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Item 7. Management’s Discussion and Analysis

2025-02-26 compared with 2024-02-28 · 212 added, 228 removed, 199 unchanged (69% of the section changed)

4 unchanged sentences

however, we experience a 53rd week once every five to six years.

Our discussion for fiscal year 2023, which ended on December 31, 2023, refers to a 53-week period with the fifty-third week occurring in the fourth quarter.

Our discussion for fiscal years 2022 and 2021, which ended December 25, 2022 and December 26, 2021, refers to a 52-week period in each year.

The following discussion comparing our results in 2023 and 2022 refers to the fifty-three weeks ended and fifty-two weeks ended, December 31, 2023 and December 25, 2022, respectively.

For a discussion comparing our results from 2022 to 2021,

refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 25, 2022, filed with the SEC on February 28, 2023.

Our discussion for fiscal 2024, which ended on December 29, 2024, refers to a 52-week period.

Our discussion for fiscal 2023, which ended December 31, 2023, refers to a 53-week period, with the fifty-third week occurring in the fourth quarter.

Our discussion for fiscal 2022, which ended on December 25, 2022, refers to a 52-week period.

The following discussion comparing our results in fiscal 2024 and fiscal 2023 refers to the fifty-two weeks ended, and fifty-three weeks ended, December 29, 2024 and December 31, 2023, respectively.

For a discussion comparing our results from fiscal 2023 to fiscal 2022, refer to “Management’s Discussion and Analysis of Financial Condition

and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 28, 2024.

Description of Business

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Highlights for Fiscal 2024 Compared to Fiscal 2023

• Total revenues are $1.3 billion, an increase of $37.5 million.

◦ Comparable restaurant revenue (1) increased 1.6%.

◦ Comparable restaurant dine-in sales (2) increased 6.9%.

◦ The fifty-third week in 2023 contributed $24.5 million or 1.9% in restaurant revenue.

• Net loss is $21.2 million, a decrease of $57.7 million from a net loss of $78.9 million during 2022.

• Adjusted EBITDA (3) is $68.9 million, a $17.2 million increase.

• Completed two Sale-Leaseback transactions, generating net proceeds of $58.8 million and a gain, net of expenses of $29.4 million.

• Repaid $24.9 million of debt and repurchased $10.0 million of stock.

(1) Comparable restaurant revenue represents revenue from Company-owned restaurants that have operated five full quarters as of the 52 weeks ending December 24, 2023.

The comparable restaurant base includes 406 restaurants out of the total 415 Company-owned restaurants.

(2) Comparable restaurant dine-in sales are calculated based on the Company’s point-of-sale sales data, which does not include adjustments for loyalty breakage.

• Total revenues are $1.25 billion, a decrease of $54.5 million due in part to the 53rd week in fiscal 2023.

• Comparable restaurant revenue (1) decreased 1.2%

• Net loss is $77.5 million, as compared to a net loss of $21.2 million during 2023.

• Adjusted EBITDA (2) is $38.8 million, a 43.7% decrease.

(1) Comparable restaurant revenue represents revenue from Company-owned restaurants that have operated for at least 18 months as of the beginning of the period presented.

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

Key Performance Indicators and Non-GAAP Financial Measures

Key Performance Indicators

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

Restaurant revenue for the fifty-two weeks ended December 25, 2022

Increase in restaurant revenue from the fifty-third week 24.5

Increase in comparable (1) restaurant revenue

Increase in non-comparable restaurant revenue 0.7

Total increase 44.1

Restaurant revenue for the fifty-three weeks ended December 31, 2023

(1) Comparable restaurant revenue represents revenue from Company-owned restaurants that have operated five full quarters as of the 52 weeks ending December 24, 2023.

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

Fifty-Three Weeks Ended Fifty-Two Weeks Ended 2023 compared to 2022

(Dollars in millions) December 31, 2023 December 25, 2022 Increase/(Decrease)

Restaurant revenue $ 1,274.3 $ 1,230.2 3.6 %

Restaurant operating costs:

Cost of sales 309.0 306.5 0.8 %

Labor 473.5 440.6 7.5 %

Other operating 225.0 224.7 0.1 %

Occupancy 102.8 98.9 3.9 %

Total Restaurant Operating Costs $ 1,110.3 $ 1,070.6 12.4 %

Restaurant Level Operating Profit (1)

$ 164.0 $ 159.5 2.8 %

(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.

