CEC Entertainment, Inc. Reports Financial Results for the 2016 Second Quarter

About CEC Entertainment, Inc.

Second Quarter Results

Balance Sheet and Liquidity

Conference Call Information

By: Chuck E. Cheese's | 0 Shares 234 Reads

IRVING, Texas - Aug. 4, 2016 // PRNewswire // - CEC Entertainment, Inc. (the "Company") today announced financial results for its second quarter ended July 3, 2016.

Second quarter same store sales for our Chuck E. Cheese's and Peter Piper Pizza stores, on a same calendar week basis (1), increased 2.6% compared to the comparable prior year period
On a fiscal period basis second quarter same store sales for our Chuck E. Cheese's and Peter Piper Pizza stores increased 1.8% over the 2015 fiscal second quarter
Total revenues increased 2.1% over the prior year fiscal second quarter to $216.6 million

"We are pleased to report our fifth consecutive quarter of same store sales growth at our Chuck E. Cheese's stores" said Tom Leverton, Chief Executive Officer. "We continue to see the benefit of the food and hospitality initiatives we have implemented during the past two years. In addition, we are pleased to report that Peter Piper Pizza recorded its 24th consecutive quarter of same store sales growth."

Our fiscal calendar results were negatively impacted by the shift in the July 4th holiday weekend into the second quarter of 2016 instead of the third quarter in 2015 and the shift of several spring breaks into the first quarter of 2016 instead of the second quarter in 2015.

Total revenues for the second fiscal quarter of 2016 increased 2.1%, or $4.5 million, over the prior year to$216.6 million. The increase is attributable to increased same store sales at both our Chuck E. Cheese'sand Peter Piper Pizza brands. On a calendar week basis same store sales for our Chuck E. Cheese's andPeter Piper Pizza stores increased 2.6% over the comparable weeks in 2015.

The Company reported a net loss of $9.1 million for the second quarter of 2016, compared to a net loss of$9.9 million for the second quarter of 2015. The decrease in the net loss was driven by increased store revenues and lower marketing and corporate overhead costs, offset by an increase in merchandise and other store related operating costs.

Adjusted EBITDA for the second quarter of 2016 increased $0.3 million over the prior year period to $41.4 million. Adjusted EBITDA represents net income (loss) adjusted to exclude interest expense, income taxes, depreciation and amortization, asset impairments, the effects of acquisition accounting adjustments, transaction and severance costs and certain other items. In determining Adjusted EBITDA, the increase in revenue was offset by the higher merchandise and other store operating costs.

(1) Our fiscal year ending January 1, 2017 will consist of 52 weeks and our fiscal year ended January 3, 2016 consisted of 53 weeks. As a result of the 53 week fiscal year in 2015, our 2016 fiscal year began one calendar week later than our 2015 fiscal year. In order to provide useful information and to better analyze our business, we have provided same store sales presented on both a fiscal week basis and calendar week basis. Same store sales growth on a calendar week basis compares the results for the period from April 4, 2016 through July 3, 2016 (weeks 14 through 26 of our 2016 fiscal year) to the results for the period from April 6, 2015 through July 5, 2015 (weeks 15 through 27 of our 2015 fiscal year). We believe same store sales growth calculated on a same calendar week basis is more indicative of the operating trends in our business. However, we also recognize that same store sales growth calculated on a fiscal week basis is a useful measure when analyzing year-over-year changes in our financial results.

As of July 3, 2016, cash and cash equivalents were $75.6 million, and the principal outstanding on our debt was $1.0 billion, with net availability of $140.1 million on our undrawn revolving credit facility. During the second quarter of 2016, we had capital expenditures of $26.4 million, of which $8.5 million related to our PlayPass initiative and another $5.2 million were related to other growth initiatives. In addition, we had $2.4 million in capital expenditures related to IT initiatives.

As of July 3, 2016, the Company's system-wide portfolio consisted of:

	Chuck E. Cheese's	Peter Piper Pizza	Total
Company operated	524	32	556
Domestic franchised	29	62	91
International franchised	45	47	92
Total	598	141	739

The Company will host a conference call beginning at 9:00 a.m. Central Time on Friday, August 5, 2016. The call can be accessed by dialing (855) 743-8451 or (330) 968-0151 for international participants and conference code 49324126.

A replay of the call will be available from 12:00 p.m. Central Time on August 5, 2016 through midnight Central Time on August 12, 2016. The replay of the call can be accessed by dialing (800) 585-8367 or (404) 537-3406 for international participants and conference code 49324126.

The number of new and closed Company owned stores during the six months ended June 28, 2015 included one store that was relocated.

The number of new and closed franchise stores during the three and six months ended June 28, 2015 included one store that was relocated.

The number of new and closed stores during the three and six months ended June 28, 2015 included one and two stores, respectively, that were relocated.

For nearly 40 years, CEC Entertainment has served as the nationally recognized leader in family dining and entertainment and the place Where A Kid Can Be A Kid®. Chuck E. Cheese's goal is to create positive, lifelong memories for families through fun, food, and play. Each Chuck E. Cheese's features musical entertainment, games, rides, and play areas for kids of all ages, as well as a variety of freshly prepared dining options. It is also a place where more than a million happy birthdays are celebrated every year. 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 and childhood education, Chuck E. Cheese's has donated more than $13 million to schools through its fundraising programs. As of July 3, 2016 the Company and its franchisees operated a system of 598 Chuck E. Cheese's stores and 141 Peter Piper Pizza stores, with locations in 47 states and 12 foreign countries and territories. For more information, visit chuckecheese.com and peterpiperpizza.com.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements in this press release, other than historical information, may be considered "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, and are subject to various risks, uncertainties and assumptions. Statements that are not historical in nature and which may be identified by the use of words such as "may," "should," "could," "believe," "predict," "potential," "continue," "plan," "intend," "expect," "anticipate," "future," "project," "estimate," and similar expressions (or the negative of such expressions) 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 3, 2016, filed with the Securities and Exchange Commission on March 2, 2016. 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:

Negative publicity concerning food quality, health, general safety and other issues, and changes in consumer preferences;
The success of our capital initiatives, including new store development and existing store evolution;
Our ability to successfully implement our marketing strategy;
Competition in both the restaurant and entertainment industries;
Economic uncertainty and changes in consumer discretionary spending in the United States andCanada;
Expansion in international markets;
Our ability to generate sufficient cash flow to meet our debt service payments;
Increases in food, labor and other operating costs;
Disruptions of our information technology systems and technologies, including, but not limited to, data security breaches;
Any disruption of our commodity distribution system;
Our dependence on a limited number of suppliers for our games, rides, entertainment-related equipment, redemption prizes and merchandise;
Product liability claims and product recalls;
Government regulations;
Litigation risks;
Adverse effects of local conditions, natural disasters and other events;
Fluctuations in our quarterly results of operations due to seasonality;
Inadequate insurance coverage;
Loss of certain key personnel;
Our ability to adequately protect our trademarks or other proprietary rights;
Risks in connection with owning and leasing real estate; and
Our ability to successfully integrate the operations of companies we acquire.

The forward-looking statements made in this report relate only to events as of the date on which the statements were made. Except as may be required by law, we undertake no obligation to update our forward-looking statements to reflect events and circumstances after the date on which the statements were made or to reflect the occurrence of unanticipated events.

CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands)

	Three Months Ended						Six Months Ended
	July 3, 2016			June 28, 2015			July 3, 2016			June 28, 2015
REVENUES:
Food and beverage sales	$	97,404	45.0%	$	94,145	44.4%	$	219,607	44.7%	$	210,681	44.1%
Entertainment and merchandise sales	114,657		52.9%	113,861		53.7%	262,214		53.4%	258,605		54.1%
Total Company store sales	212,061		97.9%	208,006		98.1%	481,821		98.1%	469,286		98.3%
Franchise fees and royalties	4,560		2.1%	4,073		1.9%	9,118		1.9%	8,300		1.7%
Total revenues	216,621		100.0%	212,079		100.0%	490,939		100.0%	477,586		100.0%
OPERATING COSTS AND EXPENSES:
Company store operating costs:
Cost of food and beverage (exclusive of items shown separately below) ⁽¹⁾	24,673		25.3%	23,951		25.4%	55,195		25.1%	53,176		25.2%
Cost of entertainment and merchandise (exclusive of items shown separately below) ⁽²⁾	8,240		7.2%	7,015		6.2%	16,989		6.5%	15,537		6.0%
Total cost of food, beverage, entertainment and merchandise ⁽³⁾	32,913		15.5%	30,966		14.9%	72,184		15.0%	68,713		14.6%
Labor expenses ⁽³⁾	60,405		28.5%	59,234		28.5%	129,448		26.9%	126,407		26.9%
Depreciation and amortization ⁽³⁾	29,733		14.0%	28,970		13.9%	57,362		11.9%	58,211		12.4%
Rent expense ⁽³⁾	24,049		11.3%	24,260		11.7%	48,199		10.0%	48,719		10.4%
Other store operating expenses⁽³⁾	37,376		17.6%	35,330		17.0%	73,387		15.2%	68,848		14.7%
Total Company store operating costs ⁽³⁾	184,476		87.0%	178,760		85.9%	380,580		79.0%	370,898		79.0%
Other costs and expenses:
Advertising expense	12,162		5.6%	14,596		6.9%	25,261		5.1%	26,048		5.5%
General and administrative expenses	15,922		7.4%	17,807		8.4%	33,939		6.9%	34,030		7.1%
Transaction, severance and related litigation costs	434		0.2%	1,104		0.5%	1,184		0.2%	2,112		0.4%
Total operating costs and expenses	212,994		98.3%	212,267		100.1%	440,964		89.8%	433,088		90.7%
Operating income	3,627		1.7%	(188)		(0.1)%	49,975		10.2%	44,498		9.3%
Interest expense	17,121		7.9%	17,324		8.2%	34,182		7.0%	34,822		7.3%
Income (loss) before income taxes	(13,494)		(6.2)%	(17,512)		(8.3)%	15,793		3.2%	9,676		2.0%
Income tax expense (benefit)	(4,442)		(2.1)%	(7,620)		(3.6)%	6,930		1.4%	4,826		1.0%
Net income (loss)	$	(9,052)	(4.2)%	$	(9,892)	(4.7)%	$	8,863	1.8%	$	4,850	1.0%

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 store 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 store sales.

CEC ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)

	July 3, 2016		January 3, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	75,591	$	50,654
Other current assets	64,035		67,434
Total current assets	139,626		118,088
Property and equipment, net	606,646		629,047
Goodwill	483,876		483,876
Intangible assets, net	486,041		488,095
Other noncurrent assets	21,449		13,929
Total assets	$	1,737,638	$	1,733,035
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Bank indebtedness and other long-term debt	$	7,639	$	7,650
Other current liabilities	106,616		106,463
Total current liabilities	114,255		114,113
Capital lease obligations, less current portion	14,813		15,044
Bank indebtedness and other long term debt, net of deferred financing costs, less current portion	969,793		971,333
Deferred tax liability	195,452		201,734
Other noncurrent liabilities	224,653		222,265
Total liabilities	1,518,966		1,524,489
Stockholder's equity:
Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of July 3, 2016 and January 3, 2016	—		—
Capital in excess of par value	356,808		356,460
Accumulated deficit	(135,735)		(144,598)
Accumulated other comprehensive loss	(2,401)		(3,316)
Total stockholder's equity	218,672		208,546
Total liabilities and stockholder's equity	$	1,737,638	$	1,733,035

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

	Six Months Ended
	July 3, 2016		June 28, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	8,863	$	4,850
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	60,282		60,248
Deferred income taxes	(6,449)		(11,909)
Stock-based compensation expense	337		570
Amortization of lease related liabilities	23		61
Amortization of original issue discount and deferred debt financing costs	2,273		2,273
Loss on asset disposals, net	4,073		3,042
Non-cash rent expense	3,507		4,289
Other adjustments	172		(494)
Changes in operating assets and liabilities:
Operating assets	(1,629)		(4,371)
Operating liabilities	6,286		8,812
Net cash provided by operating activities	77,738		67,371
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Peter Piper Pizza	—		(663)
Purchases of property and equipment	(42,400)		(38,628)
Proceeds from sale of property and equipment	318		82
Development of internal use software	(6,223)		(1,571)
Net cash used in investing activities	(48,305)		(40,780)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on senior term loan	(3,800)		(3,800)
Other financing activities	(1,180)		(1,002)
Net cash used in financing activities	(4,980)		(4,802)
Effect of foreign exchange rate changes on cash	484		(428)
Change in cash and cash equivalents	24,937		21,361
Cash and cash equivalents at beginning of period	50,654		110,994
Cash and cash equivalents at end of period	$	75,591	$	132,355

CEC ENTERTAINMENT, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited)
(in thousands)

Non-GAAP Financial Measures

The Company reports and discusses its operating results using financial measures consistent with accounting principles generally accepted in the United States ("GAAP"). From time to time in the course of financial presentations, earnings conference calls or otherwise, the Company may disclose certain non-GAAP financial measures such as Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA"). The Company believes Adjusted EBITDA is a measure that provides investors with additional information to measure our performance. We believe that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about certain material non-cash items and about unusual items that we do not expect to continue at the same level in the future, as well as other items. Further, we believe Adjusted EBITDA provides a meaningful measure of operating profitability because we use it for evaluating our business performance and understanding certain significant items. The non-GAAP financial measures presented in this earnings release should not be viewed as alternatives or substitutes for the Company's reported GAAP results.

The following table sets forth a reconciliation of net income to Adjusted EBITDA and Adjusted EBITDA expressed as a percentage of total revenues for the periods shown:

	Three Months Ended				Six Months Ended
	July 3 2016		June 28 2015		July 3 2016		June 28 2015

Total revenues	$	216,621	$	212,079	$	490,939	$	477,586
Net income (loss) as reported	$	(9,052)	$	(9,892)	$	8,863	$	4,850
Interest expense	17,121		17,324		34,182		34,822
Income tax expense (benefit)	(4,442)		(7,620)		6,930		4,826
Depreciation and amortization	31,284		29,849		60,282		60,248
Non-cash impairments, gain or loss on disposal	1,895		1,799		4,073		3,042
Non-cash stock-based compensation	202		178		337		570
Rent expense book to cash	2,503		1,968		4,663		4,179
Franchise revenue, net cash received	271		—		162		(65)
Impact of purchase accounting	356		116		555		348
Store pre-opening costs	96		117		316		362
One-time items	1,153		6,254		3,055		7,605
Cost savings initiatives	—		1,001		62		1,001
Adjusted EBITDA	$	41,387	$	41,094	$	123,480	$	121,788
Adjusted EBITDA as a percent of total revenues	19.1%		19.4%		25.2%		25.5%

Adjusted EBITDA, a measure used by management to assess operating performance, is defined as Net income (loss) plus interest expense, income taxes and depreciation and amortization, adjusted to exclude asset impairments, the effects of acquisition accounting adjustments, transaction and severance costs, and certain other items.

CEC ENTERTAINMENT, INC.
STORE COUNT INFORMATION
(Unaudited)

	Three Months Ended		Six Months Ended
	July 3, 2016	June 28, 2015	July 3, 2016	June 28, 2015
Number of Company-owned stores:
Beginning of period	556	560	556	559
New ⁽¹⁾	—	—	1	2
Closed ⁽¹⁾	—	(3)	(1)	(4)
End of period	556	557	556	557
Number of franchised stores:
Beginning of period	179	175	176	172
New ⁽²⁾	5	1	9	4
Closed ⁽²⁾	(1)	(3)	(2)	(3)
End of period	183	173	183	173
Total number of stores:
Beginning of period	735	735	732	731
New ⁽³⁾	5	1	10	6
Closed ⁽³⁾	(1)	(6)	(3)	(7)
End of period	739	730	739	730