November 13, 2017
VIA EDGAR
United States Securities and Exchange Commission
Division of Corporate Finance
Washington, D.C. 20549
Attention: Lyn Shenk, Branch Chief
| Re: | Fogo de Chao, Inc. |
| Form10-K for Fiscal Year Ended January 1, 2017 (filed March 15, 2017) |
Dear Ms. Shenk:
Fogo de Chao, Inc., a Delaware corporation (the “Company”), submits this letter in response to the comments of the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) included in its letter dated October 31, 2017, relating to the Company’s Form10-K for fiscal year ended January 1, 2017 (filed March 15, 2017) (the “Form10-K”). For ease of reference, we have repeated the Staff’s comments below in bold and included our response immediately below such comment.
Item 1. Business
Our Company, page 2
1. Please present with equal or greater prominence the comparable GAAP measure to thenon-GAAP measure “consolidated restaurant contribution margin” wherever presented in this and, as appropriate, other periodic filings and earnings releases in Form8-K. Refer to Item 10(e)(1)(i)(A) of RegulationS-K and instruction 2 to Item 2.02 of Form8-K for guidance.
RESPONSE:
In response to the Staff’s comment, the Company did not include in its Form10-Q for the Company’s fiscal quarter ended October 1, 2017 (the “Form10-Q”) (filed on November 8, 2017) and will not include in its future filings with the Commission a reference to thenon-GAAP measure “consolidated restaurant contribution margin” in Item 1. Business. The Company’s discussion of restaurant contribution margin has been included in the Form10-Q and will be included in the Company’s future filings in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. See page 27 of the Form10-Q and Exhibit A reflecting the disclosure.
Item 7. Management’s Discussion and Analysis
Restaurant Contribution and Restaurant Contribution Margin, page 45
2. At the top of page 46 you disclose your belief that restaurant contribution is an important tool for securities analysts, investors and other interested parties. Please revise to include a substantive discussion of how the consolidated/total measure is useful, pursuant to Item 10(e)(1)(i)(C) of RegulationS-K. Your disclosure should explain which costs are not included in the measure.
RESPONSE:
In response to the Staff’s comment, the Company has included disclosure in the Form10-Q regarding the Company’s belief as to the usefulness of the restaurant contribution measure, and will include such disclosure in its future filings with the Commission. See pages27-29 of the Form10-Q and Exhibit A hereto, reflecting such disclosure. In addition, the Company has included disclosure explaining the limitations of relying upon restaurant contribution as well as explaining that depreciation and amortization expense are not included in the calculation of restaurant contribution.
Results of Operations
Restaurant Contribution, page 51
3. Please include in this filing and, as appropriate, other periodic filings and earnings releases in Form8-K a reconciliation of “total restaurant contribution” to the comparable GAAP measure for each period for which presented. Due to the nature of the costs excluded from thisnon-GAAP measure, it appears the comparable GAAP measure is “income from operations.” Refer to Item 10(e)(1)(i)(B) of RegulationS-K and instruction 2 to Item 2.02 of Form8-K for guidance. Also, refer to Question 104.04 of the staff’s Compliance and Disclosure Interpretations on“Non-GAAP Financial Measures.”
RESPONSE:
In response to the Staff’s comment, the Company has included in the Form10-Q, and will include in future filings that disclose the measure of restaurant contribution, a reconciliation of restaurant contribution to the GAAP measure of income from operations (in accordance with Question 102.10 of the updatedNon-GAAP Compliance and Disclosure Interpretations issued on May 17, 2016). See page 28 of the Form10-Q and Exhibit A hereto, reflecting such disclosure.
Results of Operations
Restaurant Contribution, page 51
4. On pages 51 and 54 you provide an analysis of total restaurant contribution. Please include an analysis of the comparable GAAP measure with equal or greater prominence. Refer to Question 102.10 and the last bullet therein of the staff’s Compliance and Disclosure Interpretations on“Non-GAAP Financial Measures.”
RESPONSE:
In response to the Staff’s comment, the Company has excluded in the Form10-Q, and intends to exclude in future filings, an analysis of restaurant contribution as the Company believes that its analysis of its GAAP Consolidated Statement of Operations is sufficient in explaining operational variances in each period.
Notes to Consolidated Financial Statements
17. Segment Reporting, pageF-30
5. Please revise your footnote to provide the reconciliation required by ASC280-10-50-30b.
RESPONSE:
In response to the Staff’s comment, the Company has included in the Form10-Q, and will include in future filings, a reconciliation of total segment restaurant contribution, which is the reportable segments’ measure of profit or loss, to consolidated income before taxes in accordance with ASC280-10-50-30b, as well as a reconciliation of total segment revenue to consolidated revenue in accordance with ASC280-10-50-30a. See page 17 of the Form10-Q and Exhibit B hereto, reflecting such disclosure.
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In the event that you have any questions concerning any of the above responses or related issues, please contact me at your convenience at (972) 361 6211 or tladay@fogodechao.com.
Very truly yours,
FOGO DE CHAO, INC.
By: /s/ Anthony Laday
Name: Anthony Laday
Title: Chief Financial Officer
Exhibit A
Comments 1 & 2
The Company has included its discussion of thenon-GAAP measure “consolidated restaurant contribution margin” within the MD&A section of the Form10-Q.
Non-GAAP Financial Measures
To supplement its unaudited condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, the Company uses the followingnon-GAAP financial measures: restaurant contribution and restaurant contribution margin and Adjusted EBITDA and Adjusted EBITDA margin (collectively, the“non-GAAP financial measures”). The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. The Company uses thesenon-GAAP financial measures for financial and operational decision making and as a means to evaluateperiod-to-period comparisons. The Company believes that they provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making. Thenon-GAAP measures used by the Company may be different from the methods used by other companies
Restaurant Contribution and Restaurant Contribution Margin
Restaurant contribution, anon-GAAP financial measure, is equal to revenue generated by our restaurants sales less direct restaurant operating costs (which include food and beverage costs, compensation and benefits costs, and occupancy and certain other operating costs but exclude depreciation and amortization expense). This performance measure includes only the costs that restaurant level managers can directly control and excludes other operating costs that are essential to conduct the Company’s business. Depreciation and amortization expense is excluded because it is not an operating cost that can be directly controlled by restaurant level managers. Restaurant contribution margin is equal to restaurant contribution as a percentage of revenue from restaurant sales. Restaurant contribution and restaurant contribution margin are supplemental measures of operating performance of our restaurants and our calculations thereof may not be comparable to those reported by other companies.
We use restaurant contribution and restaurant contribution margin as key metrics to evaluate the profitability of incremental sales at our restaurants, to evaluate our restaurant performance across periods and to evaluate our restaurant financial performance compared with our competitors. We believe restaurant level operating margin is useful to investors in that it highlights trends in our core business that may not otherwise be apparent to investors when relying solely on GAAP financial measures. Because other companies may calculate restaurant level margin differently than we do, restaurant level margin as presented herein may not be comparable to similarly titled measures reported by other companies.
Restaurant contribution and restaurant contribution margin are neither required by, nor presented in accordance with GAAP. Restaurant contribution and restaurant contribution margin have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP.
Comment 3
Below is the reconciliation of “total restaurant contribution” to GAAP income from operations in the MD&A section of the Form10-Q.
Restaurant Contribution
The following table sets forth a reconciliation of income from operations, which is a GAAP financial measure, to total segment restaurant contribution (dollars in thousands).
| Thirteen Week Periods Ended | Thirty-Nine Week Periods Ended | |||||||||||||||
| October 1, 2017 | October 2, 2016 | October 1, 2017 | October 2, 2016 | |||||||||||||
Income from operations | $ | 4,536 | $ | 7,237 | $ | 20,735 | $ | 26,314 | ||||||||
Less: | ||||||||||||||||
Other revenue | 205 | 16 | 251 | 57 | ||||||||||||
Add: | ||||||||||||||||
Marketing and advertising costs | 1,963 | 1,705 | 5,956 | 5,116 | ||||||||||||
General and administrative costs | 5,286 | 4,975 | 16,918 | 15,384 | ||||||||||||
Pre-opening costs | 377 | 1,081 | 2,410 | 2,113 | ||||||||||||
Depreciation and amortization | 4,792 | 3,962 | 14,092 | 11,590 | ||||||||||||
Other operating (income) expense, net | 12 | 38 | 344 | (166 | ) | |||||||||||
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Total segment restaurant contribution | $ | 16,761 | $ | 18,982 | $ | 60,204 | $ | 60,294 | ||||||||
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Total revenues | $ | 71,404 | $ | 69,012 | $ | 225,517 | $ | 207,419 | ||||||||
Less: Other revenue | 205 | 16 | 251 | 57 | ||||||||||||
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Total segment revenue from restaurant sales | $ | 71,199 | $ | 68,996 | $ | 225,266 | $ | 207,362 | ||||||||
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Exhibit B
Comment 5
Below is the reconciliation of total segment restaurant contribution to GAAP consolidated income before taxes in footnote 13 of the Form10-Q.
The following table sets forth the reconciliation of total segment restaurant contribution to consolidated income before income taxes for the thirteen and thirty-nine week periods ended October 1, 2017 and October 2, 2016.
| Thirteen Week Periods Ended | Thirty-Nine Week Periods Ended | |||||||||||||||
| October 1, 2017 | October 2, 2016 | October 1, 2017 | October 2, 2016 | |||||||||||||
Total segment restaurant contribution | $ | 16,761 | $ | 18,982 | $ | 60,204 | $ | 60,294 | ||||||||
Add: | ||||||||||||||||
Other revenue | 205 | 16 | 251 | 57 | ||||||||||||
Less: | ||||||||||||||||
Marketing and advertising costs | 1,963 | 1,705 | 5,956 | 5,116 | ||||||||||||
General and administrative costs | 5,286 | 4,975 | 16,918 | 15,384 | ||||||||||||
Pre-opening costs | 377 | 1,081 | 2,410 | 2,113 | ||||||||||||
Depreciation and amortization | 4,792 | 3,962 | 14,092 | 11,590 | ||||||||||||
Other operating (income) expense, net | 12 | 38 | 344 | (166 | ) | |||||||||||
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Income from operations | 4,536 | 7,237 | 20,735 | 26,314 | ||||||||||||
Other income (expense), net | (712 | ) | (450 | ) | (1,788 | ) | (1,787 | ) | ||||||||
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Income before income taxes | $ | 3,824 | $ | 6,787 | $ | 18,947 | $ | 24,527 | ||||||||
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The following table sets forth the reconciliation total segment revenue from restaurant sales to total consolidated revenues for the thirteen and thirty-nine week periods ended October 1, 2017 and October 2, 2016.
| Thirteen Week Periods Ended | Thirty-Nine Week Periods Ended | |||||||||||||||
| October 1, 2017 | October 2, 2016 | October 1, 2017 | October 2, 2016 | |||||||||||||
Total segment revenue from restaurant sales | $ | 71,199 | $ | 68,996 | $ | 225,266 | $ | 207,362 | ||||||||
Add: | ||||||||||||||||
Other revenue | 205 | 16 | 251 | 57 | ||||||||||||
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Total revenues | $ | 71,404 | $ | 69,012 | $ | 225,517 | $ | 207,419 | ||||||||
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