UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549 

__________________________________________________________

FORM 10-Q

__________________________________________________________

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 2, 2022

OR

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

Commission File Number: 001-35373 

__________________________________________________________

FIESTA RESTAURANT GROUP, INC.

(Exact name of Registrant as specified in its charter)

__________________________________________________________

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

Registrant's telephone number, including area code: (972) 702-9300

__________________________________________________________

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

Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share	FRGI	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒  No  ☐

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

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

Large Accelerated Filer	☐	Accelerated Filer	☒
Non-accelerated Filer	☐	Smaller Reporting Company	☒
		Emerging Growth Company	☐

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

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

As of November 4, 2022, Fiesta Restaurant Group, Inc. had 25,990,019 shares of its common stock, $0.01 par value, outstanding.

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

QUARTER ENDED OCTOBER 2, 2022

		Page
PART I   FINANCIAL INFORMATION
Item 1	Interim Condensed Consolidated Financial Statements (Unaudited) - Fiesta Restaurant Group, Inc.:
	Condensed Consolidated Balance Sheets as of October 2, 2022 and January 2, 2022	2
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended October 2, 2022 and October 3, 2021	3
	Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and Nine Months Ended October 2, 2022 and October 3, 2021	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 2, 2022 and October 3, 2021	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4	Controls and Procedures	34
PART II   OTHER INFORMATION
Item 1	Legal Proceedings	34
Item 1A	Risk Factors	34
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3	Defaults Upon Senior Securities	34
Item 4	Mine Safety Disclosures	35
Item 5	Other Information	35
Item 6	Exhibits	36

1

PART I. FINANCIAL INFORMATION

ITEM 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

	October 2, 2022		January 2, 2022
ASSETS
Current assets:
Cash	$	42,591	$	36,797
Restricted cash	3,631		3,837
Accounts receivable	4,027		6,223
Inventories	2,335		2,524
Prepaid rent	109		109
Income tax receivable	3,562		3,846
Prepaid expenses and other current assets	5,622		5,706
Total current assets	61,877		59,042
Property and equipment, net	85,024		89,884
Operating lease right-of-use assets	147,402		154,127
Goodwill	56,307		56,307
Other assets	5,705		7,753
Total assets	$	356,315	$	367,113
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	72	$	63
Accounts payable	14,101		12,342
Accrued payroll, related taxes and benefits	8,464		8,475
Accrued real estate taxes	4,163		1,630
Other current liabilities	17,902		18,032
Total current liabilities	44,702		40,542
Long-term debt, net of current portion	376		438
Operating lease liabilities	155,770		163,270
Deferred tax liabilities	150		229
Other non-current liabilities	7,682		7,763
Total liabilities	208,680		212,242
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value; 20,000,000 shares authorized, no shares issued	—		—
Common stock, $0.01 par value; 100,000,000 shares authorized, 28,854,142 and 28,445,812 shares issued, respectively, and 24,973,291 and 24,829,002 shares outstanding, respectively	278		277
Additional paid-in capital	186,106		182,686
Retained earnings (accumulated deficit)	(8,450)		2,043
Treasury stock, at cost; 2,862,538 and 2,847,792 shares, respectively	(30,299)		(30,135)
Total stockholders' equity	147,635		154,871
Total liabilities and stockholders' equity	$	356,315	$	367,113

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

2

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE AND NINE MONTHS ENDED OCTOBER 2, 2022 AND OCTOBER 3, 2021

(In thousands, except share and per share data)

(Unaudited)

	Three Months Ended				Nine Months Ended
	October 2, 2022		October 3, 2021		October 2, 2022		October 3, 2021
Revenues:
Restaurant sales	$	95,309	$	88,014	$	288,532	$	266,618
Franchise royalty revenues and fees	322		578		1,195		1,344
Total revenues	95,631		88,592		289,727		267,962
Costs and expenses:
Cost of sales	30,875		26,984		94,202		81,843
Restaurant wages and related expenses (including stock-based compensation expense of $5, $13, $18 and $44, respectively)	24,977		24,648		73,134		66,888
Restaurant rent expense	6,033		5,924		18,036		17,625
Other restaurant operating expenses	16,702		14,740		50,107		42,260
Advertising expense	3,311		2,757		9,420		8,030
General and administrative (including stock-based compensation expense of $1,473, $1,097, $3,484 and $3,137, respectively)	12,140		11,167		37,273		32,883
Depreciation and amortization	5,052		5,328		15,398		15,291
Impairment and other lease charges (recoveries)	34		30		1,442		(224)
Closed restaurant rent expense, net of sublease income	535		710		1,316		2,426
Other expense (income), net	(787)		138		(653)		431
Total operating expenses	98,872		92,426		299,675		267,453
Income (loss) from operations	(3,241)		(3,834)		(9,948)		509
Interest expense	83		160		253		282
Income (loss) from continuing operations before taxes	(3,324)		(3,994)		(10,201)		227
Provision for (benefit from) income taxes	(391)		(763)		521		1,473
Loss from continuing operations	(2,933)		(3,231)		(10,722)		(1,246)
Income from discontinued operations, net of tax	17		20,493		229		16,336
Net income (loss)	$	(2,916)	$	17,262	$	(10,493)	$	15,090
Earnings (loss) per common share:
Continuing operations – basic	$	(0.12)	$	(0.12)	$	(0.43)	$	(0.05)
Discontinued operations – basic	—		0.78		0.01		0.62
Basic	$	(0.12)	$	0.66	$	(0.42)	$	0.57
Continuing operations – diluted	$	(0.12)	$	(0.12)	$	(0.43)	$	(0.05)
Discontinued operations – diluted	—		0.78		0.01		0.62
Diluted	$	(0.12)	$	0.66	$	(0.42)	$	0.57
Weighted average common shares outstanding:
Basic	24,971,244		25,508,930		24,916,848		25,443,341
Diluted	24,971,244		25,508,930		24,916,848		25,443,341

