RED ROBIN GOURMET BURGERS INC 10-Q

ITEM 1. Financial Statements (unaudited) RED ROBIN GOURMET BURGERS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except for per share amounts) October 1, 2023 December 25, 2022 Assets: Current assets: Cash and cash equivalents $ 48,550 $ 48,826 Accounts receivable, net 11,819 21,427 Inventories 27,013 26,447 Income tax receivable 462 562 Prepaid expenses and other current assets 12,945 12,938 Restricted cash 12,268 9,380 Total current assets 113,057 119,580 Property and equipment, net 264,278 318,517 Operating lease assets, net 372,057 361,432 Intangible assets, net 17,114 17,727 Other assets, net 10,808 14,889 Total assets $ 777,314 $ 832,145 Liabilities and stockholders ' equity (deficit): Current liabilities: Accounts payable $ 30,020 $ 39,336 Accrued payroll and payroll-related liabilities 37,828 33,666 Unearned revenue 31,980 46,944 Current portion of operating lease obligations 50,250 47,394 Current portion of long-term debt 875 3,375 Accrued liabilities and other 53,495 49,498 Total current liabilities 204,448 220,213 Long-term debt 182,142 203,155 Long-term portion of operating lease obligations 389,416 393,157 Other non-current liabilities 10,051 13,831 Total liabilities 786,057 830,356 Commitments and contingencies (see Note 8. Commitments and Contingencies) Stockholders ' equity (deficit): Common stock; $ 0.001 par value: 45,000 shares authorized; 20,449 shares issued; 15,482 and 15,934 shares outstanding as of October 1, 2023 and December 25, 2022 20 20 Preferred stock, $ 0.001 par value: 3,000 shares authorized; no shares issued and outstanding as of October 1, 2023 and December 25, 2022 — — Treasury stock 4,967 and 4,515 shares, at cost, as of October 1, 2023 and December 25, 2022 ( 176,813 ) ( 182,810 ) Paid-in capital 229,769 238,803 Accumulated other comprehensive loss, net of tax ( 34 ) ( 34 ) Accumulated deficit ( 61,685 ) ( 54,190 ) Total stockholders' equity (deficit) ( 8,743 ) 1,789 Total liabilities and stockholders ' equity (deficit) $ 777,314 $ 832,145 See Notes to Condensed Consolidated Financial Statements 1 Table of Contents RED ROBIN GOURMET BURGERS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) Twelve Weeks Ended Forty Weeks Ended (in thousands, except for per share amounts) October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022 Revenues: Restaurant revenue $ 273,133 $ 282,415 $ 973,307 $ 951,633 Franchise and other revenues 4,427 4,390 20,713 24,302 Total revenues 277,560 286,805 994,020 975,935 Costs and expenses: Restaurant operating costs (excluding depreciation and amortization shown separately below): Cost of sales 65,128 70,640 236,171 234,283 Labor 103,741 100,522 358,841 340,273 Other operating 50,351 52,858 174,243 172,725 Occupancy 23,523 22,828 76,806 76,406 Depreciation and amortization 14,672 17,368 52,253 58,924 Selling, general, and administrative expenses 27,961 35,692 89,348 102,168 Pre-opening and acquisition costs — 217 586 514 Other charges (gains), net ( 5,878 ) ( 5,217 ) ( 6,726 ) 8,236 Total costs and expenses 279,498 294,908 981,522 993,529 Income (loss) from operations ( 1,938 ) ( 8,103 ) 12,498 ( 17,594 ) Other expense: Interest expense, net and other 5,945 4,590 19,541 16,151 Loss before income taxes ( 7,883 ) ( 12,693 ) ( 7,043 ) ( 33,745 ) Income tax provision (benefit) 278 ( 43 ) 453 453 Net loss $ ( 8,161 ) $ ( 12,650 ) $ ( 7,496 ) $ ( 34,198 ) Loss per share: Basic $ ( 0.52 ) $ ( 0.80 ) $ ( 0.47 ) $ ( 2.16 ) Diluted $ ( 0.52 ) $ ( 0.80 ) $ ( 0.47 ) $ ( 2.16 ) Weighted average shares outstanding: Basic 15,799 15,892 15,949 15,816 Diluted 15,799 15,892 15,949 15,816 Other comprehensive income (loss): Foreign currency translation adjustment $ ( 12 ) $ ( 45 ) $ 1 $ ( 51 ) Other comprehensive income (loss), net of tax ( 12 ) ( 45 ) 1 ( 51 ) Total comprehensive loss $ ( 8,173 ) $ ( 12,695 ) $ ( 7,495 ) $ ( 34,249 ) See Notes to Condensed Consolidated Financial Statements. 2 Table of Contents RED ROBIN GOURMET BURGERS, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS ' EQUITY (DEFICIT) (Unaudited) Common Stock Treasury Stock Accumulated Other Comprehensive Income/(Loss), net of tax Paid-in Capital Accumulated Deficit (in thousands) Shares Amount Shares Amount Total Balance, December 25, 2022 20,449 $ 20 4,515 $ ( 182,810 ) $ 238,803 $ ( 34 ) $ ( 54,190 ) $ 1,789 Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 129 ) 5,330 ( 5,106 ) — — 224 Non-cash stock compensation — — — — 2,179 — — 2,179 Net loss — — — — — — ( 3,256 ) ( 3,256 ) Other comprehensive income (loss), net of tax — — — — — 8 — 8 Balance, April 16, 2023 20,449 $ 20 4,386 $ ( 177,480 ) $ 235,876 $ ( 26 ) $ ( 57,445 ) $ 945 Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 250 ) 9,933 ( 8,297 ) — — 1,636 Acquisition