OVERLAND PARK, Kan.--(BUSINESS WIRE)--NPC International, Inc. (the “Company” or “NPC”), today reported results for its third fiscal quarter ended September 30, 2014.
THIRD QUARTER HIGHLIGHTS:
- Pizza Hut comparable store sales decreased (0.7)% rolling over a decrease of (3.6)% last year.
- Adjusted EBITDA (reconciliation attached) was $23.7MM; a decline of $1.6MM or 6% from the prior year.
- The Company generated net income of $0.2MM compared to $2.6MM last year.
- The Company acquired 56 Wendy’s units for $57.1MM, excluding adjustments for working capital, in North Carolina and Virginia.
YEAR-TO-DATE RESULTS:
- Pizza Hut comparable store sales decreased (3.7)% rolling over a decrease of (3.2)% last year.
- Adjusted EBITDA (reconciliation attached) of $73.5MM was $23.5MM or 24% below last year.
- Net income was $1.7MM, a decrease of $22.2MM from last year.
- Cash balances were $11.6MM.
- Our leverage ratio was 4.67X Consolidated EBITDA, net of allowable cash balances (as defined in our Credit Agreement).
NPC’s President and CEO Jim Schwartz said, “We are pleased with this quarter’s sequential improvement in our Pizza Hut operating margins and comparable store sales relative to our year-to-date performance. However, we recognize that there is still much work to be done and in many ways the real work is just beginning.
“Extreme commodity inflation continued to place significant pressure on our margins and was a primary contributor to our year-over-year EBITDA shortfall; this pressure is expected to continue throughout the remainder of the year. Fortunately, our Wendy’s business continues to deliver performance in line with our pre-acquisition expectations and currently represents nearly 20% of our top-line business on a pro-forma basis.
“We continue to work with Pizza Hut brand leadership and expect to launch a major new advertising platform and brand positioning during the fourth quarter that we believe will better connect us with consumers and separate us from competition. Our improved comparable store sales performance this quarter is the result of certain go-forward changes in our promotional strategy that also markedly increased our digital business mix.
“We completed a 56-unit acquisition from a Wendy’s franchisee in North Carolina during the quarter and we are pleased with the assimilation efforts and early results from these units. We remain open to opportunistic acquisitions of additional Wendy’s units and the related diversification it provides our business.
“We remain enthused about the job that Wendy’s brand leadership is doing to position Wendy’s to win in the marketplace, and we are truly excited about the forthcoming changes at Pizza Hut. We look forward to updating you on our progress following the fourth quarter.”
The Company is a wholly-owned subsidiary of NPC Restaurant Holdings, LLC ("Parent"), which has guaranteed the Company's 10.50% Senior Notes due 2020. As a result of its guaranty, Parent is required to file reports with the Securities and Exchange Commission which include consolidated financial statements of Parent and its subsidiaries (including the Company). Parent's only material asset is all of the stock of the Company. The quarterly financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations for Parent and the Company on a consolidated basis are set forth in Parent's Form 10-Q for the fiscal quarter ended September 30, 2014 which can be accessed at www.sec.gov.
CONFERENCE CALL INFORMATION:
The Company’s third quarter earnings conference call will be held Monday, November 17, 2014 at 9:00 am CT (10:00 am ET). In addition to a discussion of third quarter results, the call may also include discussion of Company developments, forward-looking information and other material information about business and financial matters. You can access this call by dialing 888-391-6937. The international number is 716-247-5763. The access code for the call is 30153757.
For those unable to participate live, a replay of the call will be available until November 24, 2014 by dialing 855-859-2056 or by dialing international at 404-537-3406. The access code for the replay is 30153757.
A replay of the call will also be available at the Company’s website at www.npcinternational.com.
NPC International, Inc. is the world’s largest Pizza Hut franchisee and currently operates 1,266 Pizza Hut units in 28 states and 144 Wendy’s units in 5 states.
For more complete information regarding the Company’s financial position and results of operations, investors are encouraged to review the Parent’s financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations, incorporated into the Parent’s Form 10-Q which can be accessed at www.sec.gov.
