rrgb-20221002

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 2, 2022


☐						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: 001-34851

RED ROBIN GOURMET BURGERS, INC.

(Exact name of registrant as specified in its charter)


Delaware						84-1573084
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

10000 E. Geddes Avenue, Suite 500
Englewood, Colorado 80112

(Address of principal executive offices) (Zip Code)

(303) 846-6000

(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 ☒

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

RRGB

Nasdaq

(Global Select Market)

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

As of October 31, 2022, there were 15,928,045 shares of the registrant's common stock, par value of $0.001 per share outstanding.

Table of Contents

RED ROBIN GOURMET BURGERS, INC.

TABLE OF CONTENTS


		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss	2
	Condensed Consolidated Statements of Stockholders' Equity	3
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 6.	Exhibits	29
	Signature	30

Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements (unaudited)

RED ROBIN GOURMET BURGERS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(in thousands, except for per share amounts)	October 2, 2022		December 26, 2021
Assets:
Current assets:
Cash and cash equivalents	$	50,040	$	22,750
Accounts receivable, net	11,915		21,400
Inventories	25,212		25,219
Income tax receivable	754		15,824
Prepaid expenses and other current assets	13,044		16,963
Restricted cash	8,090		—
Total current assets	109,055		102,156
Property and equipment, net	342,386		386,336
Operating lease assets, net	375,747		400,825

Intangible assets, net	19,320		21,292
Other assets, net	14,434		18,389
Total assets	$	860,942	$	928,998
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable	$	33,814	$	32,510
Accrued payroll and payroll-related liabilities	34,040		32,584
Unearned revenue	37,539		54,214
Current portion of operating lease obligations	47,726		48,842
Current portion of long-term debt	2,000		9,692
Accrued liabilities and other	50,482		45,458
Total current liabilities	205,601		223,300
Long-term debt	189,320		167,263
Long-term portion of operating lease obligations	401,274		435,136
Other non-current liabilities	13,120		26,325
Total liabilities	809,315		852,024
Commitments and contingencies (see Note 8. Commitments and Contingencies)
Stockholders' equity:
Common stock; $0.001 par value: 45,000 shares authorized; 20,449 shares issued; 15,900 and 15,722 shares outstanding as of October 2, 2022 and December 26, 2021	20		20
Preferred stock, $0.001 par value: 3,000 shares authorized; no shares issued and outstanding as of October 2, 2022 and December 26, 2021	—		—
Treasury stock 4,549 and 4,727 shares, at cost, as of October 2, 2022 and December 26, 2021	(184,169)		(192,803)
Paid-in capital	242,235		242,560
Accumulated other comprehensive income (loss), net of tax	(51)		1
Retained earnings (deficit)	(6,408)		27,196
Total stockholders' equity	51,627		76,974
Total liabilities and stockholders' equity	$	860,942	$	928,998

See Notes to Condensed Consolidated Financial Statements

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RED ROBIN GOURMET BURGERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)


	Twelve Weeks Ended				Forty Weeks Ended
(in thousands, except for per share amounts)	October 2, 2022		October 3, 2021		October 2, 2022		October 3, 2021
Revenues:
Restaurant revenue	$	282,449	$	270,202	$	951,718	$	861,036
Franchise and other revenues	4,439		5,242		24,810		17,658

Total revenues	286,888		275,444		976,528		878,694
Costs and expenses:
Restaurant operating costs (excluding depreciation and amortization shown separately below):
Cost of sales	70,640		62,671		234,283		193,754
Labor	100,522		99,725		340,273		310,333
Other operating	52,858		51,462		172,725		156,102
Occupancy	22,828		22,519		76,406		74,233
Depreciation and amortization	17,368		18,881		58,924		63,984
Selling, general, and administrative expenses	35,692		30,343		102,168		89,299
Pre-opening costs	217		418		514		792
Other charges (gains), net	(5,217)		1,561		8,236		9,228
Total costs and expenses	294,908		287,580		993,529		897,725

