Sonic: Vice President Of Investor Relations

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

and Treasurer

(405) 225-4800 

SONIC FISCAL 2017 EARNINGS PER SHARE INCREASE 12%

DRIVEN BY REFRANCHISING GAINS AND ASSET SALES

OKLAHOMA CITY (

October 16, 2017

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

August 31, 2017

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

Net income per diluted share decreased

versus

in the prior-year period; adjusted net income per diluted share remained the same as the prior-yea r period at

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 230 basis points;

27 new drive-ins opened; and

The company repurchased 1.8 million outstanding shares.

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

Net income per diluted share increased 12% to $1.45 compared with $1.29 in the prior year; adjusted net income per diluted share decreased 3% to $1.25 compared with adjusted net income per diluted share of $1.29 in the prior year;

System same-store sales declined 3.3%, consisting of a 3.2% same-store sales decrease at franchise drive-ins and a decrease of 4.7% at company drive-ins;

Company drive-in margins contracted by 60 basis points;

66 new drive-ins opened; and

The company purchased more than 6.7 million shares of its common stock, representing approximately 13.5% of outstanding shares for the fiscal year.

“Our weaker-than-expected same-store sales performance reflects the intense competitive environment and unfavorable weather we saw during the quarter, including the devastation caused by Hurricane Harvey,” said Cliff Hudson, Sonic Corp. CEO. “In addition, our movie-linked, softer promotional line-up in June and July did not match the traffic that was driven by product bundling in the summer of 2016. As we shifted to more aggressive, brand-centric promotions in late summer, we saw traffic and sales declines moderate.

“With a new marketing leadership team now in place, we continue to evolve the way we target, market to and engage with our most loyal drive-in customers. This includes the refinement of current media strategies to achieve a ten percent increase in reach as well as a complementary revision to our creative content. Despite additional weather disruption to start our first fiscal quarter, we continue to target positive same-store sales in fiscal 2018.

“Although sales were slower than we would have liked, we accomplished much in fiscal 2017, including the expansion of our new-store development pipeline with new and existing franchisee groups, the release of our fully integrated and redesigned mobile app and the testing of order ahead functionality. In addition, we repurchased over 6.7 million Sonic Corp. shares in fiscal 2017, or 13.5% of shares outstanding, while paying out over $24 million in dividends. We have fully transitioned to a more highly franchised business model and look forward to driving increased cash flow over the next several years.”

Financial Overview

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

$20.8 million

per diluted share compared to net income of

$25.4 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

August 31, 2016

Diluted

Net Income

Diluted EPS

$ Change

% Change

Reported – GAAP

20,831

25,437

(4,606

Net gain on refranchising transactions

Tax impact on refranchising transactions

Restructuring charges

Tax impact of restructuring charges

Gain on sale of real estate

(4,702

Tax impact on real estate sale

FIN 48 release of income tax credits and deductions

(3,038

Adjusted - Non-GAAP

18,942

21,744

(2,802

________________

Includes amortization of the deferred gain recorded for a second quarter refranchising transaction.

Tax impact during the period at an adjusted effective tax rate of 37.0%.

During the fourth quarter of fiscal year 2017 the company incurred severance costs related to the elimination of certain corporate positions.

For fiscal year 2017, net income totaled

$63.7 million

per diluted share compared with net income of

$64.1 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.

Fiscal year ended

August 31, 2017

August 31, 2016

63,663

64,067

(6,758

Gain on sale of investment in refranchised drive-in operations

(3,795

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

(1,875

Loss from early extinguishment of debt

Tax impact on debt extinguishment

(3,027

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

55,185

64,301

(9,116

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 exercised the option in the last six months of the fiscal year. Until the option was fully exercised, the franchisee made monthly lease payments which totaled $0.8 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 $0.8 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.

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%, 48.7% and 37.0% during the second, third and fourth quarters of fiscal year 2017, respectively; tax impact during fiscal year 2016 at an adjusted effective tax rate of 32.6%.

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 consolidated statements of income.

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

Tax impact during fiscal year 2017 at an adjusted effective tax rate of 37.0%; tax impact during fiscal year 2016 at an adjusted effective tax rate of 35.4%.

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

Fiscal Year 2018

Outlook

While the macroeconomic environment may impact results, the company continues to expect adjusted earnings per share for fiscal year 2018 to increase 5% to 10% year over year. The outlook for fiscal 2018 anticipates the following elements:

Approximately 0% to 2% same-store sales growth for the system;

Royalty revenue growth from new unit development;

70 to 80 new franchise drive-in openings;

Drive-in-level margins of 15.1% to 15.7%, depending upon the degree of same-store sales growth at company drive-ins;

Selling, general and administrative expenses of approximately $76 million to $78 million;

Depreciation and amortization expense of $40 million to $42 million;

Net interest expense of approximately $32 million to $34 million;

Capital expenditures of $38 million to $40 million; excluding spending on build-to-suit drive-in development, capital outlays would be $34 million to $36 million;

Free cash flow

of approximately $60 million to $65 million;

An income tax rate of approximately 35.0%;

The repurchase of approximately $160 million in shares across the fiscal year; and

An expected quarterly cash dividend of $0.16 per share.

Update on Investigation into Payment Card Breach

On September 18, 2017, the company was informed by its payment card processor that there appeared to be suspicious activity involving credit and debit cards used at certain Sonic Drive-In locations.  Upon learning of the suspicious activity, the company immediately contacted and began working with law enforcement to investigate the matter.  At the same time, the company immediately launched its own investigation with the help of experienced third-party forensics firms.  On October 4, 2017, from its investigations to date, the company issued a public statement notifying guests and the public that it had discovered that credit and debit card numbers may have been acquired without authorization as part of a malware attack experienced at certain Sonic Drive-In locations.  As a precautionary measure, the company offered 24 months of free fraud detection and identity theft protection through Experian’s IdentityWorks program to guests who used their cards at Sonic Drive-In locations this year. The company’s investigation is ongoing, and the company continues to work closely with experienced forensics firms and law enforcement officials to further investigate the matter.

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 (888) 806-6231 or (719) 325-4876 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 8522917.  The replay will be available until Monday, October 23, 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 will be available on the investor section of the company's website,

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 $8.5 million to public school teachers nationwide to fund essential learning materials and innovative teaching resources to inspire creativity and learning in their students. To learn more about Sonic Corp. (NASDAQ/NM: SONC), please visit

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

LimeadesforLearning.com

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

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.

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

72,601

111,456

296,101

425,795

Franchise Drive-Ins:

Franchise royalties and fees

47,840

47,663

170,527

170,319

Lease revenue

Total revenues

123,568

162,118

477,267

606,320

Costs and expenses:

Company Drive-Ins:

Food and packaging

19,859

30,888

80,971

118,136

Payroll and other employee benefits

24,789

38,625

107,477

150,260

Other operating expenses, exclusive of depreciation and amortization included below

13,923

22,974

61,463

88,424

Total cost of Company Drive-In sales

58,571

92,487

249,911

356,820

19,874

19,748

78,687

82,089

10,956

39,248

44,418

Provision for impairment of long-lived assets

Other operating income, net

(2,897

(1,543

(14,994

(4,691

Total costs and expenses

85,413

121,803

353,992

478,868

Income from operations

38,155

40,315

123,275

127,452

Interest expense

29,206

26,714

Interest income

(1,398

Debt extinguishment costs

27,808

34,948

Income before income taxes

31,034

33,256

95,467

92,504

Provision for income taxes

10,203

31,804

28,437

Basic income per share

Diluted income per share

Weighted average basic shares

41,309

47,237

43,306

48,703

Weighted average diluted shares

41,985

48,037

44,043

49,669

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:

Sales Analysis:

Total sales

Average drive-in sales

Change in same-store sales

Franchised Drive-Ins:

1,136,856

1,125,655

4,112,062

4,092,303

Change in total sales

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

(In thousands)

47,434

47,126

169,344

168,691

Franchise fees

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

Payroll and employee benefits

Cost of Company Drive-In sales

Selected Balance Sheet Data:

Cash and cash equivalents

22,340

72,092

Current assets

89,184

137,657

Property, equipment and capital leases, net

312,380

392,380

Total assets

561,744

648,661

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

58,616

74,663

Obligations under capital leases due after one year

16,167

17,391

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

628,116

566,187

Total liabilities

763,502

724,304

Stockholders' deficit

(201,758

(75,643

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

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Other recent filings from the company include the following:

Sonic: Documents Incorporated By Reference - Dec. 14, 2018
Sonic Corp. director just disposed of 52,477 shares - Dec. 10, 2018
Sonic Corp. director just disposed of 43,447 shares - Dec. 10, 2018
Sonic Corp. director just disposed of 4,225 shares - Dec. 10, 2018
Sonic Corp. director just declared 0 options and restricted shares - Dec. 10, 2018

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