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Item 2. Management’s Discussion and Analysis

2023-05-24 compared with 2022-11-02 · 229 added, 195 removed, 169 unchanged (72% 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 2022 and 2021 refer to the twelve and forty weeks ended October 2, 2022 and October 3, 2021, unless otherwise indicated.

All comparisons under this heading between 2023 and 2022 refer to the sixteen weeks ended April 16, 2023 and April 17, 2022, 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 511 locations in North America.

As of October 2, 2022, the Company owned 424 restaurants located in 38 states.

As of April 16, 2023, the Company owned 415 restaurants located in 38 states.

The Company also had 96 franchised full-service restaurants in 16 states and one Canadian province.

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Financial and Operational Highlights

The following summarizes the operational and financial highlights during the twelve weeks ended October 2, 2022:

Total revenues are $418.0 million, an increase of $22.4 million compared to 2022.

• Comparable restaurant revenue (1) increased 8.6%.

• Ninth consecutive quarter of positive comparable restaurant revenue (1) growth.

• Comparable restaurant traffic increased 0.6%.

• Comparable restaurant revenue (1) and comparable restaurant traffic both exceeded the industry averages as measured by the Black Box Casual Dining index.

• Comparable restaurant dine-in sales increased 16.4%.

• Comparable restaurant sales for the first thirteen weeks of the quarter increased 10.0% (3) .

Net loss of $3.1 million was unchanged compared to 2022.

• GAAP loss per diluted share was $0.19 compared to GAAP loss per diluted share of $0.20 in 2022.

• Adjusted income per diluted share (2) was $0.25 compared to adjusted loss per diluted share of $0.12 in 2022.

Income from operations was $4.3 million, or 1.0% of total revenues, compared to $4.4 million, or 1.1% of total revenues, in 2022.

Restaurant Level Operating Profit Margin (2) (a non-GAAP metric) was 14.7% versus 14.0% in 2022.

Adjusted EBITDA (2) (a non-GAAP metric) was $36.1 million, an $8.1 million increase compared to 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.

(2) See below for a reconciliation of Adjusted EBITDA, a non-GAAP measure, to Net loss;

Restaurant Level Operating Profit Margin, a non-GAAP measure, to Income from operations as a percentage of total revenues;

and Adjusted income per diluted share, a non-GAAP measure, to Net loss and loss per diluted share.

(3) Comparable restaurant sales for the first thirteen weeks of fiscal 2023 are calculated based on the Company’s point-of-sale sales data, which does not include adjustments for loyalty breakage.

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 3, 2021

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

Increase/(decrease) from non-comparable restaurants (1.9)

Total increase/(decrease) 12.2

Restaurant Revenue for the twelve weeks ended October 2, 2022

The following summarizes the operational and financial highlights during the forty weeks ended October 2, 2022:

Restaurant Revenue for the forty weeks ended October 3, 2021

Restaurant Revenue for the sixteen weeks ended April 17, 2022

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

Increase/(decrease) from non-comparable restaurants (2.9)

Increase/(decrease) in non-comparable restaurant revenue (5.7)

Total increase/(decrease) 26.3

Restaurant Revenue for the forty weeks ended October 2, 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

October 2, 2022 October 3, 2021 Increase/(Decrease)

Restaurant Revenue for the sixteen weeks ended April 16, 2023

Restaurant revenues, operating costs, and restaurant level operating profit for the period are detailed in the table below:

Sixteen Weeks Ended

April 16, 2023 April 17, 2022 Increase/(Decrease)

Restaurant revenue (millions) $ 406.9 $ 380.6 6.9 %

Restaurant operating costs:

(Percentage of Restaurant Revenue) (Basis Points)

Cost of sales 99.7 90.9 9.6 %

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Occupancy 29.8 30.6 (2.6) %

Total 87.4 % 87.5 % (10)

Forty Weeks Ended

October 2, 2022 October 3, 2021 Increase/(Decrease)

Total Restaurant Operating Costs $ 346.9 $ 327.5 18.5 %

Restaurant Level Operating Profit (1)

$ 60.0 $ 53.1 12.9 %

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

Sixteen Weeks Ended

April 16, 2023 April 17, 2022 Increase/(Decrease)

Restaurant revenue (millions) $ 406.9 $ 380.6 6.9 %

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Occupancy 7.3 8.0 (70)

Total 86.5 % 85.3 % 120

Total Restaurant Operating Costs 85.2 % 86.0 % (80)

Restaurant Level Operating Profit (1)

14.7 % 14.0 % 70

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 twelve and forty weeks ended and October 2, 2022 and October 3, 2021:

Twelve Weeks Ended Forty Weeks Ended

October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021

(1) Restaurant Level Operating Profit is a non-GAAP measure.

See below for a reconciliation of Restaurant Level Operating Profit to Income from Operations and Income from Operations as a percentage of total revenues.

