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 March 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 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 67,000,313 on April 26, 2023.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1 — Financial Statements (Unaudited) — Texas Roadhouse, Inc. and Subsidiaries	3
Condensed Consolidated Balance Sheets —March 28, 2023 and December 27, 2022	3
Condensed Consolidated Statements of Income — For the 13 Weeks Ended March 28, 2023 and March 29, 2022	4
Condensed Consolidated Statements of Stockholders’ Equity — For the 13 Weeks Ended March 28, 2023 and March 29, 2022	5
Condensed Consolidated Statements of Cash Flows — For the 13 Weeks Ended March 28, 2023 and March 29, 2022	6
Notes to Condensed Consolidated Financial Statements	7
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3 — Quantitative and Qualitative Disclosures About Market Risk	26
Item 4 — Controls and Procedures	27
PART II. OTHER INFORMATION
Item 1 — Legal Proceedings	28
Item 1A — Risk Factors	28
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3 — Defaults Upon Senior Securities	28
Item 4 — Mine Safety Disclosures	28
Item 5 — Other Information	29
Item 6 — Exhibits	29
Signatures	30

2

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)

	March 28, 2023		December 27, 2022
Assets
Current assets:
Cash and cash equivalents	$	156,143	$	173,861
Receivables, net of allowance for doubtful accounts of $78 at March 28, 2023 and $50 at December 27, 2022		41,528		150,264
Inventories, net		36,812		38,015
Prepaid income taxes		—		5,097
Prepaid expenses and other current assets		34,235		29,604
Total current assets		268,718		396,841
Property and equipment, net of accumulated depreciation of $995,149 at March 28, 2023 and $968,036 at December 27, 2022		1,310,782		1,270,349
Operating lease right-of-use assets, net		643,485		630,258
Goodwill		169,641		148,732
Intangible assets, net of accumulated amortization of $18,554 at March 28, 2023 and $17,905 at December 27, 2022		5,859		5,607
Other assets		76,380		73,878
Total assets	$	2,474,865	$	2,525,665
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of operating lease liabilities	$	26,466	$	25,490
Accounts payable		113,834		105,560
Deferred revenue-gift cards		240,729		335,403
Accrued wages		66,153		54,544
Income taxes payable		5,718		434
Accrued taxes and licenses		38,401		35,264
Other accrued liabilities		96,797		95,315
Total current liabilities		588,098		652,010
Operating lease liabilities, net of current portion		692,016		677,874
Long-term debt		—		50,000
Restricted stock and other deposits		8,487		7,979
Deferred tax liabilities, net		23,674		20,979
Other liabilities		92,051		89,161
Total liabilities		1,404,326		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, 67,000,306 and 66,973,311 shares issued and outstanding at March 28, 2023 and December 27, 2022, respectively)		67		67
Additional paid-in-capital		6,240		13,139
Retained earnings		1,048,941		999,432
Total Texas Roadhouse, Inc. and subsidiaries stockholders’ equity		1,055,248		1,012,638
Noncontrolling interests		15,291		15,024
Total equity		1,070,539		1,027,662
Total liabilities and equity	$	2,474,865	$	2,525,665

See accompanying notes to condensed consolidated financial statements.

3

Texas Roadhouse, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(in thousands, except per share data)

(unaudited)

	13 Weeks Ended
	March 28, 2023		March 29, 2022
Revenue:
Restaurant and other sales	$	1,167,583	$	980,972
Franchise royalties and fees		6,773		6,514
Total revenue		1,174,356		987,486
Costs and expenses:
Restaurant operating costs (excluding depreciation and amortization shown separately below):
Food and beverage		410,711		337,396
Labor		385,819		321,871
Rent		17,828		16,368
Other operating		167,529		144,154
Pre-opening		5,377		4,291
Depreciation and amortization		36,227		33,620
Impairment and closure, net		55		(646)
General and administrative		49,865		40,294
Total costs and expenses		1,073,411		897,348
Income from operations		100,945		90,138
Interest income (expense), net		1,238		(397)
Equity income from investments in unconsolidated affiliates		755		334
Income before taxes	$	102,938	$	90,075
Income tax expense		14,334		12,747
Net income including noncontrolling interests		88,604		77,328
Less: Net income attributable to noncontrolling interests		2,217		2,126
Net income attributable to Texas Roadhouse, Inc. and subsidiaries	$	86,387	$	75,202
Net income per common share attributable to Texas Roadhouse, Inc. and subsidiaries:
Basic	$	1.29	$	1.09
Diluted	$	1.28	$	1.08
Weighted average shares outstanding:
Basic		67,016		69,086
Diluted		67,293		69,373
Cash dividends declared per share	$	0.55	$	0.46

See accompanying notes to condensed consolidated financial statements.

4

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 March 28, 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	—		—		—		86,387		86,387		2,217		88,604
Distributions to noncontrolling interest holders	—		—		—		—		—		(1,950)		(1,950)
Dividends declared ($0.55 per share)	—		—		—		(36,878)		(36,878)		—		(36,878)
Shares issued under share-based compensation plans including tax effects	173,620		—		—		—		—		—		—
Indirect repurchase of shares for minimum tax withholdings	(53,874)		—		(5,430)		—		(5,430)		—		(5,430)
Repurchase of shares of common stock	(92,751)		—		(9,623)		—		(9,623)		—		(9,623)
Share-based compensation	—		—		8,154		—		8,154		—		8,154
Balance, March 28, 2023	67,000,306	$	67	$	6,240	$	1,048,941	$	1,055,248	$	15,291	$	1,070,539
	For the 13 Weeks Ended March 29, 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	—		—		—		75,202		75,202		2,126		77,328
Distributions to noncontrolling interest holders	—		—		—		—		—		(2,007)		(2,007)
Dividends declared ($0.46 per share)	—		—		—		(31,795)		(31,795)		—		(31,795)
Shares issued under share-based compensation plans including tax effects	204,968		—		—		—		—		—		—
Indirect repurchase of shares for minimum tax withholdings	(66,999)		—		(6,166)		—		(6,166)		—		(6,166)
Repurchase of shares of common stock	(1,060,618)		(1)		(84,704)		—		(84,705)		—		(84,705)
Share-based compensation	—		—		9,120		—		9,120		—		9,120
Balance, March 29, 2022	68,459,769	$	68	$	32,754	$	986,958	$	1,019,780	$	15,479	$	1,035,259

See accompanying notes to condensed consolidated financial statements.

5

Texas Roadhouse, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	13 Weeks Ended
	March 28, 2023		March 29, 2022
Cash flows from operating activities:
Net income including noncontrolling interests	$	88,604	$	77,328
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		36,227		33,620
Deferred income taxes		2,988		2,630
Loss on disposition of assets		1,223		1,151
Impairment and closure costs		—		26
Equity income from investments in unconsolidated affiliates		(755)		(334)
Distributions of income received from investments in unconsolidated affiliates		170		332
Provision for doubtful accounts		28		12
Share-based compensation expense		8,154		9,120
Changes in operating working capital:
Receivables		109,483		116,419
Inventories		1,612		1,820
Prepaid expenses and other current assets		(3,224)		651
Other assets		(2,265)		5,756
Accounts payable		10,418		6,275
Deferred revenue—gift cards		(95,838)		(80,009)
Accrued wages		11,609		15,118
Prepaid income taxes and income taxes payable		10,381		11,447
Accrued taxes and licenses		3,137		315
Other accrued liabilities		3,044		(10,676)
Operating lease right-of-use assets and lease liabilities		1,090		1,542
Other liabilities		2,895		(4,774)
Net cash provided by operating activities		188,981		187,769
Cash flows from investing activities:
Capital expenditures—property and equipment		(66,733)		(49,029)
Acquisition of franchise restaurants, net of cash acquired		(39,111)		(26,437)
Proceeds from sale of investments in unconsolidated affiliates		472		—
Proceeds from the sale of property and equipment		—		2,188
Proceeds from sale leaseback transaction		2,072		—
Net cash used in investing activities		(103,300)		(73,278)
Cash flows from financing activities:
Payments on revolving credit facility		(50,000)		—
Distributions to noncontrolling interest holders		(1,950)		(2,007)
Proceeds from restricted stock and other deposits, net		482		260
Indirect repurchase of shares for minimum tax withholdings		(5,430)		(6,166)
Repurchase of shares of common stock		(9,623)		(84,705)
Dividends paid to shareholders		(36,878)		(31,795)
Net cash used in financing activities		(103,399)		(124,413)
Net decrease in cash and cash equivalents		(17,718)		(9,922)
Cash and cash equivalents—beginning of period		173,861		335,645
Cash and cash equivalents—end of period	$	156,143	$	325,723
Supplemental disclosures of cash flow information:
Interest paid, net of amounts capitalized	$	411	$	381
Income taxes paid (refunded)	$	965	$	(1,317)
Capital expenditures included in current liabilities	$	30,908	$	25,006

See accompanying notes to condensed consolidated financial statements.

