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 ~~3, 2022~~2, 2023


☐			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	☐

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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, 2022,~~4, 2023, Fiesta Restaurant Group, Inc. had ~~25,918,554~~26,063,987 shares of its common stock, $0.01 par value, outstanding.

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FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

QUARTER ENDED APRIL ~~3, 2022~~2, 2023


		Page
PART I FINANCIAL INFORMATION

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

	Condensed Consolidated Balance Sheets as of April 2, 202 3 ~~2022~~ and January ~~2, 2022~~1 , 202 3	2

	Condensed Consolidated Statements of Operations for the Three Months Ended April 2, 202 3 and April 3, ~~2022 and April 4, 2021~~202 2	3

	Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three Months Ended April 2, 202 3 and April 3, ~~2022 and April 4, 2021~~202 2	4

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 2, 202 3 and April 3, ~~2022 and April 4, 2021~~202 2	5

	Notes to Unaudited Condensed Consolidated Financial Statements	6

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	1613

Item 3	Quantitative and Qualitative Disclosures About Market Risk	2725

Item 4	Controls and Procedures	2725

PART II OTHER INFORMATION

Item 1	Legal Proceedings	2725

Item 1A	Risk Factors	2725

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	2826

Item 3	Defaults Upon Senior Securities	2826

Item 4	Mine Safety Disclosures	2826

Item 5	Other Information	2826

Item 6	Exhibits	2927

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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			April 2, 2023		January 1, 2023
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash	Cash	$	37,146	$	36,797	Cash	$	30,067	$	32,167
Restricted cash	Restricted cash	3,631		3,837		Restricted cash	3,631		3,631
Accounts receivable	Accounts receivable	5,748		6,223		Accounts receivable	7,198		5,270
Inventories	Inventories	2,711		2,524		Inventories	1,898		1,962
Prepaid rent	Prepaid rent	108		109		Prepaid rent	106		109
Income tax receivable	Income tax receivable	4,099		3,846		Income tax receivable	3,892		3,871
Prepaid expenses and other current assets	Prepaid expenses and other current assets	7,437		5,706		Prepaid expenses and other current assets	7,828		5,681

Total current assets	Total current assets	60,880		59,042		Total current assets	54,620		52,691
Property and equipment, net	Property and equipment, net	89,534		89,884		Property and equipment, net	86,280		87,106
Operating lease right-of-use assets	Operating lease right-of-use assets	149,047		154,127		Operating lease right-of-use assets	146,341		146,681
Goodwill	Goodwill	56,307		56,307		Goodwill	56,307		56,307

Other assets	Other assets	6,860		7,753		Other assets	5,505		5,906

Total assets	Total assets	$	362,628	$	367,113	Total assets	$	349,053	$	348,691
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	$	47	$	62
Accounts payable	Accounts payable	14,529		12,342		Accounts payable	14,299		14,219

Accrued payroll, related taxes and benefits	Accrued payroll, related taxes and benefits	7,918		8,475		Accrued payroll, related taxes and benefits	6,451		6,536
Accrued real estate taxes	Accrued real estate taxes	1,815		1,630		Accrued real estate taxes	1,938		1,805
Other current liabilities	Other current liabilities	18,511		18,032		Other current liabilities	19,974		17,680

Total current liabilities	Total current liabilities	42,839		40,542		Total current liabilities	42,709		40,302
Long-term debt, net of current portion	Long-term debt, net of current portion	418		438		Long-term debt, net of current portion	360		367

Operating lease liabilities	Operating lease liabilities	157,497		163,270		Operating lease liabilities	155,382		155,355
Deferred tax liabilities	Deferred tax liabilities	236		229		Deferred tax liabilities	118		202
Other non-current liabilities	Other non-current liabilities	7,738		7,763		Other non-current liabilities	7,087		7,208

Total liabilities	Total liabilities	208,728		212,242		Total liabilities	205,656		203,434
Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies
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, 29,096,014 and 28,890,688 shares issued, respectively, and 25,530,680 and 25,306,302 shares outstanding, respectively						Common stock, $0.01 par value; 100,000,000 shares authorized, 29,096,014 and 28,890,688 shares issued, respectively, and 25,530,680 and 25,306,302 shares outstanding, respectively	285		282
Additional paid-in capital	Additional paid-in capital	183,235		182,686		Additional paid-in capital	189,124		188,528
Retained earnings		687		2,043
Treasury stock, at cost; 2,862,538 and 2,847,792 shares, respectively		(30,299)		(30,135)
Retained earnings (accumulated deficit)						Retained earnings (accumulated deficit)	(14,425)		(12,516)
Treasury stock, at cost; 3,030,413 and 2,966,639 shares, respectively						Treasury stock, at cost; 3,030,413 and 2,966,639 shares, respectively	(31,587)		(31,037)
Total stockholders' equity	Total stockholders' equity	153,900		154,871		Total stockholders' equity	143,397		145,257
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	362,628	$	367,113	Total liabilities and stockholders' equity	$	349,053	$	348,691

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

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FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED APRIL ~~3, 2022~~2, 2023 AND APRIL ~~4, 2021~~3, 2022

(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
	April 2, 2023		April 3, 2022
Revenues:
Restaurant sales	$	103,064	$	95,200
Franchise royalty revenues and fees	307		409
Total revenues	103,371		95,609
Costs and expenses:
Cost of sales	32,612		30,747
Restaurant wages and related expenses (including stock-based compensation expense of $4 and $7, respectively)	26,390		23,574
Restaurant rent expense	6,081		6,027
Other restaurant operating expenses	17,624		16,650
Advertising expense	3,196		2,864
General and administrative (including stock-based compensation expense of $595 and $623, respectively)	13,183		12,342
Depreciation and amortization	4,392		5,114

Impairment and other lease charges (recoveries)	2,256		(702)

Closed restaurant rent expense, net of sublease income	(284)		380
Other expense (income), net	15		51
Total operating expenses	105,465		97,047
Loss from operations	(2,094)		(1,438)
Interest expense	83		85

Loss from continuing operations before taxes	(2,177)		(1,523)
Benefit from income taxes	(33)		(222)
Loss from continuing operations	(2,144)		(1,301)



Income (loss) from discontinued operations, net of tax	235		(55)
Net loss	$	(1,909)	$	(1,356)
Earnings (loss) per common share:
Continuing operations – basic	$	(0.09)	$	(0.05)
Discontinued operations – basic	0.01		—
Basic	$	(0.08)	$	(0.05)

Continuing operations – diluted	$	(0.09)	$	(0.05)
Discontinued operations – diluted	0.01		—
Diluted	$	(0.08)	$	(0.05)

Weighted average common shares outstanding:
Basic	25,420,090		24,832,541
Diluted	25,420,090		24,832,541

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

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FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

THREE MONTHS ENDED APRIL ~~3, 2022~~2, 2023 AND APRIL ~~4, 2021~~3, 2022

(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		25,293,149	$	273			$	176,614						$	(8,327)			$	(20,779)		$	147,781
Balance at January 2, 2022																			Balance at January 2, 2022	24,829,002			$	277		$	182,686		$	2,043		$	(30,135)		$	154,871
Stock-based compensation	Stock-based compensation	—	—		1,163				—			—				1,163			Stock-based compensation	—			—		549			—			—			549
Vesting of restricted shares	Vesting of restricted shares	109,528	1		(1)				—			—				—			Vesting of restricted shares	66,372			—		—			—			—			—

Purchase of treasury stock																			Purchase of treasury stock	(14,746)			—		—			—			(164)			(164)
Net loss	Net loss	—	—		—				(2,089)			—				(2,089)			Net loss	—			—		—			(1,356)			—			(1,356)
Balance at April 4, 2021		25,402,677	$	274	$	177,776			$	(10,416)		$	(20,779)			$	146,855
Balance at April 3, 2022																			Balance at April 3, 2022	24,880,628			$	277	$	183,235		$	687		$	(30,299)		$	153,900

Balance at January 2, 2022		24,829,002	$	277	$	182,686			$	2,043		$	(30,135)			$	154,871

Balance at January 1, 2023																			Balance at January 1, 2023	25,306,302			$	282	$	188,528		$	(12,516)		$	(31,037)		$	145,257
Stock-based compensation	Stock-based compensation	—	—		549				—			—				549			Stock-based compensation	—			—		599			—			—			599
Vesting of restricted shares	Vesting of restricted shares	66,372	—		—				—			—				—			Vesting of restricted shares	288,152			3		(3)			—			—			—

Purchase of treasury stock	Purchase of treasury stock	(14,746)	—		—				—			(164)				(164)			Purchase of treasury stock	(63,774)			—		—			—			(550)			(550)
Net loss	Net loss	—	—		—				(1,356)			—				(1,356)			Net loss	—			—		—			(1,909)			—			(1,909)
Balance at April 3, 2022		24,880,628	$	277	$	183,235			$	687		$	(30,299)			$	153,900
Balance at April 2, 2023																			Balance at April 2, 2023	25,530,680			$	285	$	189,124		$	(14,425)		$	(31,587)		$	143,397

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

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FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED APRIL ~~3, 2022~~2, 2023 AND APRIL ~~4, 2021~~3, 2022

(In thousands)

(Unaudited)


		Three Months Ended					Three Months Ended
		April 3, 2022		April 4, 2021			April 2, 2023		April 3, 2022
Operating activities:	Operating activities:					Operating activities:
Net loss	Net loss	$	(1,356)	$	(2,089)	Net loss	$	(1,909)	$	(1,356)

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		—		(245)

Stock-based compensation	Stock-based compensation	549		1,163		Stock-based compensation	599		549
Impairment and other lease charges (recoveries)	Impairment and other lease charges (recoveries)	(702)		(122)		Impairment and other lease charges (recoveries)	2,256		(702)

Depreciation and amortization	Depreciation and amortization	5,114		8,926		Depreciation and amortization	4,392		5,114
Amortization of deferred financing costs	Amortization of deferred financing costs	20		200		Amortization of deferred financing costs	20		20

Deferred income taxes	Deferred income taxes	7		(365)		Deferred income taxes	(84)		7
Changes in other operating assets and liabilities	Changes in other operating assets and liabilities	294		2,056		Changes in other operating assets and liabilities	(1,838)		294

Net cash provided by operating activities	Net cash provided by operating activities	3,926		9,524		Net cash provided by operating activities	3,436		3,926
Investing activities:	Investing activities:					Investing activities:
Capital expenditures:	Capital expenditures:					Capital expenditures:

Restaurant remodeling	Restaurant remodeling	(1,480)		(662)		Restaurant remodeling	(625)		(1,480)
Other restaurant capital expenditures	Other restaurant capital expenditures	(1,904)		(1,972)		Other restaurant capital expenditures	(3,473)		(1,904)
Corporate and restaurant information systems	Corporate and restaurant information systems	(421)		(462)		Corporate and restaurant information systems	(866)		(421)
Total capital expenditures	Total capital expenditures	(3,805)		(3,096)		Total capital expenditures	(4,964)		(3,805)

Proceeds from insurance recoveries	Proceeds from insurance recoveries	203		—		Proceeds from insurance recoveries	—		203
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	(4,964)		(3,602)
Financing activities:	Financing activities:					Financing activities:

Repayment of secured debt		—		(188)

Principal payments on finance leases	Principal payments on finance leases	(17)		(82)		Principal payments on finance leases	(22)		(17)
Financing costs associated with debt		—		(7)

Payments to purchase treasury stock	Payments to purchase treasury stock	(164)		—		Payments to purchase treasury stock	(550)		(164)

Net cash used in financing activities	Net cash used in financing activities	(181)		(277)		Net cash used in financing activities	(572)		(181)
Net change in cash and restricted cash	Net change in cash and restricted cash	143		9,234		Net change in cash and restricted cash	(2,100)		143
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	35,798		40,634
Cash and restricted cash of discontinued operations, beginning of period		—		257
Cash and restricted cash of discontinued operations, end of period		—		(256)

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	$	33,698	$	40,777

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

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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"). Unless the context otherwise requires, Fiesta and its subsidiaries are collectively referred to as the "Company." At April 2, 2023, the Company owned and operated 137 Pollo Tropical® restaurants located in Florida and franchised a total of 30 Pollo Tropical restaurants. The franchised Pollo Tropical restaurants include 17 in Puerto Rico, two in Panama, one in Guyana, one in the Bahamas, six on college campuses in Florida, and locations at one hospital and two sports and entertainment stadiums in Florida. The Company operates its business as one operating and reportable segment.

Discontinued Operations.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 3, 2022, the Company owned and operated 138 Pollo Tropical~~® restaurants located in Florida and franchised a total of 31 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 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 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~~1, 2023 contained 52 weeks. The three months ended April ~~3, 2022~~2, 2023 and April ~~4, 2021~~3, 2022 each contained thirteen ~~weeks.~~weeks, respectively. The fiscal year ending ~~January 1,~~December 31, 2023 will contain 52 weeks.

Basis of Presentation. The accompanying unaudited condensed consolidated financial statements for the three months ended April ~~3, 2022~~2, 2023 and April ~~4, 2021~~3, 2022 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 months ended April ~~3, 2022~~2, 2023 and April ~~4, 2021~~3, 2022 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~~1, 2023 included in the Company's Annual Report on Form 10-K for the fiscal year ended January ~~2, 2022.~~1, 2023. The January ~~2, 2022~~1, 2023 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

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~~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 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.

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

•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 ~~3, 2022~~2, 2023 and January ~~2, 2022.~~1, 2023.

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.

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. In the first quarter of 2023, the Company executed a final settlement on the claim and recognized $0.4 million of insurance proceeds within income (loss) from discontinued operations, net of tax, in the three months ended April 2, 2023.

All revenues, costs and expenses and income taxes attributable to Taco Cabana, together with certain costs related to the transaction, have been aggregated within income (loss) from discontinued operations, net of tax, in the condensed consolidated statements of operations for all periods presented.

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

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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 million of insurance proceeds within income (loss) from discontinued operations, net of tax, 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 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 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 months ended April 2, 2023, the Company recognized $0.4 million of income related to insurance proceeds for winter storm damages in Texas that occurred in the first quarter of 2021, and $0.2 million of expenses primarily related to workers' compensation claims within income (loss) from discontinued operations, net of tax, in the condensed consolidated statement of operations. During the three months ended April 3, 2022, the Company recognized $0.2 million of expenses primarily related to workers' compensation claims, and a reduction of stock-based compensation of $(0.1) million within 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 months ended April 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)~~

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~~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 months ended April 4, 2021 is as follows:~~


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


~~Depreciation and amortization~~	~~3,838~~


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


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

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


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

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

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

3. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:


		April 3, 2022		January 2, 2022			April 2, 2023		January 1, 2023
Prepaid contract expenses	Prepaid contract expenses	$	4,640	$	4,462	Prepaid contract expenses	$	3,757	$	4,471
Prepaid insurance						Prepaid insurance	3,190		442

Other	Other	2,797		1,244		Other	881		768
		$	7,437	$	5,706		$	7,828	$	5,681

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~~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			Three Months Ended
			April 3, 2022			April 4, 2021			April 2, 2023		April 3, 2022
Impairment of long-lived assets	Impairment of long-lived assets		$	—		$	110	Impairment of long-lived assets	$	1,402	$	—
Other lease charges (recoveries)	Other lease charges (recoveries)		(702)			(162)		Other lease charges (recoveries)	854		(702)
			$	(702)		$	(52)		$	2,256	$	(702)

Impairment ~~and~~charges for the three months ended April 2, 2023 related primarily to impairment of assets from four underperforming Pollo Tropical restaurants, three of which were subsequently closed in the second quarter of 2023, for which continued performance declines resulted in a decrease in the estimated future cash flows. For the three months ended April 2, 2023, other lease charges (recoveries) consist of lease termination charges related to the reduction of the Company's corporate office space.

Other lease charges (recoveries) for the three months ended April 3, 2022 ~~consist of~~related primarily to gains from lease ~~terminations~~terminations.

Table of ~~$(0.7) million.~~Contents

Impairment charges for the three months ended April 4, 2021 related primarily to impairment of equipment from previously impaired and closed restaurants. For the three months ended April 4, 2021, other lease charges (recoveries) related primarily to a gain from a lease termination.FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

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 months ended April ~~3, 2022.~~2, 2023 totaled $1.5 million.

5. Other Liabilities

Other current liabilities consist of the following:


		April 3, 2022		January 2, 2022			April 2, 2023		January 1, 2023
Operating lease liabilities	Operating lease liabilities	$	10,448	$	10,381	Operating lease liabilities	$	10,377	$	10,496
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	3,450		2,623
Sales and property taxes	Sales and property taxes	1,343		921		Sales and property taxes	1,754		981

Other	Other	3,778		3,647		Other	4,393		3,580
		$	18,511	$	18,032		$	19,974	$	17,680

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~~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			April 2, 2023		January 1, 2023
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	$	6,000	$	6,000

Deferred compensation	Deferred compensation	324		320		Deferred compensation	223		273

Other	Other	982		1,011		Other	864		935
		$	7,738	$	7,763		$	7,087	$	7,208

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 months ended April 3, 2022. As of April 2, 2023, 137,462 shares of common stock remain available for purchase under the share repurchase program. Additionally, as a result of net share settlement to satisfy the minimum statutory tax withholding requirements in connection with the vesting of restricted stock grants for certain employees, the Company repurchased 63,774 shares of common stock valued at approximately $0.5 million during the three months ended April 2, 2023. The repurchased shares are held as treasury stock at cost.

Stock-Based Compensation

OnDuring the three months ended April ~~28, 2021, the stockholders of~~2, 2023, the Company ~~approved~~granted certain employees and a new non-employee director a total of 214,695 non-vested restricted shares under the Fiesta Restaurant Group, Inc. 2021 Stock Incentive Plan (the ~~"2021~~"Fiesta Plan"). ~~Following a grant of a total 37,874~~The shares granted 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 months ended April 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 shares granted to the ~~three months ended April 3, 2022, the Company granted certain employees a total of 185,000 non-vested restricted shares under the 2021 Plan that~~new non-employee director vest and become non-forfeitable over a ~~one~~five-year vesting period. The weighted average fair value at grant date for non-vested shares issued during the three months ended April 2, 2023 and April 3, 2022 ~~and April 4, 2021~~ was ~~$9.23~~$8.19 per share and ~~$17.43~~$9.23 per share, respectively.

During the three months ended April 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 months ended April 3, 2022 and April 4, 2021 was $9.02 per share and $17.43 per share, respectively.

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

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

During the three months ended April 3, 2022, the Company granted 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 weighted average fair value at grant date for the restricted stock units granted during the three months ended April 3, 2022 was $9.02 per share.

Stock-based compensation expense from continuing operations for the three months ended April 2, 2023 and April 3, 2022 was $0.6 million and $0.6 million, respectively. Stock-based compensation expense from discontinued operations for the three months ended April 3, 2022 was $(0.1) million. At April 2, 2023, the total unrecognized stock-based compensation expense related to non-vested restricted shares and restricted stock units was approximately $3.9 million. At April 2, 2023, the remaining weighted average vesting period for non-vested restricted shares was 2.6 years and restricted stock units was 1.6 years.

A summary of all non-vested restricted shares and restricted stock units activity for the three months ended April ~~3, 2022~~2, 2023 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		769,018	$	11.19	64,175	$	17.45
Outstanding at January 1, 2023								Outstanding at January 1, 2023	617,747	$	9.61	103,814	$	12.09
Granted	Granted	412,781	9.23		107,539	9.02		Granted	214,695	8.19		—	—
Vested and released	Vested and released	(66,372)	14.18		—	—		Vested and released	(288,152)	10.04		—	—
Forfeited	Forfeited	(68,619)	11.08		(5,021)	17.43		Forfeited	(9,369)	11.15		—	—
Outstanding at April 3, 2022		1,046,808	$	10.24	166,693	$	12.01
Outstanding at April 2, 2023								Outstanding at April 2, 2023	534,921	$	8.79	103,814	$	12.09

The fair value of non-vested restricted shares and restricted stock units granted during the three months ended April ~~3, 2022~~2, 2023 is based on the closing stock price on the date of grant.

During the three months ended April 2, 2023, 288,152 non-vested restricted shares vested. A portion of these vested stock awards were net share settled. Based upon the Company's closing stock price on the vesting date, the Company withheld 63,774 shares related to previously non-vested restricted shares to settle the employees' minimum statutory obligation for the applicable income and other employment taxes upon vesting of such restricted shares. Subsequently, the Company remitted the required funds to the appropriate taxing authorities.

