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OFFON

CARROLS RESTAURANT GROUP, INC.

(TAST)
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Carrols Restaurant : Reports Financial Results for the Second Quarter 2021; Board of Directors Declares Special Cash Dividend of $0.41 per share, returning $25 Million of Capital to Stockholders

08/13/2021 | 11:02am EDT

SYRACUSE, N.Y- Carrols Restaurant Group, Inc. ('Carrols' or the 'Company') (Nasdaq: TAST) today reported its financial results for the second quarter ended July 4, 2021

Highlights for the Second Quarter of 2021 versus the Second Quarter of 2020 Include:

Total restaurant sales increased 15.2% to $424.5 million compared to $368.4 million in the second quarter of 2020;

Comparable restaurant sales for the Company's Burger King restaurants increased 12.6%;

Comparable restaurant sales for the Company's Popeyes restaurants decreased 5.3%;

Adjusted EBITDA(1) decreased to $29.3 million from $38.0 million in the prior year quarter;

Adjusted Restaurant-Level EBITDA(1) decreased to $47.9 million from $54.1 million in the prior year quarter;

Net Loss was $(9.6) million, or $(0.19) per diluted share, and includes a non-cash extinguishment of debt charge of $8.5 million, compared to Net Income of $7.8 million, or $0.13 per diluted share, in the prior year quarter;

Adjusted Net Income(1) was $16,000, or $0.00 per diluted share, compared to Adjusted Net Income of $9.6 million, or $0.16 per diluted share, in the prior year quarter;

Free Cash Flow(2) of $4.2 million compared to $48.6 million in the prior year quarter; and

Adjusted Leverage Ratio which compares Total Net Debt of the Company, including Unsecured Senior Notes, to Covenant EBITDA (as defined under the senior credit facility) improved to 3.82 times compared to 4.18 times a year ago.

(1)Adjusted EBITDA, Adjusted 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 (loss) from operations in the tables at the end of this release.

(2)Free Cash flow is a non-GAAP financial measure. Refer to the definition and reconciliation of this measure in the tables at the end of this release.

Management Commentary

Daniel T. Accordino, Chairman and Chief Executive Officer of Carrols, commented, 'Our revenue growth of 15.2% reflects comparable Burger King restaurant sales growth of 12.6% as well as growth from increased contributions from our Burger King restaurants that were temporarily closed last year due to the COVID-19 pandemic. As compared to the same respective weeks of 2019, our Burger King comparable sales in the second quarter of 2021 increased 7.8% driven by 20.9% higher average checks which were partially offset by traffic remaining at 89% of 2019 levels. While all of our Burger King restaurant dayparts improved in the second quarter of 2021 and our delivery sales mix reached 5.0% in June, trends slowed sequentially as we began to lap tougher comparisons from last year. The customer response to Burger King's new chicken sandwich, which was officially launched in June, was positive, doubling our crispy chicken sandwich daily unit sales compared to year-earlier levels. Sales of the new chicken sandwich have been stronger in our Northeast and Midwest regions than in our Southcentral and Southeast regions, which we believe is due to the concentration of entrenched chicken QSR brands in southern markets.'

Accordino continued, 'Inflationary challenges weighed on our Adjusted Restaurant-Level EBITDA margins during the second quarter as we faced unprecedented cost pressures across nearly all inputs in May and June as the economy shifted into high gear in a very short time period. In particular, labor cost margins reverted to just below second quarter 2019 levels as operating hours normalized and team member average hourly wages increased nearly 12% compared to the same period in 2020 due to market-driven labor constraints. Commodity costs in most categories other than beef also were elevated during the quarter. To help offset these unexpected headwinds, we increased menu prices by about 2% in late July and plan to implement other price increases through the remainder of the year as we deem necessary.'

Accordino concluded, 'We remain confident in our business model and its profitability prospects despite the evolving and unpredictable course of the pandemic. We are committed to allocating capital in a disciplined manner, while maintaining substantial liquidity and keeping leverage in check. We therefore view our announcement of a $0.41 per share special cash dividend as representing a tangible action we are taking to enhance shareholder value. We expect that any additional free cash flow generated this year beyond what we will be returning to stockholders through the special cash dividend will be used to reduce our net debt and improve our liquidity.'

Second Quarter 2021 Financial Results

Total restaurant revenue increased 15.2% to $424.5 million in the second quarter of 2021, compared to $368.4 million in the second quarter of 2020. Comparable restaurant sales for the Company's Burger King restaurants increased 12.6% compared to a 6.4% decrease in the prior year quarter. On a calendar basis, the Company's second quarter 2021 Burger King same store sales increased 14.2% compared to the Burger King U.S. system comparable sales increase of 13.0%, extending the Company's record of out-performing the U.S. Burger King system to 20 of the last 22 quarters. The Company's Popeyes restaurants, which represented 5.2% of total restaurant sales in the second quarter, decreased on a comparable restaurant sales basis by 5.3% compared to a 17.1% increase in the second quarter of 2020.

