pbpb-10q_20190630.htm

 

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 30, 2019

OR

 

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 850

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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

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

 

Large accelerated filer

 

 

  

Accelerated filer

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

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

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes      No  

As of July 28, 2019, the registrant had 23,768,375 shares of common stock, $0.01 par value per share, outstanding.

 

 

 


Potbelly Corporation and Subsidiaries

Table of Contents

 

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

3

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

 

3

 

 

 

 

 

 

Condensed Consolidated Statements of Operations

 

4

 

 

 

 

 

 

Condensed Consolidated Statements of Equity

 

5

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

 

7

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

8

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

16

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

23

 

 

 

 

Item 4.

 

Controls and Procedures

 

23

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

24

 

 

 

 

Item 1A.

 

Risk Factors

 

24

 

 

 

 

Item 2.

 

Unregistered Sale of Equity Securities and Use of Proceeds

 

24

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

24

 

 

 

 

Item 4.

  

Mine Safety Disclosures

 

24

 

 

 

 

Item 5.

  

Other Information

 

24

 

 

 

 

Item 6.

 

Exhibits

 

25

 

 

 

 

 

 

Signature

 

26

 

2


PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Potbelly Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

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

 

 

 

June 30,

 

 

December 30,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

18,066

 

 

$

19,775

 

Accounts receivable, net of allowances of $131 and $113 as of June 30, 2019

and December 30, 2018, respectively

 

 

4,545

 

 

 

4,737

 

Inventories

 

 

3,357

 

 

 

3,482

 

Prepaid expenses and other current assets

 

 

8,182

 

 

 

11,426

 

Total current assets

 

 

34,150

 

 

 

39,420

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

81,628

 

 

 

87,782

 

Right-of-use assets for operating leases

 

 

216,540

 

 

 

 

Indefinite-lived intangible assets

 

 

3,404

 

 

 

3,404

 

Goodwill

 

 

2,222

 

 

 

2,222

 

Deferred income taxes

 

 

 

 

 

13,385

 

Deferred expenses, net and other assets

 

 

6,898

 

 

 

7,002

 

Total assets

 

$

344,842

 

 

$

153,215

 

 

 

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,222

 

 

$

3,835

 

Accrued expenses

 

 

21,303

 

 

 

25,029

 

Short-term operating lease liabilities

 

 

29,126

 

 

 

 

Accrued income taxes

 

 

162

 

 

 

162

 

Total current liabilities

 

 

54,813

 

 

 

29,026

 

 

 

 

 

 

 

 

 

 

Deferred rent and landlord allowances

 

 

 

 

 

22,905

 

Long-term operating lease liabilities

 

 

210,898

 

 

 

 

Other long-term liabilities

 

 

6,255

 

 

 

5,751

 

Total liabilities

 

 

271,966

 

 

 

57,682

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Common stock, $0.01 par value—authorized 200,000,000 shares; outstanding

23,768,375 and 24,142,586 shares as of June 30, 2019 and December 30,

2018, respectively

 

 

331

 

 

 

330

 

Additional paid-in-capital

 

 

434,407

 

 

 

432,771

 

Treasury stock, held at cost, 9,291,732 and 8,801,154 shares as of

June 30, 2019, and December 30, 2018, respectively

 

 

(111,874

)

 

 

(108,372

)

Accumulated deficit

 

 

(250,394

)

 

 

(229,558

)

Total stockholders’ equity

 

 

72,470

 

 

 

95,171

 

Non-controlling interest

 

 

406

 

 

 

362

 

Total equity

 

 

72,876

 

 

 

95,533

 

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

$

344,842

 

 

$

153,215

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

3


Potbelly Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

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

 

 

 

For the 13 Weeks Ended

 

 

For the 26 Weeks Ended

 

 

 

June 30,

 

 

July 1,

 

 

June 30,

 

 

July 1,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sandwich shop sales, net

 

$

104,801

 

 

$

109,381

 

 

$

202,059

 

 

$

211,628

 

Franchise royalties and fees

 

 

829

 

 

 

966

 

 

 

1,658

 

 

$

1,636

 

Total revenues

 

 

105,630

 

 

 

110,347

 

 

 

203,717

 

 

 

213,264

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sandwich shop operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold, excluding depreciation

 

 

28,264

 

 

 

28,639

 

 

 

54,242

 

 

 

55,275

 

Labor and related expenses

 

 

32,114

 

 

 

32,412

 

 

 

64,087

 

 

 

63,991

 

Occupancy expenses

 

 

15,230

 

 

 

14,985

 

 

 

29,607

 

 

 

29,711

 

Other operating expenses

 

 

11,816

 

 

 

12,793

 

 

 

23,961

 

 

 

25,293

 

General and administrative expenses

 

 

13,843

 

 

 

13,440

 

 

 

26,552

 

 

 

25,628

 

Depreciation expense

 

 

5,585

 

 

 

5,858

 

 

 

11,121

 

 

 

11,684

 

Pre-opening costs

 

 

 

 

 

68

 

 

 

10

 

 

 

136

 

Impairment and loss on disposal of property and equipment

 

 

246

 

 

 

2,057

 

 

 

328

 

 

 

4,081

 

Total expenses

 

 

107,098

 

 

 

110,252

 

 

 

209,908

 

 

 

215,799

 

Income (loss) from operations

 

 

(1,468

)

 

 

95

 

 

 

(6,191

)

 

 

(2,535

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

35

 

 

 

28

 

 

 

67

 

 

 

55

 

Income (loss) before income taxes

 

 

(1,503

)

 

 

67

 

 

 

(6,258

)

 

 

(2,590

)

Income tax expense (benefit)

 

 

246

 

 

 

302

 

 

 

13,865

 

 

 

(202

)

Net loss

 

 

(1,749

)

 

 

(235

)

 

 

(20,123

)

 

 

(2,388

)

Net income attributable to non-controlling interest

 

 

117

 

 

 

125

 

 

 

182

 

 

 

166

 

Net loss attributable to Potbelly Corporation

 

$

(1,866

)

 

$

(360

)

 

$

(20,305

)

 

$

(2,554

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share attributable to common

   stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.08

)

 

$

(0.01

)

 

$

(0.85

)

 

$

(0.10

)

Diluted

 

$

(0.08

)

 

$

(0.01

)

 

$

(0.85

)

 

$

(0.10

)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

23,908,095

 

 

 

25,551,386

 

 

 

24,020,567

 

 

 

25,348,121

 

Diluted

 

 

23,908,095

 

 

 

25,551,386

 

 

 

24,020,567

 

 

 

25,348,121

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

4


Potbelly Corporation and Subsidiaries

Condensed Consolidated Statements of Equity

(amounts in thousands, except share data, unaudited)

 

For the 13 weeks ended:

 

Common Stock

 

 

Treasury

 

 

Additional

Paid-In-

 

 

Accumulated

 

 

Non-

Controlling

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Stock

 

 

Capital

 

 

Deficit

 

 

Interest

 

 

Total Equity

 

Balance at April 1, 2018

 

 

25,286,229

 

 

 

321

 

 

 

(85,441

)

 

 

424,771

 

 

 

(222,874

)

 

 

556

 

 

$

117,333

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(360

)

 

 

125

 

 

 

(235

)

Stock-based compensation plans

 

 

625,063

 

 

 

6

 

 

 

 

 

 

4,483

 

 

 

 

 

 

 

 

 

4,489

 

Repurchases of common stock

 

 

(259,339

)

 

 

 

 

 

(3,386

)

 

 

 

 

 

 

 

 

 

 

 

(3,386

)

Distributions to non-controlling

   interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(256

)

 

 

(256

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

1,389

 

 

 

 

 

 

 

 

 

1,389

 

Balance at July 1, 2018

 

 

25,651,953

 

 

$

327

 

 

$

(88,827

)

 

$

430,643

 

 

$

(223,234

)

 

$

425

 

 

$

119,334

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2019

 

 

24,038,211

 

 

$

330

 

 

$

(109,541

)

 

$

433,400

 

 

$

(248,528

)

 

$

427

 

 

$

76,088

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,866

)

 

 

117

 

 

 

(1,749

)

Stock-based compensation plans

 

 

82,694

 

 

 

1

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

3

 

Repurchases of common stock

 

 

(350,659

)

 

 

 

 

 

(2,323

)

 

 

 

 

 

 

 

 

 

 

 

(2,323

)

Distributions to non-controlling

   interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(177

)

 

 

(177

)

Contributions from non-controlling

   interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39

 

 

 

39

 

Treasury shares used for stock-based

   plans

 

 

(1,871

)

 

 

 

 

 

(10

)

 

 

 

 

 

 

 

 

 

 

 

(10

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

1,005

 

 

 

 

 

 

 

 

 

1,005

 

Balance at June 30, 2019

 

 

23,768,375

 

 

$

331

 

 

$

(111,874

)

 

$

434,407

 

 

$

(250,394

)

 

$

406

 

 

$

72,876

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

5


Potbelly Corporation and Subsidiaries

Condensed Consolidated Statements of Equity

(amounts in thousands, except share data, unaudited)

 

For the 26 weeks ended:

 

Common Stock

 

 

Treasury

 

 

Additional

Paid-In-

 

 

Accumulated

 

 

Non-

Controlling

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Stock

 

 

Capital

 

 

Deficit

 

 

Interest

 

 

Total Equity

 

Balance at December 31, 2017

 

 

24,999,688

 

 

 

318

 

 

 

(85,262

)

 

 

421,657

 

 

 

(219,990

)

 

 

515

 

 

$

117,238

 

Cumulative impact of Topic 606

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(690

)

 

 

 

 

 

(690

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,554

)

 

 

166

 

 

 

(2,388

)

Stock-based compensation plans

 

 

925,375

 

 

 

9

 

 

 

 

 

 

6,735

 

 

 

 

 

 

 

 

 

6,744

 

Repurchases of common stock

 

 

(264,339

)

 

 

 

 

 

(3,449

)

 

 

 

 

 

 

 

 

 

 

 

(3,449

)

Distributions to non-controlling

   interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(256

)

 

 

(256

)

Treasury shares used for stock-based

   plans

 

 

(8,771

)

 

 

 

 

 

(116

)

 

 

 

 

 

 

 

 

 

 

 

(116

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

2,251

 

 

 

 

 

 

 

 

 

2,251

 

Balance at July 1, 2018

 

 

25,651,953

 

 

$

327

 

 

$

(88,827

)

 

$

430,643

 

 

$

(223,234

)

 

$

425

 

 

$

119,334

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 30, 2018

 

 

24,142,586

 

 

$

330

 

 

$

(108,372

)

 

$

432,771

 

 

$

(229,558

)

 

$

362

 

 

$

95,533

 

Cumulative impact of Topic 842, net

   of tax of $196

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(531

)

 

 

 

 

$

(531

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,305

)

 

 

182

 

 

 

(20,123

)

Stock-based compensation plans

 

 

116,367

 

 

 

1

 

 

 

 

 

 

172

 

 

 

 

 

 

 

 

 

173

 

Repurchases of common stock

 

 

(485,659

)

 

 

 

 

 

(3,467

)

 

 

 

 

 

 

 

 

 

 

 

(3,467

)

Distributions to non-controlling

   interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(177

)

 

 

(177

)

Contributions from non-controlling

   interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39

 

 

 

39

 

Treasury shares used for stock-based

   plans

 

 

(4,919

)

 

 

 

 

 

(35

)

 

 

 

 

 

 

 

 

 

 

 

(35

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

1,464

 

 

 

 

 

 

 

 

 

1,464

 

Balance at June 30, 2019

 

 

23,768,375

 

 

$

331

 

 

$

(111,874

)

 

$

434,407

 

 

$

(250,394

)

 

$

406

 

 

$

72,876

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

6


Potbelly Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(amounts in thousands, unaudited)

 

 

 

For the 26 Weeks Ended

 

 

 

June 30,

 

 

July 1,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(20,123

)

 

$

(2,388

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation expense

 

 

11,121

 

 

 

11,684

 

Noncash lease expense

 

 

13,826

 

 

 

 

Deferred income tax

 

 

13,790

 

 

 

(150

)

Stock-based compensation expense

 

 

1,464

 

 

 

2,251

 

Asset impairment, store closure and disposal of property and equipment

 

 

433

 

 

 

4,221

 

Other operating activities

 

 

18

 

 

 

311

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

192

 

 

 

(822

)

Inventories

 

 

125

 

 

 

263

 

Prepaid expenses and other assets

 

 

3,322

 

 

 

(924

)

Accounts payable

 

 

303

 

 

 

676

 

Operating lease liabilities

 

 

(15,281

)

 

 

 

Accrued expenses and other liabilities

 

 

(2,202

)

 

 

2,745

 

Net cash provided by operating activities:

 

 

6,988

 

 

 

17,867

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

$

(5,230

)

 

$

(11,614

)

Net cash used in investing activities:

 

 

(5,230

)

 

 

(11,614

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

$

173

 

 

$

6,744

 

Employee taxes on certain stock-based payment arrangements

 

 

(35

)

 

 

(512

)

Treasury stock repurchases

 

 

(3,467

)

 

 

(3,449

)

Distributions to non-controlling interest

 

 

(177

)

 

 

(256

)

Contributions from non-controlling interest

 

 

39

 

 

 

 

Net cash (used in) provided by financing activities:

 

 

(3,467

)

 

 

2,527

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

(1,709

)

 

 

8,780

 

Cash and cash equivalents at beginning of period

 

 

19,775

 

 

 

25,530