# Good Times Restaurants Inc.: Form 10-Q for the period ended Mar 26, 2024

- Company: [Good Times Restaurants Inc.](/companies/gtim.md) (CIK 825324)
- Form: 10-Q
- Filed: 2024-05-02
- Accepted by EDGAR: May 2, 2024, 16:08 ET
- Period: 2024-03-26
- Accession: 0001437749-24-014364
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/825324/000143774924014364/gtim20240326_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/825324/000143774924014364/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-26.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-12-27 to 2024-03-26 | $35.4m | us-gaap:Revenues |
| Revenue | 6 months, 2023-09-27 to 2024-03-26 | $68.6m | us-gaap:Revenues |
| Operating income | 3 months, 2023-12-27 to 2024-03-26 | $644.0k | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-09-27 to 2024-03-26 | $270.0k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-12-27 to 2024-03-26 | $42.0k | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-09-27 to 2024-03-26 | $74.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-12-27 to 2024-03-26 | −$78.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-09-27 to 2024-03-26 | −$1.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-12-27 to 2024-03-26 | $618.0k | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-09-27 to 2024-03-26 | $62.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-12-27 to 2024-03-26 | $0.06 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-09-27 to 2024-03-26 | $0.01 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-12-27 to 2024-03-26 | $0.06 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-09-27 to 2024-03-26 | $0.01 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-12-27 to 2024-03-26 | 11,230,717 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-09-27 to 2024-03-26 | 11,352,592 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-09-27 to 2024-03-26 | $1.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-12-27 to 2024-03-26 | $632.0k | us-gaap:PaymentsToAcquireProductiveAssets |
| Capital expenditure | 6 months, 2023-09-27 to 2024-03-26 | $1.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 6 months, 2023-09-27 to 2024-03-26 | $1.1m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-03-26 | $4.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-26 | $7.1m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-26 | $89.0m | us-gaap:Assets |
| Current liabilities | at 2024-03-26 | $15.6m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2024-03-26 | $1.3m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2024-03-26 | $31.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 49,246 characters.

**Overview.** Good Times Restaurant Inc., through its subsidiaries (collectively, the “Company” or “we”, “us” or “our”) operates and licenses full-service hamburger-oriented restaurants under the name Bad Daddy’s Burger Bar (“Bad Daddy’s”) and operates and franchises hamburger-oriented drive-through restaurants under the name Good Times Burgers & Frozen Custard (“Good Times”).

**Forward Looking Statements:** This Form 10-Q contains or incorporates by reference forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the disclosure of risk factors in the Company’s Form 10-K for the fiscal year ended September 26, 2023. Also, documents subsequently filed by the Company with the SEC and incorporated herein by reference may contain forward-looking statements. We caution investors that any forward-looking statements made by us are not guarantees of future performance and actual results could differ materially from those in the forward-looking statements as a result of various factors, including but not limited to the following:

(I) The disruption to our business from pandemics or other public health emergencies and the impact it could have on our results of operations, financial condition and prospects. The disruption and effect on our business may vary depending on the duration and extent of the pandemics and other public health emergencies and the impact of federal, state and local governmental actions and customer behavior in response.

(II) We compete with numerous well-established competitors who have substantially greater financial resources and longer operating histories than we do. Competitors have increasingly offered selected food items and combination meals, including hamburgers, at discounted prices, and continued discounting by competitors may adversely affect revenues and profitability of Company restaurants.

(III) We may be negatively impacted if we experience same store sales declines. Same store sales comparisons will be dependent, among other things, on the success of our advertising and promotion of new and existing menu items. No assurances can be given that such advertising and promotions will in fact be successful.

(IV) We may be negatively impacted if we are unable to pass on to customers through menu price increases the increased costs that we incur through inflation experienced in our input costs including both the cost of food and the cost of labor. Recent metrics have indicated that increased levels of price inflation are prevalent throughout the economy which have resulted in increases in commodity, labor and energy costs for both concepts as well as increased product substitutions, elevated freight costs, and increased variability in product quality. Further significant increases in inflation could affect the global and United States economies, which could have an adverse impact on our business and results of operations if we and our franchisees are not able to adjust prices sufficiently to offset the effect of cost increases without negatively impacting consumer demand.

We may also be negatively impacted by other factors common to the restaurant industry such as: changes in consumer tastes away from red meat and fried foods; increases in the cost of food, paper, labor, health care, workers’ compensation or energy; inadequate number of hourly paid employees; increased wages and salaries for hourly and salaried employees; and/or decreases in the availability of affordable capital resources. We caution the reader that such risk factors are not exhaustive, particularly with respect to future filings. For further discussion of our exposure to market risk, refer to Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 26, 2023.

**Growth Strategies and Outlook.** We believe there are significant opportunities to grow customer traffic and increase awareness of our brands, leading to organic sales growth. We also believe there are unit growth opportunities for both of our concepts though we continue to execute unit growth with increased scrutiny surrounding real estate selection and a more conservative approach to leverage than we previously took, in light of the higher costs and volatile inflation present in the current operating environment.

**Restaurant Locations.** As of March 26, 2024, we operated, franchised, or licensed a total of forty-one Bad Daddy’s restaurants and thirty-one Good Times restaurants. The following table presents the number of restaurants operating at the end of the fiscal quarters ended March 26, 2024 and March 28, 2023.

