Good Times Restaurants Inc. — FY2019 Form 10-K
Business context and reporting period. The filing covers the 52-week fiscal year ended September 24, 2019, compared with the year ended September 25, 2018; it is an annual report, not a standalone fourth-quarter report. The company operates two restaurant concepts: Bad Daddy’s Burger Bar, a full-service casual-dining brand, and Good Times Burgers & Frozen Custard, a quick-service drive-through brand. At fiscal year-end, it operated or participated in 26 Good Times and 37 Bad Daddy’s company-operated or joint-venture locations, alongside franchise and license locations.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Total revenue | $110.8 million | $99.6 million |
| Operating income (loss) | $(3.5) million | $0.4 million |
| Consolidated net income (loss) | $(4.2) million | $(0.02) million |
| Net income (loss) attributable to common stockholders | $(5.1) million | $(1.0) million |
| Operating cash flow | $6.8 million | $6.5 million |
| Cash at year-end | $2.7 million | $3.5 million |
| Cadence credit-facility borrowings | $12.9 million | $7.5 million |
Revenue rose 11.2%, mainly from four Bad Daddy’s openings in FY2019 and a full year of sales from prior-year openings. Same-store sales declined 0.2% at Bad Daddy’s and 0.4% at Good Times. The company reported a $4.3 million working-capital deficit. Investing cash outflow was $11.1 million, including $8.1 million of capital expenditures and approximately $3.0 million to buy out joint-venture interests; financing cash inflow was $3.6 million.
Restaurant operating costs were $99.6 million, approximately 90% of revenue. Labor and employee-benefit costs rose to 37.5% of restaurant sales from 36.2%; management cited wage increases and tight labor markets. The company recorded $2.8 million of non-cash asset impairment charges, including charges for three Bad Daddy’s and two Good Times restaurants. Adjusted EBITDA, a non-GAAP measure, was $5.4 million versus $5.8 million. It excludes, among other items, impairment, preopening expenses, stock compensation and severance costs.
Material changes and unusual items
- Bad Daddy’s revenue increased to $80.1 million from $67.8 million; Good Times revenue declined to $30.6 million from $31.8 million. Bad Daddy’s segment operating performance deteriorated, while Good Times remained modestly profitable before corporate costs.
- On February 6, 2019, the company paid approximately $3.0 million to acquire the remaining interests in three Raleigh-area Bad Daddy’s joint ventures.
- The former CEO’s departure was agreed after year-end, on October 8, 2019. The company nevertheless accrued approximately $1.0 million of related compensation cost in FY2019, including $731,000 of severance and $277,000 of non-cash stock compensation.
- In December 2019, the Cadence credit agreement was amended, including changes to covenant EBITDA calculations, quarterly principal installments beginning March 2020, and limited permission for certain equity repurchases.
Outlook, risks and contingencies
Management expected no more than two additional Bad Daddy’s openings in FY2020, following two openings shortly after year-end. It anticipated price increases of approximately 2%–3% at Bad Daddy’s and 2%–4% at Good Times, and described the Good Times outlook as cautiously optimistic. The filing also states that the company expected a loss for FY2020. Management said it expected cash from operations and credit-facility borrowings to meet FY2020 working-capital, debt-service and recurring capital needs.
The $17 million Cadence facility matures December 31, 2021, is secured by substantially all company assets, and had a 5.67% weighted-average borrowing rate at year-end. The company reported covenant compliance at September 24, 2019; minimum liquidity under the facility was $2.0 million. Adoption of the new lease standard in FY2020 was expected to add approximately $50–$53 million of lease liabilities and $42–$44 million of right-of-use assets to the balance sheet.
Key risks include continued operating losses, weak same-store sales, labor and minimum-wage cost pressure, food-cost volatility, competition (including In-N-Out’s planned Colorado expansion), execution and funding of Bad Daddy’s growth, and concentration in Colorado and the Southeast. The company also remains contingently liable for certain restaurant leases assigned or subleased to others; it reported no known defaults. It reported no material legal proceedings. A full valuation allowance was maintained against deferred tax assets.
Important facts for investors to verify
- Reconcile the filing’s presentation of FY2019 net loss: the statements report a consolidated net loss of $4.248 million and a loss attributable to common stockholders of $5.137 million; the Adjusted EBITDA reconciliation starts from the latter.
- Track cash, facility availability, covenant headroom, and the effect of required quarterly debt payments and lease-standard adoption.
- Assess whether impaired restaurants improve, close, or are subleased as planned, and whether Bad Daddy’s expansion generates returns sufficient to support its capital requirements.
- Monitor comparable sales, labor costs, delivery-related expenses and pricing effects, as well as the CEO transition and associated payments.