Red Robin Gourmet Burgers(RRGB) - 2023 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Presents unaudited financial statements and management's analysis for Red Robin Gourmet Burgers, Inc Item 1. Financial Statements (unaudited) Provides unaudited financial statements and notes, detailing an immaterial restatement for gift card revenue Condensed Consolidated Balance Sheets Summarizes the company's assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheets (in thousands) | (in thousands) | July 9, 2023 | December 25, 2022 | Change | | :--- | :--- | :--- | :--- | | Assets: | | | | | Cash and cash equivalents | $44,034 | $48,826 | $(4,792) | | Total current assets | $109,698 | $119,580 | $(9,882) | | Total assets | $798,398 | $832,145 | $(33,747) | | Liabilities & Stockholders' Equity: | | | | | Total current liabilities | $204,344 | $220,213 | $(15,869) | | Long-term debt | $188,090 | $203,155 | $(15,065) | | Total liabilities | $795,372 | $830,356 | $(34,984) | | Total stockholders' equity | $3,026 | $1,789 | $1,237 | Condensed Consolidated Statements of Operations and Comprehensive Loss Details the company's revenues, expenses, and net income or loss over specific periods Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands, except per share amounts) | (in thousands, except per share amounts) | Twelve Weeks Ended July 9, 2023 | Twelve Weeks Ended July 10, 2022 | Change (YoY) | Twenty-Eight Weeks Ended July 9, 2023 | Twenty-Eight Weeks Ended July 10, 2022 | Change (YoY) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total revenues | $298,648 | $294,056 | +1.6% | $716,460 | $689,130 | +4.0% | | Income (loss) from operations | $10,257 | $(13,385) | N/A | $14,437 | $(9,491) | N/A | | Net income (loss) | $3,922 | $(17,966) | N/A | $664 | $(21,547) | N/A | | Basic earnings (loss) per share | $0.24 | $(1.13) | N/A | $0.04 | $(1.37) | N/A | | Diluted earnings (loss) per share | $0.24 | $(1.13) | N/A | $0.04 | $(1.37) | N/A | Condensed Consolidated Statements of Stockholders' Equity Tracks changes in the company's equity accounts, including common stock, paid-in capital, and accumulated deficit Condensed Consolidated Statements of Stockholders' Equity (in thousands) | (in thousands) | Balance, December 25, 2022 | Balance, July 9, 2023 | Change | | :--- | :--- | :--- | :--- | | Common Stock Amount | $20 | $20 | $0 | | Treasury Stock Amount | $(182,810) | $(172,546) | $10,264 | | Paid-in Capital | $238,803 | $229,098 | $(9,705) | | Accumulated Other Comprehensive Income/(Loss), net of tax | $(34) | $(22) | $12 | | Accumulated Deficit | $(54,190) | $(53,524) | $666 | | Total Stockholders' Equity | $1,789 | $3,026 | $1,237 | - Total stockholders' equity increased from $1.8 million at December 25, 2022, to $3.0 million at July 9, 2023, primarily due to net income and changes in treasury stock and paid-in capital[15] Condensed Consolidated Statements of Cash Flows Categorizes cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | (in thousands) | Twenty-Eight Weeks Ended July 9, 2023 | Twenty-Eight Weeks Ended July 10, 2022 | Change (YoY) | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $18,225 | $36,439 | $(18,214) | | Net cash used in investing activities | $(98) | $(15,624) | $15,526 | | Net cash provided by (used in) financing activities | $(20,086) | $15,455 | $(35,541) | | Net change in cash and cash equivalents, and restricted cash | $(1,959) | $36,264 | $(38,223) | | Cash and cash equivalents, and restricted cash, end of period | $56,247 | $59,014 | $(2,767) | Notes to Condensed Consolidated Financial Statements Provides detailed explanations and additional information supporting the condensed consolidated financial statements - The Company operates 418 owned and 91 franchised full-service restaurants across North America as of July 9, 2023[23][74] - An immaterial restatement was made for prior period financial statements due to a multi-year error in gift card breakage revenue recognition, which had overstated total revenues[28][157] 1. Basis of Presentation and Recent Accounting Pronouncements Outlines company operations and details an immaterial restatement for gift card revenue - The Company operates 418 owned and 91 franchised full-service restaurants in 39 states and one Canadian province as of July 9, 2023[23] - An immaterial restatement was performed for prior period financial statements due to a multi-year error in gift card breakage revenue recognition, which had overstated total revenues; the cumulative impact of the error correction on unearned revenue was an increase of $3.6 million as of December 25, 2022[28][29] 2. Revenue Disaggregates total revenues by source and details components of unearned revenue Disaggregation of Revenue (in thousands) | (in thousands) | Twelve Weeks Ended July 9, 2023 | Twelve Weeks Ended July 10, 2022 | Twenty-Eight Weeks Ended July 9, 2023 | Twenty-Eight Weeks Ended July 10, 2022 | | :--- | :--- | :--- | :--- | :--- | | Restaurant revenue | $293,281 | $288,621 | $700,174 | $669,218 | | Franchise revenue | $3,544 | $4,362 | $8,826 | $10,642 | | Gift card breakage | $533 | $282 | $5,342 | $7,640 | | Other revenue | $1,290 | $791 | $2,118 | $1,630 | | Total revenues | $298,648 | $294,056 | $716,460 | $689,130 | Unearned Revenue Components (in thousands) | (in thousands) | July 9, 2023 | December 25, 2022 | | :--- | :--- | :--- | | Unearned gift card revenue | $22,185 | $35,837 | | Deferred loyalty revenue | $11,623 | $11,107 | 3. Leases Provides a breakdown of operating, finance, and variable lease costs for the reporting periods Lease Expense (in thousands) | (in thousands) | Twelve Weeks Ended July 9, 2023 | Twelve Weeks Ended July 10, 2022 | Twenty-Eight Weeks Ended July 9, 2023 | Twenty-Eight Weeks Ended July 10, 2022 | | :--- | :--- | :--- | :--- | :--- | | Operating lease cost | $16,279 | $16,422 | $37,174 | $38,111 | | Total finance lease cost | $332 | $391 | $833 | $878 | | Variable lease cost | $4,477 | $4,682 | $10,269 | $11,007 | | Total lease cost | $21,088 | $21,495 | $48,276 | $49,996 | 4. Earnings (Loss) Per Share Presents basic and diluted earnings per share calculations, including weighted average shares outstanding Weighted Average Shares Outstanding (in thousands) | (in thousands) | Twelve Weeks Ended July 9, 2023 | Twelve Weeks Ended July 10, 2022 | Twenty-Eight Weeks Ended July 9, 2023 | Twenty-Eight Weeks Ended July 10, 2022 | | :--- | :--- | :--- | :--- | :--- | | Basic weighted average shares outstanding | 16,037 | 15,830 | 16,014 | 15,783 | | Dilutive effect of stock options and awards | 254 | — | 353 | — | | Diluted weighted average shares outstanding | 16,291 | 15,830 | 16,367 | 15,783 | 5. Other Charges (Gains), net Details non-operating charges and gains, including sale-leaseback transactions and asset impairments Other Charges (Gains), net (in thousands) | (in thousands) | Twelve Weeks Ended July 9, 2023 | Twelve Weeks Ended July 10, 2022 | Twenty-Eight Weeks Ended July 9, 2023 | Twenty-Eight Weeks Ended July 10, 2022 | | :--- | :--- | :--- | :--- | :--- | | Gain on sale leaseback, net of expenses | $(14,586) | $— | $(14,586) | $— | | Litigation contingencies | $1,240 | $(1,806) | $5,540 | $(86) | | Restaurant closure costs, net | $(112) | $930 | $1,638 | $1,879 | | Severance and executive transition | $962 | $129 | $2,854 | $129 | | Asset impairment | $1,693 | $8,739 | $2,387 | $10,861 | | Other charges (gains), net | $(10,607) | $8,146 | $(848) | $13,453 | - During Q2 2023, the Company sold nine restaurant properties in a sale-leaseback transaction, generating $28.5 million in proceeds and a $14.6 million gain[40] - The Company recognized non-cash impairment charges of $1.7 million related to restaurant assets at four Company-owned restaurants and $0.7 million for its closed corporate office during the twenty-eight weeks ended July 9, 2023[44] 6. Borrowings Summarizes the company's debt structure, including its credit facility and recent amendments Borrowings Summary (in thousands) | (in thousands) | July 9, 2023 | December 25, 2022 | | :--- | :--- | :--- | | Revolving line of credit | $— | $15,000 | | Term loan | $197,500 | $199,000 | | Notes payable | $875 | $875 | | Total borrowings | $198,375 | $214,875 | | Long-term debt (net of unamortized debt issuance costs and current portion) | $188,090 | $203,155 | - The Company's Credit Agreement, established March 4, 2022, provides a $25.0 million revolving line of credit and a $200.0 million term loan, maturing on March 4, 2027[49][50] - On July 17, 2023, the Credit Agreement was amended to remove the $50.0 million cap on sale-leasebacks of Company-owned real property, allowing for reinvestment of proceeds up to the prior cap and mandatory prepayment for amounts exceeding it[55] 7. Fair Value Measurements Describes fair value measurement of assets and liabilities, including investments and the credit facility Assets Measured at Fair Value on a Recurring Basis (in thousands) | (in thousands) | July 9, 2023 | December 25, 2022 | | :--- | :--- | :--- | | Investments in rabbi trust | $2,994 | $4,250 | - Non-financial assets, such as property, plant, equipment, and right-of-use assets, are measured at fair value on a nonrecurring basis if impaired, using Level 3 fair value measurements based on unobservable inputs[61][62] - As of July 9, 2023, the fair value of the credit facility was approximately $196.7 million, compared to a principal carrying value of $197.5 million[64] 8. Commitments and Contingencies Outlines the company's legal loss contingencies and non-cancellable purchase commitments - As of July 9, 2023, the Company had $10.1 million in loss contingencies, primarily for employment-related claims, class action lawsuits, and other commercial disputes[67] - The Company had non-cancellable purchase commitments totaling $127.7 million for food, beverages, and other supplies as of July 9, 2023[68] 9. Acquisition of Franchised Restaurants Details the acquisition of five franchised restaurants and the allocation of the purchase price - On April 17, 2023, the Company acquired five franchised restaurants for $3.5 million in cash, resulting in goodwill primarily from the assembled workforce[70][71] Acquisition Purchase Price Allocation (in thousands) | (in thousands) | Fair Value at Acquisition Date | | :--- | :--- | | Property and equipment, net | $2,637 | | Operating lease assets, net | $(850) | | Other assets, net of liabilities | $299 | | Intangible assets, net | $1,443 | | Total purchase price | $3,529 | - The company discovered a multi-year error in gift card revenue recognition, primarily related to breakage revenue for bonus and discounted gift cards, leading to an overstatement of total revenues in prior periods; this error was deemed immaterial to prior periods but required correction for comparative purposes in the current filing[28][157] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes financial performance, revenue growth, improved net income, Adjusted EBITDA, and changes in costs, liquidity, and capital - Total revenues increased by 1.6% to $298.6 million for the twelve weeks and by 4.0% to $716.5 million for the twenty-eight weeks ended July 9, 2023, compared to prior year periods[76][90] - Net income significantly improved, reaching $3.9 million for the twelve weeks and $0.7 million for the twenty-eight weeks ended July 9, 2023, compared to losses in the prior year; Adjusted EBITDA also saw substantial increases[76][80] - The Company completed a sale-leaseback transaction for nine restaurants, generating $28.5 million in net proceeds and a $14.6 million gain, which was used to repay $15.5 million of debt and repurchase $5.0 million of stock[76] Overview Provides a high-level summary of the company's business, key financial highlights, and operational achievements - Red Robin operates 418 Company-owned and 91 franchised restaurants across North America as of July 9, 2023[74] Highlights for Q2 2023 vs. Q2 2022 | Metric | Q2 2023 | Q2 2022 | Change | | :--- | :--- | :--- | :--- | | Total revenues | $298.6 million | $294.0 million | +$4.6 million | | Comparable restaurant revenue growth | +1.5% | N/A | N/A | | Comparable restaurant dine-in sales growth | +5.9% | N/A | N/A | | Net income | $3.9 million | $(17.9) million | +$21.9 million | | Adjusted EBITDA | $15.5 million | $11.8 million | +$3.7 million | Highlights for YTD 2023 vs. YTD 2022 | Metric | YTD 2023 | YTD 2022 | Change | | :--- | :--- | :--- | :--- | | Total revenues | $716.5 million | $689.1 million | +$27.3 million | | Comparable restaurant revenue growth | +5.5% | N/A | N/A | | Comparable restaurant dine-in sales growth | +11.8% | N/A | N/A | | Net income | $0.7 million | $(21.5) million | +$22.2 million | | Adjusted EBITDA | $51.5 million | $39.8 million | +$11.6 million | - The Company completed a sale-leaseback transaction for nine restaurants, generating $28.5 million in net proceeds and a $14.6 million gain, and subsequently repaid $15.5 million of debt and repurchased $5.0 million of stock[76] Description of Business Describes Red Robin Gourmet Burgers, Inc.'s operations as a full-service restaurant operator and franchisor - Red Robin Gourmet Burgers, Inc. operates and franchises full-service restaurants, with 418 Company-owned and 91 franchised locations in North America as of July 9, 2023[74] Highlights for the Second Quarter of Fiscal 2023, Compared to the Second Quarter of Fiscal 2022 Summarizes key financial and operational achievements for Q2 fiscal 2023 versus the prior year Q2 2023 Financial Highlights (YoY Change) | Metric | Q2 2023 Value | YoY Change | | :--- | :--- | :--- | | Total revenues | $298.6 million | +$4.6 million | | Comparable restaurant revenue | +1.5% | N/A | | Comparable restaurant dine-in sales | +5.9% | N/A | | Net income | $3.9 million | +$21.9 million | | Adjusted EBITDA | $15.5 million | +$3.7 million | - The Company achieved its tenth consecutive quarter of comparable restaurant revenue growth[76] - A sale-leaseback transaction for nine restaurants generated $28.5 million in net proceeds and a $14.6 million gain, enabling $15.5 million in debt repayment and $5.0 million in stock repurchases[76] Highlights for the Year to Date Period of Fiscal 2023, Compared to the Year to Date Period of Fiscal 2022 Summarizes key financial and operational achievements for YTD fiscal 2023 versus the prior year YTD 2023 Financial Highlights (YoY Change) | Metric | YTD 2023 Value | YoY Change | | :--- | :--- | :--- | | Total revenues | $716.5 million | +$27.3 million | | Comparable restaurant revenue | +5.5% | N/A | | Comparable restaurant dine-in sales | +11.8% | N/A | | Net income | $0.7 million | +$22.2 million | | Adjusted EBITDA | $51.5 million | +$11.6 million | Results of Operations Analyzes the company's revenue and expense trends, detailing changes in key operating cost categories Key Operating Results as % of Revenue | Metric (% of Revenue) | Twelve Weeks Ended July 9, 2023 | Twelve Weeks Ended July 10, 2022 | Twenty-Eight Weeks Ended July 9, 2023 | Twenty-Eight Weeks Ended July 10, 2022 | | :--- | :--- | :--- | :--- | :--- | | Restaurant revenue | 98.2% | 98.2% | 97.7% | 97.1% | | Franchise and other revenues | 1.8% | 1.8% | 2.3% | 2.9% | | Total revenues | 100.0% | 100.0% | 100.0% | 100.0% | | Cost of sales | 24.3% | 25.2% | 24.4% | 24.5% | | Labor | 37.4% | 35.2% | 36.4% | 35.8% | | Other operating | 17.7% | 18.0% | 17.7% | 17.9% | | Occupancy | 8.0% | 8.0% | 7.6% | 8.0% | | Depreciation and amortization | 5.3% | 6.0% | 5.2% | 6.0% | | Selling, general, and administrative expenses | 9.0% | 10.9% | 8.6% | 9.6% | | Income (loss) from operations | 3.4% | (4.6)% | 2.0% | (1.4)% | | Net income (loss) | 1.3% | (6.1)% | 0.1% | (3.1)% | Revenues Analyzes the drivers of changes in restaurant, franchise, and total revenues for the reporting periods Revenue Performance (in thousands) | (in thousands) | Twelve Weeks Ended July 9, 2023 | Twelve Weeks Ended July 10, 2022 | Percent Change | Twenty-Eight Weeks Ended July 9, 2023 | Twenty-Eight Weeks Ended July 10, 2022 | Percent Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Restaurant revenue | $293,281 | $288,621 | 1.6% | $700,174 | $669,218 | 4.6% | | Franchise and other revenues | $5,367 | $5,435 | (1.3)% | $16,286 | $19,912 | (18.2)% | | Total revenues | $298,648 | $294,056 | 1.6% | $716,460 | $689,130 | 4.0% | | Average weekly net sales volumes (Company-owned) | $58,477 | $56,633 | 3.3% | $60,124 | $56,123 | 7.1% | - Restaurant revenue increased by 1.6% for the twelve weeks and 4.6% for the twenty-eight weeks, driven by a 7.5% (12-week) and 7.7% (28-week) increase in average Guest check due to menu pricing, partially offset by a decrease in Guest count and menu mix shifts from third-party delivery to dine-in[91][92] - Franchise and other revenue decreased by 1.3% (12-week) and 18.2% (28-week), primarily due to a reduction in the percentage of sales franchisees contribute to Selling activities, aligning with a focus on local marketing[94] Cost of Sales Examines changes in cost of sales, both in absolute terms and as a percentage of restaurant revenue Cost of Sales Performance (in thousands) | (in thousands) | Twelve Weeks Ended July 9, 2023 | Twelve Weeks Ended July 10, 2022 | Percent Change | Twenty-Eight Weeks Ended July 9, 2023 | Twenty-Eight Weeks Ended July 10, 2022 | Percent Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Cost of sales | $71,372 | $72,702 | (1.8)% | $171,042 | $163,643 | 4.5% | | As a percent of restaurant revenue | 24.3% | 25.2% | (0.9)% | 24.4% | 24.5% | (0.1)% | - Cost of sales as a percentage of restaurant revenue decreased by 90 basis points for the twelve weeks and 10 basis points for the twenty-eight weeks, primarily due to menu pricing, partially offset by commodity inflation[95][96] Labor Details changes in labor costs and their impact on restaurant revenue percentage Labor Costs Performance (in thousands) | (in thousands) | Twelve Weeks Ended July 9, 2023 | Twelve Weeks Ended July 10, 2022 | Percent Change | Twenty-Eight Weeks Ended July 9, 2023 | Twenty-Eight Weeks Ended July 10, 2022 | Percent Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Labor | $109,678 | $101,643 | 7.9% | $255,100 | $239,751 | 6.4% | | As a percent of restaurant revenue | 37.4% | 35.2% | 2.2% | 36.4% | 35.8% | 0.6% | - Labor costs as a percentage of restaurant revenue increased by 220 basis points for the twelve weeks and 60 basis points for the twenty-eight weeks, primarily due to investments in hourly labor, payroll taxes, and incentive compensation, partially offset by group insurance and sales leverage[98][99] Other Operating Analyzes changes in other operating expenses and their proportion to restaurant revenue Other Operating Costs Performance (in thousands) | (in thousands) | Twelve Weeks Ended July 9, 2023 | Twelve Weeks Ended July 10, 2022 | Percent Change | Twenty-Eight Weeks Ended July 9, 2023 | Twenty-Eight Weeks Ended July 10, 2022 | Percent Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Other operating | $51,842 | $52,003 | (0.3)% | $123,892 | $119,867 | 3.4% | | As a percent of restaurant revenue | 17.7% | 18.0% | (0.3)% | 17.7% | 17.9% | (0.2)% | - Other operating costs as a percentage of restaurant revenue decreased by 30 basis points for the twelve weeks and 20 basis points for the twenty-eight weeks, driven by reduced third-party commission expenses, lower supplies costs, and lower contract janitorial expenses, partially offset by higher repairs and maintenance[100][101] Occupancy Reviews changes in occupancy costs and their relationship to restaurant revenue Occupancy Costs Performance (in thousands) | (in thousands) | Twelve Weeks Ended July 9, 2023 | Twelve Weeks Ended July 10, 2022 | Percent Change | Twenty-Eight Weeks Ended July 9, 2023 | Twenty-Eight Weeks Ended July 10, 2022 | Percent Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Occupancy | $23,482 | $22,980 | 2.2% | $53,283 | $53,579 | (0.6)% | | As a percent of restaurant revenue | 8.0% | 8.0% | 0.0% | 7.6% | 8.0% | (0.4)% | - Occupancy costs as a percentage of restaurant revenue remained flat for the twelve weeks but decreased by 40 basis points for the twenty-eight weeks, primarily due to sales leverage and the impact of closed restaurants, despite increased insurance costs[102][104] Depreciation and Amortization Discusses trends in depreciation and amortization expense relative to total revenues Depreciation and Amortization Performance (in thousands) | (in thousands) | Twelve Weeks Ended July 9, 2023 | Twelve Weeks Ended July 10, 2022 | Percent Change | Twenty-Eight Weeks Ended July 9, 2023 | Twenty-Eight Weeks Ended July 10, 2022 | Percent Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Depreciation and amortization | $15,756 | $17,637 | (10.7)% | $37,581 | $41,556 | (9.6)% | | As a percent of total revenues | 5.3% | 6.0% | (0.7)% | 5.2% | 6.0% | (0.8)% | - Depreciation and amortization expense as a percentage of revenue decreased by 70 basis points for the twelve weeks and 80 basis points for the twenty-eight weeks, primarily due to net Company-owned restaurant closures, asset impairments, and sales leverage[107][108] Selling, General, and Administrative Analyzes changes in selling, general, and administrative expenses and their impact on total revenues Selling, General, and Administrative Costs Performance (in thousands) | (in thousands) | Twelve Weeks Ended July 9, 2023 | Twelve Weeks Ended July 10, 2022 | Percent Change | Twenty-Eight Weeks Ended July 9, 2023 | Twenty-Eight Weeks Ended July 10, 2022 | Percent Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Selling, general, and administrative | $26,864 | $32,095 | (16.3)% | $61,387 | $66,475 | (7.7)% | | As a percent of total revenues | 9.0% | 10.9% | (1.9)% | 8.6% | 9.6% | (1.0)% | - General and administrative costs increased by $1.9 million (12-week) and $4.3 million (28-week) due to higher incentive compensation, lower capitalized costs, and increased travel, partially offset by reduced wages and stock compensation from a reduction in force[110][111] - Selling costs decreased by $7.2 million (12-week) and $9.4 million (28-week) due to lower internet, local media, and Donatos marketing spend[111][112] Pre-opening Costs Details fluctuations in pre-opening costs related to new restaurant openings and Donatos rollouts Pre-opening Costs Performance (in thousands) | (in thousands) | Twelve Weeks Ended July 9, 2023 | Twelve Weeks Ended July 10, 2022 | Percent Change | Twenty-Eight Weeks Ended July 9, 2023 | Twenty-Eight Weeks Ended July 10, 2022 | Percent Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Pre-opening costs | $4 | $235 | (98.3)% | $586 | $297 | 97.3% | | As a percent of total revenues | 0.0% | 0.1% | (0.1)% | 0.1% | 0.0% | 0.1% | - Pre-opening costs decreased significantly for the twelve weeks due to no new restaurant openings or Donatos rollouts, but increased for the twenty-eight weeks due to one new restaurant opening and the rollout of 25 Donatos locations[112] Interest Expense, Net and Other Explains changes in net interest expense and other related financial items - Interest expense, net and other, increased by $2.1 million to $6.2 million for the twelve weeks and by $2.0 million to $13.6 million for the twenty-eight weeks, primarily due to a higher weighted average interest rate (11.1% vs 8.7% for 12 weeks; 12.3% vs 8.4% for 28 weeks) and higher average outstanding debt[113][114] - Interest income and other shifted from income to expense, decreasing by $0.3 million (12-week) and $0.9 million (28-week), due to investment losses related to the deferred compensation plan held in a rabbi trust[115][116] Income Tax Provision Discusses the effective tax rate and its primary drivers for the reporting periods - The effective tax rate was a 3.8% benefit for the twelve weeks ended July 9, 2023, compared to a 2.5% expense in the prior year, and a 21.0% benefit for the twenty-eight weeks, compared to a 2.4% expense in the prior year, primarily due to changes in the valuation allowance[117][118] Liquidity and Capital Resources Assesses the company's ability to generate and manage cash, including cash flow activities, debt, and share repurchases - Cash and cash equivalents, and restricted cash decreased by $2.0 million to $56.2 million as of July 9, 2023[119] - The Company had approximately $69.0 million in liquidity as of July 9, 2023, including cash and available borrowing capacity under its Credit Facility[119] - The Company resumed its share repurchase program in May 2023, repurchasing 382,017 shares for $5.0 million during Q2 2023, with $63.4 million remaining under authorization[133][134] Cash Flows Provides a summary of cash flows from operating, investing, and financing activities Summary of Cash Flows (in thousands) | (in thousands) | Twenty-Eight Weeks Ended July 9, 2023 | Twenty-Eight Weeks Ended July 10, 2022 | Change (YoY) | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $18,225 | $36,439 | $(18,214) | | Net cash used in investing activities | $(98) | $(15,624) | $15,526 | | Net cash provided by (used in) financing activities | $(20,086) | $15,455 | $(35,541) | | Net change in cash and cash equivalents, and restricted cash | $(1,959) | $36,264 | $(38,223) | Operating Cash Flows Analyzes changes in net cash provided by operating activities and their underlying causes - Net cash provided by operating activities decreased by $18.2 million to $18.2 million for the twenty-eight weeks ended July 9, 2023, primarily due to an income tax refund received in 2022, and severance and higher interest payments in 2023[122] Investing Cash Flows Details changes in net cash used in investing activities, including capital expenditures and asset sales - Net cash used in investing activities decreased by $15.5 million to $0.1 million for the twenty-eight weeks ended July 9, 2023, mainly due to proceeds from real estate sales, partially offset by increased Donatos installations, restaurant improvements, and the acquisition of five franchised restaurants[123] Capital Expenditures (in thousands) | (in thousands) | Twenty-Eight Weeks Ended July 9, 2023 | Twenty-Eight Weeks Ended July 10, 2022 | | :--- | :--- | :--- | | Restaurant improvement capital and other | $12,045 | $7,379 | | Donatos® expansion | $7,440 | $2,872 | | Technology, infrastructure, and other | $5,066 | $4,877 | | New restaurants and restaurant refreshes | $1,263 | $765 | | Total capital expenditures | $25,814 | $15,893 | Financing Cash Flows Explains shifts in net cash provided by or used in financing activities, primarily debt and share repurchases - Net cash used in financing activities was $20.1 million for the twenty-eight weeks ended July 9, 2023, a significant shift from $15.5 million provided in the prior year, primarily due to debt repayment from sale-leaseback proceeds and standard principal payments[124][125] Credit Facility Outlines the company's credit facility, outstanding borrowings, and available borrowing capacity - As of July 9, 2023, the Company had $190.1 million in outstanding borrowings under its Credit Facility (net of unamortized deferred financing charges and discounts) and $25.0 million of available borrowing capacity[127] Covenants Confirms the company's compliance with debt covenants and lists key restrictions - The Company was in compliance with all debt covenants under its Credit Facility as of July 9, 2023, which include limitations on borrowings, acquisitions, stock repurchases, asset sales, dividend payments, and a Total Net Leverage ratio covenant[129] Debt Outstanding Details total debt outstanding and its changes over the reporting period - Total debt outstanding decreased by $16.5 million to $198.4 million at July 9, 2023, from $214.9 million at December 25, 2022, primarily due to long-term debt payments[130] Working Capital Discusses the company's working capital position and its sufficiency for future operations - The Company typically operates with a working capital deficit due to rapid inventory turnover and cash receipts preceding payable due dates, but believes future operating cash flows and credit facility capacity will be sufficient to cover deficits and capital expenditures[131] Share Repurchase Provides details on the company's share repurchase program, including activity and remaining authorization - The Company resumed its $75 million share repurchase program in May 2023, repurchasing 382,017 shares for $5.0 million during Q2 2023[133] - As of July 9, 2023, $63.4 million remained available under the current share repurchase program[134] Seasonality Describes seasonal fluctuations affecting the company's business and operating results - The Company's business is subject to seasonal fluctuations, with historically higher sales during summer and winter holidays and lower sales in the fall, leading to potential quarterly operating result variations[135] Contractual Obligations Outlines the company's current purchase obligations for food, beverage, and other supplies - As of July 9, 2023, the Company had $132.1 million in current purchase obligations for system-wide fixed price commitments for food, beverage, equipment, and restaurant supplies, with $19.4 million due in 2023[136] Critical Accounting Policies and Estimates Confirms no significant changes to critical accounting policies and estimates from the prior annual report - There were no significant changes in the Company's critical accounting policies and estimates from those disclosed in its 2022 Annual Report on Form 10-K[137] Recently Issued and Recently Adopted Accounting Standards Notes the absence of recently issued or adopted accounting standards impacting the company - No recently issued or adopted accounting standards were noted in the report[138] Forward-Looking Statements Identifies forward-looking statements within the report and highlights associated risks and uncertainties - The report contains forward-looking statements regarding business objectives, strategic plans, working capital, share repurchase programs, restaurant operating costs, capital investments (including Donatos® partnership), liquidity, seasonality, litigation, interest rates, commodity prices, and sale-leaseback transactions[139] - These statements are subject to known and unknown risks and uncertainties, including the effectiveness of strategic initiatives, economic conditions, changes in consumer spending, cost fluctuations, capital availability, regulatory impacts, and legal claims[140][141][144] Item 3. Quantitative and Qualitative Disclosures About Market Risk Discusses exposure to interest rate and commodity price risks, quantifying potential impacts and noting no material changes - There has been no material change in interest rate risk or commodity price risk since the 2022 Form 10-K filing[145] - As of July 9, 2023, $197.5 million of borrowings were subject to variable interest rates; a 1.0% change in the effective interest rate would result in a $2.0 million pre-tax interest expense fluctuation annually[146] - A 1.0% increase in food and beverage costs would negatively impact cost of sales by approximately $3.2 million on an annualized basis, given the Company's dependence on key commodities like ground beef, poultry, and potatoes[147] Item 4. Controls and Procedures Confirms effectiveness of disclosure controls and procedures and reports no material changes in internal control over financial reporting - The Company's CEO and CFO concluded that disclosure controls and procedures were effective as of July 9, 2023[148] - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[149] Evaluation of Disclosure Controls and Procedures Confirms the effectiveness of the company's disclosure controls and procedures as assessed by management - 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, providing reasonable assurance of achieving control objectives[148] Changes in Internal Control Over Financial Reporting States that no material changes occurred in internal control over financial reporting during the quarter - There were no changes in the Company's internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[149] PART II - OTHER INFORMATION Provides additional information on legal proceedings, risk factors, equity sales, and an immaterial correction to prior period financial statements Item 1. Legal Proceedings Refers to Note 8 for details on legal proceedings and contingencies, emphasizing litigation unpredictability and loss assessment - The Company reviews and assesses litigation contingencies quarterly, making provisions for potential losses, and believes adequate provision has been made in the financial statements[152] - Further details on litigation contingencies are provided in Note 8. Commitments and Contingencies[153] Item 1A. Risk Factors States no material changes to risk factors previously disclosed in the 2022 Annual Report on Form 10-K - No material changes have occurred in the risk factors since the filing of the fiscal year 2022 Annual Report on Form 10-K[154] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Confirms no unregistered equity sales and details the resumed share repurchase program, including shares bought and remaining authorization - No unregistered sales of equity securities occurred during the twelve weeks ended July 9, 2023[155] - The Company resumed its $75 million share repurchase program in May 2023, repurchasing 382,017 shares for $5.0 million during Q2 2023[155][156] - As of July 9, 2023, $63.4 million remained available under the share repurchase program[156] Item 5. Other Information Details the immaterial correction of prior period financial statements due to a gift card revenue recognition error - The Company corrected a multi-year error in gift card breakage revenue recognition, which had overstated total revenues in prior periods, including $0.2 million for the sixteen weeks ended April 16, 2023, and $1.1 million for the year ended December 25, 2022[157] - The cumulative effect of the error correction on unearned revenue was an increase of $3.6 million as of December 25, 2022, and increased net loss by $1.1 million for the year ended December 25, 2022[157][161] Immaterial Correction of Prior Period Financial Statements Details the correction of a multi-year error in gift card revenue recognition and its impact on financial statements - The Company discovered and corrected a multi-year error in gift card revenue recognition, primarily related to breakage revenue for bonus and discounted gift cards, which had led to an overstatement of total revenues in prior periods[157] Corrected Condensed Consolidated Statements of Operations and Comprehensive Loss (Sixteen Weeks Ended April 16, 2023) | (in thousands) | As Previously Reported | Adjustment | As Corrected | | :--- | :--- | :--- | :--- | | Franchise and other revenues | $11,075 | $(156) | $10,919 | | Total revenues | $417,968 | $(156) | $417,812 | | Net loss | $(3,100) | $(156) | $(3,256) | | Adjusted EBITDA | $36,080 | $(156) | $35,924 | Corrected Consolidated Balance Sheets (December 25, 2022) | (in thousands) | As Previously Reported | Adjustment | As Corrected | | :--- | :--- | :--- | :--- | | Unearned revenue | $43,358 | $3,586 | $46,944 | | Total liabilities | $826,770 | $3,586 | $830,356 | | Accumulated deficit | $(50,604) | $(3,586) | $(54,190) | | Total stockholders' equity | $5,375 | $(3,586) | $1,789 | Item 6. Exhibits Lists all exhibits filed with the Form 10-Q, including corporate documents, credit agreement amendments, and various certifications - Key exhibits include the Restated Certificate of Incorporation, Fifth Amended and Restated Bylaws, Amendment No. 1 to the Credit Agreement, and Severance Agreement for Wayne Davis[177] - The filing includes Rule 13a-14(a) Certifications from the CEO and CFO, Section 1350 Certifications, and XBRL formatted financial information[177] Signature Contains the CFO's signature, certifying the report's due authorization and filing on August 17, 2023 - The report was signed on behalf of Red Robin Gourmet Burgers, Inc. by Todd Wilson, Chief Financial Officer, on August 17, 2023[180]