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The Habit Restaurants, Inc. Announces Third Quarter 2017 Financial Results

IRVINE, Calif., Nov. 01, 2017 (GLOBE NEWSWIRE) -- The Habit Restaurants, Inc. (NASDAQ:HABT) (“The Habit” or the “Company”), today announced financial results for its third quarter ended September 26, 2017.

Highlights for the third quarter ended September 26, 2017:

  • Total revenue increased 17.7% to $84.6 million compared to $71.9 million in the third quarter of 2016.
  • Company-operated comparable restaurant sales decreased 0.2% as compared to the third quarter of 2016.
  • Net income was $0.4 million, or $0.02 per diluted weighted average share, compared to $0.8 million, or $0.04 per diluted weighted average share, in the third quarter of 2016.
  • Adjusted fully distributed pro forma net income(1) was $0.2 million, or $0.01 per fully distributed weighted average share compared with $1.4 million, or $0.05 per fully distributed weighted average share for the third quarter of 2016.
  • Adjusted EBITDA(1) was $6.9 million compared to $7.4 million for the third quarter of 2016.
  • The Company opened six new company-operated restaurants and one franchised restaurant during the third quarter and closed one company-operated restaurant during the third quarter. As of September 26, 2017, the Company had 180 company-operated locations and 15 franchised/licensed locations (excluding seven licensed locations in Santa Barbara County, California from which the Company is not entitled to royalties) for a system-wide total of 195 locations.
   
(1) Adjusted fully distributed pro forma net income and adjusted EBITDA are non-GAAP measures. A reconciliation of GAAP net income to each of these measures is included in the accompanying financial data. See also “Non-GAAP Financial Measures,” included herein.
   

“Despite another challenging quarter we are pleased with the consumer responses around our recent limited-time offers as well as effectiveness around our most recent radio campaign in Northern and Southern California,” said Russ Bendel, President and Chief Executive Officer of The Habit Restaurants, Inc. “During the quarter, we opened six new company-operated Habit Burger Grills, including one location in Pennsylvania, our 11th state. In addition, we signed a new franchise agreement in the United Kingdom and the Netherlands. With 19 new company-operated restaurants and five new franchised restaurants opened as of the end of the third quarter, we continue to expect to open between 31 and 33 new company-operated restaurants during 2017, and we expect our franchisees to open an aggregate of five to seven locations this year.”

Third Quarter 2017 Financial Results Compared to Third Quarter 2016

Total revenue was $84.6 million in the third quarter of 2017, compared to $71.9 million in the third quarter of 2016.

Company-operated comparable restaurant sales decreased 0.2% for the quarter ended September 26, 2017. The decrease in company-operated comparable restaurant sales was driven primarily by a 1.0% decrease in transactions partially offset by a 0.8% increase in average transaction amount.

Net income for the third quarter of 2017 was $0.4 million, or $0.02 per diluted weighted average share compared to $0.8 million, or $0.04 per diluted weighted average share in the third quarter of 2016.

Adjusted fully distributed pro forma net income in the third quarter of 2017 was $0.2 million, or $0.01 per fully distributed weighted average share, compared to $1.4 million, or $0.05 per fully distributed weighted average share, in the third quarter of 2016. A reconciliation between GAAP net income and adjusted fully distributed pro forma net income is included in the accompanying financial data. 

2017 Outlook

The Company currently anticipates the following for its fiscal year 2017:

  • Total revenue between $331 million to $333 million;
  • Company-operated comparable restaurant sales of flat to slightly negative;
  • The opening of 31 to 33 company-operated restaurants and five to seven franchised/licensed restaurants;
  • Restaurant contribution margin of 18.25% to 18.5%;
  • General and administrative expenses of $33.0 million to $33.5 million;
  • Depreciation and amortization expense under $19.0 million;
  • Capital expenditures of $44.0 million to $47.0 million; and
  • An effective pro forma tax rate of approximately 41.5% to 42.0%, which assumes the conversion of all common units of The Habit Restaurants, LLC for shares of our Class A common stock (and cancellation of corresponding shares of our Class B common stock), which would eliminate the non-controlling interests.

