CEC Entertainment, Inc. Reports Financial Results For The First Quarter 2019
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CEC Entertainment, Inc. Reports Financial Results For The First Quarter 2019

Company to Participate at June Investor Conferences

IRVING, Texas, May 14, 2019 // PRNewswire // - CEC Entertainment, Inc. ("CEC" or the "Company"), a nationally recognized leader in family entertainment and dining, today announced financial results for its first quarter ended March 31, 2019.

First Quarter Results(1)

Comparable venue sales increased 7.7% in the first quarter of 2019 compared to the first quarter of 2018, and total revenues increased $18.4 million, or 7.2%, to $273.3 million in the first quarter of 2019, compared to $254.9 million in the first quarter of 2018.

The Company reported net income of $21.2 million for the first quarter of 2019, compared to net income of $12.2 million for the first quarter of 2018. Net income for the current quarter was positively impacted by the increase in Company-operated venue sales, partially offset by higher labor expenses from wage inflation, and increased entertainment and merchandise costs related to the All You Can Play and More Tickets strategic initiatives. Additionally, net income for the first quarter of 2019 was impacted by a $1.3 million increase in interest expense driven by the increase in LIBOR rates on our variable rate debt.

"We are pleased with our results in the first quarter of 2019 as the positive impact of the All You Can Play game packages and More Tickets initiatives led to our fourth consecutive quarter of comparable venue sales growth," said Tom Leverton, Chief Executive Officer. "Our team continues to make great progress in advancing our brand and improving the experience we deliver to our guests. While our quarterly performance benefited from the comparison to last year and a shift in Easter, the result was strong with great flow through to earnings. We remain optimistic about our venue remodel program, which is really a complete re-imaging of the venue, along with additional planned initiatives to improve our business and our profitability."

Adjusted EBITDA(1) for the first quarter of 2019 increased $9.8 million, or 14.8%, to $76.1 million from $66.3 million for the first quarter of 2018.

Balance Sheet and Liquidity

As of March 31, 2019, the Company had cash and cash equivalents of $112.0 million with net availability of $86.5 million on the undrawn revolving credit facility. There is $977.0 million of principal outstanding on the Company's long-term debt.

During the first quarter of 2019, the Company made $18.6 million of capital expenditures, of which $4.9 million related to growth initiatives, $0.4 million related to IT initiatives, and $13.3 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 March 31, 2019, the Company's system-wide portfolio consisted of:

   

Chuck E. Cheese's

 

Peter Piper Pizza

 

Total

Company operated

 

516

 

38

 

554

Domestic franchised

 

26

 

61

 

87

International franchised

 

64

 

43

 

107

Total

 

606

 

142

 

748

Business Combination

On April 8, 2019 CEC and Leo Holdings, Corporation (NYSE: LHC) ("Leo"), a publicly traded special purpose acquisition company, announced that Leo and Queso Holdings, Inc. ("Queso"), the parent company of CEC, together with Queso's controlling stockholder, an entity owned by funds managed by affiliates of Apollo Global Management, LLC (together with its consolidated subsidiaries, "Apollo"), have entered into a definitive business combination agreement.

The Boards of Directors of both Leo and Queso have unanimously approved the proposed transaction. Completion of the transaction is subject to Leo shareholder approval and other customary closing conditions. The parties expect that the transaction will close in the second or third quarter of 2019.

Annual Guidance

The Company is reiterating its confidence in the annual guidance that was referenced in the investor presentation related to the definitive business combination agreement with Leo, which includes the following:

  • Total revenues of $929 million;
  • Comparable venue sales growth of 4.2%;
  • Adjusted EBITDA(1) of $187 million;
  • Four net Peter Piper Pizza openings and 11 net international franchised Chuck E. Cheese openings; and
  • Capital expenditures of $95 million to $105 million.

________________

(1)

For our definition of Adjusted EBITDA, see the financial table "Reconciliation of Non-GAAP Financial Measures" included within this press release. The Company provides guidance on Adjusted EBITDA, but does not provide a reconciliation of such guidance to the most directly comparable financial measures because of the high variability and inherent difficulty in making accurate forecasts of some of the information excluded from Adjusted EBITDA.

Conference Call Information

Tom Leverton, Chief Executive Officer, and Jim Howell, Chief Financial Officer, will host a conference call beginning this morning at 7:00 a.m. Central Time. The call can be accessed by dialing (201) 689-8263 and conference code 13690637.

A replay of the call will be available from 10:00 a.m. Central Time on May 14, 2019 through 10:59 p.m. Central Time on May 28, 2019 and can be accessed by dialing (412) 317-6671 and conference code 13690637. Investors and interested parties may also listen to a live and archived webcast of the conference call by visiting www.chuckecheese.com under the link "Investor Relations."

June Investor Conference Participation

The Company will participate at these investor conferences.

