El Pollo Loco Holdings, Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the El Pollo Loco Third Quarter 2020 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode, and the lines will be open for your questions following the presentation. Please note that this conference is being recorded today, October 29, 2020. On the call today, we have Bernard Okoka, President and Chief Executive Officer of El Pollo Loco, and Larry Roberts, Chief Financial Officer. And now, I would like to turn the conference over to Larry Roberts.

Thank you, Operator, and good afternoon. By now, everyone should have access to our third quarter 2020 earnings release. If not, it can be found at www.opoyoloco.com in the investor relations section. Before we begin our formal remarks, I need to remind everyone that our discussion today will include forward-looking statements, including statements related to the impact of the COVID-19 pandemic on our business and strategic actions we are taking in response. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial conditions. We expect to file our 10-Q for the third quarter of 2020 tomorrow, and we encourage you to review that document at your earliest convenience. During today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation whereas they substitute for results prepared in accordance with GAAP and reconciliation if the comparable GAAP measures are available in an earnings relief. Before I turn the call over to President and Chief Executive Officer Bernard Okoka, I'd like to note that Bernard and I are in different locations today. Please bear with us if you experience any slight delays or minor audio quality issues. Bernard, please go ahead. Thank you, Larry.

Good afternoon, everyone, and thank you for joining us today. I hope that you and your families are staying safe and healthy. We're very pleased to be here today to discuss our third quarter results. We posted strong results for our most recent quarter that included a return back to positive, comparable restaurant sales while continuing to take advantage of operational efficiency. All in all, our efforts resulted in pro forma diluted earnings per share of 28 cents, a 40% increase compared to last year. We also managed to achieve the highest restaurant contribution margin in over two years. System-wide sales increased 1.8% during the third quarter. While system-wide sales comps continue to remain slightly positive in the current quarter thus far, the softening trends we were seeing at the end of July, specifically in our core Los Angeles market, carried forward through the third quarter and into October. The Los Angeles economy has been hard hit, especially during the pandemic, with an unemployment rate of 15.1% in September, nearly double the national rate. California was also hit with the second wave of the virus during the third quarter, leaving many businesses and schools, as well as restaurant dining rooms, closed to this day. As of now, none of our company-operated restaurant dining rooms are open in the state. For a bit of context, it's worth noting that system-comparable sales outside of Los Angeles increased 6% during the quarter, which gives us comfort that our L.A. sales trends are largely macro-driven, enabling us to potentially realize upside once the economy and the CMA opens up and economic conditions improve. Likewise, we are encouraged that we are about to start on November 2nd, one of our historically strongest promotions to conclude the fiscal year, our holiday promotion that features our one-of-a-kind handmade tamales. On the margin front, we achieved a 22.4% restaurant contribution margin within the quarter. After adjusting for a one-time COVID-related insurance recovery settlement, our restaurants delivered a restaurant contribution margin of 20.3%, continuing the momentum achieved in the second quarter. This compared to 18.6% last year and was the first time we delivered margins greater than 20% in two years. Our teams continue to do a fantastic job delivering operational efficiencies with an acute focus on food and labor cost management that is readily apparent in our results. We also continue to benefit from significant average check growth that is offsetting softer traffic trends and helping to drive additional labor efficiency. We believe the improvement we are seeing in our operating efficiencies will benefit us as sales in our core L.A. market return to more normalized levels. During the third quarter, we return to new product news with the launch of our L.A. Mex Burritos. As a reminder, LA Mex, which is the term we use to describe the food we serve, is the confluence of the healthy and active lifestyles of Los Angeles culture and Mexican-inspired tradition. LA Mex burritos are the poster child for LA Mex cuisine, which is why the rollout included the world's first keto-certified burrito, as well as our chickenless pollo burrito, which was certified vegan by the American Vegetarian Association. Apoyo Loco remains the only chicken brand that has rolled out a chicken alternative protein system-wide, and we look forward to expanding our portfolio to include even more Better For You products in 2021. We also continued our focus on family meals during the quarter, as families continue to spend more time than ever at home, and our healthier and affordable complete meals remain a popular