El Pollo Loco Holdings, Inc.

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 Holdings’ indirect wholly-owned subsidiary, El Pollo Loco, Inc. (“EPL”), which develops, franchises, licenses, and operates quick-service restaurants under the name El Pollo Loco®. The Company’s restaurants, which are located principally in California but also in Arizona, Colorado, Idaho, Louisiana, Nevada, New Mexico, Texas, Utah, and Washington, specialize in fire-grilling citrus-marinated chicken served in individual and family meals and also in a wide variety of contemporary entrees, including specialty chicken burritos, chicken quesadillas, chicken tostada salads, chicken tortilla soup, and variations of the Company’s Pollo Bowl® and Pollo Salads. As of September 30, 2026, the Company operated 176 and franchised 339 El Pollo Loco restaurants in the United States. In addition, as of September 30, 2026, the Company licensed eight restaurants in the Philippines.

Holdings has no material assets or operations. Holdings and Holdings’ direct subsidiary, EPL Intermediate, Inc. (“Intermediate”), guarantee EPL’s 2026 Revolver (as defined below, see Note 5, “Long-Term Debt,” below) on a full and unconditional basis 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.

The Company operates asone operating segment. All significant revenues relate to retail sales of food and beverages through either company-operated or franchise-operated restaurants.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. 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 U.S. 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 31, 2025.

The Company uses a 52- or 53-week fiscal year ending on the last Wednesday of each 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. Approximately every five or six years, a 53-week fiscal year occurs. Fiscal 2026 is a 52-week year ending on December 30, 2026. Fiscal 2025 was a 53-week year that ended on December 31, 2025. 53-week years may cause revenues, expenses, and other results of operations to be higher due to the additional week of operations.

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 U.S. 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, contingent liabilities, and income tax valuation allowances.

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. As of September 30, 2026, the Company’s total outstanding balance on its 2026 Revolver was $23.0 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 $3.4 million at September 30, 2026, and the outstanding borrowing availability under the 2026 Revolver will be adequate to meet the Company’s liquidity needs for at least the next twelve months and beyond from the issuance of the 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 hadthree suppliers for which amounts due totaled more than 10.0% of the Company’s accounts payable as of September 30, 2026. The Company hadone supplier to whom amounts due totaled 10.9% of the Company’s accounts payable as of December 31, 2025. Purchases from the Company’s largest supplier totaled 24.8% and 35.3% of total expenses for the thirteen and thirty-nine weeks ended September 30, 2026, respectively, and 24.7% and 18.9% of total expenses for the thirteen and thirty-nine weeks ended September 24, 2025, respectively.

Company-operated and franchise-operated restaurants in the greater Los Angeles area generated, in the aggregate, approximately 73.1% and 72.1% of total revenue for the thirteen and thirty-nine weeks ended September 30, 2026, respectively, and 72.2% and 71.9% of total revenue for the thirteen and thirty-nine weeks ended September 24, 2025.

Non-financial instruments

The Company’s non-financial instruments, which primarily consist of property and equipment, operating lease right-of-use assets, goodwill and intangible assets, are reported at carrying value and are not required to be measured at fair value on a recurring basis. However, on an annual basis, or whenever events or changes in circumstances indicate that their carrying value may not be recoverable, non-financial instruments are assessed for impairment. If applicable, the carrying values are written down to fair value. During the thirteen weeks ended September 30, 2026, the Company determined that there were no indicators of potential impairment for its non-financial assets. During the thirty-nine weeks ended September 30, 2026, the Company recorded non-cash impairment charges of $0.2 million. The non-cash impairment charges for the thirty-nine weeks ended September 30, 2026 were primarily related to the non-financial assets ofone restaurant in Nevada. The Company determined that there were no indicators of potential impairment for its non-financial assets during the thirteen and thirty-nine weeks ended September 24, 2025.

