Restructuring

3 Months Ended

Mar. 31, 2024

Restructuring and Related Activities [Abstract]

Restructuring

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 quarter ended March 31, 2024, the Company commenced the next phase of the International Transformation Plan as approved by the Board of Directors, and began the process to close 43 underperforming Company-owned restaurants 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 allowing the Company to focus on improving profitability across its remaining portfolio of Company-owned and franchised restaurants in the UK. The Company is on track to complete these store closures in the second quarter of 2024. We are continuing to evaluate our restaurant portfolio in the UK, which may result in additional strategic restaurant closures or divestitures.

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 Company-owned restaurants and primarily includes lease right-of-use assets and fixed assets. Due to indicators of potential impairment associated with the 43 store closures, the Company performed a recoverability test and determined that the carrying amount of the asset groups were not recoverable. For the three months ended March 31, 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 these actions, the Company incurred restructuring related costs of $9.5 million for the three months ended March 31, 2024 primarily related to lease right-of-use asset and fixed asset impairment charges, employee severance benefits accounted for under ASC 712, “Compensation – Nonretirement Postemployment Benefits,” and professional advisory services. The Company has incurred total restructuring related costs of $11.7 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 $11.7 million spent through the first 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 months ended March 31, 2024 (in thousands):

	Three Months Ended March 31, 2024
Long-lived asset impairment charges	$	7,554
Employee severance	643
Professional services and other related costs	1,346
Total international transformation costs	9,543
Stock-based compensation forfeitures on unvested awards	(20)
Total international transformation costs, net of stock-based award forfeitures	$	9,523

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		Recruiting		Total
Balance as of December 31, 2023	$	1,227	$	527	$	29	$	1,783
Charges	643		1,346		—		1,989
Payments	(648)		(543)		(29)		(1,220)
Balance as of March 31, 2024	$	1,222	$	1,330	$	—	$	2,552