NPC International, Inc. (the “Company” or “NPC”), today reported
results for its fourth fiscal quarter and fiscal year ended
December 30, 2014. Fiscal 2014 contained 52 weeks and Fiscal 2013
contained 53 weeks causing the prior year results to benefit from
one additional week of operations in the fourth quarter and full
year compared to the current year’s results.
FOURTH QUARTER HIGHLIGHTS:
- Pizza Hut comparable store sales
decreased (3.5)% rolling over a decrease of (5.2)% last year.
- Adjusted EBITDA (reconciliation
attached) was $22.9MM; a decline of $12.3MM or 35% from the prior
year partially due to the rollover of the additional fiscal week of
operations in fiscal 2013, which we estimate increased Adjusted
EBITDA by approximately $3.0MM in the prior year.
- The Company generated a net loss of
$0.1MM compared to net income of $5.8MM last year.
FULL YEAR RESULTS:
- Pizza Hut comparable store sales
decreased (3.7)% rolling over a decrease of (3.7)% last year.
- Adjusted EBITDA (reconciliation
attached) was $96.5MM; a decline of $35.8MM or 27% from the prior
year partially due to the rollover of the additional fiscal week of
operations in fiscal 2013.
- Net income was $1.7MM, a decrease of
$28.1MM from last year.
- Cash balances were $12.1MM.
- Our leverage ratio was 5.07X
Consolidated EBITDA, net of allowable cash balances (as defined in
our Credit Agreement).
NPC’s President and CEO Jim Schwartz said, “Our fourth quarter
results were disappointing as sales remained soft and our margins
were stressed by continued commodity pressure and significant
restaurant level training investments in our Pizza Hut business in
support of the brand’s new advertising platform and “Flavor of Now”
brand positioning.
While we continue to see a significant increase in our digital
business mix, the new positioning is not yet yielding the improved
sales results that we were anticipating. We believe that the
transition to the “Flavor of Now” positioning provides a diverse
flavor platform that better connects with millennials and provides
the brand a leveragable point of differentiation. However, there is
much work to be done to bring more awareness of the “Flavor of Now”
and we continue to work with the Pizza Hut leadership team to
increase awareness and regain top-line momentum.
Fortunately, our Wendy’s business continues to deliver
performance in line with our pre-acquisition expectations and
currently represents nearly 20% of our top-line business on a
pro-forma basis. We continue to be pleased with the assimilation
and performance of the 56-unit acquisition we completed from a
Wendy’s franchisee in North Carolina during the third quarter of
2014. We remain open to opportunistic acquisitions of additional
Wendy’s units and the related diversification it provides our
business.
Looking forward to our first quarter we are continuing to
experience soft top-line results in our Pizza Hut business.
However, we are realizing the benefit of a deflationary commodity
environment and lower energy costs, which are mitigating the
negative impact of continued soft top-line sales. Our Wendy’s
business has continued to generate top-line sales growth during the
first quarter and is experiencing expanded year-over-year margins.
On a full year basis for 2015, we currently expect to realize
commodity deflation in our Pizza Hut business of 3% to 5% which
would provide some much needed relief. We are currently expecting
manageable full year commodity inflation at Wendy’s of 2% to
3%.”
The Company is a wholly-owned subsidiary of NPC Restaurant
Holdings, LLC ("Parent"), which has guaranteed the Company's 10.50%
Senior Notes due 2020. As a result of its guaranty, Parent is
required to file reports with the Securities and Exchange
Commission which include consolidated financial statements of
Parent and its subsidiaries (including the Company). Parent's only
material asset is all of the stock of the Company. The annual
financial statements and Management’s Discussion and Analysis of
Financial Condition and Results of Operations for Parent and the
Company on a consolidated basis are set forth in Parent's Form 10-K
for the fiscal year ended December 30, 2014 which can be accessed
at www.sec.gov.
