Fiesta Restaurant Group, Inc.

Thank you for standing by. This is the conference operator. Welcome to the Fiesta Restaurant Group's first quarter 2021 earnings call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and 0. I would now like to turn the conference over to Raphael Groves, Managing Director at ICR. Please go ahead.

Thank you. Fiesta Restaurant Group's first quarter 2021 earnings release was issued after the market closed today. If you have not already accessed it, it can be found on the company's website, www.frgi.com, under the Investor Relations section. Before we begin, I'd like to inform you that during the call today, the company will make various statements that are not based on historical information. These forward-looking statements include, without limitation, statements regarding the company's future financial position and results of operations, business strategy, budget, projected costs and plans, and objectives of management for future operations. Actual outcomes and results may differ materially versus expressed or forecasted in such forward-looking statements. and a company can give no assurance that such forward-looking statements will prove to be correct. Important factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements can be found in the company's SEC filings. Please note that during today's conference call, certain non-GAAP financial measures will be discussed, which the company believes can be useful in evaluating its performance. Any discussion of such information should not be considered in isolation or to substitute for results prepared in accordance with GAAP. And reconciliation to comparable GAAP measures is available in the company's earnings release. On the call with me today are President and Chief Executive Officer Rich Stockinger and Chief Financial Officer Dirk Montgomery. And now I'd like to turn the call over to Rich. Thank you, Rafe.

I'd first like to thank all of the investors and other participants on the call today for their continued support. I'll be covering two topics today, a business update, including an overview of first quarter results and an update on the status of our 2021 strategic priorities. Patty Lopez-Callea, our Chief Experience Officer, will provide a digital platform initiatives update, followed by Dirk wrapping up with a financial update. Overall, we are pleased with our first quarter sales and profit after considering the impact of winter storm URI on February sales, which negatively affected the entire state of Texas for multiple weeks. Both of our brands showed continued positive momentum in sales trends during the first quarter of 2021 compared to the fourth quarter of 2020, which continued in April. Pollo Tropical first quarter 2021 comp sales improved to positive 4.3% compared to 2020 and were 3.3% down versus the first quarter of 2019. Taco Cabana first quarter comp sales improved to minus 4.3% compared to the first quarter of 2020. The negative impact of Winter Storm Yuri on Taco Cabana first quarter comp sales was estimated at a negative 480 basis points. So far in May, both brands are showing encouraging trends early in the month versus 2019. In addition, Taco Cabana had the second highest Cinco de Mayo holiday sales per unit in 10 years, with sales growth above both the 2020 and 2019 Cinco de Mayo holiday results. We continue to maintain strong margins at both brands. First quarter 2021 income from operations was $1.3 million compared to a loss from operations in the first quarter of 2020. Consolidated adjusted EBITDA, a non-GAAP measure, was $12.9 million or 8.9% of total revenues. which includes the estimated negative impact of winter storm URI of approximately $1.9 million. We grew our first quarter consolidated adjusted EBITDA 63% compared to the first quarter of 2020. We estimate that winter storm URI negatively impacted consolidated adjusted EBITDA as a percentage of total revenues by approximately 110 basis points. Both brands grew restaurant-level adjusted EBITDA, a non-GAAP measure, as a percentage of sales to above first quarter 2020 levels. Foyotropical grew restaurant-level margin from 18% in the first quarter of 2020 to 21.4% in the first quarter of 2021. Taco Cabana grew restaurant-level margin from 8.8% in first quarter 2020 to 11.3% in the first quarter of 2021, which includes the estimated negative impact of winter storm URI of approximately 270 basis points. We also continued our positive growth in cash flow during the first quarter, increasing our cash balance and further reducing the level of net debt compared to the fourth quarter levels. Dirk will provide additional details regarding first quarter results and our outlook for the remainder of 2021 as part of his prepared comments. Our operations teams continue to do a great job adjusting to evolving market conditions. The winter storm was a challenge for our Taco Cabana team, with 125 units being impacted at varying levels. All taco units were open and running by early March. And we are in the process of now filing insurance claims and replacing landscaping that was damaged. As you all may know, our industry has been facing staffing availability issues since late March. And we have put in place the following plans to ensure that we have adequate staffing in our restaurants. Beginning in May, we are paying an additional $1 per hour to our hourly operations team members at both brands. We also raised the minimum hourly rate at POYO to $10 per hour, accelerating the change required on the state of Florida minimum wage legislation. We are also evaluating further unit-specific actions needed based on competitive wage rate benchmarking by trade area. In addition to maximize retention, a special bonus incentive for the second quarter was created for all operations management team members that is above our normal bonus target. From a recruiting perspective, we have improved our processes to be more streamlined, to reduce hiring cycle times, and also have added short-term third-party resources to identify and qualify more candidates. At both brands, we are implementing operations simplification plans to reduce complexity, including menu and promotion simplification and guidelines for maintaining service in units that have staffing shortages. The labor shortage has resulted in reduced hours at select locations, although the overall reduction in unit opening hours has not yet reached the material level. We will continue to evaluate additional retention strategies and hourly wage compensation levels going forward to ensure we can adequately staff our restaurants. Nearly all of our dining rooms were opened by the end of March, with Taco Cabana dining room openings slowed by the winter storm repairs. We believe that we can offset the cost impact of increased wage rates through selective price increases while still maintaining attractive value perceptions with our customers. This is based on internal research and research conducted by our outside pricing analytics consultants. Over the last three years, we believe that our brands have taken lower price increases than our peer group. In April, we increased prices by 3% at Pollo Tropicale, and 2% at Taco Cabana and plan to take additional pricing action as needed in late summer in response to cost pressures. Now I'd like to provide an update on our strategic priorities. As I mentioned in the fourth quarter, our strategic priorities are as follows. One, concentrate on accelerating growth in non-dine-in channels and improving the guest experience across all channels to better enable our customers to enjoy our brands wherever and whenever they choose. Two, enhance our digital platform and make improvements in ease of use and speed of service for off-premise including enhanced digital drive-through experience, curbside, geofencing technology enhancements to improve speed and customization of the consumer experience, and continued improvements in our loyalty platform that drive incremental sales from loyalty members. Three, continue refining the Pollo Tropical brand essence in preparation for expansion in existing and new markets. We made good progress growing non-dining channels during the first quarter. At Pollo Tropical, we generated drive-through growth of 4% and delivery and online channel growth of at least 21% in those channels compared to the fourth quarter of 2020. Pollo Tropical first quarter 2021 delivery sales penetration exceeded 10% of total sales, the highest penetration to date. Oil generated strong delivery sales through promotions tied to high delivery volumes occasions during the quarter, including the Super Bowl and March Madness. First quarter Taco Gabbana sales trends by channel are difficult to compare to prior quarters due to the impact of the winter storm. Despite the winter storm impact, first quarter 2021 delivery sales channels more than doubled compared to 2020. and Taco Cabana generated first quarter 2021 online and catering growth above first quarter 2020 and 2019 levels. We are also in the final stages of implementing liquor delivery sales with a leading regional delivery service provider, Favor, which we expect to launch in the second quarter and believe is an opportunity for delivery channel sales growth. Regarding our digital platform, over the first quarter, we continue to make investments to enhance our digital platform and improve the customer experience in those efforts. We'll continue throughout the remainder of 21. Patty will provide additional details on our digital platform plans and progress in a moment. Finally, we made good progress on our third strategic priority, which is to continue refining the Pollo Tropical brand essence in preparation for for expansion in existing and new markets for both company-owned and franchise locations. As I mentioned on the call last quarter, we completed qualitative research on brand positioning and are in the final stages of quantitative research completion. The results of this research will allow us to develop an enhanced brand positioning and will provide a clear brand strategy for both existing and new markets. The development of new restaurants will incorporate what we have learned during COVID-19 pandemic and our market research. As we identify key restaurant design and brand positioning changes, we intend to test them selectively in 2021 remodels to obtain consumer feedback and to inform future new unit designs. We are planning four to eight remodels in 2021 that will incorporate new design and operating model enhancements. We incorporated preliminary design features into a remodel in our first 2021 remodel at the Westin, Florida location, which opened just recently. The design enhancements include updated preliminary interior and exterior design features that reflect the preliminary research results on brand image, the fewer dining room seats, a second make line to improve speed of service, and enhanced mobile pickup capabilities. Although the Westin unit just recently reopened, we are already receiving very positive feedback from our customers. In summary, we will continue to concentrate on non-dine-in trade channels. to match the evolving changes in consumer behavior. And we'll focus on creating a great guest experience across all channels. Our investments in our digital platform will continue throughout 2021. We are optimistic about the remainder of 2021 and believe that our growth initiatives will continue to build momentum and accelerate sales. Now, Patty Lopez-Kale will provide a bit more color on our digital platform strategies in progress. Patty?