Carrols Restaurant Group, Inc. Reports Financial Results For the First Quarter 2019

Raises Guidance for Cambridge Merger

SYRACUSE, N.Y.–(BUSINESS WIRE)–Carrols Restaurant Group, Inc. (“Carrols” or the “Company”) (Nasdaq:
TAST) today reported financial results for the first quarter ended March
31, 2019.

Carrols owned and operated 845 Burger King® restaurants on March 31,
2019. On April 30, 2019, the Company completed its previously announced
merger with Cambridge Franchise Holdings, LLC (“Cambridge”) which
resulted in Carrols acquiring 165 additional Burger King® and 55
Popeyes® restaurants in 10 Southeastern states. The Company currently
operates 1,010 Burger King® and 55 Popeyes® restaurants in 23 states
following the acquisition and is the largest franchisee of Restaurant
Brands International, Inc. (the franchisor of Burger King®, Popeyes® and
Tim Hortons®).

Highlights for the First Quarter of 2019 versus the First Quarter of
2018 Include:

  • Restaurant sales increased 7.1% to $290.8 million from $271.6 million
    in the prior year quarter;
  • Comparable restaurant sales increased 2.4% compared to a 6.2% increase
    in the prior year quarter;
  • Adjusted EBITDA(1) was $13.1 million compared to $18.9
    million in the prior year quarter;
  • Net loss was $11.5 million, or $0.32 per diluted share, compared to
    net loss of $3.1 million, or $0.09 per diluted share, in the prior
    year quarter; and
  • Adjusted net loss(1) was $10.4 million, or $0.29 per
    diluted share, compared to adjusted net loss of $2.8 million, or $0.08
    per diluted share, in the prior year quarter.

(1)Adjusted EBITDA, Restaurant-level EBITDA and
Adjusted net income/loss are non-GAAP financial measures. Refer to the
definitions and reconciliation of these measures to net income/loss or
to income from operations in the tables at the end of this release.

Daniel T. Accordino, Chairman and Chief Executive Officer of Carrols,
commented, “We increased restaurant sales by over 7% and delivered 2.4%
growth in comparable restaurant sales during the first quarter of 2019
as we lapped our toughest comparable restaurant sales comparison from
the prior year of 6.2%. Notable first quarter promotions included the $6
King Box, the $1.49 10-piece Spicy Chicken Nuggets, and the Big King XL.”

Accordino continued, “Despite solid top line growth, restaurant level
profitability was negatively affected on a year over year basis in the
first quarter by promotional activity that accelerated during the second
half of last year, and by continued labor cost pressures. Although
discounting was much higher relative to the first quarter of 2018, these
elevated levels began to taper off mid-way through the first quarter
this year resulting in a modestly lower impact sequentially from the
fourth quarter of 2018. We expect the impact from this discounting to
subside as we move further into the year.”

Accordino concluded, “We are excited to have completed our
transformational merger with Cambridge and to welcome Matt Perelman and
Alex Sloane to our Board of Directors. The transaction strengthens our
position within the Burger King® system with opportunities to acquire
and open new restaurants, while adding Popeyes® as a growth brand to
further enhance our expansion alternatives. We are well along with our
plans to integrate Cambridge over the next several months. We believe
that as we assimilate these restaurants that there is good potential for
us to improve their sales and overall restaurant-level financial
performance. We also plan to leverage Cambridge’s development
capabilities as we move forward with this new phase of our growth. Our
updated annual guidance reflects our revised expectations for the core
Carrols’ business along with expected contributions from the
newly-acquired restaurants.”

First Quarter 2019 Financial Results

Restaurant sales increased 7.1% to $290.8 million in the first quarter
of 2019 compared to $271.6 million in the first quarter of 2018.
Comparable restaurant sales increased 2.4%, consisting of an average
customer traffic increase of 2.3% and an average check increase of 0.1%,
which included 1.3% of pricing.

Restaurant-level EBITDA(1) was $28.6 million in the first
quarter of 2019, compared to $33.4 million in the prior year period.
Restaurant-Level EBITDA margin was 9.8% of restaurant sales and
decreased 244 basis points from the first quarter of 2018 reflecting
deleveraging on cost of sales from heightened promotional levels and the
impact of higher restaurant wage costs.

