SWEETGREEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share and per share amounts)
| | | | | | | | | | | | | |
| As of March 27, 2022 | | As of December 26, 2021 | | |
ASSETS | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | $ | 436,517 | | | $ | 471,971 | | | |
Accounts receivable | 3,831 | | | 2,644 | | | |
Inventory | 956 | | | 903 | | | |
Prepaid expenses | 11,357 | | | 13,763 | | | |
Tenant improvement receivable | 17,903 | | | 16,695 | | | |
Current portion of lease acquisition costs | 564 | | | 525 | | | |
Other current assets | 1,520 | | | 155 | | | |
Total current assets | 472,648 | | | 506,656 | | | |
Property and equipment, net | 190,605 | | | 180,666 | | | |
Goodwill | 35,970 | | | 35,970 | | | |
Intangible assets, net | 31,877 | | | 32,868 | | | |
Lease acquisition costs, net | 4,763 | | | 4,391 | | | |
Security deposits | 1,589 | | | 1,770 | | | |
Restricted cash | 273 | | | 328 | | | |
Total assets | $ | 737,725 | | | $ | 762,649 | | | |
LIABILITIES, AND STOCKHOLDERS’ EQUITY | | | | | |
Current liabilities: | | | | | |
Accounts payable | $ | 13,823 | | | $ | 11,197 | | | |
Accrued expenses | 15,184 | | | 16,338 | | | |
Accrued payroll | 11,815 | | | 12,093 | | | |
Gift cards and loyalty liability | 1,622 | | | 1,839 | | | |
Current portion of deferred rent liability | 6,993 | | | 6,061 | | | |
Total current liabilities | 49,437 | | | 47,528 | | | |
Deferred rent liability, net of current portion | 40,469 | | | 38,402 | | | |
Accrued payroll, net of current portion | — | | | 2,500 | | | |
Contingent consideration liability | 20,243 | | | 20,477 | | | |
Other non-current liabilities | 500 | | | 500 | | | |
Deferred income tax liabilities | 145 | | | 125 | | | |
| | | | | |
Total liabilities | $ | 110,794 | | | $ | 109,532 | | | |
COMMITMENTS AND CONTINGENCIES (Note 14) | | | | | |
| | | | | |
| | | | | |
Stockholders’ equity: | | | | | |
Common stock, $0.001 par value per share, 2,000,000,000 Class A shares authorized, 96,034,052 and 95,868,394 Class A shares issued and outstanding as of March 27, 2022 and December 26, 2021, respectively; 300,000,000 Class B shares authorized, 13,477,303 and 13,477,303 Class B shares issued and outstanding as of March 27, 2022 and December 26, 2021, respectively | 110 | | | 109 | | | |
| | | | | |
Additional paid-in capital | 1,152,237 | | | 1,129,224 | | | |
Accumulated deficit | (525,416) | | | (476,216) | | | |
Total stockholders’ equity | 626,931 | | | 653,117 | | | |
Total liabilities and stockholders’ equity | $ | 737,725 | | | $ | 762,649 | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SWEETGREEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except share and per share amounts)
| | | | | | | | | | | | | | | | | |
| Thirteen weeks ended | | |
| March 27, 2022 | | March 28, 2021 | | | | |
Revenue | $ | 102,591 | | | $ | 61,392 | | | | | |
Restaurant operating costs (exclusive of depreciation and amortization presented separately below): | | | | | | | |
Food, beverage, and packaging | 27,106 | | | 17,268 | | | | | |
Labor and related expenses | 34,302 | | | 22,292 | | | | | |
Occupancy and related expenses | 14,800 | | | 10,049 | | | | | |
Other restaurant operating costs | 13,084 | | | 9,681 | | | | | |
Total restaurant operating costs | 89,292 | | | 59,290 | | | | | |
Operating expenses: | | | | | | | |
General and administrative | 49,672 | | | 23,380 | | | | | |
Depreciation and amortization | 10,677 | | | 7,847 | | | | | |
Pre-opening costs | 2,512 | | | 961 | | | | | |
| | | | | | | |
Loss on disposal of property and equipment | 8 | | | 51 | | | | | |
Total operating expenses | 62,869 | | | 32,239 | | | | | |
Loss from operations | (49,570) | | | (30,137) | | | | | |
Interest income | (168) | | | (112) | | | | | |
Interest expense | 23 | | | 20 | | | | | |
Other income | (245) | | | — | | | | | |
Net loss before income taxes | (49,180) | | | (30,045) | | | | | |
Income tax expense | 20 | | | — | | | | | |
Net loss | $ | (49,200) | | | $ | (30,045) | | | | | |
Earnings per share: | | | | | | | |
Net loss per share basic and diluted | $ | (0.45) | | | $ | (1.77) | | | | | |
Weighted average shares used in computing net loss per share basic and diluted | 109,472,050 | | | 16,962,694 | | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SWEETGREEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF PREFERRED STOCK AND STOCKHOLDERS’ (DEFICIT) EQUITY
(UNAUDITED)
(in thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the thirteen weeks ended March 27, 2022 and March 28, 2021 |
| | Preferred Stock | | | | | Common Stock | | Additional Paid-in Capital | | Loans to Related Parties | | Accumulated Deficit | | Total |
| | Shares | | Amount | | | | | | | Shares | | Amount | | | | |
Balances at December 27, 2020 | | 62,562,051 | | | $ | 505,638 | | | | | | | | 16,731,625 | | | $ | 17 | | | $ | 19,662 | | | $ | (4,000) | | | $ | (323,041) | | | $ | (307,362) | |
Net loss | | — | | | — | | | | | | | | — | | | — | | | — | | | — | | | (30,045) | | | (30,045) | |
Exercise of stock options | | — | | | — | | | | | | | | 561,465 | | | 1 | | | 2,520 | | | — | | | — | | | 2,521 | |
Stock-based compensation expense | | — | | | — | | | | | | | | — | | | — | | | 1,224 | | | — | | | — | | | 1,224 | |
Issuance of preferred stock (net of issuance costs of $226) | | 6,669,146 | | | 108,858 | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | |
Balances at March 28, 2021 | | 69,231,197 | | | $ | 614,496 | | | | | | | | 17,293,090 | | | $ | 18 | | | $ | 23,406 | | | $ | (4,000) | | | $ | (353,086) | | | $ | (333,662) | |
| | | | | | | | | | | | | | | | | | | | | |
Balances at December 26, 2021 | | — | | | $ | — | | | | | | | | 109,345,697 | | | $ | 109 | | | $ | 1,129,224 | | | $ | — | | | $ | (476,216) | | | $ | 653,117 | |
Net loss | | — | | | — | | | | | | | | — | | | — | | | — | | | — | | | (49,200) | | | (49,200) | |
Exercise of stock options | | — | | | — | | | | | | | | 153,158 | | | 1 | | | 848 | | | — | | | — | | | 849 | |
Issuance of common stock related to restricted shares | | — | | | — | | | | | | | | 12,500 | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation expense | | — | | | — | | | | | | | | — | | | — | | | 22,165 | | | — | | | — | | | 22,165 | |
| | | | | | | | | | | | | | | | | | | | | |
Balances at March 27, 2022 | | — | | | $ | — | | | | | | | | 109,511,355 | | | $ | 110 | | | $ | 1,152,237 | | | $ | — | | | $ | (525,416) | | | $ | 626,931 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SWEETGREEN, INC.AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
