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Carrols Restaurant Group, Inc. Reports Financial Results for the Second Quarter 2018

August 7, 2018

SYRACUSE, N.Y.--(BUSINESS WIRE)--Aug 7, 2018--Carrols Restaurant Group, Inc. (“Carrols” or the “Company”) (Nasdaq:TAST) today announced financial results for the second quarter ended July 1, 2018 and raised its full year 2018 outlook.

Highlights for second quarter of 2018 versus second quarter of 2017 include:

Restaurant sales increased 8.4% to $303.0 million from $279.5 million in the second quarter of 2017; Comparable restaurant sales increased a solid 5.0% compared to a 4.6% increase in the prior year quarter; Adjusted EBITDA (1) increased 19.4% to $32.8 million from $27.5 million in the prior year quarter; Net income was $7.8 million, or $0.17 per diluted share, compared to $6.0 million, or $0.13 per diluted share, in the prior year quarter; and Adjusted net income (1) increased 51% to $10.0 million, or $0.22 per diluted share, from $6.6 million, or $0.14 per diluted share, in the prior year quarter.

At the end of the second quarter of 2018, Carrols owned and operated 807 BURGER KING® restaurants.

Daniel T. Accordino, the Company’s Chief Executive Officer said, “We delivered a solid quarter reflecting 8.4% top line growth, a 5.0% increase in comparable restaurant sales, and we generated significant increases in Restaurant-level EBITDA and Adjusted EBITDA, which rose 16.7% and 19.4%, respectively. Sales were strong across all day parts and reflected continued success of the 2 for $6 mix and match promotion, and the popularity of the KING™ Sandwich line including the new Sourdough sandwiches. These offerings provided an effective balance to our value promotions and other limited time offers as part of the brand’s successful barbell menu strategy.”

Accordino added, “Our acquisition pipeline is active and we are currently working on several transactions. We recently exercised our right of first refusal for the purchase of 31 BURGER KING® restaurants in Virginia and two restaurants in Michigan. We expect that these transactions, along with a couple of other small acquisitions, will close before the end of the third quarter of 2018.”

Accordino concluded, “Given our performance year-to-date and expectations for the remainder of the year, we are raising our overall outlook for 2018. While we remain cautiously optimistic regarding comparable restaurant sales trends as we lap our very strong performance in the second half of last year, we expect Adjusted EBITDA to now grow to $100 million to $105 million compared to $91.4 million in 2017.”

Second Quarter 2018 Financial Results

Restaurant sales increased 8.4% to $303.0 million in the second quarter of 2018 compared to $279.5 million in the second quarter of 2017. Comparable restaurant sales increased 5.0%, including an average check increase of 4.4% and customer traffic increase of 0.6% from the prior year period.

Restaurant-level EBITDA (1) was $47.4 million in the second quarter of 2018 and increased 16.7% from $40.6 million in the second quarter of 2017. Restaurant-Level EBITDA margin was 15.6% of restaurant sales and increased 111 basis points from the prior year period. In addition to benefitting from a 6.3% reduction in ground beef costs, many other operating costs were favorably leveraged due to the strong sales performance in the quarter. Restaurant labor costs, however increased 0.5%, as a percentage of restaurant sales, primarily due to higher workers compensation, medical and incentive costs.

General and administrative expenses were $16.0 million in the second quarter of 2018 compared to $14.4 million in the prior year period. As a percentage of restaurant sales, general and administrative expenses increased 13 basis points to 5.3% compared to the prior year period reflecting higher incentive and stock compensation costs.

Adjusted EBITDA (1) increased 19.4% to $32.8 million in the second quarter of 2018 compared to $27.5 million in the second quarter of 2017. Adjusted EBITDA margin increased 100 basis points to 10.8% of restaurant sales.

Income from operations was $13.8 million in the second quarter of 2018 compared to $12.3 million in the prior year period. Impairment and other lease charges increased $2.4 million from the second quarter of 2017 including a $1.9 million write-off for defective restaurant equipment that has been replaced in approximately 300 restaurants. The Company has commenced legal action against the equipment supplier.

Interest expense increased to $5.9 million in the second quarter of 2018 from $5.0 million in the same period last year due to the Company’s add-on offering and issuance of $75 million of its senior secured second lien notes completed in the second quarter of 2017. Cash balances totaled $38.2 million at the end of the second quarter of 2018.

Net income was $7.8 million for the second quarter of 2018, or $0.17 per diluted share, compared to net income of $6.0 million, or $0.13 per diluted share, in the prior year period.

Adjusted net income in the second quarter of 2018 was $10.0 million, or $0.22 per diluted share, compared to adjusted net income of $6.6 million, or $0.14 per diluted share, in the prior year period.

Recent Events

In late July, Carrols exercised its right of first refusal to purchase 31 BURGER KING® restaurants in Virginia and separately exercised its right of first refusal to purchase two restaurants in Detroit, Michigan under the terms and conditions of purchase and sale agreements between the sellers and unrelated third parties. The Company anticipates these transactions to close along with two small acquisitions (a total of four restaurants) before the end of the third quarter of 2018.

Full Year 2018 Outlook

The Company is revising its guidance for 2018 which includes the anticipated acquisition of 37 BURGER KING® restaurants (discussed above) that it expects to be completed in the third quarter of 2018:

Total restaurant sales are expected to be $1.16 billion to $1.18 billion (previously $1.15 billion to $1.17 billion), including a comparable restaurant sales increase of 3% to 4% (which has been narrowed from 3% to 5% previously); Commodity costs are expected to be flat (previously a 1% to 2% increase) including a 1% to 2% decrease in beef costs (previously a 2% to 3% increase); General and administrative expenses are still expected to be $58 million to $60 million, excluding stock compensation expense and acquisition-related costs; Adjusted EBITDA is expected to be $100 million to $105 million (previously $95 million to $102 million); The effective income tax rate is expected to be 0% to 5%; Capital expenditures before discretionary growth-related expenditures (i.e., new restaurant development and acquisitions) are expected to be $58 million to $62 million (previously $50 million to $60 million). In addition, capital expenditures for the construction of 13 to 15 new units and remaining costs from 2017 construction are expected to be $20 million to $25 million (previously $15 million to $25 million for 10 to 15 new units); Expenditures for the acquisition of 37 restaurants included in the Company’s guidance are expected to be $30 million to $32 million; Proceeds from sale/leasebacks are still expected to be $10 million to $15 million; and The Company expects to close 15 to 20 existing restaurants (previously 20 to 25 restaurants) of which five have already closed.

The Company has not reconciled guidance for Adjusted EBITDA to the corresponding GAAP financial measure because it does not provide guidance for net income or for the various reconciling items. The Company is unable to provide guidance for these reconciling items since certain items that impact net income are outside of the Company’s control or cannot be reasonably predicted.

Conference Call Today

Daniel T. Accordino, Chief Executive Officer, and Paul R. Flanders, Chief Financial Officer, will host a conference call to discuss second quarter 2018 financial results today at 8:30 AM ET.

The conference call can be accessed live over the phone by dialing 334-323-0522. A replay will be available one hour after the call and can be accessed by dialing 719-457-0820; the passcode is 1176022. The replay will be available until Tuesday, August 14, 2018. Investors and interested parties may listen to a webcast of this conference call by visiting www.carrols.com under the tab “Investor Relations”.

About the Company

Carrols is the largest BURGER KING® franchisee in the United States with 807 restaurants as of July 1, 2018 and has operated BURGER KING® restaurants since 1976. For more information on Carrols, 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 as included in Carrols’ filings with the Securities and Exchange Commission.

The following table sets forth certain unaudited supplemental financial and other data for the periods indicated (in thousands, except number of restaurants, percentages and average weekly sales per restaurant):

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