RAVE RESTAURANT GROUP INC

Previous wording

The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes appearing elsewhere in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended June 25, 2023, together with our Quarterly Reports on Form 10-Q for the periods ended September 24, and December 24, 2023, may contain certain forward-looking statements that are based on current management expectations. Generally, verbs in the future tense and the words “believe,” “expect,” “anticipate,” “estimate,” “intends,” “opinion,” “potential” and similar expressions identify forward-looking statements. Forward-looking statements in this report include, without limitation, statements relating to our business objectives, our customers and franchisees, our liquidity and capital resources, and the impact of our historical and potential business strategies on our business, financial condition, and operating results. Our actual results could differ materially from our expectations. Further information concerning our business, including additional factors that could cause actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q, are set forth in our Annual Report on Form 10-K for the year ended June 25, 2023, as well as our Quarterly Reports on Form 10-Q for the periods ended September 24, and December 24, 2023. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The forward-looking statements contained herein speak only as of the date of this Quarterly Report on Form 10-Q and, except as may be required by applicable law, we do not undertake, and specifically disclaim any obligation to, publicly update or revise such statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Current wording

The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended June 30, 2024 and may contain certain forward-looking statements that are based on current management expectations. Generally, verbs in the future tense and the words “believe,” “expect,” “anticipate,” “estimate,” “intends,” “opinion,” “potential” and similar expressions identify forward-looking statements. Forward-looking statements in this report include, without limitation, statements relating to our business objectives, our customers and franchisees, our liquidity and capital resources, and the impact of our historical and potential business strategies on our business, financial condition, and operating results. Our actual results could differ materially from our expectations. Further information concerning our business, including additional factors that could cause actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q, are set forth in our Annual Report on Form 10-K for the year ended June 30, 2024. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The forward-looking statements contained herein speak only as of the date of this Quarterly Report on Form 10-Q and, except as may be required by applicable law, we do not undertake, and specifically disclaim any obligation to, publicly update or revise such statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Previous wording

Rave Restaurant Group, Inc., through its subsidiaries (collectively, the “Company” or “we,” “us” or “our”), franchises pizza buffet (“Buffet Units”), delivery/carry-out (“Delco Units”), express (“Express Units”) restaurants and ghost kitchens ("Pizza Inn Ghost Kitchen Units") under the trademark “Pizza Inn” and franchises fast casual pizza restaurants (“Pie Five Units”) and ghost kitchens ("Pie Five Ghost Kitchen Units") under the trademarks “Pie Five Pizza Company” or “Pie Five”. The Company also licenses Pizza Inn Express, or PIE, kiosks (“PIE Units”) under the trademark “Pizza Inn”. We facilitate food, equipment and supply distribution to our domestic and international system of restaurants through agreements with third party distributors. At March 24, 2024, franchised and licensed units consisted of the following:

Current wording

Rave Restaurant Group, Inc., through its subsidiaries (collectively, the “Company” or “we,” “us” or “our”), franchises pizza buffet (“Buffet Units”), delivery/carry-out (“Delco Units”), express restaurants (“Express Units”) and ghost kitchens (“Pizza Inn Ghost Kitchen Units”) under the trademark “Pizza Inn” and franchises fast casual pizza restaurants (“Pie Five Units”) and ghost kitchens (“Pie Five Ghost Kitchen Units”) under the trademarks “Pie Five Pizza Company” or “Pie Five”. The Company also licenses Pizza Inn Express, or PIE, kiosks (“PIE Units”) under the trademark “Pizza Inn”. We facilitate food, equipment and supply distribution to our domestic and international system of restaurants through agreements with third-party distributors. At September 29, 2024, franchised and licensed units consisted of the following:

Previous wording

The domestic units were located in 17 states predominantly situated in the southern half of the United States. The international units were located in seven foreign countries.

Current wording

The domestic units were located in 15 states predominantly situated in the southern half of the United States. The international units were located in eight foreign countries.

