Potbelly(PBPB) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company's Q1 2025 financials show increased assets and equity, a significant profitability turnaround to $85 thousand net income, and $8.6 million in operating cash flow Condensed Consolidated Balance Sheets As of March 30, 2025, total assets increased slightly to $265.8 million, driven by higher cash, with total liabilities at $207.4 million and equity at $58.4 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 30, 2025 | December 29, 2024 | | :--- | :--- | :--- | | Total current assets | $36,500 | $33,201 | | Cash and cash equivalents | $14,756 | $11,663 | | Total assets | $265,757 | $263,146 | | Total current liabilities | $68,391 | $65,233 | | Long-term debt, net | $4,500 | $4,000 | | Total liabilities | $207,404 | $205,198 | | Total equity | $58,353 | $57,948 | Condensed Consolidated Statements of Operations Q1 2025 total revenues increased 2.3% to $113.7 million, resulting in net income of $85 thousand, a significant improvement from a $2.7 million net loss in Q1 2024 due to the absence of a $2.4 million debt extinguishment loss Q1 2025 vs Q1 2024 Statement of Operations (in thousands, except per share data) | Metric | Q1 2025 (ended Mar 30) | Q1 2024 (ended Mar 31) | | :--- | :--- | :--- | | Total revenues | $113,681 | $111,153 | | Income from operations | $250 | $118 | | Loss on extinguishment of debt | $0 | $2,376 | | Net income (loss) | $85 | $(2,673) | | Net loss attributable to Potbelly | $(62) | $(2,767) | | Diluted net loss per share | $(0.00) | $(0.09) | Condensed Consolidated Statements of Equity Total equity increased from $57.9 million at the end of fiscal 2024 to $58.4 million at the end of Q1 2025, primarily driven by stock-based compensation and warrant exercises, partially offset by net loss and common stock repurchases - During Q1 2025, the company repurchased 117 thousand shares of common stock for $1.1 million[12] - Total equity increased by approximately $0.4 million during the quarter, from $57,948 thousand to $58,353 thousand[12] Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased to $8.6 million in Q1 2025 from $0.7 million in Q1 2024, while net cash used in investing activities rose to $4.9 million, and net cash used in financing activities decreased drastically to $0.6 million Q1 2025 vs Q1 2024 Cash Flow Summary (in thousands) | Activity | Q1 2025 (ended Mar 30) | Q1 2024 (ended Mar 31) | | :--- | :--- | :--- | | Net cash provided by operating activities | $8,629 | $693 | | Net cash used in investing activities | $(4,925) | $(3,736) | | Net cash used in financing activities | $(611) | $(18,022) | | Net change in cash | $3,093 | $(21,065) | Notes to Condensed Consolidated Financial Statements The notes detail the company's accounting policies and provide further information on financial statement items, including its structure with 341 company-operated and 103 franchised shops, debt refinancing, ongoing refranchising activities, and the settlement of a class-action lawsuit for $1.8 million - As of March 30, 2025, Potbelly owned and operated 341 shops in the United States, with franchisees operating an additional 103 shops[16] - In February 2024, the company replaced its $25 million Term Loan with a new $30 million Revolving Facility, resulting in a $2.4 million loss on debt extinguishment in Q1 2024[45][54] - Under the Franchise Growth Acceleration Initiative, 4 company-operated shops were sold to franchisees during Q1 2025[55] - A new $20.0 million stock repurchase program was authorized on May 7, 2024, under which the company repurchased 117,476 shares for $1.1 million in Q1 2025[58] - The company settled a class action lawsuit related to the Washington Equal Pay and Opportunities Act for $1.8 million, which was accrued in 2024 and finalized in Q1 2025[72][73] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 2.3% revenue growth in Q1 2025 to a 0.9% increase in same-store sales and strong franchise revenue growth of 30.8%, highlighting its "Traffic-Driven Profitability" strategy and Franchise Growth Acceleration Initiative as key drivers, with shop-level profit margin improving slightly to 13.7% and Adjusted EBITDA at $5.5 million, maintaining strong liquidity Business and Strategy Potbelly is focused on its "Traffic-Driven Profitability" Five-Pillar strategic plan to drive growth, with a key component being the Franchise Growth Acceleration Initiative aimed at expanding the franchise footprint through multi-unit development and refranchising, resulting in a system of 341 company-operated and 103 franchise-operated shops as of March 30, 2025 - The company's strategy is centered on the "Traffic-Driven Profitability" Five-Pillar plan, which includes: Craveable-Quality Food, People Creating Good Vibes, Customer Experiences, Digitally-Driven Traffic, and Franchise-Focused Development[78][79] - The Franchise Growth Acceleration Initiative, announced in March 2022, is a key strategy to grow domestic franchise units through multi-unit development agreements and refranchising[81] Shop Count Roll-Forward | | Company Operated | Franchise Operated | Total Company | | :--- | :--- | :--- | :--- | | Shops as of Dec 29, 2024 | 346 | 96 | 442 | | Shops opened | 1 | 3 | 4 | | Shops closed | (2) | — | (2) | | Shops refranchised | (4) | 4 | — | | Shops as of Mar 30, 2025 | 341 | 103 | 444 | Results of Operations Total revenues for Q1 2025 increased 2.3% to $113.7 million, driven by a 1.3% rise in sandwich shop sales and a 30.8% increase in franchise-related income, with improved food costs as a percentage of sales due to lower protein costs, and net income significantly benefiting from the absence of a $2.4 million loss on debt extinguishment from the prior year Key Performance Indicators - Q1 2025 vs Q1 2024 | Indicator | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Same store sales | 0.9% | (0.2)% | 1.1% | | System-wide sales (in thousands) | $140,661 | $134,188 | $6,473 | | Average unit volume, weekly | $24,550 | $24,250 | $300 | - Franchise royalties, fees and rental income grew 30.8% to $4.7 million, driven by new franchise-operated shop openings[94] - Food, beverage, and packaging costs decreased to 26.1% of sandwich shop sales from 27.2% in the prior year, mainly due to lower protein costs and reduced inflation[95] - General and administrative expenses rose 7.1% to $12.4 million, driven by increases in payroll, consulting, and technology costs[99] - The company recorded no loss on extinguishment of debt in Q1 2025, compared to a $2.4 million loss in Q1 2024 related to the termination of its Term Loan[104] Non-GAAP Financial Measures The company reported a shop-level profit margin of 13.7% for Q1 2025, a slight improvement from 13.5% in Q1 2024, while Adjusted EBITDA decreased slightly to $5.5 million from $5.7 million in the prior-year quarter, with reconciliation from net loss including adjustments for depreciation, stock-based compensation, and other non-recurring items Shop-Level Profit Margin Reconciliation (in thousands) | | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Income from operations | $250 | $118 | | Plus/Less Adjustments | ... | ... | | Shop-level profit | $14,936 | $14,511 | | Sandwich shop sales, net | $109,002 | $107,577 | | Shop-level profit margin | 13.7% | 13.5% | Adjusted EBITDA Reconciliation (in thousands) | | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net loss attributable to Potbelly | $(62) | $(2,767) | | Depreciation expense | 3,721 | 3,011 | | Interest expense | 167 | 364 | | Income tax (benefit) expense | (2) | 51 | | EBITDA | $3,824 | $659 | | Plus Other Adjustments | ... | ... | | Adjusted EBITDA | $5,522 | $5,680 | Liquidity and Capital Resources The company ended Q1 2025 with a cash balance of $15.6 million and total liquidity of $40.3 million, including availability under its $30 million Revolving Facility, which management believes is sufficient for at least the next twelve months, alongside a significantly improved operating cash flow and details on its new $20 million stock repurchase program - At the end of Q1 2025, the company had a cash balance of $15.6 million and total liquidity of $40.3 million (cash plus available credit)[117] - Net cash from operating activities increased to $8.6 million in Q1 2025 from $0.7 million in Q1 2024, mainly due to higher incentive payments made in 2024 and favorable working capital changes[119] - In February 2024, the company entered into a new $30 million Revolving Credit Facility, which expires in February 2027, and used it to repay its previous Term Loan[122] - Under the 2024 Repurchase Program, the company repurchased 117,476 shares for $1.1 million in Q1 2025[134] Quantitative and Qualitative Disclosures About Market Risk The company states that its exposures to market risks have not materially changed since the fiscal year ended December 29, 2024 - There have been no material changes in the company's market risk exposures since December 29, 2024[139] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 30, 2025, with no material changes to internal control over financial reporting occurring during the quarter - The CEO and CFO concluded that as of March 30, 2025, the company's disclosure controls and procedures were effective[140] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[141] PART II. OTHER INFORMATION Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 12 of the Condensed Consolidated Financial Statements, which discusses the settlement of a class action lawsuit - Details on legal proceedings are provided in Note 12 to the Condensed Consolidated Financial Statements[142] Risk Factors There have been no material changes to the company's risk factors as previously reported in the Annual Report on Form 10-K for the fiscal year ended December 29, 2024 - No material changes to risk factors were reported since the last Annual Report on Form 10-K[143] Unregistered Sale of Equity Securities and Use of Proceeds During the first quarter of 2025, Potbelly repurchased a total of 118 thousand shares under the $20.0 million stock repurchase program authorized on May 7, 2024, with approximately $17.5 million remaining available for future repurchases Issuer Purchases of Equity Securities (Q1 2025) | Period | Total Shares Purchased | Average Price Paid per Share | Maximum Value for Future Purchases ($ thousands) | | :--- | :--- | :--- | :--- | | Dec 30, 2025 - Jan 26, 2025 | 52,000 | $10.86 | $18,139 | | Jan 27, 2025 - Feb 23, 2025 | 12,000 | $12.44 | $18,025 | | Feb 24, 2025 - Mar 30, 2025 | 54,000 | $12.40 | $17,504 | | Total | 118,000 | | | - 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 the 2018 program[144] Other Information The company reported that on March 1, 2025, it provided notice to terminate the Cooperation Agreement with Intrinsic Investment Holdings, LLC, and its affiliates, effective March 6, 2025, incurring no penalties or fees - The Cooperation Agreement with Intrinsic Investment Holdings, LLC, which had appointed a director to the board, was terminated by the company effective March 6, 2025, with no resulting penalties[148][149] - No director or officer adopted or terminated a Rule 10b5-1 trading agreement during the quarter[147] Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including officer certifications pursuant to the Sarbanes-Oxley Act and Inline XBRL data files