Noodles & Company (NASDAQ:NDLS) Q4 2020 Results Conference Call February 25, 2021 4:30 PM ET Company Participants Carl Lukach - Chief Financial Officer Dave Boennighausen - Chief Executive Officer Conference Call Participants Daniel Salmon - BMO Joshua Long - PIper Sandler Andy Barish - Jefferies Todd Brooks - CL King & Associates Operator Good afternoon, and welcome to today's Noodles & Company Fourth quarter 2020 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded ...

Noodles & Company (NASDAQ:NDLS) Q3 2020 Earnings Conference Call October 28, 2020 4:30 PM ET Company Participants Melissa Heidman - Executive Vice President and General Counsel Dave Boennighausen - Chief Executive Officer Conference Call Participants Jake Bartlett - Truist Nicole Miller - Piper Sandler Marshall Pittman - Jefferies Todd Brooks - CL King & Associates Operator Good afternoon, and welcome to today’s Noodles & Company Third Quarter 2020 Earnings Conference Call. All participants are now in a lis ...

Table of Contents Title of each class Trading Symbol Name of each exchange on which registered Class A Common Stock, $0.01 par value per share NDLS Nasdaq Global Select Market Emerging growth company ☐ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 _____________________________________________________________ FORM 10-Q _____________________________________________________________ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterl ...

Noodles & Company (NASDAQ:NDLS) Q2 2020 Earnings Conference Call August 6, 2020 4:30 PM ET Company Participants Dave Boennighausen – Chief Executive Officer Ken Kuick – Chief Financial Officer Conference Call Participants Jake Bartlett – Truist Nicole Miller – Piper Sandler Andrew Strelzik – BMO Andy Barish – Jefferies Todd Brooks – CL King & Associates Operator Good afternoon, and welcome to today’s Noodles & Company Second Quarter 2020 Earnings Conference Call. [Operator Instructions] After the presenters ...

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section covers unaudited condensed consolidated financial statements, management's discussion, and market risk disclosures [Item 1. Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20%28unaudited%29) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes. It highlights the financial impact of the COVID-19 pandemic, particularly on revenue, net loss, and liquidity, and outlines the company's accounting policies and significant estimates [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This subsection provides a snapshot of the company's financial position at specific dates, detailing assets, liabilities, and stockholders' equity **Condensed Consolidated Balance Sheets (in thousands)** | Metric | June 30, 2020 | December 31, 2019 | Change | | :----- | :------------ | :---------------- | :----- | | Cash and cash equivalents | $62,076 | $10,459 | +$51,617 | | Total current assets | $77,734 | $29,322 | +$48,412 | | Total assets | $422,395 | $378,519 | +$43,876 | | Total current liabilities | $60,974 | $58,034 | +$2,940 | | Long-term debt, net | $93,040 | $40,497 | +$52,543 | | Total liabilities | $390,119 | $327,948 | +$62,171 | | Total stockholders' equity | $32,276 | $50,571 | -$18,295 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This subsection presents the company's financial performance over specific periods, detailing revenues, expenses, and net income or loss **Condensed Consolidated Statements of Operations (in thousands, unaudited)** | Metric | Q2 2020 | Q2 2019 | Change (QoQ) | 2Q 2020 | 2Q 2019 | Change (YoY) | | :----- | :------ | :------ | :----------- | :------ | :------ | :----------- | | Total revenue | $80,157 | $120,190 | -$40,033 (-33.3%) | $180,505 | $230,236 | -$49,731 (-21.6%) | | (Loss) income from operations | $(12,525) | $1,238 | -$13,763 | $(17,379) | $148 | -$17,527 | | Net (loss) income | $(13,478) | $438 | -$13,916 | $(19,313) | $(1,413) | -$17,900 | | Basic EPS | $(0.30) | $0.01 | -$0.31 | $(0.44) | $(0.03) | -$0.41 | | Diluted EPS | $(0.30) | $0.01 | -$0.31 | $(0.44) | $(0.03) | -$0.41 | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) This subsection details changes in the company's equity accounts over specific periods, including common stock, additional paid-in capital, and accumulated deficit **Condensed Consolidated Statements of Stockholders' Equity (in thousands, unaudited)** | Metric | June 30, 2020 | December 31, 2019 | Change | | :----- | :------------ | :---------------- | :----- | | Common Stock | $468 | $466 | +$2 | | Treasury Stock | $(35,000) | $(35,000) | $0 | | Additional Paid-In Capital | $201,601 | $200,585 | +$1,016 | | Accumulated Deficit | $(134,793) | $(115,480) | -$19,313 | | Total Stockholders' Equity | $32,276 | $50,571 | -$18,295 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This subsection outlines the company's cash inflows and outflows from operating, investing, and financing activities over specific periods **Condensed Consolidated Statements of Cash Flows (in thousands, unaudited)** | Metric | Two Fiscal Quarters Ended June 30, 2020 | Two Fiscal Quarters Ended July 2, 2019 | Change | | :----- | :-------------------------------------- | :------------------------------------- | :----- | | Net cash provided by operating activities | $6,707 | $9,008 | -$2,301 | | Net cash used in investing activities | $(6,810) | $(9,252) | +$2,442 | | Net cash provided by (used in) financing activities | $51,720 | $(1,073) | +$52,793 | | Net increase (decrease) in cash and cash equivalents | $51,617 | $(1,317) | +$52,934 | | Cash and cash equivalents, end of period | $62,076 | $3,338 | +$58,738 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the condensed consolidated financial statements [1. Business Summary and Basis of Presentation](index=9&type=section&id=1.%20Business%20Summary%20and%20Basis%20of%20Presentation) This note outlines the company's business operations, the impact of the COVID-19 pandemic, and the basis for financial statement presentation - As of June 30, 2020, the Company operated **380 company-owned and 76 franchise restaurants** in 29 states and D.C[15](index=15&type=chunk) - The COVID-19 pandemic has created significant risks and uncertainties, impacting operational and financial performance, leading to the implementation of new initiatives like direct delivery and curbside pickup[18](index=18&type=chunk) - The Company early adopted ASU 2016-13 on January 1, 2020, with **no impact on consolidated financial statements**. It is currently evaluating ASU 2019-12 and ASU 2020-04[19](index=19&type=chunk)[21](index=21&type=chunk)[22](index=22&type=chunk) [2. Supplemental Financial Information](index=10&type=section&id=2.%20Supplemental%20Financial%20Information) This note provides detailed breakdowns of specific balance sheet accounts, including accounts receivable, property and equipment, and accrued payroll and benefits **Accounts Receivable (in thousands)** | Category | June 30, 2020 | December 31, 2019 | | :------- | :------------ | :---------------- | | Insurance receivable | $96 | $744 | | Vendor rebate receivables | $281 | $788 | | Franchise and other receivables | $2,029 | $1,971 | | **Total** | **$2,406** | **$3,503** | **Property and Equipment, Net (in thousands)** | Category | June 30, 2020 | December 31, 2019 | | :------- | :------------ | :---------------- | | Leasehold improvements | $197,859 | $200,580 | | Furniture, fixtures and equipment | $124,587 | $122,752 | | Construction in progress | $5,899 | $2,890 | | Accumulated depreciation and amortization | $(203,705) | $(197,355) | | **Property and equipment, net** | **$124,640** | **$128,867** | **Accrued Payroll and Benefits (in thousands)** | Category | June 30, 2020 | December 31, 2019 | | :------- | :------------ | :---------------- | | Accrued payroll and related liabilities | $5,634 | $6,364 | | Accrued bonus | $848 | $3,505 | | Insurance liabilities | $3,740 | $3,610 | | **Total** | **$10,222** | **$13,479** | [3. Long-Term Debt](index=11&type=section&id=3.%20Long-Term%20Debt) This note details the company's long-term debt arrangements, including credit facility amendments, covenant waivers, and debt maturities - The 2018 Credit Facility was amended in November 2019, extending maturity to **November 20, 2024**, and increasing the revolving credit facility to **$75.0 million**[29](index=29&type=chunk) - A Second Amendment in June 2020 waived lease-adjusted leverage ratio and fixed charge ratio covenants through Q1 2021 and limited capital expenditures to **$12.0 million in 2020**[31](index=31&type=chunk) **Debt Outstanding and Maturities (in thousands)** | Metric | Amount | | :----- | :----- | | Indebtedness as of June 30, 2020 | $95,700 | | Letters of credit outstanding | $3,200 | | Cash on hand as of June 30, 2020 | $62,100 | | **Aggregate Maturities (Year 1)** | **$750** | | **Aggregate Maturities (Year 5)** | **$89,305** | [4. Fair Value Measurements](index=12&type=section&id=4.%20Fair%20Value%20Measurements) This note describes the company's fair value measurement methodologies for financial instruments and assets, including qualitative impairment assessments - Carrying amounts of cash, receivables, payables, and current liabilities approximate fair value due to their **short-term nature**[35](index=35&type=chunk) - Fair value of borrowings is measured using **Level 2 inputs**, as rates vary with market conditions[35](index=35&type=chunk) - A qualitative impairment assessment of goodwill was performed in Q2 2020 due to COVID-19, but **no impairment charge was recorded**[37](index=37&type=chunk) [5. Income Taxes](index=12&type=section&id=5.%20Income%20Taxes) This note presents the provision for income taxes and effective tax rates, discussing the impact of valuation allowances and recent tax legislation **Provision for Income Taxes (in thousands)** | Metric | Q2 2020 | Q2 2019 | 2Q 2020 | 2Q 2019 | | :----- | :------ | :------ | :------ | :------ | | Provision for income taxes | $33 | $0 | $46 | $0 | | Effective tax rate | (0.2)% | 0.0% | (0.2)% | 0.0% | - The effective tax rate reflects the impact of a previously recorded valuation allowance, and **no material income tax expense or benefit is expected** for the remainder of fiscal 2020[39](index=39&type=chunk)[40](index=40&type=chunk) - The CARES Act provisions are not expected to have a **material impact** on the Company's tax rate or expense in 2020[41](index=41&type=chunk) [6. Stock-Based Compensation](index=14&type=section&id=6.%20Stock-Based%20Compensation) This note details the company's stock-based compensation plans, including available awards and recognized compensation expense - Approximately **2.8 million share-based awards** were available to be granted under the Plan as of June 30, 2020[42](index=42&type=chunk) **Stock-Based Compensation Expense (in thousands)** | Metric | Q2 2020 | Q2 2019 | 2Q 2020 | 2Q 2019 | | :----- | :------ | :------ | :------ | :------ | | Stock-based compensation expense | $1,094 | $1,155 | $1,253 | $1,881 | | Capitalized stock-based compensation expense | $25 | $10 | $37 | $21 | [7. Restaurant Impairments, Closure Costs and Asset Disposals](index=14&type=section&id=7.%20Restaurant%20Impairments%2C%20Closure%20Costs%20and%20Asset%20Disposals) This note outlines charges related to restaurant impairments, closure costs, and losses on asset disposals, primarily driven by the COVID-19 pandemic **Restaurant Impairments, Closure Costs and Asset Disposals (in thousands)** | Metric | Q2 2020 | Q2 2019 | 2Q 2020 | 2Q 2019 | | :----- | :------ | :------ | :------ | :------ | | Restaurant impairments | $2,135 | $2,276 | $2,262 | $2,465 | | Closure costs | $299 | $173 | $512 | $134 | | Loss on disposal of assets and other | $124 | $435 | $840 | $705 | | **Total** | **$2,558** | **$2,884** | **$3,614** | **$3,304** | - In Q2 2020, **five restaurants were identified as impaired**, resulting in a **$2.1 million impairment charge**, primarily due to the COVID-19 pandemic[45](index=45&type=chunk) - Closure costs in 2020 include ongoing costs for previously closed restaurants and **one company-owned restaurant closed in Q2 2020**[46](index=46&type=chunk) [8. Earnings (Loss) Per Share](index=15&type=section&id=8.%20Earnings%20%28Loss%29%20Per%20Share) This note provides the calculation of basic and diluted earnings per share, including the treatment of potentially dilutive securities **Earnings (Loss) Per Share (in thousands, except share and per share data)** | Metric | Q2 2020 | Q2 2019 | 2Q 2020 | 2Q 2019 | | :----- | :------ | :------ | :------ | :------ | | Net (loss) income | $(13,478) | $438 | $(19,313) | $(1,413) | | Basic weighted average shares outstanding | 44,212,751 | 43,964,175 | 44,177,648 | 43,955,580 | | Diluted weighted average shares outstanding | 44,212,751 | 45,075,888 | 44,177,648 | 43,955,580 | | Basic (loss) earnings per share | $(0.30) | $0.01 | $(0.31) | $(0.31) | | Diluted (loss) earnings per share | $(0.30) | $0.01 | $(0.44) | $(0.03) | - Potentially dilutive securities totaling **4,142,754 shares for Q2 2020** and **3,309,278 for the first two quarters of 2020** were excluded from diluted EPS calculations due to their anti-dilutive effect[49](index=49&type=chunk) [9. Leases](index=15&type=section&id=9.%20Leases) This note details the company's lease arrangements, including rent abatements, deferrals, and the breakdown of lease liabilities and cash payments - The Company negotiated rent abatements, deferrals, or lease term extensions with landlords due to COVID-19, deferring **$4.0 million in rent** through June 30, 2020[50](index=50&type=chunk) - Asset impairment charges of **$0.3 million** were recorded to reduce the carrying value of certain operating lease assets[51](index=51&type=chunk) **Total Lease Liabilities (in thousands)** | Category | June 30, 2020 | December 31, 2019 | | :------- | :------------ | :---------------- | | Current operating lease liabilities | $26,144 | $22,775 | | Current finance lease liabilities | $998 | $510 | | Long-term operating lease liabilities | $229,196 | $225,014 | | Long-term finance lease liabilities | $2,127 | $281 | | **Total lease liabilities** | **$258,465** | **$248,580** | **Cash Paid for Lease Liabilities (in thousands)** | Lease Type | Q2 2020 | Q2 2019 | 2Q 2020 | 2Q 2019 | | :--------- | :------ | :------ | :------ | :------ | | Operating leases | $6,066 | $10,813 | $13,574 | $21,506 | | Finance leases | $270 | $160 | $452 | $377 | | **Total** | **$6,336** | **$10,973** | **$14,026** | **$21,883** | [10. Supplemental Disclosures to Condensed Consolidated Statements of Cash Flows](index=18&type=section&id=10.%20Supplemental%20Disclosures%20to%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This note provides additional cash flow information, including interest paid, income taxes paid, and non-cash investing activities **Supplemental Cash Flow Disclosures (in thousands)** | Metric | June 30, 2020 | July 2, 2019 | | :----- | :------------ | :----------- | | Interest paid (net of amounts capitalized) | $1,666 | $1,382 | | Income taxes paid | $25 | $6 | | Purchases of property and equipment accrued in accounts payable | $1,793 | $2,392 | [11. Revenue Recognition](index=18&type=section&id=11.%20Revenue%20Recognition) This note explains the company's policies for recognizing revenue from gift cards and franchise royalties, including deferred revenue balances - Revenue from gift cards is recognized upon redemption or estimated breakage (**9% over 24 months**)[57](index=57&type=chunk) **Gift Card Liability (in thousands)** | Category | June 30, 2020 | December 31, 2019 | | :------- | :------------ | :---------------- | | Current portion | $1,900 | $2,398 | | Long-term portion | $600 | $900 | - Franchise royalties for Q2 2020 were **forgiven due to COVID-19** but will resume recognition and collection in Q3[60](index=60&type=chunk) **Deferred Revenue - Loyalty Program (in thousands)** | Date | Amount | | :--- | :----- | | June 30, 2020 | $1,700 | | December 31, 2019 | $600 | [12. Commitments and Contingencies](index=20&type=section&id=12.%20Commitments%20and%20Contingencies) This note describes the company's legal proceedings and claims, assessing their potential financial impact - The Company is subject to various legal proceedings and claims, but believes an unfavorable outcome is **remote or not material** to its financial statements as of June 30, 2020[62](index=62&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and results of operations, emphasizing the significant impact of the COVID-19 pandemic on sales, costs, and strategic adjustments. It details key performance measures and analyzes financial results for the second quarter and first two quarters of 2020 compared to the prior year [Impact of COVID-19 Pandemic on Our Business](index=21&type=section&id=Impact%20of%20COVID-19%20Pandemic%20on%20Our%20Business) This section discusses the significant operational and financial challenges posed by the COVID-19 pandemic, including sales declines and strategic adaptations - COVID-19 has significantly impacted the business, restricting dining room access and negatively affecting sales[66](index=66&type=chunk) - Comparable sales have progressively improved, but the shift to off-premise dining has reduced restaurant-level margins due to **higher delivery fees**[66](index=66&type=chunk) - The Company has implemented new initiatives like **direct delivery and curbside pickup** to bolster off-premise capabilities[18](index=18&type=chunk) [Recent Trends, Risks and Uncertainties](index=22&type=section&id=Recent%20Trends%2C%20Risks%20and%20Uncertainties) This section analyzes recent sales trends, cost dynamics, and strategic adjustments, including restaurant development plans and the impact of off-premise dining **Comparable Restaurant Sales Trends (Q2 2020 & Early Q3 2020)** | Period | Company-owned | Franchise | System-wide | Average Unit Volumes (000's) | | :----- | :------------ | :-------- | :---------- | :--------------------------- | | 4 Weeks Ended April 28, 2020 | (47.0)% | (55.5)% | (48.2)% | $685 | | 4 Weeks Ended May 26, 2020 | (28.9)% | (37.3)% | (30.1)% | $901 | | 5 Weeks Ended June 30, 2020 | (17.7)% | (18.1)% | (17.8)% | $1,044 | | 2 Weeks Ended July 14, 2020 | (13.9)% | (7.5)% | (13.0)% | $1,168 | | 2 Weeks Ended July 28, 2020 | (3.8)% | (7.8)% | (4.4)% | $1,181 | - Cost of sales decreased as a percentage of restaurant revenue due to **supply chain savings and increased menu pricing**, despite higher packaging costs for off-premise orders[72](index=72&type=chunk)[103](index=103&type=chunk) - Labor costs increased as a percentage of restaurant revenue due to sales decline, but the Company mitigated impact through **labor efficiencies and reduced staffing hours**[73](index=73&type=chunk)[104](index=104&type=chunk) - The Company opened one new company-owned restaurant and sold nine to a franchisee in the first two quarters of 2020, **halting new development to preserve cash**, but plans increased development for 2021 and beyond[75](index=75&type=chunk) [Key Measures We Use to Evaluate Our Performance](index=23&type=section&id=Key%20Measures%20We%20Use%20to%20Evaluate%20Our%20Performance) This section defines the key financial and operational metrics used by management to assess the company's performance and profitability - Key performance measures include **revenue, AUV, comparable restaurant sales, restaurant contribution, restaurant contribution margin, EBITDA, and Adjusted EBITDA**[77](index=77&type=chunk) - AUV measures average annualized sales, while comparable restaurant sales track year-over-year performance of existing restaurants, influenced by traffic, per-person spend, and external factors like COVID-19[80](index=80&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk) - Restaurant contribution and margin are used to evaluate restaurant-level profitability, excluding corporate expenses. EBITDA and Adjusted EBITDA provide a clearer picture of operating results by removing non-recurring and non-cash expenses[84](index=84&type=chunk)[86](index=86&type=chunk)[87](index=87&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) This section provides a detailed comparative analysis of the company's financial performance for the second quarter and first two quarters of 2020 versus prior periods [Second Quarter Ended June 30, 2020 Compared to Second Quarter Ended July 2, 2019](index=27&type=section&id=Second%20Quarter%20Ended%20June%2030%2C%202020%20Compared%20to%20Second%20Quarter%20Ended%20July%202%2C%202019) This subsection compares the company's financial results for the second quarter of 2020 against the same period in 2019, highlighting revenue and profitability changes **Q2 2020 vs. Q2 2019 Financial Performance (in thousands, unaudited)** | Metric | Q2 2020 | Q2 2019 | Change ($) | Change (%) | | :----- | :------ | :------ | :--------- | :--------- | | Total revenue | $80,157 | $120,190 | $(40,033) | (33.3)% | | (Loss) income from operations | $(12,525) | $1,238 | $(13,763) | *Not meaningful* | | Net (loss) income | $(13,478) | $438 | $(13,916) | *Not meaningful* | | Basic EPS | $(0.30) | $0.01 | $(0.31) | *Not meaningful* | | Diluted EPS | $(0.30) | $0.01 | $(0.31) | *Not meaningful* | | Company-owned AUV | $891 | $1,201 | $(310) | (25.8)% | | Comparable restaurant sales (company-owned) | (30.1)% | 4.8% | | | | Comparable restaurant sales (system-wide) | (30.9)% | | | | - Total revenue decreased by **$40.0 million (33.3%)** due to COVID-19 traffic decline and refranchising of 14 restaurants[99](index=99&type=chunk) - Cost of sales as a percentage of restaurant revenue decreased to **25.0% from 25.6%** due to supply chain initiatives, menu pricing, and lower discounting, despite higher packaging costs[103](index=103&type=chunk) - Labor costs increased to **33.9% of restaurant revenue** (from 32.7%), occupancy costs to **14.6%** (from 10.4%), and other operating costs to **19.7%** (from 14.2%), primarily due to the decline in restaurant sales[104](index=104&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk) [Two Quarters Ended June 30, 2020 Compared to Two Quarters Ended July 2, 2019](index=29&type=section&id=Two%20Quarters%20Ended%20June%2030%2C%202020%20Compared%20to%20Two%20Quarters%20Ended%20July%202%2C%202019) This subsection compares the company's financial results for the first two quarters of 2020 against the same period in 2019, detailing overall performance trends **2Q 2020 vs. 2Q 2019 Financial Performance (in thousands, unaudited)** | Metric | 2Q 2020 | 2Q 2019 | Change ($) | Change (%) | | :----- | :------ | :------ | :--------- | :--------- | | Total revenue | $180,505 | $230,236 | $(49,731) | (21.6)% | | (Loss) income from operations | $(17,379) | $148 | $(17,527) | *Not meaningful* | | Net loss | $(19,313) | $(1,413) | $(17,900) | *Not meaningful* | | Company-owned AUV | $966 | $1,152 | $(186) | (16.1)% | | Comparable restaurant sales (company-owned) | (19.0)% | 3.9% | | | | Comparable restaurant sales (system-wide) | (19.5)% | | | | - Total revenue decreased by **$49.7 million (21.6%)** primarily due to a decline in comparable restaurant sales caused by the COVID-19 pandemic[113](index=113&type=chunk) - Cost of sales as a percentage of restaurant revenue decreased to **25.3% from 26.2%** due to increased menu pricing and supply chain savings[115](index=115&type=chunk) - Labor costs increased to **34.3% of restaurant revenue** (from 33.4%), occupancy costs to **13.3%** (from 10.9%), and other operating costs to **18.2%** (from 14.6%), mainly due to reduced revenue and higher third-party delivery fees[116](index=116&type=chunk)[117](index=117&type=chunk)[118](index=118&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's cash position, capital expenditures, debt covenants, and ability to meet future financial obligations - Cash and cash equivalents increased to **$62.1 million** by June 30, 2020, from $10.5 million at December 31, 2019, largely due to a **$55.5 million precautionary draw** on the revolving credit facility[125](index=125&type=chunk)[136](index=136&type=chunk) - Capital expenditures for fiscal year 2020 are estimated at **$10.0 million to $12.0 million**, primarily for repairs, maintenance, and two to four new company restaurants, a reduction from previous plans[134](index=134&type=chunk) - The Company believes it has **sufficient liquidity** to meet its needs for the next twelve months through available cash and cash flows from operations and expects to remain in compliance with debt covenants[128](index=128&type=chunk)[144](index=144&type=chunk) - The Second Amendment to the Credit Facility waived certain covenants through Q1 2021 and adjusted capital expenditure limits for future years[125](index=125&type=chunk)[139](index=139&type=chunk) [Critical Accounting Policies and Estimates](index=33&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section outlines the significant accounting policies and estimates that require management's subjective judgment and can materially impact financial reporting - Financial statements are prepared under GAAP, requiring management estimates and assumptions that affect reported amounts[146](index=146&type=chunk) - Critical accounting estimates involve difficult, subjective judgments, and actual results may vary from assumptions[146](index=146&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The Company is exposed to interest rate risk on its variable-rate debt, with a 1.0% change in interest rates potentially impacting pre-tax interest expense by $1.0 million annually. Commodity price risk is managed through purchasing contracts, and menu pricing adjustments are a primary strategy for cost increases. Wage inflation has affected results from 2016 through Q2 2020 and is expected to continue - A **1.0% change in the effective interest rate** on **$95.7 million outstanding debt** would result in an approximate **$1.0 million pre-tax interest expense fluctuation annually**[147](index=147&type=chunk) - Commodity price risk is managed through purchasing contracts, and menu pricing adjustments are used to address material cost increases[148](index=148&type=chunk) - Wage inflation has significantly affected operating results from 2016 through Q2 2020 and is expected to continue[149](index=149&type=chunk) [Item 4. Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2020, concluding they are effective in providing reasonable assurance that required information is recorded, processed, summarized, and reported timely. There have been no material changes in internal control over financial reporting during the most recent fiscal quarter - Disclosure controls and procedures were evaluated and deemed **effective** as of June 30, 2020, providing reasonable assurance for timely and accurate financial reporting[150](index=150&type=chunk)[151](index=151&type=chunk) - **No material changes** in internal control over financial reporting occurred during the most recent fiscal quarter[152](index=152&type=chunk) [PART II - OTHER INFORMATION](index=35&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section includes disclosures on legal proceedings, risk factors, equity sales, defaults, mine safety, and other relevant information [Item 1. Legal Proceedings](index=35&type=section&id=Item%201.%20Legal%20Proceedings) The Company is involved in various legal proceedings and claims typical of its business. While outcomes are uncertain, management believes that an unfavorable outcome for these matters is remote or not material to its consolidated financial statements as of June 30, 2020 - The Company is subject to various legal proceedings and claims, but believes an unfavorable outcome is **remote or not material** to its financial statements as of June 30, 2020[154](index=154&type=chunk) [Item 1A. Risk Factors](index=35&type=section&id=Item%201A.%20Risk%20Factors) The COVID-19 pandemic has materially affected the Company's operations, leading to significant reductions in demand, dining room closures, and potential impacts on franchisee royalty payments and liquidity. The Company has adapted with direct delivery and curbside pickup but faces ongoing uncertainties regarding the pandemic's duration and severity, and increased cybersecurity threats - The COVID-19 pandemic has **materially affected operations**, causing significant reductions in demand and dining room closures[156](index=156&type=chunk)[159](index=159&type=chunk) - The Company has introduced **direct delivery and curbside pickup** and expanded third-party delivery services in response to public health directives[158](index=158&type=chunk) - Franchisees may struggle to meet royalty obligations, and the Company's liquidity could be further negatively impacted, potentially requiring additional financing[161](index=161&type=chunk)[163](index=163&type=chunk) - The shift to online activities due to COVID-19 restrictions has led to an **increase in cybersecurity threats**[164](index=164&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds to report - None[165](index=165&type=chunk) [Item 3. Defaults Upon Senior Securities](index=36&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities to report - None[165](index=165&type=chunk) [Item 4. Mine Safety Disclosures](index=36&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - Not applicable[165](index=165&type=chunk) [Item 5. Other Information](index=36&type=section&id=Item%205.%20Other%20Information) There is no other information to report - None[166](index=166&type=chunk) [Item 6. Exhibits](index=37&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the quarterly report, including amendments to the credit agreement, certifications, and XBRL-related documents - Key exhibits include the **Second Amendment to Credit Agreement (Exhibit 10.2)** and certifications from the Principal Executive Officer and Principal Financial Officer (**Exhibits 31.1, 31.2, 32.1**)[168](index=168&type=chunk) [SIGNATURES](index=38&type=section&id=SIGNATURES) This section contains the official signatures certifying the accuracy and completeness of the quarterly report [SIGNATURES](index=38&type=section&id=SIGNATURES) The report is duly signed on behalf of Noodles & Company by Ken Kuick, Chief Financial Officer, on August 6, 2020 - The report was signed by **Ken Kuick, Chief Financial Officer**, on **August 6, 2020**[171](index=171&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION | --- | --- | |-------|----------------------------------------------------------------------------------------| | | WASHINGTON, DC 20549 _____________________________________________________________ | | | FORM 10-Q | ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 19 ...

Financial Data and Key Metrics Changes - Comparable sales growth system-wide was 5.5% during the first 10 weeks of Q1, but fell 46.3% in the last three weeks of Q1, resulting in a decline of 7.2% for the quarter [7][8] - At its lowest point, comparable sales declined 55% at company-owned restaurants during the last week of March [8] - Recent improvements showed a decline of 36.1% in comparable sales over the past three weeks and 33.6% in the most recent week ending May 5 [9] Business Line Data and Key Metrics Changes - Off-premise business accounted for over 60% of sales during the first 10 weeks of Q1, which has been a strength during the pandemic [9] - The introduction of family meals at $40, serving four people, has been successful and showcases the variety in the menu [15][16] Market Data and Key Metrics Changes - The company has seen consistent performance across geographies and day parts, with some markets performing better due to fewer restrictions [33] - Weekend dining business has declined more than weekday business, but recent momentum has been observed during traditional dine-in times [33] Company Strategy and Development Direction - The company has shifted to an off-premise only model and implemented enhanced safety measures, including increased cleaning procedures and providing face coverings for team members [11][12] - Strategic priorities include ensuring health and safety, increasing accessibility and convenience, and providing value through menu variety [11][13][14] - The company plans to continue enhancing the guest experience through its rewards program and digital channels [17] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the long-term strength of the business despite the current challenges posed by the COVID-19 pandemic [24] - The company believes it can remain cash neutral even with a 20% decline in comparable sales for an extended period [21][22] Other Important Information - The company has withdrawn its previously issued guidance for fiscal 2020 due to the uncertainty surrounding the pandemic [22] - The company has taken significant steps to improve financial health, including reducing nonessential spending and optimizing labor deployment [20] Q&A Session Summary Question: Any changes in sales mix during the crisis? - Management noted a slight initial shift towards comfort food, but a recent trend back towards healthier options like Zoodles and Caulifloodles [27][28] Question: Will curbside service continue post-crisis? - Management confirmed that curbside service will continue as it was already on the initiative list before the crisis [29][30] Question: Any geographical differences in performance? - Management indicated consistent performance across geographies, with some markets performing better due to fewer restrictions [32][33] Question: How are franchisees doing during this period? - Management stated that franchisees are well-capitalized and have been allowed to defer fees to support liquidity [34][35] Question: What is the cash burn rate? - Management estimated a cash burn of approximately $3 million per month, with G&A running around $2.5 million and CapEx at approximately $800,000 [41][42] Question: What actions will be taken to maintain improvement? - Management plans to continue focusing on digital capabilities, curbside service, and introducing healthier family meal options [44][46] Question: What is the strategy for reopening stores? - Management is prepared to open dining rooms safely but is not rushing due to the strength of the off-premise business [48]

Financial Data and Key Metrics Changes - In 2019, total revenue increased by 1% to $462.4 million from $457.8 million in 2018, driven by system-wide comparable sales growth of 2.8% [20] - Adjusted EBITDA increased by 15.2% to $38.4 million, with a significant increase of over 30% in the fourth quarter [20][8] - Net income for 2019 was $1.6 million or $0.04 per diluted share, compared to a net loss of $8.4 million or $0.20 per diluted share in 2018 [21] - Adjusted net income for 2019 was $8.1 million or $0.18 per diluted share, compared to $1 million or $0.02 per diluted share in 2018 [21] Business Line Data and Key Metrics Changes - Comparable sales growth for company-owned restaurants was 2.9%, while franchise locations saw a 2.5% increase [21] - Digital sales increased by 34% year-over-year, accounting for 25% of total sales in Q4 2019 [9] - Off-premise sales increased to 58% of total sales, with digital sales representing 28% year-to-date in 2020 [9] Market Data and Key Metrics Changes - Year-to-date comparable sales growth in 2020 reached 5.8%, significantly outperforming the industry [8] - The company anticipates 10 to 15 new restaurant openings in 2020, with a target of 5% unit growth system-wide beginning in 2021 [15] Company Strategy and Development Direction - The company is focusing on enhancing guest engagement through digital ordering and a new rewards program, which has shown positive sales results [7][10] - Culinary innovation remains a priority, with plans for approximately three menu launches annually, including plant-based alternatives [12] - The company aims to strengthen its operational foundation to support unit growth, targeting a disciplined approach to expansion [14][15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's growth potential, citing seven consecutive quarters of positive comparable sales growth and strong margin expansion [7] - The company is optimistic about the economic model's improvement and expects continued growth in adjusted EBITDA and net income [20][26] - Management highlighted the importance of operational excellence and people development as critical to success in the restaurant industry [14] Other Important Information - The company amended its credit facility, increasing borrowing capacity to $100 million to support new restaurant development [25] - The company expects capital expenditures to range between $20 million and $30 million for 2020 [27] Q&A Session Summary Question: What happened with same-store sales in Q4? - Management noted that sales momentum was strong but fell slightly short of expectations due to a delayed marketing push related to the rewards program [31] Question: How will unit openings be paced in 2020? - The company indicated that openings will be backend loaded, with most new restaurants expected in the fourth quarter [40] Question: What are the expectations for restaurant margin guidance? - Management discussed various drivers for margin expansion, including negotiating delivery fees and implementing premium pricing [34][37] Question: What is the outlook for commodity inflation in 2020? - The company expects commodity inflation to remain around 1% for 2020, benefiting from contracted pricing for 75% of its spend [59] Question: How will the pick-up experience evolve in 2020? - The company plans to enhance the pick-up experience by removing friction points and personalizing the process for guests [62]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-35987 NOODLES & COMPANY (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) ( ...