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Del Taco Restaurants, Inc. Announces Fiscal Second Quarter 2017 Financial Results

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System-wide and Company-operated comparable restaurant sales growth
of 7.1% and 6.9%

Raises Fiscal Year 2017 Guidance on Several Key Metrics

Conference call and webcast will be held at 5:00 p.m. ET today

Del Taco Restaurants, Inc. ("Del Taco" or the "Company"), (NASDAQ:TACO),
the second largest Mexican-American QSR chain by units in the United
States, operating restaurants under the name Del Taco, today announced
fiscal second quarter 2017 financial results. The Company also raised
its guidance for fiscal year 2017 on several key metrics.

Fiscal Second Quarter 2017 Highlights

  • System-wide comparable restaurant sales growth of 7.1% and
    company-operated comparable restaurant sales growth of 6.9%, marking
    the 15th and 20th consecutive quarter of gains,
    respectively;
    • Company-operated comparable restaurant sales growth was comprised
      of average check growth of 5.4%, including nearly 3% of menu mix
      growth, and a transaction increase of 1.5%;
  • Total revenue of $108.6 million, representing 8.6% growth from the
    fiscal second quarter 2016;
  • Company-operated restaurant sales of $104.0 million, representing 8.4%
    growth from the fiscal second quarter 2016;
  • Net income increased to $5.3 million, representing diluted earnings
    per share of $0.13, compared to $4.9 million in the fiscal second
    quarter 2016, representing diluted earnings per share of $0.13;
  • Adjusted EBITDA, a non-GAAP financial measure, increased to $17.0
    million from $16.0 million in the fiscal second quarter 2016,
    representing 6.4% growth; and
  • The opening of two franchise restaurants and one company-operated
    restaurant.

John D. Cappasola, Jr., President and Chief Executive Officer of Del
Taco, commented, "Strong product promotions during the fiscal second
quarter, including our Jumbo Shrimp limited time offer, the refresh of
our breakfast menu in March, and dedicated marketing windows for The Del
Taco and Platos, resulted in outstanding growth in comparable restaurant
sales. Our enviable track record at company-operated restaurants now
consists of 20 consecutive quarters of positive comparable restaurant
sales, with positive transactions in 14 of the past 17 quarters."

Cappasola continued, "We are pleased to raise key elements of our 2017
annual guidance on the strength of our Fresh Combined Solutions
strategy. With the onset of our fiscal third quarter, we began lapping
our most successful product launch in brand history, The Del Taco, and
yet our comparable restaurant sales remain strong, trending up double
digits on a two-year basis through the first 5 weeks of the fiscal third
quarter. Our playbook for this rollover is driven by our holistic
combined solutions approach, using a strategic combination of restaurant
improvements to drive guest experiences and new product news with
compelling value to drive guest trial and frequency. This includes our
new Carnitas limited time offer which is driving strong sales mix and
guest satisfaction."

Cappasola concluded, "We believe our lineup of new products and
marketing, along with our continued focus on improving operations, will
further embed our QSR+ positioning to drive brand momentum as we close
in on our $1.5 million average unit volume goal and accelerate system
unit growth."

Review of Fiscal Second Quarter 2017 Financial Results

Total revenue was $108.6 million, an increase of 8.6% compared to $100.0
million in the fiscal second quarter 2016. The growth in revenue was
driven by an 8.4% increase in Company restaurant sales and a 9.1%
increase in franchise revenue.

Comparable restaurant sales increased 7.1% system-wide for the fiscal
second quarter 2017, resulting in a 10.4% increase on a two-year basis.
The Del Taco system has now generated comparable restaurant sales growth
for 15 consecutive quarters. Company-operated comparable restaurant
sales increased 6.9%, marking the 20th consecutive quarter of
comparable restaurant sales growth. Franchise comparable restaurant
sales increased 7.5%.

Net income was $5.3 million, representing $0.13 per diluted share,
compared to $4.9 million in the fiscal second quarter 2016, representing
$0.13 per diluted share.

