CEC Entertainment, Inc. Reports Financial Results For The 2014 Fourth Quarter And Fiscal Year

IRVING, Texas - Feb. 26, 2015 /PRNewswire - CEC Entertainment, Inc. (the "Company") today announced financial results for its fourth quarter ended December 28, 2014.

"We are encouraged by the momentum of our business, as we showed stronger performance in the second half of the year than the first half," said Tom Leverton, Chief Executive Officer. "We have assembled an outstanding management team that is focused on driving improvements in all aspects of our operations, marketing and support of our Chuck E. Cheese's stores and brand. In addition, we are pleased with the performance of our Peter Piper Pizza stores and excited about opportunities to further enhance their growth."

Fourth Quarter Results

Total revenues for the fourth quarter of 2014 increased 6.8%, or $12.2 million, over the prior year to $190.7 million. The increase primarily related to additional revenues of $12.3 million resulting from the Peter Piper Pizza acquisition, which closed in October 2014. Same store sales for the fourth quarter for Chuck E. Cheese's stores declined 1.4% from the prior year period. Same store sales for the fourth quarter for Peter Piper Pizza stores increased 3.4% over the prior year, which includes periods in which the Company did not own Peter Piper Pizza.

Adjusted EBITDA for the fourth quarter of 2014 increased 8.4%, or $2.5 million, over the prior year to $31.8 million. The increase primarily related to $2.9 million in additional Adjusted EBITDA resulting from the Peter Piper Pizza acquisition. Adjusted EBITDA represents net loss adjusted to exclude income taxes, interest income and expense, asset impairments, depreciation and amortization, the effects of acquisition accounting adjustments, transaction costs and certain non-cash and unusual items, as well as other adjustments required or permitted in calculating covenant compliance under the agreements governing the Company's indebtedness. Refer to the further discussion of Adjusted EBITDA under the heading "Non-GAAP Financial Measures" below, which includes a reconciliation of net loss to Adjusted EBITDA.

The Company reported a net loss of $22.2 million for the fourth quarter of 2014, compared to a net loss of $0.1 million for the fourth quarter of 2013. The increase in the net loss is primarily due to transaction costs related to the acquisition of Peter Piper Pizza, an increase in depreciation and amortization expense resulting from purchase accounting and additional interest expense.

Fiscal Year Results

Total revenues for the fiscal year 2014 increased 1.4%, or $11.1 million, over the prior year to $832.8 million. The increase primarily related to additional revenues from new Chuck E. Cheese's store openings and additional revenues of $12.3 million resulting from the Peter Piper Pizza acquisition, which closed in October 2014. Same store sales for the fiscal year 2014 for Chuck E. Cheese's stores declined 2.2% from the prior year. Same store sales for the fiscal year 2014 for Peter Piper Pizza stores increased 4.6% over the prior year, which includes periods in which the Company did not own Peter Piper Pizza.

Adjusted EBITDA for the fiscal year 2014 increased 5.0%, or $9.3 million, over the prior year to $195.4 million. The increase is a result of increased revenues from new store openings in 2014, store and corporate cost reduction efforts and $2.9 million in additional Adjusted EBITDA resulting from the Peter Piper Pizza acquisition.

The Company reported a net loss of $61.4 million for the fiscal year 2014, compared to net income of $47.8 million for the fiscal year 2013. The change to a net loss is primarily due to transaction costs related to the Company's going-private transaction, sale-leaseback arrangements of certain of its stores, and the acquisition of Peter Piper Pizza; an increase in depreciation and amortization expense resulting from purchase accounting; and additional interest expense.

Balance Sheet and Liquidity

As of December 28, 2014, cash and cash equivalents were $111.0 million with no borrowings drawn under the Company's $150.0 million revolving credit facility. Capital expenditures were $74.4 million for the fiscal year 2014, of which $39.8 million related to growth, including new store development, major remodels, store expansions and major attractions.

As of December 28, 2014, the Company's system-wide portfolio consisted of:

 

 

Chuck E. Cheese's

 

Peter Piper Pizza

 

Total

Company operated

527

 

32

 

559

Domestic franchised

32

 

62

 

94

International franchised

30

 

48

 

78

Total

589

 

142

 

731

Conference Call Information:

The Company will host a conference call for investors and other interested parties beginning at 9:00 a.m. Central Time on Friday, February 27, 2015. The call can be accessed by dialing (844) 339-5300 or (815) 680-6282 for international participants and conference code 87179745. The replay of the call will be available from 12:00 p.m. Central Time on February 27, 2015 through midnight Central Time on March 6, 2015. The replay of the call can be accessed by dialing (855) 859-2056 or (404) 537-3406 for international participants.

