Fiesta Restaurant Group, Inc. Reports Third Quarter 2021 Results

Taco Cabana Divestiture Completed During Third Quarter of 2021

Sequential Improvement in Pollo Tropical Third Quarter 2021 Comparable Restaurant Sales from Second Quarter 2021

DALLAS–(BUSINESS WIRE)–Fiesta Restaurant Group, Inc. (“Fiesta” or the “Company”) (NASDAQ: FRGI), parent company of the Pollo Tropical® restaurant brand, today reported results for the 13-week third quarter, which ended on October 3, 2021, and provided a business update related to current operations.

Fiesta President and Chief Executive Officer Richard Stockinger said, “We announced the sale of Taco Cabana on July 1, and successfully closed the transaction on August 16. We are now debt free with a cash balance of $55.8 million as of October 3, and our leadership team is fully focused on achieving what we believe are significant growth opportunities for Pollo Tropical.”

Stockinger added, “We were pleased with Pollo Tropical’s third quarter sales performance despite reduced operating hours from staffing shortages throughout the quarter. Third quarter 2021 comparable restaurant sales were 13.8% vs. the third quarter of 2020, and increased to 0.9% vs. the third quarter of 2019, an improvement from the second quarter 2021 comparable restaurant sales vs. 2019 of -1.8%⁽¹⁾. Comparable restaurant sales results were much stronger in markets that had adequate staffing – those markets realized third quarter 2021 comparable restaurant sales of approximately 16.7% vs. the third quarter of 2020 and 4.3% vs. the third quarter of 2019. Our positive comparable restaurant sales growth compared to 2019 continued in October, and we are optimistic about accelerating sales momentum as we reach full staffing levels.”

Stockinger continued, “Staff availability has been an industry-wide challenge. We have approached this issue with a very disciplined and forward thinking approach, and took proactive action that included wage rate increases and offering hiring incentives. In addition, we are enhancing our medical plans and increasing other benefits such as emergency child-care and commute assistance so that we can remain a preferred employer. We achieved adequate staffing levels at a total company level by September and continued to realize staffing improvement in October.”

Stockinger added, “In order to improve margins after the wage rate increases, we implemented a phased approach to price increases of 3.7% in mid-third quarter with approximately 4% to 6% planned for the fourth quarter along with accelerating our ongoing actions to optimize restaurant labor efficiency. Those actions have already resulted in Restaurant-level Adjusted EBITDA⁽²⁾ margin improvement, a non-GAAP financial measure, based on preliminary October 2021 results⁽³⁾ compared to the third quarter of 2021. Restaurant-level Adjusted EBITDA margins declined during the third quarter compared to 2020 primarily due to hourly wage rate increases, short-term hiring incentives, and additional overtime and training. A large portion of those increases are short term only, estimated at $0.9 million, or approximately 100 basis points as a percentage of sales. Third quarter 2021 loss from continuing operations was $3.2 million compared to income from continuing operations in the third quarter of 2020 of $4.4 million.”

Stockinger concluded, “As we look toward the balance of the year, we are focused on continuing efforts to be a preferred employer and accelerating our margin improvement above the third quarter of 2021. We are targeting Restaurant-level Adjusted EBITDA margins returning to the 18% to 20% range in the first half of 2022, barring unforeseen changes in our cost structure and operating environment. In addition, we will continue enhancing the customer experience across all service channels, further investing in our growing digital platform, and refining our brand proposition and new unit design features in remodel tests to drive future growth.”

_____________________________
(1)		Comparable restaurant sales results are not adjusted for the impact of holiday timing and named storms, which is detailed in the Comparable Restaurant Sales section.
(2)		See non-GAAP reconciliation table below.
(3)		October preliminary results after excluding short term or temporary hiring incentives and guaranteed manager bonuses.

