Bloomin' Brands (BLMN) Q1 2020 Earnings Call Transcript

Bloomin' Brands (BLMN -0.15%)
Q1 2020 Earnings Call
May 08, 2020, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Bloomin' Brands Fiscal first-quarter 2020 earnings conference call. [Operator instructions] It is now my pleasure to introduce your host, Mark Graff, group vice president of investor relations. Thank you. Mr.

Graff, you may begin.

Mark Graff -- Group Vice President of Investor Relations

Thank you, and good morning, everyone. With me on today's call are David Deno, our chief executive officer; and Chris Meyer, executive vice president and chief financial officer. By now, you should have access to our fiscal first-quarter 2020 earnings release. It can also be found on our website at bloominbrands.com in the investors section.

Throughout this conference call, we will be presenting results on an adjusted basis. An explanation of our use of non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures appear in our earnings release on our website as previously described. Before we begin formal remarks, I'd like to remind everyone that part of our discussion today will include forward-looking statements, including a discussion of recent performance. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from our forward-looking statements.

Some of these risks are mentioned in our earnings release. Others are discussed in our SEC filings, which are available at sec.gov. During today's call, we'll provide a brief recap of our financial performance for the fiscal first-quarter 2020 and a discussion regarding current trends. Once we've completed these remarks, we'll open up the call for questions.

With that, I'd now like to turn the call over to David Deno.

David Deno -- Chief Executive Officer

Well, thank you, Mark, and welcome to everyone listening today. Our priorities remain unchanged as we continue to navigate these challenging times. We are focused on taking care of our people and serving food in a safe environment that protects both our team members and customers. We have leveraged our strong off-premises business since the pandemic required the closure of our dining rooms.

As a result, we have tripled average off-premises sales per restaurant since the beginning of March. This is a testament to the strong affinity for our brands and the decision to invest significantly over a number of years into building a robust delivery network to complement our takeout business. These outstanding off-premises results have allowed us to keep substantially all of our locations open during this time. The goal going forward is to keep a large part of the share gains we have seen in carryout and delivery.

We've also recently begun the process of reopening our dining rooms as state and local governments allow. For perspective, we had 23 Outback Steakhouse restaurants opened for dine-in service with restricted capacity during the full week ended May 3, 2020. Comparable sales at these locations were down 17% from the prior year. We are encouraged by these results.

As of this morning, we have 355 dining rooms open across all brands with limited seating capacity in 10 states. As these dining rooms reopen, we are adhering to strict safety measures. These includes additional sanitation and disinfecting practices, enhanced hand washing protocols, use of gloves and facial protection for our employees. We are also providing contactless payment options for our customers.

Each dining room seating configuration has been modified to adhere to social distancing and reduced capacity standards. For added convenience, we are leveraging our table management notification system to allow guests to wait in their cars for their table. These results would not be possible without the terrific work done by our 90,000 team members in the restaurants and the dedicated employees in the restaurant support center. Their ability to pivot to a 100% off-premises business has been energizing to watch.

Not one of our employees has been laid off or furloughed in either our restaurant or the restaurant support center as the result of the crisis. Hourly workers impacted by the closure of our rooms have continued to receive pay as we work through the current environment. This decision has been an important part of what is driving results, and we are seeing the following benefits. First, we've been able to retain a highly engaged and motivated and trained workforce.

Second, as the dining rooms reopen, we have teams ready to go. Our hiring and training costs are minimal. And most importantly, it was the right thing to do. Turning to our financial performance.

We are tightly managing our cash usage. We have stopped nonessential spending, significantly reduced marketing expenses and deferred nearly all of our discretionary capital expenditures. These efforts have allowed us to minimize ongoing cash burn. Also, as previously mentioned, our decision not to terminate or furlough any employees allow us to reopen dining rooms quickly.

Earlier this week, we took steps to further strengthen our liquidity position through the pricing of $200 million of convertible notes, which is expected to close today. These funds, coupled with our reduced burn rate, provide additional flexibility to navigate economic uncertainty over the long term. Liquidity will also enable us to capitalize on opportunities in the weeks and months ahead. As it relates to our first-quarter results, we are on track to deliver a strong quarter prior to the impact of the pandemic.

The strategy to enhance total shareholder return that we outlined on our Q4 earnings call were working. Through February, all of our concepts were positive in sales and traffic. We achieved meaningful expansion of our adjusted operating margins during those eight weeks, and we've begun to see the benefits of our expected $40 million of cost savings that we outlined in February. Once we have successfully navigated the ongoing crisis, and capitalize on our opportunities, we believe that we will be well positioned to build on our early 2020 success and emerge an even stronger company.

And with that, I'll turn the call over to Chris.

Chris Meyer -- Executive Vice President and Chief Financial Officer

Thanks, Dave, and good morning, everyone. First, I'll provide a brief summary on our financial performance for the first quarter versus the prior year. Total revenues decreased 10.6% to $1 billion. GAAP diluted loss per share for the quarter was $0.44 versus $0.69 of earnings per share in 2019.

Adjusted diluted earnings per share was $0.14 versus $0.75 last year. And adjusted restaurant-level operating margin was 12.5% versus 17.1% last year. Through the first two periods of Q1 2020, combined U.S. restaurant comp sales were up 2.6% with positive traffic at all of our concepts.