of treasury stock — — 382 ( 4,999 ) — — — ( 4,999 ) Non-cash stock compensation — — — — 1,519 — — 1,519 Net income — — — — — — 3,922 3,922 Other comprehensive income (loss), net of tax — — — — — 4 — 4 Balance, July 9, 2023 20,449 $ 20 4,518 $ ( 172,546 ) $ 229,098 $ ( 22 ) $ ( 53,524 ) $ 3,026 Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 31 ) 694 ( 809 ) — — ( 115 ) Acquisition of treasury stock — — 480 ( 4,961 ) — — — ( 4,961 ) Non-cash stock compensation — — — 1,480 — — 1,480 Net loss — — — — — — ( 8,161 ) ( 8,161 ) Other comprehensive income (loss), net of tax — — — — — ( 12 ) — ( 12 ) Balance, October 1, 2023 20,449 $ 20 4,967 $ ( 176,813 ) $ 229,769 $ ( 34 ) $ ( 61,685 ) $ ( 8,743 ) 3 Table of Contents Common Stock Treasury Stock Accumulated Other Comprehensive Income/(Loss), net of tax Paid-in Capital Retained Earnings (in thousands) Shares Amount Shares Amount Total Balance, December 26, 2021 20,449 $ 20 4,727 $ ( 192,803 ) $ 242,560 $ 1 $ 24,693 $ 74,471 Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 64 ) 2,781 ( 2,846 ) — — ( 65 ) Non-cash stock compensation — — — — 3,042 — — 3,042 Net loss — — — — — — ( 3,581 ) ( 3,581 ) Other comprehensive income (loss), net of tax — — — — — 11 — 11 Balance, April 17, 2022 20,449 $ 20 4,663 $ ( 190,022 ) $ 242,756 $ 12 $ 21,112 $ 73,878 Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 113 ) 5,817 ( 5,691 ) — — 126 Non-cash stock compensation — — — — 2,542 — — 2,542 Net loss — — — — — — ( 17,966 ) ( 17,966 ) Other comprehensive income (loss), net of tax — — — — — ( 18 ) — ( 18 ) Balance, July 10, 2022 20,449 $ 20 4,550 $ ( 184,205 ) $ 239,607 $ ( 6 ) $ 3,146 $ 58,562 Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 1 ) 36 ( 40 ) — — ( 4 ) Non-cash stock compensation — — — — 2,668 — — 2,668 Net loss — — — — — — ( 12,650 ) ( 12,650 ) Other comprehensive income (loss), net of tax — — — — — ( 45 ) — ( 45 ) Balance, October 2, 2022 20,449 $ 20 4,549 $ ( 184,169 ) $ 242,235 $ ( 51 ) $ ( 9,504 ) $ 48,531 See Notes to Condensed Consolidated Financial Statements. 4 Table of Contents RED ROBIN GOURMET BURGERS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Forty Weeks Ended (in thousands) October 1, 2023 October 2, 2022 Cash flows from operating activities: Net loss $ ( 7,496 ) $ ( 34,198 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 52,253 58,924 Gift card breakage ( 5,930 ) ( 7,781 ) Asset impairment 7,187 13,048 Non-cash other charges (gains), net ( 1,819 ) ( 2,287 ) Stock-based compensation expense 5,171 8,229 Gain on sale of property, plant, and equipment ( 29,865 ) ( 9,204 ) Other, net 733 3,240 Changes in operating assets and liabilities, net of business acquisition: Accounts receivable 9,607 9,487 Income tax receivable 100 15,163 Inventories ( 377 ) ( 217 ) Prepaid expenses and other current assets 1,354 2,183 Operating lease assets, net of liabilities ( 9,975 ) ( 10,562 ) Trade accounts payable and accrued liabilities 5,416 9,621 Unearned revenue ( 9,127 ) ( 8,301 ) Other operating assets and liabilities, net 129 ( 8,545 ) Net cash provided by operating activities 17,361 38,800 Cash flows from investing activities: Purchases of property, equipment, and intangible assets ( 37,074 ) ( 27,036 ) Proceeds from sale-leaseback 58,801 — Proceeds from sales of property and equipment and other investing activities 794 8,739 Acquisition of franchised restaurants ( 3,529 ) — Net cash provided by (used in) investing activities 18,992 ( 18,297 ) Cash flows from financing activities: Borrowings of long-term debt — 282,151 Payments of long-term debt and finance leases ( 25,525 ) ( 266,275 ) Purchase of treasury stock ( 9,960 ) — Debt issuance costs — ( 4,869 ) Proceeds related to real estate sale — 3,856 Proceeds from other financing activities, net 1,744 58 Net cash provided by (used in) financing activities ( 33,741 ) 14,921 Effect of exchange rate changes on cash — ( 44 ) Net change in cash and cash equivalents, and restricted cash 2,612 35,380 Cash and cash equivalents, and restricted cash, beginning of period 58,206 22,750 Cash and cash equivalents, and restricted cash, end of period $ 60,818 $ 58,130 Supplemental disclosure of cash flow information Income tax paid (refund received), net $ 210 $ ( 14,729 ) Interest paid, net of amounts capitalized $ 18,261 $ 11,387 Right of use assets obtained in exchange for operating lease obligations $ 50,769 $ 11,604 Right of use assets obtained in exchange for finance lease obligations $ 81 $ 541 See Notes to Condensed Consolidated Financial Statements. 