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Fiesta Restaurant (FRGI)

Filed: 5 Nov 19, 4:12pm


Exhibit 99.1

FOR IMMEDIATE RELEASE
Investor Relations Contact:
Raphael Gross
203-682-8253
investors@frgi.com




Fiesta Restaurant Group, Inc. Reports Third Quarter 2019 Results
Company Completes Key Executive Hires and Continues Progress on Strategic Drivers of Future Growth

DALLAS, Texas - (Business Wire) - November 5, 2019 - Fiesta Restaurant Group, Inc. ("Fiesta" or the "Company") (NASDAQ: FRGI), parent company of the Pollo Tropical® and Taco Cabana® restaurant brands, today reported results for the 13-week third quarter 2019, which ended on September 29, 2019.

Fiesta President and Chief Executive Officer Richard Stockinger said, "Although quarterly comparable restaurant sales declined, we experienced sequential improvement at both brands as a result of our everyday value platform, LTO promotions and growing sales traction from our investments in off premise channels. In addition, third quarter comparable restaurant sales at Pollo Tropical were negatively impacted by Hurricane Dorian by approximately 150 basis points and by planned sales cannibalization of roughly 80 basis points. We were encouraged by the fact that Pollo Tropical comparable restaurant transactions exceeded the industry benchmark for the quarter and comparable restaurant sales were positive for the period in September following the hurricane, with improvement across all Florida markets. We launched Taco Cabana's value platform, 'TC Time', in September, which helped drive the brand's comparable restaurant transactions above the industry benchmark index in Texas during the month."

Mr. Stockinger continued, "We continued to make strong progress during the quarter on our sales-building initiatives of menu innovation and simplification, everyday value platforms, and off premise dining including online, delivery and catering. The sales performance in September is only partially reflective of those efforts. We expect those investments will continue to accelerate results for the remainder of the year and into 2020. We also continue to focus on restaurant level margin improvement. Excluding the impact of lease accounting changes and the hurricane impact, Pollo Tropical restaurant margins would have increased, and Taco Cabana restaurant margins would have been flat to last year, despite the sales decline."

Mr. Stockinger added, "We were also very excited to have filled two more key positions in our senior leadership team during the third quarter. We named industry veteran Dirk Montgomery as our new CFO and Hope Diaz joined Fiesta as our new CMO. They each bring very strong capability and deep restaurant experience to Fiesta and they will help us accelerate the speed of our progress."

Mr. Stockinger concluded, "As we close out the year and look toward 2020, we expect stable food costs for the remainder of 2019 and 2020 vs. the prior year based on supply commitments in place across key commodities. We will maintain our focus on building sales growth across in store and off premise channels by continuing to enhance our brands' attractiveness to guests."

Third Quarter 2019 Financial Summary

Total revenues decreased 6.0% to $164.2 million in the third quarter of 2019 from $174.6 million in the third quarter of 2018;
Comparable restaurant sales at Pollo Tropical decreased 3.8%;
Comparable restaurant sales at Taco Cabana decreased 4.8%;
Net loss of $22.2 million, or $0.84 per diluted share, in the third quarter of 2019, which includes a $0.84 per diluted share negative impact from $3.3 million in impairment charges, $21.4 million in non-cash impairment of goodwill, and $0.7 million in net closed restaurant rent charges, net of income tax benefits of $3.2 million, compared to net income of $2.0 million, or $0.08 per diluted share, in the third quarter of 2018;
Adjusted net income (a non-GAAP financial measure) of $0.2 million, or $0.01 per diluted share, in the third quarter of 2019, which includes a $0.02 per diluted share negative impact from adoption of the new lease accounting standard, compared to adjusted net income of $3.0 million, or $0.11 per diluted share, in the third quarter of 2018 (see non-GAAP reconciliation table below);

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Adjusted EBITDA for Pollo Tropical of $11.0 million in the third quarter of 2019 would have been $0.4 million higher absent accounting changes resulting from adoption of the new lease accounting standard, compared to $12.5 million in the third quarter of 2018;
Restaurant-level Adjusted EBITDA (a non-GAAP financial measure) for Pollo Tropical of $17.8 million, or 20.1% of restaurant sales, in the third quarter of 2019 would have been $0.4 million, or 0.4% of restaurant sales, higher absent accounting changes resulting from adoption of the new lease accounting standard, compared to $19.1 million, or 20.4% of restaurant sales, in the third quarter of 2018 (see non-GAAP reconciliation table below);
Adjusted EBITDA for Taco Cabana of $1.2 million in the third quarter of 2019 would have been $0.5 million higher absent accounting changes resulting from adoption of the new lease accounting standard, compared to $2.5 million in the third quarter of 2018;
Restaurant-level Adjusted EBITDA (a non-GAAP financial measure) for Taco Cabana of $6.9 million, or 9.2% of restaurant sales, in the third quarter of 2019 would have been $0.5 million, or 0.6% of restaurant sales, higher absent accounting changes resulting from adoption of the new lease accounting standard, compared to $8.0 million, or 10.0% of restaurant sales, in the third quarter of 2018 (see non-GAAP reconciliation table below); and
Consolidated Adjusted EBITDA (a non-GAAP financial measure) of $12.2 million in the third quarter of 2019 would have been $0.8 million higher absent accounting changes resulting from adoption of the new lease accounting standard, compared to Consolidated Adjusted EBITDA of $15.0 million in the third quarter of 2018 (see non-GAAP reconciliation table below).

Taco Cabana Goodwill Impairment

As of September 29, 2019, in response to a further decrease in the market price of Fiesta's common stock and lower than expected profitability in the third quarter, we performed an interim impairment test of the Company’s goodwill. Based on this interim impairment test, we recorded a $21.4 million non-cash impairment charge to write down the value of goodwill for the Taco Cabana reporting unit, which resulted in a full impairment of the Taco Cabana reporting unit goodwill and had an unfavorable impact on net income (loss) of $19.3 million or $0.73 per diluted share in the third quarter of 2019. We previously recorded a $46.5 million non-cash impairment charge to write down the value of goodwill for the Taco Cabana reporting unit in the second quarter of 2019.

Third Quarter 2019 Brand Results

Pollo Tropical restaurant sales decreased 5.6% to $88.3 million in the third quarter of 2019 compared to $93.6 million in the third quarter of 2018 due primarily to a comparable restaurant sales decrease of 3.8% and nine fewer restaurants in 2019. Off premise sales consisting of online, catering, and delivery orders comprised 4.4% of total restaurant sales in the third quarter of 2019 compared to 1.7% of total restaurant sales in the third quarter of 2018. Sales cannibalization from new restaurants on existing restaurants negatively impacted comparable restaurant sales by approximately 80 basis points while Hurricane Dorian negatively impacted comparable restaurant sales by approximately 150 basis points. The decrease in comparable restaurant sales resulted from a 2.7% decrease in comparable restaurant transactions and a 1.1% decrease in average check. The decrease in average check was driven primarily by discounted pricing for Pollo Time partially offset by menu price increases of approximately 1.1%.

Pollo Tropical's third quarter 2019 comparable restaurant sales were 0.5% lower than TDnK's Black Box Intelligence's fast-casual Florida benchmark while comparable restaurant transactions were 2.9% higher than TDnK's Black Box Intelligence's fast-casual Florida benchmark for the markets in which we operate. However, excluding planned sales cannibalization where we have opened new restaurants in the proximity of existing units with high sales in order to improve the customer experience and increase overall sales, Pollo Tropical's third quarter 2019 comparable restaurant sales were 0.3% higher than TDnK's Black Box Intelligence's fast-casual Florida benchmark for the markets while comparable restaurant transactions were 3.7% higher than TDnK's Black Box Intelligence's fast-casual Florida benchmark for the markets in which we operate.

Adjusted EBITDA for Pollo Tropical decreased to $11.0 million in the third quarter of 2019 from $12.5 million in the third quarter of 2018. Absent the $0.4 million negative impact from the adoption of the new lease accounting standard, Adjusted EBITDA in the third quarter of 2019 would have decreased by $1.2 million. The decrease was due to higher restaurant wages and related expenses due to higher wage rates and overtime, higher other operating expenses due to higher third-party delivery fees and contracted cleaning services, and higher G&A expenses due to the timing of incentive compensation accrual adjustments and investments in off premise support, as a percent of restaurant sales, as well as the impact of lower comparable restaurant sales, partially offset by lower cost of sales due to favorable commodities and lower repairs and maintenance expenses due to the outsourcing of repairs, as a percent of restaurant sales. As noted above, Hurricane Dorian negatively impacted sales by approximately 150 basis points, with the estimate of lost profit from the sales decline of $0.6 million.

Taco Cabana restaurant sales decreased 6.3% to $75.3 million in the third quarter of 2019 from $80.4 million in the third quarter of 2018 due primarily to a comparable restaurant sales decrease of 4.8% and six fewer restaurants in 2019. Off premise sales

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consisting of online, catering, and delivery orders comprised 3.6% of total restaurant sales in the third quarter of 2019 compared to 1.4% of total restaurant sales in the third quarter of 2018. The decrease in comparable restaurant sales resulted from a 5.6% decrease in comparable restaurant transactions partially offset by a 0.8% increase in average check. The increase in average check was due primarily to menu price increases of 1.4% and the introduction of higher priced shareable items, partially offset by discounted pricing for TC Time. Tropical storm severe weather during the quarter resulted in store closures due to flooding, which resulted in a negative sales impact of approximately 20 basis points.

Taco Cabana's third quarter 2019 comparable restaurant sales were 1.9% lower than TDnK's Black Box Intelligence's fast-casual Texas benchmark for the markets in which we operate while comparable restaurant transactions mirrored TDnK's Black Box Intelligence's fast-casual Texas benchmark for the markets in which we operate.

Adjusted EBITDA for Taco Cabana decreased to $1.2 million in the third quarter of 2019 from $2.5 million in the third quarter of 2018. Absent the $0.5 million negative impact from the adoption of the new lease accounting standard, Adjusted EBITDA in the third quarter of 2019 would have decreased by $0.9 million. The decrease was primarily due to higher cost of sales due to increased discounting and promotional activity, higher advertising expense due to increased media spend, higher other operating expenses due to third-party delivery fees, and higher G&A expenses due to the timing of incentive compensation accrual adjustments and investments in off premise support, as a percent of restaurant sales, as well as the impact of lower comparable restaurant sales, partially offset by lower restaurant wages and related expenses due to improved staffing utilization that was partially offset by higher wage rates and overtime, as a percent of restaurant sales.

