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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended June 28, 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: 001-36556

EL POLLO LOCO HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware

20-3563182

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

3535 Harbor Blvd., Suite 100, Costa Mesa, California

92626

(Address of principal executive offices)

(Zip Code)

(714) 599-5000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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 $0.01 per share

LOCO

The Nasdaq Stock Market LLC

Indicate by check mark whether the 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

As of July 28, 2023, there were 35,464,393 shares of the issuer’s common stock outstanding.

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Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

EL POLLO LOCO HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Amounts in thousands, except share data)

    

June 28,

    

December 28,

    

2023

    

2022

Assets

  

Current assets:

  

  

Cash and cash equivalents

$

10,183

$

20,493

Accounts and other receivables, net

 

11,439

 

10,084

Inventories

 

2,041

 

2,442

Prepaid expenses and other current assets

 

3,473

 

3,662

Income tax receivable

 

 

768

Total current assets

 

27,136

 

37,449

Property and equipment, net

 

85,079

 

78,644

Property and equipment held under finance lease, net

 

1,467

 

1,532

Property and equipment held under operating leases, net ("ROU asset")

 

169,565

 

165,584

Goodwill

 

248,674

 

248,674

Trademarks

 

61,888

 

61,888

Deferred tax assets

 

449

 

512

Other assets

 

2,906

 

2,935

Total assets

$

597,164

$

597,218

Liabilities and Stockholders’ Equity

 

  

 

  

Current liabilities:

 

  

 

  

Current portion of obligations under finance leases

$

111

$

110

Current portion of obligations under operating leases

 

19,464

 

19,995

Accounts payable

 

16,576

 

12,741

Accrued salaries and vacation

 

10,698

 

8,873

Accrued insurance

 

11,480

 

11,120

Accrued income taxes payable

 

3,459

 

Accrued interest

 

366

 

291

Current portion of income tax receivable agreement payable

 

271

 

263

Other accrued expenses and current liabilities

 

11,318

 

15,120

Total current liabilities

 

73,743

 

68,513

Revolver loan

 

60,000

 

66,000

Obligations under finance leases, net of current portion

 

1,570

 

1,626

Obligations under operating leases, net of current portion

 

169,742

 

165,149

Deferred taxes

 

8,829

 

8,517

Income tax receivable agreement payable, net of current portion

 

400

 

409

Other noncurrent liabilities

 

5,920

 

5,856

Total liabilities

 

320,204

 

316,070

Commitments and contingencies (Note 7)

 

  

 

  

Stockholders’ equity

 

  

 

  

Preferred stock, $0.01 par value, 100,000,000 shares authorized; none issued or outstanding

 

 

Common stock, $0.01 par value, 200,000,000 shares authorized; 35,643,747 and 37,008,061 shares issued and outstanding as June 28, 2023 and December 28, 2022, respectively

 

356

 

370

Additional paid-in-capital

 

276,222

 

292,244

Retained earnings (Accumulated deficit)

 

382

 

(11,592)

Accumulated other comprehensive income

 

 

126

Total stockholders’ equity

 

276,960

 

281,148

Total liabilities and stockholders’ equity

$

597,164

$

597,218

See notes to condensed consolidated financial statements (unaudited).

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EL POLLO LOCO HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Amounts in thousands, except share data)

    

Thirteen Weeks Ended

    

Twenty-Six Weeks Ended

    

June 28, 2023

June 29, 2022

June 28, 2023

June 29, 2022

Revenue

 

  

 

  

 

  

 

  

 

Company-operated restaurant revenue

$

103,901

$

106,454

$

201,774

$

200,411

Franchise revenue

 

10,119

 

10,064

 

19,791

 

19,319

Franchise advertising fee revenue

 

7,472

 

7,593

 

14,453

 

14,429

Total revenue

 

121,492

 

124,111

 

236,018

 

234,159

Cost of operations

 

  

 

  

 

  

 

  

Food and paper cost

 

28,474

 

31,691

 

55,376

 

59,423

Labor and related expenses

 

32,277

 

33,015

 

63,818

 

65,687

Occupancy and other operating expenses

 

25,576

 

25,832

 

50,462

 

49,677

Gain on recovery of insurance proceeds, lost profits, net

(151)

Company restaurant expenses

 

86,327

 

90,538

 

169,505

 

174,787

General and administrative expenses

 

11,108

 

9,679

 

22,307

 

19,633

Franchise expenses

 

9,492

 

9,557

 

18,524

 

18,288

Depreciation and amortization

 

3,694

 

3,618

 

7,331

 

7,215

(Gain) loss on disposal of assets

 

(80)

 

42

 

(50)

