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8-K - FORM 8-K - Del Taco Restaurants, Inc.d17023d8k.htm

Exhibit 99.1

LOGO

For Immediate Release

Del Taco Restaurants, Inc. Announces Fiscal Third Quarter 2015

Financial Results

System-wide comparable restaurant sales grew 5.6%; Income from operations grew 17.0%

Conference Call and Webcast will be held at 5:00 PM EDT Today

Lake Forest, CA. October 19, 2015 – Del Taco Restaurants, Inc. (“Del Taco” or the “Company”), (NASDAQ: TACO, TACOW), the second largest Mexican-American QSR chain by units in the United States, operating restaurants under the name Del Taco, today announced fiscal third quarter 2015 financial results. Del Taco also provided guidance for fiscal year 2015 and its outlook for future restaurant development.

Del Taco became a public company when it completed a business combination with Levy Acquisition Corp. on June 30, 2015 which resulted in a fiscal third quarter financial statement presentation that includes a predecessor period for the two-weeks ended June 30, 2015 followed by a successor period for the ten-weeks ended September 8, 2015. The financial results referenced below have been aggregated to reflect, on a pro forma basis, the combined successor and predecessor periods for the twelve weeks ended September 8, 2015 compared to the comparable twelve weeks during fiscal year 2014.

Fiscal Third Quarter 2015 Highlights

 

    Total revenue of $98.6 million, representing 6.7% growth from the fiscal third quarter of 2014;

 

    System-wide comparable restaurant sales growth of 5.6% and company-owned comparable restaurant sales growth of 5.4%, marking the eighth and thirteenth consecutive quarter of gains, respectively;

 

    Income from operations of $10.2 million, representing 17.0% growth from the same fiscal quarter last year;

 

    Restaurant contribution margin of 19.7%, an improvement of approximately 150 basis points from the prior year’s fiscal third quarter;

 

    Adjusted EBITDA, a non-GAAP financial measure, of $15.3 million, representing 9.6% growth from the previous year’s fiscal third quarter; and

 

    The refinancing of the senior credit facility, which is expected to reduce annual interest expense on the Company’s existing indebtedness by approximately $5.4 million.

 

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Paul J.B. Murphy, III, President and Chief Executive Officer of Del Taco, commented, “During the third quarter, we extended our record of positive Company-owned comparable restaurant sales to thirteen consecutive quarters and grew our operating income by 17%. We continued our track record of pairing positive traffic growth with increasing check averages. Along with increased menu pricing, our growth in check average was driven by an increasing contribution from menu mix shifts that were the direct result of guests ordering our new premium menu items. We drove nearly 3% of real volume growth, consisting of menu mix and traffic but excluding menu price. We believe that these results demonstrate the strength of our business model and enhance our ability to launch the brand in new and existing markets.”

Murphy continued, “We are working hard to broaden the occasions Del Taco serves through our Combined Solutions model, complemented by a strategic menu and product innovation progression. By enhancing our premium tier offerings while managing value perceptions, we are expanding our customer base and providing our existing guests new reasons to visit Del Taco. These moves coupled with our focus on delivering a better Del Taco experience through consistent operational improvements are improving guest satisfaction and further embedding our QSR+ positioning.”

Murphy concluded, “We expect to open thirteen restaurants system-wide this fiscal year. Looking ahead, we expect to open 14 to 18 restaurants system-wide in fiscal year 2016, followed by mid-single-digit system-wide unit growth on a percentage basis in fiscal year 2017. We will then accelerate towards high-single-digit system-wide unit growth on a percentage basis thereafter. We plan to concentrate the majority of our near-term development in existing markets and we are excited to announce that we plan to bring new company-operated restaurants to the Denver, CO market by early 2017 and join forces with existing franchise stores in Denver to enhance awareness in this high potential market. We are also working now to lay the groundwork for expansion in new geographies with attractive demographics.”

Review of Fiscal Third Quarter 2015 Financial Results

Total revenue was $98.6 million, an increase of 6.7% compared to $92.4 million in the fiscal third quarter of 2014. The growth in revenue was driven by a 6.7% increase in company restaurant sales and a 6.8% increase in franchise revenue.

Comparable restaurant sales increased 5.6% system-wide for the fiscal quarter ended September 8, 2015 compared to the 5.6% gain in the prior year fiscal third quarter, for a two-year growth rate of 11.2%. The Del Taco system has now generated comparable restaurant sales growth for eight consecutive quarters.

