Carrols Restaurant Group, Inc.
Nov 5, 2014

Carrols Restaurant Group, Inc. Reports Financial Results for the Third Quarter of 2014; Completes Acquisition of 64 Burger King® Restaurants

SYRACUSE, N.Y.--(BUSINESS WIRE)-- Carrols Restaurant Group, Inc. ("Carrols" or the "Company") (Nasdaq:TAST) today announced financial results for the third quarter ended September 28, 2014.

The Company also announced that on November 4, 2014 it completed the previously announced acquisition of 64 BURGER KING® restaurants from certain subsidiaries of Heartland Food LLC. The acquired restaurants are located in or around Nashville, TN (27 restaurants), Springfield, IL (11 restaurants), Terre Haute, IN (15 restaurants), Evansville, IN (7 restaurants), and other nearby markets (4 restaurants). This expands the Company's operations into a number of new markets including two additional states.

Highlights for the third quarter of 2014 versus the third quarter of 2013 include:

As of September 28, 2014, Carrols owned and operated 581 BURGER KING® restaurants.

Daniel T. Accordino, the Company's Chief Executive Officer said, "Sales trends improved in the third quarter of 2014 as we posted a solid 3.3% increase in comparable restaurant sales; our best quarter in almost two years. This reflected continued traction from the 2 for $5 menu promotions and success of the limited-time return and promotion of Chicken Fries. Despite the headwind from a 32% increase in beef costs from the third quarter of 2013, we also increased Restaurant-Level EBITDA, Restaurant-Level EBITDA Margin and Adjusted EBITDA due to operational improvements made over the past year at the restaurants acquired from Burger King Corporation in 2012. We are further encouraged by robust October sales trends from our recent $1.49 Chicken Nuggets promotion."

Accordino continued, "We have aggressively expanded our ownership of BURGER KING® restaurants over the past few months. Inclusive of our 64 restaurant acquisition completed yesterday, we have acquired a total of 123 restaurants since the end of April 2014 and are now operating 675 BURGER KING® restaurants across 15 states. Our near-term attention will turn to the integration of these recently acquired restaurants as we implement our operating systems and focus on improving the operating and financial performance of these restaurants. We believe that there will continue to be opportunities to acquire additional restaurants in the future as we execute on our longer-term growth plan."

Third Quarter 2014 Financial Results

Restaurant sales increased 6.8% to $179.8 million in the third quarter of 2014 compared to $168.3 million in the third quarter of 2013. The growth in restaurant sales included $7.8 million in sales from the 29 BURGER KING® restaurants that were acquired in 2014 through the end of the third quarter along with a comparable restaurant sales increase of 3.3%. The comparable restaurant sales increase included a 2.7% increase at legacy restaurants and a 4.0% increase at the restaurants acquired from BKC in 2012. Average check was 8.0% higher while customer traffic declined 4.7%. Guest traffic was lower in part due to fewer low-price promotions compared to the third quarter of 2013, and the absence of similar tactics this year increased the average check.

Restaurant-Level EBITDA increased 10.2%, or $1.9 million, to $20.5 million in the third quarter of 2014, including a $0.8 million contribution from restaurants acquired in 2014, compared to Restaurant-Level EBITDA of $18.6 million in the prior year period. Restaurant-Level EBITDA margin increased 34 basis points to 11.4% of restaurant sales as a 223 basis point improvement at the restaurants acquired in 2012 offset a 109 basis point decline at the Company's legacy restaurants. This overall improvement in Restaurant-Level EBITDA margin was despite an approximate 200 basis point negative impact from a 32% increase in beef costs during the same period.

General and administrative expenses were $10.0 million in the third quarter of 2014 (5.6% of restaurant sales) compared to $8.7 million in the third quarter of 2013 (5.2% of restaurant sales). Such expenses in the third quarter of 2014 included $0.4 million in acquisition and integration costs.

Adjusted EBITDA increased 9.9%, or $1.0 million, to $11.1 million from $10.1 million in the third quarter of 2013, and Adjusted EBITDA margin increased to 6.2% of restaurant sales during the third quarter of 2014 compared to 6.0% in the prior year period.

Interest expense was flat at $4.7 million in the third quarter of 2014 compared to the prior year period.

The net loss in the third quarter of 2014 was $1.7 million, or $0.05 per diluted share, including acquisition and integration costs and impairment and other lease charges of $1.2 million, or $0.02 per diluted share after tax. The effective tax benefit in the third quarter of 2014 included a benefit of $1.2 million, or $0.03 per share, for additional 2013 Work Opportunity Tax Credits (WOTC) not approved until 2014 due to a lag in certification by the respective state agencies. Net loss in the third quarter of 2013 was $2.8 million, or $0.12 per diluted share, including impairment and other lease charges of $1.1 million, or $0.03 per diluted share after tax.

Acquisition Summary

To date in 2014, the Company has acquired 123 BURGER KING® restaurants as summarized below:

As of November 5, 2014, Carrols owned and operated 675 BURGER KING® restaurants.

2014 Guidance

The Company has updated its 2014 guidance as follows:

Accordino concluded, "We expect overall sales trends for 2014 to be better than our previous estimates. Our updated guidance also reflects the additional restaurants that we've acquired this year along with the impact of persistently higher beef costs and increased promotional activity in the fourth quarter. We also continue to move forward with our aggressive remodeling program, and expect to complete 100 to 110 remodels in 2014. We anticipate that approximately 300 to 310 of our restaurants will have been updated to Burger King Corporation's 20/20 restaurant image by year-end."

Conference Call Today

Daniel T. Accordino, Chief Executive Officer, and Paul Flanders, Chief Financial Officer, will host a conference call to discuss third quarter 2014 financial results today at 8:30 AM ET.

The conference call can be accessed live over the phone by dialing 888-401-4669 or for international callers by dialing 719-457-2661. A replay will be available one hour after the call and can be accessed by dialing 888-203-1112 or for international callers by dialing 719-457-0820; the passcode is 1875322. The replay will be available until Wednesday, November 12, 2014. Investors and interested parties may listen to a webcast of this conference call by visiting www.carrols.com under the tab "Investor Relations".

About the Company

Carrols Restaurant Group, Inc. is the largest BURGER KING® franchisee in the world with 675 restaurants as of November 5, 2014 and has operated BURGER KING® restaurants since 1976. For more information on Carrols, please visit the company's website at www.carrols.com.

Forward-Looking Statements

Except for the historical information contained in this news release, the matters addressed are forward-looking statements. Forward-looking statements, written, oral or otherwise made, represent Carrols' expectation or belief concerning future events. Without limiting the foregoing, these statements are often identified by the words "may", "might", "believes", "thinks", "anticipates", "plans", "expects", "intends" or similar expressions. In addition, expressions of our strategies, intentions or plans are also forward-looking statements. Such statements reflect management's current views with respect to future events and are subject to risks and uncertainties, both known and unknown. You are cautioned not to place undue reliance on these forward-looking statements as there are important factors that could cause actual results to differ materially from those in forward-looking statements, many of which are beyond our control. Investors are referred to the full discussion of risks and uncertainties as included in Carrols' filings with the Securities and Exchange Commission.

Carrols Restaurant Group, Inc.

Consolidated Statements of Operations

(in thousands except per share amounts)

   
(unaudited) (unaudited)
Three Months Ended (a) Nine Months Ended (a)

September 28,
2014

 

September 29,
2013

September 28,
2014

 

September 29,
2013

Restaurant sales $ 179,822 $ 168,312 $ 499,858 $ 497,969
Costs and expenses:
Cost of sales 55,169 51,125 148,606 152,626
Restaurant wages and related expenses 56,023 52,395 159,764 156,727
Restaurant rent expense 12,205 11,779 35,269 35,357
Other restaurant operating expenses 29,179 26,973 82,264 80,756
Advertising expense 6,794 7,476 20,621 22,496
General and administrative expenses (b) 10,031 8,740 28,923 27,342
Depreciation and amortization 9,318 8,536 27,121 24,990
Impairment and other lease charges 773 1,079 1,822 3,907
Other income     25   (185 )
Total costs and expenses 179,492   168,103   504,415   504,016  
Income (loss) from operations 330 209 (4,557 ) (6,047 )
Interest expense 4,683   4,708   14,080   14,130  
Loss before income taxes (4,353 ) (4,499 ) (18,637 ) (20,177 )
Benefit for income taxes (2,632 ) (1,737 ) (7,555 ) (8,720 )
Net loss $ (1,721 ) $ (2,762 ) $ (11,082 ) $ (11,457 )
 
Basic and diluted net loss per share $ (0.05 ) $ (0.12 ) $ (0.37 ) $ (0.50 )
Basic and diluted weighted average common shares outstanding (c) 34,797 23,021 29,572 22,930

(a)

 

The Company uses a 52 or 53 week fiscal year that ends on the Sunday closest to December 31. The three and nine months ended September 28, 2014 and September 29, 2013 each included thirteen and thirty-nine weeks, respectively.

 

(b)

General and administrative expenses include stock-based compensation expense of $296 and $302 for the three months ended September 28, 2014 and September 29, 2013, respectively, and $883 and $899 for the nine months ended September 28, 2014 and September 29, 2013, respectively. General and administrative expenses for the nine months ended September 29, 2013 included $85 of costs related to the Company's litigation with the EEOC that was settled in January 2013.

 

(c)

Shares issuable for convertible preferred stock and non-vested restricted stock were not included in the computation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented.

Carrols Restaurant Group, Inc.
Supplemental Information

The following table sets forth certain unaudited supplemental financial and other data for the periods indicated (in thousands, except number of restaurants, percentages and average weekly sales per restaurant):

(unaudited)   (unaudited)
Three Months Ended (a) Nine Months Ended (a)

September 28,
2014

 

September 29,
2013

September 28,
2014

 

September 29,
2013

Restaurant Sales: (a)
Legacy restaurants $ 96,861 $ 94,307 $ 274,394 $ 275,383
Restaurants acquired in 2012 75,180 74,005 216,880 222,586
Restaurants acquired in 2014 7,781     8,584    
Total restaurant sales $ 179,822   $ 168,312   $ 499,858   $ 497,969  
Change in Comparable Restaurant Sales (b) 3.3 % 0.4 % (0.4 )% 0.7 %
 
Average Weekly Sales per Restaurant: (c)
Legacy restaurants 25,799 25,069 24,317 24,222
Restaurants acquired in 2012 22,039 21,008 20,989 20,901
Restaurants acquired in 2014 26,695 26,502
 
Restaurant-Level EBITDA: (d)
Legacy restaurants 13,630 14,295 36,356 38,692
Restaurants acquired in 2012 6,014 4,269 16,136 11,315
Restaurants acquired in 2014 808     842    
Total restaurant-Level EBITDA 20,452 18,564 53,334 50,007
 
Restaurant-Level EBITDA margin: (d)
Legacy restaurants 14.1 % 15.2 % 13.2 % 14.1 %
Restaurants acquired in 2012 8.0 % 5.8 % 7.4 % 5.1 %
Restaurants acquired in 2014 10.4 %       9.8 %      
Restaurant-Level EBITDA Margin 11.4 % 11.0 % 10.7 % 10.0 %
 
Adjusted EBITDA (d) 11,129 10,126 25,955 23,834
Adjusted EBITDA margin (d) 6.2 % 6.0 % 5.2 % 4.8 %
 
Number of Company-Owned Restaurants:
Restaurants at beginning of period 560 566 564 572
New restaurants 1
Acquired restaurants 25 29
Closed restaurants (4

)

 

(2

)

 

(13

)

 

(8

)

 

Restaurants at end of period 581   564   581   564  
                                                            At 9/28/2014       At 12/29/2013
Long-term debt (e) $ 158,730 $ 160,536
Cash (including $20 million of restricted cash) 63,309 28,302

(a)

 

Restaurants acquired in 2012 represent the restaurants acquired from Burger King Corporation on May 30, 2012. Legacy restaurants refer to the Company's Burger King restaurants owned prior to 2012. Restaurants acquired in 2014 represent the 29 restaurants acquired in 2014.

 

(b)

Restaurants are generally included in comparable restaurant sales after they have been open or owned by the Company for 12 months.

 

(c)

Average weekly restaurant sales are derived by dividing restaurant sales by the average number of restaurants operating during the period.

 

(d)

EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Restaurant-Level EBITDA, and Restaurant-Level EBITDA margin are non-GAAP financial measures and may not necessarily be comparable to other similarly titled captions of other companies due to differences in methods of calculation. Refer to the Company's reconciliation of EBITDA and Adjusted EBITDA to net loss and to the Company's reconciliation of Restaurant-Level EBITDA to income (loss) from operations for further detail. Both Adjusted EBITDA margin and Restaurant-Level EBITDA margin are calculated as a percentage of restaurant sales for the respective group of restaurants.

 

(e)

Long-term debt (including current portion) at September 28, 2014 included $150,000 of the Company's 11.25% Senior Secured Second Lien Notes, $1,201 of lease financing obligations and $7,529 of capital lease obligations. Long-term debt (including current portion) at December 29, 2013 included $150,000 of the Company's 11.25% Senior Secured Second Lien Notes, $1,200 of lease financing obligations and $9,336 of capital lease obligations.

Carrols Restaurant Group, Inc.

Reconciliation of Non-GAAP Measures

 
(unaudited) (unaudited)
Three Months Ended (a) Nine Months Ended (a)

September 28,
2014

 

September 29,
2013

September 28,
2014

 

September 29,
2013

Reconciliation of EBITDA and Adjusted EBITDA: (a)
Net loss $ (1,721 ) $ (2,762 ) $ (11,082 ) $ (11,457 )
Benefit for income taxes (2,632 ) (1,737 ) (7,555 ) (8,720 )
Interest expense 4,683 4,708 14,080 14,130
Depreciation and amortization 9,318   8,536   27,121   24,990  
EBITDA 9,648 8,745 22,564 18,943
Impairment and other lease charges 773 1,079 1,822 3,907
Acquisition and integration costs 412 686
EEOC litigation and settlement costs 85
Stock compensation expense 296   302   883   899  
Adjusted EBITDA $ 11,129   $ 10,126   $ 25,955   $ 23,834  
 
Reconciliation of Restaurant-Level EBITDA: (a)
Restaurant-Level EBITDA (a) $ 20,452 $ 18,564 $ 53,334 $ 50,007
Less:
General and administrative expenses 10,031 8,740 28,923 27,342
Depreciation and amortization 9,318 8,536 27,121 24,990
Impairment and other lease charges 773 1,079 1,822 3,907
Other expense (income)     25   (185 )
Income (loss) from operations $ 330   $ 209   $ (4,557 ) $ (6,047 )

(a)

 

Within our press release, we make reference to EBITDA, Adjusted EBITDA and Restaurant-Level EBITDA which are non-GAAP financial measures. EBITDA represents net income (loss) from operations, before benefit for income taxes, interest expense and depreciation and amortization. Adjusted EBITDA represents EBITDA as adjusted to exclude impairment and other lease charges, acquisition and integration costs, EEOC litigation and settlement costs and stock compensation expense. Restaurant-Level EBITDA represents income (loss) from operations before general and administrative expenses, depreciation and amortization, impairment and other lease charges, and other income and expense.

 

We are presenting Adjusted EBITDA and Restaurant-Level EBITDA because we believe that they provide a more meaningful comparison than EBITDA of the Company's core business operating results, as well as with those of other similar companies. Additionally, we present Restaurant-Level EBITDA because it excludes the impact of general and administrative expenses and other income and expense which are not directly related to restaurant operations. Management believes that Adjusted EBITDA and Restaurant-Level EBITDA, when viewed with the Company's results of operations in accordance with GAAP and the accompanying reconciliations in the table above, provide useful information about operating performance and period-over-period growth, and provide additional information that is useful for evaluating the operating performance of the Company's core business without regard to potential distortions. Additionally, management believes that Adjusted EBITDA and Restaurant-Level EBITDA permit investors to gain an understanding of the factors and trends affecting our ongoing cash earnings, from which capital investments are made and debt is serviced.

 
However, EBITDA, Adjusted EBITDA and Restaurant-Level EBITDA are not measures of financial performance or liquidity under GAAP and, accordingly, should not be considered as alternatives to net loss, income (loss) from operations or cash flow from operating activities as indicators of operating performance or liquidity. Also, these measures may not be comparable to similarly titled captions of other companies. The tables above provide reconciliations between net loss and EBITDA and Adjusted EBITDA and between Restaurant-Level EBITDA and income (loss) from operations.

Investor Relations:
800-348-1074, ext. 3333
investorrelations@carrols.com

Source: Carrols Restaurant Group, Inc.

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