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

IRVING, Texas - March 27, 2018 // PRNewswire // - CEC Entertainment, Inc. (the "Company") today announced financial results for its fourth quarter ended December 31, 2017.

Fourth Quarter Results (1)

Company venue sales for the fourth quarter of 2017 decreased $7.2 million from the fourth quarter of 2016, primarily driven by a 6.0% decline in comparable venue sales. Deferred amusement revenue was $3.4 million less than the fourth quarter of 2016, resulting in cash revenue from our Company-operated venues decreasing $10.6 million from the 2016 fourth quarter. Total revenues were $196.7 million for the fourth quarter of 2017 compared to $204.6 million for the fourth quarter of 2016.

The Company reported net income of $52.9 million for the fourth quarter of 2017, compared to a net loss of $10.1 million for the fourth quarter of 2016. Fourth quarter net income was positively impacted by a $66.6 million adjustment to our deferred income tax liability related to the recently enacted tax law changes. Before the impact of this adjustment, our fourth quarter net loss was $13.7 million, compared to a net loss of $10.1 million for the fourth quarter of 2016, driven by the decline in revenue and an increase in marketing costs, partially offset by lower general and administrative expenses and lower depreciation.

"There were several factors which impacted our business in 2017, which our team is addressing diligently," said Tom Leverton, Chief Executive Officer. "We have put several measures in place to address these challenges, including launching new advertising campaigns addressing moms and kids, as well as a revitalized approach to birthdays. Additionally, we have identified several improvements to our website and digital marketing platform. While our primary focus has been on revenue, we recently implemented several changes in our corporate support structure to better align with our recent performance. We are optimistic that these combined revenue and cost initiatives should have a positive impact on our revenues and operating results in future periods."

During the fourth quarter of 2017, Adjusted EBITDA decreased $11.4 million to $25.5 million compared to the fourth quarter of 2016.

Balance Sheet and Liquidity

As of December 31, 2017, cash and cash equivalents were $67.2 million, and the principal outstanding on our debt was $986.5 million, with net availability of $140.1 million on our undrawn revolving credit facility. During the fourth quarter of 2017, we had capital expenditures of $19.6 million, of which $8.1 million related to growth initiatives, $1.9 million related to IT initiatives, and $9.6 million related to maintenance capital expenditures, primarily consisting of 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 December 31, 2017, the Company's system-wide portfolio consisted of:

   

Chuck E. Cheese's

 

Peter Piper Pizza

 

Total

Company operated

 

520

 

42

 

562

Domestic franchised

 

26

 

61

 

87

International franchised

 

59

 

46

 

105

Total

 

605

 

149

 

754

Conference Call Information:

The Company will host a conference call beginning at 9:00 a.m. Central Time on Wednesday, March 28, 2018. The call can be accessed by dialing (855) 743-8451 or (330) 968-0151 for international participants and conference code 6394589.

A replay of the call will be available from 12:00 p.m. Central Time on March 28, 2018 through 10:30 p.m. Central Time on April 13, 2018. The replay of the call can be accessed by dialing (800) 585-8367 or (404) 537-3406 for international participants and conference code 6394589.

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 new national charity partner, Boys and Girls Clubs of America. 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, Arizona and Texas featuring an all new prototype design. As of December 31, 2017, the Company and its franchisees operated a system of 605 Chuck E. Cheese's and 149 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

 

Twelve Months Ended

 

December 31, 2017

 

January 1, 2017

 

December 31, 2017

 

January 1, 2017

REVENUES:

                             

Food and beverage sales

$

90,524

 

46.0%

 

$

93,469

 

45.7%

 

$

410,609

 

46.3%

 

$

415,059

 

44.9%

Entertainment and merchandise sales

102,005

 

51.9%

 

106,277

 

51.9%

 

458,279

 

51.7%

 

490,255

 

53.1%

Total company venue sales

192,529

 

97.9%

 

199,746

 

97.6%

 

868,888

 

98.0%

 

905,314

 

98.0%

Franchise fees and royalties

4,152

 

2.1%

 

4,898

 

2.4%

 

17,883

 

2.0%

 

18,339

 

2.0%

Total revenues

196,681

 

100.0%

 

204,644

 

100.0%

 

886,771

 

100.0%

 

923,653

 

100.0%

OPERATING COSTS AND EXPENSES:

                             

Company venue operating costs (excluding depreciation and amortization):

                             

