What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-06 compared with 2021-11-05 · 138 added, 228 removed, 274 unchanged (57% of the section changed)

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These statements may include words such as “aim,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “outlook,” “potential,” “project,” “projection,” “plan,” “intend,” “seek,” “may,” “could,” “would,” “will,” “should,” “can,” “can have,” “likely,” the negatives thereof and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.

They appear in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations

concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.

They appear in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.

All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those that we expected.

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● our ability to compete successfully with other quick-service and fast casual restaurants;

● vulnerability to changes in consumer preferences and economic conditions;

● vulnerability to political and social factors, including regarding trade, immigration or customer preferences;

● vulnerability to conditions in the greater Los Angeles area;

● vulnerability to natural disasters given the geographic concentration and real estate intensive nature of our business;

● vulnerability to changes in consumer preferences and political and economic conditions;

● our ability to attract, develop and retain employees;

● vulnerability to conditions in the greater Los Angeles area and to natural disasters given the geographic concentration and real estate intensive nature of our business;

● the possibility that we may continue to incur significant impairment of certain of our assets, in particular in our new markets;

● changes to food and supply costs, especially for chicken;

● changes in food and supply costs, especially for chicken;

● social media and negative publicity, whether or not valid, and our ability to respond to and effectively manage the accelerated impact of social media;

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COVID-19 Impact

During the COVID-19 pandemic, we have experienced periods of significant disruption to our restaurant operations.

Following the pandemic declaration in March 2020, federal, state and local governments have periodically responded to the public health crisis by requiring social distancing, issuing “stay at home” directives, and implementing restaurant restrictions - including government-mandated dining room closures - that limited business to off-premise services only (take-out, drive-thru and delivery).

Many state and local governments continue to periodically implement certain restrictions to try and contain the spread of the virus.

As of September 29, 2021, all of our restaurants have dining rooms open at full capacity and continue to maintain take-away, mobile pick-up, delivery, and drive-thru operations where available.

We continue to experience staffing challenges which resulted in reduced operating hours and service channels.

Further, there have been inflationary pressures due to supply chain disruptions that have impacted our business and results of operations during the thirteen and thirty-nine weeks ended September 29, 2021 .

During the thirteen and thirty-nine weeks ended September 29, 2021, we incurred $0.5 million and $3.5 million, respectively, in COVID-19 related expenses, primarily due to leaves of absence and overtime pay.

During the thirteen and thirty-nine weeks ended September 23, 2020, the Company incurred $0.9 million and $ 2.0 million, respectively, in COVID-19 related expenses, primarily due to leaves of absence and overtime pay.

While all of our restaurants had dining rooms open as of March 30, 2022, we continue to experience staffing challenges, which resulted in reduced operating hours and service channels at some of our restaurants during the thirteen weeks ended March 30, 2022 and resulted in higher wage inflation, overtime costs and other labor related costs.

Further, we experienced inflationary pressures due to supply chain disruptions that resulted in increased commodity prices and impacted our business and results of operations during the thirteen weeks ended March 30, 2022.

We expect these pressures to continue during the rest of fiscal 2022.

During the thirteen weeks ended March 30, 2022, we incurred $2.3 million in COVID-19 related expenses, primarily due to leaves of absence and overtime pay.

During the thirteen ended March 31, 2021, we incurred $2.8 million in COVID-19 related expenses, primarily due to leaves of absence and overtime pay.

Due to the rapid development and fluidity of this situation, we cannot determine the ultimate impact that the COVID-19 pandemic will have on our condensed consolidated financial condition, liquidity, and future results of operations, and therefore any prediction as to the ultimate materiality of the adverse impact on our condensed consolidated financial condition, liquidity, and future results of operations is uncertain.

Growth Strategies and Outlook

As of September 29, 2021, we had 480 locations in six states.

In fiscal 2020, we opened one new company-operated restaurant in Nevada, which was in process prior to the COVID-19 pandemic and our franchisees opened three new restaurants, two in California and one in Arizona.

For the thirty-nine weeks ended September 29, 2021, two new company-operated restaurants were opened, one in Nevada and one in California, and no new franchised restaurants were opened, although we sold eight of our company-owned restaurants to a franchisee during the thirteen and thirty-six weeks ended September 29, 2021.

As of March 30, 2022, we had 481 locations in six states.

In fiscal 2021, we opened two new company-operated restaurants, one in Nevada and one in California, and our franchisees opened two new restaurants, one in Texas and one in Louisiana.

For the thirteen weeks ended March 30, 2022, one new company-operated restaurant was opened in Nevada, and two new franchised restaurants were opened in California.

We plan to continue to expand our business, drive restaurant sales growth, and enhance our competitive positioning, by executing the following strategies:

● expand our restaurant base;

● increase our comparable restaurant sales;

● enhance operations and leverage our infrastructure.

● develop a people-first culture ;

● differentiate the brand;

● simplify operations;

● accelerate new restaurant development.

To increase comparable restaurant sales, we plan to increase customer frequency, attract new customers, and improve per-person spend.

Success of these growth plans is not guaranteed.

The success of these growth plans is not guaranteed.

Highlights and Trends

Comparable Restaurant Sales

For the thirteen and thirty-nine weeks ended September 29, 2021, system-wide comparable restaurant sales increased by 9.3% and 12.5%, respectively, from the comparable period in the prior year.

For company-operated restaurants, comparable restaurant sales for the thirteen and thirty-nine weeks ended September 29, 2021 increased by 4.8% and 8.1%, respectively.

For company-operated restaurants, the quarter’s change in comparable restaurant sales consisted of an approximately 3.5% increase in average check size and an increase in transactions of 1.2% and the year-to-date change in comparable restaurant sales consisted of a 6.6% increase in average check size and a 1.4% increase in transactions .

For franchised restaurants, comparable restaurant sales increased 12.6% and 15.7% for the thirteen and thirty-nine weeks ended September 29, 2021, respectively.

For the thirteen weeks ended March 30, 2022, system-wide comparable restaurant sales increased by 7.8% from the comparable period in the prior year.

For company-operated restaurants, comparable restaurant sales for the thirteen weeks ended March 30, 2022 increased by 2.3%.

For company-operated restaurants, the quarter’s change in comparable restaurant sales consisted of an approximately 6.0% increase in average check size and a decrease in transactions of 3.5%.

For franchised restaurants, comparable restaurant sales increased 11.5% for the thirteen weeks ended March 30, 2022.

Refer to Comparable Restaurant Sales definition in “Key Performance Indicators” section below.

