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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

_____________________________________________________________

FORM 10-Q

_____________________________________________________________

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

For the quarterly period ended April 4, 2023

or

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

For the transition period from             to            

Commission File Number: 001-35987

___________________________________________________________

NOODLES & COMPANY

(Exact name of registrant as specified in its charter)

_____________________________________________________________

Delaware						84-1303469
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

520 Zang Street, Suite D
Broomfield, CO						80021
(Address of principal executive offices)						(Zip Code)

(720) 214-1900

(Registrant’s telephone number, including area code)

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

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

Title of each class			Trading Symbol			Name of each exchange on which registered
Class A Common Stock, $0.01 par value per share			NDLS			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  ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  

Yes  ☒ No ☐

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

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☐

 

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

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class						Outstanding at May 5, 2023
Class A Common Stock, $0.01 par value per share						46,357,830 shares

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TABLE OF CONTENTS

									Page
PART I
			Item 1.			Financial Statements (unaudited)			2
						Condensed Consolidated Balance Sheets			2
						Condensed Consolidated Statements of Operations			3
						Condensed Consolidated Statements of Stockholders’ Equity			4
						Condensed Consolidated Statements of Cash Flows			5
						Notes to Condensed Consolidated Financial Statements			6
			Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations			13
			Item 3.			Quantitative and Qualitative Disclosures About Market Risk			22
			Item 4.			Controls and Procedures			23
PART II
			Item 1.			Legal Proceedings			24
			Item 1A.			Risk Factors			24
			Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			24
			Item 3.			Defaults Upon Senior Securities			24
			Item 4.			Mine Safety Disclosures			24
			Item 5.			Other Information			24
			Item 6.			Exhibits			25
SIGNATURES									26

1

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PART I

Item 1. Financial Statements

Noodles & Company

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

						April 4, 2023						January 3, 2023
						(unaudited)
Assets
Current assets:
Cash and cash equivalents						$	2,064					$	1,523
Accounts receivable						4,762						6,443
Inventories						9,936						10,044
Prepaid expenses and other assets						4,138						3,450
Income tax receivable						186						176
Total current assets						21,086						21,636
Property and equipment, net						134,715						129,386
Operating lease assets, net						183,795						183,392
Goodwill						7,154						7,154
Intangibles, net						597						608
Other assets, net						1,697						1,667
Total long-term assets						327,958						322,207
Total assets						$	349,044					$	343,843
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable						$	15,524					$	15,308
Accrued payroll and benefits						12,631						9,219
Accrued expenses and other current liabilities						11,230						11,005
Current operating lease liabilities						28,581						28,581
Total current liabilities						67,966						64,113
Long-term debt, net						51,216						46,051
Long-term operating lease liabilities, net						186,594						187,320
Deferred tax liabilities, net						156						229
Other long-term liabilities						7,181						7,766
Total liabilities						313,113						305,479
Stockholders’ equity:
Preferred stock—$0.01 par value, 1,000,000 shares authorized and undesignated as of April 4, 2023 and January 3, 2023; no shares issued or outstanding						—						—
Common stock—$0.01 par value, 180,000,000 shares authorized as of April 4, 2023 and January 3, 2023; 48,781,701 issued and 46,357,830 outstanding as of April 4, 2023 and 48,464,298 issued and 46,040,427 outstanding as of January 3, 2023						488						485
Treasury stock, at cost, 2,423,871 shares as of April 4, 2023 and January 3, 2023						(35,000)						(35,000)
Additional paid-in capital						211,946						211,267
Accumulated deficit						(141,503)						(138,388)
Total stockholders’ equity						35,931						38,364
Total liabilities and stockholders’ equity						$	349,044					$	343,843

   See accompanying notes to condensed consolidated financial statements.

2

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Noodles & Company

Condensed Consolidated Statements of Operations

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

						Fiscal Quarter Ended
						April 4, 2023						March 29, 2022
Revenue:
Restaurant revenue						$	123,227					$	109,961
Franchising royalties and fees, and other						2,850						2,601
Total revenue						126,077						112,562
Costs and expenses:
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):
Cost of sales						31,025						30,771
Labor						39,830						35,493
Occupancy						11,486						11,149
Other restaurant operating costs						24,011						21,866
General and administrative						13,641						11,840
Depreciation and amortization						6,250						5,721
Pre-opening						492						408
Restaurant impairments, closure costs and asset disposals						1,569						1,389
Total costs and expenses						128,304						118,637
Loss from operations						(2,227)						(6,075)
Interest expense, net						961						437
Loss before taxes						(3,188)						(6,512)
Benefit from income taxes						(73)						(83)
Net loss						$	(3,115)					$	(6,429)
Loss per Class A and Class B common stock, combined
Basic						$	(0.07)					$	(0.14)
Diluted						$	(0.07)					$	(0.14)
Weighted average shares of Class A and Class B common stock outstanding, combined:
Basic						46,115,506						45,726,500
Diluted						46,115,506						45,726,500

See accompanying notes to condensed consolidated financial statements.

3

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Noodles & Company

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data, unaudited)

						Fiscal Quarter Ended
						Common Stock(1)												Treasury												Additional Paid-In Capital						Accumulated Deficit						Total Stockholders’ Equity
						Shares						Amount						Shares						Amount
Balance—January 3, 2023						48,464,298						$	485					2,423,871						$	(35,000)					$	211,267					$	(138,388)					$	38,364
Stock plan transactions and other						317,403						3						—						—						(644)						—						(641)
Stock-based compensation expense						—						—						—						—						1,323						—						1,323
Net loss						—						—						—						—						—						(3,115)						(3,115)
Balance—April 4, 2023						48,781,701						$	488					2,423,871						$	(35,000)					$	211,946					$	(141,503)					$	35,931
Balance—December 28, 2021						48,125,151						$	481					2,423,871						$	(35,000)					$	207,226					$	(135,074)					$	37,633
Stock plan transactions and other						133,443						2						—						—						(301)						—						(299)
Stock-based compensation expense						—						—						—						—						1,140						—						1,140
Net loss						—						—						—						—						—						(6,429)						(6,429)
Balance—March 29, 2022						48,258,594						$	483					2,423,871						$	(35,000)					$	208,065					$	(141,503)					$	32,045

_____________

(1)Unless otherwise noted, activity relates to Class A common stock.

See accompanying notes to condensed consolidated financial statements.

4

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Noodles & Company

Condensed Consolidated Statements of Cash Flows

(in thousands, unaudited)

						Fiscal Quarter Ended
						April 4, 2023						March 29, 2022
Operating activities
Net loss						$	(3,115)					$	(6,429)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization						6,250						5,721
Deferred income taxes						(73)						(84)
Restaurant impairments, closure costs and asset disposals						398						496
Amortization of debt issuance costs						90						112
Stock-based compensation						1,302						1,120
Changes in operating assets and liabilities:
Accounts receivable						1,606						(513)
Inventories						77						(315)
Prepaid expenses and other assets						(749)						1,378
Accounts payable						(996)						(716)
Income taxes						(10)						1
Operating lease assets and liabilities						(640)						(826)
Accrued expenses and other liabilities						3,082						(6,005)
Net cash provided by (used in) operating activities						7,222						(6,060)
Investing activities
Purchases of property and equipment						(10,436)						(8,412)
Proceeds from restaurant divestitures						—						1,577
Net cash used in investing activities						(10,436)						(6,835)
Financing activities
Net borrowings from swing line loan						575						3,195
Proceeds from borrowings on long-term debt						4,500						10,600
Payments on long-term debt						—						(750)
Payments on finance leases						(679)						(505)
Stock plan transactions and tax withholding on share-based compensation awards						(641)						(299)
Net cash provided by financing activities						3,755						12,241
Net increase (decrease) in cash and cash equivalents						541						(654)
Cash and cash equivalents
Beginning of period						1,523						2,255
End of period						$	2,064					$	1,601

See accompanying notes to condensed consolidated financial statements.

5

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NOODLES & COMPANY

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Business Summary and Basis of Presentation

Business

Noodles & Company (the “Company”), a Delaware corporation, develops and operates fast casual restaurants that serve globally inspired noodle and pasta dishes, soups, salads and appetizers. As of April 4, 2023, the Company had 461 restaurants system-wide in 31 states, comprised of 369 company-owned restaurants and 92 franchise restaurants. The Company operates its business as one operating and reportable segment.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Noodles & Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The accompanying interim unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of the Company, all adjustments considered necessary for the fair presentation of the Company’s results of operations, financial position and cash flows for the periods presented have been included and are of a normal, recurring nature. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for any interim period are not necessarily indicative of results for the full year. Certain information and footnote disclosures normally included in the Company’s annual consolidated financial statements on Form 10-K have been condensed or omitted. The condensed consolidated balance sheet as of January 3, 2023 was derived from audited financial statements. These financial statements should be read in conjunction with the audited financial statements and the related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2023.

Fiscal Year

The Company operates on a 52- or 53-week fiscal year ending on the Tuesday closest to December 31. The Company’s fiscal quarters each contain 13 operating weeks, with the exception of the fourth quarter of a 53-week fiscal year, which contains 14 operating weeks. Fiscal year 2023, which ends on January 2, 2024 contains 52 weeks and fiscal year 2022, which ended on January 3, 2023, contained 53 weeks. The Company’s fiscal quarter that ended April 4, 2023 is referred to as the first quarter of 2023, and the fiscal quarter ended March 29, 2022 is referred to as the first quarter of 2022.

2. Supplemental Financial Information

Accounts receivable consist of the following (in thousands):

						April 4, 2023						January 3, 2023
Delivery program receivables						$	1,716					$	2,027
Vendor rebate receivables						548						801
Franchise receivables						1,767						2,050
Other receivables						731						1,565
Accounts receivable						$	4,762					$	6,443

6

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Prepaid expenses and other assets consist of the following (in thousands):

						April 4, 2023						January 3, 2023
Prepaid insurance						$	675					$	882
Prepaid occupancy related costs						728						711
Prepaid expenses						2,687						1,802
Other current assets						48						55
Prepaid expenses and other assets						$	4,138					$	3,450

Property and equipment, net, consists of the following (in thousands):

						April 4, 2023						January 3, 2023
Leasehold improvements						$	215,960					$	212,319
Furniture, fixtures and equipment						154,573						152,786
Construction in progress						12,006						6,738
						382,539						371,843
Accumulated depreciation and amortization						(247,824)						(242,457)
Property and equipment, net						$	134,715					$	129,386

Accrued payroll and benefits consist of the following (in thousands):

						April 4, 2023						January 3, 2023
Accrued payroll and related liabilities						$	8,531					$	5,004
Accrued bonus						2,437						2,007
Insurance liabilities						1,663						2,208
Accrued payroll and benefits						$	12,631					$	9,219

Accrued expenses and other current liabilities consist of the following (in thousands):

						April 4, 2023						January 3, 2023
Gift card liability						$	2,073					$	2,430
Occupancy related						1,441						1,001
Utilities						1,252						1,612
Current portion of finance lease liability						2,236						2,210
Accrued interest						120						70
Insurance liabilities						380						415
Other restaurant expense accruals						1,180						1,128
Other corporate expense accruals						2,548						2,139
Accrued expenses and other current liabilities						$	11,230					$	11,005

3. Long-Term Debt

On May 9, 2018, the Company entered into a credit facility with U.S. Bank National Association (the “2018 Credit Facility”). The 2018 Credit Facility was subsequently amended on November 20, 2019 and then again on June 16, 2020, (as amended, the “Second Amended Credit Facility”).

7

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On July 27, 2022, the Company amended and restated its Second Amended Credit Facility by entering into the Third Amendment to the Credit Agreement (as amended and restated, the “Third Amended Credit Facility”) which matures on July 27, 2027. Among other things, the Third Amended Credit Facility: (i) increased the credit facility from $100.0 million to $125.0 million; (ii) eliminated the term loan and principal amortization components of the credit facility; (iii) removed the Company’s capital expenditure covenant; (iv) enhanced flexibility for certain covenants and restrictions; and (v) lowered the spread of the Company’s cost of borrowing and transitioned from the London Interbank Offered Rate (LIBOR) to the Secured Overnight Financing Rate (“SOFR”) plus a margin of 1.50% to 2.50% per annum, based upon the consolidated total lease-adjusted leverage ratio.

As of April 4, 2023, the Company had $52.8 million of indebtedness (excluding $1.6 million of unamortized debt issuance costs) and $3.0 million of letters of credit outstanding under the Third Amended Credit Facility. As of April 4, 2023, the Company had cash on hand of $2.1 million.

The Company’s revolver, which had a balance of $47.4 million as of April 4, 2023, bore interest at rates between 6.63% and 7.2%. The Company’s swingline, which had a balance of $5.4 million as of April 4, 2023, bore interest at rates between 8.75% and 9.25%.

