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, additional mandated employee benefits and fluctuations in the cost and availability of employees; (iv) Fluctuations in the price and availability of commodities; (v) Our ability to compete in the highly competitive restaurant industry with many well-established competitors and new market entrants; (vi) Economic conditions and their effects on consumer confidence and discretionary spending, consumer traffic, the cost and availability of credit and interest rates; 32 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued (vii) Our ability to recruit and retain high-quality leadership, restaurant-level management and team members; (viii) 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; (ix) 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; (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. 33 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 September 26, 2021, we owned and operated 1,159 restaurants and franchised 325 restaurants across 47 states, Guam and 19 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 September 26, 2021 (“third quarter of 2021”) include the following: • U.S. combined and Outback Steakhouse comparable restaurant sales of 25.5% and 18.3%, respectively, relative to the third quarter of 2020, and 9.5% and 6.0%, respectively, relative to the third quarter of 2019; • Increase in Total revenues of 31.0%, as compared to the third quarter of 2020, and 4.5%, as compared to the third quarter of 2019; • A $61.9 million charge to Other restaurant operating expense in connection with the Carrabba’s Italian Grill Royalty Termination Agreement, an impact of 6.2% on restaurant-level operating margin; • Restaurant-level operating margin of 10.3%, as compared to 10.7% and 12.9% for the third quarters of 2020 and 2019, respectively; • Income (loss) from operations of $14.8 million, as compared to $(14.3) million and $22.0 million in the third quarters of 2020 and 2019, respectively; and • Diluted earnings (loss) per share attributable to common stockholders of $0.03, as compared to $(0.20) and $0.11 in the third quarters of 2020 and 2019, respectively. 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 the change in 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 expenses and Other restaurant operating expenses (including advertising expenses) represent, in each case as such items are reflected in our Consolidated Statements of Operations and Comprehensive Income (Loss). The following categories of our revenue and operating expenses are not included in restaurant-level 34 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued 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 (loss) from operations, Adjusted net income (loss) and Adjusted diluted earnings (loss) 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. 35 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): SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 U.S.: Outback Steakhouse Company-owned 564 567 Franchised 130 140 Total 694 707 Carrabba’s Italian Grill Company-owned 199 199 Franchised 20 21 Total 219 220 Bonefish Grill Company-owned 178 181 Franchised 7 7 Total 185 188 Fleming’s Prime Steakhouse & Wine Bar Company-owned 64 65 Other Company-owned (1) 7 5 U.S. total 1,169 1,185 International: Company-owned Outback Steakhouse—Brazil (2) 113 104 Other (1)(3) 34 31 Franchised Outback Steakhouse—South Korea (3) 114 88 Other (1) 54 56 International total 315 279 System-wide total 1,484 1,464 ____________________ (1) U.S. Other Company-owned included four and three fast-casual Aussie Grill locations as of September 26, 2021 and September 27, 2020, respectively. International Franchised Other included three Aussie Grill locations as of September 26, 2021 and September 27, 2020. International Company-owned Other included two and one Aussie Grill locations as of September 26, 2021 and September 27, 2020, respectively. (2) The restaurant counts for Brazil are reported as of August 31, 2021 and 2020, respectively, to correspond with the balance sheet dates of this subsidiary. (3) Franchised Outback Steakhouse - South Korea included 37 and 13 international dark kitchens that offer delivery only as of September 26, 2021 and September 27, 2020, respectively. In addition, we had one international dark kitchen included within Company-owned Other as of both periods presented. 36 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 THIRTY-NINE WEEKS ENDED SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 Revenues Restaurant sales 98.6 % 99.4 % 98.6 % 99.2 % Franchise and other revenues 1.4 0.6 1.4 0.8 Total revenues 100.0 100.0 100.0 100.0 Costs and expenses Food and beverage costs (1) 30.5 30.1 30.0 31.3 Labor and other related (1) 29.1 32.2 28.4 32.6 Other restaurant operating (1) 30.1 27.0 25.2 27.0 Depreciation and amortization 4.0 5.6 4.0 5.8 General and administrative 5.8 7.4 5.9 8.4 Provision for impaired assets and restaurant closings 0.2 (*) 0.3 2.8 Total costs and expenses 98.5 101.8 92.5 107.1 Income (loss) from operations 1.5 (1.8) 7.5 (7.1) Loss on extinguishment and modification of debt — — (0.1) (*) Other income (expense), net * * * (*) Interest expense, net (1.4) (2.4) (1.4) (2.0) Income (loss) before (benefit) provision for income taxes 0.1 (4.2) 6.0 (9.1) (Benefit) provision for income taxes (0.4) (1.9) 0.8 (3.0) Net income (loss) 0.5 (2.3) 5.2 (6.1) Less: net income (loss) attributable to noncontrolling interests 0.2 (*) 0.2 (*) Net income (loss) attributable to Bloomin’ Brands 0.3 % (2.3) % 5.0 % (6.1) % ________________ (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 periods indicated: (dollars in millions) THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED For the periods ended September 27, 2020 $ 766.5 $ 2,339.0 Change from: Comparable restaurant sales 218.4 696.1 Restaurant openings 14.0 41.3 Effect of foreign currency translation 2.3 (15.6) Restaurant closures (4.5) (29.4) For the periods ended September 26, 2021 $ 996.7 $ 3,031.4 The increase in Restaurant sales during the thirteen weeks ended September 26, 2021 was primarily due to: (i) higher comparable restaurant sales from in-restaurant dining and strong retention of off-premises sales and (ii) the 37 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued opening of 31 new restaurants not included in our comparable restaurant sales base. The increase in Restaurant sales was partially offset by the closure of 15 restaurants since June 26, 2020. The increase in Restaurant sales during the thirty-nine weeks ended September 26, 2021 was primarily due to: (i) higher comparable restaurant sales from in-restaurant dining and strong retention of off-premises sales and (ii) the opening of 37 new restaurants not included in our comparable restaurant sales base. The increase in Restaurant sales was partially offset by the closure of 45 restaurants since December 29, 2019 and the effect of foreign currency translation of the Brazilian Real relative to the U.S. dollar. 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 THIRTY-NINE WEEKS ENDED SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 Average restaurant unit volumes (weekly): U.S. Outback Steakhouse $ 70,849 $ 59,929 $ 74,163 $ 58,771 Carrabba’s Italian Grill $ 61,518 $ 47,940 $ 62,910 $ 46,230 Bonefish Grill $ 57,844 $ 42,439 $ 58,626 $ 40,988 Fleming’s Prime Steakhouse & Wine Bar $ 95,777 $ 58,989 $ 94,064 $ 59,014 International Outback Steakhouse - Brazil (1) $ 49,841 $ 23,919 $ 40,848 $ 36,884 Operating weeks: U.S. Outback Steakhouse 7,344 7,365 22,089 22,330 Carrabba’s Italian Grill 2,587 2,587 7,761 7,887 Bonefish Grill 2,327 2,366 7,004 7,300 Fleming’s Prime Steakhouse & Wine Bar 832 845 2,489 2,575 International Outback Steakhouse - Brazil 1,485 1,358 4,362 4,015 ____________________ (1) Translated at average exchange rates of 5.15 and 5.34 for the thirteen weeks ended September 26, 2021 and September 27, 2020, respectively, and 5.27 and 4.60 for the thirty-nine weeks ended September 26, 2021 and September 27, 2020, respectively. 38 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 Increases (Decreases) Following is a summary of comparable restaurant sales, traffic and average check per person increases (decreases), for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 COMPARABLE TO 2019 (1) COMPARABLE TO 2020 COMPARABLE TO 2019 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 6.0 % 18.3 % (10.4) % 3.5 % 25.3 % (17.4) % Carrabba’s Italian Grill 17.1 % 28.8 % (9.0) % 10.6 % 35.1 % (18.1) % Bonefish Grill 5.7 % 36.6 % (22.5) % (2.7) % 41.2 % (31.0) % Fleming’s Prime Steakhouse & Wine Bar 28.0 % 59.6 % (20.3) % 10.8 % 56.9 % (29.7) % Combined U.S. 9.5 % 25.5 % (12.8) % 4.3 % 31.4 % (20.7) % International Outback Steakhouse - Brazil (3) (5.1) % 109.8 % (54.8) % (18.9) % 29.4 % (36.9) % Traffic: U.S. Outback Steakhouse (0.8) % 14.8 % (13.6) % (2.1) % 19.6 % (18.1) % Carrabba’s Italian Grill 12.2 % 27.1 % (11.7) % 7.8 % 27.0 % (15.1) % Bonefish Grill 5.2 % 25.6 % (14.7) % (1.7) % 23.4 % (19.4) % Fleming’s Prime Steakhouse & Wine Bar 14.4 % 48.4 % (23.3) % 1.8 % 38.1 % (26.6) % Combined U.S. 2.9 % 19.3 % (13.6) % (0.1) % 21.9 % (17.9) % International Outback Steakhouse - Brazil 1.9 % 62.5 % (37.6) % (8.2) % 25.2 % (25.9) % Average check per person (4): U.S. Outback Steakhouse 6.8 % 3.5 % 3.2 % 5.6 % 5.7 % 0.7 % Carrabba’s Italian Grill 4.9 % 1.7 % 2.7 % 2.8 % 8.1 % (3.0) % Bonefish Grill 0.5 % 11.0 % (7.8) % (1.0) % 17.8 % (11.6) % Fleming’s Prime Steakhouse & Wine Bar 13.6 % 11.2 % 3.0 % 9.0 % 18.8 % (3.1) % Combined U.S. 6.6 % 6.2 % 0.8 % 4.4 % 9.5 % (2.8) % International Outback Steakhouse - Brazil (6.0) % 45.5 % (16.2) % (10.3) % 5.5 % (11.0) % ____________________ (1) Represents comparable restaurant sales, traffic and average check per person increases (decreases) 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) Average check per person includes the impact of menu pricing changes, product mix and discounts. 39 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 THIRTY-NINE WEEKS ENDED (dollars in millions) SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 Franchise revenues (1) $ 12.9 $ 4.2 $ 31.9 $ 15.7 Other revenues (2) 0.8 0.6 12.0 3.4 Franchise and other revenues $ 13.7 $ 4.8 $ 43.9 $ 19.1 ____________________ (1) Represents franchise royalties, advertising fees and initial franchise fees. Franchise revenues increased during the thirteen and thirty-nine weeks ended September 26, 2021 primarily due to higher franchise sales as a result of the impact of COVID-19 on 2020 franchise sales. (2) The thirteen and thirty-nine weeks ended September 26, 2021 include an adjustment of $(3.2) million to reduce our initial recorded estimate and net $3.1 million benefit from the recognition of recoverable PIS and COFINS taxes, respectively, within other revenues in connection with favorable court rulings in Brazil regarding the calculation methodology and taxable base for prior years. COSTS AND EXPENSES Food and beverage costs THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in millions) SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 CHANGE SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 CHANGE Food and beverage costs $ 304.3 $ 230.5 $ 908.3 $ 731.0 % of Restaurant sales 30.5 % 30.1 % 0.4 % 30.0 % 31.3 % (1.3) % Food and beverage costs increased as a percentage of Restaurant sales during the thirteen weeks ended September 26, 2021 as compared to the thirteen weeks ended September 27, 2020 primarily due to 1.0% from commodity inflation partially offset by a decrease as a percentage of Restaurant sales of 0.5% from increases in average check per person including changes in product mix. Food and beverage costs decreased as a percentage of Restaurant sales during the thirty-nine weeks ended September 26, 2021 as compared to the thirty-nine weeks ended September 27, 2020 primarily due to: (i) 0.8% from increases in average check per person, primarily driven by reduced discounting, (ii) 0.4% from the impact of certain cost savings initiatives and (iii) 0.3% from inventory obsolescence and spoilage costs during 2020 associated with the COVID-19 pandemic. These decreases were partially offset by an increase as a percentage of Restaurant sales of 0.2% from commodity inflation. In 2022, we anticipate approximately 10% commodity inflation. Labor and other related expenses THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in millions) SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 CHANGE SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 CHANGE Labor and other related $ 290.2 $ 246.9 $ 859.9 $ 761.7 % of Restaurant sales 29.1 % 32.2 % (3.1) % 28.4 % 32.6 % (4.2) % Labor and other related expenses decreased as a percentage of Restaurant sales during the thirteen weeks ended September 26, 2021 as compared to the thirteen weeks ended September 27, 2020 primarily due to 4.3% from leveraging increased restaurant sales, partially offset by an increase as a percentage of Restaurant sales of 1.1% from wage rate increases. 40 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Labor and other related expenses decreased as a percentage of Restaurant sales during the thirty-nine weeks ended September 26, 2021 as compared to the thirty-nine weeks ended September 27, 2020 primarily due to 4.4% from leveraging increased restaurant sales and 1.1% from the 2020 impact of net relief pay. These decreases were partially offset by increases as a percentage of Restaurant sales of 0.6% from wage rate increases and 0.5% from higher management bonus. In 2022, we anticipate mid-single digit labor cost inflation. Other restaurant operating expenses THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in millions) SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 CHANGE SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 CHANGE Other restaurant operating $ 299.8 $ 207.3 $ 762.5 $ 631.7 % of Restaurant sales 30.1 % 27.0 % 3.1 % 25.2 % 27.0 % (1.8) % During the thirteen weeks ended September 26, 2021, we entered into the Royalty Termination Agreement with the Carrabba’s Founders for $61.9 million in cash. See Note 19 - Commitments and Contingencies for additional details. We recorded Carrabba’s Italian Grill royalty expense of $3.0 million during the thirty-nine weeks ended September 26, 2021, and $3.8 million and $6.6 million during fiscal years 2020 and 2019, respectively. Other restaurant operating expenses increased as a percentage of Restaurant sales during the thirteen weeks ended September 26, 2021 as compared to the thirteen weeks ended September 27, 2020 primarily due to 6.2% from the Carrabba’s Italian Grill royalty termination and 1.2% from higher utilities, rent and operating expense. These increases were partially offset by decreases as a percentage of Restaurant sales of: (i) 3.5% from leveraging increased restaurant sales, (ii) 0.6% from lower advertising expense and (iii) 0.4% from a decrease in off-premises related costs. Other restaurant operating expenses decreased as a percentage of Restaurant sales during the thirty-nine weeks ended September 26, 2021 as compared to the thirty-nine weeks ended September 27, 2020 primarily due to: (i) 3.0% from leveraging increased restaurant sales, (ii) 1.3% from lower advertising expense and (iii) 0.3% from a decrease in off-premises related costs. These decreases were partially offset by increases as a percentage of Restaurant sales of 2.0% from the Carrabba’s Italian Grill royalty termination and 0.6% from higher operating and utilities expense. Depreciation and amortization THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in millions) SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 CHANGE SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 CHANGE Depreciation and amortization $ 40.8 $ 43.4 $ (2.6) $ 122.6 $ 137.5 $ (14.9) Depreciation and amortization expense decreased during the thirteen weeks ended September 26, 2021 as compared to the thirteen weeks ended September 27, 2020 primarily due to decreased capital expenditures. Depreciation and amortization expense decreased during the thirty-nine weeks ended September 26, 2021 as compared to the thirty-nine weeks ended September 27, 2020 primarily due to decreased capital expenditures, impairment and the effect of foreign currency translation. 