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Carrols Restaurant Group, Inc. Reports Financial Results for the Second Quarter 2018

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Raises Full Year 2018 Outlook

Carrols Restaurant Group, Inc. ("Carrols" or the "Company")
(NASDAQ:TAST) today announced financial results for the second quarter
ended July 1, 2018 and raised its full year 2018 outlook.

Highlights for second quarter of 2018 versus second quarter of 2017
include:

  • Restaurant sales increased 8.4% to $303.0 million from $279.5 million
    in the second quarter of 2017;
  • Comparable restaurant sales increased a solid 5.0% compared to a 4.6%
    increase in the prior year quarter;
  • Adjusted EBITDA(1) increased 19.4% to $32.8 million from
    $27.5 million in the prior year quarter;
  • Net income was $7.8 million, or $0.17 per diluted share, compared to
    $6.0 million, or $0.13 per diluted share, in the prior year quarter;
    and
  • Adjusted net income(1) increased 51% to $10.0 million, or
    $0.22 per diluted share, from $6.6 million, or $0.14 per diluted
    share, in the prior year quarter.

(1)

   

Adjusted EBITDA, Restaurant-level EBITDA and Adjusted net
income are non-GAAP financial measures. Refer to the definitions
and reconciliation of these measures to net income or to income
from operations in the tables at the end of this release.

 

At the end of the second quarter of 2018, Carrols owned and operated 807
BURGER KING® restaurants.

Daniel T. Accordino, the Company's Chief Executive Officer said, "We
delivered a solid quarter reflecting 8.4% top line growth, a 5.0%
increase in comparable restaurant sales, and we generated significant
increases in Restaurant-level EBITDA and Adjusted EBITDA, which rose
16.7% and 19.4%, respectively. Sales were strong across all day parts
and reflected continued success of the 2 for $6 mix and match promotion,
and the popularity of the KING™ Sandwich line including the new
Sourdough sandwiches. These offerings provided an effective balance to
our value promotions and other limited time offers as part of the
brand's successful barbell menu strategy."

Accordino added, "Our acquisition pipeline is active and we are
currently working on several transactions. We recently exercised our
right of first refusal for the purchase of 31 BURGER KING® restaurants
in Virginia and two restaurants in Michigan. We expect that these
transactions, along with a couple of other small acquisitions, will
close before the end of the third quarter of 2018."

Accordino concluded, "Given our performance year-to-date and
expectations for the remainder of the year, we are raising our overall
outlook for 2018. While we remain cautiously optimistic regarding
comparable restaurant sales trends as we lap our very strong performance
in the second half of last year, we expect Adjusted EBITDA to now grow
to $100 million to $105 million compared to $91.4 million in 2017."

Second Quarter 2018 Financial Results

Restaurant sales increased 8.4% to $303.0 million in the second quarter
of 2018 compared to $279.5 million in the second quarter of 2017.
Comparable restaurant sales increased 5.0%, including an average check
increase of 4.4% and customer traffic increase of 0.6% from the prior
year period.

Restaurant-level EBITDA(1) was $47.4 million in the second
quarter of 2018 and increased 16.7% from $40.6 million in the second
quarter of 2017. Restaurant-Level EBITDA margin was 15.6% of restaurant
sales and increased 111 basis points from the prior year period. In
addition to benefitting from a 6.3% reduction in ground beef costs, many
other operating costs were favorably leveraged due to the strong sales
performance in the quarter. Restaurant labor costs, however increased
0.5%, as a percentage of restaurant sales, primarily due to higher
workers compensation, medical and incentive costs.

General and administrative expenses were $16.0 million in the second
quarter of 2018 compared to $14.4 million in the prior year period. As a
percentage of restaurant sales, general and administrative expenses
increased 13 basis points to 5.3% compared to the prior year period
reflecting higher incentive and stock compensation costs.

Adjusted EBITDA(1) increased 19.4% to $32.8 million in the
second quarter of 2018 compared to $27.5 million in the second quarter
of 2017. Adjusted EBITDA margin increased 100 basis points to 10.8% of
restaurant sales.

Income from operations was $13.8 million in the second quarter of 2018
compared to $12.3 million in the prior year period. Impairment and other
lease charges increased $2.4 million from the second quarter of 2017
including a $1.9 million write-off for defective restaurant equipment
that has been replaced in approximately 300 restaurants. The Company has
commenced legal action against the equipment supplier.

Interest expense increased to $5.9 million in the second quarter of 2018
from $5.0 million in the same period last year due to the Company's
add-on offering and issuance of $75 million of its senior secured second
lien notes completed in the second quarter of 2017. Cash balances
totaled $38.2 million at the end of the second quarter of 2018.

Net income was $7.8 million for the second quarter of 2018, or $0.17 per
diluted share, compared to net income of $6.0 million, or $0.13 per
diluted share, in the prior year period.

Adjusted net income in the second quarter of 2018 was $10.0 million, or
$0.22 per diluted share, compared to adjusted net income of $6.6
million, or $0.14 per diluted share, in the prior year period.

Recent Events

In late July, Carrols exercised its right of first refusal to purchase
31 BURGER KING® restaurants in Virginia and separately exercised its
right of first refusal to purchase two restaurants in Detroit, Michigan
under the terms and conditions of purchase and sale agreements between
the sellers and unrelated third parties. The Company anticipates these
transactions to close along with two small acquisitions (a total of four
restaurants) before the end of the third quarter of 2018.

Full Year 2018 Outlook

The Company is revising its guidance for 2018 which includes the
anticipated acquisition of 37 BURGER KING® restaurants (discussed above)
that it expects to be completed in the third quarter of 2018:

  • Total restaurant sales are expected to be $1.16 billion to $1.18
    billion (previously $1.15 billion to $1.17 billion), including a
    comparable restaurant sales increase of 3% to 4% (which has been
    narrowed from 3% to 5% previously);
  • Commodity costs are expected to be flat (previously a 1% to 2%
    increase) including a 1% to 2% decrease in beef costs (previously a 2%
    to 3% increase);
  • General and administrative expenses are still expected to be $58
    million to $60 million, excluding stock compensation expense and
    acquisition-related costs;
  • Adjusted EBITDA is expected to be $100 million to $105 million
    (previously $95 million to $102 million);
  • The effective income tax rate is expected to be 0% to 5%;
  • Capital expenditures before discretionary growth-related expenditures
    (i.e., new restaurant development and acquisitions) are expected to be
    $58 million to $62 million (previously $50 million to $60 million). In
    addition, capital expenditures for the construction of 13 to 15 new
    units and remaining costs from 2017 construction are expected to be
    $20 million to $25 million (previously $15 million to $25 million for
    10 to 15 new units);
  • Expenditures for the acquisition of 37 restaurants included in the
    Company's guidance are expected to be $30 million to $32 million;
  • Proceeds from sale/leasebacks are still expected to be $10 million to
    $15 million; and
  • The Company expects to close 15 to 20 existing restaurants (previously
    20 to 25 restaurants) of which five have already closed.

The Company has not reconciled guidance for Adjusted EBITDA to the
corresponding GAAP financial measure because it does not provide
guidance for net income or for the various reconciling items. The
Company is unable to provide guidance for these reconciling items since
certain items that impact net income are outside of the Company's
control or cannot be reasonably predicted.

Conference Call Today

Daniel T. Accordino, Chief Executive Officer, and Paul R. Flanders,
Chief Financial Officer, will host a conference call to discuss second
quarter 2018 financial results today at 8:30 AM ET.

The conference call can be accessed live over the phone by dialing
334-323-0522. A replay will be available one hour after the call and can
be accessed by dialing 719-457-0820; the passcode is 1176022. The replay
will be available until Tuesday, August 14, 2018. 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 is the largest BURGER KING® franchisee in the United States with
807 restaurants as of July 1, 2018 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, plans or guidance 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) Six Months Ended (a)
July 1, 2018   July 2, 2017 July 1, 2018   July 2, 2017
Restaurant sales $ 303,050 $ 279,478 $ 574,636 $ 519,330
Costs and expenses:
Cost of sales 81,917 78,724 154,922 142,960
Restaurant wages and related expenses 96,954 87,948 188,098 169,019
Restaurant rent expense 19,879 18,892 39,853 36,489
Other restaurant operating expenses 44,589 41,910 87,428 81,105
Advertising expense 12,356 11,431 23,621 21,332
General and administrative expenses (b) (c) 16,020 14,411 32,156 29,987
Depreciation and amortization 14,621 13,366 28,871 26,517
Impairment and other lease charges (d) 2,881 432 3,190 963
Other expense (income), net   29     29
Total costs and expenses 289,217   267,143   558,139   508,401
Income from operations 13,833 12,335 16,497 10,929
Gain on bargain purchase (208 ) (230 )
Interest expense 5,917   5,029   11,843   9,830
Income before income taxes 8,124 7,306 4,884 1,099
Provision for income taxes 336   1,267   198   656
Net income $ 7,788   $ 6,039   $ 4,686   $ 443
 