Third Quarter 2021 Financial Summary

Total revenues from continuing operations increased 13.7% to $88.6 million in the third quarter of 2021 from $77.9 million in the third quarter of 2020;
Comparable restaurant sales at Pollo Tropical increased 13.8%. Compared to the same fiscal period in 2019, comparable restaurant sales for Pollo Tropical increased 0.9%;
Net income of $17.3 million, or $0.66 per diluted share, in the third quarter of 2021 (which includes a gain on the sale of Taco Cabana), compared to net income of $4.6 million, or $0.18 per diluted share, in the third quarter of 2020;
Net loss from continuing operations of $(3.2) million, or $(0.12) per diluted share, in the third quarter of 2021, compared to net income from continuing operations of $4.4 million, or $0.17 per diluted share, in the third quarter of 2020;
Adjusted net loss (a non-GAAP financial measure) of $2.4 million, or $0.09 per diluted share, in the third quarter of 2021, compared to adjusted net income of $1.2 million, or $0.04 per diluted share, in the third quarter of 2020 (see non-GAAP reconciliation table below);
Continuing Operations Consolidated Adjusted EBITDA (a non-GAAP financial measure) of $3.7 million in the third quarter of 2021 compared to $8.2 million in the third quarter of 2020 (see non-GAAP reconciliation table below);
Adjusted EBITDA for Pollo Tropical of $6.3 million in the third quarter of 2021 compared to $10.6 million in the third quarter of 2020; and
Restaurant-level Adjusted EBITDA (a non-GAAP financial measure) for Pollo Tropical of $13.0 million, or 14.8% of Pollo Tropical restaurant sales, in the third quarter of 2021 compared to $16.4 million, or 21.2% of Pollo Tropical restaurant sales, in the third quarter of 2020 (see non-GAAP reconciliation table below).

Third Quarter 2021 Comparable Restaurant Sales

	Second Quarter 2021	Fiscal July	Fiscal August	Fiscal September	Third Quarter 2021
Pollo Tropical
2021 vs. 2020	43.5%	16.5%	11.5%	14.2%	13.8%
2021 vs. 2019	-1.8%	0.1%	-0.9%	4.0%	0.9%

As a result of the 53^rd week in fiscal 2020, our 2021 fiscal year began one week later than our 2020 fiscal year. Changes in comparable restaurant sales are impacted by the shift in weeks as the thirteen weeks ended October 3, 2021, are not directly comparable on a calendar basis to the thirteen weeks ended September 27, 2020.
For Pollo Tropical comparable restaurant sales comparisons in 2021 vs. 2019, the Fourth of July holiday timing had an impact on fiscal July. After adjusting for the holiday timing difference, July 2021 comparable restaurant sales vs. 2019 would have been approximately 170 basis points lower.
Third quarter comparable restaurant sales at Pollo Tropical vs 2019 benefited from the negative impact of Hurricane Dorian in 2019. After adjusting for the impact of the hurricane, 2021 third quarter comparable sales would have been approximately 160 basis points lower.

Cash and Liquidity

At the end of the third quarter of 2021, we had $52.0 million in cash and $3.8 million in restricted cash. We fully repaid our outstanding term loan borrowings on August 16, 2021, and our outstanding debt balance was $0.9 million of finance lease obligations at the end of the third quarter of 2021.
Our cash balance decreased from the second quarter balance of $65.8 million at July 4, 2021 to a third quarter balance of $52.0 million at October 3, 2021.

Third Quarter 2021 Pollo Tropical Results

Total Pollo Tropical restaurant sales increased 13.4% to $88.0 million in the third quarter of 2021 compared to $77.6 million in the third quarter of 2020 primarily due to a comparable restaurant sales increase of 13.8%. Pollo Tropical dine-in and counter take-out comparable restaurant sales increased 45% from the third quarter of 2020 to the third quarter of 2021 due primarily to the negative impact of the COVID-19 pandemic on dine-in traffic and closures of our dining rooms during a portion of the third quarter of 2020. The increase in dine in channel sales was supplemented by off-premise channel growth. Third quarter 2021 drive-thru comparable restaurant sales were flat compared to the third quarter of 2020, while third quarter 2021 delivery comparable restaurant sales were up 32.7% compared to the third quarter of 2020. The increase in comparable restaurant sales resulted from a net impact of product/channel mix and pricing of 9.6% and an increase in comparable restaurant transactions of 4.2%. The increase in product/channel mix and pricing was driven primarily by increases in delivery and drive-thru average check, and menu price increases of 5.7%. During the third quarter of 2021, Pollo Tropical experienced increased hourly staffing challenges due to workforce availability which we believe had a negative impact on sales throughout the quarter, driven in part by reduced operating hours.