  • On Wednesday, June 5, 2019 CEC will present at the Baird 2019 Global Consumer, Technology & Services Conference at the InterContinental Barclay Hotel in New York City and meet with institutional investors. The Company's presentation will begin at 9:15 a.m. Central Time and will be webcast live and archived on CEC's website at www.chuckecheese.com under the link "Investor Relations". Please contact your Baird representative to schedule a meeting.
  • On Thursday, June 6, 2019 CEC will meet with institutional investors at the 39th Annual Piper Jaffray Consumer Marketplace Conference at The Pierre Hotel in New York City. Please contact your Piper Jaffray representative to schedule a meeting.
  • On Wednesday, June 12, 2019 CEC will present at the Stifel 2019 Cross Sector Insight Conference at the InterContinental Boston in Boston, MA and meet with institutional investors. The Company's presentation will begin at 8:10 a.m. Central Time. Please contact your Stifel representative to schedule a meeting.

About CEC Entertainment, Inc.

CEC Entertainment, Inc. is the nationally recognized leader in family dining and entertainment with both its Chuck E. Cheese and Peter Piper Pizza venues. As America's #1 place for birthdays and the place Where A Kid Can Be A Kid®, Chuck E. Cheese's goal is to create positive, lifelong memories for families through fun, play and delicious handmade pizza. With the first-of-its-kind gaming experience, All You Can Play, kids have access to play every game at Chuck E. Cheese, as many times as they want on any day, without any restrictions. Committed to providing a fun, safe environment, Chuck E. Cheese helps protect families through industry-leading programs such as Kid Check®. As a strong advocate for its local communities, Chuck E. Cheese has donated more than $16 million to schools through its fundraising programs and supports its new national charity partner, Boys and Girls Clubs of America. Peter Piper Pizza features dining, entertainment and carryout with a neighborhood pizzeria feel and "pizza made fresh, families made happy" culture. Peter Piper Pizza takes pride in delivering quality food and fun that reconnects family and friends. With a bold design and contemporary layout, an open kitchen revealing much of their handcrafted food preparation, the latest technology and games, and beer and wine for adults, Peter Piper Pizza restaurants appeal to parents and kids alike. As of March 31, 2019, the Company and its franchisees operated a system of 606 Chuck E. Cheese's and 142 Peter Piper Pizza venues, with locations in 47 states and 14 foreign countries and territories. For more information, visit chuckecheese.com and peterpiperpizza.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 30, 2018, filed with the Securities and Exchange Commission on March 12, 2019. 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;
  • our ability to weather economic uncertainty and changes in consumer discretionary spending;
  • increases in food, labor and other operating costs;
  • the impact of labor scheduling legislation;
  • 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;
  • risks associated with our proposed business combination and the related business combination agreement, and following the consummation of the proposed business combination, the increased costs, and the risks, associated with being a reporting company with publicly traded equity; 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 30, 2018, filed with the SEC on March 12, 2019.

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.

CEC ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

(in thousands, except percentages)

 
 

Three Months Ended

 

March 31,
2019

 

April 1, 
2018

   

REVENUES:

             

Food and beverage sales

$

117,815

 

43.1%

 

$

118,377

 

46.4%

Entertainment and merchandise sales

149,677

 

54.8%

 

131,117

 

51.4%

Total company venue sales

267,492

 

97.9%

 

249,494

 

97.9%

Franchise fees and royalties

5,820

 

2.1%

 

5,410

 

2.1%

Total revenues

273,312

 

100.0%

 

254,904

 

100.0%

OPERATING COSTS AND EXPENSES:

             

Company venue operating costs and expenses (excluding Depreciation and amortization):

             

Cost of food and beverage (1)

26,652

 

22.6%

 

27,360

 

23.1%

Cost of entertainment and merchandise (2)

11,746

 

7.8%

 

9,382

 

7.2%

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

38,398

 

14.4%

 

36,742

 

14.7%

Labor expenses (3)

72,505

 

27.1%

 

67,349

 

27.0%

Lease costs (3)

27,027

 

10.1%

 

24,049

 

9.6%

Other venue operating expenses (3)

35,297

 

13.2%

 

38,062

 

15.3%

Total company venue operating costs and expenses

173,227

 

64.8%

 

166,202

 

65.2%

Other costs and expenses:

             

Advertising expense

12,253

 

4.5%

 

13,974

 

5.5%

General and administrative expenses

15,243

 

5.6%

 

12,909

 

5.1%

Depreciation and amortization

24,334

 

8.9%

 

26,572

 

10.4%

Transaction, severance and related litigation costs

23

 

—%

 

534

 

0.2%

Total operating costs and expenses

225,080

 

82.4%

 

220,191

 

86.4%

Operating income

48,232

 

17.6%

 

34,713

 

13.6%

Interest expense

19,808

 

7.2%

 

18,557

 

7.3%

Loss before income taxes

28,424

 

10.4%

 

16,156

 

6.3%

Income tax expense

7,178

 

2.6%

 

3,933

 

1.5%

Net income

$

21,246

 

7.8%

 

$

12,223

 

4.8%

________________

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.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share information)

 
   

March 31, 
2019

 

December 30, 
2018

ASSETS

       

Current assets:

       

Cash and cash equivalents

 

$

112,030

   

$

63,170

 

Restricted cash

 

266

   

151

 

Other current assets

 

64,052

   

83,411

 

Total current assets

 

176,348

   

146,732

 

Property and equipment, net

 

533,610

   

539,185

 

Operating lease right-of-use assets, net (1)

 

544,592

   

 

Goodwill

 

484,438

   

484,438

 

Intangible assets, net

 

470,242

   

477,085

 

Other noncurrent assets

 

18,883

   

18,725

 

Total assets

 

$

2,228,113

   

$

1,666,165

 

LIABILITIES AND STOCKHOLDER'S EQUITY

       

Current liabilities:

       

Bank indebtedness and other long-term debt, current portion

 

$

7,600

   

$

7,600

 

Operating lease obligations, current portion (1)

 

47,509

   

 

Other current liabilities

 

109,708

   

98,982

 

Total current liabilities

 

164,817

   

106,582

 

Operating lease obligations, less current portion (1)

 

529,972

   

 

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

 

960,715

   

961,514

 

Deferred tax liability

 

108,450

   

107,058

 

Other noncurrent liabilities

 

200,371

   

248,440

 

Total liabilities

 

1,964,325

   

1,432,594

 

Stockholder's equity:

       

Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of March 31, 2019 and December 30, 2018

 

   

 

Capital in excess of par value

 

359,696

   

359,570

 

Accumulated deficit

 

(94,414)

   

(115,660)

 

Accumulated other comprehensive loss

 

(1,494)

   

(1,339)

 

Total stockholder's equity

 

263,788

   

242,571

 

Total liabilities and stockholder's equity

 

$

2,228,113

   

$

1,666,165

 

________________

(1)

Effective December 31, 2018. the Company adopted ASC 842 using the modified retrospective method. Under the modified retrospective approach, the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

 

CEC ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 
   

Three Months Ended

   

March 31,
 2019

 

April 1, 
2018

CASH FLOWS FROM OPERATING ACTIVITIES:

 

Net income

 

$

21,246

   

$

12,223

 

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

       

  Depreciation and amortization

 

24,334

   

26,572

 

  Deferred income taxes

 

1,448

   

(672)

 

  Stock-based compensation expense

 

1,162

   

64

 

  Amortization of lease related liabilities

 

   

(211)

 

  Amortization of original issue discount and deferred debt financing costs

 

1,059

   

1,137

 

  Loss on asset disposals, net

 

954

   

1,237

 

  Non-cash lease expense

 

732

   

1,181

 

  Change in operating lease liabilities

 

(152)

   

 

  Other adjustments

 

112

   

(26)

 

  Changes in operating assets and liabilities:

       

 Operating assets

 

426

   

1,872

 

 Operating liabilities

 

19,157

   

9,187

 

Net cash provided by operating activities

 

70,478

   

52,564

 

CASH FLOWS FROM INVESTING ACTIVITIES:

       

  Purchases of property and equipment

 

(18,372)

   

(18,060)

 

  Development of internal use software

 

(282)

   

(515)

 

  Proceeds from sale of property and equipment

 

21

   

158

 

Net cash used in investing activities

 

(18,633)

   

(18,417)

 

CASH FLOWS FROM FINANCING ACTIVITIES:

       

  Repayments on senior term loan

 

(1,900)

   

(1,900)

 

  Other financing activities

 

(971)

   

(833)

 

Net cash used in financing activities

 

(2,871)

   

(2,733)

 

Effect of foreign exchange rate changes on cash

 

1

   

46

 

Change in cash, cash equivalents and restricted cash

 

48,975

   

31,460

 

Cash, cash equivalents and restricted cash at beginning of period

 

63,321

   

67,312

 

Cash, cash equivalents and restricted cash at end of period

 

$

112,296

   

$

98,772

 

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 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

   

March 31, 
2019

 

April 1,
2018

         

Total revenues

 

$

273,312

 

$

254,904

Net income as reported

 

$

21,246

 

$

12,223

Interest expense

 

19,808

 

18,557

Income tax expense

 

7,178

 

3,933

Depreciation and amortization

 

24,334

 

26,572

EBITDA

 

72,566

 

61,285

Loss on asset disposals, net

 

954

 

1,237

Unrealized (gain) loss on foreign exchange

 

(342)

 

356

Non-cash stock-based compensation

 

1,162

 

64

Rent expense book to cash

 

732

 

2,174

Franchise revenue, net cash received

 

698

 

421

Venue pre-opening costs

 

65

 

23

One-time and unusual items

 

300

 

762

Adjusted EBITDA

 

$

76,135

 

$

66,322

Adjusted EBITDA Margin

 

27.9%

 

26.0%

Contacts:

Liz DiTrapano, ICR
Media Inquiries:
(646) 277-1226
Liz.DiTrapano@icrinc.com

Jim Howell
Investor Inquiries
EVP & CFO
CEC Entertainment, Inc.
(972) 258-4525
jhowell@cecentertainment.com

Raphael Gross, ICR
Investor Inquiries
(203) 682-8253
Raphael.Gross@icrinc.com

SOURCE CEC Entertainment, Inc.

###

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