Basic and diluted net income per share (e)(f) $ 0.17 $ 0.13 $ 0.10 $ 0.01
Basic weighted average common shares outstanding 35,720 35,415 35,693 35,400
Diluted weighted average common shares outstanding 45,201 44,942 45,235 44,981
 

(a)

The Company uses a 52 or 53 week fiscal year that ends on the Sunday
closest to December 31. The three and six months ended July 1, 2018
and July 2, 2017 each included thirteen and twenty-six weeks,
respectively.
(b) General and administrative expenses include acquisition costs of $89
and $448 for the three months ended July 1, 2018 and July 2, 2017,
respectively and $194 and $1,166 for the six months ended July 1,
2018 and July 2, 2017, respectively.
(c) General and administrative expenses include stock-based compensation
expense of $1,385 and $903 for the three months ended July 1, 2018
and July 2, 2017, respectively and $2,970 and $1,786 for the six
months ended July 1, 2018 and July 2, 2017, respectively.
(d) Impairment and other lease charges for the three months ended July
1, 2018 included, among other things, a $1.9 million write down for
defective restaurant equipment that was replaced in approximately
300 restaurants. The Company has commenced litigation against the
equipment supplier.
(e) Basic net income per share was computed excluding income
attributable to preferred stock and non-vested restricted shares
unless the effect would have been anti-dilutive for the periods
presented.
(f) Diluted net income per share was computed including shares issuable
for convertible preferred stock and non-vested restricted shares
unless 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) Six Months Ended (a)
July 1, 2018   July 2, 2017 July 1, 2018   July 2, 2017
 
Total Restaurant Sales $ 303,050 $ 279,478 $ 574,636 $ 519,330
Change in Comparable Restaurant Sales (a) 5.0 % 4.6 % 5.6 % 2.1 %
 
Average Weekly Sales per Restaurant (b) 28,996 27,239 27,490 25,715
 
Restaurant-Level EBITDA (c) $ 47,355 $ 40,573 $ 80,714 $ 68,425
Restaurant-Level EBITDA margin (c) 15.6 % 14.5 % 14.0 % 13.2 %
 
Adjusted EBITDA (c) $ 32,809 $ 27,484 $ 51,722 $ 41,361
Adjusted EBITDA margin (c) 10.8 % 9.8 % 9.0 % 8.0 %
 
Adjusted net income (c) $ 9,970 $ 6,585 $ 7,178 $ 1,763
Adjusted diluted net income per share (c) $ 0.22 $ 0.14 $ 0.16 $ 0.04
 
Number of Restaurants:
Restaurants at beginning of period 807 788 807 753
New restaurants 2 1 4 2
Restaurants acquired 17 1 60
Restaurants closed   (2 )   (7 )   (5 )   (16 )
Restaurants at end of period   807     799     807     799  
Average Number of Restaurants: 804.0 789.3 804.0 776.8
 

At 7/1/18

At 12/31/2017

Long-term debt (d)

$

283,536

$

281,884

Cash and cash equivalents

38,165

29,412

 
(a)   Restaurants are generally included in comparable restaurant sales
after they have been operated by us for 12 months. The calculation
of changes in comparable restaurant sales is based on the comparable
13-week or 26-week period.
(b) Average weekly sales per restaurant are derived by dividing
restaurant sales for the comparable 13-week or 26-week period by the
average number of restaurants operating during such period.
(c) EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Restaurant-Level
EBITDA, Restaurant-Level EBITDA margin and Adjusted net income 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 net income to EBITDA, Adjusted EBITDA and Adjusted
net income, and to the Company's reconciliation of income from
operations to Restaurant-Level EBITDA for further detail. Both
Adjusted EBITDA margin and Restaurant-Level EBITDA margin are
calculated as a percentage of restaurant sales. Adjusted diluted net
income per share is calculated based on Adjusted net income and
reflects the dilutive impact of shares, where applicable, based on
Adjusted net income.
(d) Long-term debt (including current portion and excluding deferred
financing costs) at July 1, 2018 included $275,000 of the Company's
8% Senior Secured Second Lien Notes, $3,741 of lease financing
obligations and $4,795 of capital lease obligations. Long-term debt
(including current portion and excluding deferred financing costs)
at December 31, 2017 included $275,000 of the Company's 8% Senior
Secured Second Lien Notes, $1,203 of lease financing obligations and
$5,681 of capital lease obligations.
 