Adjusted Restaurant-Level EBITDA(1) decreased to $47.9 million in the second quarter of 2021 from $54.1 million in the prior year period. Adjusted Restaurant-Level EBITDA margin declined to 11.3% of restaurant sales from 14.7% in the second quarter of 2020, reflecting higher food, beverage and packaging costs, higher wage and related expenses, and higher other restaurant operating expenses as the Company went from focusing on cost containment in the second quarter of 2020 to a more normal operating environment in the second quarter of 2021. The hourly cost and availability of labor remains a challenge for the restaurant industry. While the Company believes labor shortages had only a minimal adverse impact on second quarter 2021 sales, in order to re-open its restaurants quickly and take advantage of the strengthening economy it necessitated raising wages and utilizing overtime to achieve regular operating hours and maintain staffing levels. The Company believes that over time, labor and commodity costs should begin to normalize, although visibility as to when is impossible to predict at this time given the constantly evolving post-COVID recovery.

General and administrative expenses increased to $20.7 million in the second quarter of 2021 from $18.6 million in the prior year period. The increase was due to short-term pay and travel reductions experienced last year.

Adjusted EBITDA(1) decreased to $29.3 million in the second quarter of 2021 from $38.0 million in the second quarter of 2020. Adjusted EBITDA margin decreased to 6.9% of total restaurant sales from 10.3% due to the factors discussed above. Second quarter 2021 Adjusted EBITDA exceeded second quarter 2019 Adjusted EBITDA of $24.1 million by $5.2 million.

Income from operations decreased to $5.9 million in the second quarter of 2021 from $14.3 million in the prior year quarter.

Interest expense increased to $6.9 million in the second quarter of 2021 from $6.4 million in the second quarter of 2020.

Net Loss was $(9.6) million in the second quarter of 2021, or $(0.19) per diluted share, compared to Net Income of $7.8 million, or $0.13 per diluted share, in the prior year quarter. Net Loss in the second quarter of 2021 included, among other items, $8.5 million of loss on extinguishment of debt, $0.7 million of other expense, net and pre-tax impairment and other lease charges of $0.1 million. Net Income in the second quarter of 2020 included, among other items, $2.9 million of impairment and other lease charges, $0.9 million in abandoned development costs, and $2.0 million in gains related to property damage recoveries and gains on sale leaseback transactions. Adjusted Net Income(1) was $16,000, or $0.00 per diluted share, compared to an Adjusted Net Income of $9.6 million, or $0.16 per diluted share, in the prior year quarter.

Balance Sheet Update

The Company ended the second quarter of 2021 with cash and cash equivalents of $56.2 million, and long-term debt (including current portion) and finance lease liabilities of $521.5 million. This total includes $46.0 million of outstanding revolving credit borrowings under its $175.0 million revolving credit facility. There are also $9.0 million of letters of credit issued under such facility leaving $120.0 million of availability under its revolving credit facility. Including our cash balance, the Company had $176.2 million of available liquidity at the end of the second quarter of 2021. The Company's Adjusted Leverage Ratio, which compares Total Net Debt of the Company, including Unsecured Senior Notes, to Covenant EBITDA (as defined under the senior credit facility), improved to 3.82 times at the end of the second quarter of 2021 compared to 4.18 times a year ago. The Company's First Lien Adjusted Leverage ratio improved to 1.36 times as a result of the reduction in secured debt of $273.3 million between the end of 2020 and the end of the second quarter of 2021, due to the private offering of $300 million of 5.875% Senior Notes due 2029 completed in June 2021.

Acquisition of 19 BURGER KING Restaurants

In June 2021, the Company completed two Burger King restaurant acquisitions of 14 restaurants located in Indiana and five restaurants located in Michigan, for a total purchase price of $30.8 million. This increased the Company's restaurant store count in two large Midwestern states where the Company already has a significant market presence. The Company intends to enter into sale leaseback transactions prior to the end of the third quarter of 2021 for 12 of these restaurants with total expected proceeds to the Company of approximately $20.1 million. There can be no assurance that these sale leaseback transactions will close in this timeframe or generate such proceeds.

$25 million Special Cash Dividend

The Board of Directors declared a $25 million special cash dividend amounting to $0.41 per share on all issued and outstanding shares of common stock, including common stock issuable on the conversion of our Series B Convertible Preferred Stock. The special cash dividend will be paid on October 5, 2021 to shareholders of record as of the close of business on August 25, 2021. The Company's preliminary assessment is that the special cash dividend will be treated as a tax-free return of capital causing a reduction in a holder's adjusted tax basis in Carrols Restaurant Group, Inc. common stock. If a holder's basis is reduced to zero, any remaining portion of the special cash dividend would be taxed as capital gains. Final determination of the tax treatment will be based on Form 1099s that will be sent to holders in 2022. Holders should consult with their tax advisors to determine tax treatment of the special cash dividend.

Extension of Stock Repurchase Program

During the second quarter of 2021, the Company did not repurchase any shares of its common stock due to a limited trading window as a result of the private debt offering.

