CEC Entertainment, Inc. Reports Financial Results for the 2016 Second Quarter

From www.prnewswire.com by CEC Entertainment, Inc.
CEC Entertainment, Inc. Reports Financial Results for the 2016 Second Quarter

IRVING, Texas, Aug. 4, 2016 /PRNewswire/ -- CEC Entertainment, Inc. (the "Company") today announced financial results for its second quarter ended July 3, 2016.

  • Second quarter same store sales for our Chuck E. Cheese's and Peter Piper Pizza stores, on a same calendar week basis (1), increased 2.6% compared to the comparable prior year period
  • On a fiscal period basis second quarter same store sales for our Chuck E. Cheese's and Peter Piper Pizza stores increased 1.8% over the 2015 fiscal second quarter
  • Total revenues increased 2.1% over the prior year fiscal second quarter to $216.6 million

"We are pleased to report our fifth consecutive quarter of same store sales growth at our Chuck E. Cheese's stores" said Tom Leverton, Chief Executive Officer. "We continue to see the benefit of the food and hospitality initiatives we have implemented during the past two years. In addition, we are pleased to report that Peter Piper Pizza recorded its 24th consecutive quarter of same store sales growth."

Second Quarter Results

Our fiscal calendar results were negatively impacted by the shift in the July 4th holiday weekend into the second quarter of 2016 instead of the third quarter in 2015 and the shift of several spring breaks into the first quarter of 2016 instead of the second quarter in 2015.

Total revenues for the second fiscal quarter of 2016 increased 2.1%, or $4.5 million, over the prior year to $216.6 million. The increase is attributable to increased same store sales at both our Chuck E. Cheese's and Peter Piper Pizza brands.  On a calendar week basis same store sales for our Chuck E. Cheese's and Peter Piper Pizza stores increased 2.6% over the comparable weeks in 2015.

The Company reported a net loss of $9.1 million for the second quarter of 2016, compared to a net loss of $9.9 million for the second quarter of 2015. The decrease in the net loss was driven by increased store revenues and lower marketing and corporate overhead costs, offset by an increase in merchandise and other store related operating costs.

Adjusted EBITDA for the second quarter of 2016 increased $0.3 million over the prior year period to $41.4 million. Adjusted EBITDA represents net income (loss) adjusted to exclude interest expense, income taxes, depreciation and amortization, asset impairments, the effects of acquisition accounting adjustments, transaction and severance costs and certain other items. In determining Adjusted EBITDA, the increase in revenue was offset by the higher merchandise and other store operating costs.

________________

(1) 

Our fiscal year ending January 1, 2017 will consist of 52 weeks and our fiscal year ended January 3, 2016 consisted of 53 weeks. As a result of the 53 week fiscal year in 2015, our 2016 fiscal year began one calendar week later than our 2015 fiscal year. In order to provide useful information and to better analyze our business, we have provided same store sales presented on both a fiscal week basis and calendar week basis. Same store sales growth on a calendar week basis compares the results for the period from April 4, 2016 through July 3, 2016 (weeks 14 through 26 of our 2016 fiscal year) to the results for the period from April 6, 2015 through July 5, 2015 (weeks 15 through 27 of our 2015 fiscal year). We believe same store sales growth calculated on a same calendar week basis is more indicative of the operating trends in our business. However, we also recognize that same store sales growth calculated on a fiscal week basis is a useful measure when analyzing year-over-year changes in our financial results.

 

Balance Sheet and Liquidity

As of July 3, 2016, cash and cash equivalents were $75.6 million, and the principal outstanding on our debt was $1.0 billion, with net availability of $140.1 million on our undrawn revolving credit facility. During the second quarter of 2016, we had capital expenditures of $26.4 million, of which $8.5 million related to our PlayPass initiative and another $5.2 million were related to other growth initiatives. In addition, we had $2.4 million in capital expenditures related to IT initiatives.

As of July 3, 2016, the Company's system-wide portfolio consisted of:

Chuck E. Cheese's

Peter Piper Pizza

Total

Company operated

524

32

556

Domestic franchised

29

62

91

International franchised

45

47

92

Total

598

141

739

Conference Call Information:

The Company will host a conference call beginning at 9:00 a.m. Central Time on Friday, August 5, 2016. The call can be accessed by dialing (855) 743-8451 or (330) 968-0151 for international participants and conference code 49324126.

A replay of the call will be available from 12:00 p.m. Central Time on August 5, 2016 through midnight Central Time on August 12, 2016. The replay of the call can be accessed by dialing (800) 585-8367 or (404) 537-3406 for international participants and conference code 49324126.

About CEC Entertainment, Inc.

For nearly 40 years, CEC Entertainment has served as the nationally recognized leader in family dining and entertainment and the place Where A Kid Can Be A Kid®. Chuck E. Cheese's goal is to create positive, lifelong memories for families through fun, food, and play. Each Chuck E. Cheese's features musical entertainment, games, rides, and play areas for kids of all ages, as well as a variety of freshly prepared dining options. It is also a place where more than a million happy birthdays are celebrated every year. Committed to providing a fun, safe environment, Chuck E. Cheese's helps protect families through industry-leading programs such as Kid Check®. As a strong advocate for its local communities and childhood education, Chuck E. Cheese's has donated more than $13 million to schools through its fundraising programs. As of July 3, 2016 the Company and its franchisees operated a system of 598 Chuck E. Cheese's stores and 141 Peter Piper Pizza stores, with locations in 47 states and 12 foreign countries and territories. For more information, visit chuckecheese.com and peterpiperpizza.com.

Investor Inquiries:

Media Inquiries:

Dale R. Black 

Shannon McGovern

EVP & CFO 

Director

CEC Entertainment, Inc. 

Current Marketing

(972) 258-4525 

(312) 929-0510

dblack@cecentertainment.com 

SMcGovern@talktocurrent.com

Cautionary Statement Regarding Forward-Looking Statements

Certain statements in this press release, other than historical information, may be considered "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, and are subject to various risks, uncertainties and assumptions. Statements that are not historical in nature and which may be identified by the use of words such as "may," "should," "could," "believe," "predict," "potential," "continue," "plan," "intend," "expect," "anticipate," "future," "project," "estimate," and similar expressions (or the negative of such expressions) are forward-looking statements. Forward-looking statements are made based on management's current expectations and beliefs concerning future events and, therefore, involve a number of assumptions, risks and uncertainties, including the risk factors described in Part I, Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended January 3, 2016, filed with the Securities and Exchange Commission on March 2, 2016. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ from those anticipated, estimated or expected. There are a number of important factors that could cause actual results or events to differ materially from those indicated by such forward-looking statements, including but not limited to:

  • Negative publicity concerning food quality, health, general safety and other issues, and changes in consumer preferences;
  • The success of our capital initiatives, including new store development and existing store evolution;
  • Our ability to successfully implement our marketing strategy;
  • Competition in both the restaurant and entertainment industries;
  • Economic uncertainty and changes in consumer discretionary spending in the United States and Canada;
  • Expansion in international markets;
  • Our ability to generate sufficient cash flow to meet our debt service payments;
  • Increases in food, labor and other operating costs;
  • Disruptions of our information technology systems and technologies, including, but not limited to, data security breaches;
  • Any disruption of our commodity distribution system;
  • Our dependence on a limited number of suppliers for our games, rides, entertainment-related equipment, redemption prizes and merchandise;
  • Product liability claims and product recalls;
  • Government regulations;
  • Litigation risks;
  • Adverse effects of local conditions, natural disasters and other events;
  • Fluctuations in our quarterly results of operations due to seasonality;
  • Inadequate insurance coverage;
  • Loss of certain key personnel;
  • Our ability to adequately protect our trademarks or other proprietary rights;
  • Risks in connection with owning and leasing real estate; and
  • Our ability to successfully integrate the operations of companies we acquire.

The forward-looking statements made in this report relate only to events as of the date on which the statements were made. Except as may be required by law, we undertake no obligation to update our forward-looking statements to reflect events and circumstances after the date on which the statements were made or to reflect the occurrence of unanticipated events.

- financial tables follow -

CEC ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

(in thousands)

Three Months Ended

Six Months Ended

July 3, 2016

June 28, 2015

July 3, 2016

June 28, 2015

REVENUES:

Food and beverage sales

$

97,404

45.0%

$

94,145

44.4%

$

219,607

44.7%

$

210,681

44.1%

Entertainment and merchandise sales

114,657

52.9%

113,861

53.7%

262,214

53.4%

258,605

54.1%

Total Company store sales

212,061

97.9%

208,006

98.1%

481,821

98.1%

469,286

98.3%

Franchise fees and royalties

4,560

2.1%

4,073

1.9%

9,118

1.9%

8,300

1.7%

Total revenues

216,621

100.0%

212,079

100.0%

490,939

100.0%

477,586

100.0%

OPERATING COSTS AND EXPENSES:

Company store operating costs:

Cost of food and beverage (exclusive of items shown separately below) (1)

24,673

25.3%

23,951

25.4%

55,195

25.1%

53,176

25.2%

Cost of entertainment and merchandise (exclusive of items shown separately below) (2)

8,240

7.2%

7,015

6.2%

16,989

6.5%

15,537

6.0%

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

32,913

15.5%

30,966

14.9%

72,184

15.0%

68,713

14.6%

Labor expenses (3)

60,405

28.5%

59,234

28.5%

129,448

26.9%

126,407

26.9%

Depreciation and amortization (3)

29,733

14.0%

28,970

13.9%

57,362

11.9%

58,211

12.4%

Rent expense (3)

24,049

11.3%

24,260

11.7%

48,199

10.0%

48,719

10.4%

Other store operating expenses (3)

37,376

17.6%

35,330

17.0%

73,387

15.2%

68,848

14.7%

Total Company store operating costs (3)

184,476

87.0%

178,760

85.9%

380,580

79.0%

370,898

79.0%

Other costs and expenses:

Advertising expense

12,162

5.6%

14,596

6.9%

25,261

5.1%

26,048

5.5%

General and administrative expenses

15,922

7.4%

17,807

8.4%

33,939

6.9%

34,030

7.1%

Transaction, severance and related litigation costs

434

0.2%

1,104

0.5%

1,184

0.2%

2,112

0.4%

Total operating costs and expenses

212,994

98.3%

212,267

100.1%

440,964

89.8%

433,088

90.7%

Operating income

3,627

1.7%

(188)

(0.1)%

49,975

10.2%

44,498

9.3%

Interest expense

17,121

7.9%

17,324

8.2%

34,182

7.0%

34,822

7.3%

Income (loss) before income taxes

(13,494)

(6.2)%

(17,512)

(8.3)%

15,793

3.2%

9,676

2.0%

Income tax expense (benefit)

(4,442)

(2.1)%

(7,620)

(3.6)%

6,930

1.4%

4,826

1.0%

Net income (loss)

$

(9,052)

(4.2)%

$

(9,892)

(4.7)%

$

8,863

1.8%

$

4,850

1.0%

________________

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 store 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 store sales.

 

CEC ENTERTAINMENT, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

July 3,
2016

January 3,
2016

ASSETS

Current assets:

Cash and cash equivalents

$

75,591

$

50,654

Other current assets

64,035

67,434

Total current assets

139,626

118,088

Property and equipment, net

606,646

629,047

Goodwill

483,876

483,876

Intangible assets, net

486,041

488,095

Other noncurrent assets

21,449

13,929

Total assets

$

1,737,638

$

1,733,035

LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities:

Bank indebtedness and other long-term debt

$

7,639

$

7,650

Other current liabilities

106,616

106,463

Total current liabilities

114,255

114,113

Capital lease obligations, less current portion

14,813

15,044

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

969,793

971,333

Deferred tax liability

195,452

201,734

Other noncurrent liabilities

224,653

222,265

Total liabilities

1,518,966

1,524,489

Stockholder's equity:

Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of July 3, 2016 and January 3, 2016

Capital in excess of par value

356,808

356,460

Accumulated deficit

(135,735)

(144,598)

Accumulated other comprehensive loss

(2,401)

(3,316)

Total stockholder's equity

218,672

208,546

Total liabilities and stockholder's equity

$

1,737,638

$

1,733,035

 

CEC ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

Six Months Ended

July 3,
2016

June 28,
2015

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

8,863

$

4,850

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

  Depreciation and amortization

60,282

60,248

  Deferred income taxes

(6,449)

(11,909)

  Stock-based compensation expense

337

570

  Amortization of lease related liabilities

23

61

  Amortization of original issue discount and deferred debt financing costs

2,273

2,273

  Loss on asset disposals, net

4,073

3,042

  Non-cash rent expense

3,507

4,289

  Other adjustments

172

(494)

Changes in operating assets and liabilities:

Operating assets

(1,629)

(4,371)

Operating liabilities

6,286

8,812

Net cash provided by operating activities

77,738

67,371

CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisition of Peter Piper Pizza

(663)

Purchases of property and equipment

(42,400)

(38,628)

Proceeds from sale of property and equipment

318

82

Development of internal use software

(6,223)

(1,571)

Net cash used in investing activities

(48,305)

(40,780)

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayments on senior term loan

(3,800)

(3,800)

Other financing activities

(1,180)

(1,002)

Net cash used in financing activities

(4,980)

(4,802)

Effect of foreign exchange rate changes on cash

484

(428)

Change in cash and cash equivalents

24,937

21,361

Cash and cash equivalents at beginning of period

50,654

110,994

Cash and cash equivalents at end of period

$

75,591

$

132,355

 

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

Non-GAAP Financial Measures

The Company reports and discusses its operating results using financial measures consistent with accounting principles generally accepted in the United States ("GAAP").  From time to time in the course of financial presentations, earnings conference calls or otherwise, the Company may disclose certain non-GAAP financial measures such as Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA"). The Company believes Adjusted EBITDA is a measure that provides investors with additional information to measure our performance. We believe that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about certain material non-cash items and about unusual items that we do not expect to continue at the same level in the future, as well as other items. Further, we believe Adjusted EBITDA provides a meaningful measure of operating profitability because we use it for evaluating our business performance and understanding certain significant items. The non-GAAP financial measures presented in this earnings release should not be viewed as alternatives or substitutes for the Company's reported GAAP results.

The following table sets forth a reconciliation of net income to Adjusted EBITDA and Adjusted EBITDA expressed as a percentage of total revenues for the periods shown:

Three Months Ended

Six Months Ended

July 3
2016

June 28
2015

July 3
2016

June 28
2015

Total revenues

$

216,621

$

212,079

$

490,939

$

477,586

Net income (loss) as reported

$

(9,052)

$

(9,892)

$

8,863

$

4,850

Interest expense

17,121

17,324

34,182

34,822

Income tax expense (benefit)

(4,442)

(7,620)

6,930

4,826

Depreciation and amortization

31,284

29,849

60,282

60,248

Non-cash impairments, gain or loss on disposal

1,895

1,799

4,073

3,042

Non-cash stock-based compensation

202

178

337

570

Rent expense book to cash

2,503

1,968

4,663

4,179

Franchise revenue, net cash received

271

162

(65)

Impact of purchase accounting

356

116

555

348

Store pre-opening costs

96

117

316

362

One-time items

1,153

6,254

3,055

7,605

Cost savings initiatives

1,001

62

1,001

Adjusted EBITDA

$

41,387

$

41,094

$

123,480

$

121,788

Adjusted EBITDA as a percent of total revenues

19.1%

19.4%

25.2%

25.5%

 

Adjusted EBITDA, a measure used by management to assess operating performance, is defined as Net income (loss) plus interest expense, income taxes and depreciation and amortization, adjusted to exclude asset impairments, the effects of acquisition accounting adjustments, transaction and severance costs, and certain other items.

 

CEC ENTERTAINMENT, INC.

STORE COUNT INFORMATION

(Unaudited)

Three Months Ended

Six Months Ended

July 3,
2016

June 28,
2015

July 3,
2016

June 28,
2015

Number of Company-owned stores:

Beginning of period

556

560

556

559

New (1)

1

2

Closed (1)

(3)

(1)

(4)

End of period

556

557

556

557

Number of franchised stores:

Beginning of period

179

175

176

172

New (2)

5

1

9

4

Closed (2)

(1)

(3)

(2)

(3)

End of period

183

173

183

173

Total number of stores:

Beginning of period

735

735

732

731

New (3)

5

1

10

6

Closed (3)

(1)

(6)

(3)

(7)

End of period

739

730

739

730

________________

(1) 

The number of new and closed Company owned stores during the six months ended June 28, 2015 included one store that was relocated.

(2) 

The number of new and closed franchise stores during the three and six months ended June 28, 2015 included one store that was relocated.

(3) 

The number of new and closed stores during the three and six months ended June 28, 2015 included one and two stores, respectively, that were relocated.

 

 

SOURCE CEC Entertainment, Inc.

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