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

IRVING, Texas - Nov. 9, 2017 // PRNewswire // - CEC Entertainment, Inc. (the "Company") today announced financial results for its third quarter ended October 1, 2017.

Third Quarter Results (1)

"Our third quarter revenues continued to be impacted by the same challenges we have faced for most of this year as we experienced traffic declines in both our walk-in business and booked birthday parties," said Tom Leverton, Chief Executive Officer. "We have taken action on several fronts, including changing our advertising approach and messaging, in order to improve traffic in future periods. In addition, we were negatively impacted by venue closures related to Hurricanes Harvey and Irma at 73 of our locations."

Total revenues decreased $14.8 million to $213.3 million during the third quarter of 2017 compared to the third quarter of 2016, primarily driven by a 6.9% decline in comparable venue sales, offset partially by new venue sales.

The Company reported a net loss of $11.1 million for the third quarter of 2017, compared to a net loss of $2.4 million for the third quarter of 2016. The decrease in the net loss was driven by the decline in Company-operated venue sales, as well as property and inventory losses incurred in connection with Hurricanes Harvey and Irma, offset by lower general and administrative expenses and lower depreciation.

During the third quarter of 2017, Adjusted EBITDA decreased $13.1 million to $38.1 million compared to the third quarter of 2016.

Balance Sheet and Liquidity

As of October 1, 2017, cash and cash equivalents were $79.4 million, and the principal outstanding on our debt was $988.4 million, with net availability of $140.1 million on our undrawn revolving credit facility. During the third quarter of 2017, we had capital expenditures of $25.3 million, of which $6.1 million related to our PlayPass initiative and another $8.0 million related to other growth initiatives. In addition, we had $1.4 million in capital expenditures related to IT initiatives, and $9.8 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 October 1, 2017, the Company's system-wide portfolio consisted of:

   

Chuck E. Cheese's

 

Peter Piper Pizza

 

Total

Company operated

 

523

 

39

 

562

Domestic franchised

 

26

 

61

 

87

International franchised

 

58

 

46

 

104

Total

 

607

 

146

 

753

Conference Call Information

The Company will host a conference call beginning at 9:00 a.m. Central Time on Friday, November 10, 2017. The call can be accessed by dialing (855) 743-8451 or (330) 968-0151 for international participants and conference code 98534480.

A replay of the call will be available from 12:00 p.m. Central Time on November 10, 2017 through 10:30 p.m. Central Time on November 24, 2017. The replay of the call can be accessed by dialing (800) 585-8367 or (404) 537-3406 for international participants and conference code 98534480.

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 October 1, 2017, the Company and its franchisees operated a system of 607 Chuck E. Cheese's and 146 Peter Piper Pizza venues, with locations in 47 states and 13 foreign countries and territories. For more information, visit chuckecheese.com and peterpiperpizza.com.

Contacts:

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

Christelle Dupont
Media Relations
Public Relations Manager
CEC Entertainment, Inc.
(972) 258-4223
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

 

Nine Months Ended

 

October 1, 2017

 

October 2, 2016

 

October 1, 2017

 

October 2, 2016

REVENUES:

                             

Food and beverage sales

$

98,255

 

46.1%

 

$

101,984

 

44.7%

 

$

320,085

 

46.4%

 

$

321,591

 

44.7%

Entertainment and merchandise sales

110,633

 

51.9%

 

121,764

 

53.4%

 

356,274

 

51.6%

 

383,978

 

53.4%

Total company venue sales

208,888

 

97.9%

 

223,748

 

98.1%

 

676,359

 

98.0%

 

705,569

 

98.1%

Franchise fees and royalties

4,459

 

2.1%

 

4,322

 

1.9%

 

13,731

 

2.0%

 

13,440

 

1.9%

Total revenues

213,347

 

100.0%

 

228,070

 

100.0%

 

690,090

 

100.0%

 

719,009

 

100.0%

OPERATING COSTS AND EXPENSES:

                             

Company venue operating costs:

                             

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

23,974

 

24.4%

 

25,507

 

25.0%

 

75,014

 

23.4%

 

80,702

 

25.1%

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

7,430

 

6.7%

 

8,014

 

6.6%

 

22,771

 

6.4%

 

25,004

 

6.5%

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

31,404

 

15.0%

 

