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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 

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 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

 

2


 

 

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.

3


 

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.

4


 

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.

 

 

5


 

 

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