UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 2, 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: 001-35987
NOODLES & COMPANY
(Exact name of registrant as specified in its charter)
Delaware
84-1303469
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
520 Zang Street, Suite D
Broomfield, CO
(Address of principal executive offices)
80021
(Zip Code)
Registrant’s telephone number, including area code: (720) 214-1900
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Class A common stock, par value $0.01 per share
Trading Symbol
NDLS
Name of each exchange on which registered
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
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 x 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 x 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
Non-accelerated filer
☐
☐
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report.
☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common stock held by non-affiliates as of July 4, 2023, the last business day of the registrant’s
most recently completed second fiscal quarter, was $133.1 million. This amount was calculated based on the closing price of the common stock on July 4, 2023
on the Nasdaq Global Select Market. All executive officers and directors of the registrant have been deemed, solely for the purpose of the foregoing calculation,
to be “affiliates” of the registrant.
As of March 1, 2024, there were 44,989,714 shares of the registrant’s Class A common stock, par value of $0.01 per share outstanding.
Portions of the registrant’s proxy statement relating to its 2024 Annual Meeting of Stockholders, to be held on or about May 15, 2024, are incorporated by
reference into Part III of this Annual Report on Form 10-K, where so indicated. Such proxy statement will be filed with the U.S. Securities and Exchange
Commission within 120 days after the end of the fiscal year to which this report relates.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
PART I
Business ................................................................................................................................................
Risk Factors ..........................................................................................................................................
Unresolved Staff Comments .................................................................................................................
Cybersecurity ........................................................................................................................................
Properties ..............................................................................................................................................
Legal Proceedings .................................................................................................................................
Mine Safety Disclosures .......................................................................................................................
PART II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities ...................................................................................................................................
[Reserved] .............................................................................................................................................
Management's Discussion and Analysis of Financial Condition and Results of Operations ...............
Quantitative and Qualitative Disclosures About Market Risk ..............................................................
Financial Statements and Supplementary Data .....................................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...............
Controls and Procedures .......................................................................................................................
Other Information .................................................................................................................................
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections ..................................................
PART III
Directors, Executive Officers and Corporate Governance ....................................................................
Executive Compensation ......................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters ..................................................................................................................................................
Certain Relationships and Related Transactions, and Director Independence .....................................
Principal Accounting Fees and Services ...............................................................................................
Exhibits, Financial Statement Schedules ..............................................................................................
Form 10-K Summary ............................................................................................................................
PART IV
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ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 1C.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 9C.
ITEM 10.
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ITEM 13.
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ITEM 16.
SIGNATURES
EXHIBITS
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ITEM 1.
Business
General
PART I
Noodles & Company is a restaurant concept offering lunch and dinner within the fast-casual segment of the restaurant industry.
Our core offerings include noodle and pasta dishes, staples of many different cuisines, with the goal of delivering fresh
ingredients and flavors from around the world under one roof. Today, our globally-inspired menu includes a wide variety of high
quality, cooked-to-order dishes, including noodles and pasta, salads, soups and appetizers. As of January 2, 2024, we operated
470 restaurants in 31 states, which included 380 company locations and 90 franchise locations.
Noodles & Company is a Delaware corporation that was organized in 2002. Noodles & Company and its subsidiaries are
sometimes referred to as “Noodles,” “we,” “us,” “our,” and the “Company” in this report. We refer to our Class A Common
Stock, par value $0.01 per share, as our “common stock.”
Our Concept and Business Strategy
We believe Noodles is a broadly appealing concept in the national fast-casual dining space. We are focused on offering customers
flavorful, cooked-to-order dishes in a warm and welcoming environment at an attractive value. We offer approximately 20
globally-inspired and highly customizable dishes that can be enjoyed inside our restaurants, taken to-go, or delivered to our
customers.
Our customers experience the Noodles brand through our company-owned and franchise operated locations, and digitally through
our mobile app, website www.noodles.com and third-party delivery services. In 2023, approximately 54% of our sales were
derived from digital ordering, where guests have the opportunity to select in restaurant quick pick-up or delivery to their home or
office. We believe that the breadth of ways that consumers can access our brand, the variety inherent in our menu, and how well
our food travels is a business strength in relation to consumer trends towards convenience.
We have purposefully chosen a range of healthy to indulgent dishes to satisfy multiple dietary and lifestyle preferences. All of our
dishes are cooked-to-order with fresh, high quality ingredients sourced from our carefully selected suppliers. Our culinary team
strives to develop new dishes and limited time offerings to further reinforce our brand positioning and regularly provide our
customers with additional options. Choice and customization have always been a great strength of the brand, and we continue to
innovate in ways that allow guests to enjoy the world flavors they know and love, as well as discover new ones. This focus on
culinary innovation allows us to prepare and serve high quality food and meet changing consumer trends. We’ve recently engaged
a third-party culinary expert to evaluate our menu architecture and offerings, with anticipated rollout of our updated menu in late
2024 and 2025.
Consistent with our culture of enhanced customer service, we seek to hire, develop and retain individuals who will deliver
prompt, attentive service by engaging customers the moment they enter our restaurants. Our training philosophy empowers both
our restaurant managers and team members, also referred to as employees, to add a personal touch when engaging with our
customers. Our restaurant managers are critical to our success, as we believe that their entrepreneurial spirit and outreach efforts
build our brand in our communities.
Restaurant Portfolio and Franchising
Restaurant Portfolio. As of January 2, 2024, we had 380 company-owned restaurants and 90 franchise restaurants in 31 states.
Our restaurants are typically between 2,000 and 2,600 square feet and are located in end-cap, in-line or free-standing locations
across a variety of suburban, collegiate and urban markets. We are currently researching a smaller square footage restaurant
prototype design. We anticipate that this design will better facilitate future expansion and better meet the needs of the changing
consumer experience.
Restaurant Development. In 2023, we opened 18 new company-owned restaurants. In 2024, we plan to open 10-12 new company-
owned restaurants. Due to increased construction and development costs and lower than expected returns on investment on recent
new restaurant openings, we have reduced our new restaurant development pipeline for 2024 and 2025.
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Certain Restaurant Closures. We closed six company-owned restaurants in 2023, most of which were at or approaching the
expiration of their leases or in trade areas that are not as well positioned for current consumer trends. We currently do not
anticipate a significant number of restaurant closures for the foreseeable future; however, we may from time to time close or
relocate certain restaurants, that are at, or near, the expiration of their leases or in trade areas that are not as well positioned for
current consumer trends.
Franchising. As of January 2, 2024, we had 90 franchise units in 18 states operated by 10 franchisees. In 2023, our franchisees
did not open any restaurants and closed three restaurants. We have 10 area developers who have signed development agreements
providing for the opening of 121 restaurants in their respective territories. In January of 2022, we completed the sale of 15
restaurants in California to a new franchise partner (the “Warner Sale”). We expect franchising to be a part of our growth strategy
in future years. We look for experienced, well-capitalized franchise partners who are able to leverage their existing infrastructure
and local knowledge in a manner that benefits both our franchisees and us. We expect to continue to offer development rights in
markets where we do not intend to build company-owned restaurants. We may offer such rights to larger developers who commit
to open 10 or more units, or to smaller developers who may commit to open fewer restaurants. We do not currently intend to offer
single-unit franchises. We believe the strength and attractiveness of our brand will attract experienced and well-capitalized area
developers.
Site Development and Expansion
We consider our site selection and development process critical to our long-term success. We have used a combination of our own
internal team and outside real estate consultants to locate, evaluate and negotiate new sites using various criteria. In making site
selection decisions, we use several analytical tools designed to uncover the key site, demographic, business, retail, competitive
and traffic characteristics that drive successful locations. We utilize third-party resources to assist with evaluating potential new
sites. Once a location has been approved by our executive-level selection committee, we begin a design process to match the
characteristics and feel of the location to the trade area.
Restaurant Management and Operations
Friendly Team Members. We believe our genuine, friendly team members separate us from our competitors. We value the
individuality of our team members, which we believe results in a management, operations and training philosophy distinct from
that of our competitors. We strive to hire team members who share our values, a passion for food, have a competitive spirit and
will operate our restaurants in a way that is consistent with our high standards. We seek to hire individuals who will deliver
prompt, attentive service by engaging customers at all points during the Noodles brand experience. We empower our team
members to enrich the experience of our customers and directly address any concerns that may arise in a manner that contributes
to the success of our business.
Restaurant Management and Employees. Each restaurant typically has a general manager, an assistant general manager, multiple
shift managers and team members. We cross-train our employees in an effort to create a depth of competency in our critical
restaurant functions. To lead our restaurant management teams, we have area managers (each of whom is responsible for
approximately five to 10 restaurants), as well as regional directors (each of whom is responsible for approximately 50 to 60
restaurants).
Training and Career Development. We believe that our training efforts create a culture of continuous learning and professional
growth that allows our team members to continue their career development with us. Within each restaurant, two to four team
members are designated to lead the training efforts and ensure a consistent approach to team member development. We produce
training materials that encourage individual contributions and participation from our team members while also requiring
adherence to certain guidelines and procedures.
Food Preparation and Quality. Our teams use classic professional cooking methods, including sautéing many of our vegetables,
in full kitchens resembling those of full-service restaurants. All team members, including our restaurant managers, spend their
first several days working solely with food and learning these techniques, and we spend a significant amount of time ensuring that
each team member learns how to prepare and cook our food properly.
The majority of our restaurants have exhibition-style kitchens. This design demonstrates our commitment to cooking fresh food in
an accessible manner. We provide each customer with individual attention and make every effort to respond to customer
suggestions and concerns in a personal and hospitable way.
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(cid:31) !"#$%#&"(cid:3)’#%( ")&*
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Oversight and Management. We recognize the diversity of our team members, guests and communities, and believe in creating an
inclusive and equitable environment that represents a broad spectrum of backgrounds and cultures. Working under these
principles, our Human Resources department is tasked with managing employment-related matters, including recruiting and
hiring, onboarding and training, compensation and benefit planning, organizational design, performance management, succession
planning and talent development. Our management and cross-functional teams also work closely to evaluate human capital
management issues such as team member retention, workplace safety, harassment and bullying, as well as to implement measures
to mitigate these risks.
Our Board of Directors and Board committees provide oversight on certain human capital matters as part of their overall
engagement in our Environmental, Social and Governance practices. Our Compensation Committee, with input from members of
our management and a third-party compensation consultant who provides benchmarked data, has responsibility for approving
annually certain elements of compensation, including our incentive compensation plans and equity-based plans. Management
provides input into the design of our incentive compensation programs to confirm that these programs support the Company’s
business objectives and strategic priorities. The annual business plan initially established by our management, but approved by
our Board, is an important element of our Compensation Committee’s decision-making process for performance measures and
goals.
Total Rewards. We have demonstrated a history of investing in our workforce by offering competitive salaries and wages. To
foster a stronger sense of ownership and align the interests of our team members with shareholders, restricted stock units are
provided to eligible team members under our stock incentive programs. Additionally, we provide incentive compensation through
annual bonus plans for all eligible team members. Furthermore, we offer competitive, targeted and innovative benefits to all
eligible team members. This includes health, dental and vision insurance coverage, a 401(k) program and paid time off.
We continue to offer a comprehensive team member benefits program called LifeAtNoodles. The benefits include financial
planning resources, GM equity partner program and Noodles Resource Groups. Our GM equity partner program is designed to
reward and motivate our top performers. One of the most impactful programs we put in place is Noodles’ versions of Employee
Resource Groups, called NRGs (“Noodles Resource Groups”). These groups are designed to help elevate the voice of these
underrepresented populations and increase recruiting and retention efforts.
We continue to focus on how we can offer the best workplace in our industry and we are proud of these benefits that honor our
commitment to inclusion and diversity. In 2023, we were named one of America's Great Places to Work for Diversity and Great
Places to Work for Women by Newsweek, and one of the Top 500 Franchises by Franchise Times. Noodles has been recognized
by Forbes as one of America's Best Employers for Diversity in 2021, 2022 and 2023 and one of America's Best Employers for
Women in 2021. Additionally, in 2022 and 2023, QSR named Noodles one of the Best Brands to Work For. In 2023 the National
Restaurant Association Educational Foundation (“NRAEF”) awarded Noodles with the 2023 Restaurants Advance Leadership
Award for our DEI Leadership. This award included a grant that NRAEF would donate to a non-profit organization of our choice.
This has led us to a partnership with Momentum Advisory Council / Café Momentum, an organization committed to helping
juveniles who have been involved in the judicial system back into society, building life skills that will help them stay out of the
judicial system.
As of January 2, 2024, we had approximately 7,600 employees, including approximately 600 salaried employees and
approximately 7,000 hourly employees. None of our employees are unionized or covered by a collective bargaining agreement,
and we consider our current employee relations to be good.
Suppliers
Maintaining a high degree of quality in our restaurants depends in part on our ability to acquire fresh ingredients and other
necessary supplies that meet our specifications from reliable suppliers. We carefully select suppliers based on quality and their
understanding of our brand, and we seek to develop mutually beneficial long-term relationships with them. We work closely with
our suppliers and use a mix of forward, fixed and formula pricing protocols. In some cases, we have made efforts to increase the
number of suppliers for our ingredients, which we believe can help mitigate pricing volatility. We monitor industry news, trade
issues, weather, crises and other world events that may affect supply prices.
4
Seasonality/Quarterly Financial Information
Seasonal factors and the timing of holidays cause our revenue to fluctuate from quarter to quarter. Our revenue per restaurant is
typically lower in the first and fourth quarters, due to reduced winter and holiday traffic, and higher in the second and third
quarters. Other factors also have a seasonal effect on our results. For example, restaurants located near colleges and universities
generally do more business during the academic year. Seasonal factors, however, might be moderated or outweighed by other
factors that may influence our quarterly results, such as worldwide health pandemics, fluctuations in food or packaging costs, or
the timing of menu price increases or promotional activities and other marketing initiatives.
Our quarterly results are also affected by other factors such as the amount and timing of incentive-based compensation expense
and related tax rate impacts, impairment charges and non-operating costs, timing of marketing or promotional expenses, the
number and timing of new restaurants opened in a quarter, and closure of restaurants. New restaurants typically have higher
operating costs following opening because of the expenses associated with their opening and operating inefficiencies in the
months immediately following opening. Accordingly, results for a particular quarter are not necessarily indicative of results to be
expected for any other quarter or for any year.
Competition
We face competition from the casual dining, quick-service and fast-casual segments of the restaurant industry. These segments are
highly competitive with respect to taste, price, food quality and presentation, service, location and the ambiance and condition of
each restaurant, among other things. Our competition includes a variety of locally owned restaurants and national and regional
chains who offer dine-in, carry-out and delivery services. Many of our competitors have existed longer and have a more
established market presence with substantially greater financial, marketing, personnel and other resources than we have. Among
our competitors are a number of multi-unit, multi-market fast-casual restaurant concepts, some of which are expanding nationally.
As we expand, we will face competition from these concepts and new competitors that strive to compete with our market
segments.
We also face competition from firms outside the restaurant industry, such as grocery stores and home meal replacement services,
who sell prepared meals for takeout and in some cases, offer delivery service.
Intellectual Property and Trademarks
We own a number of trademarks and service marks registered or pending with the U.S. Patent and Trademark Office. We also
have certain trademarks registered in certain foreign countries. In addition, we own the internet domain name www.noodles.com.
The information on, or that can be accessed through, our website is not part of this report. We believe that our trademarks, service
marks and other intellectual property rights have significant value and are important to the marketing of our brand, and it is our
policy to protect and defend vigorously our rights to such intellectual property.
Governmental Regulation and Environmental Matters
We are subject to extensive and varied federal, state and local government regulation, including regulations relating to public and
occupational health and safety, sanitation and fire prevention. We operate each of our restaurants in accordance with standards
and procedures designed to comply with applicable codes and regulations. However, an inability to obtain or retain health
department or other licenses could adversely affect our operations. Although we have not experienced, and do not anticipate, any
significant difficulties, delays or failures in obtaining required licenses, permits or approvals, any such problem could delay or
prevent the opening of, or adversely impact the viability of, a particular restaurant or group of restaurants.
In addition, in order to develop and construct restaurants, we need to comply with applicable zoning, land use and environmental
regulations. Federal and state environmental regulations have not had a material effect on our operations to date, but more
stringent and varied requirements of local governmental bodies with respect to zoning, land use and environmental factors could
delay or even prevent construction and increase development costs for new restaurants. We are also required to comply with the
accessibility standards mandated by the U.S. Americans with Disabilities Act (“ADA”), which generally prohibits discrimination
in accommodation or employment based on disability. We may in the future have to modify restaurants, for example by adding
access ramps or redesigning certain architectural fixtures, to provide service to or make reasonable accommodations for disabled
persons. While these expenses could be material, our current expectation is that any such actions will not require us to expend
substantial funds.
5
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"
Available Information
We maintain a website at www.noodles.com, including an investor relations section at investor.noodles.com, on which we
routinely post important information, such as webcasts of quarterly earnings calls, and any related materials. You may access our
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, amendments to those reports and
other reports relating to us that are filed with or furnished to the SEC, free of charge in the investor relations section of our
website as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.
The contents of the websites mentioned herein are not incorporated into and should not be considered a part of this report. The
references to the URLs for these websites are intended to be inactive textual references only.
7
ITEM 1A.
Risk Factors
Special Note Regarding Forward-Looking Statements
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that
involve risks and uncertainties, including but not limited to the risks and uncertainties discussed under this Item 1A. “Risk
Factors,” Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 1.
“Business.” In some cases, you can identify forward-looking statements by terms such as “may,” “might,” “will,” “objective,”
“intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “design,” “estimate,” “predict,” “potential,” “plan” or the
negative of these terms and similar expressions intended to identify forward-looking statements. Forward-looking statements may
relate to, among other things: (i) our business objectives and strategic plans, including projected or anticipated growth rates,
including in guest traffic, digital orders, and new restaurants, revenues, planned improvements in operational efficiencies, gross
margins, and cost management, and enhancements to our restaurant environments and guest engagement, including the
anticipated impacts of innovations, improvements, and marketing efforts; (ii) our expectations about pricing strategy; (iii) our
expectations about the competitiveness of the labor market and our ability to hire, train, and retain qualified personnel; (iv)
anticipated capital investments and the results of such investments, including in new restaurant openings, local marketing, our
digital capabilities, and information technology systems, and the anticipated related benefits; (v) our expectations about restaurant
operating costs, including commodity and food prices, occupancy costs, and labor and energy costs; and our ability to offset
higher costs with menu price increases and related impacts on consumer behavior; (vi) anticipated legislation and other regulation
of our business, the expected impacts of government regulations on our operations and financial condition, and changes in such
regulation, including in relation to our franchise operations; (vii) our ability to attract and build relationships with experienced
franchise partners; (viii) our expectations about anticipated uses of, and risks associated with, future cash flows, liquidity, future
capital expenditures, and other capital deployment opportunities, and taxes; (ix) our expectations regarding competition; (x) our
expectations regarding demand and business recovery, consumer preferences, and consumer discretionary spending; (xi) our
ability to successfully implement our food safety programs; (xii) our ability to successfully implement our health and safety
initiatives; (xiii) anticipated impacts of future pandemics; (xiv) the seasonality of our business; (xv) our expectations and other
statements regarding interest rates, commodity prices, and other factors; (xvi) the other risks discussed under Risk Factors below.
These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results,
performance or achievements to be materially different from any future results, performances or achievements expressed or
implied by the forward-looking statements. We discuss these risks, uncertainties and other factors in greater detail below. These
statements reflect our current views with respect to future events and are based on currently available operating, financial and
competitive information. Unless required by United States federal securities laws, we do not intend to update any of these
forward-looking statements to reflect circumstances or events that occur after the statement is made.
Risks Related to Our Business and Industry
We may not achieve our operational, strategic or financial goals.
We continue to pursue a number of financial, operational and strategic goals and we may be unsuccessful in achieving some or all
of them. Our strategies are designed to, among other objectives, improve restaurant operations and increase our restaurant
revenue, comparable restaurant sales, net income and adjusted EBITDA, as defined in management’s discussion and analysis.
However, these strategies may not be successful in achieving our goals in part or at all. Further, we may encounter difficulty in
executing these strategies. Failing to execute our operational strategies could materially adversely affect our business, financial
condition, results of operations or cash flows.
Our strategies include innovating our menu offerings, enhancing our menu structure and layout, improving operational
effectiveness, optimizing our catering offerings, analyzing our pricing strategies, better understanding and tailoring
communications to customers through the implementation of a customer data platform, introducing new technology and
equipment, and continued focus on manager selection, training and development of our teams. However, customers may not favor
new menu offerings or may not find initiatives aimed at off-premise dining appealing, and our efforts to increase our sales growth
and improve our offerings may be unsuccessful. Additionally, our operational initiatives may be ineffective at reducing costs or
may reduce the quality of the customer experience. Any failure of our new initiatives could materially adversely affect our
business, financial condition, results of operations or cash flows.
8
Further, we have had, and expect to continue to have, initiatives in various stages of testing, evaluation and implementation, upon
which we expect to rely to improve our results of operations and financial condition. Failure to achieve successful implementation
of our initiatives could materially adversely affect our business, financial condition, results of operations or cash flows.
We believe our culture, from the restaurant level up through management, is an important contributor to our success. As time
passes, however, we may have difficulty adapting our culture sufficiently to meet the needs of our business. Among other
important factors, our culture depends on our ability to attract, retain and motivate employees who share our enthusiasm and
dedication to our concept. Our comparable restaurant sales, and more broadly, our business, financial condition, results of
operations or cash flows, could be materially adversely affected if we do not maintain our infrastructure and culture.
Our strategic and operational goals are designed to improve our results of operations, including restaurant revenue and
profitability. The level of comparable restaurant sales, which represent the change in year-over-year sales for restaurants open for
at least 18 full periods, affects our restaurant revenue growth and will continue to be a critical factor affecting profitability. Our
ability to increase comparable restaurant sales depends in part on our ability to successfully implement our initiatives, including
increasing guest traffic. It is possible that such initiatives will not be successful, that we will not achieve our target comparable
restaurant sales growth or that the change in comparable restaurant sales could be negative, which may cause a decrease in
restaurant revenue and profitability that could materially adversely affect our business, financial condition, results of operations or
cash flows. For example, in 2023 we experienced a decline in same store sales, as well as an increased loss from operations.
Changes in economic conditions, including higher inflationary pressures and continued elevated interest rates, may reduce
customer demand and increase our costs.
Our business, and the restaurant industry in general, depends on consumer discretionary spending. Changes in market conditions,
including negative economic conditions resulting from inflation, increased interest rates, recessionary economic cycles, stock
market volatility, war, terrorist activities, global economic occurrences or trends or other geo-political events, may result in
decreased consumer confidence, increased cost of consumer credit and ultimately reduced consumer disposable income. In turn,
consumers may make changes to their discretionary spending behavior in a way that negatively affects our business, including
dining out less frequently, reducing the amount they spend while dining out, or choosing to eat at other lower priced restaurants.
Additionally, these changes in market conditions may impact our development pipeline, including the availability of new sites,
increased construction costs and availability of contract labor.
Changes in economic conditions, particularly with respect to inflationary pressures, may result in increased interest rates
persisting for longer than expected and/or further increases in interest rates, labor shortages, and supply chain disruptions. These
inflationary pressures may also increase our costs including our labor and raw material costs, utilities, and our cost of borrowing,
and we may not be able to fully offset such higher costs through price increases. For example, in 2023, we executed an
amendment to our credit agreement which resulted in increased borrowing rates. Also in 2022, the cost of several of our food
ingredients increased as a result of inflation in many commodities, particularly our cost of chicken. As a result, we implemented a
temporary chicken-price surcharge of $1.00 for several months while chicken was at its peak of the commodity cycle and made
certain other menu price increases throughout 2022.
If customer demand were to decrease or our costs were to increase without a corresponding increase in our prices, our profitability
would decline. Moreover, as a result of such economic conditions, we may record additional asset impairment charges, implement
additional restaurant closures, or slow our planned growth. Any of these economic factors may materially adversely affect our
business, financial condition, results of operations or cash flows.
Competition from other restaurant companies could adversely affect us.
We face competition from the casual dining, fast-casual and quick-service segments of the restaurant industry. These segments are
highly competitive with respect to taste, price, food quality and presentation, service, location and the ambiance and condition of
each restaurant, among other things. Our competition includes a variety of locally owned restaurants and national and regional
chains who offer dine-in, carry-out and delivery services. Many of our competitors have existed longer and have a more
established market presence with substantially greater financial, marketing, personnel and other resources than we have. Among
our competitors are a number of multi-unit, multi-market fast-casual restaurant concepts, some of which are expanding nationally.
We continually face competition from these concepts and new competitors that strive to compete with our market segments. For
example, additional competitive pressures come from the deli sections and in-store cafés of grocery store chains, as well as from
convenience stores and online meal preparation sites. These competitors may have, among other things, lower operating costs,
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food offerings more responsive to consumer preferences, better locations and facilities, more experienced management, more
effective marketing and more efficient operations.
Several of our competitors compete by offering menu items that are specifically identified as low in carbohydrates, gluten-free, or
rich in protein. In addition, many of our competitors emphasize lower-cost value options or meal packages, or strategies we do not
currently pursue. Any of these competitive factors may materially adversely affect our business, financial condition, results of
operations or cash flows.
Our marketing programs may not be successful.
We incur costs and expend other resources in our marketing efforts to attract and retain customers. These initiatives may not be
successful, resulting in expenses incurred without the benefit of higher revenues. Additionally, many of our competitors have
more marketing resources and we may not be able to successfully compete. If our competitors increase spending on marketing, or
if our marketing funds decrease for any reason, or if our advertising and promotions are less effective than those of our
competitors, our financial performance could be materially affected.
Many of our competitors are devoting increased resources to their social media marketing programs. Social media can be
challenging because it reaches a broad audience with an ability to respond or react, in near real time. In addition, social media can
facilitate the improper disclosure of proprietary information, personally identifiable information, or inaccurate information. As a
result, if we do not appropriately manage our social media strategies, our marketing efforts in this area may not be successful and
could damage our reputation, negatively impacting our restaurant sales and financial performance.
Negative publicity relating to one or more of our restaurants, including our franchised restaurants, could reduce sales at some
or all of our other restaurants.
Our success is dependent in part upon our ability to maintain and enhance the value of our brand, consumers’ connection to our
brand and positive relationships with our franchisees. We may be faced with negative publicity relating to food quality, restaurant
facilities, customer complaints or litigation alleging illness or injury, health inspection scores, integrity of our or our suppliers’
food processing, employee relationships or other matters, regardless of whether the allegations are valid or whether we are held to
be responsible. The negative impact of adverse publicity relating to one restaurant may extend far beyond the restaurant or
franchise involved to affect some or all of our other restaurants. The risk of negative publicity is particularly great with respect to
our franchised restaurants because we are limited in the manner in which we can regulate them, especially on a real-time basis.
Negative publicity generated by such incidents may be amplified by the use of social media. A similar risk exists with respect to
unrelated food service businesses, if consumers associate those businesses with our own operations or are concerned with the food
safety of the broader restaurant industry.
Additionally, employee claims against us based on, among other things, wage and hour violations, discrimination, harassment or
wrongful termination may also create negative publicity that could materially adversely affect us and divert our financial and
management resources that would otherwise be used to benefit the future performance of our operations. A significant increase in
the number of these claims or an increase in the number or scope of successful claims could materially adversely affect our
business, financial condition, results of operations or cash flows. Consumer demand for our products and our brand’s value could
diminish significantly if any such incidents or other matters create negative publicity or otherwise erode consumer confidence in
us or our products, or in the restaurant industry as a whole, which would likely result in lower sales and could materially
adversely affect our business, financial condition, results of operations or cash flows.
Food safety and foodborne illness concerns could have an adverse effect on our business.
We cannot guarantee that our internal controls and training will be fully effective in preventing all food safety issues at our
restaurants, including any occurrences of foodborne illnesses such as E. coli, Hepatitis A, listeria, norovirus and salmonella. The
risk of illnesses associated with our food might also increase in connection with the expansion of our catering and delivery
businesses or other situations in which our food is served or delivered in conditions that we cannot control. Furthermore, we and
our franchisees rely on third-party vendors throughout our supply chain, making it difficult to monitor food safety compliance and
increasing the risk that foodborne illness would affect multiple locations rather than a single restaurant. Some foodborne illness
incidents could be caused by third-party vendors and transporters outside of our control. New illnesses resistant to our current
precautions may develop in the future, or diseases with long incubation periods could arise, that could give rise to claims or
allegations on a retroactive basis. One or more instances of foodborne illness in any of our restaurants or markets or related to
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food products we sell could negatively affect our restaurant sales nationwide if highly publicized on national media outlets or
through social media. This risk exists even if it were later determined that the illness was wrongly attributed to us or one of our
restaurants.
A number of other restaurant chains have experienced incidents related to foodborne illnesses that have had a material adverse
effect on their operations, including E. coli, listeria and norovirus outbreaks at other fast-casual concepts. These incidents at other
restaurants could cause some customers to have a negative perception of fast-casual concepts generally, which can negatively
affect our restaurants. The occurrence of a similar incident at one or more of our restaurants, or negative publicity or public
speculation about an incident, could materially adversely affect our business, financial condition, results of operations or cash
flows.
We may raise menu prices or revise our pricing structure, which may not be sufficient to offset rising costs or which could
decrease customer demand.
We have historically, and expect to continue to, utilize menu price increases to help offset cost increases, including increased cost
for food ingredients and supplies, wages, employee benefits, insurance costs, construction, utilities and other key operating costs.
If our selection and amount of menu price increases are not accepted by consumers and reduce guest traffic, or are insufficient to
counter increased costs, our financial results could be negatively affected. For example, in 2022 and in the first quarter of 2023,
primarily in response to inflationary food and labor costs, we made certain menu price increases, which we believe negatively
affected our traffic.
Unexpected events have impacted and may in the future impact our business, financial condition and results of operations.
The occurrence of one or more unexpected events, including war, acts of terrorism, epidemics and pandemics (such as the
COVID-19 pandemic), civil unrest, fires, tornadoes, tsunamis, hurricanes, earthquakes, floods, and other forms of severe weather
(including those caused or exacerbated by climate change) in the United States or in other locations in which our suppliers are
located, have affected and could in the future affect our operations and financial performance. It is possible that weather
conditions may impact our business more than other businesses in our industry because of the significant concentration of our
restaurants in the Upper Midwest, Rocky Mountain and Mid-Atlantic states. Such events could affect our guest traffic, sales and
operating costs and/or cause complete or partial closure of one or more distribution centers, cause temporary or long-term
disruption or inoperability of our information technology systems (including our digital platform), temporary or long-term
disruptions in our delivery channel or the supply of products from suppliers, and disruption and delay in the transport of products,
any of which may have a material adverse effect on our business, financial condition, and results of operations. Existing insurance
coverage may not provide protection from all the costs that may arise from such events.
We are subject to risks associated with long-term non-cancellable leases and the costs of exiting leases at restaurants we have
closed or may close in the future may be greater than we estimate or could be greater than the funds we raise to address
closure costs.
We do not own any real property. Payments under our operating leases account for a significant portion of our operating expenses
and we expect the new restaurants we open in the future will similarly be leased. Our leases generally have an initial term of ten
years and generally can be extended only in five-year increments (at increased rates). All of our leases require a fixed annual rent,
although some require the payment of additional rent if restaurant sales exceed a negotiated amount. Generally, our leases are
“net” leases, which require us to pay all of the cost of insurance, taxes, maintenance and utilities. We generally cannot cancel
these leases. Additional sites that we lease are likely to be subject to similar long-term non-cancelable leases. In connection with
closing restaurants, we may nonetheless be committed to perform our obligations under the applicable lease including, among
other things, paying the base rent for the balance of the lease term. In addition, as each of our leases expires, we may fail to
negotiate renewals, either on commercially acceptable terms or at all, which could cause us to pay increased occupancy costs or to
close restaurants in desirable locations.
Opening and operating new restaurants entails numerous risks and uncertainties.
One element of our operational strategy is the opening of new restaurants and operating those restaurants on a profitable basis. In
2023, we opened eighteen company-owned restaurants and closed six company-owned restaurants. Our franchisees did not open
any new restaurants and closed three restaurants. We expect future annual unit growth rate of approximately 1-3% in the next few
years.
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Opening new restaurants presents numerous risks and uncertainties. We may not be able to open new restaurants as quickly as
planned. In the past, we have experienced delays in opening some restaurants due to adverse weather and permitting delays.
Delays or failures in opening new restaurants could occur in the future and could materially adversely affect our business strategy
and our expected results.
Our ability to open new restaurants also depends on other factors, including: site selection; negotiating leases with acceptable
terms; identifying, hiring and training qualified employees; the state of the labor market in each local market; timely delivery of
leased premises to use; managing construction and development costs; avoiding the impact of inclement weather, natural disasters
and other calamities; obtaining construction materials and labor at acceptable costs; securing required governmental approvals,
permits and licenses; generating sufficient returns on our new restaurant investments; and accessing capital. Our new restaurant
growth will decrease from 18 new restaurants in 2023 to 10-12 in 2024 due to lower than expected rates of return on investment
for our recently opened restaurants as well as increased construction and development costs. As a result, we have reduced our
new restaurant development pipeline for 2024 and 2025. We are enhancing our operating model and researching a new prototype.
We anticipate our new restaurants may be smaller in terms of square footage and seating than our current restaurants, in
accordance with our increased focus on off-premise dining opportunities. Customers may react negatively to these features and
our re-designed, smaller stores, which could materially adversely affect our business, financial condition, results of operations or
cash flows.
Our long-term success is partially dependent on our ability to effectively identify appropriate target markets and secure
appropriate sites for new restaurants.
In order to build new restaurants, we must first identify target markets where we can expand our footprint, taking into account
numerous factors, including the location of our current restaurants, local economic trends, population density, area demographics
and geography. The selection of target markets for expansion is challenging. We also must locate and secure appropriate sites for
new restaurants, which is one of our biggest challenges. There are numerous factors involved in identifying and securing an
appropriate site, including, among others: identification and availability of locations; competition; financial conditions affecting
developers and potential landlords; developers and potential landlords obtaining licenses or permits for development projects on a
timely basis; proximity of potential development sites to an existing location; anticipated development near our new restaurants;
and availability of acceptable lease arrangements. If we are unable to fully implement our development plan, our business,
financial condition, results of operations or cash flows could be materially adversely affected.
New restaurants, once opened, may not be profitable.
New restaurants may not be profitable, their sales performance may not follow historical patterns, or our average restaurant sales
and comparable restaurant sales may underperform our expectations. In addition, the construction costs supporting the new
restaurant openings may be higher than historical averages, placing a higher profitability threshold to generate an attractive cash-
on-cash return. Our ability to operate new restaurants profitably, maintain an attractive cash-on-cash return, and increase average
restaurant sales and comparable restaurant sales will depend on many factors, some of which are beyond our control, including:
consumer awareness, understanding and support of our brand; general economic conditions, construction cost inflation, local
labor costs and availability and prices we pay for the food products and other supplies we use; changes in consumer preferences;
competition; temporary and permanent site characteristics of new restaurants; and changes in government regulation.
If our new restaurants do not perform as planned, our business and future prospects could be harmed. In addition, if we are unable
to achieve our expected average restaurant sales, our business, financial condition, results of operations or cash flows could be
materially adversely affected. The return on investment on our recent new restaurant openings have not been as expected. As a
result, we have reduced our new restaurant development pipeline for 2024 and 2025.
Opening new restaurants in existing markets may negatively affect sales at our existing restaurants.
The consumer target area of our restaurants varies by location, depending on a number of factors, including population density,
other local retail and business attractions, area demographics and geography. As a result, opening a new restaurant in or near
markets in which we already have restaurants could materially adversely affect the sales of these existing restaurants. Existing
restaurants could also make it more difficult to build our consumer base for a new restaurant in the same market. Our core
business strategy does not entail opening new restaurants that we believe will materially affect sales at our existing restaurants,
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but we may selectively open new restaurants in and around areas of existing restaurants that are operating at or near capacity to
effectively serve our customers. Sales cannibalization between our restaurants may become significant in the future as we
continue to expand our operations and could affect our sales growth, which could, in turn, materially adversely affect our
business, financial condition, results of operations or cash flows.
Risks Related to Our Employees, Executives and Franchisees
Our business could be adversely affected by difficulties in hiring and retaining top-performing employees.
Our success depends on the efforts of our employees and our ability to hire, motivate and retain qualified employees. During
2022, we experienced a higher level of turnover driven by conditions during the novel coronavirus pandemic (the “COVID-19
Pandemic”) and a more competitive labor market and wage inflation, which had an impact on our ability to retain and hire
qualified employees. We have taken strategic steps to improve the retention of our labor force, which has improved sequentially
since peak levels in mid-2022 and turnover levels are now at lower levels and wage inflation is moderating. There may be a small
supply of qualified individuals in some of the communities in which we operate, and competition in these communities for
qualified individuals could require us to pay higher wages and provide greater benefits. We devote significant resources to
training our employees and strive to reduce turnover in order to keep top performing employees and better realize our investment
in training new employees. However, turnover among our restaurant employees may increase. Failure to hire and retain top-
performing employees could impact our financial performance by increasing our training and labor costs and reducing the quality
of our customers’ experiences.
A failure to recruit, develop and retain effective leaders or the loss or shortage of personnel with key capacities and skills could
impact our strategic growth plans and jeopardize our ability to meet our business performance expectations and growth
targets.
Our ability to continue to grow our business depends substantially on the contributions and abilities of our executive leadership
team and other key management personnel. Changes in senior management could expose us to significant changes in strategic
direction and initiatives. In 2023, we hired a new Chief Financial Officer and appointed an interim Chief Executive Officer while
we conduct a comprehensive search process to identify a permanent replacement. A failure to maintain appropriate organizational
capacity and capability to support our strategic initiatives or to build adequate bench strength with key skill sets required for
seamless succession of leadership, could jeopardize our ability to meet our business performance expectations and growth targets.
If we are unable to attract, develop, retain and incentivize sufficiently experienced and capable management personnel, our
business and financial results may suffer.
If we or our franchisees face labor shortages or increased labor costs, our operating results could be adversely affected.
Labor is a primary component in the cost of operating our restaurants and our success depends in part upon our and our
franchisees’ ability to control labor costs and attract, motivate and retain a sufficient number of well-qualified restaurant operators
and management personnel, as well as a sufficient number of other qualified employees. Qualified individuals needed to fill these
positions has been and may continue to be in short supply in some geographic areas. In addition, restaurants have traditionally
experienced relatively high employee turnover rates relative to other industries. If we encounter labor shortages, we have and may
continue to be forced to temporarily close restaurants or reduce store hours, which could result in reduced revenue. In addition,
failure to recruit and retain qualified individuals has and may continue to delay the planned openings of new restaurants. If we
increased labor costs, whether because of increased competition for employees, higher employee turnover rates, increases in the
federal, state or local minimum wage or other employee benefits costs (including costs associated with workers’ compensation
and health insurance coverage), our operating expenses could increase. In addition, the implementation of our GM equity program
to improve retention levels has increased our stock-based compensation expense during 2023 and we expect it will continue in
future years.
We may be unable to increase our menu prices in order to pass these increased labor costs on to consumers, in which case our
margins would be negatively affected, which could materially and adversely affect our business, financial condition, results of
operations or cash flows. We have taken strategic steps to attempt to make our restaurant operations more labor-efficient,
including reconfigured restaurant operations, increased off-premise offerings, and new technology and equipment, but in certain
instances these may require initial investment costs and there can be no assurances that these strategies will succeed.
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We may not be successful in executing our franchise strategy.
To the extent we are able to attract and identify franchisees for the franchising of existing restaurants or the development of new
restaurants, our success is dependent on the performance of our franchisees in successfully operating the restaurants. Our
franchisees may not achieve financial and operational objectives, and they may close existing restaurants due to
underperformance or they may ultimately be unsuccessful in developing new restaurants. We may also not be able to manage our
franchise system effectively. Failure to provide our franchisees with adequate support and resources could materially adversely
affect these franchisees, as well as cause disputes between us and them and potentially lead to material liabilities.
When we sell restaurants to franchisees, we frequently remain liable on the related restaurant facility leases. If franchise owners
default on leases that the Company remains liable on, it could result in material liabilities and negatively impact our results from
operations and cash flows.
Franchisees’ new unit growth is dependent in part upon borrowing incremental capital to develop new units. A high inflationary
environment, and in particular continued elevated interest rates and cost of borrowings, in addition to construction cost inflation,
may cause our prospective franchises to experience high financing costs and move more deliberately than our expectations, as was
the case in 2022 and 2023.
We rely in part on our franchisees, and if our franchisees cannot develop or finance new restaurants, build them on suitable
sites or open them on schedule, our success may be affected.
We rely in part on our franchisees and the manner in which they operate their locations to develop and promote our business.
Although we have developed criteria to evaluate and screen prospective franchisees, we cannot be certain that our franchisees will
have the business acumen or financial resources necessary to operate successful franchises in their franchise areas and state
franchise laws may limit our ability to terminate or modify these franchise arrangements. Moreover, despite our training, support
and monitoring, franchisees may not successfully operate restaurants in a manner consistent with our standards and requirements
or may not hire and train qualified managers and other restaurant personnel. The failure of our franchisees to operate their
franchises successfully could have a material adverse effect on us, our reputation, our brand and our ability to attract prospective
franchisees and could materially adversely affect our business, financial condition, results of operations or cash flows.
Franchisees may not have access to the financial or management resources that they need to open the restaurants contemplated by
their agreements with us or be able to find suitable sites on which to develop them, or they may elect to cease development for
other reasons. Franchisees may not be able to negotiate an acceptable lease or purchase terms for the sites, obtain the necessary
permits and government approvals or meet construction schedules. Given the present inflationary environment, prospective
franchises may face high financing costs to develop new restaurants and may move more deliberately than our expectations, as
was the case in 2022 and 2023. Any of these problems could reduce our franchise revenues.
Risks Related to Our Supply Chain and Technology
We rely heavily on information technology, and any material failure, weakness, interruption or breach of security could
prevent us from effectively operating our business.
We rely heavily on information systems, including point-of-sale processing in our restaurants, for management of our supply
chain, payment of obligations, collection of cash, credit and debit card transactions and other processes and procedures. We also
rely on third-party vendors to provide information technology systems and to securely process and store related information,
especially as it relates to credit and debit card transactions and online ordering. Our franchisees also rely on information systems
and third-party vendors. In 2023, we introduced a product recommendation engine on our website and app, driven by machine
learning, and rolled out digital menu boards in our restaurants, which will enable us to implement strategic pricing decisions based
on our recently implemented customer data platform and third-party research. Our ability to efficiently and effectively manage
our business depends significantly on the reliability and capacity of these systems. Our operations depend upon our and our
franchisees’, and our vendors’, ability to protect computer equipment and systems against damage from physical theft, fire, power
loss, telecommunications failure or other catastrophic events, as well as from internal and external security breaches, viruses and
other disruptive problems. Avoiding such incidents in the future will require us and our franchisees and vendors to continue to
enhance information systems, procedures and controls and to hire, train and retain employees. The failure of these systems to
operate effectively, maintenance problems, upgrading or transitioning to new platforms, or a breach in security of these systems
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could result in delays in customer service and reduce efficiency in our operations. Remediation of such problems could result in
significant, unplanned capital investments and harm our business, financial condition, results of operations or cash flows.
We may be harmed by breaches of security of information technology systems or our confidential consumer, employee,
financial, or other proprietary data.
We are part of an industry that is vulnerable to cyberattacks and other cybersecurity incidents. In response, we have implemented
cybersecurity processes, technologies, and controls to aid in our efforts to assess, identify, and manage cybersecurity risks. Our
enterprise risk management framework considers cybersecurity risk alongside other company risks as part of our overall risk
assessment process. Our enterprise risk management team includes information technology and digital security functions to gather
insights for assessing, identifying and managing cybersecurity threat risks, their severity, and potential mitigations.
We assess Noodles & Company’s Cybersecurity program using several frameworks including the cybersecurity framework from
the National Institute of Standards and Technology (NIST-CSF). This program includes policies, processes and procedures that
help assess and identify our cybersecurity risks and inform how security measures and controls are developed, implemented and
maintained. The risk assessment along with risk-based analysis and judgment are used to prioritize our cybersecurity initiatives.
During this process, the following factors, among others, are considered: likelihood and severity of risk, impact on the Company
and others if a risk materializes, feasibility and cost of controls and impact of controls on operations.
We maintain internal resources to perform penetration testing designed to simulate evolving tactics and techniques of real-world
threat actors, engage with industry partners and law enforcement and intelligence communities and conduct tabletop exercises and
periodic risk interviews across our business. We also engage several independent third-parties to perform internal and external
penetration testing of our technology environment periodically and engage other third-parties to periodically conduct assessments
of our cybersecurity processes and capabilities. In addition, we continue to expand training and awareness practices to mitigate
risk from human error, including mandatory computer-based training and internal communications for employees. Our employees
undergo cybersecurity awareness training and regular phishing awareness campaigns that are based upon and designed to emulate
real-world contemporary threats. We provide prompt feedback (and, if necessary, additional training or remedial action) based on
the results of such exercises.
We use many information technology systems throughout our operations, including systems that record and process customer
sales, manage human resources and generate accounting and financial reports. For example, our restaurants use computerized
management information systems, including point-of-sale computers that process customer credit card, debit card and gift card
payments, and in-restaurant back office computer systems designed to assist in the management of our restaurants and provide
labor and food cost management tools. Our franchisees use similar point of sale systems and are required to report business and
operational data through an online reporting network. Through these systems, we have access to and store a variety of consumer,
employee, financial and other types of information related to our business. We also rely on third-party vendors to provide
information technology systems and to securely process and store related information. Our franchisees also use information
technology systems and rely on third-party vendors. If our technology systems, or those of third-party vendors we or our
franchisees rely upon, are compromised as a result of a cyber-attack (including from circumvention of security systems, denial-of-
service attacks, hacking, “phishing” attacks, computer viruses, ransomware, malware, or social engineering) or other external or
internal methods, it could materially adversely affect our reputation, business, financial condition, results of operations or cash
flows.