Previous wording

Adjusted EBITDA for the fiscal quarter ended March 24, 2024 increased $0.2 million compared to the same period of the prior fiscal year. Year-to-date Adjusted EBITDA increased $0.3 million compared to the same period of the prior fiscal year. The following table sets forth a reconciliation of net income to EBITDA and Adjusted EBITDA for the periods shown (in thousands):

Current wording

Adjusted EBITDA for the fiscal quarter ended September 29, 2024 increased $0.1 million compared to the same period of the prior fiscal year. The following table sets forth a reconciliation of net income to EBITDA and Adjusted EBITDA for the periods shown (in thousands):

Previous wording

Pizza Inn total domestic retail sales increased by $0.2 million, or 0.9%, for the three months ended March 24, 2024 when compared to the same period of the prior year. Compared to the same fiscal quarter of the prior year, average Buffet Units open in the period increased from 73 to 77. Comparable store retail sales decreased by $0.5 million to $24.7 million for the three month period ended March 24, 2024 as compared to the same period of the prior fiscal year. For the three months ended March 24, 2024, the increase in domestic retail sales were primarily the result of the increase in Buffet Units, offset by a decrease in comparable domestic store retail sales.

Current wording

Pizza Inn total domestic retail sales decreased by $0.7 million, or 2.5%, for the three months ended September 29, 2024 when compared to the same period of the prior year. Compared to the same fiscal quarter of the prior year, average Buffet Units open in the period increased from 75 to 78. Comparable store retail sales decreased by $0.5 million, or 2.1%, for the three month period ended September 29, 2024 as compared to the same period of the prior fiscal year. For the three months ended September 29, 2024, the decrease in domestic retail sales were primarily the result of the decrease in comparable domestic store retail sales, offset by an increase in Buffet Units.

Previous wording

The following chart summarizes Pizza Inn restaurant activity for the three and nine months ended March 24, 2024:

Current wording

The following chart summarizes Pizza Inn restaurant activity for the three months ended September 29, 2024:

Previous wording

There was a net decrease of eight and 19 units in the total domestic Pizza Inn unit count during the three and nine months ended March 24, 2024, respectively. There were one and four transfers in the total domestic Pizza Inn unit count during the three and nine months ended March 24, 2024, respectively. For the three and nine months ended March 24, 2024, the number of international Pizza Inn units increased by three and decreased by 13 units, respectively. There were zero transfers in the total international Pizza Inn unit count during the three and nine months ended March 24, 2024. The Company believes the number of both domestic and international Pizza Inn units will increase modestly in future periods.

Current wording

There was a net decrease of three units in the total domestic Pizza Inn unit count during the three months ended September 29, 2024. There were zero transfers in the total domestic Pizza Inn unit count during the three months ended September 29, 2024. For the three months ended September 29, 2024, the number of international Pizza Inn units increased by two units. There were zero transfers in the total international Pizza Inn unit count during the three months ended September 29, 2024. The Company believes the number of both domestic and international Pizza Inn units will increase modestly in future periods.

Previous wording

Pie Five total domestic retail sales decreased $1.2 million, or 24.3%, for the three months ended March 24, 2024 when compared to the same period of the prior year. Compared to the same fiscal quarter of the prior year, average units open in the period decreased from 31 to 24. Comparable store retail sales decreased by $0.3 million to $3.8 million during the third quarter of fiscal 2024 compared to the same period of the prior year. For the three months ended March 24, 2024, the decrease in domestic retail sales were primarily the result of the decrease in store count, supplemented by a decrease in comparable store retail sales. For the nine months ended March 24, 2024, the decrease in domestic retail sales were primarily the result of the decrease in store count, supplemented by a decrease in comparable store retail sales.

Current wording

Pie Five total domestic retail sales decreased by $1.8 million, or 37.5%, for the three months ended September 29, 2024 when compared to the same period of the prior year. Compared to the same fiscal quarter of the prior year, average units open in the period decreased from 27 to 20. Comparable store retail sales decreased by $0.3 million, or 8.7%, for the three month period ended September 29, 2024 as compared to the same period of the prior fiscal year. For the three months ended September 29, 2024, the decrease in domestic retail sales were primarily the result of the decrease in store count, supplemented by a decrease in comparable store retail sales.

