10-Q 1 loco-20240626x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended June 26, 2024

or

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

For the transition period from                      to                     

Commission File Number: 001-36556

EL POLLO LOCO HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware

20-3563182

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

3535 Harbor Blvd., Suite 100, Costa Mesa, California

92626

(Address of principal executive offices)

(Zip Code)

(714) 599-5000

(Registrant’s telephone number, including area code)

N/A

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

LOCO

The Nasdaq Stock Market LLC

Rights to Purchase Series A Preferred Stock, par value $0.01 per share

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes      No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No

As of July 26, 2024, there were 29,928,318 shares of the issuer’s common stock outstanding.

Table of Contents

    

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48

50

2

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

EL POLLO LOCO HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Amounts in thousands, except share and per share data)

    

June 26,

    

December 27,

    

2024

    

2023

Assets

  

Current assets:

  

  

Cash and cash equivalents

$

10,465

$

7,288

Accounts and other receivables, net

 

10,279

 

10,148

Inventories

 

1,743

 

1,911

Prepaid expenses and other current assets

 

3,518

 

5,634

Income tax receivable

 

 

153

Total current assets

 

26,005

 

25,134

Property and equipment, net

 

86,178

 

84,027

Property and equipment held under finance lease, net

 

1,511

 

1,528

Property and equipment held under operating leases, net ("ROU asset")

 

166,507

 

168,007

Goodwill

 

248,674

 

248,674

Trademarks

 

61,888

 

61,888

Other assets

 

3,083

 

3,043

Total assets

$

593,846

$

592,301

Liabilities and Stockholders’ Equity

 

  

 

  

Current liabilities:

 

  

 

  

Current portion of obligations under finance leases

$

156

$

140

Current portion of obligations under operating leases

 

19,903

 

19,490

Accounts payable

 

11,704

 

12,541

Accrued salaries and vacation

 

11,782

 

9,332

Accrued insurance

 

11,930

 

11,831

Accrued income taxes payable

 

156

 

70

Accrued interest

 

378

 

394

Current portion of income tax receivable agreement payable

 

23

 

422

Other accrued expenses and current liabilities

 

18,854

 

18,361

Total current liabilities

 

74,886

 

72,581

Revolver loan

 

87,000

 

84,000

Obligations under finance leases, net of current portion

 

1,597

 

1,617

Obligations under operating leases, net of current portion

 

166,408

 

168,084

Deferred taxes

 

9,076

 

8,878

Other noncurrent liabilities

 

6,301

 

6,445

Total liabilities

 

345,268

 

341,605

Commitments and contingencies (Note 7)

 

  

 

  

Stockholders’ equity

 

  

 

  

Preferred stock, $0.01 par value, 100,000,000 shares authorized; 100,000 shares designated as Series A Preferred Stock; none issued or outstanding

 

 

Common stock, $0.01 par value, 200,000,000 shares authorized; 29,988,771 and 31,353,223 shares issued and outstanding as of June 26, 2024 and December 27, 2023, respectively

 

299

 

313

Additional paid-in-capital

 

220,772

 

236,421

Retained earnings

 

27,507

 

13,962

Total stockholders’ equity

 

248,578

 

250,696

Total liabilities and stockholders’ equity

$

593,846

$

592,301

See notes to condensed consolidated financial statements (unaudited).

3

EL POLLO LOCO HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Amounts in thousands, except share and per share data)

    

Thirteen Weeks Ended

    

Twenty-Six Weeks Ended

    

June 26, 2024

June 28, 2023

June 26, 2024

June 28, 2023

Revenue

 

  

 

  

 

  

 

  

 

Company-operated restaurant revenue

$

102,307

$

103,901

$

199,460

$

201,774

Franchise revenue

 

11,651

 

10,119

 

22,999

 

19,791

Franchise advertising fee revenue

 

8,218

 

7,472

 

15,870

 

14,453

Total revenue

 

122,176

 

121,492

 

238,329

 

236,018

Cost of operations

 

  

 

  

 

  

 

  

Food and paper cost

 

25,731

 

28,474

 

51,350

 

55,376

Labor and related expenses

 

32,868

 

32,277

 

63,448

 

63,818

Occupancy and other operating expenses

 

24,656

 

25,576

 

48,521

 

50,462

Gain on recovery of insurance proceeds, lost profits, net

(151)

Company restaurant expenses

 

83,255

 

86,327

 

163,319

 

169,505

General and administrative expenses

 

11,787

 

11,108

 

23,712

 

22,307

Franchise expenses

 

10,871

 

9,492

 

21,473

 

18,524

Depreciation and amortization

 

3,870

 

3,694

 

7,721

 

7,331

Loss (gain) on disposal of assets

 

63

 

(80)

 

104

 

(50)

Gain on recovery of insurance proceeds, property, equipment and expenses

 

 

 

(41)

 

(242)

Loss (gain) on disposition of restaurants

7

25

7

(111)

Impairment and closed-store reserves

 

5

 

38

 

37

 

115

Total expenses

 

109,858

 

110,604

 

216,332

 

217,379

Income from operations

 

12,318

 

10,888

 

21,997

 

18,639

Interest expense, net

 

1,527

 

976

 

3,091

 

1,980

Income tax receivable agreement expense (income)

 

 

121

 

 

(1)

Income before provision for income taxes

 

10,791

 

9,791

 

18,906

 

16,660

Provision for income taxes

 

3,158

 

2,735

 

5,361

 

4,686

Net income

$

7,633

$

7,056

$

13,545

$

11,974

Net income per share

 

  

 

  

 

Basic

$

0.25

$

0.20

$

0.44

$

0.33

Diluted

$

0.25

$

0.20

$

0.44

$

0.33

Weighted-average shares used in computing net income per share

 

  

 

  

 

  

 

  

Basic

 

30,240,170

 

35,433,414

 

30,508,970

 

35,833,759

Diluted

 

30,378,048

 

35,534,104

 

30,661,830

 

36,018,288

See notes to condensed consolidated financial statements (unaudited).

4

EL POLLO LOCO HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Amounts in thousands)

    

Thirteen Weeks Ended

    

Twenty-Six Weeks Ended

    

 

June 26, 2024

June 28, 2023

June 26, 2024

June 28, 2023

 

Net income

$

7,633

$

7,056

$

13,545

$

11,974

Other comprehensive loss

 

  

 

  

 

 

Changes in derivative instruments

 

  

 

  

 

 

Reclassifications of loss into net income

 

 

(85)

 

 

(170)

Income tax benefit

 

 

22

 

 

44

Other comprehensive loss, net of taxes

 

 

(63)

 

(126)

Comprehensive income

$

7,633

$

6,993

$

13,545

$

11,848

See notes to condensed consolidated financial statements (unaudited).

5

EL POLLO LOCO HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(Amounts in thousands, except share data)

Thirteen Weeks Ended June 26, 2024

    

    

    

    

    

Accumulated

    

  

    

    

    

Additional

    

    

Other

    

Total

Common Stock

Paid-in

Retained

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Earnings

    

(Loss) Income

    

Equity

Balance, March 27, 2024

31,179,519

$

312

$

236,103

$

19,874

$

$

256,289

Stock-based compensation

 

 

897

 

 

 

897

Issuance of common stock related to restricted shares

493,496

5

(5)

Issuance of common stock upon exercise of stock options, net

110,375

1

1,056

1,057

Shares repurchased for employee tax withholdings

(14,294)

(148)

(148)

Repurchase of common stock

(1,737,786)

(18)

(16,986)

(17,004)

Repurchase of common stock - excise tax

(146)

(146)

Forfeiture of common stock related to restricted shares

(42,539)

 

(1)

 

1

 

 

 

Net income

 

 

 

7,633

 

 

7,633

Balance, June 26, 2024

29,988,771

$

299

$

220,772

$

27,507

$

$

248,578

Thirteen Weeks Ended June 28, 2023

    

    

    

    

    

Accumulated

    

  

    

    

    

Additional

    

    

Other

    

Total

Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Deficit

    

(Loss) Income

    

Equity

Balance, March 29, 2023

36,450,477

$

364

$

286,791

$

(6,674)

$

63

$

280,544

Stock-based compensation

842

842

Issuance of common stock related to restricted shares

363,210

4

(4)

Issuance of common stock upon exercise of stock options, net

179,950

2

779

781

Shares repurchased for employee tax withholdings

(18,490)

(171)

(171)

Repurchase of common stock

(1,272,287)

(13)

(11,928)

(11,941)

Repurchase of common stock - excise tax

(88)

(88)

Forfeiture of common stock related to restricted shares

(59,113)

(1)

1

Other comprehensive income, net of tax

(63)

(63)

Net income

7,056

7,056

Balance, June 28, 2023

35,643,747

$

356

$

276,222

$

382

$

$

276,960

6

Twenty-Six Weeks Ended June 26, 2024

    

    

    

    

    

Accumulated

    

  

    

    

    

Additional

    

    

Other

    

Total

Common Stock

Paid-in

Retained

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Earnings

    

(Loss) Income

    

Equity

Balance, December 27, 2023

31,353,223

$

313

$

236,421

$

13,962

$

$

250,696

Stock-based compensation

 

 

1,817

 

 

 

1,817

Issuance of common stock related to restricted shares

493,496

5

(5)

Issuance of common stock upon exercise of stock options, net

110,380

1

1,056

1,057

Shares repurchased for employee tax withholdings

(14,294)

(148)

(148)

Repurchase of common stock

(1,874,186)

(19)

(18,212)

(18,231)

Repurchase of common stock - excise tax

(158)

(158)

Forfeiture of common stock related to restricted shares

(79,848)

(1)

1

Net income

 

 

 

13,545

 

 

13,545

Balance, June 26, 2024

29,988,771

$

299

$

220,772

$

27,507

$

$

248,578

Twenty-Six Weeks Ended June 28, 2023

    

    

    

    

    

Accumulated

    

  

    

    

    

Additional

    

    

Other

    

Total

Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Deficit

    

(Loss) Income

    

Equity

Balance, December 28, 2022

37,008,061

$

370

$

292,244

$

(11,592)

$

126

$

281,148

Stock-based compensation

1,613

1,613

Issuance of common stock related to restricted shares

363,210

4

(4)

Issuance of common stock upon exercise of stock options, net

184,294

2

822

824

Shares repurchased for employee tax withholdings

(18,490)

(171)

(171)

Repurchase of common stock

(1,824,636)

(19)

(18,133)

(18,152)

Repurchase of common stock - excise tax

(150)

(150)

Forfeiture of common stock related to restricted shares

(68,692)

(1)

1

Other comprehensive (loss) income, net of tax

(126)

(126)

Net income

11,974

11,974

Balance, June 28, 2023

35,643,747

$

356

$

276,222

$

382

$

$

276,960

See notes to condensed consolidated financial statements (unaudited).

7

EL POLLO LOCO HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts in thousands)

    

Twenty-Six Weeks Ended

    

    

June 26, 2024

June 28, 2023

    

Cash flows from operating activities:

  

  

Net income

$

13,545

$

11,974

Adjustments to reconcile net income to net cash flows provided by operating activities:

 

  

 

Depreciation and amortization

 

7,721

 

7,331

Stock-based compensation expense

 

1,817

 

1,613

Income tax receivable agreement income

 

 

(1)

Fire insurance proceeds for expenses paid and lost profit

151

Loss (gain) on disposition of restaurants

7

(111)

Loss (gain) on disposal of assets

 

104

 

(50)

Gain on recovery of insurance proceeds, property, equipment and expenses, net

(41)

(242)

Impairment of property and equipment

 

 

53

Amortization of deferred financing costs

 

96

 

106

Deferred income taxes, net

 

198

 

249

Changes in operating assets and liabilities:

 

  

 

Accounts and other receivables

 

22

 

(1,355)

Inventories

 

169

 

401

Prepaid expenses and other current assets

 

2,116

 

189

Income taxes payable

 

86

 

4,227

Other assets

 

(134)

 

(81)

Accounts payable

 

259

 

(1,095)

Accrued salaries and vacation

 

2,450

 

1,826

Accrued insurance

 

99

 

360

Payment related to tax receivable agreement

 

(399)

 

Other accrued expenses and liabilities

 

2

 

(3,749)

Net cash flows provided by operating activities

 

28,117

 

21,796

Cash flows from investing activities:

 

Proceeds from disposition of restaurants

 

100

 

175

Proceeds from fire insurance for property and equipment

41

163

Purchase of property and equipment

 

(10,687)

 

(9,237)

Net cash flows used in investing activities

 

(10,546)

 

(8,899)

Cash flows from financing activities:

 

  

 

  

Proceeds from borrowings on revolver and swingline loans

 

14,000

 

2,000

Payments on revolver and swingline loan

 

(11,000)

 

(8,000)

Minimum tax withholdings related to net share settlements

 

(148)

 

(171)

Proceeds from issuance of common stock upon exercise of stock options, net of expenses

1,057

824

Payment of obligations under finance leases

 

(101)

 

(76)

Repurchases of common stock

 

(18,202)

 

(17,784)

Net cash flows used in by financing activities

 

(14,394)

 

(23,207)

Increase (decrease) in cash and cash equivalents

 

3,177

 

(10,310)

Cash and cash equivalents, beginning of period

 

7,288

 

20,493

Cash and cash equivalents, end of period

$

10,465

$

10,183

    

Twenty-Six Weeks Ended

    

June 26, 2024

June 28, 2023

Supplemental cash flow information

 

  

 

  

 

Cash paid during the period for interest

$

3,061

$

2,077

Cash paid during the period for income taxes

$

4,925

$

45

Unpaid purchases of property and equipment

$

4,351

$

5,894

Unpaid repurchases of common stock and excise tax

$

742

$

518

See notes to condensed consolidated financial statements (unaudited).

8

EL POLLO LOCO HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Overview

El Pollo Loco Holdings, Inc. (“Holdings”) is a Delaware corporation headquartered in Costa Mesa, California. Holdings and its direct and indirect subsidiaries are collectively referred to herein as the “Company.” The Company’s activities are conducted principally through its indirect wholly owned subsidiary, El Pollo Loco, Inc. (“EPL”), which develops, franchises, licenses, and operates quick-service restaurants under the name El Pollo Loco® and operates under one operating segment. At June 26, 2024, the Company operated 171 and franchised 324 El Pollo Loco restaurants in the United States. The Company also licenses 10 restaurants in the Philippines.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair statement of the Company’s condensed consolidated financial position and results of operations and cash flows for the periods presented. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year. The condensed consolidated financial statements and related notes do not include all information and footnotes required by GAAP for annual reports. This quarterly report should be read in conjunction with the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 27, 2023.

The Company uses a 52- or 53-week fiscal year ending on the last Wednesday of the calendar year. In a 52-week fiscal year, each quarter includes 13 weeks of operations; in a 53-week fiscal year, the first, second and third quarters each include 13 weeks of operations, and the fourth quarter includes 14 weeks of operations. Every six or seven years, a 53-week fiscal year occurs. Fiscal 2024 and 2023 are both 52-week years, ending on December 25, 2024 and December 27, 2023, respectively. Revenues, expenses, and other financial and operational figures may be elevated in a 53-week year.

Holdings has no material assets or operations. Holdings and Holdings’ direct subsidiary, EPL Intermediate, Inc. (“Intermediate”), guarantee EPL’s 2022 Revolver (as defined in Note 4 below) on a full and unconditional basis (see Note 4, “Long-Term Debt”), and Intermediate has no subsidiaries other than EPL. EPL is a separate and distinct legal entity and has no obligation to make funds available to Intermediate. EPL and Intermediate may pay dividends to Intermediate and to Holdings, respectively, subject to the terms of the 2022 Revolver.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Holdings and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and revenue and expenses during the periods reported. Actual results could materially differ from those estimates. The Company’s significant estimates include estimates for impairment of goodwill, intangible assets and property and equipment, insurance reserves, lease accounting matters and contingent liabilities.

9

Cash and Cash Equivalents

The Company considers all liquid instruments with an original maturity of three months or less at the date of purchase to be cash equivalents.

Liquidity

The Company’s principal liquidity and capital requirements are new restaurants, existing restaurant capital investments (remodels and maintenance), interest payments on its debt, lease obligations and working capital and general corporate needs. At June 26, 2024, the Company’s total debt was $87.0 million. The Company’s ability to make payments on its indebtedness and to fund planned capital expenditures depends on available cash and its ability to generate adequate cash flows in the future, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond the Company’s control. Based on current operations, the Company believes that its cash flow from operations, available cash of $10.5 million at June 26, 2024, and the outstanding borrowing availability under the 2022 Revolver will be adequate to meet the Company’s liquidity needs for the next twelve months from the date of filing of these condensed consolidated financial statements.

Subsequent Events

Subsequent to the quarter-end, the Company paid down $4.0 million on its 2022 Revolver resulting in outstanding borrowings of $83.0 million as of August 1, 2024.

Concentration of Risk

Cash and cash equivalents are maintained at financial institutions and, at times, these balances may exceed federally-insured limits. The Company has never experienced any losses related to these balances.

The Company had one supplier to whom amounts due totaled 11.9% and 15.1% of the Company’s accounts payable at June 26, 2024 and December 27, 2023, respectively. Purchases from the Company’s largest supplier totaled 24.2% and 24.4% of total expenses for the thirteen and twenty-six weeks ended June 26, 2024, respectively, and 27.8% and 27.3% of total expenses for the thirteen and twenty-six weeks ended June 28, 2023, respectively.

Company-operated and franchised restaurants in the greater Los Angeles area generated, in the aggregate, approximately 71.8% and 71.7% of total revenue for the thirteen and twenty-six weeks ended June 26, 2024, respectively, and 70.9% and 70.8% for the thirteen and twenty-six weeks ended June 28, 2023, respectively.

Goodwill and Indefinite Lived Intangible Assets

The Company’s indefinite-lived intangible assets consist of trademarks. Goodwill represents the excess of cost over fair value of net identified assets acquired in business combinations accounted for under the purchase method. The Company does not amortize its goodwill and indefinite-lived intangible assets. Goodwill resulted from the acquisition of certain franchise locations.

Upon the sale or refranchising of a restaurant, the Company evaluates whether there is a decrement of goodwill. The amount of goodwill included in the cost basis of the asset sold is determined based on the relative fair value of the portion of the reporting unit disposed of compared to the fair value of the reporting unit retained. The Company reports as one reporting unit. The fair value of the portion of the reporting unit disposed of in a refranchising is determined by reference to the discounted value of the future cash flows expected to be generated by the restaurant and retained by the franchisee, which includes a deduction for the anticipated, future royalties the franchisee will pay the Company associated with the franchise agreement entered into simultaneously with the refranchising transition. The fair value of the reporting unit retained is based on the price a willing buyer would pay for the reporting unit and includes the value of franchise agreements. As such, the fair value of the reporting unit retained can include expected cash flows from future royalties from those restaurants currently being refranchised, future royalties from existing franchise businesses and company restaurant operations. The Company did not record any decrement to goodwill related to the disposition of restaurants in fiscal 2023 or the twenty-six weeks ended June 26, 2024.

10

The Company performs an annual impairment test for goodwill during the fourth fiscal quarter of each year, or more frequently if impairment indicators arise.

The Company reviews goodwill for impairment utilizing either a qualitative assessment or a fair value test by comparing the fair value of a reporting unit with its carrying amount. If the Company decides that it is appropriate to perform a qualitative assessment and concludes that the fair value of a reporting unit more likely than not exceeds its carrying value, no further evaluation is necessary. If the Company performs the fair value test, the Company will compare the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, the Company will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit.

The Company performs an annual impairment test for indefinite-lived intangible assets during the fourth fiscal quarter of each year, or more frequently if impairment indicators arise. An impairment test consists of either a qualitative assessment or a comparison of the fair value of an intangible asset with its carrying amount. The excess of the carrying amount of an intangible asset over its fair value is recognized as an impairment loss.

The assumptions used in the estimate of fair value are generally consistent with the past performance of the Company’s reporting segment and are also consistent with the projections and assumptions that are used in current operating plans. These assumptions are subject to change as a result of changing economic and competitive conditions.

The Company determined that there were no indicators of potential impairment of its goodwill and indefinite-lived intangible assets during the thirteen and twenty-six weeks ended June 26, 2024. Accordingly, the Company did not record any impairment to its goodwill or indefinite-lived intangible assets during the thirteen and twenty-six weeks ended June 26, 2024.

Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

Level 1: Quoted prices for identical instruments in active markets.
Level 2: Observable prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs or significant value drivers are observable.
Level 3: Unobservable inputs used when little or no market data is available.

Certain assets and liabilities are measured at fair value on a nonrecurring basis. In other words, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments only in certain circumstances (e.g., when there is evidence of impairment).

11

There were no non-financial instruments measured at fair value on a nonrecurring basis as of and for the thirteen and twenty-six weeks ended June 26, 2024.

The following non-financial instruments were measured at fair value on a nonrecurring basis as of and for the thirteen and twenty-six weeks ended June 28, 2023, reflecting certain property and equipment assets and right of use (“ROU”) assets for which an impairment loss was recognized during the corresponding periods, as discussed immediately below under “Impairment of Property and Equipment and ROU Assets” (in thousands):

Thirteen Weeks

Twenty-Six Weeks

Fair Value Measurements at June 28, 2023 Using

Ended June 28, 2023

Ended June 28, 2023

    

Total

    

Level 1

    

Level 2

    

Level 3

 

Impairment Losses

    

Impairment Losses

Certain ROU assets, net

$

265

$

$

$

265

$

$

39

Impairment of Property and Equipment and ROU Assets

The Company reviews its property and equipment and ROU assets for impairment on a restaurant-by-restaurant basis whenever events or changes in circumstances indicate that the carrying value of certain property and equipment and ROU assets may not be recoverable. The Company considers a triggering event related to property and