THE HABIT RESTAURANTS, INC. The Habit Restaurants, Inc. was formedJuly 24, 2014 and prior to the IPO had not conducted any activities, other than (i) those incident to its formation, (ii) the merger transactions resulting in it holding interests, indirectly through its wholly-owned subsidiaries, in theHabit Restaurants, LLC (such interests collectively represented a less than 20% interest inthe Habit Restaurants, LLC ) and (iii) the preparation of the IPO registration statement. We conduct our business throughThe Habit Restaurants, LLC and its subsidiaries. The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes and other financial information appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risk, uncertainties and assumptions. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of many factors, including those discussed in the section entitled "Item 1A, Risk Factors" and elsewhere in this Annual Report.
Overview
The Habit Burger Grill is a burger-centric, fast casual restaurant concept that specializes in preparing fresh, made-to-order char-grilled burgers and sandwiches featuringUSDA choice tri-tip steak, grilled chicken and sushi-grade tuna cooked over an open flame. In addition, we feature fresh made-to-order salads and an appealing selection of sides, shakes and malts. We were recently named Best Regional Fast Food inUSA Today's 2019 Best Readers' Choice Awards. We operate in the approximately$47 billion fast casual restaurant segment, which we believe has created significant recent disruption in the restaurant industry and has historically gained market share from adjacent restaurant segments, resulting in significant growth opportunities for restaurant concepts such as The Habit. Recent Developments OnJanuary 5, 2020 , the Company entered into an Agreement and Plan of Merger with YUM! Brands, Inc., aNorth Carolina corporation ("Yum! Brands"), and Yum! Brands' wholly-owned subsidiary,YEB Newco Inc. , aDelaware corporation ("Merger Sub"), providing for the merger of Merger Sub with and into the Company, with the Company surviving as a wholly-owned subsidiary of Yum! Brands. The acquisition ofThe Habit Burger Grill is expected to add an award-winning fast-casual concept with a loyal fan-base to Yum! Brands, the world's largest restaurant company in terms of units and the parent of theKFC ,Pizza Hut andTaco Bell global brands. Yum! Brands intends to fund the transaction using cash on hand and available borrowing capacity under its credit facilities. Under the terms of the agreement,The Habit Restaurants, Inc.'s stockholders will receive$14.00 in cash for each share of Class A common stock they hold on the transaction closing date. The obligation of the parties to consummate the acquisition is subject to customary closing conditions, including the approval of the transaction by the Company's stockholders at a special meeting of stockholders and the absence of legal restraints and prohibitions against the transaction, among other conditions. For a summary of the transaction, please refer to Note 14-Subsequent Events in our consolidated financial statements of this Annual Report and to our Form 8-K filed with theU.S. Securities and Exchange Commission (the "SEC") onJanuary 6, 2020 .
History and Operations
The first location opened inSanta Barbara, California in 1969. Our restaurant concept has been, and continues to be built around a distinctive and diverse menu, headlined by fresh, char-grilled burgers and sandwiches made-to-order over an open flame and topped with fresh ingredients. Our Chief Executive Officer,Russell W. Bendel , joined The Habit in 2008, afterKarpReilly , a private investment firm based inGreenwich, Connecticut , acquired an equity interest in us in 2007. At the time ofKarpReilly's investment, we had 17 locations. Since then, we have grown our brand on a disciplined basis designed to capitalize on the large market opportunity available to us and, as ofDecember 31, 2019 , we had 271 locations, which includes 30 franchised/licensed locations. Our highly experienced management team has created and refined the infrastructure to create replicable restaurant-level systems, processes and training procedures that can deliver a high-quality experience that is designed to consistently exceed our customers' expectations. 44
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Growth Strategies and Outlook
We plan to continue to expand our business, focus on comparable restaurant sales growth and enhance our competitive positioning by executing on the following strategies:
• thoughtfully expand our company-operated and franchised/licensed
restaurant base;
• increase our comparable restaurant sales;
• opportunistically open more drive-thru locations; and
• enhance operations and leverage our infrastructure to improve long-term
profitability.
We had 271 restaurants in 13 states andChina as ofDecember 31, 2019 , including franchised/licensed locations (excluding eight licensed locations inSanta Barbara County, California ). We opened 27 restaurants in 2019, consisting of 21 company-operated and six franchised/licensed locations. To increase comparable restaurant sales, we plan to continue delivering superior execution, focusing on customer frequency, attracting new customers and improving per customer spend. We believe we are well positioned for future growth, with a developed corporate infrastructure capable of supporting our expanding restaurant base. Additionally, we believe we have an opportunity to maintain our profitability as we benefit from increased economies of scale. However, these growth rates cannot be guaranteed. Exchanges During fiscal year 2019, 43,082 LLC Units were exchanged by theContinuing LLC Owners for shares of Class A common stock, and a corresponding number of shares of Class B common stock were then cancelled in connection with such exchanges. In addition, during fiscal year 2019, 86,856 restricted stock units vested, of which 18,089 were withheld to satisfy tax withholding obligations, 1,661 LLC Units were forfeited and a corresponding number of shares of Class B common stock were then cancelled in connection with the forfeitures. As a result of these exchanges, vesting of restricted stock units, withholdings for tax obligations and forfeitures, as ofDecember 31, 2019 ,The Habit Restaurants, Inc. directly or indirectly held 20,779,567 LLC Units, representing a 79.6% economic interest inThe Habit Restaurants, LLC , and continues to exercise exclusive control over theHabit Restaurants, LLC , as its sole managing member.
Tax Receivable Agreement
In connection with the IPO, we entered into the TRA. Under the TRA, we generally will be required to pay to the continuing LLC Owners 85% of the amount of cash savings, if any, inU.S. federal, state or local tax that we actually realize directly or indirectly (or are deemed to realize in certain circumstances) as a result of (i) certain tax attributes created as a result of the IPO and any sales or exchanges (as determined forU.S. federal income tax purposes) to or with us of their interests inThe Habit Restaurants, LLC for shares of our Class A common stock or cash, including any basis adjustment relating to the assets ofThe Habit Restaurants, LLC and (ii) tax benefits attributable to payments made under the TRA (including imputed interest).The Habit Restaurants, Inc. and its subsidiaries generally will retain 15% of the applicable tax savings.The Habit Restaurants, Inc. may accumulate cash balances in future years resulting from distributions fromThe Habit Restaurants, LLC exceeding our tax or other liabilities. To the extentThe Habit Restaurants, Inc. does not use such cash balances to pay a dividend on Class A common stock and instead decides to hold such cash balances, Continuing LLC Owners who exchange LLC Units for shares of Class A common stock in the future could also benefit from any value attributable to such accumulated cash balances.
Key Measures We Use to Evaluate Our Performance
In assessing the performance of our business, we consider a variety of
performance and financial measures. The key measures for determining how our
business is performing are revenue, comparable restaurant sales growth, AUVs,
restaurant contribution and number of new restaurant openings.
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--------------------------------------------------------------------------------Restaurant Revenue
Revenue consists of sales of food and beverages in company-operated restaurants and mobile event-based catering trucks, net of promotional allowances and employee meals. Several factors impact our revenue in any period, including the number of restaurants in operation and per restaurant sales.
