Rave Restaurant (RAVE) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company reported increased nine-month revenues to $8.8 million but lower net income, with cash significantly reduced by stock repurchases Condensed Consolidated Statements of Income Revenues grew for the quarter and nine-month period, but net income and diluted EPS declined year-over-year Condensed Consolidated Statements of Income (in thousands, except per share amounts) | | Three Months Ended | | Nine Months Ended | | | :--- | :--- | :--- | :--- | :--- | | | Mar 26, 2023 | Mar 27, 2022 | Mar 26, 2023 | Mar 27, 2022 | | Revenues | $2,970 | $2,620 | $8,841 | $7,869 | | Income Before Taxes | $438 | $496 | $1,325 | $1,245 | | Net Income | $323 | $493 | $978 | $1,235 | | Diluted EPS | $0.02 | $0.03 | $0.06 | $0.07 | Condensed Consolidated Balance Sheets Total assets and shareholders' equity decreased, driven by a reduction in cash due to treasury stock purchases Condensed Consolidated Balance Sheet Highlights (in thousands) | | Mar 26, 2023 | Jun 26, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $3,867 | $7,723 | | Total current assets | $5,756 | $10,058 | | Total assets | $13,490 | $18,516 | | Total liabilities | $3,820 | $5,104 | | Total shareholders' equity | $9,670 | $13,412 | Condensed Consolidated Statements of Cash Flows Operating cash flow improved, but a $5.0 million stock repurchase led to a net decrease in cash for the nine-month period Cash Flow Summary for Nine Months Ended (in thousands) | | Mar 26, 2023 | Mar 27, 2022 | | :--- | :--- | :--- | | Cash provided by operating activities | $1,233 | $525 | | Cash (used in)/provided by investing activities | ($80) | $169 | | Cash used in financing activities | ($5,009) | ($1,787) | | Net decrease in cash and cash equivalents | ($3,856) | ($1,093) | | Cash and cash equivalents, end of period | $3,867 | $7,237 | - The primary use of cash in financing activities was the purchase of treasury stock, amounting to $4.98 million[20] Notes to Unaudited Condensed Consolidated Financial Statements Notes detail revenue growth from franchise royalties, an expanded stock repurchase plan, a $1.9 million legal contingency, and segment performance Revenue Breakdown for Nine Months Ended (in thousands) | Revenue Source | Mar 26, 2023 | Mar 27, 2022 | | :--- | :--- | :--- | | Franchise royalties | $3,680 | $3,315 | | Supplier and distributor incentive revenues | $3,260 | $3,051 | | Advertising funds contributions | $1,448 | $1,083 | | Total Revenues | $8,841 | $7,869 | - On June 28, 2022, the board increased the stock purchase plan authorization by 5,000,000 shares, bringing the total to 8,016,000 shares[52] - The company is appealing a $1.9 million judgment related to a breach of contract claim from a former CEO, with an unpredictable outcome[57] Segment Income Before Taxes for Nine Months Ended (in thousands) | Segment | Mar 26, 2023 | Mar 27, 2022 | | :--- | :--- | :--- | | Pizza Inn Franchising | $4,907 | $4,506 | | Pie Five Franchising | $761 | $748 | | Corporate administration and other | ($4,343) | ($4,006) | | Total Income Before Taxes | $1,325 | $1,245 | Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue growth was driven by Pizza Inn's performance, but higher expenses and taxes reduced net income, while a stock repurchase impacted liquidity Overview and Brand Performance Pizza Inn's domestic retail sales grew 15.6% in Q3, while Pie Five's sales saw a modest 2.6% increase - For Q3 FY2023, net income was $0.3 million, down from $0.5 million year-over-year, primarily due to a $0.1 million increase in income tax expense[77] Pizza Inn Domestic Retail Sales - Q3 (in thousands) | | Mar 26, 2023 | Mar 27, 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Domestic Retail Sales | $25,689 | $22,228 | 15.6% | | Comparable Store Retail Sales | $25,321 | $21,906 | 15.6% | Pie Five Domestic Retail Sales - Q3 (in thousands) | | Mar 26, 2023 | Mar 27, 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Domestic Retail Sales | $4,998 | $4,870 | 2.6% | | Comparable Store Retail Sales | $4,756 | $4,399 | 8.1% | Financial Results and Non-GAAP Measures Q3 revenue increased to $3.0 million, but higher franchise and tax expenses offset gains, keeping Adjusted EBITDA stable at $0.6 million Adjusted EBITDA Reconciliation (in thousands) | | Three Months Ended | | Nine Months Ended | | | :--- | :--- | :--- | :--- | :--- | | | Mar 26, 2023 | Mar 27, 2022 | Mar 26, 2023 | Mar 27, 2022 | | Net income | $323 | $493 | $978 | $1,235 | | EBITDA | $492 | $556 | $1,484 | $1,444 | | Adjusted EBITDA | $568 | $590 | $1,725 | $1,586 | - Pizza Inn franchise revenues increased to $2.5 million for Q3 FY2023 from $2.1 million in the prior year[100] - Franchise expenses increased to $1.0 million for Q3 FY2023 from $0.7 million YoY, mainly due to higher payroll, advertising, and travel costs[103] - Income tax expense for Q3 FY2023 was $115 thousand, a significant increase from $3 thousand in the same period last year[108] Liquidity and Capital Resources Cash from operations of $1.2 million was offset by a $5.0 million stock repurchase, but management believes liquidity remains sufficient - Cash provided by operating activities was $1.2 million for the nine-month period, compared to $0.5 million in the prior year[112] - Net cash used in financing activities was $5.0 million for the nine-month period, primarily due to stock repurchases[114] - Management believes current cash on hand combined with net cash provided by operations will be sufficient to fund operations for the next 12 months and beyond[115] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable as the company is a smaller reporting company - Not required for a smaller reporting company[128] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - Based on an evaluation, the company's principal executive and financial officers concluded that disclosure controls and procedures were effective[131] - There were no material changes in the Company's internal controls over financial reporting during the most recent fiscal quarter[131] PART II. OTHER INFORMATION Legal Proceedings The company is appealing a $1.9 million judgment from a former CEO's lawsuit, with an unpredictable final outcome - A court entered a $1.9 million judgment against the Company in a case with its former CEO[134] - The Company has appealed the judgment, and the ultimate outcome cannot be predicted at this time[134] Risk Factors This section is not applicable as the company is a smaller reporting company - Not required for a smaller reporting company[136] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 3.4 million shares in the last six months, with 2.0 million shares remaining under its expanded repurchase plan - The board amended the stock purchase plan to increase the repurchase authorization to a total of 8,016,000 shares[137] - During the six months ended March 26, 2023, the Company repurchased 3,356,977 shares, leaving 1,997,974 shares available for future repurchase[137] Defaults Upon Senior Securities Not applicable - Not applicable[139] Mine Safety Disclosures Not applicable - Not applicable[140] Other Information None - None[141] Exhibits This section lists filed exhibits, including officer certifications and interactive data files - The exhibits include certifications from the Principal Executive Officer and Principal Financial Officer[145]