What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-08-11 compared with 2020-06-10 · 223 added, 191 removed, 204 unchanged (67% of the section changed)

1 unchanged sentence

Management's Discussion and Analysis of Financial Condition and Results of Operations provides a narrative of our financial performance and condition that should be read in conjunction with the accompanying condensed consolidated financial statements.

All comparisons under this heading between 2020 and 2019 refer to the sixteen weeks ended April 19, 2020 and April 21, 2019, unless otherwise indicated.

All comparisons under this heading between 2020 and 2019 refer to the twelve and twenty-eight weeks ended July 12, 2020 and July 14, 2019, unless otherwise indicated.

Description of Business

Red Robin Gourmet Burgers, Inc., a Delaware corporation, together with its subsidiaries ("Red Robin," "we," "us," "our," or the "Company"), primarily operates, franchises, and develops full-service restaurants with 552 locations in North America.

As of April 19, 2020, the Company owned 452 restaurants located in 38 states.

The Company also had 102 franchised full-service restaurants in 16 states and one Canadian province as of April 19, 2020.

As of July 12, 2020, the Company owned 450 restaurants located in 38 states.

The Company also had 102 franchised full-service restaurants in 16 states and one Canadian province as of July 12, 2020.

The Company operates its business as one operating and one reportable segment.

COVID-19 Pandemic

Due to the novel coronavirus ("COVID-19") pandemic, we have navigated and continue to navigate an unprecedented time for our business and industry as we collectively work to combat the global crisis.

With the health, safety, and well-being of Red Robin's Team Members, Guests, and communities as our top priority, we have shifted our restaurants to an off-premise model and are strictly adhering to US Centers for Disease Control ("CDC"), state, and local guidelines.

We are encouraged by our continuing off-premise sales momentum during the pandemic.

This has helped mitigate the decline in comparable restaurant revenues due to the closure of dine-in services at substantially all Company-owned restaurants and enabled us to focus on optimizing the execution of our off-premise channels both during and following the crisis.

We have taken the following actions to preserve liquidity, enhance financial flexibility and help mitigate the impact of COVID-19 on our business that we believe will enable the Company to more effectively benefit from an eventual recovery in on-premise sales as the impact of COVID-19 subsides:

• Temporarily closed dine-in services at substantially all Company-owned restaurants while continuing to provide to-go, delivery, and catering choices and ensuring the continuity of the Company's supply chain;

• Temporarily closed 35 Company-owned restaurants.

In connection with these closures, restaurant managers were furloughed or transferred to nearby operational restaurants when possible;

• Implemented enhanced health and safety protocols across the business, emergency sick pay for hourly Team Members, and telecommuting policies for nearly all corporate level employees;

• Significantly reduced restaurant level costs and general and administrative expenses, including reducing by 20 percent executive base salaries, Board member cash retainer fees, and restaurant support center and non-furloughed restaurant supervisory Team Member wages and salaries;

• Eliminated approximately 50 restaurant support center general and administrative positions;

• Reduced selling expense by pivoting from national media to digital in support of our off-premise business;

• Postponed or eliminated all non-essential spending, including capital expenditures for previously planned growth and other projects, including the Company's continued rollout of Donatos®, restaurant refreshes, and IT projects;

prior to the pandemic, the Company purchased Donatos® equipment for the Seattle market, including approximately 40 restaurants.

We currently plan to resume our roll out of Donatos® in this legacy market by the end of the year;

• Drew down the remaining capacity under the Company's $300 million credit facility;

• Suspended share repurchases and terminated the Company's pre-arranged stock trading plan under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended;

• Began to engage in constructive discussions with landlords regarding potential restructuring of lease payments.

In light of the uncertainty regarding the duration and impact of the COVID-19 pandemic, Red Robin withdrew its 2020 and long-term financial outlook.

Comparable restaurant revenues and average net sales per restaurant following the onset of the COVID-19 pandemic in the United States through the first quarter ended April 19, 2020 are as follows:

QTD Week ended

through 23-Feb (1)

1-Mar 8-Mar 15-Mar 22-Mar 29-Mar 5-Apr 12-Apr 19-Apr

Due to the novel coronavirus ("COVID-19") pandemic, we have navigated and continue to navigate an unprecedented time for our business and industry as we collectively work to maintain the stable operation of our business.

During the second quarter of 2020, we began re-opening dining rooms at Company-owned restaurants in accordance with local limits with re-opened restaurants operating at no higher than 50% occupant capacity.

Re-opening our dining rooms was executed with the health, safety, and well-being of Red Robin's Team Members, Guests, and communities in mind with strict adherence to US Centers for Disease Control ("CDC"), state, and local guidelines as our top priority.

Our continued focus during the COVID-19 pandemic on delivering best-in-class hospitality has resulted in improved average weekly net sales per restaurant and record high Guest satisfaction scores since the onset of the pandemic in early March.

We have remained focused on expanding seating capacity, retaining off-premise sales levels, and consistently delivering a great Guest experience.

Outdoor seating has been recently expanded beyond our patios where possible, and restaurants are piloting partitions between tables inside our dining rooms.

We are also actively requiring Guests to wear face coverings at all locations while entering, exiting, and walking around our restaurants and providing face masks for Guests who arrive without one to ensure we are enabling the mutual safety of our Guests and Team Members.

As our dining rooms have re-opened, sales and the Guest experience have been positively impacted by the accelerated implementation of our new Total Guest Experience ("TGX") hospitality model, coupled with strong adherence to health and safety standards.

Notably, restaurants with re-opened dining rooms are retaining meaningful off-premise sales, demonstrating the enduring and growing popularity of Red Robin for off-premise occasions.

Relevant year-to-date highlights as of August 9, 2020 include:

• Preliminary average net sales per restaurant of $38,031 for the week ended August 9, 2020;

• Preliminary average net sales per restaurant for restaurants with re-opened indoor dining rooms was $39,808 for the week ended August 9, 2020;

• Expected average cash burn rate of approximately $2 million per week for the third fiscal quarter, including the impact of increased occupancy payments compared to the second fiscal quarter;

• More than $103 million in total liquidity, including cash and cash equivalents and available borrowing capacity under our revolving line of credit.

Now that we have operated under COVID-19 conditions for approximately five months and with increased liquidity from our recent equity raise through an at-the-market offering program and increased administrative and restaurant-level cost efficiencies, we are resuming efforts to opportunistically implement certain elements of our strategic plan that we had previously put on hold as a result of the pandemic.

We believe that the actions we have taken in response to COVID-19 will be sufficient to fund our lease obligations, capital expenditures, and working capital needs for the next 12 months and foreseeable future.

Our strategic plan will enable Red Robin to turnaround and transform the business in the long-term through delivering best-in-class execution, including implementing our TGX hospitality model, rolling out Donatos® Pizza, and enhancing our technological and digital capabilities to drive increased Guest engagement and frequency with our brand.

All of our re-opened dining rooms operate with our new TGX hospitality model, which elevates levels of hospitality with servers dedicating more time in the dining room attending to and engaging with Guests while supported by a server partner.

The use of handheld point-of-sale devices is critical to sending food orders to our kitchens and beverage orders to our server partners, ensuring speed of service, high quality food, and more attentive beverage and bottomless refills.

Additionally, we are particularly focused on our ability to execute a great off-premise experience through improving the accuracy of promise times for order pick-up and delivery.

We have put in place improved organization and process flow for off-premise orders, more convenient order pick up options, and dedicated assembly workspaces that can expand during peak periods.

With these measures in place, we are confident that we are delivering an elevated restaurant experience that differentiates Red Robin from the competition.

The Company has been required to re-close dining rooms since the release of our first quarter earnings at numerous Company-owned restaurants, including 53 indoor dining rooms in California due to a state mandate in early July, from the effects of increased COVID-19 cases in certain states and localities.

Since these closures in early July, our average weekly net sales per restaurant has increased through the week ended August 9, 2020 even as these indoor dining rooms have remained closed.

Each of our franchisees has re-opened their restaurants as of the end of our second fiscal quarter, and no franchise restaurants have permanently closed because of the COVID-19 pandemic.

