Item 7. Management’s Discussion and Analysis
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations provides a narrative of our financial performance and condition that should be read in conjunction with the accompanying consolidated financial statements.
The Company's fiscal year ends on the last Sunday of each calendar year. Most of our fiscal years have 52 weeks; however, we experience a 53rd week once every five to six years. 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
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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.
Overview
Description of Business
Red Robin Gourmet Burgers, Inc., a Delaware corporation, together with its subsidiaries ("Red Robin," "we," "us," "our" or the "Company"), primarily operates, franchises, and develops casual dining restaurants with 498 locations in North America. As of December 29, 2024, the Company operated 407 Company-owned restaurants located in 39 states. The Company also had 91 franchised restaurants in 13 states and one Canadian province as of December 29, 2024. The Company operates its business as one (1) operating and one (1) reportable segment.
Our primary source of revenue is from the sale of food and beverages at Company-owned restaurants. We also earn revenue from royalties and fees from franchised restaurants.
Highlights for Fiscal 2024 Compared to Fiscal 2023
• 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
Restaurant revenue, compared to the same period in the prior year, is presented in the table below:
(millions)
Restaurant revenue for the fifty-three weeks ended December 31, 2023
$ 1,274.3
Change in revenue due to fifty-third week of fiscal 2023
(24.5)
Change in comparable restaurant revenue
(14.7)
Change in non-comparable restaurant revenue
(10.8)
Total change
(50.0)
Restaurant revenue for the fifty-two weeks ended December 29, 2024
$ 1,224.3
Restaurant Data
The following table details restaurant unit data for our Company-owned and franchised locations for the periods indicated:
Fifty-Two Weeks Ended Fifty-Three Weeks Ended
December 29, 2024 December 31, 2023
Company-owned:
Beginning of period 415 414
Opened
— 1
Acquired from franchisees — 5
Closed
(8) (5)
End of period 407 415
Franchised:
Beginning of period 92 97
Opened
— 1
Sold to Company
— (5)
Closed
(1) (1)
End of period 91 92
Total number of restaurants 498 507
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The following table presents total Company-owned and franchised restaurants by state or province as of December 29, 2024:
Company-Owned Restaurants Franchised Restaurants
State:
Arkansas 2
Alaska 3
Alabama 3
Arizona 18 1
California 57
Colorado 21
Connecticut 3
Delaware 5
Florida 16
Georgia 6
Iowa 5
Idaho 8
Illinois 17
Indiana 11
Kansas 5
Kentucky 4
Louisiana 1
Massachusetts 5
Maryland 11
Maine 2
Michigan 19
Minnesota 4
Missouri 8 3
Montana 1
North Carolina 17
Nebraska 4
New Hampshire 3
New Jersey 11 1
New Mexico 3
Nevada 6
New York 14
Ohio 16 3
Oklahoma 5
Oregon 15 5
Pennsylvania 11 20
Rhode Island 1
South Carolina 4
South Dakota 1
Tennessee 9
Texas 18 9
Utah 1 5
Virginia 18
Washington 37
Wisconsin 11
Province:
British Columbia 11
Total 407 91
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Results of Operations
Operating results for each fiscal period presented below are expressed as a percentage of total revenues, except for the components of restaurant operating costs, which are expressed as a percentage of restaurant revenue. Certain percentage amounts in the table below do not total due to rounding as well as restaurant operating costs being expressed as a percentage of restaurant revenue and not total revenues.
Year Ended
December 29, 2024 December 31, 2023
Revenues:
Restaurant revenue 98.0 % 97.8 %
Franchise revenue 1.2 1.2
Other revenue 0.8 1.0
Total revenues 100.0 % 100.0 %
Costs and expenses:
Restaurant operating costs (1) (excluding depreciation and amortization shown separately below):
Cost of sales 23.9 % 24.2 %
Labor 39.2 37.2
Other operating 17.7 17.7
Occupancy 8.4 8.1
Total restaurant operating costs 89.2 87.2
Depreciation and amortization 4.6 5.1
Selling, general, and administrative expenses 9.5 9.5
Pre-opening costs — —
Impairment and other charges (gains), net 2.7 (0.2)
Income (loss) from operations (4.3) % 0.3 %
Other expense (income):
Interest expense 2.0 % 2.0 %
Interest (income) and other, net (0.1) (0.1)
Total other expenses, net 2.0 2.0
Loss before income taxes (6.2) (1.6)
Income tax expense (benefit) — —
Net loss (6.2) % (1.6) %
(1) Expressed as a percentage of restaurant revenue.
Revenues
Year Ended
(Revenues in thousands) 2024 2023 Percent Change
Restaurant revenue $ 1,224,254 $ 1,274,294 (3.9) %
Franchise revenue 14,941 15,867 (5.8) %
Other revenue 9,365 12,885 (27.3) %
Total revenues $ 1,248,560 $ 1,303,046 (4.2) %
Average weekly net sales volumes in Company-owned restaurants $ 57,403 $ 59,454 (3.5) %
Total operating weeks 21,344 21,643 (1.4) %
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
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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.
Franchise revenue primarily includes royalty income and advertising fund contributions. 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. 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
(In thousands, except percentages) 2024 2023 Percent Change
Cost of sales $ 292,392 $ 308,962 (5.4) %
As a percent of restaurant revenue 23.9 % 24.2 % (0.3) %
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 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.
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Labor
(In thousands, except percentages) 2024 2023 Percent Change
Labor $ 479,631 $ 473,538 1.3 %
As a percent of restaurant revenue 39.2 % 37.2 % 2.0 %
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 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
(In thousands, except percentages) 2024 2023 Percent Change
Other operating $ 216,242 $ 224,999 (3.9) %
As a percent of restaurant revenue 17.7 % 17.7 % — %
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 is unchanged compared to the same period in fiscal 2023.
Occupancy
(In thousands, except percentages) 2024 2023 Percent Change
Occupancy $ 103,359 $ 102,761 0.6 %
As a percent of restaurant revenue 8.4 % 8.1 % 0.3 %
Occupancy costs include fixed rents, property taxes, common area maintenance charges, general liability insurance, contingent rents, and other property costs. 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
(In thousands, except percentages) 2024 2023 Percent Change
Depreciation and amortization $ 57,729 $ 66,190 (12.8) %
As a percent of total revenues 4.6 % 5.1 % (0.5) %
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 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
(In thousands, except percentages) 2024 2023 Percent Change
Selling, general, and administrative expenses $ 118,440 $ 124,130 (4.6) %
As a percent of total revenues 9.5 % 9.5 % — %
Selling, general, and administrative costs include all corporate and administrative functions. Components of this category include marketing and advertising costs, our Restaurant Support Center, regional, and franchise support salaries and benefits; travel; professional and consulting fees; corporate information systems; legal expenses; office rent; training; and Board of Directors' expenses. Selling, general, and administrative expense 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.
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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
(In thousands, except percentages) 2024 2023 Percent Change
Pre-opening costs $ — $ 587 (100.0) %
As a percent of total revenues — % — % — %
Pre-opening costs, which are expensed as incurred, comprise the costs related to preparing restaurants to introduce Donatos ® and other initiatives, as well as direct costs, including labor, occupancy, training, and marketing, incurred related to opening new restaurants and hiring the initial work force. Our pre-opening costs fluctuate from period to period, depending upon, but not limited to, the number of restaurants where Donatos ® has been introduced, the number of restaurant openings, the size of the restaurants being opened, and the location of the restaurants. 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.
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
1,181 3,419
Litigation contingencies 1,037 9,140
Asset disposal and other, net
4,975 2,129
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 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.
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Income Taxes
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)
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.
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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
— 0.03
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
0.08 0.22
Litigation contingencies 0.07 0.58
Asset disposal and other, net
0.32 0.13
Income tax effect (0.58) 0.04
Adjusted loss per share - diluted
$ (3.34) $ (1.44)
Stock-based compensation expense
0.44 0.43
Adjusted loss per share excluding Stock-based compensation expense (1)
$ (2.90) $ (1.01)
Weighted average shares outstanding
Basic 15,736 15,835
Diluted
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.
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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
— 480
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
4,975 2,129
Adjusted EBITDA
$ 38,751 $ 68,885
Stock-based compensation expense
6,889 6,804
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. 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 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.
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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%
Less:
Franchise royalties, fees and other revenue 24,306 2.0% 28,752 2.2%
Add:
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 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 impairment and 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, 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 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.
Liquidity and Capital Resources
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.
Cash Flows
The table below summarizes our cash flows from operating, investing, and financing activities for each fiscal year presented (in thousands):
Year Ended
2024 2023
Net cash provided by (used in) operating activities $ 7,047 $ (1,157)
Net cash provided by (used in) investing activities (1,747) 8,226
Net cash provided by (used in) financing activities
2,536 (33,712)
Effect of exchange rate changes on cash — 2
Net change in cash and cash equivalents, and restricted cash $ 7,836 $ (26,641)
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Operating Cash Flows
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 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):
Year Ended
2024 2023
Restaurant improvement capital and other $ 16,219 $ 22,160
Investment in technology, infrastructure, and other 9,815 16,778
Donatos ® expansion
— 8,620
New restaurants and restaurant refreshes — 1,882
Total capital expenditures $ 26,034 $ 49,440
Restaurant improvement capital and other consists of capital equipment for our restaurants. Investment in technology, infrastructure and other consists of capital costs related to restaurant technology assets, capital overhead, and other centrally developed assets. Expenditures for Donatos ® expansion include expenditures for kitchen equipment, other equipment and other capital costs associated with adding Donatos ® to our restaurants.
Financing Cash Flows
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 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, 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 29, 2024, the Company had $20.0 million of available borrowing capacity under its Credit Facility, and $8.5 million letters of
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credit issued against cash collateral. The Company's cash collateral is recorded in Restricted cash on our Consolidated Balance Sheets.
For additional information regarding our Credit Facility, see Note 8. Borrowings included within the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
Covenants
We are subject to a number of customary covenants under our Credit Facility, including limitations on additional borrowings, acquisitions, stock repurchases, sales of assets, and dividend payments, as well as a total net leverage ratio covenant. As of December 29, 2024, we were in compliance with all debt covenants.
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. The share repurchase authorization will terminate upon completing repurchases of $75 million of common stock unless otherwise terminated by the board. Pursuant to the repurchase program, purchases may be made from time to time at the Company's discretion and the Company is not obligated to acquire any particular amount of common stock. From the date of the current program approval through December 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 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. Our Credit Agreement limits our ability to repurchase shares to certain conditions set forth by the lenders in the Credit Facility.
Contractual Obligations
The following table summarizes the amounts of payments due under specified contractual obligations as of December 29, 2024 (in thousands):
Payments Due by Period
Total 2025 2026 - 2027
2028 - 2029
Thereafter
Long-term debt obligations (1)
$ 242,147 $ 23,412 $ 218,735 $ — $ —
Finance lease obligations (2)
9,425 1,432 2,750 2,068 3,175
Operating lease obligations (3)
570,708 82,159 148,116 116,130 224,303
Purchase obligations (4)
142,086 32,835 52,594 38,675 17,982
Other non-current liabilities (5)
1,742 102 128 55 1,457
Total contractual obligations $ 966,108 $ 139,940 $ 422,323 $ 156,928 $ 246,917
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(1) Long-term debt obligations primarily represent minimum required principal payments under our existing Credit Agreement as of December 29, 2024, including estimated interest of $52.7 million based on a 12.21% average borrowing interest rate.
(2) Finance lease obligations include interest of $1.7 million.
(3) Operating lease obligations exclude variable lease costs, such as sales based contingent rent, and include interest of $175.0 million.
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(4) Purchase obligations primarily include the Company's share of expected system-wide fixed price commitments for food, beverage, and restaurant supply items. The timing of amounts presented is estimated based on anticipated inventory needed for the Company’s restaurants and could vary due to changes in anticipated traffic counts, consumer preferences, or other factors.
(5) Other non-current liabilities primarily represent the employee deferred compensation plan liability.
Critical Accounting Estimates
Critical accounting estimates are those we believe are both significant and that require us to make difficult, subjective, or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors we believe to be appropriate under the circumstances. Actual results may differ from these estimates, including our estimates of future restaurant-level cash flows, which are subject to the current economic environment and 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. Information regarding the Company's other significant accounting policies is disclosed in Note 1, Description of Business and Summary of Significant Accounting Policies , of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
Impairment of Long-Lived Assets - Long-lived assets, including restaurant sites, leasehold improvements, other fixed assets, right of use assets, and amortizable intangible assets are reviewed when indicators of impairment are present. Expected cash flows associated with an asset are the key factor in determining the recoverability of the asset. Identifiable cash flows are measured at the restaurant-level. The estimate of cash flows is based upon, among other things, certain assumptions about expected future operating performance, including assumptions on future revenue trends. Management's estimates of undiscounted cash flows may differ from actual cash flows due to, among other things, changes in economic conditions, changes to our business model, or changes in operating performance. If the sum of the undiscounted cash flows is less than the carrying value of the asset, we recognize an impairment loss. The amount of the impairment loss is measured as the amount by which the carrying value exceeds the fair value of the asset, which is determined using discounted cash flows.
Judgments made by management related to our ability to realize undiscounted cash flows in excess of the carrying amounts of such assets are affected by factors such as changes in economic conditions, changes in operating performance, and the ongoing maintenance and improvements of the assets. As the ongoing expected cash flows and carrying amounts of long-lived assets are assessed, these factors could cause us to realize a material impairment charge. Each restaurant's past and present operating performance were reviewed in combination with projected future results, primarily through projected undiscounted cash flows, which indicated possible impairment. For those restaurants for which undiscounted cash flows did not exceed their carrying value, we compared the carrying amount of each restaurant to its fair value as estimated by management. Determining the fair value of the long-lived assets requires the use of estimates and assumptions and is typically determined using a discounted cash flow projection model. The weighted average cost of capital discount factor is determined using external information such as the risk-free rate of return, industry beta factors, and premium adjustments. Management uses other market information such as market rent and discount rates, which are subject to judgment, to estimate the fair value of restaurant right of use lease assets. During 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.
Liquor licenses with indefinite lives are reviewed for impairment annually or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. If the carrying amount is not recoverable, we record an impairment charge for the excess of the carrying amount over the fair value. We determine fair value based on quoted prices in the active market for the license in the same or similar jurisdictions, representing a level 1 fair value measurement.
Recently Issued Accounting Standards
See Note 2. Recent Accounting Pronouncements, of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for our discussion of recently issued accounting standards.
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