UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 29,~~September 28, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-35987

NOODLES & COMPANY

(Exact name of registrant as specified in its charter)


Delaware						84-1303469
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


520 Zang Street, Suite D
Broomfield, CO						80021
(Address of principal executive offices)						(Zip Code)

(720) 214-1900

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act.


Title of each class	Trading Symbol	Name of each exchange on which registered
Class A Common Stock, $0.01 par value per share	NDLS	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated Filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class						Outstanding at ~~July 30,~~November 5, 2021
Class A Common Stock, $0.01 par value per share						~~45,634,224~~45,689,485 shares

Table of Contents

TABLE OF CONTENTS

Table of Contents

PART I

Item 1. Financial Statements

Noodles & Company

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)


		June 29, 2021		December 29, 2020			September 28, 2021		December 29, 2020
		(unaudited)					(unaudited)
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	17,324	$	7,840	Cash and cash equivalents	$	3,149	$	7,840
Accounts receivable	Accounts receivable	4,348		3,428		Accounts receivable	3,852		3,428
Inventories	Inventories	9,527		9,643		Inventories	9,708		9,643
Prepaid expenses and other assets	Prepaid expenses and other assets	3,695		2,759		Prepaid expenses and other assets	4,686		2,759
Income tax receivable	Income tax receivable	70		44		Income tax receivable	66		44
Total current assets	Total current assets	34,964		23,714		Total current assets	21,461		23,714
Property and equipment, net	Property and equipment, net	122,399		122,917		Property and equipment, net	121,591		122,917
Operating lease assets, net	Operating lease assets, net	191,410		195,618		Operating lease assets, net	190,134		195,618
Goodwill	Goodwill	7,154		7,154		Goodwill	7,154		7,154
Intangibles, net	Intangibles, net	732		757		Intangibles, net	722		757
Other assets, net	Other assets, net	3,496		3,471		Other assets, net	3,437		3,471
Total long-term assets	Total long-term assets	325,191		329,917		Total long-term assets	323,038		329,917
Total assets	Total assets	$	360,155	$	353,631	Total assets	$	344,499	$	353,631
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	12,586	$	6,402	Accounts payable	$	12,440	$	6,402
Accrued payroll and benefits	Accrued payroll and benefits	18,241		12,876		Accrued payroll and benefits	15,169		12,876
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	12,293		11,632		Accrued expenses and other current liabilities	12,441		11,632
Current operating lease liabilities	Current operating lease liabilities	26,141		26,094		Current operating lease liabilities	26,757		26,094
Current portion of long-term debt	Current portion of long-term debt	1,500		1,125		Current portion of long-term debt	1,500		1,125
Total current liabilities	Total current liabilities	70,761		58,129		Total current liabilities	68,307		58,129
Long-term debt, net	Long-term debt, net	35,754		40,949		Long-term debt, net	20,789		40,949
Long-term operating lease liabilities, net	Long-term operating lease liabilities, net	206,977		210,454		Long-term operating lease liabilities, net	203,589		210,454
Deferred tax liabilities, net	Deferred tax liabilities, net	256		240		Deferred tax liabilities, net	281		240
Other long-term liabilities	Other long-term liabilities	10,964		14,160		Other long-term liabilities	10,431		14,160
Total liabilities	Total liabilities	324,712		323,932		Total liabilities	303,397		323,932

Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock—$0.01 par value, 1,000,000 shares authorized and undesignated as of June 29, 2021 and December 29, 2020; 0 shares issued or outstanding		0		0
Common stock—$0.01 par value, 180,000,000 shares authorized as of June 29, 2021 and December 29, 2020; 48,011,761 issued and 45,587,890 outstanding as of June 29, 2021 and 46,807,587 issued and 44,383,716 outstanding as of December 29, 2020		480		468
Treasury stock, at cost, 2,423,871 shares as of June 29, 2021 and December 29, 2020		(35,000)		(35,000)
Preferred stock—$0.01 par value, 1,000,000 shares authorized and undesignated as of September 28, 2021 and December 29, 2020; no shares issued or outstanding						Preferred stock—$0.01 par value, 1,000,000 shares authorized and undesignated as of September 28, 2021 and December 29, 2020; no shares issued or outstanding	—		—
Common stock—$0.01 par value, 180,000,000 shares authorized as of September 28, 2021 and December 29, 2020; 48,065,916 issued and 45,642,045 outstanding as of September 28, 2021 and 46,807,587 issued and 44,383,716 outstanding as of December 29, 2020						Common stock—$0.01 par value, 180,000,000 shares authorized as of September 28, 2021 and December 29, 2020; 48,065,916 issued and 45,642,045 outstanding as of September 28, 2021 and 46,807,587 issued and 44,383,716 outstanding as of December 29, 2020	481		468
Treasury stock, at cost, 2,423,871 shares as of September 28, 2021 and December 29, 2020						Treasury stock, at cost, 2,423,871 shares as of September 28, 2021 and December 29, 2020	(35,000)		(35,000)
Additional paid-in capital	Additional paid-in capital	204,996		202,970		Additional paid-in capital	205,957		202,970
Accumulated deficit	Accumulated deficit	(135,033)		(138,739)		Accumulated deficit	(130,336)		(138,739)
Total stockholders’ equity	Total stockholders’ equity	35,443		29,699		Total stockholders’ equity	41,102		29,699
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	360,155	$	353,631	Total liabilities and stockholders’ equity	$	344,499	$	353,631

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Noodles & Company

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data, unaudited)


		Fiscal Quarter Ended				Two Fiscal Quarters Ended					Fiscal Quarter Ended				Three Fiscal Quarters Ended
		June 29, 2021		June 30, 2020		June 29, 2021		June 30, 2020			September 28, 2021		September 29, 2020		September 28, 2021		September 29, 2020
Revenue:	Revenue:									Revenue:
Restaurant revenue	Restaurant revenue	$	123,715	$	80,021	$	231,459	$	178,737	Restaurant revenue	$	123,094	$	104,413	$	354,553	$	283,150
Franchising royalties and fees, and other	Franchising royalties and fees, and other	1,934		136		3,767		1,768		Franchising royalties and fees, and other	2,032		1,569		5,799		3,337
Total revenue	Total revenue	125,649		80,157		235,226		180,505		Total revenue	125,126		105,982		360,352		286,487
Costs and expenses:	Costs and expenses:									Costs and expenses:
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):	Restaurant operating costs (exclusive of depreciation and amortization shown separately below):									Restaurant operating costs (exclusive of depreciation and amortization shown separately below):
Cost of sales	Cost of sales	30,805		20,020		57,782		45,224		Cost of sales	30,946		25,900		88,728		71,124
Labor	Labor	36,926		27,137		71,232		61,368		Labor	36,896		31,264		108,128		92,632
Occupancy	Occupancy	11,519		11,676		23,168		23,736		Occupancy	11,426		11,737		34,594		35,473
Other restaurant operating costs	Other restaurant operating costs	21,082		15,789		41,287		32,478		Other restaurant operating costs	21,529		19,383		62,816		51,861
General and administrative	General and administrative	12,978		10,034		23,907		20,588		General and administrative	12,187		10,827		36,094		31,415
Depreciation and amortization	Depreciation and amortization	5,576		5,397		11,163		10,732		Depreciation and amortization	5,571		5,541		16,734		16,273
Pre-opening	Pre-opening	163		71		221		144		Pre-opening	125		239		346		383
Restaurant impairments, closure costs and asset disposals	Restaurant impairments, closure costs and asset disposals	390		2,558		1,621		3,614		Restaurant impairments, closure costs and asset disposals	1,126		369		2,747		3,983
Total costs and expenses	Total costs and expenses	119,439		92,682		230,381		197,884		Total costs and expenses	119,806		105,260		350,187		303,144
Income (loss) from operations	Income (loss) from operations	6,210		(12,525)		4,845		(17,379)		Income (loss) from operations	5,320		722		10,165		(16,657)

Interest expense, net	Interest expense, net	498		920		1,120		1,888		Interest expense, net	594		822		1,714		2,710
Income (loss) before taxes	Income (loss) before taxes	5,712		(13,445)		3,725		(19,267)		Income (loss) before taxes	4,726		(100)		8,451		(19,367)
Provision for income taxes	Provision for income taxes	29		33		19		46		Provision for income taxes	29		27		48		73
Net income (loss)	Net income (loss)	$	5,683	$	(13,478)	$	3,706	$	(19,313)	Net income (loss)	$	4,697	$	(127)	$	8,403	$	(19,440)
Earnings (loss) per Class A and Class B common stock, combined	Earnings (loss) per Class A and Class B common stock, combined									Earnings (loss) per Class A and Class B common stock, combined
Basic	Basic	$	0.12	$	(0.30)	$	0.08	$	(0.44)	Basic	$	0.10	$	—	$	0.19	$	(0.44)
Diluted	Diluted	$	0.12	$	(0.30)	$	0.08	$	(0.44)	Diluted	$	0.10	$	—	$	0.18	$	(0.44)
Weighted average shares of Class A and Class B common stock outstanding, combined:	Weighted average shares of Class A and Class B common stock outstanding, combined:									Weighted average shares of Class A and Class B common stock outstanding, combined:
Basic	Basic	45,506,476		44,212,751		45,303,160		44,177,648		Basic	45,635,455		44,358,763		45,414,332		44,238,400
Diluted	Diluted	46,246,169		44,212,751		45,992,119		44,177,648		Diluted	46,382,509		44,358,763		46,134,994		44,238,400

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Noodles & Company

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data, unaudited)


		Fiscal Quarter Ended													Fiscal Quarter Ended
		Common Stock(1)			Treasury			Additional Paid-In Capital		Accumulated Deficit		Total Stockholders’ Equity			Common Stock(1)			Treasury			Additional Paid-In Capital		Accumulated Deficit		Total Stockholders’ Equity
		Shares	Amount		Shares	Amount									Shares	Amount		Shares	Amount
Balance—March 30, 2021		47,890,488	$	479	2,423,871	$	(35,000)	$	203,362	$	(140,716)	$	28,125
Balance—June 29, 2021														Balance—June 29, 2021	48,011,761	$	480	2,423,871	$	(35,000)	$	204,996	$	(135,033)	$	35,443
Stock plan transactions and other	Stock plan transactions and other	121,273	1		—	—		55		—		56		Stock plan transactions and other	54,155	1		—	—		(203)		—		(202)
Stock-based compensation expense	Stock-based compensation expense	—	—		—	—		1,579		—		1,579		Stock-based compensation expense	—	—		—	—		1,164		—		1,164
Net income	Net income	—	—		—	—		—		5,683		5,683		Net income	—	—		—	—		—		4,697		4,697
Balance—June 29, 2021		48,011,761	$	480	2,423,871	$	(35,000)	$	204,996	$	(135,033)	$	35,443
Balance—September 28, 2021														Balance—September 28, 2021	48,065,916	$	481	2,423,871	$	(35,000)	$	205,957	$	(130,336)	$	41,102

Balance—March 31, 2020		46,583,879	$	466	2,423,871	$	(35,000)	$	200,755	$	(121,315)	$	44,906
Balance—June 30, 2020														Balance—June 30, 2020	46,778,682	$	468	2,423,871	$	(35,000)	$	201,601	$	(134,793)	$	32,276
Stock plan transactions and other	Stock plan transactions and other	194,803	2		—	—		(273)		—		(271)		Stock plan transactions and other	16,852	—		—	—		49		—		49
Stock-based compensation expense	Stock-based compensation expense	—	—		—	—		1,119		—		1,119		Stock-based compensation expense	—	—		—	—		664		—		664
Net loss	Net loss	—	—		—	—		—		(13,478)		(13,478)		Net loss	—	—		—	—		—		(127)		(127)
Balance—June 30, 2020		46,778,682	$	468	2,423,871	$	(35,000)	$	201,601	$	(134,793)	$	32,276
Balance—September 29, 2020														Balance—September 29, 2020	46,795,534	$	468	2,423,871	$	(35,000)	$	202,314	$	(134,920)	$	32,862

		Two Fiscal Quarters Ended													Three Fiscal Quarters Ended
		Common Stock(1)			Treasury			Additional Paid-In Capital		Accumulated Deficit		Total Stockholders’ Equity			Common Stock(1)			Treasury			Additional Paid-In Capital		Accumulated Deficit		Total Stockholders’ Equity
		Shares	Amount		Shares	Amount									Shares	Amount		Shares	Amount
Balance—December 29, 2020	Balance—December 29, 2020	46,807,587	$	468	2,423,871	$	(35,000)	$	202,970	$	(138,739)	$	29,699	Balance—December 29, 2020	46,807,587	$	468	2,423,871	$	(35,000)	$	202,970	$	(138,739)	$	29,699
L Catterton warrants exercised	L Catterton warrants exercised	975,458	10		—	—		(10)		—		0		L Catterton warrants exercised	975,458	10		—	—		(10)		—		—
Stock plan transactions and other	Stock plan transactions and other	228,716	2		—	—		(281)		—		(279)		Stock plan transactions and other	282,871	3		—	—		(484)		—		(481)
Stock-based compensation expense	Stock-based compensation expense	—	—		—	—		2,317		—		2,317		Stock-based compensation expense	—	—		—	—		3,481		—		3,481
Net income	Net income	—	—		—	—		—		3,706		3,706		Net income	—	—		—	—		—		8,403		8,403
Balance—June 29, 2021		48,011,761	$	480	2,423,871	$	(35,000)	$	204,996	$	(135,033)	$	35,443
Balance—September 28, 2021														Balance—September 28, 2021	48,065,916	$	481	2,423,871	$	(35,000)	$	205,957	$	(130,336)	$	41,102

Balance—December 31, 2019	Balance—December 31, 2019	46,557,934	$	466	2,423,871	$	(35,000)	$	200,585	$	(115,480)	$	50,571	Balance—December 31, 2019	46,557,934	$	466	2,423,871	$	(35,000)	$	200,585	$	(115,480)	$	50,571
Stock plan transactions and other	Stock plan transactions and other	220,748	2		—	—		(274)		—		(272)		Stock plan transactions and other	237,600	2		—	—		(225)		—		(223)
Stock-based compensation expense	Stock-based compensation expense	—	—		—	—		1,290		—		1,290		Stock-based compensation expense	—	—		—	—		1,954		—		1,954
Net loss	Net loss	—	—		—	—		—		(19,313)		(19,313)		Net loss	—	—		—	—		—		(19,440)		(19,440)
Balance—June 30, 2020		46,778,682	$	468	2,423,871	$	(35,000)	$	201,601	$	(134,793)	$	32,276
Balance—September 29, 2020														Balance—September 29, 2020	46,795,534	$	468	2,423,871	$	(35,000)	$	202,314	$	(134,920)	$	32,862

_____________

(1)Unless otherwise noted, activity relates to Class A common stock.

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Noodles & Company

Condensed Consolidated Statements of Cash Flows

(in thousands, unaudited)


		Two Fiscal Quarters Ended					Three Fiscal Quarters Ended
		June 29, 2021		June 30, 2020			September 28, 2021		September 29, 2020
Operating activities	Operating activities					Operating activities
Net income (loss)	Net income (loss)	$	3,706	$	(19,313)	Net income (loss)	$	8,403	$	(19,440)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:	Adjustments to reconcile net income (loss) to net cash provided by operating activities:					Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	11,163		10,732		Depreciation and amortization	16,734		16,273
Deferred income taxes	Deferred income taxes	16		47		Deferred income taxes	41		72
Restaurant impairments, closure costs and asset disposals	Restaurant impairments, closure costs and asset disposals	898		3,029		Restaurant impairments, closure costs and asset disposals	1,441		3,034
Amortization of debt issuance costs	Amortization of debt issuance costs	222		149		Amortization of debt issuance costs	333		260
Stock-based compensation	Stock-based compensation	2,283		1,253		Stock-based compensation	3,436		1,904
Gain on insurance proceeds	Gain on insurance proceeds	(406)		0		Gain on insurance proceeds	(406)		—
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(521)		1,190		Accounts receivable	(431)		230
Inventories	Inventories	(1)		306		Inventories	(221)		75
Prepaid expenses and other assets	Prepaid expenses and other assets	(961)		87		Prepaid expenses and other assets	(1,893)		(802)
Accounts payable	Accounts payable	3,060		2,722		Accounts payable	3,149		3,505
Income taxes	Income taxes	(26)		(77)		Income taxes	(22)		27
Operating lease assets and liabilities	Operating lease assets and liabilities	830		7,507		Operating lease assets and liabilities	(649)		4,034
Accrued expenses and other liabilities	Accrued expenses and other liabilities	2,983		(925)		Accrued expenses and other liabilities	(19)		(858)
Net cash provided by operating activities	Net cash provided by operating activities	23,246		6,707		Net cash provided by operating activities	29,896		8,314
Investing activities	Investing activities					Investing activities
Purchases of property and equipment	Purchases of property and equipment	(7,476)		(6,810)		Purchases of property and equipment	(12,965)		(9,887)
Insurance proceeds received for property damage						Insurance proceeds received for property damage	406		—
Net cash used in investing activities	Net cash used in investing activities	(7,476)		(6,810)		Net cash used in investing activities	(12,559)		(9,887)
Financing activities	Financing activities					Financing activities

Proceeds from issuance of long-term debt	Proceeds from issuance of long-term debt	0		55,500		Proceeds from issuance of long-term debt	—		55,500
Payments on long-term debt	Payments on long-term debt	(5,042)		(2,375)		Payments on long-term debt	(20,118)		(54,125)
Payments on finance leases	Payments on finance leases	(965)		(402)		Payments on finance leases	(1,429)		(686)
Debt issuance costs	Debt issuance costs	0		(731)		Debt issuance costs	—		(731)
Stock plan transactions and tax withholding on share-based compensation awards	Stock plan transactions and tax withholding on share-based compensation awards	(279)		(272)		Stock plan transactions and tax withholding on share-based compensation awards	(481)		(223)
Net cash (used in) provided by financing activities		(6,286)		51,720
Net increase in cash and cash equivalents		9,484		51,617
Net cash used in financing activities						Net cash used in financing activities	(22,028)		(265)
Net decrease in cash and cash equivalents						Net decrease in cash and cash equivalents	(4,691)		(1,838)
Cash and cash equivalents	Cash and cash equivalents					Cash and cash equivalents
Beginning of period	Beginning of period	7,840		10,459		Beginning of period	7,840		10,459
End of period	End of period	$	17,324	$	62,076	End of period	$	3,149	$	8,621

See accompanying notes to condensed consolidated financial statements.

Table of Contents

NOODLES & COMPANY

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Business Summary and Basis of Presentation

Business

Noodles & Company (the “Company”), a Delaware corporation, develops and operates fast casual restaurants that serve globally inspired noodle and pasta dishes, soups, salads and appetizers. As of ~~June 29,~~September 28, 2021, the Company had ~~451~~450 restaurants system-wide in 29 states, comprised of 374 company-owned restaurants and 7776 franchise restaurants. The Company operates its business as 1 operating and reportable segment.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Noodles & Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The accompanying interim unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of the Company, all adjustments considered necessary for the fair presentation of the Company’s results of operations, financial position and cash flows for the periods presented have been included and are of a normal, recurring nature. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for any interim period are not necessarily indicative of results for the full year. Certain information and footnote disclosures normally included in the Company’s annual consolidated financial statements on Form 10-K have been condensed or omitted. The condensed consolidated balance sheet as of December 29, 2020 was derived from audited financial statements. These financial statements should be read in conjunction with the audited financial statements and the related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2020.

Fiscal Year

The Company operates on a 52- or 53-week fiscal year ending on the Tuesday closest to December 31. The Company’s fiscal quarters each contain 13 operating weeks, with the exception of the fourth quarter of a 53-week fiscal year, which contains 14 operating weeks. Fiscal year 2021, which ends on December 28, 2021, and fiscal year 2020, which ended on December 29, 2020, both contain 52 weeks. The Company’s fiscal quarter that ended ~~June 29,~~September 28, 2021 is referred to as the ~~second~~third quarter of 2021, and the fiscal quarter ended ~~June 30,~~September 29, 2020 is referred to as the ~~second~~third quarter of 2020.

Risks and Uncertainties

We are subject to risks and uncertainties as a result of the ongoing COVID-19 pandemic. The onset of the COVID-19 pandemic resulted in significant disruption to the restaurant industry and adversely affected our business. The greatest impact to our sales and overall financial results was during the initial stages of the pandemic, beginning the third week of March 2020 through the second quarter of 2020.During this period, we temporarily closed nearly all of our dining rooms, driven by local government imposed restrictions in areas where we operate our restaurants and migrated to an almost completely off-premise model. Since the initial disruption, we have seen sequential improvement in our financial performance due in part to our investments in our off-premise and digital channels. In 2021, we saw further improvement as vaccine availability was more widespread and social distancing restrictions were softened.

The extent of the impact of the COVID-19 pandemic on our operations and financial results depends on future developments and is highly uncertain due to the unknown duration and severity of the outbreak, including the potential impact of the COVID-19 delta variant. The situation is changing rapidly and future impacts may materialize that are not yet known. As of the date of this filing, substantially all of our restaurants continue to operate, with dining rooms open at varying capacities. We intend to continue to actively monitor the evolving situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our team members, customers, suppliers and shareholders.

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 is intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate ~~(LIBOR)~~(“LIBOR”) and other interbank offered rates to alternative reference rates. The Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and related disclosures.

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 was issued as a means to reduce the complexity of accounting for income taxes for those entities that fall within the scope of the accounting standard. This guidance is effective for public companies for annual reporting periods beginning after December 15, 2020 and interim periods within those reporting periods. Interim period adoption is permitted. The guidance is to be applied using a prospective method, excluding amendments related to franchise taxes, which should be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company adopted this standard on December 30, 2020. The adoption of this standard did not have a material impact on our consolidated financial statements or disclosures.

2. Supplemental Financial Information

Accounts receivable consist of the following (in thousands):


		June 29, 2021		December 29, 2020			September 28, 2021		December 29, 2020
Delivery program receivables	Delivery program receivables	$	1,778	$	1,268	Delivery program receivables	$	1,592	$	1,268
Insurance receivable	Insurance receivable	586		74		Insurance receivable	—		74
Vendor rebate receivables	Vendor rebate receivables	704		641		Vendor rebate receivables	752		641
Franchise receivables	Franchise receivables	687		564		Franchise receivables	715		564
Other receivables	Other receivables	593		881		Other receivables	793		881
Accounts receivable	Accounts receivable	$	4,348	$	3,428	Accounts receivable	$	3,852	$	3,428

Prepaid expenses and other assets consist of the following (in thousands):


		June 29, 2021		December 29, 2020			September 28, 2021		December 29, 2020
Prepaid insurance	Prepaid insurance	$	992	$	744	Prepaid insurance	$	1,347	$	744
Prepaid occupancy related costs	Prepaid occupancy related costs	34		884		Prepaid occupancy related costs	60		884
Other prepaid expenses	Other prepaid expenses	2,552		1,092		Other prepaid expenses	3,162		1,092
Other current assets	Other current assets	117		39		Other current assets	117		39
Prepaid expenses and other assets	Prepaid expenses and other assets	$	3,695	$	2,759	Prepaid expenses and other assets	$	4,686	$	2,759

Property and equipment, net, consists of the following (in thousands):


		June 29, 2021		December 29, 2020			September 28, 2021		December 29, 2020
Leasehold improvements	Leasehold improvements	$	200,646	$	199,782	Leasehold improvements	$	200,574	$	199,782
Furniture, fixtures and equipment	Furniture, fixtures and equipment	134,461		132,756		Furniture, fixtures and equipment	137,311		132,756
Construction in progress	Construction in progress	8,212		1,713		Construction in progress	9,195		1,713
		343,319		334,251			347,080		334,251
Accumulated depreciation and amortization	Accumulated depreciation and amortization	(220,920)		(211,334)		Accumulated depreciation and amortization	(225,489)		(211,334)
Property and equipment, net	Property and equipment, net	$	122,399	$	122,917	Property and equipment, net	$	121,591	$	122,917

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Accrued payroll and benefits consist of the following (in thousands):


		June 29, 2021		December 29, 2020			September 28, 2021		December 29, 2020
Accrued payroll and related liabilities	Accrued payroll and related liabilities	$	10,286	$	6,812	Accrued payroll and related liabilities	$	6,243	$	6,812
Accrued bonus	Accrued bonus	3,699		2,364		Accrued bonus	5,474		2,364
Insurance liabilities	Insurance liabilities	4,256		3,700		Insurance liabilities	3,452		3,700
Accrued payroll and benefits	Accrued payroll and benefits	$	18,241	$	12,876	Accrued payroll and benefits	$	15,169	$	12,876

Accrued expenses and other current liabilities consist of the following (in thousands):


		June 29, 2021		December 29, 2020			September 28, 2021		December 29, 2020
Gift card liability	Gift card liability	$	2,270	$	2,551	Gift card liability	$	2,189	$	2,551
Occupancy related	Occupancy related	1,792		1,322		Occupancy related	2,109		1,322
Utilities	Utilities	1,399		1,338		Utilities	1,412		1,338
Deferred revenue		291		427
Current portion of finance lease liability	Current portion of finance lease liability	1,958		1,800		Current portion of finance lease liability	1,957		1,800
Other accrued expenses		4,583		4,194
Accrued interest						Accrued interest	316		375
Insurance liabilities						Insurance liabilities	404		398
Other restaurant expense accruals						Other restaurant expense accruals	1,170		1,079
Other corporate expense accruals						Other corporate expense accruals	2,884		2,769
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	$	12,293	$	11,632	Accrued expenses and other current liabilities	$	12,441	$	11,632

3. Long-Term Debt

On May 9, 2018, the Company entered into a credit facility with U.S. Bank National Association (the “2018 Credit Facility”). The 2018 Credit Facility consisted of a term loan facility in an aggregate principal amount of $25.0 million and a revolving credit facility of $65.0 million, which included a letter of credit subfacility in the amount of $15.0 million and a swingline subfacility in the amount of $10.0 million.

On November 20, 2019, the Company amended its 2018 Credit Facility by entering into the First Amendment to the Credit Agreement (the “Amendment” and the 2018 Credit Facility, as amended, the “First Amended Credit Facility”). Among other things, the Amendment: (i) extended the maturity date to November 20, 2024; (ii) increased the revolving credit facility from $65.0 million to $75.0 million; (iii) delayed step downs of the Company’s leverage covenant; and (iv) increased the limit on capital expenditures to $37.0 million in 2020 and to $45.0 million in 2021 and each fiscal year thereafter.

Borrowings under the First Amended Credit Facility, including the term loan facility, bear interest annually, at the Company’s option, at either (i) LIBOR plus a margin of 2.00% to 2.75% per annum, based upon the consolidated total lease-adjusted leverage ratio or (ii) the highest of the following base rates plus a margin of 1.00% to 1.75% per annum: (a) the federal funds rate plus 0.50%; (b) the U.S. Bank prime rate or (c) the one-month LIBOR plus 1.00%. The Amendment includes a commitment fee of 0.20% to 0.35% per annum, based upon the consolidated total lease-adjusted leverage ratio, on any unused portion of the revolving credit facility.

On June 16, 2020 (the “Effective Date”), the Company amended its First Amended Credit Facility by entering into the Second Amendment to the Credit Agreement (the “Second Amendment” and the First Amended Credit Facility, as amended, or the “Second Amended Credit Facility”). Beginning on the Effective Date and through the third quarter of 2021 (the “Amendment Period”), borrowings under the Second Amended Credit Facility, including the term loan facility, ~~(“Borrowings”),~~ will bear interest at LIBOR plus 3.25% per annum. Following the Amendment Period, borrowings will bear interest at LIBOR plus a margin of 2.00% to 3.00% per annum, based upon the consolidated total lease-adjusted leverage ratio. Among other things, the Second Amendment (i) waives the lease-adjusted leverage ratio and fixed charge ratio covenants through the first quarter of 2021; (ii) amends the Company’s lease-adjusted leverage ratio and fixed coverage ratio covenant thresholds beginning in the second quarter of 2021 through the third quarter of 2022 and the first quarter of 2022, respectively; and (iii) limits capital expenditures to $12.0 million in 2020, $12.0 million plus a liquidity-based performance basket up to an additional $12.0 million in 2021, $34.0 million in 2022, $37.0 million in 2023 and $45.0 million annually thereafter.

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As of ~~June 29,~~September 28, 2021, the Company had ~~$38.8~~$23.7 million of indebtedness (excluding ~~$1.5~~$1.4 million of unamortized debt issuance costs) and $3.2 million of ~~letters~~letters of credit outstanding under the Second Amended Credit Facility reflecting debt repayments of ~~$5.0~~ $20.1 million including $19.6 million on the revolver and $0.5 million on the term loan in the first ~~two~~three quarters of 2021. As of ~~June 29,~~September 28, 2021, the Company had cash on hand of ~~$17.3~~$3.1 million.

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The term loan requires principal payments of $187,500 per quarter through the third quarter of 2021, $375,000 per quarter through the third quarter of 2022, $531,250 per quarter through the third quarter of 2023 and $625,000 per quarter thereafter through maturity.

Aggregate maturities for debt outstanding as of ~~June 29,~~September 28, 2021 are as follows (in thousands):


Year 1	$	1,500
Year 2	~~1,969~~2,125
Year 3	~~2,406~~2,500
Year 4	~~32,889~~17,563
Total	$	~~38,764~~23,688

The Company’s outstanding indebtedness bore interest at rates between ~~3.40%~~3.33% to 3.52% during the first ~~two~~three quarters of 2021.

The Company also maintains outstanding letters of credit to secure obligations under its workers’ compensation program and certain lease obligations. The Company was in compliance with all of its debt covenants as of ~~June 29,~~September 28, 2021.

4. Fair Value Measurements

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and all other current liabilities approximate their fair values due to their short-term nature. The carrying amounts of borrowings approximate fair value as the line of credit and term borrowings vary with market interest rates and negotiated terms and conditions are consistent with current market rates. The fair value of the Company’s line of credit and term borrowings are measured using Level 2 inputs.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets recognized or disclosed at fair value in the condensed consolidated financial statements on a non-recurring basis include items such as leasehold improvements, property and equipment, operating lease assets, goodwill and other intangible assets. These assets are measured at fair value if determined to be impaired or when acquired.

Adjustments to the fair value of assets measured at fair value on a non-recurring basis as of ~~June 29,~~September 28, 2021 and ~~June 30,~~September 29, 2020 are discussed in Note 7, Restaurant Impairments, Closure Costs and Asset Disposals.

5. Income Taxes

The following table presents the Company’s provision for income taxes (in thousands):


		Fiscal Quarter Ended						Two Fiscal Quarters Ended							Fiscal Quarter Ended						Three Fiscal Quarters Ended
		June 29, 2021			June 30, 2020			June 29, 2021			June 30, 2020				September 28, 2021			September 29, 2020			September 28, 2021			September 29, 2020
Provision for income taxes	Provision for income taxes	$	29		$	33		$	19		$	46		Provision for income taxes	$	29		$	27		$	48		$	73
Effective tax rate	Effective tax rate	0.5		%	(0.2)		%	0.5		%	(0.2)		%	Effective tax rate	0.6		%	(27.0)		%	0.6		%	(0.4)		%

The effective tax rate for the ~~second~~third quarter of 2021 and the first ~~two~~three quarters of 2021 reflects the impact of the previously recorded valuation allowance. For the remainder of fiscal 2021, the Company does not anticipate material income tax expense or benefit as a result of the valuation allowance recorded. The Company will maintain the valuation allowance against deferred tax assets until there is sufficient evidence to support a full or partial reversal. The reversal of a previously recorded valuation allowance will generally result in a benefit from income tax.

6. Stock-Based Compensation

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The Company’s Stock Incentive Plan (the “Plan”), as amended and restated in May of 2013, authorizes the grant of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance share units ~~(“PSUs”)~~ and incentive bonuses to employees, officers, non-employee directors and other service providers. As of ~~June 29,~~September 28, 2021, approximately 3.0 million share-based awards were available to be granted under the Plan.

The following table shows total stock-based compensation expense (in thousands):

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		Fiscal Quarter Ended				Two Fiscal Quarters Ended					Fiscal Quarter Ended				Three Fiscal Quarters Ended
		June 29, 2021		June 30, 2020		June 29, 2021		June 30, 2020			September 28, 2021		September 29, 2020		September 28, 2021		September 29, 2020
Stock-based compensation expense	Stock-based compensation expense	$	1,611	$	1,094	$	2,413	$	1,253	Stock-based compensation expense	$	1,177	$	708	$	3,590	$	1,960
Capitalized stock-based compensation expense	Capitalized stock-based compensation expense	$	16	$	25	$	34	$	37	Capitalized stock-based compensation expense	$	11	$	12	$	45	$	50

7. Restaurant Impairments, Closure Costs and Asset Disposals

The following table presents restaurant impairments, closure costs and asset disposals (in thousands):


		Fiscal Quarter Ended				Two Fiscal Quarters Ended					Fiscal Quarter Ended				Three Fiscal Quarters Ended
		June 29, 2021		June 30, 2020		June 29, 2021		June 30, 2020			September 28, 2021		September 29, 2020		September 28, 2021		September 29, 2020
Restaurant impairments (1)	Restaurant impairments (1)	$	178	$	2,135	$	680	$	2,262	Restaurant impairments (1)	$	536	$	113	$	1,216	$	2,375
Closure costs (1)	Closure costs (1)	288		299		593		512		Closure costs (1)	236		(168)		829		345
(Gain) loss on disposal of assets and other		(76)		124		348		840
Loss on disposal of assets and other										Loss on disposal of assets and other	354		424		702		1,263
		$	390	$	2,558	$	1,621	$	3,614		$	1,126	$	369	$	2,747	$	3,983

_____________________________

(1)Restaurant impairments and closure costs in all periods presented above include amounts related to restaurants previously impaired or closed.

The Company ~~did 0t impair~~ ~~any restaurants~~ impaired 1 restaurant in the ~~second~~third quarter of 2021 and had 5no restaurant impairments in the ~~second~~third quarter of 2020. The Company impaired ~~1 restaurant~~2 restaurants in the first ~~two~~three quarters of 2021 and 5 restaurants in the first ~~two~~three quarters of 2020. Impairment is based on management’s current assessment of the expected future cash flows of a restaurant based on recent results and other specific market factors. Impairment expense is a Level 3 fair value measure and is determined by comparing the carrying value of restaurant assets to the estimated fair value of the restaurant assets at resale value and the right-of-use asset based on a discounted cash flow analysis utilizing market lease rates. The Company will continue to monitor the impact from the COVID-19 pandemic as it relates to recoverability of long-lived assets. Although the Company has seen an improvement in sales, the Company is unable to predict how long these conditions will persist, what additional measures may be introduced by governments or what effect any such additional measures may have on restaurants and our business. Any measure that encourages consumers to stay in their homes, engage in social distancing or avoid larger gatherings of people for an extended period of time is and has been highly likely to continue to be harmful to the restaurant industry in general.

Closure costs in the ~~second~~third quarter of 2021 and the first ~~two~~three quarters of 2021 include ongoing costs related to restaurants closed in previous years as well as 68 company-owned restaurant closures during the first ~~two~~three quarters of 2021. Closure costs in the ~~second~~third quarter ~~of 2020~~ and first ~~two~~three quarters of 2020 include ongoing costs related to restaurants closed in previous years as well as 13 company-owned restaurant ~~closure~~closures during the ~~second~~third quarter of ~~2020 that was near the end of its lease term.~~2020. In addition, closure costs were offset by gains resulting from adjustments to liabilities as lease terminations occur. These gains included a total of $0.6 million in the third quarter and first three quarters of 2020.

Loss on disposal of assets and other for the ~~second quarter~~first three quarters of 2021 includes a gain on insurance proceeds from property damage. Loss on disposal of assets and other includes expenses recognized during the first ~~two~~three quarters of 2020 related to the divestiture of company-owned restaurants to a franchisee.

These expenses are included in the “Restaurant impairments, closure costs and asset disposals” line in the Condensed Consolidated Statements of Operations.

8. Earnings (Loss) Per Share

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Basic earnings (loss) per share (“EPS”) is calculated by dividing net income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding during each period. Diluted EPS is calculated using net income (loss) available to common stockholders divided by diluted weighted-average shares of common stock outstanding during each period. Potentially dilutive securities include shares of common stock underlying stock options, warrants and RSUs. Diluted EPS considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would have an anti-dilutive effect.

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The following table sets forth the computations of basic and diluted EPS (in thousands, except share and per share data):


		Fiscal Quarter Ended				Two Fiscal Quarters Ended					Fiscal Quarter Ended				Three Fiscal Quarters Ended
		June 29, 2021		June 30, 2020		June 29, 2021		June 30, 2020			September 28, 2021		September 29, 2020		September 28, 2021		September 29, 2020
Net income (loss)	Net income (loss)	$	5,683	$	(13,478)	$	3,706	$	(19,313)	Net income (loss)	$	4,697	$	(127)	$	8,403	$	(19,440)
Shares:	Shares:									Shares:
Basic weighted average shares outstanding	Basic weighted average shares outstanding	45,506,476		44,212,751		45,303,160		44,177,648		Basic weighted average shares outstanding	45,635,455		44,358,763		45,414,332		44,238,400
Effect of dilutive securities	Effect of dilutive securities	739,693		0		688,959		0		Effect of dilutive securities	747,054		—		720,662		—
Diluted weighted average shares outstanding	Diluted weighted average shares outstanding	46,246,169		44,212,751		45,992,119		44,177,648		Diluted weighted average shares outstanding	46,382,509		44,358,763		46,134,994		44,238,400
Earnings (loss) per share:	Earnings (loss) per share:									Earnings (loss) per share:
Basic earnings (loss) per share	Basic earnings (loss) per share	$	0.12	$	(0.30)	$	0.08	$	(0.44)	Basic earnings (loss) per share	$	0.10	$	—	$	0.19	$	(0.44)
Diluted earnings (loss) per share	Diluted earnings (loss) per share	$	0.12	$	(0.30)	$	0.08	$	(0.44)	Diluted earnings (loss) per share	$	0.10	$	—	$	0.18	$	(0.44)

The Company computes the effect of dilutive securities using the treasury stock method and average market prices during the period. Potential common shares are excluded from the computation of diluted earnings (loss) per share when the effect would be anti-dilutive. The shares issuable on the vesting or exercise of share-based awards or exercise of outstanding warrants that were excluded from the calculation of diluted earnings per share because the effect of their inclusion would have been anti-dilutive totaled ~~478,353~~359,211 and ~~4,142,754~~3,107,448 for the ~~second~~third quarters of 2021 and 2020, respectively, and totaled ~~730,847~~479,494 and ~~3,309,278~~3,251,799 for the first ~~two~~three quarters of 2021 and 2020, respectively.

9. Leases

Supplemental balance sheet information related to leases is as follows (in thousands):


Classification	Classification		June 29, 2021		December 29, 2020		Classification		September 28, 2021		December 29, 2020
Assets	Assets						Assets
Operating	Operating	Operating lease assets, net	$	191,410	$	195,618	Operating	Operating lease assets, net	$	190,134	$	195,618
Finance	Finance	Finance lease assets, net (1)	7,456		7,822		Finance	Finance lease assets, net (1)	6,924		7,822
Total leased assets	Total leased assets		$	198,866	$	203,440	Total leased assets		$	197,058	$	203,440
Liabilities	Liabilities						Liabilities
Current lease liabilities	Current lease liabilities						Current lease liabilities
Operating	Operating	Current operating lease liabilities	$	26,141	$	26,094	Operating	Current operating lease liabilities	$	26,757	$	26,094
Finance	Finance	Current finance lease liabilities (2)	1,958		1,800		Finance	Current finance lease liabilities (2)	1,957		1,800
Long-term lease liabilities	Long-term lease liabilities						Long-term lease liabilities
Operating	Operating	Long-term operating lease liabilities	206,977		210,454		Operating	Long-term operating lease liabilities	203,589		210,454
Finance	Finance	Long-term finance lease liabilities (2)	5,632		6,056		Finance	Long-term finance lease liabilities (2)	5,149		6,056
Total lease liabilities	Total lease liabilities		$	240,708	$	244,404	Total lease liabilities		$	237,452	$	244,404

_____________________

(1)The finance lease assets are included in property and equipment, net in the Condensed Consolidated Balance Sheets.

(2)The current portion of the finance lease liabilities is included in accrued expenses and other current liabilities, and the long-term portion was included in other long-term liabilities in the Condensed Consolidated Balance Sheets.

Sublease income recognized in the Condensed Consolidated Statements of Operations was ~~$0.5~~$0.4 million and ~~$0.1~~$0.2 million for the ~~second~~third quarter of 2021 and 2020, and ~~$0.9~~$1.4 million and ~~$0.5~~$0.7 million for the first ~~two~~three quarters of 2021 and 2020, respectively.

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During 2020, the onset of the COVID-19 pandemic impacted the Company’s business significantly, including temporary closures of our dining rooms starting in March 2020. During the second ~~quarter~~and third quarters of 2020, we were able to negotiate with the majority of our landlords to obtain rent abatements, or defer rent amounts due during the second quarter, and in some cases, the periods of the respective lease terms were extended earlier than as proscribed in the lease as part of the rent concessions. In the case where the lease term was extended, we remeasured the remaining consideration in the contract. The total rent that was deferred for lease amendments that have been executed was ~~$4.0~~$4.2 million.

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For certain of the Company’s restaurants, the COVID-19 pandemic has had an impact on the underlying asset values. In the first quarter of 2021, the Company recorded a right-of-use asset impairment charge for 1 restaurant to reduce the carrying value of operating lease assets to its respective estimated fair value. There was ~~0 impairment~~no impairment to the Company’s right-of-use assets during the second ~~quarter~~and third quarters of 2021. In the ~~second quarter~~first three quarters of 2020, we recorded an impairment charge of $0.3 million on the right-of-use ~~assets.~~assets of 1 restaurant that was impaired in the second quarter of 2020.

Supplemental disclosures of cash flow information related to leases are as follows (in thousands):


		Fiscal Quarter Ended				Two Fiscal Quarters Ended					Fiscal Quarter Ended				Three Fiscal Quarters Ended
		June 29, 2021		June 30, 2020		June 29, 2021		June 30, 2020			September 28, 2021		September 29, 2020		September 28, 2021		September 29, 2020
Cash paid for lease liabilities:	Cash paid for lease liabilities:									Cash paid for lease liabilities:
Operating leases	Operating leases	$	7,929	$	6,066	$	19,595	$	13,574	Operating leases	$	11,285	$	14,784	$	30,880	$	28,358
Finance leases	Finance leases	699		270		1,224		452		Finance leases	583		324		1,807		776
		$	8,628	$	6,336	$	20,819	$	14,026		$	11,868	$	15,108	$	32,687	$	29,134
Right-of-use assets obtained in exchange for lease liabilities:	Right-of-use assets obtained in exchange for lease liabilities:									Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	Operating leases	$	6,123	$	4,557	$	6,696	$	10,281	Operating leases	$	4,110	$	108	$	10,806	$	10,388
Finance leases	Finance leases	49		1,238		700		2,842		Finance leases	—		545		700		3,387
		$	6,172	$	5,795	$	7,396	$	13,123		$	4,110	$	653	$	11,506	$	13,775

10. Supplemental Disclosures to Condensed Consolidated Statements of Cash Flows

The following table presents the supplemental disclosures to the Condensed Consolidated Statements of Cash Flows for the ~~two~~three quarters ended ~~June 29,~~September 28, 2021 and ~~June 30,~~September 29, 2020 (in thousands):


		June 29, 2021		June 30, 2020			September 28, 2021		September 29, 2020
Interest paid (net of amounts capitalized)	Interest paid (net of amounts capitalized)	$	864	$	1,666	Interest paid (net of amounts capitalized)	$	1,163	$	1,902
Income taxes paid		28		25
Income taxes paid (refunded)						Income taxes paid (refunded)	30		(78)
Purchases of property and equipment accrued in accounts payable	Purchases of property and equipment accrued in accounts payable	4,002		1,793		Purchases of property and equipment accrued in accounts payable	3,777		2,818

11. Revenue Recognition

Revenue

Revenue consists of sales from restaurant operations, franchise royalties and fees, and sublease income. Revenue from the operation of company-owned restaurants is recognized when sales occur. The Company reports revenue net of sales tax collected from customers and remitted to governmental taxing authorities.

Gift Cards

The Company sells gift cards which do not have an expiration date, and it does not deduct non-usage fees from outstanding gift card balances. The Company recognizes revenue from gift cards when the gift card is redeemed by the customer or the Company determines the likelihood of the gift card being redeemed by the customer is remote (“gift card breakage”). The determination of the gift card breakage rate is based upon Company-specific historical redemption patterns. The Company has determined that approximately 9% of gift cards will not be redeemed and recognizes gift card breakage ratably over the estimated redemption period of the gift card, which is approximately 24 months. Gift card liability balances are typically highest at the end of each calendar year following increased gift card purchases during the holiday season.

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As of ~~June 29,~~September 28, 2021 and December 29, 2020, the current portion of the gift card liability, $~~2.3~~2.2 million and $2.6 million, respectively, was included in accrued expenses and other current liabilities, and the long-term portion, $0.4 million and $0.6 million, respectively, was included in other long-term liabilities in the Condensed Consolidated Balance Sheets.

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Revenue recognized in the Condensed Consolidated Statements of Operations for the redemption of gift cards was ~~$0.8 million and~~ $0.6 million for both the ~~second~~third quarter of 2021 and 2020, and $~~1.9~~2.5 million and ~~$2.1~~$2.8 million for the first ~~two~~three quarters of 2021 and 2020, respectively.

Franchise Fees

Royalties from franchise restaurants are based on a percentage of restaurant revenues and are recognized in the period the related franchised restaurants’ sales occur. In the second quarter of 2020, the Company forgave the franchise royalties due for the quarter due to the impact of the COVID-19 pandemic. Royalties were reinstated in the third quarter of 2020. Development fees and franchise fees, portions of which are collected in advance, are nonrefundable and are recognized in income ratably over the term of the related franchise agreement or recognized upon the termination of the agreement between the Company and the franchisee. The Company has determined that the initial franchise services are not distinct from the continuing rights or services offered during the term of the franchise agreement and should be treated as a single performance obligation; therefore, initial fees received from franchisees are recognized as revenue over the term of each respective franchise agreement, which is typically 20 years.

Loyalty Program

The Company operates the Noodles Rewards program, which is primarily a spend-based loyalty program. With each purchase, Noodles Rewards members earn loyalty points that can be redeemed for rewards, including free products. Using an estimate of the value of reward redemptions, we defer revenue associated with points earned, net of estimated points that will not be redeemed based upon the Company’s historical redemption patterns. Points generally expire after six months. Revenue is recognized in a future period when the reward points are redeemed. As of ~~June 29,~~September 28, 2021 and December 29, 2020, the deferred revenue related to the rewards ~~was~~ wa~~$0.3~~s $0.2 million and $0.4 million, ~~respectively,~~respectively, and was included in accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets.

12. Commitments and Contingencies

In the normal course of business, the Company is subject to other proceedings, lawsuits and claims. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Consequently, the Company is unable to ascertain the ultimate aggregate amount of monetary liability or financial impact with respect to these matters as of ~~June 29,~~September 28, 2021. These matters could affect the operating results of any one financial reporting period when resolved in future periods. The Company believes that an unfavorable outcome with respect to these matters is remote or a potential range of loss is not material to its consolidated financial statements. Significant increases in the number of these claims, or one or more successful claims that result in greater liabilities than the Company currently anticipates, could materially and adversely affect its business, financial condition, results of operations or cash flows.

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NOODLES & COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Noodles & Company is a Delaware corporation that was organized in 2002. Noodles & Company and its subsidiaries are sometimes referred to as “we,” “us,” “our” and the “Company” in this report. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes in Item 1 and with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for our fiscal year ended December 29, 2020. We operate on a 52- or 53-week fiscal year ending on the Tuesday closest to December 31. Our fiscal quarters each contain 13 operating weeks, with the exception of the fourth quarter of a 53-week fiscal year, which contains 14 operating weeks. Fiscal years 2021 and 2020 each contain 52 weeks.

Cautionary Note Regarding Forward-Looking Statements

In addition to historical information, this discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties such as the number of restaurants we intend to open, projected capital expenditures and estimates of our effective tax rates. In some cases, you can identify forward-looking statements by terms such as “may,” “might,” “will,” “objective,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “design,” “estimate,” “predict,” “potential,” “plan” or the negative of these terms and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on currently available operating, financial and competitive information. Examples of forward-looking statements include all matters that are not historical facts, such as statements regarding our ability to navigate the COVID-19 pandemic, projected capital expenditures, the revenue and balance sheet impact of the COVID-19 pandemic, estimated costs associated with our closure of underperforming restaurants, the implementation and results of strategic initiatives and our future financial performance. Our actual results may differ materially from those anticipated in these forward-looking statements due to reasons including, but not limited to, the extent, duration and severity of the COVID-19 pandemic; governmental and customer response to the COVID-19 pandemic; other conditions beyond our control such as weather, natural disasters, disease outbreaks, epidemics or pandemics impacting our customers or food supplies; consumer reaction to industry related public health issues and health pandemics and perceptions of food safety, our ability to achieve and maintain increases in comparable restaurant sales and to successfully execute our business strategy, including new restaurant initiatives and operational strategies to improve the performance of our restaurant portfolio; our ability to maintain compliance with debt covenants and continue to access financing necessary to execute our business strategy; the success of our marketing efforts; our ability to open new restaurants on schedule; current economic conditions; price and availability of commodities; our ability to adequately staff our restaurants; changes in labor costs; consumer confidence and spending patterns; seasonal factors; and those discussed in “Special Note Regarding Forward-Looking Statements” and “Risk Factors” as filed in our Annual Report on Form 10-K for our fiscal year ended December 29, 2020 and those discussed in “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” in our Quarterly Report on Form 10-Q for the quarterly ~~period~~periods ended March 30, 2021 and June 29, 2021.

Impact of COVID-19 Pandemic on Our Business

The onset of the COVID-19 pandemic resulted in significant disruption to the restaurant industry and adversely affected our business. The greatest impact to our sales and overall financial results was during the initial stages of the pandemic, beginning the third week of March 2020 through the second quarter of 2020. During this period, we temporarily closed nearly all of our dining rooms, driven by local government imposed restrictions in areas where we operate our restaurants and migrated to an almost completely off-premise model. Since the initial disruption, we have ~~seen~~seen sequential improvement in our financial performance due in part to our investments in our off-premise and digital channels. In 2021, we ~~saw~~have seen further improvement as vaccine availability was more widespread and social distancing restrictions were softened.

The extent of the impact of the COVID-19 pandemic on our operations and financial results, including the impact on labor and the cost and availability of products within our supplier network, depends on future developments and is highly uncertain due to the unknown duration and severity of the outbreak, including the ~~potential~~ impact of the COVID-19 delta variant. The situation is changing rapidly and future impacts may materialize that are not yet known. As of the date of this filing, substantially all of our restaurants continue to operate, with dining rooms open at varying capacities. WeWe intend to continue to actively monitor the evolving situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our team members, customers, suppliers and shareholders.

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Recent Trends, Risks and Uncertainties

Revenue. In the ~~second~~third quarter of 2021, system-wide comparable restaurant sales increased ~~56.8%~~16.3%, comprised of a ~~55.7%~~15.3% increase for company-owned restaurants and a ~~63.8%~~21.0% increase for franchise restaurants. Our ~~comparable sales growth was benefited by a comparison to the second quarter of 2020, a period when our business was particularly impacted by the COVID-19 pandemic. In addition, our~~ average unit volumes are trending higher over 2020 and pre-COVID-19 pandemic levels in 2019.

We also believe our comparable sales was aided by impressive digital growth, ~~is evidence of~~as evident by our strong brand positioning and ability to meet the needs of today's consumer for great tasting food served conveniently where and when guests want it. However, our ability to retain positive comparable sales depends, among other reasons, on (i) the duration of the COVID-19 pandemic, (ii) limitations imposed by federal, state and local governments with respect to reduced seating capacity in our restaurants and other social distancing measures, (iii) our customers’ future willingness to eat at restaurants, (iv) staffing availability to maintain a normal course of business operations, and ~~(iv)~~(v) macroeconomic conditions and the length of time required for the national and local economies to achieve economic recovery following the crisis. ~~AUV,~~Average unit volume (“AUV”), which normalizes for the impact of temporary restaurant closures, increased year-over-year due to strong off-premise sales, including digital, and growth in dine-in sales as a result of dining rooms reopening.

Recent restaurant openings not in the Company’s comparable restaurant base, many of which offer order ahead drive-thru pick-up windows, continue to perform as a group at the highest sales level of any class of new restaurants in the Company’s history.

Cost of Sales. As a result of the COVID-19 pandemic, we have and expect to continue to incur incremental costs of sales, including the use of additional packaging supplies to support the continued increase in to-go and off-premise orders. Additionally, we have seen a shortage in labor at some of our food suppliers, which in some cases, has resulted in increased costs of food or transportation. Despite these market factors, we have continued to work with our suppliers for ongoing supply chain ~~savings resulting in lower cost~~efficiencies, including adding additional suppliers as necessary, with a goal of ~~sales.~~maintaining adequate food supply to our restaurants. To date, there has been minimal disruption to cost of goods sold, including the supply of our ingredients, packaging or other sourced materials, though it is possible that more significant disruptions could occur if the COVID-19 pandemic and volatility in the labor markets continue. We are working closely with our distributors and contract manufacturers as the situation evolves. We intend to continue to actively monitor the situation, including the status of our supply chain, to determine the appropriate actions to minimize any supply chain interruptions.

Labor Costs. During the ~~second~~third quarter of 2021, we experienced a ~~decline~~reduction in labor availability in some of the markets where we operate, which in some cases resulted in temporary closures of our restaurants, in addition to continued wage inflation within the industry. We were able to mitigate the impact of these market factors through a continued focus on optimizing our hiring process and retaining existing employees. ~~Additionally, our~~Our focus on labor efficiencies within the restaurant, including a modified labor model to reduce the number of front of house hours, ~~and optimize~~optimized food prep and simplified menu offerings, has ~~resulted in minimal~~mitigated disruption in our cost and availability of labor. Some jurisdictions in which we operate have recently increased their minimum wage and other jurisdictions are considering similar actions. Significant additional government-imposed increases could materially affect our labor costs.

Other Restaurant Operating Costs. We have and expect to continue to incur additional third-party delivery fees resulting from a significant expansion of our use of third-party delivery services due to the COVID-19 pandemic.

Certain Restaurant Closures. We permanently closed ~~six~~eight company-owned restaurants in the first ~~two~~three quarters of ~~2021, all~~2021. Two of ~~which~~those occurred in the ~~first~~third quarter of ~~2021. W~~e2021, of which one was a relocation. We had one franchise location permanently close in the third quarter of 2021 due to eminent domain. We currently do not anticipate a significant number of ~~permanent~~permanent restaurant closures in the foreseeable future; however, we may from time to time permanently close certain restaurants, including permanent closures at, or near, the expiration of the leases for these restaurants.

Restaurant Development. In the first ~~two~~three quarters of 2021, we opened ~~two~~four new company-owned restaurants and one franchise restaurant. As of ~~June 29,~~September 28, 2021, we had 374 company-owned restaurants and 7776 franchise restaurants in 29 states. Given the Company’s strong ~~sales~~financial performance trends, ~~as well as an anticipated increase in favorable real estate availability,~~ we have incorporated increased unit development into our strategic growth plan for 2021 and beyond with a system-wide unit growth target of at least 7%8% annually beginning in 2022, quickly reaching 10% annual growth on a path to at least 1,500 ~~units.~~units nationwide.

Key Measures We Use to Evaluate Our Performance

To evaluate the performance of our business, we utilize a variety of financial and performance measures. These key measures include revenue, average unit volume, ~~(“AUV”),~~ comparable restaurant sales, restaurant contribution, restaurant contribution margin, EBITDA and adjusted EBITDA.

~~Revenue~~

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Revenue

Revenue includes both restaurant revenue and franchise royalties and fees. Restaurant revenue represents sales of food and beverages in company-owned restaurants. Several factors affect our restaurant revenue in any period, including the number of restaurants in operation and per-restaurant sales. Franchise royalties and fees represent royalty income and initial franchise fees. While we expect that the majority of our revenue and net income growth will be driven by company-owned restaurants, our franchise restaurants remain an important factor impacting our revenue and financial performance.

Seasonal factors cause our revenue to fluctuate from quarter to quarter. Our revenue per restaurant is typically lower in the first and fourth quarters, due to reduced winter and holiday traffic, and is typically higher in the second and third quarters. As a result of these factors, as well as the magnitude of the COVID-19 pandemic on ~~any given quarter,~~particular quarters, our quarterly operating results and comparable restaurant sales may fluctuate significantly.

Comparable Restaurant Sales

Comparable restaurant sales refer to year-over-year sales comparisons for the comparable restaurant base. We define the comparable restaurant base to include restaurants open for at least 18 full periods. This measure highlights performance of existing restaurants, as the impact of new restaurant openings is excluded. Changes in comparable restaurant sales are generated by changes in traffic, which we calculate as the number of entrées sold, or changes in per-person spend, calculated as sales divided by traffic. Per-person spend can be influenced by changes in menu prices and the mix and number of items sold per person. For fiscal year 2020, restaurants that were temporarily closed or operating at reduced hours or dining capacity due to the COVID-19 pandemic remained in comparable restaurant sales.

Measuring our comparable restaurant sales allows us to evaluate the performance of our existing restaurant base. Various factors impact comparable restaurant sales, including:

•consumer recognition of our brand and our ability to respond to changing consumer preferences;

•overall economic trends, particularly those related to consumer spending;

•our ability to operate restaurants effectively and efficiently to meet consumer expectations;

•pricing;

•the number of restaurant transactions, per-person spend and average check amount;

•marketing and promotional efforts;

•abnormal weather patterns;

•food safety and foodborne illness concerns;

•the impact of the COVID-19 pandemic;

•local competition;

•trade area dynamics;

•introduction of new and seasonal menu items and limited time offerings; and

•opening new restaurants in the vicinity of existing locations.

Consistent with common industry practice, we present comparable restaurant sales on a calendar-adjusted basis that aligns current year sales weeks with comparable periods in the prior year, regardless of whether they belong to the same fiscal period or not. Since opening new company-owned and franchise restaurants is a part of our long-term growth strategy and we anticipate new restaurants will be a component of our long-term revenue growth, comparable restaurant sales is only one measure of how we evaluate our performance.

~~Average Unit Volume~~

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Average Unit Volume

AUV consists of the average annualized sales of all restaurants for a given time period. AUV is calculated by dividing restaurant revenue by the number of operating days within each time period and multiplying by the number of operating days we have in a typical year. This measurement allows management to assess changes in revenue patterns at our restaurants. In addition to the factors that impact comparable restaurant sales, AUVs can be further impacted by effective real estate site selection and maturity and trends within new markets.

Restaurant Contribution and Restaurant Contribution Margin

Restaurant contribution represents restaurant revenue less restaurant operating costs which are cost of sales, labor, occupancy and other restaurant operating costs. Restaurant contribution margin represents restaurant contribution as a percentage of restaurant revenue. We expect restaurant contribution to increase in proportion to the number of new restaurants we open and our comparable restaurant sales growth.

We believe that restaurant contribution and restaurant contribution margin are important tools for investors and other interested parties because they are widely-used metrics within the restaurant industry to evaluate restaurant-level productivity, efficiency and performance. We also use restaurant contribution and restaurant contribution margin as metrics to evaluate the profitability of incremental sales at our restaurants, restaurant performance across periods and restaurant financial performance compared with competitors. Restaurant contribution and restaurant contribution margin are supplemental measures of the operating performance of our restaurants and are not reflective of the underlying performance of our business because corporate-level expenses are excluded from these measures.

EBITDA and Adjusted EBITDA

We define EBITDA as net income (loss) before interest expense, provision (benefit) for income taxes and depreciation and amortization. We define adjusted EBITDA as net income (loss) before interest expense, provision (benefit) for income taxes, depreciation and amortization, restaurant impairments, closure costs and asset disposals, certain litigation settlements, data breach assessments, non-recurring registration and related transaction costs, loss on extinguishment of debt, severance costs and stock-based compensation.

We believe that EBITDA and adjusted EBITDA provide clear pictures of our operating results by eliminating certain non-recurring and non-cash expenses that may vary widely from period to period and are not reflective of the underlying business performance.

The presentation of restaurant contribution, restaurant contribution margin, EBITDA and adjusted EBITDA is not intended to be considered in isolation or as a substitute for, or to be superior to, the financial information prepared and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). We use these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. We believe that they provide useful information to management and investors about operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making.

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Results of Operations

The following table presents a reconciliation of net income (loss) to EBITDA and adjusted EBITDA:


		Fiscal Quarter Ended				Two Fiscal Quarters Ended					Fiscal Quarter Ended				Three Fiscal Quarters Ended
		June 29, 2021		June 30, 2020		June 29, 2021		June 30, 2020			September 28, 2021		September 29, 2020		September 28, 2021		September 29, 2020
		(in thousands, unaudited)									(in thousands, unaudited)
Net income (loss)	Net income (loss)	$	5,683	$	(13,478)	$	3,706	$	(19,313)	Net income (loss)	$	4,697	$	(127)	$	8,403	$	(19,440)
Depreciation and amortization	Depreciation and amortization	5,576		5,397		11,163		10,732		Depreciation and amortization	5,571		5,541		16,734		16,273
Interest expense, net	Interest expense, net	498		920		1,120		1,888		Interest expense, net	594		822		1,714		2,710
Provision for income taxes	Provision for income taxes	29		33		19		46		Provision for income taxes	29		27		48		73
EBITDA	EBITDA	$	11,786	$	(7,128)	$	16,008	$	(6,647)	EBITDA	$	10,891	$	6,263	$	26,899	$	(384)
Restaurant impairments, closure costs and asset disposals (1)	Restaurant impairments, closure costs and asset disposals (1)	390		2,558		1,621		3,614		Restaurant impairments, closure costs and asset disposals (1)	1,126		369		2,747		3,983
Stock-based compensation expense	Stock-based compensation expense	1,611		1,094		2,413		1,253		Stock-based compensation expense	1,177		708		3,590		1,960
Severance costs	Severance costs	—		89		—		89		Severance costs	—		365		—		454
Fees and costs related to transactions and other acquisition/disposition costs	Fees and costs related to transactions and other acquisition/disposition costs	—		73		—		162		Fees and costs related to transactions and other acquisition/disposition costs	—		—		—		162
Adjusted EBITDA	Adjusted EBITDA	$	13,787	$	(3,314)	$	20,042	$	(1,529)	Adjusted EBITDA	$	13,194	$	7,705	$	33,236	$	6,175

_____________________

(1)Restaurant impairments and closure costs in all periods presented above include amounts related to restaurants previously impaired or closed. See Note 7, Restaurant Impairments, Closure Costs and Asset Disposals.

Restaurant Openings, Closures and Relocations

The following table shows restaurants opened or closed during the periods indicated:


		Fiscal Quarter Ended		Two Fiscal Quarters Ended			Fiscal Quarter Ended		Three Fiscal Quarters Ended
		June 29, 2021	June 30, 2020	June 29, 2021	June 30, 2020		September 28, 2021	September 29, 2020	September 28, 2021	September 29, 2020
Company-Owned Restaurant Activity	Company-Owned Restaurant Activity					Company-Owned Restaurant Activity
Beginning of period	Beginning of period	372	381	378	389	Beginning of period	374	380	378	389
Openings		2	—	2	1
Closures		—	(1)	(6)	(1)
Openings (1)						Openings (1)	2	1	4	2
Closures and relocations (1)						Closures and relocations (1)	(2)	(3)	(8)	(4)
Divestitures ~~(1)~~(2)	Divestitures ~~(1)~~(2)	—	—	—	(9)	Divestitures ~~(1)~~(2)	—	—	—	(9)
Restaurants at end of period	Restaurants at end of period	374	380	374	380	Restaurants at end of period	374	378	374	378
Franchise Restaurant Activity	Franchise Restaurant Activity					Franchise Restaurant Activity
Beginning of period	Beginning of period	76	77	76	68	Beginning of period	77	76	76	68
Openings	Openings	1	—	1	—	Openings	—	—	1	—
Acquisitions ~~(1)~~(2)	Acquisitions ~~(1)~~(2)	—	—	—	9	Acquisitions ~~(1)~~(2)	—	—	—	9
Closures	Closures	—	(1)	—	(1)	Closures	(1)	—	(1)	(1)
Restaurants at end of period	Restaurants at end of period	77	76	77	76	Restaurants at end of period	76	76	76	76
Total restaurants	Total restaurants	451	456	451	456	Total restaurants	450	454	450	454

_____________________________

(1)We account for relocated restaurants under both restaurant openings and closures and relocations. During the third quarter of 2021, we relocated one restaurant.

(2)Represents nine company-owned restaurants sold to a franchisee in 2020.

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Statement of Operations as a Percentage of Revenue

The following table summarizes key components of our results of operations for the periods indicated as a percentage of our total revenue, except for the components of restaurant operating costs, which are expressed as a percentage of restaurant revenue.


		Fiscal Quarter Ended				Two Fiscal Quarters Ended					Fiscal Quarter Ended				Three Fiscal Quarters Ended
		June 29, 2021		June 30, 2020		June 29, 2021		June 30, 2020			September 28, 2021		September 29, 2020		September 28, 2021		September 29, 2020
		(unaudited)									(unaudited)
Revenue:	Revenue:									Revenue:
Restaurant revenue	Restaurant revenue	98.5	%	99.8	%	98.4	%	99.0	%	Restaurant revenue	98.4	%	98.5	%	98.4	%	98.8	%
Franchising royalties and fees, and other	Franchising royalties and fees, and other	1.5	%	0.2	%	1.6	%	1.0	%	Franchising royalties and fees, and other	1.6	%	1.5	%	1.6	%	1.2	%
Total revenue	Total revenue	100.0	%	100.0	%	100.0	%	100.0	%	Total revenue	100.0	%	100.0	%	100.0	%	100.0	%
Costs and expenses:	Costs and expenses:									Costs and expenses:
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):	Restaurant operating costs (exclusive of depreciation and amortization shown separately below):									Restaurant operating costs (exclusive of depreciation and amortization shown separately below):
Cost of sales	Cost of sales	24.9	%	25.0	%	25.0	%	25.3	%	Cost of sales	25.1	%	24.8	%	25.0	%	25.1	%
Labor	Labor	29.8	%	33.9	%	30.8	%	34.3	%	Labor	30.0	%	29.9	%	30.5	%	32.7	%
Occupancy	Occupancy	9.3	%	14.6	%	10.0	%	13.3	%	Occupancy	9.3	%	11.2	%	9.8	%	12.5	%
Other restaurant operating costs	Other restaurant operating costs	17.0	%	19.7	%	17.8	%	18.2	%	Other restaurant operating costs	17.5	%	18.6	%	17.7	%	18.3	%
General and administrative	General and administrative	10.3	%	12.5	%	10.2	%	11.4	%	General and administrative	9.7	%	10.2	%	10.0	%	11.0	%
Depreciation and amortization	Depreciation and amortization	4.4	%	6.7	%	4.7	%	5.9	%	Depreciation and amortization	4.5	%	5.2	%	4.6	%	5.7	%
Pre-opening	Pre-opening	0.1	%	0.1	%	0.1	%	0.1	%	Pre-opening	0.1	%	0.2	%	0.1	%	0.1	%
Restaurant impairments, closure costs and asset disposals	Restaurant impairments, closure costs and asset disposals	0.3	%	3.2	%	0.7	%	2.0	%	Restaurant impairments, closure costs and asset disposals	0.9	%	0.3	%	0.8	%	1.4	%
Total costs and expenses	Total costs and expenses	95.1	%	115.6	%	97.9	%	109.6	%	Total costs and expenses	95.7	%	99.3	%	97.2	%	105.8	%
Income (loss) from operations	Income (loss) from operations	4.9	%	(15.6)	%	2.1	%	(9.6)	%	Income (loss) from operations	4.3	%	0.7	%	2.8	%	(5.8)	%
Interest expense, net	Interest expense, net	0.4	%	1.1	%	0.5	%	1.0	%	Interest expense, net	0.5	%	0.8	%	0.5	%	0.9	%
Income (loss) before taxes	Income (loss) before taxes	4.5	%	(16.8)	%	1.6	%	(10.7)	%	Income (loss) before taxes	3.8	%	(0.1)	%	2.3	%	(6.8)	%
Provision for income taxes	Provision for income taxes	—	%	—	%	—	%	—	%	Provision for income taxes	—	%	—	%	—	%	—	%
Net income (loss)	Net income (loss)	4.5	%	(16.8)	%	1.6	%	(10.7)	%	Net income (loss)	3.8	%	(0.1)	%	2.3	%	(6.8)	%

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~~Second~~Third Quarter Ended ~~June 29,~~September 28, 2021 Compared to ~~Second~~Third Quarter Ended ~~June 30,~~September 29, 2020

The table below presents our unaudited operating results for the ~~second~~third quarters of 2021 and 2020, and the related quarter-over-quarter changes.


		Fiscal Quarter Ended							Increase / (Decrease)						Fiscal Quarter Ended							Increase / (Decrease)
		June 29, 2021				June 30, 2020			$		%				September 28, 2021				September 29, 2020			$		%

					(in thousands, unaudited)													(in thousands, unaudited)
Revenue:	Revenue:													Revenue:
Restaurant revenue	Restaurant revenue	$	123,715			$	80,021		$	43,694	54.6	%	Restaurant revenue		$	123,094			$	104,413		$	18,681	17.9	%
Franchising royalties and fees, and other	Franchising royalties and fees, and other	1,934				136			1,798		*		Franchising royalties and fees, and other		2,032				1,569			463		29.5	%
Total revenue	Total revenue	125,649				80,157			45,492		56.8	%	Total revenue		125,126				105,982			19,144		18.1	%
Costs and expenses:	Costs and expenses:												Costs and expenses:
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):	Restaurant operating costs (exclusive of depreciation and amortization shown separately below):												Restaurant operating costs (exclusive of depreciation and amortization shown separately below):
Cost of sales	Cost of sales	30,805				20,020			10,785		53.9	%	Cost of sales		30,946				25,900			5,046		19.5	%
Labor	Labor	36,926				27,137			9,789		36.1	%	Labor		36,896				31,264			5,632		18.0	%
Occupancy	Occupancy	11,519				11,676			(157)		(1.3)	%	Occupancy		11,426				11,737			(311)		(2.6)	%
Other restaurant operating costs	Other restaurant operating costs	21,082				15,789			5,293		33.5	%	Other restaurant operating costs		21,529				19,383			2,146		11.1	%
General and administrative	General and administrative	12,978				10,034			2,944		29.3	%	General and administrative		12,187				10,827			1,360		12.6	%
Depreciation and amortization	Depreciation and amortization	5,576				5,397			179		3.3	%	Depreciation and amortization		5,571				5,541			30		0.5	%
Pre-opening	Pre-opening	163				71			92		129.6	%	Pre-opening		125				239			(114)		(47.7)	%
Restaurant impairments, closure costs and asset disposals	Restaurant impairments, closure costs and asset disposals	390				2,558			(2,168)		(84.8)	%	Restaurant impairments, closure costs and asset disposals		1,126				369			757		205.1	%
Total costs and expenses	Total costs and expenses	119,439				92,682			26,757		28.9	%	Total costs and expenses		119,806				105,260			14,546		13.8	%
Income (loss) from operations		6,210				(12,525)			18,735		*
Income from operations													Income from operations		5,320				722			4,598		636.8	%

Interest expense, net	Interest expense, net	498				920			(422)		(45.9)	%	Interest expense, net		594				822			(228)		(27.7)	%
Income (loss) before income taxes	Income (loss) before income taxes	5,712				(13,445)			19,157		*		Income (loss) before income taxes		4,726				(100)			4,826		*
Provision for income taxes	Provision for income taxes	29				33			(4)		12.1	%	Provision for income taxes		29				27			2		(7.4)	%
Net income (loss)	Net income (loss)	$	5,683			$	(13,478)		$	19,161	*		Net income (loss)		$	4,697			$	(127)		$	4,824	*
Company-owned:	Company-owned:												Company-owned:
Average unit volume	Average unit volume	$	1,350			$	891		$	459	51.5	%	Average unit volume		$	1,377			$	1,187		$	190	16.0	%
Comparable restaurant sales	Comparable restaurant sales	55.7		%		(30.1)		%					Comparable restaurant sales		15.3		%		(3.6)		%

________________

*Not meaningful.

Revenue

Total revenue increased ~~$45.5~~$19.1 million in the ~~second~~third quarter of 2021, or ~~56.8%~~18.1%, to ~~$125.6~~$125.1 million, compared to ~~$80.2~~$106.0 million in the ~~second~~third quarter of 2020. This increase was primarily due to sales growth in the comparable restaurant base. ~~Franchise royalties increased as a result of royalty relief during the second quarter of 2020.~~ System-wide comparable restaurant sales increased ~~56.8%~~16.3% in the ~~second~~third quarter of 2021 compared to the same period of 2020, comprised of a ~~55.7%~~15.3% increase at company-owned restaurants and a ~~63.8%~~21.0% increase at franchise-owned restaurants. The comparable restaurant sales increase in the ~~second~~third quarter of 2021 ~~was driven primarily by lapping the large decline~~ reflect continued momentum in ~~traffic in the second quarter of 2020 related to the impact of the COVID-19 pandemic.~~

~~The increase in revenue was also due to new restaurant openings~~both digital and ~~less temporary restaurant closures as compared to the same period in 2020 related to the impact of the COVID-19 pandemic, partially offset by permanent restaurant closures.~~in-person channels.

AUV, which normalizes for the impact of temporary restaurant closures, increased year-over-year due to strong off-premise sales, including digital, and growth in dine-in sales as a result of dining rooms reopening.

Cost of Sales

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Cost of sales increased by ~~$10.8~~$5.0 million, or ~~53.9%~~19.5%, in the ~~second~~third quarter of 2021 compared to the same period of 2020, due primarily to the increase in restaurant revenue. As a percentage of restaurant revenue, cost of sales ~~decreased~~increased to ~~24.9%~~25.1% in the ~~second~~third quarter of 2021 compared to ~~25.0%~~24.8% in ~~second~~third quarter of 2020 primarily due to higher commodity pricing partially offset by ongoing supply chain initiatives, increased menu pricing and lower ~~discounting, partially offset by higher packaging costs associated with the shift to increased off-premise sales in response to the COVID-19 pandemic.~~discounting.

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Labor Costs

Labor costs increased by ~~$9.8~~$5.6 million, or ~~36.1%~~18.0%, in the ~~second~~third quarter of 2021 compared to the same period of 2020, due primarily to the increase in restaurant ~~revenue.~~ revenue as well as team member bonuses and wage inflation. As a percentage of restaurant revenue, labor costs ~~decreased~~increased to ~~29.8%~~30.0% in the ~~second~~third quarter of 2021 from ~~33.9%~~29.9% in the ~~second~~third quarter of 2020 as a result of increases in incentive compensation and base wage inflation, which was offset by sales leverage on higher average unit volumes and ongoing labor ~~initiatives, including modifying our labor model to reduce the number of front of house hours in our restaurants, partially offset by increases in incentive compensation due to improved results.~~initiatives.

Occupancy Costs

Occupancy costs decreased by ~~$0.2~~$0.3 million, or ~~1.3%~~2.6%, in the ~~second~~third quarter of 2021 compared to the ~~second~~third quarter of 2020, primarily due to restaurants closed since the beginning of the ~~second~~third quarter of 2020. As a percentage of revenue, occupancy costs decreased to 9.3% in the ~~second~~third quarter of 2021, compared to ~~14.6%~~11.2% in the ~~second~~third quarter of 2020 as a result of sales leverage.

Other Restaurant Operating Costs

Other restaurant operating costs increased by ~~$5.3~~$2.1 million, or ~~33.5%~~11.1%, in the ~~second~~third quarter of 2021 compared to the ~~second~~third quarter of 2020, due primarily to the growth in third-party delivery fees due to revenue increases, in addition to increases in repairs and maintenance and utilities. As a percentage of restaurant revenue, other restaurant operating costs decreased to ~~17.0%~~17.5% in the ~~second~~third quarter of 2021 compared to ~~19.7%~~18.6% in the ~~second~~third quarter of 2020, due primarily to sales leverage. Third-party delivery fees were 5.3% and ~~6.4%~~5.5% of total revenue for the ~~second~~third quarters of 2021 and 2020, respectively.

General and Administrative Expense

General and administrative expense increased by ~~$2.9~~$1.4 million, or ~~29.3%~~12.6% in the ~~second~~third quarter of 2021 compared to the ~~second~~third quarter of 2020, due primarily to increases in incentive compensation ~~as well as investments to support our unit growth strategy.~~including stock-based compensation, partially offset by a decline in severance costs and COVID-19 related sick-pay. Stock-based compensation increased due to higher performance-based compensation, due to significantly improved results. As a percentage of revenue, general and administrative expense decreased to ~~10.3%~~9.7% in the ~~second~~third quarter of 2021 from ~~12.5%~~10.2% in the ~~second~~third quarter of 2020 ~~due primarily to the increase in revenue and efficiencies gained through our organizational review during the COVID pandemic.~~.

Depreciation and Amortization

Depreciation and amortization ~~increased by $0.2 million, or 3.3%,~~remained relatively flat in the ~~second~~third quarter of 2021 compared to the ~~second~~third quarter of 2020, due primarily to new asset additions for restaurants opened offsetting restaurant closures since the ~~second~~third quarter of 2020. As a percentage of revenue, depreciation and amortization decreased to ~~4.4%~~4.5% in the ~~second~~third quarter of 2021 from ~~6.7%~~5.2% in the ~~second~~third quarter of 2020, due primarily to the increase in revenue.

Restaurant Impairments, Closure Costs and Asset Disposals

Restaurant impairments, closure costs and asset disposals ~~decreased $2.2~~increased $0.8 million in the ~~second~~third quarter of 2021 compared to the ~~second~~third quarter of 2020. There ~~were n~~owas one restaurant ~~impairments~~impaired in the ~~second~~third quarter of 2021 ~~compared to five restaurant impairments~~and no restaurants impaired in the ~~same period~~third quarter of 2020. ~~In addition, a gain on insurance proceeds from property damage amounting to $0.4 million was recognized in the second quarter of 2021.~~

Interest Expense

Interest expense decreased by ~~$0.4~~$0.2 million in the ~~second~~third quarter of 2021 compared to the ~~second~~third quarter of 2020. The decrease was due to lower average borrowings during the ~~second~~third quarter of 2021 compared to the ~~second~~third quarter of 2020.

Provision for Income Taxes

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The effective tax rate for the ~~second~~third quarter of 2021 and for the ~~second~~third quarter of 2020 reflect the impact of the previously recorded valuation allowance. For the remainder of fiscal 2021, we do not anticipate material income tax expense or benefit as a result of the valuation allowance recorded. We will maintain a valuation allowance against deferred tax assets until there is sufficient evidence to support a full or partial reversal. The reversal of a previously recorded valuation allowance will generally result in a benefit from income tax.

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~~Two~~Three Quarters Ended ~~June 29,~~September 28, 2021 Compared to ~~Two~~Three Quarters Ended ~~June 30,~~September 29, 2020

The table below presents our unaudited operating results for the first ~~two~~three quarters of 2021 and 2020, and the related period-over-period changes.


		Two Fiscal Quarters Ended							Increase / (Decrease)						Three Fiscal Quarters Ended							Increase / (Decrease)
		June 29, 2021				June 30, 2020			$		%				September 28, 2021				September 29, 2020			$		%

					(in thousands, except percentages)													(in thousands, except percentages)
Revenue:	Revenue:													Revenue:
Restaurant revenue	Restaurant revenue	$	231,459			$	178,737		$	52,722	29.5	%	Restaurant revenue		$	354,553			$	283,150		$	71,403	25.2	%
Franchising royalties and fees, and other	Franchising royalties and fees, and other	3,767				1,768			1,999		113.1	%	Franchising royalties and fees, and other		5,799				3,337			2,462		73.8	%
Total revenue	Total revenue	235,226				180,505			54,721		30.3	%	Total revenue		360,352				286,487			73,865		25.8	%
Costs and expenses:	Costs and expenses:												Costs and expenses:
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):	Restaurant operating costs (exclusive of depreciation and amortization shown separately below):												Restaurant operating costs (exclusive of depreciation and amortization shown separately below):
Cost of sales	Cost of sales	57,782				45,224			12,558		27.8	%	Cost of sales		88,728				71,124			17,604		24.8	%
Labor	Labor	71,232				61,368			9,864		16.1	%	Labor		108,128				92,632			15,496		16.7	%
Occupancy	Occupancy	23,168				23,736			(568)		(2.4)	%	Occupancy		34,594				35,473			(879)		(2.5)	%
Other restaurant operating costs	Other restaurant operating costs	41,287				32,478			8,809		27.1	%	Other restaurant operating costs		62,816				51,861			10,955		21.1	%
General and administrative	General and administrative	23,907				20,588			3,319		16.1	%	General and administrative		36,094				31,415			4,679		14.9	%
Depreciation and amortization	Depreciation and amortization	11,163				10,732			431		4.0	%	Depreciation and amortization		16,734				16,273			461		2.8	%
Pre-opening	Pre-opening	221				144			77		53.5	%	Pre-opening		346				383			(37)		(9.7)	%
Restaurant impairments, closure costs and asset disposals	Restaurant impairments, closure costs and asset disposals	1,621				3,614			(1,993)		(55.1)	%	Restaurant impairments, closure costs and asset disposals		2,747				3,983			(1,236)		(31.0)	%
Total costs and expenses	Total costs and expenses	230,381				197,884			32,497		16.4	%	Total costs and expenses		350,187				303,144			47,043		15.5	%
Income (loss) from operations	Income (loss) from operations	4,845				(17,379)			22,224		*		Income (loss) from operations		10,165				(16,657)			26,822		*
Interest expense, net	Interest expense, net	1,120				1,888			(768)		(40.7)	%	Interest expense, net		1,714				2,710			(996)		(36.8)	%
Income (loss) before income taxes	Income (loss) before income taxes	3,725				(19,267)			22,992		*		Income (loss) before income taxes		8,451				(19,367)			27,818		*
Provision for income taxes	Provision for income taxes	19				46			(27)		(58.7)	%	Provision for income taxes		48				73			(25)		(34.2)	%
Net income (loss)	Net income (loss)	$	3,706			$	(19,313)		$	23,019	*		Net income (loss)		$	8,403			$	(19,440)		$	27,843	*
Company-owned:	Company-owned:												Company-owned:
Average unit volumes	Average unit volumes	$	1,260			$	966		$	294	30.4	%	Average unit volumes		$	1,298			$	1,037		$	261	25.2	%
Comparable restaurant sales	Comparable restaurant sales	29.8		%		(19.0)		%					Comparable restaurant sales		25.4		%		(14.0)		%

________________

*Not meaningful.

Revenue

Total revenue increased by ~~$54.7~~$73.9 million, or ~~30.3%~~25.8%, in the first ~~two~~three quarters of 2021, to ~~$235.2~~$360.4 million compared to ~~$180.5~~$286.5 million in the same period of 2020. This increase was primarily due to the increase in comparable restaurant sales and new restaurant openings, as well as an increase in franchise royalties as a result of royalty relief during the second quarter of 2020.

Comparable restaurant sales increased by ~~29.8%~~25.4% at company-owned restaurants, increased by ~~35.8%~~29.4% at franchise-owned restaurants and increased by ~~30.6%~~26.0% system-wide in the first ~~two~~three quarters of 2021. The comparable restaurant sales improvement in the ~~firs~~first three~~t two~~ quarters of 2021 was primarily driven by lapping the impact of the COVID-19 pandemic, in addition to the

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strength of the brand resonating with our guests through a focus on innovative food, digital capabilities, best-in-class off-premise and team member ~~culture.~~culture as well as continued momentum in both digital and in-person channels.

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Cost of Sales

Cost of sales increased by ~~$12.6~~$17.6 million, or ~~27.8%~~24.8%, in the first ~~two~~three quarters of 2021 compared to the same period of 2020, due primarily to the increase in restaurant sales. As a percentage of restaurant revenue, cost of sales decreased to 25.0% in the first ~~two~~three quarters of 2021 compared to ~~25.3%~~25.1% in the first ~~two~~three quarters of 2020, primarily due to increased menu pricing and cost saving initiatives partially offset by increases in certain commodity costs and higher packaging costs.

Labor Costs

Labor costs increased by ~~$9.9~~$15.5 million, or ~~16.1%~~16.7%, in the first ~~two~~three quarters of 2021 compared to the same period of 2020, due primarily to the increase in restaurant ~~sales.~~sales in addition to team member bonuses and wage inflation. As a percentage of restaurant revenue, labor costs decreased to ~~30.8%~~30.5% in the first ~~two~~three quarters of 2021 compared to ~~34.3%~~32.7% in the first ~~two~~three quarters of 2020. The decrease as a percentage of restaurant revenue was primarily due to ~~increased revenue, partially offset by~~leverage on higher sales volumes and labor initiatives, including modifying our labor model to reduce the number of front of house hours in our restaurants.

Occupancy Costs

Occupancy costs decreased by ~~$0.6~~$0.9 million, or ~~2.4%~~2.5%, in the first ~~two~~three quarters of 2021 compared to the first ~~two~~three quarters of 2020, due primarily to restaurants closed or impaired since the beginning of the ~~second~~third quarter of 2020. As a percentage of revenue, occupancy costs decreased to ~~10.0%~~9.8% in first ~~two~~three quarters of 2021, compared to ~~13.3%~~12.5% in the first ~~two~~three quarters of 2020, primarily due to sales leverage.

Other Restaurant Operating Costs

Other restaurant operating costs increased by ~~$8.8~~$11.0 million, or ~~27.1%~~21.1%, in the first ~~two~~three quarters of 2021 compared to the first ~~two~~three quarters of 2020. As a percentage of restaurant revenue, other restaurant operating ~~cost~~cossts decreased to ~~17.8%~~17.7% in the first ~~two~~three quarters of 2021, compared to ~~18.2%~~18.3% in the first ~~two~~three quarters of 2020, due primarily to higher revenue partially offset by third-party delivery fees and increases in repairs and maintenance and utilities. Third-party delivery fees were ~~5.5%~~5.4% and ~~4.5%~~4.8% of total revenue for the first ~~two~~three quarters of 2021 and 2020, respectively.

General and Administrative Expense

General and administrative expense increased by ~~$3.3~~$4.7 million, or ~~16.1%~~14.9%, in the first ~~two~~three quarters of 2021 compared to the first ~~two~~three quarters of 2020, primarily due ~~primarily~~ to increases in incentive compensation and stock-based compensation due to higher performance-based compensation, due to significantly improved results, partially offset by a decrease in ~~third-party services~~severance costs, COVID-19 emergency sick-pay and ~~software maintenance.~~marketing expenses. As a percentage of revenue, general and administrative expense decreased to ~~10.2%~~10.0% in the first ~~two~~three quarters of 2021 compared to ~~11.4%~~11.0% in the first ~~two~~three quarters of 2020, primarily due to ~~increase~~increased revenue.

Depreciation and Amortization

Depreciation and amortization increased by ~~$0.4~~$0.5 million, or ~~4.0%~~2.8%, in the first ~~two~~three quarters of 2021 compared to the first ~~two~~three quarters of 2020, primarily due to new asset additions. As a percentage of revenue, depreciation and amortization decreased to ~~4.7%~~4.6% in the first ~~two~~three quarters of 2021, compared to ~~5.9%~~5.7% in the first ~~two~~three quarters of 2020, due primarily to the increase in revenue.

Restaurant Impairments, Closure Costs and Asset Disposals

Restaurant impairments, closure costs and asset disposals decreased by ~~$2.0~~$1.2 million in the first ~~two~~three quarters of 2021 compared to the first ~~two~~three quarters of 2020. The decrease was largely due to less impairment and closure costs during the first ~~two~~three quarters of 2021 as compared to the same period in 2020. There ~~were no~~was one restaurant ~~impairments~~impairment in the first ~~two~~three quarters of 2021 compared to five restaurant impairments in the first ~~two~~three quarters of 2020.

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Interest Expense

Interest expense decreased by ~~$0.8~~$1.0 million in the first ~~two~~three quarters of 2021 compared to the same period of 2020. The decrease was mainly due to lower average borrowings in the first ~~two~~three quarters of 2021 compared to the first ~~two~~three quarters of 2020.

