Good Times Restaurants Inc. — FY2022 Form 10-K
Business context and reporting period. The company operates Bad Daddy’s Burger Bar, a full-service casual-dining concept, and Good Times Burgers & Frozen Custard, a drive-thru-focused quick-service concept. This is an annual report for the 52-week fiscal year ended September 27, 2022, compared with the 52 weeks ended September 28, 2021; it is not a quarterly filing. At fiscal year-end, the company had $8.9 million in cash and no outstanding borrowings.
Financial results and key metrics
| Metric | FY2022 | FY2021 |
|---|---|---|
| Total net revenues | $138.2 million | $124.0 million |
| Income (loss) from operations | $(0.9) million | $6.9 million |
| Consolidated net income (loss) | $(0.9) million | $18.4 million |
| Net income (loss) attributable to common shareholders | $(2.6) million; $(0.21) per share | $16.8 million; $1.32 per share |
| Net cash provided by operating activities | $5.3 million | $9.1 million |
| Cash and cash equivalents at year-end | $8.9 million | $8.9 million |
| Adjusted EBITDA (non-GAAP) | $4.8 million | $9.6 million |
Revenue and segment performance. Revenue grew 11.5%, led by Bad Daddy’s revenue growth of approximately $14.7 million; Good Times revenue declined approximately $0.4 million. Bad Daddy’s same-store sales rose 11.2%, including average menu price increases of about 5.7%. Good Times same-store sales rose 1.1%, with price increases of about 7.7% offset in part by lower traffic. Bad Daddy’s reported an $0.8 million operating loss versus $3.3 million operating income in FY2021. Good Times reported an $0.1 million operating loss versus $3.6 million operating income.
Costs and margins. Food and packaging costs rose to $43.9 million, or 32.0% of restaurant sales, from 29.4%; payroll and benefits rose to $46.5 million, or 33.9%, from 33.4%. Inflation in food, packaging, energy and wages, alongside a tight labor market, pressured restaurant economics. Total restaurant operating costs were $122.3 million. The filing reports operating loss of $0.9 million.
Cash, liquidity and debt. Operating cash flow was $5.3 million; investing activities used $2.6 million, mainly for property and equipment, and financing activities used $2.6 million, including $1.0 million for share repurchases and distributions to non-controlling interests. Working capital was negative $1.0 million, which management primarily attributed to current operating lease liabilities. The company had no outstanding borrowings under its $8.0 million Cadence credit facility and reported compliance with its financial covenants. The facility was scheduled to mature January 31, 2023, with refinancing or amendment under review. Separately, operating lease liabilities totaled $51.0 million; these are lease obligations, not reported borrowings.
Material changes, outlook and risks
- Prior-year comparison includes unusual PPP benefit: FY2021 included an $11.8 million gain from full forgiveness of Paycheck Protection Program loans. This materially boosted prior-year earnings; the loans are fully forgiven.
- FY2022 unusual charges and gains: The company recorded $3.4 million of non-cash long-lived asset impairment charges for five restaurants, a $0.3 million litigation accrual, and a $0.7 million gain on restaurant asset disposals. Adjusted EBITDA also excludes specified items and is a non-GAAP measure.
- Liquidity actions: A $5.0 million share-repurchase authorization began in February 2022. By year-end, 316,447 shares had been repurchased for approximately $1.1 million. The company also made a separate purchase of 27,307 shares from two non-executive employees.
- Outlook: Management anticipated one Bad Daddy’s opening in FY2023 and described further Bad Daddy’s growth as disciplined and primarily supported by operating cash flow. It had no explicit plans for new Good Times units. Management could not reasonably predict FY2023 menu-price increases given unusually high input-cost inflation; it warned that price increases sufficient to offset costs could hurt customer visits.
- Principal operating risks: Persistent food and labor inflation, supply-chain constraints, staffing shortages, competition, consumer sensitivity to price increases, and the continuing potential effects of COVID-19. Management said inflation exceeded what it believed could reasonably be passed through without harming demand.
- Litigation: In a lawsuit arising from failed negotiations to sell the Good Times Drive Thru subsidiary, the court had limited the plaintiffs’ claims and potential damages. A judgment was still pending after the October 2022 post-trial briefing. The company accrued $332,000; it cautioned that additional liability above the accrual could materially affect results, liquidity or financial condition.
- Reporting and audit: The independent auditor issued an unqualified opinion on the consolidated financial statements and reported no critical audit matters. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal-control effectiveness.
Important facts for investors to verify
- Confirm the credit facility’s renewal, replacement or repayment after its January 31, 2023 maturity date and review the resulting capacity, pricing and covenants.
- Track whether same-store sales and restaurant-level profitability can withstand inflation and labor costs without impairing customer traffic.
- Review subsequent developments and any final judgment or settlement in the White Winston litigation relative to the $332,000 accrual.
- Assess the company’s cash generation against its negative working capital, $51.0 million of operating lease liabilities, capital needs and continued share repurchases.
- Reconcile earnings comparisons carefully: FY2021 benefited from $11.8 million of PPP forgiveness, while FY2022 included impairments and litigation expense. The filing’s audited statements report a $0.9 million consolidated net loss and a $2.6 million loss attributable to common shareholders.