	Comparable Restaurant Sales Mix by Channel – Pollo Tropical
Channel	Third Quarter 2021⁽¹⁾		% of Total		Third Quarter 2020		% of Total		Third Quarter 2019		% of Total
($ in thousands)
Counter⁽²⁾	$	23,556	27	%	$	16,294	21	%	$	42,147	49	%
Drive-thru	51,095		58	%	51,315		66	%	40,282		47	%
Delivery	8,785		10	%	6,620		9	%	1,692		2	%
Online	3,116		4	%	2,193		3	%	1,430		1	%
Catering	1,051		1	%	535		1	%	637		1	%
Total	$	87,603	100	%	$	76,957	100	%	$	86,188	100	%

(1)		Third quarter 2021 comparable restaurant sales based on the comparable third quarter 2020 restaurants.
(2)		Counter sales include dine-in and counter take-out sales.

Adjusted EBITDA for Pollo Tropical decreased to $6.3 million in the third quarter of 2021 from $10.6 million in the third quarter of 2020, a decrease of (40.5)%. The decrease was primarily due to higher labor costs, advertising expenses, general and administrative expenses, and repair and maintenance costs, partially offset by the impact of higher restaurant sales, and improved cost of sales margins. Higher labor costs were driven primarily by hourly wage rate increases, short-term hiring incentives, and additional overtime and training. We believe that approximately $0.9 million of the labor cost increases for overtime and staffing-related incentives are short term in nature. We plan to take price increases to offset labor costs in a phased approach in order to minimize the negative impact on traffic. A 3.7% price increase was implemented in late August, and additional pricing action is planned for the fourth quarter of 2021.

Restaurant-level Adjusted EBITDA (a non-GAAP financial measure) for Pollo Tropical as a percentage of restaurant sales decreased, with third quarter Restaurant-level Adjusted EBITDA as a percentage of restaurant sales of 14.8% in 2021 compared to 21.2% in 2020 and 20.1% in 2019 (see non-GAAP reconciliation table below). Continuing Operations Adjusted EBITDA decreased to $3.7 million compared to $8.2 million in 2020.

Comparable Restaurant Average Weekly Sales – Pollo Tropical
Period	July	August	September
2021	$50,033	$49,117	$49,975
2020	$42,948	$44,051	$43,768
2019	$49,984	$49,548	$48,058

Previously Approved Share Repurchase Program Resumed

The Company resumed its share repurchase program that the board of directors had previously authorized for the repurchase of an aggregate 3.0 million shares of common stock, of which 668,282 shares remain available for purchase as of October 3, 2021. Under the share repurchase program, shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The number of shares repurchased and the timing of repurchases will depend on a number of factors, including, but not limited to, stock price, trading volume, general market and economic conditions, and other corporate considerations. The share repurchase program has no time limit and may be modified, suspended, superseded or terminated at any time by the board of directors.

Taco Cabana Divestiture Completed

On August 16, 2021, the Company completed the previously announced sale of its Taco Cabana restaurant business through the sale of all of the outstanding capital stock of Taco Cabana, Inc., the parent company of the Taco Cabana business (the “Transaction”) to an affiliate of Yadav Enterprises, Inc. The terms of the Transaction are set forth in the Purchase Agreement which was filed by the Company on Form 8-K on July 7, 2021.

Restaurant Portfolio

As of October 3, 2021, there were 138 Company-owned Pollo Tropical restaurants, and 31 franchised Pollo Tropical restaurants in the U.S., the U.S. Virgin Islands, Puerto Rico, Panama, Guyana, Ecuador and the Bahamas.

Investor Conference Call Today

We will host a conference call at 4:30 p.m. ET today. The conference call can be accessed live over the phone by dialing 856-344-9299. A replay will be available after the call until Thursday, November 18, 2021 and can be accessed by dialing 1-412-317-6671. The passcode is 1291956. The conference call will also be webcast live and archived on the corporate website at www.frgi.com, under the Investor Relations section. A replay of the webcast will be available through the corporate website shortly after the call has concluded.

About Fiesta Restaurant Group, Inc.

Fiesta Restaurant Group, Inc., owns, operates and franchises the Pollo Tropical® restaurant brand and prior to August 16, 2021, owned, operated, and franchised the Taco Cabana® restaurant brand. The brands specialize in the operation of fast casual/quick service restaurants that offer distinct and unique flavors with broad appeal at a compelling value. The brands feature fresh-made cooking, drive-thru service and catering. For more information about Fiesta Restaurant Group, Inc., visit the corporate website at www.frgi.com.

Forward Looking Statements

Certain statements contained in this news release and in our public disclosures, whether written, oral or otherwise made, relating to future events or future performance, including any discussion, express or implied regarding our anticipated growth, plans, objectives and the impact of our initiatives, our investments in strategic and sales building initiatives, including those relating to operations improvements, digital infrastructure supporting ordering and online sales, catering and third-party delivery and drive thru improvements and the impact of the COVID-19 pandemic and our initiatives designed to respond to the COVID-19 pandemic on future sales, margins, earnings and liquidity, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are often identified by the words “may,” “might,” “believes,” “thinks,” “anticipates,” “plans,” “positioned,” “target,” “continue,” “expects,” “look to,” “intends” and other similar expressions, whether in the negative or the affirmative, that are not statements of historical fact. These forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict, and you should not place undue reliance on our forward-looking statements. Our actual results and timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those discussed from time to time in our reports filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K and our quarterly reports on Form 10-Q. All forward-looking statements and the internal projections and beliefs upon which we base our expectations included in this release are made only as of the date of this release and may change. While we may elect to update forward-looking statements at some point in the future, we expressly disclaim any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

FIESTA RESTAURANT GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE AND NINE MONTHS ENDED OCTOBER 3, 2021 AND SEPTEMBER 27, 2020 (In thousands, except share and per share data) (Unaudited)

	Three Months Ended (a)						Nine Months Ended (a)
	October 3, 2021			September 27, 2020			October 3, 2021			September 27, 2020
Revenues:
Restaurant sales	$	88,014		$	77,604		$	266,618		$	226,617
Franchise royalty revenues and fees	578			336			1,344			886
Total revenues	88,592			77,940			267,962			227,503
Costs and expenses:
Cost of sales	26,984			24,614			81,843			72,666
Restaurant wages and related expenses (b)	24,648			18,051			66,888			54,196
Restaurant rent expense	5,924			5,585			17,625			16,885
Other restaurant operating expenses	14,740			12,228			42,260			35,575
Advertising expense	2,757			814			8,030			5,492
General and administrative expenses (b)(c)	11,167			9,134			32,883			28,592
Depreciation and amortization	5,328			5,425			15,291			16,373
Impairment and other lease charges (d)	30			2,395			(224		)	8,023
Closed restaurant rent, net of sublease income (e)	710			934			2,426			3,315
Other expense (income), net (f)	138			(1,353		)	431			(426		)
Total operating expenses	92,426			77,827			267,453			240,691
Income (loss) from operations	(3,834		)	113			509			(13,188		)
Interest expense	160			83			282			209
Income (loss) from continuing operations before income taxes	(3,994		)	30			227			(13,397		)
Provision for (benefit from) income taxes (g)	(763		)	(4,382		)	1,473			(7,494		)
Income (loss) from continuing operations	(3,231		)	4,412			(1,246		)	(5,903		)
Income (loss) from discontinued operations, net of tax	20,493			181			16,336			(5,164		)
Net income (loss)	17,262			4,593			15,090			(11,067		)
Earnings (loss) per common share:
Continuing operations – basic	$	(0.12	)	$	0.17		$	(0.05	)	$	(0.23	)
Discontinued operations – basic	0.78			0.01			0.62			(0.21		)
Basic	0.66			0.18			0.57			(0.44		)

Continuing operations – diluted	(0.12		)	0.17			(0.05		)	(0.23		)
Discontinued operations – diluted	0.78			0.01			0.62			(0.21		)
Diluted	0.66			0.18			0.57			(0.44		)
Weighted average common shares outstanding:
Basic	25,508,930			25,290,357			25,443,341			25,359,004
Diluted	25,508,930			25,291,719			25,443,341			25,359,004

(a)		The Company uses a 52- or 53-week fiscal year that ends on the Sunday closest to December 31. The three- and nine-month periods ended October 3, 2021 and September 27, 2020 each included 13 and 26 weeks, respectively.
(b)		Restaurant wages and related expenses include stock-based compensation of $13 and $15 for the three months ended October 3, 2021 and September 27, 2020, respectively, and $44 and $53 for the nine months ended October 3, 2021 and September 27, 2020, respectively. General and administrative expenses include stock-based compensation expense of $1,097 and $486 for the three months ended October 3, 2021 and September 27, 2020, respectively, and $3,137 and $1,834 for the nine months ended October 3, 2021 and September 27, 2020, respectively.
(c)		See notes (f) and (g) to the reconciliation of net income (loss) to adjusted net income (loss) in the tables titled “Supplemental Non-GAAP Information.”
(d)		See note (c) to the reconciliation of net income (loss) to adjusted net income (loss) in the tables titled “Supplemental Non-GAAP Information.”
(e)		See note (d) to the reconciliation of net income (loss) to adjusted net income (loss) in the tables titled “Supplemental Non-GAAP Information.”
(f)		See note (e) to the reconciliation of net income (loss) to adjusted net income (loss) in the tables titled “Supplemental Non-GAAP Information.”
(g)		See notes (a) and (b) to the reconciliation of net income (loss) to adjusted net income (loss) in the tables titled “Supplemental Non-GAAP Information.”

FIESTA RESTAURANT GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)

	October 3, 2021		January 3, 2021

Assets
Cash	$	51,978	$	49,778
Current assets held for sale	—		8,478
Other current assets	22,210		25,770
Property and equipment, net	92,807		97,867
Operating lease right-of-use assets	155,809		164,665
Goodwill	56,307		56,307
Non-current assets held for sale	—		160,023
Other assets	5,838		5,855
Total assets	$	384,949	$	568,743

Liabilities and Stockholders’ Equity
Current portion of long-term debt	$	72	$	816
Current liabilities held for sale	—		27,225
Other current liabilities	43,273		36,868
Long-term debt, net of current portion	788		71,588
Operating lease liabilities	165,113		174,116
Deferred tax liabilities	2,075		2,269
Non-current liabilities held for sale	—		98,323
Other non-current liabilities	9,640		9,757
Total liabilities	220,961		420,962
Stockholders’ equity	163,988		147,781
Total liabilities and stockholders’ equity	$	384,949	$	568,743

FIESTA RESTAURANT GROUP, INC. Supplemental Information The following table sets forth certain unaudited supplemental financial and other data for the periods indicated (In thousands, except percentages):

	(Unaudited)						(Unaudited)
	Three Months Ended						Nine Months Ended
	October 3, 2021			September 27, 2020			October 3, 2021			September 27, 2020
Segment revenues:
Pollo Tropical	$	88,592		$	77,940		$	267,962		$	227,503

Change in comparable restaurant sales (a):
Pollo Tropical	13.8		%	(11.1		)%	18.6		%	(16.8		)%

Average sales per Company-owned restaurant:
Pollo Tropical
Comparable restaurants (b)	$	646		$	568		$	1,950		$	1,644
Non-comparable restaurants (c)	204			387			955			1,233
Total Company-owned (d)	638			562			1,932			1,628

Income (loss) before income taxes:
Pollo Tropical	$	(1,011	)	$	3,035		$	8,260		$	(3,978	)

Adjusted EBITDA:
Pollo Tropical	$	6,324		$	10,621		$	30,620		$	24,394

Restaurant-level Adjusted EBITDA (e):
Pollo Tropical	$	13,043		$	16,430		$	50,321		$	42,202

(a)		Restaurants are included in comparable restaurant sales after they have been open for 18 months or longer. Restaurants are excluded from comparable restaurant sales for any fiscal month in which the restaurant was closed for more than five days. Comparable restaurant sales are compared to the same period in the prior year.
(b)		Comparable restaurants are restaurants that have been open for 18 months or longer. Average sales for comparable Company-owned restaurants are derived by dividing comparable restaurant sales for such period for the applicable segment by the average number of comparable restaurants for the applicable segment for such period.
(c)		Non-comparable restaurants are restaurants that have been open for less than 18 months, or that were temporarily closed during the period. Average sales for new Company-owned restaurants are derived by dividing new restaurant sales for such period for the applicable segment by the average number of new restaurants for the applicable segment for such period.
(d)		Average sales for total Company-owned restaurants are derived by dividing restaurant sales for such period for the applicable segment by the average number of open restaurants for the applicable segment for such period.
(e)		Restaurant-level Adjusted EBITDA is a non-GAAP financial measure. Please see the reconciliation from net income (loss) to Restaurant-level Adjusted EBITDA in the table titled “Supplemental Non-GAAP Information.”