What changed in this filing

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Item 1. Financial Statements

2022-11-03 compared with 2022-08-04 · 130 added, 103 removed, 498 unchanged (32% of the section changed)

13 unchanged sentences

Equity-Based Compensation

Earnings (Loss) Per Share

Earnings Per Share

Contingencies

5 unchanged sentences

(In thousands, except share and per share data)

June 26, 2022 December 26, 2021

September 25, 2022 December 26, 2021

CURRENT ASSETS:

10 unchanged sentences

Equity method investment 16,245 16,170

Deferred tax asset 71,949 74,455

Deferred tax assets 115,202 74,455

Other assets 4,247 5,042

17 unchanged sentences

STOCKHOLDERS' EQUITY:

Preferred stock, $ 0.01 par value per share, 10,000,000 shares authorized, — issued and outstanding

Class A common stock, $ 0.01 par value per share, 380,000,000 shares authorized, and 36,218,355 and 35,807,171 shares issued and outstanding at June 26, 2022 and December 26, 2021, respectively.

Class B common stock, $ 0.00001 par value per share, 50,000,000 shares authorized, and 35,673,321 shares issued and outstanding at June 26, 2022 and December 26, 2021, respectively.

Preferred stock, $ 0.01 par value per share, 10,000,000 shares authorized, none issued or outstanding

Class A common stock, $ 0.01 par value per share, 380,000,000 shares authorized, and 42,225,023 and 35,807,171 shares issued and outstanding at September 25, 2022 and December 26, 2021, respectively.

Class B common stock, $ 0.00001 par value per share, 50,000,000 shares authorized, and 29,730,762 and 35,673,321 shares issued and outstanding at September 25, 2022 and December 26, 2021, respectively.

Additional paid-in-capital 232,031 186,856

11 unchanged sentences

(In thousands, except share and per share data)

Quarter Ended Two Quarters Ended

June 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021

Quarter Ended Three Quarters Ended

September 25, 2022 September 26, 2021 September 25, 2022 September 26, 2021

REVENUES, NET $ 151,121 $ 138,003 $ 436,226 $ 396,044

10 unchanged sentences

Net income attributable to equity method investment ( 409 ) ( 292 ) ( 807 ) ( 651 )

Other loss (income), net 51 ( 362 ) ( 105 ) ( 803 )

Other income, net ( 228 ) ( 292 ) ( 333 ) ( 1,095 )

OPERATING INCOME 10,586 17,214 34,839 52,528

21 unchanged sentences

(In thousands, except share data)

Quarter Ended June 26, 2022 and June 27, 2021

Quarters Ended September 25, 2022 and September 26, 2021

Preferred Units Class A Common Stock Class B Common Stock

Units Amounts Member's Equity Shares Amount Shares Amount Additional Paid-in Capital Accumulated Deficit Non-Controlling Interest Total Stockholders' Equity

Balance at March 28, 2021 100,000 $ 206,086 $ 135,673 — $ — — $ — $ — $ — $ — $ 135,673

Balance at June 27, 2021 100,000 $ 211,663 $ 144,113 — $ — — $ — $ — $ — $ — $ 144,113

Net income — — 6,531 — — — — — — — 6,531

Issuance of common units — — 100 — — — — — — — 100

Repayment of subscription receivable — — 249 — — — — — — — 249

Equity-based compensation — — 170 — — — — — — — 170

Redeemable preferred units accretion — 5,886 ( 5,886 ) — — — — — — — ( 5,886 )

Balance at September 26, 2021 100,000 217,549 145,177 — — — — — — — 145,177

Balance at June 26, 2022 — — — 36,218,355 362 35,673,321 — 192,862 ( 10,645 ) 261,233 443,812

Balance at March 27, 2022 — — — 35,807,171 358 35,673,321 — 188,752 ( 15,756 ) 254,387 427,741

Net income — — — — — — — — 1,592 1,606 3,198

1 unchanged sentence

Exercise of stock options — — — 64,109 — — — 271 — — 271

Redemption of LLC Interests in connection with the secondary offering — — — 5,942,559 59 ( 5,942,559 ) — ( 59 ) — — —

Non-controlling interest adjustment — — — — — — — 43,811 — ( 43,811 ) —

Balance at June 26, 2022 — $ — $ — 36,218,355 $ 362 35,673,321 $ — $ 192,862 $ ( 10,645 ) $ 261,233 $ 443,812

Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — — — — ( 6,854 ) — — ( 6,854 )

Balance at September 25, 2022 — $ — $ — 42,225,023 $ 421 29,730,762 $ — $ 232,031 $ ( 9,053 ) $ 220,726 $ 444,125

See accompanying notes to unaudited condensed consolidated financial statements.

4 unchanged sentences

(In thousands, except share data)

Two Quarters Ended June 26, 2022 and June 27, 2021

Three Quarters Ended September 25, 2022 and September 26, 2021

Preferred Units Class A Common Stock Class B Common Stock

6 unchanged sentences

Redeemable preferred units accretion — 16,978 ( 16,978 ) — — — — — — — ( 16,978 )

Balance at June 27, 2021 100,000 211,663 144,113 — — — — — — — 144,113

Balance at September 26, 2021 100,000 217,549 145,177 — — — — — — — 145,177

Balance at December 26, 2021 — — — 35,807,171 358 35,673,321 — 186,856 ( 15,950 ) 252,142 423,406

2 unchanged sentences

Exercise of stock options — — — 475,293 4 — — 1,718 — — 1,722

Redemption of LLC Interests in connection with the secondary offering — — — 5,942,559 59 ( 5,942,559 ) — ( 59 ) — — —

Non-controlling interest adjustment — — — — — — — 44,533 — ( 44,533 ) —

Balance at June 26, 2022 — $ — $ — 36,218,355 $ 362 35,673,321 $ — $ 192,862 $ ( 10,645 ) $ 261,233 $ 443,812

Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis — — — — — — — ( 6,854 ) — — ( 6,854 )

Balance at September 25, 2022 — $ — $ — 42,225,023 $ 421 29,730,762 $ — $ 232,031 $ ( 9,053 ) $ 220,726 $ 444,125

See accompanying notes to unaudited condensed consolidated financial statements.

4 unchanged sentences

(In thousands)

Two Quarters Ended

June 26, 2022 June 27, 2021

Three Quarters Ended

September 25, 2022 September 26, 2021

CASH FLOWS FROM OPERATING ACTIVITIES:

27 unchanged sentences

Payments of long-term debt ( 2,493 ) ( 2,493 )

Payment of initial public offering issuance costs ( 771 ) —

Proceeds from equity offering, net of underwriting discounts 183,436 —

Repurchase of outstanding equity / Portillo's OpCo units ( 183,436 ) —

Proceeds from stock option exercise 1,722 —

1 unchanged sentence

Repayment of stock subscription receivable — 499

Payment of initial public offering issuance costs ( 771 ) ( 2,108 )

NET CASH USED IN FINANCING ACTIVITIES ( 1,542 ) ( 4,002 )

8 unchanged sentences

(In thousands)

Two Quarters Ended

June 26, 2022 June 27, 2021

Three Quarters Ended

September 25, 2022 September 26, 2021

SUPPLEMENTAL CASH FLOW INFORMATION

5 unchanged sentences

Deferred offering costs in accounts payable — 2,446

Adjustment of Tax Receivable Agreement Liability 51,112 —

See accompanying notes to unaudited condensed consolidated financial statements.

12 unchanged sentences

The Company operates fast-casual restaurants in Illinois, Indiana, California, Arizona, Florida, Wisconsin, Minnesota, Iowa and Michigan, along with two food production commissaries in Illinois.

As of June 26, 2022 and December 26, 2021, the Company had 70 and 68 restaurants in operation, respectively, excluding a restaurant owned by C&O Chicago, LLC ("C&O") , of which Portillo's owns 50 % of the equity.

The Company also had three non-traditional locations in operation as of June 26, 2022 and December 26, 2021.

These non-traditional locations include a food truck, ghost kitchen (small kitchen with no store-front presence, used to fill online orders), and concessions.

As of September 25, 2022 and December 26, 2021, the Company had 70 and 68 restaurants in operation, respectively, excluding a restaurant owned by C&O Chicago, LLC ("C&O") , of which Portillo's owns 50 % of the equity.

The Company also had two and three non-traditional locations in operation as of September 25, 2022 and December 26, 2021, respectively.

These non-traditional locations include a food truck and a ghost kitchen (small kitchen with no store-front presence, used to fill online orders).

Portillo's additionally has a 50 % interest in a single restaurant owned by C&O, that is referred to in Note 2.

The Company’s principal corporate offices are located in Oak Brook, IL.

The Company’s principal corporate offices are located in Oak Brook, Illinois.

Initial Public Offering

24 unchanged sentences

We will retain the benefit of the remaining 15 % of these tax savings.

Secondary Offering

In the third quarter of 2022, the Company completed a secondary offering of 8,066,458 shares (including 66,458 shares sold to the underwriters pursuant to their overallotment option) of the Company's Class A common stock at an offering price of $ 23.75 per share.

We used all of the net proceeds from the secondary offering to purchase LLC Units from certain pre-IPO LLC Members and to repurchase shares of Class A common stock from the shareholders of the Blocker Companies at a price per LLC Unit or share of Class A common stock, as applicable, equal to the public offering price per share of Class A common stock, less the underwriting discounts and commissions.

All of the shares sold in the offering represented shares owned by pre-IPO LLC Members directly or indirectly through the Blocker Companies.

The shares sold in the offering represented (i) 2,123,899 existing shares of Class A common stock held by the pre-IPO LLC Members and (ii) 5,942,559 newly-issued shares of Class A common stock issued in connection with the redemption of 5,942,559 LLC interests by the pre-IPO LLC Members.

In connection with the redemption, 5,942,559 shares of Class B common stock were surrendered by the pre-IPO LLC Members and canceled and the Company received 5,942,559 newly-issued LLC interests, increasing the Company's total ownership interest in Portillo's OpCo.

As of September 25, 2022, the Company owns 58.7 % of Portillo's OpCo and the pre-IPO LLC Members own the remaining 41.3 % of Portillo's OpCo.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

13 unchanged sentences

The Company has one operating segment and one reportable segment.

We use a 52- or 53-week fiscal year ending on the Sunday prior to December 31.

In a 52-week fiscal year, each quarterly period is comprised of 13 weeks.

The additional week in a 53-week fiscal year is added to the fourth quarter.

Fiscal 2022 and 2021 each consist of 52 weeks.

The fiscal periods presented in this report are the quarter and two quarters ended June 26, 2022 and June 27, 2021, respectively.

Portillo's Inc.

2 unchanged sentences

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company uses a 52- or 53-week fiscal year ending on the Sunday prior to December 31.

In a 52-week fiscal year, each quarterly period is comprised of 13 weeks.

The additional week in a 53-week fiscal year is added to the fourth quarter.

Fiscal 2022 and 2021 each consist of 52 weeks.

The fiscal periods presented in this report are the quarter and three quarters ended September 25, 2022 and September 26, 2021, respectively.

Use of Estimates

21 unchanged sentences

These products are held as inventory at distributors on a short-term consignment basis.

Inventories subject to these consignment arrangements are recorded on the Company’s consolidated balance sheet and totaled $ 0.6 million and $ 0.4 million as of June 26, 2022 and December 26, 2021, respectively.

Equity Method Investments

Inventories subject to these consignment arrangements are recorded on the Company’s consolidated balance sheet and totaled $ 0.8 million and $ 0.4 million as of September 25, 2022 and December 26, 2021, respectively.

Equity Method Investment

The Company has a 50 % interest in C&O.

13 unchanged sentences

We expect the adoption of this standard will have a significant impact on the Company’s consolidated balance sheet as we recognize the operating lease assets and lease liabilities for our operating leases.

We anticipate the adoption will have an immaterial impact on the condensed consolidated statements of operations, stockholders' equity, and cash flows.

The guidance is not expected to have a material impact on the condensed consolidated statements of operations, stockholders' equity, and cash flows.

In March 2020, the FASB issued ASU No.

3 unchanged sentences

The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022.

The Company is currently evaluating the impact of the transition from LIBOR to alternative reference rates but does not expect a significant impact on its consolidated financial statements.

The guidance is not expected to have a material impact on the Company's consolidated financial statements.

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 its consolidated financial statements.

9 unchanged sentences

For these sales, the Company receives payment directly from the customer at the time of sale.

With respect to Marketplace Sales, the Company recognizes revenue, including third-party menu price premiums, excluding delivery fees collected by the delivery partner, when the performance obligation is complete, and control of the food is transferred to the delivery partner.

With respect to Marketplace Sales, the Company recognizes revenue, including third-party menu price premiums, excluding delivery or service fees collected by the delivery partner, when the performance obligation is complete, and control of the food is transferred to the delivery partner.

The Company receives payment subsequent to the transfer of food.

6 unchanged sentences

Gift card breakage is recorded within revenues, net in the condensed consolidated statements of operations.

The Company recognized gift card breakage of $ 0.2 million and $ 0.5 million for the quarter and two quarters ended June 26, 2022, respectively, and $ 0.2 million and $ 0.4 million for the quarter and two quarters ended June 27, 2021 , respectively.

The Company’s revenue related to performance obligations not yet satisfied is revenue from gift cards sold but not yet redeemed.

The gift card liability included in current deferred revenue on the consolidated balance sheets is as follows (in thousands):

The Company recognized gift card breakage of $ 0.1 million and $ 0.6 million for the quarter and three quarters ended September 25, 2022, respectively, and $ 0.1 million and $ 0.6 million for the quarter and three quarters ended September 26, 2021 , respectively.

Portillo's Inc.

2 unchanged sentences

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 26, 2022 December 26, 2021

The Company’s revenue related to performance obligations not yet satisfied is revenue from gift cards sold but not yet redeemed.

The gift card liability included in current deferred revenue on the consolidated balance sheets is as follows (in thousands):

September 25, 2022 December 26, 2021

Gift card liability $ 3,975 $ 6,606

Revenue recognized in the condensed consolidated statement of operations for the redemption of gift cards that were included in their respective liability balances at the beginning of the year is as follows (in thousands):

Quarter Ended Two Quarters Ended

June 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021

Quarter Ended Three Quarters Ended

September 25, 2022 September 26, 2021 September 25, 2022 September 26, 2021

Revenue recognized from gift card liability balance at the beginning of the year $ 534 $ 446 $ 3,215 $ 2,923

Inventories consisted of the following (in thousands):

June 26, 2022 December 26, 2021

September 25, 2022 December 26, 2021

Raw materials $ 3,951 $ 4,181

5 unchanged sentences

Property and equipment, net consisted of the following (in thousands):

June 26, 2022 December 26, 2021

September 25, 2022 December 26, 2021

Land improvements $ 15,920 $ 15,451

6 unchanged sentences

$ 211,741 $ 190,834

Depreciation expense was $ 4.5 million and $ 8.9 million for the quarter and two quarters ended June 26, 2022, respectively, and $ 4.2 million and $ 8.3 million for the quarter and two quarters ended June 27, 2021, respectively, and is included in depreciation and amortization in the condensed consolidated statements of operations.

Depreciation expense was $ 4.5 million and $ 13.4 million for the quarter and three quarters ended September 25, 2022, respectively, and $ 4.3 million and $ 12.6 million for the quarter and three quarters ended September 26, 2021, respectively, and is included in depreciation and amortization in the condensed consolidated statements of operations.

Portillo's Inc.

5 unchanged sentences

Intangibles, net consisted of the following (in thousands):

As of June 26, 2022

As of September 25, 2022

Gross Carrying Amount Accumulated Amortization Net Carrying Amount

13 unchanged sentences

$ 283,033 $ ( 23,276 ) $ 259,757

Amortization expense was $ 0.8 million and $ 1.6 million for the quarter and two quarters ended June 26, 2022, respectively, and $ 2.2 million and $ 4.4 million for the quarter and two quarters ended June 27, 2021, respectively, and is included in depreciation and amortization in the condensed consolidated statements of operations.

Amortization expense was $ 0.8 million and $ 2.4 million for the quarter and three quarters ended September 25, 2022, respectively, and $ 1.2 million and $ 5.6 million for the quarter and three quarters ended September 26, 2021, respectively, and is included in depreciation and amortization in the condensed consolidated statements of operations.

The estimated aggregate amortization expense for the intangibles for the remainder of this year and the succeeding five years and thereafter are $ 0.8 million, $ 3.1 million, $ 3.1 million, $ 3.0 million, $ 2.9 million, $ 2.7 million, and $ 17.9 million, respectively.

16 unchanged sentences

The fair value measurement of these trading securities is considered Level 1 of the fair value hierarchy as they are measured using quoted market prices.

As of June 26, 2022 and December 26, 2021, the fair value of the mutual fund investments and deferred compensation obligations were as follows (in thousands):

June 26, 2022 December 26, 2021

As of September 25, 2022 and December 26, 2021, the fair value of the mutual fund investments and deferred compensation obligations were as follows (in thousands):

September 25, 2022 December 26, 2021

Level 1 Level 1

3 unchanged sentences

Total assets $ 3,857 $ 4,667

As of June 26, 2022 and December 26, 2021, we had no Level 2 or Level 3 assets.

As of September 25, 2022 and December 26, 2021, we had no Level 2 or Level 3 assets.

The mutual fund investments and deferred compensation obligations are included in other assets, accrued expenses, and other long-term liabilities in the consolidated balance sheets.

3 unchanged sentences

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

Assets and liabilities that are measured at fair value on a non-recurring basis include property and equipment, net, equity-method investment, goodwill and indefinite-lived intangible assets.

Assets and liabilities that are measured at fair value on a non-recurring basis include property and equipment, net, equity-method investment, goodwill, trade names and other intangible assets, net.

These assets are measured at fair value whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

There were no impairment charges recognized during the quarter or two quarters ended June 26, 2022 and June 27, 2021.

There were no impairment charges recognized during the quarter or three quarters ended September 25, 2022 and September 26, 2021.

Portillo's Inc.

3 unchanged sentences

Debt consisted of the following (in thousands):

June 26, 2022 December 26, 2021

September 25, 2022 December 26, 2021

First Lien Term B-3 Loans $ 323,259 $ 325,752

7 unchanged sentences

On December 6, 2019, the Borrower entered a third amendment to the First Lien Credit Agreement (the “Third Amendment to First Lien Credit Agreement”) whereby the aggregate principal amount of the term loans as of the effective date of the Third Amendment to First Lien Credit Agreement was $ 332.4 million (the “First Lien Term B-3 Loans”), and the Revolving Facility was increased to $ 50.0 million.

The maturity date with respect to the First Lien Term B-3 Loans was extended to September 6, 2024, and the maturity date with respect to the Revolving Loans date was extended to June 6, 2024.

The maturity date with respect to the First Lien Term B-3 Loans was extended to September 6, 2024, and the maturity date with respect to the Revolving Loans was extended to June 6, 2024.

In connection with the Third Amendment to First Lien Credit Agreement, the interest rates spread for the First Lien Term B-3 Loans increased by 100 basis points to 5.50 % for the adjusted London interbank offered rate ("Eurocurrency Rate") loans.

As of June 26, 2022 and June 27, 2021, the interest rate on the Term Loans was 6.56 % and 6.50 %, respectively.

As of June 26, 2022 and June 27, 2021, the effective interest rate on the Term Loans was 7.38 % and 7.63 %, r espectively.

As of September 25, 2022 and September 26, 2021, the interest rate on the First Lien Term B-3 Loans was 8.02 % and 6.50 %, respectively.

Beginning with December 31, 2019, the Company is required to pay on the last business day of each calendar quarter, March 31, June 30, September 30, and December 31, an aggregate principal amount of $ 0.8 million.

As of June 26, 2022 and December 26, 2021, the Company had no borrowings under the Revolver outstanding, respectively.

As of both June 26, 2022 and June 27, 2021, the interest rate on the Revolver was 3.25 %, subject to change based on a consolidated first lien net leverage ratio as defined in the First Lien Credit Agreement.

As of both June 26, 2022 and June 27, 2021, the commitment fees, pursuant to the First Lien, to maintain the Revolver were 0.250 %.

Also pursuant to the First Lien Credit Agreement, as of both June 26, 2022 and June 27, 2021, letter of credit fronting fees were 0.125 %.

As of both September 25, 2022 and December 26, 2021, the Company had no borrowings under the Revolver outstanding.

As of both September 25, 2022 and September 26, 2021, the interest rate on the Revolver was 3.25 %, subject to change based on a consolidated first lien net leverage ratio as defined in the First Lien Credit Agreement.

As of both September 25, 2022 and September 26, 2021, the commitment fees, pursuant to the First Lien, to maintain the Revolver were 0.250 %.

Also pursuant to the First Lien Credit Agreement, as of both September 25, 2022 and September 26, 2021, letter of credit fronting fees were 0.125 %.

Commitment fees and letter of credit fronting fees are recorded as interest expense in the condensed consolidated statements of operations.

The Company had $ 5.0 million of letters of credit issued against the Revolving Facility as of both June 26, 2022 and December 26, 2021, respectively.

As of June 26, 2022, the Company had $ 45.0 million of availability under the Revolving Facility.

As of September 25, 2022 and September 26, 2021, the effective interest rate was 8.84 % and 7.80 %, r espectively.

The Company had $ 5.0 million of letters of credit issued against the Revolving Facility as of both September 25, 2022 and December 26, 2021.

As of September 25, 2022, the Company had $ 45.0 million of availability under the Revolving Facility.

Holdings, the Borrower and certain of its subsidiaries entered into the Second Lien Credit Agreement (the “Second Lien Credit Agreement”) dated as of August 1, 2014 and as amended on October 25, 2016 and December 6, 2019 with UBS AG, Stamford Branch, as administrative agent and collateral agent, and other lenders from time to time party thereto (the “Second Lien Lenders”).

6 unchanged sentences

The maturity date of the Second Lien Term B-3 Loans was extended to December 6, 2024 (the “Second Lien Maturity Date”).

In addition to the increased principal amount, the interest rates spread for the Second Lien Term B-3 Loans increased by 150 basis points to 9.50 % for Eurocurrency Rate loans.

In addition to the increased principal amount, the interest rate spread for the Second Lien Term B-3 Loans increased by 150 basis points to 9.50 % for Eurocurrency Rate loans.

The Borrower determined interest on the Second Lien at the Eurocurrency Rate, plus 9.50 %.

4 unchanged sentences

In connection with the repayment of the Second Lien Term B-3 Loans as described above, deferred financing costs and original issuance discount of $ 4.2 million were recorded as a loss on debt extinguishment during the year ended December 26, 2021 in the consolidated statement of operations.

The Company amortized $ 0.5 million and $ 0.9 million of deferred financing costs during the quarter and two quarters ended June 26, 2022, respectively, and $ 0.6 million and $ 1.1 million, respectively, during the quarter and two quarters ended June 27, 2021, which is included in interest expense in the condensed consolidated statements of operations.

In addition, the Company also amortized $ 0.1 million and $ 0.3 million in original issue discount related to the long term debt during the quarter and two quarters ended June 26, 2022, respectively, and $ 0.4 million and $ 0.8 million, respectively, in the quarter and two quarters ended June 27, 2021 which is included in interest expense in the condensed consolidated statements of operations.

Total interest costs incurred were $ 6.1 million and $ 12.2 million for the quarter and two quarters ended June 26, 2022, respectively, and $ 10.7 million and $ 21.4 million for the quarter and two quarters ended June 27, 2021, respectively.

As of June 26, 2022 and December 26, 2021, the fair value of long-term debt approximates the carrying value as it is variable rate debt.

The Company amortized $ 0.5 million and $ 1.4 million of deferred financing costs during the quarter and three quarters ended September 25, 2022, respectively, and $ 0.6 million and $ 1.7 million, respectively, during the quarter and three quarters ended September 26, 2021, which is included in interest expense in the condensed consolidated statements of operations.

In addition, the Company also amortized $ 0.2 million and $ 0.5 million in original issue discount related to the long-term debt during the quarter and three quarters ended September 25, 2022, respectively, and $ 0.4 million and $ 1.2 million, respectively, in the quarter and three quarters ended September 26, 2021 which is included in interest expense in the condensed consolidated statements of operations.

Total interest costs incurred were $ 7.1 million and $ 19.3 million for the quarter and three quarters ended September 25, 2022, respectively, and $ 10.7 million and $ 32.1 million for the quarter and three quarters ended September 26, 2021, respectively.

As of September 25, 2022 and December 26, 2021, the fair value of long-term debt approximates the carrying value as it is variable rate debt.

The fair value measurement of this debt is considered Level 2 of the fair value hierarchy as inputs to interest are observable, unadjusted quoted prices in active markets for similar assets or liabilities.

2 unchanged sentences

These covenants are customary for these types of debt agreements.

As of June 26, 2022, the Company was in compliance with all covenants.

As of September 25, 2022, the Company was in compliance with all covenants.

Portillo's Inc.

8 unchanged sentences

As such, future redemptions or direct exchanges of LLC interests in Portillo's OpCo by the pre-IPO LLC members will result in a change in ownership and reduce the amount recorded as non-controlling interest and increase additional paid-in capital.

In the third quarter of 2022, in connection with the secondary offering described in Note 1.

Description Of Business, 5,942,559 LLC interests were redeemed by the pre-IPO LLC Members for newly-issued shares of Class A common stock and we received 5,942,559 newly-issued LLC interests, increasing our total ownership interest in Portillo's OpCo.

The following table summarizes the LLC interest ownership by Portillo's Inc.

and pre-IPO LLC members:

As of June 26, 2022 As of As of December 26, 2021

As of September 25, 2022 As of December 26, 2021

LLC Interests Ownership % LLC Interests Ownership %

3 unchanged sentences

Total 71,955,785 100.0 % 71,480,492 100.0 %

The weighted average ownership percentages for the applicable reporting periods are used to attribute net income (loss) to Portillo's Inc.

The weighted average ownership percentages for the applicable reporting periods are used to attribute net income to Portillo's Inc.

and the pre-IPO LLC Members.

The pre-IPO LLC Members' weighted average ownership percentage for both the quarter and two quarters ended June 26, 2022 was 49.8 %, respectively.

The pre-IPO LLC Members' weighted average ownership percentage for both the quarter and three quarters ended September 25, 2022 was 45.9 % and 48.5 %, respectively.

The following table summarizes the effects of changes in ownership in Portillo's OpCo on the Company’s equity (in thousands):

Quarter Ended Two Quarters Ended

June 26, 2022

Quarter Ended Three Quarters Ended

September 25, 2022

Net income attributable to Portillo's Inc.

$ 1,592 $ 6,897

Transfers to non-controlling interests:

Increase in additional paid-in capital as a result of activity under stock compensation plans 1,447 1,447

Increase in additional paid-in capital as a result of non-controlling interest adjustments 722 722

Transfers from (to) non-controlling interests:

Increase in additional paid-in capital as a result of activity under equity-based compensation plans 271 1,718

Increase in additional paid-in capital as a result of non-controlling interest adjustments, including the secondary offering 43,811 44,533

Redemption of LLC interests in connection with the secondary offering ( 59 ) ( 59 )

Total effect of changes in ownership interest on equity attributable to Portillo's Inc.

8 unchanged sentences

Equity-based compensation expense included in the Company’s consolidated statements of operations is as follows (in thousands):

Quarter Ended Two Quarters Ended

June 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021

Quarter Ended Three Quarters Ended

September 25, 2022 September 26, 2021 September 25, 2022 September 26, 2021

Labor $ 331 $ — $ 1,020 $ —

4 unchanged sentences

Under the ESPP, up to 250,000 shares of the Company's Class A common stock will be made available for purchase by eligible employees, who are entitled to purchase shares of common stock with accumulated payroll deductions.

During the quarter and two quarters ended June 26, 2022, the Company has no t issued any shares under the ESPP.

As a result of the IPO and Transactions described in Note 1.

During the quarter and three quarters ended September 25, 2022, the Company has no t issued any shares under the ESPP.

In connection with the Transactions described in Note 1.

Description Of Business, we became the sole managing member of Portillo's OpCo, and as a result, began consolidating the financial results of Portillo's OpCo.

7 unchanged sentences

Income Tax Expense

The effective income tax rate for the quarter and two quarters ended June 26, 2022 was 17.9 % and 18.1 %.

The Company’s annual effective tax rate was less than the statutory rate of 21% primarily because the Company is not liable for income taxes on the portion of OpCo’s earnings that are attributable to non-controlling interests.

The effective income tax rate for the quarter and three quarters ended September 25, 2022 was 23.9 % and 19.5 %.

The Company’s annual effective tax rate differs from the statutory rate of 21% primarily because the Company is not liable for income taxes on the portion of OpCo’s earnings that are attributable to non-controlling interests and the valuation allowance recorded.

Secondary Offering

In the third quarter of 2022, in connection with the secondary offering previously discussed in Note 1.

Description Of Business, 5,942,559 LLC interests were redeemed by the pre-IPO LLC Members for newly-issued shares of Class A common stock, resulting in an increase in the tax basis of net assets of Portillo's OpCo subject to the provisions of the Tax Receivable Agreement.

The Company recorded a deferred tax asset of $ 44.3 million and an additional TRA liability of $ 51.1 million .

As of September 25, 2022, we estimated that our obligation for future payments under the TRA liability totaled $ 205.3 million .

There were no amounts paid under the TRA for the quarter and three quarters ended September 25, 2022.

EARNINGS PER SHARE

Basic net earnings (loss) per share of Class A Common Stock is computed by dividing net income attributable to Portillo's Inc.

Basic net earnings per share of Class A common stock is computed by dividing net income attributable to Portillo's Inc.

by the weighted-average number of Class A common stock outstanding.

Portillo's Inc.

Form 10-Q | 19

PORTILLO'S INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As described in Note 1.

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stock issued to investors in our IPO.

Diluted earnings per share is computed by dividing net income (loss) attributable to Portillo's Inc.

Diluted earnings per share is computed by dividing net income attributable to Portillo's Inc.

by the weighted-average number of dilutive securities, using the treasury stock method.

Portillo's Inc.

Form 10-Q | 19

PORTILLO'S INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The computations of basic and diluted earnings per share for the quarter and two quarters ended June 26, 2022 and June 27, 2021 are as follows (in thousands):

Quarter Ended Two Quarters Ended

June 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021

The computations of basic and diluted earnings per share for the quarter and three quarters ended September 25, 2022 and September 26, 2021 are as follows (in thousands):

Quarter Ended Three Quarters Ended

September 25, 2022 September 26, 2021 September 25, 2022 September 26, 2021

Net income attributable to common unit holders $ 3,198 $ 645 $ 14,504 $ 3,426

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Diluted net income per share $ 0.04 $ 0.01 $ 0.17 $ 0.07

The following shares were excluded from the calculation of diluted earnings per share because they would be anti-dilutive (in thousands) :

Quarter Ended Two Quarters Ended

June 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021

The following shares were excluded from the calculation of diluted earnings per share because they would be antidilutive (in thousands) :

Quarter Ended Three Quarters Ended

September 25, 2022 September 26, 2021 September 25, 2022 September 26, 2021

Shares subject to performance conditions 1,862 319 1,862 319

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RELATED PARTY TRANSACTIONS

As of both June 26, 2022 and December 26, 2021, the related parties’ receivables consisted of a receivable balance due from C&O of $ 0.4 million, respectively, which is included in accounts receivable in the condensed consolidated balance sheets.

As of both September 25, 2022 and December 26, 2021, the related parties’ receivables balance consisted of $ 0.4 million due from C&O, respectively, which is included in accounts receivable in the condensed consolidated balance sheets.

Noah Glass, a member of the Company's Board, is the founder and CEO of Olo, Inc.

("Olo"), a platform the Company uses in connection with our mobile ordering application and delivery.

The Company incurred the following Olo-related costs for th e quarter and two quarters ended June 26, 2022 and June 27, 2021 (in thousands):

Quarter Ended Two Quarters Ended

June 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021

Cost of goods sold, excluding depreciation and amortization $ 558 $ 102 $ 883 $ 232

Other operating expenses 101 100 215 254

Net Olo-related costs $ 659 $ 202 $ 1,098 $ 486

Portillo's Inc.

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of both June 26, 2022 and December 26, 2021, immaterial amounts were payable to Olo.

The Company incurred the following Olo-related costs for th e quarter and three quarters ended September 25, 2022 and September 26, 2021 (in thousands):

Quarter Ended Three Quarters Ended

September 25, 2022 September 26, 2021 September 25, 2022 September 26, 2021

Cost of goods sold, excluding depreciation and amortization $ 566 $ 176 $ 1,449 $ 409

Other operating expenses 111 122 326 375

Net Olo-related costs $ 677 $ 298 $ 1,775 $ 784

As of September 25, 2022 and December 26, 2021, $ 0.1 million and immaterial amounts, respectively, were payable to Olo.

Tax Receivable Agreement

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actually realizes or in some cases is deemed to realize as a result of certain transactions.

(in thousands) June 26, 2022 December 26, 2021

There were no amounts paid under the TRA for the quarter and three quarters ended September 25, 2022.

(in thousands) September 25, 2022 December 26, 2021

Tax receivable agreement liability $ 205,287 $ 156,638

Secondary Offering

In the third quarter of 2022, in connection with the secondary offering previously discussed in Note 1.

Description Of Business, we purchased LLC Units and shares of Class A common stock using the proceeds of the secondary offering at a price equal to the public offering price less the underwriting discounts and commissions from certain pre-IPO LLC Members, including from funds affiliated with Berkshire Partners LLC, which is our controlling stockholder that beneficially owns approximately 52.5 % of the Company.

Portillo's Inc.

1 unchanged sentence

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