What changed in this filing

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Item 1. Financial Statements

2024-05-03 compared with 2023-11-03 · 183 added, 321 removed, 501 unchanged (50% of the section changed)

3 unchanged sentences

(Amounts in thousands, except share data)

September 27,

Current assets:

6 unchanged sentences

Property and equipment held under finance lease, net

Property and equipment held under operating leases, net ("ROU asset")

Deferred tax assets

Property and equipment held under operating leases, net ("ROU asset")

Liabilities and Stockholders’ Equity

14 unchanged sentences

Deferred taxes

Income tax receivable agreement payable, net of current portion

Other noncurrent liabilities

6 unchanged sentences

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

32,957,470 and 37,008,061 shares issued and outstanding as of September 27, 2023 and December 28, 2022, respectively

31,179,519 and 31,353,223 shares issued and outstanding as of March 27, 2024 and December 27, 2023, respectively

Additional paid-in-capital

Retained earnings (accumulated deficit)

Accumulated other comprehensive income

Retained earnings

Total stockholders’ equity

5 unchanged sentences

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 27, 2023

September 28, 2022

September 27, 2023

September 28, 2022

March 27, 2024

March 29, 2023

Company-operated restaurant revenue

11 unchanged sentences

Depreciation and amortization

Loss (gain) on disposal of assets

Loss on disposal of assets

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

4 unchanged sentences

Interest expense, net

Income tax receivable agreement expense (income)

Income tax receivable agreement income

Income before provision for income taxes

7 unchanged sentences

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 27, 2023

September 28, 2022

September 27, 2023

September 28, 2022

March 27, 2024

March 29, 2023

Other comprehensive (loss) income

Changes in derivative instruments

Unrealized net gains arising during the period from interest rate swap

Reclassifications of gains into net income

Income tax benefit (expense)

Reclassifications of (loss) gains into net income

Income tax benefit

Other comprehensive (loss) income, net of taxes

4 unchanged sentences

(Amounts in thousands, except share data)

Thirteen Weeks Ended September 27, 2023

Thirteen Weeks Ended March 27, 2024

Comprehensive

1 unchanged sentence

(Loss) Income

Balance, June 28, 2023

Balance, December 27, 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

( 2,706,214 )

Repurchase of common stock - excise tax

Forfeiture of common stock related to restricted shares

Balance, September 27, 2023

Thirteen Weeks Ended September 28, 2022

Comprehensive

Stockholders’

(Loss) Income

Balance, June 29, 2022

Stock-based compensation

Issuance of common stock related to restricted shares

Shares repurchased for employee tax withholdings

Other comprehensive income, net of tax

Balance, September 28, 2022

Thirty-Nine Weeks Ended September 27, 2023

Balance, March 27, 2024

Thirteen Weeks Ended March 29, 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

( 4,530,850 )

Repurchase of common stock - excise tax

Forfeiture of common stock related to restricted shares

Other comprehensive loss, net of tax

Balance, September 27, 2023

Thirty-Nine Weeks Ended September 28, 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, September 28, 2022

Other comprehensive (loss) income, net of tax

Balance, March 29, 2023

See notes to condensed consolidated financial statements (unaudited).

2 unchanged sentences

(Amounts in thousands)

Thirty-Nine Weeks Ended

September 27, 2023

September 28, 2022

Thirteen Weeks Ended

March 27, 2024

March 29, 2023

Cash flows from operating activities:

2 unchanged sentences

Stock-based compensation expense

Income tax receivable agreement expense (income)

Income tax receivable agreement income

Fire insurance proceeds for expenses paid and lost profit

(Gain) loss on disposal of assets

Gain on disposition of restaurants

Loss on disposal of assets

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

Impairment of property and equipment

Gain on disposition of restaurants

Amortization of deferred financing costs

3 unchanged sentences

Prepaid expenses and other current assets

Income taxes payable (receivable)

Income taxes payable

Accounts payable

9 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

Proceeds from issuance of common stock upon exercise of stock options, net of expenses

Payment of obligations under finance leases

Deferred financing costs for revolver loan

Repurchases of common stock

Net cash flows used in by financing activities

Decrease in cash and cash equivalents

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Thirty-Nine Weeks Ended

September 27, 2023

September 28, 2022

Thirteen Weeks Ended

March 27, 2024

March 29, 2023

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 September 27, 2023, the Company operated 171 and franchised 321 El Pollo Loco restaurants.

At March 27, 2024, the Company operated 172 and franchised 323 El Pollo Loco restaurants.

Basis of Presentation

22 unchanged sentences

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, contingent liabilities and income tax valuation allowances.

Cash and Cash Equivalents

1 unchanged sentence

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 September 27, 2023, the Company’s total debt was $ 80.0 million.

At March 27, 2024, the Company’s total debt was $ 80.0 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 $ 13.8 million at September 27, 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.

