RAVE RESTAURANT GROUP, INC. quarterly report, Q3 FY2024

Rave Restaurant Group, Inc. — Form 10-Q Summary

Reporting period: Three and nine months ended March 24, 2024, compared with March 26, 2023. The fiscal quarter and year-to-date periods each comprised 13 and 39 weeks, respectively. The company franchises and licenses Pizza Inn and Pie Five restaurants, ghost kitchens and Pizza Inn Express kiosks.

Financial performance and key metrics

Metric	Q3 FY2024	Q3 FY2023	9M FY2024	9M FY2023
Revenue	$3.0 million	$3.0 million	$8.8 million	$8.8 million
Income before taxes	$854 thousand	$438 thousand	$1.912 million	$1.325 million
Net income	$654 thousand	$323 thousand	$1.593 million	$978 thousand
Basic EPS	$0.04	$0.02	$0.11	$0.06
Adjusted EBITDA	$842 thousand	$568 thousand	$1.964 million	$1.725 million
Cash from operations	Not separately provided	Not separately provided	$1.331 million	$1.233 million

Quarterly revenue was essentially flat year over year. Supplier and distributor incentive revenue increased, offsetting lower domestic royalties.
Net margin improved to approximately 22.1% from 10.9%; nine-month net margin improved to approximately 18.1% from 11.1%.
Adjusted EBITDA increased $274 thousand, or approximately 48%, in the quarter and $239 thousand, or approximately 14%, year to date.
General and administrative expense declined 14.4% in the quarter and 8.2% year to date, primarily due to lower salaries. Franchise expense declined 15.8% in the quarter and 6.8% year to date, primarily due to lower advertising fees.

Cash, liquidity, debt and balance sheet

Cash and cash equivalents were $6.318 million at March 24, 2024, compared with $5.328 million at June 25, 2023.
Total assets were $14.956 million and total liabilities were $3.156 million. Shareholders’ equity was $11.800 million.
The company reported no interest expense and no outstanding interest-bearing debt at period end. Operating lease liabilities totaled $1.065 million, including $421 thousand current and $644 thousand long-term.
Year-to-date investing cash use was $30 thousand, principally capital expenditures and intangible-asset purchases. Financing cash use was $311 thousand, primarily taxes paid on vested restricted stock units.
Management believes cash on hand and operating cash flow will be sufficient to fund operations for the next 12 months and beyond.

Material changes versus the prior comparable period

Quarterly net income more than doubled to $654 thousand from $323 thousand; year-to-date net income increased 63% to $1.593 million from $978 thousand.
Pizza Inn franchise revenue increased 2.0% in the quarter to $2.498 million and 1.4% year to date to $7.373 million.
Pie Five franchise revenue decreased 5.6% in the quarter to $441 thousand and 7.9% year to date to $1.314 million.
Pizza Inn domestic retail sales increased 0.9% in the quarter and 5.7% year to date. However, quarterly comparable-store sales declined approximately $469 thousand, or 1.9%, despite a higher average number of buffet units open.
Pie Five domestic retail sales declined 24.3% in the quarter to $3.783 million and approximately 15% year to date, primarily reflecting fewer units open. Average units open fell to 24 from 31 in the quarter and to 26 from 31 year to date.
Domestic Pizza Inn units declined to 104 at quarter end from 112 at the beginning of the quarter; international Pizza Inn units increased to 21 from 18 during the quarter. Pie Five domestic units ended at 23, down from 24 at the beginning of the quarter.
Outstanding common shares increased to 14.587 million from 14.154 million at June 25, 2023, principally reflecting restricted stock unit issuances.

Outlook, commentary, risks and unusual items

Management expects Pizza Inn domestic and international units to increase modestly in future periods, while Pie Five units are expected to decrease modestly.
Supplier incentive revenue depends on systemwide retail sales, restaurant count and products purchased through third-party distributors.
Management cited lower employee-related costs as a principal driver of improved operating cash flow and profitability.
The company adopted the expected-credit-loss standard effective June 26, 2023, with no material impact reported.
The company recorded a $149 thousand year-to-date tax benefit related to restricted stock unit issuances. No impairment or other lease charges were recorded in the current year-to-date period, compared with $5 thousand in the prior period.
Management identifies risks from franchisee credit exposure, store closures and defaults, lease guarantees, litigation and other contingencies, tax realizability, supplier and distributor relationships, restaurant industry conditions and potential future COVID-19 impacts.
The company is subject to ordinary-course claims involving employment, franchise disputes, lawsuits, taxes and food-product contracts. Management believes pending matters are insured or would not materially affect financial condition or results if resolved unfavorably.
Forward-looking statements are subject to risks disclosed in the company’s Form 10-K and prior Form 10-Q filings. No specific full-year revenue or earnings guidance was provided.

Important facts for investors to verify

Whether Pizza Inn unit growth and higher buffet-unit counts can offset declining comparable sales and continuing closures of smaller formats.
Whether Pie Five’s declining unit base and retail sales stabilize, including the contribution from ghost kitchens.
The sustainability of improved profitability, particularly the reductions in salaries and advertising-related franchise expenses.
The composition and durability of supplier and distributor incentive revenue, which increased while royalties declined.
Cash conversion, accounts receivable collection and exposure from franchisee lease guarantees and defaults.
The realization of the $5.095 million deferred tax asset and the company’s related valuation-allowance judgments.
Future lease obligations, contingent claims and any changes to the company’s stated liquidity assessment.