General and administrative expenses were $19.7 million in the first
quarter of 2019 compared to $16.1 million in the prior year period, and
reflected a $2.6 million increase in acquisition costs. Excluding
acquisition costs, general and administrative expenses remained flat, as
a percentage of restaurant sales, at 5.9% compared to the prior year
period.

Adjusted EBITDA(1) was $13.1 million in the first quarter of
2019 compared to $18.9 million in the first quarter of 2018. Adjusted
EBITDA margin decreased 245 basis points to 4.5% of restaurant sales.

Loss from operations was $5.2 million in the first quarter of 2019
compared to income from operations of $2.7 million in the prior year
period.

Interest expense held at $5.9 million in the first quarters of 2019 and
2018. Cash balances totaled $1.7 million at the end of the first quarter
of 2019.

The net loss was $11.5 million in the first quarter of 2019, or $0.32
per diluted share, compared to a net loss of $3.1 million, or $0.09 per
diluted share, in the prior year period. The net loss in the first
quarter of 2019 included $0.9 million of impairment and other lease
charges and $2.7 million of acquisition expenses. Other income was $2.1
million and primarily included a $1.9 million cash settlement from
Burger King Corporation related to new restaurant development permitted
for other franchisees that unfavorably affected a number of Carrols
restaurants. The net loss in the first quarter of 2018 included $0.3
million of impairment and other lease charges and $0.1 million of
acquisition expenses.

Adjusted net loss(1) in the first quarter of 2019 was $10.4
million, or $0.29 per diluted share, compared to adjusted net loss of
$2.8 million, or $0.08 per diluted share, in the first quarter of 2018.

The Company adopted ASC 842, Leases, effective as of the
beginning of fiscal 2019, primarily resulting in changes to how leases
are presented on the Company’s balance sheet. As a result, the Company
has recorded right-of-use assets and lease liabilities representing the
Company’s obligation to make payments in exchange for that right of use
on its consolidated balance sheet. Following the adoption of ASC 842,
total leased assets totaled approximately $527.7 million at March 31,
2019 and total lease liabilities totaled $554.3 million. Most of the
related leases have historically been classified as operating leases,
and accordingly, the impact on rent expense was minimal, with the
exception of the elimination of amortization of gains on sale/leasebacks
previously recorded as a reduction in rent expense over the lease term.
This change is expected to increase annual rent expense by approximately
$1.6 million.

Updated Full Year 2019 Outlook

Carrols is providing the following updated annual guidance, which
includes the estimated impact from the recently completed merger with
Cambridge, but excludes any other potential acquisition(s) that the
Company may complete in 2019. These are estimates and may be updated as
the year and the integration of Cambridge progresses:

  • For the trailing twelve months, Cambridge’s financial results,
    adjusted for the pro forma effect of acquisitions completed by
    Cambridge during the preceding year, are estimated to include
    restaurant sales of approximately $300 million and Restaurant-level
    EBITDA of approximately $40 million. Adjusted EBITDA, including
    anticipated synergies after the integration of Cambridge’s corporate
    functions expected to be completed by the end of 2019, is estimated to
    be $25 million to $30 million;
  • Excluding Cambridge, total restaurant sales are expected to be $1.25
    billion to $1.28 billion including comparable restaurant sales growth
    of 2.0% to 3.5%. With Cambridge included for approximately eight
    months in 2019, total restaurant sales are expected to be $1.45
    billion to $1.48 billion;
  • Carrols expects recent increases in beef and pork prices brought about
    by the breakout of hog fever in China, among other things, to continue
    for the foreseeable future. This has caused the Company to revise its
    expected increase in commodity costs to 2% to 3% (from 1% to 2%
    previously) with beef costs increasing 5% to 6% (from 2% to 3%
    previously);
  • General and administrative expenses, excluding Cambridge, are still
    expected to be $62 million to $64 million, excluding stock
    compensation expense and acquisition or integration costs. Carrols
    expects that for the eight months that Cambridge will be included in
    its 2019 results that achieved synergies will be minimal and estimates
    incremental general and administrative expense attributable to
    Cambridge to be $11 million to $12 million in 2019. The Company
    expects to fully integrate the Cambridge corporate functions by the
    end of the year;
  • Adjusted EBITDA, including Cambridge results for approximately eight
    months, is expected to be $114 million to $121 million including $14
    million to $16 million for Cambridge;
  • Capital expenditures are expected to be $120 million to $130 million,
    including $50 million to $60 million for construction of 20 to 25 new
    Burger King® and 8 to 10 new Popeyes® restaurants, and $35 million to
    $40 million for remodels and upgrades;
  • Proceeds from sale/leasebacks are expected to be approximately $15
    million to $25 million (previously $10 million to $15 million);
  • As previously disclosed, Carrols completed a refinancing of both its
    existing debt and Cambridge’s debt in conjunction with the merger.
    This financing has lowered the Company’s effective cost of funds from
    8% to under 6% and expanded its capital available to fund its
    expansion strategy moving forward; and lastly
  • The Company expects to close 10 to 15 Burger King® restaurants, of
    which six have already closed during the first quarter of 2019.
    Restaurant closings related to the Cambridge business are not
    contemplated at this time.

Carrols has not reconciled guidance for Adjusted EBITDA to the
corresponding GAAP financial measure because it does not provide
guidance for net income or for the various reconciling items. The
Company is unable to provide guidance for these reconciling items since
certain items that impact net income are outside of Carrols’ control or
cannot be reasonably predicted.

Conference Call Today

Daniel T. Accordino, Chairman and Chief Executive Officer, and Paul R.
Flanders, Chief Financial Officer, will host a conference call to
discuss first quarter 2019 financial results today at 8:30 AM ET.

The conference call can be accessed live over the phone by dialing
201-493-6725. A replay will be available one hour after the call and can
be accessed by dialing 412-317-6671; the passcode is 13690286. The
replay will be available until Wednesday, May 15, 2019. Investors and
interested parties may listen to a webcast of this conference call by
visiting www.carrols.com
under the tab “Investor Relations”.

About the Company

Carrols is the largest Burger King® franchisee in the United States and
has operated Burger King® restaurants since 1976. The Company currently
operates 1,010 Burger King® restaurants and 55 Popeyes® in 23 states.
For more information on Carrols, please visit the company’s website at www.carrols.com.

Forward-Looking Statements

Except for the historical information contained in this news release,
the matters addressed are forward-looking statements. Forward-looking
statements, written, oral or otherwise made, represent Carrols’
expectation or belief concerning future events. Without limiting the
foregoing, these statements are often identified by the words “may”,
“might”, “believes”, “thinks”, “anticipates”, “plans”, “expects”,
“intends” or similar expressions. In addition, expressions of our
strategies, intentions, plans or guidance are also forward-looking
statements. Such statements reflect management’s current views with
respect to future events and are subject to risks and uncertainties,
both known and unknown. You are cautioned not to place undue reliance on
these forward-looking statements as there are important factors that
could cause actual results to differ materially from those in
forward-looking statements, many of which are beyond our control.
Investors are referred to the full discussion of risks and uncertainties
as included in Carrols’ filings with the Securities and Exchange
Commission.

Carrols Restaurant Group, Inc.

Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)
Three Months Ended (a)
March 31, 2019   April 1, 2018
Restaurant sales $ 290,789 $ 271,586
Costs and expenses:
Cost of sales 82,575 73,005
Restaurant wages and related expenses 100,192 91,144
Restaurant rent expense 21,916 19,974
Other restaurant operating expenses 45,605 42,839
Advertising expense 11,872 11,265
General and administrative expenses (b) (c) 19,724 16,136
Depreciation and amortization 15,292 14,250
Impairment and other lease charges 910 309
Other income, net (d) (2,129 )  

Total costs and expenses

295,957   268,922  
Income (loss) from operations (5,168 ) 2,664
Interest expense 5,947 5,926
Gain on bargain purchase   (22 )
Loss before income taxes (11,115 ) (3,240 )
Provision (benefit) for income taxes 354   (138 )
Net loss $ (11,469 ) $ (3,102 )
 
Basic and diluted net loss per share (e)(f) $ (0.32 ) $ (0.09 )
Basic and diluted weighted average common shares outstanding 36,045 35,666

(a) The Company uses a 52 or 53 week fiscal year that ends on the Sunday
closest to December 31. The three months ended March 31, 2019 and
April 1, 2018 each included thirteen weeks.

(b) General and administrative expenses include acquisition costs of
$2,656 and $105 for the three months ended March 31, 2019 and April 1,
2018, respectively.

(c) General and administrative expenses include stock-based compensation
expense of $1,526 and $1,585 for the three months ended March 31, 2019
and April 1, 2018, respectively.

(d) Other income, net, for the three months ended March 31, 2019,
included, among other things, a $1.9 million gain related to a
settlement with Burger King Corporation for the approval of new
restaurant development by other franchisees which unfavorably impacted
our restaurants.

(e) Basic net loss per share was computed excluding loss attributable to
preferred stock and non-vested restricted shares unless the effect would
have been anti-dilutive for the periods presented.

(f) Diluted net loss per share was computed including shares issuable
for convertible preferred stock and non-vested restricted shares unless
their effect would have been anti-dilutive for the periods presented.

Carrols Restaurant Group, Inc.

Supplemental Information

The following table sets forth certain unaudited supplemental
financial and other data for the periods indicated
(in
thousands, except number of restaurants, percentages and average
weekly sales per restaurant):

(unaudited)
Three Months Ended
March 31, 2019   April 1, 2018
 
Total Restaurant Sales $ 290,789 $ 271,586
Change in Comparable Restaurant Sales (a) 2.4% 6.2%
 
Average Weekly Sales per Restaurant (b) 26,529 25,983
 
Restaurant-Level EBITDA (c) $ 28,629 $ 33,359
Restaurant-Level EBITDA margin (c) 9.8% 12.3%
 
Adjusted EBITDA (c) $ 13,087 $ 18,913
Adjusted EBITDA margin (c) 4.5% 7.0%
 
Adjusted net loss (c) $ (10,391) $ (2,792)
Adjusted diluted net loss per share (c) $ (0.29) $ (0.08)
 
Number of Restaurants:
Restaurants at beginning of period 849 807
New restaurants 2 2
Restaurants acquired 1
Restaurants closed (6) (3)
Restaurants at end of period 845 807
Average Number of Restaurants: 843.2 804.2
At 3/31/19   At 12/30/2018
Long-term debt and finance lease liabilities (d) $ 285,915 $ 280,144
Cash and cash equivalents 1,668 4,014

(a) Restaurants are generally included in comparable restaurant sales
after they have been operated by us for 12 months. The calculation of
changes in comparable restaurant sales is based on the comparable
13-week period.

(b) Average weekly sales per restaurant are derived by dividing
restaurant sales for the comparable 13-week period by the average number
of restaurants operating during such period.

(c) EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Restaurant-Level
EBITDA, Restaurant-Level EBITDA margin and Adjusted net loss are
non-GAAP financial measures and may not necessarily be comparable to
other similarly titled captions of other companies due to differences in
methods of calculation. Refer to the Company’s reconciliation of net
loss to EBITDA, Adjusted EBITDA and Adjusted net loss, and to the
Company’s reconciliation of loss from operations to Restaurant-Level
EBITDA for further detail. Both Adjusted EBITDA margin and
Restaurant-Level EBITDA margin are calculated as a percentage of
restaurant sales. Adjusted diluted net loss per share is calculated
based on Adjusted net loss and reflects the dilutive impact of shares,
where applicable, based on Adjusted net loss.

(d) Long-term debt and finance lease liabilities (including current
portion and excluding deferred financing costs) at March 31, 2019
included $275,000 of the Company’s 8% Senior Secured Second Lien Notes,
$6,250 of outstanding revolving borrowings under the Company’s senior
credit facility, $1,200 of lease financing obligations and $3,465 of
finance lease liabilities. Long-term debt and finance lease liabilities
(including current portion and excluding deferred financing costs) at
December 30, 2018 included $275,000 of the Company’s 8% Senior Secured
Second Lien Notes, $1,203 of lease financing obligations and $3,941 of
finance lease liabilities.

Carrols Restaurant Group, Inc.

Reconciliation of Non-GAAP Measures

(In thousands, except per share amounts)

    (unaudited)
Three Months Ended
March 31, 2019       April 1, 2018
Reconciliation of EBITDA and Adjusted EBITDA: (a)
Net loss $ (11,469 ) $ (3,102 )
Provision (benefit) for income taxes 354 (138 )
Interest expense 5,947 5,926
Depreciation and amortization 15,292   14,250  
EBITDA 10,124 16,936
Impairment and other lease charges 910 309
Acquisition costs (b) 2,656 105
Other income, net (c) (2,129 )
Gain on bargain purchase (22 )
Stock-based compensation expense 1,526   1,585  
Adjusted EBITDA $ 13,087   $ 18,913  
 
Reconciliation of Restaurant-Level EBITDA: (a)
Income (loss) from operations $ (5,168 ) $ 2,664
Add:
General and administrative expenses 19,724 16,136
Depreciation and amortization 15,292 14,250
Impairment and other lease charges 910 309
Other income, net (c) (2,129 )  
Restaurant-Level EBITDA $ 28,629   $ 33,359  
 
Reconciliation of Adjusted net loss: (a)
Net loss $ (11,469 ) $ (3,102 )
Add:
Impairment and other lease charges 910 309
Acquisition costs (b) 2,656 105
Other income, net (c) (2,129 )
Gain on bargain purchase (22 )
Income tax effect on above adjustments (d) (359 ) (82 )
Adjusted net loss $ (10,391 ) $ (2,792 )
Adjusted diluted net loss per share $ (0.29 ) $ (0.08 )

(a) Within our press release, we make reference to EBITDA, Adjusted
EBITDA, Restaurant-Level EBITDA and Adjusted net loss which are non-GAAP
financial measures. EBITDA represents net loss before income taxes,
interest expense and depreciation and amortization. Adjusted EBITDA
represents EBITDA as adjusted to exclude impairment and other lease
charges, acquisition costs, stock-based compensation expense, and other
non-recurring income or expense. Restaurant-Level EBITDA represents loss
from operations as adjusted to exclude general and administrative
expenses, depreciation and amortization, impairment and other lease
charges and other non-recurring income or expense. Adjusted net loss
represents net loss as adjusted to exclude impairment and other lease
charges, acquisition costs, gain on bargain purchase, and other
non-recurring income or expense.

We are presenting Adjusted EBITDA, Restaurant-Level EBITDA and Adjusted
net loss because we believe that they provide a more meaningful
comparison than EBITDA and net loss of the Company’s core business
operating results, as well as with those of other similar companies.
Additionally, we present Restaurant-Level EBITDA because it excludes the
impact of general and administrative expenses and other expense, all of
which are non-recurring at the restaurant level. Management believes
that Adjusted EBITDA, Restaurant-Level EBITDA and Adjusted net loss,
when viewed with the Company’s results of operations in accordance with
GAAP and the accompanying reconciliations in the table above, provide
useful information about operating performance and period-over-period
growth, and provide additional information that is useful for evaluating
the operating performance of the Company’s core business without regard
to potential distortions. Additionally, management believes that
Adjusted EBITDA and Restaurant-Level EBITDA permit investors to gain an
understanding of the factors and trends affecting our ongoing cash
earnings, from which capital investments are made and debt is serviced.

However, EBITDA, Adjusted EBITDA, Restaurant-Level EBITDA and Adjusted
net loss are not measures of financial performance or liquidity under
GAAP and, accordingly, should not be considered as alternatives to net
income, loss from operations or cash flow from operating activities as
indicators of operating performance or liquidity. Also, these measures
may not be comparable to similarly titled captions of other companies.
The tables above provide reconciliations between net loss and EBITDA,
Adjusted EBITDA and Adjusted net loss and between loss from operations
and Restaurant-Level EBITDA.

(b) Acquisition costs for the three months ended March 31, 2019 mostly
include legal and professional fees incurred in connection with the
acquisition of 165 Burger King and 55 Popeyes restaurants from Cambridge
Holdings, LLC, which were included in general and administrative expense.

(c) Other income, net for the three months ended March 31, 2019 include
a $1.9 million gain related to a settlement with Burger King Corporation
for the approval of new restaurant development by other franchisees
which unfavorably impacted our restaurants, a gain on a sale-leaseback
transaction of $0.1 million, and a gain related to an insurance recovery
from a fire at one of our restaurants in the prior year of $0.1 million.

(d) The income tax effect related to the adjustments for impairment and
other lease charges, gain on bargain purchase, acquisition costs, and
other non-recurring income during the periods presented was calculated
using an effective income tax rate of 25% for the three months ended
March 31, 2019 and 21% for the three months ended April 1, 2018,
respectively.

Contacts

Carrols Restaurant Group, Inc.
Investor Relations:
800-348-1074,
ext. 3333
investorrelations@carrols.com

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