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

Oct 29, 2015, 18:27 ET from CEC Entertainment, Inc.

IRVING, Texas - Oct. 29, 2015 // PRNewswire // - CEC Entertainment, Inc. (the "Company") today announced financial results for its third quarter ended September 27, 2015.

"We are pleased to report our second consecutive quarter of positive same store sales growth at our Chuck E. Cheese's stores," said Tom Leverton, Chief Executive Officer. We believe the investments we are making to improve the in-store experience and communicating to our guests is generating positive momentum and driving traffic and sales at a reinvigorated Chuck E. Cheese's. In addition, we are also pleased to report that Peter Piper Pizza continues its positive momentum, recording its 21st consecutive quarter of same store sales growth."

Third Quarter Results

Total revenues for the third quarter of 2015 increased 11.1%, or $22.2 million, over the prior year to $221.9 million. The increase is primarily related to additional revenues of $16.9 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 third quarter of 2015 for Chuck E. Cheese's stores increased 0.7% from the prior year. Same store sales for the third quarter of 2015 for Peter Piper Pizza stores increased 5.0% over the prior year, a period in which the Company did not own Peter Piper Pizza.

Adjusted EBITDA for the third quarter of 2015 increased 20.0%, or $8.9 million, over the prior year to $53.4 million. The increase is primarily related to incremental Adjusted EBITDA for Peter Piper Pizza, lower corporate overhead expenses and an increase in store revenues, offset by increases in store expenses associated with the increase in store revenues. Adjusted EBITDA for Peter Piper Pizza increased 50.5% over the prior year, a period in which the Company did not own Peter Piper Pizza, to $5.2 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 $3.2 million for the third quarter of 2015, compared to a net loss of $13.3 million for the third 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, a decrease in store operating costs, lower transaction and severance related costs and the addition of net income from Peter Piper Pizza for the third quarter of 2015.

Balance Sheet and Liquidity

As of September 27, 2015, cash and cash equivalents were $60.9 million, and total debt was $1.0 billion, with no borrowings drawn under the Company's $150.0 million revolving credit facility. During the third quarter of 2015, the Company declared and paid a cash dividend of $70.0 million from its cash balance on hand. Capital expenditures were $19.6 million for the third quarter of 2015, of which $11.2 million were related to IT and growth initiatives, including new store development, major remodels, store expansions and major attractions.

As of September 27, 2015, the Company's system-wide portfolio consisted of:

   

Chuck E. Cheese's

 

Peter Piper Pizza

 

Total

Company operated

 

524

   

32

   

556

 

Domestic franchised

 

30

   

63

   

93

 

International franchised

 

35

   

45

   

80

 

Total

 

589

   

140

   

729

 

Conference Call Information:

The Company will host a conference call beginning at 9:00 a.m. Central Time on Friday, October 30, 2015. The call can be accessed by dialing (855) 743-8451 or (330) 968-0151 for international participants and conference code 63763067.

A replay of the call will be available from 12:00 p.m. Central Time on October 30, 2015 through midnight Central Time on November 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 63763067.

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 more than 135 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 nine months ended September 28, 2014. Although this combined presentation does not comply with GAAP, the Company believes that it provides a meaningful method of comparison.

Contacts:

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

Alexis Linn
Media Inquiries
CEC Entertainment, Inc.
(972) 258-4223
alinn@cecentertainment.com

- financial tables follow -

 

CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands)

 

 

 
 

Three Months Ended

   

Nine Months Ended

 

September 27,

 

 2015

 

 

September 28,

 

 2014

 

   

September 27,

 

 2015

 

 

September 28,

 

 2014

 

 

(Successor)

 

(Successor)

   

(Successor)

 

(Combined)

REVENUES:

                       

Food and beverage sales

$

98,243

   

44.3

%

 

$

82,271

   

41.2

%

   

$

308,924

   

44.2

%

 

$

275,094

   

42.8

%

Entertainment and merchandise sales

118,753

   

53.5

%

 

115,885

   

58.0

%

   

377,358

   

53.9

%

 

362,808

   

56.5

%

Total Company store sales

216,996

   

97.8

%

 

198,156

   

99.2

%

   

686,282

   

98.1

%

 

637,902

   

99.3

%

Franchise fees and royalties

4,941

   

2.2

%

 

1,533

   

0.8

%

   

13,241

   

1.9

%

 

4,180

   

0.7

%

Total revenues

221,937

   

100.0

%

 

199,689

   

100.0

%

   

699,523

   

100.0

%

 

642,082

   

100.0

%

OPERATING COSTS AND EXPENSES:

                               

Company store operating costs:

                               

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

25,032

   

25.5

%

 

21,167

   

25.7

%

   

78,209

   

25.3

%

 

69,535

   

25.3

%

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

7,863

   

6.6

%

 

6,669

   

5.8

%

   

23,399

   

