Good Times Restaurants Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended September 29, 2020, comprising 53 weeks, compared with 52 weeks in FY2019. This is an annual filing, not a standalone fourth-quarter report. The company operates Bad Daddy’s Burger Bar (full-service casual dining) and Good Times Burgers & Frozen Custard (drive-through focused quick service).
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Total net revenue | $109.858 million | $110.755 million |
| Net loss | $12.794 million | $4.248 million |
| Net loss attributable to common stockholders | $13.916 million | $5.137 million |
| Loss from operations | $12.041 million | $3.495 million |
| Net cash from operating activities | $8.369 million | $6.771 million |
| Capital expenditures | $2.596 million | $8.079 million |
| Adjusted EBITDA (non-GAAP) | $7.589 million | $5.440 million |
- Revenue declined 0.8% despite the extra fiscal week. Restaurant sales were $109.078 million; franchise revenue was $0.780 million.
- Bad Daddy’s same-store sales fell 17.7%; Good Times same-store sales increased 7.9%. Bad Daddy’s revenue was approximately $76.5 million, while Good Times revenue was approximately $33.3 million.
- Restaurant operating costs were $97.225 million, about 89.1% of restaurant sales. Food and packaging costs were 28.8% of restaurant sales, and payroll and employee benefits were 35.2%.
- FY2020 included $10.0 million of goodwill impairment and $5.606 million of long-lived asset impairment, both non-cash charges. The company reported a $44.467 million accumulated deficit at year-end.
- Cash and cash equivalents were $11.454 million, up from $2.745 million. Working capital was negative $5.145 million. The company reported $17.145 million in notes payable and long-term debt, including $11.645 million of PPP loans; reported balance-sheet debt was $17.145 million in total.
- Operating lease liabilities were $58.420 million after adoption of the lease accounting standard. The company also had $76.144 million of undiscounted future minimum lease payments.
Material changes and drivers
- COVID-19 closures and capacity restrictions sharply affected Bad Daddy’s, whose dining rooms were closed for periods in spring 2020 and reopened at reduced capacity. Off-premise sales rose to approximately 30% of Bad Daddy’s system-wide sales.
- Good Times’ same-store sales and revenue increased, supported in part by pricing and the extra operating week. One company-operated Good Times restaurant closed during FY2020.
- Impairment charges drove much of the larger operating and net losses. Goodwill impairment related to Bad Daddy’s; long-lived asset impairments covered six Bad Daddy’s restaurants and one Good Times restaurant identified in FY2020.
- Operating cash flow rose year over year, supported by non-cash adjustments including impairments and lease accounting. Investing cash outflows fell as capital expenditures declined.
- The company adopted ASC 842 for leases in FY2020, recognizing right-of-use assets and lease liabilities; management said the adoption materially affected the balance sheet but had an immaterial effect on operating results, cash flows, and overall liquidity.
Outlook, risks and contingencies
- No formal earnings or revenue guidance is provided. Management expected no more than two Bad Daddy’s openings in FY2021, with at least one potential site under development, and anticipated blended price increases of 2%–3% at Bad Daddy’s and approximately 4% at Good Times.
- Management said it believed cash and available financing would cover FY2021 working capital, debt service, and recurring capital needs, while noting that continuing or renewed pandemic disruption could reduce sales and cash flow. Colorado Bad Daddy’s dining rooms had closed again in November 2020.
- The $11.645 million PPP loans bear 1% interest and were recorded as debt. The company expected to apply for forgiveness during 2021 but could not assure forgiveness; repayment could reduce funds available for operations and financing.
- The Cadence credit facility had $5.5 million outstanding, a $17 million commitment, and a December 31, 2021 maturity. The company had received forbearance in response to potential covenant defaults in early 2020; the forbearance expired June 30, and the company reported covenant compliance thereafter and at year-end.
- Key risks include ongoing COVID-19 impacts, food supply and commodity costs, labor availability and wage increases, competition, liquidity and credit access, and the potential need for further asset impairments. The company also cited an accumulated deficit and said it could not predict whether FY2021 would be profitable.
- A lawsuit concerning failed negotiations to sell the Good Times drive-through division seeks specific performance or damages of at least $332,639. The company disputes the claims, says the loss or range of loss is not determinable, and recorded no liability; trial was scheduled for March 2022.
- The filing reports an unmodified audit opinion on the financial statements. 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
- Whether PPP loan forgiveness was granted, and the resulting repayment obligations and liquidity impact.
- Subsequent sales, same-store trends, restaurant capacity restrictions, and the status of planned Bad Daddy’s openings.
- Debt refinancing or repayment plans ahead of the Cadence facility’s December 2021 maturity, covenant headroom, and available borrowing capacity.
- Whether impairment assumptions remain appropriate if pandemic effects or restaurant cash flows diverge from management’s estimates.
- Developments in the division-sale litigation and any changes to the company’s assessment of potential loss.