CONFERENCE CALL INFORMATION:
The Company’s fourth quarter earnings conference call will be
held Monday, March 30, 2015 at 9:00 am CT (10:00 a.m. ET). In
addition to a discussion of fourth quarter results, the call may
also include discussion of Company developments, forward-looking
information and other material information about business and
financial matters. You can access this call by dialing
888-391-6937. The international number is 716-247-5763. The access
code for the call is 97648877.
For those unable to participate live, a replay of the call will
be available until April 6, 2015 by dialing 855-859-2056 or by
dialing international at 404-537-3406. The access code for the
replay is 97648877.
A replay of the call will also be available at the Company’s
website at www.npcinternational.com.
NPC International, Inc. is the world’s largest Pizza Hut
franchisee and currently operates 1,277 Pizza Hut units in 28
states and 143 Wendy’s units in 5 states.
For more complete information regarding the Company’s
financial position and results of operations, investors are
encouraged to review the Parent’s financial statements and
Management’s Discussion and Analysis of Financial Condition and
Results of Operations, included in the Parent’s Form 10-K which can
be accessed at www.sec.gov.
“Safe Harbor” Statement under the Private Securities
Litigation Reform Act of 1995
Certain statements contained in this news release that do not
relate to historical or current facts constitute forward-looking
statements. These include statements regarding our plans and
expectations. Forward-looking statements are subject to inherent
risks and uncertainties and there can be no assurance that such
statements will prove to be correct. Actual results may vary
materially from those anticipated in such forward-looking
statements as a result of a number of factors, including lower than
anticipated consumer discretionary spending; deterioration in
general economic conditions; competition in the quick service
restaurant market; adverse changes in food, labor and other costs;
price inflation or deflation; our ability to successfully complete
acquisitions of additional restaurant units; and other factors.
These risks and other risks are described in Parent’s filings with
the Securities and Exchange Commission, including Parent's Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K. Copies of these filings may be obtained by
contacting NPC or may be accessed at www.sec.gov. All
forward-looking statements made in this news release are made as of
the date hereof. NPC does not intend to update these
forward-looking statements and undertakes no duty to any person to
provide any such update under any circumstances. Investors are
cautioned not to place undue reliance on any forward-looking
statements.
NPC INTERNATIONAL, INC.
Consolidated
Statements of Operations
(Dollars in thousands)
(Unaudited)
13 Weeks Ended 14 Weeks Ended Dec. 30,
2014 Dec. 31, 2013 Net
product sales (1) $ 285,384 100.0% $ 278,611 100.0% Fees and other
income (2) 12,755 4.5% 13,689 4.9% Total sales
298,139 104.5% 292,300 104.9% Pizza Hut comparable store
sales (net product sales only) -3.5% -5.2% Cost of sales (3)
88,356 31.0% 84,124 30.2% Direct labor (4) 85,813 30.1% 77,851
27.9% Other restaurant operating expenses (5) 95,833 33.6% 88,005
31.6% General and administrative expenses (6) 16,140 5.7% 16,066
5.8% Corporate depreciation and amortization of intangibles 5,192
1.8% 4,968 1.8% Other 151 0.0% 409 0.1% Total costs
and expenses 291,485 102.2% 271,423 97.4% Operating
income 6,654 2.3% 20,877 7.5% Interest expense (7) 10,553
3.7% 11,296 4.1% (Loss) income before income taxes (3,899)
-1.4% 9,581 3.4% Income taxes (3,827) -1.3% 3,733
1.3% Net (loss) income $ (72) -0.1% $ 5,848 2.1%
Percentages are shown as a percent of net product sales.
Capital Expenditures $ 15,560 $ 15,187 Cash
Rent Expense $ 16,664
$ 15,445
(1)
Net product sales increased 2.4% primarily due to the
incremental sales from our Wendy’s units, which contributed
$31.7MM, or 11.1% of additional net product sales during the
quarter. This increase was partially offset by the rollover of the
additional fiscal week of operations included in the prior year in
addition to a 3.5% decline in Pizza Hut comparable store sales.
