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

IRVING, Texas - Aug. 3, 2017 // PRNewswire // - CEC Entertainment, Inc. (the "Company") today announced financial results for its second quarter ended July 2, 2017.

  • Company reported a net loss of $5.9 million compared to a net loss of $9.1 million in the second quarter of 2016.
  • Adjusted EBITDA (1) for the second quarter was $40.3 million in 2017 compared to $41.7 million in 2016
  • Second quarter comparable venue sales declined 3.8% for our Chuck E. Cheese's and Peter Piper Pizza venues
  • PlayPass system now deployed in 95% of Company-operated Chuck E. Cheese's venues
  • Two new Company-operated Peter Piper Pizza venues and four new international Chuck E. Cheese's franchise venues opened in the second quarter of 2017

"While we are pleased that our cost efforts allowed us to preserve margins, we are disappointed with our revenue performance in the second quarter," said Tom Leverton, Chief Executive Officer. "We experienced traffic declines in walk-in business as well as booked birthday parties during the quarter. To address the issue, we have returned our advertising messaging to our successful 2016 themes which focused on our many improvements to the in-store experience."

Leverton continued, "A strong operating focus and the favorable impact of our recently implemented inventory management system led to Adjusted EBITDA of $40.3 million for the quarter."

Second Quarter Results (1)

Total revenues decreased $4.8 million to $211.8 million during the second quarter of 2017 compared to the second quarter of 2016, primarily driven by a 3.8% decline in comparable venue sales, offset partially by new venue sales.

The Company reported a net loss of $5.9 million for the second quarter of 2017, compared to a net loss of $9.1 million for the second quarter of 2016. The improved results were driven by improved venue level operating margins, lower depreciation, and lower general and administrative expenses, which offset the decline in Company-operated venue sales.

During the second quarter of 2017 Adjusted EBITDA decreased $1.4 million, or 3.3%, to $40.3 million compared to the second quarter of 2016.

Balance Sheet and Liquidity

As of July 2, 2017, cash and cash equivalents were $89.5 million, and the principal outstanding on our debt was $990.3 million, with net availability of $140.1 million on our undrawn revolving credit facility. During the second quarter of 2017, we had capital expenditures of $25.2 million, of which $8.7 million related to our PlayPass initiative and another $6.8 million related to other growth initiatives. In addition, we had $1.8 million in capital expenditures related to IT initiatives, and $7.9 million related to maintenance capital expenditures, primarily game enhancements and general venue capital expenditures.

         
 

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

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

   

Chuck E. Cheese's

 

Peter Piper Pizza

 

Total

Company operated

 

525

 

39

 

564

Domestic franchised

 

27

 

62

 

89

International franchised

 

58

 

46

 

104

Total

 

610

 

147

 

757

Conference Call Information:

The Company will host a conference call beginning at 9:00 a.m. Central Time on Friday, August 4, 2017. The call can be accessed by dialing (855) 743-8451 or (330) 968-0151 for international participants and conference code 47041714.

A replay of the call will be available from 12:00 p.m. Central Time on August 4, 2017 through 11:00 p.m. Central Time on August 18, 2017. The replay of the call can be accessed by dialing (800) 585-8367 or (404) 537-3406 for international participants and conference code 47041714.

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, over the past 13 years 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 'the 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, New Mexico and Arizona featuring an all new prototype design. As of July 2, 2017, the Company and its franchisees operated a system of 610 Chuck E. Cheese's and 147 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

 

Six Months Ended

 

July 2, 2017

 

July 3, 2016

 

July 2, 2017

 

July 3, 2016

REVENUES:

                             

Food and beverage sales

$

97,411

 

46.0%

 

$

97,404

 

45.0%

 

$

221,830

 

46.5%

 

$

219,607

 

44.7%

Entertainment and merchandise sales

109,724

 

51.8%

 

114,657

 

52.9%

 

245,641

 

51.5%

 

262,214

 

53.4%

Total Company venue sales

207,134

 

97.8%

 

212,061

 

97.9%

 

467,471

 

98.1%

 

481,821

 

98.1%

Franchise fees and royalties

4,649

 

2.2%

 

4,560

 

2.1%

 

9,272

 

1.9%

 

9,118

 

1.9%

Total revenues

211,784

 

100.0%

 

216,621

 

100.0%

 

476,743

 

100.0%

 

490,939

 

100.0%

OPERATING COSTS AND EXPENSES:

                             

Company venue operating costs:

                             

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

22,823

 

23.4%

 

24,673

 

25.3%

 

51,040

 

23.0%

 

55,195

 

25.1%

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

6,854

 

6.2%

 

8,240

 

7.2%

 

15,341

 

6.2%

 

16,989

 

6.5%

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

29,677

 

14.3%

 

32,913

 

15.5%

 

66,381

 

14.2%

 

72,184

 

15.0%

Labor expenses (3)

60,351

 

29.1%

 

60,405

 

28.5%

 

126,738

 

27.1%

 

129,448

 

26.9%

Depreciation and amortization (3)

25,791

 

12.5%

 

29,733

 

14.0%

 

52,203

 

11.2%

 

57,362

 

11.9%

Rent expense (3)

23,906

 

11.5%

 

24,049

 

11.3%

 

47,225

 

10.1%

 

48,199

 

10.0%

Other venue operating expenses(3)

35,967

 

17.4%

 

37,376

 

17.6%

 

72,716

 

15.6%

 

73,387

 

15.2%

Total Company venue operating costs (3)

175,692

 

84.8%

 

184,476

 

87.0%

 

365,263

 

78.1%

 

380,580

 

79.0%

Other costs and expenses:

                             

Advertising expense

12,237

 

5.8%

 

12,162

 

5.6%

 

25,619

 

5.4%

 

25,261

 

5.1%

General and administrative expenses

15,551

 

7.3%

 

15,922

 

7.4%

 

32,815

 

6.9%

 

33,939

 

6.9%

Transaction, severance and related litigation costs

490

 

0.2%

 

434

 

0.2%

 

570

 

0.1%

 

1,184

 

0.2%

Total operating costs and expenses

203,970

 

96.3%

 

212,994

 

98.3%

 

424,267

 

89.0%

 

440,964

 

89.8%

Operating income

7,814

 

3.7%

 

3,627

 

1.7%

 

52,476

 

11.0%

 

49,975

 

10.2%

Interest expense

17,061

 

8.1%

 

17,121

 

7.9%

 

34,123

 

7.2%

 

34,182

 

7.0%

Income (loss) before income taxes

(9,247)

 

(4.4)%

 

(13,494)

 

(6.2)%

 

18,353

 

3.8%

 

15,793

 

3.2%

Income tax expense (benefit)

(3,317)

 

(1.6)%

 

(4,442)

 

(2.1)%

 

7,061

 

1.5%

 

6,930

 

1.4%

Net income (loss)

$

(5,930)

 

(2.8)%

 

$

(9,052)

 

(4.2)%

 

$

11,292

 

2.4%

 

$

8,863

 

1.8%

                                       

 

 
       
 

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 expressed as a percentage of total Company venue 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 venue sales.

 

CEC ENTERTAINMENT, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share information)

 
   

July 2,

2017

 

January 1,
 2017

ASSETS

       

Current assets:

       

Cash and cash equivalents

 

$

89,462

 

$

61,023

Other current assets

 

63,342

 

63,938

Total current assets

 

152,804

 

124,961

Property and equipment, net

 

586,043

 

592,886

Goodwill

 

484,438

 

483,876

Intangible assets, net

 

482,192

 

484,083

Other noncurrent assets

 

21,703

 

24,306

Total assets

 

$

1,727,180

 

$

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

 

108,470

 

102,578

Total current liabilities

 

116,070

 

110,191

Capital lease obligations, less current portion

 

13,304

 

13,602

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

 

966,739

 

968,266

Deferred tax liability

 

182,581

 

186,290

Other noncurrent liabilities

 

228,860

 

225,758

Total liabilities

 

1,507,554

 

1,504,107

Stockholder's equity:

       

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

July 2, 2017 and January 1, 2017

 

 

Capital in excess of par value

 

358,956

 

357,166

Accumulated deficit

 

(136,973)

 

(148,265)

Accumulated other comprehensive loss

 

(2,357)

 

(2,896)

Total stockholder's equity

 

219,626

 

206,005

Total liabilities and stockholder's equity

 

$

1,727,180

 

$

1,710,112

 

CEC ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 
   

Six Months Ended

   

July 2,
 2017

 

July 3,
 2016

CASH FLOWS FROM OPERATING ACTIVITIES:

 

Net income

 

$

11,292

 

$

8,863

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

       

  Depreciation and amortization

 

55,928

 

60,282

  Deferred income taxes

 

(3,589)

 

(6,449)

  Stock-based compensation expense

 

336

 

337

  Amortization of lease related liabilities

 

(237)

 

23

  Amortization of original issue discount and deferred debt financing costs

 

2,273

 

2,273

  Loss on asset disposals, net

 

3,716

 

4,073

  Non-cash rent expense

 

2,101

 

3,507

  Other adjustments

 

9

 

172

Changes in operating assets and liabilities:

       

Operating assets

 

(7,117)

 

(1,629)

Operating liabilities

 

12,043

 

6,286

Net cash provided by operating activities

 

76,755

 

77,738

CASH FLOWS FROM INVESTING ACTIVITIES:

       

Purchases of property and equipment

 

(47,045)

 

(42,400)

Development of internal use software

 

(2,075)

 

(6,223)

Proceeds from sale of property and equipment

 

237

 

318

Net cash used in investing activities

 

(48,883)

 

(48,305)

CASH FLOWS FROM FINANCING ACTIVITIES:

       

Repayments on senior term loan

 

(3,800)

 

(3,800)

Proceeds from sale leaseback transaction

 

4,073

 

Other financing activities

 

55

 

(1,180)

Net cash provided by (used in) financing activities

 

328

 

(4,980)

Effect of foreign exchange rate changes on cash

 

239

 

484

Change in cash and cash equivalents

 

28,439

 

24,937

Cash and cash equivalents at beginning of period

 

61,023

 

50,654

Cash and cash equivalents at end of period

 

$

89,462

 

$

75,591

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's management believes that the presentation of these measures is appropriate to provide useful information to investors regarding its operating performance and its capacity to incur and service debt and fund capital expenditures. Further, the Company believes that Adjusted EBITDA is used by many investors, analysts and rating agencies as a measure of performance. 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 (i) adding back the change in deferred amusement revenue, and (ii) excluding the annualized full year effect of Company-operated and franchised venues that were opened and closed during the year. 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 (loss) to Adjusted EBITDA and Adjusted EBITDA Margin for the periods shown: 

 

Three Months Ended

 

Six Months Ended

 

July 2,
 2017

 

July 3,
 2016

 

July 2,
 2017

 

July 3,
 2016

   

Total revenues

$

211,784

 

$

216,621

 

$

476,743

 

$

490,939

Net income (loss) as reported

$

(5,930)

 

$

(9,052)

 

$

11,292

 

$

8,863

Interest expense

17,061

 

17,121

 

34,123

 

34,182

Income tax expense (benefit)

(3,317)

 

(4,442)

 

7,061

 

6,930

Depreciation and amortization

27,623

 

31,284

 

55,928

 

60,282

Loss on asset disposals, net

1,961

 

1,895

 

3,716

 

4,073

Non-cash stock-based compensation

186

 

202

 

336

 

337

Rent expense book to cash

1,856

 

2,592

 

2,836

 

4,840

Franchise revenue, net cash received

(254)

 

271

 

(344)

 

162

Impact of purchase accounting

569

 

356

 

785

 

555

Venue pre-opening costs

248

 

96

 

488

 

316

One-time and unusual items

947

 

1,063

 

3,213

 

2,876

Cost savings initiatives

 

 

 

62

Change in deferred amusement revenue

(676)

 

281

 

4,368

 

682

Adjusted EBITDA

$

40,274

 

$

41,667

 

$

123,802

 

$

124,160

Adjusted EBITDA Margin

19.0%

 

19.2%

 

26.0%

 

25.3%

                       

 

CEC ENTERTAINMENT, INC.

VENUE COUNT INFORMATION

(Unaudited)

 
   

Three Months Ended

 

Six Months Ended

   

July 2,

2017

 

July 3,

2016

 

July 2,
 2017

 

July 3,
 2016

Number of Company-owned venues:

               

Beginning of period

 

560

 

556

 

559

 

556

New

 

2

 

 

3

 

1

Acquired from franchisee

 

2

 

 

2

 

Closed

 

 

 

 

(1)

End of period

 

564

 

556

 

564

 

556

Number of franchised venues:

               

Beginning of period

 

191

 

179

 

188

 

176

New

 

4

 

5

 

7

 

9

Acquired from franchisee

 

(2)

 

 

(2)

 

Closed

 

 

(1)

 

 

(2)

End of period

 

193

 

183

 

193

 

183

Total number of venues:

               

Beginning of period

 

751

 

735

 

747

 

732

New

 

6

 

5

 

10

 

10

Acquired from franchisee

 

 

 

 

Closed

 

 

(1)

 

 

(3)

End of period

 

757

 

739

 

757

 

739

                 

SOURCE CEC Entertainment, Inc.

###

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