6

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 March 28, 2023 and December 27, 2022 and for the 13 weeks ended March 28, 2023 and March 29, 2022.

As of March 28, 2023, we owned and operated 611 restaurants and franchised an additional 93 restaurants in 49 states and ten foreign countries. Of the 611 company restaurants that were operating at March 28, 2023, there were 591 wholly-owned restaurants and 20 majority-owned restaurants. Of the 611 restaurants that we owned as of March 28, 2023, we operated 564 as Texas Roadhouse restaurants, 40 as Bubba’s 33 restaurants and seven as Jaggers restaurants. Of the 93 Texas Roadhouse franchise restaurants, there were 54 domestic restaurants and 39 international restaurants.

As of March 29, 2022, we owned and operated 576 restaurants and franchised an additional 96 restaurants in 49 states and ten foreign countries. Of the 576 company restaurants that were operating at March 29, 2022, there were 556 wholly-owned restaurants and 20 majority-owned restaurants. Of the 576 restaurants that we owned as of March 29, 2022, we operated 536 as Texas Roadhouse restaurants, 36 as Bubba’s 33 restaurants and four as Jaggers restaurants. Of the 96 Texas Roadhouse franchise restaurants, there were 63 domestic restaurants and 33 international restaurants.

As of March 28, 2023 and March 29, 2022, we owned a 5.0% to 10.0% equity interest in 19 and 24 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 amount of property and equipment, goodwill, obligations related to insurance reserves, leases and leasehold improvements, legal reserves, gift card breakage and third party fees 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 weeks ended March 28, 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.

7

(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 do not anticipate that the adoption of this standard will have a significant impact on our 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.

The terms of the credit facility require us to pay interest on outstanding borrowings at LIBOR plus a margin of 0.875% to 1.875% and pay a commitment fee of 0.125% to 0.30% per year on any unused portion of the credit facility, in each case depending on our leverage ratio. The credit facility also has an Alternate Base Rate that may be substituted for LIBOR.

As of March 28, 2023, we had no outstanding balance on the credit facility and had $283.5 million of availability, net of $16.5 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 March 28, 2023 and March 29, 2022 was 5.47% and 1.20%, 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 March 28, 2023.

(4) Revenue

The following table disaggregates our revenue by major source:

	13 Weeks Ended
	March 28, 2023		March 29, 2022
Restaurant and other sales	$	1,167,583	$	980,972
Franchise royalties		6,019		5,699
Franchise fees		754		815
Total revenue	$	1,174,356	$	987,486

8

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

	13 Weeks Ended
	March 28, 2023		March 29, 2022
Beginning balance	$	335,403	$	300,657
Gift card activations, net		50,563		42,024
Gift card redemptions and breakage		(145,237)		(121,202)
Ending balance		240,729		221,479

We recognized restaurant sales of $119.6 million and $102.1 million for the 13 weeks ended March 28, 2023 and March 29, 2022, respectively, related to the amount in deferred revenue as of December 27, 2022 and December 28, 2021, respectively.

(5) Income Taxes

A reconciliation of the statutory federal income tax rate to our effective tax rate for the 13 weeks ended March 28, 2023 and March 29, 2022 is as follows:

	13 Weeks Ended
	March 28, 2023		March 29, 2022
Tax at statutory federal rate	21.0	%	21.0	%
State and local tax, net of federal benefit	3.7		3.8
FICA tip tax credit	(10.2)		(9.7)
Work opportunity tax credit	(1.1)		(1.3)
Stock compensation	(0.3)		(0.2)
Net income attributable to noncontrolling interests	(0.4)		(0.4)
Officers compensation	0.6		0.5
Other	0.6		0.5
Total	13.9	%	14.2	%

Our effective tax rate was 13.9% and 14.2% for the 13 weeks ended March 28, 2023 and March 29, 2022, respectively. The reduction in our tax rate for the 13 weeks ended March 28, 2023 as compared to the prior year period was primarily driven by an increase in FICA tip tax credits.

(6) Commitments and Contingencies

The estimated cost of completing capital project commitments at March 28, 2023 and December 27, 2022 was $228.6 million and $205.7 million, respectively.

As of March 28, 2023 and December 27, 2022, we were contingently liable for $11.1 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 March 28, 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 weeks ended March 28, 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.

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

9

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 $39.0 million, net of cash acquired for 100% of the entities. The transactions in which we held an equity interest were accounted for as a step acquisition 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 the acquisitions, and the estimated fair value of the assets acquired, and the liabilities assumed at the acquisition date, which are adjusted for measurement-period adjustments through March 28, 2023.

Inventory	$	410
Other assets		293
Property and equipment		17,763
Operating lease right-of-use assets		4,775
Goodwill		20,024
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)
	$	39,026

The aggregate purchase prices are preliminary as the Company is finalizing working capital adjustments. Intangible assets represent reacquired franchise rights which will be 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 operating results for the 13 weeks ended March 28, 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 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 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 the 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.

10

Inventory	$	268
Other assets		211
Property and equipment		3,456
Goodwill		18,218
Intangible assets		5,200
Deferred revenue-gift cards		(831)
	$	26,522

Intangible assets represent reacquired franchise rights which will be amortized over a weighted-average useful life of 3.0 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.

(8)   Related Party Transactions

As of March 28, 2023 and March 29, 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 and $0.4 million for the 13 weeks ended March 28, 2023 and March 29, 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 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.

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

	13 Weeks Ended
	March 28, 2023		March 29, 2022
Net income attributable to Texas Roadhouse, Inc. and subsidiaries	$	86,387	$	75,202
Basic EPS:
Weighted-average common shares outstanding		67,016		69,086
Basic EPS	$	1.29	$	1.09
Diluted EPS:
Weighted-average common shares outstanding		67,016		69,086
Dilutive effect of nonvested stock		277		287
Shares-diluted		67,293		69,373
Diluted EPS	$	1.28	$	1.08

(10) Fair Value Measurements

At March 28, 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 weeks ended March 28, 2023.

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

	Fair Value Measurements
	Level	March 28, 2023		December 27, 2022
Deferred compensation plan—assets	1	$	64,682	$	61,835
Deferred compensation plan—liabilities	1	$	(64,476)	$	(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
		March 28,		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 a Level 3 input.

(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 weeks ended March 28, 2023, we paid $9.6 million to repurchase 92,751 shares of our common stock. For the 13 weeks ended March 29, 2022, we paid $84.7 million to repurchase 1,060,618 shares of our common stock. As of March 28, 2023, $157.3 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 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 (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. Restaurant margin is used by our chief operating decision maker to evaluate restaurant-level operating efficiency and performance.

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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 also 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 also 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.

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

	For the 13 Weeks Ended March 28, 2023
	Texas Roadhouse		Bubba's 33		Other		Total
Restaurant and other sales	$	1,100,926	$	61,369	$	5,288	$	1,167,583
Restaurant operating costs (excluding depreciation and amortization)		923,936		52,916		5,035		981,887
Restaurant margin	$	176,990	$	8,453	$	253	$	185,696
Depreciation and amortization	$	29,888	$	3,447	$	2,892	$	36,227
Capital expenditures		57,137		6,255		3,341		66,733
	For the 13 Weeks Ended March 29, 2022
	Texas Roadhouse		Bubba's 33		Other		Total
Restaurant and other sales	$	926,729	$	51,225	$	3,018	$	980,972
Restaurant operating costs (excluding depreciation and amortization)		773,261		43,431		3,097		819,789
Restaurant margin	$	153,468	$	7,794	$	(79)	$	161,183
Depreciation and amortization	$	27,541	$	3,190	$	2,889	$	33,620
Capital expenditures		39,677		7,377		1,975		49,029

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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
	March 28, 2023		March 29, 2022
Restaurant margin	$	185,696	$	161,183
Add:
Franchise royalties and fees		6,773		6,514
Less:
Pre-opening		5,377		4,291
Depreciation and amortization		36,227		33,620
Impairment and closure, net		55		(646)
General and administrative		49,865		40,294
Income from operations	$	100,945	$	90,138

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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 704 restaurants in 49 states and ten foreign countries. As of March 28, 2023, our 704 restaurants included:

● 611 "company restaurants," of which 591 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 611 restaurants we owned as of March 28, 2023, we operated 564 as Texas Roadhouse restaurants, 40 as Bubba’s 33 restaurants and seven as Jaggers restaurants.

● 93 "franchise restaurants," 19 of which 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 19 franchise restaurants. All of the franchise restaurants are operated as Texas Roadhouse restaurants. Of the 93 franchise restaurants, 54 were domestic restaurants and 39 were international 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 50 of the 54 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 March 28, 2023, and March 29, 2022, are referred to as Q1 2023 and Q1 2022, respectively. Fiscal years 2023 and 2022 will be 52 weeks in length, while the quarters for the year will be 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 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, 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 simultaneous 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 also exclude pre-opening expense as it occurs at irregular intervals and would impact comparability to prior period results. We also 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 also 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 the unaudited condensed consolidated statements of income. Other sales include the amortization of fees associated with our third party gift card sales net of the amortization of gift card breakage income.

● 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 consists 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 relates 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 are comprised 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 the restaurants.

● 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 are comprised of 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,

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Support Center 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 offset by capitalized interest.

● Equity Income from 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 March 28, 2023, and March 29, 2022, we owned a 5.0% to 10.0% equity interest in 19 and 24 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.

Q1 2023 Financial Highlights

Total revenue increased $186.9 million or 18.9% to $1,174.4 million in Q1 2023 compared to $987.5 million in Q1 2022 primarily due to an increase in store weeks and an increase in comparable restaurant sales. Store weeks and comparable restaurant sales increased 6.0% and 12.9%, respectively, at company restaurants in Q1 2023 compared to Q1 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 $11.2 million or 14.9% to $86.4 million in Q1 2023 compared to $75.2 million in Q1 2022 primarily due to higher restaurant margin dollars, as described below, partially offset by higher general and administrative expenses. Diluted earnings per share increased 18.4% to $1.28 in Q1 2023 from $1.08 in Q1 2022 due to the increase in net income and the benefit of share repurchases.

Restaurant margin dollars increased $24.5 million or 15.2% to $185.7 million in Q1 2023 compared to $161.2 million in Q1 2022 primarily due to higher sales. Restaurant margin, as a percentage of restaurant and other sales, decreased to 15.9% in Q1 2023 compared to 16.4% in Q1 2022.  The decrease in restaurant margin, as a percentage of restaurant and other sales, was due to commodity and wage and other labor inflation partially offset by higher sales.

We repurchased 92,751 shares of common stock for $9.6 million in Q1 2023. We also increased our quarterly dividend to $0.55 per share of common stock, representing a 20% increase compared to our quarterly dividend of $0.46 per share in Q1 2022.

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Results of Operations

	13 Weeks Ended
	March 28, 2023		March 29, 2022
	$	%	$	%
	(In thousands)
Consolidated Statements of Income:
Revenue:
Restaurant and other sales	1,167,583	99.4	980,972	99.3
Franchise royalties and fees	6,773	0.6	6,514	0.7
Total revenue	1,174,356	100.0	987,486	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	410,711	35.2	337,396	34.4
Labor	385,819	33.0	321,871	32.8
Rent	17,828	1.5	16,368	1.7
Other operating	167,529	14.3	144,154	14.7
(As a percentage of total revenue)
Pre-opening	5,377	0.5	4,291	0.4
Depreciation and amortization	36,227	3.1	33,620	3.4
Impairment and closure, net	55	NM	(646)	NM
General and administrative	49,865	4.2	40,294	4.1
Total costs and expenses	1,073,411	91.4	897,348	90.9
Income from operations	100,945	8.6	90,138	9.1
Interest income (expense), net	1,238	0.1	(397)	NM
Equity income from investments in unconsolidated affiliates	755	NM	334	NM
Income before taxes	102,938	8.8	90,075	9.1
Income tax expense	14,334	1.2	12,747	1.3
Net income including noncontrolling interests	88,604	7.5	77,328	7.8
Net income attributable to noncontrolling interests	2,217	0.2	2,126	0.2
Net income attributable to Texas Roadhouse, Inc. and subsidiaries	86,387	7.4	75,202	7.6

NM — Not meaningful

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	Reconciliation of Income from Operations to Restaurant Margin
	(in thousands)
	13 Weeks Ended
	March 28, 2023		March 29, 2022
Income from operations	$	100,945	$	90,138
Less:
Franchise royalties and fees		6,773		6,514
Add:
Pre-opening		5,377		4,291
Depreciation and amortization		36,227		33,620
Impairment and closure, net		55		(646)
General and administrative		49,865		40,294
Restaurant margin	$	185,696	$	161,183
Restaurant margin $/store week	$	23,505	$	21,618