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Form 8-K CARROLS RESTAURANT GROUP For: Aug 09

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August 9, 2016 7:07 AM EDT
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 8-K
___________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 9, 2016
___________________
Carrols Restaurant Group, Inc.
(Exact name of registrant as specified in its charter)
___________________
Delaware
001-33174
16-1287774
(State or other jurisdiction of
 incorporation or organization)
 (Commission
 File Number)
(I.R.S. Employer
 Identification No.)
 
 
 
968 James Street
Syracuse, New York
13203
(Address of principal executive office)
(Zip Code)
 
 
 
Registrant’s telephone number, including area code (315) 424-0513
 
 
 
N/A
(Former name or former address, if changed since last report.)
___________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act




Item 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

On August 9, 2016, Carrols Restaurant Group, Inc. issued a press release announcing financial results for its second fiscal quarter ended July 3, 2016. The entire text of the press release is attached as Exhibit 99.1 and is incorporated by reference herein.

Item 9.01. FINANCIAL STATEMENTS AND EXHIBITS.

(d) Exhibits

 99.1    Carrols Restaurant Group, Inc. Press Release, dated August 9, 2016





Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

CARROLS RESTAURANT GROUP, INC.

Date: August 9, 2016

By:
/s/ Paul R. Flanders
Name:
Paul R. Flanders
Title:
Vice President, Chief Financial Officer and Treasurer




Exhibit 99.1

FOR IMMEDIATE RELEASE                
Investor Relations:
800-348-1074, ext. 3333


CARROLS RESTAURANT GROUP, INC. REPORTS FINANCIAL RESULTS
FOR THE SECOND QUARTER OF 2016
Raises its 2016 Outlook

Syracuse, New York - (Business Wire) - August 9, 2016 - Carrols Restaurant Group, Inc. (“Carrols” or the “Company”) (Nasdaq: TAST) today announced financial results for the second quarter ended July 3, 2016. The Company also raised its 2016 outlook.

Highlights for second quarter of 2016 versus second quarter of 2015 include:
•
Restaurant sales increased 10.2% to $241.4 million from $219.1 million in the second quarter of 2015, including $60.5 million in sales from the 196 BURGER KING® restaurants acquired from 2014 to 2016(1);
•
Comparable restaurant sales increased 0.7% compared to a 10.3% increase in the prior year period;
•
Adjusted EBITDA(2) increased 19.9% to $27.9 million from $23.3 million in the prior year period;
•
Net income was $9.4 million, or $0.21 per diluted share, compared to a net loss of $5.0 million, or $0.14 per diluted share, in the prior year period; and
•
Adjusted net income(2) was $11.3 million, or $0.25 per diluted share, and increased 34.1% from adjusted net income of $8.4 million, or $0.19 per diluted share, in the prior year period.
(1)
“Acquired restaurants” refer to those restaurants acquired from 2014 through 2016. “Legacy restaurants” include all of the Company’s other restaurants including restaurants acquired before 2014.
(2)
Adjusted EBITDA, Restaurant-level EBITDA and Adjusted net income are non-GAAP financial measures. Refer to the definitions and reconciliation of these measures to net income (loss) or to income from operations in the tables at the end of this release.

At the end of the second quarter of 2016, Carrols owned and operated 723 BURGER KING® restaurants. On July 14, 2016 Carrols completed the acquisition of four additional BURGER KING® restaurants in the Detroit, Michigan area and currently owns and operates 727 BURGER KING® restaurants.

Daniel T. Accordino, the Company's Chief Executive Officer said, “We delivered solid quarterly results that included an increase in comparable restaurant sales over a challenging double-digit increase from



the prior year. We also posted robust improvements in Restaurant-Level EBITDA, Adjusted EBITDA and Adjusted net income. While the QSR industry remains highly competitive, Burger King continues to demonstrate the effectiveness of its brand strategy with differentiating products and compelling promotional initiatives. As a result, our two-year sales trends were strong throughout the first half of 2016 and we believe that we are well positioned for continued sales growth as our sales comparisons ease somewhat in the second half of this year.”