| | | | | | | | | | | | | | |
| | Thirteen weeks ended |
| | March 27, 2022 | | March 28, 2021 |
Cash flows from operating activities: | | | | |
Net loss | | $ | (49,200) | | | $ | (30,045) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | |
Depreciation and amortization | | 10,677 | | | 7,847 | |
Amortization of lease acquisition | | 129 | | | 87 | |
Amortization of loan origination fees | | 67 | | | 23 | |
Loss on fixed asset disposal | | 8 | | | 51 | |
Stock-based compensation | | 22,165 | | | 1,224 | |
| | | | |
Deferred income tax expense | | 20 | | | — | |
Change in fair value of contingent consideration liability | | (234) | | | — | |
| | | | |
Changes in operating assets and liabilities: | | | | |
Accounts receivable | | (1,187) | | | (767) | |
Tenant improvement receivables | | (1,208) | | | (2,330) | |
Inventory | | (53) | | | 23 | |
Prepaid expenses and other current assets | | 974 | | | (147) | |
Accounts payable | | 2,239 | | | 954 | |
Accrued payroll and benefits | | (2,778) | | | 2,267 | |
Accrued expenses | | (1,154) | | | 1,251 | |
Gift card and loyalty liability | | (217) | | | (605) | |
Deferred rent liability | | 2,999 | | | 3,703 | |
Net cash used in operating activities | | (16,753) | | | (16,464) | |
Cash flows from investing activities: | | | | |
Purchase of property and equipment | | (18,059) | | | (16,581) | |
Purchase of intangible assets | | (1,187) | | | (948) | |
| | | | |
Security and landlord deposits | | 181 | | | 77 | |
Lease acquisition costs | | (540) | | | (401) | |
Net cash used in investing activities | | (19,605) | | | (17,853) | |
Cash flows from financing activities: | | | | |
| | | | |
| | | | |
Proceeds from preferred stock issuance, net of issuance costs | | — | | | 113,811 | |
Proceeds from stock option exercise | | 849 | | | 2,521 | |
Deferred offering costs paid | | — | | | (61) | |
| | | | |
| | | | |
Net cash provided by financing activities | | 849 | | | 116,271 | |
Net (decrease) increase in cash and cash equivalents and restricted cash | | (35,509) | | | 81,954 | |
Cash and cash equivalents and restricted cash—beginning of year | | 472,299 | | | 102,765 | |
Cash and cash equivalents and restricted cash—end of period | | $ | 436,790 | | | $ | 184,719 | |
Supplemental disclosure of cash flow information | | | | |
Cash paid for interest | | $ | — | | | $ | 20 | |
Purchase of property and equipment accrued in accounts payable and accrued expenses | | $ | 2,776 | | | $ | 1,800 | |
Non-cash investing and financing activities | | | | |
| | | | |
Initial liability associated with Series J warrants | | $ | — | | | $ | 4,953 | |
| | | | |
| | | | |
| | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| | |
SWEETGREEN, INC. AND SUBSIDIARIES |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
1.DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Sweetgreen, Inc., a Delaware corporation, together with its wholly owned subsidiaries (the “Company”), is a mission-driven, next generation restaurant and lifestyle brand that serves healthy food at scale. The Company’s bold vision is to be as ubiquitous as traditional fast food, but with the transparency and quality that consumers increasingly expect. As of March 27, 2022, the Company operated 158 restaurants in 13 states and Washington, D.C. The Company had 8 Net New Restaurant Openings during the thirteen weeks ended March 27, 2022.
The Company was founded in November 2006 and incorporated in the state of Delaware in October 2009 and currently is headquartered in Los Angeles, California. The Company’s operations are conducted as one operating segment and one reportable segment, as the Company’s chief operating decision maker, who is the Company’s Chief Executive Officer, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance. The Company’s revenue is primarily derived from retail sales of food and beverages by company-owned restaurants.
The Company has prepared the accompanying unaudited condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of the Company’s financial position and results of operations. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year. The financial statements and related notes do not include all information and footnotes required by U.S. generally accepted accounting principles for annual reports and should be read in conjunction with the consolidated financial statements for the year ended December 26, 2021.
Principles of Consolidation—The accompanying condensed consolidated financial statements include the accounts of the Company. All intercompany balances and transactions have been eliminated in consolidation.
Fiscal Year—The Company’s fiscal year is a 52- or 53-week period that ends on the Sunday closest to the last day of December. Fiscal year 2022 is a 52-week period that ends December 25, 2022 and fiscal year 2021 was a 52-week period that ended December 26, 2021. In a 52-week fiscal year, each quarter includes 13 weeks of operations. In a 53-week fiscal year, the first, second and third quarters each include 13 weeks of operations, and the fourth quarter includes 14 weeks of operations.
Management’s Use of Estimates—The condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the SEC. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant accounting estimates made by the Company include the income tax valuation allowance, impairment of long-lived assets, legal liabilities, fair value of contingent consideration, intangible assets acquired in business combinations, goodwill and stock-based compensation. These estimates are based on information available as of the date of the condensed consolidated financial statements; therefore, actual results could differ from those estimates, including those resulting from the impact of COVID-19.
Fair Value of Financial Instruments—The fair value measurement accounting guidance creates a
fair value hierarchy to prioritize the inputs used to measure fair value into three categories. A
financial instrument’s level within the fair value hierarchy is based on the lowest level of input
significant to the fair value measurement, where Level 1 is the highest category (observable inputs) and Level 3 is the lowest category (unobservable inputs). The three levels are defined as follows:
Level 1—Quoted prices for identical instruments in active markets.
Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or
similar instruments in markets that are not active and model-derived valuations in which significant value drivers are observable.