The following table summarizes Net loss, loss per diluted share (GAAP measures), and adjusted loss per diluted share (a non-GAAP measure) for the sixteen weeks ended April 16, 2023 and April 17, 2022:

Sixteen Weeks Ended

April 16, 2023 April 17, 2022

Net loss as reported $ (3,100) $ (3,105)

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Net loss as reported $ (0.19) $ (0.20)

Litigation contingencies 0.26 0.11

Severance and executive transition 0.12 —

Restaurant closure costs, net 0.11 0.06

Asset impairment 0.04 0.13

Gain on sale of restaurant property (0.58) — (0.58) —

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

Executive transition 0.11 — 0.12 —

Write-off of unamortized debt issuance costs (2)

Other financing costs (2)

0.06 — 0.09 —

Income tax expense 0.09 (0.03) (0.08) (0.16)

COVID-19 related charges — 0.01

Restaurant closure costs (gains) (0.10) 0.07 0.02 0.34

Closed corporate office, net of sublease income 0.02 — 0.02 —

Litigation contingencies 0.01 0.01 — 0.08

Board and stockholder matter costs — — — 0.01

Adjusted loss per share - diluted $ (1.03) $ (0.88) $ (1.90) $ (1.40)

Change in estimate, gift card breakage (3)

Write-off of unamortized debt issuance costs (4)

Income tax expense (0.16) (0.03)

Adjusted income (loss) per share - diluted $ 0.25 $ (0.12)

Weighted average shares outstanding:

Basic 15,996 15,748

Diluted 15,892 15,709 15,816 15,647

(1) During the forty weeks ended October 2, 2022, the Company re-evaluated the estimated redemption pattern related to gift cards.

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 Prior Credit Agreement (as defined below) with the completion of the refinancing of our Prior Credit Agreement in the first quarter of fiscal year 2022.

16,360 15,748

(1) Other includes non-cash charges primarily related to terminated capital projects, disposals, and lease terminations.

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

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

The impact 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 on the Condensed Consolidated Statements of Operations.

(4) Write-off of unamortized debt issuance costs related to the remaining unamortized debt issuance costs related to our Prior Credit Agreement (as defined below) with the completion of the refinancing of our Prior Credit Agreement in the first quarter of fiscal year 2022.

(5) For the sixteen weeks ended April 16, 2023, the impact of dilutive shares is included in the calculations as the adjustments for the quarter resulted in adjusted net income.

For diluted shares reported on the Condensed Consolidated Statement of Operations, the impact of dilutive shares is excluded due to the reported net loss for the quarter.

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 and office closure costs, other financing costs, COVID-19 related costs, executive transition costs, and related income tax effects.

Adjusted loss per diluted share excludes the effects of change in estimate, gift card breakage, asset impairment, litigation contingencies, the write-off of unamortized debt issuance costs, restaurant closure costs, other financing costs, COVID-19 related charges, severance and executive transition costs, and related income tax effects and other.

We have revised our definition of adjusted loss per diluted share to exclude severance and executive transition and other.

We did not revise the prior year’s adjusted loss per diluted share because there were no other charges similar in nature to these costs.

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

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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 sixteen weeks ended April 16, 2023 and April 17, 2022:

Sixteen Weeks Ended

April 16, 2023 April 17, 2022

Net loss as reported $ (3,100) $ (3,105)

Interest expense, net 7,576 7,088

Income tax provision (benefit) 20 62

Depreciation and amortization 21,825 23,919

EBITDA 26,321 27,964

Change in accounting estimate, gift card breakage — (5,246)

Other charges, net:

Litigation contingencies 4,300 1,720

Severance and executive transition 1,891 —

Restaurant closure costs, net 1,750 949

Other 1,062 —

Asset impairment 694 2,122

Closed corporate office costs, net of sublease income 62 —

Other financing costs — 309

COVID-19 related charges — 207

Adjusted EBITDA $ 36,080 $ 28,025

We believe the non-GAAP measures of EBITDA and adjusted EBITDA give 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.

We define EBITDA as net loss before interest expense, income taxes, and depreciation and amortization.

Adjusted EBITDA further excludes the effects of change in estimate - gift card breakage, asset impairment, litigation contingencies, restaurant closure costs, net, other financing costs, COVID-19 related charges, severance and executive transition costs, and closed corporate office, net of sublease income, and other.

We have revised our definition of adjusted EBITDA to exclude other, severance and executive transition 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.

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.

The following table summarizes Income from Operations (a GAAP measure), and Restaurant Level Operating Profit (a non-GAAP measure) for the sixteen weeks ended April 16, 2023 and April 17, 2022:

Sixteen Weeks Ended

April 16, 2023 April 17, 2022

Income from operations $ 4,337 $ 4,370

Franchise royalties, fees and other revenue 11,075 14,938

Other charges, net 9,759 5,307

Pre-opening costs 582 62

Selling 7,725 9,942

General and administrative expenses 26,799 24,438

Depreciation and amortization 21,825 23,919

Restaurant-level operating profit $ 59,951 $ 53,100

Income from operations as a percentage of total revenues 1.0% 1.1%

Restaurant-level operating profit margin (as a percentage of restaurant revenue) 14.7% 14.0%

The Company believes restaurant-level operating profit is an important measure for management and investors because it is widely regarded in the restaurant industry as a useful metric by which to evaluate restaurant-level operating efficiency and performance.

