What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-03 compared with 2022-08-04 · 130 added, 119 removed, 266 unchanged (48% of the section changed)

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We believe the combination of our craveable food, multichannel sales model, dedication to operational excellence, and a distinctive culture driven by our team members gives us a competitive advantage.

As of June 26, 2022, we owned and operated 71 Portillo’s restaurants across nine states, including a restaurant owned by C&O Chicago, L.L.C.

As of September 25, 2022, we owned and operated 71 Portillo’s restaurants across nine states, including a restaurant owned by C&O Chicago, L.L.C.

("C&O") of which Portillo’s owns 50% of the equity.

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Form 10-Q | 22

Financial Highlights for the Quarter Ended June 26, 2022 vs.

Quarter Ended June 27, 2021:

Financial Highlights for the Quarter Ended September 25, 2022 vs.

Quarter Ended September 26, 2021:

• Total revenue increased 9.5% or $13.1 million to $151.1 million;

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• Adjusted EBITDA* decreased $2.6 million to $21.6 million.

Financial Highlights for the Two Quarters Ended June 26, 2022 vs.

Two Quarters Ended June 27, 2021:

Financial Highlights for the Three Quarters Ended September 25, 2022 vs.

Three Quarters Ended September 26, 2021:

• Total revenue increased 10.1% or $40.2 million to $436.2 million;

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We continue to see revenue growth due to our new restaurant openings, as well as same-restaurant sales growth.

Total revenue grew 7.0% during the quarter ended June 26, 2022 and 10.5% for the two quarters ended June 26, 2022.

Same-restaurant sales grew 1.9% during the quarter ended June 26, 2022, compared to 25.0% same-restaurant sales growth during the same quarter in 2021.

Same-restaurant sales grew 4.8% and 12.7% for the two quarters ended June 26, 2022 and June 27, 2021, respectively.

During the quarter and two quarters ended June 26, 2022, we experienced unprecedented commodity inflation, with the largest increases in pork, chicken and beef prices.

While we expect these commodity pressures to continue for the remainder of fiscal 2022 in the range of 13% to 15%, we do not believe they will have a material impact to our long-term growth and profitability.

Additionally, we experienced higher labor expenses during the second quarter and two quarters ended June 26, 2022 compared to the same periods last year primarily due to additional wage investments made in June 2021.

We also made additional wage investments at the beginning of the third quarter of 2022, which combined with the expected commodity inflation, will continue to have an impact to Restaurant-Level Adjusted EBITDA Margin for the remainder of 2022.

Total revenue grew 9.5% during the quarter ended September 25, 2022 and 10.1% for the three quarters ended September 25, 2022.

Same-restaurant sales grew 5.8% during the quarter ended September 25, 2022, compared to 6.8% same-restaurant sales growth during the same quarter in 2021.

Same-restaurant sales grew 5.2% and 10.6% for the three quarters ended September 25, 2022 and September 26, 2021, respectively.

During the quarter and three quarters ended September 25, 2022, we experienced significant commodity inflation, with the most impactful increases in beef and chicken prices.

While we expect these commodity pressures to continue through the fourth quarter of fiscal 2022, we do not believe they will have a material impact to our long-term growth and profitability.

Additionally, we experienced higher labor expenses during the quarter and three quarters ended September 25, 2022, compared to the same periods last year primarily due to additional wage investments made in June 2021 and the beginning of the third quarter of 2022, which combined with the expected commodity inflation, will continue to have an impact to Restaurant-Level Adjusted EBITDA Margin for the remainder of fiscal 2022.

We are partially offsetting these expense increases through menu price increases and operational efficiencies.

During the first and second quarters of 2022, we increased menu prices on certain items by approximately 1.5% and 3.5%, respectively.

As a result of these menu price increases and operational efficiencies, Restaurant-Level Adjusted EBITDA Margin sequentially increased from the first quarter of 2022 to 25.5% in the second quarter of 2022.

We have also increased menu prices on certain items during the fourth quarter of 2022 by approximately 3.0% to continue to combat inflationary cost pressures.

As a result, Restaurant-Level Adjusted EBITDA Margin was 22.6% in the quarter ended September 25, 2022.

Absent significant and prolonged COVID-19 relapses or global economic disruptions and through our continued efforts to elevate guest experiences and implement operational efficiencies, we believe the strength of our brand will deliver consistent, long-term growth.

Development Highlights

Two new restaurants were opened during the two quarters ending June 26, 2022.

The opening of these restaurants brings the total restaurant count to 71 as of June 26, 2022, including a restaurant owned by C&O of which Portillo’s owns 50% of the equity.

Two new restaurants were opened during the three quarters ended September 25, 2022.

The opening of these restaurants brings the total restaurant count to 71 as of September 25, 2022, including a restaurant owned by C&O of which Portillo’s owns 50% of the equity.

Location Opening Date

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Consolidated Results of Operations

The following table summarizes our results of operations for the 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

The following table summarizes our results of operations for the 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

REVENUES, NET $ 151,121 100.0 % $ 138,003 100.0 % $ 436,226 100.0 % $ 396,044 100.0 %

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Net income attributable to equity method investment (409) (0.3) % (292) (0.2) % (807) (0.2) % (651) (0.2) %

Other (loss) income, net 51 — % (362) (0.3) % (105) — % (803) (0.3) %

Other income, net (228) (0.2) % (292) (0.2) % (333) (0.1) % (1,095) (0.3) %

OPERATING INCOME 10,586 7.0 % 17,214 12.5 % 34,839 8.0 % 52,528 13.3 %

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Summary Of Significant Accounting Policies-Revenue Recognition, for more information.

Revenues for the quarter ended June 26, 2022 were $150.6 million compared to $140.7 million for the quarter ended June 27, 2021, an increase of $9.9 million or 7.0%.

The increase in revenues was primarily attributed to the opening of four new restaurants in the second through fourth quarters of 2021 and two new restaurants during the two quarters ended June 26, 2022 combined with an increase in our same-restaurant sales.

The new restaurants positively impacted revenues by approximately $7.4 million in the quarter ended June 26, 2022.

Same-restaurant sales increased 1.9% during the second quarter ended June 26, 2022, which was attributable to an increase in average check of 4.8% and a 2.7% impact from the change in recording third-party delivery pricing, offset by a decline in transactions of 5.6% .

Revenues for the quarter ended September 25, 2022 were $151.1 million compared to $138.0 million for the quarter ended September 26, 2021, an increase of $13.1 million or 9.5%.

The increase in revenues was primarily attributed to the opening of two new restaurants in the fourth quarter of 2021 and two new restaurants during the three quarters ended September 25, 2022, combined with an increase in our same-restaurant sales.

The new restaurants positively impacted revenues by approximately $5.8 million in the quarter ended September 25, 2022.

Same-restaurant sales increased 5.8% during the third quarter ended September 25, 2022, which was attributable to an increase in average check of 6.3% and a 2.8% impact from the change in recording third-party delivery pricing, offset by a 3.3% decline in transactions.

The higher average check was driven by an approximate 8.2% increase in certain menu prices partially offset by lower items sold per transaction.

During the second quarter of 2022, we increased menu prices on certain items resulting in an approximate 3.5% effective overall increase to continue to combat inflationary cost pressures.

For the purpose of calculating same-restaurant sales for June 26, 2022, sales for 61 restaurants were included in the Comparable Restaurant Base (as defined in "Selected Operating Data" below) versus 59 as of the quarter ended June 27, 2021.

Revenues for the two quarters ended June 26, 2022 were $285.1 million compared to $258.0 million for the two quarters ended June 27, 2021, an increase of $27.1 million or 10.5%.

The increase in revenues was primarily attributed to the opening of five new restaurants in 2021 and two new restaurants during the two quarters ended June 26, 2022 combined with an increase in our same-restaurant sales.

The new restaurants positively impacted revenues by approximately $15.2 million in the two quarters ended June 26, 2022.

Same-restaurant sales increased 4.8% during the two quarters ended June 26, 2022, which was attributable to an increase in average check of 6.0% and a 2.8% i mpact from the change in recording third-party delivery pricing, offset by a decline in transactions of 4.0% .

For the purpose of calculating same-restaurant sales for September 25, 2022, sales for 61 restaurants were included in the Comparable Restaurant Base (as defined in "Selected Operating Data" below) versus 60 as of the quarter ended September 26, 2021.

Revenues for the three quarters ended September 25, 2022 were $436.2 million compared to $396.0 million for the three quarters ended September 26, 2021, an increase of $40.2 million or 10.1%.

The increase in revenues was primarily attributed to the opening of five new restaurants in 2021 and two new restaurants during the three quarters ended September 25, 2022 combined with an increase in our same-restaurant sales.

The new restaurants positively impacted revenues by approximately $20.8 million in the three quarters ended September 25, 2022.

Same-restaurant sales increased 5.2% during the three quarters ended September 25, 2022, which was attributable to an increase in average check of 6.1% and a 2.8% i mpact from the change in recording third-party delivery pricing, offset by a 3.7% decline in transactions.

The higher average check was primarily driven by an approximate 7.4% increase in menu prices partially offset by lower items sold per transaction.

We increased menu prices approximately 1.5% in the first quarter of 2022 and approximately 3.5% during the second quarter of 2022 to continue to combat inflationary cost pressures.

We increased menu prices approximately 1.5% in the first quarter of 2022, and approximately 3.5% during the second quarter of 2022 .

We increased menu prices on certain items during the fourth quarter of 2022 by approximately 3.0% to continue to combat inflationary cost pressures.

Cost of Goods Sold, Excluding Depreciation and Amortization

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Operating income has not been, and is not anticipated in the future to be, impacted by such change.

Cost of goods sold, excluding depreciation and amortization for the quarter ended June 26, 2022 was $51.8 million compared to $42.2 million for the quarter ended June 27, 2021, an increase of $9.6 million or 22.8%.

This increase was primarily driven by a 15.2% increase in all commodity prices, with the largest increases in pork, chicken, and beef prices;

Cost of goods sold, excluding depreciation and amortization for the quarter ended September 25, 2022 was $53.4 million compared to $44.3 million for the quarter ended September 26, 2021, an increase of $9.1 million or 20.5%.

This increase was primarily driven by a 15.4% increase in commodity prices, with the largest impacts in beef and chicken prices;

the impact of how the Company records third-party delivery menu prices;

and the opening of four new restaurants in the second through fourth quarters of 2021 and two new restaurants during the two quarters ended June 26, 2022.

As a percentage of revenues net, cost of goods sold, excluding depreciation and amortization increased 4.4% during the quarter ended June 26, 2022.

The increase was primarily due to an increase in all commodity prices and the impact of how the Company records third-party delivery menu prices, partially offset by an increase in our average check.

and the opening of two new restaurants in the fourth quarter of 2021 and two new restaurants during the three quarters ended September 25, 2022.

As a percentage of revenues net, cost of goods sold, excluding depreciation and amortization increased 3.2% during the quarter ended September 25, 2022.

The increase was primarily due to an increase in commodity prices and the impact of how the Company records third-party delivery menu prices, partially offset by an increase in our average check.

Portillo's Inc.

Form 10-Q | 25

Cost of goods sold, excluding depreciation and amortization for the two quarters ended June 26, 2022 was $98.0 million compared to $77.2 million for the two quarters ended June 27, 2021, an increase of $20.9 million or 27.0%.

This increase was primarily driven by a 15.5% increase in all commodity prices, with the largest increases in pork, chicken, and beef prices;

Cost of goods sold, excluding depreciation and amortization for the three quarters ended September 25, 2022 was $151.4 million compared to $121.5 million for the three quarters ended September 26, 2021, an increase of $29.9 million or 24.7%.

This increase was primarily driven by a 15.4% increase in commodity prices, with the largest impacts in beef, chicken, and pork prices;

the impact of how the Company records third-party delivery menu prices;

and the opening of five new restaurants in 2021 and two new restaurants during the two quarters ended June 26, 2022.

As a percentage of revenues, net, cost of goods sold, excluding depreciation and amortization increased 4.5% during the two quarters ended June 26, 2022.

The increase was primarily due to an increase in all commodity prices and the impact of how the Company records third-party delivery menu prices, partially offset by an increase in our average check.

and the opening of five new restaurants in 2021 and two new restaurants during the three quarters ended September 25, 2022.

As a percentage of revenues, net, cost of goods sold, excluding depreciation and amortization increased 4.0% during the three quarters ended September 25, 2022.

The increase was primarily due to an increase in commodity prices and the impact of how the Company records third-party delivery menu prices, partially offset by an increase in our average check.

Labor Expenses

Labor expenses include hourly and management wages, bonuses and stock compensation, payroll taxes, workers’ compensation expense, and team member benefits.

Labor expenses include hourly and management wages, bonuses and equity-based compensation, payroll taxes, workers’ compensation expense, and team member benefits.

Factors that influence labor costs include wage inflation and payroll tax legislation, health care costs and the staffing needs of our restaurants .

Labor expenses for the quarter ended June 26, 2022 were $37.9 million compared to $34.5 million for the quarter ended June 27, 2021, an increase of $3.4 million or 9.9%.

This increase was primarily driven by incremental investments to support our team members, including rate increases primarily made in June 2021 and equity-based compensation, and the opening of four new restaurants in the second through fourth quarters of 2021 and two new restaurants during the two quarters ended June 26, 2022.

Labor expenses for the quarter ended September 25, 2022 were $39.1 million compared to $36.9 million for the quarter ended September 26, 2021, an increase of $2.2 million or 6.0%.

This increase was primarily driven by incremental investments to support our team members, including rate increases primarily made in July 2022, higher equity-based compensation, and the opening of two new restaurants in the fourth quarter of 2021 and two new restaurants during the three quarters ended September 25, 2022.

These increases were partially offset by operational efficiencies and lower variable-based compensation.

As a percentage of revenues, net, labor increased 0.7% due primarily to the aforementioned incremental rate increases to support our team members, partially offset by an increase in our average check, operational efficiencies and lower variable-based compensation.

Labor expenses for the two quarters ended June 26, 2022 were $75.2 million compared to $65.5 million for the two quarters ended June 27, 2021, an increase of $9.7 million or 14.8%.

This increase was primarily driven by incremental investments to support our team members, including rate increases primarily made in the June 2021 and equity-based compensation, and the opening of five new restaurants in 2021 and two new restaurants during the two quarters ended June 26, 2022.

As a percentage of revenues, net, labor decreased 0.9% due primarily to an increase in our average check, operational efficiencies and lower variable-based compensation, partially offset by the aforementioned incremental rate increases to support our team members.

Labor expenses for the three quarters ended September 25, 2022 were $114.4 million compared to $102.4 million for the three quarters ended September 26, 2021, an increase of $11.9 million or 11.6%.

This increase was primarily driven by incremental investments to support our team members, including rate increases primarily made in June 2021 and July 2022, higher equity-based compensation, and the opening of five new restaurants in 2021 and two new restaurants during the three quarters ended September 25, 2022.

These increases were partially offset by operational efficiencies and lower variable-based compensation.

As a percentage of revenues, net, labor increased 1.0% due primarily to the aforementioned incremental hourly rate increases to support our team members, partially offset by an increase in our average check, lower variable-based compensation, and operational efficiencies.

As a percentage of revenues, net, labor increased 0.3% due primarily to the aforementioned incremental hourly rate increases to support our team members, partially offset by an increase in our average check, operational efficiencies, and lower variable-based compensation.

Occupancy Expenses

Occupancy expenses primarily consist of rent, property insurance, common area expenses and property taxes.

Occupancy expenses for the quarter ended June 26, 2022 were $7.4 million compared to $7.1 million for the quarter ended June 27, 2021, an increase of $0.3 million or 3.8%, primarily driven by the opening of four new restaurants in the second through fourth quarters of 2021 and two new restaurants during the two quarters ended June 26, 2022.

Occupancy expenses for the two quarters ended June 26, 2022 were $15.1 million compared to $13.9 million for the two quarters ended June 27, 2021, an increase of $1.2 million or 9.0%, primarily driven by the opening of five new restaurants in 2021 and two new restaurants during the two quarters ended June 26, 2022.

Occupancy expenses for the quarter ended September 25, 2022 were $7.6 million compared to $7.0 million for the quarter ended September 26, 2021, an increase of $0.6 million or 9.2%, primarily driven by the opening of two new restaurants in the fourth quarter of 2021 and two new restaurants during the three quarters ended September 25, 2022.

Occupancy expenses for the three quarters ended September 25, 2022 were $22.8 million compared to $20.9 million for the three quarters ended September 26, 2021, an increase of $1.9 million or 9.0%, primarily driven by the opening of five new restaurants in 2021 and two new restaurants during the three quarters ended September 25, 2022.

Other Operating Expenses

Other operating expenses consist of direct marketing expenses, utilities and other operating expenses incidental to operating our restaurants, such as credit card fees and repairs and maintenance.

Other operating expenses for the quarter ended June 26, 2022 were $15.2 million compared to $13.9 million for the quarter ended June 27, 2021, an increase of $1.3 million or 9.0%, primarily driven by the opening of four new restaurants in the second through fourth quarters of 2021 and two new restaurants during the two quarters ended June 26, 2022 as well as an increase in repair and maintenance and insurance expenses, offset by a decrease in travel expense.

Other operating expenses for the quarter ended September 25, 2022 were $16.9 million compared to $15.6 million for the quarter ended September 26, 2021, an increase of $1.3 million or 8.5%, primarily driven by the opening of two new restaurants in the fourth quarter of 2021 and two new restaurants during the three quarters ended September 25, 2022, as well as an increase in repair and maintenance expenses and utilities, offset by a decrease in operating supplies.

Portillo's Inc.

Form 10-Q | 26

Other operating expenses for the two quarters ended June 26, 2022 were $30.3 million compared to $28.6 million for the two quarters ended June 27, 2021, an increase of $1.7 million or 6.0%, primarily driven by the opening of five new restaurants in 2021 and two new restaurants during the two quarters ended June 26, 2022 as well as an increase in repair and maintenance and insurance expenses, offset by a reduction in utility and uniform costs.

Other operating expenses for the three quarters ended September 25, 2022 were $47.2 million compared to $44.2 million for the three quarters ended September 26, 2021, an increase of $3.0 million or 6.9%, primarily driven by the opening of five new restaurants in 2021 and two new restaurants during the three quarters ended September 25, 2022, as well as an increase in repair and maintenance expenses and utilities, offset by a decrease in travel and uniform costs.

General and Administrative Expenses

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General and administrative expenses are impacted by changes in our team member count and costs related to strategic and growth initiatives.

General and administrative expenses for the quarter ended June 26, 2022 were $15.4 million compared to $12.2 million for the quarter ended June 27, 2021, an increase of $3.3 million or 26.9%.

This increase was primarily driven by increases in equity-based compensation of $3.4 million, insurance and software licensing fees, partially offset by a decrease in variable-based compensation expense.

General and administrative expenses for the two quarters ended June 26, 2022 were $31.1 million compared to $24.0 million for the two quarters ended June 27, 2021, an increase of $7.1 million or 29.7%.

This increase was primarily driven by an increase in equity-based compensation of $6.7 million.

The remainder of the increase is related to a $0.7 million increase in transaction-related fees and expenses, consisting primarily of certain professional fees and an increase in software licensing fees, partially offset by a decrease in variable-based compensation expense.

General and administrative expenses for the quarter ended September 25, 2022 were $18.1 million compared to $11.8 million for the quarter ended September 26, 2021, an increase of $6.3 million or 53.7%.

This increase was primarily driven by increases in equity-based compensation of $3.2 million, insurance of $0.7 million, transaction-related fees and expenses, consisting primarily of certain professional fees of $0.6 million, and software licensing fees.

General and administrative expenses for the three quarters ended September 25, 2022 were $49.2 million compared to $35.8 million for the three quarters ended September 26, 2021, an increase of $13.4 million or 37.6%.

This increase was primarily driven by an increase in equity-based compensation of $9.9 million, insurance of $2.1 million, transaction-related fees and expenses, consisting primarily of certain professional fees of $1.3 million, and software licensing fees, partially offset by a decrease in variable-based compensation expense.

Pre-Opening Expenses

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Additionally, restaurant openings in new geographic market areas will initially experience higher pre-opening expenses than our established geographic market areas, such as the Chicagoland area, where we have greater economies of scale and incur lower travel and lodging costs for our training team.

Pre-opening expenses for the quarter ended June 26, 2022 were $0.4 million compared to $0.7 million for the quarter ended June 27, 2021, a decrease of $0.2 million or 37.0%.

This decrease was due to the timing and geographic location of restaurant openings in the second quarter of 2022 versus 2021.

Pre-opening expenses for the two quarters ended June 26, 2022 were $1.0 million compared to $2.0 million for the two quarters ended June 27, 2021, a decrease of $1.0 million or 50.1%.

This decrease was due to the timing and geographic location of restaurant openings in the first two quarters of 2022 versus 2021.

Pre-opening expenses for the quarter ended September 25, 2022 were $0.8 million compared to $0.3 million for the quarter ended September 26, 2021, an increase of $0.4 million or 128.0%.

The increase was due to preparation for the planned restaurant openings in the fourth quarter.

Pre-opening expenses for the three quarters ended September 25, 2022 were $1.8 million compared to $2.3 million for the three quarters ended September 26, 2021, a decrease of $0.5 million or 23.3%.

This decrease was due to the timing and geographic location of restaurant openings in the first three quarters of 2022 versus 2021.

Depreciation and Amortization

Depreciation and amortization expenses consist of the depreciation of fixed assets, including leasehold improvements, fixtures and equipment and the amortization of definite-lived intangible assets, which are primarily comprised of recipes.

Depreciation and amortization expense for the quarter ended June 26, 2022 was $5.3 million compared to $6.4 million for the quarter ended June 27, 2021, a decrease of $1.1 million or 17.3%.

This decrease was primarily attributable to an expired non-compete intangible asset, partially offset by incremental depreciation of capital expenditures related to the opening of four new restaurants in quarters two through four of 2021 and two new restaurants during the quarter ended June 26, 2022.

Depreciation and amortization expense for the two quarters ended June 26, 2022 was $10.5 million compared to $12.7 million for the two quarters ended June 27, 2021, a decrease of $2.2 million or 17.3%.

This decrease was primarily attributable to an expired non-compete intangible asset, partially offset by incremental depreciation of capital expenditures related to the opening of five new restaurants in 2021 and two new restaurants during the two quarters ended June 26, 2022.

Depreciation and amortization expense for the quarter ended September 25, 2022 was $5.3 million compared to $5.5 million for the quarter ended September 26, 2021, a decrease of $0.2 million or 4.1%.

This decrease was primarily attributable to an expired non-compete intangible asset, partially offset by incremental depreciation of capital expenditures related to the opening of two new restaurants in the fourth quarter of 2021 and two new restaurants during the three quarters ended September 25, 2022.

Depreciation and amortization expense for the three quarters ended September 25, 2022 was $15.8 million compared to $18.2 million for the three quarters ended September 26, 2021, a decrease of $2.4 million or 13.3%.

This decrease was primarily attributable to an expired non-compete intangible asset, partially offset by incremental depreciation of capital expenditures related to the opening of five new restaurants in 2021 and two new restaurants during the three quarters ended September 25, 2022.

Portillo's Inc.

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We account for the investment and financial results in the consolidated financial statements under the equity method of accounting as we have significant influence but do not have control.

Net income attributable to equity method investment was $0.3 million for each of the quarters ended June 26, 2022 and June 27, 2021.

Net income attributable to equity method investment was $0.4 million for each of the two quarters ended June 26, 2022 and June 27, 2021.

Other Loss (Income), Net

Net income attributable to equity method investment for the quarter ended September 25, 2022 was $0.4 million compared to $0.3 million for the quarter ended September 26, 2021.

This increase was primarily driven by increased revenue, which is attributable to an increase in average check.

Net income attributable to equity method investment for the three quarters ended September 25, 2022 was $0.8 million compared to $0.7 million for the three quarters ended September 26, 2021.

This increase was primarily driven by increased revenue, which is attributable to an increase in average check.

Other Income, Net

Other income, net includes among other items, income resulting from discounts received for timely filing of sales tax returns, management fee income associated with our investment in C&O, trading gains or losses on our deferred compensation plan and gains or losses on asset disposals.

Other loss, net for the quarter ended June 26, 2022 was $0.1 million compared to other income, net of $0.4 million for the quarter ended June 27, 2021 a decrease of $0.4 million or 114.1%.

Other income, net for the quarter ended September 25, 2022 was $0.2 million compared to $0.3 million for the quarter ended September 26, 2021, a decrease of $0.1 million or 21.9%.

This decrease was primarily due to an increase in losses on asset disposals.

Other income, net for the three quarters ended September 25, 2022 was $0.3 million compared to $1.1 million for the three quarters ended September 26, 2021, a decrease of $0.8 million or 69.6%.

This decrease was primarily due to an increase in trading losses in the rabbi trust used to fund our deferred compensation plan.

Other income, net for the two quarters ended June 26, 2022 was $0.1 million compared to $0.8 million for the two quarters ended June 27, 2021 a decrease of $0.7 million or 86.9%.

This decrease was primarily due to a increase in trading losses in the rabbi trust used to fund our deferred compensation plan.

Interest Expense

Interest expense primarily consists of interest and fees on our credit facilities and the amortization expense for debt discount and deferred issuance costs.

Interest expense for the quarter ended June 26, 2022 was $6.1 million compared to $10.7 million for the quarter ended June 27, 2021, a decrease of $4.6 million or 43.1%.

This decrease was primarily driven by the payoff of the Second Term B-3 Loans with the use of IPO proceeds during the year ended December 26, 2021 and decreased borrowings on the First Lien Term B-3 Loans during the quarter ended June 26, 2022.

There were no outstanding borrowings under the Revolving Facility during the quarter ended June 26, 2022 or June 27, 2021.

Interest expense for the two quarters ended June 26, 2022 was $12.2 million compared to $21.4 million for the two quarters ended June 27, 2021, a decrease of $9.2 million or 43.1%.

There were no outstanding borrowings under the Revolving Facility during the two quarters ended June 26, 2022 or June 27, 2021.

Interest expense for the quarter ended September 25, 2022 was $7.1 million compared to $10.7 million for the quarter ended September 26, 2021, a decrease of $3.6 million or 33.6%.

This decrease was partially offset by $0.9 million of additional interest expense on the First Lien Term B-3 Loans due to an increased interest rate.

There were no outstanding borrowings under the Revolving Facility during the quarter ended September 25, 2022 or September 26, 2021.

Interest expense for the three quarters ended September 25, 2022 was $19.3 million compared to $32.1 million for the three quarters ended September 26, 2021, a decrease of $12.8 million or 40.0%.

This decrease was partially offset by $0.8 million of additional interest expense on the First Lien Term B-3 Loans due to an increased interest rate.

There were no outstanding borrowings under the Revolving Facility during the three quarters ended September 25, 2022 or September 26, 2021.

Tax Receivable Agreement Liability Adjustment

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Form 10-Q | 28

The tax receivable agreement liability adjustment was $1.8 million for the quarter and two quarters ended June 26, 2022 related to a remeasurement due to option exercises.

There was no tax receivable agreement adjustment for the quarter and two quarters ended June 27, 2021.

The tax receivable agreement liability adjustment was $0.7 million for the quarter ended September 25, 2022 and $2.5 million for the three quarters ended September 25, 2022 related to a remeasurement primarily due to option exercises.

There was no tax receivable agreement liability adjustment for the quarter or three quarters ended September 26, 2021.

Income Tax Expense

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federal, as well as state and local income taxes with respect to our allocable share of any taxable income or loss of Portillo's OpCo, as well as any stand-alone income or loss generated by Portillo's Inc.

Income tax expense for the quarter ended June 26, 2022 was $2.3 million.

Our effective income tax rate for the quarter ended June 26, 2022 was 17.9% .

There was no income tax expense for the quarter ended June 27, 2021.

Income tax expense for the two quarters ended June 26, 2022 was $2.5 million.

Our effective income tax rate for the two quarters ended June 26, 2022 was 18.1%.

There was no income tax expense for the two quarters ended June 27, 2021.

Income tax expense for the quarter ended September 25, 2022 was $1.0 million .

Our effective income tax rate for the quarter ended September 25, 2022 was 23.9% .

There was no income tax expense for the quarter ended September 26, 2021.

Income tax expense for the three quarters ended September 25, 2022 was $3.5 million .

Our effective income tax rate for the three quarters ended September 25, 2022 was 19.5% .

There was no income tax expense for the three quarters ended September 26, 2021.

Net Income Attributable to Non-controlling Interests

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and the non-controlling interest holders.

Net income attributable to non-controlling interests for the quarter ended June 26, 2022 was $5.6 million.

There was no such income for the quarter ended June 27, 2021.

Net income attributable to non-controlling interests for the two quarters ended June 26, 2022 was $6.0 million.

There was no such income for the two quarters ended June 27, 2021.

Net income attributable to non-controlling interests for the quarter ended September 25, 2022 was $1.6 million.

There was no such income for the quarter ended September 26, 2021.

Net income attributable to non-controlling interests for the three quarters ended September 25, 2022 was $7.6 million.

There was no such income for the three quarters ended September 26, 2021.

Portillo's Inc.

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The Company includes these measures because management believes that they are important to day-to-day operations and overall strategy and are useful to investors in that they provide for greater transparency with respect to supplemental information used by management in its financial and operational decision-making.

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

Total Restaurants (a) 71 67 71 67

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Summary Of Significant Accounting Policies in the notes to the unaudited condensed consolidated financial statements.

AUVs for the quarters ended June 26, 2022 and June 27, 2021 represent AUVs for the twelve months ended June 26, 2022 and June 27, 2021, respectively.

AUVs for the quarters ended September 25, 2022 and September 26, 2021 represent AUVs for the twelve months ended September 25, 2022 and September 26, 2021, respectively.

(b) Excludes a restaurant that is owned by C&O of which Portillo’s owns 50% of the equity.

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The change in same-restaurant sales is the percentage change in year-over-year revenue (excluding gift card breakage) for the comparable restaurant base, which is defined as the number of restaurants open for at least 24 full fiscal periods (the “Comparable Restaurant Base”).

For the two quarters ended June 26, 2022 and June 27, 2021, there were 61 and 59 restaurants i n our Comparable Restaurant Base, respectively.

For the three quarters ended September 25, 2022 and September 26, 2021, there were 61 and 60 restaurants i n our Comparable Restaurant Base, respectively.

The Comparable Restaurant Base excludes a restaurant that is owned by C&O, of which Portillo’s owns 50% of the equity, as described in Note 2.

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The following table reconciles net income to Adjusted EBITDA and Adjusted EBITDA margin (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

Net income $ 3,198 $ 6,531 $ 14,504 $ 20,404

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Consulting fees (2) — 168 — 1,168

Other loss (income) (3) 93 141 125 132

Other loss (3) 114 25 239 157

Transaction-related fees & expenses (4) 880 329 1,637 380

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(4) Represents the exclusion of certain expenses that management believes are not indicative of ongoing operations, consisting primarily of certain professional fees.

(5) Represents remeasurement of the Tax Receivable Agreement.

(5) Represents remeasurement of the Tax Receivable Agreement liability.

Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin

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The following table reconciles operating income to Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin (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

Operating income $ 10,586 $ 17,214 $ 34,839 $ 52,528

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Our primary sources of liquidity are cash from operations, cash and cash equivalents on hand, and availability under our Revolving Facility.

As of June 26, 2022, we maintained a cash and cash equivalents and restricted cash balance of $49.7 million and had $45.0 million of availability under our Revolver, after giving effect to $5.0 million in outstanding letters of credit..

As of September 25, 2022, we maintained a cash and cash equivalents and restricted cash balance of $46.7 million and had $45.0 million of availability under our Revolver, after giving effect to $5.0 million in outstanding letters of credit.

Our primary requirements for liquidity are to fund our working capital needs, operating lease obligations, capital expenditures, and general restaurant support center needs.

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Liquidity Upon IPO

Initial Public Offering

On October 25, 2021, Portillo's Inc.

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• to purchase LLC Units or shares of Class A common stock from certain pre-IPO LLC members of $57.0 million.

Portillo's Inc.

Form 10-Q | 32

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.

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

The Company did not receive any proceeds from the sale of shares of Class A common stock, but rather used the net proceeds to purchase shares and LLC Units, as applicable, from the pre-IPO LLC Members.

Tax Receivable Agreement

In connection with the IPO, we entered into a Tax Receivable Agreement ("TRA") with certain of our pre-IPO LLC Members, pursuant to which we will generally be required to pay 85% of the amount of cash savings, if any, in U.S.

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tax purposes that held LLC Units prior to the Transactions ("Blocker Companies") (including net operating losses and the Blocker Companies' allocable share of existing tax basis), (iii) increases in our allocable share of then existing tax basis in depreciable or amortizable assets, and adjustments to the tax basis of the tangible and intangible assets, of Portillo’s OpCo and its subsidiaries, as a result of (x) sales or exchanges of interests in Portillo’s OpCo (including the repayment of the redeemable preferred units) in connection with the IPO and (y) future redemptions or exchanges of LLC Units by pre-IPO LLC Members for Class A common stock and (iv) certain other tax benefits related to entering into the TRA, including payments made under the TRA.

Portillo's Inc.

Form 10-Q | 32

Based on several assumptions, it was estimated that, as of June 26, 2022, our obligation for future payments under the TRA totaled $154.9 million .

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

Amounts payable under the TRA are contingent upon, among other things, (i) generation of future taxable income over the term of the TRA and (ii) future changes in tax laws.

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The payments that we are required to make will generally reduce the amount of overall cash flow that might have otherwise been available to us, but we expect the cash tax savings we will realize to fund the required payments.

Assuming no material changes in relevant tax law and that we earn sufficient taxable income to realize all tax benefits that are subject to the TRA, we estimate that the tax savings associated with all tax attributes described above would aggregate to approximately $182.2 million as of June 26, 2022 .

Under this scenario, we would be required to pay the TRA Parties approximately 85% of such amount, or $205.3 million , primarily over the next 15 years, substantially declining in year 16 through year 47.

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The following table presents a summary of our cash flows from operating, investing and financing activities:

(in thousands) Two Quarters Ended

June 26, 2022 June 27, 2021

(in thousands) Three Quarters Ended

September 25, 2022 September 26, 2021

Net cash provided by operating activities $ 38,969 $ 39,891

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Operating Activities

Net cash provided by operating activities for the two quarters ended June 26, 2022 was $25.4 million compared to net cash provided by operating activities of $32.8 million for the two quarters ended June 27, 2021, a decrease of $7.5 million or 22.7%.

This decrease was primarily driven by a decrease in the change in operating assets and liabilities of $10.1 million and lower net income of $2.6 million, partially offset by the change in non-cash items of $5.2 million.

The $10.1 million change in our operating asset and liability balances was primarily driven by operating assets and liabilities being a use of net cash of $7.7 million in the two quarters ended June 26, 2022, compared to a source of net cash of $2.5 million in two quarters ended June 27, 2021 driven by the change in accounts payable and accrued expenses and other liabilities in the two quarters ended June 26, 2022.

The $5.2 million change from the two quarters ended June 26, 2022 in non-cash charges is primarily attributable to equity-based compensation, offset by a decrease in depreciation and amortization.

Net cash provided by operating activities for the three quarters ended September 25, 2022 was $39.0 million compared to net cash provided by operating activities of $39.9 million for the three quarters ended September 26, 2021, a decrease of $0.9 million or 2.3%.

This decrease was primarily driven by lower net income of $5.9 million, the change in operating assets and liabilities of $3.8 million and partially offset by the change in non-cash items of $8.8 million.

Portillo's Inc.

Form 10-Q | 33

The $3.8 million change in our operating asset and liability balances was primarily driven by operating assets and liabilities being a use of net cash of $8.3 million in the three quarters ended September 25, 2022, compared to a use of net cash of $4.4 million in three quarters ended September 26, 2021 driven by the change in trade receivables, accounts payable, and accrued expenses and other liabilities in the three quarters ended September 25, 2022.

The $8.8 million change from the three quarters ended September 25, 2022 in non-cash charges is primarily attributable to equity-based compensation, offset by a decrease in depreciation and amortization.

Investing Activities

Net cash used in investing activities was $13.9 million for the two quarters ended June 26, 2022 compared to $18.5 million for the two quarters ended June 27, 2021, a decrease of $4.6 million or 25.0%.

This decrease was primarily due to the timing of restaurant openings in 2022 compared to the timing of restaurant openings in 2021.

Net cash used in investing activities was $30.0 million for the three quarters ended September 25, 2022 compared to $27.8 million for the three quarters ended September 26, 2021, an increase of $2.2 million or 7.9%.

This increase was primarily due to the timing and number of restaurant openings in 2022 compared to the timing and number of restaurant openings in 2021.

Financing Activities

Net cash used in financing activities was $1.0 million for the quarter ending June 26, 2022 compared to net cash used in financing activities of $1.3 million for the quarter ending June 27, 2021, a decrease of $0.3 million or 25.2%.

This decrease is primarily due to proceeds from stock option exercises of $1.5 million offset by $0.8 million payment of IPO issuance costs in the two quarters ended June 26, 2022, which were accrued for as of December 26, 2021.

Net cash used in financing activities was $1.5 million for the three quarters ended September 25, 2022 compared to net cash used in financing activities of $4.0 million for the three quarters ended September 26, 2021, a decrease of $2.5 million or 61.5%.

This decrease is primarily due to a decrease in payment of initial public offering costs of $1.3 million and proceeds from stock option exercises of $1.7 million.

Revolving Facility and Liens

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The Revolving Facility permits the issuance of letters of credit upon our request.

Portillo's Inc.

Form 10-Q | 33

As of June 26, 2022, there were no borrowings outstanding under the Revolving Facility.

We had $45.0 million of availability, as of June 26, 2022, after giving effect to $5.0 million in outstanding letters of credit.

As of September 25, 2022, there were no borrowings outstanding under the Revolving Facility.

We had $45.0 million of availability, as of September 25, 2022, after giving effect to $5.0 million in outstanding letters of credit.

In connection with the IPO, the Company received aggregate net proceeds of approximately $430.0 million after deducting underwriting discounts and commissions and offering expenses.

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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.

Material Cash Requirements

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Summary Of Significant Accounting Policies under Part I, Item 1 of this Form 10-Q for an analysis of recently issued accounting pronouncements.

Portillo's Inc.

Form 10-Q | 34

We qualify as an emerging growth company ("EGC") pursuant to the provisions of the Jumpstart our Business Startups (“JOBS”) Act.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis