What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-05-26 compared with 2021-11-10 · 145 added, 196 removed, 184 unchanged (65% of the section changed)

1 unchanged sentence

Management's Discussion and Analysis of Financial Condition and Results of Operations provides a narrative of our financial performance and condition that should be read in conjunction with the accompanying Condensed Consolidated Financial Statements.

All comparisons under this heading between 2021 and 2020 refer to the twelve and forty weeks ended October 3, 2021 and October 4, 2020, unless otherwise indicated.

All comparisons under this heading between 2022 and 2021 refer to the sixteen weeks ended April 17, 2022 and April 18, 2021, unless otherwise indicated.

Description of Business

Red Robin Gourmet Burgers, Inc., a Delaware corporation, together with its subsidiaries ("Red Robin," "we," "us," "our," or the "Company"), primarily operates, franchises, and develops full-service restaurants with 527 locations in North America.

As of October 3, 2021, the Company owned 430 restaurants located in 38 states.

As of April 17, 2022, the Company owned 426 restaurants located in 38 states.

The Company also had 101 franchised full-service restaurants in 16 states and one Canadian province.

The Company operates its business as one operating and one reportable segment.

COVID-19 Impact

The COVID-19 pandemic continues to create unprecedented challenges for our industry including government mandated restrictions, changing consumer behavior, labor and supply chain challenges, and wide spread inflationary costs.

Even as government restrictions were lifted, and dining rooms returned to full capacity, the surge in the Delta variant continued to highlight the critical importance of providing a safe environment for our Team Members and Guests.

In response to these COVID-19 challenges, the Company limited dining hours and seating capacity in order to preserve the consistent quality experience our Guests expect from us.

Our disciplined Guest focus is delivered through our Total Guest Experience hospitality model ("TGX"), off-premises enhancements, and our management labor model.

Our ability to attract and retain Team Members has become more challenging in the current competitive job market.

Staffing is our number one priority;

we have supported our staffing efforts through technology enhancements to the application and hiring process, improving our wage policies, holding national hiring days, and deploying internal and external resources to augment recruiting, hiring, and training efforts.

The challenges in hiring and retention and global supply chain disruptions have affected many of our vendor partners, resulting in intermittent product and distribution shortages.

We remain focused on proactively addressing these industry challenges, while delivering a great Guest experience and continuing to prioritize the satisfaction and retention of our Team Members.

Financial and Operational Highlights

The following summarizes the operational and financial highlights during the twelve weeks ended October 3, 2021:

Restaurant Revenue, compared to the same period in the prior year, is presented in the table below:

Restaurant Revenue for the twelve weeks ended October 4, 2020

Increase in comparable restaurant revenue 67.0

Increase from non-comparable restaurants 6.2

Total increase 73.2

Restaurant Revenue for the twelve weeks ended October 3, 2021

The following summarizes the operational and financial highlights during the forty weeks ended October 3, 2021:

The following summarizes the operational and financial highlights during the sixteen weeks ended April 17, 2022:

Restaurant Revenue, compared to the same period in the prior year, is presented in the table below:

Restaurant Revenue for the forty weeks ended October 4, 2020

Increase in comparable restaurant revenue 200.6

Decrease from non-comparable restaurants 1.8

Total increase 202.4

Restaurant Revenue for the forty weeks ended October 3, 2021

Restaurant Revenue for the sixteen weeks ended April 18, 2021

Increase/(decrease) in comparable restaurant revenue (1)

Increase/(decrease) from non-comparable restaurants 0.4

Total increase/(decrease) 61.9

Restaurant Revenue for the sixteen weeks ended April 17, 2022

(1) Comparable restaurant revenue represents revenue from Company-owned restaurants that have operated five full quarters as of the end of the period presented.

Restaurant revenues and operating costs as a percentage of restaurant revenue for the period are detailed in the table below:

Twelve weeks ended 2021 compared to 2020 Twelve Weeks Ended 2021 compared to 2019 (1)

October 3, 2021 October 4, 2020 Increase/(Decrease) October 6, 2019 (1)

Increase/(Decrease)

Restaurant revenue (millions) $ 270.2 $ 197.0 37.2 % $ 289.9 (6.8) %

Restaurant operating costs:

(Percentage of Restaurant Revenue) (Basis Points) (Percentage of Restaurant Revenue) (Basis Points)

Cost of sales 23.2 % 23.4 % (20) 23.8 % (60)

Labor 36.9 % 37.7 % (80) 36.2 % 70

Other operating 19.0 % 19.1 % (10) 15.3 % 370

Occupancy 8.3 % 11.2 % (290) 8.6 % (30)

Total 87.5 % 91.4 % (390) 83.9 % 360

(1) Presented for improved comparability to pre-COVID-19 operations.

Forty weeks ended 2021 compared to 2020 Forty Weeks Ended 2021 compared to 2019 (1)

October 3, 2021 October 4, 2020 Increase/(Decrease) October 6, 2019 (1)

Increase/(Decrease)

Sixteen Weeks

April 17, 2022 April 18, 2021 Increase/(Decrease)

Restaurant revenue (millions) $ 380.6 $ 318.7 19.4 %

Restaurant operating costs:

(Percentage of Restaurant Revenue) (Basis Points) (Percentage of Restaurant Revenue) (Basis Points)

(Percentage of Restaurant Revenue) (Basis Points)

Cost of sales 23.9 % 21.7 % 220

3 unchanged sentences

Total 86.0 % 84.3 170

(1) Presented for improved comparability to pre-COVID-19 operations.

The following table summarizes Net loss, loss per diluted share, and adjusted loss per diluted share for the twelve and forty weeks ended October 3, 2021 and October 4, 2020;

Twelve Weeks Ended Forty Weeks Ended

October 3, 2021 October 4, 2020 October 3, 2021 October 4, 2020

Certain percentage and basis point amounts in the table above do not total due to rounding as well as restaurant operating costs being expressed as a percentage of restaurant revenue and not total revenues.

The following table summarizes Net Loss, loss per diluted share, and adjusted loss per diluted share for the sixteen weeks ended April 17, 2022 and April 18, 2021;

Sixteen Weeks Ended

April 17, 2022 April 18, 2021

Net loss as reported $ (3,105) $ (8,713)

Loss per share - diluted:

Net loss as reported $ (0.95) $ (0.40) $ (1.83) $ (16.98)

Restaurant closure costs 0.07 0.26 0.34 0.93

Asset impairment — — 0.09 1.49

Net (loss) income as reported $ (0.20) $ (0.56)

Change in accounting estimate, gift card breakage revenue, net of commissions (1)

Restaurant asset impairment 0.13 0.08

Litigation contingencies 0.11 0.07

COVID-19 related costs 0.02 0.03 0.07 0.09

Write-off of unamortized debt issuance costs (2)

Restaurant closure costs 0.06 0.16

Other financing costs (3)

Board and stockholder matter costs — 0.01

Severance and executive transition — — — 0.06

Goodwill impairment — — — 6.84

Income tax effect (0.03) (0.08) (0.16) (2.57)

COVID-19 related charges 0.01 0.03

Income tax expense (0.03) (0.09)

Adjusted loss per share - diluted $ (0.12) $ (0.30)

2 unchanged sentences

Diluted 15,748 15,579

(1) During the sixteen weeks ended April 17, 2022, the Company re-evaluated the estimated redemption pattern related to gift cards.

See Footnote 1.

Basis of Presentation and Recent Accounting Pronouncements included in Part I.

Financial Information in this quarterly report on form 10-Q.

(2) Write-off of unamortized debt issuance costs related to the remaining unamortized debt issuance costs related to our legacy credit agreement with the completion of the refinancing of our Credit Agreement in the first quarter of fiscal year 2022.

(3) Other financing costs includes legal and other charges related to the refinancing of our Credit Facility in the first quarter of 2022.

We believe the non-GAAP measure of adjusted loss per diluted share gives the reader additional insight into the ongoing operational results of the Company, and it is intended to supplement the presentation of the Company's financial results in accordance with GAAP.

Adjusted loss per diluted share excludes the effects of changes in accounting estimates, asset impairment, litigation contingencies, the write-off of unamortized debt issuance costs, restaurant closure costs, other financing costs, COVID-19 related costs, and related income tax effects.

Other companies may define adjusted net loss per diluted share differently, and as a result our measure of adjusted loss per share may not be directly comparable to those of other companies.

Adjusted loss per share should be considered in addition to, and not as a substitute for, net loss as reported in accordance with U.S.

GAAP as a measure of performance.

Restaurant Data

The following table details restaurant unit data for our Company-owned and franchised locations for the periods indicated:

Twelve Weeks Ended Forty Weeks Ended

October 3, 2021 October 4, 2020 October 3, 2021 October 4, 2020

Sixteen Weeks Ended

April 17, 2022 April 18, 2021

Company-owned:

3 unchanged sentences

Beginning of period 101 103

Opened during the period — 1 — 1

Closed during the period — — (2) —

End of period 101 103

Total number of restaurants 527 543

________________________________________________________

The following table presents total Company-owned and franchised restaurants by state or province as of October 3, 2021:

The following table presents total Company-owned and franchised restaurants by state or province as of April 17, 2022:

Company-Owned Restaurants Franchised Restaurants

23 unchanged sentences

Total 426 101

———————————————————

Results of Operations

2 unchanged sentences

Our operating results may fluctuate significantly as a result of a variety of factors, and operating results for any period presented are not necessarily indicative of results for a full fiscal year.

Twelve Weeks Ended Forty Weeks Ended

October 3, 2021 October 4, 2020 October 6, 2019 (1)

Sixteen Weeks Ended

April 17, 2022 April 18, 2021

Restaurant revenue 96.2 % 97.7 %

9 unchanged sentences

Depreciation and amortization 6.0 7.9

General and administrative expenses 6.4 % 7.6 % 6.5 % 6.6 % 8.4 % 7.0 %

Selling expenses 4.6 % 3.0 % 6.0 % 3.6 % 4.0 % 4.8 %

Pre-opening and acquisition costs 0.2 % — % — % 0.1 % — % — %

Other charges 0.6 % 2.2 % (0.6) % 1.1 % 20.7 % 1.7 %

Loss from operations (4.4) % (12.3) % (1.8) % (2.2) % (35.0) % (1.4) %

Selling, general and administrative 8.7 9.4

Other charges, net 1.3 1.7

Income (Loss) from operations 1.1 (1.3)

Interest expense, net and other 1.9 1.3

2 unchanged sentences

Net loss (0.8) % (2.7) %

___________________________________

(1) Presented for improved comparability to pre-COVID-19 operations.

Certain percentage amounts in the table above do not total due to rounding as well as restaurant operating costs being expressed as a percentage of restaurant revenue and not total revenues.

Twelve Weeks Ended Forty Weeks Ended

(Revenues in thousands) October 3, 2021 October 4, 2020 Percent Change October 3, 2021 October 4, 2020 Percent Change

Sixteen Weeks Ended

(Revenues in thousands) April 17, 2022 April 18, 2021 Percent Change

Restaurant revenue $ 380,612 $ 318,677 19.4 %

4 unchanged sentences

Net sales per square foot $ 142 $ 119 19.7 %

Restaurant revenue for the twelve weeks ended October 3, 2021, which comprises primarily food and beverage sales, increased $73.2 million, or 37.2%, as compared to the twelve weeks ended October 4, 2020.

The increase was due to a $67.0 million, or 34.3%, increase in comparable restaurant revenue, and a $6.2 million increase primarily from reopened restaurants that were temporarily closed during third quarter 2020.

The comparable restaurant revenue increase was driven by a 22.5% increase in Guest count and a 11.8% increase in average Guest check.

The increase in average Guest check resulted from a 3.5% increase in pricing and a 8.4% increase in menu mix, partially offset by a 0.1% decrease from higher discounting.

The increase in menu mix was primarily driven by higher sales of beverages and our limited time menu offerings.

Off-premises sales comprised 30.8% of total food and beverage sales during third quarter 2021, compared to 40.7% in the same period in 2020.

Restaurant revenue for the forty weeks ended October 3, 2021, increased $202.4 million or 30.7%, as compared to the forty weeks ended October 4, 2020.

The increase was due to a $200.6 million, or 31.5%, increase in comparable restaurant revenue and a $1.8 million increase primarily from reopened restaurants that were temporarily closed during 2020.

The comparable restaurant revenue increase was driven by a 21.1% increase in Guest counts and a 10.5% increase in average Guest check.

The increase in average Guest check resulted from a 3.5% increase in pricing and a 6.6% increase in menu mix, and a 0.4% increase from lower discounting.

The increase in menu mix was primarily driven by higher sales of beverages, appetizers, and limited time menu offerings.

Restaurant revenue for the sixteen weeks ended April 17, 2022, which comprises primarily food and beverage sales, increased $61.9 million, or 19.4%, as compared to the first quarter of 2021.

The increase was due to a $61.5 million, or 19.7%, increase in comparable restaurant revenue, and a $0.4 million increase at non-comparable restaurants, including the impact of restaurant closures.

The comparable restaurant revenue increase was driven by a 12.8% increase in average Guest check, and a 6.9% increase in Guest count.

The increase in average Guest check resulted from a 6.0% increase in menu mix, a 5.4% increase in pricing, and a 1.4% decrease in discounts.

The increase in menu mix was primarily driven by our limited time menu offerings and higher dine-in sales volumes.

Off-premises sales decreased 12.9% and comprised 30.5% of total food and beverage sales during the first quarter of 2022, as compared to the same period in 2021.

Average weekly net sales volumes represent the total restaurant revenue for all Company-owned Red Robin restaurants for each time period presented, divided by the number of operating weeks in the period.

Comparable restaurant revenues are comprised of Company-owned restaurants that have operated five full quarters as of the end of the period presented.

Company-owned restaurants that were temporarily closed due to the COVID-19 pandemic were not included in the comparable base for the twelve and forty weeks ended October 3, 2021 or October 4, 2020.

The Company-owned restaurants that were temporarily closed due to the COVID-19 pandemic were not included in the comparable base for the sixteen weeks ended April 17, 2022 or April 18, 2021.

Fluctuations in average weekly net sales volumes for Company-owned restaurants reflect the effect of comparable restaurant revenue changes as well as the performance of new and acquired restaurants during the period, the average square footage of our restaurants, as well as the impact of changing capacity limitations in response to COVID-19 levels in a given locality.

Net sales per square foot represents the total restaurant revenue for Company-owned restaurants included in the comparable base divided by the total square feet of Company-owned restaurants included in the comparable base.

Franchise and other revenue increased $1.8 million for the twelve weeks ended October 3, 2021 compared to the twelve weeks ended October 4, 2020, due to improved comparable franchise sales performance during the third fiscal quarter of 2021.

Franchise and other revenue increased $8.6 million for the forty weeks ended October 3, 2021 compared to the forty weeks ended October 4, 2020, due to improved comparable franchise sales performance, charging and collecting royalty payments and advertising contributions from our franchisees during the third fiscal quarter of 2021.

During 2020, the Company had temporarily abated franchisee royalty and advertising contribution payments in mid-March, and resumed collection during the latter half of the second fiscal quarter of 2020, and increased gift card breakage.

Franchise and other revenue increased $7.3 million for the sixteen weeks ended April 17, 2022 compared to the sixteen weeks ended April 18, 2021, primarily due to the re-evaluation of the estimated redemption pattern related to gift cards resulting in a $5.2 million adjustment to gift card breakage from aligning our estimate to the updated estimated redemption pattern.

Our franchisees reported a comparable restaurant revenue increase of 18.7% for the sixteen weeks ended April 17, 2022 compared to the same period in 2021.

Cost of Sales

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 3, 2021 October 4, 2020 Percent Change October 3, 2021 October 4, 2020 Percent Change

Sixteen Weeks Ended

(In thousands, except percentages) April 17, 2022 April 18, 2021 Percent Change

Cost of sales $ 90,941 $ 69,166 31.5 %

As a percent of restaurant revenue 23.9 % 21.7 % 2.2 %

Cost of sales, which comprises food and beverage costs, is variable and generally fluctuates with sales volume.

Cost of sales as a percentage of restaurant revenue decreased 20 basis points for the twelve weeks ended October 3, 2021 as compared to the same period in 2020.

The decrease was primarily driven by pricing, favorable mix shifts, lower waste, and higher rebates, partially offset by commodity inflation.

Cost of sales as a percentage of restaurant revenue decreased 110 basis points for the forty weeks ended October 3, 2021 as compared to the same period in 2020.

The decrease was primarily driven by pricing, favorable mix shifts, and rebates.

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 3, 2021 October 4, 2020 Percent Change October 3, 2021 October 4, 2020 Percent Change

Cost of sales, which comprises of food and beverage costs, is variable and generally fluctuates with sales volume.

Cost of sales as a percentage of restaurant revenue increased 220 basis points for the sixteen weeks ended April 17, 2022 as compared to the same period in 2021.

The increase was primarily driven by commodity inflation, partially offset by favorable mix shifts and pricing.

Sixteen Weeks Ended

(In thousands, except percentages) April 17, 2022 April 18, 2021 Percent Change

Labor $ 138,108 $ 111,659 23.7 %

1 unchanged sentence

Labor costs include restaurant-level hourly wages and management salaries as well as related taxes and benefits.

For the twelve weeks ended October 3, 2021, labor as a percentage of restaurant revenue decreased 80 basis points compared to the same period in 2020.

The decrease was primarily driven by industry staffing shortages and sales leverage, partially offset by higher wage rates, staffing costs and increased restaurant management compensation costs in 2021.

$3.1 million of transitory labor and other operating costs were incurred due to staffing challenges, including hiring and training costs, temporarily outsourced janitorial costs, one time bonuses, and overtime pay.

For the forty weeks ended October 3, 2021, labor as a percentage of restaurant revenue decreased 280 basis points compared to the same period in 2020.

The decrease was primarily driven by staffing shortages, and sales leverage, partially offset by higher wage rates, staffing costs and increased restaurant management compensation costs in 2021.

For the sixteen weeks ended April 17, 2022, labor as a percentage of restaurant revenue increased 130 basis points compared to the same period in 2021.

The increase was primarily driven by higher labor inflation and staffing costs, partially offset by sales leverage.

Other Operating

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 3, 2021 October 4, 2020 Percent Change October 3, 2021 October 4, 2020 Percent Change

Sixteen Weeks Ended

(In thousands, except percentages) April 17, 2022 April 18, 2021 Percent Change

Other operating $ 67,864 $ 57,712 17.6 %

1 unchanged sentence

Other operating costs include costs such as equipment repairs and maintenance costs, restaurant supplies, utilities, restaurant technology, and other miscellaneous costs.

For the twelve weeks ended October 3, 2021, other operating costs as a percentage of restaurant revenue decreased 10 basis points as compared to the same period in 2020.

The decrease was primarily driven by sales leverage and lower utilities, and lower supplies due to lower off-premises sales mix, partially offset by increased hiring advertisement costs and janitorial and maintenance expenses.

For the forty weeks ended October 3, 2021, other operating costs as a percentage of restaurant revenue decreased 80 basis points as compared to the same period in 2020.

The decrease was primarily driven by sales leverage and lower utilities and supplies due to lower off-premises sales mix, partially offset by increased hiring costs.

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 3, 2021 October 4, 2020 Percent Change October 3, 2021 October 4, 2020 Percent Change

For the sixteen weeks ended April 17, 2022, other operating costs as a percentage of restaurant revenue decreased 30 basis points as compared to the same period in 2021.

The decrease was primarily driven by lower supply costs driven by lower off-premises sales, and sales leverage, partially offset by increased maintenance costs due to outsourcing.

Sixteen Weeks Ended

(In thousands, except percentages) April 17, 2022 April 18, 2021 Percent Change

Occupancy $ 30,599 $ 30,100 1.7 %

1 unchanged sentence

Occupancy costs include fixed rents, property taxes, common area maintenance charges, general liability insurance, contingent rents, and other property costs.

Occupancy costs incurred prior to opening our new restaurants are included in pre-opening costs.

For the twelve weeks ended October 3, 2021, occupancy costs as a percentage of restaurant revenue decreased 290 basis points compared to the same period in 2020 primarily driven by sales leverage and restructured leases.

For the forty weeks ended October 3, 2021, occupancy costs as a percentage of restaurant revenue decreased 300 basis points compared to the same period in 2020 primarily driven by sales leverage, savings from permanently closed restaurants and restructured leases.

Our fixed rents for the twelve weeks ended October 3, 2021 and October 4, 2020 were $15.8 million and $14.7 million, an increase of $1.1 million due to recognizing ongoing fixed rents of Company-owned restaurants that were temporarily closed due to the COVID-19 pandemic in Closed restaurant expense (a component of Other Charges) in 2020, compared to Occupancy in 2021.

Our fixed rents for the forty weeks ended October 3, 2021 and October 4, 2020 were $52.8 million and $51.0 million, an increase of $1.8 million due to recognizing ongoing fixed rents of Company-owned restaurants that were temporarily closed due to the COVID-19 pandemic in Closed restaurant expense (a component of Other Charges) in 2020, compared to Occupancy in 2021, partially offset by a net decrease in store count resulting from 13 locations permanently closed during the period.

For the sixteen weeks ended April 17, 2022, occupancy costs as a percentage of restaurant revenue decreased 140 basis points compared to the same period in 2021 primarily driven by sales leverage.

Our fixed rents for the sixteen weeks ended April 17, 2022 and April 18, 2021 were $21.3 million and $21.1 million, an increase of $0.2 million.

Depreciation and Amortization

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 3, 2021 October 4, 2020 Percent Change October 3, 2021 October 4, 2020 Percent Change

Sixteen Weeks Ended

(In thousands, except percentages) April 17, 2022 April 18, 2021 Percent Change

Depreciation and amortization $ 23,919 $ 25,888 (7.6) %

1 unchanged sentence

Depreciation and amortization includes depreciation on capital expenditures for restaurants and corporate assets as well as amortization of acquired franchise rights, leasehold interests, and certain liquor licenses.

For the twelve weeks ended October 3, 2021, depreciation and amortization expense as a percentage of revenue decreased 270 basis points over the same period in 2020.

For the forty weeks ended October 3, 2021, depreciation and amortization expense as a percentage of revenue decreased 290 basis points over the same period in 2020.

The decreases are primarily due to net closed Company-owned restaurants, and sales leverage.

General, and Administrative expenses

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 3, 2021 October 4, 2020 Percent Change October 3, 2021 October 4, 2020 Percent Change

General, and administrative expenses $ 17,691 $ 15,190 16.5 % $ 57,664 $ 56,054 2.9 %

For the sixteen weeks ended April 17, 2022, depreciation and amortization expense as a percentage of revenue decreased 190 basis points over the same period in 2021 primarily due to net closed Company-owned restaurants, and sales leverage.

Selling, General, and Administrative

Sixteen Weeks Ended

(In thousands, except percentages) April 17, 2022 April 18, 2021 Percent Change

Selling, general, and administrative $ 34,380 $ 30,610 12.3 %

As a percent of total revenues 8.7 % 9.4 % (0.7) %

General, and administrative costs include all corporate and administrative functions, excluding Selling expenses discussed below.

Components of this category include our restaurant support center, regional, and franchise support salaries and benefits;

Selling, general, and administrative costs include all corporate and administrative functions.

Components of this category include marketing and advertising costs;

restaurant support center, regional, and franchise support salaries and benefits;

professional and consulting fees;

2 unchanged sentences

and board of directors expenses.

General, and administrative expenses in the twelve weeks ended October 3, 2021 increased $2.5 million, or 16.5 %, as compared to the same period in 2020.

The increase in general and administrative expenses in 2021 was primarily driven by merit increases and lapping temporary salary reductions in 2020, increased travel costs, and higher professional services spend.

General, and administrative expenses in the forty weeks ended October 3, 2021 increased $1.6 million, or 2.9 %, as compared to the same period in 2020.

The increase in general and administrative expenses in 2021 was primarily driven by higher Team Member benefit costs, merit increases and lapping temporary salary reductions in 2020, partially offset by decreased travel costs and other corporate costs.

Selling expenses

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 3, 2021 October 4, 2020 Percent Change October 3, 2021 October 4, 2020 Percent Change

Selling expenses $ 12,652 $ 6,094 * $ 31,635 $ 26,429 19.7 %

As a percent of total revenues 4.6 % 3.0 % 1.6 % 3.6 % 4.0 % (0.4) %

Selling expenses include all marketing and advertising costs associated with the Company's marketing strategy.

Selling expenses in the twelve weeks ended October 3, 2021 increased $6.6 million, as compared to the same period in 2020.

The increase in selling expenses in 2021 was primarily driven by the return of marketing spend closer to a more normalized level in 2021.

Selling expenses in the forty weeks ended October 3, 2021 increased $5.2 million, or 19.7 %, as compared to the same period in 2020.

The increase in selling expenses in 2021 was primarily driven by the return of marketing spend closer to a more normalized level in 2021.

* Percentage increases and decreases over 100 percent were not considered meaningful.

General, and administrative costs in the sixteen weeks ended April 17, 2022 increased $2.8 million, or 12.3%, as compared to the same period in 2021.

The increase was primarily driven by increased stock based compensation expense, merit increases, and increased manager-in-training costs.

Selling costs in the sixteen weeks ended April 17, 2022 increased $1.0 million, or 11.8%, as compared to the same period in 2021.

The increase was primarily driven by increased marketing spend.

Pre-opening Costs

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 3, 2021 October 4, 2020 Percent Change October 3, 2021 October 4, 2020 Percent Change

Sixteen Weeks Ended

(In thousands, except percentages) April 17, 2022 April 18, 2021 Percent Change

Pre-opening costs $ 62 $ — *

1 unchanged sentence

* Percentage increases and decreases over 100 percent were not considered meaningful

Pre-opening costs, which are expensed as incurred, comprise the costs related to preparing restaurants to introduce Donatos®, as well as direct costs, including labor, occupancy, training, and marketing, incurred related to opening new restaurants and hiring the initial work force.

Pre-opening costs, which are expensed as incurred, comprise the costs related to preparing restaurants to introduce Donatos® and other initiatives, as well as direct costs, including labor, occupancy, training, and marketing, incurred related to opening new restaurants and hiring the initial work force.

Our pre-opening costs fluctuate from period to period, depending upon, but not limited to, the number of restaurants where Donatos® has been introduced, the number of restaurant openings, the size of the restaurants being opened, and the location of the restaurants.

Pre-opening costs for any given quarter will typically include expenses associated with restaurants opened during the quarter as well as expenses related to restaurants opening in subsequent quarters.

We incurred pre-opening costs during the twelve and forty weeks ended October 3, 2021 and October 4, 2020 related to the rollout of Donatos®.

The Company completed the rollout of 38 restaurants during the twelve weeks ended October 3, 2021, and expects to continue its roll out of Donatos® to approximately 40 restaurants in the fourth quarter of fiscal year 2021.

We incurred pre-opening costs during the sixteen weeks ended April 17, 2022 related to the rollout of Donatos®.

The Company expects to continue its roll out of Donatos® in 2022 to approximately 50 restaurants.

Interest Expense, Net and Other

Interest expense, net and other was $2.9 million for the twelve weeks ended October 3, 2021, an increase of $0.6 million, or 26.1%, compared to the same period in 2020.

The increase was primarily related to a higher weighted average interest rate for the quarter due to increased rates associated with the Second Amendment, partially offset by a lower average outstanding debt balance compared to the same period in 2020.

Our weighted average interest rate was 6.8% for the twelve weeks ended October 3, 2021 as compared to 5.0% for the same period in 2020.

Interest expense, net and other was $10.0 million for the forty weeks ended October 3, 2021, an increase of $2.4 million, or 31.6%, from the same period in 2020.

The increase was primarily related to a higher weighted average interest rate for the period as well as the partial write off of approximately $1.2 million of deferred financing charges related to the modification of our revolver in conjunction with the execution of the Second Amendment on February 25, 2021, partially offset by a lower average outstanding debt balance compared to the same period in 2020.

Our weighted average interest rate was 6.6% for the forty weeks ended October 3, 2021 as compared to 4.5% for the same period in 2020.

Provision for Income Taxes

The effective tax rate for the twelve weeks ended October 3, 2021 was a 0.2% benefit, compared to a 77.0% benefit for the twelve weeks ended October 4, 2020.

The effective tax benefit for the forty weeks ended October 3, 2021 was 1.1%, compared to a 1.8% benefit for the forty weeks ended October 4, 2020.

The decrease in tax benefit for the twelve and forty weeks ended October 3, 2021 is primarily due to the change in full valuation allowance recognition.

The Company has filed federal and state cash tax refund claims totaling approximately $16 million during 2021 from net operating loss carrybacks.

While we expect to receive a portion of the refunds in 2021, due to government delays in processing these claims we do not expect to receive the majority until 2022.

Interest expense, net and other was $7.4 million for the sixteen weeks ended April 17, 2022, an increase of $3.1 million, or 71.2%, compared to the same period in 2021.

The increase was primarily related to a higher weighted average interest rate for the quarter as well as the write off of approximately $1.7 million of deferred financing charges related to the Company's prior credit facility upon the execution of the Credit Agreement on March 4, 2022.

Our weighted average interest rate was 8.2% for the sixteen weeks ended April 17, 2022 as compared to 6.3% for the same period in 2021.

Income Tax Provision

The effective tax rate for the sixteen weeks ended April 17, 2022 was a 2.0% expense, compared to a 0.6% expense for the sixteen weeks ended April 18, 2021.

The Company had outstanding federal and state refund claims of approximately $15.8 million as of December 26, 2021.

During the sixteen weeks ended April 17, 2022, the Company received $2.5 million of those refund claims.

On May 24, 2022, the Company received an additional $12.7 million, and expects to receive the remaining $0.6 million during 2022, due to ongoing processing delays at the IRS and state authorities.

Liquidity and Capital Resources

Cash and cash equivalents increased $1.6 million to $17.8 million as of October 3, 2021, from $16.1 million at the beginning of the fiscal year.

Cash and cash equivalents, and restricted cash increased $19.2 million to $41.9 million as of April 17, 2022, from $22.8 million at the beginning of the fiscal year.

As the Company continues to recover from the COVID-19 pandemic and generates operating cash flow, the Company is using available cash flow from operations to pay down debt, maintain existing restaurants and infrastructure, and execute on its long-term strategic initiatives.

As of October 3, 2021, the Company had approximately $75.2 million in liquidity, including the impact of a $30 million capacity reduction on our revolving line of credit pursuant to the Second Amendment, including cash on hand and available borrowing capacity.

As of April 17, 2022, the Company had approximately $55.8 million in liquidity, including cash on hand and available borrowing capacity under its credit facility.

The table below summarizes our cash flows from operating, investing, and financing activities for each period presented (in thousands):

Forty Weeks Ended

October 3, 2021 October 4, 2020

Net cash provided by (used in) operating activities $ 37,617 $ (22,401)

Sixteen Weeks Ended

April 17, 2022 April 18, 2021

Net cash provided by operating activities $ 13,296 $ 18,932

Net cash used in investing activities (9,548) (5,400)

Net cash (used in) provided by financing activities (16,037) 34,020

Net cash provided by (used in) financing activities 15,417 (7,393)

Effect of exchange rate changes on cash 8 29

Net change in cash and cash equivalents $ 1,641 $ (2,678)

Net change in cash and cash equivalents, and restricted cash $ 19,173 $ 6,168

Operating Cash Flows

Net cash flows provided by (used in) operating activities increased $61.0 million to $37.6 million for the forty weeks ended October 3, 2021.

The changes in net cash provided by (used in) operating activities are primarily attributable to a $103.3 million increase in profit from operations (defined as the change in operating margins from comparable and non-comparable restaurants), lower accounts receivable and higher accounts payable balances due to the timing of operational receipts and payments, as well as other changes in working capital as presented in the Condensed Consolidated Statements of Cash Flows.

Net cash flows provided by operating activities decreased $5.6 million to $13.3 million for the sixteen weeks ended April 17, 2022.

The changes in net cash provided by operating activities are primarily attributable to lower accounts payable balances due to the timing of operational receipts and payments, as well as other changes in working capital as presented in the Condensed Consolidated Statements of Cash Flows, partially offset increased income from operations, driven primarily by an increase in comparable restaurant revenue.

Investing Cash Flows

Net cash flows used in investing activities increased $5.8 million to $20.0 million for the forty weeks ended October 3, 2021, as compared to $14.1 million for the same period in 2020.

The increase is primarily due to increased spend on Donatos ® associated with adding 38 restaurants in the third fiscal quarter.

The following table lists the components of our capital expenditures, net of currency translation, for the forty weeks ended October 3, 2021 and October 4, 2020 (in thousands):

Forty Weeks Ended

October 3, 2021 October 4, 2020

Donatos ® expansion

Net cash flows used in investing activities increased $4.1 million to $9.5 million for the sixteen weeks ended April 17, 2022, as compared to $5.4 million for the same period in 2021.

The increase is primarily due to increased spending on restaurant improvements, and investments in technology.

The following table lists the components of our capital expenditures, net of currency translation, for the sixteen weeks ended April 17, 2022 and April 18, 2021 (in thousands):

Sixteen Weeks Ended

April 17, 2022 April 18, 2021

Restaurant improvement capital and other $ 4,856 $ 2,429

Investment in technology, infrastructure, and other 3,116 2,269

Donatos® expansion 1,176 702

New restaurants and restaurant refreshes 568 —

1 unchanged sentence

Financing Cash Flows

Net cash flows used in financing activities increased $51.0 million to $16.0 million for the forty weeks ended October 3, 2021, as compared to net cash flows provided by financing activities of $34.0 million in the same period in 2020.

The decrease is due to a $28.9 million decrease in proceeds from the issuance of common stock, net of issuance costs, and a $24.7 million increase in net repayments made on long-term debt, partially offset by a decrease in cash used for debt issuance costs, and a decrease in cash used to repurchase the Company's common stock due to the temporary suspension of the Company's share repurchase program beginning in 2020.

Credit Facility

As of October 3, 2021, the Company had outstanding borrowings under the Credit Facility of $156.3 million, of which $9.7 million was classified as current, in addition to amounts issued under letters of credit of $8.6 million.

Amounts issued under letters of credit reduce the amount available under the Credit Facility but are not recorded as debt.

As of October 3, 2021, the Company had $57.4 million of available borrowing capacity under its Credit Facility, including the impact of a $30 million capacity reduction on our revolving line of credit pursuant to the Second Amendment.

Net payments during the forty weeks ended October 3, 2021 totaled $14.3 million, and net draws during the same period in 2020 totaled $9.2 million.

We have made net repayments on our Credit Facility of $50.5 million since December 29, 2019.

As discussed in Footnote 6, Borrowings , in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, In response to the continued uncertainty around the impact of industry labor and supply chain challenges, as well as the COVID-19 Delta variant, the Company amended its current Credit Facility on November 9, 2021 to obtain additional flexibility to continue to implement our business strategy.

The Company anticipates refinancing its Credit Facility in 2022.

We are subject to a number of customary covenants under our Credit Facility, including limitations on additional borrowings, acquisitions, stock repurchases, sales of assets, and dividend payments.

As discussed in Footnote 6, Borrowings , in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, we entered into the Third Amendment on November 9, 2021, which waives compliance with the Leverage Ratio Covenant for the third fiscal quarter of 2021, and provides for adjustments during fourth fiscal quarter of 2021, and the first, second, and third fiscal quarters of 2022.

Additionally, the Third Amendment provides for adjustments to the calculation of the FCCR Covenant when it becomes applicable in the first fiscal quarter of 2022.

See Footnote 6, Borrowings for additional details.

As of October 3, 2021, the Company is in compliance with all applicable covenants applicable to our Credit Facility, as amended.

Due to an anticipated delay in the timing of receipt of cash tax refunds, during the third fiscal quarter and in addition to the Third Amendment, the Company obtained a waiver from our lenders, waiving the application of our FCCR Covenant for the third and fourth fiscal quarters of 2021.

Net cash flows provided by financing activities increased $22.8 million to $15.4 million for the sixteen weeks ended April 17, 2022, as compared to net cash flows used in financing activities of $7.4 million in the same period in 2021.

The increase is primarily due to a $20.4 million increase in net draws made on long-term debt as a result of the Company's refinancing of debt on March 4, 2022, partially offset by an increase in cash used for debt issuance costs, compared to a net paydown of debt in 2021.

New Credit Agreement

On March 4, 2022 the Company entered into a new Credit Agreement.

The new Credit Agreement references the Secured Overnight Financing Rate ("SOFR"), a new index calculated by short-term repurchase agreements and backed by U.S.

Treasury securities, or the Alternate Base Rate ("ABR"), which represents the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.50% per annum, or (c) one-month term SOFR plus 1.00% per annum.

As of April 17, 2022, the Company had outstanding borrowings under the Credit Agreement of $194.4 million net of unamortized deferred financing charges and discounts, of which $2.0 million was classified as current.

As of April 17, 2022, the Company had $22.0 million of available borrowing capacity under its Credit Agreement.

Net draws during the sixteen weeks ended April 17, 2022 totaled $26.9 million, compared to net payments totaling $6.4 million for the same period in 2021.

As of April 17, 2022, the Company had $7.8 million of letters of credit issued against cash collateral, compared to $8.6 million for the same period in 2021.

The Company's cash collateral is recorded in Restricted cash on our Condensed Consolidated Balance Sheets for the quarter ended April 17, 2022.

We are subject to a number of customary covenants under our new Credit Facility, including limitations on additional borrowings, acquisitions, stock repurchases, sales of assets, and dividend payments, as well as a Total Net Leverage ratio covenant.

Debt Outstanding

Total debt outstanding decreased $13.4 million to $157.2 million at October 3, 2021 , from $170.6 million at December 27, 2020, primarily due to net payments of $14.3 million on the Credit Facility, offset by accruing utilization fees on the Credit Facility during the forty weeks ended October 3, 2021 .

Total debt outstanding increased $26.9 million to $203.9 million at April 17, 2022, from $177.0 million at December 26, 2021, primarily driven by net proceeds from the issuance of the New Credit Facility during the sixteen weeks ended April 17, 2022.

Working Capital

10 unchanged sentences

Pursuant to the repurchase program, purchases may be made from time to time at the Company's discretion and the Company is not obligated to acquire any particular amount of common stock.

From the date of the current program approval through October 3, 2021, we have repurchased a total of 226,500 shares at an average price of $29.14 per share for an aggregate amount of $6.6 million.

Accordingly, as of October 3, 2021, we had $68.4 million of availability under the current share repurchase program.

Effective March 14, 2020, the Company temporarily suspended its share repurchase program to provide additional liquidity during the COVID-19 pandemic.

Our ability to repurchase shares is limited to conditions set forth by our lenders in the Second Amendment to our Credit Facility prohibiting us from repurchasing additional shares until the first fiscal quarter of 2022 at the earliest and not until we deliver a covenant compliance certificate demonstrating a lease adjusted leverage ratio less than or equal to 5.00:1.00.

From the date of the current program approval through April 17, 2022, we have repurchased a total of 226,500 shares at an average price of $29.14 per share for an aggregate amount of $6.6 million.

Accordingly, as of April 17, 2022, we had $68.4 million of availability under the current share repurchase program.

Effective March 14, 2020, the Company suspended its share repurchase program to provide additional liquidity during the COVID-19 pandemic.

Our ability to repurchase shares is limited to conditions set forth by our lenders in the Credit Agreement;

redemptions shall not exceed (in any fiscal year) the greater of $2,500,000 and 4% of Consolidated EBITDA calculated on a Pro Forma Basis for the then most recently ended period.

The primary inflationary factors affecting our operations are food, labor costs, energy costs, and materials used in the construction of new restaurants.

Uncertainties related to fluctuations in costs, including energy costs, commodity prices, annual indexed or potential minimum wage increases, and construction materials make it difficult to predict what impact, if any, inflation may continue to have on our business, but it is anticipated inflation will have a negative impact on labor and commodity costs for the remainder of 2021.

A large number of our restaurant personnel are paid at rates based on the applicable minimum wage, and increases in the minimum wage rates have directly affected our labor costs in recent years.

Many of our leases require us to pay taxes, maintenance, repairs, insurance, and utilities, all of which are generally subject to inflationary increases.

Labor cost inflation had a negative impact on our financial condition and results of operations during the sixteen weeks ended April 17, 2022.

Uncertainties related to fluctuations in costs, including energy costs, commodity prices, annual indexed and other wage increases, and construction materials make it difficult to predict what impact, if any, inflation may continue to have on our business, but it is anticipated inflation will have a negative impact on labor and commodity costs for the remainder of 2022.

Our business is subject to seasonal fluctuations.

3 unchanged sentences

Contractual Obligations

There were no other material changes outside the ordinary course of business to our contractual obligations since the filing of Company's Quarterly Report on Form 10-Q for the fiscal quarter ended April 18, 2021, except for lease obligations as a result of contractual rent concessions negotiated by the Company during the fiscal quarter ended October 3, 2021.

There were no other material changes outside the ordinary course of business to our contractual obligations since the filing of the Company's Annual Report on Form 10-K for the fiscal year ended December 26, 2021, except for long-term debt obligations resulting from the changes to our Credit Facility in March 2022 as previously discussed in Note 6, Borrowings , of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, Contractual long-term debt payments as of April 17, 2022 are as follows (in thousands):

Payments Due by Period

Total 2022 2023-2024 2025-2026 2027 and Thereafter

Long-term debt obligations (1)

$ 279,160 $ 15,563 $ 34,515 $ 34,515 $ 194,566

Purchase obligations (2)

$ 185,906 $ 36,471 $ 62,843 $ 38,848 $ 47,744

(1) Long-term debt obligations primarily represent minimum required principal payments under our Credit Facility including estimated interest of $75.3 million based on a 7.50% average borrowing interest rate.

(2) Purchase obligations includes the Company's share of expected system-wide fixed price commitments for food, beverage, equipment, and restaurant supply items.

These amounts are estimates based on both purchase commitments for contracts, as well as anticipated inventory needed for the Company's restaurants, and could vary due to the timing of anticipated volumes.

See the maturity of lease liabilities table in Note 3, Leases, in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

11 unchanged sentences

Forward-looking statements may relate to, among other things:

(i) our ability to re-finance our Credit Facility in 2022, (ii) anticipated impacts of litigation, including employment-related claims, on our financial position and results of operations, (iii) anticipated impacts of COVID-19 on our business, our financial position and results of operations, (iv) expectations regarding our ability to attract and retain Team Members, (v) our business focus and strategy, (vi) expectations regarding claims for tax refunds, (vii) our ability to maintain our working capital position, (viii) our ability to use our Credit Facility to satisfy our working capital deficit, short-term liquidity requirements and capital expenditures, (ix) anticipated impacts of inflation, and (x) availability of food and supplies meeting our specifications from alternate sources.g.

(i) anticipated impacts of litigation, including employment-related claims, on our financial position and results of operations, (ii) anticipated impacts of COVID-19 on our business, our financial position and results of operations, (iii) expectations regarding our ability to attract and retain Team Members, (iv) our business focus and strategy, (v) expectations regarding claims for tax refunds, (vi) our ability to maintain our working capital position, (vii) our ability to use our Credit Facility to satisfy our working capital deficit, short-term liquidity requirements and capital expenditures, (viii) anticipated impacts of inflation, and (ix) availability of food and supplies meeting our specifications from alternate sources.

Although we believe the expectations reflected in our forward-looking statements are based on reasonable assumptions, such expectations may prove to be materially incorrect due to known and unknown risks and uncertainties.

22 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-Q

Item 2. Management’s Discussion and Analysis