Diversified Restaurant Holdings Inc
Diversified Restaurant — FY2018 Earnings Presentation
24 slides from Diversified Restaurant's earnings presentation, Mar 8, 2019
Slide 1: Q4 and FY 2018 Financial Results
Q4 and FY 2018 Financial Results March 8, 2019 1
Slide 2: Safe Harbor
Safe Harbor Some of the statements contained in this presentation and the Company’s March 8, 2019 earnings conference call may constitute “forward-looking statements” within the meaning of the Federal Private Securities Litigation Reform Act of 1995. These statements reflect the current views of our
Slide 3: Q4 2018 Key Information
Q4 2018 Key Information Sales of $39.1M, up $0.7M before week 53 impact Sales 53rd week in 2017 added $3.5M to Q4 2017 sales Same Store Sales up 2.2% S-S-S Traffic up 4.0% Adjusted EBITDA of $3.8M, 9.7% of sales EBITDA EBITDA up 8.6% before impact of 53rd week in 2017 Restaurant-level EBITDA of $5.6
Slide 4: FY 2018 Key Information
FY 2018 Key Information Sales of $153.1M, down 7.4% Sales 53rd Week in 2017 and reduced traffic; sales down 5.4% excluding week 53 in 2017 Same Store Sales off 4.6% S-S-S Traffic down 7.2% and average check up 2.6% Adjusted EBITDA of $15.8M, 10.3% of sales EBITDA Margin down 1.7 pts. as a result of
Slide 5: DRH Average Check and Traffic Trends
DRH Average Check and Traffic Trends Sharp declines in traffic began in Q3 2017 and persisted through Q3 2018 – but traffic turned positive in Q4 2018 as new media and promotions have had a strong impact, particularly on weekends 7.7% 7.1% 6.6% 6.1% 5.7% 5.5% 4.4% 4.0% 3.3% 3.1% 3.6% 3.2% 7.7% 2.8%
Slide 6: Q4 Sales Bridge ($M)
Q4 Sales Bridge ($M) Excluding the 53rd week in 2017, fourth quarter sales increased on improved traffic $3.5 $0.1 $0.4 $1.0 $41.9 $38.4 $39.1 $39.1 Q4 2017 53rd Week Q4 2017 Normalized Traffic/Avg Ticket Deferred Revenue Closures Q4 2018 Revenue Revenue Revenue 6
Slide 7: FY 2018 Sales Bridge ($M)
FY 2018 Sales Bridge ($M) Reduced traffic was the story for much of 2018, as system-wide promotional and media strategies were a drag similar to latter-2017 $3.5 $2.9 $0.8 $0.8 $1.1 $1.3 $1.5 $7.9 $165.5 $162.0 $161.0 $153.1 FY 2017 53rd Week FY 2017 Delivery NRO 2017 Fight/ Sarasota Promotion Calen
Slide 8: Q4 Adjusted EBITDA Bridge ($M)
Q4 Adjusted EBITDA Bridge ($M) Excluding the 53rd week in 2017, EBITDA increased due to improved traffic and delivery sales as well as lower G&A expense, partially offset by higher labor costs $1.4 $0.2 $0.4 $0.4 $0.5 $4.9 $3.8 $3.5 $3.4 $3.4 $3.1 Q4 2017 53rd Week Q4 2017 Compensation Traffic/Avg T
Slide 9: FY 2018 Adjusted EBITDA Bridge ($M)
FY 2018 Adjusted EBITDA Bridge ($M) Favorable traditional wing costs and lower G&A expenses helped to offset the impact of traffic, an unfavorable calendar shift and higher labor costs $1.4 $3.0 $1.5 $1.3 $0.9 $0.6 $0.7 $0.5 $19.9 $18.5 $12.9 $15.8 $14.0 $14.5 $13.4 $12.9 FY 2017 53rd Week 2017 Adj
Slide 10: Quarterly Restaurant EBITDA Trend
Quarterly Restaurant EBITDA Trend AUV Trend Line AUV ($M) $3.1 $2.8 $2.7 $2.7 $2.7 $2.6 $2.6 $2.6 $2.8 $2.5 $2.4 $2.4 $2.4 $2.3 $2.3 $2.5 $2.8 $2.8 $2.6 $2.5 $2.4 100.0% 3.50 90.0% 28.8% 28.1% 28.1% 27.6% 28.0% 27.9% 27.4% 29.2% 29.4% 29.9% 29.2% 29.3% 28.2% 28.5% 28.5% 29.2% 28.5% 28.1% 28.1% 29.4%
Slide 11: Q4 Cost of Sales Bridge (% of Net Sales)
Q4 Cost of Sales Bridge (% of Net Sales) Improved traditional wing costs and other efficiency initiatives more than offset the 110 bp impact of the $5 Football promotion 1.1% 0.9% 0.3% 29.3% 29.2% 29.2% Q4 2017 Promotional Activity Traditional Wings *Other Q4 2018 COS % COS % * Other includes Bonele
Slide 12: FY 2018 Cost of Sales Bridge (% of Net Sales)
FY 2018 Cost of Sales Bridge (% of Net Sales) Improved traditional and boneless wing costs led to 90 bp improvement in total cost of sales, partially offset by increased promotional activity in Q4 1.3% 0.3% 0.7% 29.5% 27.8% 28.6% FY 2017 Traditional Wings Boneless Wings Q4 Promotional Activity FY 20
Slide 13: COS Trends and Wing Impact
COS Trends and Wing Impact Traditional wing costs were escalated throughout 2017 and hit record highs in Q4, but have declined and returned to more normalized levels in 2018 $2.14 $2.13 29.9% 29.5% 29.2% 29.4% $2.03 29.3% 29.2% 29.4% 28.8% $2.02 28.5% 28.5% 28.5% 28.6% 28.1% 28.2% 28.1% 28.0% 27.9%
Slide 14: Q4 Labor Bridge (% of Net Sales)
Q4 Labor Bridge (% of Net Sales) The impact of the 53rd week in Q4 2017 and labor cost headwinds had a 160 bp negative impact on margins in Q4 0.3% 0.5% 0.2% 0.6% 25.3% 26.9% Q4 2017 Labor % 53rd Week Hourly Labor Management Labor Labor Overhead Q4 2018 Labor % & Bonus 14
Slide 15: FY 2018 Labor Bridge (% of Net Sales)
FY 2018 Labor Bridge (% of Net Sales) Labor cost headwinds had a 160 bp negative impact on margins in 2018 as wages have increased and efficiencies have been hindered by the lower sales environment 0.6% 0.2% 0.1% 0.9% 26.8% 25.2% FY 2017 Labor % Sales Hourly Wage Management Wages Labor FY 2018 Labor
Slide 16: Lower G&A Run Rate ($M)
Lower G&A Run Rate ($M) G&A costs held in check in 2018, ending the year at 5.0% of net sales (aided by over-accrued incentives in 2017 and minimal incentive accruals in 2018) $9.0 5.6% 5.4% $8.5 5.4% 5.2% $8.0 5.2% $7.5 $8.9 5.0% 5.0% $7.0 $8.4 4.8% $7.5 $6.5 4.6% $6.0 4.4% FY2016 FY 2017 FY 2018 G
Slide 17: Free Cash Flow and Net Debt ($M)
Free Cash Flow and Net Debt ($M) Unlevered free cash flow remained strong in 2018 as lower capital spend largely offset reduced EBITDA; net debt reduced to $97 million ($ millions) 2015 2016 2017 2018 Total net sales $ 144.8 $ 166.5 $ 1 65.5 $ 1 53.1 Restaurant level EBITDA 29.7 32.3 2 8.3 2 3.3 Adj
Slide 18: Value Creation – Going Forward
Value Creation – Going Forward > Franchisor under new ownership – demonstrated track record Current > Renewed energy and excitement behind the brand Environment > Traffic turned positive in Q4 2018 behind new media bridge campaign > Significant brand activity rolling out in March 2019 > Traction fro
Slide 19: Loyalty Attachment Rates
Loyalty Attachment Rates Blazin’ Rewards Loyalty Attachment Rates 27.61% 25.42% 24.57% 24.36% 23.93% 23.87% 24.09% 23.75% 22.82% 21.91% 22.15% 21.11% 19.80% 19.45% 18.88% Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 • Our goal is to reach 3
Slide 20: DRH Continues to Improve its Operations (2018 vs 2017)
DRH Continues to Improve its Operations (2018 vs 2017) Guest Loyalty Likely to Loyalty Index Recommend Attachment 2018-88.7% 2018-90.5% 2018-23.3% 2017-85.5% +3.2 pts 2017-88.3% +2.2 pts 2017-10.4% +12.9 pts Review COS Comps Tracker¹ Waste Variance 2018-2.6m 2018-4.0 stars 2018- 0.64% 2017-3.3m 2017
Slide 21: Buffalo Wild Wings
BUFFALO WILD 7 WINGS
Slide 22: Historical Wing Prices
Historical Wing Prices Volatile fresh wing spot prices had ranged between $1.41 and $2.16/lb. since 2015; prices declined significantly since October 2017 and now appear to be following typical seasonal trends $ / lb. Fresh Jumbo Northeast Chicken Wing Spot Prices Source: Urner Barry Comtell™ UB Chi
Slide 23: EBITDA Reconciliation
EBITDA Reconciliation DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES Reconciliation between Net Loss and Adjusted EBITDA and Adjusted Restaurant-Level EBITDA Three Months Ended (Unaudited) Fiscal Year Ended (Unaudited) December 30, 2018 December 31, 2017 December 30, 2018 December 31, 2017 N
Slide 24: EBITDA Reconciliation cont.
EBITDA Reconciliation cont. Restaurant-Level EBITDA represents net income (loss) plus the sum of non-restaurant specific general and administrative expenses, restaurant pre- opening costs, impairment and loss on property and equipment disposals, depreciation and amortization, other income and expens
Diversified Restaurant Holdings — FY2018 Earnings Presentation on 6ix