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 ~~April~~July 4, 2023

☐ 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, a smaller reporting company, or an emerging growth 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 ~~May 5,~~August 4, 2023
Class A Common Stock, $0.01 par value per share						~~46,357,830~~46,429,174 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)


		April 4, 2023		January 3, 2023			July 4, 2023		January 3, 2023
		(unaudited)					(unaudited)
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	2,064	$	1,523	Cash and cash equivalents	$	3,142	$	1,523
Accounts receivable	Accounts receivable	4,762		6,443		Accounts receivable	4,920		6,443
Inventories	Inventories	9,936		10,044		Inventories	10,195		10,044
Prepaid expenses and other assets	Prepaid expenses and other assets	4,138		3,450		Prepaid expenses and other assets	5,259		3,450
Income tax receivable	Income tax receivable	186		176		Income tax receivable	308		176
Total current assets	Total current assets	21,086		21,636		Total current assets	23,824		21,636
Property and equipment, net	Property and equipment, net	134,715		129,386		Property and equipment, net	140,052		129,386
Operating lease assets, net	Operating lease assets, net	183,795		183,392		Operating lease assets, net	184,186		183,392
Goodwill	Goodwill	7,154		7,154		Goodwill	7,154		7,154
Intangibles, net	Intangibles, net	597		608		Intangibles, net	584		608
Other assets, net	Other assets, net	1,697		1,667		Other assets, net	1,774		1,667
Total long-term assets	Total long-term assets	327,958		322,207		Total long-term assets	333,750		322,207
Total assets	Total assets	$	349,044	$	343,843	Total assets	$	357,574	$	343,843
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	15,524	$	15,308	Accounts payable	$	14,537	$	15,308
Accrued payroll and benefits	Accrued payroll and benefits	12,631		9,219		Accrued payroll and benefits	8,572		9,219
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	11,230		11,005		Accrued expenses and other current liabilities	12,312		11,005
Current operating lease liabilities	Current operating lease liabilities	28,581		28,581		Current operating lease liabilities	29,123		28,581

Total current liabilities	Total current liabilities	67,966		64,113		Total current liabilities	64,544		64,113
Long-term debt, net	Long-term debt, net	51,216		46,051		Long-term debt, net	63,202		46,051
Long-term operating lease liabilities, net	Long-term operating lease liabilities, net	186,594		187,320		Long-term operating lease liabilities, net	186,897		187,320
Deferred tax liabilities, net	Deferred tax liabilities, net	156		229		Deferred tax liabilities, net	126		229
Other long-term liabilities	Other long-term liabilities	7,181		7,766		Other long-term liabilities	6,725		7,766
Total liabilities	Total liabilities	313,113		305,479		Total liabilities	321,494		305,479

Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock—$0.01 par value, 1,000,000 shares authorized and undesignated as of April 4, 2023 and January 3, 2023; no shares issued or outstanding		—		—
Common stock—$0.01 par value, 180,000,000 shares authorized as of April 4, 2023 and January 3, 2023; 48,781,701 issued and 46,357,830 outstanding as of April 4, 2023 and 48,464,298 issued and 46,040,427 outstanding as of January 3, 2023		488		485
Treasury stock, at cost, 2,423,871 shares as of April 4, 2023 and January 3, 2023		(35,000)		(35,000)
Preferred stock—$0.01 par value, 1,000,000 shares authorized and undesignated as of July 4, 2023 and January 3, 2023; no shares issued or outstanding						Preferred stock—$0.01 par value, 1,000,000 shares authorized and undesignated as of July 4, 2023 and January 3, 2023; no shares issued or outstanding	—		—
Common stock—$0.01 par value, 180,000,000 shares authorized as of July 4, 2023 and January 3, 2023; 48,853,045 issued and 46,429,174 outstanding as of July 4, 2023 and 48,464,298 issued and 46,040,427 outstanding as of January 3, 2023						Common stock—$0.01 par value, 180,000,000 shares authorized as of July 4, 2023 and January 3, 2023; 48,853,045 issued and 46,429,174 outstanding as of July 4, 2023 and 48,464,298 issued and 46,040,427 outstanding as of January 3, 2023	489		485
Treasury stock, at cost, 2,423,871 shares as of July 4, 2023 and January 3, 2023						Treasury stock, at cost, 2,423,871 shares as of July 4, 2023 and January 3, 2023	(35,000)		(35,000)
Additional paid-in capital	Additional paid-in capital	211,946		211,267		Additional paid-in capital	213,398		211,267
Accumulated deficit	Accumulated deficit	(141,503)		(138,388)		Accumulated deficit	(142,807)		(138,388)
Total stockholders’ equity	Total stockholders’ equity	35,931		38,364		Total stockholders’ equity	36,080		38,364
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	349,044	$	343,843	Total liabilities and stockholders’ equity	$	357,574	$	343,843

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				Fiscal Quarter Ended				Two Fiscal Quarters Ended
		April 4, 2023		March 29, 2022				July 4, 2023		June 28, 2022		July 4, 2023		June 28, 2022
Revenue:	Revenue:						Revenue:
Restaurant revenue	Restaurant revenue	$	123,227	$	109,961		Restaurant revenue	$	122,394	$	128,274	$	245,621	$	238,235
Franchising royalties and fees, and other	Franchising royalties and fees, and other	2,850		2,601			Franchising royalties and fees, and other	2,760		2,793		5,610		5,394
Total revenue	Total revenue	126,077		112,562			Total revenue	125,154		131,067		251,231		243,629
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	31,025		30,771			Cost of sales	30,700		35,664		61,725		66,435
Labor	Labor	39,830		35,493			Labor	39,657		38,828		79,487		74,321
Occupancy	Occupancy	11,486		11,149			Occupancy	11,365		11,074		22,851		22,223
Other restaurant operating costs	Other restaurant operating costs	24,011		21,866			Other restaurant operating costs	22,594		22,792		46,605		44,658
General and administrative	General and administrative	13,641		11,840			General and administrative	12,463		12,744		26,104		24,584
Depreciation and amortization	Depreciation and amortization	6,250		5,721			Depreciation and amortization	6,437		5,763		12,687		11,484
Pre-opening	Pre-opening	492		408			Pre-opening	609		353		1,101		761
Restaurant impairments, closure costs and asset disposals	Restaurant impairments, closure costs and asset disposals	1,569		1,389			Restaurant impairments, closure costs and asset disposals	1,609		1,971		3,178		3,360
Total costs and expenses	Total costs and expenses	128,304		118,637			Total costs and expenses	125,434		129,189		253,738		247,826
Loss from operations		(2,227)		(6,075)
(Loss) income from operations							(Loss) income from operations	(280)		1,878		(2,507)		(4,197)

Interest expense, net	Interest expense, net	961		437			Interest expense, net	1,054		489		2,015		926
Loss before taxes		(3,188)		(6,512)
Benefit from income taxes		(73)		(83)
Net loss		$	(3,115)	$	(6,429)
Loss per Class A and Class B common stock, combined
(Loss) income before taxes							(Loss) income before taxes	(1,334)		1,389		(4,522)		(5,123)
(Benefit from) provision for income taxes							(Benefit from) provision for income taxes	(30)		44		(103)		(39)
Net (loss) income							Net (loss) income	$	(1,304)	$	1,345	$	(4,419)	$	(5,084)
(Loss) earnings per Class A and Class B common stock, combined							(Loss) earnings per Class A and Class B common stock, combined
Basic	Basic	$	(0.07)	$	(0.14)		Basic	$	(0.03)	$	0.03	$	(0.10)	$	(0.11)
Diluted	Diluted	$	(0.07)	$	(0.14)		Diluted	$	(0.03)	$	0.03	$	(0.10)	$	(0.11)
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	46,115,506		45,726,500			Basic	46,363,208		45,881,354		46,239,357		45,803,927
Diluted	Diluted	46,115,506		45,726,500			Diluted	46,363,208		46,108,720		46,239,357		45,803,927

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
															Common Stock(1)			Treasury			Additional Paid-In Capital		Accumulated Deficit		Total Stockholders’ Equity
															Shares	Amount		Shares	Amount
Balance—April 4, 2023														Balance—April 4, 2023	48,781,701	$	488	2,423,871	$	(35,000)	$	211,946	$	(141,503)	$	35,931
Stock plan transactions and other														Stock plan transactions and other	71,344	1		—	—		(45)		—		(44)
Stock-based compensation expense														Stock-based compensation expense	—	—		—	—		1,497		—		1,497
Net loss														Net loss	—	—		—	—		—		(1,304)		(1,304)
Balance—July 4, 2023														Balance—July 4, 2023	48,853,045	$	489	2,423,871	$	(35,000)	$	213,398	$	(142,807)	$	36,080