41 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued 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 periods indicated: (dollars in millions) THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED For the periods ended September 27, 2020 $ 57.4 $ 197.7 Change from: Employee stock-based compensation 2.9 9.1 Incentive compensation 1.8 5.7 Transformational costs (1.8) (9.4) Travel and entertainment (1.1) (3.5) Severance (1.0) (10.5) Expected credit losses and contingent lease liabilities (0.1) (6.6) Other 0.8 0.1 For the periods ended September 26, 2021 $ 58.9 $ 182.6 Provision for impaired assets and restaurant closings THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in millions) SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 CHANGE SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 CHANGE Provision for impaired assets and restaurant closings $ 1.6 $ (0.1) $ 1.7 $ 9.0 $ 66.2 $ (57.2) During the thirty-nine weeks ended September 27, 2020, we recognized asset impairment and closure charges of $56.4 million and $3.6 million within the U.S. and international segments, respectively, primarily related to the COVID-19 pandemic. Included in the amount for the thirty-nine weeks ended September 27, 2020 were pre-tax asset impairments and closure costs of $20.9 million in connection with the closure of 22 restaurants and from the update of certain cash flow assumptions, including lease renewal considerations. We also recognized asset impairment charges related to transformational initiatives of $6.3 million during the thirty-nine weeks ended September 27, 2020, which were not allocated to our operating segments. The remaining impairment and closure charges during the periods presented resulted primarily from locations identified for closure. See Note 4 - Impairments and Exit Costs of the Notes to Consolidated Financial Statements for further information. Income (loss) from operations THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in millions) SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 CHANGE SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 CHANGE Income (loss) from operations $ 14.8 $ (14.3) $ 29.1 $ 230.5 $ (167.7) $ 398.2 % of Total revenues 1.5 % (1.8) % 3.3 % 7.5 % (7.1) % 14.6 % Income from operations generated during the thirteen weeks ended September 26, 2021 as compared to Loss from operations during the thirteen weeks ended September 27, 2020 was primarily due to higher comparable restaurant sales and lower advertising expense. These increases were partially offset by: (i) the Carrabba’s Italian Grill royalty termination, (ii) higher labor costs and commodity inflation and (iii) higher utilities, rent and operating expense. 42 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Income from operations generated during the thirty-nine weeks ended September 26, 2021 as compared to Loss from operations during the thirty-nine weeks ended September 27, 2020 was primarily due to: (i) higher comparable restaurant sales, (ii) COVID-19 pandemic related charges during 2020, (iii) lower advertising expense, (iv) the impact of restructuring and transformational initiatives during 2020, (v) the 2020 impact of net relief pay and (vi) the impact of certain cost savings initiatives. These increases were partially offset by: (i) the Carrabba’s Italian Grill royalty termination, (ii) higher labor costs and commodity inflation, (iii) an increase in incentive compensation, (iv) higher operating and utilities expense and (v) higher management bonus. Interest expense, net THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in millions) SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 CHANGE SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 CHANGE Interest expense, net $ 14.2 $ 18.3 $ (4.1) $ 43.9 $ 46.6 $ (2.7) The decrease in Interest expense, net for the thirteen weeks ended September 26, 2021 as compared to the thirteen weeks ended September 27, 2020 was primarily due to lower revolver and term loan borrowings and the discontinuance of debt discount amortization related to our 2025 Notes resulting from the adoption of ASU No. 2020-06. These decreases were partially offset by an increase in interest expense from our 2029 Notes issued in April 2021. The decrease in Interest expense, net for the thirty-nine weeks ended September 26, 2021 as compared to the thirty-nine weeks ended September 27, 2020 was primarily due to: (i) lower revolver and term loan borrowings, (ii) the discontinuance of debt discount amortization related to our 2025 Notes resulting from the adoption of ASU No. 2020-06 and (iii) lower interest rates on our unhedged variable rate debt. These decreases were partially offset by increases in interest expense from our 2025 Notes issued in May 2020 and our 2029 Notes issued in April 2021. (Benefit) provision for income taxes THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 CHANGE SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 CHANGE Effective income tax rate (NM) 45.4 % (NM) 13.5 % 32.7 % (19.2) % ________________ NM Not meaningful. For the thirteen weeks ended September 26, 2021, the benefit for income taxes includes the impact of changes to the estimate of the forecasted full-year effective tax rate relative to prior quarters in 2021. The benefit of FICA tax credits on certain employees’ tips reduced the effective tax rate as a result of forecasted pre-tax income. For the thirteen weeks ended September 27, 2020, the benefit of FICA tax credits on certain employees’ tips increased the effective tax rate as a result of forecasted pre-tax book loss. The effective income tax rate for the thirty-nine weeks ended September 26, 2021 decreased by 19.2 percentage points as compared to the thirty-nine weeks ended September 27, 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 43 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued 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 (loss) 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 and thirty-nine weeks ended September 27, 2020, we recorded $4.2 million and $28.8 million, respectively, 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. Refer to Note 20 - Segment Reporting of the Notes to Consolidated Financial Statements for reconciliations of segment income (loss) 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 THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 Revenues Restaurant sales $ 898,790 $ 719,406 $ 2,789,142 $ 2,141,062 Franchise and other revenues 13,943 2,332 31,567 12,253 Total revenues $ 912,733 $ 721,738 $ 2,820,709 $ 2,153,315 Restaurant-level operating margin 10.0 % 11.4 % 17.1 % 9.4 % Income (loss) from operations $ 47,294 $ 29,574 $ 334,326 $ (21,968) Operating income (loss) margin 5.2 % 4.1 % 11.9 % (1.0) % 44 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Restaurant sales Following is a summary of the change in U.S. segment Restaurant sales for the periods indicated: (dollars in millions) THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED For the periods ended September 27, 2020 $ 719.4 $ 2,141.1 Change from: Comparable restaurant sales 177.7 657.8 Restaurant openings 6.2 19.0 Restaurant closures (4.5) (28.8) For the periods ended September 26, 2021 $ 898.8 $ 2,789.1 The increase in U.S. Restaurant sales during the thirteen weeks ended September 26, 2021 was primarily due to: (i) higher comparable restaurant sales from in-restaurant dining and strong retention of off-premises sales and (ii) the opening of 11 new restaurants not included in our comparable restaurant sales base. The increase in U.S. Restaurant sales was partially offset by the closure of 15 restaurants since June 26, 2020. The increase in U.S. Restaurant sales during the thirty-nine weeks ended September 26, 2021 was primarily due to: (i) higher comparable restaurant sales from in-restaurant dining and strong retention of off-premises sales and (ii) the opening of 13 new restaurants not included in our comparable restaurant sales base. The increase in U.S. Restaurant sales was partially offset by the closure of 44 restaurants since December 29, 2019. Income (loss) from operations The increase in U.S. Income from operations generated during the thirteen weeks ended September 26, 2021 as compared to the thirteen weeks ended September 27, 2020 was primarily due to an increase in comparable restaurant sales and lower advertising expense. These increases were partially offset by: (i) the Carrabba’s Italian Grill royalty termination, (ii) higher labor costs and commodity inflation and (iii) higher operating and utilities expense. U.S. Income from operations generated during the thirty-nine weeks ended September 26, 2021 as compared to Loss from operations during the thirty-nine weeks ended September 27, 2020 was primarily due to: (i) an increase in comparable restaurant sales, (ii) COVID-19 pandemic related charges during 2020, (iii) lower advertising expense, (iv) the 2020 impact of net relief pay and (v) the impact of certain cost savings initiatives. These increases were partially offset by: (i) the Carrabba’s Italian Grill royalty termination, (ii) higher labor costs and commodity inflation, (iii) higher management bonus and (iv) higher operating and utilities expense. International Segment THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 Revenues Restaurant sales $ 97,928 $ 47,081 $ 242,254 $ 197,923 Franchise and other revenues (198) 2,441 12,339 6,818 Total revenues $ 97,730 $ 49,522 $ 254,593 $ 204,741 Restaurant-level operating margin 12.8 % (1.5) % 10.7 % 5.7 % Income (loss) from operations $ 1,412 $ (7,926) $ 7,419 $ (18,209) Operating income (loss) margin 1.4 % (16.0) % 2.9 % (8.9) % 45 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Restaurant sales Following is a summary of the change in international segment Restaurant sales for the periods indicated: (dollars in millions) THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED For the periods ended September 27, 2020 $ 47.1 $ 197.9 Change from: Comparable restaurant sales 40.7 38.3 Restaurant openings 7.8 22.3 Effect of foreign currency translation 2.3 (15.6) Restaurant closures — (0.6) For the periods ended September 26, 2021 $ 97.9 $ 242.3 The increase in international Restaurant sales during the thirteen weeks ended September 26, 2021 was primarily due to higher comparable restaurant sales principally attributable to the impact of the COVID-19 pandemic on fiscal year 2020 international Restaurant sales and the opening of 20 new restaurants not included in our comparable restaurant sales base. The increase in international Restaurant sales during the thirty-nine weeks ended September 26, 2021 was primarily due to higher comparable restaurant sales principally attributable to the impact of the COVID-19 pandemic on fiscal year 2020 international Restaurant sales and the opening of 24 new restaurants not included in our comparable restaurant sales base, partially offset by the effect of foreign currency translation of the Brazilian Real relative to the U.S. dollar. Income (loss) from operations International Income from operations generated during the thirteen weeks ended September 26, 2021 as compared to Loss from operations during the thirteen weeks ended September 27, 2020 was primarily due to: (i) higher restaurant sales due to the reopening of restaurant dining rooms and increases in average check per person and (ii) a decrease in off-premises related costs. These increases were partially offset by: (i) higher labor costs, (ii) additional rent, utilities and operating expense, and (iii) commodity inflation. International Income from operations generated during the thirty-nine weeks ended September 26, 2021 as compared to Loss from operations during the thirty-nine weeks ended September 27, 2020 was primarily due to: (i) higher restaurant sales due to the reopening of restaurant dining rooms and increases in average check per person and (ii) lower labor costs. These increases were partially offset by: (i) commodity inflation, (ii) additional utilities, operating and rent expense and (iii) incremental off-premises related costs. 46 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued 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 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 THIRTY-NINE WEEKS ENDED (dollars in millions) SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 U.S. Outback Steakhouse $ 118 $ 76 $ 329 $ 250 Carrabba’s Italian Grill 10 8 32 25 Bonefish Grill 3 2 8 6 U.S. total 131 86 369 281 International Outback Steakhouse-South Korea 73 64 219 174 Other 26 19 77 45 International total 99 83 296 219 Total franchise sales (1) $ 230 $ 169 $ 665 $ 500 _____________________ (1) Franchise sales are not included in Total revenues in the Consolidated Statements of Operations and Comprehensive Income (Loss). 47 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 (loss) and the corresponding margins for the periods indicated: Consolidated THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 Income (loss) from operations $ 14,837 $ (14,255) $ 230,472 $ (167,735) Operating income (loss) margin 1.5 % (1.8) % 7.5 % (7.1) % Less: Franchise and other revenues 13,745 4,773 43,906 19,071 Plus: Depreciation and amortization 40,827 43,417 122,592 137,469 General and administrative 58,880 57,443 182,590 197,732 Provision for impaired assets and restaurant closings 1,585 (54) 8,962 66,223 Restaurant-level operating income $ 102,384 $ 81,778 $ 500,710 $ 214,618 Restaurant-level operating margin 10.3 % 10.7 % 16.5 % 9.2 % U.S. THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 Income (loss) from operations $ 47,294 $ 29,574 $ 334,326 $ (21,968) Operating income (loss) margin 5.2 % 4.1 % 11.9 % (1.0) % Less: Franchise and other revenues 13,943 2,332 31,567 12,253 Plus: Depreciation and amortization 33,421 35,057 100,645 110,005 General and administrative 21,998 19,732 66,043 68,955 Provision for impaired assets and restaurant closings 1,539 (86) 8,678 56,389 Restaurant-level operating income $ 90,309 $ 81,945 $ 478,125 $ 201,128 Restaurant-level operating margin 10.0 % 11.4 % 17.1 % 9.4 % International THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 Income (loss) from operations $ 1,412 $ (7,926) $ 7,419 $ (18,209) Operating income (loss) margin 1.4 % (16.0) % 2.9 % (8.9) % Less: Franchise and other revenues (198) 2,441 12,339 6,818 Plus: Depreciation and amortization 5,843 5,672 17,128 18,314 General and administrative 5,060 4,011 13,781 14,413 Provision for impaired assets and restaurant closings 28 — 27 3,640 Restaurant-level operating income (loss) $ 12,541 $ (684) $ 26,016 $ 11,340 Restaurant-level operating margin 12.8 % (1.5) % 10.7 % 5.7 % 48 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 present the percentages of certain operating cost financial statement line items in relation to Restaurant sales for the periods indicated: THIRTEEN WEEKS ENDED SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 REPORTED ADJUSTED (1) REPORTED ADJUSTED Restaurant sales 100.0 % 100.0 % 100.0 % 100.0 % Food and beverage costs 30.5 % 30.5 % 30.1 % 30.1 % Labor and other related 29.1 % 29.1 % 32.2 % 32.2 % Other restaurant operating 30.1 % 23.6 % 27.0 % 27.0 % Restaurant-level operating margin 10.3 % 16.8 % 10.7 % 10.7 % THIRTY-NINE WEEKS ENDED SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 REPORTED ADJUSTED (1) REPORTED ADJUSTED (1) Restaurant sales 100.0 % 100.0 % 100.0 % 100.0 % Food and beverage costs 30.0 % 30.0 % 31.3 % 30.9 % Labor and other related 28.4 % 28.4 % 32.6 % 32.6 % Other restaurant operating 25.2 % 23.0 % 27.0 % 27.0 % Restaurant-level operating margin 16.5 % 18.6 % 9.2 % 9.5 % _________________ (1) Includes (favorable) unfavorable adjustments recorded in Other restaurant operating expense (unless otherwise noted below) for the following activities, as described in the Adjusted income (loss) from operations, Adjusted net income (loss) and Adjusted diluted earnings (loss) per share table below for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in millions) SEPTEMBER 26, 2021 SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 Royalty termination expense $ (61.9) $ (61.9) $ — Legal and other matters (2.7) (2.7) — COVID-19 related costs (i) — — (9.9) Asset impairments and closing costs — — 2.7 $ (64.6) $ (64.6) $ (7.2) _________________ (i) Includes $7.3 million of adjustments recorded in Food and beverage costs. 49 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Adjusted income (loss) from operations, Adjusted net income (loss) and Adjusted diluted earnings (loss) per share THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (in thousands, except per share data) SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 Income (loss) from operations $ 14,837 $ (14,255) $ 230,472 $ (167,735) Operating income (loss) margin 1.5 % (1.8) % 7.5 % (7.1) % Adjustments: Royalty termination expense (1) 61,880 — 61,880 — Legal and other matters (2) 5,965 — (372) 178 COVID-19-related costs (3) — — — 79,218 Severance and other transformational costs (4) — 4,200 — 28,847 Asset impairments and closure costs (5) — — — (2,205) Total income (loss) from operations adjustments 67,845 4,200 61,508 106,038 Adjusted income (loss) from operations $ 82,682 $ (10,055) $ 291,980 $ (61,697) Adjusted operating income (loss) margin 8.2 % (1.3) % 9.5 % (2.6) % Diluted net income (loss) attributable to common stockholders $ 3,449 $ (17,637) $ 155,316 $ (148,000) Convertible senior notes if-converted method interest adjustment, net of tax (6) — — 460 — Net income (loss) attributable to common stockholders 3,449 (17,637) 154,856 (148,000) Adjustments: Income (loss) from operations adjustments 67,845 4,200 61,508 106,038 Loss on extinguishment and modification of debt — — 2,073 — Amortization of debt discount (7) — 2,407 — 3,786 Total adjustments, before income taxes 67,845 6,607 63,581 109,824 Adjustment to provision for income taxes (8) (15,878) 440 (14,635) (28,029) Redemption of preferred stock in excess of carrying value (9) — — — 3,496 Net adjustments 51,967 7,047 48,946 85,291 Adjusted net income (loss) $ 55,416 $ (10,590) $ 203,802 $ (62,709) Diluted earnings (loss) per share attributable to common stockholders (10) $ 0.03 $ (0.20) $ 1.42 $ (1.69) Adjusted diluted earnings (loss) per share (11) $ 0.57 $ (0.12) $ 2.10 $ (0.72) Diluted weighted average common shares outstanding (10) 107,783 87,558 109,410 87,394 Adjusted diluted weighted average common shares outstanding (11) 97,307 87,558 97,110 87,394 _________________ (1) Payment made to the Carrabba’s Founders in connection with the Royalty Termination Agreement. See Note 19 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional details regarding the Royalty Termination Agreement. (2) The thirteen and thirty-nine weeks ended September 26, 2021 includes: (i) an adjustment of $(3.2) million to reduce our initial recorded estimate and net $3.1 million benefit from the recognition of recoverable PIS and COFINS taxes, including accrued interest, respectively, within other revenues as a result of favorable court rulings and (ii) an accrual of $2.7 million for Imposto sobre Serviços (“ISS”), a Brazilian municipal service tax, in connection with royalties from our Brazilian subsidiary over the past five years, including related penalties and interest, recorded within Other restaurant operating expense as a result of an unfavorable Brazilian Supreme Court ruling. (3) Costs incurred in connection with the COVID-19 pandemic, primarily consisting of fixed asset and right-of-use asset impairments, restructuring charges, 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. (4) Severance, professional fees and other costs incurred as a result of transformational and restructuring activities. 50 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued (5) Primarily includes a lease termination gain of $2.8 million. (6) Adjustment for interest expense related 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 our 2025 Notes in cash. The calculation of adjusted diluted earnings per share excludes 2025 Notes interest adjustment. (7) Amortization of debt discount related to the issuance of the 2025 Notes. See Note 11 - Convertible Senior Notes of the Notes to Consolidated Financial Statements for details. (8) Income tax effect of the adjustments for the periods presented. (9) Consideration paid in excess of the carrying value for the redemption of preferred stock of our Abbraccio concept. (10) 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 and thirty-nine weeks ended September 27, 2020. (11) For the thirty-nine weeks ended September 26, 2021, adjusted diluted weighted average common shares outstanding was calculated assuming our February 2021 election to settle the principal portion of the 2025 Notes in cash was in effect for the entire period. For the thirteen and thirty-nine weeks ended September 26, 2021, adjusted diluted weighted average common shares outstanding was calculated excluding the dilutive effect of 10,476 and 10,453 shares, respectively, to be issued upon conversion of the 2025 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. 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, debt payments, development of new restaurants, remodeling or relocating older restaurants and investment in technology. Cash and Cash Equivalents - As of September 26, 2021, we had $76.3 million in cash and cash equivalents, of which $28.8 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 September 26, 2021, we had aggregate accumulated foreign earnings of approximately $34.7 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 a tely $140 million to $150 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 raw material constraints and 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. 51 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Credit Facilities - 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 FORMER CREDIT FACILITY TOTAL CREDIT FACILITIES (dollars in thousands) TERM LOAN A REVOLVING FACILITY TERM LOAN A REVOLVING FACILITY 2025 NOTES 2029 NOTES Balance as of December 27, 2020 $ — $ — $ 425,000 $ 447,000 $ 230,000 $ — $ 1,102,000 2021 new debt 200,000 363,000 — 15,000 — 300,000 878,000 2021 payments (2,500) (239,000) (425,000) (462,000) — — (1,128,500) Balance as of September 26, 2021 $ 197,500 $ 124,000 $ — $ — $ 230,000 $ 300,000 $ 851,500 Weighted-average interest rate, as of September 26, 2021 2.58 % 2.69 % 5.00 % 5.13 % Principal maturity date April 2026 April 2026 May 2025 April 2029 As of September 26, 2021, we had $655.3 million in available unused borrowing capacity under our revolving credit facility, net of letters of credit of $20.7 million. During the thirteen weeks ended September 26, 2021, we made a cash payment of $61.9 million to the Carrabba’s Founders in connection with the Royalty Termination Agreement detailed in Note 19 - Commitments and Contingencies. This cash payment was primarily funded by borrowings on our revolving credit facility. 2029 Notes - On April 16, 2021, we issued $300.0 million aggregate principal amount of senior unsecured notes due 2029. The 2029 Notes 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. The net proceeds from the 2029 Notes were approximately $294.5 million, after deducting the initial purchaser’s discount and our offering expenses. The net proceeds were used to repay a portion of our outstanding Term loan A and revolving credit facility in conjunction with the refinancing of our Former 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 Senior Secured Credit Facility matures on April 16, 2026 and replaced our Former Credit Facility 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 prohibited us from paying certain dividends and making certain restricted payments and acquisitions until we were in compliance with our TNLR covenant for the period ended September 26, 2021. Our Senior Secured Credit Facility contains mandatory prepayment requirements for Term loan A, including the requirement that we 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 $10.0 million, we do not anticipate any other payments will be required through September 25, 2022. 52 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued See Note 10 - Long-term Debt, Net for additional details regarding the 2029 Notes and Second Amended and Restated Credit Agreement. As of September 26, 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. 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: THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 26, 2021 SEPTEMBER 27, 2020 Net cash provided by operating activities $ 304,246 $ 54,971 Net cash used in investing activities (69,085) (56,162) Net cash (used in) provided by financing activities (265,192) 99,853 Effect of exchange rate changes on cash and cash equivalents 207 (3,293) Net (decrease) increase in cash, cash equivalents and restricted cash $ (29,824) $ 95,369 Operating activities - The increase in net cash provided by operating activities during the thirty-nine weeks ended September 26, 2021 as compared to the thirty-nine weeks ended September 27, 2020 was primarily due to an increase in restaurant-level operating margin. This increase was partially offset by: (i) cash paid in connection with the Carrabba’s Italian Grill royalty termination, (ii) deferral of payroll tax payments in 2020 as a result of the CARES Act, (iii) higher inventory purchases, (iv) timing of collections of gift card receivables, (v) cash paid to terminate interest rate swap agreements and (vi) timing of operational payments and receipts. Investing activities - The increase in net cash used in investing activities during the thirty-nine weeks ended September 26, 2021 as compared to the thirty-nine weeks ended September 27, 2020 was primarily due to higher capital expenditures, partially offset by higher proceeds from the disposal of property, fixtures and equipment. Financing activities - Net cash used in financing activities during the thirty-nine weeks ended September 26, 2021 as compared to net cash provided by financing activities during the thirty-nine weeks ended September 27, 2020 was primarily due to: (i) higher net repayments on our revolving credit facility, (ii) proceeds from the issuance of the 2025 Notes and related warrants during 2020 and (iii) net repayment of our Term loan A in conjunction with the refinance of our Former Credit Facility. These decreases were partially offset by: (i) proceeds from the issuance of the 2029 Notes, (ii) premium payments for Convertible Note Hedge Transactions during 2020, (iii) payment of cash dividends on our common stock during 2020 and (iv) 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) SEPTEMBER 26, 2021 DECEMBER 27, 2020 Current assets $ 240,659 $ 323,854 Current liabilities 897,215 950,104 Working capital (deficit) $ (656,556) $ (626,250) Working capital (deficit) includes: (i) Unearned revenue primarily from unredeemed gift cards of $284.1 million and $381.6 million as of September 26, 2021 and December 27, 2020, respectively, and (ii) current operating lease 53 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued liabilities of $178.6 million and $176.8 million as of September 26, 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 $18.4 million and $28.1 million as of September 26, 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 obligation for managing and chef partners’ deferred compensation was fully funded as of September 26, 2021. DIVIDENDS AND SHARE REPURCHASES We did not pay dividends or repurchase shares of our outstanding common stock during the thirteen weeks ended September 26, 2021. The terms of our Second Amended and Restated Credit Agreement contained certain restrictions on cash dividends and share repurchases until after TNLR covenant compliance was met for the period ending September 26, 2021. Following is a summary of dividends and share repurchases from fiscal year 2015 through September 26, 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 Fiscal year 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 thirty-nine weeks ended September 26, 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. 54 Table of Contents BLOOMIN’ BRANDS, INC.