 

108

Gain on recovery of insurance proceeds, property, equipment and expenses

 

 

 

(242)

 

Loss (gain) on disposition of restaurants

25

(111)

Impairment and closed-store reserves

 

38

 

248

 

115

 

379

Total expenses

 

110,604

 

113,682

 

217,379

 

220,410

Income from operations

 

10,888

 

10,429

 

18,639

 

13,749

Interest expense, net

 

976

 

419

 

1,980

 

849

Income tax receivable agreement expense (income)

 

121

 

(186)

 

(1)

 

(316)

Income before provision for income taxes

 

9,791

 

10,196

 

16,660

 

13,216

Provision for income taxes

 

2,735

 

3,055

 

4,686

 

3,960

Net income

$

7,056

$

7,141

$

11,974

$

9,256

Net income per share

 

  

 

  

 

Basic

$

0.20

$

0.20

$

0.33

$

0.26

Diluted

$

0.20

$

0.20

$

0.33

$

0.25

Weighted-average shares used in computing net income per share

 

  

 

  

 

  

 

  

Basic

 

35,433,414

 

36,331,099

 

35,833,759

 

36,278,423

Diluted

 

35,534,104

 

36,473,960

 

36,018,288

 

36,478,808

See notes to condensed consolidated financial statements (unaudited).

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EL POLLO LOCO HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Amounts in thousands)

    

Thirteen Weeks Ended

    

Twenty-Six Weeks Ended

    

June 28, 2023

June 29, 2022

June 28, 2023

June 29, 2022

Net income

$

7,056

$

7,141

$

11,974

$

9,256

Other comprehensive (loss) income

 

  

 

  

 

 

Changes in derivative instruments

 

  

 

  

 

 

Unrealized net gains arising during the period from interest rate swap

 

 

347

 

 

931

Reclassifications of (gains) losses into net income

 

(85)

 

55

 

(170)

 

172

Income tax benefit (expense)

 

22

 

(108)

 

44

 

(297)

Other comprehensive (loss) income, net of taxes

 

(63)

 

294

(126)

 

806

Comprehensive income

$

6,993

$

7,435

$

11,848

$

10,062

See notes to condensed consolidated financial statements (unaudited).

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EL POLLO LOCO HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(Amounts in thousands, except share data)

Thirteen Weeks Ended June 28, 2023

    

    

    

    

(Accumulated

    

Accumulated

    

  

    

    

    

Additional

    

Deficit)

    

Other

    

Total

Common Stock

Paid-in

Retained

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Earnings

    

(Loss) Income

    

Equity

Balance, March 29, 2023

36,450,477

$

364

$

286,791

$

(6,674)

$

63

$

280,544

Stock-based compensation

 

 

842

 

 

 

842

Issuance of common stock related to restricted shares

363,210

4

(4)

Issuance of common stock upon exercise of stock options, net

179,950

2

779

781

Shares repurchased for employee tax withholdings

(18,490)

(171)

(171)

Repurchase of common stock

(1,272,287)

(13)

(11,928)

(11,941)

Repurchase of common stock - excise tax

(88)

(88)

Forfeiture of common stock related to restricted shares

(59,113)

 

(1)

 

1

 

 

 

Other comprehensive loss, net of tax

 

 

 

 

(63)

 

(63)

Net income

 

 

 

7,056

 

 

7,056

Balance, June 28, 2023

35,643,747

$

356

$

276,222

$

382

$

$

276,960

Thirteen Weeks Ended June 29, 2022

    

    

    

    

    

Accumulated

    

  

    

    

    

Additional

    

    

Other

    

Total

Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Deficit

    

Income

    

Equity

Balance, March 30, 2022

36,743,496

$

366

$

345,296

$

(30,278)

$

222

315,606

Stock-based compensation

 

 

970

 

 

 

970

Issuance of common stock related to restricted shares

298,638

 

3

 

(3)

 

 

 

Issuance of common stock upon exercise of stock options

8,627

 

 

50

 

 

 

50

Shares repurchased for employee tax withholdings

(20,317)

 

 

(218)

 

 

 

(218)

Forfeiture of common stock related to restricted shares

(27,931)

Other comprehensive income, net of tax

294

294

Net income

 

 

 

7,141

 

 

7,141

Balance, June 29, 2022

37,002,513

$

369

$

346,095

$

(23,137)

$

516

$

323,843

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Twenty-Six Weeks Ended June 28, 2023

    

    

    

    

(Accumulated

    

Accumulated

    

  

    

    

    

Additional

    

Deficit)

    

Other

    

Total

Common Stock

Paid-in

Retained

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Earnings

    

(Loss) Income

    

Equity

Balance, December 28, 2022

37,008,061

$

370

$

292,244

$

(11,592)

$

126

$

281,148

Stock-based compensation

 

 

1,613

 

 

 

1,613

Issuance of common stock related to restricted shares

363,210

4

(4)

Issuance of common stock upon exercise of stock options, net

184,294

2

822

824

Shares repurchased for employee tax withholdings

(18,490)

(171)

(171)

Repurchase of common stock

(1,824,636)

(19)

(18,133)

(18,152)

Repurchase of common stock - excise tax

(150)

(150)

Forfeiture of common stock related to restricted shares

(68,692)

(1)

1

Other comprehensive loss, net of tax

 

 

 

 

(126)

 

(126)

Net income

 

 

 

11,974

 

 

11,974

Balance, June 28, 2023

35,643,747

$

356

$

276,222

$

382

$

$

276,960

Twenty-Six Weeks Ended June 29, 2022

    

    

    

    

    

Accumulated

    

  

    

    

    

Additional

    

    

Other

    

Total

Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Deficit

    

(Loss) Income

    

Equity

Balance, December 29, 2021

36,601,648

$

365

$

342,941

$

(32,393)

$

(290)

$

310,623

Stock-based compensation

 

 

1,796

 

 

 

1,796

Issuance of common stock related to restricted shares

298,638

 

3

 

(3)

 

 

 

Issuance of common stock upon exercise of stock options, net

150,475

 

1

 

1,579

 

 

 

1,580

Shares repurchased for employee tax withholdings

(20,317)

 

 

(218)

 

 

 

(218)

Forfeiture of common stock related to restricted shares

(27,931)

Other comprehensive income, net of tax

806

806

Net income

 

 

 

9,256

 

 

9,256

Balance, June 29, 2022

37,002,513

$

369

$

346,095

$

(23,137)

$

516

$

323,843

See notes to condensed consolidated financial statements (unaudited).

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EL POLLO LOCO HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts in thousands)

    

Twenty-Six Weeks Ended

    

    

June 28, 2023

June 29, 2022

    

Cash flows from operating activities:

  

  

Net income

$

11,974

$

9,256

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

 

  

 

Depreciation and amortization

 

7,331

 

7,215

Stock-based compensation expense

 

1,613

 

1,796

Income tax receivable agreement income

 

(1)

 

(316)

Fire insurance proceeds for expenses paid and lost profit

151

(Gain) loss on disposal of assets

 

(50)

 

108

Gain on recovery of insurance proceeds, property, equipment and expenses, net

(242)

Impairment of property and equipment

 

53

 

253

Gain on disposition of restaurants

 

(111)

 

Amortization of deferred financing costs

 

106

 

126

Deferred income taxes, net

 

249

 

1,180

Changes in operating assets and liabilities:

 

  

 

Accounts and other receivables

 

(1,355)

 

(592)

Inventories

 

401

 

68

Prepaid expenses and other current assets

 

189

 

262

Income taxes payable (receivable)

 

4,227

 

(2,316)

Other assets

 

(81)

 

(812)

Accounts payable

 

(1,095)

 

(454)

Accrued salaries and vacation

 

1,826

 

(1,891)

Accrued insurance

 

360

 

281

Other accrued expenses and liabilities

 

(3,749)

 

(2,344)

Net cash flows provided by operating activities

 

21,796

 

11,820

Cash flows from investing activities:

 

Proceeds from disposition of restaurants

 

175

 

Proceeds from fire insurance for property and equipment

163

Purchase of property and equipment

 

(9,237)

 

(8,831)

Net cash flows used in investing activities

 

(8,899)

 

(8,831)

Cash flows from financing activities:

 

  

 

  

Proceeds from borrowings on revolver and swingline loans

 

2,000

 

Payments on revolver and swingline loan

 

(8,000)

 

Minimum tax withholdings related to net share settlements

 

(171)

 

(218)

Repurchases of common stock

(17,784)

Proceeds from issuance of common stock upon exercise of stock options, net of expenses

824

1,580

Payment of obligations under finance leases

 

(76)

 

(86)

Net cash flows (used in) provided by financing activities

 

(23,207)

 

1,276

(Decrease) increase in cash and cash equivalents

 

(10,310)

 

4,265

Cash and cash equivalents, beginning of period

 

20,493

 

30,046

Cash and cash equivalents, end of period

$

10,183

$

34,311

    

Twenty-Six Weeks Ended

    

June 28, 2023

June 29, 2022

Supplemental cash flow information

 

  

 

  

 

Cash paid during the period for interest

$

2,077

$

531

Cash paid during the period for income taxes

$

45

$

5,097

Unpaid purchases of property and equipment

$

5,894

$

1,388

Unpaid repurchases of common stock

$

518

$

See notes to condensed consolidated financial statements (unaudited).

