Fiesta Restaurant Group, Inc. Reports Second Quarter 2021 Results

Income from Continuing Operations was $2.7 Million for the Second Quarter of 2021 Compared to a Loss in the Prior Year

Fiesta Restaurant Group, Inc. (NASDAQ: FRGI), parent company of the Pollo Tropical and Taco Cabana restaurant brands, today reported results for the 13-week second quarter, which ended on July 4, 2021, and provided a business update related to current operations.

On July 1, 2021 the Company announced the entry into an agreement to sell the Taco Cabana business to an affiliate of Yadav Enterprises, Inc. Additional details regarding the transaction are referenced in the Company’s Form 8-K filed on July 7, 2021. The divestiture transaction is expected to close in the third quarter of 2021, subject to the satisfactory completion of customary closing conditions.

Fiesta President and Chief Executive Officer Richard Stockinger said, “We were pleased with Pollo Tropical’s performance in the second quarter, characterized by comparable restaurant sales improving to near 2019 levels and strong margins, despite hourly staffing challenges over the quarter. We believe that workforce availability challenges had an increasingly negative impact on sales through the quarter. We took a number of steps to improve recruiting and retention of our hourly workforce, which resulted in improved staffing levels in July compared to the second quarter of 2021.”

Stockinger added, “We delivered strong margin performance in the second quarter, which resulted in second quarter 2021 income from continuing operations of $2.7 million and income from continuing operations before income taxes of $1.8 million, compared to a loss for both measures in the second quarter of 2020. Continuing Operations Adjusted EBITDA, a non-GAAP measure(1), was $9.1 million or 10.0% of total revenues compared to $2.6 million and 4.2% of revenue in the second quarter of 2020. Pollo Tropical increased restaurant-level Adjusted EBITDA margin, a non-GAAP measure(1), from 16.3% in the second quarter of 2020 to 20.4% in the second quarter of 2021. In addition, our total cash balance continued to grow, reaching $69.9 million at the end of the second quarter.”

Stockinger continued, “We made strong progress on Pollo Tropical’s strategic growth initiatives during the second quarter, including our ongoing brand positioning research that will inform our digital, brand expansion and existing unit remodel efforts. The design phase of our digital drive thru customer experience is advancing, and we intend to begin the pilot of this greatly enhanced drive thru platform in select units later this year. We are also testing key restaurant design elements and operating platform improvements in remodels during the balance of 2021, and initial consumer feedback on our first remodel completed in the second quarter has been very positive.”

Stockinger concluded, “We expect that the Taco Cabana divestiture will allow us to create a more effective, efficient and focused organization, applying appropriate resources to accelerate the exciting growth potential we believe we have in our Pollo Tropical brand. This will include our ongoing efforts to drive an upgraded customer experience across all service channels, continuing to invest in expanding our growing digital platform and finalizing our new unit expansion plans targeted for 2022.”

_____________________________

(1)  

See non-GAAP reconciliation table below.

Second Quarter 2021 Financial Summary

  • Total revenues from continuing operations increased 43.7% to $91.2 million in the second quarter of 2021 from $63.4 million in the second quarter of 2020;
  • Comparable restaurant sales at Pollo Tropical increased 43.5%. Compared to the same fiscal period in 2019, comparable restaurant sales for Pollo Tropical decreased 1.8%;
  • Comparable restaurant sales at Taco Cabana increased 15.6%. Compared to the same fiscal period in 2019, comparable restaurant sales for Taco Cabana decreased 6.7%;
  • A net loss of $(0.1) million, or $0.00 per diluted share, in the second quarter of 2021, compared to a net loss of $(8.3) million, or $(0.33) per diluted share, in the second quarter of 2020;
  • Net income from continuing operations of $2.7 million, or $0.11 per diluted share, in the second quarter of 2021, compared to a net loss of $(6.6) million, or $(0.26) per diluted share, in the second quarter of 2020;
  • Adjusted net income (a non-GAAP financial measure) of $3.4 million, or $0.13 per diluted share, in the second quarter of 2021, compared to adjusted net loss of $(3.1) million, or $(0.12) per diluted share, in the second quarter of 2020 (see non-GAAP reconciliation table below);
  • Continuing Operations Consolidated Adjusted EBITDA (a non-GAAP financial measure) of $9.1 million in the second quarter of 2021 compared to $2.6 million in the second quarter of 2020 (see non-GAAP reconciliation table below);
  • Adjusted EBITDA for Pollo Tropical of $11.9 million in the second quarter of 2021 compared to $5.0 million in the second quarter of 2020;
  • Restaurant-level Adjusted EBITDA (a non-GAAP financial measure) for Pollo Tropical of $18.5 million, or 20.4% of Pollo Tropical restaurant sales, in the second quarter of 2021 compared to $10.3 million, or 16.3% of Pollo Tropical restaurant sales, in the second quarter of 2020 (see non-GAAP reconciliation table below);
  • Adjusted EBITDA for Taco Cabana of $3.0 million in the second quarter of 2021 compared to $2.7 million in the second quarter of 2020;
  • Restaurant-level Adjusted EBITDA (a non-GAAP financial measure) for Taco Cabana of $8.4 million, or 12.8% of Taco Cabana restaurant sales, in the second quarter of 2021 compared to $7.3 million, or 12.6% of Taco Cabana restaurant sales, in the second quarter of 2020 (see non-GAAP reconciliation table below); and

