pbpb-10q_20190929.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 September 29, 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 October 27, 2019, the registrant had 23,607,518 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

 

17

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

25

 

 

 

 

Item 4.

 

Controls and Procedures

 

25

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

26

 

 

 

 

Item 1A.

 

Risk Factors

 

26

 

 

 

 

Item 2.

 

Unregistered Sale of Equity Securities and Use of Proceeds

 

26

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

26

 

 

 

 

Item 4.

  

Mine Safety Disclosures

 

26

 

 

 

 

Item 5.

  

Other Information

 

26

 

 

 

 

Item 6.

 

Exhibits

 

27

 

 

 

 

 

 

Signature

 

28

 

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)

 

 

 

September 29,

 

 

December 30,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

15,758

 

 

$

19,775

 

Accounts receivable, net of allowances of $204 and $113 as of September 29, 2019

and December 30, 2018, respectively

 

 

5,084

 

 

 

4,737

 

Inventories

 

 

3,317

 

 

 

3,482

 

Prepaid expenses and other current assets

 

 

7,934

 

 

 

11,426

 

Total current assets

 

 

32,093

 

 

 

39,420

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

79,626

 

 

 

87,782

 

Right-of-use assets for operating leases

 

 

212,261

 

 

 

 

Indefinite-lived intangible assets

 

 

3,404

 

 

 

3,404

 

Goodwill

 

 

2,222

 

 

 

2,222

 

Deferred income taxes

 

 

 

 

 

13,385

 

Deferred expenses, net and other assets

 

 

3,957

 

 

 

7,002

 

Total assets

 

$

333,563

 

 

$

153,215

 

 

 

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,607

 

 

$

3,835

 

Accrued expenses

 

 

19,421

 

 

 

25,029

 

Short-term operating lease liabilities

 

 

28,998

 

 

 

 

Accrued income taxes

 

 

177

 

 

 

162

 

Total current liabilities

 

 

53,203

 

 

 

29,026

 

 

 

 

 

 

 

 

 

 

Deferred rent and landlord allowances

 

 

 

 

 

22,905

 

Long-term operating lease liabilities

 

 

207,196

 

 

 

 

Other long-term liabilities

 

 

2,988

 

 

 

5,751

 

Total liabilities

 

 

263,387

 

 

 

57,682

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

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

23,607,518 and 24,142,586 shares as of September 29, 2019 and December 30,

2018, respectively

 

 

331

 

 

 

330

 

Additional paid-in-capital

 

 

434,853

 

 

 

432,771

 

Treasury stock, held at cost, 9,453,894 and 8,801,154 shares as of

September 29, 2019, and December 30, 2018, respectively

 

 

(112,624

)

 

 

(108,372

)

Accumulated deficit

 

 

(252,749

)

 

 

(229,558

)

Total stockholders’ equity

 

 

69,811

 

 

 

95,171

 

Non-controlling interest

 

 

365

 

 

 

362

 

Total equity

 

 

70,176

 

 

 

95,533

 

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

$

333,563

 

 

$

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 39 Weeks Ended

 

 

 

September 29,

 

 

September 30,

 

 

September 29,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sandwich shop sales, net

 

$

103,560

 

 

$

106,238

 

 

$

305,619

 

 

$

317,866

 

Franchise royalties and fees

 

 

678

 

 

 

758

 

 

 

2,336

 

 

$

2,394

 

Total revenues

 

 

104,238

 

 

 

106,996

 

 

 

307,955

 

 

 

320,260

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sandwich shop operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold, excluding depreciation

 

 

27,540

 

 

 

28,455

 

 

 

81,782

 

 

 

83,730

 

Labor and related expenses

 

 

32,430

 

 

 

32,376

 

 

 

96,517

 

 

 

96,367

 

Occupancy expenses

 

 

14,850

 

 

 

15,076

 

 

 

44,457

 

 

 

44,787

 

Other operating expenses

 

 

13,274

 

 

 

13,357

 

 

 

37,235

 

 

 

38,650

 

General and administrative expenses

 

 

11,256

 

 

 

10,087

 

 

 

37,808

 

 

 

35,715

 

Depreciation expense

 

 

5,365

 

 

 

5,847

 

 

 

16,486

 

 

 

17,531

 

Pre-opening costs

 

 

16

 

 

 

109

 

 

 

26

 

 

 

245

 

Impairment and loss on disposal of property and equipment

 

 

1,650

 

 

 

4,386

 

 

 

1,978

 

 

 

8,467

 

Total expenses

 

 

106,381

 

 

 

109,693

 

 

 

316,289

 

 

 

325,492

 

Loss from operations

 

 

(2,143

)

 

 

(2,697

)

 

 

(8,334

)

 

 

(5,232

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

28

 

 

 

54

 

 

 

95

 

 

 

109

 

Loss before income taxes

 

 

(2,171

)

 

 

(2,751

)

 

 

(8,429

)

 

 

(5,341

)

Income tax expense (benefit)

 

 

66

 

 

 

(909

)

 

 

13,931

 

 

 

(1,111

)

Net loss

 

 

(2,237

)

 

 

(1,842

)

 

 

(22,360

)

 

 

(4,230

)

Net income attributable to non-controlling interest

 

 

118

 

 

 

119

 

 

 

300

 

 

 

285

 

Net loss attributable to Potbelly Corporation

 

$

(2,355

)

 

$

(1,961

)

 

$

(22,660

)

 

$

(4,515

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share attributable to common

   stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.10

)

 

$

(0.08

)

 

$

(0.95

)

 

$

(0.18

)

Diluted

 

$

(0.10

)

 

$

(0.08

)

 

$

(0.95

)

 

$

(0.18

)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

23,740,005

 

 

 

25,369,281

 

 

 

23,927,046

 

 

 

25,355,174

 

Diluted

 

 

23,740,005

 

 

 

25,369,281

 

 

 

23,927,046

 

 

 

25,355,174

 

 

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 July 1, 2018

 

 

25,651,953

 

 

 

327

 

 

 

(88,827

)

 

 

430,643

 

 

 

(223,234

)

 

 

425

 

 

$

119,334

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,961

)

 

 

119

 

 

 

(1,842

)

Stock-based compensation plans

 

 

150,287

 

 

 

2

 

 

 

 

 

 

1,421

 

 

 

 

 

 

 

 

 

1,423

 

Repurchases of common stock

 

 

(699,901

)

 

 

 

 

 

(8,965

)

 

 

 

 

 

 

 

 

 

 

 

(8,965

)

Distributions to non-controlling

   interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(151

)

 

 

(151

)

Contributions from non-controlling

   interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20

 

 

 

20

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

265

 

 

 

 

 

 

 

 

 

265

 

Balance at September 30, 2018

 

 

25,102,339

 

 

$

329

 

 

$

(97,792

)

 

$

432,329

 

 

$

(225,195

)

 

$

413

 

 

$

110,084

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2019

 

 

23,768,375

 

 

$

331

 

 

$

(111,874

)

 

$

434,407

 

 

$

(250,394

)

 

$

406

 

 

$

72,876

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,355

)

 

 

118

 

 

 

(2,237

)

Stock-based compensation plans

 

 

1,305

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchases of common stock

 

 

(162,162

)

 

 

 

 

 

(750

)

 

 

 

 

 

 

 

 

 

 

 

(750

)

Distributions to non-controlling

   interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(159

)

 

 

(159

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

446

 

 

 

 

 

 

 

 

 

446

 

Balance at September 29, 2019

 

 

23,607,518

 

 

$

331

 

 

$

(112,624

)

 

$

434,853

 

 

$

(252,749

)

 

$

365

 

 

$

70,176

 

 

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 39 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, net

   of tax of $250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(690

)

 

 

 

 

 

(690

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,515

)

 

 

285

 

 

 

(4,230

)

Stock-based compensation plans

 

 

1,075,662

 

 

 

11

 

 

 

 

 

 

8,156

 

 

 

 

 

 

 

 

 

8,167

 

Repurchases of common stock

 

 

(964,240

)

 

 

 

 

 

(12,414

)

 

 

 

 

 

 

 

 

 

 

 

(12,414

)

Distributions to non-controlling

   interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(407

)

 

 

(407

)

Contributions from non-controlling

   interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20

 

 

 

20

 

Treasury shares used for stock-based

   plans

 

 

(8,771

)

 

 

 

 

 

(116

)

 

 

 

 

 

 

 

 

 

 

 

(116

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

2,516

 

 

 

 

 

 

 

 

 

2,516

 

Balance at September 30, 2018

 

 

25,102,339

 

 

$

329

 

 

$

(97,792

)

 

$

432,329

 

 

$

(225,195

)

 

$

413

 

 

$

110,084

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22,660

)

 

 

300

 

 

 

(22,360

)

Stock-based compensation plans

 

 

117,672

 

 

 

1

 

 

 

 

 

 

172

 

 

 

 

 

 

 

 

 

173

 

Repurchases of common stock

 

 

(647,821

)

 

 

 

 

 

(4,217

)

 

 

 

 

 

 

 

 

 

 

 

(4,217

)

Distributions to non-controlling

   interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(336

)

 

 

(336

)

Contributions from non-controlling

   interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39

 

 

 

39

 

Treasury shares used for stock-based

   plans

 

 

(4,919

)

 

 

 

 

 

(35

)

 

 

 

 

 

 

 

 

 

 

 

(35

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

1,910

 

 

 

 

 

 

 

 

 

1,910

 

Balance at September 29, 2019

 

 

23,607,518

 

 

$

331

 

 

$

(112,624

)

 

$

434,853

 

 

$

(252,749

)

 

$

365

 

 

$

70,176

 

 

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 39 Weeks Ended

 

 

 

September 29,

 

 

September 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(22,360

)

 

$

(4,230

)

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

 

 

 

 

 

 

 

 

Depreciation expense

 

 

16,486

 

 

 

17,531

 

Noncash lease expense

 

 

21,246

 

 

 

 

Deferred income tax

 

 

13,804

 

 

 

(98

)

Stock-based compensation expense

 

 

1,910

 

 

 

2,516

 

Asset impairment, store closure and disposal of property and equipment

 

 

2,012

 

 

 

8,666

 

Other operating activities

 

 

33

 

 

 

691

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(347

)

 

 

(516

)

Inventories

 

 

165

 

 

 

65

 

Prepaid expenses and other assets

 

 

3,565

 

 

 

(2,015

)

Accounts payable

 

 

763

 

 

 

(201

)

Operating lease liabilities

 

 

(23,046

)

 

 

 

Accrued expenses and other liabilities

 

 

(4,368

)

 

 

244

 

Net cash provided by operating activities:

 

 

9,863

 

 

 

22,653

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

$

(9,533

)

 

$

(16,722

)

Net cash used in investing activities:

 

 

(9,533

)

 

 

(16,722

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Debt issuance costs

 

$

(40

)

 

$

 

Proceeds from exercise of stock options

 

 

173

 

 

 

8,167

 

Employee taxes on certain stock-based payment arrangements

 

 

(35

)

 

 

(116

)

Treasury stock repurchases

 

 

(4,147

)

 

 

(12,414

)

Distributions to non-controlling interest

 

 

(337

)

 

 

(407

)

Contributions from non-controlling interest

 

 

39

 

 

 

20

 

Net cash used in financing activities:

 

 

(4,347

)

 

 

(4,750

)

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

(4,017

)

 

 

1,181

 

Cash and cash equivalents at beginning of period

 

 

19,775

 

 

 

25,530

 

Cash and cash equivalents at end of period

 

$

15,758

 

 

$