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Provision for Income Taxes

The effective tax rate for the first ~~two~~three quarters of 2021 and for the first ~~two~~three quarters of 2020 reflect the impact of the previously recorded valuation allowance. For the remainder of fiscal 2021, we do not anticipate material income tax expense or benefit as a result of the valuation allowance recorded. We will maintain a valuation allowance against deferred tax assets until there is sufficient evidence to support a full or partial reversal. The reversal of a previously recorded valuation allowance will generally result in a benefit from income tax. We estimate the annual effective tax rate for 2021 to be between 0.25% and 1.25%.

Liquidity and Capital Resources

Summary of Cash Flows

As of ~~June 29,~~September 28, 2021, our cash and cash equivalents balance was ~~$17.3~~$3.1 million and the amount available for future borrowings under our Second Amended Credit Facility was ~~$57.0~~$71.8 million.

We have historically used cash and our revolving credit facility to fund capital expenditures for new restaurant openings, reinvest in our existing restaurants, invest in infrastructure and information technology and maintain working capital. Our working capital position benefits from the fact that we generally collect cash from sales to customers the same day, or in the case of credit or debit card transactions, within several days of the related sale, and we typically have up to 30 days to pay our vendors.

We believe that we will be in compliance with our debt covenants and have sufficient sources of cash to meet our liquidity needs and capital resource requirements for at least the next twelve months, primarily through currently available cash and cash equivalents and cash flows from operations.

Cash flows from operating, investing and financing activities are shown in the following table (in thousands):


		Two Fiscal Quarters Ended					Three Fiscal Quarters Ended
		June 29, 2021		June 30, 2020			September 28, 2021		September 29, 2020
Net cash provided by operating activities	Net cash provided by operating activities	$	23,246	$	6,707	Net cash provided by operating activities	$	29,896	$	8,314
Net cash used in investing activities	Net cash used in investing activities	(7,476)		(6,810)		Net cash used in investing activities	(12,559)		(9,887)
Net cash (used in) provided by financing activities		(6,286)		51,720
Net increase in cash and cash equivalents		$	9,484	$	51,617
Net cash used in financing activities						Net cash used in financing activities	(22,028)		(265)
Net decrease in cash and cash equivalents						Net decrease in cash and cash equivalents	$	(4,691)	$	(1,838)

Operating Activities

Net cash provided by operating activities increased to ~~$23.2~~$29.9 million in the first ~~two~~three quarters of 2021 from net cash provided by operating activities of ~~$6.7~~$8.3 million in the first ~~two~~three quarters of 2020. The increase in operating cash flows resulted primarily from an ~~increased~~increase in net income due to the growth of average unit volumes in our restaurants during the first three quarters of 2021, in addition to a recovery from the initial impacts of the COVID-19 pandemic, ~~during the first two quarters of 2021~~ as well as working capital changes during the first ~~two~~three quarters of 2021 compared to the prior period of ~~2020, adjusted for non-cash items such as depreciation and amortization, restaurant impairments, closure costs, asset disposals and stock-based compensation.~~2020.

Investing Activities

Net cash used in investing activities increased ~~$0.7~~$2.7 million in the first ~~two~~three quarters of 2021 from ~~$6.8~~$9.9 million in the first ~~two~~three quarters of 2020. This increase was primarily due to higher investments in new restaurant openings in the first ~~two~~three quarters of 2021 compared to 2020.

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Financing Activities

Net cash used in financing activities was ~~$6.3~~$22.0 million in the first ~~two~~three quarters of 2021 related to repayments on our long-term debt and finance leases. The first ~~two~~three quarters of 2020 included precautionary draws on our revolving credit facility of $55.5 million during the initial onset of the COVID-19 pandemic, partially offset by repayments of $54.1 million and related debt issuance costs, as well as payments on finance leases.

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Capital Resources

Future Capital Expenditure Requirements. Our capital expenditure requirements are primarily dependent upon the pace of our real estate development program and resulting new restaurant openings, costs for maintenance and remodeling of our existing restaurants as well as information technology expenses and other general corporate capital expenditures.

We estimate capital expenditures will be approximately $20.0 million to ~~$24.0~~$22.0 million for fiscal year 2021, primarily for the opening of ~~eight~~of five to ~~eleven~~seven company-owned restaurants, kitchen equipment initiatives and restaurant maintenance capital. We expect such capital expenditures to be funded by currently available cash and cash equivalents, cash flows from operations and if necessary, undrawn capacity under our revolving credit line.

Current Resources. Our operations have not historically required significant working capital and, like many restaurant companies, we operate with negative working capital. Restaurant sales are primarily paid for in cash or by credit or debit card, and restaurant operations do not require significant inventories or receivables. In addition, we receive trade credit for the purchase of food, beverages and supplies, therefore reducing the need for incremental working capital to support growth.

Liquidity. As of ~~June 29,~~September 28, 2021, we had a cash balance of ~~$17.3~~$3.1 million compared to $7.8 million as of December 29, 2020. ~~We will continue to evaluate our cash on hand and expect to pay down a portion of our outstanding debt over the next two quarters.~~ We believe that our current cash and cash equivalents, the expected cash flows from company-owned restaurant operations, the expected franchise fees and royalties and available borrowings under the credit facility will be sufficient to fund our cash requirements for working capital needs, new restaurant openings, and capital improvements and maintenance of existing restaurants for at least the next twelve months.

Credit Facility

In November of 2019, we amended our 2018 Credit Facility by entering into that certain First Amendment to Credit Agreement (the “Amendment” and the 2018 Credit Facility, as amended, the “First Amended Credit Facility”). Among other things, the Amendment: (i) extended the maturity date to November 20, 2024; (ii) increased the revolving credit facility from $65.0 million to $75.0 million; (iii) delayed step downs of the Company’s leverage covenant; and (iv) increased the limit on capital expenditures to $37.0 million in 2020 and to $45.0 million in 2021 and each fiscal year thereafter. Upon execution of the First Amended Credit Facility, the Company repaid in full its outstanding indebtedness under its prior credit facility using funds drawn on the First Amended Credit Facility. Upon repayment, the prior credit facility and all related agreements were terminated.

On June 16, 2020 (the “Effective Date”), the Company amended its First Amended Credit Facility by entering into the Second Amendment to the Credit Agreement (the “Second Amendment” and the First Amended Credit Facility, as amended, the “Second Amended Credit Facility”). Beginning on the Effective Date and through the third quarter of 2021 (the “Amendment Period”), borrowings under the Second Amended Credit Facility, including the term loan facility, will bear interest at LIBOR plus 3.25% per annum. Following the Amendment Period, borrowings will bear interest at LIBOR plus a margin of 2.00% to 3.00% per annum, based upon the consolidated total lease-adjusted leverage ratio. Among other things, the Second Amendment (i) waives the lease-adjusted leverage ratio and fixed charge ratio covenants through the first quarter of 2021; (ii) amends the Company’s lease-adjusted leverage ratio and fixed coverage ratio covenant thresholds beginning in the second quarter of 2021 through the third quarter of 2022 and the first quarter of 2022, respectively and (iii) limits capital expenditures to $12.0 million in 2020, $12.0 million plus a liquidity-based performance basket up to an additional $12.0 million in 2021, $34.0 million in 2022, $37.0 million in 2023 and $45.0 million annually thereafter. As of the second quarter of 2021, the Company had full access to its $12.0 million performance basket, and for the remainder of 2021, the Company expects to have access to the full $24.0 million in capital expenditures which includes the $12.0 million performance basket.

As of ~~June 29,~~September 28, 2021, we had ~~$38.8~~$23.7 million of indebtedness (excluding ~~$1.5~~$1.4 million of unamortized debt issuance costs) and $3.2 million of letters of credit outstanding under the Second Amended Credit Facility. The term loan requires principal

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payments of $187,500 per quarter through the third quarter of 2021, $375,000 per quarter through the third quarter of 2022, $531,250 per quarter through the third quarter of 2023 and $625,000 per quarter thereafter through maturity.

Our Second Amended Credit Facility is secured by a pledge of stock of substantially all of our subsidiaries and a lien on substantially all of our and our subsidiaries’ personal property assets.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements or obligations as of ~~June 29,~~September 28, 2021.

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Critical Accounting Policies and Estimates

Our condensed consolidated financial statements and accompanying notes are prepared in accordance with GAAP. Preparing consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by the application of our accounting policies. Our significant accounting policies are described in our Annual Report on Form 10-K for the year ended December 29, 2020. Critical accounting estimates are those that require application of management’s most difficult, subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. While we apply our judgment based on assumptions believed to be reasonable under the circumstances, actual results could vary from these assumptions. It is possible that materially different amounts would be reported using different assumptions. Our critical accounting estimates are identified and described in our annual consolidated financial statements and the related notes included in our Annual Report on Form 10-K for our fiscal year ended December 29, 2020.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

We are exposed to market risk from changes in interest rates on debt. Our exposure to interest rate fluctuations is limited to our outstanding bank debt, which bears interest at variable rates. As of ~~June 29,~~September 28, 2021, we had ~~$38.8~~$23.7 million of outstanding borrowings under our credit facility. An increase or decrease of 1.0% in the effective interest rate applied on these loans would have resulted in a pre-tax interest expense fluctuation of approximately ~~$0.4~~$0.2 million on an annualized basis. There is currently uncertainty around whether LIBOR will continue to exist after 2021. If LIBOR ceases to exist, our lenders have the ability to choose an alternative index and we cannot predict what alternative index would be negotiated with our lenders.

Commodity Price Risk

We purchase certain products that are affected by commodity prices and are, therefore, subject to price volatility caused by weather, market conditions and other factors which are not considered predictable or within our control. Although these products are subject to changes in commodity prices, certain purchasing contracts or pricing arrangements contain risk management techniques designed to minimize price volatility. Typically, we use these types of purchasing techniques to control costs as an alternative to directly managing financial instruments to hedge commodity prices. In many cases, we believe we will be able to address material commodity cost increases by adjusting our menu pricing or changing our product delivery strategy. However, increases in commodity prices, without adjustments to our menu prices, have and could continue to increase restaurant operating costs as a percentage of restaurant revenue.

Inflation

The primary inflationary factors affecting our operations are food, labor costs, energy costs and materials used in the construction of new restaurants. Increases in the minimum wage requirements directly affect our labor costs. Many of our leases require us to pay taxes, maintenance, repairs, insurance and utilities, all of which are generally subject to inflationary increases. Finally, the cost of constructing our restaurants is subject to inflationary increases in the costs of labor and material. Over the past five years, inflation has not significantly affected our operating results with the exception of increased wage inflation that affected our results from 2016 through the first ~~two~~three quarters of 2021. We expect wage inflation may continue to affect our results in the near future.

Item 4. Controls and Procedures

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Our management carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of ~~June 29,~~September 28, 2021, pursuant to Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules

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and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

Item 1. Legal Proceedings

In the normal course of business, we are subject to other proceedings, lawsuits and claims. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability or financial impact with respect to these matters as of ~~June 29,~~September 28, 2021. These matters could affect the operating results of any one financial reporting period when resolved in future periods. We believe that an unfavorable outcome with respect to these matters is remote or a potential range of loss is not material to our consolidated financial statements. Significant increases in the number of these claims, or one or more successful claims that result in greater liabilities than we currently anticipate, could materially adversely affect our business, financial condition, results of operations or cash flows.

Item 1A. Risk Factors

A description of the risk factors associated with our business is contained in the “Risk Factors” section of our Annual Report on Form 10-K for our fiscal year ended December 29, 2020. There have been no material changes to our Risk Factors as previously reported in our Annual Report on Form 10-K for our fiscal year ended December 29, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibit Index


Exhibit Number						Description of Exhibit
~~10.1~~						~~Employment Agreement, dated August 2, 2021, between Noodles & Company and Kathy Lockhart~~
~~10.2~~						~~Employment Agreement, dated August 2, 2021, between Noodles & Company and Sue Petersen~~
~~10.3~~						~~Employment Agreement, dated July 30, 2021, between Noodles & Company and Corey Kline~~
31.1						Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2						Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1						Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
101.INS						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH						Inline XBRL Taxonomy Extension Schema Document
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document
104.0						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

~~__________________~~

*Management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


NOODLES & COMPANY
By:			/s/ CARL LUKACH
			Carl Lukach Chief Financial Officer (principal financial officer and duly authorized signatory for the registrant)
Date			~~August 4,~~November 9, 2021


			Page
PART I
	Item 1.	Financial Statements (unaudited)	2
		Condensed Consolidated Balance Sheets	2
		Condensed Consolidated Statements of Operations	3
		Condensed Consolidated Statements of Stockholders’ Equity	4
		Condensed Consolidated Statements of Cash Flows	5
		Notes to Condensed Consolidated Financial Statements	6
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
	Item 4.	Controls and Procedures	26
PART II
	Item 1.	Legal Proceedings	28
	Item 1A.	Risk Factors	28
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
	Item 3.	Defaults Upon Senior Securities	28
	Item 4.	Mine Safety Disclosures	28
	Item 5.	Other Information	28
	Item 6.	Exhibits	29
SIGNATURES			30