GTIM 10-Q
Good Times Restaurants Inc. (GTIM)
| UNITED STATES | ||||
| SECURITIES AND EXCHANGE COMMISSION | ||||
| WASHINGTON, D.C. 20549 | ||||
| FORM | ||||
| (Mark One) | ||||
| | ||||
| ACT OF 1934 | ||||
| For the quarterly period ended | ||||
| OR | ||||
| | ||||
| EXCHANGE ACT OF 1934 | ||||
| Commission File Number: | ||||
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| Good Times Restaurants Inc. | ||||
| (Exact Name of Registrant as Specified in Its Charter) |
| | | |||
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer | |||
| | ||||
| (Address of Principal Executive Offices, Including Zip Code) | ||||
| ( | ||||
| (Registrant's Telephone Number, Including Area Code) | ||||
| Securities registered pursuant to Section 12(b) of the Act: |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| | | | ||
| Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. | ||||
| | No ☐ | |||
| Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). | ||||
| | No ☐ | |||
| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company”, in Rule 12b-2 of the Exchange Act. | ||||
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| | ☒ | Smaller reporting company | | |
| Emerging growth company | | |||
| If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ | ||||
| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | ||||
| Yes | No ☒ | |||
| As of January 23, 2024, there were | ||||
Form 10-Q
Quarter Ended December 26, 2023
| PAGE |
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| PART I - FINANCIAL INFORMATION |
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| Item 1. |
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| Condensed Consolidated Balance Sheets (unaudited) – December 26, 2023 and September 26, 2023 |
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| 4 | |||
| Consolidated Statements of Shareholders’ Equity (unaudited) for the fiscal year-to-date periods ended December 26, 2023 and December 27, 2022 | |||
| Notes to Condensed Consolidated Financial Statements (unaudited) |
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| Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. |
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| Item 4. |
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| PART II - OTHER INFORMATION |
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| Item 1. |
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| Item 1A. |
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| Item 2. |
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| Item 3. |
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| Item 4. |
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| Item 5. |
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| Item 6. |
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| 25 | |||
| CERTIFICATIONS |
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Good Times Restaurants Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share and per share data)
| December 26, 2023 | September 26, 2023 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Receivables | ||||||||
| Prepaid expenses and other | ||||||||
| Inventories | ||||||||
| Total current assets | ||||||||
| PROPERTY AND EQUIPMENT: | ||||||||
| Land and building | ||||||||
| Leasehold improvements | ||||||||
| Fixtures and equipment | ||||||||
| Total property and equipment | ||||||||
| Less accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Total net property and equipment | ||||||||
| OTHER ASSETS: | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Deferred tax assets, net | ||||||||
| Deposits and other assets | ||||||||
| Trademarks | ||||||||
| Other intangibles, net | ||||||||
| Goodwill | ||||||||
| TOTAL ASSETS: | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | $ | ||||||
| Deferred income | ||||||||
| Operating lease liabilities, current | ||||||||
| Other accrued liabilities | ||||||||
| Total current liabilities | ||||||||
| LONG-TERM LIABILITIES: | ||||||||
| Maturities of long-term debt, net of current portion | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Deferred and other liabilities | ||||||||
| Total long-term liabilities | ||||||||
| SHAREHOLDERS’ EQUITY: | ||||||||
| Good Times Restaurants Inc. shareholders’ equity: | ||||||||
| Preferred stock, $ par value; shares authorized, shares issued and outstanding as of December 26, 2023 and September 26, 2023 | ||||||||
| Common stock, $ par value; shares authorized; issued; and shares outstanding as of December 26, 2023 and September 26, 2023, respectively | ||||||||
| Capital contributed in excess of par value | ||||||||
| Treasury stock, at cost; and shares as of December 26, 2023 and September 26, 2023, respectively | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Good Times Restaurants Inc. shareholders' equity | ||||||||
| Non-controlling interests | ||||||||
| Total shareholders’ equity | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements (unaudited)
Good Times Restaurants Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands except share and per share data)
| Quarter Ended |
||||||||
| December 26, 2023 |
December 27, 2022 |
|||||||
| NET REVENUES: |
||||||||
| Restaurant sales |
$ | $ | ||||||
| Franchise revenues |
||||||||
| Total net revenues |
||||||||
| RESTAURANT OPERATING COSTS: |
||||||||
| Food and packaging costs |
||||||||
| Payroll and other employee benefit costs |
||||||||
| Restaurant occupancy costs |
||||||||
| Other restaurant operating costs |
||||||||
| Depreciation and amortization |
||||||||
| Total restaurant operating costs |
||||||||
| General and administrative costs |
||||||||
| Advertising costs |
||||||||
| Gain on restaurant and equipment asset sales |
( |
) | ||||||
| (LOSS) INCOME FROM OPERATIONS |
( |
) | ||||||
| OTHER INCOME (EXPENSE): |
||||||||
| Interest expense, net |
( |
) | ( |
) | ||||
| NET (LOSS) INCOME BEFORE INCOME TAXES |
$ | ( |
) | $ | ||||
| Provision for income taxes |
( |
) | ||||||
| NET (LOSS) INCOME |
( |
) | ||||||
| Income attributable to non-controlling interests |
( |
) | ( |
) | ||||
| NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS |
$ | ( |
) | $ | ( |
) | ||
| NET LOSS PER SHARE, ATTRIBUTABLE TO COMMON SHAREHOLDERS: |
||||||||
| Basic and Diluted |
$ | (. |
) | $ | (. |
) | ||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |
||||||||
| Basic |
||||||||
| Diluted |
||||||||
See accompanying notes to condensed consolidated financial statements (unaudited)
Good Times Restaurants Inc. and Subsidiaries
Consolidated Statements of Shareholders’ Equity (Unaudited)
For the fiscal quarters ending December 26, 2023 and December 27, 2022
(In thousands, except share and per share data)
| Treasury Stock, |
Common Stock |
|||||||||||||||||||||||||||||||
| Shares |
Amount |
Issued |
Par |
Capital |
Non- |
Accumulated |
Total |
|||||||||||||||||||||||||
| BALANCES, September 27, 2022 |
$ | ( |
) | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||
| Stock-based compensation cost |
- | - | ||||||||||||||||||||||||||||||
| Restricted stock unit vesting |
( |
) | ( |
) | ||||||||||||||||||||||||||||
| Stock option exercise |
||||||||||||||||||||||||||||||||
| Treasury shares purchased |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Income attributable to non-controlling interests |
- | - | ||||||||||||||||||||||||||||||
| Distributions to unrelated limited partners |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Contributions from unrelated limited partners |
- | - | ||||||||||||||||||||||||||||||
| Net loss attributable to Good Times Restaurants Inc and comprehensive loss |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| BALANCES, December 27, 2022 |
$ | ( |
) | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||
| BALANCES, September 26, 2023 |
$ | ( |
) | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||
| Stock-based compensation cost |
- | - | ||||||||||||||||||||||||||||||
| Treasury shares purchased |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Income attributable to non-controlling interests |
- | - | ||||||||||||||||||||||||||||||
| Distributions to unrelated limited partners |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Net loss attributable to Good Times Restaurants Inc and comprehensive loss |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| BALANCES, December 26, 2023 |
$ | ( |
) | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||
See accompanying notes to consolidated financial statements (unaudited)
Good Times Restaurants Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
| Fiscal Year to Date |
||||||||
| December 26, 2023 |
December 27, 2022 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net (loss) income | $ | ( |
) | $ | ||||
| Adjustments to reconcile net income to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
||||||||
| Net change in operating lease right-of-use assets and liabilities | ( |
) | ( |
) | ||||
| Gain on restaurant and equipment asset sales |
( |
) | ||||||
| Stock-based compensation expense |
||||||||
| Provision for income taxes |
||||||||
| Changes in operating assets and liabilities: |
||||||||
| (Increase) decrease in: |
||||||||
| Receivables and prepaids |
( |
) | ( |
) | ||||
| Inventories |
( |
) | ( |
) | ||||
| Deposits and other assets |
||||||||
| Increase (decrease) in: |
||||||||
| Accounts payable |
||||||||
| Accrued and other liabilities |
||||||||
| Net cash used in operating activities |
( |
) | ( |
) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Payments for the purchase of property and equipment |
( |
) | ( |
) | ||||
| Proceeds from the sale of fixed assets |
||||||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Borrowings against credit facility |
||||||||
| Payment for the purchase of treasury stock |
( |
) | ( |
) | ||||
| Payment for restricted stock vesting settled in cash |
( |
) | ||||||
| Proceeds from stock option exercise |
||||||||
| Contributions from non-controlling interests |
||||||||
| Distributions to non-controlling interests |
( |
) | ( |
) | ||||
| Net cash provided by (used in) financing activities |
( |
) | ||||||
| (DECREASE) IN CASH AND CASH EQUIVALENTS |
( |
) | ( |
) | ||||
| CASH AND CASH EQUIVALENTS, beginning of period |
||||||||
| CASH AND CASH EQUIVALENTS, end of period |
$ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
||||||||
| Cash paid for interest |
$ | $ | ||||||
| Change in accounts payable attributable to the purchase of property and equipment |
$ | ( |
) | $ | ( |
) | ||
See accompanying notes to condensed consolidated financial statements (Unaudited)
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Tabular dollar amounts in thousands, except share and per share data)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Good Times Restaurants Inc. (the “Company”) and its wholly-owned subsidiaries as well as one partnership in which the Company is the general partner, and five limited liability companies in which the Company was the controlling member during the period of time in which unrelated parties owned membership interests in those limited liability companies. All significant intercompany balances and transactions have been eliminated in consolidation.
