UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM | ||
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 4, 2022
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||||||
| (Address of principal executive offices) | ||||||||
(630 )-954-3773
(Registrant’s telephone number, including area code)
| N/A | ||
| (Former name or former address, if changed since last report) | ||
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ☐
Item 2.02 Results of Operations and Financial Condition.
On August 4, 2022 , Portillo’s Inc. (NASDAQ: PTLO) issued a press release reporting results for the second quarter ended June 26, 2022. A copy of the earnings press release is attached hereto as Exhibit 99.1.
Item 7.01 Regulation FD Disclosure.
The Company has also posted a supplemental earnings presentation to its website, which is attached hereto as Exhibit 99.2 and incorporated herein by reference. The information furnished in this Current Report on Form 8-K, including Exhibit 99.1 and Exhibit 99.2, shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, and shall not be deemed to be incorporated by reference into any filing pursuant to the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated therein by reference.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
| Exhibit Number | Description | |||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||
SIGNATURES
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, thereto duly authorized.
| Portillo's Inc. | |||||||||||
| (Registrant) | |||||||||||
| Date: August 4, 2022 | By: | /s/ Michelle Hook | |||||||||
| Michelle Hook | |||||||||||
| Chief Financial Officer and Treasurer (Principal Financial Officer) | |||||||||||
Portillo’s Inc. Announces Second Quarter 2022 Financial Results
Chicago, IL— August 4, 2022—Portillo’s Inc. (“Portillo’s” or the “Company”) (NASDAQ: PTLO), the fast-casual restaurant concept known for its menu of Chicago-style favorites, today reported financial results for the second quarter ended June 26, 2022.
Michael Osanloo, President and Chief Executive Officer of Portillo’s, said, “Our second quarter results demonstrated the consistency and durability of our brand. We remain hyperfocused on team member engagement, our value proposition and our overall guest experience. This, in turn, drove solid top line and bottom-line results that are in-line with our long-term targets.”
Financial Highlights for the Second Quarter 2022 vs. Second Quarter 2021:
•Total revenue increased 7.0% or $9.9 million to $150.6 million;
•Same restaurant sales increased 1.9%;
•Operating income decreased $7.0 million to $17.4 million;
•Net income decreased $3.0 million to $10.8 million;
•Restaurant-Level Adjusted EBITDA* decreased $4.7 million to $38.4 million; and
•Adjusted EBITDA* decreased $4.9 million to $27.6 million.
*Adjusted EBITDA and Restaurant-Level Adjusted EBITDA are non-GAAP measures. Please see definitions and the reconciliations of these non-GAAP measures in the accompanying financial information below.
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% during the quarter ended June 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.
During the quarter and two quarters ended June 26, 2022, we experienced unprecedented commodity inflation, with the largest increases in pork, chicken and beef prices. While we expect these commodity pressures to continue into the remainder of fiscal 2022 in the range 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 during the second quarter and two quarters ended June 26, 2022 compared to the same periods last year primarily due to additional wage investments made in June 2021. We also made additional wage investments at the beginning of the third quarter of 2022, which combined with the expected commodity inflation, will continue to have an impact to Restaurant-Level Adjusted EBITDA Margin for the remainder of 2022. We are partially offsetting these expense increases through menu price increases 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 the first quarter of 2022 to 25.5% in the second quarter of 2022. Absent significant and prolonged COVID-19 relapses or global economic disruptions and through our continued efforts to elevate guest experiences and implement operational efficiencies, we believe the strength of our brand will deliver consistent, long-term growth.
Review of Second Quarter 2022 Financial Results
Revenues for the quarter ended June 26, 2022 were $150.6 million compared to $140.7 million for the quarter ended June 27, 2021, an increase of $9.9 million or 7.0%. 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 restaurants positively impacted revenues by approximately $7.4 million in the quarter ended June 26, 2022. Same-restaurant sales increased 1.9% during the second quarter ended June 26, 2022, which was attributable to an increase in average
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check of 4.8% and a 2.7% impact from the change in recording third-party delivery pricing, offset by a decline in transactions of 5.6%. The higher average check was driven by an approximate 6.8% increase in certain menu prices partially offset by lower items sold per transaction. During the second quarter of 2022, we increased menu prices on certain items resulting in an approximate 3.5% effective overall increase to continue to address 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.