Based on current operations, the Company believes that its cash flow from operations, available cash of $ 9.1 million at March 27, 2024, 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, on November 2, 2023, the Company announced that Laurance Roberts, the Company’s Chief Executive Officer and President, is leaving his position as Chief Executive Officer and President and as a member of the Company’s Board of Directors effective as of the close of business on November 3, 2023.

In connection with Mr.

Roberts’ departure, the Board has appointed Maria Hollandsworth as interim Chief Executive Officer and President of the Company, effective as of November 4, 2023.

Hollandsworth currently serves as Chief Operating Officer of the Company and will continue in that role during her tenure as interim Chief Executive Officer and President.

To help facilitate the transition from Mr.

Roberts to Ms.

Hollandsworth, the Company has retained Mr.

Roberts as a consultant from November 4, 2023 through December 28, 2023 pursuant to a Release and Consulting Agreement dated November 1, 2023 between the Company and Mr.

Further, on October 31, 2023, the Company’s Board of Directors approved a share repurchase program under which the Company is authorized to repurchase up to $ 20.0 million of shares of the Company’s common stock.

The repurchase program will terminate on March 31, 2025, may be modified, suspended or discontinued at any time, and does not obligate the Company to acquire any particular number of shares.

Lastly, the Company paid down $ 9.0 million on its 2022 Revolver and outstanding borrowings as of November 2, 2023 were $ 71.0 million.

Subsequent to the quarter-end, the Company paid down $ 5.0 million on its 2022 Revolver resulting in outstanding borrowings as of May 2, 2024 of $ 75.0 million.

Concentration of Risk

1 unchanged sentence

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

The Company had no supplier for which amounts due totaled more than 10.0% of the Company’s accounts payable at September 27, 2023.

The Company had no supplier for which amounts due totaled more than 10.0% of the Company’s accounts payable at March 27, 2024.

As of December 27, 2023, the Company had one supplier to whom amounts due totaled 15.1 % of the Company’s accounts payable.

Purchases from the Company’s largest supplier totaled 26.6 % and 27.0 % of total expenses for the thirteen and thirty-nine weeks ended September 27, 2023, respectively, and 28.4 % and 28.5 % of total expenses for the thirteen and thirty-nine weeks ended September 28, 2022, respectively.

Company-operated and franchised restaurants in the greater Los Angeles area generated, in the aggregate, approximately 71.6 % and 71.1 % of total revenue for the thirteen and thirty-nine weeks ended September 27, 2023, respectively, and 71.9 % and 71.2 % for the thirteen and thirty-nine weeks ended September 28, 2022, respectively.

Purchases from the Company’s largest supplier totaled 24.7 % of total expenses for the thirteen weeks ended March 27, 2024, and 26.5 % of total expenses for the thirteen weeks ended March 29, 2023, respectively.

Company-operated and franchised restaurants in the greater Los Angeles area generated, in the aggregate, approximately 71.5 % of total revenue for the thirteen weeks ended March 27, 2024, and 70.7 % for the thirteen weeks ended March 29, 2023.

Goodwill and Indefinite Lived Intangible Assets

1 unchanged sentence

Goodwill represents the excess of cost over fair value of net identified assets acquired in business combinations accounted for under the purchase method.

does not amortize its goodwill and indefinite-lived intangible assets.

The Company does not amortize its goodwill and indefinite-lived intangible assets.

Goodwill resulted from the acquisition of certain franchise locations.

5 unchanged sentences

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 no t record any decrement to goodwill related to the disposition of restaurants in fiscal 2022 or the thirty-nine weeks ended September 27, 2023.

The Company did no t record any decrement to goodwill related to the disposition of restaurants in fiscal 2023 or the thirteen weeks ended March 27, 2024.

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, in connection with the sale of 18 units, there were indicators of potential impairment of its goodwill and indefinite-lived intangible assets during the thirteen and thirty-nine weeks ended September 27, 2023.

After completing the impairment analysis, the Company did no t record any impairment to its goodwill or indefinite-lived intangible assets during the thirteen and thirty-nine weeks ended September 27, 2023.

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 27, 2024.

Accordingly, the Company did no t record any impairment to its goodwill or indefinite-lived intangible assets during the thirteen weeks ended March 27, 2024.

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 and thirty-nine weeks ended September 27, 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

Thirty-Nine Weeks

Fair Value Measurements at September 27, 2023 Using

Ended September 27, 2023

Impairment Losses

Certain property and equipment, net

Certain ROU assets, net

The following non-financial instruments were measured at fair value on a nonrecurring basis as of and for the thirteen and thirty-nine weeks ended September 28, 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):

There were no non-financial instruments measured at fair value on a nonrecurring basis as of and for the thirteen weeks ended March 27, 2024.

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 ROU assets for which an impairment loss was recognized during the corresponding periods, as discussed immediately below under “Impairment of Property and Equipment and ROU Assets” (in thousands):

Thirteen Weeks

Thirty-Nine Weeks

Fair Value Measurements at September 28, 2022 Using

Ended September 28, 2022

Impairment Losses

Fair Value Measurements at March 29, 2023 Using

Ended March 29, 2023

Impairment Losses

Certain property and equipment, net

Certain ROU assets, net

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.

Impairment of Property and Equipment and ROU Assets

The Company reviews its property and equipment and ROU assets for impairment on a restaurant-by-restaurant basis whenever events or changes in circumstances indicate that the carrying value of certain property and equipment and ROU assets may not be recoverable.

The Company considers a triggering event related to property and equipment 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 closed or 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.

If the Company concludes that the carrying value of certain property and equipment and ROU assets will not be recovered based on expected undiscounted future cash flows, an impairment loss is recorded to reduce the property and equipment or ROU assets to their estimated fair value.

The fair value is measured on a nonrecurring basis using unobservable (Level 3) inputs.

1 unchanged sentence

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 thirty-nine weeks ended September 27, 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 $ 1.0 million for both the thirteen and thirty-nine weeks ended September 27, 2023, primarily related to the carrying value of the ROU assets of one restaurant in California and the carrying value of the long-lived assets of one restaurant in Nevada.

The Company recorded a non-cash impairment charge of $ 0.1 million and $ 0.4 million for the thirteen and thirty-nine weeks ended September 28, 2022, respectively, primarily related to the carrying value of 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.

The Company determined that triggering events occurred for certain restaurants during the thirteen weeks ended March 27, 2024 that required an impairment review of certain of the Company’s property and equipment and ROU assets.

Based on the results of the analysis, the Company did no t record any non-cash impairment charges for the thirteen weeks ended March 27, 2024.

The Company recorded a non-cash impairment charge 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.

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

Closed-Store Reserves

2 unchanged sentences

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 thirty-nine weeks ended September 27, 2023, the Company recognized $ 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 and thirty-nine weeks ended September 28, 2022, the Company recognized less than $ 0.1 million and $ 0.2 million, respectively, 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

The Company used an interest rate swap, a derivative instrument, to hedge interest rate risk and not for trading purposes.

The derivative contract was entered into with a financial institution.

In connection with the Company’s entry into the 2022 Credit Agreement (as defined below), it terminated the interest rate swap on July 28, 2022.

The Company recorded the derivative instrument on its condensed consolidated balance sheets at fair value.

The derivative instrument qualified as a hedging instrument in a qualifying cash flow hedge relationship, and the gain or loss on the derivative instrument was 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.

During both the thirteen weeks ended March 27, 2024 and 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.

Gain on Recovery of Insurance Proceeds, Lost Profits

In September 2022, one of the Company’s restaurants incurred damage resulting from a fire.

In 2022, the Company disposed of less than $ 0.1 million of assets related to the fire.

The restaurant was reopened for business on October 27, 2022.

During fiscal 2022, one of the Company’s restaurants incurred damage resulting from a fire.

In fiscal 2023, the Company incurred costs directly related to the fire of less than $ 0.1 million.

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 the thirty-nine weeks ended September 27, 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 thirteen weeks ended March 29, 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.

Gain on Disposition of Restaurants

During the thirteen and thirty-nine weeks ended September 27, 2023, the Company completed the sale of 17 and 18 restaurants, respectively, within California, Utah and Texas to existing franchisees.

The Company has determined that these restaurant dispositions represent multiple element arrangements, and as a result, the cash consideration received was allocated to the separate elements based on their relative standalone selling price.

Cash proceeds included upfront consideration for the sale of the restaurants and franchise fees.

The cash consideration per restaurant related to franchise fees is consistent with the amounts stated in the related franchise agreements, which are charged for separate standalone arrangements.

During the thirteen weeks ended March 29, 2023, the Company completed the sale of one restaurant within California to an existing franchisee.

The Company has determined that this restaurant disposition represents multiple element arrangements, and as a result, the cash consideration received was allocated to the separate elements based on its relative standalone selling price.

Cash proceeds included upfront consideration for the sale of the restaurant and franchise fees.

The cash consideration per restaurant related to franchise fees is consistent with the amounts stated in the related franchise agreement, which are charged for separate standalone arrangements.

The Company initially defers and subsequently recognizes the franchise fees over the term of the franchise agreement.

During the thirteen and thirty-nine weeks ended September 27, 2023, these sales resulted in cash proceeds of $ 7.5 million and $ 7.7 million, respectively, and a net gain on sale of restaurant of $ 4.9 million and $ 5.0 million, respectively.

Since the date of their sale, these restaurants are now included in the total number of franchised El Pollo Loco restaurants.

During the thirteen weeks ended March 29, 2023, this sale resulted in cash proceeds of $ 0.2 million and a net gain on sale of restaurant of $ 0.1 million.

Since the date of their sale, this restaurant is now included in the total number of franchised El Pollo Loco restaurants.

The provision for income taxes, income taxes payable and deferred income taxes is determined using the asset and liability method.

11 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 September 27, 2023 or at December 28, 2022.

The Company did no t recognize interest or penalties during the thirteen and thirty-nine weeks ended September 27, 2023 and September 28, 2022, respectively, since there were no material unrecognized tax benefits.

The Company had no accrual for interest or penalties at March 27, 2024 or at December 27, 2023.

The Company did no t recognize interest or penalties during the thirteen weeks ended March 27, 2024 and March 29, 2023, 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 both the thirteen and thirty-nine weeks ended September 27, 2023, the Company recorded income tax receivable agreement expense of $ 0.1 million, and for the thirteen and thirty-nine weeks ended September 28, 2022, the Company recorded income tax receivable agreement income of less than $ 0.1 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 September 27, 2023, the Company recorded an income tax provision of $ 3.0 million, reflecting an estimated effective tax rate of 24.4 %.

For the quarter ended September 28, 2022, the Company recorded an income tax provision of $ 1.8 million, reflecting an estimated effective tax rate of approximately 26.2 %.

For the year-to-date period ended September 27, 2023, the Company recorded an income tax provision of $ 7.7 million, reflecting an estimated effective tax rate of approximately 26.5 % .

For the year-to-date period ended September 28, 2022, the Company recorded an income tax provision of $ 5.7 million, reflecting an estimated effective tax rate of approximately 28.7 % .

The difference between the 21.0 % statutory rate and the effective tax rate of 26.5 % for the year-to-date period ended September 27, 2023 is primarily a result of state taxes , a non-deductible executive compensation, partially offset by a Work Opportunity Tax Credit benefit .

For the thirteen weeks ended March 27, 2024, the Company did not record any income tax receivable agreement income or expense, and for the thirteen weeks ended March 29, 2023, 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.

For the quarter ended March 27, 2024, the Company recorded an income tax provision of $ 2.2 million, reflecting an estimated effective tax rate of 27.1 %.

For the quarter ended March 29, 2023, the Company recorded an income tax provision of $ 2.0 million, reflecting an estimated effective tax rate of approximately 28.4 %.

The difference between the 21.0 % statutory rate and the effective tax rate of 27.1 % for the quarter ended March 27, 2024 is primarily a result of state taxes , a non-deductible executive compensation, partially offset by a Work Opportunity Tax Credit benefit .

Recently Issued Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosure.” The ASU updates reportable segment disclosure requirements, primarily through requiring enhanced disclosures about significant segment expenses and information used to assess segment performance.

These disclosures are required quarterly.

The ASU is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024, with early adoption permitted.

It is required to be adopted retrospectively for all prior periods presented in the financial statements The Company is currently evaluating the impact of adopting this ASU on its disclosures.

In December 2023, the FASB issued ASU No.

2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.” The ASU includes amendments requiring enhanced income tax disclosures, primarily related to

standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction.

The guidance is effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and should be applied prospectively with the option of retrospective application.

The Company is currently evaluating the impact of adopting this ASU on its disclosures.

The Company reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact to the condensed consolidated financial statements.

PROPERTY AND EQUIPMENT

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

September 27, 2023

March 27, 2024

December 27, 2023

3 unchanged sentences

accumulated depreciation and amortization

Depreciation expense was $ 3.9 million and $ 3.5 million for the thirteen weeks ended September 27, 2023 and September 28, 2022, respectively, and $ 11.3 million and $ 10.7 million for the thirty-nine weeks ended September 27, 2023 and September 28, 2022, respectively .

Based on the Company’s review of its long-lived assets for impairment, the Company recorded non-cash impairment charges of $ 1.0 million for both the thirteen and thirty-nine weeks ended September 27, 2023, primarily related to the carrying value of the long-lived assets of one restaurant in Nevada.

During the thirteen and thirty-nine weeks ended September 28, 2022, the Company recorded non-cash impairment charges of $ 0.1 million and $ 0.4 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.

Depreciation expense was $ 3.9 million and $ 3.6 million for the thirteen weeks ended March 27, 2024 and March 29, 2023, respectively.

Based on the Company’s review of its property and equipment assets for impairment, the Company did no t record any non-cash impairment charges for the thirteen weeks ended March 27, 2024 and March 29, 2023, respectively.

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

STOCK-BASED COMPENSATION

At September 27, 2023, options to purchase 1,169,959 shares of common stock were outstanding, including 480,160 vested and 689,799 unvested.

Stock Options

At March 27, 2024, options to purchase 792,165 shares of common stock were outstanding, including 375,412 vested and 416,753 unvested options.

Unvested options vest over time;

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

At September 27, 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 September 27, 2023 and changes during the thirty-nine weeks ended September 27, 2023 is as follows:

At March 27, 2024, 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 at March 27, 2024 and changes during the thirteen weeks ended March 27, 2024 is as follows:

Weighted-Average

6 unchanged sentences

Forfeited, cancelled or expired

Outstanding – September 27, 2023

Vested and expected to vest at September 27, 2023

Exercisable at September 27, 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:

September 27, 2023

September 28, 2022

Expected volatility

Risk-free interest rate

Expected term (years)

Expected dividends

At September 27, 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 3.18 years.

A summary of restricted share activity as of September 27, 2023 and changes during the thirty-nine weeks ended September 27, 2023 is as follows:

Outstanding – March 27, 2024

Vested and expected to vest at March 27, 2024

Exercisable at March 27, 2024

At March 27, 2024, the Company had total unrecognized compensation expense of $ 1.4 million related to unvested stock options, which it expects to recognize over a weighted-average period of 2.70 years.

Restricted Shares

A summary of restricted share activity as of March 27, 2024 and changes during the thirteen weeks ended March 27, 2024 is as follows:

Weighted-Average

1 unchanged sentence

Forfeited, cancelled, or expired

Unvested shares at September 27, 2023

At September 27, 2023, the Company had unrecognized compensation expense of $ 5.4 million related to unvested restricted shares, which it expects to recognize over a weighted-average period of 2.66 years.

Total stock-based compensation expense was $ 0.9 million and $ 2.5 million for the thirteen and thirty-nine weeks ended September 27, 2023, respectively, and $ 1.0 million and $ 2.8 million for the thirteen and thirty-nine weeks ended September 28, 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 was authorized to repurchase up to $ 20.0 million of shares of its common stock through March 28, 2024.

Under the 2022 Stock Repurchase Plan, the Company was permitted to repurchase its common stock from time to time, in amounts and at prices that the Company deemed appropriate, subject to market conditions and other considerations.

Pursuant to the 2022 Stock Repurchase Plan, the Company was authorized to effect repurchases using open market purchases, including pursuant to Rule 10b5-1 trading plans, and/or through privately negotiated transactions.

For the thirteen and thirty-nine weeks ended September 27, 2023, the Company repurchased 206,214 and 2,030,850 shares of common stock, respectively, under the 2022 Stock Repurchase Plan, using open market purchases, for total consideration of approximately $ 1.9 million and $ 20.0 million, respectively.

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

The 2022 Stock Repurchase Plan commenced on January 9, 2023, and was completed on July 12, 2023.

On August 7, 2023, the Company entered into a Stock Repurchase Agreement (the “Repurchase Agreement”) with FS Equity Partners V, L.P.

Unvested shares at March 27, 2024

Unvested shares at March 27, 2024, included 458,189 unvested restricted shares and 41,963 unvested restricted units.

At March 27, 2024, the Company had unrecognized compensation expense of $ 2.7 million related to unvested restricted shares, which it expects to recognize over a weighted-average period of 2.43 years and unrecognized compensation expense of $ 0.2 million related to unvested restricted units, which it expects to recognize over a weighted-average period of 0.62 years.

Total stock-based compensation expense was $ 0.9 million for the thirteen weeks ended March 27, 2024, and $ 0.8 million for the thirteen weeks ended March 29, 2023.

Share Repurchase Program

On November 2, 2023, the Company announced that its Board of Directors approved a share repurchase program (“Share Repurchase Program”) under which the Company is authorized to repurchase up to $ 20,000,000 of shares of the Company’s common stock.

Under the Share Repurchase Program, the Company is permitted to repurchase its common stock from time to time, in amounts and at prices that the Company deemed appropriate, subject to market conditions and other considerations.

Pursuant to the Share Repurchase Program, the Company is authorized to effect repurchases using open market purchases, including pursuant to Rule 10b5-1 trading plans, and/or through privately negotiated transactions.

The repurchase program does not obligate the Company to acquire any particular number of shares.

The repurchase program will terminate on March 31, 2025.

Further, on December 4, 2023, the Company repurchased 1.5 million shares for a total purchase price of $ 12.6 million under the Stock Repurchase Agreement with FS Equity Partners V, L.P.

and FS Affiliates V, L.P.

(together, the “Sellers”), pursuant to which the Company agreed to purchase an aggregate of 2,500,000 shares of the Company’s common stock from the Sellers at a price of $ 10.63 per share, representing the closing price of such shares as listed on Nasdaq on August 7, 2023, for a total purchase price of $ 26.6 million.

The repurchase was completed in August 2023.

Prior to the repurchase, Freeman Spogli & Co.

(“Freeman Spogli”), collectively with the Sellers and certain other funds managed by Freeman Spogli, was the Company’s largest stockholder.

In addition, John Roth, a director of the Company until his resignation on August 16, 2023, is a general partner of Freeman Spogli and its chief executive officer.

Following completion of this repurchase, approximately $ 7.4 million of the Company’s common stock remained available for repurchase under the share repurchase program at December 27, 2023.

For the thirteen weeks ended March 27, 2024, the Company repurchased 136,400 shares of common stock under the Share Repurchase Program, using open market purchases, for total consideration of approximately $ 1.2 million.

Following completion of these repurchases, approximately $ 6.2 million of the Company’s common stock remained available for repurchase under the Share Repurchase Program at March 27, 2024.

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”).

In connection with the refinancing, the 2018 Credit Agreement was terminated.

2 unchanged sentences

The obligations under the 2022 Credit Agreement and related loan documents are guaranteed by Holdings and Intermediate.

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 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 subject to certain customary exceptions.

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.

4 unchanged sentences

Borrowings under the 2022 Revolver may be repaid and reborrowed.

The interest rate range was 6.74 % to 6.93 % and 5.69 % to 8.50 % for the thirteen and thirty-nine weeks ended September 27, 2023, under the 2022 Revolver, respectively, and 2.87 % to 6.00 % and 1.35 % to 6.00 % for the thirteen and thirty-nine weeks ended September 28, 2022, respectively, under the 2022 Revolver and 2018 Revolver .

The 2022 Credit Agreement contains certain financial covenants.

The Company was in compliance with the financial covenants as of September 27, 2023.

At September 27, 2023, the Company had $ 80.0 million in outstanding borrowings under the 2022 Revolver and $ 9.8 million of letters of credit that further reduce the amount available under the line of credit to $ 60.2 million in borrowing availability.

The interest rate range under the 2022 Revolver was 6.92 % to 6.96 % for the thirteen weeks ended March 27, 2024, and 5.69 % to 6.30 % for the thirteen weeks ended March 29, 2023 .

The 2022 Credit Agreement contains certain customary financial covenants, subject to certain exceptions.

The Company was in compliance with the financial covenants as of March 27, 2024.

At March 27, 2024, the Company had $ 80.0 million in outstanding borrowings under the 2022 Revolver and one letter of credit in the amount of $ 9.8 million outstanding, and as a result, the Company had $ 60.2 million in borrowing availability.

Maturities, Borrowings and Paydowns

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

During the thirteen and thirty-nine weeks ended September 27, 2023 the Company borrowed $ 23.0 million and $ 25.0 million, respectively, and paid down $ 3.0 million and $ 11.0 million, respectively, on the 2022 Revolver.

During both the thirteen and thirty-nine weeks ended September 28, 2022 the Company paid down $ 20.0 million on the 2022 Revolver.

No amounts were borrowed on the 2022 Revolver during the thirty-nine weeks ended September 28, 2022.

During the thirteen weeks ended March 27, 2024 and March 29, 2023 the Company paid down $ 4.0 million and $ 8.0 million, respectively, on the 2022 Revolver.

No amounts were borrowed on the 2022 Revolver during both the thirteen weeks ended March 27, 2024 and March 29, 2023.

There are no required principal payments prior to maturity for the 2022 Revolver which matures on July 27, 2027.

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.

2 unchanged sentences

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 September 27, 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.

As of March 27, 2024, 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):

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 27, 2023

September 28, 2022

September 27, 2023

September 28, 2022

March 27, 2024

March 29, 2023

Interest expense on hedged portion of debt

Interest income on interest rate swap

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 and thirty-nine weeks ended September 27, 2023 and September 28, 2022 (in thousands):

Interest income 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 27, 2024 and March 29, 2023 (in thousands):

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Gain Reclassified from

Net Gain Recognized in OCI

AOCI into Interest Income

Net Gain Recognized in OCI

AOCI into Interest Income

September 27, 2023

September 28, 2022

September 27, 2023

September 28, 2022

September 27, 2023

September 28, 2022

September 27, 2023

September 28, 2022

March 27, 2024

March 29, 2023

March 27, 2024

March 29, 2023

Interest rate swap

2 unchanged sentences

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

September 27, 2023

March 27, 2024

December 27, 2023

8 unchanged sentences

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

September 27, 2023

March 27, 2024

December 27, 2023

5 unchanged sentences

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.

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

2 unchanged sentences

These contracts have terms extending through the end of 2024.

At September 27, 2023, the Company’s total estimated commitment to purchase chicken was $ 14.9 million.

At March 27, 2024, the Company’s total estimated commitment to purchase chicken was $ 24.8 million.

Contingent Lease Obligations

1 unchanged sentence

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

As of September 27, 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 $ 3.9 million.

The present value of these potential payments discounted at the Company’s estimated pre-tax cost of debt at September 27, 2023 was $ 2.6 million.

As of March 27, 2024, the potential amount of undiscounted payments the Company could be required to make in the event of non-payment by the primary lessee was $ 3.6 million.

The present value of these potential payments discounted at the Company’s estimated pre-tax cost of debt at March 27, 2024 was $ 2.5 million.

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

2 unchanged sentences

Employment Agreements

As of September 27, 2023, the Company had employment agreements with two of the officers of the Company.

As of March 27, 2024, 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.

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 and thirty-nine weeks ended September 27, 2023 and September 28, 2022.

Basic earnings per share (“EPS”) is calculated using the weighted-average number of shares of common stock outstanding during the thirteen weeks ended March 27, 2024 and March 29, 2023.

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

Thirty-Nine Weeks Ended

September 27, 2023

September 28, 2022

September 27, 2023

September 28, 2022

March 27, 2024

March 29, 2023

Weighted-average shares outstanding—basic

5 unchanged sentences

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 27, 2023

September 28, 2022

September 27, 2023

September 28, 2022

March 27, 2024

March 29, 2023

Weighted-average shares outstanding—basic

2 unchanged sentences

RELATED PARTY TRANSACTIONS

On March 28, 2023, Trimaran Pollo Partners, L.L.C.

(“LLC”) and certain of LLC’s affiliates (collectively, the “Trimaran Group”) distributed substantially all of the shares of the Company’s common stock held by the Trimaran Group to their respective investors, members and limited partners.

The Trimaran Group intends to subsequently liquidate or distribute its remaining assets and wind up.

On August 7, 2023, the Company entered into the “Repurchase Agreement with the Sellers, pursuant to which the Company agreed to purchase an aggregate of 2,500,000 shares of the Company’s common stock from the Sellers at a price of $ 10.63 per share, representing the closing price of such shares as listed on Nasdaq on August 7, 2023, for a total purchase price of $ 26.6 million.

The repurchase was completed in August 2023.

Prior to the repurchase, Freeman Spogli, collectively with the Sellers and certain other funds managed by Freeman Spogli, was the Company’s largest stockholder.

In addition, John Roth, a director of the Company until his resignation on August 16, 2023, is a general partner of Freeman Spogli and its chief executive officer.

REVENUE FROM CONTRACTS WITH CUSTOMERS

5 unchanged sentences

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.

The Company offers a loyalty rewards program, which awards points to a customer for dollars spent.

Customers earn points for each dollar spent and points can be redeemed for multiple redemption options.

3 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 September 27, 2023 and December 28, 2022, the revenue allocated to loyalty points that have not been redeemed was $ 0.6 million and $ 0.5 million, respectively, which is reflected in the Company’s accompanying condensed consolidated balance sheets within other accrued expenses and current liabilities.

As of both March 27, 2024 and December 27, 2023, the revenue allocated to loyalty points that have not been redeemed was $ 0.7 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.

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.

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.

19 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 September 27, 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

Thirty-Nine Weeks Ended

September 27, 2023

September 28, 2022

September 27, 2023

September 28, 2022

Core Market (1) :

Company-operated restaurant revenue

Franchise revenue

Franchise advertising fee revenue

Total core market

Non-Core Market (2) :

Company-operated restaurant revenue

Franchise revenue

Franchise advertising fee revenue

Total non-core market

Total revenue

(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.

As of March 27, 2024, there were no performance obligations related to hardware services that were unsatisfied or partially satisfied.

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

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 27, 2023

September 28, 2022

September 27, 2023

September 28, 2022

March 27, 2024

March 29, 2023

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 thirty-nine weeks ended September 27, 2023 and September 28, 2022 (in thousands):

The following table provides information about the change in the franchise contract liability balances during the thirteen weeks ended March 27, 2024 and March 29, 2023 (in thousands):

December 27, 2023

1 unchanged sentence

Additional contract liability

September 27, 2023

March 27, 2024

December 28, 2022

1 unchanged sentence

Additional contract liability

September 28, 2022

March 29, 2023

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

Initial franchise and license fees, or franchise renewal fees, are received from franchisees upon the execution of, or renewal of, a franchise 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 September 27, 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):

September 27, 2023

March 27, 2024

December 27, 2023

3 unchanged sentences

Loyalty rewards liability, ending balance

The Company expects all loyalty points revenue related to performance obligations unsatisfied as of September 27, 2023 to be recognized within one year .

The Company expects all loyalty points revenue related to performance obligations unsatisfied as of March 27, 2024 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):

September 27, 2023

March 27, 2024

December 27, 2023

2 unchanged sentences

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 27, 2023

September 28, 2022

September 27, 2023

September 28, 2022

March 27, 2024

March 29, 2023

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 September 27, 2023, the Company had one lease that it had entered into, but had not yet commenced.

As of March 27, 2024, the Company had two leases that it had entered into, but had not yet commenced.

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

9 unchanged sentences

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

During the thirteen and thirty-nine weeks ended September 27, 2023, the Company reassessed the lease terms on five and 27 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 $ 1.9 million and $ 15.4 million of ROU asset and lease liabilities for the thirteen and thirty-nine weeks ended September 27, 2023, respectively, were recognized and will be amortized over the new lease term.

During the thirteen and thirty-nine weeks ended September 28, 2022, the Company reassessed the lease terms on five and 18 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 $ 2.0 million and $ 10.5 million of ROU asset and lease liabilities for the thirteen and thirty-nine weeks ended September 28, 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 thirty-nine weeks ended September 28, 2022 which represented $ 0.7 million of the $ 10.5 million total additional ROU asset and lease liabilities for the period.

During the thirteen weeks ended March 27, 2024, the Company reassessed the lease terms on eight 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 $ 5.9 million of ROU asset and lease liabilities for the thirteen weeks ended March 27, 2024, respectively, were recognized and will be amortized over the new lease term.

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.

This reassessment resulted in an additional $ 10.1 million of ROU asset and lease liabilities for the thirteen weeks ended March 29, 2023, which were recognized and will be amortized over the new lease term.

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 thirty-nine weeks ended September 27, 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.

During the thirty-nine weeks ended September 28, 2022, the Company recorded a less than $ 0.1 million non-cash impairment charge related to the carrying value of ROU assets of one restaurant in California.

During the thirteen weeks ended March 27, 2024, the Company did not record any non-cash impairment charges.

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

12 unchanged sentences

Thirteen Weeks Ended

September 27, 2023

September 28, 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

Thirty-Nine Weeks Ended

September 27, 2023

September 28, 2022

March 27, 2024

March 29, 2023

Finance lease cost:

2 unchanged sentences

Operating lease cost:

Fixed rent cost

Short-term lease cost

3 unchanged sentences

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

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 27, 2023

September 28, 2022

September 27, 2023

September 28, 2022

March 27, 2024

March 29, 2023

Lease cost – Occupancy and other operating expenses

4 unchanged sentences

Total lease cost

During the thirty-nine weeks ended September 27, 2023 and September 28, 2022, the Company had the following cash and non-cash activities associated with its leases (dollars in thousands):

Thirty-Nine Weeks Ended September 27, 2023

Thirty-Nine Weeks Ended September 28, 2022

During the thirteen weeks ended March 27, 2024 and March 29, 2023, the Company had the following cash and non-cash activities associated with its leases (dollars in thousands):

March 27, 2024

March 29, 2023

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 September 27, 2023 is as follows (in thousands):

Information regarding the Company’s minimum future lease obligations as of March 27, 2024 is as follows (in thousands):

Finance Leases

19 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 September 27, 2023 and September 28, 2022.

The Company received $ 0.2 million and $ 0.3 million of lease income from company-owned locations for the thirty-nine weeks ended September 27, 2023 and September 28, 2022, respectively.

The Company received $ 0.1 million of lease income from company-owned locations for each of the thirteen weeks ended March 27, 2024 and March 29, 2023.

SHAREHOLDER RIGHTS AGREEMENT

2 unchanged sentences

Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Preferred Stock, par value $ 0.01 per share, of the Company (the “Preferred Shares”) at a price of $ 53.75 per one one-thousandth of a Preferred Share represented by a Right, subject to adjustment.

Under the Rights Agreement, the Rights will generally be exercisable only in the event that a person or group of affiliated or associated persons (such person or group being an “Acquiring Person”), other than certain exempt persons, acquires (or commences a tender offer or exchange offer the consummation of which would result in) beneficial ownership of 12.5 % or more of the outstanding Common Shares.

In such case (with certain limited exceptions), each

holder of a Right (other than the Acquiring Person, whose Rights shall become void) will have the right to receive, upon exercise at the then current exercise price of the Right, Common Shares (or, if the Board so elects, cash, securities, or other property) having a value equal to two times the exercise price of the Right.

The Rights will expire at the close of business on August 7, 2024.

Under the Rights Agreement, the Rights are generally exercisable only in the event that a person or group of affiliated or associated persons (such person or group being an “Acquiring Person”), other than certain exempt persons, acquires (or commences a tender offer or exchange offer the consummation of which would result in) beneficial ownership of 12.5 % or more of the outstanding Common Shares.

In such case (with certain limited exceptions), each holder of a Right (other than the Acquiring Person, whose Rights shall become void) will have the right to receive, upon exercise at the then

current exercise price of the Right, Common Shares (or, if the Company’s Board of Directors so elects, cash, securities, or other property) having a value equal to two times (2x) the exercise price of the Right.

Right to Exchange

At any time after any person or group becomes an Acquiring Person, the Board may exchange the Rights at an exchange ratio of one Common Share per Right (subject to adjustment).

Flip-over Event

If, at any time after a person or group becomes an Acquiring Person, (i) the Company engages in a consolidation or merger and, in connection there with all or part of the Common Shares are or will be changed into or exchanged for stock or other securities of any other person or cash or any other property;

2 unchanged sentences

Immediately upon any redemption of the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price.

Rights of Holders

Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends.

The Rights will expire at the close of business on August 7, 2024.

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