Loss from operations	(8,020)		(12,136)		(17,001)		(19,031)
Other expense:
Interest expense, net and other	4,590		2,870		16,151		9,986
Loss on debt refinancing
Interest income and other, net
Total other expenses	4,590		2,870		16,151
Loss before income taxes	(12,610)		(15,006)		(33,152)		(29,017)
Income tax provision (benefit)	(43)		(26)		453		(328)
Net loss	$	(12,567)	$	(14,980)	$	(33,605)	$	(28,689)
Loss per share:
Basic	$	(0.79)	$	(0.95)	$	(2.12)	$	(1.83)
Diluted	$	(0.79)	$	(0.95)	$	(2.12)	$	(1.83)
Weighted average shares outstanding:
Basic	15,892		15,709		15,816		15,647
Diluted	15,892		15,709		15,816		15,647

Other comprehensive income (loss):
Foreign currency translation adjustment	$	(45)	$	(6)	$	(51)	$	14
Other comprehensive income (loss), net of tax	(45)		(6)		(51)		14
Total comprehensive loss	$	(12,612)	$	(14,986)	$	(33,656)	$	(28,675)

See Notes to Condensed Consolidated Financial Statements.

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RED ROBIN GOURMET BURGERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)


	Common Stock			Treasury Stock					Accumulated Other Comprehensive Income/(Loss), net of tax
							Paid-in Capital				Retained Earnings (Deficit)
(in thousands)	Shares	Amount		Shares	Amount								Total
Balance, December 26, 2021	20,449	$	20	4,727	$	(192,803)	$	242,560	$	1	$	27,196	$	76,974
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan	—	—		(64)	2,781		(2,846)		—		—		(65)


Non-cash stock compensation	—	—		—	—		3,042		—		—		3,042
Net loss	—	—		—	—		—		—		(3,105)		(3,105)
Other comprehensive income (loss), net of tax	—	—		—	—		—		11		—		11

Balance, April 17, 2022	20,449	$	20	4,663	$	(190,022)	$	242,756	$	12	$	24,091	$	76,857

Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan	—	—		(113)	5,817		(5,691)		—		—		126


Non-cash stock compensation	—	—		—	—		2,542		—		—		2,542
Net loss	—	—		—	—		—		—		(17,932)		(17,932)
Other comprehensive income (loss), net of tax	—	—		—	—		—		(18)		—		(18)
Balance, July 10, 2022	20,449	$	20	4,550	$	(184,205)	$	239,607	$	(6)	$	6,159	$	61,575

Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan	—	—		(1)	36		(40)		—		—		(4)


Non-cash stock compensation	—	—		—	—		2,668		—		—		2,668
Net loss	—	—		—	—		—		—		(12,567)		(12,567)
Other comprehensive income (loss), net of tax	—	—		—	—		—		(45)		—		(45)
Balance, October 2, 2022	20,449	$	20	4,549	$	(184,169)	$	242,235	$	(51)	$	(6,408)	$	51,627

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	Common Stock			Treasury Stock					Accumulated Other Comprehensive Income/(Loss), net of tax
							Paid-in Capital				Retained Earnings
(in thousands)	Shares	Amount		Shares	Amount								Total
Balance, December 27, 2020	20,449	$	20	4,901	$	(199,908)	$	243,407	$	(4)	$	77,198	$	120,713
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan	—	—		(74)	3,025		(3,640)		—		—		(615)


Non-cash stock compensation	—	—		—	—		880		—		—		880
Net loss	—	—		—	—		—		—		(8,713)		(8,713)
Other comprehensive income (loss), net of tax	—	—		—	—		—		21		—		21

Balance, April 18, 2021	20,449	$	20	4,827	$	(196,883)	$	240,647	$	17	$	68,485	$	112,286
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan	—	—		(95)	3,844		(3,547)		—		—		297


Non-cash stock compensation	—	—		—	—		1,577		—		—		1,577
Net loss	—	—		—	—		—		—		(4,996)		(4,996)
Other comprehensive income (loss), net of tax	—	—		—	—		—		(1)		—		(1)

Balance, July 11, 2021	20,449	$	20	4,732	$	(193,039)	$	238,677	$	16	$	63,489	$	109,163
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan	—	—		(5)	220		(280)		—		—		(60)


Non-cash stock compensation	—	—		—	—		2,048		—		—		2,048
Net loss	—	—		—	—		—		—		(14,980)		(14,980)
Other comprehensive income (loss), net of tax	—	—		—	—		—		(6)		—		(6)
Balance, October 3, 2021	20,449	$	20	4,727	$	(192,819)	$	240,445	$	10	$	48,509	$	96,165

See Notes to Condensed Consolidated Financial Statements.

