CEC Entertainment, Inc. Reports Financial Results for the 2017 First Quarter

IRVING, Texas - May 8, 2017 // PRNewswire //- CEC Entertainment, Inc. (the "Company") today announced financial results for its first quarter ended April 2, 2017.

  • Company reports net income of $17.2 million compared to $17.9 million in the first quarter of 2016. Adjusted EBITDA(1) increased 1.3% to $83.5 million over the first quarter of 2016
  • IRS tax refund delays drove a decrease in first quarter comparable venue sales for our Chuck E. Cheese's and Peter Piper Pizza venues of 2.8%
  • PlayPass system deployed in 355 venues as of April 2, 2017
  • One new company-operated Peter Piper Pizza venue and three new international Chuck E. Cheese's franchise venues opened in the first quarter of 2017

"I'm proud that we were able to increase Adjusted EBITDA to $83.5 million in the first quarter of 2017 in spite of the revenue challenges we faced caused by delays in IRS tax refunds in February," said Tom Leverton, Chief Executive Officer. "A strong operating focus and the very encouraging initial impact of our recently implemented inventory management system, led to the improved Adjusted EBITDA."

Leverton continued, "Additionally, we continue to invest in growth and technology initiatives to advance our brand and enhance the experience we deliver to our guests. During the first quarter of 2017, we implemented PlayPass in 87 additional venues. Recently we decided to expand our test of Order Service Kiosks to four additional markets and expand our test of table-side ordering tablets to 50 additional venues. Finally, we successfully opened an additional new Peter Piper Pizza venue during the first quarter, bringing the total to five new Company-operated Peter Piper Pizza venues since the third quarter of 2016, while our franchisees opened three new Chuck E. Cheese's international locations during the quarter. Looking forward in 2017, we expect to complete the PlayPass implementation nationwide and expand our Peter Piper presence further, while continuing to further refine our food and entertainment offerings and continually enhance our in-store experience."

First Quarter Results (1)

Comparable venue sales for our Company-operated venues decreased 2.8%. Company-operated venue sales for the first quarter of 2017 were negatively impacted by a delay in income tax refunds to much of our core customer base. Company-operated venue sales were also negatively impacted by approximately $4.7 million of incremental deferred revenue when compared to the first quarter of 2016, resulting from the implementation of our proprietary PlayPass card system.

Total revenues decreased $9.4 million to $265.0 million during the first quarter of 2017 compared to the first quarter of 2016. Before the impact of incremental deferred revenue related to PlayPass, total revenues decreased $4.7 million.

The Company reported net income of $17.2 million for the first quarter of 2017, compared to net income of $17.9 million for the first quarter of 2016. The decrease in net income was driven by the decrease in Company-operated venue sales and the impact of incremental deferred revenue, offset by improved Company-operated venue cost margins and lower general and administrative expenses.

During the first quarter of 2017 Adjusted EBITDA increased $1.0 million, or 1.3%, to $83.5 million compared to the first quarter of 2016.

_________________________

(1) For our definition of Adjusted EBITDA, see the financial table "Reconciliation of Non-GAAP Financial Measures" included within this press release.
Balance Sheet and Liquidity

As of April 2, 2017, cash and cash equivalents were $94.9 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 first quarter of 2017, we had capital expenditures of $23.9 million, of which $9.2 million related to our PlayPass initiative and another $4.3 million related to other growth initiatives. In addition, we had $2.1 million in capital expenditures related to IT initiatives.

As of April 2, 2017, the Company's system-wide portfolio consisted of:

 

   

Chuck E. Cheese's

 

Peter Piper Pizza

 

Total

Company operated

 

523

   

37

   

560

 

Domestic franchised

 

29

   

62

   

91

 

International franchised

 

54

   

46

   

100

 

Total

 

606

   

145

   

751

 

Conference Call Information:

The Company will host a conference call beginning at 9:00 a.m. Central Time on Tuesday, May 9, 2017. The call can be accessed by dialing (855) 743-8451 or (330) 968-0151 for international participants and conference code 14882224.

A replay of the call will be available from 12:00 p.m. Central Time on May 9, 2017 through 11:00 p.m. Central Time on May 16, 2017. The replay of the call can be accessed by dialing (800) 585-8367 or (404) 537-3406 for international participants and conference code 14882224.

About CEC Entertainment, Inc.

