Good Times Restaurants, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2015. The company operates Good Times quick-service restaurants and Bad Daddy’s Burger Bar full-service restaurants. Results are unaudited; the May 2015 Bad Daddy’s International acquisition and public share offering occurred after quarter-end.
Financial performance and position
- Quarter revenue: $8.714 million, up 43.1% from $6.090 million. Restaurant sales were $8.626 million; franchise royalties were $88,000.
- Six-month revenue: $16.569 million, up 38.1% from $12.001 million. Good Times same-store sales increased 8.3% for the quarter and 8.1% year to date; Bad Daddy’s revenue growth primarily reflected operating three restaurants versus one in the prior-year comparison.
- Profitability: Quarterly operating loss was $368,000 versus $382,000; net loss attributable to common shareholders was $435,000, or $0.05 per share, versus $509,000, or $0.10 per share. Six-month operating loss widened to $731,000 from $468,000, and common-shareholder net loss widened to $845,000 from $762,000; loss per share improved to $0.09 from $0.15, in part alongside a larger weighted-average share count.
- Segment results: Quarterly operating losses were $29,000 for Good Times and $142,000 for Bad Daddy’s, with $197,000 of acquisition costs recorded as general corporate expense. Six-month segment operating losses were $125,000 and $409,000, respectively.
- Costs and margins: Good Times restaurant-level costs were 87.6% of sales in the quarter and 88.2% for six months, compared with 88.5% and 87.9%. Bad Daddy’s food and packaging costs were 31.6% of sales for the quarter and 32.0% for six months; payroll costs were 40.3% and 41.5%, respectively.
- Cash flow: Six-month operating cash flow was $335,000 versus $146,000. Capital expenditures were $2.977 million, producing investing cash outflow of $2.973 million. Financing provided $4.164 million, including $3.221 million of net warrant proceeds and $1.118 million of borrowings. Cash increased $1.526 million to $11.420 million.
- Liquidity and debt: Working capital was $10.077 million at March 31. Reported long-term debt was $1.178 million, with $197,000 of current maturities of long-term debt and capital lease obligations and $27,000 of long-term capital lease obligations. The filing does not separately identify the debt-versus-lease composition of current maturities.
- Equity: Total stockholders’ equity was $15.842 million, up from $13.321 million at September 30, 2014. The balance sheet reported 9,461,739 common shares outstanding at March 31; 12,245,549 were outstanding as of May 15.
Material changes, outlook, and risks
- On May 7, 2015, the company closed its $21 million acquisition of Bad Daddy’s International: $18.5 million cash plus a one-year secured $2.5 million note bearing 3.25% interest. The acquired business includes interests in seven North Carolina restaurants, Bad Daddy’s intellectual property, and a 52% interest in the franchise-development entity. The quarter-end statements do not include this acquisition.
- Also on May 7, the company completed a public offering of 2,783,810 shares at $8.15 per share, generating approximately $20.7 million in net proceeds. Management estimated approximately $13.5 million of cash after the offering and acquisition. The company also completed a sale-leaseback of the Aurora, Colorado property on May 4, receiving $1.521 million net proceeds.
- Management described the Good Times outlook for fiscal 2015 as cautiously optimistic. It expected commodity moderation and menu-price increases to help lower Good Times food and packaging costs as a percentage of sales in the third fiscal quarter, while warning that renewed beef or bacon cost pressure could keep full-year food costs above fiscal 2014 levels. A further 1.6% menu-price increase was taken after March 31.
- The company planned ongoing restaurant investment, including new locations and Good Times remodels. It was negotiating additional Bad Daddy’s development leases for 2015 and 2016. Management noted construction disruption was weighing on its first Colorado Bad Daddy’s location and expected that impact to continue until early summer 2015.
- Key risks include acquisition integration and realization of expected benefits, entering a new geographic region and dining segment, competition and same-store sales declines, food and labor inflation, and potential lease liabilities if former franchisees default. The filing reported no known franchisee lease defaults and no material expected impact from pending legal proceedings.
Investor facts to verify
- Acquisition accounting, integration costs, operating performance, and financing effects of the Bad Daddy’s International purchase.
- Post-offering share count and dilution, and actual cash and debt levels after the acquisition and related transactions.
- Whether Good Times same-store sales momentum and management’s expected food-cost improvement continue, particularly amid beef, bacon, wage, and other cost pressures.
- Bad Daddy’s restaurant-level performance, planned expansion economics, and the duration and impact of construction disruption.
- Compliance with the development loan’s debt-service, leverage, and quick-ratio covenants, and any future exposure under contingent franchisee leases.