Supplemental
Risk Factor
The
Company is supplementing the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2019, with the following risk factor. Careful consideration should be given to the risks described
below. If any of the risks and uncertainties described below actually occurs, our business, financial condition and results of
operations, and the trading price of our common stock could be materially and adversely affected.
The
novel coronavirus ("COVID-19")
pandemic has disrupted and is expected to continue to disrupt our business, which has and could continue to materially affect our
business, financial condition, and results of operations, for an extended period of time.
On
March 13, 2020, the COVID-19 pandemic (the "pandemic")
was declared a National Public Health Emergency. Shortly after the national emergency declaration, state and local officials began
placing restrictions on restaurants, some of which allowed To-Go or curbside service only, while others limited capacity in the
dining room. By March 31, 2020, the last day of our Q1 2020 fiscal quarter, all of our domestic company and franchise restaurants
were under state or local order which only allowed for To-Go or curbside service. Beginning in early May 2020, state and local
guidelines began to allow dining rooms to re-open, typically at a limited capacity. By June 30, 2020, the last day of our
Q2 2020 fiscal quarter, 499 of our 521 company-owned restaurants had re-opened their dining rooms under various limited capacity
restrictions. Our remaining restaurants, with the exception of one that is temporarily closed, are limited to outdoor dining and/or
To-Go or curbside service only. As of August 3, 2020, 499 of our 523 company-owned restaurants had re-opened their dining
rooms under various limited capacity restrictions.
We continue to
monitor state and local plans as they move along their phased approach to re-open their economies. We have developed a hybrid operating
model that accommodates our limited capacity dining rooms together with enhanced To-Go, which includes a curbside and/or drive-up
operating model, as permitted by local guidelines. This includes design changes to our building to better accommodate the increased
To-Go sales and the expansion of outdoor seating areas where allowed. We also installed booth partitions in all of our restaurants
as an added safety measure for our guests. In addition, we have increased our already strict sanitation requirements, are conducting
daily health and temperature checks for all employees before they begin their shift and are requiring personal protective equipment
to be worn by all restaurant employees at all times. As we work through the re-opening phases at each of our locations, the safety
of our employees and guests remains our top priority.
As
a result of the temporary dining room closures and the subsequent limited capacity restrictions for in-person dining, we have experienced
a significant decrease in traffic which has impacted our operating results. While many of our dining rooms have re-opened, the
capacity restrictions severely limit the number of guests we can serve. In addition, while we have seen significant sales growth
in our To-Go program, even in those stores with dining rooms re-opened, we currently do not expect these sales will generate a
similar profit margin to our normal operating model. We expect our operating results to continue to be impacted until at least
such time that state and local restrictions are lifted, and our dining rooms can re-open at full capacity. We cannot predict how
long the pandemic will last, how long it will take until all state and local restrictions will be lifted, or if dining rooms will
be required to close again in areas severely impacted by the pandemic. In addition, we cannot predict the overall impact on the
economy or consumer spending habits.
The
pandemic has also adversely affected our ability to open new restaurants. At the onset of the pandemic, we delayed construction
on all restaurants that were not substantially complete. As of June 30, 2020, 14 restaurants, including one relocation site,
had either resumed construction or were approved to resume construction. These
changes may have a material adverse effect on our ability to grow our business, particularly if we delay construction on these
sites again in future periods.
In
March 2020, we borrowed $190.0 million under our Amended Credit Agreement in order to enhance our financial flexibility. The
Amended Credit Agreement also provides us the option to increase the credit facility by $200.0 million subject to certain limitations,
including approval by the syndicate of lenders, set forth in the Amended Credit Agreement. On May 11, 2020, as a precautionary
measure to further enhance financial flexibility, we amended the revolving credit facility to increase the amount available under
the facility by $82.5 million and drew down $50.0 million of this amount. If
the pandemic continues to adversely impact our business for a significant period of time, we may need to further increase the credit
facility and/or seek other sources of liquidity. There is no guarantee that we can increase the credit facility or that additional
liquidity will be readily available or available at favorable terms.
Our
suppliers could be adversely impacted by the pandemic. If our supplier’s employees are unable to work, whether because of
illness, quarantine, limitations on travel or other government restrictions in connection with the pandemic, we could face shortages
of food items or other supplies at our restaurants and our operations and sales could be adversely impacted by such interruptions.
The
temporary closure of our dining rooms and subsequent re-opening at limited capacity has resulted in decreased staffing levels at
our restaurants. We have taken compensation actions to support certain restaurant employees during the pandemic, but those actions
may not be enough to compensate them until such time that our dining rooms can re-open at full capacity. Those restaurant employees
might seek and find other employment during the interruption, which could have a material adverse effect on our ability to properly
staff our restaurants with experienced team members once we resume our normal operations.
Our
restaurant operations could be further disrupted if a significant number of restaurants have employees diagnosed with COVID-19
resulting in some or all of the restaurant’s employees being quarantined and our restaurant facilities having to be disinfected.
If a significant percentage of our workforce is unable to work, whether because of illness or required quarantine, our operations
may be negatively impacted which could have a material adverse effect on our business.