(2)
Fees and other income decreased 6.8% due to the rollover of the
additional fiscal week of operations included in the prior year.
(3)
Cost of sales, as a percentage of net product sales, increased
largely due to increased ingredient costs, primarily meats and
cheese, ingredients used in training for the Flavor of Now
roll-out, and higher food costs associated with our Wendy’s
operations, partially offset by favorable product mix and
promotional activity.
(4)
Direct labor, as a percentage of net product sales, increased due
to sales deleveraging on Pizza Hut fixed and semi-fixed labor
costs, higher workers compensation expense and labor training costs
incurred in association with the Flavor of Now roll-out, partially
offset by lower labor costs associated with our Wendy’s operations.
(5)
Other restaurant operating expenses, as a percentage of net product
sales, increased due to sales deleveraging on Pizza Hut fixed
costs, increased advertising costs, increased depreciation and
increased insurance expense associated with adverse claims
development. These increases were partially offset by lower
operating expenses associated with our Wendy’s operations as
compared to our Pizza Hut operations.
(6)
General and administrative expenses increased due to field
personnel costs and credit card transaction fees attributable to
the Wendy’s units acquired in the last half of 2013 and July 2014,
partially offset by the rollover of the additional fiscal week of
operations included in the prior year, and lower incentive
compensation for our Pizza Hut operations.
(7)
Interest expense decreased largely due to the rollover of the
additional fiscal week of operations included in the prior year in
addition to a lower average borrowing rate from the refinancing
completed in December 2013, which was partially offset by higher
average borrowings used to fund the Wendy’s acquisition of 56 units
in July 2014.
NPC INTERNATIONAL, INC.
Consolidated
Statements of Operations
(Dollars in thousands)
(Unaudited)
52 Weeks Ended 53 Weeks Ended Dec. 30,
2014 Dec. 31, 2013 Net
product sales (1) $ 1,128,215 100.0% $ 1,042,033 100.0% Fees and
other income (2) 51,682 4.6% 51,999 5.0% Total sales
1,179,897 104.6% 1,094,032 105.0% Pizza Hut
comparable store sales (net product sales only) -3.7% -3.7%
Cost of sales (3) 351,504 31.2% 306,909 29.5% Direct labor (4)
334,670 29.7% 296,663 28.5% Other restaurant operating expenses (5)
374,680 33.2% 330,572 31.7% General and administrative expenses (6)
63,213 5.6% 60,224 5.8% Corporate depreciation and amortization of
intangibles 20,729 1.8% 18,588 1.8% Other 774 0.1%
1,151 0.0% Total costs and expenses 1,145,570 101.6%
1,014,107 97.3% Operating income 34,327 3.0% 79,925 7.7% Interest
expense 41,101 3.6% 42,016 4.0% (Loss) income before
income taxes (6,774) -0.6% 37,909 3.7% Income taxes (8,446)
-0.7% 8,167 0.8% Net income $ 1,672 0.1% $ 29,742
2.9% Percentages are shown as a percent of net product
sales.
Capital Expenditures $ 66,067 $
51,031 Cash Rent Expense $ 64,363
$ 55,982
(1)
Net product sales increased 8.3% primarily
due to the incremental sales from our Wendy’s units, which
contributed $134.4MM, or 11.9% of additional net product sales
during the period in addition to a 1.8% increase in equivalent
Pizza Hut units. These increases were partially offset by a 3.7%
decline in Pizza Hut comparable store sales in addition to the
rollover of the additional fiscal week of operations included in
the prior year.
(2)
Fees and other income decreased 0.6% due to the rollover of the
additional fiscal week of operations included in the prior year,
partially offset by increased delivery transactions.
(3)
Cost of sales, as a percentage of net product sales, increased
largely due to increased ingredient costs, primarily cheese and
meat, and higher food costs associated with our Wendy’s operations.