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EL POLLO LOCO HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Overview

El Pollo Loco Holdings, Inc. (“Holdings”) is a Delaware corporation headquartered in Costa Mesa, California. Holdings and its direct and indirect subsidiaries are collectively referred to herein as the “Company.” The Company’s activities are conducted principally through its indirect wholly-owned subsidiary, El Pollo Loco, Inc. (“EPL”), which develops, franchises, licenses, and operates quick-service restaurants under the name El Pollo Loco® and operates under one operating segment. At June 28, 2023, the Company operated 188 and franchised 304 El Pollo Loco restaurants.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair statement of the Company’s condensed consolidated financial position and results of operations and cash flows for the periods presented. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year. The condensed consolidated financial statements and related notes do not include all information and footnotes required by GAAP for annual reports. This quarterly report should be read in conjunction with the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 28, 2022.

The Company uses a 52- or 53-week fiscal year ending on the last Wednesday of the calendar year. In a 52-week fiscal year, each quarter includes 13 weeks of operations; in a 53-week fiscal year, the first, second and third quarters each include 13 weeks of operations, and the fourth quarter includes 14 weeks of operations. Every six or seven years, a 53-week fiscal year occurs. Fiscal 2023 and 2022 are both 52-week years, ending on December 27, 2023 and December 28, 2022, respectively. Revenues, expenses, and other financial and operational figures may be elevated in a 53-week year.

Holdings has no material assets or operations. Holdings and Holdings’ direct subsidiary, EPL Intermediate, Inc. (“Intermediate”), guarantee EPL’s 2022 Revolver (as defined below) on a full and unconditional basis (see Note 4, “Long-Term Debt”), and Intermediate has no subsidiaries other than EPL. EPL is a separate and distinct legal entity and has no obligation to make funds available to Intermediate. EPL and Intermediate may pay dividends to Intermediate and to Holdings, respectively, subject to the terms of the 2022 Revolver.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Holdings and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and revenue and expenses during the periods reported. Actual results could materially differ from those estimates. The Company’s significant estimates include estimates for impairment of goodwill, intangible assets and property and equipment, insurance reserves, lease accounting matters, stock-based compensation, income tax receivable agreement liability, contingent liabilities and income tax valuation allowances.

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COVID-19

During both the thirteen and twenty-six weeks ended June 28, 2023, the Company incurred $0.1 million in COVID-19 related expenses. During the thirteen and twenty-six weeks ended June 29, 2022, the Company incurred $0.3 million and $2.6 million, respectively, in COVID-19 related expenses, primarily due to leaves of absence and overtime pay. The Company may face future business disruption and related risks resulting from the uncertainty regarding a potential resurgence of COVID-19 or another pandemic, epidemic or infectious disease outbreak, or from broader macroeconomic trends, any of which could have a significant impact on our business.

While the Company believes the trend towards more moderate labor related costs and less inflationary pressure continues, the Company cannot determine the ultimate impact of a potential resurgence of COVID-19 (and related economic effects) and the current macroeconomic environment will have on the Company’s condensed consolidated financial condition, liquidity, and future results of operations. Therefore, any prediction as to the ultimate materiality of the adverse impact on the Company’s condensed consolidated financial condition, liquidity, and future results of operations is uncertain.

Cash and Cash Equivalents

The Company considers all liquid instruments with an original maturity of three months or less at the date of purchase to be cash equivalents.

Liquidity

The Company’s principal liquidity and capital requirements are new restaurants, existing restaurant capital investments (remodels and maintenance), interest payments on its debt, lease obligations and working capital and general corporate needs. At June 28, 2023, the Company’s total debt was $60.0 million. The Company’s ability to make payments on its indebtedness and to fund planned capital expenditures depends on available cash and its ability to generate adequate cash flows in the future, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond the Company’s control. Based on current operations, the Company believes that its cash flow from operations, available cash of $10.2 million at June 28, 2023 and the outstanding borrowing availability under the 2022 Revolver will be adequate to meet the Company’s liquidity needs for the next twelve months from the date of filing of these condensed consolidated financial statements.

Concentration of Risk

Cash and cash equivalents are maintained at financial institutions and, at times, these balances may exceed federally-insured limits. The Company has never experienced any losses related to these balances.

The Company had one supplier to whom amounts due totaled 30.9% and 41.7% of the Company’s accounts payable at June 28, 2023 and December 28, 2022, respectively. Purchases from the Company’s largest supplier totaled 27.8% and 27.3% of total expenses for the thirteen and twenty-six weeks ended June 28, 2023, respectively, and 27.4% and 28.5% of total expenses for the thirteen and twenty-six weeks ended June 29, 2022, respectively.

Company-operated and franchised restaurants in the greater Los Angeles area generated, in the aggregate, approximately 70.9% and 70.8% of total revenue for the thirteen and twenty-six weeks ended June 28, 2023, respectively, and 70.9% for both the thirteen and twenty-six weeks ended June 29, 2022.

Goodwill and Indefinite Lived Intangible Assets

The Company’s indefinite-lived intangible assets consist of trademarks. Goodwill represents the excess of cost over fair value of net identified assets acquired in business combinations accounted for under the purchase method. The Company does not amortize its goodwill and indefinite-lived intangible assets. Goodwill resulted from the acquisition of certain franchise locations.

Upon the sale or refranchising of a restaurant, the Company evaluates whether there is a decrement of goodwill. The amount of goodwill included in the cost basis of the asset sold is determined based on the relative fair value of the portion of the reporting unit disposed of compared to the fair value of the reporting unit retained. The fair value of the

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portion of the reporting unit disposed of in a refranchising is determined by reference to the discounted value of the future cash flows expected to be generated by the restaurant and retained by the franchisee, which includes a deduction for the anticipated, future royalties the franchisee will pay the Company associated with the franchise agreement entered into simultaneously with the refranchising transition. The fair value of the reporting unit retained is based on the price a willing buyer would pay for the reporting unit and includes the value of franchise agreements. As such, the fair value of the reporting unit retained can include expected cash flows from future royalties from those restaurants currently being refranchised, future royalties from existing franchise businesses and company restaurant operations. The Company did not record any decrement to goodwill related to the disposition of restaurants in fiscal 2023 and 2022.

The Company performs an annual impairment test for goodwill during the fourth fiscal quarter of each year, or more frequently if impairment indicators arise.

The Company reviews goodwill for impairment utilizing either a qualitative assessment or a fair value test by comparing the fair value of a reporting unit with its carrying amount. If the Company decides that it is appropriate to perform a qualitative assessment and concludes that the fair value of a reporting unit more likely than not exceeds its carrying value, no further evaluation is necessary. If the Company performs the fair value test, the Company will compare the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, the Company will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit.

The Company performs an annual impairment test for indefinite-lived intangible assets during the fourth fiscal quarter of each year, or more frequently if impairment indicators arise. An impairment test consists of either a qualitative assessment or a comparison of the fair value of an intangible asset with its carrying amount. The excess of the carrying amount of an intangible asset over its fair value is recognized as an impairment loss.

The assumptions used in the estimate of fair value are generally consistent with the past performance of the Company’s reporting segment and are also consistent with the projections and assumptions that are used in current operating plans. These assumptions are subject to change as a result of changing economic and competitive conditions.

The Company determined that there were no indicators of potential impairment of its goodwill and indefinite-lived intangible assets during the thirteen and twenty-six weeks ended June 28, 2023. Accordingly, the Company did not record any impairment to its goodwill or indefinite-lived intangible assets during the thirteen and twenty-six weeks ended June 28, 2023.

Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

Level 1: Quoted prices for identical instruments in active markets.
Level 2: Observable prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs or significant value drivers are observable.
Level 3: Unobservable inputs used when little or no market data is available.

Certain assets and liabilities are measured at fair value on a nonrecurring basis. In other words, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments only in certain circumstances (e.g., when there is evidence of impairment).

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The following non-financial instruments were measured at fair value, on a nonrecurring basis, as of and for the thirteen and twenty-six weeks ended June 28, 2023, reflecting certain property and equipment assets and right-of-use (“ROU”) assets for which an impairment loss was recognized during the corresponding periods, as discussed under Note 2, “Property and Equipment” and immediately below under “Impairment of Long-Lived Assets and ROU Assets” (in thousands):

Thirteen Weeks

Twenty-Six Weeks

Fair Value Measurements at June 28, 2023 Using

Ended June 28, 2023

Ended June 28, 2023

    

Total

    

Level 1

    

Level 2

    

Level 3

Impairment Losses

Impairment Losses

Certain ROU assets, net

$

265

$

$

$

265

$

$

39

The following non-financial instruments were measured at fair value on a nonrecurring basis as of and for the thirteen and twenty-six weeks ended June 29, 2022, reflecting certain property and equipment assets and ROU assets for which an impairment loss was recognized during the corresponding periods, as discussed immediately below under “Impairment of Long-Lived Assets and ROU Assets” (in thousands):

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