Fifty-Three Weeks Ended Fifty-Two Weeks Ended 2023 compared to 2022

(Dollars in millions) December 31, 2023 December 25, 2022 Increase/(Decrease)

Restaurant revenue $ 1,274.3 $ 1,230.2 3.6 %

Restaurant operating costs:

(Percentage of Restaurant Revenue) (Basis Points)

Cost of sales 24.2 % 24.9 % (70)

Labor 37.2 35.8 140

Other operating 17.7 18.3 (60)

Occupancy 8.1 8.0 10

Total Restaurant Operating Costs 87.2 % 87.0 % 20

Restaurant Level Operating Profit 12.9 % 13.0 % (10)

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 and loss per diluted share, and adjusted loss per diluted share for the fifty-three weeks ended December 31, 2023 and fifty-two weeks ended December 25, 2022:

Fifty-Three Weeks Ended Fifty-Two Weeks Ended

(Dollars and shares in thousands, except per share amounts) December 31, 2023 December 25, 2022

Net loss as reported $ (21,228) $ (78,883)

Loss per share - diluted:

Net loss as reported $ (1.34) $ (4.98)

Gift card breakage (1)

Write-off of unamortized debt issuance costs (2)

Other charges (gains), net:

Asset impairment 0.58 2.43

Gain on sale of restaurant property, net of expenses (1.87) (0.58)

Severance and executive transition, net of $128 and $(3,299) in stock-based compensation

Other financing costs (3)

Restaurant closure costs, net 0.19 0.05

Closed corporate office costs, net of sublease income 0.03 0.03

Litigation contingencies 0.58 0.26

Asset disposal and other 0.11 0.03

Income tax effect 0.04 (0.58)

Adjusted loss per share - diluted $ (1.44) $ (3.32)

Weighted average shares outstanding

Basic 15,835 15,840

15,835 15,840

(1) During 2022, the Company re-evaluated the estimated redemption pattern related to gift cards.

The impact of this change in estimate comprised $5.9 million included in Other revenue, partially offset by $0.6 million in gift card commission costs included in Selling, general, and administrative expenses on the Consolidated Statements of Operations.

(2) During 2022, the Company completed the refinancing of our Credit Facility and reported a non-cash charge associated with the write-off of unamortized debt issuance costs related to the remaining unamortized debt issuance costs.

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

(4) The impact of dilutive shares is excluded due to the reported net loss for all periods presented.

The following table summarizes net loss, and EBITDA and adjusted EBITDA for the fifty-three weeks ended December 31, 2023 and fifty-two weeks ended December 25, 2022:

Fifty-Three Weeks Ended Fifty-Two Weeks Ended

December 31, 2023 December 25, 2022

Net loss as reported $ (21,228) $ (78,883)

Interest expense, net 25,796 19,882

Income tax provision (benefit) 310 747

Depreciation and amortization 66,190 76,245

EBITDA 71,068 17,991

Gift card breakage (1)

Other charges, net:

Asset impairment 9,130 38,534

Gain on sale of restaurant property (29,543) (9,204)

Severance and executive transition 3,419 2,280

Other financing costs (2)

Restaurant closure costs 3,062 828

Closed corporate office costs, net of sublease income 416 475

Litigation contingencies 9,140 4,148

Asset disposal and other 1,713 438

Adjusted EBITDA $ 68,885 $ 51,706

(1) During 2022, the Company re-evaluated the estimated redemption pattern related to gift cards.

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

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

Adjusted EBITDA and Adjusted loss per share-diluted are supplemental measures of our performance that are not required by or presented in accordance with GAAP.

We believe these non-GAAP measures give the reader additional insight into the ongoing operational results of the Company, and are intended to supplement the presentation of the Company's financial results in accordance with GAAP.

Adjusted EBITDA and adjusted loss per share-diluted exclude the impact of non-operating or nonrecurring items including changes in estimate, asset impairments, litigation contingencies, gains (losses) on debt extinguishment, restaurant and office closure costs, gains on sale leaseback transactions, severance and executive transition costs and other non-recurring, non-cash or discrete items;

net of income tax impacts.

Other companies may define these non-GAAP measures differently, and as a result may not be directly comparable to those of other companies.

Adjusted loss per share-diluted 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, and Restaurant Level Operating Profit for the fifty-three weeks ended December 31, 2023 and fifty-two weeks ended December 25, 2022:

Fifty-Three Weeks Ended Fifty-Two Weeks Ended

December 31, 2023 December 25, 2022

Income (loss) from operations $ 4,542 0.3% $ (57,497) (4.5)%

Franchise royalties, fees and other revenue 28,752 2.2% 35,345 2.8%

Other charges (gains), net (2,663) (0.2) 38,961 3.1

Pre-opening costs 587 — 568 —

Selling 34,770 2.7 51,700 4.1

General and administrative expenses 89,360 6.9 84,912 6.7

Depreciation and amortization 66,190 5.1 76,245 6.0

Restaurant level operating profit $ 164,034 $ 159,544

Income (loss) from operations as a percentage of total revenues 0.3% (4.5)%

Restaurant level operating profit margin (as a percentage of restaurant revenue) 12.9% 13.0%

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 (gains), 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 costs associated with selling, general, and administrative functions, pre-opening costs, as well as, other charges (gains), net because these costs are non-operating or nonrecurring and therefore 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 (loss) from operations as an indicator 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.

