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Fiesta Restaurant Group, Inc. Reports Third Quarter 2017 Results

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Fiesta Restaurant Group, Inc. ("Fiesta" or the "Company") (NASDAQ: FRGI), parent company of the Pollo Tropical® and Taco Cabana® fast
casual restaurant brands, today reported results for the 13-week third
quarter ended on October 1, 2017. The Company also provided an update on
senior executive appointments, meaningful progress it is making on its
Strategic Renewal Plan (the "Plan") to drive long-term shareholder value
creation, and corporate governance policies.

Fiesta President and Chief Executive Officer Richard Stockinger said,
"Prior to the arrival of two significant hurricanes in late August and
early September, we were experiencing improved sales and transaction
trends at Pollo Tropical with comparable restaurant sales rebounding
from high single digit declines to low single digit declines. After the
temporary closing of all our Pollo Tropical restaurants in Florida and
Atlanta due to the storms, we are pleased that sales are beginning to
approach pre-hurricane comparable levels. October estimated comparable
sales for the five week fiscal period ending November 6, 2017 were
approximately flat at Pollo Tropical, including the positive impact from
lapping Hurricane Matthew in the prior year period of 3.4%."

Mr. Stockinger added, "We continue to execute our Plan of operational
and concept change at Taco Cabana where we have intentionally reduced
our media presence over an extended period and eliminated most
promotional activities. While these steps are impeding sales performance
at Taco Cabana year over year in the near-term, we are experiencing
improving qualitative indicators including an increase in guest
compliments and fewer guest complaints. This is similar to our
experience at Pollo Tropical ahead of the reversal of its sales
trajectory."

Mr. Stockinger concluded, "While the hurricanes hindered our brand
re-launches, Pollo Tropical's brand re-launch has begun recently with
the introduction of new menu offerings supported by a new advertising
campaign. We will complete our full Taco Cabana brand re-launch by early
next year under the leadership of our new brand president, with much
work yet to do."

Senior Executive Appointments

The Company has recently appointed a number of accomplished executives
who have extensive restaurant and retail experience to complete the
composition of the senior management team. Chuck Locke has joined the
Company as Taco Cabana President, having previously served as Chief
Operating Officer at Anthony's Coal Fired Pizza, and Tony Dinkins, who
was previously with Cable and Wireless Communications, has been
appointed Senior Vice President of Human Resources at Fiesta. Maria
Chang Mayer, General Counsel of AMG and Widex USA, one of the world's
largest hearing aid manufacturers that operates hundreds of retail
hearing aid clinics nationwide, was appointed General Counsel and
Secretary at Fiesta and will join the Company this month. Additionally,
Danny Meisenheimer, Fiesta Chief Operating Officer, has assumed the
additional role of Pollo Tropical President.

Strategic Renewal Plan

The Company continues to execute its Plan making meaningful progress
since last quarter in all four areas of focus: 1) revitalizing
restaurant performance in core markets; 2) managing capital and
financial discipline; 3) establishing platforms for long-term growth;
and 4) optimizing each brands' restaurant portfolio. The items detailed
below reflect Fiesta's accomplishments to date.

Revitalizing Restaurant Brands in Core Markets

  • Fiesta has implemented refined recipes that improve food quality with
    fresh and clean ingredients, positively impacting approximately 90% of
    each brand's menu.
  • The Company has uniquely vertically integrated its chicken supply
    chain for Pollo Tropical allowing it to control the feed and breed of
    all chickens purchased with the objective of "no antibiotics ever" by
    next year.
  • Multiple operational initiatives have been put in place to deliver
    high quality execution with consistency.
  • Pollo Tropical launched a new creative TV, radio, billboard and social
    media advertising campaign in late October which features freshly
    prepared menu offerings.
  • In October, Pollo Tropical rolled out a new menu featuring new menu
    items which is demonstrating promising initial results including
    higher check averages. Research validates the new menu direction
    including new and future opportunities.
  • Taco Cabana recently launched a new advertising campaign that features
    for a limited time three new chicken fajita tacos with composed
    topping recipes.
  • New digital menu boards are in the process of being rolled out across
    both brands featuring enhanced displays with flexibility to rotate by
    daypart and feature promotions and videos.
  • New labor models have been implemented at both brands to improve speed
    of service, transaction flow, and the quality and consistency of
    hospitality.
  • Fiesta continues to upgrade its kitchens and restaurant presentation,
    including added signage and exterior lighting to improve visibility.
  • Regional chefs were added to the field structure to enhance food
    knowledge, provide culinary training and ensure adherence to high
    quality operating and food safety standards.

Managing Capital and Financial Discipline

  • Based on research and financial modeling, the Company has introduced a
    tiered menu pricing strategy across both brands in October.
  • Nine Pollo Tropical Company-owned restaurants have been remodeled this
    year and one Taco Cabana restaurant will be remodeled by the end of
    the year.
  • Fiesta is in the process of developing a preventative maintenance
    program to improve the longevity of its restaurant base.
  • Restaurant prototypes for both brands are being redesigned to optimize
    the guest experience and deliver attractive investment returns at
    lower costs.

Establishing Platforms for Growth

  • The Company launched an outsourced call center to answer guest
    inquiries and handle catering orders initially at Pollo Tropical. This
    is a significant source of future growth at both brands.
  • Fiesta is working with new partners to establish comprehensive digital
    capabilities that will include refining delivery, catering, mobile
    apps, online ordering and loyalty platforms for implementation in 2018.
  • The Company continues to refine the positioning of both brands in core
    markets and outside of core markets beginning with Pollo Tropical
    locations in North Florida and the Atlanta metropolitan area.

Optimizing our Restaurant Portfolio

  • Fiesta has rationalized its restaurant portfolio at both brands with
    the closure of several unprofitable restaurants.
  • The Company is updating its franchise disclosure documents to support
    potential franchise growth in the future.
  • Fiesta plans to update its site selection and restaurant optimization
    models for future expansion outside of core markets.

Corporate Governance

Today, the Board is updating shareholders on its ongoing review of
corporate governance policies. The Board has adopted a mandatory
retirement age of 75 years for directors seeking re-election and, as
previously disclosed, intends to put forward a plan at the next Annual
Meeting to declassify the Company's Board of Directors.

Third Quarter 2017 Financial Summary

Hurricanes

During the third quarter of 2017, Texas and Florida were struck by
Hurricanes Harvey and Irma (the "Hurricanes"). 43 Taco Cabana and two
Pollo Tropical Company-owned restaurants in the Houston metropolitan
area and all 149 Pollo Tropical Company-owned restaurants in Florida and
the Atlanta metropolitan area were closed and affected by the hurricanes
to varying degrees (e.g. property preparation and damage, inventory
losses, payment of hourly restaurant employees while restaurants were
closed, lost business related to temporary closures, limited menu and
modified hours of operations). Other Texas markets where we operate
Company-owned restaurants including San Antonio were also affected by
Hurricane Harvey, but to a lesser degree. All of the restaurants that
were closed have re-opened except for one Taco Cabana restaurant and two
Pollo Tropical restaurants that remain closed in Houston. The Company
donated $0.6 million in food to relief efforts in addition to feeding
first responders and families in need in both Texas and Florida.

We estimate that the Hurricanes negatively impacted Adjusted EBITDA and
income (loss) from operations by approximately $3.0 million to $4.0
million at Pollo Tropical and approximately $1.0 million to $1.5 million
at Taco Cabana and negatively impacted comparable restaurant sales and
transactions by approximately 5.5% to 6.5% at Pollo Tropical and
approximately 2% to 3% at Taco Cabana for the third quarter of 2017.

Select third quarter 2017 results as compared to third quarter 2016
results include:

  • Total revenues decreased 12.9% to $158.7 million;
  • Comparable restaurant sales at Pollo Tropical decreased 10.9%,
    primarily driven by a decrease in comparable restaurant transactions
    of 13.1% including the negative impact from the Hurricanes;
  • Comparable restaurant sales at Taco Cabana decreased 12.6%, primarily
    driven by a decrease in comparable restaurant transactions of 14.3%
    including the negative impact from Hurricane Harvey and the continued
    suspension of advertising and promotional discounts;
  • Two Company-owned Pollo Tropical restaurants and three Company-owned
    Taco Cabana restaurants were opened, and six Company-owned Pollo
    Tropical restaurants and four Company-owned Taco Cabana restaurants in
    Texas were closed;
  • The Company recognized impairment and other lease charges of $15.9
    million in the third quarter of 2017 compared to impairment and other
    lease charges of $18.5 million in the third quarter of 2016;
  • Net loss of $8.3 million or $0.31 per diluted share, compared to the
    prior year period net loss of $4.5 million, or $0.17 per diluted share.
  • Adjusted net income of $1.7 million, or $0.06 per diluted share,
    compared to the prior year period adjusted net income of $8.1 million,
    or $0.30 per diluted share (see non-GAAP reconciliation table below);
    and
  • Consolidated Adjusted EBITDA of $13.2 million compared to the prior
    year period consolidated Adjusted EBITDA of $23.5 million including
    the negative impact of the Hurricanes (see non-GAAP reconciliation
    table below).

Brand Results

Pollo Tropical restaurant sales decreased 15.0% to $87.9 million
compared to the prior year period due primarily to a comparable
restaurant sales decrease of 10.9% and 32 fewer Company-owned
restaurants in operation compared to the prior year period as a result
of recent restaurant closures in Texas, Georgia, and Tennessee. The
decrease in comparable restaurant sales resulted from a 13.1% decrease
in comparable restaurant transactions, partially offset by a 2.2%
increase in average check. Comparable restaurant sales and transactions
were negatively impacted by the Hurricanes as noted above and by sales
cannibalization from new restaurants on existing restaurants by
approximately 60 basis points. The increase in average check was driven
by menu price increases that positively impacted restaurant sales by
1.2% and higher sales mix.

Taco Cabana restaurant sales decreased 10.3% to $70.2 million in the
quarter compared to the prior year period due primarily to a comparable
restaurant sales decrease of 12.6%. The decrease in comparable
restaurant sales resulted from a 14.3% decrease in comparable restaurant
transactions, partially offset by a 1.7% increase in average check.
Comparable restaurant sales and transactions were negatively impacted by
Hurricane Harvey as noted above as well as by the continued suspension
of advertising and promotional discounts. The increase in average check
was primarily driven by menu price increases that positively impacted
restaurant sales by 1.7%.

Restaurant Portfolio

During the third quarter of 2017, Fiesta opened two Company-owned Pollo
Tropical restaurants in Florida and three Company-owned Taco Cabana
restaurants in Texas.

In September, due to the ongoing uncertainty created in Houston by
Hurricane Harvey, the Company did not re-open our two Houston Pollo
Tropical restaurants. Due to limited awareness of the Pollo Tropical
brand and high relative overhead costs needed to support the four
remaining restaurants in San Antonio, the Company decided to permanently
close all six Pollo Tropical restaurants in Texas and focus on
revitalizing core markets and brand repositioning outside of core
markets. Fiesta also closed four Company-owned Taco Cabana restaurants
in Texas during the third quarter of 2017.

As of October 1, 2017, there were 149 Company-owned Pollo Tropical
restaurants, 168 Company-owned Taco Cabana restaurants, 32 franchised
Pollo Tropical restaurants in the U.S., Puerto Rico, the Bahamas,
Guyana, Panama, Honduras and Venezuela and seven franchised Taco Cabana
restaurants in the U.S.

In 2017, Fiesta expects to open nine new Company-owned Pollo Tropical
restaurants in Florida and six new Company-owned Taco Cabana restaurants
in Texas, including one closed Company-owned Pollo Tropical restaurant
that will be converted to a Taco Cabana restaurant. As of October 1,
2017, eight new Company-owned Pollo Tropical restaurants and six new
Company-owned Taco Cabana restaurants have opened.

2018 Restaurant Development and Capital Expenditures

In 2018, Fiesta expects to open nine new Company-owned Pollo Tropical
restaurants in Florida and seven new Company-owned Taco Cabana
restaurants in Texas including up to five closed Pollo Tropical
restaurants that will be converted to Taco Cabana restaurants.

Total capital expenditures in 2018 are expected to be $60 million to $68
million. Capital expenditures include $26 million to $28 million for the
development of new Company-owned restaurants, $23 million to $25 million
for the ongoing reinvestment in our Pollo Tropical and Taco Cabana
Company-owned restaurants including approximately $11 million to $13
million in deferred maintenance needs related to the Plan, approximately
$4 million to $6 million for restaurant remodeling costs and
approximately $7 million to $9 million of other expenditures which
primarily include information technology and systems projects.

Investor Conference Call Today

President and Chief Executive Officer Richard Stockinger, Senior Vice
President and Chief Financial Officer Lynn Schweinfurth, and Senior Vice
President, Chief Operating Officer and Pollo Tropical President Danny
Meisenheimer will host a conference call at 4:30 p.m. ET today.

The conference call can be accessed live over the phone by dialing
201-689-8562. A replay will be available after the call until Monday,
November 13, 2017, and can be accessed by dialing 412-317-6671. The
passcode is 13671682. The conference call will also be webcast live from
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 and Taco Cabana® restaurant brands. The brands specialize in
the operation of fast casual 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

Except for the historical information contained in this news release,
the matters addressed are forward-looking statements. Forward-looking
statements, written, oral or otherwise made, represent Fiesta's
expectation or belief concerning future events. Without limiting the
foregoing, these statements are often identified by the words "may,"
"might," "believes," "thinks," "anticipates," "plans," "expects,"
"intends" or similar expressions. In addition, expressions of Fiesta's
strategies, intentions or plans are also forward-looking statements.
Such statements reflect management's current views with respect to
future events and are subject to risks and uncertainties, both known and
unknown. You are cautioned not to place undue reliance on these
forward-looking statements as there are important factors that could
cause actual results to differ materially from those in forward-looking
statements, many of which are beyond Fiesta's control. Investors are
referred to the full discussion of risks and uncertainties as included
in Fiesta's filings with the Securities and Exchange Commission.

   
FIESTA RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED OCTOBER 1, 2017 AND OCTOBER 2, 2016
(In thousands of dollars, except share and per share amounts)
(Unaudited)
 
Three months ended (a) Nine months ended (a)
 
October 1, 2017   October 2, 2016 October 1, 2017   October 2, 2016
 
Revenues:
Restaurant sales $ 158,100 $ 181,592 $ 505,082 $ 538,366
Franchise royalty revenues and fees 591   664   1,840   2,099  
Total revenues 158,691 182,256 506,922 540,465
Costs and expenses:
Cost of sales 49,151 54,726 150,827 163,383
Restaurant wages and related expenses (b) 44,649 47,503 139,050 139,536
Restaurant rent expense 9,104 9,488 27,881 27,522
Other restaurant operating expenses 24,856 25,715 73,560 72,366
Advertising expense 5,885 7,506 17,716 21,507
General and administrative expenses (b)(c) 12,065 14,520 47,213 42,621
Depreciation and amortization 8,483 9,513 26,265 26,474
Pre-opening costs 544 1,509 1,878 4,707
Impairment and other lease charges (d) 15,905 18,513 59,081 18,607
Other expense (income), net (e) 461     1,259   (238 )
Total operating expenses 171,103   188,993   544,730   516,485  
Income (loss) from operations (12,412 ) (6,737 ) (37,808 ) 23,980
Interest expense 672   542   1,910   1,635  
Income (loss) before income taxes (13,084 ) (7,279 ) (39,718 ) 22,345  
Provision for (benefit from) income taxes (4,827 ) (2,748 ) (14,241 ) 8,065  
Net income (loss) $ (8,257 ) $ (4,531 ) $ (25,477 ) $ 14,280  
Basic net income (loss) per share $ (0.31 ) $ (0.17 ) $ (0.95 ) $ 0.53  
Diluted net income (loss) per share $ (0.31 ) $ (0.17 ) $ (0.95 ) $ 0.53  
Basic weighted average common shares outstanding 26,845,568   26,716,219   26,811,610   26,658,739  
Diluted weighted average common shares outstanding 26,845,568   26,716,219   26,811,610   26,665,091  
 

(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 1, 2017 and October 2, 2016 each included 13 and 39 weeks,
respectively.

(b) Restaurant wages and related expenses include stock-based
compensation of $9 and $35 for the three months ended October 1, 2017
and October 2, 2016, respectively, and $44 and $111 for the nine months
ended October 1, 2017 and October 2, 2016, respectively. General and
administrative expenses include stock-based compensation expense of $938
and $330 for the three months ended October 1, 2017 and October 2, 2016,
respectively, and $2,723 and $2,523 for the nine months ended October 1,
2017 and October 2, 2016, respectively.

(c) General and administrative expenses for the three and nine months
ended October 1, 2017, include $(155) and $3,748, respectively, of board
and shareholder matter costs related to shareholder activism and CEO and
board member searches, and $87 and $2,101, respectively, of Plan
restructuring costs and retention bonuses. General and administrative
expenses for the nine months ended October 1, 2017 also include an $849
charge for terminated capital project costs, $462 for the write-off of
site costs related to locations that we decided not to develop,
partially offset by the benefit of $473 related to litigation matters.

General and administrative expenses for the three and nine months ended
October 2, 2016, include $834 and $459, respectively, related to
litigation matters, $581 and $877, respectively, for the write-off of
site costs related to locations that we decided not to develop, $282 and
$1,030, respectively, of board and shareholder matter costs primarily
related to the previously proposed and terminated separation
transaction, and $193 and $539, respectively, in office restructuring
and relocation costs.

(d) Impairment and other lease charges for the three months ended
October 1, 2017, primarily include impairment charges for six Pollo
Tropical restaurants that closed in September 2017, six additional Pollo
Tropical restaurants and two Taco Cabana restaurants that the Company
continues to operate, and other lease charges, net of recoveries, for
restaurants closed in the third quarter of 2017 as well as adjustments
related to previously closed restaurants due to lease terminations and
assignments. Impairment and other lease charges for the nine months
ended October 1, 2017, primarily include impairment charges for 36 Pollo
Tropical restaurants closed in 2017, seven of which were impaired in
2016, impairment charges for four Taco Cabana restaurants closed in July
2017, impairment charges with respect to six Pollo Tropical restaurants
and five Taco Cabana restaurants that the Company continues to operate,
impairment charges related to a restaurant closed in 2016 as a result of
the decision not to convert the location to a Taco Cabana restaurant,
and other lease charges, net of recoveries, related to restaurants
closed in 2017 as well as previously closed restaurants.

Impairment and other lease charges for the three and nine months ended
October 2, 2016 primarily included impairment charges of $18.5 million
related to sixteen Pollo Tropical restaurants that were subsequently
closed in the fourth quarter of 2016 and second quarter of 2017 and one
Taco Cabana restaurant that was subsequently closed in the third quarter
of 2017.

(e) Other expense (income), net for the three and nine months ended
October 1, 2017, primarily includes costs for the removal of signs and
equipment and equipment transfers and storage related to the closure of
restaurants, and severance for restaurant employees, partially offset by
estimated insurance recoveries related to a restaurant temporarily
closed due to Hurricane Harvey damages, and expected business
interruption insurance proceeds related to a Taco Cabana restaurant that
was temporarily closed due to a fire. Other income for the nine months
ended October 2, 2016, primarily includes additional proceeds related to
a Taco Cabana location that closed in 2015 as a result of an eminent
domain proceeding.

   
FIESTA RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except share and per share amounts)
(Unaudited)
 
October 1, 2017 January 1, 2017
 
Assets
Cash $ 4,244 $ 4,196
Other current assets 26,974 22,746
Property and equipment, net 227,686 270,920
Goodwill 123,484 123,484
Deferred income taxes 31,263 14,377
Other assets 4,146   5,842
Total assets $ 417,797   $ 441,565
 
Liabilities and Stockholders' Equity
Current liabilities $ 58,754 $ 46,769
Long-term debt, net of current portion 62,350 71,423
Lease financing obligations 1,664
Deferred income sale-leaseback of real estate 24,365 27,165
Other liabilities 30,836   30,369
Total liabilities 176,305 177,390
Stockholders' equity 241,492   264,175
Total liabilities and stockholders' equity $ 417,797   $ 441,565
 
   
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 1,
2017

 

October 2,
2016

October 1,
2017

 

October 2,
2016

Segment revenues:
Pollo Tropical $ 88,284 $ 103,827 $ 282,844 $ 305,697
Taco Cabana 70,407   78,429   224,078   234,768  
Total revenues $ 158,691   $ 182,256   $ 506,922   $ 540,465  
 
Change in comparable restaurant sales (a):
Pollo Tropical (10.9 )% (1.0 )% (8.5 )% (0.8 )%
Taco Cabana (12.6 )% (4.1 )% (7.2 )% (2.1 )%
 
Average sales per Company-owned restaurant:
Pollo Tropical
Comparable restaurants (b) $ 614 $ 659 $ 1,849 $ 2,062
New restaurants (c) 385 414 1,217 1,232
Total company-owned (d) 575 586 1,723 1,821
Taco Cabana
Comparable restaurants (b) $ 420 $ 475 $ 1,335 $ 1,436
New restaurants (c) 423 568 1,358 1,513
Total company-owned (d) 420 477 1,336 1,438
 
Income (loss) before income taxes:
Pollo Tropical $ (10,816 ) $ (13,070 ) $ (39,414 ) $ 4,235
Taco Cabana (2,268 ) 5,865 (304 ) 18,932
 
Adjusted EBITDA:
Pollo Tropical $ 9,396 $ 13,782 $ 41,257 $ 43,832
Taco Cabana 3,776 9,762 17,252 30,530
 
Restaurant-Level Adjusted EBITDA (e):
Pollo Tropical $ 15,480 $ 21,977 $ 62,343 $ 68,846
Taco Cabana 8,984 14,712 34,159 45,317
 

(a) Restaurants are included in comparable restaurant sales after they
have been open for 18 months or longer.

(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) New restaurants are restaurants that have been open for less than 18
months. 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".

   
FIESTA RESTAURANT GROUP, INC.
Supplemental Information
The following table sets forth certain unaudited supplemental
data for the periods indicated:
 
Three months ended Nine months ended

October 1,
2017

 

October 2,
2016

October 1,
2017

 

October 2,
2016

 
Company-owned restaurant openings:
Pollo Tropical 2 9 8 26
Taco Cabana 3     6   2
Total new restaurant openings 5 9 14 28
 
Company-owned restaurant closings:
Pollo Tropical (6 ) (36 )
Taco Cabana (4 )   (4 )
Net change in restaurants (5 ) 9 (26 ) 28
 
Number of Company-owned restaurants:
Pollo Tropical 149 181 149 181
Taco Cabana 168   164   168   164
Total Company-owned restaurants 317 345 317 345
 
Number of franchised restaurants:
Pollo Tropical 32 34 32 34
Taco Cabana 7   7   7   7
Total franchised restaurants 39 41 39 41
 
Total number of restaurants:
Pollo Tropical 181 215 181 215
Taco Cabana 175   171   175   171
Total restaurants 356 386 356 386
 
 
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
October 1, 2017   October 2, 2016
  (a)   (a)
Pollo Tropical:
Restaurant sales $ 87,888 $ 103,353
Cost of sales 28,527 32.5 % 32,565 31.5 %
Restaurant wages and related expenses 21,208 24.1 % 24,383 23.6 %
Restaurant rent expense 4,655 5.3 % 5,059 4.9 %
Other restaurant operating expenses 13,034 14.8 % 14,361 13.9 %
Advertising expense 4,980 5.7 % 5,026 4.9 %
Depreciation and amortization 5,187 5.9 % 6,337 6.1 %
Pre-opening costs 230 0.3 % 1,456 1.4 %
Impairment and other lease charges 13,729 15.6 % 18,390 17.8 %
 
Taco Cabana:
Restaurant sales $ 70,212 $ 78,239
Cost of sales 20,624 29.4 % 22,161 28.3 %
Restaurant wages and related expenses 23,441 33.4 % 23,120 29.6 %
Restaurant rent expense 4,449 6.3 % 4,429 5.7 %
Other restaurant operating expenses 11,822 16.8 % 11,354 14.5 %
Advertising expense 905 1.3 % 2,480 3.2 %
Depreciation and amortization 3,296 4.7 % 3,176 4.1 %
Pre-opening costs 314 0.4 % 53 0.1 %
Impairment and other lease charges 2,176 3.1 % 123 0.2 %
 
Nine months ended
October 1, 2017 October 2, 2016
(a) (a)
Pollo Tropical:
Restaurant sales $ 281,572 $ 304,138
Cost of sales 87,430 31.1 % 96,435 31.7 %
Restaurant wages and related expenses 66,945 23.8 % 71,259 23.4 %
Restaurant rent expense 14,502 5.2 % 14,528 4.8 %
Other restaurant operating expenses 39,353 14.0 % 40,654 13.4 %
Advertising expense 11,316 4.0 % 12,473 4.1 %
Depreciation and amortization 16,705 5.9 % 17,043 5.6 %
Pre-opening costs 1,013 0.4 % 4,365 1.4 %
Impairment and other lease charges 56,336 20.0 % 18,390 6.0 %
 
Taco Cabana:
Restaurant sales $ 223,510 $ 234,228
Cost of sales 63,397 28.4 % 66,948 28.6 %
Restaurant wages and related expenses 72,105 32.3 % 68,277 29.1 %
Restaurant rent expense 13,379 6.0 % 12,994 5.5 %
Other restaurant operating expenses 34,207 15.3 % 31,712 13.5 %
Advertising expense 6,400 2.9 % 9,034 3.9 %
Depreciation and amortization 9,560 4.3 % 9,431 4.0 %
Pre-opening costs 865 0.4 % 342 0.1 %
Impairment and other lease charges 2,745 1.2 % 217 0.1 %
 

(a) Percent of restaurant sales for the applicable segment.

 

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 and Restaurant-Level Adjusted EBITDA are
non-GAAP financial measures. Prior to the second quarter of 2017,
Adjusted EBITDA was defined as earnings before interest expense, income
taxes, depreciation and amortization, impairment and other lease
charges, stock-based compensation expense, and other expense (income),
net. In 2017, our Board of Directors appointed a new Chief Executive
Officer who initiated the Plan and uses an Adjusted EBITDA measure for
the purpose of assessing performance and allocating resources to
segments. The new Adjusted EBITDA measure used by the chief operating
decision maker includes adjustments for significant items that
management believes are related to strategic changes and/or are not
related to the ongoing operation of our restaurants. Beginning in the
second quarter of 2017, the primary measure of segment profit or loss
used by the chief operating decision maker to assess performance and
allocate resources is Adjusted EBITDA, which is now defined as earnings
attributable to the applicable operating segments before interest
expense, income taxes, depreciation and amortization, impairment and
other lease charges, stock-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, development 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).

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 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 Taco Cabana Other Consolidated
October 1, 2017:
Net income (loss) $ (8,257 )
Provision for (benefit from) income taxes       (4,827 )
Income (loss) before taxes $ (10,816 ) $ (2,268 ) $ $ (13,084 )
Add:
Non-general and administrative expense adjustments:
Depreciation and amortization 5,187 3,296 8,483
Impairment and other lease charges 13,729 2,176 15,905
Interest expense 329 343 672
Other expense (income), net 566 (105 ) 461
Stock-based compensation expense in restaurant wages (4 ) 13     9  
Total Non-general and administrative expense adjustments 19,807 5,723 25,530
General and administrative expense adjustments:
Stock-based compensation expense 587 351 938
Board and shareholder matter costs (89 ) (66 ) (155 )
Write-off of site development costs 8 8
Plan restructuring costs and retention bonuses 51 36 87
Office restructuring and relocation costs (152 )     (152 )
Total General and administrative expense adjustments 405   321     726  
Adjusted EBITDA: $ 9,396   $ 3,776   $   $ 13,172  
Restaurant-Level Adjustments:
Add: Pre-opening costs 230 314 544
Add: Other general and administrative expense(1) 6,250 5,089 11,339
Less: Franchise royalty revenue and fees 396   195     591  
Restaurant-Level Adjusted EBITDA: $ 15,480   $ 8,984   $   $ 24,464  
 
October 2, 2016:
Net income (loss) $ (4,531 )
Provision for (benefit from) income taxes       (2,748 )
Income (loss) before taxes $ (13,070 ) $ 5,865 $ (74 ) $ (7,279 )
Add:
Non-general and administrative expense adjustments:
Depreciation and amortization 6,337 3,176 9,513
Impairment and other lease charges 18,390 123 18,513
Interest expense 229 313 542
Stock-based compensation expense in restaurant wages 18   17     35  
Total Non-general and administrative expense adjustments 24,974 3,629 28,603
General and administrative expense adjustments:
Stock-based compensation expense 183 147 330
Board and shareholder matter costs 119 89 74 282
Write-off of site development costs 549 32 581
Office restructuring and relocation costs 193 193
Legal settlements and related costs 834       834  
Total General and administrative expense adjustments 1,878   268   74   2,220  
Adjusted EBITDA: $ 13,782   $ 9,762   $   $ 23,544  
Restaurant-Level Adjustments:
Add: Pre-opening costs 1,456 53 1,509
Add: Other general and administrative expense(1) 7,213 5,087 12,300
Less: Franchise royalty revenue and fees 474   190     664  
Restaurant-Level Adjusted EBITDA: $ 21,977   $ 14,712   $   $ 36,689  
 
 
 
Nine Months Ended Pollo Tropical Taco Cabana Other Consolidated
October 1, 2017:
Net income (loss) $ (25,477 )
Provision for (benefit from) income taxes       (14,241 )
Income (loss) before taxes $ (39,414 ) $ (304 ) $ $ (39,718 )
Add:
Non-general and administrative expense adjustments:
Depreciation and amortization 16,705 9,560 26,265
Impairment and other lease charges 56,336 2,745 59,081
Interest expense 873 1,037 1,910
Other expense (income), net 1,454 (195 ) 1,259
Stock-based compensation expense in restaurant wages (4 ) 48 44
Unused pre-production costs in advertising expense 322   88     410  
Total Non-general and administrative expense adjustments 75,686 13,283 88,969
General and administrative expense adjustments:
Stock-based compensation expense 1,542 1,181 2,723
Terminated capital project 484 365 849
Board and shareholder matter costs 2,136 1,612 3,748
Write-off of site development costs 170 292 462
Plan restructuring costs and retention bonuses 1,278 823 2,101
Office restructuring and relocation costs (152 ) (152 )
Legal settlements and related costs (473 )     (473 )
Total General and administrative expense adjustments 4,985   4,273     9,258  
Adjusted EBITDA: $ 41,257   $ 17,252   $   $ 58,509  
Restaurant-Level Adjustments:
Add: Pre-opening costs 1,013 865 1,878
Add: Other general and administrative expense(1) 21,345 16,610 37,955
Less: Franchise royalty revenue and fees 1,272   568     1,840  
Restaurant-Level Adjusted EBITDA: $ 62,343   $ 34,159   $   $ 96,502  
 
October 2, 2016:
Net income (loss) $ 14,280
Provision for (benefit from) income taxes       8,065  
Income (loss) before taxes $ 4,235 $ 18,932 $ (822 ) $ 22,345
Add:
Non-general and administrative expense adjustments:
Depreciation and amortization 17,043 9,431 26,474
Impairment and other lease charges 18,390 217 18,607
Interest expense 708 927 1,635
Other expense (income), net (12 ) (226 ) (238 )
Stock-based compensation expense in restaurant wages 56   55     111  
Total Non-general and administrative expense adjustments 36,185 10,404 46,589
General and administrative expense adjustments:
Stock-based compensation expense 1,408 1,115 2,523
Board and shareholder matter costs 119 89 822 1,030
Write-off of site development costs 796 81 877
Office restructuring and relocation costs 539 539
Legal settlements and related costs 550   (91 )   459  
Total General and administrative expense adjustments 3,412   1,194   822   5,428  
Adjusted EBITDA: $ 43,832   $ 30,530   $   $ 74,362  
Restaurant-Level Adjustments:
Add: Pre-opening costs 4,365 342 4,707
Add: Other general and administrative expense(1) 22,208 14,985 37,193
Less: Franchise royalty revenue and fees 1,559   540     2,099  
Restaurant-Level Adjusted EBITDA: $ 68,846   $ 45,317   $   $ 114,163  

(1) 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 impairment and other lease charges, other expense
(income), net, unused pre-production costs in advertising expense,
terminated capital project costs, board and shareholder matter costs,
write-off of site development costs, Plan restructuring costs and
retention bonuses, office restructuring and relocation costs, 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
October 1, 2017   October 2, 2016

Income
(Loss)
Before
Income

Taxes

 

Benefit
From
Income
Taxes
(j)

 

Net
Income
(Loss)

 

Diluted
EPS

Income
(Loss)
Before
Income

Taxes

 

Benefit
From
Income
Taxes
(j)

 

Net
Income
(Loss)

 

Diluted
EPS

Reported - GAAP $ (13,084 ) $ (4,827 ) $ (8,257 ) $ (0.31 ) $ (7,279 ) $ (2,748 ) $ (4,531 ) $ (0.17 )
Adjustments:
Non-general and administrative expense adjustments:
Impairment and other lease charges (a) 15,905 6,111 9,794 0.36 18,513 7,035 11,478 0.43
Other expense (income), net (b) 461   177   284   0.01          
Total Non-general and administrative expense 16,366 6,288 10,078 0.37 18,513 7,035 11,478 0.43
General and administrative expense adjustments:
Board and shareholder matter costs (e) (155 ) (60 ) (95 ) 282 107 175 0.01
Write-off of site development costs (f) 8 3 5 581 221 360 0.01
Plan restructuring costs and retention bonuses (g) 87 34 53
Office restructuring and relocation costs (h) (152 ) (58 ) (94 ) 193 73 120
Legal settlements and related costs (i)         834   317   517   0.02  
Total General and administrative expense (212 ) (81 ) (131 )   1,890   718   1,172   0.04  
Adjusted - Non-GAAP $ 3,070   $ 1,380   $ 1,690   $ 0.06   $ 13,124   $ 5,005   $ 8,119   $ 0.30  
 
(unaudited)
Nine months ended
October 1, 2017 October 2, 2016

Income
(Loss)
Before
Income

Taxes

Benefit
From
Income
Taxes
(j)

Net
Income
(Loss)

Diluted
EPS

Income
Before
Income
Taxes

Provision
For
Income
Taxes
(j)

Net
Income

Diluted
EPS

Reported - GAAP $ (39,718 ) $ (14,241 ) $ (25,477 ) $ (0.95 ) $ 22,345 $ 8,065 $ 14,280 $ 0.53
Adjustments:
Non-general and administrative expense adjustments:
Impairment and other lease charges (a) 59,081 22,700 36,381 1.35 18,607 7,071 11,536 0.43
Other expense (income), net (b) 1,259 484 775 0.03 (238 ) (90 ) (148 ) (0.01 )

Unused pre-production costs in advertising expense (c)

410   158   252   0.01          
Total Non-general and administrative expense 60,750 23,342 37,408 1.38 18,369 6,981 11,388 0.42
General and administrative expense adjustments:
Terminated capital project (d) 849 326 523 0.02
Board and shareholder matter costs (e) 3,748 1,440 2,308 0.09 1,030 391 639 0.02
Write-off of site development costs (f) 462 178 284 0.01 877 333 544 0.02
Plan restructuring costs and retention bonuses (g) 2,101 807 1,294 0.05
Office restructuring and relocation costs (h) (152 ) (58 ) (94 ) 539 205 334 0.01
Legal settlements and related costs (i) (473 ) (182 ) (291 ) (0.01 ) 459   174   285   0.01  
Total General and administrative expense 6,535   2,511   4,024   0.15   2,905   1,103   1,802   0.07  
Adjusted - Non-GAAP $ 27,567   $ 11,612   $ 15,955   $ 0.59   $ 43,619   $ 16,149   $ 27,470   $ 1.02  
 

(a) Impairment and other lease charges for the three months ended
October 1, 2017, primarily include impairment charges for six Pollo
Tropical restaurants that closed in September 2017, six additional Pollo
Tropical restaurants and two Taco Cabana restaurants that the Company
continues to operate, and other lease charges, net of recoveries, for
restaurants closed in the third quarter of 2017 as well as adjustments
related to previously closed restaurants due to lease terminations and
assignments. Impairment and other lease charges for the nine months
ended October 1, 2017, primarily include impairment charges for 36 Pollo
Tropical restaurants closed in 2017, seven of which were impaired in
2016, impairment charges for four Taco Cabana restaurants closed in July
2017, impairment charges with respect to six Pollo Tropical restaurants
and five Taco Cabana restaurants that the Company continues to operate,
impairment charges related to a restaurant closed in 2016 as a result of
the decision not to convert the location to a Taco Cabana restaurant,
and other lease charges, net of recoveries, related to restaurants
closed in 2017 as well as previously closed restaurants. Impairment and
other lease charges for the three and nine months ended October 2, 2016
primarily included impairment charges of $18.5 million related to
sixteen Pollo Tropical restaurants that were subsequently closed in the
fourth quarter of 2016 and second quarter of 2017 and one Taco Cabana
restaurant that was subsequently closed in the third quarter of 2017.

(b) Other expense (income), net for the three and nine months ended
October 1, 2017, primarily includes costs for the removal of signs and
equipment and equipment transfers and storage related to the closure of
restaurants and severance for restaurant employees, partially offset by
estimated insurance recoveries related to a restaurant temporarily
closed due to Hurricane Harvey damages, and expected business
interruption insurance proceeds related to a Taco Cabana restaurant that
was temporarily closed due to a fire. Other income for the nine months
ended October 2, 2016, primarily includes additional proceeds related to
a Taco Cabana location that closed in 2015 as a result of an eminent
domain proceeding.

(c) Unused pre-production costs for the nine months ended October 1,
2017, include costs for advertising pre-production that will not be used.

(d) Terminated capital project costs for the nine months ended
October 1, 2017, include costs related to the write-off of a capital
project that was terminated in the first quarter.

(e) Board and shareholder matter costs for the three and nine months
ended October 1, 2017, include fees related to shareholder activism and
CEO and board member searches. Board and shareholder matter costs for
the three and nine months ended October 2, 2016, primarily include fees
related to the previously proposed and terminated separation transaction.

(f) Write-off of site development costs for the three and nine months
ended October 1, 2017 and October 2, 2016, includes the write-off of
site costs related to locations that we decided not to develop.

(g) Plan restructuring costs and retention bonuses for the three and
nine months ended October 1, 2017, include severance related to the Plan
and reduction in force and bonuses paid to certain employees for
retention purposes.

(h) Office restructuring and relocation costs for the three and nine
months ended October 1, 2017 and October 2, 2016, include severance and
relocation costs associated with restructuring Pollo Tropical management
in Miami, Florida and Dallas, Texas.

(i) Legal settlements and related costs for the three and nine months
ended October 1, 2017 and October 2, 2016, include costs and benefits
related to litigation matters.

(j) The provision for income taxes related to the adjustments was
calculated using the Company's combined federal statutory and estimated
state rate of 38.4% and 38.0% for the periods ending October 1, 2017 and
October 2, 2016, respectively.

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