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RED ROBIN GOURMET BURGERS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Forty Weeks Ended
(in thousands)	October 2, 2022		October 3, 2021
Cash flows from operating activities:
Net loss	$	(33,605)	$	(28,689)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	58,924		63,984
Gift card breakage	(8,289)		(3,231)
Restaurant asset impairment	13,048		1,357
Non-cash other charges, net	(2,287)		319

Stock-based compensation expense	8,229		4,501
(Gain) loss on sale of property, plant, and equipment	(9,204)		—
Other, net	3,240		2,228
Changes in operating assets and liabilities:
Accounts receivable	9,487		4,544
Income tax receivable	15,163		520
Inventories	(217)		—
Prepaid expenses and other current assets	2,183		1,014
Operating lease assets, net of liabilities	(10,562)		(12,711)
Trade accounts payable and accrued liabilities	9,621		16,948
Unearned revenue	(8,386)		(4,286)
Other operating assets and liabilities, net	(8,545)		(8,881)
Net cash provided by operating activities	38,800		37,617
Cash flows from investing activities:
Purchases of property, equipment, and intangible assets	(27,036)		(19,987)
Proceeds from sales of property and equipment and other investing activities	8,739		20
Net cash used in investing activities	(18,297)		(19,967)
Cash flows from financing activities:
Borrowings of long-term debt	282,151		109,500
Payments of long-term debt and finance leases	(266,275)		(125,216)

Debt issuance costs	(4,869)		(870)
Proceeds related to real estate sale	3,856		—
Proceeds from other financing activities, net	58		549
Net cash provided by (used in) financing activities	14,921		(16,037)
Effect of exchange rate changes on cash	(44)		28
Net change in cash and cash equivalents, and restricted cash	35,380		1,641
Cash and cash equivalents, beginning of period	22,750		16,116
Cash and cash equivalents, and restricted cash, end of period	$	58,130	$	17,757

Supplemental disclosure of cash flow information
Income tax refunds received, net	$	(14,729)	$	(840)
Interest paid, net of amounts capitalized	$	11,387	$	7,586

See Notes to Condensed Consolidated Financial Statements.

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RED ROBIN GOURMET BURGERS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation and Recent Accounting Pronouncements

Red Robin Gourmet Burgers, Inc., a Delaware corporation, together with its subsidiaries ("Red Robin" or the "Company"), primarily operates, franchises, and develops full-service restaurants in North America. As of October 2, 2022, the Company owned and operated 424 restaurants located in 38 states. The Company also had 101 franchised full-service restaurants in 16 states and one Canadian province. The Company operates its business as one operating and one reportable segment.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Red Robin and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company's financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for any interim period are not necessarily indicative of results for the full year.

The accompanying Condensed Consolidated Financial Statements of Red Robin have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"), including the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in the Company's annual consolidated financial statements on Form 10-K have been condensed or omitted. The Condensed Consolidated Balance Sheet as of December 26, 2021 has been derived from the audited consolidated financial statements as of that date, but does not include all disclosures required for audited annual financial statements. For further information, please refer to and read these interim Condensed Consolidated Financial Statements in conjunction with the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 26, 2021 filed with the SEC on March 10, 2022.

Our current, prior, and upcoming year periods, period end dates, and number of weeks included in the period are summarized in the table below:

Periods

Period End Date

Number of Weeks in Period

Current and Prior Fiscal Quarters:

First Quarter 2022

April 17, 2022

First Quarter 2021

April 18, 2021

Second Quarter 2022

July 10, 2022

Second Quarter 2021

July 11, 2021

Third Quarter 2022

October 2, 2022

Third Quarter 2021

October 3, 2021

Current and Prior Fiscal Years:

Fiscal Year 2022

December 25, 2022

Fiscal Year 2021

December 26, 2021

Upcoming fiscal year:

Fiscal Year 2023

December 31, 2023

Reclassifications

Certain amounts presented have been reclassified within the October 3, 2021 Condensed Consolidated Statement of Cash Flows to conform with the current period presentation, including prior year reclassifications from Lease assets, net of liabilities to Other operating assets and liabilities. The reclassifications had no effect on the Company’s cash flows from operations.

