Fiesta Restaurant Group, Inc.

Good afternoon and welcome to the Fiesta Restaurant Incorporated first quarter 2023 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Rafael Gross, ICR. Please go ahead.

Thank you, Operator. Fiesta Restaurant Group's first quarter 2023 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.frdi.com, under the Investor Relations section. Before we begin, I'd like to inform you that during the call, 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 may differ materially from these forward-looking statements, and the company can give no assurance that such forward-looking statements will prove to be correct. Important factors that can 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 as a substitute the results prepared in accordance with GAAP. And a reconciliation to comparable GAAP measures is available in the company's earnings release. On the call with me today are Chief Executive Officer Dirk Montgomery and Chief Accounting Officer and Acting Chief Financial Officer Tyler Yosting. And now I'll turn the call over to Dirk.

Thank you, Raphael. I'd first like to thank all the investors and other participants on the call today for their continued support. I'll be covering three topics this afternoon. A business update and overview of our quarterly results, the status of our strategic growth initiatives, and thoughts on our plans for the remainder of 2023. Tyler will then provide a financial update before we open the call for questions. First, here are the highlights from our first quarter. In summary, we had a strong first quarter with continued measurable progress across all key areas of focus. Our efforts to build traffic gained momentum over the quarter, as we generated positive comparable transaction growth of 1 percent and continued our strong comparable restaurant sales momentum with an increase of 9.7 percent. We also grew both restaurant level and total company profit and margins and made meaningful progress on our key strategic priorities. We were particularly pleased with the acceleration of our monthly positive comparable transaction growth throughout the quarter to 1.9 percent in March with positive quarterly comparable transactions in all of our key South Florida markets. We also experienced positive traffic growth of 1.1% in April versus 2022, inclusive of the negative impact of approximately 80 basis points due to severe rainstorms and flooding in South Florida. We believe the growth initiatives we shared previously, including increased staffing levels, thoughtful pricing, and successful promotions, combined with improved operations execution, contributed to four consecutive months of positive year-over-year traffic trends through April for the first time in over five years. Hourly team staffing levels improved in the first quarter of 2023 versus the fourth quarter of last year, while April staffing levels increased to the highest levels in 2023, along with a reduction in hourly turnover rates. These results demonstrate that our retention efforts are working. As we mentioned in prior quarters, our commitment to operations leadership development is contributing to higher leadership retention levels compared to 2022, and we believe that greater leadership stability and effectiveness was a catalyst for faster speed of service and higher guest satisfaction scores in the first quarter versus the fourth quarter. Our pricing, innovation, and promotion strategies are contributing to revenue growth momentum. The pricing action of 5% we took in March was grounded by marketing insights and competitive pricing benchmarks that supported our confidence that the additional pricing action would allow us to expand margins while maintaining value perceptions and mitigating traffic risk. We are also maintaining our barbell approach by pairing lower price increases on our high-value affordable items like Pollo Time and Family Meals to solidify our value proposition combined with offering check-accretive, limited-time offers, or LTOs, and menu innovation. In the first quarter and throughout 2023, we are focusing on fewer and more impactful promotion items across longer windows of time that allow for higher quality and more consistent execution. First quarter promotion results were encouraging, with improved speed of service and higher sales per promoted item in the first quarter versus the fourth quarter of 2022, and continued check accretion versus non-promoted items. In addition to limited time new item promotions, we are increasingly utilizing higher, highly targeted promotions to drive transactions and channel growth by increasing visit frequency, aiming to increase our share of customers' prepared food purchases and acquiring new customers. We're doing this through a highly disciplined test and learn approach, evaluating each promotion against targeted incremental traffic and profit goals. Overall, we will continue to target our marketing activity at building profitable traffic. We are clearly seeing that our coordinated efforts to balance menu innovation, promotional activity, and analytic-based pricing is helping to build revenue and win back traffic. Value perceptions continue to be above our peer group, and for the first quarter, we realized share gains based on POYO traffic trends compared to NAPTRAC Florida fast casual comp traffic trends. Turning to our progress on margins, for the third consecutive quarter, we generated year-over-year growth in restaurant-level operating profit, a non-GAAP financial measure, driven by our comparable restaurant sales growth and margin enhancement actions. The first quarter of 2023 loss from operations was 2.1 million and 2% of restaurant sales, compared to a loss from operations in the first quarter of 22 of 1.4 million and 1.5% of restaurant sales. The increase in loss from operations was primarily driven by the net impact of impairments and other lease charges, partially offset by the growth in restaurant sales in higher restaurant-level operating profit compared to the first quarter of 2022. First quarter 2023 restaurant-level operating margins of 16.7% increased above both the fourth quarter of last year and the first quarter of 2022, by 50 and 60 basis points, respectively. Additionally, margin run rates increased meaningfully in March compared to the beginning of the first quarter following our 5 percent price increase, and we expect to see continued margin growth toward our targeted restaurant-level operating profit margin of 18 percent or greater through transaction growth and ongoing margin improvement initiatives. Tyler will provide additional details on our margin and expense trends as part of his financial update. Overall, we were pleased with our progress in the first quarter traffic and margin growth, both of which we expect to accelerate as we fully implement our sales growth and operational excellence initiatives. Now I'll provide a brief update on the status of our strategic growth initiatives. Following my recent appointment to CEO, we have reconfirmed our priorities across the following four pillars, all aimed at improving transaction growth and margin expansion. building operations excellence, two, creating a great guest experience across all channels, three, enhancing the Pollo Tropical brand, and four, developing great teams. I'd like to expand on our efforts to improve operations excellence, and we've identified four focus areas to build on the effectiveness of our operations. First, raise our consistency of execution by refocusing on guest experience fundamentals. Second, Simplify the operating model while maintaining the key elements of the customer experience. Third, improve peak time productivity. And fourth, continue to enhance cross-functional operations support. We made real progress across those focus areas in the first quarter compared to the fourth quarter of last year, reflected in the following key metrics. Drive-through speed of service times in the first quarter improved by approximately 15% compared to the 2022 average. Guest satisfaction, as measured by net promoter scores, increased 19% in the first quarter compared to the 2022 average. In addition, monthly March and April NPS scores were the highest since 2021. As noted, stability of our restaurant team members is a driver of improved execution and guest satisfaction. Hourly turnover in the first quarter reached the lowest level since before 2019, with turnover down 11% compared to the 2022 quarterly average And first quarter 2023 management turnover was well below the first quarter of 2022. As we move forward, we are going to continue reevaluating our organization structure and processes to improve effectiveness and efficiency. We have already seen the positive impact of our consolidation of consumer insights, digital, and marketing resources into a more focused and streamlined marketing organization. As we more closely align marketing strategy and execution to the goal of growing profitable traffic, we expect the marketing function to be a key contributor to accelerating growth going forward. In addition, we are also working on optimizing our above restaurant operations organization and processes to improve execution. In conclusion, we enter the second quarter with positive traffic momentum and improving margins. and our team is focused and aligned on a shorter list of high-impact growth opportunities. As a result, we feel extremely confident about our prospects and our ability to unlock the great potential this brand clearly has and look forward to accelerating our positive traction during the balance of the year. Now, Tyler will provide a more detailed financial update.