pbpb-20240331

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 March 31, 2024


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 April 28, 2024, the registrant had 29,841,506 shares of common stock, $0.01 par value per share, outstanding.


		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	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30
PART II.	OTHER INFORMATION	31
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Mine Safety Disclosures	31
Item 5.	Other Information	31
Item 6.	Exhibits	32
	Signature	33


	March 31, 2024		December 31, 2023
Assets
Current assets
Cash and cash equivalents	$	12,723	$	33,788
Accounts receivable, net of allowances of $21 and $26 as of March 31, 2024 and December 31, 2023, respectively	8,380		7,960
Inventories	3,556		3,516
Prepaid expenses and other current assets	7,476		7,828
Assets classified as held-for-sale	171		—
Total current assets	32,306		53,092

Property and equipment, net	45,608		45,087
Right-of-use assets for operating leases	138,068		144,390
Indefinite-lived intangible assets	3,404		3,404
Goodwill	2,053		2,056
Restricted cash	749		749
Deferred expenses, net and other assets	5,268		3,681
Total assets	$	227,456	$	252,460

Liabilities and equity
Current liabilities
Accounts payable	$	9,970	$	9,927
Accrued expenses	32,982		35,377
Short-term operating lease liabilities	24,464		24,525
Current portion of long-term debt	—		1,250
Total current liabilities	67,416		71,078

Long-term debt, net of current portion	5,000		19,168
Long-term operating lease liabilities	134,768		142,050
Other long-term liabilities	6,616		6,070
Total liabilities	213,800		238,367

Commitments and contingencies (Note 12)

Equity
Common stock, $0.01 par value—authorized 200,000 shares; outstanding 29,685 and 29,364 shares as of March 31, 2024 and December 31, 2023, respectively	394		389
Warrants	1,745		2,219
Additional paid-in-capital	466,132		462,583
Treasury stock, held at cost, 10,131 and 10,077 shares as of March 31, 2024, and December 31, 2023, respectively	(117,366)		(116,701)
Accumulated deficit	(336,564)		(333,797)
Total stockholders’ equity	14,341		14,693
Non-controlling interest	(685)		(600)
Total equity	13,656		14,093

Total liabilities and equity	$	227,456	$	252,460


	For the Quarter Ended
	March 31, 2024		March 26, 2023
Revenues
Sandwich shop sales, net	$	107,577	$	116,947
Franchise royalties, fees and rent income	3,576		1,323
Total revenues	111,153		118,270

Expenses
Sandwich shop operating expenses, excluding depreciation
Food, beverage and packaging costs	29,270		32,620
Labor and related expenses	32,253		36,502
Occupancy expenses	11,714		13,310
Other operating expenses	19,829		20,484
Franchise support, rent and marketing expenses	2,537		591
General and administrative expenses	11,547		9,969
Depreciation expense	3,011		2,971
Pre-opening costs	—		22
Loss on Franchise Growth Acceleration Initiative activities	133		949
Impairment, loss on disposal of property and equipment and shop closures	741		1,045
Total operating expenses	111,035		118,463
Income (loss) from operations	118		(193)

Interest expense, net	364		667
Loss on extinguishment of debt	2,376		239
Loss before income taxes	(2,622)		(1,099)
Income tax expense	51		105
Net loss	(2,673)		(1,204)
Net income attributable to non-controlling interest	94		123
Net loss attributable to Potbelly Corporation	$	(2,767)	$	(1,327)

Net income per common share attributable to common stockholders:
Basic	$	(0.09)	$	(0.05)
Diluted	$	(0.09)	$	(0.05)
Weighted average shares outstanding:
Basic	29,551		28,907
Diluted	29,551		28,907


	Common Stock			Treasury Stock		Warrants		Additional Paid-In- Capital		Accumulated Deficit		Non- Controlling Interest		Total Equity
	Shares	Amount
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)
Stock-based compensation plans	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 (unaudited)	29,048	$	386	$	(115,725)	$	2,253	$	457,918	$	(340,243)	$	(233)	$	4,356

Balance at December 31, 2023	29,364	$	389	$	(116,701)	$	2,219	$	462,583	$	(333,797)	$	(600)	$	14,093
Net income (loss)	—	—		—		—		—		(2,767)		94		(2,673)
Shares issued under equity compensation plan	81	3		(665)		—		(3)		—		—		(665)
Proceeds from exercise of warrants	240	2		—		(474)		1,781		—		—		1,309
Distributions to non-controlling interest	—	—		—		—		—		—		(179)		(179)
Stock-based compensation expense	—	—		—		—		1,771		—		—		1,771
Balance at March 31, 2024 (unaudited)	29,685	$	394	$	(117,366)	$	1,745	$	466,132	$	(336,564)	$	(685)	$	13,656


	For the Quarter to Date Ended
	March 31, 2024		March 26, 2023
Cash flows from operating activities:
Net loss	$	(2,673)	$	(1,204)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	3,011		2,971
Noncash lease expense	6,191		6,127
Deferred income tax	1		1
Stock-based compensation expense	1,771		911
Asset impairment, loss on disposal of property and equipment and shop closures	474		843
Loss on Franchise Growth Acceleration Initiative activities	133		936
Loss on extinguishment of debt	2,376		224
Other operating activities	77		85
Changes in operating assets and liabilities:
Accounts receivable, net	(441)		(847)
Inventories	(33)		274
Prepaid expenses and other assets	(515)		136
Accounts payable	(151)		(507)
Operating lease liabilities	(7,254)		(6,923)
Accrued expenses and other liabilities	(2,274)		(3,684)
Net cash provided by (used in) operating activities:	693		(657)

Cash flows from investing activities:
Purchases of property and equipment	(3,963)		(3,312)
Proceeds from sale of refranchised shops and other assets	227		96
Net cash used in investing activities:	(3,736)		(3,216)

Cash flows from financing activities:
Borrowings under Revolving Facility	7,000		—
Borrowings under Term Loan	—		25,000
Borrowings under Former Credit Facility	—		14,600
Repayments under Revolving Facility	(2,000)		—
Repayments under Term Loan	(22,827)		—
Repayments under Former Credit Facility	—		(23,150)
Payment of debt issuance costs	(345)		(2,204)
Proceeds from exercise of warrants	1,309		865
Employee taxes on certain stock-based payment arrangements	(980)		(47)
Distributions to non-controlling interest	(179)		(152)
Principal payments made for Term Loan	—		(313)
Net cash provided by (used in) financing activities:	(18,022)		14,599

Net increase (decrease) in cash and cash equivalents and restricted cash	(21,065)		10,726
Cash and cash equivalents and restricted cash at beginning of period	34,537		15,619
Cash and cash equivalents and restricted cash at end of period	$	13,472	$	26,345

Supplemental cash flow information:
Income taxes paid	$	12	$	55
Interest paid	$	359	$	787

Supplemental non-cash investing and financing activities:
Unpaid liability for purchases of property and equipment	$	909	$	978
Unpaid liability for employee taxes on certain stock-based payment arrangements	$	328	$	305


	March 31, 2024		December 31, 2023

Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	12,723	$	33,788
Restricted cash, noncurrent	749		749
Total cash, cash equivalents and restricted cash shown on statement of cash flows	$	13,472	$	34,537


	Current Contract Liability		Noncurrent Contract Liability
Beginning balance as of December 31, 2023	$	8,028	$	4,397
Ending balance as of March 31, 2024	8,077		5,318
Increase in contract liability	$	49	$	921


Years Ending	Amount
2024	$	6,097
2025	1,564
2026	915
2027	645
2028	728
Thereafter	3,446
Total revenue recognized	$	13,395


	March 31, 2024		December 31, 2023

Assets - Level 1
Money market funds	$	—	$	6,398
Financial assets measured at fair value on recurring basis	$	—	$	6,398


	Fiscal Year Ended
	March 31, 2024		March 26, 2023
Leases terminated	1		—
Lease termination fees	$	200	—
Right-of-use assets derecognized upon lease termination	$	416	—
Lease liabilities derecognized upon lease termination	$	506	—
Gain (loss) recognized upon lease termination	$	(110)	$	—


	Operating Leases
Remainder of 2024	$	28,264
2025	39,830
2026	35,855
2027	30,235
2028	23,764
2029	17,988
Thereafter	36,488
Total lease payments	212,424
Less: imputed interest	(53,192)
Present value of lease liabilities	$	159,232



	March 31, 2024		March 26, 2023
Weighted average remaining lease term (years)	6.07		6.54
Weighted average discount rate	9.28	%	8.37	%


	Operating Leases
Remainder of 2024	$	3,086
2025	3,931
2026	3,113
2027	2,095
2028	1,704
Thereafter	3,687
Total sublease payments	$	17,616


	March 31, 2024		December 31, 2023
Revolving Facility	$	5,000	$	—
Term Loan	—		22,162
Unamortized debt issuance costs	—		(1,744)
Less: current portion of long-term debt	—		(1,250)
Total long-term debt	$	5,000	$	19,168

SEC Form 10-Q filed by Potbelly Corporation