The Board of Directors has approved an extension of the Company's 2019 stock repurchase program, which was set to expire on August 2, 2021 and has approximately $11 million of its original $25 million in capacity remaining. The Company's stock repurchase program will expire August 2, 2023, unless terminated earlier by the Board of Directors.

Conference Call Today

Daniel T. Accordino, the Company's Chairman and Chief Executive Officer, and Anthony E. Hull, the Company's Chief Financial Officer, will host a conference call to discuss second quarter 2021 financial results and provide a business update today at 8:30 AM ET.

The conference call can be accessed live over the telephone 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 13721214. The replay will be available until Thursday, August 19, 2021. Investors and interested parties may listen to a webcast of this conference call by visiting the Investor Relations page of the Company's website located at www.carrols.com. The press release and related presentation slides will be accessible via the same website page prior to the scheduled call.

About the Company

Carrols is one of the largest restaurant franchisees in North America. It is the largest BURGER KING franchisee in the United States, currently operating 1,027 BURGER KING restaurants in 23 states as well as 65 POPEYES restaurants in seven states. Carrols has operated BURGER KING restaurants since 1976 and POPEYES restaurants since 2019. For more information, 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, including without limitation the impact of COVID-19 on Carrols' business, as included in Carrols' filings with the Securities and Exchange Commission.

(a)	The Company uses a 52 or 53 week fiscal year that ends the Sunday closest to December 31. The three and six months ended July 4, 2021 and June 28, 2020 both included thirteen and twenty-six weeks, respectively.
(b)	Free Cash Flow is a non-GAAP financial measure and may not necessarily be comparable to other similarly titled captions of other companies due to differences in methods of calculation. Free Cash Flow is defined as cash provided by operating activities less cash used for investing activities, adjusted to add back cash paid for acquisitions. Management believes that Free Cash Flow, when viewed with the Company's results of operations in accordance with U.S. GAAP and the accompanying reconciliations in the table above, provides useful information about the Company's cash flow for liquidity purposes and to service the Company's debt. However, Free Cash Flow is not a measure of liquidity under U.S GAAP, and, accordingly should not be considered as an alternative to the Company's consolidated statements of cash flows and net cash provided by operating activities, net cash used for investing activities and net cash provided by financing activities as indicators of liquidity or cash flow. Free Cash Flow for the three months ended July 4, 2021 and June 28, 2020 is derived from the Company's consolidated statements of cash flows for the respective six month periods to be presented in the Company's Interim Condensed Consolidated Financial Statements in its Form 10-Q for the period ended July 4, 2021 and the Company's consolidated statements of cash flows for the previously reported three month periods ended April 4, 2021 and March 29, 2020 contained in the Company's Form 10-Q for the period ended April 4, 2021.
(c)	Long-term debt and finance lease liabilities (including current portion and excluding deferred financing costs and original issue discount) at July 4, 2021 included $174,000 of outstanding term B loans and $46,000 of outstanding revolving borrowings under the Company's senior credit facilities, $300,000 of 5.875% Senior Notes due 2029 and $1,451 of finance lease liabilities. Long-term debt and finance lease liabilities (including current portion and excluding deferred financing costs and original issue discount) at January 3, 2021 included $419,375 of Term Loan B and $73,875 of Term Loan B-1 borrowings under the Company's senior credit facilities and $908 of finance lease liabilities. Long-term debt and finance lease liabilities (including current portion and excluding deferred financing costs and original issue discount) at June 28, 2020 included $420,750 of outstanding term B loans and $75,000 of outstanding term B-1 loans under the Company's senior credit facilities and $1,390 of finance lease liabilities.
(d)	Net Debt represents total long-term debt and finance lease liabilities less cash and cash equivalents.
(e)	Senior Secured Net Debt represents total net debt less the $300M of unsecured 5.875% Senior Notes.
(f)	Adjusted Leverage Ratio represents the Company's Total Net Leverage Ratio as calculated in accordance with its senior credit facility for each period presented.
(g)	Senior Secured Net Leverage Ratio represents the Company's Net Leverage Ratio as calculated in accordance with its senior credit facility for each period presented.

See full release at:

https://investor.carrols.com/news-releases/news-release-details/carrols-restaurant-group-inc-reports-financial-results-second-11

Investor Relations:

Raphael Gross

203-682-8253

investorrelations@carrols.com

(C) 2021 Electronic News Publishing, source ENP Newswire

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Financials (USD)
Sales 2021 1 650 M - -
Net income 2021 -31,5 M - -
Net Debt 2021 463 M - -
P/E ratio 2021 -6,40x
Yield 2021 11,0%
Capitalization 185 M 185 M -
EV / Sales 2021 0,39x
EV / Sales 2022 0,36x
Nbr of Employees 16 563
Free-Float 59,4%
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Mean consensus BUY
Number of Analysts 6
Last Close Price 3,73 $
Average target price 6,10 $
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Daniel T. Accordino Chairman, President & Chief Executive Officer
Anthony E. Hull Chief Financial Officer, Treasurer & VP
Nathan Mucher Chief Information Officer
David S. Harris Independent Director
Hannah Stone Craven Independent Director
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