PORTILLO'S INC.
This section and other parts of this Annual Report on Form 10-K ("Form 10-K")
contain forward-looking statements, within the meaning of the Private Securities
Litigation Reform Act of 1995 ("PSLRA"), which are subject to known and unknown
risks, uncertainties and other important factors that may cause actual results
to be materially different from the statements made herein. All statements other
than statements of historical fact are forward-looking statements.
Forward-looking statements discuss our current expectations and projections
relating to our financial position, results of operations, plans, objectives,
future performance and business. You can identify forward-looking statements by
the fact that they do not relate strictly to historical or current facts. These
statements may include words such as "aim," "anticipate," "believe," "estimate,"
"expect," "forecast," "future," "intend," "outlook," "potential," "project,"
"projection," "plan," "seek," "may," "could," "would," "will," "should," "can,"
"can have," "likely," the negatives thereof and other similar expressions.
All forward-looking statements are expressly qualified in their entirety by
these cautionary statements. You should evaluate all forward-looking statements
made in this Form 10-K in the context of the risks and uncertainties disclosed
in Part I, Item 1A "Risk Factors" and in Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The forward-looking statements included in this Form 10-K are made only as of the date hereof. We undertake no obligation to publicly update any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.
For a comparison of results of operations and financial condition for fiscal years 2021 and 2020, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Form 10-K for the fiscal year endedDecember 26, 2021 , filedMarch 10, 2022 . We use a 52- or 53-week fiscal year ending on the Sunday on or prior toDecember 31 . In a 52-week fiscal year, each quarterly period is comprised of 13 weeks. The additional week in a 53-week fiscal year is added to the fourth quarter. We believe the difference in reporting periods does not have a material impact on comparability. Fiscal 2022 and 2021 each consisted of 52 weeks.
Overview
Portillo's serves iconic Chicago street food through high-energy, multichannel restaurants designed to ignite the senses and create a memorable dining experience. Since our founding in 1963 in a small trailer whichDick Portillo called "The Dog House," we have grown to become a treasured brand with a passionate (some might say obsessed) nationwide following. We create a consumer experience like no other by combining the best attributes of fast casual and quick service concepts with an exciting energy-filled atmosphere and restaurant model capable of generating tremendous volumes. Nearly all of our restaurants were built with double lane drive-thrus and have been thoughtfully designed with a layout that accommodates a variety of access modes including dine-in, carryout, delivery and catering in order to quickly and efficiently serve our guests. No matter how our guests order from us, our highly productive kitchens and team members consistently serve high-quality food and deliver a memorable guest experience. We believe the combination of our craveable food, multichannel sales model, dedication to operational excellence, and a distinctive culture driven by our team members gives us a competitive advantage. As ofDecember 25, 2022 , we owned and operated 72 Portillo's restaurants across 9 states, including a restaurant owned byC&O Chicago, L.L.C. ("C&O") of which Portillo's owns 50% of the equity.
Initial Public Offering
InOctober 2021 , we completed an initial public offering ("IPO") of 23,310,810 shares of the Company's Class A common stock (including 3,040,540 shares sold to the underwriters pursuant to their overallotment option) at an offering price of$20.00 per share. The Company received aggregate net proceeds of approximately$430.0 million (after deducting underwriting discounts and commissions and other offering expenses). The net proceeds and cash on hand were used as follows: •to repay the redeemable preferred units in full (including the redemption premium) of$221.7 million ; •to repay all of the borrowings outstanding under the SecondLien Credit Agreement (including any prepayment penalties) of$158.1 million ; and •to purchase LLC Units or shares of Class A common stock from certain pre-IPO LLC members of$57.0 million .
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Secondary Offerings
In the third quarter and fourth quarter of 2022, the Company completed two secondary offerings of 8,066,458 shares (including 66,458 shares sold to the underwriters pursuant to their overallotment option) and 8,000,000 shares, respectively, of the Company's Class A common stock at an offering price of$23.75 and$22.69 , respectively, per share. We used all of the net proceeds from the secondary offerings to purchase LLC Units and corresponding shares of Class B common stock from certain pre-IPO LLC Members and to repurchase shares of Class A common stock from the shareholders of the Blocker Companies at a price per LLC Unit or share of Class A common stock, as applicable, equal to the public offering price per share of Class A common stock, less the underwriting discounts and commissions. As a result, Portillo's did not receive any proceeds from the offering, and the total number of shares of Class A common stock and Class B common stock did not change; however, the number of outstanding shares of Class A common stock increased by the same number of the canceled shares of Class B common stock. New Credit Agreement OnFebruary 2, 2023 ,PHD Intermediate LLC , aDelaware limited liability company ("Holdings"),Portillo's Holdings, LLC , aDelaware limited liability company (the "Borrower"), the other Guarantors party thereto from time to time, each lender party thereto from time to time andFifth Third Bank , National Association, as Administrative Agent, L/C Issuer and SwingLine Lender entered into a Credit Agreement ("New Credit Agreement") which provides for a Term A Loan ("Term Loan") in an initial aggregate principal amount of$300.0 million and initial Revolving Credit Commitments in an initial aggregate principal amount of$100.0 million (the "New Revolver Facility"). The proceeds under the Term Loan and New Revolver Facility, along with cash on hand, were used to repay outstanding indebtedness under the First Lien Credit Agreement and to pay related transaction expenses. The Term Loan and New Revolver Facility are scheduled to mature onFebruary 2, 2028 . The Company anticipates using the remainder of the loan proceeds for general corporate purposes and working capital needs.
See Note 18. Subsequent Events for a description of the New Credit Agreement and the repayment of borrowings under the First Lien Credit Agreement.
Recent Developments and Trends
Fiscal 2022 Highlights
Our fiscal 2022 financial highlights include:
•Total revenue increased 9.7% or$52.2 million to$587.1 million ; •Same-restaurant sales increased 5.4%; •Operating income increased$11.3 million to$41.3 million ; •Net income increased$30.6 million to$17.2 million ; •Restaurant-Level Adjusted EBITDA* decreased$9.6 million to$132.5 million ; and •Adjusted EBITDA* decreased$13.5 million to$85.0 million . * Adjusted EBITDA and Restaurant-Level Adjusted EBITDA are non-GAAP measures. Definitions and reconciliations of Adjusted EBITDA to net income (loss) and Restaurant-Level Adjusted EBITDA to operating income, the most directly comparable financial measures presented in accordance with GAAP, are set forth under the section "Key Performance Indicators and Non-GAAP Financial Measures". We continue to see revenue growth due to our new restaurant openings, as well as same-restaurant sales growth. Total revenue grew 9.7% during the year endedDecember 25, 2022 . Same-restaurant sales grew 5.4% during the year endedDecember 25, 2022 . During the fourth quarter of 2022, total revenue grew 8.6% and same-restaurant sales increased 6.0%. We experienced positive trends during most of the quarter, but did experience significant sales declines the last week of our fiscal quarter due to Winter Storm Elliott. We estimate that Winter Storm Elliott had a negative impact of at least 0.7% on our same-restaurant sales growth in the fourth quarter of 2022. Subsequent to the fourth quarter of 2022, we have seen improvements in our sales trends as same-restaurant sales grew 12.3% in our first fiscal period of 2023 and we estimate same-restaurant sales to grow 7.9% in our second fiscal period of 2023. We currently anticipate our same-restaurant sales growth to be in the range of 8% to 10% and total revenue growth to be in the range of 16% to 18% for the first quarter of 2023.
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During the year endedDecember 25, 2022 , we experienced approximately 15.2% commodity inflation versus the year endedDecember 26, 2021 , with the most impactful increases in beef and chicken prices. Additionally, we experienced higher labor expenses during the year endedDecember 25, 2022 , compared to the year endedDecember 26, 2021 primarily due to additional wage investments, specifically investments to support our hourly team members. These investments in labor, combined with the commodity inflation, had a negative impact to Restaurant-Level Adjusted EBITDA Margin. We partially offset these expense increases through menu price increases and operational efficiencies. For the year endedDecember 25, 2022 , we increased certain menu prices by 7.5%. As a result of the aforementioned expenses and menu price increases, Restaurant-Level Adjusted EBITDA Margin was 22.6% in the year endedDecember 25, 2022 versus 26.6% in the year endedDecember 26, 2021 . In fiscal 2023, we expect our overall commodity inflation to ease and are currently estimating commodity inflation in the mid single digits. Additionally, we do anticipate additional wage investments. We will continue to strategically offset these expense increases through menu price increases and operational efficiencies. During mid-January of 2023, we increased certain menu prices by approximately 2.0%. Absent global economic disruptions, and based on the current trend of our business operations and our continued focus on strategic initiatives that will grow our restaurant count, improve the operating model, enhance the menu, and improve our career pathing and compensation models, we believe in the strength of our brand and that our focus on our strategic priorities will deliver consistent growth.
Development Highlights
In 2022, we targeted opening seven new restaurants ("Class of 2022"). During the
year ended December 25, 2022 , we opened three new restaurants in our existing
markets of Illinois , Florida , and Indiana . Permitting and occupancy delays
caused our Class of 2022 opening timeline to lengthen into 2023, resulting in
four restaurants opening subsequent to our 2022 fiscal year end. These
restaurants included three in our existing markets of Florida and Arizona and
our first restaurant in the state of Texas . Below are the seven restaurants
included in the Class of 2022 along with their opening dates.
Location Opening Date
Joliet, Illinois January 2022
St. Petersburg, Florida March 2022
Schererville, Indiana November 2022
Kissimmee, Florida December 2022
The Colony, Texas January 2023
Tucson, Arizona February 2023
Gilbert, Arizona March 2023 (Expected)
Long term, we aim to increase our number of restaurants by approximately 10%
annually. Our near-term restaurant growth strategy is focused on leveraging our
proven unit economic model primarily in markets outside Chicagoland with
favorable macro-economic tailwinds where we already have a presence and brand
awareness. We will also add select new restaurants in the Chicagoland market.
For fiscal 2023, we are targeting opening nine new restaurants ("Class of
2023"). Our development pipeline for the Class of 2023 will focus on growing
across the sunbelt (Arizona , Texas , and Florida ) and building scale in existing
Midwest markets.
Menu Innovation
Our primary strategy for menu innovation is to drive traffic through truly
craveable foods that can be made with a Portillo's spin. We are constantly
studying ways to further enhance our existing offerings while thoughtfully
adding new high-quality items. We are also disciplined in maintaining the number
of options on our menu, while ensuring consistency in execution, and maintaining
the breadth that helps drive our industry-leading volumes. When a new item earns
its way onto our menu, we often replace an existing item to maintain our
operational efficiency. In the year ended December 25, 2022 , we introduced the
Plant-based Garden Dog. The Plant-based Garden Dog is made with 100% plant-based
protein, grilled and dragged through the same garden of Chicago-style
ingredients as our classic Chicago-style hot dog. We also offer seasonal shakes
and specialty cakes to compliment our existing menu.
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Table of Contents Consolidated Results of Operations
The following table summarizes our results of operations for the fiscal years
ended
Fiscal Years Ended
December 25, 2022 December 26, 2021
REVENUES, NET $ 587,104 100.0 % $ 534,952 100.0 %
COST AND EXPENSES:
Restaurant operating expenses:
Cost of goods sold, excluding depreciation and
amortization 204,237 34.8 % 166,764 31.2 %
Labor 154,392 26.3 % 138,788 25.9 %
Occupancy 30,657 5.2 % 28,060 5.2 %
Other operating expenses 65,312 11.1 % 59,258 11.1 %
Total restaurant operating expenses 454,598 77.4 % 392,870 73.4 %
General and administrative expenses 66,892 11.4 % 87,089 16.3 % Pre-opening expenses 4,715 0.8 % 3,565 0.7 % Depreciation and amortization 20,907 3.6 % 23,312 4.4 % Net income attributable to equity method investment (1,083) (0.2) % (797) (0.1) % Other income, net (204) - % (1,099) (0.2) % OPERATING INCOME 41,279 7.0 % 30,012 5.6 % Interest expense 27,644 4.7 % 39,694 7.4 % Tax Receivable Agreement liability adjustment (5,345) (0.9) % - - % Loss on debt extinguishment - - % 7,265 1.4 % INCOME (LOSS) BEFORE INCOME TAXES 18,980 3.2 % (16,947) (3.2) % Income tax expense (benefit) 1,823 0.3 % (3,531) (0.7) % NET INCOME (LOSS) 17,157 2.9 % (13,416) (2.5) % Less: Redeemable preferred units accretion - - % (21,176) (4.0) % NET INCOME (LOSS) ATTRIBUTABLE TO COMMON HOLDERS 17,157 2.9 % (34,592) (6.5) % Net income (loss) attributable to non-controlling interests 6,306 1.1 % (19,408) (3.6) % NET INCOME (LOSS) ATTRIBUTABLE TO PORTILLO'S INC.$ 10,851 1.8 %$ (15,184) (2.8) % Revenues, Net Revenues primarily represent the aggregate sales of food and beverages, net of discounts. Sales taxes collected from customers are excluded from revenues. Revenues in any period are directly influenced by the number of operating weeks in the period, the number of open restaurants, restaurant traffic, our menu prices, third-party delivery platform prices and product mix. At the end of 2021, the Company began to record in revenues the difference in higher third-party delivery menu prices, versus regular menu prices. This markup was previously recorded in Cost of goods sold, excluding depreciation and amortization. As a result, this change positively impacted our same-restaurant sales growth by 2.0% to 3.0% in each quarter in 2022 and for the full fiscal year 2022, with a corresponding increase to Cost of goods sold, excluding depreciation and amortization. See Note 2. Summary Of Significant Accounting Policies-Revenue Recognition, for more information.
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Table of Contents Revenues for the year endedDecember 25, 2022 were$587.1 million compared to$535.0 million for the year endedDecember 26, 2021 , an increase of$52.2 million or 9.7%. The increase in revenues was primarily attributed to the opening of new restaurants, combined with an increase in our same-restaurant sales. Three new restaurants opened in the year endedDecember 25, 2022 and five restaurants opened in 2021 positively impacted revenues in the year endedDecember 25, 2022 by approximately$25.3 million . Same-restaurant sales increased 5.4% during the year endedDecember 25, 2022 , which was attributable to an increase in average check of 6.1% and a 2.7% impact from the change in recording third-party delivery pricing, offset by a 3.4% decline in transactions. The higher average check was driven by an approximate 7.5% increase in menu prices partially offset by lower items sold per transaction. We increased menu prices approximately 1.5% in the first quarter of 2022, approximately 3.5% during the second quarter of 2022, and approximately 3.4% during the fourth quarter of 2022 to combat inflationary cost pressures. For the purpose of calculating same-restaurant sales as ofDecember 25, 2022 , sales for 62 restaurants were included in the Comparable Restaurant Base (as defined in "Key Performance Indicators and Non-GAAP Financial Measures" below) as of the end of fiscal 2022.
Cost of Goods Sold, Excluding Depreciation and Amortization
Cost of goods sold, excluding depreciation and amortization includes the direct costs associated with food and beverages, including paper products and third-party delivery commissions. The components of cost of goods sold, excluding depreciation and amortization, are variable by nature, change with sales volume, are impacted by product mix and are subject to increases or decreases in commodity costs. The comparability of cost of goods sold, excluding depreciation and amortization, was impacted in 2022 versus 2021 due to the aforementioned change in how the Company records third-party delivery menu prices. Operating income has not been impacted by such change. Cost of goods sold, excluding depreciation and amortization for the year endedDecember 25, 2022 was$204.2 million compared to$166.8 million for the year endedDecember 26, 2021 , an increase of$37.5 million or 22.5%. This increase was primarily driven by a 15.2% increase in commodity prices, with the largest impacts in beef and chicken prices; the impact of how the Company records third-party delivery menu prices; the opening of three restaurants in the year endedDecember 25, 2022 and the opening of five restaurants in 2021. These increases were partially offset by a decline in transactions. As a percentage of revenues, net, cost of goods sold, excluding depreciation and amortization, increased 3.6% during the year endedDecember 25, 2022 . This increase was primarily due to an increase in commodity prices and the impact of how the Company records third-party delivery menu prices, partially offset by an increase in our average check.
Labor Expenses
Labor expenses include hourly and management wages, bonuses and equity-based compensation, payroll taxes, workers' compensation expense, and team member benefits. Factors that influence labor costs include wage inflation and payroll tax legislation, health care costs and the staffing needs of our restaurants. Labor expenses for the year endedDecember 25, 2022 were$154.4 million compared to$138.8 million for the year endedDecember 26, 2021 , an increase of$15.6 million or 11.2%. This increase was primarily driven by incremental investments to support our team members, including hourly rate increases primarily made inJuly 2022 andJune 2021 and higher equity-based compensation, and the opening of three new restaurants during the year endedDecember 25, 2022 and the opening of five restaurants in 2021. These increases were partially offset by a decline in transactions and operational efficiencies. As a percentage of revenues, net, labor increased 0.4% during the year endedDecember 25, 2022 primarily due to the aforementioned incremental hourly rate increases to support our team members, partially offset by an increase in our average check.
Occupancy Expenses
Occupancy expenses primarily consist of rent, property insurance and property taxes.
Occupancy expenses for the year endedDecember 25, 2022 were$30.7 million compared to$28.1 million for the year endedDecember 26, 2021 , an increase of$2.6 million or 9.3%, primarily driven by the opening of three new restaurants in the year endedDecember 25, 2022 and the opening of five restaurants in 2021. As a percentage of revenues, occupancy expenses were flat during the year endedDecember 25, 2022 compared to the year endedDecember 26, 2021 .
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Table of Contents Other Operating Expenses Other operating expenses consist of direct marketing expenses, utilities and other expenses incidental to operating our restaurants, such as credit card fees and repairs and maintenance. Other operating expenses for the year endedDecember 25, 2022 were$65.3 million compared to$59.3 million for the year endedDecember 26, 2021 , an increase of$6.1 million or 10.2%, primarily driven by the opening of three new restaurants in the year endedDecember 25, 2022 and the opening of five restaurants in 2021 as well as an increase in building and equipment repairs and maintenance, insurance and credit card fees.
General and Administrative Expenses
General and administrative expenses primarily consist of costs associated with our corporate and administrative functions that support restaurant development and operations, including marketing and advertising costs incurred as well as legal and professional fees. General and administrative expenses also include equity-based compensation expense. General and administrative expenses are impacted by changes in our team member count and costs related to strategic and growth initiatives. General and administrative expenses for the year endedDecember 25, 2022 were$66.9 million compared to$87.1 million for the year endedDecember 26, 2021 , a decrease of$20.2 million or 23.2%. This decrease was primarily driven by a decrease in equity-based stock compensation of$15.5 million , option holder payments of$6.6 million made in 2021 in connection with the IPO, a decrease in variable-based compensation of$3.8 million and a decrease in transaction-related fees and expenses of$1.0 million . In 2021, we recognized additional equity-based stock compensation in connection with the IPO, as a result of the waiver and the resultant modification in the terms of certain performance-vesting awards. These decreases were offset by increases in salaries and wages attributable to annual rate increases, filling open positions, training program costs for future restaurant managers, insurance and software licensing fees. Pre-Opening Expenses Pre-opening expenses consist primarily of wages, occupancy expenses, which represent rent expense recognized during the period between the date of possession of the restaurant facility and the restaurant opening date, travel for the opening team, food, beverage, and the initial stocking of operating supplies. All such costs incurred prior to the opening are expensed in the period in which the expense was incurred. Pre-opening expenses can fluctuate significantly from period to period, based on the number and timing of openings and the specific pre-opening expenses incurred for each restaurant. Additionally, restaurant openings in new geographic market areas will initially experience higher pre-opening expenses than our established geographic market areas, such as the Chicagoland area, where we have greater economies of scale and incur lower travel and lodging costs for our training team. Pre-opening expenses for the year endedDecember 25, 2022 were$4.7 million compared to$3.6 million for the year endedDecember 26, 2021 , an increase of$1.2 million or 32.3%. This increase was due to the timing and geographic location of activities related to our planned restaurant openings at the end of fiscal 2022 and early fiscal 2023.
Depreciation and Amortization
Depreciation and amortization expenses consist of the depreciation of fixed assets, including leasehold improvements, fixtures and equipment and the amortization of definite-lived intangible assets, which are primarily comprised of recipes, and in prior years, non-compete agreements and favorable leasehold positions. Depreciation and amortization expense for the year endedDecember 25, 2022 was$20.9 million compared to$23.3 million for the year endedDecember 26, 2021 , a decrease of$2.4 million or 10.3%. This decrease was primarily attributable to an expired non-compete intangible asset, partially offset by incremental depreciation of capital expenditures related to the three new restaurants opened in 2022 and five restaurants opened in 2021.
Net Income Attributable to
Net income attributable to equity method investment consists of a 50% interest in C&O, which runs a single restaurant located within the Chicagoland market. We account for the investment and financial results in the consolidated financial statements under the equity method of accounting as we have significant influence but do not have control.
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Table of Contents
Net income attributable to equity method investment for the year endedDecember 25, 2022 was$1.1 million compared to$0.8 million for the year endedDecember 26, 2021 . This increase was primarily driven by increased revenue, which is attributable to an increase in average check.
Other Income, Net
Other income, net includes among other items, income resulting from discounts received for timely filing of sales tax returns, management fee income associated with our investment in C&O, trading gains or losses on our deferred compensation plan and gains or losses on asset disposals. Other income, net for the year endedDecember 25, 2022 was$0.2 million compared to$1.1 million for the year endedDecember 26, 2021 , a decrease of$0.9 million or 81.4%. Other income, net decreased primarily due to an increase in trading losses in the rabbi trust used to fund our deferred compensation plan.
Interest Expense
Interest expense primarily consists of interest and fees on our credit facilities and the amortization expense for debt discount and deferred issuance costs.
Interest expense for year endedDecember 25, 2022 was$27.6 million compared to$39.7 million for year endedDecember 26, 2021 , a decrease of$12.1 million or 30.4%. This decrease was primarily driven by the payoff of the Second Term B-3 Loans with the use of IPO proceeds during the year endedDecember 26, 2021 and decreased borrowings on the First Lien Term B-3 Loans during the year endedDecember 25, 2022 . This decrease was partially offset by$2.9 million of additional interest expense on the First Lien Term B-3 Loans due to rising interest rates affecting the floating portion of our First Lien Term B-3 Loans. There were no outstanding borrowings under the Revolving Facility during the year endedDecember 25, 2022 or year endedDecember 26, 2021 .
Tax Receivable Agreement Liability Adjustment
In connection with the IPO, we entered into a Tax Receivable Agreement with certain members of Portillo's OpCo that provides for the payment by us of 85% of the amount of tax benefits, if any, that Portillo's Inc. actually realizes or in some cases is deemed to realize as a result of certain transactions. The Tax Receivable Agreement liability adjustment was$5.3 million for the year endedDecember 25, 2022 related to a remeasurement primarily due to stock activity. There was no Tax Receivable Agreement liability adjustment for the year endedDecember 26, 2021 . Loss on Debt Extinguishment Loss on debt extinguishment for the year endedDecember 26, 2021 was$7.3 million due to prepayment penalties of$3.1 million and the write-off of debt discount and deferred issuance costs of$4.2 million associated with the payoff of the Second Term B-3 Loans. There was no such loss for year endedDecember 25, 2022 .
Income Tax Expense (Benefit)
Portillo's OpCo is treated as a partnership forU.S. federal, as well as state and local income tax purposes and is not subject to taxes. Rather, any taxable income or loss generated by Portillo's OpCo is allocated to its members in relation to their respective ownership percentage of Portillo's OpCo. As of the IPO, we are subject toU.S. federal, as well as state and local income taxes with respect to our allocable share of any taxable income or loss of Portillo's OpCo, as well as any stand-alone income or loss generated by Portillo's Inc. Income tax expense for the year endedDecember 25, 2022 was$1.8 million compared to an income tax benefit of$3.5 million for the year endedDecember 26, 2021 , an increase of$5.4 million . Our effective income tax rate for year endedDecember 25, 2022 was 9.6%, compared to 20.9% for year endedDecember 26, 2021 . The decrease in our effective income tax rate for the year endedDecember 25, 2022 compared to the year endedDecember 26, 2021 was primarily driven by the change in the valuation allowance and the tax benefit from the exercise and vesting of equity-based awards.
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Table of Contents Net Income (Loss) Attributable to Non-controlling Interests In connection with the IPO, we became the sole managing member of Portillo's OpCo. We manage and operate the business and control the strategic decisions and day-to-day operations of Portillo's OpCo and we also have a substantial financial interest in Portillo's OpCo. Accordingly, we consolidate the financial results of Portillo's OpCo, and a portion of our net income is allocated to non-controlling interests to reflect the entitlement of the pre-IPO LLC Members who retained their equity ownership in Portillo's OpCo (the "pre-IPO LLC Members"). The weighted average ownership percentages for the applicable reporting periods are used to attribute net income (loss) to Portillo's Inc. and the non-controlling interest holders. Net income attributable to non-controlling interests for the year endedDecember 25, 2022 was$6.3 million , compared to a loss of$19.4 million for the year endedDecember 26, 2021 . The increase in net income attributable to non-controlling interests for the year endedDecember 25, 2022 was primarily due to an improvement in net income primarily due to the factors driving the aforementioned expenses, compared to the year endedDecember 26, 2021 and a decrease in the non-controlling interest holders' weighted average ownership, from 49.9% for the year endedDecember 26, 2021 to 45.8% for the year endedDecember 25, 2022 .
Key Performance Indicators and Non-GAAP Financial Measures
In addition to the GAAP measures presented in our financial statements, we use
the following key performance indicators and non-GAAP financial measures to
evaluate our business, measure our performance, develop financial forecasts and
make strategic decisions. These key measures include same-restaurant sales, new
restaurant openings, average unit volume ("AUV"), Adjusted EBITDA, Adjusted
EBITDA Margin, Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted
EBITDA Margin. The Company includes these measures because management believes
that they are important to day-to-day operations and overall strategy and are
useful to investors in that they provide for greater transparency with respect
to supplemental information used by management in its financial and operational
decision-making.
Fiscal Years Ended
December 25, 2022 December 26, 2021
Total Restaurants (a) 72 69
AUV (in millions) (a) $ 8.5 $ 8.2
Change in same-restaurant sales (b) 5.4 % 10.5 %
Adjusted EBITDA (in thousands) (b) $ 84,955 $ 98,497
Adjusted EBITDA Margin (b) 14.5 % 18.4 %
Restaurant-Level Adjusted EBITDA (in thousands) (b) $ 132,506 $ 142,082
Restaurant-Level Adjusted EBITDA Margin (b) 22.6 % 26.6 %
(a) Includes a restaurant that is owned by C&O of which Portillo's owns 50% of
the equity, as described in Note 2. Summary Of Significant Accounting Policies
in our consolidated financial statements. Total restaurants indicated are as of
a point in time.
(b) Excludes a restaurant that is owned by C&O of which Portillo's owns 50% of
the equity.
Change in Same-Restaurant Sales
The change in same-restaurant sales is the percentage change in year-over-year revenue (excluding gift card breakage) for the comparable restaurant base, which is defined as the number of restaurants open for at least 24 full fiscal periods (the "Comparable Restaurant Base"). As ofDecember 25, 2022 andDecember 26, 2021 , there were 62 and 61 restaurants in our Comparable Restaurant Base, respectively. The Comparable Restaurant Base excludes a restaurant that is owned by C&O, of which Portillo's owns 50% of the equity, as described in Note 2. Summary Of Significant Accounting Policies in our consolidated financial statements. A change in same-restaurant sales growth is the result of a change in restaurant transactions, average guest check, or a combination of the two. We gather daily sales data and regularly analyze the guest transaction counts and the mix of menu items sold to strategically evaluate menu pricing and demand. Measuring our same-restaurant sales growth allows management to evaluate the performance of our existing restaurant base. We believe this measure provides a consistent comparison of restaurant sales results and trends across periods within our core, established restaurant base, unaffected by results of restaurant openings and enables investors to better understand and evaluate the Company's historical and prospective operating performance.
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Table of Contents Average Unit Volume
AUV is the total revenue (excluding gift card breakage) recognized in the Comparable Restaurant Base, including C&O, divided by the number of restaurants in the Comparable Restaurant Base, including C&O, by period.
This key performance indicator allows management to assess changes in consumer spending patterns at our restaurants and the overall performance of our restaurant base.
Non-GAAP Financial Measures
To supplement the consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: Adjusted EBITDA and Adjusted EBITDA Margin, and Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin. Accordingly, these measures are not required by, nor presented in accordance with GAAP, but rather are supplemental measures of operating performance of our restaurants. You should be aware that these measures are not indicative of overall results for the Company and that Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin do not accrue directly to the benefit of shareholders because of corporate-level expenses excluded from such measures. These measures are supplemental measures of operating performance and our calculations thereof may not be comparable to similar measures reported by other companies. These measures are important measures to evaluate the performance and profitability of our restaurants, individually and in the aggregate, but also have important limitations as analytical tools and should not be considered in isolation as substitutes for analysis of our results as reported under GAAP.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA represents net income (loss) before depreciation and amortization, interest expense and income taxes, adjusted for the impact of certain non-cash and other items that we do not consider in our evaluation of ongoing core operating performance as identified in the reconciliation of net income (loss), the most directly comparable GAAP measure to Adjusted EBITDA. Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of total revenues. We use Adjusted EBITDA and Adjusted EBITDA Margin (i) to evaluate our operating results and the effectiveness of our business strategies, (ii) internally as benchmarks to compare our performance to that of our competitors and (iii) as factors in evaluating management's performance when determining incentive compensation.
We believe that Adjusted EBITDA and Adjusted EBITDA Margin are important measures of operating performance because they eliminate the impact of expenses that do not relate to our core operating performance.
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Table of Contents
The following table reconciles net income (loss) to Adjusted EBITDA and Adjusted
EBITDA margin (in thousands):
Fiscal Years Ended
December 25, 2022 December 26, 2021
Net income (loss) $ 17,157 $ (13,416)
Depreciation and amortization 20,907 23,312
Interest expense 27,644 39,694
Loss on debt extinguishment - 7,265
Income tax expense (benefit) 1,823 (3,531)
EBITDA 67,531 53,324
Deferred rent (1) 3,998 3,161
Equity-based compensation 16,137 30,708
Option holder payment and consulting fees (2) - 7,744
Other income (3) 397 292
Transaction-related fees & expenses (4) 2,237 3,268
Tax Receivable Agreement liability adjustment (5) (5,345) -
Adjusted EBITDA $ 84,955 $ 98,497
Adjusted EBITDA Margin 14.5 % 18.4 %
(1) Represents the difference between cash rent payments and the recognition of
straight-line rent expense recognized over the lease term.
(2) Represents an option holder payment in connection with the IPO and
consulting fees related to our former owner.
(3) Represents loss on disposal of property and equipment.
(4) Represents the exclusion of certain expenses that management believes are
not indicative of ongoing operations, consisting primarily of certain
professional fees.
(5) Represents remeasurement of the Tax Receivable Agreement liability.
Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin
Restaurant-Level Adjusted EBITDA is defined as revenue, less restaurant operating expenses, which include cost of goods sold (excluding depreciation and amortization), labor expenses, occupancy expenses and other operating expenses. Restaurant-Level Adjusted EBITDA excludes corporate level expenses and depreciation and amortization on restaurant property and equipment. Restaurant-Level Adjusted EBITDA Margin represents Restaurant-Level Adjusted EBITDA as a percentage of revenue.
We believe that Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin are important measures to evaluate the performance and profitability of our restaurants, individually and in the aggregate.
The following table reconciles operating income to Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin (in thousands):
Fiscal Years Ended
December 25, 2022 December 26, 2021
Operating income $ 41,279 $ 30,012
Plus:
General and administrative expenses 66,892 87,089
Pre-opening expenses 4,715 3,565
Depreciation and amortization 20,907 23,312
Net income attributable to equity method investment (1,083) (797)
Other income, net (204) (1,099)
Restaurant-Level Adjusted EBITDA $ 132,506 $ 142,082
Restaurant-Level Adjusted EBITDA Margin 22.6 % 26.6 %
Portillo's Inc. [[Image Removed: ptlo-20221225_g3.jpg]] Form 10-K | 41 --------------------------------------------------------------------------------
Table of Contents Liquidity and Capital Resources
Our primary sources of liquidity are cash from operations, cash and cash
equivalents on hand, and availability under our Revolving Facility. As of
Our primary requirements for liquidity are to fund our working capital needs, operating lease obligations, capital expenditures, and general restaurant support center needs. Our requirements for working capital are not significant because our guests pay for their food and beverage purchases in cash or on debit or credit cards at the time of the sale and we are able to sell many of our inventory items before payment is due to the supplier of such items. Our ongoing capital expenditures are principally related to opening of new restaurants, existing capital investments (both for remodels and maintenance), as well as investments in our restaurant support center infrastructure. Based upon current levels of operations and anticipated growth, we expect that cash flows from operations will be sufficient to meet our needs for at least the next twelve months and the foreseeable future. See Note 18. Subsequent Events for a discussion of the New Revolver Facility, which replaced the Revolving Facility, effectiveFebruary 2, 2023 .
Liquidity Upon IPO
OnOctober 25, 2021 , we completed an IPO of 23,310,810 shares of the Class A common stock (including 3,040,540 shares sold to the underwriters pursuant to their overallotment option). We received net proceeds from the offering of approximately$430.0 million (after deducting underwriting discounts and commissions and other offering expenses). The net proceeds and cash on hand were used as follows: •to repay the redeemable preferred units in full (including the redemption premium) of$221.7 million ; •to repay all of the borrowings outstanding under the SecondLien Credit Agreement (including prepayment penalties) of$158.1 million ; and •to purchase LLC Units or shares of Class A common stock from certain pre-IPO LLC Members of$57.0 million . In connection with the IPO, we entered into a Tax Receivable Agreement ("TRA") with certain of our pre-IPO LLC Members, in which we will generally be required to pay 85% of the amount of cash savings, if any, inU.S. federal, state, and local income tax that we actually realize or be deemed to realize, as a result of (i) our allocable share of existing tax basis in depreciable or amortizable assets relating to LLC Units acquired in the IPO, (ii) certain favorable tax attributes acquired by the Company from entities treated as corporations forU.S. tax purposes that held LLC Units prior to the Transactions ("Blocker Companies") (including net operating losses and the Blocker Companies' allocable share of existing tax basis), (iii) increases in our allocable share of then existing tax basis in depreciable or amortizable assets, and adjustments to the tax basis of the tangible and intangible assets, of Portillo's OpCo and its subsidiaries, as a result of (x) sales or exchanges of interests in Portillo's OpCo (including the repayment of the redeemable preferred units) in connection with the IPO and (y) future exchanges of LLC Units by pre-IPO LLC Members for Class A common stock and (iv) certain other tax benefits related to entering into the TRA, including payments made under the TRA.
Secondary Offerings
In the third quarter and fourth quarter of 2022, the Company completed two secondary offerings of 8,066,458 shares (including 66,458 shares sold to the underwriters pursuant to their overallotment option) and 8,000,000 shares, respectively, of the Company's Class A common stock at an offering price of$23.75 and$22.69 , respectively, per share. We used all of the net proceeds from the secondary offerings to purchase LLC Units and corresponding shares of Class B common stock from certain pre-IPO LLC Members and to repurchase shares of Class A common stock from the shareholders of the Blocker Companies at a price per LLC Unit or share of Class A common stock, as applicable, equal to the public offering price per share of Class A common stock, less the underwriting discounts and commissions. As a result, Portillo's did not receive any proceeds from the offering, and the total number of shares of Class A common stock and Class B common stock did not change; however, the number of outstanding shares of Class A common stock increased by the same number of the canceled shares of Class B common stock.
Portillo's Inc. [[Image Removed: ptlo-20221225_g3.jpg]] Form 10-K | 42 --------------------------------------------------------------------------------
Table of Contents Tax Receivable Agreement As ofDecember 25, 2022 , we estimate that our obligation for future payments under the TRA totaled$252.8 million . Amounts payable under the TRA are contingent upon, among other things, (i) generation of future taxable income over the term of the TRA and (ii) future changes in tax laws. If we do not generate sufficient taxable income in the aggregate over the term of the TRA to utilize the tax benefits, then we would not be required to make the related TRA payments. The payments that we are required to make will generally reduce the amount of overall cash flow that might have otherwise been available to us, but we expect the cash tax savings we will realize to fund the required payments. Assuming no material changes in relevant tax law and that we earn sufficient taxable income to realize all tax benefits that are subject to the TRA, we estimate that the tax savings associated with all tax attributes described above would aggregate to approximately$297.4 million as ofDecember 25, 2022 . Under this scenario, we would be required to pay the TRA Parties approximately 85% of such amount, or$252.8 million , primarily over the next 15 years, substantially declining in year 16 through year 47. We expect a payment of$0.8 million to be paid within the next 12 months.
Summary of Cash Flows
The following table presents a summary of our cash flows from operating, investing and financing activities (in thousands):
Fiscal Years Ended
December 25, 2022 December 26, 2021
Net cash provided by operating activities $ 56,889 $ 42,874
Net cash used in investing activities (47,017) (36,260)
Net cash used in financing activities (4,708) (8,783)
Net increase (decrease) in cash and cash equivalents and restricted cash
5,164 (2,169)
Cash and cash equivalents and restricted cash at beginning of period
39,263 41,432
Cash and cash equivalents and restricted cash at end of
period $ 44,427 $ 39,263
Operating Activities
Net cash provided by operating activities for the year ended December 25, 2022
was $56.9 million compared to net cash provided by operating activities of $42.9
million for the year ended December 26, 2021 , an increase of $14.0 million or
32.7%. This increase was driven by higher net income of $30.6 million and the
change in operating assets and liabilities of $10.9 million , partially offset by
the change in non-cash items of $27.4 million .
