Attached files
| file | filename |
|---|---|
| 8-K - 8-K - NPC Restaurant Holdings, LLC | form8-kdated11x9x2016q3ear.htm |
NPC International, Inc. Reports Third Quarter Results
Overland Park, Kansas, (November 9, 2016) - NPC International, Inc. (the “Company” or “NPC”), today reported results for its third fiscal quarter ended September 27, 2016.
THIRD QUARTER HIGHLIGHTS:
• | Pizza Hut comparable store sales were -2.7%. |
• | Wendy’s comparable store sales were +1.7%. |
• | The Company had a net loss of $(4.5)MM compared to $(2.1)MM last year. |
• | Adjusted EBITDA (reconciliation attached) was $24.7MM; an increase of $2.7MM or 12.4% from the prior year. |
• | Adjusted EBITDA margin improved to 8.5% from 7.6% last year. |
YEAR-TO-DATE HIGHLIGHTS:
• | Pizza Hut comparable store sales were +0.3%. |
• | Wendy’s comparable store sales were +1.2%. |
• | Net income was $4.4MM, an increase of $1.5MM from last year. |
• | Adjusted EBITDA (reconciliation attached) was $91.9MM; an increase of $8.1MM or 9.7% from the prior year. |
• | Adjusted EBITDA margin improved to 10.4% from 9.6% last year. |
• | Cash balances were $16.1MM compared to $32.7MM at the prior fiscal year end, after investing $36.8MM in the acquisition of 39 Wendy’s units during the quarter. |
• | Our leverage ratio improved to 4.33X Consolidated EBITDA, net of allowable cash balances (as defined in our Credit Agreement) from 4.75X at the prior fiscal year end. |
NPC’s President and CEO Jim Schwartz said, “Our Wendy’s business rebounded this quarter and posted solid comparable store sales growth of 1.7% while driving significant margin improvement and profit growth. Our Pizza Hut operations generated disappointing comparable store sales with a decline of 2.7% this quarter but remains in positive comp territory on a year to date basis.
Our Pizza Hut business had a difficult quarter as top-line momentum has waned since the first quarter and our promotional activities failed to activate the consumer. We are conducting extensive brand research at an unprecedented level and introducing new advertising demonstrating why “No One out Pizzas the Hut”; these changes provide us encouragement heading into fiscal 2017.
Our Wendy’s business leveraged core product offerings, innovation and unique value to generate profitable sales growth. This top-line momentum combined with lower ingredient prices and improved labor efficiencies drove significant increases in Adjusted EBITDA margins and improved profitability for the quarter.
Additionally, we completed the acquisition of 39 Wendy’s restaurants in the Raleigh-Durham market early in the quarter. The assimilation of this market is going smoothly and the operations contributed to our impressive Wendy’s results for the quarter.
We continued to make significant progress against our delco relocation efforts in our Pizza Hut business and image activation efforts in our Wendy’s operations this quarter. We remain on target to fully deliver upon these two key investment initiatives for the full year.
Finally, after investing $37 million in the acquisition, we ended the quarter with significant liquidity and improved credit statistics. We are focused upon closing fiscal 2016 in the best way possible given the relative current performance of the brands in our portfolio while also strategically planning for a successful 2017.”
The Company is a wholly-owned subsidiary of NPC Restaurant Holdings, LLC ("Parent"), which has guaranteed the Company's 10.50% Senior Notes due 2020. As a result of its guaranty, Parent is required to file reports with the Securities and Exchange Commission which include consolidated financial statements of Parent and its subsidiaries (including the Company). Parent's only material asset is all of the stock of the Company. The quarterly financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations for Parent and the Company on a consolidated basis are set forth in Parent's Form 10-Q for the fiscal quarter ended September 27, 2016 which can be accessed at www.sec.gov.
CONFERENCE CALL INFORMATION:
The Company’s third quarter earnings conference call will be held Thursday, November 10, 2016 at 9:00 a.m. CT (10:00 a.m. ET). In addition to a discussion of third quarter results, the presentation may also include discussion of Company developments, forward-looking information and other material information about business and financial matters. You can access this call by dialing 888-391-6937. The access code for the call is 8627627. The Company also intends to include a live presentation available via webcast, which can be accessed through the Company’s website at www.npcinternational.com under Events and Presentations in the investor information.
For those unable to participate live, a replay of the call will be available until November 17, 2016 by dialing 855-859-2056. The conference ID for the replay is 8627627. An archived webcast with the accompanying slides will also be available on the Company’s website.
NPC International, Inc. is the world’s largest Pizza Hut franchisee and currently operates 1,228 Pizza Hut units in 27 states and 183 Wendy’s units in 5 states.
For more complete information regarding the Company’s financial position and results of operations, investors are encouraged to review the Parent’s financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Parent’s Form 10-Q which can be accessed at www.sec.gov.
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995
Certain statements contained in this news release that do not relate to historical or current facts constitute forward-looking statements. These include statements regarding our plans and expectations, including our current expectations for future operations, costs and financial results. Forward-looking statements are subject to inherent risks and uncertainties and there can be no assurance that such statements will prove to be correct. Actual results may vary materially from those anticipated in such forward-looking statements as a result of a number of factors, including lower than anticipated consumer discretionary spending; deterioration in general economic conditions; competition in the quick service restaurant market; adverse changes in food, labor and other costs; price inflation or deflation; our ability to successfully integrate recent acquisitions and successfully complete additional acquisitions of restaurant units; and other factors. These risks and other risks are described in Parent’s filings with the Securities and Exchange Commission, including Parent's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Copies of these filings may be obtained by contacting NPC or may be accessed at www.sec.gov. All forward-looking statements made in this news release are made as of the date hereof. NPC does not intend to update these forward-looking statements and undertakes no duty to any person to provide any such update under any circumstances, except as otherwise required by law. Investors are cautioned not to place undue reliance on any forward-looking statements.
NPC INTERNATIONAL, INC.
Consolidated Statements of Operations
(Dollars in thousands)
(Unaudited)
13 Weeks Ended | ||||||||||||||
September 27, 2016 | September 29, 2015 | |||||||||||||
Net product sales (1) | $ | 291,250 | 100.0 | % | $ | 288,025 | 100.0 | % | ||||||
Fees and other income (2) | 13,830 | 4.7 | % | 12,627 | 4.4 | % | ||||||||
Total sales | 305,080 | 104.7 | % | 300,652 | 104.4 | % | ||||||||
Cost of sales (3) | 85,512 | 29.4 | % | 85,541 | 29.7 | % | ||||||||
Direct labor (4) | 87,218 | 29.9 | % | 87,127 | 30.2 | % | ||||||||
Other restaurant operating expenses (5) | 101,242 | 34.8 | % | 99,275 | 34.5 | % | ||||||||
General and administrative expenses (6) | 19,387 | 6.7 | % | 17,773 | 6.2 | % | ||||||||
Corporate depreciation and amortization of intangibles | 5,634 | 1.9 | % | 5,316 | 1.8 | % | ||||||||
Net facility impairment and closure costs (7) | 1,392 | 0.5 | % | 1,050 | 0.4 | % | ||||||||
Other | 151 | 0.1 | % | (153 | ) | (0.1 | )% | |||||||
Total costs and expenses | 300,536 | 103.3 | % | 295,929 | 102.7 | % | ||||||||
Operating income | 4,544 | 1.4 | % | 4,723 | 1.7 | % | ||||||||
Interest expense (8) | 11,174 | 3.7 | % | 10,240 | 3.6 | % | ||||||||
Loss before income taxes | (6,630 | ) | (2.3 | )% | (5,517 | ) | (1.9 | )% | ||||||
Income taxes | (2,137 | ) | (0.8 | )% | (3,401 | ) | (1.2 | )% | ||||||
Net loss | $ | (4,493 | ) | (1.5 | )% | $ | (2,116 | ) | (0.7 | )% | ||||
Percentages are shown as a percent of net product sales. | ||||||||||||||
Comparable store sales (net product sales only): | ||||||||||||||
Pizza Hut | (2.7 | )% | (0.9 | )% | ||||||||||
Wendy's | 1.7 | % | 3.1 | % | ||||||||||
Comparable stores sales are only reported for locations that have been operated by the Company for at least 12 months. | ||||||||||||||
Capital Expenditures | $ | 19,920 | $ | 15,531 | ||||||||||
Cash Rent Expense | $ | 17,334 | $ | 16,680 | ||||||||||
(1) | Net product sales increased 1.1% due to growth in our Wendy’s business with the July acquisition of 39 Wendy’s restaurants and an increase in comparable store sales of 1.7%. This increase was largely offset by a comparable store sales decline of -2.7% in our Pizza Hut operations and a decrease in Pizza Hut equivalent units. |
(2) | Fees and other income increased 9.5% due to increased delivery fees in our Pizza Hut operations. |
(3) | Cost of sales, as a percentage of net product sales, decreased primarily due to lower ingredient costs. |
(4) | Direct labor, as a percentage of net product sales, decreased due to productivity gains in both operations and sales leveraging in our Wendy’s operations. |
(5) | Other restaurant operating expenses, as a percentage of net product sales, increased due to higher depreciation and amortization expense and increased rent expense, primarily due to the acquisition of Wendy’s restaurants partially offset by lower insurance and advertising expense. |
(6) | General and administrative expenses increased due to the timing of incentive compensation accruals, increased field personnel and support costs and higher credit card processing fees. |
(7) | Net facility impairment and closure costs increased due to closure charges in our Pizza Hut operations largely associated with our delco relocation efforts. |
(8) | Interest expense increased due to the increase in our average borrowing rate as a result of the term loan amendment in December 2015, which was partially offset by a decline in our average outstanding debt balance. |
Note: The explanations above are abbreviated disclosures. For complete disclosure see Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Parent's Form 10-Q filed with the SEC.
NPC INTERNATIONAL, INC.
Consolidated Statements of Operations
(Dollars in thousands)
(Unaudited)
39 Weeks Ended | ||||||||||||||
September 27, 2016 | September 29, 2015 | |||||||||||||
Net product sales (1) | $ | 886,501 | 100.0 | % | $ | 876,547 | 100.0 | % | ||||||
Fees and other income (2) | 42,098 | 4.7 | % | 39,549 | 4.5 | % | ||||||||
Total sales | 928,599 | 104.7 | % | 916,096 | 104.5 | % | ||||||||
Cost of sales (3) | 255,748 | 28.8 | % | 255,871 | 29.2 | % | ||||||||
Direct labor (4) | 263,481 | 29.7 | % | 264,135 | 30.1 | % | ||||||||
Other restaurant operating expenses (5) | 297,657 | 33.6 | % | 292,150 | 33.3 | % | ||||||||
General and administrative expenses (6) | 56,501 | 6.4 | % | 51,887 | 5.9 | % | ||||||||
Corporate depreciation and amortization of intangibles | 16,223 | 1.8 | % | 15,825 | 1.8 | % | ||||||||
Net facility impairment and closure costs (7) | 3,966 | 0.4 | % | 5,727 | 0.7 | % | ||||||||
Other | (38 | ) | 0.0 | % | 240 | 0.0 | % | |||||||
Total costs and expenses | 893,538 | 100.7 | % | 885,835 | 101.0 | % | ||||||||
Operating income | 35,061 | 4.0 | % | 30,261 | 3.5 | % | ||||||||
Interest expense (8) | 33,716 | 3.8 | % | 31,197 | 3.6 | % | ||||||||
Income (loss) before income taxes | 1,345 | 0.2 | % | (936 | ) | (0.1 | )% | |||||||
Income taxes | (3,092 | ) | (0.3 | )% | (3,867 | ) | (0.4 | )% | ||||||
Net income | $ | 4,437 | 0.5 | % | $ | 2,931 | 0.3 | % | ||||||
Percentages are shown as a percent of net product sales. | ||||||||||||||
Comparable store sales (net product sales only): | ||||||||||||||
Pizza Hut | 0.3 | % | (1.3 | )% | ||||||||||
Wendy's | 1.2 | % | 1.4 | % | ||||||||||
Comparable stores sales are only reported for locations that have been operated by the Company for at least 12 months. | ||||||||||||||
Capital Expenditures | $ | 45,313 | $ | 41,997 | ||||||||||
Cash Rent Expense | $ | 51,172 | $ | 50,662 | ||||||||||
(1) | Net product sales increased 1.1% primarily due to the growth in our Wendy’s business with the July acquisition of 39 Wendy’s restaurants and a comparable store sales increase of +1.2% as well as an increase in comparable store sales in our Pizza Hut operations of +0.3%. These increases were partially offset by a reduction in Pizza Hut equivalent units. |
(2) | Fees and other income increased 6.4% due to increased delivery fees and delivery transactions for our Pizza Hut restaurants. |
(3) | Cost of sales, as a percentage of net product sales, decreased primarily due to lower ingredient costs. |
(4) | Direct labor, as a percentage of net product sales, decreased due to productivity gains in both operations and sales leveraging in our Wendy’s operations. |
(5) | Other restaurant operating expenses, as a percentage of net product sales, increased due to higher depreciation and amortization expense and higher restaurant manager bonuses, partially offset by lower utility expenses. |
(6) | General and administrative expenses increased due to the timing of incentive compensation accruals, increased field personnel and support costs and higher credit card processing fees. |
(7) | Net facility impairment and closure costs decreased due to a reduction in impairment charges which was partially offset by increased closure charges in our Pizza Hut operations largely associated with our delco relocation efforts. |
(8) | Interest expense increased due to the increase in our average borrowing rate as a result of the term loan amendment in December 2015, which was partially offset by a decline in our average outstanding debt balance. |
Note: The explanations above are abbreviated disclosures. For complete disclosure see Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Parent's Form 10-Q filed with the SEC
NPC INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
September 27, 2016 | December 29, 2015 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 16,053 | $ | 32,717 | ||||
Other current assets | 25,457 | 30,398 | ||||||
Total current assets | 41,510 | 63,115 | ||||||
Facilities and equipment, net | 230,599 | 203,468 | ||||||
Franchise rights, net | 623,192 | 620,518 | ||||||
Other noncurrent assets | 325,323 | 323,595 | ||||||
Total assets | $ | 1,220,624 | $ | 1,210,696 | ||||
Liabilities and Members' Equity | ||||||||
Current liabilities: | ||||||||
Other current liabilities | $ | 113,386 | $ | 104,038 | ||||
Current portion of debt | 2,950 | 4,158 | ||||||
Total current liabilities | 116,336 | 108,196 | ||||||
Long-term debt | 576,249 | 577,011 | ||||||
Other noncurrent liabilities | 247,474 | 251,800 | ||||||
Total liabilities | 940,059 | 937,007 | ||||||
Members' equity | 280,565 | 273,689 | ||||||
Total liabilities and members' equity | $ | 1,220,624 | $ | 1,210,696 | ||||
NPC INTERNATIONAL, INC.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
39 Weeks Ended | ||||||||
September 27, 2016 | September 29, 2015 | |||||||
Operating activities | ||||||||
Net income | $ | 4,437 | $ | 2,931 | ||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||
Depreciation and amortization | 51,908 | 47,151 | ||||||
Amortization of debt issuance costs | 3,222 | 2,893 | ||||||
Deferred income taxes | (4,717 | ) | (5,491 | ) | ||||
Net facility impairment and closure costs | 3,966 | 5,727 | ||||||
Other | (342 | ) | 335 | |||||
Changes in assets and liabilities, excluding acquisitions: | ||||||||
Assets | 4,144 | 7,131 | ||||||
Liabilities | 6,733 | 2,593 | ||||||
Net cash provided by operating activities | 69,351 | 63,270 | ||||||
Investing activities | ||||||||
Capital expenditures | (45,313 | ) | (41,997 | ) | ||||
Purchase of Wendy's business, net of cash acquired | (44,783 | ) | — | |||||
Proceeds from sale-leaseback transactions | 7,155 | 1,408 | ||||||
Proceeds from disposition of assets | 1,252 | 521 | ||||||
Net cash used in investing activities | (81,689 | ) | (40,068 | ) | ||||
Financing activities | ||||||||
Payments on term bank facilities | (4,326 | ) | (3,119 | ) | ||||
Net cash used in financing activities | (4,326 | ) | (3,119 | ) | ||||
Net change in cash and cash equivalents | (16,664 | ) | 20,083 | |||||
Beginning cash and cash equivalents | 32,717 | 12,063 | ||||||
Ending cash and cash equivalents | $ | 16,053 | $ | 32,146 | ||||
NPC INTERNATIONAL, INC.
Reconciliation of Non-GAAP Financial Measures
(in thousands)
(Unaudited)
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
September 27, 2016 | September 29, 2015 | September 27, 2016 | September 29, 2015 | |||||||||||||
Adjusted EBITDA: | ||||||||||||||||
Net (loss) income | $ | (4,493 | ) | $ | (2,116 | ) | $ | 4,437 | $ | 2,931 | ||||||
Adjustments: | ||||||||||||||||
Interest expense | 11,174 | 10,240 | 33,716 | 31,197 | ||||||||||||
Income taxes | (2,137 | ) | (3,401 | ) | (3,092 | ) | (3,867 | ) | ||||||||
Depreciation and amortization | 18,155 | 16,072 | 51,908 | 47,151 | ||||||||||||
Pre-opening expenses and other | 624 | 143 | 926 | 621 | ||||||||||||
Net facility impairment and closure costs | 1,392 | 1,050 | 3,966 | 5,727 | ||||||||||||
Adjusted EBITDA (1) | $ | 24,715 | $ | 21,988 | $ | 91,861 | $ | 83,760 | ||||||||
Adjusted EBITDA Margin(2) | 8.5 | % | 7.6 | % | 10.4 | % | 9.6 | % | ||||||||
Free Cash Flow: | ||||||||||||||||
Net cash provided by operating activities | $ | 17,008 | $ | 14,221 | $ | 69,351 | $ | 63,270 | ||||||||
Adjustments: | ||||||||||||||||
Capital expenditures | (19,920 | ) | (15,531 | ) | (45,313 | ) | (41,997 | ) | ||||||||
Free Cash Flow (3) | $ | (2,912 | ) | $ | (1,310 | ) | $ | 24,038 | $ | 21,273 | ||||||
Unit Count Activity
39 Weeks Ended | ||||||||||||||
September 27, 2016 | September 29, 2015 | |||||||||||||
Combined | Wendy's | Pizza Hut | Combined | Wendy's | Pizza Hut | |||||||||
Beginning of period | 1,395 | 144 | 1,251 | 1,420 | 143 | 1,277 | ||||||||
Acquired | 42 | 42 | — | — | — | — | ||||||||
Developed(4) | 22 | — | 22 | 10 | — | 10 | ||||||||
Closed(4) | (48 | ) | (3 | ) | (45 | ) | (24 | ) | — | (24 | ) | |||
End of period | 1,411 | 183 | 1,228 | 1,406 | 143 | 1,263 | ||||||||
Equivalent units (5) | 1,391 | 154 | 1,237 | 1,407 | 142 | 1,265 | ||||||||
(1) The Company defines Adjusted EBITDA as consolidated net (loss) income plus interest, income taxes, depreciation and amortization, pre-opening expenses, net facility impairment and closure costs and certain other items that are non-operational in nature. Management believes the elimination of these items, as well as certain other items of a non-operational nature, as may be noted in the table above, give investors and management useful information to compare the performance of our core operations over different periods and to compare our operating performance with the performance of other companies that have different financing and capital structures or tax rates. Adjusted EBITDA is a non-GAAP financial measure, has limitations as an analytical tool, and should not be considered in isolation from, or as a substitute for analysis of, the Company’s financial information reported under GAAP. Adjusted EBITDA, as defined above, may not be similar to EBITDA measures of other companies.
(2) Calculated as a percentage of net product sales.
(3) The Company defines Free Cash Flow as cash flows from operations less capital expenditures. Management believes that the free cash flow measure is important to investors to provide a measure of how much cash flow is available, after current changes in working capital and acquisition of property and equipment, to be used for working capital needs or for strategic opportunities, including servicing debt, making acquisitions, and making investments in the business. It should not be inferred that the entire Free Cash Flow amount is available for discretionary expenditures.
(4) For Pizza Hut, 21 and six units were relocated or rebuilt and are included in both the developed and closed totals above for the 39 weeks ended September 27, 2016, and September 29, 2015, respectively. The closed units for the 39 weeks ended September 27, 2016 and September 29, 2015 included one unit and three units, respectively, which are being relocated and will re-open upon completion.
(5) Equivalent units represent the number of units open at the beginning of a given period, adjusted for units opened, closed, acquired or sold during the period on a weighted average basis.
Contact: Troy D. Cook, Executive Vice President-Finance & Chief Financial Officer
913-327-3109
7300 W 129th St
Overland Park, KS 66213