UNITED STATESSECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

FORM 8-K

CURRENT REPORT 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 

Date of Report (Date of earliest event reported): March 10, 2017 

 DIVERSIFIED RESTAURANT HOLDINGS, INC.

 (Name of registrant in its charter)

 

         

Nevada   000-53577   03-0606420(State or other jurisdiction of

 incorporation)  (Commission File Number)

 (IRS Employer Identification No.)

   27680 Franklin RoadSouthfield, MI  48034    

(Address of principal executive offices)

Registrant's telephone number:   (248) 223-9160

Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[   ]    Written communications pursuant to Rule 425 under the Securities Act [   ]    Soliciting material pursuant to Rule 14a-12 under the Exchange Act [   ]    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act [   ]    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act

  

 

 Item 2.02 Results of Operations and Financial Condition

Earnings Release

On March 10, 2017, Diversified Restaurant Holdings, Inc. (NASDAQ: SAUC) (the "Company") issued a press release announcing earnings and other financial results for thequarter and year ended December 25, 2016. A copy of the press release is furnished as Exhibit 99.1 to this report and incorporated here by reference. Item 7.01. Regulation FD Disclosure

The Company has prepared presentation materials (the “Investor Presentation”) that management intends to use at ROTH Capital Partners’ 29th Annual Conference on Monday,March 13, 2017 in Dana Point, California, and from time to time thereafter in presentations about the Company’s operations and performance. The Company may use the InvestorPresentation, possibly with modifications, in presentations to current and potential investors, analysts, lenders, business partners, acquisition candidates, customers, employees andothers with an interest in the Company and its business.

A copy of the Investor Presentation is furnished as Exhibit 99.2 to this Current Report on Form 8-K and is available on the Company's website athttp://www.diversifiedrestaurantholdings.com/investors/events-and-presentations/default.aspx. Materials on the Company's website are not part of or incorporated by reference intothis Form 8-K.

In accordance with General Instruction B.2 of Form 8-K, the information in this Current Report on Form 8-K, including Exhibits 99.1 and 99.2, shall not be deemed to be “filed”for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not beincorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expresslyset forth by specific reference in such filing.

Item 9.01 Financial Statement and Exhibits(d) Exhibits

Exhibit No.      Description

99.1 Press Release of Diversified Restaurant Holdings, Inc. reporting financial results and earnings for the quarter and year ended December 25, 2016

99.2 Diversified Restaurant Holdings, Inc. Investor Presentation dated March 10, 2017

 SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereuntoduly authorized. 

 DIVERSIFIED RESTAURANTHOLDINGS, INC.  

       

Dated:  March 10, 2017 By:  /s/ Phyllis A. Knight  

  Name: Phyllis A. Knight  

 Title: Chief Financial Officer (Principal   

Financial and Accounting Officer)    

EXHIBIT INDEX

Exhibit No.     Description

99.1 Press Release of Diversified Restaurant Holdings, Inc. reporting financial results and earnings for the quarter and year ended December 25, 2016

99.2 Diversified Restaurant Holdings, Inc. Investor Presentation dated March 10, 2017

FOR IMMEDIATE RELEASE             

Diversified Restaurant Holdings Reports Fourth Quarterand Fiscal Year 2016 Results

Operating profit in 2016 increases 2.6 times andoperating margin more than doubles on higher revenue and lower costs

SOUTHFIELD, MI, March 10, 2017 -- Diversified Restaurant Holdings, Inc. (NASDAQ: SAUC) ("DRH" or the "Company"), the largestfranchisee for Buffalo Wild Wings ® ("BWW") with 64 stores across five states, today announced results for its fourth quarter and fiscal yearended December 25, 2016 (“2016”). On December 25, 2016, DRH completed the spinoff of its former subsidiary, Bagger Dave’s BurgerTavern, Inc., which is now reported as discontinued operations.

Results from continuing operations for 2016, versus the same period a year ago, were:• Total revenue increased 15% to $166.5 million• Same-store sales decreased 3.0%• Restaurant-level EBITDA increased 8.7% to $32.3 million (1) • Restaurant-level EBITDA margin decreased 1.1 points to 19.4%• Operating profit increased 157.3% to $7.3 million• Adjusted EBITDA improved 8.0% to $23.3 million (1)

Improvements in total revenue, EBITDA and operating profit were impacted, in part, by the inclusion of a full year of operations for 18 restaurants acquired in mid-2015, in addition to three new unit openings and one unit closing in 2015, and two new unit openings in 2016.

Results from continuing operations for the fourth quarter of 2016, versus the same period a year ago, were:• Total revenue decreased 3.6% to $40.8 million• Same-store sales decreased 5.4%• Restaurant-level EBITDA decreased 19.1% to $6.7 million (1) • Restaurant-level EBITDA margin decreased 2.2 points to 16.5%• Operating profit increased $0.6 to $0.9 million• Adjusted EBITDA decreased 29.8% to $4.5 million (1)

Same-store sales declined in the month of December 2016 partially as a result of unfavorable weather in the Midwest and exacerbated by thecalendar shift in 2016 vs. 2015 whereby the Christmas holiday fell on a weekend and the vast majority of important sports events fell intoearly 2017.

(1) See attached table for a reconciliation of GAAP net loss to Restaurant-level EBITDA and Adjusted EBITDA

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David G. Burke, President and CEO, commented, “With the successful spin-off of Bagger Dave’s, we are now exclusively focused on drivingstrong performance and growth with our Buffalo Wild Wings franchise stores, after another strong year of growth in 2016. We will continue totightly manage our costs and use our strong positive cash flow to reduce debt and strengthen our balance sheet, providing greater financialflexibility and enhancing our future growth potential.

“While faced with the headwinds hitting the restaurant industry, particularly in the fourth quarter, we believe we are doing what it takes toincrease traffic, deliver on our value proposition and enhance the customer experience. In concert with corporate efforts, we are promotingFastBreak™ Lunch, Half-Price Wing Tuesdays®, and the Blazin' Rewards®   loyalty program, all of which are attracting customers. We nowoffer delivery service through third parties in 24 locations, and recently began to promote large group private parties and events in many ofour key markets. We also completed six renovations in 2016 and now have 27 restaurants with the newer Stadia design - another trafficbooster. We expect 2017 to be a stronger year.”

Full Year 2016 Highlights (Unaudited)              ($ in thousands) 2016   2015   Change   % ChangeRevenue $ 166,520.9   $ 144,800.0   $ 21,720.9   15.0%Operating profit $ 7,304.0   $ 2,838.5   $ 4,465.5   157.3% Operating margin 4.4%   2.0%        Net income (loss) from continuing operations $ 3,639.0   $ (506.9)   $ 4,145.9   (60.1%)Diluted net income (loss) per share (cont. ops.) $ 0.14   $ (0.02)   $ —   (60.4%)               Comparable-store sales (3.0%)   3.0%        Restaurant-level EBITDA (1) $ 32,275.0   $ 29,681.5   $ 2,593.5   8.7% Restaurant-level EBITDA margin 19.4%   20.5%        Adjusted EBITDA (1) $ 23,345.2   $ 21,621.7   $ 1,723.5   8.0% Adjusted EBITDA margin 14.0%   14.9%        

Fourth Quarter 2016 Highlights (Unaudited)              ($ in thousands) Q4 2016   Q4 2015   Change   % ChangeRevenue $ 40,801.2   $ 42,303.3   $ (1,502.1)   (3.6)%Operating profit $ 854.3   $ 279.4   $ 574.9   205.8% Operating margin 2.1%   0.7%        Net income (loss) from continuing operations $ 186.3   $ (908.9)   $ 1,095.2   (60.1)%Diluted net income (loss) per share (cont. ops.) $ 0.01   $ (0.03)   $ —   (60.4)%               Comparable-store sales (5.4%)   0.8%        Restaurant-level EBITDA (1) $ 6,727.4   $ 8,319.0   $ (1,591.6)   (19.1)% Restaurant-level EBITDA margin 16.5%   19.7%        Adjusted EBITDA (1) $ 4,459.9   $ 6,356.1   $ (1,896.2)   (29.8)% Adjusted EBITDA margin 10.9%   15.0%        

(1) See attached table for a reconciliation of GAAP net loss to Restaurant-level EBITDA and Adjusted EBITDA

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Balance Sheet Highlights - Continuing OperationsCash and cash equivalents were $4.0 million at December 25, 2016 compared with $13.5 million at 2015 year-end. Total debt decreased $5.1million to $121.2 million at the end of 2016.Capital expenditures were $12.5 million in 2016 and were for new restaurant development, restaurant refreshes and remodels, down from$20.2 million in 2015.

Fiscal 2017 Guidance

The Company expects the following in 2017:• Revenue of $173 million to $178 million• Restaurant-level EBITDA of $33 million to $36 million• Adjusted EBITDA between $23.5 million to $26.5 million• Capital expenditures of approximately $4 million to $6 million

◦ One new restaurant is under construction and expected to open in the second quarter◦ Two to four remodels are planned for 2017 which are targeted at approximately $0.6 million each

Webcast, Conference Call and PresentationDRH will host a conference call and live webcast on Friday, March 10, 2017 at 10:00 A.M. Eastern Time, during which management willreview the financial and operating results for the fourth quarter and full year 2016, and discuss its corporate strategies and outlook. Aquestion-and-answer session will follow.

A presentation that will be referenced during the conference call is available on the Company’s website atwww.diversifiedrestaurantholdings.com .

The teleconference can be accessed by calling (201) 689-8562. The webcast can be monitored on the Company’s website atwww.diversifiedrestaurantholdings.com .

A telephonic replay will be available from 1:00 P.M. ET on the day of the call through Friday, March 17, 2017. To listen to the archived call,dial (412) 317-6671 and enter the conference ID number 13653306, or access the webcast replay at www.diversifiedrestaurantholdings.com ,where a transcript will also be posted once available.

About Diversified Restaurant Holdings, Inc.Diversified Restaurant Holdings, Inc. is the largest franchisee for Buffalo Wild Wings Grill & Bar with 64 BWW franchised restaurants in keymarkets in Florida, Illinois, Indiana, Michigan and Missouri. The Company routinely posts news and other important information on its websiteat www.diversifiedrestaurantholdings.com .

Safe Harbor StatementThe information made available in this news release and the Company’s March 10, 2017 earnings conference call contain forward-looking statements which reflectDRH'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 isdefined in the Securities Exchange Act of 1934. Any such forward-looking statements are subject to risks and uncertainties and the Company's spinoff, actualgrowth, results of operations, financial condition, cash flows, performance, business prospects and opportunities could differ materially from historical results orcurrent expectations. Some of these risks include, without limitation, the impact of economic and industry conditions, competition, food and drug safety issues, storeexpansion and remodeling, labor relations issues, costs of providing employee benefits, regulatory matters, legal and administrative proceedings, informationtechnology, security, severe weather, natural disasters, accounting matters, other risk factors relating to business or industry and other risks detailed from time totime in the Securities and Exchange Commission filings of DRH. Forward-looking statements contained herein speak only as of the date made and, thus, DRHundertakes no obligation to update or publicly

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announce the revision of any of the forward-looking statements contained herein to reflect new information, future events, developments or changed circumstancesor for any other reason.

Investor and Media Contact:Deborah K. PawlowskiKei Advisors LLC716.843.3908dpawlowski@keiadvisors.com

FINANCIAL TABLES FOLLOW

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DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

  Three Months Ended   Fiscal Year Ended    December 25, 2016   December 27, 2015   December 25, 2016   December 27, 2015Revenue   $ 40,801,180   $ 42,303,292   $ 166,520,925   $ 144,800,046                 Operating expenses                Restaurant operating costs (exclusive of depreciation andamortization shown separately below):                

Food, beverage, and packaging   11,912,429   11,668,245   46,794,091   40,730,583Compensation costs   10,195,132   10,483,229   41,307,718   35,287,202Occupancy   2,930,147   2,780,927   11,370,223   8,935,702Other operating costs   9,036,117   9,819,119   34,845,059   31,293,900

General and administrative expenses   2,368,613   2,217,483   9,265,432   11,385,201Pre-opening costs   (54,758)   292,225   599,279   1,439,390Depreciation and amortization   3,484,290   4,464,324   14,696,846   11,922,548Impairment and loss on asset disposals   74,935   298,323   338,306   967,035Total operating expenses   39,946,905   42,023,875   159,216,954   141,961,561                 Operating profit   854,275   279,417   7,303,971   2,838,485                 Interest expense   (1,438,919)   (1,377,518)   (5,763,684)   (4,214,452)Other income (expense), net   (259,886)   39,408   (172,031)   785,591                 Income (loss) from continuing operations before incometaxes   (844,530)   (1,058,693)   1,368,256   (590,376)Income tax benefit   (1,030,816)   (149,762)   (2,270,792)   (83,514)Income (loss) from continuing operations   186,286   (908,931)   3,639,048   (506,862)                 Discontinued operations                

Loss from discontinued operations before income taxes   (5,633,088)   (15,023,466)   (10,226,996)   (25,588,123)Income tax benefit   (585,467)   (6,377,141)   (585,467)   (9,902,493)

Loss from discontinued operations   (5,047,621)   (8,646,325)   (9,641,529)   (15,685,630)                 Net loss   $ (4,861,335)   $ (9,555,256)   $ (6,002,481)   $ (16,192,492)                 Basic earnings (loss) per share from:                

Continuing operations   $ 0.01   $ (0.03)   $ 0.14   $ (0.02)Discontinued operations   $ (0.19)   $ (0.33)   $ (0.37)   $ (0.60)

Basic net loss per share   $ (0.18)   $ (0.36)   $ (0.23)   $ (0.62)                 Fully diluted earnings (loss) per share from:                

Continuing operations   $ 0.01   $ (0.03)   $ 0.14   $ (0.02)Discontinued operations   $ (0.19)   $ (0.33)   $ (0.37)   $ (0.60)

Fully diluted net loss per share   $ (0.18)   $ (0.36)   $ (0.23)   $ (0.62)                 Weighted average number of common sharesoutstanding         Basic   26,663,482   26,294,530   26,491,549   26,211,669Diluted   26,663,482   26,294,530   26,491,549   26,211,669

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DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

    December 25, 2016   December 27, 2015ASSETS     Current assets     Cash and cash equivalents   $ 4,021,126   $ 13,499,890Accounts receivable   276,238   247,323Inventory   1,700,604   1,598,379Prepaid and other current assets   1,305,936   1,314,463Current assets, discontinued operations   —   1,714,429Total current assets   7,303,904   18,374,484         

Deferred income taxes   16,250,928   4,368,683Property and equipment, net   56,630,031   59,272,611Intangible assets, net   2,666,364   2,844,963Goodwill   50,097,081   50,097,081Other long-term assets   233,539   987,499Long-term assets, discontinued operations   —   29,827,174Total assets   $ 133,181,847   $ 165,772,495         LIABILITIES AND STOCKHOLDERS' EQUITY     Current liabilities     Accounts payable   $ 3,995,846   $ 5,960,310Accrued compensation   2,803,549   2,408,476Other accrued liabilities   2,642,269   2,235,351Current portion of long-term debt   11,307,819   9,891,825Current portion of deferred rent   194,206   207,045Current liabilities, discontinued operations   —   4,143,577Total current liabilities   20,943,689   24,846,584         

Deferred rent, less current portion   2,020,199   1,899,623Unfavorable operating leases   591,247   671,553Other liabilities   3,859,231   3,755,888Long-term debt, less current portion   109,878,201   116,364,165Long-term liabilities, discontinued operations   —   1,634,330Total liabilities   137,292,567   149,172,143         Stockholders' equity (deficit)     Common stock - $0.0001 par value; 100,000,000 shares authorized; 26,632,222 and 26,298,725, respectively,issued and outstanding   2,610   2,597Additional paid-in capital   21,355,270   36,136,319Accumulated other comprehensive loss   (934,222)   (1,006,667)Accumulated deficit   (24,534,378)   (18,531,897)Total stockholders' equity (deficit)   (4,110,720)   16,600,352         

Total liabilities and stockholders' equity   $ 133,181,847   $ 165,772,495

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DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIESReconciliation between Net Loss and Adjusted Net Income (loss), Adjusted EBITDA, and Adjusted Restaurant-Level EBITDA                 Three Months Ended (unaudited)   Fiscal Year Ended (unaudited)  December 25, 2016   December 27, 2015   December 25, 2016   December 27, 2015Net loss (4,861,335)   (9,555,256)   (6,002,481)   (16,192,492) + Loss from discontinued operations 5,047,621   8,646,325   9,641,529   15,685,630 + Income tax benefit (1,030,816)   (149,762)   (2,270,792)   (83,514) + Interest expense 1,438,919   1,377,518   5,763,684   4,214,452 + Other (income) expense, net 259,886   (39,408)   172,031   (785,591) + Loss on disposal of property and equipment 74,935   298,323   338,306   967,035 + Depreciation and amortization 3,484,290   4,464,324   14,696,846   11,922,548EBITDA 4,413,500 5,042,064 22,339,123 15,728,068 + Pre-opening costs (54,758)   292,225   599,279   1,439,390 + Non-recurring expenses (Restaurant level) —   767,235   71,184   1,128,805 + Non-recurring expenses (Corporate level) 101,179   254,556   335,655   3,325,393Adjusted EBITDA 4,459,921 6,356,080 23,345,241 21,621,656 Adjusted EBITDA margin (%) 10.9%   15%   14%   14.9%

+ General and administrative 2,368,613   2,217,483   9,265,432   11,385,201 + Non-recurring expenses (101,179)   (254,556)   (335,655)   (3,325,393)Restaurant–Level EBITDA 6,727,355 8,319,007 32,275,018 29,681,464 Restaurant–Level EBITDA margin (%) 16.5%   19.7%   19.4%   20.5%

(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 animpact on each quarter of 2015 and has been added to represent the true full year 2015 Adjusted Restaurant-Level EBITDA, Adjusted EBITDA, and Adjusted NetIncome.

(2) Adjusted Restaurant-Level EBITDA represents net income (loss) attributable to DRH plus the sum of non-restaurant specific general and administrativeexpenses, restaurant pre-opening costs, loss on property and equipment disposals, the change in fair value of derivative instruments, depreciation andamortization, other income and expenses, interest, taxes, income attributable to noncontrolling interest and non-recurring expenses related to acquisitions, equityofferings or other non-recurring expenses. Adjusted EBITDA represents net income (loss) attributable to DRH plus the sum of restaurant pre-opening costs, loss onproperty 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. Adjusted Net Income represents net income (loss) attributable to DRH plus the taxadjusted sum of non-recurring expenses that exist in Adjusted Restaurant-Level EBITDA, Adjusted EBITDA, non-recurring expenses that occur outside of EBITDA,loss on property and equipment disposals, and restaurant pre-opening costs. We are presenting Adjusted Restaurant-Level EBITDA and Adjusted EBITDA, andAdjusted Net Income, which are not presented in accordance with GAAP, because we believe they provide an additional metric by which to evaluate ouroperations. When considered together with our GAAP results and the reconciliation to our net income, we believe they provide a more complete understanding ofour business than could be obtained absent this disclosure. We use Adjusted Restaurant-Level EBITDA, Adjusted EBITDA, and Adjusted Net Income together withfinancial measures prepared in accordance with GAAP, such as revenue, income from operations, net income, and cash flows from operations, to assess ourhistorical and prospective operating performance and to enhance the understanding of our core operating performance. Adjusted Restaurant-Level EBITDA,Adjusted EBITDA, and Adjusted Net Income are presented because: (i) we believe they are useful measures for investors to assess the operating performance ofour business without the effect of non-cash depreciation and amortization expenses; (ii) we believe investors will find these measures useful in assessing our abilityto service or incur indebtedness; and (iii) they are used internally as benchmarks to evaluate our operating performance or compare our performance to that of ourcompetitors.

Additionally, we present Adjusted Restaurant-Level EBITDA because it excludes the impact of general and administrative expenses and restaurant pre-openingcosts, which is non-recurring . The use of Adjusted Restaurant-

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Level EBITDA thereby enables us and our investors to compare our operating performance between periods and to compare our operating performance to theperformance of our competitors. The measure is also widely used within the restaurant industry to evaluate restaurant level productivity, efficiency, andperformance. The use of Adjusted Restaurant-Level EBITDA, Adjusted EBITDA, and Adjusted Net Income as performance measures permits a comparativeassessment of our operating performance relative to our performance based on GAAP results, while isolating the effects of some items that vary from period toperiod without any correlation to core operating performance or that vary widely among similar companies. Companies within our industry exhibit significantvariations with respect to capital structure and cost of capital (which affect interest expense and tax rates) and differences in book depreciation of property andequipment (which affect relative depreciation expense), including significant differences in the depreciable lives of similar assets among various companies. Ourmanagement team believes that Adjusted Restaurant-Level EBITDA and Adjusted EBITDA facilitate company-to-company comparisons within our industry byeliminating some of the foregoing variations.

Adjusted Restaurant-Level EBITDA, Adjusted EBITDA, and Adjusted Net Income are not determined in accordance with GAAP and should not be considered inisolation or as an alternative to net income, income from operations, net cash provided by operating, investing, or financing activities, or other financial statementdata presented as indicators of financial performance or liquidity, each as presented in accordance with GAAP. Neither Adjusted Restaurant-Level EBITDA norAdjusted EBITDA should be considered as a measure of discretionary cash available to us to invest in the growth of our business. Adjusted Restaurant-LevelEBITDA and Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies and our presentation of AdjustedRestaurant-Level EBITDA and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual items. Ourmanagement recognizes that Adjusted Restaurant-Level EBITDA and Adjusted EBITDA have limitations as analytical financial measures.

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2016 Financial Results Call   March 10, 2017   

 

2   Safe Harbor   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.     ©2017 by Diversified Restaurant Holdings, Inc.   

 

3   Highlights   • Completed Bagger Dave’s spinoff in 4Q16    Now a pure-play BWW franchisee – largest in the system with 64   locations in five states    Retained tax benefits to offset over $50 million in net income1   • Enhanced cost structure through scale    Full year of 2015 acquisition drove higher operating income   • Generated strong operating cash flow and reduced debt   • Rolled out new initiatives and promotions to drive 2017 sales   • Focused strategy on debt repayment and capex reduction    2016 Capex < $12 million, net debt reduction of ~$5 million    2017 Capex < $ 6 million, net debt reduction of ~$15 million2    Creating financial flexibility for growth       1 – at current estimated tax rates   2 – based on 2017 guidance provided as of March 10, 2017 (midpoint of range)     ©2017 by Diversified Restaurant Holdings, Inc.   

 

4   2016 Dashboard   Revenue   $166.5M   64 locations   15%   3%   Oper. Income   $7.3M   4.4% of Sales   157%   Rest. EBITDA1   $32.3M   19.4% of Sales   9%   Adj. EBITDA1   $23.3M   14.0% of Sales   8%   1 – See EBITDA reconciliation slide.   2 – Operating cash flow from continued operations / enterprise value based on March 8, 2017 closing price of $1.78.   Same   Store   Sales   38%   Capex     $12.5 M   Cash Flow   Yield % of EV2     10%     ©2017 by Diversified Restaurant Holdings, Inc.   

 

5   Sales and Unit Growth   2011-2017 Net Sales 2011-2017 Store Count   Through organic and acquisitive growth, DRH has tripled its sales with the addition of   42 locations over the last five years, making us the largest BWW franchisee in the system.   $55.0   $67.6   $94.5   $106.4   $144.8   $166.5   $175.5   2011 2012 2013 2014 2015 2016 2017F  22   33   36   42   62   64 65   2011 2012 2013 2014 2015 2016 2017F  2011-2016   CAGR = 24.8%   $ Millions   2011-2016   CAGR = 23.8%   * 2017 guidance provided as of March 10, 2017 (midpoint of range)     ©2017 by Diversified Restaurant Holdings, Inc.   

 

6   Q4 2016 Weekly SSS% 13 Week SSS % Ending Wk 2 2017   Week 50 weather and Week 52 holiday shift heavily influenced Q4 SSS performance.   Cannibalization in four locations negatively impacted SSS by 0.9% throughout the year.   -3.5% -5.0% -5.2% -3.7% -2.0% -1.9% -2.0% -2.1% -2.3% -2.9% -4.0% -4.1% -5.4%   -3.5%   -6.5%   -5.7%   1.2%   5.9%   -1.5% -2.1%   -3.2%   -4.4%   -5.7%   -14.5%   -5.5%   -20.9%   40 41 42 43 44 45 46 47 48 49 50 51 52  Weeks   QTD SSS  Weekly SSS  -5.7% -2.4%   0.2%   -0.3% -0.6% -1.1% -1.5% -2.0% -3.5% -3.7% -5.3% -4.4% -3.5%   -5.7%   1.2%   5.9%   -1.5% -2.1%   -3.2%   -4.4%   -5.7%   -14.5%   -5.5%   -20.9%   3.8%   7.8%   42 43 44 45 46 47 48 49 50 51 52 1 2  Weeks   QTD SSS  Weekly SSS  Week 52 2016, 13 Week Trailing SSS = -5.4% Week 2 2017, 13 Week Trailing SSS = -3.5%   Midwest snow   storm Thu-Sun   Holiday shift   Holiday   shift   makeup   weeks   Q4 2016 Same-Store-Sales     ©2017 by Diversified Restaurant Holdings, Inc.   

 

7   Divergence of YOY % change in average check vs. traffic starting in Q4 2014 converged in Q1 2016.   Negative 2016 traffic partially influenced by cannibalization (-0.9%) and market pressures driven by   over capacity, retail foot-traffic reduction and FOH price deflation.   NOTE: Average check is predominantly driven by price but is also influenced by product mix and from a lesser extent, average guests per check.   2.6% 2.9%   5.5% 5.9%   7.7%   4.1%   1.3% 0.8%   -2.2%   -2.7%   -1.8%   -5.4%   4.3%   3.0%   -3.1%   0.9% 1.1%   2.2%   0.2%   0.6%   -2.5%   -1.8% -2.0% -2.0%   -3.0%   -3.3%   -4.3%   1.1%   -3.0% -3.2%   1.7% 1.7%   3.3%   5.7%   7.1%   6.6%   3.1%   2.8%   -0.2%   0.2%   1.4%   -1.1%   3.2%   6.1%   0.1%   Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 FY 2014 FY 2015 FY 2016  SSS%  Traffic %  Avg Check %  Average Check and Traffic Trends     ©2017 by Diversified Restaurant Holdings, Inc.   

 

8   EBITDA Growth   2014-2017 Restaurant-Level EBITDA1 2014-2017 Adjusted EBITDA1   The 2015 St. Louis acquisition drove significant growth in both Restaurant-Level EBITDA and   Adjusted EBITDA – by over 42% and 36% respectively over the last two years (2016 vs. 2014).   1 – Adjusted for pre-opening expenses and other non-recurring expenses. See EBITDA reconciliation slide.   $ Millions $ Millions   * 2017 guidance provided as of March 10, 2017 (midpoint of range)   $22.6   $29.7   $32.3   $34.5   21.2% 20.5% 19.4% 19.7%   2014 2015 2016 2017F  % of Sales  $17.4   $21.6   $23.3   $25.0   2014 2015 2016 2017F  2014-2016   CAGR = 19.5%   2014-2016   CAGR = 16.9%     ©2017 by Diversified Restaurant Holdings, Inc.   

 

9   Quarterly EBITDA Trends   1 – On June 29, 2015, we acquired 18 locations in the St. Louis market to add to our existing 44 units, which had a dilutive AUV of $2.3 million   2 – FF = Franchise-related fees which includes 5.0% royalty and 3.0 – 3.15% NAF (national advertising fund)   Despite lower AUVs (primarily driven by the recent acquisition1) and higher wing costs, we’ve   successfully mitigated sales deleveraging. Q4 2016 suffered from calendar shift in December.   AUV ($M) $3.1 $2.8 $2.7 $2.7 $2.7 $2.6 $2.6 $2.6 $2.8 $2.8 $2.6   21.8% 20.6% 19.4% 20.5% 21.4% 20.2% 19.6%   16.2%   21.2% 20.5% 19.4%   5.5% 5.9% 6.4% 6.6%   6.5% 6.8% 7.0%   7.2%   5.2% 6.2% 6.8%   8.0% 8.0% 8.0% 8.0%   8.2% 8.1% 8.1%   8.1%   8.0% 8.0% 8.1%   12.6% 13.4% 13.0% 12.7%   11.6% 12.1% 13.3%   14.0%   13.2% 12.9% 12.7%   23.3% 23.9% 25.1% 24.6% 24.3% 25.0% 24.7% 25.3%   23.8% 24.3% 24.8%   28.8% 28.1% 28.1% 27.6% 28.0% 27.9% 27.4% 29.2% 28.5% 28.1% 28.1%   KEY Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 FY2014 FY 2015 FY 2016  C  O  S   LA  B  O  R    OPE  X    FF  2    OCC   R  ES  T.    EB  IT  D  A      ©2017 by Diversified Restaurant Holdings, Inc.   

 

28.8%   28.1% 28.1%   27.6%   28.0% 27.9%   27.4%   29.2%   28.5%   28.1% 28.1%   21.7%   20.1%   20.4%   19.5%   20.3%   20.9%   19.5%   23.5%   18.4%   20.4%   21.1%   $1.89   $1.77   $1.80 $1.79   $1.92 $1.92   $1.70   $1.95   $1.53   $1.81   $1.87   Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 FY 2014 FY 2015 FY 2016  Total COS % Wing Cost % of Total COS Wing Cost/Lb  10   COS Trends and Wing Impact   NOTE: Wing prices are the average price paid per pound of fresh, jumbo chicken wings – including distribution costs (approximately $0.29 per pound).   The % share of traditional wing costs vs. total cost of sales is highly correlated with traditional wing   prices and has the largest influence on overall cost of sales. To a lesser extent, other less volatile   commodity baskets and slight changes in product sales mix also contribute to COS variations.     ©2017 by Diversified Restaurant Holdings, Inc.   

 

11   Historical Wing Prices   $0.75  $0.95  $1.15  $1.35  $1.55  $1.75  $1.95  2014 2015 2016 2017  Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec   $ /lb Fresh Jumbo Chicken Wing   Spot Prices   Source: Urner Barry Comtell™ UB Chicken – Midwest Jumbo Wings   NOTE: Logistics cost to restaurants is $0.29 / lb over spot price   A volatile market, fresh wing prices have ranged between $1.41 and $1.86 / lb since the   beginning of 2015. A $0.30 change in wing prices impacts DRH COS by ~100bps.     ©2017 by Diversified Restaurant Holdings, Inc.   

 

12   Total Labor Trends   NOTE: OH = Overhead labor costs including payroll taxes, FUTA, SUTA, health benefits and retirement plan. Bonus is typically between 1.0-1.2% of sales.   Hourly labor leverage is not linear – it is more prevalent with higher volumes and semi-fixed at   lower volumes. Critical to successfully managing hourly labor is effective scheduling and cutting.   We push productivity initiatives vs. price as a means to offset wage inflation.   23.3%   23.9%   25.1% 24.8%   24.4%   25.2%   24.7% 25.0% 24.4%   24.8%   12.5% 13.2%   13.8% 13.3% 13.1% 13.6% 13.3% 13.6% 13.2% 13.4%   5.6%   6.0%   6.4%   6.4% 6.2%   6.4% 6.6% 6.6% 6.1% 6.5%   5.2%   4.7%   4.9% 5.2% 5.1%   5.1% 4.8% 4.8%   5.0%   4.9%   Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 FY 2015 FY 2016  Hourly Labor % of Sales Mgmt Labor % of Sales Bonus & OH % of Sales    ©2017 by Diversified Restaurant Holdings, Inc.   

 

13   Free Cash Flow and Net Debt   Net debt / EBITDA target in the range of 4x by the end of 2017 and 3x by the end of 2018     ©2017 by Diversified Restaurant Holdings, Inc.   

 

14   Fiscal 2017 Guidance1   • Revenue of $173 million to $178 million   • Restaurant-level EBITDA of $33.0 million to $36.0 million   • Adjusted EBITDA between $23.5 million to $26.5 million   • Capital expenditures of approximately $4 million to $6 million    One new restaurant under construction – expected to open second quarter    Two to four remodels planned for 2017 – targeted at approx. $0.6 million each   1 2017 guidance provided as of March 10, 2017     ©2017 by Diversified Restaurant Holdings, Inc.   

 

15   Half-Price Tuesday Promotion   Tuesday SSS % Trends Half-Price Wing Tuesday Promo   -3.4%   8.9%   16.4%   6 Week Prior to  Promo  Post Promo 2016 Post Promo 2017 YTD  The half-price wing Tuesday promotion has proven to drive significant traffic throughout all dayparts   on an otherwise lower volume day. Contribution margin on incremental sales is over 50%.   This promotion leverages a more effective message. Historically, we messaged a price point.   Leveraging various media to promote:    Sport, Talk and Music Radio    Pandora®    Digital Media    Outdoor    In-store digital (Rockbot®) & POP     ©2017 by Diversified Restaurant Holdings, Inc.   

 

16   Blazin’ Rewards Loyalty Program   St. Louis Blazin’ Rewards Members   In July of 2016, DRH tested the new Blazin’ Rewards program in its 18 St. Louis locations. DRH   is incentivizing new signups with a loyalty-driven bounce-back in addition to 100 signup points.   -  5,000  10,000  15,000  20,000  25,000  29 31 33 35 37 39 41 43 45 47 49 51 1 3 5 7  Week 2016 2017   Successful Pilot Leads to Full Rollout    Blazin’ Rewards pilot program rolled out in   18 St. Louis locations in July 2016    Over 21,000 guests enrolled    31% or 6,633 enrolled in 2017    Average check of loyalty member is ~ 18%   higher than a non-loyalty member    29 additional DRH locations were added in   Q1 2017 in Michigan, Illinois & Indiana    All DRH locations will be on the Blazin’   Rewards program by May 2017     ©2017 by Diversified Restaurant Holdings, Inc.   

 

17   Delivery   External Sales % of Total – 24 Locations   In Q3 2016, DRH aggressively pursued partnerships with a number of regional and national delivery   services to increase kitchen capacity utilization and drive sales. Delivery sales are incremental – of   the 24 locations in which we have delivery, we see no evidence of carry-out sales cannibalization.   Delivery Drives Incremental Sales    2017 delivery sales expected to reach   $1.5-$2M for 24 locations with delivery service    Average delivery check is 13% higher than   dine-in and 17% higher than carry-out       20.6%   19.3% 19.5%   20.4%   1.9%   2.7%   Q1 2016 Q2 2016 Q3 2016 Q4 2016  % of Carry-Out Sales % of Delivery Sales    ©2017 by Diversified Restaurant Holdings, Inc.   

 

18   Value Creation – Going Forward   Value   Proposition   • Best in class operations   • Proven integration skills   • Strong positive cash flow   • Financial strength and flexibility   • Tax benefits to offset over $50 million in pre-tax income   Current   Environment   • Roll-up of other BWW franchisees ready for exit as cycle turns   • Potential for BWLD re-franchising activity   • Opportunities with new franchised concepts   Growth   Strategy   • Disciplined, value-accretive growth through acquisition   • Supplemented by opportunistic new unit development     ©2017 by Diversified Restaurant Holdings, Inc.   

 

19   Upcoming Investor Relations Calendar   March 13 Roth Conference (Dana Point, CA)   April 3 Investor Meetings (Boston)   April 4 Citi Restaurant Seminar (NYC)   May 18 Annual Meeting       ©2017 by Diversified Restaurant Holdings, Inc.   

 

20   EBITDA Reconciliation     ©2017 by Diversified Restaurant Holdings, Inc.   NOTE: For reconciliation including discontinued operations, Refer to Q4 2016 earnings press release issued on March 10, 2017.   

 

21   EBITDA Reconciliation cont.   Restaurant-Level EBITDA represents income (loss) from continuing operations plus the sum of non-restaurant specific general and administrative expenses, 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 non-controlling interest and non-recurring expenses related to acquisitions, equity offerings or other one-off transactions. 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 non-controlling interest, and non-recurring expenses. We are presenting Restaurant-Level EBITDA and   Adjusted EBITDA, which are not presented in accordance with GAAP, because we believe they provide 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 they provide a more complete understanding of our business than could be obtained absent this   disclosure. We use Restaurant-Level EBITDA and 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.   Restaurant-Level EBITDA and Adjusted EBITDA are presented because: (i) we believe they are useful measures 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 these measures useful in assessing our ability to service or incur indebtedness; and (iii)   they are used internally as benchmarks to evaluate our operating performance or compare our performance to that of our competitors.   Additionally, we present Restaurant-Level EBITDA because it excludes the impact of general and administrative expenses and restaurant pre-opening costs, both which are non-  recurring at the restaurant level. The use ofRestaurant-Level EBITDA thereby enables us and our investors to compare our operating performance between periods and to compare   our operating performance to the performance of our competitors. The measure is also widely used within the restaurant industry to evaluate restaurant level productivity,   efficiency, and performance. The use of Restaurant-Level EBITDA and Adjusted EBITDA as performance measures 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 Restaurant-Level EBITDA and Adjusted EBITDA facilitate company-to-company   comparisons within our industry by eliminating some of the foregoing variations.   Restaurant-Level EBITDA and Adjusted EBITDA are 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. Neither Restaurant-Level EBITDA nor Adjusted EBITDA should be considered as a measure of discretionary cash available to us to   invest in the growth of our business. Restaurant-Level EBITDA and Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies and   our presentation of Restaurant-Level EBITDA and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual items. Our   management recognizes that Restaurant-Level EBITDA and Adjusted EBITDA have limitations as analytical financial measures, including the following:   ● Restaurant-Level EBITDA and Adjusted EBITDA do not

reflect our current capital expenditures or future requirements for capital expenditures;   ● Restaurant-Level EBITDA and Adjusted EBITDA do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, associated with   our indebtedness;   ● Restaurant-Level EBITDA and Adjusted EBITDA do not reflect depreciation and amortization, which are non-cash charges, although the assets being depreciated and amortized   will likely have to be replaced in the future, nor do Restaurant-Level EBITDA and Adjusted EBITDA reflect any cash requirements for such replacements;   ● Restaurant-Level EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;   ● Restaurant-Level EBITDA and Adjusted EBITDA do not reflect disposals or other non-recurring income and expenses;   ● Restaurant-Level EBITDA and Adjusted EBITDA do not reflect changes in fair value of derivative instruments;   ● Restaurant-Level EBITDA and Adjusted EBITDA do not reflect restaurant pre-opening costs; and   ● Restaurant-Level EBITDA does not reflect general and administrative expenses.     ©2017 by Diversified Restaurant Holdings, Inc.