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Item 1. Financial Statements

2022-08-10 compared with 2022-05-26 · 80 added, 65 removed, 316 unchanged (31% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except for per share amounts) April 17, 2022 December 26, 2021

(in thousands, except for per share amounts) July 10, 2022 December 26, 2021

Current assets:

30 unchanged sentences

20,449 shares issued;

15,786 and 15,722 shares outstanding as of April 17, 2022 and December 26, 2021

15,899 and 15,722 shares outstanding as of July 10, 2022 and December 26, 2021

Preferred stock, $ 0.001 par value:

3,000 shares authorized;

no shares issued and outstanding as of April 17, 2022 and December 26, 2021

Treasury stock 4,663 and 4,727 shares, at cost, as of April 17, 2022 and December 26, 2021

no shares issued and outstanding as of July 10, 2022 and December 26, 2021

Treasury stock 4,550 and 4,727 shares, at cost, as of July 10, 2022 and December 26, 2021

( 184,205 ) ( 192,803 )

Paid-in capital 239,607 242,560

Accumulated other comprehensive income, net of tax 12 1

Accumulated other comprehensive (loss) income, net of tax ( 6 ) 1

Retained earnings 6,159 27,196

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Sixteen Weeks Ended

(in thousands, except for per share amounts) April 17, 2022 April 18, 2021

Twelve Weeks Ended Twenty-Eight Weeks Ended

(in thousands, except for per share amounts) July 10, 2022 July 11, 2021 July 10, 2022 July 11, 2021

Restaurant revenue $ 288,657 $ 272,157 $ 669,269 $ 590,834

12 unchanged sentences

Total costs and expenses 307,441 279,539 698,621 610,145

Income (loss) from operations 4,370 ( 4,331 )

Loss from operations ( 13,351 ) ( 2,564 ) ( 8,981 ) ( 6,895 )

Other expense:

11 unchanged sentences

Foreign currency translation adjustment $ ( 18 ) $ ( 1 ) $ ( 7 ) $ 20

Other comprehensive income, net of tax 11 21

Other comprehensive (loss) income, net of tax ( 18 ) ( 1 ) ( 7 ) 20

Total comprehensive loss $ ( 17,950 ) $ ( 4,997 ) $ ( 21,044 ) $ ( 13,689 )

13 unchanged sentences

Balance, April 17, 2022 20,449 $ 20 4,663 $ ( 190,022 ) $ 242,756 $ 12 $ 24,091 $ 76,857

Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 113 ) 5,817 ( 5,691 ) — — 126

Non-cash stock compensation — — — — 2,542 — — 2,542

Net loss — — — — — — ( 17,932 ) ( 17,932 )

Other comprehensive loss — — — — — ( 18 ) — ( 18 )

Balance, July 10, 2022 20,449 $ 20 4,550 $ ( 184,205 ) $ 239,607 $ ( 6 ) $ 6,159 $ 61,575

Common Stock Treasury Stock Accumulated

8 unchanged sentences

Balance, April 18, 2021 20,449 $ 20 4,827 $ ( 196,883 ) $ 240,647 $ 17 $ 68,485 $ 112,286

Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 95 ) 3,844 ( 3,547 ) — — 297

Non-cash stock compensation — — — — 1,577 — — 1,577

Net loss — — — — — — ( 4,996 ) ( 4,996 )

Other comprehensive loss — — — — — ( 1 ) — ( 1 )

Balance July 11, 2021 20,449 $ 20 4,732 $ ( 193,039 ) $ 238,677 $ 16 $ 63,489 $ 109,163

See Notes to Condensed Consolidated Financial Statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Sixteen Weeks Ended

(in thousands) April 17, 2022 April 18, 2021

Twenty-Eight Weeks Ended

(in thousands) July 10, 2022 July 11, 2021

Cash flows from operating activities:

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Debt issuance costs ( 4,869 ) ( 616 )

(Uses) proceeds from other financing activities, net ( 65 ) 245

Proceeds related to real estate sale 3,856 —

Proceeds from other financing activities, net 61 549

Net cash provided by (used in) financing activities 15,455 ( 16,931 )

11 unchanged sentences

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

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

As of July 10, 2022, the Company owned and operated 426 restaurants located in 38 states.

The Company also had 102 franchised full-service restaurants in 16 states and one Canadian province.

16 unchanged sentences

First Quarter 2021 April 18, 2021 16

Second Quarter 2022 July 10, 2022 12

Second Quarter 2021 July 11, 2021 12

Current and Prior Fiscal Years:

4 unchanged sentences

Reclassifications

Certain amounts presented have been reclassified within the April 18, 2021 Condensed Consolidated Statement of Cash Flows to conform with the current period presentation, including prior year reclassifications from Lease assets, net of liabilities to Other operating assets and liabilities.

Certain amounts presented have been reclassified within the July 11, 2021 Condensed Consolidated Statement of Cash Flows to conform with the current period presentation, including prior year reclassifications from Lease assets, net of liabilities to Other operating assets and liabilities.

The reclassifications had no effect on the Company’s cash flows from operations.

Change in Accounting Estimate - Gift Card Breakage

As part of its annual assessment of gift card breakage and during the sixteen weeks ended April 17, 2022, the Company re-evaluated the estimated redemption pattern related to gift cards and aligned the recognition of gift card breakage to the updated estimated redemption pattern.

As part of its annual assessment of gift card breakage and during the twenty-eight weeks ended July 10, 2022, the Company re-evaluated the estimated redemption pattern related to gift cards and aligned the recognition of gift card breakage to the updated estimated redemption pattern.

As a result, the Company recognized $ 5.9 million of additional gift card breakage in Franchise and other revenues, partially offset by $ 0.6 million of associated commissions costs recognized in Selling, general and administrative expenses, in the first quarter of 2022.

This change in accounting estimate decreased net loss by $ 5.2 million, or $ 0.33 per basic and diluted share.

This change in accounting estimate decreased net loss by $ 5.2 million, or $ 0.33 per basic and diluted share for the twenty-eight weeks ended July 10, 2022.

The Company does not expect the impact of this change in estimate to be material to its future financial statements.

Recent Accounting Pronouncements

Reference Rate Reform

In March 2020, FASB issued Update 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

This update provides temporary optional expedients to applying the reference rate reform guidance to contracts that reference the London Interbank Offer Rate ("LIBOR") or another reference rate expected to be discontinued.

Under this update, contract modifications resulting in a new reference rate may be accounted for as a continuation of the existing contract.

This guidance is effective upon issuance of the update and applies to contract modifications made through December 31, 2022.

We adopted Topic 848 during the first quarter of fiscal year 2022 in conjunction with the refinancing of our credit facility and its associated transition from LIBOR to the Secured Overnight Financing Rate ("SOFR"), noting it did not have a material impact to the Company's Condensed Consolidated Statements of Operations and Comprehensive Loss upon adoption.

We reviewed all other recently issued accounting pronouncements and concluded they were either not applicable or not expected to have a significant impact on the Company's Condensed Consolidated Financial Statements.

Disaggregation of revenue

In the following table, revenue is disaggregated by type of good or service (in thousands):

Sixteen Weeks Ended

April 17, 2022 April 18, 2021

Twelve Weeks Ended Twenty-Eight Weeks Ended

July 10, 2022 July 11, 2021 July 10, 2022 July 11, 2021

Restaurant revenue $ 288,657 $ 272,157 $ 669,269 $ 590,834

1 unchanged sentence

Gift card breakage (1)

280 500 8,099 2,793

Other revenue 791 374 1,630 803

Total revenues $ 294,090 $ 276,975 $ 689,640 $ 603,250

(1) During the sixteen weeks ended April 17, 2022, the Company re-evaluated the estimated redemption pattern related to gift cards and aligned the recognition of gift card breakage revenue to the updated estimated redemption pattern.

See Footnote 1.

Basis of Presentation and Recent Accounting Pronouncements.

(1) During the twenty-eight weeks ended July 10, 2022, the Company re-evaluated the estimated redemption pattern related to gift cards and aligned the recognition of gift card breakage revenue to the updated estimated redemption pattern.

See Footnote 1, Basis of Presentation and Recent Accounting Pronouncements.

Contract liabilities

Components of Unearned revenue in the accompanying Condensed Consolidated Balance Sheets are as follows (in thousands):

April 17, 2022 December 26, 2021

July 10, 2022 December 26, 2021

Unearned gift card revenue $ 25,260 $ 41,128

1 unchanged sentence

Revenue recognized in the Condensed Consolidated Statements of Operations and Comprehensive Loss for the redemption and breakage of gift cards that were included in the liability balance at the beginning of the fiscal year was as follows (in thousands):

Sixteen Weeks Ended

April 17, 2022 April 18, 2021

Twenty-Eight Weeks Ended

July 10, 2022 July 11, 2021

Gift card revenue $ 20,639 $ 10,945

The Company's finance and operating lease assets and liabilities as of April 17, 2022 and December 26, 2021 were as follows (in thousands):

April 17, 2022 Finance (1)

The Company's finance and operating lease assets and liabilities as of July 10, 2022 and December 26, 2021 were as follows (in thousands):

July 10, 2022 Finance (1)

Operating (2)

11 unchanged sentences

Total $ 11,959 $ 483,978

(1) Finance lease assets and obligations are included in Other assets, net, Accrued liabilities and other current liabilities, and Other non-current liabilities on our April 17, 2022 and December 26, 2021 Consolidated Balance Sheets.

(2) Operating lease assets and obligations are included in Operating lease assets, net, Current portion of operating lease liabilities, and Long-term portion of operating lease liabilities on our April 17, 2022 and December 26, 2021 Consolidated Balance Sheets.

(1) Finance lease assets and obligations are included in Other assets, net, Accrued liabilities and other current liabilities, and Other non-current liabilities on our July 10, 2022 and December 26, 2021 Consolidated Balance Sheets.

(2) Operating lease assets and obligations are included in Operating lease assets, net, Current portion of operating lease liabilities, and Long-term portion of operating lease liabilities on our July 10, 2022 and December 26, 2021 Consolidated Balance Sheets.

(3) The Lease assets, net caption includes the right of use assets associated with the Company's Finance and Operating leases, net of the associated amortization of these right of use assets.

The components of lease expense, including variable lease costs primarily consisting of common area maintenance charges and real estate taxes, are included in Occupancy on our Condensed Consolidated Statement of Operations and Comprehensive Loss as follows (in thousands):

Sixteen Weeks Ended

April 17, 2022 April 18, 2021

Twelve Weeks Ended Twenty-Eight Weeks Ended

July 10, 2022 July 11, 2021 July 10, 2022 July 11, 2021

Operating lease cost $ 16,422 $ 16,243 $ 38,111 $ 37,704

5 unchanged sentences

Total $ 21,495 $ 20,916 $ 49,996 $ 49,215

Maturities of our lease liabilities as of April 17, 2022 were as follows (in thousands):

Maturities of our lease liabilities as of July 10, 2022 were as follows (in thousands):

Finance Leases Operating Leases

5 unchanged sentences

Thereafter 6,440 325,096

Total future lease liability $ 12,961 $ 658,254

Total future lease payments $ 12,364 $ 648,454

Less imputed interest 2,462 187,096

Fair value of lease liability $ 10,416 $ 468,945

Total lease liability $ 9,902 $ 461,358

Supplemental cash flow and other information related to leases is as follows (in thousands, except other information):

Sixteen Weeks Ended

April 17, 2022 April 18, 2021

Twenty-Eight Weeks Ended

July 10, 2022 July 11, 2021

Cash flows from operating activities

15 unchanged sentences

Weighted average discount rate 4.89 % 4.56 %

On June 8, 2022 the Company closed on an agreement to sell a real estate property that the Company owned and lease it back on a short-term basis.

The Company collected initial net proceeds from the purchaser-lessor of $ 3.9 million, which represents a portion of the total consideration to be received from the sale.

The Company did not recognize a sale in the second quarter of 2022 as certain criteria to recognize a sale in accordance with ASC Topic 842, Leases , and ASC Topic 606, Revenue from Contracts with Customers , were not met.

The Company did not derecognize the property, and the proceeds have been recorded on the Condensed Consolidated Balance Sheet in Accrued liabilities and other, and are included within cash flows from financing activities on the Condensed Consolidated Statements of Cash Flows for the twenty-eight weeks ended July 10, 2022.

The Company expects to recognize a gain on this transaction when sale recognition criteria have been met.

Loss Per Share

3 unchanged sentences

Diluted loss per share reflects the potential dilution that could occur if holders of options exercised their options into common stock.

As the Company was in a net loss position for both the sixteen weeks ended April 17, 2022 and April 18, 2021, all potentially dilutive common shares are considered anti-dilutive.

As the Company was in a net loss position for both the twenty-eight weeks ended July 10, 2022 and July 11, 2021, all potentially dilutive common shares are considered anti-dilutive.

The Company uses the treasury stock method to calculate the effect of outstanding stock options and awards.

Basic weighted average shares outstanding is reconciled to diluted weighted average shares outstanding as follows (in thousands):

Sixteen Weeks Ended

April 17, 2022 April 18, 2021

Twelve Weeks Ended Twenty-Eight Weeks Ended

July 10, 2022 July 11, 2021 July 10, 2022 July 11, 2021

Basic weighted average shares outstanding 15,830 15,665 15,783 15,617

4 unchanged sentences

Other charges, net consisted of the following (in thousands):

Sixteen Weeks Ended

April 17, 2022 April 18, 2021

Restaurant asset impairment 2,122 1,242

Twelve Weeks Ended Twenty-Eight Weeks Ended

July 10, 2022 July 11, 2021 July 10, 2022 July 11, 2021

Asset Impairment $ 8,739 $ 115 $ 10,861 $ 1,357

Litigation contingencies ( 1,806 ) 85 ( 86 ) 1,170

Restaurant closure costs 949 2,447

Restaurant closure and refranchising costs 930 1,752 1,879 4,199

Other financing costs 61 — 370 —

COVID-19 related charges 93 244 300 813

Executive transition 129 — 129 —

Board and stockholder matter costs — — — 128

Other charges, net $ 8,146 $ 2,196 $ 13,453 $ 7,667

The Company recognized non-cash impairment charges related to restaurant assets at three and one Company-owned restaurants during the sixteen weeks ended April 17, 2022 and April 18, 2021, respectively.

The Company recognized non-cash impairment charges primarily related to restaurant assets at six and nine Company-owned restaurants during the twelve and twenty-eight weeks ended July 10, 2022, respectively, and one Company-owned restaurant for the twenty-eight weeks ended July 11, 2021.

Restaurant closure costs include the ongoing restaurant operating costs of the Company-owned restaurants that remained temporarily closed due to the COVID-19 pandemic, as well as any costs incurred for permanently closed restaurants including lease termination costs.

Litigation contingencies include legal settlement costs accrued within the period presented related to class action employment cases and other employment matters.

Litigation contingencies during the twelve and twenty-eight weeks ended July 10, 2022 include the impact of cash proceeds received by the Company related to certain legal claims.

Litigation contingencies during the twelve and twenty-eight weeks ended July 10, 2022 and July 11, 2021 include legal settlement costs accrued related to pending or threatened litigation.

Other financing costs include fees related to the entry by the Company into the New Credit Agreement (as defined below) on March 4, 2022 that were not capitalized with the closing of the New Credit Facility.

1 unchanged sentence

COVID-19 related costs include the costs of purchasing personal protective equipment for restaurant Team Members and Guests and emergency sick pay provided to restaurant Team Members related to the COVID-19 pandemic.

Executive transition costs include costs associated with transitioning to a new Chief Executive Officer.

Board and stockholder matters costs were primarily related to the recruitment and appointment of a new board member in the first quarter of 2021.

Borrowings as of April 17, 2022 and December 26, 2021 are summarized below (in thousands):

April 17, 2022 Weighted

Borrowings as of July 10, 2022 and December 26, 2021 are summarized below (in thousands):

July 10, 2022 Weighted

Interest Rate December 26, 2021 Weighted

9 unchanged sentences

(1) Loan origination costs associated with the Company's credit facility are included as deferred costs in Other assets, net for financing charges allocated to the Revolving line of credit, and Long-term debt for financing charges associated with the term loan in the accompanying Condensed Consolidated Balance Sheets.

New Credit Agreement

Credit Agreement

On March 4, 2022, the Company replaced its prior amended and restated credit agreement (the "Prior Credit Agreement") with a new Credit Agreement (the "Credit Agreement") by and among the Company, Red Robin International, Inc., as the borrower, the lenders from time to time party thereto, the issuing banks from time to time party thereto, Fortress Credit Corp., as Administrative Agent and as Collateral Agent and JPMorgan Chase Bank, N.A., as Sole Lead Arranger and Sole Bookrunner.

18 unchanged sentences

During the first quarter of 2022, the Company expensed approximately $ 1.7 million of deferred financing charges related to the extinguishment of the Prior Credit Agreement on March 4, 2022.

These charges were recorded to interest expense, net and other on the Consolidated Statements of Operations and Comprehensive Loss for the quarter ended April 17, 2022.

These charges were recorded to interest expense, net and other on the Condensed Consolidated Statements of Operations and Comprehensive Loss for the twenty-eight weeks ended July 10, 2022.

In association with the issuance of the new Credit Agreement, the Company recognized $ 4.8 million of deferred financing charges, and $ 6.1 million of original issuance discount.

5 unchanged sentences

Fair market value of mutual funds is measured using level 1 inputs (quoted prices for identical assets in active markets).

The following tables present the Company's assets measured at fair value on a recurring basis included in Other assets, net on the accompanying Condensed Consolidated Balance Sheets as of April 17, 2022 and December 26, 2021 (in thousands):

April 17, 2022 Level 1 Level 2 Level 3

The following tables present the Company's assets measured at fair value on a recurring basis included in Other assets, net on the accompanying Condensed Consolidated Balance Sheets as of July 10, 2022 and December 26, 2021 (in thousands):

July 10, 2022 Level 1 Level 2 Level 3

Investments in rabbi trust $ 4,261 $ 4,261 $ — $ —

8 unchanged sentences

See Note 5, Other Charges, net .

We impaired long-lived restaurant assets at three Company-owned restaurants with a carrying value of $ 3.0 million, recognizing an impairment expense of $ 2.1 million related to the net book value of long-lived restaurant assets for these restaurants.

The impairment was recorded as a result of changes in the lease term of these locations.

We impaired long-lived restaurant assets with a carrying value (including right of use lease assets) of $ 18.5 million and $ 21.6 million, recognizing an impairment expense of $ 8.7 million and $ 10.9 million during the twelve and twenty-eight weeks ended July 10, 2022, respectively, related to the net book value of these long-lived restaurant assets.

We determined the fair value of these long-lived assets to be $ 9.8 million and $ 10.7 million in the twelve and twenty-eight weeks ended July 10, 2022, respectively.

The impairment was recorded as a result of quantitative impairment analyses.

Disclosures of Fair Value of Other Assets and Liabilities

The Company's liability under its credit facility is carried at historical cost in the accompanying consolidated balance sheets.

The carrying value approximated the fair value of the credit facility as of April 17, 2022 and December 26, 2021, as the interest rate on the instrument approximated current market rates.

The Company's liability under its credit facility is carried at historical cost in the accompanying Condensed Consolidated Balance Sheets.

As of July 10, 2022, the fair value of the credit facility was approximately $ 195.1 million and the principal amount carrying value was $ 199.5 million.

The credit facility term loan is reported net of $ 9.0 million in unamortized discount and debt issuance costs in the Condensed Consolidated Balance Sheet as of July 10, 2022.

The carrying value approximated the fair value of the credit facility as of December 26, 2021, as the interest rate on the instrument approximated current market rates.

The interest rate on the credit facility represents a level 2 fair value input.

10 unchanged sentences

However, a significant increase in the number of these claims, or one or more successful claims resulting in greater liabilities than we currently anticipate, could materially and adversely affect our business, financial condition, results of operations, and cash flows.

As of April 17, 2022, we had a balance of $ 3.9 million for loss contingencies on our consolidated balance sheets.

As of July 10, 2022, we had a balance of $ 4.4 million for loss contingencies included within Accrued liabilities and other on our Condensed Consolidated Balance Sheet.

We ultimately may be subject to greater or less than the accrued amount.

As of April 17, 2022, we had non-cancellable purchase commitments to certain vendors who provide food and beverages and other supplies to our restaurants, for an aggregate of $ 135.1 million.

As of July 10, 2022, we had non-cancellable purchase commitments to certain vendors who provide food and beverages and other supplies to our restaurants, for an aggregate of $ 135.4 million.

We expect to fulfill our commitments under these agreements in the normal course of business, and as such, no liability has been recorded.

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

What changed 10-Q

Item 1. Financial Statements