Total restaurant operating expenses for the second quarter ended June 26, 2022 were $112.2 million compared to $97.7 million for the second quarter ended June 27, 2021, an increase of $14.6 million or 14.9%. The increase in restaurant operating expenses was 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. Additionally, cost of goods sold, excluding depreciation and amortization was negatively impacted by a 15.2% increase in all commodity prices, with the largest increases in pork, chicken, and beef prices, and the change in recording third-party delivery pricing. Labor expense increases were also driven by incremental investments to support our team members, including rate increases primarily made in the June 2021 and higher equity-based compensation. These labor increases were partially offset by operational efficiencies and lower variable-based compensation.
General and administrative expenses for the second quarter ended June 26, 2022 were $15.4 million compared to $12.2 million for the second quarter ended June 27, 2021, an increase of $3.3 million or 26.9%. This increase was primarily driven by increases in equity-based compensation of $3.4 million and insurance and software licensing fees, partially offset by a decrease in variable-based compensation expense.
Operating income for the second quarter ended June 26, 2022 was $17.4 million compared to operating income of $24.5 million for the second quarter ended June 27, 2021, a decrease of $7.0 million or 28.7% due to the aforementioned increase in expenses, partially offset by the aforementioned increase in revenues and lower depreciation and amortization.
Net income for the second quarter ended June 26, 2022 was $10.8 million compared to net income of $13.7 million for the second quarter ended June 27, 2021, a decrease of $3.0 million or 21.8%. The decrease in net income was primarily due to the aforementioned decrease in operating income, partially offset by lower interest expense of $4.6 million and remeasurement of the Tax Receivable Agreement liability adjustment of $1.8 million.
Restaurant-Level Adjusted EBITDA* for the second quarter ended June 26, 2022 was $38.4 million compared to $43.1 million for the second quarter ended June 27, 2021, a decrease of $4.7 million or 10.9%.
Adjusted EBITDA* for the second quarter ended June 26, 2022 was $27.6 million compared to $32.5 million for the second quarter ended June 27, 2021, a decrease of $4.9 million or 15.1%.
*A reconciliation of Restaurant-Level Adjusted EBITDA and Adjusted EBITDA and the nearest GAAP financial measure is included under “Non-GAAP Financial Measures” in the accompanying financial information below.
Development Highlights
Two new restaurants were opened during the two quarters ending June 26, 2022. The opening of these restaurants brings the total restaurant count to 71 as of June 26, 2022, including a restaurant owned by C&O Chicago, LLC ("C&O") of which Portillo’s owns 50% of the equity. Below are the restaurants opened since the beginning of fiscal 2022:
| Location | Opening Date | ||||
| Joliet, Illinois | February 2022 | ||||
| St. Petersburg, Florida | April 2022 | ||||
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The following definitions apply to these terms as used in this release:
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, excluding a restaurant that is owned by C&O. The Comparable Restaurant Base is defined as the number of restaurants open for at least 24 full fiscal periods.
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 by period.
Adjusted EBITDA and Adjusted EBITDA Margin - Adjusted EBITDA represents net income (loss) 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 (loss), the most directly comparable GAAP measure to Adjusted EBITDA. Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of total revenues. See also “Non-GAAP Financial Measures.”
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. See also “Non-GAAP Financial Measures.”
For more information about the Company’s Non-GAAP measures, how they are calculated and reconciled and why management believes that they are useful, see “Non-GAAP Financial Measures” below.
Earnings Conference Call
The Company will host a conference call to discuss its financial results for the second quarter ended June 26, 2022 on Thursday, August 4, 2022, at 10:00 AM ET. The conference call can be accessed live over the phone by dialing 1-877-407-3982 (toll-free) or 1-201-493-6780 (international). A telephone replay will be available shortly after the call has concluded and can be accessed by dialing 1-412-317-6671; the passcode is 13731164. The webcast will be available at www.portillos.com under the investors section and will be archived on the site shortly after the call has concluded.
About Portillo’s
In 1963, Dick Portillo invested $1,100 into a small trailer to open the first Portillo’s hot dog stand in Villa Park, IL, which he called “The Dog House.” As of August 4, 2022, Portillo’s has grown to include restaurants in 71 locations across nine states. Portillo’s is best known for its Chicago-style hot dogs, Italian beef sandwiches, char-grilled burgers, fresh salads and famous chocolate cake. Portillo’s Home Kitchen is the company’s fast-growing catering business. Portillo’s also ships food to all 50 states via its website.
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Cautionary Note Regarding Forward-Looking Statements
This press release contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). All statements other than statements of historical fact are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial position, results of operations, plans, objectives, future performance and business, and are based on currently available operating, financial and competitive information which are subject to various risks and uncertainties, so you should not place undue reliance on forward-looking statements. 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," "commit," "estimate," "expect," "forecast," "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. 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;
•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 impact of labor shortages, 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;
•risks relating to changes in economic conditions, including a possible recession and resulting changes in consumer preferences;
•inflation of all commodity prices, including 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 press release in the context of the risks and uncertainties disclosed in the Company’s Form 10-K for the fiscal year ended December 26, 2021, filed with the SEC on March 10, 2022, and subsequent filings with the SEC. All of the Company’s SEC filings are available on the SEC’s website at www.sec.gov. The forward-looking statements included in this press release 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.
Investor Contact:
Barbara Noverini, CFA
investors@portillos.com
Media Contact:
ICR, Inc.
portillosPR@icrinc.com
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PORTILLO’S INC
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(in thousands, except share and per share data)
| Quarter Ended | Two Quarters Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| June 26, 2022 | June 27, 2021 | June 26, 2022 | June 27, 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| REVENUES, NET | $ | 150,623 | 100.0 | % | $ | 140,734 | 100.0 | % | $ | 285,105 | 100.0 | % | $ | 258,041 | 100.0 | % | |||||||||||||||||||||||||||||||
| COST AND EXPENSES: | |||||||||||||||||||||||||||||||||||||||||||||||
Restaurant operating expenses: | |||||||||||||||||||||||||||||||||||||||||||||||
| Cost of goods sold, excluding depreciation and amortization | 51,774 | 34.4 | % | 42,156 | 30.0 | % | 98,040 | 34.4 | % | 77,180 | 29.9 | % | |||||||||||||||||||||||||||||||||||
| Labor | 37,906 | 25.2 | % | 34,482 | 24.5 | % | 75,219 | 26.4 | % | 65,512 | 25.4 | % | |||||||||||||||||||||||||||||||||||
| Occupancy | 7,379 | 4.9 | % | 7,106 | 5.0 | % | 15,134 | 5.3 | % | 13,890 | 5.4 | % | |||||||||||||||||||||||||||||||||||
