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

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

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

Second quarter Results (1)

Comparable venue sales increased 1% in the second quarter of 2018 compared to the second quarter of 2017, and total revenues increased $5.6 million to $217.4 million in the second quarter. Revenue would have increased only $1.0 million after adjusting for $4.6 million less deferred amusement revenue compared to the second quarter of 2017. Deferred amusement revenue has no impact on comparable venue sales.

The Company reported a net loss of $9.0 million for the second quarter of 2018, compared to a net loss of $5.9 million for the second quarter of 2017. Adjusted EBITDA during the second quarter of 2018 was $34.2 million, a decrease of $6.1 million from the second quarter of 2017.

Contributing to the change in the net loss and Adjusted EBITDA were increased operating costs, including a $2.3 million increase in labor from wage inflation, approximately $0.6 million in increased liability insurance expenses and increased merchandise costs resulting from our All You Can Play and more tickets tests. Additionally, the net loss was impacted by a $1.5 million impairment charge related to the closure of one of our locations and a $2.1 million increase in interest expense, partially offset by decreased general and administrative expenses.

"While we continued to feel the impact of several challenges to our business in the second quarter, we were encouraged to be able to increase comparable venue sales," said Tom Leverton, Chief Executive Officer. "We were excited by the impact of several of our tests, including All You Can Play game packages, and therefore on July 9th we launched All You Can Play nationwide. While All You Can Play has raised the excitement level throughout all our venues, we continue to push forward with other initiatives that are under testing."

Balance Sheet and Liquidity

As of July 1, 2018, the Company had cash and cash equivalents of $88.9 million and $982.7 million principal outstanding on its debt, with net availability of $141.0 million on the undrawn revolving credit facility. During the second quarter of 2018, the Company extended the maturity of $95.0 million of its revolving credit facility through November 16, 2020. The maturity date of the revolving credit facility that was not extended remains February 14, 2019.

During the second quarter of 2018, the Company made $19.3 million of capital expenditures, of which $5.5 million related to growth initiatives, $0.7 million related to IT initiatives, and $13.1 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 July 1, 2018, the Company's system-wide portfolio consisted of:



Chuck E. Cheese's


Peter Piper Pizza


Total

Company operated


518


41


559

Domestic franchised


26


59


85

International franchised


64


47


111

Total


608


147


755

Conference Call Information:

The Company will host a conference call beginning at 9:00 a.m. Central Time on Friday, August 10, 2018. The call can be accessed by dialing (855) 743-8451 or (330) 968-0151 for international participants and conference code 1289744.

A replay of the call will be available from 12:00 p.m. Central Time on August 10, 2018 through 10:59 p.m. Central Time on August 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 1289744.

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. As of July 1, 2018, the Company and its franchisees operated a system of 608 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.

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


Six Months Ended


July 1, 2018


July 2, 2017


July 1, 2018


July 2, 2017

REVENUES:
















Food and beverage sales

$

96,258


44.3%


$

97,411


46.0%


$

214,635


45.4%


$

221,830


46.5%

Entertainment and merchandise sales

115,904


53.3%


109,724


51.8%


247,021


52.3%


245,641


51.5%

Total company venue sales

212,162


97.6%


207,135


97.8%


461,656


97.8%


467,471


98.1%

Franchise fees and royalties

5,196


2.4%


4,649


2.2%


10,606


2.2%


9,272


1.9%

Total revenues

217,358


100.0%


211,784


100.0%


472,262


100.0%


476,743


100.0%

OPERATING COSTS AND EXPENSES:
















Company venue operating costs (excluding Depreciation and amortization):
















Cost of food and beverage  (1)

22,894


23.8%


22,823


23.4%


50,254


23.4%


51,040


23.0%

Cost of entertainment and merchandise  (2)

8,421


7.3%


6,854


6.2%


17,802


7.2%


15,341


6.2%

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

31,315


14.8%


29,677


14.3%


68,056


14.7%


66,381


14.2%

Labor expenses (3)

62,618


29.5%


60,351


29.1%


129,966


28.2%


126,738


27.1%

Rent expense (3)

24,714


11.6%


23,906


11.5%


48,764


10.6%


47,225


10.1%

Other venue operating expenses (3)

37,069


17.5%


35,967


17.4%


75,132


16.3%


72,716


15.6%

Total company venue operating costs (3)

155,716


73.4%


149,901


72.4%


321,918


69.7%


313,060


67.0%

Other costs and expenses:
















Advertising expense

12,977


6.0%


12,237


5.8%


26,952


5.7%


25,619


5.4%

General and administrative expenses

13,416


6.2%


13,719


6.5%


26,235


5.6%


29,090


6.1%

Depreciation and amortization

25,493


11.7%


27,623


13.0%


52,065


11.0%


55,928


11.7%

Transaction, severance and related litigation costs

191


0.1%


490


0.2%


725


0.2%


570


0.1%

Asset impairments

1,591


0.7%



—%


1,591


0.3%



—%

Total operating costs and expenses

209,384


96.3%


203,970


96.3%


429,576


91.0%


424,267


89.0%

Operating income

7,974


3.7%


7,814


3.7%


42,686


9.0%


52,476


11.0%

Interest expense

19,113


8.8%


17,061


8.1%


37,671


8.0%


34,123


7.2%

Income (loss) before income taxes

(11,139)


(5.1)%


(9,247)


(4.4)%


5,015


1.1%


18,353


3.8%

Income tax expense (benefit)

(2,174)


(1.0)%


(3,317)


(1.6)%


1,759


0.4%


7,061


1.5%

Net income (loss)

$

(8,965)


(4.1)%


$

(5,930)


(2.8)%


$

3,256


0.7%


$

11,292


2.4%


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)




July 1,

2018


December 31,
2017


ASSETS






Current assets:






Cash and cash equivalents


$

88,887


$

67,200


Restricted cash


207


112


Other current assets


73,643


73,419


Total current assets


162,737


140,731


Property and equipment, net


553,780


570,021


Goodwill


484,438


484,438


Intangible assets, net


478,682


480,377


Other noncurrent assets


18,062


19,477


Total assets


$

1,697,699


$

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


105,583


102,689


Total current liabilities


113,183


110,289


Capital lease obligations, less current portion


12,674


13,010


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


963,243


965,213


Deferred tax liability


110,672


114,186


Other noncurrent liabilities


231,990


230,198


Total liabilities


1,431,762


1,432,896


Stockholder's equity:






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




Capital in excess of par value


359,466


359,233


Accumulated deficit


(91,943)


(95,199)


Accumulated other comprehensive loss


(1,586)


(1,886)


Total stockholder's equity


265,937


262,148


Total liabilities and stockholder's equity


$

1,697,699


$

1,695,044


 

CEC ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)




Six Months Ended



July 1,
2018


July 2,
2017

CASH FLOWS FROM OPERATING ACTIVITIES:


Net income


$

3,256


$

11,292

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





  Depreciation and amortization


52,065


55,928

  Deferred income taxes


(3,626)


(3,589)

  Stock-based compensation expense


227


336

  Amortization of lease related liabilities


(508)


(237)

  Amortization of original issue discount and deferred debt financing costs


2,226


2,273

  Loss on asset disposals, net


2,038


3,716

  Asset impairments


1,591


  Non-cash rent expense


2,931


2,101

  Other adjustments


348


9

Changes in operating assets and liabilities:





Operating assets


(3,736)


(7,270)

Operating liabilities


8,213


12,043

Net cash provided by operating activities


65,025


76,602

CASH FLOWS FROM INVESTING ACTIVITIES:





Purchases of property and equipment


(36,808)


(47,045)

Development of internal use software


(1,022)


(2,075)

Proceeds from sale of property and equipment


412


237

Net cash used in investing activities


(37,418)


(48,883)

CASH FLOWS FROM FINANCING ACTIVITIES:





Repayments on senior term loan


(3,800)


(3,800)

Proceeds from sale leaseback transaction



4,073

Other financing activities


(2,074)


55

Net cash used in financing activities


(5,874)


328

Effect of foreign exchange rate changes on cash


49


239

Change in cash, cash equivalents and restricted cash


21,782


28,286

Cash, cash equivalents and restricted cash at beginning of period


67,312


61,291

Cash, cash equivalents and restricted cash at end of period


$

89,094


$

89,577

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


Six Months Ended


July 1,
2018


July 2,
2017


July 1,
2018


July 2,
2017

Total revenues

$

217,358


$

211,784


$

472,262


$

476,743

Net income (loss) as reported

$

(8,965)


$

(5,930)


$

3,256


$

11,292

Interest expense

19,113


17,061


37,671


34,123

Income tax expense (benefit)

(2,174)


(3,317)


1,759


7,061

Depreciation and amortization

25,493


27,623


52,065


55,928

Asset impairments

1,591



1,591


Loss on asset disposals, net

801


1,961


2,038


3,716

Unrealized loss on foreign exchange

339



695


Non-cash stock-based compensation

163


186


227


336

Rent expense book to cash

2,015


1,856


4,188


2,836

Franchise revenue, net cash received

322


(254)


742


(344)

Impact of purchase accounting


569



785

Venue pre-opening costs

2


248


25


488

One-time and unusual items

702


947


1,467


3,213

Change in deferred amusement revenue

(5,237)


(676)


(2,006)


4,368

Adjusted EBITDA

$

34,165


$

40,274


$

103,718


$

123,802

Adjusted EBITDA Margin

15.7%


19.0%


22.0%


26.0%

 

CEC ENTERTAINMENT, INC.

VENUE COUNT INFORMATION

(Unaudited)




Three Months Ended


Six Months Ended




July 1,
2018


July 2,
2017


July 1,
2018


July 2,
2017


Number of Company-operated venues:










Beginning of period


561


560


562


559


New



2



3


Acquired from franchisee



2



2


Closed


(2)



(3)



End of period


559


564


559


564


Number of franchised venues:










Beginning of period


195


191


192


188


New


2


4


6


7


Acquired from franchisee



(2)



(2)


Closed


(1)



(2)



End of period


196


193


196


193


Total number of venues:










Beginning of period


756


751


754


747


New


2


6


6


10


Acquired from franchisee






Closed


(3)



(5)



End of period


755


757


755


757













 

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SOURCE CEC Entertainment, Inc.

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