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995
Certain statements contained in this news release that do not relate to historical or current facts constitute forward-looking statements. These include statements regarding our plans and expectations. Forward-looking statements are subject to inherent risks and uncertainties and there can be no assurance that such statements will prove to be correct. Actual results may vary materially from those anticipated in such forward-looking statements as a result of a number of factors, including lower than anticipated consumer discretionary spending; deterioration in general economic conditions; competition in the quick service restaurant market; adverse changes in food, labor and other costs; price inflation or deflation; our ability to successfully complete acquisitions of additional restaurant units; and other factors. These risks and other risks are described in Parent’s filings with the Securities and Exchange Commission, including Parent's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Copies of these filings may be obtained by contacting NPC or may be accessed at www.sec.gov. All forward-looking statements made in this news release are made as of the date hereof. NPC does not intend to update these forward-looking statements and undertakes no duty to any person to provide any such update under any circumstances. Investors are cautioned not to place undue reliance on any forward-looking statements.
NPC INTERNATIONAL, INC. Consolidated Statements of Income (Dollars in thousands) (Unaudited) |
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13 Weeks Ended | ||||||||||||||||||
Sept. 30, 2014 | Sept. 24, 2013 | |||||||||||||||||
Net product sales (1) | $ | 287,296 | 100.0 | % | $ | 249,348 | 100.0 | % | ||||||||||
Fees and other income (2) | 12,303 | 4.3 | % | 11,457 | 4.6 | % | ||||||||||||
Total sales | 299,599 | 104.3 | % | 260,805 | 104.6 | % | ||||||||||||
Pizza Hut comparable store sales (net product sales only) | -0.7 | % | -3.6 | % | ||||||||||||||
Cost of sales (3) | 89,114 | 31.0 | % | 74,144 | 29.7 | % | ||||||||||||
Direct labor (4) | 84,431 | 29.4 | % | 72,773 | 29.2 | % | ||||||||||||
Other restaurant operating expenses (5) | 97,443 | 33.9 | % | 82,028 | 32.9 | % | ||||||||||||
General and administrative expenses (6) | 15,932 | 5.5 | % | 14,637 | 5.9 | % | ||||||||||||
Corporate depreciation and amortization of intangibles | 5,343 | 1.9 | % | 4,747 | 1.9 | % | ||||||||||||
Other | 363 | 0.2 | % | 193 | 0.1 | % | ||||||||||||
Total costs and expenses | 292,626 | 101.9 | % | 248,522 | 99.7 | % | ||||||||||||
Operating income | 6,973 | 2.4 | % | 12,283 | 4.9 | % | ||||||||||||
Interest expense | 10,344 | 3.6 | % | 10,243 | 4.1 | % | ||||||||||||
(Loss) income before income taxes | (3,371 | ) | -1.2 | % | 2,040 | 0.8 | % | |||||||||||
Income taxes | (3,533 | ) | -1.2 | % | (522 | ) | -0.2 | % | ||||||||||
Net income | $ | 162 | 0.0 | % | $ | 2,562 | 1.0 | % | ||||||||||
Percentages are shown as a percent of net product sales. | ||||||||||||||||||
Capital Expenditures | $ | 15,402 | $ | 13,742 | ||||||||||||||
Cash Rent Expense | $ | 16,506 | $ | 13,770 |
(1) | Net product sales increased 15.2% primarily due to the incremental sales from our Wendy’s units, which contributed sales of $47.8MM, or 16.6% of net product sales during the quarter. This increase was partially offset by a 0.7% decline in Pizza Hut comparable store sales. | |
(2) | Fees and other income increased 7.4% due to the increase in delivery transactions compared to the prior year. | |
(3) | Cost of sales, as a percentage of net product sales, increased primarily due to increased ingredient costs, primarily meats and cheese, and higher food costs associated with our Wendy’s operations partially offset by favorable product mix and promotional activity. | |
(4) | Direct labor, as a percentage of net product sales, increased largely due to increased delivery transactions, which are a more labor intensive. | |
(5) | Other restaurant operating expenses, as a percentage of net product sales, increased due to sales deleveraging on Pizza Hut fixed costs and increased costs associated with delivery driver insurance reserves, increased advertising costs and increased delivery driver reimbursement expenses associated with increased delivery transactions. These increases were partially offset by lower operating expenses associated with our Wendy’s operations as compared to our Pizza Hut operations. | |
(6) | General and administrative expenses increased due to field personnel costs and credit card transaction fees attributable to the Wendy’s units acquired over the last twelve months, partially offset by lower incentive compensation and enterprise resource planning expenses for our Pizza Hut operations. | |
Note: The explanations above are abbreviated disclosures. For complete disclosure see Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Parent's Form 10-Q filed with the SEC.