Income Taxes

For the thirteen weeks ended September 30, 2026, the Company recorded an income tax provision of $2.8 million, reflecting an estimated effective tax rate of 28.6%. For the thirteen weeks ended September 24, 2025, the Company recorded an income tax provision of $3.0 million, reflecting an estimated effective tax rate of 28.8%. For the thirty-nine weeks ended September 30, 2026, the Company recorded an income tax provision of $11.3 million, reflecting an estimated effective tax rate of 28.8%. For the thirty-nine weeks ended September 24, 2025, the Company recorded an income tax provision of $8.3 million, reflecting an estimated effective tax rate of 29.3%. The difference between the 21.0% statutory rate and the effective tax rate of 28.8% for the thirty-nine weeks ended September 30, 2026 is primarily due to state income taxes, net of the federal benefit, and nondeductible executive compensation. Tax deficiencies on stock option exercises, where the tax deductions were lower than the cumulative stock-based compensation expense recorded, also increased the rate. These increases were partially offset by excess tax benefits on the vesting of restricted stock awards, where the tax deductions exceeded the cumulative stock-based compensation expense recorded.

Summary of Significant Accounting Policies

There have been no changes to our significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2025 that have had a material impact on our consolidated financial statements and related notes.

Recently Adopted Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09,Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). This ASU amends income tax disclosures primarily related to the rate reconciliation and income taxes paid information, as well as certain other amendments to improve the effectiveness of income tax disclosures. These changes help investors better: (1) understand an entity’s exposure to potential changes in jurisdictional tax legislation and the ensuing risks and opportunities, (2) assess income tax information that affects cash flow forecasts and capital allocation decisions, and (3) identify potential opportunities to increase future cash flows. The amendments in this ASU are effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company adopted ASU 2023-09 during the fiscal year ended December 31, 2025 on a retrospective basis. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

In November 2024, the FASB issued ASU No. 2024-03,Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU requires new disclosures, in the notes to the financial statements, related to the disaggregation of certain expenses within the income statement. Additionally, a qualitative description is required of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. Annually, an entity is also required to define and quantify its selling expenses. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is evaluating the potential impact of this guidance on its condensed consolidated financial statements.

In December 2025, the FASB issued ASU No. 2025-11,Interim Reporting (Topic 270): Narrow-Scope Improvements. This ASU improves the guidance in Topic 270 by improving the navigability of the required interim disclosures from other topics and clarifying when existing guidance is applicable. The purpose of this ASU is not to expand or change previous interim reporting guidance; however, an added principle requires entities to disclose events since the end of the last annual reporting period that have material impact on the entity. The amendments are effective for interim reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is evaluating the potential impact of this guidance on its condensed consolidated financial statements.

In April 2026, the FASB issued ASU No. 2026-01,Equity (Topic 505): Initial measurement of Paid-in-Kind Dividends on Equity-Classified Preferred Stock. This amendment improves generally accepted accounting principles by providing authoritative guidance on how an issuer should initially measure paid-in-kind dividends on equity-classified preferred stock. The amendments are effective for interim reporting periods beginning after December 15, 2026, with early adoption permitted. The Company is evaluating the potential impact of this guidance on its condensed consolidated financial statements.

The Company reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact to the condensed consolidated financial statements.

2. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following (in thousands):

3. PROPERTY AND EQUIPMENT

The costs and related accumulated depreciation and amortization of major classes of property and equipment are as follows (in thousands):

Depreciation and amortization expense was$4.6 million and$4.0 millionfor the thirteen weeks ended September 30, 2026 and September 24, 2025, respectively, and $13.1 million and $11.8 million for the thirty-nine weeks ended September 30, 2026 and September 24, 2025, respectively.

Based on the Company’s review of its property and equipment assets for impairment, the Company didnot record any non-cash impairment charges for the thirteen weeks ended September 30, 2026 and recorded a non-cash impairment charge of $0.2 million, for the thirty-nine weeks ended September 30, 2026, which was primarily related to ROU assets forone restaurant in Nevada. Based on the Company’s review of its property and equipment assets for impairment, the Company didnot record any non-cash impairment charges for the thirteen and thirty-nine weeks ended September 24, 2025.

