SEC Filing | Potbelly Corporation

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pbpb-10q_20210926.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 26, 2021

☐	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 ☒ 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 24, 2021, the registrant had 28,750,836 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 (Unaudited)	3

	Condensed Consolidated Statements of Operations (Unaudited)	4

	Condensed Consolidated Statements of Equity (Unaudited)	5

	Condensed Consolidated Statements of Cash Flows (Unaudited)	7

	Notes to Condensed Consolidated Financial Statements (Unaudited)	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	28

Item 4.	Controls and Procedures	28

PART II.	OTHER INFORMATION	29

Item 1.	Legal Proceedings	29

Item 1A.	Risk Factors	29

Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	29

Item 3.	Defaults Upon Senior Securities	29

Item 4.	Mine Safety Disclosures	29

Item 5.	Other Information	29

Item 6.	Exhibits	30

	Signature	31

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)

	September 26,			December 27,
	2021			2020
Assets
Current assets
Cash and cash equivalents	$	9,836		$	11,126
Accounts receivable, net of allowances of $21 and $47 as of September 26, 2021 and December 27, 2020, respectively		5,732			4,354
Inventories		3,186			2,989
Prepaid expenses and other current assets		4,352			4,839
Total current assets		23,106			23,308
Property and equipment, net		52,578			61,193
Right-of-use assets for operating leases		171,343			189,141
Indefinite-lived intangible assets		3,404			3,404
Goodwill		2,222			2,222
Deferred expenses, net and other assets		4,107			4,089
Total assets	$	256,760		$	283,357
Liabilities and Equity
Current liabilities
Accounts payable	$	5,452		$	6,206
Accrued expenses		29,523			23,742
Short-term operating lease liabilities		30,924			35,325
Current portion of long-term debt		1,833			333
Total current liabilities		67,732			65,606
Long-term debt, net of current portion		13,967			15,953
Long-term operating lease liabilities		170,594			189,146
Other long-term liabilities		4,717			7,157
Total liabilities		257,010			277,862
Commitments and contingencies (Note 11)
Equity
Common stock, $0.01 par value—authorized 200,000 shares; outstanding 28,369 and 24,323 shares as of September 26, 2021 and December 27, 2020, respectively		380			339
Warrants		2,566			—
Additional paid-in-capital		452,113			438,174
Treasury stock, held at cost, 9,774 and 9,612 shares as of September 26, 2021, and December 27, 2020, respectively		(114,511	)		(113,266	)
Accumulated deficit		(340,778	)		(319,477	)
Total stockholders’ equity		(230	)		5,770
Non-controlling interest		(20	)		(275	)
Total equity		(250	)		5,495
Total liabilities and equity	$	256,760		$	283,357

See accompanying notes to the unaudited condensed consolidated financial statements.

Potbelly Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

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

	For the 13 Weeks Ended						For the 39 Weeks Ended
	September 26,			September 27,			September 26,			September 27,
	2021			2020			2021			2020
Revenues
Sandwich shop sales, net	$	100,996		$	72,189		$	275,274		$	215,013
Franchise royalties and fees		698			474			1,974			1,402
Total revenues		101,694			72,663			277,248			216,415

Expenses
Sandwich shop operating expenses
Cost of goods sold, excluding depreciation		28,225			20,721			76,035			61,003
Labor and related expenses		33,087			25,809			93,662			78,090
Occupancy expenses		13,437			13,904			40,598			43,581
Other operating expenses		16,312			12,126			44,343			35,881
Advertising		896			233			1,740			794
General and administrative expenses		7,612			9,588			24,275			27,300
Depreciation expense		3,610			4,699			12,337			15,110
Pre-opening costs		—			—			—			64
Impairment, loss on disposal of property and equipment and shop closures		1,118			1,721			4,497			9,602
Total expenses		104,297			88,801			297,487			271,425
Loss from operations		(2,603	)		(16,138	)		(20,239	)		(55,010	)

