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CEC Entertainment, Inc. Reports Financial Results for the 2017 Third Quarter

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SOURCE CEC Entertainment, Inc.

IRVING, Texas, Nov. 9, 2017 /PRNewswire/ -- CEC Entertainment, Inc. (the "Company") today announced financial results for its third quarter ended October 1, 2017.

Third Quarter Results (1)

"Our third quarter revenues continued to be impacted by the same challenges we have faced for most of this year as we experienced traffic declines in both our walk-in business and booked birthday parties," said Tom Leverton, Chief Executive Officer. "We have taken action on several fronts, including changing our advertising approach and messaging, in order to improve traffic in future periods. In addition, we were negatively impacted by venue closures related to Hurricanes Harvey and Irma at 73 of our locations."

Total revenues decreased $14.8 million to $213.3 million during the third quarter of 2017 compared to the third quarter of 2016, primarily driven by a 6.9% decline in comparable venue sales, offset partially by new venue sales.

The Company reported a net loss of $11.1 million for the third quarter of 2017, compared to a net loss of $2.4 million for the third quarter of 2016. The decrease in the net loss was driven by the decline in Company-operated venue sales, as well as property and inventory losses incurred in connection with Hurricanes Harvey and Irma, offset by lower general and administrative expenses and lower depreciation.

During the third quarter of 2017, Adjusted EBITDA decreased $13.1 million to $38.1 million compared to the third quarter of 2016.

Balance Sheet and Liquidity

As of October 1, 2017, cash and cash equivalents were $79.4 million, and the principal outstanding on our debt was $988.4 million, with net availability of $140.1 million on our undrawn revolving credit facility. During the third quarter of 2017, we had capital expenditures of $25.3 million, of which $6.1 million related to our PlayPass initiative and another $8.0 million related to other growth initiatives. In addition, we had $1.4 million in capital expenditures related to IT initiatives, and $9.8 million related to maintenance capital expenditures, primarily 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 October 1, 2017, the Company's system-wide portfolio consisted of:



Chuck E. Cheese's


Peter Piper Pizza


Total

Company operated


523


39


562

Domestic franchised


26


61


87

International franchised


58


46


104

Total


607


146


753

Conference Call Information:

The Company will host a conference call beginning at 9:00 a.m. Central Time on Friday, November 10, 2017. The call can be accessed by dialing (855) 743-8451 or (330) 968-0151 for international participants and conference code 98534480.

A replay of the call will be available from 12:00 p.m. Central Time on November 10, 2017 through 10:30 p.m. Central Time on November 24, 2017. The replay of the call can be accessed by dialing (800) 585-8367 or (404) 537-3406 for international participants and conference code 98534480.

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, over the past 13 years Chuck E. Cheese's has donated more than $14 million to schools through its fundraising programs and supports its national charity partner, Big Brothers Big Sisters. 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. Expanding nationally, Peter Piper Pizza recently opened locations in Oklahoma, Nevada, New Mexico and Arizona featuring an all new prototype design. As of October 1, 2017, the Company and its franchisees operated a system of 607 Chuck E. Cheese's and 146 Peter Piper Pizza venues, with locations in 47 states and 13 foreign countries and territories. For more information, visit chuckecheese.com and peterpiperpizza.com.

Investor Inquiries:

Media Inquiries:

Dale R. Black 

Christelle Dupont

EVP & CFO 

Public Relations Manager

CEC Entertainment, Inc. 

CEC Entertainment, Inc.

(972) 258-4525 

(972) 258-4223

dblack@cecentertainment.com  

cdupont@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 January 1, 2017, filed with the Securities and Exchange Commission on March 16, 2017. 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 concerning food quality, health, general safety and other issues, 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 in both the restaurant and entertainment industries;
  • 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 U.S. 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 financials 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 January 1, 2017, filed with the SEC on March 16, 2017.

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


October 1, 2017


October 2, 2016


October 1, 2017


October 2, 2016

REVENUES:
















Food and beverage sales

$

98,255


46.1%


$

101,984


44.7%


$

320,085


46.4%


$

321,591


44.7%

Entertainment and merchandise sales

110,633


51.9%


121,764


53.4%


356,274


51.6%


383,978


53.4%

Total company venue sales

208,888


97.9%


223,748


98.1%


676,359


98.0%


705,569


98.1%

Franchise fees and royalties

4,459


2.1%


4,322


1.9%


13,731


2.0%


13,440


1.9%

Total revenues

213,347


100.0%


228,070


100.0%


690,090


100.0%


719,009


100.0%

OPERATING COSTS AND EXPENSES:
















Company venue operating costs:
















Cost of food and beverage (exclusive of items shown separately below) (1)

23,974


24.4%


25,507


25.0%


75,014


23.4%


80,702


25.1%

Cost of entertainment and merchandise (exclusive of items shown separately below) (2)

7,430


6.7%


8,014


6.6%


22,771


6.4%


25,004


6.5%

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

31,404


15.0%


33,521


15.0%


97,785


14.5%


105,706


15.0%

Labor expenses (3)

61,220


29.3%


61,721


27.6%


187,958


27.8%


191,170


27.1%

Depreciation and amortization (3)

25,289


12.1%


27,667


12.4%


77,492


11.5%


85,029


12.1%

Rent expense (3)

24,259


11.6%


24,120


10.8%


71,484


10.6%


72,318


10.2%

Other venue operating expenses (3)

40,561


19.4%


38,757


17.3%


113,277


16.7%


112,143


15.9%

Total company venue operating costs (3)

182,733


87.5%


185,786


83.0%


547,996


81.0%


566,366


80.3%

Other costs and expenses:
















Advertising expense

12,083


5.7%


11,515


5.0%


37,702


5.5%


36,777


5.1%

General and administrative expenses

15,422


7.2%


17,284


7.6%


48,237


7.0%


51,222


7.1%

Transaction, severance and related litigation costs

128


0.1%


166


0.1%


698


0.1%


1,349


0.2%

Asset impairments

1,843


0.9%


772


0.3%


1,843


0.3%


772


0.1%

Total operating costs and expenses

212,209


99.5%


215,523


94.5%


636,476


92.2%


656,486


91.3%

Operating income

1,138


0.5%


12,547


5.5%


53,614


7.8%


62,523


8.7%

Interest expense

17,451


8.2%


17,237


7.6%


51,574


7.5%


51,419


7.2%

Income (loss) before income taxes

(16,313)


(7.6)%


(4,690)


(2.1)%


2,040


0.3%


11,104


1.5%

Income tax expense (benefit)

(5,221)


(2.4)%


(2,286)


(1.0)%


1,840


0.3%


4,645


0.6%

Net income (loss)

$

(11,092)


(5.2)%


$

(2,404)


(1.1)%


$

200


-%


$

6,459


0.9%


























________________

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.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share information)




October 1,

2017


January 1,
 2017

ASSETS





Current assets:





Cash and cash equivalents


$

79,427


$

61,023

Other current assets


60,416


63,938

Total current assets


139,843


124,961

Property and equipment, net


582,928


592,886

Goodwill


484,438


483,876

Intangible assets, net


481,278


484,083

Other noncurrent assets


20,170


24,306

Total assets


$

1,708,657


$

1,710,112

LIABILITIES AND STOCKHOLDER'S EQUITY





Current liabilities:





Bank indebtedness and other long-term debt, current portion


$

7,600


$

7,613

Other current liabilities


100,884


102,578

Total current liabilities


108,484


110,191

Capital lease obligations, less current portion


13,162


13,602

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


965,976


968,266

Deferred tax liability


180,789


186,290

Other noncurrent liabilities


230,876


225,758

Total liabilities


1,499,287


1,504,107

Stockholder's equity:





Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of October 1, 2017 and January 1, 2017


-


-

Capital in excess of par value


359,144


357,166

Accumulated deficit


(148,065)


(148,265)

Accumulated other comprehensive loss


(1,709)


(2,896)

Total stockholder's equity


209,370


206,005

Total liabilities and stockholder's equity


$

1,708,657


$

1,710,112

 

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




Nine Months Ended



October 1,
 2017


October 2,
 2016

CASH FLOWS FROM OPERATING ACTIVITIES:


Net income


$

200


$

6,459

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





  Depreciation and amortization


83,064


90,167

  Deferred income taxes


(5,220)


(10,329)

  Stock-based compensation expense


520


522

  Amortization of lease related liabilities


(411)


(17)

  Amortization of original issue discount and deferred debt financing costs


3,410


3,410

  Loss on asset disposals, net


5,457


6,298

  Asset impairments


1,843


772

  Non-cash rent expense


3,562


5,261

  Other adjustments


18


237

Changes in operating assets and liabilities:





Operating assets


(577)


3,554

Operating liabilities


2,374


4,920

Net cash provided by operating activities


94,240


111,254

CASH FLOWS FROM INVESTING ACTIVITIES:





Purchases of property and equipment


(71,910)


(66,535)

Development of internal use software


(2,520)


(8,788)

Proceeds from sale of property and equipment


424


426

Net cash used in investing activities


(74,006)


(74,897)

CASH FLOWS FROM FINANCING ACTIVITIES:





Repayments on senior term loan


(5,700)


(5,700)

Proceeds from sale leaseback transaction


4,073


-

Other financing activities


(695)


(1,810)

Net cash used in financing activities


(2,322)


(7,510)

Effect of foreign exchange rate changes on cash


492


356

Change in cash and cash equivalents


18,404


29,203

Cash and cash equivalents at beginning of period


61,023


50,654

Cash and cash equivalents at end of period


$

79,427


$

79,857


 

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 (loss) to Adjusted EBITDA and Adjusted EBITDA Margin for the periods shown:


Three Months Ended


Nine Months Ended



October 1,
 2017


October 2,
 2016


October 1,
 2017


October 2,
 2016










Total revenues

$

213,347


$

228,070


$

690,090


$

719,009


Net income (loss) as reported

$

(11,092))


$

(2,404)


$

200


$

6,459


Interest expense

17,451


17,237


51,574


51,419


Income tax expense (benefit)

(5,221)


(2,286)


1,840


4,645


Depreciation and amortization

27,136


29,886


83,064


90,167


Asset impairments

1,843


772


1,843


772


Loss on asset disposals, net

1,741


2,225


5,457


6,298


Non-cash stock-based compensation

184


185


520


522


Rent expense book to cash

1,192


1,635


4,028


6,478


Franchise revenue, net cash received

-


(35)


(344)


127


Impact of purchase accounting

-


171


785


725


Venue pre-opening costs

155


572


643


888


One-time and unusual items

1,167


1,583


4,379


4,459


Cost savings initiatives

-


-


-


62


Change in deferred amusement revenue

3,568


1,674


7,937


2,265


Adjusted EBITDA

$

38,124


$

51,215


$

161,926


$

175,286


Adjusted EBITDA Margin

17.9%


22.5%


23.5%


24.4%
















 


CEC ENTERTAINMENT, INC.
VENUE COUNT INFORMATION
(Unaudited)






Three Months Ended


Nine Months Ended




October 1,

2017


October 2,

2016


October 1,
 2017


October 2,
 2016


Number of Company-owned venues:










Beginning of period


564


556


559


556


New


-


3


3


4


Acquired from franchisee


-


-


2


-


Closed


(2)


(2)


(2)


(3)


End of period


562


557


562


557


Number of franchised venues:










Beginning of period


193


183


188


176


New


-


2


7


11


Acquired from franchisee


-


-


(2)


-


Closed


(2)


-


(2)


(2)


End of period


191


185


191


185


Total number of venues:










Beginning of period


757


739


747


732


New


-


5


10


15


Acquired from franchisee


-


-


-


-


Closed


(4)


(2)


(4)


(5)


End of period


753


742


753


742













 

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