5 Table of Contents RED ROBIN GOURMET BURGERS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation and Recent Accounting Pronouncements Red Robin Gourmet Burgers, Inc., a Delaware corporation, together with its subsidiaries ("Red Robin" or the "Company"), primarily operates, franchises, and develops full-service restaurants in North America. As of October 1, 2023, the Company owned and operated 417 restaurants located in 39 states. The Company also had 91 franchised full-service restaurants in 14 states and one Canadian province. The Company operates its business as one operating and one reportable segment. Basis of Presentation The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Red Robin and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company's financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for any interim period are not necessarily indicative of results for the full year. The accompanying Condensed Consolidated Financial Statements of Red Robin have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"), including the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in the Company's annual consolidated financial statements on Form 10-K have been condensed or omitted. The Condensed Consolidated Balance Sheet as of December 25, 2022 has been derived from the audited consolidated financial statements as of that date but does not include all disclosures required for audited annual financial statements. For further information, please refer to and read these interim Condensed Consolidated Financial Statements in conjunction with the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 25, 2022 filed with the SEC on February 28, 2023. Our current, prior, and upcoming year periods, period end dates, and number of weeks included in the period are summarized in the table below: Periods Period End Date Number of Weeks in Period Current and Prior Fiscal Quarters: First Quarter 2023 April 16, 2023 16 First Quarter 2022 April 17, 2022 16 Second Quarter 2023 July 9, 2023 12 Second Quarter 2022 July 10, 2022 12 Third Quarter 2023 October 1, 2023 12 Third Quarter 2022 October 2, 2022 12 Current and Prior Fiscal Years: Fiscal Year 2023 December 31, 2023 53 Fiscal Year 2022 December 25, 2022 52 Upcoming fiscal year: Fiscal Year 2024 December 29, 2024 52 6 Table of Contents Immaterial Restatement of Prior Period Financial Statements As previously disclosed in our Form 10-Q for the period ended July 9, 2023, the Company discovered a multi-year error in its calculation and recognition of revenue related to gift cards, primarily related to breakage revenue that had been recognized for bonus and discounted gift cards for which no or discounted monetary consideration was received, which resulted in the Company overstating total revenues by $ 0.1 million and $ 0.6 million for the twelve and forty weeks ended October 2, 2022. Management has evaluated this misstatement and concluded it was not material to prior periods, individually or in the aggregate. However, correcting the cumulative effect of the error in the twelve and forty weeks ended October 2, 2022 would have had a significant effect on the results of operations for such periods. Therefore, the Company is correcting the relevant prior period Condensed Consolidated Financial Statements and related footnotes for this error for comparative purposes. The following tables reflect the effects of the correction on all affected line items of the Company's previously reported Condensed Consolidated Financial Statements presented in this Form 10-Q: CORRECTED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (unaudited) Twelve Weeks Ended October 2, 2022 Forty Weeks Ended October 2, 2022 (in thousands) As Previously Reported Adjustment As Corrected As Previously Reported Adjustment As Corrected Restaurant revenue $ 282,449 $ ( 34 ) $ 282,415 $ 951,718 $ ( 85 ) $ 951,633 Franchise and other revenues 4,439 ( 49 ) 4,390 24,810 ( 508 ) 24,302 Total revenues 286,888 ( 83 ) 286,805 976,528 ( 593 ) 975,935 Loss before income taxes ( 12,610 ) ( 83 ) ( 12,693 ) ( 33,152 ) ( 593 ) (33,744) Net loss ( 12,567 ) ( 83 ) ( 12,650 ) ( 33,605 ) ( 593 ) (34,197) Net loss per share ( 0.79 ) ( 0.01 ) ( 0.80 ) ( 2.12 ) ( 0.04 ) ( 2.16 ) Total comprehensive loss ( 12,612 ) ( 83 ) ( 12,695 ) ( 33,656 ) ( 593 ) ( 34,249 ) OTHER NON-GAAP INFORMATION: Adjusted EBITDA 3,960 ( 83 ) 3,877 43,900 ( 189 ) 43,711 CORRECTED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS ' EQUITY (DEFICIT) (unaudited) Forty Weeks Ended October 2, 2022 (in thousands) Retained Earnings/(Accumulated Deficit) Total Shareholders' Equity As Previously Reported Balance, July 10, 2022 6,159 61,575 Net loss ( 12,567 ) ( 12,567 ) Balance, October 2, 2022 ( 6,408 ) 51,627 Adjustments Balance, July 10, 2022 ( 3,013 ) ( 3,013 ) Net loss ( 83 ) ( 83 ) Balance, October 2, 2022 ( 3,096 ) ( 3,096 ) As Corrected Balance, July 10, 2022 3,146 58,562 Net loss ( 12,650 ) ( 12,650 ) Balance, October 2, 2022 $ ( 9,504 ) $ 48,531 