Good Times Restaurants Inc. — Q1 FY2021 Form 10-Q
Reporting period: The 13 weeks ended December 29, 2020, compared with 14 weeks ended December 31, 2019. Unless stated otherwise, financial amounts below are in millions of dollars. The unequal quarter lengths affect year-over-year comparisons.
Business context
The company operates and franchises Bad Daddy’s Burger Bar, a full-service concept, and Good Times Burgers & Frozen Custard, a drive-through concept. At quarter-end it reported 37 company-owned or joint-venture Bad Daddy’s and 24 Good Times restaurants, plus 2 Bad Daddy’s and 8 Good Times franchised or licensed locations.
Financial performance and liquidity
| Metric | Q1 FY2021 | Prior-year quarter |
|---|---|---|
| Total revenue | $27.296 | $30.814 |
| Operating income (loss) | $1.263 | $(0.372) |
| Net income (loss), consolidated | $1.165 | $(0.599) |
| Net income (loss) attributable to common shareholders | $0.802; $0.06 per share | $(0.811); $(0.06) per share |
| Operating cash flow | $0.847 | $0.999 |
| Capital expenditures | $0.483 | $1.613 |
- Revenue declined 11.4%. Bad Daddy’s segment revenue was $18.816, down from $22.902; Good Times revenue was $8.480, up from $7.912.
- Same-store sales fell 11.8% at Bad Daddy’s and rose 22.1% at Good Times. Management attributed the contrast chiefly to Bad Daddy’s dining-room closures and capacity limits, and increased drive-through demand at Good Times.
- Operating margin was approximately 4.6%, versus a loss margin of approximately 1.2% in the prior-year quarter. Restaurant food and packaging costs were 29.0% of restaurant sales, payroll and benefits 32.8%, occupancy 8.1%, and other restaurant operating costs 12.8%.
- Adjusted EBITDA, a non-GAAP measure, was $1.793 versus $1.514. The company cautions that its calculation may not be comparable with other companies’ measures.
- Cash was $10.015 at quarter-end, down $1.439 from September 29, 2020. Working capital was negative $6.135 (current assets of $12.705 and current liabilities of $18.840).
- Debt totaled $15.645: $4.000 outstanding on the Cadence facility and $11.645 in PPP loans. The balance sheet also reported $57.295 in operating lease liabilities. The company said it was compliant with Cadence covenants at quarter-end.
Changes, outlook and risks
- The prior-year quarter had an additional week; management estimated that week contributed about $1.570 of Bad Daddy’s sales and $0.609 of Good Times sales. COVID-19 closures and capacity constraints also weighed on Bad Daddy’s.
- Operating results improved to a profit despite lower total revenue. Lower food-cost and labor-cost ratios and sharply lower preopening costs contributed; delivery-service commissions increased, particularly at Bad Daddy’s.
- General and administrative costs increased $0.121, including a one-time CEO bonus associated with an amended employment agreement. Management expected G&A to rise for the balance of fiscal 2021, citing insurance and health costs, planned systems investments, and comparisons with temporary prior-year salary reductions.
- Management expected to open two Bad Daddy’s restaurants in fiscal 2021, while continuing to assess growth plans amid pandemic uncertainty. It stated that available capital should cover working capital, debt obligations and recurring capital needs through fiscal 2021.
- On January 8, 2021, the Cadence facility was amended: maturity extended to January 31, 2023; scheduled installment payments eliminated; borrowing commitments set to decline to $11 million, $10 million and $8 million over 2021; and covenants revised.
- The company expected to apply for forgiveness of its $11.645 PPP loans during 2021 but had not received an SBA decision. If not forgiven, repayments would be required, with monthly payments aggregating approximately $0.489 and repayment due by April 29, 2022.
- COVID-19 remained a material uncertainty: dining restrictions, changes in customer behavior, supply-chain disruption and food-price volatility could reduce revenue and cash flow or lead to menu limits or restaurant closures. Management could not estimate the duration or financial impact.
- Other disclosed exposures include contingent lease obligations for locations previously sold to franchisees; the company knew of no such leases in default. Management considered ordinary-course claims and litigation not expected to have a material impact. No asset or goodwill impairment was recorded in the periods presented.
Important facts for investors to verify
- Subsequent SBA action on PPP forgiveness and any resulting debt, liquidity or covenant effects.
- Actual restaurant openings, and whether Bad Daddy’s dining-room capacity and same-store sales recover as restrictions change.
- Cash generation and working-capital trends, including the effect of vendor payment terms and debt repayments.
- Progress under the amended Cadence facility, including its step-down commitments, covenants and January 2023 maturity.
- Whether food supply, commodity costs and delivery commissions materially affect restaurant margins.