For 40 years, CEC Entertainment has served as the nationally recognized leader in family dining and entertainment with both its Chuck E. Cheese's and Peter Piper Pizza venues. As America's #1 place for birthdays, Chuck E. Cheese's goal is to create positive, lifelong memories for families through fun, food, and play and is the place Where A Kid Can Be A Kid ®. 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, Chuck E. Cheese's has donated more than $14 million to schools through its fundraising programs and supports its national charity partner, Big Brothers Big Sisters. Peter Piper Pizza, with its neighborhood pizzeria feel, features dining, entertainment and carryout. The solution to 'family night out', Peter Piper Pizza takes pride in delivering a food first, parent friendly experience that reconnects family and friends. Expanding nationally, Peter Piper Pizza recently opened locations in Oklahoma, Nevada and Las Vegas featuring an all new prototype design. As of April 2, 2017 the Company and its franchisees operated a system of 606 Chuck E. Cheese's and 145 Peter Piper Pizza venues, with locations in 47 states and 12 foreign countries and territories. For more information, visit chuckecheese.com and peterpiperpizza.com.

Investor Inquiries:    

Media Inquiries:

Dale R. Black          

Christelle Dupont

EVP & CFO             

Public Relations Manager

CEC Entertainment, Inc.   

CEC Entertainment, Inc. 

(972) 258-4525       

(972) 258-4223

dblack@cecentertainment.com  

cdupont@cecentertainment.com

Cautionary Statement Regarding Forward-Looking Statements

This press release contains forward-looking statements, which involve risks and uncertainties. These forward-looking statements are generally identified by the use of forward-looking terminology, including the terms "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "should," "target," "will," "would" and, in each case, their negative or other various or comparable terminology. All statements other than statements of historical facts contained in this press release, including statements regarding our strategy, future operations, objectives of management and expected market growth, 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 1, 2017, filed with the Securities and Exchange Commission on March 16, 2017. 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:

  • our strategy, outlook and growth prospects;
  • our operational and financial targets and dividend policy;
  • our planned expansion of the venue base and the implementation of the new design in our existing venues;
  • general economic trends and trends in the industry and markets; and
  • the competitive environment in which we operate.

These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Important factors that could cause our results to vary from expectations include, but are not limited to:

  • negative publicity concerning food quality, health, general safety and other issues, and changes in consumer preferences;
  • our ability to successfully expand and update our current venue base;
  • our ability to successfully implement our marketing strategy;
  • our ability to compete effectively in an environment of intense competition in both the restaurant and entertainment industries;
  • our ability to weather economic uncertainty and changes in consumer discretionary spending;
    increases in food, labor and other operating costs;
  • our ability to successfully open international franchises and to operate under the U.S. and foreign anti-corruption laws that govern those international ventures;
  • risks related to our substantial indebtedness;
  • failure of our information technology systems to support our current and growing businesses;
  • disruptions to our commodity distribution system;
  • our dependence on third-party vendors to provide us with sufficient quantities of new entertainment-related equipment, prizes and merchandise at acceptable prices;
  • risks from product liability claims and product recalls;
  • the impact of governmental laws and regulations and the outcomes of legal proceedings;
    potential liability under certain state property laws;
  • fluctuations in our financials due to new venue openings;
  • local conditions, natural disasters, terrorist attacks and other events and public health issues;
    the seasonality of our business;
  • inadequate insurance coverage;
  • labor shortages and immigration reform;
  • loss of certain personnel;
  • our ability to protect our trademarks or other proprietary rights;
  • risks associated with owning and leasing real estate, as well as the risks from any forced venue relocation or closure;
  • our ability to successfully integrate the operations of companies we acquire;
  • impairment charges for goodwill, indefinite-lived intangible assets or other long-lived assets;
  • our failure to maintain adequate internal controls over our financial and management systems; and
  • other risks, uncertainties and factors set forth in Part I, Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended January 1, 2017, filed with the SEC on March 16, 2017.

The forward-looking statements made in this press release reflect our views with respect to future events as of the date of this press release and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, undue reliance should not be placed on these forward-looking statements. These forward-looking statements represent our estimates and assumptions only as of the date of this press release and, except as required by law, we undertake no obligation to update or review publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this report. We anticipate that subsequent events and developments will cause our views to change. Our forward-looking statements do not reflect the potential impact of any future acquisitions, merger, dispositions, joint ventures or investments we may undertake. We qualify all of our forward-looking statements by these cautionary statements.

- financial tables follow -

 

CEC ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

(in thousands, except percentages)

     
     
   

Three Months Ended

   

April 2, 2017

 

April 3, 2016

REVENUES:

               

Food and beverage sales

 

$

124,419

 

47.0%

 

$

122,202

 

44.5%

Entertainment and merchandise sales

 

135,917

 

51.3%

 

147,557

 

53.8%

Total Company venue sales

 

260,336

 

98.3%

 

269,759

 

98.3%

Franchise fees and royalties

 

4,623

 

1.7%

 

4,559

 

1.7%

Total revenues

 

264,959

 

100.0%

 

274,318

 

100.0%

OPERATING COSTS AND EXPENSES:

               

Company venue operating costs:

               

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

 

28,218

 

22.7%

 

30,521

 

25.0%

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

 

8,487

 

6.2%

 

8,750

 

5.9%

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

 

36,705

 

14.1%

 

39,271

 

14.6%

Labor expenses (3)

 

66,388

 

25.5%

 

69,043

 

25.6%

Depreciation and amortization (3)

 

26,412

 

10.1%

 

27,629

 

10.2%

Rent expense (3)

 

23,319

 

9.0%

 

24,150

 

9.0%

Other venue operating expenses (3)

 

36,750

 

14.1%

 

36,010

 

13.3%

Total Company venue operating costs (3)

 

189,574

 

72.8%

 

196,103

 

72.7%

Other costs and expenses:

               

Advertising expense

 

13,382

 

5.1%

 

13,100

 

4.8%

General and administrative expenses

 

17,264

 

6.5%

 

18,018

 

6.6%

Transaction, severance and related litigation costs

 

80

 

—%

 

749

 

0.3%

Total operating costs and expenses

 

220,300

 

83.1%

 

227,970

 

83.1%

Operating income

 

44,659

 

16.9%

 

46,348

 

16.9%

Interest expense

 

17,061

 

6.4%

 

17,061

 

6.2%

Income before income taxes

 

27,598

 

10.4%

 

29,287

 

10.7%

Income tax expense

 

10,378

 

3.9%

 

11,372

 

4.1%

Net income

 

$

17,220

 

6.5%

 

$

17,915

 

6.5%

 

 

____________________

 

 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 venue sales.

   

(4)      

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 venue sales.

 

CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share information)

         
   

April 2,
2017

 

January 1,
2017

ASSETS

       

Current assets:

       

Cash and cash equivalents

 

$

94,926

 

$

61,023

Other current assets

 

65,582

 

63,938

Total current assets

 

160,508

 

124,961

Property and equipment, net

 

588,531

 

592,886

Goodwill

 

483,876

 

483,876

Intangible assets, net

 

483,137

 

484,083

Other noncurrent assets

 

23,167

 

24,306

Total assets

 

$

1,739,219

 

$

1,710,112

LIABILITIES AND STOCKHOLDER'S EQUITY

       

Current liabilities:

       

Bank indebtedness and other long-term debt, current portion

 

$

7,600

 

$

7,613

Other current liabilities

 

115,463

 

102,578

Total current liabilities

 

123,063

 

110,191

Capital lease obligations, less current portion

 

13,457

 

13,602

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

 

967,503

 

968,266

Deferred tax liability

 

185,418

 

186,290

Other noncurrent liabilities

 

224,833

 

225,758

Total liabilities

 

1,514,274

 

1,504,107

Stockholder's equity:

       

Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of April 2, 2017 and January 1, 2017

 

 

Capital in excess of par value

 

358,767

 

357,166

Accumulated deficit

 

(131,045)

 

(148,265)

Accumulated other comprehensive loss

 

(2,777)

 

(2,896)

Total stockholder's equity

 

224,945

 

206,005

Total liabilities and stockholder's equity

 

$

1,739,219

 

$

1,710,112

 

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

   

Three Months Ended

   

April 2,
2017

 

April 3,
2016

CASH FLOWS FROM OPERATING ACTIVITIES:

 

Net income

 

$

17,220

 

$

17,915

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

       

  Depreciation and amortization

 

28,305

 

28,998

  Deferred income taxes

 

(861)

 

(8,287)

  Stock-based compensation expense

 

151

 

135

  Amortization of lease related liabilities

 

(139)

 

12

  Amortization of original issue discount and deferred debt financing   costs

 

1,137

 

1,136

  Loss on asset disposals, net

 

1,755

 

2,177

  Non-cash rent expense

 

832

 

1,730

  Other adjustments

 

1

 

27

Changes in operating assets and liabilities:

       

Operating assets

 

(5,006)

 

(4,317)

Operating liabilities

 

15,400

 

4,246

Net cash provided by operating activities

 

58,795

 

43,772

CASH FLOWS FROM INVESTING ACTIVITIES:

       

Purchases of property and equipment

 

(22,793)

 

(18,823)

Development of internal use software

 

(1,129)

 

(3,625)

Proceeds from sale of property and equipment

 

105

 

79

Net cash used in investing activities

 

(23,817)

 

(22,369)

CASH FLOWS FROM FINANCING ACTIVITIES:

       

Repayments on senior term loan

 

(1,900)

 

(1,900)

Other financing activities

 

758

 

(578)

Net cash used in financing activities

 

(1,142)

 

(2,478)

Effect of foreign exchange rate changes on cash

 

67

 

419

Change in cash and cash equivalents

 

33,903

 

19,344

Cash and cash equivalents at beginning of period

 

61,023

 

50,654

Cash and cash equivalents at end of period

 

$

94,926

 

$

69,998

CEC ENTERTAINMENT, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited)
(in thousands, except percentages)

Non-GAAP Financial Measures

Certain financial measures presented in this press release, such as Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") and Adjusted EBITDA as a percentage of revenues ("Adjusted EBITDA Margin") are not recognized terms under accounting principles generally accepted in the United States ("GAAP"). The Company believes that the presentation of these measures is appropriate to provide additional information to investors about certain material non-cash items and about unusual items that the Company's management does not expect to continue at the same level in the future, as well as other items. Further, the Company believes that these measures provide a meaningful measure of operating profitability because the Company's management uses them for performance evaluations and compensation measures for the Company's executives, to supplement GAAP measures of performance in the evaluation of the effectiveness of the Company's business strategies, to make budgeting decisions and to compare the Company's performance against that of other peer companies using similar measures. The Company also presents Adjusted EBITDA because it is substantially similar to Credit Agreement EBITDA, a measure used in calculating financial ratios and other calculations under our debt agreements, except for the Change in deferred amusement revenue. By reporting Adjusted EBITDA, the Company provides a basis for comparison of its business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance.

The Company's definition of Adjusted EBITDA allows for the exclusion of certain non-cash and other income and expense items that are used in calculating net income from continuing operations. However, these are items that may recur, vary greatly and can be difficult to predict. They can represent the effect of long-term strategies as opposed to short-term results. In addition, certain of these items can represent the reduction of cash that could be used for other corporate purposes. These measures should not be considered as alternatives to operating income, cash flows from operating activities or any other performance measures derived in accordance with GAAP as measures of operating performance, or cash flows as measures of liquidity. These measures have important limitations as analytical tools, and users should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, the Company relies primarily on its GAAP results and uses Adjusted EBITDA and Adjusted EBITDA Margin only supplementally.

The following table sets forth a reconciliation of net income to Adjusted EBITDA and Adjusted EBITDA Margin for the periods shown:

 

 

Three Months Ended

 
 

April 2,
2017

 

April 3,
2016

 
         

Total revenues

$

264,959

 

$

274,318

 

Net income as reported

$

17,220

 

$

17,915

 

Interest expense

17,061

 

17,061

 

Income tax expense

10,378

 

11,372

 

Depreciation and amortization

28,305

 

28,998

 

Non-cash impairments, gain or loss on disposal

1,755

 

2,177

 

Non-cash stock-based compensation

151

 

135

 

Rent expense book to cash

980

 

2,249

 

Franchise revenue, net cash received

(90)

 

(109)

 

Impact of purchase accounting

215

 

199

 

Venue pre-opening costs

239

 

221

 

One-time and unusual items

2,267

 

1,813

 

Cost savings initiatives

 

62

 

Change in deferred amusement revenue

5,044

 

388

 

Adjusted EBITDA

$

83,525

 

$

82,481

 

Adjusted EBITDA Margin

31.5%

 

30.1%

 

 

CEC ENTERTAINMENT, INC.

VENUE COUNT INFORMATION

(Unaudited)

       
       
   

Three Months Ended

 
   

April 2,
2017

 

April 3,
2016

 

Number of Company-owned venues:

         

Beginning of period

 

559

 

556

 

New

 

1

 

1

 

Closed

 

 

(1)

 

End of period

 

560

 

556

 
           

Number of franchised venues:

         

Beginning of period

 

188

 

176

 

New

 

3

 

4

 

Closed

 

 

(1)

 

End of period

 

191

 

179

 
             

Total number of venues:

           

Beginning of period

   

747

 

732

 

New

   

4

 

5

 

Closed

   

 

(2)

 

End of period

   

751

 

735

 
             

SOURCE CEC Entertainment, Inc.

###

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