DFRG Jan 2015 Investor Presentation 2016-01 ICR
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Transcript of DFRG Jan 2015 Investor Presentation 2016-01 ICR
18th Annual ICR Conference January 12, 2016
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DisclaimerThis presentation and the accompanying oral presentation contain forward‐looking statements, as defined by federal and state securitieslaws. Forward‐looking statements include statements concerning plans, objectives, goals, strategies, expectations, intentions, projections,developments, future events, performance or products, underlying assumptions and other statements which are other than statements ofhistorical facts. In some cases, you can identify forward‐looking statements by terminology such as “may,” “will,” “should,” “hope,” “expects,”“intends,” “plans,” “anticipates,” “contemplates, “believes,” “estimates,” “predicts,” “projects,” “potential,” “continue,” and other similarterminology or the negative of these terms. Forward‐looking statements are only predictions that relate to future events or our futureperformance and are subject to known and unknown risks, uncertainties, assumptions, and other factors, including those described under“Risk Factors” in our annual report on Form 10‐K (“Annual Report”), many of which are beyond our control, that may cause actual results,outcomes, levels of activity, performance, developments, or achievements expressed, anticipated or implied by these forward‐lookingstatements. As a result, we cannot guarantee future results, outcomes, restaurant activity, performance, developments, or achievements,and there can be no assurance that our expectations, intentions, anticipations, beliefs, or projections will result or be achieved oraccomplished. These forward‐looking statements are made as of the date hereof and are based on current expectations, estimates, forecastsand projections as well as the beliefs and assumptions of management. Our actual results could differ materially from those stated orimplied in forward‐looking statements. Neither we, nor any of our respective agents, employees or advisors intend or have any duty orobligation to supplement, amend, or update these forward‐looking statements even though our situation may change in the future. Further,we encourage you to review the risks that we face and other information about us discussed in the Annual Report and other filings, whichare available at www.sec.gov.
Throughout this presentation, we reference Adjusted EBITDA and restaurant‐level profit margin, which are both non‐GAAP financialmeasures. Please refer to the Appendix of this presentation as well as the our registration statement for a discussion of Adjusted EBITDAand restaurant‐level profit margin, as well as a reconciliation of those measures to the most directly comparable financial measure requiredby, or presented in accordance with, generally accepted accounting principles in the United States, or U.S. GAAP.
The trademarks included herein are the property of the owners thereof and are used for reference purposes only. Such use should not beconstrued as an endorsement of the products or services of Del Frisco’s Restaurant Group, Inc.
Business OverviewMark Mednansky, CEO
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Del Frisco’s Restaurant Group
50 restaurants 21 states LTM(a) Revenue of $323.4 million LTM(a) EBITDA of $47.7 million
One of the premier fine dining steakhouses
Features prime beef and an award‐winning wine list
Vibrant, energetic, white‐table cloth steakhouse
Features fine hand‐selected, aged steaks and broad offering of seafood
Classic American Grille in a casual atmosphere
Leverages Del Frisco’s positioning with broader range of price points
Del Frisco’sGrilleSullivan’s
(a) Represents last 4 quarters completed as of September 8, 2015.
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Investment Highlights
Differentiated, yet highly complementary concepts
Demonstrated, unique operating model
Highly attractive new unit economics
Significant growth opportunities
Proven management team
6
The Del Frisco’s “Next Generation” Difference
Food Diverse menu offering has broad appeal Bolder flavor profile
Service “Swarming” upbeat service Teamwork‐focused service approach
Bar Large, central bar Lively bar with signature cocktails
Décor Contemporary designs Appealing to both genders and wider age
demographic
Atmosphere Music and high energy
7
DFRG Delivers Impressive Growth
Higher unit growth compared to nearest public company peers
Expanded Del Frisco’s Grille to 18 restaurants or by 45% in 2014 vs. 2013
YTD Q315 revenue up 11.0% compared to the year ago period
2014 Peer Unit Growth(a)
a) As of latest available public filingsSource: Company information, public filings
2.8%
6.8%
0.1%
9.0%
5.0%
20.0%
2.9%
17.6%
15.0% 15.2%
0%
5%
10%
15%
20%
25%
2013 Growth
2014 Growth
2015E Growth
DFRG Unit Growth
8
Differentiated, Yet Highly Complementary Concepts
2014 AUV(a) $14.9m $5.7m $4.3m
No. of restaurants(b) 12 20 18
Geography Premier locations inmajor metro areas
Mix of urban and affluentsuburban locations withstrong lunch presence
Mix of urban and affluent suburban locations
Building size 11k – 24k sq. ft. 6.5k – 8.5k sq. ft. 7k – 11k sq. ft.
Target age group 35 – 64 25 – 54 35 – 54
(a) Represents average unit volumes for 52 weeks as of December 30, 2014(b) Restaurant count as of 9/17/15
$110
$51$62
$0$20$40$60$80$100$120
Averag
e ch
eck
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Del Frisco’s Double Eagle Steak House
Big and bold One of the premier steakhouse concepts in the U.S. Extensive, award‐winning wine list Contemporary and classic designs 12 locations in nine states and D.C. Food vs. beverage split: 66% / 34% 3Q 2015 LTM AUV of $14.8m ($12.2m excl. NYC) (a)
New York
Philadelphia Boston Chicago
(a) Represents LTM average unit volumes for 52‐weeks as of September 8, 2015 for locations open entire period.
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Leverages premier positioning of the Del Frisco’s brand– Del Frisco’s prime steaks and signature menu items at comparable prices – Assortment of upscale, relatively less expensive entrees
Customized experience with broad appeal for everyday dining Food vs. beverage split: 65% / 35% Lunch vs. dinner split: 23% / 77% 20 locations in eleven states and D.C. 3Q 2015 LTM AUV of $5.8m ($5.3m excl. NYC) (a)
($5.0m ‐ $6.0m target)
Del Frisco’s Grille
Irvine
Fort Worth Houston Southlake Atlanta
(a) Represents LTM average unit volumes for 52‐weeks as of September 8, 2015 for locations open entire period. Excludes Grilles closed in Palm Beach and Phoenix.
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Sullivan’s Steakhouse
Designed as a complementary concept to Del Frisco’s Fine hand‐selected aged steak, fresh seafood & custom cocktails Brand resonates with a broad demographic Comfortable fine dining in a high energy atmosphere 18 locations in 14 states Food vs. beverage split: 67% / 33% 3Q 2015 LTM AUV of $4.4m (a)
Four point plan is sharpening the brand– Leadership, menu, ambiance, and marketing
(a) Represents LTM average unit volumes for 52‐weeks as of September 8, 2015 for locations open entire period. Excludes Sullivan’s closed in Denver, Co.
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Our Food – A Bold Flavor Profile
13
Our Beverages – A Differentiated Approach
14
Recent & Future Growth Activity
Large Universe of Opportunities
2014 Openings 2015 Openings
Complementary conceptsAbility to co‐exist in the same marketsFlexible unit models
North Bethesda, MD Open Date: Sep. 2014 Size: 7,692 sq. ft.
Burlington, MA Open Date: Jun. 2014 Size: 7,900 sq. ft.
Irvine, CA Open Date: Aug. 2014 Size: 8,000 sq. ft.
Washington, D.C. Open Date: Sept. 2014 Size: 17,784 sq. ft.
Tampa, FL Open Date: Nov. 2014 Size: 8,607 sq. ft.
Plano, TXQ3, 2015
The Woodlands, TXQ2, 2015
Little Rock, ARQ4, 2015
Orlando, FLQ3, 2015
Pasadena, CA Open Date: Dec. 2014 Size: 7,177 sq. ft.
Cherry Creek, COQ4, 2015
Targeting 5 – 8 new unit openings per year
Stamford, CTQ3, 2015
Hoboken, NJQ4, 2015
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Grille – The Woodlands, TX
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Del Frisco’s – Orlando, FL
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Grille – Stamford, CT
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Significant Growth Potential for Del Frisco’s Grille
Third‐party study identified a 170+ unit potential with $5.2+ million AUV
Inclusive of six openings during 2015, still less than 15% of potential
19
Targeted Unit Economics
Note: Cash‐on‐cash returns are calculated including pre‐opening costs.
Target at Least 25%+ Cash‐on‐Cash Return at Each Concept
Targeted new unit AUV $9.0 – $10.0m $5.0 – $6.0m $4.5 – $5.0m
Cash investment
cost$7.0 – $9.0m $3.0 – $4.5m $3.0 – $4.5m
Targeted sales / cash investment
1.1x – 1.2x 1.2x – 1.7x 1.1x – 1.5x
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Organic Growth Drivers
– Tableside up‐selling of food items and menu enhancements– Continued focus on wine selection and cocktailsAverage Check
Private Dining
Marketing
Remodels and Renovations
– Dedicated resources driving strong private dining growth– Investment in additional private dining capacity
– Increase guest counts through effective marketing, including expansion of digital and social marketing with improved online presence
– Continued expansion of loyalty program
Multiple initiatives in place to drive continued comparable sales performance
– Selective remodels and renovations to enhance guest experience– Increased patio and private dining capacity– Completed three Sullivan’s in FY14 and two Sullivan’s in FY15
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Name Position Selected previous experience
Mark Mednansky CEO
Tom Pennison CFO
Ray Risley SVP, Operations ‐ Grille
Bill Martens VP, Development & Construction
Jim Kirkpatrick VP, Real Estate
Thomas Dritsas VP, Culinary & Executive Chef
April Scopa VP, People & Education
Lisa Kislak VP, Brand Marketing
Experienced Management Team
Financial OverviewTom Pennison, CFO
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Unit & SSS Growth Drives Strong Revenue GrowthComparable Restaurant Sales Growth
Revenues ($m)
Unit Growth
Source: Knapp Track
2730
3440
4650
2010 2011 2012 2013 2014 2015
11.2%
4.1%
1.3%2.4% 2.5%
0.1%1.5%
0.5%
‐1.4%‐0.2% ‐0.4%
1.4%
‐3.0%
‐1.0%
1.0%
3.0%
5.0%
7.0%
9.0%
11.0%
2011 2012 2013 2014 3Q14YTD
3Q15YTDDFRG Knapp Track
$162.9$198.6
$232.4$271.8
$301.8
$196.0$217.5
$0.0
$80.0
$160.0
$240.0
$320.0
2010 2011 2012 2013 2014 3Q14 YTD 3Q15 YTD
($ in m
illions
)
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Cost StructureFood and Beverage Costs as a % of Sales
Restaurant Operating Costs as a % of Sales 3Q15 LTM Cost of Sales Composition
Note: All financial information adjusted for discontinued operations.
Wine&OtherBeverages32.5%
Meat33.9%
Seafood15.0%
Produce/Cheese9.2%
OtherFood9.0%
2014 Cost of Sales Composition
30.4% 30.6% 30.6% 30.2% 30.2% 30.1% 28.9%
0.0%
10.0%
20.0%
30.0%
40.0%
2010 2011 2012 2013 2014 3Q14YTD
3Q15YTD
44.2% 43.5% 43.1% 44.8% 45.6% 46.3% 47.7%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
2010 2011 2012 2013 2014 3Q14YTD
3Q15YTD
Meat34.5%
Wine & Other Beverages32.3%
Seafood14.8%
Produce/Cheese9.3%
Other Food9.0%
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Strong Adjusted & Restaurant‐Level EBITDA
Restaurant‐level EBITDA
Adjusted EBITDA
$29.9
$36.4
$43.0 $44.7 $46.4
$28.0 $29.3
18.4%
18.3% 18.5%16.4% 15.4% 14.3% 13.5%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
$0.0$5.0$10.0$15.0$20.0$25.0$30.0$35.0$40.0$45.0$50.0
2010 2011 2012 2013 2014 3Q14 YTD 3Q15 YTD
Adjusted EBITDA
Adj. EBITDA Margin
$38.7
$47.3
$56.5$62.1
$67.0
$42.2$46.0
23.8%
23.8% 24.3% 22.9% 22.2%
21.6% 21.1%
10.0%
20.0%
30.0%
40.0%
50.0%
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.0
2010 2011 2012 2013 2014 3Q14 YTD 3Q15 YTD
Restaurant‐level EBITDA
Restaurant‐Level EBITDAMargin
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Segment Information – 3Q15 YTD
($ in thousands)
Revenues 106,255$ 100.0% 52,966$ 100.0% 58,286$ 100.0% 217,507$ 100.0%Costs and expenses: Cost of sales 31,747 29.9% 15,929 30.1% 15,163 26.0% 62,839 28.9% Labor 25,020 23.5% 15,846 29.9% 18,644 32.0% 59,510 27.3% Operating expenses 10,814 10.2% 7,963 15.0% 7,895 13.6% 26,672 12.3% Occupancy 7,451 7.0% 3,595 6.8% 6,604 11.3% 17,650 8.1%
Restaurant operating exp. 43,285 40.7% 27,404 51.7% 33,143 56.9% 103,832 47.7% Marketing and advertising 1,731 1.6% 1,601 3.0% 1,550 2.6% 4,882 2.2%Restaurant‐level EBITDA 29,492$ 27.8% 8,032$ 15.2% 8,430$ 14.5% 45,954$ 21.1%
Restaurant‐level EBITDA % YTD 2014 28.0% 14.8% 15.7% 21.6%
36 Weeks Ended September 8, 2015 (unaudited)Del Frisco's Sullivan's Grille Consolidated
EBITDA Margin %Grille Classification Locations 3Q15 YTD 3Q14 YTDOperating all of 2014 (1) 9 20.8% 18.5%Underperforming (closed in Q4) 2 ‐21.0% ‐6.6%2014/2015 New Openings building toward normalized margins (2) 8 6.6%
Total 19 14.5%
(1) Represents all Grilles open as of the end of 2013 excluding Underperforming category.(2) Represents five Grilles opened during 2014 and three in Q2/Q3 2015.
27
Capital Structure Positioned For Growth
Historically funded new restaurant growth from operating cash flow Limited working capital requirements Strong liquidity supported by cash flow from operations and credit facility $15.0 million revolving line of credit expandable to $30.0 million upon request entered into in Oct 2012, as amended, priced at LIBOR + 1.50%
Purchased 268,996 shares for $6.3 million during 2014 and 189,027 shares for $3.0 million during 2015. Authority in place to repurchase up to an additional $22 million over the next 3 years($m) Actual as of
December 31,2014
Sept. 8,2015
Cash & Cash Equivalents $3.5 $1.2
Total Debt Outstanding ‐ 15.1
Debt/Adjusted EBITDA ‐ 0.3x
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Q4 2015 Update (from 1/12/2016 press release)
16‐Weeks Ended (Q4) 52‐Weeks Ended (Year)
Revenue / Growth vs prior year
$113.9 to $114.1 million, +7.8%
$331.4 to $331.6 million,+9.9%
Comparable Sales: ‐2.2% ‐0.7%
Del Frisco’s Double Eagle ‐1.6% +0.1%
Grille ‐4.5% (traffic ‐0.7%) ‐4.4%
Sullivan’s Steakhouse ‐1.8% +0.2%
Restaurant development One Del Frisco’s Six Del Frisco’s Grilles
Restaurant ClosuresClosed two Del Frisco’s
Grilles
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Long‐Term Growth Model(a)
4‐8 New unit openings per year(a)4‐8 New unit openings per year(a)
15% ‐ 18%
2.0% – 3.0% Comparable restaurant sales growth2.0% – 3.0% Comparable restaurant sales growth
Maintain strong restaurant level marginsMaintain strong restaurant level margins
Modest G&A and interest expense leverageModest G&A and interest expense leverage
Target long‐term EPS growth
(a) During 2016, the Company will limit growth to 2-3 Grilles and one Del Frisco’s relocation with expectations within the above Long-Term Growth Model in 2017 and beyond.
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Investment Highlights
Differentiated, yet highly complementary concepts
Demonstrated, unique operating model
Highly attractive new unit economics
Significant growth opportunities
Proven management team
31
EBITDA Adjustments
Pre‐opening costs are costs incurred prior to opening a restaurant– Primarily consist of manager salaries,
relocation costs, recruiting expenses, employee payroll and related training costs for new employees, including rehearsal of service activities, as well as lease costs incurred prior to opening
– Also include marketing costs incurred prior to opening as well as meal expenses for entertaining local dignitaries, families and friends
– Currently target pre‐opening costs per restaurant of $800,000 for a Del Frisco’s restaurant and for a Grille restaurant, and $600,000 for a Sullivan’s restaurant
Non‐cash impairment charge during 2013 related to one Sullivan’s Steakhouse and 2014 one Grille
Management fees and expenses consisted of fees and expenses paid to Lone Star Fund and affiliate companies
Adjustments related to the completion of our IPO in July 2012 and secondary offerings include:‒ Terminated asset advisory agreement for
one time $3 million fee‒ Non‐cash expense of public offering
transaction bonuses paid by Lone Star Fund
Adjustments Description of adjustments36 Weeks Ended
($ thousands)2012 2013 2014
Sept. 9, 2014
Sept. 8, 2015
Operating income $ 24,621 $ 17,891 $ 24,540 $ 16,121 $ 11,214
Depreciation and amortization
8,675 11,300 13,598 9,053 11,001
Non‐cash impairment charges
‐ 2,360 3,536 ‐ 3,338
Pre‐opening costs 4,058 3,758 4,735 2,867 3,790
Management fees and expenses
1,252 ‐ ‐ ‐ ‐
Asset advisory termination fee
3,000 ‐ ‐ ‐ ‐
Secondary public offering costs
‐ 1,024 5 5 ‐
Public offering transaction bonuses
1,462 8,355 ‐ ‐ ‐
Adjusted EBITDA per SEC filings
$ 43,068 $ 44,688 $ 46,414 $ 28,046 $ 29,343
18th Annual ICR Conference January 12, 2016