NPC INTERNATIONAL, INC. Consolidated Statements of Income (Dollars in thousands) (Unaudited) |
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39 Weeks Ended | ||||||||||||
Sept. 30, 2014 | Sept. 24, 2013 | |||||||||||
Net product sales (1) | $ 842,831 | 100.0% | $ 763,422 | 100.0% | ||||||||
Fees and other income (2) | 38,927 | 4.6% | 38,310 | 5.0% | ||||||||
Total sales | 881,758 | 104.6% | 801,732 | 105.0% | ||||||||
Pizza Hut comparable store sales (net product sales only) | -3.7% | -3.2% | ||||||||||
Cost of sales (3) | 263,806 | 31.3% | 222,785 | 29.2% | ||||||||
Direct labor (4) | 248,857 | 29.5% | 218,812 | 28.7% | ||||||||
Other restaurant operating expenses (5) | 278,188 | 33.0% | 242,567 | 31.8% | ||||||||
General and administrative expenses (6) | 47,074 | 5.6% | 44,158 | 5.8% | ||||||||
Corporate depreciation and amortization of intangibles | 15,537 | 1.8% | 13,620 | 1.8% | ||||||||
Other | 623 | 0.1% | 742 | 0.0% | ||||||||
Total costs and expenses | 854,085 | 101.3% | 742,684 | 97.3% | ||||||||
Operating income | 27,673 | 3.3% | 59,048 | 7.7% | ||||||||
Interest expense | 30,548 | 3.6% | 30,720 | 4.0% | ||||||||
(Loss) income before income taxes | (2,875) | -0.3% | 28,328 | 3.7% | ||||||||
Income taxes | (4,619) | -0.5% | 4,434 | 0.6% | ||||||||
Net income | $ 1,744 | 0.2% | $ 23,894 | 3.1% | ||||||||
Percentages are shown as a percent of net product sales. | ||||||||||||
Capital Expenditures | $ 50,507 | $ 35,844 | ||||||||||
Cash Rent Expense | $ 47,699 | $ 40,537 |
(1) | Net product sales increased 10.4% primarily due to the incremental sales from our Wendy’s units, which contributed sales of $110.7MM, or 13.1% of net product sales during the period in addition to a 2.1% increase in equivalent Pizza Hut units. These increases were partially offset by a 3.7% decline in Pizza Hut comparable store sales. | |
(2) | Fees and other income increased 1.6% due to the increase in delivery transactions compared to the prior year. | |
(3) | Cost of sales, as a percentage of net product sales, increased primarily due to increased ingredient costs, primarily cheese and meat and higher food costs associated with our Wendy’s operations. | |
(4) | Direct labor, as a percentage of net product sales, increased largely due to the deleveraging effect of negative comparable store sales on our Pizza Hut fixed and semi-fixed labor costs and increased delivery transactions, which are a more labor intensive. | |
(5) | Other restaurant operating expenses, as a percentage of net product sales, increased due to sales deleveraging on Pizza Hut fixed costs and increased costs associated with delivery driver insurance reserves, which was partially offset by lower operating expenses associated with our Wendy’s operations as compared to our Pizza Hut operations. | |
(6) | General and administrative expenses increased due to field personnel costs and credit card transaction fees attributable to the Wendy’s units acquired in the last twelve months, partially offset by a decline in incentive compensation and training expense for our Pizza Hut operations. | |
Note: The explanations above are abbreviated disclosures. For complete disclosure see Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Parent's Form 10-Q filed with the SEC.