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

3

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

THREE AND NINE MONTHS ENDED OCTOBER 2, 2022 AND OCTOBER 3, 2021

(In thousands, except share data) 

(Unaudited)

	Common Stock			Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)		Treasury Stock		Total Stockholders' Equity
	Shares	Amount
Balance at January 3, 2021	25,293,149	$	273	$	176,614	$	(8,327)	$	(20,779)	$	147,781
Stock-based compensation	—	—		1,163		—		—		1,163
Vesting of restricted shares	109,528	1		(1)		—		—		—
Net loss	—	—		—		(2,089)		—		(2,089)
Balance at April 4, 2021	25,402,677	274		177,776		(10,416)		(20,779)		146,855
Stock-based compensation	—	—		1,241		—		—		1,241
Vesting of restricted shares	126,791	1		(1)		—		—		—
Net loss	—	—		—		(83)		—		(83)
Balance at July 4, 2021	25,529,468	275		179,016		(10,499)		(20,779)		148,013
Stock-based compensation	—	—		2,637		—		—		2,637
Vesting of restricted shares	152,728	2		(2)		—		—		—
Purchase of treasury stock	(338,223)	—		—		—		(3,924)		(3,924)
Net income	—	—		—		17,262		—		17,262
Balance at October 3, 2021	25,343,973	$	277	$	181,651	$	6,763	$	(24,703)	$	163,988
Balance at January 2, 2022	24,829,002	$	277	$	182,686	$	2,043	$	(30,135)	$	154,871
Stock-based compensation	—	—		549		—		—		549
Vesting of restricted shares	66,372	—		—		—		—		—
Purchase of treasury stock	(14,746)	—		—		—		(164)		(164)
Net loss	—	—		—		(1,356)		—		(1,356)
Balance at April 3, 2022	24,880,628	277		183,235		687		(30,299)		153,900
Stock-based compensation	—	—		1,394		—		—		1,394
Vesting of restricted shares	90,445	1		(1)		—		—		—
Net loss	—	—		—		(6,221)		—		(6,221)
Balance at July 3, 2022	24,971,073	278		184,628		(5,534)		(30,299)		149,073
Stock-based compensation	—	—		1,478		—		—		1,478
Vesting of restricted shares	2,218	—		—		—		—		—
Net loss	—	—		—		(2,916)		—		(2,916)
Balance at October 2, 2022	24,973,291	$	278	$	186,106	$	(8,450)	$	(30,299)	$	147,635

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

4

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED OCTOBER 2, 2022 AND OCTOBER 3, 2021

(In thousands)

(Unaudited)

	Nine Months Ended
	October 2, 2022		October 3, 2021
Operating activities:
Net income (loss)	$	(10,493)	$	15,090
Adjustments to reconcile net loss to net cash provided by operating activities:
Gain on disposals of property and equipment, net	—		(217)
Stock-based compensation	3,421		5,041
Impairment and other lease charges (recoveries)	1,442		(92)
Loss on extinguishment of debt	—		5,307
Gain on sale of Taco Cabana	—		(24,066)
Depreciation and amortization	15,398		23,090
Amortization of deferred financing costs	60		506
Deferred income taxes	(79)		(3,325)
Changes in other operating assets and liabilities	7,892		(1,564)
Net cash provided by operating activities	17,641		19,770
Investing activities:
Capital expenditures:
Restaurant remodeling	(4,852)		(2,020)
Other restaurant capital expenditures	(5,697)		(11,848)
Corporate and restaurant information systems	(1,603)		(1,645)
Total capital expenditures	(12,152)		(15,513)
Proceeds from sale of Taco Cabana	—		74,910
Proceeds from disposals of properties	—		1,307
Proceeds from insurance recoveries	312		—
Proceeds from sale-leaseback transactions	—		3,083
Net cash provided by ( used in) investing activities	(11,840)		63,787
Financing activities:
Repayment of secured debt	—		(75,000)
Principal payments on finance leases	(49)		(199)
Premium associated with debt extinguishment	—		(2,238)
Payments to purchase treasury stock	(164)		(3,924)
Net cash used in financing activities	(213)		(81,361)
Net change in cash and restricted cash	5,588		2,196
Cash and restricted cash, beginning of period	40,634		53,362
Cash and restricted cash of discontinued operations, beginning of period	—		257
Cash and restricted cash of discontinued operations, end of period	—		—
Cash and restricted cash, end of period	$	46,222	$	55,815

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

5

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

1. Basis of Presentation

Business Description. Fiesta Restaurant Group, Inc. ("Fiesta Restaurant Group" or "Fiesta") owns, operates and franchises Pollo Tropical restaurants through its wholly-owned subsidiaries Pollo Operations, Inc. and Pollo Franchise, Inc. (collectively "Pollo Tropical"). Fiesta owned, operated and franchised Taco Cabana restaurants through its wholly-owned subsidiary, Taco Cabana, Inc. and its subsidiaries (collectively "Taco Cabana") through August 15, 2021. Unless the context otherwise requires, Fiesta and its subsidiaries are collectively referred to as the "Company." At October 2, 2022, the Company owned and operated 137 Pollo Tropical® restaurants located in Florida and franchised a total of 32 Pollo Tropical restaurants. The franchised Pollo Tropical restaurants include 17 in Puerto Rico, two in Panama, one in Guyana, two in Ecuador, one in the Bahamas, six on college campuses in Florida, and locations at one hospital and two sports and entertainment stadiums in Florida. The Company operates its business as one operating and reportable segment.