Lease Accounting Change

We adopted Financial Accounting Standard Board ("FASB") Accounting Standard Update ("ASU") 2016-02, Leases (Topic 842) ("ASC 842"), which requires lessee recognition of lease assets and lease liabilities on the balance sheet, as of the beginning of fiscal 2019. The new lease accounting standard, ASC 842, had a significant impact on our results of operations because we had $18.6 million in sale-leaseback gains from which we no longer receive a benefit to rent expense and we have a significant number of closed restaurants for which we had previous closed restaurant rent reserves and would not have recognized current period expense under the previous accounting standard.

As a result of adopting this standard, substantially all previously deferred gains on sale-leaseback transactions were recognized as an adjustment to retained earnings and we will no longer receive the benefit to rent expense from amortizing these gains resulting in higher rent expense being recognized each period over the life of the respective leases. Amortization of deferred gains from sale-leaseback transactions for the three months ended September 30, 2018 totaled approximately $0.4 million and $0.5 million for Pollo Tropical and Taco Cabana, respectively.

Additionally, prior to the adoption of ASC 842, we recorded closed restaurant reserves representing future minimum lease payments and ancillary costs from the date of the restaurant closure to the end of the remaining lease term, net of estimated sublease recoveries, when a restaurant closed, recorded expense related to the accretion of the reserve each period, and recorded subsequent changes in the assumptions related to the sublease income to expense in the period in which the assumptions changed. The subsequent closed restaurant rent payments were recorded as a reduction to the closed restaurant reserves, with no rent related expense being recorded in the period. As a result of adopting ASC 842, these closed restaurant rent reserves were recorded as a reduction to operating lease right-of-use assets, and rent expense (the straight-line amortization of the right-of-use assets and accretion of the lease liability) related to closed restaurants is now included within closed restaurant rent expense, net of sublease income in the condensed consolidated statement of operations each period. The comparative period information has not been restated and continues to be reported under the accounting standard in effect for that period. Closed restaurant rent expense, net of sublease income for the three months ended September 29, 2019 totaled $0.6 million and $0.1 million for Pollo Tropical and Taco Cabana, respectively.

Increased Share Repurchase Authorization

On November 5, 2019, Fiesta announced an increase to its share repurchase program of an additional 1.0 million shares of common stock. The Company has purchased a total of 1,176,895 shares of common stock under its prior share repurchase program authorization, and, following this increase, 1,823,105 shares of common stock remain available for purchase.

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,

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and other corporate considerations. The share repurchase program has no time limit and may be modified, suspended, superseded or terminated at any time by the board of directors.

Restaurant Portfolio

During the third quarter of 2019, Fiesta opened one Pollo Tropical in South Florida. As of September 29, 2019, there were 141 Company-owned Pollo Tropical restaurants, 165 Company-owned Taco Cabana restaurants, 31 franchised Pollo Tropical restaurants in the U.S., Puerto Rico, the Bahamas, Guyana and Panama and eight franchised Taco Cabana restaurants in the U.S.

Capital Expenditures

Full year capital expenditures in 2019 include opening three new Company-owned Pollo Tropical restaurants in South Florida and three new Company-owned Taco Cabana restaurants in Texas. Total capital expenditures in 2019 are now expected to be in the lower half of the previous $45 million to $55 million range. The full range includes $11 million to $13 million to develop new Company-owned restaurants, $10 million to $12 million to implement information technology and other systems projects and $1 million in catering equipment. In addition, ongoing reinvestment in our Pollo Tropical and Taco Cabana Company-owned restaurants in 2019 consists of $16 million to $18 million for restaurant remodeling, equipment to support new menu platforms and other facility enhancements, and $10 million to $11 million for capital maintenance.

Total capital expenditures in 2020 are expected to be approximately $5 million to $10 million lower than the current year due primarily to lower levels of new equipment and facility enhancements and fewer new Company-owned restaurant openings.

Investor Conference Call Today

Fiesta will host a conference call at 4:30 p.m. ET today. The conference call can be accessed live over the phone by dialing 412-317-6026. A replay will be available after the call until Tuesday, November 12, 2019, and can be accessed by dialing 412-317-6671. The passcode is 10135857. The conference call will also be webcast live from the corporate website at www.frgi.com, under the Investor Relations section. A replay of the webcast will be available through the corporate website shortly after the call has concluded.

About Fiesta Restaurant Group, Inc.

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

Forward Looking Statements

Certain statements contained in this news release and in our public disclosures, whether written, oral or otherwise made, relating to future events or future performance, including any discussion, express or implied regarding our intention to repurchase shares from time to time under the share repurchase program, our anticipated growth, plans, objectives and the impact of our investments in strategic initiatives, including those relating to advertising and marketing, our new loyalty programs, operations improvements, menu development and innovation and catering and third party delivery on future sales and earnings contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are often identified by the words "may," "might," "believes," "thinks," "anticipates," "plans," "positioned," "target," "continue," "expects," "look to," "intends" and other similar expressions, whether in the negative or the affirmative, that are not statements of historical fact. These forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict, and you should not place undue reliance on our forward-looking statements. Our actual results and timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those discussed from time to time in our reports filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended December 30, 2018 and our quarterly reports on Form 10-Q. All forward-looking statements and the internal projections and beliefs upon which we base our expectations included in this release are made only as of the date of this release and may change. While we may elect to update forward-looking statements at some point in the future, we expressly disclaim any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

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FIESTA RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 29, 2019 AND SEPTEMBER 30, 2018
(In thousands, except share and per share data)
(Unaudited)
 Three Months Ended (a) Nine Months Ended (a)
 September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018
Revenues:       
   Restaurant sales$163,589
 $173,966
 $499,483
 $518,951
   Franchise royalty revenues and fees659
 682
 1,998
 2,008
      Total revenues164,248
 174,648
 501,481
 520,959
Costs and expenses:       
   Cost of sales52,056
 56,021
 156,324
 166,275
   Restaurant wages and related expenses (b)44,459
 47,943
 135,261
 142,103
   Restaurant rent expense (c)11,970
 9,129
 35,613
 26,861
   Other restaurant operating expenses (c)24,153
 27,294
 68,429
 75,398
   Advertising expense6,385
 6,472
 17,789
 18,046
   General and administrative expenses (b)(d)13,820
 13,284
 42,387
 41,023
   Depreciation and amortization10,165
 9,739
 29,520
 27,908
   Pre-opening costs77
 223
 863
 1,481
   Impairment and other lease charges (e)3,254
 6,417
 4,667
 6,539
Goodwill impairment (f)21,424
 
 67,909
 
Closed restaurant rent, net of sublease income (g)726
 
 3,485
 
   Other expense (income), net (h)64
 47
 920
 (3,132)
      Total operating expenses188,553
 176,569
 563,167
 502,502
Income (loss) from operations(24,305) (1,921) (61,686) 18,457
   Interest expense823
 924
 3,024
 2,979
Income (loss) before income taxes(25,128) (2,845) (64,710) 15,478
   Benefit from income taxes (i)(2,946) (4,892) (1,377) (246)
Net income (loss)$(22,182) $2,047
 $(63,333) $15,724
Earnings (loss) per common share:       
Basic$(0.84) $0.08
 $(2.37) $0.58
Diluted(0.84) 0.08
 (2.37) 0.58
Weighted average common shares outstanding:       
Basic26,548,116
 26,954,285
 26,734,822
 26,900,716
Diluted26,548,116
 26,958,874
 26,734,822
 26,905,391
(a) The Company uses a 52- or 53-week fiscal year that ends on the Sunday closest to December 31. The three- and nine-month periods ended September 29, 2019 and September 30, 2018 each included 13 and 39 weeks, respectively.
(b) Restaurant wages and related expenses include stock-based compensation of $102 and $6 for the three months ended September 29, 2019 and September 30, 2018, respectively, and $145 and $56 for the nine months ended September 29, 2019 and September 30, 2018, respectively. General and administrative expenses include stock-based compensation expense of $509 and $732 for the three months ended September 29, 2019 and September 30, 2018, respectively, and $1,993 and $2,588 for the nine months ended September 29, 2019 and September 30, 2018, respectively.
(c) As a result of adopting Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842) ("ASC 842"), restaurant rent expense for the three and nine months ended September 29, 2019 includes real estate taxes and common area maintenance costs. These costs are included in other restaurant operating expenses for the three and nine months ended September 30, 2018. In addition, as a result of adopting ASC 842 in fiscal 2019, rent expense does not include the benefit of amortizing previously deferred sale leaseback gains, which increased rent expense by $0.8 million and $2.5 million for the three and nine months ended September 29, 2019, respectively.
(d) See notes (f)-(i) to the reconciliation of net income (loss) to adjusted net income (loss) in the tables titled "Supplemental Non-GAAP Information."
(e) See note (b) to the reconciliation of net income (loss) to adjusted net income (loss) in the tables titled "Supplemental Non-GAAP Information."
(f) See note (c) to the reconciliation of net income (loss) to adjusted net income (loss) in the tables titled "Supplemental Non-GAAP Information."
(g) See note (d) to the reconciliation of net income (loss) to adjusted net income (loss) in the tables titled "Supplemental Non-GAAP Information."
(h) See note (e) to the reconciliation of net income (loss) to adjusted net income (loss) in the tables titled "Supplemental Non-GAAP Information."
(i) See note (a) to the reconciliation of net income (loss) to adjusted net income (loss) in the tables titled "Supplemental Non-GAAP Information."

