RED ROBIN GOURMET BURGERS, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations provides a narrative of our financial performance and condition that should be read in conjunction with the accompanying Condensed Consolidated Financial Statements. All comparisons under this heading between 2022 and 2021 refer to the twelve and forty weeks endedOctober 2, 2022 andOctober 3, 2021 , unless otherwise indicated. Overview Description of BusinessRed Robin Gourmet Burgers, Inc. , aDelaware corporation, together with its subsidiaries ("Red Robin ," "we," "us," "our," or the "Company"), primarily operates, franchises, and develops full-service restaurants with 525 locations inNorth America . As ofOctober 2, 2022 , the Company owned 424 restaurants located in 38 states. The Company also had 101 franchised full-service restaurants in 16 states and one Canadian province. The Company operates its business as one operating and one reportable segment.
Financial and Operational Highlights
The following summarizes the operational and financial highlights during the
twelve weeks ended
Restaurant Revenue, compared to the same period in the prior year, is presented in the table below:
(millions)
Restaurant Revenue for the twelve weeks ended
14.1
Increase/(decrease) from non-comparable restaurants
(1.9)
Total increase/(decrease)
12.2
Restaurant Revenue for the twelve weeks ended
The following summarizes the operational and financial highlights during the
forty weeks ended
(millions)
Restaurant Revenue for the forty weeks ended
93.6
Increase/(decrease) from non-comparable restaurants
(2.9)
Total increase/(decrease)
90.7
Restaurant Revenue for the forty weeks ended
(1) Comparable restaurant revenue represents revenue from Company-owned restaurants that have operated five full quarters as of the end of the period presented.
Restaurant revenues and operating costs as a percentage of restaurant revenue for the period are detailed in the table below:
Twelve Weeks Ended
October 2, 2022 October 3, 2021 Increase/(Decrease)
Restaurant revenue (millions) $ 282.4 $ 270.2 4.5 %
Restaurant operating costs: (Percentage of Restaurant Revenue) (Basis Points)
Cost of sales 25.0 % 23.2 % 180
Labor 35.6 36.9 (130)
Other operating 18.7 19.0 (30)
Occupancy 8.1 8.3 (20)
Total 87.4 % 87.5 % (10)
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Forty Weeks Ended
October 2, 2022 October 3, 2021 Increase/(Decrease)
Restaurant revenue (millions) $ 951.7 $ 861.0 10.5 %
Restaurant operating costs: (Percentage of Restaurant Revenue) (Basis Points)
Cost of sales 24.6 % 22.5 % 210
Labor 35.8 36.0 (20)
Other operating 18.1 18.1 -
Occupancy 8.0 8.6 (60)
Total 86.5 % 85.3 % 120
Certain percentage and basis point amounts in the table above do not total due to rounding as well as restaurant operating costs being expressed as a percentage of restaurant revenue and not total revenues.
The following table summarizes Net Loss, loss per diluted share, and adjusted loss per diluted share for the twelve and forty weeks ended andOctober 2, 2022 andOctober 3, 2021 : Twelve Weeks Ended Forty Weeks Ended October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021 Net loss as reported$ (12,567) $ (14,980) $ (33,605) $ (28,689)
Loss per share - diluted: Net loss as reported $ (0.79) $ (0.95) $ (2.12) $ (1.83) Asset impairment 0.14 - 0.82 0.09 Gain on sale of restaurant property (0.58) - (0.58) - Change in accounting estimate, gift card breakage revenue, net of commissions(1) - - (0.33) - Executive transition 0.11 - 0.12 - Write-off of unamortized debt issuance costs(2) - - 0.11 - Other financing costs(3) 0.06 - 0.09 - Income tax expense 0.09 (0.03) (0.08) (0.16) COVID-19 related charges 0.01 0.02 0.03 0.07 Restaurant closure costs (gains) (0.10) 0.07 0.02 0.34 Closed corporate office, net of sublease income 0.02 - 0.02 - Litigation contingencies 0.01 0.01 - 0.08 Board and stockholder matter costs - - - 0.01
Adjusted loss per share - diluted $ (1.03) $
(0.88) $ (1.90) $ (1.40)
Weighted average shares outstanding: Basic 15,892 15,709 15,816 15,647 Diluted 15,892 15,709 15,816 15,647 (1) During the forty weeks endedOctober 2, 2022 , the Company re-evaluated the estimated redemption pattern related to gift cards. See Note 1. Basis of Presentation and Recent Accounting Pronouncements included in Part I. Financial Information in this Quarterly Report on form 10-Q.
