Fiesta Restaurant : 2021 Annual Report (PDF 585 KB)

Fiesta Restaurant Group, Inc.

2021 Annual Report

TM

Dear Fellow Shareholders,

2021 marked a year of progress as Fiesta Restaurant Group evolved into a more effective and focused organization despite pandemic and staffing-related challenges. In July, we announced our strategic decision to sell Taco Cabana so that our leadership team could focus exclusively on accelerating growth of Pollo Tropical, including driving an upgraded customer experience across all service channels, and continuing investments in its digital platform expansion. We successfully completed the Taco Cabana divestiture in August and used the sale proceeds to fully repay outstanding term loan borrowings. In addition, we resumed our share repurchase program in September.

Total revenues increased 13.3% in 2021 to $357.3 million from $315.4 million in 2020, driven primarily by a 16.0% increase in comparable restaurant sales due in part to lapping the COVID-19 impact in 2020. Continuing operations consolidated Adjusted EBITDA1, a non-GAAP financial measure, decreased $1.0 million to $25.0 million in 2021 from $26.0 million in 2020, driven primarily by higher operating costs and the impact of the extra week in 2020, which were partially offset by higher restaurant sales. Restaurant-Level Adjusted EBITDA1, a non-GAAP financial measure, was $63.1 million or 17.7% of restaurant sales in 2021 compared to $61.3 million or 19.5% of restaurant sales in 2020. Restaurant-Level Adjusted EBITDA1 margins declined in 2021 primarily due to labor cost increases, and we chose to take phased pricing action in September and December to offset those costs in order to maintain sales and traffic momentum. For 2022, we are targeting Restaurant-Level Adjusted EBITDA margins to reach our targeted range of 18% to 20% on a run-rate basis, barring unforeseen changes in our cost structure and operating environment. We are also working towards reducing general & administrative expenses to a targeted range of 8.5% to 9.0% of restaurant sales on a run-rate basis, with implementation plans in the second half of 2022.

While industry-wide staff availability challenges affected us greatly in 2021, weimproved staffing levels from the second quarter through the fourth quarter by taking thoughtful and proactive steps including wage-rate increases, hiring incentives, and improved benefits. In select restaurants that have not yet reached optimal staffing levels, we have also expanded recruiting resources and are offering additional incentives

Looking ahead, we have reasons to be optimistic as we execute on our four strategic priorities.

First, we are concentrating on accelerating growth in non-dine-in channels and improving the guest experience across all channels. Ultimately this effort will allow our customers to better enjoy our beloved brand wherever and whenever they choose.

Second, we are enhancing our digital platform and making improvements in customization and ease of use. During 2021, we made great strides by successfully completing the pilot of our upgraded digital drive-thru experience, reimplementing curbside capabilities that had been placed on hold due to staffing challenges, and launching QR kiosk in-hand technology for faster in-store ordering and payment. Features of our new digital drive thru-experience include end-to-end customer tracking, the capability to offer daypart and customer-specific promotions, integration with our app and loyalty program, greater order accuracy and faster speed of service, and increased check averages through upselling. While these improvements resulted in strong comparable restaurant sales growth in digital channel sales during the fourth quarter of 2021, we still believe there is still significant upside in 2022.

Third, we are continuing to test and refine our brand proposition, unit design and investment in preparation for future remodels and expansion within existing and new markets. With assistance from a leading operations engineering firm, we have completed a more efficient kitchen line design that significantly reduces order cycle times. This design will be tested in upcoming remodels as a retrofit to improve productivity and unlock unmet drive-thru demand in high-volume units. Given the long car lines during peak periods in our core markets, an increase in drive-thru productivity has the potential to drive meaningful incremental sales. In addition, we are taking a disciplined approach to refurbishing existing units by testing key restaurant design elements and operating platform improvements with two levels of investment and scope. We completed five projects in 2021 and plan to the complete another 20 to 30 in 2022, with the majority being the less expensive option.

And lastly, we are increasing our investment in the development of our field management teams. This year, we are expanding the number of Regional Directors of Operations positions to seven so that we can reduce the span to approximately 20 units and improve execution, and ultimately, enable new unit growth in existing geographies. In addition, we reinvented the Unit General Manager Role to be named Executive General Manager. This new role is designed to shift the focus to a higher level of leadership that reprioritizes their focus, first and foremost, on people, customers and our team, followed by process and then profit. We believe this refined role, combined with investments in field talent development at all levels, will improve execution, team retention, and customer satisfaction, all of which should lead to improved financial results.

In closing, I want to share my appreciation for all of our team members for demonstrating their resilience and tenacity during these unusual times. We are confident that we can continue our positive momentum and are well on the way to recovering our restaurant-level profitability. Above all, we are very excited about what 2022 has in store for Pollo Tropical.

Sincerely,

Richard ''Rich'' Stockinger

President and Chief Executive Officer Fiesta Restaurant Group, Inc.

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For further details regarding non-GAAP financial measures and a reconciliation to their most comparable GAAP measures, please see our Annual Report on Form 10-K for the fiscal year ended January 2, 2022.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________

FORM 10-K

______________________

•  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

  For the fiscal year ended January 2, 2022

  OR

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

For the transition period from _____________ to _____________

Commission File Number: 001-35373 ______________________

FIESTA RESTAURANT GROUP, INC.

(Exact name of Registrant as specified in its charter)

______________________

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

Dallas TX

Registrant's telephone number, including area code: [phone] ______________________

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

Name on each exchange on which

Title of each class:	Trading Symbol	registered:
Common Stock, par value $.01 per share	FRGI	NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None ______________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  No  Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes  No 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities

Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

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

Large Accelerated Filer		Accelerated Filer	
Non-accelerated Filer		Smaller reporting company	
Emerging growth company	

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. 

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

The aggregate market value of the voting and non-voting common stock held by non-affiliates as of July 4, 2021, of Fiesta Restaurant Group, Inc. was $250,298,984.

As of March 4, 2022, Fiesta Restaurant Group, Inc. had 25,707,125 shares of its common stock, $.01 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement for Fiesta Restaurant Group, Inc.'s 2022 Annual Meeting of Stockholders, which is expected to be filed pursuant to Regulation 14A no later than 120 days after the conclusion of Fiesta Restaurant Group, Inc.'s fiscal year ended January 2, 2022, are incorporated by reference into Part III of this annual report.

FIESTA RESTAURANT GROUP, INC.

FORM 10-K

YEAR ENDED JANUARY 2, 2022

Page
PART I
Item 1	Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2
Item 1A	Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Item 1B	Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
Item 2	Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
Item 3	Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
Item 4	Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
PART II
Item 5	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	27
Item 6	Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28
Item 7	Management's Discussion and Analysis of Financial Condition and Results of Operations. . .	28
Item 7A	Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . .	47
Item 8	Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	47
Item 9	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure . .	47
Item 9A	Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	47
Item 9B	Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	50
Item 9C	Disclosure Regarding Foreign Jurisdictions That Prevent Inspections . . . . . . . . . . . . . . . . . . .	50
PART III
Item 10	Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	51
Item 11	Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	51
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	51
Item 13	Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . .	51
Item 14	Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	51
PART IV
Item 15	Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	52
Item 16	Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	54
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PART I

Presentation of Information

Throughout this Annual Report on Form 10-K, we refer to Fiesta Restaurant Group, Inc. as "Fiesta Restaurant Group" or "Fiesta" and, together with its consolidated subsidiaries, as "we," "our" and "us" unless otherwise indicated or the context otherwise requires. Any reference to restaurants refers to company-owned restaurants unless otherwise indicated.

We own, operate and franchise the fast-casual restaurant brand Pollo Tropical®, through our wholly-owned subsidiaries Pollo Operations, Inc. and its subsidiaries, and Pollo Franchise, Inc., (collectively "Pollo Tropical"). Our common stock is traded on The NASDAQ Global Select Market under the symbol "FRGI".

We use a 52- or 53-week fiscal year ending on the Sunday closest to December 31. The fiscal years ended December 29, 2019 and January 2, 2022 each contained 52 weeks. The fiscal year ended January 3, 2021 contained 53 weeks. The next fiscal year to contain 53 weeks will be the fiscal year ending January 3, 2027.

Use of Non-GAAP Financial Measures

Consolidated Adjusted EBITDA (including Continuing Operations Consolidated Adjusted EBITDA and Continuing Operations Adjusted EBITDA) and margin and Restaurant-level Adjusted EBITDA and margin are non-GAAP financial measures. We use these non-GAAP financial measures in addition to net income and income from operations to assess our performance, and we believe it is important for investors to be able to evaluate us using the same measures used by management. We believe these measures are important indicators of our operational strength and the performance of our business and they provide a view of operations absent non-cash activity and items that are not related to the ongoing operation of our restaurants or affect comparability period over period.

These non-GAAP financial measures as calculated by us are not necessarily comparable to similarly titled measures reported by other companies and should not be considered as an alternative to net income (loss), earnings (loss) per share, cash flows from operating activities or other financial information determined under GAAP.

The primary measure of segment profit or loss used by the chief operating decision maker to assess performance and allocate resources is Adjusted EBITDA, which is defined as earnings 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 that management believes are related to strategic changes and/or are not related to the ongoing operation of our restaurants as set forth in the reconciliation table in Item 7, "Management's Discussion and Analysis" under the heading titled "Management's Use of Non-GAAP Financial Measures." Adjusted EBITDA includes an allocation of certain 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. See Note 12 to the Consolidated Financial Statements included in this Annual Report on Form 10-K. Consolidated Adjusted EBITDA margin and Adjusted EBITDA margin are derived by dividing Consolidated Adjusted EBITDA and Adjusted EBITDA by total revenues and segment revenues, respectively.

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). Restaurant-level Adjusted EBITDA margin is derived by dividing Restaurant-level Adjusted EBITDA by restaurant sales.

Management believes that such financial measures, 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.

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