Red Robin Gourmet Burgers(RRGB) - 2021 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive loss, statements of stockholders' equity, and statements of cash flows, along with their accompanying notes, for Red Robin Gourmet Burgers, Inc. for the periods ended October 3, 2021, and December 27, 2020 Condensed Consolidated Balance Sheets The balance sheet shows a decrease in total assets and total liabilities from December 27, 2020, to October 3, 2021, with a corresponding decrease in total stockholders' equity | (in thousands) | October 3, 2021 | December 27, 2020 | | :-------------------------------- | :-------------- | :---------------- | | Assets: | | | | Total current assets | $82,069 | $86,908 | | Property and equipment, net | $388,881 | $427,033 | | Total assets | $921,724 | $974,739 | | Liabilities: | | | | Total current liabilities | $211,640 | $202,554 | | Long-term debt | $147,471 | $160,952 | | Total liabilities | $825,559 | $854,026 | | Stockholders' Equity: | | | | Total stockholders' equity | $96,165 | $120,713 | Condensed Consolidated Statements of Operations and Comprehensive Loss The company reported a net loss for both the twelve and forty weeks ended October 3, 2021, which, while still a loss, significantly improved compared to the same periods in 2020 | (in thousands, except per share) | Twelve Weeks Ended Oct 3, 2021 | Twelve Weeks Ended Oct 4, 2020 | Forty Weeks Ended Oct 3, 2021 | Forty Weeks Ended Oct 4, 2020 | | :------------------------------- | :----------------------------- | :----------------------------- | :---------------------------- | :---------------------------- | | Total revenues | $275,444 | $200,478 | $878,694 | $667,665 | | Loss from operations | $(12,136) | $(24,595) | $(19,031) | $(233,406) | | Net loss | $(14,980) | $(6,179) | $(28,689) | $(236,738) | | Basic loss per share | $(0.95) | $(0.40) | $(1.83) | $(16.98) | | Diluted loss per share | $(0.95) | $(0.40) | $(1.83) | $(16.98) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity decreased from $120.7 million at December 27, 2020, to $96.2 million at October 3, 2021, primarily due to net losses incurred during the period | (in thousands) | Balance, Dec 27, 2020 | Balance, Oct 3, 2021 | | :-------------------------------- | :-------------------- | :------------------- | | Common Stock (Amount) | $20 | $20 | | Treasury Stock (Amount) | $(199,908) | $(192,819) | | Paid-in Capital | $243,407 | $240,445 | | Accumulated Other Comprehensive Income (Loss), net of tax | $(4) | $10 | | Retained Earnings | $77,198 | $48,509 | | Total Stockholders' Equity | $120,713 | $96,165 | - Net loss for the forty weeks ended October 3, 2021, was $(28,689) thousand, contributing to the decrease in retained earnings[15][18] Condensed Consolidated Statements of Cash Flows For the forty weeks ended October 3, 2021, the company generated positive cash flow from operating activities, a significant improvement from the prior year | (in thousands) | Forty Weeks Ended Oct 3, 2021 | Forty Weeks Ended Oct 4, 2020 | | :--------------------------------------- | :---------------------------- | :---------------------------- | | Net cash provided by (used in) operating activities | $37,617 | $(22,401) | | Net cash used in investing activities | $(19,967) | $(14,131) | | Net cash (used in) provided by financing activities | $(16,037) | $34,020 | | Net change in cash and cash equivalents | $1,641 | $(2,678) | | Cash and cash equivalents, end of period | $17,757 | $27,367 | Notes to Condensed Consolidated Financial Statements These notes provide detailed information on the basis of financial statement presentation, revenue recognition, lease accounting, loss per share calculations, other charges, borrowings, fair value measurements, and commitments and contingencies, offering context to the condensed financial statements 1. Basis of Presentation and Recent Accounting Pronouncements This section outlines that the financial statements are prepared in accordance with GAAP for interim information, are unaudited, and include normal recurring adjustments - The financial statements are prepared in accordance with GAAP for interim financial information and include normal recurring adjustments[26] - Certain amounts in the October 4, 2020 Condensed Consolidated Statement of Cash Flows and Statements of Operations and Comprehensive Loss were reclassified for conformity and improved comparability, with no effect on cash flows, total costs and expenses, loss from operations, or net loss[29][30] - The company is evaluating the impact of FASB Update 2020-04, Reference Rate Reform (Topic 848), which provides temporary optional expedients