pbpb-20230625

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________________________________

FORM 10-Q

______________________________________________


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

For the Quarterly Period Ended June 25, 2023


o			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: 001-36104

______________________________________________

Potbelly Corporation

(Exact name of registrant as specified in its charter)

______________________________________________


Delaware						36-4466837
(State or Other Jurisdiction of Incorporation)						(IRS Employer Identification Number)
111 N. Canal Street, Suite 325 Chicago, Illinois						60606
(Address of Principal Executive Offices)						(Zip Code)

Registrant’s Telephone Number, Including Area Code: (312) 951-0600

______________________________________________

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

PBPB

The NASDAQ Stock Market LLC

(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 x No o

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 x No o

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

As of July 23, 2023, the registrant had 29,317,743 shares of common stock, $0.01 par value per share, outstanding.

Table of Contents

Potbelly Corporation and Subsidiaries

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets (Unaudited)	3
	Condensed Consolidated Statements of Operations (Unaudited)	4
	Condensed Consolidated Statements of Equity (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows (Unaudited)	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
PART II.	OTHER INFORMATION	32
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	33
	Signature	34

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Potbelly Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(amounts in thousands, except par value data, unaudited)


	June 25, 2023		December 25, 2022
Assets
Current assets
Cash and cash equivalents	$	34,261	$	15,619
Accounts receivable, net of allowances of $24 and $16 as of June 25, 2023 and December 25, 2022, respectively	8,275		6,420
Inventories	3,534		3,990
Prepaid expenses and other current assets	5,110		4,501
Assets classified as held-for-sale	1,237		—
Total current assets	52,417		30,530

Property and equipment, net	43,485		44,477
Right-of-use assets for operating leases	151,328		160,891
Indefinite-lived intangible assets	3,404		3,404
Goodwill	2,122		2,222
Restricted cash	749		—
Deferred expenses, net and other assets	3,368		3,647
Total assets	$	256,873	$	245,171

Liabilities and equity
Current liabilities
Accounts payable	$	9,754	$	10,718
Accrued expenses	35,636		30,826
Short-term operating lease liabilities	27,535		27,395
Current portion of long-term debt	1,250		—
Total current liabilities	74,175		68,939

Long-term debt, net of current portion	21,108		8,550
Long-term operating lease liabilities	150,166		160,968
Other long-term liabilities	4,223		2,441
Total liabilities	249,672		240,898

Commitments and contingencies (Note 11)

Equity
Common stock, $0.01 par value—authorized 200,000 shares; outstanding 29,309 and 28,819 shares as of June 25, 2023 and December 25, 2022, respectively	389		384
Warrants	2,219		2,566
Additional paid-in-capital	459,351		455,831
Treasury stock, held at cost, 10,053 and 9,924 shares as of June 25, 2023, and December 25, 2022, respectively	(116,497)		(115,388)
Accumulated deficit	(338,027)		(338,916)
Total stockholders’ equity	7,435		4,477
Non-controlling interest	(234)		(204)
Total equity	7,201		4,273

Total liabilities and equity	$	256,873	$	245,171

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

Potbelly Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

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


	For the Quarter Ended				For the Year to Date Ended
	June 25, 2023		June 26, 2022		June 25, 2023		June 26, 2022
Revenues
Sandwich shop sales, net	$	124,709	$	114,992	$	241,656	$	212,423
Franchise royalties, fees and rent income	1,914		960		3,237		1,750
Total revenues	126,623		115,952		244,893		214,173

Expenses
Sandwich shop operating expenses, excluding depreciation
Food, beverage and packaging costs	34,903		32,830		67,523		60,138
Labor and related expenses	37,866		36,121		74,368		69,374
Occupancy expenses	13,083		13,805		26,393		27,650
Other operating expenses	20,925		19,128		41,409		37,233
Franchise support, rent and marketing expenses	1,215		126		1,806		246
General and administrative expenses	11,695		8,827		21,664		17,345
Depreciation expense	2,887		3,030		5,857		6,167
Pre-opening costs	33		—		55		—
Loss on Franchise Growth Acceleration Initiative activities	14		—		963		—
Impairment, loss on disposal of property and equipment and shop closures	658		1,044		1,703		2,363
Total expenses	123,279		114,911		241,741		220,516
Income (loss) from operations	3,344		1,041		3,152		(6,343)

Interest expense, net	1,011		357		1,678		683
Loss on extinguishment of debt	—		—		239		—
Income (loss) before income taxes	2,333		684		1,235		(7,026)
Income tax expense (benefit)	(48)		(24)		57		153
Net income (loss)	2,381		708		1,178		(7,179)
Net income attributable to non-controlling interest	165		134		288		160
Net income (loss) attributable to Potbelly Corporation	$	2,216	$	574	$	890	$	(7,339)

Net income (loss) per common share attributable to common stockholders:
Basic	$	0.08	$	0.02	$	0.03	$	(0.26)
Diluted	$	0.07	$	0.02	$	0.03	$	(0.26)
Weighted average shares outstanding:
Basic	29,199		28,565		29,053		28,481
Diluted	30,088		29,117		29,776		28,481

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

Potbelly Corporation and Subsidiaries

Condensed Consolidated Statements of Equity (Deficit)

(amounts and shares in thousands, unaudited)


	Common Stock			Treasury Stock		Warrants		Additional Paid-In- Capital		Accumulated Deficit		Non- Controlling Interest		Total Equity (Deficit)
	Shares	Amount
Balance at December 26, 2021	28,380	$	380	$	(114,577)	$	2,566	$	452,570	$	(343,261)	$	(95)	$	(2,417)
Net income (loss)	—	—		—		—		—		(7,913)		26		(7,887)
Shares issued under equity compensation plan	81	1		(279)		—		—		—		—		(278)
Distributions to non-controlling interest	—	—		—		—		—		—		(120)		(120)
Stock-based compensation expense	—			—		—		675		—		—		675
Balance at March 27, 2022	28,461	381		(114,856)		2,566		453,245		(351,174)		(189)		(10,027)
Net income (loss)	—	—		—		—		—		574		134		708
Shares issued under equity compensation plan	235	2		(325)		—		(3)		—		—		(326)
Distributions to non-controlling interest	—	—		—		—		—		—		(56)		(56)
Stock-based compensation expense	—	—		—		—		820		—		—		820
Balance at June 26, 2022	28,696	$	383	$	(115,181)	$	2,566	$	454,062	$	(350,600)	$	(111)	$	(8,881)

Balance at December 25, 2022	28,819	$	384	$	(115,388)	$	2,566	$	455,831	$	(338,916)	$	(204)	$	4,273
Net income (loss)	—	—		—		—		—		(1,327)		123		(1,204)
Shares issued under equity compensation plan	70	1		(337)		—		(1)		—		—		(337)
Proceeds from exercise of warrants	159	1		—		(313)		1,177		—		—		865
Distributions to non-controlling interest	—	—		—		—		—		—		(152)		(152)
Stock-based compensation expense	—	—		—		—		911		—		—		911
Balance at March 26, 2023	29,048	$	386	$	(115,725)	$	2,253	$	457,918	$	(340,243)	$	(233)	$	4,356
Net income (loss)	—	—		$	—	$	—	$	—	$	2,216	$	165	$	2,381
Shares issued under equity compensation plan	243	3		(772)		—		(2)		—		—		(771)
Proceeds from exercise of warrants	18	—		—		(34)		130		—		—		96
Distributions to non-controlling interest	—	—		—		—		—		—		(166)		(166)
Stock-based compensation expense	—	—		—		—		1,305		—		—		1,305
Balance at June 25, 2023	29,309	$	389	$	(116,497)	$	2,219	$

SEC Form 10-Q filed by Potbelly Corporation