Second Quarter 2021 Comparable Restaurant Sales

First
Quarter 2021

Fiscal
April

Fiscal
May

Fiscal
June

Second
Quarter 2021

Pollo Tropical

2021 vs. 2020

4.3

%

94.4

%

36.9

%

18.2

%

43.5

%

2021 vs. 2019

-3.3

%

-1.3

%

-1.4

%

-2.9

%

-1.8

%

Taco Cabana

2021 vs. 2020

-4.3

%

26.5

%

9.2

%

14.0

%

15.6

%

2021 vs. 2019

-17.1

%

-6.9

%

-6.7

%

-6.5

%

-6.7

%

  • As a result of the 53rd 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 July 4, 2021 are not directly comparable on a calendar basis to the thirteen weeks ended June 28, 2020.
  • For Pollo Tropical comparable restaurant sales comparisons in 2021 vs. 2019, the Fourth of July holiday timing had an impact on fiscal June. After adjusting for the holiday timing difference, June 2021 comparable restaurant sales vs. 2019 would have been 40 to 50 basis points higher.

Cash and Liquidity

  • At the end of the second quarter of 2021, we had $65.8 million in cash, $3.8 million in restricted cash and $72.4 million in outstanding debt, which includes $71.5 million of term loan borrowings under our new senior credit facility and $0.9 million in finance lease obligations. In addition, we had $0.3 million in cash and $0.8 million in finance lease obligations within discontinued operations. Our outstanding term loan borrowings under our senior credit facility are net of unamortized debt issuance costs and original issue discount totaling $3.2 million.
  • Our cash balance grew from the first quarter balance of $58.8 million at April 4, 2021 to a second quarter balance of $65.8 million at July 4, 2021. Net debt, a non-GAAP financial measure(2), decreased from $13.5 million at the end of the first quarter on April 4, 2021 to $6.6 million at the end of the second quarter on July 4, 2021.
  • Proceeds from the sale of Taco Cabana will be used to fully repay our outstanding term loan borrowings under our senior credit facility, and to pay a loan prepayment premium of 3.0% of the principal repaid ($2.2 million).

Second Quarter 2021 Brand Results

Total Pollo Tropical restaurant sales increased 43.4% to $90.8 million in the second quarter of 2021 compared to $63.3 million in the second quarter of 2020 primarily due to a comparable restaurant sales increase of 43.5%. Pollo Tropical dine-in and counter take-out comparable restaurant sales increased 117% from the second quarter of 2020 to the second quarter of 2021 due primarily to the negative impact of the pandemic on dine-in traffic and closures of our dining rooms during a portion of the second quarter of 2020. The increase in dine in channel sales was supplemented by off-premise channel growth. Second quarter 2021 drive-thru comparable restaurant sales increased 18% compared to the second quarter of 2020, while second quarter 2021 delivery comparable restaurant sales nearly doubled compared to the second quarter of 2020. The increase in comparable restaurant sales resulted from a net impact of product/channel mix and pricing of 14.3% and an increase in comparable restaurant transactions of 29.2%. The increase in product/channel mix and pricing was driven primarily by increases in delivery and drive-thru average check and sales channel penetration, and menu price increases of 4.0%. Beginning in April, Pollo Tropical began to experience increased hourly staffing challenges due to workforce availability which we believe had an increasingly negative impact on sales through the remainder of the quarter, driven in part by reduced operating hours.

_____________________________

(2)  

We define net debt as long-term debt, including current portion of long-term debt, as reported in our (continuing operations) balance sheet less unrestricted cash as reported in our (continuing operations) balance sheet, which were $72.4 million and $65.8 million, respectively, as of July 4, 2021 and $72.4 million and $58.8 million, respectively, as of April 4, 2021. Net debt is a non-GAAP measures which we believe assist investors in understanding of our management of our overall liquidity and financial flexibility.

Comparable Restaurant Sales Mix by Channel – Pollo Tropical

Channel

Second Quarter
2021(1)

% of Total

Second Quarter
2020

% of Total

Second Quarter
2019

% of Total

($ in thousands)

Counter(2)

$

24,389

27

%

$

11,262

18

%

$

44,038

49

%

Drive-thru

52,245

58

%

44,165

70

%

42,970

47

%

Delivery

9,012

10

%

4,954

8

%

1,666

2

%

Online

3,100

4

%

1,722

3

%

1,293

1

%

Catering

1,062

1

%

477

1

%

653

1

%

Total

$

89,808

100

%

$

62,580

100

%

$

90,620

100

%

(1) Second quarter 2021 comparable restaurant sales based on the comparable second quarter 2020 restaurants.

(2) Counter sales include dine-in and counter take-out sales.

Adjusted EBITDA for Pollo Tropical increased to $11.9 million in the second quarter of 2021 from $5.0 million in the second quarter of 2020, an increase of 139.3%. The increase was primarily due to the impact of higher restaurant sales, and improved cost of sales margins, partially offset by higher advertising expenses and repair and maintenance costs. Restaurant-level Adjusted EBITDA for Pollo Tropical as a percentage of restaurant sales continues to be strong, with second quarter Restaurant-level Adjusted EBITDA as a percentage of restaurant sales of 20.4% in 2021 compared to 16.3% in 2020 and 23.1% in 2019. Continuing Operations Adjusted EBITDA increased to $9.1 million compared to $2.6 million in 2020.

Comparable Restaurant Average Weekly Sales – Pollo Tropical

Period

April

May

June

2021

$52,594

$50,908

$49,351

2020

$27,055

$37,177

$41,744

2019

$53,303

$51,646

$50,827

Pollo Tropical average weekly sales trends from April/May to June/July have historically declined due to reductions in visitors to Florida during summer months and the negative traffic impact of school closures.

Taco Cabana restaurant sales increased 13.5% to $66.1 million in the second quarter of 2021 from $58.3 million in the second quarter of 2020 due primarily to a comparable restaurant sales increase of 15.6%. Taco Cabana comparable restaurant sales increased across all sales channels from the second quarter of 2020 to the second quarter of 2021 due to the negative impact of the pandemic on dine-in traffic and closures of our dining rooms during a portion of the second quarter of 2020. The increase in comparable restaurant sales resulted from an increase in comparable restaurant transactions of 13.0% and an increase in the net impact of product/channel mix and pricing of 2.6%. The increase in product/channel mix and pricing was driven primarily by menu price increases of 4.3%.

Comparable Restaurant Sales Mix by Channel – Taco Cabana

Channel

Second Quarter
2021(1)

% of Total

Second Quarter
2020

% of Total

Second Quarter
2019

% of Total

($ in thousands)

Counter(2)

$

11,595

18

%

$

6,339

11

%

$

29,410

42

%

Drive-thru

46,977

71

%

45,982

81

%

37,979

54

%

Delivery

4,525

7

%

2,727

5

%

981

1

%

Online

1,698

3

%

1,624

3

%

1,232

2

%

Catering

951

1

%

207

%

350

1

%

Total

$

65,746

100

%

$

56,879

100

%

$

69,952

100

%

(1) Second quarter 2021 comparable restaurant sales based on the comparable second quarter 2020 restaurants.

(2) Counter sales include dine-in and counter take-out sales.

Adjusted EBITDA for Taco Cabana increased to $3.0 million in the second quarter of 2021 from $2.7 million in the second quarter of 2020. The increase was primarily due to higher restaurant sales, partially offset by higher repair and maintenance costs including winter storm costs such as repairs and landscaping debris removal costs, increased advertising and higher delivery fee expense. Second quarter Adjusted EBITDA for Taco Cabana as a percentage of total revenues was 4.6% in 2020 and in 2021, and Restaurant-level Adjusted EBITDA for Taco Cabana as a percentage of restaurant sales increased from 12.6% in 2020 to 12.8% in 2021. Second quarter Adjusted EBITDA as a percentage of total revenues decreased compared to 5.3% in 2019 and Restaurant-level Adjusted EBITDA for Taco Cabana as a percentage of restaurant sales increased compared to 12.1% in 2019.

Restaurant Portfolio

As of July 4, 2021, there were 138 Company-owned Pollo Tropical restaurants, 142 Company-owned Taco Cabana restaurants, 29 franchised Pollo Tropical restaurants in the U.S., Puerto Rico, Panama, Guyana, Ecuador and the Bahamas, and six franchised Taco Cabana restaurants in the U.S.

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE AND SIX MONTHS ENDED JULY 4, 2021 AND JUNE 28, 2020

(In thousands, except share and per share data)

(Unaudited)

       

Three Months Ended (a)

Six Months Ended (a)

July 4, 2021

June 28, 2020

July 4, 2021

June 28, 2020

Revenues:

Restaurant sales

$

90,764

$

63,292

$

178,604

$

149,013

Franchise royalty revenues and fees

391

146

766

550

Total revenues

91,155

63,438

179,370

149,563

Costs and expenses:

Cost of sales

27,558

20,321

54,859

48,052

Restaurant wages and related expenses (b)

21,901

15,108

42,240

36,145

Restaurant rent expense

5,824

5,660

11,701

11,300

Other restaurant operating expenses

14,215

10,823

27,520

23,347

Advertising expense

2,898

1,174

5,273

4,678

General and administrative expenses (b)(c)

11,050

9,240

21,716

19,458

Depreciation and amortization

4,875

5,455

9,963

10,948

Impairment and other lease charges (d)

(202

)

1,932

(254

)

5,628

Closed restaurant rent, net of sublease income (e)

966

1,258

1,716

2,381

Other expense (income), net (f)

170

698

293

927

Total operating expenses

89,255

71,669

175,027

162,864

Income (loss) from operations

1,900

(8,231

)

4,343

(13,301

)

Interest expense

61

63

122

126

Income (loss) from continuing operations before income taxes

1,839

(8,294

)

4,221

(13,427

)

Provision for (benefit from) income taxes (g)

(841

)

(1,687

)

2,236

(3,112

)

Income (loss) from continuing operations

2,680

(6,607

)

1,985

(10,315

)

Income (loss) from discontinued operations, net of tax

(2,763

)

(1,736

)

(4,157

)

(5,345

)

Net loss

(83

)

(8,343

)

(2,172

)

(15,660

)

Earnings (loss) per common share:

Continuing operations – basic

$

0.11

$

(0.26

)

$

0.07

$

(0.41

)

Discontinued operations – basic

(0.11

)

(0.07

)

(0.16

)

(0.21

)

Basic

(0.33

)

(0.09

)

(0.62

)

Continuing operations – diluted

0.11

(0.26

)

0.07

(0.41

)

Discontinued operations – diluted

(0.11

)

(0.07

)

(0.16

)

(0.21

)

Diluted

(0.33

)

(0.09

)

(0.62

)

Weighted average common shares outstanding:

Basic

25,496,038

25,267,404

25,410,123

25,393,325

Diluted

25,496,038

25,267,404

25,410,783

25,393,325

(a)  

The Company uses a 52- or 53-week fiscal year that ends on the Sunday closest to December 31. The three- and six-month periods ended July 4, 2021 and June 28, 2020 each included 13 and 26 weeks, respectively.

