Red Robin Gourmet Burgers(RRGB) - 2024 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) The company reported a significant net loss increase and asset decrease for the forty weeks ended October 6, 2024, with declining cash flow Condensed Consolidated Balance Sheets Total assets decreased to $669.4 million, while the stockholders' deficit widened to $(53.3) million as of October 6, 2024 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Oct 6, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Assets | $669,448 | $741,934 | | Total current assets | $79,439 | $91,781 | | Property and equipment, net | $217,073 | $261,258 | | Total Liabilities | $722,785 | $762,376 | | Long-term debt | $180,688 | $182,594 | | Total stockholders' equity (deficit) | $(53,337) | $(20,442) | Condensed Consolidated Statements of Operations Net loss significantly widened to $37.8 million for the forty-week period, with revenues declining to $963.3 million Statement of Operations Summary (in thousands, except per share data) | Metric | Twelve Weeks Ended Oct 6, 2024 | Twelve Weeks Ended Oct 1, 2023 | Forty Weeks Ended Oct 6, 2024 | Forty Weeks Ended Oct 1, 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $274,638 | $277,560 | $963,333 | $994,020 | | Loss from operations | $(12,877) | $(1,938) | $(19,551) | $12,498 | | Net Loss | $(18,876) | $(8,161) | $(37,825) | $(7,496) | | Diluted Loss Per Share | $(1.20) | $(0.52) | $(2.42) | $(0.47) | Condensed Consolidated Statements of Cash Flows Operating cash flow sharply declined to $1.8 million, leading to a net decrease in cash and cash equivalents Cash Flow Summary (Forty Weeks Ended, in thousands) | Cash Flow Activity | Oct 6, 2024 | Oct 1, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,840 | $17,361 | | Net cash provided by investing activities | $4,873 | $18,992 | | Net cash used in financing activities | $(7,990) | $(33,741) | | Net change in cash | $(1,277) | $2,612 | Notes to Financial Statements Notes detail operations, accounting policies, and key events including loyalty program re-launch, sale-leasebacks, and credit facility amendments - As of October 6, 2024, the Company owned and operated 408 restaurants and had 92 franchised restaurants[13] - During Q2 2024, the company re-launched its Red Robin Royalty program, deferring revenue until redemption[19] - In Q1 2024, the company sold ten restaurant properties in a sale-leaseback transaction for $23.9 million in proceeds, resulting in a net gain of $7.4 million[29] - Subsequent to quarter-end, on November 4, 2024, the company entered a Third Amendment to its Credit Agreement to increase covenant flexibility and maintain its revolving commitment at $40 million through Q1 2026[44] Item 2. Management's Discussion and Analysis (MD&A) MD&A highlights decreased Q3 2024 revenues and widened net loss, impacted by rising costs and declining guest counts, despite credit facility amendments Performance Highlights Q3 2024 saw decreased revenues, widened net loss, and lower Adjusted EBITDA, while the Loyalty Program membership grew Q3 2024 vs. Q3 2023 Performance (Millions) | Metric | Q3 2024 (Millions) | Q3 2023 (Millions) | | :--- | :--- | :--- | | Total Revenues | $274.6M | $277.6M | | Comparable Restaurant Revenue | +0.6% | N/A | | Net Loss | $(18.9)M | $(8.2)M | | Adjusted EBITDA | $2.1M | $6.8M | - The company's relaunched Loyalty Program grew to 14.5 million members, up from 13.1 million in the prior year[46] - The company closed a net of 9 company-owned restaurants since October 1, 2023, ending the period with 408 locations[49] Results of Operations Q3 2024 comparable restaurant revenue increased 0.6% due to higher guest checks, but profitability declined due to rising labor and occupancy costs - Q3 comparable restaurant revenue increased 0.6%, driven by a 4.9% increase in average Guest check but offset by a 4.3% decrease in Guest count[57] - Labor costs as a percentage of restaurant revenue increased by 180 basis points in Q3 2024, primarily due to strategic investments in management labor, a new bonus plan, and higher hourly wages[60] - Occupancy costs as a percentage of restaurant revenue increased by 20 basis points in Q3 2024, mainly due to fixed rents from recent sale-leaseback transactions[62] - Selling, general, and administrative (SG&A) expenses decreased by $1.7 million in Q3 2024, driven by reduced marketing and production costs[66] Non-GAAP Financial Measures Non-GAAP metrics show significant profitability decline, with Q3 2024 restaurant level operating profit at $24.2 million and Adjusted EBITDA at $2.1 million Restaurant Level Operating Profit (in millions) | Period | Q3 2024 (Millions) | Q3 2023 (Millions) | YTD 2024 (Millions) | YTD 2023 (Millions) | | :--- | :--- | :--- | :--- | :--- | | Profit | $24.2 | $30.4 | $100.4 | $127.2 | | Margin | 9.0% | 11.1% | 10.6% | 13.1% | Adjusted EBITDA Reconciliation (in thousands) | Period | Q3 2024 (Thousands) | Q3 2023 (Thousands) | YTD 2024 (Thousands) | YTD 2023 (Thousands) | | :--- | :--- | :--- | :--- | :--- | | Net Loss | $(18,876) | $(8,161) | $(37,825) | $(7,496) | | Adjusted EBITDA | $2,081 | $6,796 | $26,095 | $58,250 | Liquidity and Capital Resources Total liquidity was $42.0 million as of October 6, 2024, supported by credit facility amendments to enhance financial flexibility - As of October 6, 2024, the Company had approximately $42.0 million in liquidity, comprising cash and cash equivalents plus $20.0 million available borrowing capacity[82] - The company amended its credit agreement on August 21, 2024, and again on November 4, 2024, to increase the maximum net total leverage ratio covenant and extend the $40 million revolving commitment capacity through Q1 2026[88] - The company's share repurchase program has $58.5 million of availability, but its ability to repurchase shares is limited by conditions in its Credit Agreement[91] Item 3. Market Risk Disclosures The company faces market risks from interest rate fluctuations on variable-rate debt and commodity price changes impacting food and beverage costs - A 1.0% change in the effective interest rate on the company's $187.9 million of variable-rate debt would result in an annualized pre-tax interest expense fluctuation of $1.9 million[99] - A 1.0% increase in food and beverage costs would negatively impact the annual cost of sales by approximately $2.9 million[99] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of October 6, 2024, with no material changes to internal controls - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by the report[100] - No changes occurred in the Company's internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[101] PART II - OTHER INFORMATION Legal Proceedings and Risk Factors The company faces routine legal claims with adequate reserves and reports no material changes to previously disclosed risk factors - The company has reserves for various legal contingencies and believes the ultimate resolution will not have a material adverse effect on its financial position[103] - There have been no material changes from the risk factors disclosed in the fiscal year 2023 Annual Report on Form 10-K[104] Item 5. Other Information (Subsequent Events) Subsequent to quarter-end, the company amended its Credit Agreement on November 4, 2024, to enhance financial flexibility and extend revolving commitments - On November 4, 2024, the Company entered into the Third Amendment to its Credit Agreement to gain additional financial flexibility[108] - The amendment maintains the revolving commitments at $40 million through Q1 2026 and provides additional relief from the Maximum Net Total Leverage Ratio financial covenant[108]