About CEC Entertainment, Inc.

For more than 35 years, CEC Entertainment has served as a nationally recognized leader in family dining and entertainment. The Company and its franchisees operate a system of more than 575 Chuck E. Cheese's stores and 140 Peter Piper Pizza stores, with stores located in 47 states and 11 foreign countries or territories. For more information, please visit www.chuckecheese.com.

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. A reconciliation of the GAAP financial measure most directly comparable to Adjusted EBITDA is set forth in tables accompanying this release.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements in this report, 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 "Risk Factors" of the Company's prospectus filed with the Securities and Exchange Commission on October 14, 2014. 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:

  • 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;
  • Changes in consumer discretionary spending;
  • Impacts on our business and financial results from economic uncertainty in the United States and Canada;
  • Negative publicity concerning food quality, health, general safety and other issues;
  • Expansion in international markets;
  • Our ability to successfully integrate the operations of companies we acquire;
  • 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;
  • Changes in consumers' health, nutrition and dietary preferences;
  • 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;
  • Existence or occurrence of certain public health issues;
  • 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
  • Litigation risks associated with our merger.

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.

Merger

On February 14, 2014, the Company announced the completion of the acquisition of CEC Entertainment, Inc. by an affiliate of Apollo Global Management, LLC ("Apollo"). The acquisition is referred to as the "Merger". The accompanying consolidated statements of earnings and related information present the Company's results of operations for the period preceding the acquisition (Predecessor) and the period succeeding the acquisition (Successor) based on the mathematical combination of the Successor and Predecessor periods in the twelve months ended December 28, 2014. Although this combined presentation does not comply with GAAP, the Company believes that it provides a meaningful method of comparison.

- financial tables follow -

CEC ENTERTAINMENT, INC.

CONSOLIDATED STATEMENT OF EARNINGS

(Unaudited)

(in thousands)

 
 

Three Months Ended

 

Twelve Months Ended

 

December 28,
2014

 

December 29,
2013

 

December 28,
2014

 

December 29,
2013

 

(Successor)

 

(Predecessor)

 

(Combined)

 

(Predecessor)

REVENUES:

                     

Food and beverage sales

$

83,499

  

43.8%

  

$

79,096

  

44.3%

  

$

358,593

  

43.1%

  

$

368,584

  

44.9%

Entertainment and merchandise sales

104,253

 

54.7%

 

98,198

 

55.0%

 

467,061

 

56.1%

 

448,155

 

54.5%

Total Company store sales

187,752

 

98.4%

 

177,294

 

99.3%

 

825,654

 

99.1%

 

816,739

 

99.4%

Franchise fees and royalties

2,990

 

1.6%

 

1,274

 

0.7%

 

7,170

 

0.9%

 

4,982

 

0.6%

Total revenues

190,742

 

100.0%

 

178,568

 

100.0%

 

832,824

 

100.0%

 

821,721

 

100.0%

OPERATING COSTS AND EXPENSES:

                             

Company store operating costs:

                             

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

22,746

 

27.2%

 

20,548

 

26.0%

 

92,281

 

25.7%

 

90,363

 

24.5%

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

7,182

 

6.9%

 

6,519

 

6.6%

 

28,337

 

6.1%

 

29,775

 

6.6%

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

29,928

 

15.9%

 

27,067

 

15.3%

 

120,618

 

14.6%

 

120,138

 

14.7%

Labor expenses (3)

57,074

 

30.4%

 

54,763

 

30.9%

 

232,853

 

28.2%

 

229,172

 

28.1%

Depreciation and amortization (3)

31,810

 

16.9%

 

19,501

 

11.0%

 

125,684

 

15.2%

 

78,167

 

9.6%

Rent expense (3)

23,686

 

12.6%

 

19,815

 

11.2%

 

89,063

 

10.8%

 

78,463

 

9.6%

Other store operating expenses (3)

35,795

 

19.1%

 

32,260

 

18.2%

 

135,656

 

16.4%

 

131,035

 

16.0%

Total Company store operating costs (3)

178,293

 

95.0%

 

153,406

 

86.5%

 

703,874

 

85.3%

 

636,975

 

78.0%

Other costs and expenses:

                             

Advertising expense

8,900

 

4.7%

 

8,257

 

4.6%

 

39,605

 

4.8%

 

41,217

 

5.0%

General and administrative expenses

17,393

 

9.1%

 

13,741

 

7.7%

 

57,932

 

7.0%

 

56,691

 

6.9%

Transaction and severance costs

5,495

 

2.9%

 

316

 

0.2%

 

60,392

 

7.3%

 

316

 

—%

Asset impairments

407

 

0.2%

 

2,288

 

1.3%

 

407

 

—%

 

3,051

 

0.4%

Total operating costs and expenses

210,488

 

110.4%

 

178,008

 

99.7%

 

862,210

 

103.5%

 

738,250

 

89.8%

Operating income (loss)

(19,746)

 

(10.4)%

 

560

 

0.3%

 

(29,386)

 

(3.5)%

 

83,471

 

10.2%

Interest expense

17,696

 

9.3%

 

1,944

 

1.1%

 

62,103

 

7.5%

 

7,453

 

0.9%

Income (loss) before income taxes

(37,442)

 

(19.6)%

 

(1,384)

 

(0.8)%

 

(91,489)

 

(11.0)%

 

76,018

 

9.3%

Income tax (benefit) expense

(15,289)

 

(8.0)%

 

(1,273)

 

(0.7)%

 

(30,105)

 

(3.6)%

 

28,194

 

3.4%

Net income (loss)

$

(22,153)

 

(11.6)%

 

$

(111)

 

(0.1)%

 

$

(61,384)

 

(7.4)%

 

$

47,824

 

5.8%

 

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 reflected as a percentage of Company store sales.

 

 

(Note - 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.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

 

 
 

December 28,
2014

 

December 29,
2013

 

(Successor)

    

(Predecessor)

ASSETS

     

Current assets:

     

Cash and cash equivalents

$

110,994

 

$

20,686

Other current assets

62,651

 

66,333

Total current assets

173,645

 

87,019

Property and equipment, net

681,972

 

691,454

Goodwill

483,444

 

3,458

Intangible assets, net

491,400

 

Deferred financing costs, net

24,087

 

1,268

Other noncurrent assets

9,595

 

8,412

Total assets

$

1,864,143

 

$

791,611

LIABILITIES AND STOCKHOLDERS' EQUITY

     

Current liabilities:

     

Bank indebtedness and other long-term debt, current portion

$

9,545

 

$

Capital lease obligations, current portion

408

 

1,014

Other current liabilities

107,242

 

85,692

Total current liabilities

117,195

 

86,706

Capital lease obligations, less current portion

15,476

 

20,365

Bank indebtedness and other long-term debt, less current portion

998,441

 

361,500

Deferred tax liability

222,915

 

57,831

Other noncurrent liabilities

217,530

 

104,441

Total liabilities

1,571,557

 

630,843

Stockholders' equity:

     

Predecessor: Common stock, $0.10 par value; authorized 100,000,000 shares; 61,865,495 shares issued as of December 29, 2013

 

6,187

Successor: Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of December 28, 2014

 

Capital in excess of par value

355,587

 

453,702

Retained earnings (deficit)

(62,088)

 

853,464

Accumulated other comprehensive income (loss)

(913)

 

4,764

Less Predecessor treasury stock, at cost; 44,341,225 shares as of December 29, 2013

 

(1,157,349)

Total stockholders' equity

292,586

 

160,768

Total liabilities and stockholders' equity

$

1,864,143

 

$

791,611

 

 

CEC ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 
 

Twelve Months Ended

 

December 28,
2014

 

December 29,
2013

 

(Combined)

    

(Predecessor)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

$

(61,384)

 

$

47,824

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

     

Depreciation and amortization

128,439

 

79,028

Deferred income taxes

(62,996)

 

(3,025)

Stock-based compensation expense

12,928

 

8,481

Amortization of lease-related liabilities

72

 

(2,355)

Amortization of original issue discount and deferred financing costs

4,020

 

448

Loss on asset disposals, net

7,943

 

3,309

Asset impairments

407

 

3,051

Other adjustments

1,339

 

135

Changes in operating assets and liabilities:

     

Operating assets

272

 

(1,060)

Operating liabilities

39,365

 

2,828

Net cash provided by operating activities

70,405

 

138,664

CASH FLOWS FROM INVESTING ACTIVITIES:

     

Acquisition of Predecessor

(946,898)

 

Acquisition of Peter Piper Pizza

(113,142)

 

Purchases of property and equipment

(72,267)

 

(74,085)

Other investing activities

(1,637)

 

3,143

Net cash used in investing activities

(1,133,944)

 

(70,942)

CASH FLOWS FROM FINANCING ACTIVITIES:

     

Proceeds from secured credit facilities, net of original issue discount

756,200

 

Proceeds from senior notes

255,000

 

Repayment of Predecessor Facility

(348,000)

 

Repayments on senior term loan

(3,807)

 

Net repayments on revolving credit facility

(13,500)

 

(28,000)

Proceeds from sale leaseback transaction

183,685

 

Payment of debt financing costs

(27,575)

 

Equity contribution

350,000

 

Other financing activities

2,601

 

(38,031)

Net cash provided by (used in) financing activities

1,154,604

 

(66,031)

Effect of foreign exchange rate changes on cash

(757)

 

(641)

Change in cash and cash equivalents

90,308

 

1,050

Cash and cash equivalents at beginning of year

20,686

 

19,636

Cash and cash equivalents at end of year

$

110,994

 

$

20,686

 

CEC ENTERTAINMENT, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(Unaudited)

(in thousands)

 

 

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

 
 

Three Months Ended

 

Twelve Months Ended

 

December 28,
2014

 

December 29,
2013

 

December 28,
2014

 

December 29,
2013

 

(Successor)

 

(Predecessor)

 

(Combined)

 

(Predecessor)

   

Total revenues

$

190,742

    

$

178,568

    

$

832,824

    

$

821,721

Net income (loss) as reported

$

(22,153)

 

$

(111)

 

$

(61,384)

 

$

47,824

Interest expense

17,696

 

1,944

 

62,103

 

7,453

Income tax expense (benefit)

(15,289)

 

(1,273)

 

(30,105)

 

28,194

Depreciation and amortization

33,173

 

19,759

 

128,439

 

79,028

Non-cash impairments, gain or loss on disposal

4,618

 

4,893

 

10,135

 

6,360

Non-cash stock-based compensation

512

 

2,012

 

13,342

 

8,481

Rent expense book to cash

2,147

 

43

 

9,426

 

714

Franchise revenue, net cash received

381

 

 

2,585

 

Impact of purchase accounting

473

 

 

1,496

 

Store pre-opening costs

681

 

779

 

1,297

 

2,057

One-time items

8,577

 

(467)

 

54,944

 

(40)

Cost savings initiatives

947

 

1,725

 

3,145

 

6,060

Adjusted EBITDA

$

31,763

 

$

29,304

 

$

195,423

 

$

186,131

Adjusted EBITDA as a percent of total revenues

16.7%

 

16.4%

 

23.5%

 

22.7%

 

 

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 and adjusted to exclude asset impairments, the effects of acquisition accounting adjustments, transaction costs, and certain non-cash and unusual items, as well as other adjustments required or permitted in calculating covenant compliance under the indenture and/or our Secured Credit Facilities.

 

CEC ENTERTAINMENT, INC.

STORE COUNT INFORMATION
(Unaudited)

 

 

 
 

Three Months Ended

 

Twelve Months Ended

 

December 28,
2014

 

December 29,
2013

 

December 28,
2014

 

December 29,
2013

 

(Successor)

 

(Predecessor)

 

(Combined)

 

(Predecessor)

Number of Company-owned stores:

             

Beginning of period

522

 

518

 

522

 

514

New (1)

5

 

5

 

11

 

13

Acquired by the Company (2)

32

 

 

32

 

Acquired from franchisee

 

 

1

 

Closed (1)

 

(1)

 

(7)

 

(5)

End of period

559

 

522

 

559

 

522

Number of franchised stores:

             

Beginning of period

57

 

53

 

55

 

51

New (3)

6

 

2

 

10

 

6

Acquired by the Company (2)

110

 

 

110

 

Acquired from franchisee

 

 

(1)

 

Closed (3)

(1)

 

 

(2)

 

(2)

End of period

172

 

55

 

172

 

55

Total number of stores:

             

Beginning of period

579

 

571

 

577

 

565

New (4)

11

 

7

 

21

 

19

Acquired by the Company (2)

142

 

 

142

 

Acquired from franchisee

 

 

 

Closed (4)

(1)

 

(1)

 

(9)

 

(7)

End of period

731

 

577

 

731

 

577

 

(1)

The number of new and closed Company-owned stores during 2014 and 2013 included two and one stores, respectively, that were relocated.

(2)

In October 2014 we acquired Peter Piper Pizza, including 32 company-owned stores and 110 franchised stores.

(3)

The number of new and closed franchise stores during 2014 and 2013 included one store that was relocated.

(4)

The number of new and closed stores during 2014 and 2013 included three and one stores, respectively, that were relocated.

SOURCE CEC Entertainment, Inc.

###

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