 

Carrols Restaurant Group, Inc.
Reconciliation of
Non-GAAP Measures

(In thousands, except per share amounts)

 
    (unaudited)   (unaudited)
Three Months Ended (a) Six Months Ended (a)
July 1, 2018   July 2, 2017 July 1, 2018   July 2, 2017
Reconciliation of EBITDA and Adjusted EBITDA: (a)
Net income $ 7,788 $ 6,039 $ 4,686 $ 443
Provision for income taxes 336 1,267 198 656
Interest expense 5,917 5,029 11,843 9,830
Gain on bargain purchase (208 ) (230 )
Depreciation and amortization 14,621   13,366   28,871   26,517  
EBITDA 28,454 25,701 45,368 37,446
Impairment and other lease charges 2,881 432 3,190 963
Acquisition costs (b) 89 448 194 1,166
Stock-based compensation expense 1,385   903   2,970   1,786  
Adjusted EBITDA $ 32,809   $ 27,484   $ 51,722   $ 41,361  
 
Reconciliation of Restaurant-Level EBITDA: (a)
Income from operations $ 13,833 $ 12,335 $ 16,497 $ 10,929
Add:
General and administrative expenses 16,020 14,411 32,156 29,987
Depreciation and amortization 14,621 13,366 28,871 26,517
Impairment and other lease charges 2,881 432 3,190 963
Other expense (income), net   29     29  
Restaurant-Level EBITDA $ 47,355   $ 40,573   $ 80,714   $ 68,425  
 
Reconciliation of Adjusted net income: (a)
Net income $ 7,788 $ 6,039 $ 4,686 $ 443
Add:
Impairment and other lease charges 2,881 432 3,190 963
Gain on bargain purchase (208 ) (230 )
Acquisition costs (b) 89 448 194 1,166
Income tax effect on above adjustments (c) (580 ) (334 ) (662 ) (809 )
Adjusted net income $ 9,970   $ 6,585   $ 7,178   $ 1,763  
Adjusted diluted net income per share $ 0.22 $ 0.14 $ 0.16 $ 0.04
(a)   Within our press release, we make reference to EBITDA, Adjusted
EBITDA, Restaurant-Level EBITDA and Adjusted net income which are
non-GAAP financial measures. EBITDA represents net income before
income taxes, interest expense and depreciation and amortization.
Adjusted EBITDA represents EBITDA as adjusted to exclude impairment
and other lease charges, acquisition costs, stock-based compensation
expense and gain on bargain purchase. Restaurant-Level EBITDA
represents income from operations as adjusted to exclude general and
administrative expenses, depreciation and amortization, impairment
and other lease charges and other expense. Adjusted net income
represents net income as adjusted to exclude impairment and other
lease charges, acquisition costs and gain on bargain purchase.
 

We are presenting Adjusted EBITDA, Restaurant-Level EBITDA and
Adjusted net income because we believe that they provide a more
meaningful comparison than EBITDA and net income 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 expense, all of which are
non-recurring at the restaurant level. Management believes that
Adjusted EBITDA, Restaurant-Level EBITDA and Adjusted net income,
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, Restaurant-Level EBITDA and
Adjusted net income are not measures of financial performance or
liquidity under GAAP and, accordingly, should not be considered as
alternatives to net income, income 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 income and EBITDA, Adjusted EBITDA and
Adjusted net income and between income from operations and
Restaurant-Level EBITDA.
 
(b) Acquisition costs for the periods presented include legal and
professional fees incurred in connection with restaurant
acquisitions.
 
(c) The income tax effect related to the adjustments for impairment and
other lease charges, gain on bargain purchase, and acquisition costs
during the periods presented was calculated using an effective
income tax rate of 21% for the three and six months ended July 1,
2018 and 38% for the three and six months ended July 2, 2017.
 

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