In addition, adjusted operating margins were up 100 basis points from last year. It was a strong start to the year. But as we entered March, the COVID-19 pandemic had a significant impact on our Q1 adjusted results, such as sales deleveraging across the P&L, drive by the closure of our dining rooms, the payment of $16 million of relief pay in March, which impacted the labor line, and increases in restaurant operating expenses, primarily supplies, driven by the shift to an off-premises-only business model. As it relates to our cash utilization, as the pandemic began to impact our business, we took immediate actions to minimize spending, including the elimination of essentially all discretionary expenses.

These actions combined with steadily improving sales performance have allowed us to reduce our weekly cash burn rate to 6 million to $8 million per week. Now that our dining rooms have begun to open with limited seating capacity, we expect this burn rate to continue to improve. With respect to near-term financial performance, it is important to consider a few key items. First, incremental profitability flow through will be lower in the early days of reopening our dining rooms as we will incur additional service labor, among other items.

There are typically minimum dining room staffing requirements that negatively impacts flow through at lower sales volumes. But as dining room sales increase, flow through should return to more normalized levels. Second, we have continued to make relief payments to hourly employees in the second quarter. In Q2, we expect to pay approximately $14 million in relief pay, net of tax credits available to us under the CARES Act.

We will stop paying relief pay as each restaurant reopens its dining rooms. Also, our decision to pay relief pay will allow us to reopen dining rooms with no hiring or training expenses. Third, we have not seen any material disruptions to our supply chain, particularly in key proteins, such as beef, poultry, as well as seafood. On the liquidity front, earlier this week, we announced the successful pricing of $200 million of convertible notes.

We began evaluating multiple options for raising capital in early April that included discussions with multiple financial sponsors. Some of whom expressed an interest in the company through our prior strategic review process. In the end, however, we concluded that the public convertible market offered the most attractive terms and the lowest cost of capital. These notes, in combination with our strong cash position, should provide us with sufficient liquidity to navigate these uncertain times over the medium to long term.

As it relates to the exploration of strategic alternatives that we announced last November, we have ceased any further steps in that process as we focus on our response to the current COVID-19 pandemic. This includes a suspension of discussions with interested parties with respect to our Brazil business. Brazil has also been faced with mounting challenges from the COVID-19 pandemic. Similar to the U.S., our restaurants in Brazil were forced to close their dining rooms and shift to an off premises-only model.

Unlike the U.S. It is more difficult to execute off-premises in Brazil, given that most of our restaurants are located in malls. Having said that, our leadership team has built a carryout business from scratch in just a few short weeks. We are slowly seeing signs that less impacted geographies will begin reopening dining rooms.

But just as in the U.S., we will be thoughtful about how we move forward, prioritizing the safety of our customers and our employees. Finally, this past Monday, we successfully closed on an amendment to our credit agreement. Among the important terms, our total net leverage covenant has been waived for the remainder of 2020. In its place, we will be subject to a minimum liquidity covenant that we are confident that we can comply with, given our strong existing cash position and recent capital raise.

Under the amendment, we will be limited to $100 million of capital expenditures between Q2 2020 and Q1 2021. We will also be prohibited from paying dividends or buying back stock until our total net leverage returns to be in compliance with our prior covenant. We are comfortable with these restrictions over the short-term until we can eliminate our cash burn and pay down debt to strengthen our balance sheet. In summary, although this situation has been challenging, our strong performance amid this pandemic reinforces the relevance and strong consumer appeal of our brands.

We have taken the necessary steps to prudently shore up our liquidity position. And we are looking forward to emerging as a better, stronger, operations-focused company. And with that, we'll open up the call for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Jeffrey Bernstein with Barclays. Please proceed with your question.

Jeffrey Bernstein -- Barclays Capital -- Analyst

Great. Thank you very much. My question is -- I have a question and a follow-up. The question in terms of the reopening of the dining room that you've already started to do.

It seems like the early results are encouraging. I think you said comps were only down 17%. Just wondering if you could share some color in terms of your confidence or why you might be confident in believing you can sustain that once the novelty of the dine-in wears off? Any kind of learnings you've had in those stores where you now have the dine-in and the to-go? Just trying to gain confidence in that recovery trend. And then, I had one follow-up.

David Deno -- Chief Executive Officer

Sure. First of all, we have worked tirelessly to make sure when we reopen restaurants, we open them very safely and appropriately for our customers and our employees. And it really helped to have a full staff ready -- on ready to go trained as we opened the restaurants, and that really helped us out a lot. So, the team was ready.

The protocols were in place, the communications were in place. So, Jeff, we're seeing the gain sustained in those states. And also, when we move to new states, we are having conversations with our states coming on board, talking through the learnings. So, as we share those learnings with other states, we get stronger and stronger and stronger, understand what's going on.

I mean, clearly, people love our brands. The team is doing a fantastic job in the restaurants, and we will comply with all state and local regulations, but we're ready to go, and we're going to learn from it and get stronger.