Conference Call

The Company will host a conference call to discuss financial results for the third quarter 2017 today at 4:30 PM Eastern Time. Russ Bendel, President and Chief Executive Officer, and Ira Fils, Chief Financial Officer will host the call.

The conference call can be accessed live over the phone by dialing (855) 327-6837 or for international callers by dialing (778) 327-3988. A replay will be available after the call and can be accessed by dialing (844) 512-2921 or for international callers by dialing (412) 317-6671; the passcode is 10003615. The replay will be available until Wednesday, November 8, 2017. The conference call will also be webcast live from the Company’s corporate website at ir.habitburger.com under the “Events” page. An archive of the webcast will be available at the same location on the corporate website shortly after the call has concluded.

The following definitions apply to these terms as used in this release:

Comparable restaurant sales reflect the change in year-over-year sales in our comparable restaurant base. A restaurant enters our comparable restaurant base in the accounting period following its 18th full period of operations. We operate on a 4-4-5 calendar, each accounting period will consist of either four or five weeks with the exception of a 53-week year, where the last period contains six weeks.

Average Unit Volumes (AUVs) are calculated by dividing revenue for the trailing 52-week period for all company-operated restaurants that have operated for 12 full accounting periods by the total number of restaurants open for such period. 

Adjusted fully distributed pro forma net income includes net income attributable to The Habit (i) excluding income tax expense, (ii) excluding the effect of non-recurring items, (iii) assuming the exchange of all common units of The Habit Restaurants, LLC into shares of our Class A common stock (and cancellation of corresponding shares of our Class B common stock), which results in the elimination of non-controlling interests in The Habit Restaurants, LLC, and (iv) reflecting an adjustment for income tax expense on fully distributed pro forma net income before income taxes at our estimated long term effective income tax rate. Adjusted fully distributed pro forma net income is a non-GAAP financial measure because it represents net income attributable to The Habit, before non-recurring items and the effects of non-controlling interests in The Habit Restaurants, LLC. We use adjusted fully distributed pro forma net income to facilitate a comparison of our operating performance on a consistent basis from period to period that, when viewed in combination with our results prepared in accordance with GAAP, provides a more complete understanding of factors and trends affecting our business than GAAP measures alone and eliminates the variability of non-controlling interests as a result of member owner exchanges of common units of The Habit Restaurants, LLC into shares of our Class A common stock (and cancellation of corresponding shares of our Class B common stock).

Adjusted fully distributed pro forma net income per fully distributed weighted average share is calculated using adjusted fully distributed pro forma net income as defined above and assumes the exchange of all common units of The Habit Restaurants, LLC into shares of our Class A common stock (and cancellation of corresponding shares of our Class B common stock).

EBITDA, a non-GAAP measure, represents net income before interest expense, net, provision for income taxes, and depreciation and amortization.

Adjusted EBITDA, a non-GAAP measure, represents EBITDA plus pre-opening costs, stock-based compensation, loss on disposal of assets, Tax Receivable Agreement liability adjustment, and exchange related expenses.

About The Habit Restaurants, Inc.

The Habit Burger Grill is a burger-centric, fast casual restaurant concept that specializes in preparing fresh, made-to-order chargrilled burgers and sandwiches featuring USDA choice tri-tip steak, grilled chicken and sushi-grade albacore tuna cooked over an open flame. In addition, it features fresh made-to-order salads and an appealing selection of sides, shakes and malts. The Habit was named the “best tasting burger in America” in July 2014 in a comprehensive survey conducted by one of America’s leading consumer magazines. The first Habit opened in Santa Barbara, California in 1969. The Habit has since grown to over 195 restaurants in 11 states throughout California, Arizona, Utah, New Jersey, Florida, Idaho, Virginia, Nevada, Washington, Maryland and Pennsylvania as well as two international locations.

Contacts

Investors:
(949) 943-8692
HabitIR@habitburger.com

Media:
(949) 943-8691
Media@habitburger.com

Forward-Looking Statements

This press release contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this press release are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements because they do not relate strictly to historical or current facts. These statements may include words such as “aim,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “outlook,” “potential,” “project,” “projection,” “plan,” “intend,” “seek,” “may,” “could,” “would,” “will,” “should,” “can,” “can have,” “likely,” the negatives thereof and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. They appear in a number of places throughout this press release and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected.

While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this press release in the context of the risks and uncertainties disclosed in our annual report on Form 10-K for the year ended December 27, 2016, including the sections thereof captioned “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors.” These filings and others are available online at www.sec.gov, ir.habitburger.com or upon request from The Habit.

We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences we anticipate or affect us or our operations in the ways that we expect. The forward-looking statements included in this press release are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use non-GAAP financial measures, including those discussed above. These measures are not intended to be considered in isolation or as substitutes for, or superior to, financial measures prepared and presented in accordance with GAAP. We use non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe that they provide useful information about operating results, enhance understanding of past performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making. However, when analyzing the Company’s operating performance, investors should not consider adjusted earnings per fully distributed weighted average share or adjusted fully distributed pro forma net income in isolation or as substitutes for net income (loss), cash flows from operating activities or other operation statement or cash flow statement data prepared in accordance with U.S. GAAP. The non-GAAP measures used in this press release may be different from the measures used by other companies.

Consolidated Statement of Operations Data (unaudited):

Our operating results are presented as a percentage of total revenue, with the exception of restaurant operating costs, depreciation and amortization expense, pre-opening costs and loss on disposal of assets, which are presented as a percentage of restaurant revenue.

     13 Weeks Ended     39 Weeks Ended  
(amounts in thousands except share and per
  share data)
  September 26, 2017     September 27, 2016     September 26, 2017     September 27, 2016  
Revenue                                                                
Restaurant revenue   $ 84,347       99.7 %   $ 71,650       99.7 %   $ 245,704       99.6 %   $ 209,416       99.7 %
Franchise/license revenue     292       0.3 %     235       0.3 %     903       0.4 %     542       0.3 %
Total revenue     84,639       100.0 %     71,885       100.0 %     246,607       100.0 %     209,958       100.0 %
Operating expenses                                                                
Restaurant operating costs (excluding depreciation and amortization)                                                                
Food and paper costs     26,861       31.8 %     21,788       30.4 %     75,955       30.9 %     63,040       30.1 %
Labor and related expenses     28,532       33.8 %     23,727       33.1 %     81,566       33.2 %     68,040       32.5 %
Occupancy and other operating expenses     14,781       17.5 %     11,994       16.7 %     41,469       16.9 %     33,822       16.2 %
General and administrative expenses     8,281       9.8 %     7,429       10.3 %     24,369       9.9 %     21,555       10.3 %
Exchange related expenses     155       0.2 %     61       0.1 %     390       0.2 %     421       0.2 %
Depreciation and amortization expense     4,777       5.7 %     3,788       5.3 %     13,492       5.5 %     10,779       5.1 %
Pre-opening costs     813       1.0 %     569       0.8 %     1,943       0.8 %     1,361       0.6 %
Loss on disposal of assets     19       0.0 %     35       0.0 %     43       0.0 %     110       0.1 %
Total operating expenses     84,219       99.5 %     69,391       96.5 %     239,227       97.0 %     199,128       94.8 %
Income from operations     420       0.5 %     2,494       3.5 %     7,380       3.0 %     10,830       5.2 %
Other expenses                                                                
Tax Receivable Agreement liability adjustment     688       0.8 %           0.0 %     688       0.3 %           0.0 %
Interest expense, net     185       0.2 %     179       0.2 %     381       0.2 %     456       0.2 %
(Loss) income before income taxes     (453 )     -0.5 %     2,315       3.2 %     6,311       2.6 %     10,374       4.9 %
(Benefit) provision for income taxes     (906 )     -1.1 %     869       1.2 %     1,397       0.6 %     3,038       1.4 %
Net income     453       0.5 %     1,446       2.0 %     4,914       2.0 %     7,336       3.5 %
Less: net income attributable to non-controlling interests     (56 )     -0.1 %     (677 )     -0.9 %     (1,561 )     -0.6 %     (3,996 )     -1.9 %
Net income attributable to The Habit Restaurants, Inc.   $ 397       0.5 %   $ 769       1.1 %   $ 3,353       1.4 %   $ 3,340       1.6 %
 

Net income attributable to The Habit Restaurants, Inc. per share Class A common stock:
                                                               
Basic   $ 0.02             $ 0.04             $ 0.17             $ 0.20          
Diluted   $ 0.02             $ 0.04             $ 0.17             $ 0.20          
Weighted average shares of Class A common stock outstanding:                                                                
Basic     20,329,919               18,349,845               20,259,507               16,352,481          
Diluted     20,386,655               18,354,218               20,311,264               16,357,724          
                                                                 

Selected Balance Sheet and Selected Operating Data (unaudited):

                 
Balance Sheet Data   September 26, 2017     December 27, 2016  
(dollar amounts in thousands)                
Balance Sheet Data-Consolidated (at period end):                
Cash and cash equivalents   $ 42,089     $ 44,192  
Property and equipment, net(a)     129,105       102,857  
Total assets     356,690       330,366  
Total debt(b)     11,917       6,036  
Total stockholders' equity     149,840       143,887  


(a) Property and equipment, net consists of property owned or leased, net of accumulated depreciation and amortization.
   
(b) Total debt consists of deemed landlord financing.


       
    13 Weeks Ended  
Selected Operating Data   September 26, 2017     September 27, 2016  
Other Operating Data:                
Total restaurants at end of period     195       160  
Company-operated restaurants at end of period     180       152  
Company-operated comparable restaurant sales(a)     (0.2 )%     0.2 %
Company-operated average unit volumes   $ 1,905     $ 1,911  
                 
    39 Weeks Ended  
Selected Operating Data   September 26, 2017     September 27, 2016  
Other Operating Data:                
Company-operated comparable restaurant sales(a)     0.2 %     2.0 %


(a) Company-operated comparable restaurant sales reflects the change in year-over-year sales for the company-operated comparable restaurant base. A restaurant enters our comparable restaurant base in the accounting period following its 18th full period of operations.
   

The following table includes a reconciliation of net income to adjusted EBITDA: 

     13 Weeks Ended     39 Weeks Ended  
Adjusted EBITDA Reconciliation   September 26,
2017
    September 27,
2016
    September 26,
2017
    September 27,
2016
 
(amounts in thousands)                                
Net income   $ 453     $ 1,446     $ 4,914     $ 7,336  
Non-GAAP adjustments:                                
(Benefit) provision for income taxes     (906 )     869       1,397       3,038  
Interest expense, net     185       179       381       456  
Depreciation and amortization     4,777       3,788       13,492       10,779  
EBITDA     4,509       6,282       20,184       21,609  
Stock-based compensation expense(a)     675       499       1,846       1,366  
Loss on disposal of assets(b)     19       35       43       110  
Pre-opening costs(c)     813       569       1,943       1,361  
Tax Receivable Agreement liability adjustment(d)     688             688        
Exchange related expenses(e)     155       61       390       421  
Adjusted EBITDA   $ 6,859     $ 7,446     $ 25,094     $ 24,867  


(a) Includes non-cash, stock-based compensation.
   
(b) Loss on disposal of assets includes the loss on disposal of assets related to retirements and replacements or write-off of leasehold improvements or equipment.
   
(c) Pre-opening costs consist of costs directly associated with the opening of new restaurants and incurred prior to opening, including management labor costs, staff labor costs during training, food and supplies used during training, marketing costs and other related pre-opening costs. These are generally incurred over the three to five months prior to opening. Pre-opening costs also include net occupancy costs incurred between the date of possession and opening date of our restaurants.
   
(d) In connection with the initial public offering (“IPO”) that occurred in fiscal year 2014, the Company entered into a tax receivable agreement (“TRA”). This agreement calls for us to pay to our pre-IPO stockholders 85% of the savings in cash that we realize in our taxes as a result of utilizing our net operating losses and other tax attributes attributable to preceding periods. This category includes costs associated with adjustments to the expected TRA liability as a result of updated estimated future tax savings at the federal, state and local level.
   
(e) This category includes costs associated with the exchanges of LLC Units into shares of Class A common stock by members of The Habit Restaurants, LLC (the “Continuing LLC Owners”) pursuant to its Amended and Restated Limited Liability Company Agreement, dated as of April 5, 2015, as amended on May 16, 2016, and further amended on March 22, 2017 (as amended, the “LLC Agreement”).
   

The following is a reconciliation of GAAP net income and net income per share to adjusted fully distributed pro forma net income and adjusted fully distributed pro forma net income per share:   

     13 Weeks Ended     39 Weeks Ended  
(dollar amounts in thousands)   September 26,
2017
    September 27,
2016
    September 26,
2017
    September 27,
2016
 
Net income   $ 453     $ 1,446     $ 4,914     $ 7,336  
Exchange related expenses(a)     155       61       390       421  
Tax Receivable Agreement liability adjustment(b)     688             688        
Income tax (benefit) expense as reported     (906 )     869       1,397       3,038  
Fully distributed pro forma net income before income taxes     390       2,376       7,389       10,795  
Income tax expense on fully distributed pro forma
  income before income taxes(c)
    230       1,012       3,104       4,534  
Adjusted fully distributed pro forma net income   $ 160     $ 1,364     $ 4,285     $ 6,261  
Adjusted fully distributed pro forma net income per share
  of Class A common stock:
                               
Basic   $ 0.01     $ 0.05     $ 0.16     $ 0.24  
Diluted   $ 0.01     $ 0.05     $ 0.16     $ 0.24  
Weighted average shares of Class A common stock
  outstanding used in computing adjusted fully distributed
  pro forma net income(d):
                               
Basic     26,023,612       26,005,346       26,014,876       26,004,527  
Diluted     26,080,348       26,009,719       26,066,633       26,009,770  


(a) This category includes costs associated with the exchanges of common units of The Habit Restaurants, LLC (“LLC Units”) to Class A common stock by the Continuing LLC Owners pursuant to the LLC Agreement.
   
(b) In connection with the IPO that occurred in fiscal year 2014, the Company entered into TRA. This agreement calls for us to pay to our pre-IPO stockholders 85% of the savings in cash that we realize in our taxes as a result of utilizing our net operating losses and other tax attributes attributable to preceding periods. This category includes costs associated with adjustments to the expected TRA liability as a result of updated estimated future tax savings at the federal, state and local level.
   
(c) Reflects income tax expense at an effective rate of 42.0% and 42.0% for the periods ended September 26, 2017 and September 27, 2016, respectively, on income before income taxes assuming the conversion of all outstanding LLC Units for shares of Class A common stock (with a corresponding cancellation of shares of our Class B common stock). The effective rate also excludes the impact of discrete items. The estimated tax rate includes provisions for U.S. federal income taxes and assumes the highest statutory rates apportioned to each state and local jurisdiction.
   
(d) For all periods presented, represents the total number of shares of Class A common stock outstanding including all outstanding LLC Units of The Habit Restaurants, LLC as if they were exchanged on a one-for-one basis for the Company’s Class A common stock (with a corresponding cancellation of shares of our Class B common stock). Diluted earnings per share gives effect during the reporting period to all dilutive potential shares outstanding resulting from employee stock-based awards using the treasury method.

Habit Restaurants, Inc.