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

IRVING, Texas - May 5, 2016 // PRNewswire // - CEC Entertainment, Inc. (the "Company") today announced financial results for its first quarter ended April 3, 2016.

  • First quarter same store sales for our Chuck E. Cheese's and Peter Piper Pizza stores, on a same calendar week basis(1), increased 6.0% compared to the same period in the prior year
  • On a fiscal period basis first quarter same store sales for our Chuck E. Cheese's and Peter Piper Pizza stores increased 3.2% over the 2015 fiscal first quarter
  • Total revenues increased 3.3% over the prior year fiscal first quarter to $274.3 million

"We are pleased to report our fourth consecutive quarter of positive same store sales growth at our Chuck E. Cheese's stores" said Tom Leverton, Chief Executive Officer. "The same store sales increases reinforce our commitment to the food, entertainment and marketing initiatives we introduced throughout 2015. In addition, we are pleased to report that Peter Piper Pizza recorded its 23rd consecutive quarter of same store sales growth."

First Quarter Results

Our fiscal calendar was negatively impacted by the effect of an additional week of operations in our 2015 fiscal year, which resulted in the seasonally strong week between Christmas and New Year's Day shifting into the fourth quarter of 2015 instead of occurring in the first quarter of 2016. This impact was partially offset by a shift in the Easter holiday and the related timing of several spring breaks.

Total revenues for the first fiscal quarter of 2016 increased 3.3%, or $8.8 million, over the prior year to $274.3 million. The increase is primarily attributable to increased same store sales at both our Chuck E. Cheese's and Peter Piper Pizza brands, despite the calendar shift.  On a calendar week basis same store sales for our Chuck E. Cheese's and Peter Piper Pizza stores increased 6.0% over the comparable weeks in 2015.

Adjusted EBITDA for the first quarter of 2016 increased $1.4 million over the prior year period to $82.1 million. The increase is driven by increased store revenues, offset by increased marketing expenses and approximately $0.4 million of incremental deferred revenue, primarily as a result of our PlayPass implementation. Our operating margins were, however, negatively affected by the impact of the operating leverage associated with the calendar shift of theNew Year's holiday week.  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 net income of $17.9 million for the first quarter of 2016, compared to net income of $14.7 million for the first quarter of 2015. In addition to the items mentioned above, the Company benefited from lower interest and income tax costs in the current year quarter.

 

(1)Our fiscal year ending January 1, 2017 will consist of 52 weeks and our fiscal year ended January 3, 2016 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 January 4, 2016 through April 3, 2016 (weeks 1 through 13 of our 2016 fiscal year) to the results for the period from January 5, 2015 through April 5, 2015 (weeks 2 through 14 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.
Balance Sheet and Liquidity

As of April 3, 2016, cash and cash equivalents were $70.0 million, and the principal outstanding on our debt was $1.0 billion, with net availability of $139.1 million on our undrawn revolving credit facility. During the first quarter of 2016, we had capital expenditures of $22.2 million, of which $4.3 million related to our PlayPass initiative and another $5.2 million were related to other growth initiatives. In addition, we had $4.4 million in capital expenditures related to IT initiatives.

As of April 3, 2016, the Company's system-wide portfolio consisted of:

   

Chuck E. Cheese's

 

Peter Piper Pizza

 

Total

Company operated

 

524

 

32

 

556

Domestic franchised

 

29

 

62

 

91

International franchised

 

41

 

47

 

88

Total

 

594

 

141

 

735

Conference Call Information:

The Company will host a conference call beginning at 9:00 a.m. Central Time on Friday, May 6, 2016. The call can be accessed by dialing (855) 743-8451 or (330) 968-0151 for international participants and conference code 1972828.

A replay of the call will be available from 12:00 p.m. Central Time on May 6, 2016 through midnight Central Time on May 13, 2016. The replay of the call can be accessed by dialing (800) 585-8367 or (404) 537-3406 for international participants and conference code 1972828.

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. 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 $13 millionto schools through its fundraising programs. As of April 3, 2016, the Company and its franchisees operated a system of 594 Chuck E. Cheese's stores and 141 Peter Piper Pizza stores, with locations in 47 states and 12 foreign countries and territories. For more information, visit chuckecheese.com and peterpiperpizza.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 inthe United States and Canada;
  • Negative publicity concerning food quality, health, general safety and other issues, and changes in consumer preferences;
  • 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.

Contacts:

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

Alexis Linn
Media Relations
PR Manager
CEC Entertainment, Inc.
(469) 999-4975
alinn@cecentertainment.com

- financial tables follow -

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

 
 

Three Months Ended

 

April 3, 2016

 

March 29, 2015

REVENUES:

             

Food and beverage sales

$

122,202

   

44.5%

   

$

116,537

   

43.9%

 

Entertainment and merchandise sales

147,557

   

53.8%

   

144,744

   

54.5%

 

Total Company store sales

269,759

   

98.3%

   

261,281

   

98.4%

 

Franchise fees and royalties

4,559

   

1.7%

   

4,227

   

1.6%

 

Total revenues

274,318

   

100.0%

   

265,508

   

100.0%

 

OPERATING COSTS AND EXPENSES:

             

Company store operating costs:

             

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

30,521

   

25.0%

   

29,225

   

25.1%

 

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

8,750

   

5.9%

   

8,522

   

5.9%

 

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

39,271

   

14.6%

   

37,747

   

14.4%

 

Labor expenses (3)

69,043

   

25.6%

   

67,173

   

25.7%

 

Depreciation and amortization (3)

27,629

   

10.2%

   

29,241

   

11.2%

 

Rent expense (3)

24,150

   

9.0%

   

24,458

   

9.4%

 

Other store operating expenses (3)

36,010

   

13.3%

   

33,519

   

12.8%

 

Total Company store operating costs (3)

196,103

   

72.7%

   

192,138

   

73.5%

 

Other costs and expenses:

             

Advertising expense

13,100

   

4.8%

   

11,452

   

4.3%

 

General and administrative expenses

18,018

   

6.6%

   

16,326

   

6.1%

 

Transaction, severance and related litigation costs

749

   

0.3%

   

905

   

0.3%

 

Total operating costs and expenses

227,970

   

83.1%

   

220,821

   

83.2%

 

Operating income

46,348

   

16.9%

   

44,687

   

16.8%

 

Interest expense

17,061

   

6.2%

   

17,499

   

6.6%

 

Income before income taxes

29,287

   

10.7%

   

27,188

   

10.2%

 

Income tax expense

11,372

   

4.1%

   

12,446

   

4.7%

 

Net income

$

17,915

   

6.5%

   

$

14,742

   

5.6%

 

 

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)

 
   

April 3,
2016

 

January 3,
2016

ASSETS

       

Current assets:

       

Cash and cash equivalents

 

$

69,998

   

$

50,654

 

Other current assets

 

69,055

   

67,434

 

Total current assets

 

139,053

   

118,088

 

Property and equipment, net

 

613,637

   

629,047

 

Goodwill

 

483,876

   

483,876

 

Intangible assets, net

 

487,068

   

488,095

 

Other noncurrent assets

 

20,276

   

13,929

 

Total assets

 

$

1,743,910

   

$

1,733,035

 

LIABILITIES AND STOCKHOLDER'S EQUITY

       

Current liabilities:

       

Bank indebtedness and other long-term debt

 

$

7,656

   

$

7,650

 

Other current liabilities

 

106,418

   

106,463

 

Total current liabilities

 

114,074

   

114,113

 

Capital lease obligations, less current portion

 

14,934

   

15,044

 

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

 

970,556

   

971,333

 

Deferred tax liability

 

193,584

   

201,734

 

Other noncurrent liabilities

 

223,375

   

222,265

 

Total liabilities

 

1,516,523

   

1,524,489

 

Stockholder's equity:

       

Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of April 3, 2016 and January 3, 2016

 

   

 

Capital in excess of par value

 

356,632

   

356,460

 

Retained earnings (deficit)

 

(126,683)

   

(144,598)

 

Accumulated other comprehensive income (loss)

 

(2,562)

   

(3,316)

 

Total stockholder's equity

 

227,387

   

208,546

 

Total liabilities and stockholder's equity

 

$

1,743,910

   

$

1,733,035

 

 

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

 
   

Three Months Ended

   

April 3,
2016

 

March 29,
 2015

CASH FLOWS FROM OPERATING ACTIVITIES:

 

Net income

 

$

17,915

   

$

14,742

 

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

       

  Depreciation and amortization

 

28,998

   

30,398

 

  Deferred income taxes

 

(8,287)

   

(13,268)

 

  Stock-based compensation expense

 

135

   

391

 

  Amortization of lease related liabilities

 

12

   

5

 

  Amortization of original issue discount and deferred debt financing costs

 

1,136

   

1,137

 

  Loss on asset disposals, net

 

2,177

   

1,244

 

  Non-cash rent expense

 

1,730

   

2,136

 

  Other adjustments

 

27

   

19

 

Changes in operating assets and liabilities:

       

Operating assets

 

(4,317)

   

2,520

 

Operating liabilities

 

4,246

   

21,224

 

Net cash provided by operating activities

 

43,772

   

60,548

 

CASH FLOWS FROM INVESTING ACTIVITIES:

       

Acquisition of Peter Piper Pizza

 

   

(663)

 

Purchases of property and equipment

 

(18,823)

   

(16,109)

 

Proceeds from sale of property and equipment

 

79

   

97

 

Development of internal use software

 

(3,625)

   

(185)

 

Net cash used in investing activities

 

(22,369)

   

(16,860)

 

CASH FLOWS FROM FINANCING ACTIVITIES:

       

Repayments on senior term loan

 

(1,900)

   

(1,900)

 

Other financing activities

 

(578)

   

(497)

 

Net cash provided by (used in) financing activities

 

(2,478)

   

(2,397)

 

Effect of foreign exchange rate changes on cash

 

419

   

(661)

 

Change in cash and cash equivalents

 

19,344

   

40,630

 

Cash and cash equivalents at beginning of period

 

50,654

   

110,994

 

Cash and cash equivalents at end of period

 

$

69,998

   

$

151,624

 

 

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

 

April 3
2016

 

March 29
2015

   

Total revenues

$

274,318

      

$

265,508

 

Net income as reported

$

17,915

   

$

14,742

 

Interest expense

17,061

   

17,499

 

Income tax expense

11,372

   

12,446

 

Depreciation and amortization

28,998

   

30,398

 

Non-cash impairments, gain or loss on disposal

2,177

   

1,244

 

Non-cash stock-based compensation

135

   

391

 

Rent expense book to cash

2,160

   

2,211

 

Franchise revenue, net cash received

(109)

   

(65)

 

Impact of purchase accounting

199

   

232

 

Store pre-opening costs

221

   

244

 

One-time items

1,902

   

1,351

 

Cost savings initiatives

62

   

 

Adjusted EBITDA

$

82,093

   

$

80,693

 

Adjusted EBITDA as a percent of total revenues

29.9

%

 

30.4

%

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

   

April 3,
2016

 

March 29,
2015

Number of Company-owned stores:

       

Beginning of period

 

556

   

559

 

 New (1)

 

1

   

2

 

   Acquired from franchisee

 

   

 

 Closed (1)

 

(1)

   

(1)

 

End of period

 

556

   

560

 

Number of franchised stores:

       

Beginning of period

 

176

   

172

 

 New

 

4

   

3

 

   Acquired from franchisee

 

   

 

 Closed

 

(1)

   

 

End of period

 

179

   

175

 

Total number of stores:

       

Beginning of period

 

732

   

731

 

 New

 

5

   

5

 

   Acquired from franchisee

 

   

 

 Closed

 

(2)

   

(1)

 

End of period

 

735

   

735

 

 

_____________________

   

(1)

During the three months ended March 29, 2015, the number of new and closed Company owned stores included one store that was relocated.

 SOURCE CEC Entertainment, Inc.

###

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