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Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the iPic Entertainment First Quarter 2019 Conference Call. [Operator Instructions] Please note, this conference is being recorded today, May 20, 2019. On the call today, we have Hamid Hashemi, Founder and Chief Executive Officer of iPic Entertainment; and Andre Loehrer, Interim Chief Financial Officer. And now I would like to turn the call over to Andre to begin.
Thank you, operator, and good afternoon, everyone. By now, you should have access to our earnings press release, which can be found on the Investor Relations section of our website at www.ipic.com under News Releases. Before we begin, I need to remind everyone that part of our discussion today will include forward-looking statements. These forward-looking statements are not guarantees of future performance and therefore, undue reliance should not be placed upon them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer all of you to our SEC filings including our annual report on Form 10-K for more detailed discussions of risks that could impact our future operating results and financial conditions.
During today's call, we'll also discuss certain non-GAAP measures which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are available in today's earnings release, which is available on our website.
And with that, I'd like to turn the call over to Hamid Hashemi, our Founder and Chief Executive Officer.
Thank you, Andre. Good afternoon, everyone, and thank you all for joining us today. We appreciate your continued interest in iPic Entertainment. We were rather surprised by the even slower-than-expected start for the industry this year but still pleased with the effectiveness of our cost control initiatives which protected our bottom line from a potentially even more severe deleveraging impact. Andre will walk you through the quarterly numbers in greater detail shortly. But for now, let me say that we were encouraged that food and beverage margins and theater margins both improved as a percentage of their applicable revenue while other operating costs were similarly lower as a percentage of total revenue. These results demonstrate that we are more effectively managing our store level cost, and that bodes well for what has since been a strengthening top line due primarily to Avengers: Endgame. In fact, looking ahead, we are well-positioned to take advantage of the strong film offerings for the remainder of the year, with these cost control measures firmly entrenched in our business.
However, between our top line performance during the first quarter and our Irvine location now being pushed into 2020, we have adjusted our annual revenue guidance down but still remain confident that our previous store level EBITDA and adjusted EBITDA range are within reach. There were primarily 3 factors that led to our first quarter revenue decline. First, the industry lapped a very robust box office from the previous year, including Black Panther, which made the first quarter 2018 the second highest grossing first quarter of all time. The film slate during the first quarter this year was not only comparatively weak but also included more kid-oriented movies within the top 10, which obviously has far less appeal to our core demographics.
Second, the government shutdowns in January had a strong negative impact not only on our North Bethesda location near Washington, D.C. but also our other locations in the Northeast.
Third, the polar vortex that began in late January and ended in mid-March resulted in numerous store shutdowns and weaker-than-expected attendance, primarily in February as people opted to stay home instead of venturing out for dining and entertainment. The good news is that Avengers: Endgame demonstrated how quickly momentum can swing when a film piques the public's interest and validates the appeal to consumers of seeing a high-quality movie conveniently in a theater. We similar shared this positive sentiment of film industry analysts for the remainder of the year as we forge ahead with leveraging iPic's unique and disruptive offering in our quest to become America's premier entertainment destination. And through the successful execution of our 4 key strategic initiative, we can drive better results going forward and create value to our stockholders over time. As you may recall, our roadmap consists of the following: one, improving existing location profitability; two, opening new high-returning iPic locations domestically; three, pursuing international growth opportunities; and four, expanding our non-box office revenues relating to better partnership, memberships and other digital growth options. As I referred a moment ago, the cost-saving initiatives we now have in place limited the impact of the revenue decline that we experienced during the first quarter. In particular, our focus has been on more effective labor management and scheduling as we are raising our productivity compared to last year. This includes mitigating headwinds stemming from minimum wage increases across many of our key markets while navigating the varying regulations regarding sufficient scheduling notices to hourly employees and of course, the tighter labor market overall. Our new labor scheduling tools have proven useful in optimizing our staffing model by presenting insightful calls to action at key points in the process while providing sufficient notification to our team and ensuring that our guests receive the unparalleled service they're accustomed to. This optimization is expected to reduce our labor cost by 100 basis points on an annual basis, all else being equal. We are also yielding greater efficiencies after a comprehensive review of our store level service contracts. This has involved bidding repairs and maintenance contracts at the local level and should result in considerable savings.
Our second key strategic initiative is to open new iPic locations domestically. In March, we opened our newest iPic in Delray, Florida. The location has been a welcome addition to the city's downtown as the first movie theater to open in over 40 years. Opening our doors in Delray marks the culmination of a 6-year journey made possible through a close collaboration with the city and the community redevelopment agency to deliver a truly unique experience to the community. Delray Beach is performing well while gaining cost efficiencies sooner than previous openings for the reason just described.
Our Irvine, California site which was scheduled to open during the fourth quarter and will mark our third location in Southern California has now been moved to the first half of the next year. This is due primarily to construction delays. Upon completion, iPic will be an anchor tenant at Park Place with 2.5 million square feet mixed-use office, retail and restaurant campus and will serve as the entertainment hub offering, the only affordable luxury full service theater and restaurant experience in the area.
Looking ahead, our pipeline beyond 2019 is robust. We have 9 signed leases, 4 of which are under construction and an additional 10 sites that are in lease negotiations. In the near term, the majority of our planned openings are geared towards achieving critical local market scale in Florida, Texas, California and the Tri-State area. But beyond that, there are significant white space opportunity to expand to 200 locations and roughly 1,600 screens across the United States. Our third key strategic initiative is to pursue international growth opportunities. The process to open in Saudi Arabia is clearly taking longer than we had expected, although we have already been cleared to receive a license to operate the theaters. At this point, we are patiently awaiting the receipt of the final documents since the security clearance has been completed. The plan is still to open next year in Riyadh, the country's capital and main financial hub. And we look forward to bringing our first class entertainment experience to the Saudi people as part of our international expansion of the iPic brand.
Lastly, our fourth key strategic initiative is to increase our digital revenue growth through corporate sponsorships and customer memberships. These 2 items work in parallel with each other because as we continue to grow and scale, as more units increase the number of iPic numbers, it leads to more sponsorship interest from branded partners. That in turn then increases the value of being an iPic member, driving an increasing membership rate.
Sponsorship revenue via branded partnership already includes Bulgari, Louis Vuitton, Evian, Dior, Cartier, Jo Malone, Capital One, Netflix, Mars, Dell, among other while our new CMO is working to take our brand's partnership activity to the next level by leveraging our large and growing membership base, which has very favorable demographics. Further, production of iPic Life, our 20-minute preshow program has opened up many opportunities for us to partner with brand influencers, chefs and mixologists to continue to surprise and delight our guests with new promotions, content and culinary offerings every month. Our enhanced membership rewards program now includes gold members receiving a 10% discount on all food and beverage purchases, along with complementary Premium-Plus birthday ticket during their birthday month. The customer spend on food and beverage increased 5.7% to $27.17 as compared to prior year quarter of $25.70 despite granting the paid members a discount. Generally, guests are willing to spend more on discounted food and beverage. This is all on top of the package of ongoing and enhanced benefits that include discounted membership ticket pricing and early access to reserved seating. We've also made it easier and more seamless for guests to earn Platinum and Platinum Elite membership status.
Finally, we're pleased with the success from our new digital performance marketing initiative geared to drive Gold membership sign-ups. Compared to Q1 2018, we are up 74% in paid membership sales. The strong value proposition of being a Gold member is resonating with our audience, and we continue to look for new ways to surprise and delight our members. We're pleased with our conversion rate going into Q2 and we are working with preferred agencies and acquisition partners to further optimize our touch points.
Before I turn the call over to Andre, I wanted to welcome Jason Daniel as our new Senior Vice President of Operations. This is a new role at the company and he will be focused on people and processes to ensure iPic is set up for scale and best-in-class execution. Jason brings to us 3 decades of hospitality and leadership experience from brands such as Bennigan's, Boston Market, Macaroni Grill, Metromedia Tavern and most recently, Cheddar’s Scratch Kitchen, a Darden branded restaurant.
At the same time, I would also like to thank Sherry Yard for her many contributions, including defining the role of culinary at iPic over the last 6 years. We thank her and wish her well as she pursues other business opportunities within the culinary world.
Let me also express my appreciation to our team members for their hard work, hospitality and dedication to iPic. They are the reason why we have such a loyal and growing membership base.
With that, I'd like to now turn the call over to Andre to provide more detail on our financial results.
Thank you, Hamid. Let's now review our first quarter 2019 results in greater detail. Total revenue for the first quarter decreased 21.9% to $30.2 million, driven mainly by a 21.7% decline in comparable store sales. SME described here a number of factors that resulted in our lower year-over-year revenue, the softer box office compared to last year, including more top 10 movies geared towards children, the government shutdown and unfavorable weather which resulted in closures and weaker attendance at some of our highest volume locations. Store level EBITDA, a non-GAAP measure was $1 million versus $3.3 million in the prior year first quarter. As a percentage of total revenue, store level EBITDA margin decreased 520 basis points to 3.4% versus 8.6% last year. The decrease was substantially driven by lower revenue, partially offset by favorable food and beverage costs, theater-related costs and other operating expenses as a percentage of total revenue.
Digging in each of those cost line items a little bit deeper. Food and beverage cost actually decreased 150 basis points to 26% of the applicable food and bev revenue while our spend per person increased by $1.47 to 5.7%. This increase was primarily attributable to our remodeling projects completed last year that increased the ratio of Premium-Plus seating across the circuits. Theater-related cost declined 340 basis points year-over-year to 39.9% of the applicable theater revenue due to higher sponsorship activities which created leverage on this line item.
Operating payroll and benefits increased 290 points -- basis points to 30.2% of the total revenue. This was caused by deleveraging due to lower revenue and labor wage inflation of mid to high single digits that was somewhat offset by a more efficient labor scheduling. However, in absolute dollars, payroll decreased by $1.4 million as compared to the previous year's quarter. Our occupancy costs rose 420 basis points to 16.2% of total revenue, driven by deleveraging on a lower revenue. Other operating expenses decreased 110 basis points to 18.5% of the total revenue. This decrease was due primarily to lower repairs and maintenance expenditures.
Moving down the income statement. G&A expenses decreased 61.4% to $5.1 million during the first quarter versus $13.1 million in the prior year. As a percentage of revenue, the G&A decreased of 1,710 basis points to 16.7%. This decrease stems largely from a decrease in equity-based compensation charges that's related to last year's IPO.
Total adjusted EBITDA, a non-GAAP measure, decreased to negative $3.8 million for the first quarter compared to negative $1.2 million in the first quarter of 2018. Noticeably, we expensed $1.1 million in pre-opening expenses that's related to the Delray Beach opening, $266,000 of stock-based compensation, and $123,000 of nonrecurring charges primarily related to legal expenses and our rebranding initiative in the first quarter of 2019.
In the year ago period, we expensed $8.6 million in stock-based compensation, $1.8 million in the loss on abandonment lease charges and $652,000 of nonrecurring charges in our adjusted EBITDA calculation.
Interest expense rose slightly to $4.8 million compared to $4.6 million, reflecting a higher average debt balance while our total long-term debt for the first quarter of 2019 increased by $43 million to $203.6 million from the first quarter of '18. Looking ahead, we are updating our full year 2019 outlook. We have lowered our range of total revenue between $146 million and $150 million from $153 million to $158 million. However, the comparable store sales growth is still projected to be in the lower range of mid-to-single digits.
Store level EBITDA remains at $19 million to $21 million although now we believe that more likely, we'll be at the lower end of this range. G&A expenses excluding stock-based comp of $22.5 million to $24.5 million. Adjusted EBITDA loss remains a negative $3 million and negative $1 million. Although similarly now, we believe that we are more than likely to be at the lower end of this range. One domestic opening in Delray Beach, Florida as Irvine, California has now moved into the next year. And finally, capital expenditures of $17 million to $19 million net of tenant improvement dollars, marking a substantial decrease from 2018.
We greatly appreciate you taking the time today to follow our story, and we look forward to updating you on our future calls. Operator, please open the line for any questions.
[Operator Instructions] Our first question comes from Brian Kinstlinger, Alliance Global Partners.
First, on the timing of the Irvine location, can you discuss what led to the construction delay or maybe a little bit more information? And then also, maybe a little bit more clarity on estimated opening other than the first half of the year which is a pretty wide range in 2020.
Brian, it's the -- really, the cause for the delay was going through the approval process in California, and nothing more than that. We are still in the process. We expect to have our approval shortly and begin construction. And in terms of the timing of it, first quarter, obviously, the timing of openings also, we always time it with the opening of new movies. And we want to open at the time when you get the best product coming out, so that's going to play into when we set the opening date. And it's a little bit early for us to really narrow it down to weeks or the month, but it certainly is going to be in the first quarter.
Okay, that's helpful. And then you mentioned weather has a reason, it sounds like there were some closures. Can you discuss either the impact of screens that were closed? Or any kind of quantitative measure -- sorry, qualitative measure, no, quantitative -- sorry, quantitative measure of closures this quarter compared to -- sorry, in the first quarter of '19 compared to the first quarter of '18.
Well, we have -- when we closed the theater, we closed the entire complex. When there's bad weather coming, typically, whether our staff is not showing, unable to get to the site or the guests are not able to -- they're not willing to leave their homes to go out. It typically -- when you close, it's a 2-, 3-day closure at any given time. I don't really have the exact number of days compared to last year. But last year, I don't remember shutting down the theater. This year, we -- multiple times, we actually ended up closing our theaters in New York, New Jersey, in Illinois, in Bethesda, New Jersey and Dobbs Ferry.
Okay. And then important point, maybe you can discuss the management changes or the exit of Sherry Yard and your plans of replacing her. Is that role essentially going to Jason? And maybe talk about the strategy behind that hire.
We are focusing right now on building the infrastructure to support our growth in terms of management. This is a new role, as I mentioned. I mean Sherry was really more focused on the culinary side of the business, building the menus and driving spend per person, while -- and by the way, she did a great job while she was here and she wasn't -- it wasn't really a single person show. She had assistants and people that were working along her side, and those people will carry on her torch. And Jason is -- his background, he's coming from Darden, where I'm sure you're familiar with them. Jason is very good at building systems that would allow us to continue our growth, bring in a great management team on board and training them.
I mean today, the biggest challenge for us and for many other restaurants is hiring and retaining good management. And that would only happen if we're taking good care of them, training them properly and creating an environment where they feel they're being productive, and Jason is very good at it.
Great. You've talked about 5 locations for 2020 now including Irvine and you talked about, obviously, setting up openings based on obviously, the movie slate which is unclear. Is there any thought based on construction plans that will be first half heavy, back-end heavy? Any kind of assumptions on those 5 locations?
Unfortunately, given that we're always kind of in somebody else's project, to some extent, our openings are predicated when we take delivery of our space. I mean I can tell you since our inception, when we were delivered our space, we've always opened on time from the time that we take delivery. But unfortunately, due to the complications that exist in the retail market, a lot of these projects -- and this is not unique to us. I mean a lot of developers are facing some challenges in terms of securing all the retail tenants in order to be able to get their financing and starting construction.
The 5 that I mentioned to you, I mean, these are -- the sites are all signed leases, they're in different stages of development. Irvine, like I said, the approval is getting completed. The other site in Atlanta, it's already under construction, that will be the next one. And then you've got Fort Lauderdale, Irvine and Hicksville. These sites are all -- it's very hard for me to pinpoint it for you to say exactly which month they're going to open but certainly, these are all slated for 2020 and 2021.
Great. And then maybe in light of a weak first quarter, I think we all expected maybe not this weak, but we expect a strong second quarter with Avengers, which maybe we didn't touch on enough. Can you discuss the impact it's had on the second quarter? I think the last second quarter in 2018 was also very strong. Should we see considerable growth, marginal growth? And then in terms of the bottom line, will this be your strongest adjusted EBITDA quarter that you've seen?
I think where we're going to benefit this quarter, hopefully, you're going to be able to see the results is aside from the strong product line, which is correct, I mean, we've had great success with Avengers, we had theaters out, we're running 22 hours a day during the opening week. But what I think we're going to have the benefit of is there are movies such as Piano Man that really plays to our core audience. There is Yesterday, that's opening up that's going to be a big surprise hit later in June.
I mean those are the types of movies that we really shine, and those are the type of movies that bring our crowds to our theaters. I think we'll have a strong -- very strong second quarter and we're optimistic that we'll be able to exceed our predictions. And obviously, with all the cost controls we've put in place, I would say we would definitely be in a much better place from an EBITDA level than ever before.
Okay, two more questions. First of all, if you look at the second half of the year, is the slate of movies favorable for your targeted demographic? Or is it relatively weak compared to last year?
No. I think this year is going to be -- I'm sure you looked at the film slate. By everyone's account, the remainder of the year is stronger than last year. We have the benefit of the last Star Wars in December. I mean it's a movie that plays to everyone. And along the way, there are a number of big pictures. I think in July, this is going to be geared more towards children with the opening of...
Lion King.
Lion King and...
Aladdin.
And Aladdin. It's opening this week. But the remainder of the product looks very strong. And there is more pictures, I believe, that will fall within the -- that will be more appealing to our demographics than we've had in the past.
Great. Lastly, I missed -- I think you said the average spend per customer and you compared it year-over-year. I didn't write it down fast enough. And then with the changes in Irvine, does CapEx change for the year?
Yes. And the CapEx for Irvine is moved to next year. So I think originally, our CapEx for this year is adjusted out to $17 million to $19 million. And that was really for Delray, and part of it -- a big part of it was for Delray. The balance of it is for start of Irvine, that's going to fall into this year.
And the average spend per customer comparison that you mentioned I think in your prepared remarks.
Well, this is the average spend on food and beverage. I'll give it to you in one second. I want to give you the exact number. It is 27 -- hang on. All right, $27.17 versus $25.70, it's a 5.7% increase.
Our next question comes from James Goss, Barrington Research.
This is Pat on for Jim. And I was just wondering if you could outline what other levers you guys are able to pull on the cost control side.
The bulk of -- the largest numbers that we shared with you were the labor and repair and maintenance. The other areas that we've focused on is food and beverage, which we already reduced, reduced it by 100 basis points, but we believe there's more -- there's room to reduce that number even further. We believe we can reduce that probably by about another 100 basis points over the next, probably 120 days. Aside from that, it's really some of the other miscellaneous. Really frankly, when you look at the operation of a movie theater, film cost, which is your single largest expense, it's pretty -- there's not a whole lot of leverage there. Unfortunately today, you only have 5 studios and frankly, the leverage shifting the other direction. The controllables are your labor, your rents are the same, I mean, we're in long-term leases. So the balance of it is really become -- boils down to labor, food cost and your controllables, which is your repair and maintenance, and those are the areas that we're focused on.
But more importantly, I mean those are the cost side of it. I think the focus for us is on the -- aside from the cost initiative, it's really driving the revenue per person, which the focus is on membership and branded partnership, which is a much higher margin item. And we've been able to grow that significantly and we believe there is a lot of runway there, so...
Okay. And then could you guys sort of outline just sort of the capital requirements for new location openings?
The -- can we -- I'm sorry...
Average CapEx spend for like, new theaters?
Average CapEx pre expenses -- pre-opening expenses range anywhere from $10 million to $12 million.
And is that before the tenant incentive inducements?
No, that's after TI.
Our next question comes from Andrew Shapiro, Lawndale Capital Management.
A few if I could. First off, when will the late 10-Q get filed?
They'll be filed today.
It's being filed today at 5 p.m.
So that will get filed and this is with a new auditor. Do they in a quarterly basis, have to issue opinions, going concern, qualified, unqualified when it comes to your quarterlies? Or is that only with your fiscal year end?
Great question. So for reviews, auditors do not provide a audit report on that. However, if you look at the risk factors and you look at Note #7 in the financials, there we talk about management's discussion regarding going concerns which they use.
Okay. And what I'm trying to actually get at or understand, I have a limited balance sheet that's from your press release, and albeit this quarter certainly suffered from some events that we all hope are nonrecurring to the industry. And of course, with Avengers, we certainly have improved box office itself. But on the balance sheet, it shows that the long-term debt-related party has gone up by $15 million since during the quarter, and that cash went down by $2.5 million. So you can you give me a little bit of reconciliation of where in a sense the $17.5 million of incremental liquidity are taken on borrowing and cash out the door kind of went?
Well, as with construction of Delray was predominantly taking place this year, so that was about a 12 -- roughly $12 million to $13 million outflow.
Okay. So that's a $12 million to $13 million of the $17.5 million and then the $4 million or $5 million or whatever is your negative EBIT -- adjusted EBITDA for the quarter in general, am I right?
That's correct.
Yes.
So and then Delray is complete and so during the current quarter started on April 1, Delray is not draining on the cash or being a cash demand, is that right?
That's correct.
Okay. So it'd just then be the negative operating cash flow, which would hopefully be reduced. But with only $3.5 million in cash, in a sense, you're kind of one bad movie or one polar vortex or something away. That seems to be a pretty thin cushion. What are the company's alternatives or means of enhancing liquidity here? And is it a stock issuance? Is it a debt issuance to the same party? What -- where are the levers for which you can provide a little bit more cash cushion here?
Sure. Our credit facility is $225 million of which we've taken out about just around 200 -- a little over $200 million of it. And our credit facility is available both for working capital as well as new construction. So we have access to capital but we certainly are actively in the market, and we just started conversations with bankers to raise capital. That can come in the form of either a public raise, secondary or it could be a pipe deal, but we're in conversation actively with interested parties. I can tell you that both from bankers as well as potential investors, and hope to have something concluded in the near future.
Now is there an active shelf registration or registration effective to allow that to go through smoothly and quickly?
No. But frankly, it has the secondary week, this process at this point is a 30-day process.
Okay. So it's not all that on them. And...
No, but they're not going to [ commission around ].
Right. And on the $225 million facility, who's the lender? And are there covenants on that?
It's Retirement System of Alabama and there are no covenants there.
The Retirement System of Alabama?
Yes.
Our next question comes from Ben Flox, Telsey Advisory Group.
The cost of food and beverage in the quarter, the margin was really strong. I'm curious how you guys are getting that, especially with the decline in same-store sales in the quarter. And you would call out another 100 bps you think you can take out over the next 120 days, I mean, is there -- is this a mix of pricing benefits, mix increases? Just kind of curious -- or maybe menu changes in general? Just kind of what's going on here and where you think another 100 bps can come from.
It's really more on the menu mixes than anything else and consolidating our purchasing in some of the areas. I mean given that we are basically a scratch kitchen, we use a lot of fresh ingredients and fresh products and we're consolidating our buying and being all under one roof. That's where it's really come from and we're confident we're going to be able to even take it further down.
Got you. That's helpful. And then in terms of your openings here, you called out up to 5 in 2020 and 2021. Can you just kind of remind us where you're planning these in the context of kind of backfilling existing markets versus new markets? I know you would call out California and Atlanta earlier, but...
Right. I mean the sites are in Fort Lauderdale, which really shores up our preexisting sites down in South Florida; Altanta is under construction; Tyson's Corner in D.C. area; Irvine, like we mentioned; and Hicksville in Long Island.
We have reached the end of the question-and-answer session. And I will now turn the call back over to management for closing remarks.
Thank you, everybody. And we look forward to the next call in approximately 90 days' time. Hamid, anything to add?
No. Thank you, everyone, again. We look forward to talking to you again. Bye-bye.
Bye-bye.
This concludes today's conference. You may now disconnect your lines. Thank you for your participation.