for contracts referencing LIBOR[31] 2. Revenue Revenue is disaggregated by type, showing significant increases in both restaurant and franchise revenue for the twelve and forty weeks ended October 3, 2021, compared to the prior year | (in thousands) | Twelve Weeks Ended Oct 3, 2021 | Twelve Weeks Ended Oct 4, 2020 | Forty Weeks Ended Oct 3, 2021 | Forty Weeks Ended Oct 4, 2020 | | :------------------- | :----------------------------- | :----------------------------- | :---------------------------- | :---------------------------- | | Restaurant revenue | $270,202 | $197,009 | $861,036 | $658,587 | | Franchise revenue | $4,303 | $2,584 | $13,123 | $5,861 | | Gift card breakage | $438 | $523 | $3,231 | $2,329 | | Other revenue | $501 | $362 | $1,304 | $888 | | Total revenues | $275,444 | $200,478 | $878,694 | $667,665 | | (in thousands) | October 3, 2021 | December 27, 2020 | | :----------------------- | :-------------- | :---------------- | | Unearned gift card revenue | $29,599 | $38,309 | | Deferred loyalty revenue | $13,022 | $11,829 | 3. Leases The company's lease liabilities and right-of-use assets are primarily operating leases, with total lease liabilities decreasing slightly from December 27, 2020, to October 3, 2021 | (in thousands) | October 3, 2021 | December 27, 2020 | | :-------------------------------- | :-------------- | :---------------- | | Right of use assets, net | $419,788 | $425,573 | | Current portion of lease obligations | $49,894 | $55,275 | | Long-term portion of lease obligations | $450,673 | $465,233 | | Total lease liabilities (carrying value) | $500,567 | $520,508 | | (in thousands) | Twelve Weeks Ended Oct 3, 2021 | Twelve Weeks Ended Oct 4, 2020 | Forty Weeks Ended Oct 3, 2021 | Forty Weeks Ended Oct 4, 2020 | | :----------------------------- | :----------------------------- | :----------------------------- | :---------------------------- | :---------------------------- | | Operating lease cost | $16,061 | $14,992 | $53,765 | $51,931 | | Total finance lease cost | $328 | $377 | $1,064 | $1,027 | | Variable lease cost | $4,496 | $5,902 | $15,271 | $19,207 | | Total lease expense | $20,885 | $21,271 | $70,100 | $72,165 | - The weighted average remaining lease term for operating leases was 9.9 years with a weighted average discount rate of 7.01% as of October 3, 2021[37] 4. Loss Per Share Basic and diluted loss per share are calculated based on net loss and weighted-average shares outstanding, with all potentially dilutive common shares considered anti-dilutive due to the net loss position | (in thousands) | Twelve Weeks Ended Oct 3, 2021 | Twelve Weeks Ended Oct 4, 2020 | Forty Weeks Ended Oct 3, 2021 | Forty Weeks Ended Oct 4, 2020 | | :----------------------------------- | :----------------------------- | :----------------------------- | :---------------------------- | :---------------------------- | | Basic weighted average shares outstanding | 15,709 | 15,540 | 15,647 | 13,945 | | Diluted weighted average shares outstanding | 15,709 | 15,540 | 15,647 | 13,945 | | Awards excluded due to anti-dilutive effect | 545 | 895 | 390 | 480 | 5. Other Charges Other charges significantly decreased for both the twelve and forty weeks ended October 3, 2021, compared to the prior year, primarily due to a substantial reduction in goodwill impairment and asset impairment charges | (in thousands) | Twelve Weeks Ended Oct 3, 2021 | Twelve Weeks Ended Oct 4, 2020 | Forty Weeks Ended Oct 3, 2021 | Forty Weeks Ended Oct 4, 2020 | | :-------------------------- | :----------------------------- | :----------------------------- | :---------------------------- | :---------------------------- | | Restaurant closure costs | $1,102 | $3,982 | $5,301 | $12,990 | | Asset impairment | $— | $— | $1,357 | $20,779 | | Litigation contingencies | $160 | $— | $1,330 | $4,500 | | COVID-19 related costs | $299 | $430 | $1,112 | $1,279 | | Goodwill impairment | $— | $— | $— | $95,414 | | Total other charges | $1,561 | $4,416 | $9,228 | $138,296 | - Goodwill impairment of $95.4 million was recognized in the forty weeks ended October 4, 2020, with no such charge in 2021[40][43] 6. Borrowings Total debt decreased from December 27, 2020, to October 3, 2021, and the company amended its Credit Facility on November 9, 2021, to gain additional flexibility, anticipating a refinancing in 2022 | (in thousands) | October 3, 2021 | December 27, 2020 | | :------------------------------------------ | :-------------- | :---------------- | | Revolving credit facility, term loan, and other long-term debt | $157,163 | $170,644 | | Weighted Average Interest Rate | 6.80% | 4.50% | | Long-term debt | $147,471 | $160,952 | | Unamortized debt issuance costs | $2.0 million | $3.3 million | - The Third Amendment to the Credit Agreement waives the lease adjusted leverage ratio covenant for Q3 2021, increases maximum leverage for Q4 2021 and Q1-Q3 2022, decreases minimum fixed charge coverage ratio for Q1 2022, and increases pricing under the Credit Facility[47][48] - The company anticipates refinancing its Credit Facility in 2022[47] 7. Fair Value Measurements The company measures certain assets, primarily investments in rabbi trust, at fair value on a recurring basis using Level 1 inputs, while non-financial assets are measured on a nonrecurring basis if impaired, using Level 3 inputs | (in thousands) | October 3, 2021 | December 27, 2020 | | :------------------------ | :-------------- | :---------------- | | Investments in rabbi trust | $5,999 | $6,740 | - The carrying value of the Credit Facility approximated fair value as of October 3, 2021. As of December 27, 2020, the carrying value was $169.8 million and fair value was $172.6 million[54] 8. Commitments and Contingencies The company is involved in various claims and litigation, for which management believes adequate provision has been made, and the ultimate resolution will not materially adversely affect financial position or results of operations - Management believes adequate provision for potential losses from claims and litigation has been made and that ultimate resolution will not materially adversely affect financial position or results of operations[55] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a narrative analysis of Red Robin's financial performance and condition, highlighting the impact of the COVID-19 pandemic, operational strategies, and detailed breakdowns of revenues, costs, and liquidity for the twelve and forty weeks ended October 3, 2021 Overview Red Robin operates and franchises full-service restaurants across North America, facing significant challenges from the COVID-19 pandemic, including labor and supply chain disruptions and inflationary costs - Red Robin operates 430 company-owned and 101 franchised full-service restaurants in North America as of October 3, 2021[58] - The COVID-19 pandemic continues to create challenges including government restrictions, changing consumer behavior, labor and supply chain issues, and widespread inflationary costs[59] - The company is addressing challenges through its Total Guest Experience (TGX) hospitality model, off-premises enhancements, management labor model, and technology-enhanced hiring processes, improved wage policies, and national hiring days to combat staffing shortages[60][61] Financial and Operational Highlights The company experienced significant restaurant revenue growth for both the twelve and forty weeks ended October 3, 2021, compared to the prior year, driven by comparable restaurant revenue increases | (millions) | Twelve Weeks Ended Oct 3, 2021 | Twelve Weeks Ended Oct 4, 2020 | Forty Weeks Ended Oct 3, 2021 | Forty Weeks Ended Oct 4, 2020 | | :-------------------------------- | :----------------------------- | :----------------------------- | :---------------------------- | :---------------------------- | | Restaurant Revenue | $270.2 | $197.0 | $861.0 | $658.6 | | Increase in comparable restaurant revenue | $67.0 | N/A | $200.6 | N/A | | Total increase in Restaurant Revenue | $73.2 | N/A | $202.4 | N/A | | (Percentage of Restaurant Revenue) | Twelve Weeks Ended Oct 3, 2021 | Twelve Weeks Ended Oct 4, 2020 | Forty Weeks Ended Oct 3, 2021 | Forty Weeks Ended Oct 4, 2020 | | :--------------------------------- | :----------------------------- | :----------------------------- | :---------------------------- | :---------------------------- | | Cost of sales | 23.2% | 23.4% | 22.5% | 23.6% | | Labor | 36.9% | 37.7% | 36.0% | 38.8% | | Other operating | 19.0% | 19.1% | 18.1% | 18.9% | | Occupancy | 8.3% | 11.2% | 8.6% | 11.6% | | Total restaurant operating costs | 87.5% | 91.4% | 85.3% | 92.9% | | (per share) | Twelve Weeks Ended Oct 3, 2021 | Twelve Weeks Ended Oct 4, 2020 | Forty Weeks Ended Oct 3, 2021 | Forty Weeks Ended Oct 4, 2020 | | :-------------------------- | :----------------------------- | :----------------------------- | :---------------------------- | :---------------------------- | | Net loss as reported | $(0.95) | $(0.40) | $(1.83) | $(16.98) | | Adjusted loss per share - diluted | $(0.88) | $(0.19) | $(1.40) | $(9.64) | | Restaurant Units | October 3, 2021 | October 4, 2020 | | :----------------- | :-------------- | :-------------- | | Company-owned | 430 | 444 | | Franchised | 101 | 103 | | Total restaurants | 531 | 547 | Results of Operations This section provides a detailed breakdown of the company's revenues and various cost components, analyzing changes and their drivers for the twelve and forty-week periods ended October 3, 2021, compared to the prior year and pre-COVID-19 levels Revenues Total revenues increased significantly, driven by a 37.2% increase in restaurant revenue for the twelve weeks and 30.7% for the forty weeks, primarily due to higher comparable restaurant revenue from increased Guest counts and average Guest checks | (in thousands) | Twelve Weeks Ended Oct 3, 2021 | Twelve Weeks Ended Oct 4, 2020 | Percent Change | Forty Weeks Ended Oct 3, 2021 | Forty Weeks Ended Oct 4, 2020 | Percent Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------------- | :---------------------------- | :---------------------------- | :------------- | | Restaurant revenue | $270,202 | $197,009 | 37.2% | $861,036 | $658,587 | 30.7% | | Franchise royalties, fees and other revenue | $5,242 | $3,469 | 51.1% | $17,658 | $9,078 | 94.5% | | Total revenues | $275,444 | $200,478 | 37.4% | $878,694 | $667,665 | 31.6% | - Comparable restaurant revenue increased by 34.3% for the twelve weeks and 31.5% for the forty weeks, driven by a 22.5% (12 weeks) / 21.1% (40 weeks) increase in Guest count and an 11.8% (12 weeks) / 10.5% (40 weeks) increase in average Guest check[73][74] - Off-premises sales comprised 30.8% of total food and beverage sales during Q3 2021, down from 40.7% in Q3 2020[73] Cost of Sales Cost of sales as a percentage of restaurant revenue decreased by 20 basis points for the twelve weeks and 110 basis points for the forty weeks ended October 3, 2021, primarily due to pricing, favorable mix shifts, lower waste, and higher rebates, partially offset by commodity inflation | (in thousands, except percentages) | Twelve Weeks Ended Oct 3, 2021 | Twelve Weeks Ended Oct 4, 2020 | Percent Change | Forty Weeks Ended Oct 3, 2021 | Forty Weeks Ended Oct 4, 2020 | Percent Change | | :--------------------------------- | :----------------------------- | :----------------------------- | :------------- | :---------------------------- | :---------------------------- | :------------- | | Cost of sales | $62,671 | $46,037 | 36.1% | $193,754 | $155,243 | 24.8% | | As a percent of restaurant revenue | 23.2% | 23.4% | (0.2)% | 22.5% | 23.6% | (1.1)% | - The decrease in cost of sales as a percentage of restaurant revenue was driven by pricing, favorable mix shifts, lower waste, and higher rebates, partially offset by commodity inflation[79][80] Labor Labor costs as a percentage of restaurant revenue decreased by 80 basis points for the twelve weeks and 280 basis points for the forty weeks ended October 3, 2021, primarily due to industry staffing shortages and sales leverage, partially offset by higher wage rates and increased restaurant management compensation | (in thousands, except percentages) | Twelve Weeks Ended Oct 3, 2021 | Twelve Weeks Ended Oct 4, 2020 | Percent Change | Forty Weeks Ended Oct 3, 2021 | Forty Weeks Ended Oct 4, 2020 | Percent Change | | :--------------------------------- | :----------------------------- | :----------------------------- | :------------- | :---------------------------- | :---------------------------- | :------------- | | Labor | $99,725 | $74,344 | 34.1% | $310,333 | $255,652 | 21.4% | | As a percent of restaurant revenue | 36.9% | 37.7% | (0.8)% | 36.0% | 38.8% | (2.8)% | - Transitory labor and other operating costs of $3.1 million were incurred due to staffing challenges, including hiring and training, outsourced janitorial, one-time bonuses, and overtime pay[82] Other Operating Other operating costs as a percentage of restaurant revenue decreased by 10 basis points for the twelve weeks and 80 basis points for the forty weeks ended October 3, 2021, mainly driven by sales leverage, lower utilities, and reduced supplies due to a lower off-premises sales mix | (in thousands, except percentages) | Twelve Weeks Ended Oct 3, 2021 | Twelve Weeks Ended Oct 4, 2020 | Percent Change | Forty Weeks Ended Oct 3, 2021 | Forty Weeks Ended Oct 4, 2020 | Percent Change | | :--------------------------------- | :----------------------------- | :----------------------------- | :------------- | :---------------------------- | :---------------------------- | :------------- | | Other operating | $51,462 | $37,631 | 36.8% | $156,102 | $124,585 | 25.3% | | As a percent of restaurant revenue | 19.0% | 19.1% | (0.1)% | 18.1% | 18.9% | (0.8)% | Occupancy Occupancy costs as a percentage of restaurant revenue decreased by 290 basis points for the twelve weeks and 300 basis points for the forty