Discontinued Operations. On July 1, 2021, the Company entered into a stock purchase agreement for the sale of Taco Cabana, Inc. and its subsidiaries (collectively "Taco Cabana"). On August 16, 2021, the Company completed the sale of Taco Cabana. The Company has classified the revenues, costs and expenses and income taxes attributable to the Taco Cabana business segment, together with certain costs related to the transaction, within income (loss) from discontinued operations, net of tax, on the condensed consolidated statements of operations for all periods presented. See Note 2—Dispositions. Unless otherwise noted, amounts and disclosures throughout these notes to the condensed consolidated financial statements relate to the Company's continuing operations.

Basis of Consolidation. The unaudited condensed consolidated financial statements presented herein reflect the consolidated financial position, results of operations and cash flows of Fiesta and its wholly-owned subsidiaries. All intercompany transactions have been eliminated in consolidation.

Fiscal Year. The Company uses a 52–53 week fiscal year ending on the Sunday closest to December 31. The fiscal year ended January 2, 2022 contained 52 weeks. The three and nine months ended October 2, 2022 and October 3, 2021 each contained thirteen and thirty-nine weeks, respectively. The fiscal year ending January 1, 2023 will contain 52 weeks.

Basis of Presentation. The accompanying unaudited condensed consolidated financial statements for the three and nine months ended October 2, 2022 and October 3, 2021 have been prepared without an audit pursuant to the rules and regulations of the Securities and Exchange Commission and do not include certain information and footnotes required by U.S. Generally Accepted Accounting Principles ("GAAP") for complete financial statements. In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentation of such financial statements have been included. The results of operations for the three and nine months ended October 2, 2022 and October 3, 2021 are not necessarily indicative of the results to be expected for the full year.

These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended January 2, 2022 included in the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2022. The January 2, 2022 balance sheet data is derived from those audited financial statements.

Reclassification. Certain prior period balances have been reclassified to conform to the current period presentation in the accompanying notes to the condensed consolidated financial statements.

Revenue Recognition. Revenue is recognized upon transfer of promised products or services to customers in an amount that reflects the consideration the Company received in exchange for those products or services. Revenues from the Company's owned and operated restaurants are recognized when payment is tendered at the time of sale. Franchise royalty revenues are based on a percentage of gross sales and are recorded as income when earned. Initial franchise fees and area development fees associated with new franchise agreements are not distinct from the continuing rights and services offered by the Company during the term of the related franchise agreements and are recognized as income over the term of the related franchise agreements. A portion of the initial franchise fee is allocated to training services and is recognized as revenue when the Company completes the training services.

Fair Value of Financial Instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date under current market conditions. In determining fair value, the accounting standards establish a three-level hierarchy for inputs used in measuring fair value as follows: Level 1 inputs are quoted prices in active markets for identical assets or liabilities; Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or

6

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

liabilities; and Level 3 inputs are unobservable and reflect management's own assumptions. The following methods were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the fair value:

•Current Assets and Liabilities. The carrying values reported on the condensed consolidated balance sheets of cash and restricted cash, accounts receivable and accounts payable approximate fair value because of the short maturity of those financial instruments.

•Revolving Credit Borrowings. The fair value of outstanding revolving credit borrowings under the Company's senior credit facility, which is considered Level 2, is based on current LIBOR rates. There were no outstanding revolving credit borrowings under the Company's senior credit facility as of October 2, 2022 and January 2, 2022.

See Note 4 for discussion of the fair value measurement of non-financial assets.

Long-Lived Assets. The Company assesses the recoverability of property and equipment and definite-lived intangible assets, including right-of-use ("ROU") lease assets, by determining whether the carrying value of these assets can be recovered over their respective remaining lives through undiscounted future operating cash flows. Impairment is reviewed whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. See Note 4—Impairment of Long-Lived Assets and Other Lease Charges (Recoveries).

Leases. The Company assesses whether an agreement contains a lease at inception. All leases are reviewed for finance or operating classification once control is obtained. The majority of the Company's leases are operating leases. Operating leases are included within operating lease right-of-use assets, other current liabilities, and operating lease liabilities in the condensed consolidated balance sheets. Finance leases are included within property and equipment, net, current portion of long-term debt, and long-term debt, net of current portion in the condensed consolidated balance sheets.

ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The operating lease ROU asset also includes any lease payments made in advance and is reduced by lease incentives received. As most leases do not provide an implicit rate, the Company uses its incremental borrowing rate at commencement date in determining the present value of lease payments. Lease terms include options to extend the lease when it is reasonably certain that the Company will exercise that option. The Company assumes options are reasonably certain to be exercised when such options are required to achieve a minimum 20-year lease term for new restaurant properties and when it incurs significant leasehold improvement costs near the end of a lease term. The Company uses judgment and available data to allocate consideration in a contract when it leases land and a building. The Company also uses judgment in determining its incremental borrowing rate, which includes selecting a yield curve based on a synthetic credit rating determined using a valuation model. Lease expense for lease payments is recognized on a straight-line basis over the lease term unless the related ROU asset has been adjusted for an impairment charge. The Company has real estate lease agreements with lease and non-lease components, which are accounted for as a single lease component.

Use of Estimates. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements. Estimates also affect the reported amounts of expenses during the reporting periods. Significant items subject to such estimates and assumptions include: insurance liabilities, evaluation for impairment of goodwill and long-lived assets, lease accounting matters, and deferred income tax assets. Actual results could differ from those estimates. Due to the uncertainty associated with the unprecedented nature of the COVID-19 pandemic and the impact it will have on the Company's operations and future cash flows, it is reasonably possible that the estimates of future cash flows used in impairment assessments will change in the near term and the effect of the change could be material.

