Diversified Restaurant Holdings Reports 2.2% Increase in Same-store Sales for 2018 Fourth Quarter

Diversified Restaurant Holdings, Inc. (Nasdaq: SAUC) ("DRH" or the "Company"), one of the largest franchisees for Buffalo Wild Wings^® ("BWW") with 64 stores across five states, today announced results for its fourth quarter and fiscal year ended December 30, 2018.

Fourth Quarter and Full Year Key Information (from continuing operations)

• Revenue for the quarter totaled $39.1 million and was $153.1 million for the year
• Achieved same-store sales growth of 2.2% in the fourth quarter; first positive quarter since 2015
• Operating loss of $1.5 million in the quarter, which included a $2.8 million asset impairment charge; operating loss was $0.4 million for the year
• Net loss was $2.3 million in the quarter and $5.0 million for the year
• Restaurant-level EBITDA⁽¹⁾ margin was 14.3% for the quarter and 15.2% for the year
• Adjusted EBITDA⁽¹⁾ was $3.8 million for the quarter and $15.8 million for the year
• Total debt was down $11.6 million to $102.4 million at year-end

^{(1) See attached table for a reconciliation of GAAP net loss to Restaurant-level EBITDA and Adjusted EBITDA}

"We continue to be energized and excited by the changes that are being implemented by our franchisor and are starting to reap the early benefits of the new marketing, media and promotional initiatives,” commented David G. Burke, President and CEO. "We achieved our first positive quarterly same-store sales result in three years and we believe there is a lot of room to continue to build on this momentum as these changes gain traction and future initiatives continue to roll out. We are especially encouraged with the early read into 2019. Same-store sales through early March continue to trend positive, despite severe weather across most of our regions, with the excitement of March madness in front of us.

"To capitalize on the NCAA tournament and to complement our focus to be The Great American Sports Bar, there will be a strong traffic-driving media strategy alongside a new menu design, new and improved food offerings and enhanced food presentation. Equally important are the number of initiatives taking place behind the scenes, as we implement new training and engagement tools to drive better team member retention and improve the overall customer experience. We are on the path to achieve the eagerly awaited relaunch of the brand this fall.”

Mr. Burke concluded, "We are uniquely positioned to benefit from Inspire Brands plans to rebuild the Buffalo Wild Wings brand. With the resurgence of the brand combined with our operating expertise, we believe we can achieve strong long-term growth and margin performance.”

DRH announced on February 28, 2019 that it executed an agreement to acquire nine BWW restaurants located in the Chicago market for $22.5 million. The Company expects to complete the purchase in the second quarter, subject to franchisor consent and waiving of its right of first refusal, as well as customary closing conditions.

The decrease in sales in the fourth quarter was due to one less restaurant combined with the prior-year period benefiting from an extra week as fiscal 2017 was a 53-week year. The full year decline reflects similar impacts as well as reduced traffic for much of the year.

General and administrative ("G&A”) expenses as a percentage of sales decreased 80 basis points to 4.8% in the fourth quarter due to lower corporate overhead, including lower incentive accruals. For the full year, G&A was down 10 basis points to 5.4% of sales, despite incurring $0.9 million, or 60 basis points, of non-recurring items during 2018.

Fourth quarter and full year 2018 food, beverage, and packaging costs as a percentage of sales decreased 10 basis points and 90 basis, respectively, as lower traditional chicken wing costs helped to offset the impact of recent promotional activity. Average cost per pound for traditional bone-in chicken wings, DRH’s most significant input cost, decreased to $1.76 in 2018 compared with $2.07 in the prior-year period.

Higher average wages due to a tight labor market, coupled with sales de-leveraging, resulted in compensation costs as a percent of sales increasing 160 basis points for both the fourth quarter and full year 2018.

The Company recognized an impairment and loss on asset disposal of $2.8 million in the quarter, which reflects the impairment of certain fixed assets at four locations. For the full year of 2018, impairment charges at five locations amounted to $3.7 million.

In last year’s fourth quarter, the Company revalued its deferred tax assets due to the 2017 Tax Cuts and Jobs Act and re-evaluated its ability to realize these assets. As a result, the Company recognized a one-time tax expense of $19.0 million.

Balance Sheet and Cash Flow Highlights - Continuing Operations

Cash and cash equivalents were $5.4 million at December 30, 2018, compared with $4.4 million at 2017 year-end. Capital expenditures were $1.6 million during 2018 and were primarily for minor facility upgrades and general maintenance-type investments. Capital expenditures were $4.7 million for 2017.

DRH does not expect to build any new restaurants or complete any major remodels in 2019. However, the Company is planning to complete some corporate initiatives, point-of-sale upgrades and build outs around open space. As a result, DRH anticipates its capital expenses will be approximately $2.0 million in 2019.

Total debt was $102.4 million at December 30, 2018, down $11.6 million for the year.

Webcast, Conference Call and Presentation

DRH will host a conference call and live webcast on Friday, March 8, 2019 at 10:00 A.M. Eastern Time, during which management will review the financial and operating results for the fourth quarter and full year period, and discuss its corporate strategies and outlook. A question-and-answer session will follow.

The teleconference can be accessed by calling (201) 389-0879. The webcast can be monitored at www.diversifiedrestaurantholdings.com. A presentation that will be referenced during the conference call is also available on the website.

