Business Context and Reporting Period
The filing is a Form 10-Q for Pizza Inn Holdings, Inc. for the 13-week quarter and 39-week year-to-date period ended March 24, 2013, with comparisons to March 25, 2012. The request metadata identifies Rave Restaurant Group, Inc.; however, the supplied filing identifies the registrant as Pizza Inn Holdings, Inc.
The company operates and franchises Pizza Inn buffet, delivery/carry-out and express restaurants, operates company-owned Pie Five restaurants, and distributes food and supplies to franchisees. At March 24, 2013, the system had 282 restaurants: 13 company-owned and 269 franchised units.
Financial Performance and Liquidity
| Metric | Three months ended March 24, 2013 | Three months ended March 25, 2012 | Nine months ended March 24, 2013 | Nine months ended March 25, 2012 |
|---|---|---|---|---|
| Revenue | $9.8 million | $10.6 million | $30.8 million | $32.1 million |
| Income (loss) from continuing operations | $(0.3) million | $0.1 million | $(0.4) million | $0.5 million |
| Net income (loss) | $(0.4) million | $0.1 million | $(0.6) million | $0.4 million |
| EBITDA from continuing operations | $0.1 million | $0.4 million | $0.5 million | $1.5 million |
| Operating cash flow | Not provided for the quarter | Not provided for the quarter | $0.7 million | $0.9 million |
- Quarterly revenue decreased approximately 8.1%; year-to-date revenue decreased approximately 4.2%.
- Food and supply sales declined to $6.9 million from $8.1 million for the quarter and to $22.3 million from $25.2 million year to date.
- Restaurant sales increased to $2.1 million from $1.7 million for the quarter and to $5.8 million from $4.2 million year to date, primarily because of new company-owned Pie Five restaurants.
- Quarterly EBITDA from continuing operations declined approximately 79% to $86,000. The filing does not provide a clear GAAP gross or operating margin percentage.
- Capital expenditures were $1.5 million year to date, compared with $2.2 million in the prior-year period. Investing cash outflow was $1.4 million, partly offset by $0.2 million of asset-sale proceeds.
- Cash and cash equivalents were $0.8 million at March 24, 2013, compared with $0.6 million at June 24, 2012.
- Total bank debt was $2.7 million, consisting of $0.6 million current and $2.1 million long-term debt. The company reported $1.8 million of additional revolving availability and $5.1 million of availability under the advancing term loan facility, subject to facility conditions.
- Total liabilities were $7.0 million and shareholders’ equity was $5.9 million at March 24, 2013.
Material Changes Versus the Prior Comparable Period
- Domestic franchisee retail sales decreased 14.7% for the quarter and 11.0% year to date, driven by fewer open stores and lower same-store sales. Domestic same-store sales declined 8.1% for the quarter and 6.3% year to date.
- International franchisee retail sales increased 31.9% for the quarter and 30.4% year to date; international same-store sales increased 6.9% and 5.9%, respectively.
- Franchise and food-and-supply distribution revenue declined, while company-owned restaurant revenue increased as the company expanded Pie Five.
- Company-owned restaurant operations remained loss-making. Pie Five generated $1.3 million of quarterly sales and $3.4 million year to date, but reported pretax losses of $0.2 million and $0.5 million, respectively.
- General and administrative expense increased year to date to $3.0 million from $2.7 million, including approximately $0.2 million of recruiting and operating expenses related to new Pie Five units.
- Bad-debt expense increased to $45,000 for the quarter and $135,000 year to date, reflecting greater collection risk among franchisees experiencing weaker sales.
- Interest expense increased to $58,000 for the quarter and $197,000 year to date because of higher borrowings and costs associated with refinancing the credit facilities.
- The restaurant count declined to 282 from 296 at the end of the comparable prior-year quarter. During the nine months, 12 restaurants opened and 28 closed.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management stated that cash on hand, operating cash flow and available credit facilities should be sufficient to fund operations at the current level for the next 12 months, but additional capital may be needed to maintain or accelerate Pie Five development.
- The F&M credit facilities are secured by substantially all company assets and contain financial and other covenants. A default could allow the lender to terminate commitments and accelerate amounts owed.
- Discontinued operations included a $0.1 million after-tax loss from the sale of a former Little Elm, Texas restaurant property. The company also continues to carry obligations related to a closed Houston property that is being marketed for sublease and has not been reserved for additional costs.
- Management believes its $1.0 million of deferred tax assets are realizable through future taxable income and reversal of temporary differences; realization depends on future performance and tax conditions.
- Pending legal claims arise in the ordinary course of business. Management believes they are insured or will not materially affect results, cash flows or financial condition.
- Forward-looking statements are subject to risks relating to franchisee performance, restaurant openings and closures, Pie Five development, liquidity, credit availability, collectability of receivables, impairment, taxes and other factors described in the company’s Form 10-K.
- Disclosure controls and procedures were evaluated as effective at March 24, 2013, with no material changes to internal control over financial reporting reported during the quarter.
Important Facts for Investors to Verify
- Confirm the correct registrant and period, because the request metadata names Rave Restaurant Group, Inc., while the filing names Pizza Inn Holdings, Inc.
- Assess whether domestic franchisee sales declines and restaurant closures are stabilizing, particularly in the buffet format.
- Evaluate whether Pie Five unit expansion can produce positive store-level and consolidated returns before available borrowing capacity is exhausted.
- Review F&M covenant compliance, debt maturities, borrowing availability and collateral requirements.
- Test the recoverability of receivables and the stated $1.0 million deferred tax asset in light of continuing losses.
- Consider the effect of discontinued operations, property-sale losses and ongoing lease obligations on future cash requirements.