Total payments for the employees' tax obligations to the relevant taxing authorities were $0.5 million for the three months ended April 2, 2023 and are reflected as a financing activity within the consolidated statements of cash flows. The payments were used for tax withholdings related to the net share settlements of previously non-vested shares. The payments related to the non-vested restricted shares were treated as share repurchases and recorded as an addition to treasury stock.

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 months ended April 3, 2022 were performance-based awards which had not yet met their performance conditions as of April 3, 2022. For the three months ended April 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 months ended April 4, 2021.

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

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 months ended April 2, 2023 and April 3, 2022 were performance-based awards which had not yet met their performance conditions as of April 2, 2023 and April 3, 2022, respectively.

The computation of basic and diluted EPS is as follows:


		Three Months Ended			Three Months Ended
			April 3, 2022			April 4, 2021			April 2, 2023		April 3, 2022
Basic and diluted EPS:	Basic and diluted EPS:							Basic and diluted EPS:
Loss from continuing operations	Loss from continuing operations		$	(1,301)		$	(695)	Loss from continuing operations	$	(2,144)	$	(1,301)
Loss from discontinued operations, net of tax			(55)			(1,394)
Income (loss) from discontinued operations, net of tax								Income (loss) from discontinued operations, net of tax	235		(55)
Net loss	Net loss		$	(1,356)		$	(2,089)	Net loss	$	(1,909)	$	(1,356)
Less: income allocated to participating securities	Less: income allocated to participating securities		—			—		Less: income allocated to participating securities	—		—
Net loss available to common shareholders	Net loss available to common shareholders		$	(1,356)		$	(2,089)	Net loss available to common shareholders	$	(1,909)	$	(1,356)
Weighted average common shares—basic	Weighted average common shares—basic		24,832,541			25,324,213		Weighted average common shares—basic	25,420,090		24,832,541
Restricted stock units	Restricted stock units		—			—		Restricted stock units	—		—
Weighted average common shares—diluted	Weighted average common shares—diluted		24,832,541			25,324,213		Weighted average common shares—diluted	25,420,090		24,832,541

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	$	(0.09)	$	(0.05)
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		—
Earnings (loss) per common share—basic	Earnings (loss) per common share—basic		$	(0.05)		$	(0.08)	Earnings (loss) per common share—basic	$	(0.08)	$	(0.05)

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	$	(0.09)	$	(0.05)
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		—
Earnings (loss) per common share—diluted	Earnings (loss) per common share—diluted		$	(0.05)		$	(0.08)	Earnings (loss) per common share—diluted	$	(0.08)	$	(0.05)

8. Commitments and Contingencies

Lease Assignments. In previous years, Pollo Tropical assigned 2two 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 ~~3, 2022~~2, 2023 was ~~$4.6~~$4.3 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 ~~3, 2022.~~2, 2023. 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 ~~3, 2022~~2, 2023 was ~~$8.4~~$6.4 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.

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

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

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~~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 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					Three Months Ended
		April 3, 2022		April 4, 2021			April 2, 2023		April 3, 2022
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	$	47	$	63
Income tax payments (refunds), net		5		(9,157)
Income tax payments, net						Income tax payments, net	26		5

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	$	2,791	$	3,846

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	3,644		—

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	714		1,820
Operating lease liabilities	Operating lease liabilities	2,666		1,188		Operating lease liabilities	714		2,666

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	$	32,167	$	36,797
Restricted cash	Restricted cash	3,837		3,584		Restricted cash	3,631		3,837
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	$	35,798	$	40,634

End of period	End of period					End of period
Cash	Cash	$	37,146	$	58,760	Cash	$	30,067	$	37,146
Restricted cash	Restricted cash	3,631		3,837		Restricted cash	3,631		3,631
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	$	33,698	$	40,777

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~~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 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.~~

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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~~1, 2023 contained 52 weeks. The three months ended April ~~3, 2022~~2, 2023 and April ~~4, 2021~~3, 2022 each contained thirteen ~~weeks.~~weeks, respectively. The fiscal year ending ~~January 1,~~December 31, 2023 will contain 52 weeks.

Company Overview

We own, operate and franchise the restaurant brand Pollo Tropical®, which has ~~over 30~~nearly 35 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 ~~3, 2022,~~2, 2023, we operated ~~138~~137 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 ~~3, 2022,~~2, 2023, we had 2321 franchised Pollo Tropical restaurants located in Puerto Rico, Panama, Guyana, ~~Ecuador,~~and the Bahamas, and ~~the U.S. Virgin Islands, and eight~~nine licensed Pollo Tropical restaurants located in Florida consisting of ~~five~~six 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

Inflationary Factors

Inflationary factors have been experienced primarily in labor costs and other operating costs categories. Labor costs as a percentage of net sales increased 0.8% in the first quarter of 2023 compared to the first quarter of 2022 primarily due to staffing stabilization with increased operating hours and increased wage rates in 2023. Insurance costs as a percentage of net sales also increased to 1.8% in the first quarter of 2023 from 1.3% in the first quarter of 2022 primarily due to increases in casualty and property insurance rates in 2023.

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. Price increases include a 5.0% increase in March 2022, a 1.4% increase in June 2022, a 4.0% increase in September 2022, and a 5.0% increase in March 2023. 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 quarter of 2022, barring unforeseen changes in our cost structure and operating environment.

COVID-19 Pandemic

The novel coronavirus (COVID-19) pandemic has affected and ~~is continuing~~may continue to affect the restaurant industry and the economy. The impacts were most severe in 2020 and improved over 2021, 2022, having a minimal impact in the first quarter of 2023. 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 quarter of 2022, we estimate that operating hours were reduced by approximately 4.3% 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 believe that approximately $0.2 million of the 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.

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% in the first quarter of 2022 from 23.2% in the first quarter of 2021. Commodity costs as a percentage of net sales increased 4.9% in the first quarter of 2022 compared to the first quarter of 2021. 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% in the first quarter of 2022 from 3.3% in the first quarter of 2021.

Pricing action has been taken to offset labor, food and 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. 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 quarter of 2022, barring unforeseen changes in our cost structure and operating environment.

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Executive Summary—Consolidated Operating Performance for the Three Months Ended April ~~3, 2022~~2, 2023

Our first quarter ~~2022~~2023 results and highlights include the following:

•We recognized a net loss of $(1.9) million, or $(0.08) per diluted share, in the first quarter of 2023 compared to net loss of $(1.4) million, or $(0.05) per diluted share, in the first quarter of 2022 ~~compared~~due primarily to impairment charges related to four underperforming restaurants, and higher labor costs, as well as sales mix within cost of sales, partially offset by the impact of higher restaurant sales.

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•We recognized a ~~net~~ loss from continuing operations of $(2.1) million, or ~~$(0.08)~~$(0.09) per diluted share, in the first quarter of ~~2021 due primarily~~2023 compared 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, general and administrative expenses, advertising costs and delivery fees in the first quarter of 2022. The loss in the first quarter of 2021 was primarily the result of the loss from discontinued operations.

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

•Total revenues increased ~~8.4%~~8.1% in the first quarter of ~~2022~~2023 to ~~$95.6~~$103.4 million compared to ~~$88.2~~$95.6 million in the first quarter of ~~2021,~~2022, driven by an increase in comparable restaurant sales at Pollo Tropical. Comparable restaurant sales increased ~~8.0%~~9.7% for our Pollo Tropical restaurants resulting from an increase in the ~~net~~ impact of product/channel mix and pricing of ~~15.0%~~8.7%, ~~partially offset by a decrease~~and an increase in comparable restaurant transactions of ~~7.0%~~1.0%.

•Consolidated Adjusted EBITDA ~~decreased $4.4~~increased $1.2 million in the first quarter of 2023 to $6.5 million compared to $5.3 million in the first quarter of 2022, ~~to $5.3 million compared to $9.7 million in the first quarter of 2021,~~ driven primarily ~~by higher labor costs, repair and maintenance, utilities, insurance costs and delivery fee expense, and sales mix and commodity costs within cost of sales, partially offset~~ by the impact of higher restaurant sales, partially offset by higher labor costs, and insurance costs, as well as sales mix within cost of 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."

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
						Owned	Franchised	Total
January 1, 2023					January 1, 2023	137	32	169
New					New	—	—	—
Closed					Closed	—	(2)	(2)
April 2, 2023					April 2, 2023	137	30	167

		Pollo Tropical
		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

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

Three Months Ended April ~~3, 2022~~2, 2023 Compared to Three Months Ended April ~~4, 2021~~3, 2022

The following table sets forth, for the three months ended April ~~3, 2022~~2, 2023 and April ~~4, 2021,~~3, 2022, 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 %

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	Three Months Ended
	April 2, 2023		April 3, 2022





Costs and expenses:
Cost of sales	31.6	%	32.3	%
Restaurant wages and related expenses	25.6	%	24.8	%
Restaurant rent expense	5.9	%	6.3	%
Other restaurant operating expenses	17.1	%	17.5	%
Advertising expense	3.1	%	3.0	%

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%~~8.1% to $103.4 million in the first quarter of 2023 from $95.6 million in the first quarter of ~~2022 from $88.2~~2022. Restaurant sales increased 8.3% to $103.1 million in the first quarter of ~~2021. Restaurant sales increased 8.4% to~~2023 from $95.2 million in the first quarter of ~~2022 from $87.8 million in the first quarter~~2022.

Table of ~~2021.~~Contents

The following table presents the primary drivers of the increase in restaurant sales for Pollo Tropical for the first quarter of ~~2022~~2023 compared to the first quarter of ~~2021~~2022 (in millions):



Increase in comparable restaurant sales	$	~~7.0~~9.0
~~Increase~~Decrease in sales related to closed restaurants, including temporary and partial closures	~~0.4~~ (1.1)
Total increase	$	~~7.4~~7.9

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%~~9.7% for Pollo Tropical restaurants in the first quarter of ~~2022~~2023 compared to the first quarter of ~~2021.~~2022. Increases or decreases in comparable restaurant sales result primarily from an increase or decrease in comparable ~~restaurant~~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~~An increase in the net impact of product/channel mix and pricing of ~~15.0%~~8.7% was ~~partially offset by a decrease~~coupled with an increase in comparable restaurant transactions of ~~7.0%~~1.0% in the first quarter of ~~2022~~2023 compared to the first quarter of ~~2021.~~2022. 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%~~10.0%. We believe staffing challenges had a negative impact on sales trends driven by reduced operating hours and sales channels in the first 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 quarter of 2022 and 2023 were also negatively impacted by the net impact of 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%~~

Franchise revenues decreased to $0.3 million in the first quarter of ~~2022.~~

~~Franchise revenues remained flat at~~2023 from $0.4 million in the first quarter of 2022 ~~compared~~due primarily to ~~the first quarter of 2021.~~ decreased franchise fees from Puerto Rico.

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.

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The following table presents the primary drivers of the changes in the components of restaurant operating margins for Pollo Tropical for the first quarter of ~~2022~~2023 compared to the first quarter of ~~2021.~~2022. All percentages are stated as a percentage of restaurant sales:


~~Pollo Tropical:~~
Cost of sales:
~~Higher commodity cost~~Menu price increases	~~4.9~~ (3.2)	%
Impact of higher restaurant sales on commodity costs	(0.3)	%
Lower promotions and discounts	(0.2)	%
Sales mix	~~1.0~~	%
~~Higher promotions and discounts~~	~~0.2~~	%
~~Menu price increases~~	~~(4.4)~~2.7	%
Operating ~~efficiency~~inefficiencies	~~(0.7)~~0.3	%


~~Other~~	~~0.2~~		%
Net ~~increase~~decrease in cost of sales as a percentage of restaurant sales	~~1.2~~ (0.7)	%

Restaurant wages and related expenses:
~~Higher labor costs due to higher wage rates and overtime(1)~~	~~2.0~~		%




~~Lower medical benefits~~Higher labor costs ~~including~~due to higher wage rates, partially offset by the impact of higher restaurant sales(1)	0.6	~~(0.3)~~%

Higher medical benefits costs	0.2	%


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

~~Other~~	~~0.1~~	%
Net increase in restaurant wages and related costs as a percentage of restaurant sales	~~1.6~~0.8	%

Other operating expenses:
~~Higher repair and maintenance~~Impact of higher restaurant sales on utilities costs	~~1.3~~ (0.3)	%
~~Higher utilities costs~~	~~0.5~~
	%

~~Higher~~Lower delivery fee expense ~~due to increased delivery channel~~and impact of higher restaurant sales	~~0.4~~	%
~~Higher insurance costs~~	~~0.4~~ (0.3)	%




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



Higher insurance costs(2)	0.5	%
Other	~~0.1~~ (0.3)	%
Net ~~increase~~decrease in other restaurant operating expenses as a percentage of restaurant sales	~~2.5~~ (0.4)	%

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~~staff stabilization with increased operating hours and higher wage rates in ~~2021.~~2023.

(2) Primarily related to increases in property and casualty insurance costs.

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 5.9% in the first quarter of 2023 from 6.3% in the first quarter of 2022 ~~from 6.7% in the first 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.

General and administrative expenses were $13.2 million for the first quarter of 2023 and $12.3 million for the first quarter of 2022 and, ~~$10.7 million for the first quarter of 2021, and~~ as a percentage of total revenues, ~~general and administrative expenses increased~~decreased to 12.8% in the first quarter of 2023 from 12.9% in the first quarter of 2022 ~~compared to 12.1% in the first quarter of 2021, due primarily to increased professional fees, higher employee benefits and other support costs.~~. General and administrative expenses for the first quarter of 2023 included $1.6 million in non-recurring expenses comprised of $0.7 million of restructuring costs, $0.7 million of general and administrative efficiency initiative costs, which primarily consisted of accelerated charges related to deferred implementation and service contract costs related to the prior accounting system, $0.2 million of professional fees, and $0.1 million digital platform costs. General and administrative expenses for the first quarter of 2022 included ~~$1.3~~$1.3 million in non-recurring expenses comprised of $0.7 million of professional fees, $0.3 million of digital platform costs, and $0.3 million of general and administrative efficiency initiative ~~costs. General and administrative expenses for the first quarter of 2021 included $0.3 million related to non-recurring digital costs.~~costs.

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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~~increased to $6.5 million, or 6.3% of total revenues, in the first quarter of 2023 from $5.3 million, or 5.5% of total revenues, in the first quarter of 2022 ~~from $9.7 million, or 11.0% of total revenues, in the first quarter of 2021~~ due primarily to ~~higher labor costs, repair and maintenance costs, utilities costs, general and administrative costs, and sales mix and commodity costs within cost of sales, partially offset by~~ the impact of higher restaurant sales, partially offset by higher labor costs and insurance costs, as well as sales mix within cost of sales.

Restaurant-level ~~Adjusted EBITDA~~Operating Profit. We also use Restaurant-level Operating Profit (formerly Restaurant-Level Adjusted ~~EBITDA,~~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~~expenses (including corporate-level general and administrative expenses).

Restaurant-level ~~Adjusted EBITDA decreased~~Operating Profit increased to $17.2 million, or 16.7% of restaurant sales, in the first quarter of 2023 from $15.3 million, or 16.1% of restaurant sales, in the first quarter of 2022 ~~from $18.7 million, or 21.2% of restaurant sales, in the first quarter of 2021~~ primarily due to the foregoing. For a reconciliation from ~~Consolidated Adjusted EBITDA~~income (loss) from operations to Restaurant-level ~~Adjusted EBITDA,~~Operating Profit, see the heading titled "Management's Use of Non-GAAP Financial Measures."

Depreciation and Amortization. Depreciation and amortization expense ~~remained flat at~~decreased to $4.4 million in the first quarter of 2023 from $5.1 million in the first quarter of 2022 ~~compared~~primarily as a result of decreased depreciation related to impairment of assets from underperforming and closed restaurants, partially offset by an increase in depreciation related to ongoing reinvestment and enhancements to our restaurants that have been made since the first quarter of ~~2021.~~2022.

Impairment and Other Lease Charges (Recoveries). Impairment and other lease charges (recoveries) ~~decreased~~increased to $2.3 million in the first quarter of 2023 from $(0.7) million in the first quarter of ~~2022~~2022.

Impairment and other lease charges (recoveries) for the three months ended April 2, 2023 include impairment charges of $1.4 million related primarily to impairment of assets from ~~$(0.1) million~~four underperforming Pollo Tropical restaurants, three of which were subsequently closed in the ~~first~~second quarter of ~~2021.~~2023, coupled with a lease termination charge of $0.9 million related to the reduction of our corporate office space.

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

Impairment and other lease charges (recoveries) for the three months ended April 4, 2021 include impairment charges of $0.1 million related primarily to equipment from previously impaired and closed restaurants and a gain from a lease termination of $(0.2) million.

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~~three Pollo Tropical restaurants with combined carrying values (excluding right-of-use lease assets) of ~~$4.7~~$1.0 million, projected cash flows are not substantially in excess of their carrying values. If the performance of these restaurants ~~deteriorates from current projections,~~does not improve as projected, 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 $(0.3) million for the first quarter of 2023 and consisted of closed restaurant rent and ancillary lease costs of $2.0 million net of

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sublease income of $(2.3) million. Closed restaurant rent expense, net of sublease income, was $0.4 million for the first quarter of 2022 and consisted of closed restaurant rent and ancillary lease costs of $2.2 million net of

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

Other Expense (Income), Net. Other expense (income), net, for the first quarter of 2023 and 2022 primarily consisted of closed restaurant related ~~costs~~costs.

Loss from Operations. As a result of ~~$0.1 million. Other expense, net, for~~the foregoing, we had a loss from operations of $(2.1) million, or (2.0)% of restaurant sales, in the first quarter of ~~2021 was $0.1~~2023 compared to a loss from operations of $(1.4) million, ~~and primarily consisted~~or (1.5)% of ~~costs for~~restaurant sales, in the ~~removal, transfer, and storage~~first quarter of ~~equipment from closed restaurants and other closed restaurant related costs.~~2022.

Interest Expense. ~~Interest~~Interest expense remained flat at $0.1 million in the first quarter of ~~2022~~2023 compared to the first quarter of ~~2021.~~2022.

~~Provision for (Benefit from)~~Benefit from Income Taxes. The effective tax rate was ~~14.6%~~1.5% and ~~129.2%~~14.6% for the first quarter of 2023 and 2022, respectively. The benefit from income taxes for the first quarter of 2023 was derived using an estimated annual effective tax rate of 2.7% which includes changes in the valuation allowance as a result of originating temporary differences during the year and ~~2021, respectively.~~excludes the discrete impact of a tax deficiency from the vesting of restricted shares of $0.1 million. The benefit from income taxes for the first quarter of 2022 was derived using an estimated annual effective tax rate of 20.0% 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 million. The provision for income taxes for the first quarter of 2021 was derived using an estimated annual effective tax rate of 57.6% 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.

~~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 quarter of 2023, we recognized $0.2 million of income, primarily related insurance proceeds received, partially offset by workers' compensation claims, within income (loss) from discontinued operations, net of tax, in the condensed consolidated statement of operations. During the first quarter of 2022, we recognized $0.2 million of expenses, primarily related to workers' compensation claims, and a reduction of stock-based compensation of $(0.1 million) within 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 ~~$(1.4)~~$(1.9) million, or (1.8)% of total revenue, in the first quarter of ~~2022~~2023 compared to a net loss of ~~$(2.1)~~$(1.4) million, or (1.4)% of total revenue, in the first quarter of ~~2021.~~2022.

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 ~~3, 2022,~~2, 2023, 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 months of 2023 and 2022 ~~and 2021~~ was ~~$3.9~~$3.4 million and ~~$9.5~~$3.9 million, respectively. The decrease in net cash provided by operating activities in the three months ended April ~~3, 2022~~2, 2023 was primarily driven by ~~a decrease~~timing of payments to vendors and credit card receipts, partially offset by an increase in Consolidated Adjusted ~~EBITDA, including contributions from discontinued operations, the receipt of income tax refunds in 2021, and the timing of payments.~~EBITDA.

Investing Activities. Net cash used in investing activities in the first three months of ~~2022~~2023 was ~~$3.6~~$5.0 million compared to ~~offsetting sources and uses of~~net cash inprovided by investing activities in the same period of ~~2021.~~2022 of $3.6 million. 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.

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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 2, 2023:								Three Months Ended April 2, 2023:
New restaurant development								New restaurant development	$	—	$	—	$	—
Restaurant remodeling								Restaurant remodeling	625		—		625
Other restaurant capital expenditures(1)								Other restaurant capital expenditures(1)	3,473		—		3,473
Corporate and restaurant information systems								Corporate and restaurant information systems	850		16		866
Total capital expenditures								Total capital expenditures	$	4,948	$	16	$	4,964
Number of new restaurant openings								Number of new restaurant openings	—				—
Three Months Ended April 3, 2022:	Three Months Ended April 3, 2022:							Three Months Ended April 3, 2022:
New restaurant development	New restaurant development	$	—	$	—	$	—	New restaurant development	$	—	$	—	$	—
Restaurant remodeling	Restaurant remodeling	1,480		—		1,480		Restaurant remodeling	1,480		—		1,480
Other restaurant capital expenditures(1)	Other restaurant capital expenditures(1)	1,904		—		1,904		Other restaurant capital expenditures(1)	1,904		—		1,904
Corporate and restaurant information systems	Corporate and restaurant information systems	387		34		421		Corporate and restaurant information systems	387		34		421
Total capital expenditures	Total capital expenditures	$	3,771	$	34	$	3,805	Total capital expenditures	$	3,771	$	34	$	3,805
Number of new restaurant openings	Number of new restaurant openings	—				—		Number of new restaurant openings	—				—
Three Months Ended April 4, 2021:
New restaurant development		$	—	$	—	$	—
Restaurant remodeling		162		—		162
Other restaurant capital expenditures(1)		514		—		514
Corporate and restaurant information systems		33		356		389
Total capital expenditures		$	709	$	356	$	1,065
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 months ended April ~~3, 2022~~2, 2023 and April ~~4, 2021,~~3, 2022, total restaurant repair and maintenance expenses were approximately ~~$3.8~~$4.1 million and ~~$2.5~~$3.8 million, respectively.

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


	Taco Cabana







~~Three Months Ended April 4, 2021:~~
~~New restaurant development~~	$	—
~~Restaurant remodeling~~	~~500~~
~~Other restaurant capital expenditures(1)~~	~~1,458~~
~~Corporate and restaurant information systems~~	73
~~Total capital expenditures~~	$	~~2,031~~
~~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 months ended April 4, 2021, total restaurant repair and maintenance expenses from discontinued operations were approximately $1.7 million.

Net cash ~~provided by~~used in investing activities from discontinued operations in the first three 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 months of 2021 included net proceeds of $3.1 million from the sale-leaseback of two restaurant properties.~~

Total capital expenditures in ~~2022~~2023 are expected to be between ~~$25.0~~$22.0 million and ~~30.0~~$28.0 million.

Financing Activities. Net cash used in financing activities in the first three months of ~~2022~~2023 was ~~$0.2~~$0.6 million and primarily consisted of payments to repurchase our common ~~stock.~~stockin connection with the net share settlement to satisfy the minimum statutory tax withholding requirements related to the vesting of restricted stock grants for certain employees. Net cash used in financing activities in the first three months of ~~2021 included term loan borrowing repayments under our senior credit facility~~2022 consisted of $0.2 million ~~and $0.1 million~~ in ~~principal~~ payments ~~on finance leases.~~to repurchase our common stock under our share repurchase program.

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

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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.

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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 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 ~~3, 2022,~~2, 2023, we were in compliance with the financial covenants under our senior credit facility. At April ~~3, 2022,~~2, 2023, $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.~~1, 2023. 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.~~

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1, 2023.

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~~

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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~~1, 2023 included in our Annual Report on Form 10-K for the fiscal year ended January ~~2, 2022.~~1, 2023. 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 months ended April ~~3, 2022.~~2, 2023.

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 as set forth in the reconciliation table below. 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 Operating Profit (previously presented as Restaurant-level Adjusted ~~EBITDA~~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~~Operating Profit margin is derived by dividing Restaurant-level ~~Adjusted EBITDA~~Operating Profit by restaurant sales. Restaurant-level ~~Adjusted EBITDA~~Operating Profit is also a non-GAAP financial measure.

Management believes that Consolidated Adjusted EBITDA and Restaurant-level ~~Adjusted EBITDA,~~Operating Profit, when viewed with our results of operations calculated in accordance with GAAP and our reconciliation of net income (loss) to Consolidated Adjusted EBITDA and reconciliation of income (loss) from operations to Restaurant-level ~~Adjusted EBITDA~~Operating Profit (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

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•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.

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


		Three Months Ended
			April 3, 2022			April 4, 2021				Three Months Ended
										April 2, 2023			April 3, 2022
Net loss	Net loss		$	(1,356)		$	(2,089)		Net loss	$	(1,909)		$	(1,356)
Loss from discontinued operations, net of tax			55			1,394
Provision for (benefit from) income taxes			(222)			3,077
Income (loss) from continuing operations before taxes			(1,523)			2,382
Loss (income) from discontinued operations, net of tax									Loss (income) from discontinued operations, net of tax	(235)			55
Benefit from income taxes									Benefit from income taxes	(33)			(222)
Loss from continuing operations before taxes									Loss from continuing operations before taxes	(2,177)			(1,523)
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	4,392			5,114
Impairment and other lease charges (recoveries)	Impairment and other lease charges (recoveries)		(702)			(52)			Impairment and other lease charges (recoveries)	2,256			(702)

Interest expense	Interest expense		85			61			Interest expense	83			85
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	(284)			380

Other expense (income), net	Other expense (income), net		51			123			Other expense (income), net	15			51
Stock-based compensation expense	Stock-based compensation expense		7			16			Stock-based compensation expense	4			7

Total non-general and administrative adjustments	Total non-general and administrative adjustments		4,935			5,986			Total non-general and administrative adjustments	6,466			4,935
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	595			623
Non-recurring professional fees(1)	Non-recurring professional fees(1)		705			—			Non-recurring professional fees(1)	165			705
G&A efficiency initiatives(2)	G&A efficiency initiatives(2)		261			—			G&A efficiency initiatives(2)	669			261

Restructuring costs(3)									Restructuring costs(3)	717			—

Digital costs(3)			291			316
Digital costs(4)									Digital costs(4)	91			291
Total general and administrative adjustments	Total general and administrative adjustments		1,880			1,310			Total general and administrative adjustments	2,237			1,880
Consolidated Adjusted EBITDA	Consolidated Adjusted EBITDA		$	5,292		$	9,678		Consolidated Adjusted EBITDA	$	6,526		$	5,292
Total revenues	Total revenues		$	95,609		$	88,215		Total revenues	$	103,371		$	95,609
Net loss as a percentage of total revenues									Net loss as a percentage of total revenues	(1.8)		%	(1.4)		%
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	6.3		%	5.5		%

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

(2) G&A efficiency initiatives consist of non-recurring retention bonus ~~costs.~~costs and costs related to the acceleration and write-off of costs related to accounting system implementation.

(3) Restructuring costs for the three months ended April 2, 2023 include severance costs related to the departure of a former executive, CEO search firm fees, and eliminated positions related to the accounting outsourcing.

(4) Digital costs for the three months ended April ~~3, 2022~~2, 2023 and April ~~4, 2021~~3, 2022 include costs related to enhancing the digital experience for our customers.

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A reconciliation from ~~Consolidated Adjusted EBITDA~~income (loss) from operations to Restaurant-level ~~Adjusted EBITDA~~Operating Profit follows (in thousands):


	Three Months Ended
		April 3, 2022			April 4, 2021

Consolidated Adjusted EBITDA		$	5,292		$	9,678
Restaurant-level adjustments:

Add: Other general and administrative expense(1)		10,462			9,356
Less: Franchise royalty revenue and fees		409			375
Restaurant-level Adjusted EBITDA		$	15,345		$	18,659
Restaurant sales		$	95,200		$	87,840
Restaurant-level Adjusted EBITDA as a percentage of restaurant sales		16.1		%	21.2		%

									Three Months Ended
									April 2, 2023			April 3, 2022

Loss from operations								Loss from operations	$	(2,094)		$	(1,438)
Add:								Add:
Non-general and administrative adjustments:								Non-general and administrative adjustments:
Depreciation and amortization								Depreciation and amortization	4,392			5,114
Impairment and other lease charges (recoveries)								Impairment and other lease charges (recoveries)	2,256			(702)

Closed restaurant rent expense, net of sublease income								Closed restaurant rent expense, net of sublease income	(284)			380

Other expense (income), net								Other expense (income), net	15			51
Stock-based compensation expense								Stock-based compensation expense	4			7

Total non-general and administrative adjustments								Total non-general and administrative adjustments	6,383			4,850
General and administrative adjustments:								General and administrative adjustments:
Stock-based compensation expense								Stock-based compensation expense	595			623
Non-recurring professional fees(1)								Non-recurring professional fees(1)	165			705
G&A efficiency initiatives(2)								G&A efficiency initiatives(2)	669			261

Restructuring costs(3)								Restructuring costs(3)	717			—

Digital costs(4)								Digital costs(4)	91			291
Total general and administrative adjustments								Total general and administrative adjustments	2,237			1,880
Consolidated Adjusted EBITDA								Consolidated Adjusted EBITDA	$	6,526		$	5,292
Restaurant-level adjustments:								Restaurant-level adjustments:

Add: Other general and administrative expense(5)								Add: Other general and administrative expense(5)	10,946			10,462
Less: Franchise royalty revenue and fees								Less: Franchise royalty revenue and fees	307			409
Restaurant-level Operating Profit								Restaurant-level Operating Profit	$	17,165		$	15,345
Restaurant sales								Restaurant sales	$	103,064		$	95,200
Loss from operations as a percentage of restaurant sales								Loss from operations as a percentage of restaurant sales	(2.0)		%	(1.5)		%
Restaurant-level Operating Profit as a percentage of restaurant sales								Restaurant-level Operating Profit as a percentage of restaurant sales	16.7		%	16.1		%

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

(2) G&A efficiency initiatives consist of non-recurring retention bonus costs and costs related to the acceleration and write-off of costs related to accounting system implementation.

(4) Digital costs for the three months ended April 2, 2023 and April 3, 2022 include costs related to enhancing the digital experience for our customers.

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

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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.

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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~~1, 2023 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 Acting Chief Financial Officer, as well as other key members of our management. Based on this evaluation, our Chief Executive Officer and Acting Chief Financial Officer concluded that our disclosure controls and procedures were effective as of April ~~3, 2022.~~2, 2023.

Changes in Internal Control over Financial Reporting. ~~No change~~As of February 2023, we have outsourced certain accounting processes to a third-party firm, including utilizing that firm's accounting platform. As a result, we modified and removed certain existing controls as well as implemented new controls and procedures impacted by the transition. Although certain key controls related to the processing and recording of transactions are now controlled by the third-party firm, management retains ultimate responsibility, including oversight and monitoring, of the internal controls, including those related to outsourced processes, over financial reporting for the Company. With the exception of those controls modified, removed, implemented or transitioned to the third-party firm, no other changes occurred in our internal control over financial reporting during the first quarter of ~~2022~~2023 that materially affected, or is reasonably likely to ~~materially~~ affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

~~Item~~ITEM 1. ~~Legal Proceedings~~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~~ITEM 1A. ~~Risk Factors~~RISK FACTORS

Part 1—Item 1A of our Annual Report on Form 10-K for the fiscal year ended January ~~2, 2022,~~1, 2023, 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.~~1, 2023.

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~~Item~~ITEM 2. ~~Unregistered Sales of Equity Securities and Use of Proceeds~~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:~~2, 2023:

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


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 2, 2023 to February 5, 2023	54,857	$	8.64	—	137,462
February 6, 2023 to March 5, 2023	6,396	8.50		—	137,462
March 6, 2023 to April 2, 2023	2,521	8.49		—	137,462
Total	63,774	$	8.62	—

(1) Shares purchased in ~~open market transactions.~~order to meet participants' tax withholding liability through net share settlement related to vesting of restricted stock awards.

~~Item~~ITEM 3. ~~Defaults Upon Senior Securities~~DEFAULTS UPON SENIOR SECURITIES

None.

~~Item~~ITEM 4. ~~Mine Safety Disclosures~~MINE SAFETY DISCLOSURES

Not applicable.

~~Item~~ITEM 5. ~~Other Information~~OTHER INFORMATION

None.

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~~Item~~ITEM 6. ~~Exhibits~~EXHIBITS

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



Exhibit No.











10.1	Offer letter dated April 12, 2023 between Fiesta Restaurant Group, Inc. and Dirk Montgomery#+

10.2	Second Amendment to Agreement dated as of April 12, 2023 between Fiesta Restaurant Group, Inc. and Dirk Montgomery#+

19.1	Fiesta Restaurant Group, Inc. Policy on Insider Trading#

19.2	Fiesta Restaurant Group, Inc. Policy on Trading Procedures for Covered Individuals#

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)

# Filed herewith.
		+ Compensatory plan or arrangement.

+ Compensatory plan or arrangement

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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, 2022~~			~~/s/ RICHARD C. STOCKINGER~~
			~~(Signature)~~
			Richard C. Stockinger Chief Executive Officer

~~Date: May 12, 2022~~10, 2023			/s/ DIRK MONTGOMERY
			(Signature)
			Dirk Montgomery ~~Senior Vice President,~~Chief Executive Officer

Date: May 10, 2023			/s/ TYLER YOESTING
			(Signature)
			Tyler Yoesting Acting Chief Financial Officer, Vice President, Corporate Controller and ~~Treasurer~~Chief Accounting Officer
			(Principal Financial Officer)

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