(2) Write-off of unamortized debt issuance costs related to the remaining unamortized debt issuance costs related to our Prior Credit Agreement (as defined below) with the completion of the refinancing of our Prior Credit Agreement in the first quarter of fiscal year 2022.
(3) Other financing costs includes legal and other charges related to the refinancing of our Prior Credit Agreement in the first quarter of 2022.
We believe the non-GAAP measure of adjusted loss per diluted share gives the reader additional insight into the ongoing operational results of the Company, and it is intended to supplement the presentation of the Company's financial results in accordance with GAAP. Adjusted loss per diluted share excludes the effects of changes in accounting estimates, asset impairment, litigation contingencies, the write-off of unamortized debt issuance costs, restaurant and office closure costs, other financing costs, COVID-19 related costs, executive transition costs, and related income tax effects. Other companies may define adjusted net loss per diluted share differently, and as a result our measure of adjusted loss per diluted share may not be directly comparable to those of other companies. Adjusted loss per diluted share should be considered in addition to, and not as a substitute for, net loss as reported in accordance withU.S. GAAP as a measure of performance. 15
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Table of Contents Restaurant Data
The following table details restaurant unit data for our Company-owned and franchised locations for the periods indicated:
Twelve Weeks Ended Forty Weeks Ended
October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021
Company-owned:
Beginning of period 426 430 430 443
Closed during the period (2) - (6) (13)
End of period 424 430 424 430
Franchised:
Beginning of period 102 101 101 103
Opened during the period - - 1 -
Closed during the period (1) - (1) (2)
End of period 101 101 101 101
Total number of restaurants 525 531 525 531
16-------------------------------------------------------------------------------- Table of Contents The following table presents total Company-owned and franchised restaurants by state or province as ofOctober 2, 2022 : Company-Owned Restaurants Franchised Restaurants State: Arkansas 2 2 Alaska 3 Alabama 4 Arizona 17 1 California 57 Colorado 22 Connecticut 3 Delaware 5 Florida 18 Georgia 6 Iowa 5 Idaho 8 Illinois 22 Indiana 13 Kansas 5 Kentucky 4 Louisiana 2 Massachusetts 4 2 Maryland 12 Maine 2 Michigan 20 Minnesota 4 Missouri 8 3 Montana 2 North Carolina 17 Nebraska 4 New Hampshire 3 New Jersey 12 1 New Mexico 3 Nevada 6 New York 14 Ohio 18 2 Oklahoma 5 Oregon 15 5 Pennsylvania 11 21 Rhode Island 1 South Carolina 4 South Dakota 1 Tennessee 11 Texas 20 9 Utah 1 5 Virginia 20 Washington 37 Wisconsin 11 Province: British Columbia 12 Total 424 101 Results of Operations 17
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Operating results for each fiscal period presented below are expressed as a percentage of total revenues, except for the components of restaurant operating costs, which are expressed as a percentage of restaurant revenue.
This information has been prepared on a basis consistent with our audited 2021
annual financial statements, and, in the opinion of management, includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information for the periods presented. Our operating
results may fluctuate significantly as a result of a variety of factors, and
operating results for any period presented are not necessarily indicative of
results for a full fiscal year.
