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

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IRVING, Texas, Feb. 21, 2019 /PRNewswire/ — CEC Entertainment, Inc. (the “Company”) today announced financial results for its fourth quarter ended December 30, 2018.

Fourth quarter Results (1)

Comparable venue sales increased 3.3% in the fourth quarter of 2018 compared to the fourth quarter of 2017, and total revenues increased $6.2 million or 3.1% to $202.9 million in the fourth quarter. The increase in comparable venue sales was offset by a $0.7 million decrease in revenue due to temporary store closures.

The Company reported a net loss of $14.2 million for the fourth quarter of 2018, compared to net income of $52.9 million for the fourth quarter of 2017. Fourth quarter 2017 net income was positively impacted by a $66.6 million adjustment to our deferred income tax liability related to the tax law changes enacted in December 2017. Before the impact of this adjustment, our fourth quarter 2017 net loss was $13.7 million, compared to our net loss of $14.2 million for the fourth quarter of 2018.  The net loss for the current quarter was positively impacted by the increase in Company-operated venue sales and lower food and beverage costs driven by the favorable impact of commodity prices and volume. These favorable impacts were 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 initiatives we launched nationally in the third quarter of 2018. Additionally, the net loss was impacted by a $2.0 million increase in interest expense driven by the impact of the increase in LIBOR rates on our variable rate debt.

“In the fourth quarter, we continued to make great progress in advancing our brand and enhancing the experience we deliver to our guests, leading to our third consecutive quarter of comparable store growth,” said Tom Leverton, Chief Executive Officer. “We are excited by the positive impact of the new All You Can Play game packages and More Tickets initiatives we launched nationally in the third quarter, and we are optimistic about our venue remodel program and additional planned initiatives and tests to drive even more improvements to the business and improve profitability.”

Adjusted EBITDA(1) for the fourth quarter of 2018 was $30.9 million, an increase of $4.1 million from the fourth quarter of 2017.

Balance Sheet and Liquidity

As of December 30, 2018, the Company had cash and cash equivalents of $63.2 million with net availability of $141.0 million on the undrawn revolving credit facility. There is $978.9 million principal outstanding on the Company’s long-term debt.

During the fourth quarter of 2018, the Company made $22.6 million of capital expenditures, of which $10.1 million related to growth initiatives, $0.9 million related to IT initiatives, and $11.6 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 30, 2018, the Company’s system-wide portfolio consisted of:



Chuck E. Cheese’s


Peter Piper Pizza


Total

Company operated


515


39


554

Domestic franchised


26


61


87

International franchised


65


44


109

Total


606


144


750

Conference Call Information:

The Company will host a conference call beginning at 9:00 a.m. Central Time on Friday, February 22, 2019. The call can be accessed by dialing (855) 743-8451 or (330) 968-0151 for international participants and conference code 8693585.

A replay of the call will be available from 12:00 p.m. Central Time on February 22, 2019 through 10:59 p.m. Central Time on March 8, 2019. The replay of the call can be accessed by dialing (800) 585-8367 or (404) 537-3406 for international participants and conference code 8693585.

About CEC Entertainment, Inc.

CEC Entertainment is 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 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’s, as many times as they want on any day, without any restrictions. 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 $16 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 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 December 30, 2018, the Company and its franchisees operated a system of 606 Chuck E. Cheese’s and 144 Peter Piper Pizza venues, with locations in 47 states and 14 foreign countries and territories. For more information, visit chuckecheese.com and peterpiperpizza.com.

Investor Inquiries:     

Media Inquiries:

Jim Howell         

Current Marketing for Chuck E. Cheese’s

EVP & CFO   

Current@cecentertainment.com

CEC Entertainment, Inc.      

(312) 935-1223

(972) 258-4525                     


jhowell@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;
  • 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 fourth-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


Twelve Months Ended


December 30,

 2018


December 31,

 2017


December 30,

 2018


December 31,

 2017

REVENUES:
















Food and beverage sales

$

88,000


43.4%


$

90,524


46.0%


$

396,658


44.3%


$

410,609


46.3%

Entertainment and merchandise sales

110,044


54.2%


102,005


51.9%


478,676


53.4%


458,279


51.7%

Total company venue sales

198,044


97.6%


192,529


97.9%


875,334


97.7%


868,888


98.0%

Franchise fees and royalties

4,815


2.4%


4,152


2.1%


20,732


2.3%


17,883


2.0%

Total revenues

202,859


100.0%


196,681


100.0%


896,066


100.0%


886,771


100.0%

OPERATING COSTS AND EXPENSES:
















Company venue operating costs (excluding Depreciation and amortization):
















Cost of food and beverage (1)

21,545


24.5%


22,555


24.9%


94,319


23.8%


97,570


23.8%

Cost of entertainment and merchandise (2)

8,975


8.2%


7,177


7.0%


36,650


7.7%


29,948


6.5%

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

30,520


15.4%


29,732


15.4%


130,969


15.0%


127,518


14.7%

Labor expenses (3)

61,333


31.0%


60,102


31.2%


256,327


29.3%


248,061


28.5%

Rent expense (3)

23,870


12.1%


24,433


12.7%


96,484


11.0%


95,917


11.0%

Other venue operating expenses (3)

36,893


18.6%


36,184


18.8%


150,255


17.2%


149,462


17.2%

Total company venue operating costs (3)

152,616


77.1%


150,451


78.1%


634,035


72.4%


620,958


71.5%

Other costs and expenses:
















Advertising expense

10,188


5.0%


10,677


5.4%


48,198


5.4%


48,379


5.5%

General and administrative expenses

15,330


7.6%


13,817


7.0%


54,850


6.1%


56,482


6.4%

Depreciation and amortization

23,916


11.8%


26,707


13.6%


100,720


11.2%


109,771


12.4%

Transaction, severance and related litigation costs

64


—%


750


0.4%


527


0.1%


1,448


0.2%

Asset impairments


—%



—%


6,935


0.8%


1,843


0.2%

Total operating costs and expenses

202,114


99.6%


202,402


102.9%


845,265


94.3%


838,881


94.6%

Operating income (loss)

745


0.4%


(5,721)


(2.9)%


50,801


5.7%


47,890


5.4%

Interest expense

19,544


9.6%


17,542


8.9%


76,283


8.5%


69,115


7.8%

Loss before income taxes

(18,799)


(9.3)%


(23,263)


(11.8)%


(25,482)


(2.8)%


(21,225)


(2.4)%

Income tax benefit

(4,567)


(2.3)%


(76,131)


(38.7)%


(5,021)


(0.6)%


(74,291)


(8.4)%

Net income (loss)

$

(14,232)


(7.0)%


$

52,868


26.9%


$

(20,461)


(2.3)%


$

53,066


6.0%

________________

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 30,

2018


December 31,

 2017


ASSETS






Current assets:






Cash and cash equivalents


$

63,170


$

67,200


Restricted cash



151



112


Other current assets


83,411


73,419


Total current assets


146,732


140,731


Property and equipment, net


539,185


570,021


Goodwill


484,438


484,438


Intangible assets, net


477,085


480,377


Other noncurrent assets


18,725


19,477


Total assets


$

1,666,165


$

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


98,981


102,689


Total current liabilities


106,581


110,289


Capital lease obligations, less current portion


12,330


13,010


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

current portion


 

961,514


 

965,213


Deferred tax liability


107,058


114,186


Other noncurrent liabilities


236,110


230,198


Total liabilities


1,423,593


1,432,896


Stockholder’s equity:






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

December 30, 2018 and December 31, 2017




Capital in excess of par value


359,571


359,233


Accumulated deficit


(115,660)


(95,199)


Accumulated other comprehensive loss


(1,339)


(1,886)


Total stockholder’s equity


242,572


262,148


Total liabilities and stockholder’s equity


$

1,666,165


$

1,695,044


CEC ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)




Twelve Months Ended



December 30,

 2018


December 31,

 2017

CASH FLOWS FROM OPERATING ACTIVITIES:


Net income (loss)


$

(20,461)


$

53,066

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





  Depreciation and amortization


100,720


109,771

  Asset impairments


6,935


1,843

 Deferred income taxes


(8,182)


(71,875)

  Stock-based compensation expense


324


606

  Amortization of lease related liabilities


(993)


(632)

 Amortization of original issue discount and deferred debt financing costs


4,344


4,546

  Loss on asset disposals, net


3,436


7,398

  Non-cash rent expense


5,372


4,884

  Other adjustments


768


322

Changes in operating assets and liabilities:





Operating assets


(7,051)


(1,600)

Operating liabilities


1,578


(4,032)

Net cash provided by operating activities


86,790


104,297

CASH FLOWS FROM INVESTING ACTIVITIES:





Purchases of property and equipment


(77,088)


(90,958)

Development of internal use software


(2,756)


(3,243)

Proceeds from sale of property and equipment


560


489

Net cash used in investing activities


(79,284)


(93,712)

CASH FLOWS FROM FINANCING ACTIVITIES:





Repayments on senior term loan


(7,600)


(7,600)

Proceeds from sale leaseback transaction



4,073

Other financing activities


(3,947)


(1,503)

Net cash used in financing activities


(11,547)


(5,030)

Effect of foreign exchange rate changes on cash


50


466

Change in cash, cash equivalents and restricted cash


(3,991)


6,021

Cash, cash equivalents and restricted cash at beginning of period


67,312


61,291

Cash, cash equivalents and restricted cash at end of period


$

63,321


$

67,312

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


Twelve Months Ended


December 30,

 2018


December 31,

 2017


December 30,

 2018


December 31,

 2017

Total revenues

$

202,859


$

196,681


$

896,066


$

886,771

Net income (loss) as reported

$

(14,232)



52,868


$

(20,461)


$

53,066

Interest expense

19,544


17,542


76,283


69,115

Income tax benefit

(4,567)


(76,131)


(5,021)


(74,291)

Depreciation and amortization

23,916


26,707


100,720


109,771

Asset impairments



6,935


1,843

Loss on asset disposals, net

885


1,941


3,436


7,398

Unrealized loss on foreign exchange

971



1,255


Non-cash stock-based compensation

155


86


324


606

Rent expense book to cash

1,848


1,627


6,982


5,655

Franchise revenue, net cash received

920


343


1,632


Impact of purchase accounting


33



817

Venue pre-opening costs

78


261


183


904

One-time and unusual items

1,390


1,539


2,898


5,916

Adjusted EBITDA

$

30,908


$

26,816


$

175,166


$

180,800

Adjusted EBITDA Margin

15.2%


13.6%


19.5%


20.4%

SOURCE CEC Entertainment, Inc.

Related Links

http://www.cecentertainment.com

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