2. Dispositions

On June 30, 2021, the Company's Board of Directors approved a stock purchase agreement, which was subsequently entered into by the Company on July 1, 2021, for the sale of all of the outstanding capital stock of Taco Cabana, Inc., including nearly all related assets and liabilities, for a cash purchase price of $85.0 million subject to reduction for (i) closing adjustments of approximately $4.6 million and (ii) certain other working capital adjustments as set forth in the stock purchase agreement. The transaction was completed August 16, 2021.

7

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

The Company filed an insurance claim for winter storm damages in Texas that occurred in the first quarter of 2021 and retained the right to receive the insurance claim proceeds. The Company recognized $0.4 million of insurance proceeds within income (loss) from discontinued operations, net of tax, in the nine months ended October 2, 2022 and $0.9 million of insurance proceeds in the fourth quarter of 2021, and expects to recognize any additional proceeds when the claim is ultimately resolved.

All revenues, costs and expenses and income taxes attributable to Taco Cabana, together with certain costs related to the transaction, have been aggregated within income (loss) from discontinued operations, net of tax, in the condensed consolidated statements of operations for all periods presented. No amounts for shared general and administrative operating support expense were allocated to discontinued operations. Depreciation and amortization related to Taco Cabana property and equipment and lease ROU assets was not recorded after June 30, 2021 when Taco Cabana was classified as held for sale. As required by the terms of the senior credit facility, the net proceeds from the sale were used to fully repay Fiesta's outstanding term loan borrowings on August 16, 2021. The early repayment was subject to a 103% loan prepayment premium. Interest expense and amortization of discount and debt issuance costs related to the term loan portion of the senior credit facility are included within income (loss) from discontinued operations, net of tax.

Upon completion of the sale of Taco Cabana, the Company provided certain services to Taco Cabana subject to a transition services agreement which expired on December 13, 2021. The Company retained certain closed Taco Cabana restaurant leases, including the associated operating lease right-of-use assets and operating lease liabilities. The Company also retained liability for Taco Cabana's accrued worker's compensation and general liability claims for periods prior to the sale. These liabilities are recognized in other current liabilities and other non-current liabilities in the condensed consolidated balance sheets. As there are estimates and assumptions inherent in recording these insurance liabilities, including the ability to estimate the future development of incurred claims based on historical trends or the severity of the claims, differences between actual future events and prior estimates and assumptions could result in adjustments to these liabilities.

8

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

During the nine months ended October 2, 2022, the Company recognized $0.2 million of income primarily related to insurance proceeds and a reduction of stock-based compensation of $(0.1) million, slightly offset by expenses related to workers' compensation claims within income (loss) from discontinued operations, net of tax, in the condensed consolidated statement of operations. A summary of the results of the discontinued operations for the three and nine months ended October 3, 2021 is as follows:

	Three Months Ended		Nine Months Ended
	October 3, 2021			October 3, 2021
Major classes of line items constituting pretax loss of discontinued operations:
Revenues:
Total revenues	$	29,463		$	152,339
Costs and expenses:
Cost of sales	8,872			43,480
Restaurant wages and related expenses (including stock-based compensation expense of $122 and $172, respectively)	10,054			48,399
Restaurant rent expense	1,582			12,995
Other restaurant operating expenses	5,364			24,814
General and administrative (including stock-based compensation expense of $1,405 and $1,688, respectively)	3,451			11,442
Depreciation and amortization	—			7,799
Other income and expense items that are not major	490			4,871
Total operating expenses	29,813			153,800
Loss from operations	(350)			(1,461)
Interest expense	810			4,678
Gain on sale of Taco Cabana	(24,066)			(24,066)
Loss on extinguishment of debt	5,307			5,307
Income from discontinued operations before income taxes	17,599			12,620
Benefit from income taxes	(2,894)			(3,716)
Income from discontinued operations, net of tax	$	20,493		$	16,336

9

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

A summary of significant investing activity and non-cash operating, investing, and financing activity of the discontinued operations for the nine months ended October 3, 2021 is as follows:

	Nine Months Ended
	October 3, 2021
Non-cash operating activities:
Gain on disposals of property and equipment, net	$	(217)
Stock-based compensation	1,860
Impairment and other lease charges	132
Loss on extinguishment of debt	5,307
Gain on sale of Taco Cabana	(24,066)
Depreciation and amortization	7,799
Investing activities:
Capital expenditures:
New restaurant development	$	—
Restaurant remodeling	(1,283)
Other restaurant capital expenditures	(5,050)
Corporate and restaurant information systems	(169)
Total capital expenditures	(6,502)
Proceeds from sale of Taco Cabana	74,910
Proceeds from disposals of properties	1,307
Proceeds from sale-leaseback transactions	3,083
Net cash provided by investing activities – discontinued operations	$	72,798
Supplemental cash flow disclosures:
Interest paid on long-term debt	$	4,338
Supplemental cash flow disclosures of non-cash investing and financing activities:
Accruals for capital expenditures	$	410
Right-of-use assets obtained in exchange for lease liabilities:
Operating lease ROU assets	5,156
Right-of-use assets and lease liabilities reduced for terminated leases:
Operating lease ROU assets	2,695
Operating lease liabilities	3,443

3. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

	October 2, 2022		January 2, 2022
Prepaid contract expenses	$	3,459	$	4,462
Other	2,163		1,244
	$	5,622	$	5,706