The Company also maintains outstanding letters of credit to secure obligations under its workers’ compensation program and certain lease obligations. The Company was in compliance with all of its debt covenants as of April 4, 2023.

4. Fair Value Measurements

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and all other current liabilities approximate their fair values due to their short-term nature. The carrying amounts of borrowings approximate fair value as the line of credit and borrowings vary with market interest rates and negotiated terms and conditions are consistent with current market rates. The fair value of the Company’s line of credit and borrowings are measured using Level 2 inputs.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets recognized or disclosed at fair value in the condensed consolidated financial statements on a non-recurring 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.

Adjustments to the fair value of assets measured at fair value on a non-recurring basis as of April 4, 2023 and March 29, 2022 are discussed in Note 7, Restaurant Impairments, Closure Costs and Asset Disposals.

5. Income Taxes

The following table presents the Company’s provision for income taxes (in thousands):

						Fiscal Quarter Ended
						April 4, 2023						March 29, 2022
Benefit from income taxes						$	(73)					$	(83)
Effective tax rate						2.3		%				1.3		%

The effective tax rate for the first quarter of 2023 and the first quarter of 2022 reflects the impact of the previously recorded valuation allowance. For the remainder of fiscal 2023, the Company does not anticipate material income tax expense or benefit as a result of the valuation allowance recorded. The Company will maintain the valuation allowance against deferred tax assets until there is sufficient evidence to support a full or partial reversal. The reversal of a previously recorded valuation allowance will generally result in a benefit from income tax.

6. Stock-Based Compensation

The Company’s Stock Incentive Plan (the “Plan”), as amended and restated in May of 2013, authorizes the grant of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance share units and incentive bonuses to employees, officers, non-employee directors and other service providers. As of April 4, 2023, approximately 0.2 million share-based awards were available to be granted under the Plan.

8

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The following table shows total stock-based compensation expense (in thousands):

			Fiscal Quarter Ended
			April 4, 2023						March 29, 2022
Stock-based compensation expense			$	1,391					$	1,169
Capitalized stock-based compensation expense			$	22					$	20

7. Restaurant Impairments, Closure Costs and Asset Disposals

The following table presents restaurant impairments, closure costs and asset disposals (in thousands):

			Fiscal Quarter Ended
			April 4, 2023						March 29, 2022
Restaurant impairments (1)			$	86					$	106
Closure costs (1)			558						389
Loss on disposal of assets and other			925						894
			$	1,569					$	1,389

_____________________________

(1)Restaurant impairments and closure costs in all periods presented above include amounts related to restaurants previously impaired or closed.

There were no restaurant impairments in both first quarters of 2023 and 2022. Impairment is based on management’s current assessment of the expected future cash flows of a restaurant based on recent results and other specific market factors. Impairment expense is a Level 3 fair value measure and is determined by comparing the carrying value of restaurant assets to the estimated fair value of the restaurant assets at resale value and the right-of-use asset based on a discounted cash flow analysis utilizing market lease rates.

Closure costs in the first quarter of 2023 consisted of costs related to two restaurants closed in the first quarter of 2023 as well as costs related to ongoing expenses from restaurant closures in prior years. Closure costs also include two early lease termination settlements, one of which closed during the first quarter of 2023, and one of which closed during the second quarter of 2023.

Loss on disposal of assets and other during the first quarters of 2023 and 2022 includes asset disposals in the normal course of business and lease related costs and expenses in connection with the divestiture of company-owned restaurants in 2022 and 2020.

8. Earnings (Loss) Per Share

Basic earnings (loss) per share (“EPS”) is calculated by dividing net income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding during each period. Diluted EPS is calculated using net income (loss) available to common stockholders divided by diluted weighted-average shares of common stock outstanding during each period. Potentially dilutive securities include shares of common stock underlying stock options, warrants and RSUs. Diluted EPS considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would have an anti-dilutive effect.

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The following table sets forth the computations of basic and diluted EPS (in thousands, except share and per share data):

						Fiscal Quarter Ended
						April 4, 2023						March 29, 2022
Net loss						$	(3,115)					$	(6,429)
Shares:
Basic weighted average shares outstanding						46,115,506						45,726,500
Effect of dilutive securities						—						—
Diluted weighted average shares outstanding						46,115,506						45,726,500
Loss per share:
Basic loss per share						$	(0.07)					$	(0.14)
Diluted loss per share						$	(0.07)					$	(0.14)

The Company computes the effect of dilutive securities using the treasury stock method and average market prices during the period. Potential common shares are excluded from the computation of diluted loss per share when the effect would be anti-dilutive. The shares issuable on the vesting or exercise of share-based awards that were excluded from the calculation of diluted earnings per share because the effect of their inclusion would have been anti-dilutive totaled 3,100,963 and 1,018,962 for the first quarters of 2023 and 2022, respectively.

9. Leases

Supplemental balance sheet information related to leases is as follows (in thousands):

Classification									April 4, 2023						January 3, 2023
Assets
Operating			Operating lease assets, net						$	183,795					$	183,392
Finance			Property and equipment						4,813						5,258
Total leased assets									$	188,608					$	188,650
Liabilities
Current lease liabilities
Operating			Current operating lease liabilities						$	28,581					$	28,581
Finance			Accrued expenses and other current liabilities						2,236						2,210
Long-term lease liabilities
Operating			Long-term operating lease liabilities						186,594						187,320
Finance			Other long-term liabilities						2,957						3,520
Total lease liabilities									$	220,368					$	221,631

Sublease income recognized in the Condensed Consolidated Statements of Operations was $0.8 million for both of the first quarters of 2023 and 2022.

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

						Fiscal Quarter Ended
						April 4, 2023						March 29, 2022
Cash paid for lease liabilities:
Operating leases						$	10,522					$	10,444
Finance leases						764						614
						$	11,286					$	11,058
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases						$	7,015					$	3,832
Finance leases						142						722
						$	7,157					$	4,554

10. Supplemental Disclosures to Condensed Consolidated Statements of Cash Flows

The following table presents the supplemental disclosures to the Condensed Consolidated Statements of Cash Flows for the first quarter ended April 4, 2023 and March 29, 2022 (in thousands):

						April 4, 2023						March 29, 2022
Interest paid (net of amounts capitalized)						$	738					$	245
Income taxes paid						10						1
Purchases of property and equipment accrued in accounts payable						6,873						5,820

11. Revenue Recognition

Revenue

Revenue consists of sales from restaurant operations, franchise royalties and fees, and sublease income. Revenue from the operation of company-owned restaurants is recognized when sales occur. The Company reports revenue net of sales tax collected from customers and remitted to governmental taxing authorities.

