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Noodles & Company Announces Second Quarter 2013 Financial Results

Stocks in this article: NDLS

For more information on the non-GAAP financial measures, please see the Reconciliation of GAAP to non-GAAP Financial Measures tables in this press release. These accompanying tables have more details on the GAAP financial measures that are most directly comparable to non-GAAP financial measures and the related reconciliations between these financial measures.

About Noodles & Company

Founded in 1995, Noodles & Company is a fast-casual restaurant chain that serves classic noodle and pasta dishes from around the world with 348 locations system-wide in 26 states and the District of Columbia as of July 2, 2013. Known as Your World Kitchen, Noodles & Company's globally inspired menu consists of more than 25 fresh, customizable noodle bowls, salads, soups and sandwiches that are prepared quickly using quality ingredients. From healthy to indulgent, spicy to comforting, the menu provides favorites for everyone from kids to adults. Popular dishes include the sweet and spicy Japanese Pan Noodles, zesty Pesto Cavatappi and creamy Wisconsin Mac & Cheese.

Forward-Looking Statements

This press release contains a number of forward-looking statements. Words, and variations of words, such as "believe," "estimate," "anticipate," "expect," "intend," "may," "will," "would" and similar expressions are intended to identify our forward-looking statements. Examples of forward-looking statements include all matters that are not historical facts, statements regarding 2013 guidance, comparable restaurant sales and operating margins, new restaurant development, expected public company expense, and our outlook, in particular, our target and adjusted net income, targeted restaurant openings and effective tax rate. By their nature, forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the Company's forward-looking statements. These risks and uncertainties include: our ability to maintain increases in comparable restaurant sales and to successfully execute our growth strategy; current economic conditions; price and availability of commodities; consumer confidence and spending patterns; the assumptions used in the adjustment of interest expense and the adjustments for certain incremental legal, accounting, insurance and other compliance costs used in the calculation of adjusted net income; changes in consumer tastes and the level of acceptance of the Company's restaurant concepts (including consumer acceptance of prices); consumer reaction to public health issues and perception of food safety; seasonal factors; and weather.  For additional information on these and other factors that could affect the Company's forward-looking statements, see the Company's risk factors, as they may be amended from time to time, set forth in its filings with the SEC, including our final prospectus filed June 28, 2013.  The Company disclaims and does not undertake any obligation to update or revise any forward-looking statement in this press release, except as may be required by applicable law or regulation.

Noodles & Company
Consolidated Statements of Income
(in thousands, except share and per share data, unaudited)
         
  Fiscal Quarter Ended Two Fiscal Quarters Ended
  July 2, 2013 July 3, 2012 July 2, 2013 July 3, 2012
Revenue:        
Restaurant revenue  $ 88,362  $ 74,757  $ 168,880  $ 143,955
Franchising royalties and fees 877 737 1,639 1,427
Total revenue 89,239 75,494 170,519 145,382
Costs and expenses:        
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):        
Cost of sales 23,096 19,947 44,397 38,177
Labor 26,289 22,184 51,119 42,937
Occupancy 8,595 7,265 16,954 14,201
Other restaurant operating costs 11,575 9,711 22,635 19,264
General and administrative(1) 12,646 6,217 19,881 12,659
Depreciation and amortization 5,035 4,099 9,836 7,831
Pre-opening 769 590 1,690 1,171
Asset disposals, closure costs and restaurant impairments 297 282 498 462
Total costs and expenses 88,302 70,295 167,010 136,702
Income from operations 937 5,199 3,509 8,680
Interest expense 1,014 1,492 2,067 2,776
Income (loss) before income taxes (77) 3,707 1,442 5,904
Provision (benefit) for income taxes (145) 1,527 450 2,433
Net income  $ 68  $ 2,180  $ 992  $ 3,471
Earnings per share of Class A and Class B common stock, combined:        
Basic $ —   $ 0.09  $ 0.04  $ 0.15
Diluted $ —   $ 0.09  $ 0.04  $ 0.15
Weighted average Class A and Class B common stock outstanding, combined:        
Basic 23,509,781 23,238,984 23,374,383 23,238,984
Diluted 24,189,814 23,244,680 23,979,011 23,242,831
________________________        
         
