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What changed in Portillo's Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Portillo's Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+503 added−676 removedSource: 10-K (2024-02-27) vs 10-K (2023-03-02)

Top changes in Portillo's Inc.'s 2023 10-K

503 paragraphs added · 676 removed · 417 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

77 edited+42 added−24 removed17 unchanged
Biggest changeWe have always been committed to providing our guests with our delicious food, however and whenever they want it. Leverage Our Infrastructure to Drive Profitability. Our attractive business model generates strong operating margins and cash flow. We constantly focus on restaurant-level operations while ensuring that we do not sacrifice the quality and experience for which we are known.
Biggest changeWe constantly focus on restaurant-level operations while ensuring that we do not sacrifice the quality and experience for which we are known. Our strong average unit volumes and operational focus allow us to manage variable costs and leverage fixed costs.
Initial Public Offering and the Transactions The Company's registration statement on Form S-1, as amended (Registration No. 333-259810), related to its IPO was declared effective October 20, 2021, and the Company's Class A common stock began trading on the Nasdaq Global Select Market ("Nasdaq") under the symbol "PTLO" on October 21, 2021.
Initial Public Offering The Company's registration statement on Form S-1, as amended (Registration No. 333-259810), related to its IPO was declared effective October 20, 2021, and the Company's Class A common stock began trading on the Nasdaq Global Select Market ("Nasdaq") under the symbol "PTLO" on October 21, 2021.
Nearly all of our restaurants were built with double lane drive-thrus and have been thoughtfully designed with a layout that accommodates a variety of access modes including dine-in, carryout, delivery and catering in order to quickly and efficiently serve our guests.
Nearly all of our restaurants were built with double lane drive-thrus and have been thoughtfully designed with a layout that accommodates a variety of access modes including dine-in, carryout, delivery and catering to quickly and efficiently serve our guests.
Our direct shipping offerings include some of our most popular menu items, including Italian beef (8 sandwich or 20 sandwich pack), Chicago-style hot dogs (10 or 50 pack), sausages, chocolate cake and tamales. Our Growth Strategies Expand Our Restaurant Base .
Our direct shipping offerings include some of our most popular menu items, including Italian beef (8 sandwich or 20 sandwich pack), Chicago-style hot dogs (10 or 50 pack), sausages, chocolate cake and tamales. Our Growth Strategies Expand and Strengthen Our Restaurant Base .
We create a consumer experience like no other by combining the best attributes of fast-casual and quick-service concepts with an exciting energy-filled atmosphere and restaurant model capable of generating tremendous volumes.
We create a consumer experience like no other by combining the best attributes of fast-casual and quick-service concepts with an exciting energy-filled atmosphere in a restaurant model capable of generating tremendous volumes.
Our diverse menu features all-American favorites such as Chicago-style hot dogs and sausages, Italian beef sandwiches, char-grilled burgers, chopped salads, crinkle-cut french fries, homemade chocolate cake and signature chocolate cake shake.
Our diverse menu features all-American favorites such as Chicago-style hot dogs and sausages, Italian beef sandwiches, char-grilled burgers, chopped salads, crinkle-cut fries, homemade chocolate cake and signature chocolate cake shake.
Guests also love our craveable crinkle-cut french fries that are cooked in beef tallow resulting in a perfectly salted, crispy outside with a soft inside. Lastly, for those craving something sweet, our famous homemade fluffy chocolate cakes are baked with love each morning in every restaurant and generously iced with rich chocolate frosting. Commitment to Quality.
Guests also love our craveable crinkle-cut french fries which are cooked in beef tallow, resulting in a perfectly salted, crispy outside with a soft inside. Lastly, for those craving something sweet, our famous homemade fluffy chocolate cakes are baked with love each morning in every restaurant and generously iced with rich chocolate frosting. Commitment to Quality.
No matter how our guests order from us, our highly productive kitchens and team members consistently serve high-quality food and deliver a memorable guest experience. We believe the combination of our craveable food, multichannel sales model, dedication to operational excellence, and a distinctive culture driven by our team members gives us a competitive advantage.
No matter how our guests order from us, our highly productive kitchens and team members consistently serve high-quality food and deliver a memorable guest experience. We believe the combination of our craveable food, multichannel sales model, dedication to operational excellence, and distinctive team member-driven culture gives us a competitive advantage.
We are also subject to the Fair Labor Standards Act, the Immigration Reform and Control Act of 1986 and various federal, state and local laws governing such matters as minimum wages, exempt versus non-exempt, overtime, unemployment tax rates, workers’ compensation rates, citizenship requirements and other working conditions.
We are also subject to the Fair Labor Standards Act, the Immigration Reform and Control Act of 1986 and various federal, state and local laws governing such matters as minimum wages, exempt versus non-exempt, overtime, unemployment tax rates, paid leave, workers’ compensation rates, citizenship requirements and other working conditions.
New menu items are introduced when we believe they will offer superior guest satisfaction and typically coincide with the removal of an existing menu item to ensure a manageable menu size, so that our team members can maintain the operational efficiency that enables our high volumes and consistently high quality offerings.
New menu items are introduced when we believe they will offer superior guest satisfaction and typically coincide with the removal of an existing menu item to ensure a manageable menu size, allowing our team members to maintain the operational efficiency that enables our high volumes and consistently high quality offerings.
Our team members are all paid more than the applicable minimum wage in the area where they work, and increases in federal or state minimum wages or unemployment benefits may result in increases in the wage rates paid.
Our team members are typically paid more than the applicable minimum wage in the area where they work, and increases in federal or state minimum wages or unemployment benefits may result in increases in the wage rates paid.
In addition, we work with team members and managers to build individual development plans with training and experiences, and we hold regularly scheduled development programs throughout the year for each level of leadership. Further, we hold bi-annual talent and succession planning to identify and support individuals with career pathing and development opportunities.
We work with team members and managers to build individual development plans with training and experiences, and we hold regularly scheduled development programs throughout the year for each level of leadership. Further, we hold bi-annual talent and succession planning summits to identify and support individuals with career pathing and development opportunities.
This people-centric culture is centered on working together to create a fun, energetic atmosphere while living our values: “Family” – We work together to make everyone feel at home, and we step up when someone needs help. “Greatness” – We are obsessed with being the best and work hard to continuously improve.
This people-centric culture is centered on working together to create a fun, energetic atmosphere while living our values: Family We work together to make everyone feel at home, and we step up when someone needs help. Greatness We are obsessed with being the best and work hard to continuously improve.
The contents of our website are not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only. Portillo's Inc. Form 10-K | 2 Table of Contents
The contents of our website are not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.
Following the consummation of the Transactions on October 20, 2021, the Company became the sole managing member of Portillo’s OpCo, and a s sole managing member, the Company operates and controls all of the business and affairs of Portillo's OpCo.
Following the consummation of the Transactions on October 20, 2021, the Company became the sole managing member of Portillo’s OpCo and now operates and controls all of the business and affairs of Portillo's OpCo.
ITEM 1. BUSINESS Portillo’s Inc. (the “Company") was formed and incorporated as a Delaware corporation on June 8, 2021. The Company was formed for the purpose of completing an initial public offering in October 2021 ("IPO") and related reorganization transactions (collectively, the "Transactions”) in order to carry on the business of PHD Group Holdings LLC and its subsidiaries (“Portillo’s OpCo”).
ITEM 1. BUSINESS Portillo’s Inc. (the “Company") was incorporated as a Delaware corporation on June 8, 2021, in connection with our initial public offering in October 2021 ("IPO") and related reorganization transactions (collectively, the "Transactions”) in order to carry on the business of PHD Group Holdings LLC and its subsidiaries (“Portillo’s OpCo”).
While we are actively working to mitigate any effects of supply chain constraints, such constraints could result in higher food and beverage cost associated with general increases in input price levels as well as increased product substitutions and elevated freight costs.
While we are actively working to mitigate any effects of supply chain constraints, such constraints could result in higher food and beverage cost associated with general increases in input price levels as well as increased product substitutions and elevated freight costs. Our Competition The restaurant industry is highly competitive and fragmented.
We also make certain corporate governance documents available on our investor relations website, including our corporate governance guidelines, board committee charters, and code of business conduct.
We also make certain corporate governance documents available on our investor relations website, including our corporate governance guidelines, board committee charters, and code of business conduct. Our code of business conduct applies to all team members, officers and directors.
Our greatness is rooted in Quality, Service, Attitude and Cleanliness (“QSAC”). “Energy” – We move with urgency and passion, while maintaining attention to detail. “Fun” – We entertain our guests, we connect authentically, and we make each other smile. These values extend beyond our restaurants, to every Portillo's team member.
Our greatness is rooted in Quality, Service, Attitude and Cleanliness (“QSAC”). Energy We move with urgency and passion, while maintaining attention to detail. Fun We entertain our guests, we connect authentically, and we make each other smile. These values extend beyond our restaurants, to every Portillo's team member. Living these values reinforces the culture we’re proud to have built.
As of December 25, 2022, the Company owned 67.0% of Portillo's OpCo and the pre-IPO LLC Members owned the remaining 33.0% of Portillo's OpCo. See the consolidated financial statements included in Part II, Item 8 "Financial Statements And Supplementary Data" for more information about the above-mentioned transactions.
As of December 31, 2023, the Company owned 76.1% of Portillo's OpCo and the pre-IPO LLC Members owned the remaining 23.9% of Portillo's OpCo. See the consolidated financial statements included in Part II, Item 8 "Financial Statements And Supplementary Data" for more information about the above-mentioned transactions.
Energetic Restaurant Atmosphere that Engages the Senses. While our operating model is focused on getting delicious, made-to-order food to our guests quickly, our atmosphere makes the experience even more than a delicious meal. When guests walk into a Portillo’s, they get an experience completely different than a typical chain restaurant visit.
While our operating model is focused on getting delicious, made-to-order food to our guests quickly, our atmosphere makes the experience more than a delicious meal. When guests walk into a Portillo’s, they get an experience completely different than a typical chain restaurant visit. Our restaurants engage all the senses to create a fun, relaxed and memorable occasion.
The Compensation Committee, with input from management and a third-party compensation consultant who provides benchmarked data, has responsibility for administering and approving compensation, including our incentive and equity-based plans for executive officers. We discuss talent and succession plans annually for key positions and levels including the executive team. Values-Driven, People-Centered Culture .
The Compensation Committee, with input from management and an independent third-party compensation consultant, has responsibility for administering and approving compensation, including our incentive and equity-based plans for executive officers. We discuss talent and succession plans annually for key positions and levels including the executive team.
We used all of the net proceeds from the secondary offerings to purchase LLC Units and corresponding shares of Class B common stock from certain pre-IPO LLC Members and to repurchase shares of Class A common stock from the shareholders of the Blocker Companies at a price per LLC Unit or share of Class A common stock, as applicable, equal to the public offering price per share of Class A common stock, less the underwriting discounts and commissions.
We used all of the net proceeds from the Q1 2023 Secondary Offering and Overallotment Option to purchase LLC Units and corresponding shares of Class B common stock from certain pre-IPO LLC Members and to repurchase shares of Class A common stock from the shareholders of the entities treated as corporations for U.S. tax purposes that held LLC Units prior to the Transactions ("Blocker Companies") at a price per LLC Unit or share of Class A common stock, as applicable, equal to the public offering price per share of Class A common stock, less the underwriting discounts and commissions.
We hire and train great people who can turn their obsession for our brand into a profession. Our team members are passionate about our food, love our guests, and call their teammates “family.” And that family is both diverse and inclusive.
We believe this reflects our conviction that our people are the Heart of Portillo’s. We attract, hire and develop great people who turn their obsession for our brand into a profession. Our team members are passionate about our food, love our guests, and call their teammates “family.” We are proud that Portillo's family is both diverse and inclusive.
Our Chicago-style hot dogs feature mustard, relish, freshly chopped onion, sliced red ripe tomatoes, a kosher pickle and sport peppers piled high onto a perfectly steamed poppy seed bun, all finished with a few shakes of savory celery salt.
Then, it's dipped in hot gravy made with our homemade blend of seasonings that we've been perfecting for 60 years. Our Chicago-style hot dogs feature mustard, relish, freshly chopped onion, sliced red-ripe tomatoes, a kosher pickle and sport peppers piled high onto a perfectly steamed poppy seed bun, all finished with a few shakes of savory celery salt.
The DEIB initiative is sponsored by two members from our executive leadership team and one sponsor from our Board of Directors. It is then guided by a DEIB Advisory Group, which reviews programs ideated by our 10-member DEIB committee. This cross-company working group is building the framework for programs that support a diverse workforce.
It is then guided by a DEIB Advisory Group, which reviews programs ideated by our 10-member DEIB committee. This cross-company working group is building the framework for programs that support a diverse workforce. This includes increased awareness and education of our team members.
Our competition in these segments includes a variety of small locally owned restaurants, medium-sized regional restaurant concepts, and larger national restaurant concepts that provide some combination of dine-in, carry-out, drive thru and delivery services to their guests. We believe competition with these restaurants is based primarily on food quality, taste, ambiance, convenience, service speed, price and value.
Our competition in these segments includes a variety of small locally owned restaurants, medium-sized regional restaurant concepts, and larger national restaurant concepts that provide some combination of dine-in, carry-out, drive-thru and delivery services to their guests.
Our new restaurant openings draw massive crowds of passionate fans with lines stretching around the block. No matter the location, our fans are bun-believably obsessed! Guests cake shake their way in for our Chicago-style hot dogs, Italian beef sandwiches, char-grilled burgers, cheese fries, fresh salads and famous chocolate cake. But it's not just our menu that sets us apart.
Guests cake shake their way in for our Chicago-style hot dogs, Italian beef sandwiches, char-grilled burgers, cheese fries, fresh salads and famous chocolate cake. Our new restaurant openings draw massive crowds of passionate fans with lines stretching around the block. Energetic Restaurant Atmosphere that Engages the Senses.
The period music ties to the theme, from ragtime to doo wop to disco. No detail is too small, be it lighting, signage or even the stars subtly sparkling on the ceiling. Each restaurant also draws design elements from the community. The layouts create spaces comfortable for individual diners, families, large groups, and even wedding parties.
No detail is too small, be it lighting, signage or even the stars subtly sparkling on the ceiling. Each restaurant also draws design elements from the local community. The layouts create spaces comfortable for individual diners, families, large groups, and even wedding parties. Beyond the space itself, the energy of a Portillo’s is unique.
Governmental Regulation and Environmental Matters Regulation and Compliance We are subject to extensive federal, state and local government regulation, including those relating to, among others, public health and safety, nutritional content labeling, zoning and fire codes, environmental protection, and employment regulations.
Governmental Regulation and Environmental Matters We are subject to extensive federal, state and local government regulation, including those relating to, among others, public health and safety, nutritional content labeling, zoning and fire codes, environmental protection, and employment regulations. Failure to obtain or retain food or other licenses and registrations or exemptions would adversely affect the operations of restaurants.
To that end, in 2022, we implemented our Employee Stock Purchase Plan ("ESPP"), internally referred to as "Beef Stock." Eligible employees can contribute up to 15% of their gross base earnings for purchases under the ESPP through regular payroll deductions, subject to an annual maximum dollar amount.
We believe all of our team members should act like owners of the Company, and we are committed to providing all team members with an ownership opportunity through our Employee Stock Purchase Plan ("ESPP"), internally referred to as "Beef Stock." Eligible employees can contribute up to 15% of their gross base earnings for purchases under the ESPP through regular payroll deductions, subject to an annual maximum dollar amount.
This commitment is evidenced by our investment in our compensation packages and robust suite of benefit offerings. In 2022, we increased base hourly pay across many of our geographies and all of our restaurant management positions. Additionally, we enhanced our benefits with parental leave and reduced healthcare premiums for our hourly team members.
This commitment is evidenced by our investment in our compensation packages and robust suite of benefit offerings. In 2023, we increased hourly pay across many of our geographies and for some of our restaurant management positions.
Our near-term restaurant growth strategy is focused on leveraging our proven unit economic model primarily in markets outside Chicagoland with favorable macro-economic tailwinds where we already have a presence. We will also add select new restaurants in the Chicagoland market. Increase Our Same-Restaurant Sales.
Over the long term, we aim to increase our number of restaurants by approximately 12% to 15% annually. Our near-term restaurant growth strategy is focused on leveraging our proven unit economic model primarily in markets outside Chicagoland with favorable macro-economic tailwinds where we already have a presence.
Our primary strategy for menu innovation is to drive traffic through truly craveable foods that can be made with a Portillo’s spin.
We intend to drive traffic through truly craveable foods that can be made with a Portillo’s spin.
Beyond the space itself, the energy of a Portillo’s is unique. Our guests can see into our huge, open kitchens, where their meals are prepared right before their eyes. The smells of burgers broiling, french fries frying, and beef simmering emanate from the kitchen.
Our guests can see into our open kitchens, where their meals are prepared right before their eyes. The smells of burgers broiling, french fries frying, and beef simmering emanate from the kitchen. Each completed meal is announced with a fun rhyme (“Number two, we got you”; “Number seven, welcome to Portillo’s heaven”).
Living these values enforces the culture we’re proud to have built. It’s why we are passionate about attracting and selecting team members who are aligned with our purpose and values, as well as why we established an employee value proposition centered around culture.
It’s why we are passionate about attracting and selecting team members who are aligned with our purpose and values, as well as why we established an employee value proposition centered around culture. It’s also why our team members are our best ambassadors and why we’ve seen success with our referral program. Leadership Development.
We have also partnered with Better Up Coaching to give our leaders feedback and opportunities for personal growth. To ensure everyone has access to our leadership program, we continue to hold quarterly career interest days in all markets, where interested team members hear about opportunities within the company and how to apply for development programs.
To ensure everyone has access to our leadership program, we continue to hold quarterly career interest days in all markets, where interested team members hear about opportunities within the Company and how to apply for development programs. The creation of a strong talent pipeline while retaining successful team members is a top priority.
In addition to the survey, we regularly hold roundtable discussions with team members and stay interviews with leaders to gain insights into ways we can cultivate an energizing, collaborative work environment. We have also prioritized a flexible work environment, addressing work-life flexibility and balance across our different workplaces.
These both are foundational to an individual’s engagement and success. In addition to the survey, we regularly hold roundtable discussions with team members and stay interviews with leaders to gain insights into ways we can cultivate an energizing, collaborative work environment.
Our commissaries produce our signature beef, peppers and gravy for our Italian beef sandwiches. The prepared ingredients are shipped to our restaurants where our team members will finish the preparation in our kitchens to serve our guests. Quality and food safety are paramount to protecting our brand and are treated with the utmost priority.
We operate two commissaries to supply our network of restaurants with our signature beef, peppers and gravy for our Italian beef sandwiches and ensure product consistency and quality. These ingredients are shipped to our restaurants where our team members will finish the preparation in our kitchens to serve our guests. Quality Systems.
We're known for our famous Chicago-style hot dogs, Italian beef sandwiches, chopped salad, cheese fries, homemade chocolate cake, and chocolate cake shake. Our Italian beef is slow-roasted for four hours, thinly sliced, and served on freshly baked French bread. Then, it's dipped in hot gravy made with our homemade blend of seasonings that we've been perfecting for 50 years.
Our menu features unrivaled Chicago-style street food and all-American favorites — something for everyone! We're known for our famous Chicago-style hot dogs, Italian beef sandwiches, chopped salad, cheese fries, homemade chocolate cake, and chocolate cake shake. Our Italian beef is slow-roasted for four hours, thinly sliced, and served on freshly-baked French bread.
We also sell “Take & Make” offerings – a series of catering items and packages designed for convenient, at-home preparation by our guests. For impromptu gatherings we offer “Fast Packs,” which are convenient packages of eight of our most popular sandwiches, prewrapped and ready to top, which can be prepared and delivered quickly. Direct Shipping Offerings.
For impromptu gatherings, we offer “Fast Packs,” which are convenient packages of our most popular menu items, prewrapped and ready to top, which can be prepared and delivered quickly. We have also added in-house delivery capability to fulfill catering orders through our team members. Direct Shipping Offerings.
We are in the early stages of our nationwide growth with 72 locations across nine states as of December 25, 2022, including C&O . Since 2015, we have opened new restaurants at a compounded annual growth rate of approximately 8.3%. Over the long term, we aim to increase our number of restaurants by approximately 10% annually.
We are in the early stages of our nationwide growth plan, with 84 locations across ten states as of December 31, 2023, including C&O . Since 2015, we have opened new restaurants at a compounded annual growth rate of approximately 9.2%. In fiscal 2023, we opened 12 new restaurants.
This strategy affords us the opportunity to align with right-sized organizations that are dedicated to us which allows us to leverage volume and scale for a competitive advantage and exceptional customer service. We operate two commissaries that we leverage to supply our network of restaurants with several of our most iconic products and ensure product consistency and quality.
Our distribution network is comprised of several independently operated partners aligned under the UniPro umbrella, the largest food service distribution cooperative in the United States. This strategy affords us the opportunity to align with right-sized organizations that are dedicated to us which allows us to leverage volume and scale for a competitive advantage and exceptional customer service. Commissaries.
An Iconic and Beloved Brand with Obsessed, Lifelong Fans . We capture the hearts, minds and stomachs of our guests with every meal. Our menu features something for everyone and appeals to a broad demographic, which enables our restaurants to thrive across diverse trade areas and generate strong and balanced volumes across multiple dayparts, weekdays and occasions.
Our menu features something for everyone and appeals to a broad demographic, which enables our restaurants to thrive and generate strong and balanced volumes across multiple dayparts, weekdays and occasions. No matter the location, our fans are bun-believably obsessed!
Our strong average unit volumes and operational focus give us the ability to manage variable costs and leverage our fixed costs. We believe we will continue to grow revenue and system-wide profitability by executing our growth strategy and leveraging the experience of our existing general managers to lead our new restaurants to drive successful and efficient new openings.
We believe we will continue to grow revenue and system-wide profitability by executing our growth strategy and leveraging the experience of our existing general managers to drive successful and efficient new restaurant openings. Our investments to enhance and expand our multichannel capabilities and drive a frictionless guest order experience are also expected to further leverage our fixed costs.
Unless the context otherwise requires, references to "we," "us," "our," "Portillo's," the "Company" and other similar references refer to Portillo's Inc. and its subsidiaries, including Portillo’s OpCo.
Unless the context otherwise requires, references to "we," "us," "our," "Portillo's," the "Company" and other similar references refer to Portillo's Inc. and its subsidiaries, including Portillo’s OpCo. Overview of Portillo's Portillo’s serves iconic Chicago street food in high-energy, multichannel restaurants designed to ignite the senses and create memorable dining experiences.
We are committed to continuing education and providing ways for individuals to build their talents. In 2022, Portillo’s invested in LinkedIn Learning for all hourly Crew Chiefs, Restaurant Management, Commissary Team Members and RSC Team Members. This initiative allows us to give additional learning and development opportunities above and beyond job skills or initial leadership development.
We view this investment as fundamental to our growth, building a pipeline of leaders for our future. We are committed to continuing education and providing ways for individuals to build their talents. Portillo’s has invested in LinkedIn Learning for all hourly Crew Chiefs, Restaurant Management, Commissary Crew Chiefs and RSC Team Members.
We care deeply about our people and believe that by taking care of our team members, they will in turn take care of our guests.
We've also expanded our recruiting efforts to encourage members of underserved communities, such as military veterans, to join the Portillo's family. Heart of Portillo's Foundation. We care deeply about our people and believe that by taking care of our team members, they will in turn take care of our guests.
Our supplier and distribution partners participate in third party audits to ensure all applicable quality system expectations are being met. Our commissaries also undergo food safety and quality audits on a regular basis. Our Competition We compete in the highly competitive and fragmented restaurant industry.
Quality and food safety are paramount to protecting our brand and are treated with the utmost priority. Our supplier and distribution partners participate in third-party audits to ensure all applicable quality system expectations are being met.
Recent examples of new menu items include our Spicy Chicken Sandwich featuring our proprietary spicy giardiniera sauce, launched in 2021, and the Plant-based Garden Dog, launched in 2022. Our Sales Channels Our restaurants are thoughtfully designed for both their variety of access modes and the overall guest experience. Drive-Thru.
Recent examples of new menu items include our Spicy Chicken Sandwich featuring our proprietary spicy giardiniera sauce, launched in 2021, the Plant-based Garden Dog, launched in 2022, and our Rodeo Burger, launched in 2023, featuring our homemade barbecue sauce and premium bacon.
Our Team – Human Capital Management Our team member base, as of December 25, 2022, consisted of 8,040 team members. This included 171 Restaurant Support Center (“RSC”) team members, 295 res taurant managers, assistant general managers, and general managers, and 7,489 restaurant hourly team members in positions such as crew chief, training lead, food production and guest services.
This included 190 Restaurant Support Center (“RSC”) team members, 439 res taurant managers, assistant general managers, and general managers, and 7,455 restaurant hourly team members in positions such as crew chief, training lead, food production and guest services. We also have 85 hourly team members, which also includes crew chiefs, and 11 managers and above at our commissaries.
Our philosophy is to develop people to be ready before a position is open, as opposed to waiting for a position to be open and then training them. We view this investment as fundamental to our growth, building a pipeline of leaders for our future. In 2022, more than 80% of our leadership openings were filled internally.
We provide a full spectrum of resources, from skill building to leadership development, in the organization. Our philosophy is to develop people to be ready before a position is open, as opposed to waiting for a position to be open and then training them.
In 2022, we implemented a new scheduling system that allows our hourly team members to align their work schedule with their personal schedule, as well as submit schedules, trade shifts and submit all time-off requests in an easier way.
Our scheduling system allows hourly team members to align their work schedule with their personal schedule, as well as submit schedules, time-off requests and trade shifts. For our RSC team members, we provide a flexible work environment. Quarterly, we hold engagement-focused RSC culture weeks to bring the team together for connecting, recognition and development.
In addition to our Beef Stock program, all restaurant team members who are newly hired or promoted to a General Manager role become eligible for our long-term equity incentive plan. In 2023, many of our leaders will receive annual grants providing our team with opportunities to own shares, which supports retention of key team members. Diversity, Equity, Inclusion and Belonging.
In 2023, we issued 29,808 shares (net of shares withheld for taxes) under the ESPP. In addition to our Beef Stock program, all restaurant team members who are newly hired as or promoted to General Manager become eligible for our long-term equity incentive plan.
Failure to obtain or retain food or other licenses and registrations or exemptions would adversely affect the operations of restaurants. Additionally, any difficulties, delays or failures in obtaining licenses, permits, registrations, exemptions, or approvals could delay or prevent the opening of, or adversely impact the viability of, a restaurant in a particular area.
Additionally, any difficulties, delays or failures in obtaining licenses, permits, registrations, exemptions, or approvals could delay or prevent the opening of, or adversely impact the viability of, a restaurant in a particular area. Seasonality Our business is subject to seasonal fluctuations in that our revenues are typically nominally higher during the second, third and fourth quarters of the fiscal year.
Our restaurants engage all the senses to create a fun, relaxed and memorable occasion. Our dining areas evoke nostalgia and local influences. No two Portillo’s are alike. Each of our restaurants has its own themed décor, ranging from a 1930’s prohibition motif to a 1950’s jukebox, to a 1960’s hippie bus.
Our dining areas evoke nostalgia and local influences. No two Portillo’s are alike. Each of our restaurants has its own themed décor, ranging from a 1930s prohibition motif to a 1950s diner to a 1960s flower-power bus, as well as a retro automotive garage theme. The period music ties to the theme, from ragtime to doo wop to disco.
We partner with a variety of companies that are similarly aligned with producing and providing high quality products. Our supply chain approach is based on alignment with key strategic partners that are identified through a comprehensive evaluation process to ensure our standards and expectations are met on a continual basis.
Our supply chain approach is based on alignment with key strategic partners that are identified through a comprehensive evaluation process to ensure our standards and expectations are met on a continual basis. This approach affords our organization the opportunity for real-time performance assessments to identify any potential gaps and implement corrective measures where required.
Each completed meal is announced with a fun rhyme (“Number two, we got you”; “Number seven, welcome to Portillo’s heaven”). But the most important element of the energy is the enthusiasm of the scores of guests who are all excited to be there and enjoying their Portillo’s.
But the most important element of the energy is the enthusiasm of the scores of guests who are all excited to be there and enjoying their Portillo’s. We want every guest that visits to leave with good memories, a satiated appetite and a desire to return. Our Food Our Menu.
Secondary Offerings In the third quarter and fourth quarter of 2022, the Company completed two secondary offerings of 8,066,458 shares (including 66,458 shares sold to the underwriters pursuant to their overallotment option) and 8,000,000 shares, respectively, of the Company's Class A common stock at an offering price of $23.75 and $22.69, respectively, per share.
Secondary Offerings In the first quarter of 2023, the Company completed a secondary offering of 8,000,000 shares of the Company's Class A common stock at an offering price of $21.05 per share.
Through a risk assessment strategy, the supply chain team will identify areas critical to supporting the restaurants and any necessary adjustments or alternate programs are undertake n.
Robust contingency plans are reviewed and updated on a regular basis to provide a reliable supply of products and services to our business. As part of our risk assessment strategy, the supply chain team identifies areas critical to supporting the restaurants and executes any necessary adjustments or alternate programs.
To prioritize overall well-being, we also continue to enhance our wellness platform to provide fitness and other programs that promote wellness of the whole individual. We believe all of our team members should act like owners of the Company, and we are committed to providing all team members with an ownership opportunity.
We also enhanced our dental plan offerings and expanded access to additional medical plans for our restaurant team members. To prioritize overall well-being, we also continue to enhance our wellness platform to provide fitness and other programs that promote wellness of the whole individual. In 2023, we also made enhancements to our paid leave policy.
We aim to continue delivering an outstanding value proposition to our guests and enhance our experience to grow our volumes. We believe the following initiatives will drive same-restaurant sales growth. • Deliver a Consistently Outstanding Guest Experience at an Incredible Everyday Value .
We believe the following initiatives will drive same-restaurant sales growth. • Deliver a Consistently Outstanding Guest Experience Across Order Channels . Portillo’s remains committed to offering industry-leading experiences across our traditional sales channels, while continuing to grow and innovate in growth sales channels.
Guests dining in our restaurants wait in an ordering line to place their order and walk up to a designated pick-up area when their order is called. Carryout. Guests placing a carryout order can order online or through our app. They have the option to walk into the restaurant to pick up their order at our service counter. Delivery.
Our dining areas feature a variety of flexible seating arrangements designed to accommodate single diners, couples, families and large groups. Guests dining in our restaurants wait in an ordering line to place their order and walk up to a designated pick-up area when their order is called. Carryout.
We are also disciplined in maintaining the number of options on our menu, while ensuring consistency in execution, and maintaining the breadth that helps drive our industry-leading volumes. When a new item earns its way onto our menu, we often replace an existing item to maintain our operational efficiency.
We are also disciplined in maintaining the size of our menu, ensuring consistency in execution while maintaining the variety that helps drive our industry-leading volumes. For example, in 2023, we launched our Rodeo Burger, an item that combines existing ingredients in a unique way, enhanced the guest experience, and provided a benefit to average ticket price and profit margin.
Our restaurants are built with double lane drive-thrus staffed with engaging attendants that ensure a pleasant and efficient experience with all food made to order. We also have locations that feature three drive-thru lanes, including one specifically for pickup of advanced orders placed on our app or website. Dine-In.
Our restaurants are built with double lane drive-thrus staffed with engaging attendants that ensure a pleasant and efficient experience with all food made to order. Dine-In. Our restaurant dining rooms are elaborately decorated with timeless, nostalgic designs inspired by the local community.
At Portillo’s, we embrace Diversity, Equity, Inclusion and Belonging ("DEIB") through our core values of Family, Greatness, Energy and Fun. These values are engrained in everything we do as a company, and they guide how we support our Portillo's family. This past year we launched our DEIB initiative.
These values are ingrained in everything we do as a company, and they guide how we support our Portillo's family. We launched our DEIB initiative, which is sponsored by two members from our executive leadership team and one sponsor from our Board of Directors.
We have established partnerships with multiple third-party delivery providers and have added in-house delivery capability to fulfill larger orders through our team members. Catering Offerings. Our catering offerings include buffet-style packages of our ready-to-eat favorites like Italian beef, sausages and meatballs, gourmet salads, pastas and whole cakes.
Our catering offerings include buffet-style packages of our ready-to-eat favorites like Italian beef, sausages and meatballs, gourmet salads, pastas and whole cakes. We also sell “Take & Make” offerings – a series of catering items and packages designed for convenient, at-home preparation by our guests.
We believe this purposeful enhancement drives increased guest frequency and reinforces our everyday value proposition that is key to our success. • Increase Brand Awareness Through Non-Traditional and Social Marketing. We do not rely on mass media advertising or promotion to drive traffic to our restaurants.
We believe this purposeful innovation drives increased guest frequency and reinforces the everyday value proposition that is key to our success. Moving forward, we will continue to consider menu enhancements to re-invigorate our core guests while drawing in new guests. • Drive Brand Awareness and Trial Through Marketing.
In June 2020, we started the “Heart of Portillo’s Fund,” an IRC section 501(c)(3) charitable fund, within the Portillo’s organization that raised over $350,000 to provide emergency assistance to team members in need in 2022 .
In 2023, the “Heart of Portillo’s Fund,” an IRC section 501(c)(3) charitable fund raised over $300,000 to provide emergency assistance to team members. In 2023, the fund awarded over 60 grants and has provided support to team members for expenses following illness or injury, the unexpected death of a family member and other financial hardships.
In addition, we engage directly with manufacturers to ensure compliance with negotiated contract pricing and requisite volume expectations. Our distribution network is comprised of several independently operated partners aligned under the UniPro umbrella, the largest food service distribution cooperative in the United States.
Suppliers and distribution partners are managed under both a code of conduct and a pricing protocol that provides transparent insight to costing mechanisms. In addition, we engage directly with manufacturers to ensure compliance with negotiated contract pricing and requisite volume expectations. Distribution.
As of December 25, 2022, we owned and operated 72 restaurants across nine states, including a restaurant owned by C&O Chicago, L.L.C. ("C&O") of which we own 50% of the equity . Our Story We relish the opportunity to create lifelong memories by igniting the senses with unrivaled food and experiences.
For a more in-depth discussion of such risks, see Item 1A, "Risk Factors." As of December 31, 2023, we owned and operated 84 restaurants across 10 states, including a restaurant owned by C&O Chicago, L.L.C. ("C&O") of which we own 50% of the equity .
Our relentless focus on operational excellence enables us to drive significant throughput in our restaurants, provide a one-of-a-kind experience and a compelling everyday value proposition to our guests and thereby drive increased customer trial and frequency. • Purposeful Menu Enhancements . We are constantly studying ways to further enhance our existing offerings while thoughtfully adding new high-quality items.
Our teams consistently monitor price points across the many segments and occasions that are relevant to our guests. We will continue our price laggard strategy combined with a focus on operational excellence to succeed moving forward. • Purposeful Menu Enhancements . We are constantly studying ways to further enhance our existing offerings while thoughtfully adding new high-quality items.
Our team members reflected that they know what is expected of them at work and strongly agree they have what they need to do their jobs. These are both foundational to an individual’s engagement and success. We will conduct this survey annually to measure improvement and areas of focus.
In 2023, our engagement score continued to improve with statistical significance while the restaurant industry remained flat. Our engagement results for multi-unit and general managers continue to be top quartile. Our team members reflected that they know what is expected of them at work and strongly agree they have what they need to do their jobs.
In 2022, Portillo’s was selected by QSR Magazine as one of the Best Brands to Work For. In addition, we received a Best in Biz Award in the 'Best Place to Work' category. We believe this is attributed to our conviction that our People are the Heart of Portillo’s.
We have implemented and are executing several initiatives to support our objectives to attract, develop and retain team members. Values-Driven, People-Centered Culture . In 2023, Portillo’s was selected for the second year in a row by QSR Magazine as one of the Best Brands to Work For.
We have been perfecting our menu for over 50 years, and we are constantly seeking ways to further enhance the quality and selection of our offerings. Our Menu. Our menu features unrivaled Chicago-style street food and all-American favorites. With something for everyone, our expansive menu creates a “veto-proof” proposition and drives a broad set of consumer occasions. Menu Innovation.
Our made-to-order food is prepared with fresh, high-quality ingredients, and our commitment to quality can be seen in every item on the menu. We have been perfecting our menu for 60 years, and we are constantly seeking ways to further enhance the quality and desirability of our offerings. Menu Innovation.
We also have 73 hourly team members and 12 managers and above at our commissaries. Our team members are not covered by any collective bargaining agreements. Our executives have extensive experience in the restaurant industry.
Our restaurant team members are not covered by any collective bargaining agreements. On April 13, 2023, certain of our team members at one of our commissaries voted in favor of being represented by a union.
In 2022, we also leveraged our training lead program to provide a dedicated team member in each restaurant to oversee station and new initiative training. Engagement & Experience. We believe in our team members having a voice to share their ideas, feedback and contribute to organizational success.
We believe in our team members having a voice to share their ideas, feedback and contribute to organizational success. We continue to partner with Gallup to implement our EverEngaged survey to gather, listen to and act on team member feedback. We conduct this survey annually to measure improvement and areas of focus.
Removed
The Company received aggregate net proceeds of approximately $430.0 million after deducting underwriting discounts and commissions of $29.1 million and other offering expenses of approximately $7.1 million .
Added
Our business, including many of the elements described below, is subject to certain risks that may materially and adversely affect our ability to achieve our desired outcomes.
Removed
In connection with the IPO, we completed the following: • We amended and restated the limited liability company agreement of Portillo’s OpCo ("Amended LLC Agreement") to, among other things, convert all outstanding equity interests (except for those redeemable preferred units which were redeemed in connection with the IPO) into LLC Units. • We became the sole managing member of Portillo's OpCo.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur i ndebtedness could have significant effects on our business, such as: • limiting our ability to borrow additional amounts to fund capital expenditures, acquisitions, debt service requirements, execution of our growth strategy and other purposes; • limiting our ability to make investments, including acquisitions, loans and advances, and to sell, transfer or otherwise dispose of assets; • requiring us to dedicate a substantial portion of our cash flow from operations to pay principal and interest on our borrowings, which would reduce availability of our cash flow to fund working capital, capital expenditures, acquisitions, execution of our growth strategy and other general corporate purposes; • making us more vulnerable to adverse changes in general economic, industry and competitive conditions, in government regulation and in our business by limiting our ability to plan for and react to changing conditions; • placing us at a competitive disadvantage compared with our competitors that have less debt; and Portillo's Inc.
Biggest changeOur indebtedness could have significant effects on our business, such as (i) requiring us to dedicate a substantial portion of our cash flow to repay borrowings, reducing cash flow available to fund working capital, capital expenditures, acquisitions, our growth strategy and other general corporate purposes; (ii) limiting our ability to finance capital expenditures, acquisitions, debt service requirements, our growth strategy and other projects; (iii) limiting our ability to make investments, including acquisitions, loans and advances, and to sell, transfer or otherwise dispose of assets; (iv) making us more vulnerable to adverse changes in general economic, industry and competitive conditions, in government regulation and in our business by limiting our ability to plan for and react to changing conditions; (v) placing us at a disadvantage compared with our competitors that have less debt; and (vi) exposing us to risks inherent in interest rate fluctuations, including higher interest rate expense, because our borrowings are at variable interest rates.
Under the Tax Receivable Agreement, we are required to make cash payments to certain of our pre-IPO LLC Members (the "TRA Parties") equal to 85% of the tax benefits, if any, that we actually realize, or in certain circumstances are deemed to realize, as a result of (i) our allocable share of existing tax basis in depreciable or amortizable assets related to LLC Units acquired in our IPO, (ii) certain favorable tax attributes we acquired from entities treated as corporations for U.S. tax purposes that held LLC Units prior to the Transactions ("Blocker Companies") (including net operating losses and the Blocker Companies’ allocable share of existing tax basis), (iii) increases in our then allocable share of existing tax basis in depreciable or amortizable assets, and adjustments to the tax basis of the tangible and intangible assets, of Portillo’s OpCo and its subsidiaries, as a result of (x) sales or exchanges of interests in Portillo’s OpCo (including repayment of the redeemable preferred units) in connection with our IPO and (y) future exchanges of LLC Units by pre-IPO LLC Members for Class A common stock and (iv) certain other tax benefits related to entering into the Tax Receivable Agreement, including payments made under the Tax Receivable Agreement.
Under the Tax Receivable Agreement, we are required to make cash payments to certain of our pre-IPO LLC Members (the "TRA Parties") equal to 85% of the income tax benefits, if any, that we actually realize, or in certain circumstances are deemed to realize, as a result of (i) our allocable share of existing tax basis in depreciable or amortizable assets related to LLC Units acquired in our IPO, (ii) certain favorable tax attributes we acquired from entities treated as corporations for U.S. tax purposes that held LLC Units prior to the Transactions ("Blocker Companies") (including net operating losses and the Blocker Companies’ allocable share of existing tax basis), (iii) increases in our then allocable share of existing tax basis in depreciable or amortizable assets, and adjustments to the tax basis of the tangible and intangible assets, of Portillo’s OpCo and its subsidiaries, as a result of (x) sales or exchanges of interests in Portillo’s OpCo (including repayment of the redeemable preferred units) in connection with our IPO and (y) future exchanges of LLC Units by pre-IPO LLC Members for Class A common stock and (iv) certain other tax benefits related to entering into the Tax Receivable Agreement, including payments made under the Tax Receivable Agreement.
Under the Amended LLC Agreement, Portillo’s OpCo will generally be required from time to time to make pro rata distributions in cash to us and the other holders of LLC Units at certain assumed tax rates in amounts that are intended to be sufficient to cover the income taxes payable on our and the other LLC Unit holders’ respective allocable shares of the taxable income of Portillo’s OpCo.
Under the Amended LLC Agreement, Portillo’s OpCo will be required from time to time to make pro rata distributions in cash to us and the other holders of LLC Units at certain assumed income tax rates in amounts that are intended to be sufficient to cover the income taxes payable on our and the other LLC Unit holders’ respective allocable shares of the taxable income of Portillo’s OpCo.
Further, new or revised tax legislation may be enacted in the future, which could negatively impact our current or future tax structure and effective tax rates. Our insurance may not provide adequate levels of coverage against claims. We believe that we maintain insurance customary for businesses of our size and type.
Further, new or revised tax legislation may be enacted in the future, which could negatively impact our current or future tax structure and effective tax rates. Our insurance may not provide adequate levels of coverage against claims. We believe that we maintain insurance customary and appropriate for businesses of our size and type.
The amount of existing tax basis and anticipated tax basis adjustments and utilization of tax attributes, as well as the amount and timing of any payments under the Tax Receivable Agreement, will vary depending upon a number of factors, including the timing of redemptions or exchanges by the pre-IPO LLC Members, the price of shares of our Class A common stock at the time of the redemptions or exchanges, the extent to which such redemptions or exchanges are taxable, the amount of gain recognized by such holders of LLC Units, the amount and timing of the taxable income allocated to us or otherwise generated by us in the future, the portion of our payments under the Tax Receivable Agreement constituting imputed interest and the federal and state tax rates then applicable.
The amount of existing tax basis and anticipated tax basis adjustments and utilization of tax attributes, and the amount and timing of any payments under the Tax Receivable Agreement, will vary depending upon a number of factors, including the timing of redemptions or exchanges by the pre-IPO LLC Members, the price of shares of our Class A common stock at the time of the redemptions or exchanges, the extent to which such redemptions or exchanges are taxable, the amount of gain recognized by such holders of LLC Units, the amount and timing of the taxable income allocated to us or otherwise generated by us in the future, the portion of our payments under the Tax Receivable Agreement constituting imputed interest and the federal and state tax rates then applicable.
In addition, Berkshire may have an interest in pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance its investment in us, even though such transactions might involve risks to you, such as debt-financed acquisitions.
In addition, Berkshire may have an interest in pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance its investment in us, even though such transactions might involve risks to us, such as debt-financed acquisitions.
Additionally, the Federal Trade Commission (the “FTC”) and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination and security of data.
Additionally, the Federal Trade Commission and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination and security of data.
The accelerated payments required in such circumstances will be calculated by reference to the present value (at a discount rate equal to the lesser of (i) 6.5% per annum and (ii) one year LIBOR (or its successor rate) plus 100 basis points) of all future payments that holders of LLC Units or other recipients would have been entitled to receive under the Tax Receivable Agreement, and such accelerated payments and any other future payments under the Tax Receivable Agreement will utilize certain valuation assumptions, including an assumption that we would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the Tax Receivable Agreement.
Such accelerated payments will be calculated by reference to the present value (at a discount rate equal to the lesser of (i) 6.5% per annum and (ii) one year LIBOR (or its successor rate) plus 100 basis points) of all future payments that holders of LLC Units or other recipients would have been entitled to receive under the Tax Receivable Agreement, and such accelerated payments and any other future payments under the Tax Receivable Agreement will utilize certain valuation assumptions, including an assumption that we would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the Tax Receivable Agreement.
Changes to estimates related to our property, fixtures and equipment and definite-lived intangible assets or operating results that are lower than our current estimates at certain restaurant locations may cause us to incur impairment charges or accelerate the amortization on certain long-lived assets, which could have a material adverse impact on our results of operations. Portillo's Inc.
Changes to estimates related to our property, fixtures and equipment and definite-lived intangible assets or operating results that are lower than our current estimates at certain restaurant locations may cause us to incur impairment charges or accelerate the amortization on certain long-lived assets, which could have a material adverse impact on our results of operations.
The development and operation of our restaurants depend, to a significant extent, on the selection of suitable sites, which are subject to zoning, land use, environmental, traffic and other regulations and requirements. We are also subject to licensing and regulation by state and local authorities relating to health, sanitation, safety and fire standards. Portillo's Inc.
The development and operation of our restaurants depend, to a significant extent, on the selection of suitable sites, which are subject to zoning, land use, environmental, traffic and other regulations and requirements. We are also subject to licensing and regulation by state and local authorities relating to health, sanitation, safety and fire standards.
Significant additional government regulations and new laws, including mandated increases in minimum wages, changes in exempt and non-exempt status, or increased mandated benefits such as health care and insurance costs could have a material adverse effect on our business, financial condition and results of operations.
Significant additional government regulations and new laws, including mandated increases in minimum wages, changes in exempt and non-exempt status, paid leave, or increased mandated benefits such as health care and insurance costs could have a material adverse effect on our business, financial condition and results of operations.
Our marketing programs and any limited time or seasonal offerings may not be successful and could fail to meet expectations, and our new menu items, advertising campaigns, heavy reliance on social media and restaurant designs and remodels may not generate increased sales or profits.
Our marketing programs and any limited time or seasonal offerings may be unsuccessful and could fail to meet expectations, and our new menu items, advertising campaigns, heavy reliance on social media and restaurant designs and remodels may not generate increased sales or profits.
The Tax Receivable Agreement provides that upon a “Change of Control” under the Tax Receivable Agreement (which is defined to include, among other things, a 50% change in control of Portillo’s Inc., the approval of a complete plan of liquidation or dissolution of Portillo’s Inc., the disposition of all or substantially all of Portillo’s Inc.’s direct or indirect assets or a change of a majority of the Board of Directors without approval of at least two-thirds majority of the then-existing Board members), upon a breach of any of our material obligations under the Tax Receivable Agreement or if, at any time, we elect an early termination of the Tax Receivable Agreement, then our obligations, or our successor’s obligations, under the Tax Receivable Agreement to make payments will accelerate.
The Tax Receivable Agreement provides that upon a “Change of Control” (which is defined to include, among other things, a 50% change in control of Portillo’s Inc., the approval of a complete plan of liquidation or dissolution of Portillo’s Inc., the disposition of all or substantially all of Portillo’s Inc.’s direct or indirect assets or a change of a majority of the Board of Directors without approval of at least two-thirds majority of the then-existing Board members), upon a breach of any of our material obligations under the Tax Receivable Agreement or if, at any time, we elect an early termination of the Tax Receivable Agreement, then our payment obligations under the Tax Receivable Agreement will accelerate.
We will not be reimbursed for any payments made to the TRA Parties under the Tax Receivable Agreement in the event that any tax benefits are disallowed. Payments under the Tax Receivable Agreement will be based on the tax reporting positions that we determine, and the U.S.
We will not be reimbursed for any payments made to the TRA Parties under the Tax Receivable Agreement in the event that any tax benefits are disallowed. Payments under the Tax Receivable Agreement will be based on our tax reporting positions, and the U.S.
General Risks Fluctuations in our tax obligations, and effective tax rate and realization of our deferred tax assets may result in volatility of our results of operations. We are subject to income taxes in various U.S. jurisdictions.
General Risks Fluctuations in our tax obligations, effective tax rate, and realization of our deferred tax assets may result in volatility of our results of operations. We are subject to income taxes in U.S. federal and various state tax jurisdictions.
We may be adversely affected by negative publicity relating to food quality, the safety, sanitation and welfare of our restaurant facilities, guest complaints or litigation alleging illness or injury, health inspection scores, integrity of our suppliers’ food processing and other policies, practices and procedures, team member relationships and welfare or other matters at one or more of our restaurants.
We may be adversely affected by negative publicity relating to food quality, the safety, sanitation and welfare of our restaurant facilities, guest complaints or litigation, health inspection scores, integrity of our suppliers’ food processing and other policies, practices and procedures, team member relationships and welfare or other matters at one or more of our restaurants.
The impact of current laws and regulations, the effect of future changes in laws or regulations that impose additional requirements and the consequences of litigation relating to current or future laws and regulations, or our inability to respond effectively to significant regulatory or public policy issues, could increase our compliance and other costs of doing business and could have a material adverse effect on our business, financial condition and results of operations.
The impact of current laws and regulations, the effect of future changes in laws or regulations that impose additional requirements and the consequences of litigation relating to current or future laws and regulations, or our inability to respond effectively to significant regulatory or public policy issues, could increase our compliance and other costs of doing business and could have a material adverse effect on our Results.
See "Risks Related to Our Indebtedness" above. In certain circumstances, Portillo’s OpCo will be required to make distributions to us and the other holders of LLC Units, and the distributions that Portillo’s OpCo will be required to make may be substantial.
See "Risks Related to Our Indebtedness" above. In certain circumstances, Portillo’s OpCo will be required to make distributions to us and the other holders of LLC Units, and those distributions may be substantial.
In addition, our reputation as a brand or as an employer could be adversely affected, which could impair our ability to attract and retain qualified employees. Failure to comply with existing and new federal and state laws and regulations relating to privacy, data protection, advertising and consumer protection, could have a material adverse effect.
Our reputation as a brand or as an employer could be adversely affected, which could impair our ability to attract and retain guests and qualified employees. Failure to comply with existing and new federal and state laws and regulations relating to privacy, data protection, advertising and consumer protection, could have a material adverse effect.
Additionally, a significant theft, loss or misappropriation of, or unauthorized access to, our guests’ data or other proprietary data could result in fines, legal claims or proceedings, regulatory investigations and actions, or liability for failure to comply with privacy and information security laws, which could disrupt our operations, damage our reputation and expose us to claims from guests and team members, any of which could have a material adverse effect on our business, financial condition and results of operations.
A significant theft, loss or misappropriation of, or unauthorized access to, our guests’ data or other proprietary data could result in fines, legal claims or proceedings, regulatory investigations and actions, or liability for failure to comply with privacy and information security laws, which could disrupt our operations, damage our reputation and expose us to claims from guests and team members, any of which could have a material adverse effect on our Results.
A change in these principles or interpretations could have a significant effect on our financial condition and results of operations, and could affect the reporting of transactions completed before the implementation of a change. Portillo's Inc.
A change in these principles or interpretations could have a significant effect on our financial condition and results of operations, and could affect the reporting of transactions completed before the implementation of a change.
If the outcome of any such challenge would reasonably be expected to materially affect a recipient’s payments under the Tax Receivable Agreement, then we will not be permitted to settle or fail to contest such challenge without the consent (not to be unreasonably withheld or delayed) of certain TRA Parties.
If the outcome of any such challenge would reasonably be expected to materially affect a recipient’s payments under the Tax Receivable Agreement, then we will not be permitted to settle or fail to contest such challenge without the TRA Party’s consent (not to be unreasonably withheld or delayed).
Our chief executive officer has been with us for more than four years and our executive officers have numerous years of experience in the food service industry.
Our chief executive officer has been with us for more than five years and our executive officers have numerous years of experience in the food service industry.
In addition, changes in federal or state workplace regulations could adversely affect our ability to meet our financial targets. Federal law requires that we verify that our workers have the proper documentation and authorization to work in the U.S.
In addition, changes in federal or state workplace regulations could adversely affect our ability to meet our financial targets. Federal law requires that we verify that our team members have the proper documentation and authorization to work in the U.S.
Third parties also may make claims against owners or operators of properties for personal injuries and property damage associated with releases of, or actual or alleged exposure to, such hazardous or toxic substances at, on or from our restaurants. Some of our leases provide for indemnification of our landlords for environmental contamination, clean-up or owner liability.
Third parties also may make claims for personal injuries and property damage associated with releases of, or actual or alleged exposure to, such hazardous or toxic substances at, on or from our restaurants. Some of our leases provide for indemnification of our landlords for environmental contamination, clean-up or owner liability.
Accordingly, the interests of Berkshire may supersede ours, causing them or their affiliates to compete against us or to pursue opportunities instead of us, for which we have no recourse. Such actions on the part of Berkshire and inaction on our part could have a material adverse effect on our business, financial condition and results of operations.
Accordingly, the interests of Berkshire may supersede ours, causing them or their affiliates to compete against us or to pursue opportunities instead of us, for which we have no recourse. Such actions on the part of Berkshire and inaction on our part could have a material adverse effect on our Results.
Accordingly, we will incur income taxes on our allocable share of any taxable income of Portillo’s OpCo. We will also incur expenses related to our operations, and will have obligations to make payments under the Tax Receivable Agreement.
Accordingly, we will incur income taxes on our allocable share of any taxable income of Portillo's OpCo. We will also incur expenses related to our operations, and will have payment obligations under the Tax Receivable Agreement.
Our organizational structure, including the Tax Receivable Agreement, confers certain benefits upon the TRA Parties that will not benefit holders of our Class A common stock to the same extent that it will benefit the TRA Parties.
Our organizational structure, including the Tax Receivable Agreement, confers certain benefits upon the TRA Parties that will not benefit holders of our Class A common stock to the same extent that it will benefit the TRA Parties, including substantial cash payments.
Furthermore, similar negative publicity or occurrences with respect to other restaurants or other restaurant chains could also decrease our guest traffic and have a similar material adverse effect on our business. In addition, incidents of restaurant commentary have increased dramatically with the proliferation of social media platforms.
Furthermore, similar negative publicity or occurrences with respect to other restaurants could also decrease our guest traffic and have a similar material adverse effect on our business. In addition, the volume of restaurant commentary has increased dramatically with the proliferation of social media platforms.
We rely on a variety of marketing and advertising techniques, including email communications, affiliate partnerships, social media interactions, digital marketing, direct mailers, public relations initiatives and local community sponsorships, promotions and partnerships, and we are subject to various laws and regulations that govern such marketing and advertising practices.
We rely on a variety of marketing and advertising channels and strategies, including email communications, affiliate partnerships, social media interactions, digital marketing, direct mailers, public relations initiatives and local community sponsorships, promotions and partnerships, and we are subject to various laws and regulations that govern such practices and activities.
Our restaurant support center, restaurant locations, suppliers and distributors, and their respective facilities, as well as certain of our vendors and customers, are located in areas that have been and could be subject to natural disasters such as floods, drought, hurricanes, tornadoes, fires or earthquakes.
Our restaurant support center, restaurants, and their respective facilities, as well as certain of our vendors and customers, are located in areas that have been and could be subject to natural disasters such as floods, drought, hurricanes, tornadoes, fires or earthquakes.
Form 10-K | 25 Table of Contents Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions that may be initiated by our shareholders, and designates the federal district courts of the United States as the sole and exclusive forum for claims arising under the Securities Act, which, in each case could limit our shareholders’ ability to obtain a favorable judicial forum for certain disputes.
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions that may be initiated by our shareholders, and designates the federal district courts of the United States as the sole and exclusive forum for claims arising under the Securities Act, which, in each case could limit our shareholders’ ability to obtain a favorable judicial forum for certain disputes.
Further, if we enter into a new market with unionized construction companies, or the construction companies in our current markets become unionized, construction and build-out costs for new restaurants in such markets could materially increase. Labor quality, labor shortages or increased labor costs could have a material adverse effect on our business, financial condition and results of operations.
Further, if we enter into a new market with unionized construction companies, or the construction companies in our current markets become unionized, construction and build-out costs for new restaurants in such markets could materially increase. Labor quality, labor shortages or increased labor costs could have a material adverse effect on our Results.
If a significant number of our team members were to become unionized and collective bargaining agreement terms were significantly different from our current compensation arrangements, it could have a material adverse effect on our business, financial condition and results of operations.
If a significant number of our team members were to become unionized and collective bargaining agreement terms were significantly different from our current compensation arrangements, it could have a material adverse effect on our Results.
As we continue to grow, we may find it difficult to maintain the innovation, teamwork, passion and focus on execution that we believe are important aspects of our corporate culture. Any failure to preserve our culture could negatively impact our operations, including our ability to retain and recruit personnel and to effectively focus on and pursue our corporate objectives.
As we continue to grow, it may be difficult to maintain the innovation, teamwork, passion and focus on execution that are important to our culture. Any failure to preserve our culture could negatively impact our operations, including our ability to retain and recruit personnel and to effectively focus on and pursue our corporate objectives.
Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time and money away from our operations and result in increases in our insurance premiums. In addition, they may generate negative publicity, which could reduce guest traffic and sales.
Whether or not claims against us are valid or whether we are found liable, claims may be expensive to defend and may divert time and money away from our operations and result in increases in our insurance premiums. In addition, they may generate negative publicity, which could reduce guest traffic and sales.
We may be unable to increase our menu prices in order to pass future increased labor costs on to our guests, in which case our operating margins would be negatively affected. If menu prices are increased by us to cover increased labor costs, the higher prices could adversely affect demand for our menu items, resulting in lower sales. Portillo's Inc.
We may be unable to increase our menu prices in order to pass future increased labor costs on to our guests, in which case our operating margins would be negatively affected. If we increase menu prices to cover increased labor costs, the higher prices could adversely affect demand for our menu items, resulting in lower sales.
If we cannot maintain our corporate culture as we grow, it could have a material adverse effect on our business, financial condition and results of operations. Matters relating to employment and labor law could have a material adverse effect, result in litigation or union activities, add significant costs and divert management attention.
If we cannot maintain our corporate culture as we grow, it could have a material adverse effect on our Results. Matters relating to employment and labor law could have a material adverse effect, result in litigation or union activities, add significant costs and divert management attention.
In certain cases, payments under the Tax Receivable Agreement to the TRA Parties may be accelerated or significantly exceed any actual benefits we realize in respect of the tax attributes subject to the Tax Receivable Agreement may impair our ability to consummate change of control transactions or negatively impact the value received by owners of our Class A common stock.
Form 10-K | 10 Table of Contents In certain cases, payments under the Tax Receivable Agreement to the TRA Parties may be accelerated or significantly exceed any actual benefits we realize in respect of the tax attributes subject to the Tax Receivable Agreement and may impair our ability to consummate change of control transactions or negatively impact the value received by owners of our Class A common stock.
In particular, under applicable environmental laws, we may be responsible for remediation of environmental conditions and may be subject to associated liabilities, including liabilities for clean-up costs and personal injury or property damage, relating to our restaurants and the land on which our restaurants are located, regardless of whether such environmental conditions were created by us or by a prior owner or tenant.
In particular, under applicable environmental laws, we may be responsible for remediation of environmental conditions and may be subject to associated liabilities, including liabilities for clean-up costs and personal injury or property damage, relating to our restaurants and the land on which our restaurants are located, regardless of whether such environmental conditions were created by us or another party.
Additionally, some providers of consumer devices and web browsers have implemented, or announced plans to implement, means to make it easier for Internet users to prevent the placement of cookies or to block other tracking technologies, which could if widely adopted result in the use of third-party cookies and other methods of online tracking becoming significantly less effective.
Additionally, some device manufacturers and web browsers have implemented, or announced plans to implement, means to make it easier for Internet users to prevent the placement of cookies or to block other tracking technologies, which, if widely adopted, could result in third-party cookies and other online tracking methods becoming significantly less effective.
Our amended and restated certificate of incorporation provides that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware (or if the Court of Chancery lacks jurisdiction, a state court located within the State of Delaware or the federal district court for the District of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for any (a) derivative action or proceeding brought on our behalf; (b) action asserting a claim of breach of a fiduciary duty owed by or other wrongdoing by any current or former director, officer, employee, agent or shareholder to us or our shareholders ; (c) action asserting a claim arising under any provision of the DGCL or our amended and restated certificate of incorporation or amended and restated bylaws (as either may be amended from time to time), or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware; or (d) action asserting a claim governed by the internal affairs doctrine.
Our current certificate of incorporation provides that, absent our written consent, the Court of Chancery of the State of Delaware (or if the Court of Chancery lacks jurisdiction, a state court located within the State of Delaware or the federal district court for the District of Delaware) shall, to the fullest extent permitted by law, be the exclusive forum for any (a) derivative action or proceeding brought on our behalf; (b) action asserting a claim of breach of a fiduciary duty owed by or other wrongdoing by any current or former director, officer, employee, agent or shareholder to us or our shareholders; (c) action asserting a claim arising under any provision of the Delaware General Corporate Law ("DGCL") or our amended and restated certificate of incorporation or amended and restated bylaws (as either may be amended from time to time), or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware; or (d) action asserting a claim governed by the internal affairs doctrine.
Our systems, which in some cases rely on third-party providers, may experience service interruptions, degradation or other performance problems because of hardware and software defects or malfunctions, distributed denial-of-service and other cyber-attacks, infrastructure changes, human error, earthquakes, hurricanes, floods, fires, natural disasters, power losses, disruptions in telecommunications services, fraud, military or political conflicts, terrorist attacks, computer viruses, ransomware, malware, or other events.
Our information technology systems, which in some cases rely on third-party providers, have in the past, and may in the future experience service interruptions, degradation or other performance problems because of hardware and software defects or malfunctions, distributed denial-of-service and other cyberattacks, infrastructure changes, human error, earthquakes, hurricanes, floods, fires, natural disasters, power losses, disruptions in telecommunications services, fraud, military or political conflicts, terrorist attacks, computer viruses, ransomware, malware, or other events.
We may not be able to refinance our debt or sell additional debt or equity securities or our assets on favorable terms, if at all, and if we must sell our assets, it may negatively affect our financial condition and results of operations.
We may not be able to refinance our debt or sell additional debt or equity securities or our assets on favorable terms, if at all, and if we must sell our assets, it may negatively affect our Results.
Failure to comply with the laws and regulatory requirements of federal, state and local authorities could result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability. In addition, many applicable laws could require us to expend significant funds to make modifications to our restaurants or operations to comply with such laws.
Failure to comply with the laws and regulatory requirements of federal, state and local authorities could result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability. Other applicable laws could require us to make costly modifications to our restaurants or operations to comply with such laws.
Form 10-K | 26 Table of Contents Our annual and quarterly results of operations may fluctuate, and if our operating and financial performance in any given period does not meet the guidance that we have provided to the public or the expectations of our investors and securities analysts, the trading price of our Class A common stock may decline.
Our annual and quarterly results of operations may fluctuate, and if our operating and financial performance in any given period does not meet the guidance that we have provided to the public or the expectations of our investors and securities analysts, the trading price of our Class A common stock may decline.
As a result, our accelerated payment obligations and/or the assumptions adopted under the Tax Receivable Agreement in the case of a change of control may impair our ability to consummate change of control transactions or negatively impact the value received by owners of our Class A common stock in a change of control transaction.
As a result, our accelerated payment obligations and/or the assumptions adopted under the Tax Receivable Agreement in the case of a change of control may impair our ability to consummate change of control transactions or negatively impact the value received by owners of our Class A common stock in a change of control transaction, or require us to incur substantial costs to consummate such a transaction.
We may not be able to effectively respond to changes in consumer health perceptions, comply with further nutrient content disclosure requirements or adapt our menu offerings to trends in eating habits, which could have a material adverse effect on our business, financial condition and results of operations.
We may not be able to effectively respond to changes in consumer health perceptions, comply with further nutrient content disclosure requirements or adapt our menu offerings to trends in eating habits, which could have a material adverse effect on our Results.
Form 10-K | 10 Table of Contents We depend on our executive officers and certain other key team members, the loss of whom could have a material adverse effect on our business. We rely upon the accumulated knowledge, skills and experience of our executive officers and certain other key team members.
We depend on our executive officers and certain other key team members, the loss of whom could have a material adverse effect on our business. We rely upon the accumulated knowledge, skills and experience of our executive officers and certain other key team members.
If a court were to find the choice of forum provisions in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could have a material adverse effect on our business, financial condition and results of operations.
If a court were to find the choice of forum provisions in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could have a material adverse effect on our Results.
Portillo’s OpCo is, and will continue to be, treated as a partnership for U.S. federal and applicable state and local income tax purposes and, as such, will generally not be subject to entity-level U.S. federal and applicable state and local income tax. Instead, the taxable income of Portillo’s OpCo will be allocated to holders of LLC Units, including us.
Portillo’s OpCo is, and will continue to be, treated as a partnership for U.S. federal and applicable state and local income tax purposes and, as such, will generally not be subject to applicable federal, state, and local income taxes. Portillo’s OpCo’s taxable income will be allocated to holders of LLC Units, including us.
Any such litigation could result in substantial costs and diversion of resources, could be protracted with no certain of success, or could fail to achieve an adequate remedy. Any of these occurrences could have a material adverse effect on our business, financial condition and results of operations.
Such litigation could result in substantial costs and diversion of resources, could be protracted with no certainty of success, or could fail to achieve an adequate remedy. Any of these occurrences could have a material adverse effect on our Results.
Incidents or reports of food-borne or water-borne illness or other food safety issues, food contamination or tampering, team member hygiene and cleanliness failures or improper team member conduct, guests entering our restaurants while ill and contaminating food ingredients or surfaces at our restaurants could lead to product liability or other claims.
Incidents or reports of food-borne or water-borne illness or other food safety issues, food contamination or tampering, team member hygiene and cleanliness failures, improper team member conduct, or guests spreading illness while at our restaurants could lead to product liability or other claims.
Form 10-K | 11 Table of Contents Our business is subject to the risk of litigation by team members, consumers, suppliers, shareholders or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation. The outcome of litigation, particularly class action and regulatory actions, is difficult to assess or quantify.
Our business is subject to the risk of litigation by team members, consumers, suppliers, shareholders or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation. The outcome of litigation, particularly class action and regulatory actions, is difficult to assess or quantify.
Adverse changes in demographic, unemployment, economic, regulatory or weather conditions in the Midwestern United States have had, and may continue to have, material adverse effects on our business, financial condition and results of operations.
Adverse changes in demographic, unemployment, economic, regulatory or weather conditions in the Midwestern United States have had, and may continue to have, material adverse effects on our Results.
Various federal and state labor laws govern our relationships with our team members and affect our operating costs. Our operations are subject to the U.S. Occupational Safety and Health Act, which governs worker health and safety, the U.S.
Various federal and state labor laws govern our relationships with our team members and affect our operating costs, including the U.S. Occupational Safety and Health Act, which governs worker health and safety, the U.S.
We may also be subject to this type of proceeding in the future and, even if we are not, publicity about these matters (particularly directed at the fast casual or traditional fast food segments of the industry) may harm our reputation and could have a material adverse effect on our business, financial condition and results of operations.
We may also be subject to this type of proceeding in the future and, even if we are not, publicity about these matters (particularly against the fast casual or traditional fast-food segments) may harm our reputation and could have a material adverse effect on our Results.
Incidents involving food-borne illness and food safety could have an adverse effect. Food safety is a top priority, and we dedicate substantial resources to help ensure that our guests enjoy safe, quality food products. However, food-borne illnesses and other food safety issues have occurred in the food industry in the past, and could occur in the future.
Food safety is a top priority and we dedicate substantial resources to help ensure that our guests enjoy safe, quality food products. However, food-borne illnesses and other food safety issues have occurred in the past and could occur in the future.
To the extent that we do not distribute such excess cash as dividends on our Class A common stock or otherwise undertake ameliorative actions between LLC Units and shares of Class A common stock and instead, for example, hold such cash balances, holders of our LLC Units (other than Portillo’s Inc.) may benefit from any value attributable to such cash balances as a result of their ownership of Class A common stock following a redemption or exchange of their LLC Units, notwithstanding that such holders of our LLC Units (other than Portillo’s Inc.) may previously have participated as holders of LLC Units in distributions by Portillo’s OpCo that resulted in such excess cash balances at Portillo’s Inc.
If we do not distribute such excess cash as dividends or otherwise undertake ameliorative actions, holders of our LLC Units (other than Portillo’s Inc.) may benefit from any value attributable to such cash balances as a result of their ownership of Class A common stock following a redemption or exchange of their LLC Units, notwithstanding that such holders of our LLC Units (other than Portillo’s Inc.) may previously have participated as holders of LLC Units in distributions by Portillo’s OpCo that resulted in such excess cash balances at Portillo’s Inc.
In addition, our effective tax rate in a given financial reporting period may be materially impacted by a variety of factors including, but not limited to, changes in the mix and level of earnings, varying tax rates in the different jurisdictions in which we operate, tax effects of equity-based compensation, changes in tax laws, regulations or interpretations thereof, cost related to intercompany restructuring, fluctuations in the valuation allowance or by changes to existing accounting rules or regulations.
Our effective tax rate in a given financial reporting period may be materially impacted by a variety of factors including, changes in the mix and level of earnings, varying jurisdictional tax rates, tax effects of equity-based compensation, changes in tax laws, regulations or interpretations thereof, cost related to intercompany restructuring, fluctuations in the valuation allowance or by changes to existing accounting rules or regulations.
There is no guarantee that our restaurant locations will maintain the high levels of internal controls and training we require at our restaurants and some food-borne illness incidents could be caused by third-party food suppliers, third party food delivery services, guest take out or catered events. Further, in some cases, the risk may affect multiple restaurant locations.
There is no guarantee that our restaurant locations will maintain the high levels of internal controls and training we require. Some food-borne illness incidents could be caused by third-party food suppliers or delivery services or during guest takeout or catered events. The risk may affect multiple restaurant locations.
We must identify target markets where we can enter or expand, and we may not be able to open our planned new restaurants within budget or on a timely basis, and our new restaurants may not perform as well as anticipated.
We may struggle to identify target markets, we may not be able to open our planned new restaurants within budget or on a timely basis, and our new restaurants may not perform as well as anticipated.
Termination of a significant number of team members who are unauthorized employees may disrupt our operations, cause temporary increases in our labor costs as we train new team members and result in adverse publicity.
Termination of a significant number of team members who lack work authorization may disrupt our operations, cause temporary increases in our labor costs as we train new team members and result in adverse publicity.
We are subject to the ADA, which, among other things, requires our restaurants to meet federally mandated requirements for the disabled. The ADA prohibits discrimination in employment and public accommodations on the basis of disability.
We are subject to the Americans with Disabilities Act (the "ADA"), which, among other things, requires our restaurants to meet federally mandated requirements for the disabled. The ADA prohibits discrimination in employment and public accommodations on the basis of disability. Under the Portillo's Inc.
We will not be reimbursed for any cash payments previously made to the TRA Parties under the Tax Receivable Agreement in the event that any tax benefits initially claimed by us and for which payment has been made to a TRA Party are subsequently challenged by a taxing authority and are ultimately disallowed.
We will not be reimbursed for any cash payments previously made to the TRA Parties under the Tax Receivable Agreement if any tax benefits initially claimed by us and for which payment has been made to a TRA Party are ultimately disallowed.
Should the value of goodwill or other indefinite-lived intangible assets become impaired in the future, any impairment could have a material adverse effect on our financial condition and results of operations. See Note 6. Goodwill & Intangible Assets in the notes to the consolidated financial statements for additional information.
We cannot accurately predict the amount and timing of any impairment. Should the value of goodwill or other indefinite-lived intangible assets become impaired in the future, such impairment could have a material adverse effect on our Results. See Note 6. Goodwill & Intangible Assets in the notes to the consolidated financial statements for additional information.
We currently participate in the “E-Verify” program, an Internet-based, free program run by the U.S. government to verify employment eligibility, in Arizona, which is the only state in which we operate where participation is required.
We currently participate in the “E-Verify” program, an Internet-based, free program run by the U.S. government to verify employment eligibility, in Arizona and Florida, which are the only states in which we operate where participation is required. Portillo's Inc.
If we fail to maintain effective internal controls over financial reporting, or if our internal controls are not effective, our ability to produce timely and accurate financial information or comply with Section 404 of the Sarbanes-Oxley Act of 2002 could be impaired, which could have a material adverse effect.
If we fail to maintain effective internal controls over financial reporting, or if our internal controls are ineffective, our ability to produce timely and accurate financial information or comply with Section 404 of the Sarbanes-Oxley Act of 2002 could be impaired.
Difficulties or failure to maintain or obtain the required licenses, permits and approvals could adversely affect our existing restaurants and delay or result in our decision to cancel the opening of new restaurants, which could have a material adverse effect on our business, financial condition and results of operations.
Difficulties or failure to obtain or maintain the required licenses, permits and approvals could adversely affect our existing restaurants and delay or result in our decision to cancel new restaurant openings, which could have a material adverse effect on our Results.
In the event that we are not able to demonstrate compliance with Section 404, or if our internal control over financial reporting is perceived as inadequate or it is perceived that we are unable to produce timely or accurate consolidated financial statements, investors may lose confidence in our results of operations, the price of our Class A common stock could decline, we could become subject to investigations by the stock exchange on which our Class A common stock is listed, the SEC or other regulatory agencies, which could require additional financial and management resources, or our Class A common stock may not be able to remain listed on such exchange.
If we are not able to demonstrate Section 404 compliance, or if our internal control over financial reporting is perceived as inadequate or it is perceived that we are unable to produce timely or accurate consolidated financial statements, investors may lose confidence in our business, the price of our Class A common stock could decline, we could become subject to investigations by the Nasdaq, the SEC or other regulatory agencies, or our Class A common stock may not be able to remain listed on the Nasdaq.
For example, failure to protect or enforce our trademarks, whether in print, on the Internet or through social media or other media, could prevent us from challenging third parties who use trademarks similar to our trademarks and who, as a result, could cause consumer confusion, harm the public perception of our brands, prevent our brands and branded products from achieving and maintaining market acceptance and cause a material adverse effect on our business, financial condition and results of operations.
For example, failure to enforce our trademarks, whether in print, on the Internet or through social media or other media, could prevent us from challenging third parties who use trademarks similar to ours, which may cause consumer confusion, harm the public perception of our brand, prevent our brand and branded products from achieving and maintaining market acceptance and cause a material adverse effect on our Results.
Our restaurant base is geographically concentrated in the Midwestern United States, and we could be negatively affected by conditions specific to that region. Our restaurants in the Midwestern United States represented approximately 86% of our restaurants as of December 25, 2022. Our restaurants in the Chicagoland area represented approximately 54% of our restaurants as of December 25, 2022.
Our restaurant base is geographically concentrated in the Midwestern United States, and we could be negatively affected by conditions specific to that region. Our restaurants in the Midwestern United States represented approximately 77% of our restaurants as of December 31, 2023. Our restaurants in the Chicagoland area represented approximately 49% of our restaurants as of December 31, 2023.
As a result of (i) potential differences in the amount of taxable income allocable to us and the other LLC Unit holders, (ii) the lower tax rate applicable to corporations than individuals and (iii) the use of an assumed tax rate (based on the tax rate applicable to individuals) in calculating Portillo’s OpCo distribution obligations, we may receive tax distributions significantly in excess of our tax liabilities and obligations to make payments under the Tax Receivable Agreement.
Given (i) potential differences in taxable income allocable to us and the other LLC Unit holders, (ii) the lower income tax rate applicable to corporations than individuals and (iii) the use of an assumed income tax rate, we may receive tax distributions significantly in excess of our income tax liabilities and obligations to make payments under the Tax Receivable Agreement.
Should our competitors increase spending on marketing and advertising and other initiatives or our marketing expenditures decrease for any reason, or should our advertising, promotions, and restaurant designs and locations be less effective than our competitors, it could have a material adverse effect on our business, financial condition and results of operations.
Should our competitors increase spending on marketing and other initiatives or our marketing expenditures decrease, or our advertising, promotions, and restaurant designs and locations be less effective than our competitors, it could have a material adverse effect on our Results .
Any failure, or perceived failure, by us to comply with our privacy policies, our contractual commitments or any federal or state privacy or consumer protection-related laws, regulations, industry self-regulatory principles, industry standards or codes of conduct, regulatory guidance, orders to which we may be subject or other legal obligations relating to privacy or consumer protection could adversely affect our reputation, brand and business, and may result in claims, proceedings or actions against us by governmental entities, customers, suppliers or others or other liabilities or may require us to change our operations and/or cease using certain data sets.
Any failure, real or perceived, by us to comply with our privacy policies, contractual commitments, or any federal or state privacy or consumer protection-related laws, regulations, industry self-regulatory principles, industry standards or codes of conduct, regulatory guidance, orders or other legal obligations relating to privacy or consumer protection could adversely affect our reputation, brand and business, and may result in claims, proceedings or actions against us or may require us to change our practices or stop using certain data sets.
Additionally, to the extent that we need funds and Portillo’s OpCo is restricted from making such distributions to us under applicable law or regulation, as a result of covenants in its debt agreements or otherwise, we may not be able to obtain such funds on terms acceptable to us, or at all, which could have a material adverse effect on our liquidity and financial condition.
Additionally, if we need funds and Portillo’s OpCo is restricted from making distributions to us under applicable law or regulation, its debt agreements or otherwise, we may be unable to obtain such funds on terms acceptable to us, or at all, which could have a material adverse effect on our liquidity and financial condition.
Form 10-K | 13 Table of Contents Natural disasters, unusual weather conditions, pandemic outbreaks, political events, war and terrorism could disrupt our business and result in lower sales, increased operating costs and capital expenditures.
Natural disasters, unusual weather conditions, pandemic outbreaks, political events, war and terrorism could disrupt our business and result in lower sales, increased operating costs and capital expenditures.
There can be no assurance that all the steps we have taken to maintain and protect our intellectual property in the United States will be adequate or will permit us to obtain or maintain any competitive advantage.
There can be no assurance that the steps we have taken to protect our IP in the United States will be adequate or will obtain or maintain any competitive advantage.
Additionally, our suppliers may initiate or otherwise be subject to food recalls that may impact the availability of certain products, result in adverse publicity or require us to take actions that could be costly for us or otherwise impact our business.
Additionally, our suppliers may initiate or otherwise be subject to food recalls that impact product availability, result in adverse publicity or require us to take costly actions or otherwise impact our business.
Our systems also may be subject to break-ins, sabotage, theft, and intentional acts of vandalism because of criminal third parties (including state-sponsored organizations with significant financial and technological resources), third parties we do business with or team members. Our reliance on third parties increases our exposure to such risks as we exercise less control over such persons.
Our systems also may be subject to break-ins, sabotage, theft, and intentional acts of vandalism perpetrated by criminal third parties, third parties we do business with or team members. Our reliance on third parties increases our exposure to such risks as we exercise less control over such persons.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeForm 10-K | 27 Table of Contents As of December 25, 2022, we operated 72 restaurants located in the following states: State Number of Restaurants Arizona 4 California 2 Florida 4 Illinois 45 Indiana 8 Iowa 1 Michigan 1 Minnesota 3 Wisconsin 4 Total 72 ITEM 3.
Biggest changeAs of December 31, 2023, we operated 84 restaurants located in the following states: State Number of Restaurants Arizona 7 California 2 Florida 6 Illinois 48 Indiana 8 Iowa 1 Michigan 1 Minnesota 3 Texas 4 Wisconsin 4 Total 84 Portillo's Inc. Form 10-K | 18 ITEM 3.
We do not own any real property and lease all of our properties on which we operate restaurants and commissaries. We also have two non-traditional locations in operation including a food truck and a ghost kitchen in Chicago (small kitchen with no store-front presence, used to fill online orders). Portillo's Inc.
We do not own any real property and lease all of our properties on which we operate restaurants and commissaries. We also have two non-traditional locations in operation including a food truck and a ghost kitchen in Chicago (small kitchen with no store-front presence, used to fill online orders).
ITEM 2. PROPERTIES Our home office is located at 2001 Spring Road, Suite 400, Oak Brook, IL 60523. We lease our home office. Our restaurant footprint consists of 72 Portillo’s restaurants across nine states, including a restaurant owned by C&O, of which Portillo’s owns 50% of the equity. We operate two food production commissaries in Illinois.
ITEM 2. PROPERTIES Our home office is located at 2001 Spring Road, Suite 400, Oak Brook, IL 60523. We lease our home office. Our restaurant footprint consists of 84 Portillo’s restaurants across ten states, including C&O. We operate two food production commissaries in Illinois.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings 28 Item 4. Mine Safety Disclosure 28 Part II Item 5. Market For Registrant's Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities 29 Item 6. [Reserved] 31 Item 7. Management's Discussion And Analysis Of Financial Condition And Results Of Operations 32 Item 7A. Quantitative And Qualitative Disclosures About Market Risk 48 Item 8.
Biggest changeItem 3. Legal Proceedings 19 Item 4. Mine Safety Disclosure 19 Part II Item 5. Market For Registrant's Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities 20 Item 6. [Reserved] 22 Item 7. Management's Discussion And Analysis Of Financial Condition And Results Of Operations 23 Item 7A. Quantitative And Qualitative Disclosures About Market Risk 35 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeForm 10-K | 29 Stock Performance Graph The following graph and table illustrate the total return from October 21, 2021 through December 25, 2022 for (i) our Class A common stock, (ii) the Standard and Poor's 500 Index, and (iii) the Standard and Poor’s Restaurants Index, assuming an investment of $100 on October 21, 2021 of Portillo's Inc. stock or on September 30, 2021 in the indices, including the reinvestment of dividends. 10/21/2021 12/26/2021 4/1/2022 7/1/2022 10/1/2022 12/25/2022 Portillo's Inc. $100.00 $131.75 $82.10 $57.53 $67.66 $59.07 S&P 500 100.00 111.03 105.92 88.87 84.53 90.92 S&P Restaurants 100.00 108.31 93.75 87.32 87.58 99.35 *$100 invested on 10/21/21 in Portillo's Inc. stock or 9/30/21 in indices, including reinvestment of dividends.
Biggest changeForm 10-K | 20 Stock Performance Graph The following graph and table illustrate the total return from October 21, 2021 through December 31, 2023 for (i) our Class A common stock, (ii) the Standard and Poor's 500 Index, (iii) the Standard and Poor’s 500 Restaurants Index, and (iv) the Standard and Poor's 600 Restaurant Index assuming an investment of $100 on October 21, 2021 of Portillo's Inc. stock or on September 30, 2021 in the indices, including the reinvestment of dividends.
As of February 23, 2023, there were 14 shareholders of record of our Class B common stock. Dividend Policy No dividends have been declared or paid on our shares of common stock. We do not anticipate paying any cash dividends on any of our shares of common stock in the foreseeable future.
As of February 20, 2024, there were 13 shareholders of record of our Class B common stock. Dividend Policy No dividends have been declared or paid on our shares of common stock. We do not anticipate paying any cash dividends on any of our shares of common stock in the foreseeable future.
Holders of Record As of February 23, 2023, there were approximately 30 shareholders of record of our Class A common stock. The number of record holders does not include persons who held shares of our Class A common stock in nominee or "street name" accounts through brokers.
Holders of Record As of February 20, 2024, there were approximately 36 shareholders of record of our Class A common stock. The number of record holders does not include persons who held shares of our Class A common stock in nominee or "street name" accounts through brokers.
Indices calculated on month-end basis. Source Data: Research Data Group Inc. Portillo's Inc.
Indices calculated on month-end basis. Source Data: Research Data Group Inc. Portillo's Inc. Form 10-K | 21 Recent Sale of Unregistered Securities and Use of Proceeds from Registered Securities None. Issuer Purchases of Equity Securities None.
Removed
Securities Authorized for Issuance under Equity Incentive Plans See Part III, Item 12 "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" below. Portillo's Inc.
Added
Securities Authorized for Issuance under Equity Incentive Plans The following table provides information about our compensation plans under which our Class A common stock is authorized for issuance, as of December 31, 2023: Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) Weighted-average exercise price of outstanding options, warrants and rights (2) Number of securities remaining available for future issuances under equity compensation plans (3) Equity compensation plans approved by security holders 7,609,420 $ 8.60 4,255,789 (1) Includes shares issuable pursuant to stock options, restricted stock units, restricted stock awards, stock appreciation rights and other stock-based awards under the Company's 2021 Plan.
Removed
Form 10-K | 30 Recent Sale of Unregistered Securities and Use of Proceeds from Registered Securities In the third quarter of 2022, the Company completed a secondary offering of 8,066,458 shares of the Company's Class A common stock at an offering price of $23.75 per share ("Q3 Secondary Offering").
Added
Represents shares under the 2021 Plan, including 5,261,663 shares assumed from the 2014 Plan. (2) The weighted-average exercise price set forth in this column is calculated excluding restricted stock units or other awards for which recipients are not required to pay an exercise price to receive the shares subject to the awards.
Removed
We used all of the net proceeds from the Q3 Secondary Offering to purchase LLC Units from certain pre-IPO LLC Members and to repurchase shares of Class A common stock from the shareholders of the Blocker Companies at a price per LLC Unit or share of Class A common stock, as applicable, equal to the public offering price per share of Class A common stock, less the underwriting discounts and commissions.
Added
(3) This amount represents shares of common stock available for issuance under the 2021 Plan, which include stock options, restricted stock units, restricted stock awards, stock appreciation rights and other stock-based awards. Portillo's Inc.
Removed
The proceeds from the Q3 Secondary Offering were used to (i) purchase (i) 2,123,899 existing shares of Class A common stock from the shareholders of the Blocker Companies and (ii) redeem 5,942,559 LLC Units, in each case, held by certain pre-IPO LLC Members.
Added
Beginning in 2024, we will use the S&P 500 and S&P 600 Restaurant indices to benchmark against broad market and small-cap restaurant company performance as these indices better reflect the external market and our business. 10/21/2021 12/26/2021 4/1/2022 7/1/2022 10/1/2022 12/25/2022 4/1/2023 7/1/2023 10/1/2023 12/31/2023 Portillo's Inc. $100.00 $131.75 $82.10 $57.53 $67.66 $59.07 $73.44 $77.42 $52.89 $54.74 S&P 500 100.00 111.03 105.92 88.87 84.53 90.92 97.74 106.28 102.8 114.82 S&P 500 Restaurants 100.00 108.31 93.75 87.32 87.58 99.35 106.88 113.08 101.76 114.02 S&P 600 Restaurants 100.00 89.79 88.62 59.31 65.38 71.31 82.51 88.27 70.67 84.48 *$100 invested on 10/21/21 in Portillo's Inc. stock or 9/30/21 in indices, including reinvestment of dividends.
Removed
In connection with the redemption, 5,942,559 shares of Class B common stock were surrendered by the pre-IPO LLC Members and canceled and the Company received 5,942,559 newly-issued LLC Units, increasing the Company's total ownership interest in Portillo's OpCo.
Removed
As a result, Portillo's did not receive any proceeds from the offering, and the total number of shares of Class A common stock and Class B common stock did not change; however, the number of outstanding shares of Class A common stock increased by the same number of the canceled shares of Class B common stock.
Removed
In the fourth quarter of 2022, the Company completed a secondary offering of 8,000,000 shares of the Company's Class A common stock at an offering price of $22.69 per share ("Q4 Secondary Offering").
Removed
We used all of the net proceeds from the Q4 Secondary Offering to purchase LLC Units from certain pre-IPO LLC Members and to repurchase shares of Class A common stock from the shareholders of the Blocker Companies at a price per LLC Unit or share of Class A common stock, as applicable.
Removed
The proceeds from the Q4 Secondary Offering were used to (i) purchase 2,106,400 existing shares of Class A common stock from the shareholders of the Blocker Companies and (ii) redeem 5,893,000 LLC Units, in each case, held by the pre-IPO LLC Members.
Removed
In connection with the redemption, 5,893,000 shares of Class B common stock were surrendered by the pre-IPO LLC Members and canceled and the Company received 5,893,000 newly-issued LLC Units, increasing the Company's total ownership interest in Portillo's OpCo.
Removed
As a result, Portillo's did not receive any proceeds from the offering, and the total number of shares of Class A common stock and Class B common stock did not change; however, the number of outstanding shares of Class A common stock increased by the same number of the canceled shares of Class B common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

92 edited+30 added−77 removed28 unchanged
Biggest changeForm 10-K | 34 Table of Contents Consolidated Results of Operations The following table summarizes our results of operations for the fiscal years ended December 25, 2022 and December 26, 2021 (in thousands): Fiscal Years Ended December 25, 2022 December 26, 2021 REVENUES, NET $ 587,104 100.0 % $ 534,952 100.0 % COST AND EXPENSES: Restaurant operating expenses: Cost of goods sold, excluding depreciation and amortization 204,237 34.8 % 166,764 31.2 % Labor 154,392 26.3 % 138,788 25.9 % Occupancy 30,657 5.2 % 28,060 5.2 % Other operating expenses 65,312 11.1 % 59,258 11.1 % Total restaurant operating expenses 454,598 77.4 % 392,870 73.4 % General and administrative expenses 66,892 11.4 % 87,089 16.3 % Pre-opening expenses 4,715 0.8 % 3,565 0.7 % Depreciation and amortization 20,907 3.6 % 23,312 4.4 % Net income attributable to equity method investment (1,083) (0.2) % (797) (0.1) % Other income, net (204) — % (1,099) (0.2) % OPERATING INCOME 41,279 7.0 % 30,012 5.6 % Interest expense 27,644 4.7 % 39,694 7.4 % Tax Receivable Agreement liability adjustment (5,345) (0.9) % — — % Loss on debt extinguishment — — % 7,265 1.4 % INCOME (LOSS) BEFORE INCOME TAXES 18,980 3.2 % (16,947) (3.2) % Income tax expense (benefit) 1,823 0.3 % (3,531) (0.7) % NET INCOME (LOSS) 17,157 2.9 % (13,416) (2.5) % Less: Redeemable preferred units accretion — — % (21,176) (4.0) % NET INCOME (LOSS) ATTRIBUTABLE TO COMMON HOLDERS 17,157 2.9 % (34,592) (6.5) % Net income (loss) attributable to non-controlling interests 6,306 1.1 % (19,408) (3.6) % NET INCOME (LOSS) ATTRIBUTABLE TO PORTILLO'S INC. $ 10,851 1.8 % $ (15,184) (2.8) % Revenues, Net Revenues primarily represent the aggregate sales of food and beverages, net of discounts.
Biggest changeFiscal Years Ended December 31, 2023 December 25, 2022 REVENUES, NET $ 679,905 100.0 % $ 587,104 100.0 % COST AND EXPENSES: Restaurant operating expenses: Food, beverage and packaging costs 230,869 34.0 % 204,237 34.8 % Labor 173,868 25.6 % 154,392 26.3 % Occupancy 33,358 4.9 % 30,657 5.2 % Other operating expenses 76,639 11.3 % 65,312 11.1 % Total restaurant operating expenses 514,734 75.7 % 454,598 77.4 % General and administrative expenses 78,835 11.6 % 66,892 11.4 % Pre-opening expenses 9,019 1.3 % 4,715 0.8 % Depreciation and amortization 24,313 3.6 % 20,907 3.6 % Net income attributable to equity method investment (1,401) (0.2) % (1,083) (0.2) % Other income, net (1,035) (0.2) % (204) — % OPERATING INCOME 55,440 8.2 % 41,279 7.0 % Interest expense 27,470 4.0 % 27,644 4.7 % Interest income (212) — % — — % Tax Receivable Agreement liability adjustment (3,349) (0.5) % (5,345) (0.9) % Loss on debt extinguishment 3,465 0.5 % — — % INCOME BEFORE INCOME TAXES 28,066 4.1 % 18,980 3.2 % Income tax expense (benefit) 3,248 0.5 % 1,823 0.3 % NET INCOME 24,818 3.7 % 17,157 2.9 % Net income attributable to non-controlling interests 6,394 0.9 % 6,306 1.1 % NET INCOME ATTRIBUTABLE TO PORTILLO'S INC. $ 18,424 2.7 % $ 10,851 1.8 % Note : We use a 52- or 53-week fiscal year ending on the Sunday on or prior to December 31.
You should evaluate all forward-looking statements made in this Form 10-K in the context of the risks and uncertainties disclosed in Part I, Item 1A "Risk Factors" and in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations." The forward-looking statements included in this Form 10-K are made only as of the date hereof.
You should evaluate all forward-looking statements made in this Form 10-K in the context of the risks and uncertainties disclosed in Part I, Item 1A "Risk Factors" and in this Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations." The forward-looking statements included in this Form 10-K are made only as of the date hereof.
As of the IPO, we are subject to U.S. federal, as well as state and local income taxes with respect to our allocable share of any taxable income or loss of Portillo's OpCo, as well as any stand-alone income or loss generated by Portillo's Inc.
As of the IPO, we are subject to U.S. federal, state and local income taxes with respect to our allocable share of any taxable income or loss of Portillo's OpCo, as well as any stand-alone income or loss generated by Portillo's Inc.
Adjusted EBITDA and Adjusted EBITDA Margin Adjusted EBITDA represents net income (loss) before depreciation and amortization, interest expense and income taxes, adjusted for the impact of certain non-cash and other items that we do not consider in our evaluation of ongoing core operating performance as identified in the reconciliation of net income (loss), the most directly comparable GAAP measure to Adjusted EBITDA.
Adjusted EBITDA and Adjusted EBITDA Margin Adjusted EBITDA represents net income (loss) before depreciation and amortization, interest expense, interest income, and income taxes, adjusted for the impact of certain non-cash and other items that we do not consider in our evaluation of ongoing core operating performance as identified in the reconciliation of net income (loss), the most directly comparable GAAP measure to Adjusted EBITDA.
If we do not generate sufficient taxable income in the aggregate over the term of the TRA to utilize the tax benefits, then we would not be required to make the related TRA payments.
If we do not generate sufficient taxable income in the aggregate over the term of the TRA to utilize the tax benefits, then we would not be required to make the related TRA payments.
Additionally, restaurant openings in new geographic market areas will initially experience higher pre-opening expenses than our established geographic market areas, such as the Chicagoland area, where we have greater economies of scale and incur lower travel and lodging costs for our training team.
Additionally, restaurant openings in new geographic market areas will experience higher pre-opening expenses than our established geographic market areas, such as the Chicagoland area, where we have greater economies of scale and incur lower travel and lodging costs for our training team.
Additionally, we estimate the amount of TRA payments expected to be paid within the next 12 months and classify this amount as current on our consolidated balance sheet. This determination is based on our estimate of taxable income for the next fiscal year and the timing of the anticipated payments.
Additionally, we estimate the amount of TRA payments expected to be paid within the next 12 months and classify this amount as current on our consolidated balance sheet. This determination is based on our estimate of taxable income for the previous fiscal year and the timing of the anticipated payments.
In addition to tax expenses, we also will incur expenses related to our operations, plus payments under the TRA, which are expected to be significant.
In addition to tax liabilities, we also will incur expenses related to our operations, plus payments under the TRA, which are expected to be significant.
Income Tax Expense (Benefit) Portillo's OpCo is treated as a partnership for U.S. federal, as well as state and local income tax purposes and is not subject to taxes. Rather, any taxable income or loss generated by Portillo's OpCo is allocated to its members in relation to their respective ownership percentage of Portillo's OpCo.
Income Tax Expense (Benefit) Portillo's OpCo is treated as a partnership for U.S. federal, state and local income tax purposes and is generally not subject to income taxes. Rather, any taxable income or loss generated by Portillo's OpCo is allocated to its members in relation to their respective ownership percentage of Portillo's OpCo.
Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of total revenues. We use Adjusted EBITDA and Adjusted EBITDA Margin (i) to evaluate our operating results and the effectiveness of our business strategies, (ii) internally as benchmarks to compare our performance to that of our competitors and (iii) as factors in evaluating management’s performance when determining incentive compensation.
Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of revenues, net. We use Adjusted EBITDA and Adjusted EBITDA Margin (i) to evaluate our operating results and the effectiveness of our business strategies, (ii) internally as benchmarks to compare our performance to that of our competitors and (iii) as factors in evaluating management’s performance when determining incentive compensation.
Key Performance Indicators and Non-GAAP Financial Measures In addition to the GAAP measures presented in our financial statements, we use the following key performance indicators and non-GAAP financial measures to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions.
"Financial Statements & Supplementary Data." Key Performance Indicators and Non-GAAP Financial Measures In addition to the GAAP measures presented in our financial statements, we use the following key performance indicators and non-GAAP financial measures to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions.
We believe that Adjusted EBITDA and Adjusted EBITDA Margin are important measures of operating performance because they eliminate the impact of expenses that do not relate to our core operating performance. Portillo's Inc.
We believe that Adjusted EBITDA and Adjusted EBITDA Margin are important measures of operating performance because they eliminate the impact of expenses that do not relate to our core operating performance.
Pre-Opening Expenses Pre-opening expenses consist primarily of wages, occupancy expenses, which represent rent expense recognized during the period between the date of possession of the restaurant facility and the restaurant opening date, travel for the opening team, food, beverage, and the initial stocking of operating supplies.
Pre-Opening Expenses Pre-opening expenses consist primarily of wages, occupancy expenses, which represent rent expense recognized during the period between the date of possession of the restaurant facility and the restaurant opening date, travel for the opening team and other supporting team members, food, beverage, and the initial stocking of operating supplies.
Restaurant-Level Adjusted EBITDA Margin represents Restaurant-Level Adjusted EBITDA as a percentage of revenue. We believe that Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin are important measures to evaluate the performance and profitability of our restaurants, individually and in the aggregate.
Restaurant-Level Adjusted EBITDA Margin represents Restaurant-Level Adjusted EBITDA as a percentage of revenues, net. We believe that Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin are important measures to evaluate the performance and profitability of our restaurants, individually and in the aggregate.
We may enter into purchase commitments relating to supply chain, construction, marketing and other service-related arrangements that occur in the normal course of business. Such commitments are typically short-term in nature and are not material as of December 25, 2022.
We may enter into purchase commitments relating to supply chain, construction, marketing and other service-related arrangements that occur in the normal course of business. Such commitments are typically short-term in nature and are not material as of December 31, 2023.
These key measures include same-restaurant sales, new restaurant openings, average unit volume ("AUV"), Adjusted EBITDA, Adjusted EBITDA Margin, Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin.
These key measures include same-restaurant sales, average unit volume ("AUV"), Adjusted EBITDA, Adjusted EBITDA Margin, Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin.
Tax Receivable Agreement Liability Adjustment In connection with the IPO, we entered into a Tax Receivable Agreement with certain members of Portillo's OpCo that provides for the payment by us of 85% of the amount of tax benefits, if any, that Portillo's Inc. actually realizes or in some cases is deemed to realize as a result of certain transactions.
Tax Receivable Agreement Liability Adjustment We are party to a Tax Receivable Agreement liability with certain members of Portillo's OpCo that provides for the payment by us of 85% of the amount of tax benefits, if any, that Portillo's Inc. actually realizes or in some cases is deemed to realize as a result of certain transactions.
To the extent our estimate differs from actual results, we may be required to reclassify portions of our liabilities under the TRA between current and non-current. We expect a payment of $0.8 million to be paid within the next 12 months.
To the extent our estimate differs from actual results, we may be required to reclassify portions of our liabilities under the TRA between current and non-current. We expect a payment of $4.4 million to be made within the next 12 months.
For a comparison of results of operations and financial condition for fiscal years 2021 and 2020, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K for the fiscal year ended December 26, 2021, filed March 10, 2022.
For a comparison of results of operations and financial condition for fiscal years 2022 and 2021, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K for the fiscal year ended December 25, 2022, filed March 2, 2023.
General and Administrative Expenses General and administrative expenses primarily consist of costs associated with our corporate and administrative functions that support restaurant development and operations, including marketing and advertising costs incurred as well as legal and professional fees. General and administrative expenses also include equity-based compensation expense.
Form 10-K | 26 Table of Contents General and Administrative Expenses General and administrative expenses primarily consist of costs associated with our corporate and administrative functions that support restaurant development and operations, including marketing and advertising costs incurred as well as legal and professional fees. General and administrative expenses also include equity-based compensation expense.
As of December 25, 2022, we recognized $252.8 million of liabilities relating to our obligations under the TRA, after concluding that it was probable that we would have sufficient future taxable income to utilize the related tax benefits.
As of December 31, 2023, we recognized $299.8 million of liabilities relating to our obligations under the TRA, after concluding that it was probable that we would have sufficient future taxable income to utilize the related tax benefits.
For the purpose of calculating same-restaurant sales as of December 25, 2022, sales for 62 restaurants were included in the Comparable Restaurant Base (as defined in "Key Performance Indicators and Non-GAAP Financial Measures" below) as of the end of fiscal 2022.
For the purpose of calculating same-restaurant sales as of December 31, 2023, sales for 68 restaurants were included in the Comparable Restaurant Base (as defined in "Key Performance Indicators and Non-GAAP Financial Measures" below) as of the end of fiscal 2023.
Portillo's Inc. Form 10-K | 39 Table of Contents Average Unit Volume AUV is the total revenue (excluding gift card breakage) recognized in the Comparable Restaurant Base, including C&O, divided by the number of restaurants in the Comparable Restaurant Base, including C&O, by period.
Average Unit Volume AUV is the total revenue (excluding gift card breakage) recognized in the Comparable Restaurant Base, including C&O, divided by the number of restaurants in the Comparable Restaurant Base, including C&O, by period. Portillo's Inc.
Assuming no material changes in relevant tax law and that we earn sufficient taxable income to realize all tax benefits that are subject to the TRA, we estimate that the tax savings associated with all tax attributes described above would aggregate to approximately $297.4 million as of December 25, 2022 .
Assuming no material changes in relevant tax law and that we earn sufficient taxable income to realize all tax benefits that are subject to the TRA, we estimate that the tax savings associated with all tax attributes described above would aggregate to approximately $352.7 million as of December 31, 2023.
The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. For the tax year ended December 25, 2022, we did not record any unrecognized tax benefits. Portillo's Inc.
The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. For the tax year ended December 31, 2023, we did not record any unrecognized tax benefits. Portillo's Inc. Form 10-K | 34 Table of Contents
Therefore, we would only recognize a liability for TRA payments if we determine it is probable that we will generate sufficient future taxable income over the term of the TRA to utilize the related tax benefits.
Therefore, we would only recognize a liability for TRA payments if we determine it is probable that we will generate sufficient future taxable income over the term of the TRA to utilize the related tax Portillo's Inc. Form 10-K | 33 Table of Contents benefits.
You should be aware that these measures are not indicative of overall results for the Company and that Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin do not accrue directly to the benefit of shareholders because of corporate-level expenses excluded from such measures.
You should be aware that these measures are not indicative of overall results for the Company and that Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin do not accrue directly to the benefit of shareholders because of corporate-level expenses excluded from such measures. These measures and our calculations may not be comparable to similar measures reported by other companies.
This key performance indicator allows management to assess changes in consumer spending patterns at our restaurants and the overall performance of our restaurant base.
Form 10-K | 29 Table of Contents This key performance indicator allows management to assess changes in consumer spending patterns at our restaurants and the overall performance of our restaurant base.
On February 2, 2023, Holdings, the Borrower, the other Guarantors party thereto from time to time, each lender party thereto from time to time and Fifth Third Bank, National Association, as Administrative Agent, L/C Issuer and Swing Line Lender entered into a New Credit Agreement which provides for a Term Loan in an initial aggregate principal amount of $300.0 million and a New Revolver Facility in an initial aggregate principal amount of $100.0 million.
Debt, the payment of deferred financing costs of $3.6 million and payments made under the TRA of $0.8 million. 2023 Revolver Facility and Liens On February 2, 2023, Holdings, the Borrower, the other Guarantors party thereto from time to time, each lender party thereto from time to time and Fifth Third Bank, National Association, as Administrative Agent, L/C Issuer and Swing Line Lender entered into the 2023 Credit Agreement which provides for the 2023 Term Loan in an initial aggregate principal amount of $300.0 million and the 2023 Revolver Facility in an initial aggregate principal amount of $100.0 million.
Income tax expense for the year ended December 25, 2022 was $1.8 million compared to an income tax benefit of $3.5 million for the year ended December 26, 2021, an increase of $5.4 million. Our effective income tax rate for year ended December 25, 2022 was 9.6%, compared to 20.9% for year ended December 26, 2021.
Income tax expense for the year ended December 31, 2023 was $3.2 million compared to $1.8 million for the year ended December 25, 2022, an increase of $1.4 million. Our effective income tax rate for year ended December 31, 2023 was 11.5%, compared to 9.6% for year ended December 25, 2022.
Similarly, the effect of subsequent changes in the enacted tax rates will be included in net income (loss). In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will be realized and, when necessary, a valuation allowance is established.
Similarly, the effect of subsequent changes in the enacted tax rates will be included in net income (loss). In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that the deferred tax assets will be realized.
This increase was primarily due to an increase in commodity prices and the impact of how the Company records third-party delivery menu prices, partially offset by an increase in our average check. Labor Expenses Labor expenses include hourly and management wages, bonuses and equity-based compensation, payroll taxes, workers’ compensation expense, and team member benefits.
This decrease was primarily due to an increase in average check and lower third-party delivery commissions, partially offset by an increase in certain commodity prices. Labor Expenses Labor expenses include hourly and management wages, bonuses and equity-based compensation, payroll taxes, workers’ compensation expense, and team member benefits.
Lease obligations . Refer to Note 10. Leases to the consolidated financial statements for further information of our obligations and the timing of expected payments. Portillo's Inc. Form 10-K | 44 Table of Contents Liabilities under the tax receivable agreement. Refer to Note 14. Income Taxes to the consolidated financial statements for further information of our obligations.
Leases to the consolidated financial statements for further information of our obligations and the timing of expected payments. Liabilities under the tax receivable agreement. Refer to Note 14. Income Taxes to the consolidated financial statements for further information of our obligations.
Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin Restaurant-Level Adjusted EBITDA is defined as revenue, less restaurant operating expenses, which include cost of goods sold (excluding depreciation and amortization), labor expenses, occupancy expenses and other operating expenses. Restaurant-Level Adjusted EBITDA excludes corporate level expenses and depreciation and amortization on restaurant property and equipment.
Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin Restaurant-Level Adjusted EBITDA is defined as revenue, less restaurant operating expenses, which include food, beverage and packaging costs, labor expenses, occupancy expenses and other operating expenses. Restaurant-Level Adjusted EBITDA excludes corporate level expenses and depreciation and amortization on restaurant property and equipment.
Depreciation and Amortization Depreciation and amortization expenses consist of the depreciation of fixed assets, including leasehold improvements, fixtures and equipment and the amortization of definite-lived intangible assets, which are primarily comprised of recipes, and in prior years, non-compete agreements and favorable leasehold positions.
Depreciation and Amortization Depreciation and amortization expenses consist of the depreciation of fixed assets, including leasehold improvements, fixtures and equipment and the amortization of definite-lived intangible assets, which are primarily comprised of recipes.
We use a 52- or 53-week fiscal year ending on the Sunday on or prior to December 31. In a 52-week fiscal year, each quarterly period is comprised of 13 weeks. The additional week in a 53-week fiscal year is added to the fourth quarter. We believe the difference in reporting periods does not have a material impact on comparability.
We use a 52- or 53-week fiscal year ending on the Sunday on or prior to December 31. In a 52-week fiscal year, each quarterly period is comprised of 13 weeks. The additional week (the "53rd week") in a 53-week fiscal year is added to the fourth quarter.
Factors that influence labor costs include wage inflation and payroll tax legislation, health care costs and the staffing needs of our restaurants. Labor expenses for the year ended December 25, 2022 were $154.4 million compared to $138.8 million for the year ended December 26, 2021, an increase of $15.6 million or 11.2%.
Factors that influence labor costs include wage inflation and payroll tax legislation, health care costs and the staffing needs of our restaurants. Labor expenses for the year ended December 31, 2023 were $173.9 million compared to $154.4 million for the year ended December 25, 2022, an increase of $19.5 million or 12.6%.
Form 10-K | 42 Table of Contents Tax Receivable Agreement As of December 25, 2022, we estimate that our obligation for future payments under the TRA totaled $252.8 million. Amounts payable under the TRA are contingent upon, among other things, (i) generation of future taxable income over the term of the TRA and (ii) future changes in tax laws.
As of December 31, 2023, we estimate that our obligation for future payments under the TRA totaled $299.8 million. Amounts payable under the TRA are contingent upon, among other things, (i) generation of future taxable income over the term of the TRA and (ii) future changes in tax laws.
Definitions and reconciliations of Adjusted EBITDA to net income (loss) and Restaurant-Level Adju sted EBITDA to operating income, the most directly comparable financial measures presented in accordance with GAAP, are set forth under the section "Key Performance Indicators and Non-GAAP Financial Measures". We continue to see revenue growth due to our new restaurant openings, as well as same-restaurant sales growth.
Definitions and reconciliations of Adjusted EBITDA to net income (loss) and Restaurant-Level Adju sted EBITDA to operating income, the most directly comparable financial measures presented in accordance with GAAP, are set forth under the section "Key Performance Indicators and Non-GAAP Financial Measures". Portillo's Inc.
Under the provisions of ASC 740— Income Taxes , as it relates to accounting for uncertainties in tax positions, we recognize the tax benefit of tax positions to the extent that the benefit will more likely than not be realized.
As of December 31, 2023, we had $184.7 million of deferred tax assets, net of the recorded valuation allowance. Under the provisions of ASC 740— Income Taxes , as it relates to accounting for uncertainties in tax positions, we recognize the tax benefit of tax positions to the extent that the benefit will more likely than not be realized.
The increase in net income attributable to non-controlling interests for the year ended December 25, 2022 was primarily due to an improvement in net income primarily due to the factors driving the aforementioned expenses, compared to the year ended December 26, 2021 and a decrease in the non-controlling interest holders' weighted average ownership, from 49.9% for the year ended December 26, 2021 to 45.8% for the year ended December 25, 2022.
The increase in net income attributable to non-controlling interests for the year ended December 31, 2023 was primarily due to an increase in net income, compared to the year ended December 25, 2022, partially offset by a decrease in the non-controlling interest holders' weighted average ownership, from 45.8% for the year ended December 25, 2022 to 25.9% for the year ended December 31, 2023.
Form 10-K | 38 Table of Contents Net Income (Loss) Attributable to Non-controlling Interests In connection with the IPO, we became the sole managing member of Portillo's OpCo. W e manage and operate the business and control the strategic decisions and day-to-day operations of Portillo’s OpCo and we also have a substantial financial interest in Portillo’s OpCo.
Net Income Attributable to Non-controlling Interests We are the sole managing member of Portillo's OpCo. We manage and operate the business and control the strategic decisions and day-to-day operations of Portillo’s OpCo and we also have a substantial financial interest in Portillo’s OpCo.
Under this scenario, we would be required to pay the TRA Parties approximately 85% of such amount, or $252.8 million , primarily over the next 15 years, substantially declining in year 16 through year 47. We expect a payment of $0.8 million to be paid within the next 12 months.
Under this scenario, we would be required to pay the TRA Parties approximately 85% of such amount, or $299.8 million, primarily over the next 15 years, substantially declining in year 16 through year 47. During the year ended December 31, 2023, we made a TRA payment of $0.8 million relating to tax year 2021.
Fiscal 2022 and 2021 each consisted of 52 weeks. Overview Portillo’s serves iconic Chicago street food through high-energy, multichannel restaurants designed to ignite the senses and create a memorable dining experience.
Fiscal 2023 consisted of 53 weeks and fiscal 2022 consisted of 52 weeks. The 53rd week in fiscal 2023 included Christmas day, resulting in six operating days. Overview Portillo’s serves iconic Chicago street food through high-energy, multichannel restaurants designed to ignite the senses and create a memorable dining experience.
Occupancy expenses for the year ended December 25, 2022 were $30.7 million compared to $28.1 million for the year ended December 26, 2021, an increase of $2.6 million or 9.3%, primarily driven by the opening of three new restaurants in the year ended December 25, 2022 and the opening of five restaurants in 2021.
Occupancy expenses for the year ended December 31, 2023 were $33.4 million compared to $30.7 million for the year ended December 25, 2022, an increase of $2.7 million or 8.8%, primarily driven by the opening of twelve new restaurants in the year ended December 31, 2023 and the opening of three restaurants in 2022.
This increase was primarily driven by incremental investments to support our team members, including hourly rate increases primarily made in July 2022 and June 2021 and higher equity-based compensation, and the opening of three new restaurants during the year ended December 25, 2022 and the opening of five restaurants in 2021.
This increase was primarily driven by the opening of twelve restaurants in the year ended December 31, 2023 and the opening of three restaurants in 2022, and incremental investments to support our team members, including annual rate increases, and higher variable-based compensation.
This increase was driven by higher net income of $30.6 million and the change in operating assets and liabilities of $10.9 million, partially offset by the change in non-cash items of $27.4 million.
This increase was primarily driven by the change in non-cash items of $8.0 million and higher net income of $7.7 million, partially offset by the change in operating assets and liabilities of $1.8 million.
General and administrative expenses are impacted by changes in our team member count and costs related to strategic and growth initiatives. General and administrative expenses for the year ended December 25, 2022 were $66.9 million compared to $87.1 million for the year ended December 26, 2021, a decrease of $20.2 million or 23.2%.
General and administrative expenses are impacted by changes in our team member count and costs related to strategic and growth initiatives. General and administrative expenses for the year ended December 31, 2023 were $78.8 million compared to $66.9 million for the year ended December 25, 2022, an increase of $11.9 million or 17.9%.
The Tax Receivable Agreement liability adjustment was $5.3 million for the year ended December 25, 2022 related to a remeasurement primarily due to stock activity. There was no Tax Receivable Agreement liability adjustment for the year ended December 26, 2021.
The Tax Receivable Agreement liability adjustment was $3.3 million for the year ended December 31, 2023 related to a remeasurement primarily due to activity under equity-based compensation plans. The Tax Receivable Agreement liability adjustment was $5.3 million for the year ended December 25, 2022.
In fiscal 2023, we expect our overall commodity inflation to ease and are currently estimating commodity inflation in the mid single digits. Additionally, we do anticipate additional wage investments. We will continue to strategically offset these expense increases through menu price increases and operational efficiencies. During mid-January of 2023, we increased certain menu prices by approximately 2.0%.
In fiscal 2024, we expect our overall commodity inflation to stay consistent with recent trends and are currently estimating commodity inflation in the mid-single digits. Additionally, we do anticipate additional wage investments and are currently estimating mid-single digit wage inflation. We will continue to strategically offset these expense increases through menu price increases and operational efficiencies.
Based upon current levels of operations and anticipated growth, we expect that cash flows from operations will be sufficient to meet our needs for at least the next twelve months and the foreseeable future. See Note 18. Subsequent Events for a discussion of the New Revolver Facility, which replaced the Revolving Facility, effective February 2, 2023.
Based upon current levels of operations and anticipated growth, we expect that cash flows from operations will be sufficient to meet our needs for at least the next twelve months and the foreseeable future.
Subsequent Events for refinancing of borrowings under the First Lien Credit Agreement. Material Cash Requirements Our material cash requirements greater than twelve months include: Debt. Refer to Note 9. Debt and Note 18. Subsequent Events, under the header New Credit Agreement, to the consolidated financial statements for further information of our obligations and the timing of expected payments.
Refer to Note 9. Debt for additional information. Material Cash Requirements Our material cash requirements greater than twelve months include: Debt. Refer to Note 9. Debt to the consolidated financial statements for further information of our obligations and the timing of expected payments. Lease obligations . Refer to Note 10.
As of December 25, 2022 and December 26, 2021, there were 62 and 61 restaurants in our Comparable Restaurant Base, respectively. The Comparable Restaurant Base excludes a restaurant that is owned by C&O, of which Portillo’s owns 50% of the equity, as described in Note 2. Summary Of Significant Accounting Policies in our consolidated financial statements.
As of December 31, 2023 and December 25, 2022, there were 68 an d 62 restaurants in our Comparable Restaurant Base, respectively. The Comparable Restaurant Base excludes C&O, as described in Note 2. Summary Of Significant Accounting Policies in our consolidated financial statements.
In connection with the IPO, we entered into a Tax Receivable Agreement ("TRA") with certain of our pre-IPO LLC Members, in which we will generally be required to pay 85% of the amount of cash savings, if any, in U.S. federal, state, and local income tax that we actually realize or be deemed to realize, as a result of (i) our allocable share of existing tax basis in depreciable or amortizable assets relating to LLC Units acquired in the IPO, (ii) certain favorable tax attributes acquired by the Company from entities treated as corporations for U.S. tax purposes that held LLC Units prior to the Transactions ("Blocker Companies") (including net operating losses and the Blocker Companies' allocable share of existing tax basis), (iii) increases in our allocable share of then existing tax basis in depreciable or amortizable assets, and adjustments to the tax basis of the tangible and intangible assets, of Portillo’s OpCo and its subsidiaries, as a result of (x) sales or exchanges of interests in Portillo’s OpCo (including the repayment of the redeemable preferred units) in connection with the IPO and (y) future exchanges of LLC Units by pre-IPO LLC Members for Class A common stock and (iv) certain other tax benefits related to entering into the TRA, including payments made under the TRA.
Tax Receivable Agreement In connection with the IPO, we entered into a Tax Receivable Agreement ("TRA") with certain of our pre-IPO LLC Members, pursuant to which we will generally be required to pay 85% of the amount of cash savings, if any, in U.S. federal, state, and local income tax that we actually realize or are deemed to realize, as a result of (i) our allocable share of existing tax basis in depreciable or amortizable assets relating to LLC Units acquired in the IPO, (ii) certain favorable tax attributes acquired by the Company from the Blocker Companies (including net operating Portillo's Inc.
These increases were partially offset by a decline in transactions and operational efficiencies. As a percentage of revenues, net, labor increased 0.4% during the year ended December 25, 2022 primarily due to the aforementioned incremental hourly rate increases to support our team members, partially offset by an increase in our average check.
As a percentage of revenues, net, labor decreased 0.7% during the year ended December 31, 2023 primarily due to an increase in our average check, partially offset by the aforementioned incremental hourly rate increases to support our team members, lower transactions, and higher labor utilization. Occupancy Expenses Occupancy expenses primarily consist of rent, property insurance and property taxes.
Portillo's Inc. Form 10-K | 37 Table of Contents Net income attributable to equity method investment for the year ended December 25, 2022 was $1.1 million compared to $0.8 million for the year ended December 26, 2021. This increase was primarily driven by increased revenue, which is attributable to an increase in average check.
Net income attributable to equity method investment for the year ended December 31, 2023 was $1.4 million compared to $1.1 million for the year ended December 25, 2022, an increase of $0.3 million or 29.4%. This increase was primarily driven by increased revenue, which is attributable to an increase in average check, partially offset by a decrease in transactions.
The $10.9 million change in our operating asset and liability balances was primarily driven by operating assets and liabilities being a source of net cash of $3.9 million in year ended December 25, 2022, compared to a use of net cash of $7.0 million in year ended December 26, 2021 driven by the change in accounts payable and accrued expenses and other liabilities due to increased payments in the prior year for insurance and interest.
The $1.8 million change in our operating asset and liability balances was primarily driven by operating assets and liabilities being a source of net cash of $2.1 million in year ended December 31, 2023, compared to a source of net cash of $3.9 million in the year ended December 25, 2022 driven by the change in other current assets due to increased cash outflows for insurance premiums and occupancy and change in other assets and liabilities due to the implementation of a new ERP system.
Loss on Debt Extinguishment Loss on debt extinguishment for the year ended December 26, 2021 was $7.3 million due to prepayment penalties of $3.1 million and the write-off of debt discount and deferred issuance costs of $4.2 million associated with the payoff of the Second Term B-3 Loans. There was no such loss for year ended December 25, 2022.
Loss on Debt Extinguishment Loss on debt extinguishment for the year ended December 31, 2023 was $3.5 million due to the write-off of debt discount and deferred issuance costs associated with the payoff of the 2014 Credit Agreement as described in Note 9. Debt. There was no such loss for the year ended December 25, 2022.
Critical Accounting Estimates This discussion and analysis of financial condition and results of operations is based upon the Company's consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP").
Critical Accounting Estimates This discussion and analysis of financial condition and results of operations is based upon the Company's consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires the Company to make estimates, judgments, and assumptions that can have a meaningful effect on the reporting of consolidated financial statements.
The weighted average ownership percentages for the applicable reporting periods are used to attribute net income (loss) to Portillo's Inc. and the non-controlling interest holders. Net income attributable to non-controlling interests for the year ended December 25, 2022 was $6.3 million, compared to a loss of $19.4 million for the year ended December 26, 2021.
The weighted average ownership percentages for the applicable reporting periods are used to attribute net income (loss) to Portillo's Inc. and the non-controlling interest holders. Portillo's Inc.
Portillo's Inc. Form 10-K | 43 Table of Contents Financing Activities Net cash used in financing activities was $4.7 million for the year ended December 25, 2022 compared to net cash used in financing activities of $8.8 million for the year ended December 26, 2021, a decrease of $4.1 million or 46.4%.
Portillo's Inc. Form 10-K | 32 Table of Contents Investing Activities Net cash used in investing activities was $87.8 million for the year ended December 31, 2023 compared to net cash used in investing activities of $47.0 million for the year ended December 25, 2022, an increase of $40.8 million or 86.8%.
The following table reconciles operating income to Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin (in thousands): Fiscal Years Ended December 25, 2022 December 26, 2021 Operating income $ 41,279 $ 30,012 Plus: General and administrative expenses 66,892 87,089 Pre-opening expenses 4,715 3,565 Depreciation and amortization 20,907 23,312 Net income attributable to equity method investment (1,083) (797) Other income, net (204) (1,099) Restaurant-Level Adjusted EBITDA $ 132,506 $ 142,082 Restaurant-Level Adjusted EBITDA Margin 22.6 % 26.6 % Portillo's Inc.
The following table reconciles operating income to Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin (in thousands): Fiscal Years Ended December 31, 2023 December 25, 2022 Operating income $ 55,440 $ 41,279 Plus: General and administrative expenses 78,835 66,892 Pre-opening expenses 9,019 4,715 Depreciation and amortization 24,313 20,907 Net income attributable to equity method investment (1,401) (1,083) Other income, net (1,035) (204) Restaurant-Level Adjusted EBITDA $ 165,171 $ 132,506 Restaurant-Level Adjusted EBITDA Margin 24.3 % 22.6 % Note : We use a 52- or 53-week fiscal year ending on the Sunday on or prior to December 31.
Other operating expenses for the year ended December 25, 2022 were $65.3 million compared to $59.3 million for the year ended December 26, 2021, an increase of $6.1 million or 10.2%, primarily driven by the opening of three new restaurants in the year ended December 25, 2022 and the opening of five restaurants in 2021 as well as an increase in building and equipment repairs and maintenance, insurance and credit card fees.
Other operating expenses for the year ended December 31, 2023 were $76.6 million compared to $65.3 million for the year ended December 25, 2022, an increase of $11.3 million or 17.3%, primarily due to the opening of twelve restaurants in the year ended December 31, 2023 and the opening of three restaurants in 2022 and an increase in credit card fees, utilities, repair and maintenance expenses, and insurance, partially offset by a decrease in professional fees.
The $27.4 million change from the year ended December 26, 2021 in non-cash charges is primarily attributable to equity-based compensation and loss on debt extinguishment in the prior year, offset by a decrease in depreciation and amortization.
The $8.0 million change from the year ended December 25, 2022 in non-cash charges is primarily attributable to the loss on debt extinguishment, an increase in depreciation and amortization, the TRA liability adjustment, and an increase in our deferred income tax provision, partially offset by a decrease in amortization of debt issuance costs and discount and equity-based compensation expense.
Summary of Cash Flows The following table presents a summary of our cash flows from operating, investing and financing activities (in thousands): Fiscal Years Ended December 25, 2022 December 26, 2021 Net cash provided by operating activities $ 56,889 $ 42,874 Net cash used in investing activities (47,017) (36,260) Net cash used in financing activities (4,708) (8,783) Net increase (decrease) in cash and cash equivalents and restricted cash 5,164 (2,169) Cash and cash equivalents and restricted cash at beginning of period 39,263 41,432 Cash and cash equivalents and restricted cash at end of period $ 44,427 $ 39,263 Operating Activities Net cash provided by operating activities for the year ended December 25, 2022 was $56.9 million compared to net cash provided by operating activities of $42.9 million for the year ended December 26, 2021, an increase of $14.0 million or 32.7%.
Summary of Cash Flows The following table presents a summary of our cash flows from operating, investing and financing activities (in thousands): Fiscal Years Ended December 31, 2023 December 25, 2022 Net cash provided by operating activities $ 70,781 $ 56,889 Net cash used in investing activities (87,837) (47,017) Net cash used in financing activities (16,933) (4,708) Net (decrease) increase in cash and cash equivalents and restricted cash (33,989) 5,164 Cash and cash equivalents and restricted cash at beginning of period 44,427 39,263 Cash and cash equivalents and restricted cash at end of period $ 10,438 $ 44,427 Note : We use a 52- or 53-week fiscal year ending on the Sunday on or prior to December 31.
The components of cost of goods sold, excluding depreciation and amortization, are variable by nature, change with sales volume, are impacted by product mix and are subject to increases or decreases in commodity costs .
Food, Beverage and Packaging Costs Food, beverage and packaging costs include the direct costs associated with food and beverages, including paper products and third-party delivery commissions. The components of food, beverage and packaging costs, are variable by nature, change with sales volume, are impacted by product mix and are subject to increases or decreases in commodity costs .
Critical accounting estimates are defined as those reflective of significant judgments, estimates and uncertainties, which may result in materially different results under different assumptions and conditions. Due to their inherent uncertainty, these judgments and estimates may be subject to change, which could materially impact future periods.
Due to their inherent uncertainty, these judgments and estimates may be subject to change, which could materially impact future periods.
The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. As of December 25, 2022, we had $150.5 million of deferred tax assets, net of the recorded valuation allowance.
The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. We will record a valuation allowance when necessary to reduce the carrying value of certain deferred tax assets to their respective net realizable value (if any).
Total revenue grew 9.7% during the year ended December 25, 2022. Same-restaurant sales grew 5.4% during the year ended December 25, 2022. During the fourth quarter of 2022, total revenue grew 8.6% and same-restaurant sales increased 6.0%.
During the fourth quarter of 2023, total revenue grew 24.5% and same-restaurant sales increased 4.4% compared to same-restaurant sales growth of 6.0% for the fourth quarter ended December 25, 2022. We believe unit growth is a key driver of shareholder value creation.
Our near-term restaurant growth strategy is focused on leveraging our proven unit economic model primarily in markets outside Chicagoland with favorable macro-economic tailwinds where we already have a presence and brand awareness. We will also add select new restaurants in the Chicagoland market. For fiscal 2023, we are targeting opening nine new restaurants ("Class of 2023").
In 2025, we are targeting at least 12% new restaurant growth, and our long-term outlook is approximately 12% to 15% annual new restaurant growth. Our near-term restaurant growth strategy is focused on leveraging our proven unit economic model primarily in markets outside Chicagoland with favorable macro-economic tailwinds where we Portillo's Inc. Form 10-K | 24 already have a presence.
Other income, net for the year ended December 25, 2022 was $0.2 million compared to $1.1 million for the year ended December 26, 2021, a decrease of $0.9 million or 81.4%. Other income, net decreased primarily due to an increase in trading losses in the rabbi trust used to fund our deferred compensation plan.
Other income, net for the year ended December 31, 2023 was $1.0 million compared to $0.2 million for the year ended December 25, 2022, an increase of $0.8 million or 407.4%.
Form 10-K | 40 Table of Contents The following table reconciles net income (loss) to Adjusted EBITDA and Adjusted EBITDA margin (in thousands): Fiscal Years Ended December 25, 2022 December 26, 2021 Net income (loss) $ 17,157 $ (13,416) Depreciation and amortization 20,907 23,312 Interest expense 27,644 39,694 Loss on debt extinguishment — 7,265 Income tax expense (benefit) 1,823 (3,531) EBITDA 67,531 53,324 Deferred rent (1) 3,998 3,161 Equity-based compensation 16,137 30,708 Option holder payment and consulting fees (2) — 7,744 Other income (3) 397 292 Transaction-related fees & expenses (4) 2,237 3,268 Tax Receivable Agreement liability adjustment (5) (5,345) — Adjusted EBITDA $ 84,955 $ 98,497 Adjusted EBITDA Margin 14.5 % 18.4 % (1) Represents the difference between cash rent payments and the recognition of straight-line rent expense recognized over the lease term.
The following table reconciles net income to Adjusted EBITDA and Adjusted EBITDA margin (in thousands): Fiscal Years Ended December 31, 2023 December 25, 2022 Net income $ 24,818 $ 17,157 Depreciation and amortization 24,313 20,907 Interest expense 27,470 27,644 Interest income (212) — Loss on debt extinguishment 3,465 — Income tax expense 3,248 1,823 EBITDA 83,102 67,531 Deferred rent (1) 5,096 3,998 Equity-based compensation 15,542 16,137 ERP implementation costs (2) 401 — Other income (3) 590 397 Transaction-related fees & expenses (4) 900 2,237 Tax Receivable Agreement liability adjustment (5) (3,349) (5,345) Adjusted EBITDA $ 102,282 $ 84,955 Adjusted EBITDA Margin (6) 15.0 % 14.5 % Note : We use a 52- or 53-week fiscal year ending on the Sunday on or prior to December 31.
Depreciation and amortization expense for the year ended December 25, 2022 was $20.9 million compared to $23.3 million for the year ended December 26, 2021, a decrease of $2.4 million or 10.3%.
Depreciation and amortization expense for the year ended December 31, 2023 was $24.3 million compared to $20.9 million for the year ended December 25, 2022, an increase of $3.4 million or 16.3%. This increase was primarily attributable to incremental depreciation of capital expenditures related to the twelve restaurants opened in 2023 and three restaurants opened in 2022.
(2) Represents an option holder payment in connection with the IPO and consulting fees related to our former owner. (3) Represents loss on disposal of property and equipment. (4) Represents the exclusion of certain expenses that management believes are not indicative of ongoing operations, consisting primarily of certain professional fees. (5) Represents remeasurement of the Tax Receivable Agreement liability.
(2) Represents non-capitalized third-party consulting and software licensing costs incurred in connection with the implementation of a new ERP system. Portillo's Inc. Form 10-K | 30 Table of Contents (3) Represents loss on disposal of property and equipment. (4) Represents the exclusion of certain expenses that management believes are not indicative of ongoing operations, consisting primarily of certain professional fees.
Cost of goods sold, excluding depreciation and amortization for the year ended December 25, 2022 was $204.2 million compared to $166.8 million for the year ended December 26, 2021, an increase of $37.5 million or 22.5%.
Food, beverage and packaging costs for the year ended December 31, 2023 was $230.9 million compared to $204.2 million for the year ended December 25, 2022, an increase of $26.6 million or 13.0%.
Pre-opening expenses for the year ended December 25, 2022 were $4.7 million compared to $3.6 million for the year ended December 26, 2021, an increase of $1.2 million or 32.3%. This increase was due to the timing and geographic location of activities related to our planned restaurant openings at the end of fiscal 2022 and early fiscal 2023.
Pre-opening expenses for the year ended December 31, 2023 were $9.0 million compared to $4.7 million for the year ended December 25, 2022, an increase of $4.3 million or 91.3%.
The decrease in our effective income tax rate for the year ended December 25, 2022 compared to the year ended December 26, 2021 was primarily driven by the change in the valuation allowance and the tax benefit from the exercise and vesting of equity-based awards. Portillo's Inc.
The increase in our effective income tax rate for the year ended December 31, 2023 compared to the year ended December 25, 2022 was primarily driven by an increase in the Company's ownership interest in Portillo's OpCo, which increases its share of taxable income (loss) of Portillo's OpCo, partially offset by the decrease in the valuation allowance and the recording of net operating loss carryforwards.
Three new restaurants opened in the year ended December 25, 2022 and five restaurants opened in 2021 positively impacted revenues in the year ended December 25, 2022 by approximately $25.3 million.
The three restaurants opened in fiscal 2022 and 12 restaurants opened in fiscal 2023 positively impacted revenues by approximately $48.4 million in the year ended December 31, 2023. In the year ended December 31, 2023, we continued to see commodity inflation stabilize versus 2022 levels.
Interest Expense Interest expense primarily consists of interest and fees on our credit facilities and the amortization expense for debt discount and deferred issuance costs. Interest expense for year ended December 25, 2022 was $27.6 million compared to $39.7 million for year ended December 26, 2021, a decrease of $12.1 million or 30.4%.
Form 10-K | 27 Table of Contents Interest Expense Interest expense primarily consists of interest and fees on our credit facilities and the amortization expense for debt discount and deferred issuance costs.
Same-restaurant sales increased 5.4% during the year ended December 25, 2022, which was attributabl e to an i ncrease in average check of 6.1% and a 2.7% impact from the change in recording third-party delivery pricing, offset by a 3.4% decline in transactions.
Same-restaurant sales increased 5.7% during the year ended December 31, 2023, which was attributable to an increase in average check of 6.1%, partially offset by a 0.4% decline in Portillo's Inc. Form 10-K | 25 Table of Contents transactions. The higher average check was driven by an approximate 8.5% increase in menu prices partially offset by product mix.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeEffects of Inflation Inflation has the potential to impact restaurant operating expenses at all levels. Whether that pressure originates from commodity costs, labor expenses, energy or transportation this can have a material influence on restaurant margins.
Biggest changeWhether that pressure originates from commodity costs, labor expenses, energy or transportation, this can have a material influence on restaurant margins. Several strategies are employed to combat the ongoing inflationary pressures, including improvement to restaurant operating efficiencies, strategic menu price increases and supplier partner engagement via pricing programs.
Many states and localities are also passing laws regulating employment practices and working conditions which could have a material adverse effect on our labor costs in those areas. Portillo's Inc. Form 10-K | 49 Table of Contents
Many states and localities are also passing laws regulating employment practices and working conditions which could have a material adverse effect on our labor costs in those areas. Portillo's Inc. Form 10-K | 35 Table of Contents
Labor Costs Increases in minimum wage, health care and other benefit costs may have a material adverse effect on our labor costs. We operate in many states and localities where the minimum wage is significantly higher than the federal minimum wage. Portillo's Inc.
Labor Costs Increases in minimum wage, health care and other benefit costs may have a material adverse effect on our labor costs. We operate in many states and localities where the minimum wage is significantly higher than the federal minimum wage.
Form 10-K | 48 Table of Contents The market for labor in the United States is competitive and has resulted in pressure on wages and may continue to do so in the future. Increases in minimum wage and market pressure may also result in increases in the wage rates paid for non-minimum wage positions.
The market for labor in the United States is competitive and has resulted in pressure on wages and may continue to do so in the future. Increases in minimum wage and market pressure may also result in increases in the wage rates paid for non-minimum wage positions.
Based on the amount outstanding under our credit facilities as of December 25, 2022, a change of one hundred basis points in the applicable interest rate would cause an increase or decrease in interest expense of approximately $3.3 million on an annual basis.
Based on the terms of the 2023 Credit Agreement, as of December 31, 2023, a change of one hundred basis points in the applicable interest rate would cause an increase or decrease in interest expense of approximately $3.9 million on an annual basis. Effects of Inflation Inflation has the potential to impact restaurant operating expenses at all levels.
As of December 25, 2022 and December 26, 2021, we had $322.4 million and $325.8 million, respectively, in outstanding borrowings under o ur credit facilities, excluding unamortized debt discount and deferred issuance costs.
As of December 31, 2023 and December 25, 2022, we had a total of $309.4 million and $322.4 million, respectively, in outstanding borrowings under o ur 2023 Term Loan and 2023 Revolver Facility, excluding unamortized debt discount and deferred issuance costs. See Note 9. Debt for individual balances for our 2023 Term Loan and 2023 Revolver Facility.
These platforms vary from long term, fixed price agreements to commodity market based indexed pricing programs.
A well-balanced portfolio of varying risk management approaches related to supplier partner management assists in ensuring varying degrees of cost mitigation. These platforms vary from long-term, fixed price agreements to commodity market-based indexed pricing programs.
Removed
On February 2, 2023 (the “Closing Date”), Holdings, the Borrower, the other Guarantors party thereto from time to time, each lender party thereto from time to time and Fifth Third Bank, National Association, as Administrative Agent, L/C Issuer and Swing Line Lender entered into a Credit Agreement (“New Credit Agreement”) which provides for a Term Loan in an initial aggregate principal amount of $300.0 million and initial Revolving Credit Commitments in an initial aggregate principal amount of $100.0 million (the “New Revolver Facility”).
Removed
As of the Closing Date, the Term Loan and the New Revolver Facility will accrue interest at the forward-looking secured overnight financing rate plus an applicable rate determined upon the total net rent to adjusted leverage ratio, subject to a floor of 0.00% (plus a credit spread adjustment of 0.10% per annum for 1-month interest periods and 0.15% for 3-month interest periods).
Removed
The interest rate applicable to borrowings under the New Credit Agreement may subsequently be adjusted on periodic measurement dates provided for under the New Credit Agreement based on the type of loans borrowed by the Borrower and the total net rent to adjusted leverage ratio of the Borrower at such time.
Removed
Several strategies are employed to combat the ongoing inflationary pressures, including improvement to restaurant operating efficiencies, strategic menu price increases and supplier partner engagement via pricing programs. A well-balanced portfolio of varying risk management approaches related to supply partner management assists in ensuring varying degrees of cost mitigation.

Other PTLO 10-K year-over-year comparisons