The $10.9 million change in our operating asset and liability balances was
primarily driven by operating assets and liabilities being a source of net cash
of $3.9 million in year ended December 25, 2022 , compared to a use of net cash
of $7.0 million in year ended December 26, 2021 driven by the change in accounts
payable and accrued expenses and other liabilities due to increased payments in
the prior year for insurance and interest. The $27.4 million change from the
year ended December 26, 2021 in non-cash charges is primarily attributable to
equity-based compensation and loss on debt extinguishment in the prior year,
offset by a decrease in depreciation and amortization.
Investing Activities
Net cash used in investing activities was$47.0 million for the year endedDecember 25, 2022 compared to net cash used in investing activities of$36.3 million for the year endedDecember 26, 2021 , an increase of$10.8 million or 29.7%. This increase was primarily due to the number of restaurant openings and builds in process during 2022.
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Table of Contents Financing Activities
Net cash used in financing activities was
During the year endedDecember 25, 2022 , we received proceeds of$365.0 million , net of underwriting discounts and commissions, which were used to purchase LLC Units or shares of Class A common stock from certain pre-IPO LLC Members of$365.0 million . In addition, payments of IPO offering costs were$0.8 million , payments on long term-debt were$3.3 million and payments related to stock activity were$0.6 million . During the year endedDecember 26, 2021 , we received proceeds from our IPO of$437.1 million , net of underwriting discounts and commissions. As discussed in Liquidity and Capital Resources, the proceeds were used to repay the redeemable preferred units in full (including the redemption premium) of$221.7 million , to repay all of the borrowings outstanding under the Second Lien Credit Agreement (including prepayment penalties) of$158.1 million ; and to purchase LLC Units or shares of Class A common stock from certain pre-IPO LLC Members and shareholders of the Blocker Companies of$57.0 million . In addition, payments of IPO offering costs were$6.3 million and payments on long term-debt were$3.3 million .
Revolving Facility and Liens
During the year endedDecember 25, 2022 , we maintained a Revolving Facility that provided for a revolving total commitment amount of$50.0 million , which, as ofFebruary 2, 2023 , was replaced by the New Revolver Facility, as further described in this section below and in Note 18. Subsequent Events.
As of
In connection with the IPO, the Company received aggregate net proceeds of approximately$430.0 million after deducting underwriting discounts and commissions and other offering expenses. Net proceeds of$158.1 million were used to repay the Second Lien Term B-3 Loans (including prepayment penalties) in full. Borrowings under the First Lien Credit Agreement are guaranteed by Holdings, the Borrower and certain of the Borrower's subsidiaries, and Holdings, the Borrower and certain of the Borrower's subsidiaries have pledged substantially all tangible and intangible assets as collateral, subject to certain exclusions and exceptions. The Borrower is subject to certain financial and reporting covenants pursuant to the terms of the First Lien Credit Agreement. These covenants are customary for these types of debt agreements. As ofDecember 25, 2022 , the Company was in compliance with all covenants. OnFebruary 2, 2023 , Holdings, the Borrower, the other Guarantors party thereto from time to time, each lender party thereto from time to time and Fifth ThirdBank, National Association , as Administrative Agent, L/C Issuer and SwingLine Lender entered into a New Credit Agreement which provides for a Term Loan in an initial aggregate principal amount of$300.0 million and a New Revolver Facility in an initial aggregate principal amount of$100.0 million . The proceeds under the Term Loan and New Revolver Facility, along with cash on hand, were used to repay outstanding indebtedness under the First Lien Credit Agreement and to pay related transaction expenses. The Company anticipates using the remainder of the loan proceeds for general corporate purposes and working capital needs.
See Note 18. Subsequent Events for refinancing of borrowings under the First Lien Credit Agreement.
Material Cash Requirements
Our material cash requirements greater than twelve months include:
Debt. Refer to Note 9. Debt and Note 18. Subsequent Events, under the header New Credit Agreement, to the consolidated financial statements for further information of our obligations and the timing of expected payments.
Lease obligations. Refer to Note 10. Leases to the consolidated financial statements for further information of our obligations and the timing of expected payments.
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Table of Contents Liabilities under the tax receivable agreement. Refer to Note 14. Income Taxes to the consolidated financial statements for further information of our obligations. We may enter into purchase commitments relating to supply chain, construction, marketing and other service-related arrangements that occur in the normal course of business. Such commitments are typically short-term in nature and are not material as ofDecember 25, 2022 .
Critical Accounting Estimates
This discussion and analysis of financial condition and results of operations is based upon the Company's consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles inthe United States of America ("GAAP"). The preparation of these financial statements requires the Company to make estimates, judgments, and assumptions that can have a meaningful effect on the reporting of consolidated financial statements. We describe our significant accounting policies in Note 2. Summary Of Significant Accounting Policies to the consolidated financial statements. Critical accounting estimates are defined as those reflective of significant judgments, estimates and uncertainties, which may result in materially different results under different assumptions and conditions. Due to their inherent uncertainty, these judgments and estimates may be subject to change, which could materially impact future periods.
Leases
We lease land for our retail restaurants and commissaries, and office space under various long-term operating lease agreements that expire or become subject to renewal clauses at various dates through 2068. We also lease equipment, which primarily consists of restaurant equipment and copiers. We have immaterial short-term operating leases, such as those for seasonal rentals and training spaces. We evaluate the contracts to determine whether the contract involves the use of property or equipment, which is either explicitly or implicitly identified. We evaluate whether we control the use of the asset, which is determined by assessing whether we obtain substantially all economic benefits from the use of the asset, and whether we have the right to direct the use of the asset. If these criteria are met and we have identified a lease, we account for the contract under the requirements of ASC 842. Upon the possession of a leased asset, we determine its classification as an operating or financing lease. As ofDecember 25, 2022 , all of our leases are classified as operating leases. We make judgments regarding the probable term for each lease, which can impact the classification and accounting for a lease as operating or financing, as well as the amount of straight-lined rent expense in a particular period. Generally, the leases for the restaurant locations have an initial term of 10 years to 20 years and typically provide for renewal options in five-year increments, as well as rent escalations. Renewal options are generally recognized as part of the right-of-use assets and lease liabilities as it is reasonably certain at commencement date that we would exercise the options to extend the lease. Some of our real estate leases provide for base rent, plus if applicable additional rent based on gross sales, as defined in each lease agreement, which is considered to be variable rent. When the achievement of such sales thresholds are deemed to be probable, contingent rent is accrued in proportion to the sales recognized during the period. For operating leases that include rent holidays and rent escalation clauses, we recognize lease expense on a straight-line basis over the lease term from the date we take possession of the leased property. Lease expense incurred before a restaurant opens is recorded in pre-opening expenses in the consolidated statements of operations. Once a restaurant opens, we record the straight-line lease expense and any contingent rent, if applicable, in occupancy and related expenses on the consolidated statements of operations. Many of our leases also require us to pay real estate taxes, common area maintenance costs and other occupancy costs which are included in occupancy and other operating expenses on the consolidated statements of operations and is generally considered to be variable rent. For leases with a lease term of 12 months or less ("short-term lease"), any fixed lease payments are recognized on a straight-line basis over such term, and are not recognized on the consolidated balance sheets. Per the ASC 842 requirements, a lessee is required to use the rate implicit in the lease when readily determinable; alternatively, it would use the incremental borrowing rate in determining the present value of future lease payments. We estimate our incremental borrowing rates corresponding to the maturities of our leases. We estimate this rate based on prevailing financial market conditions, indications for the Company's credit rating, and other benchmarks related to our outstanding secured borrowings.
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Table of Contents We expend cash for leasehold improvements to build out our leased premises. Generally, a portion of the leasehold improvements and building costs are reimbursed by our landlords as landlord incentives pursuant to agreed-upon terms in our lease agreements. If obtained, landlord incentives usually take the form of up-front cash, full or partial credits against our future minimum or contingent rents otherwise payable by us, or a combination thereof. In most cases, landlord incentives are received after we take possession of the property, as we meet required milestones during the construction of the property. We include these amounts in the measurement of the initial operating lease liability, which are also reflected as a reduction to the initial measurement of the right-of-use asset.
Liabilities Under Tax Receivable Agreement
As described in "Liquidity Upon IPO", we are a party to the TRA under which we are contractually committed to pay certain of our pre-IPO LLC Members 85% of the amount of any tax savings that we actually realize, or in some cases are deemed to realize, as a result of certain transactions. Amounts payable under the TRA are contingent upon, among other things, (i) generation of future taxable income over the term of the TRA and (ii) future changes in tax laws. If we do not generate sufficient taxable income in the aggregate over the term of the TRA to utilize the tax benefits, then we would not be required to make the related TRA payments. Therefore, we would only recognize a liability for TRA payments if we determine it is probable that we will generate sufficient future taxable income over the term of the TRA to utilize the related tax benefits. As ofDecember 25, 2022 , we recognized$252.8 million of liabilities relating to our obligations under the TRA, after concluding that it was probable that we would have sufficient future taxable income to utilize the related tax benefits. If we determine in the future that we will not be able to fully utilize all or part of the related tax benefits, we would de-recognize the portion of the liability related to the benefits not expected to be utilized. Additionally, we estimate the amount of TRA payments expected to be paid within the next 12 months and classify this amount as current on our consolidated balance sheet. This determination is based on our estimate of taxable income for the next fiscal year and the timing of the anticipated payments. To the extent our estimate differs from actual results, we may be required to reclassify portions of our liabilities under the TRA between current and non-current. We expect a payment of$0.8 million to be paid within the next 12 months.
Income Taxes
We are subject toU.S. federal, state and local income taxes with respect to our allocable share of any taxable income of Portillo's OpCo and will be taxed at the prevailing corporate tax rates. In addition to tax expenses, we also will incur expenses related to our operations, plus payments under the TRA, which are expected to be significant. We intend to cause Portillo's OpCo to make cash distributions to us in an amount sufficient to allow us to pay our tax obligations and operating expenses, including distributions to fund any ordinary course payments due under the TRA. We anticipate that we will account for the income tax effects and corresponding TRA's effects resulting from future taxable exchanges or redemptions of LLC Units of pre-IPO LLC Members by us or Portillo's OpCo by recognizing an increase in our deferred tax assets, based on enacted tax rates at the date of the purchase or redemption. The amounts recorded for both the deferred tax assets and the liability for our obligations under the TRA were estimated at the time of the IPO and secondary offerings as a reduction to shareholders' equity, and the effects of changes in any of our estimates after this date will be included in net income (loss). Similarly, the effect of subsequent changes in the enacted tax rates will be included in net income (loss). In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will be realized and, when necessary, a valuation allowance is established. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. As ofDecember 25, 2022 , we had$150.5 million of deferred tax assets, net of the recorded valuation allowance. Under the provisions of ASC 740-Income Taxes, as it relates to accounting for uncertainties in tax positions, we recognize the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. For the tax year endedDecember 25, 2022 , we did not record any unrecognized tax benefits.
Portillo's Inc. [[Image Removed: ptlo-20221225_g3.jpg]] Form 10-K | 46 --------------------------------------------------------------------------------
Table of Contents
JOBS Act
We qualify as an emerging growth company ("EGC") pursuant to the provisions of
the Jumpstart our Business Startups ("JOBS") Act. For as long as we are an EGC,
we may take advantage of certain exemptions from various reporting requirements
that are applicable to other public companies that are not EGCs, including, but
not limited to, not being required to comply with the auditor attestation
requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure
obligations regarding executive compensation in our periodic reports and proxy
statements, exemptions from the requirements of holding advisory "say-on-pay"
votes on executive compensation and shareholder advisory votes on golden
parachute compensation.
In addition, Section 107 of the JOBS Act also provides that an EGC can take
advantage of the extended transition period provided in Section 7(a)(2)(B) of
the Securities Act for complying with new or revised accounting standards. An
EGC can therefore delay the adoption of certain accounting standards until those
standards would otherwise apply to private companies. We intend to take
advantage of the extended transition period.
We will remain an EGC until the last day of the fiscal year following the fifth
anniversary of the date of the first sale of our Class A common stock pursuant
to an effective registration statement, which was October 21, 2021 , unless,
prior to that time, we have more than $1.07 billion in annual gross revenue,
have a market value for our common stock held by non-affiliates of more than
$700 million as of the last day of our second fiscal quarter of the fiscal year
and a determination is made that we are deemed to be a "large accelerated
filer," as defined in Rule 12b-2 promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or issue more than $1.0 billion of
non-convertible debt over a three-year period, whether or not issued in a
registered offering. We have availed ourselves of the reduced reporting
obligations with respect to executive compensation disclosure and expect to
continue to avail ourselves of the reduced reporting obligations available to
EGCs in future filings.
Portillo's Inc. [[Image Removed: ptlo-20221225_g3.jpg]] Form 10-K | 47 --------------------------------------------------------------------------------
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