Accordino concluded, “In addition to growing our top-line, raising our profitability, and expanding our margins, we continued to move forward with our remodeling and reimaging initiatives. We completed the renovation of 43 restaurants in the first half of 2016, and for the full year, expect to complete 85 to 90 remodel projects and to rebuild or relocate another 11 to 14 restaurants. This will bring the total number of our locations that have been upgraded to the 20/20 design image since 2012 to over 525 restaurants. In 2017, we will be positioned to reduce the level of remodeling and in turn to increase our free cash flow and capital available for continued expansion. So far this year, we have acquired 22 restaurants in three separate transactions and have a number of potential deals under review.”

Second Quarter 2016 Financial Results

Restaurant sales increased 10.2% to $241.4 million in the second quarter of 2016 compared to $219.1 million in the second quarter of 2015. Restaurant sales included $60.5 million in sales from the 196 BURGER KING® restaurants acquired from 2014 to 2016 and a comparable restaurant sales increase of 0.7%. The comparable restaurant sales increase included a 0.9% increase at legacy restaurants and a 0.4% decrease at comparable acquired restaurants (primarily the 2014 acquisitions). Average check rose 2.1% while customer traffic decreased 1.4% from the prior year period.

Restaurant-Level EBITDA was $41.5 million in the second quarter of 2016, which included an $8.7 million contribution from the acquired restaurants, compared to Restaurant-Level EBITDA of $35.6 million in the second quarter of 2015. Restaurant-Level EBITDA margin increased 95 basis points from the prior year period to 17.2% of restaurant sales due primarily to lower commodity costs and improved operating performance at the acquired restaurants.

General and administrative expenses were $14.4 million in the second quarter of 2016 compared to $12.9 million in the second quarter of 2015. As a percentage of restaurant sales, general and administrative expenses remained flat at 5.9% compared to the prior year period.

Adjusted EBITDA was $27.9 million in the second quarter of 2016 compared to $23.3 million in the second quarter of 2015, and Adjusted EBITDA margin improved 94 basis points to 11.6% of restaurant sales.

Income from operations was $13.9 million in the second quarter of 2016 compared to $12.4 million in the prior year period.

Interest expense decreased slightly to $4.5 million in the second quarter of 2016 from $4.7 million in the same period last year as a result of refinancing the Company’s debt in April 2015.

Net income was $9.4 million for the quarter, or $0.21 per diluted share, compared to net loss of $5.0 million, or $0.14 per diluted share, in the prior year period.

Net income in the second quarter of 2016 included a $1.85 million accrual related to an agreement to settle and resolve litigation with the Company’s former Chairman and Chief Executive Officer. Net



income also included $0.3 million of impairment and other lease charges, $0.2 million of acquisition expenses and a $0.5 million gain from fire insurance proceeds. For the same period last year, the net loss included a $12.6 million loss on extinguishment of debt related to the Company’s debt refinancing and $0.7 million of impairment and other lease charges. Because the Company has had a net deferred income tax asset valuation allowance since 2014, the Company has not recorded any income tax expense or benefit in 2015 or 2016.

Adjusted net income was $11.3 million, or $0.25 per diluted share, compared to adjusted net income of $8.4 million, or $0.19 per diluted share, in the prior year period.

Full Year 2016 Outlook

Carrols is providing the following updated guidance for 2016 (a 52-week period). While the Company may acquire additional BURGER KING® restaurants in 2016, this guidance does not include any impact from such potential transactions:

•
Total restaurant sales of $945 million to $960 million (previously $935 million to $960 million) including a comparable restaurant sales increase of 2% to 4%. Comparable restaurant sales are on a comparable 52 week basis;
•
Commodity cost decrease of 2% to 3% (previously a decrease of 0% to 2%) including a 10% to 12% decrease in beef costs (previously 5% to 10%);
•
General and administrative expenses (excluding stock compensation costs) of $51 million to $53 million (previously $50 million to $52 million);
•
Adjusted EBITDA of $90 million to $95 million (previously $85 million to $90 million);
•
Capital expenditures of approximately $85 million to $90 million (previously $75 million to $85 million) which includes remodeling a total of 85 to 90 restaurants, the rebuilding of 4 to 6 restaurants and the construction of 7 to 8 new restaurants (all of which are relocations of existing restaurants); and
•
The sale/leaseback of owned restaurant properties for net proceeds of $27 million to $32 million (of which the Company has received $17.7 million from sale/leasebacks completed in the first half of 2016).
The Company has not reconciled guidance for Adjusted EBITDA to the corresponding GAAP financial measure because we do not provide guidance for net income or for the various reconciling items. The Company is unable to provide guidance for these reconciling items since certain items that impact net income are outside of the Company’s control or cannot be reasonably predicted.




Conference Call Today

Daniel T. Accordino, Chief Executive Officer, and Paul R. Flanders, Chief Financial Officer, will host a conference call to discuss second quarter 2016 financial results today at 8:30 AM ET.

The conference call can be accessed live over the phone by dialing 785-830-1926. A replay will be available one hour after the call and can be accessed by dialing 719-457-0820; the passcode is 4724396. The replay will be available until Tuesday, August 16, 2016. Investors and interested parties may listen to a webcast of this conference call by visiting www.carrols.com under the tab “Investor Relations”.

About the Company

Carrols is the largest BURGER KING® franchisee in the United States with 727 restaurants as of August 9, 2016 and has operated BURGER KING® restaurants since 1976. For more information on Carrols, please visit the company's website at www.carrols.com.

Forward-Looking Statements

Except for the historical information contained in this news release, the matters addressed are forward-looking statements. Forward-looking statements, written, oral or otherwise made, represent Carrols' expectation or belief concerning future events. Without limiting the foregoing, these statements are often identified by the words "may", "might", "believes", "thinks", "anticipates", "plans", "expects", "intends" or similar expressions. In addition, expressions of our strategies, intentions, plans or guidance are also forward-looking statements. Such statements reflect management's current views with respect to future events and are subject to risks and uncertainties, both known and unknown. You are cautioned not to place undue reliance on these forward-looking statements as there are important factors that could cause actual results to differ materially from those in forward-looking statements, many of which are beyond our control. Investors are referred to the full discussion of risks and uncertainties as included in Carrols' filings with the Securities and Exchange Commission.



Carrols Restaurant Group, Inc.
Consolidated Statements of Operations
(in thousands except per share amounts)

 
(unaudited)
 
(unaudited)
 
Three Months Ended (a)
 
Six Months Ended (a)
 
July 3, 2016
 
June 28, 2015
 
July 3, 2016
 
June 28, 2015
Restaurant sales
$
241,368

 
$
219,102

 
$
463,887

 
$
412,272

Costs and expenses:
 
 
 
 
 
 
 
Cost of sales
62,117

 
60,496

 
121,137

 
117,346

Restaurant wages and related expenses
73,545

 
66,707

 
145,628

 
130,019

Restaurant rent expense
16,118

 
14,571

 
31,996

 
28,995

Other restaurant operating expenses
37,316

 
33,654

 
73,005

 
66,146

Advertising expense
10,770

 
8,080

 
19,898

 
15,363

General and administrative expenses (b) (c)
14,355

 
12,903

 
27,561

 
24,499

Depreciation and amortization
11,486

 
9,793

 
22,543

 
19,798

Impairment and other lease charges
286

 
706

 
508

 
2,336

Other expense (income)
1,479

 
(166
)
 
1,035

 
(126
)
Total costs and expenses
227,472

 
206,744

 
443,311

 
404,376

Income from operations
13,896

 
12,358

 
20,576

 
7,896

Interest expense
4,520

 
4,700

 
9,055

 
9,514

Loss on extinguishment of debt
—

 
12,635

 
—

 
12,635

Income (loss) before income taxes
9,376

 
(4,977
)
 
11,521

 
(14,253
)
Provision (benefit) for income taxes
—

 
—

 
—

 
—

Net income (loss)
$
9,376

 
$
(4,977
)
 
$
11,521

 
$
(14,253
)
 
 
 
 
 
 
 
 
Basic and diluted net income (loss) per share (d)(e)
$
0.21

 
$
(0.14
)
 
$
0.25

 
$
(0.41
)
Diluted weighted average common shares outstanding
44,819

 
34,899

 
44,850

 
34,891

(a)
The Company uses a 52 or 53 week fiscal year that ends on the Sunday closest to December 31. The three and six months ended July 3, 2016 and June 28, 2015 each included thirteen and twenty-six weeks, respectively.
(b)
General and administrative expenses include acquisition costs of $230 and $49 for the three months ended July 3, 2016 and June 28, 2015, respectively, and $638 and $260 for the six months ended July 3, 2016 and June 28, 2015, respectively.
(c)
General and administrative expenses include stock-based compensation expense of $606 and $363 for the three months ended July 3, 2016 and June 28, 2015, respectively, and $1,171 and $704 for the six months ended July 3, 2016 and June 28, 2015, respectively.
(d)
Basic net income (loss) per share was computed excluding income attributable to preferred stock and non-vested restricted shares.
(e)
Diluted net income (loss) per share was computed including shares issuable for convertible preferred stock and non-vested restricted stock unless their effect would have been anti-dilutive for the periods presented.



Carrols Restaurant Group, Inc.
Supplemental Information

The following table sets forth certain unaudited supplemental financial and other data for the periods indicated (in thousands, except number of restaurants, percentages and average weekly sales per restaurant):
 
(unaudited)
 
(unaudited)
 
Three Months Ended (a)
 
Six Months Ended (a)
 
July 3, 2016
 
June 28, 2015
 
July 3, 2016
 
June 28, 2015
Restaurant Sales: (a)
 
 
 
 
 
 
 
Legacy restaurants
$
180,892

 
$
180,265

 
$
349,968

 
$
340,895

Acquired restaurants
60,476

 
38,837

 
113,919

 
71,377

Total restaurant sales
$
241,368

 
$
219,102

 
$
463,887

 
$
412,272

 
 
 
 
 
 
 
 
Change in Comparable Restaurant Sales (b)
0.7
%
 
10.3
%
 
3.0
%
 
9.4
%
 
 
 
 
 
 
 
 
Average Weekly Sales per Restaurant: (c)
 
 
 
 
 
 
 
Legacy restaurants
$
26,672

 
$
26,285

 
$
25,755

 
$
24,774

Acquired restaurants
24,501

 
23,744

 
23,660

 
22,341

 
 
 
 
 
 
 
 
Restaurant-Level EBITDA: (d)
 
 
 
 
 
 
 
Legacy restaurants
$
32,784

 
$
30,758

 
$
57,600

 
$
47,699

Acquired restaurants
8,718

 
4,836

 
14,623

 
6,704

Total Restaurant-Level EBITDA
$
41,502

 
$
35,594

 
$
72,223

 
$
54,403

 
 
 
 
 
 
 
 
Restaurant-Level EBITDA margin: (d)
 
 
 
 
 
 
 
Legacy restaurants
18.1
%
 
17.1
%
 
16.5
%
 
14.0
%
Acquired restaurants
14.4
%
 
12.5
%
 
12.8
%
 
9.4
%
All restaurants
17.2
%
 
16.2
%
 
15.6
%
 
13.2
%
 
 
 
 
 
 
 
 
Adjusted EBITDA (d)
$
27,898

 
$
23,269

 
$
46,380

 
$
30,994

Adjusted EBITDA margin (d)
11.6
%
 
10.6
%
 
10.0
%
 
7.5
%
Adjusted net income (d)
$
11,286

 
$
8,413

 
$
13,611

 
$
978

Adjusted diluted net earnings per share (d)
$
0.25

 
$
0.19

 
$
0.30

 
$
0.02

 
 
 
 
 
 
 
 
Number of Restaurants:
 
 
 
 
 
 
 
Restaurants at beginning of period
717

 
659

 
705

 
674

New restaurants
2

 
—

 
2

 
—

Restaurants acquired
6

 
4

 
18

 
4

Restaurants closed
(2)
 
(5)
 
(2)
 
(20)
Restaurants sold
—

 
(1)
 
—

 
(1)
Restaurants at end of period
723

 
657

 
723

 
657

 
At July 3, 2016
 
 At 1/3/2016
Long-term debt (e)
$
208,750

 
$
209,209

Cash
9,731

 
22,274

(a)
Acquired restaurants represent the 196 restaurants acquired in 15 acquisitions from 2014 through 2016. Legacy restaurants represent all other restaurants including restaurants acquired before 2014.
(b)
Restaurants are generally included in comparable restaurant sales after they have been open or acquired for 12 months. The calculation of changes in comparable restaurant sales is based on the comparable 13-week or 26-week period, respectively.
(c)
Average weekly sales per restaurant are derived by dividing restaurant sales for the comparable 13-week or 26-week period by the average number of restaurants operating during such period.
(d)
EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Restaurant-Level EBITDA, Restaurant-Level EBITDA margin and Adjusted net income are non-GAAP financial measures and may not necessarily be comparable to other similarly titled captions of other companies due to differences in methods of calculation. Refer to the Company's reconciliation of net income (loss) to EBITDA, Adjusted EBITDA and Adjusted net income, and to the Company's reconciliation of income from operations to Restaurant-Level EBITDA for further detail. Both Adjusted EBITDA margin and Restaurant-Level EBITDA margin are calculated as a percentage of restaurant sales for the respective group of restaurants. Adjusted diluted net earnings per share is calculated based on Adjusted net income and reflects the dilutive impact of shares based on Adjusted net income.
(e)
Long-term debt (including current portion and excluding deferred financing costs) at July 3, 2016 included $200,000 of the Company's 8% Senior Secured Second Lien Notes, $1,204 of lease financing obligations and $7,546 of capital lease obligations. Long-term debt (including current portion and excluding deferred financing costs) at January 3, 2016 included $200,000 of the Company's 8% Senior Secured Second Lien Notes, $1,203 of lease financing obligations and $8,006 of capital lease obligations.


Carrols Restaurant Group, Inc.
Reconciliation of Non-GAAP Measures

 
(unaudited)
 
(unaudited)
 
Three Months Ended (a)
 
Six Months Ended (a)
 
July 3, 2016
 
June 28, 2015
 
July 3, 2016
 
June 28, 2015
Reconciliation of EBITDA and Adjusted EBITDA: (a)
 
 
 
 
 
 
 
Net income (loss)
$
9,376

 
$
(4,977
)
 
$
11,521

 
$
(14,253
)
Provision (benefit) for income taxes
—

 
—

 
—

 
—

Interest expense
4,520

 
4,700

 
9,055

 
9,514

Depreciation and amortization
11,486

 
9,793

 
22,543

 
19,798

EBITDA
25,382

 
9,516

 
43,119

 
15,059

Impairment and other lease charges
286

 
706

 
508

 
2,336

Acquisition costs
230

 
49

 
638

 
260

Gain on partial condemnation and insurance proceeds from fire (b)
(456
)
 
—

 
(906
)
 
—

Anticipated litigation settlement (c)
1,850

 
—

 
1,850

 
—

Stock compensation expense
606

 
363

 
1,171

 
704

Loss on extinguishment of debt
—

 
12,635

 
—

 
12,635

 Adjusted EBITDA
$
27,898

 
$
23,269

 
$
46,380

 
$
30,994

 
 
 
 
 
 
 
 
Reconciliation of Restaurant-Level EBITDA: (a)
 
 
 
 
 
 
 
Income from operations
$
13,896

 
$
12,358

 
$
20,576

 
$
7,896

Add:
 
 
 
 
 
 
 
General and administrative expenses
14,355

 
12,903

 
27,561

 
24,499

Depreciation and amortization
11,486

 
9,793

 
22,543

 
19,798

Impairment and other lease charges
286

 
706

 
508

 
2,336

Other expense (income)
1,479

 
(166
)
 
1,035

 
(126
)
Restaurant-Level EBITDA
$
41,502

 
$
35,594

 
$
72,223

 
$
54,403

 
 
 
 
 
 
 
 
Reconciliation of Adjusted net income: (a)
 
 
 
 
 
 
 
Net income (loss)
$
9,376

 
$
(4,977
)
 
$
11,521

 
$
(14,253
)
Add:
 
 
 
 
 
 
 
Loss on extinguishment of debt
—

 
12,635

 
—

 
12,635

Impairment and other lease charges
286

 
706

 
508

 
2,336

Gain on partial condemnation and insurance proceeds from fire (b)
(456
)
 
—

 
(906
)
 
—

Anticipated litigation settlement (c)
1,850

 
—

 
1,850

 
—

Acquisition costs
230

 
49

 
638

 
260

Adjusted net income
$
11,286

 
$
8,413

 
$
13,611

 
$
978

Adjusted diluted net earnings per share
$
0.25

 
$
0.19

 
$
0.30

 
$
0.02

(a)
Within our press release, we make reference to EBITDA, Adjusted EBITDA, Restaurant-Level EBITDA and Adjusted net income which are non-GAAP financial measures. EBITDA represents net income (loss) before provision (benefit) for income taxes, interest expense and depreciation and amortization. Adjusted EBITDA represents EBITDA as adjusted to exclude loss on extinguishment of debt, impairment and other lease charges, acquisition costs, stock compensation expense and other non-recurring income or expense. Restaurant-Level EBITDA represents income from operations as adjusted to exclude general and administrative expenses, depreciation and amortization, impairment and other lease charges and other income. Adjusted net income represents net income (loss) as adjusted to exclude loss on extinguishment of debt, impairment and other lease charges, acquisition costs and other non-recurring income or expense.
We are presenting Adjusted EBITDA, Restaurant-Level EBITDA and Adjusted net income because we believe that they provide a more meaningful comparison than EBITDA and Net income (loss) of the Company's core business operating results, as well as with those of other similar companies. Additionally, we present Restaurant-Level EBITDA because it excludes the impact of general and administrative expenses and other income, all of which are non-recurring at the restaurant level. Management believes that Adjusted EBITDA, Restaurant-Level EBITDA and Adjusted net income, when viewed with the Company's results of operations in accordance with GAAP and the accompanying reconciliations in the table above, provide useful information about operating performance and period-over-period growth, and provide additional information that is useful for evaluating the operating performance of the Company's core business without regard to potential distortions. Additionally, management believes that Adjusted EBITDA and Restaurant-Level EBITDA permit investors to gain an understanding of the factors and trends affecting our ongoing cash earnings, from which capital investments are made and debt is serviced.
However, EBITDA, Adjusted EBITDA, Restaurant-Level EBITDA and Adjusted net income are not measures of financial performance or liquidity under GAAP and, accordingly, should not be considered as alternatives to net income (loss), income from operations or cash flow from operating activities as indicators of operating performance or liquidity. Also, these measures may not be comparable to similarly titled captions of other companies. The tables above provide reconciliations between net income (loss) and EBITDA, Adjusted EBITDA and Adjusted net income and between income from operations and Restaurant-Level EBITDA.
(b)
Other income (expense) for the three months ended July 3, 2016 includes a gain of $0.5 million related to an insurance recovery from a fire at one of our restaurants. Additionally, for the six months ended July 3, 2016, we recorded a gain of $0.5 million related to a settlement for a partial condemnation on one of our operating restaurant properties.
(c)
Other income (expense) for the three months ended July 3, 2016 includes expense of $1.85 million related to an anticipated litigation settlement.



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