33,521

 

15.0%

 

97,785

 

14.5%

 

105,706

 

15.0%

Labor expenses(3)

61,220

 

29.3%

 

61,721

 

27.6%

 

187,958

 

27.8%

 

191,170

 

27.1%

Depreciation and amortization (3)

25,289

 

12.1%

 

27,667

 

12.4%

 

77,492

 

11.5%

 

85,029

 

12.1%

Rent expense (3)

24,259

 

11.6%

 

24,120

 

10.8%

 

71,484

 

10.6%

 

72,318

 

10.2%

Other venue operating expenses (3)

40,561

 

19.4%

 

38,757

 

17.3%

 

113,277

 

16.7%

 

112,143

 

15.9%

Total company venue operating costs (3)

182,733

 

87.5%

 

185,786

 

83.0%

 

547,996

 

81.0%

 

566,366

 

80.3%

Other costs and expenses:

                             

Advertising expense

12,083

 

5.7%

 

11,515

 

5.0%

 

37,702

 

5.5%

 

36,777

 

5.1%

General and administrative expenses

15,422

 

7.2%

 

17,284

 

7.6%

 

48,237

 

7.0%

 

51,222

 

7.1%

Transaction, severance and related litigation costs

128

 

0.1%

 

166

 

0.1%

 

698

 

0.1%

 

1,349

 

0.2%

Asset impairments

1,843

 

0.9%

 

772

 

0.3%

 

1,843

 

0.3%

 

772

 

0.1%

Total operating costs and expenses

212,209

 

99.5%

 

215,523

 

94.5%

 

636,476

 

92.2%

 

656,486

 

91.3%

Operating income

1,138

 

0.5%

 

12,547

 

5.5%

 

53,614

 

7.8%

 

62,523

 

8.7%

Interest expense

17,451

 

8.2%

 

17,237

 

7.6%

 

51,574

 

7.5%

 

51,419

 

7.2%

Income (loss) before income taxes

(16,313)

 

(7.6)%

 

(4,690)

 

(2.1)%

 

2,040

 

0.3%

 

11,104

 

1.5%

Income tax expense (benefit)

(5,221)

 

(2.4)%

 

(2,286)

 

(1.0)%

 

1,840

 

0.3%

 

4,645

 

0.6%

Net income (loss)

$

(11,092)

 

(5.2)%

 

$

(2,404)

 

(1.1)%

 

$

200

 

—%

 

$

6,459

 

0.9%

                                                 

 

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 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)

 
   

October 1,

2017

 

January 1,
 2017

ASSETS

       

Current assets:

       

Cash and cash equivalents

 

$

79,427

 

$

61,023

Other current assets

 

60,416

 

63,938

Total current assets

 

139,843

 

124,961

Property and equipment, net

 

582,928

 

592,886

Goodwill

 

484,438

 

483,876

Intangible assets, net

 

481,278

 

484,083

Other noncurrent assets

 

20,170

 

24,306

Total assets

 

$

1,708,657

 

$

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

 

100,884

 

102,578

Total current liabilities

 

108,484

 

110,191

Capital lease obligations, less current portion

 

13,162

 

13,602

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

 

965,976

 

968,266

Deferred tax liability

 

180,789

 

186,290

Other noncurrent liabilities

 

230,876

 

225,758

Total liabilities

 

1,499,287

 

1,504,107

Stockholder's equity:

       

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

 

 

Capital in excess of par value

 

359,144

 

357,166

Accumulated deficit

 

(148,065)

 

(148,265)

Accumulated other comprehensive loss

 

(1,709)

 

(2,896)

Total stockholder's equity

 

209,370

 

206,005

Total liabilities and stockholder's equity

 

$

1,708,657

 

$

1,710,112

 

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

 
   

Nine Months Ended

   

October 1,
 2017

 

October 2,
 2016

CASH FLOWS FROM OPERATING ACTIVITIES:

 

Net income

 

$

200

 

$

6,459

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

       

  Depreciation and amortization

 

83,064

 

90,167

  Deferred income taxes

 

(5,220)

 

(10,329)

  Stock-based compensation expense

 

520

 

522

  Amortization of lease related liabilities

 

(411)

 

(17)

  Amortization of original issue discount and deferred debt financing costs

 

3,410

 

3,410

  Loss on asset disposals, net

 

5,457

 

6,298

  Asset impairments

 

1,843

 

772

  Non-cash rent expense

 

3,562

 

5,261

  Other adjustments

 

18

 

237

Changes in operating assets and liabilities:

       

Operating assets

 

(577)

 

3,554

Operating liabilities

 

2,374

 

4,920

Net cash provided by operating activities

 

94,240

 

111,254

CASH FLOWS FROM INVESTING ACTIVITIES:

       

Purchases of property and equipment

 

(71,910)

 

(66,535)

Development of internal use software

 

(2,520)

 

(8,788)

Proceeds from sale of property and equipment

 

424

 

426

Net cash used in investing activities

 

(74,006)

 

(74,897)

CASH FLOWS FROM FINANCING ACTIVITIES:

       

Repayments on senior term loan

 

(5,700)

 

(5,700)

Proceeds from sale leaseback transaction

 

4,073

 

Other financing activities

 

(695)

 

(1,810)

Net cash used in financing activities

 

(2,322)

 

(7,510)

Effect of foreign exchange rate changes on cash

 

492

 

356

Change in cash and cash equivalents

 

18,404

 

29,203

Cash and cash equivalents at beginning of period

 

61,023

 

50,654

Cash and cash equivalents at end of period

 

$

79,427

 

$

79,857

 

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

 

Nine Months Ended

 
 

October 1,
 2017

 

October 2,
 2016

 

October 1,
 2017

 

October 2,
 2016

 
               

Total revenues

$

213,347

 

$

228,070

 

$

690,090

 

$

719,009

 

Net income (loss) as reported

$

(11,092))

 

$

(2,404)

 

$

200

 

$

6,459

 

Interest expense

17,451

 

17,237

 

51,574

 

51,419

 

Income tax expense (benefit)

(5,221)

 

(2,286)

 

1,840

 

4,645

 

Depreciation and amortization

27,136

 

29,886

 

83,064

 

90,167

 

Asset impairments

1,843

 

772

 

1,843

 

772

 

Loss on asset disposals, net

1,741

 

2,225

 

5,457

 

6,298

 

Non-cash stock-based compensation

184

 

185

 

520

 

522

 

Rent expense book to cash

1,192

 

1,635

 

4,028

 

6,478

 

Franchise revenue, net cash received

 

(35)

 

(344)

 

127

 

Impact of purchase accounting

 

171

 

785

 

725

 

Venue pre-opening costs

155

 

572

 

643

 

888

 

One-time and unusual items

1,167

 

1,583

 

4,379

 

4,459

 

Cost savings initiatives

 

 

 

62

 

Change in deferred amusement revenue

3,568

 

1,674

 

7,937

 

2,265

 

Adjusted EBITDA

$

38,124

 

$

51,215

 

$

161,926

 

$

175,286

 

Adjusted EBITDA Margin

17.9%

 

22.5%

 

23.5%

 

24.4%

 
                           

 

CEC ENTERTAINMENT, INC.
VENUE COUNT INFORMATION
(Unaudited)

 
   
   

Three Months Ended

 

Nine Months Ended

 
   

October 1,

2017

 

October 2,

2016

 

October 1,
 2017

 

October 2,
 2016

 

Number of Company-owned venues:

                 

Beginning of period

 

564

 

556

 

559

 

556

 

New

 

 

3

 

3

 

4

 

Acquired from franchisee

 

 

 

2

 

 

Closed

 

(2)

 

(2)

 

(2)

 

(3)

 

End of period

 

562

 

557

 

562

 

557

 

Number of franchised venues:

                 

Beginning of period

 

193

 

183

 

188

 

176

 

New

 

 

2

 

7

 

11

 

Acquired from franchisee

 

 

 

(2)

 

 

Closed

 

(2)

 

 

(2)

 

(2)

 

End of period

 

191

 

185

 

191

 

185

 

Total number of venues:

                 

Beginning of period

 

757

 

739

 

747

 

732

 

New

 

 

5

 

10

 

15

 

Acquired from franchisee

 

 

 

 

 

Closed

 

(4)

 

(2)

 

(4)

 

(5)

 

End of period

 

753

 

742

 

753

 

742

 
         

SOURCE CEC Entertainment, Inc.

###

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