Attached files
| file | filename |
|---|---|
| 8-K - 8-K - Fiesta Restaurant Group, Inc. | frgi-2018q38xk.htm |
Exhibit 99.1
FOR IMMEDIATE RELEASE
Investor Relations Contact:
Raphael Gross
203-682-8253
investors@frgi.com
Fiesta Restaurant Group, Inc. Reports Third Quarter 2018 Results
DALLAS, Texas - (Business Wire) - November 5, 2018 - 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 of 2018, which ended on September 30, 2018.
Fiesta President and Chief Executive Officer Richard Stockinger said, "Pollo Tropical extended its positive comparable restaurant sales trend to three consecutive quarters and ten consecutive months through September. Taco Cabana has now reported two consecutive quarters and six consecutive months of positive comparable restaurant sales growth through September. We attribute our momentum to the successful implementation of our Strategic Renewal Plan that has elevated important aspects of the guest experience including improved food quality, hospitality and an enhanced restaurant environment. While our prior year period results are distorted by the effects of the hurricanes last year and make comparison less meaningful, we are pleased with the continuation of our overall trajectory."
Mr. Stockinger continued, "We have completed significant development of our digital platforms and are now proceeding to launch comprehensive catering plans and pilot new loyalty and delivery programs. In advance of the upcoming holiday season, we have made great progress building our catering infrastructure at Pollo Tropical. Our 'My TC' loyalty program has been rolled out systemwide at Taco Cabana with positive initial results. Also, in the coming weeks, Pollo Tropical will begin piloting our 'My Pollo' loyalty program and third-party delivery in South Florida."
Mr. Stockinger concluded, "We celebrated Taco Cabana's 40th anniversary in September and will celebrate Pollo Tropical's 30th anniversary in November, true milestones for these iconic brands. Yet, we believe we remain in the early innings of the long-term opportunity of these two brands and we are looking ahead with optimism. The success of our Crispy Pollo BitesTM at Pollo Tropical and our shareable appetizers at Taco Cabana, including our Kickin' Grande Nachos, are examples of successful new product additions that broaden the appeal of our brands. With the stabilization of the topline, we are now focused on refining the Pollo Tropical brand in non-core markets and on improving Taco Cabana sales volumes and margins to ready the brands for future expansion."
Third Quarter 2018 Financial Summary
• | Total revenues increased 10.1% from the prior year period to $174.6 million due primarily to comparable restaurant sales growth at both Pollo Tropical and Taco Cabana; |
• | Comparable restaurant sales at Pollo Tropical increased 6.5%, the third consecutive quarter of positive comparable restaurant sales, and included the positive impact of lapping Hurricane Irma in the prior year period; |
• | Comparable restaurant sales at Taco Cabana increased 12.2%, the second consecutive quarter of positive comparable restaurant sales, and included the positive impact of lapping Hurricane Harvey in the prior year period; |
• | Net income of $2.0 million, or $0.08 per diluted share, compared to the prior year period net loss of $8.3 million, or $0.31 per diluted share; |
• | Adjusted net income of $3.0 million, or $0.11 per diluted share, compared to the prior year period adjusted net income of $1.7 million, or $0.06 per diluted share (see non-GAAP reconciliation table below); and |
• | Consolidated Adjusted EBITDA of $15.0 million compared to the prior year period Consolidated Adjusted EBITDA of $13.2 million (see non-GAAP reconciliation table below). |
1
Third Quarter 2018 Brand Results
During the third quarter of 2018, we lapped the anniversaries of Hurricanes Harvey and Irma (the "Hurricanes") which occurred in the prior year period.
Pollo Tropical restaurant sales increased 6.5% to $93.6 million in the third quarter of 2018 compared to the prior year period due primarily to a comparable restaurant sales increase of 6.5%. The increase in comparable restaurant sales resulted from a 5.2% increase in average check and a 1.3% increase in comparable restaurant transactions. The increase in average check was driven primarily by menu price increases of approximately 4.9%. In the prior year period, we estimated that the Hurricanes negatively impacted comparable restaurant sales and transactions by approximately 5.5% to 6.5%.
Adjusted EBITDA for Pollo Tropical increased to $12.5 million in the third quarter of 2018 from $9.4 million in the third quarter of 2017. This was due primarily to the impact of the Hurricanes and closing unprofitable restaurants in 2017, higher comparable restaurant sales and lower advertising expenses in 2018, partially offset by an increase in cost of sales as a percentage of restaurant sales and general and administrative expenses. In the prior year period, we estimated that the Hurricanes negatively impacted Adjusted EBITDA and income (loss) from operations by approximately $3.0 million to $4.0 million.
Taco Cabana restaurant sales increased 14.5% to $80.4 million in the third quarter of 2018 compared to the prior year period due primarily to a comparable restaurant sales increase of 12.2%. The increase in comparable restaurant sales resulted from a 12.1% increase in average check and a 0.1% increase in comparable restaurant transactions. Comparable restaurant transactions were negatively impacted primarily by the elimination of deep discounting related to the repositioning of the brand, and by the reduction in overnight operating hours which negatively impacted comparable restaurant sales by 0.9%. The increase in average check was primarily driven by menu price increases of 7.7% and positive sales mix associated with higher priced promotions and new menu items related to brand repositioning. In the prior year period, we estimated that the Hurricanes negatively impacted comparable restaurant sales and transactions by approximately 2.0% to 3.0%.
Adjusted EBITDA for Taco Cabana decreased to $2.5 million in the third quarter of 2018 from $3.8 million in the third quarter of 2017 due primarily to higher cost of sales as a percentage of restaurant sales and higher advertising, operating and general and administrative expenses, partially offset by the impact of higher comparable restaurant sales in 2018 and the impact of Hurricane Harvey in 2017. In the prior year period, we estimated that the Hurricanes negatively impacted Adjusted EBITDA and income (loss) from operations by approximately $1.0 million to $1.5 million.
General and Administrative Expenses
General and administrative expenses were $13.3 million in the third quarter of 2018 and $12.1 million in the third quarter of 2017, and as a percentage of total revenues, general and administrative expenses were 7.6% in the third quarter of 2018 and the third quarter of 2017. General and administrative expenses for the third quarter of 2018 included $0.4 million in costs related to discontinuing certain services and $0.4 million related to a system implementation and project-oriented advisory services. General and administrative expenses in the third quarter of 2017 included a reduction of $(0.2) million in board and shareholder matter costs and a net benefit of $(0.1) million related to restructuring costs.
Impairment and Other Lease Charges
Impairment and other lease charges decreased to $6.4 million in the third quarter of 2018 from $15.9 million in the third quarter of 2017. Third quarter 2018 charges related primarily to impairment of three Pollo Tropical and five Taco Cabana underperforming restaurants that we continue to operate and other lease charges, net of recoveries, of $0.7 million, due primarily to lease charges related to an office relocation in the third quarter of 2018 and other lease charges, net of recoveries, related to previously closed restaurants due to adjustments to estimates of future lease costs.
Income Taxes
We revalued our net deferred income tax assets at the new federal corporate statutory rate of 21.0% in 2017 as a result of the Tax Cuts and Jobs Act. 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. The provision for income taxes for the third quarter of 2018 was derived using an estimated
2
annual effective tax rate of 23.4%, which excludes the discrete impact of a tax deficiency from the vesting of restricted shares of $0.2 million and an adjustment resulting from changes in our 2017 federal income tax return from the amounts recorded as of December 31, 2017 of $4.1 million, which includes the $3.9 million impact of revaluing changes in our deferred tax assets.
Restaurant Portfolio
As of September 30, 2018, there were 150 Company-owned Pollo Tropical restaurants, 171 Company-owned Taco Cabana restaurants, 30 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. During the third quarter of 2018, we opened one Company-owned Taco Cabana restaurant in Texas.
2018 Restaurant Development and Capital Expenditures
New restaurant development in 2018 includes seven Company-owned Pollo Tropical restaurant openings in Florida and seven Company-owned Taco Cabana restaurant openings in Texas, including five conversions from closed Pollo Tropical restaurants. All fourteen planned 2018 restaurant openings will be completed by the end of this week. We continue to anticipate capital expenditures for the development of new restaurants in 2018 to be $22.0 million to $25.0 million.
Total capital expenditures in 2018 are expected to be at the high-end of the $60.0 million to $70.0 million range due in part to additional restaurant investments being made to improve food quality and support new menu, catering and technology platforms.
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 201-689-8562. A replay will be available after the call until Monday, November 12, 2018, and can be accessed by dialing 412-317-6671. The passcode is 13683908. 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
Except for the historical information contained in this news release, the matters addressed are forward-looking statements. Forward-looking statements, written, oral or otherwise made, represent Fiesta's expectation or belief concerning future events. Without limiting the foregoing, these statements are often identified by the words "may," "might," "believes," "thinks," "anticipates," "plans," "expects," "intends" or similar expressions. In addition, expressions of Fiesta's strategies, intentions or plans are also forward-looking statements. Such statements reflect management's current views with respect to future events and are subject to risks and uncertainties, both known and unknown. You are cautioned not to place undue reliance on these forward-looking statements as there are important factors that could cause actual results to differ materially from those in forward-looking statements, many of which are beyond Fiesta's control. Investors are referred to the full discussion of risks and uncertainties as included in Fiesta's filings with the Securities and Exchange Commission.
3
FIESTA RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND OCTOBER 1, 2017
(In thousands, except share and per share data)
(Unaudited)
Three Months Ended (a) | Nine Months Ended (a) | ||||||||||||||
September 30, 2018 | October 1, 2017 | September 30, 2018 | October 1, 2017 | ||||||||||||
Revenues: | |||||||||||||||
Restaurant sales | $ | 173,966 | $ | 158,100 | $ | 518,951 | $ | 505,082 | |||||||
Franchise royalty revenues and fees | 682 | 591 | 2,008 | 1,840 | |||||||||||
Total revenues | 174,648 | 158,691 | 520,959 | 506,922 | |||||||||||
Costs and expenses: | |||||||||||||||
Cost of sales | 56,021 | 49,151 | 166,275 | 150,827 | |||||||||||
Restaurant wages and related expenses (b) | 47,943 | 44,649 | 142,103 | 139,050 | |||||||||||
Restaurant rent expense | 9,129 | 9,104 | 26,861 | 27,881 | |||||||||||
Other restaurant operating expenses | 27,294 | 24,856 | 75,398 | 73,560 | |||||||||||
Advertising expense | 6,472 | 5,885 | 18,046 | 17,716 | |||||||||||
General and administrative expenses (b)(c) | 13,284 | 12,057 | 41,023 | 46,751 | |||||||||||
Depreciation and amortization | 9,739 | 8,483 | 27,908 | 26,265 | |||||||||||
Pre-opening costs | 223 | 544 | 1,481 | 1,878 | |||||||||||
Impairment and other lease charges (d) | 6,417 | 15,905 | 6,539 | 59,081 | |||||||||||
Other expense (income), net (e) | 47 | 469 | (3,132 | ) | 1,721 | ||||||||||
Total operating expenses | 176,569 | 171,103 | 502,502 | 544,730 | |||||||||||
Income (loss) from operations | (1,921 | ) | (12,412 | ) | 18,457 | (37,808 | ) | ||||||||
Interest expense | 924 | 672 | 2,979 | 1,910 | |||||||||||
Income (loss) before income taxes | (2,845 | ) | (13,084 | ) | 15,478 | (39,718 | ) | ||||||||
Benefit from income taxes | (4,892 | ) | (4,827 | ) | (246 | ) | (14,241 | ) | |||||||
Net income (loss) | $ | 2,047 | $ | (8,257 | ) | $ | 15,724 | $ | (25,477 | ) | |||||
Earnings per common share: | |||||||||||||||
Basic | $ | 0.08 | $ | (0.31 | ) | $ | 0.58 | $ | (0.95 | ) | |||||
Diluted | 0.08 | (0.31 | ) | 0.58 | (0.95 | ) | |||||||||
Weighted average common shares outstanding: | |||||||||||||||
Basic | 26,954,285 | 26,845,568 | 26,900,716 | 26,811,610 | |||||||||||
Diluted | 26,958,874 | 26,845,568 | 26,905,391 | 26,811,610 | |||||||||||
(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 30, 2018 and October 1, 2017 each included 13 and 39 weeks, respectively.
(b) Restaurant wages and related expenses include stock-based compensation of $6 and $9 for the three months ended September 30, 2018 and October 1, 2017, respectively, and $56 and $44 for the nine months ended September 30, 2018 and October 1, 2017, respectively. General and administrative expenses include stock-based compensation expense of $732 and $938 for the three months ended September 30, 2018 and October 1, 2017, respectively, and $2,588 and $2,723 for the nine months ended September 30, 2018 and October 1, 2017, respectively.
(c) See notes (e) through (h) to the reconciliation of net income (loss) to adjusted net income (loss) in the tables titled "Supplemental Non-GAAP Information."
(d) See note (b) to the reconciliation of net income (loss) to adjusted net income (loss) in the tables titled "Supplemental Non-GAAP Information."
(e) See note (c) to the reconciliation of net income (loss) to adjusted net income (loss) in the tables titled "Supplemental Non-GAAP Information."
4
FIESTA RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September 30, 2018 | December 31, 2017 | ||||||
Assets | |||||||
Cash | $ | 5,743 | $ | 3,599 | |||
Other current assets | 38,612 | 37,449 | |||||
Property and equipment, net | 235,609 | 234,561 | |||||
Goodwill | 123,484 | 123,484 | |||||
Deferred income taxes | 9,376 | 17,232 | |||||
Other assets | 7,074 | 6,988 | |||||
Total assets | $ | 419,898 | $ | 423,313 | |||
Liabilities and Stockholders' Equity | |||||||
Current liabilities | $ | 49,538 | $ | 59,844 | |||
Long-term debt, net of current portion | 71,664 | 76,425 | |||||
Deferred income sale-leaseback of real estate | 20,765 | 23,466 | |||||
Other non-current liabilities | 30,474 | 32,062 | |||||
Total liabilities | 172,441 | 191,797 | |||||
Stockholders' equity | 247,457 | 231,516 | |||||
Total liabilities and stockholders' equity | $ | 419,898 | $ | 423,313 | |||
5
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 30, 2018 | October 1, 2017 | September 30, 2018 | October 1, 2017 | ||||||||||||
Segment revenues: | |||||||||||||||
Pollo Tropical | $ | 94,045 | $ | 88,284 | $ | 284,823 | $ | 282,844 | |||||||
Taco Cabana | 80,603 | 70,407 | 236,136 | 224,078 | |||||||||||
Total revenues | $ | 174,648 | $ | 158,691 | $ | 520,959 | $ | 506,922 | |||||||
Change in comparable restaurant sales (a): | |||||||||||||||
Pollo Tropical | 6.5 | % | (10.9 | )% | 3.6 | % | (8.5 | )% | |||||||
Taco Cabana | 12.2 | % | (12.6 | )% | 4.3 | % | (7.2 | )% | |||||||
Average sales per Company-owned restaurant: | |||||||||||||||
Pollo Tropical | |||||||||||||||
Comparable restaurants (b) | $ | 644 | $ | 614 | $ | 1,985 | $ | 1,849 | |||||||
New restaurants (c) | 428 | 385 | 1,307 | 1,217 | |||||||||||
Total Company-owned (d) | 624 | 575 | 1,915 | 1,723 | |||||||||||
Taco Cabana | |||||||||||||||
Comparable restaurants (b) | $ | 474 | $ | 420 | $ | 1,416 | $ | 1,335 | |||||||
New restaurants (c) | 422 | 423 | 1,183 | 1,358 | |||||||||||
Total Company-owned (d) | 470 | 420 | 1,399 | 1,336 | |||||||||||
Income (loss) before income taxes: | |||||||||||||||
Pollo Tropical | $ | 2,976 | $ | (10,816 | ) | $ | 21,901 | $ | (39,414 | ) | |||||
Taco Cabana | (5,821 | ) | (2,268 | ) | (6,423 | ) | (304 | ) | |||||||
Adjusted EBITDA: | |||||||||||||||
Pollo Tropical | $ | 12,544 | $ | 9,396 | $ | 42,520 | $ | 41,257 | |||||||
Taco Cabana | 2,493 | 3,776 | 9,652 | 17,252 | |||||||||||
Restaurant-level Adjusted EBITDA (e): | |||||||||||||||
Pollo Tropical | $ | 19,103 | $ | 15,480 | $ | 62,948 | $ | 62,343 | |||||||
Taco Cabana | 8,010 | 8,984 | 27,375 | 34,159 | |||||||||||
(a) Restaurants are included in comparable restaurant sales after they have been open for 18 months or longer.
(b) Comparable restaurants are restaurants that have been open for 18 months or longer. Average sales for comparable Company-owned restaurants are derived by dividing comparable restaurant sales for such period for the applicable segment by the average number of comparable restaurants for the applicable segment for such period.
(c) New restaurants are restaurants that have been open for less than 18 months. Average sales for new Company-owned restaurants are derived by dividing new restaurant sales for such period for the applicable segment by the average number of new restaurants for the applicable segment for such period.
(d) Average sales for total Company-owned restaurants are derived by dividing restaurant sales for such period for the applicable segment by the average number of open restaurants for the applicable segment for such period.
(e) Restaurant-level Adjusted EBITDA is a non-GAAP financial measure. Please see the reconciliation from net income (loss) to Restaurant-level Adjusted EBITDA in the table titled "Supplemental Non-GAAP Information."
