CEC ENTERTAINMENT INC IRVING, Texas, Nov. 9, 2017 /PRNewswire/ -- CEC Entertainment, Inc. (the "Company") today announced financial results for its third quarter ended October 1, 2017.
Third Quarter Results ((1))
"Our third quarter revenues continued to be impacted by the same challenges we have faced for most of this year as we experienced traffic declines in both our walk-in business and booked birthday parties," said Tom Leverton, Chief Executive Officer. "We have taken action on several fronts, including changing our advertising approach and messaging, in order to improve traffic in future periods. In addition, we were negatively impacted by venue closures related to Hurricanes Harvey and Irma at 73 of our locations."
Total revenues decreased $14.8 million to $213.3 million during the third quarter of 2017 compared to the third quarter of 2016, primarily driven by a 6.9% decline in comparable venue sales, offset partially by new venue sales.
The Company reported a net loss of $11.1 million for the third quarter of 2017, compared to a net loss of $2.4 million for the third quarter of 2016. The decrease in the net loss was driven by the decline in Company-operated venue sales, as well as property and inventory losses incurred in connection with Hurricanes Harvey and Irma, offset by lower general and administrative expenses and lower depreciation.
During the third quarter of 2017, Adjusted EBITDA decreased $13.1 million to $38.1 million compared to the third quarter of 2016.
Balance Sheet and Liquidity
As of October 1, 2017, cash and cash equivalents were $79.4 million, and the principal outstanding on our debt was $988.4 million, with net availability of $140.1 million on our undrawn revolving credit facility. During the third quarter of 2017, we had capital expenditures of $25.3 million, of which $6.1 million related to our PlayPass initiative and another $8.0 million related to other growth initiatives. In addition, we had $1.4 million in capital expenditures related to IT initiatives, and $9.8 million related to maintenance capital expenditures, primarily game enhancements and general venue capital expenditures.
________________
(1) For our definition of Adjusted
EBITDA, see the financial table
"Reconciliation of Non-GAAP
Financial Measures" included within
this press release.
As of October 1, 2017, the Company's system-wide portfolio consisted of:
Chuck E. Peter
Cheese's Piper
Pizza Total
-------- ----- -----
Company operated 523 39 562
Domestic franchised 26 61 87
International franchised 58 46 104
Total 607 146 753
=== === ===
Conference Call Information:
The Company will host a conference call beginning at 9:00 a.m. Central Time on Friday, November 10, 2017. The call can be accessed by dialing (855) 743-8451 or (330) 968-0151 for international participants and conference code 98534480.
A replay of the call will be available from 12:00 p.m. Central Time on November 10, 2017 through 10:30 p.m. Central Time on November 24, 2017. The replay of the call can be accessed by dialing (800) 585-8367 or (404) 537-3406 for international participants and conference code 98534480.
About CEC Entertainment, Inc.
For 40 years, CEC Entertainment has served as the nationally recognized leader in family dining and entertainment with both its Chuck E. Cheese's and Peter Piper Pizza venues. As America's #1 place for birthdays, Chuck E. Cheese's goal is to create positive, lifelong memories for families through fun, food, and play and is the place Where A Kid Can Be A Kid (®). Committed to providing a fun, safe environment, Chuck E. Cheese's helps protect families through industry-leading programs such as Kid Check(®). As a strong advocate for its local communities, over the past 13 years Chuck E. Cheese's has donated more than $14 million to schools through its fundraising programs and supports its national charity partner, Big Brothers Big Sisters. Peter Piper Pizza, with its neighborhood pizzeria feel, features dining, entertainment and carryout. The solution to 'the family night out', Peter Piper Pizza takes pride in delivering a food first, parent friendly experience that reconnects family and friends. Expanding nationally, Peter Piper Pizza recently opened locations in Oklahoma, Nevada, New Mexico and Arizona featuring an all new prototype design. As of October 1, 2017, the Company and its franchisees operated a system of 607 Chuck E. Cheese's and 146 Peter Piper Pizza venues, with locations in 47 states and 13 foreign countries and territories. For more information, visit chuckecheese.com and peterpiperpizza.com.
Investor Inquiries: Media Inquiries:
Dale R. Black Christelle Dupont
EVP & CFO Public Relations Manager
CEC Entertainment, Inc. CEC Entertainment, Inc.
(972) 258-4525 (972) 258-4223
dblack@cecentertainment.com cdupont@cecentertainment.com
Cautionary Statement Regarding Forward-Looking Statements
This press release contains forward-looking statements, which involve risks and uncertainties. These forward-looking statements are generally identified by the use of forward-looking terminology, including the terms "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "should," "target," "will," "would" and, in each case, their negative or other various or comparable terminology. All statements other than statements of historical facts contained in this press release, including statements regarding our strategy, future operations, objectives of management and expected market growth, 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 1, 2017, filed with the Securities and Exchange Commission on March 16, 2017. 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:
-- our strategy, outlook and growth prospects;
-- our operational and financial targets and dividend policy;
-- our planned expansion of the venue base and the implementation of the
new design in our existing venues;
-- general economic trends and trends in the industry and markets; and
-- the competitive environment in which we operate.
These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Important factors that could cause our results to vary from expectations include, but are not limited to:
-- negative publicity concerning food quality, health, general safety and
other issues, and changes in consumer preferences;
-- our ability to successfully expand and update our current venue base;
-- our ability to successfully implement our marketing strategy;
-- our ability to compete effectively in an environment of intense
competition in both the restaurant and entertainment industries;
-- our ability to weather economic uncertainty and changes in consumer
discretionary spending;
-- increases in food, labor and other operating costs;
-- our ability to successfully open international franchises and to operate
under the U.S. and foreign anti-corruption laws that govern those
international ventures;
-- risks related to our substantial indebtedness;
-- failure of our information technology systems to support our current and
growing businesses;
-- disruptions to our commodity distribution system;
-- our dependence on third-party vendors to provide us with sufficient
quantities of new entertainment-related equipment, prizes and
merchandise at acceptable prices;
-- risks from product liability claims and product recalls;
-- the impact of governmental laws and regulations and the outcomes of
legal proceedings;
-- potential liability under certain state property laws;
-- fluctuations in our financials due to new venue openings;
-- local conditions, natural disasters, terrorist attacks and other events
and public health issues;
-- the seasonality of our business;
-- inadequate insurance coverage;
-- labor shortages and immigration reform;
-- loss of certain personnel;
-- our ability to protect our trademarks or other proprietary rights;
-- risks associated with owning and leasing real estate, as well as the
risks from any forced venue relocation or closure;
-- our ability to successfully integrate the operations of companies we
acquire;
-- impairment charges for goodwill, indefinite-lived intangible assets or
other long-lived assets;
-- our failure to maintain adequate internal controls over our financial
and management systems; and
-- other risks, uncertainties and factors set forth in Part I, Item 1A.
"Risk Factors" of our Annual Report on Form 10-K for the fiscal year
ended January 1, 2017, filed with the SEC on March 16, 2017.
The forward-looking statements made in this press release reflect our views with respect to future events as of the date of this press release and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, undue reliance should not be placed on these forward-looking statements. These forward-looking statements represent our estimates and assumptions only as of the date of this press release and, except as required by law, we undertake no obligation to update or review publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this report. We anticipate that subsequent events and developments will cause our views to change. Our forward-looking statements do not reflect the potential impact of any future acquisitions, merger, dispositions, joint ventures or investments we may undertake. We qualify all of our forward-looking statements by these cautionary statements.
- financial tables follow -
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except percentages)
Three Months Ended Nine Months Ended
------------------ -----------------
October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
--------------- --------------- --------------- ---------------
REVENUES:
Food and beverage sales $98,255 46.1% $101,984 44.7% $320,085 46.4% $321,591 44.7%
Entertainment and merchandise sales 110,633 51.9% 121,764 53.4% 356,274 51.6% 383,978 53.4%
------- ---- ------- ---- ------- ---- ------- ----
Total company venue sales 208,888 97.9% 223,748 98.1% 676,359 98.0% 705,569 98.1%
Franchise fees and royalties 4,459 2.1% 4,322 1.9% 13,731 2.0% 13,440 1.9%
----- --- ----- --- ------ --- ------ ---
Total revenues 213,347 100.0% 228,070 100.0% 690,090 100.0% 719,009 100.0%
------- ----- ------- ----- ------- ----- ------- -----
OPERATING COSTS AND EXPENSES:
Company venue operating costs:
Cost of food and beverage (exclusive
of items shown separately below) (1) 23,974 24.4% 25,507 25.0% 75,014 23.4% 80,702 25.1%
Cost of entertainment and merchandise
(exclusive of items shown separately
below) (2) 7,430 6.7% 8,014 6.6% 22,771 6.4% 25,004 6.5%
----- --- ----- --- ------ --- ------ ---
Total cost of food, beverage,
entertainment and merchandise (3) 31,404 15.0% 33,521 15.0% 97,785 14.5% 105,706 15.0%
Labor expenses (3) 61,220 29.3% 61,721 27.6% 187,958 27.8% 191,170 27.1%
Depreciation and amortization (3) 25,289 12.1% 27,667 12.4% 77,492 11.5% 85,029 12.1%
Rent expense (3) 24,259 11.6% 24,120 10.8% 71,484 10.6% 72,318 10.2%
Other venue operating expenses (3) 40,561 19.4% 38,757 17.3% 113,277 16.7% 112,143 15.9%
------ ---- ------ ---- ------- ---- ------- ----
Total company venue operating costs
(3) 182,733 87.5% 185,786 83.0% 547,996 81.0% 566,366 80.3%
Other costs and expenses:
Advertising expense 12,083 5.7% 11,515 5.0% 37,702 5.5% 36,777 5.1%
General and administrative expenses 15,422 7.2% 17,284 7.6% 48,237 7.0% 51,222 7.1%
Transaction, severance and related
litigation costs 128 0.1% 166 0.1% 698 0.1% 1,349 0.2%
Asset impairments 1,843 0.9% 772 0.3% 1,843 0.3% 772 0.1%
----- --- --- --- ----- --- --- ---
Total operating costs and expenses 212,209 99.5% 215,523 94.5% 636,476 92.2% 656,486 91.3%
------- ---- ------- ---- ------- ---- ------- ----
Operating income 1,138 0.5% 12,547 5.5% 53,614 7.8% 62,523 8.7%
Interest expense 17,451 8.2% 17,237 7.6% 51,574 7.5% 51,419 7.2%
------ --- ------ --- ------ --- ------ ---
Income (loss) before income taxes (16,313) (7.6)% (4,690) (2.1)% 2,040 0.3% 11,104 1.5%
Income tax expense (benefit) (5,221) (2.4)% (2,286) (1.0)% 1,840 0.3% 4,645 0.6%
------ ----- ------ ----- ----- --- ----- ---
Net income (loss) $(11,092) (5.2)% $(2,404) (1.1)% $200 -% $6,459 0.9%
======== ===== ======= ===== ==== === ====== ===
________________
Percentages are expressed as a percent of total
revenues (except as otherwise noted).
(1) Percentage amount expressed as a
percentage of food and beverage
sales.
(2) Percentage amount expressed as a
percentage of entertainment and
merchandise sales.
(3) Percentage amount expressed as a
percentage of total company venue
sales.
Due to rounding, percentages presented in the
table above may not sum to total. The
percentage amounts for the components of cost
of food and beverage and the cost of
entertainment and merchandise may not sum to
total due to the fact that cost of food and
beverage and cost of entertainment and
merchandise are expressed as a percentage of
related food and beverage sales and
entertainment and merchandise sales, as
opposed to total company venue sales.
CEC ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share information)
October 1, January 1,
2017
2017
----
ASSETS
Current assets:
Cash and cash equivalents $79,427 $61,023
Other current assets 60,416 63,938
------ ------
Total current assets 139,843 124,961
Property and equipment, net 582,928 592,886
Goodwill 484,438 483,876
Intangible assets, net 481,278 484,083
Other noncurrent assets 20,170 24,306
------ ------
Total assets $1,708,657 $1,710,112
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Bank indebtedness and other long-term debt,
current portion $7,600 $7,613
Other current liabilities 100,884 102,578
------- -------
Total current liabilities 108,484 110,191
Capital lease obligations, less current
portion 13,162 13,602
Bank indebtedness and other long term debt,
net of deferred financing costs, less
current portion 965,976 968,266
Deferred tax liability 180,789 186,290
Other noncurrent liabilities 230,876 225,758
------- -------
Total liabilities 1,499,287 1,504,107
--------- ---------
Stockholder's equity:
Common stock, $0.01 par value; authorized
1,000 shares; 200 shares issued as of
October 1, 2017 and January 1, 2017 - -
Capital in excess of par value 359,144 357,166
Accumulated deficit (148,065) (148,265)
Accumulated other comprehensive loss (1,709) (2,896)
------ ------
Total stockholder's equity 209,370 206,005
------- -------
Total liabilities and stockholder's equity $1,708,657 $1,710,112
========== ==========
CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
-----------------
October 1, October 2,
2017 2016
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $200 $6,459
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 83,064 90,167
Deferred income taxes (5,220) (10,329)
Stock-based compensation expense 520 522
Amortization of lease related liabilities (411) (17)
Amortization of original issue discount and
deferred debt financing costs 3,410 3,410
Loss on asset disposals, net 5,457 6,298
Asset impairments 1,843 772
Non-cash rent expense 3,562 5,261
Other adjustments 18 237
Changes in operating assets and liabilities:
Operating assets (577) 3,554
Operating liabilities 2,374 4,920
----- -----
Net cash provided by operating activities 94,240 111,254
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (71,910) (66,535)
Development of internal use software (2,520) (8,788)
Proceeds from sale of property and equipment 424 426
Net cash used in investing activities (74,006) (74,897)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on senior term loan (5,700) (5,700)
Proceeds from sale leaseback transaction 4,073 -
Other financing activities (695) (1,810)
----
Net cash used in financing activities (2,322) (7,510)
Effect of foreign exchange rate changes on cash 492 356
--- ---
Change in cash and cash equivalents 18,404 29,203
Cash and cash equivalents at beginning of period 61,023 50,654
------ ------
Cash and cash equivalents at end of period $79,427 $79,857
======= =======
CEC ENTERTAINMENT, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited)
(in thousands, except percentages)
Non-GAAP Financial Measures
Certain financial measures presented in this press release, such as Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") and Adjusted EBITDA as a percentage of revenues ("Adjusted EBITDA Margin") are not recognized terms under accounting principles generally accepted in the United States ("GAAP"). The Company's management believes that the presentation of these measures is appropriate to provide useful information to investors regarding its operating performance and its capacity to incur and service debt and fund capital expenditures. Further, the Company believes that Adjusted EBITDA is used by many investors, analysts and rating agencies as a measure of performance. The Company also presents Adjusted EBITDA because it is substantially similar to Credit Agreement EBITDA, a measure used in calculating financial ratios and other calculations under our debt agreements, except for (i) adding back the change in deferred amusement revenue, and (ii) excluding the annualized full year effect of Company-operated and franchised venues that were opened and closed during the year. By reporting Adjusted EBITDA, the Company provides a basis for comparison of its business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance.
The Company's definition of Adjusted EBITDA allows for the exclusion of certain non-cash and other income and expense items that are used in calculating net income from continuing operations. However, these are items that may recur, vary greatly and can be difficult to predict. They can represent the effect of long-term strategies as opposed to short-term results. In addition, certain of these items can represent the reduction of cash that could be used for other corporate purposes. These measures should not be considered as alternatives to operating income, cash flows from operating activities or any other performance measures derived in accordance with GAAP as measures of operating performance, or cash flows as measures of liquidity. These measures have important limitations as analytical tools, and users should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, the Company relies primarily on its GAAP results and uses Adjusted EBITDA and Adjusted EBITDA Margin only supplementally.
The following table sets forth a reconciliation of net income (loss) to Adjusted EBITDA and Adjusted EBITDA Margin for the periods shown:
Three Months Ended Nine Months Ended
------------------ -----------------
October 1, October 2, October 1, October 2,
2017 2016 2017 2016
---- ---- ---- ----
Total revenues $213,347 $228,070 $690,090 $719,009
======== ======== ======== ========
Net income (loss) as
reported $(11,092)) $(2,404) $200 $6,459
Interest expense 17,451 17,237 51,574 51,419
Income tax expense
(benefit) (5,221) (2,286) 1,840 4,645
Depreciation and
amortization 27,136 29,886 83,064 90,167
Asset impairments 1,843 772 1,843 772
Loss on asset
disposals, net 1,741 2,225 5,457 6,298
Non-cash stock-
based compensation 184 185 520 522
Rent expense book to
cash 1,192 1,635 4,028 6,478
Franchise revenue,
net cash received - (35) (344) 127
Impact of purchase
accounting - 171 785 725
Venue pre-opening
costs 155 572 643 888
One-time and
unusual items 1,167 1,583 4,379 4,459
Cost savings
initiatives - - - 62
Change in deferred
amusement revenue 3,568 1,674 7,937 2,265
----- ----- ----- -----
Adjusted EBITDA $38,124 $51,215 $161,926 $175,286
======= ======= ======== ========
Adjusted EBITDA
Margin 17.9% 22.5% 23.5% 24.4%
(
)
CEC ENTERTAINMENT, INC.
VENUE COUNT INFORMATION
(Unaudited)
Three Months Ended Nine Months Ended
------------------ -----------------
October 1, October 2, October 1, October 2,
2017 2016
2017 2016
---- ----
Number of Company-owned
venues:
-----------------------
Beginning of period 564 556 559 556
New - 3 3 4
Acquired from franchisee - - 2 -
Closed (2) (2) (2) (3)
--- --- --- ---
End of period 562 557 562 557
=== === === ===
Number of franchised
venues:
--------------------
Beginning of period 193 183 188 176
New - 2 7 11
Acquired from franchisee - - (2) -
Closed (2) - (2) (2)
--- --- ---
End of period 191 185 191 185
=== === === ===
Total number of venues:
-----------------------
Beginning of period 757 739 747 732
New - 5 10 15
Acquired from franchisee - - - -
Closed (4) (2) (4) (5)
--- --- ---
End of period 753 742 753 742
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SOURCE CEC Entertainment, Inc.
