UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the Quarterly Period Ended ~~June 25, 2023~~March 31, 2024


o			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: 001-36104

Potbelly Corporation

(Exact name of registrant as specified in its charter)


Delaware						36-4466837
(State or Other Jurisdiction of Incorporation)						(IRS Employer Identification Number)
111 N. Canal Street, Suite 325 Chicago, Illinois						60606
(Address of Principal Executive Offices)						(Zip Code)

Registrant’s Telephone Number, Including Area Code: (312) 951-0600

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

PBPB

The NASDAQ Stock Market LLC

(Nasdaq Global Select Market)

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 o

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 o

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

As of ~~July 23, 2023,~~April 28, 2024, the registrant had ~~29,317,743~~29,841,506 shares of common stock, $0.01 par value per share, outstanding.

Table of Contents

Potbelly Corporation and Subsidiaries

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Potbelly Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(amounts in thousands, except par value data, unaudited)


		June 25, 2023		December 25, 2022
	March 31, 2024					March 31, 2024	December 31, 2023
Assets	Assets
Current assets	Current assets
Current assets
Current assets
Cash and cash equivalents	Cash and cash equivalents	$	34,261	$	15,619
Accounts receivable, net of allowances of $24 and $16 as of June 25, 2023 and December 25, 2022, respectively		8,275		6,420
Cash and cash equivalents
Cash and cash equivalents
Accounts receivable, net of allowances of $21 and $26 as of March 31, 2024 and December 31, 2023, respectively
Inventories	Inventories	3,534		3,990
Prepaid expenses and other current assets	Prepaid expenses and other current assets	5,110		4,501
Assets classified as held-for-sale	Assets classified as held-for-sale	1,237		—
Total current assets	Total current assets	52,417		30,530

Property and equipment, net
Property and equipment, net
Property and equipment, net	Property and equipment, net	43,485		44,477
Right-of-use assets for operating leases	Right-of-use assets for operating leases	151,328		160,891
Indefinite-lived intangible assets	Indefinite-lived intangible assets	3,404		3,404
Goodwill	Goodwill	2,122		2,222
Restricted cash	Restricted cash	749		—
Deferred expenses, net and other assets	Deferred expenses, net and other assets	3,368		3,647
Total assets	Total assets	$	256,873	$	245,171

Liabilities and equity	Liabilities and equity
Liabilities and equity
Liabilities and equity
Current liabilities	Current liabilities
Current liabilities
Current liabilities
Accounts payable
Accounts payable
Accounts payable	Accounts payable	$	9,754	$	10,718
Accrued expenses	Accrued expenses	35,636		30,826
Short-term operating lease liabilities	Short-term operating lease liabilities	27,535		27,395
Current portion of long-term debt	Current portion of long-term debt	1,250		—
Total current liabilities	Total current liabilities	74,175		68,939

Long-term debt, net of current portion	Long-term debt, net of current portion	21,108		8,550
Long-term debt, net of current portion
Long-term debt, net of current portion
Long-term operating lease liabilities	Long-term operating lease liabilities	150,166		160,968
Other long-term liabilities	Other long-term liabilities	4,223		2,441
Total liabilities	Total liabilities	249,672		240,898

Commitments and contingencies (Note 11)
Commitments and contingencies (Note 12)
Commitments and contingencies (Note 12)
Commitments and contingencies (Note 12)

Equity	Equity
Common stock, $0.01 par value—authorized 200,000 shares; outstanding 29,309 and 28,819 shares as of June 25, 2023 and December 25, 2022, respectively		389		384
Equity
Equity
Common stock, $0.01 par value—authorized 200,000 shares; outstanding 29,685 and 29,364 shares as of March 31, 2024 and December 31, 2023, respectively
Common stock, $0.01 par value—authorized 200,000 shares; outstanding 29,685 and 29,364 shares as of March 31, 2024 and December 31, 2023, respectively
Common stock, $0.01 par value—authorized 200,000 shares; outstanding 29,685 and 29,364 shares as of March 31, 2024 and December 31, 2023, respectively
Warrants	Warrants	2,219		2,566
Additional paid-in-capital	Additional paid-in-capital	459,351		455,831
Treasury stock, held at cost, 10,053 and 9,924 shares as of June 25, 2023, and December 25, 2022, respectively		(116,497)		(115,388)
Treasury stock, held at cost, 10,131 and 10,077 shares as of March 31, 2024, and December 31, 2023, respectively
Accumulated deficit	Accumulated deficit	(338,027)		(338,916)
Total stockholders’ equity	Total stockholders’ equity	7,435		4,477
Non-controlling interest	Non-controlling interest	(234)		(204)
Total equity	Total equity	7,201		4,273

Total liabilities and equity	Total liabilities and equity	$	256,873	$	245,171
Total liabilities and equity
Total liabilities and equity

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

Potbelly Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(amounts in thousands, except per share data, unaudited)


		For the Quarter Ended				For the Year to Date Ended
		June 25, 2023		June 26, 2022		June 25, 2023		June 26, 2022
		For the Quarter Ended
		For the Quarter Ended
		For the Quarter Ended
		March 31, 2024
		March 31, 2024
		March 31, 2024
Revenues
Revenues
Revenues	Revenues
Sandwich shop sales, net	Sandwich shop sales, net	$	124,709	$	114,992	$	241,656	$	212,423
Sandwich shop sales, net
Sandwich shop sales, net
Franchise royalties, fees and rent income	Franchise royalties, fees and rent income	1,914		960		3,237		1,750
Franchise royalties, fees and rent income
Franchise royalties, fees and rent income
Total revenues
Total revenues
Total revenues	Total revenues	126,623		115,952		244,893		214,173

Expenses	Expenses

Expenses

Expenses
Sandwich shop operating expenses, excluding depreciation
Sandwich shop operating expenses, excluding depreciation
Sandwich shop operating expenses, excluding depreciation	Sandwich shop operating expenses, excluding depreciation
Food, beverage and packaging costs	Food, beverage and packaging costs	34,903		32,830		67,523		60,138
Food, beverage and packaging costs
Food, beverage and packaging costs
Labor and related expenses
Labor and related expenses
Labor and related expenses	Labor and related expenses	37,866		36,121		74,368		69,374
Occupancy expenses	Occupancy expenses	13,083		13,805		26,393		27,650
Occupancy expenses
Occupancy expenses
Other operating expenses
Other operating expenses
Other operating expenses	Other operating expenses	20,925		19,128		41,409		37,233
Franchise support, rent and marketing expenses	Franchise support, rent and marketing expenses	1,215		126		1,806		246
Franchise support, rent and marketing expenses
Franchise support, rent and marketing expenses
General and administrative expenses
General and administrative expenses
General and administrative expenses	General and administrative expenses	11,695		8,827		21,664		17,345
Depreciation expense	Depreciation expense	2,887		3,030		5,857		6,167
Depreciation expense
Depreciation expense
Pre-opening costs
Pre-opening costs
Pre-opening costs	Pre-opening costs	33		—		55		—
Loss on Franchise Growth Acceleration Initiative activities	Loss on Franchise Growth Acceleration Initiative activities	14		—		963		—
Loss on Franchise Growth Acceleration Initiative activities
Loss on Franchise Growth Acceleration Initiative activities
Impairment, loss on disposal of property and equipment and shop closures	Impairment, loss on disposal of property and equipment and shop closures	658		1,044		1,703		2,363
Total expenses		123,279		114,911		241,741		220,516
Impairment, loss on disposal of property and equipment and shop closures
Impairment, loss on disposal of property and equipment and shop closures
Total operating expenses
Total operating expenses
Total operating expenses
Income (loss) from operations
Income (loss) from operations
Income (loss) from operations	Income (loss) from operations	3,344		1,041		3,152		(6,343)

Interest expense, net	Interest expense, net	1,011		357		1,678		683

Interest expense, net

Interest expense, net
Loss on extinguishment of debt	Loss on extinguishment of debt	—		—		239		—
Income (loss) before income taxes		2,333		684		1,235		(7,026)
Income tax expense (benefit)		(48)		(24)		57		153
Net income (loss)		2,381		708		1,178		(7,179)
Loss on extinguishment of debt
Loss on extinguishment of debt
Loss before income taxes
Loss before income taxes
Loss before income taxes
Income tax expense
Income tax expense
Income tax expense
Net loss
Net loss
Net loss
Net income attributable to non-controlling interest	Net income attributable to non-controlling interest	165		134		288		160
Net income (loss) attributable to Potbelly Corporation		$	2,216	$	574	$	890	$	(7,339)
Net income attributable to non-controlling interest
Net income attributable to non-controlling interest
Net loss attributable to Potbelly Corporation
Net loss attributable to Potbelly Corporation
Net loss attributable to Potbelly Corporation

Net income (loss) per common share attributable to common stockholders:
Net income per common share attributable to common stockholders:

Net income per common share attributable to common stockholders:

Net income per common share attributable to common stockholders:
Basic
Basic
Basic	Basic	$	0.08	$	0.02	$	0.03	$	(0.26)
Diluted	Diluted	$	0.07	$	0.02	$	0.03	$	(0.26)
Diluted
Diluted
Weighted average shares outstanding:
Weighted average shares outstanding:
Weighted average shares outstanding:	Weighted average shares outstanding:
Basic	Basic	29,199		28,565		29,053		28,481
Basic
Basic
Diluted	Diluted	30,088		29,117		29,776		28,481
Diluted
Diluted

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

Potbelly Corporation and Subsidiaries

Condensed Consolidated Statements of Equity ~~(Deficit)~~

(amounts and shares in thousands, unaudited)


			Common Stock			Treasury Stock				Warrants		Additional Paid-In- Capital				Accumulated Deficit				Non- Controlling Interest				Total Equity (Deficit)
			Shares	Amount
Balance at December 26, 2021			28,380	$	380			$	(114,577)					$	2,566			$	452,570			$	(343,261)			$	(95)	$	(2,417)
		Common Stock																												Common Stock	Treasury Stock	Warrants	Additional Paid-In- Capital	Accumulated Deficit	Non- Controlling Interest	Total Equity
		Shares
Balance at December 25, 2022
Balance at December 25, 2022
Balance at December 25, 2022
Net income (loss)	Net income (loss)		—	—		—				—		—				(7,913)				26				(7,887)
Shares issued under equity compensation plan			81	1		(279)				—		—				—				—				(278)
Stock-based compensation plans
Proceeds from exercise of warrants
Distributions to non-controlling interest	Distributions to non-controlling interest		—	—		—				—		—				—				(120)				(120)
Stock-based compensation expense	Stock-based compensation expense		—			—				—		675				—				—				675
Balance at March 27, 2022			28,461	381		(114,856)				2,566		453,245				(351,174)				(189)				(10,027)
Net income (loss)			—	—		—				—		—				574				134				708
Shares issued under equity compensation plan			235	2		(325)				—		(3)				—				—				(326)
Distributions to non-controlling interest			—	—		—				—		—				—				(56)				(56)
Stock-based compensation expense			—	—		—				—		820				—				—				820
Balance at June 26, 2022			28,696	$	383	$	(115,181)			$	2,566	$	454,062			$	(350,600)			$	(111)			$	(8,881)
Balance at March 26, 2023 (unaudited)

Balance at December 25, 2022			28,819	$	384	$	(115,388)			$	2,566	$	455,831			$	(338,916)			$	(204)			$	4,273
Balance at December 31, 2023
Balance at December 31, 2023
Balance at December 31, 2023
Net income (loss)	Net income (loss)		—	—		—				—		—				(1,327)				123				(1,204)
Shares issued under equity compensation plan	Shares issued under equity compensation plan		70	1		(337)				—		(1)				—				—				(337)
Proceeds from exercise of warrants	Proceeds from exercise of warrants		159	1		—				(313)		1,177				—				—				865
Distributions to non-controlling interest	Distributions to non-controlling interest		—	—		—				—		—				—				(152)				(152)
Stock-based compensation expense	Stock-based compensation expense		—	—		—				—		911				—				—				911
Balance at March 26, 2023			29,048	$	386	$	(115,725)			$	2,253	$	457,918			$	(340,243)			$	(233)			$	4,356
Net income (loss)			—	—		$	—			$	—	$	—			$	2,216			$	165			$	2,381
Shares issued under equity compensation plan			243	3		(772)				—		(2)				—				—				(771)
Proceeds from exercise of warrants			18	—		—				(34)		130				—				—				96
Distributions to non-controlling interest			—	—		—				—		—				—				(166)				(166)
Stock-based compensation expense			—	—		—				—		1,305				—				—				1,305
Balance at June 25, 2023			29,309	$	389	$	(116,497)			$	2,219	$	459,351			$	(338,027)			$	(234)			$	7,201
Balance at March 31, 2024 (unaudited)

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

Potbelly Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(amounts in thousands, unaudited)


		For the Year to Date Ended
		June 25, 2023		June 26, 2022
	For the Quarter to Date Ended						For the Quarter to Date Ended
	March 31, 2024					March 31, 2024		March 26, 2023
Cash flows from operating activities:	Cash flows from operating activities:
Net income (loss)		$	1,178	$	(7,179)
Adjustments to reconcile net loss to net cash used in operating activities:
Net loss
Net loss
Net loss
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense
Depreciation expense
Depreciation expense	Depreciation expense	5,857		6,167
Noncash lease expense	Noncash lease expense	12,386		13,020
Deferred income tax	Deferred income tax	(81)		9
Stock-based compensation expense	Stock-based compensation expense	2,216		1,495
Asset impairment, loss on disposal of property and equipment and shop closures	Asset impairment, loss on disposal of property and equipment and shop closures	1,061		2,363
Loss on Franchise Growth Acceleration Initiative activities	Loss on Franchise Growth Acceleration Initiative activities	936		—
Loss on extinguishment of debt	Loss on extinguishment of debt	224		—
Other operating activities	Other operating activities	209		139
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:
Accounts receivable, net	Accounts receivable, net	(1,862)		(1,379)
Accounts receivable, net
Accounts receivable, net
Inventories	Inventories	281		(121)
Prepaid expenses and other assets	Prepaid expenses and other assets	(240)		12
Accounts payable	Accounts payable	(1,222)		455
Operating lease liabilities	Operating lease liabilities	(13,707)		(14,183)
Accrued expenses and other liabilities	Accrued expenses and other liabilities	4,786		1,180
Net cash provided by operating activities:		12,022		1,978
Net cash provided by (used in) operating activities:

Cash flows from investing activities:	Cash flows from investing activities:
Cash flows from investing activities:
Cash flows from investing activities:
Purchases of property and equipment	Purchases of property and equipment	(7,281)		(3,115)
Proceeds from sale of refranchised shops		1,362		—
Purchases of property and equipment
Purchases of property and equipment
Proceeds from sale of refranchised shops and other assets
Net cash used in investing activities:	Net cash used in investing activities:	(5,919)		(3,115)

Cash flows from financing activities:	Cash flows from financing activities:
Cash flows from financing activities:
Cash flows from financing activities:
Borrowings under Revolving Facility
Borrowings under Revolving Facility
Borrowings under Revolving Facility
Borrowings under Term Loan	Borrowings under Term Loan	25,000		—
Principal payments made for Term Loan		(625)		—
Borrowings under revolving credit facility		14,600		15,000
Repayments under revolving credit facility		(23,150)		(12,800)
Borrowings under Former Credit Facility
Repayments under Revolving Facility
Repayments under Term Loan
Repayments under Former Credit Facility
Payment of debt issuance costs	Payment of debt issuance costs	(2,204)		(76)
Proceeds from exercise of warrants	Proceeds from exercise of warrants	961		—
Employee taxes on certain stock-based payment arrangements	Employee taxes on certain stock-based payment arrangements	(976)		(507)
Distributions to non-controlling interest	Distributions to non-controlling interest	(318)		(176)
Net cash provided by financing activities:		13,288		1,441
Principal payments made for Term Loan
Net cash provided by (used in) financing activities:

Net increase (decrease) in cash and cash equivalents and restricted cash
Net increase (decrease) in cash and cash equivalents and restricted cash
Net increase (decrease) in cash and cash equivalents and restricted cash	Net increase (decrease) in cash and cash equivalents and restricted cash	19,391		304
Cash and cash equivalents and restricted cash at beginning of period	Cash and cash equivalents and restricted cash at beginning of period	15,619		14,353
Cash and cash equivalents and restricted cash at end of period	Cash and cash equivalents and restricted cash at end of period	$	35,010	$	14,657

Supplemental cash flow information:	Supplemental cash flow information:
Supplemental cash flow information:
Supplemental cash flow information:
Income taxes paid
Income taxes paid
Income taxes paid	Income taxes paid	$	245	$	132
Interest paid	Interest paid	$	1,446	$	236

Supplemental non-cash investing and financing activities:	Supplemental non-cash investing and financing activities:
Supplemental non-cash investing and financing activities:
Supplemental non-cash investing and financing activities:
Unpaid liability for purchases of property and equipment
Unpaid liability for purchases of property and equipment
Unpaid liability for purchases of property and equipment	Unpaid liability for purchases of property and equipment	$	1,035	$	591
Unpaid liability for employee taxes on certain stock-based payment arrangements	Unpaid liability for employee taxes on certain stock-based payment arrangements	$	149	$	97

See accompanying notes to the unaudited condensed consolidated financial statements

Table of Contents

Potbelly Corporation and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements (unaudited)

(Dollars and shares in thousands, except per share amounts or where noted)

(1) Organization and Other Matters

Business

Potbelly Corporation, a Delaware corporation, together with its subsidiaries (collectively referred to as the ~~"Company", "Potbelly", "we",~~"Company," "Potbelly," "we," "us" or "our"), owns and operates ~~372 company-owned~~345 company-operated shops in the United States as of ~~June 25, 2023.~~March 31, 2024. Additionally, Potbelly franchisees operate 5582 shops domestically.

