Restructuring

6 Months Ended

Jun. 30, 2024

Restructuring and Related Activities [Abstract]

9. Restructuring

International Restructuring

In December 2023, the Company announced international transformation initiatives (“International Transformation Plan”) designed to evolve our business structure to deliver an enhanced value proposition to our International customers and franchisees, ensure targeted investments and efficient resource management, and better position our largest markets, including the UK, for long-term profitable growth and brand strength. During the fourth quarter of the year ended December 31, 2023, the Company commenced approved initiatives under the International Transformation Plan related to establishing new regional hubs across APAC (Asia Pacific), EMEA (Europe, Middle East and Africa), and Latin America that will be led by experienced general managers and their teams.

During the first quarter of 2024, the Company commenced the next phase of the International Transformation Plan as approved by the Board, which involves strategic restaurant closures and divestitures in the UK. The purpose of this plan is to optimize the Company’s restaurant portfolio in the UK and improve overall profitability by closing unprofitable locations and enhancing profitability across the remaining portfolio of Company-owned restaurants. The execution of this phase of the International Transformation Plan resulted in the closure of 43 underperforming UK Company-owned restaurants during the three months ended June 30, 2024.

During the second quarter of 2024, the Company completed the refranchising of 40 formerly Company-owned restaurants to existing franchisees in June 2024, which resulted in a loss on sale of $1.2 million during the three months ended June 30, 2024. Additionally, the Company refranchised an additional 20 formerly Company-owned restaurants effective July 1, 2024. The assets of these 20 stores were classified as assets held for sale on the Condensed Consolidated Balance Sheets as of June 30, 2024, and the remeasurement of these assets resulted in charges of $0.6 million during the three months ended June 30, 2024. The loss on sale and remeasurement charges were recorded within General and administrative expenses in the Condensed Consolidated Statements of Operations. Further, as a result of ongoing evaluation of our UK market, the Company closed an additional 19 franchised locations during the first six months of 2024. We are finalizing the evaluation of our restaurant portfolio in the UK, which may result in limited strategic restaurant closures with the Company’s efforts turning towards growth opportunities within this market as we complete optimization of the portfolio.

The Company evaluates its property and equipment and other long-lived assets (primarily right-of-use operating lease assets) for potential indicators of impairment at least annually, or as facts and circumstances indicate that the carrying value of the asset group may not be recoverable. The asset group is at the store level for our UK-based restaurants and primarily includes lease right-of-use assets for franchised stores and lease right-of-use assets and leasehold improvements for Company-owned stores. Due to indicators of potential impairment associated with the UK Company-owned and franchised store closures mentioned above, the Company performed an impairment analysis and determined that the carrying amount

of the assets related to the closing UK stores were not recoverable. For the three and six months ended June 30, 2024, we recognized impairment charges for the amount by which the carrying value exceeded the estimated fair value of the asset groups. Fair values were determined based on an income approach, specifically a discounted cash flow ("DCF") model, primarily using estimated sublease income considering market rental rates. Management judgment is involved in determining the estimated fair value and includes uncertainties that under different assumptions and circumstances could drive material changes in the fair value determination.

In connection with the International Transformation Plan, the Company incurred restructuring related costs of $6.1 million and $15.7 million for the three and six months ended June 30, 2024, respectively, primarily related to lease right-of-use asset and leasehold improvement impairment charges, losses associated with the refranchising of corporate stores, losses on notes receivable with a UK franchisee in relation to franchised store closures, lease termination impacts related to closed stores, employee termination costs, and professional advisory services and other related costs. The Company has incurred total restructuring related costs of $17.9 million since commencement of the International Transformation Plan. These costs were included in General and administrative expenses in the Condensed Consolidated Statements of Operations.

Total estimated pre-tax costs associated with the International Transformation Plan are approximately $25 million to $35 million (inclusive of the $17.9 million incurred through the second quarter of 2024), all of which will be recorded within our International segment, and we expect to incur the remainder of these costs through 2024 and 2025.

The following table summarizes restructuring related costs recorded for the three and six months ended June 30, 2024 (in thousands):


	Three Months Ended		Six Months Ended
	June 30, 2024		June 30, 2024
Long-lived asset impairment charges	$	1,422	$	8,976
Loss on franchisee notes receivable	1,564		1,564
Loss on refranchising Company-owned stores	1,737		1,737
Professional services and other related costs	1,355		2,701
Employee termination costs, net (a)	(255)		368
Operating lease terminations	306		306
Total international transformation costs, net	$	6,129	$	15,652

(a) During the three months ended June 30, 2024, the Company had a partial reversal of severance originally estimated in connection with the closure of Company-owned restaurants. Includes noncash reversal of $0.1 million related to the forfeiture of unvested stock-based compensation awards.

The following table presents changes in the balance of accrued expenses relating to approved initiatives, which are recorded in accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets (in thousands):


	Employee severance		Professional services and other related costs		Other		Total
Balance as of December 31, 2023	$	1,227	$	527	$	29	$	1,783
Charges	444		2,701		—		3,145
Payments	(1,286)		(2,605)		(29)		(3,920)
Balance as of June 30, 2024	$	385	$	623	$	—	$	1,008