The cyber risks we face range from cyber-attacks common to most industries to attacks that target us due to the confidential
consumer information we obtain through our electronic processing of credit and debit card transactions. Like others in our
industry, we have experienced many attempts to compromise our information technology and data, including a successful attempt
in 2016 that we have discussed in previous filings, and we may experience more attempts in the future. In addition to property and
casualty insurance, which may cover restoration of data, certain physical damage or third-party injuries, we have cybersecurity
insurance related to a breach event. However, damage and claims arising from such incidents may not be covered or may exceed
the amount of any available insurance.
Because cyber-attacks take many forms, change frequently, are becoming increasingly sophisticated, and may be difficult to
detect for significant periods of time, we may not be able to respond adequately or timely to future cyber-attacks. If we or our
franchisees, or third-party vendors, were to experience a material breach resulting in the unauthorized access, use, or destruction
of our information technology systems or confidential consumer, employee, financial, or other proprietary data, it could
negatively impact our reputation, reduce our ability to attract and retain customers and employees and disrupt the implementation
15
and execution of our strategic goals. Moreover, such breaches could result in a violation of various privacy-related laws, including
the various state specific privacy laws and subject us to investigations or private litigation, which, in turn, could expose us to civil
or criminal liability, fines and penalties imposed by state and federal regulators, claims for purportedly fraudulent transactions
arising out of the actual or alleged theft of credit or debit card information, compromised security and information systems, failure
of our employees to comply with applicable laws, the unauthorized acquisition or use of such information by third parties, or
other similar claims, and various costs associated with such matters.
We rely heavily on certain vendors, suppliers and distributors, which could adversely affect our business.
Our ability to maintain consistent price, quality and safety throughout our restaurants depends in part upon our ability to acquire
specified food products and supplies in sufficient quantities from third-party vendors, suppliers and distributors at a reasonable
cost. We do not control the businesses of our vendors, suppliers and distributors and our efforts to specify and monitor the
standards under which they perform may not be successful. Furthermore, certain food items are perishable, and we have limited
control over whether these items will be delivered to us in appropriate condition for use in our restaurants. If any of our
distributors or suppliers perform inadequately, or our distribution or supply relationships are disrupted for any reason, our
business, financial condition, results of operations or cash flows could be materially adversely affected. If we cannot replace or
engage distributors or suppliers who meet our specifications in a short period of time, including any suppliers who are a sole
source of supply of a particular ingredient, that could increase our expenses and cause shortages of food and other items at our
restaurants, which could cause a restaurant to remove items from its menu. If that were to happen, affected restaurants could
experience significant reductions in sales during the shortage or thereafter, especially if customers change their dining habits as a
result. Our focus on a limited menu would make the consequences of a shortage of a key ingredient more severe. In addition,
because we provide moderately priced food, we may choose not to, or may be unable to, pass along commodity price increases to
consumers. These potential changes in food and supply costs could materially adversely affect our business, financial condition,
results of operations or cash flows.
During 2022, certain vendors experienced staffing pressures and raw material availability that impacted their ability to supply and
distribute our food ingredients in a timely and cost-effective manner. Despite the disruption within our vendor base, we did not
experience a significant impact in our ability to supply the necessary food ingredients to our restaurants. However, several food
ingredients, including chicken, experienced significant inflation predominantly in the second and third quarters of 2022, resulting
in higher cost of food. We did not experience any significant supply chain disruptions in 2023.
In addition, we use various third-party vendors to provide, support and maintain most of our management information systems.
We also outsource certain accounting, payroll and human resource functions to business process service providers. The failure of
such vendors to fulfill their obligations could disrupt our operations. Any changes we may make to the services we obtain from
our vendors, or new vendors we employ, may disrupt our operations. These disruptions could materially adversely affect our
business, financial condition, results of operations or cash flows. For example, during 2023 our point of sale provider and food
ordering vendors experienced temporary system outages. Future outages could lead to greater disruption to our operations.
We also partner with various third-party vendors to deliver our food. If any of our delivery vendors perform inadequately, or our
delivery relationships are disrupted for any reason, our business, financial condition, results of operations or cash flows could be
materially adversely affected.
Our ability to continue to expand our digital business, delivery orders, and catering is uncertain, and these business lines are
subject to risks.
Our revenue from digital orders increased significantly during 2020, especially in response to changing customer habits resulting
from the COVID-19 Pandemic. Digital orders as a percentage of total revenue have remained fairly consistent at over 50%
throughout 2022 and 2023. We experienced 37% growth in our catering business from 2022 to 2023. In response to these trends,
we have promoted our digital business through our rewards program, partnered with third-party delivery companies, and have
developed new-store concepts with reduced indoor-seating, pick-up shelves, and order-ahead drive-thru windows. However, this
growth rate may not be sustainable, or our digital business may decline, especially as safety concerns regarding the COVID-19
Pandemic have lessened and consumer preferences may eventually shift back to in-person dining. If our digital business does not
continue to expand it may be difficult for us to achieve our planned sales growth and utilize our digital-order focused assets.
16
We rely on third-party providers to fulfill delivery orders, and the ordering and payment platforms used by these third parties, or
our mobile app or online ordering system, could be damaged or interrupted by technological failures, user errors, cyber-attacks or
other factors, which may materially adversely impact our sales through these channels and could negatively impact our brand.
Additionally, our delivery partners are responsible for order fulfillment and may make errors or fail to make timely deliveries,
leading to customer disappointment that may negatively impact our brand. We also incur additional costs associated with using
third-party service providers to fulfill these digital orders and the costs of delivery may have a material adverse impact on
restaurant level margins. Moreover, the third-party restaurant delivery business is intensely competitive, with a number of players
competing for market share, online traffic, capital, and delivery drivers and other people resources. The third-party delivery
services with which we work may struggle to compete effectively, and if they were to cease or curtail operations, or fail to
provide timely delivery services in a cost-effective manner, or if they give greater priority on their platforms to our competitors,
our delivery business may be negatively impacted. Delivery and catering offerings also increase the risk of illnesses associated
with our food because the food is transported and/or served by third parties in conditions we cannot control.
Changes in food and supply costs could adversely affect our results of operations.
Our profitability depends in part on our ability to anticipate and react to changes in food and supply costs. Shortages or
interruptions in the availability of certain supplies caused by seasonal fluctuations, unanticipated demand, problems in production
or distribution, food contamination, product recalls, government regulations, inclement weather or other conditions could
materially adversely affect the availability, quality and cost of our ingredients, which could harm our operations. Weather related
issues, such as freezes, heavy rains or drought, may also lead to temporary spikes in the prices of some ingredients such as
produce or meats. Increasing weather volatility or other long-term changes in global weather patterns, including any changes
associated with global climate change, could have a significant impact on the price, availability and timing of delivery of some of
our ingredients. In addition, at certain times of the year a substantial volume of our produce items is imported from Mexico and
other countries. Any new or increased import duties, tariffs or taxes, or other changes in U.S. trade or tax policy, could result in
higher food and supply costs. Any increase in the prices of the food products most critical to our menu, such as pasta, beef,
chicken, wheat flour, cheese and other dairy products, tofu and vegetables, could materially adversely affect our operating results,
especially if we are unable to increase our menu prices in order to pass these increased costs on to consumers.
In 2022, the cost of several of our food ingredients increased as a result of inflation in many commodities, particularly chicken.
As a result, specifically for our chicken purchases, we entered into temporary formula pricing contracts with our vendors and were
susceptible to fluctuations in the commodities markets. While we saw material market improvement in chicken and other food
ingredients in 2023, if food inflation in the chicken market or any other food ingredient were to persist, our financial condition
and business operations could be severely impacted. We have, and expect to continue to, enter into fixed-based pricing
agreements for certain food ingredients to reduce our exposure to cost increases, but there can be no guarantee that we will be able
to do so on favorable terms or at all.
Our inability or failure to recognize, respond to and effectively manage the accelerated impact of social media could have an
adverse effect on our business.
There has been a widespread and dramatic increase in the use of social media platforms that allow users to access a broad
audience of consumers and other interested persons. The availability of information on social media can be virtually immediate,
as can its impact, and users of many social media platforms can post information without filters or checks on the accuracy of the
content posted. Adverse information concerning our restaurants or brand, including user reviews, whether accurate or inaccurate,
may be posted on such platforms at any time and can quickly reach a wide audience. The resulting harm to our reputation may be
immediate, without affording us an opportunity to correct or otherwise respond to the information, and it is challenging to monitor
and anticipate developments on social media in order to respond in an effective and timely manner.
In addition, although search engine marketing, social media and other new technological platforms offer great opportunities to
increase awareness of and engagement with our restaurants and brand, our failure to use social media effectively in our marketing
efforts may further expose us to the risks associated with the accelerated impact of social media. Many of our competitors are
expanding their use of social media and the social media landscape is rapidly evolving, potentially making more traditional social
media platforms obsolete. As a result, we need to continuously innovate and develop our social media strategies in order to
maintain broad appeal with guests and brand relevance, and we may not do so effectively. A variety of additional risks associated
with our use of social media include the possibility of improper disclosure of proprietary information, exposure of personally
identifiable information of our employees or guests, fraud, or the publication of out-of-date information, any of which may result
in material liabilities or reputational damage. Furthermore, any inappropriate use of social media platforms by our employees
17
could also result in negative publicity that could materially damage our reputation or lead to litigation that materially increases our
costs.
New technologies or changes in consumer behavior facilitated by these technologies could negatively affect our business.
Advances in technologies or certain changes in consumer behavior driven by such technologies could impact the manner in which
meals are marketed, prepared, ordered and delivered. We may pursue certain of those technologies, but consumers may not
accept them, or we may fail to successfully integrate them into our operations, thereby harming our financial performance. In
addition, our competitors, some of whom have more resources than us, may be more effective at responding to such advances in
technologies and erode our competitive position.
Legal, Accounting, and Regulatory Risks
Changes to estimates related to our property, fixtures and equipment or operating results that are lower than our current
estimates at certain restaurant locations may cause us to incur impairment charges on certain long-lived assets, which may
materially adversely affect our results of operations.
In accordance with accounting guidance as it relates to the impairment of long-lived assets, we make certain estimates and
projections with regard to individual restaurant operations, as well as our overall performance, in connection with our impairment
analyses for long-lived assets. When impairment triggers are deemed to exist for any location, the estimated undiscounted future
cash flows are compared to its carrying value. If the carrying value exceeds the undiscounted cash flows, an impairment charge
equal to the difference between the carrying value and the fair value is recorded. The projections of future cash flows used in
these analyses require the use of judgment and a number of estimates and projections of future operating results. If actual results
differ from our estimates, additional charges for asset impairments may be required in the future. Over the past several years we
have recognized significant impairment charges and if future impairment charges continue to be significant, this could have a
material adverse effect on our business or results of operations.
Failure of our internal control over financial reporting could adversely affect our business and financial results.
Our management is responsible for establishing and maintaining effective internal control over financial reporting under Section
404 of the Sarbanes-Oxley Act of 2002. Internal control over financial reporting is a process to provide reasonable assurance
regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted
in the United States of America (“GAAP”). Because of its inherent limitations, internal control over financial reporting is not
intended to provide absolute assurance that we would prevent or detect a material misstatement of our financial statements or
fraud. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our
financial results accurately and timely or to detect and prevent fraud. The identification of a material weakness could indicate a
lack of controls adequate to generate accurate financial statements that, in turn, could cause a loss of investor confidence and
decline in the market price of our common stock. We may not be able to timely remediate any material weaknesses that may be
identified in future periods or maintain all of the controls necessary for continued compliance. Likewise, we cannot assure you
that we will be able to retain sufficient skilled finance and accounting personnel, especially in light of the increased demand for
such personnel among publicly traded companies.
Governmental regulation may adversely affect our ability to open new restaurants or otherwise adversely affect our business,
financial condition, results of operations or cash flows.
We are subject to various federal, state and local regulations, including those relating to building and zoning requirements and
those relating to the preparation and sale of food. Our restaurants are also subject to state and local licensing and regulation by
health, sanitation, food and occupational safety and other agencies. We may experience material difficulties or failures in
obtaining the necessary licenses, approvals or permits for our restaurants, which could delay planned restaurant openings or affect
the operations at our existing restaurants. In addition, stringent and varied requirements of local regulators with respect to zoning,
land use and environmental factors could delay or prevent development of new restaurants in particular locations.
We are subject to the Americans with Disabilities Act and similar state laws that give civil rights protections to individuals with
disabilities in the context of employment, public accommodations and other areas, including our restaurants. We may in the future
have to modify restaurants, for example, by adding access ramps or redesigning certain architectural fixtures, to provide service to
or make reasonable accommodations for disabled persons. The expenses associated with these modifications could be material.
18
Our operations are also subject to the U.S. Occupational Safety and Health Act, which governs worker health and safety, the U.S.
Fair Labor Standards Act, which governs such matters as minimum wages and overtime and a variety of similar federal, state and
local laws that govern these and other employment law matters. In addition, federal, state and local proposals have been made
related to paid sick leave and similar matters. Changes in these laws or implementation of new proposals could materially
adversely affect our business, financial condition, results of operations or cash flows.
Our franchising activities are subject to federal rules and regulations administered by the U.S. Federal Trade Commission and
laws enacted by a number of states. In particular, we are subject to federal and state laws regulating the offer and sale of
franchises, as well as judicial and administrative interpretations of such laws. Such laws impose registration and disclosure
requirements on franchisors in the offer and sale of franchises and may also apply substantive standards to the relationship
between franchisor and franchisee, including limitations on the ability of franchisors to terminate franchises and alter franchise
arrangements. Failure to comply with new or existing franchise laws, rules, and regulations in any jurisdiction or to obtain
required government approvals could negatively affect our ability to grow or expand our franchise business and sell franchises.
Changes in employment laws may adversely affect our business.
Various federal and state labor laws govern the relationship with our employees and affect labor and operating costs. These laws
include employee classification as exempt/non-exempt for overtime and other purposes, minimum wage requirements,
unemployment tax rates, workers’ compensation rates, mandatory health benefits, immigration status and other wage and benefit
requirements. Some jurisdictions, including some of those in which we operate, have recently increased their minimum wage by a
significant amount, and other jurisdictions are considering similar actions, which may increase our labor costs. Significant
additional government-imposed increases in the following areas could materially affect our business, financial condition,
operating results or cash flow: overtime rules; mandatory health benefits; vacation accruals; paid leaves of absence, including paid
sick leave; and tax reporting.
Immigration laws have recently been an area of considerable focus by the Department of Homeland Security, with enforcement
operations taking place across the country, resulting in arrests, detentions and deportation of unauthorized workers. Some of these
changes and enforcement programs may increase our obligations for compliance and oversight, which could subject us to
additional costs and make our hiring process more cumbersome or reduce the availability of potential employees. Although we
require all workers to provide us with government-specified documentation evidencing their employment eligibility, some of our
employees may, without our knowledge, be unauthorized workers. Unauthorized workers are subject to deportation and may
subject us to fines or penalties, and if any of our workers are found to be unauthorized we could experience adverse publicity that
negatively impacts our brand and may make it more difficult to hire and keep qualified employees. Termination of a significant
number of employees who were unauthorized employees may disrupt our operations, cause temporary increases in our labor costs
as we train new employees and result in additional adverse publicity. We could also become subject to fines, penalties and other
costs related to claims that we did not fully comply with all recordkeeping obligations of federal and state immigration
compliance laws. These factors could materially adversely affect our business, financial condition, results of operations or cash
flows.
New information or attitudes regarding diet and health could result in changes in regulations and consumer consumption
habits that could adversely affect our results of operations.
Regulations and consumer eating habits may change as a result of new information or attitudes regarding diet, health and safety.
Such changes may include federal, state and local regulations and recommendations from medical and diet professionals
pertaining to the ingredients and nutritional content of the food and beverages we offer. The success of our restaurant operations is
dependent, in part, upon our ability to effectively respond to changes in any consumer health regulations and our ability to adapt
our menu offerings to trends in food consumption. If consumer health regulations or consumer eating habits change significantly,
we may choose or be required to modify or remove certain menu items, which may cause us to incur costs to implement those
changes and may materially adversely affect the appeal of our menu to new or returning customers. To the extent we are
unwilling or unable to respond with appropriate changes to our menu offerings, it could materially affect consumer demand and
could have a material adverse impact on our business, financial condition, results of operations or cash flows.
Government regulation and consumer eating habits may impact our business as a result of changes in attitudes regarding diet and
health or new information regarding the adverse health effects of consuming certain menu offerings. As discussed in Part I,
“Business-Governmental Regulation and Environmental Matters” of this 10-K, these changes have resulted in, and may continue
to result in, laws and regulations requiring us to disclose the nutritional content of our food offerings, and they have resulted, and
19
may continue to result in, laws and regulations affecting permissible ingredients and menu offerings. Inconsistencies among state
laws with respect to presentation of nutritional content could be challenging for us to comply with in an efficient manner. The
Patient Protection and Affordable Care Act also requires covered restaurants to provide to consumers, upon request, a written
summary of detailed nutritional information for each standard menu item, and to provide a statement on menus and menu boards
about the availability of this information upon request. An unfavorable report on, or reaction to, our menu ingredients, the size of
our portions or the nutritional content of our menu items could negatively influence the demand for our offerings.
Compliance with current and future laws and regulations regarding the ingredients and nutritional content of our menu items may
be costly and time-consuming. The risks and costs associated with nutritional disclosures on our menus could also impact our
operations, particularly given differences among applicable legal requirements and practices within the restaurant industry with
respect to testing and disclosure, ordinary variations in food preparation among our own restaurants and the need to rely on the
accuracy and completeness of nutritional information obtained from third-party suppliers.
We may not be able to effectively respond to changes in consumer health and safety perceptions or to successfully implement the
nutrient content disclosure requirements and adapt our menu offerings to trends in eating habits. The imposition of additional
menu labeling laws could materially adversely affect our business, financial condition, results of operations or cash flows, as well
as our position within the restaurant industry in general.
We may not be able to adequately protect our intellectual property, which could harm the value of our brand and could
adversely affect our business.
Our intellectual property is material to the conduct of our business and our marketing efforts. Our ability to implement our
business plan successfully depends in part on our ability to further build brand recognition using our trademarks, service marks,
trade dress and other proprietary intellectual property, including our name and logos and the unique ambiance of our restaurants.
While it is our policy to protect and defend vigorously our rights to our intellectual property, we cannot predict whether steps
taken by us to protect our intellectual property rights will be adequate to prevent misappropriation of these rights or the use by
others of restaurant features based upon, or otherwise similar to, our concept. It may be difficult for us to prevent others from
copying elements of our concept and any litigation to enforce our rights will likely be costly and may not be successful. Although
we believe that we have sufficient rights to all of our trademarks and service marks, we may face claims of infringement that
could interfere with our ability to market our restaurants and promote our brand. Any such litigation may be costly and divert
resources from our business. Moreover, if we are unable to successfully defend against such claims, we may be prevented from
using our trademarks or service marks in the future, may be liable for damages and may have to change our marketing efforts,
which in turn could materially adversely affect our business, financial condition, results of operations or cash flows.
We could be party to litigation that could adversely affect us by distracting management, increasing our expenses or subjecting
us to material money damages and other remedies.
Our customers occasionally file complaints or lawsuits against us alleging we caused an illness or injury they suffered at or after a
visit to our restaurants, or that we have problems with food quality or operations. These kinds of complaints or lawsuits may be
more common in a period in which the public is focused on health safety issues, or may attract more attention due to publication
on various social media outlets. We are also subject to a variety of other claims arising in the ordinary course of our business,
including personal injury claims, contract claims and claims alleging violations of federal and state law regarding workplace and
employment matters, equal opportunity, discrimination and similar matters and we could become subject to class action or other
lawsuits related to these or different matters in the future. In addition, the restaurant industry has from time to time been subject to
claims based on the nutritional content of food products sold and disclosure and advertising practices. We may also become
subject to various employee and workplace litigation, including claims related to discrimination, harassment, workplace safety,
medical and family leave, and wage-and-hour issues.
Regardless of whether any claims against us are valid, or whether we are ultimately held liable, claims may be expensive to
defend and may divert time and money away from our operations and hurt our performance. A judgment in excess of our
insurance coverage for any claims could materially adversely affect our financial condition or results of operations. Any adverse
publicity resulting from these allegations, even if proven to be false, may also materially adversely affect our reputation or
prospects, which in turn could materially adversely affect our business, financial condition, results of operations or cash flows.
20
Our business is subject to evolving corporate governance and public disclosure regulations and expectations, including with
respect to environmental, social and governance matters, that could expose us to numerous risks.
We are subject to changing rules and regulations promulgated by a number of governmental and self-regulatory organizations,
including the SEC, the Nasdaq Stock Market and the Financial Accounting Standards Board. These rules and regulations continue
to evolve in scope and complexity and many new requirements have been created in response to recently enacted laws, making
compliance more difficult and uncertain. In addition, increasingly regulators, customers, investors, employees and other
stakeholders are focusing on environmental, social and governance (“ESG”) matters and related disclosures. Within our industry,
concerns have been expressed regarding energy management, water management, food and packaging waste management, food
safety, nutritional content, labor practices and supply chain and management of food sourcing. These changing rules, regulations
and stakeholder expectations have resulted in, and are likely to continue to result in, increased general and administrative
expenses and increased management time and attention spent complying with or meeting such regulations and expectations. For
example, developing and acting on initiatives within the scope of ESG, and collecting, measuring and reporting ESG related
information and metrics can be costly, difficult and time consuming and is subject to evolving reporting standards, including the
SEC’s recently proposed climate-related reporting requirements. We may also communicate certain initiatives and goals,
regarding environmental matters, diversity, responsible sourcing and social investments and other ESG related matters, in our
SEC filings or in other public disclosures. These initiatives and goals within the scope of ESG could be difficult and expensive to
implement, the technologies needed to implement them may not be cost effective and may not advance at a sufficient pace, and
we could be criticized for the accuracy, adequacy or completeness of the disclosure. In addition, we could be criticized for the
scope or nature of such initiatives or goals, or for any revisions to these goals. If our ESG-related data, processes and reporting are
incomplete or inaccurate, or if we fail to achieve progress with respect to our goals within the scope of ESG on a timely basis, or
at all, our reputation, business, financial performance and growth could be adversely affected.
Risks Related to Our Common Stock and Debt Financing
Our quarterly operating results may fluctuate significantly and could fall below the expectations of securities analysts and
investors due to seasonality and other factors, some of which are beyond our control, resulting in a decline in our stock price.
Our quarterly operating results may fluctuate significantly because of several factors, including but not limited to: increases and
decreases in average unit volumes and comparable restaurant sales; profitability of our restaurants; labor availability and costs for
hourly and management personnel; changes in interest rates; macroeconomic conditions, both nationally and locally; negative
publicity relating to the consumption of products we serve; changes in consumer preferences and competitive conditions;
impairment of long-lived assets and any loss on and exit costs associated with restaurant closures; expansion to new markets; the
timing of new restaurant openings and related expense; restaurant operating costs for our newly-opened restaurants; increases in
infrastructure costs; and fluctuations in commodity prices. During 2023, we experienced lower comparable sales, lower operating
income and a decline in our stock price.
Seasonal factors, particularly weather disruptions, and the timing of holidays also cause our revenue to fluctuate from quarter to
quarter. Our revenue per restaurant is typically lower in the first and fourth quarters due to reduced winter and holiday traffic and
higher in the second and third quarters. As a result of these factors, our quarterly and annual operating results and comparable
restaurant sales may fluctuate significantly. Accordingly, results for any one quarter are not necessarily indicative of results to be
expected for any other quarter or for any year and comparable restaurant sales for any particular future period may decrease. In
the future, operating results may fall below the expectations of securities analysts and investors. In that event, the price of our
common stock would likely decrease.
Future sales of our common stock, or the perception that such sales may occur, could depress our common stock price.
Sales of a substantial number of shares of our common stock in the public market, or the perception that such sales may occur,
could depress the market price of our common stock. Our amended and restated certificate of incorporation authorizes us to issue
up to 180,000,000 shares of Class A common stock and Class B common stock. As of January 2, 2024, we have 44,989,714
outstanding shares of Class A common stock and no outstanding shares of Class B common stock. In addition, as of such date,
approximately 3,500,591 shares of Class A common stock are issuable upon the exercise of outstanding stock options and the
vesting of restricted stock units. Moreover, as of that date, approximately 3.8 million shares of our common stock are available for
future grants under our stock incentive plan and for future purchase under our employee stock purchase plan.
21
Provisions in our organizational documents and Delaware law may delay or prevent our acquisition by a third party.
Our amended and restated certificate of incorporation, our second amended and restated bylaws and Delaware law each contain
several provisions that may make it more difficult for a third party to acquire control of us without the approval of our Board of
Directors. For example, we have a classified Board of Directors with three-year staggered terms, which could delay the ability of
stockholders to change the membership of a majority of our Board of Directors. These provisions may make it more difficult or
expensive for a third party to acquire a majority of our outstanding equity interests. These provisions also may delay, prevent or
deter a merger, acquisition, tender offer, proxy contest or other transaction that might otherwise result in our stockholders
receiving a premium over the market price for their common stock.
Our credit facility has variable interest rates and increases in or sustained high interest rates could continue to result in high
borrowing costs.
Our Amended and Restated Credit Facility has a variable interest rate equal to the Secured Overnight Financing Rate (“SOFR”)
plus a margin of 1.75% to 3.00% per annum, based upon the consolidated total lease adjusted leverage ratio. Interest rates may
rise in the future due to inflation or other causes. Interest rates have remained high during 2022 and 2023. As a result, the costs of
servicing our variable interest rate debt have and could increase again even if the amount borrowed under such credit facility
remains the same. Increased servicing costs could adversely affect our business, financial condition, results of operations or cash
flows. During 2023, we amended our credit agreement which resulted in, among other things, an increase in our borrowing rates.
We may be unable to negotiate favorable borrowing terms, and any additional capital we may require could be senior to
existing equity holders, dilute existing equity holders or include unfavorable restrictions.
As a general matter, operating and developing our business requires significant capital. Our credit agreement ends in 2027 and
securing access to credit on reasonable terms thereafter will require us to extend or refinance such agreement. In addition, in order
to pursue our business and operational strategies, we may need additional sources of liquidity in the future and it may be difficult
or impossible at such time to increase our liquidity. Our lenders may not agree to amend our credit agreement at such time to
increase our borrowing capacity. Further, our requirements for additional liquidity may coincide with periods during which we are
not in compliance with covenants under our credit agreement and our lenders may not agree to further amend our credit
agreement to accommodate such non-compliance. Even if we are able to access additional liquidity, agreements governing any
borrowing arrangement could contain covenants restricting our operations. If we raise additional funds through future issuances of
equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we
issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing we
secure in the future could involve higher interest rates, especially given the current inflationary environment, and restrictive
covenants relating to our capital-raising activities and other financial and operational matters, which might make it more difficult
for us to obtain additional capital and to pursue business opportunities. Moreover, if we issue new debt securities, the debt holders
would have rights senior to common stockholders to make claims on our assets. In the fourth quarter of 2023, we amended our
credit agreement which resulted in an increase in our borrowing rates and modifications to both the Fixed Charge and
Consolidated Total Lease Adjusted Leverage rations and restrictions related to new restaurant growth.
ITEM 1B.
Unresolved Staff Comments
None.
22
ITEM 1C.
Cybersecurity
In the ordinary course of our business, we collect, store and transmit sensitive information including intellectual property,
proprietary business information and personal information in connection with business operations. Additionally, we leverage our
third-party vendors to collect, use, store, and transmit confidential, sensitive, proprietary, personal, and health-related information.
The secure maintenance of this information and our information technology systems is important to our operations and business
strategy. To this end, we have implemented processes designed to assess, identify, and manage risks from potential unauthorized
occurrences on or through our information technology systems that may result in adverse effects on the confidentiality, integrity,
and availability of these systems and the data residing therein. These processes are managed and monitored by a dedicated
information technology team, which is led by our Executive Vice President of Technology, and include mechanisms, controls,
technologies, systems, and other processes designed to prevent or mitigate data loss, theft, misuse, or other security incidents or
vulnerabilities affecting the data and maintain a stable information technology environment. For example, we constantly monitor
our information technology environment for abnormal behavior, conduct penetration and vulnerability testing, data recovery
testing, security audits, and ongoing risk assessments, including due diligence on our key technology vendors and other third-
party service providers that have access to the personal information we collect, use, store, and transmit. We leverage standard
industry tools from a software and hardware perspective and maintain a cybersecurity risk insurance policy. We also conduct
periodic employee trainings on cyber and information security, among other topics. In addition, we consult with outside advisors
and experts on a regular basis to assist with assessing, identifying, and managing cybersecurity risks, including to anticipate future
threats and trends, and their impact on the Company’s risk environment.
Our Executive Vice President of Technology, who reports directly to the Chief Executive Officer and has over 16 years of
experience managing information technology and cybersecurity matters, together with our senior leadership team, is responsible
for assessing and managing cybersecurity risks. We consider cybersecurity, along with other significant risks that we face, within
our overall enterprise risk management framework. In the last fiscal year, we have not identified risks from known cybersecurity
threats, including as a result of any prior cybersecurity incidents, that have materially affected us, but we face certain ongoing
cybersecurity risks threats that, if realized, are reasonably likely to materially affect us. Additional information on cybersecurity
risks we face is discussed in Part I, Item 1A, “Risk Factors,” under the heading “We may be harmed by breaches of security of
information technology systems or our confidential consumer, employee, financial, or other proprietary data.”
The Board of Directors, as a whole and at the committee level, has oversight for the most significant risks facing us and for our
processes to identify, prioritize, assess, manage, and mitigate those risks. The Audit Committee, which is comprised solely of
independent directors, has been designated by our Board to oversee cybersecurity risks. The Audit Committee receives periodic
updates on cybersecurity, including immediate notification of any material cybersecurity events, and information technology
matters and related risk exposures from our Executive Vice President of Technology as well as other members of the senior
leadership team. The Board receives updates from management and the Audit Committee on cybersecurity risks.
23
ITEM 2.
Properties
As of January 2, 2024, we and our franchisees operated 470 restaurants in 31 states. Our restaurants are typically between 2,000
and 2,600 square feet and are located in a variety of suburban, collegiate and urban markets. We lease the property for our central
support office and all of the properties on which we operate restaurants. The chart below shows the locations of our company-
owned and franchised restaurants as of January 2, 2024.
State
Arizona
California
Colorado
Connecticut
Florida
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Maryland
Michigan
Minnesota
Missouri
Montana
Nebraska
Nevada
New York
North Carolina
North Dakota
Ohio
Oregon
Pennsylvania
South Carolina
South Dakota
Tennessee
Utah
Virginia
Washington
Wisconsin
Company-
owned
Franchised
Total
7
—
57
—
—
6
53
23
9
9
1
22
—
45
3
—
—
1
2
8
—
19
6
10
—
—
—
17
27
1
54
380
—
14
—
5
6
—
5
1
1
—
4
—
21
1
6
2
5
—
—
4
5
—
—
—
1
2
4
—
—
—
3
90
7
14
57
5
6
6
58
24
10
9
5
22
21
46
9
2
5
1
2
12
5
19
6
10
1
2
4
17
27
1
57
470
We are obligated under non-cancelable leases for our restaurants and our central support office. Our restaurant leases generally
have initial terms of 10 years with two or more five-year renewal options. Our restaurant leases may require us to pay a
proportionate share of real estate taxes, insurance, common area maintenance charges and other operating costs.
24
ITEM 3.
Legal Proceedings
In the normal course of business, the Company is subject to other proceedings, lawsuits and claims. Such matters are subject to
many uncertainties, and outcomes are not predictable with assurance. Consequently, the Company is unable to ascertain the
ultimate aggregate amount of monetary liability or financial impact with respect to these matters as of January 2, 2024. These
matters could affect the operating results of any one financial reporting period when resolved in future periods. The Company
believes that an unfavorable outcome with respect to these matters is remote or a potential range of loss is not material to its
consolidated financial statements. Significant increases in the number of these claims, or one or more successful claims that result
in greater liabilities than the Company currently anticipates, could materially and adversely affect its business, financial condition,
results of operations or cash flows.
ITEM 4.
Mine Safety Disclosures
Not applicable.
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PART II
ITEM 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our Class A common stock trades on the Nasdaq Global Select Market under the symbol NDLS. As of March 1, 2024, there were
approximately 168 holders of record of our common stock. The number of holders of record is based upon the actual numbers of
holders registered at such date and does not include holders of shares in “street name” or persons, partnerships, associates,
corporations or other entities in security position listings maintained by depositories.
Purchases of Equity Securities by the Issuer
We had no share repurchases during the fourth quarter of 2023.
Sales of Unregistered Securities by the Issuer
We sold no unregistered securities that have not been previously included in a Quarterly Report on Form 10-Q or in a Current
Report on Form 8-K.
Dividends
No dividends have been declared or paid on our shares of common stock. We do not anticipate paying any cash dividends on any
of our shares of common stock in the foreseeable future. We currently intend to retain any earnings to reduce outstanding debt and
finance the development and expansion of our business. Any future determination to pay dividends will be at the discretion of our
Board of Directors and will be dependent upon then-existing conditions, including our earnings, capital requirements, results of
operations, financial condition, business prospects and other factors that our Board of Directors considers relevant. Further, our
credit facility and warrants each contain provisions that limit our ability to pay dividends on our common stock. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Certain Relationships and
Related Transactions, and Director Independence” for additional information regarding our financial condition.
ITEM 6.
[Reserved]
26
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our
consolidated financial statements and related notes included in Item 8. “Financial Statements and Supplementary Data.” This
section of the Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons of 2023 to 2022. Discussions of
2021 items and year-to-year comparisons of 2022 and 2021 that are not included in this Form 10-K can be found in
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 on our Annual
Report on Form 10-K for the year ended January 3, 2023. In addition to historical information, this discussion and analysis
contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain factors including, but not limited to, those discussed in Item
1A. “Risk Factors” and elsewhere in this report.
We operate on a 52- or 53-week fiscal year ending on the Tuesday closest to December 31. Fiscal year 2023, which ended on
January 2, 2024 contained 52 weeks. Fiscal year 2022, which ended on January 3, 2023 contained 53 weeks. We refer to our
fiscal years as 2023 and 2022. Our fiscal quarters each contained 13 operating weeks, with the exception of the fourth fiscal
quarter of 2022 which contained 14 operating weeks.
Overview
Noodles & Company is a restaurant concept offering lunch and dinner within the fast-casual segment of the restaurant industry.
We opened our first location in 1995, offering noodle and pasta dishes, staples of many different cuisines, with the goal of
delivering fresh ingredients and flavors from around the world under one roof. Today, our globally-inspired menu includes a wide
variety of high quality, cooked-to-order dishes, including noodles and pasta, soups, salads and appetizers. We believe we offer our
customers value with per person spend of $13.21 in 2023.
Recent Trends, Risks and Uncertainties
Comparable Restaurant Sales. In fiscal 2023, system-wide comparable restaurant sales decreased 1.9%, comprised of a 2.0%
decrease for company-owned restaurants and a 1.1% decrease for franchise restaurants. During 2022 and in the beginning of
2023, we implemented greater menu price increases relative to historical years as a result of meaningful inflation in our cost of
food, wages and general restaurant expenses. During 2023, we saw a decline in restaurant level traffic, and correspondingly in
total revenue, that we believe was at least partially due to consumer response to our recent price increases. We have taken actions
to address this response including moderating the level of price increases and offering value oriented options, but there is no
guarantee these actions will ultimately be successful and we cannot predict the extent and duration of this decline.
Cost of Sales. In recent years, we incurred incremental costs of sales driven by volatility in the commodity and food ingredients
markets, particularly with our chicken products, in addition to an increase in packaging costs and distribution. However, in 2023,
the commodity markets underlying our cost of food improved substantially, particularly in regards to the price of chicken.
Throughout these periods of volatility, we have continued to work with our suppliers for ongoing supply chain efficiencies,
including managing food waste and adding additional suppliers as necessary.
Labor Costs. Similar to much of the restaurant industry, our base labor costs have risen in recent years. In 2023, wage inflation
decelerated as we progressed throughout the year. However, we continue to see a highly competitive environment for restaurant
workers. We have been able to partially mitigate the impact of these market factors through a continued focus on our hiring
process and retaining existing employees, in addition to maximizing efficiencies of labor hour usage per restaurant.
Other Restaurant Operating Costs. We have and expect to continue to incur additional third-party delivery fees resulting from a
significant expansion of our use of third-party delivery services. In addition, during 2023 we increased marketing expenses related
primarily to digital advertising.
Restaurant Development. In 2023, we opened eighteen company-owned restaurants. As of January 2, 2024, we had 380 company-
owned restaurants and 90 franchise restaurants in 31 states. In 2024, we plan to open 10-12 new company-owned restaurants.
27
Certain Restaurant Closures. We closed six and five company-owned restaurants in 2023 and 2022, respectively, most of which
were at or approaching the expiration of their leases. We currently do not anticipate significant restaurant closures for the
foreseeable future; however, we may from time to time close certain restaurants, including closures at, or near, the expiration of
their leases.
Impairment of Long-lived Assets. We impaired two restaurants in 2023 and four restaurants in 2022. Impairment is based on our
current assessment of the expected future cash flows of various restaurants based on recent results and other specific market
factors.
Key Measures We Use to Evaluate Our Performance
To evaluate the performance of our business, we utilize a variety of financial and performance measures. These key measures
include revenue, comparable restaurant sales, average unit volumes (“AUVs”), EBITDA and adjusted EBITDA. EBITDA and
adjusted EBITDA are non-GAAP financial measures.
Revenue
Revenue includes both restaurant revenue and franchise royalties and fees. Restaurant revenue represents sales of food and
beverages in company-owned restaurants. Several factors affect our restaurant revenue in any period, including the number of
restaurants in operation and per-restaurant sales.
Franchise royalties and fees represent royalty income and initial franchise fees. While we expect that the majority of our revenue
and net income growth will be driven by company-owned restaurants, our franchise restaurants remain an important factor
impacting our revenue and financial performance.
Seasonal factors cause our revenue to fluctuate from quarter to quarter. Our revenue per restaurant is typically lower in the first
and fourth quarters due to reduced winter and holiday traffic and is typically higher in the second and third quarters. As a result of
these factors, our quarterly and annual operating results and comparable restaurant sales may fluctuate.
Comparable Restaurant Sales
Comparable restaurant sales refer to year-over-year sales comparisons for the comparable restaurant base. We define the
comparable restaurant base to include restaurants open for at least 18 full periods. As of the end of 2023, 2022 and 2021, there
were 355, 347 and 359 restaurants, respectively, in our comparable restaurant base for company-owned locations. This measure
highlights performance of existing restaurants, as the impact of new restaurant openings is excluded. Restaurants that were
temporarily closed or operating at reduced hours and dining capacity due to the COVID-19 Pandemic remained in comparable
restaurant sales. Changes in comparable restaurant sales are generated by changes in traffic, which we calculate as the number of
entrées sold, and changes in per-person spend, calculated as sales divided by traffic. Per-person spend can be influenced by
changes in menu prices and the mix and number of items sold per person.
Measuring our comparable restaurant sales allows us to evaluate the performance of our existing restaurant base. Various factors
impact comparable restaurant sales, including, but not limited to:
•
•
•
•
•
•
•
•
consumer recognition of our brand and our ability to respond to changing consumer preferences;
overall economic trends, particularly those related to consumer spending;
our ability to operate restaurants effectively and efficiently to meet consumer expectations;
pricing;
the number of restaurant transactions, per-person spend and average check amount;
marketing and promotional efforts;
abnormal weather patterns;
food safety and foodborne illness concerns;
28
•
•
•
•
•
the impact of health pandemics;
competition;
trade area dynamics;
introduction of new and seasonal menu items and limited time offerings; and
opening new restaurants in the vicinity of existing locations.
Consistent with common industry practice, we present comparable restaurant sales on a calendar-adjusted basis that aligns current
year sales weeks with comparable periods in the prior year, regardless of whether they belong to the same fiscal period or not.
Since opening new company-owned and franchise restaurants is a part of our long-term growth strategy and we anticipate new
restaurants will be a component of our long-term revenue growth, comparable restaurant sales is only one measure of how we
evaluate our performance.
Average Unit Volumes
AUVs consist of the average annualized sales of all company-owned restaurants for a given time period. AUVs are calculated by
dividing restaurant revenue by the number of operating days within each time period and multiplying by the number of operating
days we have in a typical year. Based on this calculation, temporarily closed restaurants are excluded from the definition of AUV,
however restaurants with temporarily reduced operating hours are included. This measurement allows management to assess
changes in consumer traffic and per person spending patterns at our restaurants. In addition to the factors that impact comparable
restaurant sales, AUVs can be further impacted by effective real estate site selection and maturity and trends within new markets.
EBITDA and Adjusted EBITDA
We define EBITDA as net income (loss) before net interest expense, provision (benefit) for income taxes and depreciation and
amortization. We define adjusted EBITDA as net income (loss) before net interest expense, provision (benefit) for income taxes,
depreciation and amortization, restaurant impairments, loss on disposal of assets, net lease exit costs (benefits), loss on sale of
restaurants, severance and executive transition costs and stock-based compensation.
We believe that EBITDA and adjusted EBITDA provide clear pictures of our operating results by eliminating certain non-
recurring and non-cash expenses that may vary widely from period to period and are not reflective of the underlying business
performance.
The presentation of EBITDA and adjusted EBITDA, which may not be comparable to similarly titled financial measures used by
other companies, is not intended to be considered in isolation or as a substitute for, or to be superior to, the financial information
prepared and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
We use these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-
period comparisons. We believe that they provide useful information to management and investors about operating results,
enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with
respect to key metrics used by management in its financial and operational decision making.
29
The following table presents a reconciliation of net loss to EBITDA and adjusted EBITDA:
Net loss
Depreciation and amortization
Interest expense, net
Provision for income taxes
EBITDA
Restaurant impairments(2)
Loss on disposal of assets
Lease exit costs (benefits), net
Loss on sale of restaurants
Severance and executive transition costs
Stock-based compensation expense
Adjusted EBITDA
_____________
Fiscal Year
2023
2022(1)
(in thousands)
(9,856) $
26,792
4,803
24
21,763 $
2,987
1,979
396
—
1,559
4,346
33,030 $
(3,314)
23,268
2,445
37
22,436
1,362
946
267
263
—
4,395
29,669
$
$
$
(1) Amounts for fiscal year 2022 include modifications to the adjusted EBITDA calculation to remove adjustments for non-cash rent expense related to
sub-leases, certain costs associated with closed restaurants and costs related to corporate matters to conform to the current year presentation.
(2) Restaurant impairments in all periods presented above include amounts related to restaurants previously impaired. See Note 6, Restaurant
Impairments, Closure Costs and Asset Disposals.
Key Financial Definitions
Cost of Sales
Cost of sales includes the direct costs associated with the food, beverage and packaging of our menu items. Cost of sales also
includes any costs related to discounted menu items. Cost of sales is a substantial expense and can be expected to change
proportionally as our restaurant revenue changes. Fluctuations in cost of sales are caused primarily by volatility in the cost of
commodity food items and related contracts for such items. Other important factors causing fluctuations in cost of sales include
seasonality, discounting activity, distribution costs and restaurant level management of food waste.
Labor Costs
Labor costs include wages, payroll taxes, workers’ compensation expense, benefits and incentives paid to our restaurant teams.
Similar to certain other expense items, we expect hourly labor costs to change proportionally as our restaurant revenue changes.
Factors that influence fluctuations in our labor costs include minimum wage and payroll tax legislation, wage inflation, the
frequency and severity of workers’ compensation claims, health care costs and the performance of our restaurants.
Occupancy Costs
Occupancy costs include rent, common area maintenance charges and real estate tax expense related to our restaurants and are
expected to grow proportionally as we open new restaurants.
Other Restaurant Operating Costs
Other restaurant operating costs include the costs of repairs and maintenance, utilities, restaurant-level marketing, credit card
processing fees, third-party delivery fees, restaurant supplies and other restaurant operating costs. Similar to certain other costs,
they are expected to grow proportionally as restaurant revenue grows.
30
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)((cid:22)(cid:21)(cid:28)(cid:19)(cid:21)(cid:7):(cid:19)(cid:7)(cid:19)(cid:29)(cid:22)(cid:23)((cid:22)(cid:28)(cid:19)(cid:7)(cid:31)!(cid:27)(cid:27)(cid:26)9(cid:23)(cid:19)(cid:7)(cid:26)(cid:25)(cid:31)(cid:22)(cid:26)(cid:21)(cid:25)(cid:19)(cid:20)(cid:28)(cid:7)!"(cid:7)(cid:31)(cid:21)!(cid:31)(cid:19)(cid:21)(cid:28)#(cid:7)(cid:22)(cid:20)(cid:24)(cid:7)(cid:19))((cid:26)(cid:31)(cid:25)(cid:19)(cid:20)(cid:28)(cid:7)(cid:22)(cid:28)(cid:7)(cid:28)%(cid:19)(cid:7)(cid:21)(cid:19)(cid:27)(cid:28)(cid:22)((cid:21)(cid:22)(cid:20)(cid:28)(cid:7)(cid:23)(cid:19)(cid:29)(cid:19)(cid:23)(cid:7)(cid:22)(cid:20)(cid:24)(cid:7)(cid:21)(cid:19) !(cid:21)(cid:24)(cid:7)(cid:22)(cid:20)(cid:7)(cid:26)(cid:25)(cid:31)(cid:22)(cid:26)(cid:21)(cid:25)(cid:19)(cid:20)(cid:28)(cid:7)(cid:23)!(cid:27)(cid:27)(cid:7)
:%(cid:19)(cid:20)(cid:19)(cid:29)(cid:19)(cid:21)(cid:7):(cid:19)(cid:7)(cid:24)(cid:19)(cid:28)(cid:19)(cid:21)(cid:25)(cid:26)(cid:20)(cid:19)(cid:7)(cid:28)%(cid:22)(cid:28)(cid:7)(cid:28)%(cid:19)(cid:7)"(cid:22)(cid:26)(cid:21)(cid:7)(cid:29)(cid:22)(cid:23)((cid:19)(cid:7)!"(cid:7)(cid:28)%(cid:19)(cid:27)(cid:19)(cid:7)(cid:22)(cid:27)(cid:27)(cid:19)(cid:28)(cid:27)(cid:7)(cid:26)(cid:27)(cid:7)(cid:23)(cid:19)(cid:27)(cid:27)(cid:7)(cid:28)%(cid:22)(cid:20)(cid:7)(cid:28)%(cid:19)(cid:26)(cid:21)(cid:7) (cid:22)(cid:21)(cid:21)#(cid:26)(cid:20)’(cid:7)(cid:29)(cid:22)(cid:23)((cid:19)*(cid:7)8%(cid:19)(cid:21)(cid:19)(cid:7) (cid:22)(cid:20)(cid:7)9(cid:19)(cid:7)(cid:20)!(cid:7)(cid:22)(cid:27)(cid:27)((cid:21)(cid:22)(cid:20) (cid:19)(cid:7)(cid:28)%(cid:22)(cid:28)(cid:7)(cid:27)( %(cid:7)
(cid:19)(cid:29)(cid:22)(cid:23)((cid:22)(cid:28)(cid:26)!(cid:20)(cid:27)(cid:7):(cid:26)(cid:23)(cid:23)(cid:7)(cid:20)!(cid:28)(cid:7)(cid:21)(cid:19)(cid:27)((cid:23)(cid:28)(cid:7)(cid:26)(cid:20)(cid:7)(cid:22)(cid:24)(cid:24)(cid:26)(cid:28)(cid:26)!(cid:20)(cid:22)(cid:23)(cid:7)(cid:26)(cid:25)(cid:31)(cid:22)(cid:26)(cid:21)(cid:25)(cid:19)(cid:20)(cid:28)(cid:7) !(cid:27)(cid:28)(cid:27)(cid:7)(cid:26)(cid:20)(cid:7)"((cid:28)((cid:21)(cid:19)(cid:7)(cid:31)(cid:19)(cid:21)(cid:26)!(cid:24)(cid:27)*
=(cid:3)(cid:13)(cid:2)(cid:4)(cid:2)(cid:12)(cid:13)(cid:7)(cid:15)(cid:16)(cid:17)(cid:2)(cid:3)(cid:12)(cid:2)
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(cid:23)(cid:26)"(cid:19)(cid:7)!"(cid:7)(cid:28)%(cid:19)(cid:7)(cid:21)(cid:19)(cid:23)(cid:22)(cid:28)(cid:19)(cid:24)(cid:7)(cid:24)(cid:19)9(cid:28)(cid:7)(cid:21)(cid:19)(cid:24)( (cid:19)(cid:24)(cid:7)9#(cid:7) (cid:22)(cid:31)(cid:26)(cid:28)(cid:22)(cid:23)(cid:26)1(cid:19)(cid:24)(cid:7)(cid:26)(cid:20)(cid:28)(cid:19)(cid:21)(cid:19)(cid:27)(cid:28)*
2(cid:4).(cid:14)(cid:11)(cid:12)(cid:11).(cid:3)(cid:7)C.(cid:4)(cid:7)=(cid:3)-.(cid:10)(cid:2)(cid:7)D(cid:5)(cid:16)(cid:2)(cid:12)
7(cid:21)!(cid:29)(cid:26)(cid:27)(cid:26)!(cid:20)(cid:7)"!(cid:21)(cid:7)(cid:26)(cid:20) !(cid:25)(cid:19)(cid:7)(cid:28)(cid:22)(cid:30)(cid:19)(cid:27)(cid:7) !(cid:20)(cid:27)(cid:26)(cid:27)(cid:28)(cid:27)(cid:7)!"(cid:7)"(cid:19)(cid:24)(cid:19)(cid:21)(cid:22)(cid:23)$(cid:7)(cid:27)(cid:28)(cid:22)(cid:28)(cid:19)(cid:7)(cid:22)(cid:20)(cid:24)(cid:7)(cid:23)! (cid:22)(cid:23)(cid:7)(cid:28)(cid:22)(cid:30)(cid:19)(cid:27)(cid:7)!(cid:20)(cid:7)!((cid:21)(cid:7)(cid:26)(cid:20) !(cid:25)(cid:19)*
EF
Restaurant Openings, Closures and Relocations
The following table shows restaurants opened or closed in the years indicated:
Company-Owned Restaurants
Beginning of period
Openings
Divestitures (1)
Closures and relocations
End of period
Franchise Restaurants
Beginning of period
Openings
Acquisitions (1)
Closures
End of period
Total restaurants
_____________________________
(1)
During 2022, we sold fifteen company-owned restaurants to a franchisee.
Fiscal Year
2023
2022
368
18
—
(6)
380
93
—
—
(3)
90
470
372
16
(15)
(5)
368
76
3
15
(1)
93
461
32
Results of Operations
The following table summarizes key components of our results of operations for the periods indicated as a percentage of our total
revenue, except for the components of restaurant operating costs, which are expressed as a percentage of restaurant revenue.
Fiscal year 2023 contained 52 operating weeks and fiscal year 2022 contained 53 operating weeks.
Revenue:
Restaurant revenue
Franchising royalties and fees, and other
Total revenue
Costs and expenses:
Restaurant operating costs (exclusive of depreciation and amortization, shown separately
below):
Cost of sales
Labor
Occupancy
Other restaurant operating costs
General and administrative
Depreciation and amortization
Pre-opening
Restaurant impairments, closure costs and asset disposals
Total costs and expenses
Loss from operations
Interest expense, net
Loss before income taxes
Provision for income taxes
Net loss
Fiscal Year
2023
2022
97.9 %
2.1 %
97.8 %
2.2 %
100.0 %
100.0 %
25.2 %
32.0 %
9.3 %
18.6 %
10.3 %
5.3 %
0.4 %
1.7 %
27.7 %
31.1 %
9.1 %
18.3 %
9.8 %
4.6 %
0.3 %
1.2 %
101.0 %
100.2 %
(1.0) %
1.0 %
(2.0) %
— %
(2.0) %
(0.2) %
0.5 %
(0.6) %
0.1 %
(0.7) %
33
Fiscal Year 2023 compared to Fiscal Year 2022
Fiscal year 2023 contained 52 operating weeks and fiscal year 2022 contained 53 operating weeks. The table below presents our
operating results for 2023 and 2022, and the related year-over-year changes:
Fiscal Year
Increase / (Decrease)
2023
2022
$
%
(in thousands)
$
492,648
$
498,359
$
10,757
503,405
11,121
509,480
(5,711)
(364)
(6,075)
(1.1) %
(3.3) %
(1.2) %
124,102
157,608
45,925
91,559
51,833
26,792
2,215
8,400
137,859
155,023
45,213
91,220
49,903
23,268
1,662
6,164
(5,029)
4,803
(9,832)
24
(832)
2,445
(3,277)
37
(13,757)
2,585
712
339
1,930
3,524
553
2,236
(1,878)
(4,197)
2,358
(6,555)
(13)
(10.0) %
1.7 %
1.6 %
0.4 %
3.9 %
15.1 %
33.3 %
36.3 %
(0.4) %
*
96.4 %
(200.0)
(35.1) %
$
$
(9,856)
$
(3,314)
$
(6,542)
(197.4)
1,329
$
1,360
$
(31)
(2.3) %
(2.0) %
6.0 %
Revenue:
Restaurant revenue
Franchising royalties and fees, and other
Total revenue
Costs and Expenses:
Restaurant operating costs (exclusive of depreciation and
amortization, shown separately below):
Cost of sales
Labor
Occupancy
Other restaurant operating costs
General and administrative
Depreciation and amortization
Pre-opening
Restaurant impairments, closure costs and asset disposals
Loss from operations
Interest expense, net
Loss before income taxes
Provision for income taxes
Net loss
Company-owned:
Average unit volumes
Comparable restaurant sales
_____________
*
Not meaningful.
Revenue
Total costs and expenses
508,434
510,312
Total revenue decreased by $6.1 million, or 1.2%, in 2023 compared to 2022. This decrease was primarily due to: $10.0 million
from a decline in company same store sales, $9.1 million from overlapping the impact of an additional operating week in 2022,
and $3.1 million due to permanent restaurant closures, partially offset by $17.0 million from growth in new restaurant revenue.
Average unit volumes decreased 2.3% to $1.3 million in 2023 compared to $1.4 million in 2022 primarily due to decreases in
traffic. System-wide comparable restaurant sales decreased 1.9% in 2023, comprised of a 2.0% decrease at company-owned
restaurants and a 1.1% decrease at franchise-owned restaurants.
Cost of Sales
Cost of sales decreased by $13.8 million, or 10.0%, in 2023 compared to 2022. As a percentage of restaurant revenue, cost of
sales decreased to 25.2% in 2023 from 27.7% in 2022, primarily due to a 1.8% impact from a combination of menu price
increases and menu mix and a 0.7% impact from lower commodities prices.
34
(cid:6)
(cid:6)
(cid:6)
(cid:0)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:4)(cid:8)(cid:9)(cid:8)
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#(cid:11)(cid:14)(cid:17)(cid:18)(cid:11)(cid:28)(cid:28)(cid:22)(cid:6)(cid:13)&&(cid:16)(cid:20)(cid:17)(cid:6)(cid:12)(cid:22)(cid:6)(cid:11)(cid:6)!(cid:25)(cid:26) (cid:6)(cid:18)(cid:27)#(cid:11)(cid:15)(cid:17)(cid:6)&(cid:14)(cid:13)(cid:27)(cid:6)(cid:28)(cid:11)(cid:12)(cid:13)(cid:14)(cid:6)#(cid:14)(cid:13)(cid:21)’(cid:15)(cid:17)(cid:18)((cid:18)(cid:17)(cid:22)(cid:25)
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"E
Liquidity and Capital Resources
Current Resources
As of January 2, 2024, our available cash and cash equivalents balance was $3.0 million, and $39.9 million was available for
future borrowings under our A&R Credit Agreement (defined below).
On May 9, 2018, we entered into a Credit Agreement (the “Credit Agreement”) with each other Loan Party (as defined in the
Credit Agreement) party thereto, each lender from time to time party thereto, and U.S. Bank National Association, as
Administrative Agent, L/C Issuer and Swing Line Lender (each as defined in the Credit Agreement). The Credit Agreement
consisted of a term loan facility in an aggregate principal amount of $25.0 million and a revolving line of credit of $65.0 million,
which included a letter of credit subfacility in the amount of $15.0 million and a swingline subfacility in the amount of $10.0
million. The Credit Agreement was subsequently amended on November 20, 2019 and June 16, 2020.
On July 27, 2022, we amended and restated our Credit Agreement by entering into the Amended and Restated Credit Agreement
as further amended, restated, extended, supplemented, modified and otherwise in effect from time to time, the (“A&R Credit
Agreement”), with each other Loan Party (as defined in the A&R Credit Agreement) party thereto, each lender from time to time
party thereto, and U.S. Bank National Association, as Administrative Agent, L/C Issuer and Swing Line Lender (each as defined
in the A&R Credit Agreement). The A&R Credit Agreement matures on July 27, 2027. Among other things, the A&R Credit
Agreement: (i) increased the credit facility from $100.0 million to $125.0 million; (ii) eliminated the term loan and principal
amortization components of the credit facility; (iii) removed the capital expenditure covenant; (iv) enhanced flexibility for certain
covenants and restrictions; and (v) lowered the spread within our cost of borrowing and transitioned from LIBOR to SOFR plus a
margin of 1.50% to 2.50% per annum, based upon the consolidated total lease-adjusted leverage ratio. In connection with the
entry into the A&R Credit Agreement, we wrote off a portion of the unamortized debt issuance costs related to the Credit
Agreement in the amount of $0.3 million in the third quarter of 2022. The A&R Credit Agreement is secured by a pledge of stock
of substantially all of our subsidiaries and a lien on substantially all of our and our subsidiaries’ personal property assets.
On December 21, 2023, we amended our A&R Credit Agreement by entering into that certain First Amendment to Amended and
Restated Credit Agreement (the “Amendment”). Among the modifications, the Amendment: (i) increased applicable rate ranges
(A) with respect to SOFR loans, from 1.50% - 2.50% per annum to 1.75% - 3.00% per annum and (B) with respect to base rate
loans, from 0.50% - 1.50% per annum to 0.75% - 2.00% per annum, in each case as determined by the Consolidated Total Lease
Adjusted Leverage Ratio (as defined in the A&R Credit Agreement), (ii) amended the Consolidated Fixed Charge Coverage Ratio
(as defined in the A&R Credit Agreement) in order to limit the deduction of capital expenditures to “Non-Growth Capital
Expenditures”, (iii) added a defined term for “Non-Growth Capital Expenditures” (along with certain related definitions), (iv)
added a new capital expenditures covenant governing entry into new lease agreements and (v) increased the Consolidated Total
Lease Adjusted Leverage Ratio (as defined in the A&R Credit Agreement) to be no greater than (x) 4.50 to 1.00 for the period
beginning on the last day of the fiscal quarter ending January 2, 2024 until and including the last day of the fiscal quarter ending
December 30, 2025 and (y) 4.25 to 1.00 for the period beginning on the last day of the fiscal quarter ending March 31, 2026 until
and including the last day of the fiscal quarter ending September 29, 2026.
As of January 2, 2024, we had $82.2 million of indebtedness (excluding $2.0 million of unamortized debt issuance costs) and $3.0
million of letters of credit outstanding under the A&R Credit Agreement.
Availability of borrowings under the A&R Credit Agreement is conditioned upon our compliance with the terms of the A&R
Credit Agreement, including the financial covenants and other customary affirmative and negative covenants, such as limitations
on additional borrowings, acquisitions, dividend payments and lease commitments, and customary representations and warranties.
As of January 2, 2024, we were in compliance with all of our debt covenants.
We expect that we will meet all applicable financial covenants in our A&R Credit Agreement through at least the next four fiscal
quarters. However, there can be no assurance we will meet such financial covenants. If such covenants are not met, we would be
required to seek a waiver or amendment from the banks participating in the credit facility. There can be no assurance that such
waiver or amendment would be granted, which could have a material adverse impact on our liquidity.
36
Cash Flow Analysis
Cash flows from operating, investing and financing activities are shown in the following table:
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Operating Activities
Fiscal Year Ended
January 2,
2024
January 3,
2023
(in thousands)
$
27,495 $
9,557
(51,800)
(32,309)
25,795
22,020
$
1,490 $
(732)
Net cash provided by operating activities in 2023 was $27.5 million compared to $9.6 million in 2022. The change in operating
cash flows resulted primarily from working capital changes. The working capital variance includes uses of cash related to payroll
timing and normal changes in accounts payable and other accrued expenses.
Investing Activities
Net cash used in investing activities was primarily related to information technology expenses including digital menu boards, new
restaurant capital expenditures for the opening of eighteen and sixteen company-owned restaurants in 2023 and 2022,
respectively, as well as investments in restaurant equipment and restaurant upgrades.
Financing Activities
Net cash provided by financing activities was $25.8 million in 2023 largely related to draws on our revolving credit facility and
swingline to fund new restaurant openings, partially offset by the $5.0 million repurchase of the Company’s common stock in the
open market, debt issuance costs and payments on finance leases.
Material Cash Requirements
Our short-term obligations consist primarily of certain lease and other contractual commitments related to our operations, normal
recurring operating expenses, working capital needs, new store development, capital improvements and maintenance of our
restaurants, regular interest payments on our debt obligations and certain non-recurring expenditures.
Our long-term obligations consist primarily of certain lease and other contractual commitments related to our operations and
payment of our outstanding debt obligations. In addition, new store development will require capital each year which is expected
to be funded by currently available cash and cash equivalents, cash flows from operations and our revolving credit facility.
Our capital expenditure requirements are primarily dependent upon the pace of our real estate development program and resulting
new restaurant openings, costs for maintenance and remodeling of our existing restaurants, as well as information technology
expenses and other general corporate capital expenditures.
Our total capital expenditures for 2023 were $52.0 million, which includes amounts for restaurants that will be opening in 2024.
We expect our 2024 capital expenditures to be in the range of $28.0 million to $32.0 million. Our capital expenditures in 2024 are
expected to be primarily related to our construction of new restaurants, which excludes landlord reimbursements that we typically
receive, in addition to reinvestment in existing restaurants.
Our contractual obligations consist of lease obligations, purchase obligations, long-term debt and other liabilities. See Note 4
Long-Term Debt and Note 12 Leases to our consolidated financial statements for further discussion. We are obligated under non-
cancelable leases for our restaurants, administrative offices and equipment. In addition to those lease obligations, we have legally
binding minimum lease payments for leases signed but not yet commenced amounting to $14.0 million as of January 2, 2024. We
enter into various purchase obligations in the ordinary course of business. As of January 2, 2024, all of our binding purchase
obligations are short-term amounting to $40.8 million. These amounts relate to volume commitments for beverage and food
37
products, as well as binding commitments for the construction of new restaurants. Our other liabilities of $2.1 million as of
January 2, 2024 includes our commitment under our non-qualified deferred compensation plan and severance.
We believe that we have sufficient liquidity to meet our liquidity needs and capital resource requirements for at least the next
twelve months primarily through currently available cash and cash equivalents, cash flows from operations, and borrowings under
the A&R Credit Agreement. 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 up to 30 days to pay our vendors. In addition, we receive trade credit for the purchase of food, beverages and supplies,
therefore reducing the need for incremental working capital to support growth.
Critical Accounting Policies and Estimates
Our consolidated financial statements and accompanying notes are prepared in accordance with GAAP. Preparing consolidated
financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses. These estimates and assumptions are affected by the application of our accounting policies. Our significant
accounting policies are described in Note 1 Business and Summary of Significant Accounting Policies, to our consolidated
financial statements. Critical accounting estimates are those that require application of management’s most difficult, subjective or
complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. While we
apply our judgment based on assumptions believed to be reasonable under the circumstances, actual results could vary from these
assumptions. It is possible that materially different amounts would be reported using different assumptions. We believe the critical
accounting policies described below affect our more significant judgments and estimates used in the preparation of our
consolidated financial statements.
Impairment of Long-Lived Assets
We review long-lived assets, such as property and equipment, right of use assets and intangibles, subject to amortization, for
impairment when events or circumstances indicate the carrying value of the assets may not be recoverable. In determining the
recoverability of the asset value, an analysis is performed at the individual restaurant level and primarily includes an assessment
of historical cash flows and other relevant factors and circumstances. The other factors and circumstances include changes in the
economic environment, changes in the manner in which assets are used, unfavorable changes in legal factors or business climate,
incurring excess costs in construction of the asset, overall restaurant operating performance and projections for future
performance. These estimates result in a wide range of variability on a year to year basis due to the nature of the criteria.
Restaurant-level cash flow less than our internal threshold over the previous 12 periods is considered an indicator of potential
impairment. In such situations, we evaluate future undiscounted cash flow projections in conjunction with qualitative factors and
future operating plans. Our impairment assessment process requires the use of estimates and assumptions regarding the future
undiscounted cash flows and operating outcomes, which are based upon a significant degree of management’s judgment.
In performing our impairment testing, we forecast our future undiscounted cash flows by looking at recent restaurant level
performance, restaurant level operating plans, sales trends and cost trends for cost of sales, labor and operating expenses. We
believe that this combination of information gives us a fair benchmark to estimate future undiscounted cash flows. We compare
this cash flow forecast, excluding occupancy rent expense, to the asset’s carrying value, excluding lease liability, at the restaurant.
Based on this analysis, if the carrying amount of the assets is greater than the estimated future undiscounted cash flows, an
impairment charge is recognized, measured as the amount by which the carrying amount exceeds the fair value of the asset. If
these projections are not achieved, we could realize future impairments.
Leases
We lease all restaurant facilities, office space and certain equipment. Pursuant to FASB Accounting Standards Codification
(“ASC”) Topic 842, all operating and finance lease assets and liabilities are recognized on our Consolidated Balance Sheets.
Right of use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our
obligation to make future lease payments arising from the lease. Operating lease ROU assets and liabilities are recorded at
commencement date based on the present value of lease payments over the lease term, which includes options to extend lease
terms that are reasonably certain of being exercised. To determine the present value of lease payments not yet paid, we estimate
incremental borrowing rates corresponding to the reasonably certain lease term. As most of our leases do not provide an implicit
rate, we use the incremental borrowing rate based on information available at commencement date in determining the present
38
value of lease payments. Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets.
We recognize lease expense for these short-term leases on a straight-line basis over the lease term.
Our leases typically contain rent escalations over the lease term. We recognize expense for these leases on a straight-line basis
over the lease term. Additionally, tenant incentives used to fund leasehold improvements are recognized when earned and reduce
the right-of-use asset related to the lease. These are amortized through the right-of-use asset as reductions of expense over the
lease term. Rent expense for the period prior to the restaurant opening is reported as pre-opening expense in the Consolidated
Statements of Operations. If our estimates or underlying assumptions, including discount rate and sublease income change in the
future, our operating results may be materially impacted.
39
ITEM 7A.
Quantitative and Qualitative Disclosure about Market Risk
Interest Rate Risk
We are exposed to market risk from changes in interest rates on debt. Our exposure to interest rate fluctuations is limited to our
outstanding borrowing under our A&R Credit Agreement, which bears interest at variable rates equal to SOFR plus a margin of
1.75% to 3.00% per annum, based upon the consolidated total lease-adjusted leverage ratio. As of January 2, 2024, $82.2 million
in borrowings were outstanding under our A&R Credit Agreement. An increase or decrease of 1.0% in the effective interest rate
applied to our borrowings would have resulted in a pre-tax interest expense fluctuation of approximately $0.8 million on an
annualized basis.
Commodity Price Risk
We purchase certain products that are affected by commodity prices and are, therefore, subject to price volatility caused by
weather, market conditions and other factors that are not considered predictable or within our control. Although these products are
subject to changes in commodity prices, certain purchasing contracts or pricing arrangements contain risk management techniques
designed to minimize price volatility. We use these types of purchasing techniques to control costs as an alternative to directly
managing financial instruments to hedge commodity prices. In many cases, we believe we may be able to address material
commodity cost increases by adjusting our menu pricing, but multiple price increases over a short period of time may negatively
affect customer behavior, as we observed in 2023. During 2022, due to the volatility in several commodity markets and driven by
vendor availability, many of our contracts were shorter duration than typical and, in some cases, were based on floating rate prices
rather than fixed rate. As a result, we saw higher cost of food in 2022 than in prior years. In 2023, the commodity markets
underlying our cost of food began to improve materially, particularly in regard to the price of chicken. However, increases in
commodity prices, without adjustments to our menu prices, could increase restaurant operating costs as a percentage of restaurant
revenue.
Inflation
The primary inflationary factors affecting our operations are food costs, labor costs, energy costs and materials used in the
construction of new restaurants and maintenance of existing restaurants. Increases in federal, state or local minimum wages
directly affect our labor costs. Many of our leases require us to pay taxes, maintenance, repairs, insurance and utilities, all of
which are generally subject to inflationary increases. Additionally, the cost of constructing our restaurants is subject to
inflationary increases in the costs of labor and material. During 2023, the degree of inflation moderated compared to 2022
although total inflation remains above historical averages. We expect inflation may continue to affect our results in the near
future.
40
ITEM 8. Financial Statements and Supplementary Data
Noodles & Company
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements
Consolidated Balance Sheets as of January 2, 2024 and January 3, 2023 ............................................................................
Consolidated Statements of Operations for the years ended January 2, 2024, January 3, 2023 and December 28, 2021 ....
Consolidated Statements of Stockholders’ Equity for the years ended January 2, 2024, January 3, 2023 and December
28, 2021 .................................................................................................................................................................................
Consolidated Statements of Cash Flows for the years ended January 2, 2024, January 3, 2023 and December 28, 2021 ...
Notes to Consolidated Financial Statements .........................................................................................................................
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) .....................................................................
42
43
44
45
46
64
See accompanying notes to consolidated financial statements.
41
Noodles & Company
Consolidated Balance Sheets
(in thousands, except share data)
January 2,
2024
January 3,
2023
Assets
Current assets:
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid expenses and other assets
Income tax receivable
Total current assets
Property and equipment, net
Operating lease assets, net
Goodwill
Intangibles, net
Other assets, net
Total long-term assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued payroll and benefits
Accrued expenses and other current liabilities
Current operating lease liabilities
Total current liabilities
Long-term debt, net
Long-term operating lease liabilities, net
Deferred tax liabilities, net
Other long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Preferred stock—$0.01 par value, 1,000,000 shares authorized and undesignated as of January
2, 2024 and January 3, 2023; no shares issued or outstanding
Common stock—$0.01 par value, 180,000,000 shares authorized as of January 2, 2024 and
January 3, 2023; 47,413,585 issued and 44,989,714 outstanding as of January 2, 2024;
48,464,298 issued and 46,040,427 outstanding as of January 3, 2023
Treasury stock, at cost, 2,423,871 shares as of January 2, 2024 and January 3, 2023,
respectively
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
$
3,013 $
$
$
5,144
10,251
3,879
337
22,624
152,176
183,857
7,154
538
1,746
345,471
368,095 $
16,691 $
7,769
12,950
30,104
67,514
80,218
186,285
255
6,663
340,935
—
474
(35,000)
209,930
(148,244)
27,160
Total liabilities and stockholders’ equity
$
368,095 $
See accompanying notes to consolidated financial statements.
42
1,523
6,443
10,044
3,450
176
21,636
129,386
183,392
7,154
608
1,667
322,207
343,843
15,308
9,219
11,005
28,581
64,113
46,051
187,320
229
7,766
305,479
—
485
(35,000)
211,267
(138,388)
38,364
343,843
Noodles & Company
Consolidated Statements of Operations
(in thousands, except share and per share data)
Revenue:
Restaurant revenue
Franchising royalties and fees, and other
Total revenue
Costs and expenses:
Restaurant operating costs (exclusive of depreciation and amortization shown
separately below):
Cost of sales
Labor
Occupancy
Other restaurant operating costs
General and administrative
Depreciation and amortization
Pre-opening
Restaurant impairments, closure costs and asset disposals
Total costs and expenses
(Loss) income from operations
Interest expense, net
(Loss) income before income taxes
Provision for income taxes
Net (loss) income
(Loss) earnings per Class A and Class B common stock, combined
Basic
Diluted
Weighted average Class A and Class B common stock outstanding, combined
Basic
Diluted
Fiscal Year Ended
January 2,
2024
January 3,
2023
December 28,
2021
$
492,648 $
498,359 $
467,336
10,757
503,405
11,121
509,480
7,816
475,152
124,102
157,608
45,925
91,559
51,833
26,792
2,215
8,400
137,859
155,023
45,213
91,220
49,903
23,268
1,662
6,164
117,894
145,622
45,956
83,603
47,535
22,333
665
5,727
508,434
510,312
469,335
(5,029)
4,803
(9,832)
24
(832)
2,445
(3,277)
37
$
(9,856) $
(3,314) $
5,817
2,082
3,735
70
3,665
$
$
(0.21) $
(0.21) $
(0.07) $
(0.07) $
0.08
0.08
45,863,719
45,913,787
45,483,029
45,863,719
45,913,787
46,125,386
See accompanying notes to consolidated financial statements.
43
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Noodles & Company
Consolidated Statements of Cash Flows
(in thousands)
Operating activities
Net (loss) income
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization
Deferred income taxes, net
Restaurant impairments, closure costs and asset disposals
Amortization of debt issuance costs
Stock-based compensation
Gain on insurance proceeds received for property damage
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Operating lease assets and liabilities
Income taxes
Accrued expenses and other liabilities
Net cash provided by operating activities
Investing activities
Purchases of property and equipment
Proceeds from restaurant refranchising
Insurance proceeds received for property damage
Net cash used in investing activities
Financing activities
Net borrowings from swing line loan
Proceeds from borrowings on long-term debt
Payments on long-term debt
Debt issuance costs
Payment of finance leases
Repurchase of common stock
Stock plan transactions and tax withholding on share-based compensation awards
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents
Beginning of year
End of year
Fiscal Year Ended
January 2,
2024
January 3,
2023
December 28,
2021
$
(9,856) $
(3,314) $
3,665
26,792
26
3,981
366
4,235
(205)
1,201
(303)
(520)
2,206
(1,025)
(161)
758
27,495
23,268
(40)
2,261
723
4,328
—
(2,576)
(743)
1,244
(563)
(5,417)
(68)
(9,546)
9,557
22,333
29
3,538
444
4,110
(406)
(491)
(382)
(492)
4,689
(1,759)
(64)
951
36,165
(52,043)
(33,886)
(18,776)
—
243
1,577
—
—
406
(51,800)
(32,309)
(18,370)
(9)
34,500
—
(690)
(2,376)
(4,981)
(649)
25,795
1,490
4,781
53,512
—
—
(32,850)
(21,556)
(1,077)
(1,990)
—
(356)
22,020
(732)
—
(1,925)
—
101
(23,380)
(5,585)
7,840
2,255
1,523
2,255
$
3,013 $
1,523 $
See accompanying notes to consolidated financial statements.
45
NOODLES & COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business and Summary of Significant Accounting Policies
Business
Noodles & Company (the “Company” or “Noodles & Company”), a Delaware corporation, develops and operates fast-casual
restaurants that serve globally-inspired noodle and pasta dishes, soups, salads and appetizers. As of January 2, 2024, the Company
had 380 company-owned restaurants and 90 franchise restaurants in 31 states. The Company operates its business as one
operating and reportable segment.
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the accounts of Noodles & Company and its subsidiaries. All
intercompany balances and transactions are eliminated in consolidation.
Fiscal Year
The Company operates on a 52- or 53-week fiscal year ending on the Tuesday closest to December 31. Fiscal years 2023 and
2021 which ended on January 2, 2024 and December 28, 2021, respectively, each contained 52 weeks. Fiscal year 2022 which
ended on January 3, 2023 contained 53 weeks.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investment instruments with an initial maturity of three months or less when purchased
to be cash equivalents. Amounts receivable from credit card processors are converted to cash shortly after the related sales
transaction and are considered to be cash equivalents because they are both short-term and highly liquid in nature. Amounts
receivable from credit card processors as of January 2, 2024 and January 3, 2023, which are included in cash and cash
equivalents, were $2.4 million and $1.0 million, respectively. Additionally, the Company records “book overdrafts” when
outstanding checks at year end are in excess of cash and cash equivalents. Such book overdrafts are recorded within accounts
payable in the accompanying Consolidated Balance Sheets and within operating activities in the accompanying Consolidated
Statements of Cash Flows.
Accounts Receivable
Accounts receivable consists primarily of franchise receivables and vendor rebates, as well as insurance receivables and other
miscellaneous receivables arising from the normal course of business. The Company believes all amounts to be collectible,
accordingly, no allowance for doubtful accounts has been recorded as of January 2, 2024 or January 3, 2023. In 2023, the
Company recognized $0.5 million of bad debt expense.
Inventories
Inventories consist of food, beverages, supplies and smallwares, and are stated at the lower of cost (first-in, first-out method) or
net realizable value. Smallwares inventory, which consist of the plates, silverware and cooking utensils used in the restaurants, are
frequently replaced and are therefore considered current assets. Replacement costs of smallwares inventory are recorded as other
restaurant operating costs in the Consolidated Statements of Operations and are expensed as incurred. As of January 2, 2024 and
January 3, 2023, smallwares inventory of $6.7 million and $6.5 million, was included in the accompanying Consolidated Balance
Sheets.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOODLES & COMPANY
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. Expenditures for major renewals and improvements are
capitalized, while expenditures for minor replacements and maintenance and repairs are expensed as incurred. Upon retirement or
disposal of assets, the accounts are relieved of cost and accumulated depreciation and the related gain or loss is reflected in
earnings. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized over the shorter of the estimated useful life or the lease term, which generally includes option
periods that are reasonably certain to be exercised. Depreciation and amortization expense on property and equipment, including
assets recorded as finance leases, was $26.7 million, $23.2 million and $22.3 million in 2023, 2022 and 2021, respectively.
The estimated useful lives for property and equipment are:
Property and Equipment
Leasehold improvements
Furniture and fixtures
Equipment
Estimated Useful Lives
Shorter of lease term or estimated useful life, not to exceed
20 years
3 to 15 years
3 to 7 years
The Company capitalizes internal payroll and payroll-related costs directly related to the successful acquisition, development,
design and construction of its new restaurants. Capitalized internal costs were $0.5 million, $0.4 million and $0.2 million in 2023,
2022 and 2021, respectively. Interest incurred on funds used to construct company-owned restaurants is capitalized and amortized
over the estimated useful life of the related assets. Capitalized interest totaled $0.9 million, $0.6 million and $0.3 million in 2023,
2022 and 2021, respectively.
Goodwill
Goodwill represents the excess of purchase price over the fair value of identifiable net assets acquired. Goodwill is not subject to
amortization, but instead is tested for impairment at least annually (or more often, if necessary) as of the first day of the
Company’s fourth fiscal quarter.
Goodwill is evaluated at the level of the Company’s single operating segment, which also represents the Company’s only
reporting unit. In 2023, 2022 and 2021, the Company performed a qualitative impairment assessment. Under this approach, the
Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of its reporting unit is
less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test.
The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. If after performing the qualitative
assessment, the Company determines there is less than a 50 percent chance that the fair value of its reporting unit is less than its
carrying amount, then performing the two-step test is unnecessary. Based on the qualitative assessment performed, management
did not believe that it is more likely than not that the Company’s goodwill has been impaired.
Based on the Company’s analysis, no impairment charges were recognized on goodwill in 2023, 2022 or 2021.
Intangibles, net
Intangibles, net consists primarily of reacquired franchise rights and trademarks. The Company amortizes the reacquired franchise
rights over the remaining contractual terms of the reacquired franchise area development agreements at the time of acquisition,
which ranged from approximately two years to nine years as of January 2, 2024. Trademark rights are considered indefinite-lived
intangible assets, the carrying value of which are analyzed for impairment at least annually (or more often, if necessary).
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOODLES & COMPANY
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment on a regular basis, in addition to whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by a comparison of the
carrying amount of the assets to the future undiscounted net cash flows expected to be generated by the assets. Identifiable cash
flows are measured at the lowest level for which they are largely independent of the cash flows of other groups of assets and
liabilities, generally at the restaurant level. If the assets are determined to be impaired, the amount of impairment recognized is
measured by the amount by which the carrying amount of the assets exceeds their fair value. Estimates of future cash flows are
based on the Company’s experience and knowledge of local operations. During 2023, 2022 and 2021, the Company recorded
impairment charges of certain long-lived assets which are included in restaurant impairments, closure costs and asset disposals in
the Consolidated Statements of Operations. See Note 6, Restaurant Impairments, Closure Costs and Asset Disposals. Fair value of
the restaurant assets was determined using Level 3 inputs (as described in Note 5, Fair Value Measurements).
Debt Issuance Costs
Certain fees and costs incurred to obtain long-term financing are capitalized and included as a reduction in the net carrying value
of long-term debt, net of accumulated amortization. These costs are amortized to interest expense over the term of the related
debt. When debt is extinguished prior to its maturity date, the amortization of the remaining unamortized debt issuance costs, or
pro-rata portion thereof, is charged to loss on extinguishment of debt. Debt issuance costs of $2.0 million and $1.6 million, net of
accumulated amortization, as of January 2, 2024 and January 3, 2023, respectively, are included as a reduction of long-term debt
in the Consolidated Balance Sheets.
Self-Insurance Programs
The Company self-insures for health, workers’ compensation, general liability and property damage. Predetermined loss limits
have been arranged with insurance companies to limit the Company’s per occurrence cash outlay. Estimated costs to settle
reported claims and incurred but unreported claims for health and workers’ compensation self-insured plans are recorded in
accrued payroll and benefits and for general liability and property damage in accrued expenses and other liabilities in the
Consolidated Balance Sheets.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash
equivalents and accounts receivable. The Company’s cash balances may exceed federally insured limits. Credit card transactions
at the Company’s restaurants are processed by one service provider. Concentration of credit risk related to accounts receivable are
limited, as the Company’s receivables are primarily amounts due from franchisees and the Company directly pulls the amounts
owed from the franchisees bank accounts.
Revenue Recognition
Revenue consists of sales from restaurant operations and franchise royalties and fees. Revenue from the operation of company-
owned restaurants is recognized when sales occur. The Company reports revenue net of sales and use taxes collected from
customers and remitted to governmental taxing authorities.
Gift Cards
The Company sells gift cards which do not have an expiration date, and it does not deduct non-usage fees from outstanding gift
card balances. The Company recognizes revenue from gift cards when the gift card is redeemed by the customer or the Company
determines the likelihood of the gift card being redeemed by the customer is remote (“gift card breakage”). The determination of
the gift card breakage rate is based upon Company-specific historical redemption patterns. The Company has determined that
approximately 14% of gift cards will not be redeemed, which is recognized ratably over the estimated redemption period of the
gift card, approximately 24 months.
Loyalty Program
The Company operates the Noodles Rewards program, which is primarily a spend-based loyalty program. With each purchase,
Noodles Rewards members earn loyalty points that can be redeemed for rewards, including free products. Using an estimate of the
value of reward redemptions, we defer revenue associated with points earned, net of estimated points that will not be redeemed.
Points generally expire after six months. Revenue is recognized in a future period when the reward points are redeemed.
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOODLES & COMPANY
Franchise Royalties
Royalties from franchise restaurants are based on a percentage of restaurant revenues and are recognized in the period the related
franchised restaurants’ sales occur. Development fees and franchise fees, portions of which are collected in advance, are
nonrefundable. The Company has determined that the initial franchise services are not distinct from the continuing rights or
services offered during the term of the franchise agreement and should be treated as a single performance obligation; therefore,
such fees are recognized in income ratably over the term of the related franchise agreement or recognized upon the termination of
the agreement between the Company and the franchisee.
As of January 2, 2024, January 3, 2023 and December 28, 2021, there were 90, 93 and 76 franchise restaurants in operation,
respectively. Franchisees opened three restaurants in 2022 and one in 2021. There were no franchise restaurants opened in 2023.
Also, three franchise restaurants closed in 2023, and one franchise restaurant closed in each of 2022 and 2021. In addition, there
were fifteen company-owned locations acquired by a franchisee in 2022.
Sublease Income
The Company records sublease income related to leases for which the Company remains obligated. In previous years, the
Company has entered into transactions to sell company-owned restaurants to franchisees. The lease agreements for those
restaurants were assigned to the franchisee, but in some instances, the Company was not relieved of its primary obligations under
the main lease, therefore these leases are treated as subleases. The lease income on these locations has been recorded in
“Franchising royalties and fees, and other” and the offsetting lease expense has been recorded in “Restaurant impairments, closure
costs and asset disposals” in the Consolidated Statement of Operations.
Pre-Opening Costs
Pre-opening costs, including rent, wages, benefits and travel for the training and opening teams, food, beverage and other
restaurant operating costs, are expensed as incurred prior to a restaurant opening for business.
Advertising and Marketing Costs
Advertising and marketing costs are expensed as incurred and were $10.8 million, $9.3 million and $7.7 million in 2023, 2022
and 2021, respectively. These costs are included in restaurant operating costs, general and administrative expenses and pre-
opening costs based on the nature of the advertising and marketing costs incurred.
Rent
Rent expense for the Company’s leases, which generally have escalating rentals over the term of the lease, is recorded on a
straight-line basis over the lease term. Additionally, tenant incentives used to fund leasehold improvements are recognized when
earned and reduce the right-of-use asset related to the lease. These are amortized through the right-of-use asset as reductions of
expense over the lease term. Some of the Company’s leases include rent escalations based on inflation indexes and fair market
value adjustments. Certain leases contain contingent rental provisions that include a fixed base rent plus an additional percentage
of the restaurant’s sales in excess of stipulated amounts. Lease expense associated with rent escalation and contingent rental
provisions is not material and is included within operating lease cost. Operating lease liabilities are calculated using the prevailing
index or rate at lease commencement. Subsequent escalations in the index or rate and contingent rental payments are recognized
as variable lease expenses. Our lease agreements do not contain any material residual value guarantees or material restrictive
covenants.
As most of the Company’s leases do not provide an implicit rate, the Company used its incremental borrowing rate based on the
information available at commencement date in determining the present value of lease payments.
Provision (Benefit) for Income Taxes
Provision (benefit) for income taxes is accounted for under the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those deferred
amounts are expected to be recovered or settled. Valuation allowances are recorded for deferred tax assets that more likely than
not will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. The Company’s policy is to recognize interest to be paid on an underpayment of income
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOODLES & COMPANY
taxes in interest expense and any related statutory penalties in provision (benefit) for income taxes in the Consolidated Statements
of Operations.
Stock-Based Compensation Expense
Stock-based compensation expense is measured at the grant date based upon the estimated fair value of the portion of the award
that is ultimately expected to vest and is recognized as expense over the applicable vesting period of the award generally using the
straight-line method (see Note 9, Stock-Based Compensation for more information).
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment
Disclosure.” The ASU updates reportable segment disclosure requirements, primarily through requiring enhanced disclosures
about significant segment expenses and information used to assess segment performance. The ASU is effective for fiscal years
beginning after December 15, 2023, with early adoption permitted. The Company is currently evaluating the impact this guidance
may have on its consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.”
The ASU includes amendments requiring enhanced income tax disclosures, primarily related to standardization and
disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The guidance is effective for fiscal years
beginning after December 15, 2024, with early adoption permitted, and should be applied either prospectively or retrospectively.
The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and related
disclosures.
2. Supplemental Financial Information
Accounts receivable consist of the following (in thousands):
Delivery program receivables
Vendor rebate receivables
Franchise receivables(1)
Other receivables
Accounts receivable
_____________________
2023
2022
$
1,869 $
779
1,043
1,453
$
5,144 $
2,027
801
2,050
1,565
6,443
(1)
Franchise receivables in 2023 and 2022 include amounts related to equipment purchased in advance at a discount for franchisees.
Prepaid expenses and other assets consist of the following (in thousands):
Prepaid occupancy related costs
Prepaid insurance
Prepaid expenses
Other current assets
Prepaid expenses and other assets
2023
2022
$
800 $
928
2,127
24
$
3,879 $
711
882
1,802
55
3,450
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOODLES & COMPANY
Property and equipment, net, consist of the following (in thousands):
Leasehold improvements
Furniture, fixtures and equipment
Construction in progress
Accumulated depreciation and amortization
Property and equipment, net
Accrued payroll and benefits consist of the following (in thousands):
Accrued payroll and related liabilities
Accrued bonus
Insurance liabilities
Accrued payroll and benefits
Accrued expenses and other current liabilities consist of the following (in thousands):
Gift card liability
Occupancy related
Utilities
Current portion of finance lease liability
Other restaurant expense accruals
Other corporate expense accruals
Accrued expenses and other current liabilities
3. Goodwill and Intangible Assets
2023
2022
$
232,060 $
176,872
6,426
415,358
212,319
152,786
6,738
371,843
(263,182)
(242,457)
$
152,176 $
129,386
2023
2022
$
$
5,205 $
698
1,866
7,769 $
5,004
2,007
2,208
9,219
2023
2022
$
2,222 $
1,066
1,311
2,337
1,466
4,548
2,430
1,001
1,612
2,210
1,128
2,624
$
12,950 $
11,005
The Company had no goodwill impairment charges in 2023, 2022 or 2021. As of January 2, 2024 and January 3, 2023, the
goodwill balance remained at $7.2 million.
The following table presents intangible assets subject to amortization as of January 2, 2024 and January 3, 2023, (in thousands):
Amortized intangible assets:
Reacquired franchise rights
Accumulated amortization
Amortized intangible assets, net
Non-amortized intangible assets:
Trademark rights
Intangibles, net
2023
2022
$
$
933 $
(627)
306
232
538 $
933
(560)
373
235
608
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOODLES & COMPANY
The estimated aggregate future amortization expense as of January 2, 2024 is as follows, (in thousands):
2024
2025
2026
2027
2028
Thereafter
$
$
66
66
52
40
29
53
306
No impairment charges were recorded related to non-amortized intangible assets in 2023, 2022 or 2021.
4. Long-Term Debt
Credit Facility
On May 9, 2018, the Company entered into a Credit Agreement (the “Credit Agreement”) with each other Loan Party (as defined
in the Credit Agreement) party thereto, each lender from time to time party thereto, and U.S. Bank National Association as
Administrative Agent, L/C Issuer and Swing Line Lender (each as defined in the Credit Agreement). The Credit Agreement
consisted of a term loan facility in an aggregate principal amount of $25.0 million and a revolving line of credit of $65.0 million,
which included a letter of credit subfacility in the amount of $15.0 million and a swingline subfacility in the amount of $10.0
million. The Credit Agreement was subsequently amended on November 20, 2019 and June 16, 2020.
On July 27, 2022, the Company amended and restated the Credit Agreement by entering into the Amended and Restated Credit
Agreement (as further amended, restated, extended, supplemented, modified and otherwise in effect from time to time, the “A&R
Credit Agreement”), with each other Loan Party (as defined in the A&R Credit Agreement) party thereto, each lender from time
to time party thereto, and U.S. Bank National Association, as Administrative Agent, L/C Issuer and Swing Line Lender (each as
defined in the A&R Credit Agreement). The A&R Credit Agreement matures on July 27, 2027. Among other things, the A&R
Credit Agreement: (i) increased the credit facility from $100.0 million to $125.0 million; (ii) eliminated the term loan and
principal amortization components of the credit facility; (iii) removed the capital expenditure covenant; (iv) enhanced flexibility
for certain covenants and restrictions; and (v) lowered the spread within the Company’s cost of borrowing and transitioned from
LIBOR to SOFR plus a margin of 1.50% to 2.50% per annum, based upon the consolidated total lease-adjusted leverage ratio. In
connection with the entry into the A&R Credit Agreement, the Company wrote off a portion of the unamortized debt issuance
costs related to the Credit Agreement in the amount of $0.3 million in 2022. The A&R Credit Agreement is secured by a pledge of
stock of substantially all of the Company’s subsidiaries and a lien on substantially all of the personal property assets of the
Company and its subsidiaries.
On December 21, 2023, the Company amended its A&R Credit Agreement by entering into that certain First Amendment to
Amended and Restated Credit Agreement (the “Amendment”). Among the modifications, the Amendment: (i) increased
applicable rate ranges (A) with respect to SOFR loans, from 1.50% - 2.50% per annum to 1.75% - 3.00% per annum and (B) with
respect to base rate loans, from 0.50% - 1.50% per annum to 0.75% - 2.00% per annum, in each case as determined by the
Consolidated Total Lease Adjusted Leverage Ratio (as defined in the A&R Credit Agreement), (ii) amended the Consolidated
Fixed Charge Coverage Ratio (as defined in the A&R Credit Agreement) in order to limit the deduction of capital expenditures to
“Non-Growth Capital Expenditures”, (iii) added a defined term for “Non-Growth Capital Expenditures” (along with certain
related definitions), (iv) added a new capital expenditures covenant governing entry into new lease agreements and (v) increased
the Consolidated Total Lease Adjusted Leverage Ratio (as defined in the A&R Credit Agreement) to be no greater than (x) 4.50 to
1.00 for the period beginning on the last day of the fiscal quarter ending January 2, 2024 until and including the last day of the
fiscal quarter ending December 30, 2025 and (y) 4.25 to 1.00 for the period beginning on the last day of the fiscal quarter ending
March 31, 2026 until and including the last day of the fiscal quarter ending September 29, 2026.
As of January 2, 2024, the Company had $82.2 million of indebtedness (excluding $2.0 million of unamortized debt issuance
costs) and $3.0 million of letters of credit outstanding under the A&R Credit Agreement.
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOODLES & COMPANY
The Company also maintains outstanding letters of credit to secure obligations under its workers’ compensation program and
certain lease obligations. As of January 2, 2024, the Company was in compliance with all of its debt covenants.
The Company’s revolver, which had a balance of $77.4 million as of January 2, 2024, bore interest at rates between 6.63% to
10.5% during 2023. The Company’s swingline, which had a balance of $4.8 million as of January 2, 2024, bore interest at rates
between 8.75% and 10.5% in 2023. The Company recorded interest expense of $4.8 million, $2.4 million and $2.1 million for
2023, 2022 and 2021, respectively, of which each year included $0.4 million of amortization of debt issuance costs.
5. Fair Value Measurements
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and all other current liabilities
approximate fair values due to their short-term nature. The carrying amounts of borrowings approximate fair value as the line of
credit and borrowings vary with market interest rates and negotiated terms and conditions are consistent with current market rates.
The fair value of the Company’s line of credit borrowings is measured using Level 2 inputs.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Assets recognized or disclosed at fair value in the consolidated financial statements on a non-recurring basis include items such as
property and equipment, operating lease assets, goodwill and other intangible assets. These assets are measured at fair value if
determined to be impaired or when acquired. Adjustments to the fair value of assets measured at fair value on a non-recurring
basis as of January 2, 2024 and January 3, 2023, are discussed in Note 6, Restaurant Impairments, Closure Costs and Asset
Disposals. Assets held for sale are measured at fair value on a non-recurring basis using Level 3 inputs.
The fair values are assigned a level within the fair value hierarchy, depending on the source of the inputs into the calculation.
Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets
or liabilities.
Level 2—Quoted prices in markets that are not active or inputs that are observable, either directly or indirectly, for substantially
the full term of the asset or liability.
Level 3—Prices or valuation techniques which require inputs that are both significant to the fair value measurement and
unobservable (i.e., supported by little or no market activity).
6. Restaurant Impairments, Closure Costs and Asset Disposals
The following table presents restaurant impairments, closure costs and asset disposals for fiscal years 2023, 2022 and 2021 (in
thousands):
Restaurant impairments(1)
Closure costs(1)
Loss on disposal of assets and other
Total restaurant impairments, closure costs and asset disposals
_____________________
2023
2022
2021
$
$
2,987 $
1,198
4,215
8,400 $
1,362 $
1,285
3,517
6,164 $
3,424
1,239
1,064
5,727
(1)
Restaurant impairments and closure costs in all periods presented above include amounts related to restaurants previously impaired or closed.
Restaurant Impairments
Impairment is based on management’s current assessment of the expected future cash flows of its company-owned restaurants
based on recent results and other specific market factors. Impairment expense is a Level 3 fair value measure and is determined by
comparing the carrying value of restaurant assets to the estimated fair market value of the restaurant assets at resale value.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOODLES & COMPANY
During 2023, the Company recorded fixed asset impairment on two restaurants and wrote down lease related assets on four
restaurants. Additionally, the Company wrote-off its lease related assets on two previously closed restaurants after determining
abandonment of its lease on the retail space. In 2022, the Company recognized an impairment charge related to the fixed assets on
four restaurants and a write-down of its lease related assets on two restaurants. In 2021, the Company impaired the fixed assets on
six restaurants and the lease related asset on one restaurant, and wrote-off its lease related asset on one restaurant that closed in
previous years. The Company also wrote down $0.5 million of assets held in connection with a restaurant divestiture in January
2022. All periods include ongoing equipment costs for restaurants previously impaired.
Restaurant Closures
Closure costs during 2023, 2022 and 2021 pertain to ongoing costs of restaurants that closed in previous years, as well as costs
related to the closure of six, five, and twelve restaurants, respectively. These closure costs were offset by gains of $0.2 million in
2023, $0.1 million in 2022 and $0.2 million in 2021 resulting from the adjustments to liabilities as lease terminations occur.
Closure costs can also include fees from real estate advisors and brokers related to terminations of the leases and charges resulting
from final adjustments to liabilities as lease terminations occur.
Losses on Disposal of Assets and Other
All periods include asset disposals in the normal course of business and lease related costs and expenses that the Company is still
obligated for. In 2022, the Company also recorded $0.3 million loss from the sale of its fifteen company-owned restaurants to a
franchisee. Losses on disposal of assets and other in 2023 and 2021 were partially offset by $0.2 million and $0.4 million gains on
insurance proceeds from property damage.
Sublease Expense
The Company records sublease expense related to leases for which the Company remains obligated. In previous years, the
Company has entered into transactions to sell company-owned restaurants to franchisees. The lease agreements for those
restaurants were assigned to the franchisee, but in some instances, the Company was not relieved of its primary obligations under
the lease, therefore these leases are treated as subleases. The lease income for these restaurants has been recorded in “Franchising
royalties and fees, and other” and the offsetting lease expense has been recorded in “Restaurant impairments, closure costs and
asset disposals” in the Consolidated Statement of Operations.
7. Income Taxes
The components of the provision (benefit) for income taxes are as follows for 2023, 2022 and 2021 (in thousands):
2023
2022
2021
Current tax provision:
Federal
State
Deferred tax (benefit) provision:
Federal
State
$
— $
(2)
(2)
21
5
26
Total provision for income taxes
$
24 $
— $
77
77
(27)
(13)
(40)
37 $
—
41
41
23
6
29
70
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOODLES & COMPANY
The reconciliation of income tax provision (benefit) that would result from applying the federal statutory rate to pre-tax income as
shown in the accompanying Consolidated Statements of Operations is as follows for 2023, 2022 and 2021 (in thousands):
2023
2022
2021
Federal income tax (benefit) provision at federal rate
$
(2,065)
$
State income tax (benefit) provision, net of federal tax
Other permanent differences
Tax credits
Change in valuation allowance
Tax rate change
Deferred tax asset write-off
Other items, net
Provision for income taxes
Effective income tax rate
The Company’s total deferred tax assets and liabilities are as follows (in thousands):
Deferred tax assets
Deferred tax liabilities
Total deferred tax assets
Valuation allowance
Net deferred tax liabilities
(420)
629
(1,513)
3,352
—
78
(37)
24
$
$
(688)
(112)
368
(1,608)
1,558
—
320
199
37
$
$
784
162
(17)
(1,297)
244
6
207
(19)
70
(0.2) %
(1.1) %
1.9 %
2023
2022
$
121,801 $
113,054
(71,383)
50,418
(50,673)
$
(255) $
(65,961)
47,093
(47,322)
(229)
Deferred income taxes arise because of the differences in the book and tax bases of certain assets and liabilities. Deferred income
tax liabilities and assets consist of the following (in thousands):
Deferred tax assets (liabilities):
Loss carry forwards
Deferred franchise revenue
Property, equipment and intangible assets
Stock-based compensation
Tax credit carry forwards
Interest expense
Inventory smallwares
Other accrued expenses
Operating lease assets
Operating lease liabilities
Other
Total net deferred tax assets
Valuation allowance
Net deferred tax liabilities
55
2023
2022
$
45,547 $
1,968
(20,473)
1,872
8,744
1,935
(1,772)
518
39,339
2,411
(14,802)
1,970
7,231
617
(1,700)
391
(49,138)
(49,459)
59,611
1,606
50,418
(50,673)
(255) $
$
59,747
1,348
47,093
(47,322)
(229)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOODLES & COMPANY
For the year ended January 2, 2024, the Company determined that it was appropriate to maintain a valuation allowance of $50.7
million against U.S. deferred tax assets due to uncertainty regarding the realizability of future tax benefits. The previously
recorded valuation allowance increased during 2023 due to increases in deferred tax assets. The valuation allowance is recorded
against net deferred tax assets, exclusive of indefinite-lived assets and liabilities. The Company will maintain the remaining
valuation allowance until there is sufficient evidence to support a full or partial reversal. The reversal of a previously recorded
valuation allowance will generally result in a benefit to the effective tax rate.
As of January 2, 2024 and January 3, 2023, net operating loss (“NOL”) carry forwards for federal income tax purposes of
approximately $180.0 million and $153.5 million, respectively, were available to offset future taxable income. Of these amounts,
$106.8 million is available to offset future taxable income through 2037. Federal NOLs of $73.1 million created during the year
ended January 1, 2019 and all subsequent years after can be carried forward indefinitely, but can only offset 80% of future taxable
income. The Internal Revenue Code Section 382 generally limits the utilization of NOLs when there is an ownership change. The
Company completed an analysis under Section 382 through January 2, 2024 and determined that there isn’t a current year
limitation on utilization of tax attributes. Prior to the utilization of NOLs in the future, the Company will determine whether there
are any limitations under Section 382. If such a limitation exists, it is possible that a portion of the NOLs may not be available for
use before expiration.
Uncertain tax positions are recognized if it is more likely than not that the Company will be able to sustain the tax position taken,
and the measurement of the benefit is calculated as the largest amount that is more than 50% likely to be realized upon resolution
of the benefit. The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file
income tax returns, as well as all open tax years in these jurisdictions.
There were no uncertain tax positions for the years ended January 2, 2024 or January 3, 2023. For federal and state income tax
purposes, the Company’s 2020 through 2022 tax years remain open for examination by the authorities under the normal three year
statute of limitations. Should the Company utilize any of its U.S. or state NOLs, the tax year to which the original loss relates will
remain open to examination.
8. Stockholders’ Equity
Common Stock
The Company has 181,000,000 shares of stock authorized, consisting of 150,000,000 shares of Class A common stock, par value
$0.01 per share; 30,000,000 shares of Class B common stock, par value $0.01 and 1,000,000 shares of preferred stock, par value
$0.01 per share. Preferred stock rights are determined by the Company’s Board of Directors when preferred shares are issued. The
following summarizes the rights of common stock:
Voting—Shares of Class A common stock and Class B common stock are entitled to one vote per share in all voting matters, with
the exception that Class B common stock does not vote on the election or removal of directors.
Conversion—Each share of Class B common stock is convertible, at the option of the holder, into one share of Class A common
stock.
Dividends—Class A common stock and Class B common stock share equally if a dividend is declared or paid to either class, but
they do not have rights to any special dividend.
Liquidation, Dissolution or Winding Up—Class A common stock and Class B common stock share equally in distributions in
liquidation, dissolution or winding up of the corporation.
Securities Purchase Agreement with L Catterton
On February 8, 2017, the Company entered into a securities purchase agreement with L Catterton, pursuant to which the Company
agreed, in return for aggregate gross proceeds of $18.5 million, to sell to L Catterton an aggregate of 18,500 shares of preferred
stock convertible into 4,252,873 shares of the Company’s Class A common stock, par value $0.01 per share, at a price per share
of $1,000, plus warrants exercisable for five years beginning six months following their issuance for the purchase of 1,913,793
shares of the Company’s Class A common stock, at a price per share of $4.35. On January 6, 2021, L Catterton exercised their
warrants and sold 837,948 shares of Class A Common Stock, pursuant to a private transaction. Upon completion of the
transaction, L Catterton did not hold any shares of the Company’s Class A Common Stock.
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOODLES & COMPANY
Share Repurchases
On July 26, 2023, the Company announced a share repurchase program (the “2023 Share Repurchase Program”) of up to
$5.0 million of the Company’s Class A common stock. Under this program, the Company purchased shares of the Company's
Class A common stock in the open market. The Company conducted any open market share repurchase activities in compliance
with the safe harbor provisions of Rule 10b-18 of the Exchange Act. During the third quarter ended October 3, 2023, the
Company repurchased 1,731,952 shares of its common stock for approximately $5.0 million in open market transactions at an
average price of $2.86 per share. Share repurchases were accounted for under the retirement method and all repurchased shares
were retired and cancelled. The excess of the purchase price over the par value of the shares was recorded as a reduction in
additional paid-in capital. The 2023 Share Repurchase Program and the remaining diminimus balance was cancelled by the
Company’s Board of Directors in the fourth quarter of 2023.
9. Stock-Based Compensation
In May of 2023, the Company’s Board of Directors adopted the 2023 Stock Incentive Plan, which was approved at the annual
meeting of stockholders on May 16, 2023 (the “2023 Plan”). The 2023 Plan authorizes the grant of non-qualified stock options,
incentive stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), performance share
units (“PSUs”) and incentive bonuses to employees, officers, non-employee directors and other service providers, as applicable.
The Company’s 2013 Stock Incentive Plan, as amended and restated in May of 2013 was terminated. The 2023 Plan is
administered by the Compensation Committee of the Company’s Board of Directors (the “Board”) or another committee
designated by the Board, or in the absence of any such committee, the Board itself (the “administrator”). Stock options are granted
at a price determined by the administrator at an exercise price that is not less than the fair market value of the underlying stock on
the date of grant. The administrator may also grant SARs and RSUs with terms determined by the administrator in accordance
with the 2023 Plan. All share-based awards (except for RSUs) granted under the 2023 Plan have a life of ten years. Most awards
vest ratably over four years; however, some have been granted with different vesting schedules. Of the awards outstanding, none
have been granted to non-employees (except those granted to non-employee members of the Board of Directors of the Company)
under the 2023 Plan. In 2022, the Company launched the General Manager (“GM”) Equity program which granted RSUs to top
performing general managers with a three year cliff vesting. At January 2, 2024, approximately 3.4 million share-based awards
were available to be granted under the 2023 Plan.
Stock-based compensation expense is generally recognized on a straight-line basis over the service period of the awards. In 2023,
2022 and 2021, non-cash stock-based compensation expense of $4.3 million, $4.4 million and $4.3 million, respectively, was
included in general and administrative expense. As of January 2, 2024, there was $7.2 million of unrecognized compensation
costs related to non-vested share-based compensation arrangements granted under the Plan, which is expected to be recognized
over 2.5 years.
The Company has estimated forfeiture rates that average 22% based upon the class of employees receiving stock-based
compensation in its calculation of stock-based compensation expense for the year ended January 2, 2024. These estimates are
based on historical forfeiture behavior exhibited by employees of the Company.
Stock Options
The estimated fair value of each option granted is calculated using the Black-Scholes option-pricing model. Expected volatilities
are based on the Company’s historical data and implied volatility. The Company uses historical data to estimate expected
employee forfeitures of stock options. The expected life of options granted is management’s best estimate using recent and
expected transactions. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield
curve in effect at the time of grant. The Company did not grant any options in 2023, 2022 or 2021.
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOODLES & COMPANY
A summary of aggregate option award activity under the Plan as of January 2, 2024, and changes during the fiscal year then ended
is presented below:
Awards
Weighted-
Average
Exercise Price
Weighted-Average
Remaining
Contractual Term
Aggregate
Intrinsic Value (1)
(in thousands)
Outstanding—January 3, 2023
Granted
Forfeited or expired
Exercised
Outstanding—January 2, 2024
Vested and expected to vest
Exercisable as of January 2, 2024
692,605 $
—
(30,779)
—
661,826 $
661,826 $
661,826 $
12.36
—
12.72
—
12.36
12.36
12.36
2.99 $
2.99 $
2.99 $
—
—
—
_____________
(1)
Aggregate intrinsic value represents the amount by which fair value of the Company’s stock exceeds the exercise price of the option as of January 2,
2024.
There were no options granted in the years ended January 2, 2024, January 3, 2023 and December 28, 2021. The Company had
34,980, 57,147 and 90,590 options that vested during the years ended January 2, 2024, January 3, 2023 and December 28, 2021,
respectively. These awards had a total estimated fair value of $0.1 million, $0.3 million, and $1.1 million at the date of vesting for
the years ended January 2, 2024, January 3, 2023 and December 28, 2021, respectively.
Performance Stock Units
The Company grants PSUs to its executive officers under the Plan. These PSU awards are earned over a three-year performance
period subject to the achievement of certain target performance conditions. The number of shares eligible to vest ranges from 0%
to 200%, however no share shall vest if the defined minimum targets are not met. During fiscal years 2019 to 2022, PSUs were
granted based on target performance measures over the Company’s comparable sales growth and Adjusted EBITDA (“Financial
PSU”). Additionally, during fiscal years 2021 to 2023, the Company also awarded PSUs based on a total shareholder return based
metric (“TSR”), which compares the stock price of the Company’s shares to a group of peer companies.
Each share of the Financial PSUs has a fair value equal to the Company’s stock price at the date of grant while the fair value of
each share of TSR is determined using a Monte Carlo valuation model. The Financial PSU stock-based compensation expense is
recognized during the three-year period and is adjusted for the number of shares that are expected to vest based on the probability
of achieving the targeted performance measures. Stock-based compensation expense for TSR awards is recognized straight-line
over the term of the award. PSUs remain unvested until the end of the performance period and through the post-performance
holding period of three to six months (“vest date”). For TSR awards, there is a mandatory post-vest holding period of one year.
PSUs are forfeited in the event of termination prior to the vest date.
In 2023, the Company recorded a reversal of previously recognized compensation costs due to forfeitures of $0.3 million related
to executive officer departures and $0.5 million reversal due to target performance measures not being met. The stock-based
compensation expense recognized from the PSUs amounted to $(0.6) million, $0.9 million and $1.5 million during 2023, 2022
and 2021, respectively.
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOODLES & COMPANY
Restricted Stock Units
A summary of the status of the Company’s non-vested restricted stock units as of January 2, 2024 and changes during the year
then ended is presented below:
Outstanding—January 3, 2023
Granted
Vested
Forfeited
Non-vested at January 2, 2024
Awards
Weighted-
Average
Grant Date Fair Value
2,323,674 $
2,222,280
(793,739)
(913,450)
2,838,765 $
6.45
4.52
5.47
6.39
5.24
The Company had 793,739 restricted stock units that vested during the year ended January 2, 2024. These units had a total
estimated fair value of $3.4 million at the date of vesting for the year ended January 2, 2024.
10. (Loss) Earnings Per Share
Basic (loss) earnings per share (“EPS”) is calculated by dividing net (loss) income available to common shareholders by the
weighted-average number of shares of common stock outstanding during each period. Diluted EPS is calculated using net (loss)
income available to common stockholders divided by diluted weighted-average shares of common stock outstanding during each
period. Potentially dilutive securities include shares of common stock underlying stock options and restricted common stock.
Diluted EPS considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion
of the potential common shares would have an anti-dilutive effect.
The following table sets forth the computations of basic and diluted EPS (in thousands, except share and per share data):
Net (loss) income attributable to common stockholders
$
(9,856) $
(3,314) $
3,665
2023
2022
2021
Shares:
Basic weighted average shares outstanding
Effect of dilutive securities
45,863,719
45,913,787
45,483,029
—
—
642,357
Diluted weighted average number of shares outstanding
45,863,719
45,913,787
46,125,386
(Loss) earnings per share:
Basic (loss) earnings per share
Diluted (loss) earnings per share
$
$
(0.21) $
(0.21) $
(0.07) $
(0.07) $
0.08
0.08
The Company computes the effect of dilutive securities using the treasury stock method and average market prices during the
period. Potential common shares are excluded from the computation of diluted earnings per share when the effect would be anti-
dilutive. Shares issuable on the vesting or exercise of share-based awards or exercise of outstanding warrants were excluded from
the calculation of diluted loss per share because the effect of their inclusion would have been anti-dilutive totaled 3,458,622,
2,402,238 and 503,142 for 2023, 2022 and 2021, respectively.
11. Employee Benefit Plans
Defined Contribution Plan
In October 2003, the Company adopted a defined contribution plan, The Noodles & Company 401(k) Plan (the “401(k) Plan”).
Company employees aged 21 or older, are eligible to participate in the 401(k) Plan beginning on the first day of the calendar
month following 30 days of employment. Under the provisions of the 401(k) Plan, the Company may, at its discretion, make
contributions to the 401(k) Plan. Participants are 100% vested in their own contributions. In 2019, the board of directors
authorized matching contributions equal to 25% of the first 4% of compensation that is deferred by the participant. The Company
recognized matching contribution expense of $0.4 million, $0.4 million and $0.3 million in 2023, 2022 and 2021, respectively.
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOODLES & COMPANY
Deferred Compensation Plan
The Company’s deferred compensation plan, under which compensation deferrals began in 2013, is a non-qualified deferred
compensation plan which allows highly compensated employees to defer a portion of their base salary and variable compensation,
including 401(k) refund, each plan year. To offset its obligation, the Company holds a portfolio of mutual funds in a Rabbi Trust.
As of January 2, 2024 and January 3, 2023, $1.2 million and $0.7 million, respectively, were included in other assets, net, which
represents the cash surrender value of the associated life insurance policies, and $1.2 million and $0.7 million, respectively, were
included in accrued expenses and other current liabilities and other long-term liabilities, which represents the carrying value of the
liability for deferred compensation.
Employee Stock Purchase Plan
In 2013, the Company adopted an Employee Stock Purchase Plan (the “ESPP”) under which eligible team members may
voluntarily contribute up to 15% of their salaries, subject to limitations, to purchase common stock at a price equal to 85% of the
fair market value of a share of the Company’s common stock on the first day of each offering period or 85% of the fair market
value of a share of the Company’s common stock on the last day of each offering period, whichever amount is less. In general, all
non-highly compensated employees who have been employed by the Company for at least 30 days prior to the offering period and
who are regularly scheduled to work more than 20 hours per week and for more than five months in any calendar year, are eligible
to participate in the ESPP which operates in-line with the Company’s fiscal quarters. A total of 750,000 shares of common stock
are available for issuance under the ESPP. The Company has issued a total of 338,586 shares under this plan, of which 70,857
shares were issued during 2023. A total of 411,414 shares remain available for future issuance. For 2023, in accordance with the
guidance for accounting for stock compensation, the Company estimated the fair value of the stock purchase plan using the Black-
Scholes multiple-option pricing model. The average assumptions used in the model included a 5.05% risk-free interest rate; 0.25
years year expected life; expected volatility of 56.8%; and a zero percent dividend yield. The weighted average fair value per
share at grant date was $0.63. In 2023, the Company recognized $47,000 of compensation expense related to the ESPP.
12. Leases
The Company leases restaurant facilities, office space and certain equipment that expire on various dates through September
2043. Lease terms for restaurants in traditional shopping centers generally include a base term of 10 years, with options to extend
these leases for additional periods of five to 15 years.
The Company’s leases typically contain rent escalations over the lease term. The Company recognizes expense for these leases on
a straight-line basis over the lease term. Additionally, tenant incentives used to fund leasehold improvements are recognized when
earned and reduce the right-of-use asset related to the lease. These are amortized through the right-of-use asset as reductions of
expense over the lease term. Total rent expense for operating leases for 2023, 2022 and 2021 was approximately $39.2 million,
$38.5 million and $39.1 million, respectively.
Some of the Company’s leases include rent escalations based on inflation indexes and fair market value adjustments. Certain
leases contain contingent rental provisions that include a fixed base rent plus an additional percentage of the restaurant’s sales in
excess of stipulated amounts. Lease expense associated with rent escalation and contingent rental provisions is not material and is
included within operating lease cost. Operating lease liabilities are calculated using the prevailing index or rate at lease
commencement. Subsequent escalations in the index or rate and contingent rental payments are recognized as variable lease
expenses. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company elected the practical expedient to account for lease and non-lease components as a single component for
substantially all lease types.
As most of the Company’s leases do not provide an implicit rate, the Company used its incremental borrowing rate based on the
information available at commencement date in determining the present value of lease payments.
Changes in the market trend of the trade area affected certain of our restaurant operating results and the underlying asset values of
the restaurant lease. The Company recorded right-of-use asset impairment charges, which reduced the carrying value of operating
lease assets to their respective estimated fair value by $1.6 million, $0.2 million, and $0.1 million in 2023, 2022 and 2021
respectively.
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOODLES & COMPANY
Supplemental balance sheet information related to leases is as follows (in thousands):
Classification
2023
2022
Assets
Operating
Finance
Total leased assets
Liabilities
Current lease liabilities
Operating
Finance
Long-term lease liabilities
Operating
Finance
Total lease liabilities
Operating lease assets, net
Property and equipment
Current operating lease liabilities
Accrued expenses and other current
liabilities
Long-term operating lease liabilities
Other long-term liabilities
$
$
$
183,857 $
3,440
187,297 $
30,104 $
2,337
186,285
1,469
$
220,195 $
183,392
5,258
188,650
28,581
2,210
187,320
3,520
221,631
The components of lease costs are as follows (in thousands):
Operating lease cost
Classification
Occupancy, other restaurant
operating costs, general and
administrative expenses, and
pre-opening costs
Closure costs, loss on disposals
and other
Finance lease cost
Amortization of lease
assets
Interest on lease
liabilities
Sublease income
Total lease cost, net
Depreciation and amortization
Interest expense, net
Franchising royalties and fees,
and other
Year Ended
January 2, 2024
Year Ended
January 3, 2023
Year Ended
December 28, 2021
$
39,192 $
38,514 $
2,929
3,071
2,270
297
44,688
2,250
401
44,236
$
(3,087)
41,601 $
(3,242)
40,994 $
39,075
1,598
2,128
487
43,288
(1,832)
41,456
Future minimum lease payments required under existing leases as of January 2, 2024 are as follows (in thousands):
Operating Leases
Finance Leases
Total
2024
2025
2026
2027
2028
Thereafter
Total lease payments
Less: Imputed interest
Present value of lease liabilities
$
39,683 $
2,494 $
45,171
41,377
36,954
30,995
100,080
294,260
77,871
216,389 $
1,241
139
83
45
46
4,048
242
3,806 $
$
61
42,177
46,412
41,516
37,037
31,040
100,126
298,308
78,113
220,195
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOODLES & COMPANY
Operating lease payments include $93.1 million related to options to extend lease terms that are reasonably certain of being
exercised and exclude $14.0 million of legally binding minimum lease payments for leases signed but not yet commenced.
Lease term and discount rate are as follows:
Weighted average remaining lease term (years):
Operating
Finance
Weighted average discount rate:
Operating
Finance
January 2, 2024
January 3, 2023
8.3
2.0
8.0 %
6.5 %
7.9
2.6
8.0 %
6.4 %
Supplemental disclosures of cash flow information related to leases are as follows (in thousands):
Cash paid for lease liabilities:
Operating leases
Finance leases
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases
Finance leases
2023
2022
42,731 $
2,672
45,403 $
27,385 $
462
27,847 $
45,158
2,391
47,549
19,584
1,346
20,930
$
$
$
$
13. Supplemental Disclosures to Consolidated Statements of Cash Flows
The following table presents the supplemental disclosures to the Consolidated Statements of Cash Flows for 2023, 2022 and 2021
(in thousands):
Interest paid (net of amounts capitalized)
$
3,975 $
1,500 $
Income taxes paid (refunded)
Purchases of property and equipment accrued in accounts payable
158
4,853
123
5,640
1,400
106
5,335
2023
2022
2021
14. Commitments and Contingencies
In the normal course of business, the Company is subject to other proceedings, lawsuits and claims. Such matters are subject to
many uncertainties, and outcomes are not predictable with assurance. Consequently, the Company is unable to ascertain the
ultimate aggregate amount of monetary liability or financial impact with respect to these matters as of January 2, 2024. These
matters could affect the operating results of any one financial reporting period when resolved in future periods. The Company
believes that an unfavorable outcome with respect to these matters is remote or a potential range of loss is not material to its
consolidated financial statements. Significant increases in the number of these claims, or one or more successful claims that result
in greater liabilities than the Company currently anticipates, could materially and adversely affect its business, financial condition,
results of operations or cash flows.
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOODLES & COMPANY
15. Related Party Transactions
Securities Purchase Agreements
Under the securities purchase agreement with Mill Road Capital II, L.P. (“Mill Road”), if at any time Mill Road owns 10.0% or
more of our outstanding common stock, Mill Road has the right to designate one nominee for election to our Board of Directors.
If Mill Road’s ownership level falls below 10.0% of our outstanding common stock, Mill Road will no longer have a right to
designate a nominee. As of January 2, 2024, Thomas Lynch of Mill Road was a member of our Board of Directors. As of January
3, 2023, Mill Road did not hold a position on the Company’s Board of Directors.
16. Revenue Recognition
Gift Cards
As of January 2, 2024 and January 3, 2023, the current portion of the gift card liability, $2.2 million and $2.4 million,
respectively, is included in accrued expenses and other current liabilities, and the long-term portion, $1.0 million and $0.7 million,
respectively, is included in other long-term liabilities in the Consolidated Balance Sheets.
Revenue recognized in the Consolidated Statements of Operations for the redemption of gift cards was $2.8 million, $3.4 million
and $3.2 million in 2023, 2022 and 2021, respectively. The Company recognized gift card breakage in restaurant revenue of
approximately $0.3 million, $0.5 million and $0.3 million in 2023, 2022 and 2021, respectively.
Franchise Fees
Initial fees received from franchisees are recognized as revenue over the term of each respective franchise agreement, which is
typically 20 years. The Company recognized revenue of $0.2 million, $0.1 million and $0.1 million in 2023, 2022 and 2021,
respectively related to initial fees from franchisees that were included in the contract liability balance at the beginning of the year.
The Company expects to recognize approximately $0.1 million each fiscal year through fiscal 2028 and approximately $0.8
million thereafter related to performance obligations that are unsatisfied as of January 2, 2024.
Loyalty Program
The Company operates the Noodles Rewards program, which is primarily a spend-based loyalty program. With each purchase,
Noodles Rewards members earn loyalty points that can be redeemed for rewards, including free products. Using an estimate of the
value of reward redemptions, we defer revenue associated with points earned, net of estimated points that will not be redeemed.
Points generally expire after six months. Revenue is recognized in a future period when the reward points are redeemed. Deferred
revenue related to the rewards was $0.9 million and $0.3 million as of January 2, 2024 and January 3, 2023, respectively, and was
included in accrued expenses and other current liabilities in the Consolidated Balance Sheets.
63
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Noodles & Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Noodles & Company (the Company) as of January 2, 2024 and
January 3, 2023, the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years
in the period ended January 2, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at
January 2, 2024 and January 3, 2023, and the results of its operations and its cash flows for each of the three years in the period
ended January 2, 2024, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of January 2, 2024, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework), and our report dated March 7, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as
a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the accounts or disclosures to which it relates.
64
Description of the Matter
Impairment of long-lived assets
As more fully described in Note 1 and Note 6 to the consolidated financial
statements, during the year ended January 2, 2024, the Company recorded
impairment charges of $3.0 million related to its restaurants. The Company
evaluates its long-lived assets for impairment whenever events or changes
indicate that the carrying amount of an asset may not be recoverable.
Management groups and evaluates long-lived assets for impairment at the
lowest level for which cash flows are largely independent of the cash flows of
other groups of assets and liabilities, generally at the restaurant level. The
Company estimates the future undiscounted cash flows expected to be
generated by the assets and compares those estimates to the carrying value of
the related assets. If the assets are determined to be impaired, they are written
down to their fair values.
When indicators of impairment were identified, auditing the Company’s long-
lived asset impairment analyses involved subjective auditor judgment in
evaluating
the future
undiscounted cash flows. This assumption is subjective in nature and is
affected by expectations about future market conditions for a given store.
the expected restaurant revenues
included
in
How We Addressed the Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating
effectiveness of controls over the Company’s assessment of the projected
undiscounted cash flows to be generated by restaurants with indicators of
impairment. This included testing controls over management’s review of the
significant assumption of future restaurant revenues described above.
To test the significant assumption described above, our audit procedures
included, among others, comparing estimated revenue trends to historical
results for similar restaurants and evaluating current trends by restaurant and
testing the data used in the calculations for completeness and accuracy. We
inquired of the Company’s management to understand the business initiatives
supporting the revenue assumption in the future cash flows. We performed a
sensitivity analysis of the forecasted restaurant revenues to evaluate the
change in future undiscounted cash flow estimates that would result from
changes in the assumption.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2009.
Denver, Colorado
March 7, 2024
65
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
ITEM 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in
Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end
of the period covered by this annual report.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
The management of Noodles & Company is responsible for establishing and maintaining adequate internal control over financial
reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America. Our internal control over financial reporting includes those policies
and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with accounting principles generally accepted in the United State of America, and that our
receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets
that could have a material effect on our financial statements.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial
Officer, we carried out an evaluation of the effectiveness of our internal control over financial reporting as of January 2, 2024
based on the criteria in “Internal Control - Integrated Framework (the 2013 framework)” issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). Based on this evaluation, our management concluded that our internal
control over financial reporting was effective as of January 2, 2024.
Attestation Report of the Independent Registered Public Accounting Firm
Our independent registered public accounting firm, Ernst & Young LLP, has issued an attestation report on the effectiveness of
our internal control over financial reporting as of January 2, 2024. This report follows.
66
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Noodles & Company
Opinion on Internal Control Over Financial Reporting
We have audited Noodles & Company’s internal control over financial reporting as of January 2, 2024, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). In our opinion, Noodles & Company (the Company) maintained, in all
material respects, effective internal control over financial reporting as of January 2, 2024, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of January 2, 2024 and January 3, 2023, the related consolidated
statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended January 2, 2024, and
the related notes and our report dated March 7, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Denver, Colorado
March 7, 2024
67
ITEM 9B.
Other Information
Director and Executive Officer Trading
During the quarter ended January 2, 2024, no director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1
trading arrangements (as defined in Item 408 of Regulation S-K).
ITEM 9C.
Disclosures Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
ITEM 10.
Directors, Executive Officers and Corporate Governance
PART III
We have adopted a Code of Business Conduct and Ethics that applies to our directors and a Code of Business Conduct and Ethics
that applies to our officers and employees (collectively, the “Codes”), including our principal executive, financial and accounting
officers, and persons performing similar functions. These Codes are published on our corporate governance website located at
investor.noodles.com/corporate-governance.cfm. We intend to disclose certain future amendments to provisions of our Codes, or
waivers of provisions of the Codes granted to executive officers and directors, on the website within four business days following
the date of such amendment or waiver.
The remaining information required by this item is incorporated herein by reference to the sections entitled “Proposal No. 1 -
Election of Directors,” “Delinquent Section 16(a) Report,” “Executive Officers,” “Board Committees—Policy Regarding
Stockholder Recommendations” and “Board Committees—Audit Committee” in our definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 15, 2024 (the “Proxy Statement”).
ITEM 11.
Executive Compensation
The information required by this item is incorporated by reference to the sections entitled “Executive Compensation,” “Director
Compensation” and “Board Committees—Compensation Committee Interlocks and Insider Participation” in the Proxy Statement.
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated by reference to the sections entitled “Equity Compensation Plan
Information” and “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement.
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated by reference to the sections entitled “Transactions with Related Persons”
and “Directors and Corporate Governance—Board Independence” in the Proxy Statement.
ITEM 14.
Principal Accountant Fees and Services
The information required by this item is incorporated by reference to the section entitled “Proposal No. 3 - Ratification of
Appointment of Independent Registered Public Accounting Firm for 2024” in the Proxy Statement.
68
ITEM 15.
Exhibits, Financial Statement Schedules
PART IV
1.
2.
3.
Our Consolidated Financial Statements and Notes thereto are included in Item 8, “Financial Statements and
Supplementary Data,” of this Annual Report on Form 10-K.
All financial schedules have been omitted either because they are not applicable or because the required information is
provided in our Consolidated Financial Statements and Notes thereto, included in Item 8 of this Annual Report on Form
10-K.
The Index to Exhibits is incorporated herein by reference and is filed as part of this 10-K.
69
Exhibit
Number
3.1
3.2
4.1
4.2
4.3
4.4
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10*
10.11*
10.12*
Exhibit Description
Amended and Restated Certificate
of Incorporation
Second Amended and Restated
Bylaws
Specimen Stock Certificate
Certificate of Designations for
Series A Convertible Preferred
Stock
Form of Warrant to Purchase Class
A Common Stock
Description of Securities
Noodles & Company Amended and
Restated 2010 Stock Incentive Plan
Noodles & Company 2013
Employee Stock Purchase Plan
Amended and Restated Credit
Agreement dated July 27, 2022, by
and among Noodles & Company,
each of the Guarantors signatory
thereto, U.S. Bank National
Association, as Administrative
Agent, L/C Issuer and Swing Line
Issuer and the lenders signatory
thereto
First Amendment to Amended and
Restated Credit Agreement, dated
as of December 21, 2023, by and
among Noodles & Company, each
of the Guarantors signatory thereto,
U.S. Bank National Association, as
Administrative Agent, L/C Issuer
and Swing Line Issuer and the
lenders signatory thereto
Security Agreement, dated May 9,
2018, by and between Noodles &
Company and U.S. Bank National
Association, as administrative
agent
Pledge Agreement, dated May 9,
2018, by and between Noodles &
Company and U.S. Bank National
Association, as administrative
agent
Form of Indemnification
Agreement by and between
Noodles & Company and each of
its directors
Form of Area Development
Agreement
Form of Franchise Agreement
Form of Stock Option Agreement
(Nonqualified Stock Options)
Form of Restricted Stock Unit
Agreement
Form of Restricted Stock Unit
Agreement for Nonemployee
Directors
EXHIBITS
Description of Exhibit Incorporated Herein by Reference
Form
S-1
File No.
333-192402
8-K
001-35987
S-1/A
333-188783
8-K
001-35987
8-K
10-K
001-35987
001-35987
S-1/A
333-188783
S-1/A
333-188783
8-K
001-35987
Filing Date
November
19, 2013
August 24,
2015
June 17,
2013
February 9,
2017
February 9,
2017
February
26, 2021
June 17,
2013
June 17,
2013
July 27,
2022
Exhibit
Number
Filed
Herewith
3.1
3.1
4.1
4.1
4.2
4.4
10.1
10.2
10.1
8-K
001-35987
December
26, 2023
10.1
May 11,
2018
May 11,
2018
June 17,
2013
February
24, 2015
February
24, 2015
November
9, 2017
November
9, 2017
November
9, 2017
10.2
10.3
10.15
10.9
10.10
10.7
10.8
10.9
10-Q
001-35987
10-Q
001-35987
S-1/A
333-188783
10-K
10-K
10-Q
10-Q
10-Q
001-35987
001-35987
001-35987
001-35987
001-35987
70
10.13*
10.14*
10.15
10.16
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
10.27*
10.28*
10.29*
10.30*
10.31*
The Executive Nonqualified
“Excess” Plan Adoption
Agreement, adopted by Noodles &
Company on May 16, 2013
Employment Agreement, dated
September 21, 2017, between
Noodles & Company and Dave
Boennighausen
Letter Agreement, dated February
15, 2017, between Noodles &
Company and Mill Road Capital
Management LLC
Securities Purchase Agreement,
dated March 13, 2017, between
Noodles & Company and Mill
Road Capital Management LLC
Stock Option Agreement
(Nonqualified Stock Options),dated
September 21, 2017, between
Noodles & Company and Dave
Boennighausen
Restricted Stock Unit Agreement,
dated September 21, 2017, between
Noodles & Company and Dave
Boennighausen
Restricted Stock Unit Agreement,
dated September 21, 2017, between
Noodles & Company and Dave
Boennighausen
Severance Agreement with Melissa
Heidman, dated June 6, 2018
Amended and Restated Noodles &
Company Compensation Plan for
Non-Employee Directors, dated
December 12, 2018
Compensation Plan for Non-
Employee Directors Amended and
Restated September 19, 2019
Offer Letter, dated December 4,
2019, between Noodles &
Company and Stacey Pool
Form of 2020 Performance
Restricted Stock Unit Agreement
Employment Agreement, dated
October 27, 2020, between
Noodles & Company and Dave
Boennighausen
Employment Agreement, dated
October 27, 2020, between
Noodles & Company and Brad
West
Employment Agreement, dated
October 27, 2020, between
Noodles & Company and Stacey
Pool
Employment Agreement, dated
October 27, 2020, between
Noodles & Company and Melissa
Heidman
Form of 2021 Performance
Restricted Stock Unit Agreement
Employment Agreement, dated
August 2, 2021, between Noodles
& Company and Kathy Lockhart
Employment Agreement, dated
August 2, 2021, between Noodles
& Company and Sue Petersen
S-1/A
333-188783
June 17,
2013
10.22
8-K
001-35987
September
25, 2017
8-K
001-35987
8-K
001-35987
10-Q
001-35987
10-Q
001-35987
10-Q
001-35987
10-K
10-K
001-35987
001-35987
10-Q
001-35987
10-K
001-35987
10-K
10-Q
001-35987
001-35987
March 14,
2017
March 14,
2017
November
9, 2017
November
9, 2017
November
9, 2017
March 15,
2019
March 15,
2019
June 17,
2020
February
26, 2020
February
26, 2020
October 29,
2020
10.1
10.2
10.1
10.4
10.5
10.6
10.32
10.34
10.2
10.34
10.35
10.1
10-Q
001-35987
October 29,
2020
10.2
10-Q
001-35987
October 29,
2020
10.3
10-Q
001-35987
October 29,
2020
10.4
10-Q
10-Q
001-35987
001-35987
10-Q
001-35987
April 30,
2021
August 4,
2021
August 4,
2021
10.1
10.1
10.2
71
10.32*
10.33*
10.34*
10.35*
10.36*
10.37*
10.38*
10.39*
10.40*
10.41*
10.42*
10.43*
10.44*
21.1
23.1
24.1
31.1
31.2
32.1
97.1
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
Employment Agreement, dated
July 30, 2021, between Noodles &
Company and Corey Kline
Form of 2019 Performance
Restricted Stock Unit Agreement
Form of 2022 Performance
Restricted Stock Unit Agreement
Form of Restricted Stock Unit
Agreement for General Manager
Equity Partner Plan
Form of 2023 Restricted Stock
Unit Agreement
Form of 2023 Performance
Restricted Stock Unit Agreement
Form of 2023 Restricted Stock
Unit Agreement For General
Manager Equity Partner Plan
Compensation Plan for Non-
employee Directors, Amended and
Restated May 15, 2023
Noodles & Company 2023 Stock
Incentive Plan
Mike Hynes Employment
Agreement
Mike Hynes Offer Letter
Drew Madsen Offer Letter
Restricted Stock Unit Agreement,
dated November 9, 2023, between
Noodles & Company and Drew
Madsen
List of Subsidiaries of Noodles &
Company
Consent of Ernst & Young LLP
Power of Attorney (included on
signature page of this report)
Certification of Principal Executive
Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
Certification of Principal Financial
Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
Certification of Chief Executive
Officer and Chief Financial Officer
Section 906 of the Sarbanes-Oxley
Act of 2002
Noodles & Company Dodd-Frank
Clawback Policy
Inline XBRL Instance Document -
the instance document does not
appear in the Interactive Data File
because its XBRL tags are
embedded within the Inline XBRL
document
Inline XBRL Taxonomy Extension
Schema Document
Inline XBRL Taxonomy Extension
Calculation Linkbase Document
Inline XBRL Taxonomy Extension
Definition Linkbase Document
Inline XBRL Taxonomy Extension
Label Linkbase Document
10-Q
001-35987
10-K
10-Q
10-Q
10-Q
10-Q
001-35987
001-35987
001-35987
001-35987
001-35987
10-Q
001-35987
10-Q
001-35987
S-8
8-K
8-K
8-K
8-K
333-272120
001-35987
001-35987
001-35987
001-35987
August 4,
2021
February
24, 2022
April 28,
2022
November
4, 2022
May 11,
2023
May 11,
2023
May 11,
2023
August 10,
2023
May 22,
2023
June 26,
2023
June 26,
2023
November
13, 2023
November
13, 2023
10.3
10.40
10.1
10.1
10.1
10.2
10.3
10.1
99.1
10.1
10.2
10.1
10.2
X
X
X
X
X
X
X
X
X
X
X
X
72
101.PRE
104
_____________
Inline XBRL Taxonomy Extension
Presentation Linkbase Document
Cover Page Interactive Data File
(formatted as Inline XBRL and
contained in Exhibit 101)
* Management contract or compensatory plan or arrangement.
X
X
73
ITEM 16.
Form 10-K Summary.
None.
74
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 8, 2024.
SIGNATURES
NOODLES & COMPANY
By: /s/ DREW MADSEN
Drew Madsen
Chief Executive Officer
POWER OF ATTORNEY
Know all persons by these presents, that each person whose signature appears below constitutes and appoints Melissa M.
Heidman as such person’s true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for such
person and in such person’s name, place and stead, in any and all capacities, to sign any and all amendments to this Report, and to
file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as such person might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or their or such person’s substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
75
Signature
Title
Date
/s/ DREW MADSEN
Drew Madsen
/s/ MIKE HYNES
Mike Hynes
/s/ KATHY LOCKHART
Kathy Lockhart
/s/ JEFFREY JONES
Jeffrey Jones
/s/ ROBERT HARTNETT
Robert Hartnett
/s/ MARY EGAN
Mary Egan
/s/ THOMAS LYNCH
Thomas Lynch
/s/ ELISA SCHREIBER
Elisa Schreiber
/s/ SHAWN TAYLOR
Shawn Taylor
Director, Chief Executive Officer
(principal executive officer)
March 8, 2024
Chief Financial Officer
(principal financial officer)
March 8, 2024
Chief Accounting Officer
(principal accounting officer)
March 8, 2024
Chairman
March 8, 2024
Director
March 8, 2024
Director
March 8, 2024
March 8, 2024
March 8, 2024
March 8, 2024
Director
Director
Director
76
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