What changed in this filing

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Item 1. Financial Statements

2023-08-04 compared with 2023-05-05 · 250 added, 145 removed, 528 unchanged (43% of the section changed)

37 unchanged sentences

Common stock, $ 0.01 par value, 200,000,000 shares authorized;

36,450,477 and 37,008,061 shares issued and outstanding as March 29, 2023 and December 28, 2022, respectively

35,643,747 and 37,008,061 shares issued and outstanding as June 28, 2023 and December 28, 2022, respectively

Additional paid-in-capital

Accumulated deficit

Retained earnings (Accumulated deficit)

Accumulated other comprehensive income

6 unchanged sentences

Thirteen Weeks Ended

March 29, 2023

March 30, 2022

Twenty-Six Weeks Ended

June 28, 2023

June 29, 2022

June 28, 2023

June 29, 2022

Company-operated restaurant revenue

11 unchanged sentences

Depreciation and amortization

Loss on disposal of assets

(Gain) loss on disposal of assets

Gain on recovery of insurance proceeds, property, equipment and expenses

Gain on disposition of restaurants

Loss (gain) on disposition of restaurants

Impairment and closed-store reserves

2 unchanged sentences

Interest expense, net

Income tax receivable agreement income

Income tax receivable agreement expense (income)

Income before provision for income taxes

7 unchanged sentences

Thirteen Weeks Ended

March 29, 2023

March 30, 2022

Twenty-Six Weeks Ended

June 28, 2023

June 29, 2022

June 28, 2023

June 29, 2022

Other comprehensive (loss) income

9 unchanged sentences

(Amounts in thousands, except share data)

Thirteen Weeks Ended March 29, 2023

Thirteen Weeks Ended June 28, 2023

Comprehensive

1 unchanged sentence

(Loss) Income

Balance, December 28, 2022

Balance, March 29, 2023

Stock-based compensation

Issuance of common stock related to restricted shares

Issuance of common stock upon exercise of stock options, net

Shares repurchased for employee tax withholdings

Repurchase of common stock

( 1,272,287 )

Repurchase of common stock - excise tax

1 unchanged sentence

Other comprehensive loss, net of tax

Balance, June 28, 2023

Thirteen Weeks Ended June 29, 2022

Comprehensive

Stockholders’

Balance, March 30, 2022

Thirteen Weeks Ended March 30, 2022

Stock-based compensation

Issuance of common stock related to restricted shares

Issuance of common stock upon exercise of stock options

Shares repurchased for employee tax withholdings

Forfeiture of common stock related to restricted shares

Other comprehensive income, net of tax

Balance, June 29, 2022

Twenty-Six Weeks Ended June 28, 2023

Comprehensive

3 unchanged sentences

Stock-based compensation

Issuance of common stock related to restricted shares

Issuance of common stock upon exercise of stock options, net

Shares repurchased for employee tax withholdings

Repurchase of common stock

( 1,824,636 )

Repurchase of common stock - excise tax

Forfeiture of common stock related to restricted shares

Other comprehensive loss, net of tax

Balance, June 28, 2023

Twenty-Six Weeks Ended June 29, 2022

Comprehensive

Stockholders’

(Loss) Income

Balance, December 29, 2021

Stock-based compensation

Issuance of common stock related to restricted shares

Issuance of common stock upon exercise of stock options, net

Shares repurchased for employee tax withholdings

Forfeiture of common stock related to restricted shares

Other comprehensive income, net of tax

Balance, March 30, 2022

Balance, June 29, 2022

See notes to condensed consolidated financial statements (unaudited).

2 unchanged sentences

(Amounts in thousands)

Thirteen Weeks Ended

March 29, 2023

March 30, 2022

Twenty-Six Weeks Ended

June 28, 2023

June 29, 2022

Cash flows from operating activities:

4 unchanged sentences

Fire insurance proceeds for expenses paid and lost profit

Loss on disposal of assets

(Gain) loss on disposal of assets

Gain on recovery of insurance proceeds, property, equipment and expenses, net

6 unchanged sentences

Prepaid expenses and other current assets

Income taxes payable

Income taxes payable (receivable)

Accounts payable

2 unchanged sentences

Other accrued expenses and liabilities

Net cash flows provided by (used in) operating activities

Net cash flows provided by operating activities

Cash flows from investing activities:

4 unchanged sentences

Cash flows from financing activities:

Proceeds from borrowings on revolver and swingline loans

Payments on revolver and swingline loan

Minimum tax withholdings related to net share settlements

Repurchases of common stock

2 unchanged sentences

Net cash flows (used in) provided by financing activities

Decrease in cash and cash equivalents

(Decrease) increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Thirteen Weeks Ended

March 29, 2023

March 30, 2022

Twenty-Six Weeks Ended

June 28, 2023

June 29, 2022

Supplemental cash flow information

11 unchanged sentences

(“EPL”), which develops, franchises, licenses, and operates quick-service restaurants under the name El Pollo Loco® and operates under one operating segment.