4. STOCKHOLDERS’ EQUITY

STOCK-BASED COMPENSATION

Pursuant to the Company’s 2018 Omnibus Equity Incentive Plan (as amended, the “Incentive Plan”), the Company grants stock options, restricted stock units, performance-based restricted stock units (“PSUs”) and restricted stock to the Company’s employees, officers, directors, and other eligible participants. As of September 30, 2026,2,153,202 shares of common stock remained available for issuance under the Incentive Plan.

Total stock-based compensation expense was $1.6 million and $1.4 millionfor the thirteen weeks ended September 30, 2026, and September 24, 2025, respectively, and$4.5 million and$4.1 million for the thirty-nine weeks ended September 30, 2026, and September 24, 2025, respectively.

Stock Options

As of September 30, 2026, options to purchase 1,289,657 shares of common stock were outstanding, including 439,386 vested and 850,271 unvested options. Unvested options vest over time; however, pursuant to the Incentive Plan, upon a change in control, the Company’s Board of Directors (the “Board”) may accelerate vesting. A summary of stock option activity at September 30, 2026, and changes during the thirty-nine weeks ended September 30, 2026, is as follows:

The fair value of each stock option was estimated on the grant date using an exercise price of the closing stock price on the day prior to date of grant and the Black-Scholes option-pricing model with the following weighted average assumptions:

At September 30, 2026, the Company had total unrecognized compensation expense of $3.7 million related to unvested stock options, which it expects to recognize over a weighted-average period of 2.03 years.

Restricted Shares

A summary of restricted share activity as of September 30, 2026 and changes during the thirty-nine weeks ended September 30, 2026 is as follows:

At September 30, 2026, the Company had unrecognized compensation expense of $6.0 million related to unvested restricted shares, which it expects to recognize over a weighted-average period of 1.97 years.

Performance-Based Restricted Stock Units

A summary of performance share activity as of September 30, 2026 and changes during the thirty-nine weeks ended September 30, 2026 is as follows:

At September 30, 2026, the Company had unrecognized compensation expense of $2.2 million related to unvested performance-based restricted shares, which it expects to recognize over a weighted-average period of 2.19 years.

SHARE REPURCHASE PROGRAM

On May 28, 2026, the Board of Directors approved a share repurchase program (the “2026 Share Repurchase Program”) under which the Company is authorized to repurchase up to $40.0 million of shares of its common stock. Under the 2026 Share Repurchase Program, the Company is permitted to repurchase its common stock from time to time, in amounts and at prices that the Company deems appropriate, based on various factors, including the market price of its common stock, general business, economic and market conditions, alternative investment opportunities and funding considerations. Pursuant to the 2026 Share Repurchase Program, the Company is authorized to effect repurchases through open market purchases, block trades, privately negotiated transactions or other transactions conducted in accordance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended, including pursuant to Rule 10b5-1 trading plans. The 2026 Share Repurchase Program does not obligate the Company to acquire any particular number of shares, has an open-ended term and may be expanded, modified, suspended or discontinued at any time.

For the thirteen and thirty-nine weeks ended September 30, 2026, the Company repurchased 177,410 shares of common stock under the 2026 Share Repurchase Program, using open market purchases, for total consideration of $2.7 million.

The Company didnot repurchase any shares of common stock during the thirteen weeks ended September 24, 2025. For the thirty-nine weeks ended September 24, 2025, the Company repurchased 163,229 shares of common stock under the 2023 Share Repurchase Program, using open market purchases, for total consideration of $1.8 million.

5. LONG-TERM DEBT

On July 27, 2022, the Company entered into a credit agreement among EPL, as borrower, the Company and Intermediate, as guarantors, Bank of America, N.A., as administrative agent, swingline lender, and letter of credit issuer, the lenders party thereto, and the other parties thereto, to refinance its $150.0 million five-year senior secured revolving credit facility.

On August 4, 2026, the Company amended the credit agreement to, among other things, extend the maturity date of the revolving credit facility to August 4, 2031 (the “2026 Credit Agreement”). The 2026 Credit Agreement provides for aggregate revolving commitments of $150.0 million (the “2026 Revolver”), including a sub limit of $15.0 million for letters of credit and a sub limit of $15.0 million for swingline loans. The 2026 Credit Agreement also permits the Company to increase the 2026 Revolver by up to $75.0 million, subject to obtaining additional lender commitments and satisfying certain conditions.

The obligations under the 2026 Credit Agreement and related loan documents are guaranteed by Holdings and Intermediate. The obligations of Holdings, EPL and Intermediate under the 2026 Credit Agreement and related loan documents are secured by a first priority lien on substantially all of their respective assets, subject to certain customary exceptions.

Under the 2026 Credit Agreement, Holdings is restricted from making certain payments such as cash dividends or share repurchases, except that, so long as no default or event of default has occurred and is continuing, it may, inter alia, (i) make restricted payments of up to the greater of $5.0 million and 5.0% of Consolidated EBITDAR (as defined in the 2026 Credit Agreement) per fiscal year, and (ii) make other restricted payments, subject to its compliance, on a pro forma basis, with (x) a lease-adjusted consolidated leverage ratio not to exceed 4.25 times and (y) the financial covenants applicable to the 2026 Revolver.

The 2026 Credit Agreement contains certain customary financial covenants, which covenants are subject to certain exceptions. The Company was in compliance with the financial covenants as of September 30, 2026.

Borrowings under the 2026 Revolver, other than swingline loans, bear interest, at the borrower’s option, at rates based upon either Term SOFR or a base rate, plus, for each rate, an applicable margin determined in accordance with a lease-adjusted consolidated leverage ratio-based pricing grid. The base rate is calculated as the highest of (a) the federal funds rate plus 0.50%, (b) the published Bank of America prime rate, or (c) Term SOFR with a term of one-month plus 1.00%. For Term SOFR loans, the applicable margin is in the range of 1.75% to 2.75%, and for base rate loans, the applicable margin is in the range of 0.75% to 1.75%. Swingline loans bear interest at the base rate plus the applicable margin. Borrowings under the 2026 Revolver may be repaid and reborrowed. The interest rate range under the Company’s revolving credit facility was 4.99% to 7.50% and 4.97% to 7.50% for the thirteen and thirty-nine weeks ended September 30, 2026, and 5.63% to 5.96% and 5.63% to 7.75% for the thirteen and thirty-nine weeks ended September 24, 2025, respectively.

In connection with the 2026 Credit Agreement, the Company capitalized $0.7 million of new deferred financing costs and wrote off $0.1 million of deferred financing costs associated with lenders that exited the facility. The write-off was recognized in “Interest expense, net” in the Condensed Consolidated Statements of Income during the thirteen and thirty-nine weeks ended September 30, 2026. Deferred financing costs related to the 2026 Revolver are included in “Other assets” in the Condensed Consolidated Balance Sheet as of September 30, 2026 and are amortized to interest expense over the term of the 2026 Revolver.

At September 30, 2026, the Company had $23.0 million in outstanding borrowings under the 2026 Revolver and $10.3 million of letters of credit outstanding, and as a result, the Company had $116.7 million in borrowing availability.

Maturities

During the thirteen weeks ended September 30, 2026, the Company hadno borrowings and paid down $7.0 million on its revolving credit facility. During the thirty-nine weeks ended September 30, 2026, the Company borrowed $5.0 million and paid down $33.0 million on its revolving credit facility. During the thirteen and thirty-nine weeks ended September 24, 2025, the Company borrowed $1.0 million and $9.0 million, respectively, and paid down $9.0 million and $19.0 million, respectively, on its revolving credit facility.

6. OTHER ACCRUED EXPENSES AND CURRENT LIABILITIES

Other accrued expenses and current liabilities consist of the following (in thousands):

7. OTHER NONCURRENT LIABILITIES

Other noncurrent liabilities consist of the following (in thousands):

8. COMMITMENTS AND CONTINGENCIES

Legal Matters

From time to time, the Company is involved in various claims such as wage and hour, consumer, and other legal actions that arise in the ordinary course of business. The outcomes of these actions are not predictable but the Company does not believe that the ultimate resolution of these actions will have a material adverse effect on its financial position, results of operations, liquidity, or capital resources. A significant increase in the number of claims, or an increase in amounts owing under successful claims, could materially and adversely affect the Company’s business, consolidated financial condition, results of operations, and cash flows.

Purchase Commitments

The Company has long-term beverage supply agreements with certain major beverage vendors. Pursuant to the terms of these arrangements, volume and marketing rebates are provided to the Company and its franchisees from the beverage vendors based upon the dollar volume of purchases for system-wide restaurants, which purchases will vary according to their demand for beverage syrup and fluctuations in the market rates for beverage syrup. These contracts have terms extending through the end of 2032.

At September 30, 2026, the Company’s total estimated commitment to purchase chicken was $1.4 million.

Contingent Lease Obligations

As a result of assigning the Company’s interest in obligations under real estate leases in connection with the sale of company-operated restaurants to some of the Company’s franchisees, the Company is contingently liable on these lease agreements. These leases have various terms, the latest of which expires in 2038. As of September 30, 2026, the potential amount of undiscounted payments the Company could be required to make in the event of non-payment by the primary lessees was $11.3 million. The Company’s franchisees are primarily liable on the leases. The Company has cross-default and indemnification provisions with these franchisees that would put them in default of their franchise agreements and require payment to the Company in the event of non-payment under the leases. The Company believes that these cross-default and indemnification provisions reduce the risk that payments will be required to be made by the Company under these leases.

Employment Agreements

As of September 30, 2026, the Company had employment agreements with five of the officers of the Company. These agreements provide for minimum salary levels, possible annual adjustments for cost-of-living changes, and incentive bonuses, severance and other benefits that are payable under certain business conditions such as change in control or termination without cause.

Indemnification Agreements

The Company has entered into indemnification agreements with each of its current directors and officers. These agreements require the Company to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to the Company and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. The Company also intends to enter into indemnification agreements with future directors and officers.

9. EARNINGS PER SHARE

Basic earnings per share (“EPS”) is calculated using the weighted-average number of shares of common stock outstanding during the thirteen and thirty-nine weeks ended September 30, 2026 and September 24, 2025. Diluted EPS is calculated using the weighted-average number of shares of common stock outstanding and potentially dilutive during the period, using the treasury stock method.

Below are basic and diluted EPS data for the periods indicated (in thousands except for share and per share data):

Below is a reconciliation of basic and diluted share counts:

10. REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company hastwo revenue streams, company-operated restaurant revenue and franchise-related revenue.

Revenue from company-operated restaurants is recognized as food and beverage products are delivered to customers and payment is tendered at the time of sale. The Company presents revenue, net of sales-related taxes and promotional allowances.

The following table presents the Company-operated restaurant revenue with the Greater Los Angeles area geographic market disaggregated:

The Company offers a loyalty rewards program, which awards a customer points for dollars spent. Customers earn points for each dollar spent and points can be redeemed for multiple redemption options. Points earned prior to January 26, 2026 expire 365 days after a customer completes an eligible transaction to earn them and points earned after January 26, 2026 expire 6 months after a customer completes an eligible transaction to earn them. When a customer is part of the rewards program, the obligation to provide future discounts related to points earned is considered a separate performance obligation, to which a portion of the transaction price is allocated and recorded as deferred revenue on the balance sheet. The performance obligation related to loyalty points is deemed to have been satisfied, and the amount deferred in the balance sheet is recognized as revenue, when the points are transferred to a reward and redeemed, the reward or points have expired, or the likelihood of redemption is remote. The portion of the transaction price allocated to loyalty points is determined on a pro-rata basis based on stand-alone selling price, as determined by menu pricing and loyalty points terms. As of September 30, 2026 and December 31, 2025, the revenue allocated to loyalty points that have not been redeemed was $1.2 million and $1.1 million, respectively, which is reflected in the Company’s accompanying condensed consolidated balance sheets within other accrued expenses and current liabilities.

Changes in the loyalty rewards program liability included in deferred revenue within other accrued expenses and current liabilities on the condensed consolidated balance sheets were as follows (in thousands):

The Company expects all loyalty points revenue related to performance obligations that were unsatisfied as of September 30, 2026 to be recognized over a period not to exceedsix months.

The Company sells gift cards to its customers in the restaurants and through selected third parties. The gift cards sold to customers have no stated expiration dates and was subject to actual and/or potential escheatment rights in several of the jurisdictions in which the Company operated through June 2025. Due to these escheatment rights, previously the Company did not recognize breakage related to the sale of gift cards due to the immateriality of the amount remaining after escheatment. Beginning June 2025, the Company’s gift cards are no longer subject to escheatment and the Company reached a settlement through a voluntary disclosure agreement program with the State of Delaware for the escheatment of gift card balances of $0.8 million. The Company is currently obtaining information to establish a gift card breakage policy. The Company recognizes revenue from gift cards when redeemed by the customer. Unredeemed gift card balances are deferred and recorded within other accrued expenses and current liabilities on the accompanying condensed consolidated balance sheets.

The gift card liability included in other accrued expenses and current liabilities on the condensed consolidated balance sheets was as follows (in thousands):

Revenue recognized from the redemption of gift cards that was included in other accrued expenses and current liabilities at the beginning of the year was as follows (in thousands):

Franchise Revenue and Franchise Advertising Fee Revenue

Franchise revenue consists of franchise royalties, initial and renewal franchise fees, license fees due from franchisees, IT support services, and rental income for subleases to franchisees. Franchise advertising fee revenue consists of advertising contributions received from franchisees. These revenue streams are made up of the following performance obligations:

The Company satisfies the performance obligation related to the franchise license over the term of the franchise agreement, which is typically 20 years. Payment for the franchise license consists of three components, a fixed-fee related to the franchise/development agreement, a revenue-based royalty fee and a revenue-based advertising fee. The fixed fee, as determined by the signed development and/or franchise agreement, is due at the time the development agreement is entered into, and/or when the franchise agreement is signed, and does not include a finance component. The fixed fee is deferred upon receipt and recognized as franchise revenue as the performance obligation is satisfied, over the term of the franchise agreement.

The revenue-based royalty fee and revenue-based advertising fee are considered variable consideration and are recognized as franchise revenue as such revenue are earned by the franchisees. Both revenue-based fees qualify under the royalty constraint exception and do not require an estimate of future transaction price. Additionally, the Company is utilizing the practical expedient available under ASC Topic 606,Revenue from Contracts with Customers (“Topic 606”) regarding disclosure of the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied for revenue-based royalties.

In certain franchise agreements, the Company offers a discounted renewal fee to incentivize future renewals after the end of the initial franchise term. As this is considered a separate performance obligation, the Company allocated a portion of the initial franchise fee to this discounted renewal, on a pro-rata basis, assuming a 20-year renewal. This performance obligation is satisfied over the renewal term, which is typically 10 or 20 years, while payment is fixed and due at the time the renewal is signed.

The Company purchases hardware, such as scanners, printers, point-of-sale systems, kiosks, and tablets, from third party vendors, which it then sells to franchisees. Revenue from the sale of hardware is recognized at a point in time, upon transfer of the goods from the Company to the franchisee, which is also when payment is received. As the Company is considered the principal in this relationship, the Company presents hardware sales on a gross basis. As of September 30, 2026, there wereno performance obligations related to hardware services that were unsatisfied or partially satisfied.

Contract Balances

The Company’s franchise contract liability includes development fees, initial franchise and license fees, franchise renewal fees, lease subsidies and royalty discounts and is included within other accrued expenses and current liabilities and other noncurrent liabilities within the accompanying condensed consolidated balance sheets. The Company receives area development fees from franchisees when they execute multi-unit area development agreements. Initial franchise and license fees, or franchise renewal fees, are received from franchisees upon the execution of, or renewal of, a franchise agreement. Revenue is recognized from these agreements as the underlying performance obligation is satisfied, which is over the term of the agreement.

The following table provides information about the change in the franchise contract liability balances during the thirty-nine weeks ended September 30, 2026 and September 24, 2025 (in thousands):

The following table illustrates the estimated revenue to be recognized in future periods related to performance obligations under the applicable contracts that are unsatisfied as of September 30, 2026 (in thousands):

Contract Costs

The Company does not currently incur costs to obtain or fulfill a contract that would be considered contract assets under Topic 606.

11. LEASES

Nature of Leases

The Company’s operations utilize property, facilities, equipment and vehicles leased from others. Additionally, the Company has various contracts with vendors that have been determined to contain an embedded lease in accordance with Topic 842.

Significant Assumptions and Judgments

In applying the requirements of Topic 842, the Company made significant assumptions and judgments related to determination of whether a contract contains a lease and the discount rate used for the lease.

In determining if any of the Company’s contracts contain a lease, the Company made assumptions and judgments related to its ability to direct the use of any assets stated in the contract and the likelihood of renewing any short-term contracts for a period extending past twelve months.

The Company also made significant assumptions and judgments in determining an appropriate discount rate for property leases. As the rate implicit in these leases is generally not readily determinable, the Company uses its incremental borrowing rate. These included using a consistent discount rate for a portfolio of leases entered into at varying dates, using the full 20-year term of the lease, excluding any options, and using the total minimum lease payments. The Company utilizes a third-party valuation firm in determining the discount rate, based on the above assumptions. For all other leases, the Company uses the discount rate implicit in the lease, or the Company’s incremental borrowing rate.

As the Company has adopted the practical expedient not to separate lease and non-lease components, no significant assumptions or judgments were necessary in allocating consideration between these components, for all classes of underlying assets.

Building and Facility Leases

The majority of the Company’s building and facilities leases are classified as operating leases; however, the Company currently hasone facility andnine equipment leases that are classified as finance leases.

Restaurants are operated under lease arrangements that generally provide for a fixed base rent and, in some instances, contingent rent based on a percentage of restaurant revenue in excess of a defined amount. Additionally, a number of the Company’s leases have payments that increase at pre-determined dates based on the change in the consumer price index. For all leases, the Company also reimburses the landlord for non-lease components, or items that are not considered components of a contract, such as common area maintenance, property tax and insurance costs. While the Company determined not to separate lease and non-lease components, these payments are based on actual costs, making them variable consideration and therefore excludes them from the calculations of the right-of-use (“ROU”) asset and lease liability.

The initial terms of land and restaurant building leases are generally 20 years, exclusive of options to renew. These leases typically have four 5-year renewal options, which have generally been excluded in the calculation of the ROU asset and lease liability, as they are not considered reasonably certain to be exercised, unless there have been significant leasehold improvements that have a useful life that extend past the original lease term. Furthermore, there are noresidual value guarantees and no restrictions imposed by the lease.

During the thirteen and thirty-nine weeks ended September 30, 2026, the Company reassessed the lease terms on 12 restaurants and 26 restaurants, respectively, due to certain triggering events, such as the addition of significant leasehold improvements with useful lives that extend past the current lease expiration, the decision to terminate a lease, or the decision to renew or exercise an option. This reassessment resulted in an additional $7.2 million and$16.4 millionof ROU asset and lease liabilities for the thirteen and thirty-nine weeks ended September 30, 2026, respectively. During the thirteen and thirty-nine weeks ended September 24, 2025, the Company reassessed the lease terms on 10 and 19 restaurants, respectively, due to certain triggering events, such as the addition of significant leasehold improvements with useful lives that extend past the current lease expiration, the decision to terminate a lease, or the decision to renew or exercise an option. This reassessment resulted in an additional $6.9 million and $14.0 million of ROU asset and lease liabilities for the thirteen and thirty-nine weeks ended September 24, 2025, respectively, which were recognized and will be amortized over the new lease term.

The Company also subleases facilities to certain franchisees and other non-related parties which are also considered operating leases. Sublease income also includes contingent rental income based on net revenues. The vast majority of these leases have rights to extend terms via fixed rental increases. However, none of these leases have early termination rights, the right to purchase the premises or any residual value guarantees. The Company does not have any related party leases.

During the thirty-nine weeks ended September 30, 2026, the Company recorded a $0.2 million non-cash impairment charge related toone restaurant in Nevada. During both the thirteen and thirty-nine weeks ended September 24, 2025, the Company didnot record any non-cash impairment charges.

Equipment

Leases of equipment primarily consist of restaurant equipment and vehicles. These leases are fixed payments with no variable component. Additionally, no optional renewal periods have been included in the calculation of the ROU asset, and there are no residual value guarantees and no restrictions imposed.

Lease Cost and Lease Activities

The following table presents the Company’s total lease cost, disaggregated by underlying asset (in thousands):

The following table presents the Company’s total lease cost on the condensed consolidated statements of income (in thousands):

During the thirty-nine weeks ended September 30, 2026 and September 24, 2025, the Company had the following cash and non-cash activities associated with its leases (dollars in thousands):

Information regarding the Company’s minimum future lease obligations as of September 30, 2026 is as follows (in thousands):

Short-Term Leases

The Company has multiple short-term leases, which have terms of less than 12 months, and thus were excluded from the recognition requirements of Topic 842. The Company has recognized these lease payments in its condensed consolidated statements of income on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments was incurred.

Lessor

The Company is a lessor for certain property and facilities owned by the Company and leased to others, principally franchisees, under non-cancelable leases with initial terms ranging from three to 20 years. These lease agreements generally provide for a fixed base rent and, in some instances, contingent rent based on a percentage of gross operating profit or net revenues. All leases are considered operating leases.

For the leases in which the Company is the lessor, there are options toextend the lease. However, there are no terms and conditions toterminate the lease, no right topurchase premises and no residual value guarantees. Additionally, there are no related party leases.

The Company received $0.1 million of lease income from company-owned locations for the thirteen weeks ended September 30, 2026 and September 24, 2025. The Company received $0.4 million and $0.3 million of lease income from company-owned locations for the thirty-nine weeks ended September 30, 2026 and September 24, 2025, respectively.

12. SEGMENT REPORTING

Operating segments are defined as components of a company that engage in business activities from which it may earn revenue and incur expenses, and for which separate financial information is available and is regularly reviewed by the chief operating decision maker (“CODM”) to assess the performance of the individual segments and make decisions about company resources such as personnel and working capital to be allocated to the segments.

The Company derives revenue from three primary sources: (1) company-operated restaurant revenue, (2) franchise revenue, which is comprised primarily of franchise royalties and, to a lesser extent, franchise fees and sublease rental income, and (3) franchise advertising fee revenue. All significant revenues relate to retail sales of food and beverages through either company-operated or franchise-operated restaurants.

The Company determined that it hasone operating segment andone reportable segment which is reflected in the Company’s current organizational and management structure.

The Company’s CODM is the Chief Executive Officer who manages the Company’s operations on a reportable segment basis. The Company’s CODM reviews its operations and financial performance at a consolidated level by comparing actual results to budgeted figures and prior year results. This approach allows the CODM to assess whether the Company’s operating segment is meeting its financial goals, identify trends and make more informed decisions about resource allocation and performance targets.

When evaluating the Company’s financial performance, the CODM regularly reviews total revenue, segment expenses, and consolidated net income as reported on the Consolidated Statements of Income as well as non-GAAP measures such as restaurant contribution margin and Adjusted EBITDA to allocate Company resources and assess the performance of the Company. Segment asset information is not used by the CODM to assess performance and allocate resources.

The table below is a summary of the segment net income, including significant segment expenses for the thirteen and thirty-nine weeks ended September 30, 2026 and September 24, 2025 (in thousands):

13. SUBSEQUENT EVENTS

Subsequent to quarter end, the Company borrowed an additional$4.0 million on the 2026 Revolver, resulting in outstanding borrowings of$27.0 million as of November 4, 2026.