10

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

4. Impairment of Long-Lived Assets and Other Lease Charges (Recoveries)

The Company reviews its long-lived assets, principally property and equipment and lease ROU assets, for impairment at the restaurant level. The Company has elected to exclude operating lease payments and liabilities from future cash flows and carrying values, respectively, in its impairment review. In addition to considering management's plans, known regulatory or governmental actions and damage due to acts of God (hurricanes, tornadoes, etc.), the Company considers a triggering event to have occurred related to a specific restaurant if the restaurant's cash flows, exclusive of operating lease payments, for the last twelve months are less than a minimum threshold or if consistent levels of cash flows for the remaining lease period are less than the carrying value of the restaurant's assets. If an indicator of impairment exists for any of its assets, an estimate of undiscounted future cash flows, exclusive of operating lease payments, over the life of the primary asset for each restaurant is compared to that long-lived asset group's carrying value, excluding operating lease liabilities. If the carrying value is greater than the undiscounted cash flow, the Company then determines the fair value of the asset and if an asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the asset over its fair value. There is uncertainty in the projected undiscounted future cash flows used in the Company's impairment review analysis. If actual performance does not achieve the projections, the Company may recognize impairment charges in future periods, and such charges could be material.

A summary of impairment of long-lived assets and other lease charges (recoveries) is as follows:

	Three Months Ended				Nine Months Ended
	October 2, 2022		October 3, 2021		October 2, 2022		October 3, 2021
Impairment of long-lived assets	$	132	$	30	$	2,288	$	172
Other lease charges (recoveries)	(98)		—		(846)		(396)
	$	34	$	30	$	1,442	$	(224)

Impairment charges for the three and nine months ended October 2, 2022 related primarily to impairment of assets from four and eight underperforming Pollo Tropical restaurants, respectively, for which continued performance declines resulted in a decrease in the estimated future cash flows. For the three months ended October 2, 2022, other lease charges (recoveries) consist of a gain from a lease term reassessment. Additionally, the nine months ended October 2, 2022 consist of net gains from lease terminations.

Impairment charges for the three and nine months ended October 3, 2021 related primarily to impairment of equipment from previously impaired and closed restaurants. For the nine months ended October 3, 2021, other lease charges (recoveries) related primarily to gains from lease terminations.

The Company determines the fair value of restaurant equipment, for those restaurants reviewed for impairment, based on current economic conditions, the Company's history of using these assets in the operation of its business and the Company's expectation of how a market participant would value the assets. In addition, for those restaurants reviewed for impairment where the Company owns the land and building, the Company utilizes third-party information such as a broker quoted value to determine the fair value of the property, when applicable. The Company also utilizes discounted future cash flows to determine the fair value of assets for certain leased restaurants with positive discounted projected future cash flows. The Company utilizes current market lease rent and discount rates to determine the fair value of right-of-use lease assets. These fair value asset measurements rely on significant unobservable inputs and are considered Level 3 in the fair value hierarchy. The Level 3 assets measured at fair value associated with impairment charges recorded during the nine months ended October 2, 2022 totaled $1.6 million.

11

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

5. Other Liabilities

Other current liabilities consist of the following:

	October 2, 2022		January 2, 2022
Operating lease liabilities	$	10,812	$	10,381
Accrued workers' compensation and general liability claims	2,264		3,083
Sales and property taxes	1,371		921
Other	3,455		3,647
	$	17,902	$	18,032

Other non-current liabilities consist of the following:

	October 2, 2022		January 2, 2022
Accrued workers' compensation and general liability claims	$	6,432	$	6,432
Deferred compensation	263		320
Other	987		1,011
	$	7,682	$	7,763

6. Stockholders' Equity

Purchase of Treasury Stock

In 2018, the Company's board of directors approved a share repurchase program for up to 1,500,000 shares of the Company's common stock. In 2019, the Company's board of directors approved increases to the share repurchase program of an additional 1,500,000 shares of the Company's common stock for an aggregate approval of 3,000,000 shares of the Company's common stock. Under the share repurchase program, shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The share repurchase program has no time limit and may be modified, suspended, superseded or terminated at any time by the Company's board of directors. The Company repurchased 14,746 shares of common stock valued at approximately $0.2 million during the nine months ended October 2, 2022. As of October 2, 2022, 137,462 shares of common stock remain available for purchase under the share repurchase program. The repurchased shares are held as treasury stock at cost.

Stock-Based Compensation

On April 28, 2021, the stockholders of the Company approved the Fiesta Restaurant Group, Inc. 2021 Stock Incentive Plan (the "2021 Plan"). Following a grant of a total 37,874 shares to non-employee directors under the Company's 2012 Stock Incentive Plan (the "2012 Plan") on April 28, 2021, no additional shares will be granted under the 2012 Plan.

During the nine months ended October 2, 2022, the Company granted certain employees a total of 227,781 non-vested restricted shares under the 2021 Plan that vest and become non-forfeitable over a four-year vesting period. Additionally, during the nine months ended October 2, 2022, the Company granted certain employees a total of 185,000 non-vested restricted shares under the 2021 Plan that vest and become non-forfeitable over a one-year vesting period. During the nine months ended October 2, 2022, the Company granted non-employee directors a total of 80,268 non-vested restricted shares under the 2021 Plan that vest and become non-forfeitable over a one-year vesting period. The weighted average fair value at grant date for non-vested shares issued during the nine months ended October 2, 2022 and October 3, 2021 was $8.83 per share and $16.83 per share, respectively.

12

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

During the nine months ended October 2, 2022, the Company also granted certain employees a total of 107,539 restricted stock units under the 2021 Plan subject to performance conditions. The restricted stock units vest and become non-forfeitable at the end of a three-year vesting period. The number of shares into which these restricted stock units convert is based on the attainment of certain financial performance conditions and ranges from no shares, if the minimum performance condition is not met, to 215,078 shares if the maximum performance condition is met. The weighted average fair value at grant date for the restricted stock units granted during the nine months ended October 2, 2022 and October 3, 2021 was $9.02 per share and $17.43 per share, respectively.

Stock-based compensation expense from continuing operations for the three and nine months ended October 2, 2022 was $1.5 million and $3.5 million, respectively, and for the three and nine months ended October 3, 2021 was $1.1 million and $3.2 million, respectively. Stock-based compensation expense from discontinued operations for the nine months ended October 2, 2022 was $(0.1) million and for the three and nine months ended October 3, 2021 was $1.5 million and $1.9 million, respectively. At October 2, 2022, the total unrecognized stock-based compensation expense related to non-vested restricted shares and restricted stock units was approximately $5.6 million. At October 2, 2022, the remaining weighted average vesting period for non-vested restricted shares was 1.3 years and restricted stock units was 2.1 years.

A summary of all non-vested restricted shares and restricted stock units activity for the nine months ended October 2, 2022 is as follows:

	Non-Vested Shares			Restricted Stock Units
	Shares	Weighted Average Grant Date Fair Value		Units	Weighted Average Grant Date Fair Value
Outstanding at January 2, 2022	769,018	$	11.19	64,175	$	17.45
Granted	493,049	8.83		107,539	9.02
Vested and released	(159,035)	12.16		—	—
Forfeited	(84,719)	10.97		(5,021)	17.43
Outstanding at October 2, 2022	1,018,313	$	9.92	166,693	$	12.01

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

7. Earnings (Loss) Per Share

Basic earnings (loss) per share ("EPS") is computed by dividing net income (loss) applicable to common shares by the weighted average number of common shares outstanding during each period. Non-vested restricted shares contain a non-forfeitable right to receive dividends on a one-to-one per share ratio to common shares and are thus considered participating securities. The impact of the participating securities is included in the computation of basic EPS pursuant to the two-class method. The two-class method of computing EPS is an earnings allocation formula that determines earnings attributable to common shares and participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. EPS is computed by dividing undistributed earnings allocated to common stockholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and non-vested restricted shares based on the weighted average shares outstanding during the period.

Diluted EPS reflects the potential dilution that could occur if the restricted stock units were to be converted into common shares. Restricted stock units with performance conditions are only included in the diluted EPS calculation to the extent that performance conditions have been met at the measurement date. Diluted EPS is computed by adjusting the basic weighted average number of common shares by the dilutive effect of the restricted stock units, determined using the treasury stock method.

All outstanding restricted stock units in the three and nine months ended October 2, 2022 and the three months ended October 3, 2021 were performance-based awards which had not yet met their performance conditions as of October 2, 2022 and October 3, 2021, respectively. For the nine months ended October 3, 2021, all shares of outstanding restricted stock units were excluded from the computation of diluted EPS because including these restricted stock units would have been antidilutive as a result of the loss from continuing operations in the nine months ended October 3, 2021.

13

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

The computation of basic and diluted EPS is as follows:

	Three Months Ended				Nine Months Ended
	October 2, 2022		October 3, 2021		October 2, 2022		October 3, 2021
Basic and diluted EPS:
Loss from continuing operations	$	(2,933)	$	(3,231)	$	(10,722)	$	(1,246)
Income from discontinued operations, net of tax	17		20,493		229		16,336
Net income (loss)	$	(2,916)	$	17,262	$	(10,493)	$	15,090
Less: income allocated to participating securities	—		542		—		523
Net income (loss) available to common shareholders	$	(2,916)	$	16,720	$	(10,493)	$	14,567
Weighted average common shares—basic	24,971,244		25,508,930		24,916,848		25,443,341
Restricted stock units	—		—		—		—
Weighted average common shares—diluted	24,971,244		25,508,930		24,916,848		25,443,341
Earnings (loss) from continuing operations per common share—basic	$	(0.12)	$	(0.12)	$	(0.43)	$	(0.05)
Earnings (loss) from discontinued operations per common share—basic	—		0.78		0.01		0.62
Earnings (loss) per common share—basic	$	(0.12)	$	0.66	$	(0.42)	$	0.57
Earnings (loss) from continuing operations per common share—diluted	$	(0.12)	$	(0.12)	$	(0.43)	$	(0.05)
Earnings (loss) from discontinued operations per common share—diluted	—		0.78		0.01		0.62
Earnings (loss) per common share—diluted	$	(0.12)	$	0.66	$	(0.42)	$	0.57

8. Commitments and Contingencies

Lease Assignments. Pollo Tropical assigned two leases to third parties on properties where it no longer operates with lease terms expiring in 2033 and 2036. Although the assignees are responsible for making the payments required by the lease, the Company is a guarantor under the leases.

The maximum potential liability for future rental payments that the Company could be required to make under these leases at October 2, 2022 was $4.4 million. The Company could also be obligated to pay property taxes and other lease-related costs. The obligations under these leases will generally continue to decrease over time as the operating leases expire. The Company does not believe it is probable that it will be ultimately responsible for the obligations under these leases.

Indemnity of Lease Guarantees. As discussed in Note 2—Dispositions, Taco Cabana, Inc., a former wholly-owned subsidiary of the Company, was sold in the third quarter of 2021 to YTC Enterprises LLC ("YTC Enterprises") through a stock purchase agreement. The Company's previous owners, Carrols Restaurant Group, Inc. ("Carrols") remains a guarantor under 12 Taco Cabana restaurant property leases with lease terms expiring on various dates through 2030, all of which are still operating, as of October 2, 2022. The Company has indemnified Carrols for all obligations under the guarantees per the terms of the Separation and Distribution Agreement entered into in connection with the spin-off of Fiesta. The Company remains liable for all obligations under the terms of the leases in the event YTC Enterprises fails to pay any sums due under the lease, subject to indemnification provisions under the stock purchase agreement.

The maximum potential amount of future undiscounted rental payments the Company could be required to make under these leases at October 2, 2022 was $7.4 million. The obligations under these leases will generally continue to decrease over time as these operating leases expire, except for any execution of renewal options that exist under the original leases. No payments related to these guarantees have been made by the Company to date and none are expected to be required to be made in the future. YTC Enterprises has indemnified the Company for all such obligations and the Company does not believe it is probable it will be required to perform under any of the guarantees or direct obligations.

Legal Matters. The Company is a party to various legal proceedings incidental to the conduct of business. The Company does not believe that the outcome of any of these matters will have a material effect on its condensed consolidated financial statements. The Company records accruals for outstanding legal matters when it believes it is probable that a loss will be

14

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

incurred and the amount can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal matters that could affect the amount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. If a loss contingency is not both probable and estimable, the Company does not establish an accrued liability.

During the three months ended October 2, 2022, the Company recognized legal settlement proceeds of approximately $1.3 million before legal fees within other expense (income), net, in the condensed consolidated statement of operations.

9. Related Party Transactions

The Company engaged Jefferies LLC ("Jefferies"), an affiliate of one of the current members of Fiesta's board of directors, and a subsidiary of Jefferies Financial Group, Inc, a holder of more than 20 percent of the total outstanding shares of Fiesta, in connection with a refinancing of the Company's former amended senior credit facility in 2020 and other advisory services including related to the sale of Taco Cabana. The Company paid fees of $1.7 million to Jefferies and reimbursed Jefferies for reasonable out of pocket and ancillary expenses of less than $0.1 million when the refinancing was completed in the fourth quarter of 2020. The Company paid Jefferies a transaction advisory fee of $2.0 million upon the sale of Taco Cabana. As of October 2, 2022 and January 2, 2022, there were no amounts due to the related party recognized on the condensed consolidated balance sheets.

10. Supplemental Cash Flow Information

The following table details supplemental cash flow disclosures of non-cash investing and financing activities from continuing operations: 

	Nine Months Ended
	October 2, 2022		October 3, 2021
Supplemental cash flow disclosures:
Interest paid on long-term debt	$	145	$	178
Income tax payments (refunds), net	381		(6,253)
Supplemental cash flow disclosures of non-cash investing and financing activities:
Accruals for capital expenditures	$	3,431	$	2,357
Right-of-use assets obtained in exchange for lease liabilities:
Operating lease ROU assets	6,591		2,956
Right-of-use assets and lease liabilities reduced for terminated leases:
Operating lease ROU assets	3,474		2,288
Operating lease liabilities	4,523		2,793
Cash and restricted cash reconciliation:
Beginning of period
Cash	$	36,797	$	49,778
Restricted cash	3,837		3,584
Cash and restricted cash, beginning of period	$	40,634	$	53,362
End of period
Cash	$	42,591	$	51,978
Restricted cash	3,631		3,837
Cash and restricted cash, end of period	$	46,222	$	55,815

15

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

11. Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2020-04, Reference Rate Reform (Topic 848) ("ASU No. 2020-04"), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are effective as of March 12, 2020 through December 31, 2022. As of October 2, 2022, the Company's only exposure to LIBOR rates was the undrawn $10.0 million revolving credit facility under its senior credit facility. Upon cessation of the LIBOR, the senior credit facility would use a benchmark replacement rate. According to ASU No. 2020-04, modifications of contracts within the scope of Topic 470 Debt should be accounted for by prospectively adjusting the effective interest rate. The Company does not expect ASU No. 2020-04 to have a significant impact on its financial statements.

16

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of financial condition and results of operations ("MD&A") is written to help the reader understand our company. The MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited condensed consolidated financial statements and the accompanying notes. Any reference to restaurants refers to Company-owned restaurants unless otherwise indicated. Throughout this MD&A, we refer to Fiesta Restaurant Group, Inc., together with its consolidated subsidiaries, as "Fiesta," "we," "our" and "us."

We use a 52–53 week fiscal year ending on the Sunday closest to December 31. The fiscal year ended January 2, 2022 contained 52 weeks. The three and nine months ended October 2, 2022 and October 3, 2021 each contained thirteen and thirty-nine weeks, respectively. The fiscal year ending January 1, 2023 will contain 52 weeks.

Company Overview

We own, operate and franchise the restaurant brand Pollo Tropical®, which has over 30 years of operating history and a loyal customer base. Our Pollo Tropical locations feature fire-grilled and crispy citrus marinated chicken and other freshly prepared menu items. We believe the brand offers a distinct and unique flavor with broad appeal at a compelling value, which differentiates it in the competitive fast-casual and quick-service restaurant segments. All but one of our restaurants offer the convenience of drive-thru windows. As of October 2, 2022, we operated 137 Pollo Tropical Company-owned restaurants, all of which are located in Florida.

We franchise our Pollo Tropical restaurants primarily in international markets, and as of October 2, 2022, we had 23 franchised Pollo Tropical restaurants located in Puerto Rico, Panama, Guyana, Ecuador, and the Bahamas, and nine licensed Pollo Tropical restaurants located in Florida consisting of six on college campuses and locations at a hospital and two sports and entertainment stadiums. We have agreements for the continued development of franchised Pollo Tropical restaurants in certain of our existing franchised markets.

Recent Events Affecting Our Results of Operations

Hurricane Ian

During the third quarter of 2022, Florida was struck by Hurricane Ian. In an effort to ensure the safety of our team members, select Pollo Tropical restaurants in the storm's path were closed early on September 27, 2022 and all Pollo Tropical restaurants were closed on September 28, 2022. From September 29, 2022 through October 3, 2022, a total of 38 restaurants in the hardest hit markets of Ft. Myers, Naples, Orlando and Tampa were closed for all or a portion of that time period due to storm conditions and utility outages. There was no significant facilities damage to Company-owned restaurants and by October 8, 2022, all restaurants were open for business and we expect to file insurance claims upon completion of the final assessment of damages and losses.

Due to the business disruption related to Hurricane Ian, the Company incurred expenses totaling $0.5 million for spoiled inventory and for incremental labor costs from paying hourly employees for scheduled time not worked due to temporary restaurants closures. We estimate that Hurricane Ian negatively impacted income (loss) from operations by approximately $1.6 million and negatively impacted comparable restaurant sales and transactions by approximately 2.6% and 2.2%, respectively, for the third quarter of 2022.

Labor Challenges and Inflationary Factors

Hours of operations have been limited due to labor shortages which are affecting our brand and the restaurant industry. Overall staffing levels have shown improvement between the second and third quarters of 2022, however, challenges still exist which have reduced operating hours as a result of labor shortages. In response to these labor shortages and competition for labor, we have continued providing special incentive pay in affected locations and for particular days of the week, and we have provided sign-on bonuses payable after a specified term of service. We believe these labor cost increases for staffing-related incentives are short-term in nature. We have continued our focus on accelerating labor optimization efforts to improve staffing efficiency, which we believe will increase both staff availability and margins. As a result of our efforts, staffing levels improved in June 2022 and through the third quarter of 2022, enabling us to more consistently open all service channels, particularly dine-in, curbside and digital.

Inflationary factors have been experienced primarily in food costs and other operating costs categories. Commodity costs as a percentage of net sales increased 4.7% in the third quarter of 2022 compared to the third quarter of 2021. Utilities costs as a percentage of net sales also increased to 4.3% in the third quarter of 2022 from 3.8% in the third quarter of 2021 primarily due to higher energy prices in 2022.

17

Pricing action has been taken to offset labor, food and other operating cost increases. In order to maintain value perceptions with our customers, we implemented a phased approach to menu price increases and took lower pricing increases on items purchased by value-conscious customers including our "Pollo Time" promotional items. Recent price increases include a 5.2% price increase in mid-December 2021, a 5.0% increase in March 2022, a 1.4% increase in June 2022, and a 4.0% increase in September 2022. As a result of this phased approach to menu price increases, margin improvement is trailing the impact of cost increases noted above, with improved margins expected in future quarters compared to the third quarter of 2022, barring unforeseen changes in our cost structure and operating environment.

COVID-19 Pandemic

The novel coronavirus (COVID-19) pandemic has affected and is continuing to affect the restaurant industry and the economy. Based on current conditions, we do not expect sales trends to significantly deteriorate further as a direct result of COVID-19. However, labor shortages may negatively impact sales trends and there can be no assurance that sales trends will not deteriorate further. We have implemented measures to control costs to mitigate any negative impact from the COVID-19 pandemic and labor shortages.

Executive Summary—Consolidated Operating Performance for the Three Months Ended October 2, 2022

Our third quarter 2022 results and highlights include the following:

•We recognized a net loss of $(2.9) million, or $(0.12) per diluted share, in the third quarter of 2022 compared to net income of $17.3 million, or $0.66 per diluted share, in the third quarter of 2021 due primarily to the impact of income from discontinued operations of $20.5 million in the third quarter of 2021 compared to less than $0.1 million in the third quarter of 2022. The loss in the third quarter of 2022 was primarily the result of higher Pollo Tropical cost of sales, repair and maintenance costs, utilities costs, general and administrative expenses, and advertising costs, partially offset by increased comparable restaurant sales in the third quarter of 2022.

•We recognized a loss from continuing operations of $(2.9) million, or $(0.12) per diluted share, in the third quarter of 2022 compared to a loss from continuing operations of $(3.2) million, or $(0.12) per diluted share, in the third quarter of 2021 primarily as a result of the foregoing.

•Total revenues increased 7.9% in the third quarter of 2022 to $95.6 million compared to $88.6 million in the third quarter of 2021, driven by an increase in comparable restaurant sales at Pollo Tropical, partially offset by the impact of Hurricane Ian. Comparable restaurant sales increased 9.3% for our Pollo Tropical restaurants resulting from an increase in the net impact of product/channel mix and pricing of 14.6%, partially offset by a decrease in comparable restaurant transactions of 5.3%.

•Consolidated Adjusted EBITDA increased $0.3 million in the third quarter of 2022 to $3.9 million compared to $3.7 million in the third quarter of 2021, driven primarily by the impact of higher restaurant sales, partially offset by higher utilities costs, repair and maintenance costs, advertising costs, general and administrative costs, as well as commodity costs and sales mix within cost of sales. Consolidated Adjusted EBITDA is a non-GAAP financial measure of performance. For a discussion of our use of Consolidated Adjusted EBITDA and a reconciliation from net income (loss) to Consolidated Adjusted EBITDA, see "Management's Use of Non-GAAP Financial Measures."

18

Results of Operations

Unless otherwise noted, this discussion of operating results relates to our continuing operations.

The following table summarizes the changes in the number and mix of Pollo Tropical Company-owned and franchised restaurants:

	Pollo Tropical
	Owned	Franchised	Total
January 2, 2022	138	31	169
New	—	1	1
Closed	—	(1)	(1)
April 3, 2022	138	31	169
New	—	—	—
Closed	—	(2)	(2)
July 3, 2022	138	29	167
New	—	3	3
Closed	(1)	—	(1)
October 2, 2022	137	32	169
January 3, 2021	138	29	167
New	—	—	—
Closed	—	—	—
April 4, 2021	138	29	167
New	—	—	—
Closed	—	—	—
July 4, 2021	138	29