Basis of Presentation

The unaudited condensed consolidated financial statements and notes herein should be read in conjunction with the audited consolidated financial statements of Potbelly and its subsidiaries and the notes thereto included in our Annual Report on Form 10-K for the year ended December ~~25, 2022.~~31, 2023. The unaudited condensed consolidated financial statements included herein have been prepared by us without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC") regarding interim financial reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") have been condensed or omitted pursuant to the SEC rules and regulations. In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments ~~which are of a normal and recurring nature (except as otherwise noted), that are~~ necessary to present fairly ~~our balance sheet as of June 25, 2023 and December 25, 2022, our statement~~the financial position, results of operations ~~for the quarter~~ and ~~year to date ended June 25, 2023 and June 26, 2022, the statement of equity for the quarter and year to date ended June 25, 2023 and June 26, 2022, and our statement of~~ cash flows for the ~~quarter and year to date ended June 25, 2023 and June 26, 2022 have been included.~~interim periods reported within. The condensed consolidated statements of operations for the interim periods presented herein are not necessarily indicative of the results to be expected for the full year.

We do not have any components of other comprehensive income recorded within our consolidated financial statements and therefore, do not separately present a statement of comprehensive income in our condensed consolidated financial statements.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of Potbelly; its ~~wholly owned~~wholly-owned subsidiary, Potbelly Illinois, Inc. (“PII”); PII’s ~~wholly owned~~wholly-owned subsidiaries, Potbelly Franchising, LLC and Potbelly Sandwich Works, LLC (“PSW”); seven of PSW’s ~~wholly owned~~wholly-owned subsidiaries and PSW’s six joint ventures, collectively, the “Company.” All intercompany balances and transactions have been eliminated in consolidation. For our six consolidated joint ventures, "non-controlling interest" represents the non-controlling partner’s share of the assets, liabilities and operations related to the joint venture investments. Potbelly has ownership interests ranging from 51-80% in these consolidated joint ventures.

Fiscal Year

We use a 52/53-week fiscal year that ends on the last Sunday of the calendar period. Approximately every five or six years a 53rd week is added. Fiscal year ~~2023~~2024 consists of 5352 weeks and fiscal year ~~2022 consists~~2023 consisted of 5253 weeks. The fiscal quarters ended ~~June 25,~~March 31, 2024 and March 26, 2023 ~~and June 26, 2022~~ each consisted of 13 ~~weeks. The year to date periods ended June 25, 2023 and June 26, 2022 each consisted of 26~~ weeks.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Significant estimates include amounts for long-lived assets and income taxes. Actual results could differ from those estimates.

~~Franchise Growth Acceleration Initiative~~Recent Accounting Pronouncements

~~On March 2, 2022, we announced~~In November 2023, the Financial Accounting Standard Board ("FASB") issued guidance to expand annual and interim disclosure requirements for reportable segments, primarily through additional disclosures on segment expenses. We will adopt the accounting guidance in our Franchise Growth Acceleration Initiative, which included a plan to grow our franchise units domestically through multi-unit shop development area agreements, which may include refranchising certain company-operated shops. Deals for refranchised shops typically include cash considerationAnnual Report on Form 10-K for the ~~sale of~~year ended December 29, 2024. We do not anticipate the current shops as well as development agreement fees for commitments to develop new shops to fully penetrate existing markets. On an ongoing basis, we collect additional cash consideration for royalties and lease payments.updated standard will have a material impact on our financial statement disclosures.

Table of Contents

~~All losses recognized~~In December 2023, the FASB issued guidance to enhance transparency of income tax disclosures. The updated guidance requires additional disclosures on ~~sales of shops~~income tax rate reconciliation and income taxes paid, among other ~~expenses incurred to execute a refranchising transaction~~things. We will adopt the accounting guidance in our Annual Report on Form 10-K for the year ended December 27, 2025. We are ~~included in Loss on Franchising Growth Acceleration Initiative activities in~~currently evaluating the ~~condensed consolidated statement of operations. Development agreement fees received are recorded in~~impact that the consolidated balance sheets as accrued expenses or other long-term liabilities, and amortized over the term of the franchise agreement once the shops are opened. During the first quarter of 2023, we executed our first refranchising transaction. On July 17, 2023, we closedupdated standard will have on our ~~second refranchising transaction. Both transactions are further discussed in Note 8. The second refranchising transaction is also discussed in Note 12.~~financial statement disclosures.

2) Restricted Cash

As of ~~June 25, 2023,~~March 31, 2024, we had restricted cash related to funds held in a money market account as collateral for letters of credit to certain lease agreements.

The reconciliation of cash and cash equivalents and restricted cash presented in the condensed consolidated balance sheets to the total amount shown in our condensed consolidated statements of cash flows is as follows:

June 25,
2023 December 25,
2022
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents $ 34,261 $ 15,619
Restricted cash, noncurrent 749 —
Total cash, cash equivalents and restricted cash shown on statement of cash flows $ 35,010 $ 15,619

~~Potbelly Brand Fund~~

We maintain the Potbelly Brand Fund (the "Brand Fund") for the purpose of collecting and administering funds to be used for advertising, customer research, marketing technology, agencies, and other activities that promote the Potbelly brand in order to deliver sales at our shops. Company-operated and franchised shops both contribute to the Brand Fund based on a percentage of sales.

Beginning in the first quarter of fiscal year 2022, we manage these advertising and marketing expenses through the Brand Fund using the funds contributed by our shops. We manage these funds separately from our general operating expenses, but we are not obligated to maintain the funds in separate accounts or entities. We may spend more or less in any fiscal period than the amounts contributed to the Brand Fund, and we may choose to roll over any unused contributions to the following fiscal period or return them to our shops.

Brand Fund contributions made by company-operated shops are eliminated from the consolidated financial statements. Franchisee contributions are included within franchise royalties and fees in the condensed consolidated statements of operations.

Expenses incurred by the Brand Fund are recorded to company-operated and franchised shops based on a percentage of sales. Company-operated Brand Fund expense is included within other operating expenses in our condensed consolidated statements of operations. Franchisee Brand Fund expense is presented within franchise support, rent and marketing expenses in our condensed consolidated statements of operations.

~~Recent Accounting Pronouncements~~

We reviewed all recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on the condensed consolidated financial statements.


	March 31, 2024		December 31, 2023

Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	12,723	$	33,788
Restricted cash, noncurrent	749		749
Total cash, cash equivalents and restricted cash shown on statement of cash flows	$	13,472	$	34,537

~~(2)~~(3) Revenue

We primarily earn revenue at a point in time for sandwich shop sales, which can occur in person at ~~the~~a shop, ~~over~~through our online or app platform, or through a third-party platform. Sales taxes collected from customers are excluded from revenues and the obligation is included in accrued liabilities until the taxes are remitted to the appropriate taxing authorities. We have other revenue generating activities where revenue is generally recognized over time, as outlined below.

~~Table of Contents~~

For the ~~year~~quarter to date ended ~~June 25,~~March 31, 2024, revenue recognized from all revenue sources on point in time sales was $110.6 million, and revenue recognized from sales over time was $0.6 million. For the quarter to date ended March 26, 2023, revenue recognized from all revenue sources on point in time sales was ~~$243.7~~$117.9 million and revenue recognized from sales over time was ~~$1.2 million. For the year to date ended June 26, 2022, revenue recognized from all revenue sources on point in time sales was $213.5 million and revenue recognized from sales over time was $0.7~~$0.4 million.

Franchise ~~Revenue, including Rent Income~~Royalties and Fees

We earn an initial franchise fee, a franchise development agreement fee and ongoing royalty fees ~~for royalties~~ and ~~Brand Fund contributions~~support fees under our franchise agreements. Initial franchise fees are considered highly dependent upon and interrelated with the franchise right granted in the franchise agreement. As such, these franchise fees are recognized over the contractual term of the franchise agreement. We record a contract liability for the unearned portion of the initial franchise fees. Franchise development agreement fees represent the exclusivity rights for a geographical area paid by a third party to develop Potbelly shops for a certain period of time. Franchise development agreement fee payments received by us are recorded in the consolidated balance sheets as accrued expenses or other long-term liabilities, and amortized over the term of the franchise agreement once the shops are opened. ~~Royalties~~These franchise fees are considered highly dependent upon and interrelated with the franchise right granted in the franchise agreement. Royalty fees and Brand Fund contributions are based on a percentage of sales and are recorded as revenue as they are earned and become receivable from the franchisee.

~~We also earn rent income~~ Other support fees, which primarily include fees for software and technology, are recorded as revenue as the fees are earned and the service is provided to the franchise. Revenue from ~~properties leased by Potbelly and subleased~~support fees are recognized gross of the related expenses since we are the principal in the arrangement to ~~franchisees. Rent income is recognized on a straight-line basis over the operating lease terms. See Note 6 for further detail.~~provide those services.

Gift Card Redemptions / Breakage Revenue

Potbelly sells gift cards to customers, records the sale as a contract liability and recognizes the associated revenue as the gift card is redeemed. A portion of these gift cards are not redeemed by the customer ("breakage"), which is recognized as revenue as a percentage of customers gift card redemptions. The expected breakage amount recognized is determined by a historical data analysis on gift card redemption patterns. We recognize gift card breakage income within ~~net~~ sandwich shop sales, net in the condensed consolidated statements of operations.

We recognized gift card breakage income of ~~$0.4~~$0.3 million and ~~$0.3~~$0.2 million for the ~~year~~quarter to date ended ~~June 25,~~March 31, 2024 and March 26, 2023, ~~and June 26, 2022, respectively, which is recorded within net sandwich shop sales in our condensed consolidated statements~~respectively.

Table of ~~operations.~~Contents

Loyalty Program

We offer a customer loyalty program for customers using the Potbelly Perks application at the point of sale. ~~The~~In January 2024, we enhanced our Potbelly Perks program to provide more reward options and flexibility for members. Under the original program, the customer ~~will typically~~would earn 10 points for every dollar spent, and the customer ~~will~~would earn a free entrée after earning 1,000 points. Once a customer earned a free entrée, that entrée reward expires after 30 days. Under the enhanced program, Perks members will earn 10 or more coins, the equivalent of points under the legacy program, for every dollar they spend. The number of coins earned per dollar is dependent on each member's annual spend with Potbelly. Coins can be redeemed for a variety of items across the Potbelly menu. The coins expire one year after they are earned. The change in program did not have a material impact on our financial statements.

We defer revenue associated with the estimated selling price of points and coins earned by Potbelly Perks members towards free entrées as ~~each point is~~they are earned, and a corresponding deferred revenue liability is established in ~~deferred revenue.~~accrued expenses. The deferral is based on the estimated value of the ~~product for which~~unredeemed points and rewards. The estimated value and the ~~reward is expected to be redeemed, net of~~ estimated unredeemed points. Once a customer earns a free entrée, that entrée reward will expire after 30 days. Any point in a customer’s account that does not go toward earning a full entrée will expire after the customer's account has been inactive for a year. The breakage amount recognized is estimatedredemption rates are based on a historical data analysis of loyalty reward ~~redemptions and~~redemptions. Estimated breakage is recognized in net shop sandwich sales in the consolidated statement of operations. When points and coins are redeemed, we recognize revenue for the redeemed product and reduce accrued expenses.

Contract Liabilities

We record current and noncurrent contract liabilities in accrued expenses and other long-term liabilities, respectively, for initial franchise fees, gift cards, and loyalty programs. We have no other contract liabilities or contract assets recorded.

The opening and closing balances of our current and noncurrent contract liabilities from contracts with customers were as follows:

Current Contract
Liability
Noncurrent Contract
Liability
(Thousands) (Thousands)
Beginning balance as of December 25, 2022 $ 7,008 $ 1,677
Ending balance as of June 25, 2023 6,626 3,400
Increase (Decrease) in contract liability $ (382) $ 1,723

~~Table of Contents~~


	Current Contract Liability		Noncurrent Contract Liability
Beginning balance as of December 31, 2023	$	8,028	$	4,397
Ending balance as of March 31, 2024	8,077		5,318
Increase in contract liability	$	49	$	921

The aggregate value of remaining performance obligations on outstanding contracts was ~~$10.0~~$13.4 million as of ~~June 25, 2023.~~March 31, 2024. We expect to recognize revenue related to contract liabilities as follows, ~~(in thousands),~~ which may vary based upon franchise activity as well as gift card and loyalty program redemption patterns:


Years Ending	Years Ending	Amount		Years Ending	Amount
2023		$	5,733
2024	2024	459
2025	2025	465
2026	2026	211
2027	2027	147
2028
Thereafter	Thereafter	3,011
Total revenue recognized	Total revenue recognized	$	10,026

For the quarter ~~and year~~ended March 31, 2024, the amount of revenue recognized related to ~~date~~the December 31, 2023 liability ending balance was $1.8 million. For the quarter ended ~~June 25,~~March 26, 2023, the amount of revenue recognized related to the December 25, 2022 liability ending balance was ~~$0.6 million and $2.0 million, respectively. For quarter ended June 26, 2022, the amount of revenue recognized related to the December 26, 2021 liability ending balance was $0.7 million and $1.8~~$1.3 million. This revenue is related to the recognition of gift card redemptions and upfront franchise fees. For the ~~quarter~~quarters ended ~~June 25,~~March 31, 2024 and March 26, 2023, ~~and June 26, 2022,~~ we did not recognize any revenue from obligations satisfied (or partially satisfied) in prior periods.

Contract Costs

~~(3)~~Deferred contract costs, which include sales commissions and market planning costs, totaled $1.0 million and $0.9 millionas of March 31, 2024 and December 31, 2023, respectively. Amortization expense for deferred costs was $26.2

Table of Contents

thousand and $27.9 thousandfor the quarters ended March 31, 2024 and March 26, 2023, respectively. There was no impairment loss in relation to the costs capitalized for the periods presented.

(4) Fair Value Measurement

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and all other current liabilities approximate fair values due to the short maturities of these balances.

We apply fair value accounting for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities that are required to be recorded at fair value, we assume the highest and best use of the asset by market participants in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions, and credit risk.

We apply the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels, and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

•Level 1 — Quoted prices in active markets for identical assets or liabilities.

•Level 2 — Observable inputs other than quoted prices in active markets for identical assets or liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•Level 3 — Inputs that are both unobservable and significant to the overall fair value measurement reflect an entity’s estimates of assumptions that market participants would use in pricing the asset or liability.

The following table presents information about our financial assets that were measured at fair value on a recurring basis and indicates the level of the fair value hierarchy used to determine such fair values:


	March 31, 2024		December 31, 2023

Assets - Level 1
Money market funds	$	—	$	6,398
Financial assets measured at fair value on recurring basis	$	—	$	6,398

The book value of the long-term and short-term debt under the Credit Agreement, which is further discussed in Note ~~7, is~~8, was considered to approximate its fair value as of ~~June 25, 2023~~March 31, 2024, as the interest rates are considered in line with current market rates.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets recognized or disclosed at fair value on the condensed consolidated financial statements on a nonrecurring basis include items such as leasehold improvements, property and equipment, operating lease assets, goodwill, and other intangible assets. These assets are measured at fair value if determined to be impaired.

We assess potential impairments to our long-lived assets, which includes property and equipment and lease right-of-use assets, on a quarterly basis or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Shop-level assets and right-of-use assets are grouped at the individual shop-level for the purpose of the impairment assessment. Recoverability of an asset group is measured by a comparison of the carrying amount of an asset group to its estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of the asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized as the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. The fair value of the shop assets is determined using the discounted future cash flow method of anticipated cash flows through the shop’s lease-end date using fair value measurement inputs classified as Level 3. The fair value of right-of-use assets is estimated using market comparative information for similar properties. Level 3 inputs are derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. After performing a periodic review of our shops during the

Table of Contents

quarter ~~and year to date~~ ended ~~June 25, 2023,~~March 31, 2024, it was determined that indicators of impairment were present for certain shops as a result of continued underperformance. We performed an impairment analysis related to these shops and recorded an impairment charge of ~~$0.1 million and $0.7~~$0.2 million for the quarter ~~and year to date~~ ended ~~June 25, 2023.~~March 31, 2024.

~~(4)~~(5) Earnings ~~(Loss)~~ Per Share

Basic and diluted income ~~(loss)~~ per common share attributable to common stockholders are calculated using the weighted average number of common shares outstanding for the period. Diluted income ~~(loss)~~ per common share attributable to common stockholders is computed by dividing the income ~~(loss)~~ allocated to common stockholders by the weighted average number of fully diluted common shares outstanding. In periods of a net loss, no potential common shares

~~Table of Contents~~

are included in diluted shares outstanding as the effect is anti-dilutive. ~~For the year to date ended June 26, 2022, we had a loss per share, and therefore potentially dilutive shares were excluded from the calculation.~~

The following table summarizes the earnings (loss) per share calculation:


		For the Quarter Ended				For the Year to Date Ended
		June 25, 2023		June 26, 2022		June 25, 2023		June 26, 2022
Net income (loss) attributable to Potbelly Corporation		$	2,216	$	574	$	890	$	(7,339)
		For the Quarter Ended
		For the Quarter Ended
		For the Quarter Ended
		March 31, 2024
		March 31, 2024
		March 31, 2024
Net loss attributable to Potbelly Corporation
Net loss attributable to Potbelly Corporation
Net loss attributable to Potbelly Corporation
Weighted average common stock outstanding-basic
Weighted average common stock outstanding-basic
Weighted average common stock outstanding-basic	Weighted average common stock outstanding-basic	29,199		28,565		29,053		28,481
Plus: Effect of potentially dilutive stock-based compensation awards	Plus: Effect of potentially dilutive stock-based compensation awards	467		451		360		—
Plus: Effect of potentially dilutive stock-based compensation awards
Plus: Effect of potentially dilutive stock-based compensation awards
Plus: Effect of potential warrant exercise
Plus: Effect of potential warrant exercise
Plus: Effect of potential warrant exercise	Plus: Effect of potential warrant exercise	422		101		363		—
Weighted average common shares outstanding-diluted	Weighted average common shares outstanding-diluted	30,088		29,117		29,776		28,481
Income (loss) per share available to common stockholders-basic		$	0.08	$	0.02	$	0.03	$	(0.26)
Income (loss) per share available to common stockholders-diluted		$	0.07	$	0.02	$	0.03	$	(0.26)
Weighted average common shares outstanding-diluted
Weighted average common shares outstanding-diluted
Income per share available to common stockholders-basic
Income per share available to common stockholders-basic
Income per share available to common stockholders-basic
Income per share available to common stockholders-diluted
Income per share available to common stockholders-diluted
Income per share available to common stockholders-diluted
Potentially dilutive shares that are considered anti-dilutive:
Potentially dilutive shares that are considered anti-dilutive:
Potentially dilutive shares that are considered anti-dilutive:	Potentially dilutive shares that are considered anti-dilutive:
Shares	Shares	433		637		633		1,906
Shares
Shares
Warrants
Warrants
Warrants

~~(5)~~(6) Income Taxes

The interim tax provision is determined using an estimated annual effective tax rate and is adjusted for discrete taxable events that occur during the quarter. We regularly assess the need for a valuation allowance related to our deferred tax assets, which includes consideration of both positive and negative evidence related to the likelihood of realization of such deferred tax assets to determine, based on the weight of the available evidence, whether it is more-likely-than-not that some or all of our deferred tax assets will not be realized. In our assessment, we consider recent financial operating results, projected future taxable income, the reversal of existing taxable differences, and tax planning strategies. We recorded a full valuation allowance against our net deferred tax assets during the first quarter of 2019, resulting in a non-cash charge to income tax expense of $13.6 million. We continue to maintain a valuation allowance against all of our deferred tax assets as of ~~June 25, 2023.~~March 31, 2024. We did not provide for an income tax expense ~~or benefit~~ on our pre-tax income ~~(loss)~~ for the quarter ended March 31, 2024 and ~~year~~March 26, 2023.

Given the recent trend in our earnings and forecasted future earnings, we believe there is a reasonable possibility that sufficient positive evidence may become available in the next several quarters to ~~date ended June 25, 2023 and June 26, 2022. We assess the likelihood~~conclude that all or a portion of the ~~realization~~valuation allowance will no longer be needed. This would result in the recognition of ~~our~~ deferred tax assets ~~each quarter~~on our consolidated balance sheet and a decrease to tax expense on our consolidated statement of operations in the period when the release is recorded. However, the exact timing and amount of any valuation allowance ~~is adjusted accordingly.~~releases are subject to change based on the earnings achieved in future periods.

~~(6)~~(7) Leases

We determine if an arrangement is a lease at inception of the arrangement. We lease retail shops and warehouse and office space under operating leases. Our leases generally have terms of ten years and most include options to extend the leases for additional five-year periods. For leases with renewal periods at our option, we determine the expected lease period based on whether the renewal of any options are reasonably assured at the inception of the lease. In addition, we lease certain properties from third parties that we sublease to franchisees. We remain primarily liable to the landlord for the

Table of Contents

performance of all obligations in the event that the sublessee does not perform its obligations under the lease. All of our subleases are classified as operating leases with fixed and variable income.

Lessee Disclosures

~~We did not terminate any~~The gains and losses recognized upon lease terminations are recorded in impairment, loss on disposal of property and equipment and shop closures in the consolidated statement of operations. The right-of use assets, liabilities and gains/losses recognized upon termination of lease contracts were as follows (in thousands, except for number of leases ~~during the quarter and year to date ended June 25, 2023.~~terminated):

~~Operating~~


	Fiscal Year Ended
	March 31, 2024		March 26, 2023
Leases terminated	1		—
Lease termination fees	$	200	—
Right-of-use assets derecognized upon lease termination	$	416	—
Lease liabilities derecognized upon lease termination	$	506	—
Gain (loss) recognized upon lease termination	$	(110)	$	—

The weighted average operating lease term and discount rate were as follows:

June 25,
2023 June 26,
2022
Weighted average remaining lease term (years) 6.35 6.89
Weighted average discount rate 8.44 % 8.11 %

~~Table of Contents~~



	March 31, 2024		March 26, 2023
Weighted average remaining lease term (years)	6.07		6.54
Weighted average discount rate	9.28	%	8.37	%

Certain of our operating lease agreements include variable payments that are passed through by the landlord, such as common area maintenance and real estate taxes, as well as variable payments based on percentage rent for certain of our shops. Pass-through charges and payments based on percentage rent are included within variable lease cost.

The components of lease cost were as follows, ~~(in thousands),~~ which are included in occupancy, general and administrative and franchise support, rent and marketing expense:


		For the Quarter Ended			For the Year Ended
		June 25, 2023		June 26, 2022	June 25, 2023		June 26, 2022
		For the Quarter Ended
		For the Quarter Ended
		For the Quarter Ended
		March 31, 2024
		March 31, 2024
		March 31, 2024
Operating lease cost
Operating lease cost
Operating lease cost	Operating lease cost	$	9,982	10,092	$	20,175	20,397
Variable lease cost	Variable lease cost	3,824		3,692	7,364		7,044
Variable lease cost
Variable lease cost
Short-term lease cost
Short-term lease cost
Short-term lease cost	Short-term lease cost	62		104	157		214
Total lease cost	Total lease cost	$	13,868	13,888	$	27,696	27,655
Total lease cost
Total lease cost

Supplemental disclosures of cash flow information related to leases were as ~~follows (in thousands):~~follows:


		For the Quarter Ended			For the Year Ended
		June 25, 2023		June 26, 2022	June 25, 2023		June 26, 2022
		For the Quarter Ended
		For the Quarter Ended
		For the Quarter Ended
		March 31, 2024
		March 31, 2024
		March 31, 2024
Operating cash flows rent paid for operating lease liabilities
Operating cash flows rent paid for operating lease liabilities
Operating cash flows rent paid for operating lease liabilities	Operating cash flows rent paid for operating lease liabilities	$	10,508	10,804	$	21,206	21,398
Operating right-of-use assets obtained in exchange for new operating lease liabilities	Operating right-of-use assets obtained in exchange for new operating lease liabilities	1,368		6,794	4,252		10,176
Reduction in operating right-of-use assets due to lease terminations and modifications		$	859	1,264	$	859	1,264
Operating right-of-use assets obtained in exchange for new operating lease liabilities
Operating right-of-use assets obtained in exchange for new operating lease liabilities
Reduction in operating right-of-use assets due to lease modifications
Reduction in operating right-of-use assets due to lease modifications
Reduction in operating right-of-use assets due to lease modifications

Table of Contents

Maturities of lease liabilities were as follows ~~(in thousands)~~ as of ~~June 25, 2023:~~March 31, 2024:


		Operating Leases
Remainder of 2023		$	20,469
2024		41,337
	Operating Leases			Operating Leases
Remainder of 2024
2025	2025	38,586
2026	2026	34,641
2027	2027	28,906
2028	2028	22,311
2029
Thereafter	Thereafter	46,159
Total lease payments	Total lease payments	232,409
Less: imputed interest	Less: imputed interest	(54,709)
Present value of lease liabilities	Present value of lease liabilities	$	177,700

As of ~~June 25, 2023,~~March 31, 2024, we had no significant real estate leases entered into that had not yet commenced.

Lessor Disclosures

We recognized ~~$0.5~~$1.4 million and ~~$0.6~~$0.1 million in franchise rent income during the quarter ended March 31, 2024 and ~~year to date ended June 25,~~March 26, 2023, respectively, which is included in franchise royalties, fees and rent income in the condensed consolidated statement of operations. ~~During~~We incurred $1.4 million and $0.1 million in expenses during the quarter ended March 31, 2024 and ~~year to date ended June 25,~~March 26, 2023, ~~we incurred $0.6 million and $0.7 million~~

~~Table of Contents~~

~~in expenses~~respectively associated with these leases, which are included in franchise support, rent and marketing expenses in the condensed consolidated statement of ~~operations.~~operations from the inception of the related sublease agreements. The components of lease income were as follows ~~(in thousands)~~(amount in thousands, except number of subleases):


		For the Quarter Ended				For the Year Ended
		June 25, 2023		June 26, 2022		June 25, 2023		June 26, 2022
		For the Quarter Ended
		For the Quarter Ended
		For the Quarter Ended
		March 31, 2024
		March 31, 2024
		March 31, 2024
Number of subleases
Number of subleases
Number of subleases	Number of subleases	8		—		8		—

Operating lease income	Operating lease income	$	480	$	—	$	600	$	—

Operating lease income

Operating lease income
Variable lease income
Variable lease income
Variable lease income	Variable lease income	25		—		38		—
Franchise rent income	Franchise rent income	$	505	$	—	$	638	$	—
Franchise rent income
Franchise rent income

Future expected fixed sublease payments from franchisees to Potbelly were as follows at March 31, 2024:


	Operating Leases
Remainder of 2024	$	3,086
2025	3,931
2026	3,113
2027	2,095
2028	1,704
Thereafter	3,687
Total sublease payments	$	17,616

~~(7)~~

Table of Contents

(8) Debt and Credit Facilities

The components of long-term debt were as ~~follows (in thousands):~~follows:


		June 25, 2023		December 25, 2022
Revolving credit facility		$	—	$	8,550
Term loan credit facility		24,375		—
	March 31, 2024					March 31, 2024	December 31, 2023
Revolving Facility
Term Loan
Unamortized debt issuance costs	Unamortized debt issuance costs	(2,017)		—
Less: current portion of long-term debt	Less: current portion of long-term debt	(1,250)		—
Total long-term debt	Total long-term debt	$	21,108	$	8,550

Revolving Facility

On February 7, 2024, Potbelly Sandwich Works, LLC (the “Borrower”) entered into a credit agreement (the “Credit Agreement”) with Wintrust Bank, N.A. as administrative agent (the “Agent”), the other loan parties party thereto and the lenders party thereto. The Credit Agreement provides for a revolving loan facility with an aggregate commitment of $30,000,000 (the “Revolving Facility”, the commitments thereunder, the “Revolving Commitments”). Concurrently with entry into the Credit Agreement, we repaid in full and terminated the obligations and commitments of the lenders under our Term Loan. Proceeds from the Revolving Facility will be used for general corporate and working capital purposes.

The Revolving Commitments expire on February 7, 2027.

Loans under the Credit Agreement will initially bear interest, at our option, at either one-month term secured overnight financing rate ("SOFR") or the base rate plus, in each case, an applicable rate per annum, based upon the Consolidated Adjusted Leverage Ratio (as defined in the Credit Agreement). The applicable rate may vary between 3.75% and 2.75% with respect to borrowings which are based upon the one-month term SOFR and between 2.25% and 1.25% with respect to borrowings which are based upon the base rate. Initially, the applicable rate with respect to one-month term SOFR borrowings is 3.25% and the applicable rate with respect to base rate borrowings is 1.75% until the Agent receives a compliance certificate for the fiscal quarter ending on March 31, 2024.

We may prepay the Revolving Commitments at any time and from time to time in whole or in part without premium or penalty, subject to prior notice in accordance with the Credit Agreement.

Subject to certain customary exceptions, obligations under the Credit Agreement are guaranteed by the Company and all of the Company’s current and future wholly-owned material domestic subsidiaries and are secured by a first-priority security interest in substantially all of the assets of the Company and its subsidiary guarantors.

The Credit Agreement contains customary representations and affirmative and negative covenants. Among other things, these covenants restrict our ability to incur certain indebtedness and liens, undergo certain mergers, consolidations and certain other fundamental changes, make certain investments, make certain dispositions and acquisitions, enter into sale and leaseback transactions, enter into certain swap transactions, make certain restricted payments (including certain payment of dividends, repurchases of stock and payments on certain indebtedness), engage in certain transactions with affiliates, enter into certain types of restricted agreements, make certain changes to its organizational documents and indebtedness, and use the proceeds of the Revolving Commitments for certain non-permitted uses. In addition, the Credit Agreement requires that we maintain compliance with certain minimum fixed charge coverage ratios and maximum consolidated leverage ratios as set forth in the Credit Agreement.

The Credit Agreement also contains customary events of default. If an event of default occurs, the Agent and lenders are entitled to take various actions, including the acceleration of amounts due under the Credit Agreement, termination of commitments thereunder and all other actions permitted to be taken by a secured creditor.

Term Loan ~~Credit Facility~~

On February 7, 2023 (the “Closing Date”), we entered into a credit and guaranty agreement (the ~~“Credit~~“Term Loan Credit Agreement”) with Sagard Holdings Manager LP as administrative agent (the “Administrative Agent”). The Term Loan Credit Agreement provides for a term loan facility with an aggregate commitment of $25 million (the “Term Loan”). Concurrent with entry into the Term Loan Credit Agreement, we repaid in full and terminated the obligations and commitments under our ~~existing~~former senior secured credit facility (the “Former Credit Facility”). ~~Upon termination~~In connection with entering

Table of Contents

into the ~~Former~~Term Loan Credit ~~Facility,~~Agreement, we ~~recognized a loss on extinguishment~~paid $2.2 million in debt issuance costs, all of ~~debt of $0.2 million.~~which were capitalized. The remaining proceeds from the Term Loan were used to pay related transaction fees and expenses, and for general corporate purposes.

The Term Loan Credit Agreement iswas scheduled to mature on February 7, 2028. We ~~are~~were required to make principal payments equal to 1.25% of the initial principal of the Term Loan on the last business day of each fiscal quarter. If not previously paid, any remaining principal balance ~~must~~would be ~~repaid~~due on the maturity date.

Loans under the Term Loan Credit Agreement ~~will initially bear~~bore interest, at the Company’s option, at either the term SOFR plus 9.25% per annum or base rate plus 8.25% per annum.

~~As of June 25, 2023, the effective interest rate was 15.00%.~~

~~We may prepay the~~The Term Loan could be prepaid in agreed-upon minimum principal amounts, subject to prepayment fees equal to (a) if the prepayment ~~occurs~~occurred on or prior to the one (1) year anniversary of the Closing Date, a customary make-whole amount plus 3.00% of the outstanding principal balance of the Term Loan, (b) if the prepayment ~~occurs~~occurred after such one (1) year anniversary and prior to the two (2) year anniversary of the Closing Date, 3.00% of the outstanding principal balance of the Term Loan, (c) if the prepayment ~~occurs~~occurred after such second anniversary of the Closing Date and prior to the three (3) year anniversary of the Closing Date 1.00% of the outstanding principal balance of the Term Loan and (d) thereafter, no prepayment fee.

~~Subject to certain customary exceptions,~~

On February 7, 2024, we repaid in full and terminated the obligations and commitments under the Credit Agreement are guaranteed by the Company and all of the Company’s current and future wholly owned material domestic subsidiaries and are secured by a first-priority security interest in substantially all of the assets of the Company and its subsidiary guarantors.

~~Table of Contents~~

The Credit Agreement contains customary representations and affirmative and negative covenants. Among other things, these covenants restrict the Company’s and certain of its subsidiaries’ ability to incur indebtedness, make certain investments, pay dividends or repurchase stock, and make dispositions and acquisitions. In addition, the Credit Agreement requires that the Company and its wholly-owned subsidiaries maintain certain total net leverage ratios as set forth in the Credit Agreement, an average liquidity amount that shall not be less than $10 million, maximum capital expenditures per year as set forth in the Credit Agreement and fixed charge coverage ratios as set forth in theTerm Loan Credit Agreement.

~~The Credit Agreement also contains customary events~~ As a result of ~~default. If an event~~repaying and terminating the Term Loan, we recognized a loss on extinguishment of ~~default occurs, the Administrative Agent and lenders are entitled to take various actions, including the acceleration~~debt of ~~amounts due under the Credit Agreement, termination of commitments thereunder and all other actions permitted to be taken by a secured creditor.~~

~~In connection with entering into the Credit Agreement, we paid $2.2~~$2.4 million in ~~debt issuance costs, all of which were capitalized. During~~ the quarter ended ~~June~~March 31, 2024.

Former Credit Facility

On August 7, 2019, we entered into a second amended and restated revolving credit facility agreement (the "Former Credit Agreement") with JPMorgan Chase Bank, N.A. (“JPMorgan”). The Former Credit Agreement amends and restates that certain amended and restated revolving credit facility agreement, dated as of December 9, 2015, and amended on May 3, 2019 (collectively, the "Prior Credit Agreement") with JPMorgan. The Former Credit Agreement provided, among other things, for a revolving credit facility in a maximum principal amount $40 million, with possible future increases of up to $20 million under an expansion feature. Borrowings under the credit facility generally bear interest at our option at either (i) a eurocurrency rate determined by reference to the applicable LIBOR rate plus a specified margin or (ii) a prime rate as announced by JP Morgan plus a specified margin. The applicable margin was determined based upon our consolidated total leverage ratio. On the last day of each calendar quarter, we were required to pay a commitment fee of 0.20% per annum in respect of any unused commitments under the credit facility.

As disclosed in our Annual Report on Form 10-K for the fiscal year ended December 25, 2022, we subsequently amended the Former Credit Agreement during fiscal years 2020, 2021 and 2022. The Former Credit Agreement provided for a revolving credit facility in a maximum principal amount of $25 million.

On February 7, 2023, we ~~amortized~~repaid in full and terminated the obligations and commitments under the Former Credit Agreement. Upon termination of the Former Credit Facility, we recognized a loss on extinguishment of debt of $0.2 million ~~of debt issuance costs using the effective interest method, which is included in interest expense~~ in the ~~condensed consolidated statement of operations. As of June 25, 2023, we had $24.4 million outstanding under the Credit Agreement. We are currently in compliance with all financial debt covenants.~~quarter ended March 26, 2023.

~~(8)~~(9) Franchise Growth Acceleration Initiative

On March 2, 2022, we announced our Franchise Growth Acceleration Initiative, which included a plan to grow our franchise units domestically through multi-unit shop development area agreements, which may include refranchising certain company-operated shops. Deals for refranchised shops typically include cash consideration for the sale of the current shops as well as development agreement fees for commitments to develop new shops to fully penetrate existing markets. On an ongoing basis, we collect additional cash consideration for royalties and lease payments.

The following is a summary of the refranchising activities recorded as a result of the Franchise Growth Acceleration ~~initiative~~Initiative during the quarter ended March 31, 2024 and ~~year ended June 25,~~March 26, 2023 ~~and June 26, 2022:~~(amounts in thousands, except number of shops):

Table of Contents


		For the Quarter Ended				For the Year to Date Ended
		June 25, 2023		June 26, 2022		June 25, 2023		June 26, 2022
		For the Quarter Ended
		For the Quarter Ended
		For the Quarter Ended
		March 31, 2024
		March 31, 2024
		March 31, 2024
Number of shops sold to franchisees
Number of shops sold to franchisees
Number of shops sold to franchisees	Number of shops sold to franchisees	—		—		8		—

Proceeds from sale of company-operated shops	Proceeds from sale of company-operated shops	$	—	$	—	$	100	$	—

Proceeds from sale of company-operated shops

Proceeds from sale of company-operated shops
Net assets sold
Net assets sold
Net assets sold	Net assets sold	—		—		(512)		—
Goodwill related to the company-operated shops sold to franchisee	Goodwill related to the company-operated shops sold to franchisee	—		—		(21)		—
Goodwill related to the company-operated shops sold to franchisee
Goodwill related to the company-operated shops sold to franchisee
Loss on sale of company-operated shops, net
Loss on sale of company-operated shops, net
Loss on sale of company-operated shops, net	Loss on sale of company-operated shops, net	—		—		(433)		—

Adjustment to recognize held-for-sale assets at fair value	Adjustment to recognize held-for-sale assets at fair value	—		—		(503)		—

Adjustment to recognize held-for-sale assets at fair value

Adjustment to recognize held-for-sale assets at fair value
Other expenses (a)
Other expenses (a)
Other expenses (a)	Other expenses (a)	(14)		—		(27)		—
Loss on Franchise Growth Acceleration Initiative activities	Loss on Franchise Growth Acceleration Initiative activities	$	(14)	$	—	$	(963)	$	—
Loss on Franchise Growth Acceleration Initiative activities
Loss on Franchise Growth Acceleration Initiative activities

(a)These costs primarily include professional service fees, repairs and maintenance and travel expenses incurred to execute the refranchise transaction.

~~Refranchise Transactions~~

~~On March 6, 2023, we finalized~~All gains and losses recognized on sales of shops and other expenses incurred to execute a ~~multi-unit development~~refranchising transaction are included in Loss on Franchising Growth Acceleration Initiative activities in the condensed consolidated statement of operations. Development agreement ~~along with our first refranchising deal~~fees received are recorded in ~~New York City. This agreement included a development commitment for 13 new shops~~the consolidated balance sheets as accrued expenses or other long-term liabilities, and amortized over the ~~next eight years, and the refranchise of eight shops, the ownership of which was fully transferred to the franchisee on March 6, 2023. We recognized~~

~~Table of Contents~~

~~a loss of $0.4 million related to the sale of these shops calculated based on the purchase price~~term of the ~~assets held at~~franchise agreement once the ~~company-operated~~ shops ~~less~~are opened. For the ~~net assets disposed of, including an allocated portion of goodwill.~~quarter ended March 31, 2024, we did not complete any refranchising transactions.

Assets held-for-sale

As of ~~June 25, 2023,~~March 31, 2024, we had assets held-for-sale of ~~$1.2~~$0.2 million, primarily consisting of property and equipment held at one company-operated ~~shops~~shop that ~~we plan to sell within the next year to new or existing franchisees.~~was subsequently sold on April 8, 2024. Long-lived assets that meet the held-for-sale criteria are reported at the lower of their carrying value or fair value less estimated costs to sell. During the quarter ended March ~~26, 2023,~~31, 2024, we recorded an immaterial adjustment ~~of $0.5 million~~ to recognize the held-for-sale assets at fair value, which is included in loss on Franchising Growth Acceleration Initiative activities in the condensed consolidated statement of operations. The estimated fair value of the assets held-for-sale is based upon Level 2 inputs, which includes a sales agreement. On July 17, 2023, we closed on the sale of these assets and ownership transferred to the franchisee. For the quarter ended June 25, 2023, we received $1.2 million in cash attributable to the sale of these refranchise assets.

~~(9)~~(10) Capital Stock

On May 8, 2018, we announced that our Board of Directors authorized a stock repurchase program for up to $65.0 million of our outstanding common ~~stock.~~stock ("2018 Repurchase Plan"). The program permits us, from time to time, to purchase shares in the open market (including in pre-arranged stock trading plans in accordance with the guidelines specified in Rule 10b5-1 under the Securities and Exchange Act of 1934, as amended) or in privately negotiated transactions. The number of common shares actually repurchased, and the timing and price of repurchases, will depend upon market conditions, SEC requirements and other factors. ~~Purchases~~Repurchases may be started or stopped at any time without prior notice depending on market conditions and other factors. For the quarter ended ~~June 25, 2023,~~March 31, 2024, we did not repurchase any shares of our common stock under the stock repurchase program. ~~We do not have plans to repurchase any common stock under~~On May 7, 2024, our Board of Directors authorized a stock repurchase program atfor up to $20.0 million over three years that replaced the 2018 Repurchase Plan, which was terminated upon execution of the new program. Refer to Note 13 for additional information related to this ~~time.~~transaction.

On February 9, 2021, we closed on a Securities Purchase Agreement (the "SPA") for the sale by us of 3,249,668 shares of our common stock at a par value of $0.01 per share and the issuance of warrants to purchase 1,299,861 shares of common stock at an exercise price of $5.45 per warrant for gross proceeds of $16.0 million, before deducting placement agent fees and offering expenses of approximately $1.0 million. The warrants are ~~initially~~currently exercisable ~~commencing August 13, 2021 through their expiration date of~~until August 12, 2026. The proceeds received from the SPA were allocated between shares and warrants based on their relative fair values at closing. The warrants were valued utilizing the Black-Scholes method. During the quarter ~~and year to date~~ ended ~~June 25, 2023, 17,505 and 176,272~~March 31, 2024, 240,187 warrants were exercised at the exercise price of $5.45 per warrant. As of ~~June 25, 2023,~~March 31, 2024, we had ~~1,123,589~~883,402 warrants outstanding that are exercisable through August 12, 2026.

Table of Contents

On November 3, 2021, we entered into a certain Equity Sales Agreement (the "Sales Agreement") with William Blair & Company, L.L.C., as agent ("William Blair") pursuant to which we may sell shares of our common stock having an aggregate offering price of up to $40.0 million (the "Shares"), from time to time, in our sole discretion, through an "at the market" equity offering program under which William Blair will act as sales agent. As of ~~June 25, 2023,~~March 31, 2024, we have not sold any shares under the Sales Agreement.

~~(10)~~(11) Stock-Based Compensation

Stock options

We have awarded stock options to certain employees including our senior leadership team. The number of options and exercise price of each option is determined by an independent committee designated by our Board of Directors. The options granted are generally exercisable over a 10-year period from the date of the grant. Outstanding options expire on various dates through the year 2028. The range of exercise prices for the outstanding options as of ~~June 25, 2023~~March 31, 2024 is ~~$10.59~~$12.90 and ~~$20.53~~$13.73 per option, and the options generally vest in one-fourth and one-fifth increments over four and five-year periods, respectively.

~~Table of Contents~~

A summary of stock option activity for the ~~year to date~~quarter ended ~~June 25, 2023~~March 31, 2024 is as follows:


Options	Options	Shares (Thousands)	Weighted Average Exercise Price		Aggregate Intrinsic Value (Thousands)		Weighted Average Remaining Term (Years)	Options	Shares	Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Term (Years)
Outstanding—December 25, 2022		473	$	12.22	$	—	1.46
Outstanding—December 31, 2023								Outstanding—December 31, 2023	122	$	13.71	$	—	1.44
Granted	Granted	—	—
Exercised	Exercised	—	$	—
Exercised
Exercised
Canceled	Canceled	(67)	9.77
Outstanding—June 25, 2023		406	$	12.62	$	—	1.06
Exercisable—June 25, 2023		406	12.62		$	—	1.06
Canceled
Canceled
Outstanding—March 31, 2024
Outstanding—March 31, 2024
Outstanding—March 31, 2024									58	$	13.16	$	—	2.62
Exercisable—March 31, 2024								Exercisable—March 31, 2024	58	13.16		$	—	2.62

Stock-based compensation related to stock options is measured at the grant date based on the calculated fair value of the award, and is recognized as expense over the requisite employee service period, which is generally the vesting period of the grant with a corresponding increase to additional paid-in capital. We did not recognize stock-based compensation expense related to stock options for the quarter ~~or year to date~~ ended ~~June 25, 2023~~March 31, 2024 or the quarter ended ~~June~~March 26, ~~2022. For the year to date ended June 26, 2022, we recognized stock-based compensation expense related to stock options of $0.1 million.~~2023. As of ~~June 25, 2023,~~March 31, 2024, we ~~do not have~~had no unrecognized stock-based compensation expense related to stock options. We record stock-based compensation expense within general and administrative expenses in the condensed consolidated statements of operations.

Restricted stock units

We award restricted stock units ("RSUs") to certain employees and certain non-employee members of our Board of Directors. Grants of RSUs to our Board of ~~Director~~Directors fully vest on the first anniversary of the grant date, or upon termination from the Board of Directors for any reason other than for cause, a pro rata portion of the shares vest on the termination date. The employee grants generally vest in one-third increments over a three-year period.

A summary of RSU activity for the ~~year to date~~quarter ended ~~June 25, 2023~~March 31, 2024 is as follows:


RSUs	RSUs	Number of RSUs (Thousands)	Weighted Average Fair Value per Share		RSUs	Number of RSUs	Weighted Average Fair Value per Share
Non-vested as of December 25, 2022		908	$	4.25
Non-vested as of December 31, 2023
Granted	Granted	591	7.41
Vested	Vested	(551)	5.08
Canceled	Canceled	(49)	6.34
Non-vested as of June 25, 2023		899	$	6.95
Non-vested as of March 31, 2024

Table of Contents

For the quarter ~~and year~~ended March 31, 2024, we recognized stock-based compensation expense related to ~~date~~RSUs of $0.8 million. For the quarter ended ~~June 25,~~March 26, 2023, we recognized stock-based compensation expense related to RSUs of $1.0 million and $1.6 million, respectively. For the quarter and year to date ended June 26, 2022, we recognized stock-based compensation expense related to RSUs of $0.7 million and $1.3 million, respectively.$0.6 million. As of ~~June 25, 2023,~~March 31, 2024, unrecognized stock-based compensation expense for RSUs was ~~$6.7~~$3.7 million, which will be recognized through ~~fiscal year 2024.~~the first quarter of 2027.

Performance stock units

We award performance share units ("PSUs") to certain of our employees. We have PSUs that have certain vesting conditions based upon our stock price and relative stock performance. We also have PSUs that are based solely on stock price.

Because these PSUs are subject to service and market vesting conditions, we determine the fair market value of each grant using a Monte Carlo simulation model. Participants are entitled to receive a specified number of shares of our common stock contingent on achievement of a stock return on our common stock. For the quarter ~~and year to date~~ ended ~~June 25,~~March 31, 2024, we recognized stock-based compensation expense for PSUs with market vesting conditions of $0.9 million. For the quarter ended March 26, 2023, we recognized stock-based compensation expense for PSUs with market vesting conditions of $0.3 ~~million~~

~~Table~~million. As of ~~Contents~~

~~and $0.6 million, respectively. For the quarter and year to date ended June 26, 2022, we recognized~~March 31, 2024, unrecognized stock-based compensation expense for PSUs ~~with market vesting conditions~~was $2.5 million, which will be recognized through the second quarter of ~~$0.1 million and $0.2 million, respectively.~~2026.

A summary of activity for PSUs with market vesting conditions for the ~~year to date~~quarter ended ~~June 25, 2023~~March 31, 2024 is as follows:

PSUs

Number

of PSUs

(Thousands)

Weighted

Average

Fair Value

per Share

PSUs

Number

of PSUs

Weighted

Average

Fair Value

per Share

Non-vested as of December 25, 2022

275

9.34

Non-vested as of December 31, 2023

Granted

297

7.68

Vested

(18)

4.30

Canceled

(40)

6.24

Non-vested as of June 25, 2023

514

$8.44

Non-vested as of March 31, 2024

~~(11)~~(12) Commitments and Contingencies

We are subject to legal proceedings, claims and liabilities, such as employment-related claims and slip and fall cases, which arise in the ordinary course of business and are generally covered by insurance. We accrue for such liabilities when it is probable that future costs will be incurred and such costs can be reasonably estimated. Such accruals are based on developments to date, our estimates of the outcomes of these matters and our experience in contesting, litigating and settling other similar matters. In the opinion of management, the amount of ultimate liability with respect to those actions should not have a material adverse impact on our financial position or results of operations and cash flows.

Many of the food products we purchase are subject to changes in the price and availability of food commodities, including, among other things, beef, poultry, grains, dairy and produce. We work with our suppliers and use a mix of forward pricing protocols for certain items including agreements with our supplier on fixed prices for deliveries at a time in the future and agreements on a fixed price with our suppliers for the duration of those protocols. We also utilize formula pricing protocols under which the prices we pay are based on a specified formula related to the prices of the goods, such as spot prices. Our use of any forward pricing arrangements varies substantially from time to time and these arrangements tend to cover relatively short periods (i.e., typically twelve months or less). Such contracts are used in normal purchases of our food products and not for speculative purposes, and as such are not required to be evaluated as derivative instruments.

~~(12) Subsequent Events~~

~~On July 17, 2023,~~During the quarter ended March 31, 2024, we ~~finalized~~executed a ~~multi-unit development~~settlement agreement with a third-party software provider. The settlement resulted in a gain of approximately $1.1 million in our consolidated statement of operations which is included in both Labor and Related Expenses and Other Operating Expenses since the settlement related to ~~develop 15 new Potbelly shops~~costs that had previously been reported in ~~the next eight years. The transaction included refranchising 12 existing shops. Refer to Note 8 for additional information.~~those categories.

1718

Table of Contents

(13) Subsequent Events

On April 8, 2024 we executed a multi-unit development agreement which included the refranchising of one shop in Salt Lake City, Utah, which was recorded in assets held-for-sale March 31, 2024. We do not expect this transaction to have a material impact on our financial statements.

On May 7, 2024, our Board of Directors authorized a stock repurchase program for up to $20.0 million of our outstanding common stock at any time during the next three years. This program replaces the 2018 Repurchase Plan described further in Note 10, which was terminated upon execution of the new stock repurchase program. The program permits us, from time to time, to purchase shares in the open market (including in pre-arranged stock trading plans in accordance with the guidelines specified in Rule 10b5-1 under the Securities and Exchange Act of 1934, as amended) or in privately negotiated transactions. The number of common shares actually repurchased, and the timing and price of repurchases, will depend upon market conditions, SEC requirements and other factors. Repurchases may be started or stopped at any time without prior notice depending on market conditions and other factors. Currently, we have not repurchased any shares of our common stock under the new stock repurchase program.

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December ~~25, 2022.~~31, 2023. This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Private Securities Litigation Reform Act of 1995, and involves numerous risks and uncertainties. Forward-looking statements may include, among others, statements relating to our future financial position and results of operations, our ability to grow our brand in new and existing markets, and the implementation and results of strategic initiatives, including our "Traffic-Driven Profitability" Five-Pillar strategic plan. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and generally contain words such as "believes," "expects," "may," "will," "should," "seeks," "intends," "plans," "strives," "goal," "estimates," "forecasts," "projects" or "anticipates" and the negative of these terms or similar expressions. Our forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from those projected or implied by the forward-looking statement, due to reasons including, but not limited to, compliance with covenants in our credit facility; competition; general economic conditions including any impact from inflation; our ability to successfully implement our business strategy; the success of our initiatives to increase sales and traffic, including the success of our franchising initiatives; changes in commodity, energy, labor and other costs; our ability to attract and retain management and employees and adequately staff our restaurants; consumer reaction to industry-related public health issues and perceptions of food safety; our ability to manage our growth; reputational and brand issues; price and availability of commodities; consumer confidence and spending patterns; and weather conditions. Forward-looking statements are based on current expectations and assumptions and currently available data and are neither predictions nor guarantees of future events or performance. You should not place undue reliance on forward-looking statements, which speak only as of the date hereof. See "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" included in our Annual Report on Form 10-K for the fiscal year ended December ~~25, 2022,~~31, 2023, for a discussion of factors that could cause our actual results to differ from those expressed or implied by forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

Business

Potbelly is a neighborhood sandwich concept that has been feeding customers’ smiles with warm, toasty sandwiches, signature salads, hand-dipped shakes and other fresh menu items, customized just the way customers want them, for more than 40 years. Potbelly ~~owns~~promises Fresh, Fast & Friendly service in a welcoming environment that reflects the local neighborhood. Our employees are trained to engage with our customers in a genuine way to provide a personalized experience. We believe the combination of our great food, people and ~~operates Potbelly Sandwich Shop concepts in the United States. We also have domestic franchise operations~~atmosphere creates a devoted base of Potbelly Sandwich Shop concepts. Potbelly’s chief operating decision maker is our Chief Executive Officer. Based on how our Chief Executive Officer reviews financial performance and allocates resources on a recurring basis, we have one operating segment and one reportable segment.customers.

We strive to be proactive and deliberate in our efforts to drive profitable growth in our existing business. Our "Traffic-Driven Profitability" Five-Pillar strategic plan includes a prioritized set of low-cost strategic investments that we believe will deliver strong returns. The five pillars are:

•~~Craveable Quality~~Craveable-Quality Food at a Great Value

•People Creating Good Vibes

•Customer Experiences that Drive Traffic Growth

•~~Digitally Driven~~Digitally-Driven Awareness, Connection and Traffic

•~~Franchise Focused~~Franchise-Focused Development

Our shop model is designed to generate, and has generated, strong cash flow, attractive shop-level financial results and high returns on investment. We operate our shops successfully in a wide range of geographic markets, population densities and real estate settings. We aim to generate average shop-level profit margins, a non-GAAP measure, that range from the mid to high teens. Our ability to achieve such margins and returns depends on a number of ~~factors.~~factors, including consumer behaviors, the economy, and labor and commodity costs. For example, we face increasing labor and commodity costs, which we have partially offset by increasing menu prices. Although there is no guarantee that we will be able to

1820

Table of Contents

~~no guarantee that we will be able to~~ maintain these returns, we believe our attractive shop economics support our ability to profitably grow our brand in new and existing markets.

We are actively executing against our Franchise Growth Acceleration Initiative which includes the goal of refranchising approximately 25% of our company-operated shops over the next three years and executing area development agreements with franchisees to develop additional Potbelly shops in specific markets.

The table below sets forth a rollforward of company-operated and franchise operated activities:


		Company- Operated	Franchise- Operated	Total Company
Shops as of December 26, 2021		397	46	443
Shops opened		—	1	1
Shops closed		(4)	—	(4)
Shops refranchised		—	—	—
Shops as of June 26, 2022		393	47	440

	Company- Operated				Company- Operated	Franchise- Operated	Total Company
Shops as of December 25, 2022	Shops as of December 25, 2022	384	45	429
Shops opened	Shops opened	—	2	2
Shops closed	Shops closed	(4)	—��	(4)
Shops refranchised	Shops refranchised	(8)	8	—
Shops as of June 25, 2023		372	55	427
Shops as of March 26, 2023

Shops as of December 31, 2023
Shops as of December 31, 2023
Shops as of December 31, 2023
Shops opened
Shops closed
Shops refranchised
Shops as of March 31, 2024

Key Performance Indicators

In assessing the performance of our business, we consider a variety of performance and financial measures. The key measures for determining how the business is performing are comparable store sales, number of company-operated shop openings, shop-level profit margins, and Adjusted EBITDA.

Company-Operated Comparable Store Sales

Comparable store sales reflect the change in year-over-year sales for the comparable company-operated store base. We define the comparable company-operated store base to include those shops open for 15 months or longer. As of the quarters ended ~~June 25,~~March 31, 2024 and March 26, 2023, ~~and June 26, 2022,~~ there were ~~369~~342 and ~~379~~376 shops, respectively, in our comparable company-operated store base. Comparable store sales growth can be generated by an increase in number of transactions and/or by increases in the average check amount resulting from a shift in menu mix and/or increase in price. This measure highlights performance of existing shops as the impact of new shop openings is excluded. For purposes of the comparable store sales calculation, a transaction is defined as an entrée, which includes sandwiches, salads and bowls of soup or mac and cheese. In fiscal years that include a 53rd week, the last week of the fourth quarter and fiscal year is excluded from the year-over-year comparisons so that the time periods are consistent. In fiscal years that follow a 53-week year, the current period sales are compared to the trailing 52-week sales to compare against the most closely comparable weeks from the prior calendar year.

Number of Company-Operated Shop Openings

The number of company-operated shop openings reflects the number of shops opened during a particular reporting period. Before we open new shops, we incur pre-opening costs. Often, new shops open with an initial start-up period of higher-than-normal sales volumes, which subsequently decrease to stabilized levels. While sales volumes are generally higher during the initial opening period, new shops typically experience normal inefficiencies in the form of higher cost of sales, labor and other direct operating expenses and as a result, shop-level profit margins are generally lower during the start-up period of operation. The average start-up period is 10 to 13 weeks. With our focus on franchise shop development, we expect company shop development to be limited ~~in 2023.~~for the foreseeable future.

Number of Franchise-Operated Shop Openings

The number of franchise-operated shop openings during a particular reporting period may have an impact on our franchise revenue during that period and subsequent periods. For each franchise-operated shop, we collect an initial franchise fee that is recognized as revenue over the term of the franchise agreement, beginning with the shop opening date. We also collect royalties and other fees from the franchisee after their shop opens and they begin generating sales. We enter into development agreements with some franchisees to open a certain number of shops over a specified development schedule, and we expect the number of franchise-operated shop openings to increase as franchisees make progress on their development commitments.

Table of Contents

Shop-Level Profit Margin

Shop-level profit margin is defined as net company-operated sandwich shop sales less company-operated sandwich shop operating expenses, excluding depreciation, which consists of food, beverage and packaging costs, labor and related expenses, occupancy expenses, and other operating expenses, as a percentage of net company-operated sandwich shop sales. Other operating expenses include all other shop-level operating costs, excluding depreciation, the major components of which are credit card fees, fees to third-party marketplace partners, marketing and advertising, shop technology and

~~Table of Contents~~

software, supply chain costs, operating supplies, utilities, and repair and maintenance costs. Shop-level profit margin is not required by, or presented in accordance with U.S. GAAP. We believe shop-level profit margin is important in evaluating shop-level productivity, efficiency and performance.

Adjusted EBITDA

We define Adjusted EBITDA as net income attributable to Potbelly before depreciation and amortization, interest expense and the provision for income taxes, adjusted for the impact of the following items that we do not consider representative of ongoing operating performance: stock-based compensation expense, impairment and shop closure expenses, gain or loss on disposal of property and equipment, and gain or loss on Franchise Growth Acceleration Initiative activities, as well as other one-time, non-recurring charges. Adjusted EBITDA is not required by or presented in accordance with U.S. GAAP. We believe that Adjusted EBITDA is a useful measure of operating performance, as it provides a picture of operating results by eliminating expenses that management does not believe are reflective of underlying business performance.

2022

Table of Contents

Quarter Ended ~~June 25, 2023~~March 31, 2024 Compared to Quarter Ended ~~June~~March 26, ~~2022~~2023

The following table presents information comparing the components of net ~~loss~~income for the periods indicated (dollars in thousands):






		For the Quarter Ended								Increase (Decrease)		Percent Change
		June 25, 2023		% of Revenues		June 26, 2022		% of Revenues
Revenues	Revenues
Revenues
Revenues
Sandwich shop sales, net
Sandwich shop sales, net
Sandwich shop sales, net	Sandwich shop sales, net	$	124,709	98.5		$	114,992	99.2		$	9,717	8.5
Franchise royalties, fees and rent income	Franchise royalties, fees and rent income	1,914		1.5		960		0.8		954		99.4
Franchise royalties, fees and rent income
Franchise royalties, fees and rent income
Total revenues
Total revenues
Total revenues	Total revenues	126,623		100.0		115,952		100.0		10,671		9.2

Expenses	Expenses

Expenses

Expenses
(Percentages stated as a percent of sandwich shop sales, net)
(Percentages stated as a percent of sandwich shop sales, net)
(Percentages stated as a percent of sandwich shop sales, net)	(Percentages stated as a percent of sandwich shop sales, net)
Sandwich shop operating expenses, excluding depreciation	Sandwich shop operating expenses, excluding depreciation
Sandwich shop operating expenses, excluding depreciation
Sandwich shop operating expenses, excluding depreciation
Food, beverage and packaging costs
Food, beverage and packaging costs
Food, beverage and packaging costs	Food, beverage and packaging costs	34,903		28.0		32,830		28.5		2,073		6.3
Labor and related expenses	Labor and related expenses	37,866		30.4		36,121		31.4		1,745		4.8
Labor and related expenses
Labor and related expenses
Occupancy expenses	Occupancy expenses	13,083		10.5		13,805		12.0		(722)		(5.2)
Occupancy expenses
Occupancy expenses
Other operating expenses
Other operating expenses
Other operating expenses	Other operating expenses	20,925		16.8		19,128		16.6		1,797		9.4

(Percentages stated as a percent of total revenues)	(Percentages stated as a percent of total revenues)

(Percentages stated as a percent of total revenues)

(Percentages stated as a percent of total revenues)
Franchise support, rent and marketing expenses
Franchise support, rent and marketing expenses
Franchise support, rent and marketing expenses	Franchise support, rent and marketing expenses	1,215		1.0		126		0.1		1,089		864.3
General and administrative expenses	General and administrative expenses	11,695		9.2		8,827		7.6		2,868		32.5
General and administrative expenses
General and administrative expenses
Depreciation expense
Depreciation expense
Depreciation expense	Depreciation expense	2,887		2.3		3,030		2.6		(143)		(4.7)
Pre-opening costs	Pre-opening costs	33		NM		—		NM		33		NM
Pre-opening costs
Pre-opening costs
Loss on Franchise Growth Acceleration Initiative activities
Loss on Franchise Growth Acceleration Initiative activities
Loss on Franchise Growth Acceleration Initiative activities	Loss on Franchise Growth Acceleration Initiative activities	14		NM		—		NM		14		NM
Impairment, loss on disposal of property and equipment and shop closures	Impairment, loss on disposal of property and equipment and shop closures	658		0.5		1,044		0.9		(386)		(37.0)
Total expenses		123,279		97.4		114,911		99.1		8,368		7.3
Impairment, loss on disposal of property and equipment and shop closures
Impairment, loss on disposal of property and equipment and shop closures
Total operating expenses
Total operating expenses
Total operating expenses
Income (loss) from operations
Income (loss) from operations
Income (loss) from operations	Income (loss) from operations	3,344		2.6		1,041		0.9		2,303		221.2

Interest expense, net	Interest expense, net	1,011		0.8		357		0.3		654		183.2

Interest expense, net

Interest expense, net
Loss on extinguishment of debt	Loss on extinguishment of debt	—		NM		—		NM		—		NM
Income (loss) before income taxes		2,333		1.8		684		0.6		1,649		241.1
Income tax expense (benefit)		(48)		NM		(24)		NM		(24)		NM
Net income (loss)		2,381		1.9		708		0.6		1,673		236.3
Loss on extinguishment of debt
Loss on extinguishment of debt
Loss before income taxes
Loss before income taxes
Loss before income taxes
Income tax expense
Income tax expense
Income tax expense
Net loss
Net loss
Net loss
Net income attributable to non-controlling interest	Net income attributable to non-controlling interest	165		0.1		134		0.1		31		23.1
Net income (loss) attributable to Potbelly Corporation		$	2,216	1.8		$	574	0.5		$	1,642	286.1
Net income attributable to non-controlling interest
Net income attributable to non-controlling interest
Net loss attributable to Potbelly Corporation
Net loss attributable to Potbelly Corporation
Net loss attributable to Potbelly Corporation

		For the Quarter Ended
		For the Quarter Ended
		For the Quarter Ended

		For the Quarter Ended
Other Key Performance Indicators
Other Key Performance Indicators
Other Key Performance Indicators	Other Key Performance Indicators	June 25, 2023				June 26, 2022				Increase (Decrease)
Comparable store sales	Comparable store sales	12.9			%	17.2			%	(4.3)			%
Comparable store sales
Comparable store sales
Shop-level profit margin(1)
Shop-level profit margin(1)
Shop-level profit margin(1)	Shop-level profit margin(1)	14.4			%	11.4			%	3.0			%
Adjusted EBITDA(1)	Adjusted EBITDA(1)	$	8,043			$	5,801			$	2,242
Adjusted EBITDA(1)
Adjusted EBITDA(1)

_____________________________________

(1) - Reconciliation below for Non-GAAP measures

"NM" - Amount is not meaningful

Table of Contents

Sandwich shop sales, net

~~Revenues~~

~~Total revenues increased~~Sandwich shop sales, net decreased by ~~$10.7~~$9.4 million, or ~~9.2%~~8.0%, to ~~$126.6~~$107.6 million during the quarter ended ~~June 25, 2023,~~March 31, 2024, from ~~$116.0~~$116.9 million during the quarter ended ~~June~~March 26, ~~2022. This increase was primarily~~2023, driven by ~~the sustained recovery~~our refranchising of ~~our shops in central business districts~~33 company-operated stores.

Franchise royalties, fees and airport locations, improved performance of our catering channel, successful marketing programs, and increased prices to offset cost inflation. Company-operated comparable store sales resulted in an increase in revenue of $14.2 million, or 12.9%. These increases were partially offset by a decrease in sales of $5.0 million from shops that have either permanently closed or were refranchised over the last 12 months. Additionally, revenuerental income

Revenue from franchise royalties, fees and ~~rent~~rental income increased by ~~$1.0~~$2.3 million, or ~~99.4%~~170.3%, to $3.6 million during the quarter ended March 31, 2024, from $1.3 million during the quarter ended March 26, 2023, primarily driven by ~~our refranchising efforts.~~an increase in the number of franchised shops due to refranchise transactions, including rental income from new subleases on certain refranchised shops.

Food, Beverage, and Packaging Costs

Food, beverage, and packaging costs ~~increased~~decreased by ~~$2.1~~$3.4 million, or ~~6.3%~~10.3%, to ~~$34.9~~$29.3 million during the quarter ended ~~June 25, 2023,~~March 31, 2024, from ~~$32.8~~$32.6 million during the quarter ended ~~June~~March 26, ~~2022.~~2023. This ~~increase~~decrease was primarily driven by ~~an increase in shop sales volume and increased~~lower costs of ~~our food~~protein and ~~paper supplies, specifically proteins and bread.~~lower costs from refranchised shops over the last 12 months. As a percentage of sandwich shop sales, food, beverage, and packaging costs decreased to ~~28.0%~~27.2% during the quarter ended ~~June 25, 2023,~~March 31, 2024, from ~~28.5%~~27.9% during the quarter ended ~~June~~March 26, ~~2022,~~2023, primarily driven by a decrease in costs, lower inflation and, to a lesser extent, increased menu ~~prices, partially offset by the increased costs as previously noted.~~prices.

Labor and Related Expenses

Labor and related expenses ~~increased~~decreased by ~~$1.7~~$4.2 million, or ~~4.8%~~11.6%, to ~~$37.9~~$32.3 million during the quarter ended ~~June 25, 2023,~~March 31, 2024, from ~~$36.1~~$36.5 million for the quarter ended ~~June~~March 26, ~~2022,~~2023, primarily driven by ~~an increase~~shops that were refranchised over the last 12 months and the continued optimization of our hours-based labor guide and other labor-saving initiatives. For the quarter ended March 31, 2024, labor and related expenses also benefited from a settlement payment received from a third-party software provider whose issues related to a service disruption impacted the efficiency of our shop operations in ~~shop sales volumes and higher shop labor wage rates as a result of labor availability challenges in certain restaurants.~~prior quarters. As a percentage of sandwich shop sales, labor and related expenses decreased to ~~30.4%~~30.0% during the quarter ended ~~June 25, 2023,~~March 31, 2024, from ~~31.4%~~31.2% for the quarter ended ~~June~~March 26, ~~2022,~~2023, primarily driven by ~~sales leverage in certain labor related costs not directly variable with sales.~~the previously noted items.

Occupancy Expenses

Occupancy expenses decreased by ~~$0.7~~$1.6 million, or ~~5.2%~~12.0%, to ~~$13.1~~$11.7 million during the quarter ended ~~June 25, 2023,~~March 31, 2024, from ~~$13.8~~$13.3 million during the quarter ended ~~June~~March 26, ~~2022,~~2023, primarily due to a decrease in ~~fixed~~ lease expenses as a result of our refranchising ~~efforts, partially offset by an increase in variable lease expenses.~~efforts. As a percentage of sandwich shop sales, occupancy expenses decreased to ~~10.5%~~10.9% for the quarter ended ~~June 25, 2023,~~March 31, 2024, from ~~12.0%~~11.4% for the quarter ended ~~June~~March 26, ~~2022,~~2023, primarily due to ~~increased sales leverage in certain occupancy related costs which are not variable with sales.~~our refranchising efforts noted above.

Other Operating Expenses

Other operating expenses ~~increased~~decreased by ~~$1.8~~$0.7 million, or ~~9.4%~~3.2%, to ~~$20.9~~$19.8 million during the quarter ended ~~June 25, 2023,~~March 31, 2024, from ~~$19.1~~$20.5 million during the quarter ended ~~June~~March 26, ~~2022.~~2023. The ~~increase~~decrease was primarily related to a decrease in controllable expenses, such as food equipment, coupled with a benefit from a settlement payment received from a third-party software provider whose issues related to a service disruption impacted the efficiency of our shop operations in prior quarters. The decrease was partially offset by an increase in marketing and advertising spend and certain items variable with sales, including fees to third-party delivery partners and credit card fees. As a percentage of sandwich shop sales, other operating expenses increased to ~~16.8%~~18.4% for the quarter ended ~~June 25, 2023,~~March 31, 2024, from ~~16.6%~~17.5% for the quarter ended ~~June~~March 26, ~~2022,~~2023, primarily driven by the increase in marketing and advertising spend.

Franchise Support, Rent and Marketing Expenses

Franchise support, rent and marketing expenses increased by ~~$1.1~~$1.9 million, or 329.3%,to ~~$1.2~~$2.5 million during the quarter ended ~~June 25, 2023~~March 31, 2024 compared to ~~$0.1~~$0.6 million during the quarter ended ~~June~~March 26, ~~2022,~~2023, driven by an increase in franchise rent ~~expenses~~expense as a result of the refranchising ~~transaction~~transactions executed ~~in the first quarter~~throughout fiscal year 2023 as well as increased marketing and advertising expenses.

General and Administrative Expenses

General and administrative expenses increased by ~~$2.9~~$1.6 million, or ~~32.5%~~15.8%, to ~~$11.7~~$11.5 million during the quarter ended ~~June 25, 2023,~~March 31, 2024, from ~~$8.8~~$10.0 million during the quarter ended ~~June~~March 26, ~~2022.~~2023. This increase was primarily driven by an

Table of Contents

increase in ~~bonus accrual expense~~payroll costs due to an increase in employees, and stock-based compensation expense. As a percentage of revenues, general and administrative expenses increased to ~~9.2%~~10.4% for the quarter ended ~~June 25, 2023,~~March 31, 2024, from ~~7.6%~~8.4% for the quarter ended ~~June~~March 26, ~~2022,~~2023, primarily driven by ~~the costs noted above.~~

~~Table of Contents~~

an increase in corporate headcount to support our growth and development initiatives.

Depreciation Expense

Depreciation expense ~~decreased by $0.1 million, or 4.7%, to $2.9 million during~~did not materially change for the quarter ended ~~June 25, 2023,~~March 31, 2024 from ~~$3.0 million during~~ the quarter ended ~~June~~March 26, ~~2022. The decrease was driven primarily by a lower depreciable base related to a decrease in the number of company-operated shops and impairment charges taken in prior periods.~~2023. As a percentage of revenues, depreciation was ~~2.3%~~2.7% during the quarter ended ~~June 25, 2023, a decrease from 2.6%~~March 31, 2024, which is consistent with the quarter ended March 26, 2023.

Pre-Opening costs

Pre-opening costs did not materially change for the quarter ended ~~June~~March 31, 2024 from the quarter ended March 26, ~~2022.~~2023.

Loss on Franchise Growth Acceleration and Initiative activities

Loss on Franchise Growth Acceleration and Initiative activities decreased by $0.8 million, or 86.0%, to $0.1 million for the quarter ended March 31, 2024, from $0.9 million during the quarter ended March 26, 2023 as eight shops were refranchised in the quarter ended March 26, 2023 and none were refranchised in the quarter ended March 31, 2024.

Impairment, Loss on Disposal of Property and Equipment and Shop Closures

Impairment, loss on disposal of property and equipment and shop closures decreased by ~~$0.4~~$0.3 million, or ~~37.0%~~29.1%, to $0.7 million during the quarter ended ~~June 25, 2023,~~March 31, 2024, from $1.0 million during the quarter ended ~~June~~March 26, ~~2022.~~2023.

~~After performing a periodic review of our shops during~~During the quarter ended ~~June 25, 2023, it was determined that indicators of impairment~~March 31, 2024, we incurred $0.2 million in lease termination fees, which were ~~present for certain shops as a result of continued underperformance. We performed an impairment analysis related to these shops and recorded an impairment charge of $0.1 million for~~partially offset with gains on the termination. During the quarter ended ~~June 25, 2023.~~

~~During the quarters ended June 25, 2023 and June~~March 26, ~~2022, we did not incur any lease termination fees.~~

~~Interest Expense, Net~~

Net interest expense was $1.0 million during the quarter ended June 25, 2023 compared to $0.4 million during the quarter ended June 26, 2022, due to higher interest rates and average borrowings outstanding as a result of the Term Loan entered into in February 2023.

~~Income Tax Expense~~

~~We recognized income tax benefit of $48.0 thousand and $24.0 thousand for the quarters ended June 25, 2023 and June 26, 2022, respectively.~~

~~Year to Date Ended June 25, 2023 Compared to Year to Date Ended June 26, 2022~~

~~The following table presents information comparing the components of net loss for the periods indicated (dollars in thousands):~~

~~Table of Contents~~

For the Year to Date Ended Increase
(Decrease) Percent
Change
June 25,
2023 % of
Revenues June 26,
2022 % of
Revenues
Revenues
Sandwich shop sales, net $ 241,656 98.7 % % $ 212,423 99.2 % $ 29,233 13.8
Franchise royalties, fees and rent income $ 3,237 1.3 $ 1,750 0.8 1,487 85.0
Total revenues 244,893 100.0 $ 214,173 100.0 30,720 14.3
Expenses
(Percentages stated as a percent of sandwich shop sales, net)
Sandwich shop operating expenses, excluding depreciation
Food, beverage and packaging costs 67,523 27.9 60,138 28.3 7,385 12.3
Labor and related expenses 74,368 30.8 69,374 32.7 4,994 7.2
Occupancy expenses 26,393 10.9 27,650 13.0 (1,257) (4.5)
Other operating expenses 41,409 17.1 37,233 17.5 4,176 11.2
(Percentages stated as a percent of total revenues)
Franchise support, rent and marketing expenses 1,806 0.7 246 0.1 1,560 634.1
General and administrative expenses 21,664 8.8 17,345 8.1 4,319 24.9
Depreciation expense 5,857 2.4 6,167 2.9 (310) (5.0)
Pre-opening costs 55 NM — NM 55 NM
Loss on Franchise Growth Acceleration Initiative activities 963 0.4 — NM 963 NM
Impairment, loss on disposal of property and equipment and shop closures 1,703 0.7 2,363 1.1 (660) (27.9)
Total expenses 241,741 98.7 220,516 103.0 21,225 9.6
Income (loss) from operations 3,152 1.3 (6,343) (3.0) 9,495 NM
Interest expense, net 1,678 0.7 683 0.3 995 145.7
Gain on extinguishment of debt 239 0.1 — NM 239 NM
Income (loss) before income taxes 1,235 0.5 (7,026) (3.3) 8,261 NM
Income tax expense (benefit) 57 NM 153 NM (96) (62.7)
Net income (loss) 1,178 0.5 (7,179) (3.4) 8,357 NM
Net income attributable to non-controlling interest 288 0.1 160 NM 128 80.0
Net income (loss) attributable to Potbelly Corporation $ 890 0.4 % $ (7,339) (3.4) % $ 8,229 NM
For the Year to Date Ended
Other Key Performance Indicators June 25,
2023 June 26,
2022 Increase
(Decrease)
Comparable store sales 17.2 % 20.4 % (3.2) %
Shop-level profit margin(1)
13.2 % 8.5 % 4.7 %
Adjusted EBITDA(1)
$ 13,603 $ 3,522 $ 10,081

~~(1) - Reconciliation below for Non-GAAP measures~~

~~Table of Contents~~

~~"NM" - Amount is not meaningful~~

~~Revenues~~

Total revenues increased by $30.7 million, or 14.3%, to $244.9 million during the year to date ended June 25, 2023, from $214.2 million during the year to date ended June 26, 2022. This increase was primarily driven by the sustained recovery of our shops in central business district and airport locations, improved performance of our catering channel, successful marketing programs, and increased prices to offset cost inflation. Company-operated comparable store sales resulted in an increase of $35.5 million, or 17.2% for the year to date ended June 25, 2023. The increase in revenue also included sales from shops that were temporarily closed in 2022. These increases were partially offset by a decrease in sales of $7.1 million from shops that have permanently closed or refranchised during the last year. Additionally, revenue from franchise royalties and fees increased by $1.5 million, or 85.0%.

~~Food, Beverage, and Packaging Costs~~

Food, beverage, and packaging costs increased by $7.4 million, or 12.3%, to $67.5 million during the year to date ended June 25, 2023, from $60.1 million during the year to date ended June 26, 2022. This increase was primarily driven by an increase in shop sales volume and increased costs of our food and paper supplies, partially due to commodity inflation. As a percentage of sandwich shop sales, food, beverage, and packaging costs decreased to 27.9% during the year to date ended June 25, 2023, from 28.3% during the year to date ended June 26, 2022, primarily driven by increased menu prices partially offset by increased costs noted above.

~~Labor and Related Expenses~~

Labor and related expenses increased by $5.0 million, or 7.2%, to $74.4 million during the year to date ended June 25, 2023, from $69.4 million for the year to date ended June 26, 2022, primarily driven by an increase in shop sales volumes and higher shop labor wage rates as a result of labor availability challenges in certain restaurants. As a percentage of sandwich shop sales, labor and related expenses decreased to 30.8% during the year to date ended June 25, 2023, from 32.7% for the year to date ended June 26, 2022, primarily driven by sales leverage in certain fixed labor related costs not directly variable with sales.

~~Occupancy Expenses~~

Occupancy expenses decreased by $1.3 million, or 4.5%, to $26.4 million during the year to date ended June 25, 2023, from $27.7 million during the year to date ended June 26, 2022, primarily due to our refranchising efforts. As a percentage of sandwich shop sales, occupancy expenses decreased to 10.9% for the year to date ended June 25, 2023, from 13.0% for the year to date ended June 26, 2022, primarily due to increased sales leverage in certain fixed occupancy related costs and the refranchising of shops in New York City, as noted above.

~~Other Operating Expenses~~

Other operating expenses increased by $4.2 million, or 11.2%, to $41.4 million during the year to date ended June 25, 2023, from $37.2 million during the year to date ended June 26, 2022. The increase was primarily related to an increase in marketing and advertising spend and certain variable costs, including fees to third-party delivery partners and credit card fees. As a percentage of sandwich shop sales, other operating expenses decreased to 17.1% for the year to date ended June 25, 2023, from 17.5% for the year to date ended June 26, 2022, primarily driven by a decrease in utilities as energy prices have declined year-over-year.

~~Franchise Support, Rent and Marketing Expenses~~

Franchise support, rent and marketing expenses increased by $1.6 million to $1.8 million during the year to date ended June 25, 2023 compared to $0.2 million during the year to date ended June 26, 2022, driven by increased rent expense from our refranchise efforts and increased marketing and advertising expenses.

~~General and Administrative Expenses~~

General and administrative expenses increased by $4.3 million, or 24.9%, to $21.7 million during the year to date ended June 25, 2023, from $17.3 million during the year to date ended June 26, 2022. This increase was primarily driven by an increase in bonus expense and payroll costs. As a percentage of revenues, general and administrative expenses increased to 8.8% for the year to date ended June 25, 2023, from 8.1% for the year to date ended June 26, 2022, primarily driven by an increase in corporate headcount to support our growth and development initiatives.

~~Table of Contents~~

~~Depreciation Expense~~

Depreciation expense decreased by $0.3 million, or 5.0%, to $5.9 million during year to date ended June 25, 2023, from $6.2 million during the year to date ended June 26, 2022. The decrease was driven primarily by a lower depreciable base related to a decrease in the number of company-operated shops and impairment charges taken in prior periods. As a percentage of revenues, depreciation was 2.4% during the year to date ended June 25, 2023 and was 2.9% for the year to date ended June 26, 2022.

~~Impairment, Loss on Disposal of Property and Equipment and Shop Closures~~

Impairment, loss on disposal of property and equipment and shop closures decreased by $0.7 million, or 27.9%, to $1.7 million during the year to date ended June 25, 2023, from $2.4 million during the year to date ended June 26, 2022.

After performing a periodic review of our shops during the year to date ended June 25, 2023, it was determined that indicators of impairment were present for certain shops as a result of continued underperformance. We performed an impairment analysis related to these shops and recorded an impairment charge of $0.7 million for the year to date ended June 25, 2023.

~~During the year to date ended June 25,~~ 2023, we did not incur any lease termination fees.

Interest Expense, Net

Net interest expense was ~~$1.7~~$0.4 million during the ~~year to date~~quarter ended ~~June 25, 2023~~March 31, 2024 compared to $0.7 million during the ~~year~~quarter ended March 26, 2023. The decrease was due to ~~date ended June 26, 2022, as a result of higher borrowings outstanding and higher~~lower interest rates on ~~our~~the Revolving Facility as compared with the Term Loan ~~entered into~~and lower average borrowings outstanding once the Revolving Facility was executed and the Term Loan was repaid.

Loss on Extinguishment of Debt

Loss on extinguishment of debt was $2.4 million, during the quarter ended March 31, 2024 compared to $0.2 millionduring quarter ended March 26, 2023. The increase was due to an the extinguishment of the Term Loan in ~~February 2023.~~the first quarter of 2024, which was subject to a prepayment penalty and required the company to write-off of debt issuance costs originally capitalized when the Term Loan was executed.

Income Tax Expense

We recognized income tax expense of ~~$0.1 million~~$51 thousand for the ~~year to date~~quarter ended ~~June 25, 2023~~March 31, 2024 compared to ~~expense of $0.2 million~~$105 thousand for the ~~year~~quarter ended March 26, 2023.

Non-Controlling Interests

The portion of income attributable to ~~date~~non-controlling interests decreased by $29 thousand for the quarter ended ~~June~~March 31, 2024 compared with the quarter ended March 26, ~~2022.~~2023 primarily due to the temporary closure of one of our joint venture shops, which was closed for remodeling during a portion of the first quarter of 2024.

2625

Table of Contents

Non-GAAP Financial Measures

Shop-Level Profit ~~(Loss)~~ Margin

Shop-level profit ~~(loss)~~ margin was ~~14.4% and 13.2%~~13.5% for the quarter ~~and year~~ended March 31, 2024, due to ~~date ended June 25, 2023, respectively.~~the changes discussed above. Shop-level profit ~~(loss)~~ margin is not required by, or presented in accordance with U.S. GAAP. We believe shop-level profit ~~(loss)~~ margin is important in evaluating shop-level productivity, efficiency and performance.
For the Quarter Ended For the Year to Date Ended
June 25,
2023 June 26,
2022 June 25,
2023 June 26,
2022
($ in thousands) ($ in thousands)
Income (loss) from operations $ 3,344 $ 1,041 $ 3,152 $ (6,343)
Less: Franchise royalties, fees and rent income 1,914 960 3,237 1,750
Franchise support, rent and marketing expenses 1,215 126 1,806 246
General and administrative expenses 11,695 8,827 21,664 17,345
Pre-opening costs 33 — 55 —
Loss on Franchise Growth Acceleration Initiative activities 14 — 963 —
Depreciation expense 2,887 3,030 5,857 6,167
Impairment, loss on disposal of property and equipment and shop closures 658 1,044 1,703 2,363
Shop-level profit (loss) [Y] $ 17,932 $ 13,108 $ 31,963 $ 18,028
Total revenues $ 126,623 $ 115,952 $ 244,893 $ 214,173
Less: Franchise royalties, fees and rent income 1,914 960 3,237 1,750
Sandwich shop sales, net [X] $ 124,709 $ 114,992 $ 241,656 $ 212,423
Shop-level profit (loss) margin [Y÷X] 14.4 % 11.4 % 13.2 % 8.5 %


	For the Quarter Ended
	March 31, 2024			March 26, 2023
	($ in thousands)
Income (loss) from operations [A]	$	118		$	(193)
Income (loss) from operations margin [A÷B]	0.1		%	(0.2)		%
Less: Franchise royalties, fees and rental income	3,576			1,323
Franchise support, rent and marketing expenses	2,537			591
General and administrative expenses	11,547			9,969
Depreciation expense	3,011			2,971
Pre-opening costs	—			22
Loss on Franchise Growth Acceleration Initiative activities	133			949
Impairment, loss on disposal of property and equipment and shop closures	741			1,045
Shop-level profit [C]	$	14,511		$	14,031
Total revenues [B]	$	111,153		$	118,270
Less: Franchise royalties, fees and rental income	3,576			1,323
Sandwich shop sales, net [D]	$	107,577		$	116,947
Shop-level profit margin [C÷D]	13.5		%	12.0		%

Adjusted EBITDA

Adjusted EBITDA was ~~$8.0 million and $13.6~~$5.7 million for the quarter ~~and year~~ended March 31, 2024 due to ~~date ended June 25, 2023, respectively.~~the changes discussed above. Adjusted EBITDA is not required by, or presented in accordance with U.S. GAAP. We believe that Adjusted EBITDA is a useful measure of operating performance, as it provides a picture of operating results by eliminating expenses that management does not believe are reflective of underlying business performance.

For the Quarter Ended For the Year to Date Ended
June 25,
2023 June 26,
2022 June 25,
2023 June 26,
2022
($ in thousands) ($ in thousands)
Net income (loss) attributable to Potbelly Corporation $ 2,216 $ 574 $ 890 $ (7,339)
Depreciation expense 2,887 3,030 5,857 6,167
Interest expense 1,011 357 1,678 683
Income tax expense (48) (24) 57 153
EBITDA $ 6,066 $ 3,937 $ 8,482 $ (336)
Impairment, loss on disposal of property and equipment, and shop closures (a)
658 1,044 1,703 2,363
Stock-based compensation 1,305 820 2,216 1,495
Loss on extinguishment of debt — — 239 —
Loss on Franchise Growth Acceleration Initiative activities (b)
14 — 963
Adjusted EBITDA $ 8,043 $ 5,801 $ 13,603 $ 3,522

~~Table of Contents~~


	For the Quarter Ended
	March 31, 2024		March 26, 2023
	($ in thousands)
Net loss attributable to Potbelly Corporation	$	(2,767)	$	(1,327)
Depreciation expense	3,011		2,971
Interest expense	364		667
Income tax expense	51		105
EBITDA	$	659	$	2,416
Impairment, loss on disposal of property and equipment, and shop closures (a)	741		1,045
Stock-based compensation	1,771		911
Loss on extinguishment of debt	2,376		239
Loss on Franchise Growth Acceleration Initiative activities (b)	133		949
Adjusted EBITDA	$	5,680	$	5,560

(a)This adjustment includes costs related to impairment of long-lived assets, loss on disposal of property and equipment and shop closure expenses.

(b)This adjustment includes costs related to our plan to grow our franchise units domestically through multi-unit shop development area agreements, which may include refranchising certain company-operated shops.

2826

Table of Contents

Liquidity and Capital Resources

General

Our ongoing primary sources of liquidity and capital resources are cash provided from operating activities, existing cash and cash equivalents, and our ~~Term Loan.~~Revolving Facility. In the short term, our primary requirements for liquidity and capital are existing shop capital investments, maintenance, lease obligations, working capital and general corporate needs. Our requirement for working capital is not significant since our customers pay for their food and beverage purchases in cash or payment cards (credit or debit) at the time of sale. Thus, we are able to sell certain inventory items before we need to pay our suppliers for such items. ~~Company~~Company-operated shops do not require significant inventories or receivables.

We ended the quarter ~~ended June 25, 2023~~March 31, 2024 with a cash balance of ~~$35.0~~$13.5 million and total liquidity (cash less restricted ~~cash)~~cash, plus available cash on Revolving Facility) of ~~$34.3~~$37.7 million compared to a cash balance of $25.6 million and total liquidity ~~(cash less restricted cash)~~ of $24.8 million at the end of the previous quarter. We believe that cash from our operations and the cash ~~proceeds received~~available to us under the ~~Term Loan will be able to~~Revolving Facility provide us sufficient liquidity for at least the next twelve months.

Cash Flows

The following table presents summary cash flow information for the periods ~~indicated (in thousands):~~indicated:

For the Year to Date Ended

June 25,
2023

June 26,
2022

For the Year to Date Ended

March 31,
2024

March 26,
2023

Net cash provided by (used in):

Operating activities

12,022

1,978

Investing activities

(5,919)

(3,115)

Financing activities

13,288

1,441

Net increase (decrease) in cash

19,391

304

Operating Activities

Net cash provided by operating activities increased to ~~$12.0~~$0.7 million for the ~~year~~quarter to date ended ~~June 25, 2023,~~March 31, 2024, from ~~$2.0~~cash used in operating activities of $0.7 million for the ~~year to date~~quarter ended ~~June~~March 26, ~~2022.~~2023. The ~~$10.0~~$1.3 million change in operating cash was primarily driven by timing differences in payroll and an increase in income from operations compared to the prior year, ~~and development fees collected from franchisees.~~which includes the $1.1 million settlement with a third-party software provider.

Investing Activities

Net cash used in investing activities ~~decreased~~increased to ~~$5.9~~$3.7 million for the ~~year~~quarter to date ended ~~June 25, 2023,~~March 31, 2024, from ~~$3.1~~$3.2 million for the ~~year~~quarter to date ended ~~June~~March 26, ~~2022.~~2023. The ~~$2.8~~$0.5 million ~~decrease~~increase in cash outflow was primarily ~~due~~driven by additional capital expenditures which ~~primarily~~ related to ongoing investment in our company-owned shops and ~~investment in our~~ digital platforms. ~~This cash outflow was partially offset by $1.2 million cash collected from the sale of refranchised assets.~~

Financing Activities

Net cash used in financing activities decreased to $18.0 million for the quarter to date ended March 31, 2024 compared to net cash provided by financing activities ~~increased to $13.3~~of $14.6 million for the ~~year~~quarter to date ended ~~June 25, 2023, from $1.4~~March 26, 2023. The $32.6 million ~~for the year to date ended June 26, 2022. The $11.9 million increase~~decrease in financing cash was primarily driven by ~~net~~repayment of the Term Loan compared with the prior year when the company had proceeds from the Term ~~Loan executed in the first quarter of 2023 partially offset by repayments under the our senior secured credit facility (the "Former Credit Facility").~~Loan.

~~Term Loan~~Revolving Facility

On February 7, ~~2023~~2024, Potbelly Sandwich Works, LLC (the ~~“Closing Date”~~“Borrower”)~~, we~~ entered into a credit ~~and guaranty~~ agreement (the “Credit Agreement”) with ~~Sagard Holdings Manager LP~~Wintrust Bank, N.A. as administrative agent (the ~~“Administrative Agent”~~“Agent”)., the other loan parties party thereto and the lenders party thereto. The Credit Agreement provides for a ~~term~~revolving loan facility with an aggregate commitment of ~~$25 million~~$30,000,000 (the ~~“Term Loan”~~“Revolving Facility,” and the commitments thereunder, the “Revolving Commitments”). ~~Concurrent~~Concurrently with entry into the Credit Agreement, we repaid in full and terminated the obligations and commitments ~~under~~of the ~~Former~~lenders

2927

Table of Contents

~~Credit Facility. The remaining proceeds~~under our Term Loan. Proceeds from the ~~Term Loan were~~Revolving Facility will be used ~~to pay related transaction fees and expenses, and~~ for general corporate and working capital purposes.

The ~~Credit Agreement is scheduled to mature~~Revolving Commitments expire on February 7, 2028. We are required to make principal payments equal to 1.25% of the initial principal of the Term Loan on the last business day of each fiscal quarter. If not previously paid, any remaining principal balance must be repaid on the maturity date.2027.

Loans under the Credit Agreement will initially bear interest, at ~~the Company’s~~our option, at either ~~the~~one-month term SOFR ~~plus 9.25% per annum~~ or the base rate plus, ~~8.25%~~in each case, an applicable rate per ~~annum.~~

~~As of June 25, 2023,~~annum, based upon the ~~effective interest~~Consolidated Adjusted Leverage Ratio (as defined in the Credit Agreement). The applicable rate ~~was 15.00%.~~may vary between 3.75% and 2.75% with respect to borrowings which are based upon the one-month term SOFR and between 2.25% and 1.25% with respect to borrowings which are based upon the base rate. Initially, the applicable rate with respect to one-month term SOFR borrowings is 3.25% and the applicable rate with respect to base rate borrowings is 1.75% until the Agent receives a compliance certificate for the fiscal quarter ending on March 31, 2024.

We may prepay the ~~Term Loan~~Revolving Commitments at any time and from time to time in ~~agreed-upon minimum principal amounts,~~whole or in part without premium or penalty, subject to ~~prepayment fees equal to (a) if~~prior notice in accordance with the prepayment occurs on or prior to the one (1) year anniversary of the Closing Date, a customary make-whole amount plus 3.00% of the outstanding principal balance of the Term Loan, (b) if the prepayment occurs after such one (1) year anniversary and prior to the two (2) year anniversary of the Closing Date, 3.00% of the outstanding principal balance of the Term Loan, (c) if the prepayment occurs after such second anniversary of the Closing Date and prior to the three (3) year anniversary of the Closing Date 1.00% of the outstanding principal balance of the Term Loan and (d) thereafter, no prepayment fee.Credit Agreement.

Subject to certain customary exceptions, obligations under the Credit Agreement are guaranteed by the Company and all of the Company’s current and future ~~wholly owned~~wholly-owned material domestic subsidiaries and are secured by a first-priority security interest in substantially all of the assets of the Company and its subsidiary guarantors.

The Credit Agreement contains customary representations and affirmative and negative covenants. Among other things, these covenants restrict ~~the Company’s and certain of its subsidiaries’~~our ability to incur certain indebtedness and liens, undergo certain mergers, consolidations and certain other fundamental changes, make certain investments, ~~pay~~make certain dispositions and acquisitions, enter into sale and leaseback transactions, enter into certain swap transactions, make certain restricted payments (including certain payment of dividends, ~~or repurchase~~repurchases of stock and payments on certain indebtedness), engage in certain transactions with affiliates, enter into certain types of restricted agreements, make ~~dispositions~~certain changes to its organizational documents and ~~acquisitions.~~indebtedness, and use the proceeds of the Revolving Commitments for certain non-permitted uses. In addition, the Credit Agreement requires that ~~the Company and its wholly-owned subsidiaries~~we maintain compliance with certain total net leverage ratios as set forth in the Credit Agreement, an average liquidity amount that shall not be less than $10 million, maximum capital expenditures per year as set forth in the Credit Agreement andminimum fixed charge coverage ratios and maximum consolidated leverage ratios as set forth in the Credit Agreement.

The Credit Agreement also contains customary events of default. If an event of default occurs, the ~~Administrative~~ Agent and lenders are entitled to take various actions, including the acceleration of amounts due under the Credit Agreement, termination of commitments thereunder and all other actions permitted to be taken by a secured creditor.

Term Loan

On February 7, 2023 (the “Closing Date”), we entered into a credit and guaranty agreement (the “Term Loan Credit Agreement”) with Sagard Holdings Manager LP as administrative agent (the “Administrative Agent”). The Term Loan Credit Agreement provides for a term loan facility with an aggregate commitment of $25 million (the “Term Loan”). Concurrent with entry into the Term Loan Credit Agreement, we repaid in full and terminated the obligations and commitments under our former senior secured credit facility (the “Former Credit Facility”). In connection with entering into the Term Loan Credit Agreement, we paid $2.2 million isin debt issuance costs, all of which were ~~capitalized. During~~capitalized.. The remaining proceeds from the Term Loan were used to pay related transaction fees and expenses, and for general corporate purposes.

The Term Loan Credit Agreement was scheduled to mature on February 7, 2028. We were required to make principal payments equal to 1.25% of the initial principal of the Term Loan on the last business day of each fiscal quarter. If not previously paid, any remaining principal balance would be due on the maturity date.

Loans under the Term Loan Credit Agreement bore interest, at the Company’s option, at either the term SOFR plus 9.25% per annum or base rate plus 8.25% per annum.

The Term Loan could be prepaid in agreed-upon minimum principal amounts, subject to prepayment fees equal to (a) if the prepayment occurred on or prior to the one (1) year anniversary of the Closing Date, a customary make-whole amount plus 3.00% of the outstanding principal balance of the Term Loan, (b) if the prepayment occurred after such one (1) year anniversary and prior to the two (2) year anniversary of the Closing Date, 3.00% of the outstanding principal balance of the Term Loan, (c) if the prepayment occurred after such second anniversary of the Closing Date and prior to the three (3) year anniversary of the Closing Date 1.00% of the outstanding principal balance of the Term Loan and (d) thereafter, no prepayment fee.

Table of Contents

On February 7, 2024, we repaid in full and terminated the obligations and commitments under the Term Loan Credit Agreement. As a result of repaying and terminating the Term Loan, we recognized a loss on extinguishment of debt of $2.4 million in the quarter ended June 25, 2023, we amortized $0.2 million of debt issuance costs, which is included in interest expense in the condensed consolidated statement of operations. As of June 25, 2023, we had $24.4 million outstanding under the Term Loan. We are currently in compliance with all financial debt covenants.

March 31, 2024.

Stock Repurchase Program

On May 8, 2018, we announced that our Board of Directors authorized a stock repurchase program for up to $65.0 million of our outstanding common ~~stock.~~stock ("2018 Repurchase Plan"). The program permits us, from time to time, to purchase shares in the open market (including in pre-arranged stock trading plans in accordance with the guidelines specified in Rule 10b5-1 under the ~~Securities and~~ Exchange Act ~~of 1934, as amended)~~ or in privately negotiated transactions. The number of common shares actually repurchased, and the timing and price of repurchases, will depend upon market conditions, SEC requirements and other factors. ~~Purchases~~Repurchases may be started or stopped at any time without prior notice depending on market conditions and other factors. For the quarter ended ~~June 25, 2023,~~March 31, 2024, we did not repurchase any shares of our common stock under the stock repurchase program. ~~We do~~

On May 1, 2024, our Board of Directors authorized a stock repurchase program for up to $20.0 million of our outstanding common stock at any time during the next three years. This program replaces the 2018 Repurchase Plan, which was terminated upon execution of the new stock repurchase program. The program permits us, from time to time, to purchase shares in the open market (including in pre-arranged stock trading plans in accordance with the guidelines specified in Rule 10b5-1 under the Exchange Act or in privately negotiated transactions. The number of common shares actually repurchased, and the timing and price of repurchases, will depend upon market conditions, SEC requirements and other factors. Repurchases may be started or stopped at any time without prior notice depending on market conditions and other factors. Currently, we have not ~~have plans to repurchase~~repurchased any shares of our common stock under ~~our~~the new stock repurchase ~~program~~program.

Securities Purchase Agreement

On February 9, 2021, we closed on a Securities Purchase Agreement (the "SPA") for the sale by us of 3,249,668 shares of our common stock at ~~this time.~~

a par value of $0.01 per share and the issuance of warrants to purchase 1,299,861 shares of common stock at an exercise price of $5.45 per warrant for gross proceeds of $16.0 million, before deducting placement
agent fees and offering expenses of approximately $1.0 million. The warrants are currently exercisable until August 12, 2026. The proceeds received from the SPA were allocated between shares and warrants based on their relative fair values at closing. The warrants were valued utilizing the Black-Scholes method. During the quarter ended March 31, 2024, 240,187 warrants were exercised. For the quarter to date ended March 31, 2024, 240,187 warrants were exercised at the exercise price of $5.45 per warrant. As of March 31, 2024, we had 883,402 warrants outstanding that are exercisable through August 12, 2026.

Equity Offering Program

~~Table of Contents~~

Critical Accounting Estimates

Our discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Critical accounting estimates are those that management believes are both most important to the portrayal of our financial condition and operating results, and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We base our estimates on historical experience and other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions. We have made no significant changes in our critical accounting estimates since the last annual report. Our critical accounting estimates are identified and described in our annual consolidated financial statements and related notes.

Table of Contents

New and Revised Financial Accounting Standards

See Note 1 to the Consolidated Financial Statements for a description of recently issued Financial Accounting Standards.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For quantitative and qualitative disclosures about market risk, see Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of our Annual Report on Form 10-K for the fiscal year ended December ~~25, 2022.~~31, 2023. Our exposures to market risk have not changed materially since December ~~25, 2022.~~31, 2023.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of ~~June 25, 2023.~~March 31, 2024. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~June 25, 2023,~~March 31, 2024, our disclosure controls and procedures were effective in ensuring that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended ~~June 25, 2023~~March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

3130

Table of Contents

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Information pertaining to legal proceedings is provided in Note 1112 to the Condensed Consolidated Financial Statements and is incorporated by reference herein.

ITEM 1A. RISK FACTORS

A description of the risk factors associated with our business is contained in Item 1A, "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December ~~25, 2022.~~31, 2023. There have been no material changes to our Risk Factors as previously reported.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table contains information regarding purchases of our common stock made by or on behalf of Potbelly Corporation during the ~~year~~quarter to date ended ~~June 25, 2023~~March 31, 2024 (in thousands, except per share data):

Period Total Number of
Shares
Purchased (1) Average Price Paid
per Share Total Number of Shares
Purchased as Part of
Publicly Announced
Program (2) Maximum Value of
Shares that May Yet
be Purchased Under
the Program (2)
December 26, 2022 - January 22, 2023 3 $ 7.47 — $ 37,982
January 23, 2023 - February 19, 2023 1 $ 7.99 — $ 37,982
February 20, 2023 - March 26, 2023 37 $ 8.19 — $ 37,982
March 27, 2023 - April 23, 2023 45 $ 8.56 — $ 37,982
April 24, 2023 - May 21, 2023 22 $ 10.48 — $ 37,982
May 22, 2023 - June 25, 2023 20 $ 7.94 — $ 37,982
Total number of shares purchased: 128 —


Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program (2)	Maximum Value of Shares that May Yet be Purchased Under the Program (2)
January 1, 2024 - January 28, 2024	27	$	11.80		$	37,982
January 29, 2024 - February 25, 2024	24	$	12.79		$	37,982
February 26, 2024 - March 31, 2024	3	$	12.92		$	37,982
Total number of shares purchased:	54			—

(1)Represents shares of our common stock surrendered by employees to satisfy withholding obligations resulting from the vesting of equity awards.

(2)On May 8, 2018, we announced that our Board of Directors authorized a stock repurchase program for up to $65.0 million of our outstanding common stock. The program permits us, from time to time, to purchase shares in the open market (including in pre-arranged stock trading plans in accordance with the guidelines specified in Rule 10b5-1 under the Exchange Act or in privately negotiated transactions). No time limit has been set for the completion of the repurchase program and the program may be suspended or discontinued at any time. We do not have plans to repurchase any common stock under our stock repurchase program at this time. See Note 910 for further information regarding our stock repurchase program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

During the quarter ended ~~June 25, 2023,~~March 31, 2024, no director or officer of Potbelly adopted or terminated a "Rule 10b5-1 trading agreement" or "non-Rule 10b5-1 trading agreement," as each term is defined in Item 408(a) of Regulation S-K.

3231

Table of Contents

ITEM 6. EXHIBITS

The following exhibits are either provided with this Quarterly Report on Form 10-Q or are incorporated herein by reference.


Exhibit No.						Description
31.1						Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2						Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1						Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS						Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

101.SCH						Inline XBRL Taxonomy Extension Schema Document

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document

104						Cover Page Interactive Data File (embedded within the Inline XBRL document)

3332

Table of Contents

SIGNATURE

Pursuant to the requirements 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.


		POTBELLY CORPORATION

Date: ~~August 3, 2023~~May 8, 2024	By:	/s/ Steven W. Cirulis
		Steven W. Cirulis
		Chief Financial Officer
		(Principal Financial Officer)

3433


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets (Unaudited)	3
	Condensed Consolidated Statements of Operations (Unaudited)	4
	Condensed Consolidated Statements of Equity (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows (Unaudited)	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1820
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3130
Item 4.	Controls and Procedures	3130
PART II.	OTHER INFORMATION	3231
Item 1.	Legal Proceedings	3231
Item 1A.	Risk Factors	3231
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	3231
Item 3.	Defaults Upon Senior Securities	3231
Item 4.	Mine Safety Disclosures	3231
Item 5.	Other Information	3231
Item 6.	Exhibits	3332
	Signature	3433