At March 29, 2023, the Company operated 187 and franchised 303 El Pollo Loco restaurants.

At June 28, 2023, the Company operated 188 and franchised 304 El Pollo Loco restaurants.

Basis of Presentation

15 unchanged sentences

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 2022 Revolver (as defined below).

EPL and Intermediate may pay dividends to Intermediate and to Holdings, respectively, subject to the terms of the 2022 Revolver.

Principles of Consolidation

5 unchanged sentences

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.

The Company may face future business disruption and related risks resulting from the uncertainty regarding a potential resurgence of the COVID-19 pandemic or another pandemic, epidemic or infectious disease outbreak, or from broader macroeconomic trends, any of which could have a significant impact on our business.

During the thirteen weeks ended March 29, 2023, the Company incurred $ 0.1 million in COVID-19 related expenses, primarily due to leaves of absence.

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

While the Company continues to experience staffing challenges, higher wages, overtime costs and increased commodity prices, these cost pressures are starting to moderate.

While the Company believes the trend towards more moderate labor related costs and less inflationary pressure continues, the Company cannot determine the ultimate impact of a potential resurgence of the COVID-19 pandemic (and related economic effects) and the current macroeconomic environment will have on the Company’s condensed consolidated financial condition, liquidity, and future results of operations.

During both the thirteen and twenty-six weeks ended June 28, 2023, the Company incurred $ 0.1 million in COVID-19 related expenses.

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.

The Company may face future business disruption and related risks resulting from the uncertainty regarding a potential resurgence of COVID-19 or another pandemic, epidemic or infectious disease outbreak, or from broader macroeconomic trends, any of which could have a significant impact on our business.

While the Company believes the trend towards more moderate labor related costs and less inflationary pressure continues, the Company cannot determine the ultimate impact of a potential resurgence of COVID-19 (and related economic effects) and the current macroeconomic environment will have on the Company’s condensed consolidated financial condition, liquidity, and future results of operations.

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.

2 unchanged sentences

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 March 29, 2023, the Company’s total debt was $ 58.0 million.

At June 28, 2023, the Company’s total debt was $ 60.0 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, available cash of $ 4.8 million at March 29, 2023 and the outstanding borrowing availability under the 2022 Revolver 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.

Subsequent Events

Subsequent to the quarter-end, the Company borrowed $ 2.0 million on its 2022 Revolver and outstanding borrowings as of May 4, 2023 were $ 60.0 million.

Additionally, in an effort to reduce costs and redirect resources and to better support restaurant operations and future sales growth, on April 13, 2023 the Company made the decision to eliminate and restructure certain positions in the organization, which resulted in estimated one-time costs of approximately $ 1.1 million that will be recorded in the second quarter.

Based on current operations, the Company believes that its cash flow from operations, available cash of $ 10.2 million at June 28, 2023 and the outstanding borrowing availability under the 2022 Revolver 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.

Concentration of Risk

1 unchanged sentence

The Company has never experienced any losses related to these balances.

The Company had one supplier to whom amounts due totaled 21.5 % and 41.7 % of the Company’s accounts payable at March 29, 2023 and December 28, 2022, respectively.

Purchases from the Company’s largest supplier totaled 26.5 % of total expenses for the thirteen w eeks ended March 29, 2023 and 29.7 % of total expenses for the thirteen weeks e nded March 30, 2022.

Company-operated and franchised restaurants in the greater Los Angeles area generated, in the aggregate, approximately 70.7 % of total revenue for the thirteen weeks ended March 29, 2023 and 70.8 % for the thirteen weeks ended March 30, 2022, respectively.

The Company had one supplier to whom amounts due totaled 30.9 % and 41.7 % of the Company’s accounts payable at June 28, 2023 and December 28, 2022, respectively.

Purchases from the Company’s largest supplier totaled 27.8 % and 27.3 % of total expenses for the thirteen and twenty-six weeks ended June 28, 2023, respectively, and 27.4 % and 28.5 % of total expenses for the thirteen and twenty-six weeks e nded June 29, 2022, respectively.

Company-operated and franchised restaurants in the greater Los Angeles area generated, in the aggregate, approximately 70.9 % and 70.8 % of total revenue for the thirteen and twenty-six weeks ended June 28, 2023, respectively, and 70.9 % for both the thirteen and twenty-six weeks ended June 29, 2022.

Goodwill and Indefinite Lived Intangible Assets

5 unchanged sentences

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 fair value of the portion of the reporting unit disposed of in a refranchising is determined by reference to the discounted value of the future cash flows expected to be generated by the restaurant and retained by the franchisee, which includes a deduction for the anticipated, future royalties the franchisee will pay the Company associated with the franchise agreement entered into simultaneously with the refranchising transition.

The fair value of the

portion of the reporting unit disposed of in a refranchising is determined by reference to the discounted value of the future cash flows expected to be generated by the restaurant and retained by the franchisee, which includes a deduction for the anticipated, future royalties the franchisee will pay the Company associated with the franchise agreement entered into simultaneously with the refranchising transition.

The fair value of the reporting unit retained is based on the price a willing buyer would pay for the reporting unit and includes the value of franchise agreements.

As such, the fair value of the reporting unit retained can include expected cash flows from future royalties from those restaurants currently being refranchised, future royalties from existing franchise businesses and company restaurant operations.

The Company did not record any decrement to goodwill related to the disposition of restaurants in fiscal 2023 and 2022.

The Company did no t record any decrement to goodwill related to the disposition of restaurants in fiscal 2023 and 2022.

The Company performs an annual impairment test for goodwill during the fourth fiscal quarter of each year, or more frequently if impairment indicators arise.

10 unchanged sentences

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 weeks ended March 29, 2023.

Accordingly, the Company did no t record any impairment to its goodwill or indefinite-lived intangible assets during the thirteen weeks ended March 29, 2023.

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 28, 2023.

Accordingly, the Company did no t record any impairment to its goodwill or indefinite-lived intangible assets during the thirteen and twenty-six weeks ended June 28, 2023.

Fair Value Measurements

8 unchanged sentences

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 weeks ended March 29, 2023, 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, “Property and Equipment” and immediately below under “Impairment of Long-Lived Assets and ROU Assets” (in thousands):

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 28, 2023, 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, “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 28, 2023 Using

Ended June 28, 2023

Impairment Losses

Certain ROU assets, net

The following non-financial instruments were measured at fair value on a nonrecurring basis as of and for the thirteen weeks ended March 30, 2022, 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):

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 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 29, 2022 Using

Ended June 29, 2022

Impairment Losses

Certain property and equipment, net

7 unchanged sentences

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 weeks ended March 29, 2023 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 less than $ 0.1 million for the thirteen weeks ended March 29, 2023, primarily related to the carrying value of the ROU assets of one restaurant in California.

The Company recorded a non-cash impairment charge of $ 0.1 million for the thirteen weeks ended March 30, 2022 primarily related to the long-lived assets of one restaurant 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 (and related economic effects), the Company is monitoring the recoverability of the carrying value of the assets of several restaurants on an ongoing basis.

The Company determined that triggering events occurred for certain restaurants during the twenty-six weeks ended June 28, 2023 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 less than $ 0.1 million for both the thirteen and twenty-six weeks ended June 28, 2023, primarily related to the carrying value of the ROU assets of one restaurant in California.

The Company recorded a non-cash impairment charge 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 .

Given the inherent uncertainty in projecting results for newer restaurants in newer markets, as well as the impact of COVID-19 (and related economic effects) and the current macroeconomic environment, 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.

1 unchanged sentence

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

to closed restaurants are included within closed-store expense.

During the thirteen weeks ended March 29, 2023, the Company recognized less than $ 0.1 million of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM payments for its closed locations.

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

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 to closed restaurants are included within closed-store expense.

During both the thirteen and twenty-six weeks ended June 28, 2023, the Company recognized less than $ 0.1 million of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM payments for its closed locations.

During both the thirteen and twenty-six weeks ended June 29, 2022, the Company recognized $ 0.1 million of closed-store reserve expense primarily related to the amortization of ROU assets, property taxes and CAM payments for its closed locations.

Derivative Financial Instruments

12 unchanged sentences

The Company recognized gains of $ 0.2 million, related to the reimbursement of property and equipment and expenses incurred and $ 0.2 million related to the reimbursement of lost profits.

The gain on recovery of insurance proceeds and reimbursement of lost profits, net of the related costs, is included in the accompanying condensed consolidated statements of income, for fiscal 2023, as a reduction of company restaurant expenses.

The gain on recovery of insurance proceeds and reimbursement of lost profits, net of the related costs, is included in the accompanying condensed consolidated statements of income, for the twenty-six weeks ended June 28, 2023, as a reduction of company restaurant expenses.

The Company received from the insurance company cash of $ 0.4 million, net of the insurance deductible, during fiscal 2023.

12 unchanged sentences

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 March 29, 2023 or at December 28, 2022.

The Company did no t

recognize interest or penalties during the thirteen weeks ended March 29, 2023 and March 30, 2022, respectively, since there were no material unrecognized tax benefits.

The Company had no accrual for interest or penalties at June 28, 2023 or at December 28, 2022.

The Company did no t recognize interest or penalties during the thirteen and twenty-six weeks ended June 28, 2023 and June 29, 2022, 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.

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 weeks ended March 29, 2023, the Company recorded income tax receivable agreement income of $ 0.1 million and for the thirteen weeks ended March 30, 2022, the Company recorded income tax receivable agreement income of $ 0.1 million, 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 % was paid at the end of 2022.

As of December 28, 2022, the Company made all deferred payroll tax payments and did not have any corresponding balances included in other non-current liabilities on the Company’s consolidated balance sheet.

Additionally, the Company assessed its eligibility for the business relief provision under the Coronavirus Aid, Relief and Economic Security Act known as the Employee Retention Credit (“ERC”), a refundable payroll tax credit for 50% of qualified wages paid during 2020.

The American Rescue Plan passed into law on March 11, 2021 extended the ERC through September 30, 2021, and the credit was increased to 70 % of qualified wages paid from January 1, 2021 through September 30, 2021.

During fiscal 2021, the Company recognized the ERC credit in the amount of $ 3.4 million as income as it is probable that it will comply with the ERC eligibility requirements.

The Company has elected an accounting policy to present government assistance as a reduction of the related expense.

The ERC credit was initially recorded as a receivable as part of the accounts and other receivable on the consolidated balance sheet for the year ended December 29, 2021 and as an offset to the corresponding payroll expense which is classified as part of the labor and other operating expenses on the consolidated statements of income for the year ended December 29, 2021.

During fiscal 2022, the Company received $ 3.1 million in ERC and the remaining $ 0.3 million continues to be recorded as a receivable as part of the accounts and other receivable on the condensed consolidated balance sheet for the thirteen weeks ended March 29, 2023.

For the thirteen and twenty-six weeks ended June 28, 2023, the Company recorded income tax receivable agreement expense of $ 0.1 million and income tax receivable agreement income of less than $ 0.1 million , respectively, and 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, 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.

For the quarter ended June 28, 2023, the Company recorded an income tax provision of $ 2.7 million, reflecting an estimated effective tax rate of 27.9 %.

For the quarter ended June 29, 2022, the Company recorded an income tax provision of $ 3.1 million, reflecting an estimated effective tax rate of approximately 30.0 %.

For the year-to-date period ended June 28, 2023, the Company recorded an income tax provision of $ 4.7 million, reflecting an estimated effective tax rate of approximately 28.1 % .

For the year-to-date period ended June 29, 2022, the Company recorded an income tax provision of $ 4.0 million, reflecting an estimated effective tax rate of approximately 30.0 % .

The difference between the 21.0 % statutory rate and the effective tax rate of 28.1 % for the year-to-date period ended June 28, 2023 is primarily a result of state taxes , a non-deductible executive compensation, partially offset by a Work Opportunity Tax Credit benefit .

PROPERTY AND EQUIPMENT

The costs and related accumulated depreciation and amortization of major classes of property and equipment are as follows (in thousands):

March 29, 2023

June 28, 2023

December 28, 2022

3 unchanged sentences

accumulated depreciation and amortization

Depreciation expense was $ 3.6 million for both the thirteen weeks ended March 29, 2023 and March 30, 2022, respectively.

Based on the Company’s review of its long-lived assets for impairment, the Company did no t record any non-cash impairment charges for the thirteen weeks ended March 29, 2023.

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

Depreciation expense was $ 3.7 million and $ 3.6 million for the thirteen weeks ended June 28, 2023 and June 29, 2022, respectively, and $ 7.3 million and $ 7.2 million for the twenty-six weeks ended June 28, 2023 and June 29, 2022, respectively .

Based on the Company’s review of its long-lived assets for impairment, the Company did no t record any non-cash impairment charges for the thirteen and twenty-six weeks ended June 28, 2023.

During the thirteen and twenty-six weeks ended June 29, 2022, the Company recorded non-cash impairment charges of $ 0.2 million and $ 0.3 million , respectively, primarily related to the carrying value of the long-lived assets of 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.

STOCK-BASED COMPENSATION

At March 29, 2023, options to purchase 1,056,119 shares of common stock were outstanding, including 613,376 vested and 442,743 unvested.

At June 28, 2023, options to purchase 1,226,687 shares of common stock were outstanding, including 566,533 vested and 660,154 unvested.

Unvested options vest over time;

however, upon a change in control, the Board of Directors may accelerate vesting.

At March 29, 2023, 179,950 premium options, which are options granted above the stock price at date of grant, remained outstanding.

A summary of stock option activity as of March 29, 2023 and changes during the thirteen weeks ended March 29, 2023 is as follows:

At June 28, 2023, there were no premium options, which are options granted above the stock price at date of grant, that were outstanding.

A summary of stock option activity as of June 28, 2023 and changes during the twenty-six weeks ended June 28, 2023 is as follows:

Weighted-Average

6 unchanged sentences

Forfeited, cancelled or expired

Outstanding - March 29, 2023

Vested and expected to vest at March 29, 2023

Exercisable at March 29, 2023

At March 29, 2023, the Company had total unrecognized compensation expense of $ 1.9 million related to unvested stock options, which it expects to recognize over a weighted-average period of 2.81 years.

A summary of restricted share activity as of March 29, 2023 and changes during the thirteen weeks ended March 29, 2023 is as follows:

Outstanding - June 28, 2023

Vested and expected to vest at June 28, 2023

Exercisable at June 28, 2023

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 28, 2023

June 29, 2022

Expected volatility

Risk-free interest rate

Expected term (years)

Expected dividends

At June 28, 2023, the Company had total unrecognized compensation expense of $ 3.0 million related to unvested stock options, which it expects to recognize over a weighted-average period of 3.33 years.

A summary of restricted share activity as of June 28, 2023 and changes during the twenty-six weeks ended June 28, 2023 is as follows:

Weighted-Average

1 unchanged sentence

Forfeited, cancelled, or expired

Unvested shares at March 29, 2023

At March 29, 2023, the Company had unrecognized compensation expense of $ 4.4 million related to unvested restricted shares, which it expects to recognize over a weighted-average period of 2.46 years.

Total stock-based compensation expense was $ 0.8 million for both the thirteen weeks ended March 29, 2023 and March 30, 2022.

Unvested shares at June 28, 2023

At June 28, 2023, the Company had unrecognized compensation expense of $ 6.2 million related to unvested restricted shares, which it expects to recognize over a weighted-average period of 2.71 years.

Total stock-based compensation expense was $ 0.8 million and $ 1.6 million for the thirteen and twenty-six weeks ended June 28, 2023, respectively, and $ 1.0 million and $ 1.8 million for the thirteen and twenty-six weeks ended June 29, 2022, respectively.

On October 11, 2022, the Company’s Board of Directors approved a share repurchase program (the “2022 Stock Repurchase Plan”) under which the Company is authorized to repurchase up to $ 20.0 million of shares of its common stock.

2 unchanged sentences

The Company’s repurchases will be executed using open market purchases, including pursuant to Rule 10b5-1 trading plans, and/or through privately negotiated transactions.

For the thirteen weeks ended March 29, 2023, the Company repurchased 552,349 shares of common stock under the 2022 Stock Repurchase Plan, using open market purchases, for total consideration of approximately $ 6.2 million.

For the thirteen and twenty-six weeks ended June 28, 2023, the Company repurchased 1,272,287 and 1,824,636 shares of common stock, respectively, under the 2022 Stock Repurchase Plan, using open market purchases, for total consideration of approximately $ 11.9 million and $ 18.1 million, respectively.

The common stock repurchased under 2022 Stock Repurchase Plan were retired upon repurchase.

As of June 28, 2023, $ 1.9 million remained available for repurchases under the 2022 Stock Repurchase Plan of which the entire balance has been completed subsequent to period end.

LONG-TERM DEBT

On July 27, 2022, the Company refinanced and terminated its credit agreement (the “2018 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 provided for a

$ 150.0 million five-year senior secured revolving credit facility (the “2018 Revolver”).

The 2018 Revolver was refinanced 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 $ 150.0 million five-year senior secured revolving credit facility (the “2022 Revolver”).

4 unchanged sentences

The obligations of Holdings, EPL and Intermediate under the 2022 Credit Agreement and related loan documents are secured by a first priority lien on substantially all of their respective assets.

The special dividend announced by the Company’s Board of Directors on October 11, 2022 is permitted under the terms of 2022 Revolver pursuant to both subclause (iii)(d) and (iii)(e) of the following sentence.

The special dividend announced by the Company’s Board of Directors on October 11, 2022 was permitted under the terms of 2022 Revolver pursuant to both subclause (iii)(d) and (iii)(e) of the following sentence.

Under the 2022 Revolver, Holdings is restricted from making 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 2022 Revolver.

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 Bank of America prime rate, or (c) Term SOFR with a term of one-month SOFR plus 1.00 %.

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) Term SOFR (as defined in the 2022 Credit Agreement) with a term of one-month SOFR 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 interest rate range was 5.69 % to 6.30 % for the thirteen weeks ended March 29, 2023 under the 2022 Revolver and 1.35 % to 1.70 % for the thirteen weeks ended March 30, 2022 under the 2018 Revolver.

The interest rate range was 6.22 % to 8.50 % and 5.69 % to 8.50 % for the thirteen and twenty-six weeks ended June 28, 2023, under the 2022 Revolver, respectively, and 1.70 % to 2.87 % and 1.35 % to 2.87 % for the thirteen and twenty-six weeks ended June 29, 2022 under the 2018 Revolver, r espectively.

The 2022 Credit Agreement contains certain financial covenants.

The Company was in compliance with the financial covenants as of March 29, 2023.

At March 29, 2023, $ 9.8 million of letters of credit and $ 58.0 million in borrowings under the 2022 Revolver were outstanding.

The Company had $ 82.2 million in borrowing availability under the 2022 Revolver at March 29, 2023.

The Company was in compliance with the financial covenants as of June 28, 2023.

At June 28, 2023, $ 9.8 million of letters of credit and $ 60.0 million in borrowings under the 2022 Revolver were outstanding.

The Company had $ 80.2 million in borrowing availability under the 2022 Revolver at June 28, 2023.

On July 27, 2022, the Company refinanced and terminated the 2018 Revolver pursuant to the 2022 Credit Agreement.

During the thirteen weeks ended March 29, 2023 the Company paid down $ 8.0 million on the 2022 Revolver.

No amounts were paid on the 2018 Revolver during the thirteen weeks ended March 30, 2022.

During the twenty-six weeks ended June 28, 2023 the Company paid down $ 8.0 million on the 2022 Revolver.

During the thirteen weeks ended June 28, 2023 the Company borrowed $ 2.0 million on the 2022 Revolver.

No amounts were paid on the 2018 Revolver during the twenty-six weeks ended June 29, 2022.

There are no required principal payments prior to maturity for the 2022 Revolver.

2 unchanged sentences

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.

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.”

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.”

In connection with the Company’s entry into the 2022 Credit Agreement, it terminated the interest rate swap on July 28, 2022 which was previously used to hedge interest rate risk.

1 unchanged sentence

In settlement of this swap, the Company received approximately $ 0.6 million and derecognized the corresponding interest rate swap asset.

The remaining amount in AOCI related to the hedging relationship will be reclassified into earnings when the hedged forecasted transaction is reported in earnings.

As of March 29, 2023, the estimated net gains 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 Term SOFR interest rates.

The remaining amount in AOCI related to the hedging relationship was reclassified into earnings when the hedged forecasted transaction was reported in earnings.

As of June 28, 2023, there were no estimated net gains to be included in AOCI related to the Company’s cash flow hedge that would be reclassified into earnings, based on current Term SOFR interest rates.

The following table summarizes the effect of the Company’s cash flow hedge accounting on the condensed consolidated statements of income (in thousands):

March 29, 2023

March 30, 2022

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 28, 2023

June 29, 2022

June 28, 2023

June 29, 2022

Interest expense on hedged portion of debt

1 unchanged sentence

Interest (income) expense on debt and derivatives, net

The following table summarizes the effect of the Company’s cash flow hedge accounting on AOCI for the thirteen weeks ended March 29, 2023 and March 30, 2022 (in thousands):

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 28, 2023 and June 29, 2022 (in thousands):

Thirteen Weeks Ended

Twenty-Six Weeks Ended

(Gain) Loss Reclassified from

Net Gain Recognized in OCI

AOCI into Interest (Income) Expense

March 29, 2023

March 30, 2022

March 29, 2023

March 30, 2022

Net Gain Recognized in OCI

AOCI into Interest (Income) Expense

June 28, 2023

June 29, 2022

June 28, 2023

June 29, 2022

June 28, 2023

June 29, 2022

June 28, 2023

June 29, 2022

Interest rate swap

2 unchanged sentences

Other accrued expenses and current liabilities consist of the following (in thousands):

March 29, 2023

June 28, 2023

December 28, 2022

8 unchanged sentences

Other noncurrent liabilities consist of the following (in thousands):

March 29, 2023

June 28, 2023

December 28, 2022

10 unchanged sentences

These contracts have terms extending through the end of 2024.

At March 29, 2023, the Company’s total estimated commitment to purchase chicken was $ 32.7 million.

At June 28, 2023, the Company’s total estimated commitment to purchase chicken was $ 24.4 million.

Contingent Lease Obligations

1 unchanged sentence

These leases have various terms, the latest of which expires in 2038 .

As of March 29, 2023, the potential amount of undiscounted payments the Company could be required to make in the event of non-payment by the primary lessee was $ 4.1 million.

The present value of these potential payments discounted at the Company’s estimated pre-tax cost of debt at March 29, 2023 was $ 2.8 million.

As of June 28, 2023, the potential amount of undiscounted payments the Company could be required to make in the event of non-payment by the primary lessee was $ 4.0 million.

The present value of these potential payments discounted at the Company’s estimated pre-tax cost of debt at June 28, 2023 was $ 2.7 million.

The Company’s franchisees are primarily liable on the leases.

2 unchanged sentences

Employment Agreements

As of March 29, 2023, the Company had employment agreements with two of the officers of the Company.

As of June 28, 2023, the Company had employment agreements with two 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.

4 unchanged sentences

EARNINGS PER SHARE

Basic earnings per share (“EPS”) is calculated using the weighted-average number of shares of common stock outstanding during the thirteen weeks ended March 29, 2023 and March 30, 2022.

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 28, 2023 and June 29, 2022.

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.

1 unchanged sentence

Thirteen Weeks Ended

March 29, 2023

March 30, 2022

Twenty-Six Weeks Ended

June 28, 2023

June 29, 2022

June 28, 2023

June 29, 2022

Weighted-average shares outstanding—basic

5 unchanged sentences

Thirteen Weeks Ended

March 29, 2023

March 30, 2022

Twenty-Six Weeks Ended

June 28, 2023

June 29, 2022

June 28, 2023

June 29, 2022

Weighted-average shares outstanding—basic

18 unchanged sentences

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 both March 29, 2023 and December 28, 2022, the revenue allocated to loyalty points that have not been redeemed was $ 0.5 million, which is reflected in the Company’s accompanying condensed consolidated balance sheets within other accrued expenses and current liabilities.

As of both June 28, 2023 and December 28, 2022, the revenue allocated to loyalty points that have not been redeemed was $ 0.5 million, 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.

22 unchanged sentences

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 March 29, 2023, there were no performance obligations related to hardware services that were unsatisfied or partially satisfied.

As of June 28, 2023, 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 28, 2023

June 29, 2022

June 28, 2023

June 29, 2022

Core Market (1) :

12 unchanged sentences

The following table presents the Company’s revenues disaggregated by geographic market:

March 29, 2023

March 30, 2022

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 28, 2023

June 29, 2022

June 28, 2023

June 29, 2022

Greater Los Angeles area market

1 unchanged sentence

Contract balances

The following table provides information about the change in the franchise contract liability balances during the thirteen weeks ended March 29, 2023 and March 30, 2022 (in thousands):

The following table provides information about the change in the franchise contract liability balances during the twenty-six weeks ended June 28, 2023 and June 29, 2022 (in thousands):

December 28, 2022

1 unchanged sentence

Additional contract liability

March 29, 2023

June 28, 2023

December 29, 2021

1 unchanged sentence

Additional contract liability

March 30, 2022

June 29, 2022

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.

2 unchanged sentences

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 March 29, 2023 (in thousands):

Franchise revenues:

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 28, 2023

December 28, 2022

Loyalty rewards liability, beginning balance

2 unchanged sentences

Loyalty rewards liability, ending balance

The Company expects all loyalty points revenue related to performance obligations unsatisfied as of March 29, 2023 to be recognized within one year .

The Company expects all loyalty points revenue related to performance obligations unsatisfied as of June 28, 2023 to be recognized within one year .

The gift card liability included in other accrued expenses and current liabilities on the condensed consolidated balance sheets was as follows (in thousands):

June 28, 2023

December 28, 2022

Gift card liability

1 unchanged sentence

Thirteen Weeks Ended

March 29, 2023

March 30, 2022

Twenty-Six Weeks Ended

June 28, 2023

June 29, 2022

June 28, 2023

June 29, 2022

Revenue recognized from gift card liability balance at the beginning of the year

4 unchanged sentences

Additionally, the Company has various contracts with vendors that have been determined to contain an embedded lease in accordance with Topic 842.

As of March 29, 2023, the Company had one lease that it had entered into, but had not yet commenced.

As of June 28, 2023, the Company had one lease that it had entered into, but had not yet commenced.

The Company does not have control of the property until lease commencement.

1 unchanged sentence

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.

however, the Company currently has one facility and 10 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.

5 unchanged sentences

Furthermore, there are no residual value guarantees and no restrictions imposed by the lease.

During the thirteen weeks ended March 29, 2023, the Company reassessed the lease terms on 12 restaurants 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 $ 10.1 million of ROU asset and lease liabilities for the thirteen weeks ended March 29, 2023 were recognized and will be amortized over the new lease term.

During the thirteen weeks ended March 30, 2022, the Company reassessed the lease terms on four restaurants 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 $ 2.5 million of ROU asset and lease liabilities for the thirteen weeks ended March 30, 2022 which were recognized and will be amortized over the new lease term.

The reassessments did not have an impact on the original lease classification.

During the thirteen and twenty-six weeks ended June 28, 2023, the Company reassessed the lease terms on 10 and 22 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 $ 3.5 million and $ 13.6 million of ROU asset and lease liabilities for the thirteen and twenty-six weeks ended June 28, 2023, respectively, were recognized and will be amortized over the new lease term.

During the thirteen and twenty-six weeks ended June 29, 2022, the Company reassessed the lease terms on nine and 13 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 $ 6.0 million and $ 8.5 million of ROU asset and lease liabilities for the thirteen and twenty-six weeks ended June 29, 2022, 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.

4 unchanged sentences

The Company does not have any related party leases.

During the thirteen weeks ended March 29, 2023, the Company recorded a less than $ 0.1 million non-cash impairment charge primarily related to the carrying value of ROU assets of one restaurant in California.

The Company did not record any non-cash impairment charge for the thirteen weeks ended March 30, 2022.

See Note 1, “Basis of Presentation and Summary of Significant Accounting Policies – Impairment of Long-Lived Assets and ROU Assets” for additional information.

During the twenty-six weeks ended June 28, 2023, the Company recorded a less than $ 0.1 million non-cash impairment charge primarily related to the carrying value of ROU assets of one restaurant in California.

The Company did no t record any non-cash impairment charge for the twenty-six weeks ended June 29, 2022.

See Note 1, “Basis of Presentation and

Summary of Significant Accounting Policies – Impairment of Long-Lived Assets and ROU Assets” for additional information.

Leases of equipment primarily consist of restaurant equipment, copiers and vehicles.

11 unchanged sentences

Thirteen Weeks Ended

March 29, 2023

March 30, 2022

June 28, 2023

June 29, 2022

Finance lease cost:

6 unchanged sentences

Total lease cost

Twenty-Six Weeks Ended

June 28, 2023

June 29, 2022

Finance lease cost:

Amortization of right-of-use assets

Interest on lease liabilities

Operating lease cost

Short-term lease cost

Variable lease cost

Sublease income

Total lease cost

The following table presents the Company’s total lease cost on the condensed consolidated statements of income (in thousands):

March 29, 2023

March 30, 2022

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 28, 2023

June 29, 2022

June 28, 2023

June 29, 2022

Lease cost – Occupancy and other operating expenses

4 unchanged sentences

Total lease cost

During the thirteen weeks ended March 29, 2023 and March 30, 2022, the Company had the following cash and non-cash activities associated with its leases (dollars in thousands):

March 29, 2023

March 30, 2022

During the twenty-six weeks ended June 28, 2023 and June 29, 2022, the Company had the following cash and non-cash activities associated with its leases (dollars in thousands):

Twenty-Six Weeks Ended June 28, 2023

Twenty-Six Weeks Ended June 29, 2022

Cash paid for amounts included in the measurement of lease liabilities

12 unchanged sentences

Weighted-average discount rate—operating leases

Information regarding the Company’s minimum future lease obligations as of March 29, 2023 is as follows (in thousands):

Information regarding the Company’s minimum future lease obligations as of June 28, 2023 is as follows (in thousands):

Finance Leases

Operating Leases

18 unchanged sentences

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 March 29, 2023 and March 30, 2022.

The Company received $ 0.1 million of lease income from company-owned locations for each of the thirteen weeks ended June 28, 2023 and June 29, 2022.

The Company received $ 0.1 million and $ 0.2 million of lease income from company-owned locations for the twenty-six weeks ended June 28, 2023 and June 29, 2022, respectively.

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 1. Financial Statements