CORRECTED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Forty Weeks Ended October 2, 2022 (in thousands) As Previously Reported Adjustment As Corrected Net loss $ ( 33,605 ) $ ( 593 ) $ ( 34,198 ) Gift card breakage ( 8,289 ) 508 ( 7,781 ) Unearned revenue ( 8,386 ) 85 ( 8,301 ) 7 Table of Contents 2. Revenue Disaggregation of revenue In the following table, revenue is disaggregated by type of good or service (in thousands): Twelve Weeks Ended Forty Weeks Ended October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022 Restaurant revenue $ 273,133 $ 282,415 $ 973,307 $ 951,633 Franchise revenue 3,418 4,249 12,245 14,891 Gift card breakage 589 141 5,930 7,782 Other revenue 420 — 2,538 1,629 Total revenues $ 277,560 $ 286,805 $ 994,020 $ 975,935 Contract Liabilities Components of Unearned revenue in the accompanying Condensed Consolidated Balance Sheets are as follows (in thousands): October 1, 2023 December 25, 2022 Unearned gift card revenue $ 20,583 $ 35,837 Deferred loyalty revenue $ 11,398 $ 11,107 Revenue recognized in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the redemption and breakage of gift cards that were included in the liability balance at the beginning of the fiscal year was as follows (in thousands): Forty Weeks Ended October 1, 2023 October 2, 2022 Gift card revenue $ 16,865 $ 21,222 3. Leases The components of lease expense, including variable lease costs primarily consisting of common area maintenance charges and real estate taxes, are included in Occupancy on our Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) as follows (in thousands): Twelve Weeks Ended Forty Weeks Ended October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022 Operating lease cost $ 16,691 $ 15,793 $ 53,865 $ 53,904 Finance lease cost: Amortization of right of use assets 216 261 764 841 Interest on lease liabilities 116 111 400 408 Total finance lease cost $ 332 $ 372 1,164 1,249 Variable lease cost 4,994 4,130 15,263 15,136 Total $ 22,017 $ 20,295 $ 70,292 $ 70,289 Refer to Footnote 5, Other Charges (gains), net , for information regarding the sale-leaseback transaction during the twelve and forty weeks ended October 1, 2023. 4. Earnings (Loss) Per Share Basic earnings (loss) per share amounts are calculated by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share amounts are calculated based upon the weighted-average number of shares of common stock and potentially dilutive shares of common stock outstanding during the period. Potentially dilutive shares are excluded from the computation in periods in which they have an anti-dilutive effect. Diluted earnings per share reflects the potential dilution that could occur if holders of options exercised their options into common stock. As the Company was in a net loss position for both the twelve and forty weeks ended October 1, 2023 and October 2, 2022, all potentially dilutive common shares are considered anti-dilutive. 8 Table of Contents The Company uses the treasury stock method to calculate the effect of outstanding stock options and awards. Basic weighted average shares outstanding is reconciled to diluted weighted average shares outstanding as follows (in thousands): Twelve Weeks Ended Forty Weeks Ended October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022 Basic weighted average shares outstanding 15,799 15,892 15,949 15,816 Dilutive effect of stock options and awards — — — — Diluted weighted average shares outstanding 15,799 15,892 15,949 15,816 Awards excluded due to anti-dilutive effect on diluted income (loss) per share 1,420 869 1,421 1,010 5. Other Charges (Gains), net Other charges (gains), net consisted of the following (in thousands): Twelve Weeks Ended Forty Weeks Ended October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022 Gain on sale leaseback, net of expenses $ ( 14,883 ) $ — $ ( 29,413 ) $ — Gain on sale of restaurant property — ( 9,204 ) — ( 9,204 ) Litigation contingencies 3,600 133 9,140 47 Restaurant closure costs, net ( 91 ) ( 1,570 ) 1,546 309 Severance and executive transition 341 1,825 3,195 1,954 Asset impairment 4,800 2,187 7,187 13,048 Other 277 — 1,366 — Closed corporate office costs, net of sublease income 78 267 253 267 Other financing costs — 1,022 — 1,392 COVID-19 related charges — 123 — 423 Other charges (gains), net $ ( 5,878 ) $ ( 5,217 ) $ ( 6,726 ) $ 8,236 During the third quarter of 2023, the Company sold nine restaurant properties for total proceeds of $ 30.4 million in a sale-leaseback transaction that resulted in a gain, net of expenses of $ 14.9 million. This was the second sale-leaseback transaction of the year with the first transaction occurring in the second quarter of 2023 for another nine restaurant properties. The year-to-date net proceeds of $ 58.8 million from the sale of 18 restaurant properties are included within cash flows from investing activities on the Condensed Consolidated Statements of Cash Flows for the forty weeks ended October 1, 2023. During the second quarter of 2022 the Company closed on an agreement to sell a restaurant property that the Company owned and leased back on a short-term basis. The Company collected initial net proceeds from the purchaser-lessor of $ 3.9 million, which represented a portion of the total consideration received from the sale. During the third quarter of 2022, the Company received the remaining proceeds, upon which the lease terminated and the sale transaction was completed, and recognized a $ 9.2 million gain on the sale of the restaurant property. The initial net proceeds of $ 3.9 million are included within cash flows from financing activities and the final proceeds received of $ 8.5 million are included within cash flows from investing activities on the Condensed Consolidated Statements of Cash Flows for the forty weeks ended October 2, 2022. Litigation contingencies during the twelve and forty weeks ended October 1, 2023 and October 2, 2022 represent reserves for various in progress legal matters. Litigation contingencies during the forty weeks ended October 2, 2022 include the impact of cash proceeds received by the Company related to certain legal claims. Restaurant closure costs (gains) include the ongoing restaurant operating costs of the Company-owned restaurants incurred for closed restaurants and closed restaurant lease termination gains or losses. Severance and executive transition costs include one-time termination benefits related to a reduction in force of Team Members and costs associated with changes in leadership positions as a result of our strategic pivot and are accounted for in accordance with ASC Topic 420, Exit or Disposal Cost Obligations . The Company expects to make the remaining payments related to these benefits in 2023. 9 Table of Contents The Company incurred a cumulative total of $ 5.0 million related to these one-time termination benefits. Approximately $ 2.1 million in one-time termination benefits was incurred and recorded in Other charges in the Consolidated Statements of Operations and Comprehensive Income (Loss) during the forty weeks ended October 1, 2023. A reconciliation of our termination benefits liability, which is included in Accrued liabilities and other current liabilities in our Condensed Consolidated Balance Sheets is as follows: Termination Benefits Balance as of December 25, 2022 $ 2,505 Charges 2,077 Cash Payments ( 4,164 ) Balance as of October 1, 2023 $ 418 The Company recognized non-cash impairment charges primarily related to restaurant assets at eight and twelve Company-owned restaurants during the twelve and forty weeks ended October 1, 2023. Additionally, the Company recognized non-cash impairment charges related to subleasing additional space at the Company's closed corporate office during the forty weeks ended October 1, 2023. The Company recognized non-cash impairment charges related to restaurant assets at one and ten Company-owned restaurants for the twelve and forty weeks ended October 2, 2022, respectively. Other primarily includes non-cash charges related to terminated capital projects and disposals, and certain insurance claim proceeds. Closed corporate office, net of sublease income includes expense and sublease income related to a corporate office facility that was vacated and subleased. Other financing costs include fees related to the entry by the Company into the new Credit Agreement (as defined below) on March 4, 2022 that were not capitalized with the closing of the Credit Facility. See Note 6. Borrowings. COVID-19 related charges include the costs of purchasing personal protective equipment for restaurant Team Members and Guests and emergency sick pay provided to restaurant Team Members related to the COVID-19 pandemic. 6. Borrowings Borrowings as of October 1, 2023 and December 25, 2022 are summarized below (in thousands): October 1, 2023 Variable Interest Rate December 25, 2022 Variable Interest Rate Revolving line of credit $ — $ 15,000 10.44 % Term loan 189,142 12.16 % 199,000 9.81 % Notes payable 875 875 Total borrowings 190,017 214,875 Less: unamortized debt issuance costs and discounts (1) 7,000 8,345 Less: current portion of long-term debt 875 3,375 Long-term debt $ 182,142 $ 203,155 Revolving line of credit unamortized deferred financing charges (1) : $ 807 $ 988 (1) Loan origination costs associated with the Company's credit facility are included as deferred costs in Other assets, net for financing charges allocated to the Revolving line of credit, and Long-term debt for financing charges associated with the term loan in the accompanying Condensed Consolidated Balance Sheets. 10 Table of Contents Credit Agreement On March 4, 2022, the Company replaced its prior amended and restated credit agreement (the "Prior Credit Agreement") with a new Credit Agreement (the "Credit Agreement") by and among the Company, Red Robin International, Inc., as the borrower, the lenders from time to time party thereto, the issuing banks from time to time party thereto, Fortress Credit Corp., as Administrative Agent and as Collateral Agent and JPMorgan Chase Bank, N.A., as Sole Lead Arranger and Sole Bookrunner. 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 borrower maintains the option to increase the amount of borrowings available under the Credit Agreement in the future, subject to lenders’ participation, by up to an additional $ 40.0 million in the aggregate on the terms and conditions set forth in the Credit Agreement. The Credit Facility will mature on March 4, 2027. No amortization is required with respect to the revolving Credit Facility. The term loans require quarterly principal payments in an aggregate annual amount equal to 1.0 % of the original principal amount of the term loan. The Credit Facility'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. Red Robin International, Inc. is the borrower under the Credit Agreement, and certain of its subsidiaries and the Company are guarantors of borrower’s obligations under the Credit Agreement. Borrowings under the Credit Agreement are secured by substantially all of the assets of the borrower and the guarantors, including the Company, and are available to: (i) refinance certain existing indebtedness of the borrower and its subsidiaries, (ii) pay any fees and expenses in connection with the Credit Agreement, and (iii) provide for the working capital and general corporate requirements of the Company, the borrower and its subsidiaries, including permitted acquisitions and capital expenditures, but excluding restricted payments. On March 4, 2022, Red Robin International, Inc., the Company, and the guarantors also entered into a Pledge and Security Agreement (the “Security Agreement”) granting to the Administrative Agent a first priority security interest in substantially all of the assets of the borrower and the guarantors to secure the obligations under the Credit Agreement. This new Security Agreement replaced the existing security agreement, dated January 10, 2020, which was entered into in connection with the Prior Credit Agreement. Red Robin International, Inc. as the borrower is obligated to pay customary fees to the agents, lenders and issuing banks under the Credit Agreement with respect to providing, maintaining, or administering, as applicable, the credit facilities. In connection with entry into the new Credit Agreement, the Company’s Prior Credit Agreement was terminated. In connection with such termination and new borrowings under the new Credit Agreement, the Company paid off all outstanding borrowings, accrued interest, and fees under the Prior Credit Agreement. On July 17, 2023, the Company amended the Credit Agreement (the “Credit Agreement Amendment”) to remove the previously included $ 50.0 million aggregate cap (the “Prior Cap”) on sale-leasebacks of Company-owned real property. Pursuant to the Credit Agreement Amendment, it also was agreed that (i) the Company may reinvest in the business within 360 days of receipt the net proceeds of sale-leasebacks to the extent that such proceeds are equal to or less than the amount of the Prior Cap and (ii) the Company shall make a mandatory prepayment with the net proceeds of sale-leasebacks to the extent that such proceeds exceed the amount of the Prior Cap. Additionally, the prepayment premium associated with any mandatory prepayments derived from the net proceeds of sale-leasebacks that exceed the Prior Cap is reduced by the Credit Agreement Amendment to a premium equal to 50 % of the prepayment premium otherwise applicable. The Amendment also made certain other conforming changes to the Existing Credit Agreement to effect the foregoing. The summary descriptions of the Credit Agreement, the Credit Agreement Amendment, and the Security Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the Credit Agreement, the Credit Agreement Amendment, and the Security Agreement, respectively, which have been filed as exhibits to the Company’s Current Reports on Form 8-K filed with the Securities and Exchange Commission on March 10, 2022, with respect to the Credit Agreement and the Security Agreement, and July 19, 2023, with respect to the Credit Agreement Amendment. During the first quarter of 2022, the Company expensed approximately $ 1.7 million of deferred financing charges related to the extinguishment of the Prior Credit Agreement on March 4, 2022. These charges were recorded to interest expense, net and other on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the forty weeks ended October 2, 2022. In association with the execution of the new Credit Agreement, the Company recognized $ 4.8 million of deferred financing charges, and $ 6.1 million of original issuance discount. 11 Table of Contents 7. Fair Value Measurements Assets and Liabilities Measured at Fair Value on a Recurring Basis The carrying amounts of the Company's cash and cash equivalents, accounts receivable, accounts payable, and current accrued expenses and other liabilities approximate fair value due to the short-term nature or maturity of the instruments. The Company maintains a rabbi trust to fund obligations under a deferred compensation plan. Amounts in the rabbi trust are invested in mutual funds, which are designated as trading securities and carried at fair value and are included in Other assets, net in the accompanying consolidated balance sheets. Fair market value of mutual funds is measured using level 1 inputs (quoted prices for identical assets in active markets). The following tables present the Company's assets measured at fair value on a recurring basis included in Other assets, net on the accompanying Condensed Consolidated Balance Sheets as of October 1, 2023 and December 25, 2022 (in thousands): October 1, 2023 Level 1 Level 2 Level 3 Assets: Investments in rabbi trust $ 2,137 $ 2,137 $ — $ — Total assets measured at fair value $ 2,137 $ 2,137 $ — $ — December 25, 2022 Level 1 Level 2 Level 3 Assets: Investments in rabbi trust $ 4,250 $ 4,250 $ — $ — Total assets measured at fair value $ 4,250 $ 4,250 $ — $ — Other than as disclosed in Note 9. Acquisition of Franchised Restaurants, as of October 1, 2023, the Company had no financial assets or liabilities that were measured using level 2 or 3 inputs. The Company also had no non-financial assets or liabilities that were required to be measured on a recurring basis. Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Assets and liabilities recognized or disclosed at fair value on the Condensed Consolidated Financial Statements on a nonrecurring basis include items such as property, plant and equipment, right of use assets, and other intangible assets. These assets are measured at fair value if determined to be impaired. The Company has measured non-financial assets for impairment using continuing and projected future cash flows, which were based on significant inputs not observable in the market and thus represented a level 3 fair value measurement. See Note 5. Other Charges (Gains), net. We impaired long-lived restaurant assets with a carrying value (including right of use lease assets) of $ 15.3 million and $ 26.7 million during the twelve and forty weeks ended October 1, 2023, recognizing impairment expense of $ 4.8 million and $ 6.5 million, respectively, related to the net book value of these long-lived restaurant assets. We determined the fair value of these long-lived assets to be $ 10.5 million and $ 20.2 million in the twelve and forty weeks ended October 1, 2023. Additionally, we impaired long-lived assets at the Company's closed corporate office with a carrying value (including right of use lease assets) of $ 1.0 million, recognizing an impairment expense of $ 0.7 million during the forty weeks ended October 1, 2023, related to the net book value of these long-lived restaurant assets. We determined the fair value of these long-lived assets to be $ 0.3 million in the forty weeks ended October 1, 2023. The impairments were recorded as a result of quantitative impairment analyses. Disclosures of Fair Value of Other Assets and Liabilities The Company's liability under its credit facility is carried at historical cost in the accompanying Condensed Consolidated Balance Sheets. As of October 1, 2023, the fair value of the credit facility was approximately $ 188.0 million and the principal amount carrying value was $ 189.1 million. The credit facility term loan is reported net of $ 7.0 million in unamortized discount and debt issuance costs in the Condensed Consolidated Balance Sheet as of October 1, 2023. The carrying value of the credit facility was $ 214.0 million and the fair value of the credit facility was $ 205.1 million as of December 25, 2022. The interest rate on the credit facility represents a level 2 fair value input. 12 Table of Contents 8. Commitments and Contingencies Because litigation is inherently unpredictable, assessing contingencies related to litigation is a complex process involving highly subjective judgment about potential outcomes of future events. When evaluating litigation contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the availability of appellate remedies, insurance coverage related to the claim or claims in question, the presence of complex or novel legal theories, and the ongoing discovery and development of information important to the matter. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated, or unrelated to possible outcomes, and as such are not meaningful indicators of our potential liability or financial exposure. Accordingly, we review the adequacy of accruals and disclosures each quarter in consultation with legal counsel, and we assess the probability and range of possible losses associated with contingencies for potential accrual in the Condensed Consolidated Financial Statements. However, the ultimate resolution of litigated claims may differ from our current estimates. In the normal course of business, there are various claims in process, matters in litigation, and other contingencies, certain of which are covered by insurance policies. While it is not possible to predict the outcome of these suits, legal proceedings, and claims with certainty, management is of the opinion that adequate provision for potential losses associated with these matters has been made in the financial statements and that the ultimate resolution of any one of these matters will not have a material adverse effect on our financial position and results of operations. A significant increase in the number of these claims, or one or more successful claims resulting in greater liabilities than we currently anticipate, could materially and adversely affect our business, financial condition, results of operations, and cash flows. As of October 1, 2023, we had a balance of $ 13.7 million for loss contingencies included within Accrued liabilities and other on our Condensed Consolidated Balance Sheet. In the normal course of business, there are various claims in process, matters in litigation, administrative proceedings, and other contingencies. These include employment related claims and class action lawsuits, claims from Guests or Team Members alleging illness, injury, food quality, health, or operational concerns, and lease and other commercial disputes. We increased our estimate of loss contingency liabilities by approximately $ 3.6 million for the twelve weeks ended October 1, 2023 and $ 9.1 million for the forty weeks ended October 1, 2023 related to changes during the third quarter in the status of ongoing litigation matters. We ultimately may be subject to greater or less than the accrued amount for this and other matters. As of October 1, 2023, we had non-cancellable purchase commitments to certain vendors who provide food and beverages and other supplies to our restaurants, for an aggregate of $ 216.6 million. We expect to fulfill our commitments under these agreements in the normal course of business, and as such, no liability has been recorded. 13 Table of Contents 9. Acquisition of Franchised Restaurants On April 17, 2023, the Company acquired certain assets and liabilities of five restaurants from one of its U.S. franchisees for cash consideration of $ 3.5 million. The pro forma impact of this acquisition and the operating results of the acquired restaurants are not presented as the impact was not material to reported results. The acquisition was accounted for using the purchase method as defined in ASC 805, Business Combinations . The goodwill arising from the acquisition consists largely of the benefit of the assembled workforce of the acquired restaurants. The goodwill generated by the acquisition is not amortizable for book purposes but is amortizable and deductible for tax purposes. The Company allocated the purchase price to the fair value of the assets acquired and liabilities assumed as follows (in thousands): Fair Value at Acquisition Date Property and equipment, net $ 2,637 Operating lease assets 7,400 Operating lease liabilities ( 8,250 ) Operating lease assets, net ( 850 ) Other assets, net of liabilities (1) 299 Intangible assets, net 1,443 Total purchase price $ 3,529 (1) Includes inventory, prepaid assets, till cash, and gift card and loyalty liabilities. Of the $ 2.6 million in property and equipment, $ 1.7 million is related to leasehold improvements and $ 1.0 million is related to personal property. The $ 0.9 million in net operating lease assets is related to acquired unfavorable leases, which reduces the acquired operating lease right-of-use assets. Of the $ 1.4 million of intangible assets, $ 1.2 million is related to reacquired franchise rights, which will be amortized on a straight-line basis. The fair value measurement of tangible and intangible assets and liabilities as of the acquisition date is based on significant inputs not observed in the market and thus represents a level 3 fair value measurement. 14 Table of Contents