20160912 SAUC September Investor Presentation...
Transcript of 20160912 SAUC September Investor Presentation...
NASDAQ: SAUC© 2016 by Diversified Restaurant Holdings, Inc.
David Burke Chief Financial Officer
Investor PresentationSeptember 2016
NASDAQ: SAUC© 2016 by Diversified Restaurant Holdings, Inc. NASDAQ: SAUC 2
Safe Harbor Statement
The information made available in this presentation contains forward‐looking statements which reflect the Company’s current view of future events, results of operations, cash flows, performance, business prospects and opportunities. Wherever used, the words "anticipate," "believe," "expect," "intend," "plan," "project," "will continue," "will likely result," "may," and similar expressions identify forward‐looking statements as such term is defined in the Securities Exchange Act of 1934. Any such forward‐looking statements are subject to risks and uncertainties and the Company's actual growth, results of operations, financial condition, cash flows, performance, business prospects and opportunities could differ materially from historical results or current expectations. Some of these risks include, without limitation, the impact of economic and industry conditions, competition, food and drug safety issues, store expansion and remodeling, labor relations issues, costs of providing employee benefits, regulatory matters, legal and administrative proceedings, information technology, security, severe weather, natural disasters, accounting matters, other risk factors relating to our business or industry and other risks detailed from time to time in the Securities and Exchange Commission filings of DRH. Forward‐looking statements contained herein speak only as of the date made and, thus, DRH undertakes no obligation to update or publicly announce the revision of any of the forward‐looking statements contained herein to reflect new information, future events, developments or changed circumstances or for any other reason.
NASDAQ: SAUC© 2016 by Diversified Restaurant Holdings, Inc. NASDAQ: SAUC 3
Who We Are
Leading operator, strong cash generator Track record of accretive BWW acquisitions Focused on profitability and financial strength
Founded: 2006 NASDAQ: SAUC
Market Data as of September 15, 2016 [Source: Bloomberg LP]; Ownership as of most recent filing
Total Restaurants 83 BWW Locations 64
Market Capitalization (millions) $29.3 Q2 2016 TTM Revenue (millions) $191.0
Recent Price $1.10 Avg. Vol. (3 months, thousands) 70.1
52 wk. Price Range $0.91- $3.32 Shares Outstanding (millions) 26.7
Insider Ownership 48% Institutional Ownership 20%
Largest Buffalo Wild Wings (BWW) Franchisee
NASDAQ: SAUC© 2016 by Diversified Restaurant Holdings, Inc. NASDAQ: SAUC 4
Strategy
• Q2 2016 Total Debt = $122M• Target < $90M and < 3.0x Net Debt / Adjusted
EBITDA by end of 2018
Strengthen Balance Sheet
• $4M in cost reduction initiatives• $1.5M-$2.0M in G&A savings from spinoff• Lower interest expense
Increase Net Income
• Bagger Dave’s spinoff (Q4 2016)• Sales growth18 acquired St. Louis restaurants• Full portfolio Stadia design by 2020
Focus on Buffalo Wild
Wings
Focusing on highly profitable BWW expected to drive earnings growth and free up cash to reduce total debt
NASDAQ: SAUC© 2016 by Diversified Restaurant Holdings, Inc. NASDAQ: SAUC 5
1,190 restaurants system wide1
DRH owns 64 of 589 franchised locations1 (11%)
Distinctive branding
Exceptional guest experience
Wings, signature sauces and seasonings
Domestic, imported and craft beers
Wings. Beer. Sports.®
1 as of Q2 2016
NASDAQ: SAUC© 2016 by Diversified Restaurant Holdings, Inc. NASDAQ: SAUC
Strong BWW Unit Expansion
17
15
7 5
20
1922
3336
42
6264
2010 2011 2012 2013 2014 2015 2016 YTD
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Restaurant Map
NASDAQ: SAUC© 2016 by Diversified Restaurant Holdings, Inc. NASDAQ: SAUC
Successful Acquisitions
2015 Acquisition Benefits
Immediately accretive to earnings
Solidifies standing as leading BWW franchisee
Expansion into new markets with growth opportunities
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2011 2013
MI / FL9 Restaurants$1.3M Total Consideration
2015 201620122010 2014
IN / IL8 Restaurants$14.7M Total Consideration
FL3 Restaurants$3.2M Total Consideration
MO18 Restaurants$54.0M Total Consideration
NASDAQ: SAUC© 2016 by Diversified Restaurant Holdings, Inc. NASDAQ: SAUC
$2.5$2.8
$3.0
2013 2014 2015
14.2%
19.0%20.5%
Best‐in‐Class Operators
Pre‐Acquisition Post‐Acquisition($ in millions)
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Significantly increased revenue and profitability within two years after acquisition of eight BWW locations in Chicago market
$2.1$2.3
2011 2012
8.6%
5.1%
AUV Restaurant-Level EBITDA % Margin
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BWW Initiatives & PromotionsOpportunities to enhance greater economic value within our existing footprint
Tuesday and Thursday value days
New Blazing Rewards™ program
15-minute lunch
National promotion of online ordering
Expanding revenue streams:• Delivery services• Banquets/catering• Large order carryout
NASDAQ: SAUC© 2016 by Diversified Restaurant Holdings, Inc. NASDAQ: SAUC 10
Bagger Dave’s
Natural
Fresh
Customization
Value
3
6
11
18
24
1819
2010 2011 2012 2013 2014 2015 2016 YTD
Number of Locations
Convenience
Entertainment
Technology
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Enhanced Menu Fresh, diverse menu offerings
• Proprietary beef blend, locally sourced
• Farm-raised grilled chicken breast
• Gluten-free menu
Unique differentiator: Premium craft soda • Exceedingly better margins than
Coca-Cola or Pepsi
• 50-year supply agreement
Targeted messaging Blackened Mahi‐Mahi Burger
Korean BBQ BurgerLatin Chicken
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Why SpinoffBWW and Bagger Dave’s concepts are distinct in many respects
Separating these two very different businesses will enable each to better pursue their strategies and growth plans independently
Franchise brand Own the brand
Mature brand Early stage brand
Less complex menu and food preparation
More complex menu and food preparation
Primary focus of growth efforts and investments
Gaining traction but limited focus given larger BWW portfolio
NASDAQ: SAUC© 2016 by Diversified Restaurant Holdings, Inc. NASDAQ: SAUC 13
Spinoff Timing
May 24, 2016 Announced evaluation of strategic alternatives for Bagger Dave’s
August 4, 2016 Announced spinoff
Q4 2016 Expected spinoff completion
Upcoming milestones
File Form 10 (will include audited 2014 and 2015 Bagger Dave’s financials)
Information statement (share distribution, management and capital structure detail)
Set record date
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Expected Outcome Own and operate 64 franchised BWW restaurants
Continue trading on the NASDAQ
Spinoff is expected to result in $1.5 million to $2.0 million in G&A savings for DRH
Will maintain all debt and NOLs
Management: Michael Ansley, Executive Chairman David Burke, President and CEONew CFO search underway
Structured as a tax-free spin-off to DRH shareholders (Pro-rata share distribution)
Own and operate 19 Bagger Dave’s restaurants
Trade in the over-the-counter (OTC) market
Management: Michael Ansley, President and CEODavid Burke will be on the Board of Directors
NASDAQ: SAUC© 2016 by Diversified Restaurant Holdings, Inc. NASDAQ: SAUC 15
Growth Track Record
$9.8 $14.4 $22.0 $27.7 $23.5
$67.6 $94.5
$106.4
$144.8 $167.4
2012 2013 2014 2015 2Q16 TTM 2016E*
Bagger Dave's BWW
Annual Revenue
* Guidance provided as of August 4, 2016
YTD impact: Macro factors and fewer sporting events relevant to our markets
Rationalized Bagger Dave’s business in late 2015
$ millions
$77.5
$108.9$128.4
$172.5$191.0 $185-$190
$164-$168
$21-$22
Components may not equal totals due to rounding
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Strong Cash Generation
Adjusted EBITDA and Margin¹
$ millions
Leverage scale
Right-sized and rationalized organization
* Guidance provided as of August 4, 2016; Adjusted EBITDA margin based on guidance mid-point for revenue
$8.4
$13.0 $15.1
$17.2
$21.5 $21-$23
2012 2013 2014 2015 2Q16 TTM 2016E*
10.8% 12.0% 11.7% 10.0% 11.3% 11.7%
1 EBITDA adjusted for pre-opening and other one-time expenses. See EBITDA reconciliation on supplemental slide
NASDAQ: SAUC© 2016 by Diversified Restaurant Holdings, Inc. NASDAQ: SAUC 17
Lack of Recognition
Data as of September 6, 2016SAUC calculation based on 2016 mid-point guidance for Adjusted EBITDA Comp Group: DRI, CBRL, TXRH, BWLD, CAKE, EAT, BLMN, DIN, BJRI, RRGB, DENN, CHUY, DFRG, JAX, GTIM
Primarily a BWW company
Reducing debt
Growing earnings
6.8x
9.4x 9.5x
SAUC BWLD Comp group
EV / EBITDA
NASDAQ: SAUC© 2016 by Diversified Restaurant Holdings, Inc. NASDAQ: SAUC 18
2016: A Transition Year
Guidance provided as of August 4, 2016; growth percentage based on guidance mid-point compared with 2015 results
CapEx: $14M to $16M $11.7M thru Q2
Two BWW Completed
Stadia design projects Six Completed
One Bagger Dave’s Completed
Revenue: $185M and $190M +9% Adjusted EBITDA: $21M to $23M +28% Adjusted Restaurant-level EBITDA: $33M to $35M +17%
Generate cash, pay down debt, strengthen the balance sheet and complete the spinoff
2016 Outlook
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Investment Highlights
Capitalizing on value of BWW
Track record of organic and acquisitive growth
Established market positioning and ability to leverage scale
Strong restaurant operators with new management plan in place to drive change in strategy
Focused debt reduction plan
Undervalued relative to peers
NASDAQ: SAUC© 2016 by Diversified Restaurant Holdings, Inc. NASDAQ: SAUC
Management Team
Michael AnsleyChief Executive
Officer, President
David BurkeChief Financial
Officer
Jason CurtisChief Operating
Officer
Served as the President, Chief Executive Officer, and Chairman of the Board since DRH’s inception Became a BWLD franchisee in 1996, opened DRH’s first Buffalo Wild Wings location in 1999, and
opened the first Bagger Dave’s location in 2008 Currently serves on the Board of Directors of the Michigan Restaurant Association
Appointed the Chief Financial Officer in 2010 but has been a member of the board since inception Served as Secretary from inception to 2010 and as a member of the Audit Committee and Audit
Committee Chairman from 2007-2010, prior to being named Chief Financial Officer Prior to DRH, employed by Federal-Mogul with roles in finance, corporate development and
marketing
Held the Chief Operating Officer position since 2002 Named to the BWLD Leadership Council to serve as a liaison between franchisees and the BWLD
corporate office Certified by the National Restaurant Association as a Foodservice Management Professional
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NASDAQ: SAUC© 2016 by Diversified Restaurant Holdings, Inc. NASDAQ: SAUC
BWW Unit Economics
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Estimated Cash Investment $2.0M-$3.0M
Revenue per Store $3.0M
Restaurant-Level Margin 20.0%
Restaurant-Level EBITDA $600,000
Cash on Cash Return 30%
Estimated Average Check $26.10
Square Footage1 6,400
Revenue / Sq-ft $469
Number of Seats1 225
Estimated Incremental Margin % >35%
1 Usable square footage with all-season patio
Target
NASDAQ: SAUC© 2016 by Diversified Restaurant Holdings, Inc. NASDAQ: SAUC
Adjusted EBITDA Reconciliation
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For the fiscal year ended, 2012 2013 2014 2015 Q2 2016 TTM
Net Income (Loss) 180,099 134,308 ($1,268,497) ($16,192,492) ($12,888,812)
+ Income Tax Provision (Benefit) (167) (261,450) (1,706,736) (9,986,007) (8,293,960)
+ Interest Expense 1,282,991 1,718,711 2,274,041 4,211,255 6,105,499
+ Depreciation and Amortization 4,587,310 7,974,481 10,956,951 16,582,236 18,884,113
EBITDA $ 6,050,233 $ 9,566,050 $ 10,255,759 $ (5,385,008) $ 3,806,840
+ Other Income (Expense), Net (20,081) (151,292) 58,912 (822,039) (162,683)
+ Loss on Disposal of Property and Equipment 36,833 98,162 1,023,144 14,242,705 11,230,615
+ Legal reserve ‐ ‐ ‐ 1,950,000 ‐
+ Non‐recurring expense (Corporate Level) (1) 513,500 271,000 254,241 1,500,861 1,097,541
+ Non‐recurring expense (Restaurant Level) (1) ‐ ‐ ‐ 2,507,283 3,050,578
+ Pre‐opening expense 1,792,168 3,230,122 3,473,664 3,244,157 2,495,750
Adjusted EBITDA $ 8,372,653 $ 13,014,042 $ 15,065,720 $ 17,237,959 $ 21,518,641
Adjusted EBITDA Margin (%) 10.8% 12.0% 11.7% 10.0% 11.3%
NASDAQ: SAUC© 2016 by Diversified Restaurant Holdings, Inc. NASDAQ: SAUC
EBITDA Reconciliation cont.
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(1) Note: There were additional one-time expenses related to the acquisition that were identified or reassigned after the close of the Third Quarter 2015 that have an impact on each quarter of 2015 and has been added to represent the true full year 2015 Adjusted EBITDA.
Adjusted EBITDA represents net income (loss) attributable to DRH plus the sum of restaurant pre-opening costs, loss on property and equipment disposals, the change in fair value of derivative instruments, depreciation and amortization, other income and expenses, interest, taxes, income attributable to noncontrolling interest, and non-recurring expenses. We are presenting Adjusted EBITDA, which is not presented in accordance with GAAP, because we believe it provides an additional metric by which to evaluate our operations. When considered together with our GAAP results and the reconciliation to our net income, we believe it provides a more complete understanding of our business than could be obtained absent this disclosure. We use Adjusted EBITDA together with financial measures prepared in accordance with GAAP, such as revenue, income from operations, net income, and cash flows from operations, to assess our historical and prospective operating performance and to enhance the understanding of our core operating performance. Adjusted EBITDA is presented because: (i) we believe it is useful measure for investors to assess the operating performance of our business without the effect of non-cash depreciation and amortization expenses; (ii) we believe investors will find the measure useful in assessing our ability to service or incur indebtedness; and (iii) it is used internally as benchmarks to evaluate our operating performance or compare our performance to that of our competitors.
The use of Adjusted EBITDA as a performance measure permits a comparative assessment of our operating performance relative to our performance based on GAAP results, while isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. Companies within our industry exhibit significant variations with respect to capital structure and cost of capital (which affect interest expense and tax rates) and differences in book depreciation of property and equipment (which affect relative depreciation expense), including significant differences in the depreciable lives of similar assets among various companies. Our management team believes that Adjusted EBITDA facilitate company-to-company comparisons within our industry by eliminating some of the foregoing variations.
Adjusted EBITDA is not determined in accordance with GAAP and should not be considered in isolation or as an alternative to net income, income from operations, net cash provided by operating, investing, or financing activities, or other financial statement data presented as indicators of financial performance or liquidity, each as presented in accordance with GAAP. Adjusted EBITDA should be considered as a measure of discretionary cash available to us to invest in the growth of our business. Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies and our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual items. Our management recognizes that Adjusted EBITDA has limitations as analytical financial measures.