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Diversified Restaurant Holdings Reports Record Revenue for the 2013 First Quarter

  • Achieved record first quarter revenue of $27.1 million; up 52.6% over prior-year period
  • Achieved $4.8 million in restaurant-level EBITDA in the quarter
  • Fiscal 2013 revenue expected to be between $110.0 million and $115.0 million with restaurant-level EBITDA in the $21.0 million to $23.0 million range
  • Company expects to open eight additional locations during the year to bring its corporate-owned restaurant count up to 54

SOUTHFIELD, Mich., May 15, 2013 (GLOBE NEWSWIRE) -- Diversified Restaurant Holdings, Inc. (NASDAQ: BAGR) ("DRH" or the "Company"), the creator, developer, and operator of the unique, full-service, ultra-casual restaurant and bar Bagger Dave's Legendary Burger Tavern® ("Bagger Dave's") and one of the largest franchisees for Buffalo Wild Wings® ("BWW"), announced results for the first quarter of 2013.

First quarter revenue of $27.1 million was up $9.3 million, or 52.6%, from the first quarter of 2012. Sales growth was primarily driven by the addition of eight corporate-owned restaurants and eight acquired locations since the prior-year period. On a consolidated basis, same-store-sales were up 3.5% for the first quarter of 2013.

"Our revenue performance continues to highlight the combined impact of our growth strategy, brand acceptance, and customer experience," commented Michael Ansley, President and CEO of DRH. "During our expansion periods, our customers continued to enjoy a consistent and unique dining experience. Despite our rapid growth, we never lost focus of keeping our customers' experiences a top priority."

At the end of the first quarter, there were 45 total restaurants (corporate-owned and franchised) operating, comprised of 12 Bagger Dave's and 33 BWW, compared with 28 restaurants at the end of the first quarter of 2012.

First Quarter Operating Results

The increase in the number of locations was the primary factor operating expenses increased year over year. Food, beverage, and packaging costs increased to $8.6 million in the first quarter of 2013 from $5.5 million in the prior-year period, and reflects a 9.4% increase in chicken wing prices compared with the same quarter a year ago. As a result, food, beverage, and packaging costs as a percentage of total revenue increased 60 basis points to 31.7% compared with 31.1% in the first quarter of 2012.

Compensation costs increased $2.6 million to $7.0 million in the first quarter of 2013 from $4.4 million in the first quarter of 2012 due to the increased staffing needs for new restaurants. As a percentage of total revenue, compensation costs were 26.0% in first quarter of 2013 compared with 24.8% in the prior-year period.

For the quarter, pre-opening costs were $0.6 million, up significantly from $0.1 million in the prior-year period, as the Company was preparing for the opening of new restaurants.

First quarter 2013 depreciation and amortization increased $0.7 million to $1.7 million compared with $1.0 million in the 2012 first quarter, reflective of the capital investments made over the past year.

Restaurant-level EBITDA increased $1.3 million, or 36.2%, to $4.8 million for the first quarter of 2013 from $3.5 million in the same period of the prior year. Adjusted EBITDA was $3.2 million for the 2013 first quarter, an increase from $2.2 million in the first quarter of 2012. DRH believes that, when used in conjunction with GAAP measures, restaurant-level EBITDA and adjusted EBITDA, which are non-GAAP measures, provide additional information related to its operating performance. (See Reconciliation of restaurant-level EBITDA and adjusted EBITDA in the supplemental table included at the end of this release.)

Net income attributable to DRH in the first quarter of 2013 was $0.2 million compared with $0.6 million in the same period of the prior year.

Balance Sheet

Cash and cash equivalents were $1.7 million at March 31, 2013, compared with $2.7 million at December 30, 2012. The Company generated $0.8 million in cash from operations during the first quarter, a decrease from the $1.6 million generated during the same prior-year period, due to lower net earnings and changes in working capital.

Capital expenditures were $3.4 million during the first three months of 2013. The Company remains committed to reinvesting in its stores and is following a definitive schedule of continued improvements and remodeling to maintain a positive dining experience for its guests. For 2013, DRH estimates capital expenditures to range between $22.5 million and $26.0 million, with the majority focused on new restaurants.

Fiscal 2013 Outlook

DRH plans to open eight additional restaurants during the year, which will be comprised mostly of Bagger Dave's. Two BWW locations have already opened this year. By the end of 2017, the Company plans to operate approximately 50 Bagger Dave's and 47 BWW locations.

"We are advancing our growth strategy and continue to invest time and resources into building brand recognition for our Bagger Dave's restaurants," commented Mr. Ansley. "We are also implementing initiatives to improve the operating performance of our recently acquired BWW restaurants."

DRH expects revenue will be in the range of $110.0 million to $115.0 million in fiscal 2013, an improvement of approximately 42.1% to 48.5% from fiscal 2012. The Company expects that restaurant-level EBITDA for fiscal 2013 will be in the $21.0 million to $23.0 million range while adjusted EBITDA for fiscal 2013 is expected to be between $15.0 million to $16.0 million.

Webcast and Conference Call

DRH will host a conference call and webcast on Thursday, May 16, 2013 at 10:00 a.m. Eastern Time, during which management will review the financial and operating results for the first quarter and discuss its corporate strategies and outlook. A question and answer session will follow.

The teleconference can be accessed by calling (201) 493-6780. The webcast can be monitored on the Company's website at www.diversifiedrestaurantholdings.com, where it will be archived afterwards.

A telephonic replay will be available from 1:00 p.m. ET on the day of the teleconference through Thursday, May 23, 2013. To listen to a replay of the call, dial (858) 384-5517 and enter the conference ID number 413982. An archive of the webcast will be available on the Company's website at www.diversifiedrestaurantholdings.com and will include a transcript, once available.

About Diversified Restaurant Holdings

Diversified Restaurant Holdings, Inc. ("DRH" or the "Company") is the creator, developer, and operator of the unique, full-service, ultra-casual restaurant concept, Bagger Dave's Legendary Burger Tavern® ("Bagger Dave's") and one of the largest Buffalo Wild Wings® ("BWW") franchisees. Between the two concepts, the Company currently operates 46 corporate-owned restaurants in Michigan, Florida, Illinois, and Indiana, and one franchised Bagger Dave's in Missouri, for a total of 47 restaurants. The Company routinely posts news and other important information on its website at www.diversifiedrestaurantholdings.com.

Bagger Dave's offers a full-service, family-friendly restaurant and bar with a casual, comfortable atmosphere. The menu features freshly-made burgers, accompanied by more than 30 toppings from which to choose, along with fresh-cut fries, hand-dipped milkshakes, and a selection of craft beer and wine. Signature items include Sloppy Dave's BBQ®, Train Wreck Burger®, and Bagger Dave's Amazingly Delicious Turkey Black Bean Chili®. The Bagger Dave's concept emphasizes local flair by showcasing historical photos of the city in which each restaurant resides and features an electric train that runs above the dining room and bar areas. Currently, there are 11 corporate-owned locations and one franchised location. For more information, visit www.baggerdaves.com.

DRH currently operates 35 BWW restaurants: 17 in Michigan, 10 in Florida, 4 in Illinois and 4 in Indiana. The Company has opened 21 new BWW restaurants in fulfillment of its 32-store Area Development Agreement ("ADA") with franchisor Buffalo Wild Wings, Inc. (Nasdaq:BWLD). The remaining 11 restaurants under the ADA agreement, along with an additional franchise agreement in Indiana, suggest that the Company will operate 47 BWW restaurants by 2017.

Safe Harbor Statement

The information made available in this news release contains forward-looking statements which reflect DRH's current view of future events, results of operations, cash flows, performance, business prospects and opportunities. Wherever used, the words "anticipate," "believe," "expect," "intend," "plan," "project," "will continue," "will likely result," "may," and similar expressions identify forward-looking statements as such term is defined in the Securities Exchange Act of 1934. Any such forward-looking statements are subject to risks and uncertainties and the Company's actual growth, results of operations, financial condition, cash flows, performance, business prospects and opportunities could differ materially from historical results or current expectations. Some of these risks include, without limitation, the impact of economic and industry conditions, competition, food and drug safety issues, restaurant expansion and remodeling, labor relations issues, costs of providing employee benefits, regulatory matters, legal and administrative proceedings, information technology, security, severe weather, natural disasters, accounting matters, other risk factors relating to our business or industry and other risks detailed from time to time in the Securities and Exchange Commission filings of DRH. Forward-looking statements contained herein speak only as of the date made and, thus, DRH undertakes no obligation to update or publicly announce the revision of any of the forward-looking statements contained herein to reflect new information, future events, developments or changed circumstances or for any other reason.

FINANCIAL TABLES TO FOLLOW

DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
March 31 March 25
2013 2012
Revenue $ 27,079,114 $ 17,749,818
Restaurant operating costs:
Food, beverage, and packaging 8,576,047 5,517,972
Compensation costs 7,048,902 4,405,434
Occupancy 1,533,005 915,119
Other operating costs 5,306,634 3,422,179
Total restaurant costs 22,464,588 14,260,704
Restaurant profit 4,614,526 3,489,114
General and administrative expenses 1,524,130 1,274,518
Pre-opening costs 592,726 47,871
Depreciation and amortization 1,655,484 973,058
Loss on disposal of property and equipment 35,074 --
Total operating expenses 26,272,002 16,556,151
Operating profit 807,112 1,193,667
Change in fair value of derivative instruments -- 20,689
Interest expense (469,211) (312,541)
Other income, net 2,319 33,773
Income before income taxes 340,220 935,588
Income tax provision 101,820 249,390
Net income 238,400 686,198
Less: (Income) attributable to noncontrolling interest -- (39,810)
Net income attributable to DRH $ 238,400 $ 646,388
Basic earnings per share $ 0.01 $ 0.03
Fully diluted earnings per share $ 0.01 $ 0.03
Weighted average number of common shares outstanding
Basic 18,959,846 18,941,708
Diluted 19,094,786 19,044,287
DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31 December 30
ASSETS 2013 2012
Current assets
Cash and cash equivalents $ 1,663,595 $ 2,700,328
Accounts receivable 274,226 248,403
Inventory 1,060,129 809,084
Prepaid assets 275,262 447,429
Total current assets 3,273,212 4,205,244
Deferred income taxes 749,247 846,746
Property and equipment, net 41,998,274 40,286,490
Intangible assets, net 2,490,319 2,509,337
Goodwill 8,578,776 8,578,776
Other long-term assets 97,603 118,145
Total assets $ 57,187,431 $ 56,544,738
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 3,018,769 $ 3,952,017
Accrued compensation 1,188,283 1,647,075
Other accrued liabilities 899,774 1,013,369
Current portion of long-term debt 6,803,836 6,095,684
Current portion of deferred rent 268,329 226,106
Total current liabilities 12,178,991 12,934,251
Deferred rent, less current portion 2,604,553 2,274,753
Unfavorable operating leases 823,748 849,478
Other liabilities - interest rate swap 369,303 430,751
Long-term debt, less current portion 39,348,924 38,551,601
Total liabilities 55,325,519 55,040,834
Stockholders' equity
Common stock -- $0.0001 par value; 100,000,000 shares authorized; 19,019,525 and 18,951,700, respectively, issued and outstanding 1,888 1,888
Additional paid-in capital 3,070,578 2,991,526
Accumulated other comprehensive loss (243,738) (284,294)
Accumulated deficit (966,816) (1,205,216)
Total stockholders' equity 1,861,912 1,503,904
Total liabilities and stockholders' equity $ 57,187,431 $ 56,544,738
DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended
March 31 March 25
2013 2012
Cash flows from operating activities
Net income $ 238,400 $ 686,198
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 1,655,484 973,058
Loss on disposal of property and equipment 35,074 --
Share-based compensation 79,052 53,132
Change in fair value of derivative instruments -- (20,689)
Deferred income taxes 76,607 183,802
Changes in operating assets and liabilities that provided (used) cash
Accounts receivable (25,823) 11,688
Inventory (251,045) 48,760
Prepaid assets 172,167 9,844
Intangible assets (20,416) (12,949)
Other long-term assets 20,542 290
Accounts payable (933,248) (586,174)
Accrued liabilities (572,387) 259,951
Deferred rent 372,023 (40,975)
Net cash provided by operating activities 846,430 1,565,936
Cash flows from investing activities
Purchases of property and equipment (3,388,638) (695,848)
Net cash used in investing activities (3,388,638) (695,848)
Cash flows from financing activities
Proceeds from issuance of long-term debt 2,842,337 440,641
Repayments of long-term debt (1,336,862) (657,650)
Distributions -- (40,000)
Net cash provided by (used in) financing activities 1,505,475 (257,009)
Net increase (decrease) in cash and cash equivalents (1,036,733) 613,079
Cash and cash equivalents, beginning of period 2,700,328 1,537,497
Cash and cash equivalents, end of period $ 1,663,595 $ 2,150,576
DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
Reconciliation between Net Income and Restaurant-Level and Adjusted EBITDA

Three Months Ended
March 31 March 25
2013 2012
Net income attributable to DRH $ 238,400 $ 646,388
+ Income tax provision 101,820 249,390
+ Change in fair value of derivative instruments -- 20,689
+ Interest expense 469,211 312,541
+ Other income, net (2,319) (33,773)
+ Loss on disposal of property and equipment 35,074 --
+ Depreciation and amortization 1,655,484 973,058
EBITDA $ 2,497,670 $ 2,168,293
+ Pre-opening costs 592,726 47,871
+ Non-recurring expenses (restaurant level) 140,000 --
Adjusted EBITDA $ 3,230,396 $ 2,216,164
Adjusted EBITDA margin (%) 11.9% 12.5%
+ General and administrative 1,524,130 1,274,518
Restaurant–Level EBITDA $ 4,754,526 $ 3,490,682
Restaurant–Level EBITDA margin (%) 17.6% 19.7%

Restaurant-Level EBITDA represents net income plus the sum of non-restaurant specific general and administrative expenses, restaurant pre-opening costs, loss on property and equipment disposals, the change in fair value of derivative instruments, depreciation and amortization, other income and expenses, interest, taxes and non-recurring acquisition related expenses in Q1 2013. Adjusted EBITDA represents net income plus the sum of restaurant pre-opening costs, loss on property and equipment disposals, the change in fair value of derivative instruments, depreciation and amortization, other income and expenses, interest and taxes. We are presenting Restaurant-Level EBITDA and Adjusted EBITDA, which are not prepared in accordance with GAAP, because we believe that they provide an additional metric by which to evaluate our operations and, when considered together with our GAAP results and the reconciliation to our net income, we believe they provide a more complete understanding of our business than could be obtained absent this disclosure. We use Restaurant-Level EBITDA and Adjusted EBITDA, together with financial measures prepared in accordance with GAAP, such as revenue, income from operations, net income and cash flows from operations, to assess our historical and prospective operating performance and to enhance our understanding of our core operating performance. Restaurant-Level EBITDA and Adjusted EBITDA are presented because: (i) we believe they are useful measures for investors to assess the operating performance of our business without the effect of non-cash depreciation and amortization expenses; (ii) we believe that investors will find these measures useful in assessing our ability to service or incur indebtedness; and (iii) we use Restaurant-Level EBITDA and Adjusted EBITDA internally as benchmarks to evaluate our operating performance or compare our performance to that of our competitors.

Additionally, we present Restaurant-Level EBITDA because it excludes the impact of general and administrative expenses, which are not incurred at the restaurant level, and restaurant pre-opening costs, which are non-recurring at the restaurant level. The use of Restaurant-Level EBITDA thereby enables us and our investors to compare our operating performance between periods and to compare our operating performance to the performance of our competitors. The measure is also widely used within the restaurant industry to evaluate restaurant level productivity, efficiency and performance. The use of Restaurant-Level EBITDA and Adjusted EBITDA as performance measures permits a comparative assessment of our operating performance relative to our performance based on our GAAP results, while isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. Companies within our industry exhibit significant variations with respect to capital structures and cost of capital (which affect interest expense and tax rates) and differences in book depreciation of facilities and equipment (which affect relative depreciation expense), including significant differences in the depreciable lives of similar assets among various companies. Our management believes that Restaurant-Level EBITDA and Adjusted EBITDA facilitate company-to-company comparisons within our industry by eliminating some of the foregoing variations.

Restaurant-Level EBITDA and Adjusted EBITDA are not determined in accordance with GAAP and should not be considered in isolation or as an alternative to net income, income from operations, net cash provided by operating, investing or financing activities or other financial statement data presented as indicators of financial performance or liquidity, each as presented in accordance with GAAP. Neither Restaurant-Level EBITDA nor Adjusted EBITDA should be considered as a measure of discretionary cash available to us to invest in the growth of our business. Restaurant-Level EBITDA and Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies and our presentation of Restaurant-Level EBITDA and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual items. Our management recognizes that Restaurant-Level EBITDA and Adjusted EBITDA have limitations as analytical financial measures, including the following:

  • Restaurant-Level EBITDA and Adjusted EBITDA do not reflect our current capital expenditures or future requirements for capital expenditures;
  • Restaurant-Level EBITDA and Adjusted EBITDA do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, associated with our indebtedness;
  • Restaurant-Level EBITDA and Adjusted EBITDA do not reflect depreciation and amortization, which are non-cash charges, although the assets being depreciated and amortized will likely have to be replaced in the future, nor do Restaurant-Level EBITDA and Adjusted EBITDA reflect any cash requirements for such replacements;
  • Restaurant-Level EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;
  • Restaurant-Level EBITDA and Adjusted EBITDA do not reflect disposals or other non-recurring income and expenses;
  • Restaurant-Level EBITDA and Adjusted EBITDA do not reflect changes in fair value of derivative instruments;
  • Restaurant-Level EBITDA and Adjusted EBITDA do not reflect restaurant pre-opening costs; and
  • Restaurant-Level EBITDA does not reflect general and administrative expenses.
CONTACT: Investor Contact: Craig P. Mychajluk Kei Advisors LLC 716.843.3832 cmychajluk@keiadvisors.com Company Contact: David G. Burke Chief Financial Officer 248.223.9160Source:Diversified Restaurant Holdings, Inc.