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Change in Accounting Estimate - Gift Card Breakage

As part of its annual assessment of gift card breakage and during the forty weeks ended October 2, 2022, the Company re-evaluated the estimated redemption pattern related to gift cards and aligned the recognition of gift card breakage to the updated estimated redemption pattern. As a result, the Company recognized $5.9 million of additional gift card breakage in Franchise and other revenues, partially offset by $0.6 million of associated commissions costs recognized in Selling, general and administrative expenses, in the first quarter of 2022. This change in accounting estimate decreased net loss by $5.2 million, or $0.33 per basic and diluted share for the forty weeks ended October 2, 2022. The Company does not expect the impact of this change in estimate to be material to its future financial statements.

Recent Tax Legislation

The CHIPS and Science Act of 2022 (CHIPS) and the Inflation Reduction Act (IRA) of 2022 were signed into law by President Biden on August 9, 2022 and August 16, 2022, respectively. The legislation introduces new options for monetizing certain credits, a corporate alternative minimum tax, and a stock repurchase excise tax. The Company is currently evaluating the impact of CHIPS and IRA, but at present does not expect that any of the provisions included in these acts would result in a material impact to our deferred tax assets, liabilities, or income taxes payable.

2. Revenue

Disaggregation of revenue

In the following table, revenue is disaggregated by type of good or service (in thousands):


	Twelve Weeks Ended				Forty Weeks Ended
	October 2, 2022		October 3, 2021		October 2, 2022		October 3, 2021
Restaurant revenue	$	282,449	$	270,202	$	951,718	$	861,036
Franchise revenue	4,249		4,303		14,891		13,123
Gift card breakage(1)	190		438		8,290		3,231
Other revenue	—		501		1,629		1,304
Total revenues	$	286,888	$	275,444	$	976,528	$	878,694

(1) During the forty weeks ended October 2, 2022, the Company re-evaluated the estimated redemption pattern related to gift cards and aligned the recognition of gift card breakage revenue to the updated estimated redemption pattern. See Note 1. Basis of Presentation and Recent Accounting Pronouncements.

Contract liabilities

Components of Unearned revenue in the accompanying Condensed Consolidated Balance Sheets are as follows (in thousands):


	October 2, 2022		December 26, 2021
Unearned gift card revenue	$	23,971	$	41,128
Deferred loyalty revenue	$	13,568	$	13,086

Revenue recognized in the Condensed Consolidated Statements of Operations and Comprehensive Loss for the redemption and breakage of gift cards that were included in the liability balance at the beginning of the fiscal year was as follows (in thousands):


	Forty Weeks Ended
	October 2, 2022		October 3, 2021
Gift card revenue	$	19,788	$	14,448

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3. Leases

The Company's finance and operating lease assets and liabilities as of October 2, 2022 and December 26, 2021 were as follows (in thousands):


October 2, 2022	Finance(1)		Operating(2)
Lease assets, net(3)	$	7,233	$	375,747

Current portion of lease obligations	1,015		47,726
Long-term portion of lease obligations	8,630		401,274
Total	$	9,645	$	449,000

December 26, 2021	Finance(1)		Operating(2)
Lease assets, net(3)	$	9,664	$	400,825

Current portion of lease obligations	1,194		48,842
Long-term portion of lease obligations	10,765		435,136
Total	$	11,959	$	483,978

(1) Finance lease assets and obligations are included in Other assets, net, Accrued liabilities and other current liabilities, and Other non-current liabilities on our October 2, 2022 and December 26, 2021 Condensed Consolidated Balance Sheets.

(2) Operating lease assets and obligations are included in Operating lease assets, net, Current portion of operating lease liabilities, and Long-term portion of operating lease liabilities on our October 2, 2022 and December 26, 2021 Condensed Consolidated Balance Sheets.

(3) The Lease assets, net caption includes the right of use assets associated with the Company's Finance and Operating leases, net of the associated amortization of these right of use assets.

The components of lease expense, including variable lease costs primarily consisting of common area maintenance charges and real estate taxes, are included in Occupancy on our Condensed Consolidated Statement of Operations and Comprehensive Loss as follows (in thousands):


	Twelve Weeks Ended				Forty Weeks Ended
	October 2, 2022		October 3, 2021		October 2, 2022		October 3, 2021
Operating lease cost	$	15,793	$	16,061	$	53,904	$	53,765
Finance lease cost:
Amortization of right of use assets	261		197		841		657
Interest on lease liabilities	111		131		408		407
Total finance lease cost	$	372	$	328	$	1,249	$	1,064
Variable lease cost	4,130		4,496		15,136		15,271
Total	$	20,295	$	20,885	$	70,289	$	70,100

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Maturities of our lease liabilities as of October 2, 2022 were as follows (in thousands):


	Finance Leases		Operating Leases
Remainder of 2022	$	260	$	13,829
2023	1,386		76,978
2024	1,479		76,047
2025	1,189		71,921
2026	1,245		66,078
Thereafter	6,454		323,647
Total future lease payments	$	12,013	$	628,500
Less imputed interest	2,368		179,500
Total lease liability	$	9,645	$	449,000

Supplemental cash flow and other information related to leases is as follows (in thousands, except other information):


	Forty Weeks Ended
	October 2, 2022			October 3, 2021
Cash flows from operating activities
Cash paid related to lease liabilities
Operating leases	$	65,943		$	68,036
Finance leases	408			406
Cash flows from financing activities
Cash paid related to lease liabilities
Finance leases	1,048			1,447
Cash paid for amounts included in the measurement of lease liabilities:	$	67,399		$	69,889

Right of use assets obtained in exchange for operating lease obligations	$	11,604		$	27,483
Right of use assets obtained in exchange for finance lease obligations	$	541		$	988

Other information related to operating leases as follows:
Weighted average remaining lease term (years)	9.21			9.86
Weighted average discount rate	7.24		%	7.01		%

Other information related to finance leases as follows:
Weighted average remaining lease term (years)	10.49			11.04
Weighted average discount rate	4.89		%	4.56		%

4. Loss Per Share

Basic loss per share amounts are calculated by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted loss per share amounts are calculated based upon the weighted-average number of shares of common stock and potentially dilutive shares of common stock outstanding during the period. Potentially dilutive shares are excluded from the computation in periods in which they have an anti-dilutive effect. Diluted loss per share reflects the potential dilution that could occur if holders of options exercised their options into common stock. As the Company was in a net loss position for each of the twelve and forty weeks ended October 2, 2022 and October 3, 2021, all potentially dilutive common shares are considered anti-dilutive.

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The Company uses the treasury stock method to calculate the effect of outstanding stock options and awards. Basic weighted average shares outstanding is reconciled to diluted weighted average shares outstanding as follows (in thousands):


	Twelve Weeks Ended		Forty Weeks Ended
	October 2, 2022	October 3, 2021	October 2, 2022	October 3, 2021
Basic weighted average shares outstanding	15,892	15,709	15,816	15,647
Dilutive effect of stock options and awards	—	—	—	—
Diluted weighted average shares outstanding	15,892	15,709	15,816	15,647

Awards excluded due to anti-dilutive effect on diluted loss per share	869	545	1,010	390

5. Other Charges (Gains), net

Other charges (gains), net consisted of the following (in thousands):


	Twelve Weeks Ended				Forty Weeks Ended
	October 2, 2022		October 3, 2021		October 2, 2022		October 3, 2021
Asset impairment	$	2,187	$	—	$	13,048	$	1,357
Gain on sale of restaurant property	(9,204)		—		(9,204)		—
Executive transition	1,825		—		1,954		—
Other financing costs	1,022		—		1,392		—
COVID-19 related charges	123		299		423		1,112
Restaurant closure costs (gains)	(1,570)		1,102		309		5,301
Closed corporate office, net of sublease income	267		—		267		—
Litigation contingencies	133		160		47		1,330



Board and stockholder matter costs	—		—		—		128
Other charges (gains), net	$	(5,217)	$	1,561	$	8,236	$	9,228

The Company recognized non-cash impairment charges primarily related to restaurant assets at one and ten Company-owned restaurants during the twelve and forty weeks ended October 2, 2022, respectively, and one Company-owned restaurant for the forty weeks ended October 3, 2021.

During the second quarter of 2022 the Company closed on an agreement to sell a restaurant property that the Company owned and leased back on a short-term basis. The Company collected initial net proceeds from the purchaser-lessor of $3.9 million, which represented a portion of the total consideration received from the sale. The Company did not recognize a sale in the second quarter of 2022 as certain criteria to recognize a sale in accordance with ASC Topic 842, Leases, and ASC Topic 606, Revenue from Contracts with Customers, were not met. During third quarter of 2022, the Company received the remaining proceeds, upon which the lease terminated and the sale transaction was completed, and recognized a $9.2 million gain on the sale of the restaurant property . The initial net proceeds of $3.9 million are included within cash flows from financing activities and the final proceeds received of $8.5 million are included within cash flows from investing activities on the Condensed Consolidated Statements of Cash Flows for the forty weeks ended October 2, 2022.

