What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-05 compared with 2020-08-11 · 190 added, 244 removed, 183 unchanged (70% 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 twelve and twenty-eight weeks ended July 12, 2020 and July 14, 2019, unless otherwise indicated.

All comparisons under this heading between 2020 and 2019 refer to the twelve and forty weeks ended October 4, 2020 and October 6, 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 547 locations in North America.

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.

As of October 4, 2020, the Company owned 444 restaurants located in 38 states.

The Company also had 103 franchised full-service restaurants in 16 states and one Canadian province.

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 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.

Company Response to COVID-19 Pandemic

Due to the novel coronavirus ("COVID-19") pandemic, we continue to navigate an unprecedented time for our business and industry.

During the third quarter of 2020, the Company continued to expand outdoor seating capacity at reopened Company-owned restaurants in accordance with local limits.

Reopening dining rooms and expanding seating capacity 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 and Prevention, 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)%

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)

We remain focused on expanding indoor and outdoor seating capacity, retaining off-premise sales levels, and consistently delivering a great Guest experience to continue to drive our improving sales.

We expect to build further sales momentum from additional seating expansion, including use of outdoor all-weather tents and indoor booth partitions.

We also continue to require Guests to wear face coverings at all locations while entering, exiting, and walking around our restaurants, and face masks are provided 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 reopened, 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 reopened dining rooms are retaining meaningful off-premise sales, demonstrating the enduring and growing popularity of Red Robin for off-premise occasions.

We have secured the Company's long-term viability through increased liquidity from our at-the-market equity offering, reductions in overhead costs, receipt of a $49.4 million federal cash tax refund subsequent to the third quarter balance sheet date, including interest, provided under the provisions of the CARES Act, and $12 million to $15 million of additional federal cash tax refunds expected to be received in 2021.

This allows us to resume full implementation of the Company's previously disclosed strategic plan to transform the business and create long-term stockholder value through delivering best-in-class execution, including implementing our TGX hospitality model, rolling out Donatos® Pizza, optimizing the restaurant portfolio, and enhancing our technological and digital capabilities to drive increased Guest engagement and frequency with our brand.

The Company was required to re-close dining rooms during the second fiscal quarter 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.

These indoor dining rooms have started to reopen during the third fiscal quarter, while maintaining improved off-premise performance.

Each of our franchisees' restaurants remained open as of the end of our third fiscal quarter, and we started charging and collecting full royalty payments and advertising contributions from our franchisees as of the end of our third fiscal quarter.

As of November 1, 2020, the Company has reopened 370 total (comparable and non-comparable) indoor dining rooms with limited capacity, representing approximately 89% of currently open Company-owned restaurants.

Notably, these restaurants have on average maintained off-premise sales that are approximately 35% of sales mix after reopening dining rooms.

As of the filing date of this Form 10-Q, 18 restaurants remain temporarily closed due to the COVID-19 pandemic.

We will continue to evaluate the potential timing of reopening these remaining temporarily closed restaurants.

Restaurant operating level expenses incurred for these restaurants during the temporary closures have been recorded in Restaurant closure and refranchising costs (gains) in Other charges (gains);

see Note 7, Other Charges (Gains) , 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 weekly net sales per Company-owned restaurant with reopened indoor dining rooms for the Company's 28 day accounting periods through November 1, 2020 is as follows:

Period Ended (2)

Reopened Company-owned Restaurant Indoor Dining Rooms 9-Aug 6-Sept 4-Oct 1-Nov (3)

Net comparable restaurant revenues (29.1)% (20.1)% (9.5)% (13.7)%

Average weekly net sales per restaurant $38,779 $41,272 $43,034 $42,778

# of comparable Company-owned restaurants (1)

340 347 381 362

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(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-operated Restaurants (2)

(1) Net sales performance for Company-owned restaurants with reopened indoor dining rooms for the full period presented.

Restaurant count is as of the end of the period presented.

(2) The period ended August 9, September 6, and October 4, 2020 comprise the Company's third fiscal quarter.

The period ended November 1, 2020 falls within our fourth fiscal quarter, and amounts presented for the period are preliminary.

(3) Sales performance at restaurants with reopened dining rooms during the period ended November 1, 2020 was negatively impacted by rising COVID-19 cases resulting in new restrictions lowering dining room capacity in certain states and localities.

The negative impact was partially offset by sales benefits from expanded outdoor seating and increased use of booth partitions, improved off-premise sales performance in California, and average check growth during the period.

Additionally, Halloween shifted from a Thursday to a Saturday in 2020, negatively impacting comparable restaurant revenues by approximately 1.0% to 2.0% for the period ended November 1, 2020.

Net comparable restaurant revenue and average weekly net sales per Company-owned restaurant for the Company's 28 day accounting periods through November 1, 2020 is as follows:

Period Ended (2)

Company-owned Restaurants 9-Aug 6-Sept 4-Oct 1-Nov (3)

Net comparable restaurant revenues (34.2)% (24.9)% (14.9)% (15.4)%

Average weekly net sales per restaurant $36,830 $39,728 $41,731 $42,509

# of comparable Company-owned restaurants (1)

412 412 412 412

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(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.

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

Restaurant count shown is as of the end of the period or week presented.

(2) The period ended August 9, September 6, and October 4, 2020 comprise the Company's third fiscal quarter.

The period ended November 1, 2020 falls within our fourth fiscal quarter, and amounts presented for the period are preliminary.

Additionally, Halloween shifted from a Thursday to a Saturday in 2020, negatively impacting comparable restaurant revenues by approximately 1.0% to 2.0% for the period ended November 1, 2020.

Financial and Operational Highlights

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 $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.

The following summarizes the operational and financial highlights during the twelve and forty weeks ended October 4, 2020:

• Restaurant revenue decreased $92.9 million, or 32.0%, to $197.0 million for the twelve weeks ended October 4, 2020, as compared to the twelve weeks ended October 6, 2019, due to a $65.7 million, or 25.1%, decrease in comparable restaurant revenue and a $27.2 million decrease primarily from closed restaurants.

• Restaurant revenue decreased $334.2 million, or 33.7%, to $658.6 million for the forty weeks ended October 4, 2020, as compared to the forty weeks ended October 6, 2019, due to a $252.1 million, or 28.3%, decrease in comparable restaurant revenue and a $82.1 million decrease primarily from closed restaurants.

• Restaurant operating costs, as a percentage of restaurant revenue, increased 750 basis points to 91.4% for the twelve weeks ended October 4, 2020, as compared to 83.9% for the twelve weeks ended October 6, 2019.

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

• Restaurant operating costs, as a percentage of restaurant revenue, increased 1,050 basis points to 92.9% for the forty weeks ended October 4, 2020, as compared to 82.4% for the forty weeks ended October 6, 2019.

• Net loss was $6.2 million for the twelve weeks ended October 4, 2020 compared to net loss of $1.8 million for the twelve weeks ended October 6, 2019.

Diluted loss per share was $0.40 for the twelve weeks ended October 4, 2020, as compared to diluted loss per share of $0.14 for the twelve weeks ended October 6, 2019.

Excluding costs per diluted share included in Other charges (gains) of $0.19 for restaurant closure and refranchising costs and $0.02 for COVID-19 related costs, adjusted loss per diluted share for the twelve weeks ended October 4, 2020, was $0.19.

Excluding a gain per diluted share included in Other charges (gains) of $0.23 for lease terminations for previously closed restaurants, and costs per diluted share included in Other charges (gains) of $0.07 for board and stockholder matters costs, $0.04 for severance and executive transition, and $0.02 for executive retention, adjusted loss per diluted share for the twelve weeks ended October 6, 2019 was $0.24.

• Net loss was $236.7 million for the forty weeks ended October 4, 2020 compared to net loss of $0.2 million for the forty weeks ended October 6, 2019.

Diluted loss per share was $16.98 for the forty weeks ended October 4, 2020, as compared to diluted loss per share of $0.02 for the forty weeks ended October 6, 2019.

Excluding costs per diluted share included in Other charges (gains) of $5.07 for goodwill impairment, $1.10 for restaurant asset impairment, $0.69 for restaurant closure and refranchising costs, $0.24 for litigation contingencies, $0.13 for board and stockholder matters costs, $0.07 for COVID-19 related costs, and $0.04 for severance and executive transition, adjusted loss per diluted share for the forty weeks ended October 4, 2020 was $9.64.

Excluding costs per diluted share included in Other charges (gains) of $0.80 for restaurant asset impairment, $0.17 for severance and executive transition, $0.14 for board and stockholder matters costs, and $0.04 for executive retention, and a gain included in Other charges (gains) of $0.15 for lease terminations for previously closed restaurants, adjusted earnings per diluted share for the forty weeks ended October 6, 2019 was $0.98.

• We believe the non-GAAP measure of adjusted earnings (loss) 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.

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

4 unchanged sentences

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

Twelve Weeks Ended Twenty-Eight Weeks Ended

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

Twelve Weeks Ended Forty Weeks Ended

October 4, 2020 October 6, 2019 October 4, 2020 October 6, 2019

Company-owned:

Beginning of period 450 472 454 484

Opened during the period — 1 — —

Closed during the period (1)

6 unchanged sentences

________________________________________________________

(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.

(1) In addition to the permanent closures during the twelve and forty weeks ended October 4, 2020, 24 Company-owned restaurants remained temporarily closed due to the COVID-19 pandemic as of October 4, 2020.

Of the 35 temporarily closed Company-owned restaurants at the beginning of the third fiscal quarter, six restaurants have been reopened and five restaurants have been permanently closed during the twelve weeks ended October 4, 2020.

Additionally, six more temporarily closed Company-owned restaurants were reopened during the beginning of our fourth fiscal quarter.

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.

Twelve Weeks Ended Twenty-Eight Weeks Ended

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

Twelve Weeks Ended Forty Weeks Ended

October 4, 2020 October 6, 2019 October 4, 2020 October 6, 2019

Restaurant revenue 98.3 % 98.5 % 98.6 % 98.1 %

11 unchanged sentences

Pre-opening and acquisition costs — — — —

Other charges 9.0 5.5 28.7 2.7

Other charges (gains) 2.2 (0.6) 20.7 1.7

Loss from operations (12.3) (1.8) (35.0) (1.4)

1 unchanged sentence

Loss before income taxes (13.4) (2.4) (36.1) (2.2)

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

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

Income tax benefit (10.3) (1.8) (0.6) (2.1)

Net loss (3.1) % (0.6) % (35.5) % — %

___________________________________

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.

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

Twelve Weeks Ended Forty Weeks Ended

(Revenues in thousands) October 4, 2020 October 6, 2019 Percent Change October 4, 2020 October 6, 2019 Percent Change

Restaurant revenue $ 197,009 $ 289,862 (32.0) % $ 658,587 $ 992,764 (33.7) %

1 unchanged sentence

Total revenues $ 200,478 $ 294,222 (31.9) % $ 667,665 $ 1,012,069 (34.0) %

Average weekly sales volumes in Company-owned restaurants $ 32,287 $ 52,907 (39.0) % $ 37,915 $ 52,272 (27.5) %

Average weekly net sales volumes in Company-owned restaurants $ 39,418 $ 51,221 (23.0) % $ 38,352 $ 51,961 (26.2) %

Total operating weeks 4,998 5,659 (11.7) % 17,172 19,106 (10.1) %

Net sales per square foot $ 75 $ 98 (23.1) % $ 247 $ 334 (26.2) %

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.

Restaurant revenue for the twelve weeks ended October 4, 2020, which comprises primarily food and beverage sales, decreased $92.9 million, or 32.0%, as compared to the third quarter of 2019.

The decrease was due to a $65.7 million, or 25.1%, decrease in comparable restaurant revenue and a $27.2 million decrease primarily from closed restaurants.

The comparable restaurant revenue decrease was driven by a 24.6% decrease in Guest count and a 0.5% 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 3.6% decrease in menu mix, partially offset by a 2.2% increase in pricing and a 0.9% 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 in menu mix was primarily driven by limited dining room capacity at reopened 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 127.2% and comprised 40.7% of total food and beverage sales during the third quarter of 2020.

Restaurant revenue for the forty weeks ended October 4, 2020, decreased $334.2 million or 33.7%, as compared to the forty weeks ended October 6, 2019.

The decrease was due to a $252.1 million, or 28.3%, decrease in comparable restaurant revenue and a $82.1 million decrease primarily from closed restaurants.

The comparable restaurant revenue decrease was driven by a 27.4% decrease in Guest count and a 0.9% 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 3.5% decrease in menu mix, partially offset by a 2.0 % increase in pricing and a 0.6 % 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.

Off-premise sales increased 136.8% and comprised 40.0% of total food and beverage sales during the forty weeks ended October 4, 2020.

Average weekly net 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 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.

The temporarily closed Company-owned restaurants due to the COVID-19 pandemic were not included in the comparable base for the twelve and forty weeks ended October 4, 2020.

Fluctuations in average weekly net sales volumes for Company-owned restaurants reflect the effect of comparable restaurant revenue changes as well as the performance of new and acquired restaurants during the period and the average square footage of our restaurants.

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 $4.6 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.

Franchise and other revenue decreased $0.9 million for the twelve weeks ended October 4, 2020 compared to the twelve weeks ended October 6, 2019 due to charging and collecting partial royalty payments and advertising contributions from our franchisees for the majority of the third fiscal quarter of 2020.

As of the end of our third fiscal quarter of 2020, we were charging and collecting full royalty payments and advertising contributions from our franchisees.

Our franchisees reported a comparable restaurant revenue decrease of 17.0% for the twelve weeks ended October 4, 2020 compared to the same period in 2019.

Franchise and other revenue decreased $10.2 million for the forty weeks ended October 4, 2020 compared to the forty weeks ended October 6, 2019 due to the temporary abatement of franchisee royalty payments and advertising contributions in response to COVID-19's effect on our franchise operations through the latter half of the second fiscal quarter and only charging and collecting partial royalty payments and advertising contributions thereafter through the majority of the third fiscal quarter of 2020.

As of the end of the third quarter of 2020, the Company had resumed charging full royalty and advertising contributions to our franchisees.

Our franchisees reported a comparable restaurant revenue decrease of 27.1% for the forty weeks ended October 4, 2020 compared to the same period in 2019.

Cost of Sales

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

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 4, 2020 October 6, 2019 Percent Change October 4, 2020 October 6, 2019 Percent Change

Cost of sales $ 46,037 $ 69,017 (33.3) % $ 155,243 $ 235,119 (34.0) %

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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

Cost of sales as a percentage of restaurant revenue decreased 40 basis points for the twelve weeks ended October 4, 2020 as compared to the same period in 2019.

The decrease was primarily driven by lower promotional discounts and net favorable commodity prices.

Cost of sales as a percentage of restaurant revenue decreased 10 basis points for the forty weeks ended October 4, 2020 as compared to the same period in 2019.

The decrease was mainly driven by lower promotional discounts, partially offset by increased waste and lower beverage mix.

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 4, 2020 October 6, 2019 Percent Change October 4, 2020 October 6, 2019 Percent Change

Labor $ 74,344 $ 104,870 (29.1) % $ 255,652 $ 354,302 (27.8) %

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

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.

For the twelve weeks ended October 4, 2020, labor as a percentage of restaurant revenue increased 150 basis points compared to the same period in 2019.

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

For the forty weeks ended October 4, 2020, labor as a percentage of restaurant revenue increased 310 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

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

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 4, 2020 October 6, 2019 Percent Change October 4, 2020 October 6, 2019 Percent Change

Other operating $ 37,631 $ 44,317 (15.1) % $ 124,585 $ 142,882 (12.8) %

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

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.

For the twelve weeks ended October 4, 2020, other operating costs as a percentage of restaurant revenue increased 380 basis points as compared to the same period in 2019.

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

For the forty weeks ended October 4, 2020, other operating costs as a percentage of restaurant revenue increased 450 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

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 4, 2020 October 6, 2019 Percent Change October 4, 2020 October 6, 2019 Percent Change

Occupancy $ 22,099 $ 24,942 (11.4) % $ 76,514 $ 85,420 (10.4) %

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

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.

For the twelve weeks ended October 4, 2020, occupancy costs as a percentage of restaurant revenue increased 260 basis points compared to the same period in 2019 primarily due to sales deleverage.

For the forty weeks ended October 4, 2020, occupancy costs as a percentage of restaurant revenue increased 300 basis points compared to the same period in 2019 primarily due to sales deleverage.

Our fixed rents for the twelve weeks ended October 4, 2020 and October 6, 2019 were $14.7 million and $16.9 million, a decrease of $2.2 million due to permanent restaurant closures.

Our fixed rents for the forty weeks ended October 4, 2020 and October 6, 2019 were $51.0 million and $57.1 million, a decrease of $6.1 million due to permanent restaurant closures.

Depreciation and Amortization

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

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 4, 2020 October 6, 2019 Percent Change October 4, 2020 October 6, 2019 Percent Change

Depreciation and amortization $ 19,173 $ 21,280 (9.9) % $ 68,053 $ 71,087 (4.3) %

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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 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.

For the twelve week periods ended October 4, 2020, depreciation and amortization expense as a percentage of revenue increased 240 basis points over the same period in 2019 primarily due to sales deleverage.

For the forty weeks ended October 4, 2020, depreciation and amortization expense as a percentage of revenue increased 320 basis points over the same period in 2019 primarily due to sales deleverage.

Selling, General, and Administrative

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

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 4, 2020 October 6, 2019 Percent Change October 4, 2020 October 6, 2019 Percent Change

Selling, general, and administrative $ 21,284 $ 36,776 (42.1) % $ 82,483 $ 120,126 (31.3) %

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and board of directors expenses.

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.

Selling, general, and administrative costs in the twelve weeks ended October 4, 2020 decreased $15.5 million, or 42.1%, as compared to the same period in 2019.

For the forty weeks ended October 4, 2020, selling, general, and administrative costs decreased $37.6 million, or 31.3%, 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, gift card related, professional services, and project related general and administrative costs.

Pre-opening Costs

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

Twelve Weeks Ended Forty Weeks Ended

(In thousands, except percentages) October 4, 2020 October 6, 2019 Percent Change October 4, 2020 October 6, 2019 Percent Change

Pre-opening costs $ 89 $ — — % $ 245 $ 319 (23.2) %

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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 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 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

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.

Identifiable cash flows are measured at the lowest level for which they are largely independent of the cash flows of other groups of assets and liabilities, generally at the restaurant level.

Each restaurant's past and present operating performance was reviewed in combination with projected future results primarily through projected undiscounted cash flows that included management's expectation of future financial impacts from COVID-19.

If the restaurant assets were determined to be impaired through comparison of the assets carrying value to its undiscounted cash flows, the Company compared the carrying amount of each restaurant's assets to its fair value as estimated by management to calculate the impairment amount.

The fair value of restaurant assets is generally determined using a discounted cash flow projection model, which is based on significant inputs not observed in the market and represents a level 3 fair value measurement.

In certain cases, management uses other market information, when available, to estimate the fair value of a restaurant's assets.

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.

We incurred pre-opening costs during the twelve and forty weeks ended October 4, 2020 related to the rollout of Donatos®.

The limited rollout of Donatos® planned in the Seattle market during 2020 was completed on October 16, 2020.

The Company expects to resume its phased system-wide rollout of Donatos® in 2021.

Interest Expense, Net and Other

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.

Interest expense, net and other was $2.3 million for the twelve weeks ended October 4, 2020, an increase of $0.5 million, or 27.8%, compared to the same period in 2019.

The increase was primarily related to a higher average outstanding debt balance compared to the same period in 2019.

Our weighted average interest rate was 5.0% for the twelve weeks ended October 4, 2020 as compared to 5.1% for the same period in 2019.

Interest expense, net and other was $7.6 million for the forty weeks ended October 4, 2020, an increase of $0.4 million, or 5.6%, compared to the same period in 2019.

The increase was primarily related to a higher 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 4.5% for the forty weeks ended October 4, 2020 as compared to 5.0% for the same period in 2019.

Provision for Income Taxes

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.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

Management considers the future reversals of existing deferred tax liabilities and projected future taxable income, including whether future originating deductible temporary differences are likely to be realized.

The Company generates FICA tip credits based on revenue of the Company which can be utilized to offset 75% of taxes payable and may be carried forward for a period of 20 years to the extent they are not utilized in the year they are generated.

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 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.

The effective tax rate for the twelve weeks ended October 4, 2020 was a 77.0% benefit, compared to a 74.1% benefit for the twelve weeks ended October 6, 2019.

The effective tax rate for the forty weeks ended October 4, 2020 was a 1.8% benefit, compared to a 99.1% benefit for the same period in 2019.

The increase in tax benefit for the twelve weeks ended October 4, 2020 is primarily due to a decrease in income and the release of $12.7 million in a previously recognized valuation allowance.

The decrease in tax benefit for the forty weeks ended October 4, 2020 is primarily due to a $67.1 million net valuation allowance and decrease in current year tax credits, partially offset by a decrease in income and the favorable rate impact of net operating loss ("NOL") carrybacks allowed as part of the CARES Act.

Subsequent to its third quarter balance sheet date, the Company received $49.4 million in cash tax refunds, including interest, and expects to receive between $12 million to $15 million of additional cash tax refunds within the next 12 months.

Liquidity and Capital Resources

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 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.

Cash and cash equivalents decreased $2.7 million to $27.4 million at October 4, 2020, from $30.0 million at the beginning of the fiscal year.

As the Company has now stabilized its liquidity through its at-the-market equity offering, reduced overhead costs, and federal cash tax refunds provided under the provisions of the CARES Act, we expect to begin using available cash flow from operations to pay down debt, maintain existing restaurants and infrastructure, and execute on our long-term strategic initiatives.

As of October 4, 2020, the Company had approximately $97 million in liquidity, including cash on hand and available borrowing capacity under its credit facility.

Our liquidity as of October 4, 2020 does not include $49.4 million in cash tax refunds, including interest, which were received after the third quarter balance sheet date.

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

Twenty-Eight Weeks Ended

July 12, 2020 July 14, 2019

Forty Weeks Ended

October 4, 2020 October 6, 2019

Net cash (used in) provided by operating activities $ (22,401) $ 41,617

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Operating Cash Flows

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.

Net cash flows (used in) provided by operating activities decreased $64.0 million to $22.4 million for the forty weeks ended October 4, 2020.

The changes in net cash (used in) provided by operating activities are primarily attributable to a $110.4 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 $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.

Net cash flows used in investing activities decreased $18.8 million to $14.1 million for the forty weeks ended October 4, 2020, as compared to $32.9 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

The following table lists the components of our capital expenditures, net of currency translation effect, for the forty weeks ended October 4, 2020 and October 6, 2019 (in thousands):

Forty Weeks Ended

October 4, 2020 October 6, 2019

Restaurant maintenance capital and other $ 8,433 $ 13,128

Investment in technology infrastructure and other 6,437 16,832

New restaurants and restaurant refreshes — 975

Restaurant remodels — 3,118

Total capital expenditures $ 14,870 $ 33,078

Financing Cash Flows

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.

Net cash flows provided by (used in) financing activities increased $41.2 million to $34.0 million for the forty weeks ended October 4, 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 $28.9 million, a $14.4 million increase in net draws made on long-term debt, and a decrease in cash used to repurchase the Company's common stock due to temporary suspension of the share repurchase program.

The increase was partially offset by an increase of cash used for debt issuance costs.

The net cash proceeds from issuance of common stock of $28.9 million do not include unpaid stock issuance costs of approximately $0.2 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, which requires quarterly principal payments at a rate of 7.0% per annum of the original principal balance, for a total borrowing capacity of $300 million.

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 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.

As of October 4, 2020, the Company had outstanding borrowings under the credit facility of $215.2 million, of which $9.7 million was classified as current, in addition to amounts issued under letters of credit of $7.9 million.

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

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.

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 such that the amount of the Company's consolidated cash on hand did not exceed $30 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.

As of October 4, 2020, the Company had $69.6 million of available borrowing capacity under its credit facility.

Net draws during the third quarter of 2020 totaled $8.6 million, and net draws during the forty weeks ended October 4, 2020 totaled $9.2 million.

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.

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.

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.

Debt Outstanding

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 .

Total debt outstanding increased $9.2 million to $216.1 million at October 4, 2020 , from $206.9 million at December 29, 2019, due to net draws of $9.2 million on the credit facility during the forty weeks ended October 4, 2020 .

In conjunction with the receipt of $49.4 million in cash tax refunds subsequent to the third quarter balance sheet date, the Company made a $42 million repayment on its credit facility on October 30, 2020.

Working Capital

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In addition, receipts from the sale of gift cards are received well in advance of related redemptions.

Rather than maintain higher cash balances that would result from this pattern of operating cash flows, we typically utilize operating cash flows in excess of those required for currently-maturing liabilities to pay for capital expenditures, debt repayment, or to repurchase stock.

When necessary, we utilize our credit facility to satisfy short-term liquidity requirements.

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 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

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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 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.

From the date of the current program approval through October 4, 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 October 4, 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.

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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 twenty-eight weeks ended July 12, 2020.

Labor cost inflation had a negative impact on our financial condition and results of operations during the forty weeks ended October 4, 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.

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Contractual Obligations

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.

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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;

capital investments;

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;

our financial performance, improved sales trajectory, Guest satisfaction scores, seating expansion and increased dining capacity and its effect on sales, strategic plan and turnaround, marketing strategy, expected uses for available cash flow;

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, projected taxes and cash tax refunds;

the anticipated effects of inflation on labor and commodity costs;

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;

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

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.

anticipated additional rollout of Donato's® and the timing thereof;

statements under the heading "Company Response to COVID-19 Pandemic;" and the effect of the adoption of new accounting standards on our financial and accounting systems.

Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those we express in these forward-looking statements.

These risks and uncertainties include, but are not limited to, the following:

the effectiveness of our business strategy and improvement initiatives, including the effectiveness of our overall value proposition, service improvement, technology, and off-premise initiatives to drive traffic and sales;

the effectiveness of our marketing campaigns;

our ability to effectively use and monitor social media;

the rapidly evolving nature of the COVID-19 pandemic and related containment measures, including the potential for a complete shutdown of Company restaurants;

the extent of the impact of the COVID-19 pandemic or any other epidemic, disease outbreak, or public health emergency, including the duration, spread, severity, and any recurrence of the COVID-19 pandemic;

the duration and scope of COVID-19 related government orders and restrictions, including in California where a substantial number of our restaurants are located;

economic, public health, and political conditions that impact consumer confidence and spending, including the impact of COVID-19;

the effect of the COVID-19 pandemic on labor, staffing, and changes in unemployment rate;

the ability to achieve significant cost savings;

the Company's ability to defer lease or contract payments or otherwise obtain concessions from landlords, vendors, and other parties in light of the impact of the COVID-19 pandemic;

the economic health of the Company's landlords and other tenants in retail centers in which its restaurants are located, suppliers, licensees, vendors, and other third parties providing goods or services to the Company;

the Company's ability to continue to implement our seating expansion plans and the timing thereof, including factors that are under control of government agencies, landlords, and other third parties;

adverse weather conditions in regions in which the Company’s restaurants are located and the timing thereof;

the impact of political protests and curfews imposed by state and local governments;

the effect of COVID-19 on our supply chain and the cost, availability, and timing of obtaining key products, distribution, labor, and energy;

the effectiveness of the Company's marketing and menu strategies and promotions;

the effectiveness of the Company's strategic initiatives including service model, technology solutions, and sales building initiatives;

the amount and timing of cash tax refunds received as a result of the CARES Act;

the cost and availability of capital or credit facility borrowings;

the adequacy of cash flows or available debt resources to fund operations and growth opportunities;

uncertainty regarding general economic and industry conditions;

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our ability to attract and retain qualified managers and Team Members;

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;

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;

weather conditions and related events in regions where our restaurants are operated;

changes in accounting standards policies and practices or related interpretations by auditors or regulatory entities;

the extent of the impact of the COVID-19 global pandemic or any other epidemic, disease outbreak, or public health emergency, including the duration, spread, severity, and any recurrence of the COVID-19 pandemic, the duration and scope of related government orders and restrictions, the impact on our Team Members, economic, public health, and political conditions that impact consumer confidence and spending, including the impact of COVID-19 and other health epidemics or pandemics on the global economy;

the cash tax refund received as a result of the CARES Act;

the rapidly evolving nature of the COVID-19 pandemic and related containment measures, including the potential for a complete shutdown of Company restaurants;

changes in unemployment rate;

the ability to achieve significant cost savings;

the Company's ability to defer lease or contract payments or otherwise obtain concessions from landlords, vendors, and other parties in light of the impact of the COVID-19 pandemic;

the economic health of the Company's landlords and other tenants in retail centers in which its restaurants are located;

the economic health of suppliers, licensees, vendors, and other third parties providing goods or services to the Company;

the impact from political protests and curfews imposed by state and local governments;

and other risk factors described from time to time in the Company's Form 10-K, Form 10-Q, and Form 8-K reports (including all amendments to those reports) filed with the U.S.

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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