UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED ~~June~~March 26, ~~2022~~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: 001-40951

PORTILLO'S INC.

(Exact name of registrant as specified in its charter)


Delaware						87-1104304
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)
2001 Spring Road, Suite 400, Oak Brook, Illinois 60523
(Address of principal executive offices)

(630) 954-3773

(Registrant’s telephone number, including area code)


N/A
(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	PTLO	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

~~(Note: In the registrant’s last Quarterly Report on Form 10-Q filed on May 5, 2022, “No” was mistakenly marked when “Yes” should have been marked as it is above.)~~

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). ~~(Check one)~~

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

As of April~~July 26, 2022~~ 27, 2023, there were ~~36,218,355~~55,001,124 shares of the registrant's Class A common stock, par value $0.01 per share, issued and outstanding.

TABLE OF CONTENTS


Cautionary Note Regarding Forward-Looking Information			1

Part I	Financial Information
	Item 1.	Financial Statements (Unaudited)	3
		Condensed Consolidated Balance Sheets	3
		Condensed Consolidated Statements of Operations	4
		Condensed Consolidated Statements of Stockholders' ~~and Members'~~ Equity	5
		Condensed Consolidated Statements of Cash Flows	76
		Notes to Condensed Consolidated Financial Statements	98
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
	Item 4.	Controls and Procedures	35

Part II	Other Information
	Item 1.	Legal Proceedings	36
	Item 1A.	Risk Factors	36
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3637
	Item 3.	Defaults U pon Senior Securities	3638
	Item 4.	Mine Safety Disclosures	3638
	Item 5.	Other Information	3638
	Item 6.	Exhibits	3739

	Signatures		3840

Table of Contents

Cautionary Note Regarding Forward-Looking Information

This Quarterly Report on Form 10-Q ("Form 10-Q") contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), which are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different from the statements made herein. All statements other than statements of historical fact are forward-looking statements. Many of the forward-looking statements are located in Part I, Item 2 of this Form 10-Q under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations." Forward-looking statements discuss our current expectations and projections relating to our financial position, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "aim," "anticipate," "believe," "estimate," "expect," "forecast," "future," "outlook," "potential," "project," "projection," "plan," "intend," "seek," "may," "could," "would," "will," "should," "can," "can have," "likely," the negatives thereof and other similar expressions.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements, so you should not unduly rely on these statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory conditions and the following:

•the potential future impact of COVID-19 (including any variant) on our results of operations, supply chain or liquidity;

•risks related to or arising from our organizational structure;

•risks of food-borne illness and food safety and other health concerns about our food;

•the impact of unionization activities of our restaurant workers on our operations and profitability;

•the impact of recent bank failures on the marketplace, including the ability to access credit;

•risks associated with our reliance on certain information technology systems and potential failures or interruptions;

•privacy and cyber security risks related to our digital ordering and payment platforms for our delivery business;

•the impact of competition, including from our competitors in the restaurant industry or our own restaurants;

•the increasingly competitive labor market and our ability to attract and retain the best talent and qualified employees;

•the impact of federal, state or local government regulations relating to privacy, data protection, advertising and consumer protection, building and zoning requirements, costs or ability to open new restaurants, or sale of food and alcoholic beverage control regulations;

•our ability to achieve our growth strategy, such as the availability of suitable new restaurant sites in existing and new markets and opening of new restaurants at the anticipated rate and on the anticipated timeline;

•increases in food and other operating costs, tariffs and import taxes, and supply shortages; and

•other risks identified in our filings with the Securities and Exchange Commission (the “SEC”).

All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this Form 10-Q in the context of the risks and uncertainties disclosed in our Annual Report on Form 10-K for the fiscal year ended December ~~26, 2021~~25, 2022 filed with the ~~Securities and Exchange Commission (the "SEC")~~SEC on March ~~10, 2022,~~2, 2023, which is available on the SEC's website at www.sec.gov.

The forward-looking statements included in this Form 10-Q are made only as of the date hereof. The Company undertakes no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

Portillo's Inc.

Form 10-Q | 1

Table of Contents

PART I – FINANCIAL INFORMATION


Item 1. Financial Statements (Unaudited)
			Page
Condensed Consolidated Balance Sheets			3
Condensed Consolidated Statements of Operations			4
Condensed Consolidated Statements of Stockholders' ~~and Members'~~ Equity			5
Condensed Consolidated Statements of Cash Flows			76
Notes to Condensed Consolidated Financial Statements			98
Note 1. Description Of Business			98
Note 2. Summary Of Significant Accounting Policies			109
Note 3. Revenue Recognition			1210
Note 4. Inventories			1311
Note 5. Property & Equipment, Net			1311
Note 6. Goodwill & Intangible Assets			1412
Note 7. Fair Value of Financial Instruments			1413
Note 8. Debt			1614

Note 9.9 . Leases			16
Note 10 . Non-Controlling Interests			17
Note 1 1 . Equity-Based Compensation			18
Note ~~10. Equity-Based Compensation~~1 2 . Income Taxes			1918
Note ~~11. Income Taxes~~1			193
~~Note 12.~~. Earnings ~~(Loss)~~ Per Share			19
Note ~~13.~~1 4 . Contingencies			20
Note ~~14.~~1 5 . Related Party Transactions			20
Note 16. Subsequent Events			21

Portillo's Inc.

Form 10-Q | 2

PORTILLO'S INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In thousands, except share and per share data)


		June 26, 2022		December 26, 2021			March 26, 2023		December 25, 2022
ASSETS	ASSETS					ASSETS
CURRENT ASSETS:	CURRENT ASSETS:					CURRENT ASSETS:
Cash and cash equivalents and restricted cash	Cash and cash equivalents and restricted cash	$	49,730	$	39,263	Cash and cash equivalents and restricted cash	$	14,611	$	44,427
Accounts receivable	Accounts receivable	8,830		7,840		Accounts receivable	10,129		8,590
Inventory	Inventory	5,639		6,078		Inventory	5,259		7,387
Prepaid expenses	Prepaid expenses	5,082		5,836		Prepaid expenses	5,879		4,922
Total current assets	Total current assets	69,281		59,017		Total current assets	35,878		65,326
Property and equipment, net	Property and equipment, net	193,813		190,834		Property and equipment, net	237,216		227,036
Operating lease assets						Operating lease assets	173,414		166,808

OTHER ASSETS:
Goodwill	Goodwill	394,298		394,298		Goodwill	394,298		394,298
Trade names	Trade names	223,925		223,925		Trade names	223,925		223,925
Other intangible assets, net	Other intangible assets, net	34,263		35,832		Other intangible assets, net	31,078		31,800
Equity method investment	Equity method investment	16,083		16,170		Equity method investment	16,238		16,274
Deferred tax asset		71,949		74,455
Deferred tax assets						Deferred tax assets	185,943		150,497
Other assets	Other assets	4,282		5,042		Other assets	3,713		4,119
Total other assets	Total other assets	744,800		749,722		Total other assets	855,195		820,913
TOTAL ASSETS	TOTAL ASSETS	$	1,007,894	$	999,573	TOTAL ASSETS	$	1,301,703	$	1,280,083

LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY					LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:	CURRENT LIABILITIES:					CURRENT LIABILITIES:
Accounts payable	Accounts payable	$	20,382	$	27,249	Accounts payable	$	22,130	$	30,273
Current portion of long-term debt	Current portion of long-term debt	3,324		3,324		Current portion of long-term debt	7,500		4,155

Current portion of Tax Receivable Agreement liability						Current portion of Tax Receivable Agreement liability	6,309		813
Short-term debt						Short-term debt	10,000		—

Current deferred revenue	Current deferred revenue	4,649		6,893		Current deferred revenue	5,120		7,292

Short-term operating lease liability						Short-term operating lease liability	5,088		4,849
Accrued expenses	Accrued expenses	25,123		29,472		Accrued expenses	27,592		29,915
Total current liabilities	Total current liabilities	53,478		66,938		Total current liabilities	83,739		77,297
LONG-TERM LIABILITIES:	LONG-TERM LIABILITIES:					LONG-TERM LIABILITIES:
Long-term debt, net of current portion	Long-term debt, net of current portion	315,410		315,829		Long-term debt, net of current portion	288,979		314,425
Deferred rent		36,511		32,174
Tax receivable agreement liability		154,883		156,638

Tax Receivable Agreement liability						Tax Receivable Agreement liability	292,490		252,003
Long-term operating lease liability						Long-term operating lease liability	210,682		200,166
Other long-term liabilities	Other long-term liabilities	3,800		4,588		Other long-term liabilities	2,827		3,291
Total long-term liabilities	Total long-term liabilities	510,604		509,229		Total long-term liabilities	794,978		769,885
Total liabilities	Total liabilities	564,082		576,167		Total liabilities	878,717		847,182

COMMITMENTS AND CONTINGENCIES (NOTE 13)		0		0
COMMITMENTS AND CONTINGENCIES (NOTE 14)						COMMITMENTS AND CONTINGENCIES (NOTE 14)
STOCKHOLDERS' EQUITY:	STOCKHOLDERS' EQUITY:					STOCKHOLDERS' EQUITY:

Preferred stock, $0.01 par value per share, 10,000,000 shares authorized, — issued and outstanding		—		—
Class A common stock, $0.01 par value per share, 380,000,000 shares authorized, and 36,218,355 and 35,807,171 shares issued and outstanding at June 26, 2022 and December 26, 2021, respectively.		362		358
Class B common stock, $0.00001 par value per share, 50,000,000 shares authorized, and 35,673,321 shares issued and outstanding at June 26, 2022 and December 26, 2021, respectively.		—		—
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized, none issued or outstanding						Preferred stock, $0.01 par value per share, 10,000,000 shares authorized, none issued or outstanding	—		—
Class A common stock, $0.01 par value per share, 380,000,000 shares authorized, and 54,467,951 and 48,420,723 shares issued and outstanding at March 26, 2023 and December 25, 2022, respectively.						Class A common stock, $0.01 par value per share, 380,000,000 shares authorized, and 54,467,951 and 48,420,723 shares issued and outstanding at March 26, 2023 and December 25, 2022, respectively.	545		484
Class B common stock, $0.00001 par value per share, 50,000,000 shares authorized, and 17,943,562 and 23,837,162 shares issued and outstanding at March 26, 2023 and December 25, 2022, respectively.						Class B common stock, $0.00001 par value per share, 50,000,000 shares authorized, and 17,943,562 and 23,837,162 shares issued and outstanding at March 26, 2023 and December 25, 2022, respectively.	—		—
Additional paid-in-capital	Additional paid-in-capital	192,862		186,856		Additional paid-in-capital	294,984		260,664
Accumulated deficit	Accumulated deficit	(10,645)		(15,950)		Accumulated deficit	(5,326)		(4,812)
Total stockholders' equity attributable to Portillo's Inc.	Total stockholders' equity attributable to Portillo's Inc.	182,579		171,264		Total stockholders' equity attributable to Portillo's Inc.	290,203		256,336
Non-controlling interest	Non-controlling interest	261,233		252,142		Non-controlling interest	132,783		176,565
Total stockholders' equity	Total stockholders' equity	443,812		423,406		Total stockholders' equity	422,986		432,901
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,007,894	$	999,573	TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,301,703	$	1,280,083

See accompanying notes to unaudited condensed consolidated financial statements.

Portillo's Inc.

Form 10-Q | 3

PORTILLO'S INC

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(UNAUDITED)

(In thousands, except share and per share data)


		Quarter Ended				Two Quarters Ended					Quarter Ended
		June 26, 2022		June 27, 2021		June 26, 2022		June 27, 2021				March 26, 2023		March 27, 2022

REVENUES, NET	REVENUES, NET	$	150,623	$	140,734	$	285,105	$	258,041	REVENUES, NET		$	156,061	$	134,482

COST AND EXPENSES:	COST AND EXPENSES:									COST AND EXPENSES:
Restaurant operating expenses:	Restaurant operating expenses:									Restaurant operating expenses:
Cost of goods sold, excluding depreciation and amortization	Cost of goods sold, excluding depreciation and amortization	51,774		42,156		98,040		77,180		Cost of goods sold, excluding depreciation and amortization		53,626		46,266
Labor	Labor	37,906		34,482		75,219		65,512		Labor		40,459		37,313
Occupancy	Occupancy	7,379		7,106		15,134		13,890		Occupancy		8,451		7,755
Other operating expenses	Other operating expenses	15,178		13,925		30,343		28,633		Other operating expenses		18,704		15,165
Total restaurant operating expenses	Total restaurant operating expenses	112,237		97,669		218,736		185,215		Total restaurant operating expenses		121,240		106,499

General and administrative expenses	General and administrative expenses	15,439		12,170		31,126		24,005		General and administrative expenses		18,778		15,687
Pre-opening expenses	Pre-opening expenses	423		671		979		1,960		Pre-opening expenses		2,344		556
Depreciation and amortization	Depreciation and amortization	5,309		6,420		10,514		12,709		Depreciation and amortization		5,670		5,205
Net income attributable to equity method investment	Net income attributable to equity method investment	(275)		(295)		(398)		(359)		Net income attributable to equity method investment		(207)		(123)
Other loss (income), net		51		(362)		(105)		(803)
Other income, net										Other income, net		(257)		(156)
OPERATING INCOME	OPERATING INCOME	17,439		24,461		24,253		35,314		OPERATING INCOME		8,493		6,814
Interest expense	Interest expense	6,097		10,712		12,196		21,441		Interest expense		7,444		6,099
Tax Receivable Agreement liability adjustment		(1,754)		—		(1,754)		—
Tax Receivable Agreement Liability adjustment										Tax Receivable Agreement Liability adjustment		(584)		—
Loss on debt extinguishment										Loss on debt extinguishment		3,465		—
(LOSS) INCOME BEFORE INCOME TAXES										(LOSS) INCOME BEFORE INCOME TAXES		(1,832)		715
Income tax (benefit) expense										Income tax (benefit) expense		(559)		165
NET (LOSS) INCOME										NET (LOSS) INCOME		(1,273)		550

INCOME BEFORE INCOME TAXES		13,096		13,749		13,811		13,873
Income tax expense		2,340		—		2,505		—
NET INCOME		10,756		13,749		11,306		13,873
Less: Redeemable preferred units accretion		—		(5,577)		—		(11,092)
NET INCOME ATTRIBUTABLE TO COMMON UNIT HOLDERS		10,756		8,172		11,306		2,781
Net income attributable to non-controlling interests		5,645		—		6,001		—
NET INCOME ATTRIBUTABLE TO PORTILLO'S INC.		$	5,111	$	8,172	$	5,305	$	2,781

Income per common share attributable to Portillo's Inc.:
Net (loss) income attributable to non-controlling interests										Net (loss) income attributable to non-controlling interests		(759)		356
NET (LOSS) INCOME ATTRIBUTABLE TO PORTILLO'S INC.										NET (LOSS) INCOME ATTRIBUTABLE TO PORTILLO'S INC.		$	(514)	$	194

Net (loss) income per common share attributable to Portillo's Inc.:										Net (loss) income per common share attributable to Portillo's Inc.:
Basic	Basic	$	0.14	$	0.16	$	0.15	$	0.05	Basic		$	(0.01)	$	0.01
Diluted	Diluted	$	0.13	$	0.16	$	0.13	$	0.05	Diluted		$	(0.01)	$	0.00

Weighted-average common shares outstanding:	Weighted-average common shares outstanding:									Weighted-average common shares outstanding:
Basic	Basic	35,991,079		51,200,644		35,899,125		51,196,539		Basic		49,599,074		35,807,171
Diluted	Diluted	39,687,090		51,568,909		39,839,292		51,563,292		Diluted		49,599,074		39,944,086

See accompanying notes to unaudited condensed consolidated financial statements.

Portillo's Inc.

Form 10-Q | 4

PORTILLO'S ~~INC~~INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' ~~AND MEMBERS'~~ EQUITY

(UNAUDITED)

~~(In thousands, except share data)~~

Quarter Ended June 26, 2022 and June 27, 2021
Preferred Units Class A Common Stock Class B Common Stock
Units Amounts Member's Equity Shares Amount Shares Amount Additional Paid-in Capital Accumulated Deficit Non-Controlling Interest Total Stockholders' Equity
Balance at March 28, 2021 100,000 $ 206,086 $ 135,673 — $ — — $ — $ — $ — $ — $ 135,673
Net income — — 13,749 — — — — — — — 13,749
Issuance of common units — — 100 — — — — — — — 100
Equity-based compensation — — 168 — — — — — — — 168
Redeemable preferred units accretion — 5,577 (5,577) — — — — — — — (5,577)
Balance at June 27, 2021 100,000 211,663 144,113 — — — — — — — 144,113
Balance at March 27, 2022 — — — 35,807,171 358 35,673,321 — 188,752 (15,756) 254,387 427,741
Net income — — — — — — — — 5,111 5,645 10,756
Equity-based compensation — — — — — — — 1,941 — 1,923 3,864
Exercise of stock options — — — 411,184 4 — — 1,447 — — 1,451
Non-controlling interest adjustment — — — — — — — 722 — (722) —
Balance at June 26, 2022 — $ — $ — 36,218,355 $ 362 35,673,321 $ — $ 192,862 $ (10,645) $ 261,233 $ 443,812

~~See accompanying notes to unaudited condensed consolidated financial statements.~~

~~Portillo's Inc.~~ ~~Form 10-Q | 5~~

~~PORTILLO'S INC~~

~~CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' AND MEMBERS' EQUITY~~

~~(UNAUDITED)~~

~~(In thousands, except share data)~~

Two Quarters Ended June 26, 2022 and June 27, 2021
Preferred Units Class A Common Stock Class B Common Stock
Units Amounts Member's Equity Shares Amount Shares Amount Additional Paid-in Capital Accumulated Deficit Non-Controlling Interest Total Stockholders' Equity
Balance at December 27, 2020 100,000 $ 200,571 $ 140,709 — $ — — $ — $ — $ — $ — $ 140,709
Net income — — 13,873 — — — — — — — 13,873
Equity-based compensation — — 273 — — — — — — — 273
Repayment of subscription receivable — — 250 — — — — — — — 250
Issuance of common units — — 100 — — — — — — — 100
Redeemable preferred units accretion — 11,092 (11,092) — — — — — — — (11,092)
Balance at June 27, 2021 100,000 211,663 144,113 — — — — — — — 144,113
Balance at December 26, 2021 — — — 35,807,171 358 35,673,321 — 186,856 (15,950) 252,142 423,406
Net income — — — — — — — — 5,305 6,001 11,306
Equity-based compensation — — — — — — — 3,837 — 3,812 7,649
Exercise of stock options — — — 411,184 4 — — 1,447 — — 1,451
Non-controlling interest adjustment — — — — — — — 722 — (722) —
Balance at June 26, 2022 — $ — $ — 36,218,355 $ 362 35,673,321 $ — $ 192,862 $ (10,645) $ 261,233 $ 443,812


Quarters Ended March 26, 2023 and March 27, 2022
	Class A Common Stock		Class B Common Stock
		Shares	Amount		Shares	Amount		Additional Paid-in Capital		Accumulated Deficit		Non-Controlling Interest		Total Stockholders' Equity
Balance at December 26, 2021		35,807,171	$	358	35,673,321	$	—	$	186,856	$	(15,950)	$	252,142	$	423,406
Net income		—	—		—	—		—		194		356		550
Equity-based compensation		—	—		—	—		1,896		—		1,889		3,785
Balance at March 27, 2022		35,807,171	358		35,673,321	—		188,752		(15,756)		254,387		427,741

Balance at December 25, 2022		48,420,723	484		23,837,162	—		260,664		(4,812)		176,565		432,901
Net loss		—	—		—	—		—		(514)		(759)		(1,273)
Equity-based compensation		—	—		—	—		2,425		—		1,112		3,537
Activity under equity-based compensation plans		153,628	2		—	—		711		—		—		713
Redemption of LLC Units in connection with the secondary offering		5,893,600	59		(5,893,600)	—		(59)		—		—		—
Non-controlling interest adjustment		—	—		—	—		43,736		—		(43,736)		—
Distributions paid to non-controlling interest holders		—	—		—	—		—		—		(399)		(399)
Establishment of liabilities under Tax Receivable Agreement and related changes to deferred tax assets associated with increases in tax basis		—	—		—	—		(12,493)		—		—		(12,493)
Balance at March 26, 2023		54,467,951	$	545	17,943,562	$	—	$	294,984	$	(5,326)	$	132,783	$	422,986

See accompanying notes to unaudited condensed consolidated financial statements.

Portillo's Inc.

Form 10-Q | 65

PORTILLO'S INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)


		Two Quarters Ended					Quarter Ended
		June 26, 2022		June 27, 2021			March 26, 2023		March 27, 2022
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	11,306	$	13,873
Adjustments to reconcile net income to net cash provided by operating activities:
Net (loss) income						Net (loss) income	$	(1,273)	$	550
Adjustments to reconcile net (loss) income to net cash provided by operating activities:						Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	10,514		12,709		Depreciation and amortization	5,670		5,205
Amortization of debt issuance costs and discount	Amortization of debt issuance costs and discount	1,243		1,920		Amortization of debt issuance costs and discount	431		621
Loss on sales of assets	Loss on sales of assets	107		114		Loss on sales of assets	118		22
Equity-based compensation	Equity-based compensation	7,649		273		Equity-based compensation	3,537		3,785
Deferred rent and tenant allowance	Deferred rent and tenant allowance	2,112		2,083		Deferred rent and tenant allowance	—		1,253
Deferred income tax expense		2,505		—
Deferred income tax (benefit) expense						Deferred income tax (benefit) expense	(559)		165
Tax Receivable Agreement liability adjustment	Tax Receivable Agreement liability adjustment	(1,754)		—		Tax Receivable Agreement liability adjustment	(584)		—
Amortization of deferred lease incentives	Amortization of deferred lease incentives	(166)		(189)		Amortization of deferred lease incentives	—		(105)

Gift card breakage	Gift card breakage	(474)		(419)		Gift card breakage	(329)		(293)

Loss on debt extinguishment						Loss on debt extinguishment	3,465		—
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(1,089)		535		Accounts receivable	499		1,816
Receivables from related parties	Receivables from related parties	(66)		(159)		Receivables from related parties	(101)		(8)
Inventory	Inventory	439		1,502		Inventory	2,128		931
Other current assets	Other current assets	754		(297)		Other current assets	(957)		(319)
Operating lease assets						Operating lease assets	2,081		—
Accounts payable	Accounts payable	(2,908)		(532)		Accounts payable	(3,160)		(3,708)
Accrued expenses and other liabilities	Accrued expenses and other liabilities	(6,140)		856		Accrued expenses and other liabilities	(4,513)		(9,745)

Operating lease liabilities						Operating lease liabilities	(798)		—
Deferred lease incentives	Deferred lease incentives	1,251		690		Deferred lease incentives	850		600
Other assets and liabilities	Other assets and liabilities	76		(142)		Other assets and liabilities	(19)		30
NET CASH PROVIDED BY OPERATING ACTIVITIES	NET CASH PROVIDED BY OPERATING ACTIVITIES	25,359		32,817		NET CASH PROVIDED BY OPERATING ACTIVITIES	6,486		800
CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	Purchase of property and equipment	(13,940)		(18,468)		Purchase of property and equipment	(20,216)		(6,279)
Purchase of investment securities		—		(200)

Proceeds from the sale of property and equipment	Proceeds from the sale of property and equipment	30		123		Proceeds from the sale of property and equipment	26		—
NET CASH USED IN INVESTING ACTIVITIES	NET CASH USED IN INVESTING ACTIVITIES	(13,910)		(18,545)		NET CASH USED IN INVESTING ACTIVITIES	(20,190)		(6,279)
CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:					CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from short-term debt, net						Proceeds from short-term debt, net	10,000		—
Proceeds from long-term debt						Proceeds from long-term debt	300,000		—
Payments of long-term debt	Payments of long-term debt	(1,662)		(1,662)		Payments of long-term debt	(322,428)		(831)

Proceeds from equity offering, net of underwriting discounts						Proceeds from equity offering, net of underwriting discounts	166,400		—
Repurchase of outstanding equity / Portillo's OpCo units						Repurchase of outstanding equity / Portillo's OpCo units	(166,400)		—

Proceeds from stock option exercises						Proceeds from stock option exercises	590		—
Employee withholding taxes related to net settled equity awards						Employee withholding taxes related to net settled equity awards	(19)		—
Proceeds from Employee Stock Purchase Plan purchases						Proceeds from Employee Stock Purchase Plan purchases	127		—
Payments of Tax Receivable Agreement liability						Payments of Tax Receivable Agreement liability	(813)		—
Payment of deferred financing costs						Payment of deferred financing costs	(3,569)		—
Payment of initial public offering issuance costs	Payment of initial public offering issuance costs	(771)		—		Payment of initial public offering issuance costs	—		(771)
Proceeds from stock option exercise		1,451		—
Proceeds from issuance of common units		—		100
Repayment of stock subscription receivable		—		250
NET CASH USED IN FINANCING ACTIVITIES	NET CASH USED IN FINANCING ACTIVITIES	(982)		(1,312)		NET CASH USED IN FINANCING ACTIVITIES	(16,112)		(1,602)
NET INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH		10,467		12,960
NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH						NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH	(29,816)		(7,081)
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF THE PERIOD	CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF THE PERIOD	39,263		41,432		CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF THE PERIOD	44,427		39,263
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF THE PERIOD	CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF THE PERIOD	$	49,730	$	54,392	CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF THE PERIOD	$	14,611	$	32,182

See accompanying notes to unaudited condensed consolidated financial statements.

Portillo's Inc.

Form 10-Q | 6

PORTILLO'S INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)


	Quarter Ended
	March 26, 2023		March 27, 2022
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid	$	5,703	$	5,356
Income tax paid	—		—
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accrued capital expenditures	$	4,852	$	1,626

Establishment of liabilities under Tax Receivable Agreement	47,380		—

See accompanying notes to unaudited condensed consolidated financial statements.

Portillo's Inc.

Form 10-Q | 7

~~PORTILLO'S INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(UNAUDITED)~~

~~(In thousands)~~

Two Quarters Ended
June 26, 2022 June 27, 2021
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 10,815 $ 19,378
Income tax paid — —
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accrued capital expenditures $ 333 $ 1,259
Redeemable preferred units accretion — (11,092)
Deferred offering costs in accounts payable — 783

~~See accompanying notes to unaudited condensed consolidated financial statements.~~

~~Portillo's Inc.~~ ~~Form 10-Q | 8~~

PORTILLO'S INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. DESCRIPTION OF BUSINESS

Portillo’s Inc. (the "Company") was formed and incorporated as a Delaware corporation on June 8, 2021. The Company was formed for the purpose of completing aan initial public offering ("IPO") and related reorganization transactions (collectively, the "Transactions”) in order to carry on the business of PHD Group Holdings LLC and its subsidiaries ("Portillo's OpCo"). Following the consummation of the Transactions on October 20, 2021, the Company became the sole managing member of Portillo’s OpCo, and as sole managing member, the Company operates and controls all of the business and affairs of Portillo's OpCo. As a result, the Company consolidates the financial results of Portillo's OpCo and reports a non-controlling interest representing the economic interest in Portillo's OpCo held by the other members of Portillo's OpCo (the "pre-IPO LLC Members"). Unless the context otherwise requires, references to "we," "us," "our," "Portillo's," and the "Company" refer to Portillo's Inc. and its subsidiaries, including Portillo's OpCo.

The Company operates fast-casual restaurants in ~~Illinois, Indiana, California, Arizona, Florida, Wisconsin, Minnesota, Iowa and Michigan,~~10 states, along with 2two food production commissaries in Illinois. As of ~~June~~March 26, ~~2022~~2023 and December ~~26, 2021,~~25, 2022, the Company had 7074 and 6871 restaurants in operation, respectively, excluding a restaurant owned by C&O Chicago, LLC ("C&O"), of which Portillo's owns 50% of the equity. The Company also had 3two non-traditional locations in operation as of ~~June~~March 26, ~~2022~~2023 and December ~~26, 2021.~~25, 2022. These non-traditional locations include a food truck and a ghost kitchen (small kitchen with no store-front presence, used to fill online orders)~~, and concessions.~~. Portillo's additionally has a 50% interest in a single restaurant owned by C~~&O, that is referred to in Note 2.~~&O. The Company’s principal corporate offices are located in Oak Brook, ~~IL.~~Illinois.

~~Initial Public Offering~~Secondary Offerings

~~The Company's registration statement on Form S-1, as amended (Registration No. 333-259810), related to its initial public offering ("IPO") was declared effective October 20, 2021, and~~In the ~~Company's Class A common stock began trading on the Nasdaq Global Select Market under the symbol "PTLO" on October 21, 2021. On October 25, 2021,~~first quarter of 2023, the Company completed ~~its IPO~~a secondary offering of ~~23,310,810~~8,000,000 shares of the Company's Class A common stock ~~(including 3,040,540 shares sold to the underwriters pursuant to their overallotment option),~~ at an offering price of ~~$20.00~~$21.05 per ~~share.~~share (the "Q1 Secondary Offering"). The Company ~~received aggregate net proceeds~~granted Morgan Stanley & Co. LLC, the underwriter (the "Underwriter"), a 30-day option to purchase up to an additional 1,200,000 shares of ~~approximately $430.0 million after deducting underwriting discounts and commissions of $29.1 million and other offering expenses of approximately $7.1 million.~~

~~In connection with~~Class A common stock. On April 5, 2023, the ~~IPO, we completed the following:~~

•~~We amended and restated the limited liability company agreement of Portillo’s OpCo ("LLC Agreement")~~Underwriter exercised its overallotment option in part, to ~~among other things, convert all outstanding equity interests (except for those redeemable preferred units which were redeemed in connection with the IPO) into LLC Units.~~

•We became the sole managing member of Portillo's OpCo. Because we manage and operate the business and control the strategic decisions and day-to-day operations of Portillo’s OpCo and because we also have a substantial financial interest in Portillo’s OpCo, we consolidated the financial results of Portillo’s OpCo, and a portion of our net income was allocated to non-controlling interests to reflect the entitlementpurchase an additional 620,493 shares of the pre-IPO LLC Members who retained their equity ownership in Portillo's OpCo. In addition, because Portillo’s OpCo was under the common control of the pre-IPO LLC Members before and after the Transactions, we measured the assets and liabilities of Portillo’s OpCo at their carrying amounts as of the date of the completion of the Transactions.

•~~We amended and restated our certificate of incorporation to authorize the issuance of two classes of common stock:~~Company's Class A common stock (see Note 16. Subsequent Events for additional details). We used all of the net proceeds from the Q1 Secondary Offering to purchase LLC Units and ~~Class B common stock. Each share~~corresponding shares of ~~Class A common stock and~~ Class B common stock ~~entitles its holder~~from certain pre-IPO LLC Members and to ~~1 vote per share on all matters submitted to a vote of our stockholders. The Class B common stock is not entitled to economic interests in Portillo’s Inc.~~

~~The net proceeds and cash on hand were used as follows:~~

•~~to repay the redeemable preferred units in full (including the redemption premium) of $221.7 million;~~

•~~to repay all of the borrowings outstanding under the Second Lien Credit Agreement (including prepayment penalties) of $158.1 million; and~~

•~~to purchase LLC Units or~~repurchase shares of Class A common stock from ~~certain pre-IPO LLC Members~~the shareholders of ~~$57.0 million.~~

~~Portillo's Inc.~~ ~~Form 10-Q | 9~~

~~PORTILLO'S INC.~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~In connection with~~ the IPO, the Company entered into a Tax Receivable Agreement ("TRA") with certain pre-IPO LLC Members, pursuant to which the Company will be generally obligated to pay 85% of the amount of applicable cash savings, if any, in U.S. federal, state, and local income tax that the Company actually realizes or is deemed to realize as a result of (i) our allocable share of existing tax basis in depreciable or amortizable assets relating to LLC Units acquired in the IPO, (ii) certain favorable tax attributes acquired by the Company from entities treated as corporations for U.S. tax purposes that held LLC Units prior to the Transactions ("Blocker Companies") ~~(including net operating losses~~at a price per LLC Unit or share of Class A common stock, as applicable, equal to the public offering price per share of Class A common stock, less the underwriting discounts and commissions. The proceeds from the Q1 Secondary Offering were used to (i) purchase 2,106,400 existing shares of Class A common stock from the shareholders of the Blocker ~~Companies' allocable share of existing tax basis), (iii) increases in our allocable share of then existing tax basis in depreciable or amortizable assets,~~Companies and ~~adjustments to~~(ii) redeem 5,893,600 LLC Units held by the tax basis of the tangible and intangible assets, of Portillo’s OpCo and its subsidiaries, as a result of (x) sales or exchanges of interests in Portillo’s OpCo (including the repayment of the redeemable preferred units) inpre-IPO LLC Members. In connection with the ~~IPO and (y) future redemptions or exchanges~~redemption, 5,893,600 shares of ~~LLC Units~~Class B common stock were surrendered by the pre-IPO LLC Members ~~for~~and canceled and the Company received 5,893,600 newly-issued LLC Units, increasing the Company's total ownership interest in Portillo's OpCo. As a result, Portillo’s did not receive any proceeds from the offering, and the total number of shares of Class A common stock and ~~(iv) certain other tax benefits related to entering into~~Class B common stock did not change; however, the ~~TRA, including payments made under~~number of outstanding shares of Class A common stock increased by the ~~TRA. We will retain the benefit~~same number of the ~~remaining 15%~~canceled shares of ~~these tax savings.~~Class B common stock.

In the third and fourth quarters of 2022, the Company completed two secondary offerings of 8,066,458 shares (including 66,458 shares sold to the underwriters pursuant to their overallotment option) and 8,000,000 shares, respectively, of the Company's Class A common stock at an offering price of $23.75 and $22.69, respectively, per share.

As of March 26, 2023, the Company owns 75.2% of Portillo's OpCo and the pre-IPO LLC Members own the remaining 24.8% of Portillo's OpCo.

Portillo's Inc.

Form 10-Q | 8

PORTILLO'S INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information.

The Company has prepared the accompanying unaudited condensed consolidated financial statements in accordance with GAAP for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of our financial position and results of operations. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year. The financial statements and related notes do not include all information and footnotes required by GAAP for annual reports. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes ~~thereto for the fiscal year ended December 26, 2021~~ included in our Annual Report on Form 10-K for the fiscal year ended December ~~26, 2021.~~25, 2022.

All intercompany balances and transactions have been eliminated in consolidation.

The Company does not have any components of other comprehensive income (loss) recorded within its condensed consolidated financial statements, and therefore, does not separately present a statement of comprehensive income (loss).

Segment Reporting

The Company owns and operates fast-casual restaurants in the United States, along with 2two food production commissaries in Illinois. The Company’s chief operating decision maker (the “CODM”) is its Chief Executive Officer ("CEO"). The CODM reviews financial performance and allocates resources at a consolidated level on a recurring basis. The Company has 1one operating segment and 1one reportable segment.

Fiscal Year

~~We use~~The Company uses a 52- or 53-week fiscal year ending on the Sunday prior to or on December 31. In a 52-week fiscal year, each quarterly period is comprised of 13 weeks. The additional week in a 53-week fiscal year is added to the fourth quarter. Fiscal ~~2022~~2023 and ~~2021 each~~2022 consist of 53 and 52 ~~weeks.~~weeks, respectively. The fiscal periods presented in this report are the ~~quarter and two~~ quarters ended ~~June~~March 26, ~~2022~~2023 and ~~June~~March 27, ~~2021,~~2022, respectively.

~~Portillo's Inc.~~ ~~Form 10-Q | 10~~

~~PORTILLO'S INC.~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Use of Estimates

The preparation of these condensed consolidated 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 sales and expenses during the period. Actual results could differ from those estimates.

~~Reverse Common Unit Split~~

~~On October 20, 2021, the members of Portillo's OpCo executed the Second Amended and Restated Limited Liability Company Agreement for Portillo's OpCo~~, effecting a 7.4-for-1 reverse common unit split. All applicable unit data, per unit amounts and related information in the consolidated financial statements and notes thereto have been adjusted retroactively to give effect to the 7.4-for-1 reverse common unit split.

~~Revenue Recognition~~

Revenues from retail restaurants are presented net of discounts and recognized when food and beverage products are sold to the end customer. Sales taxes collected from customers are excluded from revenues and the obligation is included in accrued expenses on the Company’s consolidated balance sheet until the taxes are remitted to the appropriate taxing authorities.

The Company offers delivery services to its customers. For delivery sales through Portillos.com or the Portillo's App, the Company recognizes revenue, including delivery fees, when the performance obligation is complete and the food is transferred to the customer. For delivery sales through a non-Company owned channel, such as the delivery partner’s website or app, we recognize marketplace sales, including third-party delivery menu price premiums, as revenue when the control of the food is transferred to the delivery service, excluding any delivery or service fees charged to the customer. Prior to the end of 2021, this price premium was previously recorded in Cost of goods sold, excluding depreciation and amortization. At the end of 2021, the Company began to record the difference in higher third-party delivery menu prices, versus regular menu prices, in revenue. The amount of the price premium recorded in 2021 and prior periods is not material and there is no anticipated or actual impact on operating income or net income for any period.

Generally, revenue is recognized as promised goods or services transfer to the guest or customer in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Revenues are recognized when payment is tendered at the point of sale as the performance obligation has been satisfied. Refer to Note 3. Revenue Recognition for additional detail.

~~Inventory~~

The Company operates 2 commissaries to supply the Company's restaurants with several products and ensures product consistency and quality. The commissaries derive revenue principally from the sale and distribution of food to our distributors, who, in turn, sell the food to the restaurants. This is considered under ASC 845, Non-Monetary Transactions and the impact on the statement of operations is not material. These products are held as inventory at distributors on a short-term consignment basis. Inventories subject to these consignment arrangements are recorded on the Company’s consolidated balance sheet and totaled $0.6 million and $0.4 million as of June 26, 2022 and December 26, 2021, respectively.

~~Equity Method Investments~~

The Company has a 50% interest in C&O. The Company accounts for the investment and financial results in the consolidated financial statements under the equity method of accounting as the Company has significant influence but does not have control. The investment is adjusted to reflect the Company’s share of C&O’s earnings and losses to date and any distributions received.

Portillo's Inc.

Form 10-Q | 119

PORTILLO'S INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Recently ~~Issued~~Adopted Accounting Standards

In February 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842) ("ASC 842"), along with related clarifications and improvements. The pronouncement requires lessees to recognize a lease liability, which represents the discounted obligation to make future minimum lease payments, and a corresponding right-of-use asset on the balance sheet. The guidance requires disclosure of key information about leasing arrangements that is intended to give financial statement users the ability to assess the amount, timing, and potential uncertainty of cash flows related to leases. The update is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. The Company will adopt this standard for the annual period ending December 25, 2022. We expect the adoption of this standard will have a significant impact on the Company’s consolidated balance sheet as we recognize the operating lease assets and lease liabilities for our operating leases. We anticipate the adoption will have an immaterial impact on the condensed consolidated statements of operations, stockholders' equity, and cash flows.

In March 2020, the ~~FASB~~Financial Accounting Standards Board ("FASB") issued ~~ASU~~Accounting Standards Update ("ASU") No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. FASB has extended the sunset date to December 31, 2024. The Company ~~is currently evaluating~~does not believe the impact of the transition from LIBOR to alternative reference rates ~~but does~~is material to its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASC 842"), along with related clarifications and improvements. The pronouncement requires lessees to recognize a liability, which represents the discounted obligation to make future minimum lease payments, and a corresponding right-of-use asset on the balance sheet. The guidance requires disclosure of key information about leasing arrangements that is intended to give financial statement users the ability to assess the amount, timing, and potential uncertainty of cash flows related to leases. The update is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. The Company adopted this standard effective December 27, 2021, electing the modified retrospective approach to apply the standard as of the transition date. We have elected the transition package of three practical expedients permitted under the new standard, which eliminates the requirement to reassess the conclusions about historical lease identifications, lease classifications, and initial direct costs. We did not ~~expect~~elect the hindsight practical expedient, which permits the use of hindsight when determining lease terms and impairments of right-of-use assets. We elected to apply the practical expedient of combining lease and non-lease components. Additionally, we elected to utilize the short-term lease exception policy, which allows us to not apply the recognition requirements of this standard to leases with a term of 12 months or less. The adoption of this standard had a significant impact on ~~its~~the Company’s condensed consolidated ~~financial statements.~~balance sheet as we recognized the right-of-use asset and lease liabilities for our operating leases. The adoption had an immaterial impact on the condensed consolidated statement of operations, cash flows and overall liquidity. See Note 9. Leases for additional information.

The Company reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact to its condensed consolidated financial statements.

NOTE 3. REVENUE RECOGNITION

Revenues from retail restaurants are presented net of discounts and recognized when food and beverage products are sold to the end customer. Sales taxes collected from customers are excluded from revenues and the obligation is included in accrued liabilities until the taxes are remitted to the appropriate taxing authorities.

~~The Company offers delivery services to its customers.~~ Delivery ~~services~~sales are generally fulfilled by ~~the Company and~~ third-party ~~service providers. In some cases, the Company makes~~ delivery ~~sales~~partners whether ordered through ~~Portillos.com or~~ the Portillo's ~~App~~app and website ("Dispatch Sales") or through third-party delivery partners ("Marketplace Sales"). ~~In other cases,~~Dispatch Sales include delivery and service fees as the Company ~~makes delivery sales through a non-Company owned channel, such as~~controls the ~~delivery partner’s website or app (“Marketplace Sales”).~~

~~With respect to~~delivery. Revenue from Dispatch Sales ~~delivery may be performed by the Company or through a third-party service provider. The Company recognizes revenue, including delivery fees,~~is recognized when ~~the performance obligation is complete and the~~ food is ~~transferred~~delivered to the customer. For these sales, the Company receives payment directly from the customer at the time of sale.

~~With respect to~~ Revenue for Marketplace Sales is recognized in the ~~Company recognizes revenue, including third-party menu price premiums, excluding delivery fees collected by~~amount paid to the delivery partner ~~when~~by the ~~performance obligation~~customer for food and excludes delivery and service fees charged by the third-party delivery partner as the Company does not control the delivery. Revenue from Marketplace Sales is ~~complete, and control of the~~recognized when food is ~~transferred~~delivered to the ~~delivery partner. The~~customer. For these sales, the Company receives payment from the delivery partner subsequent to the transfer of ~~food. The payment terms with respect to Marketplace Sales are short-term in nature and are~~order, which is generally paid one week in arrears. For all delivery sales of food, the Company is considered the principal and recognizes revenue on a gross basis.

The Company sells gift cards which do not have expiration dates. The Company records the sale of the gift card as a contract liability and recognizes revenue from gift cards when: (i) the gift card is redeemed by the customer; or (ii) in the event a gift card is not expected to be redeemed, in proportion to the pattern of rights exercised by the customer (gift card breakage). The Company has determined that 11% of gift card sales will not be redeemed and will be retained by us based on a portfolio assessment of historical data on gift card redemption patterns. Gift card breakage is recorded within revenues, net in the condensed consolidated statements of operations. The Company recognized gift card breakage of ~~$0.2 million and $0.5~~$0.3 million for the ~~quarter and two~~ quarters ended ~~June~~ March 26, ~~2022, respectively,~~2023 and ~~$0.2 million and $0.4 million for the quarter and two quarters ended~~ ~~June~~March 27, ~~2021~~2022~~, respectively.~~.

Portillo's Inc.

Form 10-Q | 10

PORTILLO'S INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company’s revenue related to performance obligations not yet satisfied is revenue from gift cards sold but not yet redeemed. The gift card liability included in current deferred revenue on the condensed consolidated balance sheets is as follows (in thousands):

~~Portillo's Inc.~~ ~~Form 10-Q | 12~~

~~PORTILLO'S INC.~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

June 26, 2022 December 26, 2021
Gift card liability $ 4,518 $ 6,606


	March 26, 2023		December 25, 2022
Gift card liability	$	5,068	$	6,988

Revenue recognized in the condensed consolidated statement of operations for the redemption of gift cards that were included in their respective liability balances at the beginning of the year is as follows (in thousands):

Quarter Ended Two Quarters Ended
June 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021
Revenue recognized from gift card liability balance at the beginning of the year $ 830 $ 771 $ 2,681 $ 2,459


	Quarter Ended
		March 26, 2023		March 27, 2022
Revenue recognized from gift card liability balance at the beginning of the year		$	1,937	$	1,806

NOTE 4. ~~INVENTORY~~INVENTORIES

Inventories consisted of the following (in thousands):


		June 26, 2022		December 26, 2021			March 26, 2023		December 25, 2022
Raw materials	Raw materials	$	4,206	$	4,181	Raw materials	$	3,338	$	5,722
Work in progress	Work in progress	116		114		Work in progress	121		104
Finished goods	Finished goods	706		1,395		Finished goods	962		876
Consigned inventory	Consigned inventory	611		388		Consigned inventory	838		685
		$	5,639	$	6,078		$	5,259	$	7,387

NOTE 5. PROPERTY & EQUIPMENT, NET

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


		June 26, 2022		December 26, 2021			March 26, 2023		December 25, 2022
Land improvements	Land improvements	$	15,686	$	15,451	Land improvements	$	16,456	$	16,369
Furniture, fixtures, and equipment	Furniture, fixtures, and equipment	118,557		115,187		Furniture, fixtures, and equipment	133,887		126,130
Leasehold improvements	Leasehold improvements	147,311		138,923		Leasehold improvements	172,337		153,341
Transportation equipment	Transportation equipment	2,212		2,203		Transportation equipment	2,573		2,281
Construction-in-progress	Construction-in-progress	7,885		8,300		Construction-in-progress	23,149		35,386
		291,651		280,064			348,402		333,507
Less accumulated depreciation	Less accumulated depreciation	(97,838)		(89,230)		Less accumulated depreciation	(111,186)		(106,471)
		$	193,813	$	190,834		$	237,216	$	227,036

Depreciation expense ~~was $4.5~~was $5.0 million and ~~$8.9~~$4.4 million for the ~~quarter and two~~ quarters ended ~~June~~March 26, ~~2022, respectively,~~2023 and ~~$4.2 million and $8.3 million for the quarter and two quarters ended~~ ~~June~~March 27, ~~2021,~~2022, respectively, and is included in depreciation and amortization in the condensed consolidated statements of operations.

Portillo's Inc.

Form 10-Q | 1311

PORTILLO'S INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6. GOODWILL & INTANGIBLE ASSETS

The Company has 1one reporting unit for goodwill which is evaluated for impairment annually in the fourth quarter of each fiscal year.

Intangibles, net consisted of the following (in thousands):


		As of June 26, 2022							March 26, 2023

		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount			Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount

Indefinite-lived intangible assets:	Indefinite-lived intangible assets:							Indefinite-lived intangible assets:
Trade names	Trade names	$	223,925	$	—	$	223,925	Trade names	$	223,925	$	—	$	223,925
Intangibles subject to amortization:	Intangibles subject to amortization:							Intangibles subject to amortization:
Recipes	Recipes	56,117		(22,872)		33,245		Recipes	56,117		(25,039)		31,078
Favorable rental contracts		2,991		(1,973)		1,018
		$	283,033	$	(24,845)	$	258,188
									$	280,042	$	(25,039)	$	255,003
		As of December 26, 2021

		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount

Indefinite-lived intangible assets:
Trade names		$	223,925	$	—	$	223,925
Intangibles subject to amortization:
Recipes		56,117		(21,427)		34,690
Favorable rental contracts		2,991		(1,849)		1,142
		$	283,033	$	(23,276)	$	259,757


	December 25, 2022

	Gross Carrying Amount		Accumulated Amortization		ASC 842 Adjustment		Net Carrying Amount

Indefinite-lived intangible assets:
Trade names	$	223,925	$	—	$	—	$	223,925
Intangibles subject to amortization:
Recipes	56,117		(24,317)		—		31,800
Covenants not-to-compete	40,799		(40,799)		—		—
Favorable rental contracts	2,991		(1,849)		(1,142)		—
	$	323,832	$	(66,965)	$	(1,142)	$	255,725

Amortization expense was ~~$0.8~~$0.7 million and ~~$1.6~~$0.8 million for the ~~quarter and two~~ quarters ended ~~June~~March 26, ~~2022, respectively,~~2023 and ~~$2.2 million and $4.4 million for the quarter and two quarters ended~~ ~~June~~March 27, ~~2021,~~2022, respectively, and is included in depreciation and amortization in the condensed consolidated statements of operations.

The estimated aggregate amortization expense ~~for the intangibles~~related to intangible assets held at March 26, 2023 for the remainder of this year and the succeeding five years and thereafter ~~are $1.6 million, $3.1 million, $3.1 million, $3.0 million, $2.9 million, $2.7 million, and $17.9 million, respectively.~~is as follows (in thousands):


	Estimated Amortization
2023 (excluding the quarter ending March 26, 2023)	$	2,167
2024	2,813
2025	2,707
2026	2,707
2027	2,707
2028	2,707
2029 and thereafter	15,270
	$	31,078

Portillo's Inc.

Form 10-Q | 12

PORTILLO'S INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company discloses and recognizes the fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The guidance establishes three levels of the fair value hierarchy as follows:

~~Level 1 - Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;~~

Level 2 - Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

~~Portillo's Inc.~~ ~~Form 10-Q | 14~~

~~PORTILLO'S INC.~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Level 3 - Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data~~

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The carrying value of the Company's cash and cash equivalents, restricted cash, accounts receivable, accounts payable and all other current assets and liabilities approximate fair values due to the short-term nature of these financial instruments.

Other assets consist of a deferred compensation plan with related assets held in a rabbi trust.

Deferred Compensation Plan - The Company maintains a rabbi trust to fund obligations under a deferred compensation plan. Amounts in the rabbi trust are invested in mutual funds, which are designated as trading securities carried at fair value. The fair value measurement of these trading securities is considered Level 1 of the fair value hierarchy as they are measured using quoted market prices.

As of ~~June~~March 26, ~~2022~~2023 and December ~~26, 2021,~~25, 2022, the fair value of the mutual fund investments and deferred compensation obligations were as follows (in thousands):


		June 26, 2022		December 26, 2021	March 26, 2023	December 25, 2022
		Level 1					Level 1			Level 1		Level 1
Assets - Investments designated for deferred compensation plan	Assets - Investments designated for deferred compensation plan								Assets - Investments designated for deferred compensation plan
Cash/money accounts	Cash/money accounts	$	1,685				$	1,482	Cash/money accounts	$	975	$	1,470
Mutual funds	Mutual funds	2,218					3,185		Mutual funds	2,430		2,241
Total assets	Total assets	$	3,903				$	4,667	Total assets	$	3,405	$	3,711

As of ~~June~~March 26, ~~2022~~2023 and December ~~26, 2021,~~25, 2022, we had no Level 2 or Level 3 assets.

The ~~mutual fund~~deferred compensation investments and ~~deferred compensation~~ obligations are included in other assets, accrued expenses and other long-term liabilities in the consolidated balance sheets. Changes in the fair value of securities held in the rabbi trust are recognized as trading gains and losses and included in other income in the consolidated statements of operations and offsetting increases or decreases in the deferred compensation obligation are recorded in other long-term liabilities in the consolidated balance sheets.

Refer to Note 8. Debt for additional information relating to the fair value of the Company's outstanding debt instruments.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

Assets and liabilities that are measured at fair value on a non-recurring basis include property and equipment, net, operating lease assets, equity-method investment, goodwill and indefinite-lived intangible assets. These assets are measured at fair value whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There were no impairment charges recognized during the ~~quarter or two~~ quarters ended ~~June~~March 26, ~~2022~~2023 and ~~June~~March 27, ~~2021.~~2022.

Portillo's Inc.

Form 10-Q | 1513

PORTILLO'S INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8. DEBT

Debt consisted of the following (in thousands):


		June 26, 2022		December 26, 2021			March 26, 2023		December 25, 2022
First Lien Term B-3 Loans		$	324,090	$	325,752
Revolving Loans		—		—

2023 Term Loan						2023 Term Loan	$	300,000	$	—
2014 Term B-3 Loans						2014 Term B-3 Loans	—		322,428
2023 Revolver Facility						2023 Revolver Facility	10,000		—
Unamortized discount and debt issuance costs	Unamortized discount and debt issuance costs	(5,356)		(6,599)		Unamortized discount and debt issuance costs	(3,521)		(3,848)
Total debt, net	Total debt, net	318,734		319,153		Total debt, net	306,479		318,580
Less: current portion		(3,324)		(3,324)
Less: Short-term debt						Less: Short-term debt	(10,000)		—
Less: Current portion of long-term debt						Less: Current portion of long-term debt	(7,500)		(4,155)
Long-term debt, net	Long-term debt, net	$	315,410	$	315,829	Long-term debt, net	$	288,979	$	314,425

~~First Lien~~2023 Credit Agreement

On February 2, 2023 (the "Closing Date"), PHD Intermediate LLC (“Holdings”), Portillo’s Holdings LLC (the “Borrower”), the other Guarantors party thereto from time to time, each lender party thereto from time to time and Fifth Third Bank, National Association, as Administrative Agent, L/C Issuer and Swing Line Lender entered into a credit agreement (“2023 Credit Agreement”) which provides for a term A loan (the "2023 Term Loan") in an initial aggregate principal amount of $300.0 million and revolving credit commitments in an initial aggregate principal amount of $100.0 million (the “2023 Revolver Facility”). The 2023 Term Loan and 2023 Revolver Facility are scheduled to mature on February 2, 2028.

The 2023 Term Loan and the 2023 Revolver Facility will accrue interest at the forward-looking secured overnight financing rate (“SOFR”) plus an applicable rate determined upon the consolidated total net rent adjusted leverage ratio, subject to a floor of 0.00% (plus a credit spread adjustment of 0.10% per annum for 1-month interest periods and 0.15% for 3-month interest periods).

As of March 26, 2023, the interest rate on the 2023 Term Loan and 2023 Revolver Facility was 7.59% and 7.47%, respectively. Pursuant to the 2023 Credit Agreement, as of March 26, 2023, the commitment fees to maintain the 2023 Revolver Facility were 0.250%, letter of credit fees were 2.75%, and letter of credit fronting fees were 0.125%. Commitment fees, letter of credit fees, and letter of credit fronting fees are recorded as interest expense in the condensed consolidated statements of operations. As of March 26, 2023, the effective interest rate was 8.09%.

The 2023 Term Loan will amortize in equal quarterly installments in aggregate annual amounts equal to $7.5 million for the first two (2) years following the Closing Date, (b) $15.0 million for the third (3rd) and fourth (4th) years following the Closing Date, and (c) $30.0 million for the fifth (5th) year following the Closing Date, commencing on the last day of the first full fiscal quarter ended after the Closing Date, with the balance payable on the final maturity date.

As of March 26, 2023, outstanding borrowings under the 2023 Credit Agreement totaled $310.0 million, comprising $300.0 million under the 2023 Term Loan and $10.0 million under the 2023 Revolver Facility. Letters of credit issued under the 2023 Revolver Facility totaled $4.4 million. As a result, as of March 26, 2023, the Company had $85.6 million available under the 2023 Revolver Facility.

2014 Credit Agreement

Holdings, the Borrower and certain of its subsidiaries entered into ~~the First Lien Credit Agreement~~a credit agreement ("~~First Lien~~2014 Credit Agreement"), dated as of August 1, 2014 and as amended October 25, 2016, May 18, 2018 and December 6, 2019, with UBS AG, Stamford Branch, as the administrative agent and collateral agent, and other lenders from time to time party thereto (the ~~“First Lien~~“2014 Lenders”). The ~~First Lien~~2014 Lenders extended credit in the form of (i) first lien initial term loans in an initial aggregate principal amount of $335.0 million and (ii) a revolving credit facility in an original principal amount equal to $30.0 million, including a letter of credit sub-facility with a $7.5 million sublimit (the ~~“Revolving~~“2014 Revolving Facility” and the loans thereunder, the ~~“Revolving~~“2014 Revolving Loans”).

Portillo's Inc.

Form 10-Q | 14

PORTILLO'S INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On December 6, 2019, the Borrower entered a third amendment to the ~~First Lien~~2014 Credit Agreement (the “Third Amendment to ~~First Lien~~2014 Credit Agreement”) whereby the aggregate principal amount of the term loans as of the effective date of the Third Amendment to ~~First Lien~~2014 Credit Agreement was $332.4 million (the ~~“First Lien~~“2014 Term B-3 Loans”), and the 2014 Revolving Facility was increased to $50.0 million. The maturity date with respect to the ~~First Lien~~2014 Term B-3 Loans was extended to September 6, 2024, and the maturity date with respect to the 2014 Revolving Loans ~~date~~ was extended to June 6, 2024.

In connection with the Third Amendment to ~~First Lien~~2014 Credit Agreement, the interest rates spread for the ~~First Lien~~2014 Term B-3 Loans increased by 100 basis points to 5.50% for the adjusted London interbank offered rate ("Eurocurrency Rate") loans. As of ~~June 26,~~March 27, 2022, ~~and June 27, 2021,~~ the interest rate on the 2014 Term B-3 Loans was ~~6.56% and~~ 6.50%~~, respectively. As of June 26, 2022 and June 27, 2021, the effective interest rate on the Term Loans was~~ ~~7.38% and 7.63%, respectively.~~. Beginning with December 31, 2019, the Company is required to pay on the last business day of each calendar quarter, March 31, June 30, September 30, and December 31, an aggregate principal amount of $0.8 million.

As of ~~June 26,~~December 25, 2022, ~~and December 26, 2021,~~ the Company had no borrowings under the ~~Revolver outstanding, respectively.~~2014 Revolving Facility. As of ~~both June 26,~~March 27, 2022, ~~and June 27, 2021,~~ the interest rate on the ~~Revolver~~2014 Revolving Facility was 3.25%, subject to change based on a consolidated first lien net leverage ratio as defined in the ~~First Lien~~2014 Credit Agreement. As of ~~both June 26,~~March 27, 2022, ~~and June 27, 2021,~~ the commitment fees, pursuant to the ~~First Lien,~~2014 Credit Agreement, to maintain the ~~Revolver~~2014 Revolving Facility were 0.250%. Also pursuant to the ~~First Lien~~2014 Credit Agreement, as of ~~both June 26,~~March 27, 2022, ~~and June 27, 2021,~~ letter of credit fronting fees were 0.125%. Commitment fees and letter of credit fronting fees are recorded as interest expense in the condensed consolidated statements of operations. As of March 27, 2022, the effective interest rate was 7.74%.

The Company had ~~$5.0~~$4.2 million of letters of credit issued against the 2014 Revolving Facility as of ~~both June 26, 2022 and~~ December ~~26, 2021, respectively. As of June 26, 2022, the Company had $45.0 million of availability under the Revolving Facility.~~25, 2022.

~~Second Lien~~

~~Holdings,~~On February 2, 2023, the ~~Borrower~~Company used proceeds from the 2023 Term Loan and ~~certain of its subsidiaries entered into~~2023 Revolver Facility, along with cash on hand, to pay off the ~~Second Lien~~2014 Credit Agreement (the “Second Lien Credit Agreement”) dated as of August 1, 2014 and as amended on October 25, 2016 and December 6, 2019 with UBS AG, Stamford Branch, as administrative agent and collateral agent, and other lenders from time to time party thereto (the “Second Lien Lenders”). The Second Lien Lenders extended creditin full in the ~~form of initial second lien term loans in an initial aggregate principal~~ amount of ~~$80.0~~$321.8 million.

~~Portillo's Inc.~~ ~~Form 10-Q | 16~~

~~PORTILLO'S INC.~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~On December 6, 2019,~~ The 2023 Revolver Facility under the ~~Borrower entered into second amendment to the Second Lien~~2023 Credit Agreement ~~(the “Second Amendment to Second Lien~~replaces the $50.0 million 2014 Revolving Facility under the 2014 Credit Agreement”) whereby the aggregate principal amount of the term loans as of the effective date of the Second Amendment to the Second Lien Credit Agreement was $155.0 million (the “Second Lien Term B-3 Loans”). The maturity date of the Second Lien Term B-3 Loans was extended to December 6, 2024 (the “Second Lien Maturity Date”). In addition to the increased principal amount, the interest rates spread for the Second Lien Term B-3 Loans increased by 150 basis points to 9.50% for Eurocurrency Rate loans. The Borrower determined interest on the Second Lien at the Eurocurrency Rate, plus 9.50%.

~~In connection with the IPO, the Company received aggregate net proceeds of approximately~~ ~~$430.0 million~~ ~~after deducting underwriting discounts and commissions and offering expenses. Net proceeds of~~ ~~$158.1 million~~ ~~were used to repay the Second Lien Term B-3 Loans in full, including a $3.1 million prepayment penalty, which was recorded as a loss on debt extinguishment during the year ended~~ ~~December 26, 2021 in the consolidated statement of operations.~~Agreement.

Discount and Debt Issuance Costs

~~In connection with entering into~~Pursuant to the ~~Third Amendment to First Lien~~2023 Credit Agreement, the Company capitalized deferred financing costs and ~~the Second Amendment to Second Lien Credit Agreement, in each case, dated as~~issuance discount of ~~December 6, 2019, the Borrower paid debt issuance costs of $14.5~~$3.6 million of which ~~$13.3 million were capitalized and are being~~will be amortized over the term of the ~~related debt agreements, and $1.2 million were expensed as incurred.~~2023 Credit Agreement.

In connection with the repayment of the ~~Second Lien Term B-3 Loans~~2014 Credit Agreement as described above, deferred financing costs and original issuance discount of ~~$4.2~~$3.5 million were recorded as a loss on debt extinguishment during the ~~year~~quarter ended ~~December~~March 26, ~~2021~~2023 in the condensed consolidated statement of operations.

The Company amortized ~~$0.5~~$0.3 million and ~~$0.9~~$0.4 million of deferred financing costs during the ~~quarter and two~~ quarters ended ~~June~~March 26, 2023 and March 27, 2022, respectively, ~~and $0.6 million and $1.1 million, respectively, during the quarter and two quarters ended June 27, 2021,~~ which is included in interest expense in the condensed consolidated statements of operations. In addition, the Company also amortized ~~$0.1~~$0.2 million and ~~$0.3~~$0.2 million in original issue discount related to the ~~long term~~long-term debt during the ~~quarter and two~~ quarters ended ~~June~~March 26, 2023 and March 27, 2022, respectively, ~~and $0.4 million and $0.8 million, respectively, in the quarter and two quarters ended June 27, 2021~~ which is included in interest expense in the condensed consolidated statements of operations.

Total interest costs incurred were ~~$6.1~~$7.4 million and ~~$12.2~~$6.1 million for the ~~quarter and two~~ quarters ended ~~June~~March 26, ~~2022, respectively,~~2023 and ~~$10.7 million and $21.4 million for the quarter and two quarters ended June~~March 27, ~~2021,~~2022, respectively.

As of ~~June~~March 26, ~~2022~~2023 and December ~~26, 2021,~~25, 2022, the fair value of long-term debt approximates the carrying value as it is variable rate debt. The fair value measurement of this debt is considered Level 2 of the fair value hierarchy as inputs to interest are observable, unadjusted quoted prices in active markets for similar assets or liabilities.

~~Borrowings under the First Lien~~The 2023 Credit Agreement ~~are~~is guaranteed by all domestic subsidiaries of the Borrower (subject to customary exceptions) and secured by liens on substantially all of the assets of Holdings, the Borrower and ~~certain of~~ the ~~Borrower’s subsidiaries, and Holdings, the Borrower and certain of the Borrower’s subsidiaries have pledged substantially all tangible and intangible assets as collateral, subject~~subsidiary guarantors (subject to ~~certain exclusions and exceptions.~~customary exceptions).

The ~~Borrower is subject to~~2023 Credit Agreement also includes certain financial covenants with respect to cash interest coverage and ~~reporting covenants pursuant to the terms of the First Lien Credit Agreement. These covenants are customary for these types of debt agreements.~~total net rent adjusted leverage. As of ~~June~~March 26, ~~2022,~~2023, the Company was in compliance with all ~~covenants.~~covenants in the 2023 Credit Agreement.

Portillo's Inc.

Form 10-Q | 1715

PORTILLO'S INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9. LEASES

We qualify as an emerging growth company pursuant to the provisions of the Jumpstart our Business Startups ("JOBS") Act. As such, we adopted ASU 2016-02, Leases (Topic 842), along with related clarifications and improvements, using a modified retrospective approach, with first presentation of the application of ASC 842 in our Annual Report on Form 10-K for the fiscal year ended December 25, 2022. Quarterly interim financial statements for 2023 are presented under ASC 842. Quarterly interim financial statements were not required in 2022 under prior lease accounting guidance, therefore comparative amounts are not presented for those periods.

A summary of operating lease right-of-use assets and liabilities is as follows (in thousands):


Operating leases	Classification	March 26, 2023		December 25, 2022
Right-of-use assets	Operating lease assets	$	173,414	$	166,808
		173,414		166,808

Current lease liabilities	Short-term operating lease liability	5,088		4,849
Non-current lease liabilities	Long-term operating lease liability	210,682		200,166
		$	215,770	$	205,015

The components of lease expense were as follows (in thousands):

Quarter Ended

Operating leases

Classification

March 26, 2023

Operating lease cost

Occupancy
Other operating expenses
General and administrative expenses
Pre-opening expenses

6,828

Short-term operating lease cost

Occupancy
Other operating expenses

152

Variable lease cost

Occupancy
Other operating expenses
General and administrative expenses

994

7,974

A summary of lease terms and discount rates for operating leases is as follows:


Operating leases	March 26, 2023		December 25, 2022
Weighted-average remaining lease term (years):	25.3		25.0
Weighted-average discount rate:	9.8	%	9.8	%

Supplemental cash flow information related to leases is as follows (in thousands):


	Quarter Ended
	March 26, 2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	5,773
Operating lease assets obtained in exchange for lease liabilities:
Operating leases	7,263

Portillo's Inc.

Form 10-Q | 16

PORTILLO'S INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of March 26, 2023, the maturity analysis of the lease liabilities consisted of the following (in thousands):


Year Ending	Operating Leases
2023 (excluding the quarter ending March 26, 2023)	$	17,722
2024	23,907
2025	23,924
2026	24,008
2027	23,306
Thereafter	561,757
Total lease payments	674,624
Less: imputed interest	(458,854)
Total operating lease liabilities	$	215,770

As of March 26, 2023, operating lease payments include $381.4 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $71.3 million of minimum payments for leases signed but not yet commenced.

NOTE 9.10. NON-CONTROLLING INTERESTS

~~In connection with the Transactions described in Note 1. Description Of Business we~~We are the sole managing member of Portillo's OpCo, and as a result, ~~consolidated~~consolidate the financial results of Portillo's OpCo. We report a non-controlling interest representing the LLC ~~interests~~Units in Portillo's OpCo held by pre-IPO LLC Members. Changes in our ownership interest in Portillo's OpCo while we retain our controlling interest in Portillo's OpCo will be accounted for as equity transactions. As such, future redemptions or direct exchanges of LLC ~~interests~~Units in Portillo's OpCo by the pre-IPO LLC members will result in a change in ownership and reduce the amount recorded as non-controlling interest and increase additional paid-in capital.

In the first quarter of 2023, in connection with the secondary offering described in Note 1. Description Of Business, 5,893,600 LLC Units and corresponding shares of Class B common stock were redeemed by the pre-IPO LLC Members for newly-issued shares of Class A common stock and we received 5,893,600 newly-issued LLC Units, increasing our total ownership interest in Portillo's OpCo.

The following table summarizes the LLC interest ownership by Portillo's Inc. and pre-IPO LLC members:


		As of June 26, 2022			As of	As of December 26, 2021				March 26, 2023			December 25, 2022
		LLC Interests	Ownership %			LLC Interests	Ownership %			LLC Units	Ownership %		LLC Units	Ownership %
Portillo's Inc.	Portillo's Inc.	36,218,355	50.4	%		35,807,171	50.1	%	Portillo's Inc.	54,467,951	75.2	%	48,420,723	67.0	%
pre-IPO LLC Members	pre-IPO LLC Members	35,673,321	49.6	%		35,673,321	49.9	%	pre-IPO LLC Members	17,943,562	24.8	%	23,837,162	33.0	%
Total	Total	71,891,676	100.0	%		71,480,492	100.0	%	Total	72,411,513	100.0	%	72,257,885	100.0	%

The weighted average ownership percentages for the applicable reporting periods are used to attribute net income ~~(loss)~~ to Portillo's Inc. and the pre-IPO LLC Members. The pre-IPO LLC Members' weighted average ownership percentage for ~~both~~ the ~~quarter and two~~ quarters ended ~~June~~March 26, 2023 and March 27, 2022 was ~~49.8%~~31.4% and 49.9%, respectively.

Portillo's Inc.

Form 10-Q | 17

PORTILLO'S INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the effects of changes in ownership in Portillo's OpCo on the Company’s equity (in thousands):

Quarter Ended Two Quarters Ended
June 26, 2022
Net income attributable to Portillo's Inc. $ 5,111 $ 5,305
Transfers to non-controlling interests:
Increase in additional paid-in capital as a result of activity under stock compensation plans 1,447 1,447
Increase in additional paid-in capital as a result of non-controlling interest adjustments 722 722
Total effect of changes in ownership interest on equity attributable to Portillo's Inc. $ 7,280 $ 7,474


	Quarter Ended
		March 26, 2023		March 27, 2022
Net (loss) income attributable to Portillo's Inc.		$	(514)	$	194

Activity under equity-based compensation plans		711		—
Non-controlling interest adjustments, including the secondary offering		43,736		—
Redemption of LLC Units in connection with the secondary offering		(59)		—
Establishment of liabilities under Tax Receivable Agreement and related changes to deferred tax assets associated with increases in tax basis		(12,493)		—
Total effect of changes in ownership interest on equity attributable to Portillo's Inc.		$	31,381	$	194

~~Portillo's Inc.~~ ~~Form 10-Q | 18~~

~~PORTILLO'S INC.~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

NOTE ~~10.~~11. EQUITY-BASED COMPENSATION

Equity-based compensation expense is calculated based on awards ultimately expected to vest and is reduced for estimated forfeitures. Forfeitures are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates and an adjustment to equity-based compensation expense will be recognized at that time.

Equity-based compensation expense included in the Company’s consolidated statements of operations is as follows (in thousands):


		Quarter Ended				Two Quarters Ended					Quarter Ended
		June 26, 2022		June 27, 2021		June 26, 2022		June 27, 2021				March 26, 2023		March 27, 2022
Labor	Labor	$	340	$	—	$	689	$	—	Labor		$	346	$	350
General and administrative expenses	General and administrative expenses	3,525		168		6,960		273		General and administrative expenses		3,191		3,435
Total equity-based compensation expense	Total equity-based compensation expense	$	3,865	$	168	$	7,649	$	273	Total equity-based compensation expense		$	3,537	$	3,785

Employee Stock Purchase Plan

~~On April 14, 2022,~~During the ~~Company's board of directors approved, subject to stockholder approval,~~quarter ended March 26, 2023, the ~~Company's 2022~~Company issued 5,963 shares under the Employee Stock Purchase Plan ~~(the "ESPP"~~("ESPP")~~, which was approved by stockholders on June 22, 2022. Under~~. At March 26, 2023, 236,656 shares remained available for issuance under the ESPP. The expense incurred under the ESPP ~~up to 250,000 shares of the Company's Class A common stock will be made available~~was immaterial for ~~purchase by eligible employees, who are entitled to purchase shares of common stock with accumulated payroll deductions. During~~ the quarter ended March 26, 2023 and ~~two quarters ended June 26, 2022,~~is included within general and administrative expenses and labor in the ~~Company has not issued any shares under the ESPP.~~condensed consolidated statements of operations.

NOTE ~~11.~~12. INCOME TAXES

~~As a result of the IPO and Transactions described in Note 1. Description Of Business we became~~We are the sole managing member of Portillo's OpCo, and as a result, ~~began consolidating~~consolidate the financial results of Portillo's OpCo. Portillo's OpCo is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, Portillo's OpCo is not subject to U.S. federal and ~~certain~~ state and local income ~~taxes.~~taxes in the majority of states in which it operates. Any taxable income or loss generated by Portillo's OpCo is passed through to and included in the taxable income or loss of its members, including us, ~~on a pro rata basis. Beginning at~~based upon the ~~time of the IPO~~respective member's ownership percentage in ~~2021, we~~Portillo's OpCo. We are subject to U.S. federal income taxes, in addition to state and local income taxes with respect to our allocable share of any taxable income or loss of Portillo's OpCo, ~~subsequent to the IPO and Transactions,~~ as well as any stand-alone income or loss generated by Portillo's Inc.

Income Tax (Benefit) Expense

The effective income tax rate for the ~~quarter and two~~ quarters ended ~~June~~March 26, 2023 and March 27, 2022 was 30.5% and 16.6%, respectively. The increase in our effective income tax rate for the quarter ended March 26, 2023 compared to the quarter ended March 27, 2022 was ~~17.9%~~primarily driven by the increase in the valuation allowance and ~~18.1%.~~ an increase in the Company's ownership interest in Portillo's OpCo, which increases its share of taxable income (loss) of Portillo's OpCo. The Company’s annual effective tax rate ~~was less than~~differs from the statutory rate of 21% primarily because the Company is not liable for federal or state income taxes on the portion of OpCo’s earnings that are attributable to non-controlling ~~interests.~~interests, the valuation allowance recorded and impacts from the exercise and vesting of equity-based awards.

Portillo's Inc.

Form 10-Q | 18

PORTILLO'S INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We evaluate the realizability of our deferred tax assets on a quarterly basis and establish valuation allowances when it is more likely than not that all or a portion of a deferred tax asset may not be realized. As of March 26, 2023, the Company concluded, based on the weight of all available positive and negative evidence, that all of its deferred tax assets (except for those deferred tax assets relating to the basis difference in its investment in Portillo's OpCo that will never be realizable or only reverse upon the eventual sale of its interest in Portillo's OpCo, which we expect would result in a capital loss which we do not expect to be able to utilize) are more likely than not to be realized.

Secondary Offerings

In the first quarter of 2023, in connection with the secondary offering previously discussed in Note 1. Description Of Business, 5,893,600 LLC Units were redeemed by the pre-IPO LLC Members for newly-issued shares of Class A common stock, resulting in an increase in the tax basis of net assets of Portillo's OpCo subject to the provisions of the Tax Receivable Agreement (the "Tax Receivable Agreement" or "TRA"). The Company recorded a deferred tax asset of $34.9 million and an additional TRA liability of $47.4 million. As of March 26, 2023, we estimated that our obligation for future payments under the TRA liability totaled $298.8 million. The Company made payments of $0.8 million under the TRA during the quarter ended March 26, 2023 relating to tax year 2021. There were no amounts paid under the TRA during the quarter ended March 27, 2022. We expect a payment of $6.3 million relating to tax year 2022 to be paid within the next 12 months.

NOTE ~~12.~~13. EARNINGS PER SHARE

Basic net (loss) earnings ~~(loss)~~ per share of Class A ~~Common Stock~~common stock is computed by dividing net income attributable to Portillo's Inc. by the weighted-average number of Class A common stock outstanding.

As described in Note 1. Description Of Business, in connection with the IPO, the Portillo's OpCo LLC Agreement was amended and restated to, among other things, (i) to authorize the issuance of two classes of common stock and (ii) convert all outstanding equity interests (except for those redeemable preferred units which were redeemed in connection with the IPO) into LLC Units. For purposes of calculating earnings per share, the prior period amounts have been retroactively adjusted to give effect to the above-mentioned amendment and resulting recapitalization. The computations of earnings per share for periods prior to our IPO do not consider the 23,310,810 shares of Class A common

~~stock issued to investors in our IPO.~~

Diluted net (loss) earnings per share is computed by dividing net (loss) income ~~(loss)~~ attributable to Portillo's Inc. by the weighted-average number of dilutive securities, using the treasury stock method.

~~Portillo's Inc.~~ ~~Form 10-Q | 19~~

~~PORTILLO'S INC.~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The computations of basic and diluted net (loss) earnings per share for the ~~quarter and two~~ quarters ended ~~June~~March 26, ~~2022~~2023 and ~~June~~March 27, ~~2021~~2022 are as follows (in thousands):

Quarter Ended Two Quarters Ended
June 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021
Net income attributable to common unit holders $ 10,756 $ 8,172 $ 11,306 $ 2,781
Net income attributable to non-controlling interests 5,645 — 6,001 —
Net income attributable to Portillo's Inc. $ 5,111 $ 8,172 $ 5,305 $ 2,781
Shares:
Weighted-average number of common shares outstanding-basic 35,991 51,201 35,899 51,197
Dilutive share awards 3,696 368 3,940 366
Weighted-average number of common shares outstanding-diluted 39,687 51,569 39,839 51,563
Basic net income per share $ 0.14 $ 0.16 $ 0.15 $ 0.05
Diluted net income per share $ 0.13 $ 0.16 $ 0.13 $ 0.05


	Quarter Ended
		March 26, 2023		March 27, 2022
Net (loss) income		$	(1,273)	$	550
Net (loss) income attributable to non-controlling interests		(759)		356
Net (loss) income attributable to Portillo's Inc.		$	(514)	$	194

Shares:
Weighted-average number of common shares outstanding-basic		49,599		35,807
Dilutive share awards		—		4,137
Weighted-average number of common shares outstanding-diluted		49,599		39,944

Basic net (loss) income per share		$	(0.01)	$	0.01
Diluted net (loss) income per share		$	(0.01)	$	0.00

The following shares were excluded from the calculation of diluted earnings per share because they would be ~~anti-dilutive~~antidilutive (in thousands):


		Quarter Ended		Two Quarters Ended			Quarter Ended
		June 26, 2022	June 27, 2021	June 26, 2022	June 27, 2021			March 26, 2023	March 27, 2022
Shares subject to performance conditions	Shares subject to performance conditions	1,794	319	1,794	319	Shares subject to performance conditions		1,807	1,196
Shares that were antidilutive	Shares that were antidilutive	28	—	18	—	Shares that were antidilutive		3,538	—
Total shares excluded from diluted income (loss) per share		1,822	319	1,812	319
Total shares excluded from diluted net income (loss) per share						Total shares excluded from diluted net income (loss) per share		5,345	1,196

Portillo's Inc.

Form 10-Q | 19

PORTILLO'S INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE ~~13.~~14. CONTINGENCIES

The Company is party to legal proceedings and potential claims arising in the normal conduct of business, including claims related to employment matters, contractual disputes, customer injuries, and property damage. Although the ultimate outcome of these claims and lawsuits cannot be predicted with certainty, management believes that the resulting liability, if any, will not have a material effect on the Company’s condensed consolidated financial statements.

NOTE ~~14.~~15. RELATED PARTY TRANSACTIONS

As of both ~~June~~March 26, ~~2022~~2023 and December ~~26, 2021,~~25, 2022, the related parties’ receivables balance consisted of ~~a receivable balance~~$0.3 million due from C&O, ~~of $0.4 million, respectively,~~ which is included in accounts receivable in the condensed consolidated balance sheets.

Olo, Inc.

Noah Glass, a member of the Company's Board, is the founder and CEO of Olo, Inc. ("Olo"), a platform the Company uses in connection with our mobile ordering application and delivery.

The Company incurred the following Olo-related costs for the ~~quarter and two~~ quarters ended ~~June~~March 26, ~~2022~~2023 and ~~June~~March 27, ~~2021~~2022 (in thousands):

Quarter Ended Two Quarters Ended
June 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021
Cost of goods sold, excluding depreciation and amortization $ 558 $ 102 $ 883 $ 232
Other operating expenses 101 100 215 254
Net Olo-related costs $ 659 $ 202 $ 1,098 $ 486


	Quarter Ended
		March 26, 2023		March 27, 2022
Cost of goods sold, excluding depreciation and amortization		$	585	$	325
Other operating expenses		114		113
Net Olo-related costs		$	699	$	438

~~Portillo's Inc.~~ ~~Form 10-Q | 20~~

~~PORTILLO'S INC.~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

As of ~~both~~ ~~June~~March 26, ~~2022~~2023 and December ~~26, 2021, immaterial amounts~~25, 2022, $0.1 million and $0.2 million, respectively, were payable to ~~Olo.~~Olo and was included in accounts payable in the condensed consolidated balance sheets.

Tax Receivable Agreement

~~As described in Note 1. Description Of Business, we entered into~~We are party to a TRA with certain members of Portillo's OpCo that provides for the payment by us of 85% of the amount of tax benefits, if any, that Portillo's Inc. actually realizes or in some cases is deemed to realize as a result of certain transactions. The Company made payments of $0.8 million under the TRA relating to tax year 2021 during the quarter ended March 26, 2023. There were no amounts paid under the TRA during the quarter ended March 27, 2022.


(in thousands)	(in thousands)	June 26, 2022		December 26, 2021		(in thousands)	March 26, 2023		December 25, 2022
Current portion of Tax Receivable Agreement liability						Current portion of Tax Receivable Agreement liability	$	6,309	$	813
Tax receivable agreement liability	Tax receivable agreement liability	$	154,883	$	156,638	Tax receivable agreement liability	292,490		252,003

Secondary Offerings

In the third and fourth quarters of 2022 and first quarter of 2023, in connection with the secondary offerings previously discussed in Note 1. Description Of Business, we purchased LLC Units and corresponding shares of Class B common stock and shares of Class A common stock using the proceeds of the secondary offerings at a price equal to the public offering price less the underwriting discounts and commissions from certain pre-IPO LLC Members and shareholders of the Blocker Companies, including from funds affiliated with Berkshire Partners LLC, which is our largest shareholder that beneficially owns approximately 31.7% of the Company as of March 26, 2023.

Portillo's Inc.

Form 10-Q | 20

PORTILLO'S INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16. SUBSEQUENT EVENTS

The Company opened one new restaurant subsequent to March 26, 2023 in Gilbert, Arizona for a total of 75 restaurants, excluding a restaurant owned by C&O, of which Portillo's owns 50% of the equity.

On April 5, 2023, in connection with the secondary offering previously discussed in Note 1. Description Of Business, the Underwriter exercised its option to purchase an additional 620,493 shares of the Company's Class A common stock. As a result, 163,376 shares of Class A common stock and 457,117 LLC Units and corresponding shares of Class B common stock were redeemed. As of April 5, 2023, the Company owns 75.9% of Portillo's OpCo and the pre-IPO LLC Members own the remaining 24.1% of Portillo's OpCo.

Portillo's Inc.

Form 10-Q | 21

Table of Contents

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

The following discussion contains, in addition to historical information, forward-looking statements that include risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under the heading “Cautionary Statements Concerning Forward-Looking Statements” in this report and under the heading “Risk Factors” in Part I, Item IA of our Annual Report on Form 10-K for the fiscal year ended December ~~26, 2021~~25, 2022 and Part II, Item 1A of this Form 10-Q. The following discussion should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December ~~26, 2021~~25, 2022 and the condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Form 10-Q. All information presented herein is based on our fiscal calendar. Unless otherwise stated, references to particular years, quarters, months or periods refer to our fiscal years and the associated quarters, months and periods of those fiscal years.

Although we believe that the expectations reflected in the forward-looking statements are reasonable based on our current knowledge of our business and operations, we cannot guarantee future results, levels of activity, performance or achievements. We assume no obligation to provide revisions to any forward-looking statements should circumstances change.

The following discussion summarizes the significant factors affecting the condensed consolidated operating results, financial condition, liquidity and cash flows of our company as of and for the periods presented below.

We have prepared the unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC").

Overview

Portillo’s serves iconic Chicago street food through high-energy, multichannel restaurants designed to ignite the senses and create a memorable dining experience. Since our founding in 1963 in a small trailer which Dick Portillo called “The Dog House,” we have grown to become a treasured brand with a passionate (some might say obsessed) nationwide following. We create a consumer experience like no other by combining the best attributes of fast casual and quick service concepts with an exciting energy-filled atmosphere and restaurant model capable of generating tremendous volumes. Nearly all of our restaurants were built with double lane drive-thrus and have been thoughtfully designed with a layout that accommodates a variety of access modes including dine-in, carryout, delivery, and catering in order to quickly and efficiently serve our guests. No matter how our guests order from us, our highly productive kitchens and team members consistently serve high quality food and deliver a memorable guest experience. We believe the combination of our craveable food, multichannel sales model, dedication to operational excellence, and a distinctive culture driven by our team members gives us a competitive advantage.

As of ~~June~~March 26, ~~2022,~~2023, we owned and operated 7175 Portillo’s restaurants across ~~nine~~ten states, including a restaurant owned by C&O Chicago, L.L.C. ("C&O") of which Portillo’s owns 50% of the equity.

2023 Credit Agreement

On February 2, 2023, PHD Intermediate LLC (“Holdings”), Portillo’s Holdings LLC (the “Borrower”), the other Guarantors party thereto from time to time, each lender party thereto from time to time and Fifth Third Bank, National Association, as Administrative Agent, L/C Issuer and Swing Line Lender, entered into a credit agreement (“2023 Credit Agreement”) which provides for a term A loan ("2023 Term Loan") in an initial aggregate principal amount of $300.0 million and initial revolving credit commitments in an initial aggregate principal amount of $100.0 million (the “2023 Revolver Facility”). The proceeds under the 2023 Term Loan and 2023 Revolver Facility, along with cash on hand, were used to repay outstanding indebtedness under the 2014 Credit Agreement and to pay related transaction expenses. The 2023 Term Loan and 2023 Revolver Facility are scheduled to mature on February 2, 2028.

Secondary Offering

Portillo's Inc.

Form 10-Q | 22

"Underwriter"), a 30-day option to purchase up to an additional 1,200,000 shares of Class A common stock. On April 5, 2023, the Underwriter exercised its overallotment option in part, to purchase an additional 620,493 shares of the Company's Class A common stock (see Note 16. Subsequent Events for additional details). We used all of the net proceeds from the Q1 Secondary Offering to purchase LLC Units and corresponding shares of Class B common stock from certain pre-IPO LLC Members and to repurchase shares of Class A common stock from the shareholders of the Blocker Companies at a price per LLC Unit or share of Class A common stock, as applicable equal to the public offering price per share of Class A common stock, less the underwriting discounts and commissions. As a result, Portillo’s did not receive any proceeds from the offering, and the total number of shares of Class A common stock and Class B common stock did not change; however, the number of outstanding shares of Class A common stock increased by the same number of the canceled shares of Class B common stock.

Financial Highlights for the Quarter Ended ~~June~~March 26, ~~2022~~2023 vs. Quarter Ended ~~June~~March 27, ~~2021:~~2022:

•Total revenue increased ~~7.0%~~16.0% or ~~$9.9~~$21.6 million to ~~$150.6~~$156.1 million;

•Same restaurant sales increased ~~1.9%~~9.1%;

•Operating income ~~decreased $7.0~~increased $1.7 million to ~~$17.4~~$8.5 million;

•Net income decreased ~~$3.0~~$1.8 million to ~~$10.8~~a net loss of $1.3 million;

•Restaurant-Level Adjusted EBITDA* ~~decreased $4.7~~increased $6.8 million to ~~$38.4~~$34.8 million; and

•Adjusted EBITDA* ~~decreased $4.9~~increased $2.0 million to ~~$27.6 million.~~

~~Financial Highlights for the Two Quarters Ended June 26, 2022 vs. Two Quarters Ended June 27, 2021:~~

•~~Total revenue increased 10.5% or $27.1 million to $285.1 million;~~

•~~Same restaurant sales increased~~ ~~4.8%~~;

•~~Operating income decreased $11.1 million to $24.3 million;~~

•~~Net income decreased $2.6 million to $11.3 million;~~

•~~Restaurant-Level Adjusted EBITDA* decreased $6.5 million to $66.4 million; and~~

•~~Adjusted EBITDA* decreased $5.8 million to $45.2~~$19.6 million.

* Adjusted EBITDA and Restaurant-Level Adjusted EBITDA are non-GAAP measures. Definitions and reconciliations of Adjusted EBITDA to net (loss) income and Restaurant-Level Adjusted EBITDA to operating income the most directly comparable financial measures presented in accordance with GAAP, are set forth under the section "Key Performance Indicators and Non-GAAP Financial Measures".

Recent Developments and Trends

We continue to see revenue growth due to our new restaurant openings, as well as same-restaurant sales growth. Total revenue grew ~~7.0%~~ 16.0% for the quarter ended March 26, 2023. Same-restaurant sales grew 9.1% during the quarter ended ~~June~~March 26, ~~2022 and~~ ~~10.5%~~ for the two quarters ended June 26, 2022. Same-restaurant sales grew 1.9% during the quarter ended June 26, 2022, compared to 25.0% same-restaurant sales growth during the same quarter in 2021. Same-restaurant sales grew 4.8% and 12.7% for the two quarters ended June 26, 2022 and June 27, 2021, respectively.2023.

During and subsequent to the quarter ended March 26, 2023, we opened the remaining four restaurants that were planned for 2022, completing our seven restaurants in the "Class of 2022". Our six new restaurants opened in 2022 and ~~two quarters~~2023, positively impacted revenues by approximately $10.6 million in the quarter ended ~~June~~March 26, ~~2022,~~2023. We plan to open nine more new restaurants in 2023 ("Class of 2023").

In the quarter ended March 26, 2023, we ~~experienced unprecedented~~continued to experience commodity inflation, ~~with the largest increases~~but to a lesser extent than we saw in ~~pork, chicken and beef prices. While we expect these commodity pressures to continue~~2022. Commodity inflation was 8.9% for the ~~remainder~~quarter ended March 26, 2023 compared to 15.7% for the quarter ended March 27, 2022. We expect our overall commodity inflation to ease over the course of ~~fiscal 2022~~the year and are currently estimating commodity inflation in the ~~range~~mid single digits for the full fiscal year. Labor expenses, as a percentage of ~~13% to 15%, we do not believe they will have a material impact to our long-term growth and profitability. Additionally, we experienced higher labor expenses~~revenue, declined during the ~~second~~ quarter ~~and two quarters~~ ended ~~June~~March 26, ~~2022 compared to the same periods last year~~2023, primarily due to increases in our average check and transactions and operational efficiencies. This decrease was partially offset by additional wage investments, primarily wage investments to support our team members made in ~~June 2021.~~July 2022. We ~~also made~~do anticipate additional wage investments in 2023. During mid-January 2023 and at the beginning of ~~the third quarter of 2022, which combined with the expected commodity inflation, will~~May 2023, we increased certain menu prices to reflect a net approximate 2.0% and 3.0% price increase, respectively, to continue to ~~have an impact~~combat inflationary cost pressures and progress towards our goal to improve Restaurant-Level Adjusted EBITDA ~~Margin~~margins for fiscal 2023.

In the ~~remainder of 2022. We are partially offsetting these expense increases through menu price increases~~quarter ended March 26, 2023, operating income margin and operational efficiencies. During the first and second quarters of 2022, we increased menu prices on certain items by approximately 1.5% and 3.5%, respectively. As a result of these menu price increases and operational efficiencies, Restaurant-Level Adjusted EBITDA Margin sequentially ~~increased from~~improved compared to the ~~first~~ quarter ofended December 26, 2022 and to ~~25.5% in~~ the ~~second~~prior year quarter ofended March 27, 2022. ~~Absent significant and prolonged COVID-19 relapses or global economic disruptions and through~~We believe this improvement was the result of our continued efforts to elevate guest experiences, deploy strategic pricing actions and implement operational ~~efficiencies, we believe the strength of our brand will deliver consistent, long-term growth.~~efficiencies.

We also recently celebrated our 60th anniversary on April 5, 2023. Since our founding at the “The Dog House,” we have grown to become a treasured brand with a passionate nationwide following. We will continue to create decades worth of memories for new fans as we expand across the nation. Even after 60 years, we have so much opportunity to develop and grow our team members, enhance the Portillo’s experience for our guests, and to create enduring value for our investors.

Portillo's Inc.

Form 10-Q | 23

Development Highlights

~~Two~~We opened three new restaurants ~~were opened~~ during the ~~two quarters ending June~~quarter ended March 26, ~~2022. The opening of these restaurants brings the~~2023. Subsequent to March 26, 2023, we opened one additional restaurant, bringing our total restaurant count to ~~71 as of June 26, 2022,~~76, including a restaurant owned by C&O of which Portillo’s owns 50% of the equity.


Location			Opening Date
~~Joliet, Illinois~~Kissimmee, Florida			~~February~~December 2022
~~St. Petersburg, Florida~~The Colony, Texas			~~April 2022~~January 2023
Tucson, Arizona			February 2023
Gilbert, Arizona			March 2023

Portillo's Inc.

Form 10-Q | 2324

Table of Contents

Consolidated Results of Operations

The following table summarizes our results of operations for the ~~quarter and two~~ quarters ended ~~June~~March 26, ~~2022~~2023 and ~~June~~March 27, ~~2021~~2022 (in thousands):


		Quarter Ended								Two Quarters Ended									Quarter Ended
		June 26, 2022				June 27, 2021				June 26, 2022				June 27, 2021						March 26, 2023	March 27, 2022
REVENUES, NET	REVENUES, NET	$	150,623	100.0	%	$	140,734	100.0	%	$	285,105	100.0	%	$	258,041	100.0	%	REVENUES, NET			$	156,061	100.0	%	$	134,482	100.0	%

COST AND EXPENSES:	COST AND EXPENSES:																	COST AND EXPENSES:
Restaurant operating expenses:	Restaurant operating expenses:																	Restaurant operating expenses:
Cost of goods sold, excluding depreciation and amortization	Cost of goods sold, excluding depreciation and amortization	51,774		34.4	%	42,156		30.0	%	98,040		34.4	%	77,180		29.9	%	Cost of goods sold, excluding depreciation and amortization			53,626		34.4	%	46,266		34.4	%
Labor	Labor	37,906		25.2	%	34,482		24.5	%	75,219		26.4	%	65,512		25.4	%	Labor			40,459		25.9	%	37,313		27.7	%
Occupancy	Occupancy	7,379		4.9	%	7,106		5.0	%	15,134		5.3	%	13,890		5.4	%	Occupancy			8,451		5.4	%	7,755		5.8	%
Other operating expenses	Other operating expenses	15,178		10.1	%	13,925		9.9	%	30,343		10.6	%	28,633		11.1	%	Other operating expenses			18,704		12.0	%	15,165		11.3	%
Total restaurant operating expenses	Total restaurant operating expenses	112,237		74.5	%	97,669		69.4	%	218,736		76.7	%	185,215		71.8	%	Total restaurant operating expenses			121,240		77.7	%	106,499		79.2	%
General and administrative expenses	General and administrative expenses	15,439		10.3	%	12,170		8.6	%	31,126		10.9	%	24,005		9.3	%	General and administrative expenses			18,778		12.0	%	15,687		11.7	%
Pre-opening expenses	Pre-opening expenses	423		0.3	%	671		0.5	%	979		0.3	%	1,960		0.8	%	Pre-opening expenses			2,344		1.5	%	556		0.4	%
Depreciation and amortization	Depreciation and amortization	5,309		3.5	%	6,420		4.6	%	10,514		3.7	%	12,709		4.9	%	Depreciation and amortization			5,670		3.6	%	5,205		3.9	%
Net income attributable to equity method investment	Net income attributable to equity method investment	(275)		(0.2)	%	(295)		(0.2)	%	(398)		(0.1)	%	(359)		(0.1)	%	Net income attributable to equity method investment			(207)		(0.1)	%	(123)		(0.1)	%
Other (loss) income, net		51		—	%	(362)		(0.3)	%	(105)		—	%	(803)		(0.3)	%
Other income, net																		Other income, net			(257)		(0.2)	%	(156)		(0.1)	%
OPERATING INCOME	OPERATING INCOME	17,439		11.6	%	24,461		17.4	%	24,253		8.5	%	35,314		13.7	%	OPERATING INCOME			8,493		5.4	%	6,814		5.1	%
Interest expense	Interest expense	6,097		4.0	%	10,712		7.6	%	12,196		4.3	%	21,441		8.3	%	Interest expense			7,444		4.8	%	6,099		4.5	%
Tax Receivable Agreement liability adjustment	Tax Receivable Agreement liability adjustment	(1,754)		(1.2)	%	—		—	%	(1,754)		(0.6)	%	—		—	%	Tax Receivable Agreement liability adjustment			(584)		(0.4)	%	—		—	%
Loss on debt extinguishment																		Loss on debt extinguishment			3,465		2.2	%	—		—	%
(LOSS) INCOME BEFORE INCOME TAXES																		(LOSS) INCOME BEFORE INCOME TAXES			(1,832)		(1.2)	%	715		0.5	%
Income tax (benefit) expense																		Income tax (benefit) expense			(559)		(0.4)	%	165		0.1	%
NET (LOSS) INCOME																		NET (LOSS) INCOME			(1,273)		(0.8)	%	550		0.4	%

INCOME BEFORE INCOME TAXES		13,096		8.7	%	13,749		9.8	%	13,811		4.8	%	13,873		5.4	%
Income tax expense		2,340		1.6	%	—		—	%	2,505		0.9	%	—		—	%
NET INCOME		10,756		7.1	%	13,749		9.8	%	11,306		4.0	%	13,873		5.4	%
Less: Redeemable preferred units accretion		—		—	%	(5,577)		(4.0)	%	—		—	%	(11,092)		(4.3)	%
NET INCOME ATTRIBUTABLE TO COMMON HOLDERS		10,756		7.1	%	8,172		5.8	%	11,306		4.0	%	2,781		1.1	%
Net income attributable to non-controlling interests		5,645		3.7	%	—		—	%	6,001		2.1	%	—		—	%
NET INCOME ATTRIBUTABLE TO PORTILLO'S INC.		$	5,111	3.4	%	$	8,172	5.8	%	$	5,305	1.9	%	$	2,781	1.1	%

Net (loss) income attributable to non-controlling interests																		Net (loss) income attributable to non-controlling interests			(759)		(0.5)	%	356		0.3	%
NET (LOSS) INCOME ATTRIBUTABLE TO PORTILLO'S INC.																		NET (LOSS) INCOME ATTRIBUTABLE TO PORTILLO'S INC.			$	(514)	(0.3)	%	$	194	0.1	%

~~Portillo's Inc.~~ ~~Form 10-Q | 24~~

~~Table of Contents~~

Revenues, Net

Revenues primarily represent the aggregate sales of food and beverages, net of discounts. Sales taxes collected from customers are excluded from revenues. Revenues in any period are directly influenced by the number of operating weeks in the period, the number of open restaurants, restaurant traffic, our menu prices, third-party delivery platform prices and product mix. At the end of 2021, the Company began to record the difference in higher third-party delivery menu prices, versus regular menu prices, in revenues. This markup was previously recorded in Cost of goods sold, excluding depreciation and amortization. As a result, we anticipate this change to positively impact our same-restaurant sales growth by 2%-3% in each quarter in 2022 and for the full fiscal year 2022, with a corresponding increase to Cost of goods sold, excluding depreciation and amortization. Operating income has not been, and is not anticipated in the future to be, impacted by such change. See Note 2. Summary Of Significant Accounting Policies-Revenue Recognition, for more information.

Revenues for the quarter ended ~~June~~March 26, ~~2022~~2023 were ~~$150.6~~$156.1 million compared to ~~$140.7~~$134.5 million for the quarter ended ~~June~~March 27, ~~2021,~~2022, an increase of ~~$9.9~~$21.6 million or ~~7.0%~~16.0%. The increase in revenues was primarily attributed to ~~the opening of four new restaurants in the second through fourth quarters of 2021 and two new restaurants during the two quarters ended June 26, 2022 combined with~~ an increase in our same-restaurant ~~sales. The new~~sales and the opening of three restaurants ~~positively impacted revenues by approximately~~ ~~$7.4 million~~ in 2022 and three restaurants during the quarter ended ~~June~~March 26, ~~2022.~~2023. Same-restaurant sales increased ~~1.9%~~9.1% during the ~~second~~first quarter ended ~~June~~March 26, ~~2022,~~2023, which was attributable to an increase in average check of ~~4.8%~~7.0% and a ~~2.7%~~ ~~impact from the change~~2.1% increase in ~~recording third-party delivery pricing, offset by a decline in transactions of~~ ~~5.6%~~.transactions. The higher average check was driven by an approximate ~~6.8%~~9.2% increase in certain menu prices partially offset by ~~lower items sold per transaction. During~~product mix. New restaurants positively impacted revenues by approximately $10.6 million in the ~~second~~ quarter ~~of 2022, we increased menu prices on certain items resulting in an approximate 3.5% effective overall increase~~ ~~to continue to combat inflationary cost pressures.~~ended March 26, 2023. For the purpose of calculating same-restaurant sales for ~~June~~March 26, ~~2022,~~2023, sales for 6163 restaurants were included in the Comparable Restaurant Base (as defined in "Selected Operating Data" below) ~~versus~~ 59 ~~as of the quarter ended June 27, 2021.~~.

Revenues for the two quarters ended June 26, 2022 were $285.1 million compared to $258.0 million for the two quarters ended June 27, 2021, an increase of $27.1 million or 10.5%. The increase in revenues was primarily attributed to the opening of five new restaurants in 2021 and two new restaurants during the two quarters ended June 26, 2022 combined with an increase in our same-restaurant sales. The new restaurants positively impacted revenues by approximately ~~$15.2 million~~ ~~in the two quarters ended June 26, 2022. Same-restaurant sales increased~~ ~~4.8%~~ ~~during the two quarters ended June 26, 2022, which was attributable to an increase in average check of~~ ~~6.0% and a 2.8% impact from the change in recording third-party delivery pricing, offset by a decline in transactions of~~ ~~4.0%. The higher average check was primarily driven by an approximate 7.0% increase in menu prices partially offset by lower items sold per transaction. We increased menu prices~~ approximately 1.5% in the first quarter of 2022 and approximately 3.5% during the second quarter of 2022 to continue to combat inflationary cost pressures. For the purpose of calculating same-restaurant sales for June 26, 2022, sales for 61 restaurants were ~~included in the Comparable Restaurant Base (as defined in "Selected Operating Data" below) versus~~ 59 ~~as of the quarter ended June 27, 2021.~~

Portillo's Inc.

Form 10-Q | 25

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Cost of Goods Sold, Excluding Depreciation and Amortization

Cost of goods sold, excluding depreciation and amortization includes the direct costs associated with food and beverages, including paper products and third-party delivery commissions. The components of cost of goods sold, excluding depreciation and amortization are variable by nature, change with sales volume, are impacted by product mix and are subject to increases or decreases in commodity costs. We anticipate the comparability of cost of goods sold, excluding depreciation and amortization, to be impacted in 2022 versus 2021 due to the aforementioned change in how the Company records third-party delivery menu prices. Operating income has not been, and is not anticipated in the future to be, impacted by such change.

Cost of goods sold, excluding depreciation and amortization for the quarter ended ~~June~~March 26, ~~2022~~2023 was ~~$51.8~~$53.6 million compared to ~~$42.2~~$46.3 million for the quarter ended ~~June~~March 27, ~~2021,~~2022, an increase of ~~$9.6~~$7.4 million or ~~22.8%~~15.9%. This increase was primarily driven by a ~~15.2%~~8.9% increase in ~~all~~ commodity prices ~~with the largest increases in pork, chicken, and beef prices; the impact of how the Company records third-party delivery menu prices;~~ and the opening of ~~four new~~three restaurants in ~~the second through fourth quarters of 2021~~2022 and ~~two new~~three restaurants during the ~~two quarters~~quarter ended ~~June~~March 26, ~~2022.~~2023, partially offset by an lower third-party delivery commissions. As a percentage of revenues net, cost of goods sold, excluding depreciation and amortization ~~increased 4.4%~~was flat during the quarter ended ~~June~~March 26, 2022. The increase was primarily due to an increase in all commodity prices and the impact of how the Company records third-party delivery menu prices, partially offset by an increase in our average check.

~~Portillo's Inc.~~ ~~Form 10-Q | 25~~

~~Table of Contents~~

Cost of goods sold, excluding depreciation and amortization for the two quarters ended June 26, 2022 was $98.0 million compared to $77.2 million for the two quarters ended June 27, 2021, an increase of $20.9 million or 27.0%. This increase was primarily driven by a ~~15.5%~~ increase in all commodity prices, with the largest increases in pork, chicken, and beef prices; the impact of how the Company records third-party delivery menu prices; and the opening of five new restaurants in 2021 and two new restaurants during the two quarters ended June 26, 2022. As a percentage of revenues, net, cost of goods sold, excluding depreciation and amortization increased 4.5% during the two quarters ended June 26, 2022. The increase was primarily due to an increase in all commodity prices and the impact of how the Company records third-party delivery menu prices, partially offset by an increase in our average check.2023.

Labor Expenses

Labor expenses include hourly and management wages, bonuses and ~~stock~~equity-based compensation, payroll taxes, workers’ compensation expense, and team member benefits. Factors that influence labor costs include wage inflation and payroll tax legislation, health care costs and the staffing needs of our restaurants.

Labor expenses for the quarter ended ~~June~~March 26, ~~2022~~2023 were ~~$37.9~~$40.5 million compared to ~~$34.5~~$37.3 million for the quarter ended ~~June~~March 27, ~~2021,~~2022, an increase of ~~$3.4~~$3.1 million or ~~9.9%~~8.4%. This increase was primarily driven by the opening of three restaurants in 2022 and three restaurants during the quarter ended March 26, 2023 and incremental investments to support our team members, including rate increases primarily made in ~~June 2021 and equity-based compensation, and the opening of four new restaurants in the second through fourth quarters of 2021 and two new restaurants during the two quarters ended June 26,~~July 2022. These increases were partially offset by operational ~~efficiencies and lower variable-based compensation.~~efficiencies. As a percentage of revenues, net, labor ~~increased 0.7%~~decreased 1.8% due primarily to increases in our average check and transactions and operational efficiencies, partially offset by the aforementioned incremental wage rate increases to support our team ~~members, partially offset by an increase in our average check, operational efficiencies and lower variable-based compensation.~~

Labor expenses for the two quarters ended June 26, 2022 were $75.2 million compared to $65.5 million for the two quarters ended June 27, 2021, an increase of $9.7 million or 14.8%. This increase was primarily driven by incremental investments to support our team members, including rate increases primarily made in the June 2021 and equity-based compensation, and the opening of five new restaurants in 2021 and two new restaurants during the two quarters ended June 26, 2022. These increases were partially offset by operational efficiencies and lower variable-based compensation. As a percentage of revenues, net, labor increased 1.0% due primarily to the aforementioned incremental hourly rate increases to support our team members, partially offset by an increase in our average check, lower variable-based compensation, and operational efficiencies.members.

Occupancy Expenses

Occupancy expenses primarily consist of rent, property insurance ~~common area expenses~~ and property taxes.

Occupancy expenses for the quarter ended ~~June~~March 26, ~~2022~~2023 were ~~$7.4~~$8.5 million compared to ~~$7.1~~$7.8 million for the quarter ended ~~June~~March 27, ~~2021,~~2022, an increase of ~~$0.3 million or 3.8%, primarily driven by the opening of four new restaurants in the second through fourth quarters of 2021 and two new restaurants during the two quarters ended June 26, 2022.~~

~~Occupancy expenses for the two quarters ended June 26, 2022 were $15.1 million compared to $13.9 million for the two quarters ended June 27, 2021, an increase of $1.2~~$0.7 million or 9.0%, primarily driven by the opening of ~~five new~~three restaurants in ~~2021~~2022 and ~~two new~~three restaurants during the ~~two quarters~~quarter ended ~~June~~March 26, ~~2022.~~

2023. As a percentage of revenues, net, occupancy expenses decreased 0.4% due primarily to increases in our average check and transactions.

Other Operating Expenses

Other operating expenses consist of direct marketing expenses, utilities and other operating expenses incidental to operating our restaurants, such as credit card fees and repairs and maintenance.

Other operating expenses for the quarter ended ~~June~~March 26, ~~2022~~2023 were ~~$15.2~~$18.7 million compared to ~~$13.9~~$15.2 million for the quarter ended ~~June~~March 27, ~~2021,~~2022, an increase of ~~$1.3~~$3.5 million or ~~9.0%~~23.3%, primarily ~~driven by the opening of four new restaurants in the second through fourth quarters of 2021 and two new restaurants during the two quarters ended June 26, 2022 as well as~~due to an increase in repair and maintenance expenses, credit card fees, operating supplies and insurance, ~~expenses, offset by a decrease in travel expense.~~

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Other operating expenses for the two quarters ended June 26, 2022 were $30.3 million compared to $28.6 million for the two quarters ended June 27, 2021, an increase of $1.7 million or 6.0%, primarily driven byand the opening of ~~five new~~three restaurants in ~~2021~~2022 and ~~two new~~three restaurants during the ~~two quarters~~quarter ended ~~June~~March 26, ~~2022 as well as an increase~~2023. As a percentage of revenues, net, operating expenses increased 0.7% due primarily to the aforementioned increases in ~~repair and maintenance and insurance~~ expenses, partially offset by ~~a reduction~~increases in ~~utility~~our average check and ~~uniform~~ ~~costs.~~transactions.

General and Administrative Expenses

General and administrative expenses primarily consist of costs associated with our corporate and administrative functions that support restaurant development and operations, including marketing and advertising costs incurred as well as legal and professional fees. General and administrative expenses also include equity-based compensation expense. General and administrative expenses are impacted by changes in our team member count and costs related to strategic and growth initiatives.

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General and administrative expenses for the quarter ended ~~June~~March 26, ~~2022~~2023 were ~~$15.4~~$18.8 million compared to ~~$12.2~~$15.7 million for the quarter ended ~~June~~March 27, ~~2021,~~2022, an increase of ~~$3.3~~$3.1 million or 26.9%. This increase was primarily driven by increases in equity-based compensation of $3.4 million, insurance and software licensing fees, partially offset by a decrease in variable-based compensation expense.

~~General and administrative expenses for the two quarters ended June 26, 2022 were $31.1 million compared to $24.0 million for the two quarters ended June 27, 2021, an increase of $7.1 million or 29.7%~~19.7%. This increase was primarily driven by an increase in ~~equity-based~~salaries and wages attributable to annual rate increases and the filling of open positions, variable-based compensation ~~of $6.7 million. The remainder of the increase is related to a $0.7 million increase in transaction-related fees and expenses, consisting primarily of certain professional fees~~ and an increase in professional and software licensing ~~fees, partially offset by a decrease in variable-based compensation expense.~~fees.

Pre-Opening Expenses

Pre-opening expenses consist primarily of wages, occupancy expenses, which represent rent expense recognized during the period between the date of possession of the restaurant facility and the restaurant opening date, ~~wages,~~ travel for the opening team and other supporting team members, food, beverage, and the initial stocking of operating supplies. All such costs incurred prior to the opening are expensed in the period in which the expense was incurred. Pre-opening expenses can fluctuate significantly from period to period, based on the number and timing of openings and the specific pre-opening expenses incurred for each restaurant. Additionally, restaurant openings in new geographic market areas will ~~initially~~ experience higher pre-opening expenses than our established geographic market areas, such as the Chicagoland area, where we have greater economies of scale and incur lower travel and lodging costs for our training team.

Pre-opening expenses for the quarter ended ~~June~~March 26, ~~2022~~2023 were ~~$0.4~~$2.3 million compared to ~~$0.7~~$0.6 million for the quarter ended ~~June~~March 27, ~~2021, a decrease~~2022, an increase of ~~$0.2~~$1.8 million or ~~37.0%~~321.6%. ~~This decrease~~The increase was due to the timing and geographic location of activities related to our planned restaurant openings ~~in the second quarter of 2022 versus 2021.~~

~~Pre-opening expenses~~ for the ~~two quarters~~quarter ended ~~June~~March 26, ~~2022 were $1.0 million~~2023 as compared to ~~$2.0 million for~~ the ~~two quarters~~quarter ended ~~June~~March 27, ~~2021, a decrease of $1.0 million or 50.1%. This decrease was due to the timing and geographic location of restaurant openings in the first two quarters of 2022 versus 2021.~~2022.

Depreciation and Amortization

Depreciation and amortization expenses consist of the depreciation of fixed assets, including leasehold improvements, fixtures and equipment and the amortization of definite-lived intangible assets, which are primarily comprised of recipes.

Depreciation and amortization expense for the quarter ended ~~June~~March 26, ~~2022~~2023 was ~~$5.3~~$5.7 million compared to ~~$6.4~~$5.2 million for the quarter ended ~~June~~March 27, ~~2021, a decrease~~2022, an increase of ~~$1.1~~$0.5 million or ~~17.3%~~8.9%. This ~~decrease~~increase was primarily attributable ~~to an expired non-compete intangible asset, partially offset by~~ incremental depreciation of capital expenditures related to the opening of ~~four new~~three restaurants in ~~quarters two through four of 2021~~2022 and ~~two new~~three restaurants during the quarter ended ~~June~~March 26, ~~2022.~~2023.

Depreciation and amortization expense for the two quarters ended June 26, 2022 was $10.5 million compared to $12.7 million for the two quarters ended June 27, 2021, a decrease of $2.2 million or 17.3%. This decrease was primarily attributable to an expired non-compete intangible asset, partially offset by incremental depreciation of capital expenditures related to the opening of five new restaurants in 2021 and two new restaurants during the two quarters ended June 26, 2022.

~~Portillo's Inc.~~ ~~Form 10-Q | 27~~

~~Table of Contents~~

Net Income Attributable to Equity Method Investment

Net income attributable to equity method investment consists of a 50% interest in C&O, which runs a single restaurant located within the Chicagoland market. We account for the investment and financial results in the condensed consolidated financial statements under the equity method of accounting as we have significant influence but do not have control.

Net income attributable to equity method investment for the quarter ended March 26, 2023 was ~~$0.3~~$0.2 million compared to $0.1 million for ~~each~~the quarter ended March 27, 2022, an increase of ~~the quarters ended June 26, 2022 and June 27, 2021.~~

~~Net income~~$0.1 million or 68.3%. This increase was primarily driven by increased revenue, which is attributable to ~~equity method investment was $0.4 million for each of the two quarters ended June 26, 2022~~increases in average check and ~~June 27, 2021.~~transactions.

Other ~~Loss (Income),~~Income, Net

Other income, net includes among other items, income resulting from discounts received for timely filing of sales tax returns, management fee income associated with our investment in C&O, trading gains or losses on our deferred compensation plan and gains or losses on asset disposals.

Other ~~loss,~~income, net for the quarter ended ~~June~~March 26, ~~2022~~2023 was ~~$0.1~~$0.3 million compared to ~~other income, net of $0.4~~$0.2 million for the quarter ended ~~June~~March 27, ~~2021 a decrease~~2022, an increase of ~~$0.4~~$0.1 million or ~~114.1%~~64.7%. This ~~decrease~~increase was primarily due to an increase in trading ~~losses~~gains in the rabbi trust used to fund our deferred compensation ~~plan.~~plan, partially offset by a decrease in loss on sale of assets.

Other income, net for the two quarters ended June 26, 2022 was $0.1 million compared to $0.8 million for the two quarters ended June 27, 2021 a decrease of $0.7 million or 86.9%. This decrease was primarily due to a increase in trading losses in the rabbi trust used to fund our deferred compensation plan.

Portillo's Inc.

Form 10-Q | 27

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Interest Expense

Interest expense primarily consists of interest and fees on our credit facilities and the amortization expense for debt discount and deferred issuance costs.

Interest expense for the quarter ended ~~June~~March 26, ~~2022~~2023 was ~~$6.1~~$7.4 million compared to ~~$10.7~~$6.1 million for the quarter ended ~~June~~March 27, ~~2021, a decrease~~2022, an increase of ~~$4.6~~$1.3 million or ~~43.1%~~22.1%. This ~~decrease~~increase was primarily driven by ~~the payoff of the Second Term B-3 Loans with the use of IPO proceeds during~~a higher effective interest rate attributable to the year ended December 26, 2021 and decreased borrowings on the First Lien Term B-3 Loans during the quarter ended June 26, 2022. There were no outstanding borrowings under the Revolving Facility during the quarter ended June 26, 2022 or June 27, 2021.

Interest expense for the two quarters ended June 26, 2022 was $12.2 million compared to $21.4 million for the two quarters ended June 27, 2021, a decrease of $9.2 million or 43.1%. This decrease was primarily drivenover year rising interest rate environment, partially offset by the ~~payoff of the Second~~improved lending terms associated with our 2023 Term ~~B-3 Loans with the use of IPO proceeds during the year ended December 26, 2021~~Loan and decreased borrowings on the First Lien Term B-3 Loans during the quarter ended June 26, 2022. There were no outstanding borrowings under the Revolving Facility during the two quarters ended June 26, 2022 or June 27, 2021.2023 Revolver Facility.

Tax Receivable Agreement Liability Adjustment

~~In connection with the IPO, we entered into~~We are party to a Tax Receivable Agreement liability with certain members of Portillo's OpCo that provides for the payment by us of 85% of the amount of tax benefits, if any, that Portillo's Inc. actually realizes or in some cases is deemed to realize as a result of certain transactions.

~~Portillo's Inc.~~ ~~Form 10-Q | 28~~

~~Table of Contents~~

The ~~tax receivable agreement~~Tax Receivable Agreement liability adjustment was ~~$1.8~~$0.6 million for the quarter ~~and two quarters~~ ended ~~June~~March 26, ~~2022~~2023 related to a remeasurement primarily due to ~~option exercises.~~activity under equity-based compensation plans. There was no ~~tax receivable agreement~~Tax Receivable Agreement liability adjustment for the quarter ended March 27, 2022.

Loss on Debt Extinguishment

Loss on debt extinguishment for the quarter ended March 26, 2023 was $3.5 million due to the write-off of debt discount and ~~two quarters~~deferred issuance costs of associated with the payoff of the 2014 Credit Agreement as described in Note 8. Debt. There was no loss on debt extinguishment for the quarter ended ~~June~~March 27, ~~2021.~~2022.

Income Tax (Benefit) Expense

Portillo's OpCo is treated as a partnership for U.S. federal, as well as state and local income tax purposes and is not subject to taxes. Rather, any taxable income or loss generated by Portillo's OpCo is ~~passed through~~allocated to ~~and included in the taxable income or loss of~~ its members ~~on a pro rata basis. As~~in relation to their respective ownership percentage of ~~the IPO, we~~Portillo's OpCo. We are subject to U.S. federal, as well as state and local income taxes with respect to our allocable share of any taxable income or loss of Portillo's OpCo, as well as any stand-alone income or loss generated by Portillo's Inc.

Income tax ~~expense~~benefit for the quarter ended ~~June~~March 26, 2023 was $0.6 million compared to income tax expense of $0.2 million for the quarter ended March 27, 2022, ~~was $2.3 million.~~a decrease of $0.7 million or 438.8%. Our effective income tax rate for the quarter ended ~~June~~March 26, ~~2022~~2023 was ~~17.9%~~30.5%, compared to 16.6% f~~. There was no income tax expense for~~or the ~~quarter ended June 27, 2021.~~

~~Income tax expense for the two~~ quarters ended ~~June 26, 2022 was $2.5 million. Our~~March 27, 2022. The increase in our effective income tax rate for the ~~two quarters~~quarter ended ~~June~~March 26, 2023 compared to the quarter ended March 27, 2022 was ~~18.1%. There was no~~primarily driven by the increase in the valuation allowance and an increase in the Company's ownership interest in Portillo's OpCo, which increases its share of taxable income ~~tax expense for the two quarters ended June 27, 2021.~~(loss) of Portillo's OpCo.

Net (Loss) Income Attributable to Non-controlling Interests

~~In connection with the IPO, we became~~We are the sole managing member of Portillo's OpCo. WeWe manage and operate the business and control the strategic decisions and day-to-day operations of Portillo’s OpCo and we also have a substantial financial interest in Portillo’s OpCo. Accordingly, we consolidate the financial results of Portillo’s OpCo, and a portion of our net income is allocated to non-controlling interests to reflect the entitlement of the pre-IPO LLC Members who retained their equity ownership in Portillo's OpCo ~~(the~~(the "pre-IPO LLC Members"). The weighted average ownership percentages for the applicable reporting periods are used to attribute net income (loss) to Portillo's Inc. and the non-controlling interest holders.

Net loss attributable to non-controlling interests for the quarter ended March 26, 2023 was $0.8 million, compared to net income attributable to non-controlling interests of $0.4 million for the quarter ended March 27, 2022, a decrease of $1.1 million or 313.2%. The decrease in net (loss) income attributable to non-controlling interests for the quarter ended ~~June~~March 26, 2023 was primarily due to a decrease in net income primarily due to the factors driving the aforementioned expenses, compared to the quarter ended March 27, 2022, ~~was $5.6 million. There was no such income~~partially offset by a decrease in the non-controlling interest holders' weighted average ownership, from 49.9% for the quarter ended ~~June~~March 27, ~~2021.~~2022 to 31.4% for the quarter ended March 26, 2023.

~~Net income attributable to non-controlling interests for the two quarters ended June 26, 2022 was $6.0 million. There was no such income for the two quarters ended June 27, 2021.~~

Portillo's Inc.

Form 10-Q | 2928

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Key Performance Indicators and Non-GAAP Financial Measures

In addition to the GAAP measures presented in our financial statements, we use the following key performance indicators and non-GAAP financial measures to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions. These key measures include new restaurant openings, average unit volume ("AUV"), same-restaurant sales, Adjusted EBITDA, Adjusted EBITDA Margin, Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin. The Company includes these measures because management believes that they are important to day-to-day operations and overall strategy and are useful to investors in that they provide for greater transparency with respect to supplemental information used by management in its financial and operational decision-making.


		Quarter Ended						Two Quarters Ended							Quarter Ended
		June 26, 2022			June 27, 2021			June 26, 2022			June 27, 2021					March 26, 2023			March 27, 2022
Total Restaurants (a)	Total Restaurants (a)	71			67			71			67			Total Restaurants (a)		75			70
AUV (in millions) (a)	AUV (in millions) (a)	N/A			N/A			$	8.3		$	7.9		AUV (in millions) (a)		$	8.7		$	8.3
Change in same-restaurant sales (b)	Change in same-restaurant sales (b)	1.9		%	25.0		%	4.8		%	12.7		%	Change in same-restaurant sales (b)		9.1		%	8.2		%
Adjusted EBITDA (in thousands)(b)	Adjusted EBITDA (in thousands)(b)	$	27,613		$	32,539		$	45,244		$	51,073		Adjusted EBITDA (in thousands)(b)		$	19,634		$	17,630
Adjusted EBITDA Margin(b)	Adjusted EBITDA Margin(b)	18.3		%	23.1		%	15.9		%	19.8		%	Adjusted EBITDA Margin(b)		12.6		%	13.1		%
Restaurant-Level Adjusted EBITDA (in thousands)(b)	Restaurant-Level Adjusted EBITDA (in thousands)(b)	$	38,386		$	43,065		$	66,369		$	72,826		Restaurant-Level Adjusted EBITDA (in thousands)(b)		$	34,821		$	27,983
Restaurant-Level Adjusted EBITDA Margin(b)	Restaurant-Level Adjusted EBITDA Margin(b)	25.5		%	30.6		%	23.3		%	28.2		%	Restaurant-Level Adjusted EBITDA Margin(b)		22.3		%	20.8		%

(a) Includes a restaurant that is owned by C&O, of which Portillo’s owns 50% of the ~~equity, as described in Note 2. Summary Of Significant Accounting Policies in the notes to the unaudited condensed consolidated financial statements.~~equity. AUVs for the quarters ended ~~June~~March 26, ~~2022~~2023 and ~~June~~March 27, ~~2021~~2022 represent AUVs for the twelve months ended ~~June~~March 26, 2023 and March 27, 2022, ~~and June 27, 2021,~~ respectively. Total restaurants indicated are as of a point in time.

(b) Excludes a restaurant that is owned by C&O of which Portillo’s owns 50% of the equity.

Change in Same-Restaurant Sales

The change in same-restaurant sales is the percentage change in year-over-year revenue (excluding gift card breakage) for the comparable restaurant base, which is defined as the number of restaurants open for at least 24 full fiscal periods (the “Comparable Restaurant Base”). For the ~~two~~ quarters ended ~~June~~March 26, ~~2022~~2023 and ~~June~~March 27, ~~2021,~~2022, there were 6163 and 5961 restaurants in our Comparable Restaurant Base, respectively. The Comparable Restaurant Base excludes a restaurant that is owned by C&O, of which Portillo’s owns 50% of the ~~equity, as described~~equity.

A change in ~~Note 2. Summary Of Significant Accounting Policies~~same-restaurant sales growth is the result of a change in restaurant transactions, average guest check, or a combination of the ~~notes~~two. We gather daily sales data and regularly analyze the guest transaction counts and the mix of menu items sold to strategically evaluate menu pricing and demand. Measuring our same-restaurant sales growth allows management to evaluate the ~~unaudited condensed consolidated financial statements.~~performance of our existing restaurant base. We believe this measure provides a consistent comparison of restaurant sales results and trends across periods within our core, established restaurant base, unaffected by results of restaurant openings and enables investors to better understand and evaluate the Company’s historical and prospective operating performance.

Average Unit Volume ("AUV")

AUV is the total revenue (excluding gift card breakage) recognized in the Comparable Restaurant Base, including ~~a restaurant that is owned by~~ C&O, divided by the number of restaurants in the Comparable Restaurant Base, including C&O, by period.

This key performance indicator allows management to assess changes in consumer spending patterns at our restaurants and the overall performance of our restaurant base.

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Form 10-Q | 29

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Non-GAAP Financial Measures

To supplement the condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: Adjusted EBITDA and Adjusted EBITDA Margin, and Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin. Accordingly, these measures are not required by, nor presented in accordance with GAAP, but rather are supplemental measures of operating performance of our restaurants. You should be aware that these measures are not indicative of overall results for the Company and that Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin do not accrue directly to the benefit of stockholders because of corporate-level expenses excluded from such measures. These measures are supplemental measures of operating performance and our calculations thereof may not be comparable to similar measures reported by other companies. These measures are important measures to evaluate the performance and profitability of our restaurants, individually and in the aggregate, but also have important limitations as analytical tools and should not be considered in isolation as substitutes for analysis of our results as reported under GAAP.

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Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA represents net income before depreciation and amortization, interest expense and income taxes, adjusted for the impact of certain non-cash and other items that we do not consider in our evaluation of ongoing core operating performance as identified in the reconciliation of net income, the most directly comparable GAAP measure to Adjusted EBITDA. Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of total revenues.

We use Adjusted EBITDA and Adjusted EBITDA Margin (i) to evaluate our operating results and the effectiveness of our business strategies, (ii) internally as benchmarks to compare our performance to that of our competitors and (iii) as factors in evaluating management’s performance when determining incentive compensation.

We believe that Adjusted EBITDA and Adjusted EBITDA Margin are important measures of operating performance because they eliminate the impact of expenses that do not relate to our core operating performance.

The following table reconciles net (loss) income to Adjusted EBITDA and Adjusted EBITDA margin (in thousands):


		Quarter Ended						Two Quarters Ended							Quarter Ended
		June 26, 2022			June 27, 2021			June 26, 2022			June 27, 2021					March 26, 2023			March 27, 2022
Net income		$	10,756		$	13,749		$	11,306		$	13,873
Net (loss) income														Net (loss) income		$	(1,273)		$	550
Depreciation and amortization	Depreciation and amortization	5,309			6,420			10,514			12,709			Depreciation and amortization		5,670			5,205
Interest expense	Interest expense	6,097			10,712			12,196			21,441			Interest expense		7,444			6,099

Income tax expense		2,340			—			2,505			—
Loss on debt extinguishment														Loss on debt extinguishment		3,465			—
Income tax (benefit) expense														Income tax (benefit) expense		(559)			165
EBITDA	EBITDA	24,502			30,881			36,521			48,023			EBITDA		14,747			12,019
Deferred rent (1)	Deferred rent (1)	865			798			1,946			1,594			Deferred rent (1)		1,225			1,081
Equity-based compensation	Equity-based compensation	3,864			168			7,649			273			Equity-based compensation		3,537			3,785
Consulting fees (2)		—			500			—			1,000
Other loss (income) (3)		93			141			125			132

Other loss (2)														Other loss (2)		117			31
Transaction-related fees & expenses ~~(4)~~(3)	Transaction-related fees & expenses ~~(4)~~(3)	43			51			757			51			Transaction-related fees & expenses ~~(4)~~(3)		592			714
Tax Receivable Agreement liability adjustment ~~(5)~~(4)	Tax Receivable Agreement liability adjustment ~~(5)~~(4)	(1,754)			—			(1,754)			—			Tax Receivable Agreement liability adjustment ~~(5)~~(4)		(584)			—
Adjusted EBITDA	Adjusted EBITDA	$	27,613		$	32,539		$	45,244		$	51,073		Adjusted EBITDA		$	19,634		$	17,630
Adjusted EBITDA Margin(5)	Adjusted EBITDA Margin(5)	18.3		%	23.1		%	15.9		%	19.8		%	Adjusted EBITDA Margin(5)		12.6		%	13.1		%

(1) Represents the difference between cash rent payments and the recognition of straight-line rent expense recognized over the lease term.

(2) Represents ~~consulting fees related to our former owner.~~

~~(3) Represents~~ loss on disposal of property and equipment.

~~(4)~~(3) Represents the exclusion of certain expenses that management believes are not indicative of ongoing operations, consisting primarily of certain professional fees.

~~(5)~~(4) Represents remeasurement of the Tax Receivable ~~Agreement.~~Agreement liability.

(5) Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by Revenues, net.

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Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin

Restaurant-Level Adjusted EBITDA is defined as revenue, less restaurant operating expenses, which include cost of goods sold (excluding depreciation and amortization), labor expenses, occupancy expenses and other operating expenses. Restaurant-Level Adjusted EBITDA excludes corporate level expenses and depreciation and amortization on restaurant property and equipment. Restaurant-Level Adjusted EBITDA Margin represents Restaurant-Level Adjusted EBITDA as a percentage of revenue.

We believe that Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin are important measures to evaluate the performance and profitability of our restaurants, individually and in the aggregate.

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The following table reconciles operating income to Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin (in thousands):


		Quarter Ended						Two Quarters Ended							Quarter Ended
		June 26, 2022			June 27, 2021			June 26, 2022			June 27, 2021					March 26, 2023			March 27, 2022
Operating income	Operating income	$	17,439		$	24,461		$	24,253		$	35,314		Operating income		$	8,493		$	6,814
Plus:	Plus:													Plus:
General and administrative expenses	General and administrative expenses	15,439			12,170			31,126			24,005			General and administrative expenses		18,778			15,687
Pre-opening expenses	Pre-opening expenses	423			671			979			1,960			Pre-opening expenses		2,344			556
Depreciation and amortization	Depreciation and amortization	5,309			6,420			10,514			12,709			Depreciation and amortization		5,670			5,205
Net income attributable to equity method investment	Net income attributable to equity method investment	(275)			(295)			(398)			(359)			Net income attributable to equity method investment		(207)			(123)
Other loss (income), net		51			(362)			(105)			(803)
Other income, net														Other income, net		(257)			(156)
Restaurant-Level Adjusted EBITDA	Restaurant-Level Adjusted EBITDA	$	38,386		$	43,065		$	66,369		$	72,826		Restaurant-Level Adjusted EBITDA		$	34,821		$	27,983
Restaurant-Level Adjusted EBITDA Margin(1)	Restaurant-Level Adjusted EBITDA Margin(1)	25.5		%	30.6		%	23.3		%	28.2		%	Restaurant-Level Adjusted EBITDA Margin(1)		22.3		%	20.8		%

(1) Restaurant-Level Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by Revenues, net

Liquidity and Capital Resources

Our primary sources of liquidity are cash from operations, cash and cash equivalents on hand, and availability under our ~~Revolving~~2023 Revolver Facility. As of ~~June~~March 26, ~~2022,~~2023, we maintained a cash and cash equivalents and restricted cash balance of ~~$49.7~~$14.6 million and had ~~$45.0~~$85.6 million of availability under our 2023 Revolver Facility, after giving effect to ~~$5.0~~$10.0 million in borrowings and $4.4 million in outstanding letters of ~~credit..~~credit.

Our primary requirements for liquidity are to fund our working capital needs, operating lease obligations, capital expenditures, and general restaurant support center needs. Our requirements for working capital are not significant because our guests pay for their food and beverage purchases in cash or on debit or credit cards at the time of the sale and we are able to sell many of our inventory items before payment is due to the supplier of such items. Our ongoing capital expenditures are principally related to opening of new restaurants, existing capital investments (both for remodels and maintenance), as well as investments in our restaurant support center infrastructure.

Based upon current levels of operations and anticipated growth, we expect that cash flows from operations will be sufficient to meet our needs for at least the next twelve months, and the foreseeable future.

~~Liquidity Upon IPO~~See Note 8. Debt for a discussion of the 2023 Credit Agreement, effective February 2, 2023.

Secondary Offering

~~On October 25, 2021, Portillo's Inc.~~

In the first quarter of 2023, the Company completed ~~the IPO~~a secondary offering of ~~23,310,810~~8,000,000 shares of the Company's Class A common stock ~~(including 3,040,540~~at an offering price of $21.05 per share (the "Q1 Secondary Offering"). The Company granted Morgan Stanley & Co. LLC, the underwriter (the "Underwriter"), a 30-day option to purchase up to an additional 1,200,000 shares ~~sold~~of Class A common stock. On April 5, 2023, the Underwriter exercised its overallotment option in part, to purchase an additional 620,493 shares of the ~~underwriters pursuant to their overallotment option)~~Company's Class A common stock (see Note 16. Subsequent Events for additional details). ~~Portillo's Inc. received~~We used all of the net proceeds from the ~~offering of approximately~~ ~~$430.0 million~~ ~~(after deducting underwriting fees and commissions and offering expenses). The net proceeds and cash on hand were used as follows:~~

•~~to repay the redeemable preferred units in full (including the redemption premium) of~~ ~~$221.7 million;~~

•~~to repay all of the borrowings outstanding under the Second Lien Credit Agreement (including prepayment penalties)~~ ~~of $158.1 million; and~~

•secondary offerings to purchase LLC Units orand corresponding shares of Class B common stock from certain pre-IPO LLC Members and to repurchase shares of Class A common stock from ~~certain pre-IPO~~the shareholders of the Blocker Companies at a price per LLC ~~members~~Unit or share of ~~$57.0 million.~~Class A common stock, as applicable, equal to the public offering price per share of Class A common stock, less the underwriting discounts and commissions. As a result, Portillo’s did not receive any proceeds from the offering, and the total number of shares of Class A common stock and Class B common stock did not change; however, the number of

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outstanding shares of Class A common stock increased by the same number of the canceled shares of Class B common stock.

Tax Receivable Agreement

In connection with the IPO, we entered into a Tax Receivable Agreement ("TRA") with certain of our pre-IPO LLC Members, pursuant to which we will generally be required to pay 85% of the amount of cash savings, if any, in U.S. federal, state, and local income tax that we actually realize or be deemed to realize, as a result of (i) our allocable share of existing tax basis in depreciable or amortizable assets relating to LLC Units acquired in the IPO, (ii) certain favorable tax attributes acquired by the Company from entities treated as corporations for U.S. tax purposes that held LLC Units prior to the Transactions ("Blocker Companies") (including net operating losses and the Blocker Companies' allocable share of existing tax basis), (iii) increases in our allocable share of then existing tax basis in depreciable or amortizable assets, and adjustments to the tax basis of the tangible and intangible assets, of Portillo’s OpCo and its subsidiaries, as a result of (x) sales or exchanges of interests in Portillo’s OpCo (including the repayment of the redeemable preferred units) in connection with the IPO and (y) future redemptions or exchanges of LLC Units by pre-IPO LLC Members for Class A common stock and (iv) certain other tax benefits related to entering into the TRA, including payments made under the TRA.

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~~Table~~As of ~~Contents~~

~~Based on several assumptions, it was estimated~~March 26, 2023, we estimate that ~~as of June 26, 2022,~~ our obligation for future payments under the TRA totaled ~~$154.9 million~~.$298.8 million. Amounts payable under the TRA are contingent upon, among other things, (i) generation of future taxable income over the term of the TRA and (ii) future changes in tax laws. If we do not generate sufficient taxable income in the aggregate over the term of the TRA to utilize the tax benefits, then we would not be required to make the related TRA payments. The payments that we are required to make will generally reduce the amount of overall cash flow that might have otherwise been available to us, but we expect the cash tax savings we will realize to fund the required payments. Assuming no material changes in relevant tax law and that we earn sufficient taxable income to realize all tax benefits that are subject to the TRA, we estimate that the tax savings associated with all tax attributes described above would aggregate to approximately ~~$182.2~~$351.5 million as of ~~June~~March 26, ~~2022~~2023. Under this scenario, we would be required to pay the TRA Parties approximately 85% of such amount, or $~~154.9~~298.8 million, primarily over the next 15 years, substantially declining in year 16 through year 47. In the quarter ended March 26, 2023, we made a TRA payment of $0.8 million relating to tax year 2021. We expect a payment of $6.3 million relating to tax year 2022 to be paid within the next 12 months.

Summary of Cash Flows

The following table presents a summary of our cash flows from operating, investing and financing ~~activities:~~activities (in thousands):


(in thousands)		Two Quarters Ended
							Quarter Ended
		June 26, 2022		June 27, 2021			March 26, 2023		March 27, 2022
Net cash provided by operating activities	Net cash provided by operating activities	$	25,359	$	32,817	Net cash provided by operating activities	$	6,486	$	800
Net cash used in investing activities	Net cash used in investing activities	(13,910)		(18,545)		Net cash used in investing activities	(20,190)		(6,279)
Net cash used in financing activities	Net cash used in financing activities	(982)		(1,312)		Net cash used in financing activities	(16,112)		(1,602)
Net increase in cash and cash equivalents and restricted cash		10,467		12,960
Net decrease in cash and cash equivalents and restricted cash						Net decrease in cash and cash equivalents and restricted cash	(29,816)		(7,081)
Cash and cash equivalents and restricted cash at beginning of period	Cash and cash equivalents and restricted cash at beginning of period	39,263		41,432		Cash and cash equivalents and restricted cash at beginning of period	44,427		39,263
Cash and cash equivalents and restricted cash at end of period	Cash and cash equivalents and restricted cash at end of period	$	49,730	$	54,392	Cash and cash equivalents and restricted cash at end of period	$	14,611	$	32,182

Operating Activities

Net cash provided by operating activities for the ~~two quarters~~quarter ended ~~June~~March 26, ~~2022~~2023 was ~~$25.4~~$6.5 million compared to net cash provided by operating activities of ~~$32.8~~$0.8 million for the ~~two quarters~~quarter ended ~~June~~March 27, ~~2021, a decrease~~2022, an increase of ~~$7.5~~$5.7 million or ~~22.7%~~710.8%. This ~~decrease~~increase was primarily driven by ~~a decrease in~~ the change in operating assets and liabilities of ~~$10.1~~$6.4 million and ~~lower net income of $2.6 million, partially offset by~~ the change in non-cash items of ~~$5.2~~$1.1 million, partially offset by lower net income of $1.8 million.

The ~~$10.1~~$6.4 million change in our operating ~~asset~~assets and ~~liability~~liabilities balances was primarily driven by operating assets and liabilities being a use of net cash of ~~$7.7~~$4.0 million in the ~~two quarters~~quarter ended ~~June~~March 26, ~~2022,~~2023, compared to a ~~source~~use of net cash of ~~$2.5~~$10.4 million in ~~two quarters~~quarter ended ~~June~~March 27, ~~2021~~2022 driven by the change in ~~accounts payable and~~ accrued expenses and other liabilities in the ~~two quarters~~quarter ended ~~June~~March 26, ~~2022.~~2023. The ~~$5.2~~$1.1 million change from the ~~two quarters~~quarter ended ~~June~~March 26, ~~2022~~2023 in non-cash charges is primarily attributable to ~~equity-based compensation, offset by~~loss on debt extinguishment. The decrease in net (loss) income for the quarter ended March 26, 2023 was primarily due to a decrease in ~~depreciation and amortization.~~net (loss) income primarily due to the factors driving the aforementioned expenses as described in condensed consolidated results of operations.

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Investing Activities

Net cash used in investing activities was ~~$13.9~~$20.2 million for the ~~two quarters~~quarter ended ~~June~~March 26, ~~2022~~2023 compared to ~~$18.5~~$6.3 million for the ~~two quarters~~quarter ended ~~June~~March 27, ~~2021, a decrease~~2022, an increase of ~~$4.6~~$13.9 million or ~~25.0%~~221.5%. This ~~decrease~~increase was primarily due to the ~~timing~~number of restaurant openings and buildings in ~~2022~~process during the first quarter of 2023 compared to the ~~timing~~first quarter of ~~restaurant openings in 2021.~~2022.

Financing Activities

Net cash used in financing activities was ~~$1.0~~$16.1 million for the quarter ~~ending June~~ended March 26, ~~2022~~2023 compared to net cash used in financing activities of ~~$1.3~~$1.6 million for the quarter ~~ending June~~ended March 27, ~~2021, a decrease~~2022, an increase of ~~$0.3~~$14.5 million or ~~25.2%~~905.7%. This ~~decrease~~increase is primarily due to ~~proceeds from stock option exercises~~the refinancing of ~~$1.5 million offset by $0.8 million~~our long-term debt as described in Note 8. Debt and the payment of ~~IPO issuance~~deferred financing costs ~~in the two quarters ended June 26, 2022, which were accrued for as~~ of ~~December 26, 2021.~~$3.6 million.

~~Revolving~~2023 Revolver Facility and Liens

~~We maintain a Revolving Facility that~~On February 2, 2023, Holdings, the Borrower, the other Guarantors party thereto from time to time, each lender party thereto from time to time and Fifth Third Bank, National Association, as Administrative Agent, L/C Issuer and Swing Line Lender entered into the 2023 Credit Agreement which provides for ~~a revolving total commitment~~the 2023 Term Loan in an initial aggregate principal amount of ~~$50.0~~$300.0 million and the 2023 Revolver Facility in an initial aggregate principal amount of $100.0 million. The ~~Revolving~~proceeds under the 2023 Term Loan and 2023 Revolver Facility, ~~will~~along with cash on hand, were used to repay outstanding indebtedness under the 2014 Credit Agreement and to pay related transaction expenses. The 2023 Term Loan and 2023 Revolver Facility are scheduled to mature ~~and all amounts outstanding will be due and payable in June 2024. The Revolving Facility permits the issuance of letters of credit upon our request.~~

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on February 2, 2028.

As of ~~June~~March 26, ~~2022, there were no~~2023, we had $10.0 million of borrowings ~~outstanding~~ under the ~~Revolving Facility. We had $45.0 million~~2023 Revolver Facility, and letters of ~~availability,~~credit issued under the 2023 Revolver Facility totaled $4.4 million. As a result, as of ~~June~~March 26, ~~2022, after giving effect to $5.0 million in outstanding letters of credit.~~

~~In connection with the IPO,~~2023, the Company ~~received aggregate net proceeds of approximately~~ ~~$430.0~~had $85.6 million ~~after deducting underwriting discounts and commissions and offering expenses. Net proceeds of~~ ~~$158.1 million~~ ~~were used to repay the Second Lien Term B-3 Loans (including prepayment penalties) in full.~~

~~Borrowings~~ available under the First Lien Credit Agreement are guaranteed by PHD Intermediate LLC ("Holdings"), Portillo’s Holdings LLC (the "Borrower") and certain of the Borrower’s subsidiaries, and Holdings, the Borrower and certain of the Borrower’s subsidiaries have pledged substantially all tangible and intangible assets as collateral, subject to certain exclusions and exceptions.2023 Revolver Facility.

Material Cash Requirements

There have been no additional material changes to the material cash requirements as disclosed in our Annual Report on Form 10-K for the fiscal year ended December ~~26, 2021~~25, 2022, other than those payments made in the ordinary course of business.

Refer to Note 8. Debt for a description of a Credit Agreement and the repayment of borrowings.

Critical Accounting Estimates

This discussion and analysis of financial condition and results of operations is based upon the Company's condensed consolidated financial statements, which have been prepared in accordance with ~~generally accepted accounting principles in the United States of America ("GAAP").~~GAAP. The preparation of these financial statements requires the Company to make estimates, judgments, and assumptions that can have a meaningful effect on the reporting of condensed consolidated financial statements. There have been no significant changes to our critical accounting estimates or significant accounting policies as disclosed in our Annual Report on Form 10-K for the fiscal year ended December ~~26, 2021.~~25, 2022.

~~See Note 2. Summary of Significant Accounting Policies under Part I, Item 1 of this Form 10-Q for an analysis of~~The Company reviewed all other recently issued accounting ~~pronouncements.~~pronouncements and concluded that they were either not applicable or not expected to have a significant impact to its condensed consolidated financial statements.

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JOBS Act

We qualify as an emerging growth company ("EGC") pursuant to the provisions of the Jumpstart our Business Startups (“JOBS”) Act. For as long as we are an EGC, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding advisory “say-on-pay” votes on executive compensation and shareholder advisory votes on golden parachute compensation.

In addition, Section 107 of the JOBS Act also provides that an EGC can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. An EGC can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the extended transition period.

We will remain an EGC until the last day of the fiscal year following the fifth anniversary of the date of the first sale of our Class A common stock pursuant to an effective registration statement, which was October 21, 2021, unless, prior to that time, we have more than $1.07 billion in annual gross revenue, have a market value for our Class A common stock held by non-affiliates of more than $700 million as of the last day of our second fiscal quarter of the fiscal year and a determination is made that we are deemed to be a “large accelerated filer,” as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or issue more than $1.0 billion of non-convertible debt over a three-year period, whether or not issued in a registered offering. We have availed ourselves of the reduced reporting obligations with respect to executive compensation disclosure and expect to continue to avail ourselves of the reduced reporting obligations available to EGCs in future filings.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes to our exposure to market risks as described in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December ~~26, 2021.~~25, 2022.

Item 4. Controls and Procedures.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes to our internal control over financial reporting that occurred during the quarter ended ~~June~~March 26, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

Information regarding certain legal proceedings to which the Company is a party are discussed in Note ~~13.~~14. Contingencies in the notes to the unaudited condensed consolidated financial statements and is incorporated herein by reference.

Item 1A. Risk Factors.

~~There~~Other than as set forth below, there have been no material changes to the risk factors disclosed in the Company's Annual Report on Form 10-K for the ~~fiscal~~ year ended December ~~26, 2021.~~25, 2022:

Matters relating to employment and labor law could have a material adverse effect, result in litigation or additionalunion activities, add significant costs and divert management attention.

Various federal and state labor laws govern our relationships with our team members and affect our operating costs. Our operations are subject to the U.S. Occupational Safety and Health Act, which governs worker health and safety, the U.S. Fair Labor Standards Act, which governs such matters as minimum wages and overtime, and a variety of similar federal, state and local laws that govern these and other employment law matters. These laws include employee classifications as exempt or non-exempt, minimum wage requirements, unemployment tax rates, workers’ compensation rates, overtime, family leave, working conditions, safety standards, immigration status, state and local payroll taxes, federal and state laws which prohibit discrimination, citizenship requirements and other wage and benefit requirements for team members classified as non-exempt. In addition, with the passage in 2010 of the U.S. Patient Protection and Affordable Care Act (the “ACA”), we are required to provide affordable coverage, as defined in the ACA, to eligible team members, or otherwise be subject to a payment per team member based on the affordability criteria in the ACA. Additionally, some states and localities have passed state and local laws mandating the provision of certain levels of health benefits by some employers. Significant additional government regulations and new laws, including mandated increases in minimum wages, changes in exempt and non-exempt status, or increased mandated benefits such as health care and insurance costs could have a material adverse effect on our business, financial condition and results of operations. In addition, changes in federal or state workplace regulations could adversely affect our ability to meet our financial targets.

Federal law requires that we verify that our workers have the proper documentation and authorization to work in the U.S. Although we require all workers to provide us with government-specified documentation evidencing their employment eligibility, some of our team members may, without our knowledge, be unauthorized workers. We currently participate in the “E-Verify” program, an Internet-based, free program run by the U.S. government to verify employment eligibility, in Arizona, which is the only state in which we operate where participation is required. However, use of the “E-Verify” program does not guarantee that we will properly identify all applicants who are ineligible for employment, and we are not utilizing “E-Verify” in any other states where we operate. Unauthorized workers are subject to deportation and may subject us to fines or penalties, and if any of our workers are found to be unauthorized, we could experience adverse publicity that may negatively impact our brand and may make it more difficult to hire and keep qualified team members. Termination of a significant number of team members who are unauthorized employees may disrupt our operations, cause temporary increases in our labor costs as we train new team members and result in adverse publicity. We could also become subject to fines, penalties and other costs related to claims that we did not fully comply with all recordkeeping obligations of federal and state immigration compliance laws. These factors could materially adversely affect our business, financial condition and results of operations.

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Our business is subject to the risk of litigation by team members, consumers, suppliers, shareholders or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation. The outcome of litigation, particularly class action and regulatory actions, is difficult to assess or quantify. In recent years, restaurant companies, including us, have been subject to lawsuits alleging violations of federal and state laws regarding workplace and employment conditions, discrimination and similar matters, and some restaurants have been subject to class action lawsuits in respect of such matters. A number of these lawsuits have resulted in the payment of substantial damages by the defendants. Similar lawsuits have been instituted from time to time alleging violations of various federal and state wage and hour laws regarding, among other things, employee meal deductions, overtime eligibility of managers and failure to pay for all hours worked. Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time and money away from our operations and result in increases in our insurance premiums. In addition, they may generate negative publicity, which could reduce guest traffic and sales. Although we maintain what we believe to be adequate levels of insurance, insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters. A judgment or other liability in excess of our insurance coverage for any claims or any adverse publicity resulting from claims could have a material adverse effect on our business, financial condition and results of operations.

On April 13, 2023, certain of our team members at one of our commissaries elected to be represented by a union, and we are currently working with those team members and the National Labor Relations Board on the unionization process. Although we have not received other petitions to unionize, it is possible that additional team members may elect to be represented by labor unions in the future. If a significant number of our team members were to become unionized and collective bargaining agreement terms were significantly different from our current compensation arrangements, it could have a material adverse effect on our business, financial condition and results of operations. In addition, a labor dispute involving some or all our team members may harm our reputation, disrupt our operations and reduce our revenues, and resolution of disputes could increase our costs. Further, if we enter into a new market with unionized construction companies, or the construction companies in our current markets become unionized, construction and build-out costs for new restaurants in such markets could materially increase.

Changes in market and general economic conditions have in the past adversely affected, and may in the future adversely affect, our business and profitability and cause volatility in our results of operations.

Recently, concerns have arisen with respect to the financial condition of a number of banking organizations in the United States, in particular those with exposure to certain types of depositors and large portfolios of investment securities. In early March, the FDIC was appointed the receiver for both Silicon Valley Bank and Signature Bank in early March 2023 and First Republic Bank in early May 2023 after the banks were closed by regulators. While we do not have any exposure to these banks, we do hold the cash and cash equivalents used to meet our working capital and operating expense needs, primarily at one financial institution, often in balances that exceed the current FDIC insurance limits. If other banks and financial institutions enter receivership or become insolvent in the future, our ability to access our cash and cash equivalents to satisfy our operations may be threatened and could have a material adverse effect on our business and financial condition. We may also lose amounts in excess of the FDIC insurance limits and there can be no guarantee that the government would intervene. Our ability to borrow under our existing credit facilities, as well as our ability to secure additional sources of financing, may be impacted in significant ways. We may also be adversely impacted by increased costs of capital resulting from additional regulatory changes and requirements. Our vendors and service providers may also suffer disruptions that in turn adversely impact our operations and business.

Economic and market conditions have had, and will continue to have, a direct and material impact on our results of operations and financial condition because our performance is heavily influenced by the overall strength of general economic conditions. Concerns about or future adverse developments in the global and domestic financial markets also impact confidence in economic conditions, specifically consumer confidence. In a time of uncertainty or a downturn, consumers may be willing to spend less with our business. There may be additional risks that we have not yet identified. We continue to monitor the potential impact on our business.

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

~~None.~~Secondary Offering

In the first quarter of 2023, the Company completed a secondary offering of 8,000,000 shares of the Company's Class A common stock at an offering price of $21.05 per share ("Q1 Secondary Offering"). The Company granted Morgan Stanley & Co. LLC, the underwriter (the "Underwriter"), a 30-day option to purchase up to an additional 1,200,000 shares of Class A common stock. On April 5, 2023, the Underwriter exercised its overallotment option in part, to purchase an additional 620,493 shares of the Company's Class A common stock (See Note 16. Subsequent Events for additional details). We used all of the net proceeds from the Q1 Secondary Offering to purchase LLC Units and corresponding shares of Class B common stock from certain pre-IPO LLC Members and to repurchase shares of Class A common stock from the shareholders of the Blocker Companies at a price per LLC Unit or share of Class A common stock, as applicable equal to the public offering

Portillo's Inc.

Form 10-Q | 37

price per share of Class A common stock, less the underwriting discounts and commissions. The proceeds from the Q1 Secondary Offering were used to (i) purchase 2,106,400 existing shares of Class A common stock from the shareholders of the Blocker Companies and (ii) redeem 5,893,600 LLC Units held by the pre-IPO LLC Members. In connection with the redemption, 5,893,600 shares of Class B common stock were surrendered by the pre-IPO LLC Members and canceled and the Company received 5,893,600 newly-issued LLC Units, increasing the Company's total ownership interest in Portillo's OpCo. As a result, Portillo’s did not receive any proceeds from the offering, and the total number of shares of Class A common stock and Class B common stock did not change; however, the number of outstanding shares of Class A common stock increased by the same number of the canceled shares of Class B common stock.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Portillo's Inc.

Form 10-Q | 3638

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Item 6. Exhibits.


Exhibit Number		Description	Filed Herewith
3.1		Amended and Restated Certificate of Incorporation of Portillo's Inc. (incorporated by reference to Exhibit 3.1 of the Company's Quarterly Report on Form 10-Q filed on November 18, 2021)
3.2		Amended and Restated Bylaws of Portillo’s Inc. (incorporated by reference to Exhibit 3.2 of the Company's Quarterly Report on Form 10-Q filed on November 18, 2021)
10.1	†	~~Portillo's Inc. Employee Stock Purchase Plan~~Employment Agreement between PHD Group Holdings LLC and Derrick Pratt, entered into as of August 10, 2020	†*
10.2		Form of Stock and Unit Purchase Agreement by and among Portillo’s Inc. and the parties named therein (incorporated by reference to the Company's Registration Statement on S-1 filed on August 8, 2022)
31.1		Certification of the Principal Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	*
31.2		Certification of the Principal Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	*
32.1		Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	#
101.INS		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		XBRL Taxonomy Extension Schema Document	*
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document	*
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document	*
101.LAB		XBRL Taxonomy Extension Label Linkbase Document	*
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document	*
104		Cover page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document	*

* Filed Herewith

# Furnished Herewith

† Indicates a management contract or compensatory plan or agreement

Portillo's Inc.

Form 10-Q | 3739

Table of Contents

SIGNATURE

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


		Portillo's Inc.
		(Registrant)

Date: ~~August~~May 4, ~~2022~~2023	By:	/s/ Michael Osanloo
		Michael Osanloo
		President, Chief Executive Officer and Director (Principal Executive Officer)

Date: ~~August~~May 4, ~~2022~~2023	By:	/s/ Michelle Hook
		Michelle Hook
		Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)

Portillo's Inc.

Form 10-Q | 3840


Quarter Ended June 26, 2022 and June 27, 2021
	Preferred Units					Class A Common Stock			Class B Common Stock
	Units	Amounts		Member's Equity		Shares	Amount		Shares	Amount		Additional Paid-in Capital		Accumulated Deficit		Non-Controlling Interest		Total Stockholders' Equity
Balance at March 28, 2021	100,000	$	206,086	$	135,673	—	$	—	—	$	—	$	—	$	—	$	—	$	135,673
Net income	—	—		13,749		—	—		—	—		—		—		—		13,749

Issuance of common units	—	—		100		—	—		—	—		—		—		—		100
Equity-based compensation	—	—		168		—	—		—	—		—		—		—		168
Redeemable preferred units accretion	—	5,577		(5,577)		—	—		—	—		—		—		—		(5,577)
Balance at June 27, 2021	100,000	211,663		144,113		—	—		—	—		—		—		—		144,113

Balance at March 27, 2022	—	—		—		35,807,171	358		35,673,321	—		188,752		(15,756)		254,387		427,741
Net income	—	—		—		—	—		—	—		—		5,111		5,645		10,756
Equity-based compensation	—	—		—		—	—		—	—		1,941		—		1,923		3,864
Exercise of stock options	—	—		—		411,184	4		—	—		1,447		—		—		1,451
Non-controlling interest adjustment	—	—		—		—	—		—	—		722		—		(722)		—
Balance at June 26, 2022	—	$	—	$	—	36,218,355	$	362	35,673,321	$	—	$	192,862	$	(10,645)	$	261,233	$	443,812