Executive transition costs include costs associated with transitioning to a new Chief Executive Officer.

Other financing costs include fees related to the entry by the Company into the new Credit Agreement (as defined below) on March 4, 2022 that were not capitalized with the closing of the Credit Facility. See Note 6. Borrowings.

COVID-19 related costs include the costs of purchasing personal protective equipment for restaurant Team Members and Guests and emergency sick pay provided to restaurant Team Members related to the COVID-19 pandemic.

Restaurant closure costs (gains) include the ongoing restaurant operating costs of the Company-owned restaurants incurred for permanently closed restaurants and closed restaurant lease termination gains or losses.

Closed corporate office, net of sublease income includes expense and sublease income related to a corporate office facility that was vacated and subleased.

Litigation contingencies during the twelve and forty weeks ended October 2, 2022 include the impact of cash proceeds received by the Company related to certain legal claims. Litigation contingencies during the twelve and forty weeks ended October 2, 2022 and October 3, 2021 include legal settlement costs accrued related to pending or threatened litigation.

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Board and stockholder matters costs were primarily related to the recruitment and appointment of a new board member in the first quarter of 2021.

6. Borrowings

Borrowings as of October 2, 2022 and December 26, 2021 are summarized below (in thousands):


	October 2, 2022		Weighted Average Interest Rate		December 26, 2021		Weighted Average Interest Rate
Revolving line of credit	$	—			$	57,000
Term loan	199,000		8.70	%	119,080		7.10	%
Notes payable, non-current	875				875
Total borrowings	199,875				176,955
Less: unamortized debt issuance costs and discounts(1)	8,555				—
Less: current portion of long-term debt	2,000				9,692
Long-term debt	$	189,320			$	167,263

Revolving line of credit unamortized deferred financing charges(1):	$	1,042			$	2,015

(1) Loan origination costs associated with the Company's credit facility are included as deferred costs in Other assets, net for financing charges allocated to the Revolving line of credit, and Long-term debt for financing charges associated with the term loan in the accompanying Condensed Consolidated Balance Sheets.

Credit Agreement

On March 4, 2022, the Company replaced its prior amended and restated credit agreement (the "Prior Credit Agreement") with a new Credit Agreement (the "Credit Agreement") by and among the Company, Red Robin International, Inc., as the borrower, the lenders from time to time party thereto, the issuing banks from time to time party thereto, Fortress Credit Corp., as Administrative Agent and as Collateral Agent and JPMorgan Chase Bank, N.A., as Sole Lead Arranger and Sole Bookrunner. The five-year $225.0 million Credit Agreement provides for a $25.0 million revolving line of credit and a $200.0 million term loan (collectively, the "Credit Facility"). The borrower maintains the option to increase the Credit Agreement in the future, subject to lenders’ participation, by up to an additional $40.0 million in the aggregate on the terms and conditions set forth in the Credit Agreement.

The Credit Facility will mature on March 4, 2027. No amortization is required with respect to the revolving Credit Facility. The term loans require quarterly principal payments in an aggregate annual amount equal to 1.0% of the original principal amount of the term loan. The Credit Agreement's interest rate references the Secured Overnight Financing Rate ("SOFR"), a new index calculated by short-term repurchase agreements and backed by U.S. Treasury securities, or the Alternate Base Rate ("ABR"), which represents the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.5% per annum, or (c) one-month term SOFR plus 1.0% per annum. The variable interest rate on the term loan was 10.31% as of October 2, 2022.

Red Robin International, Inc. is the borrower under the Credit Agreement, and certain of its subsidiaries and the Company are guarantors of borrower’s obligations under the Credit Agreement. Borrowings under the Credit Agreement are secured by substantially all of the assets of the borrower and the guarantors, including the Company, and are available to: (i) refinance certain existing indebtedness of the borrower and its subsidiaries, (ii) pay any fees and expenses in connection with the Credit Agreement, and (iii) provide for the working capital and general corporate requirements of the Company, the borrower and its subsidiaries, including permitted acquisitions and capital expenditures, but excluding restricted payments.

