UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~April~~July 3, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-35373

FIESTA RESTAURANT GROUP, INC.

(Exact name of Registrant as specified in its charter)


DE		90-0712224
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
14800 Landmark Boulevard, Suite 500		75254
Dallas	TX	(Zip Code)
(Address of principal executive office)

Registrant's telephone number, including area code: (972) 702-9300

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share

FRGI

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer	☐	Accelerated Filer	☒

Non-accelerated Filer	☐	Smaller Reporting Company	☐☒

		Emerging Growth Company	☐

Table of Contents

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~May 6,~~August 5, 2022, Fiesta Restaurant Group, Inc. had ~~25,918,554~~25,995,285 shares of its common stock, $0.01 par value, outstanding.

Table of Contents

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

QUARTER ENDED ~~APRIL~~JULY 3, 2022


		Page
PART I FINANCIAL INFORMATION

Item 1	Interim Condensed Consolidated Financial Statements (Unaudited) - Fiesta Restaurant Group, Inc.:

	Condensed Consolidated Balance Sheets as of ~~April~~July 3, 2022 and January 2, 2022	2

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended ~~April~~July 3, 2022 and ~~April~~July 4, 2021	3

	Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and Six Months Ended ~~April~~July 3, 2022 and ~~April~~July 4, 2021	4

	Condensed Consolidated Statements of Cash Flows for the ~~Three~~Six Months Ended ~~April~~July 3, 2022 and ~~April~~July 4, 2021	5

	Notes to Unaudited Condensed Consolidated Financial Statements	6

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3	Quantitative and Qualitative Disclosures About Market Risk	2732

Item 4	Controls and Procedures	2732

PART II OTHER INFORMATION

Item 1	Legal Proceedings	2732

Item 1A	Risk Factors	2732

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	2832

Item 3	Defaults Upon Senior Securities	2832

Item 4	Mine Safety Disclosures	2833

Item 5	Other Information	2833

Item 6	Exhibits	2934

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)


		April 3, 2022		January 2, 2022			July 3, 2022		January 2, 2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash	Cash	$	37,146	$	36,797	Cash	$	39,262	$	36,797
Restricted cash	Restricted cash	3,631		3,837		Restricted cash	3,631		3,837
Accounts receivable	Accounts receivable	5,748		6,223		Accounts receivable	5,777		6,223
Inventories	Inventories	2,711		2,524		Inventories	2,527		2,524
Prepaid rent	Prepaid rent	108		109		Prepaid rent	109		109
Income tax receivable	Income tax receivable	4,099		3,846		Income tax receivable	2,777		3,846
Prepaid expenses and other current assets	Prepaid expenses and other current assets	7,437		5,706		Prepaid expenses and other current assets	7,812		5,706

Total current assets	Total current assets	60,880		59,042		Total current assets	61,895		59,042
Property and equipment, net	Property and equipment, net	89,534		89,884		Property and equipment, net	85,506		89,884
Operating lease right-of-use assets	Operating lease right-of-use assets	149,047		154,127		Operating lease right-of-use assets	150,423		154,127
Goodwill	Goodwill	56,307		56,307		Goodwill	56,307		56,307

Deferred tax assets						Deferred tax assets	175		—
Other assets	Other assets	6,860		7,753		Other assets	6,385		7,753

Total assets	Total assets	$	362,628	$	367,113	Total assets	$	360,691	$	367,113
LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY					LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Current portion of long-term debt	Current portion of long-term debt	$	66	$	63	Current portion of long-term debt	$	69	$	63
Accounts payable	Accounts payable	14,529		12,342		Accounts payable	14,653		12,342

Accrued payroll, related taxes and benefits	Accrued payroll, related taxes and benefits	7,918		8,475		Accrued payroll, related taxes and benefits	8,198		8,475
Accrued real estate taxes	Accrued real estate taxes	1,815		1,630		Accrued real estate taxes	2,956		1,630
Other current liabilities	Other current liabilities	18,511		18,032		Other current liabilities	18,800		18,032

Total current liabilities	Total current liabilities	42,839		40,542		Total current liabilities	44,676		40,542
Long-term debt, net of current portion	Long-term debt, net of current portion	418		438		Long-term debt, net of current portion	397		438

Operating lease liabilities	Operating lease liabilities	157,497		163,270		Operating lease liabilities	158,876		163,270
Deferred tax liabilities	Deferred tax liabilities	236		229		Deferred tax liabilities	—		229
Other non-current liabilities	Other non-current liabilities	7,738		7,763		Other non-current liabilities	7,669		7,763

Total liabilities	Total liabilities	208,728		212,242		Total liabilities	211,618		212,242
Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies	0		0
Stockholders' equity:	Stockholders' equity:					Stockholders' equity:
Preferred stock, $0.01 par value; 20,000,000 shares authorized, no shares issued	Preferred stock, $0.01 par value; 20,000,000 shares authorized, no shares issued	—		—		Preferred stock, $0.01 par value; 20,000,000 shares authorized, no shares issued	—		—
Common stock, $0.01 par value; 100,000,000 shares authorized, 28,789,974 and 28,445,812 shares issued, respectively, and 24,880,628 and 24,829,002 shares outstanding, respectively		277		277
Common stock, $0.01 par value; 100,000,000 shares authorized, 28,858,749 and 28,445,812 shares issued, respectively, and 24,971,073 and 24,829,002 shares outstanding, respectively						Common stock, $0.01 par value; 100,000,000 shares authorized, 28,858,749 and 28,445,812 shares issued, respectively, and 24,971,073 and 24,829,002 shares outstanding, respectively	278		277
Additional paid-in capital	Additional paid-in capital	183,235		182,686		Additional paid-in capital	184,628		182,686
Retained earnings		687		2,043
Retained earnings (accumulated deficit)						Retained earnings (accumulated deficit)	(5,534)		2,043
Treasury stock, at cost; 2,862,538 and 2,847,792 shares, respectively	Treasury stock, at cost; 2,862,538 and 2,847,792 shares, respectively	(30,299)		(30,135)		Treasury stock, at cost; 2,862,538 and 2,847,792 shares, respectively	(30,299)		(30,135)
Total stockholders' equity	Total stockholders' equity	153,900		154,871		Total stockholders' equity	149,073		154,871
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	362,628	$	367,113	Total liabilities and stockholders' equity	$	360,691	$	367,113

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE AND SIX MONTHS ENDED ~~APRIL~~JULY 3, 2022 AND ~~APRIL~~JULY 4, 2021

(In thousands, except share and per share data)

(Unaudited)

Three Months Ended
April 3, 2022 April 4, 2021
Revenues:
Restaurant sales $ 95,200 $ 87,840
Franchise royalty revenues and fees 409 375
Total revenues 95,609 88,215
Costs and expenses:
Cost of sales 30,747 27,301
Restaurant wages and related expenses (including stock-based compensation expense of $7 and $16, respectively) 23,574 20,339
Restaurant rent expense 6,027 5,877
Other restaurant operating expenses 16,650 13,305
Advertising expense 2,864 2,375
General and administrative (including stock-based compensation expense of $623 and $994, respectively) 12,342 10,666
Depreciation and amortization 5,114 5,088
Impairment and other lease charges (recoveries) (702) (52)
Closed restaurant rent expense, net of sublease income 380 750
Other expense (income), net 51 123
Total operating expenses 97,047 85,772
Income (loss) from operations (1,438) 2,443
Interest expense 85 61
Income (loss) from continuing operations before taxes (1,523) 2,382
Provision for (benefit from) income taxes (222) 3,077
Loss from continuing operations (1,301) (695)
Loss from discontinued operations, net of tax (55) (1,394)
Net loss $ (1,356) $ (2,089)
Earnings (loss) per common share:
Continuing operations – basic $ (0.05) $ (0.03)
Discontinued operations – basic — (0.05)
Basic $ (0.05) $ (0.08)
Continuing operations – diluted $ (0.05) $ (0.03)
Discontinued operations – diluted — (0.05)
Diluted $ (0.05) $ (0.08)
Weighted average common shares outstanding:
Basic 24,832,541 25,324,213
Diluted 24,832,541 25,324,213
`


	Three Months Ended				Six Months Ended
	July 3, 2022		July 4, 2021		July 3, 2022		July 4, 2021
Revenues:
Restaurant sales	$	98,023	$	90,764	$	193,223	$	178,604
Franchise royalty revenues and fees	464		391		873		766
Total revenues	98,487		91,155		194,096		179,370
Costs and expenses:
Cost of sales	32,580		27,558		63,327		54,859
Restaurant wages and related expenses (including stock-based compensation expense of $6, $15, $13 and $31, respectively)	24,583		21,901		48,157		42,240
Restaurant rent expense	5,976		5,824		12,003		11,701
Other restaurant operating expenses	16,755		14,215		33,405		27,520
Advertising expense	3,245		2,898		6,109		5,273
General and administrative (including stock-based compensation expense of $1,388, $1,046, $2,011 and $2,040, respectively)	12,791		11,050		25,133		21,716
Depreciation and amortization	5,232		4,875		10,346		9,963

Impairment and other lease charges (recoveries)	2,110		(202)		1,408		(254)

Closed restaurant rent expense, net of sublease income	401		966		781		1,716
Other expense (income), net	83		170		134		293
Total operating expenses	103,756		89,255		200,803		175,027
Income (loss) from operations	(5,269)		1,900		(6,707)		4,343
Interest expense	85		61		170		122

Income (loss) from continuing operations before taxes	(5,354)		1,839		(6,877)		4,221
Provision for (benefit from) income taxes	1,134		(841)		912		2,236
Income (loss) from continuing operations	(6,488)		2,680		(7,789)		1,985



Income (loss) from discontinued operations, net of tax	267		(2,763)		212		(4,157)
Net loss	$	(6,221)	$	(83)	$	(7,577)	$	(2,172)
Earnings (loss) per common share:
Continuing operations – basic	$	(0.26)	$	0.11	$	(0.31)	$	0.07
Discontinued operations – basic	0.01		(0.11)		0.01		(0.16)
Basic	$	(0.25)	$	—	$	(0.30)	$	(0.09)

Continuing operations – diluted	$	(0.26)	$	0.11	$	(0.31)	$	0.07
Discontinued operations – diluted	0.01		(0.11)		0.01		(0.16)
Diluted	$	(0.25)	$	—	$	(0.30)	$	(0.09)

Weighted average common shares outstanding:
Basic	24,946,674		25,496,038		24,889,650		25,410,123
Diluted	24,946,674		25,496,038		24,889,650		25,410,783

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

THREE AND SIX MONTHS ENDED ~~APRIL~~JULY 3, 2022 AND ~~APRIL~~JULY 4, 2021

(In thousands, except share data)

(Unaudited)


		Common Stock			Additional Paid-In Capital				Retained Earnings (Accumulated Deficit)			Treasury Stock				Total Stockholders' Equity				Common Stock						Additional Paid-In Capital				Retained Earnings (Accumulated Deficit)				Treasury Stock				Total Stockholders' Equity
		Shares	Amount								Shares								Amount
Balance at January 3, 2021	Balance at January 3, 2021	25,293,149	$	273			$	176,614						$	(8,327)			$	(20,779)		$	147,781	Balance at January 3, 2021		25,293,149			$	273			$	176,614			$	(8,327)			$	(20,779)	$	147,781
Stock-based compensation	Stock-based compensation	—	—		1,163				—			—				1,163			Stock-based compensation	—			—				1,163				—				—				1,163
Vesting of restricted shares	Vesting of restricted shares	109,528	1		(1)				—			—				—			Vesting of restricted shares	109,528			1			(1)				—				—				—

Net loss	Net loss	—	—		—				(2,089)			—				(2,089)			Net loss	—			—			—				(2,089)				—				(2,089)
Balance at April 4, 2021	Balance at April 4, 2021	25,402,677	$	274	$	177,776			$	(10,416)		$	(20,779)			$	146,855		Balance at April 4, 2021	25,402,677			274			177,776				(10,416)				(20,779)				146,855
Stock-based compensation																			Stock-based compensation	—			—			1,241				—				—				1,241
Vesting of restricted shares																			Vesting of restricted shares	126,791			1			(1)				—				—				—

Net loss																			Net loss	—			—			—				(83)				—				(83)
Balance at July 4, 2021																			Balance at July 4, 2021	25,529,468			$	275		$	179,016			$	(10,499)			$	(20,779)			$	148,013

Balance at January 2, 2022	Balance at January 2, 2022	24,829,002	$	277	$	182,686			$	2,043		$	(30,135)			$	154,871		Balance at January 2, 2022	24,829,002			$	277		$	182,686			$	2,043			$	(30,135)			$	154,871
Stock-based compensation	Stock-based compensation	—	—		549				—			—				549			Stock-based compensation	—			—			549				—				—				549
Vesting of restricted shares	Vesting of restricted shares	66,372	—		—				—			—				—			Vesting of restricted shares	66,372			—			—				—				—				—

Purchase of treasury stock	Purchase of treasury stock	(14,746)	—		—				—			(164)				(164)			Purchase of treasury stock	(14,746)			—			—				—				(164)				(164)
Net loss	Net loss	—	—		—				(1,356)			—				(1,356)			Net loss	—			—			—				(1,356)				—				(1,356)
Balance at April 3, 2022	Balance at April 3, 2022	24,880,628	$	277	$	183,235			$	687		$	(30,299)			$	153,900		Balance at April 3, 2022	24,880,628			277			183,235				687				(30,299)				153,900
Stock-based compensation																			Stock-based compensation	—			—			1,394				—				—				1,394
Vesting of restricted shares																			Vesting of restricted shares	90,445			1			(1)				—				—				—

Net loss																			Net loss	—			—			—				(6,221)				—				(6,221)
Balance at July 3, 2022																			Balance at July 3, 2022	24,971,073			$	278		$	184,628			$	(5,534)			$	(30,299)			$	149,073

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

~~THREE~~SIX MONTHS ENDED ~~APRIL~~JULY 3, 2022 AND ~~APRIL~~JULY 4, 2021

(In thousands)

(Unaudited)


		Three Months Ended					Six Months Ended
		April 3, 2022		April 4, 2021			July 3, 2022		July 4, 2021
Operating activities:	Operating activities:					Operating activities:
Net loss	Net loss	$	(1,356)	$	(2,089)	Net loss	$	(7,577)	$	(2,172)

Adjustments to reconcile net loss to net cash provided by operating activities:	Adjustments to reconcile net loss to net cash provided by operating activities:					Adjustments to reconcile net loss to net cash provided by operating activities:
Gain on disposals of property and equipment, net	Gain on disposals of property and equipment, net	—		(245)		Gain on disposals of property and equipment, net	—		(285)
Stock-based compensation	Stock-based compensation	549		1,163		Stock-based compensation	1,943		2,404
Impairment and other lease charges (recoveries)	Impairment and other lease charges (recoveries)	(702)		(122)		Impairment and other lease charges (recoveries)	1,408		40

Depreciation and amortization	Depreciation and amortization	5,114		8,926		Depreciation and amortization	10,346		17,762
Amortization of deferred financing costs	Amortization of deferred financing costs	20		200		Amortization of deferred financing costs	40		400

Deferred income taxes	Deferred income taxes	7		(365)		Deferred income taxes	(404)		(975)
Changes in other operating assets and liabilities	Changes in other operating assets and liabilities	294		2,056		Changes in other operating assets and liabilities	4,940		4,342

Net cash provided by operating activities	Net cash provided by operating activities	3,926		9,524		Net cash provided by operating activities	10,696		21,516
Investing activities:	Investing activities:					Investing activities:
Capital expenditures:	Capital expenditures:					Capital expenditures:

Restaurant remodeling	Restaurant remodeling	(1,480)		(662)		Restaurant remodeling	(3,311)		(1,237)
Other restaurant capital expenditures	Other restaurant capital expenditures	(1,904)		(1,972)		Other restaurant capital expenditures	(3,895)		(6,458)
Corporate and restaurant information systems	Corporate and restaurant information systems	(421)		(462)		Corporate and restaurant information systems	(1,239)		(1,374)
Total capital expenditures	Total capital expenditures	(3,805)		(3,096)		Total capital expenditures	(8,445)		(9,069)

Proceeds from disposals of properties						Proceeds from disposals of properties	—		1,307
Proceeds from insurance recoveries	Proceeds from insurance recoveries	203		—		Proceeds from insurance recoveries	203		—
Proceeds from sale-leaseback transactions	Proceeds from sale-leaseback transactions	—		3,083		Proceeds from sale-leaseback transactions	—		3,083

Net cash used in investing activities	Net cash used in investing activities	(3,602)		(13)		Net cash used in investing activities	(8,242)		(4,679)
Financing activities:	Financing activities:					Financing activities:

Repayment of secured debt	Repayment of secured debt	—		(188)		Repayment of secured debt	—		(375)
Principal payments on finance leases	Principal payments on finance leases	(17)		(82)		Principal payments on finance leases	(31)		(154)
Financing costs associated with debt		—		(7)

Payments to purchase treasury stock	Payments to purchase treasury stock	(164)		—		Payments to purchase treasury stock	(164)		—

Net cash used in financing activities	Net cash used in financing activities	(181)		(277)		Net cash used in financing activities	(195)		(529)
Net change in cash and restricted cash	Net change in cash and restricted cash	143		9,234		Net change in cash and restricted cash	2,259		16,308
Cash and restricted cash, beginning of period	Cash and restricted cash, beginning of period	40,634		53,362		Cash and restricted cash, beginning of period	40,634		53,362
Cash and restricted cash of discontinued operations, beginning of period	Cash and restricted cash of discontinued operations, beginning of period	—		257		Cash and restricted cash of discontinued operations, beginning of period	—		257
Cash and restricted cash of discontinued operations, end of period	Cash and restricted cash of discontinued operations, end of period	—		(256)		Cash and restricted cash of discontinued operations, end of period	—		(260)
Cash and restricted cash, end of period	Cash and restricted cash, end of period	$	40,777	$	62,597	Cash and restricted cash, end of period	$	42,893	$	69,667

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

1. Basis of Presentation

Business Description. Fiesta Restaurant Group, Inc. ("Fiesta Restaurant Group" or "Fiesta") owns, operates and franchises Pollo Tropical restaurants through its wholly-owned subsidiaries Pollo Operations, Inc. and Pollo Franchise, Inc. (collectively "Pollo Tropical"). Fiesta owned, operated and franchised Taco Cabana restaurants through its wholly-owned subsidiary, Taco Cabana, Inc. and its subsidiaries (collectively "Taco Cabana") through August 15, 2021. Unless the context otherwise requires, Fiesta and its subsidiaries are collectively referred to as the "Company." At ~~April~~July 3, 2022, the Company owned and operated 138 Pollo Tropical® restaurants located in Florida and franchised a total of 3129 Pollo Tropical restaurants. The franchised Pollo Tropical restaurants include 17 in Puerto Rico, 2 in Panama, 1 in Guyana, 1 in Ecuador, 1 in the Bahamas, ~~1 in the U.S. Virgin Islands, 5~~4 on college campuses in Florida, and locations at 1 hospital and 2 sports and entertainment stadiums in Florida. The Company operates its business as one operating and reportable segment.

Discontinued Operations. On July 1, 2021, the Company entered into a stock purchase agreement for the sale of Taco Cabana, Inc. and its subsidiaries (collectively "Taco Cabana"). On August 16, 2021, the Company completed the sale of Taco Cabana. The Company has classified the revenues, costs and expenses and income taxes attributable to the Taco Cabana business segment, together with certain costs related to the transaction, within ~~loss~~income (loss) from discontinued operations, net of tax, on the condensed consolidated statements of operations for all periods presented. See Note 2—Dispositions. Unless otherwise noted, amounts and disclosures throughout these notes to the condensed consolidated financial statements relate to the Company's continuing operations.

Basis of Consolidation. The unaudited condensed consolidated financial statements presented herein reflect the consolidated financial position, results of operations and cash flows of Fiesta and its wholly-owned subsidiaries. All intercompany transactions have been eliminated in consolidation.

Fiscal Year. The Company uses a 52–53 week fiscal year ending on the Sunday closest to December 31. The fiscal year ended January 2, 2022 contained 52 weeks. The three and six months ended ~~April~~July 3, 2022 and ~~April~~July 4, 2021 each contained thirteen ~~weeks.~~and twenty-six weeks, respectively. The fiscal year ending January 1, 2023 will contain 52 weeks.

Basis of Presentation. The accompanying unaudited condensed consolidated financial statements for the three and six months ended ~~April~~July 3, 2022 and ~~April~~July 4, 2021 have been prepared without an audit pursuant to the rules and regulations of the Securities and Exchange Commission and do not include certain information and footnotes required by U.S. Generally Accepted Accounting Principles ("GAAP") for complete financial statements. In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentation of such financial statements have been included. The results of operations for the three and six months ended ~~April~~July 3, 2022 and ~~April~~July 4, 2021 are not necessarily indicative of the results to be expected for the full year.

These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended January 2, 2022 included in the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2022. The January 2, 2022 balance sheet data is derived from those audited financial statements.

Reclassification. Certain reclassifications have been made in the 2021 condensed consolidated financial statements to conform with current year presentation related to the discontinued operations of Taco Cabana. See Note 2—Dispositions. Additionally, certain prior period balances have been reclassified to conform to the current period presentation in the accompanying notes to the condensed consolidated financial ~~statements and the accompanying notes.~~statements.

Revenue Recognition. Revenue is recognized upon transfer of promised products or services to customers in an amount that reflects the consideration the Company received in exchange for those products or services. Revenues from the Company's owned and operated restaurants are recognized when payment is tendered at the time of sale. Franchise royalty revenues are based on a percentage of gross sales and are recorded as income when earned. Initial franchise fees and area development fees associated with new franchise agreements are not distinct from the continuing rights and services offered by the Company during the term of the related franchise agreements and are recognized as income over the term of the related franchise agreements. A portion of the initial franchise fee is allocated to training services and is recognized as revenue when the Company completes the training services.

Fair Value of Financial Instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date under current market conditions. In determining fair value, the accounting standards establish a three-level hierarchy for inputs used in measuring fair

~~Table of Contents~~

~~FIESTA RESTAURANT GROUP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Dollars in thousands, except per share data)~~

value as follows: Level 1 inputs are quoted prices in active markets for identical assets or liabilities; Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or

Table of Contents

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

liabilities; and Level 3 inputs are unobservable and reflect management's own assumptions. The following methods were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the fair value:

•Current Assets and Liabilities. The carrying values reported on the condensed consolidated balance sheets of cash and restricted cash, accounts receivable and accounts payable approximate fair value because of the short maturity of those financial instruments.

•Revolving Credit Borrowings. The fair value of outstanding revolving credit borrowings under the Company's senior credit facility, which is considered Level 2, is based on current LIBOR rates. There were no outstanding revolving credit borrowings under the Company's senior credit facility as of ~~April~~July 3, 2022 and January 2, 2022.

See Note 4 for discussion of the fair value measurement of non-financial assets.

Long-Lived Assets. The Company assesses the recoverability of property and equipment and definite-lived intangible assets, including right-of-use ("ROU") lease assets, by determining whether the carrying value of these assets can be recovered over their respective remaining lives through undiscounted future operating cash flows. Impairment is reviewed whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. See Note 4—Impairment of Long-Lived Assets and Other Lease Charges (Recoveries).

Leases. The Company assesses whether an agreement contains a lease at inception. All leases are reviewed for finance or operating classification once control is obtained. The majority of the Company's leases are operating leases. Operating leases are included within operating lease right-of-use assets, other current liabilities, and operating lease liabilities in the condensed consolidated balance sheets. Finance leases are included within property and equipment, net, current portion of long-term debt, and long-term debt, net of current portion in the condensed consolidated balance sheets.

ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The operating lease ROU asset also includes any lease payments made in advance and is reduced by lease incentives received. As most leases do not provide an implicit rate, the Company uses its incremental borrowing rate at commencement date in determining the present value of lease payments. Lease terms include options to extend the lease when it is reasonably certain that the Company will exercise that option. The Company assumes options are reasonably certain to be exercised when such options are required to achieve a minimum 20-year lease term for new restaurant properties and when it incurs significant leasehold improvement costs near the end of a lease term. The Company uses judgment and available data to allocate consideration in a contract when it leases land and a building. The Company also uses judgment in determining its incremental borrowing rate, which includes selecting a yield curve based on a synthetic credit rating determined using a valuation model. Lease expense for lease payments is recognized on a straight-line basis over the lease term unless the related ROU asset has been adjusted for an impairment charge. The Company has real estate lease agreements with lease and non-lease components, which are accounted for as a single lease component.

Use of Estimates. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements. Estimates also affect the reported amounts of expenses during the reporting periods. Significant items subject to such estimates and assumptions include: insurance liabilities, evaluation for impairment of goodwill and long-lived assets, lease accounting matters, and deferred income tax assets. Actual results could differ from those estimates. Due to the uncertainty associated with the unprecedented nature of the COVID-19 pandemic and the impact it will have on the Company's operations and future cash flows, it is reasonably possible that the estimates of future cash flows used in impairment assessments will change in the near term and the effect of the change could be material.

2. Dispositions

On June 30, 2021, the Company's Board of Directors approved a stock purchase agreement, which was subsequently entered into by the Company on July 1, 2021, for the sale of all of the outstanding capital stock of Taco Cabana, Inc., including nearly all related assets and liabilities, for a cash purchase price of $85.0 million subject to reduction for (i) closing adjustments of approximately $4.6 million and (ii) certain other working capital adjustments as set forth in the stock purchase agreement. The transaction was completed August 16, 2021.

Table of Contents

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

The Company filed an insurance claim for winter storm damages in Texas that occurred in the first quarter of 2021 and retained the right to receive the insurance claim proceeds. The Company recognized ~~$0.9~~$0.4 million of insurance proceeds within income (loss) from discontinued operations, net of tax, in the second quarter of 2022 and $0.9 million of insurance proceeds in the fourth quarter of 2021, and expects to recognize any additional proceeds when the claim is ultimately resolved.

All revenues, costs and expenses and income taxes attributable to Taco Cabana, together with certain costs related to the transaction, have been aggregated within ~~loss~~income (loss) from discontinued operations, net of tax, in the condensed consolidated statements of operations for all periods presented. No amounts for shared general and administrative operating support expense were allocated to discontinued operations. Depreciation and amortization related to Taco Cabana property and equipment and lease ROU assets was not recorded after June 30, 2021 when Taco Cabana was classified as held for sale. As required by the terms of the senior credit facility, the net proceeds from the sale were used to fully repay Fiesta's outstanding term loan borrowings on August 16, 2021. The early repayment was subject to a 103% loan prepayment premium. Interest expense and amortization of discount and debt issuance costs related to the term loan portion of the senior credit facility are included within ~~loss~~income (loss) from discontinued operations, net of tax.

Upon completion of the sale of Taco Cabana, the Company provided certain services to Taco Cabana subject to a transition services agreement which expired on December 13, 2021. The Company retained certain closed Taco Cabana restaurant leases, including the associated operating lease right-of-use assets and operating lease liabilities. The Company also retained liability for Taco Cabana's accrued worker's compensation and general liability claims for periods prior to the sale. These liabilities are recognized in other current liabilities and other non-current liabilities in the condensed consolidated balance sheets. As there are estimates and assumptions inherent in recording these insurance liabilities, including the ability to estimate the future development of incurred claims based on historical trends or the severity of the claims, differences between actual future events and prior estimates and assumptions could result in adjustments to these liabilities.

During the three and six months ended ~~April~~July 3, 2022, the Company recognized $0.4 million and $0.2 million of income, respectively, primarily related to insurance proceeds and slightly offset by expenses ~~primarily~~ related to workers' compensation claims ~~and~~within income (loss) from discontinued operations, net of tax, in the condensed consolidated statement of operations. Additionally, during the six months ended July 3, 2022, the Company recognized a reduction of stock-based compensation of $(0.1) million within ~~loss~~income (loss) from discontinued operations, net of tax, in the condensed consolidated statement of operations. A summary of the results of the discontinued operations for the three and six months ended ~~April~~July 4, 2021 is as follows:

~~Three Months Ended~~

~~April 4, 2021~~

~~Major classes of line items constituting pretax loss of discontinued operations:~~

~~Revenues:~~

~~Total revenues~~

~~56,524~~

~~Costs and expenses:~~

~~Cost of sales~~

~~15,785~~

~~Restaurant wages and related expenses (including stock-based compensation expense of $26)~~

~~17,705~~

~~Restaurant rent expense~~

~~5,756~~

~~Other restaurant operating expenses~~

~~8,991~~

~~General and administrative (including stock-based compensation expense of $127)~~

~~3,902~~

~~Depreciation and amortization~~

~~3,838~~

~~Other income and expense items that are not major~~

~~1,723~~

~~Total operating expenses~~

~~57,700~~

~~Loss from operations~~

~~(1,176)~~

~~Interest expense~~

~~1,962~~

~~Loss from discontinued operations before income taxes~~

~~(3,138)~~

~~Benefit from income taxes~~

~~(1,744)~~

~~Loss from discontinued operations, net of tax~~

~~(1,394)~~


	Three Months Ended		Six Months Ended
	July 4, 2021			July 4, 2021
Major classes of line items constituting pretax loss of discontinued operations:
Revenues:
Total revenues	$	66,352		$	122,876
Costs and expenses:
Cost of sales	18,823			34,608
Restaurant wages and related expenses (including stock-based compensation expense of $24 and $50, respectively)	20,640			38,345
Restaurant rent expense	5,657			11,413
Other restaurant operating expenses	10,459			19,450
General and administrative (including stock-based compensation expense of $156 and $283, respectively)	4,089			7,991
Depreciation and amortization	3,961			7,799

Other income and expense items that are not major	2,658			4,381
Total operating expenses	66,287			123,987
Income (loss) from operations	65			(1,111)
Interest expense	1,906			3,868



Loss from discontinued operations before income taxes	(1,841)			(4,979)
Provision for (benefit from) income taxes	922			(822)
Loss from discontinued operations, net of tax	$	(2,763)		$	(4,157)

Table of Contents

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

A summary of significant investing activity and non-cash operating, investing, and financing activity of the discontinued operations for the ~~three~~six months ended ~~April~~July 4, 2021 is as follows:


	~~Three~~Six Months Ended
	~~April~~July 4, 2021
Non-cash operating activities:
Gain on disposals of property and equipment, net	$	~~(245)~~(290)
Stock-based compensation	~~153~~333
Impairment and other lease charges ~~(recoveries)~~	~~(70)~~294


Depreciation and amortization	~~3,838~~7,799


Investing activities:
Capital expenditures:
New restaurant development	$	—
Restaurant remodeling	~~(500)~~(645)
Other restaurant capital expenditures	~~(1,458)~~(2,708)
Corporate and restaurant information systems	~~(73)~~(110)
Total capital expenditures	~~(2,031)~~(3,463)

Proceeds from disposals of properties	1,307
Proceeds from sale-leaseback transactions	3,083
Net cash provided by investing activities – discontinued operations	$	~~1,052~~927

Supplemental cash flow disclosures:
Interest paid on long-term debt	$	~~1,660~~3,356


Supplemental cash flow disclosures of non-cash investing and financing activities:
Accruals for capital expenditures	$	~~768~~1,692

Right-of-use assets obtained in exchange for lease liabilities:
Operating lease ROU assets	~~4,493~~5,156

Right-of-use assets and lease liabilities reduced for terminated leases:
Operating lease ROU assets	~~838~~2,194
Operating lease liabilities	~~1,080~~2,795

3. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:


		April 3, 2022		January 2, 2022			July 3, 2022		January 2, 2022
Prepaid contract expenses	Prepaid contract expenses	$	4,640	$	4,462	Prepaid contract expenses	$	4,685	$	4,462

Other	Other	2,797		1,244		Other	3,127		1,244
		$	7,437	$	5,706		$	7,812	$	5,706

Table of Contents

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

4. Impairment of Long-Lived Assets and Other Lease Charges (Recoveries)

The Company reviews its long-lived assets, principally property and equipment and lease ROU assets, for impairment at the restaurant level. The Company has elected to exclude operating lease payments and liabilities from future cash flows and carrying values, respectively, in its impairment review. In addition to considering management's plans, known regulatory or governmental actions and damage due to acts of God (hurricanes, tornadoes, etc.), the Company considers a triggering event to have occurred related to a specific restaurant if the restaurant's cash flows, exclusive of operating lease payments, for the last twelve months are less than a minimum threshold or if consistent levels of cash flows for the remaining lease period are less than the carrying value of the restaurant's assets. If an indicator of impairment exists for any of its assets, an estimate of undiscounted future cash flows, exclusive of operating lease payments, over the life of the primary asset for each restaurant is compared to that long-lived asset group's carrying value, excluding operating lease liabilities. If the carrying value is greater than the undiscounted cash flow, the Company then determines the fair value of the asset and if an asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the asset over its fair value. There is uncertainty in the projected undiscounted future cash flows used in the Company's impairment review analysis. If actual performance does not achieve the projections, the Company may recognize impairment charges in future periods, and such charges could be material.

A summary of impairment of long-lived assets and other lease charges (recoveries) is as follows:

Three Months Ended
April 3, 2022 April 4, 2021
Impairment of long-lived assets $ — $ 110
Other lease charges (recoveries) (702) (162)
$ (702) $ (52)

~~Impairment and other lease charges (recoveries) for the three months ended April 3, 2022 consist of gains from lease terminations of $(0.7) million.~~


	Three Months Ended				Six Months Ended
	July 3, 2022		July 4, 2021		July 3, 2022		July 4, 2021
Impairment of long-lived assets	$	2,156	$	32	$	2,156	$	142
Other lease charges (recoveries)	(46)		(234)		(748)		(396)
	$	2,110	$	(202)	$	1,408	$	(254)

Impairment charges for the three and six months ended ~~April~~July 3, 2022 related primarily to impairment of assets from four underperforming Pollo Tropical restaurants for which continued performance declines resulted in a decrease in the estimated future cash flows. For the three and six months ended July 3, 2022, other lease charges (recoveries) consist of gains from lease terminations.

Impairment charges for the three and six months ended July 4, 2021 related primarily to impairment of equipment from previously impaired and closed restaurants. For the three and six months ended ~~April~~July 4, 2021, other lease charges (recoveries) related primarily to ~~a gain~~gains from a lease ~~termination.~~terminations.

The Company determines the fair value of restaurant equipment, for those restaurants reviewed for impairment, based on current economic conditions, the Company's history of using these assets in the operation of its business and the Company's expectation of how a market participant would value the assets. In addition, for those restaurants reviewed for impairment where the Company owns the land and building, the Company utilizes third-party information such as a broker quoted value to determine the fair value of the property, when applicable. The Company also utilizes discounted future cash flows to determine the fair value of assets for certain leased restaurants with positive discounted projected future cash flows. The Company utilizes current market lease rent and discount rates to determine the fair value of right-of-use lease assets. These fair value asset measurements rely on significant unobservable inputs and are considered Level 3 in the fair value hierarchy. ~~There were no~~The Level 3 assets measured at fair value associated with impairment charges ~~for~~recorded during the ~~three~~six months ended ~~April~~July 3, ~~2022.~~2022 totaled $1.2 million.

5. Other Liabilities

Other current liabilities consist of the following:


		April 3, 2022		January 2, 2022			July 3, 2022		January 2, 2022
Operating lease liabilities	Operating lease liabilities	$	10,448	$	10,381	Operating lease liabilities	$	10,685	$	10,381
Accrued workers' compensation and general liability claims	Accrued workers' compensation and general liability claims	2,942		3,083		Accrued workers' compensation and general liability claims	2,832		3,083
Sales and property taxes	Sales and property taxes	1,343		921		Sales and property taxes	1,382		921

Other	Other	3,778		3,647		Other	3,901		3,647
		$	18,511	$	18,032		$	18,800	$	18,032

Table of Contents

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

Other non-current liabilities consist of the following:


		April 3, 2022		January 2, 2022			July 3, 2022		January 2, 2022
Accrued workers' compensation and general liability claims	Accrued workers' compensation and general liability claims	$	6,432	$	6,432	Accrued workers' compensation and general liability claims	$	6,432	$	6,432

Deferred compensation	Deferred compensation	324		320		Deferred compensation	268		320

Other	Other	982		1,011		Other	969		1,011
		$	7,738	$	7,763		$	7,669	$	7,763

6. Stockholders' Equity

Purchase of Treasury Stock

In 2018, the Company's board of directors approved a share repurchase program for up to 1,500,000 shares of the Company's common stock. In 2019, the Company's board of directors approved increases to the share repurchase program of an additional 1,500,000 shares of the Company's common stock for an aggregate approval of 3,000,000 shares of the Company's common stock. Under the share repurchase program, shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The share repurchase program has no time limit and may be modified, suspended, superseded or terminated at any time by the Company's board of directors. The Company repurchased 14,746 shares of common stock valued at approximately $0.2 million during the ~~three~~six months ended ~~April~~July 3, 2022. As of July 3, 2022, 137,462 shares of common stock remain available for purchase under the share repurchase program. The repurchased shares are held as treasury stock at cost.

Stock-Based Compensation

On April 28, 2021, the stockholders of the Company approved the Fiesta Restaurant Group, Inc. 2021 Stock Incentive Plan (the "2021 Plan"). Following a grant of a total 37,874 shares to non-employee directors under the Company's 2012 Stock Incentive Plan (the "2012 Plan") on April 28, 2021, no additional shares will be granted under the 2012 Plan.

During the ~~three~~six months ended ~~April~~July 3, 2022, the Company granted certain employees a total of 227,781 non-vested restricted shares under the 2021 Plan that vest and become non-forfeitable over a four-year vesting period. Additionally, during the ~~three~~six months ended ~~April~~July 3, 2022, the Company granted certain employees a total of 185,000 non-vested restricted shares under the 2021 Plan that vest and become non-forfeitable over a one-year vesting period. During the six months ended July 3, 2022, the Company granted non-employee directors a total of 80,268 non-vested restricted shares under the 2021 Plan that vest and become non-forfeitable over a one-year vesting period. The weighted average fair value at grant date for non-vested shares issued during the ~~three~~six months ended ~~April~~July 3, 2022 and ~~April~~July 4, 2021 was ~~$9.23~~$8.83 per share and ~~$17.43~~$16.83 per share, respectively.

During the ~~three~~six months ended ~~April~~July 3, 2022, the Company also granted certain employees a total of 107,539 restricted stock units under the 2021 Plan subject to performance conditions. The restricted stock units vest and become non-forfeitable at the end of a three-year vesting period. The number of shares into which these restricted stock units convert is based on the attainment of certain financial performance conditions and ranges from no shares, if the minimum performance condition is not met, to 215,078 shares if the maximum performance condition is met. The weighted average fair value at grant date for the restricted stock units granted during the ~~three~~six months ended ~~April~~July 3, 2022 and ~~April~~July 4, 2021 was $9.02 per share and $17.43 per share, respectively.

Stock-based compensation expense from continuing operations for the three and six months ended ~~April~~July 3, 2022 was $1.4 million and ~~April~~$2.0 million, respectively, and for the three and six months ended July 4, 2021 was ~~$0.6~~$1.1 million and ~~$1.0~~$2.1 million, respectively. Stock-based compensation expense from discontinued operations for the ~~three~~six months ended ~~April~~July 3, 2022 ~~and April 4, 2021~~ was $(0.1) million and for the three and six months ended July 4, 2021 was $0.2 million and $0.3 million, respectively. At ~~April~~July 3, 2022, the total unrecognized stock-based compensation expense related to non-vested restricted shares and restricted stock units was approximately ~~$8.1~~$7.2 million. At ~~April~~July 3, 2022, the remaining weighted average vesting period for non-vested restricted shares was ~~1.8~~1.6 years and restricted stock units was ~~2.6~~2.3 years.

Table of Contents

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

A summary of all non-vested restricted shares and restricted stock units activity for the ~~three~~six months ended ~~April~~July 3, 2022 is as follows:


		Non-Vested Shares			Restricted Stock Units				Non-Vested Shares			Restricted Stock Units
		Shares	Weighted Average Grant Date Fair Value		Units	Weighted Average Grant Date Fair Value			Shares	Weighted Average Grant Date Fair Value		Units	Weighted Average Grant Date Fair Value
Outstanding at January 2, 2022	Outstanding at January 2, 2022	769,018	$	11.19	64,175	$	17.45	Outstanding at January 2, 2022	769,018	$	11.19	64,175	$	17.45
Granted	Granted	412,781	9.23		107,539	9.02		Granted	493,049	8.83		107,539	9.02
Vested and released	Vested and released	(66,372)	14.18		—	—		Vested and released	(156,817)	12.20		—	—
Forfeited	Forfeited	(68,619)	11.08		(5,021)	17.43		Forfeited	(80,112)	11.02		(5,021)	17.43
Outstanding at April 3, 2022		1,046,808	$	10.24	166,693	$	12.01
Outstanding at July 3, 2022								Outstanding at July 3, 2022	1,025,138	$	9.92	166,693	$	12.01

The fair value of non-vested restricted shares and restricted stock units granted during the ~~three~~six months ended ~~April~~July 3, 2022 is based on the closing stock price on the date of grant.

7. Earnings (Loss) Per Share

Basic earnings (loss) per share ("EPS") is computed by dividing net income (loss) applicable to common shares by the weighted average number of common shares outstanding during each period. Non-vested restricted shares contain a non-forfeitable right to receive dividends on a one-to-one per share ratio to common shares and are thus considered participating securities. The impact of the participating securities is included in the computation of basic EPS pursuant to the two-class method. The two-class method of computing EPS is an earnings allocation formula that determines earnings attributable to common shares and participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. EPS is computed by dividing undistributed earnings allocated to common stockholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and non-vested restricted shares based on the weighted average shares outstanding during the period.

Diluted EPS reflects the potential dilution that could occur if the restricted stock units were to be converted into common shares. Restricted stock units with performance conditions are only included in the diluted EPS calculation to the extent that performance conditions have been met at the measurement date. Diluted EPS is computed by adjusting the basic weighted average number of common shares by the dilutive effect of the restricted stock units, determined using the treasury stock method.

All outstanding restricted stock units in the three and six months ended ~~April~~July 3, 2022 and the three months ended July 4, 2021 were performance-based awards which had not yet met their performance conditions as of ~~April~~July 3, ~~2022.~~2022 and July 4, 2021. For the ~~three~~six months ended ~~April~~July 4, 2021, all shares of outstanding restricted stock units were excluded from the computation of diluted EPS because including these restricted stock units would have been antidilutive as a result of the loss from continuing operations in the ~~three~~six months ended ~~April~~July 4, 2021.

Table of Contents

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

The computation of basic and diluted EPS is as follows:


		Three Months Ended			Three Months Ended						Six Months Ended
			April 3, 2022			April 4, 2021			July 3, 2022		July 4, 2021		July 3, 2022		July 4, 2021
Basic and diluted EPS:	Basic and diluted EPS:							Basic and diluted EPS:
Loss from continuing operations			$	(1,301)		$	(695)
Loss from discontinued operations, net of tax			(55)			(1,394)
Income (loss) from continuing operations								Income (loss) from continuing operations	$	(6,488)	$	2,680	$	(7,789)	$	1,985
Income (loss) from discontinued operations, net of tax								Income (loss) from discontinued operations, net of tax	267		(2,763)		212		(4,157)
Net loss	Net loss		$	(1,356)		$	(2,089)	Net loss	$	(6,221)	$	(83)	$	(7,577)	$	(2,172)
Less: income allocated to participating securities			—			—
Net loss available to common shareholders			$	(1,356)		$	(2,089)

Weighted average common shares—basic	Weighted average common shares—basic		24,832,541			25,324,213		Weighted average common shares—basic	24,946,674		25,496,038		24,889,650		25,410,123
Restricted stock units	Restricted stock units		—			—		Restricted stock units	—		—		—		660
Weighted average common shares—diluted	Weighted average common shares—diluted		24,832,541			25,324,213		Weighted average common shares—diluted	24,946,674		25,496,038		24,889,650		25,410,783

Earnings (loss) from continuing operations per common share—basic	Earnings (loss) from continuing operations per common share—basic		$	(0.05)		$	(0.03)	Earnings (loss) from continuing operations per common share—basic	$	(0.26)	$	0.11	$	(0.31)	$	0.07
Earnings (loss) from discontinued operations per common share—basic	Earnings (loss) from discontinued operations per common share—basic		—			(0.05)		Earnings (loss) from discontinued operations per common share—basic	0.01		(0.11)		0.01		(0.16)
Earnings (loss) per common share—basic	Earnings (loss) per common share—basic		$	(0.05)		$	(0.08)	Earnings (loss) per common share—basic	$	(0.25)	$	—	$	(0.30)	$	(0.09)

Earnings (loss) from continuing operations per common share—diluted	Earnings (loss) from continuing operations per common share—diluted		$	(0.05)		$	(0.03)	Earnings (loss) from continuing operations per common share—diluted	$	(0.26)	$	0.11	$	(0.31)	$	0.07
Earnings (loss) from discontinued operations per common share—diluted	Earnings (loss) from discontinued operations per common share—diluted		—			(0.05)		Earnings (loss) from discontinued operations per common share—diluted	0.01		(0.11)		0.01		(0.16)
Earnings (loss) per common share—diluted	Earnings (loss) per common share—diluted		$	(0.05)		$	(0.08)	Earnings (loss) per common share—diluted	$	(0.25)	$	—	$	(0.30)	$	(0.09)

8. Commitments and Contingencies

Lease Assignments. Pollo Tropical assigned 2 leases to third parties on properties where it no longer operates with lease terms expiring in 2033 and 2036. Although the assignees are responsible for making the payments required by the lease, the Company is a guarantor under the leases.

The maximum potential liability for future rental payments that the Company could be required to make under these leases at ~~April~~July 3, 2022 was ~~$4.6~~$4.5 million. The Company could also be obligated to pay property taxes and other lease-related costs. The obligations under these leases will generally continue to decrease over time as the operating leases expire. The Company does not believe it is probable that it will be ultimately responsible for the obligations under these leases.

Indemnity of Lease Guarantees. As discussed in Note 2—Dispositions, Taco Cabana, Inc., a former wholly-owned subsidiary of the Company, was sold in the third quarter of 2021 to YTC Enterprises LLC ("YTC Enterprises") through a stock purchase agreement. The Company's previous owners, Carrols Restaurant Group, Inc. ("Carrols") remains a guarantor under 12 Taco Cabana restaurant property leases with lease terms expiring on various dates through 2030, all of which are still operating, as of ~~April~~July 3, 2022. The Company has indemnified Carrols for all obligations under the guarantees per the terms of the Separation and Distribution Agreement entered into in connection with the spin-off of Fiesta. The Company remains liable for all obligations under the terms of the leases in the event YTC Enterprises fails to pay any sums due under the lease, subject to indemnification provisions under the stock purchase agreement.

The maximum potential amount of future undiscounted rental payments the Company could be required to make under these leases at ~~April~~July 3, 2022 was ~~$8.4~~$7.9 million. The obligations under these leases will generally continue to decrease over time as these operating leases expire, except for any execution of renewal options that exist under the original leases. No payments related to these guarantees have been made by the Company to date and none are expected to be required to be made in the future. YTC Enterprises has indemnified the Company for all such obligations and the Company does not believe it is probable it will be required to perform under any of the guarantees or direct obligations.

Legal Matters. The Company is a party to various legal proceedings incidental to the conduct of business. The Company does not believe that the outcome of any of these matters will have a material effect on its condensed consolidated financial statements. The Company records accruals for outstanding legal matters when it believes it is probable that a loss will be incurred and the amount can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal matters that could affect the amount of any accrual and developments that would make a loss contingency both probable and

Table of Contents

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

reasonably estimable. If a loss contingency is not both probable and estimable, the Company does not establish an accrued liability.

9. Related Party Transactions

The Company engaged Jefferies LLC ("Jefferies"), an affiliate of one of the current members of Fiesta's board of directors, and a subsidiary of Jefferies Financial Group, Inc, a holder of more than 20 percent of the total outstanding shares of Fiesta, in connection with a refinancing of the Company's former amended senior credit facility in 2020 and other advisory services including related to the sale of Taco Cabana. The Company paid fees of $1.7 million to Jefferies and reimbursed Jefferies for reasonable out of pocket and ancillary expenses of less than $0.1 million when the refinancing was completed in the fourth quarter of 2020. The Company paid Jefferies a transaction advisory fee of $2.0 million upon the sale of Taco Cabana. As of ~~April~~July 3, 2022 and January 2, 2022, there were no amounts due to the related party recognized on the condensed consolidated balance sheets.

10. Supplemental Cash Flow Information

The following table details supplemental cash flow disclosures of non-cash investing and financing activities from continuing operations:


		Three Months Ended					Six Months Ended
		April 3, 2022		April 4, 2021			July 3, 2022		July 4, 2021
Supplemental cash flow disclosures:	Supplemental cash flow disclosures:					Supplemental cash flow disclosures:
Interest paid on long-term debt	Interest paid on long-term debt	$	63	$	63	Interest paid on long-term debt	$	97	$	115
Income tax payments (refunds), net	Income tax payments (refunds), net	5		(9,157)		Income tax payments (refunds), net	323		(6,347)

Supplemental cash flow disclosures of non-cash investing and financing activities:	Supplemental cash flow disclosures of non-cash investing and financing activities:					Supplemental cash flow disclosures of non-cash investing and financing activities:
Accruals for capital expenditures	Accruals for capital expenditures	$	3,846	$	1,348	Accruals for capital expenditures	$	2,437	$	2,481

Right-of-use assets obtained in exchange for lease liabilities:						Right-of-use assets obtained in exchange for lease liabilities:
Operating lease ROU assets						Operating lease ROU assets	5,281		1,490

Right-of-use assets and lease liabilities reduced for terminated leases:	Right-of-use assets and lease liabilities reduced for terminated leases:					Right-of-use assets and lease liabilities reduced for terminated leases:
Operating lease ROU assets	Operating lease ROU assets	1,820		1,026		Operating lease ROU assets	2,370		2,288
Operating lease liabilities	Operating lease liabilities	2,666		1,188		Operating lease liabilities	3,321		2,793

Cash and restricted cash reconciliation:	Cash and restricted cash reconciliation:					Cash and restricted cash reconciliation:
Beginning of period	Beginning of period					Beginning of period
Cash	Cash	$	36,797	$	49,778	Cash	$	36,797	$	49,778
Restricted cash	Restricted cash	3,837		3,584		Restricted cash	3,837		3,584
Cash and restricted cash, beginning of period	Cash and restricted cash, beginning of period	$	40,634	$	53,362	Cash and restricted cash, beginning of period	$	40,634	$	53,362

End of period	End of period					End of period
Cash	Cash	$	37,146	$	58,760	Cash	$	39,262	$	65,830
Restricted cash	Restricted cash	3,631		3,837		Restricted cash	3,631		3,837
Cash and restricted cash, end of period	Cash and restricted cash, end of period	$	40,777	$	62,597	Cash and restricted cash, end of period	$	42,893	$	69,667

Table of Contents

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

11. Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2020-04, Reference Rate Reform (Topic 848) ("ASU No. 2020-04"), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are effective as of March 12, 2020 through December 31, 2022. As of ~~April~~July 3, 2022, the Company's only exposure to LIBOR rates was the undrawn $10.0 million revolving credit facility under its senior credit facility. Upon cessation of the LIBOR, the senior credit facility would use a benchmark replacement rate. According to ASU No. 2020-04, modifications of contracts within the scope of Topic 470 Debt should be accounted for by prospectively adjusting the effective interest rate. The Company does not expect ASU No. 2020-04 to have a significant impact on its financial statements.

Table of Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of financial condition and results of operations ("MD&A") is written to help the reader understand our company. The MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited condensed consolidated financial statements and the accompanying notes. Any reference to restaurants refers to Company-owned restaurants unless otherwise indicated. Throughout this MD&A, we refer to Fiesta Restaurant Group, Inc., together with its consolidated subsidiaries, as "Fiesta," "we," "our" and "us."

We use a 52–53 week fiscal year ending on the Sunday closest to December 31. The fiscal year ended January 2, 2022 contained 52 weeks. The three and six months ended ~~April~~July 3, 2022 and ~~April~~July 4, 2021 each contained thirteen ~~weeks.~~and twenty-six weeks, respectively. The fiscal year ending January 1, 2023 will contain 52 weeks.

Company Overview

We own, operate and franchise the restaurant brand Pollo Tropical®, which has over 30 years of operating history and a loyal customer base. Our Pollo Tropical locations feature fire-grilled and crispy citrus marinated chicken and other freshly prepared menu items. We believe the brand offers a distinct and unique flavor with broad appeal at a compelling value, which differentiates it in the competitive fast-casual and quick-service restaurant segments. All but one of our restaurants offer the convenience of drive-thru windows. As of ~~April~~July 3, 2022, we operated 138 Pollo Tropical Company-owned restaurants, all of which are located in Florida.

We franchise our Pollo Tropical restaurants primarily in international markets, and as of ~~April~~July 3, 2022, we had 2322 franchised Pollo Tropical restaurants located in Puerto Rico, Panama, Guyana, Ecuador, and the Bahamas, and ~~the U.S. Virgin Islands, and eight~~seven licensed Pollo Tropical restaurants located in Florida consisting of ~~five~~four on college campuses and locations at a hospital and two sports and entertainment stadiums. We have agreements for the continued development of franchised Pollo Tropical restaurants in certain of our existing franchised markets.

Recent Events Affecting Our Results of Operations

COVID-19 Pandemic

The novel coronavirus (COVID-19) pandemic has affected and is continuing to affect the restaurant industry and the economy. Based on current conditions, we do not expect sales trends to significantly deteriorate further as a direct result of COVID-19. However, labor shortages may negatively impact sales trends and there can be no assurance that sales trends will not deteriorate further. We have implemented measures to control costs to mitigate any negative impact from the COVID-19 pandemic and labor shortages.

Labor Challenges and Inflationary Factors

Hours of operations have been limited due to labor shortages which are affecting our brand and the restaurant industry. In the ~~first~~second quarter of 2022, we estimate that operating hours were reduced by approximately ~~4.3%~~3.0% as a result of labor shortages. Additionally, we experienced increased overtime due to training and staffing shortages. In response to these labor shortages and competition for labor, we implemented special incentive pay in affected locations and for particular days of the week, and we have introduced sign-on bonuses payable after a specified term of service. ~~In addition, we~~We believe ~~that approximately $0.2 million of the~~these labor cost increases ~~in the first quarter of 2022~~ for overtime and staffing-related incentives are short-term in nature. We have intensified our focus on accelerating labor optimization efforts to improve staffing efficiency, which we believe will increase both staff availability and margins. As a result of our efforts, staffing levels improved in June 2022, enabling us to open all service channels, particularly dine-in, curbside and digital.

Inflationary factors have been experienced primarily in labor, food costs, and other operating costs categories. Due primarily to higher wage rates, restaurant wages and related expenses as a percentage of net sales increased to ~~24.8%~~25.1% in the ~~first~~second quarter of 2022 from ~~23.2%~~24.1% in the ~~first~~second quarter of 2021. Commodity costs as a percentage of net sales increased ~~4.9%~~6.2% in the ~~first~~second quarter of 2022 compared to the ~~first~~second quarter of 2021. The increase was partially due to non-recurring additional chicken costs of approximately $0.9 million as a result of utilizing a back-up supplier from May to early July 2022 due to a short-term capacity disruption experienced by our primary chicken supplier. Chicken costs, the primary protein purchased, are not expected to increase significantly for the remainder of 2022. Utilities costs as a percentage of net sales also increased to ~~3.8%~~4.0% in the ~~first~~second quarter of 2022 from ~~3.3%~~3.6% in the ~~first~~second quarter of ~~2021.~~2021 primarily due to higher energy prices in 2022.

Table of Contents

Pricing action has been taken to offset labor, food and other operating cost increases. In order to maintain value perceptions with our customers, we implemented a phased approach to menu price increases and took lower pricing increases on items purchased by value-conscious customers including our "Pollo Time" promotional items. Recent price increases include a 5.2% price increase in mid-December 2021, ~~and~~ a 5.0% increase in March 2022, and a 1.4% increase in June 2022. As a result of this phased approach to menu price increases, margin improvement is trailing the impact of cost increases noted above, with improved margins expected in future quarters compared to the ~~first~~second quarter of 2022, barring unforeseen changes in our cost structure and operating environment.

~~Table of Contents~~

Executive Summary—Consolidated Operating Performance for the Three Months Ended ~~April~~July 3, 2022

Our ~~first~~second quarter 2022 results and highlights include the following:

•We recognized a net loss of ~~$(1.4)~~$(6.2) million, or ~~$(0.05)~~$(0.25) per diluted share, in the ~~first~~second quarter of 2022 compared to a net loss of ~~$(2.1)~~$(0.1) million, or ~~$(0.08)~~$0.00 per diluted share, in the ~~first~~second quarter of 2021 due primarily to the impact of ~~increased comparable restaurant sales at Pollo Tropical and lower impairment and other lease charges in the first quarter of 2022, partially offset by~~ higher cost of sales, labor costs, repair and maintenance costs, utilities costs, insurance costs, general and administrative expenses, ~~advertising costs~~impairment and other lease charges, and delivery fees in the ~~first~~second quarter of 2022, partially offset by increased comparable restaurant sales at Pollo Tropical in the second quarter of 2022. The loss in the ~~first~~second quarter of 2021 was primarily the result of the loss from discontinued operations.

•We recognized a loss from continuing operations of ~~$(1.3)~~$(6.5) million, or ~~$(0.05)~~$(0.26) per diluted share, in the ~~first~~second quarter of 2022 compared to ~~a loss~~income from continuing operations of ~~$(0.7)~~$2.7 million, or ~~$(0.03)~~$0.11 per diluted share, in the ~~first~~second quarter of 2021 primarily as a result of the foregoing.

•Total revenues increased ~~8.4%~~8.0% in the ~~first~~second quarter of 2022 to ~~$95.6~~$98.5 million compared to ~~$88.2~~$91.2 million in the ~~first~~second quarter of 2021, driven by an increase in comparable restaurant sales at Pollo Tropical. Comparable restaurant sales increased ~~8.0%~~8.4% for our Pollo Tropical restaurants resulting from an increase in the net impact of product/channel mix and pricing of ~~15.0%~~15.1%, partially offset by a decrease in comparable restaurant transactions of ~~7.0%~~6.7%.

•Consolidated Adjusted EBITDA decreased ~~$4.4~~$3.5 million in the ~~first~~second quarter of 2022 to ~~$5.3~~$5.7 million compared to ~~$9.7~~$9.1 million in the ~~first~~second quarter of 2021, driven primarily by higher labor costs, repair and maintenance costs, utilities costs, insurance costs, general and administrative costs and delivery fee expense, and commodity costs and sales mix ~~and commodity costs~~ within cost of sales, partially offset by the impact of higher restaurant sales. Consolidated Adjusted EBITDA is a non-GAAP financial measure of performance. For a discussion of our use of Consolidated Adjusted EBITDA and a reconciliation from net income (loss) to Consolidated Adjusted EBITDA, see "Management's Use of Non-GAAP Financial Measures."

Table of Contents

Results of Operations

Unless otherwise noted, this discussion of operating results relates to our continuing operations.

The following table summarizes the changes in the number and mix of Pollo Tropical Company-owned and franchised restaurants:


		Pollo Tropical			Pollo Tropical
		Owned	Franchised	Total			Owned	Franchised	Total
January 2, 2022	January 2, 2022	138	31	169		January 2, 2022	138	31	169
New	New	—	1	1		New	—	1	1
Closed	Closed	—	(1)	(1)		Closed	—	(1)	(1)
April 3, 2022	April 3, 2022	138	31	169		April 3, 2022	138	31	169

New						New	—	—	—
Closed						Closed	—	(2)	(2)
July 3, 2022						July 3, 2022	138	29	167

January 3, 2021	January 3, 2021	138	29	167		January 3, 2021	138	29	167
New	New	—	—	—		New	—	—	—
Closed	Closed	—	—	—		Closed	—	—	—
April 4, 2021	April 4, 2021	138	29	167		April 4, 2021	138	29	167
New						New	—	—	—
Closed						Closed	—	—	—
July 4, 2021						July 4, 2021	138	29	167

Three Months Ended ~~April~~July 3, 2022 Compared to Three Months Ended ~~April~~July 4, 2021

The following table sets forth, for the three months ended ~~April~~July 3, 2022 and ~~April~~July 4, 2021, selected operating results as a percentage of restaurant sales:

Three Months Ended
April 3, 2022 April 4, 2021
Costs and expenses:
Cost of sales 32.3 % 31.1 %
Restaurant wages and related expenses 24.8 % 23.2 %
Restaurant rent expense 6.3 % 6.7 %
Other restaurant operating expenses 17.5 % 15.1 %
Advertising expense 3.0 % 2.7 %

~~Table of Contents~~


	Three Months Ended
	July 3, 2022		July 4, 2021





Costs and expenses:
Cost of sales	33.2	%	30.4	%
Restaurant wages and related expenses	25.1	%	24.1	%
Restaurant rent expense	6.1	%	6.4	%
Other restaurant operating expenses	17.1	%	15.7	%
Advertising expense	3.3	%	3.2	%

Revenues. Revenues include restaurant sales and franchise royalty revenues and fees. Restaurant sales consist of food and beverage sales, net of discounts, at our restaurants. Franchise royalty revenues and fees represent ongoing royalty payments that are determined based on a percentage of franchisee sales and the amortization of initial franchise fees and area development fees associated with the opening of new franchised restaurants. Restaurant sales are influenced by new restaurant openings, closures of restaurants and changes in comparable restaurant sales.

Total revenues increased ~~8.4%~~8.0% to ~~$95.6~~$98.5 million in the ~~first~~second quarter of 2022 from ~~$88.2~~$91.2 million in the ~~first~~second quarter of 2021. Restaurant sales increased ~~8.4%~~8.0% to ~~$95.2~~$98.0 million in the ~~first~~second quarter of 2022 from ~~$87.8~~$90.8 million in the ~~first~~second quarter of 2021.

Table of Contents

The following table presents the primary drivers of the increase in restaurant sales for Pollo Tropical for the ~~first~~second quarter of 2022 compared to the ~~first~~second quarter of 2021 (in millions):



Increase in comparable restaurant sales	$	~~7.0~~7.5
~~Increase~~Decrease in sales related to closed restaurants, including temporary and partial closures	~~0.4~~ (0.2)
Total increase	$	~~7.4~~7.3

Restaurants are included in comparable restaurant sales after they have been open for 18 months. 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.

Comparable restaurant sales increased ~~8.0%~~8.4% for Pollo Tropical restaurants in the ~~first~~second quarter of 2022 compared to the ~~first~~second quarter of 2021. Increases or decreases in comparable restaurant sales result primarily from an increase or decrease in comparable restaurant transactions and in average check. Changes in average check are primarily driven by menu price increases net of discounts and promotions and changes in sales channel and sales mix.

For Pollo Tropical, an increase in the net impact of product/channel mix and pricing of ~~15.0%~~15.1% was partially offset by a decrease in comparable restaurant transactions of ~~7.0%~~6.7% in the ~~first~~second quarter of 2022 compared to the ~~first~~second quarter of 2021. The increase in product/channel mix and pricing was driven primarily by ~~increases in dine-in, delivery, and drive-thru average check, and~~ menu price increases of ~~13.8%.~~14.4% and increases in dine-in and delivery average check. We believe staffing challenges had a negative impact on sales trends driven by reduced operating hours and sales channels in the ~~first~~second quarter of 2022. Comparable restaurant sales in ~~adequately staffed markets increased 11.1% in~~ the ~~first quarter of 2022 compared the first quarter of 2021. Comparable restaurant sales in the first~~second quarter of 2022 were negatively impacted by remodels and refreshes that temporarily closed dine-in and counter take-out operations. We estimate that these temporary dine-in closures negatively impacted comparable restaurant sales by approximately 0.4% in the ~~first~~second quarter of 2022.

Franchise revenues ~~remained flat at~~increased to $0.5 million in the second quarter of 2022 from $0.4 million in the ~~first~~second quarter of ~~2022 compared~~2021 due primarily to ~~the first quarter of 2021.~~higher sales at franchised restaurants.

Operating Costs and Expenses. Operating costs and expenses include cost of sales, restaurant wages and related expenses, other restaurant expenses and advertising expenses. Cost of sales consists of food, paper and beverage costs including packaging costs, less rebates and purchase discounts. Cost of sales is generally influenced by changes in commodity costs, the sales mix of items sold and the effectiveness of our restaurant-level controls to manage food and paper costs. Key commodities, including chicken and beef, are generally purchased under contracts for future periods of up to one year.

Restaurant wages and related expenses include all restaurant management and hourly productive labor costs, employer payroll taxes, restaurant-level bonuses and related benefits. Payroll and related taxes and benefits are subject to inflation, including minimum wage increases and changes in costs for health insurance, workers' compensation insurance and state unemployment insurance.

Other restaurant operating expenses include all other restaurant-level operating costs, the major components of which are utilities, repairs and maintenance, general liability insurance, sanitation, supplies and credit card and delivery fees.

Advertising expense includes all promotional expenses including television, radio, billboards and other sponsorships and promotional activities and agency fees.

1819

Table of Contents

The following table presents the primary drivers of the changes in the components of restaurant operating margins for the ~~first~~second quarter of 2022 compared to the ~~first~~second quarter of 2021. All percentages are stated as a percentage of restaurant sales:


Pollo Tropical:
Cost of sales:
Higher commodity cost	~~4.9~~6.2	%
Sales mix	~~1.0~~0.8	%
Higher promotions and discounts	~~0.2~~0.4	%
Menu price increases	~~(4.4)~~(4.7)	%
Operating efficiency	~~(0.7)~~(0.2)	%


Other	~~0.2~~0.3	%
Net increase in cost of sales as a percentage of restaurant sales	~~1.2~~2.8	%

Restaurant wages and related expenses:
Higher labor costs due to higher wage rates, overtime pay and ~~overtime~~training costs, partially offset by the impact of higher restaurant sales(1)	~~2.0~~1.6	%

Higher workers' compensation costs	0.4	%
Higher medical benefits costs	0.2	%
Lower ~~medical benefits~~other labor costs including ~~the impact of higher sales~~special incentive pay and sign-on bonuses	~~(0.3)~~(1.1)	%



Lower incentive bonus(2)	~~(0.2)~~(0.3)	%

Other	~~0.1~~0.2	%
Net increase in restaurant wages and related costs as a percentage of restaurant sales	~~1.6~~1.0	%

Other operating expenses:
Higher repair and maintenance costs	~~1.3~~0.6	%
Higher utilities costs	~~0.5~~0.4	%
Higher property and general liability insurance costs	0.3	%
Higher delivery fee expense due to increased delivery channel sales	~~0.4~~0.3	%
~~Higher insurance costs~~Lower operating supplies	~~0.4~~ (0.3)	%




~~Lower professional fees and services~~	~~(0.2)~~		%



Other	0.1	%
Net increase in other restaurant operating expenses as a percentage of restaurant sales	~~2.5~~1.4	%

Advertising expense:
Increased advertising	~~0.3~~0.1	%
Net increase in advertising expense as a percentage of restaurant sales	~~0.3~~0.1	%

(1) Higher wage rates, overtime pay and payroll taxes due in part to labor shortages in 2022.

(2) Primarily due to guaranteed bonus payments in 2021.

Restaurant Rent Expense. Restaurant rent expense includes base rent, contingent rent and common area maintenance and property taxes related to our leases characterized as operating leases. Restaurant rent expense, as a percentage of total restaurant sales, decreased to ~~6.3%~~6.1% in the ~~first~~second quarter of 2022 from ~~6.7%~~6.4% in the ~~first~~second quarter of 2021 due primarily to the impact of higher restaurant sales which were partially offset by higher rental costs related to renewed leases.

General and Administrative Expenses. General and administrative expenses are comprised primarily of (1) salaries and expenses associated with the development and support of our Company and brand and the management oversight of the operation of our restaurants; and (2) legal, auditing and other professional fees, corporate system costs, and stock-based compensation expense.

Table of Contents

General and administrative expenses were ~~$12.3~~$12.8 million for the ~~first~~second quarter of 2022 and ~~$10.7~~$11.1 million for the ~~first~~second quarter of 2021 and, as a percentage of total revenues, ~~general and administrative expenses~~ increased to ~~12.9%~~13.0% in the ~~first~~second quarter of 2022 compared to 12.1% in the ~~first~~second quarter of 2021 due primarily to increased professional fees, higher employee ~~benefits~~ and other support costs. General and administrative expenses for the ~~first~~second quarter of 2022 included ~~$1.3~~$1.7 million in non-recurring expenses comprised of ~~$0.7~~$1.2 million of professional fees, $0.3 million digital platform costs, and ~~$0.3~~$0.2 million of general and administrative efficiency initiative costs. General and administrative expenses for the ~~first~~second quarter of 2021 included $0.3 million related to non-recurring digital platform costs.

~~Table of Contents~~

Consolidated Adjusted EBITDA. Consolidated Adjusted EBITDA, a non-GAAP financial measure, is the primary measure of profit or loss used by our chief operating decision maker for purposes of assessing performance and is defined as earnings before interest expense, income taxes, depreciation and amortization, impairment and other lease charges (recoveries), goodwill impairment, closed restaurant rent expense, net of sublease income, stock-based compensation expense, other expense (income), net, and certain significant items that management believes are related to strategic changes and/or are not related to the ongoing operation of our restaurants.

Consolidated Adjusted EBITDA may not necessarily be comparable to other similarly titled captions of other companies due to differences in methods of calculation. For a discussion of our use of Consolidated Adjusted EBITDA and a reconciliation from net income (loss) to Consolidated Adjusted EBITDA, see the heading titled "Management's Use of Non-GAAP Financial Measures."

Consolidated Adjusted EBITDA decreased to ~~$5.3~~$5.7 million, or ~~5.5%~~5.7% of total revenues, in the ~~first~~second quarter of 2022 from ~~$9.7~~$9.1 million, or ~~11.0%~~10.0% of total revenues, in the ~~first~~second quarter of 2021 due primarily to higher labor costs, repair and maintenance costs, utilities costs, insurance costs, general and administrative costs and ~~sales mix~~delivery fee expense, and commodity costs and sales mix within cost of sales, partially offset by the impact of higher restaurant sales.

Restaurant-level Adjusted EBITDA. We also use Restaurant-level Adjusted EBITDA, a non-GAAP financial measure, as a supplemental measure to evaluate the performance and profitability of our restaurants in the aggregate, which is defined as Consolidated Adjusted EBITDA excluding franchise royalty revenues and fees, pre-opening costs and general and administrative expenses (including corporate-level general and administrative expenses).

Restaurant-level Adjusted EBITDA decreased to ~~$15.3~~$14.9 million, or ~~16.1%~~15.2% of restaurant sales, in the ~~first~~second quarter of 2022 from ~~$18.7~~$18.4 million, or ~~21.2%~~20.3% of restaurant sales, in the ~~first~~second quarter of 2021 primarily due to the foregoing. For a reconciliation from Consolidated Adjusted EBITDA to Restaurant-level Adjusted EBITDA, see the heading titled "Management's Use of Non-GAAP Financial Measures."

Depreciation and Amortization. Depreciation and amortization expense ~~remained flat at $5.1~~increased to $5.2 million in the ~~first~~second quarter of 2022 ~~compared~~from $4.9 million in the second quarter of 2021 primarily as a result of increased depreciation related to ongoing reinvestment and enhancements to restaurants that have been made since the ~~first~~second quarter of 2021.

Impairment and Other Lease Charges (Recoveries). Impairment and other lease charges (recoveries) ~~decreased~~increased to ~~$(0.7)~~$2.1 million in the ~~first~~second quarter of 2022 from ~~$(0.1)~~$(0.2) million in the ~~first~~second quarter of 2021.

Impairment and other lease charges (recoveries) for the three months ended ~~April~~July 3, 2022 ~~consist~~include impairment charges of $2.2 million related primarily to impairment of assets from four underperforming Pollo Tropical restaurants, partially offset by net gains from lease ~~terminations.~~terminations of less than $(0.1) million.

Impairment and other lease charges (recoveries) for the three months ended ~~April~~July 4, 2021 ~~include impairment charges~~consist of ~~$0.1~~gains from lease terminations of $(0.3) million ~~related primarily to equipment from previously impaired and closed restaurants and a gain from~~partially offset by a lease termination charge of ~~$(0.2)~~$0.1 million.

Table of Contents

Each quarter we assess the potential impairment of any long-lived assets that have experienced a triggering event, including restaurants for which the related trailing twelve-month cash flows are below a certain threshold. We determine if there is impairment at the restaurant level by comparing undiscounted future cash flows from the related long-lived assets, exclusive of operating lease payments, to their respective carrying values, excluding operating lease liabilities. In determining future cash flows, significant estimates are made by us with respect to future operating results of each restaurant over its remaining lease term, including sales trends, labor rates, commodity costs and other operating cost assumptions. If assets are determined to be impaired, the impairment charge is measured by calculating the amount by which the asset group's carrying amount exceeds its fair value. This process of assessing fair values requires the use of estimates and assumptions, including our ability to sell or reuse the related assets and market conditions, and for right-of-use lease assets, current market lease rent and discount rates, which are subject to a high degree of judgment. If these assumptions change in the future, we may be required to record impairment charges for these assets and these charges could be material. Due to the uncertainty associated with the unprecedented nature of the COVID-19 pandemic and the impact it may continue to have on our operations and future cash flows, it is reasonably possible that the estimates of future cash flows used in impairment assessments will change in the near term and the effect of the change could be material.

For ~~seven~~two Pollo Tropical restaurants with combined carrying values (excluding right-of-use lease assets) of ~~$4.7~~$0.9 million, projected cash flows are not substantially in excess of their carrying values. If the performance of these restaurants deteriorates from current projections, an impairment charge could be recognized in future periods, and such charge could be material.

Closed Restaurant Rent Expense, Net of Sublease Income. Closed restaurant rent expense, net of sublease income, was $0.4 million for the ~~first~~second quarter of 2022 and consisted of closed restaurant rent and ancillary lease costs of ~~$2.2~~$2.1 million net of

~~Table of Contents~~

sublease income of ~~$(1.8)~~$(1.7) million. Closed restaurant rent expense, net of sublease income, was ~~$0.8~~$1.0 million for the ~~first~~second quarter of 2021 and consisted of closed restaurant rent and ancillary lease costs of $2.3 million net of sublease income of ~~$(1.6)~~$(1.3) million.

Other Expense (Income), Net. Other expense (income), net, for the ~~first~~second quarter of 2022 primarily consisted of closed restaurant related costs of $0.1 million. Other expense (income), net, for the ~~first~~second quarter of 2021 was ~~$0.1~~$0.2 million and primarily consisted of costs for the removal, transfer, and storage of equipment from closed restaurants and other closed restaurant related costs.

Interest Expense. Interest expense remained flat at $0.1 million in the ~~first~~second quarter of 2022 compared to the ~~first~~second quarter of 2021.

Provision for (Benefit from) Income Taxes. The effective tax rate was ~~14.6%~~(21.2)% and ~~129.2%~~(45.7)% for the ~~first~~second quarter of 2022 and 2021, respectively. The ~~benefit~~provision from income taxes for the ~~first~~second quarter of 2022 was derived using an estimated annual effective tax rate of ~~20.0%~~(9.1)% which includes changes in the valuation allowance as a result of originating temporary differences during the year and excludes the discrete impact of a tax deficiency from the vesting of restricted shares of ~~$0.1~~$0.2 million. The ~~provision for~~benefit from income taxes for the ~~first~~second quarter of 2021 was derived using ~~an estimated annual~~the actual effective tax rate ~~of 57.6%~~for the year to date period, which includes changes in the valuation allowance as a result of originating temporary differences during the ~~year and excludes the discrete impact of a tax deficiency from the vesting of restricted shares of $0.3 million and a $1.5 million out-of-period adjustment that increased our income tax provision.~~year.

~~Loss~~Income (Loss) from Discontinued Operations, Net of Tax. All revenues, costs and expenses and income taxes attributable to Taco Cabana have been aggregated within ~~loss~~income (loss) from discontinued operations, net of tax, in the condensed consolidated statement of operations for all periods presented. During the ~~first~~second quarter of 2022, we recognized ~~$0.2~~$0.4 million of income, primarily related to insurance proceeds, slightly offset by expenses ~~primarily~~ related to workers' compensation claims ~~and a reduction of stock-based compensation of $(0.1 million)~~ within ~~loss~~income (loss) from discontinued operations, net of tax, in the condensed consolidated statement of operations. See Note 2—Dispositions in our unaudited condensed consolidated financial statements.

Net Loss. As a result of the foregoing, we had a net loss of ~~$(1.4)~~$(6.2) million in the ~~first~~second quarter of 2022 compared to a net loss of ~~$(2.1)~~$(0.1) million in the ~~first~~second quarter of 2021.

Table of Contents

Six Months Ended July 3, 2022 Compared to Six Months Ended July 4, 2021

The following table sets forth, for the six months ended July 3, 2022 and July 4, 2021, selected operating results as a percentage of restaurant sales:


	Six Months Ended
	July 3, 2022		July 4, 2021





Costs and expenses:
Cost of sales	32.8	%	30.7	%
Restaurant wages and related expenses	24.9	%	23.7	%
Restaurant rent expense	6.2	%	6.6	%
Other restaurant operating expenses	17.3	%	15.4	%
Advertising expense	3.2	%	3.0	%

Revenues. Total revenues increased 8.2% to $194.1 million in the six months ended July 3, 2022 from $179.4 million in the six months ended July 4, 2021. Restaurant sales increased 8.2% to $193.2 million in the six months ended July 3, 2022 from $178.6 million in the six months ended July 4, 2021.

The following table presents the primary drivers of the increase in restaurant sales for Pollo Tropical for the six months ended July 3, 2022 compared to the six months ended July 4, 2021 (in millions):



Increase in comparable restaurant sales	$	14.5
Increase in sales related to closed restaurants, including a temporary closure	0.1
Total increase	$	14.6

Comparable restaurant sales increased 8.2% for Pollo Tropical restaurants in the six months ended July 3, 2022.

For Pollo Tropical, an increase in the net impact of product/channel mix and pricing of 15.1% was coupled with an decrease in comparable restaurant transactions of 6.9% in the six months ended July 3, 2022 compared to the six months ended July 4, 2021. The increase in product/channel mix and pricing was driven primarily by menu price increases of 14.1% and increases in dine-in and delivery average check. We believe staffing challenges had a negative impact on sales trends driven by reduced operating hours and sales channels in the six months ended July 3, 2022. Comparable restaurant sales in the six months ended July 3, 2022 were negatively impacted by remodels and refreshes that temporarily closed dine-in and counter take-out operations. We estimate that these temporary dine-in closures negatively impacted comparable restaurant sales by approximately 0.4% in the six months ended July 3, 2022.

Franchise revenues increased to $0.9 million in the six months ended July 3, 2022 from $0.8 million in the six months ended July 4, 2021 due primarily to higher sales at franchised restaurants.

Table of Contents

The following table presents the primary drivers of the changes in the components of restaurant operating margins for the six months ended July 3, 2022 compared to the six months ended July 4, 2021. All percentages are stated as a percentage of restaurant sales:


Pollo Tropical:
Cost of sales:
Higher commodity costs	5.5	%
Sales mix	0.9	%
Higher promotions and discounts	0.3	%
Menu price increases	(4.6)	%
Operating efficiency	(0.4)	%
Other	0.4	%
Net increase in cost of sales as a percentage of restaurant sales	2.1	%

Restaurant wages and related expenses:
Higher labor costs due to higher wage rates, overtime pay and training costs, partially offset by the impact of higher restaurant sales(1)	1.8	%
Higher workers' compensation costs	0.2	%
Lower other labor costs including special incentive pay and sign-on bonuses	(0.6)	%

Lower incentive bonus(2)	(0.2)	%



Net increase in restaurant wages and related costs as a percentage of restaurant sales	1.2	%

Other operating expenses:
Higher repair and maintenance costs	0.9	%
Higher utilities costs	0.4	%
Higher delivery fee expense due to increased delivery channel sales	0.3	%
Higher property and general liability insurance costs	0.3	%
Lower operating supplies	(0.2)	%


Other	0.2	%
Net increase in other restaurant operating expenses as a percentage of restaurant sales	1.9	%

Advertising expense:
Increased advertising	0.2	%
Net increase in advertising expense as a percentage of restaurant sales	0.2	%

(1)Higher wage rates, overtime pay and payroll taxes due in part to labor shortages in 2022.

(2) Primarily due to guaranteed bonus payments in 2021.

Restaurant Rent Expense. Restaurant rent expense, as a percentage of total restaurant sales, decreased to 6.2% in the six months ended July 3, 2022 from 6.6% in the six months ended July 4, 2021 due primarily to the impact of higher comparable restaurant sales which were partially offset by higher rental costs related to renewed leases.

General and Administrative Expenses. General and administrative expenses were $25.1 million for the six months ended July 3, 2022 and $21.7 million for the six months ended July 4, 2021 and, as a percentage of total revenues, increased to 12.9% in the six months ended July 3, 2022 compared to 12.1% in the six months ended July 4, 2021 due primarily to increased professional fees, and higher employee and other support costs, partially offset by higher total revenue. General and administrative expense for the six months ended July 3, 2022 included $3.0 million in non-recurring expenses comprised of $1.9 million of professional fees, $0.6 million digital platform costs, and $0.5 million of general and administrative efficiency initiative costs. General and administrative expenses for the six months ended July 4, 2021 included $0.7 million related to non-recurring digital platform costs.

Consolidated Adjusted EBITDA. Consolidated Adjusted EBITDA,a non-GAAP financial measure, decreased to $10.9 million, or 5.6% of total revenues, in the six months ended July 3, 2022 from $18.8 million, or 10.5% of total revenues, in the

Table of Contents

six months ended July 4, 2021 due primarily to higher commodity costs, labor costs, repair and maintenance costs, and utilities costs, partially offset by the impact of higher restaurant sales. For a reconciliation from net income (loss) to Consolidated Adjusted EBITDA, see the heading titled "Management's Use of Non-GAAP Financial Measures."

Restaurant-level Adjusted EBITDA. Restaurant-level Adjusted EBITDA,a non-GAAP financial measure, decreased to $30.2 million, or 15.6% of restaurant sales, in the six months ended July 3, 2022 from $37.0 million, or 20.7% of restaurant sales, in the six months ended July 4, 2021 due primarily to the foregoing. For a reconciliation from Consolidated Adjusted EBITDA to Restaurant-level Adjusted EBITDA, see the heading titled "Management's Use of Non-GAAP Financial Measures."

Depreciation and Amortization. Depreciation and amortization expense increased to $10.3 million in the six months ended July 3, 2022 from $10.0 million in the six months ended July 4, 2021 due primarily to increased depreciation related to ongoing reinvestment and enhancements to our restaurants that have been made since the second quarter of 2021.

Impairment and Other Lease Charges (Recoveries). Impairment and other lease charges (recoveries) increased to $1.4 million in the six months ended July 3, 2022 from $(0.3) million in the six months ended July 4, 2021.

Impairment and other lease charges (recoveries) for the six months ended July 3, 2022 include impairment charges of $2.2 million related primarily to impairment of assets from four underperforming Pollo Tropical restaurants, partially offset by net gains from lease terminations of $(0.7) million.

Impairment and other lease charges (recoveries) for the six months ended July 4, 2021 include net gains from lease terminations of $(0.4) million, partially offset by impairment charges of $0.1 million related primarily to impairment of equipment from previously impaired and closed restaurants.

Closed Restaurant Rent Expense, Net of Sublease Income. Closed restaurant rent expense, net of sublease income was $0.8 million for the six months ended July 3, 2022 and consisted of closed restaurant rent and ancillary lease costs of $4.3 million net of sublease income of $(3.6) million. Closed restaurant rent expense, net of sublease income was $1.7 million for the six months ended July 4, 2021 and consisted of closed restaurant rent and ancillary lease costs of $4.6 million net of sublease income of $(2.9) million.

Other Expense (Income), Net. Other expense, net was $0.1 million for the six months ended July 3, 2022 and primarily consisted of closed restaurant related costs. Other income, net was $0.3 million for the six months ended July 4, 2021 and primarily consisted of costs for the removal, transfer, and storage of equipment from closed restaurants and other closed restaurant related costs.

Interest Expense. Interest expense increased to $0.2 million for the six months ended July 3, 2022 from $0.1 million for the six months ended July 4, 2021.

Provision for (Benefit from) Income Taxes. The effective tax rate was (13.3)% and 53.0% for the six months ended July 3, 2022 and July 4, 2021, respectively. The provision for income taxes for the six months ended July 3, 2022 was derived using an estimated annual effective tax rate of (9.1)% which includes changes in the valuation allowance as a result of originating temporary differences during the year and excludes the discrete impact of a tax deficiency from the vesting of restricted shares of $0.2 million. The provision for income taxes for the six months ended July 4, 2021 was derived using the actual effective tax rate for the year to date period, which includes changes in the valuation allowance as a result of originating temporary differences during the year and excludes an out-of-period adjustment that increased our income tax provision.

Income (Loss) from Discontinued Operations. During the six months ended July 3, 2022, we recognized $0.2 million of income, primarily related to insurance proceeds and a reduction of stock-based compensation, slightly offset by expenses related to workers' compensation claims within income (loss) from discontinued operations, net of tax, in the condensed consolidated statement of operations. See Note 2—Dispositions in our unaudited condensed consolidated financial statements.

Net Loss. As a result of the foregoing, we had a net loss of $(7.6) million for the six months ended July 3, 2022 compared to a net loss of $(2.2) million for the six months ended July 4, 2021.

Table of Contents

Liquidity and Capital Resources

Unless otherwise noted, this discussion of liquidity and capital resources relates to our combined operations.

We do not have significant receivables or inventory and receive trade credit based upon negotiated terms in purchasing food products and other supplies. Although, as a result of our substantial cash balance, we did not have a working capital deficit at ~~April~~July 3, 2022, we have the ability to operate with a substantial working capital deficit (and we have historically operated with a working capital deficit) because:

•Restaurant operations are primarily conducted on a cash basis;

•Rapid turnover results in a limited investment in inventories; and

•Cash from sales is usually received before related liabilities for supplies and payroll become due.

Capital expenditures and payments related to our lease obligations represent significant liquidity requirements for us. We believe our cash reserves, cash generated from our operations, and availability of borrowings under our senior credit facility will provide sufficient cash availability to cover our anticipated working capital needs and capital expenditures for the next twelve months. We used the net proceeds from the sale of Taco Cabana to repay the outstanding term loan under our senior credit facility in the third quarter of 2021.

Operating Activities. Net cash provided by operating activities in the first ~~three~~six months of 2022 and 2021 was ~~$3.9~~$10.7 million and ~~$9.5~~$21.5 million, respectively. The decrease in net cash provided by operating activities in the ~~three~~six months ended ~~April~~July 3, 2022 was primarily driven by a decrease in Consolidated Adjusted EBITDA, including contributions from discontinued operations, the receipt of income tax refunds in 2021, and the timing of payments.

Investing Activities. Net cash used in investing activities in the first ~~three~~six months of 2022 and 2021 was ~~$3.6~~$8.2 million ~~compared to offsetting sources~~ and ~~uses of cash in investing activities in the same period of 2021.~~$4.7 million, respectively. Capital expenditures are generally the largest component of our investing activities and include: (1) new restaurant development, which may include the purchase of real estate; (2) restaurant remodeling/reimaging, which includes the renovation or rebuilding of the interior and exterior of our existing restaurants; (3) other restaurant capital expenditures, which include capital maintenance expenditures for the ongoing reinvestment and enhancement of our restaurants; and (4) corporate and restaurant information systems.

~~Table of Contents~~

The following table sets forth our capital expenditures from continuing operations for the periods presented (dollars in thousands):


		Pollo Tropical		Other		Continuing Operations			Pollo Tropical		Other		Continuing Operations
Three Months Ended April 3, 2022:
Six Months Ended July 3, 2022:								Six Months Ended July 3, 2022:
New restaurant development	New restaurant development	$	—	$	—	$	—	New restaurant development	$	—	$	—	$	—
Restaurant remodeling	Restaurant remodeling	1,480		—		1,480		Restaurant remodeling	3,311		—		3,311
Other restaurant capital expenditures(1)	Other restaurant capital expenditures(1)	1,904		—		1,904		Other restaurant capital expenditures(1)	3,895		—		3,895
Corporate and restaurant information systems	Corporate and restaurant information systems	387		34		421		Corporate and restaurant information systems	1,185		54		1,239
Total capital expenditures	Total capital expenditures	$	3,771	$	34	$	3,805	Total capital expenditures	$	8,391	$	54	$	8,445
Number of new restaurant openings	Number of new restaurant openings	—				—		Number of new restaurant openings	—				—
Three Months Ended April 4, 2021:
Six Months Ended July 4, 2021:								Six Months Ended July 4, 2021:
New restaurant development	New restaurant development	$	—	$	—	$	—	New restaurant development	$	—	$	—	$	—
Restaurant remodeling	Restaurant remodeling	162		—		162		Restaurant remodeling	592		—		592
Other restaurant capital expenditures(1)	Other restaurant capital expenditures(1)	514		—		514		Other restaurant capital expenditures(1)	3,750		—		3,750
Corporate and restaurant information systems	Corporate and restaurant information systems	33		356		389		Corporate and restaurant information systems	719		545		1,264
Total capital expenditures	Total capital expenditures	$	709	$	356	$	1,065	Total capital expenditures	$	5,061	$	545	$	5,606
Number of new restaurant openings	Number of new restaurant openings	—				—		Number of new restaurant openings	—				—

(1) Excludes restaurant repair and maintenance expenses included in other restaurant operating expenses in our unaudited condensed consolidated financial statements. For the ~~three~~six months ended ~~April~~July 3, 2022 and ~~April~~July 4, 2021, total restaurant repair and maintenance expenses were approximately ~~$3.8~~$7.5 million and ~~$2.5~~$5.4 million, respectively.

Table of Contents

The following table sets forth our capital expenditures from discontinued operations for the period presented (dollars in thousands):


	Taco Cabana







~~Three~~Six Months Ended ~~April~~July 4, 2021:
New restaurant development	$	—
Restaurant remodeling	~~500~~645
Other restaurant capital expenditures(1)	~~1,458~~2,708
Corporate and restaurant information systems	73110
Total capital expenditures	$	~~2,031~~3,463
Number of new restaurant openings	—

(1) Excludes restaurant repair and maintenance expenses included in discontinued operations in our unaudited condensed consolidated financial statements. For the ~~three~~six months ended ~~April~~July 4, 2021, total restaurant repair and maintenance expenses from discontinued operations were approximately ~~$1.7~~$4.2 million.

Net cash provided by investing activities from discontinued operations in the first ~~three~~six months of 2022 included proceeds from insurance recoveries of $0.2 million. Net cash used in investing activities from discontinued operations in the first ~~three~~six months of 2021 included net proceeds of $3.1 million from the sale-leaseback of two restaurant ~~properties.~~properties and net proceeds of $1.3 million from the sale of one restaurant property.

Total capital expenditures in 2022 are expected to be between $25.0 million and ~~30.0~~$28.0 million.

Financing Activities. Net cash used in financing activities in the first ~~three~~six months of 2022 was $0.2 million and primarily consisted of payments to repurchase our common stock. Net cash used in financing activities in the first ~~three~~six months of 2021 included term loan borrowing repayments under our senior credit facility of ~~$0.2~~$0.4 million and ~~$0.1~~$0.2 million in principal payments on finance leases.

Senior Credit Facility. On November 23, 2020, we terminated our former amended senior secured revolving credit facility and entered into a new senior secured credit facility, which is referred to as the "senior credit facility." The senior credit facility was comprised of a term loan facility (the "term loan facility") of $75.0 million and a revolving credit facility (the "revolving credit facility") of up to $10.0 million and matures on November 23, 2025. The senior credit facility also provides for potential incremental term loan borrowing increases of up to $37.5 million in the aggregate, subject to, among other items, compliance

~~Table of Contents~~

with a minimum Total Leverage Ratio and other terms specified in the senior credit facility. As required by the terms of the senior credit facility, the net proceeds from the sale of Taco Cabana were used to fully repay our outstanding term loan borrowings on August 16, 2021. The early repayment was subject to a 103% loan prepayment premium.

The senior credit facility provides that we be in compliance with the Total Leverage Ratio under the senior credit facility beginning January 3, 2022. We will be permitted to exercise equity cure rights with respect to compliance with the Total Leverage Ratio subject to certain restrictions as set forth in the senior credit facility.

Borrowings under the senior credit facility bear interest at a rate per annum, at our option, equal to either (all terms as defined in the senior credit facility):

1) the Base Rate plus the Applicable Margin of 6.75% with a minimum Base Rate of 2.00%, or

2) the LIBOR (or Benchmark Replacement) Rate plus the Applicable Margin of 7.75%, with a minimum LIBOR (or Benchmark Replacement) Rate of 1.00%.

In addition, the senior credit facility requires us to pay a commitment fee of 0.50% per annum on the daily amount of the unused portion of the revolving credit facility.

The outstanding borrowings under the revolving credit facility are prepayable without penalty or premium (other than customary breakage costs). The outstanding borrowings under the term loan facility were voluntarily prepayable by us, and the term loan facility provided that each of the following required a mandatory prepayment of outstanding term loan borrowings by us as follows: (i) 100% of any cash Net Proceeds (as defined in the senior credit facility) in excess of $2.0 million individually or in the aggregate over the term of the senior credit facility in respect of any Casualty Event (as defined in the senior credit facility) affecting collateral provided that we were permitted to reinvest such Net Proceeds in accordance with the senior credit facility, (ii) 100% of any Net Proceeds of a Specified Equity Contribution (as defined in the senior credit facility), (iii) 100% of any cash Net Proceeds from the issuance of debt issued by us or our subsidiaries other than Permitted Debt (as defined in the

Table of Contents

senior credit facility), (iv) 100% of any Net Proceeds from the Disposition (as defined in the senior credit facility) of certain assets individually, or in the aggregate, in excess of $2.0 million in any fiscal year provided that we were permitted to reinvest such Net Proceeds in accordance with the senior credit facility and (v) beginning with the fiscal year ending January 2, 2022, an amount equal to the Excess Cash Flow (as defined in the senior credit facility) in accordance with the senior credit facility.

Our senior credit facility contains customary default provisions, including without limitation, a cross default provision pursuant to which it is an event of default under this facility if there is a default under any of our indebtedness having an outstanding principal amount in excess of $5.0 million which results in the acceleration of such indebtedness prior to its stated maturity or is caused by a failure to pay principal when due.

The senior credit facility contains certain covenants, including, without limitation, those limiting our ability to, among other things, incur indebtedness, incur liens, sell or acquire assets or businesses, change the character of our business in any material respects, engage in transactions with related parties, make certain investments, make certain restricted payments or pay dividends.

Our obligations under the senior credit facility are secured by all of our and our subsidiaries' assets (including a pledge of all of the capital stock and equity interests of our subsidiaries).

Under the senior credit facility, the lenders may terminate their obligation to advance and may declare the unpaid balance of borrowings, or any part thereof, immediately due and payable upon the occurrence and during the continuance of customary defaults which include, without limitation, payment default, covenant defaults, bankruptcy type defaults, defaults on other indebtedness, certain judgments or upon the occurrence of a change of control (as specified in the senior credit facility).

As of ~~April~~July 3, 2022, we were in compliance with the financial covenants under our senior credit facility. At ~~April~~July 3, 2022, $10.0 million was available for borrowing under the revolving credit facility.

Off-Balance Sheet Arrangements and Cash Requirements

We have no off-balance sheet arrangements.

There have been no significant changes outside the ordinary course of business to our cash requirements since January 2, 2022. Information regarding our cash requirements is included under "Cash Requirements" in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended January 2, 2022.

~~Table of Contents~~

Inflation

The inflationary factors that have historically affected our results of operations include increases in food and paper costs, labor and other operating expenses and energy costs. Labor costs in our restaurants are impacted by a number of factors such as labor supply and changing market conditions, as well as changes in the federal and state hourly minimum wage rates as well as changes in payroll related taxes, including federal and state unemployment taxes. Labor supply across other industries also negatively impacts the costs of supplies, commodities, logistics, and utilities. We typically attempt to offset the effect of inflation, at least in part, through periodic menu price increases and various cost reduction programs. However, no assurance can be given that we will be able to fully offset such inflationary cost increases in the future.

~~Application of~~ Critical Accounting ~~Policies~~Estimates

Our unaudited interim condensed consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. Preparing consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by the application of our accounting policies. Our significant accounting policies are described in the "Basis of Presentation" footnote in the notes to our consolidated financial statements for the year ended January 2, 2022 included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2022. Critical accounting estimates are those that require application of management's most difficult, subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. These estimates involve a significant level of estimation uncertainty and are reasonably likely to have a material impact on the financial condition or results of operations. There have been no material changes affecting our critical accounting policies for the ~~three~~six months ended ~~April~~July 3, 2022.

Table of Contents

Management's Use of Non-GAAP Financial Measures

Consolidated Adjusted EBITDA is a non-GAAP financial measure. We use Consolidated Adjusted EBITDA in addition to net income (loss) and income (loss) from operations to assess our performance, and we believe it is important for investors to be able to evaluate us using the same measures used by management. We believe this measure is an important indicator of our operational strength and the performance of our business and it provides a view of operations absent non-cash activity and items that are not related to the ongoing operation of our restaurants or affect comparability period over period. Consolidated Adjusted EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization, impairment and other lease charges (recoveries), goodwill impairment, closed restaurant rent expense, net of sublease income, stock-based compensation expense, other expense (income), net, and certain significant items that management believes are related to strategic changes and/or are not related to the ongoing operation of our restaurants. Consolidated Adjusted EBITDA as calculated by us is not necessarily comparable to similarly titled measures reported by other companies, and should not be considered as an alternative to net income (loss), earnings (loss) per share, cash flows from operating activities or other financial information determined under GAAP.

We also use Restaurant-level Adjusted EBITDA as a supplemental measure to evaluate the performance and profitability of our restaurants in the aggregate, which is defined as Consolidated Adjusted EBITDA excluding franchise royalty revenues and fees, pre-opening costs, and general and administrative expenses (including corporate-level general and administrative expenses). Restaurant-level Adjusted EBITDA margin is derived by dividing Restaurant-level Adjusted EBITDA by restaurant sales. Restaurant-level Adjusted EBITDA is also a non-GAAP financial measure.

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.

All such financial measures have important limitations as analytical tools. These limitations include the following:

•Such financial information does not reflect our capital expenditures, future requirements for capital expenditures or contractual commitments to purchase capital equipment;

•Such financial information does not reflect interest expense or the cash requirements necessary to service payments on our debt;

•Although depreciation and amortization are non-cash charges, the assets that we currently depreciate and amortize will likely have to be replaced in the future, and such financial information does not reflect the cash required to fund such replacements; and

~~Table of Contents~~

•Such financial information does not reflect the effect of earnings or charges resulting from matters that our management does not consider to be indicative of our ongoing operations. However, some of these charges and gains (such as impairment and other lease charges (recoveries), closed restaurant rent expense, net of sublease income, other income and expense and stock-based compensation expense) have recurred and may recur.

Table of Contents

A reconciliation from consolidated net loss to Consolidated Adjusted EBITDA follows (in thousands). All amounts are from continuing operations unless otherwise indicated.


		Three Months Ended						Three Months Ended					Six Months Ended
			April 3, 2022			April 4, 2021				July 3, 2022			July 4, 2021			July 3, 2022			July 4, 2021

Net loss	Net loss		$	(1,356)		$	(2,089)		Net loss	$	(6,221)		$	(83)		$	(7,577)		$	(2,172)
Loss from discontinued operations, net of tax			55			1,394
Loss (income) from discontinued operations, net of tax									Loss (income) from discontinued operations, net of tax	(267)			2,763			(212)			4,157
Provision for (benefit from) income taxes	Provision for (benefit from) income taxes		(222)			3,077			Provision for (benefit from) income taxes	1,134			(841)			912			2,236
Income (loss) from continuing operations before taxes	Income (loss) from continuing operations before taxes		(1,523)			2,382			Income (loss) from continuing operations before taxes	(5,354)			1,839			(6,877)			4,221
Add:	Add:								Add:
Non-general and administrative adjustments:	Non-general and administrative adjustments:								Non-general and administrative adjustments:
Depreciation and amortization	Depreciation and amortization		5,114			5,088			Depreciation and amortization	5,232			4,875			10,346			9,963
Impairment and other lease charges (recoveries)	Impairment and other lease charges (recoveries)		(702)			(52)			Impairment and other lease charges (recoveries)	2,110			(202)			1,408			(254)

Interest expense	Interest expense		85			61			Interest expense	85			61			170			122
Closed restaurant rent expense, net of sublease income	Closed restaurant rent expense, net of sublease income		380			750			Closed restaurant rent expense, net of sublease income	401			966			781			1,716

Other expense (income), net	Other expense (income), net		51			123			Other expense (income), net	83			170			134			293
Stock-based compensation expense	Stock-based compensation expense		7			16			Stock-based compensation expense	6			15			13			31

Total non-general and administrative adjustments	Total non-general and administrative adjustments		4,935			5,986			Total non-general and administrative adjustments	7,917			5,885			12,852			11,871
General and administrative adjustments:	General and administrative adjustments:								General and administrative adjustments:
Stock-based compensation expense	Stock-based compensation expense		623			994			Stock-based compensation expense	1,388			1,046			2,011			2,040
Non-recurring professional fees(1)	Non-recurring professional fees(1)		705			—			Non-recurring professional fees(1)	1,197			—			1,902			—
G&A efficiency initiatives(2)	G&A efficiency initiatives(2)		261			—			G&A efficiency initiatives(2)	193			—			454			—

Restructuring costs and retention bonuses									Restructuring costs and retention bonuses	—			18			—			18

Digital costs(3)	Digital costs(3)		291			316			Digital costs(3)	315			335			606			651
Total general and administrative adjustments	Total general and administrative adjustments		1,880			1,310			Total general and administrative adjustments	3,093			1,399			4,973			2,709
Consolidated Adjusted EBITDA	Consolidated Adjusted EBITDA		$	5,292		$	9,678		Consolidated Adjusted EBITDA	$	5,656		$	9,123		$	10,948		$	18,801
Total revenues	Total revenues		$	95,609		$	88,215		Total revenues	$	98,487		$	91,155		$	194,096		$	179,370
Consolidated Adjusted EBITDA as a percentage of total revenues	Consolidated Adjusted EBITDA as a percentage of total revenues		5.5		%	11.0		%	Consolidated Adjusted EBITDA as a percentage of total revenues	5.7		%	10.0		%	5.6		%	10.5		%

(1) Non-recurring professional fees consist of costs related to growth initiatives.

(2) G&A efficiency initiatives consist of non-recurring retention bonus costs.

(3) Digital costs for the three and six months ended ~~April~~July 3, 2022 and ~~April~~July 4, 2021 include costs related to enhancing the digital experience for our customers.

A reconciliation from Consolidated Adjusted EBITDA to Restaurant-level Adjusted EBITDA follows (in thousands):


		Three Months Ended						Three Months Ended					Six Months Ended
			April 3, 2022			April 4, 2021				July 3, 2022			July 4, 2021			July 3, 2022			July 4, 2021

Consolidated Adjusted EBITDA	Consolidated Adjusted EBITDA		$	5,292		$	9,678		Consolidated Adjusted EBITDA	$	5,656		$	9,123		$	10,948		$	18,801
Restaurant-level adjustments:	Restaurant-level adjustments:								Restaurant-level adjustments:

Add: Other general and administrative expense(1)	Add: Other general and administrative expense(1)		10,462			9,356			Add: Other general and administrative expense(1)	9,698			9,651			20,160			19,007
Less: Franchise royalty revenue and fees	Less: Franchise royalty revenue and fees		409			375			Less: Franchise royalty revenue and fees	464			391			873			766
Restaurant-level Adjusted EBITDA	Restaurant-level Adjusted EBITDA		$	15,345		$	18,659		Restaurant-level Adjusted EBITDA	$	14,890		$	18,383		$	30,235		$	37,042
Restaurant sales	Restaurant sales		$	95,200		$	87,840		Restaurant sales	$	98,023		$	90,764		$	193,223		$	178,604
Restaurant-level Adjusted EBITDA as a percentage of restaurant sales	Restaurant-level Adjusted EBITDA as a percentage of restaurant sales		16.1		%	21.2		%	Restaurant-level Adjusted EBITDA as a percentage of restaurant sales	15.2		%	20.3		%	15.6		%	20.7		%

(1) Excludes general and administrative adjustments included in Consolidated Adjusted EBITDA.

2530

Table of Contents

Forward Looking Statements

Matters discussed in this report and in our public disclosures, whether written or oral, relating to future events or our future performance, including any discussion, express or implied, regarding our anticipated growth, operating results, future earnings per share, plans, objectives, the impact of our other business initiatives, the impact of our initiatives designed to strengthen our liquidity and cash position, including those related to working capital efficiency initiatives and sales of real property and the impact of the COVID-19 pandemic and our initiatives designed to respond to the COVID-19 pandemic on future sales, margins, earnings and liquidity, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"). These statements are often identified by the words "believe," "positioned," "estimate," "project," "plan," "goal," "target," "assumption," "continue," "intend," "expect," "future," "anticipate," and other similar expressions, whether in the negative or the affirmative, that are not statements of historical fact. These forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict, and you should not place undue reliance on our forward-looking statements. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under "Risk Factors" and elsewhere in this report and in our other public filings with the United States Securities and Exchange Commission ("SEC"). All forward-looking statements and the internal projections and beliefs upon which we base our expectations included in this report or other periodic reports represent our estimates as of the date made and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we expressly disclaim any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

2631

Table of Contents

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Commodity Price Risk

We purchase certain products which are affected by commodity prices and are, therefore, subject to price volatility caused by weather, market conditions and other factors which are not considered predictable or within our control. Although many of the products purchased are subject to changes in commodity prices, certain purchasing contracts or pricing arrangements have been negotiated in advance to minimize price volatility. Where possible, we use these types of purchasing techniques to control costs as an alternative to using financial instruments to hedge commodity prices. Additionally, shortages in key ingredients may impact commodity prices. In many cases, we believe we will be able to address commodity cost increases that are significant and appear to be long-term in nature by adjusting our menu pricing. However, long-term increases in commodity prices may result in lower restaurant-level operating margins.

There were no material changes from the information presented in Item 7A included in our Annual Report on Form 10-K for the year ended January 2, 2022 with respect to our market risk sensitive instruments.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures. Our senior management is responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Evaluation of Disclosure Controls and Procedures. We have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report, with the participation of our Chief Executive Officer and Chief Financial Officer, as well as other key members of our management. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~April~~July 3, 2022.

Changes in Internal Control over Financial Reporting. No change occurred in our internal control over financial reporting during the ~~first~~second quarter of 2022 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are a party to various litigation matters incidental to the conduct of business. We do not believe that the outcome of any of these matters will have a material adverse effect on our business, results of operations or financial condition.

Item 1A. Risk Factors

Part 1—Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 2, 2022, describes important factors that could cause our actual operating results to differ materially from those indicated or suggested by forward-looking statements made in this Form 10-Q or presented elsewhere by management from time-to-time. There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended January 2, 2022.

~~Table of Contents~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~During the years ended December 30, 2018, and December 29, 2019, our board of directors authorized the repurchase of an aggregate 3.0 million shares of our common stock through the following actions:~~

•~~1.5 million shares of common stock were authorized for repurchase on February 26, 2018;~~

•~~an additional 0.5 million shares of common stock were authorized for repurchase on August 7, 2019; and~~

•~~an additional 1.0 million shares of common stock were authorized for repurchase on November 5, 2019.~~

Under the share repurchase program, shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The number of shares repurchased and the timing of repurchases will depend on a number of factors, including, but not limited to, stock price, trading volume, general market and economic conditions, and other corporate considerations. The share repurchase program has no time limit and may be modified, suspended, superseded or terminated at any time by our board of directors.

~~The following table sets forth information with respect to the Company's repurchases of common stock during the quarter ended April 3, 2022:~~

Period
Total Number of
Shares Purchased(1)
Average Price
Paid
per Share Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs Maximum Number of Shares that
May Yet Be Purchased
Under the Plans or
Programs
January 3, 2022 to February 6, 2022 14,746 $ 11.10 14,746 137,462
February 7, 2022 to March 6, 2022 — — — 137,462
March 7, 2022 to April 3, 2022 — — — 137,462
Total 14,746 $ 11.10 14,746

~~(1)~~ ~~Shares purchased in open market transactions.~~

None.

Item 3. Defaults Upon Senior Securities

None.

Table of Contents

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

2833

Table of Contents

Item 6. Exhibits

(a) The following exhibits are filed as part of this report.



Exhibit No.











31.1						Chief Executive Officer's Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Fiesta Restaurant Group, Inc.

31.2						Chief Financial Officer's Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Fiesta Restaurant Group, Inc.

32.1						Chief Executive Officer's Certificate Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Fiesta Restaurant Group, Inc.

32.2						Chief Financial Officer's Certificate Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Fiesta Restaurant Group, Inc.

101.INS						XBRL Instance Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH						Inline XBRL Taxonomy Extension Schema Document

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

+ Compensatory plan or arrangement

2934

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			FIESTA RESTAURANT GROUP, INC.

Date: ~~May 12,~~August 11, 2022			/s/ RICHARD C. STOCKINGER
			(Signature)
			Richard C. Stockinger Chief Executive Officer

Date: ~~May 12,~~August 11, 2022			/s/ DIRK MONTGOMERY
			(Signature)
			Dirk Montgomery Senior Vice President, Chief Financial Officer and Treasurer
			(Principal Financial Officer)

3035


Period	Total Number of Shares Purchased(1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 3, 2022 to February 6, 2022	14,746	$	11.10	14,746	137,462
February 7, 2022 to March 6, 2022	—	—		—	137,462
March 7, 2022 to April 3, 2022	—	—		—	137,462
Total	14,746	$	11.10	14,746