

                          (745

)

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)  

                              690

 

                            413

 

                         1,488

 

                        1,406

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

                                37

 

                            140

 

                              91

 

                           697

Other income (g)  

 —

 

 —

 

                          (373

)

 

 —

Executive transition costs (h)  

 —

 

 —

 

 —

 

                           287

Tax impact of adjustments (i)  

                            (120

)

 

                            (82

)

 

                          (107

)

 

                       (5,891

)

Non-GAAP adjusted net income  

 $

                        4,163

 

 $

                      6,021

 

 $

                    12,763

 

 $

                     5,971

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

 $

                          0.11

 

 $

                        0.16

 

 $

                        0.34

 

 $

                      (2.62

)

Diluted  

 $

                          0.10

 

 $

                        0.15

 

 $

                        0.34

 

 $

                      (2.62

)

Weighted average shares outstanding (as reported):                
Basic  

                  36,455,883

 

                37,293,390

 

                36,642,380

 

               37,152,419

Diluted  

                  36,786,635

 

                37,420,043

 

                37,082,007

 

               37,152,419

                 
Adjusted earnings per share:                
Basic  

 $

                          0.11

 

 $

                        0.16

 

 $

                        0.35

 

 $

                       0.16

Diluted  

 $

                          0.11

 

 $

                        0.16

 

 $

                        0.34

 

 $

                       0.16

Shares used in computing adjusted earnings per share:                
Basic  

                  36,455,883

 

                37,293,390

 

                36,642,380

 

               37,152,419

Diluted  

                  36,786,635

 

                37,420,043

 

                37,082,007

 

               37,213,880

(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   36 Weeks Ended
    September 7, 2021   September 8, 2020   September 7, 2021   September 8, 2020
Company-operated restaurant activity:                
Beginning of period  

                              297

 

                              294

 

                          295

 

                         300

Openings  

                                  1

 

                                  1

 

                              3

 

                             3

Closures  

                                (1)

 

 — 

 

                            (1)

 

                           (2)

Sold to franchisees  

 — 

 

 — 

 

 — 

 

                           (6)

Restaurants at end of period  

                              297

 

                              295

 

                          297

 

                         295

Franchise-operated restaurant activity:                
Beginning of period  

                              304

 

                              299

 

                          301

 

                         296

Openings  

                                  3

 

                                  4

 

                              8

 

                             5

Closures  

                                (1)

 

                                (2)

 

                            (3)

 

                           (6)

Purchased from Company  

 — 

 

 — 

 

 — 

 

                             6

Restaurants at end of period  

                              306

 

                              301

 

                          306

 

                         301

Total restaurant activity:                
Beginning of period  

                              601

 

                              593

 

                          596

 

                         596

Openings  

                                  4

 

                                  5

 

                            11

 

                             8

Closures  

                                (2)

 

                                (2)

 

                            (4)

 

                           (8)

Restaurants at end of period  

                              603

 

                              596

 

                          603

 

                         596