During the latter half of our second fiscal quarter, we began charging and collecting partial royalty payments and advertising contributions from our franchisees.

Abated royalty payments and advertising contributions will not be collected by the Company.

Since the release of our first quarter earnings, net comparable restaurant revenue and average net sales per restaurant through the week ended August 9, 2020 are as follows:

Company-owned Restaurants (3)

14-Jun 21-Jun 28-Jun 5-Jul 12-Jul 19-Jul 26-Jul 2-Aug 9-Aug

Weekly Net Comparable Restaurant Revenues (35.5)% (27.4)% (30.4)% (33.9)% (33.9)% (35.9)% (34.3)% (35.4)% (32.8)%

3.7% 0.9% (3.7)% (26.3)% (72.7)% (70.5)% (63.9)% (65.2)% (50.2)%

Average Net Sales per Restaurant $38,259 $40,596 $38,471 $33,938 $34,731 $35,164 $36,783 $37,239 $38,031

# of Comparable Company-operated Restaurants (1)

413 413 413 413 413 413 412 412 412

(1) February 23, 2020 represents the end of our second 28 day accounting period

(2) The 35 temporarily closed Company-owned restaurants are not included in the weekly comparable base

Through the first eight weeks of the first quarter of 2020, net comparable restaurant revenue grew 3.7% driven in part by positive Guest count, and through the last eight weeks of the first quarter of 2020, comparable restaurant revenue decreased 43.2%.

Although comparable restaurant revenues have declined significantly as a result of the COVID-19 pandemic, average net sales per restaurant have grown each week since the onset of the pandemic with the exception of the week ended April 12, 2020 due to the timing of the Easter holiday.

While the COVID-19 pandemic significantly impacted our full first quarter results, we are very encouraged by the continued strong growth in sales.

Second Quarter Business and Operational Update

We continue to be encouraged by the strong growth in off-premise sales and early traction in dine-in sales that is attributable to our enhanced execution developed around our strategic plan and implemented on an accelerated basis as we begin to re-open dining rooms with a measured and strategic approach focused on health and safety.

Off-premise sales remain significantly higher, which have tripled when compared to pre-COVID-19 levels.

As our dining rooms have re-open, sales have been positively impacted by the accelerated implementation of our new hospitality model, coupled with strong health and safety standards.

Notably, restaurants with re-opened dining rooms are still capturing meaningful off-premise sales, demonstrating the enduring and growing popularity of Red Robin for off-premise occasions.

Relevant year-to-date highlights as of June 7, 2020 include:

• Preliminary net comparable restaurant revenue of (39.7)% for the week ended June 7, 2020;

• Preliminary net comparable restaurant revenue for restaurants with re-opened dining rooms was (26.7)% for the week ended June 7, 2020;

• Expected average cash burn of $1 million to $2 million per week, which includes partial rent payments, re-opening costs, one-time COVID-19 expenses, and costs associated with finalizing the Amendment to its Credit Facility, for the second fiscal quarter driven by improving revenue and previously taken cost reductions;

• Approximately $84.0 million in total liquidity, including capacity under our revolving line of credit as of June 7, 2020.

The Company immediately accelerated its menu simplification plan by reducing approximately one third of its menu items to support the off-premise only business model.

The simplified menu and ease of ordering from a new enhanced website focused on the online ordering user experience have improved speed of service and accuracy.

Increased car-side and home delivery options, including Red Robin Delivery where Guests order directly from Red Robin with outsourced delivery, have improved convenience to our Guests and the economics of our off-premise business.

The Company spent considerable time developing a measured and strategic approach to re-open dining rooms with a focus on the health and safety of our Guests and Team Members.

Consumer research also led to several enhanced measures including all Team Members wearing face coverings and completing daily health surveys, including temperature checks, and social distancing protocols.

Red Robin has made visible cleaning and disinfecting behaviors important elements of its daily operations, including dedicating one Team Member on each shift to front of house sanitation.

In addition, all re-opened dining rooms feature the Company's new hospitality model, Total Guest Experience ("TGX"), that Red Robin had previously planned to implement over the course of fiscal 2020.

Sales have continued to grow as the Company began re-opening select dining rooms at a limited capacity beginning April 28, 2020.

As of June 7, 2020, Red Robin had re-opened approximately 270 dining rooms with limited capacity representing 65% of currently open Company-operated restaurants.

To build on the momentum we are experiencing in off-premise and dine-in sales, we are now re-opening restaurants in our largest and highest volume markets on the West Coast.

Notably, these restaurants have on average maintained off-premise sales that are approximately one and a half to two times pre COVID-19 levels and 40% of sales mix since re-opening.

Overall during the beginning of our second quarter of 2020, the Company's weekly comparable restaurant revenue has sequentially improved.

Preliminary net comparable restaurant revenue and average net sales per restaurant through the week ended June 7, 2020 is as follows:

Company-owned Restaurants 26-Apr 3-May 10-May 17-May 24-May 31-May 7-Jun

Weekly Net Comparable Restaurant Revenues (1)

———————————————————

(1) Comparable restaurants are those Company-owned restaurants that have operated five full quarters as of the fiscal week presented.

Restaurant count shown is as of the end of the fiscal week presented.

As of August 9, 2020, the Company has re-opened 346 indoor dining rooms with limited capacity, representing approximately 84% of currently open Company-owned restaurants.

Notably, these restaurants have on average maintained off-premise sales that are approximately 40% of sales mix after re-opening dining rooms.

As of August 9, 2020, the Company has re-opened three and permanently closed five of our 35 restaurants that were temporarily closed due to the COVID-19 pandemic.

For the 27 remaining restaurants that are still temporarily closed as of August 9, 2020, we will continue to evaluate the potential timing of re-opening these locations.

Restaurant operating level expenses incurred for these restaurants during the closures has been recorded in Restaurant closure and refranchising costs in Other charges;

see Note 7, Other Charges , in the Notes to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.

Net comparable restaurant revenue and average net sales per Company-owned restaurant with re-opened indoor dining rooms through the week ended August 9, 2020 is as follows:

Re-opened Company-owned Restaurant Indoor Dining Rooms (3)

14-Jun 21-Jun 28-Jun 5-Jul 12-Jul 19-Jul 26-Jul 2-Aug 9-Aug

Weekly Net Comparable Restaurant Revenues (27.0)% (22.4)% (26.3)% (29.7)% (28.4)% (30.5)% (29.5)% (30.4)% (27.9)%

Average Net Sales per Restaurant $42,271 $44,134 $40,834 $35,592 $36,845 $37,380 $38,393 $39,058 $39,808

# of Comparable Company-owned Restaurants 414 414 414 414 414 414 414

# of Comparable Company-operated Restaurants (2)

336 359 385 328 336 349 350 348 346

(1) The 35 temporarily closed Company-owned restaurants are not included in the weekly comparable base

———————————————————

(2) Net sales performance for Company-owned restaurants with re-opened indoor dining rooms for full fiscal week presented.

Restaurant count is as of the end of the fiscal week presented.

(3) Net comparable restaurant revenues and average net sales per restaurant for weeks ending after July 12, 2020 are preliminary amounts.

Financial and Operational Highlights

The following summarizes the operational and financial highlights during the sixteen weeks ended April 19, 2020:

• Financial performance.

◦ Restaurant revenue decreased $99.1 million, or 24.7%, to $301.4 million for the sixteen weeks ended April 19, 2020, as compared to the sixteen weeks ended April 21, 2019, due to a $74.6 million, or 20.8%, decrease in comparable restaurant revenue and a $24.5 million decrease primarily from closed restaurants.

◦ Restaurant operating costs, as a percentage of restaurant revenue, increased 950 basis points to 91.2% for the sixteen weeks ended April 19, 2020, as compared to 81.7% for the sixteen weeks ended April 21, 2019.

The increase was primarily due to higher labor costs, higher other operating costs, and higher occupancy costs as a percentage of revenue.

The drivers within labor costs included sales deleverage, higher wage rates and higher group insurance costs, partially offset by lower restaurant manager incentive compensation.

The drivers within other operating costs included higher third-party delivery expense driven by increasing volumes and sales deleverage impacts on restaurant maintenance, technology, supply, utility costs.

The following summarizes the operational and financial highlights during the twelve weeks ended July 12, 2020:

• Restaurant revenue decreased $142.3 million, or 47.0%, to $160.1 million for the twelve weeks ended July 12, 2020, as compared to the twelve weeks ended July 14, 2019, due to a $112.8 million, or 41.4%, decrease in comparable restaurant revenue and a $29.5 million decrease primarily from closed restaurants.

• Restaurant revenue decreased $241.3 million, or 34.3%, to $461.6 million for the twenty-eight weeks ended July 12, 2020, as compared to the twenty-eight weeks ended July 14, 2019, due to a $186.9 million, or 29.7%, decrease in comparable restaurant revenue and a $54.4 million decrease primarily from closed restaurants.

• Restaurant operating costs, as a percentage of restaurant revenue, increased 1,620 basis points to 98.0% for the twelve weeks ended July 12, 2020, as compared to 81.8% for the twelve weeks ended July 14, 2019.

The increase was due to higher cost of sales, labor costs, other operating costs, and occupancy costs as a percentage of restaurant revenue.

The drivers within cost of sales included an increase in ground beef prices, partially offset by discounts and lower waste.

The drivers within labor costs included sales deleverage and higher hourly wage and benefit rates driven by shifting labor mix in support of our off-premise operating model, partially offset by lower restaurant manager incentive compensation.

The drivers within other operating costs included higher third-party delivery fees driven by higher off-premise sales volume and sales deleverage impacts on restaurant supply, utility, and technology costs, partially offset by a decrease in restaurant maintenance costs.

The drivers within occupancy costs included sales deleverage impacts on rent expense and other real estate costs.

• Restaurant operating costs, as a percentage of restaurant revenue, increased 1,190 basis points to 93.6% for the twenty-eight weeks ended July 12, 2020, as compared to 81.7% for the twenty-eight weeks ended July 14, 2019.

The increase was due to higher cost of sales, labor costs, other operating costs, and occupancy costs as a percentage of restaurant revenue.

The drivers within cost of sales included an increase in ground beef prices.

The drivers within occupancy costs included sales deleverage impacts on rent expense and general liability and other real estate costs.

◦ Net loss was $174.3 million for the sixteen weeks ended April 19, 2020 compared to net income of $0.6 million for the sixteen weeks ended April 21, 2019.

Diluted loss per share was $13.51 for the sixteen weeks ended April 19, 2020, as compared to diluted earnings per share of $0.05 for the sixteen weeks ended April 21, 2019.

Excluding costs per diluted share included in Other charges of $5.48 for goodwill impairment, $0.89 for restaurant asset impairment, $0.26 litigation contingencies, $0.08 for board and stockholder matters costs, $0.08 for restaurant closure and refranchising costs, $0.05 for severance and executive transition costs, and $0.01 for COVID-19 related charges, adjusted loss per diluted share for the first quarter ended April 19, 2020, was $6.66.

Excluding costs per share included in Other charges of $0.11 for severance and executive transition costs, $0.02 for restaurant closure costs, and $0.01 for executive retention, adjusted earnings per diluted share for the sixteen weeks ended April 21, 2019 was $0.19.

• Net loss was $56.3 million for the twelve weeks ended July 12, 2020 compared to net income of $1.0 million for the twelve weeks ended July 14, 2019.

Diluted loss per share was $4.09 for the twelve weeks ended July 12, 2020, as compared to diluted earnings per share of $0.08 for the twelve weeks ended July 14, 2019.

Excluding costs per diluted share included in Other charges of $0.41 for restaurant closure and refranchising costs, $0.28 for restaurant asset impairment, $0.05 for board and stockholder matters costs, and $0.04 for COVID-19 related costs, adjusted loss per diluted share for the second quarter ended July 12, 2020, was $3.31.

Excluding costs per diluted share included in Other charges of $0.80 for restaurant asset impairment, $0.07 for board and stockholder matters costs, $0.05 for restaurant closure and refranchising costs, $0.02 for severance and executive transition, and $0.01 for executive retention, adjusted earnings per diluted share for the twelve weeks ended July 14, 2019 was $1.03.

• Net loss was $230.6 million for the twenty-eight weeks ended July 12, 2020 compared to net income of $1.6 million for the twenty-eight weeks ended July 14, 2019.

Diluted loss per share was $17.38 for the twenty-eight weeks ended July 12, 2020, as compared to diluted earnings per share of $0.12 for the twenty-eight weeks ended July 14, 2019.

Excluding costs per diluted share included in Other charges of $5.32 for goodwill impairment, $1.16 for restaurant asset impairment, $0.51 for restaurant closure and refranchising costs, $0.25 for litigation contingencies, $0.13 for board and stockholder matters costs, $0.05 for severance and executive transition, and $0.05 for COVID-19 related costs, adjusted loss per diluted share for the twenty-eight weeks ended July 12, 2020 was $9.91.

Excluding costs per diluted share included in Other charges of $0.80 for restaurant asset impairment, $0.13 for severance and executive transition, $0.08 for restaurant closure and refranchising costs, $0.07 for board and stockholder matters costs, and $0.02 for executive retention, adjusted earnings per diluted share for the twenty-eight weeks ended July 14, 2019 was $1.22.

• We believe the non-GAAP measure of adjusted (loss) earnings per share gives the reader additional insight into the ongoing operational results of the Company, and it is intended to supplement the presentation of the Company's financial results in accordance with GAAP.

Our Red Robin Royalty™ loyalty program operates in all our U.S.

• Marketing - Our Red Robin Royalty™ loyalty program operates in all our U.S.

Company-owned Red Robin restaurants and has been rolled out to most of our franchised restaurants.

We engage our Guests through Red Robin Royalty with offers designed to increase frequency of visits as a key part of our overall marketing strategy.

We also inform enrolled Guests early about new menu items to generate awareness and trial of these offerings.

Our media buying approach is concentrated on generating significant reach and frequency while on-air.

In addition, we use digital, social, and earned media to target and more effectively reach specific segments of our Guest base.

During the first quarter of 2020, we pivoted our focus to digital marketing, which has proven to be an effective medium for interacting with our Guests during the COVID-19 pandemic.

Our media buying approach has pivoted to prioritize digital, social, and owned channels including our website and email to effectively target and reach our Guests.

Restaurant Data

The following table details restaurant unit data for our Company-owned and franchised locations for the periods indicated:

Sixteen Weeks Ended

April 19, 2020 April 21, 2019

Twelve Weeks Ended Twenty-Eight Weeks Ended

July 12, 2020 July 14, 2019 July 12, 2020 July 14, 2019

Company-owned:

1 unchanged sentence

Closed during the period (1)

(2) (11) (4) (12)

End of period 450 472 450 472

Beginning of period 102 89 102 89

Opened during the period — 1 — 1

End of period 102 90 102 90

1 unchanged sentence

________________________________________________________

(1) In addition to two permanent closures during the sixteen weeks ended April 19, 2020, 35 Company-owned restaurant were temporarily closed due to an inability to effectively operate these restaurants with an off-premise only operating model during the COVID-19 pandemic.

(1) In addition to the permanent closures during the twelve and twenty-eight weeks ended July 12, 2020, 35 Company-owned restaurants remained temporarily closed due to the COVID-19 pandemic.

Results of Operations

2 unchanged sentences

Our operating results may fluctuate significantly as a result of a variety of factors, and operating results for any period presented are not necessarily indicative of results for a full fiscal year.

Sixteen Weeks Ended

April 19, 2020 April 21, 2019

Twelve Weeks Ended Twenty-Eight Weeks Ended

July 12, 2020 July 14, 2019 July 12, 2020 July 14, 2019

Restaurant revenue 99.4 % 98.2 % 98.8 % 97.9 %

12 unchanged sentences

Other charges 9.0 5.5 28.7 2.7

(Loss) income from operations (51.7) 0.8

Loss from operations (31.4) (4.2) (44.7) (1.3)

Interest expense, net and other 1.2 0.7 1.1 0.8

(Loss) income before income taxes (52.8) —

Income tax expense (benefit) 4.1 (0.1)

Loss before income taxes (32.6) (4.9) (45.8) (2.1)

Income tax provision (benefit) 2.3 (5.2) 3.5 (2.3)

Net (loss) income (34.9) % 0.3 % (49.4) % 0.2 %

1 unchanged sentence

Certain percentage amounts in the table above do not total due to rounding as well as restaurant operating costs being expressed as a percentage of restaurant revenue and not total revenues.

Sixteen Weeks Ended

(Revenues in thousands) April 19, 2020 April 21, 2019 Percent Change

Twelve Weeks Ended Twenty-Eight Weeks Ended

(Revenues in thousands) July 12, 2020 July 14, 2019 Percent Change July 12, 2020 July 14, 2019 Percent Change

Restaurant revenue $ 160,144 $ 302,418 (47.0) % $ 461,578 $ 702,902 (34.3) %

4 unchanged sentences

Net sales per square foot $ 62 $ 102 (39.5) % $ 171 $ 236 (27.5) %

Restaurant revenue for the sixteen weeks ended April 19, 2020, which comprises primarily food and beverage sales, decreased $99.1 million, or 24.7%, as compared to first quarter 2019.

The decrease was due to a $74.6 million, or 20.8%, decrease in comparable restaurant revenue and a $24.5 million decrease from closed restaurants.

The comparable restaurant revenue decrease was driven by a 20.9% decrease in Guest count partially offset by a 0.1 % increase in average Guest check.

The decrease in Guest count was primarily driven by a 22.0% decrease caused by the COVID-19 pandemic, partially offset by an increase in off-premise Guest count.

The increase in average Guest check resulted from a 1.6 % increase in pricing and a 0.3 % increase from lower discounting, partially offset by a 1.8% decrease in menu mix.

The decrease in menu mix was primarily driven by the Company's operating shift to off-premise only, resulting in lower sales of beverages and Finest burgers.

Off-premise sales increased 86.1% and comprised 26.3% of total food and beverage sales during the first quarter of 2020.

Restaurant revenue for the twelve weeks ended July 12, 2020, which comprises primarily of food and beverage sales, decreased $142.3 million, or 47.0%, as compared to second quarter 2019.

The decrease was due to a $112.8 million, or 41.4%, decrease in comparable restaurant revenue and a $29.5 million decrease primarily from closed restaurants.

The comparable restaurant revenue decrease was driven by a 38.5% decrease in Guest count and a 2.9% decrease in average Guest check.

The decrease in Guest count was primarily driven by a 36.2% decrease caused by the COVID-19 pandemic.

The decrease in average Guest check resulted from a 5.7% decrease in menu mix, partially offset by a 2.2 % increase in pricing and a 0.6 % increase from lower discounting.

The decrease in menu mix was primarily driven by limited dining room capacity at re-opened restaurants and operating off-premise only at restaurants with temporarily closed dining rooms, resulting in lower sales of beverages and Finest burgers.

Off-premise sales increased 208.7% and comprised 63.8% of total food and beverage sales during the second quarter of 2020.

Restaurant revenue for the twenty-eight weeks ended July 12, 2020, decreased $241.3 million or 34.3%, as compared to the twenty-eight weeks ended July 14, 2019.

The decrease was due to a $186.9 million, or 29.7%, decrease in comparable restaurant revenue and a $54.4 million decrease primarily from closed restaurants.

The comparable restaurant revenue decrease was driven by a 28.5% decrease in Guest count and a 1.2% decrease in average Guest check.

The decrease in Guest count was primarily driven by a 28.2% decrease caused by the COVID-19 pandemic.

The decrease in average Guest check resulted from a 3.4% decrease in menu mix, partially offset by a 1.8 % increase in pricing and a 0.4 % increase from lower discounting.

Off-premise sales increased 141.3% and comprised 39.7% of total food and beverage sales during the twenty-eight weeks ended July 12, 2020.

Average weekly sales volumes represent the total restaurant revenue for all Company-owned Red Robin restaurants for each time period presented, divided by the number of operating weeks in the period.

Comparable restaurant revenues include those restaurants that are in the comparable base at the end of each period presented.

The 35 temporarily closed Company-owned restaurants were not included in the comparable base during the first quarter of 2020.

The 35 temporarily closed Company-owned restaurants were not included in the comparable base for the twelve and twenty-eight weeks ended July 12, 2020.

New restaurants are restaurants that are open but not included in the comparable category because they have not operated for five full quarters.

1 unchanged sentence

Net sales per square foot represents the total restaurant revenue for Company-owned restaurants included in the comparable base divided by the total adjusted square feet of Company-owned restaurants included in the comparable base.

Franchise and other revenue decreased $4.8 million for the sixteen weeks ended April 19, 2020 compared to the sixteen weeks ended April 21, 2019 due to the temporary abatement of all franchisee royalty and advertising contribution payments in response to COVID-19's effect on our franchisee's operations.

Our franchisees reported a comparable restaurant revenue decrease of 23.3% for the sixteen weeks ended April 19, 2020 compared to the sixteen weeks ended April 21, 2019.

Franchise and other revenue decreased $4.6 million for the twelve weeks ended July 12, 2020 compared to the twelve weeks ended July 14, 2019 due to the temporary abatement of all franchisee royalty and advertising contribution payments in response to COVID-19's effect on our franchise operations.

During the latter half of our second fiscal quarter, however, we resumed charging and collecting partial royalty payments and advertising contributions from our franchisees.

Our franchisees reported a comparable restaurant revenue decrease of 41.0% for the twelve weeks ended July 12, 2020 compared to the same period in 2019.

Franchise and other revenue decreased $9.3 million for the twenty-eight weeks ended July 12, 2020 compared to the twenty-eight weeks ended July 14, 2019 due to the temporary abatement of franchisee royalty and advertising contribution payments in response to COVID-19's effect on our franchise operations.

During the latter half of our second fiscal quarter, however, we resumed charging and collecting partial royalty payments and advertising contributions from our franchisees.

Our franchisees reported a comparable restaurant revenue decrease of 31.3% for the twenty-eight weeks ended July 12, 2020 compared to the same period in 2019.

Cost of Sales

Sixteen Weeks Ended

(In thousands, except percentages) April 19, 2020 April 21, 2019 Percent Change

Twelve Weeks Ended Twenty-Eight Weeks Ended

(In thousands, except percentages) July 12, 2020 July 14, 2019 Percent Change July 12, 2020 July 14, 2019 Percent Change

Cost of sales $ 38,780 $ 72,387 (46.4) % $ 109,206 $ 166,102 (34.3) %

As a percent of restaurant revenue 24.2 % 23.9 % 0.3 % 23.7 % 23.6 % 0.1 %

Cost of sales, which comprises food and beverage costs, is variable and generally fluctuates with sales volume.

Cost of sales as a percentage of restaurant revenue remained flat for the sixteen weeks ended April 19, 2020 as compared to the same period in 2019.

A decrease in beverage costs was offset by an increase in ground beef prices.

Sixteen Weeks Ended

(In thousands, except percentages) April 19, 2020 April 21, 2019 Percent Change

Cost of sales, which comprises of food and beverage costs, is variable and generally fluctuates with sales volume.

Cost of sales as a percentage of restaurant revenue increased 30 basis points for the twelve weeks ended July 12, 2020 as compared to the same period in 2019.

The increase was primarily driven by higher ground beef prices, partially offset by discounts and lower waste.

Cost of sales as a percentage of restaurant revenue increased 10 basis points for the twenty-eight weeks ended July 12, 2020 as compared to the same period in 2019.

The increase was mainly driven by higher ground beef prices.

Twelve Weeks Ended Twenty-Eight Weeks Ended

(In thousands, except percentages) July 12, 2020 July 14, 2019 Percent Change July 12, 2020 July 14, 2019 Percent Change

Labor $ 62,742 $ 106,538 (41.1) % $ 181,308 $ 249,432 (27.3) %

1 unchanged sentence

Labor costs include restaurant-level hourly wages and management salaries as well as related taxes and benefits.

For the sixteen weeks ended April 19, 2020, labor as a percentage of restaurant revenue increased 360 basis points compared to the same period in 2019.

The increase was primarily due to sales deleverage, higher wage rates, and higher group insurance costs partially offset by lower restaurant manager incentive compensation.

For the twelve weeks ended July 12, 2020, labor as a percentage of restaurant revenue increased 400 basis points compared to the same period in 2019.

The increase was primarily due to sales deleverage and higher hourly wage and benefit rates driven by shifting labor mix in support of our off-premise operating model, partially offset by lower restaurant manager incentive compensation.

For the twenty-eight weeks ended July 12, 2020, labor as a percentage of restaurant revenue increased 380 basis points compared to the same period in 2019.

The increase was primarily driven by sales deleverage and higher hourly wage and benefit rates driven by shifting labor mix in support of our off-premise operating model, partially offset by lower restaurant manager incentive compensation.

Other Operating

Sixteen Weeks Ended

(In thousands, except percentages) April 19, 2020 April 21, 2019 Percent Change

Twelve Weeks Ended Twenty-Eight Weeks Ended

(In thousands, except percentages) July 12, 2020 July 14, 2019 Percent Change July 12, 2020 July 14, 2019 Percent Change

Other operating $ 34,663 $ 43,000 (19.4) % $ 86,954 $ 98,565 (11.8) %

1 unchanged sentence

Other operating costs include costs such as equipment repairs and maintenance costs, restaurant supplies, utilities, restaurant technology, and other miscellaneous costs.

For the sixteen weeks ended April 19, 2020, other operating costs as a percentage of restaurant revenue increased 340 basis points as compared to the same period in 2019.

The increase was primarily du e to an increase in third-party delivery fees driven by higher off-premise sales volumes and sales deleverage impacts on restaurant maintenance, technology, supply, and utility costs.

Sixteen Weeks Ended

(In thousands, except percentages) April 19, 2020 April 21, 2019 Percent Change

For the twelve weeks ended July 12, 2020, other operating costs as a percentage of restaurant revenue increased 730 basis points as compared to the same period in 2019.

The increase was primarily due to higher third-party delivery fees driven by higher off-premise sales volumes and sales deleverage impacts on restaurant supply, utility, and technology costs, partially offset by a decrease in restaurant maintenance costs.

For the twenty-eight weeks ended July 12, 2020, other operating costs as a percentage of restaurant revenue increased 480 basis points as compared to the same period in 2019.

Twelve Weeks Ended Twenty-Eight Weeks Ended

(In thousands, except percentages) July 12, 2020 July 14, 2019 Percent Change July 12, 2020 July 14, 2019 Percent Change

Occupancy $ 20,758 $ 25,458 (18.5) % $ 54,415 $ 60,478 (10.0) %

2 unchanged sentences

Occupancy costs incurred prior to opening our new restaurants are included in pre-opening costs.

For the sixteen weeks ended April 19, 2020, occupancy costs as a percentage of restaurant revenue increased 250 basis points over the same periods in 2019 primarily due to sales deleverage impacts on rent expense and general liability and other real estate costs.

Our fixed rents for the sixteen weeks ended April 19, 2020 and April 21, 2019 were $21.6 million and $23.2 million, a decrease of $1.6 million due to permanent restaurant closures.

For the twelve weeks ended July 12, 2020, occupancy costs as a percentage of restaurant revenue increased 460 basis points compared to the same period in 2019 primarily due to sales deleverage impacts on rent expense and other real estate costs.

For the twenty-eight weeks ended July 12, 2020, occupancy costs as a percentage of restaurant revenue increased 320 basis points compared to the same period in 2019 primarily due to sales deleverage impacts on rent expense and general liability and other real estate costs.

Our fixed rents for the twelve weeks ended July 12, 2020 and July 14, 2019 were $14.7 million and $17.0 million, a decrease of $2.3 million due to permanent restaurant closures.

Our fixed rents for the twenty-eight weeks ended July 12, 2020 and July 14, 2019 were $36.3 million and $40.2 million, a decrease of $3.9 million due permanent restaurant closures.

Depreciation and Amortization

Sixteen Weeks Ended

(In thousands, except percentages) April 19, 2020 April 21, 2019 Percent Change

Twelve Weeks Ended Twenty-Eight Weeks Ended

(In thousands, except percentages) July 12, 2020 July 14, 2019 Percent Change July 12, 2020 July 14, 2019 Percent Change

Depreciation and amortization $ 20,560 $ 21,369 (3.8) % $ 48,880 $ 49,807 (1.9) %

1 unchanged sentence

Depreciation and amortization includes depreciation on capital expenditures for restaurants and corporate assets as well as amortization of acquired franchise rights, leasehold interests, and certain liquor licenses.

For the sixteen week periods ended April 19, 2020, depreciation and amortization expense as a percentage of revenue increased 240 basis points over the same periods in 2019 primarily due to sales deleverage.

For the twelve week periods ended July 12, 2020, depreciation and amortization expense as a percentage of revenue increased 590 basis points over the same period in 2019 primarily due to sales deleverage.

For the twenty-eight weeks ended July 12, 2020, depreciation and amortization expense as a percentage of revenue increased 360 basis points over the same period in 2019 primarily due to sales deleverage.

Selling, General, and Administrative

Sixteen Weeks Ended

(In thousands, except percentages) April 19, 2020 April 21, 2019 Percent Change

Twelve Weeks Ended Twenty-Eight Weeks Ended

(In thousands, except percentages) July 12, 2020 July 14, 2019 Percent Change July 12, 2020 July 14, 2019 Percent Change

Selling, general, and administrative $ 19,697 $ 35,234 (44.1) % $ 61,199 $ 83,350 (26.6) %

7 unchanged sentences

and board of directors expenses.

Selling, general, and administrative costs in the sixteen weeks ended April 19, 2020 decreased $6.6 million, or 13.7%, as compared to the same period in 2019.

The decrease was primarily due to decreased national media spend, Team Member benefits, and travel and entertainment, professional services, gift card related, and project-related G&A costs, partially offset by increased Team Member salary and wages stemming from merit salary increases.

Selling, general, and administrative costs in the twelve weeks ended July 12, 2020 decreased $15.5 million, or 44.1%, as compared to the same period in 2019.

The decrease was primarily due to decreased national and local media spend, decreased Team Member salaries and wages resulting from the reduction in force and temporary salary reductions, and decreased Team Member benefits, travel and entertainment, professional services, and gift card related costs.

For the twenty-eight weeks ended July 12, 2020, selling, general, and administrative costs decreased $22.2 million, or 26.6%, as compared to the same period in 2019.

The decrease was primarily related to a decrease in national and local media spend, decreased Team Member salaries and wages resulting from the reduction in force and temporary salary reductions, and decreased Team Member benefits, travel and entertainment, professional services, gift card, and project related general and administrative costs.

Pre-opening Costs

Sixteen Weeks Ended

(In thousands, except percentages) April 19, 2020 April 21, 2019 Percent Change

Twelve Weeks Ended Twenty-Eight Weeks Ended

(In thousands, except percentages) July 12, 2020 July 14, 2019 Percent Change July 12, 2020 July 14, 2019 Percent Change

Pre-opening costs $ 3 $ — — % $ 156 $ 319 (51.1) %

3 unchanged sentences

Pre-opening costs for any given quarter will typically include expenses associated with restaurants opened during the quarter as well as expenses related to restaurants opening in subsequent quarters.

We incurred minimal pre-opening costs during the sixteen weeks ended April 19, 2020 relating to the roll out of Donatos® in select restaurants, which is a decrease of $0.2 million as compared to the same period in 2019.

The decrease was driven by the Company temporarily suspending the introduction of Donatos® to additional restaurants due to the impact of COVID-19 on the business.

We incurred minimal pre-opening costs during the twelve and twenty-eight weeks ended July 12, 2020 related to the rollout of Donatos®.

Prior to the COVID-19 pandemic, we purchased Donatos® equipment for the Seattle market, including approximately 31 restaurants.

We currently plan to resume our roll out of Donatos® in this legacy market by the end of the year.

The Company determined the sustained decrease in our stock price coupled with the closure of our dining rooms and significant decline to the equity value of our peers and overall U.S.

stock market represented a goodwill impairment triggering event.

We performed a quantitative analysis as of our first quarter ended April 19, 2020 to determine if impairment to our goodwill existed for our one reporting unit.

We used a blended approach in calculating fair value of our one reporting unit including the income approach, market approach, and market capitalization approach.

This analysis resulted in full impairment of our goodwill balance totaling $95.4 million recognized during the sixteen weeks ended April 19, 2020 included in Other charges on the condensed consolidated statement of operations and comprehensive (loss) income.

The goodwill impairment was measured as the amount by which the carrying amount of the reporting unit, including goodwill, exceeded its fair value.

We currently plan to resume our rollout of Donatos® in this legacy market by the end of the year.

The Company will resume its phased system-wide rollout of Donatos® beginning in 2021.

We performed a goodwill impairment analysis during the first quarter of 2020 resulting in full impairment of our goodwill balance totaling $95.4 million.

The goodwill impairment is included in Other charges on the condensed consolidated statements of operations and comprehensive (loss) income for the twenty-eight weeks ended July 12, 2020 and was measured as the amount by which the carrying amount of the reporting unit, including goodwill, exceeded its fair value.

Restaurant Assets

The Company determined the triggering event described above also represented a restaurant asset impairment triggering event.

The Company recognized $15.5 million of impairment related to restaurant assets during the sixteen weeks ended April 19, 2020 included in Other charges on the condensed consolidated statement of operations and comprehensive (loss) income resulting from the continuing and projected future results of 24 Company-owned restaurants.

During the twelve weeks ended July 12, 2020, the Company recognized $5.3 million of impairment related to restaurant assets included in Other charges on the condensed consolidated statements of operations and comprehensive (loss) income resulting from the continuing and projected future results of 6 Company-owned restaurants.

Restaurant asset impairment of $2.3 million was related to 4 closed Company-owned restaurants and included in Restaurant closure and refranchising costs in Note 7, Other Charges .

Additional restaurant asset impairment was recognized during the twelve weeks ended July 12, 2020 due to changes in management's forecast.

Although current fiscal year to date results continue to align with management's forecast, the increase in reported COVID-19 cases across the United States and factors associated with the pandemic have changed management's expectation on the timing of the Company's recovery and projected results in future fiscal periods at certain restaurants.

If reported COVID-19 cases continue to increase or other factors associated with the pandemic continue to develop, management's forecast could change in future periods requiring additional restaurant asset impairment.

The Company recognized $15.5 million of impairment related to restaurant assets during the first quarter of 2020 resulting from the continuing and projected future results of 24 Company-owned restaurants.

The restaurant asset impairment is included in Other charges on the condensed consolidated statements of operations and comprehensive (loss) income for the twenty-eight weeks ended July 12, 2020.

Recoverability of restaurant assets, including restaurant sites, leasehold improvements, information technology systems, right-of-use assets, amortizable intangible assets, and other fixed assets, to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted net cash flows expected to be generated by the assets.

5 unchanged sentences

The restaurant asset impairment charges represent the excess of the carrying amount over the estimated fair value of the restaurant assets calculated using a discounted cash flow projection model.

Additional restaurant asset impairment may be required to be recognized if the COVID-19 pandemic continues to negatively impact our business.

Interest Expense, Net and Other

Interest expense, net and other was $3.4 million for the sixteen weeks ended April 19, 2020, an increase of $0.2 million, or 6.2%, from the same period in 2019.

The increase was primarily related to a higher weighted average outstanding debt balance partially offset by a lower weighted average interest rate compared to the same period in 2019.

Our weighted average interest rate was 4.7% for the sixteen weeks ended April 19, 2020 as compared to 5.0% for the sixteen weeks ended April 21, 2019.

Interest expense, net and other was $2.0 million for the twelve weeks ended July 12, 2020, a decrease of $0.2 million, or 9.1%, compared to the same period in 2019.

The decrease was primarily related to a lower weighted average interest rate, partially offset by a higher average outstanding debt balance compared to the same period in 2019.

Our weighted average interest rate was 4.2% for the twelve weeks ended July 12, 2020 as compared to 5.2% for the same period in 2019.

Interest expense, net and other was $5.3 million for the twenty-eight weeks ended July 12, 2020, a decrease of $0.1 million, or 1.9%, compared to the same period in 2019.

The decrease was primarily related to a lower weighted average interest rate, partially offset by a higher average outstanding debt balance compared to the same period in 2019.

Our weighted average interest rate was 4.2% for the twenty-eight weeks ended July 12, 2020 as compared to 5.0% for the same period in 2019.

Provision for Income Taxes

The effective tax rate for the sixteen weeks ended April 19, 2020 was a 7.9% expense, compared to a 291.4% benefit for the sixteen weeks ended April 21, 2019.

The increase in tax expense is primarily due to a decrease in current year tax credits and the recognition of a valuation allowance on our tax credit deferred tax asset, partially offset by a decrease in income and favorable rate impact of net operating loss ("NOL") carrybacks allowed as part of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, which could generate up to $12 million of projected cash tax refunds within the next 12 months.

The effective tax rate for the twelve weeks ended July 12, 2020 was a 7.0% expense, compared to a 106.5% benefit for the twelve weeks ended July 14, 2019.

The effective tax rate for the twenty-eight weeks ended July 12, 2020 was a 7.7% expense, compared to a 110.9% benefit for the same period in 2019.

The increase in tax expense for both the twelve and twenty-eight weeks ended July 12, 2020 is primarily due to a decrease in current year tax credits and the recognition of a valuation allowance on our tax credit deferred tax asset, partially offset by a decrease in income and favorable rate impact of net operating loss ("NOL") carrybacks allowed as part of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, which could generate projected cash tax refunds in the range of $14 million to $17 million within the next 12 months.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

3 unchanged sentences

As a result of the anticipated NOLs in 2019 and the projected NOLs in 2020 as permitted under the CARES Act, approximately $58 million of the previously utilized FICA tip tax credits will be reinstated.

While the existing FICA tip credit carryforwards as of April 19, 2020 will be utilized based on projected future taxable income, they are anticipated to be replaced by originating FICA tip credits that are not projected to be utilized in the carry forward period.

Therefore, a $52 million valuation allowance has been established for the FICA tip credit carryforwards.

While the existing FICA tip credit carryforwards as of July 12, 2020 will be utilized based on projected future taxable income, they are anticipated to be replaced by originating FICA tip credits that are not projected to be utilized in the carry forward period.

Therefore, through the twenty-eight weeks ended July 12, 2020, a $79 million valuation allowance has been established for the FICA tip credit carryforwards.

$27 million of the valuation allowance was recognized during the twelve weeks ended July 12, 2020.

To the extent future actual taxable income exceeds the current projections, the FICA tip credit carryforwards may become realizable and will require us to reassess our valuation allowance in the future.

Liquidity and Capital Resources

Cash and cash equivalents increased $58.9 million to $88.9 million at April 19, 2020, from $30.0 million at the beginning of the fiscal year.

Cash and cash equivalents decreased $3.9 million to $26.1 million at July 12, 2020, from $30.0 million at the beginning of the fiscal year.

As the Company continues to manage the impact of COVID-19, available cash will be used to provide operating liquidity.

As of June 7, 2020, the Company had $30.0 million of cash on hand and $54.0 million of available borrowing capacity under its revolving line of credit.

As of August 9, 2020, the Company had more than $103 million in total liquidity including cash and cash equivalents and available borrowing capacity under our revolving line of credit.

The table below summarizes our cash flows from operating, investing, and financing activities for each period presented (in thousands):

Sixteen Weeks Ended

April 19, 2020 April 21, 2019

Twenty-Eight Weeks Ended

July 12, 2020 July 14, 2019

Net cash (used in) provided by operating activities $ (18,607) $ 41,746

1 unchanged sentence

Net cash provided by (used in) financing activities 26,369 (13,246)

Effect of currency translation on cash (840) 21

Net increase (decrease) in cash and cash equivalents $ 58,875 $ 4,390

Effect of exchange rate changes on cash (256) 115

Net change in cash and cash equivalents $ (3,907) $ 7,625

Operating Cash Flows

Net cash flows (used in) provided by operating activities decreased $38.6 million to $13.3 million for the sixteen weeks ended April 19, 2020.

Net cash flows (used in) provided by operating activities decreased $60.4 million to $18.6 million for the twenty-eight weeks ended July 12, 2020.

The changes in net cash (used in) provided by operating activities are primarily attributable to a $70.2 million decrease in profit from operations, as well as changes in working capital as presented in the condensed consolidated statements of cash flows.

Investing Cash Flows

Net cash flows used in investing activities decreased $1.4 million to $8.7 million for the sixteen weeks ended April 19, 2020, as compared to $10.1 million for the same period in 2019.

The decrease is primarily due to decreased investment in restaurant technology and new restaurants and restaurant refreshes.

The following table lists the components of our capital expenditures, net of currency translation effect, for the sixteen weeks ended April 19, 2020 and April 21, 2019 (in thousands):

Sixteen Weeks Ended

April 19, 2020 April 21, 2019

Net cash flows used in investing activities decreased $9.6 million to $11.4 million for the twenty-eight weeks ended July 12, 2020, as compared to $21.0 million for the same period in 2019.

The decrease is primarily due to decreased investment in restaurant technology, restaurant maintenance, and new restaurants and restaurant refreshes due to the COVID-19 pandemic.

The following table lists the components of our capital expenditures, net of currency translation effect, for the twenty-eight weeks ended July 12, 2020 and July 14, 2019 (in thousands):

Twenty-Eight Weeks Ended

July 12, 2020 July 14, 2019

Restaurant maintenance capital and other $ 7,194 $ 8,331

Investment in technology infrastructure and other 4,262 11,862

New restaurants — 838

New restaurants and restaurant refreshes — 975

Total capital expenditures $ 11,456 $ 21,168

Financing Cash Flows

Cash provided by financing activities increased $92.6 million to $81.7 million for the sixteen weeks ended April 19, 2020, as compared to the same period in 2019.

The increase primarily resulted from a $94.2 million increase in net draws made on long-term debt, partially offset by an increase of cash used for debt issuance costs and repurchases of the Company’s common stock before the Company temporarily suspended the share repurchase program due to COVID-19.

Cash provided by (used in) financing activities increased $39.6 million to $26.4 million for the twenty-eight weeks ended July 12, 2020, as compared to the same period in 2019.

The increase is due to cash proceeds received from the issuance of common stock, net of cash paid for stock issuance costs, of $29.7 million and a $13.1 million decrease in net draws made on long-term debt.

The increase was partially offset by an increase of cash used for debt issuance costs and repurchases of the Company's common stock before the Company temporarily suspended the share repurchase program due to COVID-19.

The net cash proceeds from issuance of common stock of $29.7 million do not include unpaid, accrued stock issuance costs of approximately $1.0 million.

Credit Facility

On January 10, 2020, the Company replaced its prior credit facility with a new five-year Amended and Restated Credit Agreement (the "Credit Facility") which provides for a $161.5 million revolving line of credit and a $138.5 million term loan for a total borrowing capacity of $300 million.

No amortization is required with the respect to the revolving line of credit, and the term loans require quarterly principal payments at a rate of 7.0% per annum of the original principal balance.

The interest rates of the revolving line of credit and term loans are based on either LIBOR or a base rate defined by the agreement.

The interest rates of the revolving line of credit and term loans are based on the London Interbank Offered Rate ("LIBOR").

LIBOR is set to terminate in December 2021, however, we anticipate an amended credit agreement will be executed at the new applicable interest rate.

See Note 8, Borrowings , in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for further discussion.

As of April 19, 2020, the Company had outstanding borrowings under the Credit Facility of $290 million, in addition to to amounts issued under letters of credit of $7.5 million.

As of July 12, 2020, the Company had outstanding borrowings under the Credit Facility of $206.6 million, of which $9.7 million was classified as current, in addition to amounts issued under letters of credit of $7.5 million.

Amounts issued under letters of credit reduce the amount available under the Credit Facility but are not recorded as debt.

As of April 19, 2020, we had no remaining borrowing capacity under the Credit Facility to help mitigate the impact of COVID-19 on our business and provide operating liquidity.

Net draws during the quarter totaled $84 million.

Per the maximum cash balance limitation required in the First Amendment to the Credit Agreement and Waiver (the "Amendment") to our Credit Facility, the Company made a $59 million repayment on the revolving line of credit on May 29, 2020 to ensure cash on hand did not exceed $30 million.

See Note 2, COVID-19 Pandemic , in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion of the Amendment.

As of July 12, 2020, the Company had $81.1 million of available borrowing capacity under its credit facility.

Net repayments during the second quarter of 2020 totaled $83.4 million, and net draws during the twenty-eight weeks ended July 12, 2020 totaled $0.6 million.

See Note 8, Borrowings , in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion of the Amendment.

We are subject to a number of customary covenants under our Credit Facility, including limitations on additional borrowings, acquisitions, stock repurchases, sales of assets, and dividend payments.

As of April 19, 2020, we were not in compliance with our debt covenants due to the negative effects on our business from the COVID-19 pandemic.

As a result, we entered into the Amendment to our Credit Facility, which waives compliance with the lease adjusted leverage ratio financial covenant and fixed charge coverage ratio financial covenant for the remainder of fiscal 2020 providing the Company issues new equity (or convertible debt) generating net cash proceeds of at least $25 million on or before November 13, 2020.

Going Concern

The Company is actively evaluating options for raising equity capital in order to satisfy the requirements of the Amendment.

If the Company is unable to raise sufficient equity capital within the timeframe prescribed by the Amendment, and is unable to obtain a further waiver or amendment to the Credit Facility, then the Company could experience an event of default under the Credit Facility, which could have a material adverse effect on the Company's liquidity, financial condition, and results of operations.

We cannot make any assurance regarding the likelihood, certainty, or exact timing of the Company's ability to raise capital or execute further amendments to the Credit Facility.

As a result, under applicable accounting standards, the Company concluded, because the equity raise is outside of management's control, substantial doubt exists surrounding the Company's ability to meet its obligations within one year of the financial statement issuance date and to continue as a going concern.

During the first quarter of 2020, we were not in compliance with our debt covenants due to the negative effects on our business from the COVID-19 pandemic.

As a result, we entered into the Amendment to our Credit Facility, which waives compliance with the lease adjusted leverage ratio financial covenant ("LALR ratio") and fixed charge coverage ratio financial covenant ("FCC ratio") for the remainder of fiscal 2020 and allows adjustments during the first three fiscal quarters of 2021 to the LALR ratio, including increasing the maximum LALR ratio permitted and allowing the use of a seasonally adjusted annualized consolidated EBITDA in the LALR ratio calculation, and to the FCC ratio, including only being calculated for applicable periods since the beginning of 2021, providing the Company issued new equity (or convertible debt) generating net cash proceeds of at least $25 million on or before November 13, 2020.

The equity issuance requirement was satisfied on June 17, 2020 as described below.

Going Concern - Substantial Doubt Resolved

As required by ASC Topic 205-40, Presentation of Financial Statements - Going Concern , management has assessed the Company's ability to continue as a going concern for one year from the financial statement issuance date for the fiscal quarter ended July 12, 2020.

On May 29, 2020, the Company obtained the Amendment to the Credit Facility.

The Amendment provided relief from our existing events of default under the Credit Facility and provided covenant relief subject to the successful completion of a $25 million capital raise on or before November 13, 2020, as further disclosed in Note 8, Borrowings, in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.

As of the issuance date of our first quarter 2020 financial statements, the Company disclosed, as required under applicable accounting standards, that substantial doubt existed surrounding the Company's ability to meet its obligations within one year of the issuance date of the first quarter Form 10-Q because the capital raise was outside of management's control at the time.

On June 17, 2020, the Company issued 2.6 million shares of common stock raising proceeds of $28.7 million, net of stock issuance costs, through its at-the-market equity offering.

The equity raise satisfied the terms of the Amendment, and management expects to remain in compliance with the Credit Facility covenants for at least twelve months from the issuance of the July 12, 2020 Form 10-Q.

Management has concluded there is not a substantial doubt regarding the Company’s ability to continue as a going concern.

Debt Outstanding

Total debt outstanding increased $84.0 million to $290.9 million at April 19, 2020 , from $206.9 million at December 29, 2019, due to net draws of $84 million on the Credit Facility during the sixteen weeks ended April 19, 2020 .

Total debt outstanding increased $0.6 million to $207.5 million at July 12, 2020 , from $206.9 million at December 29, 2019, due to net draws of $0.6 million on the Credit Facility during the twenty-eight weeks ended July 12, 2020 .

Working Capital

6 unchanged sentences

We believe our future cash flows generated from restaurant operations combined with our remaining borrowing capacity under the Credit Facility will be sufficient to satisfy any working capital deficits and our planned capital expenditures.

However, the Company has recently leveraged its Credit Facility to provide operating liquidity as compared to cash received from restaurant sales during the COVID-19 pandemic due to restaurant dining room closures and our operational shift to off-premise only.

As the COVID-19 pandemic continues to negatively impact our business, the Company is closely monitoring the effects on our working capital deficit and continues to assess other sources of operating liquidity including, but not limited to, raising additional capital, lease concessions and deferrals, and further reductions of operating and capital expenditures.

However during fiscal year 2020, the Company has leveraged its Credit Facility and issuance of common stock to provide operating liquidity as compared to cash received from restaurant sales during the COVID-19 pandemic due to temporary restaurant dining room closures, re-opened dining rooms operating at limited capacity, and our increased reliance on off-premise sales.

As the COVID-19 pandemic continues to negatively impact our business, the Company is closely monitoring the effects on our working capital deficit and continues to assess other sources of operating liquidity including, but not limited to, raising additional capital, pursuing additional lease concessions and deferrals, and further reductions of operating and capital expenditures.

Share Repurchase

2 unchanged sentences

Pursuant to the repurchase program, purchases may be made from time to time at the Company's discretion and the Company is not obligated to acquire any particular amount of common stock.

From the date of the current program approval through April 19, 2020, we have repurchased a total of 226,500 shares at an average price of $29.14 per share for an aggregate amount of $6.6 million.

Accordingly, as of April 19, 2020, we had $68.4 million of availability under the current share repurchase program.

From the date of the current program approval through July 12, 2020, we have repurchased a total of 226,500 shares at an average price of $29.14 per share for an aggregate amount of $6.6 million.

Accordingly, as of July 12, 2020, we had $68.4 million of availability under the current share repurchase program.

Effective March 14, 2020, the Company temporarily suspended its share repurchase program to provide additional liquidity during the COVID-19 pandemic.

Our ability to repurchase shares is limited to conditions set forth by our lenders in the Amendment to our Credit Facility prohibiting us from repurchasing additional shares until the later of (a) the Company's delivery of a compliance certificate for the fiscal quarter ending on or about July 11, 2021 demonstrating compliance with the financial covenants then in effect and (b) the Company satisfying an agreed ratio under its Leverage Ratio Covenant for the most recently ended fiscal quarter or fiscal year, as applicable.

Our ability to repurchase shares is limited to conditions set forth by our lenders in the Amendment to our Credit Facility prohibiting us from repurchasing additional shares until the later of (a) the Company's delivery of a compliance certificate for the fiscal quarter ending on or about July 11, 2021 demonstrating compliance with the financial covenants then in effect or (b) the Company satisfying an agreed ratio under its Leverage Ratio Covenant for the most recently ended fiscal quarter or fiscal year, as applicable.

The primary inflationary factors affecting our operations are food, labor costs, energy costs, and materials used in the construction of new restaurants.

1 unchanged sentence

Many of our leases require us to pay taxes, maintenance, repairs, insurance, and utilities, all of which are generally subject to inflationary increases.

Labor cost inflation had a negative impact on our financial condition and results of operations during the sixteen weeks ended April 19, 2020.

Labor cost inflation had a negative impact on our financial condition and results of operations during the twenty-eight weeks ended July 12, 2020.

Uncertainties related to fluctuations in costs, including energy costs, commodity prices, annual indexed or potential minimum wage increases, and construction materials make it difficult to predict what impact, if any, inflation may continue to have on our business, but it is anticipated inflation will have a negative impact on labor costs for the remainder of 2020.

4 unchanged sentences

Contractual Obligations

There were no material changes outside the ordinary course of business to our contractual obligations since the filing of Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2019, except for long-term debt obligations resulting from the changes to our Credit Facility in January 2020 as previously discussed.

Contractual long-term debt payments as of April 19, 2020 are as follows (in thousands):

Payments Due by Period

Total 2020 2021 - 2022 2023 - 2024 2025 and Thereafter

Long-term debt obligations (1)

$ 344,588 $ 15,138 $ 42,116 $ 42,116 $ 245,218

________________________________________________________

(1) Long-term debt obligations primarily represent minimum required principal payments under our Credit Facility including estimated interest of $53.5 million based on a 3.91% average borrowing interest rate.

There were no other material changes outside the ordinary course of business to our contractual obligations since the filing of Company's Quarterly Report on Form 10-Q for the fiscal quarter ended April 19, 2020, except for lease obligations as a result of contractual rent concessions negotiated by the Company during the fiscal quarter ended July 12, 2020.

See the maturity of lease liabilities table in Note 4, Leases , in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Critical Accounting Policies and Estimates

4 unchanged sentences

Recently Issued and Recently Adopted Accounting Standards

See Note 1, Basis of Presentation and Recent Accounting Pronouncements , of Notes to Condensed Consolidated Financial Statements of this report.

See Note 1, Basis of Presentation and Recent Accounting Pronouncements , of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Forward-Looking Statements

3 unchanged sentences

These statements may be identified, without limitation, by the use of forward-looking terminology such as "anticipate," "assume," "believe," "estimate," "could," "expect," "future," "intend," "may," "plan," "project," "will," "would," and similar expressions.

Certain forward-looking statements are included in this Quarterly Report on Form 10-Q, principally in the sections captioned “Financial Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements in this report include, among other things:

our financial performance, strategic initiatives, marketing strategy and promotions;

Certain forward-looking statements are included in this Quarterly Report on Form 10-Q, principally in the sections captioned "Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Forward-looking statements in this report include, among other things statements regarding:

our financial performance, strategic plan and turnaround, marketing strategy and promotions;

expected uses for available cash flow;

1 unchanged sentence

beliefs about the ability of our lenders to fulfill their lending commitments under our Credit Facility and about the sufficiency of future cash flows to satisfy any working capital deficit and planned capital expenditures;

liquidity, the ability to meet financial covenant ratios in future periods, and the Company's ability to continue as a going concern for the next twelve months;

projected cash tax refunds;

the anticipated effects of inflation on labor and commodity costs;

future performance including sales, guest satisfaction scores, preliminary results including net comparable restaurant revenue, average net sales per restaurant, cash burn, and liquidity;

statements under the heading "Second Quarter Business and Operational Update," anticipated rollout of Donatos in our Seattle market;

future performance including sales and off premise sales;

preliminary results including weekly net comparable restaurant revenues and average net sales per restaurant;

average cash burn rate and underlying assumptions including occupancy payments;

expectations regarding dining room re-openings and closures;

statements under the heading "COVID-19 Pandemic", anticipated rollout of Donato's ® and the timing thereof;

and the effect of the adoption of new accounting standards on our financial and accounting systems.

17 unchanged sentences

the adequacy of cash flows or available access to capital or debit resources under our Credit Facility or otherwise to fund operations and growth opportunities;

the ability to obtain equity financing as required under our Credit Facility;

costs and other effects of legal claims by Team Members, franchisees, customers, vendors, stockholders, including relating to fluctuations in our stock price, and others, including settlement of those claims or negative publicity regarding food safety or cyber security;

17 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis