Item 7. Management’s Discussion and Analysis
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
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 consolidated financial statements. All comparisons under this heading between 2022 and 2021 refer to the fifty-two weeks ended December 25, 2022 and December 26, 2021, unless otherwise indicated.
Overview
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 casual dining restaurants with 511 locations in North America. As of December 25, 2022, the Company operated 414 Company-owned restaurants located in 38 states. The Company also had 97 franchised restaurants in 16 states and one Canadian province as of December 25, 2022. The Company operates its business as one operating and one reportable segment.
Our primary source of revenue is from the sale of food and beverages at Company-owned restaurants. We also earn revenue from royalties and fees from franchised restaurants.
The Company's fiscal year ends on the last Sunday of each calendar year. Most of our fiscal years have 52 weeks; however, we experience a 53rd week once every five to six years. Both 2022 and 2021 refer to 52 week fiscal years.
Fiscal Year 2022 Accomplishments
Fiscal 2022 was a year of progress and transition for our business. The COVID-19 pandemic continued to impact us particularly in the first half of fiscal 2022 directly through government mandated restrictions, and indirectly through supply chain disruptions and labor shortages. We and the broader United States economy experienced inflation levels not seen in decades. Despite these headwinds, our accomplishments in 2022 include the following:
• Revenue increased by approximately $104.5 million, from approximately $1.2 billion in fiscal 2021, to approximately $1.3 billion in fiscal 2022.
• Achieved a comparable restaurant revenue increase of 9.2%. Comparable restaurant revenue has increased for eight (8) consecutive quarters.
• Comparable restaurant revenue and comparable restaurant traffic exceeded the industry average as measured by the Black Box Casual Dining index.
• Continued investments in sales building and infrastructure initiatives:
◦ Installed Donatos® in 52 Company-owned restaurants, bringing the total number of restaurants with Donatos® to 245 as of December 25, 2022. Comparable restaurant revenue growth in fiscal 2022 compared to fiscal 2021 at restaurants with Donatos® outperformed restaurants without Donatos ® by 470 basis points.
◦ Invested in Guest facing facility upgrades and renovations in more than 200 restaurants.
◦ Upgraded infrastructure technology in restaurant and support center locations.
• Facilitated a successful transition to a new Chief Executive Officer and other executive leadership positions.
Inflationary Cost and COVID-19 Impact
The COVID-19 pandemic and the related aftermath continues to create unprecedented challenges for our industry including changing consumer behavior, labor and supply chain challenges, and wide spread inflationary costs. Cost of sales as a percentage of sales increased 200 basis points in 2022 compared to 2021, driven primarily by commodity cost inflation.
Our ability to attract and retain Team
Members became more challenging in the competitive job market in 2022. At the start of fiscal 2022, staffing was our number one priority. We made significant progress in improving the staffing levels in our restaurants throughout the year. The challenges in hiring and retention and global supply chain disruptions also 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
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The following summarizes the financial and operational highlights during the fifty-two weeks ended December 25, 2022:
Restaurant revenue, compared to the same period in the prior year, is presented in the table below:
(millions)
Restaurant revenue for the fifty-two weeks ended December 26, 2021
$ 1,137.7
Increase in comparable (1) restaurant revenue
100.6
Decrease in non-comparable restaurant revenue (8.0)
Total increase 92.6
Restaurant revenue for the fifty-two weeks ended December 25, 2022
$ 1,230.3
(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:
Fifty-two weeks ended 2022 compared to 2021
(Dollars in millions) December 25, 2022 December 26, 2021 Increase/(Decrease)
Restaurant revenue $ 1,230.3 $ 1,137.7 8.1 %
Restaurant operating costs: (Percentage of Restaurant Revenue) (Basis Points)
Cost of sales 24.9 % 22.9 % 200
Labor 35.8 36.0 (20)
Other operating 18.3 18.3 —
Occupancy 8.0 8.5 (50)
Total 87.0 % 85.7 % 130
The following table summarizes Net loss, loss per diluted share, and adjusted loss per diluted share (a non-GAAP
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measure) for the fifty-two weeks ended December 25, 2022 and December 26, 2021:
Fifty-two Weeks Ended
(Dollars and shares in thousands, except per share amounts) December 25, 2022 December 26, 2021
Net loss as reported $ (77,800) $ (50,002)
Loss per share - diluted:
Net loss as reported $ (4.91) $ (3.19)
Change in estimate, gift card breakage (0.33) —
Write-off of unamortized debt issuance costs 0.11 —
Other charges, net:
Asset impairment 2.43 0.45
Gain on sale of restaurant property (0.58) —
Severance and executive transition, net of $(3,299) and $0 in stock-based compensation
0.14 —
Other financing costs 0.09 —
Restaurant closure costs, net 0.05 0.40
Closed corporate office costs, net of sublease income 0.03 —
COVID-19 related charges 0.03 0.08
Litigation contingencies 0.26 0.08
Board and stockholder matter costs — 0.01
Income tax effect (0.58) (0.26)
Adjusted loss per share - diluted $ (3.26) $ (2.43)
Weighted average shares outstanding
Basic 15,840 15,660
Diluted 15,840 15,660
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 asset impairment; gain on sale of restaurant property; severance and executive transition costs; other financing costs; restaurant closure costs; closed corporate office costs, net of sublease income; COVID-19 related costs; litigation contingencies; board and stockholder matters costs; goodwill impairment; change in estimate - gift card breakage; write-off of unamortized debt issuance costs, and related income tax effects. We have revised our definition of adjusted loss per diluted share to exclude other financing costs, closed corporate office, net of sublease income, change in estimate - gift card breakage, and write-off of unamortized debt issuance costs. We did not revise prior years’ adjusted loss per diluted share amounts because there were no other charges similar in nature to these costs. Other companies may define adjusted net loss per 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.
The following table summarizes Net Loss (a GAAP measure), and EBITDA and Adjusted EBITDA (non-GAAP measures) for the fifty-two weeks ended December 25, 2022 and December 26, 2021:
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Fifty-Two Weeks Ended
December 25, 2022 December 26, 2021
Net loss as reported $ (77,800) $ (50,002)
Interest expense, net 19,882 14,168
Income tax provision (benefit) 747 (152)
Depreciation and amortization 76,245 83,438
EBITDA 19,074 47,452
Change in accounting estimate, gift card breakage (1)
(5,246) —
Other charges, net:
Asset impairment 38,534 7,052
Gain on sale of restaurant property (9,204) —
Severance and executive transition 2,280 —
Other financing costs (2)
1,462 —
COVID-19 related costs 438 1,288
Restaurant closure costs 828 6,276
Closed corporate office costs, net of sublease income 475 —
Litigation contingencies 4,148 1,330
Board and stockholder matter costs — 128
Adjusted EBITDA $ 52,789 $ 63,526
(1) Change in estimate, gift card gift card breakage revenue, net of commission relates to the Company's re-evaluation of its estimated redemption pattern. The impact during the fifty-two weeks ended December 25, 2022 comprises $5.9 million included in Franchise royalties, fees, and other revenue partially offset by $0.6 million in gift card commission costs included in Selling, general and administrative expenses on the Consolidated Statements of Operations.
(2) Other financing costs includes legal and other charges related to the refinancing of our Credit Facility in the first quarter of fiscal year 2022.
We believe the non-GAAP measure of adjusted EBITDA 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 EBITDA excludes the effects of change in estimate - gift card breakage, asset impairment, litigation contingencies, board and stockholder matters costs, restaurant closure costs, other financing costs, COVID-19 related costs and severance and executive transition costs, gain on sale of restaurant property and closed corporate office, net of sublease income. We have revised our definition of adjusted EBITDA to exclude gain on sale of restaurant property, change in accounting estimate - gift card breakage, other financing costs and closed corporate office, net of sublease income. We did not revise prior years’ adjusted EBITDA because there were no other charges similar in nature to these costs. We define EBITDA as net loss before interest expense, income taxes, and depreciation and amortization. Other companies may define EBITDA and adjusted EBITDA differently, and as a result our measure of EBITDA and adjusted EBITDA may not be directly comparable to those of other companies. EBITDA and adjusted EBITDA 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.
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Restaurant Data
The following table details restaurant unit data for our Company-owned and franchised locations for the periods indicated:
Fifty-two Weeks Ended
December 25, 2022 December 26, 2021
Company-owned:
Beginning of period 430 443
Opened during the period — 1
Closed during the period (16) (14)
End of period 414 430
Franchised:
Beginning of period 101 103
Opened during the period 1 —
Closed during the period (5) (2)
End of period 97 101
Total number of restaurants 511 531
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The following table presents total Company-owned and franchised restaurants by state or province as of December 25, 2022:
Company-Owned Restaurants Franchised Restaurants
State:
Arkansas 2 1
Alaska 3
Alabama 4
Arizona 17 1
California 57
Colorado 22
Connecticut 3
Delaware 5
Florida 18
Georgia 6
Iowa 5
Idaho 8
Illinois 20
Indiana 11
Kansas 5
Kentucky 4
Louisiana 1
Massachusetts 3 2
Maryland 12
Maine 2
Michigan 19
Minnesota 4
Missouri 8 3
Montana 1
North Carolina 17
Nebraska 4
New Hampshire 3
New Jersey 11 1
New Mexico 3
Nevada 6
New York 14
Ohio 17 2
Oklahoma 5
Oregon 15 5
Pennsylvania 11 20
Rhode Island 1
South Carolina 4
South Dakota 1
Tennessee 9
Texas 20 9
Utah 1 5
Virginia 20
Washington 37
Wisconsin 11
Province:
British Columbia 12
Total 414 97
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Results of Operations
Operating results for each fiscal period presented below are expressed as a percentage of total revenues, except for the components of restaurant operating costs, which are expressed as a percentage of restaurant revenue. Certain percentage amounts in the table below do not total due to rounding as well as restaurant operating costs being expressed as a percentage of restaurant revenue and not total revenues.
Year Ended
2022 2021
Revenues:
Restaurant revenue 97.2 % 97.9 %
Franchise revenue 1.5 1.5
Other revenue 1.3 0.6
Total revenues 100.0 % 100.0 %
Costs and expenses:
Restaurant operating costs (1) (exclusive of depreciation and amortization shown separately below):
Cost of sales 24.9 % 22.9 %
Labor 35.8 36.0
Other operating 18.3 18.3
Occupancy 8.0 8.5
Total restaurant operating costs 87.0 85.7
Depreciation and amortization 6.0 7.2
Selling, general and administrative expenses 10.8 10.6
Pre-opening and acquisition costs — 0.1
Other charges 3.1 1.4
Loss from operations (4.5) % (3.2) %
Other expense (income):
Interest expense 1.6 % 1.2 %
Interest (income) and other, net — (0.1)
Total other expenses 1.6 1.2
Loss before income taxes (6.1) (4.3)
Income tax benefit 0.1 —
Net loss (6.1) % (4.3) %
———————————————————
(1) Expressed as a percentage of restaurant revenue
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Revenues
Year Ended
(Revenues in thousands) 2022 2021 Percent Change
Restaurant revenue $ 1,230,318 $ 1,137,733 8.1 %
Franchise revenue 19,306 17,236 12.0 %
Other revenue 16,993 7,109 139.0 %
Total revenues $ 1,266,617 $ 1,162,078 9.0 %
Average weekly net sales per Company-owned restaurants $ 55,852 $ 51,116
Total operating weeks 22,028 22,258 (1.0) %
Net sales per square foot (excludes closed restaurants) $ 468 $ 425 10.1 %
Restaurant revenue, which comprises primarily food and beverage sales, increased $92.6 million in 2022, or 8.1%, as compared to 2021. The increase was due to a $100.6 million, or 9.2%, increase in comparable restaurant revenue, partially offset by a $8.0 million decrease at non-comparable restaurants, including the impact of restaurant closures. The comparable restaurant revenue increase was driven by a 10.1% increase in average Guest check with a 0.9% decrease in Guest count. The increase in average Guest check resulted from a 6.4% increase in pricing and a 3.8% increase in menu mix, and was partially offset by a 0.1% decrease from higher discounts. The increase in menu mix was primarily driven by our limited time menu offerings and higher dine-in sales volumes. Dine-in sales comprised 71.3% of total food and beverage sales in 2022, as compared to 65.5% 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 include those restaurants that are in the comparable base based on operating five full fiscal quarters as of the end of each period presented. Temporarily closed Company-owned restaurants due to the COVID-19 pandemic were not included in the comparable base for the fiscal years ended December 25, 2022 and December 26, 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 of restaurant revenue for Company-owned restaurants included in the comparable base divided by the total adjusted square feet of Company-owned restaurants included in the comparable base.
Franchise revenue primarily includes royalty income and advertising fund contributions. Franchise revenue increased $2.1 million, or 12.0%, in 2022 compared to 2021 primarily due to increased comparable franchise sales. The dollar amount of both royalty income and advertising fund contributions increased as each is calculated primarily as a fixed percentage of franchise sales.
Other revenue primarily comprises gift card breakage, which represents the value associated with the portion of gift cards sold that are unlikely to be redeemed, licensing income, and recycling income. During 2022 and 2021, we recognized $14.8 million and $5.4 million of gift card breakage. Refer to Note 1. Description of Business and Summary of Significant Accounting Policies, Change in Accounting Estimate - Gift Card Breakage .
Cost of Sales
(In thousands, except percentages) 2022 2021 Percent Change
Cost of sales $ 306,509 $ 260,896 17.5 %
As a percent of restaurant revenue 24.9 % 22.9 % 2 %
Cost of sales, which comprises food and beverage costs, is variable and generally fluctuates with commodity costs and sales channel mix and volume. Cost of sales as a percentage of restaurant revenue increased 200 basis points in 2022 as compared to 2021. The increase was primarily driven by approximately 15.3% commodity basket inflation, partially offset by menu price increases.
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Labor
(In thousands, except percentages) 2022 2021 Percent Change
Labor $ 440,564 $ 409,901 7.5 %
As a percent of restaurant revenue 35.8 % 36.0 % (0.2) %
Labor costs include restaurant-level hourly wages and management salaries as well as related taxes and benefits. Labor as a percentage of restaurant revenue decreased 20 basis points in 2022 as compared to 2021. The decrease was primarily driven by sales leverage, and lower management incentive compensation costs, partially offset by wage rate inflation in 2022.
Other Operating
(In thousands, except percentages) 2022 2021 Percent Change
Other operating $ 224,704 $ 207,829 8.1 %
As a percent of restaurant revenue 18.3 % 18.3 % — %
Other operating costs include costs such as equipment repairs and maintenance costs, restaurant supplies, utilities, restaurant technology, third party delivery fees, and other miscellaneous costs. Other operating costs as a percentage of restaurant revenue remained the same in 2022 and 2021. Lower off-premises supply costs and the impact of sales leverage were offset by an increase in utilities and other costs.
Occupancy
(In thousands, except percentages) 2022 2021 Percent Change
Occupancy $ 98,868 $ 96,484 2.5 %
As a percent of restaurant revenue 8.0 % 8.5 % (0.5) %
Occupancy costs include fixed rents, property taxes, common area maintenance charges, general liability insurance, contingent rents, and other property costs. In 2022, occupancy costs as a percentage of restaurant revenue decreased 50 basis points as compared to 2021 primarily driven by sales leverage and the impact of permanently closed restaurants and lease amendments, partially offset by higher general liability costs.
Our fixed rents in 2022 and 2021 were $69.3 million and $68.8 million, an increase of $0.5 million due to the recognition of occupancy costs in Other charges for temporarily closed Company-owned restaurants during periods of closure due to the COVID-19 pandemic and the impact of lease amendments including a lease modification that resulted in a financing lease becoming an operating lease, partially offset by decreases from 16 restaurants permanently closed during 2022 and 14 restaurants permanently closed during 2021.
Depreciation and Amortization
(In thousands, except percentages) 2022 2021 Percent Change
Depreciation and amortization $ 76,245 $ 83,438 (8.6) %
As a percent of total revenues 6.0 % 7.2 % (1.2) %
Depreciation and amortization includes depreciation on capital expenditures for restaurants and corporate assets as well as amortization of reacquired franchise rights, leasehold interests, and certain liquor licenses. In 2022, depreciation and amortization expense as a percentage of revenue decreased 120 basis points as compared to 2021. The decreases are primarily due to net closed Company-owned restaurants, and sales leverage.
Selling, General, and Administrative expenses
(In thousands, except percentages) 2022 2021 Percent Change
Selling, general, and administrative expenses $ 136,612 $ 122,743 11.3 %
As a percent of total revenues 10.8 % 10.6 % 0.2 %
Selling, general, and administrative costs include all corporate and administrative functions. Components of this category include marketing and advertising costs, our Restaurant Support Center, regional, and franchise support salaries and benefits; travel; professional and consulting fees; corporate information systems; legal expenses; office rent; training; and board of directors expenses.
Selling, general, and administrative expense increased $13.9 million, or 11.3% in 2022 as compared to 2021.
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General and administrative expenses increased $9.5 million or 12.6% in 2022 as compared to 2021. The increase in 2022 was primarily driven by increased conference and travel costs following the ease of COVID-19 restrictions, higher share-based incentive compensation costs, and higher staffing costs.
Selling expenses increased $4.4 million or 9.3% in 2022 as compared to 2021. The increase was primarily driven by increased digital marketing.
Pre-opening Costs
(In thousands, except percentages) 2022 2021 Percent Change
Pre-opening costs $ 568 $ 1,410 (59.7) %
As a percent of total revenues — % 0.1 % (0.1) %
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 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 related to the installation of 52 Donatos® in fiscal 2022.
Other Charges (Gains), net
(In thousands, except percentages) 2022 2021 Percent Change
Asset impairment $ 38,534 $ 7,052 *
Gain on sale of restaurant property (9,204) — *
Severance and executive transition, net of $(3,299) and $0 in stock-based compensation
2,280 — *
Other financing costs 1,462 — *
Restaurant closure costs, net 828 6,276 (86.8) %
Closed corporate office costs, net of sublease income 475 — *
COVID-19 related charges 438 1,288 (66.0) %
Litigation contingencies 4,148 1,330 *
Board and stockholder matter costs — 128 (100.0) %
Other charges (gains), net $ 38,961 $ 16,074
* Percentage increases and decreases over 100 percent were not considered meaningful.
For further information on Other charges line items, refer to Note 4. Other Charges (Gains), net, of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
Interest Expense and Interest Income
Interest expense in 2022 and 2021 was $20.6 million and $14.2 million, respectively. The $6.5 million increase was primarily due to the increase in average total debt and higher interest rates. Our weighted average interest rate in 2022 and 2021 was 9.1% and 7.1%.
Interest income and other decreased by $0.7 million to $0.0 million in 2022 from $0.7 million in 2021 due to interest income, primarily related to an income tax refund, that was offset by investment losses, related to a deferred compensation plan for which assets are held in a rabbi trust, in 2022 compared to investment gains related to the deferred compensation plan in 2021.
Income Taxes
Income tax provision was $0.7 million in 2022, compared to an income tax benefit of $0.2 million in 2021. Our effective tax rate was a 1.0% provision in 2022 and a 0.3% benefit in 2021. The increase in tax expense for th e year ended December 25, 2022, is primarily due to the 2022 impact of state taxes including minimum state income taxes and state franchise taxes as well as an adjustment to federal taxes .
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Liquidity and Capital Resources
Cash and cash equivalents, and restricted cash increased $35.4 million to $48.8 million at December 25, 2022, from $22.8 million at the beginning of the fiscal year. The Company is using available cash flow from operations to maintain existing restaurants and infrastructure, and execute on its long-term strategic initiatives. As of December 25, 2022, the Company had approximately $58.8 million in liquidity, including cash and cash equivalents and available borrowing capacity under its Credit Facility.
Cash Flows
The table below summarizes our cash flows from operating, investing, and financing activities for each fiscal year presented (in thousands):
Year Ended
2022 2021
Net cash provided by operating activities $ 35,532 $ 47,292
Net cash used in investing activities (29,568) (42,241)
Net cash provided by financing activities 29,533 1,563
Effect of exchange rate changes on cash (41) 20
Net change in cash and cash equivalents, and restricted cash $ 35,456 $ 6,634
Operating Cash Flows
Net cash flows provided by operating activities decreased $11.8 million to $35.5 million in 2022 as compared to 2021. The change in net cash provided by operating activities is primarily attributable to repayment of CARES Act deferred payroll tax of $8.8 million; $5.6 million higher interest payments due to the increased average total debt and higher interest rates; and decreased cash from earnings after non-cash items, as presented in the Consolidated Statements of Cash Flows, partially offset by changes in working capital, including the tax refunds received in 2022.
Investing Cash Flows
Net cash flows used in investing activities decreased $12.7 million to $29.6 million in 2022 as compared to 2021. The decrease is primarily due to proceeds from the sale of a restaurant property and decreased spending on the Donatos® expansion, partially offset by increased spending on restaurant improvements, and investments in technology and other projects.
The following table lists the components of our capital expenditures for each fiscal year presented (in thousands):
Year Ended
2022 2021
Restaurant improvement capital and other $ 15,882 $ 12,798
Investment in technology, infrastructure, and other 12,303 10,812
Donatos® expansion 6,054 17,113
New restaurants and restaurant refreshes 3,920 1,538
Total capital expenditures $ 38,159 $ 42,261
Expenditures for Donatos® expansion include expenditures for kitchen equipment, other equipment and other capital costs associated with adding Donatos® to our restaurants, Restaurant improvement capital and other consists of capital equipment for our restaurants, Investment in technology, infrastructure and other consists of capital costs related to restaurant technology assets, capital overhead, and other items.
Financing Cash Flows
Net cash flows provided by financing activities increased $28.0 million to $29.5 million in 2022 as compared to 2021. The increase is primarily due to $30.6 million in net borrowings in 2022 compared to a net borrowings of $3.7 million in 2021 as a result of the Company's refinancing of debt on March 4, 2022 and $3.9 million in initial deposit proceeds received related to the sale of a restaurant property in the second quarter of 2022, partially offset by an increase in cash used for debt issuance costs.
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Credit Facility
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"), which provides for a new Senior Secured Term Loan and Revolving Credit Facility (the “Credit Facility”). The Credit Agreement's interest rate 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 0.5% per annum, or (c) one-month term SOFR plus 1.0% per annum.
As of December 25, 2022, the Company had outstanding borrowings under the Credit Facility of $205.7 million net of $8.3 million of unamortized deferred financing charges and discounts, of which $3.4 million was classified as current, in addition to amounts issued under letters of credit of $9.1 million. The amounts issued under letters of credit reduce the amount available under the Credit Facility but are not recorded as debt.
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 well as a Total Net Leverage ratio covenant. As of December 25, 2022, the Company was in compliance with all covenants applicable to our Credit Facility.
For additional information regarding our Credit Facility, see Note 8. Borrowings included within the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
Debt Outstanding
Total debt outstanding increased $37.9 million to $214.9 million at December 25, 2022, from $177.0 million at December 26, 2021, primarily driven by net proceeds from the execution of the Credit Facility during the fifty-two weeks ended December 25, 2022.
Share Repurchase
On August 9, 2018, the Company's board of directors authorized the Company's current share repurchase program of up to a total of $75 million of the Company's common stock. The share repurchase authorization will terminate upon completing repurchases of $75 million of common stock unless otherwise terminated by the board. 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 December 25, 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. There were no share repurchases in 2022 and 2021. Accordingly, as of December 25, 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. The new Credit Agreement limits our ability to repurchase shares to certain conditions set forth by our lenders in the new Credit Facility.
Contractual Obligations
The following table summarizes the amounts of payments due under specified contractual obligations as of December 25, 2022 (in thousands):
Payments Due by Period
Total 2023 2024 - 2025 2026 - 2027 Thereafter
Long-term debt obligations (1)
$ 299,097 $ 24,608 $ 45,869 $ 228,442 $ 178
Finance lease obligations (2)
12,325 1,483 2,889 2,710 5,243
Operating lease obligations (3)
617,001 77,380 148,694 126,478 264,449
Purchase obligations (4)
149,203 52,499 35,887 38,815 22,002
Other non-current liabilities (5)
4,435 1,013 398 100 2,924
Total contractual obligations $ 1,082,061 $ 156,983 $ 233,737 $ 396,545 $ 294,796
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(1) Long-term debt obligations primarily represent minimum required principal payments under our existing Credit Agreement as of December 25, 2022, including estimated interest of $84.2 million based on a 9.81% average borrowing interest rate.
(2) Finance lease obligations include interest of $2.3 million.
(3) Operating lease obligations exclude variable lease costs, such as sales based contingent rent, and include interest of $176.5 million.
(4) Purchase obligations includes the Company's share of expected system-wide fixed price commitments for food, beverage, and restaurant supply items. These amounts are estimates based on anticipated inventory needed for the Company's restaurants, and could vary due to the timing of volumes.
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(5) Other non-current liabilities primarily represent the employee deferred compensation plan liability. Refer to Note 15. Employee Benefit Programs, of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information.
Financial Condition and Future Liquidity
We require capital principally to maintain, improve, and refurbish existing restaurants; build new restaurants; support infrastructure needs; fund operational changes; and for general operating purposes. We are required to make interest and principal payments under the terms of our Credit Agreement, and may use capital to pay additional principal on our borrowings or repurchase our common stock as allowed by our Credit Agreement. Our primary short-term and long-term sources of liquidity are expected to be cash flows from operations and our Credit Facility. We expect cash flows from operations and available borrowing capacity under the Credit Facility will be sufficient to meet debt service, capital expenditures, and working capital requirements for at least the next twelve months. In January 2023, the Company announced it is evaluating a sale-leaseback transaction related to its owned properties and anticipates proceeds will be used to repay debt, fund capital investments, and repurchase shares of Company stock subject to the terms of the Credit Agreement and approval by the Board of Directors. We and the restaurant industry in general maintain relatively low levels of accounts receivable and inventories, and vendors generally grant short-term trade credit for purchases, such as food and supplies. The addition of new restaurants and refurbishment of existing restaurants are reflected as long-term assets and not as part of working capital.
Working Capital
We typically maintain current liabilities in excess of our current assets which results in a working capital deficit. We are able to operate with a working capital deficit because restaurant sales are primarily conducted on a cash or credit card basis. Rapid turnover of inventory results in limited investment in inventories, and cash from sales is usually received before related payables for food, supplies, and payroll become due. In addition, receipts from the sale of gift cards are received well in advance of related redemptions. Rather than maintain higher cash balances that would result from this pattern of operating cash flows, we typically utilize operating cash flows in excess of those required for currently maturing liabilities to pay for capital expenditures, debt repayment, or to repurchase stock. When necessary, we utilize our Credit Facility to satisfy short-term liquidity requirements. We believe our future cash flows generated from restaurant operations combined with our remaining borrowing capacity under the Credit Facility and sale-leaseback transactions will be sufficient to satisfy any working capital deficits and our planned capital expenditures.
Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those we believe are both significant and that require us to make difficult, subjective, or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors we believe to be appropriate under the circumstances. Actual results may differ from these estimates, including our estimates of future restaurant-level cash flows, which are subject to the current economic environment, and we might obtain different results if we use different assumptions or conditions. We have identified the following as the Company's most critical accounting policies and estimates, which are most important to the portrayal of the Company's financial condition and results and require management's most subjective and complex judgment. Information regarding the Company's other significant accounting policies is disclosed in Note 1, Description of Business and Summary of Significant Accounting Policies , of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
Impairment of Long-Lived Assets - Long-lived assets, including restaurant sites, leasehold improvements, other fixed assets, right of use assets, and amortizable intangible assets are reviewed when indicators of impairment are present. Expected cash flows associated with an asset are the key factor in determining the recoverability of the asset. Identifiable cash flows are measured at the restaurant-level. The estimate of cash flows is based upon, among other things, certain assumptions about expected future operating performance, including assumptions on future revenue trends. Management's estimates of undiscounted cash flows may differ from actual cash flows due to, among other things, changes in economic conditions, changes to our business model, or changes in operating performance. If the sum of the undiscounted cash flows is less than the carrying value of the asset, we recognize an impairment loss. The amount of the impairment loss is measured as the amount by which the carrying value exceeds the fair value of the asset, which is determined using discounted cash flows.
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Judgments made by management related to our ability to realize undiscounted cash flows in excess of the carrying amounts of such assets are affected by factors such as changes in economic conditions, changes in operating performance, and the ongoing maintenance and improvements of the assets. As the ongoing expected cash flows and carrying amounts of long-lived assets are assessed, these factors could cause us to realize a material impairment charge. Each restaurant's past and present operating performance were reviewed in combination with projected future results, primarily through projected undiscounted cash flows, which indicated possible impairment. For those restaurants for which undiscounted cash flows did not exceed their carrying value, we compared the carrying amount of each restaurant to its fair value as estimated by management. Determining the fair value of the long-lived assets requires the use of estimates and assumptions and is typically determined using a discounted cash flow projection model. The weighted average cost of capital discount factor is determined using external information such as the risk-free rate of return, industry beta factors, and premium adjustments. Management uses other market information such as market rent and discount rates, which are subject to judgment, to estimate the fair value of restaurant right of use lease assets. During 2022, the Company determined long-lived assets at 46 locations were impaired as a result of our cash flow analysis, and recognized non-cash impairment charges of $38.0 million. During 2021, we impaired ten Company-owned restaurants as a result of our cash flow analysis resulting in non-cash impairment charges of $6.4 million.
Information technology systems, such as internal-use computer software, are reviewed and tested for recoverability if the internal-use computer software is not expected to provide substantive service potential, a significant change occurs to the extent or manner in which the software is used or is expected to be used, a significant change is made or will be made to the software program, or costs of developing or modifying internal-use software significantly exceed the amount originally expected to develop or modify the software. During 2020, the Company impaired information technology assets totaling $5.2 million due to the COVID-19 pandemic redirecting our implementation of certain digital platforms in order to accelerate our speed to market.
Liquor licenses with indefinite lives are reviewed for impairment annually or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. If the carrying amount is not recoverable, we record an impairment charge for the excess of the carrying amount over the fair value. We determine fair value based on quoted prices in the active market for the license in the same or similar jurisdictions, representing a level 1 fair value measurement. At the end of 2022, the Company performed its annual review of its indefinite lived liquor licenses that had a carrying value of $6.7 million, and recorded impairment charges of $0.5 million to indefinite-lived intangibles in 2022. In 2021, $0.5 million of impairment charges were recorded and, in 2020, no impairment charges were recorded to liquor licenses with indefinite lives.
Recently Issued Accounting Standards
See Note 2. Recent Accounting Pronouncements, of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for our discussion of recently issued accounting standards.
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