Portillo’s(PTLO) - 2023 Q1 - Quarterly Report

Part I – Financial Information Item 1. Financial Statements (Unaudited) For the quarter ended March 26, 2023, Portillo's Inc. reported a 16.0% increase in total revenues to $156.1 million, driven by new restaurant openings and a 9.1% rise in same-restaurant sales, resulting in a net loss of $1.3 million due to increased operating expenses, higher interest costs, and a $3.5 million loss on debt extinguishment, with total assets increasing to $1.30 billion and cash decreasing to $14.6 million Condensed Consolidated Balance Sheets As of March 26, 2023, total assets increased to $1.30 billion from $1.28 billion, while cash and cash equivalents decreased to $14.6 million and total liabilities rose to $878.7 million, primarily due to an increase in the Tax Receivable Agreement liability Balance Sheet Summary (In thousands) | Balance Sheet Items (In thousands) | March 26, 2023 | December 25, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $14,611 | $44,427 | | Total current assets | $35,878 | $65,326 | | Total assets | $1,301,703 | $1,280,083 | | Liabilities & Equity | | | | Total current liabilities | $83,739 | $77,297 | | Long-term debt, net | $288,979 | $314,425 | | Tax Receivable Agreement liability | $292,490 | $252,003 | | Total liabilities | $878,717 | $847,182 | | Total stockholders' equity | $422,986 | $432,901 | Condensed Consolidated Statements of Operations In Q1 2023, revenues grew 16.0% to $156.1 million, but the company reported a net loss of $1.3 million, or ($0.01) per share, primarily due to a $3.5 million loss on debt extinguishment, higher interest expense, and increased operating costs Income Statement Summary (In thousands) | Income Statement (In thousands) | Q1 2023 (Ended Mar 26) | Q1 2022 (Ended Mar 27) | Change YoY | | :--- | :--- | :--- | :--- | | Revenues, Net | $156,061 | $134,482 | +16.0% | | Total restaurant operating expenses | $121,240 | $106,499 | +13.8% | | Operating Income | $8,493 | $6,814 | +24.6% | | Interest Expense | $7,444 | $6,099 | +22.1% | | Loss on debt extinguishment | $3,465 | $0 | N/A | | Net (Loss) Income | $(1,273) | $550 | -331.5% | | Diluted EPS | $(0.01) | $0.00 | N/A | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased to $6.5 million, while net cash used in investing activities rose to $20.2 million for new restaurant construction, and net cash used in financing activities was $16.1 million, resulting in an overall decrease of $29.8 million in cash and cash equivalents Cash Flow Summary (In thousands) | Cash Flow Summary (In thousands) | Q1 2023 (Ended Mar 26) | Q1 2022 (Ended Mar 27) | | :--- | :--- | :--- | | Net Cash from Operating Activities | $6,486 | $800 | | Net Cash used in Investing Activities | $(20,190) | $(6,279) | | Net Cash used in Financing Activities | $(16,112) | $(1,602) | | Net Decrease in Cash | $(29,816) | $(7,081) | Notes to Condensed Consolidated Financial Statements Key notes detail the company's structure, recent secondary offerings, and debt refinancing, including a new $300 million term loan and $100 million revolver facility, which led to a $3.5 million loss on debt extinguishment and an increase in the Tax Receivable Agreement liability to $298.8 million - As of March 26, 2023, the company operated 74 restaurants, an increase from 71 at the end of 2022[26] - In Q1 2023, a secondary offering was completed, with the company not receiving proceeds, but its ownership in Portillo's OpCo increased from 67.0% to 75.2%[27][28][78] - On February 2, 2023, the company entered a new credit agreement with a $300 million term loan and a $100 million revolving facility, used to pay off the previous 2014 Credit Agreement[56][66] - The payoff of the 2014 Credit Agreement resulted in a $3.5 million loss on debt extinguishment from the write-off of deferred financing costs and original issuance discount[68][148] - The estimated obligation for future payments under the Tax Receivable Agreement (TRA) totaled $298.8 million as of March 26, 2023, with an expected payment of $6.3 million related to tax year 2022 within 12 months[87] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 16.0% revenue growth in Q1 2023 to a 9.1% increase in same-restaurant sales and new restaurant contributions, improving Restaurant-Level Adjusted EBITDA Margin to 22.3% despite 8.9% commodity inflation, while also refinancing debt and planning nine new restaurant openings in 2023 Financial Highlights and Recent Trends Total revenue grew 16.0% and same-restaurant sales increased 9.1% in Q1 2023, leading to a $6.8 million increase in Restaurant-Level Adjusted EBITDA to $34.8 million, despite ongoing 8.9% commodity inflation, which the company addressed with menu price increases Financial Highlights | Financial Highlights | Q1 2023 | Change from Q1 2022 | | :--- | :--- | :--- | | Total Revenue | $156.1 million | +16.0% | | Same Restaurant Sales | +9.1% | N/A | | Operating Income | $8.5 million | +$1.7 million | | Net Loss | $(1.3) million | -$1.8 million | | Restaurant-Level Adjusted EBITDA* | $34.8 million | +$6.8 million | | Adjusted EBITDA* | $19.6 million | +$2.0 million | - Commodity inflation was 8.9% for the quarter, compared to 15.7% in the prior year quarter, with the company estimating mid-single-digit commodity inflation for the full fiscal year 2023[114] - The company plans to open nine new restaurants in 2023[113] Consolidated Results of Operations Revenue increased by $21.6 million (16.0%) driven by a 9.1% rise in same-restaurant sales and new restaurant contributions, while labor expenses decreased to 25.9% of revenue due to sales leverage, despite general and administrative expenses rising 19.7% to $18.8 million - The 9.1% increase in same-restaurant sales was driven by a 7.0% increase in average check and a 2.1% increase in transactions[123] - Labor as a percentage of revenue decreased by 1.8%, primarily due to leverage from higher average check and transaction volumes, which offset wage rate increases[127] - Pre-opening expenses increased by $1.8 million to $2.3 million due to the timing and location of new restaurant openings[136] Key Performance Indicators and Non-GAAP Financial Measures Key metrics showed positive operational trends, with Average Unit Volume (AUV) increasing to $8.7 million and same-restaurant sales growing 9.1%, leading to an improved Restaurant-Level Adjusted EBITDA Margin of 22.3%, despite a slight decrease in Adjusted EBITDA Margin to 12.6% Key Performance Indicators | Key Metrics | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total Restaurants | 75 | 70 | | AUV (in millions) | $8.7 | $8.3 | | Change in same-restaurant sales | 9.1% | 8.2% | | Adjusted EBITDA Margin | 12.6% | 13.1% | | Restaurant-Level Adjusted EBITDA Margin | 22.3% | 20.8% | - The Comparable Restaurant Base for calculating same-restaurant sales included 63 restaurants for the quarter ended March 26, 2023[157] Liquidity and Capital Resources As of March 26, 2023, the company had $14.6 million in cash and $85.6 million available under its new $100 million revolving credit facility, with cash flow from operations expected to be sufficient for the next twelve months, despite a material $298.8 million Tax Receivable Agreement obligation - As of March 26, 2023, the company had $14.6 million in cash and cash equivalents and $85.6 million of availability under its 2023 Revolver Facility[169] - The company estimates its obligation for future payments under the TRA totaled $298.8 million, with a payment of $6.3 million related to tax year 2022 expected within the next 12 months[177] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reported no material changes to its exposure to market risks compared to its 2022 Annual Report on Form 10-K disclosures - There have been no material changes to the company's exposure to market risks as described in its 2022 Annual Report on Form 10-K[195] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 26, 2023, with no material changes to internal control over financial reporting during the quarter - 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[196] - There were no changes to internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[197] Part II – Other Information Item 1. Legal Proceedings The company is party to various legal proceedings and claims arising in the normal course of business, with management believing their ultimate outcome will not materially affect the financial statements - The company is party to legal proceedings in the normal course of business but does not expect the outcomes to have a material effect on its financial statements[91][199] Item 1A. Risk Factors The company highlights updated risk factors, including potential impacts from employment and labor laws, unionization activities, such as a recent vote at one commissary, and risks related to recent banking sector instability that could affect cash access or financing - On April 13, 2023, team members at one of the company's commissaries elected to be represented by a union, which could impact compensation arrangements and operating costs[204] - The company identified new risks related to the financial condition of U.S. banking organizations, noting that future bank failures could threaten its ability to access its cash and cash equivalents or secure financing[205] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2023, the company completed a secondary offering of 8,000,000 Class A common stock shares, from which Portillo's received no proceeds, as funds were used to purchase equity from pre-IPO members, increasing Class A shares and decreasing Class B shares outstanding - The company completed a secondary offering of 8,000,000 Class A shares, with proceeds used to purchase equity from pre-IPO members, resulting in no cash received by Portillo's Inc[207][209] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported - No defaults upon senior securities were reported[210] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[210] Item 5. Other Information No other material information was reported - No other information was reported[212] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents and officer certifications required by the Sarbanes-Oxley Act