(1)  In the second quarter of 2013, we incurred $5.7 million of IPO related expenses: $2.0 million of stock-based compensation related to accelerated vesting of outstanding stock options, $1.2 million of stock-based compensation related to stock options granted to our Chief Executive Officer and President and Chief Operating Officer of which 50% were vested at the time of grant, $1.7 million of transaction bonuses and related payroll taxes and $800,000 in transaction payments to our Equity Sponsors. Additionally, the second quarter of 2013 and 2012 and the first two quarters of 2013 and 2012 each included $250,000 and $500,000, respectively of management fee expense in accordance with our management services agreement and through the Class C common stock dividend paid to the holder of the one outstanding share of our Class C common stock. In connection with our IPO, the management services agreement expired and the one share of Class C common stock was redeemed.
 
 
Noodles & Company
Consolidated Statements of Income as a Percentage of Revenue
(in thousands, unaudited)
         
  Fiscal Quarter Ended Two Fiscal Quarters Ended
  July 2, 2013 July 3, 2012 July 2, 2013 July 3, 2012
Revenue:        
Restaurant revenue  99.0%  99.0%  99.0%  99.0%
Franchising royalties and fees  1.0  1.0  1.0  1.0
Total revenue  100.0  100.0  100.0  100.0
Costs and expenses:        
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):(1)        
Cost of sales  26.1  26.7  26.3  26.5
Labor  29.8  29.7  30.3  29.8
Occupancy  9.7  9.7  10.0  9.9
Other restaurant operating costs  13.1  13.0  13.4  13.4
General and administrative(2)  14.2  8.2  11.7  8.7
Depreciation and amortization  5.6  5.4  5.8  5.4
Pre-opening  0.9  0.8  1.0  0.8
Asset disposals, closure costs and restaurant impairments  0.3  0.4  0.3  0.3
Total costs and expenses  99.0  93.1  97.9  94.0
Income from operations  1.0  6.9  2.1  6.0
Interest expense  1.1  2.0  1.2  1.9
Income (loss) before income taxes  (0.1)   4.9  0.8  4.1
Provision (benefit) for income taxes  (0.2)   2.0  0.3  1.7
Net income  0.1%  2.9%  0.6%  2.4%
________________________        
(1)  As a percentage of restaurant revenue.
         
(2)  In the second quarter of 2013, we incurred $5.7 million of IPO related expenses; $2.0 million of stock-based compensation related to accelerated vesting of outstanding stock options, $1.2 million of stock-based compensation related to stock options granted to our Chief Executive Officer and President and Chief Operating Officer of which 50% were vested at the time of the grant, $1.7 million of transaction bonuses and related payroll taxes and $800,000 in transaction payments to our Equity Sponsors. Additionally, the second quarter of 2013 and 2012 and the first two quarters of 2013 and 2012 each included $250,000 and $500,000, respectively of management fee expense in accordance with our management services agreement and through the Class C common stock dividend paid to the holder of the one outstanding share of our Class C common stock. In connection with our IPO, the management services agreement expired and the one share of Class C common stock was redeemed.
 
 
Noodles & Company
Consolidated Selected Balance Sheet Data and Selected Operating Data
(in thousands, except restaurant activity and comparable restaurant sales, unaudited)
  As of
  July 2, 2013 January 1, 2013
Balance Sheet Data    
Total current assets  $ 17,277  $ 16,154
Total assets 171,687 156,995
Total current liabilities 24,446 23,760
Total long-term debt 207 94,481
Total liabilities 52,451 142,987
Temporary equity 3,601
Total stockholders' equity      119,236 10,407
  Fiscal Quarter Ended
  July 2, 2013 April 2, 2013 January 1, 2013 October 2, 2012 July 3, 2012
Selected Operating Data          
Restaurant Activity:          
Company-owned restaurants at end of period 295 284 276 261 253
Franchise restaurants at end of period 53 51 51 48 46
Revenue Data:          
Company-owned average unit volumes  $ 1,184   1,180   1,178   1,175   1,170
Franchise average unit volumes  $ 1,123   1,121   1,128   1,118   1,107
Company-owned comparable restaurant sales 4.7% 2.2% 4.2% 3.4% 6.8%
Franchise comparable restaurant sales 2.3% (1.9)% 2.9% 2.9% 9.0%
System-wide comparable restaurant sales 4.4% 1.5% 4.0% 3.3% 7.1%
 
 
Reconciliations of Non-GAAP Measurements to US GAAP Results 
 
Noodles & Company
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
(in thousands, unaudited)
 
  Fiscal Quarter Ended Two Fiscal Quarters Ended
  July 2, 2013 July 3, 2012 July 2, 2013 July 3, 2012
  (in thousands, unaudited)
Net income  $ 68  $ 2,180  $ 992  $ 3,471
Depreciation and amortization 5,035 4,099 9,836 7,831
Interest expense 1,014 1,492 2,067 2,776
Provision (benefit) for income taxes (145) 1,527 450 2,433
EBITDA  $ 5,972  $ 9,298  $ 13,345  $ 16,511
Asset disposals, closure costs and restaurant impairment 297 282 498 462
Management fees(a) 250 250 500 500
Stock-based compensation expense 378 297 741 606
IPO related expenses(b) 5,667 5,667
Adjusted EBITDA  $ 12,564  $ 10,127  $ 20,751  $ 18,079
______________________________        
         
EBITDA and adjusted EBITDA are supplemental measures of operating performance that do not represent and should not be considered as alternatives to net income or cash flow from operations, as determined by US GAAP, and our calculation thereof may not be comparable to that reported by other companies. These measures are presented because we believe that investors' understanding of our performance is enhanced by including these non-GAAP financial measures as a reasonable basis for evaluating our ongoing results of operations.
EBITDA is calculated as net income before interest expense, provision (benefit) for income taxes and depreciation and amortization. Adjusted EBITDA further adjusts EBITDA to reflect the additions and eliminations described in the table below.
EBITDA and adjusted EBITDA are presented because: (i) we believe they are useful measures for investors to assess the operating performance of our business without the effect of non-cash charges such as depreciation and amortization expenses and asset disposals, closure costs and restaurant impairments and (ii) we use adjusted EBITDA internally as a benchmark for certain of our cash incentive plans and to evaluate our operating performance or compare our performance to that of our competitors. The use of adjusted EBITDA as a performance measure permits a comparative assessment of our operating performance relative to our performance based on our US GAAP results, while isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. Companies within our industry exhibit significant variations with respect to capital structures and cost of capital (which affect interest expense and income tax rates) and differences in book depreciation of property, plant and equipment (which affect relative depreciation expense), including significant differences in the depreciable lives of similar assets among various companies. Our management believes that adjusted EBITDA facilitates company-to-company comparisons within our industry by eliminating some of these foregoing variations. Adjusted EBITDA as presented may not be comparable to other similarly-titled measures of other companies, and our presentation of adjusted EBITDA should not be construed as an inference that our future results will be unaffected by excluded or unusual items.
(a)  The second quarter of 2013 and 2012 and the first two quarters of 2013 and 2012 each included $250,000 and $500,000, respectively of management fee expense in accordance with our management services agreement and through the Class C common stock dividend paid to the holder of the one outstanding share of our Class C common stock. In connection with our IPO, the management services agreement expired and the one share of Class C common stock was redeemed.
(b)  Reflects certain expenses incurred in conjunction with the closing of our initial public offering. Amount includes $2.0 million of stock-based compensation related to accelerated vesting of outstanding stock options, $1.2 million of stock-based compensation related to stock options granted to our Chief Executive Officer and President and Chief Operations Officer of which 50% were vested at grant, $1.7 million of transaction bonuses and related payroll taxes and $800,000 in transaction payments to our Equity Sponsors.
 
Noodles & Company
Reconciliation of Net Income to Adjusted Net Income
(in thousands, unaudited)
         
  Fiscal Quarter Ended Two Fiscal Quarters Ended
  July 2, 2013 July 3, 2012 July 2, 2013 July 3, 2012
  (in thousands, unaudited)
Net income  $ 68  $ 2,180  $ 992  $ 3,471
Interest expense as reported (a) 1,014 1,492 2,067 2,776
Adjusted interest expense using reduced debt balances (b) (162) (162) (301) (301)
Pre-IPO management fees (c) 250 250 500 500
IPO related expenses (d) 5,667 5,667
Estimated incremental public costs (e) (357) (357) (714) (714)
Tax effect of adjustments (f) (2,514) (479) (2,830) (886)
Adjusted net income  $ 3,966  $ 2,924  $ 5,381  $ 4,846
         
Adjusted earnings per Class A and Class B common stock, combined (g)        
Basic  $ 0.13  $ 0.10  $ 0.18  $ 0.16
Diluted  $ 0.13  $ 0.10  $ 0.18  $ 0.16
Pro forma weighted average Class A and Class B common stock outstanding, combined (g)        
Basic 29,680,395 29,409,598 29,544,997 29,409,598
Diluted 30,360,428 29,415,294 30,149,625 29,413,445
_____________________________        
         
Adjusted net income is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. We define adjusted net income as net income plus a net savings in interest expense as a result of the pay down of debt using IPO proceeds, plus IPO related expenses and pre-IPO management fees, less estimated incremental costs of being a public company and the tax effects of these adjustments. Adjusted net income is presented because management believes it helps convey supplemental information to investors regarding our performance excluding the impact of the IPO and other special items that affect the comparability of results in past quarters and expected in future quarters. Our management uses this non-GAAP financial measure in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter.
         
(a)  Reflects the adjustment to eliminate the historical interest expense for all periods presented that were based upon actual outstanding balances before the application of the net proceeds from our IPO.
(b)  Reflects interest expense assuming no term loan balance and daily balances outstanding on our revolver adjusted for the repayment of the revolver down to $0.2 million. This balance reflects $100.2 million repayment of both term and revolving debt from the net proceeds of our IPO. The interest adjustment is based on the following assumptions:
(1)  Unused facility fees based on the daily revolver balances
(2)  Lower annual amortization of deferred loan costs due to the repayment of the term loan
(c)  Reflects the elimination of the management fees and Class C common stock dividend paid to our sponsors for the periods presented.
(d)  Reflects certain expenses incurred in conjunction with the closing of our initial public offering. The adjustment includes $2.0 million of stock-based compensation related to accelerated vesting of outstanding stock options, $1.2 million of stock-based compensation related to stock options granted to our Chief Executive Officer and President and Chief Operating Officer of which 50% were vested at grant, $1.7 million of transaction bonuses and related payroll taxes and $800,000 in transaction payments to our Equity Sponsors.
(e)  Reflects an adjustment of recurring incremental legal, accounting, insurance and other compliance costs we expect to incur as a public company. By its nature, this adjustment involves risks and uncertainties, and the actual costs incurred could be different than this adjustment.
(f)  Reflects the tax expense associated with the adjustments in a through e above at the normalized tax rate of 39.2%, which reflects our estimated long-term effective tax rate.
(g)  Reflects weighted average shares outstanding as if all shares sold in our IPO were outstanding as of the first day of our fiscal year. Adjusted per share amounts are calculated by dividing adjusted net income by the adjusted basic and diluted weighted average shares outstanding.
CONTACT: Investor Relations
         investorrelations@noodles.com
         
         Media
         Liz DiTrapano
         (646) 277-1226
         press@noodles.com

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