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

22,555

 

24.9%

 

23,613

 

25.3%

 

97,570

 

23.8%

 

104,315

 

25.1%

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

7,177

 

7.0%

 

7,010

 

6.6%

 

29,948

 

6.5%

 

32,014

 

6.5%

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

29,732

 

15.4%

 

30,623

 

15.3%

 

127,518

 

14.7%

 

136,329

 

15.1%

Labor expenses (3)

60,102

 

31.2%

 

60,256

 

30.2%

 

248,061

 

28.5%

 

251,426

 

27.8%

Rent expense (3)

24,433

 

12.7%

 

23,688

 

11.9%

 

95,917

 

11.0%

 

96,006

 

10.6%

Other venue operating expenses (3)

36,184

 

18.8%

 

36,726

 

18.4%

 

149,462

 

17.2%

 

148,869

 

16.4%

Total company venue operating costs (3)

150,451

 

78.1%

 

151,293

 

75.7%

 

620,958

 

71.5%

 

632,630

 

69.9%

Other costs and expenses:

                             

Advertising expense

10,677

 

5.4%

 

9,365

 

4.6%

 

48,379

 

5.5%

 

46,142

 

5.0%

General and administrative expenses

13,817

 

7.0%

 

14,926

 

7.3%

 

56,482

 

6.4%

 

61,011

 

6.6%

Depreciation and amortization

26,707

 

13.6%

 

29,402

 

14.4%

 

109,771

 

12.4%

 

119,569

 

12.9%

Transaction, severance and related litigation costs

750

 

0.4%

 

(50)

 

—%

 

1,448

 

0.2%

 

1,299

 

0.1%

Asset impairments

 

—%

 

778

 

0.4%

 

1,843

 

0.2%

 

1,550

 

0.2%

Total operating costs and expenses

202,402

 

102.9%

 

205,714

 

100.5%

 

838,881

 

94.6%

 

862,201

 

93.3%

Operating income (loss)

(5,721)

 

(2.9)%

 

(1,070)

 

(0.5)%

 

47,890

 

5.4%

 

61,452

 

6.7%

Interest expense

17,542

 

8.9%

 

16,326

 

8.0%

 

69,115

 

7.8%

 

67,745

 

7.3%

Loss before income taxes

(23,263)

 

(11.8)%

 

(17,396)

 

(8.5)%

 

(21,225)

 

(2.4)%

 

(6,293)

 

(0.7)%

Income tax benefit

(76,131)

 

(38.7)%

 

(7,270)

 

(3.6)%

 

(74,291)

 

(8.4)%

 

(2,626)

 

(0.3)%

Net income (loss)

$

52,868

 

26.9%

 

$

(10,126)

 

(4.9)%

 

$

53,066

 

6.0%

 

$

(3,667)

 

(0.4)%

 

________________

 

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.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share information)

 
   

December 31,
2017

 

January 1,
2017

ASSETS

       

Current assets:

       

Cash and cash equivalents

 

$

67,200

 

$

61,023

Other current assets

 

73,531

 

63,938

Total current assets

 

140,731

 

124,961

Property and equipment, net

 

570,021

 

592,886

Goodwill

 

484,438

 

483,876

Intangible assets, net

 

480,377

 

484,083

Other noncurrent assets

 

19,477

 

24,306

Total assets

 

$

1,695,044

 

$

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

 

102,689

 

102,578

Total current liabilities

 

110,289

 

110,191

Capital lease obligations, less current portion

 

13,010

 

13,602

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

 

965,213

 

968,266

Deferred tax liability

 

114,186

 

186,290

Other noncurrent liabilities

 

230,198

 

225,758

Total liabilities

 

1,432,896

 

1,504,107

Stockholder's equity:

       

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

December 31, 2017 and January 1, 2017

 

 

Capital in excess of par value

 

359,233

 

357,166

Accumulated deficit

 

(95,199)

 

(148,265)

Accumulated other comprehensive loss

 

(1,886)

 

(2,896)

Total stockholder's equity

 

262,148

 

206,005

Total liabilities and stockholder's equity

 

$

1,695,044

 

$

1,710,112

 

CEC ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 
   

Twelve Months Ended

   

December 31,
2017

 

January 1,
2017

CASH FLOWS FROM OPERATING ACTIVITIES:

 

Net income (loss)

 

$

53,066

 

$

(3,667)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

       

  Depreciation and amortization

 

109,771

 

119,569

  Deferred income taxes

 

(71,875)

 

(15,521)

  Stock-based compensation expense

 

606

 

689

  Amortization of lease related liabilities

 

(632)

 

(448)

Amortization of original issue discount and deferred debt financing costs

 

4,546

 

4,546

  Loss on asset disposals, net

 

7,398

 

8,520

  Asset impairments

 

1,843

 

1,550

  Non-cash rent expense

 

4,884

 

6,873

  Other adjustments

 

322

 

(70)

Changes in operating assets and liabilities:

       

Operating assets

 

(1,444)

 

(5,036)

Operating liabilities

 

(4,032)

 

1,682

Net cash provided by operating activities

 

104,453

 

118,687

CASH FLOWS FROM INVESTING ACTIVITIES:

       

Purchases of property and equipment

 

(90,958)

 

(88,680)

Development of internal use software

 

(3,243)

 

(10,455)

Proceeds from sale of property and equipment

 

489

 

696

Net cash used in investing activities

 

(93,712)

 

(98,439)

CASH FLOWS FROM FINANCING ACTIVITIES:

       

Repayments on senior term loan

 

(7,600)

 

(7,600)

Proceeds from sale leaseback transaction

 

4,073

 

Other financing activities

 

(1,503)

 

(2,495)

Net cash used in financing activities

 

(5,030)

 

(10,095)

Effect of foreign exchange rate changes on cash

 

466

 

216

Change in cash and cash equivalents

 

6,177

 

10,369

Cash and cash equivalents at beginning of period

 

61,023

 

50,654

Cash and cash equivalents at end of period

 

$

67,200

 

$

61,023

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

 

Twelve Months Ended

 

December 31,
2017

 

January 1,
2017

 

December 31,
2017

 

January 1,
2017

             

Total revenues

$

196,681

 

$

204,644

 

$

886,771

 

$

923,653

Net income (loss) as reported

$

52,868

 

$

(10,126)

 

$

53,066

 

$

(3,667)

Interest expense

17,542

 

16,326

 

69,115

 

67,745

Income tax benefit

(76,131)

 

(7,270)

 

(74,291)

 

(2,626)

Depreciation and amortization

26,707

 

29,402

 

109,771

 

119,569

Asset impairments

 

778

 

1,843

 

1,550

Loss on asset disposals, net

1,941

 

2,223

 

7,398

 

8,520

Non-cash stock-based compensation

86

 

167

 

606

 

689

Rent expense book to cash

1,627

 

1,375

 

5,655

 

7,852

Franchise revenue, net cash received

343

 

(14)

 

 

113

Impact of purchase accounting

33

 

654

 

817

 

1,380

Venue pre-opening costs

261

 

702

 

904

 

1,591

One-time and unusual items

1,539

 

686

 

5,916

 

5,146

Cost savings initiatives

 

 

 

62

Change in deferred amusement revenue

(1,320)

 

2,033

 

6,617

 

4,388

Adjusted EBITDA

$

25,496

 

$

36,936

 

$

187,417

 

$

212,312

Adjusted EBITDA Margin

13.0%

 

18.0%

 

21.1%

 

23.0%

 

CEC ENTERTAINMENT, INC.

VENUE COUNT INFORMATION

(Unaudited)

 
   

Three Months Ended

 

Twelve Months Ended

   

December 31,
2017

 

January 1,
2017

 

December 31,
2017

 

January 1,
2017

Number of Company-owned venues:

               

Beginning of period

 

562

 

557

 

559

 

556

New

 

3

 

2

 

6

 

6

Acquired from franchisee

 

 

 

2

 

Closed

 

(3)

 

 

(5)

 

(3)

End of period

 

562

 

559

 

562

 

559

Number of franchised venues:

               

Beginning of period

 

191

 

185

 

188

 

176

New

 

1

 

5

 

8

 

16

Acquired from franchisee

 

 

 

(2)

 

Closed

 

 

(2)

 

(2)

 

(4)

End of period

 

192

 

188

 

192

 

188

Total number of venues:

               

Beginning of period

 

753

 

742

 

747

 

732

New

 

4

 

7

 

14

 

22

Acquired from franchisee

 

 

 

 

Closed

 

(3)

 

(2)

 

(7)

 

(7)

End of period

 

754

 

747

 

754

 

747

SOURCE CEC Entertainment, Inc.

###

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