| Other operating expenses | 15,178 | 10.1 | % | 13,925 | 9.9 | % | 30,343 | 10.6 | % | 28,633 | 11.1 | % | |||||||||||||||||||||||||||||||||||
| Total restaurant operating expenses | 112,237 | 74.5 | % | 97,669 | 69.4 | % | 218,736 | 76.7 | % | 185,215 | 71.8 | % | |||||||||||||||||||||||||||||||||||
| General and administrative expenses | 15,439 | 10.3 | % | 12,170 | 8.6 | % | 31,126 | 10.9 | % | 24,005 | 9.3 | % | |||||||||||||||||||||||||||||||||||
| Pre-opening expenses | 423 | 0.3 | % | 671 | 0.5 | % | 979 | 0.3 | % | 1,960 | 0.8 | % | |||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 5,309 | 3.5 | % | 6,420 | 4.6 | % | 10,514 | 3.7 | % | 12,709 | 4.9 | % | |||||||||||||||||||||||||||||||||||
| Net income attributable to equity method investment | (275) | (0.2) | % | (295) | (0.2) | % | (398) | (0.1) | % | (359) | (0.1) | % | |||||||||||||||||||||||||||||||||||
| Other loss (income), net | 51 | — | % | (362) | (0.3) | % | (105) | — | % | (803) | (0.3) | % | |||||||||||||||||||||||||||||||||||
| OPERATING INCOME | 17,439 | 11.6 | % | 24,461 | 17.4 | % | 24,253 | 8.5 | % | 35,314 | 13.7 | % | |||||||||||||||||||||||||||||||||||
| Interest expense | 6,097 | 4.0 | % | 10,712 | 7.6 | % | 12,196 | 4.3 | % | 21,441 | 8.3 | % | |||||||||||||||||||||||||||||||||||
| Tax Receivable Agreement liability adjustment | (1,754) | (1.2) | % | — | — | % | (1,754) | (0.6) | % | — | — | % | |||||||||||||||||||||||||||||||||||
| 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 | % | |||||||||||||||||||||||||||||||
| Income per common share attributable to Portillo’s Inc.: | |||||||||||||||||||||||||||||||||||||||||||||||
| Basic | $ | 0.14 | $ | 0.16 | $ | 0.15 | $ | 0.05 | |||||||||||||||||||||||||||||||||||||||
| Diluted | $ | 0.13 | $ | 0.16 | $ | 0.13 | $ | 0.05 | |||||||||||||||||||||||||||||||||||||||
| Weighted-average common shares outstanding: | |||||||||||||||||||||||||||||||||||||||||||||||
| Basic | 35,991,079 | 51,200,644 | 35,899,125 | 51,196,539 | |||||||||||||||||||||||||||||||||||||||||||
| Diluted | 39,687,090 | 51,568,909 | 39,839,292 | 51,563,292 | |||||||||||||||||||||||||||||||||||||||||||
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PORTILLO’S INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share and per share data)
| June 26, 2022 | December 26, 2021 | ||||||||||
| ASSETS | |||||||||||
| CURRENT ASSETS: | |||||||||||
| Cash and cash equivalents and restricted cash | $ | 49,730 | $ | 39,263 | |||||||
| Accounts receivable | 8,830 | 7,840 | |||||||||
| Inventory | 5,639 | 6,078 | |||||||||
| Prepaid expenses | 5,082 | 5,836 | |||||||||
| Total current assets | 69,281 | 59,017 | |||||||||
| Property and equipment, net | 193,813 | 190,834 | |||||||||
| OTHER ASSETS: | |||||||||||
| Goodwill | 394,298 | 394,298 | |||||||||
| Trade names | 223,925 | 223,925 | |||||||||
| Other intangible assets, net | 34,263 | 35,832 | |||||||||
| Equity method investment | 16,083 | 16,170 | |||||||||
| Deferred tax asset | 71,949 | 74,455 | |||||||||
| Other assets | 4,282 | 5,042 | |||||||||
| Total other assets | 744,800 | 749,722 | |||||||||
| TOTAL ASSETS | $ | 1,007,894 | $ | 999,573 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| CURRENT LIABILITIES: | |||||||||||
| Accounts payable | $ | 20,382 | $ | 27,249 | |||||||
| Current portion of long-term debt | 3,324 | 3,324 | |||||||||
| Current deferred revenue | 4,649 | 6,893 | |||||||||
| Accrued expenses | 25,123 | 29,472 | |||||||||
| Total current liabilities | 53,478 | 66,938 | |||||||||
| LONG-TERM LIABILITIES: | |||||||||||
| Long-term debt, net of current portion | 315,410 | 315,829 | |||||||||
| Deferred rent | 36,511 | 32,174 | |||||||||
| Tax receivable agreement liability | 154,883 | 156,638 | |||||||||
| Other long-term liabilities | 3,800 | 4,588 | |||||||||
| Total long-term liabilities | 510,604 | 509,229 | |||||||||
| Total liabilities | 564,082 | 576,167 | |||||||||
| COMMITMENTS AND CONTINGENCIES | |||||||||||
| STOCKHOLDER’S 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. | — | — | |||||||||
| Additional paid-in-capital | 192,862 | 186,856 | |||||||||
| Accumulated deficit | (10,645) | (15,950) | |||||||||
| Total stockholders' equity attributable to Portillo's Inc. | 182,579 | 171,264 | |||||||||
| Non-controlling interest | 261,233 | 252,142 | |||||||||
| Total stockholders' equity | 443,812 | 423,406 | |||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,007,894 | $ | 999,573 | |||||||
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PORTILLO’S INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
| Two Quarters Ended | |||||||||||
| June 26, 2022 | June 27, 2021 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net income | $ | 11,306 | $ | 13,873 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 10,514 | 12,709 | |||||||||
| Amortization of debt issuance costs and discount | 1,243 | 1,920 | |||||||||
| Loss on sales of assets | 107 | 114 | |||||||||
| Equity-based compensation | 7,649 | 273 | |||||||||
| Deferred rent and tenant allowance | 2,112 | 2,083 | |||||||||
| Deferred income tax provision | 2,505 | — | |||||||||
| Tax Receivable Agreement liability adjustment | (1,754) | — | |||||||||
| Amortization of deferred lease incentives | (166) | (189) | |||||||||
| Gift card breakage | (474) | (419) | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | (1,089) | 535 | |||||||||
| Receivables from related parties | (66) | (159) | |||||||||
| Inventory | 439 | 1,502 | |||||||||
| Other current assets | 754 | (297) | |||||||||
| Accounts payable | (2,908) | (532) | |||||||||
| Accrued expenses and other liabilities | (6,140) | 856 | |||||||||
| Deferred lease incentives | 1,251 | 690 | |||||||||
| Other assets and liabilities | 76 | (142) | |||||||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | 25,359 | 32,817 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Purchase of property and equipment | (13,940) | (18,468) | |||||||||
| Purchase of investment securities | — | (200) | |||||||||
| Proceeds from the sale of property and equipment | 30 | 123 | |||||||||
| NET CASH USED IN INVESTING ACTIVITIES | (13,910) | (18,545) | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Payments of long-term debt | (1,662) | (1,662) | |||||||||
| 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 | (982) | (1,312) | |||||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | 10,467 | 12,960 | |||||||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF THE PERIOD | 39,263 | 41,432 | |||||||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF THE PERIOD | $ | 49,730 | $ | 54,392 | |||||||
7
PORTILLO’S INC
SELECTED OPERATING DATA AND NON-GAAP FINANCIAL MEASURES
| Quarter Ended | Two Quarters Ended | ||||||||||||||||||||||
| June 26, 2022 | June 27, 2021 | June 26, 2022 | June 27, 2021 | ||||||||||||||||||||
| Total Restaurants (a) | 71 | 67 | 71 | 67 | |||||||||||||||||||
| AUV (in millions) (a) | N/A | N/A | $ | 8.3 | $ | 7.9 | |||||||||||||||||
| Change in same-restaurant sales (b) | 1.9 | % | 25.0 | % | 4.8 | % | 12.7 | % | |||||||||||||||
| Adjusted EBITDA (in thousands) | $ | 27,613 | $ | 32,539 | $ | 45,244 | $ | 51,073 | |||||||||||||||
| Adjusted EBITDA Margin | 18.3 | % | 23.1 | % | 15.9 | % | 19.8 | % | |||||||||||||||
| Restaurant-Level Adjusted EBITDA (in thousands) | $ | 38,386 | $ | 43,065 | $ | 66,369 | $ | 72,826 | |||||||||||||||
| Restaurant-Level Adjusted EBITDA Margin | 25.5 | % | 30.6 | % | 23.3 | % | 28.2 | % | |||||||||||||||
(a) Includes a restaurant that is owned by C&O of which Portillo’s owns 50% of the equity. AUVs for the quarters ended June 26, 2022 and June 27, 2021 represent AUVs for the twelve months ended June 26, 2022 and June 27, 2021, respectively.
(b) Excludes a restaurant that is owned by C&O of which Portillo’s owns 50% of the equity.
8
PORTILLO’S INC.
NON-GAAP FINANCIAL MEASURES
To supplement the 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.
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 (loss), 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.
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.
9
See below for a reconciliation of net income, the most directly comparable GAAP measure, to Adjusted EBITDA and Adjusted EBITDA Margin (in thousands):
| Quarter Ended | Two Quarters Ended | ||||||||||||||||||||||
| June 26, 2022 | June 27, 2021 | June 26, 2022 | June 27, 2021 | ||||||||||||||||||||
| Net income | $ | 10,756 | $ | 13,749 | $ | 11,306 | $ | 13,873 | |||||||||||||||
| Depreciation and amortization | 5,309 | 6,420 | 10,514 | 12,709 | |||||||||||||||||||
| Interest expense | 6,097 | 10,712 | 12,196 | 21,441 | |||||||||||||||||||
| Income tax expense | 2,340 | — | 2,505 | — | |||||||||||||||||||
| EBITDA | 24,502 | 30,881 | 36,521 | 48,023 | |||||||||||||||||||
| Deferred rent (1) | 865 | 798 | 1,946 | 1,594 | |||||||||||||||||||
| Equity-based compensation | 3,864 | 168 | 7,649 | 273 | |||||||||||||||||||
| Consulting fees (2) | — | 500 | — | 1,000 | |||||||||||||||||||
| Other loss (income) (3) | 93 | 141 | 125 | 132 | |||||||||||||||||||
| Transaction-related fees & expenses (4) | 43 | 51 | 757 | 51 | |||||||||||||||||||
| Tax Receivable Agreement liability adjustment (5) | (1,754) | — | (1,754) | — | |||||||||||||||||||
| Adjusted EBITDA | $ | 27,613 | $ | 32,539 | $ | 45,244 | $ | 51,073 | |||||||||||||||
| Adjusted EBITDA Margin | 18.3 | % | 23.1 | % | 15.9 | % | 19.8 | % | |||||||||||||||
(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 (gain) on disposal of property and equipment.
(4) Represents the exclusion of certain expenses that management believes are not indicative of ongoing operations, consisting primarily of certain professional fees.
(5) Represents remeasurement of the Tax Receivable Agreement.
See below for a reconciliation of operating income, the most directly comparable GAAP measure, to Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin (in thousands):
| Quarter Ended | Two Quarters Ended | ||||||||||||||||||||||
| June 26, 2022 | June 27, 2021 | June 26, 2022 | June 27, 2021 | ||||||||||||||||||||
| Operating income | $ | 17,439 | $ | 24,461 | $ | 24,253 | $ | 35,314 | |||||||||||||||
| Plus: | |||||||||||||||||||||||
| General and administrative expenses | 15,439 | 12,170 | 31,126 | 24,005 | |||||||||||||||||||
| Pre-opening expenses | 423 | 671 | 979 | 1,960 | |||||||||||||||||||
| Depreciation and amortization | 5,309 | 6,420 | 10,514 | 12,709 | |||||||||||||||||||
| Net income attributable to equity method investment | (275) | (295) | (398) | (359) | |||||||||||||||||||
| Other loss (income), net | 51 | (362) | (105) | (803) | |||||||||||||||||||
| Restaurant-Level Adjusted EBITDA | $ | 38,386 | $ | 43,065 | $ | 66,369 | $ | 72,826 | |||||||||||||||
| Restaurant-Level Adjusted EBITDA Margin | 25.5 | % | 30.6 | % | 23.3 | % | 28.2 | % | |||||||||||||||
10