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

 September 29, 2019 December 30, 2018
    
Assets   
   Cash$3,509
 $5,258
   Other current assets26,287
 39,141
   Property and equipment, net221,122
 231,328
Operating lease right-of-use assets254,449
 
   Goodwill56,307
 123,484
   Deferred income taxes8,243
 10,383
   Other assets7,685
 9,065
      Total assets$577,602
 $418,659
    
Liabilities and Stockholders' Equity   
   Current liabilities$58,250
 $46,561
   Long-term debt, net of current portion70,887
 79,636
   Deferred income sale-leaseback of real estate
 19,899
Operating lease liabilities258,891
 
   Other non-current liabilities8,066
 32,504
      Total liabilities396,094
 178,600
Stockholders' equity181,508
 240,059
      Total liabilities and stockholders' equity$577,602
 $418,659


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FIESTA RESTAURANT GROUP, INC.
Supplemental Information
The following table sets forth certain unaudited supplemental financial and other data for the periods indicated
(In thousands, except percentages):
 (Unaudited) (Unaudited)
 Three Months Ended Nine Months Ended
 September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018
Segment revenues:       
   Pollo Tropical$88,741
 $94,045
 $273,280
 $284,823
   Taco Cabana75,507
 80,603
 228,201
 236,136
      Total revenues$164,248
 $174,648
 $501,481
 $520,959
        
Change in comparable restaurant sales (a):       
   Pollo Tropical(3.8)% 6.5% (2.5)% 3.6%
   Taco Cabana(4.8)% 12.2% (2.8)% 4.3%
        
Average sales per Company-owned restaurant:       
   Pollo Tropical       
Comparable restaurants (b)$639
 $644
 $1,986
 $1,985
New restaurants (c)447
 428
 1,333
 1,307
Total Company-owned (d)626
 624
 1,943
 1,915
   Taco Cabana       
Comparable restaurants (b)$457
 $474
 $1,392
 $1,416
New restaurants (c)460
 422
 1,369
 1,183
Total Company-owned (d)456
 470
 1,389
 1,399
        
Income (loss) before income taxes:       
   Pollo Tropical$3,857
 $2,976
 $16,731
 $21,901
   Taco Cabana(28,985) (5,821) (81,441) (6,423)
        
Adjusted EBITDA (e):       
   Pollo Tropical$10,980
 $12,544
 $39,943
 $42,520
   Taco Cabana1,174
 2,493
 8,189
 9,652
        
Restaurant-level Adjusted EBITDA (e)(f):       
   Pollo Tropical$17,751
 $19,103
 $60,352
 $62,948
   Taco Cabana6,917
 8,010
 25,860
 27,375
(a) Restaurants are included in comparable restaurant sales after they have been open for 18 months or longer.
(b) Comparable restaurants are restaurants that have been open for 18 months or longer. Average sales for comparable Company-owned restaurants are derived by dividing comparable restaurant sales for such period for the applicable segment by the average number of comparable restaurants for the applicable segment for such period.
(c) New restaurants are restaurants that have been open for less than 18 months. Average sales for new Company-owned restaurants are derived by dividing new restaurant sales for such period for the applicable segment by the average number of new restaurants for the applicable segment for such period.
(d) Average sales for total Company-owned restaurants are derived by dividing restaurant sales for such period for the applicable segment by the average number of open restaurants for the applicable segment for such period.
(e) Adjusted EBITDA and Restaurant-level Adjusted EBITDA were negatively impacted by $0.4 million and $0.5 million for Pollo Tropical and Taco Cabana, respectively, in the third quarter of 2019, and by $1.1 million and $1.4 million for Pollo Tropical and Taco Cabana, respectively, in the nine months ended September 29, 2019 related to adopting ASC 842, the new lease accounting standard.
(f) Restaurant-level Adjusted EBITDA is a non-GAAP financial measure. Please see the reconciliation from net income (loss) to Restaurant-level Adjusted EBITDA in the table titled "Supplemental Non-GAAP Information."

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

 Three Months Ended Nine Months Ended
 September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018
        
Company-owned restaurant openings:       
   Pollo Tropical1
 
 2
 4
   Taco Cabana
 1
 3
 7
      Total new restaurant openings1
 1
 5
 11
        
Company-owned restaurant closings:       
   Pollo Tropical
 
 
 
   Taco Cabana
 
 
 (2)
      Net change in restaurants1
 1
 5
 9
        
Number of Company-owned restaurants:       
   Pollo Tropical141
 150
 141
 150
   Taco Cabana165
 171
 165
 171
      Total Company-owned restaurants306
 321
 306
 321
        
Number of franchised restaurants:       
    Pollo Tropical31
 30
 31
 30
    Taco Cabana8
 8
 8
 8
      Total franchised restaurants39
 38
 39
 38
        
Total number of restaurants:       
   Pollo Tropical172
 180
 172
 180
   Taco Cabana173
 179
 173
 179
      Total restaurants345
 359
 345
 359










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FIESTA RESTAURANT GROUP, INC.
Supplemental Information
The following table sets forth certain unaudited supplemental financial and other data for the periods indicated
(In thousands, except percentages):
 Three Months Ended
 September 29, 2019 September 30, 2018
Pollo Tropical: (a)  (a)
   Restaurant sales$88,309
  $93,592
 
   Cost of sales28,239
32.0 % 31,219
33.4%
   Restaurant wages and related expenses20,944
23.7 % 21,947
23.4%
   Restaurant rent expense5,477
6.2 % 4,392
4.7%
   Other restaurant operating expenses12,807
14.5 % 13,521
14.4%
   Advertising expense3,130
3.5 % 3,413
3.6%
   Depreciation and amortization5,529
6.3 % 5,438
5.8%
   Pre-opening costs68
0.1 % 134
0.1%
   Impairment and other lease charges165
0.2 % 3,295
3.5%
Closed restaurant rent expense, net of sublease income601
0.7 % 
%
      