(b)  

Restaurant wages and related expenses include stock-based compensation of $15 and $27 for the three months ended July 4, 2021 and June 28, 2020, respectively, and $31 and $38 for the six months ended July 4, 2021 and June 28, 2020, respectively. General and administrative expenses include stock-based compensation expense of $1,046 and $850 for the three months ended July 4, 2021 and June 28, 2020, respectively, and $2,040 and $1,348 for the six months ended July 4, 2021 and June 28, 2020, respectively.

(c)  

See note (f) 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)

       

July 4, 2021

January 3, 2021

Assets

Cash

$

65,830

$

49,778

Current assets held for sale

159,564

8,478

Other current assets

19,825

25,770

Property and equipment, net

94,773

97,867

Operating lease right-of-use assets

157,533

164,665

Goodwill

56,307

56,307

Non-current assets held for sale

160,023

Other assets

6,557

5,855

Total assets

$

560,389

$

568,743

Liabilities and Stockholders’ Equity

Current portion of long-term debt

$

71,541

$

816

Current liabilities held for sale

120,956

27,225

Other current liabilities

39,942

36,868

Long-term debt, net of current portion

810

71,588

Operating lease liabilities

166,793

174,116

Deferred tax liabilities

2,353

2,269

Non-current liabilities held for sale

98,323

Other non-current liabilities

9,981

9,757

Total liabilities

412,376

420,962

Stockholders’ equity

148,013

147,781

Total liabilities and stockholders’ equity

$

560,389

$

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

Six Months Ended

July 4, 2021

June 28, 2020

July 4, 2021

June 28, 2020

Segment revenues:

Pollo Tropical

$

91,155

$

63,438

$

179,370

$

149,563

Taco Cabana (a)

66,352

58,430

122,876

119,004

Total revenues

$

157,507

$

121,868

$

302,246

$

268,567

Change in comparable restaurant sales (b):

Pollo Tropical

43.5

%

(31.6

)

%

21.1

%

(19.5

)

%

Taco Cabana

15.6

%

(19.2

)

%

5.5

%

(16.4

)

%

Average sales per Company-owned restaurant:

Pollo Tropical

Comparable restaurants (c)

$

662

$

461

$

1,304

$

1,076

Non-comparable restaurants (d)

418

369

760

857

Total Company-owned (e)

658

458

1,294

1,067

Taco Cabana

Comparable restaurants (c)

$

465

$

399

$

859

$

809

Non-comparable restaurants (d)

347

435

767

740

Total Company-owned (e)

464

399

858

806

Income (loss) before income taxes:

Pollo Tropical

$

4,336

$

(5,186

)

$

9,271

$

(7,013

)

Taco Cabana (a)

(4,338

)

(4,900

)

(10,029

)

(13,395

)

Adjusted EBITDA:

Pollo Tropical

$

11,949

$

4,993

$

24,296

$

13,773

Taco Cabana

3,039

2,672

3,836

1,765

Restaurant-level Adjusted EBITDA (f):

Pollo Tropical

$

18,498

$

10,338

$

37,278

$

25,772

Taco Cabana

8,445

7,313

14,824

12,597

(a)  

Results of Taco Cabana are included in discontinued operations. Adjusted EBITDA and Restaurant-level Adjusted EBITDA include corporate allocations that were not included in discontinued operations.

(b)  

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.

(c)  

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.

(d)  

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.

(e)  

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.

(f)  

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.”

FIESTA RESTAURANT GROUP, INC.

Supplemental Information

The following table sets forth certain unaudited supplemental data for the periods indicated:

       

Three Months Ended

Six Months Ended

July 4, 2021

June 28, 2020

July 4, 2021

June 28, 2020

Company-owned restaurant openings:

Pollo Tropical

Taco Cabana

1

Total new restaurant openings

1

Company-owned restaurant closings:

Pollo Tropical

(1

)

Taco Cabana

(1

)

(1

)

(19

)

Net change in restaurants

(1

)

(1

)

(19

)

Number of Company-owned restaurants:

Pollo Tropical

138

141

138

141

Taco Cabana

142

146

142

146

Total Company-owned restaurants

280

287

280

287

Number of franchised restaurants:

Pollo Tropical

29

33

29

33

Taco Cabana

6

7

6

7

Total franchised restaurants

35

40

35

40

Total number of restaurants:

Pollo Tropical

167

174

167

174

Taco Cabana

148

153

148

153

Total restaurants

315

327

315

327

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):

   

Three Months Ended

July 4, 2021

June 28, 2020

Pollo Tropical:

(a)

(a)

Restaurant sales

$

90,764

$

63,292

Cost of sales

27,558

30.4

%

20,321

32.1

%

Restaurant wages and related expenses

21,901

24.1

%

15,108

23.9

%

Restaurant rent expense

5,824

6.4

%

5,660

8.9

%

Other restaurant operating expenses

14,100

15.5

%

10,714

16.9

%

Advertising expense

2,898

3.2

%

1,178

1.9

%

Depreciation and amortization

4,844

5.3

%

5,233

8.3

%

Impairment and other lease charges

(332

)

(0.4

)

%

1,932

3.1

%

Closed restaurant rent expense, net of sublease income

567

0.6

%

671

1.1

%

Taco Cabana (b):

Restaurant sales

$

66,132

$

58,255

Cost of sales

18,823

28.5

%

17,486

30.0

%

Restaurant wages and related expenses

20,640

31.2

%

18,639

32.0

%

Restaurant rent expense

5,657

8.6

%

5,619

9.6

%

Other restaurant operating expenses (c)

10,574

16.0

%

8,275

14.2

%

Advertising expense (c)

2,017

3.0

%

965

1.7

%

Depreciation and amortization (c)

3,992

6.0

%

4,332

7.4

%

Impairment and other lease charges (c)

494

0.7

%

353

0.6

%

Closed restaurant rent expense, net of sublease income (c)

640

1.0

%

1,159

2.0

%

Six Months Ended

July 4, 2021

June 28, 2020

Pollo Tropical:

(a)

(a)

Restaurant sales

$

178,604

$

149,013

Cost of sales

54,859

30.7

%

48,052

32.2

%

Restaurant wages and related expenses

42,240

23.7

%

36,145

24.3

%

Restaurant rent expense

11,701

6.6

%

11,300

7.6

%

Other restaurant operating expenses

27,284

15.3

%

23,100

15.5

%

Advertising expense

5,273

3.0

%

4,682

3.1

%

Depreciation and amortization

9,782

5.5

%

10,511

7.1

%

Impairment and other lease charges

(222

)

(0.1

)

%

5,628

3.8

%

Closed restaurant rent expense, net of sublease income

807

0.5

%

1,273

0.9

%

Taco Cabana (b):

Restaurant sales

$

122,456

$

118,620

Cost of sales

34,608

28.3

%

36,031

30.4

%

Restaurant wages and related expenses

38,345

31.3

%

38,097

32.1

%

Restaurant rent expense

11,413

9.3

%

11,318

9.5

%

Other restaurant operating expenses (c)

19,686

16.1

%

17,400

14.7

%

Advertising expense (c)

3,630

3.0

%

3,244

2.7

%

Depreciation and amortization (c)

7,980

6.5

%

8,484

7.2

%

Pre-opening costs

%

69

0.1

%

Impairment and other lease charges (c)

262

0.2

%

890

0.8

%

Closed restaurant rent expense, net of sublease income (c)

1,491

1.2

%

2,189

1.8

%

(a)  

Percent of restaurant sales for the applicable segment.

(b)  

Results of Taco Cabana are included in discontinued operations.

(c)  

Includes corporate allocations not included in discontinued operations.

FIESTA RESTAURANT GROUP, INC.
Supplemental Non-GAAP Information
The following table sets forth certain unaudited supplemental financial data for the periods indicated
(In thousands):

Consolidated Adjusted EBITDA (including Continuing Operations Adjusted EBITDA and Discontinued Operations Adjusted EBITDA) and Restaurant-level Adjusted EBITDA are non-GAAP financial measures. Adjusted EBITDA is defined as earnings (loss) attributable to the applicable operating segments before interest expense, income taxes, depreciation and amortization, impairment and other lease charges, goodwill impairment, closed restaurant rent expense, net of sublease income, stock-based compensation expense, other expense (income), net, and certain significant items for each segment that are related to strategic changes and/or are not related to the ongoing operation of our restaurants as set forth in the reconciliation table below. Adjusted EBITDA for each of our segments includes an allocation of general and administrative expenses associated with administrative support for executive management, information systems and certain finance, legal, supply chain, human resources, construction and other administrative functions. Restaurant-level Adjusted EBITDA is defined as Adjusted EBITDA excluding franchise royalty revenues and fees, pre-opening costs and general and administrative expenses (including corporate-level general and administrative expenses). The “Other” column includes corporate costs that were allocated to Taco Cabana and are not included in discontinued operations.

Adjusted EBITDA for each of our segments is the primary measure of segment profit or loss used by our chief operating decision maker for purposes of allocating resources to our segments and assessing their performance. In addition, management believes that Consolidated Adjusted EBITDA and Restaurant-level Adjusted EBITDA, when viewed with our results of operations calculated in accordance with GAAP and our reconciliation of net income (loss) to Consolidated Adjusted EBITDA and Restaurant-level Adjusted EBITDA (i) provide useful information about our operating performance and period-over-period changes, (ii) provide additional information that is useful for evaluating the operating performance of our business, and (iii) permit investors to gain an understanding of the factors and trends affecting our ongoing earnings, from which capital investments are made and debt is serviced. However, such measures are not measures of financial performance or liquidity under GAAP and, accordingly, should not be considered as alternatives to net income or cash flow from operating activities as indicators of operating performance or liquidity. Also, these measures may not be comparable to similarly titled captions of other companies.

Three Months Ended

Pollo Tropical

Other

Continuing
Operations

Taco Cabana

Other

Discontinued
Operations

July 4, 2021:

Net loss

$

(83

)

$

(2,763

)

Loss from discontinued operations, net of tax

2,763

Provision for (benefit from) income taxes

(841

)

922

Income (loss) before taxes

$

4,336

$

(2,497

)

$

1,839

$

(4,338

)

$

2,497

$

(1,841

)

Add:

Non-general and administrative adjustments:

Depreciation and amortization

4,844

31

4,875

3,992

(31

)

3,961

Impairment and other lease charges

(332

)

130

(202

)

494

(130

)

364

Interest expense

994

(933

)

61

973

933

1,906

Closed restaurant rent expense, net of sublease income

567

399

966

640

(399

)

241

Loss on extinguishment of debt

Other expense (income), net

130

40

170

76

(40

)

36

Stock-based compensation expense

15

15

24

24

Total non-general and administrative adjustments

6,218

(333

)

5,885

6,199

333

6,532

General and administrative adjustments:

Stock-based compensation expense

641

405

1,046

561

(405

)

156

Restructuring costs and retention bonuses

18

18

14

14

Digital and brand repositioning costs

335

335

275

275

Transaction costs

401

(401

)

328

401

729

Total general and administrative adjustments

1,395

4

1,399

1,178

(4

)

1,174

Adjusted EBITDA(1)

$

11,949

$

(2,826

)

$

9,123

$

3,039

$

2,826

$

5,865

Adjusted EBITDA as a percentage of total revenues

13.1

%

10.0

%

4.6

%

8.8

%

Restaurant-level adjustments:

Add: Other general and administrative expense(a)

6,940

2,711

9,651

5,626

(2,711

)

2,915

Less: Franchise royalty revenue and fees

391

391

220

220

Restaurant-level Adjusted EBITDA(1)

$

18,498

$

(115

)

$

18,383

$

8,445

$

115

$

8,560

Restaurant-level Adjusted EBITDA as a percentage of restaurant sales

20.4

%

20.3

%

12.8

%

12.9

%

                                         

Three Months Ended:

Pollo Tropical

Other

Continuing
Operations

Taco Cabana

Other

Discontinued
Operations

June 28, 2020:

Net loss

$

(8,343

)

$

(1,736

)

Loss from discontinued operations, net of tax

1,736

Benefit from income taxes

(1,687

)

(56

)

Income (loss) before taxes

$

(5,186

)

$

(3,108

)

$

(8,294

)

$

(4,900

)

$

3,108

$

(1,792

)

Add:

Non-general and administrative adjustments:

Depreciation and amortization

5,233

222

5,455

4,332

(222

)

4,110

Impairment and other lease charges

1,932

1,932

353

353

Interest expense

625

(562

)

63

612

562

1,174

Closed restaurant rent expense, net of sublease income

671

587

1,258

1,159

(587

)

572

Other expense (income), net

644

54

698

140

(54

)

86

Stock-based compensation expense

27

27

42

42

Total non-general and administrative adjustments

9,132

301

9,433

6,638

(301

)

6,337

General and administrative adjustments:

Stock-based compensation expense

523

327

850

436

(327

)

109

Restructuring costs and retention bonuses

452

133

585

439

(133

)

306

Digital and brand repositioning costs

72

72

59

59

Total general and administrative adjustments

1,047

460

1,507

934

(460

)

474

Adjusted EBITDA(1)

$

4,993

$

(2,347

)

$

2,646

$

2,672

$

2,347

$

5,019

Adjusted EBITDA as a percentage of total revenues

7.9

%

4.2

%

4.6

%

8.6

%

Restaurant-level adjustments:

Add: Other general and administrative expense(a)

5,491

2,242

7,733

4,816

(2,242

)

2,574

Less: Franchise royalty revenue and fees

146

146

175

175

Restaurant-level Adjusted EBITDA(1)

$

10,338

$

(105

)

$

10,233

$

7,313

$

105

$

7,418

Restaurant-level Adjusted EBITDA as a percentage of restaurant sales

16.3

%

16.2

%

12.6

%

12.7

%

Six Months Ended

Pollo Tropical

Other

Continuing
Operations

Taco Cabana

Other

Discontinued
Operations

July 4, 2021:

Net loss

$

(2,172

)

$

(4,157

)

Loss from discontinued operations, net of tax

4,157

Provision for (benefit from) income taxes

2,236

(822

)

Income (loss) before taxes

$

9,271

$

(5,050

)

$

4,221

$

(10,029

)

$

5,050

$

(4,979

)

Add:

Non-general and administrative adjustments:

Depreciation and amortization

9,782

181

9,963

7,980

(181

)

7,799

Impairment and other lease charges

(222

)

(32

)

(254

)

262

32

294

Interest expense

1,964

(1,842

)

122

2,026

1,842

3,868

Closed restaurant rent expense, net of sublease income

807

909

1,716

1,491

(909

)

582

Other expense (income), net

196

97

293

(28

)

(97

)

(125

)

Stock-based compensation expense

31

31

50

50

Total non-general and administrative adjustments

12,558

(687

)

11,871

11,781

687

12,468

General and administrative adjustments:

Stock-based compensation expense

1,242

798

2,040

1,081

(798

)

283

Restructuring costs and retention bonuses

18

18

14

14

Digital and brand repositioning costs

651

651

534

534

Transaction costs

556

(556

)

455

556

1,011

Total general and administrative adjustments

2,467

242

2,709

2,084

(242

)

1,842

Adjusted EBITDA(a)

$

24,296

$

(5,495

)

$

18,801

$

3,836

$

5,495

$

9,331

Adjusted EBITDA as a percentage of total revenues(a)

13.5

%

10.5

%

3.1

%

7.6

%

Restaurant-level adjustments:

Add: Other general and administrative expense(b)

13,748

5,259

19,007

11,408

(5,259

)

6,149

Less: Franchise royalty revenue and fees

766

766

420

420

Restaurant-level Adjusted EBITDA(a)

$

37,278

$

(236

)

$

37,042

$

14,824

$

236

$

15,060

Restaurant-level Adjusted EBITDA as a percentage of restaurant sales(a)

20.9

%

20.7

%

12.1

%

12.3

%

                                         

Six Months Ended

Pollo Tropical

Other

Continuing
Operations

Taco Cabana

Other

Discontinued
Operations

June 28, 2020:

Net loss

$

(15,660

)

$

(5,345

)

Loss from discontinued operations, net of tax

5,345

Benefit from income taxes

(3,112

)

(1,636

)

Income (loss) before taxes

$

(7,013

)

$

(6,414

)

$

(13,427

)

$

(13,395

)

$

6,414

$

(6,981

)

Add:

Non-general and administrative adjustments:

Depreciation and amortization

10,511

437

10,948

8,484

(437

)

8,047

Impairment and other lease charges

5,628

5,628

890

890

Interest expense

1,108

(982

)

126

1,090

982

2,072

Closed restaurant rent expense, net of sublease income

1,273

1,108

2,381

2,189

(1,108

)

1,081

Other expense (income), net

751

176

927

941

(176

)

765

Stock-based compensation expense in restaurant wages

38

38

67

67

Total non-general and administrative adjustments

19,309

739

20,048

13,661

(739

)

12,922

General and administrative adjustments:

Stock-based compensation expense

833

515

1,348

902

(515

)

387

Restructuring and costs and retention bonuses

452

133

585

439

(133

)

306

Digital and brand repositioning costs

192

192

158

158

Total general and administrative adjustments

1,477

648

2,125

1,499

(648

)

851

Adjusted EBITDA

$

13,773

$

(5,027

)

$

8,746

$

1,765

$

5,027

$

6,792

Adjusted EBITDA as a percentage of total revenues

9.2

%

5.8

%

1.5

%

5.7

%

Restaurant-level adjustments:

Add: Pre-opening costs

69

69

Add: Other general and administrative expense(b)

12,549

4,784

17,333

11,147

(4,784

)

6,363

Less: Franchise royalty revenue and fees

550

550

384

384

Restaurant-level Adjusted EBITDA

$

25,772

$

(243

)

$

25,529

$

12,597

$

243

$

12,840

Restaurant-level Adjusted EBITDA as a percentage of restaurant sales

17.3

%

17.1

%

10.6

%

10.8

%

(a)   

We estimate that Winter Storm Uri negatively impacted Taco Cabana and Consolidated Adjusted EBITDA and Taco Cabana and Consolidated Restaurant-level Adjusted EBITDA by approximately $3.1 million in the six months ended July 4, 2021. We estimate that Winter Storm Uri negatively impacted Taco Cabana Adjusted EBITDA as a percentage of total revenues and Taco Cabana Restaurant-level Adjusted EBITDA as a percentage of restaurant sales by approximately 2.4% and 2.2%, respectively.

(b)   

Excludes general and administrative adjustments above.

FIESTA RESTAURANT GROUP, INC.
Supplemental Non-GAAP Information
The following table sets forth certain unaudited supplemental financial data for the periods indicated
(In thousands of dollars, except per share amounts):

Adjusted net income and related adjusted diluted earnings per share are non-GAAP financial measures. Adjusted net income is defined as net income (loss) before discontinued operations, impairment and other lease charges, goodwill impairment, closed restaurant rent expense, net of sublease income, other expense (income), net, board and shareholder matter costs, restructuring costs and retention bonuses, certain legal settlements and related costs and other significant items that are related to strategic changes and/or are not related to the ongoing operation of our restaurants. Management believes that adjusted net income and related adjusted earnings per diluted share, when viewed with our results of operations calculated in accordance with GAAP (i) provide useful information about our operating performance and period-over-period growth, (ii) provide additional information that is useful for evaluating the operating performance of our business, and (iii) permit investors to gain an understanding of the factors and trends affecting our ongoing earnings, from which capital investments are made and debt is serviced. However, such measures are not measures of financial performance or liquidity under GAAP and, accordingly should not be considered as alternatives to net income or net income per share as indicators of operating performance or liquidity. Also, these measures may not be comparable to similarly titled captions of other companies.

(Unaudited)

Three Months Ended

July 4, 2021

June 28, 2020

Income
(Loss)
Before
Income
Taxes

Benefit
From
Income
Taxes (a)

Net
Income
(Loss)

Diluted
EPS

Loss
Before
Income
Taxes

Benefit
From
Income
Taxes (a)

Net
Income
(Loss)

Diluted
EPS

Reported – GAAP Net Income

$

(83

)

$

$

(8,343

)

$

(0.33

)

Loss from discontinued operations, net of tax

2,763

0.11

1,736

0.07

Income (loss) from continuing operations

$

1,839

$

(841

)

$

2,680

$

0.11

$

(8,294

)

$

(1,687

)

$

(6,607

)

$

(0.26

)

Adjustments:

Non-general and administrative expense adjustments:

Income tax due to tax law change (a)

662

(662

)

(0.03

)

Deferred tax asset valuation allowance (b)

255

(255

)

(0.01

)

(734

)

734

0.03

Impairment and other lease charges (c)

(202

)

(50

)

(152

)

(0.01

)

1,932

482

1,450

0.06

Closed restaurant rent expense, net of sublease income (d)

966

241

725

0.03

1,258

314

944

0.04

Other expense (income), net (e)

170

42

128

0.01

698

174

524

0.02

Total non-general and administrative expense

934

488

446

0.02

3,888

898

2,990

0.12

General and administrative expense adjustments:

Restructuring costs and retention bonuses (f)

18

4

14

585

146

439

0.02

Digital and brand repositioning costs (g)

335

84

251

0.01

72

18

54

Total general and administrative expense

353

88

265

0.01

657

164

493

0.02

Adjusted – Non-GAAP

$

3,126

$

(265

)

$

3,391

$

0.13

$

(3,749

)

$

(625

)

$

(3,124

)

$

(0.12

)

(Unaudited)

Six Months Ended

July 4, 2021

June 28, 2020

Income
(Loss)
Before
Income
Taxes

Provision
For Income
Taxes (a)

Net
Income
(Loss)

Diluted
EPS

Loss
Before
Income
Taxes

Benefit
From
Income
Taxes (a)

Net Loss

Diluted
EPS

Reported – GAAP Net Income

$

(2,172

)

$

(0.09

)

$

(15,660

)

$

(0.62

)

Loss (income) from discontinued operations, net of tax

4,157

0.16

5,345

0.21

Income (loss) from continuing operations

$

4,221

$

2,236

$

1,985

$

0.07

$

(13,427

)

$

(3,112

)

$

(10,315

)

$

(0.41

)

Adjustments:

Non-general and administrative expense adjustments:

Income tax due to tax law change (a)

(563

)

563

0.02

2,234

(2,234

)

(0.09

)

Deferred tax asset valuation allowance (b)

(376

)

376

0.01

(2,032

)

2,032

0.08

Impairment and other lease charges (c)

(254

)

(63

)

(191

)

(0.01

)

5,628

1,404

4,224

0.17

Closed restaurant rent expense, net of sublease income (d)

1,716

428

1,288

0.05

2,381

594

1,787

0.07

Other expense (income), net (e)

293

73

220

0.01

927

231

696

0.03

Total non-general and administrative expense

1,755

(501

)

2,256

0.09

8,936

2,431

6,505

0.26

General and administrative expense adjustments:

Restructuring costs and retention bonuses (f)

18

4

14

585

146

439

0.02

Digital and brand repositioning costs (g)

651

162

489

0.02

192

48

144

0.01

Total general and administrative expense

669

166

503

0.02

777

194

583

0.02

Adjusted – Non-GAAP

$

6,645

$

1,901

$

4,744

$

0.19

$

(3,714

)

$

(487

)

$

(3,227

)

$

(0.13

)

(a)   

The provision for (benefit from) income taxes related to the adjustments was calculated using the Company’s combined federal statutory and estimated state rate of 25.0% for the periods ending July 4, 2021 and June 28, 2020. In the three months ended April 4, 2021, we recorded an out-of-period adjustment totaling $1.5 million related to tax depreciation on certain assets placed into service several years prior to the formation of Fiesta in 2011, of which $0.6 million is attributable to a change in tax rates as a result of the Tax Cuts and Jobs Act of 2017. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act includes provisions that allow net operating losses in 2018, 2019, and 2020 to be carried back for up to five years and eliminates the 80% taxable income limitation on net operating loss deductions for 2018 through 2020. The CARES Act also includes technical amendments that are retroactive to 2018 which permit certain assets to be classified as qualified improvement property and expensed immediately. These changes allowed us to record an incremental benefit of $1.8 million in the three months ended March 29, 2020, which represents the impact of carrying net operating losses from 2018 and 2019 back to years with a higher federal corporate income tax rate.

(b)   

We recorded adjustments totaling $(0.3) million and $0.4 million for the three and six months ended July 4, 2021, respectively, to our valuation allowance against deferred income tax assets primarily related to changes in our deferred income tax assets and the expected timing of the reversal of these temporary differences, which included a $0.9 million increase in our valuation allowance as a result of changes in our net deferred tax liabilities related to the out-of-period adjustment in the first quarter of 2021. We recorded an additional $0.7 million and $2.0 million valuation allowance for the three and six months ended June 28, 2020, respectively, against deferred income tax assets where it was determined to be more likely than not that the deferred income tax assets will not be realized through the reversal of existing deferred tax liabilities.

(c)   

Impairment and other lease charges for the three and six months ended July 4, 2021, primarily relate to gains from lease terminations.

   

Impairment and other lease charges for the three and six months ended June 28, 2020, consist of impairment charges of $1.1 million and $4.8 million, respectively, and other lease charges of $0.9 million. The impairment charges primarily relate to the write-down of assets held for sale to their fair value less costs to sell for the three and six months ended June 28, 2020 and assets for three underperforming Pollo Tropical restaurants, two of which we closed in the third quarter of 2020, for the six months ended June 28, 2020. The other lease charges primarily relate to lease termination charges of $0.9 million for restaurant locations we decided not to develop.

(d)   

Closed restaurant rent expense, net of sublease income for the three and six months ended July 4, 2021, primarily consists of closed restaurant lease costs of $2.3 million and $4.6 million, respectively, partially offset by sublease income of $(1.3) million and $(2.9) million, respectively. Closed restaurant rent expense, net of sublease income for the three and six months ended June 28, 2020, primarily consists of closed restaurant lease costs of $2.3 million and $4.6 million, respectively, partially offset by sublease income of $(1.1) million and $(2.2) million, respectively.

(e)   

Other expense (income), net for the three and six months ended July 4, 2021, primarily consists of costs for the removal, transfer, and storage of equipment from closed restaurants and other closed restaurant related costs. Other expense, net for the three and six months ended June 28, 2020, primarily consists of the write-off of site development costs of $0.6 million and costs for the removal, transfer, and storage of equipment from closed restaurants and other closure related costs.

(f)   

Restructuring costs and retention bonuses for the three and six months ended June 28, 2020 include severance costs related to terminations in response to the COVID-19 pandemic.

(g)   

Digital and brand repositioning costs for the three and six months ended July 4, 2021 and June 28, 2020, include consulting costs related to repositioning the digital experience for our customers.