weeks ended October 3, 2021, primarily due to sales leverage and restructured leases | (in thousands, except percentages) | Twelve Weeks Ended Oct 3, 2021 | Twelve Weeks Ended Oct 4, 2020 | Percent Change | Forty Weeks Ended Oct 3, 2021 | Forty Weeks Ended Oct 4, 2020 | Percent Change | | :--------------------------------- | :----------------------------- | :----------------------------- | :------------- | :---------------------------- | :---------------------------- | :------------- | | Occupancy | $22,519 | $22,099 | 1.9% | $74,233 | $76,514 | (3.0)% | | As a percent of restaurant revenue | 8.3% | 11.2% | (2.9)% | 8.6% | 11.6% | (3.0)% | - Fixed rents increased by $1.1 million for the twelve weeks and $1.8 million for the forty weeks, mainly due to recognizing ongoing fixed rents of temporarily closed restaurants in Occupancy in 2021, which were previously in Other Charges in 2020[89][90] Depreciation and Amortization Depreciation and amortization expense as a percentage of total revenues decreased by 270 basis points for the twelve weeks and 290 basis points for the forty weeks ended October 3, 2021, primarily due to net closed company-owned restaurants and sales leverage | (in thousands, except percentages) | Twelve Weeks Ended Oct 3, 2021 | Twelve Weeks Ended Oct 4, 2020 | Percent Change | Forty Weeks Ended Oct 3, 2021 | Forty Weeks Ended Oct 4, 2020 | Percent Change | | :--------------------------------- | :----------------------------- | :----------------------------- | :------------- | :---------------------------- | :---------------------------- | :------------- | | Depreciation and amortization | $18,881 | $19,173 | (1.5)% | $63,984 | $68,053 | (6.0)% | | As a percent of total revenues | 6.9% | 9.6% | (2.7)% | 7.3% | 10.2% | (2.9)% | General and Administrative Expenses General and administrative expenses increased by $2.5 million (16.5%) for the twelve weeks and $1.6 million (2.9%) for the forty weeks ended October 3, 2021, mainly driven by merit increases, lapping temporary salary reductions in 2020, increased travel costs, and higher professional services spend | (in thousands, except percentages) | Twelve Weeks Ended Oct 3, 2021 | Twelve Weeks Ended Oct 4, 2020 | Percent Change | Forty Weeks Ended Oct 3, 2021 | Forty Weeks Ended Oct 4, 2020 | Percent Change | | :--------------------------------- | :----------------------------- | :----------------------------- | :------------- | :---------------------------- | :---------------------------- | :------------- | | General and administrative expenses | $17,691 | $15,190 | 16.5% | $57,664 | $56,054 | 2.9% | | As a percent of total revenues | 6.4% | 7.6% | (1.2)% | 6.6% | 8.4% | (1.8)% | Selling Expenses Selling expenses increased significantly by $6.6 million for the twelve weeks and $5.2 million (19.7%) for the forty weeks ended October 3, 2021, as the company returned marketing spend closer to normalized levels | (in thousands, except percentages) | Twelve Weeks Ended Oct 3, 2021 | Twelve Weeks Ended Oct 4, 2020 | Percent Change | Forty Weeks Ended Oct 3, 2021 | Forty Weeks Ended Oct 4, 2020 | Percent Change | | :--------------------------------- | :----------------------------- | :----------------------------- | :------------- | :---------------------------- | :---------------------------- | :------------- | | Selling expenses | $12,652 | $6,094 | * | $31,635 | $26,429 | 19.7% | | As a percent of total revenues | 4.6% | 3.0% | 1.6% | 3.6% | 4.0% | (0.4)% | Pre-opening Costs Pre-opening costs increased significantly for both periods, primarily related to the rollout of Donatos® pizza to 38 restaurants during the twelve weeks ended October 3, 2021, with plans for approximately 40 more in Q4 2021 | (in thousands, except percentages) | Twelve Weeks Ended Oct 3, 2021 | Twelve Weeks Ended Oct 4, 2020 | Percent Change | Forty Weeks Ended Oct 3, 2021 | Forty Weeks Ended Oct 4, 2020 | Percent Change | | :--------------------------------- | :----------------------------- | :----------------------------- | :------------- | :---------------------------- | :---------------------------- | :------------- | | Pre-opening costs | $418 | $89 | * | $792 | $245 | * | - Pre-opening costs are primarily related to preparing restaurants to introduce Donatos® and direct costs for new restaurant openings[99] - The company completed the rollout of Donatos® to 38 restaurants during the twelve weeks ended October 3, 2021, and expects to continue to approximately 40 restaurants in Q4 2021[100] Interest Expense, Net and Other Interest expense, net and other increased by $0.6 million (26.1%) for the twelve weeks and $2.4 million (31.6%) for the forty weeks ended October 3, 2021, primarily due to a higher weighted average interest rate, partially offset by a lower average outstanding debt balance | (in thousands) | Twelve Weeks Ended Oct 3, 2021 | Twelve Weeks Ended Oct 4, 2020 | Percent Change | Forty Weeks Ended Oct 3, 2021 | Forty Weeks Ended Oct 4, 2020 | Percent Change | | :------------------------- | :----------------------------- | :----------------------------- | :------------- | :---------------------------- | :---------------------------- | :------------- | | Interest expense, net and other | $2,870 | $2,280 | 26.1% | $9,986 | $7,629 | 31.6% | | Weighted average interest rate | 6.8% | 5.0% | N/A | 6.6% | 4.5% | N/A | Provision for Income Taxes The effective tax benefit decreased significantly for both the twelve and forty weeks ended October 3, 2021, primarily due to a change in full valuation allowance recognition - Effective tax rate was a 0.2% benefit for the twelve weeks ended October 3, 2021, compared to a 77.0% benefit for the same period in 2020[103] - Effective tax benefit was 1.1% for the forty weeks ended October 3, 2021, compared to 1.8% for the same period in 2020[103] - The company filed federal and state cash tax refund claims totaling approximately $16 million in 2021, with the majority expected in 2022 due to government delays[104] Liquidity and Capital Resources The company's cash and cash equivalents increased slightly, and it generated positive operating cash flow, using available cash to pay down debt and fund strategic initiatives Cash Flows Net cash provided by operating activities significantly improved to $37.6 million for the forty weeks ended October 3, 2021, from a net use in the prior year | (in thousands) | Forty Weeks Ended Oct 3, 2021 | Forty Weeks Ended Oct 4, 2020 | | :--------------------------------------- | :---------------------------- | :---------------------------- | | Net cash provided by (used in) operating activities | $37,617 | $(22,401) | | Net cash used in investing activities | $(19,967) | $(14,131) | | Net cash (used in) provided by financing activities | $(16,037) | $34,020 | | Net change in cash and cash equivalents | $1,641 | $(2,678) | Operating Cash Flows Net cash provided by operating activities increased by $61.0 million to $37.6 million for the forty weeks ended October 3, 2021, primarily due to a $103.3 million increase in profit from operations and favorable changes in working capital - Net cash provided by operating activities increased by $61.0 million to $37.6 million for the forty weeks ended October 3, 2021[107] - The increase is primarily attributable to a $103.3 million increase in profit from operations and favorable changes in accounts receivable and accounts payable[107] Investing Cash Flows Net cash used in investing activities increased by $5.8 million to $20.0 million for the forty weeks ended October 3, 2021, mainly due to increased capital expenditures for Donatos® expansion and restaurant improvements - Net cash used in investing activities increased by $5.8 million to $20.0 million for the forty weeks ended October 3, 2021[108] - The increase is primarily due to increased spend on Donatos® expansion, with $7.7 million allocated for this purpose[108][110] | (in thousands) | Forty Weeks Ended Oct 3, 2021 | Forty Weeks Ended Oct 4, 2020 | | :------------------------------------ | :---------------------------- | :---------------------------- | | Donatos® expansion | $7,687 | $— | | Restaurant improvement capital and other | $6,467 | $8,433 | | Investment in technology infrastructure and other | $5,355 | $6,437 | | New restaurants and restaurant refreshes | $478 | $— | | Total capital expenditures | $19,987 | $14,870 | Financing Cash Flows Net cash flows shifted from provided to used in financing activities, decreasing by $51.0 million to a net use of $16.0 million for the forty weeks ended October 3, 2021, driven by a significant decrease in proceeds from common stock issuance and increased net repayments of long-term debt - Net cash flows used in financing activities increased by $51.0 million to $16.0 million for the forty weeks ended October 3, 2021[111] - This change was due to a $28.9 million decrease in proceeds from common stock issuance and a $24.7 million increase in net repayments of long-term debt[111] Credit Facility As of October 3, 2021, the company had $156.3 million in outstanding borrowings and $57.4 million in available borrowing capacity under its Credit Facility, which was amended on November 9, 2021, for additional flexibility, with refinancing anticipated in 2022 - Outstanding borrowings under the Credit Facility were $156.3 million as of October 3, 2021, with $8.6 million issued under letters of credit[112] - Available borrowing capacity under the Credit Facility was $57.4 million as of October 3, 2021[112] - The company amended its Credit Facility on November 9, 2021 (Third Amendment) to obtain additional flexibility and anticipates refinancing in 2022[113] Covenants The company was in compliance with all applicable Credit Facility covenants as of October 3, 2021, and the Third Amendment provides waivers for the Leverage Ratio Covenant for Q3 2021 and adjustments for future periods, along with adjustments to the FCCR Covenant - As of October 3, 2021, the company was in compliance with all applicable covenants under its Credit Facility[115] - The Third Amendment waives compliance with the Leverage Ratio Covenant for Q3 2021 and provides adjustments for Q4 2021 and Q1-Q3 2022, and adjustments to the FCCR Covenant for Q1 2022[114] - A waiver was obtained for the FCCR Covenant for Q3 and Q4 2021 due to an anticipated delay in cash tax refunds[115] Debt Outstanding Total debt outstanding decreased by $13.4 million to $157.2 million at October 3, 2021, from $170.6 million at December 27, 2020, primarily due to net payments on the Credit Facility - Total debt outstanding decreased by $13.4 million to $157.2 million at October 3, 2021, from $170.6 million at December 27, 2020[116] - This decrease was primarily due to net payments of $14.3 million on the Credit Facility[116] Working Capital The company typically operates with a working capital deficit due to the nature of its cash-based sales and rapid inventory turnover, managing liquidity by utilizing operating cash flows for capital expenditures and debt repayment, and its Credit Facility for short-term needs - The company typically maintains current liabilities in excess of current assets, resulting in a working capital deficit[117] - Operating cash flows, combined with remaining borrowing capacity under the Credit Facility, are expected to be sufficient to satisfy working capital deficits and planned capital expenditures[117] Share Repurchase The company's $75 million share repurchase program was temporarily suspended effective March 14, 2020, for liquidity during the COVID-19 pandemic, with repurchases prohibited until at least Q1 2022 and contingent on meeting a specific lease adjusted leverage ratio - The share repurchase program, with $68.4 million remaining availability, was temporarily suspended effective March 14, 2020[118][119] - Repurchases are prohibited until at least Q1 2022 and require a covenant compliance certificate demonstrating a lease adjusted leverage ratio less than or equal to 5.00:1.00[119] Inflation The company anticipates inflation will negatively impact labor and commodity costs for the remainder of 2021, with primary inflationary factors including food, labor, energy, and construction materials - Primary inflationary factors affecting operations are food, labor costs, energy costs, and materials for new restaurant construction[120] - Inflation is anticipated to have a negative impact on labor and commodity costs for the remainder of 2021[120] Seasonality The business is subject to seasonal fluctuations, with higher sales typically in summer and winter holiday seasons and lower sales in the fall, leading to potential variability in quarterly operating results - Sales are typically higher during summer months and winter holiday season, and lower during the fall season[121] - Quarterly operating results and comparable restaurant revenue may fluctuate significantly due to seasonality[121] Contractual Obligations There were no material changes to contractual obligations outside the ordinary course of business since the prior 10-Q filing, except for lease obligations resulting from negotiated rent concessions - No material changes to contractual obligations since the prior 10-Q, except for lease obligations due to contractual rent concessions[122] Critical Accounting Policies and Estimates The company reiterates its critical accounting policies and estimates, noting no significant changes since the Annual Report on Form 10-K for fiscal year 2020, with these policies involving significant judgment and estimation, particularly regarding future restaurant level cash flows - No significant changes in critical accounting policies and estimates since the Annual Report on Form 10-K for fiscal year ended December 27, 2020[123] - Estimates and judgments are based on historical experiences and other factors, with actual results potentially differing[123] Recently Issued and Recently Adopted Accounting Standards This section refers