Company-owned comparable restaurant sales increased 5.4% and included a 0.6% gain in traffic, marking the thirteenth consecutive quarter of comparable restaurant sales growth. Average check growth contributed meaningfully to the comparable restaurant sales increase as guests responded favorably to the introduction of new premium products that embed Del Taco’s QSR+ positioning. Franchise comparable restaurant sales increased 5.8%.

 

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Restaurant contribution, a non-GAAP financial measure, increased 15.6% year-over-year to $18.7 million. As a percentage of company restaurant sales, restaurant contribution increased approximately 150 basis points year-over-year to 19.7%. The increase was driven by a 100 basis point improvement in labor and related expenses, a 40 basis point improvement in occupancy and other operating expenses, and a 10 basis point improvement in food and paper costs.

Adjusted EBITDA, a non-GAAP financial measure, was $15.3 million, an increase of 9.6% from $13.9 million in the previous year’s fiscal third quarter. A reconciliation between adjusted EBITDA and the nearest GAAP financial measure is included in the accompanying financial data.

Income from operations increased 17.0% to $10.2 million compared to $8.7 million in the prior year fiscal third quarter.

Net income was $2.4 million during the two weeks ended June 30, 2015 (predecessor) and net loss was $2.2 million during the ten weeks ended September 8, 2015 (successor) and included $12.0 million of transaction-related costs, compared to net income of $0.9 million in the fiscal third quarter of 2014 (predecessor).

Guidance

Del Taco is offering the following guidance for fiscal year 2015, a 52 week period ending December 29, 2015.

 

    Total company restaurant sales between $404 million and $407 million;

 

    Total revenue between $420 million and $423 million;

 

    System-wide same store sales growth of approximately 5.5% to 6.0%;

 

    Restaurant contribution margin between 19.5% and 19.7%;

 

    G&A expenses between $29.9 and $30.4 million, prior to accounting for the management equity incentive plan that is expected to be finalized in the fourth quarter;

 

    Adjusted EBITDA between $64.2 million and $64.8 million; and

 

    Thirteen system-wide restaurant openings, including seven company-operated restaurants.

Del Taco plans to close twelve of the thirteen underperforming company-operated restaurants previously discussed in its definitive proxy statement by fiscal year-end and expects to record restaurant closure charges totaling approximately $4.2 million to $5.0 million during the fiscal fourth quarter of 2015. Over the past year these 12 restaurants generated negative restaurant contribution of approximately $1.6 million, and their closures are expected to have an accretive impact to restaurant contribution.

 

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Key Financial Definitions

Comparable restaurant sales growth reflects the change in year-over-year sales for the comparable company, franchise and total system restaurant base. Restaurants are included in the comparable store base in the accounting period following its 18th full month of operations.

Restaurant contribution is defined as company restaurant sales less restaurant operating expenses, which are food and paper costs, labor and related expenses and occupancy and other operating expenses. Restaurant contribution margin is defined as restaurant contribution as a percentage of company restaurant sales. Restaurant contribution and restaurant contribution margin are neither required by, nor presented in accordance with, GAAP.

Adjusted EBITDA is defined as net income/loss prior to interest expense, income taxes, and depreciation and amortization, as adjusted to add back certain charges, such as stock-based compensation expense and transaction-related costs, as these expenses are not considered an indicator of ongoing company performance. Adjusted EBITDA is a non-GAAP financial measure and should not be considered as an alternative to operating income or net income/loss as a measure of operating performance or cash flows or as measures of liquidity. Non-GAAP financial measures are not necessarily calculated the same way by different companies and should not be considered a substitute for or superior to GAAP results. Adjusted EBITDA is a financial measure that was not calculated in accordance with GAAP. A reconciliation between adjusted EBITDA and the nearest GAAP financial measure is included in the accompanying financial data.

Conference Call and Webcast

Del Taco will host a conference call and webcast to discuss financial results for the fiscal third quarter 2015 today at 5:00 PM EDT.

Hosting the conference call and webcast will be Larry Levy, Chairman of the Board; Paul J.B. Murphy, III, President and Chief Executive Officer; John D. Cappasola, Jr., Executive Vice President and Chief Brand Officer; and Steven L. Brake, Executive Vice President and Chief Financial Officer.

Interested parties may listen to the conference call via telephone by dialing 1-877-407-0789, or for international callers, 1-201-689-8562. A telephone replay will be available shortly after the call has concluded and can be accessed by dialing 1-877-870-5176, or for international callers, 1-858-384-5517. The passcode is 13619665.

The webcast will be available at www.deltaco.com under the investors section and will be archived on the site shortly after the call has concluded.

About Del Taco Restaurants, Inc.

At Del Taco (NASDAQ: TACO, TACOW), all menu items taste better because they are made to order with fresh ingredients including cheddar cheese grated from 40-pound blocks, handmade pico de gallo salsa, lard-free beans slow-cooked from scratch, fresh sliced avocado and

 

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marinated chicken grilled in the restaurant. The menu, which includes a full line of breakfast, includes classic Mexican dishes such as tacos, burritos, quesadillas and nachos as well as American favorites including hamburgers, crinkle-cut fries and shakes. Del Taco’s UnFreshing Believable campaign communicates the lengths the company goes to in order to deliver quality, made-to-order menu items created with freshly-prepared ingredients at unbelievable prices. With nearly 550 restaurants in 16 states, Del Taco serves more than three million guests each week. Guests are invited to “like” Del Taco on Facebook at www.facebook.com/deltaco and join its Raving Fan eClub at www.DelTaco.com/RavingFan. For more information, please visit www.deltaco.com.

Forward-Looking Statements

In addition to historical information, this release may contain a number of “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, information concerning Del Taco’s possible or assumed future results of operations, business strategies, competitive position, industry environment, potential growth opportunities and the effects of regulation. These statements are based Del Taco’s management’s current expectations and beliefs, as well as a number of assumptions concerning future events. When used in this press release, the words “estimates,” “projected,” “expects,” “anticipates,” “forecasts,” “plans,” “intends,” “believes,” “seeks,” “may,” “will,” “should,” “future,” “propose” and variations of these words or similar expressions (or the negative versions of such words or expressions) are intended to identify forward-looking statements. Such forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside Del Taco’s management’s control that could cause actual results to differ materially from the results discussed in the forward-looking statements. These risks included, without limitation, consumer demand, our inability to successfully open company-operated or franchised restaurants or establish new markets, competition in our markets, our inability to grow and manage growth profitably, adverse changes in food and supply costs, our inability to access additional capital, changes in applicable laws or regulations, food safety and foodborne illness concerns, our inability to manage existing and to obtain additional franchisees, our inability to attract and retain qualified personnel, our inability to profitably expand into new markets, and the possibility that we may be adversely affected by other economic, business, and/or competitive factors. Additional risks and uncertainties are identified and discussed in Del Taco’s reports filed with the SEC and available at the SEC’s website at www.sec.gov and the Company’s website at www.deltaco.com.

Forward-looking statements included in this release speak only as of the date of this release. Del Taco undertakes no obligation to update its forward-looking statements to reflect events or circumstances after the date of this release or otherwise.

 

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### #### ###

Media Contact:

Julia Young

(646) 277-1280

julia.young@icrinc.com

Investor Relations Contact:

Raphael Gross

(203) 682-8253

investor@deltaco.com

 

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Del Taco Restaurants, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

 

     Successor     Predecessor  
     September 8,
2015
    December 30,
2014
 

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 7,174      $ 8,553   

Accounts and other receivables, net

     2,290        3,383   

Inventories

     2,758        2,687   

Prepaid expenses and other current assets

     4,058        3,816   

Deferred tax assets

     2,014        —     
  

 

 

   

 

 

 

Total current assets

     18,294        18,439   

Property and equipment, net

     110,341        85,164   

Goodwill

     317,174        281,200   

Trademarks

     220,300        144,000   

Intangible assets, net

     29,521        17,683   

Other assets, net

     4,790        3,548   
  

 

 

   

 

 

 

Total assets

   $ 700,420      $ 550,034   
  

 

 

   

 

 

 

Liabilities and shareholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 18,039      $ 14,645   

Other accrued liabilities

     30,426        32,088   

Current portion of long-term debt, capital lease obligations and deemed landlord financing liabilities

     1,665        1,634   
  

 

 

   

 

 

 

Total current liabilities

     50,130        48,367   

Long-term debt, capital lease obligations and deemed landlord financing liabilities, excluding current portion, net

     174,720        321,764   

Deferred income taxes

     77,078        64,736   

Warrant liability

     —          8,309   

Other non-current liabilities

     36,306        25,454   
  

 

 

   

 

 

 

Total liabilities

     338,234        468,630   

Commitments and contingencies

    

Shareholders’ equity:

    

Del Taco Holdings, Inc. (Predecessor) preferred stock, $0.01 par value; 200,000 shares authorized; no shares issued and outstanding

     —          —     

Del Taco Restaurants, Inc. (Successor) preferred stock, $0.0001 par value; 1,000,000 shares authorized; no shares issued and outstanding

     —          —     

Del Taco Holdings, Inc. (Predecessor) common stock, $0.01 par value; 5,800,000 shares authorized; 3,907,835 shares issued and outstanding at December 30, 2014

     —          39   

Del Taco Restaurants, Inc. (Successor) common stock, $0.0001 par value; 400,000,000 shares authorized; 38,802,425 shares issued and outstanding at September 8, 2015

     4        —     

Additional paid-in capital

     370,908        110,941   

Accumulated other comprehensive loss

     —          (409

Accumulated deficit

     (8,726     (29,167
  

 

 

   

 

 

 

Total shareholders’ equity

     362,186        81,404   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 700,420      $ 550,034   
  

 

 

   

 

 

 

 

7


Del Taco Restaurants, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands, except share and per share data)

 

    Successor     Predecessor  
    10 Weeks
Ended
September 8, 2015
    2 Weeks
Ended
June 30, 2015
    12 Weeks
Ended
September 9, 2014
 

Revenue:

     

Company restaurant sales

  $ 78,874     $ 15,891      $ 88,819   

Franchise revenue

    2,694       546        3,034   

Franchise sublease income

    467       95        540   
 

 

 

   

 

 

   

 

 

 

Total revenue

    82,035       16,532        92,393   

Operating expenses:

     

Restaurant operating expenses:

     

Food and paper costs

    22,567       4,607        25,543   

Labor and related expenses

    23,512       4,712        27,393   

Occupancy and other operating expenses

    17,024       3,653        19,722   

General and administrative

    5,824       1,004        5,975   

Depreciation and amortization

    4,147       664        4,385   

Occupancy and other - franchise subleases

    437       87        516   

Pre-opening costs

    41       28        181   

Restaurant closure charges, net

    19       —          20   

Loss (gain) on disposal of assets

    1       84        (24
 

 

 

   

 

 

   

 

 

 

Total operating expenses

    73,572       14,839        83,711   
 

 

 

   

 

 

   

 

 

 

Income from operations

    8,463       1,693        8,682   

Other expenses:

     

Interest expense

    1,725       664        6,786   

Transaction-related costs

    11,978       61        241   

Debt modification costs

    78       1        —     

Change in fair value of warrant liability

    —         —          303   
 

 

 

   

 

 

   

 

 

 

Total other expenses

    13,781       726        7,330   
 

 

 

   

 

 

   

 

 

 

(Loss) income from operations before provision for income taxes

    (5,318 )     967        1,352   

(Benefit) provision for income taxes

    (3,132 )     (1,449     463   
 

 

 

   

 

 

   

 

 

 

Net (loss) income

    (2,186 )     2,416        889   

Other comprehensive (loss) income:

     

Change in fair value of interest rate cap

    —         (1     (14

Reclassification of interest rate cap amortization included in net (loss) income

    —         —          5   
 

 

 

   

 

 

   

 

 

 

Total other comprehensive (loss) income, net

    —         (1     (9
 

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income

  $ (2,186 )   $ 2,415      $ 880   
 

 

 

   

 

 

   

 

 

 

(Loss) earnings per share:

     

Basic

  $ (0.06 )   $ 0.36      $ 0.23   

Diluted

  $ (0.06 )   $ 0.36      $ 0.23   

Weighted-average shares outstanding

     

Basic

    38,802,425       6,707,776        3,907,835   

Diluted

    38,802,425       6,707,776        3,910,866   

 

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Del Taco Restaurants, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands, except share and per share data)

 

    Successor     Predecessor  
    10 Weeks
Ended
September 8, 2015
    26 Weeks
Ended
June 30, 2015
     36 Weeks
Ended
September 9, 2014
 

Revenue:

      

Company restaurant sales

  $ 78,874     $ 200,676       $ 259,948   

Franchise revenue

    2,694       6,693         8,817   

Franchise sublease income

    467       1,183         1,542   
 

 

 

   

 

 

    

 

 

 

Total revenue

    82,035       208,552         270,307   

Operating expenses:

      

Restaurant operating expenses:

      

Food and paper costs

    22,567       57,447         76,171   

Labor and related expenses

    23,512       61,120         80,065   

Occupancy and other operating expenses

    17,024       43,611         57,152   

General and administrative

    5,824       14,850         18,304   

Depreciation and amortization

    4,147       8,252         13,300   

Occupancy and other - franchise subleases

    437       1,109         1,470   

Pre-opening costs

    41       276         371   

Restaurant closure charges, net

    19       94         (171

Loss (gain) on disposal of assets

    1       99         (229
 

 

 

   

 

 

    

 

 

 

Total operating expenses

    73,572       186,858         246,433   
 

 

 

   

 

 

    

 

 

 

Income from operations

    8,463       21,694         23,874   

Other expenses:

      

Interest expense

    1,725       11,491         21,968   

Transaction-related costs

    11,978       7,255         241   

Debt modification costs

    78       139         1,241   

Change in fair value of warrant liability

    —         (35      303   
 

 

 

   

 

 

    

 

 

 

Total other expenses

    13,781       18,850         23,753   
 

 

 

   

 

 

    

 

 

 

(Loss) income from operations before provision for income taxes

    (5,318 )     2,844         121   

(Benefit) provision for income taxes

    (3,132 )     740         1,259   
 

 

 

   

 

 

    

 

 

 

Net (loss) income

    (2,186 )     2,104         (1,138

Other comprehensive income (loss):

      

Change in fair value of interest rate cap

    —         (24      (103

Reclassification of interest rate cap amortization included in net (loss) income

    —         58         7   
 

 

 

   

 

 

    

 

 

 

Total other comprehensive income (loss), net

    —         34         (96
 

 

 

   

 

 

    

 

 

 

Comprehensive (loss) income

  $ (2,186 )   $ 2,138       $ (1,234
 

 

 

   

 

 

    

 

 

 

(Loss) earnings per share:

      

Basic

  $ (0.06 )   $ 0.38       $ (0.29

Diluted

  $ (0.06 )   $ 0.37       $ (0.29

Weighted-average shares outstanding:

      

Basic

    38,802,425       5,492,417         3,907,835   

Diluted

    38,802,425       5,610,859         3,907,835   

 

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Del Taco Restaurants, Inc.

Reconciliation of Net Loss (Income) to EBITDA and Adjusted EBITDA

(Unaudited)

(In thousands)

 

    Successor     Predecessor  
    10 Weeks
Ended
September 8, 2015
    2 Weeks
Ended
June 30, 2015
    12 Weeks
Ended
September 9, 2014
 

Net (loss) income

  $ (2,186 )   $ 2,416      $ 889   

Non-GAAP adjustments:

     

(Benefit) provision for income taxes

    (3,132 )     (1,449     463   

Interest expense

    1,725       664        6,786   

Depreciation and amortization

    4,147       664        4,385   
 

 

 

   

 

 

   

 

 

 

EBITDA

    554       2,295        12,523   
 

 

 

   

 

 

   

 

 

 

Stock-based compensation expense

    146       —          189   

Loss (gain) on disposal of assets

    1       84        (24

Restaurant closure charges, net

    19       —          20   

Debt modification costs

    78       1        —     

Transaction-related costs

    11,978       61        241   

Change in fair value of warrant liability

    —          —          303   

Pre-opening costs

    41       28        181   

Insurance reserves adjustment

    —          —          510   
 

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 12,817     $ 2,469      $ 13,943   
 

 

 

   

 

 

   

 

 

 


Del Taco Restaurants, Inc.

Reconciliation of Net Loss (Income) to EBITDA and Adjusted EBITDA

(Unaudited)

(In thousands)

 

    Successor     Predecessor  
    10 Weeks
Ended
September 8,
2015
    26 Weeks
Ended
June 30, 2015
    36 Weeks
Ended
September 9,
2014
 

Net (loss) income

  $ (2,186 )   $ 2,104      $ (1,138

Non-GAAP adjustments:

     

(Benefit) provision for income taxes

    (3,132 )     740        1,259   

Interest expense

    1,725       11,491        21,968   

Depreciation and amortization

    4,147       8,252        13,300   
 

 

 

   

 

 

   

 

 

 

EBITDA

    554       22,587        35,389   
 

 

 

   

 

 

   

 

 

 

Stock-based compensation expense

    146       532        711   

Loss (gain) on disposal of assets

    1       99        (229

Restaurant closure charges, net

    19       94        (171

Debt modification costs

    78       139        1,241   

Transaction-related costs

    11,978       7,255        241   

Change in fair value of warrant liability

    —          (35     303   

Pre-opening costs

    41       276        371   

Insurance reserves adjustment

    —          —          1,411   
 

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 12,817     $ 30,947      $ 39,267