UNITED STATES SECURITIES AND EXCHANGE COMMISSION. Washington, D.C FORM 8-K CURRENT REPORT

Transcription

1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): August 3, 2017 DIVERSIFIED RESTAURANT HOLDINGS, INC. (Name of registrant in its charter) Nevada (State or other jurisdiction of incorporation) (Commission File Number) Franklin Road Southfield, MI (Address of principal executive offices) Registrant's telephone number: (248) (IRS Employer Identification No.) Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [ ] Written communications pursuant to Rule 425 under the Securities Act [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR ) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR b-2). Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

2 Item 2.02 Results of Operations and Financial Condition EarningsRelease On August 3, 2017, Diversified Restaurant Holdings, Inc. (NASDAQ: SAUC) (the "Company") issued a press release announcing earnings and other financial results for the quarter ended June 25, A copy of the press release is furnished as Exhibit 99.1 to this report and incorporated here by reference. Item Regulation FD Disclosure The Company has prepared presentation materials (the Investor Presentation ) that management intends to use during its previously announced Second Quarter 2017 Conference call on Friday, August 4, 2017 at 10:00 am Eastern Time, and from time to time thereafter in presentations about the Company s operations and performance. The Company may use the Investor Presentation, possibly with modifications, in presentations to current and potential investors, analysts, lenders, business partners, acquisition candidates, customers, employees and others with an interest in the Company and its business. A copy of the Investor Presentation is furnished as Exhibit 99.2 to this Current Report on Form 8-K and is available on the Company's website at Materials on the Company's website are not part of or incorporated by reference into this Form 8-K. In accordance with General Instruction B.2 of Form 8-K, the information in this Current Report on Form 8-K, including Exhibits 99.1 and 99.2, shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act ), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. Item 9.01 Financial Statement and Exhibits (d) Exhibits Exhibit No. Description 99.1 Press Release of Diversified Restaurant Holdings, Inc. reporting financial results and earnings for the quarter ended June 25, Diversified Restaurant Holdings, Inc. Investor Presentation dated August 3, 2017 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

3 DIVERSIFIED RESTAURANT HOLDINGS, INC. Dated: August 3, 2017 By: /s/ Phyllis A. Knight Name: Phyllis A. Knight Title: Chief Financial Officer (Principal Financial and Accounting Officer)

4 EXHIBIT INDEX Exhibit No. Description 99.1 Press Release of Diversified Restaurant Holdings, Inc. reporting financial results and earnings for the quarter ended June 25, Diversified Restaurant Holdings, Inc. Investor Presentation dated August 3, 2017

5 FOR IMMEDIATE RELEASE Diversified Restaurant Holdings Reports Second Quarter 2017 Results SOUTHFIELD, MI, August 3, Diversified Restaurant Holdings, Inc. (NASDAQ: SAUC) ("DRH" or the "Company"), the largest franchisee for Buffalo Wild Wings ("BWW") with 65 stores across five states, today announced results for its second quarter ended June 25, Second Quarter Key Information (from continuing operations) Revenue totaled $39.9 million, down 2.5% Same-store sales decreased 3.67% for the quarter and are off 1.95% for the year Restaurant-level EBITDA was $6.6 million, or 16.6% of sales (1) Adjusted EBITDA totaled $4.6 million, or 11.6% of sales (1) Net loss for the quarter was $0.3 million, with year-to-date net income of $0.5 million Cash generated from operations was $2.1 million for the quarter and $6.5 million year-to-date Total debt of $118.1 million is down $3.0 million for the year (1) See attached table for a reconciliation of GAAP net income (loss) to Restaurant-level EBITDA and Adjusted EBITDA With a focus on productivity and prudent ROI-based spending decisions, we completed the bulk of our capital projects for the year and continued to generate positive free cash flow, which was used to pay down debt, commented David G. Burke, President and CEO. We also maintained efficient use of labor, and have decreased overhead expenses as we are on track to achieve at least $1 million in run rate savings in G&A. Additionally, we ve implemented a number of productivity initiatives in an effort to combat inflationary input costs. These actions are targeting $3 to $4 million in annualized savings. Mr. Burke added, Delivery service is now in place at 38 of our locations and continues to show strong growth without cannibalizing our carryout business. The Half-Price Wing Tuesdays promotion has been beneficial in driving strong traffic to our restaurants, and our BOGO test, which replaced the half-off message with a buy one, get one offer limited to smaller order sizes, is showing promising early results. We believe actions such as these position us well for when macro headwinds subside. Our sales for the quarter were negatively impacted by unfavorable sports outcomes in each of our core markets, with 60 key NHL and NBA play-off games last year dropping an unprecedented level to only 20 this year. Coupled with the Easter holiday closure moving to the second quarter this year and two major road construction projects, the sales headwinds were difficult to overcome. However, adjusted for these items, we did see positive traffic, and sales momentum increased later in the quarter. We re also contending with margin pressure driven by record high traditional chicken wing prices, which added 169 basis points to our cost of sales for the quarter, concluded Mr. Burke. 1

6 The same-store sales decrease of 367 basis points was driven by 115 basis points from the Easter holiday shift, approximately 200 basis points from the unfavorable sports outcomes noted above and 60 basis points from significant traffic-disrupting construction in two of our locations. Geographically, the Midwest continued to perform relatively well, while the Florida market remains contracted, particularly in the coastal segments of the franchise region. Second Quarter Results (from continuing operations) (Unaudited, $ in thousands) Q Q Change % Change Revenue $ 39,934.6 $ 40,951.2 $ (1,016.6) (2.5)% Operating income $ $ 1,387.1 $ (665.8) (47.9)% Operating margin 1.8 % 3.4 % Net income (loss) $ (291.3) $ $ (525.6) (224.3)% Diluted net income (loss) per share $ (0.01) $ 0.01 $ (0.02) (200.0)% Same-store sales (3.7)% (2.0)% Restaurant-level EBITDA (1) $ 6,617.7 $ 8,141.1 $ (1,523.4) (18.7)% Restaurant-level EBITDA margin 16.6 % 19.9 % Adjusted EBITDA (1) $ 4,622.7 $ 5,955.5 $ (1,332.8) (22.4)% Adjusted EBITDA margin 11.6 % 14.5 % Year-to-date Results (from continuing operations) (Unaudited, $ in thousands) YTD 2017 YTD 2016 Change % Change Revenue $ 84,272.6 $ 84,094.4 $ % Operating income $ 3,087.9 $ 4,503.1 $ (1,415.2) (31.3)% Operating margin 3.7 % 5.4 % Net income $ $ 1,526.8 $ (1,022.6) (67.0)% Diluted net income per share $ 0.02 $ 0.06 $ (0.04) (66.7)% Same-store sales (2.0)% (2.5)% Restaurant-level EBITDA (1) $ 15,042.3 $ 17,435.3 $ (2,393.0) (13.7)% Restaurant-level EBITDA margin 17.8 % 20.7 % Adjusted EBITDA (1) $ 10,780.5 $ 13,139.4 $ (2,358.9) (18.0)% Adjusted EBITDA margin 12.8 % 15.6 % (1) Please see attached table for a reconciliation of GAAP net income to Restaurant-level EBITDA and Adjusted EBITDA 2

7 Balance Sheet Highlights - Continuing Operations Cash and cash equivalents were $3.8 million at June 25, 2017, compared with $4.0 million at 2016 year-end. Year-to-date cash generated from continuing operations was $6.5 million, down from $8.1 million in the same period of Capital expenditures were $3.6 million during the first six months of 2017 and were primarily for one new restaurant and restaurant refreshes and remodels. Capital expenditures were $9.4 million in the first half of Fiscal 2017 Guidance Given the continued negative impacts to sales, combined with record high traditional wing costs, the Company revised its 2017 guidance: Revenue of $170 million to $173 million Restaurant-level EBITDA of $31 million to $33 million Adjusted EBITDA between $22.5 million to $24.5 million Capital expenditures of approximately $5 million to $6 million Webcast, Conference Call and Presentation DRH will host a conference call and live webcast on Friday, August 4, 2017 at 10:00 A.M. Eastern Time, during which management will review the financial and operating results for the second quarter, and discuss its corporate strategies and outlook. A question-and-answer session will follow. The teleconference can be accessed by calling (201) The webcast can be monitored at 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, August 11, To listen to the archived call, dial (412) and enter replay pin number , or access the webcast replay at where a transcript will also be posted once available. About Diversified Restaurant Holdings, Inc. Diversified Restaurant Holdings, Inc. is the largest franchisee for Buffalo Wild Wings with 65 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 3

8 Safe Harbor Statement The information made available in this news release and the Company s August 4, 2017 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 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 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. Investor and Media Contact: Deborah K. Pawlowski Kei Advisors LLC dpawlowski@keiadvisors.com FINANCIAL TABLES FOLLOW 4

9 DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Six Months Ended June 25, 2017 June 26, 2016 June 25, 2017 June 26, 2016 Revenue $ 39,934,602 $ 40,951,181 $ 84,272,566 $ 84,094,433 Operating expenses Restaurant operating costs (exclusive of depreciation and amortization shown separately below): Food, beverage, and packaging costs 11,921,549 11,419,519 24,959,976 23,479,278 Compensation costs 10,168,376 10,303,717 21,133,906 20,823,963 Occupancy costs 2,838,826 2,774,108 5,732,677 5,540,567 Other operating costs 8,388,150 8,312,756 17,418,026 16,886,503 General and administrative expenses 2,066,409 2,347,052 4,423,375 4,521,343 Pre-opening costs 294, , , ,384 Depreciation and amortization 3,271,541 3,824,076 6,904,795 7,586,178 Loss on asset disposal 264, , , ,151 Total operating expenses 39,213,339 39,564,096 81,184,672 79,591,367 Operating profit 721,263 1,387,085 3,087,894 4,503,066 Interest expense (1,642,306) (1,440,552) (3,218,260) (2,885,492) Other income, net 25,140 36,265 52,307 76,007 Income (loss) from continuing operations before income taxes (895,903) (17,202) (78,059) 1,693,581 Income tax benefit (expense) of continuing operations 604, , ,296 (166,808) Income (loss) from continuing operations (291,343) 234,344 $ 504,237 $ 1,526,773 Discontinued operations Loss from discontinued operations before income taxes (169,127) (422,191) $ (132,592) $ (1,845,895) Income tax benefit of discontinued operations 51,380 5,421 50, ,100 Loss from discontinued operations (117,747) (416,770) (82,207) (1,278,795) Net Income (Loss) $ (409,090) $ (182,426) $ 422,030 $ 247,978 Basic earnings (loss) per share from: Continuing operations $ (0.01) $ 0.01 $ 0.02 $ 0.06 Discontinued operations $ (0.01) $ (0.02) $ $ (0.05) Basic net earnings (loss) per share $ (0.02) $ (0.01) $ 0.02 $ 0.01 Diluted earnings (loss) per share from: Continuing operations $ (0.01) $ 0.01 $ 0.02 $ 0.06 Discontinued operations $ (0.01) $ (0.02) $ $ (0.05) Diluted net earnings (loss) per share $ (0.02) $ (0.01) $ 0.02 $ 0.01 Weighted average number of common shares outstanding Basic 26,621,421 26,379,065 26,625,697 26,338,549 Diluted 26,621,421 26,379,065 26,625,697 26,338,549 5

10 DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES ASSETS Current assets CONSOLIDATED BALANCE SHEETS (Unaudited) June 25, 2017(UNAUDITED) December 25, 2016 Cash and cash equivalents $ 3,780,769 $ 4,021,126 Money market funds Accounts receivable 132, ,238 Inventory 1,667,371 1,700,604 Prepaid and other assets 1,247,014 1,305,936 Total current assets 6,828,116 7,303,904 Deferred income taxes 17,230,959 16,250,928 Property and equipment, net 53,099,285 56,630,031 Intangible assets, net 2,538,260 2,666,364 Goodwill 50,097,081 50,097,081 Other long-term assets 192, ,539 Total assets $ 129,986,418 $ 133,181,847 LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities Accounts payable $ 3,912,160 $ 3,995,846 Accrued compensation 2,367,958 2,803,549 Other accrued liabilities 2,135,006 2,642,269 Current portion of long-term debt 12,929,400 11,307,819 Current portion of deferred rent 203, ,206 Total current liabilities 21,547,756 20,943,689 Deferred rent, less current portion 2,229,741 2,020,199 Unfavorable operating leases 551, ,247 Other long-term liabilities 3,802,789 3,859,231 Long-term debt, less current portion 105,218, ,878,201 Total liabilities 133,350, ,292,567 Commitments and contingencies (Notes 3, 10 and 11) Stockholders' deficit Common stock - $ par value; 100,000,000 shares authorized; 26,633,299 and 26,632,222, respectively, issued and outstanding 2,612 2,610 Additional paid-in capital 21,566,109 21,355,270 Accumulated other comprehensive loss (1,088,255) (934,222) Accumulated deficit (23,844,348) (24,534,378) Total stockholders' deficit (3,363,882) (4,110,720) Total liabilities and stockholders' deficit $ 129,986,418 $ 133,181,847 6

11 DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 25, 2017 June 26, 2016 Cash flows from operating activities Net income $ 422,030 $ 247,978 Net loss from discontinued operations (82,207) (1,278,795) Net income from continuing operations 504,237 1,526,773 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 6,904,795 7,586,179 Amortization of debt discount and loan fees 104, ,238 Amortization of gain on sale-leaseback (67,696) (78,604) Loss on asset disposals 286, ,151 Share-based compensation 181, ,710 Deferred income taxes (632,681) 298,537 Changes in operating assets and liabilities that provided (used) cash Accounts receivable 143,276 3,843 Inventory 33,233 61,136 Prepaid and other assets 58, ,604 Intangible assets (8,653) 47,253 Other long-term assets 40,822 7,939 Accounts payable (75,913) (2,032,153) Accrued liabilities (941,964) (111,344) Deferred rent (4,448) 64,941 Net cash provided by operating activities of continuing operations 6,526,896 8,084,203 Net cash used in operating activities of discontinued operations (82,207) (2,660,649) Net cash provided by operating activities 6,444,689 5,423,554 Cash flows from investing activities Purchases of property and equipment (3,571,296) (9,422,814) Net cash used in investing activities of continuing operations (3,571,296) (9,422,814) Net cash provided by investing activities of discontinued operations (258,319) Net cash used in investing activities (3,571,296) (9,681,133) Cash flows from financing activities Proceeds from issuance of long-term debt 3,215,641 7,109,154 Repayments of long-term debt (6,358,310) (11,134,717) Proceeds from employee stock purchase plan 28,919 20,782 Tax withholdings for restricted stock units (9,326) Net cash used in financing activities (3,113,750) (4,014,107) Net decrease in cash and cash equivalents (240,357) (8,271,686) Cash and cash equivalents, beginning of period 4,021,126 13,499,890 Cash and cash equivalents, end of period $ 3,780,769 $ 5,228,204 7

12 DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES Reconciliation between Net Income (Loss) and Adjusted EBITDA and Adjusted Restaurant-Level EBITDA Three Months Ended (Unaudited) Six Months Ended (Unaudited) June 25, 2017 June 26, 2016 June 25, 2017 June 26, 2016 Net lncome (Loss) $ (409,090) $ (182,426) $ 422,030 $ 247,978 + Loss from discontinued operations 117, ,770 82,207 1,278,795 + Income tax expense (benefit) (604,560) (251,546) (582,296) 166,808 + Interest expense 1,642,306 1,440,552 3,218,260 2,885,492 + Other income, net (25,140) (36,265) (52,307) (76,007) + Loss on asset disposal 264, , , ,151 + Depreciation and amortization 3,271,541 3,824,076 6,904,795 7,586,179 EBITDA $ 4,256,819 $ 5,348,088 $ 10,278,763 $ 12,273,396 + Pre-opening costs 294, , , ,384 + Non-recurring expenses (Restaurant-level) 14,300 71,184 + Non-recurring expenses (Corporate-level) 71, , , ,390 Adjusted EBITDA $ 4,622,749 $ 5,955,465 $ 10,780,460 $ 13,139,354 Adjusted EBITDA margin (%) 11.6% 14.5% 12.8% 15.6% + General and administrative 2,066,409 2,347,052 4,423,375 4,521,343 + Non-recurring expenses (Corporate-level) (71,457) (161,436) (161,554) (225,390) Restaurant Level EBITDA $ 6,617,701 $ 8,141,081 $ 15,042,281 $ 17,435,307 Restaurant Level EBITDA margin (%) 16.6% 19.9% 17.8% 20.7% Restaurant-Level EBITDA represents net income (loss) plus the sum of non-restaurant specific general and administrative expenses, restaurant pre-opening costs, 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, 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, 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. 8

13 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. ### 9

14 Q Financial Results August 3, 2017

15 Safe Harbor 2 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 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.

16 Who We Are NASDAQ: SAUC IPO: 2008 Market capitalization $59M Largest Buffalo Wild Wings Franchisee Leading operator Strong cash generator 65 BWW locations Recent share price $ week range $ $4.12 Insider ownership 50% Institutional ownership 11% Shares outstanding 26.7M 3 Pure play franchisee with scale and track record of accretive acquisitions Market data as of July 31, 2017 (Source: Bloomberg, LP); Ownership as of most recent filing

17 Second Quarter Key Information Sales of $39.9M, down $1M vs. last year Two new Florida restaurants Q2/2016 and one additional Florida location opened June 2017 Same Store Sales off 3.67% (-1.95% YTD) Adjusted EBITDA of $4.6M, 11.6% of sales Restaurant-level EBITDA of $6.6M, 16.6% of sales Strong cash from operations and FCF Net cash from operations of $2.1M and $6.5M for the quarter and YTD and free cash flow of $3.9M YTD Cost of sales up 200 basis points vs. Q as wing prices were high throughout the quarter and traffic-driving promotional activity weighed heavily on margins Lower margin on higher restaurant-level costs, particularly cost of sales YTD decline driven predominantly by unfavorable Q2 sports calendar in core markets 4 Sales S-S-S EBITDA Margins Cashflow

18 Sales and Traffic 5

19 Q NHL & NBA Playoff Impact 6 # of Locations Impacted 2016 Playoff Games 2017 Playoff Games Variance Sales $ Impact (thousands) Sales $ Impact per Game per Location $ (200) $(693) $ (55) $(546) $ (27) $(332) $ (264) $(1,631) $ (22) $(824) $ (210) $(1,640) Total Impact $(778) $(990)

20 Average Check and Traffic Trends 7 Traffic was negatively affected in Q2 by the Easter shift vs and significant drop in play-off games for the NHL and NBA teams in our core markets more positive trend in June as these events primarily impacted April and May NOTE: Average check is predominantly driven by price but is also influenced by product mix and, to a lesser extent, average guests per check. 2.6% 2.9% 5.5% 5.9% 7.7% 4.1% 1.3% 0.8% -2.2% -2.7% -1.8% -5.4% -0.3% -3.7% -8.3% -2.5% -0.7% 4.3% 3.0% -3.1% -2.0% 0.9% 1.1% 2.2% 0.2% 0.6% -2.5% -1.8% -2.0% -2.0% -3.0% -3.3% -4.3% 2.0% -1.9% -5.7% -0.7% 0.3% 1.1% -3.0% -3.2% 0.1% 1.7% 1.7% 3.3% 5.7% 7.1% 6.6% 3.1% 2.8% -0.2% 0.2% 1.4% -1.1% -2.3% -1.8% -2.9% -1.8% -1.0% 3.2% 6.1% -2.1% -2.1% Q Q Q Q Q Q Q Q Q Q Q Q Q Q Apr 2017 May 2017 Jun 2017 FY 2014 FY 2015 FY 2016 YTD 2017 SSS% Traffic % Avg Check %

21 Q2 Sales Bridge ($M) 8 Same-store sales declined $1.5M driven by the Easter holiday closure which shifted into Q2 (vs. Q1 2016), unfavorable sports outcomes in our markets, and the impact of promotional activity *Clinton Township, MI significantly impacted by a major sinkhole that, since 12/27/16, has been blocking access to the restaurant ( Fraser Sinkhole ); University Park, FL access blocked for much of FY 2017 by new diamond interchange construction (I-75 & University Parkway) $39.5 $39.5 $39.9 $0.5 $0.8 $0.2 $0.4 $41.0 $0.4 $0.4 Q Revenue Non Comp Locations Easter Holiday Sporting Events *Construction Avg Ticket/ Promo Impact Traffic Q Revenue

22 Sales Driving Initiatives: Delivery 9 Delivery and Carry-Out Sales as % of Total The delivery channel continues to show strong growth and to date we see no evidence that delivery sales cannibalize higher margin carry-out business Delivery Drives Incremental Sales 38 locations now offer delivery service through third parties (up from 26 last year) 2017 delivery sales are expected to reach $1.5-$2M Average delivery check is 13% higher than dine-in and 17% higher than carry-out 20.6% 19.3% 19.5% 20.4% 21.9% 21.4% 1.9% 2.7% 2.8% 3.1% Q Q Q Q Q Q % of Carry-Out Sales % of Delivery Sales

23 Sales Driving Initiatives: Blazin Rewards Loyalty 10 Blazin Rewards Members Roll-out began in St. Louis market in mid-2016 and ramped up with remaining locations in Q the average loyalty check is currently 17% higher than non-loyalty - 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90, Week *Loyalty Attachment Rates 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% Week * Loyalty attachment rate = loyalty checks as a percentage of total checks

24 Sales Driving Initiatives: Promotions 11 Tuesday SSS % Trends Half-Price Wing Tuesday vs. BOGO -3.4% 8.9% 14.3% 6 Week Prior to Promo Post Promo 2016 Post Promo 2017 YTD The Tuesday wing promotion has proven to drive significant traffic in throughout all dayparts on an otherwise low volume day; we re testing a BOGO offer in captive markets with promising early results * Excludes July 4th holiday ** Check Count may not be a good proxy for traffic given the nature of the BOGO promotion *** COS % excludes waste and cost that is not attached to a menu item (i.e. fryer oil)

25 Margins and EBITDA 12

26 Quarterly Restaurant EBITDA Trends 13 1 On June 29, 2015, we acquired 18 locations in the St. Louis market to add to our existing 44 units, which had a dilutive AUV of $2.3 million 2 FF = Franchise-related fees which includes 5.0% royalty and % NAF (national advertising fund) Record high chicken wing prices coupled with sales deleveraging placed added pressure on Q2 margins AUV ($M) $3.1 $2.8 $2.7 $2.7 $2.7 $2.6 $2.6 $2.6 $2.8 $2.5 $2.8 $2.8 $2.6 $ % 20.6% 19.4% 20.3% 21.5% 20.0% 19.6% 16.5% 19.0% 16.6% 21.2% 20.4% 19.4% 17.8% 5.5% 5.9% 6.4% 6.6% 6.5% 6.8% 7.0% 7.2% 6.5% 7.1% 5.2% 6.2% 6.8% 6.8% 8.0% 8.0% 8.0% 8.0% 8.2% 8.1% 8.1% 8.1% 8.0% 8.1% 8.0% 8.0% 8.1% 8.1% 12.6% 13.4% 13.0% 12.7% 11.5% 12.1% 13.3% 14.0% 12.3% 12.9% 13.2% 12.9% 12.7% 12.6% 23.3% 23.9% 25.1% 24.8% 24.4% 25.2% 24.7% 25.0% 24.7% 25.5% 23.8% 24.4% 24.8% 25.1% 28.8% 28.1% 28.1% 27.6% 28.0% 27.9% 27.4% 29.2% 29.4% 29.9% 28.5% 28.1% 28.1% 29.6% KEY Q Q Q Q Q Q Q Q Q Q FY2014 FY 2015 FY 2016 YTD 2017 C O S LA B O R O P EX FF2 OCC R ES T. EB IT D A 1 1

27 Cost of Sales Impacts 14 Historically high traditional chicken wing costs and lower yields, coupled with the Tuesday wing promotions, were responsible for 169bp of the 200bp increase in COS in Q vs. 2016

28 28.8% 28.1% 28.1% 27.6% 28.0% 27.9% 27.4% 29.2% 29.4% 29.9% 28.5% 28.1% 28.1% 29.6% 21.7% 20.1% 20.4% 19.5% 20.3% 20.9% 19.5% 23.5% 24.0% 24.9% 18.4% 20.4% 21.1% 24.4% $1.89 $1.77 $1.80 $1.79 $1.92 $1.92 $1.70 $1.95 $2.02 $2.03 $1.53 $1.81 $1.87 $2.03 Q Q Q Q Q Q Q Q Q Q FY 2014 FY 2015 FY 2016 YTD 2017 Total COS % Wing Cost % of Total COS Wing Cost/Lb COS Trends and Wing Impact 15 NOTE: Wing prices shown are the average price paid per pound of fresh, jumbo chicken wings including distribution costs of approximately $0.29 per pound Traditional wing costs hit record highs in Q and have remained high in early Q3; wings as % of total COS spiked to 24.9%

29 Historical Wing Prices 16 $ / lb. Fresh Jumbo Northeast Chicken Wing Spot Prices Source: Urner Barry Comtell UB Chicken Northeast Jumbo Wings NOTE: Logistics cost to restaurants is $0.29 / lb. over the spot price Volatile fresh wing spot prices have ranged between $1.41 and $1.87/lb. since 2015; late Q2 and early Q3 prices ($ $2.05) are record highs

30 Cost Saving Initiatives 17 To combat the impact of inflationary traditional wing costs, DRH has implemented a number of high value initiatives to drive down cost of sales targeting savings in the $3 4 million range (annualized), including the following: Implemented a wing portioning adjustment in early June Testing a revised Tuesday promotion in captive markets since mid-june (BOGO offer on snack/small menu items only) with favorable early results Driving down the impact of comps and promos through Implementation of new guidelines and policies Introducing aggressive targets to management incentive plans beginning in Q3 2017

31 Total Labor Trends 18 NOTE: OH = Overhead labor costs including payroll taxes, FUTA, SUTA, health benefits and retirement plan. Bonus is typically between % of sales. Hourly and total labor costs continue to be held in check as we push productivity initiatives as a means of offsetting wage inflation 23.3% 23.9% 25.1% 24.8% 24.4% 25.2% 24.7% 25.0% 24.7% 25.5% 24.4% 24.8% 25.1% 12.5% 13.2% 13.8% 13.3% 13.1% 13.6% 13.3% 13.6% 13.1% 13.8% 13.2% 13.4% 13.5% 5.6% 6.0% 6.4% 6.4% 6.2% 6.4% 6.6% 6.6% 6.6% 6.8% 6.1% 6.5% 6.7% 5.2% 4.7% 4.9% 5.2% 5.1% 5.1% 4.8% 4.8% 5.1% 4.8% 5.0% 4.9% 4.9% Q Q Q Q Q Q Q Q Q Q FY 2015 FY 2016 YTD 2017 Hourly Labor % of Sales Mgmt Labor % of Sales Bonus & OH % of Sales AUV ($M) $3.1 $2.8 $2.7 $2.7 $2.7 $2.6 $2.6 $2.6 $2.8 $2.5 $2.8 $2.6 $2.6

32 Adjusted EBITDA Trends % 20.6% 19.4% 20.3% 21.5% 20.0% 19.6% 16.5% 19.0% 16.6% 21.2% 20.4% 19.4% 17.8% 4.2% 8.0% 5.8% 5.1% 5.0% 5.7% 5.7% 5.8% 5.3% 5.2% 5.1% 5.7% 5.7% 5.2% Key Q Q Q Q Q Q Q Q Q Q FY2014 FY 2015 FY 2016 YTD 2017 G& A R ES T. EB IT D A Targeting G&A expense at 5.0% of net sales by the second half of 2017 on pace AUV ($M) $3.1 $2.8 $2.7 $2.7 $2.7 $2.6 $2.6 $2.6 $2.8 $2.5 $2.8 $2.8 $2.6 $2.6

33 G&A Impacts 20 Q saw G&A savings compared with 2016; G&A on pace to achieve targeted 5% of net sales in the second half of 2017 $2.08 $0.27 $0.12 $2.35 $0.12 Q G&A $ Support Expense Support Salaries Marketing Q G&A $ 0.30%

34 G&A Actions 21 Targeting second half run rate of 5% $1 million run rate savings target Post Bagger Dave s spin-off overhead restructuring coupled with tight spending controls Reductions in salaries and support office expenses Reduced (more targeted) local marketing spend Better leveraging of National Ad Fund spend More targeted local spend

35 The Future 22

36 Value Creation Going Forward 23 Value Proposition Best in class operations Proven integration skills Strong positive cash flow Financial strength and flexibility Tax benefits to offset over $50 million in pre-tax income Current Environment Roll-up of other BWW franchisees ready for exit as cycle turns Potential future involvement in BWLD re-franchising activity Opportunities with new franchised concepts Growth Strategy Disciplined, value-accretive growth through acquisition Supplemented by opportunistic new unit development

37 Revising Fiscal 2017 Guidance guidance provided as of August 3, Revenue guidance implies SSS for 2017 in range of -0.6% to -2.5%, excluding week 53 of the fiscal year

38 Free Cash Flow and Net Debt 25 Net debt / EBITDA target in the range of 4x by the end of 2017 and 3.5x by the end of 2018

39 Dougherty Conference - Minneapolis Q earnings release (call on ) Upcoming Investor Relations Calendar Date Event

40 Exhibits 27

41 EBITDA Reconciliation 28 DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES Reconciliation between Net Income (Loss) and Adjusted EBITDA and Adjusted Restaurant-Level EBITDA Three Months Ended (Unaudited) Six Months Ended (Unaudited) June 25, 2017 June 26, 2016 June 25, 2017 June 26, 2016 Net lncome (Loss) $ (409,090) $ (182,426) $ 422,030 $ 247,978 + Loss from discontinued operations 117, ,770 82,207 1,278,795 + Income tax expense (benefit) (604,560) (251,546) (582,296) 166,808 + Interest expense 1,642,306 1,440,552 3,218,260 2,885,492 + Other income, net (25,140) (36,265) (52,307) (76,007) + Loss on asset disposal 264, , , ,151 + Depreciation and amortization 3,271,541 3,824,076 6,904,795 7,586,179 EBITDA $ 4,256,819 $ 5,348,088 $ 10,278,763 $ 12,273,396 + Pre-opening costs 294, , , ,384 + Non-recurring expenses (Restaurant-level) 14,300 71,184 + Non-recurring expenses (Corporate-level) 71, , , ,390 Adjusted EBITDA $ 4,622,749 $ 5,955,465 $ 10,780,460 $ 13,139,354 Adjusted EBITDA margin (%) 11.6 % 14.5 % 12.8 % 15.6 % + General and administrative 2,066,409 2,347,052 4,423,375 4,521,343 + Non-recurring expenses (Corporate-level) (71,457) (161,436) (161,554) (225,390) Restaurant Level EBITDA $ 6,617,701 $ 8,141,081 $ 15,042,281 $ 17,435,307 Restaurant Level EBITDA margin (%) 16.6 % 19.9 % 17.8 % 20.7 %

42 EBITDA Reconciliation cont. 29 Restaurant-Level EBITDA represents net income (loss) plus the sum of non-restaurant specific general and administrative expenses, restaurant pre- opening costs, loss on property and equipment disposals, depreciation and amortization, other income and expenses, interest, taxes, and non-recurring expenses related to acquisitions, equity offerings or other non-recurring expenses. Adjusted EBITDA represents net income (loss) plus the sum of restaurant pre-opening costs, 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 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 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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