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. As a result,
several state and local mandates were implemented that encouraged the practice of social distancing, placed restrictions
from individuals gathering in groups and, in many areas, placed complete restrictions on non-essential movement outside of the
home. 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.
As
a result of the temporary dining room closures, we have experienced a significant decrease in traffic which has severely
impacted our operating results. While we have seen significant sales growth in our To-Go program, 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 severely impacted until 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 or when the state and local restrictions will be lifted. In
addition, we cannot predict how quickly our guests will return to our restaurants once such restrictions have been lifted
or the impact this will have on consumer spending habits. As of May 4, 2020, the Company had re-opened the dining rooms in
approximately 25 of our company-owned restaurants under various limited capacity restrictions.
The
pandemic has also adversely affected our ability to open new restaurants. Due to the uncertainty in the economy and to preserve
liquidity, we have delayed construction on all new restaurants that were not substantially complete as of the end of the quarter.
These changes may have a material adverse effect on our ability to grow our business, particularly if these construction delays
are in place for a significant amount of time.
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 set forth in the
Amended Credit Agreement. If the pandemic continues to adversely impact our business for a significant period of time, we may
need to 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 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.