Diversified Restaurant Holdings Inc

Diversified Restaurant — Q2 2019 Earnings Presentation

26 slides from Diversified Restaurant's earnings presentation, Aug 14, 2019

  1. Slide 1: Q2 2019 Financial Results

    Q2 2019 Financial Results August 15, 2019 1

  2. Slide 2: Safe Harbor

    Safe Harbor Some of the statements contained in this presentation and the Company’s August 15, 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 o

  3. Slide 3: Second Quarter Key Information

    Second Quarter Key Information Sales of $38.9M, up $1.9M Delivery growth and an increase in traffic due to the St. Louis Blues and additional NBA championship games; Sales partially offset by the Easter shift Same Store Sales up 5.8% S-S-S Traffic up 2.6% and average check up 3.2%; Easter shift unfa

  4. Slide 4: DRH Continues to Improve its Operations (Q2 2019 vs Q2 2018)

    DRH Continues to Improve its Operations (Q2 2019 vs Q2 2018) Guest Loyalty Likely to Same-Store Index Recommend Sales 91.0% vs 89.0% 93.1% vs 90.7% +5.8% vs (6.5%) +2.0 pts +2.4 pts Review COS Waste Takeout Tracker¹ Variance Execution 94.9% vs 91.0% 4.2 stars vs 3.9 +0.3 pts 0.4% vs 0.6% - 0.2 pts +

  5. Slide 5: Blazin' Rewards Loyalty Attachment Rates

    Blazin’ Rewards Loyalty Attachment Rates Far outpacing the BWW franchise system 25.5% 24.8% 25.8% 26.0% 25.3% 23.2% 11.4% 11.5% 10.3% 10.7% 10.9% 11.2% Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 DRH Loyalty Attachment BWW Franchise System • Our goal is to reach 30% loyalty attachment in 2019 • Multip

  6. Slide 6: Average Check and Traffic Trends

    Average Check and Traffic Trends Three consecutive positive quarters of SSS; average check turned positive in Q2 with a reduction of promotional activity coupled with menu price increases 7.7% 5.5% 5.8% 4.4% 4.9% 5.0% 4.0% 3.1% 4.2% 2.6% 3.8% 1.4% 2.0% 1.9% 2.2% 2.6% 1.1% 0.2% 0.1% -0.2% -1.1% -0.3%

  7. Slide 7: Q2 Sales Bridge ($M)

    Q2 Sales Bridge ($M) Revenue growth driven by strong increase in delivery sales and favorable sporting events in our core markets, partially offset by the Easter calendar shift $1.6 $0.4 $0.4 $0.1 $1.0 $38.9 $37.0 $36.6 Q2 2018 Sarasota Q2 2018 Adj Easter Calendar Dine In/Carry- Sporting Events 1 De

  8. Slide 8: YTD Sales Bridge ($M)

    YTD Sales Bridge ($M) Year-to-date revenue growth driven primarily by higher delivery sales $0.9 $0.5 $0.3 $1.0 $3.6 $76.6 $75.7 $79.5 YTD 2018 Sarasota YTD 2018 Adj Weather Dine In/Carry- Sporting Events Delivery YTD 2019 Revenue Closure Revenue Out Revenue 8

  9. Slide 9: Q2 Adjusted EBITDA Bridge ($M)

    Q2 Adjusted EBITDA Bridge ($M) Sales growth was partially offset by labor and cost of sales headwinds $0.2 $0.8 $0.3 $0.1 $0.1 $3.9 $3.6 Q2 2018 Labor Cost Cost of Sales Delivery Fees G&A Sales Q2 2019 Adj. EBITDA Adj. EBITDA 9

  10. Slide 10: YTD Adjusted EBITDA Bridge ($M)

    YTD Adjusted EBITDA Bridge ($M) Labor, cost of sales and delivery fees have been a drag on EBITDA, partially offset by sales growth $0.5 $0.4 $0.4 $1.2 $0.3 $0.2 $0.1 $0.2 $8.7 $8.4 YTD 2018 Cost of Delivery Labor Cost New 1 2018 G&A 2 Other G&A Sales YTD 2019 Adj. Sales Fees Product Accrual Opex Ad

  11. Slide 11: Delivery Expense Headwinds are Abating

    Delivery Expense Headwinds are Abating Net delivery expense is on a downward trajectory and we expect further meaningful improvements in the coming quarters as price and contract negotiations are working in our favor as volumes increase $3.00 25.0% 22.8% 22.7% 21.4% 20.3% $2.50 19.7% 19.0% 20.0% 18.

  12. Slide 12: Quarterly Restaurant EBITDA Trend and AUV

    Quarterly Restaurant EBITDA Trend AUV Trend Line AUV ($M) $2.7 $2.6 $2.6 $2.6 $2.8 $2.5 $2.4 $2.4 $2.4 $2.3 $2.3 $2.5 $2.5 $2.5 $2.6 $2.5 $2.4 $2.5 100.0% 3.00 28.0% 27.9% 27.4% 29.2% 29.4% 29.9% 29.2% 29.3% 28.2% 28.5% 28.5% 29.2% 28.8% 29.3% 28.1% 29.4% 28.6% 29.0% 90.0% COS 2.50 80.0% 70.0% 2.00

  13. Slide 13: Q2 Cost of Sales Bridge (% of Net Sales)

    Q2 Cost of Sales Bridge (% of Net Sales) Higher traditional wing costs were partially offset by lower costs for boneless wings and other products 2.0% 1.2% 28.5% 29.3% Q2 2018 Traditional Wings Boneless/ Q2 2019 COS % Food & Bev/ COS % Alcohol 13

  14. Slide 14: YTD Cost of Sales Bridge (% of Net Sales)

    YTD Cost of Sales Bridge (% of Net Sales) Higher traditional wing costs and expenses associated with the new menu roll out were partially offset by lower costs for boneless wings and other products 0.1% 0.6% 1.3% 28.3% 29.1% Q2 2018 Traditional Wings New Menu Roll-Out Boneless/ Q2 2019 COS % (test/o

  15. Slide 15: COS Trends and Wing Impact

    COS Trends and Wing Impact Traditional wing costs were elevated again in Q2 2019; approaching peak levels from second half of 2017 Implemented an off-cycle price increase of ~100 bps to address (effective June 1, 2019) $2.14 $2.13 29.9% $2.10 29.4% 29.5% 29.4% 29.2% 29.3% 29.2% 29.3% 29.1% 28.8% $2.

  16. Slide 16: Q2 Labor Bridge (% of Net Sales)

    Q2 Labor Bridge (% of Net Sales) Labor cost headwinds had a 10 bp negative impact on margins in Q2 0.2% 0.1% 27.5% 27.6% Q2 2018 Labor % Hourly Labor Bonus & Overhead Q2 2019 Labor % 16

  17. Slide 17: YTD Labor Bridge (% of Net Sales)

    YTD Labor Bridge (% of Net Sales) Labor cost headwinds and training had a 60 bp negative impact on margins year-to-date 0.2% 0.1% 0.3% 26.6% 27.2% YTD 2018 Labor % Hourly Labor Training for Management Labor YTD 2019 Labor % New Rollouts 17

  18. Slide 18: Lower G&A Run Rate ($M)

    Lower G&A Run Rate ($M) G&A expenses are projected below 5.0% of net sales after run rate cost savings initiatives of ~$1.5M that were executed at the end of Q2 2019 $8.9 $9.0 $8.4 6.5% $8.0 $7.5 6.0% $7.0 $6.7 5.5% 5.4% $6.0 5.2% 5.0% 5.0% $5.0 4.5% $4.0 4.0% $3.0 3.5% $2.0 3.0% FY2016 FY 2017 FY 2

  19. Slide 19: Free Cash Flow and Net Debt ($M)

    Free Cash Flow and Net Debt ($M) Unlevered free cash flow of $14.2M LTM Q2 2019; net debt reduced to $93.3 million Current debt maturity June 2020 with debt amortization of ~$1M/month; Interest rate: LIBOR + 3.50% ($ millions) 2016 2017 2018 Q2 2019 LTM Total net sales $ 166.5 $ 165.5 $ 153.1 $ 156.

  20. Slide 20: Brand Relaunch and Returning to Our Roots

    Brand Relaunch and Returning to Our Roots  Relaunch of BOGO Wing Tuesday – July  Brand relaunch with focus on football and newNew products – August  NewProducts Hand-Breaded Chicken Tenders – August  New Hand-Breaded Chicken Sandwiches – August  New Boneless Wings with less breading – November

  21. Slide 21: Fall Advertising

    Fall Advertising  Focus on new products and value  Increased national advertising; expanded emphasis on social media New Products New Fall Advertising Value Proposition 21

  22. Slide 22: Value Creation – Going Forward

    Value Creation – Going Forward  Best in class operations  Efficiencies and significant, sustainable reductions in overhead costs to drive earnings power; EBITDA growth is achievable  Renewed energy and excitement behind the brand Traction from media and promotional changes New franchisor ownershi

  23. Slide 23: Buffalo Wild Wings

    BUFFALO WILD 7 WINGS

  24. Slide 24: Historical Wing Prices

    Historical Wing Prices Volatile fresh wing spot prices have remained relatively high coming out of the March Madness period – forecasts suggest possible wing cost headwinds again in 2019 $ / lb. Fresh Jumbo Northeast Chicken Wing Spot Prices Source: Urner Barry Comtell™ UB Chicken – Northeast Jumbo

  25. Slide 25: EBITDA Reconciliation

    EBITDA Reconciliation liversified) os aura viho|dingsine. DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES Reconciliation between Net loss and Adjusted EBITDA and Adjusted Restaurant-Level EBITDA Three Months Ended (Unaudited) Six Months Ended (Unaudited) June 30, 2019 July 1, 2018 June 30, 20

  26. Slide 26: 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

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