Good Times Restaurants investment thesis

Good Times Restaurants – $GTIM

Good Times Restaurants

Good Times Restaurants ($GTIM) is a microcap in the restaurant industry. It owns and operates 65 (+7 franchises) stores in several states (Colorado and North Carolina are the main ones), generates continuously positive EBITDA and FCF (around $6MM/year) and it is using that money to buyback shares, minority interest and franchises. Its Enterprise Value is $25MM and it is on net cash position ($3MM)

Good Times Restaurants owns two concepts – the original Good Times Drive Thru and Bad Daddy’s Burger Bar (fully-acquired in 2015)

  • Good Times Burgers & Frozen Custard is a regional chain of quick-service restaurants located primarily in Colorado. There are 25 company-owned Good Times restaurants and 6 franchised ones. They reactivated this brand during the last 12 months after 3 years of minimum Capex (due to the trial) and its bet is paying off

  • Bad Daddy’s Burger Bar is a full-service and more upscale restaurant concept (Chef driven menu of gourmet signature burgers plus a full bar featuring a selection of local craft microbrew beers in a high-energy atmosphere). And it is where the company is focusing all its growth plans. So far, there are 40 owned venues plus a franchise.

There was an internal restructuring process in 2019 that concluded with a new CEO and the board of directors reduced to 5 people (two of whom impulsed the process) and the support of principal shareholders. Since then, the company has been focused on margins instead of growth. In three years, it eliminated its $10MM net debt and it has $2.5MM net cash as of today.

Good Times Restaurants has an active buyback program in place where they have already bought almost 15% of the company shares in the last 24 months.

They have experienced management, full alignment with main investors, the board has 25% of the company and the CEO & vice presidents’ incentives are fully aligned with shareholders

Despite continued cash generation and a healthy balance sheet position, the company is trading 5x EV/EBITDA due to the fact that it is an illiquid company with no analyst coverage and a pending court resolution regarding the NO-sale of the Good Times Burgers part of the business for $10MM to a PE firm back in 2019 which final sentence came out this Friday.

Good Times Restaurants history

Good Times Restaurants was founded in 1987. In 2013, they purchased 48% of Bad Daddy Bar Burger and they acquired the remaining 52% in 2015. They focused on the expansion of its Bad Daddy’s brand, growing the number of restaurants from 2 in 2014 to 37 in 2019. However, margins were declining and the business was not profitable.

Two of the directors (Stetson and Jobson) resigned as board members on a disagreement over the profitability on January 2018. Two months later, Delta Partners and REIT Redux LP (principal shareholders of $GTIM) supported reducing from 7 to 5 the number of directors and electing Stetson and Jobson as directors again. Boyd Hoback (CEO) was sacked in October 2019. However, during the last months of Hoback, the board tried to sell the company. In fact a preliminary agreement (which was not consummated) was reached with a Private Equity firm for $9.75 MM. However, this preliminary agreement was later broken, and the PE firm sued GTIM.

Stetson and Jobson appointed Zink Ryan as CEO (the current one) in the 4Q19. He took the decision of stopping the high-growth strategy of the 2013-2019 period, which brought huge unit expansion but losses almost every year, and focused on margins. Good Times Restaurants reassessed its strategy and looked to improve its financial position.

In August 2021, $GTIM launched a tender offer for $6.5MM at $4.6 per share, targeting 1.413MM shares. However, only 333,241 accepted the price (2.6% market cap), so the company spent $1.5MM. With the remaining proceedings of the tender offer and taking advantage of the share price, Good Times Restaurants announced a $5MM share repurchase program at the beginning of 2022 ($1.4MM remaining). In January 2023, Good Times Restaurant won the case against the PE firm and reactivated the investment into its Good Times Burger brand. Unfortunately, White Winston (the PE firm) appealed the decision and the trial continued until this Friday evening.

In today’s analysis, we dissect GTIM’s business model, its economics, its growth plan, and evaluate both brands separately to make it easier to make a decision depending on the market’s reaction to the trial outcome.

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