Interest expense, net		241			268			713			730
Loss before income taxes		(2,844	)		(16,406	)		(20,952	)		(55,740	)
Income tax expense (benefit)		16			(2,917	)		230			(6,585	)
Net loss		(2,860	)		(13,489	)		(21,182	)		(49,155	)
Net income (loss) attributable to non-controlling interest		88			(77	)		119			(191	)
Net loss attributable to Potbelly Corporation	$	(2,948	)	$	(13,412	)	$	(21,301	)	$	(48,964	)

Net loss per common share attributable to common stockholders:
Basic	$	(0.10	)	$	(0.56	)	$	(0.78	)	$	(2.06	)
Diluted	$	(0.10	)	$	(0.56	)	$	(0.78	)	$	(2.06	)
Weighted average shares outstanding:
Basic		28,264			23,957			27,395			23,792
Diluted		28,264			23,957			27,395			23,792

See accompanying notes to the unaudited condensed consolidated financial statements.

Potbelly Corporation and Subsidiaries

Condensed Consolidated Statements of Equity

(amounts and shares in thousands, unaudited)

For the 13 weeks ended:	Common Stock				Treasury					Additional Paid-In-			Accumulated			Non- Controlling
	Shares		Amount		Stock			Warrants		Capital			Deficit			Interest			Total Equity
Balance at June 28, 2020		23,898		334		(112,757	)		—		436,536			(289,638	)		178		$	34,653
Net income (loss)		—		—		—			—		—			(13,412	)		(77	)		(13,489	)
Stock-based compensation plans		314		4		(509	)		—		(4	)		—			—			(509	)
Distributions to non-controlling interest		—		—		—			—		—			—			(172	)		(172	)
Stock-based compensation expense		—		—		—			—		1,608			—			—			1,608
Balance at September 27, 2020		24,212	$	338	$	(113,266	)	$	—	$	438,140		$	(303,050	)	$	(71	)	$	22,091

Balance at June 27, 2021		28,171		378		(113,951	)		2,566		451,475			(337,830	)		(108	)		2,530
Net income (loss)		—		—		—			—		—			(2,948	)		88			(2,860	)
Stock-based compensation plans		198		2		(560	)		—		(2	)		—			—			(560	)
Stock-based compensation expense		—		—		—			—		640			—			—			640
Balance at September 26, 2021		28,369	$	380	$	(114,511	)	$	2,566	$	452,113		$	(340,778	)	$	(20	)	$	(250	)

See accompanying notes to the unaudited condensed consolidated financial statements.

Potbelly Corporation and Subsidiaries

Condensed Consolidated Statements of Equity

(amounts and shares in thousands, unaudited)

For the 39 weeks ended:	Common Stock				Treasury					Additional Paid-In-			Accumulated			Non- Controlling
	Shares		Amount		Stock			Warrants		Capital			Deficit			Interest			Total Equity
Balance at December 29, 2019		23,638		331		(112,680	)		—		435,278			(254,081	)		321		$	69,169
Cumulative impact of Topic 326, net of tax of $2		—		—		—			—		—			(5	)		—			(5	)
Net income (loss)		—		—		—			—		—			(48,964	)		(191	)		(49,155	)
Stock-based compensation plans		444		6		(586	)		—		(6	)		—			—			(586	)
Repurchases of common stock		130		1		—			—		388			—			—			389
Distributions to non-controlling interest		—		—		—			—		—			—			(344	)		(344	)
Contributions from non-controlling interest		—		—		—			—		—			—			143			143
Stock-based compensation expense		—		—		—			—		2,480			—			—			2,480
Balance at September 27, 2020		24,212	$	338	$	(113,266	)	$	—	$	438,140		$	(303,050	)	$	(71	)	$	22,091

Balance at December 27, 2020		24,323	$	339	$	(113,266	)	$	—	$	438,174		$	(319,477	)	$	(275	)	$	5,495
Net income (loss)		—		—		—			—		—			(21,301	)		119			(21,182	)
Stock-based compensation plans		796		9		(1,245	)		—		(9	)		—			—			(1,245	)
Proceeds from exercise of stock options		—		—		—			—		219			—			—			219
Issuance of common shares and warrants, net of fees		3,250		32		—			2,566		12,241			—			—			14,839
Contributions from non-controlling interest		—		—		—			—		—			—			136			136
Stock-based compensation expense		—		—		—			—		1,488