The Company operates, and licenses full-service restaurants under the brand Bad Daddy’s Burger Bar that are primarily located in Colorado and in the Southeast region of the United States.
The Company operates and franchises drive-thru fast-food hamburger restaurants under the brand Good Times Burgers & Frozen Custard, all of which are located in Colorado and Wyoming.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles and practices of the United States of America (“GAAP”) for interim financial information. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all of the normal recurring adjustments necessary to present fairly the financial position of the Company as of December 26, 2023 and the results of its operations and its cash flows for the fiscal quarters ended December 26, 2023 and December 27, 2022. Operating results for the fiscal quarter ended December 26, 2023 are not necessarily indicative of the results that may be expected for the year ending September 24, 2024. The condensed consolidated balance sheet as of September 26, 2023 is derived from the audited financial statements but does not include all disclosures required by generally accepted accounting principles. As a result, these condensed consolidated financial statements should be read in conjunction with the Company's Form 10-K for the fiscal year ended September 26, 2023.
Fiscal Year – The Company’s fiscal year is a 52/53-week year ending on the last Tuesday of September. In a 52-week fiscal year, each of the Company’s quarterly periods consist of 13 weeks. The additional week in a 53-week fiscal year is added to the first quarter, making such quarter consist of 14 weeks. The quarters ended December 26, 2023 and December 27, 2022 each consisted of 13 weeks.
Reclassification – Certain prior year balances have been reclassified to conform to the current year’s presentation. Such reclassifications had no effect on the net income (loss).
Advertising Costs – The company utilizes Advertising Funds to administer certain advertising programs for both the Bad Daddy’s and Good Times brands that benefit both us and our franchisees. We and our franchisees are required to contribute a percentage of gross sales to the fund. The contributions to these funds are designated and segregated for advertising. We consolidate the Advertising Funds into our financial statements whereby contributions from franchisees, when received, are recorded and included as a component of franchise revenues. Contributions to the Advertising Funds from our franchisees were $
Receivables – Our receivables typically consist of royalties and other fees due to us from independent franchisees of our brands as well as product rebates and other incentives due to us under agreements with our food and beverage vendors, payments due from third party delivery and online ordering partners, and payments due to us for sales of gift cards to third party retailers.
Receivables consist of the following as of:
| December 26, 2023 | September 26, 2023 | |||||||
| Large box retail partners | $ | $ | ||||||
| Vendor rebates and incentives | ||||||||
| Third party delivery partners | ||||||||
| Franchise and other | ||||||||
| Total | $ | $ | ||||||
Note 2. Recent Accounting Pronouncements
ASU 2023-07–Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures was issued November 2023 and is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. It is to be applied retrospectively. The Company expects to retrospectively implement ASU 2023-07 in fiscal year 2025 and does not anticipate that it will have a material effect on the Company’s consolidated financial statements.
The Company reviewed other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on the Company’s consolidated financial statements.
Note 3. Revenue
Revenue Recognition
Revenues consist primarily of sales from restaurant operations and franchise revenue, which includes franchisee contributions to advertising funds. Revenues associated with gift card breakage are immaterial to our financials. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer, typically a restaurant customer or a franchisee/licensee.
The Company recognizes revenues in the form of restaurant sales at the time of the sale when payment is made by the customer, as the Company has completed its performance obligation, namely the provision of food and beverage, and the accompanying customer service, during the customer’s visit to the restaurant. The Company sells gift cards to customers and recognizes revenue from gift cards primarily in the form of restaurant revenue. Gift Card breakage, which is recognized when the likelihood of a gift card being redeemed is remote, is determined based upon the Company’s historic redemption patterns, and is immaterial to our overall financial statements. Late in fiscal 2023, the Company began operating a loyalty program known as GT Rewards. With each purchase, GT Rewards members earn loyalty points that can be redeemed in the future for free products. Activity related to the new reward program is immaterial to the Company’s financial statements for the quarter ended December 26, 2023.
Revenues we receive from our franchise and license agreements include sales-based royalties, and from our franchise agreements also may include advertising fund contributions, area development fees, and franchisee fees. We recognize sales-based royalties from franchisees and licensees as the underlying sales occur. We similarly recognize advertising fund contributions from franchisees as the underlying sales occur. The Company also provides its franchisees with services associated with opening new restaurants and operating them under franchise and development agreements in exchange for area development and franchise fees. The Company would capitalize these fees upon receipt from the franchisee and then would amortize those over the contracted franchise term as the services comprising the performance obligations are satisfied. We have not received material development or franchise fees in the periods presented, and the primary performance obligations under existing franchise and development agreements have been satisfied prior to the earliest period presented in our financial statements.