to Note 1, 'Basis of Presentation and Recent Accounting Pronouncements,' for information on recently issued and adopted accounting standards - Refer to Note 1, 'Basis of Presentation and Recent Accounting Pronouncements,' for details on recently issued and adopted accounting standards[124] Forward-Looking Statements This section contains a disclaimer regarding forward-looking statements, emphasizing that actual results may differ materially due to known and unknown risks and uncertainties, including the impact of COVID-19, labor shortages, supply chain issues, and economic conditions - Forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially[126] - Key risk factors include the impact of COVID-19, effectiveness of strategic initiatives, ability to recruit and retain staff, supply chain disruptions, changes in commodity costs, and general economic conditions[127] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk The company monitors interest rate risk and commodity price risk, with a 1.0% change in variable interest rates resulting in a $1.5 million pre-tax interest expense fluctuation annually, and a 1.0% increase in food and beverage costs negatively impacting cost of sales by approximately $2.0 million annually - A 1.0% change in the effective interest rate on variable borrowings ($154.7 million average) would result in a pre-tax interest expense fluctuation of $1.5 million on an annualized basis[130] - A 1.0% increase in food and beverage costs would negatively impact cost of sales by approximately $2.0 million on an annualized basis[131] - The company faces commodity price volatility for key items like ground beef, poultry, and potatoes, and has experienced distribution disruptions, commodity cost inflation, and shortages due to COVID-19[131] ITEM 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of October 3, 2021, with no material changes in internal control over financial reporting during the most recent fiscal quarter - The company's disclosure controls and procedures were effective as of October 3, 2021[132] - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[133] PART II - OTHER INFORMATION ITEM 1. Legal Proceedings This section refers to Note 8, 'Commitments and Contingencies,' for further information regarding the company's litigation contingencies and management's assessment of their potential impact - Refer to Note 8, 'Commitments and Contingencies,' for information on litigation contingencies[137] ITEM 1A. Risk Factors The company supplements its Annual Report's risk factors by highlighting its susceptibility to labor shortages and supply chain disruptions, which have negatively impacted staffing levels, increased labor costs, and led to intermittent product and distribution shortages, potentially affecting Guest experience, traffic, sales, revenue, and profits - The company is susceptible to labor shortages, which have disrupted and may further disrupt adequate staffing levels, potentially increasing labor costs[139] - Challenges in hiring and retention, combined with global supply chain disruptions, have led to intermittent product and distribution shortages from vendor partners[140] - If labor shortages or supply disruptions continue, they could negatively impact Guest experience, traffic, sales, revenue, and profits[139][140] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds During the twelve and forty weeks ended October 3, 2021, the company did not have any unregistered sales of equity securities or make any share repurchases, with the share repurchase program remaining suspended, subject to specific conditions for its resumption in Q1 2022 at the earliest - No sales of securities in unregistered transactions occurred during the twelve and forty weeks ended October 3, 2021[141] - No share repurchases were made during the third fiscal quarter of 2021[141] - The share repurchase program remains limited by Credit Facility conditions, prohibiting repurchases until Q1 2022 at the earliest and requiring a lease adjusted leverage ratio less than or equal to 5.00:1.00[141] ITEM 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Third Amendment to the Credit Agreement, CEO and CFO certifications, and XBRL financial information - Key exhibits include the Third Amendment to Credit Agreement (Exhibit 10.1), Rule 13a-14(a) Certifications of CEO and CFO (Exhibits 31.1, 31.2), Section 1350 Certifications (Exhibit 32.1), and XBRL financial information (Exhibit 101)[143] Signature This section contains the formal signature of the registrant, Red Robin Gourmet Burgers, Inc., by its Chief Financial Officer, Lynn S. Schweinfurth, dated November 10, 2021