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Texas Roadhouse, Inc. - Quarter Report: 2023 September (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 26, 2023

OR

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to

Commission File Number 000-50972

Texas Roadhouse, Inc.

(Exact name of registrant specified in its charter)

Delaware

20-1083890

(State or other jurisdiction of

(IRS Employer

incorporation or organization)

Identification Number)

6040 Dutchmans Lane, Suite 200

Louisville, Kentucky 40205

(Address of principal executive offices) (Zip Code)

(502) 426-9984

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

TXRH

NASDAQ Global Select Market

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes     No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  

Accelerated Filer  

Non-accelerated Filer  

Smaller Reporting Company  

Emerging Growth Company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes    No  

The number of shares of common stock outstanding were 66,783,122 on October 25, 2023.

Table of Contents

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1 — Financial Statements (Unaudited) — Texas Roadhouse, Inc. and Subsidiaries

3

Condensed Consolidated Balance Sheets —September 26, 2023 and December 27, 2022

3

Condensed Consolidated Statements of Income — For the 13 and 39 Weeks Ended September 26, 2023 and September 27, 2022

4

Condensed Consolidated Statements of Stockholders’ Equity — For the 13 and 39 Weeks Ended September 26, 2023 and September 27, 2022

5

Condensed Consolidated Statements of Cash Flows — For the 39 Weeks Ended September 26, 2023 and September 27, 2022

7

Notes to Condensed Consolidated Financial Statements

8

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3 — Quantitative and Qualitative Disclosures About Market Risk

29

Item 4 — Controls and Procedures

30

PART II. OTHER INFORMATION

Item 1 — Legal Proceedings

31

Item 1A — Risk Factors

31

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds

31

Item 3 — Defaults Upon Senior Securities

31

Item 4 — Mine Safety Disclosures

31

Item 5 — Other Information

32

Item 6 — Exhibits

32

Signatures

33

2

Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

Texas Roadhouse, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)

    

September 26, 2023

    

December 27, 2022

Assets

Current assets:

Cash and cash equivalents

$

69,324

$

173,861

Receivables, net of allowance for doubtful accounts of $54 at September 26, 2023 and $50 at December 27, 2022

 

48,967

 

150,264

Inventories, net

 

36,589

 

38,015

Prepaid income taxes

 

2,823

 

5,097

Prepaid expenses and other current assets

 

23,783

 

29,604

Total current assets

 

181,486

 

396,841

Property and equipment, net of accumulated depreciation of $1,048,243 at September 26, 2023 and $968,036 at December 27, 2022

 

1,425,169

 

1,270,349

Operating lease right-of-use assets, net

679,065

630,258

Goodwill

 

169,684

 

148,732

Intangible assets, net of accumulated amortization of $20,217 at September 26, 2023 and $17,905 at December 27, 2022

 

4,195

 

5,607

Other assets

 

86,738

 

73,878

Total assets

$

2,546,337

$

2,525,665

Liabilities and Stockholders’ Equity

Current liabilities:

Current portion of operating lease liabilities

$

27,186

$

25,490

Accounts payable

 

126,219

 

105,560

Deferred revenue-gift cards

 

201,316

 

335,403

Accrued wages

 

68,013

 

54,544

Income taxes payable

603

434

Accrued taxes and licenses

 

42,478

 

35,264

Other accrued liabilities

 

95,611

 

95,315

Total current liabilities

 

561,426

 

652,010

Operating lease liabilities, net of current portion

730,163

677,874

Long-term debt

 

 

50,000

Restricted stock and other deposits

 

8,873

 

7,979

Deferred tax liabilities, net

 

23,393

 

20,979

Other liabilities

 

103,316

 

89,161

Total liabilities

 

1,427,171

 

1,498,003

Texas Roadhouse, Inc. and subsidiaries stockholders’ equity:

Preferred stock ($0.001 par value, 1,000,000 shares authorized; no shares issued or outstanding)

 

 

Common stock ($0.001 par value, 100,000,000 shares authorized, 66,783,010 and 66,973,311 shares issued and outstanding at September 26, 2023 and December 27, 2022, respectively)

 

67

 

67

Additional paid-in-capital

 

 

13,139

Retained earnings

 

1,103,889

 

999,432

Total Texas Roadhouse, Inc. and subsidiaries stockholders’ equity

 

1,103,956

 

1,012,638

Noncontrolling interests

 

15,210

 

15,024

Total equity

 

1,119,166

 

1,027,662

Total liabilities and equity

$

2,546,337

$

2,525,665

See accompanying notes to condensed consolidated financial statements.

3

Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(in thousands, except per share data)

(unaudited)

13 Weeks Ended

39 Weeks Ended

    

September 26, 2023

    

September 27, 2022

    

September 26, 2023

    

September 27, 2022

Revenue:

Restaurant and other sales

$

1,115,224

$

986,999

$

3,447,192

$

2,986,028

Franchise royalties and fees

6,528

6,299

20,119

19,362

Total revenue

 

1,121,752

 

993,298

 

3,467,311

 

3,005,390

Costs and expenses:

Restaurant operating costs (excluding depreciation and amortization shown separately below):

Food and beverage

 

386,184

342,032

1,198,099

1,026,469

Labor

 

378,814

330,219

1,155,970

985,132

Rent

 

18,177

16,703

54,001

49,785

Other operating

 

169,225

146,036

507,846

442,714

Pre-opening

 

8,663

5,701

19,711

15,315

Depreciation and amortization

 

39,124

33,735

112,764

101,775

Impairment and closure, net

 

(2)

772

131

537

General and administrative

 

47,708

42,812

148,573

132,319

Total costs and expenses

 

1,047,893

 

918,010

 

3,197,095

 

2,754,046

Income from operations

 

73,859

 

75,288

 

270,216

 

251,344

Interest income (expense), net

 

496

(85)

2,730

(877)

Equity income from investments in unconsolidated affiliates

 

139

190

1,181

1,069

Income before taxes

$

74,494

$

75,393

$

274,127

$

251,536

Income tax expense

 

8,870

11,430

35,474

35,708

Net income including noncontrolling interests

65,624

63,963

$

238,653

$

215,828

Less: Net income attributable to noncontrolling interests

 

1,836

1,635

6,207

5,879

Net income attributable to Texas Roadhouse, Inc. and subsidiaries

$

63,788

$

62,328

$

232,446

$

209,949

Net income per common share attributable to Texas Roadhouse, Inc. and subsidiaries:

Basic

$

0.96

$

0.93

$

3.47

$

3.09

Diluted

$

0.95

$

0.93

$

3.46

$

3.08

Weighted average shares outstanding:

Basic

 

66,779

66,886

66,923

67,875

Diluted

 

67,014

67,159

67,179

68,140

Cash dividends declared per share

$

0.55

$

0.46

$

1.65

$

1.38

See accompanying notes to condensed consolidated financial statements.

4

Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except share and per share data)

(unaudited)

For the 13 Weeks Ended September 26, 2023

    

    

    

    

    

Total Texas

    

    

 

Additional

Roadhouse, Inc.

 

Par

Paid-in-

Retained

and

Noncontrolling

 

Shares

Value

Capital

Earnings

Subsidiaries

Interests

Total

 

Balance, June 27, 2023

 

66,843,456

$

67

$

$

1,082,915

$

1,082,982

$

15,268

$

1,098,250

Net income

 

 

 

 

63,788

 

63,788

 

1,836

 

65,624

Distributions to noncontrolling interest holders

 

 

 

 

 

 

(1,894)

 

(1,894)

Dividends declared ($0.55 per share)

 

 

 

 

(36,731)

 

(36,731)

 

 

(36,731)

Shares issued under share-based compensation plans including tax effects

 

68,248

 

 

 

 

 

 

Indirect repurchase of shares for minimum tax withholdings

 

(21,101)

 

 

(2,360)

 

 

(2,360)

 

 

(2,360)

Repurchase of shares of common stock, including excise tax

(107,593)

(6,162)

(6,083)

(12,245)

(12,245)

Share-based compensation

 

 

 

8,522

 

 

8,522

 

 

8,522

Balance, September 26, 2023

 

66,783,010

$

67

$

$

1,103,889

$

1,103,956

$

15,210

$

1,119,166

For the 13 Weeks Ended September 27, 2022

    

    

    

    

    

Total Texas

    

    

Additional

Roadhouse, Inc.

Par

Paid-in-

Retained

and

Noncontrolling

Shares

Value

Capital

Earnings

Subsidiaries

Interests

Total

Balance, June 28, 2022

 

66,853,296

$

67

$

$

938,825

$

938,892

$

15,127

$

954,019

Net income

 

 

 

 

62,328

 

62,328

 

1,635

 

63,963

Distributions to noncontrolling interest holders

 

 

 

 

 

 

(1,704)

 

(1,704)

Dividends declared ($0.46 per share)

 

 

 

 

(30,781)

 

(30,781)

 

 

(30,781)

Shares issued under share-based compensation plans including tax effects

 

88,641

 

 

 

 

 

 

Indirect repurchase of shares for minimum tax withholdings

 

(27,351)

 

 

(2,444)

 

 

(2,444)

 

 

(2,444)

Share-based compensation

 

 

 

9,580

 

 

9,580

 

 

9,580

Balance, September 27, 2022

 

66,914,586

$

67

$

7,136

$

970,372

$

977,575

$

15,058

$

992,633

See accompanying notes to condensed consolidated financial statements.

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except share and per share data)

(unaudited)

For the 39 Weeks Ended September 26, 2023

    

    

    

    

    

Total Texas

    

    

 

Additional

Roadhouse, Inc.

 

Par

Paid-in-

Retained

and

Noncontrolling

 

Shares

Value

Capital

Earnings

Subsidiaries

Interests

Total

 

Balance, December 27, 2022

66,973,311

$

67

$

13,139

$

999,432

$

1,012,638

$

15,024

$

1,027,662

Net income

 

 

 

 

232,446

 

232,446

 

6,207

 

238,653

Distributions to noncontrolling interest holders

 

 

 

 

 

 

(6,021)

 

(6,021)

Dividends declared ($1.65 per share)

 

 

 

 

(110,429)

 

(110,429)

 

 

(110,429)

Shares issued under share-based compensation plans including tax effects

 

324,415

 

 

 

 

 

 

Indirect repurchase of shares for minimum tax withholdings

 

(100,397)

 

 

(10,599)

 

 

(10,599)

 

 

(10,599)

Repurchase of shares of common stock, including excise tax

(414,319)

(27,806)

(17,560)

(45,366)

(45,366)

Share-based compensation

 

 

 

25,266

 

 

25,266

 

 

25,266

Balance, September 26, 2023

 

66,783,010

$

67

$

$

1,103,889

$

1,103,956

$

15,210

$

1,119,166

For the 39 Weeks Ended September 27, 2022

    

    

    

    

    

Total Texas

    

    

Additional

Roadhouse, Inc.

Par

Paid-in-

Retained

and

Noncontrolling

Shares

Value

Capital

Earnings

Subsidiaries

Interests

Total

Balance, December 28, 2021

 

69,382,418

$

69

$

114,504

$

943,551

$

1,058,124

$

15,360

$

1,073,484

Net income

 

 

 

 

209,949

 

209,949

 

5,879

 

215,828

Distributions to noncontrolling interest holders

 

 

 

 

 

 

(5,841)

 

(5,841)

Acquisition of noncontrolling interest

(1,395)

(1,395)

(340)

(1,735)

Dividends declared ($1.38 per share)

 

 

 

 

(93,328)

 

(93,328)

 

 

(93,328)

Shares issued under share-based compensation plans including tax effects

 

390,996

 

 

 

 

 

 

Indirect repurchase of shares for minimum tax withholdings

 

(124,823)

 

 

(11,108)

 

 

(11,108)

 

 

(11,108)

Repurchase of shares of common stock

(2,734,005)

(2)

(123,057)

(89,800)

(212,859)

(212,859)

Share-based compensation

 

 

 

28,192

 

 

28,192

 

 

28,192

Balance, September 27, 2022

 

66,914,586

$

67

$

7,136

$

970,372

$

977,575

$

15,058

$

992,633

See accompanying notes to condensed consolidated financial statements.

6

Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

39 Weeks Ended

    

September 26, 2023

    

September 27, 2022

Cash flows from operating activities:

Net income including noncontrolling interests

$

238,653

$

215,828

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

 

112,764

 

101,775

Deferred income taxes

 

2,707

 

5,246

Loss on disposition of assets

 

4,315

 

3,635

Impairment and closure costs

 

41

 

772

Equity income from investments in unconsolidated affiliates

 

(1,181)

 

(1,069)

Distributions of income received from investments in unconsolidated affiliates

 

493

 

817

Provision for doubtful accounts

 

4

 

36

Share-based compensation expense

 

25,266

 

28,192

Changes in operating working capital, net of acquisitions:

Receivables

 

102,068

 

123,551

Inventories

 

1,835

 

(990)

Prepaid expenses and other current assets

 

5,821

 

2,831

Other assets

 

(12,680)

 

10,313

Accounts payable

 

14,188

 

1,941

Deferred revenue—gift cards

 

(135,251)

 

(119,338)

Accrued wages

 

13,469

 

21,130

Prepaid income taxes and income taxes payable

 

2,443

 

10,886

Accrued taxes and licenses

 

7,041

 

4,016

Other accrued liabilities

 

(10,117)

 

(8,916)

Operating lease right-of-use assets and lease liabilities

 

4,702

 

3,950

Other liabilities

 

14,158

 

(9,549)

Net cash provided by operating activities

 

390,739

 

395,057

Cash flows from investing activities:

Capital expenditures—property and equipment

 

(243,895)

(174,194)

Acquisition of franchise restaurants, net of cash acquired

(39,153)

(33,069)

Proceeds from sale of investments in unconsolidated affiliates

632

316

Proceeds from the sale of property and equipment

 

1,800

 

2,262

Proceeds from sale leaseback transactions

7,097

9,078

Net cash used in investing activities

 

(273,519)

 

(195,607)

Cash flows from financing activities:

Payments on revolving credit facility

(50,000)

(25,000)

Distributions to noncontrolling interest holders

 

(6,021)

(5,841)

Acquisition of noncontrolling interest

(1,735)

Proceeds from restricted stock and other deposits, net

 

485

91

Indirect repurchase of shares for minimum tax withholdings

 

(10,599)

(11,108)

Repurchase of shares of common stock

 

(45,193)

(212,859)

Dividends paid to shareholders

 

(110,429)

(93,328)

Net cash used in financing activities

 

(221,757)

 

(349,780)

Net decrease in cash and cash equivalents

 

(104,537)

 

(150,330)

Cash and cash equivalents—beginning of period

 

173,861

335,645

Cash and cash equivalents—end of period

$

69,324

$

185,315

Supplemental disclosures of cash flow information:

Interest paid, net of amounts capitalized

$

877

$

1,091

Income taxes paid

$

30,323

$

19,591

Capital expenditures included in current liabilities

$

51,556

$

32,468

See accompanying notes to condensed consolidated financial statements.

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(tabular amounts in thousands, except share and per share data)

(unaudited)

(1)  Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Texas Roadhouse, Inc., our wholly-owned subsidiaries and subsidiaries in which we have a controlling interest (collectively, the "Company," "we," "our" and/or "us") as of September 26, 2023 and December 27, 2022 and for the 13 and 39 weeks ended September 26, 2023 and September 27, 2022.

The Company maintains three restaurant concepts operating as Texas Roadhouse, Bubba’s 33 and Jaggers. As of September 26, 2023, we owned and operated 623 restaurants and franchised an additional 99 restaurants in 49 states and ten foreign countries. Of the 99 franchise restaurants, there were 55 domestic restaurants and 44 international restaurants. As of September 27, 2022, we owned and operated 587 restaurants and franchised an additional 98 restaurants in 49 states and ten foreign countries. Of the 98 franchise restaurants, there were 62 domestic restaurants and 36 international restaurants.

As of September 26, 2023 and September 27, 2022, we owned a majority interest in 20 company restaurants. The operating results of these majority-owned restaurants are consolidated and the portion of income attributable to noncontrolling interests is reflected in the line item net income attributable to noncontrolling interests in our unaudited condensed consolidated statements of income.

As of September 26, 2023 and September 27, 2022, we owned a 5.0% to 10.0% equity interest in 20 and 23 domestic franchise restaurants, respectively. These unconsolidated restaurants are accounted for using the equity method. Our investments in these unconsolidated affiliates are included in other assets in our unaudited condensed consolidated balance sheets, and we record our percentage share of net income earned by these unconsolidated affiliates in our unaudited condensed consolidated statements of income under equity income from investments in unconsolidated affiliates. All significant intercompany balances and transactions for these unconsolidated restaurants as well as the entities whose accounts have been consolidated have been eliminated.

We have made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reporting of revenue and expenses during the periods to prepare these unaudited condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles ("GAAP"). Significant items subject to such estimates and assumptions include the carrying amounts of property and equipment, goodwill, obligations related to insurance reserves, leases, legal reserves, gift card breakage and income taxes. Actual results could differ from those estimates.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our consolidated financial statements for the periods presented. The unaudited condensed consolidated financial statements have been prepared in accordance with GAAP, except that certain information and footnotes have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission. Operating results for the 13 and 39 weeks ended September 26, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 26, 2023. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 27, 2022.

Our significant interim accounting policies include the recognition of income taxes using an estimated annual effective tax rate.

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(2) Recent Accounting Pronouncements

Reference Rate Reform

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting. These changes are intended to simplify the market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. We adopted this guidance during the 39 weeks ended September 26, 2023 and the adoption did not have a material impact on our unaudited condensed consolidated financial statements.

(3)   Long-term Debt

We maintain a revolving credit facility (the "credit facility") with a syndicate of commercial lenders led by JPMorgan Chase Bank, N.A. and PNC Bank, N.A. The credit facility is an unsecured, revolving credit agreement and has a borrowing capacity of up to $300.0 million with the option to increase by an additional $200.0 million subject to certain limitations, including approval by the syndicate of lenders. The credit facility has a maturity date of May 1, 2026.

On May 19, 2023, we amended the credit facility to provide for the transition from LIBOR to the Secured Overnight Financing Rate ("SOFR") as the benchmark rate for purposes of calculating interest on outstanding borrowings. Pursuant to the amendment, we are required to pay interest on outstanding borrowings at the Term SOFR, plus a fixed adjustment of 0.10% and a variable adjustment of 0.875% to 1.875% depending on our leverage ratio. At the time of transition to the Term SOFR, we had no outstanding borrowings under the credit facility.

As of September 26, 2023, we had no outstanding balance on the credit facility and had $287.7 million of availability, net of $12.3 million of outstanding letters of credit. As of December 27, 2022, we had $50.0 million outstanding on the credit facility and $233.5 million of availability, net of $16.5 million of outstanding letters of credit. The outstanding amount as of December 27, 2022 is included as long-term debt on our unaudited condensed consolidated balance sheet.

The interest rate for the credit facility as of September 26, 2023 and September 27, 2022 was 6.19% and 3.69%, respectively.

The lenders’ obligation to extend credit pursuant to the credit facility depends on us maintaining certain financial covenants. We were in compliance with all financial covenants as of September 26, 2023.

(4) Revenue

The following table disaggregates our revenue by major source:

13 Weeks Ended

39 Weeks Ended

September 26, 2023

September 27, 2022

September 26, 2023

September 27, 2022

Restaurant and other sales

$

1,115,224

$

986,999

$

3,447,192

$

2,986,028

Franchise royalties

5,832

5,559

17,896

17,029

Franchise fees

696

740

2,223

2,333

Total revenue

$

1,121,752

$

993,298

$

3,467,311

$

3,005,390

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The following table presents a rollforward of deferred revenue-gift cards:

13 Weeks Ended

39 Weeks Ended

September 26, 2023

September 27, 2022

September 26, 2023

September 27, 2022

Beginning balance

$

226,130

$

208,429

$

335,403

$

300,657

Gift card activations, net

48,824

42,741

167,378

144,402

Gift card redemptions and breakage

(73,638)

(68,905)

(301,465)

(262,794)

Ending balance

$

201,316

$

182,265

$

201,316

$

182,265

We recognized restaurant sales of $26.5 million and $191.7 million for the 13 and 39 weeks ended September 26, 2023, respectively, related to amounts in deferred revenue as of December 27, 2022. We recognized restaurant sales of $30.3 million and $171.9 million for the 13 and 39 weeks ended September 27, 2022, respectively, related to amounts in deferred revenue as of December 28, 2021.

(5) Income Taxes

A reconciliation of the statutory federal income tax rate to our effective tax rate for the 13 and 39 weeks ended September 26, 2023 and September 27, 2022 is as follows:

13 Weeks Ended

   

39 Weeks Ended

   

September 26, 2023

   

September 27, 2022

   

September 26, 2023

   

September 27, 2022

Tax at statutory federal rate

21.0

%  

21.0

%  

21.0

%  

21.0

%

State and local tax, net of federal benefit

3.7

3.8

3.7

3.8

FICA tip tax credit

(12.0)

(9.6)

(11.0)

(10.1)

Work opportunity tax credit

(1.0)

(1.0)

(1.1)

(1.3)

Stock compensation

(0.6)

(0.2)

(0.6)

Net income attributable to noncontrolling interests

(0.4)

(0.3)

(0.4)

(0.4)

Officers compensation

0.4

0.8

0.6

0.6

Other

0.8

0.7

0.7

0.6

Total

11.9

%  

15.2

%  

12.9

%  

14.2

%

Our effective tax rate was 11.9% and 15.2% for the 13 weeks ended September 26, 2023 and September 27, 2022, respectively. Our effective tax rate was 12.9% and 14.2% for the 39 weeks ended September 26, 2023 and September 27, 2022, respectively. The reduction in our tax rate for the 13 and 39 weeks ended September 26, 2023 as compared to the prior year periods was primarily driven by an increase in the FICA tip credit benefit along with an increase in the excess tax benefit for stock compensation.

(6)

Commitments and Contingencies

The estimated cost of completing capital project commitments at September 26, 2023 and December 27, 2022 was $261.3 million and $205.7 million, respectively.

As of September 26, 2023 and December 27, 2022, we were contingently liable for $10.6 million and $11.3 million, respectively, for seven lease guarantees. These amounts represent the maximum potential liability of future payments under the guarantees. In the event of default, the indemnity and default clauses in our assignment agreements govern our ability to pursue and recover damages incurred. No material liabilities have been recorded as of September 26, 2023 and December 27, 2022, as the likelihood of default was deemed to be less than probable and the fair value of the guarantees is not considered significant.

During the 13 and 39 weeks ended September 26, 2023, we bought most of our beef from four suppliers. We have no material minimum purchase commitments with our vendors that extend beyond a year.

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Occasionally, we are a defendant in litigation arising in the ordinary course of business, including "slip and fall" accidents, employment related claims, claims related to our service of alcohol, and claims from guests or employees alleging illness, injury or food quality, health or operational concerns.  None of these types of litigation, most of which are covered by insurance, has had a material adverse effect on us and, as of the date of this report, we are not party to any litigation that we believe could have a material adverse effect on our business.

(7)   Acquisitions

On December 28, 2022, the first day of the 2023 fiscal year, we completed the acquisition of eight franchise Texas Roadhouse restaurants located in Maryland and Delaware, including four in which we previously held a 5.0% equity interest. Pursuant to the terms of the acquisition agreements, we paid a total purchase price of $39.1 million, net of cash acquired, for 100% of the entities. The transactions in which we held an equity interest were accounted for as step acquisitions and we recorded a gain of $0.6 million on our previous investments in equity income from investments in unconsolidated affiliates in the unaudited condensed consolidated statements of income.

These transactions were accounted for using the acquisition method as defined in Accounting Standards Codification ("ASC") 805, Business Combinations. These acquisitions are consistent with our long-term strategy to increase net income and earnings per share.

The following table summarizes the consideration paid for these acquisitions, and the estimated preliminary fair value of the assets acquired, and the liabilities assumed at the acquisition date, which are adjusted for measurement-period adjustments through September 26, 2023.

Inventory

$

410

Other assets

293

Property and equipment

 

17,763

Operating lease right-of-use assets

4,775

Goodwill

 

20,067

Intangible assets

 

1,700

Deferred revenue-gift cards

(1,164)

Current portion of operating lease liabilities

 

(110)

Operating lease liabilities, net of current portion

(4,665)

$

39,069

The aggregate purchase price is preliminary as we are finalizing working capital adjustments. Intangible assets represent reacquired franchise rights which are being amortized over a weighted-average useful life of 2.2 years. We expect all of the goodwill and intangible asset amortization will be deductible for tax purposes and believe the resulting amount of goodwill reflects the benefit of sales and unit growth opportunities as well as the benefit of the assembled workforce of the acquired restaurants.

Pro forma financial detail and operating results for the 13 and 39 weeks ended September 26, 2023 have not been presented as the results of the acquired restaurants are not material to our unaudited condensed consolidated financial position, results of operations or cash flows.

On March 30, 2022, we completed the acquisition of one franchise Texas Roadhouse restaurant located in Nebraska in which we previously held a 5.49% equity interest. Pursuant to the terms of the acquisition agreement, we paid a total purchase price of $6.6 million, net of cash acquired, for 100% of the entity. The transaction was accounted for as a step acquisition and we recorded a gain of $0.3 million on our previous investment in equity income from investments in unconsolidated affiliates in the unaudited condensed consolidated statements of income.

On December 29, 2021, the first day of the 2022 fiscal year, we completed the acquisition of seven franchise Texas Roadhouse restaurants located in South Carolina and Georgia. Pursuant to the terms of the acquisition agreements, we paid a total purchase price of $26.5 million, net of cash acquired. These acquisitions are consistent with our long-term

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strategy to increase net income and earnings per share. The transactions were accounted for using the acquisition method as defined in ASC 805, Business Combinations.

The following table summarizes the consideration paid for these acquisitions, and the estimated fair value of the assets acquired, and the liabilities assumed at the acquisition date, which are adjusted for final measurement-period adjustments.

Inventory

$

321

Other assets

222

Property and equipment

4,841

Operating lease right-of-use assets

1,221

Goodwill

22,616

Intangible assets

6,100

Deferred revenue-gift cards

(947)

Current portion of operating lease liabilities

(47)

Operating lease liabilities, net of current portion

(1,174)

$

33,153

Intangible assets represent reacquired franchise rights which are being amortized over a weighted-average useful life of 3.4 years. We expect all of the goodwill and intangible asset amortization deductible for tax purposes and believe the resulting amount of goodwill reflects the benefit of sales and unit growth opportunities as well as the benefit of the assembled workforce of the acquired restaurants.

(8)   Related Party Transactions

As of September 26, 2023 and September 27, 2022, we had four franchise restaurants and one majority-owned company restaurant owned in part by a current officer of the Company. The franchise entities paid us fees of $0.5 million for the 13 weeks ended September 26, 2023 and September 27, 2022. The franchise entities paid us fees of $1.5 million and $1.4 million for the 39 weeks ended September 26, 2023 and September 27, 2022, respectively.

(9)   Earnings Per Share

The share and net income per share data for all periods presented are based on the historical weighted-average shares outstanding.  The diluted earnings per share calculations show the effect of the weighted-average restricted stock units from our equity incentive plans. Performance stock units are not included in the diluted earnings per share calculation until the performance-based criteria have been met.

For all periods presented, the weighted-average shares of nonvested stock units that were outstanding but not included in the computation of diluted earnings per share because they would have had an anti-dilutive effect were not significant.

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The following table sets forth the calculation of earnings per share and weighted-average shares outstanding as presented in the accompanying unaudited condensed consolidated statements of income:

13 Weeks Ended

39 Weeks Ended

    

September 26, 2023

    

September 27, 2022

    

September 26, 2023

    

September 27, 2022

Net income attributable to Texas Roadhouse, Inc. and subsidiaries

$

63,788

$

62,328

$

232,446

$

209,949

Basic EPS:

Weighted-average common shares outstanding

 

66,779

66,886

66,923

67,875

Basic EPS

$

0.96

$

0.93

$

3.47

$

3.09

Diluted EPS:

Weighted-average common shares outstanding

 

66,779

66,886

66,923

67,875

Dilutive effect of nonvested stock units

 

235

273

256

265

Shares-diluted

 

67,014

 

67,159

 

67,179

 

68,140

Diluted EPS

$

0.95

$

0.93

$

3.46

$

3.08

(10) Fair Value Measurements

At September 26, 2023 and December 27, 2022, the fair values of cash and cash equivalents, accounts receivable and accounts payable approximated their carrying values based on the short-term nature of these instruments. At December 27, 2022, the fair value of our credit facility approximated its carrying value since it is a variable rate credit facility (Level 2). There were no transfers among levels within the fair value hierarchy during the 13 and 39 weeks ended September 26, 2023.

The following table presents the fair values for our financial assets and liabilities measured on a recurring basis:

Fair Value Measurements

 

    

Level

    

September 26, 2023

    

December 27, 2022

 

Deferred compensation plan—assets

 

1

$

74,775

$

61,835

Deferred compensation plan—liabilities

 

1

$

(74,690)

$

(61,668)

We report the accounts of the deferred compensation plan in other assets and the corresponding liability in other liabilities in our unaudited condensed consolidated financial statements. These investments are considered trading securities and are reported at fair value based on quoted market prices. The realized and unrealized holding gains and losses related to these investments, as well as the offsetting compensation expense, are recorded in general and administrative expense in the unaudited condensed consolidated statements of income.

The following table presents the fair value of our assets measured on a nonrecurring basis:

Fair Value Measurements

    

    

September 26,

    

December 27,

Level

2023

2022

Long-lived assets held for use

3

$

$

2,000

Long-lived assets held for use include the land and building for one underperforming restaurant that was impaired to fair value at December 27, 2022 using Level 3 inputs.

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(11) Stock Repurchase Program

On March 17, 2022, our Board of Directors (the "Board") approved a stock repurchase program under which we may repurchase up to $300.0 million of our common stock. This stock repurchase program has no expiration date and replaced a previous stock repurchase program which was approved on May 31, 2019 that authorized the Company to repurchase up to $250.0 million of our common stock. All repurchases to date under our stock repurchase programs have been made through open market transactions. The timing and the amount of any repurchases are determined by management under parameters established by the Board, based on an evaluation of our stock price, market conditions and other corporate considerations.

For the 13 and 39 weeks ended September 26, 2023, we paid $12.1 million and $45.2 million to repurchase 107,593 shares and 414,319 shares of our common stock, respectively. For the 13 weeks ended September 27, 2022, we did not repurchase any shares of our common stock. For the 39 weeks ended September 27, 2022, we paid $212.9 million to repurchase 2,734,005 shares of our common stock. As of September 26, 2023, $121.7 million remained under our authorized stock repurchase program.

(12) Segment Information

We manage our restaurant and franchising operations by concept and as a result have identified Texas Roadhouse, Bubba’s 33, Jaggers and our retail initiatives as separate operating segments. Our reportable segments are Texas Roadhouse and Bubba’s 33. The Texas Roadhouse reportable segment includes the results of our domestic company Texas Roadhouse restaurants and domestic and international franchise Texas Roadhouse restaurants. The Bubba's 33 reportable segment includes the results of our domestic company Bubba's 33 restaurants. Our remaining operating segments, which include the results of our domestic company and franchise Jaggers restaurants and the results of our retail initiatives, are included in Other. In addition, corporate-related segment assets, depreciation and amortization, and capital expenditures are also included in Other.

Management uses restaurant margin as the primary measure for assessing performance of our segments. Restaurant margin represents restaurant and other sales less restaurant-level operating costs, including food and beverage costs, labor, rent and other operating costs. Restaurant margin also includes sales and operating costs related to our non-royalty based retail initiatives. Restaurant margin is used by our chief operating decision maker to evaluate restaurant-level operating efficiency and performance.

In calculating restaurant margin, we exclude certain non-restaurant-level costs that support operations, including pre-opening and general and administrative expenses, but do not have a direct impact on restaurant-level operational efficiency and performance. We exclude pre-opening expense as it occurs at irregular intervals and would impact comparability to prior period results. We exclude depreciation and amortization expense, substantially all of which relates to restaurant-level assets, as it represents a non-cash charge for the investment in our restaurants. We exclude impairment and closure expense as we believe this provides a clearer perspective of the Company’s ongoing operating performance and a more useful comparison to prior period results. Restaurant margin as presented may not be comparable to other similarly titled measures of other companies in our industry.

Restaurant and other sales for all operating segments are derived primarily from food and beverage sales. We do not rely on any major customer as a source of sales and the customers and assets of our reportable segments are located predominantly in the United States. There are no material transactions between reportable segments.

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The following tables reconcile our segment results to our consolidated results reported in accordance with GAAP:

For the 13 Weeks Ended September 26, 2023

Texas Roadhouse

Bubba's 33

Other

Total

Restaurant and other sales

$

1,047,795

$

61,083

$

6,346

$

1,115,224

Restaurant operating costs (excluding depreciation and amortization)

893,330

53,584

5,486

952,400

Restaurant margin

$

154,465

$

7,499

$

860

$

162,824

Depreciation and amortization

$

32,416

$

3,518

$

3,190

$

39,124

Capital expenditures

76,811

7,027

5,477

89,315

For the 13 Weeks Ended September 27, 2022

Texas Roadhouse

Bubba's 33

Other

Total

Restaurant and other sales

$

931,683

$

51,993

$

3,323

$

986,999

Restaurant operating costs (excluding depreciation and amortization)

785,546

46,368

3,076

834,990

Restaurant margin

$

146,137

$

5,625

$

247

$

152,009

Depreciation and amortization

$

27,757

$

3,198

$

2,780

$

33,735

Capital expenditures

55,158

8,107

2,363

65,628

For the 39 Weeks Ended September 26, 2023

Texas Roadhouse

Bubba's 33

Other

Total

Restaurant and other sales

$

3,244,973

$

184,012

$

18,207

$

3,447,192

Restaurant operating costs (excluding depreciation and amortization)

2,741,313

158,428

16,175

2,915,916

Restaurant margin

$

503,660

$

25,584

$

2,032

$

531,276

Depreciation and amortization

$

93,072

$

10,399

$

9,293

$

112,764

Capital expenditures

210,403

23,032

10,460

243,895

For the 39 Weeks Ended September 27, 2022

Texas Roadhouse

Bubba's 33

Other

Total

Restaurant and other sales

$

2,818,565

$

157,830

$

9,633

$

2,986,028

Restaurant operating costs (excluding depreciation and amortization)

2,357,910

136,837

9,353

2,504,100

Restaurant margin

$

460,655

$

20,993

$

280

$

481,928

Depreciation and amortization

$

83,402

$

9,690

$

8,683

$

101,775

Capital expenditures

146,151

21,898

6,145

174,194

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A reconciliation of restaurant margin to income from operations is presented below. We do not allocate interest income (expense), net and equity income from investments in unconsolidated affiliates to reportable segments.

13 Weeks Ended

39 Weeks Ended

September 26, 2023

September 27, 2022

September 26, 2023

September 27, 2022

Restaurant margin

$

162,824

$

152,009

$

531,276

$

481,928

Add:

Franchise royalties and fees

6,528

6,299

20,119

19,362

Less:

Pre-opening

8,663

5,701

19,711

15,315

Depreciation and amortization

39,124

33,735

112,764

101,775

Impairment and closure, net

(2)

772

131

537

General and administrative

47,708

42,812

148,573

132,319

Income from operations

$

73,859

$

75,288

$

270,216

$

251,344

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT

This report contains forward-looking statements based on our current expectations, estimates and projections about our industry and certain assumptions made by us. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "may," "will" and variations of these words or similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. The section entitled "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 27, 2022, and in Part II, Item 1A in this Form 10-Q, along with disclosures in our other Securities and Exchange Commission ("SEC") filings discuss some of the important risk factors that may affect our business, results of operations or financial condition. You should carefully consider those risks, in addition to the other information in this report, and in our other filings with the SEC, before deciding to invest in our Company or to maintain or increase your investment. We undertake no obligation to revise or update publicly any forward-looking statements, except as may be required by applicable law. The information contained in this Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that discuss our business in greater detail and advise interested parties of certain risks, uncertainties and other factors that may affect our business, results of operations or financial condition.

Our Company

Texas Roadhouse, Inc. is a growing restaurant company operating predominantly in the casual dining segment. Our late founder, W. Kent Taylor, started the Company in 1993 with the opening of the first Texas Roadhouse restaurant in Clarksville, Indiana. Since then, we have grown to three restaurant concepts with 722 restaurants in 49 states and ten foreign countries. As of September 26, 2023, our 722 restaurants included:

623 company restaurants, of which 603 were wholly-owned and 20 were majority-owned.  The results of operations of company restaurants are included in our unaudited condensed consolidated statements of income. The portion of income attributable to noncontrolling interests in company restaurants that are majority-owned is reflected in the line item net income attributable to noncontrolling interests in our unaudited condensed consolidated statements of income. Of the 623 company restaurants, we operated 573 as Texas Roadhouse restaurants, 43 as Bubba’s 33 restaurants and seven as Jaggers restaurants.

99 franchise restaurants, of which 20 we have a 5.0% to 10.0% ownership interest. The income derived from our minority interests in these franchise restaurants is reported in the line item equity income from investments in unconsolidated affiliates in our unaudited condensed consolidated statements of income. Additionally, we provide various management services to these 20 franchise restaurants. Of the 99 franchise restaurants, 54 were domestic Texas Roadhouse restaurants, one was a domestic Jaggers restaurant and 44 were international Texas Roadhouse restaurants.

We have contractual arrangements that grant us the right to acquire at pre-determined formulas the remaining equity interests in 18 of the 20 majority-owned company restaurants and 51 of the 55 domestic franchise restaurants.

Throughout this report, we use the term "restaurants" to include Texas Roadhouse and Bubba’s 33, unless otherwise noted.

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Presentation of Financial and Operating Data

Throughout this report, the 13 weeks ended September 26, 2023, and September 27, 2022, are referred to as Q3 2023 and Q3 2022, respectively. The 39 weeks ended September 26, 2023, and September 27, 2022, are referred to as 2023 YTD and 2022 YTD, respectively. Fiscal years 2023 and 2022 are 52 weeks in length, while the quarters for those years are 13 weeks in length.

Key Measures We Use to Evaluate Our Company

Key measures we use to evaluate and assess our business include the following:

Comparable Restaurant Sales.   Comparable restaurant sales reflect the change in sales for all company restaurants across all concepts, unless otherwise noted, over the same period of the prior year for the comparable restaurant base. We define the comparable restaurant base to include those restaurants open for a full 18 months before the beginning of the period measured excluding restaurants permanently closed during the period. Comparable restaurant sales can be impacted by changes in guest traffic counts or by changes in the per person average check amount. Menu price changes, the mix of menu items sold, and the mix of dine-in versus to-go sales can affect the per person average check amount.

Average Unit Volume.   Average unit volume represents the average quarterly or annual restaurant sales for Texas Roadhouse and Bubba’s 33 restaurants open for a full six months before the beginning of the period measured excluding sales of restaurants permanently closed during the period. Historically, average unit volume growth is less than comparable restaurant sales growth which indicates that newer restaurants are operating with sales levels lower than the company average. At times, average unit volume growth may be more than comparable restaurant sales growth which indicates that newer restaurants are operating with sales levels higher than the company average.

Store Weeks and New Restaurant Openings.   Store weeks represent the number of weeks that all company restaurants across all concepts, unless otherwise noted, were open during the reporting period. Store weeks include weeks in which a restaurant is temporarily closed. Store week growth is driven by new restaurant openings and franchise acquisitions. New restaurant openings reflect the number of restaurants opened during a particular fiscal period, excluding store relocations. We consider store openings that occur simultaneously with a store closure in the same trade area to be a relocation.

Restaurant Margin. Restaurant margin (in dollars and as a percentage of restaurant and other sales) represents restaurant and other sales less restaurant-level operating costs, including food and beverage costs, labor, rent and other operating costs. Restaurant margin is not a measurement determined in accordance with U.S. generally accepted accounting principles ("GAAP") and should not be considered in isolation, or as an alternative, to income from operations. This non-GAAP measure is not indicative of overall company performance and profitability in that this measure does not accrue directly to the benefit of shareholders due to the nature of the costs excluded. Restaurant margin is widely regarded as a useful metric by which to evaluate core restaurant-level operating efficiency and performance over various reporting periods on a consistent basis.

In calculating restaurant margin, we exclude certain non-restaurant-level costs that support operations, including general and administrative expenses, but do not have a direct impact on restaurant-level operational efficiency and performance. We exclude pre-opening expense as it occurs at irregular intervals and would impact comparability to prior period results. We exclude depreciation and amortization expense, substantially all of which relates to restaurant-level assets, as it represents a non-cash charge for the investment in our restaurants. We exclude impairment and closure expense as we believe this provides a clearer perspective of the Company’s ongoing operating performance and a more useful comparison to prior period results. Restaurant margin as presented may not be comparable to other similarly titled measures of other companies in our industry. A reconciliation of income from operations to restaurant margin is included in the Results of Operations section below.

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Other Key Definitions

Restaurant and Other Sales.   Restaurant sales include gross food and beverage sales, net of promotions and discounts, for all company restaurants. Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from restaurant sales in our unaudited condensed consolidated statements of income. Other sales include the net impact of the amortization of third party gift card fees and gift card breakage income, sales related to our non-royalty based retail products and content revenue related to our tabletop kiosk devices.
Franchise Royalties and Fees.   Franchise royalties consist of royalties, as defined in our franchise agreement, paid to us by our domestic and international franchisees. Domestic and/or international franchisees also typically pay an initial franchise fee and/or development fee for each new restaurant or territory.

Food and Beverage Costs.   Food and beverage costs consist of the costs of raw materials and ingredients used in the preparation of food and beverage products sold in our company restaurants. Approximately half of our food and beverage costs relate to beef.

Restaurant Labor Expenses.   Restaurant labor expenses include all direct and indirect labor costs incurred in operations except for profit sharing incentive compensation expenses earned by our restaurant managing partners and market partners. These profit sharing expenses are reflected in restaurant other operating expenses. Restaurant labor expenses also include share-based compensation expense related to restaurant-level employees.

Restaurant Rent Expense.   Restaurant rent expense includes all rent, except pre-opening rent, associated with the leasing of real estate and includes base, percentage and straight-line rent expense.

Restaurant Other Operating Expenses.   Restaurant other operating expenses consist of all other restaurant-level operating costs, the major components of which are credit card fees, utilities, supplies, repairs and maintenance, outside services, property taxes, profit sharing incentive compensation for our restaurant managing partners and market partners and general liability insurance.

Pre-opening Expenses.   Pre-opening expenses, which are charged to operations as incurred, consist of expenses incurred before the opening of a new or relocated restaurant and consist principally of opening team and training team compensation and benefits, travel expenses, rent, food, beverage and other initial supplies and expenses. The majority of pre-opening costs incurred relate to the hiring and training of employees due to the significant investment we make in training our people. Pre-opening costs vary by location depending on many factors, including the size and physical layout of each location; the number of management and hourly employees required to operate each restaurant; the availability of qualified restaurant staff members; the cost of travel and lodging for different geographic areas; the timing of the restaurant opening; and the extent of unexpected delays, if any, in obtaining final licenses and permits to open each restaurant.

Depreciation and Amortization Expenses.   Depreciation and amortization expenses include the depreciation of fixed assets and amortization of intangibles with definite lives, substantially all of which relates to restaurant-level assets.

Impairment and Closure Costs, Net. Impairment and closure costs, net include any impairment of long-lived assets, including property and equipment, operating lease right-of-use assets and goodwill, and expenses associated with the closure of a restaurant. Closure costs also include any gains or losses associated with a relocated restaurant or the sale of a closed restaurant and/or assets held for sale as well as lease costs associated with closed or relocated restaurants.

General and Administrative Expenses.   General and administrative expenses comprise expenses associated with corporate and administrative functions that support development and restaurant operations and provide an infrastructure to support future growth. This includes software hosting fees, professional fees, group insurance, advertising expense, salary and share-based compensation expense related to executive officers, Support Center

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employees and market partners and the realized and unrealized holding gains and losses related to the investments in our deferred compensation plan.

Interest Income (Expense), Net.   Interest income (expense), net includes earnings on cash and cash equivalents and is reduced by interest expense on our debt or financing obligations including the amortization of loan fees net of capitalized interest.

Equity Income from Investments in Unconsolidated Affiliates.   Equity income includes our percentage share of net income earned by unconsolidated affiliates and our share of any gain on the sale of these affiliates. As of September 26, 2023, and September 27, 2022, we owned a 5.0% to 10.0% equity interest in 20 and 23 domestic franchise restaurants, respectively.

Net Income Attributable to Noncontrolling Interests.   Net income attributable to noncontrolling interests represents the portion of income attributable to the other owners of the majority-owned restaurants. Our consolidated subsidiaries include 20 majority-owned restaurants for all periods presented.

Q3 2023 Financial Highlights

Total revenue increased $128.5 million or 12.9% to $1,121.8 million in Q3 2023 compared to $993.3 million in Q3 2022 primarily due to an increase in store weeks and an increase in comparable restaurant sales. Store weeks and comparable restaurant sales increased 5.7% and 8.2%, respectively, at company restaurants in Q3 2023 compared to Q3 2022. The increase in store weeks was due to new store openings and the acquisition of franchise restaurants. The increase in comparable restaurant sales was due to an increase in guest traffic along with an increase in our per person average check.

Net income increased $1.5 million or 2.3% to $63.8 million in Q3 2023 compared to $62.3 million in Q3 2022 primarily due to higher restaurant margin dollars, as described below, and lower income tax expense partially offset by higher general and administrative expense and depreciation and amortization expense. Diluted earnings per share increased 2.6% to $0.95 in Q3 2023 from $0.93 in Q3 2022 primarily due to the increase in net income.

Restaurant margin dollars increased $10.8 million or 7.1% to $162.8 million in Q3 2023 compared to $152.0 million in Q3 2022 primarily due to higher sales. Restaurant margin, as a percentage of restaurant and other sales, decreased to 14.6% in Q3 2023 compared to 15.4% in Q3 2022.  The decrease in restaurant margin, as a percentage of restaurant and other sales, was primarily due to commodity inflation, wage and other labor inflation and higher general liability insurance expense partially offset by higher sales.

We repurchased 107,593 shares of common stock for $12.1 million in Q3 2023. We also paid a quarterly dividend of $0.55 per share of common stock, which totaled $36.7 million in Q3 2023.

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Results of Operations

(in thousands)

13 Weeks Ended

39 Weeks Ended

September 26, 2023

September 27, 2022

September 26, 2023

September 27, 2022

  

$

  

%

  

$

  

%

  

$

  

%

  

$

  

%

Consolidated Statements of Income:

Revenue:

Restaurant and other sales

1,115,224

99.4

986,999

99.4

3,447,192

99.4

2,986,028

99.4

Franchise royalties and fees

6,528

0.6

6,299

0.6

20,119

0.6

19,362

0.6

Total revenue

1,121,752

100.0

993,298

100.0

3,467,311

100.0

3,005,390

100.0

Costs and expenses:

(As a percentage of restaurant and other sales)

Restaurant operating costs (excluding depreciation and amortization shown separately below):

Food and beverage

386,184

34.6

342,032

34.7

1,198,099

34.8

1,026,469

34.4

Labor

378,814

34.0

330,219

33.5

1,155,970

33.5

985,132

33.0

Rent

18,177

1.6

16,703

1.7

54,001

1.6

49,785

1.7

Other operating

169,225

15.2

146,036

14.8

507,846

14.7

442,714

14.8

(As a percentage of total revenue)

Pre-opening

8,663

0.8

5,701

0.6

19,711

0.6

15,315

0.5

Depreciation and amortization

39,124

3.5

33,735

3.4

112,764

3.3

101,775

3.4

Impairment and closure, net

(2)

NM

772

NM

131

NM

537

NM

General and administrative

47,708

4.3

42,812

4.3

148,573

4.3

132,319

4.4

Total costs and expenses

1,047,893

93.4

918,010

92.4

3,197,095

92.2

2,754,046

91.6

Income from operations

73,859

6.6

75,288

7.6

270,216

7.8

251,344

8.4

Interest income (expense), net

496

NM

(85)

NM

2,730

0.1

(877)

NM

Equity income from investments in unconsolidated affiliates

139

NM

190

NM

1,181

NM

1,069

NM

Income before taxes

74,494

6.6

75,393

7.6

274,127

7.9

251,536

8.4

Income tax expense

8,870

0.8

11,430

1.2

35,474

1.0

35,708

1.2

Net income including noncontrolling interests

65,624

5.9

63,963

6.4

238,653

6.9

215,828

7.2

Net income attributable to noncontrolling interests

1,836

0.2

1,635

0.2

6,207

0.2

5,879

0.2

Net income attributable to Texas Roadhouse, Inc. and subsidiaries

63,788

5.7

62,328

6.3

232,446

6.7

209,949

7.0

NM — Not meaningful

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Table of Contents

Reconciliation of Income from Operations to Restaurant Margin

(in thousands)

13 Weeks Ended

39 Weeks Ended

September 26, 2023

September 27, 2022

September 26, 2023

September 27, 2022

Income from operations

$

73,859

$

75,288

$

270,216

$

251,344

Less:

Franchise royalties and fees

6,528

6,299

20,119

19,362

Add:

Pre-opening

8,663

5,701

19,711

15,315

Depreciation and amortization

39,124

33,735

112,764

101,775

Impairment and closure, net

(2)

772

131

537

General and administrative

47,708

42,812

148,573

132,319

Restaurant margin

$

162,824

$

152,009

$

531,276

$

481,928

Restaurant margin $/store week

$

20,272

$

20,001

$

22,237

$

21,332

Restaurant margin (as a percentage of restaurant and other sales)

14.6%

15.4%

15.4%

16.1%

See above for the definition of restaurant margin.

Restaurant Unit Activity

    

Total

Texas Roadhouse

Bubba's 33

    

Jaggers

Balance at December 27, 2022

 

697

652

40

 

5

Company openings

 

18

13

3

2

Company closings

Franchise openings - Domestic

2

1

1

Franchise openings - International

 

6

6

Franchise closings

(1)

(1)

Balance at September 26, 2023

 

722

671

43

 

8

 

September 26, 2023

 

September 27, 2022

Company - Texas Roadhouse

 

573

545

Company - Bubba's 33

 

43

38

Company - Jaggers

 

7

4

Franchise - Texas Roadhouse - Domestic

 

54

62

Franchise - Jaggers - Domestic

1

Franchise - Texas Roadhouse - International

 

44

36

Total

 

722

 

685

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Q3 2023 compared to Q3 2022 and 2023 YTD compared to 2022 YTD

Restaurant and Other Sales 

Restaurant and other sales increased 13.0% in Q3 2023 compared to Q3 2022 and 15.4% in 2023 YTD compared to 2022 YTD. The following table summarizes certain key drivers and/or attributes of restaurant sales at company restaurants for the periods presented. Company restaurant count activity is shown in the restaurant unit activity table above.

    

Q3 2023

    

Q3 2022

    

2023 YTD

    

2022 YTD

 

Company Restaurants:

Increase in store weeks

 

5.7

%

6.1

%

5.8

%

6.3

%

Increase in average unit volume

 

7.8

%

7.9

%

9.7

%

10.2

%

Other(1)

 

(0.1)

%

0.2

%

0.0

%

0.5

%

Total increase in restaurant sales

 

13.4

%

14.2

%

15.5

%

17.0

%

Other sales

(0.4)

%

0.2

%

(0.1)

%

0.1

%

Total increase in restaurant and other sales

13.0

%

14.4

%

15.4

%

17.1

%

Store weeks

 

8,032

7,600

23,892

22,592

Comparable restaurant sales

 

8.2

%

8.2

%

10.1

%

10.5

%

Texas Roadhouse restaurants:

Store weeks

7,394

7,062

22,041

21,004

Comparable restaurant sales

 

8.4

%

8.2

%

10.3

%

10.4

%

Average unit volume (in thousands)

$

1,840

$

1,700

$

5,753

$

5,227

Weekly sales by group:

Comparable restaurants (542, 511, 527 and 499 units)

$

141,675

$

131,378

$

147,832

$

134,565

Average unit volume restaurants (18, 23, 22 and 20 units)(2)

$

138,439

$

125,421

$

139,989

$

129,283

Restaurants less than six months old (13, 11, 24 and 26 units)

$

141,409

$

143,801

$

150,747

$

136,358

Bubba's 33 restaurants:

Store weeks

547

486

1,593

1,433

Comparable restaurant sales

4.8

%

6.2

%

6.0

%

11.6

%

Average unit volume (in thousands)

$

1,437

$

1,395

$

4,494

$

4,243

Weekly sales by group:

Comparable restaurants (36, 31, 34 and 30 units)

$

112,447

$

104,669

$

115,343

$

108,692

Average unit volume restaurants (4, 5, 3 and 4 units)(2)

$

93,012

$

123,760

$

113,926

$

109,656

Restaurants less than six months old (3, 2, 6 and 4 units)

$

129,941

$

95,312

$

116,281

$

126,600

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(1)Includes the impact of the year-over-year change in sales volume of all Jaggers restaurants, along with Texas Roadhouse and Bubba’s 33 restaurants open less than six months before the beginning of the period measured and, if applicable, the impact of restaurants permanently closed during the period.

(2)Average unit volume includes restaurants open a full six to 18 months before the beginning of the period measured, excluding sales from restaurants permanently closed during the period, if applicable.

The increases in restaurant sales for Q3 2023 and 2023 YTD were primarily attributable to an increase in store weeks and an increase in comparable restaurant sales. The increases in store weeks were driven by the opening of new restaurants and the acquisition of franchise restaurants. The increases in comparable restaurant sales were driven by an increase in guest traffic count along with an increase in our per person average check as shown in the table below.

Q3 2023

    

Q3 2022

    

2023 YTD

    

2022 YTD

    

Guest traffic counts

4.1

%

0.5

%

5.5

%

2.2

%

Per person average check

4.1

%

7.7

%

4.6

%

8.3

%

Comparable restaurant sales growth

8.2

%

8.2

%

10.1

%

10.5

%

The increase in Q3 2023 guest traffic counts was driven by an increase in dining room traffic. To-go sales as a percentage of restaurant sales were 12.3% for Q3 2023 compared to 12.6% for Q3 2022.

Per person average check includes the benefit of a menu price increase of approximately 2.2% implemented in Q2 2023 and menu price increases of approximately 3.2% and 2.9% implemented in Q2 2022 and Q4 2022, respectively. We implemented a menu price increase of 2.7% in early Q4 2023.

In 2023 YTD, we opened 16 Texas Roadhouse and Bubba’s 33 company restaurants and completed the acquisition of eight domestic franchise restaurants. In addition, we opened two Jaggers company restaurants in 2023 YTD. As of September 26, 2023, an additional 22 Texas Roadhouse and Bubba’s 33 company restaurants were under construction.

In total for 2023, we plan to open as many as 27 Texas Roadhouse and Bubba’s 33 company restaurants, and we expect store week growth of approximately 6% across all concepts, including the impact of the eight franchise restaurants acquired at the beginning of the fiscal year.

In 2024, we expect store week growth of approximately 8% across all concepts, including a benefit of 2% from the 53rd week.

Other sales include the net impact of the amortization of third party gift card fees and gift card breakage income, sales related to our non-royalty based retail products and content revenue related to our tabletop kiosk devices. The net impact of these amounts was $1.4 million in Q3 2023 and $4.4 million in Q3 2022 and was $(7.2) million in 2023 YTD and $(4.2) million in 2022 YTD. The changes in Q3 2023 and Q3 2022 were driven by favorable adjustments recorded of $3.7 million and $6.6 million, respectively. These adjustments related to changes in our estimate of breakage due to a shift in our historic redemption patterns which indicated that the percentage of gift cards sold that are not expected to be redeemed had increased.

Franchise Royalties and Fees

Franchise royalties and fees increased by $0.2 million or 3.6% in Q3 2023 compared to Q3 2022 and increased by $0.8 million or 3.9% in 2023 YTD compared with 2022 YTD. The increases in both periods were due to comparable restaurant sales growth and new store openings partially offset by decreased royalties related to the eight franchise restaurants that were acquired.

In 2023 YTD, our existing franchise partners opened one domestic Texas Roadhouse restaurant and six international Texas Roadhouse restaurants. The first Jaggers domestic franchise restaurant was also opened in Q3 2023. In addition,

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Table of Contents

we had one Texas Roadhouse domestic franchise store close in 2023 YTD. In total for 2023, we expect as many as 14 international and domestic franchise openings including two Jaggers franchise openings.

Food and Beverage Costs  

Food and beverage costs, as a percentage of restaurant and other sales, decreased to 34.6% in Q3 2023 compared to 34.7% in Q3 2022 and increased to 34.8% in 2023 YTD compared to 34.4% in 2022 YTD. The decrease in Q3 2023 was primarily driven by the benefit of a higher guest check partially offset by commodity inflation of 4.2% primarily due to higher beef costs. The increase in 2023 YTD compared to 2022 YTD was driven by commodity inflation of 6.3% due to higher costs across the basket partially offset by the benefit of a higher guest check.

In total for 2023, we expect commodity inflation of 5% to 6% for the year with prices locked for approximately 75% of our remaining forecasted costs and the remainder subject to floating market prices. In 2024, we expect commodity cost inflation of 5% to 6%.

Restaurant Labor Expenses

Restaurant labor expenses, as a percentage of restaurant and other sales, increased to 34.0% in Q3 2023 compared to 33.5% in Q3 2022 and increased to 33.5% in 2023 YTD compared to 33.0% in 2022 YTD. The increases in both periods were primarily due to wage and other labor inflation of 5.6% and 6.8% in Q3 2023 and 2023 YTD, respectively. Wage and other labor inflation was driven by higher wage and benefit expense due to labor market pressures along with increases in state-mandated minimum and tipped wage rates and increased investment in our people. In addition, there were increases in group insurance expense due to unfavorable claims experience of $1.5 million and $6.5 million in Q3 2023 and 2023 YTD, respectively, as compared to the prior year periods. These increases were partially offset by decreases in workers’ compensation expense due to favorable claims experience of $2.6 million and $3.1 million in Q3 2023 and 2023 YTD, respectively, as compared to the prior year periods, as well as the benefit of a higher guest check.

In total for 2023, we expect wage and other labor inflation of 6% to 7% for the year driven by labor market pressures, increases in state-mandated minimum and tipped wage rates and increased investment in our people. In 2024, we expect wage and other labor inflation of 4% to 5%.

Restaurant Rent Expense

  

Restaurant rent expense, as a percentage of restaurant and other sales, decreased to 1.6% in Q3 2023 compared to 1.7% in Q3 2022 and decreased to 1.6% in 2023 YTD compared to 1.7% in 2022 YTD. The decreases in both periods were primarily due to the increases in average unit volume and were partially offset by higher rent expense, as a percentage of restaurant and other sales, at our newer restaurants.

Restaurant Other Operating Expenses

Restaurant other operating expenses, as a percentage of restaurant and other sales, increased to 15.2% in Q3 2023 compared to 14.8% in Q3 2022 and decreased to 14.7% in 2023 YTD compared to 14.8% in 2022 YTD. The increase in Q3 2023 compared to Q3 2022 was driven by an increase in general liability insurance expense of $7.3 million, as compared to the prior year period, partially offset by an increase in average unit volume, lower supplies expense and lower incentive compensation expense. The increase in general liability insurance expense was due to unfavorable claims experience. The decrease in 2023 YTD compared to 2022 YTD was driven by an increase in average unit volume and lower supplies and incentive compensation expense partially offset by the increase in general liability insurance expense.

Pre-opening Expenses  

Pre-opening expenses were $8.7 million in Q3 2023 compared to $5.7 million in Q3 2022 and $19.7 million in 2023 YTD compared to $15.3 million in 2022 YTD. Pre-opening costs will fluctuate from quarter to quarter based on specific

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Table of Contents

pre-opening costs incurred for each restaurant, the number and timing of restaurant openings and the number and timing of restaurant managers hired.

Depreciation and Amortization Expense 

Depreciation and amortization expense, as a percentage of total revenue, increased to 3.5% in Q3 2023 compared to 3.4% in Q3 2022 and decreased to 3.3% in 2023 YTD compared to 3.4% in 2022 YTD. The increase in Q3 2023 compared to Q3 2022 was driven by higher depreciation at our newer restaurants partially offset by the increase in average unit volume. The decrease in 2023 YTD compared to 2022 YTD was primarily due to the increase in average unit volume partially offset by higher depreciation at our newer restaurants.

Impairment and Closure Costs, Net

Impairment and closure costs, net were not significant in Q3 2023 compared to $0.8 million in Q3 2022 and were $0.1 million in 2023 YTD compared to $0.5 million in 2022 YTD. For Q3 2022, impairment and closure costs, net included the impairment of an operating lease right-of-use asset at a restaurant that was relocated. For 2022 YTD, impairment and closure costs, net included the impairment of right-of-use assets at two restaurants that were relocated and a gain of $0.7 million associated with the sale of land and building on a site that was previously classified as assets held for sale.

General and Administrative Expenses

General and administrative expenses, as a percentage of total revenue, remained flat at 4.3% in Q3 2023 compared to Q3 2022 and decreased to 4.3% in 2023 YTD compared to 4.4% in 2022 YTD. In Q3 2023 compared to Q3 2022, activity included an increase in average unit volume, a decrease in restricted stock expense and a decrease in incentive compensation expense. These were offset by a favorable adjustment of $2.5 million recorded in Q3 2022 related to our managing partner conference held in Q2 2022 and increased software hosting fees driven by the development of a new human resources software. The decrease in 2023 YTD compared to 2022 YTD was primarily driven by an increase in average unit volume partially offset by a separation payout, net of restricted stock forfeitures of $2.6 million, related to the retirement of an executive officer in Q1 2023, and increased software hosting fees.

Interest Income (Expense), Net

Interest income (expense), net was $0.5 million and $(0.1) million in Q3 2023 and Q3 2022, respectively, and were $2.7 million and $(0.9) million in 2023 YTD and 2022 YTD, respectively. The increases in both periods were primarily driven by increased earnings on our cash and cash equivalents and decreased borrowings on our revolving credit facility.

Equity Income from Investments in Unconsolidated Affiliates 

Equity income was $0.1 million in Q3 2023 compared to $0.2 million in Q3 2022 and was $1.2 million in 2023 YTD compared to $1.1 million in 2022 YTD. The decrease in Q3 2023 was primarily due to a decreased number of investments driven by acquisitions of four of these affiliates in Q1 2023. The increase in 2023 YTD was primarily due to a $0.6 million gain on the acquisition of four of these affiliates in Q1 2023 partially offset by a $0.3 million gain on the acquisition of one of these affiliates in Q2 2022.

Income Tax Expense

Our effective tax rate decreased to 11.9% in Q3 2023 compared to 15.2% in Q3 2022 and decreased to 12.9% in 2023 YTD compared to 14.2% in 2022 YTD. The decreases in both periods were primarily driven by increases in the tax benefits related to the FICA tip tax credit and stock compensation. For 2023, we expect an effective income tax rate of approximately 13% based on forecasted operating results. For 2024, we expect an effective tax rate of 14% to 15% based on forecasted operating results.

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Table of Contents

Segment Information

We manage our restaurant and franchising operations by concept and as a result have identified Texas Roadhouse, Bubba's 33, Jaggers and our retail initiatives as separate operating segments. Our reportable segments are Texas Roadhouse and Bubba's 33. The Texas Roadhouse reportable segment includes the results of our domestic company Texas Roadhouse restaurants and domestic and international franchise Texas Roadhouse restaurants. The Bubba's 33 reportable segment includes the results of our domestic company Bubba's 33 restaurants. Our remaining operating segments, which include the results of our domestic company and franchise Jaggers restaurants and the results of our retail initiatives, are included in Other.

Management uses restaurant margin as the primary measure for assessing performance of our segments. Restaurant margin (in dollars and as a percentage of restaurant and other sales) represents restaurant and other sales less restaurant-level operating costs, including food and beverage costs, labor, rent and other operating costs. Restaurant margin also includes sales and operating costs related to our non-royalty based retail initiatives that is included in Other. Restaurant margin is used by our chief operating decision maker to evaluate restaurant-level operating efficiency and performance. A reconciliation of income from operations to restaurant margin is included in the Results of Operations section above.

The following table presents a summary of restaurant margin by segment (in thousands):

13 Weeks Ended

September 26, 2023

September 27, 2022

Texas Roadhouse

$

154,465

14.7

%

$

146,137

15.7

%

Bubba's 33

 

7,499

12.3

 

5,625

10.8

Other

 

860

13.6

 

247

7.4

Total

$

162,824

14.6

%

$

152,009

15.4

%

39 Weeks Ended

September 26, 2023

September 27, 2022

Texas Roadhouse

$

503,660

15.5

%

$

460,655

16.3

%

Bubba's 33

 

25,584

13.9

 

20,993

13.3

Other

 

2,032

11.2

 

280

2.9

Total

$

531,276

15.4

%

$

481,928

16.1

%

For our Texas Roadhouse reportable segment, restaurant margin dollars increased $8.3 million or 5.7% in Q3 2023 and increased $43.0 million or 9.3% in 2023 YTD. The increases in both periods were due to higher sales, primarily driven by an increase in store weeks and an increase in comparable restaurant sales, which was partially offset by commodity and wage and other inflation. In addition, restaurant margin, as a percentage of restaurant and other sales, decreased to 14.7% in Q3 2023 from 15.7% in Q3 2022 and decreased to 15.5% in 2023 YTD from 16.3% in 2022 YTD. The decreases in both periods were due to commodity and wage and other labor inflation which was partially offset by the benefit of higher sales.

For our Bubba’s 33 reportable segment, restaurant margin dollars increased $1.9 million or 33.3% in Q3 2023 and increased $4.6 million or 21.9% in 2023 YTD. The increases in both periods were due to higher sales, primarily driven by an increase in store weeks and an increase in comparable restaurant sales, and commodity deflation which was primarily offset by wage and other labor inflation. In addition, restaurant margin, as a percentage of restaurant and other sales, increased to 12.3% in Q3 2023 from 10.8% in Q3 2022 and increased to 13.9% in 2023 YTD from 13.3% in 2022 YTD. The increases in both periods were due to higher sales and commodity deflation driven by poultry partially offset by wage and other labor inflation.

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Table of Contents

Liquidity and Capital Resources

The following table presents a summary of our net cash provided by (used in) operating, investing and financing activities (in thousands):

39 Weeks Ended

    

September 26, 2023

    

September 27, 2022

Net cash provided by operating activities

$

390,739

$

395,057

Net cash used in investing activities

 

(273,519)

 

(195,607)

Net cash used in financing activities

 

(221,757)

 

(349,780)

Net decrease in cash and cash equivalents

$

(104,537)

$

(150,330)

Net cash provided by operating activities was $390.7 million in 2023 YTD compared to $395.1 million in 2022 YTD. This decrease was primarily due to an unfavorable change in working capital partially offset by an increase in net income and non-cash items including depreciation and amortization.

Our operations have not required significant working capital and, like many restaurant companies, we have been able to operate with negative working capital, if necessary. Sales are primarily for cash, and restaurant operations do not require significant inventories or receivables. In addition, we receive trade credit for the purchase of food, beverages and supplies, thereby reducing the need for incremental working capital to support growth.

Net cash used in investing activities was $273.5 million in 2023 YTD compared to $195.6 million in 2022 YTD. The increase was primarily due to higher capital expenditures, driven by the new company restaurants pipeline and the refurbishment of existing restaurants. The increase in the new company restaurants pipeline is primarily due to an increase in new locations currently under construction and higher average development costs per location.

We require capital principally for the development of new company restaurants, the refurbishment or relocation of existing restaurants and the acquisition of franchise restaurants, if any.  We either lease our restaurant site locations under operating leases for periods of five to 30 years (including renewal periods) or purchase the land when appropriate. As of September 26, 2023, we had developed 156 of the 623 company restaurants on land that we own.

