Bloomin' Brands, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the related notes. Unless the context otherwise indicates, as used in this report, the term the “Company,” “we,” “us,” “our” and other similar terms mean Bloomin’ Brands, Inc. and its subsidiaries. Cautionary Statement This Quarterly Report on Form 10-Q (the “Report”) includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “feels,” “seeks,” “forecasts,” “projects,” “intends,” “plans,” “may,” “will,” “should,” “could” or “would” or, in each case, their negative or other variations or comparable terminology, although not all forward-looking statements are accompanied by such terms. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and industry developments may differ materially from statements made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results of operations, financial condition and liquidity, and industry developments are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods. Important factors that could cause actual results to differ materially from statements made or suggested by forward-looking statements include, but are not limited to, the following: (i) Consumer reactions to public health and food safety issues; (ii) The severity, extent and duration of the COVID-19 pandemic, its impacts on our business and results of operations, financial condition and liquidity, including any adverse impact on our stock price and on the other factors listed below, and the responses of domestic and foreign federal, state and local governments to the pandemic; (iii) Minimum wage increases and additional mandated employee benefits; (iv) Our ability to compete in the highly competitive restaurant industry with many well-established competitors and new market entrants; (v) Economic conditions and their effects on consumer confidence and discretionary spending, consumer traffic, the cost and availability of credit and interest rates; (vi) Our ability to recruit and retain high-quality leadership, restaurant-level management and team members; 28 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued (vii) Our ability to preserve and grow the reputation and value of our brands, particularly in light of changes in consumer engagement with social media platforms and limited control with respect to the operations of our franchisees; (viii) Our ability to protect our information technology systems from interruption or security breach, including cyber security threats, and to protect consumer data and personal employee information; (ix) Fluctuations in the price and availability of commodities; (x) Dependence on a limited number of suppliers and distributors to meet our beef and other major product supply needs; (xi) The effects of international economic, political and social conditions and legal systems on our foreign operations and on foreign currency exchange rates; (xii) Our ability to comply with governmental laws and regulations, the costs of compliance with such laws and regulations and the effects of changes to applicable laws and regulations, including tax laws and unanticipated liabilities, and the impact of litigation; (xiii) Our ability to effectively respond to changes in patterns of consumer traffic, consumer tastes and dietary habits, including by maintaining relationships with third party delivery apps and services; (xiv) Our ability to implement our remodeling, relocation and expansion plans due to uncertainty in locating and acquiring attractive sites on acceptable terms, obtaining required permits and approvals, recruiting and training necessary personnel, obtaining adequate financing and estimating the performance of newly opened, remodeled or relocated restaurants; (xv) Seasonal and periodic fluctuations in our results and the effects of significant adverse weather conditions and other disasters or unforeseen events; (xvi) The effects of our substantial leverage and restrictive covenants in our various credit facilities on our ability to raise additional capital to fund our operations, to make capital expenditures to invest in new or renovate restaurants and to react to changes in the economy or our industry, and our exposure to interest rate risk in connection with our variable-rate debt; (xvii) Any impairment in the carrying value of our goodwill or other intangible or long-lived assets and its effect on our financial condition and results of operations; and (xviii) Such other factors as discussed in Part I, Item IA. Risk Factors of our Annual Report on Form 10-K for the year ended December 27, 2020. In light of these risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. Any forward-looking statement that we make in this Report speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statement or to publicly announce the results of any revision to any of those statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data. 29 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Overview We are one of the largest casual dining restaurant companies in the world with a portfolio of leading, differentiated restaurant concepts. As of March 28, 2021, we owned and operated 1,160 restaurants and franchised 316 restaurants across 47 states, Guam and 20 countries. We have four founder-inspired concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar. Financial Highlights Our financial highlights for the thirteen weeks ended March 28, 2021 (“first quarter of 2021”) include the following: • U.S. combined and Outback Steakhouse comparable restaurant sales of 3.3% and 4.1%, respectively, relative to the first quarter of 2020 and (7.3)% and (5.8)%, respectively, relative to the first quarter of 2019; • Decrease in Total revenues of 2.1% in the first quarter of 2021, as compared to the first quarter of 2020; • Restaurant-level operating margin of 18.8% for the first quarter of 2021, as compared to 12.1% for the first quarter of 2020; • Decrease in General and administrative expense of $27.6 million, as compared to the first quarter of 2020; • Income from operations of $91.0 million in the first quarter of 2021, as compared to loss from operations of $41.6 million in the first quarter of 2020; and • Diluted earnings (loss) per share attributable to common stockholders of $0.63 in the first quarter of 2021 as compared to $(0.44) in the first quarter of 2020. Key Performance Indicators Key measures that we use in evaluating our restaurants and assessing our business include the following: • Average restaurant unit volumes —average sales (excluding gift card breakage) per restaurant to measure changes in customer traffic, pricing and development of the brand; • Comparable restaurant sales —year-over-year comparison of sales volumes (excluding gift card breakage) for Company-owned restaurants that are open 18 months or more in order to remove the impact of new restaurant openings in comparing the operations of existing restaurants; • System-wide sales —total restaurant sales volume for all Company-owned and franchise restaurants, regardless of ownership, to interpret the overall health of our brands; • Restaurant-level operating margin, Income (loss) from operations, Net income (loss) and Diluted earnings (loss) per share — financial measures utilized to evaluate our operating performance. Restaurant-level operating margin is widely regarded in the industry as a useful metric to evaluate restaurant level operating efficiency and performance of ongoing restaurant-level operations, and we use it for these purposes, overall and particularly within our two segments. Our restaurant-level operating margin is expressed as the percentage of our Restaurant sales that Food and beverage costs, Labor and other related and Other restaurant operating (including advertising expenses) represent, in each case as such items are reflected in our Consolidated Statements of Operations and Comprehensive Income (Loss). The following 30 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued categories of our revenue and operating expenses are not included in restaurant-level operating margin because we do not consider them reflective of operating performance at the restaurant-level within a period: (i) Franchise and other revenues which are earned primarily from franchise royalties and other non-food and beverage revenue streams, such as rental and sublease income. (ii) Depreciation and amortization which, although substantially all of which is related to restaurant-level assets, represent historical sunk costs rather than cash outlays for the restaurants. (iii) General and administrative expense which includes primarily non-restaurant-level costs associated with support of the restaurants and other activities at our corporate offices. (iv) Asset impairment charges and restaurant closing costs which are not reflective of ongoing restaurant performance in a period. Restaurant-level operating margin excludes various expenses, as discussed above, that are essential to support the operations of our restaurants and may materially impact our Consolidated Statements of Operations. As a result, restaurant-level operating margin is not indicative of our consolidated results of operations and is presented exclusively as a supplement to, and not a substitute for, Net income (loss) or Income (loss) from operations. In addition, our presentation of restaurant-level operating margin may not be comparable to similarly titled measures used by other companies in our industry; • Adjusted restaurant-level operating margin, Adjusted income from operations, Adjusted net income and Adjusted diluted earnings per share —non-GAAP financial measures utilized to evaluate our operating performance. We believe that our use of non-GAAP financial measures permits investors to assess the operating performance of our business relative to our performance based on U.S. GAAP results and relative to other companies within the restaurant industry by isolating the effects of certain items that may vary from period to period without correlation to core operating performance or that vary widely among similar companies. However, our inclusion of these adjusted measures should not be construed as an indication that our future results will be unaffected by unusual or infrequent items or that the items for which we have made adjustments are unusual or infrequent or will not recur. We believe that the disclosure of these non-GAAP measures is useful to investors as they form part of the basis for how our management team and Board of Directors evaluate our operating performance, allocate resources and administer employee incentive plans; and • Customer satisfaction scores —measurement of our customers’ experiences in a variety of key areas. 31 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Selected Operating Data The table below presents the number of our restaurants in operation as of the periods indicated: Number of restaurants (at end of the period): MARCH 28, 2021 MARCH 29, 2020 U.S.: Outback Steakhouse Company-owned 567 575 Franchised 131 145 Total 698 720 Carrabba’s Italian Grill Company-owned 199 204 Franchised 21 21 Total 220 225 Bonefish Grill Company-owned 180 190 Franchised 7 7 Total 187 197 Fleming’s Prime Steakhouse & Wine Bar Company-owned 64 67 Other Company-owned (1) 6 4 U.S. total 1,175 1,213 International: Company-owned Outback Steakhouse—Brazil (2) 110 103 Other (1)(3) 34 29 Franchised Outback Steakhouse—South Korea (3) 100 72 Other (1) 57 55 International total 301 259 System-wide total 1,476 1,472 ____________________ (1) U.S. Company-owned and International Franchised Other each include three and two fast-casual Aussie Grill locations as of March 28, 2021 and March 29, 2020, respectively. International Company-owned Other includes two and one fast-casual Aussie Grill locations as of March 28, 2021 and March 29, 2020, respectively. (2) The restaurant counts for Brazil are reported as of February 28, 2021 and February 29, 2020, respectively, to correspond with the balance sheet dates of this subsidiary. (3) As of March 28, 2021, we had 25 international dark kitchens that offer delivery only included in Franchised Outback Steakhouse - South Korea. In addition, we had one international dark kitchen included within Company-owned Other as of both periods presented. 32 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Results of Operations The following table sets forth the percentages of certain items in our Consolidated Statements of Operations in relation to Total revenues or Restaurant sales, for the periods indicated: THIRTEEN WEEKS ENDED MARCH 28, 2021 MARCH 29, 2020 Revenues Restaurant sales 99.2 % 98.8 % Franchise and other revenues 0.8 1.2 Total revenues 100.0 100.0 Costs and expenses Food and beverage costs (1) 29.8 32.1 Labor and other related (1) 28.0 31.0 Other restaurant operating (1) 23.4 24.7 Depreciation and amortization 4.2 4.8 General and administrative 5.8 8.4 Provision for impaired assets and restaurant closings 0.2 4.1 Total costs and expenses 90.8 104.1 Income (loss) from operations 9.2 (4.1) Other income (expense), net * (0.1) Interest expense, net (1.5) (1.2) Income (loss) before provision (benefit) for income taxes 7.7 (5.4) Provision (benefit) for income taxes 0.6 (2.0) Net income (loss) 7.1 (3.4) Less: net income attributable to noncontrolling interests 0.1 * Net income (loss) attributable to Bloomin’ Brands 7.0 % (3.4) % ________________ (1) As a percentage of Restaurant sales. * Less than 1/10 th of one percent of Total revenues. RESTAURANT SALES Following is a summary of the change in Restaurant sales for the period indicated: (dollars in millions) THIRTEEN WEEKS ENDED For the period ended March 29, 2020 $ 996.2 Change from: Restaurant closures (18.6) Effect of foreign currency translation (17.0) Restaurant openings 12.6 Comparable restaurant sales 6.3 For the period ended March 28, 2021 $ 979.5 The decrease in Restaurant sales during the thirteen weeks ended March 28, 2021 was primarily due to lower international comparable restaurant sales, the closure of 37 restaurants since December 29, 2019 and the effect of foreign currency translation of the Brazilian Real relative to the U.S. dollar. The decrease in Restaurant sales was partially offset by higher U.S. comparable restaurant sales and the opening of 30 new restaurants not included in our comparable restaurant sales base. 33 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Average Restaurant Unit Volumes and Operating Weeks Following is a summary of the average restaurant unit volumes and operating weeks, for the periods indicated: THIRTEEN WEEKS ENDED MARCH 28, 2021 MARCH 29, 2020 Average restaurant unit volumes (weekly): U.S. Outback Steakhouse $ 73,433 $ 70,071 Carrabba’s Italian Grill $ 60,953 $ 55,383 Bonefish Grill $ 54,263 $ 54,685 Fleming’s Prime Steakhouse & Wine Bar $ 80,404 $ 80,649 International Outback Steakhouse - Brazil (1) $ 43,089 $ 70,300 Operating weeks: U.S. Outback Steakhouse 7,383 7,499 Carrabba’s Italian Grill 2,587 2,652 Bonefish Grill 2,340 2,470 Fleming’s Prime Steakhouse & Wine Bar 825 880 International Outback Steakhouse - Brazil 1,412 1,303 ____________________ (1) Translated at average exchange rates of 5.30 and 4.19 for the thirteen weeks ended March 28, 2021 and March 29, 2020, respectively. 34 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Comparable Restaurant Sales, Traffic and Average Check Per Person (Decreases) Increases Following is a summary of comparable restaurant sales, traffic and average check per person (decreases) increases, for the periods indicated: THIRTEEN WEEKS ENDED MARCH 28, 2021 MARCH 29, 2020 Comparable to 2019 (1) Comparable to 2020 Comparable to 2019 Year over year percentage change: Comparable restaurant sales (stores open 18 months or more): U.S. (2) Outback Steakhouse (5.8) % 4.1 % (9.5) % Carrabba’s Italian Grill (0.6) % 8.9 % (8.7) % Bonefish Grill (16.3) % (2.9) % (13.9) % Fleming’s Prime Steakhouse & Wine Bar (15.0) % (2.3) % (13.2) % Combined U.S. (7.3) % 3.3 % (10.4) % International Outback Steakhouse - Brazil (3)(4) (16.8) % (21.4) % 6.8 % Traffic: U.S. Outback Steakhouse (9.5) % 0.9 % (10.4) % Carrabba’s Italian Grill (1.1) % 5.2 % (6.2) % Bonefish Grill (10.8) % 2.1 % (12.0) % Fleming’s Prime Steakhouse & Wine Bar (17.9) % (5.3) % (13.6) % Combined U.S. (8.3) % 1.7 % (9.9) % International Outback Steakhouse - Brazil (4) (7.2) % (14.2) % 8.4 % Average check per person (5): U.S. Outback Steakhouse 3.7 % 3.2 % 0.9 % Carrabba’s Italian Grill 0.5 % 3.7 % (2.5) % Bonefish Grill (5.5) % (5.0) % (1.9) % Fleming’s Prime Steakhouse & Wine Bar 2.9 % 3.0 % 0.4 % Combined U.S. 1.0 % 1.6 % (0.5) % International Outback Steakhouse - Brazil (4) (9.5) % (6.4) % (2.7) % ____________________ (1) Represents comparable restaurant sales, traffic and average check per person (decreases) increases relative to fiscal year 2019 for improved comparability due to the impact of COVID-19 on fiscal year 2020 restaurant sales. (2) Relocated restaurants closed more than 60 days are excluded from comparable restaurant sales until at least 18 months after reopening. (3) Excludes the effect of fluctuations in foreign currency rates. Includes trading day impact from calendar period reporting. (4) Outback Steakhouse Brazil results are reported on a one-month lag and are presented on a calendar basis. Restaurant sales for Brazil during the first quarter of 2020 (through February 29, 2020) were not materially impacted by the COVID-19 pandemic. (5) Average check per person includes the impact of menu pricing changes, product mix and discounts. 35 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Franchise and other revenues THIRTEEN WEEKS ENDED (dollars in millions) MARCH 28, 2021 MARCH 29, 2020 Franchise revenues (1) $ 6.8 $ 9.5 Other revenues 1.2 2.6 Franchise and other revenues $ 8.0 $ 12.1 ____________________ (1) Represents franchise royalties, advertising fees and initial franchise fees. Franchise revenues declined during the thirteen weeks ended March 28, 2021 primarily due to lower U.S. franchise sales and a reduction in the royalty and advertising fee percentages resulting from our December 2020 resolution agreement with Out West, our largest U.S. franchisee. COSTS AND EXPENSES Food and beverage costs THIRTEEN WEEKS ENDED (dollars in millions) MARCH 28, 2021 MARCH 29, 2020 Change Food and beverage costs $ 291.9 $ 319.7 % of Restaurant sales 29.8 % 32.1 % (2.3) % Food and beverage costs decreased as a percentage of Restaurant sales during the thirteen weeks ended March 28, 2021 as compared to the thirteen weeks ended March 29, 2020 primarily due to: (i) 0.9% from increases in average check per person, (ii) 0.9% from cost savings attributable to waste reduction initiatives and (iii) 0.6% from inventory obsolescence and spoilage costs during 2020 associated with the COVID-19 pandemic. Labor and other related expenses THIRTEEN WEEKS ENDED (dollars in millions) MARCH 28, 2021 MARCH 29, 2020 Change Labor and other related $ 274.6 $ 309.3 % of Restaurant sales 28.0 % 31.0 % (3.0) % Labor and other related expenses decreased as a percentage of Restaurant sales during the thirteen weeks ended March 28, 2021 as compared to the thirteen weeks ended March 29, 2020 primarily due to 1.8% from lower prep labor hours and 1.5% from decreased relief pay due to the re-opening of our restaurant dining rooms. These decreases were partially offset by an increase as a percentage of Restaurant sales of 0.3% from wage rate increases. Other restaurant operating expenses THIRTEEN WEEKS ENDED (dollars in millions) MARCH 28, 2021 MARCH 29, 2020 Change Other restaurant operating $ 229.3 $ 246.6 % of Restaurant sales 23.4 % 24.7 % (1.3) % Other restaurant operating expenses decreased as a percentage of Restaurant sales during the thirteen weeks ended March 28, 2021 as compared to the thirteen weeks ended March 29, 2020 primarily due to 2.1% from lower advertising expense and 0.7% from reduced operating and utilities expenses. This decrease was partially offset by an increase as a percentage of Restaurant sales of 1.2% from incremental delivery related costs. 36 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Depreciation and amortization THIRTEEN WEEKS ENDED (dollars in millions) MARCH 28, 2021 MARCH 29, 2020 Change Depreciation and amortization $ 41.2 $ 48.3 $ (7.1) Depreciation and amortization expense decreased during the periods presented primarily due to impairment, decreased capital expenditures and the effect of foreign currency translation. General and administrative General and administrative expense includes salaries and benefits, management incentive programs, related payroll tax and benefits, other employee-related costs and professional services. Following is a summary of the change in General and administrative expense for the period indicated: (dollars in millions) THIRTEEN WEEKS ENDED For the period ended March 29, 2020 $ 84.8 Change from: Severance (8.5) Expected credit losses and contingent lease liabilities (7.6) Transformational costs (5.3) Travel and entertainment (3.3) Compensation, benefits and payroll tax (2.5) Other (0.4) For the period ended March 28, 2021 $ 57.2 Provision for impaired assets and restaurant closings THIRTEEN WEEKS ENDED (dollars in millions) MARCH 28, 2021 MARCH 29, 2020 Change Provision for impaired assets and restaurant closings $ 2.2 $ 41.3 $ (39.1) During the thirteen weeks ended March 29, 2020, we recognized asset impairment and closure charges of $31.7 million and $3.3 million within the U.S. and international segments, respectively, primarily related to the COVID-19 pandemic. We also recognized asset impairment charges of $6.3 million primarily related to transformational initiatives during the thirteen weeks ended March 29, 2020, which were not allocated to our operating segments. Income (loss) from operations THIRTEEN WEEKS ENDED (dollars in millions) MARCH 28, 2021 MARCH 29, 2020 Change Income (loss) from operations $ 91.0 $ (41.6) $ 132.6 % of Total revenues 9.2 % (4.1) % 13.3 % Income from operations generated during the thirteen weeks ended March 28, 2021, as compared to Loss from operations during the thirteen weeks ended March 29, 2020 was primarily due to: (i) the impact of the COVID-19 pandemic during 2020, including asset impairment charges and relief pay, (ii) the impact of restructuring and transformational initiatives during 2020, including severance and impairment charges, (iii) lower advertising expense, (iv) a reduction in prep labor hours, (v) cost savings from our waste reduction initiatives and (vi) reduced operating and utilities expenses. These increases were partially offset by incremental delivery related costs. 37 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Interest expense, net THIRTEEN WEEKS ENDED (dollars in millions) MARCH 28, 2021 MARCH 29, 2020 Change Interest expense, net $ 14.6 $ 11.7 $ 2.9 The increase in Interest expense, net for the thirteen weeks ended March 28, 2021 as compared to the thirteen weeks ended March 29, 2020 was primarily due to interest expense from our 2025 Notes issued in May 2020, partially offset by lower revolver borrowings and lower interest rates on our unhedged variable rate debt. Provision (benefit) for income taxes THIRTEEN WEEKS ENDED MARCH 28, 2021 MARCH 29, 2020 Change Income (loss) before provision (benefit) for income taxes $ 76.4 $ (54.1) $ 130.5 Provision (benefit) for income taxes $ 6.6 $ (19.7) $ 26.3 Effective income tax rate 8.6 % 36.4 % (27.8) % The effective income tax rate for the thirteen weeks ended March 28, 2021 decreased by 27.8 percentage points as compared to the thirteen weeks ended March 29, 2020. The decrease was primarily due to the benefit of FICA tax credits on certain employees’ tips reducing the effective tax rate in 2021 as a result of forecasted pre-tax book income as compared to increasing the effective tax rate in 2020 as a result of forecasted pre-tax book loss. SEGMENT PERFORMANCE We consider our restaurant concepts and international markets as operating segments, which reflects how we manage our business, review operating performance and allocate resources. Resources are allocated and performance is assessed by our CEO, whom we have determined to be our CODM. We aggregate our operating segments into two reportable segments, U.S. and international. The U.S. segment includes all restaurants operating in the U.S. while restaurants operating outside the U.S. are included in the international segment. The following is a summary of reporting segments: REPORTABLE SEGMENT (1) CONCEPT GEOGRAPHIC LOCATION U.S. Outback Steakhouse United States of America Carrabba’s Italian Grill Bonefish Grill Fleming’s Prime Steakhouse & Wine Bar International Outback Steakhouse Brazil, Hong Kong/China Carrabba’s Italian Grill (Abbraccio) Brazil _________________ (1) Includes franchise locations. Revenues for both segments include only transactions with customers and exclude intersegment revenues. Excluded from Income from operations for U.S. and international are certain legal and corporate costs not directly related to the performance of the segments, most stock-based compensation expenses and certain bonus expenses. During the thirteen weeks ended March 29, 2020, we recorded $22.2 million of pre-tax charges as a part of transformational initiatives. These costs were primarily recorded within General and administrative expense and Provision for impaired assets and restaurant closings and were not allocated to our segments since our CODM does not consider the impact of transformational initiatives when assessing segment performance. 38 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Refer to Note 19 - Segment Reporting of the Notes to Consolidated Financial Statements for a reconciliation of segment income from operations to the consolidated operating results. Restaurant-level operating margin is widely regarded in the industry as a useful metric to evaluate restaurant-level operating efficiency and performance of ongoing restaurant-level operations, and we use it for these purposes, overall and particularly within our two segments. See the Overview-Key Performance Indicators and Non-GAAP Financial Measures sections of Management’s Discussion and Analysis for additional details regarding the calculation of restaurant-level operating margin. U.S. Segment THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 28, 2021 MARCH 29, 2020 Revenues Restaurant sales $ 900,059 $ 884,889 Franchise and other revenues 4,859 9,608 Total revenues $ 904,918 $ 894,497 Restaurant-level operating margin 19.2 % 11.5 % Income from operations $ 121,735 $ 11,379 Operating income margin 13.5 % 1.3 % Restaurant sales Following is a summary of the change in U.S. segment Restaurant sales for the period indicated: (dollars in millions) THIRTEEN WEEKS ENDED For the period ended March 29, 2020 $ 884.9 Change from: Comparable restaurant sales 28.2 Restaurant openings 5.2 Restaurant closures (18.2) For the period ended March 28, 2021 $ 900.1 The increase in U.S. Restaurant sales during the thirteen weeks ended March 28, 2021 was primarily due to higher comparable restaurant sales principally attributable to the impact of the COVID-19 pandemic on fiscal year 2020 U.S. Restaurant sales and the opening of nine new restaurants not included in our comparable restaurant sales base. The increase in U.S. Restaurant sales was partially offset by the closure of 36 restaurants since December 29, 2019. Income from operations The increase in U.S. Income from operations generated during the thirteen weeks ended March 28, 2021, as compared to the thirteen weeks ended March 29, 2020, was primarily due to: (i) the impact of the COVID-19 pandemic during 2020, including lower comparable restaurant sales, asset impairment charges and relief pay, (ii) lower advertising expense, (iii) a reduction in prep labor hours and (iv) cost savings from our waste reduction initiatives. These increases were partially offset by incremental delivery related costs. 39 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued International Segment THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 28, 2021 MARCH 29, 2020 Revenues Restaurant sales $ 79,392 $ 111,348 Franchise and other revenues 3,163 2,492 Total revenues $ 82,555 $ 113,840 Restaurant-level operating margin 14.4 % 18.5 % Income from operations $ 3,537 $ 6,787 Operating income margin 4.3 % 6.0 % Restaurant sales Following is a summary of the change in international segment Restaurant sales for the period indicated: (dollars in millions) THIRTEEN WEEKS ENDED For the period ended March 29, 2020 $ 111.3 Change from: Comparable restaurant sales (21.9) Effect of foreign currency translation (17.0) Restaurant closures (0.4) Restaurant openings 7.4 For the period ended March 28, 2021 $ 79.4 Outback Steakhouse Brazil results are reported on a one-month lag and are presented on a calendar basis. Restaurant sales for Brazil during the first fiscal quarter of 2020 (through February 29, 2020) were not materially impacted by the COVID-19 pandemic. The decrease in international Restaurant sales during the thirteen weeks ended March 28, 2021 was primarily due to lower comparable restaurant sales principally attributable to the impact of the COVID-19 pandemic and the effect of foreign currency translation of the Brazilian Real relative to the U.S. dollar. The decrease in international Restaurant sales was partially offset by the opening of 21 new restaurants not included in our comparable restaurant sales base. Income from operations The decrease in international Income from operations generated during the thirteen weeks ended March 28, 2021, as compared to the thirteen weeks ended March 29, 2020, was primarily due to: (i) lower comparable restaurant sales and costs incurred in connection with the COVID-19 pandemic, including incremental delivery related costs, and (ii) commodity inflation. These decreases were partially offset by: (i) lower labor costs, (ii) reduced operating, rent and advertising expenses and (iii) lower impairment and restaurant closure costs. Non-GAAP Financial Measures System-Wide Sales - System-wide sales is a non-GAAP financial measure that includes sales of all restaurants operating under our brand names, whether we own them or not. Management uses this information to make decisions about future plans for the development of additional restaurants and new concepts, as well as evaluation of current operations. System-wide sales comprise sales of Company-owned and franchised restaurants. For a 40 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued summary of sales of Company-owned restaurants, refer to Note 3 - Revenue Recognition of the Notes to Consolidated Financial Statements. The following table provides a summary of sales of franchised restaurants for the periods indicated, which are not included in our consolidated financial results. Franchise sales within this table do not represent our sales and are presented only as an indicator of changes in the restaurant system, which management believes is important information regarding the health of our restaurant concepts and in determining our royalties and/or service fees. THIRTEEN WEEKS ENDED (dollars in millions) MARCH 28, 2021 MARCH 29, 2020 U.S. Outback Steakhouse $ 92 $ 116 Carrabba’s Italian Grill 10 11 Bonefish Grill 2 3 U.S. total $ 104 $ 130 International Outback Steakhouse-South Korea $ 74 $ 54 Other 24 22 International total $ 98 $ 76 Total franchise sales (1) $ 202 $ 206 _____________________ (1) Franchise sales are not included in Total revenues in the Consolidated Statements of Operations and Comprehensive Income (Loss). 41 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Restaurant-level operating margin - The following tables reconcile consolidated and segment Income (loss) from operations and the corresponding margins to Restaurant-level operating income and the corresponding margins for the periods indicated: Consolidated THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 28, 2021 MARCH 29, 2020 Income (loss) from operations $ 90,998 $ (41,568) Operating income (loss) margin 9.2 % (4.1) % Less: Franchise and other revenues 8,022 12,100 Plus: Depreciation and amortization 41,226 48,268 General and administrative 57,248 84,802 Provision for impaired assets and restaurant closings 2,200 41,318 Restaurant-level operating income $ 183,650 $ 120,720 Restaurant-level operating margin 18.8 % 12.1 % U.S. THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 28, 2021 MARCH 29, 2020 Income from operations $ 121,735 $ 11,379 Operating income margin 13.5 % 1.3 % Less: Franchise and other revenues 4,859 9,608 Plus: Depreciation and amortization 33,645 37,640 General and administrative 21,092 30,880 Provision for impaired assets and restaurant closings 1,463 31,694 Restaurant-level operating income $ 173,076 $ 101,985 Restaurant-level operating margin 19.2 % 11.5 % International THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 28, 2021 MARCH 29, 2020 Income from operations $ 3,537 $ 6,787 Operating income margin 4.3 % 6.0 % Less: Franchise and other revenues 3,163 2,492 Plus: Depreciation and amortization 5,720 6,758 General and administrative 4,605 6,256 Provision for impaired assets and restaurant closings 707 3,344 Restaurant-level operating income $ 11,406 $ 20,653 Restaurant-level operating margin 14.4 % 18.5 % 42 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Adjusted restaurant-level operating margin - The following tables show the percentages of certain operating cost financial statement line items in relation to Restaurant sales: THIRTEEN WEEKS ENDED MARCH 28, 2021 MARCH 29, 2020 REPORTED ADJUSTED REPORTED ADJUSTED (1) Restaurant sales 100.0 % 100.0 % 100.0 % 100.0 % Food and beverage costs 29.8 % 29.8 % 32.1 % 31.5 % Labor and other related 28.0 % 28.0 % 31.0 % 31.0 % Other restaurant operating 23.4 % 23.4 % 24.7 % 25.0 % Restaurant-level operating margin 18.8 % 18.8 % 12.1 % 12.5 % _________________ (1) Includes unfavorable (favorable) adjustments recorded in Other restaurant operating expense (unless otherwise noted below) for the following activities, as described in the Adjusted income from operations, Adjusted net income and Adjusted diluted earnings per share table below for the period indicated: THIRTEEN WEEKS ENDED (dollars in millions) MARCH 29, 2020 Restaurant and asset impairments and closing costs $ 2.8 Restaurant relocations and related costs (0.1) COVID-19 related costs (1) (6.2) $ (3.5) _________________ (1) Adjustments recorded in Food and beverage costs. 43 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Adjusted income from operations, Adjusted net income and Adjusted diluted earnings per share THIRTEEN WEEKS ENDED (in thousands, except per share data) MARCH 28, 2021 MARCH 29, 2020 Income (loss) from operations $ 90,998 $ (41,568) Operating income (loss) margin 9.2 % (4.1) % Adjustments: COVID-19-related costs (1) — 48,876 Severance and other transformational costs (2) — 22,232 Restaurant relocations and related costs (3) — 592 Legal and contingent matters — 178 Restaurant and asset impairments and closing costs (4) — (2,797) Total income (loss) from operations adjustments $ — $ 69,081 Adjusted income from operations $ 90,998 $ 27,513 Adjusted operating income margin 9.2 % 2.7 % Net income (loss) attributable to common stockholders $ 68,862 $ (38,107) Adjustments: Income (loss) from operations adjustments — 69,081 Total adjustments, before income taxes — 69,081 Adjustment to provision for income taxes (5) — (21,995) Redemption of preferred stock in excess of carrying value (6) — 3,496 Net adjustments — 50,582 Adjusted net income 68,862 12,475 Convertible senior notes if-converted method interest adjustment, net of tax (7) 1,381 — Diluted net income (loss) attributable to common stockholders $ 70,243 $ 12,475 Diluted earnings (loss) per share attributable to common stockholders (8) $ 0.63 $ (0.44) Adjusted diluted earnings per share (8)(9) $ 0.72 $ 0.14 Basic weighted average common shares outstanding 88,367 87,129 Diluted weighted average common shares outstanding (8) 110,641 87,963 Adjusted diluted weighted average common shares outstanding (8)(9) 95,448 87,963 _________________ (1) Costs incurred in connection with the COVID-19 pandemic, primarily consisting of fixed asset and right-of-use asset impairments, inventory obsolescence and spoilage, contingent lease liabilities and current expected credit losses. See Note 2 - COVID-19 Charges of the Notes to Consolidated Financial Statements for additional details regarding the impact of certain COVID-19 pandemic related charges on our financial results. (2) Severance, professional fees and other costs incurred as a result of transformational and restructuring activities. (3) Asset impairment charges and accelerated depreciation incurred in connection with our relocation program. (4) Includes a lease termination gain of $2.8 million. (5) Income tax effect of the adjustments for the periods presented. (6) Consideration paid in excess of the carrying value for the redemption of preferred stock of our Abbraccio subsidiary. (7) Adjustment relates to the 2025 Notes weighted for the portion of the period prior to our election under the 2025 Notes indenture to settle the principal portion of its 2025 Notes in cash. (8) Due to the GAAP net loss, the effect of dilutive securities was excluded from the calculation of GAAP diluted loss per share for the thirteen weeks ended March 29, 2020. For adjusted diluted earnings per share, the calculation includes 834 dilutive shares for the thirteen weeks ended March 29, 2020. (9) For the thirteen weeks ended March 28, 2021, adjusted diluted weighted average common shares outstanding was calculated (i) assuming our February 2021 election to settle the principal portion of the 2025 Notes in cash was in effect for the entire period and (ii) excluding the dilutive effect of 9,653 shares to be issued upon conversion of the notes to satisfy the amount in excess of the principal since the Convertible Note Hedge Transactions offset the dilutive impact of the shares underlying the 2025 Notes. The calculation of adjusted diluted earnings per share excludes the convertible senior notes interest adjustment. 44 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Liquidity and Capital Resources LIQUIDITY Cash flows generated from operating activities and availability under our revolving credit facility are our principal sources of liquidity, which we use for operating expenses, payments on our debt, remodeling or relocating older restaurants, obligations related to our deferred compensation plans and investment in technology. Cash and Cash Equivalents - As of March 28, 2021, we had $136.7 million in cash and cash equivalents, of which $34.5 million was held by foreign affiliates. The international jurisdictions in which we have significant cash do not have any known restrictions that would prohibit repatriation. As of March 28, 2021, we had aggregate accumulated foreign earnings of approximately $35.9 million. This amount consisted primarily of historical earnings from 2017 and prior that were previously taxed in the U.S. under the 2017 Tax Cuts and Jobs Act and post-2017 foreign earnings, which we may repatriate to the U.S. without additional U.S. federal income tax. These amounts are no longer considered indefinitely reinvested in our foreign subsidiaries. Capital Expenditures - We estimate that our capital expenditures will total approxim atel y $170 million to $185 million in 2021. The amount of actual capital expenditures may be affected by general economic, financial, competitive, legislative and regulatory factors, among other things, including restrictions imposed by our borrowing arrangements. Under the Second Amended and Restated Credit Agreement, we are limited to $200.0 million of aggregate capital expenditures during the year ended December 26, 2021. Credit Facilities - As of March 28, 2021, we had $1.0 billion of outstanding borrowings under our Senior Secured Credit Facility and 2025 Notes. Following is a summary of our outstanding credit facilities as of the dates indicated and principal payments and debt issuance during the period indicated: SENIOR SECURED CREDIT FACILITY TOTAL CREDIT FACILITIES (dollars in thousands) TERM LOAN A REVOLVING FACILITY 2025 NOTES Balance as of December 27, 2020 $ 425,000 $ 447,000 $ 230,000 $ 1,102,000 2021 new debt — 15,000 — 15,000 2021 payments (9,375) (107,000) — (116,375) Balance as of March 28, 2021 $ 415,625 $ 355,000 $ 230,000 $ 1,000,625 Weighted-average interest rate, as of March 28, 2021 2.85 % 2.86 % 5.00 % Principal maturity date November 2022 November 2022 May 2025 As of March 28, 2021, we had $624.9 million in available unused borrowing capacity under our revolving credit facility, net of letters of credit of $20.1 million. As of March 28, 2021 and December 27, 2020, we were in compliance with our debt covenants. We believe that we will remain in compliance with our debt covenants during the next 12 months. 2029 Notes - On April 16, 2021, we issued $300.0 million aggregate principal amount of senior unsecured notes due 2029. The 2029 Notes will mature on April 15, 2029, unless earlier redeemed or purchased by us. The 2029 Notes bear cash interest at an annual rate of 5.125% payable semi-annually in arrears on April 15 and October 15 of each year, beginning on October 15, 2021. 45 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued The net proceeds from the 2029 Notes, after deducting the initial purchaser’s discount and our offering expenses, were used to repay a portion of our outstanding Term loan A and revolving credit facility in conjunction with the refinancing of our Senior Secured Credit Facility. Second Amended and Restated Credit Agreement - On April 16, 2021, we and OSI, as co-borrowers, entered into the Second Amended and Restated Credit Agreement which provides for senior secured financing of up to $1.0 billion consisting of a $200.0 million Term loan A and an $800.0 million revolving credit facility. The New Senior Secured Credit Facility matures on April 16, 2026 and replaces our prior senior secured financing of up to $1.5 billion. The Second Amended and Restated Credit Agreement limits, subject to certain exceptions, our ability and the ability of our subsidiaries to: incur additional indebtedness; make significant payments; sell assets; pay dividends and other restricted payments; make certain investments; acquire certain assets; effect mergers and similar transactions; and effect certain other transactions with affiliates. The Second Amended and Restated Credit Agreement also prohibits us from paying certain dividends and making certain restricted payments and acquisitions until we are in compliance with our TNLR covenant for the period ended September 26, 2021. Our New Senior Secured Credit Facility contains mandatory prepayment requirements for Term loan A. We are required to prepay outstanding amounts under these loans with 50% of our annual excess cash flow, as defined in the Second Amended and Restated Credit Agreement, commencing with the fiscal year ending December 25, 2022. The amount of outstanding loans required to be prepaid in accordance with the debt covenants may vary based on our CSSNLR and year end results. Other than the annual required minimum amortization premiums of $7.5 million, we do not anticipate any other payments will be required through March 27, 2022. Subsequent to our refinancing of the Senior Secured Credit Facility, we made payments of $20.0 million on our new revolving credit facility, which had an outstanding balance of $251.0 million as of April 30, 2021. See Note 9 - Long-term Debt, Net for additional details regarding the 2029 Notes and Second Amended and Restated Credit Agreement. SUMMARY OF CASH FLOWS The following table presents a summary of our cash flows provided by (used in) operating, investing and financing activities for the periods indicated: THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 28, 2021 MARCH 29, 2020 Net cash provided by operating activities $ 141,026 $ 28,291 Net cash used in investing activities (16,618) (34,798) Net cash (used in) provided by financing activities (96,912) 342,333 Effect of exchange rate changes on cash and cash equivalents (1,246) 424 Net increase in cash, cash equivalents and restricted cash $ 26,250 $ 336,250 Operating activities - Net cash provided by operating activities increased during the thirteen weeks ended March 28, 2021, as compared to the thirteen weeks ended March 29, 2020 primarily due to: (i) an increase in restaurant-level operating margin and a decrease in relief pay primarily due to the re-opening of our restaurant dining rooms and (ii) timing of operational receipts and payments. These increases were partially offset by: (i) lower gift card sales and the timing of collections of gift card receivables and (ii) lower utilization of inventory on hand. 46 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Investing activities - The decrease in net cash used in investing activities during the thirteen weeks ended March 28, 2021 compared to the thirteen weeks ended March 29, 2020 was primarily due to lower capital expenditures due to restrictions under our credit agreement. Financing activities - Net cash used in financing activities during the thirteen weeks ended March 28, 2021 compared to net cash provided by financing activities during the thirteen weeks ended March 29, 2020 was primarily due to net repayments on our revolving credit facility during 2021 as compared to net borrowings during 2020, partially offset by: (i) payment of cash dividends on our common stock during 2020 and (ii) proceeds from the exercise of stock-based compensation during 2021 as compared to payment of taxes from the exercise of stock-based compensation during 2020. FINANCIAL CONDITION Following is a summary of our current assets, current liabilities and working capital (deficit) as of the periods indicated: (dollars in thousands) MARCH 28, 2021 DECEMBER 27, 2020 Current assets $ 272,989 $ 323,854 Current liabilities 931,983 950,104 Working capital (deficit) $ (658,994) $ (626,250) Working capital (deficit) includes: (i) Unearned revenue primarily from unredeemed gift cards of $315.0 million and $381.6 million as of March 28, 2021 and December 27, 2020, respectively, and (ii) current operating lease liabilities of $176.9 million and $176.8 million as of March 28, 2021 and December 27, 2020, respectively, with the corresponding operating right-of-use assets recorded as non-current on our Consolidated Balance Sheets. We have, and in the future may continue to have, negative working capital balances (as is common for many restaurant companies). We operate successfully with negative working capital because cash collected on restaurant sales are typically received before payment is due on our current liabilities, and our inventory turnover rates require relatively low investment in inventories. Additionally, ongoing cash flows from restaurant operations and gift card sales are typically used to service debt obligations and to make capital expenditures. Deferred Compensation Programs - The deferred compensation obligation due to managing and chef partners was $24.2 million and $28.1 million as of March 28, 2021 and December 27, 2020, respectively. We invest in various corporate-owned life insurance policies, which are held within an irrevocable grantor or “rabbi” trust account for settlement of our obligations under the deferred compensation plans. The rabbi trust is funded through our voluntary contributions. The obligation for managing and chef partners’ deferred compensation was fully funded as of March 28, 2021. Other Compensation Programs - Certain U.S. partners participate in a non-qualified long-term compensation program that we fund as the obligation for each participant becomes due. DIVIDENDS AND SHARE REPURCHASES We did not pay dividends or repurchase any shares of our outstanding common stock during the thirteen weeks ended March 28, 2021. The terms of our Second Amended and Restated Credit Agreement contain certain restrictions on cash dividends and share repurchases until after TNLR covenant compliance is met for the period ending September 26, 2021. 47 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Following is a summary of our dividends and share repurchases from fiscal year 2015 through March 28, 2021: (dollars in thousands) DIVIDENDS PAID SHARE REPURCHASES TOTAL Fiscal year 2015 $ 29,332 $ 169,999 $ 199,331 Fiscal year 2016 31,379 309,887 341,266 Fiscal year 2017 30,988 272,736 303,724 Fiscal year 2018 33,312 113,967 147,279 Fiscal year 2019 35,734 106,992 142,726 Fiscal year 2020 17,480 — 17,480 First fiscal quarter 2021 — — — Total $ 178,225 $ 973,581 $ 1,151,806 Recently Issued Financial Accounting Standards For a description of recently issued Financial Accounting Standards that we adopted during the thirteen weeks ended March 28, 2021 and, that are applicable to us and likely to have material effect on our consolidated financial statements, but have not yet been adopted, see Note 1 - Description of the Business and Basis of Presentation of the Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q. 48 Table of Contents BLOOMIN’ BRANDS, INC.