Restaurant contribution, a non-GAAP financial measure, increased 6.9%
year-over-year to $21.1 million. As a percentage of Company restaurant
sales, restaurant contribution margin fell approximately 30 basis points
year-over-year to 20.3%. The decrease in restaurant contribution margin
was driven by a 40 basis point increase in labor and related expenses
and a 20 basis point increase in food and paper costs, partially offset
by improvements in other operating expenses. A reconciliation between
restaurant contribution and the nearest GAAP financial measure is
included in the accompanying financial data
.

Adjusted EBITDA, a non-GAAP financial measure, increased to $17.0
million compared to $16.0 million in the previous year's fiscal second
quarter, representing 6.4% growth. A reconciliation between adjusted
EBITDA and the nearest GAAP financial measure is included in the
accompanying financial data
.

Restaurant Portfolio

During the fiscal second quarter 2017, we and our franchise partners
opened one and two restaurants, respectively. There were also two
company restaurant closures.

Thus far in the fiscal third quarter 2017, our franchise partners have
opened two restaurants and there are currently 10 restaurants (one
franchised and nine company) under construction, all of which are
expected to open this fiscal year.

Repurchase Program for Common Stock and Warrants

During the fiscal second quarter 2017, we purchased 400,000 warrants
from PW Acquisitions, LP, a related party, for $3.75 per warrant. At the
end of the fiscal second quarter approximately $25.3 million remained
under our $50 million repurchase authorization.

Fiscal Year 2017 Guidance

We are raising key elements of our guidance for fiscal year 2017, which
is a 52-week period ending January 2, 2018, and reaffirming other
elements:

  • System-wide comparable restaurant sales growth of approximately 3.5%
    to 4.5% (previously 2.0% to 4.0%);
  • Total revenue between $470 million and $476 million (previously $466
    million and $476 million);
  • Total company-operated restaurant sales between $452 million and $458
    million (previously $448 million and $458 million);
  • Restaurant contribution margin between 19.8% and 20.3% (reaffirming);
  • General and administrative expenses of between approximately 8.2% and
    8.4% of total revenue (previously 8.1% and 8.5%);
  • Effective tax rate of approximately 40.0% (reaffirming);
  • Diluted earnings per share of approximately $0.52 to $0.55
    (reaffirming);
  • Adjusted EBITDA between $71.5 million and $73.5 million (previously
    $71.0 million and $73.5 million);
  • 23 to 26 new system-wide restaurant openings (reaffirming); and
  • Net capital expenditures totaling approximately $43.0 million to $46.0
    million (reaffirming).

We have not reconciled guidance for Adjusted EBITDA to the corresponding
GAAP financial measure because we do not provide guidance for the
various reconciling items. We are unable to provide guidance for these
reconciling items because we cannot determine their probable
significance, as certain items are outside of our control and cannot be
reasonably predicted due to the fact that these items could vary
significantly from period to period. Accordingly, a reconciliation to
the corresponding GAAP financial measure is not available without
unreasonable effort.

Conference Call

A conference call and webcast to discuss Del Taco's financial results is
scheduled for 5:00 p.m. ET today. Hosting the conference call and
webcast will be John D. Cappasola, Jr., President and Chief Executive
Officer; and Steven L. Brake, Executive Vice President and Chief
Financial Officer.

Interested parties may listen to the conference call via telephone by
dialing 1-201-689-8471. A telephone replay will be available shortly
after the call has concluded and can be accessed by dialing
1-412-317-6671, the passcode is 13665325.

The webcast will be available at www.deltaco.com
under the investors section and will be archived on the site shortly
after the call has concluded.

Key Financial Definitions

Comparable restaurant sales growth reflects the change in
year-over-year sales for the comparable company, franchise and total
system restaurant base. Restaurants are included in the comparable store
base in the accounting period following its 18th full month
of operations and excludes restaurant closures.