Gift Cards

The Company sells gift cards which do not have an expiration date, and it does not deduct non-usage fees from outstanding gift card balances. The Company recognizes revenue from gift cards when the gift card is redeemed by the customer or the Company determines the likelihood of the gift card being redeemed by the customer is remote (“gift card breakage”). The determination of the gift card breakage rate is based upon Company-specific historical redemption patterns. The Company has determined that approximately 13% of gift cards will not be redeemed, and recognizes gift card breakage ratably over the estimated redemption period of the gift card, which is approximately 24 months. Gift card liability balances are typically highest at the end of each calendar year following increased gift card purchases during the holiday season.

As of April 4, 2023 and January 3, 2023, the current portion of the gift card liability, $2.1 million and $2.4 million, respectively, was included in accrued expenses and other current liabilities, and the long-term portion amounting to $0.7 million at each quarter end, was included in other long-term liabilities in the Condensed Consolidated Balance Sheets.

Revenue recognized in the Condensed Consolidated Statements of Operations for the redemption of gift cards was $1.0 million for both of the first quarters of 2023 and 2022.

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Franchise Fees

Royalties from franchise restaurants are based on a percentage of restaurant revenues and are recognized in the period the related franchised restaurants’ sales occur. Development fees and franchise fees, portions of which are collected in advance, are nonrefundable and are recognized in income ratably over the term of the related franchise agreement or recognized upon the termination of the agreement between the Company and the franchisee. The Company has determined that the initial franchise services are not distinct from the continuing rights or services offered during the term of the franchise agreement and should be treated as a single performance obligation; therefore, initial fees received from franchisees are recognized as revenue over the term of each respective franchise agreement, which is typically 20 years.

Loyalty Program

The Company operates the Noodles Rewards program, which is primarily a spend-based loyalty program. With each purchase, Noodles Rewards members earn loyalty points that can be redeemed for rewards, including free products. Using an estimate of the value of reward redemptions, we defer revenue associated with points earned, net of estimated points that will not be redeemed based upon the Company’s historical redemption patterns. Points generally expire after six months. Revenue is recognized in a future period when the reward points are redeemed. As of April 4, 2023 and January 3, 2023, the deferred revenue related to the rewards was $0.5 million and $0.3 million, respectively and is included in accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets.

12. Commitments and Contingencies

In the normal course of business, the Company is subject to other proceedings, lawsuits and claims. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Consequently, the Company is unable to ascertain the ultimate aggregate amount of monetary liability or financial impact with respect to these matters as of April 4, 2023. These matters could affect the operating results of any one financial reporting period when resolved in future periods. The Company believes that an unfavorable outcome with respect to these matters is remote or a potential range of loss is not material to its consolidated financial statements. Significant increases in the number of these claims, or one or more successful claims that result in greater liabilities than the Company currently anticipates, could materially and adversely affect its business, financial condition, results of operations or cash flows.

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NOODLES & COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Noodles & Company is a Delaware corporation that was organized in 2002. Noodles & Company and its subsidiaries are sometimes referred to as “we,” “us,” “our” and the “Company” in this report. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes in Item 1 and with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for our fiscal year ended January 3, 2023. We operate on a 52- or 53-week fiscal year ending on the Tuesday closest to December 31. Our fiscal quarters each contain 13 operating weeks, with the exception of the fourth quarter of a 53-week fiscal year, which contains 14 operating weeks. Fiscal year 2023 contains 52 weeks and fiscal year 2022 contains 53 weeks.    

Cautionary Note Regarding Forward-Looking Statements

In addition to historical information, this discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties such as the number of restaurants we intend to open, projected capital expenditures and estimates of our effective tax rates. In some cases, you can identify forward-looking statements by terms such as “may,” “might,” “will,” “objective,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “design,” “estimate,” “predict,” “potential,” “plan” or the negative of these terms and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on currently available operating, financial and competitive information. Examples of forward-looking statements include all matters that are not historical facts, such as statements regarding expectations with respect to unit growth and planned restaurant openings, projected capital expenditures, and potential volatility through 2023 due to the current high inflationary environment and economic uncertainties, including the affects on consumer sentiment and behavior. Our actual results may differ materially from those anticipated in these forward-looking statements due to reasons including, but not limited to, our ability to sustain our overall growth, including, our digital sales growth; our ability to open new restaurants on schedule and cause those newly opened restaurants to be successful; our ability to achieve and maintain increases in comparable restaurant sales and to successfully execute our business strategy, including new restaurant initiatives and operational strategies to improve the performance of our restaurant portfolio; the success of our marketing efforts, including our ability to introduce new products; current economic conditions including any impact from inflation, an economic recession or a rising interest rate environment; price and availability of commodities and other supply chain challenges; our ability to adequately staff our restaurants; changes in labor costs; other conditions beyond our control such as weather, natural disasters, disease outbreaks, epidemics or pandemics impacting our customer or food supplies; and consumer reaction to industry related public health issues and health pandemics, including perceptions of food safety and those discussed in “Special Note Regarding Forward-Looking Statements” and “Risk Factors” as filed in our Annual Report on Form 10-K for our fiscal year ended January 3, 2023.

Recent Trends, Risks and Uncertainties

The COVID-19 Pandemic has adversely affected our historical operations and financial results. However, throughout 2022 and during the first quarter of 2023, the impacts to our operations, financial performance and cash flows have diminished materially. If the COVID-19 Pandemic were to become more widespread or another pandemic were to occur, our business could be similarly impacted in the future, including business disruption, employee absences and changes in the availability or cost of labor.

Revenue. During 2022 and into the first quarter of 2023, we implemented greater menu price increases relative to historical years as a result of ongoing inflation in our cost of food, wages and general restaurant expenses. In addition, our third-party delivery channel remains at a pricing premium to our owned channels. Our revenue is highly dependent on our customers’ future willingness to order from restaurants given consumer inflationary pressures and recessionary market dynamics. Revenue has been favorably impacted by recent restaurant openings not in the Company’s comparable restaurant base, many of which offer order ahead drive-thru pickup windows.

Cost of Sales. We have incurred incremental costs of sales driven by historical and ongoing volatility in the commodity and food ingredients markets, particularly with our chicken products, in addition to an increase in packaging costs and distribution. During the first quarter of 2023, we saw improvement in our cost of food relative to 2022 driven by favorable commodity costs

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across our entire food basket, particularly the price of chicken. Throughout these periods of volatility, we have continued to work with our suppliers for ongoing supply chain efficiencies, including managing food waste and adding additional suppliers as necessary, and engage in fixed pricing contracts when advantageous. To date, there has been minimal disruption in maintaining adequate food supply, packaging and other ingredients to our restaurants, though it is possible that more significant disruptions could occur if volatility in the labor and commodity markets continue.

Labor Costs. Similar to much of the restaurant industry, our base labor costs have risen in recent years driven in part by high competition for restaurant workers in many jurisdictions in which we operate. During the first quarter of 2023, we saw modest deceleration in wage inflation growth although total wage inflation remains above historical averages. We were able to partially mitigate the impact of these market factors through a continued focus on our hiring process and retaining existing employees, in addition to maximizing efficiencies of labor hour usage per restaurant. Significant government-imposed wage increases and continued market factors could materially affect our labor costs.

Other Restaurant Operating Costs. We have incurred and expect to continue to incur third-party delivery fees resulting from significant usage of third-party delivery services.

Restaurant Development. We continued to experience select new restaurant development delays, including utility installations, permitting and inspection, and construction and labor challenges in 2023. While we anticipate these challenges will persist further into 2023, we have developed a pipeline to support an annual unit system-wide growth rate of approximately 7.5% in 2023, and expect to develop a pipeline with 7% to 10% unit growth thereafter.

In the first quarter of 2023, we opened three new company-owned restaurants. As of April 4, 2023, we had 369 company-owned restaurants and 92 franchise restaurants in 31 states.

Certain Restaurant Closures. We permanently closed two company-owned restaurants in the first quarter of 2023. We currently do not anticipate a significant number of permanent restaurant closures in the foreseeable future; however, we may from time to time permanently close certain restaurants, including permanent closures at, or near, the expiration of the leases for these restaurants.

Key Measures We Use to Evaluate Our Performance

To evaluate the performance of our business, we utilize a variety of financial and performance measures. These key measures include revenue, average unit volumes (“AUVs”), comparable restaurant sales, restaurant contribution, restaurant contribution margin, EBITDA and adjusted EBITDA.

Revenue

Revenue includes both restaurant revenue and franchise royalties and fees. Restaurant revenue represents sales of food and beverages in company-owned restaurants. Several factors affect our restaurant revenue in any period, including the number of restaurants in operation and per-restaurant sales. Franchise royalties and fees represent royalty income and initial franchise fees. While we expect that the majority of our revenue and net income growth will be driven by company-owned restaurants, our franchise restaurants remain an important factor impacting our revenue and financial performance.

Seasonal factors cause our revenue to fluctuate from quarter to quarter. Our revenue per restaurant is typically lower in the first and fourth quarters, due to reduced winter and holiday traffic, and is typically higher in the second and third quarters. As a result of these factors, our quarterly operating results and comparable restaurant sales may fluctuate significantly.

Comparable Restaurant Sales

Comparable restaurant sales refer to year-over-year sales comparisons for the comparable restaurant base. We define the comparable restaurant base to include restaurants open for at least 18 full periods. This measure highlights performance of existing restaurants, as the impact of new restaurant openings is excluded. Changes in comparable restaurant sales are generated by changes in traffic, which we calculate as the number of entrées sold and changes in per-person spend, calculated as sales divided by traffic. Per-person spend can be influenced by changes in menu prices and the mix and number of items sold per person. Restaurants that were temporarily closed or operating at reduced hours remained in comparable restaurant sales.

Measuring our comparable restaurant sales allows us to evaluate the performance of our existing restaurant base. Various factors impact comparable restaurant sales, including:

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•consumer recognition of our brand and our ability to respond to changing consumer preferences;

•overall economic trends, particularly those related to consumer spending;

•our ability to operate restaurants effectively and efficiently to meet consumer expectations;

•pricing;

•the number of restaurant transactions, per-person spend and average check amount;

•marketing and promotional efforts;

•abnormal weather patterns;

•food safety and foodborne illness concerns;

•local competition;

•trade area dynamics;

•introduction of new and seasonal menu items and limited time offerings; and

•opening new restaurants in the vicinity of existing locations.

Consistent with common industry practice, we present comparable restaurant sales on a calendar-adjusted basis that aligns current year sales weeks with comparable periods in the prior year, regardless of whether they belong to the same fiscal period or not. Since opening new company-owned and franchise restaurants is a part of our long-term growth strategy and we anticipate new restaurants will be a component of our long-term revenue growth, comparable restaurant sales is only one measure of how we evaluate our performance.

Average Unit Volumes

AUVs consist of the average annualized sales of all company-owned restaurants for a given time period. AUVs are calculated by dividing restaurant revenue by the number of operating days within each time period and multiplying by the number of operating days we have in a typical year. Based on this calculation, temporarily closed restaurants are excluded from the definition of AUV, however restaurants with temporarily reduced operating hours are included. This measurement allows management to assess changes in consumer traffic and per person spending patterns at our restaurants. In addition to the factors that impact comparable restaurant sales, AUVs can be further impacted by effective real estate site selection and maturity and trends within new markets.

Restaurant Contribution and Restaurant Contribution Margin

Restaurant contribution represents restaurant revenue less restaurant operating costs which are cost of sales, labor, occupancy and other restaurant operating costs. Restaurant contribution margin represents restaurant contribution as a percentage of restaurant revenue. We expect restaurant contribution to increase in proportion to the number of new restaurants we open, our comparable restaurant sales growth and cost reduction initiatives.

We believe that restaurant contribution and restaurant contribution margin are important tools for investors and other interested parties because they are widely-used metrics within the restaurant industry to evaluate restaurant-level productivity, efficiency and performance. We also use restaurant contribution and restaurant contribution margin as metrics to evaluate the profitability of incremental sales at our restaurants, restaurant performance across periods and restaurant financial performance compared with competitors. Restaurant contribution and restaurant contribution margin are supplemental measures of the operating performance of our restaurants and are not reflective of the underlying performance of our business because corporate-level expenses are excluded from these measures.

EBITDA and Adjusted EBITDA

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We define EBITDA as net income (loss) before interest expense, net, provision (benefit) for income taxes and depreciation and amortization. We define adjusted EBITDA as net income (loss) before interest expense, net, provision (benefit) for income taxes, depreciation and amortization, restaurant impairments, closure costs and asset disposals, costs related to corporate matters and stock-based compensation.

We believe that EBITDA and adjusted EBITDA provide clear pictures of our operating results by eliminating certain non-recurring and non-cash expenses that may vary widely from period to period and are not reflective of the underlying business performance.

The presentation of restaurant contribution, restaurant contribution margin, EBITDA and adjusted EBITDA is not intended to be considered in isolation or as a substitute for, or to be superior to, the financial information prepared and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). We use these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. We believe that they provide useful information to management and investors about operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making.

Results of Operations

The following table presents a reconciliation of net loss to EBITDA and adjusted EBITDA:

						Fiscal Quarter Ended
						April 4, 2023						March 29, 2022
						(in thousands, unaudited)
Net loss						$	(3,115)					$	(6,429)
Depreciation and amortization						6,250						5,721
Interest expense, net						961						437
Benefit from income taxes						(73)						(83)
EBITDA						$	4,023					$	(354)
Restaurant impairments, closure costs and asset disposals (1)						1,569						1,389
Stock-based compensation expense						1,391						1,169
Costs related to corporate matters						30						—
Adjusted EBITDA						$	7,013					$	2,204

_____________________

(1)Restaurant impairments and closure costs in all periods presented above include amounts related to restaurants previously impaired or closed. See Note 7, Restaurant Impairments, Closure Costs and Asset Disposals.

The following table presents a reconciliation of loss from operations to restaurant contribution:

						Fiscal Quarter Ended
						April 4, 2023						March 29, 2022
Loss from operations						$	(2,227)					$	(6,075)
Less: Franchising royalties and fees, and other						2,850						2,601
Plus: General and administrative						13,641						11,840
Depreciation and amortization						6,250						5,721
Pre-opening						492						408
Restaurant impairments, closure costs and asset disposals						1,569						1,389
Restaurant contribution						$	16,875					$	10,682
Restaurant contribution margin						13.7		%				9.7		%

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Restaurant Openings, Closures and Relocations

The following table shows restaurants opened or closed during the periods indicated:

						Fiscal Quarter Ended
						April 4, 2023						March 29, 2022
Company-Owned Restaurant Activity
Beginning of period						368						372
Openings						3						5
Closures						(2)						(2)
Divestitures (1)						—						(15)
Restaurants at end of period						369						360
Franchise Restaurant Activity
Beginning of period						93						76
Openings						—						2
Acquisitions (1)						—						15
Closures						(1)						—
Restaurants at end of period						92						93
Total restaurants						461						453

_____________________________

(1)Represents fifteen company-owned restaurants sold to a franchisee in 2022.

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Statement of Operations as a Percentage of Revenue

The following table summarizes key components of our results of operations for the periods indicated as a percentage of our total revenue, except for the components of restaurant operating costs, which are expressed as a percentage of restaurant revenue.

						Fiscal Quarter Ended
						April 4, 2023						March 29, 2022
						(unaudited)
Revenue:
Restaurant revenue						97.7		%				97.7		%
Franchising royalties and fees, and other						2.3		%				2.3		%
Total revenue						100.0		%				100.0		%
Costs and expenses:
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):
Cost of sales						25.2		%				28.0		%
Labor						32.3		%				32.3		%
Occupancy						9.3		%				10.1		%
Other restaurant operating costs						19.5		%				19.9		%
General and administrative						10.8		%				10.5		%
Depreciation and amortization						5.0		%				5.1		%
Pre-opening						0.4		%				0.4		%
Restaurant impairments, closure costs and asset disposals						1.2		%				1.2		%
Total costs and expenses						101.8		%				105.4		%
Loss from operations						(1.8)		%				(5.4)		%
Interest expense, net						0.8		%				0.4		%
Loss before taxes						(2.5)		%				(5.8)		%
Benefit from income taxes						—		%				(0.1)		%
Net loss						(2.5)		%				(5.7)		%

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First Quarter Ended April 4, 2023 Compared to First Quarter Ended March 29, 2022

The table below presents our unaudited operating results for the first quarters of 2023 and 2022, and the related quarter-over-quarter changes.

						Fiscal Quarter Ended												Increase / (Decrease)
						April 4, 2023						March 29, 2022						$						%
						(in thousands, unaudited)
Revenue:
Restaurant revenue						$	123,227					$	109,961					$	13,266					12.1		%
Franchising royalties and fees, and other						2,850						2,601						249						9.6		%
Total revenue						126,077						112,562						13,515						12.0		%
Costs and expenses:
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):
Cost of sales						31,025						30,771						254						0.8		%
Labor						39,830						35,493						4,337						12.2		%
Occupancy						11,486						11,149						337						3.0		%
Other restaurant operating costs						24,011						21,866						2,145						9.8		%
General and administrative						13,641						11,840						1,801						15.2		%
Depreciation and amortization						6,250						5,721						529						9.2		%
Pre-opening						492						408						84						20.6		%
Restaurant impairments, closure costs and asset disposals						1,569						1,389						180						13.0		%
Total costs and expenses						128,304						118,637						9,667						8.1		%
Loss from operations						(2,227)						(6,075)						3,848						(63.3)		%
Interest expense, net						961						437						524						119.9		%
Loss before taxes						(3,188)						(6,512)						3,324						(51.0)		%
Benefit from income taxes						(73)						(83)						10						(12.0)		%
Net loss						$	(3,115)					$	(6,429)					$	3,314					(51.5)		%
Company-owned:
Average unit volume						$	1,343					$	1,249					$	94					7.5		%
Comparable restaurant sales						6.9		%				5.3		%

________________

*Not meaningful.

Revenue

Total revenue increased $13.5 million in the first quarter of 2023, or 12.0%, to $126.1 million, compared to $112.6 million in the first quarter of 2022. This increase was primarily due to sales growth in the comparable restaurant base, in addition to a benefit from open restaurants that were temporarily closed during a portion of the first quarter of 2022 due to the Omicron variant. Revenue was also benefited by an incremental $4.3 million from new restaurant openings since the beginning of the first quarter of 2022, partially offset by a decline of $1.4 million due to restaurants closed or refranchised since the first quarter of 2022. System-wide comparable restaurant sales increased 6.4% in the first quarter of 2023 compared to the same period of 2022, comprised of a 6.9% increase at company-owned restaurants and a 4.1% increase at franchise-owned restaurants. The comparable restaurant sales increase in the first quarter of 2023 reflects momentum in our in-person channels, in addition to price increases in our core menu.

Cost of Sales

Cost of sales increased by $0.3 million, or 0.8%, in the first quarter of 2023 compared to the same period of 2022, due to the increase in restaurant revenue. As a percentage of restaurant revenue, cost of sales decreased to 25.2% in the first quarter of 2023 compared to 28.0% in first quarter of 2022 primarily due to overall lower food and ingredient commodity pricing, particularly with our protein costs, partially offset by higher promotional discounts.

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Labor Costs

Labor costs increased by $4.3 million, or 12.2%, in the first quarter of 2023 compared to the same period of 2022, due primarily to the increase in restaurant revenue as well as wage inflation. As a percentage of restaurant revenue, labor costs remained flat at 32.3% in the first quarter of 2023 and the first quarter of 2022 due to labor efficiencies and lower health insurance, which were offset by wage inflation.

Occupancy Costs

Occupancy costs increased by $0.3 million, or 3.0%, in the first quarter of 2023 compared to the first quarter of 2022, primarily due to 12 new restaurants opened, net of closures since the beginning of the first quarter of 2022. As a percentage of revenue, occupancy costs decreased to 9.3% in the first quarter of 2023, compared to 10.1% in the first quarter of 2022 as a result of sales leverage.

Other Restaurant Operating Costs

Other restaurant operating costs increased by $2.1 million, or 9.8%, in the first quarter of 2023 compared to the first quarter of 2022, due to the increase in restaurant revenue. As a percentage of restaurant revenue, other restaurant operating costs decreased to 19.5% in the first quarter of 2023 compared to 19.9% in the first quarter of 2022 due to sales leverage. Third-party delivery fees were 6.1% and 6.2% of total revenue for the first quarter of 2023 and 2022, respectively.

General and Administrative Expense

General and administrative expense increased by $1.8 million, or 15.2%, in the first quarter of 2023 compared to the first quarter of 2022, due primarily to an increase in employee related costs, including incentive-related costs. As a percentage of revenue, general and administrative expense increased to 10.8% in the first quarter of 2023 from 10.5% in the first quarter of 2022.

Depreciation and Amortization

Depreciation and amortization increased by $0.5 million, or 9.2%, in the first quarter of 2023 compared to the first quarter of 2022, due primarily to new asset additions for restaurants opened partially offset by restaurant closures since the first quarter of 2022.

Restaurant Impairments, Closure Costs and Asset Disposals

Restaurant impairments, closure costs and asset disposals increased $0.2 million in the first quarter of 2023 compared to the first quarter of 2022 due primarily to early lease termination settlements. Both quarters include disposals of assets in the normal course of business.

Interest Expense, Net

Interest expense, net increased $0.5 million in the first quarter of 2023 compared to the first quarter of 2022, due to higher interest rates and higher debt balances in the first quarter of 2023 as compared to the first quarter of 2022 driven primarily by higher capital costs due to new store openings since the first quarter of 2022.

Provision for Income Taxes

The effective tax rate for the first quarter of 2023 and for the first quarter of 2022 reflect the impact of the previously recorded valuation allowance. For the remainder of fiscal 2023, we do not anticipate material income tax expense or benefit as a result of the valuation allowance recorded. We will maintain a valuation allowance against deferred tax assets until there is sufficient evidence to support a full or partial reversal. The reversal of a previously recorded valuation allowance will generally result in a benefit from income tax.

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Liquidity and Capital Resources

Summary of Cash Flows

We have historically used cash and our revolving credit facility to fund capital expenditures for new restaurant openings, reinvest in our existing restaurants, invest in infrastructure and information technology and maintain working capital. Our working capital position benefits from the fact that we generally collect cash from sales to customers the same day, or in the case of credit or debit card transactions, within several days of the related sale, and we typically have up to 30 days to pay our vendors.

We believe that we will be in compliance with our debt covenants and have sufficient sources of cash to meet our liquidity needs and capital resource requirements for at least the next twelve months, through currently available cash and cash equivalents, availability under our revolving credit facility and cash flows from operations.

Cash flows from operating, investing and financing activities are shown in the following table (in thousands):

						Fiscal Quarter Ended
						April 4, 2023						March 29, 2022
Net cash provided by (used in) operating activities						$	7,222					$	(6,060)
Net cash used in investing activities						(10,436)						(6,835)
Net cash provided by financing activities						3,755						12,241
Net increase (decrease) in cash and cash equivalents						$	541					$	(654)

Operating Activities

Net cash provided by operating activities was $7.2 million in the first quarter of 2023 compared to net cash used in operating activities of $6.1 million in the first quarter of 2022. The increase in operating cash flow resulted primarily from higher cash flows from a reduced net loss adjusted for non cash items, as well as working capital changes during the first quarter of 2023 compared to the prior period of 2022. Working capital variance includes source of cash related to payroll timing and accrued expense and other liabilities.

Investing Activities

Net cash used in investing activities increased $3.6 million to $10.4 million in the first quarter of 2023 from $6.8 million in the first quarter of 2022. This increase was primarily due to higher investments in new restaurant openings, as well as digital menu board technology in the first quarter of 2023 compared to the first quarter of 2022.

Financing Activities

Net cash provided by financing activities was $3.8 million in the first quarter of 2023, compared to $12.2 million in the first quarter of 2022. The decrease from the first quarter of 2022 was largely due to lower net borrowings on our revolving credit facility and swingline due to improved financial performance.

Capital Resources

Material Cash Requirements. Our short-term obligations consist primarily of certain lease and other contractual commitments related to our operations, normal recurring operating expenses, working capital needs, new store development, capital improvements and maintenance of our restaurants, regular interest payments on our debt obligations and certain non-recurring expenditures.

Our long-term obligations consist primarily of certain lease and other contractual commitments related to our operations and payment of our outstanding debt obligations. In addition, our growth target for new store development will require capital each year which is expected to be funded by currently available cash and cash equivalents, cash flows from operations and our revolving credit facility. Our capital expenditure requirements are primarily dependent upon the pace of our real estate development program and resulting new restaurant openings, costs for maintenance and remodeling of our existing restaurants as well as information technology expenses and other general corporate capital expenditures.

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We estimate capital expenditures will be approximately $53.0 million to $58.0 million for fiscal year 2023, including $42.6 million to $47.6 million for the remainder of the year, primarily for the opening of company-owned restaurants before any reductions for landlord reimbursements, reinvestment in existing restaurants and investments in technology. We expect such capital expenditures to be funded by currently available cash and cash equivalents, cash flows from operations and if necessary, undrawn capacity under our revolving credit line.

Current Resources. Our operations have not historically required significant working capital and, like many restaurant companies, we operate with negative working capital. Restaurant sales are primarily paid for in cash or by credit or debit card, and restaurant operations do not require significant inventories or receivables. In addition, we receive trade credit for the purchase of food, beverages and supplies, therefore reducing the need for incremental working capital to support growth.

Liquidity. As of April 4, 2023, we had a cash balance of $2.1 million compared to $1.5 million as of January 3, 2023. The amount available for future borrowings under our Third Amended Credit Facility was $69.3 million as of April 4, 2023. We believe that our current cash and cash equivalents, the expected cash flows from company-owned restaurant operations, the expected franchise fees and royalties and available borrowings under the credit facility will be sufficient to fund our cash requirements for working capital needs, new restaurant openings, and capital improvements and maintenance of existing restaurants for at least the next twelve months.

Credit Facility

On May 9, 2018, we entered into a credit facility with U.S. Bank National Association (the “2018 Credit Facility”). The 2018 Credit Facility was subsequently amended on November 20, 2019 (as amended, the First Amended Credit Facility) and June 16, 2020, (as amended, the “Second Amended Credit Facility”).

On July 27, 2022, we amended and restated our Second Amended Credit Facility by entering into the Third Amendment to the Credit Agreement (as amended and restated, the “Third Amended Credit Facility”) which matures on July 27, 2027. Among other things, the Third Amended Credit Facility: (i) increased the credit facility from $100.0 million to $125.0 million; (ii) eliminated the term loan and principal amortization components of the credit facility; (iii) removed the our capital expenditure covenant; (iv) enhanced flexibility for certain covenants and restrictions; and (v) lowered the spread of our cost of borrowing and transitioned to the Secured Overnight Financing Rate plus a margin of 1.50% to 2.50% per annum, based upon the consolidated total lease-adjusted leverage ratio. Our Third Amended Credit Facility is secured by a pledge of stock of substantially all of our subsidiaries and a lien on substantially all of our and our subsidiaries’ personal property assets.

As of April 4, 2023, we had $52.8 million of indebtedness (excluding $1.6 million of unamortized debt issuance costs) and $3.0 million of letters of credit outstanding under the Third Amended Credit Facility.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements or obligations as of April 4, 2023.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements and accompanying notes are prepared in accordance with GAAP. Preparing consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by the application of our accounting policies. Our significant accounting policies are described in our Annual Report on Form 10-K for the year ended January 3, 2023. Critical accounting estimates are those that require application of management’s most difficult, subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. While we apply our judgment based on assumptions believed to be reasonable under the circumstances, actual results could vary from these assumptions. It is possible that materially different amounts would be reported using different assumptions. Our critical accounting estimates are identified and described in our annual consolidated financial statements and the related notes included in our Annual Report on Form 10-K for our fiscal year ended January 3, 2023.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

We are exposed to market risk from changes in interest rates on debt. Our exposure to interest rate fluctuations is limited to our outstanding bank debt, which bears interest at variable rates. As of April 4, 2023, we had $52.8 million of outstanding

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borrowings under our credit facility with an average interest rate during the first quarter of 2023 of 7.74%, compared to 3.22% during the first quarter of 2022, driven by an increase in market base rates. An increase or decrease of 1.0% in the effective interest rate applied on these loans would have resulted in a pre-tax interest expense fluctuation of approximately $0.5 million on an annualized basis.

Commodity Price Risk

We purchase certain products that are affected by commodity prices and are, therefore, subject to price volatility caused by weather, market conditions and other factors which are not considered predictable or within our control. Although these products are subject to changes in commodity prices, certain purchasing contracts or pricing arrangements contain risk management techniques designed to minimize price volatility. However, during 2022, due to the volatility in several commodity markets and driven by vendor availability, many of our contracts were shorter duration than typical and, in some cases, were based on floating rate prices rather than fixed rate. As a result, we saw higher cost of food in 2022 than in prior years. Despite these increases, we believe we have material pricing power with our guests that allows us to adjust our menu pricing or change our product delivery strategy without impact to the demand for our brand. In the latter part of 2022 and throughout first quarter of 2023, the commodity markets underlying our cost of food began to improve materially, particularly in regard to the price of chicken. However, increases in commodity prices, without adjustments to our menu prices, have and could continue to increase restaurant operating costs as a percentage of restaurant revenue.

Inflation

The primary inflationary factors affecting our operations are food, labor costs, energy costs and materials used in the construction of new restaurants. Increases in the minimum wage requirements directly affect our labor costs. Many of our leases require us to pay taxes, maintenance, repairs, insurance and utilities, all of which are generally subject to inflationary increases. Finally, the cost of constructing our restaurants is subject to inflationary increases in the costs of labor and material. Inflation has more significantly impacted our operating results during 2022 and in the first quarter of 2023, particularly in our commodity and construction markets, in addition to increased wage inflation that affected our results from 2017 through the first quarter of 2023. We expect inflation may continue to affect our results in the near future.

Item 4. Controls and Procedures

Our management carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of April 4, 2023, pursuant to Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information 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) of the Exchange Act) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

Item 1. Legal Proceedings

We are currently not a party to any material legal proceedings. From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity, reputational harm and other factors, and there can be no assurances that favorable outcomes will be obtained.

Item 1A. Risk Factors

A description of the risk factors associated with our business is contained in the “Risk Factors” section of our Annual Report on Form 10-K for our fiscal year ended January 3, 2023. There have been no material changes to our Risk Factors as previously reported in our Annual Report on Form 10-K for our fiscal year ended January 3, 2023.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibit Index

Exhibit Number						Description of Exhibit
10.1						Form of 2023 Restricted Stock Unit Agreement
10.2						Form of 2023 Performance Restricted Stock Unit Agreement
10.3						Form of 2023 Restricted Stock Unit Agreement For General Manager Equity Partner Plan
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 (furnished herewith)
101.INS						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
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
104.0						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NOODLES & COMPANY
By:			/s/  CARL LUKACH
			Carl Lukach Chief Financial Officer (principal financial officer and duly authorized signatory for the registrant)
Date			May 11, 2023

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