The following table presents a summary of capital expenditures (in thousands):

   

39 Weeks Ended

September 26, 2023

    

September 27, 2022

New company restaurants

$

138,124

$

99,249

Refurbishment or expansion of existing restaurants

 

88,580

 

60,404

Relocation of existing restaurants

11,946

11,965

Capital expenditures related to Support Center office

5,245

2,576

Total capital expenditures

$

243,895

$

174,194

Our future capital requirements will primarily depend on the number and mix of new restaurants we open, the timing of those openings and the restaurant prototype developed in a given fiscal year. These requirements will include costs directly related to opening new restaurants or relocating existing restaurants and may also include costs necessary to ensure that our infrastructure is able to support a larger restaurant base. In 2023, we expect our capital expenditures to be approximately $340 million driven by our 2023 planned company restaurant openings, the acceleration of our 2024 development pipeline and continued refurbishment of our existing restaurants. We intend to satisfy our capital requirements over the next 12 months with cash on hand, net cash provided by operating activities and, if needed, funds available under our revolving credit facility. In 2024, we expect our capital expenditures to be $340 million to $350 million.

As of September 26, 2023, the estimated cost of completing capital project commitments over the next 12 months was approximately $261.3 million. See note 6 to the unaudited condensed consolidated financial statements for a discussion of contractual obligations.

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Table of Contents

Net cash used in financing activities was $221.8 million in 2023 YTD compared to $349.8 million in 2022 YTD. The decrease is primarily due to a decrease in the amount of share repurchases partially offset by increased payments on our revolving credit facility as well as an increase in our quarterly dividend payments.

On March 17, 2022, our Board of Directors (the "Board") approved a stock repurchase program under which we may repurchase up to $300.0 million of our common stock. This stock repurchase program has no expiration date and replaced a previous stock repurchase program which was approved on May 31, 2019. All repurchases to date under our stock repurchase programs have been made through open market transactions.

During 2023 YTD and 2022 YTD, we paid $45.2 million and $212.9 million, respectively, to repurchase 414,319 shares and 2,734,005 shares, respectively, of our common stock. As of September 26, 2023, $121.7 million remained under our authorized stock repurchase program.

On May 11, 2023, our Board authorized the payment of a quarterly cash dividend of $0.55 per share of common stock compared to the quarterly dividend of $0.46 per share of common stock declared in 2022. The payment of quarterly dividends totaled $110.4 million and $93.3 million in 2023 YTD and 2022 YTD, respectively.

We maintain a revolving credit facility (the "credit facility") with a syndicate of commercial lenders led by JPMorgan Chase Bank, N.A. and PNC Bank, N.A. The credit facility is an unsecured, revolving credit agreement and has a borrowing capacity of up to $300.0 million with the option to increase by an additional $200.0 million subject to certain limitations, including approval by the syndicate of lenders. The credit facility has a maturity date of May 1, 2026.

As of September 26, 2023, we had no outstanding balance on the credit facility and had $287.7 million of availability, net of $12.3 million of outstanding letters of credit. As of December 27, 2022, we had $50.0 million outstanding on the credit facility, which was repaid in 2023 YTD, and $233.5 million of availability, net of $16.5 million of outstanding letters of credit. The outstanding amount as of December 27, 2022 is included as long-term debt on our unaudited condensed consolidated balance sheet.

The interest rate for the credit facility as of September 26, 2023 and September 27, 2022 was 6.19% and 3.69%, respectively.

The lenders’ obligation to extend credit pursuant to the credit facility depends on us maintaining certain financial covenants. We were in compliance with all financial covenants as of September 26, 2023.

Guarantees

As of September 26, 2023 and December 27, 2022, we were contingently liable for $10.6 million and $11.3 million, respectively, for seven lease guarantees. These amounts represent the maximum potential liability of future payments under the guarantees. In the event of default, the indemnity and default clauses in our assignment agreements govern our ability to pursue and recover damages incurred. No material liabilities have been recorded as of September 26, 2023 and December 27, 2022 as the likelihood of default was deemed to be less than probable and the fair value of the guarantees is not considered significant.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in interest rates on variable rate debt and changes in commodity prices. Our exposure to interest rate fluctuations is limited to our outstanding bank debt. The terms of the revolving credit facility (the "credit facility") require us to pay interest on outstanding borrowings at the Secured Overnight Financing Rate ("SOFR"), plus a fixed adjustment of 0.10%, plus a variable adjustment of 0.875% to 1.875% depending on our leverage ratio. As of September 26, 2023, we had no outstanding borrowings on our credit facility.

In an effort to secure high quality, low-cost ingredients used in the products sold in our restaurants, we employ various purchasing and pricing contract techniques. When purchasing certain types of commodities, we may be subject

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to prevailing market conditions resulting in unpredictable price volatility. For certain commodities, we may also enter into contracts that are either fixed price agreements or fixed volume agreements where the price is negotiated with reference to fluctuating market prices. We currently do not use financial instruments to hedge commodity prices. Extreme and/or long-term increases in commodity prices could adversely affect our future results, especially if we are unable, primarily due to competitive reasons, to increase menu prices. Additionally, if there is a time lag between the increasing commodity prices and our ability to increase menu prices or if we believe the commodity price increase to be short in duration and we choose not to pass on the cost increases, our short-term financial results could be negatively affected.

We are subject to business risk as our beef supply is highly dependent upon four vendors. If these vendors are unable to fulfill their obligations under their contracts, we may encounter supply shortages and/or higher costs to secure adequate supply and a possible loss of sales, any of which would harm our business. To date, we have been able to properly manage any supply shortages but have experienced increased costs.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to, and as defined in, Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on the evaluation, performed under the supervision and with the participation of our management, including the Chief Executive Officer (the "CEO") and the Chief Financial Officer (the "CFO"), our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of September 26, 2023.

Changes in Internal Control

There were no changes in the Company’s internal control over financial reporting that occurred during the 13 weeks ended September 26, 2023 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

Occasionally, we are a defendant in litigation arising in the ordinary course of our business, including "slip and fall" accidents, employment related claims, claims related to our service of alcohol, and claims from guests or employees alleging illness, injury or food quality, health or operational concerns. None of these types of litigation, most of which are covered by insurance, has had a material adverse effect on us during the periods covered by this report and, as of the date of this report, we are not party to any litigation that we believe could have a material adverse effect on our business.

ITEM 1A. RISK FACTORS

Information regarding risk factors appears in our Annual Report on Form 10-K for the year ended December 27, 2022, under the heading "Special Note Regarding Forward-looking Statements" and in the Form 10-K Part I, Item 1A, Risk Factors. There have been no material changes from the risk factors previously disclosed in our Form 10-K for the fiscal year ended December 27, 2022.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On March 17, 2022, our Board of Directors (the "Board") approved a stock repurchase program which authorized us to repurchase up to $300.0 million of our common stock. This stock repurchase program has no expiration date. All repurchases to date under our stock repurchase program have been made through open market transactions. The timing and the amount of any repurchases through this program will be determined by management under parameters established by the Board, based on an evaluation of our stock price, market conditions and other corporate considerations.

For the 13 weeks ended September 26, 2023, we paid $12.1 million to repurchase 107,593 shares of our common stock. As of September 26, 2023, $121.7 million remained authorized for stock repurchases.

    

    

    

    

Maximum Number

(or Approximate

Total Number of

Dollar Value)

Shares Purchased

of Shares that

Total Number

Average

as Part of Publicly

May Yet Be

of Shares

Price Paid

Announced Plans

Purchased Under the

Period

Purchased

per Share

or Programs

Plans or Programs

June 28 to July 25

 

90,093

$

113.00

 

90,093

$

123,637,670

July 26 to August 22

 

17,500

$

111.67

 

17,500

$

121,683,492

August 23 to September 26

 

$

 

$

121,683,492

Total

 

107,593

 

107,593

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.  MINE SAFETY DISCLOSURES

Not applicable.

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ITEM 5.  OTHER INFORMATION

Rule 10b5-1 Trading Plans

In accordance with the disclosure requirement set forth in Item 408 of Regulation S-K, the following table discloses any executive officer or director who is subject to the filing requirements of Section 16 of the Securities Exchange Act of 1934 that adopted a Rule 10b5-1 trading arrangement during the 13 weeks ended September 26, 2023. These trading arrangements are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).

Name

Title

Adoption Date

End Date (1)

Aggregate Number of Securities to be Sold

Gerald L. Morgan

Chief Executive Officer

8/23/2023

2/23/2025

15,000

Christopher C. Colson

Chief Legal and Administrative Officer

8/25/2023

1/23/2024

2,000

(1)A trading plan may expire on such earlier date that all transactions under the trading plan are completed.

Other than those disclosed above, no other executive officer or director adopted, modified or terminated a Rule 10b5-1 or a non-Rule 10b5-1 trading arrangement during the 13 weeks ended September 26, 2023.

ITEM 6. EXHIBITS

Exhibit No.

    

Description

10.1*

Separation Agreement and Release of Claims dated August 3, 2023 by and between S. Chris Jacobsen and Texas Roadhouse Management Corp. (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated August 3, 2023 (File No. 000-50972))

10.2*

Form of Texas Roadhouse, Inc. 2021 Long-Term Incentive Plan Restricted Stock Unit Award Agreement (Non-Officers) (File No. 000-50972))

31.1

Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.3

Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*Management contract or compensatory plan or arrangement required to be filed as an exhibit to Form 10-Q.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TEXAS ROADHOUSE, INC.

Date: November 3, 2023

By:

/s/ GERALD L. MORGAN

Gerald L. Morgan

Chief Executive Officer

(Principal Executive Officer)

Date: November 3, 2023

By:

/s/ D. CHRISTOPHER MONROE

D. Christopher Monroe

Chief Financial Officer

(Principal Financial Officer)

Date: November 3, 2023

By:

/s/ KEITH V. HUMPICH

Keith V. Humpich

Vice President of Finance

(Principal Accounting Officer)

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