option. As more meals these days become shared versus individual occasions, family meals continue to account for over 30% of our sales mix during the third quarter. In September, we relaunched our local rewards loyalty program with new enhancements that we believe will grow acquisition and increase engagement. As a result of the relaunch, local rewards recently reached a milestone of 2 million members enrolled in the program, and our app downloads have grown approximately 45% since the beginning of September. As a reminder, the revised rewards program includes a new free sign-up offer that can be redeemed immediately upon joining, a lower threshold to redeem loyalty rewards with a $5 award being issued for every $50 spent, and exclusive and relevant offers based on customer's purchase history intended to increase incremental visitation, check, and ultimately sales. We are encouraged by the momentum we are seeing as we look to make this program a bigger part of how we go to market over time. Lastly, as it relates to our third quarter initiatives, we launched GPS-enabled curbside pickup on September 28th. Now available at over 90% of our system-wide restaurants, customers can place their order through our app, park in one of our dedicated curbside parking spaces, and have their orders delivered to their car with the restaurant, being notified of their arrival through the GPS functionality. Execution of the launch went exceptionally well, and we are very pleased with the seamlessness of the technology. Customer feedback has been positive, and we continue to reduce average wait times with our goal of being one minute or less. Over time, we expect an increasing number of customers to utilize curbside pickups. as it provides an additional means to conveniently and safely access our brand, especially in a COVID world. Looking ahead, we have a number of initiatives underway or plans for the fourth quarter. We just recently celebrated Hispanic Heritage Month by supporting small Latina business owners who have been disproportionately impacted by the effects of the COVID-19 pandemic. Our partnership with We All Grow Latina enabled us to create the first-of-its-kind Latina Small Business Directory for food-related businesses to encourage the community to patronize these businesses, as well as award $130,000 in grant money to 13 Latina small business owners. In addition, the El Pollo Local Leadership Team will be providing one-on-one mentoring opportunities to these grant recipients as a means of helping them navigate through these challenging economic times. During the fourth quarter, we will also roll out stage one of our new drive-through initiative. It's no secret that the drive-through has taken on added value as a result of COVID, and we believe that we have an opportunity to enhance the drive-through experience for our customers with improvements in speed and accuracy. We have just completed training our teams on proper labor deployment, drive-through processes, side item projections and prepacking, food preparation, and line layout. We believe that this initiative will reduce window and order times and thereby significantly enhance drive-thru capacity. To further enhance our drive-thru operation, we are currently testing order-taking tablets capable of taking credit card payments and holding equipment with further plans to test additional technology to improve the drive-thru experience for our customers. Our goal is to cut in half the time it takes for customers to place orders and pick them up at the drive-thru window. Finally, given the success we have had over the past two years, we will once again celebrate the holidays in a big way at El Pollo Loco, tapping into what makes this time of year so special. We are excited to bring back our Holiday Tamale Bowls in addition to two other El Pollo Loco seasonal classics, our homemade pozole verde, a traditional Mexican holiday soup, and our decadent Mexican hot chocolate made with abuelita chocolate. All our holiday food and drinks will be served in festive holiday packaging and cups, which have become a seasonal iconic feature of our brand. In addition, we will be offering a lineup of holiday-themed gift cards in restaurants, retail outlets, and online. Before I turn the call over to Larry, I'd like to reiterate again how appreciative I am of the extraordinary efforts of our employees and franchisees. Their resilience and passion for our brand have been instrumental in navigating this unprecedented environment. While the COVID crisis will likely continue to present challenges, I continue to be very excited about the progress we've made against our transformation agenda. Our culture and brand fundamentals are now well-established. and we are driving against our off-premise strategy. Our new product pipeline has never been stronger, and our operations continue to improve as we institute systems and processes to ensure our customers have an exceptional experience at our restaurant. Lastly, as we finalize and test our new restaurant in the future during the fourth quarter, we will have completed the final piece of the transformation agenda, which sets us up well for future sales and unit growth as we seek to expand in our existing and new markets in the years ahead. Now, I'd like to turn the call over to Larry to review our third quarter results in more detail.