On March 4, 2022, Red Robin International, Inc., the Company, and the guarantors also entered into a Pledge and Security Agreement (the “Security Agreement”) granting to the Administrative Agent a first priority security interest in substantially all of the assets of the borrower and the guarantors to secure the obligations under the Credit Agreement. This new Security Agreement replaced the existing security agreement, dated January 10, 2020, which was entered into in connection with the Prior Credit Agreement.

Red Robin International, Inc. as the borrower is obligated to pay customary fees to the agents, lenders and issuing banks under the Credit Agreement with respect to providing, maintaining, or administering, as applicable, the credit facilities.

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In connection with entry into the new Credit Agreement, the Company’s Prior Credit Agreement was terminated. In connection with such termination and new borrowings under the new Credit Agreement, the Company paid off all outstanding borrowings, accrued interest, and fees under the Prior Credit Agreement.

The summary descriptions of the Credit Agreement and the Security Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the Credit Agreement and the Security Agreement, respectively, which were filed as exhibits to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2022.

During the first quarter of 2022, the Company expensed approximately $1.7 million of deferred financing charges related to the extinguishment of the Prior Credit Agreement on March 4, 2022. These charges were recorded to interest expense, net and other on the Condensed Consolidated Statements of Operations and Comprehensive Loss for the forty weeks ended October 2, 2022. In association with the execution of the new Credit Agreement, the Company recognized $4.8 million of deferred financing charges, and $6.1 million of original issuance discount.

7. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The carrying amounts of the Company's cash and cash equivalents, accounts receivable, accounts payable, and current accrued expenses and other liabilities approximate fair value due to the short term nature or maturity of the instruments.

The Company maintains a rabbi trust to fund obligations under a deferred compensation plan. Amounts in the rabbi trust are invested in mutual funds, which are designated as trading securities and carried at fair value and are included in Other assets, net in the accompanying consolidated balance sheets. Fair market value of mutual funds is measured using level 1 inputs (quoted prices for identical assets in active markets).

The following tables present the Company's assets measured at fair value on a recurring basis included in Other assets, net on the accompanying Condensed Consolidated Balance Sheets as of October 2, 2022 and December 26, 2021 (in thousands):


	October 2, 2022		Level 1		Level 2		Level 3
Assets:
Investments in rabbi trust	$	4,020	$	4,020	$	—	$	—
Total assets measured at fair value	$	4,020	$	4,020	$	—	$	—

	December 26, 2021		Level 1		Level 2		Level 3
Assets:
Investments in rabbi trust	$	6,276	$	6,276	$	—	$	—
Total assets measured at fair value	$	6,276	$	6,276	$	—	$	—

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets and liabilities recognized or disclosed at fair value on the Condensed Consolidated Financial Statements on a nonrecurring basis include items such as property, plant and equipment, right of use assets, and other intangible assets. These assets are measured at fair value if determined to be impaired.

The Company has measured non-financial assets for impairment using continuing and projected future cash flows, which were based on significant inputs not observable in the market and thus represented a level 3 fair value measurement. See Note 5. Other Charges (Gains), net.

We impaired long-lived restaurant assets with a carrying value (including right of use lease assets) of $5.8 million and $27.3 million, recognizing an impairment expense of $2.2 million and $13.0 million during the twelve and forty weeks ended October 2, 2022, respectively, related to the net book value of these long-lived restaurant assets. We determined the fair value of these long-lived assets to be $3.6 million and $14.3 million in the twelve and forty weeks ended October 2, 2022, respectively. The impairment was recorded as a result of quantitative impairment analyses.

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Disclosures of Fair Value of Other Assets and Liabilities

The Company's liability under its credit facility is carried at historical cost in the accompanying Condensed Consolidated Balance Sheets. As of October 2, 2022, the fair value of the credit facility was approximately $194.8 million and the principal amount carrying value was $199.0 million. The credit facility term loan is reported net of $8.6 million in unamortized discount and debt issuance costs in the Condensed Consolidated Balance Sheet as of October 2, 2022. The carrying value approximated the fair value of the credit facility as of December 26, 2021, as the interest rate on the instrument approximated current market rates. The interest rate on the credit facility represents a level 2 fair value input.

