dougherty & company institutional investor...

NASDAQ: SAUC© 2016 by Diversified Restaurant Holdings, Inc.

Dougherty & Company Institutional Investor Conference

September 28, 2016

Michael AnsleyChairman and CEO

David Burke Chief Financial Officer

NASDAQ: SAUC© 2016 by Diversified Restaurant Holdings, Inc. NASDAQ: SAUC 2

Safe Harbor Statement

The information made available in this presentation contains forward-looking statements which reflect the Company’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 and the Company's 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 impact of economic and industry conditions, competition, food and drug 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 our 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.


Who We Are

Leading operator, strong cash generator

Track record of accretive BWW acquisitions

Focused on profitability and financial strength

Founded: 2006 NASDAQ: SAUC

Market Data as of September 21, 2016 [Source: Bloomberg LP]; Ownership as of most recent filing

Total Restaurants 83 BWW Locations 64

Market Capitalization (millions) $34.1 Q2 2016 TTM Revenue (millions) $191.0

Recent Price $1.28 Avg. Vol. (3 months, thousands) 72.5

52 wk. Price Range $0.91- $3.32 Shares Outstanding (millions) 26.7

Insider Ownership 48% Institutional Ownership 20%

Largest Buffalo Wild Wings (BWW) Franchisee


Strategy

• Q2 2016 Total Debt = $122M

• Target < $90M and < 3.0x Net Debt / Adjusted EBITDA by end of 2018

Strengthen Balance Sheet

• $4M in cost reduction initiatives

• $1.5M-$2.0M in G&A savings from spinoff

• Lower interest expense

Increase Net Income

• Bagger Dave’s spinoff (Q4 2016)

• Sales growth18 acquired St. Louis restaurants

• Full portfolio Stadia design by 2020

Focus on Buffalo Wild

Wings

Focusing on highly profitable BWW expected to drive earnings growth and free up cash to reduce total debt


1,190 restaurants system wide1

DRH owns 64 of 589 franchised locations1 (11%)

Distinctive branding

Exceptional guest experience

Wings, signature sauces

and seasonings

Domestic, imported and

craft beers

Wings. Beer. Sports.®

1 as of Q2 2016

NASDAQ: SAUC© 2016 by Diversified Restaurant Holdings, Inc. NASDAQ: SAUC

Strong BWW Unit Expansion

17

15

7 5

20

1922

3336

42

6264

2010 2011 2012 2013 2014 2015 2016 YTD

6

Restaurant

Map


Successful Acquisitions

2015 Acquisition Benefits

Immediately accretive to earnings

Solidifies standing as leading BWW franchisee

Expansion into new markets with growth opportunities

7

2011 2013

MI / FL9 Restaurants$1.3M Total

Consideration

2015 201620122010 2014

IN / IL8 Restaurants$14.7M Total Consideration

FL3 Restaurants$3.2M Total

Consideration

MO18 Restaurants$54.0M Total Consideration


$2.5

$2.8$3.0

2013 2014 2015

14.2%

19.0%20.5%

Best-in-Class Operators

Pre-Acquisition Post-Acquisition($ in millions)

8

Significantly increased revenue and profitability within two years after

acquisition of eight BWW locations in Chicago market

$2.1$2.3

2011 2012

8.6%

5.1%

AUV Restaurant-Level EBITDA % Margin


BWW Initiatives & Promotions

Opportunities to enhance greater economic value within our existing footprint

Tuesday and Thursday value days

New Blazing Rewards™ program

15-minute lunch

National promotion of online ordering

Expanding revenue streams:

• Delivery services

• Banquets/catering

• Large order carryout


Bagger Dave’s

Natural

Fresh

Customization

Value

3

6

11

18

24

1819

2010 2011 2012 2013 2014 2015 2016 YTD

Number of

Locations

Convenience

Entertainment

Technology


Enhanced Menu

Fresh, diverse menu offerings

• Proprietary beef blend, locally sourced

• Farm-raised grilled chicken breast

• Gluten-free menu

Unique differentiator:

Premium craft soda

• Exceedingly better margins than

Coca-Cola or Pepsi

• 50-year supply agreement

Targeted messaging Blackened Mahi-Mahi Burger

Korean BBQ Burger

Latin Chicken


Why SpinoffBWW and Bagger Dave’s concepts are distinct in many respects

Separating these two very different businesses will enable each to better

pursue their strategies and growth plans independently

Franchise brand Own the brand

Mature brand Early stage brand

Less complex menu and food

preparation

More complex menu and food

preparation

Primary focus of growth efforts

and investments

Gaining traction but limited focus

given larger BWW portfolio


Spinoff Timing

May 24, 2016 Announced evaluation of strategic alternatives for Bagger Dave’s

August 4, 2016 Announced spinoff

Q4 2016 Expected spinoff completion

Upcoming milestones

File Form 10 (will include audited 2014 and 2015 Bagger Dave’s financials)

Information statement (share distribution, management and capital structure detail)

Set record date


Expected Outcome

Own and operate 64 franchised BWW restaurants

Continue trading on the NASDAQ

Spinoff is expected to result in $1.5 million to $2.0 million in G&A savings for DRH

Will maintain all debt and NOLs

Management: Michael Ansley, Executive Chairman David Burke, President and CEONew CFO search underway

Structured as a tax-free spin-off to DRH shareholders (Pro-rata share distribution)

Own and operate 19 Bagger Dave’s restaurants

Trade in the over-the-counter (OTC) market

Management: Michael Ansley, President and CEODavid Burke will be on the Board of Directors


Growth Track Record

$9.8 $14.4 $22.0 $27.7 $23.5

$67.6

$94.5

$106.4

$144.8 $167.4

2012 2013 2014 2015 2Q16 TTM 2016E*

Bagger Dave's BWW

Annual Revenue

* Guidance provided as of August 4, 2016

YTD impact: Macro factors and fewer sporting events relevant to our markets

Rationalized Bagger Dave’s business in late 2015

$ millions

$77.5

$108.9

$128.4

$172.5

$191.0 $185-$190

$164-$168

$21-$22

Components may not equal totals due to rounding


Strong Cash Generation

Adjusted EBITDA and Margin¹

$ millions

Leverage scale

Right-sized and rationalized organization

* Guidance provided as of August 4, 2016; Adjusted EBITDA margin based on guidance mid-point for revenue

$8.4

$13.0

$15.1

$17.2

$21.5 $21-$23

2012 2013 2014 2015 2Q16 TTM 2016E*

10.8% 12.0% 11.7% 10.0% 11.3% 11.7%

1 EBITDA adjusted for pre-opening and other one-time expenses. See EBITDA reconciliation on supplemental slide


Lack of Recognition

Data as of September 6, 2016

SAUC calculation based on 2016 mid-point guidance for Adjusted EBITDA

Comp Group: DRI, CBRL, TXRH, BWLD, CAKE, EAT, BLMN, DIN, BJRI, RRGB, DENN, CHUY, DFRG, JAX, GTIM

Primarily a BWW company

Reducing debt

Growing earnings

6.8x

9.4x 9.5x

SAUC BWLD Comp group

EV / EBITDA


2016: A Transition Year

Guidance provided as of August 4, 2016; growth percentage based on guidance mid-point compared with 2015 results

CapEx: $14M to $16M $11.7M thru Q2

Two BWW Completed

Stadia design projects Six Completed

One Bagger Dave’s Completed

Revenue: $185M and $190M +9%

Adjusted EBITDA: $21M to $23M +28%

Adjusted Restaurant-level EBITDA: $33M to $35M +17%

Generate cash, pay down debt, strengthen the balance sheet and complete the spinoff

2016 Outlook


Investment Highlights

Capitalizing on value of BWW

Track record of organic and acquisitive growth

Established market positioning and ability to leverage scale

Strong restaurant operators with new management plan in place to drive change in strategy

Focused debt reduction plan

Undervalued relative to peers


Dougherty & Company Institutional Investor Conference

September 28, 2016


Supplemental Slides


Management Team

Michael AnsleyChief Executive

Officer, President

David BurkeChief Financial

Officer

Jason CurtisChief Operating

Officer

Served as the President, Chief Executive Officer, and Chairman of the Board since DRH’s inception

Became a BWLD franchisee in 1996, opened DRH’s first Buffalo Wild Wings location in 1999, and opened the first Bagger Dave’s location in 2008

Currently serves on the Board of Directors of the Michigan Restaurant Association

Appointed the Chief Financial Officer in 2010 but has been a member of the board since inception

Served as Secretary from inception to 2010 and as a member of the Audit Committee and Audit Committee Chairman from 2007-2010, prior to being named Chief Financial Officer

Prior to DRH, employed by Federal-Mogul with roles in finance, corporate development and marketing

Held the Chief Operating Officer position since 2002

Named to the BWLD Leadership Council to serve as a liaison between franchisees and the BWLD corporate office

Certified by the National Restaurant Association as a Foodservice Management Professional

22


BWW Unit Economics

23

Estimated Cash Investment $2.0M-$3.0M

Revenue per Store $3.0M

Restaurant-Level Margin 20.0%

Restaurant-Level EBITDA $600,000

Cash on Cash Return 30%

Estimated Average Check $26.10

Square Footage1 6,400

Revenue / Sq-ft $469

Number of Seats1 225

Estimated Incremental Margin % >35%

1 Usable square footage with all-season patio

Target


Adjusted EBITDA Reconciliation

24

For the fiscal year ended, 2012 2013 2014 2015 Q2 2016 TTM

Net Income (Loss) 180,099 134,308 ($1,268,497) ($16,192,492) ($12,888,812)

+ Income Tax Provision (Benefit) (167) (261,450) (1,706,736) (9,986,007) (8,293,960)

+ Interest Expense 1,282,991 1,718,711 2,274,041 4,211,255 6,105,499

+ Depreciation and Amortization 4,587,310 7,974,481 10,956,951 16,582,236 18,884,113

EBITDA $ 6,050,233 $ 9,566,050 $ 10,255,759 $ (5,385,008) $ 3,806,840

+ Other Income (Expense), Net (20,081) (151,292) 58,912 (822,039) (162,683)

+ Loss on Disposal of Property and Equipment 36,833 98,162 1,023,144 14,242,705 11,230,615

+ Legal reserve - - - 1,950,000 -

+ Non-recurring expense (Corporate Level) (1) 513,500 271,000 254,241 1,500,861 1,097,541

+ Non-recurring expense (Restaurant Level) (1) - - - 2,507,283 3,050,578

+ Pre-opening expense 1,792,168 3,230,122 3,473,664 3,244,157 2,495,750

Adjusted EBITDA $ 8,372,653 $ 13,014,042 $ 15,065,720 $ 17,237,959 $ 21,518,641

Adjusted EBITDA Margin (%) 10.8% 12.0% 11.7% 10.0% 11.3%


EBITDA Reconciliation cont.

25

(1) Note: There were additional one-time expenses related to the acquisition that were identified or reassigned after the close of the Third Quarter

2015 that have an impact on each quarter of 2015 and has been added to represent the true full year 2015 Adjusted EBITDA.

Adjusted EBITDA represents net income (loss) attributable to DRH plus the sum of restaurant pre-opening costs, loss on property and equipment

disposals, the change in fair value of derivative instruments, depreciation and amortization, other income and expenses, interest, taxes, income

attributable to noncontrolling interest, and non-recurring expenses. We are presenting Adjusted EBITDA, which is not presented in accordance with

GAAP, because we believe it provides an additional metric by which to evaluate our operations. When considered together with our GAAP results

and the reconciliation to our net income, we believe it provides a more complete understanding of our business than could be obtained absent this

disclosure. We use 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. Adjusted EBITDA is presented because: (i) we believe it is useful measure 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

the measure useful in assessing our ability to service or incur indebtedness; and (iii) it is used internally as benchmarks to evaluate our operating

performance or compare our performance to that of our competitors.

The use of Adjusted EBITDA as a performance measure 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 Adjusted EBITDA facilitate company-to-company comparisons within our industry by eliminating some of the

foregoing variations.

Adjusted EBITDA is 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. Adjusted EBITDA should be considered as a measure of

discretionary cash available to us to invest in the growth of our business. Adjusted EBITDA as presented may not be comparable to other similarly

titled measures of other companies and our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be

unaffected by unusual items. Our management recognizes that Adjusted EBITDA has limitations as analytical financial measures.

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