Jeffrey Bernstein -- Barclays Capital -- Analyst

Got it. And then, just my follow-up in terms of the commentary and the prepared remarks about the convertible notes. Obviously, you had various options. Just wondering what led you down that route? And I think you mentioned the extra liquidity will allow you to capitalize on opportunities in the near term.

So, I'm just wondering if you could provide some color on what opportunities that might be? In fact, I know you mentioned there was some interest in maybe buying a piece of the company as part of the prior strategic review. So, any color you can add to that would be great as well.

Chris Meyer -- Executive Vice President and Chief Financial Officer

I'll start on the first piece, and then I'll turn it over to Dave. Yes. So, I think that with the convertible bond, particularly with the call spread, honestly, it was just candidly the lowest cost of capital option available to the company. When you add the call spread feature, it further improves the cost of capital and makes it -- honestly, makes it more behave like a traditional bond offering, and that you can repay the principal in cash.

And it avoids share dilution up to, I think the price was up to $16.63. So, really, cost of capital is the primary motivation, also the bond-like features that it brings to the table were also very compelling.

David Deno -- Chief Executive Officer

And Jeff, your second point, we want room to maneuver with our existing concepts. We want to protect the gains, the market share gains we've had in off-premises. They've been really strong. We want to have resources to be able to protect that.

We want resources to be able to optimize our asset base. We want resources to take advantage of what's coming ahead for us. So, that's why we want the additional liquidity plus just to have that safety. So, we felt good about our situation going in.

The team did a good job raising the extra money, and it gives us optionality as we move forward with our concepts to make the mean stronger.

Jeffrey Bernstein -- Barclays Capital -- Analyst

And any color on that interest of some investors in investing in the company more significantly?

David Deno -- Chief Executive Officer

No. Nothing else really to add there.

Jeffrey Bernstein -- Barclays Capital -- Analyst

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Jon Tower with Wells Fargo. Please proceed with your question.

Jon Tower -- Wells Fargo Securities -- Analyst

Great. Thanks for taking the question. Just kind of curious on that last point you made there, David, in terms of cleaning up or thinking about the portfolio in terms of moving forward and improving the existing concepts and potentially optimizing the asset base. What do you mean by optimization of the asset base? It looks like in the first quarter, you closed a few stores.

I mean, are you thinking about potentially shutting down some more in the future? How should we think about that? And then I do have a follow-up.

David Deno -- Chief Executive Officer

Yeah. No, when I talk about optimizing the asset base, I'm talking about going on the offense. We've done a good job over the years, addressing our closures and things. And we may have a few, but I'm talking more about building our off-premise business even stronger, building our dine-in business even stronger.

That's going on the offense as opposed to doing some more defensive stuff.

Jon Tower -- Wells Fargo Securities -- Analyst

OK. And you gave some qualitative information on Brazil. Can you maybe help quantify what you're seeing right now down in that market? And then just in aggregate, what you're thinking about for the balance of the year? One of your competitors last night was out and they offered an outlook for the remainder of 2020, where they were thinking that they're not going to be moving back to positive same-store sales. I'm just kind of curious to get your thinking there as well.

David Deno -- Chief Executive Officer

Yeah. On Brazil, they're performing somewhat similar to our Bonefish brands. They didn't have much of a carryout business, they're down 70%. So, we basically have built a carryout business there.

We've tripled, -- I believe, almost tripled the delivery business there. So, they've done a really, really nice job managing that business. So, it's -- Pierre and team have done a good job capturing the opportunities in the marketplace. And the second question again?

Chris Meyer -- Executive Vice President and Chief Financial Officer

Yeah. It's related to kind of forward-looking guidance. It's honestly just too early, I think, at this point. Obviously, we're still in the early days of just opening up the dining rooms.

So, much of it depends on government regulations, how fast they can ease some of these restrictions that relates to capacity. Hopefully, by the end of the second -- the end of this quarter, we'll be in better shape to give some perspective on that. But we're just in such early days as it relates to the dining rooms. So, it's not prudent at this point to give any guidance on the balance of the year.

Jon Tower -- Wells Fargo Securities -- Analyst

All right. Thank you. I appreciate it. And best of luck.

David Deno -- Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of John Glass with Morgan Stanley. Please proceed with your question.

John Glass -- Morgan Stanley -- Analyst

Thanks. Good morning. Good to hear from everyone. Christopher, can you just do the walk on the 6 to 8 million of cash burn? What's the breakeven level at the store level on an average sales basis? What are you assuming for just for like weekly G&A, just so we can understand the sensitivities around that?

Chris Meyer -- Executive Vice President and Chief Financial Officer

Yeah. So, I'll give you a little perspective on some of the various buckets. We'll start with sales. I think we're assuming levels that are at or above levels with a small contribution from the reopening of our dining rooms.

And I think that's why we gave the perspective that we think we can improve the burn rate as the dining rooms continue to reopen and our sales improve. I guess, on the expense side, full salaries for field management and restaurant support center staff. The relief payments that we've been making should go down significantly as our dining rooms reopen. Obviously, you'll have increased cost or COGS and hourly labor as the restaurants ramp-up.