Franchise/License Revenue
Franchise/license revenue consists of fees charged to, and royalty revenue collected from, franchise/license owners who enter into a franchise/license agreement with us. We recognize royalty revenue when the sale occurs. Initial franchise/license fees are recognized as revenue as the performance obligations of the contract are satisfied. We have identified separate performance obligations over the term of the contract and recognize revenue as those performance obligations are satisfied. These performance obligations include rights to use trademarks and intellectual property, initial training and other operational support visits. The development fees collected by us upon signing a franchise/license agreement are deferred until operations have commenced. Revenue is also recognized in the event of a termination of a franchise/license agreement.
Comparable Restaurant Sales
Comparable restaurant sales reflect the change in year-over-year sales for the comparable restaurant base. We include restaurants in the comparable restaurant base in the accounting period following its 18th full period of operations. Each of our periods is the applicable four or five-week reporting period, except for the 12th period of a 53-week year, which contains six weeks. As of the end of fiscal years 2015, 2016, 2017, 2018 and 2019 there were 90, 114, 142, 168 and 206 company-operated restaurants, respectively, in our comparable restaurant base. This measure highlights performance of existing restaurants, as the impact of new restaurant openings is excluded.
Comparable restaurant sales growth is generated by increases in customer traffic or increases in per customer spend. Per customer spend can be influenced by changes in menu prices and/or the mix and number of items sold per transaction.
Measuring our comparable restaurant sales growth allows us to evaluate the performance of our existing restaurant base. Various factors impact comparable restaurant sales, including:
• our ability to operate restaurants effectively and efficiently to meet
consumer expectations;
• opening of new restaurants in the vicinity of existing locations;
• consumer recognition of our brand and our ability to respond to changing
consumer preferences;
• pricing and changes in operating hours;
• customer traffic;
• per customer spend and average transaction amount;
• local competition and the intense discounting that is currently
occurring in the restaurant industry;
• marketing and promotional efforts;
• introduction of new menu items;
• overall economic trends, particularly those related to consumer spending; and
• acceptance of delivery, a mobile order application and in-store
self-ordering kiosks and other technological driven options as viable
ordering vehicles for consumers.
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The following table shows our quarterly comparable company-operated restaurant
sales growth since 2014:
Fiscal Year 2015 Fiscal Year 2016
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Comparable Restaurant
Sales Growth 12.6 % 8.9 % 2.9 % 3.3 % 2.0% 4.0 % 0.2 % 1.7 %
107 113 114
Fiscal Year 2017 Fiscal Year 2018 Fiscal Year 2019
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Comparable Restaurant
Sales Growth 0.9 % 0.1 % (0.2 )% (1.0 )% (1.4 )% 1.2 % 3.6 % 2.4 % 3.2 % 3.9 % 3.1 % 3.8 %
Comparable
Restaurants 119 128 137 142 148 156 162 168 178 188 196 206
Average Unit Volumes (AUVs)
AUVs are calculated by dividing revenue for the trailing 52-week period for all
company-operated restaurants that have operated for 12 full accounting periods
by the total number of restaurants open for such period. We operate on a 4-4-5
calendar, each accounting period will consist of either four or five weeks with
the exception of a 53-week year, where the last period contains six weeks. For
purposes of the AUV calculation in 53-week years, we use the last 52 of the 53
weeks of the fiscal year. This measurement allows management to assess changes
in consumer spending patterns at our restaurants and the overall performance of
our restaurant base.
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Restaurant Contribution
Restaurant contribution is defined as revenue less restaurant operating costs, which are food and paper costs, labor and related expenses, occupancy and other operating expenses. We expect restaurant contribution to increase in proportion to the number of new company-operated restaurants we open and by our comparable restaurant sales growth. Fluctuations in restaurant contribution margin can also be attributed to those factors discussed below for the components of restaurant operating costs.Restaurant Development The schedule below reflects the number of restaurants opened or closed during a particular reporting period. Before we open new company-operated restaurants, we incur pre-opening costs. Some of our restaurants open with an initial start-up period of higher than normal sales volumes, which subsequently decrease to stabilized levels. Typically, our new restaurants have stabilized sales after approximately 13 to 26 weeks of operation, at which time the restaurant's sales typically begin to grow on a consistent basis. In new markets, the length of time before average sales for new restaurants stabilize is less predictable and can be longer as a result of our limited knowledge of these markets and consumers' limited awareness of our brand. New restaurants may not be profitable, and their sales performance may not follow historical patterns. The number and timing of restaurant openings has had, and is expected to continue to have, an impact on our results of operations. The following table shows the growth in our restaurant base for the fiscal years 2015, 2016, 2017, 2018 and 2019, respectively. Fiscal Year Ended December 31, December 25, December 26, December 27, December 29, 2019 2018 2017 2016 2015 Company-operated restaurant base Beginning of period 223 193 162 137 109 Openings 21 30 32 26 28 Closures (3 ) - (1 ) (1 ) - Restaurants at end of period 241 223 193 162 137 Franchised/licensed restaurants(1) Beginning of period 24 16 10 5 1 Openings 6 10 6 5 4 Closures - (2 ) - - - Restaurants at end of period 30 24 16 10 5 Total restaurants Beginning of period 247 209 172 142 110 Openings 27 40 38 31 32 Closures (3 ) (2 ) (1 ) (1 ) - Restaurants at end of period 271 247 209 172 142 Year-over-year growth Total restaurants 9.7 % 18.2 % 21.5 % 21.1 % 29.1 %
(1) Does not include eight licensed locations in
which we are not entitled to royalties.
Key Financial Definitions
Restaurant revenue. Restaurant revenue represents sales of food and beverages in
company-operated restaurants and catering trucks, net of promotional allowances
and employee meals. Restaurant sales in a given period are directly impacted by
the number of operating weeks in the period, the number of restaurants we
operate and comparable restaurant sales growth.
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Franchise/license revenue. Franchise/license revenue consists of fees charged
to, and royalty revenue collected from, franchise/license owners who enter into
a franchise/license agreement with us. We recognize royalty revenue when the
sale occurs. Initial franchise/license fees are recognized as revenue as the
performance obligations of the contract are satisfied. The development fees
collected by us upon signing a franchise/license agreement are deferred until
operations have commenced. Revenue is also recognized in the event of a
termination of a franchise/license agreement.
Food and paper costs. Food and paper costs consist primarily of food, beverage
and packaging costs. The components of cost of sales are variable in nature,
change with sales volume and are influenced by menu mix and subject to increases
or decreases based on fluctuations in commodity costs. Other important factors
causing fluctuations in food and paper costs include transportation costs,
seasonality, discounting activity and restaurant level management of food waste.
Food and paper costs are a substantial expense and can be expected to grow
proportionally as our revenue grows.
Labor and related expenses. Labor and related expenses include all
restaurant-level management and hourly labor costs, including wages, benefits
and bonuses, payroll taxes and other indirect labor costs. Like our other
expense items, we expect labor and related expenses to grow proportionally as
our revenue grows. Factors that influence fluctuations in our labor and related
expenses include minimum wage and payroll tax legislation, the frequency and
severity of workers' compensation claims, health care costs and the performance
of our restaurants.
Occupancy and other operating expenses. Occupancy and other operating expenses include all other restaurant-level operating expenses, such as supplies, utilities, repairs and maintenance, travel costs, credit card fees, costs related to delivery orders, recruiting, expenses related to our call center services, restaurant-level marketing costs, security, rent, common area maintenance, property taxes/licenses and insurance.
General and administrative expenses. General and administrative expenses include expenses associated with corporate and regional supervision functions that support the operations of existing restaurants and development of new restaurants, including compensation and benefits, travel expenses, stock-based compensation expenses, legal and professional fees, marketing costs, information systems, corporate office rent and other related corporate costs. General and administrative expenses can be expected to grow as we grow, including incremental legal, accounting, insurance and other expenses incurred as a public company. Exchange related expenses. Exchange related expenses include costs associated with the exchange of LLC Units to Class A common stock by theContinuing LLC Owners pursuant to the LLC Agreement.
Depreciation and amortization expense. Depreciation and amortization expenses are periodic non-cash charges that consist of depreciation of fixed assets, including equipment and capitalized leasehold improvements. Depreciation is determined using the straight-line method over the assets' estimated useful lives, ranging from three to twenty years.
Pre-opening costs. Pre-opening costs are incurred in connection with the hiring and training of personnel, as well as other operating expenses during the build-out period of new company-operated restaurant openings. Pre-opening costs also include net occupancy costs incurred between the date of possession and the opening date for our new restaurants. Pre-opening costs are expensed as incurred. Loss on disposal of assets. Loss on disposal of assets is composed of the loss on retirements and replacements of leasehold improvements, furniture, fixtures and equipment. These losses are related to normal disposals in the ordinary course of business, along with disposals related to selected restaurant remodeling activities. Tax Receivable Agreement liability adjustment. Tax Receivable Agreement expenses are adjustments associated with revisions to the expected TRA liability as a result of updated estimated future tax savings at the federal, state and local level.
Interest expense, net. Interest expense includes cash and imputed non-cash charges related to our deemed landlord financing, interest expense related to the TRA, and amortization of finance fees related to our outstanding credit facility, net of interest income on our investments.
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Provision for income taxes. Provision for income taxes represents federal, state
and local current and deferred income tax expense. As a partnership, The Habit
Restaurants, LLC generally pays no tax on its net income, and each of its
members is required to report such member's allocable share of The Habit
Restaurants, LLC's net income on such member's income tax returns. In contrast,
The Habit Restaurants, Inc. is a corporation for federal, state and local income
tax purposes, and The Habit Restaurants, Inc. and its subsidiaries will pay tax
on their allocable share of income of The Habit Restaurants, LLC .
Critical Accounting Policies
Our discussion and analysis of operating results and financial condition are based upon our consolidated financial statements. The preparation of our consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures of contingent assets and liabilities. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Our critical accounting policies are those that materially affect our financial statements and involve difficult, subjective or complex judgments by management. Although these estimates are based on management's best knowledge of current events and actions that may impact us in the future, actual results may be materially different from the estimates. We believe the following critical accounting policies are affected by significant judgments and estimates used in the preparation of our consolidated financial statements and that the judgments and estimates are reasonable.
Leases
In fiscal year 2019 we adopted ASC 842 Leases which required lessees to
recognize a lease liability and a right-of-use ("ROU") asset for all leases,
including operating leases, with an expected term greater than 12 months on its
balance sheet. Operating lease ROU assets and liabilities are recognized on our
consolidated balance sheet at commencement date, which is the date we gain
access to the property. The lease liability is determined based on the present
value of the minimum rental payments using our incremental borrowing rate in
effect at the time of lease commencement. The ROU asset is determined based on
the lease liability adjusted for lease incentives received. Lease expense is
recognized on a straight-line bases over the lease term. Certain leases require
contingent rent above the minimum lease payments based on a percentage of sales,
these contingent amounts are excluded in determining the lease liability and ROU
asset and are accounted for as period expense. The option periods are not
included in the determination of the lease liability and ROU asset as we are not
reasonably certain if we will extend at the time of lease commencement. Lease
expenses for the period prior to the restaurant opening are reported as
pre-opening expense in the consolidated statements of operations. Lease expenses
for the period after a restaurant opens are reported on the occupancy and other
operating expenses line of the consolidated statements of operations. Leases for
fiscal year 2018 and prior were reported in accordance with the previous
guidance under ASC 840 which also required rent expense to be reported on a
straight-line basis over the lease term, beginning when we had the right to
control the use of the property. The difference between rent expense and rent
paid was recorded as deferred rent in the consolidated balance sheet.
Revenue Recognition
We recognize revenue when products are delivered to the customers or meals are served. Revenue is recognized net of sales taxes. We sell gift cards which do not have an expiration date and do not deduct non-usage fees from outstanding gift card balances. Revenue related to the sale of gift cards is deferred until the gift card is redeemed. A certain amount of gift cards will not be redeemed and may become breakage income or may need to be refunded to the various states. To date, we have not recognized breakage income of gift cards or refunded any amounts to the various states.
Valuation of
Intangible assets consist primarily of goodwill and tradenames.
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations and is allocated to the appropriate reporting unit when acquired. In accordance with the provisions of 50 -------------------------------------------------------------------------------- ASC 350-Intangibles-Goodwill and Other, goodwill and indefinite lived intangible assets are not amortized, but tested for impairment at least annually or more frequently if events occur or circumstances indicate that the carrying amount may be impaired. For purposes of applying ASC 350, we have identified a single reporting unit, as that term is defined in ASC 350, to which goodwill is attributable. As of September of 2011, theFinancial Accounting Standards Board issued an amendment of the FASB Accounting Standards Codification 350 that has been coined the ASC 350 Impairment Analysis - "Step 0." Step 0 allows for an entity to first assess qualitative factors to determine whether it is necessary to perform further analysis. If determined necessary after the qualitative test, we would assess if the carrying amount exceeds the reporting unit's fair value and we would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. Tradenames acquired in a business combination and determined to have an indefinite useful life are not amortized because there is no foreseeable limit to the cash flows generated by the intangible asset, and have no legal, contractual, regulatory, economic or competitive limiting factors. Accordingly, tradenames are evaluated for impairment annually and whenever events or changes in circumstances indicate that the value of the asset may be impaired. We also annually evaluate any tradenames that are not being amortized to determine whether events and circumstances continue to support an indefinite useful life. If a tradename that is not being amortized is determined to have a finite useful life, the asset will be amortized prospectively over the estimated remaining useful life and tested for impairment in the same manner as a long-lived asset.
Income Taxes and Tax Receivable Agreement
We are subject to
We account for uncertain tax positions in accordance with ASC 740, Income Taxes. ASC 740 prescribes a recognition threshold and measurement process for accounting for uncertain tax positions and also provides guidance on various related matters such as derecognition, interest, penalties, and required disclosures. We have no uncertain tax liabilities atDecember 31, 2019 . In the future, if an uncertain tax position arises, interest and penalties will be accrued and included on the provision for income taxes line of the Statements of Consolidated Income. We file tax returns inU.S. federal and state jurisdictions. Generally, we are subject to examination byU.S. federal (or state and local) income tax authorities for three to four years from the filing of a tax return. In connection with the IPO, we entered into the TRA. Under the TRA, we generally are required to pay to the Continuing LLC Owners 85% of the amount of cash savings, if any, inU.S. federal, state or local tax that we actually realize directly or indirectly (or are deemed to realize in certain circumstances) as a result of (i) certain tax attributes created as a result of the IPO and any sales or exchanges (as determined forU.S. federal income tax purposes) to or with us of their interests inThe Habit Restaurants, LLC for shares of our Class A common stock or cash, including any basis adjustment relating to the assets ofThe Habit Restaurants, LLC and (ii) tax benefits attributable to payments made under the TRA (including imputed interest).The Habit Restaurants, Inc. generally will retain 15% of the applicable tax savings. In addition, the TRA provides for interest, at a rate equal to one year LIBOR, accrued from the due date (without extensions) of the corresponding tax return to the date of payment specified by the TRA. To the extent that we are unable to timely make payments under the TRA for any reason, such payments will be deferred and will accrue interest at a rate equal to one year LIBOR plus 200 basis points until paid (although a rate equal to one year LIBOR will apply if the inability to make payments under the TRA is due to limitations imposed on us or any of our subsidiaries by a debt agreement in effect on the date of the IPO). Our ability to make payments under the TRA and to pay our own tax liabilities to taxing authorities generally will depend on our receipt of cash distributions fromThe Habit Restaurants, LLC . See the section entitled "Item 1A, Risk Factors-Risks Related to Our Business and Industry."
Pursuant to the LLC Agreement, the Continuing LLC Owners have the right to
exchange their LLC Units, together with a corresponding number of shares of
Class B common stock (which will be cancelled in connection with any such
exchange) for, generally, at the option of
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consideration (generally calculated based on the volume-weighted average price
of the Class A common stock of The Habit Restaurants, Inc. , as displayed under
the heading Bloomberg VWAP on the Bloomberg page designated for the Class A
common stock of The Habit Restaurants, Inc. for the 15 trading days immediately
prior to the delivery date of a notice of exchange). At any time that an
effective registration statement is on file with the SEC with respect to the
shares of Class A Common Stock to be issued upon an exchange, The Habit
Restaurants, Inc. may not provide cash consideration upon an exchange to a
Continuing LLC Owner without the Continuing LLC Owner's prior consent. These
exchanges are expected to result in increases in the tax basis of the assets of
The Habit Restaurants, LLC that otherwise would not have been available.
Increases in tax basis resulting from such exchanges may reduce the amount of
tax that The Habit Restaurants, Inc. would otherwise be required to pay in the
future. This tax basis may also decrease gains (or increase losses) on future
dispositions of certain assets to the extent tax basis is allocated to those
assets. We amended its LLC Agreement in May 2016 , pursuant to which we processed
exchange requests every other week, rather than weekly, effective in June 2016 .
We further amended its LLC Agreement in March 2017 , pursuant to which we process
exchange requests monthly, effective in May 2017 .
If the IRS or a state or local taxing authority challenges the tax basis
adjustments that give rise to payments under the TRA and the tax basis
adjustments are subsequently disallowed, the recipients of payments under the
agreement will not reimburse us for any payments we previously made to them. Any
such disallowance would be taken into account in determining future payments
under the TRA and would, therefore, reduce the amount of any such future
payments. Nevertheless, if the claimed tax benefits from the tax basis
adjustments are disallowed, our payments under the TRA could exceed our actual
tax savings, and we may not be able to recoup payments under the TRA that were
calculated on the assumption that the disallowed tax savings were available.
The TRA provides that (i) in the event that we materially breach the TRA,
(ii) if, at any time, we elect an early termination of the TRA, or (iii) upon
certain mergers, asset sales, other forms of business combinations or other
changes of control, our (or our successor's) obligations under the TRA (with
respect to all LLC Units, whether or not LLC Units have been exchanged or
acquired before or after such transaction) would accelerate and become payable
in a lump sum amount equal to the present value of the anticipated future tax
benefits calculated based on certain assumptions, including that we would have
sufficient taxable income to fully utilize the deductions arising from the tax
deductions, tax basis and other tax attributes subject to the TRA.
As a result of the foregoing, (i) we could be required to make payments under
the TRA that are greater than or less than the specified percentage of the
actual tax savings we realize in respect of the tax attributes subject to the
agreements and (ii) we may be required to make an immediate lump sum payment
equal to the present value of the anticipated future tax savings, which payment
may be made years in advance of the actual realization of such future benefits,
if any of such benefits are ever realized. In these situations, our obligations
under the TRA could have a substantial negative impact on our liquidity and
could have the effect of delaying, deferring or preventing certain mergers,
asset sales, other forms of business combinations or other changes of control.
There can be no assurance that we will be able to finance our obligations under
the TRA in a manner that does not adversely affect our working capital and
growth requirements.
Payments under the TRA are intended to be treated as additional consideration
for the applicable interests in The Habit Restaurants, LLC treated as sold or
exchanged (as determined for U.S. federal income tax purposes) to or with us,
except with respect to certain actual or imputed interest amounts payable under
the TRA. As of December 31, 2019 , we recorded a liability of $82.8 million
representing the payments due to the Continuing LLC Owners under the TRA.
2014 Omnibus Incentive Plan
Our board of directors adoptedThe Habit Restaurants, Inc. 2014 Omnibus Incentive Plan (the "2014 Omnibus Incentive Plan"). The 2014 Omnibus Incentive Plan also permits grants of cash bonuses. This plan authorized 2,525,275 total options and restricted stock units. No awards may be granted under the plan afterNovember 19, 2024 . InApril 2019 , our board of directors adopted the Amended and Restated 2014 Omnibus Incentive Plan, which required and received stockholder approval at our 2019 Annual Meeting of Stockholders. This amendment increased the authorized options and restricted stock units by 1,000,000 shares. This amendment also amended the 2014 Omnibus Incentive Plan to provide for an aggregate annual limit on compensation payable to each non-employee director (whether or not pursuant to the Amended and Restated 2014 Omnibus Incentive Plan), require a minimum 52
-------------------------------------------------------------------------------- vesting period of at least one year for 95% of awards, expressly prohibit automatic "reload" grants of additional awards upon exercise of a stock option or SAR, expand our authority to claw back awards granted under the Amended and Restated 2014 Omnibus Incentive Plan and proceeds on the exercise or disposition of such awards, expressly prohibit "gross-ups" or other payments in respect of any excise taxes assessed on any awards granted under the Amended and Restated 2014 Omnibus Incentive Plan and expressly prohibit the payment of dividends and dividend equivalent on unvested awards. We follow the provisions of ASC 718, Compensation-Stock Compensation, which requires that we measure and recognize compensation expense for all stock-based payment awards made to employees and directors based on their estimated grant date fair values. ASC 718 requires that stock-based compensation expense be recorded for all equity-classified stock options.
The purpose of the Amended and Restated 2014 Omnibus Incentive Plan is to advance our interests by providing for the grant to eligible individuals of equity-based and other incentive awards.
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--------------------------------------------------------------------------------Results of Operations
Fiscal Year Ended
The following table presents selected consolidated comparative results of operations for fiscal year endedDecember 31, 2019 compared to fiscal year endedDecember 25, 2018 . Our operating results are presented as a percentage of total revenue, with the exception of restaurant operating costs, depreciation and amortization expense, pre-opening costs, asset impairment and loss on disposal of assets, which are presented as a percentage or restaurant revenue. Our financial results for these periods are not necessarily indicative of the financial results that we will achieve in future periods. Certain totals for the table below may not sum to 100% due to rounding. Consolidated Statement of Operations Data: Fiscal Year Ended Increase / (Decrease) (amounts in thousands) December 31, 2019 December 25, 2018 $ % Revenue Restaurant revenue$ 463,297 99.4 %$ 399,110 99.2 %$ 64,187 16.1 % Franchise/license revenue 2,762 0.6 % 3,037 0.8 % (275 ) (9.1 )% Total revenue 466,059 100.0 % 402,147 100.0 % 63,912 15.9 % Operating expenses Restaurant operating costs (excluding depreciation and amortization) Food and paper costs 138,831 30.0 % 119,543 30.0 % 19,288 16.1 % Labor and related expenses 155,557 33.6 % 135,023 33.8 % 20,534 15.2 % Occupancy and other operating expenses 91,996 19.9 % 72,858 18.3 % 19,138 26.3 % General and administrative expenses 42,442 9.1 % 38,918 9.7 % 3,524 9.1 % Transaction and exchange related expenses 269 0.1 % 130 0.0 % 139 106.9 % Depreciation and amortization expense 27,863 6.0 % 24,490 6.1 % 3,373 13.8 % Pre-opening costs 2,143 0.5 % 2,850 0.7 % (707 ) (24.8 )% Asset impairment and restaurant closure charges 1,001 0.2 % 3,082 0.8 % (2,081 ) (67.5 )% Loss on disposal of assets 210 0.0 % 97 0.0 % 113 116.5 % Total operating expenses 460,312 98.8 % 396,991 98.7 % 63,321 16.0 % Income from operations 5,747 1.2 % 5,156 1.3 % 591 11.5 % Other (income) expense Tax Receivable Agreement liability adjustment 372 0.1 % 1,555 0.4 % (1,183 ) (76.1 )% Interest (income) expense, net (263 ) (0.1 )% 1,018 0.3 % (1,281 ) (125.8 )% Income before income taxes 5,638 1.2 % 2,583 0.6 % 3,055 118.3 % Provision (benefit) for income taxes 961 0.2 % (1,057 ) (0.3 )% 2,018 (190.9 )% Net income$ 4,677 1.0 %$ 3,640 0.9 %$ 1,037 28.5 % 54
-------------------------------------------------------------------------------- Restaurant revenue. Restaurant revenue increased$64.2 million , or 16.1%, for fiscal year 2019 as compared to fiscal year 2018, primarily due to a$24.4 million increase in sales from new restaurants which were opened in fiscal year 2019 and a$27.6 million increase in sales from restaurants opened prior to fiscal year 2019 that did not fall into the comparable restaurant base. Comparable restaurant sales increased$12.7 million , or 3.5%, in fiscal year 2019 as compared to fiscal year 2018. The comparable restaurant sales increase was primarily due to an increase in average transaction amount of 6.3% partially offset by a decrease in traffic of 2.8% in fiscal year 2019 as compared to fiscal year 2018. The increase in revenue was also due in part to increased revenue of$0.2 million for catering trucks in fiscal year 2019 as compared to fiscal year 2018. The restaurant revenue increase was partially offset by a decrease in sales of$0.7 million due to the closure of three restaurants in August of fiscal year 2019. Fiscal year 2019 was a 53-week year and included an additional$7.7 million in restaurant revenue compared to fiscal year 2018 due to the additional operating week. Franchise/license revenue. Franchise/license revenue decreased$0.3 million for fiscal year 2019 compared to fiscal year 2018. The decrease was primarily due to decreased franchise fees of$0.9 million recognized in fiscal year 2019 as compared to fiscal year 2018 primarily related to terminated franchise agreements. The decrease was partially offset due to increased royalty revenue of$0.6 million in fiscal year 2019 as compared to fiscal year 2018, due to the increased number of franchised/licensed locations. Food and paper costs. Food and paper costs increased$19.3 million , or 16.1%, for fiscal year 2019 as compared to fiscal year 2018, primarily due to the increase in restaurant sales. As a percentage of revenue, food and paper costs remained flat at 30.0% in fiscal year 2019 and fiscal year 2018. Labor and related expenses. Labor and related expenses increased$20.5 million , or 15.2%, for fiscal year 2019 as compared to fiscal year 2018, primarily due to the increased labor costs needed to support new restaurants and higher restaurant sales. As a percentage of revenue, labor and related expenses decreased slightly to 33.6% in fiscal year 2019 compared to 33.8% in fiscal year 2018 primarily due to increased menu prices, as we had an approximate 4.7% price increase during the fiscal year. The favorable impact of the price increase was partially offset by higher labor costs primarily due to wage rate increases for hourly employees. OnJanuary 1, 2019 , theState of California's (where most of our restaurants are located) minimum wage was raised to$12.00 per hour. In addition, regulatory increases to minimum wages for future periods have been passed and therefore we expect to see increased labor costs to continue. We are also experiencing a tight labor market in some areas which is putting pressure on labor rates. Occupancy and other operating expenses. Occupancy and other operating expenses increased$19.1 million , or 26.3%, for fiscal year 2019 as compared to fiscal year 2018, primarily due to new restaurants. As a percentage of revenue, occupancy and other operating expenses increased to 19.9% in fiscal year 2019 from 18.3% in fiscal year 2018. The increase is primarily due to higher delivery, call center and on-line costs as we have rolled out the option of delivery in the majority of our restaurants during the second half of last year. In addition, there were higher rent and advertising costs in fiscal year 2019. We expect to see higher rent and delivery costs to continue in fiscal 2020. General and administrative expenses. General and administrative expenses increased$3.5 million , or 9.1%, for fiscal year 2019 as compared to fiscal year 2018, primarily due to costs associated with supporting an increased number of restaurants, including the increasing number of administrative employees and field and corporate supervision. As a percentage of revenue, general and administrative expenses decreased to 9.1% in fiscal year 2019 from 9.7% in fiscal year 2018. Transaction and exchange related expenses. There were transaction and exchange related expenses of$0.3 million in fiscal year 2019 that were costs associated with the pending merger with Yum! Brands compared to$0.1 million in fiscal year 2018 which were costs associated with the exchange of LLC Units to Class A common stock by the Continuing LLC Owners. 55 -------------------------------------------------------------------------------- Depreciation and amortization expenses. Depreciation and amortization expense increased$3.4 million , or 13.8%, for fiscal year 2019 as compared to fiscal year 2018, primarily due to the increased number of restaurants. As a percentage of revenue, depreciation and amortization decreased slightly to 6.0% for fiscal year 2019 compared to 6.1% in fiscal year 2018. Pre-opening costs. Pre-opening costs were$2.1 million for fiscal year 2019 as compared to$2.9 million for fiscal year 2018. We opened 21 new company-operated restaurants in fiscal year 2019 compared to 30 new company-operated restaurants that opened in fiscal year 2018. Pre-opening costs also include expenses incurred for restaurants that are set to open in the near future. As a percentage of revenue, pre-opening costs decreased to 0.5% in fiscal year 2019, from 0.7% in fiscal year 2018. Asset impairment and restaurant closure charges. We closed three restaurants in theOrlando, Florida market and also decided not to move forward with the development of two restaurants during fiscal year 2019. We recorded restaurant closure charges of$1.0 million during fiscal year 2019, consisting primarily of lease termination costs, rent expense related to the closed restaurants, severance and other direct costs related to the closed restaurants. The three closed restaurants had previously been impaired during fiscal year 2018, as we determined that the carrying value of the three restaurants in theOrlando, Florida market were not recoverable, and as a result, recorded impairment expense of$3.1 million . Tax Receivable Agreement liability adjustment. Tax Receivable Agreement expenses, which are adjustments associated with revisions to the expected TRA liability as a result of updated estimated future tax savings at the federal, state and local level, were$0.4 million for fiscal year 2019 as compared to$1.6 million for fiscal year 2018. Interest expense, net. There was interest income of$0.3 million for fiscal year 2019 as compared to interest expense of$1.0 for fiscal year 2018. The decrease in interest expense, net is primarily attributed to the adoption of ASC 842 Leases, in the current fiscal year. Under the previous guidance, we had a number of leases where we were deemed to be the accounting owner of the building that are now treated as operating leases under the new standard, which resulted in a decrease in interest expense.
Provision (benefit) for income taxes. There was income tax expense of
56
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Fiscal Year Ended
The following table presents selected consolidated comparative results of operations for fiscal year endedDecember 25, 2018 compared to fiscal year endedDecember 26, 2017 . Our operating results are presented as a percentage of total revenue, with the exception of restaurant operating costs, depreciation and amortization expense, pre-opening costs, asset impairment and loss on disposal of assets, which are presented as a percentage or restaurant revenue. Our financial results for these periods are not necessarily indicative of the financial results that we will achieve in future periods. Certain totals for the table below may not sum to 100% due to rounding. Consolidated Statement of Operations Data: Fiscal Year Ended Increase / (Decrease) (amounts in thousands) December 25, 2018 December 26, 2017 $ % Revenue Restaurant revenue$ 399,110 99.2 %$ 330,230 99.7 %$ 68,880 20.9 % Franchise/license revenue 3,037 0.8 % 1,156 0.3 % 1,881 162.7 % Total revenue 402,147 100.0 % 331,386 100.0 % 70,761 21.4 % Operating expenses Restaurant operating costs (excluding depreciation and amortization) Food and paper costs 119,543 30.0 % 101,683 30.8 % 17,860 17.6 % Labor and related expenses 135,023 33.8 % 110,785 33.5 % 24,238 21.9 % Occupancy and other operating expenses 72,858 18.3 % 56,796 17.2 % 16,062 28.3 % General and administrative expenses 38,918 9.7 % 32,559 9.8 % 6,359 19.5 % Exchange related expenses 130 0.0 % 494 0.1 % (364 ) (73.7 )% Depreciation and amortization expense 24,490 6.1 % 18,761 5.7 % 5,729 30.5 % Pre-opening costs 2,850 0.7 % 3,062 0.9 % (212 ) (6.9 )% Asset impairment 3,082 0.8 % - - 3,082 * Loss on disposal of assets 97 0.0 % 81 0.0 % 16 19.8 % Total operating expenses 396,991 98.7 % 324,221
97.8 % 72,770 22.4 %
Income from operations 5,156 1.3 % 7,165 2.2 % (2,009 ) (28.0 )% Other (income) expense Tax Receivable Agreement liability adjustment 1,555 0.4 % (57,231 ) (17.3 )% 58,786 (102.7 )% Interest expense, net 1,018 0.3 % 588 0.2 % 430 73.1 % Income before income taxes 2,583 0.6 % 63,808 19.3 % (61,225 ) (96.0 )% Provision (benefit) for income taxes (1,057 ) (0.3 )% 65,388 19.7 % (66,445 ) (101.6 )% Net income (loss)$ 3,640 0.9 %$ (1,580 ) (0.5 )%$ 5,220 (330.4 )% 57
-------------------------------------------------------------------------------- Restaurant revenue. Restaurant revenue increased$68.9 million , or 20.9%, for fiscal year 2018 as compared to fiscal year 2017, primarily due to a$31.5 million increase in sales from new restaurants which were opened in fiscal year 2018 and a$31.6 million increase in sales from restaurants opened prior to fiscal year 2018 that did not fall into the comparable restaurant base. Comparable restaurant sales increased$4.4 million , or 1.5%, in fiscal year 2018 as compared to fiscal year 2017. The comparable restaurant sales increase was primarily due to an increase in average transaction amount of 4.5% partially offset by a decrease in traffic of 3.0% in fiscal year 2018 as compared to fiscal year 2017. The increase in revenue was also due in part to increased revenue of$1.9 million for catering trucks in fiscal year 2018 as compared to fiscal year 2017. We had 10 catering trucks operating by the end of fiscal year 2018 compared to nine catering trucks operating at the end of fiscal year 2017. The restaurant revenue increase was partially offset by a decrease in sales of$0.5 million due to the closure of one restaurant in July of fiscal year 2017. Franchise/license revenue. Franchise/license revenue increased$1.9 million for fiscal year 2018 compared to fiscal year 2017. The change was primarily due to increased franchise fees of$1.3 million recognized in fiscal year 2018 as compared to fiscal year 2017, of which$1.1 million related to two franchise agreements terminated in fiscal year 2018. The change was also partially due to increased royalty revenue of$0.6 million in fiscal year 2018 as compared to fiscal year 2017, due to the increased number of franchised/licensed locations. Food and paper costs. Food and paper costs increased$17.9 million , or 17.6%, for fiscal year 2018 as compared to fiscal year 2017, primarily due to the increase in restaurant sales. As a percentage of revenue, food and paper costs decreased to 30.0% in fiscal year 2018 from 30.8% in fiscal year 2017. This decrease was primarily driven by increased menu prices as well as decreases in beef, seafood, other proteins, and produce partially offset by increases in the cost of potatoes in fiscal year 2018. Labor and related expenses. Labor and related expenses increased$24.2 million , or 21.9%, for fiscal year 2018 as compared to fiscal year 2017, primarily due to the increased labor costs needed to support new restaurants and higher restaurant sales. As a percentage of revenue, labor and related expenses increased to 33.8% in fiscal year 2018 compared to 33.5% in fiscal year 2017. Labor costs were higher primarily due to wage rate increases for hourly employees. OnJanuary 1, 2018 , theState of California's (where most of our restaurants are located) minimum wage was raised to$11.00 per hour. In addition, regulatory increases to minimum wages for future periods have been passed and therefore we expect to see increased labor costs to continue. We are also experiencing a tight labor market in some areas which is putting pressure on labor rates. Occupancy and other operating expenses. Occupancy and other operating expenses increased$16.1 million , or 28.3%, for fiscal year 2018 as compared to fiscal year 2017, primarily due to new restaurants. As a percentage of revenue, occupancy and other operating expenses increased to 18.3% in fiscal year 2018 from 17.2% in fiscal year 2017. The increase is primarily due to higher call center, on-line and delivery costs as we have rolled out the option of delivery in the majority of our restaurants this year, and also due to higher rent and common area maintenance costs in fiscal year 2018. We expect to see higher rent and delivery costs to continue in fiscal 2019. General and administrative expenses. General and administrative expenses increased$6.4 million , or 19.5%, for fiscal year 2018 as compared to fiscal year 2017, primarily due to costs associated with supporting an increased number of restaurants, including the increasing number of administrative employees and field and corporate supervision. As a percentage of revenue, general and administrative expenses decreased slightly to 9.7% in fiscal year 2018 from 9.8% in fiscal year 2017. Exchange related expenses. Exchange related expenses, which are costs associated with the exchange of LLC Units to Class A common stock by theContinuing LLC Owners, were$0.1 million for fiscal year 2018 as compared to$0.5 million for fiscal year 2017. 58
-------------------------------------------------------------------------------- Depreciation and amortization expenses. Depreciation and amortization expense increased$5.7 million , or 30.5%, for fiscal year 2018 as compared to fiscal year 2017, primarily due to the increased number of restaurants. As a percentage of revenue, depreciation and amortization increased to 6.1% for fiscal year 2018 compared to 5.7% in fiscal year 2017, primarily due to slightly higher average capital expenditures on our new restaurants. Pre-opening costs. Pre-opening costs were$2.9 million for fiscal year 2018 as compared to$3.1 million for fiscal year 2017. We opened 30 new company-operated restaurants in fiscal year 2018 compared to 32 new company-operated restaurants that opened in fiscal year 2017. Pre-opening costs also include expenses incurred for restaurants that are set to open in the near future. As a percentage of revenue, pre-opening costs decreased to 0.7% in fiscal year 2018, from 0.9% in fiscal year 2017. Asset impairment. Asset impairment expense was$3.1 million for fiscal year 2018. There was no impairment expense in fiscal year 2017. The Company determined that the carrying value of three restaurants in theOrlando, Florida market were not recoverable, and as a result, recorded impairment expense of$3.1 million in fiscal year 2018. Tax Receivable Agreement liability adjustment. Tax Receivable Agreement expenses, which are adjustments associated with revisions to the expected TRA liability as a result of updated estimated future tax savings at the federal, state and local level, were$1.6 million for fiscal year 2018 as compared to a credit of$57.2 million for fiscal year 2017. The adjustment in fiscal year 2017 was primarily due to the new tax legislation, commonly referred to as the Tax Cuts and Jobs Act, which reduced theU.S. corporate income tax rate to 21% starting in 2018. Interest expense, net. Interest expense, net increased$0.4 million , or 73.1%, for fiscal year 2018 as compared to fiscal year 2017. The increase in interest expense is primarily attributed to higher interest expense from more deemed landlord locations. Provision (benefit) for income taxes. There was an income tax benefit of$1.1 million for fiscal year 2018 compared to income tax expense of$65.4 million for fiscal year 2017. In fiscal year 2017 we adjusted deferred tax assets in accordance with the new tax legislation which reduced theU.S. corporate income tax rate to 21% effective in 2018.
Selected Quarterly Financial Data
The following table presents select historical quarterly consolidated statements of operations data and other operations data for fiscal years 2019 and 2018. This quarterly information has been prepared using our unaudited consolidated financial statements and includes all adjustments consisting only of normal recurring adjustments necessary for a fair presentation of the results of the interim periods.
(amounts in thousands except per share data)
Fiscal Quarter(1)
1Q19 2Q19 3Q19 4Q19 FY19
Total revenue $ 108,174 $ 117,928 $ 117,303 $ 122,654 $ 466,059
Income (loss) from operations (274 ) 3,435 1,553 1,032 5,747
Net income (loss) (231 ) 2,680 1,365 863 4,677
Net income (loss) attributable to
non-
controlling interests (55 ) 708 327 220 1,200
Net income (loss) attributable to
The Habit
Restaurants, Inc. $ (176 ) $ 1,972 $ 1,038 $ 643 $ 3,477
Basic income (loss) per share of
Class A
common stock $ (0.01 ) $ 0.10 $ 0.05 $ 0.03 $ 0.17
Diluted income (loss) per share of
Class A
common stock $ (0.01 ) $ 0.09 $ 0.05 $ 0.03 $ 0.17
59
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Fiscal Quarter(1)
1Q18 2Q18 3Q18 4Q18 FY18
Total revenue $ 91,948 $ 102,852 $ 104,639 $ 102,708 $ 402,147
Income (loss) from operations 407 3,914 (899 ) 1,735 5,156
Net income (loss) 689 2,829 (864 ) 986 3,640
Net income (loss) attributable to
non-
controlling interests 35 773 (244 ) 299 863
Net income (loss) attributable to
The Habit
Restaurants, Inc. $ 654 $ 2,056 $ (620 ) $ 687 $ 2,777
Basic income (loss) per share of
Class A
common stock $ 0.03 $ 0.10 $ (0.03 ) $ 0.03 $ 0.14
Diluted income (loss) per share of
Class A
common stock $ 0.03 $ 0.10 $ (0.03 ) $ 0.03 $ 0.13 1) Certain totals may not sum exactly due to rounding.
Liquidity and Capital Resources
Our primary uses of cash are for operational expenditures and capital investments, including new stores, store remodels, store maintenance capital, store fixtures and ongoing infrastructure improvements. Historically, our main source of liquidity has been cash flows from operations. The significant components of our working capital are liquid assets such as cash, cash equivalents, current marketable securities and receivables, reduced by accounts payable and accrued expenses. Our working capital position benefits from the fact that we generally collect cash from sales to customers the same day or within several days of the related sale, while we typically have longer payment terms with our vendors.
As of
Potential Impacts of Market Conditions on Capital Resources
Until recently, we have consistently experienced increases in comparable restaurant sales and operating cash flows. However, the restaurant industry continues to be challenged and uncertainty exists as to the sustainability of these favorable trends as evidenced in our recent results.
We believe that expected cash flow from operations and our existing cash balance atDecember 31, 2019 are adequate to fund operations for at least the next 12 months. However, our ability to continue to meet these requirements and obligations will depend on, among other things, our ability to achieve anticipated levels of revenue and cash flow and our ability to manage costs and working capital successfully.
Summary of Cash Flows
Our primary sources of liquidity and cash flows are derived from our existing cash balance atDecember 31, 2019 and our operating cash flows. We use these to fund capital expenditures for new company-operated restaurant openings, reinvest in our existing restaurants, invest in infrastructure and information technology and maintain working capital. Our working capital position benefits from the fact that we generally collect cash from sales to customers the same day, or in the case of credit or debit card transactions, within several days of the related sale, and we typically have 20 to 30 days to pay our vendors. The material changes in working capital from fiscal year 2018 to fiscal year 2019 were comprised of a$11.5 million increase in current assets and a$31.9 million increase in current liabilities. The increase in current assets was 60 -------------------------------------------------------------------------------- primarily due to a$9.5 million increase in cash primarily attributed to the timing of payables, accrued expenses and employee-related accruals, and by an increase in prepaid expenses and other current assets of$4.1 million due primarily to the timing of rent payments, partially offset by a$2.2 million decrease in accounts receivable. The increase in current liabilities was primarily attributed to the adoption of ASC 842 and the recognition of the current portion of operating lease liabilities of$22.8 million as ofDecember 31, 2019 and also due to higher employee-related accruals of 7.1 million which is primarily due to the timing of pay dates and increased workers' compensation liabilities. Fiscal Year Ended December 31, December 25, December 26, (amounts in thousands) 2019 2018 2017 Consolidated Statement of Cash Flows Data: Net cash provided by operating activities$ 45,425 $ 42,096 $ 33,607 Net cash used in investing activities (34,360 ) (43,399 ) (46,025 ) Net cash used in financing activities$ (1,585 ) $ (2,080 ) $ (3,497 )
Cash Flows Provided by Operating Activities
Net cash provided by operating activities increased by$3.3 million to$45.4 million for the fiscal year endedDecember 31, 2019 from$42.1 million for the fiscal year endedDecember 25, 2018 . Cash flows from operating activities reflect net income adjusted for certain non-cash items including depreciation and amortization, changes in deferred tax assets, stock-based compensation and changes in working capital. The majority of the net cash provided increase in fiscal year 2019 was related to a$4.3 million increase in net income adjusted for non-cash items, a$2.2 million change in accrued expenses and a$2.0 million change in employee-related accruals. This increase in cash provided by operating activities for the fiscal year endedDecember 31, 2019 compared to the fiscal year endedDecember 25, 2018 was partially offset due to changes in prepaid expenses of$2.6 million , changes in accounts payable of$1.5 million and changes in accounts receivable of$1.1 million which were primarily attributed to timing. Net cash provided by operating activities increased by$8.5 million to$42.1 million for the fiscal year endedDecember 25, 2018 from$33.6 million for the fiscal year endedDecember 26, 2017 . The majority of the net cash provided increase in fiscal year 2018 was related to a$5.6 million increase in net income adjusted for non-cash items and a change in employee related accruals of$4.0 million . This increase in cash provided by operating activities for the fiscal year endedDecember 25, 2018 compared to the fiscal year endedDecember 26, 2017 was partially offset due to changes in accrued expenses and accounts payable of$1.5 million which was primarily attributed to timing.
Cash Flows Used in Investing Activities
Net cash used in investing activities decreased by$9.0 million to$34.4 million for the fiscal year endedDecember 31, 2019 from$43.4 million for the fiscal year endedDecember 25, 2018 . There were 21 new company-operated restaurants opened during the fiscal year endedDecember 31, 2019 compared to 30 new company-operated restaurants that opened during the fiscal year endedDecember 25, 2018 . The decrease was primarily due to the lower number of restaurants opened in fiscal year 2019. Net cash used in investing activities decreased by$2.6 million to$43.4 million for the fiscal year endedDecember 25, 2018 from$46.0 million for the fiscal year endedDecember 26, 2017 . There were 30 new company-operated restaurants opened during the fiscal year endedDecember 25, 2018 compared to 32 new company-operated restaurants that opened during the fiscal year endedDecember 26, 2017 . The decrease was primarily due to the slightly lower number of restaurants opened in fiscal year 2018. 61 --------------------------------------------------------------------------------
Cash Flows Used in Financing Activities
Net cash used in financing activities decreased by$0.5 million to$1.6 million for the fiscal year endedDecember 31, 2019 from$2.1 million for the fiscal year endedDecember 25, 2018 . This change was primarily due to a decrease in the TRA payment of$1.1 million in the current year, partially offset by higher tax distributions to Continuing LLC Owners of$0.6 million in the current year. Net cash used in financing activities decreased by$1.4 million to$2.1 million for the fiscal year endedDecember 25, 2018 from$3.5 million for the fiscal year endedDecember 26, 2017 . This change was primarily due to a decrease in tax distributions to Continuing LLC Owners of$0.6 million in the current year and due to a decrease in the TRA payment of$0.6 million in the current year.
Credit Facility
OnAugust 2, 2017 ,The Habit Restaurants, LLC executed a$20 million credit facility withBank of the West (the "Credit Facility") with a maturity date ofAugust 2, 2019 . InOctober 2018 andSeptember 2019 , we extended the maturity date on the Credit Facility toAugust 1, 2020 andAugust 1, 2021 , respectively. All borrowings under the Credit Facility will bear interest at a variable rate based upon LIBOR plus the applicable margin for LIBOR loans (as defined in the Credit Facility). The Credit Facility has no unused commitment fees. As part of the initial execution of the Credit Facility, we incurred$0.3 million in deferred financing fees that will be amortized over the length of the agreement. That amortization expense is included in interest expense, net on the accompanying consolidated statements of operations. The Credit Facility is secured by all the assets ofThe Habit Restaurants, LLC , and we are required to comply with certain financial covenants therein. The Credit Facility contains customary representations, warranties, negative and affirmative covenants, including a maximum lease adjusted leverage ratio of 4.00 to 1.00 and a minimum EBITDA of$21.4 million for the twelve-month period then ended at the end of each fiscal quarter. As ofDecember 31, 2019 , we andThe Habit Restaurants, LLC were in compliance with all covenants. As ofDecember 31, 2019 ,The Habit Restaurants, LLC had no outstanding debt under the Credit Facility. OnJanuary 4, 2018 we executed an irrevocable standby letter of credit for$1.5 million related to our self-insured workers' compensation coverage. In conjunction with the renewal of our self-insured workers' compensation coverage inOctober 2018 , we increased our irrevocable standby letter of credit to$3.25 million . The increased standby letter of credit expires onJanuary 5, 2021 . In conjunction with the renewal of our self-insured workers' compensation coverage inOctober 2019 , we executed an additional standby letter of credit for$1.4 million which expires onOctober 31, 2020 . These letters of credit are a reduction of the borrowing capacity of our Credit Facility.
Contractual Obligations
The following table presents our commitments and contractual obligations as of
2025 and
Total 2020 2021-2022 2023-2024 Thereafter
(amounts in thousands)
Long-term debt obligations(1) $ - $ - $ - $ - $ -
Operating lease obligations for 231,454 31,087 60,816 53,910
85,641
leases that have commenced(2)
Operating lease obligations for
leases that have not yet 34,084 637 4,942 4,953 23,552
commenced(3)
Purchase obligations(4) 1,326 1,326 - - -
Total $ 266,864 $ 33,050 $ 65,758 $ 58,863 $ 109,193 (1) On
facility with
Facility to
borrowings on the
62
--------------------------------------------------------------------------------
facility as of
not accrue any fees as part of this agreement. On
executed an irrevocable standby letter of credit for
our self-insured workers' compensation coverage. In conjunction with the
renewal of our self-insured workers' compensation coverage in
we increased our irrevocable standby letter of credit to
increased standby letter of credit expires on
conjunction with the renewal of our self-insured workers' compensation
coverage in
for
are a reduction of the borrowing capacity of our Credit Facility.
(2) Includes minimum rental payments that are included in the lease term for
leases that have commenced.
(3) Includes minimum rental payments that are included in the lease term for
leases that have not yet commenced.
(4) Includes short-term purchase commitments for food and paper items.
Off-Balance Sheet Arrangements
As of
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