The Company defines restaurant-level operating profit to be income from operations less franchise royalties, fees and other revenue, plus other charges, net, pre-opening costs, selling costs, general and administrative expenses, and depreciation and amortization.

The measure includes restaurant-level occupancy costs that include fixed rents, percentage rents, common area maintenance charges, real estate and personal property taxes, general liability insurance, and other property costs, but excludes depreciation and amortization expense, substantially all of which is related to restaurant-level assets, because such expenses represent historical sunk costs which do not reflect current cash outlay for the restaurants.

The measure also excludes selling costs and general and administrative expenses, and therefore excludes costs associated with selling, general, and administrative functions, and pre-opening costs.

The Company excludes Other charges, net because these costs are not related to the ongoing operations of its restaurants.

Restaurant-level operating profit is not a measurement determined in accordance with GAAP and should not be considered in isolation, or as an alternative, to income from operations or net loss as indicators of financial performance.

Restaurant-level operating profit as presented may not be comparable to other similarly titled measures of other companies in the Company's industry.

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 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021

Sixteen Weeks Ended

April 16, 2023 April 17, 2022

Company-owned:

Beginning of period 414 430

Opened during the period 1 —

Closed during the period — (4)

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Beginning of period 97 101

Opened during the period — — 1 —

Closed during the period (1) —

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Total number of restaurants 511 527

The following table presents total Company-owned and franchised restaurants by state or province as of October 2, 2022:

The following table presents total Company-owned and franchised restaurants by state or province as of April 16, 2023:

Company-Owned Restaurants Franchised Restaurants

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British Columbia 11

Total 424 101

Results of Operations

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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 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021

Sixteen Weeks Ended

April 16, 2023 April 17, 2022

Restaurant revenue 97.4 % 96.2 %

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Other charges (gains), net 2.3 1.3

Loss from operations (2.8) (4.4) (1.7) (2.2)

Income from operations 1.0 1.1

Interest expense, net and other 1.8 1.9

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Net loss (0.7) % (0.8) %

Twelve Weeks Ended Forty Weeks Ended

(Revenues in thousands) October 2, 2022 October 3, 2021 Percent Change October 2, 2022 October 3, 2021 Percent Change

Sixteen Weeks Ended

(Revenues in thousands) April 16, 2023 April 17, 2022 Percent Change

Restaurant revenue $ 406,893 $ 380,612 6.9 %

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Total operating weeks 6,630 6,828 (2.9) %

Net sales per square foot 106 101 5.3 % 358 322 11.1 %

Restaurant revenue for the twelve weeks ended October 2, 2022, which comprises primarily food and beverage sales, increased $12.2 million, or 4.5%, as compared to the third quarter of 2021.

The increase was due to a $14.1 million, or 5.3%, increase in comparable restaurant revenue, and a $1.9 million decrease at non-comparable restaurants, including the impact of restaurant closures.

The comparable restaurant revenue increase was driven by a 9.0% increase in average Guest check, and a 3.7% decrease in Guest count.

The increase in average Guest check resulted from a 2.5% increase in menu mix, a 7.7% increase in pricing, and was partially offset by a 1.2% 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 72.3% of total food and beverage sales during the third quarter of 2022, as compared to 69.2% in the same period in 2021.

Restaurant revenue for the forty weeks ended October 2, 2022, increased $90.7 million, or 10.5%, as compared to the forty weeks ended October 3, 2021.

The increase was due to a $93.6 million, or 11.2%, increase in comparable restaurant revenue, and a $2.9 million decrease at non-comparable restaurants, including the impact of restaurant closures.

The comparable restaurant revenue increase was driven by a 10.6% increase in average Guest check, and a 0.6% increase in Guest count.

The increase in average Guest check resulted from a 4.2% increase in menu mix, a 6.3% increase in pricing, and a 0.1% decrease in 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 70.9% of total food and beverage sales during the forty weeks ended October 2, 2022, as compared to 64.5% in the same period in 2021.

Restaurant revenue for the sixteen weeks ended April 16, 2023, which comprises primarily food and beverage sales, increased $26.3 million, or 6.9%, as compared to the first quarter of 2022.

Restaurant revenue increased primarily due to an 8.6% increase in Comparable Restaurant Revenue.

This increase outweighed the impact of reduced revenue from non-comparable restaurants primarily due to the net impact of restaurant closures and openings.

The comparable restaurant revenue increase was driven by an 8.0% increase in average Guest check, and a 0.6% increase in Guest count.

The increase in average Guest check resulted from a 7.2% increase in menu prices and 0.8% from menu mix.

The increase in menu mix was primarily driven by consumer preference to return to dine-in visits that result in a greater check average.

Dine-in sales comprised 74.3% of total food and beverage sales during the first quarter of 2023, as compared to 69.5% in the same period in 2022.

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.

The Company-owned restaurants that were temporarily closed due to the COVID-19 pandemic were not included in the comparable base for the forty weeks ended October 2, 2022 or October 3, 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 reopened and new 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 decreased $0.8 million, or 15.3% for the twelve weeks ended October 2, 2022 compared to the twelve weeks ended October 3, 2021.

Our franchisees reported flat comparable restaurant revenue for the twelve weeks ended October 2, 2022 compared to the same period in 2021.

Franchise and other revenue increased $7.2 million for the forty weeks ended October 2, 2022 compared to the forty weeks ended October 3, 2021, primarily due to the re-evaluation of the estimated redemption pattern related to gift cards resulting in a $5.9 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 8.0% for the forty weeks ended October 2, 2022 compared to the same period in 2021.

Comparable restaurant revenues include those restaurants that have operated five full quarters as of the end of the period presented.

Franchise and other revenue decreased $3.9 million, or 25.9%, for the sixteen weeks ended April 16, 2023 compared to the sixteen weeks ended April 17, 2022.

Franchise revenue declined primarily due to a reduction in the percentage of sales each franchisee is required to contribute to support Selling activities.

This reduction results from an increased focus on local restaurant marketing and reduced national and/or mass media channels pursuant to our North Star strategy.

The percentage of sales each franchisee is required to contribute could change in the future, as we expect to align contributions with spending levels, subject to compliance with the respective franchise agreement.

Franchise restaurants reported an increase of 7.8% comparable restaurant revenue for the sixteen weeks ended April 16, 2023 compared to the same period in 2022.

This increase was partially offset by the closure of five franchised locations from April 17, 2022 to April 16, 2023.

Other revenue declined primarily due to a change in accounting estimate in the first quarter of 2022, that resulted in $5.9 million of additional gift card breakage.

Cost of Sales

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 2, 2022 October 3, 2021 Percent Change October 2, 2022 October 3, 2021 Percent Change

Sixteen Weeks Ended

(In thousands, except percentages) April 16, 2023 April 17, 2022 Percent Change

Cost of sales $ 99,670 $ 90,941 9.6 %

As a percent of restaurant revenue 24.5 % 23.9 % 0.6 %

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 180 basis points for the twelve weeks ended October 2, 2022 as compared to the same period in 2021.

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

Cost of sales as a percentage of restaurant revenue increased 210 basis points for the forty weeks ended October 2, 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.

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 2, 2022 October 3, 2021 Percent Change October 2, 2022 October 3, 2021 Percent Change

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 increased 60 basis points for the sixteen weeks ended April 16, 2023 as compared to the same period in 2022.

The increase was primarily driven by commodity inflation, partially offset by menu pricing.

Sixteen Weeks Ended

(In thousands, except percentages) April 16, 2023 April 17, 2022 Percent Change

Labor $ 145,421 $ 138,108 5.3 %

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

For the twelve weeks ended October 2, 2022, labor as a percentage of restaurant revenue decreased 130 basis points compared to the same period in 2021.

The decrease was primarily driven by sales leverage, lower hiring costs, and lower management incentive compensation costs, partially offset by wage rate inflation.

For the forty weeks ended October 2, 2022, labor as a percentage of restaurant revenue decreased 20 basis points compared to the same period in 2021.

The decrease was primarily driven by sales leverage, lower group insurance, and lower management incentive compensation costs, partially offset by higher wage rate inflation.

For the sixteen weeks ended April 16, 2023, labor as a percentage of restaurant revenue decreased 60 basis points compared to the same period in 2022.

The decrease was primarily driven by sales leverage, lower group insurance and workers' compensation costs, partially offset by higher incentive compensation, payroll taxes, and training.

Throughout the quarter, we made investments in management and hourly labor to support an enhanced Guest experience.

Other Operating

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 2, 2022 October 3, 2021 Percent Change October 2, 2022 October 3, 2021 Percent Change

Sixteen Weeks Ended

(In thousands, except percentages) April 16, 2023 April 17, 2022 Percent Change

Other operating $ 72,050 $ 67,864 6.2 %

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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 2, 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 hiring advertisement costs, lower off-premises supplies, and sales leverage, partially offset by an increase in utilities and credit card fees.

For the forty weeks ended October 2, 2022, other operating costs as a percentage of restaurant revenue was flat compared to the same period in 2021.

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 2, 2022 October 3, 2021 Percent Change October 2, 2022 October 3, 2021 Percent Change

For the sixteen weeks ended April 16, 2023, other operating costs as a percentage of restaurant revenue decreased 10 basis points as compared to the same period in 2022.

The decrease was primarily driven by lower contract janitorial costs and reduced third party commissions expenses associated with lower off premise mix partially offset by higher repairs and maintenance costs and credit card discounts.

Sixteen Weeks Ended

(In thousands, except percentages) April 16, 2023 April 17, 2022 Percent Change

Occupancy $ 29,801 $ 30,599 (2.6) %

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

For the twelve weeks ended October 2, 2022, occupancy costs as a percentage of restaurant revenue decreased 20 basis points compared to the same period in 2021 primarily driven by sales leverage.

For the forty weeks ended October 2, 2022, occupancy costs as a percentage of restaurant revenue decreased 60 basis points compared to the same period in 2021 primarily driven by sales leverage, partially offset by higher insurance costs.

Our fixed rents for the twelve weeks ended October 2, 2022 and October 3, 2021 were $16.1 million and $15.8 million, an increase of $0.3 million.

Our fixed rents for the forty weeks ended October 2, 2022 and October 3, 2021 were $53.5 million and $52.8 million, an increase of $0.6 million.

For the sixteen weeks ended April 16, 2023, occupancy costs as a percentage of restaurant revenue decreased 70 basis points compared to the same period in 2022 primarily driven by sales leverage.

Our fixed rents for the sixteen weeks ended April 16, 2023 and April 17, 2022 were $20.7 million and $21.3 million, a decrease of $0.5 million, due to net Company-owned restaurant closures.

Depreciation and Amortization

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 2, 2022 October 3, 2021 Percent Change October 2, 2022 October 3, 2021 Percent Change

Sixteen Weeks Ended

(In thousands, except percentages) April 16, 2023 April 17, 2022 Percent Change

Depreciation and amortization $ 21,825 $ 23,919 (8.8) %

As a percent of total revenues 5.2 % 6.0 % (0.8) %

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 2, 2022, depreciation and amortization expense as a percentage of revenue decreased 80 basis points over the same period in 2021 primarily due to net closed Company-owned restaurants, and sales leverage.

For the forty weeks ended October 2, 2022, depreciation and amortization expense as a percentage of revenue decreased 130 basis points over the same period in 2021 primarily due to net closed Company-owned restaurants and sales leverage.

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

For the sixteen weeks ended April 16, 2023, depreciation and amortization expense as a percentage of revenue decreased 80 basis points compared to the same period in 2022 primarily due to net Company-owned restaurant closures, impaired assets, and sales leverage.

Selling, General, and Administrative

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 2, 2022 October 3, 2021 Percent Change October 2, 2022 October 3, 2021 Percent Change

Sixteen Weeks Ended

(In thousands, except percentages) April 16, 2023 April 17, 2022 Percent Change

Selling, general, and administrative $ 34,523 $ 34,380 0.4 %

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and board of directors expenses.

General, and administrative costs in the twelve weeks ended October 2, 2022 increased $3.8 million, or 21.5%, as compared to the same period in 2021.

The increase was primarily driven by a timing shift of our annual leadership conference, increased stock based compensation expense, and merit increases, partially offset by lower corporate office costs.

General, and administrative costs in the forty weeks ended October 2, 2022 increased $7.0 million, or 12.1%, as compared to the same period in 2021.

The increase was primarily driven by the 2022 leadership conference, increased stock based compensation expense, merit increases, and increased manager-in-training costs, partially offset by lower corporate office costs.

Selling costs in the twelve weeks ended October 2, 2022 increased $1.5 million, or 12.2%, as compared to the same period in 2021.

The increase was primarily driven by increased marketing spend.

Selling costs in the forty weeks ended October 2, 2022 increased $5.9 million, or 18.5%, as compared to the same period in 2021.

The increase was primarily driven by increased marketing spend.

General, and administrative costs in the sixteen weeks ended April 16, 2023 increased $2.4 million, or 9.7%, as compared to the same period in 2022.

The increase was primarily driven by increased incentive compensation due to performance, lower capitalized costs due to fewer capital projects, higher travel expenses, increased legal costs, and deferred compensation plan asset market activity, partially offset by a decrease in wages and stock compensation due to the reduction in force and executive transition.

Selling costs in the sixteen weeks ended April 16, 2023 decreased $2.2 million, or 22.3%, as compared to the same period in 2022.

The decrease was primarily driven by lower print agency spend, Donatos ® marketing costs, and franchise advertising obligations.

Pre-opening Costs

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 2, 2022 October 3, 2021 Percent Change October 2, 2022 October 3, 2021 Percent Change

Sixteen Weeks Ended

(In thousands, except percentages) April 16, 2023 April 17, 2022 Percent Change

Pre-opening costs $ 582 $ 62 838.7 %

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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 2, 2022 related to the rollout of Donatos®.

As of October 2, 2022, the Company had completed its rollout of Donatos® at approximately 50 restaurants for 2022.

We incurred pre-opening costs during the sixteen weeks ended April 16, 2023 related to one new restaurant opening in Glendale, AZ and the rollout of 25 Donatos ® locations.

As of April 16, 2023, we completed the rollout of Donatos ® at 272 company owned restaurants.

Interest Expense, Net and Other

Interest expense, net and other was $4.6 million for the twelve weeks ended October 2, 2022, an increase of $1.7 million, or 59.9%, compared to the same period in 2021.

The increase was primarily related to higher average outstanding debt, which increased $50.5 million compared to the same period in 2021, and a higher weighted average interest rate for the quarter.

Our weighted average interest rate on our credit facility debt was 9.7% for the twelve weeks ended October 2, 2022 as compared to 6.8% for the same period in 2021.

Interest expense, net and other was $16.2 million for the forty weeks ended October 2, 2022, an increase of $6.2 million, or 61.7%, compared to the same period in 2021.

The increase was primarily related to higher average outstanding debt, which increased $37.2 million compared to the same period in 2021, and a higher weighted average interest rate 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 on our credit facility debt was 8.7% for the forty weeks ended October 2, 2022 as compared to 6.6% for the same period in 2021.

Interest expense, net and other was $7.4 million for the sixteen weeks ended April 16, 2023 and April 17, 2022.

Interest expense for the sixteen weeks ended April 16, 2023 and April 17, 2022 was $7.8 million and $7.1 million, respectively.

The $0.7 million increase was primarily due to higher interest rates, partially offset by 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 for the sixteen weeks ended April 16, 2023 and April 17, 2022 was 11.6% and 8.2%, respectively.

Interest income and other increased by $0.7 million to income of $0.4 million for the sixteen weeks ended April 16, 2023 from expense of $0.3 million in the sixteen weeks ended April 17, 2022 due to interest income on bank account balances and investment gains related to a deferred compensation plan for which assets are held in a rabbi trust in the sixteen weeks ended April 16, 2023 compared to investment losses related to the deferred compensation plan in the sixteen weeks ended April 17, 2022.

Income Tax Provision

The effective tax rate for the twelve weeks ended October 2, 2022 was a 0.3% benefit, compared to a 0.2% benefit for the twelve weeks ended October 3, 2021.

The effective tax rate for the forty weeks ended October 2, 2022 was a 1.4% expense, compared to a 1.1% benefit for the forty weeks ended October 3, 2021.

During the forty weeks ended October 2, 2022, the Company received $14.8 million of federal and state refund claims, respectively, and expects to receive an additional $0.7 million over the next 12-15 months due to processing delays at the IRS and state authorities.

The effective tax rate for the sixteen weeks ended April 16, 2023 was a 0.6% expense, compared to a 2.0% expense for the sixteen weeks ended April 17, 2022.

The effective tax rate for both periods includes changes in the valuation allowance as a result of originating temporary differences during the year and varies from statutory rates primarily as a result of the valuation allowance as discussed in the Company's Annual Report on Form 10-K for the fiscal year ended December 25, 2022.

Liquidity and Capital Resources

Cash and cash equivalents, and restricted cash increased $35.4 million to $58.1 million as of October 2, 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 maintain existing restaurants and infrastructure, execute on its long-term strategic initiatives, and pay down debt.

As of October 2, 2022, the Company had approximately $75.0 million in liquidity, including cash on hand and available borrowing capacity under its credit facility.

Cash and cash equivalents, and restricted cash increased $0.2 million to $58.4 million as of April 16, 2023, from $58.2 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 April 16, 2023, the Company had approximately $59.0 million in liquidity, including cash and cash equivalents and available borrowing capacity under our 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 2, 2022 October 3, 2021

Sixteen Weeks Ended

April 16, 2023 April 17, 2022

Net cash provided by operating activities $ 17,342 $ 13,296

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Operating Cash Flows

Net cash flows provided by operating activities increased $1.2 million to $38.8 million for the forty weeks ended October 2, 2022.

The change in net cash provided by operating activities is primarily attributable to changes in working capital, including the tax refunds received in 2022, partially offset by decreased cash from earnings after non-cash items, as presented in the Condensed Consolidated Statements of Cash Flows.

Net cash flows provided by operating activities increased $4.0 million to $17.3 million for the sixteen weeks ended April 16, 2023.

The increase in net cash provided by operating activities is primarily attributable to the increase in restaurant level profitability and changes in working capital, partially offset by higher non-restaurant costs and decreased cash from earnings after non-cash items, as presented in the Condensed Consolidated Statements of Cash Flows.

Investing Cash Flows

Net cash flows used in investing activities decreased $1.7 million to $18.3 million for the forty weeks ended October 2, 2022, as compared to $20.0 million for the same period in 2021.

The decrease is primarily due to proceeds received in connection with the sale of a restaurant property, partially offset by 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 forty weeks ended October 2, 2022 and October 3, 2021 (in thousands):

Forty Weeks Ended

October 2, 2022 October 3, 2021

Net cash flows used in investing activities increased $6.5 million to $16.1 million for the sixteen weeks ended April 16, 2023, as compared to $9.5 million for the same period in 2022.

The increase is primarily due to a faster pace of Donatos ® installations and increased investment in restaurant improvements.

The following table lists the components of our capital expenditures, net of currency translation, for the sixteen weeks ended April 16, 2023 and April 17, 2022 (in thousands):

Sixteen Weeks Ended

April 16, 2023 April 17, 2022

Restaurant improvement capital and other $ 7,433 $ 4,856

Investment in technology, infrastructure, and other 8,274 5,355

Donatos ® expansion

Technology, infrastructure, and other 1,731 3,116

New restaurants and restaurant refreshes 1,042 568

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Financing Cash Flows

Net cash flows provided by financing activities increased $31.0 million to $14.9 million for the forty weeks ended October 2, 2022, as compared to net cash flows used in financing activities of $16.0 million in the same period in 2021.

The increase is primarily due to $15.9 million in net borrowings in 2022 compared to a net paydown of debt of $15.7 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.

New Credit Agreement

On March 4, 2022 the Company entered into a new Credit Agreement (the "Credit Agreement"), which replaced its prior amended and restated credit agreement (the "Prior Credit Agreement").

The five-year $225.0 million Credit Agreement provides for a $25.0 million revolving line of credit and a $200.0 million term loan (collectively, the “Credit Facility”).

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.

Net cash flows used in financing activities were $1.0 million for the sixteen weeks ended April 16, 2023, as compared to net cash flows provided by financing activities of $15.4 million in the same period in 2022.

In 2022, financing activities were a source of cash, due to net draws made on long-term debt as a result of the Company's refinancing of debt on March 4, 2022.

In 2023, the use of cash results primarily from standard principal payments due under the terms of the Company’s Credit Agreement.

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 October 2, 2022, the Company had outstanding borrowings under the Credit Agreement of $190.4 million net of $8.6 million of unamortized deferred financing charges and discounts, of which $2.0 million was classified as current.

As of October 2, 2022, the Company had $25.0 million of available borrowing capacity under its Credit Agreement.

As of October 2, 2022, the Company had $7.8 million of letters of credit issued against cash collateral, compared to $8.6 million as of the prior comparable period.

The Company's cash collateral is recorded in Restricted cash on our Condensed Consolidated Balance Sheets as of the quarter ended October 2, 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.

As of October 2, 2022, we were in compliance with all debt covenants.

As of April 16, 2023, the Company had outstanding borrowings under the Credit Facility of $205.2 million net of $7.8 million of unamortized deferred financing charges and discounts, of which $2.9 million was classified as current.

As of April 16, 2023, the Company had $10.0 million of available borrowing capacity under its Credit Facility.

As of April 16, 2023, the Company had $9.0 million of letters of credit issued against cash collateral, compared to $9.1 million as of the prior comparable period.

The Company's cash collateral is recorded in Restricted cash on our Condensed Consolidated Balance Sheets as of the quarter ended April 16, 2023.

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 April 16, 2023, we were in compliance with all debt covenants.

Debt Outstanding

Total debt outstanding increased $22.9 million to $199.9 million at October 2, 2022, from $177.0 million at December 26, 2021, primarily driven by net proceeds from the execution of the new Credit Facility during the forty weeks ended October 2, 2022.

Total debt outstanding decreased $1.0 million to $213.9 million at April 16, 2023, from $214.9 million at December 25, 2022, primarily driven by payments of long-term debt during the sixteen weeks ended April 16, 2023.

Working Capital

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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 2, 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 October 2, 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;

repurchases 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.

Increases in wage rates have directly affected our labor costs in recent years.

Additionally, 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 and commodity cost inflation had a negative impact on our financial condition and results of operations during the twelve and forty weeks ended October 2, 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.

From the date of the current program approval through April 16, 2023, 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 16, 2023, 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.

The Company reserves the right to re-instate this program at any time.

The new Credit Agreement limits our ability to repurchase shares to certain conditions set forth by the lenders in the new Credit Facility.

Our business is subject to seasonal fluctuations.

Prior to the COVID-19 pandemic, sales in most of our restaurants have been higher during the summer months and winter holiday season and lower during the fall season.

As a result, our quarterly operating results and comparable restaurant revenue may fluctuate significantly as a result of seasonality.

Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter, and comparable restaurant sales for any particular future period may decrease.

Historically, sales in most of our restaurants were greater during the summer months and winter holiday season and lesser during the fall season.

As a result, our quarterly operating results may fluctuate significantly.

Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter.

Contractual Obligations

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 refinancing of our Credit Agreement in March 2022 as previously discussed above and 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 October 2, 2022 are as follows (in thousands):

Payments Due by Period

Total 2022 2023-2024 2025-2026 2027 and Thereafter

Long-term debt obligations (1)

$ 291,775 $ 5,707 $ 45,187 $ 44,351 $ 196,530

Purchase obligations (2)

$ 171,974 $ 18,335 $ 68,287 $ 38,848 $ 46,504

(1) Long-term debt obligations primarily represent minimum required principal payments under our Credit Facility including estimated interest of $91.9 million based on a 10.31% 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.

There were no other material changes outside the ordinary course of business to our contractual obligations since the filing of the 2022 Form 10-K for the fiscal year ended December 25, 2022.

Our current purchase obligations for system-wide fixed price commitments for food, beverage, equipment, and restaurant supply items are $137.6 million as of April 16, 2023 of which $27.9 million are due in 2023.

Critical Accounting Policies and Estimates

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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 future impact from the COVID-19 pandemic, and we might obtain different results if we use different assumptions or conditions.

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 potentially unknown future events, and we might obtain different results if we use different assumptions or conditions.

We had no significant changes in our critical accounting policies and estimates which were disclosed in our Annual Report on Form 10-K for the fiscal year ended December 25, 2022.

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Forward-looking statements include statements regarding our expectations, beliefs, intentions, plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements which are other than statements of historical facts.

These statements may be identified, without limitation, by the use of forward-looking terminology such as "anticipate," "assume," "believe," "could," "estimate," "expect," "future," "intend," "may," "plan," "project," "will," "continue," and similar expressions.

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

(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) our ability to maintain our working capital position, (vi) our ability to use our credit facility to satisfy our working capital deficit, short-term liquidity requirements and capital expenditures, (vii) anticipated impacts of inflation, and (viii) availability of food and supplies meeting our specifications from alternate sources.

Forward-looking statements in this report relate to, among other things:

(i) our business objectives and strategic plans;

(ii) working capital, and the ability of our future cash flows from restaurant operations and our borrowing capacity to satisfy future working capital deficits and capital expenditures;

(iii) our share repurchase program;

(iv) our expectations about restaurant operating costs, including commodity and food prices and labor and energy costs, and our ability to mitigate potential increases in such costs;

(v) anticipated continued investments in our partnership with Donatos® and other restaurant improvements, including the timing thereof;

(vi) our expectations about anticipated uses of, and risks associated with, future cash flows, liquidity, capital expenditures, other capital deployment opportunities and taxes;

(vii) the seasonality of our business;

(viii) our ability to successfully implement, and our expectations regarding, our North Star five-point plan to enhance the Company’s competitive positioning, including the timing of our expected payments in connection with severance and executive transition costs;

(ix) litigation contingencies and the adequacy of our reserves for legal matters;

(x) our expectations regarding, and our ability to mitigate changes in, interest rates, commodity prices and other factors;

and (xi) recently announced transactions including sale-leaseback transactions and acquisitions of certain restaurants from a franchisee.

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.

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In addition, the factors described under Risk Factors, as well as other possible factors not listed, could cause actual results to differ materially from those expressed in forward-looking statements, including, without limitation, the following:

• the impact of COVID-19 on our results of operations, supply chain, and liquidity;

the effectiveness of the Company's strategic initiatives, including alternative labor models, service, and operational improvement initiatives;

• our ability to recruit staff, train, and retain our workforce for service execution;

• the effectiveness of the Company's marketing strategies and promotions;

• menu changes, including the anticipated sales growth, costs, and timing of the Donatos® expansion;

• the implementation, rollout, and timing of technology solutions in our restaurants and at our restaurant support center, in addition to digital platforms that are accessed by our Guests;

• our ability to achieve and sustain revenue and cost savings from off-premise sales and other initiatives;

• competition in the casual dining market and discounting by competitors;

• changes in consumer spending trends and habits;

• changes in the cost and availability of key food products and distribution, restaurant equipment, construction materials, labor, and energy, including the existence of alternate suppliers and the availability of supplies meeting our specification;

• our ability to implement, and the effectiveness of, the Company's strategic initiatives, including our North Star plan, labor models, service and operational improvement initiatives;

• general economic conditions, including changes in consumer disposable income, weather conditions, and related events in regions where our restaurants are operated;

• the adequacy of cash flows and the cost and availability of capital or credit facility borrowings, including our ability to refinance our credit facility, on terms we expect or at all

• the level and impacts of inflation;

• the impacts of interest rate increases;

• the impact of federal, state, and local regulation of the Company's business;

• changes in federal, state, or local laws and regulations affecting the operation of our restaurants, including minimum wages, consumer health and safety, health insurance coverage, nutritional disclosures, and employment eligibility-related documentation requirements;

• menu changes, including the anticipated sales growth, costs, and timing of restaurant improvements including the Donatos® expansion;

• the implementation of and realization of benefits from our restaurant management transition program;

• changes in consumer spending trends and habits;

• changes in the cost and availability of key food products, distribution, labor, and energy;

• the adequacy of cash flows and the cost and availability of capital or Credit Facility borrowings and our potential sale-leaseback transactions;

• expectations relating to our recently announced acquisition of certain restaurants from a franchisee;

• the impact of, and changes in, federal, state, or local laws and regulations affecting the operation of our restaurants, including minimum wages, consumer health and safety, health insurance coverage, nutritional disclosures, and employment eligibility-related documentation requirements;

• changes in interest rates and commodity prices, and our ability to mitigate the impacts of such changes;

• risks associated with our stock repurchase program;

• costs and other effects of legal claims by Team Members, franchisees, customers, vendors, stockholders, and others, including negative publicity regarding food safety or cyber security;

• the other Risk Factors identified in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended December 25, 2022.

All forward-looking statements speak only as of the date made.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis