Potbelly(PBPB) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Potbelly Corporation's unaudited condensed consolidated financial statements for the period ended June 30, 2024, detail the company's financial position, operational results, and cash flows Condensed Consolidated Balance Sheets Balance Sheet Highlights (in thousands) | Account | June 30, 2024 | December 31, 2023 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $8,322 | $33,788 | ($25,466) | | Total current assets | $28,093 | $53,092 | ($24,999) | | Total assets | $254,610 | $252,460 | $2,150 | | Total current liabilities | $62,904 | $71,078 | ($8,174) | | Long-term debt, net | $4,000 | $19,168 | ($15,168) | | Total liabilities | $206,908 | $238,367 | ($31,459) | | Total equity | $47,702 | $14,093 | $33,609 | Condensed Consolidated Statements of Operations Q2 2024 vs Q2 2023 Performance (in thousands, except per share data) | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Total revenues | $119,697 | $126,623 | -5.5% | | Income from operations | $4,119 | $3,344 | +23.2% | | Income tax expense (benefit) | ($30,982) | ($48) | N/A | | Net income | $34,920 | $2,381 | +1366.6% | | Diluted EPS | $1.13 | $0.07 | +1514.3% | YTD 2024 vs YTD 2023 Performance (in thousands, except per share data) | Metric | YTD June 30, 2024 | YTD June 25, 2023 | Change | | :--- | :--- | :--- | :--- | | Total revenues | $230,850 | $244,893 | -5.7% | | Income from operations | $4,237 | $3,152 | +34.4% | | Income tax expense (benefit) | ($30,931) | $57 | N/A | | Net income | $32,247 | $1,178 | +2637.5% | | Diluted EPS | $1.04 | $0.03 | +3366.7% | Condensed Consolidated Statements of Cash Flows YTD Cash Flow Summary (in thousands) | Cash Flow Activity | YTD June 30, 2024 | YTD June 25, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $3,850 | $12,022 | | Net cash used in investing activities | ($8,460) | ($5,919) | | Net cash (used in) provided by financing activities | ($20,856) | $13,288 | | Net (decrease) increase in cash | ($25,466) | $19,391 | Notes to Condensed Consolidated Financial Statements - As of June 30, 2024, the company owned and operated 345 shops in the United States, with an additional 84 shops operated by franchisees[13] - The company released its valuation allowance for U.S. federal and a portion of state deferred tax assets, resulting in a significant income tax benefit of $31.3 million for the quarter ended June 30, 2024, based on the conclusion that it is now more likely than not that these assets will be utilized[34] - On February 7, 2024, the company entered into a new $30 million revolving credit facility and concurrently repaid its existing Term Loan in full, resulting in a loss on extinguishment of debt of $2.4 million for the year-to-date period[45][48] - On May 7, 2024, the Board of Directors authorized a new stock repurchase program for up to $20.0 million, replacing the 2018 program, and during the quarter, the company repurchased 86,445 shares for an aggregate of $0.7 million[52] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes performance to its "Traffic-Driven Profitability" strategy and Franchise Growth Acceleration Initiative, noting a decrease in total revenues due to refranchising, offset by improved operational income and profit margins, a significant one-time tax benefit, debt refinancing, and a new stock repurchase program - The company's strategy is centered on a "Traffic-Driven Profitability" Five-Pillar plan, which includes focusing on food quality, customer experience, digital engagement, and franchise-focused development[61][62] Q2 2024 Key Performance Indicators vs. Q2 2023 | Indicator | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Comparable store sales | 0.4% | 12.9% | | Shop-level profit margin | 15.7% | 14.4% | | Adjusted EBITDA (in thousands) | $8,521 | $8,043 | - Q2 2024 sandwich shop sales decreased by $9.2 million (7.4%) due to the refranchising of 26 company-operated shops since Q1 2023, while franchise royalties and fees increased by $2.2 million (117.4%) over the same period[72][73] - Cost management improved profitability, with food, beverage, and packaging costs decreasing to 27.1% from 28.0%, and labor costs decreasing to 28.0% from 30.4% as a percentage of sales in Q2 2024 compared to Q2 2023[74][75] - The company ended Q2 2024 with a cash balance of $9.1 million and total liquidity of $34.3 million, with the significant change in financing cash flow driven by the repayment of the Term Loan[111][115] Quantitative and Qualitative Disclosures About Market Risk The company states that its exposures to market risks have not materially changed since the end of the last fiscal year, as reported in its Annual Report on Form 10-K for the year ended December 31, 2023 - There have been no material changes in the company's market risk exposures since December 31, 2023[126] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2024, with no material changes in internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of the end of the quarter[127] - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[128] PART II. OTHER INFORMATION Legal Proceedings This section refers to Note 12 of the financial statements, disclosing a new putative class action lawsuit filed against the company in Washington state in June 2024 concerning the Washington Equal Pay and Opportunities Act, with the potential loss currently inestimable - In June 2024, a putative class action lawsuit was filed against the company in Washington state related to the Washington Equal Pay and Opportunities Act[59] Risk Factors The company reports that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2023 - There have been no material changes to the company's Risk Factors as previously reported in the 2023 Form 10-K[131] Unregistered Sale of Equity Securities and Use of Proceeds This section details the company's stock repurchase activities, including the authorization of a new program and shares repurchased during the quarter - On May 7, 2024, the Board of Directors authorized a new stock repurchase program for up to $20.0 million of outstanding common stock, replacing a prior program from 2018[132] Issuer Purchases of Equity Securities (Q2 2024) | Period | Total Shares Purchased | Avg. Price Paid | Shares Purchased as Part of Program | | :--- | :--- | :--- | :--- | | Apr 1 - Apr 28 | 131,000 | $10.82 | 0 | | Apr 29 - May 26 | 30,000 | $8.94 | 28,000 | | May 27 - Jun 30 | 63,000 | $7.71 | 58,000 | | Total | 224,000 | N/A | 86,000 | Defaults Upon Senior Securities Not applicable Mine Safety Disclosures Not applicable Other Information During the quarter ended June 30, 2024, no director or officer of the company adopted or terminated a Rule 10b5-1 trading agreement or a non-Rule 10b5-1 trading agreement - No director or officer adopted or terminated a Rule 10b5-1 trading agreement during the quarter[135] Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including officer certifications and XBRL data files