6
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 30, 2018 | October 1, 2017 | September 30, 2018 | October 1, 2017 | ||||||||
Company-owned restaurant openings: | |||||||||||
Pollo Tropical | — | 2 | 4 | 8 | |||||||
Taco Cabana | 1 | 3 | 7 | 6 | |||||||
Total new restaurant openings | 1 | 5 | 11 | 14 | |||||||
Company-owned restaurant closings: | |||||||||||
Pollo Tropical | — | (6 | ) | — | (36 | ) | |||||
Taco Cabana | — | (4 | ) | (2 | ) | (4 | ) | ||||
Net change in restaurants | 1 | (5 | ) | 9 | (26 | ) | |||||
Number of Company-owned restaurants: | |||||||||||
Pollo Tropical | 150 | 149 | 150 | 149 | |||||||
Taco Cabana | 171 | 168 | 171 | 168 | |||||||
Total Company-owned restaurants | 321 | 317 | 321 | 317 | |||||||
Number of franchised restaurants: | |||||||||||
Pollo Tropical | 30 | 32 | 30 | 32 | |||||||
Taco Cabana | 8 | 7 | 8 | 7 | |||||||
Total franchised restaurants | 38 | 39 | 38 | 39 | |||||||
Total number of restaurants: | |||||||||||
Pollo Tropical | 180 | 181 | 180 | 181 | |||||||
Taco Cabana | 179 | 175 | 179 | 175 | |||||||
Total restaurants | 359 | 356 | 359 | 356 | |||||||
7
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 30, 2018 | October 1, 2017 | ||||||||||
(a) | (a) | ||||||||||
Pollo Tropical: | |||||||||||
Restaurant sales | $ | 93,592 | $ | 87,888 | |||||||
Cost of sales | 31,219 | 33.4 | % | 28,527 | 32.5 | % | |||||
Restaurant wages and related expenses | 21,947 | 23.4 | % | 21,208 | 24.1 | % | |||||
Restaurant rent expense | 4,392 | 4.7 | % | 4,655 | 5.3 | % | |||||
Other restaurant operating expenses | 13,521 | 14.4 | % | 13,034 | 14.8 | % | |||||
Advertising expense | 3,413 | 3.6 | % | 4,980 | 5.7 | % | |||||
Depreciation and amortization | 5,438 | 5.8 | % | 5,187 | 5.9 | % | |||||
Pre-opening costs | 134 | 0.1 | % | 230 | 0.3 | % | |||||
Impairment and other lease charges | 3,295 | 3.5 | % | 13,729 | 15.6 | % | |||||
Taco Cabana: | |||||||||||
Restaurant sales | $ | 80,374 | $ | 70,212 | |||||||
Cost of sales | 24,802 | 30.9 | % | 20,624 | 29.4 | % | |||||
Restaurant wages and related expenses | 25,996 | 32.3 | % | 23,441 | 33.4 | % | |||||
Restaurant rent expense | 4,737 | 5.9 | % | 4,449 | 6.3 | % | |||||
Other restaurant operating expenses | 13,773 | 17.1 | % | 11,822 | 16.8 | % | |||||
Advertising expense | 3,059 | 3.8 | % | 905 | 1.3 | % | |||||
Depreciation and amortization | 4,301 | 5.4 | % | 3,296 | 4.7 | % | |||||
Pre-opening costs | 89 | 0.1 | % | 314 | 0.4 | % | |||||
Impairment and other lease charges | 3,122 | 3.9 | % | 2,176 | 3.1 | % | |||||
Nine Months Ended | |||||||||||
September 30, 2018 | October 1, 2017 | ||||||||||
(a) | (a) | ||||||||||
Pollo Tropical: | |||||||||||
Restaurant sales | $ | 283,447 | $ | 281,572 | |||||||
Cost of sales | 93,716 | 33.1 | % | 87,430 | 31.1 | % | |||||
Restaurant wages and related expenses | 65,652 | 23.2 | % | 66,945 | 23.8 | % | |||||
Restaurant rent expense | 13,024 | 4.6 | % | 14,502 | 5.2 | % | |||||
Other restaurant operating expenses | 38,270 | 13.5 | % | 39,353 | 14.0 | % | |||||
Advertising expense | 9,859 | 3.5 | % | 11,316 | 4.0 | % | |||||
Depreciation and amortization | 16,117 | 5.7 | % | 16,705 | 5.9 | % | |||||
Pre-opening costs | 699 | 0.2 | % | 1,013 | 0.4 | % | |||||
Impairment and other lease charges | 3,439 | 1.2 | % | 56,336 | 20.0 | % | |||||
Taco Cabana: | |||||||||||
Restaurant sales | $ | 235,504 | $ | 223,510 | |||||||
Cost of sales | 72,559 | 30.8 | % | 63,397 | 28.4 | % | |||||
Restaurant wages and related expenses | 76,451 | 32.5 | % | 72,105 | 32.3 | % | |||||
Restaurant rent expense | 13,837 | 5.9 | % | 13,379 | 6.0 | % | |||||
Other restaurant operating expenses | 37,128 | 15.8 | % | 34,207 | 15.3 | % | |||||
Advertising expense | 8,187 | 3.5 | % | 6,400 | 2.9 | % | |||||
Depreciation and amortization | 11,791 | 5.0 | % | 9,560 | 4.3 | % | |||||
Pre-opening costs | 782 | 0.3 | % | 865 | 0.4 | % | |||||
Impairment and other lease charges | 3,100 | 1.3 | % | 2,745 | 1.2 | % | |||||
(a) Percent of restaurant sales for the applicable segment.
8
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 attributable to the applicable operating segments before interest expense, income taxes, depreciation and amortization, impairment and other lease charges, 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.
9
Three Months Ended | Pollo Tropical | Taco Cabana | Consolidated | |||||||||
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 | |||||||||
Strategic Renewal Plan 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 | ||||||
October 1, 2017: | ||||||||||||
Net loss | $ | (8,257 | ) | |||||||||
Benefit from income taxes | (4,827 | ) | ||||||||||
Loss before taxes | $ | (10,816 | ) | $ | (2,268 | ) | $ | (13,084 | ) | |||
Add: | ||||||||||||
Non-general and administrative expense adjustments: | ||||||||||||
Depreciation and amortization | 5,187 | 3,296 | 8,483 | |||||||||
Impairment and other lease charges | 13,729 | 2,176 | 15,905 | |||||||||
Interest expense | 329 | 343 | 672 | |||||||||
Other expense (income), net | 574 | (105 | ) | 469 | ||||||||
Stock-based compensation expense in restaurant wages | (4 | ) | 13 | 9 | ||||||||
Total non-general and administrative expense adjustments | 19,815 | 5,723 | 25,538 | |||||||||
General and administrative expense adjustments: | ||||||||||||
Stock-based compensation expense | 587 | 351 | 938 | |||||||||
Board and shareholder matter costs | (89 | ) | (66 | ) | (155 | ) | ||||||
Strategic Renewal Plan restructuring costs and retention bonuses | 51 | 36 | 87 | |||||||||
Office restructuring and relocation costs | (152 | ) | — | (152 | ) | |||||||
Total general and administrative expense adjustments | 397 | 321 | 718 | |||||||||
Adjusted EBITDA | $ | 9,396 | $ | 3,776 | $ | 13,172 | ||||||
Restaurant-level adjustments: | ||||||||||||
Add: Pre-opening costs | 230 | 314 | 544 | |||||||||
Add: Other general and administrative expense(1) | 6,250 | 5,089 | 11,339 | |||||||||
Less: Franchise royalty revenue and fees | 396 | 195 | 591 | |||||||||
Restaurant-level Adjusted EBITDA | $ | 15,480 | $ | 8,984 | $ | 24,464 | ||||||
10
Nine Months Ended | Pollo Tropical | Taco Cabana | Consolidated | |||||||||
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 | ) | ||||||
Strategic Renewal Plan 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 | ||||||
October 1, 2017: | ||||||||||||
Net loss | $ | (25,477 | ) | |||||||||
Benefit from income taxes | (14,241 | ) | ||||||||||
Loss before taxes | $ | (39,414 | ) | $ | (304 | ) | $ | (39,718 | ) | |||
Add: | ||||||||||||
Non-general and administrative expense adjustments: | ||||||||||||
Depreciation and amortization | 16,705 | 9,560 | 26,265 | |||||||||
Impairment and other lease charges | 56,336 | 2,745 | 59,081 | |||||||||
Interest expense | 873 | 1,037 | 1,910 | |||||||||
Other expense (income), net | 1,624 | 97 | 1,721 | |||||||||
Stock-based compensation expense in restaurant wages | (4 | ) | 48 | 44 | ||||||||
Unused pre-production costs in advertising expense | 322 | 88 | 410 | |||||||||
Total non-general and administrative expense adjustments | 75,856 | 13,575 | 89,431 | |||||||||
General and administrative expense adjustments: | ||||||||||||
Stock-based compensation expense | 1,542 | 1,181 | 2,723 | |||||||||
Terminated capital project | 484 | 365 | 849 | |||||||||
Board and shareholder matter costs | 2,136 | 1,612 | 3,748 | |||||||||
Strategic Renewal Plan restructuring costs and retention bonuses | 1,278 | 823 | 2,101 | |||||||||
Office restructuring and relocation costs | (152 | ) | — | (152 | ) | |||||||
Legal settlements and related costs | (473 | ) | — | (473 | ) | |||||||
Total general and administrative expense adjustments | 4,815 | 3,981 | 8,796 | |||||||||
Adjusted EBITDA | $ | 41,257 | $ | 17,252 | $ | 58,509 | ||||||
Restaurant-level adjustments: | ||||||||||||
Add: Pre-opening costs | 1,013 | 865 | 1,878 | |||||||||
Add: Other general and administrative expense(1) | 21,345 | 16,610 | 37,955 | |||||||||
Less: Franchise royalty revenue and fees | 1,272 | 568 | 1,840 | |||||||||
Restaurant-level Adjusted EBITDA | $ | 62,343 | $ | 34,159 | $ | 96,502 | ||||||
(1) Excludes general and administrative adjustments above.
11
FIESTA RESTAURANT GROUP, INC.
Supplemental Non-GAAP Information
The following table sets forth certain unaudited supplemental financial data for the periods indicated
(In thousands of dollars, except per share amounts):
Adjusted net income and related adjusted diluted earnings per share are non-GAAP financial measures. Adjusted net income is defined as net income (loss) before impairment and other lease charges, other expense (income), net, unused pre-production costs in advertising expense, terminated capital project costs, board and shareholder matter costs, Strategic Renewal Plan 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.
12
(Unaudited) | ||||||||||||||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||||||||||||||
September 30, 2018 | October 1, 2017 | |||||||||||||||||||||||||||||||
Income Before Income Taxes | Benefit From Income Taxes (a) | Net Income | Diluted EPS | Income (Loss) Before Income Taxes | Benefit From Income Taxes (a) | Net Income (Loss) | Diluted EPS | |||||||||||||||||||||||||
Reported - GAAP | $ | (2,845 | ) | $ | (4,892 | ) | $ | 2,047 | $ | 0.08 | $ | (13,084 | ) | $ | (4,827 | ) | $ | (8,257 | ) | $ | (0.31 | ) | ||||||||||
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) | 6,417 | 1,619 | 4,798 | 0.18 | 15,905 | 6,111 | 9,794 | 0.36 | ||||||||||||||||||||||||
Other expense (income), net (c) | 47 | 12 | 35 | — | 469 | 180 | 289 | 0.01 | ||||||||||||||||||||||||
Total non-general and administrative expense | 6,464 | 5,492 | 972 | 0.04 | 16,374 | 6,291 | 10,083 | 0.37 | ||||||||||||||||||||||||
General and administrative expense adjustments: | ||||||||||||||||||||||||||||||||
Board and shareholder matter costs (f) | — | — | — | — | (155 | ) | (60 | ) | (95 | ) | — | |||||||||||||||||||||
Strategic Renewal Plan restructuring costs and retention bonuses (g) | 17 | 4 | 13 | — | 87 | 34 | 53 | — | ||||||||||||||||||||||||
Office restructuring and relocation costs (h) | — | — | — | — | (152 | ) | (58 | ) | (94 | ) | — | |||||||||||||||||||||
Total general and administrative expense | 17 | 4 | 13 | — | (220 | ) | (84 | ) | (136 | ) | 0.01 | |||||||||||||||||||||
Adjusted - Non-GAAP | $ | 3,636 | $ | 604 | $ | 3,032 | $ | 0.11 | $ | 3,070 | $ | 1,380 | $ | 1,690 | $ | 0.06 | ||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||
Nine Months Ended | ||||||||||||||||||||||||||||||||
September 30, 2018 | October 1, 2017 | |||||||||||||||||||||||||||||||
Income Before Income Taxes | Benefit From Income Taxes (a) | Net Income | Diluted EPS | Income (Loss) Before Income Taxes | Benefit From Income Taxes (a) | Net Income (Loss) | Diluted EPS | |||||||||||||||||||||||||
Reported - GAAP | $ | 15,478 | $ | (246 | ) | $ | 15,724 | $ | 0.58 | $ | (39,718 | ) | $ | (14,241 | ) | $ | (25,477 | ) | $ | (0.95 | ) | |||||||||||
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) | 6,539 | 1,650 | 4,889 | 0.18 | 59,081 | 22,700 | 36,381 | 1.35 | ||||||||||||||||||||||||
Other expense (income), net (c) | (3,132 | ) | (790 | ) | (2,342 | ) | (0.09 | ) | 1,721 | 662 | 1,059 | 0.04 | ||||||||||||||||||||
Unused pre-production costs in advertising expense (d) | — | — | — | — | 410 | 158 | 252 | 0.01 | ||||||||||||||||||||||||
Total non-general and administrative expense | 3,407 | 4,721 | (1,314 | ) | (0.05 | ) | 61,212 | 23,520 | 37,692 | 1.39 | ||||||||||||||||||||||
General and administrative expense adjustments: | ||||||||||||||||||||||||||||||||
Terminated capital project (e) | — | — | — | — | 849 | 326 | 523 | 0.02 | ||||||||||||||||||||||||
Board and shareholder matter costs (f) | (597 | ) | (151 | ) | (446 | ) | (0.02 | ) | 3,748 | 1,440 | 2,308 | 0.09 | ||||||||||||||||||||
Strategic Renewal Plan restructuring costs and retention bonuses (g) | 520 | 131 | 389 | 0.01 | 2,101 | 807 | 1,294 | 0.05 | ||||||||||||||||||||||||
Office restructuring and relocation costs (h) | — | — | — | — | (152 | ) | (58 | ) | (94 | ) | — | |||||||||||||||||||||
Legal settlements and related costs (i) | (167 | ) | (42 | ) | (125 | ) | — | (473 | ) | (182 | ) | (291 | ) | (0.01 | ) | |||||||||||||||||
Total general and administrative expense | (244 | ) | (62 | ) | (182 | ) | (0.01 | ) | 6,073 | 2,333 | 3,740 | 0.14 | ||||||||||||||||||||
Adjusted - Non-GAAP | $ | 18,641 | $ | 4,413 | $ | 14,228 | $ | 0.52 | $ | 27,567 | $ | 11,612 | $ | 15,955 | $ | 0.59 | ||||||||||||||||
(a) The benefit for income taxes related to the adjustments was calculated using the Company's combined federal statutory and estimated state rate of 25.2% and 38.4% for the periods ending September 30, 2018 and October 1, 2017, respectively. On December 22, 2017, the Tax Cuts and Jobs Act (the "Act"), which includes a provision that reduces the federal corporate income tax rate from 35.0% to 21.0% effective January 1, 2018, was signed into law. In accordance with generally accepted accounting principles, the enactment of this new tax legislation required us to revalue our net deferred income tax assets at the new corporate statutory rate of 21.0% as of the enactment date in 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.
13
(b) 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.
Impairment and other lease charges for the three months ended October 1, 2017 include impairment charges of $16.5 million primarily related to Pollo Tropical restaurants that closed in 2017 and an underperforming Taco Cabana restaurant, and a net benefit of $0.6 million in lease charge recoveries due to lease terminations, lease assignments, subleases and other adjustments to estimates of future lease costs net of lease charges related to the closure of underperforming restaurants. Impairment and other lease charges for the nine months ended October 1, 2017 also include impairment charges of $36.3 million primarily related to Pollo Tropical restaurants that closed in 2017 and lease charges of $6.9 million related to the closure of Pollo Tropical restaurants.
(c) 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 the Hurricanes 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. Other expense (income), net for the three and nine months ended October 1, 2017, includes the write-off of site costs related to locations that we decided not to develop, costs for the removal of signs and equipment and equipment transfers and storage related to the closure of Pollo Tropical restaurants and severance for restaurant employees, partially offset by estimated insurance recoveries related to a Taco Cabana restaurant that was closed due to Hurricane Harvey damages, and expected business interruption insurance proceeds related to a Taco Cabana restaurant that was temporarily closed due to a fire.
(d) Unused pre-production costs for the nine months ended October 1, 2017, include costs for advertising pre-production that were not used.
(e) Terminated capital project costs for the nine months ended October 1, 2017, include costs related to the write-off of a capital project that was terminated in the first quarter of 2017.
(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. Board and shareholder matter costs for the three and nine months ended and October 1, 2017 include fees related to shareholder activism and CEO and board member searches.
(g) Strategic Renewal Plan restructuring costs and retention bonuses for the three and nine months ended September 30, 2018 and October 1, 2017, include severance related to the Plan and reduction in force and bonuses paid to certain employees for retention purposes.
(h) Office restructuring and relocation costs for the three and nine months ended October 1, 2017 include a favorable adjustment associated with restructuring Pollo Tropical management in Miami, Florida and Dallas, Texas.
(i) Legal settlements and related costs for the nine months ended September 30, 2018 and October 1, 2017 include reductions to final settlement amounts and benefits related to litigation matters.
14