El Pollo Loco Holdings, Inc. 10-Q

Item 1. Financial Statements. EL POLLO LOCO HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Amounts in thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ June 29, December 29, ​ 2022 2021 Assets ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ Cash and cash equivalents ​ $ 34,311 ​ $ 30,046 Accounts and other receivables, net ​ 13,999 ​ 13,407 Inventories ​ 2,250 ​ 2,318 Prepaid expenses and other current assets ​ 3,470 ​ 3,732 Income tax receivable ​ 1,428 ​ — Total current assets ​ 55,458 ​ 49,503 Property and equipment, net ​ 76,073 ​ 75,668 Property and equipment held under finance lease, net ​ 1,598 ​ 1,635 Property and equipment held under operating leases, net ("ROU asset") ​ 170,816 ​ 171,981 Goodwill ​ 248,674 ​ 248,674 Trademarks ​ 61,888 ​ 61,888 Deferred tax assets ​ 2,017 ​ 2,245 Other assets ​ 2,879 ​ 2,192 Total assets ​ $ 619,403 ​ $ 613,786 Liabilities and Stockholders’ Equity ​ ​ Current liabilities: ​ ​ Current portion of obligations under finance leases ​ $ 109 ​ $ 143 Current portion of obligations under operating leases ​ 20,154 ​ 19,959 Accounts payable ​ 9,288 ​ 10,626 Accrued salaries and vacation ​ 9,648 ​ 11,539 Accrued insurance ​ 11,474 ​ 11,193 Accrued income taxes payable ​ — ​ 889 Current portion of income tax receivable agreement payable ​ 440 ​ 437 Other accrued expenses and current liabilities ​ 19,020 ​ 19,796 Total current liabilities ​ 70,133 ​ 74,582 Revolver loan ​ 40,000 ​ 40,000 Obligations under finance leases, net of current portion ​ 1,681 ​ 1,712 Obligations under operating leases, net of current portion ​ 170,354 ​ 171,651 Deferred taxes ​ 6,712 ​ 5,464 Income tax receivable agreement payable, net of current portion ​ 782 ​ 1,101 Other noncurrent liabilities ​ 5,898 ​ 8,653 Total liabilities ​ 295,560 ​ 303,163 Commitments and contingencies (Note 7) ​ ​ Stockholders’ equity ​ ​ Preferred stock, $ 0.01 par value, 100,000,000 shares authorized; none issued or outstanding ​ — ​ — Common stock, $ 0.01 par value, 200,000,000 shares authorized; 37,002,513 and 36,601,648 shares issued and outstanding as June 29, 2022 and December 29, 2021, respectively ​ 369 ​ 365 Additional paid-in-capital ​ 346,095 ​ 342,941 Accumulated deficit ​ ( 23,137 ) ​ ( 32,393 ) Accumulated other comprehensive income (loss) ​ 516 ​ ( 290 ) Total stockholders’ equity ​ 323,843 ​ 310,623 Total liabilities and stockholders’ equity ​ $ 619,403 ​ $ 613,786 ​ See notes to condensed consolidated financial statements (unaudited). ​ 3 Table of Contents EL POLLO LOCO HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Amounts in thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Thirteen Weeks Ended Twenty-Six Weeks Ended ​ ​ June 29, 2022 ​ June 30, 2021 ​ June 29, 2022 ​ June 30, 2021 ​ Revenue ​ ​ ​ ​ Company-operated restaurant revenue ​ $ 106,454 ​ $ 106,970 ​ $ 200,411 ​ $ 201,131 ​ Franchise revenue ​ 10,064 ​ 8,389 ​ 19,319 ​ 16,001 ​ Franchise advertising fee revenue ​ 7,593 ​ 6,626 ​ 14,429 ​ 12,574 ​ Total revenue ​ 124,111 ​ 121,985 ​ 234,159 ​ 229,706 ​ Cost of operations ​ ​ ​ ​ ​ Food and paper cost ​ 31,691 ​ 27,882 ​ 59,423 ​ 52,273 ​ Labor and related expenses ​ 33,015 ​ 31,526 ​ 65,687 ​ 62,258 ​ Occupancy and other operating expenses ​ 25,832 ​ 25,336 ​ 49,677 ​ 49,180 ​ Company restaurant expenses ​ 90,538 ​ 84,744 ​ 174,787 ​ 163,711 ​ General and administrative expenses ​ 9,679 ​ 10,523 ​ 19,633 ​ 20,997 ​ Franchise expenses ​ 9,557 ​ 8,161 ​ 18,288 ​ 15,912 ​ Depreciation and amortization ​ 3,618 ​ 3,917 ​ 7,215 ​ 7,855 ​ Loss on disposal of assets ​ 42 ​ 85 ​ 108 ​ 111 ​ Loss on assets held for sale ​ ​ — ​ ​ 1,524 ​ ​ — ​ ​ 1,524 ​ Impairment and closed-store reserves ​ 248 ​ 360 ​ 379 ​ 924 ​ Total expenses ​ 113,682 ​ 109,314 ​ 220,410 ​ 211,034 ​ Income from operations ​ 10,429 ​ 12,671 ​ 13,749 ​ 18,672 ​ Interest expense, net ​ 419 ​ 433 ​ 849 ​ 950 ​ Income tax receivable agreement expense (income) ​ ( 186 ) ​ 27 ​ ( 316 ) ​ ( 50 ) ​ Income before provision for income taxes ​ 10,196 ​ 12,211 ​ 13,216 ​ 17,772 ​ Provision for income taxes ​ 3,055 ​ 3,393 ​ 3,960 ​ 4,990 ​ Net income ​ $ 7,141 ​ $ 8,818 ​ $ 9,256 ​ $ 12,782 ​ Net income per share ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 0.20 ​ $ 0.25 ​ $ 0.26 ​ $ 0.36 ​ Diluted ​ $ 0.20 ​ $ 0.24 ​ $ 0.25 ​ $ 0.35 ​ Weighted-average shares used in computing net income per share ​ ​ ​ ​ ​ Basic ​ 36,331,099 ​ 35,927,781 ​ 36,278,423 ​ 35,861,493 ​ Diluted ​ 36,473,960 ​ 36,416,686 ​ 36,478,808 ​ 36,423,394 ​ ​ See notes to condensed consolidated financial statements (unaudited). ​ 4 Table of Contents EL POLLO LOCO HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (Amounts in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Thirteen Weeks Ended Twenty-Six Weeks Ended ​ ​ June 29, 2022 ​ June 30, 2021 ​ June 29, 2022 June 30, 2021 ​ Net income ​ $ 7,141 ​ $ 8,818 ​ $ 9,256 ​ $ 12,782 ​ Other comprehensive income (loss) ​ ​ ​ ​ ​ ​ ​ Changes in derivative instruments ​ ​ ​ ​ ​ ​ ​ Unrealized net gains arising during the period from interest rate swap ​ 347 ​ ( 2 ) ​ 931 ​ 76 ​ Reclassifications of losses into net income ​ 55 ​ 119 ​ 172 ​ 234 ​ Income tax expense ​ ( 108 ) ​ ( 32 ) ​ ( 297 ) ​ ( 84 ) ​ Other comprehensive income, net of taxes ​ 294 ​ 85 ​ ​ 806 ​ 226 ​ Comprehensive income ​ $ 7,435 ​ $ 8,903 ​ $ 10,062 ​ $ 13,008 ​ ​ ​ ​ See notes to condensed consolidated financial statements (unaudited). ​ ​ ​ ​ ​ ​ ​ ​ ​ 5 Table of Contents EL POLLO LOCO HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Thirteen Weeks Ended June 29, 2022 ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ Additional ​ ​ Other Total ​ ​ Common Stock ​ Paid-in ​ Accumulated ​ Comprehensive ​ Stockholders’ ​ Shares Amount Capital Deficit Income Equity Balance, March 30, 2022 ​ 36,743,496 ​ $ 366 ​ $ 345,296 ​ $ ( 30,278 ) ​ $ 222 ​ $ 315,606 Stock-based compensation ​ — ​ — ​ 970 ​ — ​ — ​ 970 Issuance of common stock related to restricted shares ​ 298,638 ​ ​ 3 ​ ​ ( 3 ) ​ ​ — ​ ​ — ​ ​ — Issuance of common stock upon exercise of stock options ​ 8,627 ​ ​ — ​ ​ 50 ​ ​ — ​ ​ — ​ ​ 50 Shares repurchased for employee tax withholdings ​ ( 20,317 ) ​ ​ — ​ ​ ( 218 ) ​ ​ — ​ ​ — ​ ​ ( 218 ) Forfeiture of common stock related to restricted shares ​ ( 27,931 ) ​ — ​ — ​ — ​ — ​ — Other comprehensive income, net of tax ​ — ​ — ​ — ​ — ​ 294 ​ 294 Net income ​ — ​ — ​ — ​ 7,141 ​ — ​ 7,141 Balance, June 29, 2022 ​ 37,002,513 ​ $ 369 ​ $ 346,095 ​ $ ( 23,137 ) ​ $ 516 ​ $ 323,843 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Thirteen Weeks Ended June 30, 2021 ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ Additional ​ ​ Other Total ​ ​ Common Stock ​ Paid-in ​ Accumulated ​ Comprehensive ​ Stockholders’ ​ Shares Amount Capital Deficit Loss Equity Balance, March 31, 2021 ​ 36,478,683 ​ $ 365 ​ $ 340,739 ​ $ ( 57,550 ) ​ $ ( 692 ) ​ ​ 282,862 Stock-based compensation ​ — ​ — ​ 1,041 ​ — ​ — ​ 1,041 Issuance of common stock related to restricted shares ​ 206,098 ​ 2 ​ ( 2 ) ​ — ​ — ​ — Issuance of common stock upon exercise of stock options ​ 30,125 ​ — ​ 240 ​ — ​ — ​ 240 Shares repurchased for employee tax withholdings ​ ( 37,938 ) ​ — ​ ( 660 ) ​ — ​ — ​ ( 660 ) Forfeiture of common stock related to restricted shares ​ ( 39,207 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Other comprehensive income, net of tax ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 85 ​ ​ 85 Net income ​ — ​ — ​ — ​ 8,818 ​ — ​ 8,818 Balance, June 30, 2021 ​ 36,637,761 ​ $ 367 ​ $ 341,358 ​ $ ( 48,732 ) ​ $ ( 607 ) ​ $ 292,386 ​ ​ ​ ​ ​ ​ ​ ​ ​ 6 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Twenty-Six Weeks Ended June 29, 2022 ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ Additional ​ ​ Other Total ​ ​ Common Stock ​ Paid-in ​ Accumulated ​ Comprehensive ​ Stockholders’ ​ Shares Amount Capital Deficit (Loss) Income Equity Balance, December 29, 2021 ​ 36,601,648 ​ $ 365 ​ $ 342,941 ​ $ ( 32,393 ) ​ $ ( 290 ) ​ $ 310,623 Stock-based compensation ​ — ​ — ​ 1,796 ​ — ​ — ​ 1,796 Issuance of common stock related to restricted shares ​ 298,638 ​ ​ 3 ​ ​ ( 3 ) ​ ​ — ​ ​ — ​ ​ — Issuance of common stock upon exercise of stock options ​ 150,475 ​ ​ 1 ​ ​ 1,579 ​ ​ — ​ ​ — ​ ​ 1,580 Shares repurchased for employee tax withholdings ​ ( 20,317 ) ​ ​ — ​ ​ ( 218 ) ​ ​ — ​ ​ — ​ ​ ( 218 ) Forfeiture of common stock related to restricted shares ​ ( 27,931 ) ​ — ​ — ​ — ​ — ​ — Other comprehensive income, net of tax ​ — ​ — ​ — ​ — ​ 806 ​ 806 Net income ​ — ​ — ​ — ​ 9,256 ​ — ​ 9,256 Balance, June 29, 2022 ​ 37,002,513 ​ $ 369 ​ $ 346,095 ​ $ ( 23,137 ) ​ $ 516 ​ $ 323,843 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Twenty-Six Weeks Ended June 30, 2021 ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ Additional ​ ​ Other Total ​ ​ Common Stock ​ Paid-in ​ Accumulated ​ Comprehensive ​ Stockholders’ ​ Shares Amount Capital Deficit (Loss) Income Equity Balance, December 30, 2020 ​ 36,423,505 ​ $ 364 ​ $ 339,561 ​ $ ( 61,514 ) ​ $ ( 833 ) ​ $ 277,578 Stock-based compensation ​ — ​ — ​ 1,894 ​ — ​ — ​ 1,894 Issuance of common stock related to restricted shares ​ 206,098 ​ 2 ​ ( 2 ) ​ — ​ — ​ — Issuance of common stock upon exercise of stock options ​ 91,544 ​ 1 ​ 565 ​ — ​ — ​ 566 Shares repurchased for employee tax withholdings ​ ( 37,938 ) ​ — ​ ( 660 ) ​ — ​ — ​ ( 660 ) Repurchase of common stock ​ — ​ — ​ — ​ — ​ — ​ — Forfeiture of common stock related to restricted shares ​ ( 45,448 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Other comprehensive (loss) income, net of tax ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 226 ​ ​ 226 Net income ​ — ​ — ​ — ​ 12,782 ​ — ​ 12,782 Balance, June 30, 2021 ​ 36,637,761 ​ $ 367 ​ $ 341,358 ​ $ ( 48,732 ) ​ $ ( 607 ) ​ $ 292,386 ​ See notes to condensed consolidated financial statements (unaudited). ​ ​ ​ ​ ​ ​ ​ 7 Table of Contents EL POLLO LOCO HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Amounts in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Twenty-Six Weeks Ended ​ June 29, 2022 ​ June 30, 2021 Cash flows from operating activities: ​ ​ ​ ​ ​ Net income ​ $ 9,256 ​ $ 12,782 ​ Adjustments to reconcile net income to net cash flows provided by provided by operating activities: ​ ​ ​ ​ ​ Depreciation and amortization ​ 7,215 ​ 7,855 ​ Stock-based compensation expense ​ 1,796 ​ 1,894 ​ Income tax receivable agreement income ​ ( 316 ) ​ ( 50 ) ​ Loss on assets held for sale ​ — ​ 1,524 ​ Loss on disposal of assets ​ 108 ​ 111 ​ Impairment of property and equipment ​ 253 ​ 666 ​ Amortization of deferred financing costs ​ 126 ​ 126 ​ Deferred income taxes, net ​ 1,180 ​ 881 ​ Changes in operating assets and liabilities: ​ ​ ​ ​ ​ Accounts and other receivables ​ ( 592 ) ​ ( 507 ) ​ Inventories ​ 68 ​ 73 ​ Prepaid expenses and other current assets ​ 262 ​ 558 ​ Income taxes receivable ​ ( 2,316 ) ​ 2,014 ​ Other assets ​ ( 812 ) ​ ( 312 ) ​ Accounts payable ​ ( 454 ) ​ ( 557 ) ​ Accrued salaries and vacation ​ ( 1,891 ) ​ 279 ​ Accrued insurance ​ 281 ​ 362 ​ Other accrued expenses and liabilities ​ ( 2,344 ) ​ ( 1,075 ) ​ Net cash flows provided by operating activities ​ 11,820 ​ 26,624 ​ Cash flows from investing activities: ​ ​ ​ ​ ​ ​ Proceeds from disposition of restaurants ​ — ​ 4,556 ​ Purchase of property and equipment ​ ( 8,831 ) ​ ( 8,828 ) ​ Net cash flows used in investing activities ​ ( 8,831 ) ​ ( 4,272 ) ​ Cash flows from financing activities: ​ ​ ​ Payments on revolver and swingline loan ​ — ​ ( 22,800 ) ​ Minimum tax withholdings related to net share settlements ​ ( 218 ) ​ ( 660 ) ​ Proceeds from issuance of common stock upon exercise of stock options, net of expenses ​ ​ 1,580 ​ ​ 566 ​ Payment of obligations under finance leases ​ ( 86 ) ​ ( 53 ) ​ Net cash flows provided by (used in) financing activities ​ 1,276 ​ ( 22,947 ) ​ Increase (decrease) in cash and cash equivalents ​ 4,265 ​ ( 595 ) ​ Cash and cash equivalents, beginning of period ​ 30,046 ​ 13,219 ​ Cash and cash equivalents, end of period ​ $ 34,311 ​ $ 12,624 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Twenty-Six Weeks Ended ​ ​ June 29, 2022 ​ June 30, 2021 ​ Supplemental cash flow information ​ ​ Cash paid during the period for interest ​ $ 531 ​ $ 598 ​ Cash paid during the period for income taxes ​ $ 5,097 ​ $ 2,094 ​ Unpaid purchases of property and equipment ​ $ 1,388 ​ $ 1,038 ​ ​ See notes to condensed consolidated financial statements (unaudited). ​ 8 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Overview El Pollo Loco Holdings, Inc. (“Holdings”) is a Delaware corporation headquartered in Costa Mesa, California. Holdings and its direct and indirect subsidiaries are collectively referred to herein as the “Company.” The Company’s activities are conducted principally through its indirect wholly-owned subsidiary, El Pollo Loco, Inc. (“EPL”), which develops, franchises, licenses, and operates quick-service restaurants under the name El Pollo Loco® and operates under one operating segment. At June 29, 2022, the Company operated 188 and franchised 293 El Pollo Loco restaurants. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair statement of the Company’s condensed consolidated financial position and results of operations and cash flows for the periods presented. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year. The condensed consolidated financial statements and related notes do not include all information and footnotes required by GAAP for annual reports. This quarterly report should be read in conjunction with the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 29, 2021. The Company uses a 52- or 53-week fiscal year ending on the last Wednesday of the calendar year. In a 52-week fiscal year, each quarter includes 13 weeks of operations; in a 53-week fiscal year, the first, second and third quarters each include 13 weeks of operations, and the fourth quarter includes 14 weeks of operations. Every six or seven years, a 53-week fiscal year occurs. Fiscal 2022 and 2021 are both 52-week years, ending on December 28, 2022 and December 29, 2021, respectively. Revenues, expenses, and other financial and operational figures may be elevated in a 53-week year. Holdings has no material assets or operations. Holdings and Holdings’ direct subsidiary, EPL Intermediate, Inc. (“Intermediate”), guarantee EPL’s 2018 Revolver (as defined below) on a full and unconditional basis (see Note 4, “Long-Term Debt”), and Intermediate has no subsidiaries other than EPL. EPL is a separate and distinct legal entity and has no obligation to make funds available to Intermediate. EPL and Intermediate may pay dividends to Intermediate and to Holdings, respectively, subject to the terms of the 2018 Revolver. Principles of Consolidation The accompanying condensed consolidated financial statements include the accounts of Holdings and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and revenue and expenses during the periods reported. Actual results could materially differ from those estimates. The Company’s significant estimates include estimates for impairment of goodwill, intangible assets and property and equipment, insurance reserves, lease accounting matters, stock-based compensation, income tax receivable agreement liability, contingent liabilities and income tax valuation allowances. 9 Table of Contents COVID-19 While all of the Company’s restaurants had dining rooms open as of June 29, 2022, the Company continues to experience staffing challenges, which resulted in reduced operating hours and service channels at some of the Company restaurants, as well as higher wage inflation, overtime costs and other labor related costs. Further, the Company experienced inflationary pressures and supply chain disruptions that resulted in increased commodity prices and impacted the Company’s business and results of operations during the thirteen and twenty-six weeks ended June 29, 2022. The Company expects these pressures to continue during the rest of fiscal 2022. During the thirteen and twenty-six weeks ended June 29, 2022, the Company incurred $ 0.3 million and $ 2.6 million, respectively, in COVID-19 related expenses, primarily due to leaves of absence and overtime pay. During the thirteen and twenty-six weeks ended June 30, 2021, the Company incurred $ 0.2 million and $ 3.0 million, respectively, in COVID-19 related expenses, primarily due to leaves of absence and overtime pay. ​ Due to the rapid development and fluidity of this situation, the Company cannot determine the ultimate impact that the COVID-19 pandemic will have on the Company’s condensed consolidated financial condition, liquidity, and future results of operations, and therefore any prediction as to the ultimate materiality of the adverse impact on the Company’s condensed consolidated financial condition, liquidity, and future results of operations is uncertain. Cash and Cash Equivalents The Company considers all liquid instruments with an original maturity of three months or less at the date of purchase to be cash equivalents. Liquidity The Company’s principal liquidity and capital requirements are new restaurants, existing restaurant capital investments (remodels and maintenance), interest payments on its debt, lease obligations and working capital and general corporate needs. At June 29, 2022, the Company’s total debt was $ 40.0 million. The Company’s ability to make payments on its indebtedness and to fund planned capital expenditures depends on available cash and its ability to generate adequate cash flows in the future, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond the Company’s control. Based on current operations, the Company believes that its cash flow from operations and available cash of $ 34.3 million at June 29, 2022 will be adequate to meet the Company’s liquidity needs for the next twelve months from the date of filing of these condensed consolidated financial statements. Recently Adopted Accounting Pronouncements None. Subsequent Events 2022 Credit Agreement ​ On July 27, 2022, the Company refinanced the 2018 Revolver, pursuant to a credit agreement (the “2022 Credit Agreement”) among EPL, as borrower, the Company and Intermediate, as guarantors, 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 million five-year senior secured revolving facility (the “2022 Revolver”). In connection with the refinancing, the 2018 Credit Agreement (as defined below) was terminated. The 2022 Revolver includes a sub limit of $ 15.0 million for letters of credit and a sub limit of $ 15.0 million for swingline loans. On July 29, 2022, the Company made a $ 20.0 million payment to the 2022 Revolver and the outstanding balance as of August 4, 2022 was $ 20.0 million. The proceeds of the 2022 Revolver were used to refinance and terminate the 2018 Revolver and may also be used from time to time for general corporate purposes. The 2022 Revolver will mature on July 27, 2027 . The obligations of EPL under the 2022 Credit Agreement and related loan documents are guaranteed by the Company and Intermediate and the obligations of each of the Company, EPL and Intermediate under the 2022 Credit Agreement and related loan documents are secured by a first priority (subject to permitted liens) lien on substantially all of their respective assets (subject to customary exceptions). 10 Table of Contents ​ Borrowings under the 2022 Credit Agreement (other than any swingline loans) bear interest, at the borrower’s option, at rates based upon either the secured overnight financing rate (“SOFR”) or a base rate, plus, for each rate, a margin determined in accordance with a lease-adjusted consolidated leverage ratio-based pricing grid. The base rate is calculated as the highest of (a) the federal funds rate plus 0.50 %, (b) the published of Bank of America prime rate, or (c) Term SOFR with a term of one-month plus 1.00 %. For Term SOFR loans, the margin is in the range of 1.25 % to 2.25 %, and for base rate loans the margin is in a range of 0.25 % to 1.25 %. Borrowings under the 2022 Revolver may be repaid and reborrowed. ​ The 2022 Credit Agreement includes negative covenants and financial covenants, including, among others, the following (all subject to certain exceptions): a maximum lease-adjusted consolidated leverage ratio covenant, a minimum consolidated fixed charge coverage ratio, and limitations on (among others) indebtedness, liens, investments, asset sales, mergers, consolidations, liquidations, dispositions, restricted payments, negative pledges, transactions with affiliates, sale-leaseback transactions and prepayments of certain debt. The 2022 Credit Agreement also includes certain affirmative covenants and events of default. ​ In connection with the Company’s entry into the 2022 Credit Agreement, it terminated the interest rate swap previously used to hedge interest rate risk. In settlement of this swap, the Company received approximately $ 0.6 million. The remaining amount in accumulated other comprehensive income (“AOCI”) related to the hedging relationship will be reclassified into earnings when the hedged forecasted transaction is reported in earnings. Concentration of Risk Cash and cash equivalents are maintained at financial institutions and, at times, these balances may exceed federally-insured limits. The Company has never experienced any losses related to these balances. The Company had one supplier to whom amounts due totaled 24.1 % and 26.1 % of the Company’s accounts payable at June 29, 2022 and December 29, 2021, respectively. Purchases from the Company’s largest supplier totaled 27.4 % and 28.5 % of total expenses for the thirteen and twenty-six weeks ended June 29, 2022 and 26.2 % and 26.6 % of total expenses for the thirteen and twenty-six weeks ended June 30, 2021. ​ Company -operated and franchised restaurants in the greater Los Angeles area generated, in the aggregate, approximately 70.9 % of total revenue for both the thirteen and twenty-six weeks ended June 29, 2022 and 70.6 % and 70.4 % for the thirteen and twenty-six weeks ended June 30, 2021, respectively. Goodwill and Indefinite Lived Intangible Assets The Company’s indefinite-lived intangible assets consist of trademarks. Goodwill represents the excess of cost over fair value of net identified assets acquired in business combinations accounted for under the purchase method. The Company does not amortize its goodwill and indefinite-lived intangible assets. Goodwill resulted from the acquisition of certain franchise locations. Upon the sale or closure of a restaurant, the Company evaluates whether there is a decrement of goodwill. The amount of goodwill included in the cost basis of the asset sold is determined based on the relative fair value of the portion of the reporting unit disposed of compared to the fair value of the reporting unit retained. The Company performs an annual impairment test for goodwill during the fourth fiscal quarter of each year, or more frequently if impairment indicators arise. The Company reviews goodwill for impairment utilizing either a qualitative assessment or a fair value test by comparing the fair value of a reporting unit with its carrying amount. If the Company decides that it is appropriate to perform a qualitative assessment and concludes that the fair value of a reporting unit more likely than not exceeds its carrying value, no further evaluation is necessary. If the Company performs the fair value test, the Company will compare the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, the Company will recognize an impairment charge for the amount by which the carrying amount 11 Table of Contents exceeds the reporting unit’s fair value; however, the loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit. The Company performs an annual impairment test for indefinite-lived intangible assets during the fourth fiscal quarter of each year, or more frequently if impairment indicators arise. An impairment test consists of either a qualitative assessment or a comparison of the fair value of an intangible asset with its carrying amount. The excess of the carrying amount of an intangible asset over its fair value is recognized as an impairment loss. The assumptions used in the estimate of fair value are generally consistent with the past performance of the Company’s reporting segment and are also consistent with the projections and assumptions that are used in current operating plans. These assumptions are subject to change as a result of changing economic and competitive conditions. The Company determined that there were no indicators of potential impairment of its goodwill and indefinite-lived intangible assets during the thirteen and twenty-six weeks ended June 29, 2022. Accordingly, the Company did not record any impairment to its goodwill or indefinite-lived intangible assets during the thirteen and twenty-six weeks ended June 29, 2022. Fair Value Measurements Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories: ● Level 1: Quoted prices for identical instruments in active markets. ● Level 2: Observable prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs or significant value drivers are observable. ● Level 3: Unobservable inputs used when little or no market data is available. During fiscal 2019, the Company entered into an interest rate swap, which is required to be measured at fair value on a recurring basis. The fair value was determined based on Level 2 inputs, which include valuation models, as reported by the Company’s counterparty. These valuation models use a discounted cash flow analysis on the cash flows of the derivative based on the terms of the contract and the forward yield curves adjusted for the Company’s credit risk. The key inputs for the valuation models are observable market prices, discount rates, and forward yield curves. See Note 4, “Long-Term Debt” for further discussion regarding the Company’s interest rate swap. The following table presents fair value for the interest rate swap at June 29, 2022 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements Using ​ ​ Fair Value Level 1 Level 2 Level 3 Other assets - Interest rate swap ​ $ 706 ​ $ — ​ $ 706 ​ $ — ​ ​ The following table presents fair value for the interest rate swap at December 29, 2021 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements Using ​ ​ Fair Value Level 1 Level 2 Level 3 Other non-current liabilities - Interest rate swap ​ $ 396 ​ $ — ​ $ 396 ​ $ — ​ ​ Certain assets and liabilities are measured at fair value on a nonrecurring basis. In other words, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments only in certain circumstances (e.g., when there is evidence of impairment). The following non-financial instruments were measured at fair value, on a nonrecurring basis, as of and for the thirteen and twenty-six weeks ended June 29, 2022, reflecting certain property and equipment assets and right-of-use (“ROU”) assets for which an impairment loss was recognized during the corresponding periods, as discussed under Note 2, 12 Table of Contents “Property and Equipment” and immediately below under “Impairment of Long-Lived Assets and ROU Assets” (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Thirteen Weeks ​ Twenty-Six Weeks ​ ​ ​ ​ ​ Fair Value Measurements at June 29, 2022 Using ​ Ended June 29, 2022 ​ Ended June 29, 2022 ​ Total Level 1 Level 2 Level 3 ​ Impairment Losses ​ Impairment Losses Certain property and equipment, net ​ $ — ​ $ — ​ $ — ​ $ — $ 164 ​ $ 253 ​ ​ The following non-financial instruments were measured at fair value on a nonrecurring basis as of and for the thirteen and twenty-six weeks ended June 30, 2021, reflecting certain property and equipment assets and ROU assets for which an impairment loss was recognized during the corresponding periods, as discussed immediately below under “Impairment of Long-Lived Assets and ROU Assets” (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Thirteen Weeks ​ Twenty-Six Weeks ​ ​ ​ ​ ​ Fair Value Measurements at June 30, 2021 Using ​ Ended June 30, 2021 ​ Ended June 30, 2021 ​ Total Level 1 Level 2 Level 3 Impairment Losses Impairment Losses Certain property and equipment, net ​ $ — ​ $ — ​ $ — ​ $ — $ 18 ​ $ 259 Certain property and equipment, held for sale ​ ​ 3,772 ​ ​ — ​ ​ — ​ ​ 3,772 ​ ​ 1,524 ​ ​ 1,524 Certain ROU assets, net ​ $ 1,898 ​ $ — ​ $ — ​ $ 1,898 ​ $ 344 ​ $ 407 ​ Impairment of Long-Lived Assets and ROU Assets The Company reviews its long-lived and ROU assets for impairment on a restaurant-by-restaurant basis whenever events or changes in circumstances indicate that the carrying value of certain long-lived and ROU assets may not be recoverable. The Company considers a triggering event related to long-lived assets or ROU assets in a net asset position to have occurred related to a specific restaurant if the restaurant’s average unit volume for the last twelve months is less than a minimum threshold or if consistent levels of undiscounted cash flows for the remaining lease period are less than the carrying value of the restaurant’s assets. Additionally, the Company considers a triggering event related to ROU assets to have occurred related to a specific lease if the location has been subleased and future estimated sublease income is less than lease payments under the head lease. If the Company concludes that the carrying value of certain long-lived and ROU assets will not be recovered based on expected undiscounted future cash flows, an impairment loss is recorded to reduce the long-lived or ROU assets to their estimated fair value. The fair value is measured on a nonrecurring basis using unobservable (Level 3) inputs. There is uncertainty in the projected undiscounted future cash flows used in the Company’s impairment review analysis, which requires the use of estimates and assumptions. If actual performance does not achieve the projections, or if the assumptions used change in the future, the Company may be required to recognize impairment charges in future periods, and such charges could be material. The Company determined that triggering events occurred for certain restaurants during the thirteen and twenty-six weeks ended June 29, 2022 that required an impairment review of certain of the Company’s long-lived and ROU assets. Based on the results of the analysis, the Company recorded non-cash impairment charges of $ 0.2 million and $ 0.3 million for the thirteen and twenty-six weeks ended June 29, 2022, respectively, primarily related to the long-lived assets of one restaurant in California. The Company recorded a non-cash impairment charge of $ 0.4 million and $ 0.7 million for the thirteen and twenty-six weeks ended June 30, 2021, respectively, primarily related to the carrying value of the ROU assets of one restaurant in Texas closed in 2019, the carrying value of the ROU assets of one restaurant in California 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, the Company is 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. Closed-Store Reserves When a restaurant is closed, the Company will evaluate the 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. Additionally, any property tax and common area maintenance (“CAM”) payments relating 13 Table of Contents to closed restaurants are included within closed-store expense. During the thirteen and twenty-six weeks ended June 29, 2022, the Company recognized less than $ 0.1 million and $ 0.1 million, respectively, of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM payments for its closed locations. During the thirteen and twenty-six weeks ended June 30, 2021, the Company recognized $ 0.1 million and $ 0.3 million of closed-store reserve expense, respectively, primarily related to the amortization of ROU assets, property taxes and CAM payments for its closed locations. Derivative Financial Instruments The Company uses an interest rate swap, a derivative instrument, to hedge interest rate risk and not for trading purposes. The derivative contract is entered into with a financial institution. The Company records the derivative instrument on its condensed consolidated balance sheets at fair value. The derivative instrument qualifies as a hedging instrument in a qualifying cash flow hedge relationship, and the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive (loss) income (“AOCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. For any derivative instruments not designated as hedging instruments, the gain or loss will be recognized in earnings immediately. If a derivative previously designated as a hedge is terminated, or no longer meets the qualifications for hedge accounting, any balances in AOCI will be reclassified to earnings immediately. As a result of the use of an interest rate swap, the Company is exposed to risk that the counterparty will fail to meet its contractual obligations. To mitigate the counterparty credit risk, the Company will only enter into contracts with major financial institutions, based upon their credit ratings and other factors, and will continue to assess the creditworthiness of the counterparty. As of June 29, 2022, the counterparty to the Company’s interest rate swap has performed in accordance with its contractual obligation. Income Taxes The provision for income taxes, income taxes payable and deferred income taxes is determined using the asset and liability method. Deferred tax assets and liabilities are determined based on temporary differences between the financial carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which the temporary differences are expected to reverse. On a periodic basis, the Company assesses the probability that its net deferred tax assets, if any, will be recovered. If, after evaluating all of the positive and negative evidence, a conclusion is made that it is more likely than not that some portion or all of the net deferred tax assets will not be recovered, a valuation allowance is provided by charging to tax expense a reserve for the portion of deferred tax assets which are not expected to be realized. The Company reviews its filing positions for all open tax years in all U.S. federal and state jurisdictions where the Company is required to file. When there are uncertainties related to potential income tax benefits, in order to qualify for recognition, the position the Company takes has to have at least a “more likely than not” chance of being sustained (based on the position’s technical merits) upon challenge by the respective authorities. The term “more likely than not” means a likelihood of more than 50 percent. Otherwise, the Company may not recognize any of the potential tax benefit associated with the position. The Company recognizes a benefit for a tax position that meets the “more likely than not” criterion at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon its effective resolution. Unrecognized tax benefits involve management’s judgment regarding the likelihood of the benefit being sustained. The final resolution of uncertain tax positions could result in adjustments to recorded amounts and may affect the Company’s condensed consolidated financial position, results of operations, and cash flows. The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties at June 29, 2022 or at December 29, 2021. The Company did no t recognize interest or penalties during the thirteen and twenty-six weeks ended June 29, 2022 and June 30, 2021, respectively, since there were no material unrecognized tax benefits. Management believes no significant changes to the amount of unrecognized tax benefits will occur within the next twelve months. 14 Table of Contents On July 30, 2014, the Company entered into the income tax receivable agreement (the “TRA”), which calls for the Company to pay to its pre-initial public offering (“IPO”) stockholders 85 % of the savings in cash that the Company realizes in its income taxes as a result of utilizing its net operating losses (“NOLs”) and other tax attributes attributable to preceding periods. For the thirteen and twenty-six weeks ended June 29, 2022, the Company recorded income tax receivable agreement income of $ 0.2 million and $ 0.3 million, respectively, and for the thirteen and twenty-six weeks ended June 30, 2021, the Company recorded income tax receivable agreement expense of less than $ 0.1 million and income tax receivable agreement income of less than $ 0.1 million, respectively, in each case, related to the amortization of interest expense related to the total expected TRA payments and changes in estimates for actual tax returns filed and future forecasted taxable income. The Coronavirus Aid, Relief and Economic Security Act provides for the deferral of employer Social Security taxes that are otherwise owed for wage payment and the creation of refundable employee retention credits. The total amount deferred as of December 30, 2020 was $ 4.9 million, of which 50 % was paid at the end of 2021 and the remaining 50 % is due by December 31, 2022. 2. PROPERTY AND EQUIPMENT The costs and related accumulated depreciation and amortization of major classes of property and equipment are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ June 29, 2022 December 29, 2021 Land ​ $ 12,323 ​ $ 12,323 Buildings and improvements ​ 147,169 ​ 144,631 Other property and equipment ​ 79,719 ​ 78,383 Construction in progress ​ 7,156 ​ 5,333 ​ ​ 246,367 ​ 240,670 Less: accumulated depreciation and amortization ​ ( 170,294 ) ​ ( 165,002 ) ​ ​ $ 76,073 ​ $ 75,668 ​ Depreciation expense was $ 3.6 million and $ 3.9 million for the thirteen weeks ended June 29, 2022 and June 30, 2021, respectively, and $ 7.2 million and $ 7.9 million for the twenty-six weeks ended June 29, 2022 and June 30, 2021, respectively . Based on the Company’s review of its long-lived assets for impairment, the Company recorded non-cash impairment charges of $ 0.2 million and $ 0.3 million for the thirteen and twenty-six weeks ended June 29, 2022, respectively, primarily related to the carrying value of the long-lived assets of one restaurant in California. ​ During the thirteen and twenty-six weeks ended June 30, 2021, the Company recorded non-cash impairment charges of less than $ 0.1 million and $ 0.3 million, respectively, primarily related to the carrying value of the assets of three restaurants in California. See Note 1, “Basis of Presentation and Summary of Significant Accounting Policies – Impairment of Long-Lived Assets and ROU Assets” for additional information. ​ ​ 3. STOCK-BASED COMPENSATION At June 29, 2022, options to purchase 1,183,873 shares of common stock were outstanding, including 628,053 vested and 555,820 unvested. Unvested options vest over time; however, upon a change in control, the Board of Directors may accelerate vesting. At June 29, 2022, 203,569 premium options, which are options granted above the stock price at date 15 Table of Contents of grant, remained outstanding. A summary of stock option activity as of June 29, 2022 and changes during the twenty-six weeks ended June 29, 2022 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-Average Aggregate ​ ​ Weighted-Average Contractual Life Intrinsic Value ​ ​ Shares ​ Exercise Price Life (Years) (in thousands) Outstanding - December 29, 2021 978,078 ​ $ 11.45 ​ ​ ​ ​ ​ ​ Grants 372,958 ​ 10.54 ​ ​ ​ ​ ​ ​ Exercised ( 150,475 ) ​ ​ 10.50 ​ ​ ​ ​ ​ ​ Forfeited, cancelled or expired ( 16,688 ) ​ $ 15.67 ​ ​ ​ ​ ​ ​ Outstanding - June 29, 2022 1,183,873 ​ $ 11.22 ​ ​ 6.28 ​ $ 873 Vested and expected to vest at June 29, 2022 1,172,691 ​ $ 11.22 ​ ​ 6.24 ​ $ 873 Exercisable at June 29, 2022 628,053 ​ $ 10.48 ​ ​ 3.65 ​ $ 873 ​ The fair value of each stock option was estimated on the grant date using an exercise price of the closing stock price on the day prior to date of grant and the Black-Scholes option-pricing model with the following weighted average assumptions: ​ ​ ​ ​ ​ ​ ​ ​ June 29, 2022 June 30, 2021 Expected volatility ​ 43.0 % 46.9 % Risk-free interest rate 2.9 % 1.1 % Expected term (years) 6.25 6.25 ​ Expected dividends — — ​ ​ At June 29, 2022, the Company had total unrecognized compensation expense of $ 2.7 million related to unvested stock options, which it expects to recognize over a weighted-average period of 3.39 years. A summary of restricted share activity as of June 29, 2022 and changes during the twenty-six weeks ended June 29, 2022 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-Average ​ ​ Shares ​ Fair Value Unvested shares at December 29, 2021 495,780 ​ $ 13.92 Granted 298,638 ​ $ 10.54 Released ( 153,103 ) ​ $ 13.38 Forfeited, cancelled, or expired ( 27,931 ) ​ $ 14.01 Unvested shares at June 29, 2022 613,384 ​ $ 12.41 ​ At June 29, 2022, the Company had unrecognized compensation expense of $ 6.6 million related to unvested restricted shares, which it expects to recognize over a weighted-average period of 2.83 years. Total stock-based compensation expense was $ 1.0 million and $ 1.8 million for the thirteen and twenty-six weeks ended June 29, 2022, respectively, and $ 1.0 million and $ 1.9 million for the thirteen and twenty-six weeks ended June 30, 2021. ​ 4. LONG-TERM DEBT 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 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 16 Table of Contents 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 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. 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. The base rate is calculated as the highest of (a) the federal funds rate plus 0.50 %, (b) the published Bank of America prime rate, or (c) LIBOR plus 1.00 %. For LIBOR loans, the margin is in the range of 1.25 % to 2.25 %, and for base rate loans the margin is in a range of 0.25 % to 1.25 %. Borrowings under the 2018 Revolver may be repaid and reborrowed. The interest rate range was 1.70 % to 2.87 % and 1.35 % to 2.87 % for the thirteen and twenty-six weeks ended June 29, 2022, respectively, and 1.35 % to 1.36 % and 1.35 % to 1.65 % for the thirteen and twenty-six weeks ended June 30, 2021. The 2018 Credit Agreement contains certain financial covenants. The Company was in compliance with the financial covenants as of June 29, 2022. At June 29, 2022, $ 10.0 million of letters of credit and $ 40.0 million in borrowings under the 2018 Revolver were outstanding. The Company had $ 100.0 million in borrowing availability under the 2018 Revolver at June 29, 2022. On July 27, 2022, the 2018 Revolver was refinanced pursuant to a new 2022 Credit Agreement among EPL, as borrower, the Company and Intermediate, as guarantors, the lenders and other parties party thereto and Bank of America, N.A., as administrative agent, swingline lender and letters of credit issuer, which provides for a $ 150.0 million five-year senior secured revolving facility. In connection with the refinancing, the 2018 Credit Agreement was terminated. On July 29, 2022, the Company made a $ 20.0 million payment to the 2022 Revolver and the outstanding balance as of August 4, 2022 was $ 20.0 million. For more information regarding the 2022 Credit Agreement, see Note 1, “Subsequent Events ― 2022 Credit Agreement.” Maturities No amounts were paid on the 2018 Revolver during the thirteen and twenty-six weeks ended June 29, 2022. During the thirteen and twenty-six weeks ended June 30, 2021, the Company paid down $ 13.8 million and $ 22.8 million on the 2018 Revolver, respectively. On July 27, 2022, the Company refinanced and terminated the 2018 Revolver pursuant to the 2022 Credit Agreement. Interest Rate Swap During the year ended December 25, 2019, the Company entered into a variable-to-fixed interest rate swap agreement with a notional amount of $ 40.0 million that matures in June 2023. The objective of the interest rate swap was to reduce the Company’s exposure to interest rate risk for a portion of its variable-rate interest payments on its borrowings under the 2018 Revolver. Under the terms of the swap agreement, the variable LIBOR-based component of interest payments was converted to a fixed rate of 1.31 %, plus applicable margin, which was 1.5 % for the twenty-six weeks ended June 29, 2022. The interest rate swap was designated as a cash flow hedge, as the changes in the future cash flows of the swap were expected to offset changes in expected future interest payments on the related variable-rate debt, in accordance with Accounting Standards Codification (“ASC”) 815 “Derivatives and Hedging.” 17 Table of Contents The changes in the fair value of the interest rate swap are not included in earnings, but are included in other comprehensive income (“OCI”). These changes in fair value are subsequently reclassified into net earnings as a component of interest expense as the hedged interest payments are made on the variable rate borrowings. Subsequent to the quartet-end, in connection with the Company’s entry into the 2022 Credit Agreement, it terminated the interest rate swap previously used to hedge interest rate risk. In settlement of this swap, the Company received approximately $ 0.6 million. The remaining amount in AOCI related to the hedging relationship will be reclassified into earnings when the hedged forecasted transaction is reported in earnings. For the twenty-six weeks ended June 29, 2022, the swap was a highly effective cash flow hedge. As of June 29, 2022, the estimated net losses included in AOCI related to the Company’s cash flow hedge that will be reclassified into earnings in the next 12 months is $ 0.1 million, based on current LIBOR interest rates. The following table shows the financial statement line item and amount of the Company’s cash flow hedge accounting on the condensed consolidated balance sheets (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 29, 2022 ​ December 29, 2021 ​ Notional Fair value Notional Fair value Other assets - Interest rate swap ​ $ 40,000 ​ $ 706 ​ ​ — ​ ​ — Other liabilities - Interest rate swap ​ $ — ​ $ — ​ $ 40,000 ​ $ 396 ​ The following table summarizes the effect of the Company’s cash flow hedge accounting on the condensed consolidated statements of income (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Thirteen Weeks Ended ​ Twenty-Six Weeks Ended ​ June 29, 2022 June 30, 2021 ​ June 29, 2022 June 30, 2021 Interest expense on hedged portion of debt ​ $ 204 ​ $ 136 ​ $ 347 ​ ​ 336 Interest expense on interest rate swap ​ 55 ​ 119 ​ ​ 172 ​ 234 Interest expense on debt and derivatives, net ​ $ 259 ​ $ 255 ​ $ 519 ​ $ 570 ​ The following table summarizes the effect of the Company’s cash flow hedge accounting on AOCI for the thirteen and twenty-six weeks ended June 29, 2022 and June 30, 2021 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Thirteen Weeks Ended ​ Twenty-Six Weeks Ended ​ ​ ​ ​ Loss Reclassified from ​ ​ ​ Loss Reclassified from ​ ​ Net Gain (Loss) Recognized in OCI ​ AOCI into Interest expense ​ Net Gain Recognized in OCI ​ AOCI into Interest expense ​ June 29, 2022 ​ June 30, 2021 ​ June 29, 2022 ​ June 30, 2021 June 29, 2022 ​ June 30, 2021 June 29, 2022 ​ June 30, 2021 Interest rate swap ​ $ 347 ​ $ ( 2 ) ​ $ 55 ​ $ 119 ​ $ 931 ​ $ 76 ​ $ 172 ​ $ 234 ​ See Note 1, “Basis of Presentation and Summary of Significant Accounting Policies” for information about the fair value of the Company’s derivative asset. ​ 18 Table of Contents 5. OTHER ACCRUED EXPENSES AND CURRENT LIABILITIES Other accrued expenses and current liabilities consist of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ June 29, 2022 December 29, 2021 Accrued sales and property taxes ​ $ 3,766 ​ $ 4,726 Gift card liability ​ 4,133 ​ 4,622 Loyalty rewards program liability ​ ​ 564 ​ ​ 687 Accrued advertising ​ ​ 3,233 ​ ​ 3,635 Accrued legal settlements and professional fees ​ 660 ​ 771 Deferred franchise and development fees ​ 651 ​ 637 Employer social security tax deferral ​ ​ 2,543 ​ ​ — Other ​ 3,470 ​ 4,718 Total other accrued expenses and current liabilities ​ $ 19,020 ​ $ 19,796 ​ ​ 6. OTHER NONCURRENT LIABILITIES Other noncurrent liabilities consist of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ June 29, 2022 December 29, 2021 Deferred franchise and development fees ​ $ 5,789 ​ $ 5,691 Derivative liability ​ ​ — ​ ​ 396 Employer social security tax deferral ​ ​ — ​ ​ 2,426 Other ​ 109 ​ 140 Total other noncurrent liabilities ​ $ 5,898 ​ $ 8,653 ​ ​ 7. COMMITMENTS AND CONTINGENCIES Legal Matters On or about November 5, 2015, a purported Holdings shareholder filed a derivative complaint on behalf of Holdings in the Court of Chancery of the State of Delaware against certain Holdings officers, directors and Trimaran Pollo Partners, L.L.C., under the caption Armen Galustyan v. Sather, et al. (Case No. 11676-VCL). The derivative complaint alleges that these defendants breached their fiduciary duties to Holdings and were unjustly enriched when they sold shares of Holdings at artificially inflated prices due to alleged misrepresentations and omissions regarding EPL’s comparable store sales in the second quarter of 2015. The Holdings shareholder’s requested remedies include an award of compensatory damages to Holdings, as well as a court order to improve corporate governance by putting forward for stockholder vote certain resolutions for amendments to Holdings’ Bylaws or Certificate of Incorporation. The Holdings shareholder voluntarily dismissed the action on October 7, 2020. A second purported Holdings shareholder filed a derivative complaint on or about September 23, 2016, under the caption Diep v. Sather, CA 12760-VCL in the Delaware Court of Chancery. The Diep action is also purportedly brought on behalf of Holdings, names the same defendants and asserts substantially the same claims on substantially the same alleged facts as does Galustyan. Defendants moved to stay or dismiss the Diep action. On March 17, 2017, the Delaware court granted in part, and denied in part, the motion to stay the Diep action. The court denied defendants’ motion to dismiss the complaint for failure to state a claim. On January 17, 2018, the court entered an order granting the parties’ stipulation staying all proceedings in the Diep action for five months or until the completion of an investigation of the allegations in the action by a special litigation committee of the Holdings board of directors (the “SLC”). On September 25, 2020, after concluding its investigation, the SLC filed a motion to dismiss the Diep action and filed its investigative report under seal as an exhibit to the motion to dismiss. On May 21, 2021, while the SLC’s motion to dismiss the Diep action was pending, the Company filed a notice of proposed partial settlement of the Diep action with respect to defendants Kay Bogeajis, Laurance Roberts, Stephen J. Sather, Edward J. Valle, Douglas K. Ammerman, and Samuel N. Borgese (collectively, the “Settling Defendants”). Defendant Trimaran Pollo Partners, LLC (“Trimaran”) was not a party to the settlement. The court approved the settlement of $ 625,000 , less Plaintiffs’ fees of $ 156,250 , on September 10, 2021, and dismissed all claims brought, or 19 Table of Contents that could have been brought, against Settling Defendants. In connection with this settlement, the Company received $ 469,000 in insurance proceeds, which was recorded within general and administrative expenses in the Company’s statement of income for the year ended December 29, 2021. On July 30, 2021, the court granted the SLC’s motion to dismiss with respect to the claims asserted against remaining defendant Trimaran. On October 4, 2021, Plaintiffs filed a notice of appeal of the court’s granting of the motion to dismiss against defendant Trimaran. Plaintiff filed its opening brief on December 6, 2021. SLC filed its answering brief on December 20, 2021 and the public version of the brief was filed on January 7, 2022. Plaintiffs filed the reply brief on January 4, 2022. The hearing on the appeal took place on March 30, 2022. On June 28, 2022, the court’s granting of the motion to dismiss against Trimaran was affirmed. The Company is also involved in various other claims such as wage and hour and other legal actions that arise in the ordinary course of business. The outcomes of these actions are not predictable but the Company does not believe that the ultimate resolution of these other actions will have a material adverse effect on its financial position, results of operations, liquidity, or capital resources. A significant increase in the number of claims, or an increase in amounts owing under successful claims, could materially and adversely affect its business, condensed consolidated financial condition, results of operations, and cash flows. Purchasing Commitments The Company has long-term beverage supply agreements with certain major beverage vendors. Pursuant to the terms of these arrangements, marketing rebates are provided to the Company and its franchisees from the beverage vendors based upon the dollar volume of purchases for system-wide restaurants which will vary according to their demand for beverage syrup and fluctuations in the market rates for beverage syrup. These contracts have terms extending through the end of 2024. At June 29, 2022, the Company’s total estimated commitment to purchase chicken was $ 26.0 million. Contingent Lease Obligations As a result of assigning the Company’s interest in obligations under real estate leases in connection with the sale of company-operated restaurants to some of the Company’s franchisees, the Company is contingently liable on four lease agreements. These leases have various terms, the latest of which expires in 2036 . As of June 29, 2022, the potential amount of undiscounted payments the Company could be required to make in the event of non-payment by the primary lessee was $ 2.5 million. The present value of these potential payments discounted at the Company’s estimated pre-tax cost of debt at June 29, 2022 was $ 2.1 million. The Company’s franchisees are primarily liable on the leases. The Company has cross-default provisions with these franchisees that would put them in default of their franchise agreements in the event of non-payment under the leases. The Company believes that these cross-default provisions reduce the risk that payments will be required to be made under these leases. Employment Agreements As of June 29, 2022, the Company had employment agreements with three of the officers of the Company. These agreements provide for minimum salary levels, possible annual adjustments for cost-of-living changes, and incentive bonuses that are payable under certain business conditions. Indemnification Agreements The Company has entered into indemnification agreements with each of its current directors and officers. These agreements require the Company to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to the Company and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. The Company also intends to enter into indemnification agreements with future directors and officers. ​ 20 Table of Contents 8. EARNINGS PER SHARE Basic earnings per share (“EPS”) is calculated using the weighted-average number of shares of common stock outstanding during the thirteen and twenty-six weeks ended June 29, 2022 and June 30, 2021. Diluted EPS is calculated using the weighted-average number of shares of common stock outstanding and potentially dilutive during the period, using the treasury stock method. Below are basic and diluted EPS data for the periods indicated (in thousands except for share and per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Thirteen Weeks Ended ​ Twenty-Six Weeks Ended ​ ​ June 29, 2022 June 30, 2021 ​ June 29, 2022 June 30, 2021 Numerator: ​ ​ ​ ​ ​ Net income ​ $ 7,141 ​ $ 8,818 ​ $ 9,256 ​ $ 12,782 ​ Denominator: ​ ​ ​ ​ ​ Weighted-average shares outstanding—basic ​ 36,331,099 ​ 35,927,781 ​ 36,278,423 ​ 35,861,493 ​ Weighted-average shares outstanding—diluted ​ 36,473,960 ​ 36,416,686 ​ 36,478,808 ​ 36,423,394 ​ Net income per share—basic ​ $ 0.20 ​ $ 0.25 ​ $ 0.26 ​ $ 0.36 ​ Net income per share—diluted ​ $ 0.20 ​ $ 0.24 ​ $ 0.25 ​ $ 0.35 ​ Anti-dilutive securities not considered in diluted EPS calculation ​ 952,517 ​ 138,117 ​ 597,201 ​ 65,798 ​ ​ Below is a reconciliation of basic and diluted share counts: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Thirteen Weeks Ended Twenty-Six Weeks Ended ​ ​ June 29, 2022 ​ June 30, 2021 ​ June 29, 2022 ​ June 30, 2021 ​ Weighted-average shares outstanding—basic 36,331,099 35,927,781 36,278,423 35,861,493 Dilutive effect of stock options and restricted shares 142,861 488,905 200,385 561,901 Weighted-average shares outstanding—diluted 36,473,960 36,416,686 36,478,808 36,423,394 ​ ​ 9. RELATED PARTY TRANSACTIONS Trimaran Pollo Partners, L.L.C. (“LLC”) owns approximately 45.3 % of the Company’s outstanding common stock as of June 29, 2022. This large position means that LLC and its majority owners—predecessors and affiliates of, and certain funds managed by, Trimaran Capital Partners and Freeman Spogli & Co. (collectively, “Trimaran” and “Freeman Spogli,” respectively)—possess significant influence when stockholders vote on matters such as election of directors, mergers, consolidations and acquisitions, the sale of all or substantially all of the Company’s assets, decisions affecting the Company’s capital structure, amendments to the Company’s amended and restated certificate of incorporation or amended and restated by-laws, and the Company’s winding up and dissolution. The Company’s amended and restated certificate of incorporation provides that (i) so long as LLC beneficially owns, directly or indirectly, more than 40 % of the Company’s common stock, any member of the Board of Directors or the entire Board of Directors may be removed from office at any time with or without cause by the affirmative vote of a majority of the Company’s common stock, and (ii) prior to the date the LLC ceases to beneficially own, directly or indirectly, 40 % or more of the Company’s common stock, stockholders representing at least 40 % of the Company’s common stock may call a special meeting of the Company’s stockholders. ​ 10. REVENUE FROM CONTRACTS WITH CUSTOMERS Revenue Recognition Nature of products and services The Company has two revenue streams, company-operated restaurant revenue and franchise related revenue. 21 Table of Contents Company-operated restaurant revenue Revenues from the operation of company-operated restaurants are recognized as food and beverage products are delivered to customers and payment is tendered at the time of sale. The Company presents sales, net of sales-related taxes and promotional allowances. The Company offers a loyalty rewards program, which awards a customer points for dollars spent. 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. Additionally, if a reward is not used within six months , it expires. 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. A portion of the transaction price is allocated to loyalty points, if necessary, on a pro-rata basis, based on stand-alone selling price, as determined by menu pricing and loyalty points terms. As of June 29, 2022 and December 29, 2021, the revenue allocated to loyalty points that have not been redeemed was $ 0.6 million and $ 0.7 million, respectively, which is reflected in the Company’s accompanying condensed consolidated balance sheets within other accrued expenses and current liabilities. The Company expects the loyalty points to be redeemed and recognized over a one-year period. The Company sells gift cards to its customers in the restaurants and through selected third parties. The gift cards sold to customers have no stated expiration dates and are subject to actual and/or potential escheatment rights in several of the jurisdictions in which the Company operates. Furthermore, due to these escheatment rights, the Company does not recognize breakage related to the sale of gift cards due to the immateriality of the amount remaining after escheatment. The Company recognizes income from gift cards when redeemed by the customer. Unredeemed gift card balances are deferred and recorded as other accrued expenses on the accompanying condensed consolidated balance sheets. Franchise and franchise advertising revenue Franchise revenue consists of franchise royalties, initial franchise fees, license fees due from franchisees, IT support services, and rental income for subleases to franchisees. Franchise advertising revenue consists of advertising contributions received from franchisees. These revenue streams are made up of the following performance obligations: ● Franchise license - inclusive of advertising services, development agreements, training, access to plans and help desk services. ● Discounted renewal option. ● Hardware services. The Company satisfies the performance obligation related to the franchise license over the term of the franchise agreement, which is typically 20 years . Payment for the franchise license consists of three components, a fixed-fee related to the franchise/development agreement, a sales-based royalty fee and a sales-based advertising fee. The fixed fee, as determined by the signed development and/or franchise agreement, is due at the time the development agreement is entered into, and/or when the franchise agreement is signed, and does not include a finance component. The sales-based royalty fee and sales-based advertising fee are considered variable consideration and will continue to be recognized as revenue as such sales are earned by the franchisees. Both sales-based fees qualify under the royalty constraint exception, and do not require an estimate of future transaction price. Additionally, the Company is utilizing the practical expedient available under ASC Topic 606, “Revenue from Contracts with Customers” (“Topic 606”) regarding disclosure of the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied for sales-based royalties. In certain franchise agreements, the Company offers a discounted renewal to incentivize future renewals after the end of the initial franchise term. As this is considered a separate performance obligation, the Company allocates a portion of the initial franchise fee to this discounted renewal, on a pro-rata basis, assuming a 20-year renewal. This performance obligation is satisfied over the renewal term, typically 10 or 20 years , while payment is fixed and due at the time the renewal is signed. 22 Table of Contents The Company purchases hardware, such as scanners, printers, cash registers and tablets, from third party vendors, which it then sells to franchisees. As the Company is considered the principal in this relationship, payment for the hardware is considered revenue, and is received upon transfer of the goods from the Company to the franchisee. As of June 29, 2022, there were no performance obligations related to hardware services that were unsatisfied or partially satisfied. Disaggregated revenue The following table presents the Company’s revenues disaggregated by revenue source and market (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Thirteen Weeks Ended Twenty-Six Weeks Ended ​ June 29, June 30, ​ June 29, ​ June 30, ​ ​ ​ 2022 ​ 2021 ​ 2022 ​ ​ 2021 ​ Core Market (1) : ​ ​ ​ ​ ​ ​ Company-operated restaurant revenue ​ $ 101,440 ​ $ 99,429 ​ $ 191,066 ​ $ 186,652 ​ Franchise revenue ​ 4,708 ​ 4,086 ​ 9,058 ​ 7,773 ​ Franchise advertising fee revenue ​ 3,474 ​ 3,084 ​ 6,671 ​ 5,861 ​ Total core market ​ $ 109,622 ​ $ 106,599 ​ $ 206,795 ​ $ 200,286 ​ Non-Core Market (2) : ​ ​ ​ ​ ​ Company-operated restaurant revenue ​ $ 5,015 ​ $ 7,541 ​ $ 9,345 ​ $ 14,478 ​ Franchise revenue ​ 5,357 ​ 4,304 ​ 10,262 ​ 8,229 ​ Franchise advertising fee revenue ​ 4,117 ​ 3,541 ​ 7,757 ​ 6,713 ​ Total non-core market ​ $ 14,489 ​ $ 15,386 ​ $ 27,364 ​ $ 29,420 ​ Total revenue ​ $ 124,111 ​ $ 121,985 ​ $ 234,159 ​ $ 229,706 ​ (1) Core Market includes markets with existing company-operated restaurants at the time of the Company’s IPO on July 28, 2014. (2) Non-Core Market includes markets entered into by the Company subsequent to the IPO date. The following table presents the Company’s revenues disaggregated by geographic market: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Thirteen Weeks Ended ​ ​ Twenty-Six Weeks Ended ​ ​ June 29, 2022 June 30, 2021 ​ June 29, 2022 June 30, 2021 Greater Los Angeles area market 70.9 % 70.6 % ​ 70.9 % 70.4 % Other markets 29.1 % 29.4 % ​ 29.1 % 29.6 % Total 100 % 100 % ​ 100 % 100 % ​ Contract balances The following table provides information about the change in the franchise contract liability balances during the twenty-six weeks ended June 29, 2022 and June 30, 2021 (in thousands) : ​ ​ ​ ​ ​ December 29, 2021 ​ $ 6,328 Revenue recognized - beginning balance ​ ( 383 ) Additional contract liability ​ 495 June 29, 2022 ​ $ 6,440 ​ ​ ​ ​ December 30, 2020 ​ $ 5,628 Revenue recognized - beginning balance ​ ( 349 ) Additional contract liability ​ 384 June 30, 2021 ​ $ 5,663 ​ The Company’s franchise contract liability includes development fees, initial franchise and license fees, franchise renewal fees, lease subsidies and royalty discounts and is included within other accrued expenses and current liabilities and other noncurrent liabilities within the accompanying condensed consolidated balance sheets. The Company receives area development fees from franchisees when they execute multi-unit area development agreements. Initial franchise and license fees, or franchise renewal fees, are received from franchisees upon the execution of, or renewal of, a franchise 23 Table of Contents agreement. Revenue is recognized from these agreements as the underlying performance obligation is satisfied, which is over the term of the agreement. The following table illustrates the estimated revenue to be recognized in future periods related to performance obligations under the applicable contracts that are unsatisfied as of June 29, 2022 (in thousands): ​ ​ ​ ​ ​ ​ ​ Franchise revenues: ​ 2022 ​ $ 328 2023 ​ 601 2024 ​ 508 2025 ​ 464 2026 ​ 441 Thereafter ​ 4,098 Total ​ $ 6,440 ​ Changes in the loyalty rewards program liability included in deferred revenue within other accrued expenses and current liabilities on the condensed consolidated balance sheets were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ June 29, ​ December 29, ​ ​ ​ 2022 ​ 2021 ​ Loyalty rewards liability, beginning balance ​ $ 687 ​ $ 900 ​ Revenue deferred ​ 1,333 ​ 2,677 ​ Revenue recognized ​ ( 1,456 ) ​ ( 2,890 ) ​ Loyalty rewards liability, ending balance ​ $ 564 ​ $ 687 ​ ​ The Company expects all loyalty points revenue related to performance obligations unsatisfied as of June 29, 2022 to be recognized within one year . Gift Cards The gift card liability included in other accrued expenses and current liabilities on the condensed consolidated balance sheets was as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ June 29, ​ December 29, ​ ​ 2022 ​ 2021 Gift card liability ​ $ 4,133 ​ $ 4,622 Revenue recognized from the redemption of gift cards that was included in other accrued expenses and current liabilities at the beginning of the year was as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Thirteen Weeks Ended ​ Twenty-Six Weeks Ended ​ June 29, 2022 ​ June 30, 2021 June 29, 2022 ​ June 30, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenue recognized from gift card liability balance at the beginning of the year $ 313 ​ $ 286 ​ $ 732 ​ $ 689 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contract Costs The Company does not currently incur costs to obtain or fulfill a contract that would be considered contract assets under Topic 606. ​ 24 Table of Contents 11. LEASES Nature of leases The Company’s operations utilize property, facilities, equipment and vehicles leased from others. Additionally, the Company has various contracts with vendors that have been determined to contain an embedded lease in accordance with Topic 842. As of June 29, 2022, the Company had three leases that it had entered into, but had not yet commenced. The Company does not have control of the property until lease commencement. Building and facility leases The majority of the Company’s building and facilities leases are classified as operating leases; however, the Company currently has one facility and ten equipment leases that are classified as finance leases. Restaurants are operated under lease arrangements that generally provide for a fixed base rent and, in some instances, contingent rent based on a percentage of gross operating profit or net revenues in excess of a defined amount. Additionally, a number of the Company’s leases have payments that increase at pre-determined dates based on the change in the consumer price index. For all leases, the Company also reimburses the landlord for non-lease components, or items that are not considered components of a contract, such as CAM, property tax and insurance costs. While the Company determined not to separate lease and non-lease components, these payments are based on actual costs, making them variable consideration and excluding them from the calculations of the ROU asset and lease liability. The initial terms of land and restaurant building leases are generally 20 years , exclusive of options to renew. These leases typically have four 5-year renewal options , which have generally been excluded in the calculation of the ROU asset and lease liability, as they are not considered reasonably certain to be exercised, unless (1) the renewal had already occurred as of the time of adoption of Topic 842, or (2) there have been significant leasehold improvements that have a useful life that extend past the original lease term. Furthermore, there are no residual value guarantees and no restrictions imposed by the lease. During the thirteen and twenty-six weeks ended June 29, 2022, the Company reassessed the lease terms on nine and thirteen restaurants, respectively, due to certain triggering events, such as the addition of significant leasehold improvements with useful lives that extend past the current lease expiration, the decision to terminate a lease, or the decision to renew. As a result of the reassessment, an additional $ 6.0 million and $ 8.5 million of ROU asset and lease liabilities for the thirteen and twenty-six weeks ended June 29, 2022, respectively, were recognized and will be amortized over the new lease term. During the thirteen and twenty-six weeks ended June 30, 2021, the Company reassessed the lease terms on five and twelve restaurants, respectively, due to certain triggering events, such as the addition of significant leasehold improvements with useful lives that extend past the current lease expiration, the decision to terminate a lease, or the decision to renew. This reassessment resulted in an additional $ 6.5 million and $ 11.2 million of ROU asset and lease liabilities for the thirteen and twenty-six weeks ended June 30, 2021, respectively, which were recognized and will be amortized over the new lease term. The reassessments had an impact on the original lease classification of one property during the thirteen weeks ended June 29, 2022 which represented $ 0.7 million of the $ 6.0 million total additional ROU asset and lease liabilities for the period. Additionally, as the Company adopted all practical expedients available under Topic 842, no reallocation between lease and non-lease components was necessary. The Company also subleases facilities to certain franchisees and other non-related parties which are also considered operating leases. Sublease income also includes contingent rental income based on net revenues. The vast majority of these leases have rights to extend terms via fixed rental increases. However, none of these leases have early termination rights, the right to purchase the premises or any residual value guarantees. The Company does not have any related party leases. During the twenty-six weeks ended June 29, 2022, the Company did no t record any non-cash impairment charges. The Company recorded a $ 0.4 million non-cash impairment charge for the twenty-six weeks ended June 30, 2021 related to one restaurant closed in Texas in 2019 and one restaurant in California. See Note 1, “Basis of Presentation and Summary of Significant Accounting Policies – Impairment of Long-Lived Assets and ROU Assets” for additional information. 25 Table of Contents Equipment Leases of equipment primarily consist of restaurant equipment, copiers and vehicles. These leases are fixed payments with no variable component. Additionally, no optional renewal periods have been included in the calculation of the ROU asset, there are no residual value guarantees and no restrictions imposed. Significant Assumptions and Judgments In applying the requirements of Topic 842, the Company made significant assumptions and judgments related to determination of whether a contract contains a lease and the discount rate used for the lease. In determining if any of the Company’s contracts contain a lease, the Company made assumptions and judgments related to its ability to direct the use of any assets stated in the contract and the likelihood of renewing any short-term contracts for a period extending past twelve months. The Company also made significant assumptions and judgments in determining an appropriate discount rate for property leases. These included using a consistent discount rate for a portfolio of leases entered into at varying dates, using the full 20-year term of the lease, excluding any options, and using the total minimum lease payments. The Company utilizes a third-party valuation firm in determining the discount rate, based on the above assumptions. For all other leases, the Company uses the discount rate implicit in the lease, or the Company’s incremental borrowing rate. As the Company has adopted the practical expedient not to separate lease and non-lease components, no significant assumptions or judgments were necessary in allocating consideration between these components, for all classes of underlying assets. The following table presents the Company’s total lease cost, disaggregated by underlying asset (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Thirteen Weeks Ended ​ June 29, 2022 ​ June 30, 2021 ​ Property Equipment ​ ​ ​ Property ​ Equipment ​ ​ ​ ​ ​ Leases ​ Leases ​ Total ​ Leases ​ Leases ​ Total Finance lease cost: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortization of right-of-use assets ​ $ 18 ​ $ 1 ​ $ 19 ​ $ 22 ​ $ 1 ​ $ 23 Interest on lease liabilities ​ ​ 10 ​ ​ 1 ​ ​ 11 ​ ​ 15 ​ ​ 1 ​ ​ 16 Operating lease cost ​ 6,585 ​ 258 ​ 6,843 ​ 6,626 ​ 293 ​ 6,919 Short-term lease cost ​ — ​ 4 ​ 4 ​ — ​ 5 ​ 5 Variable lease cost ​ 171 ​ 149 ​ 320 ​ 153 ​ 83 ​ 236 Sublease income ​ ( 1,129 ) ​ — ​ ( 1,129 ) ​ ( 798 ) ​ — ​ ( 798 ) Total lease cost ​ $ 5,655 ​ $ 413 ​ $ 6,068 ​ $ 6,018 ​ $ 383 ​ $ 6,401 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Twenty-Six Weeks Ended ​ ​ June 29, 2022 ​ June 30, 2021 ​ ​ Property Equipment ​ ​ ​ Property Equipment ​ ​ ​ ​ Leases ​ Leases ​ Total ​ Leases ​ Leases ​ Total Finance lease cost: ​ ​ ​ ​ ​ ​ ​ ​ Amortization of right-of-use assets ​ $ 37 ​ $ 1 ​ $ 38 ​ $ 42 ​ $ 1 ​ $ 43 Interest on lease liabilities ​ ​ 22 ​ ​ 2 ​ 24 ​ 30 ​ ​ 1 ​ 31 Operating lease cost ​ 13,149 ​ 521 ​ 13,670 ​ 13,383 ​ 594 ​ 13,977 Short-term lease cost ​ — ​ 8 ​ 8 ​ — ​ 10 ​ 10 Variable lease cost ​ 307 ​ 267 ​ 574 ​ 275 ​ 190 ​ 465 Sublease income ​ ( 2,257 ) ​ — ​ ( 2,257 ) ​ ( 1,594 ) ​ — ​ ( 1,594 ) Total lease cost ​ $ 11,258 ​ $ 799 ​ $ 12,057 ​ $ 12,136 ​ $ 796 ​ $ 12,932 26 Table of Contents The following table presents the Company’s total lease cost on the condensed consolidated statements of income (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Thirteen Weeks Ended ​ ​ Twenty-Six Weeks Ended ​ June 29, 2022 ​ June 30, 2021 ​ ​ June 29, 2022 June 30, 2021 Lease cost – Occupancy and other operating expenses ​ $ 5,912 ​ $ 6,149 ​ ​ $ 11,742 ​ $ 12,380 Lease cost – General & administrative ​ 105 ​ ​ 103 ​ ​ 210 ​ ​ 219 Lease cost – Depreciation and amortization ​ 18 ​ ​ 22 ​ ​ 37 ​ ​ 42 Lease cost – Interest expense ​ 11 ​ ​ 15 ​ ​ 24 ​ ​ 30 Lease cost – Closed-store reserve ​ 22 ​ ​ 112 ​ ​ 44 ​ ​ 261 Total lease cost ​ $ 6,068 ​ $ 6,401 ​ ​ $ 12,057 ​ $ 12,932 ​ During the thirteen and twenty-six weeks ended June 29, 2022 and June 30, 2021, the Company had the following cash and non-cash activities associated with its leases (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Twenty-Six Weeks Ended June 29, 2022 ​ Twenty-Six Weeks Ended June 30, 2021 ​ Property Equipment ​ ​ ​ Property ​ Equipment ​ ​ ​ ​ ​ Leases ​ Leases ​ Total ​ Leases ​ Leases ​ Total Cash paid for amounts included in the measurement of lease liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating cash flows used for operating leases ​ $ 13,543 ​ $ 495 $ 14,038 ​ $ 12,357 ​ $ 575 ​ $ 12,932 Financing cash flows used for finance leases ​ $ 58 ​ $ 28 $ 86 ​ $ 33 ​ $ 20 ​ $ 53 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-cash investing and financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating lease ROU assets obtained in exchange for lease liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating lease ROU assets ​ $ 8,485 ​ $ — $ 8,485 ​ $ 11,260 ​ $ — ​ $ 11,260 Finance lease ROU assets obtained in exchange for lease liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Finance lease ROU assets ​ $ — ​ $ 28 ​ $ 28 ​ $ — ​ $ 196 ​ $ 196 Derecognition of ROU assets due to terminations, impairment or modifications ​ $ — ​ $ ( 24 ) $ ( 24 ) ​ $ ( 4,513 ) ​ $ ( 39 ) ​ $ ( 4,552 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other Information ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average remaining years in lease term—finance leases ​ 18.37 ​ 3.68 ​ ​ ​ ​ 17.61 ​ ​ 4.44 ​ ​ ​ Weighted-average remaining years in lease term—operating leases ​ 11.01 ​ 1.19 ​ ​ ​ ​ 11.51 ​ ​ 1.87 ​ ​ ​ Weighted-average discount rate—finance leases ​ 2.57 % 1.53 % ​ ​ ​ 2.75 % ​ 1.57 % ​ ​ Weighted-average discount rate—operating leases ​ 4.47 % 3.82 % ​ ​ ​ 4.42 % ​ 3.92 % ​ ​ ​ Information regarding the Company’s minimum future lease obligations as of June 29, 2022 is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Finance ​ Operating Leases ​ Minimum Minimum Minimum ​ ​ Lease ​ Lease ​ Sublease For the Years Ending ​ Payments ​ Payments ​ Income December 28, 2022 ​ $ 76 ​ $ 14,130 ​ $ 1,869 December 27, 2023 ​ 151 ​ 27,654 ​ 3,698 December 25, 2024 ​ 151 ​ 25,313 ​ 3,510 December 31, 2025 ​ 147 ​ 23,073 ​ 3,115 December 30, 2026 ​ 114 ​ 20,846 ​ 2,789 Thereafter ​ 1,583 ​ 133,169 ​ 23,165 Total ​ $ 2,222 ​ $ 244,185 ​ $ 38,146 Less: imputed interest ( 1.53 % - 4.47 %) ​ ( 432 ) ​ ( 53,677 ) ​ Present value of lease obligations ​ 1,790 ​ 190,508 ​ Less: current maturities ​ ( 109 ) ​ ( 20,154 ) ​ Noncurrent portion ​ $ 1,681 ​ $ 170,354 ​ ​ 27 Table of Contents Short-Term Leases The Company has multiple short-term leases, which have terms of less than 12 months, and thus were excluded from the recognition requirements of Topic 842. The Company has recognized these lease payments in its condensed consolidated statements of income on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments was incurred. Lessor The Company is a lessor for certain property, facilities and equipment owned by the Company and leased to others, principally franchisees, under non-cancelable leases with initial terms ranging from three to 20 years . These lease agreements generally provide for a fixed base rent and, in some instances, contingent rent based on a percentage of gross operating profit or net revenues. All leases are considered operating leases. For the leases in which the Company is the lessor, there are options to extend the lease. However, there are no terms and conditions to terminate the lease, no right to purchase premises and no residual value guarantees. Additionally, there are no related party leases. The Company received $ 0.1 million of lease income from company-owned locations for each of the thirteen weeks ended June 29, 2022 and June 30, 2021. The Company received $ 0.2 million of lease income from company-owned locations for each of the twenty-six weeks ended June 29, 2022 and June 30, 2021. ​