What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2025-02-25 compared with 2024-02-27 · 399 added, 380 removed, 892 unchanged (47% of the section changed)

4 unchanged sentences

Consolidated Statements of Operations

Consolidated Statements of Stockholders' and Members' Equity

Consolidated Statements of Stockholders' Equity

Consolidated Statements of Cash Flows

10 unchanged sentences

Equity-Based Compensation

Earnings (Loss) Per Share

Earnings Per Share

Contingencies

Segment Information

Related Party Transactions

Subsequent Events

Portillo's Inc.

21 unchanged sentences

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Income Taxes – Tax Receivable Agreement—Refer to Note 2 and Note 14 to the financial statements

Income Taxes – Tax Receivable Agreement—Refer to Note 2 and 14 to the financial statements

Critical Audit Matter Description

6 unchanged sentences

Most of this tax basis is amortizable under requisite sections of the Internal Revenue Code.

The amounts payable, as well as the timing of such payments, under the TRA are dependent upon significant future events and assumptions, including among others:

(i) the amount

Portillo's Inc.

Form 10-K | 37

The amounts payable, as well as the timing of such payments, under the TRA are dependent upon significant future events and assumptions, including among others:

(i) the amount and timing of exchanges, (ii) the characterization of the tax basis step-up, (iii) the depreciation and amortization periods that apply to the increase in tax basis (iv), the amount and timing of taxable income the Company generates in the future and (v) the U.S.

and timing of exchanges, (ii) the characterization of the tax basis step-up, (iii) the depreciation and amortization periods that apply to the increase in tax basis, (iv) the amount and timing of taxable income the Company generates in the future and (v) the U.S.

federal, state, and local income tax rates then applicable.

5 unchanged sentences

◦ We evaluated the appropriateness of management’s application of the accounting for the TRA liability, and the reasonableness of the methods, inputs, and assumptions used by management to determine the TRA liability.

◦ We evaluated the impact of partnership exchange transactions on the computation of the TRA liability by performing testing, on a sample basis, of exchanges, tax basis amounts and calculations related to the step-up in basis.

◦ For each tax basis step-up captured by the TRA, we evaluated the characterization of the step-up for appropriateness and consistency with the TRA.

8 unchanged sentences

Form 10-K | 38

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Portillo’s Inc.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Portillo’s Inc.

and subsidiaries (the “Company”) as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2023, of the Company and our report dated February 27, 2024, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Chicago, Illinois

February 27, 2024

PORTILLO'S INC.

Form 10-K | 39

PORTILLO'S INC.

CONSOLIDATED BALANCE SHEETS

4 unchanged sentences

Accounts and tenant improvement receivables

Inventory 8,733 7,387

14,794 14,183

Prepaid expenses 7,066 8,565

16 unchanged sentences

Current portion of Tax Receivable Agreement liability 7,686 4,428

Current deferred revenue 7,180 7,292

Short-term operating lease liability 5,577 4,849

Deferred revenue

Short-term lease liability

Accrued expenses 33,072 32,039

3 unchanged sentences

Tax Receivable Agreement liability 316,893 295,390

Long-term operating lease liability 238,414 200,166

Long-term lease liability

278,540 238,414

Other long-term liabilities 3,559 2,791

7 unchanged sentences

Additional paid-in-capital 357,295 308,212

Retained earnings (accumulated deficit)

Retained earnings

43,129 13,612

29 unchanged sentences

Interest income

( 309 ) ( 212 ) —

Tax Receivable Agreement liability adjustment ( 9,149 ) ( 3,349 ) ( 5,345 )

Loss on debt extinguishment — 3,465 —

INCOME (LOSS) BEFORE INCOME TAXES 28,066 18,980 ( 16,947 )

Income tax expense (benefit) 3,248 1,823 ( 3,531 )

NET INCOME (LOSS) 24,818 17,157 ( 13,416 )

Redeemable preferred units accretion — — ( 21,176 )

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON HOLDERS 24,818 17,157 ( 34,592 )

Net income (loss) attributable to non-controlling interests 6,394 6,306 ( 19,408 )

NET INCOME (LOSS) ATTRIBUTABLE TO PORTILLO'S INC.

INCOME BEFORE INCOME TAXES

41,875 28,066 18,980

Income (loss) per common share attributable to Portillo's Inc.:

Income tax expense

6,799 3,248 1,823

35,076 24,818 17,157

Net income attributable to non-controlling interests

5,559 6,394 6,306

NET INCOME ATTRIBUTABLE TO PORTILLO'S INC.

$ 29,517 $ 18,424 $ 10,851

Income per common share attributable to Portillo's Inc.:

Basic $ 0.48 $ 0.34 $ 0.28

7 unchanged sentences

PORTILLO'S INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' AND MEMBERS' EQUITY

(In thousands, except unit/share data)

FOR THE FISCAL YEARS ENDED DECEMBER 25, 2022 and DECEMBER 26, 2021

Preferred Units Class A

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except share data)

FISCAL YEARS ENDED DECEMBER 31, 2023 and DECEMBER 25, 2022

Common Stock Class B

Units Amount Members' Equity Shares Amount Shares Amount Additional Paid-In Capital Accumulated Deficit Non-controlling interest Total Equity

Shares Amount Shares Amount Additional Paid-In Capital (Accumulated Deficit) Retained Earnings

Non-controlling interest Total Equity

Balance, as of December 26, 2021

35,807,171 $ 358 35,673,321 $ — $ 186,856 $ ( 15,950 ) $ 252,142 $ 423,406

Redeemable preferred units accretion and redemption premium

— — — — — 10,851 6,306 17,157

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

Repayment of subscription receivable — — 499 — — — — — — — 499

Net income prior to the Transactions

— — 21,942 — — — — — — — 21,942

Unit-based compensation prior to the Transactions

— — 492 — — — — — — — 492

Effect of the Transactions

— — ( 142,566 ) 12,496,361 125 35,673,321 — 71,416 — 71,150 125

Issuance of Class A common stock sold in initial public offering, net of underwriting discounts of $ 29.1 million and other offering expenses of $ 7.1 million

Adoption of Accounting Standards Codification 842 - Leases

— — — — — 287 174 461

Allocation of equity to non-controlling interests

Equity-based compensation expense

— — — — 8,820 — 7,317 16,137

Payoff of redeemable preferred units

Activity under equity-based compensation plans

777,393 8 — — ( 606 ) — — ( 598 )

Net loss subsequent to the Transactions

Redemption of LLC Units

11,836,159 118 ( 11,836,159 ) — ( 118 ) — — —

Equity-based compensation subsequent to the Transactions

Non-controlling interest adjustment

— — — — 89,374 — ( 89,374 ) —

Establishment of Tax Receivable Agreement liability and corresponding deferred tax assets

Establishment of liabilities under Tax Receivable Agreement and related changes to deferred tax assets associated with increases in tax basis

— — — ( 23,662 ) — — ( 23,662 )

2 unchanged sentences

— — — — — 18,424 6,394 24,818

Adoption of Accounting Standards Codification 842 - Leases

— — — — — — — — 287 174 461

Equity-based compensation expense

2 unchanged sentences

717,416 7 — — 953 — — 960

Redemption of LLC Units in connection with the secondary offering

Redemption of LLC Interests

6,364,236 64 ( 6,364,236 ) — ( 64 ) — — —

1 unchanged sentence

— — — — 48,849 — ( 48,849 ) —

Distributions paid to non-controlling interests holders

— — — — — — ( 399 ) ( 399 )

Establishment of liabilities under Tax Receivable Agreement and related changes to deferred tax assets associated with increases in tax basis

6 unchanged sentences

PORTILLO'S INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' AND MEMBERS' EQUITY

(In thousands, except unit/share data)

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2023

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except share data)

FISCAL YEAR ENDED DECEMBER 29, 2024

Common Stock Class B

Shares Amount Shares Amount Additional Paid-In Capital Retained Earnings (Accumulated Deficit)

Shares Amount Shares Amount Additional Paid-In Capital Retained Earnings

Non-controlling interest Total Equity

4 unchanged sentences

Activity under equity-based compensation plans 1,432,078 15 — — 3,452 — — 3,467

Redemption of LLC Units in connection with the secondary offering 6,350,717 64 ( 6,350,717 ) — ( 64 ) — — —

Redemption of LLC interests 13,519 — ( 13,519 ) — — — — —

Redemption of LLC Units 6,740,126 67 ( 6,740,126 ) — ( 67 ) — — —

Non-controlling interest adjustment — — — — 55,304 — ( 55,304 ) —

Establishment of liabilities under tax

receivable agreement and related

changes to deferred tax assets

associated with increases in tax basis — — — — ( 13,712 ) — — ( 13,712 )

Distributions paid to non-controlling interest holders — — — — — — ( 838 ) ( 838 )

Establishment of liabilities under Tax Receivable Agreement and related changes to deferred tax assets associated with increases in tax basis — — — — ( 18,863 ) — — ( 18,863 )

Balance, as of December 29, 2024

9 unchanged sentences

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss) $ 24,818 $ 17,157 $ ( 13,416 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

$ 35,076 $ 24,818 $ 17,157

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 27,297 24,313 20,907

2 unchanged sentences

Equity-based compensation 11,151 15,542 16,137

Deferred rent and tenant allowance — — 4,120

Deferred income tax provision (benefit) 3,249 1,820 ( 3,532 )

Deferred income tax expense

6,771 3,249 1,820

Tax Receivable Agreement liability adjustment ( 9,149 ) ( 3,349 ) ( 5,345 )

Amortization of deferred lease incentives — — ( 388 )

Gift card breakage ( 852 ) ( 917 ) ( 798 )

Asset impairment

Loss on debt extinguishment — 3,465 —

2 unchanged sentences

Receivables from related parties ( 46 ) ( 82 ) 96

Inventory ( 1,346 ) ( 1,309 ) ( 1,003 )

818 ( 1,346 ) ( 1,309 )

Other current assets 357 ( 3,643 ) 914

8 unchanged sentences

Purchase of property and equipment ( 88,191 ) ( 87,918 ) ( 47,061 )

Purchase of investment securities — — ( 200 )

Proceeds from the sale of property and equipment 77 81 44

2 unchanged sentences

Proceeds from short-term debt, net

10,000 15,000 —

Proceeds from long-term debt — 300,000 —

9 unchanged sentences

Payment of initial public offering issuance costs — — ( 771 )

Payment of preferred units and preferred units liquidation — — ( 221,747 )

Payment of long-term debt prepayment penalty — — ( 3,100 )

Proceeds from issuance of common units — — 100

Repayment of stock subscription receivable — — 499

NET CASH USED IN FINANCING ACTIVITIES ( 16,933 ) ( 4,708 ) ( 8,783 )

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES

2,512 ( 16,933 ) ( 4,708 )

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

12,438 ( 33,989 ) 5,164

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF THE PERIOD 10,438 44,427 39,263

13 unchanged sentences

Accrued capital expenditures $ 13,466 $ 12,729 $ 9,796

Redeemable preferred units accretion — — ( 21,176 )

Deferred offering costs in accounts payable — — 771

Establishment of liabilities under Tax Receivable Agreement 38,342 51,165 101,524

7 unchanged sentences

("Inc.") was formed and incorporated as a Delaware corporation on June 8, 2021.

was formed for the purpose of completing an initial public offering ("IPO") and related reorganization transactions (collectively, the "Transactions”) in order to carry on the business of PHD Group Holdings LLC and its subsidiaries ("Portillo's OpCo").

Following the consummation of the Transactions on October 20, 2021, Inc.

became the sole managing member of Portillo’s OpCo, and a s sole managing member, Inc.

operates and controls all of the business and affairs of Portillo's OpCo.

As a result, Inc.

consolidates the financial results of Portillo's OpCo and reports a non-controlling interest representing the economic interest in Portillo's OpCo held by the other members of Portillo's OpCo (the "pre-IPO LLC Members").

was formed for the purpose of completing an initial public offering ("IPO") and related reorganization transactions in order to carry on the business of PHD Group Holdings LLC and its subsidiaries ("Portillo's OpCo").

Portillo's Inc.

is the sole managing member of Portillo’s OpCo, and a s sole managing member, Inc.

operates and controls all of the business and affairs of Portillo's OpCo and reports a non-controlling interest representing the economic interest in Portillo's OpCo held by the other members of Portillo's OpCo (the "pre-IPO LLC Members").

Unless the context otherwise requires, references to "we," "us," "our," "Portillo's," and the "Company" refer to Portillo's Inc.

and its subsidiaries, including Portillo's OpCo.

The Company operates fast-casual restaurants in 10 states, along with two food production commissaries in Illinois.

The Company operates restaurants in 10 states that serve Chicago-style hot dogs and sausages, Italian beef sandwiches, char-grilled burgers, fresh chopped salads, crinkle-cut fries, homemade chocolate cake and more, along with two food production commissaries in Illinois.

As of December 29, 2024 and December 31, 2023, the Company had 93 and 83 restaurants in operation, respectively.

1 unchanged sentence

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 Inc., additionally has a 50 % interest in a single restaurant owned by C&O, which is excluded from the Company's restaurant count.

Portillo's Inc., additionally has a 50 % interest in a single restaurant owned by C&O Chicago, L.L.C.

("C&O"), which is excluded from the Company's restaurant count noted above.

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

Initial Public Offering

The Company's registration statement on Form S-1, as amended (Registration No.

333-259810), related to its IPO was declared effective October 20, 2021, and the Company's Class A common stock began trading on the Nasdaq Global Select Market under the symbol "PTLO" on October 21, 2021.

On October 25, 2021, the Company completed its IPO of 23,310,810 shares of the Company's Class A common stock ( including 3,040,540 shares sold to the underwriters pursuant to their overallotment option) , at an offering price of $ 20.00 per share.

The Company received aggregate net proceeds of approximately $ 430.0 million after deducting underwriting discounts and commissions of $ 29.1 million and other offering expenses of approximately $ 7.1 million.

In connection with the IPO, we completed the following:

• We amended and restated the limited liability company agreement of Portillo’s OpCo ("LLC Agreement") to, among other things, convert all outstanding equity interests (except for those redeemable preferred units which were redeemed in connection with the IPO) into LLC Units.

• We became the sole managing member of Portillo's OpCo.

Because we manage and operate the business and control the strategic decisions and day-to-day operations of Portillo’s OpCo and because we also have a substantial financial interest in Portillo’s OpCo, we consolidated the financial results of Portillo’s OpCo, and a portion of our net income was allocated to non-controlling interests to reflect the entitlement of the pre-IPO LLC Members who retained their equity ownership in Portillo's OpCo.

In addition, because Portillo’s OpCo was under the common control of the pre-IPO LLC Members before and after the Transactions, we measured the assets and liabilities of Portillo’s OpCo at their carrying amounts as of the date of the completion of the Transactions.

• We amended and restated our certificate of incorporation to authorize the issuance of two series of common stock:

Class A common stock and Class B common stock.

Each share of Class A common stock and Class B common stock entitles its holder to one vote per share on all matters submitted to a vote of our shareholders.

The Class B common stock is not entitled to economic interests in Portillo’s Inc.

The net proceeds and cash on hand were used as follows:

• to repay the redeemable preferred units in full (including the redemption premium) of $ 221.7 million;

• to repay all of the borrowings outstanding under the Second Lien Credit Agreement (including any prepayment penalties) of $ 158.1 million;

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

Portillo's Inc.

Form 10-K | 46

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

federal, state, and local income tax that the Company actually realizes or is deemed to realize as a result of (i) our allocable share of existing tax basis in depreciable or amortizable assets relating to LLC Units acquired in the IPO, (ii) certain favorable tax attributes acquired by the Company from entities treated as corporations for U.S.

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 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.

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

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.

If we do not generate sufficient taxable income in the aggregate over the term of the TRA to utilize the tax benefits, then we would not be required to make the related TRA payments.

Secondary Offerings

In the first quarter of 2023, the Company completed a secondary offering of 8,000,000 shares of the Company's Class A common stock at an offering price of $ 21.05 per share.

On April 5, 2023, the Underwriter exercised its overallotment option in part, to purchase an additional 620,493 shares of the Company's Class A common stock at an offering price of $ 21.05 per share (collectively the "Q1 2023 Secondary Offering and Overallotment Option").

We used all of the net proceeds from the Q1 2023 Secondary Offering and Overallotment Option to purchase LLC Units and corresponding shares of Class B common stock from certain pre-IPO LLC Members and to repurchase shares of Class A common stock from 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.

The proceeds from the Q1 2023 Secondary Offering and Overallotment Option were used to (i) purchase 2,269,776 existing shares of Class A common stock from the shareholders of the Blocker Companies and (ii) redeem 6,350,717 LLC Units held by the pre-IPO LLC Members.

Secondary Offerings and Redemption of LLC Units

In the fourth quarter of 2024, certain pre-IPO LLC Members redeemed 840,992 LLC Units in the aggregate, together with an equal number of shares of Class B common stock, for newly-issued shares of Class A common stock on a one -for-one basis, in accordance with the terms of the Second Amended and Restated LLC Agreement of Portillo’s OpCo, dated as of October 20, 2021.

In the first quarter of 2024, the Company completed a secondary offering of 8,000,000 shares of the Company's Class A common stock at an offering price of $ 14.37 per share ("Q1 2024 Secondary Offering").

The Company granted BofA Securities, Inc., the underwriter (the "Underwriter"), a 30-day option to purchase up to an additional 1,200,000 shares of Class A common stock.

The underwriter did not exercise its overallotment option within the 30-day period.

We used all of the net proceeds from the Q1 2024 Secondary Offering to purchase LLC Units and corresponding shares of Class B common stock from certain pre-IPO LLC Members and to repurchase shares of Class A common stock from the shareholders of the entities treated as corporations for U.S.

tax purposes that held LLC Units prior to the Transactions ("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.

The proceeds from the Q1 2024 Secondary Offering were used to (i) purchase 2,167,629 existing shares of Class A common stock from the shareholders of the Blocker Companies and (ii) redeem 5,832,371 LLC Units held by the pre-IPO LLC Members.

In connection with the redemption, 5,832,371 shares of Class B common stock were surrendered by the pre-IPO LLC Members and canceled and the Company received 5,832,371 newly-issued LLC Units, increasing the Company's total ownership interest in Portillo's OpCo.

1 unchanged sentence

however, the number of outstanding shares of Class A common stock increased by the same number of the canceled shares of Class B common stock.

In the first quarter of 2023, the Company completed one secondary offering of 8,000,000 shares at an offering price of $ 21.05 per share.

On April 5, 2023, the Underwriter exercised its overallotment option in part, to purchase an additional 620,493 shares of the Company's Class A common stock at an offering price of $ 21.05 per share.

In the third and fourth quarters of 2022, the Company completed two secondary offerings of 8,066,458 shares (including 66,458 shares sold to the underwriters pursuant to their overallotment option) and 8,000,000 shares, respectively, of the Company's Class A common stock at an offering price of $ 23.75 and $ 22.69 , respectively, per share.

The holders of LLC Units (other than the Company) may from time to time require Portillo’s OpCo to redeem all or a portion of their LLC Units (together with an equal number of shares of Class B common stock) for newly-issued shares of Class A common stock on a one -for-one basis.

As of December 29, 2024, the Company owned 85.6 % of Portillo's OpCo and the pre-IPO LLC Members owned the remaining 14.4 % of Portillo's OpCo.

Portillo's Inc.

Form 10-K | 45

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 unchanged sentences

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

Fiscal 2024 and 2022 each consisted of 52 weeks.

Fiscal 2023 consisted of 53 weeks.

Both fiscal 2022 and 2021 each consisted of 52 weeks.

The 53rd week in fiscal 2023 coincided with Christmas, resulting in six operating days.

The fiscal periods presented in this report are years ended December 31, 2023, December 25, 2022 and December 26, 2021, respectively.

The 53rd week in fiscal 2023 coincided with Christmas, resulting in six additional operating days.

The fiscal periods presented in this report are fiscal years ended December 29, 2024 ("fiscal 2024"), December 31, 2023 ("fiscal 2023") and December 25, 2022 ("fiscal 2022"), respectively.

Unless otherwise stated, references to years in this report relate to fiscal years.

Portillo's Inc.

Form 10-K | 47

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Segment Reporting

The Company owns and operates fast-casual restaurants in the United States, along with two food production commissaries in Illinois.

The Company’s chief operating decision maker (the “CODM”) is its Chief Executive Officer ("CEO").

As the CODM reviews financial performance and allocates resources at a consolidated level on a recurring basis, the Company has one operating segment and one reportable segment.

Use of Estimates

6 unchanged sentences

Accounts and Tenant Improvement Receivables

Accounts and tenant improvement receivables consist primarily of vendor rebates, tenant improvement receivables, and delivery receivables as well as receivables from related parties (see Note 17.

Accounts and tenant improvement receivables consist primarily of vendor rebates, tenant improvement receivables, and delivery receivables as well as receivables from related parties (Note 18.

Related Party Transactions).

1 unchanged sentence

Based on these factors, no allowance for uncollectible accounts was recorded at December 29, 2024 or December 31, 2023.

Inventory, which consists mainly of food products, is valued at the lower of cost or net realizable value, with cost determined on the first-in, first-out (FIFO) method.

Inventories, which consists mainly of food products, is valued at the lower of cost or net realizable value, with cost determined on the first-in, first-out (FIFO) method.

No other adjustment is deemed necessary to reduce inventory to lower of cost or net realizable value due to the rapid turnover and high utilization of inventory.

3 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 were $ 0.9 million and $ 0.7 million as of December 31, 2023 and December 25, 2022, respectively.

Inventories subject to these consignment arrangements are recorded on the Company’s consolidated balance sheet and were $ 0.8 million and $ 0.9 million as of December 29, 2024 and December 31,

Portillo's Inc.

Form 10-K | 46

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2023, respectively.

Equity Method Investment

4 unchanged sentences

The Company’s long-lived assets include property and equipment and definite-lived intangible assets.

Depreciation and amortization are computed using the straight-line method.

Except for leasehold improvements, depreciation is computed over the estimated useful life of each asset (generally ranging from three to ten years ).

Leasehold improvements are amortized over the shorter of the estimated lives of the asset or the lease term.

Portillo's Inc.

Form 10-K | 48

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company reviews its long-lived assets, including property and equipment, definite-lived intangible assets and operating lease assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group might not be recoverable.

Property and equipment are recorded at cost.

Internal costs directly associated with the acquisition, development and construction of a restaurant are capitalized.

Expenditures for refurbishments and improvements that significantly add to the productivity capacity or extend the useful life are capitalized, while expenditures for maintenance and repairs are expensed as incurred.

Leasehold improvements are amortized over the shorter of the lease term, which generally includes option periods that are reasonably certain, or the estimated useful lives of the assets.

Except for leasehold improvements, depreciation is computed over the estimated useful lives of the assets (generally ranging from three to 10 years).

Upon disposal of assets, the accounts are relieved of cost and accumulated depreciation and any related gain or loss is reflected in other income, net in the Company's consolidated statements of operations.

The Company reviews its long-lived assets, including property and equipment and construction-in-progress, definite-lived intangible assets and operating lease assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group might not be recoverable.

Recoverability is measured by a comparison of the carrying amount to future undiscounted cash flows that are expected to be generated by the asset or asset group.

1 unchanged sentence

Restaurant-level assets are grouped by restaurant for the purpose of the impairment assessment because a restaurant represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

No impairment charge was recorded for any period presented.

During fiscal 2024, the Company recorded a technology asset impairment charge of $ 0.7 million that was included within other income, net in the Company's consolidated statements of operations.

There were no asset impairment charges recorded in fiscal 2023 and fiscal 2022.

Goodwill and Indefinite-Lived Intangible Assets

1 unchanged sentence

The Company has one reporting unit which is evaluated for impairment annually.

Fair value of the reporting unit is estimated using the market approach that uses publicly available market data, including publicly traded stock prices and total shares outstanding to determine the fair value of the reporting unit.

Fair value of the reporting unit is estimated using the market capitalization approach that uses publicly available market data, including publicly traded stock prices and total shares outstanding to determine the fair value of the reporting unit.

If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded for the difference between the fair value of the reporting unit and the carrying value of the reporting unit.

8 unchanged sentences

Level 2 - Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities;

Portillo's Inc.

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PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Level 3 - Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

Offering Costs

In connection with the IPO, Portillo's OpCo incurred certain legal, accounting, and other IPO-related costs.

Such costs are recorded in stockholders’ equity as a reduction from the proceeds of the offering.

As of December 26, 2021, $ 7.1 million of offering costs had been recorded in stockholders' equity.

Revenue Recognition

7 unchanged sentences

Revenue for Marketplace Sales is recognized in the amount paid to the delivery partner by the customer for food and excludes delivery and service fees charged by the third-party delivery partner as the Company does not control the delivery.

Revenue from Marketplace Sales is recognized when food is delivered to the

Portillo's Inc.

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PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Revenue from Marketplace Sales is recognized when food is delivered to the customer.

For these sales, the Company receives payment from the delivery partner subsequent to the transfer of order, which is generally paid one week in arrears.

For all delivery sales of food, the Company is considered the principal and recognizes revenue on a gross basis.

The Company sells gift cards which do not have expiration dates.

The Company records the sale of the gift card as a contract liability and recognizes revenue from gift cards when:

(i) the gift card is redeemed by the customer;

or (ii) in the event a gift card is not expected to be redeemed, in proportion to the pattern of rights exercised by the customer (gift card breakage).

The Company has determined that 11 % of gift card sales will not be redeemed and will be retained by us based on a portfolio assessment of historical data on gift card redemption patterns.

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

Generally, revenue is recognized as promised goods or services transfer to the guest or customer in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

13 unchanged sentences

Equity-Based Compensation

The Company has issued non-qualified stock options, performance-based stock options, restricted stock units and restricted stock awards.

Equity-based compensation expense is measured based on the grant-date fair value of those awards and is recognized on a straight-line basis over the vesting period.

The Company has issued non-qualified stock options, performance-based stock options, performance stock units, restricted stock units and restricted stock awards.

Equity-based compensation expense is generally measured based on the grant-date fair value of those awards and is recognized on a straight-line basis over the vesting period.

Equity-based compensation expense is based on awards ultimately expected to vest and is reduced for estimated forfeitures.

Forfeitures are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates and an adjustment to equity-based compensation expense will be recognized at that time.

We have also granted equity awards with performance vesting conditions.

Equity awards with performance or market vesting conditions generally vest based on our attainment versus stated targets or criteria over a three-year performance and service period.

Performance goals are determined by the Board and include

Portillo's Inc.

Form 10-K | 48

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

measures such as revenue and adjusted EBITDA growth.

Compensation expense on stock awards subject to performance conditions, which is based on the quantity of awards we have determined are probable of vesting, is recognized over the longer of the estimated performance goal attainment period or time vesting period.

Equity-based compensation expense is included within general and administrative expenses and labor in the consolidated statements of operations.

Refer to Note 13.

Equity-Based Compensation for additional detail.

The Company adopted an Employee Share Purchase Plan (“ESPP”) in June 2022 under which qualifying employees may be granted purchase rights to the Company’s common shares at not less than 85 % of the market price on the purchase date, subject to Company discretion.

1 unchanged sentence

Eligible employees are able to contribute up to 15 % of their gross base earnings for purchases under the ESPP through regular payroll deductions, subject to an annual maximum dollar amount.

The expense incurred under the ESPP for the years ended December 31, 2023 and December 25, 2022, was immaterial.

The expense incurred under the ESPP for the years ended December 29, 2024, December 31, 2023 and December 25, 2022, was immaterial.

The expense is included within general and administrative expenses and labor in the consolidated statement of operations.

3 unchanged sentences

Advertising and marketing expenses included in other operating expenses in the consolidated statements of operations primarily relate to sponsorships, restaurant merchandising and charitable giving;

and those expenses included in general and administrative expenses in the consolidated statements of operations primarily consist of branding initiatives.

The year-over-year change for 2023 is primarily related to an advertising campaign in the Chicagoland market in the fourth quarter of 2023.

Portillo's Inc.

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PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

and those expenses included in general and administrative expenses in the consolidated statements of operations primarily consist of regional advertising and branding initiatives.

The year-over-year change for 2024 is primarily related to an advertising campaign in the Arizona market in the first quarter of 2024 and in the Chicagoland market in the third and fourth quarters of 2024.

Cloud-Based Software Implementation Costs

3 unchanged sentences

Capitalized cloud-based software implementation costs are amortized, beginning on the date the related software or module is ready for its intended use, on a straight-line basis over the remaining term of the hosting arrangement as a component of general and administrative expenses, the same line item as the expense for the associated hosting arrangement.

As of December 31, 2023, the Company had $ 2.0 million of capitalized cloud-based software implementation costs made up of $ 0.3 million recorded within prepaid expenses and $ 1.7 million recorded within other assets related to a new enterprise resource planning system.

On December 27, 2021, the Company adopted ASU 2016-02, Leases (Topic 842) , along with related clarifications and improvements, using a modified retrospective approach.

Results for reporting periods beginning on or after December 27, 2021 are presented under ASC 842.

Prior period amounts were not revised and continue to be reported in accordance with ASC 840, the accounting standard then in effect.

As of December 29, 2024, the Company had $ 3.4 million of capitalized cloud-based software implementation costs made up of $ 0.9 million recorded within prepaid expenses and $ 2.5 million recorded within other assets.

The Company currently leases land for its retail restaurants and commissaries, and office space under various long-term operating lease agreements that expire on various dates through 2068.

9 unchanged sentences

Generally, the leases for the Company's restaurant locations have an initial term of 10 years to 20 years and typically provide for renewal options in five-year increments, as well as rent escalations.

Renewal options are generally recognized as part of the right-of-use assets and lease liabilities as it is reasonably certain at commencement date that we would exercise the options to extend the lease.

Renewal options are generally recognized as part of the right-of-use assets and lease liabilities as it is reasonably certain at commencement date that we would

Portillo's Inc.

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PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

exercise the options to extend the lease.

Some of our real estate leases provide for base rent, plus if applicable, additional rent based on gross sales, as defined in each lease agreement, which is considered to be variable rent.

3 unchanged sentences

Once a restaurant opens, we record the straight-line lease expense and any contingent rent, if applicable, in occupancy on the consolidated statements of operations.

Many of our leases also require us to pay real estate taxes, common area maintenance costs and other occupancy costs which are included in occupancy, other operating expenses, or pre-opening expenses on the consolidated statements of operations and is generally considered to be variable rent.

For leases with a lease term of 12 months or less ("short-term operating lease"), any fixed lease payments are recognized on a straight-line basis over such term, and are not recognized on the consolidated balance sheets.

8 unchanged sentences

We include these amounts in the measurement of the initial operating lease liability, which are also reflected as a reduction to the initial measurement of the right-of-use asset.

Portillo's Inc.

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PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Pre-Opening Expenses

13 unchanged sentences

Tax Receivable Agreement

The Company is party to a TRA with certain pre-IPO LLC Members that provides for the payment by the Company of 85 % of the amount of tax benefits, if any, that Portillo's Inc.

The Company is party to a Tax Receivable Agreement ("TRA") with certain pre-IPO LLC Members that provides for the payment by the Company of 85 % of the amount of tax benefits, if any, that Portillo's Inc.

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

1 unchanged sentence

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.

If we do not generate sufficient taxable income in the aggregate over the term of the TRA to utilize the tax benefits, then we would not be required to make the related TRA payments.

Portillo's Inc.

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PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

do not generate sufficient taxable income in the aggregate over the term of the TRA to utilize the tax benefits, then we would not be required to make the related TRA payments.

Therefore, we would only recognize a liability for TRA payments if we determine it is probable that we will generate sufficient future taxable income over the term of the TRA to utilize the related tax benefits.

The timing and amount of aggregate payments due under the TRA may vary based on a number of factors, including the amount and timing of taxable income generated by Portillo's OpCo each year and the applicable tax rates.

Refer to Note 1.

Description Of Business for additional information on the TRA.

The amounts recorded for both the deferred tax assets and the liability for the Company's obligations under the TRA will be estimated at the time of any purchase or exchange as a reduction to shareholders' equity, and the effects of changes in any of the Company's estimates after this date will be included in net income or loss.

The amounts recorded for both the deferred tax assets and the liability for the Company's obligations under the TRA will be estimated at the time of any purchase or exchange as a reduction to stockholders' equity, and the effects of changes in any of the Company's estimates after this date will be included in net income or loss.

Similarly, the effect of subsequent changes in the enacted tax rates will be included in net income or loss.

3 unchanged sentences

Diluted earnings (loss) per share considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common units would have an anti-dilutive effect.

Portillo's Inc.

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PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Recently Issued Accounting Standards

4 unchanged sentences

The Company is currently evaluating the effect of adopting this ASU.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments’ significant expenses on an interim and annual basis.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the effect of adopting this ASU.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) Improvements to Income Tax Disclosures, which requires public entities to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold on an annual basis.

1 unchanged sentence

The Company is currently evaluating the effect of adopting this ASU.

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses, which requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements.

ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted.

The Company is currently evaluating the effect of adopting this ASU.

Recently Adopted Accounting Standards

3 unchanged sentences

FASB has extended the sunset date to December 31, 2024.

The Company does not believe the impact of the transition from LIBOR to alternative reference rates was material to its consolidated financial statements.

The impact of the transition from LIBOR to alternative reference rates was not material to the Company's consolidated financial statements.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15,

Portillo's Inc.

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PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2024, with early adoption permitted.

The Company adopted this standard during the year ended December 29, 2024.

Segment Information in the accompanying notes to the consolidated financial statements for further detail.

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.

6 unchanged sentences

The Company sells gift cards which do not have expiration dates.

The Company records the sale of the gift card as a contract liability and recognizes revenue from gift cards when:

(i) the gift card is redeemed by the customer;

or (ii) in the event a gift card is not expected to be redeemed, in proportion to the pattern of rights exercised by the customer (gift card breakage).

The Company has determined that 11 % of gift card sales will not be redeemed and will be retained by us based on a portfolio assessment of historical data on gift card redemption patterns.

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

The Company recognized gift card breakage of $ 0.9 million, $ 0.8 million, and $ 0.7 million in the years ended December 31, 2023, December 25, 2022 and December 26, 2021, respectively.

Portillo's Inc.

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PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Refer to Note 2.

Summary Of Significant Accounting Policies for additional information regarding gift card sales.

The Company recognized gift card breakage of $ 0.9 million for both the years ended December 29, 2024 and December 31, 2023, and $ 0.8 million for the year ended December 25, 2022.

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

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

December 29, 2024 December 31, 2023

4 unchanged sentences

Revenue recognized from gift card liability balance at the beginning of the year $ 3,972 $ 3,822 $ 3,598

Inventory consisted of the following (in thousands):

Inventories consisted of the following (in thousands):

December 29, 2024 December 31, 2023

4 unchanged sentences

$ 7,915 $ 8,733

Portillo's Inc.

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PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

PROPERTY & EQUIPMENT, NET

1 unchanged sentence

December 29, 2024 December 31, 2023

Land improvements $ 19,000 $ 16,369

Land and land improvements

$ 24,100 $ 19,000

Buildings and improvements

Furniture, fixtures, and equipment 177,443 155,871

10 unchanged sentences

The market approach utilized publicly available market data, including publicly traded stock prices and total shares outstanding to determine the fair value of the reporting unit.

Portillo's Inc.

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PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For indefinite-lived intangibles, the relief-from-royalty method estimates the fair value of an intangible asset based on what a third-party would pay for the right to use that asset.

7 unchanged sentences

Intangibles subject to amortization:

Recipes 56,117 ( 27,206 ) 28,911

56,117 ( 30,019 ) 26,098

$ 280,042 $ ( 30,019 ) $ 250,023

Portillo's Inc.

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PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2023

Gross Carrying Amount Accumulated Amortization ASC 842 Adjustment

Net Carrying Amount

Gross Carrying Amount Accumulated Amortization Net Carrying Amount

Indefinite-lived intangible assets:

1 unchanged sentence

Intangibles subject to amortization:

Recipes 56,117 ( 24,317 ) — 31,800

Covenants not-to-compete 40,799 ( 40,799 ) — —

Favorable rental contracts 2,991 ( 1,849 ) ( 1,142 ) —

56,117 ( 27,206 ) 28,911

Approximately $ 1.1 million of net favorable rental contract intangible assets were reclassified to operating lease assets in the consolidated balance sheet in accordance with ASC 842 upon transition at December 27, 2021.

Amortization expense was $ 2.9 million, $ 2.9 million, and $ 6.4 million for the years ended December 31, 2023, December 25, 2022 and December 26, 2021 respectively, and was included in depreciation and amortization in the consolidated statements of operations.

$ 280,042 $ ( 27,206 ) $ 252,836

Amortization expense was $ 2.8 million, $ 2.9 million, and $ 2.9 million for the years December 29, 2024, December 31, 2023 and December 25, 2022 respectively, and was included in depreciation and amortization in the consolidated statements of operations.

The estimated aggregate amortization expense related to intangible assets held at December 29, 2024 for the next five years and thereafter is as follows (in thousands):

Estimated Amortization

Portillo's Inc.

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PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2030 and thereafter

FAIR VALUE OF FINANCIAL INSTRUMENTS

1 unchanged sentence

The carrying value of the Company's cash and cash equivalents and restricted cash, accounts and tenant improvement receivables, accounts payable and all other current assets and liabilities, approximate fair values due to the short-term nature of these financial instruments.

Other assets consist of a deferred compensation plan with related assets held in a rabbi trust.

Other assets consists of long-term prepaid expenses and a deferred compensation plan with related assets held in a rabbi trust.

Other long-term liabilities consist of a deferred gain on a supplier arrangement.

Long-term prepaid expenses and other long-term liabilities approximate fair values due to the nature of these financial instruments.

Deferred Compensation Plan - The Company maintains a rabbi trust to fund obligations under a deferred compensation plan.

7 unchanged sentences

Total assets $ 3,196 $ 3,264

Portillo's Inc.

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PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

As of December 29, 2024 and December 31, 2023 we had no Level 2 or Level 3 assets.

6 unchanged sentences

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 years ended December 31, 2023, December 25, 2022 and December 26, 2021.

Portillo's Inc.

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PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

During fiscal 2024, the Company recognized an impairment charge of $ 0.7 million related to a technology asset that is included within other income, net in the consolidated statement of operations.

No asset impairment charges were recorded in fiscal 2023 or fiscal 2022.

SUPPLEMENTAL BALANCE SHEET INFORMATION

17 unchanged sentences

Interest 5,471 170

Sales tax 3,477 1,956

Sales and use tax

Other accrued expenses 450 512

$ 33,072 $ 32,039

Portillo's Inc.

Form 10-K | 55

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Debt consisted of the following (in thousands):

2 unchanged sentences

$ 288,750 $ 294,375

2014 Term B-3 Loans

2023 Revolver Facility

25,000 15,000

Unamortized discount and debt issuance costs ( 2,078 ) ( 2,952 )

1 unchanged sentence

Short-term debt

( 25,000 ) ( 15,000 )

Current portion of long-term debt

4 unchanged sentences

The 2023 Term Loan and 2023 Revolver Facility are scheduled to mature on February 2, 2028.

Portillo's Inc.

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PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Subsequent Events for more information about amendments to the 2023 Term Loan and 2023 Revolver Facility entered into on January 27, 2025.

The 2023 Term Loan and the 2023 Revolver Facility will accrue interest at the forward-looking secured overnight financing rate (“SOFR”) plus an applicable rate determined upon the consolidated total net rent adjusted leverage ratio, subject to a floor of 0.00 % (plus a credit spread adjustment of 0.10 % per annum for 1-month interest periods and 0.15 % for 3-month interest periods).

1 unchanged sentence

Pursuant to the 2023 Credit Agreement, as of December 29, 2024, the commitment fees to maintain the 2023 Revolver Facility were 0.20 % and letter of credit fees were 2.50 %.

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

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

As of December 29, 2024, the effective interest rate for the 2023 Credit Agreement was 7.53 %.

As of December 31, 2023, the interest rates on the 2023 Term Loan and 2023 Revolver Facility were 8.00 % and 8.23 %, respectively.

Pursuant to the 2023 Credit Agreement, as of December 31, 2023, the commitment fees to maintain the 2023 Revolver Facility were 0.25 % and letter of credit fees were 2.75 %.

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

As of December 31, 2023, the effective interest rate for the 2023 Credit Agreement was 8.36 %.

The 2023 Term Loan will amortize in quarterly installments equaling an aggregate annual amount of $ 7.5 million for the first two (2) years following the Closing Date, (b) $ 15.0 million for the third (3rd) and fourth (4th) years following the Closing Date, and (c) $ 30.0 million for the fifth (5th) year following the Closing Date, commencing on the last day of the first full fiscal quarter ended after the Closing Date, with the balance payable on the final maturity date.

As of December 31, 2023, outstanding borrowings under the 2023 Credit Agreement totaled $ 309.4 million, comprising of $ 294.4 million under the 2023 Term Loan, and $ 15.0 million under the 2023 Revolver Facility.

As of December 29, 2024, outstanding borrowings under the 2023 Credit Agreement totaled $ 313.8 million, comprised of $ 288.8 million under the 2023 Term Loan, and $ 25.0 million under the 2023 Revolver Facility.

Letters of credit issued under the 2023 Revolver Facility totaled $ 5.3 million.

As a result, as of December 29, 2024, the Company had $ 69.7 million available under the 2023 Revolver Facility.

As of December 31, 2023, outstanding borrowings under the 2023 Credit Agreement totaled $ 309.4 million, comprised of $ 294.4 million under the 2023 Term Loan, and $ 15.0 million under the 2023 Revolver Facility.

Letters of credit issued under the 2023 Revolver Facility totaled $ 4.3 million.

As a result, as of December 31, 2023, the Company had $ 80.7 million available under the 2023 Revolver Facility.

Portillo's Inc.

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PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2014 Credit Agreement

3 unchanged sentences

The maturity date with respect to the 2014 Term B-3 Loans was extended to September 6, 2024, and the maturity date with respect to the 2014 Revolving Loans was extended to June 6, 2024.

In connection with the Third Amendment to 2014 Credit Agreement, the interest rates spread for the 2014 Term B-3 Loans increased by 100 basis points to 5.50 % for the adjusted London interbank offered rate ("Eurocurrency Rate") loans.

As of December 25, 2022, and December 26, 2021, the interest rates on the 2014 Term B-3 Loans was 9.57 % and 6.50 %.

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 December 25, 2022, the Company had no borrowings under the 2014 Revolving Facility.

As of December 25, 2022, the interest rate on the 2014 Revolving Facility was 3.25 %, subject to change based on a consolidated first lien net leverage ratio as defined in the 2014 Credit Agreement.

As of December 25, 2022, the commitment fees, pursuant to the 2014 Credit Agreement, to maintain the 2014 Revolving Facility were 0.250 %.

Also pursuant to the 2014 Credit Agreement, as of December 25, 2022, letter of credit fronting fees were 0.125 %.

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

As of December 25, 2022, the effective interest rate was 10.39 %.

The Company had $ 4.2 million of letters of credit issued against the 2014 Revolving Facility as of December 25, 2022.

On February 2, 2023, the Company used proceeds from the 2023 Term Loan and 2023 Revolver Facility, along with cash on hand, to pay off the 2014 Credit Agreement in full in the amount of $ 321.8 million.

The 2023 Revolver Facility under the 2023 Credit Agreement replaces the $ 50.0 million 2014 Revolving Facility under the 2014 Credit Agreement.

Portillo's Inc.

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PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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”).

The Second Lien Lenders extended

credit in the form of initial second lien term loans in an initial aggregate principal amount of $ 80.0 million.

On December 6, 2019, the Borrower entered into second amendment to the Second Lien Credit Agreement (the “Second Amendment to Second Lien Credit Agreement”) whereby the aggregate principal amount of the term loans as of the effective date of the Second Amendment to the Second Lien Credit Agreement was $ 155.0 million (the “Second Lien Term B-3 Loans”).

The maturity date of the Second Lien Term B-3 Loans was extended to December 6, 2024.

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.

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

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.

Net proceeds of $ 158.1 million were used to repay the Second Lien Term B-3 Loans in full, including a $ 3.1 million prepayment penalty, which was recorded as a loss on debt extinguishment during the year ended December 26, 2021 in the consolidated statement of operations.

Maturities of long-term debt

2 unchanged sentences

Pursuant to the 2023 Credit Agreement, the Company capitalized deferred financing costs and issuance discount of $ 3.6 million which will be amortized over the term of the 2023 Credit Agreement.

In connection with the repayment of the 2014 Credit Agreement and the Second Lien Term B-3 Loans as described above, deferred financing costs and original issuance discount of $ 3.5 million and $ 4.2 million were recorded as a loss on debt extinguishment during the year ended December 31, 2023 and December 26, 2021, respectively, in the consolidated statement of operations.

There were no debt extinguishments during the year ended December 25, 2022.

The Company amortized $ 0.4 million, $ 2.0 million and $ 2.1 million of deferred financing costs, respectively, during each of the years ended December 31, 2023, December 25, 2022 and December 26, 2021, which was included in interest expense in the consolidated statements of operations.

In addition, the Company also amortized $ 0.6 million, $ 0.8 million and $ 1.5 million in original issue discount related to the long-term debt, respectively, during each of the years ended December 31, 2023, December 25, 2022 and December 26, 2021 which was included in interest expense in the consolidated statements of operations.

In connection with the repayment of the 2014 Credit Agreement as described above, deferred financing costs and original issuance discount of $ 3.5 million was recorded as a loss on debt extinguishment during the year ended December 31, 2023 in the consolidated statement of operations.

There were no debt extinguishments during the years ended December 29, 2024 and December 25, 2022.

The Company amortized $ 0.2 million, $ 0.4 million and $ 2.0 million of deferred financing costs during the years ended December 29, 2024, December 31, 2023 and December 25, 2022, respectively, which was included in interest expense in the consolidated statements of operations.

In addition, the Company also amortized $ 0.7 million, $ 0.6 million and $ 0.8 million in original issue discount related to the long-term debt during the years ended December 29, 2024, December 31, 2023 and December 25, 2022, respectively, which was included in interest expense in the consolidated statements of operations.

Total interest costs incurred were $ 25.6 million, $ 27.5 million and $ 27.6 million for the years ended December 29, 2024, December 31, 2023 and December 25, 2022, respectively.

As of December 31, 2023 and December 25, 2022, 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.

Portillo's Inc.

2 unchanged sentences

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Fair Value of Debt

As of December 29, 2024 and December 31, 2023, the fair value of long-term debt approximates the carrying value as it is variable rate debt.

Guarantees and Covenants

The 2023 Credit Agreement is guaranteed by all domestic subsidiaries of the Borrower (subject to customary exceptions) and secured by liens on substantially all of the assets of Holdings, the Borrower and the subsidiary guarantors (subject to customary exceptions).

1 unchanged sentence

As of December 29, 2024, the Company was in compliance with all covenants in the 2023 Credit Agreement.

On December 27, 2021, the Company adopted ASU 2016-02, Leases (Topic 842) , along with related clarifications and improvements, using a modified retrospective approach.

Results for reporting periods beginning on or after December 27, 2021 are presented under ASC 842.

Prior period amounts were not revised and continue to be reported in accordance with ASC 840, the accounting standard then in effect.

Upon transition, on December 27, 2021, we recorded the following increases (decreases) to the respective line items on the consolidated balance sheet, including a net increase to opening stockholders' equity, due to the cumulative impact of adopting ASC 842 (in thousands):

Adjustment as of December 27, 2021

Operating lease assets $ 162,810

Intangible assets, net ( 1,142 )

Short-term operating lease liability 4,405

Deferred rent ( 32,174 )

Long-term operating lease liability 189,682

Other long-term liabilities ( 461 )

Stockholders' equity 1

1 The unamortized balance of a deferred gain associated with sale leaseback transactions totaling approximately $ 0.5 million was written-off to stockholders' equity on the date of transition.

A summary of operating lease right-of-use assets and liabilities is as follows (in thousands):

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$ 284,553 $ 243,991

Portillo's Inc.

Form 10-K | 60

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The components of lease expense were as follows (in thousands):

Fiscal Years Ended

Operating leases Classification December 31, 2023 December 25, 2022

Operating leases Classification December 29, 2024 December 31, 2023 December 25, 2022

Operating lease cost Occupancy

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Other operating expenses

General and administrative expenses

Pre-opening expenses

1,813 1,069 698

Variable lease cost Occupancy

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Weighted-average discount rate:

Portillo's Inc.

Form 10-K | 58

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Supplemental cash flow information related to leases is as follows (in thousands):

Fiscal Years End

December 31, 2023 December 25, 2022

Fiscal Years Ended

December 29, 2024 December 31, 2023 December 25, 2022

Cash paid for amounts included in the measurement of lease liabilities:

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As of December 29, 2024, operating lease payments include $ 493.9 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $ 100.6 million of legally binding minimum payments for leases signed but not yet commenced.

Portillo's Inc.

Form 10-K | 61

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Below are disclosures in accordance with the prior guidance, ASC 840, disclosed previously in our Annual Report on Form 10-K for the fiscal year ended December 26, 2021.

A summary of rent expense under ASC 840 for operating lease agreements were as follows (in thousands):

Fiscal Year Ended

December 26, 2021

Minimum rentals $ 22,363

Contingent rentals 679

Total rental expense $ 23,042

STOCKHOLDER'S EQUITY

STOCKHOLDERS' EQUITY

Amended and Restated Certificate of Incorporation

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Amended and Restated LLC Agreement

As described in Note 1.

Description Of Business, we amended and restated the LLC agreement of Portillo’s OpCo to, among other things, convert all outstanding equity interests into LLC Units.

In connection with the IPO, we amended and restated the limited liability company agreement of Portillo’s OpCo ("LLC Agreement") to, among other things, convert all outstanding equity interests into LLC Units.

The LLC Agreement also provides that holders of LLC Units may, from time to time, redeem all or a portion of their LLC Units for newly-issued shares of Class A common stock on a one -for-one basis.

Upon receipt of a redemption request, we may, instead, elect to effect a direct exchange of LLC Units directly with the holder.

In connection with any redemption or exchange, we will receive a corresponding number of LLC Units, increasing our total ownership interest.

Additionally, an equivalent number of shares of Class B common stock will be surrendered and canceled.

The LLC Agreement also requires that Portillo's OpCo, at all times, maintain (i) a one -to-one ratio between the number of outstanding shares of Class A common stock and the number of LLC Units owned by us and (ii) a one -to-one ratio between the number of shares of Class B common stock owned by the pre-IPO LLC Members and the number of LLC Units owned by the pre-IPO LLC Members.

Initial Public Offering

As described in Note 1.

Description Of Business, on October 25, 2021, we completed an IPO of 23,310,810 shares of the Company's Class A common stock ( including 3,040,540 shares sold to the underwriters pursuant to their overallotment option) at an offering price of $ 20.00 per share.

In connection with any redemption or exchange, we will receive a corresponding number of LLC

Portillo's Inc.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In connection with our IPO, we issued 12,496,361 shares of Class A common stock to pre-IPO LLC Members and 35,673,321 shares of Class B common stock to pre-IPO LLC Members.

Redemption of LLC Units in connection with Secondary Offerings

Units, increasing our total ownership interest.

Additionally, an equivalent number of shares of Class B common stock will be surrendered and canceled.

Redemption of LLC Units

In the fourth quarter of 2024, certain pre-IPO LLC Members redeemed 840,992 LLC Units in the aggregate for newly-issued shares of Class A common stock on a one -for-one basis, in accordance with the terms of the Second Amended and Restated LLC Agreement of Portillo’s OpCo, dated as of October 20, 2021.

In the first quarter of 2024, the Company completed a secondary offering of 8,000,000 shares of the Company's Class A common stock at an offering price of $ 14.37 per share.

In the first quarter of 2023, the Company completed a secondary offering of 8,000,000 shares of the Company's Class A common stock at an offering price of $ 21.05 per share.

On April 5, 2023, the Underwriter exercised its overallotment option in part, to purchase an additional 620,493 shares of the Company's Class A common stock at an offering price of $ 21.05 per share.

Description Of Business for additional information.

Description Of Business for additional information on secondary offerings and redemption of LLC Units.

As of December 29, 2024, the Company owned 85.6 % of Portillo's OpCo and the pre-IPO LLC Members owned the remaining 14.4 % of Portillo's OpCo.

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Equity-Based Compensation Plan Activity

We received an aggregate of 717,416 and 777,393 LLC Units in connection with the activity under our equity-based compensation plans during the years ended December 31, 2023 and December 25, 2022, respectively, related to the exercise of stock options, vested restricted stock awards and restricted stock units, and employee stock purchase plan purchases.

We received an aggregate of 1,432,078 , 717,416 , and 777,393 LLC Units in connection with the activity under our equity-based compensation plans during the years ended December 29, 2024, December 31, 2023, and December 25, 2022, respectively, related to the exercise of stock options, vested restricted stock awards and restricted stock units, and employee stock purchase plan purchases.

Equity-Based Compensation for additional information.

NON-CONTROLLING INTERESTS

We are the sole managing member of Portillo's OpCo, and as a result, consolidated the financial results of Portillo's OpCo.

We report a non-controlling interest representing the LLC Units in Portillo's OpCo held by pre-IPO LLC Members.

We are the sole managing member of Portillo's OpCo, and as a result, consolidate the financial results of Portillo's OpCo.

We report a non-controlling interest to reflect the entitlement of the pre-IPO LLC Members who retained their equity ownership in Portillo's OpCo (the "pre-IPO LLC Members") .

Changes in our ownership interest in Portillo's OpCo while we retain our controlling interest in Portillo's OpCo will be accounted for as equity transactions.

As such, future redemptions or direct exchanges of LLC Units 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 first and second quarters of 2023, in connection with the Q1 2023 Secondary Offering and Overallotment Option described in Note 1.

Description Of Business, 6,350,717 of LLC Units and corresponding shares of Class B common stock were redeemed, respectively, by the pre-IPO LLC Members for newly-issued shares of Class A common stock.

We received a total of 6,350,717 newly-issued LLC Units, increasing our total ownership interest in Portillo's OpCo.

As described in Note 1.

Description Of Business, in the third and fourth quarters of 2022, the Company completed two secondary offerings of 8,066,458 shares (including 66,458 shares sold to the underwriters pursuant to their overallotment option) and 8,000,000 shares, respectively, of the Company's Class A common stock at an offering price of $ 23.75 and $ 22.69 , respectively, per share.

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

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Total 74,407,379 100.0 % 72,975,301 100.0 %

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 the fiscal years ended December 31, 2023 and December 25, 2022 was 25.9 % and 45.8 %, respectively.

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

Portillo's Inc.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 the years ended December 29, 2024, December 31, 2023 and December 25, 2022 was 17.0 %, 25.9 % and 45.8 % respectively.

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

Fiscal Years Ended

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An RSU granted under the 2021 Plan will give the participant a right to receive, upon vesting and settlement of the RSUs, one share per vested unit or an amount per vested unit equal to the fair market value of one share as of the date of determination.

The fair value of RSUs is determined using the Company's closing stock price on the date of grant.

Outstanding time-based RSUs generally vest equally over periods ranging from one to three years on each of the anniversaries of the date of grant subject to continued service on such date.

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The awards granted are exercisable within a 10-year period from the date of grant.

The first tranche of PSOs was forfeited in fiscal 2024 as the performance condition was not satisfied by the third anniversary of the IPO.

The grant date fair value of these awards was determined using a Monte-Carlo simulation model.

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As of December 29, 2024, there was $ 2.2 million of total unrecognized compensation cost related to unvested PSOs, which is expected to be recognized over a weighted average period of 1.4 years.

Stock Options

During the year ended December 29, 2024, the Company granted 311,042 stock options under the 2021 Plan, to its President and Chief Executive Officer.

The stock options vest on the four th anniversary of the award and are exercisable within a 10-year period from the date of grant.

Activity for the Stock Options was as follows:

Stock Options

(in thousands)

Weighted Average Exercise Price Weighted Average Remaining Term (Years) Aggregate Intrinsic Value

Outstanding-December 31, 2023

Granted 311 11.94

Exercised — —

Forfeited — —

Outstanding-December 29, 2024

311 11.94 9.4 —

Exercisable-December 29, 2024

Expected to vest-December 29, 2024

262 $ 11.94 9.4 $ —

The Company estimates the fair value of stock options on the date of grant using the Black-Scholes option-pricing model.

The Black-Scholes option-pricing model requires estimates of highly subjective assumptions, which greatly affect the fair value of each stock option.

The assumptions used to estimate the fair value of stock options granted during the year ended December 29, 2024 were as follows:

Fair value of stock option

Risk-free interest rate

Expected life (years)

As of December 29, 2024, there was $ 1.5 million of total unrecognized compensation cost related to unvested Stock Options, which is expected to be recognized over a weighted average period of 3.3 years.

Portillo's Inc.

Form 10-K | 63

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Performance Stock Units

During the year ended December 29, 2024, the Company granted performance stock units ("PSUs") to its executive officers under the 2021 Plan.

The fair value of these awards was determined using the Company's closing stock price on the date of the grants.

These PSUs will vest after the fiscal year ending December 27, 2026 based on continued service and the achievement of performance metrics.

The amount of awards that can be earned ranges from 0 % to 200 % of the number of performance stock units granted, based on the achievement of approved financial goals tied to the cumulative growth of revenue and Adjusted EBITDA over the fiscal years 2024 to 2026.

Compensation expense related to the performance equity units is recognized using a straight-line method over the vesting period based on the most probable outcome of the performance conditions.

The cumulative effect on current and prior periods of a change in attainment is recognized in general and administrative expenses in the consolidated statements of operations in the period of change.

As of December 29, 2024, management calculated an attainment rate equal to 0 % of the number of target shares granted based on actual attainment of the internal metrics.

Activity for the Company's PSUs was as follows:

(in thousands)

Weighted Average Grant Date Fair Value

Non-vested, December 31, 2023

Granted 335 11.82

Non-vested, December 29, 2024

Expected to vest-December 29, 2024*

*The expected to vest total above represents outstanding base PSUs, adjusted for expected attainment amounts in line with current and future estimated performance levels as described above.

As of December 29, 2024, there was no unrecognized compensation cost related to unvested PSUs based on the aforementioned attainment rate, The PSUs have a weighted average remaining period of 2.0 years.

2014 Equity Incentive Plan

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In connection with the IPO, the performance condition was waived and all such options became subject to time-based vesting only.

As a result of the waiver and resultant modification in the terms of the performance-vesting awards, we recognized a cash compensation expense of approximately $ 1.3 million and a non-cash compensation expense of approximately $ 26.2 million , each at the modification date in the fourth quarter of fiscal 2021 .

In connection with the IPO, each option outstanding under the 2014 Plan, whether vested or unvested, was substituted for an option to purchase a number of shares of Class A common stock under the 2021 Plan, and the option holders received a cash payment in respect of their options (whether vested or unvested) in an aggregate amount of approximately $ 6.6 million, which was recorded in the fourth quarter of 2021.

Following the IPO, no further options will be granted under the 2014 Plan.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Activity under the 2014 Plan for the year ended December 31, 2023 was as follows:

Activity under the 2014 Plan was as follows:

(in thousands) Weighted Average Exercise Price Weighted Average Remaining Term (Years) Aggregate Intrinsic Value

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Forfeited ( 35 ) 4.76

Expired ( 12 ) 5.63

Outstanding-December 29, 2024

4,118 $ 4.87 3.3 $ 16,908

Vested-December 31, 2023

Exercisable-December 29, 2024

4,010 $ 4.86 3.2 $ 16,535

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4,114 $ 4.87 3.3 $ 16,893

The Company estimates the fair value of stock options on the date of grant using the Black-Scholes option-pricing model.

The Black-Scholes option-pricing model requires estimates of highly subjective assumptions, which greatly affect the fair value of each stock option.

The weighted average assumptions used to estimate the fair value of stock options granted during the year ended December 26, 2021 was as follows:

Fair value of stock option $ 2.16

Risk-free interest rate 1.21 %

Expected life (years) 6.5

Volatility 54.7 %

As of December 29, 2024, there was $ 0.6 million of total unrecognized compensation cost related to unvested options under the 2014 plan, which is expected to be recognized over a weighted average period o f 1.1 years.

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Total equity-based compensation expense $ 11,151 $ 15,542 $ 16,137

Total equity-based compensation expense in 2022 decreased in comparison to 2021, primarily due to the recognition of cash compensation expense of approximately $ 1.3 million and a non-cash compensation expense of approximately $ 26.2 million in fiscal year 2021, due to the aforementioned modification of performance-vesting awards.

The Company's Chief Operating Officer, Mr.

Derrick Pratt, departed from his role, effective June 30, 2024.

In accordance with the Company’s Senior Executive Severance Plan, Mr.

Pratt’s pre-IPO nonqualified stock options and his RSUs, both of which were scheduled to vest later in 2024, vested in the second quarter of 2024.

The pre-IPO Options will remain exercisable through the 10 th anniversary of the original grant date of September 14, 2020.

The primary modification was to extend the permitted time for which the options could be exercised subsequent to termination, from 90 days post-termination to the 10 th anniversary of the original grant date.

All other equity grants were forfeited.

The Company recorded a $ 0.2 million charge to equity-based compensation expense during the second quarter of 2024, to reflect the incremental value related to the modifications described herein.

Employee Stock Purchase Plan

During the year ended December 31, 2023, the Company issued 29,808 shares under the Employee Stock Purchase Plan ("ESPP").

During the fiscal year ended December 29, 2024, the Company issued 46,959 shares under the Employee Stock Purchase Plan ("ESPP").

The shares issued under the ESPP are net of shares withheld for taxes.

At December 31, 2023, 211,954 shares remained available for issuance under the ESPP.

The expense incurred under the ESPP for the year ended December 31, 2023 and year ended December 25, 2022, was immaterial.

As of December 29, 2024, 163,607 shares remained available for issuance under the ESPP.

The expense incurred under the ESPP for the fiscal years ended December 29, 2024, December 31, 2023 and December 25, 2022, was immaterial.

The expense is included within general and administrative expenses and labor in the consolidated statement of operations.

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

Income Tax Expense (Benefit)

The components of income tax expense (benefit) are as follows (in thousands):

Income Tax Expense

The components of income tax expense are as follows (in thousands):

Fiscal Years Ended

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Total deferred income taxes 6,771 3,249 1,820

Income tax expense (benefit) $ 3,248 $ 1,823 $ ( 3,531 )

Reconciliations of income tax expense (benefit) computed at the U.S.

federal statutory income tax rate to the recognized income tax expense (benefit) and the U.S.

Income tax expense

$ 6,799 $ 3,248 $ 1,823

Reconciliations of income tax expense computed at the U.S.

federal statutory income tax rate to the recognized income tax expense and the U.S.

statutory income tax rate to our effective tax rates are as follows (in thousands):

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Other ( 33 ) ( 0.1 ) % — — % 1,073 5.6 %

Income tax expense (benefit) $ 3,248 11.5 % $ 1,823 9.6 % $ ( 3,531 ) 20.9 %

Income tax expense

$ 6,799 16.2 % $ 3,248 11.5 % $ 1,823 9.6 %

Our effective income tax rates for the years ended December 29, 2024, December 31, 2023 and December 25, 2022 were 16.2 %, 11.5 % and 9.6 %, respectively.

The change in our effective income tax rate from the year ended December 31, 2023 to the year ended December 25, 2022 was primarily driven by an increase in the Company's ownership interest in Portillo's OpCo, which increases its share of taxable income (loss) of Portillo's OpCo, partially offset by the decrease in the valuation allowance and the recording of net operating loss carryforwards.

The change in our effective income tax rate from the year ended December 29, 2024 to the year ended December 31, 2023 was primarily driven by an increase in the Company's ownership interest in Portillo's OpCo, which increases its share of taxable income (loss) of Portillo's OpCo, partially offset by the decrease in the valuation allowance.

The Company’s annual effective tax rate for the year ended December 29, 2024, December 31, 2023 and December 25, 2022 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, deferred tax adjustments, impacts from equity-based award activity and the change in valuation allowance.

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Description of Business and Note 11.

Stockholder's Equity, we acquired LLC Units in connection with the IPO and Transactions and Secondary Offerings.

Stockholders' Equity, we acquired LLC Units in connection with the IPO and Transactions and Secondary Offerings.

During the years ended December 29, 2024 and December 31, 2023, we recognized a deferred tax asset in the amount of $ 63.9 million and $ 73.6 million, respectively, associated with the basis difference in our investment in Portillo's OpCo from acquiring these LLC Units.

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These increases may also decrease gains (or increase losses) on future dispositions of certain assets to the extent tax basis is allocated to those assets.

As of December 31, 2023, we estimate that our obligation for future payments under the TRA totaled $ 299.8 million.

The Company made payments of $ 0.8 million under the TRA during the year ended December 31, 2023 relating to tax year 2021 and we expect a payment of

Also, see Note 19.

Subsequent Events for information about amendments to the Tax Receivable Agreement.

In the fourth quarter of 2024, in connection with the pre-IPO LLC Members unit redemption previously discussed in Note 1.

Description of

Portillo's Inc.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

$ 4.4 million relating to tax year 2022 to be made within the next 12 months.

Business, 840,992 LLC Units were redeemed for newly-issued shares of Class A common stock.

As a result, an increase in the tax basis of net assets of Portillo's OpCo subject to the provisions of the TRA was recorded.

The Company recorded a deferred tax asset of $ 1.7 million and an additional TRA liability of $ 4.3 million.

In the first quarter of 2024, in connection with the Q1 2024 Secondary Offering previously discussed in Note 1.

Description Of Business, 5,832,371 LLC Units were redeemed by the pre-IPO LLC Members for newly-issued shares of Class A common stock.

As a result, an increase in the tax basis of net assets of Portillo's OpCo subject to the provisions of the TRA was recorded.

The Company recorded a deferred tax asset of $ 17.8 million and an additional TRA liability of $ 33.7 million.

In the first quarter of 2023, in connection with the secondary offering previously discussed in Note 1.

Description Of Business, 5,893,600 LLC Units 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 TRA.

The Company recorded a deferred tax asset of $ 34.9 million and an additional TRA liability of $ 47.4 million .

As of December 29, 2024, we estimate that our obligation for future payments under the TRA totaled $ 324.6 million.

The Company made payments of $ 4.4 million under the TRA during the year ended December 29, 2024 relating to tax year 2021 and we expect a payment of $ 7.7 million relating to tax year 2022 to be made within the next 12 months.

Refer to Note 2.

Description Of Business for additional information on the TRA.

EARNINGS (LOSS) PER SHARE

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

Summary Of Significant Accounting Policies for additional information on the TRA.

EARNINGS PER SHARE

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.

Diluted earnings (loss) 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.

The computations of basic and diluted earnings (loss) per share for the years ended December 31, 2023, December 25, 2022 and December 26, 2021 are as follows (in thousands):

The computations of basic and diluted earnings per share for the years ended December 29, 2024, December 31, 2023 and December 25, 2022 are as follows (in thousands):

Fiscal Years Ended

December 29, 2024 December 31, 2023 December 25, 2022

Net income (loss)

$ 35,076 $ 24,818 $ 17,157

Net income (loss) attributable to non-controlling interests 6,394 6,306 ( 19,408 )

Net income (loss) attributable to Portillo's Inc.

Net income attributable to non-controlling interests

5,559 6,394 6,306

Net income attributable to Portillo's Inc.

$ 29,517 $ 18,424 $ 10,851

Weighted-average number of common shares outstanding-basic 61,050 53,807 38,902

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Weighted-average number of common shares outstanding-diluted 63,983 57,308 42,716

Basic net income (loss) per share

Basic net income per share

$ 0.48 $ 0.34 $ 0.28

Diluted net income (loss) per share

Diluted net income per share

$ 0.46 $ 0.32 $ 0.25

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As such, separate presentation of basic and diluted earnings per share of Class B Common Stock under the two-class method has not been presented.

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

Portillo's Inc.

Form 10-K | 68

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

Fiscal Years Ended

December 29, 2024 December 31, 2023 December 25, 2022

Shares subject to performance conditions 1,812 1,807 1,224

Share that were antidilutive 5 — —

Total shares excluded from diluted loss per share 1,817 1,807 1,224

Performance Stock Options (1)

1,377 1,812 1,807

Performance Stock Units (1)

Restricted Stock Units

Stock Options

Total shares excluded from diluted earnings per share

2,120 1,817 1,807

(1) Number of securities outstanding excluded from the computation of diluted earnings per share of Class A common stock because the performance conditions associated with these awards were not met assuming the end of the reporting period was the end of the performance period.

CONTINGENCIES

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As of December 29, 2024 and December 31, 2023, the Company recorded no loss contingencies.

SEGMENT INFORMATION

The Company owns and operates fast-casual restaurants in the United States, along with two food production commissaries in Illinois.

The Company’s chief operating decision maker (the “CODM”) is its Chief Executive Officer.

As the CODM reviews financial performance and allocates resources at a consolidated level on a recurring basis, the Company has one operating segment and one reportable segment.

The CODM allocates resources and assesses performance of the Company based on net income (loss), as reported on the Consolidated Statement of Operations, which as the segment measure of profit and loss that is closest to GAAP, is the required segment measure.

Net income was $ 35.1 million, $ 24.8 million, and $ 17.2 million for the fiscal years ended December 29, 2024, December 31, 2023, and December 25, 2022, respectively.

In addition to net income (loss), the CODM also reviews operating income (loss), restaurant-level adjusted EBITDA and adjusted EBITDA.

The CODM reviews these measures (i) to evaluate the Company's operating results and the effectiveness of business strategies, (ii) internally as benchmarks to compare the Company's performance to its competitors and (iii) as factors in evaluating management’s performance when determining incentive compensation.

Additionally, the Company believes these measures are important to evaluate the performance and profitability of our restaurants, individually and in the aggregate.

The CODM does not review segment assets and segment expenses at a level different than what is reported in the Company's Consolidated Balance Sheet and Consolidated Statement of Operations.

Additionally, the CODM regularly receives information about the Company's capital expenditures which are reported in the Company's Consolidated Statement of Cash Flows as Purchase of property and equipment under investing activities.

No guest accounts for 10% or more of our revenues.

RELATED PARTY TRANSACTIONS

As of both December 29, 2024 and December 31, 2023, the related parties’ receivables balance consisted of $ 0.3 million, due from C&O, which is included in accounts and tenant improvement receivables in the consolidated balance sheet.

Portillo's Inc.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

RELATED PARTY TRANSACTIONS

As of both December 31, 2023 and December 25, 2022, the related parties’ receivables balance consisted of $ 0.3 million, due from C&O, which is included in accounts and tenant improvement receivables in the consolidated balance sheet.

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 years ended December 31, 2023, December 25, 2022, and December 26, 2021 (in thousands):

The Company incurred the following Olo-related costs for th e fiscal years ended December 29, 2024, December 31, 2023, and December 25, 2022 (in thousands):

Fiscal Years Ended

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Other operating expenses 477 423 443

Net Olo-related costs $ 2,659 $ 2,451 $ 1,102

As of December 31, 2023 and December 25, 2022, $ 0.4 million and $ 0.2 million, respectively, were payable to Olo and were included in accounts payable in the consolidated balance sheets.

Total Olo-related costs

$ 2,473 $ 2,659 $ 2,451

As of both December 29, 2024 and December 31, 2023, $ 0.4 million were payable to Olo and were included in accounts payable in the consolidated balance sheets.

Tax Receivable Agreement

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

The Company made payments of $ 0.8 million under the TRA relating to tax year 2021 during the year ended December 31, 2023.

There were no amounts paid under the TRA during the years ended December 25, 2022 and December 26, 2021.

For the fiscal year ended December 29, 2024 and fiscal year ended December 31, 2023, the Company made TRA payments of $ 4.4 million relating to tax year 2022 and $ 0.8 million relating to tax year 2021.

We expect a payment of $ 7.7 million relating to tax year 2023 to be paid within the next 12 months.

Fiscal Years Ended

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Tax Receivable Agreement liability 316,893 295,390

Secondary Offerings

In connection with the secondary offerings previously discussed in Note 1.

Berkshire Partners LLC

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 and shareholders of the Blocker Companies, including from funds affiliated with Berkshire Partners LLC, which is our controlling shareholder that beneficially owns approximately 18.8 % of the Company as of December 29, 2024.

SUBSEQUENT EVENTS

Management evaluated events occurring subsequent to December 29, 2024 and other than as noted below determined that no material recognizable subsequent events occurred.

2025 Credit Agreement Closing

On January 27, 2025 (the “2025 Credit Agreement Closing Date”), Holdings, the Borrower, the other Guarantors party thereto, the Lenders from time to time party thereto and Fifth Third Bank, National Association, as Administrative Agent, the L/C Issuer and the Swing Line Lender entered into an amendment (the “Amendment”) to the 2023 Credit Agreement (as amended by the Amendment and as may be amended, restated, supplemented or otherwise modified from time to time thereafter, the “2025 Credit Agreement”).

Capitalized terms used but not defined in this Note 19 have the meaning ascribed to such terms in the Amendment or the 2025 Credit Agreement, as applicable.

The Amendment provides for, among other things, (i) a $ 250 million term loan A facility (the “2025 Term Loan Facility”) and (ii) revolving credit commitments in an initial aggregate principal amount of $ 150 million (the “2025 Revolving Credit Facility” and, together with the Term Loan Facility, the “2025 Facilities”), the proceeds of which will be used to refinance indebtedness under the 2023 Credit Agreement, for general

Portillo's Inc.

Form 10-K | 70

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

corporate purposes and working capital needs and for other activities permitted under the 2025 Credit Agreement.

The loans under each of the 2025 Facilities mature on January 27, 2030.

The 2025 Facilities are guaranteed, subject to customary exceptions, by all of the Borrower’s wholly-owned domestic restricted subsidiaries and Holdings, and are secured by a lien on substantially all of the Borrower’s assets, including fixed assets and intangibles, and the assets of the Guarantors, in each case, subject to customary exceptions.

The Borrower may, upon notice to the Administrative Agent by the Borrower, at any time or from time to time voluntarily prepay the 2025 Term Loan Facility or the 2025 Revolver Facility in whole or in part without premium or penalty.

The 2025 Term Loan Facility is subject to amortization of principal, payable in quarterly installments on the last day of each fiscal quarter, commencing on the last day of the first full fiscal quarter after the Closing Date (the “Initial Amortization Date”), equal to (i) for the first two years following the 2025 Credit Agreement Closing Date, $ 6.3 million of the original principal amount of the term loans, (ii) for the third and fourth years following the 2025 Credit Agreement Closing Date, $ 12.5 million of the original principal amount of the term loans and (iii) for the fifth year following the 2025 Credit Agreement Closing Date, $ 25.0 million of the original principal amount of the term loans.

The remaining initial aggregate advances under the Term Loan Facility are payable at the maturity of the 2025 Term Loan Facility.

Each Facility bears interest at a rate per annum equal to, (i) in the case of Base Rate Loans, an applicable rate based on a grid ranging from 1.00 % to 1.75 % or, (ii) in the case of Tranche Rate Loans, an applicable rate based on a grid ranging from 2.00 % to 2.75 %, in each case, based on the Consolidated Total Net Rent Adjusted Leverage.

In addition, the Borrower will pay (i) an unused commitment fee of between 0.20 % and 0.25 % on the undrawn commitments under the 2025 Revolving Credit Facility and (ii) Letter of Credit fees of between 2.00 % and 2.75 % on outstanding Letters of Credit, in each case, also based on the Consolidated Total Net Rent Adjusted Leverage.

The 2025 Credit Agreement contains customary representations and warranties, events of default, reporting and other affirmative covenants and negative covenants, including limitations on indebtedness, liens, investments, negative pledges, dividends, junior financings and other fundamental changes.

Failure to comply with these covenants and restrictions could result in an event of default under the 2025 Credit Agreement.

In such an event, all amounts outstanding under the 2025 Credit Agreement, together with any accrued interest, could then be declared immediately due and payable.

2025 Tax Receivable Agreement Amendment

On January 24, 2025, we entered into an Amendment to the Tax Receivable Agreement (the “Amendment") with PHD Group Holdings, LLC and the TRA Party Representative, as defined in the agreement.

The Amendment replaces the LIBOR based interest rate with a Term Secured Overnight Financing Rate (“SOFR”) based rate.

On January 9, 2025, the Board elected Jack Hartung to serve on the Company’s board of directors, ( the “Board”), effective immediately.

In connection with his appointment, Mr.

Hartung was appointed to serve on the Audit Committee of the Board.

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Valuation and Qualifying Accounts

7 unchanged sentences

$ 38,415 $ 2,277 $ —

(1) Amounts relate to a valuation allowance established on deferred tax assets related to our investment in Portillo's OpCo.

$ 29,343 $ 11,349

Portillo's Inc.

2 unchanged sentences

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-K

Item 8. Financial Statements and Supplementary Data