Restaurant Development

Our restaurant counts at the beginning and end of each of the last three fiscal years and the thirty-nine weeks ended September 29, 2021, were as follows:

Thirty-Nine Weeks Ended

Our restaurant counts at the beginning and end of each of the last three fiscal years and the thirteen weeks ended March 30, 2022, were as follows:

Thirteen Weeks Ended

Fiscal Year Ended

September 29, 2021

March 30, 2022

Company-operated restaurant activity:

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We believe that our remodels using this new design will result in higher restaurant revenue and a strengthened brand.

As of September 29, 2021 we have completed 12 remodels using the new asset design including 10 this year.

In fiscal 2021, we plan to complete a total of 10-12 company and 5-7 franchise remodels using the new design.

During the second quarter of 2017, we introduced a new loyalty rewards points program in an effort to increase sales and loyalty among our customers, by offering rewards that incentivize customers to visit our restaurants more often each month.

Customers earn points for each dollar spent and as of August 4, 2020, 50 points can be redeemed for a $5 reward to be used for a future purchase.

Prior to August 4, 2020, 100 points could be redeemed for a $10 reward.

As of March 30, 2022 we have completed 12 company-operated restaurant remodels and three franchise remodels using the new asset design.

In fiscal 2022, we plan to continue our standard practices for remodels, which includes completing a total of 10-15 company and 20-30 franchise remodels using the new design.

The cost of our

restaurant remodels varies depending on the scope of the work required, but on average the investment is $0.3 million to $0.4 million per restaurant.

Our Loco Rewards loyalty program offers rewards that incentivize customers to visit our restaurants more often each month.

Customers earn points for each dollar spent and 50 points can be redeemed for a $5 reward to be used for a future purchase.

If a customer does not earn or use points within a one-year period, their account is deactivated and all points expire.

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When a customer is part of the rewards program, the obligation to provide future discounts related to points earned is considered a separate performance obligation, to which a portion of the transaction price is allocated.

The performance obligation related to loyalty points is deemed to have

been satisfied, and the amount deferred in the balance sheet is recognized as revenue, when the points are transferred to a reward and redeemed, the reward or points have expired, or the likelihood of redemption is remote.

The performance obligation related to loyalty points is deemed to have been satisfied, and the amount deferred in the balance sheet is recognized as revenue, when the points are transferred to a reward and redeemed, the reward or points have expired, or the likelihood of redemption is remote.

A portion of the transaction price is allocated to loyalty points on a pro-rata basis, based on stand-alone selling price, as determined by menu pricing and loyalty point’s terms.

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As points are available for redemption past the quarter earned, a portion of the revenue associated with the earned points will be deferred until redemption or expiration.

As of September 29, 2021 and December 30, 2020, the revenue allocated to loyalty points that had not been redeemed was $0.7 million and $0.9 million, respectively, which is reflected in the Company’s accompanying condensed consolidated balance sheets within other accrued expenses and current liabilities.

The Company had over 2.5 million loyalty program members as of September 29, 2021.

As of March 30, 2022 and December 29, 2021, the revenue allocated to loyalty points that had not been redeemed was $0.6 million and $0.7 million, respectively, which is reflected in our accompanying condensed consolidated balance sheets within other accrued expenses and current liabilities.

We had over 2.9 million loyalty program members as of March 30, 2022.

Critical Accounting Policies and Use of Estimates

The preparation of our condensed consolidated financial statements in accordance with GAAP requires us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenue, and expenses, and related disclosures of contingent assets and liabilities.

The preparation of our condensed consolidated financial statements in accordance with U.S.

generally accepted accounting principles (“GAAP”) requires us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenue, and expenses, and related disclosures of contingent assets and liabilities.

We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under current circumstances in making judgments about the carrying value of assets and liabilities that are not readily available from other sources.

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A thorough understanding of these accounting policies is essential when reviewing our reported results of operations and our financial position.

Management believes that the critical accounting policies and estimates discussed below involve the most difficult management judgments, due to the sensitivity of the methods and assumptions used.

Management believes that our critical accounting policies and estimates involve the most difficult management judgments, due to the sensitivity of the methods and assumptions used.

For a summary of our critical accounting policies and a discussion of our use of estimates, see “Critical Accounting Policies and Use of Estimates” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the year ended December 29, 2021.

There have been no material changes to our critical accounting policies or uses of estimates since our annual report on Form 10-K.

There have been no material changes to our critical accounting policies or uses of estimates since our annual report on Form 10-K for the year ended December 29, 2021.

Recent Accounting Pronouncements

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Labor and related expenses include wages, payroll taxes, workers’ compensation expense, benefits, and bonuses paid to our restaurant management teams.

Like other expense items, we expect labor costs to grow proportionately as our

restaurant revenue grows.

Like other expense items, we expect labor costs to grow proportionately as our restaurant revenue grows.

Factors that influence labor costs include minimum wage and payroll tax legislation, overtime, the frequency and severity of workers’ compensation claims, health care costs, and the performance of our restaurants.

Occupancy Costs and Other Operating Expenses

Occupancy costs include rent, CAM, and real estate taxes.

Occupancy costs include rent, common area maintenance (“CAM”), and real estate taxes.

Other restaurant operating expenses include the costs of utilities, advertising, credit card processing fees, restaurant supplies, repairs and maintenance, and other restaurant operating costs.

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Impairment and Closed-Store Reserves

We review long-lived assets such as property, equipment, and intangibles on a unit-by-unit basis for impairment when events or circumstances indicate a carrying value of the assets that may not be recoverable.

We review long-lived assets such as property, equipment, and intangibles on a unit-by-unit basis for impairment when events or circumstances indicate the carrying value of the assets may not be recoverable.

We determine if there is impairment at the restaurant level by comparing undiscounted future cash flows from the related long-lived assets to their respective carrying values and record an impairment charge when appropriate.

In determining future cash flows, significant estimates are made by us with respect to future operating results of each restaurant over its remaining lease term, including sales trends, labor rates, commodity costs and other operating cost assumptions.

If assets are determined to be impaired, the impairment charge is measured by calculating the amount by which the asset carrying amount exceeds its fair value.

If assets are determined to be impaired, the impairment charge is measured by calculating the amount by which the asset’s carrying amount

exceeds its fair value.

This process of assessing fair values requires the use of estimates and assumptions, including our ability to sell or reuse the related assets and market conditions, which are subject to a high degree of judgment.

If these assumptions change in the future, we may be required to record impairment charges for these assets and these charges could be material.

When the Company closes a restaurant, it will evaluate the ROU asset for impairment, based on anticipated sublease recoveries.

When we close a restaurant, we will evaluate the right of use (“ROU”) asset for impairment, based on anticipated sublease recoveries.

The remaining value of the ROU asset is amortized on a straight-line basis, with the expense recognized in closed-store reserve expense, in addition to property tax and CAM charges for closed restaurants.

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Comparison of Results of Operations

Our operating results for the thirteen and thirty-nine weeks ended September 29, 2021 and September 23, 2020 and expressed as percentages of total revenue, with the exception of cost of operations and company restaurant expenses, which are expressed as a percentage of company-operated restaurant revenue, are compared in the tables below.

Our operating results for the thirteen weeks ended March 30, 2022 and March 31, 2021 and expressed as percentages of total revenue, with the exception of cost of operations and company restaurant expenses, which are expressed as percentages of company-operated restaurant revenue, are compared in the tables below.

Thirteen Weeks Ended

September 29, 2021

September 23, 2020

Increase / (Decrease)

Statements of Income Data

Company-operated restaurant revenue

Franchise revenue

Franchise advertising fee revenue

Total revenue

Cost of operations

Food and paper costs (1)

Labor and related expenses (1)

Occupancy and other operating expenses (1)

Gain on recovery of insurance proceeds, lost profits (1)

Company restaurant expenses (1)

General and administrative expenses

Franchise expenses

Depreciation and amortization

Loss on disposal of assets

Loss on disposition of restaurants

Impairment and closed-store reserves

Total expenses

Income from operations

Interest expense, net of interest income

Income tax receivable agreement expense (income)

Income before provision for income taxes

Provision for income taxes

(1) Percentages for line items relating to cost of operations and company restaurant expenses are calculated with company-operated restaurant revenue as the denominator.

All other percentages use total revenue.

Thirty-Nine Weeks Ended

September 29, 2021

September 23, 2020

March 30, 2022

March 31, 2021

Increase / (Decrease)

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Occupancy and other operating expenses (1)

Gain on recovery of insurance proceeds, lost profits(1)

Company restaurant expenses (1)

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Loss on disposal of assets

Recovery of securities lawsuits related legal expenses and other insurance claims

Loss on disposition of restaurants

Impairment and closed-store reserves

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Interest expense, net of interest income

Income tax receivable agreement (income) expense

Income tax receivable agreement income

Income before provision for income taxes

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Company-Operated Restaurant Revenue

For the quarter, company-operated restaurant revenue increased $2.7 million, or 2.8%, from the comparable period in the prior year.

The increase in company-operated restaurant sales was primarily due to an increase in company-operated comparable restaurant revenue of $4.4 million, or 4.8%.

The company-operated comparable restaurant sales increase consisted of an approximately 3.5% increase in average check size and a 1.2% increase in transactions.

In addition, company-operated restaurant revenue was favorably impacted by $0.9 million of additional sales from restaurants opened during or after the third quarter of the prior year and a $0.4 million increase in revenue from restaurants that were temporarily closed due to the COVID-19 pandemic during the third quarter of the prior year.

This restaurant sales increase was partially offset by a $2.6 million decrease in revenue from the eight company-operated restaurants sold by the Company to an existing franchisee during the quarter and a $0.4 million decrease in revenue recognized for our loyalty points program.

Year-to-date, company-operated restaurant revenue increased $23.5 million, or 8.5%, from the comparable period in the prior year.

The increase in company-operated restaurant sales was primarily due to a $23.5 million, or 8.1% increase in company-operated comparable restaurant revenue.

In addition, company-operated restaurant revenue was favorably impacted by $2.7 million of additional sales from restaurants opened during or after the second quarter of the prior year and a $0.4 million increase in revenue from restaurants that were temporarily closed due to the COVID-19 pandemic during the year-to-date period of the prior year.

The company-operated comparable restaurant sales increase consisted of an approximately 6.6% increase in average check size and a 1.4% increase in transactions.

This restaurant sales increase was partially offset by a $2.6 million decrease in revenue from the eight company-operated restaurants sold by the Company to an existing franchisee during the quarter and a $0.5 million decrease in revenue recognized for our loyalty points program.

See above under “COVID-19 Impact” for additional information related to the impact of the COVID-19 pandemic on our business.

For the quarter, company-operated restaurant revenue decreased $0.2 million, or 0.2%, from the comparable period in the prior year.

The decrease in company-operated restaurant sales was primarily due to a $2.6 million decrease in revenue from the eight company-operated restaurants sold by the Company to an existing franchisee and a $0.5 million decrease in revenue from the closure of three restaurants, in each case, during or subsequent to the first quarter of 2021.

In addition, company-operated restaurant revenue was negatively impacted by a $0.3 million decrease in revenue recognized for our loyalty points program.

This restaurant sales decrease was partially offset by an increase in company-operated comparable restaurant revenue of $2.1 million, or 2.3%.

The company-operated comparable restaurant sales increase consisted of an approximately 6.0% increase in average check size, partially offset by a 3.5% decrease in transactions.

In addition, company-operated restaurant revenue was favorably impacted by $0.7 million of additional sales from restaurants opened during or after the first quarter of 2021 and a $0.4 million increase in revenue from restaurants that were temporarily closed due to the COVID-19 pandemic during the first quarter of 2021.

Franchise Revenue

For the quarter, franchise revenue increased $1.6 million, or 21.6%, from the comparable period in the prior year.

This increase was primarily due to a franchise comparable restaurant sales increase of 12.6%, the opening of one restaurant during or subsequent to the third quarter of 2020 and revenue generated from eight company-operated restaurants sold by the Company to an existing franchisee during the quarter.

This franchise revenue increase was partially offset by the closure of two franchise locations during or subsequent to the third quarter of 2020.

Year-to-date, franchise revenue increased $3.4 million, or 15.6%, from the comparable period in the prior year.

This increase was primarily due to a franchise comparable restaurant sales increase of 15.7%, the opening of three restaurants during or subsequent to the first quarter of 2020 and revenue generated from eight company-operated restaurants sold by the Company to an existing franchisee during the quarter .

This franchise revenue increase was partially offset by the closure of eight franchise locations during or subsequent to the first quarter of 2020.

This increase was primarily due to a franchise comparable restaurant sales increase of 11.5% and the opening of four restaurants and eight company-operated restaurants sold by the Company to an existing franchisee, in each case, during or subsequent to the first quarter of 2021 .