Minimal discretionary spending with really only maintenance capital in the model in terms of that 6 to 8 million. There'll be a small amount of marketing in that number, mostly digital and then I think as it relates to rent, that's the other big toggle. So, we have -- obviously, we have really good relationships with our 900-plus landlords, and we're proactively speaking to them since this pandemic began. I think there's good -- the good news on that front is there's pretty broad recognition among landlords that even though we have shored up our liquidity position with the recent capital raise, we're still burning 6 to 8 million of cash a week.

So, they also recognize that we're going to be here for the long haul. So, they're generally open to having conversations about deferral and abatements. But in terms of our liquidity model, to give you some comfort, ongoing rent payments are contemplated in this burn rate and in the go-forward liquidity planning, just to avoid any confusion. So, I think our burn -- the last thing I would say is just as you think about that 6 to 8 million, it does exclude any changes in working capital, either in payments that we've or deferred -- or deferred to future months or on the flip side, any working capital build up as the sales improve.

So, hopefully, that gives you the right perspective.

John Glass -- Morgan Stanley -- Analyst

Well, just one additional question on that. What is the average sales safety Outback brand that gets you to cash flow neutral at the store level?

Chris Meyer -- Executive Vice President and Chief Financial Officer

It just depends because here's what I would tell you. So, if you look at the weekly sales that we were generating at Outback with an off-premises-only business model, those levels, we were able to get to that sort of cash flow neutrality, if not at a restaurant level come up. But then I would say, like I said in the prepared remarks, as you layer in the dining room labor, the initial labor, those dollars in the early days aren't quite as profitable. So, you're going to have to work through a daily settle -- sales level that gets you back to breakeven.

So, it really just depends. I think if you're looking for the right perspective, what I could say is, John, if you think about our total P&L, fully burdened with all of the costs associated with our restaurant, support center, all the G&A layered in, interest expense payments layered in, you're probably -- and again, there's so much that can go into this, but you're probably in that down 20 to 25% range before we could get to what, I would call, cash burn neutrality so that you're not burning cash on a regular basis. If that makes sense.

John Glass -- Morgan Stanley -- Analyst

Yeah. That's totally helpful. I appreciate that. And then, just -- Chris or Dave, just on the off-premise business, how much of that has been delivery? I mean obviously, it was a push late last year or the second half of last year.

So, how much is that, the pickup business is delivery, how much of that is your delivery versus third-party delivery? Any context there would be really helpful.

David Deno -- Chief Executive Officer

Yeah. So, as you know, coming into this, we had such a strong takeout business and takeout still remains predominantly the vehicle that the customers are using. We're probably about two-thirds, takeout one-third delivery at this point. And then, if you look at the toggle between the two delivery forms, either our in-house or the third-party, it's about 50-50 split between those two.

Chris Meyer -- Executive Vice President and Chief Financial Officer

And what we're seeing is on a third-party is that new customer that makes it so interesting. And when I talked about going on the offensive and doing things, I mean, preserving that and moving forward, but that's going to be really crucial as we go forward in the rest of the year and after that.

John Glass -- Morgan Stanley -- Analyst

That's great. Thank you. Be well.

David Deno -- Chief Executive Officer

Thanks.

Operator

Thank you. Our next question comes from the line of John Ivankoe with JP Morgan. Please proceed with your question.

John Ivankoe -- J.P. Morgan -- Analyst

Hi. Thank you. You could imagine some of the strategic initiatives, specifically around G&A could be either accelerated or pushed back because of COVID. So, I was just hoping if you could -- I know we don't want to get into fiscal '21 guidance too much, but could you think about a fully loaded incentive comp being paid G&A number for '21 or '22? Just again, as there are so many moving pieces and different things kind of become prioritized in the organization just from a dollar perspective.

It's the first question. And then, secondly, on Brazil, that was a market that you were growing before in terms of units. I mean, how long should we expect unit development in Brazil to be curtailed? And I was hoping if you could give us some detail around the $12.5 million cash distribution to Brazil. Why you think that would just be a onetime event versus a potentially recurring one?

David Deno -- Chief Executive Officer

Yeah, sure. John, I think when we addressed our overhead in February, we talked about $40 million over two years. That's moving forward. We continue to look at -- going to market in the most efficient and effective way possible as the company, that will move forward.

We've learned a lot during this process, like a lot of companies may have. So, we'll continue to manage our G&A appropriately going into '21. It's too early to give a particular number. But I can tell you, all of our initiatives are on track and then probably more.

So, that's going to be a big part of our story as we move forward. On Brazil, it continues to be a really strong business for us. And we've got to manage our cash and cash flow. We continue to believe in the business and what it's returning to us.

And as our resources open up, I'm sure we'll expand down there, but it's too early right now to say exactly when that would happen, to see how the marketplace move forward in the U.S. and Brazil, but it continues to be a top performer for us. No, go ahead, John.

Chris Meyer -- Executive Vice President and Chief Financial Officer

I was just taking the follow-up on that.

John Ivankoe -- J.P. Morgan -- Analyst

Yeah, exactly. On the 12 and a half, if we could.

Chris Meyer -- Executive Vice President and Chief Financial Officer

Of course. Yes. So, the perspective you need is, first of all, Brazil had a really strong cash position coming into this. We don't -- on a regular basis, Brazil is very self-sufficient in terms of its funding needs.

So, we made that $12.5 million investment into the business, I think that what we're seeing is that that can carry them over for some time. Now as they begin the process of reopening their dining rooms, we're hopeful that they'll have enough cash to tie them over for the foreseeable future. It really just depends, though, as you get later into the year, kind of how that plays out in terms of the reopening of the dining rooms and the stabilization of their sales performance.

John Ivankoe -- J.P. Morgan -- Analyst

Thank you.

Chris Meyer -- Executive Vice President and Chief Financial Officer

Thanks, John.

Operator

Thank you. Our next question comes from the line of Jeff Farmer with Gordon Haskett. Please proceed with your question.

Jeffrey Farmer -- Gordon Haskett -- Analyst

Great, thanks. Glad to hear that you're all well. You did touch on it, and I appreciate that it's been only a couple of weeks. But for those 23 Outback locations, that had been open to in restaurant dining since sometime in late April.

Have you seen those same-store sales steadily improved. Have you seen increased demand for that limited seating capacity? Any color that you could provide there to sort of paint the picture for us for what it's like when these restaurants reopen?

David Deno -- Chief Executive Officer

The restaurants are very popular. We're meeting the local guidelines. The dining rooms are filling up and the sales are sustaining. And we'll take those learnings, like I mentioned earlier, to other states.

But we're balancing the need for safety for our customers and our employees with the demand for our restaurants. And also, we want to make sure we keep that -- those off-premises gains that we've enjoyed. So, that's what we're trying to do, Jeff, as we balance these different things. And we'll see how he states unfold.

More states are opening up, we'll see what happens. But it's too early to see all other states right now. But I can tell you what we've seen so far in Georgia.

Jeffrey Farmer -- Gordon Haskett -- Analyst

And then just as a follow-up to that, so Texas, Florida, I think, are both limited to the 25% capacity. What criteria are needed to be met at the state level before that capacity can be eased to, let's say, 50% limitation. Are you guys aware of all that? Is that information out there yet?

David Deno -- Chief Executive Officer

It's not out there yet. We're aware of the various states. We keep in touch with states all the time as far as what their plans are. We'll comply with that.

But we can't speak for the states, Jeff, as to what their plans are. We're just staying on top of it as best we can.

Jeffrey Farmer -- Gordon Haskett -- Analyst

Alright. Thank you, guys.

Operator

Thank you. Our next question comes from the line of Alex Slagle with Jefferies. Please proceed with your question.

Alex Slagle -- Jefferies -- Analyst

Thanks. For the restaurants that have reopened at this point, have the operating hours been similar to before? I mean what are you seeing? I guess, when are you seeing most of the demand? I'm just wondering how that's playing out and if you envision enough demand that it will start to fill out in the shoulder period so?

David Deno -- Chief Executive Officer

It's similar. There's nothing really different per se. I think the biggest thing is just managing to the local laws and local compliance and running it to our best of our abilities. But it's similar, what you would normally see.

Alex Slagle -- Jefferies -- Analyst

OK. The transitioning customers from the wait area to the cars seems to make sense, and it's an interesting solve. What are the customers saying about that? And what have the waits been like?

David Deno -- Chief Executive Officer

Yeah. They've appreciated it. They appreciate the steps we've taken as a company. And we've gotten very, very good feedback.

They also appreciate the fact that we've reopened. And the waits vary by restaurants. Some restaurants have -- you can be seated right away, and other ones have very, very long waits. So, it really depends on the location and what the certain situation is.

Chris Meyer -- Executive Vice President and Chief Financial Officer

Yeah. And importantly, the customers have shown a willingness to wait.

Alex Slagle -- Jefferies -- Analyst

Alright. Thank you.

David Deno -- Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Matthew DiFrisco with Guggenheim. Please proceed with your question.

Matthew DiFrisco -- Guggenheim Securities -- Analyst

Thank you. I have two questions. One, specifically to the new debt spend and/or how you redid the covenants, and you said 1Q '21 is when you sort of had to come back to those covenants kicking in. Can you just sort of give us a range of where we should think that your -- I guess, it's an EBITDA on an LTM basis would be what you'd have to adhere to.

Not assume -- obviously, assuming that the cash flow is going to gradually come back or turn positive sometime through '20, but not a lot of debt reduction. What would be the EBITDA that you would have to -- or the range of EBITDA that you'd have to get to fulfill that covenant?

Chris Meyer -- Executive Vice President and Chief Financial Officer

Well, I'll give you the covenant perspective first. So, the way it will work is that if you take the EBITDA performance of the company in 2021, you multiply it by four with some adjustments for seasonality because Q1, obviously, is going to be the highest seasonality quarter of the year in terms of sales in profit performance. And then, you -- then the ratio in Q1 is 5.5 times to one ratio between net debt-to-EBITDA. And then, you would go to Q2 and then that steps down to 5.5 times to one.

Q3, it goes down to our original covenant, which would be four and a half times to one. So, the expectation would be the Q3 of next year, you're back in compliance with the original covenants. Now as you progress through the year, you just add a quarter of EBITDA and then you multiply it by whatever ratio. So, in Q2, I take Q1 EBITDA plus Q2 EBITDA, add them together and multiply it by two to get an annualized view and then you test it against that.

So, that's really how the covenant will progress. And again, we felt really comfortable that we'll be in compliance with that as we get to Q1.

Matthew DiFrisco -- Guggenheim Securities -- Analyst

Excellent. That's very helpful. And then, not a lot that's been talked about, but I think when people talk about 25% capacity coming back to the dining room, how should we think about that? I mean in your numbers, it looks like just the raw math, you're coming in a little less than that 25% in those stores. As you get sort of muscle memory of how the consumer is coming in and using you with that 25% capacity, what type of work have you done to try and maybe get above 25% sales lift potentially from those -- from that new capacity? Is there a way to redo the model, redo the point-of-sale or treat -- faster speed of service or get more creative where maybe 25% capacity in the dining room could, based on an environment where 25% of the capacity of the dining room could be -- exceed 25% of the sales lifts in theory?

David Deno -- Chief Executive Officer

Yeah. I think one of the things we've talked about is simplification of our operations, simplification of our menu, working on efficiencies, getting table turns. We want our guests to be comfortable, right? They're happy to be back. So, we've got to understand that as well.

But I think the table turns in that environment in a clean, safe environment is going to be important. And as I mentioned earlier, maintaining that on-premises business between third-party delivery, our own delivery network and carryout. So, that's going to be a crucial part of it as well. We can't forget about that.

But I think, Matt, the table turn piece would be the area that we've concentrated on the most.

Matthew DiFrisco -- Guggenheim Securities -- Analyst

And then any change to the menu when you reopen? I assume you've slimmed the menu a little bit for the off-premise-only model. How are you bringing back the model to -- the menu back to a whole menu or not? And that's my last question.

David Deno -- Chief Executive Officer

Sure. We have slimmed down for off-premises. And as far as menu plans in the future, stay tuned. We spent a lot of time on that, thinking about that.

This is an opportunity for us. And just stay tuned. For competitive reasons, we don't want to get into it, but we've thought a lot about it.

Operator

Thank you. Our next question comes from the line of Brian Vaccaro with Raymond James. Please proceed with your question.

Brian Vaccaro -- Raymond James -- Analyst

Thanks and good morning. Hope everyone's doing well. Back to the convertible debt offering, Chris, what's the cost for you to enter the call spread? And net-net, what are the expected total proceeds you expect to bring in on the note offering?

Chris Meyer -- Executive Vice President and Chief Financial Officer

Yeah. The call spread cost about 17 million. So, the net proceeds would be after fees and expenses, about $175 million.

Brian Vaccaro -- Raymond James -- Analyst

OK, great. And I appreciate the weekly sales color that you provided on the U.S. business. Would you be willing to provide an update on the Brazil comp trends in recent weeks?

David Deno -- Chief Executive Officer

They -- we're happy to talk about it, but we haven't provided any detail, but it's been -- the growth has been very similar to the U.S. as people have adopted to the new model. I'm saying growth from where they started. And then, we've had to -- they don't really have a carryout business down there had to teach the Brazilian consumer carryout.

And I think the team has done a nice job on that. So, we're seeing the same kind of gains down there from where they started in Brazil, as we've seen in the U.S.

Chris Meyer -- Executive Vice President and Chief Financial Officer

But a much lower base, though.

David Deno -- Chief Executive Officer

Yes.

Chris Meyer -- Executive Vice President and Chief Financial Officer

As the starting point.

Brian Vaccaro -- Raymond James -- Analyst

OK. And then, last one for me. I just wanted to ask about the franchise side of the business. Could you give a status update on temporary closures, either domestically or internationally? And maybe some perspective on the franchisee health?

David Deno -- Chief Executive Officer

Sure. Franchisee health varies by franchise partner. We've had just a handful of closures, not many, and we've been working with our U.S. franchise partners very closely.

And I think they'll come out of is very strong. But we've got a great relationship with them. Internationally, we have also work close with our partners. We've been very pleased with some of the leading indicators coming out of Asia.

Korea is doing well, for instance, positive same-store sales growth. So, we'll watch that, obviously and learn from that. So, Brian, it varies by franchisee, a handful of closures, and we'll continue to monitor what's going on over in Asia.

Brian Vaccaro -- Raymond James -- Analyst

Thank you.

Operator

Thank you. Our next question comes from the line of Andrew Strelzik with BMO Capital Markets. Please proceed with your question.

Andrew Strelzik -- BMO Capital Markets -- Analyst

Hey, good morning. You mentioned that you're sharing across the system some of the learnings from the early states. I'm wondering if you could share with us what some of those learnings are? That's No. 1.

And No. 2, as you're reopening the dining rooms and maybe restart the advertising at some point, curious how you're thinking about using value as a call to action. I know you've moved away from discounting, obviously, over the last couple of years. Is that something that maybe you would use more tactically kind of going forward in this environment?

David Deno -- Chief Executive Officer

Yeah. As far as learnings go, it's all about, first and foremost, safety and health of our customers and our employees. I think we're doing a great job there and what we can do to maintain that. So, we share that.

We talked earlier about table turns, we're sharing what some of the menu items are and what people are buying, talking about how we preserve our off-premises business. So, all those things, as we have different trade-offs and things. So, all those things are being talked about. As far as marketing going forward, the digital investments we've made will really pay off.

We're going to continue to use that -- excuse me, and how hard we push value and things, we'll be very aware of what's going on in the marketplace. But I think for competitive reasons, we prefer not to talk about that right now. But digital will be a big part of it. We'll invest behind marketing where it makes sense.

And we've built a strong digital capability. We'll continue to improve that, and we'll watch what the value equation looks like for the consumer.

Andrew Strelzik -- BMO Capital Markets -- Analyst

Great. Thank you very much.

David Deno -- Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Brett Levy with MKM Partners. Please proceed with your question.

Brett Levy -- MKM Partners LLC -- Analyst

Great. Thanks for taking my call. Hope everyone is doing well. As we're starting to see, even if it's a dim one, a light on the other side of the horizon.

How are you thinking about what a pace of rolling things back in, your ability to not just manage for today on digital, but step up the investments on that and on the off-premise? And what would you need to see before you can start to feel that you're comfortable with your liquidity position to start paying down debt to start layering in some incremental costs? And also where do you think you have the best opportunities to further streamline the business, not just at the unit level, but also at the corporate?

David Deno -- Chief Executive Officer

Yeah. Sure. Look, we raised the funds, like we talked about earlier, to make sure we had the liquidity, which we felt very good about all along, but also make sure we have the dry powder to go on the offensive when we have to. And so, investing behind our off-premises business, investing behind our restaurants, will be a big part of it.

And we'll see the sales come back in the restaurants. Chris and team will do a great job managing our cash flow and our debt pay down. And we'll toggle that back and forth based on what we're seeing in the marketplace. That's the first thing.

Secondly, we've learned a lot during this process. We've learned a lot about digital. We've learned a lot about our off-premise business. We've learned a lot about how we can go-to-market as a company and how we think about our menus going forward.

We're going to use all of those learnings to make us an even stronger company as we move forward in 2021 and beyond. That includes our cost structure above the restaurants. We want to continue to examine that. The team did a great job in February identifying some opportunities.

I think we'll look at how the workflows in the restaurant support center, who does the work, how it comes together, and we'll continue to examine that. But we've got a really strong restaurant support center that's doing a great job managing and working. But we'll continue to look at our cost structure as any company would as we move forward.

Brett Levy -- MKM Partners LLC -- Analyst

And would you be able to share where your Dine rewards membership is this quarter?

Chris Meyer -- Executive Vice President and Chief Financial Officer

Yes. It's north of 10 million.

David Deno -- Chief Executive Officer

It's has grown -- it's during this time. So, it's great to see. That's been a powerful program for us and one we can leverage in the future.

Brett Levy -- MKM Partners LLC -- Analyst

And is there anything you can share about just their customer behavior versus the traditional customer behavior? And I'll just jump up the queue and have it.

David Deno -- Chief Executive Officer

They're very loyal. And we love them, and we're going to continue to work with them. We're going to continue to innovate that program. And much like -- I'm just thankful we made the investments in delivery, Dine Rewards, digital over the years to help make this happen because it has paid off for us in big ways and something we're going to leverage going forward.

Operator

Thank you. Our next question comes from the line of Sharon Zackfia with William Blair. Please proceed with your question.

Sharon Zackfia -- William Blair -- Analyst

Hi. Good morning. Congratulations on the off-premises growth, I mean, it's been really phenomenal to watch from the outside. I guess I'm curious as to whether or not you've seen any kind of regional call outs and how quick the rebound has been? And I think a couple of your brands may have introduced off-premises during this time frame.

I'm wondering if they're going to keep off-premises going forward. And then, lastly, as you think about these locations reopening for the dining room, I don't know if you've mentioned whether or not you've been able to keep the off-premises as the dining rooms have been reopening in terms of the kind of the volume increases you've seen?

David Deno -- Chief Executive Officer

Sure. For our brands, we talked a lot about Outback and things and Carrabba's on off-premises. But Bonefish and Fleming's have taken it from virtually nothing. Bonefish had some, Fleming's had 0.

And I just had to shout out -- give a shout out to those teams because we know now that we have an off-premises business, especially at Bonefish that we didn't think we had before. The meal bundles and things have been a big success. I really think that's an opportunity for us going forward. And so, sharing, as we open up the dining rooms, we want to keep as much of this off-premises business as possible, and we want to be truly multichannel, whether you come to us in the restaurant, whether you come for carryout, where you come from our delivery, where you come from third-party delivery.

So, I think at Bonefish, we've seen it. We'll see what happens at Fleming's. I mean, the team has done a really nice job there as well. We'll see if that business, especially on the carryout side, is something that's possible as restaurants reopen.

So, our goal is to continue to grow that off-premises business as dining rooms open up to keep as much of the share as possible and innovate around it.

Chris Meyer -- Executive Vice President and Chief Financial Officer

And then on the geographic side, I guess, as you would expect, there is a correlation to how sales are impacted to the level of exposure to COVID in the area. So, the sales is performing stronger than, say, the Northeast or the Mid-Atlantic.

Sharon Zackfia -- William Blair -- Analyst

OK. Thank you.

Operator

Thank you. Our next question comes from the line of Gregory Francfort with Bank of America. Please proceed with your question.

Gregory Francfort -- Bank of America Merrill Lynch -- Analyst

Thanks for the question. Just the first one is on rent. So, I guess, are you -- is the comments on cash burn, are you paying full rent? Is that where you stand? And you're trying to figure out maybe how to mitigate that over time? I just was trying to maybe understand what the comments were. And then, in the states that have reopened, in terms of trying to figure out cannibalization of dine into the off-premise business, any quantification there on kind of your early signs of what you're seeing in terms of if that big pickup in off-premise is kind of holding and the dine-in is incremental? Or any quantification would be great.

David Deno -- Chief Executive Officer

Yeah. We are holding a large -- very large share in the states of the opened a very large share of the off-premise business. That's why the comps have responded like they have, even in the 25% dine-in type environment. So, again, like I've mentioned a few times on this call, our goal is to build off that off-premises business as we move forward as dining rooms reopen.

And I'll turn it over to Chris on the rent piece.

Chris Meyer -- Executive Vice President and Chief Financial Officer

Yeah. Obviously, with 900 landlords, every conversation is unique. And as I said, we are having constructive conversations with landlords about deferrals and abatements. I'm not going to, for competitive reasons, get into how much is deferred how much is abated and when those things play in, I guess the perspective I was giving, though, is as it relates to our burn rate of 6 million to 8 million, we have built an assumption into that that we are paying full rent into the burn rate, just so for your edification, there's no -- well, how much is in that burn rate of rent? Full rent is in the burn rate, but there are ongoing conversations about deferrals and those -- and the landlords have been very receptive as we indicated.

Gregory Francfort -- Bank of America Merrill Lynch -- Analyst

Got it. And maybe just one other question on labor. I think you said you haven't furloughed any team members, I guess, for anybody who -- does that mean that all the restaurants are shut down, you're paying some portion of wages to every single team member. And then, or ones that have shut their dine-in? And then, I guess, as you tried to get customer or labor back into the store, has there been any challenges in terms of executing that?

David Deno -- Chief Executive Officer

Yeah. I think you kind of answered the question you asked is yes, we have been keeping our rosters full and our people paid because when the restaurants initially open back up, we've got a full trained, highly engaged team to come back with very little -- minimal training and hiring costs. And that's been extremely important to us as we open back up. And I think people look at what we've done how we've navigated the crisis, but they look at for the long term, how we get it.

And having these people available and ready to go and highly engaged is really going to help us as we move forward.

Gregory Francfort -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

Thank you. Our next question comes from the line of Jason -- I'm sorry, Jared Garber with Goldman Sachs. Please proceed with your question.

Jared Garber -- Goldman Sachs -- Analyst

Good morning. Thanks for -- thanks for the question today. It's Jared on for Katie. Historically, you guys have talked about some -- thinking about some relocations, especially for Outback.

Obviously, maybe some of that's on pause given the current crisis. But just wondering if longer term, are you rethinking that strategy, given the strength in the off-premise that you've seen recently? And maybe that's a way to mitigate some of those lower quality locations without fully moving them?

David Deno -- Chief Executive Officer

Yeah. I mean, the additional piece of off-premises has helped us really think through what the restaurant is going to look like in the future. And it will help us in a relocation program. It'll help us with our economics.

It'll help us with our restaurant volumes and give us even more optionality to go forward as we optimize our asset base. It ties back to what I said early in the call about going on the offensive as we go forward and really think through our asset base in these relocations. Because before all this happened, we know that we are getting really strong returns on the relocations. Now when you layer in the new learning, when you layer in off premises opportunities, we can really think through in a very creative way, how we take our asset base going forward.

Operator

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I'll turn the floor back to Mr. Deno for any final comments.

David Deno -- Chief Executive Officer

Well, we appreciate everybody joining us on the call today. I hope everybody stays safe and healthy. As we go forward. We look forward to updating you on the portfolio on our next earnings call this summer.

Thanks a lot.

Operator

[Operator signoff]

Duration: 48 minutes

Call participants:

Mark Graff -- Group Vice President of Investor Relations

David Deno -- Chief Executive Officer

Chris Meyer -- Executive Vice President and Chief Financial Officer

Jeffrey Bernstein -- Barclays Capital -- Analyst

Jon Tower -- Wells Fargo Securities -- Analyst

John Glass -- Morgan Stanley -- Analyst

John Ivankoe -- J.P. Morgan -- Analyst

Jeffrey Farmer -- Gordon Haskett -- Analyst

Alex Slagle -- Jefferies -- Analyst

Matthew DiFrisco -- Guggenheim Securities -- Analyst

Brian Vaccaro -- Raymond James -- Analyst

Andrew Strelzik -- BMO Capital Markets -- Analyst

Brett Levy -- MKM Partners LLC -- Analyst

Sharon Zackfia -- William Blair -- Analyst

Gregory Francfort -- Bank of America Merrill Lynch -- Analyst

Jared Garber -- Goldman Sachs -- Analyst

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