Level 3—Unobservable inputs for the asset or liability. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
The carrying amount of accounts receivable, tenant improvement allowance receivable, other current assets, accounts payable, accrued payroll and accrued expenses approximates fair value due to the short-term maturity of these financial instruments. The fair value of loans to related parties is not readily determinable by virtue of the nature of the related parties’ relationship with the Company. The Company’s contingent consideration is carried at fair value determined using Level 3 inputs in the fair value. For further details see Note 3.
Certain assets and liabilities are measured at fair value on a nonrecurring basis. In other words, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). For further details see Note 3.
Impairment of Long-Lived Assets— Long-lived assets are reviewed for recoverability at the lowest level in which there are identifiable cash flows (“asset group”). The asset group is at the store-level for restaurant assets and the corporate-level for corporate assets. The carrying amount of a store asset group includes stores’ property and equipment, primarily leasehold improvements. Long-lived assets, including property and equipment and internally developed software, are reviewed by management for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be fully recoverable. When events or circumstances indicate that impairment may be present, management evaluates the probability that future undiscounted net cash flows received will be less than the carrying amount of the asset group. If projected future undiscounted cash flows are less than the carrying value of an asset group, then such assets are written down to their fair values. The Company uses a discounted cash flows model to measure the fair value of an asset group. An impairment charge will be recognized in the amount by which the carrying amount of the store asset group exceeds its fair value. A number of significant assumptions and estimates are involved in the application of the model to forecast operating cash flows, which are largely unobservable inputs and, accordingly, are classified as Level 3 inputs within the fair value hierarchy. Assumptions used in these forecasts are consistent with internal planning, and include sales growth rates, gross margins, and operating expense in relation to the current economic environment and the Company’s future expectations, competitive factors in its various markets, inflation, sales trends and other relevant economic factors that may impact the store under evaluation.
There is uncertainty in the projected undiscounted future cash flows used in the Company’s impairment review analysis, which requires the use of estimates and assumptions. If actual performance does not achieve the projections, or if the assumptions used change in the future, the Company may be required to recognize impairment charges in future periods, and such charges could be material. The Company determined that triggering events, primarily related to the impact of the COVID-19 pandemic impacting the Company’s near-term restaurant level cash flow forecasts, occurred for certain restaurants during the thirteen weeks ended March 27, 2022 and March 28, 2021 that required an impairment review of the Company’s long-lived assets. Based on the results of this analysis, the Company did not record any non-cash impairment charges.
Business Combinations—The Company utilizes the acquisition method of accounting in any acquisitions or business combinations. The acquisition method of accounting requires companies to assign values to assets and liabilities acquired based upon their fair values at the acquisition date. In most instances, there are not readily defined or listed market prices for individual assets and liabilities acquired in connection with a business, including intangible assets. The determination of fair value for assets and liabilities in many instances requires a high degree of estimation. The valuation of intangible assets, in particular, is very subjective. The Company generally obtains third-party valuations to assist it in estimating fair values. The use of different valuation techniques and assumptions could change the amounts and useful lives assigned to the assets and liabilities acquired and related amortization expense.
Contingent Consideration - Due to certain conversion features, the contingent consideration issued as part of the Spyce acquisition (see Note 6 for further details) is considered a liability in accordance with ASC 480. The liability associated with the contingent consideration is initially recorded at fair value (see Note 3 for further details) upon issuance date and is subsequently re-measured to fair value at each reporting date. The initial fair value of the liability for the contingent consideration was $16.4 million and was included as part of the purchase price for the Spyce acquisition. The fair value of the liability as of March 27, 2022 was $20.2 million.
Changes in fair value of the contingent consideration is recognized within other income in the accompanying condensed consolidated statement of operations.
Cash and Cash Equivalents—The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Amounts receivable from credit card processors are converted to cash shortly after the related sales transaction and are considered to be cash equivalents because they are both short-term and highly liquid in nature. Amounts receivable from sales transactions as of March 27, 2022 and December 26, 2021, were $3.5 million and $1.1 million, respectively.
Restricted Cash—The Company’s restricted cash balance relates to certificates of deposit that are collateral for letters of credit to lease agreements entered into by the Company.
The reconciliation of cash and cash equivalents and restricted cash presented in the Company’s accompanying condensed consolidated balance sheets to the total amount shown in its condensed consolidated statements of cash flows is as follows:
| | | | | | | | | | | | | |
(dollar amounts in thousands) | As of March 27, 2022 | | As of December 26, 2021 | | |
Reconciliation of cash, cash equivalents and restricted cash: | | | | | |
Cash and cash equivalents | $ | 436,517 | | | $ | 471,971 | | | |
Restricted cash, noncurrent | 273 | | | 328 | | | |
Total cash, cash equivalents and restricted cash shown on statement of cash flows | $ | 436,790 | | $ | 472,299 | | |
Concentrations of Risk—The Company maintains cash balances at several financial institutions located in the United States. The cash balances may, at times, exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to $0.3 million.
During the thirteen weeks ended March 27, 2022 and March 28, 2021, approximately 31% and 32%, respectively, of the Company’s revenue was generated from the Company’s restaurants located in the New York City metropolitan area.
Deferred Costs—Deferred costs primarily consist of capitalized implementation costs from cloud computing arrangements in relation to a new enterprise resource planning system. These costs amount to $1.4 million as of March 27, 2022 and are recorded within other current assets in the condensed consolidated balance sheets. Prior to the Company’s initial public offering (the “IPO”), deferred costs also included direct incremental legal, consulting, accounting, and other fees relating to the sale of the Company’s Class A Common Stock which were reclassified into stockholder’s deficit as a reduction of IPO proceeds upon offering.
Recently Issued Accounting Pronouncements Not Yet Adopted—In April 2012, the JOBS Act was enacted. Section 107(b) of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company has elected to take advantage of the extended transition period to comply with new or revised accounting standards and to adopt certain of the reduced disclosure requirements available to emerging growth companies. As a result of the accounting standards election, the Company will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies which may make comparison of its financials to those of other public companies more difficult.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases. This update requires lessees to recognize in the condensed consolidated balance sheet assets and liabilities for leases with lease terms of more than 12 months. Consistent with
current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP—which requires only capital leases to be recognized in the condensed consolidated balance sheet—the new ASU will require both types of leases to be recognized by a lessee in the condensed consolidated balance sheet. In June 2020, the FASB issued ASU No. 2020-05 which delayed the effective date to fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early application is permitted. The ASU will be adopted for the annual period beginning December 27, 2021, and the first presentation of the application of ASC 842, Leases, will be presented in the Company’s annual consolidated financial statements for fiscal year 2022 included within the Company’s 2022 Annual Report on Form 10-K. The Company plans on electing the optional transition method to apply the standard as of the effective date and therefore, will not apply the standard to the comparative periods presented in its financial statements. While the Company is still evaluating this ASU, the Company has determined that the primary impact will be to recognize in the condensed consolidated balance sheets all operating leases with lease terms greater than 12 months. It is expected that this ASU will have a material impact on the Company’s condensed consolidated balance sheet as it will record assets and obligations related to all of its operating and corporate office leases. The Company does not expect a material impact on its condensed consolidated statement of operations or condensed consolidated statement of cash flows. Additionally, the Company is in the process of evaluating the expanded disclosure requirements related to this ASU.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments in ASU 2016-13 provide amended guidance for estimating credit losses on certain types of financial instruments based on expected losses and the timing of the recognition of such losses. Expanded disclosures related to the methods used to estimate the losses are also required. The standard is effective for fiscal years beginning after December 15, 2022. The application of ASU 2018-07 is not expected to have a material impact on the Company’s condensed consolidated financial statements and related disclosures.
2.REVENUE RECOGNITION
Nature of products and services
The Company recognizes food and beverage revenue, net of discounts and incentives, when payment is tendered at the point of sale as the performance obligation has been satisfied, through the Company’s three disaggregated revenue channels: Owned Digital Channels, In Store-Channel (Non-Digital component), and Marketplace Channel.
Owned Digital Channels encompasses the Company’s Pick-Up Channel, Native Delivery Channel, Outpost Channel, and purchases made in its In-Store Channel via digital scan-to-pay. Pick-Up Channel refers to sales to customers made for pick up at one of the Company’s restaurants through the sweetgreen website or mobile app. Native Delivery Channel refers to sales to customers for delivery made through the sweetgreen website or mobile app. Outpost Channel refers to sales to customers for delivery made through the sweetgreen website or mobile app to Outposts, which are the Company’s trademark offsite drop-off points at offices, residential buildings and hospitals.
In-Store Channel (Non-Digital component) refers to sales to customers who make in-store purchases in the Company’s restaurants, whether they pay by cash or credit card.
Marketplace Channel refers to sales to customers for delivery or pick-up made through third-party delivery marketplaces, including Caviar, DoorDash, Grubhub, Postmates, and Uber Eats.
Provisions for discounts are provided for in the same period the related sales are recorded. Sales taxes and other taxes collected from customers and remitted to governmental authorities are presented on a net basis, and as such, are excluded from revenues.
Gift Cards
The Company sells gift cards that do not have an expiration date. Upon sale, gift cards are recorded as unearned revenue and included within gift card liability in the accompanying condensed consolidated balance sheets. The revenues from gift cards are recognized when redeemed by customers. Because the Company does not track addresses of gift card purchasers, the relevant jurisdiction related to the requirement for
escheatment, the legal obligation to remit unclaimed assets to the state, is the Company’s state of incorporation, which is Delaware. The state of Delaware requires escheatment after 5 years from issuance. The Company does not recognize breakage income because of its requirements to escheat unredeemed gift card balances.
Delivery
All of the Company’s locations offer a delivery option. Delivery services are fulfilled by third-party service providers whether delivery is ordered through the Company’s Native Delivery Channel or Marketplace Channel. With respect to Native Delivery sales, the Company controls the delivery services and recognizes revenue, including delivery revenue, when the delivery partner transfers food to the customer. For these sales, the Company receives payment directly from the customer at the time of sale. With respect to Marketplace Channel sales, the Company recognizes revenue, excluding delivery fees collected by the delivery partner as the Company does not control the delivery service, when control of the food is delivered to the end customer. The Company receives payment from the delivery partner subsequent to the transfer of food and the payment terms are short-term in nature. For all delivery sales, the Company is considered the principal and recognizes the revenue on a gross basis.
The following table presents the Company’s revenue for the thirteen weeks ended March 27, 2022 and March 28, 2021 disaggregated by significant revenue channel:
| | | | | | | | | | | | | | |
| Thirteen weeks ended | |
(dollar amounts in thousands) | March 27, 2022 | | March 28, 2021 | |
Owned Digital Channels | $ | 43,927 | | | $ | 32,628 | | |
In-Store Channel (Non-Digital component) | 34,444 | | | 14,224 | | |
Marketplace Channel | 24,220 | | | 14,540 | | |
Total Revenue | $ | 102,591 | | $ | 61,392 | |
Gift Cards
Gift card liability included in gift card and loyalty liability within the accompanying condensed consolidated balance sheet was as follows:
| | | | | | | | | | | | | | | |
(dollar amounts in thousands) | As of March 27, 2022 | | As of December 26, 2021 | | | | |
Gift Card Liability | $ | 1,622 | | $ | 1,839 | | | | |
Revenue recognized from the redemption of gift cards that was included in gift card and loyalty liability at the beginning of the year was as follows:
| | | | | | | | | | | | | | | | | |
| Thirteen weeks ended | | | | |
(dollar amounts in thousands) | March 27, 2022 | | March 28, 2021 | | | | |
Revenue recognized from gift card liability balance at the beginning of the year | $ | 253 | | $ | 131 | | | | |
sweetgreen Rewards
Changes in sweetgreen Rewards liability included in gift card and loyalty liability within the accompanying condensed consolidated balance sheet was as follows:
| | | | | | | | | | | | | | | |
| Thirteen weeks ended | | | | |
(dollar amounts in thousands) | March 27, 2022 | | March 28, 2021 | | | | |
sweetgreen Rewards liability, beginning balance | $ | — | | $ | 943 | | | | |
Revenue deferred | — | | 1,701 | | | | |
Revenue recognized | — | | (2,208) | | | | |
sweetgreen Rewards liability, ending balance | $ | — | | $ | 436 | | | | |
All the loyalty liability outstanding at the beginning of each year presented was recognized during each respective year. All rewards revenue related to performance obligations were satisfied as of March 27, 2022.
3.FAIR VALUE
The following tables present information about the Company’s financial liabilities measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements as of March 27, 2022 | | | | Fair Value Measurements as of December 26, 2021 |
| Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
(dollar amounts in thousands) | | | | | | | | | | | | | | | |
Contingent consideration | 20,243 | | | — | | | — | | | 20,243 | | | 20,477 | | | — | | | — | | | 20,477 | |
Total | $ | 20,243 | | | $ | — | | | $ | — | | | $ | 20,243 | | | $ | 20,477 | | | $ | — | | | $ | — | | | $ | 20,477 | |
The fair value of the contingent consideration was determined based on significant inputs not observable in the market.
In connection with the acquisition of Spyce Food Co., a Delaware corporation (“Spyce”) on September 7, 2021, the former equity holders of Spyce may receive up to 714,285 additional shares of Class A Common Stock, calculated based on the initial offering price of the Company’s Class A common stock of $28.00 per share sold in the Company’s IPO (the “Reference Price”), contingent on the achievement of certain performance milestones between the closing date of the acquisition and June 30, 2026. See Note 6. Additionally, the former equityholders of Spyce may receive true-up payments in cash as follows: if (i) as of the second anniversary of the closing date of the acquisition, the 30-Day Volume-Weighted Average Price of the Company’s Class A common stock (“VWAP Price”) is less than the Reference Price, then the Company shall pay to each former equityholder of Spyce the delta between the Reference Price and the VWAP price for the upfront portion of the purchase price and (ii) as of the date of the achievement of any of the three milestones, the VWAP as of such milestone achievement date is less than the Reference Price, then the Company shall pay to each former equityholder of Spyce the delta between the Reference Price and the VWAP price for the contingent consideration associated with such milestone. The contingent consideration was valued using the Monte Carlo method. The analysis considered, among other items, the equity value, the contractual terms of the Spyce merger agreement, potential liquidity event scenarios (prior to the IPO), the Company’s credit adjusted discount rate, equity volatility, risk-free rate and the probability of milestone targets required for issuance of shares under the contingent consideration will be achieved.
The following table provides a roll forward of the aggregate fair values of the Company’s contingent consideration, for which fair value is determined using Level 3 inputs.
| | | | | |
(dollar amounts in thousands) | Contingent Consideration |
Balance—December 26, 2021 | $ | 20,477 | |
Change in fair value | (234) | |
Balance—March 27, 2022 | $ | 20,243 | |
4.PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life. A summary of property and equipment is as follows:
| | | | | | | | | | | | | | | | | |
(dollar amounts in thousands) | | As of March 27, 2022 | | As of December 26, 2021 | | | |
Furniture and fixtures | | $ | 28,224 | | $ | 26,168 | | | |
Computers and other equipment | | 24,675 | | | 22,890 | | | | |
Kitchen equipment | | 50,753 | | | 47,911 | | | | |
Leasehold improvements | | 177,899 | | | 167,362 | | | | |
Assets not yet placed in service | | 23,339 | | | 21,981 | | | | |
Total property and equipment | | 304,890 | | | 286,312 | | | | |
Less: accumulated depreciation | | (114,285) | | | (105,646) | | | | |
Property and equipment, net | | $ | 190,605 | | $ | 180,666 | | | |
Depreciation expense for the thirteen weeks ended March 27, 2022 and March 28, 2021, was $8.8 million and $6.5 million, respectively.
Loss on asset disposals for the thirteen weeks ended March 27, 2022 and March 28, 2021 was less than $0.1 million and $0.1 million, respectively.
As of March 27, 2022, the Company had 19 facilities under construction due to open during fiscal year 2022. As of December 26, 2021, the Company had 13 facilities under construction, of which 8 facilities opened during the first quarter of fiscal year 2022. Depreciation commences after a store opens and the related assets are placed in service.
5.GOODWILL AND INTANGIBLE ASSETS, NET
During the thirteen weeks ended March 27, 2022, there were no changes in the carrying amount of goodwill of $36.0 million.
The following table presents the Company’s intangible assets, net balances:
| | | | | | | | | | | | | | |
(dollar amounts in thousands) | As of March 27, 2022 | | As of December 26, 2021 | | | |
Internal use software | $ | 27,030 | | | $ | 26,122 | | | | |
Developed technology | 20,050 | | | 20,050 | | | | |
Total intangible assets | 47,080 | | | 46,172 | | | | |
Accumulated amortization | (15,203) | | | (13,304) | | | | |
Intangible assets, net | $ | 31,877 | | $ | 32,868 | | | |
Developed technology intangible assets were recognized in conjunction with the Company’s acquisition of Spyce on September 7, 2021.The estimated useful lives of developed technology is five years. As of March 27, 2022, developed technology has not been placed into service. See Note 6 for further details.
Amortization expense for intangible assets was $1.9 million and $1.3 million for the thirteen weeks ended March 27, 2022 and March 28, 2021, respectively.
Estimated amortization of internal use software for each of the next five years is as follows:
| | | | | |
(dollar amounts in thousands) |
|
2022 | $ | 5,225 | |
2023 | 4,607 | |
2024 | 1,968 | |
2025 | 27 | |
2026 | — | |
6.BUSINESS ACQUISITION
On September 7, 2021, the Company closed its acquisition of Spyce, a Boston-based restaurant company powered by automation technology. The Company acquired 100% of the stock of Spyce via a merger. The purpose of the acquisition is to allow the Company to serve its food with even better quality, consistency and efficiency in its restaurants via automation. Pursuant to the merger agreement, upon closing of the acquisition, the Company issued 1,843,493 shares of Class S stock (the “Class S Shares”) worth approximately $37.5 million, of which $6.8 million is considered post-business combination compensation expense, see Note 10 for details, and subject to certain vesting requirements of certain Spyce employees. In connection with the Company’s IPO, the Class S Shares converted into 1,316,763 shares of common stock pursuant to a formula based on the Reference Price, which such shares were then reclassified into shares of Class A common stock. Additionally, the Company paid off approximately $3.5 million of certain indebtedness and transaction expenses of Spyce. Furthermore, the former equity holders of Spyce may receive up to an aggregate of 714,285 additional shares of Class A Common Stock contingent on the achievement of certain performance milestones between the closing date and June 30, 2026. See Note 3. The acquisition of Spyce was not significant pursuant to Rule 3-05 of Regulation S-X.
The following allocation of the purchase price and the estimated transaction costs is preliminary due to the finalization of taxes and is based on information available to the Company’s management at the time the consolidated financial statements were prepared. Accordingly, the allocation is subject to change and the impact of such changes may be material (in thousands):
| | | | | |
Fair value of assets acquired | As of September 7, 2021 |
Restricted cash | 203 | |
Property and equipment, net | 707 | |
Other assets | 660 | |
Developed technology | 20,050 | |
Goodwill | 29,695 | |
Total assets acquired | $ | 51,315 | |
| |
Fair value of liabilities assumed | |
Other liabilities | 628 |
Total liabilities assumed | $ | 628 | |
Total identifiable net assets | $ | 50,687 | |
| |
Fair value of consideration | |
Cash consideration, net of cash acquired | 2,762 | |
Closing third party expenses | 781 | |
Equity consideration | 30,704 | |
Contingent equity consideration | 16,440 | |
Total consideration | $ | 50,687 | |
Determining the fair value of the intangible assets acquired requires significant judgment, including the amount and timing of expected future cash flows, long-term growth rates and discount rates. The fair value of the intangibles assets was determined using a cost approach, which were based on the Company’s best estimate of recreating the developed technology acquired as part of the transaction. This includes estimates related to opportunity costs, developers profit, weighted average weight of return, and projected overhead. Use of different estimates and judgments could yield materially different results.
The Company’s consolidated financial statements for the thirteen weeks ended March 27, 2022 reflect results of operations of the newly acquired business. The Company accounted for this acquisition under the
acquisition method in accordance with ASC Topic 805, Business Combinations. The goodwill is attributable to the synergies the Company expects to achieve through leveraging the acquired technology to its existing restaurants and the workforce of Spyce. For tax purposes the acquisition was treated as a stock purchase, and as such any goodwill or other intangible assets recorded as a result of this transaction are not deductible for tax purposes.
Supplemental Pro Forma Information (unaudited)
The following unaudited pro forma summary presents consolidated information of the Company as if the business acquisition occurred on December 28, 2020.
| | | | | | | | | | | | | | | |
(dollar amounts in thousands) | | | Thirteen Weeks Ended March 28, 2021 | | | | |
Revenue | | | $ | 61,551 | | | | | |
Net loss attributable to sweetgreen, inc | | | $ | (30,944) | | | | | |
The Company did not have any material, nonrecurring pro forma adjustments directly attributable to the business acquisition included in the reported pro forma revenue and earnings.
These pro forma amounts have been calculated by applying the Company’s accounting policies.
The unaudited pro forma supplemental information is based on estimates and assumptions, which the Company believes are reasonable and are not necessarily indicative of the results that have been realized had the acquisition been consolidated in the tables above as of December 28, 2020, nor are they indicative of results of operations that may occur in the future.
7.ACCRUED EXPENSES
Accrued expenses consist of the following:
| | | | | | | | | | | | | |
(dollar amounts in thousands) | As of March 27, 2022 | | As of December 26, 2021 | | |
Rent deferrals | $ | 1,747 | | | $ | 2,547 | | |
Accrued general and sales tax | 3,776 | | | 3,115 | | | |
Accrued delivery fee | 1,357 | | | 778 | | | |
Accrued settlements and legal fess | 1,354 | | | 2,156 | | | |
Other accrued expenses | 6,950 | | | 7,742 | | | |
Total accrued expenses | $ | 15,184 | | | $ | 16,338 | | | |
8.DEBT
Credit Facility—On December 14, 2020, the Company refinanced its previously existing 2017 Revolving Facility with EagleBank (as refinanced and as amended on September 29, 2021, the “2020 Credit Facility”). The 2020 Credit Facility allows the Company to borrow up to $35.0 million in the aggregate principal amount under the refinanced revolving facility and up to $10.0 million in the aggregate principal amount under a new delayed draw term loan facility. Under the 2020 Credit Facility, interest accrues on the outstanding loan balance and is payable monthly at a rate of the adjusted one-month London InterBank Offered Rate, plus 2.90%, with a floor on the interest rate at 3.75%. As of March 27, 2022 and December 26, 2021, the Company had no outstanding balance under the 2020 Credit Facility.
Under the 2020 Credit Facility, the Company is required to maintain certain levels of liquidity (defined as total cash and cash equivalents on hand plus the available amount under the revolving facility) which liquidity amount shall be no less than the trailing 90-day cash burn. The Company was in compliance with the applicable financial covenants as of March 27, 2022 and December 26, 2021.
The obligations under the 2020 Credit Facility are guaranteed by the Company’s existing and future material subsidiaries and secured by substantially all of the Company’s and subsidiaries guarantor’s assets. The agreement also restricts the Company’s ability, and the ability of the Company’s subsidiary guarantors, to, among other things, incur liens; incur additional indebtedness; transfer or dispose of assets; make acquisitions, change the nature of the business; guarantee obligations; pay dividends to shareholders or repurchase stock; and make advances, loans, or other investments. The agreement contains customary events of default, including, without limitation, failure to pay the outstanding loans or accrued interest on the due date.
The Company had unamortized loan origination fees of $0.1 million and $0.1 million as of March 27, 2022 and December 26, 2021, respectively, which is included within the accompanying condensed consolidated balance sheet in other current assets. The Company recognized less than $0.1 million of interest expense for the thirteen weeks ended March 27, 2022 and March 28, 2021, related to the amortization of loan origination fees.
9.COMMON STOCK
As of March 27, 2022 and December 26, 2021, the Company had reserved shares of common stock for issuance in connection with the following:
| | | | | | | | | | | | | | |
| As of March 27, 2022 | | As of December 26, 2021 | | | |
| | | | | | |
Options outstanding under the 2009 Stock Plan, 2019 Equity Incentive Plan, Spyce Food Co. 2016 Stock Option Plan and Grant Plan and 2021 Equity Incentive Plan | 13,924,612 | | | 13,773,414 | | | | |
Shares reserved for achievement of Spyce milestones | 714,285 | | | 714,285 | | | | |
Shares reserved for employee stock purchase plan | 3,000,000 | | | 3,000,000 | | | | |
RSUs and PSUs outstanding under the 2019 Equity Incentive Plan and 2021 Equity Incentive Plan | 9,176,615 | | | 9,013,854 | | | | |
| | | | | | |
| | | | | | |
Shares available for future issuance under the 2019 Equity Incentive Plan and 2021 Equity Incentive Plan | 11,392,585 | | | 12,159,177 | | | | |
Total reserved shares of common stock | 38,208,097 | | | 38,660,730 | | | | |
10.STOCK-BASED COMPENSATION
2021 Equity Incentive Plan
In connection with the Company’s IPO, the Company adopted the 2021 Equity Incentive Plan (the “2021 Plan”), which allows for issuance of stock options (including incentive stock options and non-qualified stock options), RSUs, including performance-based awards, and other types of awards. The maximum number of shares of common stock that may be issued under the 2021 Plan is 35,166,753, which is the sum of (i) 11,500,000 new shares, plus (ii) an additional number of shares consisting of (a) shares that were available for the issuance of awards under any prior equity incentive plans in place (which shall include the Prior Stock Plans (as defined below) and the Spyce Plan (as defined below)) prior to the time the Company’s 2021 Plan became effective and (b) any shares of the Company’s common stock subject to outstanding stock options or other stock awards granted under the Prior Stock Plans that on or after the Company’s 2021 Plan became effective, terminate or expire prior to the exercise or settlement; are not issued because the award is settled in cash; are forfeited because of the failure to vest; or are reacquired or withheld (or not issued) to satisfy a tax withholding obligation or the purchase or exercise price. Options granted during, or prior to, the thirteen weeks ended March 27, 2022 generally have vesting terms between twelve months and four years and have a contractual life of 10 years.
2009 Stock Plan and 2019 Equity Incentive Plan
Prior to the Company’s IPO, the Company granted stock options, RSUs and performance-based restricted stock awards (“PSUs”) to its employees, as well as nonemployees (including directors and others who provide substantial services to the Company) under the Company’s 2009 Stock Plan and 2019 Equity Incentive Plan
(collectively, the “Prior Stock Plans”). Awards permitted to be granted under the Prior Stock Plans include incentive stock options to the Company’s employees and non-qualified stock options to the Company’s employees and non-employees, as well as stock appreciation rights, restricted stock awards, RSUs (including PSUs), and other forms of stock awards to the Company’s employees, directors and consultants and any of the Company’s affiliated employees and consultants. Options granted during the thirteen weeks ended March 27, 2022 and prior generally have vesting terms between one year and four years and have a contractual life of 10 years. No further stock awards will be granted under the Prior Stock Plans now that the 2021 Equity Incentive Plan is effective; however, awards outstanding under the Prior Stock Plans will continue to be governed by their existing terms.
Spyce Acquisition
In conjunction with the Spyce acquisition, the Company issued shares of Class S stock which converted to the Class A common stock upon the Company’s IPO. See Note 6. Shares of Class S stock that were issued to certain Spyce employees, and the corresponding shares of Class A common stock received by such employees in connection with the Company’s IPO, are subject to time-based service requirements and will vest on September 7, 2023, subject to vesting acceleration in full upon the occurrence of certain events. As the value is fixed, the grant date fair value of these shares represents the fair value of the shares on the acquisition date. For the thirteen weeks ended March 27, 2022, the Company recognized stock-based compensation expense of $0.8 million, related to the vested portion of such shares.
2021 Employee Stock Purchase Plan
In conjunction with the IPO, the Company’s board of directors adopted, and the Company’s stockholders approved the Company’s 2021 employee stock purchase plan (the “ESPP”). The Company’s ESPP authorizes the issuance of 3,000,000 shares of common stock under purchase rights granted to the Company’s employees or to the employees of any of its designated affiliates. The number of shares of the Company’s common stock reserved for issuance will automatically increase on January 1 of each year for a period of 10 years, beginning January 1, 2023, by the lesser of (i) 1% of the total number of shares of our common stock outstanding on December 31 of the immediately preceding year; and (ii) 4,300,000 shares, except before the date of any such increase, the Company’s board of directors may determine that such increase will be less than the amount set forth in clauses (i) and (ii).
As of March 27, 2022, there had been no offering period or purchase period under the ESPP, and no such period will begin unless and until determined by the administrator.
Stock Options
Certain amounts for employee stock option disclosures in prior years were reclassified to conform with current year presentation. The following table summarizes the Company’s stock option activity for the thirteen weeks ended March 27, 2022 and March 28, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
(dollar amounts in thousands except per share amounts) | Number of Shares | | Weighted Average Exercise Price Per Share | | Weighted-Average Remaining Contractual Term (In Years) | | Aggregate Intrinsic Value |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Balance—December 26, 2021 | 13,773,414 | | $ | 6.87 | | | 7.42 | | $ | 337,269 | |
Options granted | 369,274 | | 25.39 | | | | | |
Options exercised | (153,158) | | 5.45 | | | | | |
Options forfeited | (53,721) | | 9.99 | | | | | |
Options expired | (11,197) | | 6.07 | | | | | |
Balance—March 27, 2022 | 13,924,612 | | $ | 7.37 | | | 7.31 | | $ | 348,686 | |
| | | | | | | |
Exercisable—March 27, 2022 | 8,642,689 | | $ | 5.07 | | | 6.31 | | $ | 236,185 | |
| | | | | | | |
Vested and expected to vest—March 27, 2022 | 13,924,612 | | $ | 7.37 | | | 7.31 | | $ | 348,686 | |
| | | | | | | | | | | | | | | | | | | | | | | |
(dollar amounts in thousands except per share amounts) | Number of Shares | | Weighted Average Exercise Price Per Share | | Weighted-Average Remaining Contractual Term (In Years) | | Aggregate Intrinsic Value |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Balance—December 27, 2020 | 14,612,730 | | $ | 4.27 | | | 6.34 | | $ | 15,204 | |
Options granted | — | | — | | | | | |
Options exercised | (561,465) | | 4.49 | | | | | |
Options forfeited | (117,673) | | 5.64 | | | | | |
Options expired | (61,498) | | 5.88 | | | | | |
Balance—March 28, 2021 | 13,872,094 | | $ | 4.24 | | | 6.29 | | $ | 14,627 | |
| | | | | | | |
Exercisable—March 28, 2021 | 5,044,682 | | $ | 4.80 | | | 4.80 | | $ | 11,607 | |
| | | | | | | |
Vested and expected to vest—March 28, 2021 | 13,872,094 | | $ | 4.24 | | | 6.29 | | $ | 14,627 | |
The weighted-average fair value of options granted during the thirteen weeks ended March 27, 2022, was $11.16 for stock options issued. There were no options granted during the thirteen weeks ended March 28, 2021.
The fair value of each option granted has been estimated as of the date of the grant using the Black-Scholes option-pricing model. The Company has elected to account for forfeitures as they occur.
As of March 27, 2022, there was $26.5 million in unrecognized compensation expense related to unvested stock-based compensation arrangements and is expected to be recognized over a weighted average period 2.45 years.
Restricted Stock Units and Performance Stock Units
Restricted stock units
The following table summarizes the Company’s RSU activity for the thirteen weeks ended March 27, 2022:
| | | | | | | | | | | |
(dollar amounts in thousands except per share amounts) | Number of Shares | | Weighted-Average Grant Date Fair Value |
Balance—December 26, 2021 | 2,392,426 | | | $ | 24.18 | |
Granted | 235,972 | | | 25.70 | |
Released | (12,500) | | | 23.00 | |
Forfeited, cancelled, or expired | (60,711) | | | 29.22 | |
Balance—March 27, 2022 | 2,555,187 | | | $ | 24.21 | |
There were no RSUs granted during the thirteen weeks ended March 28, 2021.
As of March 27, 2022, unrecognized compensation expense related to RSUs was $53.3 million and is expected to be recognized over a weighted average period of 1.74 years. The fair value of shares released as of the vesting date during the thirteen weeks ended March 27, 2022 was $0.4 million.
Performance stock units
In October 2021, the Company granted 2,100,000 PSUs to each founder (the “founder PSUs”) for a total of 6,300,000 PSUs, under the 2019 Equity Incentive Plan. The founder PSUs vest upon the satisfaction of a service condition and the achievement of certain stock price goals.
Subsequent to the Company’s IPO, the Company issued 321,428 PSUs to the Spyce founders (“Spyce PSUs”) based on three separate performance-based milestone targets. During the thirteen weeks ended March 27, 2022, the Company has not recorded any stock-based compensation expense related to the Spyce PSUs. Unrecognized compensation expense related to the Spyce PSUs was $9.8 million, which will be expensed if the performance-based milestones targets become probable of being met.
There were no additional PSU grants during the thirteen weeks ended March 27, 2022.
As of March 27, 2022 unrecognized compensation expense related to the founder PSUs was $87.7 million and is expected to recognized over a weighted average period of 2.73 years.
A summary of stock-based compensation expense recognized during the thirteen weeks ended March 27, 2022 and March 28, 2021 is as follows:
| | | | | | | | | | | |
(dollar amounts in thousands) | March 27, 2022 | | March 28, 2021 |
Stock-options | $ | 2,532 | | | $ | 1,224 | |
Restricted stock units | 10,584 | | | — |
Performance stock units | 9,049 | | | — |
Total stock-based compensation | $ | 22,165 | | | $ | 1,224 | |
11.INCOME TAXES
The Company’s entire pretax loss for the thirteen weeks ended March 27, 2022 and March 28, 2021 was from its U.S domestic operations. The Company’s tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items arising during interim periods. For the thirteen weeks ended March 27, 2022 and March 28, 2021, there were no significant discrete items recorded and the Company recorded less than $0.1 million and no income tax expense, respectively.
On March 27, 2020, CARES Act was signed into law. The CARES Act provides numerous tax provisions and other stimulus measures, including provisions, among others, addressing the carryback of NOLs for specific periods, refunds of alternative minimum tax credits, temporary modifications to the limitations placed on the tax deductibility of net interest expenses, and technical amendments for qualified improvement property (“QIP”). Additionally, the CARES Act, in efforts to enhance business’ liquidity, provides for refundable employee retention tax credits and the deferral of the employer-paid portion of social security taxes. The
Company elected to defer the employer-paid portion of social security payroll taxes through December 27, 2020, of $5.0 million, of which $2.5 million was remitted during the fiscal year 2021, and the remaining $2.5 million is required to be remitted at the end of calendar year 2022. The remaining $2.5 million obligation as of March 27, 2022 is included within accrued payroll, within the accompanying condensed consolidated balance sheets.
12.NET LOSS PER SHARE
During the thirteen weeks ended March 27, 2022, the rights, including the liquidation and dividend rights, of the holders of Class A and Class B common stock were identical, except with respect to voting. As the liquidation and dividend rights were identical, the undistributed earnings were allocated on a proportionate basis and the resulting net loss per share attributable to common stockholders were, therefore, the same for both Class A and Class B common stock on an individual or combined basis.
The following table sets forth the computation of net loss per common share:
| | | | | | | | | | | | | | | | | | |
| Thirteen weeks ended | | | | | |
| March 27, 2022 | | March 28, 2021 | | | | | |
(dollar amounts in thousands) | | | | | | | | |
Numerator: | | | | | | | | |
Net loss | $ | (49,200) | | | $ | (30,045) | | | | | | |
Denominator: | | | | | | | | |
Weighted-average common shares outstanding—basic and diluted | 109,472,050 | | | 16,962,694 | | | | | | |
Earnings per share—basic and diluted | $ | (0.45) | | | $ | (1.77) | | | | | | |
The Company’s potentially dilutive securities, which include preferred stock and options to purchase common stock, have been excluded from the computation of diluted net loss per share as the effect would be antidilutive. Therefore, the weighted-average number of common shares outstanding used to calculate both basic and diluted net loss per share is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect:
| | | | | | | | | | | | | | | | | | |
| Thirteen weeks ended | | | | | |
| March 27, 2022 | | March 28, 2021 | | | | | |
Options to purchase common stock | 13,924,612 | | | 13,872,094 | | | | | | |
Preferred stock | — | | | 71,466,912 | | | | | | |
Time-based vesting restricted stock units | 2,555,187 | | | — | | | | | | |
Performance stock units | 6,621,428 | | | — | | | | | | |
Contingently issuable stock | 714,285 | | | — | | | | | | |
Total common stock equivalents | 23,815,512 | | | 85,339,006 | | | | | | |
13.RELATED-PARTY TRANSACTIONS
The Company’s founders and Chief Financial Officer each hold indirect minority passive interests in Luzzatto Opportunity Fund II, LLC, an entity which holds indirect equity interests in Welcome to the Dairy, LLC, which is the owner of the property leased by the Company at 3101 W. Exposition Boulevard, Los Angeles, CA 90018, for the Company’s principal corporate headquarters. For the thirteen weeks ended March 27, 2022 and March 28, 2021, total payments to Welcome to the Dairy, LLC, totaled $1.7 million and $2.7 million, respectively.
14.COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its office facilities, restaurant locations, and certain equipment under non-cancelable operating leases that expire on various dates. During the thirteen weeks ended March 27, 2022 and March 28, 2021, the Company recorded rent expense of $10.4 million and $6.8 million, respectively.
Future minimum lease payments under non-cancelable operating leases subsequent to March 27, 2022 are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
(dollar amounts in thousands) | Total | 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter |
Operating Leases | $ | 410,748 | | $ | 34,179 | | $ | 47,857 | | $ | 48,612 | | $ | 48,338 | | $ | 46,226 | | $ | 185,536 | |
Purchase obligations(1) | $ | 5,067 | | $ | 5,067 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
(1)Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms. The majority of our purchase obligations relate to amounts owed for supplies within our restaurants.
Legal Contingencies
The Company is subject to various claims, lawsuits, governmental investigations and administrative proceedings that arise in the ordinary course of business. The Company does not believe that the ultimate resolution of any of these matters will have a material effect on the Company’s financial position, results of operations, liquidity, or capital resources. However, an increase in the number of these claims, or one or more successful claims under which the Company incurs greater liabilities than the Company currently anticipates, could materially and adversely affect the Company’s business, financial position, results of operations, and cash flows.
15.SUBSEQUENT EVENTS
The Company evaluated subsequent events through May 6, 2022, the date its accompanying condensed consolidated financial statements were available to be issued. Except as discussed below, there are no events that require adjustment to or disclosure in these condensed consolidated financial statements.
On May 2, 2022, the Compensation Committee approved the issuance under the 2021 Plan of 17,843 restricted stock units and 41,625 stock options to an executive of the Company. Both the restricted stock units and the stock options have a vesting commencement date of February 15, 2022 and vest quarterly over 3 years, with 20% vesting in the first year, 30% vesting in the second year and vesting 50% in the third year.