CEC Entertainment, Inc. Reports Financial Results for the 2015 Second Quarter

IRVING, Texas - July 29, 2015 // PRNewswire // - CEC Entertainment, Inc. (the "Company") today announced financial results for its second quarter ended June 28, 2015.

"We are pleased to report positive same store sales growth this quarter of 3.0% at our Chuck E. Cheese's stores and 5.3% at our Peter Piper Pizza stores," said Tom Leverton, Chief Executive Officer. "We believe our initiatives to improve the overall food and entertainment experience at Chuck E. Cheese's are beginning to have an impact. The new menu at our Chuck E. Cheese's stores launched in April and has been very well received by our guests. We believe other initiatives like free guest Wi-Fi and enhanced hospitality training are also improving the in-store experience and helping to contribute to stronger traffic. With all of the positive changes at Chuck E. Cheese's, we invested in marketing to communicate our new menu and initiate our Mom's focused advertising campaign which we believe will help support revenue growth in future quarters, as well as the quarter just completed. In addition, Peter Piper Pizza, which we acquired in October 2014, continues its positive momentum, reporting its 20th consecutive quarter of same store sales growth."

Second Quarter Results

Total revenues for the second quarter of 2015 increased 13.7%, or $25.5 million, over the prior year to $212.1 million. The increase is primarily related to additional revenues of $17.8 million resulting from the Peter Piper Pizza acquisition, which closed in October 2014, and an increase in same store sales at our Chuck E. Cheese's stores. Same store sales for the second quarter of 2015 for Chuck E. Cheese's stores increased 3.0% from the prior year. Same store sales for the second quarter of 2015 for Peter Piper Pizza stores increased 5.3% over the prior year, a period in which the Company did not own Peter Piper Pizza.

Adjusted EBITDA for the second quarter of 2015 increased 11.3%, or $4.2 million, over the prior year to $41.1 million. The increase is primarily related to incremental Adjusted EBITDA for Peter Piper Pizza, offset by increases in store expenses associated with the increase in store revenues and an increase in rent due to fewer landlord incentives being received than the prior year, as well as investments made in advertising. Adjusted EBITDA for Peter Piper Pizza increased 31.0% over the prior year, a period in which the Company did not own Peter Piper Pizza, to $5.4 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.

The Company reported a net loss of $9.9 million for the second quarter of 2015, compared to a net loss of $12.8 million for the second quarter of 2014. The decrease in the net loss is due to an increase in same store sales at our Chuck E. Cheese's stores and net income from Peter Piper Pizza for the second quarter of 2015 of $1.7 million.

Balance Sheet and Liquidity

As of June 28, 2015, cash and cash equivalents were $132.4 million, and total debt was $1.0 billion, with no borrowings drawn under the Company's $150.0 million revolving credit facility. Capital expenditures were $23.9 million for the second quarter of 2015, of which $15.3 million were related to IT and growth initiatives, including new store development, major remodels, store expansions and major attractions.

As of June 28, 2015, the Company's system-wide portfolio consisted of:

   

Chuck E. Cheese's

 

Peter Piper Pizza

 

Total

Company operated

   

525

   

32

   

557

Domestic franchised

   

31

   

63

   

94

International franchised

   

32

   

47

   

79

Total

   

588

   

142

   

730

Conference Call Information

The Company will host a conference call beginning at 9:00 a.m. Central Time on Thursday, July 30, 2015. The call can be accessed by dialing (855) 743-8451 or (330) 968-0151 for international participants and conference code 85512719.

A replay of the call will be available from 12:00 p.m. Central Time on July 30, 2015 through midnight Central Time on August 6, 2015. The replay of the call can be accessed by dialing (800) 585-8367 or (404) 537-3406 for international participants and conference code 85512719.

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 585 Chuck E. Cheese's stores and 140 Peter Piper Pizza stores, with locations in 47 states and 11 foreign countries and territories. For more information, visit chuckecheese.com.

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 Part I, Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 28, 2014, filed with the Securities and Exchange Commission on March 5, 2015. 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 six months ended June 29, 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 STATEMENTS OF EARNINGS
(Unaudited)
(in thousands)

 

 

         
 

Three Months Ended

   

Six Months Ended

 

June 28,
 2015

   

June 29,
 2014

     

June 28,
 2015

   

June 29,
 2014

 

(Successor)

 

(Successor)

   

(Successor)

 

(Combined)

REVENUES:

                       

Food and beverage sales

$

94,145

   

44.4

%

 

$

79,649

   

42.7

%

   

$

210,681

   

44.1

%

 

$

192,823

   

43.6

%

Entertainment and merchandise sales

113,861

   

53.7

%

 

105,651

   

56.6

%

   

258,605

   

54.1

%

 

246,923

   

55.8

%

Total Company store sales

208,006

   

98.1

%

 

185,300

   

99.3

%

   

469,286

   

98.3

%

 

439,746

   

99.4

%

Franchise fees and royalties

4,073

   

1.9

%

 

1,274

   

0.7

%

   

8,300

   

1.7

%

 

2,647

   

0.6

%

Total revenues

212,079

   

100.0

%

 

186,574

   

100.0

%

   

477,586

   

100.0

%

 

442,393

   

100.0

%

OPERATING COSTS AND EXPENSES:

                               

Company store operating costs:

                               

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

23,951

   

25.4

%

 

20,386

   

25.6

%

   

53,176

   

25.2

%

 

48,368

   

25.1

%

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

7,015

   

6.2

%

 

5,927

   

5.6

%

   

15,537

   

6.0

%

 

14,486

   

5.9

%

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

30,966

   

14.9

%

 

26,313

   

14.2

%

   

68,713

   

14.6

%

 

62,854

   

14.3

%

Labor expenses (3)

59,234

   

28.5

%

 

54,747

   

29.5

%

   

126,407

   

26.9

%

 

118,693

   

27.0

%

Depreciation and amortization (3)

28,970

   

13.9

%

 

34,044

   

18.4

%

   

58,211

   

12.4

%

 

62,252

   

14.2

%

Rent expense (3)

24,260

   

11.7

%

 

22,715

   

12.3

%

   

48,719

   

10.4

%

 

42,790

   

9.7

%

Other store operating expenses (3)

35,330

   

17.0

%

 

32,339

   

17.5

%

   

68,848

   

14.7

%

 

64,738

   

14.7

%

Total Company store operating costs (3)

178,760

   

85.9

%

 

170,158

   

91.8

%

   

370,898

   

79.0

%

 

351,327

   

79.9

%

Other costs and expenses:

                               

Advertising expense

14,596

   

6.9

%

 

9,551

   

5.1

%

   

26,048

   

5.5

%

 

20,591

   

4.7

%

General and administrative expenses

18,973

   

8.9

%

 

11,928

   

6.4

%

   

36,060

   

7.6

%

 

26,719

   

6.0

%

Transaction and severance costs

(62)

   

%

 

(158)

   

(0.1)

%

   

82

   

%

 

49,155

   

11.1

%

Total operating costs and expenses

212,267

   

100.1

%

 

191,479

   

102.6

%

   

433,088

   

90.7

%

 

447,792

   

101.2

%

Operating income (loss)

(188)

   

(0.1)

%

 

(4,905)

   

(2.6)

%

   

44,498

   

9.3

%

 

(5,399)

   

(1.2)

%

Interest expense

17,324

   

8.2

%

 

15,239

   

8.2

%

   

34,822

   

7.3

%

 

28,433

   

6.4

%

Income (loss) before income taxes

(17,512)

   

(8.3)

%

 

(20,144)

   

(10.8)

%

   

9,676

   

2.0

%

 

(33,832)

   

(7.6)

%

Income tax expense (benefit)

(7,620)

   

(3.6)

%

 

(7,360)

   

(3.9)

%

   

4,826

   

1.0

%

 

(7,880)

   

(1.8)

%

Net income (loss)

$

(9,892)

   

(4.7)

%

 

$

(12,784)

   

(6.9)

%

   

$

4,850

   

1.0

%

 

$

(25,952)

   

(5.9)

%

                                                         
                                                         

 

 

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 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.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)

 

 

           
   

June 28,
 2015

   

December 28,
 2014

   

(Successor)

   

(Successor)

ASSETS

         

Current assets:

         

Cash and cash equivalents

 

$

132,355

     

$

110,994

 

Other current assets

 

64,172

     

62,651

 

Total current assets

 

196,527

     

173,645

 

Property and equipment, net

 

657,086

     

681,972

 

Goodwill

 

483,983

     

483,444

 

Intangible assets, net

 

490,200

     

491,400

 

Deferred financing costs, net

 

22,084

     

24,087

 

Other noncurrent assets

 

12,675

     

9,595

 

Total assets

 

$

1,862,555

     

$

1,864,143

 

LIABILITIES AND STOCKHOLDERS' EQUITY

         

Current liabilities:

         

Bank indebtedness and other long-term debt, current portion

 

$

9,548

     

$

9,545

 

Other current liabilities

 

117,895

     

107,650

 

Total current liabilities

 

127,443

     

117,195

 

Capital lease obligations, less current portion

 

15,269

     

15,476

 

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

 

994,887

     

998,441

 

Deferred tax liability

 

208,686

     

222,915

 

Other noncurrent liabilities

 

219,123

     

217,530

 

Total liabilities

 

1,565,408

     

1,571,557

 

Stockholders' equity:

         

Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of June 28, 2015 and December 28, 2014

 

     

 

Capital in excess of par value

 

356,163

     

355,587

 

Retained earnings (deficit)

 

(57,238)

     

(62,088)

 

Accumulated other comprehensive income (loss)

 

(1,778)

     

(913)

 

Total stockholders' equity

 

297,147

     

292,586

 

Total liabilities and stockholders' equity

 

$

1,862,555

     

$

1,864,143

 

 

 

CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)

 

 

     
   

Six Months Ended

   

June 28,
 2015

 

June 29,
 2014

   

(Successor)

 

(Combined)

CASH FLOWS FROM OPERATING ACTIVITIES:

 

Net income (loss)

 

$

4,850

   

$

(25,952)

 

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

       

  Depreciation and amortization

 

60,248

   

63,123

 

  Deferred income taxes

 

(11,909)

   

(14,936)

 

  Stock-based compensation expense

 

570

   

12,225

 

  Amortization of lease-related intangibles and liabilities, net

 

61

   

(174)

 

  Amortization of original issue discount and deferred financing costs

 

2,273

   

1,747

 

  Loss on asset disposals, net

 

3,042

   

2,845

 

  Non-cash rent expense

 

4,289

   

1,929

 

  Other adjustments

 

(494)

   

266

 

Changes in operating assets and liabilities:

       

  Operating assets

 

(4,371)

   

1,007

 

  Operating liabilities

 

8,812

   

(2,935)

 

Net cash provided by operating activities

 

67,371

   

39,145

 

CASH FLOWS FROM INVESTING ACTIVITIES:

       

Acquisition of Predecessor

 

   

(946,898)

 

Acquisition of Peter Piper Pizza

 

(663)

   

 

Acquisition of franchisee

 

   

(1,529)

 

Purchases of property and equipment

 

(38,628)

   

(32,268)

 

Development of internal use software

 

(1,571)

   

 

Other investing activities

 

82

   

292

 

Net cash used in investing activities

 

(40,780)

   

(980,403)

 

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

 

(3,800)

   

 

Net repayments on revolving credit facility

 

   

(13,500)

 

Payment of debt financing costs

 

   

(27,575)

 

Equity contribution

 

   

350,000

 

Other financing activities

 

(1,002)

   

3,698

 

Net cash provided by (used in) financing activities

 

(4,802)

   

975,823

 

Effect of foreign exchange rate changes on cash

 

(428)

   

(80)

 

Change in cash and cash equivalents

 

21,361

   

34,485

 

Cash and cash equivalents at beginning of period

 

110,994

   

39,870

 

Cash and cash equivalents at end of period

 

$

132,355

   

$

74,355

 

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

 

June 28,
 2015

 

June 29,
 2014

   

June 28,
 2015

 

June 29,
 2014

 

(Successor)

 

(Successor)

   

(Successor)

 

(Combined)

   

Total revenues

$

212,079

   

$

186,574

     

$

477,586

   

$

442,393

 

Net income (loss) as reported

$

(9,892)

   

$

(12,784)

     

$

4,850

   

$

(25,952)

 

Interest expense

17,324

   

15,239

     

34,822

   

28,433

 

Income tax expense (benefit)

(7,620)

   

(7,360)

     

4,826

   

(7,880)

 

Depreciation and amortization

29,849

   

34,568

     

60,248

   

63,123

 

Non-cash impairments, gain or loss on disposal

1,799

   

1,577

     

3,042

   

2,845

 

Non-cash stock-based compensation

178

   

     

570

   

12,639

 

Rent expense book to cash

1,968

   

4,020

     

4,179

   

5,270

 

Franchise revenue, net cash received

   

100

     

(65)

   

100

 

Impact of purchase accounting

116

   

219

     

348

   

413

 

Store pre-opening costs

117

   

377

     

362

   

637

 

One-time items

6,254

   

113

     

7,605

   

37,821

 

Cost savings initiatives

1,001

   

859

     

1,001

   

1,669

 

Adjusted EBITDA

$

41,094

   

$

36,928

     

$

121,788

   

$

119,118

 

Adjusted EBITDA as a percent of total revenues

19.4

%

 

19.8

%

   

25.5

%

 

26.9

%

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 and severance costs, and certain other items.

 

 

CEC ENTERTAINMENT, INC.
STORE COUNT INFORMATION
(Unaudited)

 

 

         
   

Three Months Ended

 

Six Months Ended

   

June 28,
 2015

 

June 29,
 2014

 

June 28,
 2015

 

June 29,
 2014

   

(Successor)

 

(Successor)

 

(Successor)

 

(Combined)

Number of Company-owned stores:

               

 Beginning of period

 

560

   

522

   

559

   

522

 

  New (1), (2)

 

   

5

   

2

   

6

 

 Acquired from franchisee

 

   

1

   

   

1

 

  Closed (1), (2)

 

(3)

   

(4)

   

(4)

   

(5)

 

 End of period

 

557

   

524

   

557

   

524

 

Number of franchised stores:

               

 Beginning of period

 

175

   

55

   

172

   

55

 

  New (3)

 

1

   

   

4

   

 

 Acquired from franchisee

 

   

(1)

   

   

(1)

 

  Closed (3)

 

(3)

   

   

(3)

   

 

 End of period

 

173

   

54

   

173

   

54

 

Total number of stores:

               

 Beginning of period

 

735

   

577

   

731

   

577

 

  New (4)

 

1

   

5

   

6

   

6

 

 Acquired from franchisee

 

   

   

   

 

  Closed (4)

 

(6)

   

(4)

   

(7)

   

(5)

 

 End of period

 

730

   

578

   

730

   

578

 
                         

 

   

(1)

The number of new and closed Company-owned stores during the three months ended June 29, 2014 included one store that was relocated.

   

(2)

The number of new and closed Company-owned stores during the six months ended June 28, 2015 and June 29, 2014 included one and two stores, respectively, that were relocated.

   

(3)

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

   

(4)

The number of new and closed stores during the three months ended June 28, 2015 and June 29, 2014 and the six months ended June 28, 2015 and June 29, 2014, included one, one, two and two, respectively, that were relocated.

SOURCE CEC Entertainment, Inc.

Contacts:

Temple Weiss
Investor Relations
EVP & CFO
CEC Entertainment, Inc
(972) 258-4525
tweiss@cecentertainment.com

Kari Streiber
Media Relations
CEC Entertainment, Inc.
(214) 632-9360
kstreiber@talktocurrent.com

###

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