Change in revenue due to fifty-third week of fiscal 2023

Change in comparable restaurant revenue

Change in non-comparable restaurant revenue

Restaurant revenue for the fifty-two weeks ended December 29, 2024

Restaurant Data

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

Fifty-Three Weeks Ended Fifty-Two Weeks Ended

Fifty-Two Weeks Ended Fifty-Three Weeks Ended

December 29, 2024 December 31, 2023

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Beginning of period 415 414

Opened during the period 1 —

Acquired from franchisees — 5

Closed during the period (5) (16)

End of period 407 415

Beginning of period 92 97

Opened during the period — 1

Sold to Company during the period (5) —

Closed during the period (1) (5)

Sold to Company

End of period 91 92

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Pre-opening costs — —

Other charges (gains), net (0.2) 3.1

Impairment and other charges (gains), net 2.7 (0.2)

Income (loss) from operations (4.3) % 0.3 %

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Total operating weeks 21,344 21,643 (1.4) %

Restaurant revenue, which comprises primarily food and beverage sales, increased $44.1 million in 2023, or 3.6%, as compared to 2022.

The fifty-third week in 2023 contributed approximately $24.5 million in restaurant revenue.

Of the remaining $19.6 million increase, $18.8 million, or 1.6%, was due to an increase in comparable restaurant revenue and the remaining $0.7 million increase was due to non-comparable restaurants, primarily attributed to the Company's purchase of five restaurants from a Franchisee in the second quarter of fiscal year 2023.

The comparable restaurant revenue increase was driven by a 6.8% increase in average Guest check with a 5.2% decrease in Guest count.

The increase in average Guest check resulted from a 7.5% increase in menu pricing and 0.9% decrease in discounts, partially offset by a 1.6% decrease in menu mix.

The decrease in menu mix was primarily driven by Guests shifting visits from third party delivery platforms with elevated menu prices, to dine in visits at standard menu prices, and the removal of low Guest preference, but higher priced burger options.

Dine-in sales comprised 75.0% of total food and beverage sales in 2023, as compared to 71.3% in 2022.

Restaurant revenue, which comprises primarily food and beverage sales, decreased $50.0 million in fiscal 2024, or 3.9%, as compared to fiscal 2023.

The fifty-third week in fiscal 2023 contributed approximately $24.5 million in restaurant revenue.

Of the remaining $25.5 million decrease, $14.7 million, or 1.2%, was due to a decrease in comparable restaurant revenue and the remaining $10.8 million decrease was due to non-comparable restaurants, primarily attributed to the closure of eight

locations during fiscal 2024.

The comparable restaurant revenue decrease was driven by a 5.9% decrease in Guest count, partially offset by a 4.6% increase in average Guest check.

The increase in average Guest check resulted from a 7.3% increase in menu pricing, partially offset by a 0.9% decrease in discounts and a 1.8% decrease in menu mix.

The decrease in menu mix was primarily driven by Guests shifting visits from third party delivery platforms with elevated menu prices, to dine in visits at standard menu prices, and greater incidence of promotional menu items offered at reduced prices.

Dine-in sales comprised 77.0% of total food and beverage sales in fiscal 2024, as compared to 76.3% in fiscal 2023.

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

Comparable restaurant revenues include those restaurants that are in the comparable base based on operating five full fiscal quarters as of the end of each period presented.

Closed Company-owned restaurants were not included in the comparable base for the fiscal years ended December 31, 2023 and December 25, 2022.

Fluctuations in average weekly net sales volumes for Company-owned restaurants reflect the effect of comparable restaurant revenue changes as well as the performance of new restaurants during the period.

Franchise revenue primarily includes royalty income and advertising fund contributions.

Franchise revenue decreased $3.4 million, or 17.8%, in 2023 compared to 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.

Franchise revenue decreased $0.9 million, or 5.8%, in fiscal 2024 compared to fiscal 2023.

Franchise revenue declined primarily due to a reduction in the percentage of sales each franchisee is required to contribute to support selling activities in the second half of fiscal 2024 in line with the reduction in overall selling expense.

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 2.6% in comparable restaurant revenue in fiscal 2024 compared to a decrease of 2.3% in fiscal 2023.

Other revenue primarily comprises gift card breakage, which represents the value associated with the portion of gift cards sold that are unlikely to be redeemed, licensing income, and recycling income.

During 2023 and 2022, we recognized $9.9 million and $13.8 million of gift card breakage.

The reduction in other revenue in fiscal 2024 compared to fiscal 2023 primarily relates to a reduction in gift card breakage revenue and recycling income.

Cost of Sales

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

Cost of sales as a percentage of restaurant revenue decreased 70 basis points in 2023 as compared to 2022.

The decrease was primarily driven by menu price increases and implementation of various cost savings initiatives, partially offset by commodity inflation and investments to enhance food quality.

Cost of sales as a percentage of restaurant revenue decreased 30 basis points in fiscal 2024 as compared to fiscal 2023.

The decrease was primarily driven by menu price increases and implementation of various cost savings initiatives, partially offset by commodity inflation.

(In thousands, except percentages) 2024 2023 Percent Change

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

Labor as a percentage of restaurant revenue increased 140 basis points in 2023 as compared to 2022.

The increase was primarily driven by investments in hourly labor, management labor, and related payroll taxes.