Previous wording

The following chart summarizes Pie Five restaurant activity for the three and nine months ended March 24, 2024:

Current wording

The following chart summarizes Pie Five restaurant activity for the three months ended September 29, 2024:

Previous wording

There was a net decrease of one and four units in the total domestic Pie Five unit count during the three and nine months ended March 24, 2024, respectively. There was a net increase of zero and one Pie Five Ghost Kitchen Units during the three and nine months ended March 24, 2024, respectively. We believe that Pie Five units will decrease modestly in future periods.

Current wording

The Pie Five units remained stable during the three months ended September 29, 2024. We believe that Pie Five units will decrease modestly in future periods.

Previous wording

The Company defines its operating segments as Pizza Inn Franchising and Pie Five Franchising. The following is additional business segment information for the three and nine months ended March 24, 2024 and March 26, 2023 (in thousands):

Current wording

The Company defines its operating segments as Pizza Inn Franchising and Pie Five Franchising. The following is additional business segment information for the three months ended September 29, 2024 and September 24, 2023 (in thousands):

Previous wording

Revenues are derived from franchise royalties, franchise fees and supplier and distributor incentives, advertising funds, area development exclusivity fees and foreign master license fees, supplier convention funds, sublease rental income, and interest and other income. The volume of supplier incentive revenues is dependent on the level of chain-wide retail sales, which are impacted by changes in comparable store sales and restaurant count, as well as the products sold to franchisees through third-party food distributors.

Current wording

Revenues are derived from franchise royalties, supplier and distributor incentives, franchise license fees, area development exclusivity fees and foreign master license fees, advertising funds, supplier convention funds, sublease rental income, and other income. The volume of supplier incentive revenues is dependent on the level of chain-wide retail sales, which are impacted by changes in comparable store sales and restaurant count, as well as the products sold to franchisees through third-party food distributors.

Previous wording

Total revenues for the three month period ended March 24, 2024 and for the same period of the prior fiscal year were $3.0 million and $3.0 million, respectively.

Current wording

Total revenues for the three month period ended September 29, 2024 and for the same period in the prior fiscal year were $3.1 million and $3.1 million, respectively.

Previous wording

Pizza Inn franchise revenues remained relatively stable at $2.5 million for the three month period ended March 24, 2024 as compared to the same period in the prior fiscal year. The 2.0% increase was driven by increases in supplier and distributor incentives, offset by decreases in domestic royalties. Pizza Inn franchise revenues increased by $0.1 million to $7.4 million for the nine month period ended March 24, 2024 as compared to the same period in the prior fiscal year. The 1.4% increase was driven by increases in supplier and distributor incentives.

Current wording

Pizza Inn franchise revenues increased by $0.1 million to $2.7 million for the three month period ended September 29, 2024 as compared to the same period in the prior fiscal year. The 4.5% increase was driven by increases in supplier and distributor incentives.

Previous wording

Pie Five franchise revenues decreased by $0.1 million to $0.4 million for the three month period ended March 24, 2024 as compared to the same period of the prior fiscal year. The 5.6% decrease was driven by decreases in domestic royalties and advertising fund revenues, offset by increases in default and closed store revenues and supplier and distributor incentives. Pie Five franchise revenues decreased by $0.1 million to $1.3 million for the nine month period ended March 24, 2024 as compared to the same period of the prior fiscal year. The 7.9% decrease was driven by decreases in domestic royalties and advertising fund revenues, offset by increases in default and closed store revenues.

Current wording

Pie Five franchise revenues decreased by $0.1 million to $0.3 million for the three month period ended September 29, 2024 as compared to the same period in the prior fiscal year. The 29.7% decrease was driven by decreases in domestic royalties.

Previous wording

Franchise expenses include general and administrative expenses directly related to the sale and continuing service of domestic and international franchises. Total franchise expenses decreased by $0.2 million to $0.8 million for the three month period ended March 24, 2024 as compared to the same period of the prior fiscal year. The 15.8% decrease was primarily due to a decrease in advertising fees. Total franchise expenses decreased by $0.2 million to $2.8 million for the nine month period ended March 24, 2024 as compared to the same period of the prior fiscal year. The 6.8% decrease was primarily due to a decrease in advertising fees.

Current wording

Franchise expenses include general and administrative expenses directly related to the sale and continuing service of domestic and international franchises. Total franchise expenses decreased by $0.2 million to $1.0 million for the three month period ended September 29, 2024 as compared to the same period of the prior fiscal year. The 15.1% decrease was driven by decreases in advertising fees.

Previous wording

The Company monitors franchisee receivable balances and adjusts credit terms when necessary to minimize the Company’s exposure to high risk accounts receivable. For the three month period ended March 24, 2024, provision for credit losses was $11 thousand compared to provision for credit losses of $28 thousand for the same period of the prior fiscal year. Provision for credit losses for the nine month period ended March 24, 2024, increased by $9 thousand to $46 thousand compared to the same period of the prior fiscal year.

Current wording

The Company monitors franchisee receivable balances and adjusts credit terms when necessary to minimize the Company’s exposure to high-risk accounts receivable. For the three month period ended September 29, 2024, recoveries for credit losses was $17 thousand compared to provision for credit losses of $25 thousand for the same period in the prior fiscal year. During the three month period ended September 29, 2024, the Company recorded a gain in provision for credit losses due to the recoveries of receivables that had been previously reserved.

Previous wording

For the three and nine months ended March 24, 2024, the Company recorded an income tax expense of $200 thousand and $319 thousand, respectively. For the three and nine months ended March 26, 2023, the Company recorded an income tax expense of $115 thousand and $347 thousand, respectively. The increase for the three months ended as of March 24, 2024 was primarily due to a increase in federal taxes, driven by higher taxable income. The decrease for the nine months ended as of March 24, 2024 was primarily due to a decrease in state taxes and a discrete item recorded in the second quarter of fiscal 2024 related to the restricted stock issuances.

Current wording

For the three months ended September 29, 2024 and September 24, 2023, the Company recorded an income tax expense of $169 thousand and $132 thousand, respectively. The increase was driven by increases in federal taxes, primarily due to higher taxable income.

Previous wording

Basic net income per share increased $0.02 per share to $0.04 per share for the three months ended March 24, 2024, compared to the comparable period in the prior fiscal year. The Company had net income of $0.7 million for the three months ended March 24, 2024 compared to net income of $0.3 million in the comparable period in the prior fiscal year, on revenues of $3.0 million for the three months ended March 24, 2024 compared to $3.0 million in the comparable period in the prior fiscal year. The stability in revenue was primarily due to increases in supplier and distributor incentives, offset by a decrease in domestic royalties.

Current wording

Basic net income per share increased $0.01 per share to $0.04 per share for the three months ended September 29, 2024, compared to the comparable period in the prior fiscal year. The Company had net income of $0.5 million for the three months ended September 29, 2024 compared to net income of $0.4 million in the comparable period in the prior fiscal year, on revenues of $3.1 million for the three months ended September 29, 2024 compared to $3.1 million in the comparable period in the prior fiscal year. The stability in revenue was primarily due to increases in supplier and distributor incentives, offset by a decrease in domestic royalties.

Previous wording

During the nine month period ended March 24, 2024, the Company's primary source of liquidity was proceeds from operating activities.

Current wording

During the three month period ended September 29, 2024, the Company's primary source of liquidity was proceeds from operating activities.

Previous wording

Cash flows from operating activities generally reflect net income adjusted for certain non-cash items including depreciation and amortization, changes in deferred taxes, stock-based compensation, and changes in working capital. Cash provided by operating activities was $1.3 million for the nine month period ended March 24, 2024 compared to cash provided by operating activities of $1.2 million for the nine month period ended March 26, 2023. The primary driver of increased operating cash flow during the nine month period ended March 24, 2024 was increased net income due to lower employee related expenses.

Current wording

Cash flows from operating activities generally reflect net income adjusted for certain non-cash items including depreciation and amortization, changes in deferred taxes, stock-based compensation, and changes in working capital. Cash provided by operating activities was $0.5 million for the three month period ended September 29, 2024 compared to cash provided by operating activities of $0.6 million for the three month period ended September 24, 2023. The primary driver of decreased operating cash flow during the three month period ended September 29, 2024 was decreased accrued expenses related to payroll and related costs.

Previous wording

Cash flows from investing activities reflect net proceeds from the sale of assets and capital expenditures for the purchase of Company assets. Cash used in investing activities during the nine month period ended March 24, 2024 was $0.05 million compared to cash used in investing activities of $0.1 million for the nine months ended March 26, 2023.

Current wording

Cash flows from investing activities reflect purchases and maturities of short-term investments as well as net proceeds from the sale of assets and capital expenditures for the purchase of Company assets. Cash used in investing activities during the three month period ended September 29, 2024 was $2.0 million compared to cash used in investing activities of $12 thousand for the three months ended September 24, 2023. Net cash used by investing activities during the three month period ended September 29, 2024 was primarily attributable to increased purchases of U.S. treasury bills.

Previous wording

Cash flows used in financing activities generally reflect changes in the Company's stock and debt activity during the period. Net cash used in financing activities was $0.3 million for the nine month period ended March 24, 2024 compared to net cash used in financing activities of $5.0 million for the nine month period ended March 26, 2023. Net cash used by financing activities for the nine months ended March 24, 2024 was primarily attributable to taxes paid on vested RSUs. Net cash used by financing activities for the nine months ended March 26, 2023 was primarily attributable to repurchases of the Company's stock.

Current wording

Cash flows used in financing activities generally reflect changes in the Company's stock and debt activity during the period. Net cash used in financing activities was zero for the three month periods ended September 29, 2024 and September 24, 2023.

Previous wording

On December 27, 2020, the Consolidated Appropriations Act of 2021 (the “CAA”) was signed into law. The CAA expanded eligibility for an employee retention credit for companies impacted by the COVID-19 pandemic with fewer than five hundred employees and at least a twenty percent decline in gross receipts compared to the same quarter in 2019, to encourage retention of employees. This payroll tax credit was a refundable tax credit against certain federal employment taxes. For the fiscal year ended June 26, 2022, the Company recorded $0.7 million of other income for the employee retention credit, $0.6 million of which was collected in the first quarter of fiscal 2023.

Current wording

On December 27, 2020, the Consolidated Appropriations Act of 2021 (the “CAA”) was signed into law. The CAA expanded eligibility for an employee retention credit for companies impacted by the COVID-19 pandemic with fewer than five hundred employees and at least a twenty percent decline in gross receipts compared to the same quarter in 2019, to encourage retention of employees. This payroll tax credit was a refundable tax credit against certain federal employment taxes. For the fiscal year ended June 26, 2022, the Company recorded $0.7 million of other income for the employee retention credit. As of September 29, 2024, $0.6 million has been received and $0.1 million is still outstanding and included within accounts receivable on the accompanying Condensed Consolidated Balance Sheets.

Previous wording

Franchise revenue consists of income from license fees, royalties, area development and foreign master license agreements, advertising fund revenues, supplier incentive and convention contribution revenues. Franchise fees, area development and foreign master license agreement fees are amortized into revenue on a straight-line basis over the term of the related contract agreement. Royalties and advertising fund revenues, which are based on a percentage of franchise retail sales, are recognized as income as retail sales occur. Supplier incentive revenues are recognized as earned, typically as the underlying commodities are shipped.

Current wording

Franchise revenue consists of income from license fees, royalties, area development and foreign master license agreements, advertising fund revenues, supplier incentive and convention contribution revenues. Franchise fees, area development and foreign master license agreement fees are amortized into revenue on a straight-line basis over the term of the related contract agreement. In the event of a closed franchise or defaulted development agreement, the remaining balance of unamortized license fees will be recognized in entirety as of the date of the closure or default. Royalties and advertising fund revenues, which are based on a percentage of franchise retail sales, are recognized as income as retail sales occur. Supplier incentive revenues are recognized as earned, typically as the underlying commodities are shipped.