A telephonic replay will be available from 1:00 P.M. ET on the day of the call through Friday, March 15, 2019. To listen to the archived call, dial (412) 317-6671 and enter replay pin number 13686205, or access the webcast replay at http://www.diversifiedrestaurantholdings.com, where a transcript will also be posted once available.

About Diversified Restaurant Holdings, Inc.

Diversified Restaurant Holdings, Inc. is one of the largest franchisees for Buffalo Wild Wings with 64 franchised restaurants in key markets in Florida, Illinois, Indiana, Michigan and Missouri. DRH’s strategy is to generate cash, reduce debt and leverage its strong franchise operating capabilities for future growth. The Company routinely posts news and other important information on its website at http://www.diversifiedrestaurantholdings.com.

Safe Harbor Statement

The information made available in this news release and the Company’s March 8, 2019 earnings conference call contain forward-looking statements which reflect DRH's current view of future events, results of operations, cash flows, performance, business prospects and opportunities. Wherever used, the words "anticipate," "believe," "expect," "intend," "plan," "project," "will continue," "will likely result," "may," and similar expressions identify forward-looking statements as such term is defined in the Securities Exchange Act of 1934. Any such forward-looking statements are subject to risks and uncertainties, actual growth, results of operations, financial condition, cash flows, performance, business prospects and opportunities could differ materially from historical results or current expectations. Some of these risks include, without limitation, the franchisor waiving its right of first refusal, our ability to obtain financing for the acquisition, the success of initiatives aimed at improving the Buffalo Wild Wings brand, the impact of economic and industry conditions, competition, food safety issues, store expansion and remodeling, labor relations issues, costs of providing employee benefits, regulatory matters, legal and administrative proceedings, information technology, security, severe weather, natural disasters, accounting matters, other risk factors relating to business or industry and other risks detailed from time to time in the Securities and Exchange Commission filings of DRH. Forward-looking statements contained herein speak only as of the date made and, thus, DRH undertakes no obligation to update or publicly announce the revision of any of the forward-looking statements contained herein to reflect new information, future events, developments or changed circumstances or for any other reason.

FINANCIAL TABLES FOLLOW

Restaurant-Level EBITDA represents Net loss plus the sum of non-restaurant specific general and administrative expenses, restaurant pre-opening costs, impairment and loss on property and equipment disposals, depreciation and amortization, other income and expenses, interest, taxes, and non-recurring expenses. Adjusted EBITDA represents net income (loss) plus the sum of restaurant pre-opening costs, impairment and loss on property and equipment disposals, depreciation and amortization, other income and expenses, interest, taxes, and non-recurring expenses. We are presenting Restaurant-Level EBITDA and Adjusted EBITDA, which are not presented in accordance with GAAP, because we believe they provide additional metrics by which to evaluate our operations. When considered together with our GAAP results and the reconciliation to our net income (loss), we believe they provide a more complete understanding of our business than could be obtained absent this disclosure. We use Restaurant-Level EBITDA and Adjusted EBITDA together with financial measures prepared in accordance with GAAP, such as revenue, income from operations, net income, and cash flows from operations, to assess our historical and prospective operating performance and to enhance the understanding of our core operating performance. Restaurant-Level EBITDA and Adjusted EBITDA are presented because: (i) we believe they are useful measures for investors to assess the operating performance of our business without the effect of non-cash depreciation and amortization expenses; (ii) we believe investors will find these measures useful in assessing our ability to service or incur indebtedness; and (iii) they are used internally as benchmarks to evaluate our operating performance or compare our performance to that of our competitors.

Additionally, we present Restaurant-Level EBITDA because it excludes the impact of general and administrative expenses and restaurant pre-opening costs, which is non-recurring. The use of Restaurant-Level EBITDA thereby enables us and our investors to compare our operating performance between periods and to compare our operating performance to the performance of our competitors. The measure is also widely used within the restaurant industry to evaluate restaurant level productivity, efficiency, and performance. The use of Restaurant-Level EBITDA and Adjusted EBITDA as performance measures permits a comparative assessment of our operating performance relative to our performance based on GAAP results, while isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. Companies within our industry exhibit significant variations with respect to capital structure and cost of capital (which affect interest expense and tax rates) and differences in book depreciation of property and equipment (which affect relative depreciation expense), including significant differences in the depreciable lives of similar assets among various companies. Our management team believes that Restaurant-Level EBITDA and Adjusted EBITDA facilitate company-to-company comparisons within our industry by eliminating some of the foregoing variations.

Restaurant-Level EBITDA and Adjusted EBITDA are not determined in accordance with GAAP and should not be considered in isolation or as an alternative to net income, income from operations, net cash provided by operating, investing, or financing activities, or other financial statement data presented as indicators of financial performance or liquidity, each as presented in accordance with GAAP. Neither Restaurant-Level EBITDA nor Adjusted EBITDA should be considered as a measure of discretionary cash available to us to invest in the growth of our business. Restaurant-Level EBITDA and Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies and our presentation of Restaurant-Level EBITDA and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual items. Our management recognizes that Restaurant-Level EBITDA and Adjusted EBITDA have limitations as analytical financial measures.

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