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Diversified Restaurant Holdings Reports Fourth Quarter and Fiscal Year 2017 Results

Revenue for the quarter totaled $41.9 million, up 2.8%, and totaled $165.5 million for the year – Same-store sales declined 6.8% in the fourth quarter and were down 3.7% for the year – Operating income of $1.8 million in the quarter, more than double the prior-year period, and totaled $5.2 million for the year

Diversified Restaurant Holdings, Inc. (NASDAQ: SAUC), one of the largest franchisees for Buffalo Wild Wings (BWW) with 65 stores across five states, last week announced results for its fourth quarter and fiscal year ended December 31, 2017.

Fourth Quarter and Full Year Key Information (from continuing operations)

Fourth quarter sales increased $1.1 million due to an additional restaurant and the 53rd week in 2017 compared with only 52 weeks in 2016. Same store sales were down 6.8% for the quarter. For the full year, the $1.1 million decline in revenue was impacted by $0.6 million of lost sales related to Hurricane Irma, $0.4 million revenue deferral related to the Blazin’ Rewards loyalty program, an unfavorable number of major sporting events in the Company’s core markets and negative overall traffic, largely offset by the addition of the 53rd week. Same store sales were down 3.7% for the year. The Company revalued its deferred tax assets after enactment of the Tax Cuts and Jobs Act during the fourth quarter of 2017 using the 21% federal statutory income tax rate and re-evaluated its ability to realize these benefits. As a result, a one-time tax expense of $19.0 million was recorded.

David G. Burke, President and CEO, commented, “I’m pleased with the margins that our restaurant teams delivered despite major headwinds not only from sales but also cost of sales due to record high fresh, bone-in chicken wing costs well into the fourth quarter. We also managed significant reductions in our G&A costs and are implementing on-going changes to our structure to improve our focus on sales-driving initiatives.”

Mr. Burke added, “While recent sales trends were negatively impacted by a major strategic shift in the franchisor media strategy during our most critical sports season, we recognize that our management structure and incentives must be increasingly focused on enhancing sales within the communities that we operate.”

“With the acquisition of BWW now complete, we’re excited about the changes that are coming for the system, and optimistic that the powerful Buffalo Wild Wings brand will emerge fresher and stronger while returning to its leading-edge position in its markets.”

Fourth Quarter 2017 Results (from continuing operations)  
(Unaudited, $ in thousands)       Q4 2017   Q4 2016   Change

 

% Change

Revenue       $ 41,927.1     $ 40,801.2     $ 1,125.9     2.8 %
Operating income       $ 1,832.4     $ 854.3     $ 978.1     114.5 %
Operating margin       4.4 %   2.1 %          
Pre-tax income (loss)       $ 268.1     $ (844.5 )   $ 1,112.6     (131.7 )%
Net income (loss)       $ (20,321.7 )   $ 186.3     $ (20,508.0 )   (11,008.1 )%
Diluted net income (loss) per share       $ (0.76 )   $ 0.01     $ (0.77 )   (7,700.0 )%
                       
Same-store sales(1)       (6.8 )%   (5.4 )%          
                       
Restaurant-level EBITDA(2)       $ 7,163.7     $ 6,727.4     $ 436.3     6.5 %
Restaurant-level EBITDA margin       17.1 %   16.5 %          
Adjusted EBITDA(2)       $ 4,933.5     $ 4,459.9     $ 473.6     10.6 %
Adjusted EBITDA margin       11.8 %   10.9 %          
                           
Full Year 2017 Results (from continuing operations)  
(Unaudited, $ in thousands)       2017   2016   Change   % Change
Revenue       $ 165,462.6     $ 166,520.9     $ (1,058.3 )   (0.6 )%
Operating income       $ 5,240.7     $ 7,304.0     $ (2,063.3 )   (28.2 )%
Operating margin       3.2 %   4.4 %        
Pre-tax income (loss)       $ (1,286.4 )   $ 1,368.3     $ (2,654.7 )   (194.0 )%
Net income (loss)       $ (20,458.1 )   $ 3,639.0     $ (24,097.1 )   (662.2 )%
Diluted net income (loss) per share       $ (0.77 )   $ 0.14     $ (0.91 )   (650.0 )%
                     
Same-store sales(1)       (3.7 )%   (3.0 )%        
                     
Restaurant-level EBITDA(2)       $ 28,284.7     $ 32,275.0     $ (3,990.3 )   (12.4 )%
Restaurant-level EBITDA margin       17.1 %   19.4 %        
Adjusted EBITDA(2)       $ 19,868.1     $ 23,345.2     $ (3,477.1 )   (14.9 )%
Adjusted EBITDA margin       12.0 %   14.0 %        

(1) Same store sales calculations exclude related closures in September from Hurricane Irma and the 53rd week in fiscal 2017

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

 

DRH is enthusiastic about the recent acquisition of BWW and the expected impact of new initiatives and a fresh look at the brand. However, due to the unknown timing of any impact, it has elected to not provide specific financial guidance for 2018.

Balance Sheet and Cash Flow Highlights – Continuing Operations

Cash and cash equivalents were $4.4 million at December 31, 2017, compared with $4.0 million at 2016 year-end. Capital expenditures were $4.7 million during 2017 and were primarily for one new restaurant, two remodels and restaurant refreshes. Capital expenditures were $12.5 million for 2016.

In 2018, the Company anticipates its capital expenses will range between $1.0 million and $1.5 million, and will be for minor facility upgrades and general maintenance-type investments. DRH does not expect to build any new restaurants nor is it expected to complete any major remodels in 2018.

Total debt was $113.9 million at December 31, 2017, down $7.3 million for the year. The Company entered into a revised agreement with its lenders on February 28, 2018, which both waived its financial covenant compliance requirements for the fourth quarter of 2017 and reset the required levels for quarterly compliance through the end of 2019.

About Diversified Restaurant Holdings, Inc.

Diversified Restaurant Holdings, Inc. is one of the largest franchisees for Buffalo Wild Wings with 65 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.

 

DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

         
    Three Months Ended   Twelve Months Ended
   

December 31, 
2017

 

December 25, 
2016

 

December 31, 
2017

 

December 25, 
2016

Revenue   $ 41,927,106     $ 40,801,180     $ 165,462,612     $ 166,520,925  
                 
Operating expenses                
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):                
Food, beverage, and packaging   12,269,817     11,912,429     48,799,718     46,794,091  
Compensation costs   10,600,978     10,195,132     41,726,264     41,307,718  
Occupancy   3,018,219     2,930,147     11,720,147     11,370,223  
Other operating costs   8,874,402     9,036,117     35,062,833     34,845,059  
General and administrative expenses   2,357,429     2,368,613     9,081,866     9,265,432  
Pre-opening costs       (54,758 )   405,448     599,279  
Depreciation and amortization   2,966,022     3,484,290     13,115,072     14,696,846  
Loss on asset disposals   7,884     74,935     310,536     338,306  
Total operating expenses   40,094,751     39,946,905     160,221,884     159,216,954  
                 
Operating profit   1,832,355     854,275     5,240,728     7,303,971  
                 
Interest expense   (1,592,573 )   (1,438,919 )   (6,633,709 )   (5,763,684 )
Other income (expense), net   28,279     (259,886 )   106,586     (172,031 )
                 
Income (loss) from continuing operations before income taxes   268,061     (844,530 )   (1,286,395 )   1,368,256  
Income tax (provision) benefit   (20,513,209 )   1,030,816     (18,997,756 )   2,270,792  
Income (loss) from continuing operations   (20,245,148 )   186,286     (20,284,151 )   3,639,048  
                 
Discontinued operations                
Loss from discontinued operations before income taxes   (82,701 )   (5,633,088 )   (238,253 )   (10,226,996 )
Income tax benefit of discontinued operations   (6,137 )   (585,467 )   (64,328 )   (585,467 )
Loss from discontinued operations   (76,564 )   (5,047,621 )   (173,925 )   (9,641,529 )
                 
Net loss   $ (20,321,712 )   $ (4,861,335 )   $ (20,458,076 )   $ (6,002,481 )
                 
Basic earnings (loss) per share from:                
Continuing operations   (0.76 )   0.01     (0.76 )   0.14  
Discontinued operations       (0.19 )   (0.01 )   (0.37 )
Basic net loss per share   (0.76 )   (0.18 )   (0.77 )   (0.23 )
Fully diluted earnings (loss) per share from:                
Continuing operations   (0.76 )   0.01     (0.76 )   0.14  
Discontinued operations       (0.19 )   (0.01 )   (0.37 )
Fully diluted net loss per share   (0.76 )   (0.18 )   (0.77 )   (0.23 )
                 
Weighted average number of common shares outstanding                
Basic   26,845,643     26,663,482     26,717,910     26,491,549  
Diluted   26,845,643     26,663,482     26,717,910     26,491,549  
                         
   

DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

         
   

December 31, 
2017

 

December 25, 
2016

ASSETS        
Current assets        
Cash and cash equivalents   $ 4,371,156     $ 4,021,126  
Accounts receivable   653,102     276,238  
Inventory   1,591,363     1,700,604  
Prepaid and other current assets   408,982     1,305,936  
Total current assets   7,024,603     7,303,904  
         
Deferred income taxes       16,250,928  
Property and equipment, net   48,014,043     56,630,031  
Intangible assets, net   2,438,187     2,666,364  
Goodwill   50,097,081     50,097,081  
Other long-term assets   185,322     233,539  
Total assets   $ 107,759,236     $ 133,181,847  
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT  
Current liabilities        
Accounts payable   $ 4,561,939     $ 3,995,846  
Accrued compensation   1,854,127     2,803,549  
Other accrued liabilities   2,404,942     2,642,269  
Current portion of long-term debt   11,440,433     11,307,819  
Current portion of deferred rent   411,660     194,206  
Total current liabilities   20,673,101     20,943,689  
         
Deferred rent, less current portion   2,208,238     2,020,199  
Deferred income taxes   2,759,870      
Unfavorable operating leases   510,941     591,247  
Other liabilities   2,346,991     3,859,231  
Long-term debt, less current portion   102,488,730     109,878,201  
Total liabilities   130,987,871     137,292,567  
         
Stockholders’ deficit        
Common stock – $0.0001 par value; 100,000,000 shares authorized; 26,859,125 and 26,632,222, respectively, issued and outstanding   2,625     2,610  
Additional paid-in capital   21,776,402     21,355,270  
Accumulated other comprehensive loss   (283,208 )   (934,222 )
Accumulated deficit   (44,724,454 )   (24,534,378 )
Total stockholders’ deficit   (23,228,635 )   (4,110,720 )
         
Total liabilities and stockholders’ deficit   $ 107,759,236     $ 133,181,847  
                 
 

DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

     
    Fiscal Year Ended
    December 31, 2017   December 25, 2016
Cash flows from operating activities        
Net loss   $ (20,458,076 )   $ (6,002,481 )
Net loss from discontinued operations   173,925     9,641,529  
Net income (loss) from continuing operations   (20,284,151 )   3,639,048  
Adjustments to reconcile net income (loss) to net cash provided by operating activities        
Depreciation and amortization   13,115,072     14,696,846  
Amortization of debt discount and loan fees   294,103     238,784  
Amortization of gain on sale-leaseback   (131,617 )   (128,782 )
Loss on asset disposals   310,536     338,306  
Share-based compensation   418,096     435,845  
Deferred income taxes   18,943,427     (2,270,792 )
Changes in operating assets and liabilities that provided (used) cash        
Accounts receivable   (376,864 )   (28,915 )
Inventory   109,241     (102,225 )
Prepaid and other assets   896,954     8,527  
Intangible assets   (48,806 )   (73,150 )
Other long-term assets   48,217     753,960  
Accounts payable   555,089     (1,771,388 )
Accrued liabilities   (1,357,970 )   1,143,880  
Deferred rent   182,477     107,737  
Net cash provided by operating activities of continuing operations   12,673,804     16,987,681  
Net cash used in operating activities of discontinued operations   (173,925 )   (5,863.807 )
Net cash provided by operating activities   12,499,879     11,123,874  
         
Cash flows from investing activities        
Purchases of property and equipment   (4,687,242 )   (12,499,507 )
Net cash used in investing activities of continuing operations   (4,687,242 )   (12,499,507 )
Net cash used in investing activities of discontinued operations       (907,890 )
Net cash used in investing activities   (4,687,242 )   (13,407,397 )
         
Cash flows from financing activities        
Proceeds from issuance of long-term debt   4,650,965     11,109,154  
Repayments of long-term debt   (12,116,623 )   (16,134,717 )
Payment of loan fees       (197,889 )
Proceeds from employee stock purchase plan   65,200     40,603  
Tax withholding for restricted stock   (62,149 )   (12,392 )
Capital infusion to discontinued component       (2,000,000 )
Net cash used in financing activities   (7,462,607 )   (7,195,241 )
Net increase (decrease) in cash and cash equivalents   350,030     (9,478,764 )
Cash and cash equivalents, beginning of period   4,021,126     13,499,890  
Cash and cash equivalents, end of period   $ 4,371,156     $ 4,021,126  
                 
 
DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
Reconciliation between Net Loss and Adjusted EBITDA and Adjusted Restaurant-Level EBITDA
                 
  Three Months Ended (Unaudited)     Fiscal Year Ended (Unaudited)
 

December 31, 
2017

 

December 25, 
2016

   

December 31, 
2017

 

December 25, 
2016

Net loss $ (20,321,712 )   $ (4,861,335 )     $

(20,458,076

)   $ (6,002,481 )
+ Loss from discontinued operations 76,564     5,047,621       173,925     9,641,529  
+ Income tax expense (benefit) 20,513,209     (1,030,816 )     18,997,756     (2,270,792 )
+ Interest expense 1,592,573     1,438,919       6,633,709     5,763,684  
+ Other (income) expense, net (28,279 )   259,886       (106,586 )   172,031  
+ Loss on asset disposal 7,884     74,935       310,536     338,306  
+ Depreciation and amortization 2,966,022     3,484,290       13,115,072     14,696,846  
EBITDA $ 4,806,261     $ 4,413,500       $ 18,666,336     $ 22,339,123  
+ Pre-opening costs     (54,758 )     405,448     599,279  
+ Non-recurring expenses (Restaurant-level)           131,000     71,184  
+ Non-recurring expenses (Corporate-level) 127,250     101,179       665,333     335,655  
Adjusted EBITDA $ 4,933,511     $ 4,459,921       $ 19,868,117     $ 23,345,241  
Adjusted EBITDA margin (%) 11.8 %   10.9 %     12.0 %   14.0 %
+ General and administrative 2,357,429     2,368,613       9,081,866     9,265,432  
+ Non-recurring expenses (Corporate-level) (127,250 )   (101,179 )     (665,333 )   (335,655 )
Restaurant–Level EBITDA $ 7,163,690     $ 6,727,355       $ 28,284,650     $ 32,275,018  
Restaurant–Level EBITDA margin (%) 17.1 %   16.5 %     17.1 %   19.4 %
                         

Posted by on March 12, 2018.

Categories: Financial

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