This franchise revenue increase was partially offset by the closure of two franchise locations during or subsequent to the first quarter of 2021.

Franchise Advertising Fee Revenue

For the quarter, franchise advertising fee revenue increased $0.9 million, or 14.9%, from the comparable period in the prior year.

Year-to-date, franchise advertising fee revenue increased $2.8 million, or 16.9%, from the comparable period in the prior year.

As advertising fee revenue is a percentage of franchisees’ revenue, the quarter and year-to-date fluctuations were due to the increases and decreases noted in franchise revenue above.

As advertising fee revenue is a percentage of franchisees’ revenue, the quarter fluctuations were due to the increases and decreases noted in franchise revenue above.

Food and Paper Costs

For the quarter, food and paper costs increased $3.3 million, or 13.7%, from the comparable period in the prior year, primarily due to a $2.5 million increase in food costs and a $0.8 million increase in paper costs.

Year-to-date, food and paper costs increased $5.6 million, or 7.7%, from the comparable period in the prior year, due to a $3.4 million increase in food costs and a $2.2 million increase in paper costs.

The increase in food and paper costs for the quarter and year-to-date periods resulted primarily from higher company transactions, sales mix and commodity inflation.

For the quarter, food and paper costs as a percentage of company-operated restaurant revenue were 26.7%, up from 25.6% in the comparable period of the prior year primarily due to commodity inflation and investment in new elevated packaging, partially offset by an increase in pricing.

Year-to-date, food and paper costs as a percentage of company-operated restaurant revenue were 26.2%, down from 26.4% in the comparable period of the prior year.

The percentage decrease for the year-to-date period was due primarily to an increase in pricing and effective waste management, partially offset by sales mix and commodity inflation.

The increase in food and paper costs for the quarter resulted primarily from sales mix and commodity inflation, partially offset by lower transactions.

For the quarter, food and paper costs as a percentage of company-operated restaurant revenue were 29.5%, up from 25.9% in the comparable period of the prior year primarily due to commodity inflation and an investment in new elevated packaging, partially offset by an increase in pricing.

Labor and Related Expenses

For the quarter, labor and related expenses decreased $1.0 million, or 3.3%, from the comparable period in the prior year.

The decrease for the quarter was pr imarily due to recognizing a $3.2 million ERC which was recorded as an offset to the corresponding payroll tax expense and was classified as part of the labor and other operating expenses on the condensed consolidated statements of income during the thirteen weeks ended September 29, 2021.

See Note 1, “Basis of Presentation and Summary of Significant Accounting Policies” in the Notes to Condensed Consolidated Financial Statements ” for add itional information related to the ERC.

Additionally, the labor and related expenses were favorably impacted by a $0.9 million reduction in labor related to the eight locations sold to an existing franchisee during the quarter.

The decrease in labor and related expenses was partially offset by a $1.5 million increase primarily related to minimum wage increases in California during fiscal 2020 and 2021 and other labor wage increases as a result of competitive pressure, a $0.8 million increase related to the 1.2% increase in year-over-year sales transactions, a $0.3 million increase in overtime, a $0.3 million increase in medical and workers compensation expense due to higher claims activity and a $0.2 million increase in other labor related expenses.

Year-to-date, labor and related expenses increased $6.9 million, or 8.2%, from the comparable period in the prior year.

The increase for the year-to-date period was due to a $2.6 million increase primarily related to minimum wage increases in California during fiscal 2020 and 2021 and other labor wage increases as a result of competitive pressure, a $2.5 million increase in overtime, a $2.3 million increase related to the 1.4% increase in year-over-year sales transactions, a $1.1 million increase primarily related to employee training and other labor related expenses, $0.9 million in labor costs associated with the COVID-19 pandemic and $0.7 million in higher payroll taxes.

This labor and related expense increase was partially offset by recognizing a $3.2 million ERC which is recorded as an offset to the corresponding payroll tax expense and is classified as part of the labor and other operating expenses on the condensed consolidated statements of income during the thirty-nine weeks ended September 29, 2021.

For the quarter, labor and related expenses as a percentage of company-operated restaurant revenue were 27.8%, down from 29.6% in the comparable period in the prior year due to the cost increases highlighted above, partially offset by the obtained ERC.

Year-to-date labor and related expenses as a percentage of company-operated restaurant revenue were 29.9%, compared to 30.0% in the comparable period in the prior year.

The year-to-date percentage was impacted by the cost increases highlighted above, offset by an obtained ERC.

For the quarter, labor and related expenses increased $1.9 million, or 6.3%, from the comparable period in the prior year.

The increase for the quarter was pr imarily due to a $1.9 million increase primarily related to minimum wage increases in California during fiscal 2022 and other labor wage increases as a result of competitive pressures, a $0.6 million increase in overtime, a $0.6 million increase in medical and workers compensation expense due to higher claims activity and $0.4 million increase in other labor related expenses.

The increase in labor and related expenses was partially offset by a $1.0 million reduction in labor related to the eight locations sold to an existing franchisee during the prior year and a $0.6 million decrease related to the 3.5% decrease in year-over-year sales transactions .

For the quarter, labor and related expenses as a percentage of company-operated restaurant revenue were 34.8%, up from 32.6% in the comparable period in the prior year due to the cost increases highlighted above, partially offset by the higher prices.

Occupancy and Other Operating Expenses

For the quarter, occupancy and other operating expenses increased $1.3 million, or 5.3%, from the comparable period of the prior year.

Fluctuations in occupancy and other expenses consisted primarily of a $0.5 million increase in utilities, a $0.4 million increase in other operating expenses, a $0.2 million increase in repairs and maintenance costs and a $0.2 million increase in market place delivery fees.

Year-to-date, occupancy and other operating expenses increased $6.4 million, or 9.5%, from the comparable period of the prior year.

The increase was primarily due to a $1.2 million increase in utilities, a $1.1 million increase in market place delivery fees, a $1.0 million increase in advertising fees, a $0.9 million increase in repairs and maintenance costs, a $0.8 million increase in other operating expenses, a $0.6 million increase in operating supplies, a $0.4 million increase in occupancy costs, primarily related to rent expense and higher general liability claims, and a $0.4 million increase in credit card charges.

For the quarter, occupancy and other operating expenses as a percentage of company-operated restaurant revenue were 25.1%, up from 24.5% in the comparable period in the prior year.

Year-to-date, occupancy and other operating expenses as a percentage of company-operated restaurant revenue were 24.7%, up from 24.4% in the comparable period of the prior year.

The higher percentage on both a quarter and year-to-date basis reflects the cost increases noted above partially offset by higher year-to-date revenue.

For the quarter, occupancy and other operating expenses were consistent with the comparable period of the prior year.

For the quarter, occupancy and other operating expenses as a percentage of company-operated restaurant revenue were 25.4% which is consistent with the comparable period in the prior year.

General and Administrative Expenses

For the quarter, general and administrative expenses decreased $0.5 million, or 5.0%, from the comparable period in the prior year.

The decrease for the quarter was due primarily to a $1.3 million decrease in labor related costs, primarily related to a decrease in estimated management bonus expense.

This general and administrative expenses decrease was partially offset by a $0.6 million increase in recruiting and other outside services fees and a $0.3 million increase in legal and professional expenses.

Year-to-date, general and administrative expenses increased $0.8 million, or 2.6%, from the comparable period in the prior year.

The increase for the year-to-date period was due primarily to a $1.2 million increase in recruiting and other outside services fees, a $0.8 million increase in stock compensation expenses and a $0.3 million increase in labor related costs, primarily related to an increase in management bonus expense .

This increase was partially offset by a $1.5 million decrease in legal and professional expenses, related primarily to a $2.5 million legal settlement in the prior year period discussed in Note 7, “Commitments and Contingencies, Legal Matters” in the Notes to Condensed Consolidated Financial Statements above.

The decrease for the quarter was due to a $0.3 million decrease in legal and professional expenses and a $0.5 million decrease in labor related costs, primarily related to a decrease in estimated management bonus expense.

This general and administrative expenses decrease was partially offset by a $0.3 million increase in other general and administrative expenses.

For the quarter, general and administrative expenses as a percentage of total revenue were 9.0%, down from 9.7% in the comparable period of the prior year.

The percentage decrease for the quarterly period resulted primarily from higher revenue.

Year-to-date, general and administrative expenses as a percentage of total revenue were 8.8%, down from 9.4% in the comparable period of the prior year.

The year-to-date percentage decrease is primarily due to the higher revenue, partially offset by the cost increases discussed above.

Loss on Disposition of Restaurants

During the thirteen and thirty-nine weeks ended September 29, 2021, we completed the sale of our eight restaurants within Sacramento area to an existing franchisee.

This sale resulted in cash proceeds of $4.6 million and a net loss on sale of restaurants of less than $0.1 million and $1.5 million for the thirteen and thirty-nine weeks ended September 29, 2021, respectively.

The percentage decrease for the quarterly period resulted from higher revenue and the lower expenses noted above.

Impairment and Closed-Store Reserves

During the thirteen and thirty-nine weeks ended September 29, 2021, we recorded non-cash impairment charges of $0.1 million and $0.7 million, respectively, primarily related to the carrying value of the ROU assets of one restaurant in Texas closed in 2019, the ROU assets of one restaurant in California, and the long-lived assets of three restaurants in California.

During the thirteen and thirty-nine weeks ended September 23, 2020, we recorded non-cash impairment charges of $1.5 million and $3.5 million, respectively, primarily related to the carrying value of the assets of one restaurant in Texas and the long-lived assets of four restaurants in California.

Given the inherent uncertainty in

projecting results for newer restaurants in newer markets, as well as the impact of the COVID-19 pandemic, the Company is monitoring the recoverability of the carrying value of the assets of several restaurants on an ongoing basis.

During the thirteen weeks ended March 30, 2022, we recorded non-cash impairment charges of $0.1 million, primarily related to the long-lived assets of one restaurant in California.

During the thirteen weeks ended March 31, 2021, we recorded non-cash impairment charges of $0.3 million, primarily related to the carrying value of the ROU assets of one restaurant in Texas closed in 2019 and the long-lived assets of three restaurants in California.

Given the inherent uncertainty in projecting results for newer restaurants in newer markets, as well as the impact of the COVID-19 pandemic, we are monitoring the recoverability of the carrying value of the assets of several restaurants on an ongoing basis.

For these restaurants, if expected performance is not realized, an impairment charge may be recognized in future periods, and such charge could be material.

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Additionally, any property tax and CAM payments relating to closed restaurants are included within closed-store expense.

During the thirteen and thirty-nine weeks ended September 29, 2021, we recognized $0.1 million and $0.4 million, respectively, of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.

During the thirteen and thirty-nine weeks ended September 23, 2020, we recognized $0.3 million and $1.1 million, respectively, of closed-store reserve expense, primarily related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.

During the thirteen weeks ended March 30, 2022, we recognized less than $0.1 million of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.

During the thirteen weeks ended March 31, 2021, we recognized $0.3 million of closed-store reserve expense, primarily related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.

Interest Expense, Net

For the quarter and year-to-date, interest expense, net, decreased $0.3 million and $1.2 million, respectively, from the comparable period in the prior year.

The decrease is primarily related to lower interest rates and lower outstanding balances on our 2018 Revolver.

For the quarter, interest expense, net, decreased $0.1 million from the comparable period in the prior year.

The decrease is primarily related to lower interest rates and lower outstanding balances on our 2018 Revolver (as defined below).

Income Tax Receivable Agreement

On July 30, 2014, we entered into the TRA.

The TRA calls for us to pay to our pre-IPO stockholders 85% of the savings in cash that we realize in our taxes as a result of utilizing our NOLs and other tax attributes attributable to preceding periods.

For both the thirteen and thirty-nine weeks ended September 29, 2021, we recorded income tax receivable agreement income of less than $0.1 million, and for the thirteen and thirty-nine weeks ended September 23, 2020 we recorded income tax receivable agreement income of $0.1 million and income tax receivable expense of less than $0.1 million, respectively.

On July 30, 2014, we entered into the income tax receivable agreement (the “TRA”).

The TRA calls for us to pay to our pre-IPO stockholders 85% of the savings in cash that we realize in our taxes as a result of utilizing our net operating losses (“NOLs”) and other tax attributes attributable to preceding periods.

For the thirteen weeks ended March 30, 2022, we recorded income tax receivable agreement income of $0.1 million, and for the thirteen weeks ended March 31, 2021 we recorded income tax receivable agreement income of less than $0.1 million.

Provision for Income Taxes

For the quarter ended September 29, 2021, we recorded an income tax provision of $3.7 million, reflecting an estimated effective tax rate of 26.4%.

For the quarter ended September 23, 2020, we recorded an income tax provision of $1.6 million, reflecting an estimated effective tax rate of approximately 14.2%.

For the year-to-date period ended September 29, 2021, we recorded an income tax provision of $8.7 million, reflecting an estimated effective tax rate of approximately 27.4%.

For the year-to-date period ended September 23, 2020, we recorded an income tax provision of $3.7 million, reflecting an estimated effective tax rate of approximately 16.3%.

The difference between the 21.0% statutory rate and the Company’s effective tax rate of 27.4% for the year-to-date period ended September 29, 2021 is primarily a result of a windfall tax benefit related to stock options exercised, non-deductible executive compensation, state taxes, a Work Opportunity Tax Credit benefit, the change in valuation allowance against certain state credits and prior year true up related to stock based compensation.

For the quarter ended March 30, 2022, we recorded an income tax provision of $0.9 million, reflecting an estimated effective tax rate of 30.0%.

For the quarter ended March 31, 2021, we recorded an income tax provision of $1.6 million, reflecting an estimated effective tax rate of approximately 28.7%.

The difference between the 21.0% statutory rate and our effective tax rate of 30.0% for the quarter ended March 30, 2022 is primarily a result of state taxes , the change in

valuation allowance against certain state credits, a tax shortfall related to stock options exercised during the quarter, and non-deductible executive compensation, partially offset by a Work Opportunity Tax Credit benefit .

Key Performance Indicators

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System-wide sales are the sum of company-operated restaurant revenue and sales from franchised restaurants.

Our total revenue in our consolidated statements of operations is limited to company-operated restaurant revenue and franchise revenue from our franchisees.

Our total revenue in our condensed consolidated statements of income is limited to company-operated restaurant revenue and franchise revenue from our franchisees.

Accordingly, system-wide sales should not be considered in isolation or as a substitute for our results as reported under GAAP.

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Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 29, 2021

September 23, 2020

September 29, 2021

September 23, 2020

(Dollar amounts in thousands)

March 30, 2022

March 31, 2021

Company-operated restaurant revenue

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In addition, we expect our quarterly company-operated restaurant revenue and comparable restaurant sales to continue to fluctuate significantly due to the current COVID-19 pandemic.

See above under “COVID-19 Impact” for additional information related to the impact of the COVID-19 pandemic on our business.

Comparable Restaurant Sales

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Comparable restaurant sales exclude restaurants closed during the applicable period.

At September 29, 2021 and September 23, 2020, there were 462 and 468 comparable restaurants, 189 and 191 company-operated restaurants and 273 and 277 franchised restaurants, respectively.

At March 30, 2022 and March 31, 2021, there were 464 and 465 comparable restaurants, 182 and 191 company-operated restaurants and 282 and 274 franchised restaurants, respectively.

Comparable restaurant sales indicate the performance of existing restaurants, since new restaurants are excluded.

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Restaurant contribution and restaurant contribution margin have limitations as analytical tools, and you should not consider them in isolation, or superior to, or as substitutes for the analysis of our results as reported under GAAP.

Management uses restaurant contribution and restaurant contribution margin as key metrics to evaluate the profitability of incremental sales

at our restaurants, to evaluate our restaurant performance across periods, and to evaluate our restaurant financial performance compared with our competitors.

Management uses restaurant contribution and restaurant contribution margin as key metrics to evaluate the profitability of incremental sales at our restaurants, to evaluate our restaurant performance across periods, and to evaluate our restaurant financial performance compared with our competitors.

Management believes that restaurant contribution and restaurant contribution margin are important tools for investors, because they are widely-used metrics within the restaurant industry to evaluate restaurant-level productivity, efficiency, and performance.

Restaurant contribution and restaurant contribution margin may also assist investors in evaluating our business and performance relative to industry peers and provide greater transparency with respect to the Company’s financial condition and results of operation.

A reconciliation of restaurant contribution and restaurant contribution margin to company-operated restaurant revenue is provided below:

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

(Dollar amounts in thousands)

September 29, 2021

September 23, 2020

September 29, 2021

September 23, 2020

March 30, 2022

March 31, 2021

Restaurant contribution:

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Loss on disposal of assets

Loss on disposition of restaurants

Franchise revenue

Franchise advertising fee revenue

Recovery of securities lawsuits related legal expenses and other insurance claims

Impairment and closed-store reserves

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New restaurants often open with an initial start-up period of higher than normal sales volumes, which subsequently decrease to stabilized levels.

New restaurants typically experience normal inefficiencies in the form of higher food and paper, labor, and other direct operating expenses and, as a result, restaurant contribution margins are generally lower during the start-up period of operation.

New restaurants typically experience normal inefficiencies in the form of higher food and paper, labor, and other direct operating expenses and, as a result, restaurant contribution margins are

generally lower during the start-up period of operation.

The average start-up period after which our new restaurants’ revenue and expenses normalize is approximately fourteen weeks.

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EBITDA represents net income before interest expense, provision for income taxes, depreciation, and amortization.

Adjusted EBITDA represents net income before interest expense, provision for income taxes, depreciation, amortization,

and items that we do not consider representative of our on-going operating performance, as identified in the reconciliation table below.

Adjusted EBITDA represents net income before interest expense, provision for income taxes, depreciation, amortization, and items that we do not consider representative of our on-going operating performance, as identified in the reconciliation table below.

EBITDA and Adjusted EBITDA as presented in this report are supplemental measures of our performance that are neither required by, nor presented in accordance with, GAAP.

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We believe that EBITDA and Adjusted EBITDA facilitate operating performance comparisons from period to period by 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.

These potential differences may be caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or NOL) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense).

These potential differences may be caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or NOLs) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense).

We also present EBITDA and Adjusted EBITDA because (i) we believe that these measures are frequently used by securities analysts, investors and other interested parties to evaluate companies in our industry, (ii) we believe that investors will find these measures useful in assessing our ability to service or incur indebtedness, and (iii) we use EBITDA and Adjusted EBITDA internally for a number of benchmarks, including to compare our performance to that of our competitors.

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Thirteen Weeks Ended

Thirty-Nine Weeks Ended

(Amounts in thousands)

September 29, 2021

September 23, 2020

September 29, 2021

September 23, 2020

March 30, 2022

March 31, 2021

Non-GAAP adjustments:

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Loss on disposal of assets (b)

Loss on disposition of restaurants (c)

Recovery of securities lawsuits related legal expense and other insurance claims (d)

Impairment and closed-store reserves (e)

Income tax receivable agreement (income) expense (f)

Securities class action legal expense (g)

Legal settlements (h)

Pre-opening costs (i)

Impairment and closed-store reserves (c)

Income tax receivable agreement income (d)

Securities class action legal expense (e)

Pre-opening costs (f)

Adjusted EBITDA

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(b) Loss on disposal of assets includes the loss on disposal of assets related to retirements and replacement or write-off of leasehold improvements or equipment.

(c) During the thirteen and thirty-nine weeks ended September 29, 2021, we completed the sale of our eight restaurants within Sacramento area to an existing franchisee.

This sale resulted in cash proceeds of $4.6 million during the thirty-nine weeks ended September 29, 2021 and a net loss on sale of restaurants of less than $0.1 million and $1.5 million for the thirteen and thirty-nine weeks ended September 29, 2021, respectively.

(d) During the thirty-nine weeks ended September 23, 2020, we received insurance proceeds of $0.1 million related to a property claim.

(e) Includes costs related to impairment of long-lived and ROU assets and closing restaurants.

During the thirteen and thirty-nine weeks ended September 23, 2020, we recorded non-cash impairment charges of $1.5 million and $3.5 million, respectively, primarily related to the carrying value of the ROU assets of one restaurant in Texas and the long-lived assets of four restaurants in California.

(f) On July 30, 2014, we entered into the TRA.

This agreement calls for us to pay to our pre-IPO stockholders 85% of the savings in cash that we realize in our taxes as a result of utilizing our NOL and other tax attributes attributable to preceding periods.

For the thirteen and thirty-nine weeks ended September 29, 2021 and September 23, 2020, income tax receivable agreement (income) expense consisted of the amortization of interest expense and changes in estimates for actual tax returns filed, related to our total expected TRA payments.

(g) Consists of costs related to the defense of securities lawsuits.

During the thirteen and thirty-nine weeks ended September 29, 2021, we received $0.5 million in insurance proceeds, net of legal expenses, related to the derivative complaint.

See Note 7, “Commitments and Contingencies, Legal Matters” in the Notes to Condensed Consolidated Financial Statements above.

(h) Includes amounts incurred related to the payment of the final settlement amounts for multiple wage and hour class action suits.

(i) Pre-opening costs are a component of general and administrative expenses, and consist of costs directly associated with the opening of new restaurants and incurred prior to opening, including management labor costs, staff labor

costs during training, food and supplies used during training, marketing costs, and other related pre-opening costs.

During the thirteen weeks ended March 30, 2022, we recorded non-cash impairment charges of $0.1 million, primarily related to the long-lived assets of one restaurant in California.

(d) On July 30, 2014, we entered into the TRA.

This agreement calls for us to pay to our pre-IPO stockholders 85% of the savings in cash that we realize in our taxes as a result of utilizing our NOLs and other tax attributes attributable to preceding periods.

For the thirteen weeks ended March 30, 2022 and March 31, 2021, income tax receivable agreement income consisted of the amortization of interest expense and changes in estimates for actual tax returns filed, related to our total expected TRA payments.

(e) Consists of costs related to the defense of securities lawsuits.

(f) Pre-opening costs are a component of general and administrative expenses, and consist of costs directly associated with the opening of new restaurants and incurred prior to opening, including management labor costs, staff labor costs during training, food and supplies used during training, marketing costs, and other related pre-opening costs.

These are generally incurred over the three to five months prior to opening.

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Our restaurants do not require significant inventories or receivables.

We believe that these sources of liquidity and capital are sufficient to finance our continued operations for at least the next 12 months from the issuance of the consolidated financial statements.

However, depending on the severity and longevity of the COVID-19 pandemic, the efforts taken to reduce its spread and the possibility of a subsequent resurgence of the COVID-19 outbreak, our financial performance and liquidity could be further impacted and could impact our ability to meet certain financial covenants required in our 2018 Credit Agreement, specifically the lease-adjusted coverage ratio and fixed-charge coverage ratio.

We believe that these sources of liquidity and capital are sufficient to finance our continued operations, including planned capital expenditures, for at least the next 12 months from the issuance of the condensed consolidated financial statements.

required in our 2018 Credit Agreement (as defined below), specifically the lease-adjusted coverage ratio and fixed-charge coverage ratio.

The following table presents summary cash flow information for the periods indicated.

Thirty-Nine Weeks Ended

Thirteen Weeks Ended

(Amounts in thousands)

September 29, 2021

September 23, 2020

March 30, 2022

March 31, 2021

Net cash provided by (used in)

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Operating Activities

For the thirty-nine weeks ended September 29, 2021, net cash from operating activities changed by approximately $8.8 million from the comparable period of the prior year.

This change was due primarily to an increase in profitability after non-cash items and favorable working capital fluctuations.

For the thirteen weeks ended March 30, 2022, net cash from operating activities changed by approximately $9.7 million from the comparable period of the prior year.

This change was due to unfavorable working capital fluctuations and lower profitability compared to the same period in the prior year.

Investing Activities

For the thirty-nine weeks ended September 29, 2021, net cash used in investing activities increased by $3.8 million from the comparable period of the prior year.

This increase was due primarily to opening two new company-operated restaurants and remodeling ten restaurants in the thirty-nine weeks ended September 29, 2021 compared to opening one new company-operated restaurant and completing no new remodels in the thirty-nine weeks ended September 29, 2020.

For the thirteen weeks ended March 30, 2022, net cash used in investing activities decreased by $1.5 million from the comparable period of the prior year.

This decrease was due primarily to opening one new company-operated restaurant and not remodeling any restaurants in the thirteen weeks ended March 30, 2022 compared to opening two new company-operated restaurants and remodeling three restaurants in the thirteen weeks ended March 31, 2021.

Financing Activities

For the thirty-nine weeks ended September 29, 2021, net cash from financing activities changed by $15.0 million from the comparable period of the prior year.

This change was due primarily to an increase in net pay downs of $22.8 million on the 2018 Revolver during the thirty-nine weeks ended September 29, 2021, compared to the net pay downs of $13.2 million on the 2018 Revolver during the thirty-nine weeks ended September 23, 2020.

For the thirteen weeks ended March 30, 2022, net cash from financing activities changed by $10.2 million from the comparable period of the prior year.

This change was due primarily to a $1.5 million cash inflow increase related to option exercises during the thirteen weeks ended March 30, 2022, compared to a $9.0 million cash outflow related to the pay downs on the 2018 Revolver during the thirteen weeks ended March 31, 2021.

Debt and Other Obligations

The Company, as a guarantor, is a party to a credit agreement (the “2018 Credit Agreement”) among EPL, as borrower, Intermediate, as a guarantor, Bank of America, N.A., as administrative agent, swingline lender, and letter of credit issuer, the lenders party thereto, and the other parties thereto, which provides for a $150.0 million five-year senior secured revolving credit facility (the “2018 Revolver”).

The 2018 Revolver, which is available pursuant to the 2018 Credit Agreement, includes a sub limit of $15.0 million for letters of credit and a sub limit of $15.0 million for swingline loans.

The 2018 Revolver and 2018 Credit Agreement will

mature on July 13, 2023.

The obligations under the 2018 Credit Agreement and related loan documents are guaranteed by the Company and Intermediate.

The obligations of the Company, EPL and Intermediate under the 2018 Credit Agreement and related loan documents are secured by a first priority lien on substantially all of their respective assets.

Under the 2018 Revolver, Holdings may not make certain payments such as cash dividends, except that it may, inter alia, (i) pay up to $1.0 million per year to repurchase or redeem qualified equity interests of Holdings held by past or present officers, directors, or employees (or their estates) of the Company upon death, disability, or termination of employment, (ii) pay under its TRA, and (iii) so long as no default or event of default has occurred and is continuing, (a) make non-cash repurchases of equity interests in connection with the exercise of stock options by directors, officers and management, provided that those equity interests represent a portion of the consideration of the exercise price of those stock options, (b) pay up to $0.5 million in any 12 month consecutive period to redeem, repurchase or otherwise acquire equity interests of any subsidiary that is not a wholly-owned subsidiary from any holder of equity interest in such subsidiary, (c) pay up to $2.5 million per year pursuant to stock option plans, employment agreements, or incentive plans, (d) make up to $5.0 million in other restricted payments per year, and (e) make other restricted payments, subject to its compliance, on a pro forma basis, with (x) a lease-adjusted consolidated leverage ratio not to exceed 4.25 times and (y) the financial covenants applicable to the 2018 Revolver.

The 2018 Revolver and 2018 Credit Agreement will mature on July 13, 2023.

The obligations under the 2018 Credit Agreement and related loan documents are guaranteed by Holdings and Intermediate.

The obligations of Holdings, EPL and Intermediate under the 2018 Credit Agreement and related loan documents are secured by a first priority lien on substantially all of their respective assets.

Under the 2018 Revolver, Holdings may not make certain payments such as cash dividends, except that it may, inter alia, (i) pay up to $1.0 million per year to repurchase or redeem qualified equity interests of Holdings held by our past or present officers, directors, or employees (or their estates) upon death, disability, or termination of employment, (ii) pay under its TRA, and (iii) so long as no default or event of default has occurred and is continuing, (a) make non-cash repurchases of equity interests in connection with the exercise of stock options by directors, officers and management, provided that those equity interests represent a portion of the consideration of the exercise price of those stock options, (b) pay up to $0.5 million in any 12 month consecutive period to redeem, repurchase or otherwise acquire equity interests of any subsidiary that is not a wholly-owned subsidiary from any holder of equity interest in such subsidiary, (c) pay up to $2.5 million per year pursuant to stock option plans, employment agreements, or incentive plans, (d) make

up to $5.0 million in other restricted payments per year, and (e) make other restricted payments, subject to its compliance, on a pro forma basis, with (x) a lease-adjusted consolidated leverage ratio not to exceed 4.25 times and (y) the financial covenants applicable to the 2018 Revolver.

Borrowings under the 2018 Credit Agreement (other than any swingline loans) bear interest, at the borrower’s option, at rates based upon either LIBOR or a base rate, plus, for each rate, a margin determined in accordance with a lease-adjusted consolidated leverage ratio-based pricing grid.

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Borrowings under the 2018 Revolver may be repaid and reborrowed.

The interest rate range was 1.34% to 1.35% and 1.34% to 1.65% for the thirteen and thirty-nine weeks ended September 29, 2021, respectively, and 1.67% to 1.68% and 1.67% to 3.29% for the thirteen and thirty-nine weeks ended September 23, 2020, respectively.

The interest rate range was 1.35% to 1.70% for the thirteen weeks ended March 30, 2022, and 1.36% to 1.65% for the thirteen weeks ended March 31, 2021.

The 2018 Credit Agreement contains certain financial covenants.

The Company was in compliance with the financial covenants as of September 29, 2021.

At September 29, 2021, $8.4 million of letters of credit and $40.0 million of borrowings were outstanding under the 2018 Revolver.

There were $101.6 million remaining borrowings available under the 2018 Revolver at September 29, 2021.

We were in compliance with the financial covenants as of March 30, 2022.

At March 30, 2022, $10.0 million of letters of credit and $40.0 million of borrowings were outstanding under the 2018 Revolver.

There were $100.0 million remaining borrowings available under the 2018 Revolver at March 30, 2022.

During the year ended December 25, 2019, we entered into an interest rate swap with a notional amount of $40.0 million, related to the outstanding borrowings under our 2018 Revolver.

The interest rate swap was designated as a cash flow hedge and effectively converted a portion of our outstanding borrowings to a fixed rate of 1.31%, plus the applicable margin spread, which was 1.5% for the thirteen and thirty-nine weeks ended September 29, 2021.

The interest rate swap matures in June 2023.

Contractual Obligations

Other than our paydown of $22.8 million on the 2018 Revolver during the thirty-nine weeks ended September 29, 2021 described above, our contractual obligations outstanding on September 29, 2021 have not changed materially since those disclosed under “Debt and Other Obligations – Contractual Obligations” in Part II, Item 7 of our annual report on Form 10-K for the year ended December 30, 2020.

Our contractual commitments relate to future (i) debt payments, including expected interest expense, calculated based on current interest rates, (ii) restaurant operating lease payments, (iii) income tax receivable agreement payments, and (iv) purchasing commitments for chicken.

Off-Balance Sheet and Other Arrangements

As of September 29, 2021 and December 25, 2020, we were using $8.4 million of borrowing capacity on the 2018 Revolver for letters of credit in support of our insurance programs.

Material Cash Requirements

Our material cash requirements outstanding on March 30, 2022 have not changed materially since those disclosed under “Material Cash Requirements” in Part II, Item 7 of our annual report on Form 10-K for the year ended December 29, 2021.

Our material cash requirements relate mostly to future (i) debt payments, including expected interest expense, calculated based on current interest rates, (ii) restaurant operating lease payments, (iii) income tax receivable agreement payments, (iv) purchasing commitments for chicken, (v) restaurant finance lease payments, and (vi) capital expenditures .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis