Sonic: Vice President Of Investor Relations

The following excerpt is from the company's SEC filing.

and Treasurer

(405) 225-4800 

SONIC REPORTS IMPROVED SALES TREND IN FISCAL THIRD QUARTER

Development Pipeline for New Drive-Ins Continues to Build

OKLAHOMA CITY (

June 22, 2017

) - Sonic Corp. (NASDAQ: SONC), the nation’s largest chain of drive-in restaurants, today announced results for its third fiscal quarter ended May 31, 2017.

Key highlights of the company’s third quarter of fiscal year 2017 included:

Net income per diluted share increased

versus

in the prior-year period; adjusted net income per diluted share remained the same as the pri or-year period at $0.43;

System same-store sales declined

, consisting of a

same-store sales decrease at franchise drive-ins and a

decrease at company drive-ins;

Company drive-in margins increased by 40 basis points;

15 new drive-ins opened; and

The company repurchased 1.2 million outstanding shares.

"Our third quarter results reflect the expected improvement in underlying sales and store profit versus the first half of the fiscal year, driven by a more balanced promotional calendar, including a reinvigorated SONIC Summer Nights promotion featuring our Real Ice Cream Slush," said Cliff Hudson, Sonic Corp. CEO. “Despite continued sluggish traffic, we are working to improve same-store sales this summer and beyond, with new product news, targeted value and quality customer service.

“Our unit growth, capital structure and technology initiatives are on track,” continued Hudson. “During the quarter, we continued to build our development pipeline with new and existing franchisee groups, we successfully released our redesigned mobile app that is fully integrated with our POPS network and we repurchased 1.2 million shares of our stock, bringing total shares repurchased to 4.9 million fiscal year to date, representing 9.9% of shares outstanding. We have made significant strides in transitioning to a more highly-franchised business model and look forward to driving increased free cash flow over the next several years.”

Same-Store Sales

For the third quarter ended May 31, 2017, system same-store sales decreased

, which was comprised of a 

same-store sales decline at franchise drive-ins and a decline of

at company drive-ins.

Financial Overview

For the third fiscal quarter of 2017, the company’s net income totaled

$18.8 million

per diluted share compared to net income of

$15.4 million

per diluted share in the same period of the prior year. Excluding the items outlined below, net income decreased

and net income per diluted share was flat.

The following analysis of non-GAAP adjustments is intended to supplement the presentation of the company’s financial results in accordance with GAAP.  The company believes that the presentation of this analysis provides useful information to investors and management regarding the underlying business trends and the performance of the company’s ongoing operations and is helpful for period-to-period and company-to-company comparisons, which management believes will assist investors in analyzing the financial results of the company and predicting future performance.

(In thousands, except per share amounts)

Three months ended

May 31, 2017

May 31, 2016

Diluted

Net Income

Diluted EPS

$ Change

% Change

Reported – GAAP

18,751

15,353

Net gain on refranchising transactions

Tax impact on refranchising transactions

Loss from early extinguishment of debt

Tax impact on debt extinguishment

(3,027

Adjusted - Non-GAAP

18,333

21,076

(2,743

________________

During the third quarter of fiscal year 2017, we made adjustments of $0.8 million to the retained minority investment related to the refranchising transactions that occurred in the first six months of the fiscal year. Additionally, we recorded a net loss as a franchisee initiated exercise of an option to purchase real estate related to a first quarter refranchising transaction, which was offset by amortization of the deferred gain recorded for a second quarter refranchising transaction.

Tax impact during the period at an adjusted effective tax rate of 48.7%.

Tax impact during the period at an effective tax rate of 34.6%.

For the first nine months of fiscal year 2017, net income totaled

$42.8 million

per diluted share compared with net income of

$38.6 million

per diluted share for the same period in 2016. Excluding the items outlined below, net income and net income per diluted share decreased

, respectively.

Nine months ended

42,832

38,630

(6,645

Gain on sale of investment in refranchised drive-in operations

(3,795

Tax impact on sale of investment in refranchised drive-in operations

Gain on sale of real estate

(1,875

Tax impact on real estate sale

Retroactive benefit of Work Opportunity Tax Credit and resolution of tax matters

36,243

42,557

(6,314

During the first quarter of fiscal year 2017, we completed two transactions to refranchise the operations of 56 company drive-ins. Of the proceeds, $3.8 million was applied as the initial lease payment for an option to purchase the real estate within 24 months. The franchisee initiated exercise of a portion of the option during the third fiscal quarter, resulting in a loss of $0.4 million. Until the option is fully exercised, the franchisee is making monthly lease payments which totaled $0.6 million for the fiscal year-to-date, net of sub-lease expense. During the second quarter of fiscal year 2017, we completed transactions to refranchise the operations of 54 company drive-ins, one of which resulted in a gain of $7.8 million and another in a loss of $1.4 million. The loss transaction reflects a deferred gain of $0.9 million as a result of a real estate purchase option extended to the franchisee. The deferred gain is being amortized into income through January 2020 when the option becomes exercisable. During the third quarter of fiscal year 2017, we made adjustments of $0.8 million to the retained minority investment related to the refranchising transactions that occurred in the first six months of the fiscal year.

Combined tax impact at an effective tax rate of 35.6% during the first quarter of fiscal year 2017 and at adjusted effective tax rates of 36.0% and 48.7% during the second and third quarters of fiscal year 2017, respectively.

Gain on sale of investment in refranchised drive-in operations is related to minority investments in franchise operations retained as part of a refranchising transaction that occurred in fiscal year 2009. Income from minority investments is included in other revenue on the condensed consolidated statements of income.

Tax impact during the period at an effective tax rate of 35.6%.

Tax impact during the period at an adjusted effective tax rate of 35.4%.

Fiscal Year 2017

Outlook

While the macroeconomic environment may impact results, the company continues to expect adjusted earnings per share for fiscal year 2017 to decline 2% to 5% year over year. The outlook for fiscal 2017 anticipates the following elements:

An approximate 2.5% same-store sales decline for the system;

Royalty revenue growth from new unit development;

65 to 75 new franchise drive-in openings;

Drive-in-level margins of 15.3%, depending upon the degree of same-store sales growth at company drive-ins;

Selling, general and administrative expenses of approximately $81 million;

Depreciation and amortization expense of $39.0 million to $39.5 million reflecting the divestiture of company drive-ins and the shorter depreciable life of technology investments;

Net interest expense of approximately $27.5 million to $28.0 million;

Capital expenditures of $46 million to $48 million; excluding spending on build-to-suit drive-in development, capital outlays would be $40 million to $42 million;

Free cash flow

of approximately $55 to $60 million;

An income tax rate between 34.0% to 34.5%;

The planned use of the remaining $45 million share repurchase authorization across the fiscal year, inclusive of refranchising proceeds; and

An expected quarterly cash dividend of $0.14 per share.

Earnings Conference Call

The company will host a conference call to review financial results at 5:00 PM ET this evening.  The conference call can be accessed live over the phone by dialing (877) 681-3375 or (719) 457-2601 for international callers.  A replay will be available one hour after the call and can be accessed by dialing (844) 512-2921 or (412) 317-6671 for international callers; the conference ID is 9328359.  The replay will be available until Thursday, June 29, 2017.  An online replay of the conference call will be available approximately two hours after the conclusion of the live broadcast. A link to this event may be found on the company's investor relations website at

http://ir.sonicdrivein.com/

About Sonic

SONIC, America's Drive-In is the nation's largest drive-in restaurant chain serving approximately 3 million customers every day. Nearly 94 percent of SONIC's 3,500 drive-in locations are owned and operated by local business men and women. For 64 years, SONIC has delighted guests with signature menu items, 1.3 million drink combinations and friendly service by iconic Carhops. Since the 2009 launch of SONIC's Limeades for Learning philanthropic campaign in partnership with DonorsChoose.org, SONIC has donated $8.4 million to public school teachers nationwide to fund essential learning materials and innovative teaching resources to inspire creativity and learning in today's youth. To learn more about Sonic Corp. (NASDAQ/NM: SONC), please visit

and please visit or follow us on Facebook and Twitter. To learn more about SONIC's Limeades for Learning initiative, please visit

Limeadesforlearning.com

This press release contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements reflect management’s expectations regarding future events and operating performance and speak only as of the date hereof. These forward-looking statements involve a number of risks and uncertainties. Factors that could cause actual results to differ materially from those expressed in, or underlying, these forward-looking statements are detailed in the company’s annual and quarterly report filings with the Securities and Exchange Commission. The company undertakes no obligation to publicly release revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unforeseen events, except as required to be reported under the rules and regulations of the Securities and Exchange Commission.

Free cash flow is defined as net income plus depreciation, amortization and stock compensation expenses, less capital expenditures expenditures and spending on build-to-suit drive-in development.

The tables that follow provide information regarding the number of company drive-ins, franchise drive-ins and system drive-ins in operation as of the end of the periods indicated.  In addition, these tables provide information regarding franchise sales, system growth in sales, and both franchise and system average drive-in sales and change in same-store sales.  System information includes both company and franchise drive-in information, which we believe is useful in analyzing the growth of our brand.  While we do not record franchise drive-in sales as revenues, we believe this information is important in understanding our financial performance since we calculate and record franchise royalties based on a percentage of franchise sales.  This information also is indicative of the financial health of our franchisees.

SONC-F

SONIC CORP.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

Revenues:

Company Drive-In sales

72,062

115,143

223,500

314,339

Franchise Drive-Ins:

Franchise royalties and fees

48,220

46,687

122,687

122,656

Lease revenue

Total revenues

123,990

165,239

353,699

444,202

Costs and expenses:

Company Drive-Ins:

Food and packaging

19,380

32,089

61,112

87,248

Payroll and other employee benefits

25,590

39,912

82,688

111,635

Other operating expenses, exclusive of depreciation and amortization included below

13,836

22,442

47,540

65,450

Total cost of Company Drive-In sales

58,806

94,443

191,340

264,333

20,763

20,617

58,813

62,342

11,405

29,531

33,461

Other operating income, net

(11,105

(3,071

Total costs and expenses

88,549

126,359

268,579

357,065

Income from operations

35,441

38,880

85,120

87,137

Interest expense

21,734

19,465

Interest income

(1,047

Debt extinguishment costs

15,405

20,687

27,889

Income before income taxes

28,414

23,475

64,433

59,248

Provision for income taxes

21,601

20,618

Basic income per share

Diluted income per share

Weighted average basic shares

42,402

48,377

43,972

49,192

Weighted average diluted shares

43,093

49,326

44,729

50,213

Unaudited Supplemental Information

Drive-Ins in Operation:

Company:

Total at beginning of period

Opened

Sold to franchisees

Closed (net of re-openings)

Total at end of period

Franchise:

Acquired from the company

System-wide:

($ in thousands)

Sales Analysis:

Total sales

Average drive-in sales

Change in same-store sales

Franchised Drive-Ins:

1,145,042

1,107,725

2,971,775

2,963,155

Change in total sales

Note:  Change in same-store sales based on restaurants open for a minimum of 15 months.

(In thousands)

47,890

46,296

121,910

121,565

Franchise fees

Margin Analysis (percentage of Company Drive-In sales):

Payroll and employee benefits

Cost of Company Drive-In sales

August 31,

Selected Balance Sheet Data:

Cash and cash equivalents

52,050

72,092

Current assets

117,956

137,657

Property, equipment and capital leases, net

327,527

392,380

Total assets

563,834

648,661

Current liabilities, including capital lease obligations and long-term debt due within one year

57,558

74,663

Obligations under capital leases due after one year

15,413

17,391

Long-term debt due after one year, net of debt issuance costs

601,631

566,187

Total liabilities

736,932

724,304

Stockholders' deficit

(173,098

(75,643

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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