Good Times Restaurants Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended September 25, 2018 (52 weeks); comparison is with the 52 weeks ended September 26, 2017. This is an annual filing, not a stand-alone fourth-quarter report. The company operates Good Times Burgers & Frozen Custard (quick service) and Bad Daddy’s Burger Bar (full service).
Financial performance
| Metric | FY2018 | FY2017 |
|---|---|---|
| Net revenue | $99.240 million | $79.080 million |
| Operating income (loss) | $0.372 million | $(1.422) million |
| Consolidated net income (loss) | $(0.017) million | $(1.605) million |
| Net loss attributable to common shareholders | $(1.034) million; $(0.08) per share | $(2.255) million; $(0.18) per share |
| Operating cash flow | $6.504 million | $4.983 million |
| Capital expenditures, net of sale-leaseback proceeds | $9.034 million cash used in investing | $12.628 million cash used in investing |
| Cash and cash equivalents at year-end | $3.477 million | $4.337 million |
| Long-term debt and capital lease obligations | $7.489 million | $5.356 million |
| Working capital | $(1.954) million | $(0.850) million |
Revenue rose 25.5%, mainly from nine Bad Daddy’s openings in FY2018 and a full year of operations for prior-year openings. Restaurant sales were $98.564 million; franchise royalties were $0.676 million. The company reported Adjusted EBITDA of $5.758 million versus $3.777 million, a non-GAAP measure that excludes specified costs and should not be viewed as a substitute for GAAP results.
Bad Daddy’s revenue was $67.780 million, up from $48.067 million; segment operating income was $0.281 million, compared with a $1.104 million loss. Same-store sales increased 0.2% (0.8% excluding Hurricane Florence’s impact). Good Times revenue was $31.460 million, up from $31.013 million; segment operating income was $0.496 million versus $0.322 million. Same-store sales increased 4.2%, extending the brand’s streak to eight consecutive years.
Across the company, restaurant operating costs were $88.942 million, or about 89.6% of revenue; selling, general and administrative costs were $7.857 million, or about 7.9% of revenue. Food and packaging costs improved to 30.7% of restaurant sales from 31.8%; payroll and benefits were 36.2% versus 36.1%. Interest expense increased to $0.392 million from $0.191 million.
Material changes and liquidity
- Operating results improved substantially, but the company still recorded a $1.034 million loss attributable to common shareholders. The difference from the $0.017 million consolidated net loss reflects $1.017 million of income allocated to non-controlling interests in joint ventures.
- Bad Daddy’s restaurant growth drove most of the revenue increase and required $9.692 million of development spending. Two company-owned Good Times restaurants and one franchised Good Times restaurant closed during FY2018; a $0.072 million impairment charge was recorded for one company-owned closure.
- Operating cash flow increased, but cash declined by $0.860 million as investing outflows exceeded operating cash generation. Year-end debt included $7.450 million outstanding on the Cadence Bank facility and $0.039 million of vehicle notes.
- At September 25, 2018, the revolving facility limit was $12 million; the company was in compliance with its covenants. On October 31, 2018, the facility was amended to a $17 million limit, with maturity extended to December 31, 2021, revised pricing and a lower minimum-liquidity covenant of $2 million. The facility is secured by substantially all company assets.
Outlook, risks and unusual items
- Management planned five to six Bad Daddy’s openings in FY2019, including one opened after year-end, and anticipated approximately 2%–3% Bad Daddy’s and 2%–4% Good Times menu price increases. It described the Good Times outlook as cautiously optimistic.
- The company stated it expected a loss in FY2019, despite believing cash, operating cash flow and facility borrowings would cover expected working capital, debt service and recurring capital needs. Management’s expectations are not guarantees.
- Key risks include continued losses and an accumulated deficit of $25.414 million; labor availability and wage inflation; food cost and supply volatility; competition and discounting; execution, capital needs and ramp-up of Bad Daddy’s expansion; access to credit and covenant compliance; and concentration in Colorado and the Southeast. Hurricane Florence reduced Bad Daddy’s comparable sales in late September.
- Good Times recorded a full valuation allowance against deferred tax assets. Lease commitments were substantial: future minimum operating lease payments totaled $49.387 million before $1.124 million of sublease rentals. The company also remained contingently liable on certain assigned or subleased leases if counterparties default.
- The company reported no material legal proceedings. The auditor gave an unqualified opinion on the financial statements; management reported effective disclosure controls and internal control over financial reporting, without an auditor attestation on internal controls.
Investor verification priorities
- Confirm the bridge between consolidated net loss, non-controlling-interest allocations and the loss attributable to common shareholders.
- Assess whether Bad Daddy’s new-unit sales and restaurant-level economics can support expansion after preopening and development costs.
- Track cash burn, capital spending, borrowing availability, variable-rate interest costs and compliance with the amended credit-facility covenants.
- Test whether same-store sales and planned price increases can offset wage, occupancy and commodity-cost pressures without weakening customer traffic.
- Review lease obligations, contingent lease guarantees, and the expected balance-sheet impact of adopting the new lease accounting standard.