(4)
Direct labor, as a percentage of net product sales, increased due
to the deleveraging effect of negative comparable store sales on
our Pizza Hut fixed and semi-fixed labor costs, higher workers
compensation expense and an increase in delivery transaction mix,
which was partially offset by lower labor costs associated with our
Wendy’s operations.
(5)
Other restaurant operating expenses, as a percentage of net product
sales, increased due to sales deleveraging on Pizza Hut fixed
costs, higher depreciation, increased advertising expenses and
higher insurance expense associated with adverse claims
development, which was partially offset by lower operating expenses
associated with our Wendy’s operations as compared to our Pizza Hut
operations.
(6)
General and administrative expenses increased due to field
personnel costs and credit card transaction fees attributable to
the Wendy’s units acquired in the last half of 2013 and July 2014,
partially offset by a decline in incentive compensation, the
rollover of the additional fiscal week of operations included in
the prior year and training expense for our Pizza Hut operations.
(7)
Interest expense decreased largely due to the rollover of the
additional fiscal week of operations included in the prior year in
addition to a lower average borrowing rate from the refinancing
completed in December 2013, which was partially offset by higher
average borrowings used to fund the Wendy’s acquisition of 56 units
in July 2014.
Note: The explanations above are abbreviated disclosures. For
complete disclosure see Management’s Discussion and Analysis of
Financial Condition and Results of Operations in our Parent's Form
10-K filed with the SEC.
NPC INTERNATIONAL, INC.
Condensed
Consolidated Balance Sheets
(in thousands)
(Unaudited)
December 30, 2014 December 31, 2013
Assets Current assets: Cash and cash equivalents $ 12,063 $
20,035 Other current assets 49,847 37,069 Total
current assets 61,910 57,104 Facilities and equipment, net
198,122 169,950 Franchise rights, net 639,045 640,151 Other
noncurrent assets 337,278 337,907 Total assets $
1,236,355 $ 1,205,112
Liabilities and Members' Equity
Current liabilities: Other current liabilities $ 102,983 $ 101,630
Current portion of debt 4,158 3,438 Total current
liabilities 107,141 105,068 Long-term debt 591,263 561,687
Other noncurrent liabilities 270,926 273,144 Total
liabilities 969,330 939,899 Members' equity 267,025
265,213 Total liabilities and members' equity $ 1,236,355 $
1,205,112
NPC INTERNATIONAL, INC.
Condensed
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
52 Weeks Ended 53 Weeks Ended Dec. 30,
2014 Dec. 31, 2013 Operating activities Net
income $ 1,672 $ 29,742 Adjustments to reconcile net income to cash
provided by operating activities: Depreciation and amortization
65,407 55,560 Amortization of debt issuance costs 3,896 3,458
Deferred income taxes (5,876 ) 2,715 Other 105 870 Changes in
assets and liabilities, excluding acquisitions: Assets (2,462 ) 137
Liabilities 7,736 5,282 Net cash
provided by operating activities 70,478 97,764
Investing activities Capital expenditures (66,067 )
(51,031 ) Purchase of Wendy's business, net of cash acquired
(56,841 ) (55,922 ) Proceeds from sale-leaseback transactions
24,182 - Purchase of assets for sale-leaseback (1,736 ) - Proceeds
from disposition of assets 3,144 545
Net cash used in investing activities (97,318 )
(106,408 )
Financing activities Net (payments) under
revolving credit facility (7,000 ) 7,000 Payments on term bank
facilities (2,704 ) - Issuance of debt 40,000 - Debt issue costs
(693 ) (967 ) Other 140 - Payment of accrued purchase price to
sellers (10,875 ) (2,847 ) Net cash provided by
financing activities 18,868 3,186 Net
change in cash and cash equivalents (7,972 ) (5,458 ) Beginning
cash and cash equivalents 20,035 25,493
Ending cash and cash equivalents $ 12,063 $ 20,035
NPC INTERNATIONAL, INC.
Reconciliation of
Non-GAAP Financial Measures
(Dollars in thousands)
(Unaudited)
13 Weeks Ended 14 Weeks Ended 52 Weeks
Ended 53 Weeks Ended Dec. 30, 2014 Dec. 31,
2013 Dec. 30, 2014 Dec. 31, 2013 Adjusted
EBITDA: Net (loss) income $ (72 ) $ 5,848 $ 1,672 $ 29,742
Adjustments: Interest expense 10,553 11,296 41,101 42,016 Income
taxes (3,827 ) 3,733 (8,446 ) 8,167 Depreciation and amortization
17,377 15,164 65,407 55,560 Transaction costs 18 96 828 363
Pre-opening expenses and other 643 860 1,622 2,224 Development
incentives (1,760 ) (1,780 ) (5,710 )
(5,800 ) Adjusted EBITDA (1) $ 22,932 $ 35,217 $
96,474 $ 132,272 Adjusted EBITDA Margin(2) 8.0 % 12.6
% 8.6 % 12.7 %
Free Cash Flow: Net cash provided by
operating activities $ 12,753 $ 20,163 $ 70,478 $ 97,764
Adjustments: Capital expenditures (15,560 ) (15,187 )
(66,067 ) (51,031 ) Free Cash Flow (3) $ (2,807 ) $
4,976 $ 4,411 $ 46,733
Unit Count
Activity
52 Weeks Ended 53 Weeks Ended December 30,
2014 December 31, 2013 Combined
Wendy's Pizza Hut Combined
Wendy's Pizza Hut Beginning of period 1,354 91 1,263
1,227 - 1,227 Acquired 56 56 92 91 1 Developed(4) 37 1 36 49 - 49
Closed(4) (27 ) (5 ) (22 ) (14 ) - (14 ) End of period 1,420
143 1,277 1,354 91 1,263
Equivalent units(5) 1,378 116 1,262 1,259 19 1,240 (1) The
Company defines Adjusted EBITDA as consolidated net (loss) income
plus interest, income taxes, depreciation and amortization,
pre-opening expenses and certain other items that are
non-operational in nature. Management believes the elimination of
these items, as well as income taxes and certain other items of a
non-operational nature, as noted in the table above, give investors
and management useful information to compare the performance of our
core operations over different periods and to compare our operating
performance with the performance of other companies that have
different financing and capital structures or tax rates. Adjusted
EBITDA is not a measure of financial performance under GAAP.
Adjusted EBITDA has limitations as an analytical tool, and should
not be considered in isolation from, or as a substitute for
analysis of, the Company’s financial information reported under
GAAP. Adjusted EBITDA, as defined above, may not be similar to
EBITDA measures of other companies. (2) Calculated as a percentage
of net product sales. (3) The Company defines Free Cash Flow as
cash flows from operations less capital expenditures. Management
believes that the free cash flow measure is important to investors
to provide a measure of how much cash flow is available, after
current changes in working capital and acquisition of property and
equipment, to be used for working capital needs or for strategic
opportunities, including servicing debt, making acquisitions, and
making investments in the business. It should not be inferred that
the entire Free Cash Flow amount is available for discretionary
expenditures. (4) For our Pizza Hut operations, 15 units and 7
units were relocated or rebuilt and are included in both the
developed and closed total for the 52 and 53 weeks ended December
30, 2014 and December 31, 2013, respectively. For our Wendy’s
operations, 1 unit was relocated and included in both the developed
and closed total for the 52 weeks ended December 30, 2014. (5)
Equivalent units represent the number of units open at the
beginning of a given period, adjusted for units opened, closed,
acquired or sold during the period on a weighted average basis.
NPC International, Inc.Troy D. Cook,
913-327-3109Executive Vice President-Finance & Chief Financial
Officer