NPC INTERNATIONAL, INC. Condensed Consolidated Balance Sheets (Dollars in thousands) (Unaudited) |
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September 30, 2014 | December 31, 2013 | ||||||||
Assets | |||||||||
Current assets: | |||||||||
Cash and cash equivalents | $ | 11,635 | $ | 20,035 | |||||
Other current assets | 39,615 | 37,069 | |||||||
Total current assets | 51,250 | 57,104 | |||||||
Facilities and equipment, net | 196,611 | 169,950 | |||||||
Franchise rights, net | 643,445 | 640,151 | |||||||
Other noncurrent assets | 338,316 | 337,907 | |||||||
Total assets | $ | 1,229,622 | $ | 1,205,112 | |||||
Liabilities and Member's Equity | |||||||||
Current liabilities: | |||||||||
Other current liabilities | $ | 100,935 | $ | 101,630 | |||||
Current portion of debt | 4,158 | 3,438 | |||||||
Total current liabilities | 105,093 | 105,068 | |||||||
Long-term debt | 591,263 | 561,687 | |||||||
Other noncurrent liabilities | 266,169 | 273,144 | |||||||
Total liabilities | 962,525 | 939,899 | |||||||
Member's equity | 267,097 | 265,213 | |||||||
Total liabilities and member's equity | $ | 1,229,622 | $ | 1,205,112 | |||||
NPC INTERNATIONAL, INC. Condensed Consolidated Statements of Cash Flows (Dollars in thousands) (Unaudited) |
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39 Weeks Ended | |||||||||||
Sept. 30, 2014 | Sept. 24, 2013 | ||||||||||
Operating activities | |||||||||||
Net income | $ | 1,744 | $ | 23,894 | |||||||
Adjustments to reconcile net income to cash provided by operating activities: | |||||||||||
Depreciation and amortization | 48,030 | 40,396 | |||||||||
Amortization of debt issuance costs | 2,765 | 2,494 | |||||||||
Deferred income taxes | (4,489 | ) | 965 | ||||||||
Other | (69 | ) | 520 | ||||||||
Changes in assets and liabilities, excluding acquisitions: | |||||||||||
Assets | 923 | 4,468 | |||||||||
Liabilities | 8,821 | 4,864 | |||||||||
Net cash provided by operating activities | 57,725 | 77,601 | |||||||||
Investing activities | |||||||||||
Capital expenditures | (50,507 | ) | (35,844 | ) | |||||||
Acquisition of Wendy's business, net of cash acquired | (56,803 | ) | (21,505 | ) | |||||||
Proceeds from sale-leaseback transactions | 19,429 | - | |||||||||
Proceeds from sale or disposition of assets | 2,888 | 554 | |||||||||
Net cash used in investing activities | (84,993 | ) | (56,795 | ) | |||||||
Financing activities | |||||||||||
Net payments under revolving credit facility | (7,000 | ) | - | ||||||||
Payments on term bank facilities | (2,704 | ) | - | ||||||||
Issuance of debt | 40,000 | - | |||||||||
Debt issue costs | (693 | ) | (89 | ) | |||||||
Payment of accrued purchase price to sellers | (10,875 | ) | (2,847 | ) | |||||||
Issuance of membership interests, net | 140 | - | |||||||||
Net cash provided by (used in) financing activities | 18,868 | (2,936 | ) | ||||||||
Net change in cash and cash equivalents | (8,400 | ) | 17,870 | ||||||||
Beginning cash and cash equivalents | 20,035 | 25,493 | |||||||||
Ending cash and cash equivalents | $ | 11,635 | $ | 43,363 | |||||||
NPC INTERNATIONAL, INC. Reconciliation of Non-GAAP Financial Measures (in thousands) (Unaudited) |
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13 Weeks Ended | 39 Weeks Ended | ||||||||||||||||||||
Sept. 30, 2014 | Sept. 24, 2013 | Sept. 30, 2014 | Sept. 24, 2013 | ||||||||||||||||||
Adjusted EBITDA: | |||||||||||||||||||||
Net income | $ | 162 | $ | 2,562 | $ | 1,744 | $ | 23,894 | |||||||||||||
Adjustments: | |||||||||||||||||||||
Interest expense | 10,344 | 10,243 | 30,548 | 30,720 | |||||||||||||||||
Income taxes | (3,533 | ) | (522 | ) | (4,619 | ) | 4,434 | ||||||||||||||
Depreciation and amortization | 17,095 | 14,195 | 48,030 | 40,396 | |||||||||||||||||
Transaction costs | 454 | 85 | 810 | 267 | |||||||||||||||||
Pre-opening expenses and other | 320 | 397 | 979 | 1,364 | |||||||||||||||||
Development and WingStreet incentives | (1,150 | ) | (1,670 | ) | (3,950 | ) | (4,020 | ) | |||||||||||||
Adjusted EBITDA (1) | $ | 23,692 | $ | 25,290 | $ | 73,542 | $ | 97,055 | |||||||||||||
Adjusted EBITDA Margin(2) | 8.2 | % | 10.1 | % | 8.7 | % | 12.7 | % | |||||||||||||
Free Cash Flow: | |||||||||||||||||||||
Net cash provided by operating activities | $ | 16,442 | $ | 10,809 | $ | 57,725 | $ | 77,601 | |||||||||||||
Adjustments: | |||||||||||||||||||||
Capital expenditures | (15,402 | ) | (13,742 | ) | (50,507 | ) | (35,844 | ) | |||||||||||||
Free Cash Flow (3) | $ | 1,040 | $ | (2,933 | ) | $ | 7,218 | $ | 41,757 | ||||||||||||
Unit Count Activity |
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39 Weeks Ended | |||||||||||||||||||||||||
September 30, 2014 | September 24, 2013 | ||||||||||||||||||||||||
Combined | Wendy's | Pizza Hut | Combined | Wendy's | Pizza Hut | ||||||||||||||||||||
Beginning of period | 1,354 | 91 | 1,263 | 1,227 | - | 1,227 | |||||||||||||||||||
Acquired | 56 | 56 | - | 37 | 36 | 1 | |||||||||||||||||||
Developed(4) | 17 | - | 17 | 34 | - | 34 | |||||||||||||||||||
Closed(4) | (17 | ) | (3 | ) | (14 | ) | (10 | ) | - | (10 | ) | ||||||||||||||
End of period | 1,410 | 144 | 1,266 | 1,288 | 36 | 1,252 | |||||||||||||||||||
Equivalent units(5) | 1,367 | 106 | 1,261 | 1,259 | 24 | 1,235 |
(1) | The Company defines Adjusted EBITDA as consolidated net income plus interest, income taxes, depreciation and amortization, pre-opening expenses and certain other items that are non-operational in nature. Management believes the elimination of these items, as well as income taxes and certain other items of a non-operational nature, as noted in the table above, give investors and management useful information to compare the performance of our core operations over different periods and to compare our operating performance with the performance of other companies that have different financing and capital structures or tax rates. Adjusted EBITDA is not a measure of financial performance under GAAP. Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation from, or as a substitute for analysis of, the Company’s financial information reported under GAAP. Adjusted EBITDA, as defined above, may not be similar to EBITDA measures of other companies. | |
(2) | Calculated as a percentage of net product sales. | |
(3) | The Company defines Free Cash Flow as cash flows from operations less capital expenditures. Management believes that the free cash flow measure is important to investors to provide a measure of how much cash flow is available, after current changes in working capital and acquisition of property and equipment, to be used for working capital needs or for strategic opportunities, including servicing debt, making acquisitions, and making investments in the business. It should not be inferred that the entire Free Cash Flow amount is available for discretionary expenditures. | |
(4) | For Pizza Hut, seven units and five units were relocated or rebuilt and are included in both the developed and closed total for the 39 weeks ended September 30, 2014 and September 24, 2013, respectively. | |
(5) | Equivalent units represent the number of units open at the beginning of a given period, adjusted for units opened, closed, acquired or sold during the period on a weighted average basis. | |