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

IRVING, Texas - Nov. 7, 2016 // PRNewswire // - CEC Entertainment, Inc. (the "Company") today announced financial results for its third quarter ended October 2, 2016.

  • Third quarter same store sales for our Chuck E. Cheese's and Peter Piper Pizza stores increased 3.5% on a same calendar week basis (1), compared to the comparable prior year period
  • On a fiscal period basis third quarter same store sales for our Chuck E. Cheese's and Peter Piper Pizza stores increased 3.7% over the 2015 fiscal third quarter
  • Total revenues increased 2.8% over the prior year fiscal third quarter to $228.1 million
  • PlayPass deployed in 72 stores during the quarter

"During the third quarter, we continued to execute the many initiatives we have introduced, leading to the sixth consecutive quarter of same store sales growth at our Chuck E. Cheese's stores," said Tom Leverton, Chief Executive Officer. Additionally, Peter Piper Pizza recorded its 25th consecutive quarter of same store sales growth, and we are pleased to report that we successfully opened the first two new Company-owned Peter Piper Pizza locations since we acquired the brand two years ago. We plan to open three more Peter Piper locations before the end of the year. "Finally, our national roll-out of our PlayPass system is in full swing as we completed installation in 72 stores during the quarter. PlayPass is now installed in nearly 200 stores across our network."
Third quarter Results

Total revenues for the third fiscal quarter of 2016 increased 2.8%, or $6.2 million, over the prior year to $228.1 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 Company-owned stores increased 3.5% over the comparable weeks in 2015. Company store sales for the third quarter of 2016 were impacted by approximately $0.6 million of incremental deferred revenue as a result of the implementation of our proprietary PlayPass card system, compared to the third quarter of 2015. 

The Company reported a net loss of $2.4 million for the third quarter of 2016, compared to a net loss of $3.2 million for the third quarter of 2015. The decrease in the net loss was driven by an increase in store revenues offset by an increase in store related operating costs, marketing costs, and corporate overhead costs primarily related to IT initiatives.

Adjusted EBITDA (2) for the third quarter of 2016 was $49.5 million compared to $53.4 million for the third quarter of fiscal 2015. In addition to the $0.6 million incremental impact of deferred revenue, Adjusted EBITDA for the third quarter of 2016 was impacted by a planned shift in the timing of some of its advertising expenditures in 2016, resulting in approximately $1.2 million in higher advertising costs for the quarter relative to 2015. Furthermore, third quarter 2015 Adjusted EBITDA benefited from a few unusual items including last year's receipt of approximately $2.1 million in cash landlord incentives primarily relating to our corporate office move and approximately $1.2 million of favorable self-insurance and other reserve adjustments. Before the impact of these items, Adjusted EBITDA for the third quarter of 2016 would have been approximately $1.2 million higher than the third quarter of 2015.

_________ 

(1) Our fiscal year ending January 1, 2017 will consist of 52 weeks and our fiscal year ended January 3, 2016 (fiscal 2015) 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 July 3, 2016 through October 2, 2016 (weeks 27 through 39 of our 2016 fiscal year) to the results for the period from July 5, 2015 through October 4, 2015 (weeks 28 through 40 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.

(2) 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.
Balance Sheet and Liquidity

As of October 2, 2016, cash and cash equivalents were $79.9 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 third quarter of 2016, we had capital expenditures of $26.7 million, of which $7.8 million related to our PlayPass initiative and another $6.8 million related to other growth initiatives. In addition, we had $1.8 million in capital expenditures related to IT initiatives.

As of October 2, 2016, the Company's system-wide portfolio consisted of:

   

Chuck E. Cheese's

 

Peter Piper Pizza

 

Total

Company operated

 

523

 

34

 

557

Domestic franchised

 

29

 

63

 

92

International franchised

 

46

 

47

 

93

Total

 

598

 

144

 

742

Conference Call Information:

The Company will host a conference call beginning at 9:00 a.m. Central Time on Monday, November 8, 2016. The call can be accessed by dialing (855) 743-8451 or (330) 968-0151 for international participants and conference code 79481814.

A replay of the call will be available from 12:00 p.m. Central Time on November 8, 2016 through 11:00 p.m. Central Time on November 15, 2016. The replay of the call can be accessed by dialing (800) 585-8367 or (404) 537-3406 for international participants and conference code 79481814.

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. It is also the place where more than a million happy birthdays are celebrated every year. 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. 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 $14 million to schools through its fundraising programs. Additionally, Chuck E. Cheese's supports its national charity partner, Big Brothers Big Sisters, through nationwide fundraisers and donation drives. As of October 2, 2016 the Company and its franchisees operated a system of 598 Chuck E. Cheese's stores and 144 Peter Piper Pizza stores, with locations in 47 states and 12 foreign countries and territories. For more information, visit chuckecheese.com and peterpiperpizza.com.

Contacts:

Dale R. Black
Investor Inquiries
EVP & CFO CEC Entertainment, Inc.
(972) 258-4525
dblack@cecentertainment.com

Christelle Dupont
Media Inquiries
Public Relations Manager
CEC Entertainment, Inc.
(972) 258-4223
cdupont@cecentertainment.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

 

Nine Months Ended

   
 

October 2, 2016

 

September 27, 2015

 

October 2, 2016

 

September 27, 2015

REVENUES:

                             

Food and beverage sales

$

101,984

 

44.7%

 

$

98,243

 

44.3%

 

$

321,591

 

44.7%

 

$

308,924

 

44.2%

Entertainment and merchandise sales

121,764

 

53.4%

 

118,753

 

53.5%

 

383,978

 

53.4%

 

377,358

 

53.9%

Total Company store sales

223,748

 

98.1%

 

216,996

 

97.8%

 

705,569

 

98.1%

 

686,282

 

98.1%

Franchise fees and royalties

4,322

 

1.9%

 

4,941

 

2.2%

 

13,440

 

1.9%

 

13,241

 

1.9%

Total revenues

228,070

 

100.0%

 

221,937

 

100.0%

 

719,009

 

100.0%

 

699,523

 

100.0%

OPERATING COSTS AND EXPENSES:

                             

Company store operating costs:

                             

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

25,507

 

25.0%

 

25,032

 

25.5%

 

80,702

 

25.1%

 

78,209

 

25.3%

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

8,014

 

6.6%

 

7,863

 

6.6%

 

25,004

 

6.5%

 

23,399

 

6.2%

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

33,521

 

15.0%

 

32,895

 

15.2%

 

105,706

 

15.0%

 

101,608

 

14.8%

Labor expenses (3)

61,721

 

27.6%

 

59,998

 

27.6%

 

191,170

 

27.1%

 

186,405

 

27.2%

Depreciation and amortization (3)

27,667

 

12.4%

 

28,394

 

13.1%

 

85,029

 

12.1%

 

86,606

 

12.6%

Rent expense (3)

24,120

 

10.8%

 

23,979

 

11.1%

 

72,318

 

10.2%

 

72,698

 

10.6%

Other store operating expenses (3)

38,757

 

17.3%

 

36,587

 

16.9%

 

112,143

 

15.9%

 

105,435

 

15.4%

Total Company store operating costs (3)

185,786

 

83.0%

 

181,853

 

83.8%

 

566,366

 

80.3%

 

552,752

 

80.5%

Other costs and expenses:

                             

Advertising expense

11,515

 

5.0%

 

10,292

 

4.6%

 

36,777

 

5.1%

 

36,339

 

5.2%

General and administrative expenses

17,284

 

7.6%

 

14,592

 

6.6%

 

51,222

 

7.1%

 

48,620

 

7.0%

Transaction, severance and related litigation costs

166

 

0.1%

 

1,826

 

0.8%

 

1,349

 

0.2%

 

3,939

 

0.6%

Asset impairments

772

 

0.3%

 

875

 

0.4%

 

772

 

0.1%

 

875

 

0.1%

Total operating costs and expenses

215,523

 

94.5%

 

209,438

 

94.4%

 

656,486

 

91.3%

 

642,525

 

91.9%

Operating income

12,547

 

5.5%

 

12,499

 

5.6%

 

62,523

 

8.7%

 

56,998

 

8.1%

Interest expense

17,237

 

7.6%

 

17,209

 

7.8%

 

51,419

 

7.2%

 

52,031

 

7.4%

Income (loss) before income taxes

(4,690)

 

(2.1)%

 

(4,710)

 

(2.1)%

 

11,104

 

1.5%

 

4,967

 

0.7%

Income tax expense (benefit)

(2,286)

 

(1.0)%

 

(1,508)

 

(0.7)%

 

4,645

 

0.6%

 

3,319

 

0.5%

Net income (loss)

$

(2,404)

 

(1.1)%

 

$

(3,202)

 

(1.4)%

 

$

6,459

 

0.9%

 

$

1,648

 

0.2%

                                                     

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)

 
   

October 2,
 2016

 

January 3,
 2016

ASSETS

       

Current assets:

       

Cash and cash equivalents

 

$

79,857

 

$

50,654

Other current assets

 

59,771

 

67,434

Total current assets

 

139,628

 

118,088

Property and equipment, net

 

599,653

 

629,047

Goodwill

 

483,876

 

483,876

Intangible assets, net

 

485,057

 

488,095

Other noncurrent assets

 

22,861

 

13,929

Total assets

 

$

1,731,075

 

$

1,733,035

LIABILITIES AND STOCKHOLDER'S EQUITY

       

Current liabilities:

       

Bank indebtedness and other long-term debt

 

$

7,626

 

$

7,650

Other current liabilities

 

105,781

 

106,463

Total current liabilities

 

113,407

 

114,113

Capital lease obligations, less current portion

 

14,681

 

15,044

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

 

969,030

 

971,333

Deferred tax liability

 

191,532

 

201,734

Other noncurrent liabilities

 

226,181

 

222,265

Total liabilities

 

1,514,831

 

1,524,489

Stockholder's equity:

       

Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of

October 2, 2016 and January 3, 2016

 

 

Capital in excess of par value

 

356,996

 

356,460

Accumulated deficit

 

(138,139)

 

(144,598)

Accumulated other comprehensive loss

 

(2,613)

 

(3,316)

Total stockholder's equity

 

216,244

 

208,546

Total liabilities and stockholder's equity

 

$

1,731,075

 

$

1,733,035

 

CEC ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 
   

Nine Months Ended

   

October 2,
 2016

 

September 27,
 2015

CASH FLOWS FROM OPERATING ACTIVITIES:

 

Net income

 

$

6,459

 

$

1,648

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

       

  Depreciation and amortization

 

90,167

 

89,597

  Deferred income taxes

 

(10,329)

 

(19,101)

  Stock-based compensation expense

 

522

 

733

  Amortization of lease related liabilities

 

(17)

 

(2)

  Amortization of original issue discount and deferred debt financing costs

 

3,410

 

3,410

  Loss on asset disposals, net

 

6,298

 

4,867

  Asset impairments

 

772

 

875

  Non-cash rent expense

 

5,261

 

6,190

  Other adjustments

 

237

 

(908)

Changes in operating assets and liabilities:

       

Operating assets

 

3,554

 

(2,011)

Operating liabilities

 

4,920

 

3,000

Net cash provided by operating activities

 

111,254

 

88,298

CASH FLOWS FROM INVESTING ACTIVITIES:

       

Acquisition of Peter Piper Pizza

 

 

(663)

Purchases of property and equipment

 

(66,535)

 

(56,994)

Development of internal use software

 

(8,788)

 

(2,784)

Proceeds from sale of property and equipment

 

426

 

261

Net cash used in investing activities

 

(74,897)

 

(60,180)

CASH FLOWS FROM FINANCING ACTIVITIES:

       

Repayments on senior term loan

 

(5,700)

 

(5,700)

Other financing activities

 

(1,810)

 

(71,538)

Net cash used in financing activities

 

(7,510)

 

(77,238)

Effect of foreign exchange rate changes on cash

 

356

 

(977)

Change in cash and cash equivalents

 

29,203

 

(50,097)

Cash and cash equivalents at beginning of period

 

50,654

 

110,994

Cash and cash equivalents at end of period

 

$

79,857

 

$

60,897

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

 

Nine Months Ended

 

October 2,
 2016

 

September 27,
 2015

 

October 2,
 2016

 

September 27,
 2015

             

Total revenues

$

228,070

 

$

221,937

 

$

719,009

 

$

699,523

 

Net income (loss) as reported

$

(2,404)

 

$

(3,202)

 

$

6,459

 

$

1,648

 

Interest expense

17,237

 

17,209

 

51,419

 

52,031

 

Income tax expense (benefit)

(2,286)

 

(1,508)

 

4,645

 

3,319

 

Depreciation and amortization

29,886

 

29,350

 

90,167

 

89,597

 

Non-cash impairments, gain or loss on disposal

2,997

 

2,700

 

7,070

 

5,742

 

Non-cash stock-based compensation

185

 

164

 

522

 

733

 

Rent expense book to cash

1,603

 

2,468

 

6,267

 

6,649

 

Franchise revenue, net cash received

(35)

 

386

 

127

 

321

 

Impact of purchase accounting

171

 

249

 

725

 

597

 

Store pre-opening costs

572

 

178

 

888

 

539

 

One-time items

1,615

 

4,941

 

4,670

 

12,546

 

Cost savings initiatives

 

505

 

62

 

1,505

 

Adjusted EBITDA

$

49,541

 

$

53,440

 

$

173,021

 

$

175,227

 

Adjusted EBITDA as a percent of total revenues

21.7%

 

24.1%

 

24.1%

 

25.0%

 
                                 

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

 

Nine Months Ended

 
   

October 2,
 2016

 

September 27,
 2015

 

October 2,
 2016

 

September 27,
 2015

 

Number of Company-owned stores:

                 

Beginning of period

 

556

 

557

 

556

 

559

 

New (1)

 

3

 

1

 

4

 

3

 

Closed (1)

 

(2)

 

(2)

 

(3)

 

(6)

 

End of period

 

557

 

556

 

557

 

556

 

Number of franchised stores:

                 

Beginning of period

 

183

 

173

 

176

 

172

 

New (2)

 

2

 

4

 

11

 

8

 

Closed (2)

 

 

(4)

 

(2)

 

(7)

 

End of period

 

185

 

173

 

185

 

173

 

Total number of stores:

                 

Beginning of period

 

739

 

730

 

732

 

731

 

New (3)

 

5

 

5

 

15

 

11

 

Closed (3)

 

(2)

 

(6)

 

(5)

 

(13)

 

End of period

 

742

 

729

 

742

 

729

 
                     

________________

(1) 

The number of new and closed Company-owned stores during the nine months ended September 27, 2015 included one store that was relocated.

(2) 

The number of new and closed franchise stores during the three and nine months ended September 27, 2015 included one and two stores, respectively, that were relocated.

(3) 

The number of new and closed stores during the three and nine months ended September 27, 2015 included one and three stores, respectively, that were relocated.

SOURCE CEC Entertainment, Inc.

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