Restaurant contribution is defined as company restaurant sales
less restaurant operating expenses, which are food and paper costs,
labor and related expenses and occupancy and other operating expenses. Restaurant
contribution margin
is defined as restaurant contribution as a
percentage of company restaurant sales. Restaurant contribution and
restaurant contribution margin
are neither required by, nor
presented in accordance with, GAAP. Restaurant contribution and
restaurant contribution margin are supplemental measures of operating
performance of restaurants and the calculations thereof may not be
comparable to those reported by other companies. Restaurant contribution
and restaurant contribution margin have limitations as analytical tools,
and you should not consider them in isolation or as substitutes for
analysis of results as reported under U.S. GAAP. Management believes
that restaurant contribution and restaurant contribution margin are
important tools for investors because they are widely-used metrics
within the restaurant industry to evaluate restaurant-level
productivity, efficiency and performance. Management uses restaurant
contribution and restaurant contribution margin as key performance
indicators to evaluate the profitability of incremental sales at Del
Taco restaurants, to evaluate restaurant performance across periods and
to evaluate restaurant financial performance compared with competitors. A
reconciliation between restaurant contribution and the nearest GAAP
financial measure is included in the accompanying financial data
.

Adjusted EBITDA is defined as net income/loss prior to interest
expense, income taxes, and depreciation and amortization, as adjusted to
add back certain charges, such as stock-based compensation expense and
transaction-related costs, as these expenses are not considered an
indicator of ongoing company performance. Adjusted EBITDA is a
non-GAAP financial measure and should not be considered as an
alternative to operating income or net income/loss as a measure of
operating performance or cash flows or as measures of liquidity.
Non-GAAP financial measures are not necessarily calculated the same way
by different companies and should not be considered a substitute for or
superior to GAAP results. We believe Adjusted EBITDA facilitates
operating performance comparisons from period to period by 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. These potential differences may be caused by
variations in capital structures (affecting interest expense), tax
positions (such as the impact on periods or changes in effective tax
rates or net operating losses) and the age and book depreciation of
facilities and equipment (affecting relative depreciation expense). We
also present Adjusted EBITDA because (i) we believe this measure is
frequently used by securities analysts, investors and other interested
parties to evaluate companies in our industry, (ii) we believe investors
will find this measure useful in assessing our ability to service or
incur indebtedness, and (iii) we use Adjusted EBITDA internally as a
benchmark to compare performance to that of competitors. A
reconciliation between Adjusted EBITDA and the nearest GAAP financial
measure is included in the accompanying financial data
.

About Del Taco Restaurants, Inc.

Del Taco (NASDAQ:TACO) offers a unique variety of both Mexican and
American favorites such as burritos and fries, prepared fresh in every
restaurant's working kitchen with the value and convenience of a drive
thru. Del Taco's menu items taste better because they are made with
quality ingredients like freshly grated cheddar, hand-chopped pico de
gallo, sliced avocado, slow-cooked beans made from scratch, and
fresh-grilled marinated chicken and carne asada. The brand's UnFreshing
Believable® campaign further communicates Del Taco's commitment to
provide guests with the best quality and value for their money. Founded
in 1964, today Del Taco serves more than three million guests each week
at its more than 550 restaurants across 15 states. For more information,
visit www.deltaco.com.

Forward-Looking Statements

In addition to historical information, this release may contain a number
of "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995. Forward-looking statements include,
without limitation, information concerning Del Taco's possible or
assumed future results of operations, business strategies, competitive
position, industry environment, potential growth opportunities and the
effects of regulation. These statements are based Del Taco's
management's current expectations and beliefs, as well as a number of
assumptions concerning future events. When used in this press release,
the words "estimates," "projected," "expects," "anticipates,"
"forecasts," "plans," "intends," "believes," "seeks," "target," "may,"
"will," "should," "future," "propose," "preliminary," "guidance," "on
track" and variations of these words or similar expressions (or the
negative versions of such words or expressions) are intended to identify
forward-looking statements. Such forward-looking statements are subject
to known and unknown risks, uncertainties, assumptions and other
important factors, many of which are outside Del Taco's management's
control that could cause actual results to differ materially from the
results discussed in the forward-looking statements. These risks
included, without limitation, consumer demand, our inability to
successfully open company-operated or franchised restaurants or
establish new markets, competition in our markets, our inability to grow
and manage growth profitably, adverse changes in food and supply costs,
our inability to access additional capital, changes in applicable laws
or regulations, food safety and foodborne illness concerns, our
inability to manage existing and to obtain additional franchisees, our
inability to attract and retain qualified personnel, our inability to
profitably expand into new markets, changes in, or the discontinuation
of, the Company's repurchase program, and the possibility that we may be
adversely affected by other economic, business, and/or competitive
factors. Additional risks and uncertainties are identified and discussed
in Del Taco's reports filed with the SEC, including under Item 1A. Risk
Factors in our Annual Report on Form 10-K for the year ended January 3,
2017, and available at the SEC's website at www.sec.gov
and the Company's website at www.deltaco.com.

Forward-looking statements included in this release speak only as of the
date of this release. Del Taco undertakes no obligation to update its
forward-looking statements to reflect events or circumstances after the
date of this release or otherwise.

       
Del Taco Restaurants, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share data)
 
June 20, 2017 January 3, 2017
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 4,925 $ 8,795
Accounts and other receivables, net 3,118 4,141
Inventories 2,585 2,718
Prepaid expenses and other current assets   3,129     4,204
Total current assets 13,757 19,858
Property and equipment, net 135,142 138,320
Goodwill 319,778 320,025
Trademarks 220,300 220,300
Intangible assets, net 23,276 24,782
Other assets, net   3,658     3,872
Total assets $ 715,911   $ 727,157
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 16,462 $ 16,427
Other accrued liabilities 36,403 36,653

Current portion of capital lease obligations and deemed landlord
financing liabilities

  1,546     1,588
Total current liabilities 54,411 54,668

Long-term debt, capital lease obligations and deemed landlord
financing liabilities, excluding current portion, net

160,204 173,743
Deferred income taxes 91,908 91,273
Other non-current liabilities   30,142     30,140
Total liabilities 336,665 349,824
 
Shareholders' equity:

Preferred stock, $0.0001 par value; 1,000,000 shares authorized;
no shares issued and outstanding

Common stock, $0.0001 par value; 400,000,000 shares authorized;
38,572,982 shares issued and outstanding at June 20, 2017;
39,153,503 shares issued and outstanding at January 3, 2017

4 4
Additional paid-in capital 352,712 360,131
Accumulated other comprehensive (loss) income (64 ) 172
Retained earnings   26,594     17,026
Total shareholders' equity   379,246     377,333
Total liabilities and shareholders' equity $ 715,911   $ 727,157
 
               
Del Taco Restaurants, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
(In thousands, except share and per share data)
 
12 Weeks Ended     24 Weeks Ended
June 20, 2017 June 14, 2016     June 20, 2017     June 14, 2016
Revenue:
Company restaurant sales $ 104,022 $ 95,917 $ 205,244 $ 189,467
Franchise revenue 3,903 3,576 7,516 6,905
Franchise sublease income   656     533         1,166         1,057
Total revenue 108,581 100,026 213,926 197,429
Operating expenses:
Restaurant operating expenses:
Food and paper costs 28,770 26,358 56,688 52,487
Labor and related expenses 33,185 30,249 66,406 60,033
Occupancy and other operating expenses 20,918 19,526 41,636 39,649
General and administrative 9,055 8,214 18,360 16,506
Depreciation and amortization 5,278 5,532 10,381 11,018
Occupancy and other - franchise subleases 602 510 1,083 1,013
Pre-opening costs 151 35 177 128
Restaurant closure charges, net 6 (166 ) 15 12
Loss on disposal of assets, net   340     62         291         137
Total operating expenses   98,305     90,320         195,037         180,983
Income from operations 10,276 9,706 18,889 16,446
Other expense
Interest expense 1,627 1,405 3,170 2,877
Transaction-related costs       126                 191
Total other expense   1,627     1,531         3,170         3,068
Income from operations before provision for income taxes 8,649 8,175 15,719 13,378
Provision for income taxes   3,319     3,311         6,151         5,453
Net income 5,330 4,864 9,568 7,925
Other comprehensive loss:
Change in fair value of interest rate cap, net of tax   (148 )           (236 )      
Total other comprehensive loss   (148 )           (236 )      
Comprehensive income $ 5,182   $ 4,864       $ 9,332       $ 7,925
Earnings per share:
Basic $ 0.14 $ 0.13 $ 0.25 $ 0.21
Diluted $ 0.13 $ 0.13 $ 0.24 $ 0.20
Weighted-average shares outstanding
Basic 38,535,855 38,292,215 38,769,895 38,545,115
Diluted 39,808,485 38,442,304 40,094,476 38,672,425
 
               
Del Taco Restaurants, Inc.
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
(Unaudited)
(In thousands)
 
12 Weeks Ended     24 Weeks Ended
June 20, 2017 June 14, 2016     June 20, 2017     June 14, 2016
Net income $ 5,330 $ 4,864 $ 9,568 $ 7,925
Non-GAAP adjustments:
Provision for income taxes 3,319 3,311 6,151 5,453
Interest expense 1,627 1,405 3,170 2,877
Depreciation and amortization   5,278     5,532         10,381         11,018  
EBITDA   15,554     15,112         29,270         27,273  
Stock-based compensation expense (a) 1,080 930 2,149 1,629
Loss on disposal of assets, net (b) 340 62 291 137
Restaurant closure charges, net (c) 6 (166 ) 15 12

Amortization of favorable and unfavorable lease assets and
liabilities, net (d)

(145 ) (140 ) (292 ) (280 )
Transaction-related costs (e) 126 191
Pre-opening costs (f)   151     35         177         128  
Adjusted EBITDA $ 16,986   $ 15,959       $ 31,610       $ 29,090  
 

(a)

 

Includes non-cash, stock-based compensation.

(b)

Loss on disposal of assets, net includes the loss or gain on
disposal of assets related to sales, retirements and replacement
or write-off of leasehold improvements or equipment in the
ordinary course of business, net of amortization of deferred gains
on asset sales associated with sale-leaseback transactions and
gains or losses recorded associated with the sale of
company-operated stores to franchisees.

(c)

Includes costs related to future obligations associated with the
closure or net sublease shortfall of a restaurant.

(d)

Includes amortization of favorable lease assets and unfavorable
lease liabilities.

(e)

Includes costs related to the strategic sale process which
commenced during 2014 and resulted in the March 2015 stock
purchase agreement and the June 2015 Business Combination
consummated pursuant to the Merger Agreement.

(f)

Pre-opening costs consist of costs directly associated with the
opening of new restaurants and incurred prior to opening,
including restaurant labor, supplies, cash and non-cash rent
expense and other related pre-opening costs. These are generally
incurred over the three to five months prior to opening.

 
           
Del Taco Restaurants, Inc.
Reconciliation of Company Restaurant Sales to Restaurant
Contribution
(Unaudited)
(In thousands)
 
12 Weeks Ended 24 Weeks Ended
June 20, 2017 June 14, 2016 June 20, 2017 June 14, 2016
Company restaurant sales $ 104,022 $ 95,917 $ 205,244 $ 189,467
Restaurant operating expenses   82,873     76,133     164,730     152,169  
Restaurant contribution $ 21,149   $ 19,784   $ 40,514   $ 37,298  
Restaurant contribution margin  

20.3

%

 

20.6

%

 

19.7

%

 

19.7

%

 
               
Del Taco Restaurants, Inc.
Restaurant Development
 
12 Weeks Ended 24 Weeks Ended
June 20, 2017 June 14, 2016 June 20, 2017 June 14, 2016
Company-operated restaurant activity:
Beginning of period 305 297 310 297
Openings 1 1 1 2
Closures (2 ) (2 ) (1 )
Sold to franchisees     (5 )  
Restaurants at end of period 304   298   304   298  
Franchise-operated restaurant activity:
Beginning of period 249 246 241 247
Openings 2 5 1
Closures (1 ) (3 )
Purchased from Company     5    
Restaurants at end of period 251   245   251   245  
Total restaurant activity:
Beginning of period 554 543 551 544
Openings 3 1 6 3
Closures (2 ) (1 ) (2 ) (4 )
Restaurants at end of period 555   543   555   543  

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