### Company-Owned/Co-Developed:

|  | Bad Daddy’s Burger Bar 2024 | 2023 | Good Times Burgers & Frozen Custard 2024 | 2023 | Total 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Alabama | 3 | 2 | - | - | 3 | 2 |
| Colorado | 11 | 11 | 25 | 23 | 36 | 34 |
| Georgia | 5 | 5 | - | - | 5 | 5 |
| North Carolina | 14 | 14 | - | - | 14 | 14 |
| Oklahoma | 1 | 1 | - | - | 1 | 1 |
| South Carolina | 4 | 4 | - | - | 4 | 4 |
| Tennessee | 2 | 2 | - | - | 2 | 2 |
| Total | 40 | 39 | 25 | 23 | 65 | 62 |

### Franchise/License:

|  | Bad Daddy’s Burger Bar 2024 | 2023 | Good Times Burgers & Frozen Custard 2024 | 2023 | Total 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Colorado | - | - | 4 | 6 | 4 | 6 |
| North Carolina | 1 | 1 | - | - | 1 | 1 |
| Wyoming | - | - | 2 | 2 | 2 | 2 |
| Total | 1 | 1 | 6 | 8 | 7 | 9 |

One company-owned Bad Daddy’s restaurant opened in Madison, Alabama in the fourth quarter of 2023. We acquired two Good Times restaurants in Greenwood Village and Lafayette, Colorado from franchisees during the fourth quarter of 2023.

### Results of Operations

### Fiscal quarter ended March 26, 2024 (13 weeks) compared to fiscal quarter ended March 28, 2023 (13 weeks):

***Net Revenues.*** Net revenues for the fiscal quarter ended March 26, 2024 increased $653,000 or 1.9% to $35,438,000 from $34,785,000 for the fiscal quarter ended March 28, 2023. Bad Daddy’s concept revenues increased $97,000 while our Good Times concept revenues increased $556,000.

Bad Daddy’s restaurant sales increased $106,000 to $26,448,000 for the fiscal quarter ended March 26, 2024 from $26,342,000 for the fiscal quarter ended March 28, 2023. This increase is a result of the fourth quarter 2023 Madison, Alabama restaurant opening, the prior year remodel temporary closure of the Greenville, South Carolina restaurant and menu price increases, offset by reduced customer traffic, concentrated in several key markets. The average menu price increase for the fiscal quarter ended March 26, 2024 over the same prior year quarter was approximately 4.7%.

Good Times restaurant sales increased $591,000 to $8,817,000 for the fiscal quarter ended March 26, 2024 from $8,226,000 for the fiscal quarter ended March 28, 2023. This increase is primarily due to the acquisition, by the Company during fiscal 2023, of two Good Times restaurants previously owned by franchisees and menu price increases. The average menu price increase for the fiscal quarter ended March 26, 2024 over the same prior year quarter was approximately 3.9%.

Franchise revenues decreased $44,000 to $173,000 in the fiscal quarter ended March 26, 2024 compared to $217,000 in the fiscal quarter ended March 28, 2023. This decrease is primarily due to the acquisition, during the fourth fiscal quarter of 2023, by the Company of two Good Times restaurants previously owned by franchisees, as well as significantly lower sales compared to the prior year at two restaurants operated by a common franchisee, resulting in reduced royalties collected.

#### Same Store Sales

Same store sales is a metric used in evaluating the performance of established restaurants and is a commonly used metric in the restaurant industry. Same store sales for our brands are calculated using all Company-owned units open for at least eighteen full fiscal months and use the comparable operating weeks from the prior year to the current year quarter’s operating weeks.

Bad Daddy’s same store restaurant sales decreased 3.2% during the fiscal quarter ended March 26, 2024 compared to the same thirteen-week period ended March 28, 2023, primarily driven by general weakness in the casual dining restaurant segment as indicated by sequentially lower same store sales as measured by Black Box Intelligence, and to a lesser extent, weaker traffic specific to Bad Daddy’s in certain restaurants, partially offset by menu price increases. There were thirty-nine restaurants included in the same store sales base at the end of the current quarter, although one of those restaurants has been removed from the same store sales calculation during the March fiscal month as it compares against a remodel closure in the prior year.

Good Times same store restaurant sales increased 0.9% during the fiscal quarter ended March 26, 2024 compared to the same thirteen-week period ended March 28, 2023, primarily due to menu price increases, partially offset by reduced customer traffic driven by significantly unfavorable weather during the quarter compared to the same prior year quarter. There were twenty-five restaurants included in the same store sales base at the end of the current quarter.

### Restaurant Operating Costs

***Food and Packaging Costs.*** Food and packaging costs for the fiscal quarter ended March 26, 2024 decreased $56,000 to $10,599,000 (30.1% of restaurant sales) from $10,655,000 (30.8% of restaurant sales) for the fiscal quarter ended March 28, 2023.

Bad Daddy’s food and packaging costs were $8,031,000 (30.4% of restaurant sales) for the fiscal quarter ended March 26, 2024, down from $8,052,000 (30.6% of restaurant sales) for the fiscal quarter ended March 28, 2023. The decrease, as a percentage of sales, is primarily attributable to the impact of a 4.7% increase in menu pricing, partially offset by slightly higher purchase prices in our commodity basket compared to the prior year period.

Good Times food and packaging costs were $2,568,000 (29.1% of restaurant sales) for the fiscal quarter ended March 26, 2024, down from $2,603,000 (31.6% of restaurant sales) for the fiscal quarter ended March 28, 2023. This decrease is primarily attributable to the impact of a 3.9% increase in menu pricing and, to a lesser extent, lower purchase prices on food and paper goods.

***Payroll and Other Employee Benefit Costs.*** Payroll and other employee benefit costs for the fiscal quarter ended March 26, 2024 increased $277,000 to $12,266,000 (34.8% of restaurant sales) from $11,989,000 (34.7% of restaurant sales) for the fiscal quarter ended March 28, 2023.

Bad Daddy’s payroll and other employee benefit costs were $9,172,000 (34.7% of restaurant sales) for the fiscal quarter ended March 26, 2024 up from $9,143,000 (34.7% of restaurant sales) for the fiscal quarter ended March 28, 2023. The $29,000 increase is primarily attributable to one additional operating restaurant during the current quarter compared to the same prior year, quarter, higher wage rates, and increased deployment of service and bar staff, partially offset by greater back of house productivity.

Good Times payroll and other employee benefit costs were $3,094,000 (35.1% of restaurant sales) in the fiscal quarter ended March 26, 2024, up from $2,846,000 (34.6% of restaurant sales) in the same prior year period. The increase is attributable to labor associated with two additional company-owned restaurants and higher average wage rates resulting from market forces and the CPI-indexed minimum wage in Denver and the state of Colorado.

***Occupancy Costs.*** Occupancy costs for the fiscal quarter ended March 26, 2024 increased $185,000 to $2,613,000 (7.4% of restaurant sales) from $2,428,000 (7.0% of restaurant sales) for the fiscal quarter ended March 28, 2023.

Bad Daddy’s occupancy costs were $1,743,000 (6.6% of restaurant sales) for the fiscal quarter ended March 26, 2024, up from $1,693,000 (6.4% of restaurant sales) for the fiscal quarter ended March 28, 2023.

Good Times occupancy costs were $870,000 (9.9% of restaurant sales) in the fiscal quarter ended March 26, 2024, up from $735,000 (8.9% of restaurant sales) in the fiscal quarter ended March 28, 2023. The increase was primarily due to the acquisition, by the Company during fiscal 2023, of two Good Times restaurants previously owned by franchisees, as well as real property tax increases resulting from higher property values.

***Other Operating Costs.*** Other operating costs for the fiscal quarter ended March 26, 2024, increased $279,000 to $5,105,000 (14.5% of restaurant sales) from $4,826,000 (14.0% of restaurant sales) for the fiscal quarter ended March 28, 2023.

Bad Daddy’s other operating costs were $3,895,000 (14.7% of restaurant sales) for the fiscal quarter ended March 26, 2024 up from $3,811,000 (14.5% of restaurant sales) for the fiscal quarter ended March 28, 2023. The $84,000 increase was primarily attributable to increased repair and maintenance, credit card fees and other employee-related expenses, partially offset by reduced restaurant supply costs.

Good Times other operating costs were $1,210,000 (13.7% of restaurant sales) in the fiscal quarter ended March 26, 2024, up from $1,015,000 (12.3% of restaurant sales) in the fiscal quarter ended March 28, 2023. The increase was primarily due to the acquisition, by the Company during fiscal 2023, of two Good Times restaurants previously owned by franchisees, as well as increased repair and maintenance, credit card fees and customer delivery fees.

***New Store Preopening Costs.*** In the fiscal quarter ended March 26, 2024, there were no preopening costs compared to $30,000 of preopening costs for the fiscal quarter ended March 28, 2023, which primarily related to re-training costs incurred as part of our closure and remodel of our Greenville, South Carolina Bad Daddy’s location.

***Depreciation and Amortization Costs.*** Depreciation and amortization costs for the fiscal quarter ended March 26, 2024, increased $15,000 to $926,000 from $911,000 in the fiscal quarter ended March 28, 2023.

Bad Daddy’s depreciation and amortization costs for the fiscal quarter ended March 26, 2024 decreased $21,000 to $740,000 from $761,000 in the fiscal quarter ended March 28, 2023.

Good Times depreciation and amortization costs for the fiscal quarter ended March 26, 2024 increased $36,000 to $186,000 from $150,000 in the fiscal quarter ended March 28, 2023.

***General and Administrative Costs.*** General and administrative costs for the fiscal quarter ended March 26, 2024, increased $257,000 to $2,554,000 (7.2% of total revenues) from $2,297,000 (6.6% of total revenues) for the fiscal quarter ended March 28, 2023.

This increase in general and administrative expenses in the fiscal quarter ended March 26, 2024 is primarily attributable to:

- Increase in costs associated with multi-unit supervisory roles of $87,000
- Increase in home office payroll and benefits costs of $125,000
- Increase in technology costs of $19,000
- Increase in office lease and equipment expense of $17,000
- Increase in other costs of $116,000
- Decrease in health insurance related costs of $70,000
- Decrease in recruiting and training related costs of $13,000
- Decrease in general travel-related expenses of $24,000

For the balance of the fiscal year, we expect general and administrative costs to be approximately 7.0% - 8.0% of total revenues.

***Advertising Costs.*** Advertising costs for the fiscal quarter ended March 26, 2024, increased $46,000 to $824,000 (2.3% of total revenues) from $778,000 (2.2% of total revenues) for the fiscal quarter ended March 29, 2023.

Bad Daddy’s advertising costs were $539,000 (2.0% of total revenues) in the fiscal quarter ended March 26, 2024 compared to $422,000 (1.6% of total revenues) for the fiscal quarter ended March 28, 2023. The increase is primarily due to social media and printing cost increases, partially offset by a decrease in local store marketing. Bad Daddy’s advertising costs consist primarily of third party gift card commissions, menu development, printing costs, local store marketing and social media.

Good Times advertising costs were $285,000 (3.2% of total revenues) in the fiscal quarter ended March 26, 2024 compared to $356,000 (4.2% of total revenues) in the fiscal quarter ended March 28, 2023. The decrease is primarily related to reduced radio advertising and professional fees, partially offset by increased gift card and loyalty program expense.

Good Times advertising costs consist primarily of radio advertising, social media, and on-site and point-of-purchase printing costs. Advertising costs are presented gross, with franchisee contributions to the fund being recognized as a component of franchise revenues.

***Impairment of Long-Lived Assets Costs.*** The were no costs associated with impairments for the fiscal quarter ended March 26, 2024, compared to $76,000 for the fiscal quarter ended March 28, 2023, which primarily consists of new assets associated with previously impaired locations.

***Loss (Gain) on Restaurant Asset and Equipment Sales.*** The net loss on restaurant asset sales and equipment disposals for the fiscal quarter ended March 26, 2024 was $4,000, which is composed of a loss of $13,000 on disposal of miscellaneous assets, and $9,000 of deferred gain recognition, compared to a net gain of $22,000 for the fiscal quarter ended March 28, 2023, which is composed of a loss of $9,000 on disposal of miscellaneous assets, and $31,000 of deferred gain recognition.

***Litigation Contingency Costs.*** There was $97,000 of income related to adjustment of the Company’s litigation contingency reserve in the fiscal quarter ended March 26, 2024, compared to $0 for the fiscal quarter ended March 28, 2023. This adjustment is due to the recognition of $235,000 in contingent liabilities related to routine course of business claims as well as the reversal of our previous contingency reserve of $332,000.

***Income from Operations.*** Income from operations was $644,000 in the fiscal quarter ended March 26, 2024 compared to income from operations of $817,000 in the fiscal quarter ended March 28, 2023.

The change in the income from operations for the fiscal quarter ended March 26, 2024 is primarily due to matters discussed in the relevant sections above.

***Interest Expense.*** Interest expense was $42,000 during the fiscal quarter ended March 26, 2024, compared with $26,000 during the fiscal quarter ended March 28, 2023.

***Provision for Income Taxes.*** There was a $78,000 benefit from income taxes for the fiscal quarter ended March 26, 2024, compared to a $9,952,000 benefit for the fiscal quarter ended March 28, 2023. The most significant driver of the prior year benefit was the release of the valuation allowance previously assessed on the deferred tax assets.

***Net Income.*** Net income was $680,000 for the fiscal quarter ended March 26, 2024, compared to net income of $10,743,000 in the fiscal quarter ended March 28, 2023.

The change from the fiscal quarter ended March 26, 2024 to the fiscal quarter ended March 28, 2023 was primarily attributable to the matters discussed in the relevant sections above.

***Income Attributable to Non-Controlling Interests.*** The non-controlling interest represents the limited partners’ or members’ share of income in the Good Times and Bad Daddy’s joint-venture restaurants.

For the fiscal quarter ended March 26, 2024, the income attributable to non-controlling interests was $62,000 compared to $122,000 for the fiscal quarter ended March 28, 2023.

Of the quarter’s income attributable to non-controlling interests, zero is attributable to Bad Daddy’s joint-venture restaurants, compared to $40,000 in the same prior year period. This reduction is due to the acquisition by the Company of the interests in the limited liability companies held by non-controlling parties during the second fiscal quarter of 2023.

The full $62,000 of the current fiscal quarter’s income is attributable to the Good Times joint-venture restaurants, compared to $82,000 in the same prior year period. This $20,000 decrease is primarily due to decreased profitability during the current fiscal quarter of the six restaurants involved in the partnership.

### Fiscal two quarters ended March 26, 2024 (26 weeks) compared to fiscal two quarters ended March 28, 2023 (26 weeks):

***Net Revenues.*** Net revenues for the two quarters ended March 26, 2024 increased $391,000, or 0.6%, to $68,570,000 from $68,179,000 for the two quarters ended March 28, 2023. Bad Daddy’s concept revenues decreased $937,000 while our Good Times concept revenues increased $1,328,000.

Bad Daddy’s restaurant sales decreased $939,000 to $50,568,000 for the two quarters ended March 26, 2024 from $51,507,000 for the two quarters ended March 28, 2023. This decrease is due to the prior year closure of the Cherry Creek location, reduced customer traffic, concentrated in certain restaurants, partially offset by menu price increases and sales from the Madison, Alabama restaurant which opened during the fourth quarter of fiscal 2023. The average menu price increase for the two quarters ended March 26, 2024 over the same prior year quarters was approximately 4.5%.

Good Times restaurant sales increased $1,403,000 to $17,643,000 for the two quarters ended March 26, 2024 from $16,240,000 for the two quarters ended March 28, 2023. This increase is primarily due to the acquisition, by the Company during fiscal 2023, of two Good Times restaurants previously owned by franchisees and menu price increases. The average menu price increase for the two quarters ended March 26, 2024 over the same prior year quarters was approximately 4.2%.

Franchise revenues decreased $73,000 to $359,000 in the two quarters ended March 26, 2024 compared to $432,000 in the two quarters ended March 28, 2023. This decrease is primarily due to the acquisition, during the fourth fiscal quarter of 2023, by the Company of two Good Times restaurants previously owned by franchisees, as well as significantly lower sales compared to the prior year at two restaurants operated by a common franchisee, resulting in reduced royalties collected.

#### Same Store Sales

Same store sales is a metric used in evaluating the performance of established restaurants and is a commonly used metric in the restaurant industry. Same store sales for our brands are calculated using all company-owned units open for at least eighteen full fiscal months and use the comparable operating weeks from the prior year-to-date period to the current year-to-date period’s operating weeks.

Bad Daddy’s same store restaurant sales decreased 4.7% during the two quarters ended March 26, 2024 compared to the same two quarters ended March 28, 2023, primarily driven by general weakness in the casual dining restaurant segment as indicated by sequentially lower same store sales as measured by Black Box Intelligence, weaker traffic specific to Bad Daddy’s in certain restaurants, partially offset by menu price increases. There were thirty-nine restaurants included in the same store sales base at the end of the current quarter, although one of those restaurants has been removed from the same store sales calculation during the March fiscal month as it compares against a remodel closure in the prior year.

Good Times same store restaurant sales increased 2.5% during the two quarters ended March 26, 2024 compared to the same two quarters ended March 28, 2023, primarily due to menu price increases, partially offset by traffic decreases, primarily associated with unfavorable weather during the second fiscal quarter, as compared to the same-prior year quarter. There were twenty-five restaurants included in the same store sales base at the end of the current quarter.

### Restaurant Operating Costs

***Food and Packaging Costs.*** Food and packaging costs for the two quarters ended March 26, 2024 decreased $336,000 to $20,926,000 (30.7% of restaurant sales) from $21,262,000 (31.4% of restaurant sales) for the two quarters ended March 28, 2023.

Bad Daddy’s food and packaging costs were $15,640,000 (30.9% of restaurant sales) for the two quarters ended March 26, 2024, down from $16,025,000 (31.1% of restaurant sales) for the two quarters ended March 28, 2023. This decrease is primarily attributable to a combination of lower restaurant sales during the two quarters ended March 26, 2024 versus the two quarters ended March 28, 2023 and lower purchase prices for food and paper goods. The decrease, as a percent of sales, is primarily attributable to the impact of a 4.5% average annual increase in menu pricing.

Good Times food and packaging costs were $5,286,000 (30.0% of restaurant sales) for the two quarters ended March 26, 2024, up from $5,237,000 (32.2% of restaurant sales) for the two quarters ended March 28, 2023. This increase is primarily attributable to a combination of higher restaurant sales during the current two-quarter period versus the prior two-quarter period, offset by lower purchase prices on food and paper goods. The decrease, as a percent of sales, is primarily attributable to the impact of a 4.2% average annual increase in menu pricing, and to a lesser extent, lower purchase prices on food and paper goods.

***Payroll and Other Employee Benefit Costs.*** Payroll and other employee benefit costs for the two quarters ended March 26, 2024 increased $353,000 to $23,890,000 (35.0% of restaurant sales) from $23,537,000 (34.7% of restaurant sales) for the two quarters ended March 28, 2023.

Bad Daddy’s payroll and other employee benefit costs were $17,813,000 (35.2% of restaurant sales) for the two quarters ended March 26, 2024 down from $17,898,000 (34.7% of restaurant sales) for the two quarters ended March 28, 2023. The $85,000 decrease is primarily attributable to lower restaurant sales during the two quarters ended March 26, 2024 versus the two quarters ended March 28, 2023, partially offset by higher average pay rates. As a percent of sales, payroll and employee benefits costs increased by 0.5% primarily attributable to higher average wage rates paid to attract qualified employees and the deleveraging impact of lower sales on fixed labor costs, primarily manager salaries.

Good Times payroll and other employee benefit costs were $6,077,000 (34.4% of restaurant sales) in the two quarters ended March 26, 2024, up from $5,639,000 (34.7% of restaurant sales) in the same prior year period. The $438,000 increase was attributable to labor associated with two additional company-owned restaurants and higher average wage rates, partially offset by increased labor productivity. As a percent of sales, payroll and employee benefits costs decreased by 0.3% primarily attributable to menu price increases and increased labor productivity, partially offset by increased wage rates.

***Occupancy Costs.*** Occupancy costs for the two quarters ended March 26, 2024 increased $232,000 to $5,118,000 (7.5% of restaurant sales) from $4,886,000 (7.2% of restaurant sales) for the two quarters ended March 28, 2023.

Bad Daddy’s occupancy costs were $3,461,000 (6.8% of restaurant sales) for the two quarters ended March 26, 2024, up from $3,425,000 (6.6% of restaurant sales) for the two quarters ended March 28, 2023.

Good Times occupancy costs were $1,657,000 (9.4% of restaurant sales) in the two quarters ended March 26, 2024, up from $1,461,000 (9.0% of restaurant sales) in the two quarters ended March 28, 2023. The increase was primarily due to the acquisition, by the Company during fiscal 2023, of two Good Times restaurants previously owned by franchisees, as well as real property tax increases resulting from increased property valuations.

***Other Operating Costs.*** Other operating costs for the two quarters ended March 26, 2024, increased $515,000 to $9,833,000 (14.4% of restaurant sales) from $9,318,000 (13.8% of restaurant sales) for the two quarters ended March 28, 2023.

Bad Daddy’s other operating costs were $7,476,000 (14.8% of restaurant sales) for the two quarters ended March 26, 2024 up from $7,333,000 (14.2% of restaurant sales) for the two quarters ended March 28, 2023. The $143,000 increase was attributable to increased repair and maintenance and other employee-related expenses, partially offset by a reduced restaurant supply cost.

Good Times other operating costs were $2,357,000 (13.4% of restaurant sales) in the two quarters ended March 26, 2024, up from $1,985,000 (12.2% of restaurant sales) in the two quarters ended March 28, 2023. The increase was primarily due to the acquisition, by the Company during fiscal 2023, of two Good Times restaurants previously owned by franchisees, as well as increased repair and maintenance, credit card fees and customer delivery fees.

***New Store Preopening Costs.*** There were no new store preopening costs for the two quarters ended March 26, 2024, compared to $30,000 for the two quarters ended March 28, 2023 which were primarily related to re-training costs incurred as part of our closure and remodel of our Greenville, South Carolina Bad Daddy’s location.

***Depreciation and Amortization Costs.*** Depreciation and amortization costs for the two quarters ended March 26, 2024, increased $32,000 to $1,853,000 from $1,821,000 in the two quarters ended March 28, 2023.

Bad Daddy’s depreciation and amortization costs for the two quarters ended March 26, 2024 decreased $44,000 to $1,491,000 from $1,535,000 in the two quarters ended March 28, 2023.

Good Times depreciation and amortization costs for the two quarters ended March 26, 2024 increased $76,000 to $362,000 from $286,000 in the two quarters ended March 28, 2023.

***General and Administrative Costs.*** General and administrative costs for the two quarters ended March 26, 2024, increased $192,000 to $4,867,000 (7.1% of total revenues) from $4,675,000 (6.9% of total revenues) for the two quarters ended March 28, 2023.

This increase in general and administrative expenses in the two quarters ended March 26, 2024 is primarily attributable to:

- Increase in costs associated with multi-unit supervisory roles of $241,000
- Increase in home office payroll and benefits costs of $147,000
- Increase in technology costs of $36,000
- Increase in other costs of $139,000
- Decrease in professional services of $79,000
- Decrease in health insurance related costs $88,000
- Decrease in stock compensation costs of $11,000
- Decrease in recruiting and training related costs of $121,000
- Decrease in general travel-related costs of $72,000

***Advertising Costs.*** Advertising costs for the two quarters ended March 26, 2024, increased to $1,916,000 (2.8% of total revenues) from $1,672,000 (2.5% of total revenues) for the two quarters ended March 28, 2023.

Bad Daddy’s advertising costs were $1,269,000 (2.5% of total revenues) for the two quarters ended March 26, 2024 compared to $1,031,000 (2.0% of total revenues) for the two quarters ended March 28, 2023. The increase is primarily due to recognition of commission earned by third parties on gift cards sold through large-box retailers as well as increased social media and printing costs. Bad Daddy’s advertising costs consist primarily of third-party gift card commissions, menu development, printing costs, local store marketing and social media.

Good Times advertising costs were $647,000 (3.6% of total revenues) in the two quarters ended March 26, 2024 compared to $641,000 (3.9% of total revenues) in the two quarters ended March 28, 2023.

Good Times advertising costs consist primarily of radio advertising, social media, and on-site and point-of-purchase printing costs. Advertising costs are presented gross, with franchisee contributions to the fund being recognized as a component of franchise revenues.

***Impairment of Long-Lived Assets Costs.*** There were no costs associated with impairments for the two quarters ended March 26, 2024, compared to $76,000 for the two quarters ended March 28, 2023, which primarily consisted of new assets associated with previously impaired locations.

***Loss (Gain) on Restaurant Asset and Equipment Sales.*** The net gain on restaurant asset sales and equipment disposals for the two quarters ended March 26, 2024 was $6,000, which is composed of a loss of $13,000 on disposal of miscellaneous assets and $19,000 of deferred gain recognition, compared to a net gain of $22,000 for the two quarters ended March 28, 2023, which is composed of a net loss of $9,000 on disposal of miscellaneous assets, and $31,000 of deferred gains.

***Litigation Contingency Costs.*** There was $97,000 of income related to the adjustment of the Company’s litigation contingency reserve during the two quarters ended March 26, 2024, compared to $0 for the two quarters ended March 28, 2023. This adjustment is due to the recognition of $235,000 in contingent liabilities related to routine course of business claims as well as the reversal of our previous contingency reserve of $332,000.

***Income from Operations.*** Income from operations was $270,000 in the two quarters ended March 26, 2024 compared to income from operations of $924,000 in the two quarters ended March 28, 2023.

The change in the income from operations for the two quarters ended March 26, 2024 is due primarily due to matters discussed in the relevant sections above.

***Interest Expense.*** Interest expense was $74,000 during the two quarters ended March 26, 2024, compared with $38,000 during the two quarters ended March 28, 2023.

***Provision for Income Taxes.*** There was a $1,000 benefit from income taxes for the two quarters ended March 26, 2024, compared to a $9,952,000 benefit for the two quarters ended March 28, 2023. The most significant driver of the prior year benefit was the release of the valuation allowance previously assessed on the deferred tax assets.

***Net Income.*** Net income was $197,000 for the two quarters ended March 26, 2024 compared to net income of $10,838,000 in the two quarters ended March 28, 2023.

The change from the two quarters ended March 26, 2024 to the two quarters ended March 28, 2023 was primarily attributable to the matters discussed in the relevant sections above.

***Income Attributable to Non-Controlling Interests.*** The non-controlling interest represents the limited partners’ or members’ share of income in the Good Times and Bad Daddy’s joint-venture restaurants.

For the two quarters ended March 26, 2024, the income attributable to non-controlling interests was $135,000 compared to $344,000 for the two quarters ended March 28, 2023.

Of the two quarters’ income attributable to non-controlling interests, $0 is attributable to Bad Daddy’s joint-venture restaurants, compared to $219,000 in the same prior year period. This reduction is due to the acquisition by the Company of the interests in the limited liability companies held by non-controlling parties during the second fiscal quarter of 2023.

The full $135,000 of the current two quarters’ income is attributable to the Good Times joint-venture restaurants, compared to $125,000 in the same prior year period. This $10,000 increase is primarily due to increased profitability during the two fiscal quarters of the six restaurants involved in the partnership.

### Adjusted EBITDA

EBITDA is defined as net income (loss) before interest, income taxes and depreciation and amortization.

Adjusted EBITDA is defined as EBITDA plus non-cash stock-based compensation expense, preopening expense, non-recurring acquisition costs, GAAP rent in excess of cash rent, and non-cash disposal of assets. Adjusted EBITDA is intended as a supplemental measure of our performance that is not required by or presented in accordance with GAAP. We believe that EBITDA and Adjusted EBITDA provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and operating results. Our management uses EBITDA and Adjusted EBITDA (i) as a factor in evaluating management's performance when determining incentive compensation and (ii) to evaluate the effectiveness of our business strategies.

We believe that the use of EBITDA and Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the Company's financial measures with other fast casual restaurants, which may present similar non-GAAP financial measures to investors. In addition, you should be aware when evaluating EBITDA and Adjusted EBITDA that in the future we may incur expenses similar to those excluded when calculating these measures. Our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies do not calculate Adjusted EBITDA in the same fashion.

Our management does not consider EBITDA or Adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of EBITDA and Adjusted EBITDA is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company's financial statements. Some of these limitations are:

- Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
- Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
- Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;
- Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;
- Stock based compensation expense is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as an expense when evaluating our ongoing performance for a particular period;
- Adjusted EBITDA does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and
- Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as a supplemental measure. You should review the reconciliation of net loss to EBITDA and Adjusted EBITDA below and not rely on any single financial measure to evaluate our business.

The following table reconciles net income to EBITDA and Adjusted EBITDA *(in thousands)* for the fiscal quarter ended March 26, 2024:

| Adjusted EBITDA: | Quarter Ended March 26, 2024 (13 Weeks) | March 28, 2023 (13 Weeks) | Year-to-Date March 26, 2024 (26 Weeks) | March 28, 2023 (26 Weeks) |
| --- | ---: | ---: | ---: | ---: |
| **Net Income, as reported** | $618 | $10,621 | $62 | $10,494 |
| Depreciation and amortization | 929 | 900 | 1,858 | 1,767 |
| Interest expense, net | 42 | 25 | 74 | 38 |
| Provision for income taxes | (78) | (9,952) | (1) | (9,952) |
| EBITDA | 1,511 | 1,594 | 1,993 | 2,347 |
| Preopening expense | - | 30 | - | 30 |
| Non-cash stock-based compensation1 | 40 | 43 | 78 | 89 |
| Asset impairment | - | 76 | - | 76 |
| GAAP rent-cash rent difference2 | (163) | (190) | (326) | (314) |
| Loss (gain) on restaurant and equipment asset sales3 | 4 | (22) | (6) | (22) |
| Litigation contingencies | (97) | - | (97) | - |
| Adjusted EBITDA | $1,295 | $1,531 | $1,642 | $2,206 |

1 Represents non-cash stock-based compensation as described in Note 5 to the Consolidated Financial Statements.

2 Represents the excess of cash rent incurred over the amount of GAAP rent recorded in the Financial Statements.

3 Represents deferred gains on previous sale-leaseback transactions on two Good Times restaurants as well as losses on miscellaneous equipment disposals.

Depreciation and amortization, the difference between GAAP rent and cash rent and loss (gain) on restaurant and equipment asset sales have been reduced by any amounts attributable to non-controlling interests.

### Liquidity and Capital Resources

***Cash and Working Capital.*** As of March 26, 2024, we had a working capital deficit of $8,515,000. 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 a few days of the related sale and have payment terms with vendors that are typically between 14 and 21 days. Our current working capital deficit is additionally affected by the recognition of short-term lease liabilities, as we lease substantially all of our real estate and have both current and long-term obligations to our landlords. We believe that we will have sufficient capital to meet our working capital, and recurring capital expenditure needs in fiscal 2024. We anticipate any commitments in fiscal 2024 will be funded out of existing cash or future borrowings against the Cadence Credit Facility.

On January 31, 2022, the Company‘s Board of Directors authorized a $5.0 Million share repurchase program which became effective February 7, 2022. The authorization to repurchase will continue until the maximum value of shares is achieved or the Company terminates the program. The timing and amount of repurchases will depend upon the Company’s stock price, economic and market conditions, regulatory requirements, and other corporate considerations.

### Financing

***Cadence Credit Facility.*** The Company and its wholly owned subsidiaries (the “Subsidiaries”) maintain an amended and restated credit agreement with Cadence Bank (“Cadence”). Pursuant to the credit agreement, Cadence agreed to loan the Company up to $8,000,000 with a maturity date of April 20, 2028 (the “Cadence Credit Facility”). . The Cadence Credit Facility amended and restated the Company’s prior credit facility with Cadence in its entirety. The Cadence Credit Facility accrues commitment fees on the daily unused balance of the facility at a rate of 0.25%. The loans may from time to time consist of a mixture of SOFR Rate Loans and Base Rate Loans with differing interest rates based upon varying additions to the Federal Funds Rate, the Cadence prime rate or Term SOFR. Each of the Subsidiaries are guarantors of the Cadence Credit Facility.

Proceeds from the Cadence Credit Facility, if and when drawn, may be used (i) to fund new restaurant development, (ii) to finance the buyout of non-controlling partners in certain restaurants, (iii) to finance the redemption, purchase or other acquisition of equity interests in the Company and (iv) for working capital and other general corporate purposes.

The Cadence Credit Facility includes customary affirmative and negative covenants and events of default. The Cadence Credit Facility also requires the Company to maintain various financial condition ratios, including minimum liquidity, an amended maximum leverage ratio and an amended minimum fixed charge coverage ratio. In addition, to the extent the aggregate outstanding balance under the revolver exceeds $4.0 million, the Company is required to meet a new specified leverage ratio, on a pro forma basis, before making further borrowings as well as certain restricted payments, investments and growth capital expenditures. As of the date of filing of this report, the Company was in compliance with each of these covenants under the Cadence Credit Facility.

As of March 26, 2024, the weighted average interest rate applicable to borrowings under the Cadence Credit Facility was 8.42%.

As a result of entering into the Cadence Credit Facility and the various amendments, the Company paid loan origination costs including professional fees of approximately $299,000 and is amortizing these costs over the term of the credit agreement. As of March 26, 2024, the unamortized balance of these fees was $109,000.

In connection with the Cadence Credit Facility, the Company and the Subsidiaries entered into an Amended and Restated Security and Pledge Agreement (the “Security Agreement”) with Cadence. Under the Security Agreement, the Cadence Credit Facility is secured by a first priority security interest in substantially all the assets of the Company and the Subsidiaries.

As of March 26, 2024, there were $1,250,000 of borrowings against the facility, all of which is due during the fiscal year ending September 26, 2028 and is classified as a long-term liability in the accompanying balance sheet. Availability of the Cadence Credit Facility for borrowings is reduced by the outstanding face value of any letters of credit issued under the facility. As of March 26, 2024, there were approximately $10,000 in outstanding letters of credit issued under the facility, and approximately $6,740,000 of committed funds available.

Total interest expense on notes payable was $37,000 and $0 for the quarters ended March 26, 2024 and March 28, 2023, respectively.

### Cash Flows

|  | Year-to-Date Period Ended March 26, 2024 | March 28, 2023 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $1,515 | $4,158 |
| Net cash used in investing activities | (1,063) | (5,817) |
| Net cash used in financing activities | (634) | (1,880) |
| Net change in cash and cash equivalents | $(182) | $(3,539) |

***Operating Cash Flows.*** Net cash from operating activities decreased by $2,643,000, primarily due to decreased net income and income tax provision as well as accounts payable and accrued liabilities, as presented on the Condensed Consolidated Statements of Cash Flows.

***Investing Cash Flows.*** Net cash used in investing activities for the two quarters ended March 26, 2024 and March 28, 2023 were $1,063,000 and $5,817,000, respectively, which primarily reflect the purchases of property and equipment in each period as well as the net purchase of all non-controlling interests in our Bad Daddy’s locations in the prior year period.

***Financing Cash Flows.*** Net cash used in financing activities for the two quarters ended March 26, 2024 was $634,000, which includes proceeds from long-term debt of $1,000,000, payments of long-term debt of $500,000, distributions to non-controlling interests of $50,000, and $1,084,000 in payments for the purchase of treasury stock.

Net cash used in financing activities for the two quarters ended March 28, 2023 was $1,880,000, which included distributions to (net of contributions from) non-controlling interests of $453,000, payments for the purchase of treasury stock of $1,340,000, $92,000 in restricted stock vesting paid in cash, and proceeds from stock option exercise of $5,000.

### Impact of Inflation

Commodity prices, particularly for key proteins, remain high and volatile. During the first fiscal quarter of 2024, we experienced lower costs across many commodities in our basket, however as we had expected, ground beef costs have begun to increase and we expect them to continue to increase during the second half of fiscal 2024, as will likely be the case for other proteins and food-based commodities. We continue to experience elevated costs for paper and packaging, other restaurant supplies, and energy (utilities) costs.

In addition to food and supplies cost inflation, we have also experienced the need to meaningfully increase wages to attract restaurant employees, and in Colorado inflation-indexed statutory wage rate increases are creating upward pressure on wages. Further, as property valuations have increased in Colorado and to a lesser extent elsewhere, we have seen significant increases in real property taxes.

We have historically used menu price increases to manage profitability in times of inflation, however consumer preferences and the relative pricing of competitors may prevent us from raising prices sufficient to offset the significant increases in labor costs, particularly in Colorado where wage pressures are caused by both statutory and market forces.

### Seasonality

Revenues of the Company are subject to seasonal fluctuations based on weather conditions adversely affecting Colorado restaurant sales primarily during the months of December, January, February, and March, which affects both of the Company’s brands, but the Company’s Good Times restaurants are more sensitive to these weather-based seasonal fluctuations. The Company’s Bad Daddy’s restaurants typically experience seasonal reductions in revenues between the months of November and January resulting from general consumer spending patterns.

## Controls and procedures

As filed, 942 characters.

### Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Based on an evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this report on Form 10-Q, the Company’s Chief Executive Officer (its principal executive officer) and Senior Vice President of Finance and Accounting (its principal financial officer) have concluded that the Company’s disclosure controls and procedures were effective as of March 26, 2024.

### Changes in Internal Control over Financial Reporting

There have been no significant changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended March 26, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 1,679 characters.

**The risk factor below updates the risk factors contained in Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 26, 2023.**

**A future** ***ownership change*** **as defined by Section 382 of the Internal Revenue Code (“IRC”) could limit our ability to utilize tax loss and credit carryforwards to offset our taxable income.**

Our deferred tax assets include certain general business credit tax credits and loss carryforwards. Our ability to realize these deferred tax assets through their use to offset future taxable income may be significantly limited if we experience an *ownership change*, as defined by Section 382 of the IRC. In general, an *ownership change* under Section 382 occurs if the percentage of stock owned by an entity’s 5% stockholders (as defined for tax purposes) increases by more than 50 percentage points over a rolling three-year period. Such an *ownership change* has occurred several times in the Company’s history, although during the periods in which such prior *ownership changes* occurred, the Company had placed a 100% valuation allowance on its deferred tax assets. The limitation on our ability to utilize these credits and tax loss carryforwards that could arise from an *ownership change* under Section 382 would depend on the value of our equity at the time of any *ownership change*. If we were to experience an *ownership change,* it is possible that a significant portion of our tax loss and credit carryforwards could expire before we would be able to use them to offset future taxable income and could result in the recognition of loss associated with the reduced value of the Company’s deferred tax assets.

Filed May 2, 2024.
Source: SEC EDGAR, the filing index for accession 0001437749-24-014364. Last ingested by Listed: Oct 24, 2026, 14:57 ET. No prices; not investment advice.