8. Commitments and Contingencies

Because litigation is inherently unpredictable, assessing contingencies related to litigation is a complex process involving highly subjective judgment about potential outcomes of future events. When evaluating litigation contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the availability of appellate remedies, insurance coverage related to the claim or claims in question, the presence of complex or novel legal theories, and the ongoing discovery and development of information important to the matter. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated, or unrelated to possible outcomes, and as such are not meaningful indicators of our potential liability or financial exposure. Accordingly, we review the adequacy of accruals and disclosures each quarter in consultation with legal counsel, and we assess the probability and range of possible losses associated with contingencies for potential accrual in the condensed consolidated financial statements. However, the ultimate resolution of litigated claims may differ from our current estimates.

In the normal course of business, there are various claims in process, matters in litigation, and other contingencies. These include employment related claims and claims from Guests or Team Members alleging illness, injury, food quality, health, or operational concerns. To date, none of these claims, certain of which are covered by insurance policies, have had a material effect on the Company. While it is not possible to predict the outcome of these suits, legal proceedings, and claims with certainty, management is of the opinion that adequate provision for potential losses associated with these matters has been made in the financial statements and that the ultimate resolution of these matters will not have a material adverse effect on our financial position and results of operations. However, a significant increase in the number of these claims, or one or more successful claims resulting in greater liabilities than we currently anticipate, could materially and adversely affect our business, financial condition, results of operations, and cash flows.

As of October 2, 2022, we had a balance of $4.5 million for loss contingencies included within Accrued liabilities and other on our Condensed Consolidated Balance Sheet. We ultimately may be subject to greater or less than the accrued amount.

As of October 2, 2022, we had non-cancellable purchase commitments to certain vendors who provide food and beverages and other supplies to our restaurants, for an aggregate of $128.4 million. We expect to fulfill our commitments under these agreements in the normal course of business, and as such, no liability has been recorded.

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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations provides a narrative of our financial performance and condition that should be read in conjunction with the accompanying Condensed Consolidated Financial Statements. All comparisons under this heading between 2022 and 2021 refer to the twelve and forty weeks ended October 2, 2022 and October 3, 2021, unless otherwise indicated.

Overview

Description of Business

Red Robin Gourmet Burgers, Inc., a Delaware corporation, together with its subsidiaries ("Red Robin," "we," "us," "our," or the "Company"), primarily operates, franchises, and develops full-service restaurants with 525 locations in North America. As of October 2, 2022, the Company owned 424 restaurants located in 38 states. The Company also had 101 franchised full-service restaurants in 16 states and one Canadian province. The Company operates its business as one operating and one reportable segment.

Financial and Operational Highlights

The following summarizes the operational and financial highlights during the twelve weeks ended October 2, 2022:

Restaurant Revenue, compared to the same period in the prior year, is presented in the table below:




	(millions)
Restaurant Revenue for the twelve weeks ended October 3, 2021	$	270.2
Increase/(decrease) in comparable restaurant revenue(1)	14.1
Increase/(decrease) from non-comparable restaurants	(1.9)
Total increase/(decrease)	12.2
Restaurant Revenue for the twelve weeks ended October 2, 2022	$	282.4

The following summarizes the operational and financial highlights during the forty weeks ended October 2, 2022:




	(millions)
Restaurant Revenue for the forty weeks ended October 3, 2021	$	861.0
Increase/(decrease) in comparable restaurant revenue(1)	93.6
Increase/(decrease) from non-comparable restaurants	(2.9)
Total increase/(decrease)	90.7
Restaurant Revenue for the forty weeks ended October 2, 2022	$	951.7

(1) Comparable restaurant revenue represents revenue from Company-owned restaurants that have operated five full quarters as of the end of the period presented.

Restaurant revenues and operating costs as a percentage of restaurant revenue for the period are detailed in the table below:


	Twelve Weeks Ended
	October 2, 2022			October 3, 2021			Increase/(Decrease)
Restaurant revenue (millions)	$	282.4		$	270.2		4.5	%
Restaurant operating costs:	(Percentage of Restaurant Revenue)						(Basis Points)
Cost of sales	25.0		%	23.2		%	180
Labor	35.6			36.9			(130)
Other operating	18.7			19.0			(30)
Occupancy	8.1			8.3			(20)
Total	87.4		%	87.5		%	(10)

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	Forty Weeks Ended
	October 2, 2022			October 3, 2021			Increase/(Decrease)
Restaurant revenue (millions)	$	951.7		$	861.0		10.5	%
Restaurant operating costs:	(Percentage of Restaurant Revenue)						(Basis Points)
Cost of sales	24.6		%	22.5		%	210
Labor	35.8			36.0			(20)
Other operating	18.1			18.1			—