Note 4. Goodwill and Intangible Assets
The following table presents goodwill and intangible assets as of December 26, 2023 and September 26, 2023 (in thousands):
| December 26, 2023 | September 26, 2023 | |||||||||||||||||||||||
| Gross | Accumulated | Net | Gross | Accumulated | Net | |||||||||||||||||||
| Intangible assets subject to amortization: | ||||||||||||||||||||||||
| Non-compete agreements | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Reacquired franchise rights | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||
| $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||
| Indefinite-lived intangible assets: | ||||||||||||||||||||||||
| Trademarks | $ | $ | - | $ | $ | $ | - | $ | ||||||||||||||||
| Intangible assets, net | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Goodwill | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The Company had
Note 5. Stock-Based Compensation
The Company has traditionally maintained incentive compensation plans that include provision for the issuance of equity-based awards. The Company established the 2008 Omnibus Equity Incentive Compensation Plan in 2008 (the “2008 Plan”) and has outstanding awards that were issued under the 2008 Plan. Subsequently, the 2008 Plan expired in 2018 and the Company established a new plan, the 2018 Omnibus Equity Incentive Plan (the “2018 Plan”) during the 2018 fiscal year, which was approved by shareholders on May 24, 2018. Future awards will be issued under the 2018 Plan. On February 8, 2022 the Company’s shareholders approved a proposal to increase the number of shares available for issuance under the 2018 Plan from
Stock-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite service period (generally the vesting period of the grant). The Company recognizes the impact of forfeitures as forfeitures occur.
Our net loss for the quarters ended December 26, 2023 and December 27, 2022 includes $
Stock Option awards
The Company measures the compensation cost associated with stock option awards by estimating the fair value of the award as of the grant date using the Black-Scholes pricing model. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the Company’s stock options and stock awards granted during the quarter ended December 26, 2023. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the employees who receive equity awards.
There were
In addition to the exercise and grant date prices of the stock option awards, certain weighted average assumptions that were used to estimate the fair value of stock option grants are listed in the following table:
| Quarter Ended December 26, 2023 Incentive and Non-Qualified Stock Options | Quarter Ended December 27, 2022 Incentive and Non-Qualified Stock Options | |||||||
| Expected term (years) | ||||||||
| Expected volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected dividends | ||||||||
We estimate expected volatility based on historical weekly price changes of our common stock for a period equal to the current expected term of the options. The risk-free interest rate is based on the United States treasury yields in effect at the time of grant corresponding with the expected term of the options. The expected option term is the number of years we estimate that options will be outstanding prior to exercise considering vesting schedules and our historical exercise patterns.
The following table summarizes stock option activity for the quarter ended December 26, 2023 under all plans:
| Shares | Weighted | Weighted Average | ||||||||||
| Outstanding at beginning of year | $ | |||||||||||
| Options granted | $ | |||||||||||
| Outstanding December 26, 2023 | $ | |||||||||||
| Exercisable December 26, 2023 | $ | |||||||||||
As of December 26, 2023 and December 27, 2022, the aggregate intrinsic value of the outstanding and exercisable options was $
As of December 26, 2023, the total remaining unrecognized compensation cost related to non-vested stock options was $
There were
Restricted Stock Units
There were
A summary of the status of non-vested restricted stock units as of December 26, 2023 is presented below.
| Shares | Grant Date Fair | |||||||||
| Non-vested units at beginning of year |
| $ | to | $ | ||||||
| Units granted during the quarter | $ | |||||||||
| Non-vested units at December 26, 2023 |
| $ | to | $ | ||||||
As of December 26, 2023, there was $
Restricted and Unrestricted Common Stock Awards
Note 6. Gain on Sale of Assets
For the fiscal quarter ended December 26, 2023, the Company had $
Note 7. Prepaid expense and other current assets
Prepaid expenses and other current assets consist of the following as of:
| December 26, 2023 | September 26, 2023 | |||||||
| Prepaid Insurance | $ | $ | ||||||
| Other | ||||||||
| Total | $ | $ | ||||||
Note 8. Other Accrued Liabilities
Other accrued liabilities consist of the following as of:
| December 26, 2023 |
September 26, 2023 |
|||||||
| Wages and other employee benefits |
$ | $ | ||||||
| Taxes, other than income taxes |
||||||||
| Gift card liability, net of breakage |
||||||||
| General expense accrual and other |
||||||||
| Total |
$ | $ | ||||||
Note 9. Notes Payable and Long-Term Debt
Cadence Credit Facility
The Company and its wholly owned subsidiaries (the “Subsidiaries”) maintain an amended and restated credit agreement with Cadence Bank (“Cadence”) pursuant to which, Cadence agreed to loan the Company up to $
Proceeds from the Cadence Credit Facility, if and when drawn, may be used (i) to fund new restaurant development, (ii) to finance the buyout of non-controlling partners in certain restaurants, (iii) to finance the redemption, purchase or other acquisition of equity interests in the Company and (iv) for working capital and other general corporate purposes.
The Cadence Credit Facility includes customary affirmative and negative covenants and events of default. The Cadence Credit Facility also requires the Company to maintain various financial condition ratios, including minimum liquidity, an amended maximum leverage ratio and an amended minimum fixed charge coverage ratio. In addition, to the extent the aggregate outstanding balance under the revolver under the Cadence Credit Facility exceeds $
During the fiscal quarter ended December 26, 2023 the weighted average interest rate applicable to borrowings under the Cadence Credit Facility was
As a result of entering into the Cadence Credit Facility and the various amendments, the Company paid loan origination costs including professional fees of approximately $
In connection with the Cadence Credit Facility, the Company and the Subsidiaries entered into an Amended and Restated Security and Pledge Agreement (the “Security Agreement”) with Cadence. Under the Security Agreement, the Cadence Credit Facility is secured by a first priority security interest in substantially all the assets of the Company and the Subsidiaries.
As of December 26, 2023, there were $
Total interest expense on notes payable was $
Note 10. Earnings (Loss) per Common Share
Our basic earnings per share calculation is computed based on the weighted-average number of common shares outstanding. Our diluted earnings per share calculation is computed based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued. Potentially dilutive securities for this calculation consist of in-the-money outstanding stock options, restricted stock units and warrants (which were assumed to have been exercised at the average market price of the common shares during the reporting period). The treasury stock method is used to measure the dilutive impact of in-the-money stock options.
The following table reconciles basic weighted-average shares outstanding to diluted weighted-average shares outstanding:
| Quarter Ended |
||||||||
| December 26, 2023 |
December 27, 2022 |
|||||||
| Weighted-average shares outstanding basic |
||||||||
| Effect of potentially dilutive securities: |
||||||||
| Stock options |
||||||||
| Restricted stock units |
||||||||
| Weighted-average shares outstanding diluted |
||||||||
| Excluded from diluted weighted-average shares outstanding: |
||||||||
| Antidilutive |
||||||||
Note 11. Contingent Liabilities and Liquidity
There may be various claims in process, matters in litigation, and other contingencies brought against the company by employees, vendors, customers, franchisees, or other parties. Evaluating these contingencies is a complex process that may involve substantial judgment on the potential outcome of such matters, and the ultimate outcome of such contingencies may differ from our current analysis. We regularly review the adequacy of accruals and disclosures related to such contingent liabilities in consultation with legal counsel. While it is not possible to predict the outcome of these claims with certainty, it is management’s opinion that any reasonably possible losses associated with such contingencies would be immaterial to our financial statements.
The Company is the defendant in a lawsuit styled as White Winston Select Asset Funds, LLC and GT Acquisition Group, Inc. v. Good Times Restaurants, Inc., arising from the failed negotiations between plaintiffs and the Company for the sale of the Good Times Drive Thru subsidiary to plaintiffs. The lawsuit was initially filed on September 24, 2019 in Delaware Chancery Court, and the Company removed the case to federal court in the US District Court for the District of Delaware on November 5, 2019. On July 30, 2021, the plaintiffs moved the Court for leave to amend their complaint and add new causes of action and a claim for $
The plaintiffs filed a notice of appeal of the Court’s January 25, 2023 decisions. Good Times, in turn, filed a notice of appeal of the Court’s previous dismissal of its counterclaim against the plaintiffs. On May 18, 2023, the plaintiffs filed their opening brief. On June 23, 2023, Good Times filed its brief in response to the plaintiffs’ opening brief and Good Times own opening brief regarding its appeal of the dismissal of its counterclaims against the plaintiffs. On August 7, 2023, the plaintiffs filed their reply brief in support of their appeal and a response to Good Times appeal. Good Times filed a reply brief in support of its appeal on August 28, 2023 and briefing is now closed. The court of appeals had previously indicated it may hold oral argument the week of January 29, 2024 but has subsequently indicated it would no longer hold oral argument in its review and decision in the matter. The court of appeals may render a decision at any time.
The Company previously recorded an accrual for contingent litigation expense in the fiscal quarter ended March 28, 2022 in the amount of $
Note 12. Leases
The Company determines if a contract contains a lease at inception. The Company's material long-term operating lease agreements are for the land and buildings for our restaurants as well as our corporate office. The initial lease terms range from
Operating lease assets and liabilities are recognized at the lease commencement date for material leases with a term of greater than 12 months. Operating lease liabilities represent the present value of future minimum lease payments. Since our leases do not provide an implicit rate, our operating lease liabilities are calculated using our estimated incremental borrowing rate based on a collateralized borrowing over the term of each individual lease. Minimum lease payments include only fixed lease components of the agreement, as well as variable rate payments that depend on an index, initially measured using the index at the lease commencement date.
Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepaid or accrued lease payments, initial direct costs and lease incentives. Lease incentives are recognized when earned and reduce our operating lease asset related to the lease. They are amortized through the operating lease assets as reductions of rent expense over the lease term.
Operating lease expense is recognized on a straight-line basis over the lease term. Certain of the Company’s operating leases contain clauses that provide for contingent rent based on a percentage of sales greater than certain specified target amounts. Variable lease payments that do not depend on a rate or index, escalation in the index subsequent to the initial measurement, payments associated with non-lease components such as common area maintenance, real estate taxes and insurance, and short-term lease payments (leases with a term with 12 months or less) are expensed as incurred or when the achievement of the specified target that triggers the contingent rent is considered probable.
Some of the leases provide for base rent, plus additional rent based on gross sales, as defined in each lease agreement. The Company is also generally obligated to pay certain real estate taxes, insurance and common area maintenance charges, and various other expenses related to properties, which are expensed as incurred.
Components of operating lease costs are as follows for the fiscal quarters ended December 26, 2023 and December 27, 2022:
| Lease cost | Classification | December 26, 2023 | December 27, 2022 | |||||||
| Operating lease cost | Occupancy, Other restaurant operating costs and General and administrative expenses, net | $ | $ | |||||||
| Variable lease cost | Occupancy | |||||||||
| Sublease income | Occupancy | ( | ) | ( | ) | |||||
| $ | $ | |||||||||
Weighted average lease term and discount rate are as follows:
| December 26, 2023 | December 27, 2022 | |||||||
| Weighted average remaining lease term (in years) | ||||||||
| Weighted average discount rate | % | % | ||||||
Supplemental cash flow disclosures:
| December 26, 2023 | December 27, 2022 | |||||||
| Cash paid for operating lease liabilities | $ | $ | ||||||
| Non-cash operating lease assets obtained in exchange for operating lease liabilities | $ | $ | ( | ) | ||||
Supplemental balance sheet disclosures:
| December 26, 2023 | December 27, 2022 | ||||||||
| Right-of-use assets | Operating lease assets | $ | $ | ||||||
| Current lease liabilities | Operating lease liability | $ | $ | ||||||
| Non-current lease liabilities | Operating lease liability, less current portion | ||||||||
| Total lease liabilities | $ | $ | |||||||
Future minimum rent payments for our operating leases for each of the next five years as of December 26, 2023 are as follows:
| Fiscal year: | Total | |||
| Remainder of 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total minimum lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
The above future minimum rental amounts exclude the amortization of deferred lease incentives, renewal options that are not reasonably assured of renewal, and contingent rent. The Company generally has escalating rents over the term of the leases and records rent expense on a straight-line basis.
Note 13. Impairment of Long-Lived Assets and Goodwill
Long-Lived Assets. We review our long-lived assets including land, property, and equipment for impairment when there are factors that indicate that the carrying amount of an asset may not be recoverable. We assess recovery of assets at the individual restaurant level and typically include an analysis of historical cash flows, future operating plans, and cash flow projections in assessing whether there are indicators of impairment. Recoverability of assets to be held and used is measured by comparing the net book value of the assets of an individual restaurant to the fair value of those assets. This impairment process involves significant judgment in the use of estimates and assumptions pertaining to future projections and operating results.
There were
Trademarks. Trademarks have been determined to have an indefinite life. We evaluate our trademarks for impairment annually and on an interim basis as events and circumstances warrant by comparing the fair value of the trademarks with their carrying amount. There was
Goodwill. Goodwill represents the excess of cost over fair value of the assets of businesses the Company acquired. Goodwill is not amortized, but rather, the Company is required to test goodwill for impairment on an annual basis or whenever indications of impairment arise. The Company considers its operations to be comprised of
Note 14. Income Taxes
We account for income taxes using the liability method, whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value. The deferred tax assets are reviewed periodically for recoverability and valuation allowances are adjusted as necessary.
The Company’s effective income tax rate for the three months ended December 26, 2023 was (
The Company is subject to taxation in various jurisdictions within the U.S. The Company continues to remain subject to examination by U.S. federal authorities for tax years through 2022. The Company believes that its income tax filing positions and deductions will be sustained upon audit and does not anticipate any adjustments that will result in a material adverse effect on the Company’s financial condition, results of operations, or cash flows. Therefore,
Note 15. Non-controlling Interests
Non-controlling interests are presented as a separate item in the shareholders’ equity section of the condensed consolidated balance sheet. The amount of consolidated net income or loss attributable to non-controlling interests is presented on the face of the condensed consolidated statement of operations. Changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions, while changes in ownership interest that do result in deconsolidation of a subsidiary require gain or loss recognition based on the fair value on the deconsolidation date.
The equity interests of the unrelated limited partners and members are shown on the accompanying consolidated balance sheet in the shareholders’ equity section as a non-controlling interest and is adjusted each period to reflect the limited partners’ and members’ share of the net income or loss as well as any cash contributions or distributions to or from the limited partners and members for the period. The limited partners’ and members’ share of the net income or loss in the subsidiary is shown as non-controlling interest income or expense in the accompanying consolidated statement of operations. All inter-company accounts and transactions are eliminated.
The following table summarizes the activity in non-controlling interests during the quarter ended December 26, 2023(in thousands):
| Total | ||||
| Balance at September 26, 2023 | $ | |||
| Income | ||||
| Distributions | ( | ) | ||
| Balance at December 26, 2023 | $ | |||
Our non-controlling interests at the end of the quarter consisted of one joint-venture partnership involving
Note 16. Segment Reporting
All of our Bad Daddy’s Burger Bar restaurants (Bad Daddy’s) compete in the full-service segment of the restaurant industry while our Good Times Burgers and Frozen Custard restaurants (Good Times) compete in the quick-service segment of the dining industry. We believe that providing this additional financial information for each of our brands will provide a better understanding of our overall operating results. Income (loss) from operations represents revenues less restaurant operating costs and expenses, directly allocable general and administrative expenses, and other restaurant-level expenses directly associated with each brand including depreciation and amortization, pre-opening costs and losses or gains on disposal of property and equipment. Unallocated corporate capital expenditures are presented below as reconciling items to the amounts presented in the consolidated financial statements.
The following tables present information about our reportable segments for the respective periods (in thousands):
| Quarter Ended |
||||||||
| December 26, 2023 |
December 27, 2022 |
|||||||
| Revenues |
||||||||
| Bad Daddy’s |
$ | $ | ||||||
| Good Times |
||||||||
| $ | $ | |||||||
| (Loss) income from operations |
||||||||
| Bad Daddy’s |
$ | ( |
) | $ | ( |
) | ||
| Good Times |
||||||||
| $ | ( |
) | $ | |||||
| Capital expenditures |
||||||||
| Bad Daddy’s |
$ | $ | ||||||
| Good Times |
||||||||
| $ | $ | |||||||
| December 26, 2023 |
September 26, 2023 |
|||||||
| Property and equipment, net |
||||||||
| Bad Daddy’s |
$ | $ | ||||||
| Good Times |
||||||||
| $ | $ | |||||||
| Total assets |
||||||||
| Bad Daddy’s |
$ | $ | ||||||
| Good Times |
||||||||
| $ | $ | |||||||
Note 17. Subsequent Events
None.
| MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This Form 10-Q contains or incorporates by reference forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the disclosure of risk factors in the Company’s Form 10-K for the fiscal year ended September 26, 2023. Also, documents subsequently filed by us with the SEC and incorporated herein by reference may contain forward-looking statements. We caution investors that any forward-looking statements made by us are not guarantees of future performance and actual results could differ materially from those in the forward-looking statements as a result of various factors, including but not limited to the following:
| (I) |
The disruption to our business from pandemics or other public health emergencies and the impact could have on our results of operations, financial condition and prospects. The disruption and effect on our business may vary depending on the duration and extent of the pandemics and other public health emergencies and the impact of federal, state and local governmental actions and customer behavior in response. |
| (II) |
We compete with numerous well-established competitors who have substantially greater financial resources and longer operating histories than we do. Competitors have increasingly offered selected food items and combination meals, including hamburgers, at discounted prices, and continued discounting by competitors may adversely affect revenues and profitability of Company restaurants. |
| (III) |
We may be negatively impacted if we experience same store sales declines. Same store sales comparisons will be dependent, among other things, on the success of our advertising and promotion of new and existing menu items. No assurances can be given that such advertising and promotions will in fact be successful. |
| (IV) |
We may be negatively impacted if we are unable to pass on to customers through menu price increases the increased costs that we incur through inflation experienced in our input costs including both the cost of food and the cost of labor. Recent metrics have indicated that increased levels of price inflation are prevalent throughout the economy which have resulted in increases in commodity, labor and energy costs for both concepts as well as increased product substitutions, elevated freight costs, and increased variability in product quality. Further significant increases in inflation could affect the global and U.S. economies, which could have an adverse impact on our business and results of operations if we and our franchisees are not able to adjust prices sufficiently to offset the effect of cost increases without negatively impacting consumer demand. |
We may also be negatively impacted by other factors common to the restaurant industry such as: changes in consumer tastes away from red meat and fried foods; increases in the cost of food, paper, labor, health care, workers’ compensation or energy; inadequate number of hourly paid employees; increased wages and salaries for hourly and salaried employees; and/or decreases in the availability of affordable capital resources. We caution the reader that such risk factors are not exhaustive, particularly with respect to future filings. For further discussion of our exposure to market risk, refer to Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 26, 2023.
Overview.
Good Times Restaurants Inc., through its subsidiaries (collectively, the “Company” or “we”, “us” or “our”) operates and franchises/licenses full-service hamburger-oriented restaurants under the name Bad Daddy’s Burger Bar (Bad Daddy’s) and operates and franchises hamburger-oriented drive-through restaurants under the name Good Times Burgers & Frozen Custard (Good Times).
We are focused on targeted unit growth of the Bad Daddy’s concept while at the same time growing same store sales and improving the profitability of both the Bad Daddy’s and the Good Times concepts.
Growth Strategies and Outlook.
We believe there are significant opportunities to grow customer traffic and increase awareness of our brands. Prior to the COVID-19 pandemic, we reduced our development profile as we sought to improve our financial position, and while we believe there are unit growth opportunities for both of our concepts, we continue to evaluate that in line with the inflationary impact currently experienced by the restaurant industry.
Restaurant locations.
As of December 26, 2023, we operated, franchised, or licensed a total of forty-one Bad Daddy’s restaurants and thirty-one Good Times restaurants. The following table presents the number of restaurants operating at the end of the first fiscal quarters of 2023 and 2022.
Company-Owned/Co-Developed/Joint-Venture:
| Bad Daddy’s |
Good Times Burgers |
Total |
||||||||||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
2023 |
2022 |
|||||||||||||||||||
| Alabama |
3 | 2 | - | - | 3 | 2 | ||||||||||||||||||
| Colorado |
11 | 12 | 25 | 23 | 36 | 35 | ||||||||||||||||||
| Georgia |
5 | 5 | - | - | 5 | 5 | ||||||||||||||||||
| North Carolina |
14 | 14 | - | - | 14 | 14 | ||||||||||||||||||
| Oklahoma |
1 | 1 | - | - | 1 | 1 | ||||||||||||||||||
| South Carolina |
4 | 4 | - | - | 4 | 4 | ||||||||||||||||||
| Tennessee |
2 | 2 | - | - | 2 | 2 | ||||||||||||||||||
| Total |
40 | 40 | 25 | 23 | 65 | 63 | ||||||||||||||||||
We acquired two Good Times restaurants in Greenwood Village and Lafayette, Colorado from franchisees during fiscal 2023.
Franchise/License:
| Bad Daddy’s |
Good Times Burgers |
Total |
||||||||||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
2023 |
2022 |
|||||||||||||||||||
| Colorado |
- | - | 4 | 6 | 4 | 6 | ||||||||||||||||||
| North Carolina |
1 | 1 | - | - | 1 | 1 | ||||||||||||||||||
| Wyoming |
- | - | 2 | 2 | 2 | 2 | ||||||||||||||||||
| Total |
1 | 1 | 6 | 8 | 7 | 9 | ||||||||||||||||||
Results of Operations
Fiscal quarter ended December 26, 2023 (13 weeks) compared to fiscal quarter ended December 27, 2022 (13 weeks):
Net Revenues. Net revenues for the quarter ended December 26, 2023 decreased $262,000 or 0.8% to $33,132,000 from $33,394,000 for the quarter ended December 27, 2022. Bad Daddy’s concept revenues decreased $1,033,000 while our Good Times concept revenues increased $771,000.
Bad Daddy’s restaurant sales decreased $1,045,000 to $24,120,000 for the quarter ended December 26, 2023 from $25,165,000 for the quarter ended December 27, 2022. This decrease is due to the prior-year closure of the Cherry Creek location, reduced customer traffic, concentrated in several key markets, partially offset by menu price increases and sales from the Madison, Alabama restaurant which opened during the fourth quarter of fiscal 2023. The average menu price increase for the quarter ended December 26, 2023 over the same prior-year quarter was approximately 4.2%.
Good Times restaurant sales increased $812,000 to $8,826,000 for the quarter ended December 26, 2023 from $8,014,000 for the quarter ended December 27, 2022. This increase is primarily due to the acquisition, by the Company during fiscal 2023, of two Good Times restaurants previously owned by franchisees as well as increased customer traffic and menu price increases. The average menu price increase for the quarter ended December 26, 2023 over the same prior-year quarter was approximately 4.6%.
Franchise revenues decreased $29,000 to $186,000 in the quarter ended December 26, 2023 compared to $215,000 in the quarter ended December 27, 2022. This decrease is primarily due to the acquisition, by the Company during fiscal 2023, of two Good Times restaurants previously owned by franchisees.
Same Store Sales
Sales store sales is a metric used in evaluating the performance of established restaurants and is a commonly used metric in the restaurant industry. Same store sales for our brands are calculated using all company-owned units open for at least eighteen full fiscal months and use the comparable operating weeks from the prior year to the current year quarter’s operating weeks.
Bad Daddy’s same store restaurant sales decreased 6.2% during the fiscal quarter ended December 26, 2023 compared to the fiscal quarter ended December 27, 2022, primarily driven by general weakness in the casual dining restaurant segment as indicated by sequentially lower same store sales as measured by Black Box Intelligence, weaker traffic specific to Bad Daddy’s in several key markets, offset by menu price increases. There were thirty-nine restaurants included in the same store sales base at the end of the quarter.
Good Times same store restaurant sales increased 4.1% during the quarter ended December 26, 2023 compared to the same thirteen-week period ended December 27, 2022, primarily due to increased customer traffic and menu price increases. There were twenty-five restaurants included in the same store sales base at the end of the quarter.
Restaurant Operating Costs
Food and Packaging Costs. Food and packaging costs for the quarter ended December 26, 2023 decreased $280,000 to $10,327,000 (31.3% of restaurant sales) from $10,607,000 (32.0% of restaurant sales) for the quarter ended December 27, 2022.
Bad Daddy’s food and packaging costs were $7,608,000 (31.5% of restaurant sales) for the quarter ended December 26, 2023, down from $7,973,000 (31.7% of restaurant sales) for the quarter ended December 27, 2022. This decrease is primarily attributable to a combination of lower restaurant sales during the current fiscal quarter versus the prior fiscal quarter and lower purchase prices for food and paper goods. The decrease, as a percent of sales, is attributable to the impact of a 4.2% average annual increase in menu pricing as well as generally lower purchase prices in our commodity basket compared to the prior-year period.
Good Times food and packaging costs were $2,719,000 (30.8% of restaurant sales) for the quarter ended December 26, 2023, up from $2,634,000 (32.9% of restaurant sales) for the quarter ended December 27, 2022. This increase is primarily attributable to the impact of higher sales, offset by lower purchase prices on food and paper goods, as well as the impact of a 4.6% increase in menu pricing.
Payroll and Other Employee Benefit Costs. Payroll and other employee benefit costs for the quarter ended December 26, 2023 increased $76,000 to $11,624,000 (35.3% of restaurant sales) from $11,548,000 (34.8% of restaurant sales) for the quarter ended December 27, 2022.
Bad Daddy’s payroll and other employee benefit costs were $8,641,000 (35.8% of restaurant sales) for the quarter ended December 26, 2023 down from $8,754,000 (34.8% of restaurant sales) in the same prior year period. The $113,000 decrease is primarily attributable to lower restaurant sales during the current quarter versus the same quarter in the prior year, offset by higher average pay rates. As a percent of sales, payroll and employee benefits costs increased by 1.0% primarily attributable to higher average wage rates paid to attract qualified employees and the deleveraging impact of lower sales on fixed labor costs, primarily manager salaries.
Good Times payroll and other employee benefit costs were $2,983,000 (33.8% of restaurant sales) in the quarter ended December 26, 2023, up from $2,794,000 (34.9% of restaurant sales) in the same prior-year period. The $189,000 increase is attributable to higher sales and higher average wage rates, partially offset by increased labor productivity. As a percent of sales, payroll and employee benefits costs decreased by 1.1% primarily attributable to a 4.6% increase in menu pricing and increased labor productivity, partially offset by increased wage rates.
Occupancy Costs. Occupancy costs for the quarter ended December 26, 2023 increased $47,000 to $2,505,000 (7.6% of restaurant sales) from $2,458,000 (7.4% of restaurant sales) for the quarter ended December 27, 2022.
Bad Daddy’s occupancy costs were $1,719,000 (7.1% of restaurant sales) for the quarter ended December 26, 2023, down from $1,732,000 (6.9% of restaurant sales) in the same prior year period.
Good Times occupancy costs were $786,000 (8.9% of restaurant sales) in the quarter ended December 26, 2023, up from $726,000 (9.1% of restaurant sales) in the same prior year period. The increase was primarily due to the acquisition, by the Company during fiscal 2023, of two Good Times restaurants previously owned by franchisees.
Other Operating Costs. Other operating costs for the quarter ended December 26, 2023, increased $236,000 to $4,728,000 (14.4% of restaurant sales) from $4,492,000 (13.5% of restaurant sales) for the quarter ended December 27, 2022.
Bad Daddy’s other operating costs were $3,581,000 (14.8% of restaurant sales) for the quarter ended December 26, 2023 up from $3,521,000 (14.0% of restaurant sales) in the same prior year period. The $60,000 increase was primarily attributable to increased repair and maintenance, technology and utility expenses, offset by reduced commissions paid to delivery service providers, due to decreases in delivery sales.
Good Times other operating costs were $1,147,000 (13.0% of restaurant sales) for the quarter ended December 26, 2023, up from $971,000 (12.1% of restaurant sales) in the same prior year period. The increase was primarily attributable increases in commissions paid to delivery service providers due to increases in overall delivery sales as well as increased repair and maintenance and utility expenses.
Depreciation and Amortization Costs. Depreciation and amortization costs for the quarter ended December 26, 2023, increased $17,000 to $927,000 from $910,000 in the quarter ended December 27, 2022.
Bad Daddy’s depreciation and amortization costs for the quarter ended December 26, 2023 decreased $23,000 to $750,000 from $773,000 in the quarter ended December 27, 2022.
Good Times depreciation and amortization costs for the quarter ended December 26, 2023 increased $40,000 to $177,000 from $137,000 in the quarter ended December 27, 2022.
General and Administrative Costs. General and administrative costs for the quarter ended December 26, 2023, decreased $65,000 to $2,313,000 (7.0% of total revenues) from $2,378,000 (7.1% of total revenues) for the quarter ended December 27, 2022.
This decrease in general and administrative expenses for the quarter ended December 26, 2023 is attributable to:
| ● |
Decrease in professional services of $73,000 |
| ● |
Decrease in office lease and equipment expense of $24,000 |
| ● |
Decrease in general travel related expenses of $49,000 |
| ● |
Decrease in recruiting and training related costs of $108,000 |
| ● |
Decrease in health insurance costs of $18,000 |
| ● |
Increase in home office payroll and benefit costs of $22,000 |
| ● |
Increase in costs associated with new multi-unit supervisory roles of $154,000 |
| ● |
Increase in technology costs of $17,000 |
| ● |
Increase in other costs of $14,000 |
For the balance of the fiscal year, we expect general and administrative costs to be approximately 7.0% - 8.0% of total revenues.
Advertising Costs. Advertising costs for the quarter ended December 26, 2023, increased to $1,092,000 (3.3% of total revenues) from $894,000 (2.7% of total revenues) for the quarter ended December 27, 2022.
Bad Daddy’s advertising costs were $732,000 (3.0% of total revenues) in the quarter ended December 26, 2023 compared to $610,000 (2.4% of total revenues) in the same prior year period. The increase is primarily due to recognition of commission earned by third parties on gift cards sold through large-box retailers. Bad Daddy’s advertising costs consist primarily of third party gift card commissions, menu development, printing costs, local store marketing and social media.
Good Times advertising costs were $360,000 (4.0% of total revenues) in the quarter ended December 26, 2023 compared to $284,000 (3.5% of total revenues) in the same prior year period. The increase is primarily due to radio advertising and gift card and loyalty program expense.
Good Times advertising costs consist primarily of radio advertising, social media, and on-site and point-of-purchase printing costs. Advertising costs are presented gross, with franchisee contributions to the fund being recognized as a component of franchise revenues.
Gain on Restaurant Asset and Equipment Sales. The gain on restaurant asset and equipment sales for the quarter ended December 26, 2023 was $10,000 compared to $0, which is composed of a net $8,000 loss on disposal of miscellaneous assets, offset by $8,000 of deferred gains, for the quarter ended December 27, 2022.
(Loss) Income from Operations. Loss from operations was ($374,000) in the quarter ended December 26, 2023 compared to income from operations of $107,000 in the quarter ended December 27, 2022.
The change in the loss from operations for the quarter ended December 26, 2023 is due primarily due to matters discussed in the “Net Revenues”, “Food and Packaging Costs”, “Payroll and Other Employee Benefits Costs”, “Other Operating Costs”, “General and Administrative Costs” and “Advertising Costs” sections above.
Interest Expense. Interest expense was $32,000 during the quarter ended December 26, 2023 compared with $12,000 during the quarter ended December 27, 2022.
Provision for Income Taxes. There was $77,000 provision for income taxes for the quarter ended December 26, 2023, compared to $0 for the quarter ended December 27, 2022.
Net (Loss) Income. Net loss was ($483,000) for the quarter ended December 26, 2023 compared to net income of $95,000 in the quarter ended December 27, 2022.
The change from the quarter ended December 26, 2023 to the quarter ended December 27, 2022 was primarily attributable to the matters discussed in the relevant sections above.
Income Attributable to Non-Controlling Interests. The non-controlling interest represents the limited partners’ or members’ share of income in the Good Times and Bad Daddy’s joint-venture restaurants.
For the quarter ended December 26, 2023, the income attributable to non-controlling interests was $73,000 compared to $222,000 for the quarter ended December 27, 2022.
Of the current quarter’s income attributable to non-controlling interests, zero is attributable to Bad Daddy’s joint-venture restaurants, compared to $179,000 in the same prior year period. This reduction is due to the acquisition by the Company during fiscal year 2023 of the interests in the limited liability companies held by non-controlling parties.
The full $73,000 of the current quarter’s income is attributable to the Good Times joint-venture restaurants, compared to $43,000 in the same prior year period. This $30,000 increase is due to increased profitability of the restaurants involved in the limited partnership with a non-controlling partner.
Adjusted EBITDA
EBITDA is defined as net income (loss) before interest, income taxes and depreciation and amortization.
Adjusted EBITDA is defined as EBITDA plus non-cash stock-based compensation expense, preopening expense, non-recurring acquisition costs, GAAP rent in excess of cash rent, and non-cash disposal of assets. Adjusted EBITDA is intended as a supplemental measure of our performance that is not required by or presented in accordance with GAAP. We believe that EBITDA and Adjusted EBITDA provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and operating results. Our management uses EBITDA and Adjusted EBITDA (i) as a factor in evaluating management's performance when determining incentive compensation, and (ii) to evaluate the effectiveness of our business strategies.
We believe that the use of EBITDA and Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the Company's financial measures with other fast casual restaurants, which may present similar non-GAAP financial measures to investors. In addition, you should be aware when evaluating EBITDA and Adjusted EBITDA that in the future we may incur expenses similar to those excluded when calculating these measures. Our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies do not calculate Adjusted EBITDA in the same fashion.
Our management does not consider EBITDA or Adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of EBITDA and Adjusted EBITDA is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company's financial statements. Some of these limitations are:
| ● |
Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; |
| ● |
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; |
| ● |
Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; |
| ● |
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; |
| ● |
Stock based compensation expense is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as an expense when evaluating our ongoing performance for a particular period; |
| ● |
Adjusted EBITDA does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and |
| ● |
Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. |
Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as a supplemental measure. You should review the reconciliation of net loss to EBITDA and Adjusted EBITDA below and not rely on any single financial measure to evaluate our business.
The following table reconciles net loss/income to EBITDA and Adjusted EBITDA (in thousands) for the first fiscal quarter:
| Quarter Ended |
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| December 26, 2023 |
December 27, 2022 |
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| Adjusted EBITDA: |
||||||||
| Net loss, as reported |
$ | (556 | ) | $ | (127 | ) | ||
| Depreciation and amortization |
929 | 867 | ||||||
| Interest expense, net |
32 | 12 | ||||||
| Provision for income taxes |
77 | - | ||||||
| EBITDA |
482 | 752 | ||||||
| Non-cash stock-based compensation (1) |
38 | 46 | ||||||
| GAAP rent-cash rent difference (2) |
(163 | ) | (124 | ) | ||||
| Gain on restaurant and equipment asset sales (3) |
(10 | ) | - | |||||
| Adjusted EBITDA |
$ | 347 | $ | 674 | ||||
| (1) |
Represents non-cash stock-based compensation as described in Note 5 to the Consolidated Financial Statements. |
| (2) |
Represents the excess of cash rent incurred over the amount of GAAP rent recorded in the Financial Statements. |
| (3) |
Represents deferred gains on previous sale-leaseback transactions on two Good Times restaurants. |
Depreciation and amortization and the difference between GAAP rent and cash rent have been reduced by any amounts attributable to non-controlling interests.
Liquidity and Capital Resources
Cash and Working Capital
As of December 26, 2023, we had a working capital deficit of $8,500,000. Our working capital position benefits from the fact that we generally collect cash from sales to customers the same day, or in the case of credit or debit card transactions, within a few days of the related sale and have payment terms with vendors that are typically between 14 and 21 days. Our current working capital deficit is additionally affected by the recognition of short-term lease liabilities, as we lease substantially all of our real estate and have both current- and long-term obligations to our landlords. We believe that we will have sufficient capital to meet our working capital, and recurring capital expenditure needs in fiscal 2024. We anticipate any commitments in fiscal 2024 will be funded out of existing cash or future borrowings against the Cadence Credit Facility.
On January 31, 2022 the Company‘s Board of Directors authorized a $5.0 Million share repurchase program which became effective February 7, 2022. The authorization to repurchase will continue until the maximum value of shares is achieved or the Company terminates the program. The timing and amount of repurchases will depend upon the Company’s stock price, economic and market conditions, regulatory requirements, and other corporate considerations.
Financing
Cadence Credit Facility
The Company and its wholly owned subsidiaries (the “Subsidiaries”) maintain an amended and restated credit agreement with Cadence Bank (“Cadence”) pursuant to which, Cadence agreed to loan the Company up to $8,000,000, which has a maturity date of April 20, 2028 (the “Cadence Credit Facility”). The Cadence Credit Facility amended and restated the Company’s prior credit facility with Cadence in its entirety. The Cadence Credit Facility accrues commitment fees on the daily unused balance of the facility at a rate of 0.25%. The loans may from time to time consist of a mixture of SOFR Rate Loans and Base Rate Loans with differing interest rates based upon varying additions to the Federal Funds Rate, the Cadence prime rate or Term SOFR. Each of the Subsidiaries are guarantors of the Cadence Credit Facility.
Proceeds from the Cadence Credit Facility, if and when drawn, may be used (i) to fund new restaurant development, (ii) to finance the buyout of non-controlling partners in certain restaurants, (iii) to finance the redemption, purchase or other acquisition of equity interests in the Company and (iv) for working capital and other general corporate purposes.
The Cadence Credit Facility includes customary affirmative and negative covenants and events of default. The Cadence Credit Facility also requires the Company to maintain various financial condition ratios, including minimum liquidity, an amended maximum leverage ratio and an amended minimum fixed charge coverage ratio. In addition, to the extent the aggregate outstanding balance under the revolver exceeds $4.0 million, the Company is required to meet a new specified leverage ratio, on a pro forma basis, before making further borrowings as well as certain restricted payments, investments and growth capital expenditures. As of the date of filing of this report, the Company was in compliance with each of these covenants under the Cadence Credit Facility.
During the fiscal quarter ended December 26, 2023 the weighted average interest rate applicable to borrowings under the Cadence Credit Facility was 8.45%.
As a result of entering into the Cadence Credit Facility and the various amendments, the Company paid loan origination costs including professional fees of approximately $299,000 and is amortizing these costs over the term of the credit agreement. As of December 26, 2023, the unamortized balance of these fees was $115,000.
In connection with the Cadence Credit Facility, the Company and the Subsidiaries entered into an Amended and Restated Security and Pledge Agreement (the “Security Agreement”) with Cadence. Under the Security Agreement, the Cadence Credit Facility is secured by a first priority security interest in substantially all the assets of the Company and the Subsidiaries.
As of December 26, 2023, there were $1,250,000 of borrowings against the facility, all of which is due during the fiscal year ending September 26, 2028 and is classified as a long-term liability in the accompanying balance sheet. Availability of the Cadence Credit Facility for borrowings is reduced by the outstanding face value of any letters of credit issued under the facility. As of December 26, 2023, there were approximately $10,000 in outstanding letters of credit issued under the facility, and approximately $6,740,000 of committed funds available.
Total interest expense on notes payable was $26,000 and $0 for the quarters ended December 26, 2023 and December 27, 2022, respectively.
Cash Flows
The table below summarizes our cash flows from operating, investing, and financing activities for each period presented (in thousands):
| Quarter ended |
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| December 26, 2023 |
December 27, 2022 |
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| Net cash used in operating activities |
$ | (252 | ) | $ | (154 | ) | ||
| Net cash used in investing activities |
(448 | ) | (719 | ) | ||||
| Net cash provided by (used in) financing activities |
33 | (1,119 | ) | |||||
| Net change in cash and cash equivalents |
$ | (667 | ) | $ | (1,992 | ) | ||
Operating cash flows
Net cash from operating activities decreased by $98,000, primarily due to decreased net income (loss), offset by an increase in cash provided by ROU assets and operating lease liabilities and accrued other liabilities, as presented on the Condensed Consolidated Statements of Cash Flows.
Investing cash flows
Net cash used in investing activities for the quarters ended December 26, 2023 and December 27, 2022 were $448,000 and $719,000, respectively, which primarily reflect the purchases of property and equipment in each quarter.
Financing cash flows
Net cash provided by financing activities for the quarter ended December 26, 2023 was $33,000, which includes proceeds from long-term debt of $500,000, distributions to non-controlling interests of $29,000, and $438,000 in payments for the repurchase of common stock under the Company’s share repurchase program.
Net cash used in financing activities for the quarter ended December 27, 2022 was $1,119,000, which includes distributions to (net of contributions from) non-controlling interests of $159,000, payments for the purchase of treasury stock of $873,000, $92,000 in restricted stock vesting paid in cash, and proceeds from stock option exercise of $5,000.
Impact of Inflation and Wage Increases at Both Concepts
Commodity prices, particularly for key proteins, remain high and volatile. We have seen lower costs across many commodities in our basket. Based on general industry consensus, we project that due to reductions in supply, ground beef costs will increase during the second half of fiscal 2024, as will other proteins and food-based commodities. We continue to experience elevated costs for paper and packaging, other restaurant supplies, and energy (utilities) costs.
In addition to food and supplies cost inflation, we have also experienced the need to meaningfully increase wages to attract restaurant employees, and in Colorado inflation-indexed statutory wage rate increases are creating upward pressure on wages.
We have historically used menu price increases to manage profitability in times of inflation, however consumer preferences and the relative pricing of competitors may prevent us from raising prices sufficient to offset the significant increases in labor costs, particularly in Colorado where wage pressures are caused by both statutory and market forces.
Seasonality
Revenues of the Company are subject to seasonal fluctuations based on weather conditions adversely affecting Colorado restaurant sales primarily during the months of December, January, February, and March, which affects both of the Company’s brands, but the Company’s Good Times restaurants are more sensitive to these weather-based seasonal fluctuations. The Company’s Bad Daddy’s restaurants typically experience seasonal reductions in revenues between the months of November and January resulting from general consumer spending patterns.
| QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not required.
| CONTROLS AND PROCEDURES |
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Based on an evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this report on Form 10-Q, the Company’s Chief Executive Officer (its principal executive officer) and Senior Vice President of Finance and Accounting (its principal financial officer) have concluded that the Company’s disclosure controls and procedures were effective as of December 26, 2023.
Changes in Internal Control over Financial Reporting
There have been no significant changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended December 26, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
| LEGAL PROCEEDINGS |
For a discussion of material legal proceedings affecting the Company, see Note 11 to the unaudited, consolidated financial statements included in this report.
| RISK FACTORS |
There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of our Form 10-K for the fiscal year ended September 26, 2023.
| UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
The Company‘s Board of Directors authorized a $5.0 Million share repurchase program which became effective February 7, 2022. The authorization to repurchase will continue until the maximum value of shares is achieved or the Company terminates the program. The timing and actual number of shares repurchased will depend on a variety of factors, including price, general business and market conditions, and alternative investment opportunities. As of December 26, 2023 the Company has purchased 1,287,960 shares of its common stock pursuant to the share repurchase plan leaving approximately $1,343,000 available for repurchases under the plan.
Repurchases of common stock under the share repurchase plan during the quarter ended December 26, 2023 were as follows:
| Period |
Total number of |
Average price |
Total number of |
Maximum dollar |
||||||||||||
| 09/27/2023–10/24/2023 |
41,950 | $ | 2.93 | 41,950 | ||||||||||||
| 10/25/2023–11/21/2023 |
40,199 | $ | 2.68 | 40,199 | ||||||||||||
| 11/22/2023–12/26/2023 |
78,623 | $ | 2.59 | 78,623 | ||||||||||||
| Total |
160,772 | 160,772 | $ | 1,343,000 | ||||||||||||
| DEFAULTS UPON SENIOR SECURITIES |
None.
| MINE SAFETY DISCLOSURES |
Not applicable.
| OTHER INFORMATION |
During the quarter ended December 26, 2023, of the Company’s directors or our officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended) adopted, modified or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933).”
| EXHIBITS |
(a) Exhibits. The following exhibits are furnished as part of this report:
| Exhibit No. |
Description |
|
|
|
| *31.1 |
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 |
| *31.2 |
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 |
| *32.1 |
Certification of Chief Executive Officer and Principal? Financial Officer pursuant to Section 906 |
| 101.INS |
XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
| *104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
*Filed herewith
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| GOOD TIMES RESTAURANTS INC. |
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| DATE: January 31, 2024 |
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| Ryan M. Zink Chief Executive Officer (Principal Executive Officer) |
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| Keri A. August Senior Vice President of Finance and Accounting (Principal Financial Officer) |
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