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FRGI Fiesta Restaurant

Participants
Raphael Gross Managing Director, ICR
Rich Stockinger President and CEO
Dirk Montgomery CFO
Patty Lopez-Calleja Chief Experience Officer
James Rutherford Stephens Inc.
Call transcript
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Operator

Good day and welcome to the Fiesta Restaurant Group Second Quarter 2021 Earnings Conference Call. All participants will be in listen only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please note today's event is being recorded. I'd now like to turn the conference over to Raphael Gross with ICR. sir. ahead go Please

Raphael Gross

Fiesta after second the operator. release XXXX was issued market Restaurant you, quarter Group’s earnings Thank closed today.

not company’s the have found you already it it, If can on the Relations website, Investor under www.frgi.com, section. accessed be

differ evaluating by will found those in company’s today’s cause which should be a Any release. that GAAP from comparable in in of regarding company’s note that budget, discussion and future inform position its and of materially of These Before available operations. measures the that business be that forecasted and certain not with call as prepared objectives expressed results without Actual forward-looking expressed operations, assurance conference forward-looking be believes such make company the can statements discussed, earnings statements substitute differ during will and no statements, in materially statements based not such statements during is call, implied to non-GAAP a or in you that to we include, projected company correct. may isolation information like are the filings. the or forward-looking in results statements plans, Important to the reconciliation costs Please give prove on management the financial financial I’d performance. factors considered for company such forward-looking accordance various useful begin, results company’s and outcomes to be future today, for historical strategy, actual and GAAP limitation, be unless SEC measures could can can is or the results information. will the

to Chief Officer, the and call to like me call the Stockinger; Montgomery. Rich. Dirk over now, And and Officer, today with On I’d Chief Financial turn President Executive are Rich

Rich Stockinger

Patty two topics support. thank Rafe. the update covering of today on other quarter overview of an call event the update followed including up divestiture status the the by strategic Officer their all Experience for continued like investors the you, business update. will of the I’ll important announcement most Thank quarter an platform priorities. wrapping our today Chief and of with XXXX was first to second on July Lopez-Calleja, I’d and provide the The initiatives for digital be a on financial update, Dirk participants results a our Xst. Taco

We to accelerating details transactions Additional regarding referenced business made very strategic Pollo filed on we in the to Taco Pollo the the to decision focus And Form Xth. completely on growth. we Tropical for about team have our leadership our are expansion X-K Cabana are sell business. July the allow opportunities tremendous excited

Concurrent the to term to quarter. We our transaction close proceeds are the balance. loan planning Taco we sale the expect divestiture, in off Cabana to with divestiture use pay fully third the

we the want the as success growth will to to used will As quarter a close. we for believe Cabana result, you. as $XX.X We transaction investments part subsequent of Tropical all position of passion, a brand take to Pollo funds balance all of million we XXXX I moment second team best effort four after the of be luck for unchanged be for accelerate miss of and close the growth. over their and Those thank the in end will you of debt the be wish years. the that the will to Taco a free last materially cash and focused

remainder impact in strong to workforce of pleased results we an margin the with increasingly that Pollo restaurant we availability the improving Tropical comparable quarter were on results. began challenges quarter. hourly negative had with to through performance sales April sales Beginning staffing levels XXXX through the with second to experience close very Regarding very

second We sales a versus in July compared July of that labor staffing and to improve were slightly Xth retention our levels the workforce recruiting versus after and Despite XXXX sales June have favorable the compared to Tropical improved challenges comparable XXXX adjusting hourly slightly comparable holiday Pollo steps taken for differences. quarter. number to of the staffing July

and restaurant end operations the margin our sales. hours, efforts comments. rate, delivery to those reduced XX.X% quarter million revenues a $X.X challenges, of XX.X% We Tropical of operations to the and of for quarter pay on second provide performance $X.X to increasingly maintain we including measure will managers, call process. the grow dining quarter at noted earnings takeout in plans counter of sales XXXX member in was second of allow In the our our incentives non-GAAP the of minimum quarter strong XXXX that compared Despite from ordering and EBITDA where we special measure additional both implemented quarter. to for streamlining taxes $XX.X to in intensified EBITDA On issues Dirk operation $X.X million a the of margin million second and details adjusted quarter temporarily our the second raising identified total the address total X.X% income non balance XXXX in and had we or second quarter income action effort remainder revenue from on an we drive-through In online of continuing XXXX. $X.X grew postponed experience a Pollo team and XXXX were part the and to outlook availability and loss begun operations compared second recruiting second hourly million our XXXX. quarter of continued cash Continuing the addition, first to from reaching continued with service of of in level regarding to measures the closed negative adjusted teams income quarter. results GAAP quarter XX% second staffing the and had staff those as million measures continuing in before impact for focus simplification issues an providing the necessary taking throughout operating rooms availability his to prepared and

the result, a the hours open approximately still all each month quarter than a hours, point XXXX our in quarter of of the overall. but reduction low total have and April below lower for normal quarter of channels operating operation As Staffing are first X% were optimal improved hours gradually compared a operating significant fourth across to XXXX. levels from levels in

staffing improve implementing which additional to include are We tactics following. the levels

per hourly ensure are our level competitive of based completing rates of operations position benchmarking are the additional We are the rates by evolving increase wage on conditions. to continuing in the hour process unit $X and for August market through personnel wage

better our We are the tailoring evaluating to unique our needs base. benefits of platform employee

can This outside team research member onboarding of internal including the To maintaining through and of to challenge We rates continue while we also management that dedicated currently believe We additional cost hires. is resources on as wage by offset pricing are we and and with still resources increases selective the process. bonuses based attractive our analytics to new our are for specific sign addition our that as price processes greater conducted experiencing increased increase consultants. our customers. on hourly geographies research recruiting perceptions well impact upgrading issues value retention, new

and to that pricing group. at prices later In Pollo last for additional on plan by the availability. taken April, we needed peer our of COVID price year X% believe our years, brands we the and Tropical evaluate staff both a have three this than been June to safety as in state pressures. increased Over cases rise since actions health lower Florida cost concern late response in have is the which increases

As require employees we the beginning to entering all of first Pollo Tropical CDC have safety and masks of put our continue guests member restaurants to the pandemic, to team we and following wear regardless guidelines our vaccination are and status. since will

on like to strategic I'd our update provide Now priorities. an

Concentrate continue quarter, fourth for quarter Tropical Pollo our XX% in our enhancements customization and continued and accelerating improvements at drive the generated expansion the XXXX customers for speed loyalty experience to premise digital our channel an the Pollo of three enable improve enjoy thru in preparation and XX% experience the service fencing mentioned compared growth and I channels in As ease At we drive of an Enhance channels second of XXXX the in second growth least and compared choose. to brands make brand in channels growth of on improvements of second whenever our drive all progress in digital including quarter the follows. wherever online consumer in platform of our geo made quarter across priorities they markets. to to platform XXXX. better all technology refining non curbside speed Tropical as during guest second that use through channels improving enhanced are delivering those essence dine quarter. and experience and of and And We growing non to loyalty strategic new from dine in incremental good existing members. sales in the

the will We platform continued develop a XXXX. of quarter work and in our research us remainder for in remodels believe strategy ongoing allow effective our That the focused we brand brand which to continue second more positioning will and expansion. digital

and quarter remainder on those platform will improve and additional a second customer details our of continue will the moment. the Patty to to we in continue XXXX. progress Over digital and investments platform through digital make the plans experience efforts provide enhance our

progress on our third and refining priority owned to again the for brand existing for both which in good Finally continue franchise company locations. expansion essence strategic we very Pollo markets preparation in made is Tropical and new

we’ll do so design restaurant and of key testing operating in currently are to platform the continue remodels improvements We remainder and XXXX.

This more the have above to our target organization, XXXX our encounter. rate at platform remodel feedback seats, learnings to new preliminary and speed sales include enhance also capabilities. will lines during Tropical digital applying upgraded new the very in service issues and an not In invest location create appropriate and focused quarter our of customer updated are in we image we growth Design staffing and margin customer and and Cabana resources a would unit drive and on results at Taco levels include second from for dining The our brand on Our have with believe our mobile or COVID pleased reflect guest efficient positive. was optimized to the expansion color brand. following room been enhancements effective, across finalizing Western delivery efforts if channels will to design first XXXX. run service, make sales us quarter the summary, of completed exciting potential our for continuing experience pickup and fewer changes, results for all that incorporate Pollo been accelerate research schemes, divestiture growing behavior has the to allow improve the initial we expanding the

Now a provide Patty our and Patty? progress. platform color on bit strategies will more digital

Patty Lopez-Calleja

goal Thanks, Rich. digital frictionless and of omni-channel a convenient strategy to transformation our The guests is provide our experience.

on mentioned our growth Rich channels. drive digital we As comments, his will focuses experience believe that customization strategy across in all

We the it reduce processing devices location We want channels for with quarter payment phase order is to units improved Rocket, guests to digital opportunities of showcase interact like Pilot complete. personalized at from and enabled greater services staffing code in new the ease our is levels through customer system experienced continued wide testing first other marketing to current pickup, infrastructure tech seconds experience, transaction. staffing seconds the accuracy, speed easier state this drive service about of platform improving to very our again use digital to levels QR with was will consultancy geo-sensing capabilities which maintain speed Pollo drive Bottle of the location excited improve make processing the rollout until firm, enable. hand, with our to less the that to issues additional we upgrading than challenges, for enhanced service, late conducted design through during all traditional enhanced in to curbside. to per while a service experience unique the drive-thru second brand, of faster Due XX to stabilized. once adding Tropical Partnering in brand curbside drive suspended channels and aimed that of We're estimated enabled technology speed X kiosk an i.e., quarter. for platform channels the enabled attributes

the are guests our an minimal for this of value, and begin this select channel. will who into creating this insights hope through more digital use enhanced addition through how to product scalable MVP greatly pilot viable In they order year. a platform targeted and drive a the environment, units We in later increased drive stable or us the give transformation digital first phase to

and personalized what experience see platform, on iterate future enhanced the relevant how conversations. components which going app, and to we as leveraging mobile our allow drive continue communicate to will and members more We core forward. loyalty our applications We with of digital insights through provide the our innovation for our through

provide will update and closing Drik financial Now the comments.

Dirk Montgomery

and Patty, afternoon, good then second update provide everyone. of our the I'll outlook our results, on for you, quarter you start Thank by with reviewing remainder an XXXX.

the a of impact Cabana on and of trends As significant COVID-XX results Tropical March the began beginning current a Taco years. to week XX, and year reminder, sales of XXXX created level some non-comparability have pandemic with prior in Pollo

discontinued Overall, today sales consolidated increased quarter Tropical in terms of Tropical. and million we The I'll second commentary slightly Cabana’s both and XXXX year to with of to to mostly XXXX. second just XXXX driven the divestiture, from by operations excluding the XXXX $XX.X brand. be and strong overhead year results XX.X% in operations sales restaurant continuing results this as pleased in financial key on for our levels Taco focused at reviewing results As the million XXXX quarter be Total below are will measures providing Pollo were increase performance result, on be statements. the in Pollo comparing we planned a quarter our operations continuing $XX.X margin will revenues corporate on the comparable presented second accelerating Based performance. of costs many current

the dine-in and loss sales very approximately and we growth. historic offsetting to As quarter progress sales good previously, sales been XXXX noted off-premise penetration the drive-thru made strong dine-in our we of second has of with XX%

to the second sales quarter the the XXXX trend second XX.X% and quarter second to the of of XXXX. to of quarter Our second improved up minus compared same-store improving XX.X% comp plus XXXX. and second XXXX second the Pollo compared comp and first quarter sales same-store were second the from compared quarter Cabana comp for quarter minus to X.X% levels Taco XXXX of Tropical X.X% quarter compared quarter to trends

a As impact had negative at on Rich indicated, we believe sales challenges brands. staffing both

Second loss share $X.X per from quarter discontinued consolidated $X.XX negative and million diluted net per impact of or XXXX included share was operations. diluted $X.XX

income share negative share per from or per closed continuing net XXXX from second $X.X quarter $X.XX impairment to a was of restaurant This $X.XX rent $X.X million Second $X.XX operations, share. operations charges. a per and of or diluted in loss the compares discontinued diluted including quarter primarily million charges diluted XXXX impact

share. quarter consolidated to continuing million XXXX last second million $X.XX XXXX and more $X.X X.X% compared our now revenue. revenue non-GAAP operations $X.X the to XX% the or of of net doubled non-GAAP share share per XXXX. in million consolidated EBITDA quarter reconciliation was for loss an a XXXX Second adjusted $X.XX more On compared diluted versus XXXX of quarter Please than table $X.X in from operations operations continuing and in million adjusted release details. an $X.X earnings second $X.X year income from or million see loss Continuing to $X.XX adjusted diluted measure in of net was per per diluted or basis,

comparable At Now second turning Tropical, Pollo to our restaurant increased sales brands. individual quarter XX.X%.

was from quarter driven pricing. of check channel in XX.X% net thru of in pricing increases channel comparable mix X%. increase second and and improvement transactions product primarily sales The mix versus and increase and penetration and XXXX product, a restaurant increase increases and in menu drive resulted a channel the by in price The delivery XX.X% average impact

XXXX COVID. the XXXX sales to in growth XXXX sales negative counter XXXX, of quarter quarter XXXX. dine-in the takeout from Regarding second first channels impact sales sales the in of increased of primarily comparable by channel, quarter XXX% second the experienced All to to compared trends second to the compared due to and restaurant Pollo and Tropical quarter of growth

second to the those X.X% generated counter channels online growth drive sales growth of and X.X% compared quarter in During XXXX. of X.X% XXXX of quarter of delivering first of thru growth channel the Pollo

XXXX levels. the of from of total increased exceed Dine In penetration quarter in in quarter sales quarter closures challenges second impact addition in resulting XXXX a first in below quarter. Tropical the in had XXXX We still staffing sales the continued other to negative in in to penetration of it's channels X% But a resulted partial rooms dining sales delivery believe on XXXX second XX% second the sales. of Pollo penetration and sales. partial

As levels. Rich actions taking mentioned we are staffing to improve

continued and XXXX. restaurant adjusted XXXX compared non a strong second Turning of GAAP be in level to with to XX.X% measure XX.X% to for XXXX the Pollo quarter EBITDA quarter level the margin brand XX.X% restaurant in in second adjusted profitability margins EBITDA

At driven As experienced discounts costs to wage in resulted restaurant offset as higher costs to the maintenance by primarily as partially inefficiencies. the the due to Taco incentive transactions impact sanitation primarily and sales sales of of renewals impact the percentage pricing transactions and increase of on in restaurant in part a price by of XX.X% leaseback quarter as Cabana, operating sales due utilities in of XX% sale in labor sales XXXX quarter labor in overtime of Rent of the and higher higher a XXXX. and XXXX to increased Tropical offset rates. on rates X.X% in costs decreased Pollo of versus higher increased wages XXXX increased operating Restaurant channel XX.X% compared costs. The comparable and XXXX promotions XXXX due sales in insurance price XX.X% pricing. lower repairs to lower Other increases a and in costs second costs. by to second and quarter sales driven impact by the quarter increases of offset a net shortages, medical increase XX.X% to increase at second to The and X.X%. due percentage restaurant compared XXXX restaurant partially to from partially and by higher as higher quarter sales was and mix primarily second the in other comparable XXXX compared a restaurant sales lower higher of product product increase XX.X% mix restaurant percentage comparable due lower and net primarily labor second well expenses menu of impact costs bonus channel lease from restaurant

to in million. XXXX second XXXX $X.X XXXX. to continued points. repairs second brand, the measure quarter cleanup from Taco in improve a of quarter of second negative XX.X% quarter to the expenses quarter of non-GAAP and profits was Taco landscaping margins grew related minus level Cabana the to impact Storm the EBITDA adjusted for Turning restaurant profitability The dollar XXXX cleanup impact XXX basis and Taco including Winter compared margins Uri Cabana XX.X% negative adjusted in estimated EBITDA of second removal expenses the margins on

cash the at $XX.X decreased now the In from from Turning second cash debt to measure the end $XX.X of end quarter million balance end grew non-GAAP at our million comments. quarter. the to the the flow second the million quarter related second $XX.X balance to on quarter. first first at financial $X.X million of the quarter, Net of of

proceeds a the of property we During sold quarter, location second million. previously $X.X of one for closed

expenditures million. $X.X of for proceeds million, for the recall, $X.X end quarter of included sold quarter all had million for capital of sale the XX second As million XXXX, were Through XX year Total in leaseback remodeling. outright last $X the and transactions. of XXXX of we the $XX properties or that second owned properties we marketed maintenance excess we which for you for sale may gross

$X.X benefit $X.X Winter half expenses. Tropical, related for proceeds for with second and and and for corporate expect Pollo XXXX Taco from One is claim associated million maintenance insurance Cabana For Uri. or technology cash the XXXX million of we the remodeling additional million early the over development $X.X Storm for costs

our and insurers. been response awaiting has claim are Our filed a from we

we ample have close to Following growth. fund of the divestiture, expect investments Taco in cash the to

which remainder a be will comments stock outlook including in on trends. to addressing make remainder few should directors increasing challenges of a believe the continue value have the pressured on XXXX. of will of on We've evaluating our close costs. with be shareholder primarily sales those labor progress the for second will of potential I'll we over board availability improvements our strategies made positive Margins to the addition, staff repurchases. increasing year and In the year, half for we believe addressing we impact due challenges future

to over with offset analysis consultants. However, analytic we increases believe pricing those pricing internal based and action time that we input be able cost from the on will

the commitments stable XXXX We of action are to value the for years. action costs for second that in few we and of taking year can level pricing a perceptions have additional half across on the XXXX of maintain the over roughly evaluating low those remainder in and moves to supply due last relatively believe are place still key current based make food we Commodity expected commodities. calendar remain pricing

us the on and are G&A, following of efficient Taco the transaction. the and to will divestiture working more create close improve efficiency we focused to Regarding organization allow plans a effective

year related will full In and investments remainder top are including to by digital line year to in strategies $XX the and closing capital $X the momentum our to range the believe driven continue levels. accelerate off our Cabana. XXXX Finally to channels we $XX platform premise in of expected improve Taco building million of staffing be million revenue million approximately expenditures

Thank we for team you is call open we for focused fully growth now up now questions. Our listening exciting Tropical. at opportunities will have on Pollo and the the Operator?

Operator

Thank you.

begin at [Operator the comes Instructions] Inc. Stephens Today's go Rutherford Please first question-and-answer session. question ahead. James now from will We

James Rutherford

of in like more that or and into debt that reference a growth I to sales wanted both? sale plan reference combination to your remodels complete next nice maybe of investments accelerate Rich, is same follow you year even is and after have this with store to or more Taco you growth. that digital is that expansion use a going chest you're to on noted to that to a a cash drive war up ask or retiring Pollo unit

Rich Stockinger

on channels. know as does. going things; of concentrate of both. combination to but that organization do have a we're what to using some dining. also can through guests it wisely that sales It's we We the to the maximizing two money platform other of these growth And part same-store to besides relates the large channels we the increasing But digital as every A remodels a by do help

James Rutherford

Okay. I margin is expenses. in that's margins. Dirk The [indiscernible] down higher that to the hanging operating XX.X% on the that about compare in margin appears If It in to there of second would a of And mix. XQ then variance restaurant It's the lot that assume quarter. XXXX. see nice most from in you're XXX I delivery there basis points. gap couple of the other is the ago a And years of

right. on of to the what be you if if wrong differential able on is might us sales how that, and correct and walk me Can you there improve through kind that's time? the margins Just delivery I'm just but remind us over margin

Dirk Montgomery

Sure.

OpEx that expenses. correct the driven primarily increase So is are you commission other delivery by

terms margin on variable delivery In profit. run rates generate that profit we business actually at of on look do margins business, we a our do and

believe us beyond all as to for a increases. And way done of price in on research that evaluating low are to the there increases based price is for channels the channel DSP that we channel that channel. the price in above have that we we've improve relatively margins that increases We in a with sensitivity additional taken and rest our the

for with that evaluating the other changes Rich along of we're year. back the half price the mentioned that So

that evaluating Rich the with other changes half for mentioned price that we're So the back along year. the of

James Rutherford

helpful. That's it. Got

you nature pressures the talking the given back wouldn't the increase at labor maybe first clearly look prepared that that. kind your before were prices channel toward in on the ongoing comes And margin of remarks the of that line the premium through half about from to delivery some end price degradation You higher be play. into of some potential of year labor of

help extent of expect to to impact the kind that on same that Could that? margins maybe quarters frame we're of magnitude and do able so are you you you the next page. where the couple go to of Just the restaurant over

Dirk Montgomery

we that two moving not Well right the it's are number one, really now pressure have from input the actually have we fully cost pieces resolved labor. that

we the Rich up said, against that's we really wages And competitive by set whether and we're our in second through took wage So $X determine to going we – benchmarking what quarter as do more the took that's to continue comfortable that's that process. August. the rates think enough through kind dollar probably still in relatively to future whether need the August. that we feel to to But extra of so going added we work maintain I need we're

we the labor that offset The second to like what can piece of is costs. from second that pricing we action cost the believe yet take But year. is to can might that in we finalized question And increases in half the that general haven't that really anticipate we what we pricing. action take we feel the pricing

Rich Stockinger

that’s been the we online the it's staffing throughout and second as the speak operating James to hours, by quarter the thing other again and off even Rich, we DSPs now. margin reducing hurt by have going right the shutting And impact by ordering

increase be with we retention don't the of the but and the is can't which staffing. turn back. once sales making should believe the staffing on the because curbside. we we're the have in more wages the got that curbside we system, of is mind We've and efforts able board We've of that the increase With art state and people we're it or the on That spent course transactions recoupment to going increase increased to margins bring money.

James Rutherford

the Thanks. Got queue. it back very I'll it. turn That's to helpful.

Operator

further there no gentlemen, are Ladies questions. and

all for We So you call. today's question-and-answer this concludes thank today's today's session conference and presentation. attending

your disconnect now have lines may day. You a wonderful and