CEC Entertainment, Inc. Reports Financial Results for the 2018 First Quarter

IRVING, Texas - May 9, 2018 // PRNewswire // - CEC Entertainment, Inc. (the "Company") today announced financial results for its first quarter ended April 1, 2018.

First quarter Results (1)

Total revenues were $254.9 million for the first quarter of 2018 compared to $264.9 million for the first quarter of 2017. Company venue sales for the first quarter of 2018 decreased $10.8 million from the first quarter of 2017, primarily driven by a 5.1% decline in comparable venue sales. Also, deferred amusement revenue was $1.8 million less than the first quarter of 2017, resulting in cash revenue from our Company-operated venues decreasing $12.7 million from the first quarter of 2017.

The Company reported net income of $12.2 million for the first quarter of 2018, compared to net income of $17.2 million for the first quarter of 2017. First quarter 2018 net income reflects the decline in revenue and a decrease in Company-operated venue cost margins, partially offset by lower general and administrative expenses, lower depreciation and a lower effective tax rate related to the tax law changes enacted in December 2017.

"While we continued to feel the impact of several challenges to our business in the first quarter, we were encouraged by the early results of the measures we put in place to address the issues, including launching new advertising campaigns addressing moms and kids, as well as a revitalized approach to birthdays," said Tom Leverton, Chief Executive Officer. "Our comparable venue sales performance improved each month during the quarter and we have seen that trend continue recently. Looking at March and April together, which removes the impact of calendar shifts with spring breaks and Easter, our comparable venue sales improved approximately 1% over the same nine-week period in 2017. Comparable venue sales for the first five weeks of our second quarter have increased in the mid-single digit percent range. While this is encouraging, we continue to push forward with the previously mentioned initiatives, as well as some others."

During the first quarter of 2018, Adjusted EBITDA decreased $14.0 million to $69.6 million compared to the first quarter of 2017.

Balance Sheet and Liquidity

On May 8, 2018, the Company entered into an incremental assumption agreement with certain of the revolving credit facility lenders in its senior credit facility to extend the maturity of $95.0 million of its revolving credit facility through November 16, 2020. Other revolving credit facility lenders have until 5:00 pm New York time on May 11, 2018 to elect to extend the maturity of their revolving credit facility commitments. The maturity date of any amount of the revolving credit facility that is not extended will remain February 14, 2019.

As of April 1, 2018, the Company had cash and cash equivalents of $98.7 million and $984.6 million principal outstanding on its debt, with net availability of $140.1 million on the undrawn revolving credit facility. During the first quarter of 2018, the Company made $18.6 million of capital expenditures, of which $5.3 million related to growth initiatives, $1.1 million related to IT initiatives, and $12.1 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 April 1, 2018, the Company's system-wide portfolio consisted of:

 

   

Chuck E. Cheese's

 

Peter Piper Pizza

 

Total

Company operated

 

519

 

42

 

561

Domestic franchised

 

26

 

60

 

86

International franchised

 

63

 

46

 

109

Total

 

608

 

148

 

756

Conference Call Information:

The Company will host a conference call beginning at 9:00 a.m. Central Time on Wednesday, May 9, 2018. The call can be accessed by dialing (855) 743-8451 or (330) 968-0151 for international participants and conference code 6082796.

A replay of the call will be available from 12:00 p.m. Central Time on May 9, 2018 through 11:00 p.m. Central Time on May 26, 2018. The replay of the call can be accessed by dialing (800) 585-8367 or (404) 537-3406 for international participants and conference code 6082796.

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 April 1, 2018, the Company and its franchisees operated a system of 608 Chuck E. Cheese's and 148 Peter Piper Pizza venues, with locations in 47 states and 14 foreign countries and territories. For more information, visit chuckecheese.com and peterpiperpizza.com.

Contacts:

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

Christelle Dupont
Media Inquiries
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 December 31, 2017, filed with the Securities and Exchange Commission on March 28, 2018. 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 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 United States 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 financial results 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 December 31, 2017, filed with the SEC on March 28, 2018.

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 1, 2018

 

April 2, 2017

REVENUES:

               

Food and beverage sales

$

 

118,377

 

46.4%

 

$

124,419

 

47.0%

Entertainment and merchandise sales

 

131,117

 

51.4%

 

135,917

 

51.3%

Total company venue sales

 

249,494

 

97.9%

 

260,336

 

98.3%

Franchise fees and royalties

 

5,410

 

2.1%

 

4,623

 

1.7%

Total revenues

 

254,904

 

100.0%

 

264,959

 

100.0%

OPERATING COSTS AND EXPENSES:

               

Company venue operating costs (excluding Depreciation and amortization):

               

Cost of food and beverage (1)

 

27,360

 

23.1%

 

28,218

 

22.7%

Cost of entertainment and merchandise (2)

 

9,382

 

7.2%

 

8,487

 

6.2%

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

 

36,742

 

14.7%

 

36,705

 

14.1%

Labor expenses (3)

 

67,349

 

27.0%

 

66,388

 

25.5%

Rent expense (3)

 

24,049

 

9.6%

 

23,319

 

9.0%

Other venue operating expenses (3)

 

38,062

 

15.3%

 

36,750

 

14.1%

Total company venue operating costs (3)

 

166,202

 

66.6%

 

163,162

 

62.7%

Other costs and expenses:

               

Advertising expense

 

13,974

 

5.5%

 

13,382

 

5.1%

General and administrative expenses

 

12,909

 

5.1%

 

15,371

 

5.8%

Depreciation and amortization

 

26,572

 

10.4%

 

28,305

 

10.7%

Transaction, severance and related litigation costs

 

534

 

0.2%

 

80

 

—%

Total operating costs and expenses

 

220,191

 

86.4%

 

220,300

 

83.1%

Operating income

 

34,713

 

13.6%

 

44,659

 

16.9%

Interest expense

 

18,557

 

7.3%

 

17,061

 

6.4%

Income before income taxes

 

16,156

 

6.3%

 

27,598

 

10.4%

Income tax expense

 

3,933

 

1.5%

 

10,378

 

3.9%

Net income

 

$

12,223

 

4.8%

 

$

17,220

 

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.

 

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 1,

2018

 

December 31,
 2017

ASSETS

       

Current assets:

       

Cash and cash equivalents

 

$

98,686

 

$

67,200

Restricted cash

 

86

 

112

Other current assets

 

69,802

 

73,419

Total current assets

 

168,574

 

140,731

Property and equipment, net

 

561,241

 

570,021

Goodwill

 

484,438

 

484,438

Intangible assets, net

 

479,504

 

480,377

Other noncurrent assets

 

18,650

 

19,477

Total assets

 

$

1,712,407

 

$

1,695,044

LIABILITIES AND STOCKHOLDER'S EQUITY

       

Current liabilities:

       

Bank indebtedness and other long-term debt, current portion

 

$

7,600

 

$

7,600

Other current liabilities

 

107,894

 

102,689

Total current liabilities

 

115,494

 

110,289

Capital lease obligations, less current portion

 

12,852

 

13,010

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

 

 

964,449

 

 

965,213

Deferred tax liability

 

113,572

 

114,186

Other noncurrent liabilities

 

231,448

 

230,198

Total liabilities

 

1,437,815

 

1,432,896

Stockholder's equity:

       

Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of April 1, 2018 and December 31, 2017

 

 

Capital in excess of par value

 

359,300

 

359,233

Accumulated deficit

 

(82,976)

 

(95,199)

Accumulated other comprehensive loss

 

(1,732)

 

(1,886)

Total stockholder's equity

 

274,592

 

262,148

Total liabilities and stockholder's equity

 

$

1,712,407

 

$

1,695,044

 

CEC ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 
   

Three Months Ended

   

April 1,
 2018

 

April 2,
 2017

CASH FLOWS FROM OPERATING ACTIVITIES:

 

Net income

 

$

12,223

 

$

17,220

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

       

  Depreciation and amortization

 

26,572

 

28,305

  Deferred income taxes

 

(672)

 

(861)

  Stock-based compensation expense

 

64

 

151

  Amortization of lease related liabilities

 

(211)

 

(139)

  Amortization of original issue discount and deferred debt financing costs

 

1,137

 

1,137

  Loss on asset disposals, net

 

1,237

 

1,755

  Non-cash rent expense

 

1,181

 

832

  Other adjustments

 

(26)

 

1

Changes in operating assets and liabilities:

       

Operating assets

 

1,872

 

(4,998)

Operating liabilities

 

9,187

 

15,400

Net cash provided by operating activities

 

52,564

 

58,803

CASH FLOWS FROM INVESTING ACTIVITIES:

       

Purchases of property and equipment

 

(18,060)

 

(22,793)

Development of internal use software

 

(515)

 

(1,129)

Proceeds from sale of property and equipment

 

158

 

105

Net cash used in investing activities

 

(18,417)

 

(23,817)

CASH FLOWS FROM FINANCING ACTIVITIES:

       

Repayments on senior term loan

 

(1,900)

 

(1,900)

Other financing activities

 

(833)

 

758

Net cash used in financing activities

 

(2,733)

 

(1,142)

Effect of foreign exchange rate changes on cash

 

46

 

67

Change in cash, cash equivalents and restricted cash

 

31,460

 

33,911

Cash, cash equivalents and restricted cash at beginning of period

 

67,312

 

61,291

Cash, cash equivalents and restricted cash at end of period

 

$

98,772

 

$

95,202

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 to Adjusted EBITDA and Adjusted EBITDA Margin for the periods shown:

 

 

Three Months Ended

 

April 1,
 2018

 

April 2,
 2017

Total revenues

$

254,904

 

$

264,959

Net income as reported

$

12,223

 

$

17,220

Interest expense

18,557

 

17,061

Income tax expense

3,933

 

10,378

Depreciation and amortization

26,572

 

28,305

Loss on disposals, net

1,237

 

1,755

Unrealized loss on foreign exchange

356

 

Non-cash stock-based compensation

64

 

151

Rent expense book to cash

2,174

 

980

Franchise revenue, net cash received

421

 

(90)

Impact of purchase accounting

 

215

Venue pre-opening costs

23

 

239

One-time and unusual items

762

 

2,267

Change in deferred amusement revenue

3,231

 

5,044

Adjusted EBITDA

$

69,553

 

$

83,525

Adjusted EBITDA Margin

27.3%

 

31.5%

 

CEC ENTERTAINMENT, INC.

VENUE COUNT INFORMATION

(Unaudited)

     
   

Three Months Ended

   

April 1,

2018

 

April 2,

2017

Number of Company-owned venues:

       

Beginning of period

 

562

 

559

New

 

--

 

1

Closed

 

(1)

 

--

End of period

 

561

 

560

         

Number of franchised venues:

       

Beginning of period

 

192

 

188

New

 

4

 

3

Closed

 

(1)

 

End of period

 

195

 

191

         

Total number of venues:

       

Beginning of period

 

754

 

747

New

 

4

 

4

Closed

 

(2)

 

End of period

 

756

 

751

SOURCE CEC Entertainment, Inc.

###

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