Balance—March 29, 2022														Balance—March 29, 2022	48,258,594	$	483	2,423,871	$	(35,000)	$	208,065	$	(141,503)	$	32,045
Stock plan transactions and other														Stock plan transactions and other	125,599	1		—	—		(19)		—		(18)
Stock-based compensation expense														Stock-based compensation expense	—	—		—	—		1,515		—		1,515
Net income														Net income	—	—		—	—		—		1,345		1,345
Balance—June 28, 2022														Balance—June 28, 2022	48,384,193	$	484	2,423,871	$	(35,000)	$	209,561	$	(140,158)	$	34,887

		Fiscal Quarter Ended													Two 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—January 3, 2023	Balance—January 3, 2023	48,464,298	$	485	2,423,871	$	(35,000)	$	211,267	$	(138,388)	$	38,364	Balance—January 3, 2023	48,464,298	$	485	2,423,871	$	(35,000)	$	211,267	$	(138,388)	$	38,364
Stock plan transactions and other	Stock plan transactions and other	317,403	3		—	—		(644)		—		(641)		Stock plan transactions and other	388,747	4		—	—		(689)		—		(685)
Stock-based compensation expense	Stock-based compensation expense	—	—		—	—		1,323		—		1,323		Stock-based compensation expense	—	—		—	—		2,820		—		2,820
Net loss	Net loss	—	—		—	—		—		(3,115)		(3,115)		Net loss	—	—		—	—		—		(4,419)		(4,419)
Balance—April 4, 2023		48,781,701	$	488	2,423,871	$	(35,000)	$	211,946	$	(141,503)	$	35,931
Balance—July 4, 2023														Balance—July 4, 2023	48,853,045	$	489	2,423,871	$	(35,000)	$	213,398	$	(142,807)	$	36,080

Balance—December 28, 2021	Balance—December 28, 2021	48,125,151	$	481	2,423,871	$	(35,000)	$	207,226	$	(135,074)	$	37,633	Balance—December 28, 2021	48,125,151	$	481	2,423,871	$	(35,000)	$	207,226	$	(135,074)	$	37,633
Stock plan transactions and other	Stock plan transactions and other	133,443	2		—	—		(301)		—		(299)		Stock plan transactions and other	259,042	3		—	—		(320)		—		(317)
Stock-based compensation expense	Stock-based compensation expense	—	—		—	—		1,140		—		1,140		Stock-based compensation expense	—	—		—	—		2,655		—		2,655
Net loss	Net loss	—	—		—	—		—		(6,429)		(6,429)		Net loss	—	—		—	—		—		(5,084)		(5,084)
Balance—March 29, 2022		48,258,594	$	483	2,423,871	$	(35,000)	$	208,065	$	(141,503)	$	32,045

Balance—June 28, 2022														Balance—June 28, 2022	48,384,193	$	484	2,423,871	$	(35,000)	$	209,561	$	(140,158)	$	34,887

_____________

(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)


		Fiscal Quarter Ended					Two Fiscal Quarters Ended
		April 4, 2023		March 29, 2022			July 4, 2023		June 28, 2022
Operating activities	Operating activities					Operating activities
Net loss	Net loss	$	(3,115)	$	(6,429)	Net loss	$	(4,419)	$	(5,084)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Adjustments to reconcile net loss to net cash provided by operating activities:						Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	6,250		5,721		Depreciation and amortization	12,687		11,484
Deferred income taxes	Deferred income taxes	(73)		(84)		Deferred income taxes	(103)		(40)
Restaurant impairments, closure costs and asset disposals	Restaurant impairments, closure costs and asset disposals	398		496		Restaurant impairments, closure costs and asset disposals	1,092		1,363

Amortization of debt issuance costs	Amortization of debt issuance costs	90		112		Amortization of debt issuance costs	180		223
Stock-based compensation	Stock-based compensation	1,302		1,120		Stock-based compensation	2,778		2,618

Gain on insurance proceeds for property damage						Gain on insurance proceeds for property damage	(62)		—
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	1,606		(513)		Accounts receivable	1,425		(55)
Inventories	Inventories	77		(315)		Inventories	(215)		(588)
Prepaid expenses and other assets	Prepaid expenses and other assets	(749)		1,378		Prepaid expenses and other assets	(1,947)		768
Accounts payable	Accounts payable	(996)		(716)		Accounts payable	(703)		(438)
Income taxes	Income taxes	(10)		1		Income taxes	(132)		(103)
Operating lease assets and liabilities	Operating lease assets and liabilities	(640)		(826)		Operating lease assets and liabilities	(394)		(1,741)
Accrued expenses and other liabilities	Accrued expenses and other liabilities	3,082		(6,005)		Accrued expenses and other liabilities	199		(2,364)
Net cash provided by (used in) operating activities		7,222		(6,060)
Net cash provided by operating activities						Net cash provided by operating activities	10,386		6,043
Investing activities	Investing activities					Investing activities
Purchases of property and equipment	Purchases of property and equipment	(10,436)		(8,412)		Purchases of property and equipment	(23,913)		(16,724)

Insurance proceeds received for property damage						Insurance proceeds received for property damage	100		—
Proceeds from restaurant divestitures	Proceeds from restaurant divestitures	—		1,577		Proceeds from restaurant divestitures	—		1,577
Net cash used in investing activities	Net cash used in investing activities	(10,436)		(6,835)		Net cash used in investing activities	(23,813)		(15,147)
Financing activities	Financing activities					Financing activities
Net borrowings from swing line loan	Net borrowings from swing line loan	575		3,195		Net borrowings from swing line loan	3,971		509
Proceeds from borrowings on long-term debt	Proceeds from borrowings on long-term debt	4,500		10,600		Proceeds from borrowings on long-term debt	13,000		10,600
Payments on long-term debt	Payments on long-term debt	—		(750)		Payments on long-term debt	—		(1,125)
Payments on finance leases	Payments on finance leases	(679)		(505)		Payments on finance leases	(1,240)		(1,002)

Debt issuance costs						Debt issuance costs	—		(27)
Stock plan transactions and tax withholding on share-based compensation awards	Stock plan transactions and tax withholding on share-based compensation awards	(641)		(299)		Stock plan transactions and tax withholding on share-based compensation awards	(685)		(317)
Net cash provided by financing activities	Net cash provided by financing activities	3,755		12,241		Net cash provided by financing activities	15,046		8,638
Net increase (decrease) in cash and cash equivalents	Net increase (decrease) in cash and cash equivalents	541		(654)		Net increase (decrease) in cash and cash equivalents	1,619		(466)
Cash and cash equivalents	Cash and cash equivalents					Cash and cash equivalents
Beginning of period	Beginning of period	1,523		2,255		Beginning of period	1,523		2,255
End of period	End of period	$	2,064	$	1,601	End of period	$	3,142	$	1,789

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 ~~April~~July 4, 2023, the Company had ~~461~~465 restaurants system-wide in 31 states, comprised of ~~369~~373 company-owned restaurants and 92 franchise restaurants. The Company operates its business as one 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 January 3, 2023 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 January 3, 2023.

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 2023, which ends on January 2, 2024 contains 52 weeks and fiscal year 2022, which ended on January 3, 2023, contained 53 weeks. The Company’s fiscal quarter that ended ~~April~~July 4, 2023 is referred to as the ~~first~~second quarter of 2023, and the fiscal quarter ended ~~March 29,~~June 28, 2022 is referred to as the ~~first~~second quarter of 2022.

2. Supplemental Financial Information

Accounts receivable consist of the following (in thousands):


		April 4, 2023		January 3, 2023			July 4, 2023		January 3, 2023
Delivery program receivables	Delivery program receivables	$	1,716	$	2,027	Delivery program receivables	$	2,118	$	2,027
Vendor rebate receivables	Vendor rebate receivables	548		801		Vendor rebate receivables	650		801
Franchise receivables	Franchise receivables	1,767		2,050		Franchise receivables	1,436		2,050
Other receivables	Other receivables	731		1,565		Other receivables	716		1,565
Accounts receivable	Accounts receivable	$	4,762	$	6,443	Accounts receivable	$	4,920	$	6,443

Table of Contents

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


		April 4, 2023		January 3, 2023			July 4, 2023		January 3, 2023
Prepaid insurance	Prepaid insurance	$	675	$	882	Prepaid insurance	$	1,902	$	882
Prepaid occupancy related costs	Prepaid occupancy related costs	728		711		Prepaid occupancy related costs	742		711

Prepaid expenses	Prepaid expenses	2,687		1,802		Prepaid expenses	2,572		1,802
Other current assets	Other current assets	48		55		Other current assets	43		55
Prepaid expenses and other assets	Prepaid expenses and other assets	$	4,138	$	3,450	Prepaid expenses and other assets	$	5,259	$	3,450

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


		April 4, 2023		January 3, 2023			July 4, 2023		January 3, 2023
Leasehold improvements	Leasehold improvements	$	215,960	$	212,319	Leasehold improvements	$	222,306	$	212,319
Furniture, fixtures and equipment	Furniture, fixtures and equipment	154,573		152,786		Furniture, fixtures and equipment	157,441		152,786
Construction in progress	Construction in progress	12,006		6,738		Construction in progress	12,404		6,738
		382,539		371,843			392,151		371,843
Accumulated depreciation and amortization	Accumulated depreciation and amortization	(247,824)		(242,457)		Accumulated depreciation and amortization	(252,099)		(242,457)
Property and equipment, net	Property and equipment, net	$	134,715	$	129,386	Property and equipment, net	$	140,052	$	129,386

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


		April 4, 2023		January 3, 2023			July 4, 2023		January 3, 2023
Accrued payroll and related liabilities	Accrued payroll and related liabilities	$	8,531	$	5,004	Accrued payroll and related liabilities	$	5,053	$	5,004
Accrued bonus	Accrued bonus	2,437		2,007		Accrued bonus	1,819		2,007
Insurance liabilities	Insurance liabilities	1,663		2,208		Insurance liabilities	1,700		2,208
Accrued payroll and benefits	Accrued payroll and benefits	$	12,631	$	9,219	Accrued payroll and benefits	$	8,572	$	9,219

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


		April 4, 2023		January 3, 2023			July 4, 2023		January 3, 2023
Gift card liability	Gift card liability	$	2,073	$	2,430	Gift card liability	$	1,957	$	2,430
Occupancy related	Occupancy related	1,441		1,001		Occupancy related	1,210		1,001
Utilities	Utilities	1,252		1,612		Utilities	1,250		1,612
Current portion of finance lease liability	Current portion of finance lease liability	2,236		2,210		Current portion of finance lease liability	2,261		2,210

Accrued interest	Accrued interest	120		70		Accrued interest	144		70
Insurance liabilities	Insurance liabilities	380		415		Insurance liabilities	202		415
Other restaurant expense accruals	Other restaurant expense accruals	1,180		1,128		Other restaurant expense accruals	1,994		1,128
Other corporate expense accruals	Other corporate expense accruals	2,548		2,139		Other corporate expense accruals	3,294		2,139
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	$	11,230	$	11,005	Accrued expenses and other current liabilities	$	12,312	$	11,005

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 was subsequently amended on November 20, 2019 and ~~then~~ again on June 16, 2020, (as amended, the “Second Amended Credit Facility”).

Table of Contents

On July 27, 2022, the Company amended and restated its Second Amended Credit Facility by entering into the Third Amendment to the Credit Agreement (as amended and restated, the “Third Amended Credit Facility”) which matures on July 27, 2027. Among other things, the Third Amended Credit Facility: (i) increased the credit facility from $100.0 million to $125.0 million; (ii) eliminated the term loan and principal amortization components of the credit facility; (iii) removed the Company’s capital expenditure covenant; (iv) enhanced flexibility for certain covenants and restrictions; and (v) lowered the spread of the Company’s cost of borrowing and transitioned from the London Interbank Offered Rate (LIBOR) to the Secured Overnight Financing Rate (“SOFR”) plus a margin of 1.50% to 2.50% per annum, based upon the consolidated total lease-adjusted leverage ratio.

As of ~~April~~July 4, 2023, the Company had ~~$52.8~~$64.7 million of indebtedness (excluding ~~$1.6~~$1.5 million of unamortized debt issuance costs) and $3.0 million of letters of credit outstanding under the Third Amended Credit Facility. As of ~~April~~July 4, 2023, the Company had cash on hand of ~~$2.1~~$3.1 million.

The Company’s revolver, which had a balance of ~~$47.4~~$55.9 million as of ~~April~~July 4, 2023, bore interest at rates between ~~6.63%~~7.20% and ~~7.2%~~7.50%. The Company’s swingline, which had a balance of ~~$5.4~~$8.8 million as of ~~April~~July 4, 2023, bore interest at rates between ~~8.75%~~9.25% and ~~9.25%~~9.50%.

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 ~~April~~July 4, 2023.

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 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 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.

Adjustments to the fair value of assets measured at fair value on a non-recurring basis as of ~~April~~July 4, 2023 and ~~March 29,~~June 28, 2022 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						Fiscal Quarter Ended					Two Fiscal Quarters Ended
		April 4, 2023			March 29, 2022					July 4, 2023			June 28, 2022			July 4, 2023			June 28, 2022
Benefit from income taxes		$	(73)		$	(83)
(Benefit from) provision for income taxes									(Benefit from) provision for income taxes	$	(30)		$	44		$	(103)		$	(39)
Effective tax rate	Effective tax rate	2.3		%	1.3		%		Effective tax rate	2.2		%	3.2		%	2.3		%	0.8		%

The effective tax rate for the second quarter and the first ~~quarter~~two quarters of 2023 and ~~the first quarter of~~ 2022, respectively, reflects the impact of the previously recorded valuation allowance. For the remainder of fiscal 2023, 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.

Table of Contents

6. Stock-Based Compensation

~~The~~In May of 2023, the Company’s Board of Directors adopted the 2023 Stock Incentive Plan, which was approved at the annual meeting of stockholders on May 16, 2023 (the ~~“Plan”~~“2023 Plan”)~~, as amended and restated in May of 2013,~~. The 2023 Plan authorizes the grant of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance share units and incentive bonuses to employees, officers, non-employee directors and other service ~~providers.~~providers, as applicable. The Company’s 2013 Stock Incentive Plan, as amended and restated in May of 2013 was terminated. As of ~~April~~July 4, 2023, approximately ~~0.2~~2.9 million share-based awards were available to be granted under the 2023 Plan.

~~Table of Contents~~

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


		Fiscal Quarter Ended				Fiscal Quarter Ended				Two Fiscal Quarters Ended
		April 4, 2023		March 29, 2022				July 4, 2023		June 28, 2022		July 4, 2023		June 28, 2022
Stock-based compensation expense	Stock-based compensation expense	$	1,391	$	1,169		Stock-based compensation expense	$	1,496	$	1,499	$	2,886	$	2,668
Capitalized stock-based compensation expense	Capitalized stock-based compensation expense	$	22	$	20		Capitalized stock-based compensation expense	$	20	$	18	$	42	$	38

7. Restaurant Impairments, Closure Costs and Asset Disposals

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


		Fiscal Quarter Ended				Fiscal Quarter Ended				Two Fiscal Quarters Ended
		April 4, 2023		March 29, 2022				July 4, 2023		June 28, 2022		July 4, 2023		June 28, 2022
Restaurant impairments (1)	Restaurant impairments (1)	$	86	$	106		Restaurant impairments (1)	$	423	$	668	$	509	$	774
Closure costs (1)	Closure costs (1)	558		389			Closure costs (1)	249		465		807		855
Loss on disposal of assets and other	Loss on disposal of assets and other	925		894			Loss on disposal of assets and other	937		838		1,862		1,731
		$	1,569	$	1,389			$	1,609	$	1,971	$	3,178	$	3,360

_____________________________

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

~~There were no restaurant impairments in both first quarters of~~ ~~2023 and~~ ~~2022.~~ I~~mpairment~~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~~market lease rates. There was one restaurant impairment during the second quarter of 2023 and the first two quarters of 2023. Two restaurants were identified as impaired in the second quarter of 2022 and the first two quarters of 2022.

We permanently closed two company-owned restaurants in the second quarter of 2023, one of which was an early lease termination. The Company did not close any restaurants in the second quarter of 2022. Closure costs in the ~~first~~second quarter of 2023 ~~consisted of costs related to two restaurants closed in the first quarter of 2023 as well as costs related to~~and 2022 also included ongoing expenses from restaurant closures in prior years. ~~Closure costs also include two early lease termination settlements, one of which closed during the first quarter of 2023, and one of which closed during the second quarter of 2023.~~

~~Loss on disposal of assets and other during~~We permanently closed four company-owned restaurants in the first two quarters of 2023, ~~and~~two of which were early lease terminations. The Company closed ~~2022~~two ~~includes~~restaurants in the first two quarters of 2022. Closure costs in the first two quarters of 20223 and 2022 also included ongoing expenses from restaurant closures in prior years.

Both periods include asset disposals in the normal course of business and lease related costs and expenses in connection with the divestiture of company-owned restaurants in ~~2022 and 2020.~~previous years.

8. Earnings (Loss) Per Share

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.

Table of Contents

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


		Fiscal Quarter Ended				Fiscal Quarter Ended				Two Fiscal Quarters Ended
		April 4, 2023		March 29, 2022				July 4, 2023		June 28, 2022		July 4, 2023		June 28, 2022
Net loss		$	(3,115)	$	(6,429)
Net (loss) income							Net (loss) income	$	(1,304)	$	1,345	$	(4,419)	$	(5,084)
Shares:	Shares:						Shares:
Basic weighted average shares outstanding	Basic weighted average shares outstanding	46,115,506		45,726,500			Basic weighted average shares outstanding	46,363,208		45,881,354		46,239,357		45,803,927
Effect of dilutive securities	Effect of dilutive securities	—		—			Effect of dilutive securities	—		227,366		—		—
Diluted weighted average shares outstanding	Diluted weighted average shares outstanding	46,115,506		45,726,500			Diluted weighted average shares outstanding	46,363,208		46,108,720		46,239,357		45,803,927
Loss per share:
Basic loss per share		$	(0.07)	$	(0.14)
Diluted loss per share		$	(0.07)	$	(0.14)
(Loss) earnings per share:							(Loss) earnings per share:
Basic (loss) earnings per share							Basic (loss) earnings per share	$	(0.03)	$	0.03	$	(0.10)	$	(0.11)
Diluted (loss) earnings per share							Diluted (loss) earnings per share	$	(0.03)	$	0.03	$	(0.10)	$	(0.11)

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 loss per share when the effect would be anti-dilutive. The shares issuable on the vesting or exercise of share-based awards that were excluded from the calculation of diluted earnings per share because the effect of their inclusion would have been anti-dilutive totaled ~~3,100,963~~3,896,910 and ~~1,018,962~~1,798,409 for the ~~first~~second quarters of 2023 and 2022, respectively,.and totaled 3,466,704 and 2,278,371 for the first two quarters of 2023 and 2022, respectively.

9. Leases

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


Classification	Classification		April 4, 2023		January 3, 2023		Classification		July 4, 2023		January 3, 2023
Assets	Assets						Assets
Operating	Operating	Operating lease assets, net	$	183,795	$	183,392	Operating	Operating lease assets, net	$	184,186	$	183,392
Finance	Finance	Property and equipment	4,813		5,258		Finance	Property and equipment	4,285		5,258
Total leased assets	Total leased assets		$	188,608	$	188,650	Total leased assets		$	188,471	$	188,650
Liabilities	Liabilities						Liabilities
Current lease liabilities	Current lease liabilities						Current lease liabilities
Operating	Operating	Current operating lease liabilities	$	28,581	$	28,581	Operating	Current operating lease liabilities	$	29,123	$	28,581
Finance	Finance	Accrued expenses and other current liabilities	2,236		2,210		Finance	Accrued expenses and other current liabilities	2,261		2,210
Long-term lease liabilities	Long-term lease liabilities						Long-term lease liabilities
Operating	Operating	Long-term operating lease liabilities	186,594		187,320		Operating	Long-term operating lease liabilities	186,897		187,320
Finance	Finance	Other long-term liabilities	2,957		3,520		Finance	Other long-term liabilities	2,405		3,520
Total lease liabilities	Total lease liabilities		$	220,368	$	221,631	Total lease liabilities		$	220,686	$	221,631

Sublease income recognized in the Condensed Consolidated Statements of Operations was $0.8 million and $1.6 million for both of the ~~first~~second quarters of 2023 and ~~2022.~~2022 and the first two quarters of 2023 and 2022, respectively.

Table of Contents

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


		Fiscal Quarter Ended				Fiscal Quarter Ended				Two Fiscal Quarters Ended
		April 4, 2023		March 29, 2022				July 4, 2023		June 28, 2022		July 4, 2023		June 28, 2022
Cash paid for lease liabilities:	Cash paid for lease liabilities:						Cash paid for lease liabilities:
Operating leases	Operating leases	$	10,522	$	10,444		Operating leases	$	10,565	$	10,415	$	21,087	$	20,859
Finance leases	Finance leases	764		614			Finance leases	638		599		1,402		1,213
		$	11,286	$	11,058			$	11,203	$	11,014	$	22,489	$	22,072
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	$	7,015	$	3,832		Operating leases	$	6,759	$	4,275	$	13,774	$	8,107
Finance leases	Finance leases	142		722			Finance leases	35		121		177		843
		$	7,157	$	4,554			$	6,794	$	4,396	$	13,951	$	8,950

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 ~~first quarter~~two quarters ended ~~April~~July 4, 2023 and ~~March 29,~~June 28, 2022 (in thousands):


		April 4, 2023		March 29, 2022			July 4, 2023		June 28, 2022
Interest paid (net of amounts capitalized)	Interest paid (net of amounts capitalized)	$	738	$	245	Interest paid (net of amounts capitalized)	$	1,594	$	461
Income taxes paid	Income taxes paid	10		1		Income taxes paid	132		106
Purchases of property and equipment accrued in accounts payable	Purchases of property and equipment accrued in accounts payable	6,873		5,820		Purchases of property and equipment accrued in accounts payable	5,609		5,504

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 13% 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.

As of ~~April~~July 4, 2023 and January 3, 2023, the current portion of the gift card liability, $~~2.1~~2.0 million and $2.4 million, respectively, was included in accrued expenses and other current liabilities, and the long-term portion ~~amounting~~amounting to ~~$0.7~~$0.7 million at each quarter end, was included in other long-term liabilities in the Condensed Consolidated Balance Sheets.

Revenue recognized in the Condensed Consolidated Statements of Operations for the redemption of gift cards was ~~$1.0~~$0.6 million and $0.8 million for ~~both of~~ the ~~first~~second quarters of 2023 and ~~2022.~~2022, respectively, and $1.6 million and $1.8 million for the first two quarters of 2023 and 2022, respectively.

Table of Contents

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. 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 ~~April~~July 4, 2023 and January 3, 2023, the deferred revenue related to the rewards waw~~s $0.5~~as $0.9 million and $0.3 million, respectively and is 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 ~~April~~July 4, 2023. 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.

13. Subsequent Event

On July 26, 2023, the Company’s Board of Directors authorized a share repurchase program (the “2023 Share Repurchase Program”) pursuant to which the Company may repurchase up to $5.0 million of the Company’s common stock. The 2023 Share Repurchase Program expires after 12 months.

Table of Contents

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 January 3, 2023. 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 year 2023 contains 52 weeks and fiscal year 2022 contains 53 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 expectations with respect to unit growth and planned restaurant openings, projected capital expenditures, and potential volatility through 2023 due to the current high inflationary environment and economic uncertainties, including the affects on consumer sentiment and behavior. Our actual results may differ materially from those anticipated in these forward-looking statements due to reasons including, but not limited to, our ability to sustain our overall growth, including, our digital sales growth; our ability to open new restaurants on schedule and cause those newly opened restaurants to be successful; 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; the success of our marketing efforts, including our ability to introduce new products; current economic conditions including any impact from inflation, an economic recession or a rising interest rate environment; price and availability of commodities and other supply chain challenges; our ability to adequately staff our restaurants; changes in labor costs; other conditions beyond our control such as weather, natural disasters, disease outbreaks, epidemics or pandemics impacting our customer or food supplies; and consumer reaction to industry related public health issues and health pandemics, including perceptions of food safety 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 January 3, 2023.

Recent Trends, Risks and Uncertainties

The COVID-19 Pandemic has adversely affected our historical operations and financial results. However, throughout 2022 and during the first quarter of 2023, the impacts to our operations, financial performance and cash flows have diminished materially. If the COVID-19 Pandemic were to become more widespread or another pandemic were to occur, our business could be similarly impacted in the future, including business disruption, employee absences and changes in the availability or cost of labor.

Revenue. During 2022 and ~~into~~ the first quarter of 2023, we implemented greater menu price increases relative to historical years as a result of ongoing inflation in our cost of food, wages and general restaurant expenses. In addition, our third-party delivery channel remains at a pricing premium to our owned channels. Our revenue is highly dependent on our customers’ future willingness to order from restaurants given consumer inflationary pressures and recessionary market dynamics. ~~Revenue~~During the second quarter of 2023, we saw a decline in restaurant level traffic, and correspondingly in total revenue, that we believe was at least partially due to consumer response to our recent price increases. The Company has ~~been favorably impacted by recent restaurant openings not in~~taken actions to address this response but cannot predict the ~~Company’s comparable restaurant base, many~~extent and duration of ~~which offer order ahead drive-thru pickup windows.~~this decline.

Cost of Sales. ~~We have~~During 2022, we incurred incremental costs of sales driven by ~~historical and ongoing~~ volatility in the commodity and food ingredients markets, particularly with our chicken products, in addition to an increase in packaging costs and distribution. During the first ~~quarter~~two quarters of 2023, we saw improvement in our cost of food relative to 2022 driven by favorable commodity co ~~costs~~

~~Table~~sts across the majority of ~~Contents~~

~~across~~ our ~~entire~~ food basket, ~~particularly~~including the benefit of fixed price ~~of chicken.~~contracts at lower costs for our chicken products. Throughout these periods of volatility, we have continued to work with our suppliers for ongoing supply chain efficiencies, including managing food waste and adding additional suppliers as necessary, and ~~engage~~engaging in fixed pricing contracts when advantageous. To date, there has been minimal disruption in maintaining adequate food supply, packaging and other ingredients to our restaurants, though it is possible that more significant disruptions could occur if volatility in the labor and commodity markets continue.

Table of Contents

Labor Costs. Similar to much of the restaurant industry, our base labor costs have risen in recent years driven in part by high competition for restaurant workers in many ~~jurisdictions~~trade areas in which we operate. During the first ~~quarter~~two quarters of 2023, we saw modest deceleration in wage inflation growth although total wage inflation remains above historical averages. We were able to partially mitigate the impact of these market factors through a continued focus on our hiring process and retaining existing employees, in addition to maximizing efficiencies of labor hour usage per restaurant. Significant government-imposed wage increases and continued market factors could materially affect our labor costs.

Other Restaurant Operating Costs. We have incurred and expect to continue to incur third-party delivery fees resulting from significant usage of third-party delivery services.

Restaurant Development. We have continued to experience select new restaurant development delays, including utility installations, permitting and inspection, and construction and labor challenges in 2023. ~~While we~~We anticipate these challenges will persist further into ~~2023,~~2023. Notwithstanding these delays, we ~~have developed a pipeline to support~~ anticipate an annual unit system-wide growth rate of approximately ~~7.5%~~5.0% in 2023 and ~~expect to develop a pipeline with 7% to 10% unit growth thereafter.~~in the near future.

In the first ~~quarter~~two quarters of 2023, we opened ~~three~~nine new company-owned restaurants. As of ~~April~~July 4, 2023, we had ~~369~~373 company-owned restaurants and 92 franchise restaurants in 31 states.

Certain Restaurant Closures. We permanently closed ~~two~~four company-owned restaurants in the first ~~quarter~~two quarters of ~~2023.~~2023, two of which were early lease termination settlements. We currently do not anticipate a significant number of 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.

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 volumes (“AUVs”), comparable restaurant sales, restaurant contribution, restaurant contribution margin, EBITDA and adjusted EBITDA.

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, 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 and 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. Restaurants that were temporarily closed or operating at reduced hours 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:

~~Table of Contents~~

•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;

Table of Contents

•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;

•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 Volumes

AUVs consist of the average annualized sales of all company-owned restaurants for a given time period. AUVs are 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. Based on this calculation, temporarily closed restaurants are excluded from the definition of AUV, however restaurants with temporarily reduced operating hours are included. This measurement allows management to assess changes in consumer traffic and per person spending 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, our comparable restaurant sales growth and cost reduction initiatives.

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

~~Table of Contents~~

We define EBITDA as net income (loss) before interest expense, net, provision (benefit) for income taxes and depreciation and amortization. We define adjusted EBITDA as net income (loss) before interest expense, net, provision (benefit) for income taxes, depreciation and amortization, restaurant impairments, closure costs and asset disposals, costs related to corporate matters and stock-based compensation.

Table of Contents

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.

Results of Operations

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


		Fiscal Quarter Ended					Fiscal Quarter Ended				Two Fiscal Quarters Ended
		April 4, 2023		March 29, 2022					July 4, 2023		June 28, 2022		July 4, 2023		June 28, 2022
		(in thousands, unaudited)				(in thousands, unaudited)
Net loss		$	(3,115)	$	(6,429)
Net (loss) income								Net (loss) income	$	(1,304)	$	1,345	$	(4,419)	$	(5,084)
Depreciation and amortization	Depreciation and amortization	6,250		5,721				Depreciation and amortization	6,437		5,763		12,687		11,484
Interest expense, net	Interest expense, net	961		437				Interest expense, net	1,054		489		2,015		926
Benefit from income taxes		(73)		(83)
(Benefit from) provision for income taxes								(Benefit from) provision for income taxes	(30)		44		(103)		(39)
EBITDA	EBITDA	$	4,023	$	(354)			EBITDA	$	6,157	$	7,641	$	10,180	$	7,287
Restaurant impairments, closure costs and asset disposals (1)	Restaurant impairments, closure costs and asset disposals (1)	1,569		1,389				Restaurant impairments, closure costs and asset disposals (1)	1,609		1,971		3,178		3,360
Stock-based compensation expense	Stock-based compensation expense	1,391		1,169				Stock-based compensation expense	1,496		1,499		2,886		2,668

Costs related to corporate matters	Costs related to corporate matters	30		—				Costs related to corporate matters	28		63		58		63
Adjusted EBITDA	Adjusted EBITDA	$	7,013	$	2,204			Adjusted EBITDA	$	9,290	$	11,174	$	16,302	$	13,378

_____________________

(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.

The following table presents a reconciliation of ~~loss~~(loss) income from operations to restaurant contribution:


		Fiscal Quarter Ended						Fiscal Quarter Ended					Two Fiscal Quarters Ended
		April 4, 2023			March 29, 2022					July 4, 2023			June 28, 2022			July 4, 2023			June 28, 2022
Loss from operations		$	(2,227)		$	(6,075)
(Loss) income from operations									(Loss) income from operations	$	(280)		$	1,878		$	(2,507)		$	(4,197)
Less: Franchising royalties and fees, and other	Less: Franchising royalties and fees, and other	2,850			2,601				Less: Franchising royalties and fees, and other	2,760			2,793			5,610			5,394
Plus: General and administrative	Plus: General and administrative	13,641			11,840				Plus: General and administrative	12,463			12,744			26,104			24,584
Depreciation and amortization	Depreciation and amortization	6,250			5,721				Depreciation and amortization	6,437			5,763			12,687			11,484
Pre-opening	Pre-opening	492			408				Pre-opening	609			353			1,101			761
Restaurant impairments, closure costs and asset disposals	Restaurant impairments, closure costs and asset disposals	1,569			1,389				Restaurant impairments, closure costs and asset disposals	1,609			1,971			3,178			3,360
Restaurant contribution	Restaurant contribution	$	16,875		$	10,682			Restaurant contribution	$	18,078		$	19,916		$	34,953		$	30,598

Restaurant contribution margin	Restaurant contribution margin	13.7		%	9.7		%		Restaurant contribution margin	14.8		%	15.5		%	14.2		%	12.8		%

Table of Contents

Restaurant Openings, Closures and Relocations

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


		Fiscal Quarter Ended		Fiscal Quarter Ended			Two Fiscal Quarters Ended
		April 4, 2023	March 29, 2022			July 4, 2023	June 28, 2022	July 4, 2023	June 28, 2022
Company-Owned Restaurant Activity	Company-Owned Restaurant Activity				Company-Owned Restaurant Activity
Beginning of period	Beginning of period	368	372		Beginning of period	369	360	368	372
Openings	Openings	3	5		Openings	6	3	9	8
Closures	Closures	(2)	(2)		Closures	(2)	—	(4)	(2)
Divestitures (1)	Divestitures (1)	—	(15)		Divestitures (1)	—	—	—	(15)
Restaurants at end of period	Restaurants at end of period	369	360		Restaurants at end of period	373	363	373	363
Franchise Restaurant Activity	Franchise Restaurant Activity				Franchise Restaurant Activity
Beginning of period	Beginning of period	93	76		Beginning of period	92	93	93	76
Openings	Openings	—	2		Openings	—	—	—	2
Acquisitions (1)	Acquisitions (1)	—	15		Acquisitions (1)	—	—	—	15
Closures	Closures	(1)	—		Closures	—	—	(1)	—
Restaurants at end of period	Restaurants at end of period	92	93		Restaurants at end of period	92	93	92	93
Total restaurants	Total restaurants	461	453		Total restaurants	465	456	465	456

_____________________________

(1)Represents fifteen company-owned restaurants sold to a franchisee in 2022.

Table of Contents

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					Fiscal Quarter Ended				Two Fiscal Quarters Ended
		April 4, 2023		March 29, 2022					July 4, 2023		June 28, 2022		July 4, 2023		June 28, 2022
		(unaudited)				(unaudited)
Revenue:	Revenue:							Revenue:
Restaurant revenue	Restaurant revenue	97.7	%	97.7	%			Restaurant revenue	97.8	%	97.9	%	97.8	%	97.8	%
Franchising royalties and fees, and other	Franchising royalties and fees, and other	2.3	%	2.3	%			Franchising royalties and fees, and other	2.2	%	2.1	%	2.2	%	2.2	%
Total revenue	Total revenue	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	25.2	%	28.0	%			Cost of sales	25.1	%	27.8	%	25.1	%	27.9	%
Labor	Labor	32.3	%	32.3	%			Labor	32.4	%	30.3	%	32.4	%	31.2	%
Occupancy	Occupancy	9.3	%	10.1	%			Occupancy	9.3	%	8.6	%	9.3	%	9.3	%
Other restaurant operating costs	Other restaurant operating costs	19.5	%	19.9	%			Other restaurant operating costs	18.5	%	17.8	%	19.0	%	18.7	%
General and administrative	General and administrative	10.8	%	10.5	%			General and administrative	10.0	%	9.7	%	10.4	%	10.1	%
Depreciation and amortization	Depreciation and amortization	5.0	%	5.1	%			Depreciation and amortization	5.1	%	4.4	%	5.0	%	4.7	%
Pre-opening	Pre-opening	0.4	%	0.4	%			Pre-opening	0.5	%	0.3	%	0.4	%	0.3	%
Restaurant impairments, closure costs and asset disposals	Restaurant impairments, closure costs and asset disposals	1.2	%	1.2	%			Restaurant impairments, closure costs and asset disposals	1.3	%	1.5	%	1.3	%	1.4	%
Total costs and expenses	Total costs and expenses	101.8	%	105.4	%			Total costs and expenses	100.2	%	98.6	%	101.0	%	101.7	%
Loss from operations		(1.8)	%	(5.4)	%
(Loss) income from operations								(Loss) income from operations	(0.2)	%	1.4	%	(1.0)	%	(1.7)	%

Interest expense, net	Interest expense, net	0.8	%	0.4	%			Interest expense, net	0.8	%	0.4	%	0.8	%	0.4	%
Loss before taxes		(2.5)	%	(5.8)	%
Benefit from income taxes		—	%	(0.1)	%
Net loss		(2.5)	%	(5.7)	%
(Loss) income before taxes								(Loss) income before taxes	(1.1)	%	1.1	%	(1.8)	%	(2.1)	%
(Benefit from) provision for income taxes								(Benefit from) provision for income taxes	(0.1)	%	—	%	—	%	—	%
Net (loss) income								Net (loss) income	(1.0)	%	1.0	%	(1.8)	%	(2.1)	%

Table of Contents

~~First~~Second Quarter Ended ~~April~~July 4, 2023 Compared to ~~First~~Second Quarter Ended ~~March 29,~~June 28, 2022

The table below presents our unaudited operating results for the ~~first~~second quarters of 2023 and 2022, and the related quarter-over-quarter changes.


		Fiscal Quarter Ended							Increase / (Decrease)						Fiscal Quarter Ended							Increase / (Decrease)
		April 4, 2023				March 29, 2022			$		%				July 4, 2023				June 28, 2022			$		%

					(in thousands, unaudited)													(in thousands, unaudited)
Revenue:	Revenue:													Revenue:
Restaurant revenue	Restaurant revenue	$	123,227			$	109,961		$	13,266	12.1	%	Restaurant revenue		$	122,394			$	128,274		$	(5,880)	(4.6)	%
Franchising royalties and fees, and other	Franchising royalties and fees, and other	2,850				2,601			249		9.6	%	Franchising royalties and fees, and other		2,760				2,793			(33)		(1.2)	%
Total revenue	Total revenue	126,077				112,562			13,515		12.0	%	Total revenue		125,154				131,067			(5,913)		(4.5)	%
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	31,025				30,771			254		0.8	%	Cost of sales		30,700				35,664			(4,964)		(13.9)	%
Labor	Labor	39,830				35,493			4,337		12.2	%	Labor		39,657				38,828			829		2.1	%
Occupancy	Occupancy	11,486				11,149			337		3.0	%	Occupancy		11,365				11,074			291		2.6	%
Other restaurant operating costs	Other restaurant operating costs	24,011				21,866			2,145		9.8	%	Other restaurant operating costs		22,594				22,792			(198)		(0.9)	%
General and administrative	General and administrative	13,641				11,840			1,801		15.2	%	General and administrative		12,463				12,744			(281)		(2.2)	%
Depreciation and amortization	Depreciation and amortization	6,250				5,721			529		9.2	%	Depreciation and amortization		6,437				5,763			674		11.7	%
Pre-opening	Pre-opening	492				408			84		20.6	%	Pre-opening		609				353			256		72.5	%
Restaurant impairments, closure costs and asset disposals	Restaurant impairments, closure costs and asset disposals	1,569				1,389			180		13.0	%	Restaurant impairments, closure costs and asset disposals		1,609				1,971			(362)		(18.4)	%
Total costs and expenses	Total costs and expenses	128,304				118,637			9,667		8.1	%	Total costs and expenses		125,434				129,189			(3,755)		(2.9)	%
Loss from operations		(2,227)				(6,075)			3,848		(63.3)	%
(Loss) income from operations													(Loss) income from operations		(280)				1,878			(2,158)		(114.9)	%

Interest expense, net	Interest expense, net	961				437			524		119.9	%	Interest expense, net		1,054				489			565		115.5	%
Loss before taxes		(3,188)				(6,512)			3,324		(51.0)	%
Benefit from income taxes		(73)				(83)			10		(12.0)	%
Net loss		$	(3,115)			$	(6,429)		$	3,314	(51.5)	%
(Loss) income before taxes													(Loss) income before taxes		(1,334)				1,389			(2,723)		(196.0)	%
(Benefit) provision for income taxes													(Benefit) provision for income taxes		(30)				44			(74)		(168.2)	%
Net (loss) income													Net (loss) income		$	(1,304)			$	1,345		$	(2,649)	(197.0)	%
Company-owned:	Company-owned:												Company-owned:
Average unit volume	Average unit volume	$	1,343			$	1,249		$	94	7.5	%	Average unit volume		$	1,327			$	1,421		$	(94)	(6.6)	%
Comparable restaurant sales	Comparable restaurant sales	6.9		%		5.3		%					Comparable restaurant sales		(5.9)		%		5.1		%

________________

*Not meaningful.

Revenue

Total revenue ~~increased $13.5~~decreased $5.9 million in the ~~first~~second quarter of 2023, or ~~12.0%~~4.5%, to ~~$126.1~~$125.2 million, compared to ~~$112.6~~$131.1 million in the ~~first~~second quarter of 2022. This ~~increase~~decrease was primarily due to a decline in comparable restaurant sales due to lower guest count, partially offset by growth in the comparable restaurant base, in addition to a benefit from open restaurants that were temporarily closed during a portion of the first quarter of 2022 due to the Omicron variant. Revenue was also benefited by an incremental $4.3 million from new restaurant openings ~~since the beginning~~net of ~~the first quarter of 2022, partially offset by a decline of $1.4 million due to restaurants closed or refranchised since the first quarter of 2022.~~closures as well as menu price increases. System-wide comparable restaurant sales ~~increased 6.4%~~decreased 5.5% in the ~~first~~second quarter of 2023 compared to the same period of 2022, comprised of a ~~6.9% increase~~5.9% decrease at company-owned restaurants and a ~~4.1% increase~~3.4% decrease at franchise-owned restaurants. ~~The comparable restaurant sales increase in the first quarter of 2023 reflects momentum in our in-person channels, in addition to price increases in our core menu.~~

Cost of Sales

Cost of sales ~~increased~~decreased by ~~$0.3~~$5.0 million, or ~~0.8%~~13.9%, in the ~~first~~second quarter of 2023 compared to the same period of 2022, due to the ~~increase~~decrease in restaurant revenue. As a percentage of restaurant revenue, cost of sales decreased to ~~25.2%~~25.1% in the ~~first~~second quarter of 2023 compared to ~~28.0%~~27.8% in ~~first~~second quarter of 2022 primarily due to increased menu pricing and overall lower food and ingredient commodity pricing, particularly with our protein costs, partially offset by higher promotional discounts.

Labor Costs

Table of Contents

~~Labor Costs~~

Labor ~~costs~~costs increased by ~~$4.3~~$0.8 million, or ~~12.2%~~2.1%, in the ~~first~~second quarter of 2023 compared to the same period of 2022, due primarily to ~~the increase in restaurant revenue as well as~~ wage ~~inflation.~~inflation and higher benefits costs. As a percentage of restaurant revenue, labor costs ~~remained flat at 32.3%~~increased to 32.4% in the ~~first~~second quarter of 2023 ~~and~~from 30.3% in the ~~first~~second quarter of 2022 due to ~~labor efficiencies~~wage inflation and ~~lower health insurance, which were offset by wage inflation.~~the impact of sales deleverage.

Occupancy Costs

Occupancy costs increased by $0.3 million, or ~~3.0%~~2.6%, in the ~~first~~second quarter of 2023 compared to the ~~first~~second quarter of 2022, primarily due to 12six new restaurants opened, net of closures since the beginning of the ~~first~~second quarter of 2022. As a percentage of revenue, occupancy costs ~~decreased~~increased to 9.3% in the ~~first~~second quarter of 2023, compared to ~~10.1%~~8.6% in the ~~first~~second quarter of 2022 as a result of sales ~~leverage.~~deleverage.

Other Restaurant Operating Costs

Other restaurant operating costs ~~increased~~decreased by ~~$2.1~~$0.2 million, or ~~9.8%~~0.9%, in the ~~first~~second quarter of 2023 compared to the ~~first~~second quarter of 2022, due to the ~~increase~~decrease in restaurant revenue. As a percentage of restaurant revenue, other restaurant operating costs ~~decreased~~increased to ~~19.5%~~18.5% in the ~~first~~second quarter of 2023 compared to ~~19.9%~~17.8% in the ~~first~~second quarter of 2022 due to sales ~~leverage.~~deleverage. Third-party delivery fees were ~~6.1%~~5.5% and ~~6.2%~~5.4% of total revenue for the ~~first~~second quarter of 2023 and 2022, respectively.

General and Administrative Expense

General and administrative expense ~~increased~~decreased by ~~$1.8~~$0.3 million, or ~~15.2%~~2.2%, in the ~~first~~second quarter of 2023 compared to the ~~first~~second quarter of 2022, due primarily to ~~an increase~~a decrease in employee related costs, including incentive-related costs. As a percentage of revenue, general and administrative expense increased to ~~10.8%~~10.0% in the ~~first~~second quarter of 2023 from ~~10.5%~~9.7% in the ~~first~~second quarter of 2022 due to sales deleverage.

Depreciation and Amortization

Depreciation and amortization increased by ~~$0.5~~$0.7 million, or ~~9.2%~~11.7%, in the ~~first~~second quarter of 2023 compared to the ~~first~~second quarter of 2022, due primarily to new asset additions for restaurants opened, partially offset by restaurant closures since the ~~first~~second quarter of 2022.

Restaurant Impairments, Closure Costs and Asset Disposals

Restaurant impairments, closure costs and asset disposals ~~increased $0.2~~decreased $0.4 million in the ~~first~~second quarter of 2023 compared to the ~~first~~second quarter of 2022 due primarily to ~~early lease termination settlements. Both quarters include disposals of assets~~a decrease in impairment charges. One restaurant was impaired in the ~~normal course~~second quarter of ~~business.~~2023 compared to two restaurants impaired in the second quarter of 2022.

Interest Expense, Net

Interest expense, net increased ~~$0.5~~$0.6 million in the ~~first~~second quarter of 2023 compared to the ~~first~~second quarter of 2022, due to higher interest rates and higher debt balances in the ~~first~~second quarter of 2023 as compared to the ~~first~~second quarter of 2022 driven primarily by higher capital costs due to new store openings since the ~~first~~second quarter of 2022.

Provision for Income Taxes

The effective tax rate for the ~~first~~second quarter of 2023 and for the ~~first~~second quarter of 2022 reflect the impact of the previously recorded valuation allowance. For the remainder of fiscal 2023, 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.

Table of Contents

Two Quarters Ended July 4, 2023 Compared to Two Quarters Ended June 28, 2022

The table below presents our unaudited operating results for the first two quarters of 2023 and 2022, and the related period-over-period changes.


	Two Fiscal Quarters Ended						Increase / (Decrease)
	July 4, 2023			June 28, 2022			$		%

	(in thousands, except percentages)
Revenue:
Restaurant revenue	$	245,621		$	238,235		$	7,386	3.1	%
Franchising royalties and fees, and other	5,610			5,394			216		4.0	%
Total revenue	251,231			243,629			7,602		3.1	%
Costs and expenses:
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):
Cost of sales	61,725			66,435			(4,710)		(7.1)	%
Labor	79,487			74,321			5,166		7.0	%
Occupancy	22,851			22,223			628		2.8	%
Other restaurant operating costs	46,605			44,658			1,947		4.4	%
General and administrative	26,104			24,584			1,520		6.2	%
Depreciation and amortization	12,687			11,484			1,203		10.5	%
Pre-opening	1,101			761			340		44.7	%
Restaurant impairments, closure costs and asset disposals	3,178			3,360			(182)		(5.4)	%
Total costs and expenses	253,738			247,826			5,912		2.4	%
Loss from operations	(2,507)			(4,197)			1,690		(40.3)	%

Interest expense, net	2,015			926			1,089		117.6	%
Loss before taxes	(4,522)			(5,123)			601		(11.7)	%
(Benefit from) provision for income taxes	(103)			(39)			(64)		164.1	%
Net loss	$	(4,419)		$	(5,084)		$	665	(13.1)	%
Company-owned:
Average unit volumes	$	1,335		$	1,337		$	(2)	(0.1)	%
Comparable restaurant sales	0.1		%	5.2		%

________________

*Not meaningful.

Revenue

Total revenue increased by $7.6 million, or 3.1%, in the first two quarters of 2023, to $251.2 million compared to $243.6 million in the same period of 2022. This increase was primarily due to growth in new restaurant openings of $8.1 million and an increase in comparable restaurant sales of $1.1 million. This was partially offset by restaurant closures and the impact of refranchising 15 company-owned restaurants in 2022.

Comparable restaurant sales increased 0.1% at company-owned restaurants, increased 0.3% at franchise-owned restaurants and increased 0.2% system-wide in the first two quarters of 2023. The increase in comparable restaurant sales was primarily due to increased menu prices, mostly offset by a decline in guest traffic.

Cost of Sales

Table of Contents

Cost of sales decreased by $4.7 million, or 7.1%, in the first two quarters of 2023 compared to the same period of 2022, due primarily to lower commodity costs. As a percentage of restaurant revenue, cost of sales decreased to 25.1% in the first two quarters of 2023 compared to 27.9% in the first two quarters of 2022, primarily due to increased menu pricing and decreases in certain commodity costs, particularly with our protein costs.

Labor Costs

Labor costs increased by $5.2 million, or 7.0%, in the first two quarters of 2023 compared to the same period of 2022, due primarily to the increase in restaurant sales in addition to wage inflation. As a percentage of restaurant revenue, labor costs increased to 32.4% in the first two quarters of 2023 compared to 31.2% in the first two quarters of 2022. The increase as a percentage of restaurant revenue was primarily due to accelerating wage inflation partially offset by labor initiatives.

Occupancy Costs

Occupancy costs increased by $0.6 million, or 2.8%, in the first two quarters of 2023 compared to the first two quarters of 2022, due primarily to nine new restaurant openings, partially offset by restaurant closures. As a percentage of revenue, occupancy costs remained flat at 9.3%.

Other Restaurant Operating Costs

Other restaurant operating costs increased by $1.9 million, or 4.4%, in the first two quarters of 2023 compared to the first two quarters of 2022. As a percentage of restaurant revenue, other restaurant operating costs increased to 19.0% in the first two quarters of 2023, compared to 18.7% in the first two quarters of 2022, due primarily to increased marketing and credit card fee expense. Third-party delivery fees were 5.8% of total revenue for the first two quarters of 2023 and 2022.

General and Administrative Expense

General and administrative expense increased by $1.5 million, or 6.2%, in the first two quarters of 2023 compared to the first two quarters of 2022, primarily due to increases in employee related expenses, obsolete inventory related to menu optimization and software maintenance. As a percentage of revenue, general and administrative expense increased to 10.4% in the first two quarters of 2023 from 10.1% in the first two quarters of 2022.

Depreciation and Amortization

Depreciation and amortization increased by $1.2 million, or 10.5%, in the first two quarters of 2023 compared to the first two quarters of 2022, primarily due to new asset additions partially offset by restaurant closures.

Restaurant Impairments, Closure Costs and Asset Disposals

Restaurant impairments, closure costs and asset disposals decreased by $0.2 million in the first two quarters of 2023 compared to the first two quarters of 2022. The decrease was largely due to lower impairment charges with only one restaurant impaired in the first two quarters of 2023 compared to two restaurants impaired in the first two quarters of 2022.

Interest Expense

Interest expense increased by $1.1 million in the first two quarters of 2023 compared to the same period of 2022. The increase was mainly due to higher average borrowings and higher interest rates in the first two quarters of 2023 compared to the first two quarters of 2022.

Provision for Income Taxes

The effective tax rate for the first two quarters of 2023 and for the first two quarters of 2022 reflect the impact of the previously recorded valuation allowance. For the remainder of fiscal 2023, 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 2023 to be between 2.0% and 2.5%.

Table of Contents

Liquidity and Capital Resources

Summary of Cash Flows

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, through currently available cash and cash equivalents, availability under our revolving credit facility and cash flows from operations.

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


		Fiscal Quarter Ended					Two Fiscal Quarters Ended
		April 4, 2023		March 29, 2022			July 4, 2023		June 28, 2022
Net cash provided by (used in) operating activities		$	7,222	$	(6,060)
Net cash provided by operating activities						Net cash provided by operating activities	$	10,386	$	6,043
Net cash used in investing activities	Net cash used in investing activities	(10,436)		(6,835)		Net cash used in investing activities	(23,813)		(15,147)
Net cash provided by financing activities	Net cash provided by financing activities	3,755		12,241		Net cash provided by financing activities	15,046		8,638
Net increase (decrease) in cash and cash equivalents	Net increase (decrease) in cash and cash equivalents	$	541	$	(654)	Net increase (decrease) in cash and cash equivalents	$	1,619	$	(466)

Operating Activities

Net cash provided by operating activities was ~~$7.2~~$10.4 million in the first ~~quarter~~two quarters of 2023 compared to net cash ~~used in~~provided by operating activities of ~~$6.1~~$6.0 million in the first ~~quarter~~two quarters of 2022. The increase in operating cash flow resulted primarily from higher cash flows from a reduced net loss adjusted for ~~non cash~~non-cash items, as well as working capital ~~changes during~~changes. In the ~~first quarter~~aggregate, net working capital items consumed cash of $1.8 million in 2023, compared to $4.5 million in 2022. This $2.7 million fluctuation was mainly driven by the ~~prior period~~timing of ~~2022. Working capital variance includes source of cash related to~~ payroll, ~~timing~~accrued liabilities and ~~accrued expense and other liabilities.~~accounts receivable.

Investing Activities

Net cash used in investing activities increased ~~$3.6~~$8.7 million to ~~$10.4~~$23.8 million in the first ~~quarter~~two quarters of 2023 from ~~$6.8~~$15.1 million in the first ~~quarter~~two quarters of 2022. This increase was primarily due to higher investments in new restaurant openings, as well as digital menu board technology in the first ~~quarter~~two quarters of 2023 compared to the first ~~quarter~~two quarters of 2022.

Financing Activities

Net cash provided by financing activities was ~~$3.8~~$15.0 million in the first ~~quarter~~two quarters of 2023, compared to ~~$12.2~~$8.6 million in the first ~~quarter~~two quarters of 2022. The ~~decrease~~increase from the first ~~quarter~~two quarters of 2022 was largely due to ~~lower~~higher net borrowings on our revolving credit facility and swingline ~~due~~ to ~~improved financial performance.~~fund new restaurant openings.

Capital Resources

Material Cash Requirements. Our short-term obligations consist primarily of certain lease and other contractual commitments related to our operations, normal recurring operating expenses, working capital needs, new store development, capital improvements and maintenance of our restaurants, regular interest payments on our debt obligations and certain non-recurring expenditures.

Our long-term obligations consist primarily of certain lease and other contractual commitments related to our operations and payment of our outstanding debt obligations. In addition, our growth target for new store development will require capital each year which is expected to be funded by currently available cash and cash equivalents, cash flows from operations and our revolving credit facility. 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.

2123

Table of Contents

We estimate capital expenditures will be approximately ~~$53.0~~$45.0 million to ~~$58.0~~$50.0 million for fi~~scal year~~fiscal year 2023, including ~~$42.6~~$21.0 million to ~~$47.6~~$25.0 million for the remainder of the year, prpri~~imarily~~marily for the opening of company-owned restaurants before any reductions for landlord reimbursements, reinvestment in existing restaurants and investments in technology. 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 ~~April~~July 4, 2023, we had a cash balance of ~~$2.1~~$3.1 million compared to $1.5 million as of January 3, 2023. The amount available for future borrowings under our Third Amended Credit Facility was ~~$69.3~~$57.4 million as of ~~April~~July 4, 2023. 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

On May 9, 2018, we entered into a credit facility with U.S. Bank National Association (the “2018 Credit Facility”). The 2018 Credit Facility was subsequently amended on November 20, 2019 (as amended, the First Amended Credit Facility) and June 16, 2020, (as amended, the “Second Amended Credit Facility”).

On July 27, 2022, we amended and restated our Second Amended Credit Facility by entering into the Third Amendment to the Credit Agreement (as amended and restated, the “Third Amended Credit Facility”) which matures on July 27, 2027. Among other things, the Third Amended Credit Facility: (i) increased the credit facility from $100.0 million to $125.0 million; (ii) eliminated the term loan and principal amortization components of the credit facility; (iii) removed the our capital expenditure covenant; (iv) enhanced flexibility for certain covenants and restrictions; and (v) lowered the spread of our cost of borrowing and transitioned to the Secured Overnight Financing Rate plus a margin of 1.50% to 2.50% per annum, based upon the consolidated total lease-adjusted leverage ratio. Our Third 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.

As of ~~April~~July 4, 2023, we had ~~$52.8~~$64.7 million of indebtedness (excluding ~~$1.6~~$1.5 million of unamortized debt issuance costs) and $3.0 million of letters of credit outstanding under the Third Amended Credit Facility.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements or obligations as of ~~April~~July 4, 2023.

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 January 3, 2023. 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 January 3, 2023.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

We are exposed to market risk from changes in interest rates on outstanding debt. Our exposure to interest rate fluctuations is limited to our outstanding bank debt, which bears interest at variable rates. As of ~~April~~July 4, 2023, we had ~~$52.8~~$64.7 million of ~~outstanding~~

2224

Table of Contents

outstanding borrowings under our credit facility with an average interest rate during the ~~first quarter~~two quarters of 2023 of ~~7.74%~~7.75%, compared to ~~3.22%~~4.07% during the first ~~first quarter~~two quarters of 2022, driven by an increase in market base rates. 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 ~~$0.5~~$0.6 million on an annualized basis.

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 ~~volatilit~~y.volatility. However, during 2022, due to the volatility in several commodity markets and driven by vendor availability, many of our contracts were shorter duration than typical and, in some cases, were based on floating rate prices rather than fixed rate. As a result, we saw higher cost of food in 2022 than in prior years. Despite these increases, we believe we have material pricing power with our guests that allows us to adjust our menu pricing or change our product delivery strategy without impact to the demand for our brand. In the latter part of 2022 and ~~throughout~~continuing into the first ~~quarter~~two quarters of 2023, the commodity markets underlying our cost of food began to improve materially, particularly in regard to the price of chicken. ~~However,~~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. During the first two quarters of 2023, the degree of inflation moderated compared to 2022 although total inflation remains above historical averages. Finally, the cost of constructing our restaurants is subject to inflationary increases in the costs of labor and material. Inflation has more significantly impacted our operating results during 2022 and in the first quarter of 2023, particularly in our commodity and construction markets, in addition to increased wage inflation that affected our results from 2017 through the first quarter of 2023. We expect inflation may continue to affect our results in the near future.

Item 4. Controls and Procedures

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~~effectiveness of the design and operation of our disclosure controls and procedures as of ~~April~~July 4, 2023, 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~~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 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.

2325

Table of Contents

PART II

Item 1. Legal Proceedings

We are currently not a party to any material legal proceedings. From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity, reputational harm and other factors, and there can be no assurances that favorable outcomes will be obtained.

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 January 3, 2023. 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 January 3, 2023.

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.

2426

Table of Contents

Item 6. Exhibit Index


Exhibit Number						Description of Exhibit
10.1						~~Form of~~ Compensation Plan for Non-employee Directors, Amended and Restated May 1 ~~2023~~ 5 ~~Restricted Stock Unit Agreement~~, 2023
10.2						~~Form of~~Noodles & Company 2023 ~~Performance Restricted~~ Stock ~~Unit Agreement~~Incentive Plan
~~10.3~~						~~Form of~~ (filed as Exhibit 99.1 with the Registrant’s S-8 filed on May 22, 2023, ~~Restricted Stock Unit AgreementFor General Manager Equity Partner Plan~~File No. 333-272120)
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)

2527

Table of Contents

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~~MIKE HYNES
			~~Carl Lukach~~Mike Hynes Chief Financial Officer (principal financial officer and duly authorized signatory for the registrant)
Date			~~May 11,~~August 10, 2023

2628


			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	13
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2224
	Item 4.	Controls and Procedures	2325
PART II
	Item 1.	Legal Proceedings	2426
	Item 1A.	Risk Factors	2426
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2426
	Item 3.	Defaults Upon Senior Securities	2426
	Item 4.	Mine Safety Disclosures	2426
	Item 5.	Other Information	2426
	Item 6.	Exhibits	2527
SIGNATURES			2628