Additionally, incentive compensation expense increased due to increased achievement of incentive targets, partially offset by lower group insurance expense.

In 2023, we made investments in management and hourly labor to support an enhanced Guest experience, with an objective to drive increases in Guest traffic count over time, resulting in an increase in restaurant profitability.

Labor as a percentage of restaurant revenue increased 200 basis points in fiscal 2024 as compared to fiscal 2023.

The increase was primarily driven by additional costs in hourly and management labor, increased incentive compensation related to the new Managing Partner bonus plan and higher workers compensation and group health insurance expense.

Other Operating

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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.

Other operating costs as a percentage of restaurant revenue decreased 60 basis points compared to the same period in 2022.

The decrease was primarily driven by reduced third party commission expenses associated with lower off-premises mix and lower commission rates, and reduced restaurant supply costs primarily due to various cost saving initiatives, partially offset by higher repairs and maintenance costs.

Other operating costs as a percentage of restaurant revenue is unchanged compared to the same period in fiscal 2023.

(In thousands, except percentages) 2024 2023 Percent Change

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

In 2023, occupancy costs increased $3.9 million or 10 basis points as a percentage of revenue compared to 2022.

This increase is primarily driven by an increase in fixed rents related to the sale-leaseback of 18 locations and the acquisition of five restaurants from a franchisee, mostly offset by reduced expenses related to net Company-owned restaurant closures.

In fiscal 2024, occupancy costs as a percentage of restaurant revenue increased 30 basis points compared to fiscal 2023.

The increase is due primarily to the impact of fixed rents associated with the sale-leaseback of 18 locations and the acquisition of five restaurants from a franchisee in the second quarter of fiscal 2023, offset in part by reduced general liability insurance expense.

Depreciation and Amortization

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

In 2023, depreciation and amortization expense as a percentage of revenue decreased 90 basis points as compared to 2022.

The decrease is primarily due to asset impairments and disposals reducing the depreciable asset base.

In fiscal 2024, depreciation and amortization expense as a percentage of revenue decreased 50 basis points as compared to fiscal 2023.

The decrease is primarily due to asset impairments, restaurant closures and sale-leaseback transactions reducing the depreciable asset base.

Selling, General, and Administrative expenses

8 unchanged sentences

and Board of Directors' expenses.

Selling, general, and administrative expense decreased $12.5 million, or 9.1% in 2023 as compared to 2022.

General and administrative expenses increased $4.4 million or 5.2% in 2023 as compared to 2022.

The increase in 2023 was primarily driven by higher incentive compensation, increased travel, and lower capitalized costs due to fewer eligible capital projects, partially offset by a decrease in wages and stock compensation due to a reduction in force in the fourth quarter of fiscal 2022 and executive transitions in fiscal years 2022 and 2023.

Selling expenses decreased $16.9 million or 32.7% in 2023 as compared to 2022.

The decrease resulted from a strategic shift as part of the North Star Plan to reallocate dollars from selling expenses to support investments in the Guest experience.

The reductions in selling expenses were primarily in internet and local media.

Selling, general, and administrative expense decreased $5.7 million, or 4.6% in fiscal 2024 as compared to fiscal 2023.

General and administrative expenses decreased $7.6 million or 8.5% in fiscal 2024 as compared to fiscal 2023.

The decrease in fiscal 2024 as compared to fiscal 2023 was primarily driven by a reduction in compensation costs due to reduced incentive compensation accruals and headcount reductions and lower legal fees, partially offset by costs associated with the 2024 Managing Partner conference.

Selling expenses increased $1.9 million or 5.6% in fiscal 2024 as compared to fiscal 2023.

The increase resulted from higher menu, marketing and related production costs in fiscal 2024.

Pre-opening Costs

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

Pre-opening costs increased due to one new restaurant opening in 2023 as compared to none in 2022 mostly offset by a decrease due to 26 Donatos ® installations in 2023 as compared to 52 Donatos ® installations in 2022.

Other Charges (Gains), net

(In thousands, except percentages) 2023 2022 Percent Change

Asset impairment $ 9,130 $ 38,534 (76.3) %

Gain on sale of restaurant property, net of expenses (29,543) (9,204) *

Severance and executive transition, net of $128 and $3,299 in stock-based compensation

3,419 2,280 50.0 %

Other financing costs — 1,462 (100.0) %

Restaurant closure costs, net 3,062 828 *

Closed corporate office costs, net of sublease income 416 475 (12.4) %

We did not open any new restaurants or roll out any Donatos® locations during fiscal 2024.

We opened one restaurant and completed the rollout of 25 Donatos® locations during fiscal 2023.

Impairment and Other Charges (Gains), net

(In thousands, except percentages) 2024 2023

Asset impairment and restaurant closure costs, net $ 34,080 $ 12,192

Gain on sale of restaurant property (7,425) (29,543)

Severance and executive transition

Litigation contingencies 1,037 9,140

Asset disposal and other 1,713 438 *

Other charges (gains), net $ (2,663) $ 38,961

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

For further information on Other charges (gains) line items, refer to Note 4.

Other Charges (Gains), net, of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

Asset disposal and other, net

Impairment and other charges (gains), net $ 33,848 $ (2,663)

During fiscal 2024, the Company closed eight locations and is evaluating alternatives for approximately 70 underperforming restaurant locations, including closure upon expiration of the current lease term.

The Company recognized non-cash impairment charges of $32.8 million, primarily associated with this review of underperforming locations as well as impairment of quota state liquor licenses at three locations.

During fiscal 2023, the Company recognized non-cash impairment charges of $9.1 million, primarily related to the impairment of long-lived assets at 19 underperforming locations and quota state liquor licenses at three locations.

For further information on Impairment and other charges (gains) line items, refer to Note 4.

Impairment and Other Charges (Gains), net, of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

Interest Expense and Interest Income

Interest expense in 2023 and 2022 was $26.6 million and $20.6 million, respectively.

The $5.9 million increase was due to higher weighted average interest rates.

Our weighted average interest rate in 2023 and 2022 was 12.7% and 9.1%, respectively.

Average outstanding debt in 2023 and 2022 was $205.6 million and $200.8 million, respectively.

Interest income and other increased by $1.1 million in 2023 due to investment changes related to a deferred compensation plan for which assets are held in a rabbi trust, along with higher interest income on bank account balances in the 53-week period.

Income tax provision was $0.3 million in 2023, compared to an income tax provision of $0.7 million in 2022.

Our effective tax rate was a 1.5% provision in 2023 and a 1.0% provision in 2022, reflecting minimum state income taxes and state franchise taxes despite a pretax net loss position.

Interest expense in fiscal 2024 and 2023 was $25.3 million and $26.6 million, respectively.

The $1.3 million decrease was primarily due to the net paydown of debt with the proceeds from the sale-leaseback transactions, partially offset by an increase in the weighted average interest rate to 13.6% in fiscal 2024 compared to 12.7% in fiscal 2023.

Average outstanding debt in fiscal 2024 and 2023 was $187.8 million and $205.6 million, respectively.

Interest income and other decreased by $0.4 million in fiscal 2024 primarily due to lower interest income earned on cash investments.

Income tax benefit was $0.1 million in fiscal 2024, compared to an income tax provision of $0.3 million in fiscal 2023.

Our effective tax rate was a 0.1% benefit in fiscal 2024 and a 1.5% provision in fiscal 2023, reflecting minimum state income taxes and state franchise taxes despite a pretax net loss position.

Non-GAAP Financial Measures

A reconciliation of Restaurant revenue to restaurant level operating profit is detailed in the table below:

Fifty-Two Weeks Ended Fifty-Three Weeks Ended 2024 compared to 2023

(Dollars in millions) December 29, 2024 December 31, 2023 Increase/(Decrease)

Restaurant revenue $ 1,224.3 $ 1,274.3 (3.9) %

Restaurant operating costs:

Cost of sales 292.4 309.0 (5.4) %

Labor 479.6 473.5 1.3 %

Other operating 216.2 225.0 (3.9) %

Occupancy 103.4 102.8 0.6 %

Total Restaurant Operating Costs $ 1,091.6 $ 1,110.3 (7.4) %

Restaurant Level Operating Profit (1)

$ 132.6 $ 164.0 (19.1) %

(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.

Fifty-Two Weeks Ended Fifty-Three Weeks Ended 2024 compared to 2023

(Dollars in millions) December 29, 2024 December 31, 2023 Increase/(Decrease)

Restaurant revenue $ 1,224.3 $ 1,274.3 (3.9) %

Restaurant operating costs:

(Percentage of Restaurant Revenue) (Basis Points)

Cost of sales 23.9 % 24.2 % (30)

Labor 39.2 37.2 200

Other operating 17.7 17.7 —

Occupancy 8.4 8.1 30

Total Restaurant Operating Costs 89.2 % 87.2 % 200

Restaurant Level Operating Profit 10.8 % 12.9 % (210)

The following table summarizes net loss and loss per diluted share, and adjusted loss per diluted share for the periods presented:

Fifty-Two Weeks Ended Fifty-Three Weeks Ended

(Dollars and shares in thousands, except per share amounts) December 29, 2024 December 31, 2023

Net loss as reported $ (77,541) $ (21,228)

Loss per share - diluted:

Net loss as reported $ (4.93) $ (1.34)

Gift card breakage

Impairment and other charges (gains), net:

Asset impairment and restaurant closure costs, net 2.17 0.77

Gain on sale of restaurant property

(0.47) (1.87)

Severance and executive transition

Litigation contingencies 0.07 0.58

Asset disposal and other, net

Income tax effect (0.58) 0.04

Adjusted loss per share - diluted

$ (3.34) $ (1.44)

Stock-based compensation expense

Adjusted loss per share excluding Stock-based compensation expense (1)

$ (2.90) $ (1.01)

Weighted average shares outstanding

Basic 15,736 15,835

15,736 15,835

(1) Beginning in the first quarter of fiscal 2025, the Company intends to revise its definition of Adjusted Net income (loss) to exclude noncash stock-based compensation expense.

The Company believes this change will provide investors with a better understanding of our financial performance from period to period.

Previously reported results will be revised to reflect the new presentation.

The following table summarizes net loss, and EBITDA and adjusted EBITDA for the periods presented:

Fifty-Two Weeks Ended Fifty-Three Weeks Ended

December 29, 2024 December 31, 2023

Net loss as reported $ (77,541) $ (21,228)

Interest expense, net 24,805 25,796

Income tax provision (benefit) (90) 310

Depreciation and amortization 57,729 66,190

EBITDA 4,903 71,068

Gift card breakage

Impairment and other charges (gains), net:

Asset impairment and restaurant closure costs, net

34,080 12,192

Gain on sale of restaurant property (7,425) (29,543)

Severance and executive transition 1,181 3,419

Litigation contingencies 1,037 9,140

Asset disposal and other, net

Adjusted EBITDA

$ 38,751 $ 68,885

Stock-based compensation expense

Adjusted EBITDA excluding Stock-based compensation expense (1)

$ 45,640 $ 75,689

(1) Beginning in the first quarter of fiscal 2025, the Company intends to revise its definition of Adjusted EBITDA to exclude noncash stock-based compensation expense.

The Company believes this change will provide investors with a better understanding of our financial performance from period to period.

Previously reported results will be revised to reflect the new presentation.

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

Adjusted EBITDA and Adjusted income (loss) per share-diluted are supplemental measures of our performance that are not required by or presented in accordance with GAAP.

Adjusted EBITDA and adjusted income (loss) per share-diluted exclude the impact of non-operating or nonrecurring items including changes in estimate, asset impairments, litigation contingencies, gains (losses) on debt extinguishment, restaurant and office closure costs, gains on sale leaseback transactions, severance and executive transition costs, and other non-recurring, non-cash or discrete items;

net of income tax impacts.

Adjusted EBITDA excluding stock-based compensation expense and adjusted income (loss) per share-diluted excluding stock-based compensation expense are calculated as Adjusted EBITDA and adjusted income (loss) per share-diluted, respectively, further adjusted to exclude stock-based compensation expense.

Other companies may define these non-GAAP measures differently, and as a result may not be directly comparable to those of other companies.

Adjusted income (loss) per share-diluted, Adjusted income (loss) per share-diluted excluding stock-based compensation expense, Adjusted EBITDA and Adjusted EBITDA excluding stock-based compensation expense should be considered in addition to, and not as a substitute for, net income (loss) as reported in accordance with U.S.

GAAP as a measure of performance.

The following table summarizes Income from Operations, and Restaurant Level Operating Profit for the period presented:

Fifty-Two Weeks Ended Fifty-Three Weeks Ended

December 29, 2024 December 31, 2023

Income (loss) from operations $ (53,081) (4.3)% $ 4,542 0.3%

Franchise royalties, fees and other revenue 24,306 2.0% 28,752 2.2%

Impairment and other charges (gains), net 33,848 2.7 (2,663) (0.2)

Pre-opening costs — — 587 —

General and administrative expenses

81,721 6.5 89,360 6.9

Selling 36,719 2.9 34,770 2.7

Depreciation and amortization 57,729 4.6 66,190 5.1

Restaurant level operating profit $ 132,630 $ 164,034

Income (loss) from operations as a percentage of total revenues (4.3)% 0.3%

Restaurant level operating profit margin (as a percentage of restaurant revenue) 10.8% 12.9%

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

The measure also excludes costs associated with selling, general, and administrative functions, pre-opening costs, as well as, impairment and other charges (gains), net because these costs are non-operating or nonrecurring and therefore not related to the ongoing operations of its restaurants.

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

Liquidity and Capital Resources

Cash and cash equivalents, and restricted cash decreased $26.6 million to $31.6 million at December 31, 2023, from $58.2 million at the beginning of the fiscal year.

Approximately $17.2 million of the decline is due to the timing of our payroll cycle which occurred in the 53rd fiscal week and, as a result, was recorded as a cash outflow in the 2023 fiscal year.

The Company is using available cash flow from operations to maintain existing restaurants and infrastructure, and execute on its long-term strategic initiatives.

As of December 31, 2023, the Company had approximately $48.6 million in liquidity, including cash and cash equivalents and $25.0 million available borrowing capacity under its Credit Facility.

Our primary sources of liquidity are cash from operations, cash and cash equivalents and availability under our revolving credit facility.

Cash and cash equivalents, and restricted cash increased $7.8 million to $39.4 million at December 29, 2024, from $31.6 million at the beginning of the fiscal year.

As of December 29, 2024, the Company had approximately $50.7 million in liquidity, including cash and cash equivalents and available borrowing capacity under its credit facility.

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

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Net cash provided by (used in) financing activities

2,536 (33,712)

Effect of exchange rate changes on cash — 2

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Operating Cash Flows

Net cash flows provided by operating activities decreased $36.7 million to $1.2 million in 2023 as compared to 2022.

The change in net cash provided by operating activities is primarily attributable to the timing of payroll as a result of the 53rd week discussed above, the receipt of an income tax refund of $14.6 million in 2022, and severance payments and higher interest payments in 2023.

Net cash flows provided by operating activities increased $8.2 million to $7.0 million in fiscal 2024 as compared to net cash used in operating activities of $1.2 million in fiscal 2023.

The increase in operating cash flow is primarily related to the timing of rent and payroll payments in the prior fiscal year as a result of the 53rd week, partially offset by lower restaurant profitability in fiscal 2024.

Investing Cash Flows

Net cash flows provided by investing activities increased $37.8 million to $8.2 million in 2023 as compared to 2022.

The increase in cash flows provided by investing activities is primarily due to proceeds from sale-leaseback transactions and a sale of real estate, partially offset by increased capital expenditures and the acquisition of five franchised restaurants.

Net cash flows used in investing activities was $1.7 million in fiscal 2024 as compared to net cash provided by investing activities of $8.2 million in fiscal 2023.

The decrease in investing cash flows is primarily due to reduced proceeds from sale-leaseback transactions and real estate sales in fiscal 2024 as compared to fiscal 2023, partially offset by a reduction in capital expenditures in the current fiscal year.

In addition, cash provided by investing activities in the prior year included a $3.5 million cash outflow for the acquisition of five franchised restaurants.

The following table lists the components of our capital expenditures for each fiscal year presented (in thousands):

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Financing Cash Flows

Net cash flows used in financing activities increased $63.2 million to $33.7 million in 2023 as compared to 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 resulted primarily from the Company’s repayment of outstanding debt with proceeds from the sale-leaseback transaction, $10.0 million of share repurchases, and standard principal payments due under the terms of the Company’s Credit Agreement.

Net cash flows provided by financing activities increased to $2.5 million in fiscal 2024 as compared to net cash used in financing activities of $33.7 million in fiscal 2023.

Cash flows provided by financing activities in fiscal 2024 primarily relate to the paydown of debt with proceeds from the sale-leaseback transaction and debt issuance costs associated with amendments to the credit facility.

These paydowns were partially offset by net borrowings on the revolving credit facility and $7.1 million in net proceeds from the sale of common stock as discussed below.

Cash flows used in financing activities in fiscal 2023 primarily relate to the net paydown of debt with sale-leaseback proceeds and $10.0 million in share repurchases.

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”).

On March 4, 2022, the Company entered into a credit agreement (as amended, the "Credit Agreement"), which provides for a 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.

Treasury securities, or the Alternate Base Rate, 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.

On July 17, 2023, the Company amended the Credit Agreement (the “First Amendment”) to, among other things, remove the previously included $50.0 million aggregate cap on sale-leasebacks of Company-owned real property that are permitted under the Credit Agreement, subject to certain conditions set forth in the Credit Agreement.

On August 21, 2024, the Company entered into the second amendment to our Credit Agreement (the “Second Amendment”).

The Second Amendment among other things:

provides certain relief from the financial covenant by increasing the required maximum net total leverage ratio beginning in the third quarter of 2024 through the third quarter of 2025;

increases the aggregate revolving commitments by $15.0 million to $40.0 million through the third quarter of 2025;

removes the variable pricing grid and increases the applicable margin on all term loans and revolving loans that are SOFR-based loans to 7.50% per annum and that are ABR-based loans to 6.50% per annum;

and adds additional reporting requirements.

On November 4, 2024, the Company entered into the third amendment to our Credit Agreement (the "Third Amendment") which extends the provisions of the Second Amendment through the end of the first fiscal quarter of 2026.

As of December 29, 2024, the Company had outstanding borrowings under the Credit Facility of $181.6 million net of $7.8 million of unamortized deferred financing charges and discounts, none of which was classified as current.

As of December 31, 2023, the Company had $25.0 million of available borrowing capacity under its Credit Facility, and $7.7 million letters of credit issued against cash collateral.

As of December 29, 2024, the Company had $20.0 million of available borrowing capacity under its Credit Facility, and $8.5 million letters of

credit issued against cash collateral.

The Company's cash collateral is recorded in Restricted cash on our Consolidated Balance Sheets.

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As of December 29, 2024, we were in compliance with all debt covenants.

Debt Outstanding

Total debt outstanding decreased $25.7 million to $189.1 million at December 31, 2023, from $214.9 million at December 25, 2022, primarily driven by payments of long-term debt using proceeds from the sale-leaseback transactions during the fifty-three weeks ended December 31, 2023.

Share Repurchase

Working Capital

We typically maintain current liabilities in excess of our current assets which results in a working capital deficit.

We are able to operate with a working capital deficit because restaurant sales are primarily conducted on a cash or credit card basis.

Rapid turnover of inventory results in limited investment in inventories, and cash from sales is usually received before related payables for food, supplies, and payroll become due.

In addition, receipts from the sale of gift cards are received well in advance of related redemptions.

Rather than maintain higher cash balances that would result from this pattern of operating cash flows, we typically utilize operating cash flows in excess of those required for currently maturing liabilities to pay for capital expenditures, debt repayment, or to repurchase stock.

When necessary, we utilize our Credit Facility to satisfy short-term liquidity requirements.

We believe our future cash flows generated from restaurant operations combined with our borrowing capacity under the Credit Facility, and cash on hand, will be sufficient to meet our anticipated cash requirements and fund capital expenditures over the next 12 months.

Sales and Purchases of Equity Securities

On December 3, 2024, the Company entered into an Equity Purchase Agreement with JCP Investment Management, LLC and certain of its affiliates (collectively, “JCP”) and Jumana Capital, LLC and certain of its affiliates (collectively, “Jumana,” and together with the JCP Parties, the “Investor Parties”), pursuant to which the Investor Parties purchased and aggregate of 1,600,909 shares of our common stock, at a purchase price of $5.19 per share, resulting in $8.3 million in gross proceeds.

The proceeds were used to repay indebtedness and general corporate expenses.

On August 9, 2018, the Company's Board of Directors authorized the Company's current share repurchase program of up to a total of $75 million of the Company's common stock.

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From the date of the current program approval through December 29, 2024, we have repurchased a total of 1,088,588 shares at an average price of $15.18 per share for an aggregate amount of $16.5 million.

The Company completed $10.0 million of share repurchases in 2023 and no share repurchases during 2022.

The Company completed no share repurchases in fiscal 2024 and $10.0 million of share repurchases during fiscal 2023.

Accordingly, as of December 29, 2024, we had $58.5 million of availability under the current share repurchase program.

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Payments Due by Period

Total 2024 2025 - 2026 2027 - 2028 Thereafter

Total 2025 2026 - 2027

Long-term debt obligations (1)

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(5) Other non-current liabilities primarily represent the employee deferred compensation plan liability.

Financial Condition and Future Liquidity

We require capital principally to maintain, improve, and refurbish existing restaurants;

build new restaurants;

support infrastructure needs;

fund operational changes;

and for general operating purposes.

We are required to make interest and principal payments under the terms of our Credit Agreement, and may use capital to pay additional principal on our borrowings or repurchase our common stock as allowed by our Credit Agreement.

Our primary short-term and long-term sources of liquidity are expected to be cash flows from operations and our Credit Facility.

We expect cash flows from operations and available borrowing capacity under the Credit Facility will be sufficient to meet debt service, capital expenditures, and working capital requirements for at least the next twelve months.

The Company is working to complete a third sale-leaseback transaction related to its owned properties and if completed, anticipates proceeds will be used to repay debt.

We and the restaurant industry in general maintain relatively low levels of accounts receivable and inventories, and vendors generally grant short-term trade credit for purchases, such as food and supplies.

The addition of new restaurants and refurbishment of existing restaurants are reflected as long-term assets and not as part of working capital.

Working Capital

We typically maintain current liabilities in excess of our current assets which results in a working capital deficit.

We are able to operate with a working capital deficit because restaurant sales are primarily conducted on a cash or credit card basis.

Rapid turnover of inventory results in limited investment in inventories, and cash from sales is usually received before related payables for food, supplies, and payroll become due.

In addition, receipts from the sale of gift cards are received well in advance of related redemptions.

When necessary, we utilize our Credit Facility to satisfy short-term liquidity requirements.

We believe our future cash flows generated from restaurant operations combined with our remaining borrowing capacity under the Credit Facility and sale-leaseback transactions will be sufficient to satisfy any working capital deficits and our planned capital expenditures.

Critical Accounting 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 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 have identified the following as the Company's most critical accounting estimates, which are most important to the portrayal of the Company's financial condition and results and require management's most subjective and complex judgment.

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Management uses other market information such as market rent and discount rates, which are subject to judgment, to estimate the fair value of restaurant right of use lease assets.

During 2023, the Company recognized non-cash impairment charges of $9.1 million, primarily related to the impairment of the long-lived assets at 19 underperforming locations and quota state liquor licenses at three locations.

During 2022, the Company recognized non-cash impairment charges of $38.5 million, primarily related to impairments of long-lived assets at 46 underperforming locations and quota state liquor licenses at six locations.

During fiscal 2024, the Company recognized non-cash impairment charges of $32.8 million, primarily related to the impairment of the long-lived assets at 58 underperforming locations and quota state liquor licenses at three locations.

During fiscal 2023, the Company recognized non-cash impairment charges of $9.1 million, primarily related to impairments of long-lived assets at 19 underperforming locations and quota state liquor licenses at three locations.

Information technology systems, such as internal-use computer software, are reviewed and tested for recoverability if the internal-use computer software is not expected to provide substantive service potential, a significant change occurs to the extent or manner in which the software is used or is expected to be used, a significant change is made or will be made to the software program, or costs of developing or modifying internal-use software significantly exceed the amount originally expected to develop or modify the software.

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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-K

Item 7. Management’s Discussion and Analysis