Good Times(GTIM) - 2024 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Presents unaudited condensed consolidated financial statements and notes, covering balance sheets, operations, equity, and cash flows Condensed Consolidated Balance Sheets (Unaudited) Table: Condensed Consolidated Balance Sheets (in thousands) | Metric (in thousands) | December 26, 2023 | September 26, 2023 | | :-------------------- | :------------------ | :------------------- | | Total current assets | $6,978 | $6,521 | | Total net property and equipment | $22,553 | $23,036 | | Total assets | $90,121 | $91,088 | | Total current liabilities | $15,478 | $14,890 | | Total long-term liabilities | $42,561 | $43,204 | | Total shareholders' equity | $32,082 | $32,994 | - The company's total assets decreased from $91,088,000 to $90,121,000, while total current liabilities increased from $14,890,000 to $15,478,000, contributing to a working capital deficit[10] Condensed Consolidated Statements of Operations (Unaudited) Table: Condensed Consolidated Statements of Operations (in thousands) | Metric (in thousands) | Quarter Ended Dec 26, 2023 | Quarter Ended Dec 27, 2022 | | :-------------------- | :------------------------- | :------------------------- | | Total net revenues | $33,132 | $33,394 | | Total restaurant operating costs | $30,111 | $30,015 | | (Loss) Income from Operations | $(374) | $107 | | NET (LOSS) INCOME | $(483) | $95 | | NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $(556) | $(127) | | Basic and Diluted EPS | $(0.05) | $(0.01) | - Total net revenues slightly decreased by 0.8% YoY. The company shifted from an income from operations of $107,000 to a loss of $374,000, resulting in a net loss of $483,000 for the quarter, compared to a net income of $95,000 in the prior year[13] Consolidated Statements of Shareholders' Equity (Unaudited) Table: Consolidated Statements of Shareholders' Equity (in thousands) | Metric (in thousands) | September 26, 2023 | December 26, 2023 | | :-------------------- | :----------------- | :---------------- | | Treasury Stock, at cost | $(4,908) | $(5,346) | | Capital Contributed in Excess of Par Value | $56,701 | $56,739 | | Accumulated Deficit | $(19,235) | $(19,791) | | Total Good Times Restaurants Inc. shareholders' equity | $32,571 | $31,615 | - Shareholders' equity decreased from $32,994,000 to $32,082,000, primarily due to a net loss attributable to common shareholders of $556,000 and treasury shares purchased for $438,000[15] Condensed Consolidated Statements of Cash Flows (Unaudited) Table: Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity (in thousands) | Quarter Ended Dec 26, 2023 | Quarter Ended Dec 27, 2022 | | :-------------------------------- | :------------------------- | :------------------------- | | 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) | | (DECREASE) IN CASH AND CASH EQUIVALENTS | $(667) | $(1,992) | | CASH AND CASH EQUIVALENTS, end of period | $3,515 | $6,914 | - Net cash used in operating activities increased to $252,000 from $154,000 YoY. Net cash provided by financing activities significantly improved to $33,000 from a usage of $1,119,000, primarily due to borrowings against the credit facility[17] Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1. Basis of Presentation - The company operates and licenses full-service Bad Daddy's Burger Bar restaurants and operates and franchises drive-thru Good Times Burgers & Frozen Custard restaurants[19] - The fiscal year is a 52/53-week year ending on the last Tuesday of September, with quarters ended December 26, 2023, and December 27, 2022, each consisting of 13 weeks[21] Table: Receivables (in thousands) | Receivables (in thousands) | December 26, 2023 | September 26, 2023 | | :------------------------- | :------------------ | :------------------- | | Large box retail partners | $638 | $291 | | Vendor rebates and incentives | $341 | $185 | | Third party delivery partners | $308 | $269 | | Franchise and other | $47 | $24 | | Total | $1,334 | $769 | Note 2. Recent Accounting Pronouncements - The company expects to retrospectively implement ASU 2023-07 (Segment Reporting) in fiscal year 2025, with no anticipated material effect on its consolidated financial statements[26] Note 3. Revenue - Revenues primarily consist of restaurant sales and franchise revenue, recognized when performance obligations are satisfied, typically at the time of sale for food and beverage[28] - Sales-based royalties and advertising fund contributions from franchisees are recognized as underlying sales occur, with new GT Rewards loyalty program activity being immaterial for the quarter[30][29] Note 4. Goodwill and Intangible Assets Table: Goodwill and Intangible Assets (in thousands) | Asset Type (in thousands) | December 26, 2023 Net Carrying Amount | September 26, 2023 Net Carrying Amount | | :------------------------ | :------------------------------------ | :------------------------------------- | | Intangible assets subject to amortization | $48 | $51 | | Trademarks (indefinite-lived) | $3,900 | $3,900 | | Goodwill | $5,713 | $5,713 | - The company reported no goodwill impairment losses in the periods presented, with aggregate amortization expense for intangible assets at $3,000 for the quarter, up from $2,000 in the prior year[32] Note 5. Stock-Based Compensation - Stock-based compensation expense for the quarter ended December 26, 2023, was $38,000, a decrease from $46,000 in the prior year[34] - 38,000 incentive stock options were awarded with an exercise price of $2.51 per share and a fair value of $1.58, with $123,000 in unrecognized compensation cost expected over 3.2 years[36][39] - 34,000 restricted stock units were granted, with $149,000 in unrecognized compensation cost expected over 2.2 years[40][44] Note 6. Gain on Sale of Assets - The company recognized $10,000 in deferred gains on prior sale-leaseback transactions for the quarter, compared to a net $0 in the prior year[46] Note 7. Prepaid expense and other current assets Table: Prepaid Expenses and Other Current Assets (in thousands) | Prepaid Expenses and Other Current Assets (in thousands) | December 26, 2023 | September 26, 2023 | | :--------------------------------------- | :------------------ | :------------------- | | Prepaid Insurance | $474 | $0 | | Other | $231 | $163 | | Total | $705 | $163 | Note 8. Other Accrued Liabilities Table: Other Accrued Liabilities (in thousands) | Other Accrued Liabilities (in thousands) | December 26, 2023 | September 26, 2023 | | :------------------------------------- | :------------------ | :------------------- | | Wages and other employee benefits | $2,442 | $2,892 | | Taxes, other than income taxes | $1,396 | $1,275 | | Gift card liability, net of breakage | $1,907 | $1,108 | | General expense accrual and other | $1,129 | $1,176 | | Total | $6,874 | $6,451 | Note 9. Notes Payable and Long-Term Debt - The company maintains an $8 million Cadence Credit Facility maturing April 20, 2028, with $1,250,000 borrowed and $6,740,000 of committed funds available as of December 26, 2023[49][54] - The weighted average interest rate on borrowings under the Cadence Credit Facility was 8.45% for the quarter, and the company was in compliance with all covenants[52][51] - Interest expense on notes payable increased to $26,000 for the quarter ended December 26, 2023, from $0 in the prior year[55] Note 10. Earnings (Loss) per Common Share Table: Earnings (Loss) per Common Share | Metric | Quarter Ended Dec 26, 2023 | Quarter Ended Dec 27, 2022 | | :-------------------------------- | :------------------------- | :------------------------- | | Weighted-average shares outstanding basic | 11,377,579 | 12,041,628 | | Weighted-average shares outstanding diluted | 11,377,579 | 12,041,628 | | Antidilutive shares excluded | 435,900 | 527,658 | - Basic and diluted weighted-average shares outstanding were identical for both periods, indicating no dilutive impact from stock options or restricted stock units due to the net loss[57] Note 11. Contingent Liabilities and Liquidity - The company is a defendant in a lawsuit regarding failed negotiations for the sale of the Good Times Drive Thru subsidiary, with an ongoing appeal by plaintiffs despite a successful trial for the company[59] - The company maintains a $332,000 accrual for contingent litigation expense, acknowledging potential losses exceeding this amount[61] Note 12. Leases - The company's material long-term operating leases are for restaurant land and buildings, with initial terms of 10-20 years, often including renewal options[62] Table: Lease Metrics | Lease Metric | December 26, 2023 | December 27, 2022 | | :------------------------------------------ | :------------------ | :------------------ | | Operating lease cost (in thousands) | $1,901 | $1,825 | | Weighted average remaining lease term (years) | 7.75 | 8.49 | | Weighted average discount rate | 5.0% | 5.0% | | Total lease liabilities (in thousands) | $47,104 | $49,240 | Table: Future Minimum Rent Payments (in thousands) | Future Minimum Rent Payments (in thousands) | Total | | :---------------------------------------- | :---- | | Remainder of 2024 | $6,130 | | 2025 | $8,219 | | 2026 | $7,791 | | 2027 | $7,494 | | 2028 | $6,733 | | Thereafter | $20,858 | | Total minimum lease payments | $57,225 | | Less: imputed interest | $(10,121) | | Present value of lease liabilities | $47,104 | Note 13. Impairment of Long-Lived Assets and Goodwill - No impairments of long-lived assets or trademarks were recorded for the fiscal quarters ended December 26, 2023, and December 27, 2022[70][72] - Goodwill is tested annually for impairment, with $96,000 attributable to Good Times and $5,617,000 to Bad Daddy's reporting units as of December 26, 2023[73] Note 14. Income Taxes - The effective income tax rate for the three months ended December 26, 2023, was (14.04%), a decrease from 0.0% in the prior year, due to the release of the company's valuation allowance during fiscal year 2023[75] - The company believes its income tax filing positions will be sustained upon audit and has not recorded reserves for uncertain income tax positions[76] Note 15. Non-controlling Interests Table: Non-controlling Interests Activity (in thousands) | Non-controlling Interests Activity (in thousands) | Total | | :---------------------------------------------- | :---- | | Balance at September 26, 2023 | $423 | | Income | $73 | | Distributions | $(29) | | Balance at December 26, 2023 | $467 | - Non-controlling interests increased to $467,000 as of December 26, 2023, primarily due to $73,000 in income attributable to non-controlling interests, mainly from Good Times joint-venture restaurants[79][126] Note 16. Segment Reporting - The company operates two reportable segments: Bad Daddy's Burger Bar (full-service) and Good Times Burgers and Frozen Custard (quick-service)[80] Table: Segment Performance (in thousands) | Segment Performance (in thousands) | Quarter Ended Dec 26, 2023 | Quarter Ended Dec 27, 2022 | | :--------------------------------- | :------------------------- | :------------------------- | | Revenues: | | | | Bad Daddy's | $24,193 | $25,226 | | Good Times | $8,939 | $8,168 | | (Loss) Income from Operations: | | | | Bad Daddy's | $(763) | $(7) | | Good Times | $389 | $114 | | Capital Expenditures: | | | | Bad Daddy's | $132 | $726 | | Good Times | $330 | $884 | Table: Segment Assets (in thousands) | Segment Assets (in thousands) | December 26, 2023 | September 26, 2023 | | :---------------------------- | :---------------- | :----------------- | | Property and equipment, net: | | | | Bad Daddy's | $18,468 | $18,053 | | Good Times | $4,085 | $4,983 | | Total assets: | | | | Bad Daddy's | $66,614 | $67,720 | | Good Times | $23,507 | $23,368 | Note 17. Subsequent Events - There were no subsequent events to report[82] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Analyzes operations, growth strategies, and financial performance, highlighting revenue changes, operating loss, inflation, and liquidity Overview - Good Times Restaurants Inc. operates and franchises Bad Daddy's Burger Bar (full-service) and Good Times Burgers & Frozen Custard (drive-through)[86] - The company focuses on targeted unit growth for Bad Daddy's and improving same-store sales and profitability for both concepts[87] Growth Strategies and Outlook - The company evaluates unit growth in light of inflationary impacts on the restaurant industry, despite opportunities for customer traffic and brand awareness growth[88] Restaurant locations - As of December 26, 2023, the company operated, franchised, or licensed 41 Bad Daddy's restaurants and 31 Good Times restaurants[89] Table: Restaurant Locations | Restaurant Type | 2023 | 2022 | | :---------------- | :--- | :--- | | Company-Owned/Co-Developed/Joint-Venture: | | | | Bad Daddy's Burger Bar | 40 | 40 | | Good Times Burgers & Frozen Custard | 25 | 23 | | Total Company-Owned | 65 | 63 | | Franchise/License: | | | | Bad Daddy's Burger Bar | 1 | 1 | | Good Times Burgers & Frozen Custard | 6 | 8 | | Total Franchise/License | 7 | 9 | Results of Operations Net Revenues Table: Net Revenues (in thousands) | Revenue Type (in thousands) | Quarter Ended Dec 26, 2023 | Quarter Ended Dec 27, 2022 | Change ($) | Change (%) | | :-------------------------- | :------------------------- | :------------------------- | :--------- | :--------- | | Restaurant sales | $32,946 | $33,179 | $(233) | -0.7% | | Franchise revenues | $186 | $215 | $(29) | -13.5% | | Total net revenues | $33,132 | $33,394 | $(262) | -0.8% | - Bad Daddy's restaurant sales decreased by $1,045,000 due to a prior-year closure and reduced customer traffic, partially offset by a 4.2% menu price increase and sales from a new Madison, Alabama restaurant[95] - Good Times restaurant sales increased by $812,000, primarily due to the acquisition of two franchised restaurants, increased customer traffic, and a 4.6% menu price increase[96] Same Store Sales - Bad Daddy's same-store sales decreased by 6.2% due to general weakness in casual dining and weaker traffic in key markets, partially offset by menu price increases[99] - Good Times same-store sales increased by 4.1%, driven by increased customer traffic and menu price increases[100] Restaurant Operating Costs Table: Restaurant Operating Costs (in thousands) | Cost Category (in thousands) | Dec 26, 2023 | % of Sales | Dec 27, 2022 | % of Sales | Change ($) | Change (%) | | :--------------------------- | :----------- | :--------- | :----------- | :--------- | :--------- | :--------- | | Food and Packaging Costs | $10,327 | 31.3% | $10,607 | 32.0% | $(280) | -2.6% | | Payroll and Other Employee Benefit Costs | $11,624 | 35.3% | $11,548 | 34.8% | $76 | 0.7% | | Restaurant Occupancy Costs | $2,505 | 7.6% | $2,458 | 7.4% | $47 | 1.9% | | Other Restaurant Operating Costs | $4,728 | 14.4% | $4,492 | 13.5% | $236 | 5.3% | | Depreciation and Amortization | $927 | 2.8% | $910 | 2.7% | $17 | 1.9% | | Total Restaurant Operating Costs | $30,111 | 91.4% | $30,015 | 90.4% | $96 | 0.3% | - Food and packaging costs decreased due to lower sales and purchase prices, while payroll costs increased due to higher average pay rates despite lower Bad Daddy's sales[104][107] - Other operating costs increased for both brands, driven by higher repair and maintenance, technology, utility expenses, and increased delivery sales commissions for Good Times[112][113] General and Administrative Costs - General and administrative costs decreased by $65,000 to $2,313,000 (7.0% of total revenues) from $2,378,000 (7.1% of total revenues) in the prior year[116] - The decrease was primarily due to reductions in professional services, office lease/equipment, general travel, recruiting/training, and health insurance costs, partially offset by increases in home office payroll and multi-unit supervisory roles[126] Advertising Costs - Advertising costs increased to $1,092,000 (3.3% of total revenues) from $894,000 (2.7% of total revenues) in the prior year[117] - Bad Daddy's advertising costs increased due to commissions on gift cards sold through large-box retailers, while Good Times advertising costs increased due to radio advertising and loyalty program expenses[118][119] Gain on Restaurant Asset and Equipment Sales - A gain of $10,000 was recognized from restaurant asset and equipment sales for the quarter ended December 26, 2023, compared to $0 in the prior year[121] (Loss) Income from Operations - The company reported a loss from operations of $374,000 for the quarter, a significant decline from an income of $107,000 in the prior year[121] Interest Expense - Interest expense increased to $32,000 for the quarter ended December 26, 2023, from $12,000 in the prior year[122] Provision for Income Taxes - A provision for income taxes of $77,000 was recorded for the quarter, compared to $0 in the prior year, due to the release of the valuation allowance[123][75] Net (Loss) Income - The company incurred a net loss of $483,000 for the quarter, a reversal from a net income of $95,000 in the prior year[123] Income Attributable to Non-Controlling Interests - Income attributable to non-controlling interests decreased to $73,000 from $222,000 in the prior year, primarily due to the acquisition of interests in Bad Daddy's joint-venture restaurants by the company[124][125] Adjusted EBITDA - Adjusted EBITDA is a non-GAAP measure used by management and investors to evaluate performance, excluding non-cash items like stock-based compensation, preopening expenses, and GAAP rent differences[129][130] Table: Adjusted EBITDA (in thousands) | Metric (in thousands) | Quarter Ended Dec 26, 2023 | Quarter Ended Dec 27, 2022 | | :-------------------- | :------------------------- | :------------------------- | | Net loss, as reported | $(556) | $(127) | | EBITDA | $482 | $752 | | Adjusted EBITDA | $347 | $674 | - Adjusted EBITDA decreased to $347,000 from $674,000 in the prior year, reflecting the decline in net income and other adjustments[132] Liquidity and Capital Resources Cash and Working Capital - As of December 26, 2023, the company had a working capital deficit of $8.5 million, primarily influenced by short-term lease liabilities[135] - Management believes existing cash and future borrowings from the Cadence Credit Facility will be sufficient to meet working capital and recurring capital expenditure needs in fiscal 2024[135] Financing - The company has a $5.0 million share repurchase program authorized in February 2022, with $1,343,000 remaining available for repurchases as of December 26, 2023[136][160] - The Cadence Credit Facility provides up to $8 million, maturing April 20, 2028, with $1,250,000 borrowed and $6,740,000 available as of December 26, 2023, at a weighted average interest rate of 8.45%[137][142][140] Cash Flows Table: Cash Flow Activity (in thousands) | Cash Flow Activity (in thousands) | Quarter Ended Dec 26, 2023 | Quarter Ended Dec 27, 2022 | | :-------------------------------- | :------------------------- | :------------------------- | | 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 flow usage increased by $98,000. Investing cash flow usage decreased by $271,000 due to lower property and equipment purchases. Financing cash flow shifted from a usage of $1,119,000 to a provision of $33,000, driven by credit facility borrowings[146][147][148][149] Impact of Inflation and Wage Increases at Both Concepts - Commodity prices, especially for key proteins, remain high and volatile, with ground beef costs projected to increase in the second half of fiscal 2024, alongside elevated costs for paper, packaging, and energy[150] - The company faces significant wage increases, particularly in Colorado, and while menu price increases are used, consumer preferences and competitor pricing may limit their effectiveness[151][152] Seasonality - Revenues are subject to seasonal fluctuations, with adverse weather in December-March affecting Colorado restaurant sales, especially Good Times, and Bad Daddy's experiencing reductions from November-January[153] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK States that quantitative and qualitative disclosures about market risk are not required for this filing - Quantitative and qualitative disclosures about market risk are not required for this report[154] ITEM 4. CONTROLS AND PROCEDURES Management concluded disclosure controls and procedures were effective, with no significant changes in internal control over financial reporting - The company's Chief Executive Officer and Senior Vice President of Finance and Accounting concluded that disclosure controls and procedures were effective as of December 26, 2023[156] - There were no significant changes in internal control over financial reporting during the fiscal quarter ended December 26, 2023[157] PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Refers to Note 11 for material legal proceedings, including an ongoing appeal in a lawsuit regarding a failed subsidiary sale - For a discussion of material legal proceedings, refer to Note 11 to the unaudited, consolidated financial statements[158] ITEM 1A. RISK FACTORS States no material changes to risk factors previously disclosed in the company's Form 10-K - There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of the company's Form 10-K for the fiscal year ended September 26, 2023[159] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Details the company's $5.0 million share repurchase program, with $1,343,000 remaining available as of December 26, 2023 - The company has a $5.0 million share repurchase program, effective February 7, 2022, with $1,343,000 remaining available for repurchases as of December 26, 2023[160] Table: Share Repurchase Activity | Period | Total shares purchased | Average price paid per share | | :--------------------- | :--------------------- | :--------------------------- | | 09/27/2023–10/24/2023 | 41,950 | $2.93 | | 10/25/2023–11/21/2023 | 40,199 | $2.68 | | 11/22/2023–12/26/2023 | 78,623 | $2.59 | | Total | 160,772 | | ITEM 3. DEFAULTS UPON SENIOR SECURITIES Indicates no defaults upon senior securities - There were no defaults upon senior securities[162] ITEM 4. MINE SAFETY DISCLOSURES States that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[163] ITEM 5. OTHER INFORMATION Reports no adoption, modification, or termination of Rule 10b5-1 trading arrangements by directors or officers during the quarter - No directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the quarter ended December 26, 2023[164] ITEM 6. EXHIBITS Lists exhibits furnished with the report, including certifications and XBRL instance and taxonomy documents Table: Exhibits | 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 | | 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) | SIGNATURES Contains signatures of authorized officers, including the CEO and SVP of Finance and Accounting, certifying the report - The report is signed by Ryan M. Zink, Chief Executive Officer, and Keri A. August, Senior Vice President of Finance and Accounting, on January 31, 2024[169]