Twelve Weeks Ended Forty Weeks Ended
October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021
Revenues:
Restaurant revenue 98.5 % 98.1 % 97.5 % 98.0 %
Franchise and other revenues 1.5 1.9 2.5 2.0
Total revenues 100.0 100.0 100.0 100.0
Costs and expenses:
Restaurant operating costs (excluding
depreciation and amortization shown separately
below):
Cost of sales 25.0 23.2 24.6 22.5
Labor 35.6 36.9 35.8 36.0
Other operating 18.7 19.0 18.1 18.1
Occupancy 8.1 8.3 8.0 8.6
Total restaurant operating costs 87.4 87.5 86.5 85.3
Depreciation and amortization 6.1 6.9 6.0 7.3
Selling, general, and administrative expenses 12.4 11.0 10.5 10.2
Pre-opening costs 0.1 0.2 0.1 0.1
Other charges (gains), net (1.8) 0.6 0.8 1.1
Loss from operations (2.8) (4.4) (1.7) (2.2)
Interest expense, net and other 1.6 1.0 1.7 1.1
Loss before income taxes (4.4) (5.4) (3.4) (3.3)
Income tax provision (benefit) - - - -
Net loss (4.4) % (5.4) % (3.4) % (3.3) %
Revenues
Twelve Weeks Ended Forty Weeks Ended
October 2, October 3, Percent October 2, October 3, Percent
(Revenues in thousands) 2022 2021 Change 2022 2021 Change
Restaurant revenue $ 282,449 $ 270,202 4.5 % $ 951,718 $ 861,036 10.5 %
Franchise and other revenues 4,439 5,242 (15.3) % 24,810 17,658 40.5 %
Total revenues $ 286,888 $ 275,444 4.2 % $ 976,528 $ 878,694 11.1 %
Average weekly net sales volumes
in Company-owned restaurants $ 55,469 $ 52,599 5.5 % $ 55,927 $ 50,324 11.1 %
Total operating weeks 5,092 5,137 (0.9) % 17,017 17,110 (0.5) %
Net sales per square foot 106 101 5.3 % 358 322 11.1 %
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Restaurant revenue for the twelve weeks endedOctober 2, 2022 , which comprises primarily food and beverage sales, increased$12.2 million , or 4.5%, as compared to the third quarter of 2021. The increase was due to a$14.1 million , or 5.3%, increase in comparable restaurant revenue, and a$1.9 million decrease at non-comparable restaurants, including the impact of restaurant closures. The comparable restaurant revenue increase was driven by a 9.0% increase in average Guest check, and a 3.7% decrease in Guest count. The increase in average Guest check resulted from a 2.5% increase in menu mix, a 7.7% increase in pricing, and was partially offset by a 1.2% decrease from higher discounts. The increase in menu mix was primarily driven by our limited time menu offerings and higher dine-in sales volumes. Dine-in sales comprised 72.3% of total food and beverage sales during the third quarter of 2022, as compared to 69.2% in the same period in 2021. Restaurant revenue for the forty weeks endedOctober 2, 2022 , increased$90.7 million , or 10.5%, as compared to the forty weeks endedOctober 3, 2021 . The increase was due to a$93.6 million , or 11.2%, increase in comparable restaurant revenue, and a$2.9 million decrease at non-comparable restaurants, including the impact of restaurant closures. The comparable restaurant revenue increase was driven by a 10.6% increase in average Guest check, and a 0.6% increase in Guest count. The increase in average Guest check resulted from a 4.2% increase in menu mix, a 6.3% increase in pricing, and a 0.1% decrease in discounts. The increase in menu mix was primarily driven by our limited time menu offerings and higher dine-in sales volumes. Dine-in sales comprised 70.9% of total food and beverage sales during the forty weeks endedOctober 2, 2022 , as compared to 64.5% in the same period in 2021. Average weekly net sales volumes represent the total restaurant revenue for all Company-ownedRed Robin restaurants for each time period presented, divided by the number of operating weeks in the period. Comparable restaurant revenues are comprised of Company-owned restaurants that have operated five full quarters as of the end of the period presented. The Company-owned restaurants that were temporarily closed due to the COVID-19 pandemic were not included in the comparable base for the forty weeks endedOctober 2, 2022 orOctober 3, 2021 . Fluctuations in average weekly net sales volumes for Company-owned restaurants reflect the effect of comparable restaurant revenue changes as well as the performance of reopened and new restaurants during the period, the average square footage of our restaurants, as well as the impact of changing capacity limitations in response to COVID-19 levels in a given locality. Net sales per square foot represents the total restaurant revenue for Company-owned restaurants included in the comparable base divided by the total square feet of Company-owned restaurants included in the comparable base. Franchise and other revenue decreased$0.8 million , or 15.3% for the twelve weeks endedOctober 2, 2022 compared to the twelve weeks endedOctober 3, 2021 . Our franchisees reported flat comparable restaurant revenue for the twelve weeks endedOctober 2, 2022 compared to the same period in 2021. Franchise and other revenue increased$7.2 million for the forty weeks endedOctober 2, 2022 compared to the forty weeks endedOctober 3, 2021 , primarily due to the re-evaluation of the estimated redemption pattern related to gift cards resulting in a$5.9 million adjustment to gift card breakage from aligning our estimate to the updated estimated redemption pattern. Our franchisees reported a comparable restaurant revenue increase of 8.0% for the forty weeks endedOctober 2, 2022 compared to the same period in 2021. Cost of Sales Twelve Weeks Ended Forty Weeks Ended (In thousands, except percentages) October 2, 2022 October 3, 2021 Percent Change October 2, 2022 October 3, 2021 Percent Change Cost of sales$ 70,640 $ 62,671 12.7 %$ 234,283 $ 193,754 20.9 % As a percent of restaurant revenue 25.0 % 23.2 % 1.8 % 24.6 % 22.5 % 2.1 % Cost of sales, which comprises of food and beverage costs, is variable and generally fluctuates with sales volume. Cost of sales as a percentage of restaurant revenue increased 180 basis points for the twelve weeks endedOctober 2, 2022 as compared to the same period in 2021. The increase was primarily driven by commodity inflation, partially offset by pricing and favorable mix shifts. Cost of sales as a percentage of restaurant revenue increased 210 basis points for the forty weeks endedOctober 2, 2022 as compared to the same period in 2021. The increase was primarily driven by commodity inflation, partially offset by favorable mix shifts and pricing. 19
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Labor
Twelve Weeks Ended Forty Weeks Ended
(In thousands, except
percentages) October 2, 2022 October 3, 2021 Percent Change October 2, 2022 October 3, 2021 Percent Change
Labor $ 100,522 $ 99,725 0.8 % $ 340,273 $ 310,333 9.6 %
As a percent of restaurant
revenue 35.6 % 36.9 % (1.3) % 35.8 % 36.0 % (0.2) %
Labor costs include restaurant-level hourly wages and management salaries as
well as related taxes and benefits. For the twelve weeks ended October 2, 2022 ,
labor as a percentage of restaurant revenue decreased 130 basis points compared
to the same period in 2021. The decrease was primarily driven by sales leverage,
lower hiring costs, and lower management incentive compensation costs, partially
offset by wage rate inflation.
For the forty weeks ended October 2, 2022 , labor as a percentage of restaurant
revenue decreased 20 basis points compared to the same period in 2021. The
decrease was primarily driven by sales leverage, lower group insurance, and
lower management incentive compensation costs, partially offset by higher wage
rate inflation.
Other Operating
Twelve Weeks Ended Forty Weeks Ended
(In thousands, except
percentages) October 2, 2022 October 3, 2021 Percent Change October 2, 2022 October 3, 2021 Percent Change
Other operating $ 52,858 $ 51,462 2.7 % $ 172,725 $ 156,102 10.6 %
As a percent of restaurant
revenue 18.7 % 19.0 % (0.3) % 18.1 % 18.1 % - %
Other operating costs include costs such as equipment repairs and maintenance
costs, restaurant supplies, utilities, restaurant technology, and other
miscellaneous costs. For the twelve weeks ended October 2, 2022 , other operating
costs as a percentage of restaurant revenue decreased 30 basis points as
compared to the same period in 2021. The decrease was primarily driven by lower
hiring advertisement costs, lower off-premises supplies, and sales leverage,
partially offset by an increase in utilities and credit card fees.
For the forty weeks ended
Occupancy
Twelve Weeks Ended Forty Weeks Ended
(In thousands, except
percentages) October 2, 2022 October 3, 2021 Percent Change October 2, 2022 October 3, 2021 Percent Change
Occupancy $ 22,828 $ 22,519 1.4 % $ 76,406 $ 74,233 2.9 %
As a percent of restaurant
revenue 8.1 % 8.3 % (0.2) % 8.0 % 8.6 % (0.6) %
Occupancy costs include fixed rents, property taxes, common area maintenance
charges, general liability insurance, contingent rents, and other property
costs. For the twelve weeks ended October 2, 2022 , occupancy costs as a
percentage of restaurant revenue decreased 20 basis points compared to the same
period in 2021 primarily driven by sales leverage.
For the forty weeks ended October 2, 2022 , occupancy costs as a percentage of
restaurant revenue decreased 60 basis points compared to the same period in 2021
primarily driven by sales leverage, partially offset by higher insurance costs.
Our fixed rents for the twelve weeks ended October 2, 2022 and October 3, 2021
were $16.1 million and $15.8 million , an increase of $0.3 million . Our fixed
rents for the forty weeks ended October 2, 2022 and October 3, 2021
were $53.5 million and $52.8 million , an increase of $0.6 million .
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Depreciation and Amortization
Twelve Weeks Ended Forty Weeks Ended
(In thousands, except
percentages) October 2, 2022 October 3, 2021 Percent Change October 2, 2022 October 3, 2021 Percent Change
Depreciation and
amortization $ 17,368 $ 18,881 (8.0) % $ 58,924 $ 63,984 (7.9) %
As a percent of total
revenues 6.1 % 6.9 % (0.8) % 6.0 % 7.3 % (1.3) %
Depreciation and amortization includes depreciation on capital expenditures for
restaurants and corporate assets as well as amortization of acquired franchise
rights, leasehold interests, and certain liquor licenses. For the twelve weeks
ended October 2, 2022 , depreciation and amortization expense as a percentage of
revenue decreased 80 basis points over the same period in 2021 primarily due to
net closed Company-owned restaurants, and sales leverage.
For the forty weeks ended October 2, 2022 , depreciation and amortization expense
as a percentage of revenue decreased 130 basis points over the same period in
2021 primarily due to net closed Company-owned restaurants and sales leverage.
Selling, General, and Administrative
Twelve Weeks Ended Forty Weeks Ended
(In thousands, except
percentages) October 2, 2022 October 3, 2021 Percent Change October 2, 2022 October 3, 2021 Percent Change
Selling, general, and
administrative $ 35,692 $ 30,343 17.6 % $ 102,168 $ 89,299 14.4 %
As a percent of total
revenues 12.4 % 11.0 % 1.4 % 10.5 % 10.2 % 0.3 %
Selling, general, and administrative costs include all corporate and administrative functions. Components of this category include marketing and advertising costs; restaurant support center, regional, and franchise support salaries and benefits; travel; professional and consulting fees; corporate information systems; legal expenses; office rent; training; and board of directors expenses.
General, and administrative costs in the twelve weeks endedOctober 2, 2022 increased$3.8 million , or 21.5%, as compared to the same period in 2021. The increase was primarily driven by a timing shift of our annual leadership conference, increased stock based compensation expense, and merit increases, partially offset by lower corporate office costs. General, and administrative costs in the forty weeks endedOctober 2, 2022 increased$7.0 million , or 12.1%, as compared to the same period in 2021. The increase was primarily driven by the 2022 leadership conference, increased stock based compensation expense, merit increases, and increased manager-in-training costs, partially offset by lower corporate office costs. Selling costs in the twelve weeks endedOctober 2, 2022 increased$1.5 million , or 12.2%, as compared to the same period in 2021. The increase was primarily driven by increased marketing spend. Selling costs in the forty weeks endedOctober 2, 2022 increased$5.9 million , or 18.5%, as compared to the same period in 2021. The increase was primarily driven by increased marketing spend. Pre-opening Costs Twelve Weeks Ended Forty Weeks Ended (In thousands, except percentages) October 2, 2022 October 3,
2021 Percent Change
Percent Change Pre-opening costs$ 217 $ 418 (48.1) %$ 514 $ 792 (35.1) % As a percent of total revenues 0.1 % 0.2 % (0.1) % 0.1 % 0.1 % - %
* Percentage increases and decreases over 100 percent were not considered meaningful
Pre-opening costs, which are expensed as incurred, comprise the costs related to preparing restaurants to introduce Donatos® and other initiatives, as well as direct costs, including labor, occupancy, training, and marketing, incurred related to opening new restaurants and hiring the initial work force. Our pre-opening costs fluctuate from period to period, depending upon, but not limited to, the number of restaurants where Donatos® has been introduced, the number of restaurant openings, the size of the restaurants being opened, and the location of the restaurants. Pre-opening costs for any given quarter will typically include expenses associated with restaurants opened during the quarter as well as expenses related to restaurants opening in subsequent quarters. We incurred pre-opening costs during the twelve and forty weeks endedOctober 2, 2022 related to the rollout of Donatos®. As ofOctober 2, 2022 , the Company had completed its rollout of Donatos® at approximately 50 restaurants for 2022. 21
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Interest Expense, Net and Other
Interest expense, net and other was$4.6 million for the twelve weeks endedOctober 2, 2022 , an increase of$1.7 million , or 59.9%, compared to the same period in 2021. The increase was primarily related to higher average outstanding debt, which increased$50.5 million compared to the same period in 2021, and a higher weighted average interest rate for the quarter. Our weighted average interest rate on our credit facility debt was 9.7% for the twelve weeks endedOctober 2, 2022 as compared to 6.8% for the same period in 2021. Interest expense, net and other was$16.2 million for the forty weeks endedOctober 2, 2022 , an increase of$6.2 million , or 61.7%, compared to the same period in 2021. The increase was primarily related to higher average outstanding debt, which increased$37.2 million compared to the same period in 2021, and a higher weighted average interest rate as well as the write off of approximately$1.7 million of deferred financing charges related to the Company'sPrior Credit Facility upon the execution of the Credit Agreement onMarch 4, 2022 . Our weighted average interest rate on our credit facility debt was 8.7% for the forty weeks endedOctober 2, 2022 as compared to 6.6% for the same period in 2021. Income Tax Provision
The effective tax rate for the twelve weeks ended
The effective tax rate for the forty weeks ended
During the forty weeks endedOctober 2, 2022 , the Company received$14.8 million of federal and state refund claims, respectively, and expects to receive an additional$0.7 million over the next 12-15 months due to processing delays at theIRS and state authorities.
Liquidity and Capital Resources
Cash and cash equivalents, and restricted cash increased$35.4 million to$58.1 million as ofOctober 2, 2022 , from$22.8 million at the beginning of the fiscal year. As the Company continues to recover from the COVID-19 pandemic and generates operating cash flow, the Company is using available cash flow from operations to maintain existing restaurants and infrastructure, execute on its long-term strategic initiatives, and pay down debt. As ofOctober 2, 2022 , the Company had approximately$75.0 million in liquidity, including cash on hand and available borrowing capacity under its credit facility.
Cash Flows
The table below summarizes our cash flows from operating, investing, and financing activities for each period presented (in thousands):
Forty Weeks Ended
October 3,
October 2, 2022 2021
Net cash provided by operating activities $ 38,800 $ 37,617
Net cash used in investing activities (18,297) (19,967)
Net cash provided by (used in) financing activities 14,921 (16,037)
Effect of exchange rate changes on cash (44) 28
Net change in cash and cash equivalents, and restricted cash $
35,380
Operating Cash Flows
Net cash flows provided by operating activities increased$1.2 million to$38.8 million for the forty weeks endedOctober 2, 2022 . The change in net cash provided by operating activities is primarily attributable to changes in working capital, including the tax refunds received in 2022, partially offset by decreased cash from earnings after non-cash items, as presented in the Condensed Consolidated Statements of Cash Flows.
Investing Cash Flows
Net cash flows used in investing activities decreased
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The following table lists the components of our capital expenditures, net of currency translation, for the forty weeks endedOctober 2, 2022 andOctober 3, 2021 (in thousands): Forty Weeks Ended October 3, October 2, 2022 2021 Restaurant improvement capital and other $ 12,376$ 6,467 Investment in technology, infrastructure, and other 8,274 5,355 Donatos® expansion 4,396 7,687 New restaurants and restaurant refreshes 1,989 478 Total capital expenditures $ 27,036$ 19,987 Financing Cash Flows Net cash flows provided by financing activities increased$31.0 million to$14.9 million for the forty weeks endedOctober 2, 2022 , as compared to net cash flows used in financing activities of$16.0 million in the same period in 2021. The increase is primarily due to$15.9 million in net borrowings in 2022 compared to a net paydown of debt of$15.7 million in 2021 as a result of the Company's refinancing of debt onMarch 4, 2022 and$3.9 million in initial deposit proceeds received related to the sale of a restaurant property in the second quarter of 2022, partially offset by an increase in cash used for debt issuance costs. New Credit Agreement OnMarch 4, 2022 the Company entered into a new Credit Agreement (the "Credit Agreement"), which replaced its prior amended and restated credit agreement (the "Prior Credit Agreement"). The five-year$225.0 million Credit Agreement provides for a$25.0 million revolving line of credit and a$200.0 million term loan (collectively, the "Credit Facility"). The new Credit Agreement references the Secured Overnight Financing Rate ("SOFR"), a new index calculated by short-term repurchase agreements and backed byU.S. Treasury securities, or the Alternate Base Rate ("ABR"), which represents the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.5% per annum, or (c) one-month term SOFR plus 1.0% per annum.
As of
As ofOctober 2, 2022 , the Company had$7.8 million of letters of credit issued against cash collateral, compared to$8.6 million as of the prior comparable period. The Company's cash collateral is recorded in Restricted cash on our Condensed Consolidated Balance Sheets as of the quarter endedOctober 2, 2022 .
Covenants
We are subject to a number of customary covenants under our new Credit Facility, including limitations on additional borrowings, acquisitions, stock repurchases, sales of assets, and dividend payments, as well as a Total Net Leverage ratio covenant. As ofOctober 2, 2022 , we were in compliance with all debt covenants.
Debt Outstanding
Total debt outstanding increased$22.9 million to$199.9 million atOctober 2, 2022 , from$177.0 million atDecember 26, 2021 , primarily driven by net proceeds from the execution of the new Credit Facility during the forty weeks endedOctober 2, 2022 .
Working Capital
We typically maintain current liabilities in excess of our current assets which
results in a working capital deficit. We are able to operate with a working
capital deficit because restaurant sales are primarily conducted on a cash or
credit card basis. Rapid turnover of inventory results in limited investment in
inventories, and cash from sales is usually received before related payables for
food, supplies, and payroll become due. In addition, receipts from the sale of
gift cards are received well in advance of related redemptions. Rather than
maintain higher cash balances that would result from this pattern of operating
cash flows, we typically utilize operating cash flows in excess of those
required for currently-maturing liabilities to pay for capital expenditures,
debt repayment, or to repurchase stock as allowed. When necessary, we utilize
our credit facility to satisfy short-term liquidity requirements. We believe our
future cash flows generated from restaurant operations combined with our
remaining borrowing capacity under the credit facility will be sufficient to
satisfy any working capital deficits and our planned capital expenditures.
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Share Repurchase
OnAugust 9, 2018 , the Company's board of directors authorized the Company's current share repurchase program of up to a total of$75 million of the Company's common stock. The share repurchase authorization was effective as ofAugust 9, 2018 , and will terminate upon completing repurchases of$75 million of common stock unless otherwise terminated by the board. Pursuant to the repurchase program, purchases may be made from time to time at the Company's discretion and the Company is not obligated to acquire any particular amount of common stock. From the date of the current program approval throughOctober 2, 2022 , we have repurchased a total of 226,500 shares at an average price of$29.14 per share for an aggregate amount of$6.6 million . Accordingly, as ofOctober 2, 2022 , we had$68.4 million of availability under the current share repurchase program. EffectiveMarch 14, 2020 , the Company suspended its share repurchase program to provide additional liquidity during the COVID-19 pandemic. Our ability to repurchase shares is limited to conditions set forth by our lenders in the Credit Agreement; repurchases shall not exceed (in any fiscal year) the greater of$2,500,000 and 4% of Consolidated EBITDA calculated on a Pro Forma Basis for the then most recently ended period.
Inflation
The primary inflationary factors affecting our operations are food, labor costs, energy costs, and materials used in the construction of new restaurants. Increases in wage rates have directly affected our labor costs in recent years. Additionally, many of our leases require us to pay taxes, maintenance, repairs, insurance, and utilities, all of which are generally subject to inflationary increases. Labor cost and commodity cost inflation had a negative impact on our financial condition and results of operations during the twelve and forty weeks endedOctober 2, 2022 . Uncertainties related to fluctuations in costs, including energy costs, commodity prices, annual indexed and other wage increases, and construction materials make it difficult to predict what impact, if any, inflation may continue to have on our business, but it is anticipated inflation will have a negative impact on labor and commodity costs for the remainder of 2022. Seasonality Our business is subject to seasonal fluctuations. Prior to the COVID-19 pandemic, sales in most of our restaurants have been higher during the summer months and winter holiday season and lower during the fall season. As a result, our quarterly operating results and comparable restaurant revenue may fluctuate significantly as a result of seasonality. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter, and comparable restaurant sales for any particular future period may decrease. Contractual Obligations There were no other material changes outside the ordinary course of business to our contractual obligations since the filing of the Company's Annual Report on Form 10-K for the fiscal year endedDecember 26, 2021 , except for long-term debt obligations resulting from the refinancing of our Credit Agreement inMarch 2022 as previously discussed above and in Note 6. Borrowings, of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, Contractual long-term debt payments as ofOctober 2, 2022 are as follows (in thousands): Payments Due by Period 2027 and Total 2022 2023-2024 2025-2026 Thereafter Long-term debt obligations(1)$ 291,775 $ 5,707 $ 45,187 $ 44,351 $ 196,530 Purchase obligations(2)$ 171,974 $ 18,335 $ 68,287 $ 38,848 $ 46,504 (1) Long-term debt obligations primarily represent minimum required principal payments under our Credit Facility including estimated interest of$91.9 million based on a 10.31% average borrowing interest rate. (2) Purchase obligations includes the Company's share of expected system-wide fixed price commitments for food, beverage, equipment, and restaurant supply items. These amounts are estimates based on both purchase commitments for contracts, as well as anticipated inventory needed for the Company's restaurants, and could vary due to the timing of anticipated volumes.
See the maturity of lease liabilities table in Note 3. Leases, in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those we believe are both significant and that require us to make difficult, subjective, or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors we believe to be appropriate under the circumstances. Actual results may differ from these estimates, including our estimates of future restaurant level cash flows, which are subject to the current economic environment and future impact from the COVID-19 pandemic, and we might obtain different results if we use different assumptions or conditions. We had no significant changes in our critical accounting policies and estimates which were disclosed in our Annual Report on Form 10-K for the fiscal year endedDecember 26, 2021 .
Recently Issued and Recently Adopted Accounting Standards
None noted.
Forward-Looking Statements
Certain information and statements contained in this report are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "PSLRA") codified at Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Forward-looking statements include
statements regarding our expectations, beliefs, intentions, plans, objectives,
goals, strategies, future events or performance, and underlying assumptions and
other statements which are other than statements of historical facts. These
statements may be identified, without limitation, by the use of forward-looking
terminology such as "anticipate," "assume," "believe," "could," "estimate,"
"expect," "future," "intend," "may," "plan," "project," "will," "continue," and
similar expressions. Forward-looking statements may relate to, among other
things: (i) anticipated impacts of litigation, including employment-related
claims, on our financial position and results of operations, (ii) anticipated
impacts of COVID-19 on our business, our financial position and results of
operations, (iii) expectations regarding our ability to attract and retain Team
Members, (iv) our business focus and strategy, (v) our ability to maintain our
working capital position, (vi) our ability to use our credit facility to satisfy
our working capital deficit, short-term liquidity requirements and capital
expenditures, (vii) anticipated impacts of inflation, and (viii) availability of
food and supplies meeting our specifications from alternate sources.
Although we believe the expectations reflected in our forward-looking statements
are based on reasonable assumptions, such expectations may prove to be
materially incorrect due to known and unknown risks and uncertainties.
In some cases, information regarding certain important factors that could cause
actual results to differ materially from a forward-looking statement appears
together with such statement. In addition, the factors described under Risk
Factors, as well as other possible factors not listed, could cause actual
results to differ materially from those expressed in forward-looking statements,
including, without limitation, the following:
•the impact of COVID-19 on our results of operations, supply chain, and
liquidity; the effectiveness of the Company's strategic initiatives, including
alternative labor models, service, and operational improvement initiatives;
•our ability to recruit staff, train, and retain our workforce for service
execution;
•the effectiveness of the Company's marketing strategies and promotions;
•menu changes, including the anticipated sales growth, costs, and timing of the
Donatos® expansion;
•the implementation, rollout, and timing of technology solutions in our
restaurants and at our restaurant support center, in addition to digital
platforms that are accessed by our Guests;
•our ability to achieve and sustain revenue and cost savings from off-premise
sales and other initiatives;
•competition in the casual dining market and discounting by competitors;
•changes in consumer spending trends and habits;
•changes in the cost and availability of key food products and distribution,
restaurant equipment, construction materials, labor, and energy, including the
existence of alternate suppliers and the availability of supplies meeting our
specification;
•general economic conditions, including changes in consumer disposable income,
weather conditions, and related events in regions where our restaurants are
operated;
•the adequacy of cash flows and the cost and availability of capital or credit
facility borrowings, including our ability to refinance our credit facility, on
terms we expect or at all
•the level and impacts of inflation;
•the impacts of interest rate increases;
•the impact of federal, state, and local regulation of the Company's business;
•changes in federal, state, or local laws and regulations affecting the
operation of our restaurants, including minimum wages, consumer health and
safety, health insurance coverage, nutritional disclosures, and employment
eligibility-related documentation requirements; and
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Table of Contents •costs and other effects of legal claims by Team Members, franchisees, customers, vendors, stockholders, and others, including negative publicity regarding food safety or cyber security.
All forward-looking statements speak only as of the date made. All subsequent
written and oral forward-looking statements attributable to us, or persons
acting on our behalf, are expressly qualified in their entirety by the
cautionary statements. Except as required by law, we undertake no obligation to
update any forward-looking statement to reflect events or circumstances after
the date on which it is made or to reflect the occurrence of anticipated or
unanticipated events or circumstances.
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