Taco Cabana:     
   Restaurant sales$75,280
  $80,374
 
   Cost of sales23,817
31.6 % 24,802
30.9%
   Restaurant wages and related expenses23,515
31.2 % 25,996
32.3%
   Restaurant rent expense6,493
8.6 % 4,737
5.9%
   Other restaurant operating expenses11,346
15.1 % 13,773
17.1%
   Advertising expense3,255
4.3 % 3,059
3.8%
   Depreciation and amortization4,636
6.2 % 4,301
5.4%
   Pre-opening costs9
 % 89
0.1%
   Impairment and other lease charges3,089
4.1 % 3,122
3.9%
Goodwill impairment21,424
28.5 % 
%
Closed restaurant rent expense, net of sublease income125
0.2 % 
%
      
 Nine Months Ended
 September 29, 2019 September 30, 2018
Pollo Tropical: (a)  (a)
   Restaurant sales$271,955
  $283,447
 
   Cost of sales85,855
31.6 % 93,716
33.1%
   Restaurant wages and related expenses63,387
23.3 % 65,652
23.2%
   Restaurant rent expense16,393
6.0 % 13,024
4.6%
   Other restaurant operating expenses36,665
13.5 % 38,270
13.5%
   Advertising expense9,351
3.4 % 9,859
3.5%
   Depreciation and amortization16,118
5.9 % 16,117
5.7%
   Pre-opening costs307
0.1 % 699
0.2%
   Impairment and other lease charges(162)(0.1)% 3,439
1.2%
Closed restaurant rent expense, net of sublease income2,784
1.0 % 
%
      
Taco Cabana:     
   Restaurant sales$227,528
  $235,504
 
   Cost of sales70,469
31.0 % 72,559
30.8%
   Restaurant wages and related expenses71,874
31.6 % 76,451
32.5%
   Restaurant rent expense19,220
8.4 % 13,837
5.9%
   Other restaurant operating expenses31,764
14.0 % 37,128
15.8%
   Advertising expense8,438
3.7 % 8,187
3.5%
   Depreciation and amortization13,402
5.9 % 11,791
5.0%
   Pre-opening costs556
0.2 % 782
0.3%
   Impairment and other lease charges4,829
2.1 % 3,100
1.3%
Goodwill impairment67,909
29.8 % 
%
Closed restaurant rent expense, net of sublease income701
0.3 % 
%
(a) Percent of restaurant sales for the applicable segment.

9



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

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

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


10



Three Months Ended Pollo Tropical Taco Cabana Consolidated
September 29, 2019:      
Net loss     $(22,182)
Benefit from income taxes     (2,946)
Income (loss) before taxes $3,857
 $(28,985) $(25,128)
Add:      
     Non-general and administrative expense adjustments:      
          Depreciation and amortization 5,529
 4,636
 10,165
          Impairment and other lease charges 165
 3,089
 3,254
Goodwill impairment 
 21,424
 21,424
          Interest expense 398
 425
 823
          Closed restaurant rent expense, net of sublease income 601
 125
 726
          Other expense (income), net 5
 59
 64
          Stock-based compensation expense in restaurant wages 39
 63
 102
                Total non-general and administrative expense adjustments 6,737
 29,821
 36,558
     General and administrative expense adjustments:      
          Stock-based compensation expense 268
 241
 509
          Digital and brand repositioning costs 118
 97
 215
               Total general and administrative expense adjustments 386
 338
 724
Adjusted EBITDA $10,980
 $1,174
 $12,154
Restaurant-level adjustments:      
          Add: Pre-opening costs 68
 9
 77
          Add: Other general and administrative expense(1)
 7,135
 5,961
 13,096
          Less: Franchise royalty revenue and fees 432
 227
 659
Restaurant-level Adjusted EBITDA $17,751
 $6,917
 $24,668
       
September 30, 2018:      
Net income     $2,047
Benefit from income taxes     (4,892)
Income (loss) before taxes $2,976
 $(5,821) $(2,845)
Add:      
     Non-general and administrative expense adjustments:      
          Depreciation and amortization 5,438
 4,301
 9,739
          Impairment and other lease charges 3,295
 3,122
 6,417
          Interest expense 448
 476
 924
          Other expense (income), net (29) 76
 47
          Stock-based compensation expense in restaurant wages 4
 2
 6
                Total non-general and administrative expense adjustments 9,156
 7,977
 17,133
     General and administrative expense adjustments:      
          Stock-based compensation expense 407
 325
 732
          Restructuring costs and retention bonuses 5
 12
 17
               Total general and administrative expense adjustments 412
 337
 749
Adjusted EBITDA $12,544
 $2,493
 $15,037
Restaurant-level adjustments:      
          Add: Pre-opening costs 134
 89
 223
          Add: Other general and administrative expense(1)
 6,878
 5,657
 12,535
          Less: Franchise royalty revenue and fees 453
 229
 682
Restaurant-level Adjusted EBITDA $19,103
 $8,010
 $27,113
       
       
       
       
       
       

11



Nine Months Ended Pollo Tropical Taco Cabana Consolidated
September 29, 2019:      
Net loss     $(63,333)
Benefit from income taxes   �� (1,377)
Income (loss) before taxes $16,731
 $(81,441) $(64,710)
Add:      
     Non-general and administrative expense adjustments:      
          Depreciation and amortization 16,118
 13,402
 29,520
          Impairment and other lease charges (162) 4,829
 4,667
          Goodwill impairment 
 67,909
 67,909
          Interest expense 1,534
 1,490
 3,024
          Closed restaurant rent expense, net of sublease income 2,784
 701
 3,485
          Other expense (income), net 749
 171
 920
          Stock-based compensation expense in restaurant wages 48
 97
 145
                Total non-general and administrative expense adjustments 21,071
 88,599
 109,670
     General and administrative expense adjustments:      
          Stock-based compensation expense 1,196
 797
 1,993
          Restructuring costs and retention bonuses 827
 137
 964
          Digital and brand repositioning costs 118
 97

215
               Total general and administrative expense adjustments 2,141
 1,031
 3,172
Adjusted EBITDA $39,943
 $8,189
 $48,132
Restaurant-level adjustments:      
          Add: Pre-opening costs 307
 556
 863
          Add: Other general and administrative expense(1)
 21,427
 17,788
 39,215
          Less: Franchise royalty revenue and fees 1,325
 673
 1,998
Restaurant-level Adjusted EBITDA $60,352
 $25,860
 $86,212
       
September 30, 2018:      
Net income     $15,724
Benefit from income taxes     (246)
Income (loss) before taxes $21,901
 $(6,423) $15,478
Add:      
     Non-general and administrative expense adjustments:      
          Depreciation and amortization 16,117
 11,791
 27,908
          Impairment and other lease charges 3,439
 3,100
 6,539
          Interest expense 1,467
 1,512
 2,979
          Other expense (income), net (1,577) (1,555) (3,132)
          Stock-based compensation expense in restaurant wages 23
 33
 56
                Total non-general and administrative expense adjustments 19,469
 14,881
 34,350
     General and administrative expense adjustments:      
          Stock-based compensation expense 1,458
 1,130
 2,588
          Board and shareholder matter costs (328) (269) (597)
          Restructuring costs and retention bonuses 187
 333
 520
          Legal settlements and related costs (167) 
 (167)
               Total general and administrative expense adjustments 1,150
 1,194
 2,344
Adjusted EBITDA $42,520
 $9,652
 $52,172
Restaurant-level adjustments:      
          Add: Pre-opening costs 699
 782
 1,481
          Add: Other general and administrative expense(1)
 21,105
 17,573
 38,678
          Less: Franchise royalty revenue and fees 1,376
 632
 2,008
Restaurant-level Adjusted EBITDA $62,948
 $27,375
 $90,323
(1) Excludes general and administrative adjustments above.

12



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

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

13



  (Unaudited)
  Three Months Ended
  September 29, 2019 September 30, 2018
  Income (Loss) Before Income Taxes Benefit From Income Taxes (a) Net Income (Loss) Diluted EPS Income (Loss) Before Income Taxes Benefit From Income Taxes (a) Net Income Diluted EPS
Reported - GAAP $(25,128) $(2,946) $(22,182) $(0.84) $(2,845) $(4,892) $2,047
 $0.08
Adjustments:                
    Non-general and administrative expense adjustments:              
          Income tax due to federal rate change (a) 
 
 
 
 
 3,861
 (3,861) (0.14)
          Impairment and other lease charges (b) 3,254
 903
 2,351
 0.09
 6,417
 1,619
 4,798
 0.18
          Goodwill impairment (c) 21,424
 2,111
 19,313
 0.73
 
 
 
 
          Closed restaurant rent, net of sublease income (d) 726
 201
 525
 0.02
 
 
 
 
          Other expense (income), net (e) 64
 18
 46
 
 47
 12
 35
 
               Total non-general and administrative expense 25,468
 3,233
 22,235
 0.84
 6,464
 5,492
 972
 0.04
     General and administrative expense adjustments:                
         Restructuring costs and retention bonuses (g) 
 
 
 
 17
 4
 13
 
         Digital and brand repositioning costs (i) 215
 60
 155
 0.01
        
               Total general and administrative expense 215
 60
 155
 0.01
 17
 4
 13
 
               Adjusted - Non-GAAP $555
 $347
 $208
 $0.01
 $3,636
 $604
 $3,032
 $0.11
                 
  (Unaudited)
  Nine Months Ended
  September 29, 2019 September 30, 2018
  Income (Loss) Before Income Taxes Benefit From Income Taxes (a) Net Income (Loss) Diluted EPS Income Before Income Taxes Benefit From Income Taxes (a) Net Income Diluted EPS
Reported - GAAP $(64,710) $(1,377) $(63,333) $(2.37) $15,478
 $(246) $15,724
 $0.58
Adjustments:                
    Non-general and administrative expense adjustments:              
          Income tax due to federal rate change (a) 
 
 
 
 
 3,861
 (3,861) (0.14)
          Impairment and other lease charges (b) 4,667
 1,295
 3,372
 0.13
 6,539
 1,650
 4,889
 0.18
          Goodwill impairment (c) 67,909
 2,111
 65,798
 2.46
 
 
 
 
          Closed restaurant rent, net of sublease income (d) 3,485
 967
 2,518
 0.09
 
 
 
 
          Other expense (income), net (e) 920
 255
 665
 0.02
 (3,132) (790) (2,342) (0.09)
               Total non-general and administrative expense 76,981
 4,628
 72,353
 2.71
 3,407
 4,721
 (1,314) (0.05)
     General and administrative expense adjustments:                
         Board and shareholder matter costs (f) 
 
 
 
 (597) (151) (446) (0.02)
         Restructuring costs and retention bonuses (g) 964
 268
 696
 0.03
 520
 131
 389
 0.01
         Legal settlements and related costs (h) 
 
 
 
 (167) (42) (125) 
         Digital and brand repositioning costs (i) 215
 60
 155
 0.01
        
               Total general and administrative expense 1,179
 328
 851
 0.03
 (244) (62) (182) (0.01)
               Adjusted - Non-GAAP $13,450
 $3,579
 $9,871
 $0.37
 $18,641
 $4,413
 $14,228
 $0.52
(a) The benefit from income taxes related to the adjustments was calculated using the Company's combined federal statutory and estimated state rate of 27.7% and 25.2% for the periods ending September 29, 2019 and September 30, 2018, respectively. For fiscal years beginning January 1, 2018, our federal statutory tax rate is 21% as a result of the enactment of the Tax Cuts and Jobs Act (the "Act") in December 2017. In 2018, in conjunction with a cost segregation study conducted prior to filing our 2017 federal income tax return, we changed the depreciation method for certain assets for federal income tax purposes to accelerate tax deductions. Changes in our 2017 federal income tax return from the amounts recorded as of December 31, 2017 were primarily the result of changing the depreciable lives of assets for federal income tax purposes. These changes allowed us to record an incremental benefit of $3.9 million for the third quarter of 2018.
(b) Impairment and other lease charges for the three and nine months ended September 29, 2019 primarily consist of impairment charges of $3.3 million and $5.5 million, respectively, and a lease charge recoveries benefit related to closed restaurant lease terminations of $(0.9) million for the nine months ended September 29, 2019. The impairment charges primarily related to assets for eight underperforming Taco Cabana restaurants that we continue to operate and equipment from previously impaired restaurants.

14



Impairment and other lease charges for the three months ended September 30, 2018 primarily include impairment charges of $5.7 million related to underperforming Pollo Tropical and Taco Cabana restaurants and lease charges, net of recoveries, of $0.7 million related to an office relocation in the third quarter of 2018 and adjustments to estimates of future lease cost for certain previously closed restaurants. Impairment and other lease charges for the nine months ended September 30, 2018 also include impairment charges of $0.4 million primarily related to closed restaurants and an underperforming Taco Cabana restaurant, and a net benefit of $(0.3) million in lease charge recoveries due primarily to a lease termination, a lease assignment, subleases and other adjustments to estimates of future lease costs.
(c) Goodwill impairment for the three and nine months ended September 29, 2019 consists of a non-cash impairment charge to write down the value of goodwill for the Taco Cabana reporting unit. The related benefit from income taxes is the benefit attributable to the portion of the goodwill that was tax deductible.
(d) Closed restaurant rent, net of sublease income for the three and nine months ended September 29, 2019 primarily consists of closed restaurant lease costs of $1.9 million and $6.2 million, respectively, partially offset by sublease income of $(1.1) million and $(2.8) million, respectively. As a result of adopting ASC 842, lease costs related to closed restaurants are recorded as closed restaurant rent. These costs were previously recorded as lease charges within impairment and other lease charges when a restaurant closed.
(e) Other expense (income), net for the three and nine months ended September 29, 2019 consists of the write-off of site development costs of $0.1 million. Other expense (income), net for the nine months ended September 29, 2019 also includes costs for the removal, transfer and storage of equipment from closed restaurants of $0.7 million. Other expense (income), net for the three and nine months ended September 30, 2018 primarily includes $0.3 million and $3.1 million, respectively, in insurance recoveries related to Hurricanes Harvey and Irma partially offset by the write-off of site development costs of $0.1 million and $0.5 million, respectively, and costs for the removal, transfer and storage of equipment from closed restaurants of $0.2 million and $0.7 million, respectively. Other expense (income), net for the nine months ended September 30, 2018 also includes total gains of $1.2 million on the sales of restaurant properties.
(f) Board and shareholder matter costs for the nine months ended September 30, 2018 include fee reductions and final insurance recoveries related to 2017 shareholder activism costs.
(g) Restructuring costs and retention bonuses for the three and nine months ended September 29, 2019 include severance costs related to eliminated positions. Restructuring costs and retention bonuses for the three and nine months ended September 30, 2018, include severance related to the Strategic Renewal Plan and reduction in force and bonuses paid to certain employees for retention purposes.
(h) Legal settlements and related costs for the nine months ended September 30, 2018 include reductions to final settlement amounts and benefits related to litigation matters.
(i) Digital and brand repositioning costs for the three and nine months ended September 29, 2019 include consulting costs related to repositioning the digital experience for our customers.


15