6.2

%

 

21,155

   

5.8

%

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

32,895

   

15.2

%

 

27,836

   

14.0

%

   

101,608

   

14.8

%

 

90,690

   

14.2

%

Labor expenses(3)

59,998

   

27.6

%

 

57,086

   

28.8

%

   

186,405

   

27.2

%

 

175,779

   

27.6

%

Depreciation and amortization (3)

28,394

   

13.1

%

 

31,622

   

16.0

%

   

86,606

   

12.6

%

 

93,874

   

14.7

%

Rent expense(3)

23,979

   

11.1

%

 

22,587

   

11.4

%

   

72,698

   

10.6

%

 

65,377

   

10.2

%

Other store operating expenses (3)

36,587

   

16.9

%

 

35,123

   

17.7

%

   

105,435

   

15.4

%

 

99,861

   

15.7

%

Total Company store operating costs (3)

181,853

   

83.8

%

 

174,254

   

87.9

%

   

552,752

   

80.5

%

 

525,581

   

82.4

%

Other costs and expenses:

                               

Advertising expense

10,292

   

4.6

%

 

10,114

   

5.1

%

   

36,339

   

5.2

%

 

30,705

   

4.8

%

General and administrative expenses

16,140

   

7.3

%

 

13,820

   

6.9

%

   

52,199

   

7.5

%

 

40,539

   

6.3

%

Transaction and severance costs

278

   

0.1

%

 

5,742

   

2.9

%

   

360

   

0.1

%

 

54,897

   

8.5

%

Asset impairments

875

   

0.4

%

 

   

%

   

875

   

0.1

%

 

   

%

Total operating costs and expenses

209,438

   

94.4

%

 

203,930

   

102.1

%

   

642,525

   

91.9

%

 

651,722

   

101.5

%

Operating income (loss)

12,499

   

5.6

%

 

(4,241)

   

(2.1)

%

   

56,998

   

8.1

%

 

(9,640)

   

(1.5)

%

Interest expense

17,209

   

7.8

%

 

15,974

   

8.0

%

   

52,031

   

7.4

%

 

44,407

   

6.9

%

Income (loss) before income taxes

(4,710)

   

(2.1)

%

 

(20,215)

   

(10.1)

%

   

4,967

   

0.7

%

 

(54,047)

   

(8.4)

%

Income tax expense (benefit)

(1,508)

   

(0.7)

%

 

(6,936)

   

(3.5)

%

   

3,319

   

0.5

%

 

(14,816)

   

(2.3)

%

Net income (loss)

$

(3,202)

   

(1.4)

%

 

$

(13,279)

   

(6.6)

%

   

$

1,648

   

0.2

%

 

$

(39,231)

   

(6.1)

%

 

 

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)

 

 

 
   

September 27,

 

 2015

 

   

December 28,

 

 2014

 

   

(Successor)

   

(Successor)

ASSETS

         

Current assets:

         

Cash and cash equivalents

 

$

60,897

     

$

110,994

 

Other current assets

 

63,621

     

62,651

 

Total current assets

 

124,518

     

173,645

 

Property and equipment, net

 

645,365

     

681,972

 

Goodwill

 

483,876

     

483,444

 

Intangible assets, net

 

489,149

     

491,400

 

Deferred financing costs, net

 

21,083

     

24,087

 

Other noncurrent assets

 

12,317

     

9,595

 

Total assets

 

$

1,776,308

     

$

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

 

108,171

     

107,650

 

Total current liabilities

 

117,719

     

117,195

 

Capital lease obligations, less current portion

 

15,157

     

15,476

 

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

 

993,110

     

998,441

 

Deferred tax liability

 

203,281

     

222,915

 

Other noncurrent liabilities

 

223,964

     

217,530

 

Total liabilities

 

1,553,231

     

1,571,557

 

Stockholders' equity:

         

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

 

     

 

of September 27, 2015 and December 28, 2014

Capital in excess of par value

 

356,329

     

355,587

 

Retained earnings (deficit)

 

(130,440)

     

(62,088)

 

Accumulated other comprehensive income (loss)

 

(2,812)

     

(913)

 

Total stockholders' equity

 

223,077

     

292,586

 

Total liabilities and stockholders' equity

 

$

1,776,308

     

$

1,864,143

 

 

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

 
   

Nine Months Ended

   

September 27,

 

 2015

 

 

September 28,

 

 2014

 

   

(Successor)

 

(Combined)

CASH FLOWS FROM OPERATING ACTIVITIES:

 

Net income (loss)

 

$

1,648

   

$

(39,231)

 

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

       

  Depreciation and amortization

 

89,597

   

95,266

 

  Deferred income taxes

 

(19,101)

   

(58,216)

 

  Stock-based compensation expense

 

733

   

12,416

 

  Amortization of lease-related intangibles and liabilities, net

 

(2)

   

(69)

 

  Amortization of original issue discount and deferred financing costs

 

3,410

   

2,882

 

  Loss on asset disposals, net

 

4,867

   

5,517

 

  Asset Impairments

 

875

   

 

  Non-cash rent expense

 

6,190

   

3,928

 

  Other adjustments

 

(908)

   

522

 

Changes in operating assets and liabilities:

       

Operating assets

 

(2,011)

   

3,993

 

Operating liabilities

 

3,000

   

32,768

 

Net cash provided by operating activities

 

88,298

   

59,776

 

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

 

(56,994)

   

(48,576)

 

Development of internal use software

 

(2,784)

   

 

Other investing activities

 

261

   

401

 

Net cash used in investing activities

 

(60,180)

   

(996,602)

 

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

 

(5,700)

   

(1,900)

 

Net repayments on revolving credit facility

 

   

(13,500)

 

Proceeds from sale leaseback transaction

 

   

183,685

 

Payment of debt financing costs

 

   

(27,575)

 

Dividends paid

 

(70,000)

   

(928)

 

Equity contribution

 

   

350,000

 

Other financing activities

 

(1,538)

   

4,533

 

Net cash provided by (used in) financing activities

 

(77,238)

   

1,157,515

 

Effect of foreign exchange rate changes on cash

 

(977)

   

(390)

 

Change in cash and cash equivalents

 

(50,097)

   

220,299

 

Cash and cash equivalents at beginning of period

 

110,994

   

20,686

 

Cash and cash equivalents at end of period

 

$

60,897

   

$

240,985

 

 

 

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

 

September 27,

 

 2015

 

 

September 28,

 

 2014

 

   

September 27,

 

 2015

 

 

September 28,

 

 2014

 

 

(Successor)

 

(Successor)

   

(Successor)

 

(Combined)

   

Total revenues

$

221,937

   

$

199,689

     

$

699,523

   

$

642,082

 

Net income (loss) as reported

$

(3,202)

   

$

(13,279)

     

$

1,648

   

$

(39,231)

 

Interest expense

17,209

   

15,974

     

52,031

   

44,407

 

Income tax expense (benefit)

(1,508)

   

(6,936)

     

3,319

   

(14,816)

 

Depreciation and amortization

29,350

   

32,143

     

89,597

   

95,266

 

Non-cash impairments, gain or loss on disposal

2,700

   

2,672

     

5,742

   

5,517

 

Non-cash stock-based compensation

164

   

191

     

733

   

12,830

 

Rent expense book to cash

2,468

   

2,008

     

6,649

   

7,279

 

Franchise revenue, net cash received

386

   

2,104

     

321

   

2,204

 

Impact of purchase accounting

249

   

610

     

597

   

1,023

 

Store pre-opening costs

178

   

(22)

     

539

   

616

 

One-time items

4,941

   

8,546

     

12,546

   

46,367

 

Cost savings initiatives

505

   

529

     

1,505

   

2,198

 

Adjusted EBITDA

$

53,440

   

$

44,540

     

$

175,227

   

$

163,660

 

Adjusted EBITDA as a percent of total revenues

24.1

%

 

22.3

%

   

25.0

%

 

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 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

 

Nine Months Ended

   

September 27,

 

 2015

 

 

September 28,

 

 2014

 

 

September 27,

 

 2015

 

 

September 28,

 

 2014

 

   

(Successor)

 

(Successor)

 

(Successor)

 

(Combined)

Number of Company-owned stores:

               

Beginning of period

 

557

   

524

   

559

   

522

 

New (1)

 

1

   

   

3

   

6

 

Acquired from franchisee

 

   

   

   

1

 

Closed (1)

 

(2)

   

(2)

   

(6)

   

(7)

 

End of period

 

556

   

522

   

556

   

522

 

Number of franchised stores:

               

Beginning of period

 

173

   

54

   

172

   

55

 

New (2)

 

4

   

4

   

8

   

4

 

Acquired by Company

 

   

   

   

(1)

 

Closed (2)

 

(4)

   

(1)

   

(7)

   

(1)

 

End of period

 

173

   

57

   

173

   

57

 

Total number of stores:

               

Beginning of period

 

730

   

578

   

731

   

577

 

New (3)

 

5

   

4

   

11

   

10

 

Acquired from franchisee

 

   

   

   

 

Closed (3)

 

(6)

   

(3)

   

(13)

   

(8)

 

End of period

 

729

   

579

   

729

   

579

 

 

   

(1)

The number of new and closed Company-owned stores during the nine months ended September 27, 2015 and September 28, 2014 included one and two stores, respectively, that were 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 months ended September 27, 2015, and the nine months ended September 27, 2015 and September 28, 2014, included one, three and two stores, respectively, that were relocated.

(4)

There were no stores that were relocated during the three months ended September 28, 2014.

SOURCE CEC Entertainment, Inc.

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