SPARTANBURG, S.C., Feb. 13, 2023 (GLOBE NEWSWIRE) -- Denny's Corporation (the "Company") (NASDAQ: DENN), owner and operator of Denny's Inc. ("Denny's") and Keke's Inc. ("Keke's") today reported results for its fourth quarter and full year ended December 28, 2022 and provided a business update on the Company's operations.
Kelli Valade, Chief Executive Officer, stated, "We were pleased to deliver Adjusted EBITDA* that was slightly above the high-end of our previously guided range for the fourth quarter given the persistent choppy operating environment. With an evolved leadership structure, the addition of a complementary brand, and refined strategic priorities, we enter 2023 with renewed energy and focus on brand revitalization efforts at Denny's and plans for accelerated growth at Keke's."
Fourth Quarter 2022 Highlights
- Total operating revenue grew 12.3% to $120.8 million compared to the prior year quarter.
- Denny's domestic system-wide same-restaurant sales** grew 2.0% compared to the equivalent fiscal period in 2021, including a 1.7% increase at domestic franchised restaurants and a 6.0% increase at company restaurants.
- Opened 13 franchised restaurants, including 5 international locations and 1 Keke's location.
- Completed seven remodels, including six franchised restaurants.
- Operating income was $17.6 million compared to $62.6 million in the prior year quarter.
- Franchise Operating Margin* was $31.6 million, or 47.6% of franchise and license revenue, and Company Restaurant Operating Margin* was $6.8 million, or 12.6% of company restaurant sales.
- Net income was $12.8 million, or $0.22 per diluted share.
- Adjusted Net Income* and Adjusted Net Income Per Share* were $10.5 million and $0.18, respectively.
- Adjusted EBITDA* was $23.4 million.
- Cash provided by (used in) operating, investing, and financing activities was $14.5 million, $(2.6) million, and $(12.7) million, respectively.
- Adjusted Free Cash Flow* was $14.6 million.
- Repurchased $7.8 million of common stock.
Full Year 2022 Highlights
- Acquired Keke's on July 20, 2022 for $82.5 million.
- Total operating revenue grew 14.6% to $456.4 million compared to the prior year.
- Denny's domestic system-wide same-restaurant sales** grew 6.3% compared to the equivalent fiscal period in 2021, including a 6.0% increase at domestic franchised restaurants and a 10.4% increase at company restaurants.
- Opened 30 franchised restaurants, including 8 international locations and 2 Keke's locations.
- Completed 49 remodels, including 38 franchised restaurants.
- Operating income was $60.6 million compared to $104.1 million in the prior year.
- Franchise Operating Margin* was $121.3 million, or 47.3% of franchise and license revenue, and Company Restaurant Operating Margin* was $20.3 million, or 10.2% of company restaurant sales.
- Net income was $74.7 million, or $1.23 per diluted share.
- Adjusted Net Income* and Adjusted Net Income Per Share* were $31.6 million and $0.52, respectively.
- Adjusted EBITDA* was $77.5 million.
- Cash provided by (used in) operating, investing, and financing activities was $39.5 million, $(86.6) million, and $20.0 million, respectively.
- Adjusted Free Cash Flow* was $40.7 million.
- Repurchased $64.9 million of common stock.
Fourth Quarter Results
Total operating revenue increased 12.3% to $120.8 million compared to $107.6 million in the prior year quarter.
Franchise and license revenue was $66.5 million compared to $60.2 million in the prior year quarter. This increase was primarily driven by $5.6 million related to the kitchen modernization rollout and $1.5 million of Keke's franchise revenue in the current quarter.
Company restaurant sales were $54.4 million compared to $47.4 million in the prior year quarter. This increase consists of benefits from Denny's price increases and changes in product mix compared to the prior year quarter and $3.5 million of Keke's company restaurant sales in the current quarter.
Franchise Operating Margin* was $31.6 million, or 47.6% of franchise and license revenue, compared to $31.1 million, or 51.6%, in the prior year quarter. The margin rate was impacted by approximately 450 basis points as kitchen modernization equipment was sold to franchisees at cost.
Company Restaurant Operating Margin* was $6.8 million, or 12.6% of company restaurant sales, compared to $7.0 million, or 14.8%, in the prior year quarter. This margin change was primarily due to commodity and labor inflation, partially offset by the improvement in sales performance at company restaurants.
Total general and administrative expenses were $17.0 million, compared to $17.7 million in the prior year quarter. This change was primarily due to decreases in share-based compensation expense and performance-based incentive compensation, partially offset by an increase in corporate administration expenses compared to the prior year quarter.
The provision for income taxes was $3.3 million, reflecting an effective tax rate of 20.7% for the quarter, compared to an annual effective tax rate of 24.9%. Approximately $3.1 million in cash taxes were paid during the quarter.
Net income was $12.8 million, or $0.22 per diluted share, compared to $43.5 million, or $0.67 per diluted share, in the prior year quarter. This change in net income was primarily related to the sale of two parcels of real estate in the prior year quarter. Adjusted Net Income* per share was $0.18 compared to $0.16 in the prior year quarter.
The Company ended the quarter with $272.7 million of total debt outstanding, including $261.5 million of borrowings under its credit facility.
Adjusted Free Cash Flow* and Capital Allocation
Adjusted Free Cash Flow* in the quarter was $14.6 million after investing $1.7 million in cash capital expenditures, including the remodel of one company restaurant and facilities maintenance.
During the quarter, the Company allocated $7.8 million to share repurchases resulting in approximately $153 million remaining under its existing repurchase authorization.
Business Outlook
The following full year 2023 expectations reflect management's expectations that the current consumer and economic environment will not change materially.
- Denny's domestic system-wide same-restaurant sales** between 3% and 6%.
- Consolidated restaurant openings of 35 to 45, including 8 to 12 new Keke's restaurants, with a consolidated net decline of 15 to 25.
- Commodity inflation between 4% and 6%.
- Labor inflation of approximately 5%.
- Consolidated total general and administrative expenses between $79 million and $82 million, including approximately $14 million related to share-based compensation expense which does not impact Consolidated Adjusted EBITDA*.
- Consolidated Adjusted EBITDA* between $86 million and $90 million.
*Please refer to the Reconciliation of Net Income and Net Cash Provided by Operating Activities to Non-GAAP Financial Measures, as well as the Reconciliation of Operating Income to Non-GAAP Financial Measures included in the following tables. The Company is not able to reconcile the forward-looking non-GAAP estimates set forth above to their most directly comparable U.S. generally accepted accounting principles (GAAP) estimates without unreasonable efforts because it is unable to predict, forecast or determine the probable significance of the items impacting these estimates, including gains, losses and other charges, with a reasonable degree of accuracy. Accordingly, the most directly comparable forward-looking GAAP estimates are not provided.
** Same-restaurant sales include sales at company restaurants and non-consolidated franchised and licensed restaurants that were open during the comparable periods noted. Total operating revenue is limited to company restaurant sales and royalties, advertising revenue, fees and occupancy revenue from non-consolidated franchised and licensed restaurants. Accordingly, domestic franchise same-restaurant sales and domestic system-wide same-restaurant sales should be considered as a supplement to, not a substitute for, the Company's results as reported under GAAP.
Conference Call and Webcast Information
The Company will provide further commentary on the results for the fourth quarter ended December 28, 2022 on its quarterly investor conference call today, Monday, February 13, 2023 at 4:30 p.m. Eastern Time. Interested parties are invited to listen to a live broadcast of the conference call accessible through the Company's investor relations website at investor.dennys.com.
About Denny's Corporation
Denny's Corporation is one of America's largest full-service restaurant chains based on number of restaurants. As of December 28, 2022, the Company consisted of 1,656 restaurants, 1,582 of which were franchised and licensed restaurants and 74 of which were company operated.
Denny's Corporation consists of the Denny's brand and the Keke's brand. As of December 28, 2022, the Denny's brand consisted of 1,602 global restaurants, 1,536 of which were franchised and licensed restaurants and 66 of which were company operated. As of December 28, 2022, the Keke's brand consisted of 54 restaurants, 46 of which were franchised restaurants and 8 of which were company operated.
For further information on Denny's Corporation, including news releases, links to SEC filings, and other financial information, please visit investor.dennys.com.
Cautionary Language Regarding Forward-Looking Statements
The Company urges caution in considering its current trends and any outlook on earnings disclosed in this press release. In addition, certain matters discussed in this release may constitute forward-looking statements. These forward-looking statements, which reflect management's best judgment based on factors currently known, are intended to speak only as of the date such statements are made and involve risks, uncertainties, and other factors that may cause the actual performance of Denny's Corporation, its subsidiaries, and underlying restaurants to be materially different from the performance indicated or implied by such statements. Words such as "expect", "anticipate", "believe", "intend", "plan", "hope", "will", and variations of such words and similar expressions are intended to identify such forward-looking statements. Except as may be required by law, the Company expressly disclaims any obligation to update these forward-looking statements to reflect events or circumstances after the date of this release or to reflect the occurrence of unanticipated events. Factors that could cause actual performance to differ materially from the performance indicated by these forward-looking statements include, among others: the evolving COVID-19 pandemic and related containment measures, including the potential for further operational disruption from government mandates affecting restaurants; economic, public health and political conditions that impact consumer confidence and spending, including COVID-19; commodity and labor inflation; the ability to effectively staff restaurants; the Company's ability to maintain adequate levels of liquidity for its cash needs, including debt obligations, payment of dividends, planned share repurchases and capital expenditures as well as the ability of its customers, suppliers, franchisees and lenders to access sources of liquidity to provide for their own cash needs; competitive pressures from within the restaurant industry; the Company's ability to integrate and derive the expected benefits from its acquisition of Keke's Breakfast Cafe; the level of success of the Company's operating initiatives and advertising and promotional efforts; adverse publicity; health concerns arising from food-related pandemics, outbreaks of flu viruses or other diseases; changes in business strategy or development plans; terms and availability of capital; regional weather conditions; overall changes in the general economy (including with regard to energy costs), particularly at the retail level; political environment and geopolitical events (including acts of war and terrorism); and other factors from time to time set forth in the Company's SEC reports and other filings, including but not limited to the discussion in Management's Discussion and Analysis and the risks identified in Item 1A. Risk Factors contained in the Company's Annual Report on Form 10-K for the year ended December 29, 2021 (and in the Company's subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K).
| DENNY'S CORPORATION | ||||||||||
| Condensed Consolidated Balance Sheets | ||||||||||
| (Unaudited) | ||||||||||
| ($ in thousands) | 12/28/22 | 12/29/21 | ||||||||
| Assets | ||||||||||
| Current assets | ||||||||||
| Cash and cash equivalents | $ | 3,523 | $ | 30,624 | ||||||
| Investments | 1,746 | 2,551 | ||||||||
| Receivables, net | 25,576 | 19,621 | ||||||||
| Inventories | 5,538 | 5,060 | ||||||||
| Assets held for sale | 1,403 | - | ||||||||
| Prepaid and other current assets | 12,529 | 11,393 | ||||||||
| Total current assets | 50,315 | 69,249 | ||||||||
| Property, net | 94,469 | 91,176 | ||||||||
| Finance lease right-of-use assets, net | 6,499 | 7,709 | ||||||||
| Operating lease right-of-use assets, net | 126,065 | 128,727 | ||||||||
| Goodwill | 72,740 | 36,884 | ||||||||
| Intangible assets, net | 95,034 | 50,226 | ||||||||
| Deferred financing costs, net | 2,337 | 2,971 | ||||||||
| Deferred income taxes, net | - | 11,502 | ||||||||
| Other noncurrent assets | 50,876 | 37,083 | ||||||||
| Total assets | $ | 498,335 | $ | 435,527 | ||||||
| Liabilities | ||||||||||
| Current liabilities | ||||||||||
| Current finance lease liabilities | $ | 1,683 | $ | 1,952 | ||||||
| Current operating lease liabilities | 15,310 | 15,829 | ||||||||
| Accounts payable | 19,896 | 15,595 | ||||||||
| Other current liabilities | 56,762 | 64,146 | ||||||||
| Total current liabilities | 93,651 | 97,522 | ||||||||
| Long-term liabilities | ||||||||||
| Long-term debt | 261,500 | 170,000 | ||||||||
| Noncurrent finance lease liabilities | 9,555 | 10,744 | ||||||||
| Noncurrent operating lease liabilities | 123,404 | 126,296 | ||||||||
| Liability for insurance claims, less current portion | 7,324 | 8,438 | ||||||||
| Deferred income taxes, net | 7,419 | - | ||||||||
| Other noncurrent liabilities | 32,598 | 87,792 | ||||||||
| Total long-term liabilities | 441,800 | 403,270 | ||||||||
| Total liabilities | 535,451 | 500,792 | ||||||||
| Shareholders' deficit | ||||||||||
| Common stock | 650 | 642 | ||||||||
| Paid-in capital | 142,136 | 135,596 | ||||||||
| Deficit | (41,729 | ) | (116,441 | ) | ||||||
| Accumulated other comprehensive loss, net | (42,697 | ) | (54,470 | ) | ||||||
| Treasury stock | (95,476 | ) | (30,592 | ) | ||||||
| Total shareholders' deficit | (37,116 | ) | (65,265 | ) | ||||||
| Total liabilities and shareholders' deficit | $ | 498,335 | $ | 435,527 | ||||||
| Debt Balances | ||||||||||
| Credit facility revolver due 2026 | $ | 261,500 | $ | 170,000 | ||||||
| Finance lease liabilities | 11,238 | 12,696 | ||||||||
| Total debt | $ | 272,738 | $ | 182,696 | ||||||
| DENNY'S CORPORATION | |||||||||
| Condensed Consolidated Statements of Operations | |||||||||
| (Unaudited) | |||||||||
| Quarter Ended | |||||||||
| ($ in thousands, except per share amounts) | 12/28/22 | 12/29/21 | |||||||
| Revenue: | |||||||||
| Company restaurant sales | $ | 54,399 | $ | 47,406 | |||||
| Franchise and license revenue | 66,450 | 60,233 | |||||||
| Total operating revenue | 120,849 | 107,639 | |||||||
| Costs of company restaurant sales, excluding depreciation and amortization | 47,554 | 40,386 | |||||||
| Costs of franchise and license revenue, excluding depreciation and amortization | 34,814 | 29,178 | |||||||
| General and administrative expenses | 16,985 | 17,694 | |||||||
| Depreciation and amortization | 3,810 | 4,066 | |||||||
| Operating (gains), losses and other charges, net | 46 | (46,309 | ) | ||||||
| Total operating costs and expenses, net | 103,209 | 45,015 | |||||||
| Operating income | 17,640 | 62,624 | |||||||
| Interest expense, net | 4,240 | 3,134 | |||||||
| Other nonoperating expense (income), net | (2,714 | ) | 989 | ||||||
| Income before income taxes | 16,114 | 58,501 | |||||||
| Provision for income taxes | 3,343 | 15,046 | |||||||
| Net income | $ | 12,771 | $ | 43,455 | |||||
| Net income per share - basic | $ | 0.22 | $ | 0.67 | |||||
| Net income per share - diluted | $ | 0.22 | $ | 0.67 | |||||
| Basic weighted average shares outstanding | 58,406 | 64,449 | |||||||
| Diluted weighted average shares outstanding | 58,480 | 64,870 | |||||||
| Comprehensive income | $ | 13,377 | $ | 45,241 | |||||
| General and Administrative Expenses | |||||||||
| Corporate administrative expenses | $ | 13,812 | $ | 11,993 | |||||
| Share-based compensation | 1,933 | 3,390 | |||||||
| Incentive compensation | 866 | 1,617 | |||||||
| Deferred compensation valuation adjustments | 374 | 694 | |||||||
| Total general and administrative expenses | $ | 16,985 | $ | 17,694 | |||||
| DENNY'S CORPORATION | |||||||||
| Condensed Consolidated Statements of Operations | |||||||||
| (Unaudited) | |||||||||
| Fiscal Year Ended | |||||||||
| ($ in thousands, except per share amounts) | 12/28/22 | 12/29/21 | |||||||
| Revenue: | |||||||||
| Company restaurant sales | $ | 199,753 | $ | 175,017 | |||||
| Franchise and license revenue | 256,676 | 223,157 | |||||||
| Total operating revenue | 456,429 | 398,174 | |||||||
| Costs of company restaurant sales, excluding depreciation and amortization | 179,458 | 146,932 | |||||||
| Costs of franchise and license revenue, excluding depreciation and amortization | 135,327 | 109,140 | |||||||
| General and administrative expenses | 67,173 | 68,686 | |||||||
| Depreciation and amortization | 14,862 | 15,446 | |||||||
| Operating (gains), losses and other charges, net | (1,005 | ) | (46,105 | ) | |||||
| Total operating costs and expenses, net | 395,815 | 294,099 | |||||||
| Operating income | 60,614 | 104,075 | |||||||
| Interest expense, net | 13,769 | 15,148 | |||||||
| Other nonoperating income, net | (52,585 | ) | (15,176 | ) | |||||
| Income before income taxes | 99,430 | 104,103 | |||||||
| Provision for income taxes | 24,718 | 26,030 | |||||||
| Net income | $ | 74,712 | $ | 78,073 | |||||
| Net income per share - basic | $ | 1.23 | $ | 1.20 | |||||
| Net income per share - diluted | $ | 1.23 | $ | 1.19 | |||||
| Basic weighted average shares outstanding | 60,771 | 65,171 | |||||||
| Diluted weighted average shares outstanding | 60,879 | 65,573 | |||||||
| Comprehensive income | $ | 86,485 | $ | 84,008 | |||||
| General and Administrative Expenses | |||||||||
| Corporate administrative expenses | $ | 52,115 | $ | 44,367 | |||||
| Share-based compensation | 11,400 | 13,602 | |||||||
| Incentive compensation | 5,811 | 8,628 | |||||||
| Deferred compensation valuation adjustments | (2,153 | ) | 2,089 | ||||||
| Total general and administrative expenses | $ | 67,173 | $ | 68,686 | |||||
| DENNY'S CORPORATION |
| Reconciliation of Net Income and Net Cash Provided by Operating Activities to Non-GAAP Financial Measures |
| (Unaudited) |
The Company believes that, in addition to GAAP measures, certain non-GAAP financial measures are appropriate indicators to assist in the evaluation of operating performance and liquidity on a period-to-period basis. The Company uses Adjusted EBITDA, Adjusted Free Cash Flow, Adjusted Net Income and Adjusted Net Income Per Share internally as performance measures for planning purposes, including the preparation of annual operating budgets, and for compensation purposes, including incentive compensation for certain employees. Adjusted EBITDA is also used in the calculation of financial covenant ratios in accordance with the Company's credit facility. Adjusted Free Cash Flow is also used as a non-GAAP liquidity measure by Management to assess the Company's ability to generate cash and plan for future operating and capital actions. Management believes that the presentation of Adjusted EBITDA, Adjusted Net Income, Adjusted Net Income Per Share and Adjusted Free Cash Flow provide useful information to investors and analysts about the Company's operating results, financial condition or cash flows. However, each of these non-GAAP financial measures should be considered as a supplement to, not a substitute for, operating income, net income, net income per share, net cash provided by operating activities, or other financial performance and liquidity measures prepared in accordance with GAAP.
| Quarter Ended | Fiscal Year Ended | ||||||||||||||
| ($ in thousands) | 12/28/22 | 12/29/21 | 12/28/22 | 12/29/21 | |||||||||||
| Net income | $ | 12,771 | $ | 43,455 | $ | 74,712 | $ | 78,073 | |||||||
| Provision for income taxes | 3,343 | 15,046 | 24,718 | 26,030 | |||||||||||
| Operating (gains), losses and other charges, net | 46 | (46,309 | ) | (1,005 | ) | (46,105 | ) | ||||||||
| Other nonoperating expense (income), net | (2,714 | ) | 989 | (52,585 | ) | (15,176 | ) | ||||||||
| Share-based compensation expense | 1,933 | 3,390 | 11,400 | 13,602 | |||||||||||
| Deferred compensation plan valuation adjustments | 374 | 694 | (2,153 | ) | 2,089 | ||||||||||
| Interest expense, net | 4,240 | 3,134 | 13,769 | 15,148 | |||||||||||
| Depreciation and amortization | 3,810 | 4,066 | 14,862 | 15,446 | |||||||||||
| Cash payments for restructuring charges and exit costs | (402 | ) | (219 | ) | (1,067 | ) | (1,767 | ) | |||||||
| Cash payments for share-based compensation | - | (193 | ) | (5,147 | ) | (1,758 | ) | ||||||||
| Adjusted EBITDA | $ | 23,401 | $ | 24,053 | $ | 77,504 | $ | 85,582 | |||||||
| DENNY'S CORPORATION | |||||||||||||||||
| Reconciliation of Net Income and Net Cash Provided by Operating Activities to Non-GAAP Financial Measures Continued | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| Quarter Ended | Fiscal Year Ended | ||||||||||||||||
| ($ in thousands) | 12/28/22 | 12/29/21 | 12/28/22 | 12/29/21 | |||||||||||||
| Net cash provided by operating activities | $ | 14,502 | $ | 12,944 | $ | 39,452 | $ | 76,173 | |||||||||
| Capital expenditures | (1,698 | ) | (2,034 | ) | (11,844 | ) | (7,355 | ) | |||||||||
| Acquisition of real estate and restaurant(1) | - | (10,369 | ) | (750 | ) | (10,369 | ) | ||||||||||
| Cash payments for restructuring charges and exit costs | (402 | ) | (219 | ) | (1,067 | ) | (1,767 | ) | |||||||||
| Cash payments for share-based compensation | - | (193 | ) | (5,147 | ) | (1,758 | ) | ||||||||||
| Deferred compensation plan valuation adjustments | 374 | 694 | (2,153 | ) | 2,089 | ||||||||||||
| Other nonoperating expense (income), net | (2,714 | ) | 989 | (52,585 | ) | (15,176 | ) | ||||||||||
| Gains (losses) on investments | (16 | ) | (32 | ) | (305 | ) | (21 | ) | |||||||||
| Gains (losses) on early termination of debt and leases | 8 | 471 | 37 | 523 | |||||||||||||
| Amortization of deferred financing costs | (159 | ) | (159 | ) | (634 | ) | (1,105 | ) | |||||||||
| Gains (losses) and amortization on interest rate swap derivatives, net | 2,311 | (2,142 | ) | 54,989 | 12,629 | ||||||||||||
| Interest expense, net | 4,240 | 3,134 | 13,769 | 15,148 | |||||||||||||
| Cash interest expense, net(2) | (3,925 | ) | (3,916 | ) | (14,923 | ) | (17,152 | ) | |||||||||
| Deferred income tax expense | 937 | (10,384 | ) | (14,732 | ) | (14,097 | ) | ||||||||||
| Decrease (increase) in tax valuation allowance | (546 | ) | 5,031 | (546 | ) | 5,031 | |||||||||||
| Provision for income taxes | 3,343 | 15,046 | 24,718 | 26,030 | |||||||||||||
| Income taxes paid, net | (3,135 | ) | (4,304 | ) | (9,296 | ) | (9,942 | ) | |||||||||
| Changes in operating assets and liabilities, excluding acquisitions and dispositions | |||||||||||||||||
| Receivables | 1,104 | 2,809 | 5,892 | (1,373 | ) | ||||||||||||
| Inventories | (3,406 | ) | 3,830 | 460 | 3,879 | ||||||||||||
| Other current assets | 2,821 | (3,158 | ) | 1,138 | (7,454 | ) | |||||||||||
| Other noncurrent assets | 5,318 | 860 | 2,129 | 1,881 | |||||||||||||
| Operating lease assets and liabilities | 136 | 371 | 696 | 1,521 | |||||||||||||
| Accounts payable | (7,033 | ) | (248 | ) | (3,918 | ) | (6,608 | ) | |||||||||
| Accrued payroll | (535 | ) | (1,651 | ) | 2,850 | (3,113 | ) | ||||||||||
| Accrued taxes | 2,007 | 1,570 | 81 | 317 | |||||||||||||
| Other accrued liabilities | 3,843 | (6,794 | ) | 5,867 | (12,684 | ) | |||||||||||
| Other noncurrent liabilities | (2,732 | ) | 1,284 | 6,513 | 5,517 | ||||||||||||
| Adjusted Free Cash Flow | $ | 14,643 | $ | 3,430 | $ | 40,691 | $ | 40,764 | |||||||||
| (1 | ) | For the year-to-date period ended December 28, 2022, amount includes cash paid for the acquisition of a Denny's franchise restaurant and excludes capital paid for the acquisition of Keke's. |
| (2 | ) | Includes cash interest expense (income), net and cash (receipts) payments of approximately $(0.1) million and $1.8 million for dedesignated interest rate swap derivatives for the quarter and year-to-date periods ended December 28, 2022, respectively. Includes cash interest expense, net and cash payments of approximately $0.9 million and $3.3 million for dedesignated interest rate swap derivatives for the quarter and year-to-date periods ended December 29, 2021, respectively. |
| DENNY'S CORPORATION | |||||||||||||||||
| Reconciliation of Net Income and Net Cash Provided by Operating Activities to Non-GAAP Financial Measures Continued | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| Quarter Ended | Fiscal Year Ended | ||||||||||||||||
| ($ in thousands, except per share amounts) | 12/28/22 | 12/29/21 | 12/28/22 | 12/29/21 | |||||||||||||
| Adjusted EBITDA | $ | 23,401 | $ | 24,053 | $ | 77,504 | $ | 85,582 | |||||||||
| Cash interest expense, net(1) | (3,925 | ) | (3,916 | ) | (14,923 | ) | (17,152 | ) | |||||||||
| Cash paid for income taxes, net | (3,135 | ) | (4,304 | ) | (9,296 | ) | (9,942 | ) | |||||||||
| Cash paid for capital expenditures, real estate and restaurant(2) | (1,698 | ) | (12,403 | ) | (12,594 | ) | (17,724 | ) | |||||||||
| Adjusted Free Cash Flow | $ | 14,643 | $ | 3,430 | $ | 40,691 | $ | 40,764 | |||||||||
| Net income | $ | 12,771 | $ | 43,455 | $ | 74,712 | $ | 78,073 | |||||||||
| (Gains) losses on interest rate swap derivatives | (2,311 | ) | 2,142 | (54,989 | ) | (12,629 | ) | ||||||||||
| (Gains) losses on sales of assets and other charges, net | (67 | ) | (46,722 | ) | (3,378 | ) | (47,822 | ) | |||||||||
| Impairment charges | - | 442 | 963 | 442 | |||||||||||||
| Tax effect(3) | 152 | 11,177 | 14,294 | 15,002 | |||||||||||||
| Adjusted Net Income | $ | 10,545 | $ | 10,494 | $ | 31,602 | $ | 33,066 | |||||||||
| Diluted weighted average shares outstanding | 58,480 | 64,870 | 60,879 | 65,573 | |||||||||||||
| Net Income Per Share - Diluted | $ | 0.22 | $ | 0.67 | $ | 1.23 | $ | 1.19 | |||||||||
| Adjustments Per Share | $ | (0.04 | ) | $ | (0.51 | ) | $ | (0.71 | ) | $ | (0.69 | ) | |||||
| Adjusted Net Income Per Share | $ | 0.18 | $ | 0.16 | $ | 0.52 | $ | 0.50 | |||||||||
| (1 | ) | Includes cash interest expense (income), net and cash (receipts) payments of approximately $(0.1) million and $1.8 million for dedesignated interest rate swap derivatives for the quarter and year-to-date periods ended December 28, 2022, respectively. Includes cash interest expense, net and cash payments of approximately $0.9 million and $3.3 million for dedesignated interest rate swap derivatives for the quarter and year-to-date periods ended December 29, 2021, respectively. |
| (2 | ) | For the year-to-date period ended December 28, 2022, amount includes cash paid for capital expenditures and the acquisition of a Denny's franchise restaurant, and excludes capital paid for the acquisition of Keke's. |
| (3 | ) | Tax adjustments for the quarter and year-to-date periods ended December 28, 2022 reflect an effective tax rate of 6.4% and 24.9%, respectively. Tax adjustments for the quarter and year-to-date periods ended December 29, 2021 reflect an effective tax rate of 25.3% and 25.0%, respectively. |
| DENNY'S CORPORATION |
| Reconciliation of Operating Income to Non-GAAP Financial Measures |
| (Unaudited) |
The Company believes that, in addition to GAAP measures, certain other non-GAAP financial measures are appropriate indicators to assist in the evaluation of restaurant-level operating efficiency and performance of ongoing restaurant-level operations. The Company uses Restaurant-level Operating Margin, Company Restaurant Operating Margin and Franchise Operating Margin internally as performance measures for planning purposes, including the preparation of annual operating budgets, and these three non-GAAP measures are used to evaluate operating effectiveness.
The Company defines Restaurant-level Operating Margin as operating income excluding the following three items: general and administrative expenses, depreciation and amortization, and operating (gains), losses and other charges, net. Restaurant-level Operating Margin is presented as a percent of total operating revenue. The Company excludes general and administrative expenses, which include primarily non-restaurant-level costs associated with support of company and franchised restaurants and other activities at their corporate office. The Company excludes depreciation and amortization expense, substantially all of which is related to company restaurant-level assets, because such expenses represent historical sunk costs which do not reflect current cash outlays for the restaurants. The Company excludes special items, included within operating (gains), losses and other charges, net, to provide investors with a clearer perspective of its ongoing operating performance and a more relevant comparison to prior period results.
Restaurant-level Operating Margin is the total of Company Restaurant Operating Margin and Franchise Operating Margin. The Company defines Company Restaurant Operating Margin as company restaurant sales less costs of company restaurant sales (which include product costs, company restaurant level payroll and benefits, occupancy costs, and other operating costs including utilities, repairs and maintenance, marketing and other expenses) and presents it as a percent of company restaurant sales. The Company defines Franchise Operating Margin as franchise and license revenue (which includes franchise royalties and other non-food and beverage revenue streams such as initial franchise and other fees, advertising revenue and occupancy revenue) less costs of franchise and license revenue and presents it as a percent of franchise and license revenue.
These non-GAAP financial measures provide a meaningful comparison between periods and enable investors to focus on the performance of restaurant-level operations by excluding revenues and costs unrelated to food and beverage sales in addition to corporate general and administrative expense, depreciation and amortization, and operating (gains), losses and other charges, net. However, each of these non-GAAP financial measures should be considered as a supplement to, not a substitute for, operating income, net income or other financial performance measures prepared in accordance with GAAP. Restaurant-level Operating Margin, Company Restaurant Operating Margin and Franchise Operating Margin do not accrue directly to the benefit of shareholders because of the aforementioned excluded items and are not indicative of the overall results for the Company.
| Quarter Ended | Fiscal Year Ended | |||||||||||||
| ($ in thousands) | 12/28/22 | 12/29/21 | 12/28/22 | 12/29/21 | ||||||||||
| Operating income | $ | 17,640 | $ | 62,624 | $ | 60,614 | $ | 104,075 | ||||||
| General and administrative expenses | 16,985 | 17,694 | 67,173 | 68,686 | ||||||||||
| Depreciation and amortization | 3,810 | 4,066 | 14,862 | 15,446 | ||||||||||
| Operating (gains), losses and other charges, net | 46 | (46,309 | ) | (1,005 | ) | (46,105 | ) | |||||||
| Restaurant-level Operating Margin | $ | 38,481 | $ | 38,075 | $ | 141,644 | $ | 142,102 | ||||||
| Restaurant-level Operating Margin consists of: | ||||||||||||||
| Company Restaurant Operating Margin(1) | $ | 6,845 | $ | 7,020 | $ | 20,295 | $ | 28,085 | ||||||
| Franchise Operating Margin(2) | 31,636 | 31,055 | 121,349 | 114,017 | ||||||||||
| Restaurant-level Operating Margin | $ | 38,481 | $ | 38,075 | $ | 141,644 | $ | 142,102 | ||||||
| (1 | ) | Company Restaurant Operating Margin is calculated as operating income plus general and administrative expenses; depreciation and amortization; operating (gains), losses and other charges, net; and costs of franchise and license revenue, excluding depreciation and amortization; less franchise and license revenue. |
| (2 | ) | Franchise Operating Margin is calculated as operating income plus general and administrative expenses; depreciation and amortization; operating (gains), losses and other charges, net; and costs of company restaurant sales, excluding depreciation and amortization; less company restaurant sales. |
| DENNY'S CORPORATION | ||||||||||||||
| Operating Margins | ||||||||||||||
| (Unaudited) | ||||||||||||||
| Quarter Ended | ||||||||||||||
| ($ in thousands) | 12/28/22 | 12/29/21 | ||||||||||||
| Company restaurant operations:(1) | ||||||||||||||
| Company restaurant sales | $ | 54,399 | 100.0 | % | $ | 47,406 | 100.0 | % | ||||||
| Costs of company restaurant sales, excluding depreciation and amortization: | ||||||||||||||
| Product costs | 14,743 | 27.1 | % | 11,833 | 25.0 | % | ||||||||
| Payroll and benefits | 20,814 | 38.3 | % | 17,998 | 38.0 | % | ||||||||
| Occupancy | 3,838 | 7.1 | % | 2,955 | 6.2 | % | ||||||||
| Other operating costs: | ||||||||||||||
| Utilities | 2,062 | 3.8 | % | 1,539 | 3.2 | % | ||||||||
| Repairs and maintenance | 1,071 | 2.0 | % | 853 | 1.8 | % | ||||||||
| Marketing | 1,417 | 2.6 | % | 1,023 | 2.2 | % | ||||||||
| Legal settlements | 1 | 0.0 | % | 990 | 2.1 | % | ||||||||
| Other direct costs | 3,608 | 6.6 | % | 3,195 | 6.7 | % | ||||||||
| Total costs of company restaurant sales, excluding depreciation and amortization | $ | 47,554 | 87.4 | % | $ | 40,386 | 85.2 | % | ||||||
| Company restaurant operating margin (non-GAAP)(2) | $ | 6,845 | 12.6 | % | $ | 7,020 | 14.8 | % | ||||||
| Franchise operations:(3) | ||||||||||||||
| Franchise and license revenue: | ||||||||||||||
| Royalties | $ | 29,615 | 44.6 | % | $ | 28,128 | 46.7 | % | ||||||
| Advertising revenue | 19,284 | 29.0 | % | 19,031 | 31.6 | % | ||||||||
| Initial and other fees | 8,227 | 12.4 | % | 2,663 | 4.4 | % | ||||||||
| Occupancy revenue | 9,324 | 14.0 | % | 10,411 | 17.3 | % | ||||||||
| Total franchise and license revenue | $ | 66,450 | 100.0 | % | $ | 60,233 | 100.0 | % | ||||||
| Costs of franchise and license revenue, excluding depreciation and amortization: | ||||||||||||||
| Advertising costs | $ | 19,284 | 29.0 | % | $ | 19,030 | 31.6 | % | ||||||
| Occupancy costs | 5,739 | 8.6 | % | 6,374 | 10.6 | % | ||||||||
| Other direct costs | 9,791 | 14.7 | % | 3,774 | 6.3 | % | ||||||||
| Total costs of franchise and license revenue, excluding depreciation and amortization | $ | 34,814 | 52.4 | % | $ | 29,178 | 48.4 | % | ||||||
| Franchise operating margin (non-GAAP)(2) | $ | 31,636 | 47.6 | % | $ | 31,055 | 51.6 | % | ||||||
| Total operating revenue(4) | $ | 120,849 | 100.0 | % | $ | 107,639 | 100.0 | % | ||||||
| Total costs of operating revenue(4) | 82,368 | 68.2 | % | 69,564 | 64.6 | % | ||||||||
| Restaurant-level operating margin (non-GAAP)(4)(2) | $ | 38,481 | 31.8 | % | $ | 38,075 | 35.4 | % | ||||||
| Other operating expenses:(4)(2) | ||||||||||||||
| General and administrative expenses | $ | 16,985 | 14.1 | % | $ | 17,694 | 16.4 | % | ||||||
| Depreciation and amortization | 3,810 | 3.2 | % | 4,066 | 3.8 | % | ||||||||
| Operating (gains), losses and other charges, net | 46 | 0.0 | % | (46,309 | ) | (43.0) % | ||||||||
| Total other operating expenses (income) | $ | 20,841 | 17.2 | % | $ | (24,549 | ) | (22.8) % | ||||||
| Operating income(4) | $ | 17,640 | 14.6 | % | $ | 62,624 | 58.2 | % | ||||||
| (1 | ) | As a percentage of company restaurant sales. | ||||||||||||
| (2 | ) | Other operating expenses such as general and administrative expenses and depreciation and amortization relate to both company and franchise operations and are not allocated to costs of company restaurant sales and costs of franchise and license revenue. As such, operating margin is considered a non-GAAP financial measure. Operating margins should be considered as a supplement to, not as a substitute for, operating income, net income or other financial measures prepared in accordance with GAAP. | ||||||||||||
| (3 | ) | As a percentage of franchise and license revenue. | ||||||||||||
| (4 | ) | As a percentage of total operating revenue. | ||||||||||||
| DENNY'S CORPORATION | |||||||||||||||
| Operating Margins | |||||||||||||||
| (Unaudited) | |||||||||||||||
| Fiscal Year Ended | |||||||||||||||
| ($ in thousands) | 12/28/22 | 12/29/21 | |||||||||||||
| Company restaurant operations:(1) | |||||||||||||||
| Company restaurant sales | $ | 199,753 | 100.0 | % | $ | 175,017 | 100.0 | % | |||||||
| Costs of company restaurant sales, excluding depreciation and amortization: | |||||||||||||||
| Product costs | 53,617 | 26.8 | % | 42,982 | 24.6 | % | |||||||||
| Payroll and benefits | 76,412 | 38.3 | % | 65,337 | 37.3 | % | |||||||||
| Occupancy | 15,154 | 7.6 | % | 11,662 | 6.7 | % | |||||||||
| Other operating costs: | |||||||||||||||
| Utilities | 7,273 | 3.6 | % | 5,814 | 3.3 | % | |||||||||
| Repairs and maintenance | 3,874 | 1.9 | % | 2,743 | 1.6 | % | |||||||||
| Marketing | 5,294 | 2.7 | % | 4,594 | 2.6 | % | |||||||||
| Legal settlements | 4,224 | 2.1 | % | 2,134 | 1.2 | % | |||||||||
| Other direct costs | 13,610 | 6.8 | % | 11,666 | 6.7 | % | |||||||||
| Total costs of company restaurant sales, excluding depreciation and amortization | $ | 179,458 | 89.8 | % | $ | 146,932 | 84.0 | % | |||||||
| Company restaurant operating margin (non-GAAP)(2) | $ | 20,295 | 10.2 | % | $ | 28,085 | 16.0 | % | |||||||
| Franchise operations:(3) | |||||||||||||||
| Franchise and license revenue: | |||||||||||||||
| Royalties | $ | 113,891 | 44.4 | % | $ | 103,425 | 46.4 | % | |||||||
| Advertising revenue | 75,926 | 29.6 | % | 69,957 | 31.3 | % | |||||||||
| Initial and other fees | 28,262 | 11.0 | % | 8,009 | 3.6 | % | |||||||||
| Occupancy revenue | 38,597 | 15.0 | % | 41,766 | 18.7 | % | |||||||||
| Total franchise and license revenue | $ | 256,676 | 100.0 | % | $ | 223,157 | 100.0 | % | |||||||
| Costs of franchise and license revenue, excluding depreciation and amortization: | |||||||||||||||
| Advertising costs | $ | 75,926 | 29.6 | % | $ | 69,957 | 31.3 | % | |||||||
| Occupancy costs | 24,090 | 9.4 | % | 26,237 | 11.8 | % | |||||||||
| Other direct costs | 35,311 | 13.8 | % | 12,946 | 5.8 | % | |||||||||
| Total costs of franchise and license revenue, excluding depreciation and amortization | $ | 135,327 | 52.7 | % | $ | 109,140 | 48.9 | % | |||||||
| Franchise operating margin (non-GAAP)(2) | $ | 121,349 | 47.3 | % | $ | 114,017 | 51.1 | % | |||||||
| Total operating revenue(4) | $ | 456,429 | 100.0 | % | $ | 398,174 | 100.0 | % | |||||||
| Total costs of operating revenue(4) | 314,785 | 69.0 | % | 256,072 | 64.3 | % | |||||||||
| Restaurant-level operating margin (non-GAAP)(4)(2) | $ | 141,644 | 31.0 | % | $ | 142,102 | 35.7 | % | |||||||
| Other operating expenses:(4)(2) | |||||||||||||||
| General and administrative expenses | $ | 67,173 | 14.7 | % | $ | 68,686 | 17.3 | % | |||||||
| Depreciation and amortization | 14,862 | 3.3 | % | 15,446 | 3.9 | % | |||||||||
| Operating (gains), losses and other charges, net | (1,005 | ) | (0.2) | % | (46,105 | ) | (11.6) | % | |||||||
| Total other operating expenses | $ | 81,030 | 17.8 | % | $ | 38,027 | 9.6 | % | |||||||
| Operating income(4) | $ | 60,614 | 13.3 | % | $ | 104,075 | 26.1 | % | |||||||
| (1 | ) | As a percentage of company restaurant sales. | |||||||||||||
| (2 | ) | Other operating expenses such as general and administrative expenses and depreciation and amortization relate to both company and franchise operations and are not allocated to costs of company restaurant sales and costs of franchise and license revenue. As such, operating margin is considered a non-GAAP financial measure. Operating margin should be considered as a supplement to, not as a substitute for, operating income, net income or other financial measures prepared in accordance with GAAP. | |||||||||||||
| (3 | ) | As a percentage of franchise and license revenue. | |||||||||||||
| (4 | ) | As a percentage of total operating revenue. | |||||||||||||
| DENNY'S CORPORATION | ||||||||||||||||||||||||||||
| Statistical Data | ||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||
| Denny's | Keke's(2) | |||||||||||||||||||||||||||
| Changes in Same-Restaurant Sales(1) | Quarter Ended | Fiscal Year Ended | Quarter Ended | Fiscal Year Ended | ||||||||||||||||||||||||
| (Increase vs. prior year) | 12/28/22 | 12/29/21 | 12/28/22 | 12/29/21 | 12/28/22 | 12/29/21 | 12/28/22 | 12/29/21 | ||||||||||||||||||||
| Company Restaurants | 6.0 | % | 58.6 | % | 10.4 | % | 55.3 | % | N/A | N/A | N/A | N/A | ||||||||||||||||
| Domestic Franchise Restaurants | 1.7 | % | 48.3 | % | 6.0 | % | 40.1 | % | N/A | N/A | N/A | N/A | ||||||||||||||||
| Domestic System-wide Restaurants | 2.0 | % | 49.0 | % | 6.3 | % | 41.1 | % | N/A | N/A | N/A | N/A | ||||||||||||||||
| Denny's | Keke's(2) | |||||||||||||||||||||||||||
| Average Unit Sales | Quarter Ended | Fiscal Year Ended | Quarter Ended | Fiscal Year Ended | ||||||||||||||||||||||||
| ($ in thousands) | 12/28/22 | 12/29/21 | 12/28/22 | 12/29/21 | 12/28/22 | 12/29/21 | 12/28/22 | 12/29/21 | ||||||||||||||||||||
| Company Restaurants | $ | 776 | $ | 735 | $ | 2,985 | $ | 2,709 | $ | 438 | N/A | $ | 772 | N/A | ||||||||||||||
| Franchised Restaurants | $ | 448 | $ | 431 | $ | 1,729 | $ | 1,597 | $ | 453 | N/A | $ | 802 | N/A | ||||||||||||||
| (1 | ) | Same-restaurant sales include sales at company restaurants and non-consolidated franchised and licensed restaurants that were open during the comparable periods noted. Total operating revenue is limited to company restaurant sales and royalties, advertising revenue, fees and occupancy revenue from non-consolidated franchised and licensed restaurants. Accordingly, domestic franchise same-restaurant sales and domestic system-wide same-restaurant sales should be considered as a supplement to, not a substitute for, the Company's results as reported under GAAP. | ||||||||||||||||||||||||||
| Keke's comparable same-restaurant sales will not be reported for the first year following the acquisition. | ||||||||||||||||||||||||||||
| (2 | ) | Effective July 20, 2022, the Company acquired Keke's, as such the data represents post-acquisition results. | ||||||||||||||||||||||||||
| Denny's | Keke's | |||||||||||||||
| Franchised | Franchised | |||||||||||||||
| Restaurant Unit Activity | Company | & Licensed | Total | Company | & Licensed | Total | ||||||||||
| Ending Units September 28, 2022 | 66 | 1,547 | 1,613 | 8 | 45 | 53 | ||||||||||
| Units Opened | - | 12 | 12 | - | 1 | 1 | ||||||||||
| Units Acquired | - | - | - | - | - | - | ||||||||||
| Units Reacquired | - | - | - | - | - | - | ||||||||||
| Units Closed | - | (23 | ) | (23 | ) | - | - | - | ||||||||
| Net Change | - | (11 | ) | (11 | ) | - | 1 | 1 | ||||||||
| Ending Units December 28, 2022 | 66 | 1,536 | 1,602 | 8 | 46 | 54 | ||||||||||
| Equivalent Units | ||||||||||||||||
| Fourth Quarter 2022 | 65 | 1,543 | 1,608 | 8 | 46 | 54 | ||||||||||
| Fourth Quarter 2021 | 64 | 1,580 | 1,644 | - | - | - | ||||||||||
| Net Change | 1 | (37 | ) | (36 | ) | 8 | 46 | 54 | ||||||||
| Denny's | Keke's | |||||||||||||||
| Franchised | Franchised | |||||||||||||||
| Restaurant Unit Activity | Company | & Licensed | Total | Company | & Licensed | Total | ||||||||||
| Ending Units December 29, 2021 | 65 | 1,575 | 1,640 | - | - | - | ||||||||||
| Units Opened | - | 28 | 28 | - | 2 | 2 | ||||||||||
| Units Acquired(3) | - | - | - | 8 | 44 | 52 | ||||||||||
| Units Reacquired | 1 | (1 | ) | - | - | - | - | |||||||||
| Units Closed | - | (66 | ) | (66 | ) | - | - | - | ||||||||
| Net Change | 1 | (39 | ) | (38 | ) | 8 | 46 | 54 | ||||||||
| Ending Units December 28, 2022 | 66 | 1,536 | 1,602 | 8 | 46 | 54 | ||||||||||
| Equivalent Units | ||||||||||||||||
| Year-to-Date 2022 | 65 | 1,561 | 1,626 | 4 | 20 | 24 | ||||||||||
| Year-to-Date 2021 | 65 | 1,581 | 1,646 | - | - | - | ||||||||||
| Net Change | - | (20 | ) | (20 | ) | 4 | 20 | 24 | ||||||||
| (3) | Effective July 20, 2022, the Company acquired Keke's, consisting of 8 company operated restaurants and 44 franchised restaurants. | |||||||||||||||
