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

Date : 11/08/2018 @ 8:54PM
Source : PR Newswire (US)

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

IRVING, Texas, Nov. 8, 2018 /PRNewswire/ -- CEC Entertainment, Inc. (the "Company") today announced financial results for its third quarter ended September 30, 2018.

Third quarter Results (1)

Comparable venue sales increased 2.2% in the third quarter of 2018 compared to the third quarter of 2017, and total revenues increased $7.6 million or 3.6% to $220.9 million in the third quarter. The increase in comparable venue sales was offset by a $1.5 million decrease in revenue due to temporary store closures and a net reduction of four Company-operated venues.

The Company reported a net loss of $9.5 million for the third quarter of 2018, compared to a net loss of $11.1 million for the third quarter of 2017. The net loss was positively impacted by the increase in Company-operated venue sales, a reduction in overhead expenses as a result of savings initiatives and cost reduction efforts, and lower marketing expenses. These favorable impacts were partially offset by higher labor expenses from wage inflation and increased merchandise costs related to the national launch of All You Can Play and "More Tickets" in the third quarter of 2018. Additionally, the net loss was impacted by a $5.3 million impairment charge related to some of our less profitable locations and a $1.6 million increase in interest expense driven by the impact of the increase in LIBOR rates on our variable rate debt.

"We were encouraged to be able to increase comparable venue sales for the second consecutive quarter," said Tom Leverton, Chief Executive Officer. "We are focused on continuing the positive comparable venue sales growth momentum while driving profitability.  We were excited by the positive impact of the new All You Can Play game packages and More Tickets Per Play initiatives we launched nationally in the third quarter, and we are optimistic about additional planned initiatives and tests to drive even more improvements to the business."

Adjusted EBITDA(1) for the third quarter of 2018 was $38.5 million, an increase of $4.0 million from the third quarter of 2017.

Balance Sheet and Liquidity

As of September 30, 2018, the Company had cash and cash equivalents of $84.4 million with net availability of $141.0 million on the undrawn revolving credit facility. There is $980.8 million principal outstanding on the Company's long-term debt.

During the third quarter of 2018, the Company made $19.3 million of capital expenditures, of which $10.4 million related to growth initiatives, $1.1 million related to IT initiatives, and $7.8 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 September 30, 2018, the Company's system-wide portfolio consisted of:



Chuck E. Cheese's


Peter Piper Pizza


Total

Company operated


516


41


557

Domestic franchised


26


61


87

International franchised


65


45


110

Total


607


147


754

Conference Call Information:

The Company will host a conference call beginning at 9:00 a.m. Central Time on Friday, November 9, 2018. The call can be accessed by dialing (855) 743-8451 or (330) 968-0151 for international participants and conference code 4191749.

A replay of the call will be available from 12:00 p.m. Central Time on November 9, 2018 through 10:59 p.m. Central Time on November 21, 2018. The replay of the call can be accessed by dialing (800) 585-8367 or (404) 537-3406 for international participants and conference code 4191749.

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, 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 $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 a food first, parent friendly experience that reconnects family and friends. As of September 30, 2018, the Company and its franchisees operated a system of 607 Chuck E. Cheese's and 147 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                     

Erin Gordon

EVP & CFO                        

Current Marketing

CEC Entertainment, Inc.         

(312) 929-0514

(972) 258-4525      

egordon@talktocurrent.com

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 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


Nine Months Ended


September 30,

 2018


October 1,

 2017


September 30,

 2018


October 1,

 2017

REVENUES:
















Food and beverage sales

$

94,023


42.6%


$

98,255


46.1%


$

308,658


44.5%


$

320,085


46.4%

Entertainment and merchandise sales

121,611


55.0%


110,633


51.9%


368,633


53.2%


356,274


51.6%

Total company venue sales

215,634


97.6%


208,888


97.9%


677,291


97.7%


676,359


98.0%

Franchise fees and royalties

5,311


2.4%


4,459


2.1%


15,917


2.3%


13,731


2.0%

Total revenues

220,945


100.0%


213,347


100.0%


693,208


100.0%


690,090


100.0%

OPERATING COSTS AND EXPENSES:
















Company venue operating costs (excluding Depreciation and amortization):
















Cost of food and beverage (1)

22,520


24.0%


23,974


24.4%


72,774


23.6%


75,014


23.4%

Cost of entertainment and merchandise (2)

9,874


8.1%


7,430


6.7%


27,676


7.5%


22,771


6.4%

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

32,394


15.0%


31,404


15.0%


100,450


14.8%


97,785


14.5%

Labor expenses (3)

65,028


30.2%


61,220


29.3%


194,994


28.8%


187,958


27.8%

Rent expense (3)

23,851


11.1%


24,259


11.6%


72,615


10.7%


71,484


10.6%

Other venue operating expenses (3)

38,232


17.7%


40,561


19.4%


113,363


16.7%


113,277


16.7%

Total company venue operating costs (3)

159,505


74.0%


157,444


75.4%


481,422


71.1%


470,504


69.6%

Other costs and expenses:
















Advertising expense

11,058


5.0%


12,083


5.7%


38,010


5.5%


37,702


5.5%

General and administrative expenses

13,193


6.0%


13,575


6.4%


39,519


5.7%


42,665


6.2%

Depreciation and amortization

24,739


11.2%


27,136


12.7%


76,804


11.1%


83,064


12.0%

Transaction, severance and related litigation costs

(263)


(0.1)%


128


0.1%


463


0.1%


698


0.1%

Asset impairments

5,344


2.4%


1,843


0.9%


6,935


1.0%


1,843


0.3%

Total operating costs and expenses

213,576


96.7%


212,209


99.5%


643,153


92.8%


636,476


92.2%

Operating income

7,369


3.3%


1,138


0.5%


50,055


7.2%


53,614


7.8%

Interest expense

19,069


8.6%


17,451


8.2%


56,740


8.2%


51,574


7.5%

Income (loss) before income taxes

(11,700)


(5.3)%


(16,313)


(7.6)%


(6,685)


(1.0)%


2,040


0.3%

Income tax expense (benefit)

(2,213)


(1.0)%


(5,221)


(2.4)%


(454)


(0.1)%


1,840


0.3%

Net income (loss)

$

(9,487)


(4.3)%


$

(11,092)


(5.2)%


$

(6,231)


(0.9)%


$

200


—%






















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)






September 30,
2018


December 31,
2017


ASSETS






Current assets:






Cash and cash equivalents


$

84,429


$

67,200


Restricted cash


23


112


Other current assets


75,295


73,419


Total current assets


159,747


140,731


Property and equipment, net


542,896


570,021


Goodwill


484,438


484,438


Intangible assets, net


477,872


480,377


Other noncurrent assets


21,104


19,477


Total assets


$

1,686,057


$

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


100,248


102,689


Total current liabilities


107,848


110,289


Capital lease obligations, less current portion


12,528


13,010


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

current portion


962,402


965,213


Deferred tax liability


110,921


114,186


Other noncurrent liabilities


236,136


230,198


Total liabilities


1,429,835


1,432,896


Stockholder's equity:






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

September 30, 2018 and December 31, 2017




Capital in excess of par value


359,411


359,233


Accumulated deficit


(101,430)


(95,199)


Accumulated other comprehensive loss


(1,759)


(1,886)


Total stockholder's equity


256,222


262,148


Total liabilities and stockholder's equity


$

1,686,057


$

1,695,044


 

CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)




Nine Months Ended



September 30,
2018


October 1,
2017

CASH FLOWS FROM OPERATING ACTIVITIES:


Net income (loss)


$

(6,231)


$

200

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





  Depreciation and amortization


76,804


83,064

  Asset impairments


6,935


1,843

 Deferred income taxes


(3,314)


(5,220)

  Stock-based compensation expense


169


520

  Amortization of lease related liabilities


(749)


(411)

  Amortization of original issue discount and deferred debt financing   costs


3,284


3,410

  Loss on asset disposals, net


2,551


5,457

  Non-cash rent expense


4,109


3,562

  Other adjustments


531


18

Changes in operating assets and liabilities:





Operating assets


(1,547)


(626)

Operating liabilities


(67)


2,374

Net cash provided by operating activities


82,475


94,191

CASH FLOWS FROM INVESTING ACTIVITIES:





Purchases of property and equipment


(55,202)


(71,910)

Development of internal use software


(1,992)


(2,520)

Proceeds from sale of property and equipment


464


424

Net cash used in investing activities


(56,730)


(74,006)

CASH FLOWS FROM FINANCING ACTIVITIES:





Repayments on senior term loan


(5,700)


(5,700)

Proceeds from sale leaseback transaction



4,073

Other financing activities


(2,956)


(695)

Net cash used in financing activities


(8,656)


(2,322)

Effect of foreign exchange rate changes on cash


51


492

Change in cash, cash equivalents and restricted cash


17,140


18,355

Cash, cash equivalents and restricted cash at beginning of period


67,312


61,291

Cash, cash equivalents and restricted cash at end of period


$

84,452


$

79,646

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


 

Nine Months Ended



September 30,
2018


October 1,
2017


September 30,
2018


October 1,
2017









Total revenues

$

220,945


$

213,347


$

693,208


$

690,090


Net income (loss) as reported

$

(9,487)


$

(11,092)


$

(6,231)


$

200


Interest expense

19,069


17,451


56,740


51,574


Income tax expense (benefit)

(2,213)


(5,221)


(454)


1,840


Depreciation and amortization

24,739


27,136


76,804


83,064


Asset impairments

5,344


1,843


6,935


1,843


Loss on asset disposals, net

513


1,741


2,551


5,457


Unrealized loss (gain) on foreign exchange

(412)



283



Non-cash stock-based compensation

(58)


184


169


520


Rent expense book to cash

945


1,192


5,133


4,028


Franchise revenue, net cash received

(30)



712


(344)


Impact of purchase accounting




785


Venue pre-opening costs

81


155


105


643


One-time and unusual items

44


1,167


1,511


4,379


Adjusted EBITDA

$

38,535


$

34,556


$

144,258


$

153,989


Adjusted EBITDA Margin

17.4%


16.2%


20.8%


22.3%

















 

Cision View original content:http://www.prnewswire.com/news-releases/cec-entertainment-inc-reports-financial-results-for-the-2018-third-quarter-300747290.html

SOURCE CEC Entertainment, Inc.

Copyright 2018 PR Newswire

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