El Pollo Loco Holdings, Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the El Pollo Loco Second Quarter 2022 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, August 4th, 2022. And now I would like to turn the conference over to Ira Filz, Chief Financial Officer. Thank you. You may begin.

Thank you, Operator, and good afternoon. By now, everyone has access to our second quarter 2022 earnings release. If not, it can be found at www.lpoyoloco.com in the investor relations section. Before we begin our formal remarks, I need to remind everyone that our discussions today will include forward-looking statements, including statements related to the impacts of the COVID pandemic and macroeconomic environment on our business and strategic actions we are taking in response, as well as our marketing initiatives, cash flow expectations, capital expenditure plans, and plans for new store openings, among others. 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 currently expect. We refer you to our recent SEC filings, including our Form 10-K, for a more detailed discussion of the risks that could impact our future operating results and financial condition. We expect to file our 10-Q for the second quarter of 2022 tomorrow and would 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 or as a substitute for results prepared in accordance with GAAP, and Reconciliation's two comparable GAAP measures are available in our earnings release. Now, I would like to turn it over to Larry Roberts, our Chief Executive Officer.

Thank you, Ira. And good afternoon, everyone. Let me start by welcoming Ira to the Apoyo Local family. As many of you know, he's a well-rounded and accomplished executive with a strong 20 plus year track record of leadership and experience in the restaurant industry. I look forward to as many contributions as we execute on our strategic priorities in 2022 and beyond. Turning to our second quarter results, System-wide comparable restaurant sales increased 7.5%, including a 2.9% increase at company-owned stores and a 10.6% increase at franchise locations, helped in part by the success of our shredded beef birria limited-time offer. Labor and commodity inflation continued to persist during the second quarter, pressuring our store-level margins. Nevertheless, our team continued to do a nice job managing our business, resulting in pro forma diluted earnings per share of 21 cents. We believe efforts toward improving our brand differentiation and awareness were a key driver of our sales growth during the second quarter. As I noted on our last call, our shredded beef berry promotion, which ran from mid-March to early June, performed exceptionally well, aided by our new social media-centric marketing approach. With its success, we will be evaluating whether beef can be a permanent item on our menu. At the very least, we know that we have an exceptional, limited-time promotion that will be on the calendar for years to come. To build upon this excitement, we launched our Tristata promotion in early June by utilizing a similar marketing approach as with Beef Birria. This includes creating a new and unique content across the major social media channels with a special emphasis on TikTok, all of which is allowing us to send targeted messages to various user groups, particularly our younger consumer base. To date, the response to our tostada promotion has been outstanding. We have achieved record levels of tostada sales during promotion with our tostada mix averaging almost 18% since the start of the module. This is 400 basis points higher than our peak to solid mix last year. Despite the success of our recent promotions, we did see some softening in customer traffic starting in mid-June, mostly during our dinner day part. Quarter-to-date system same-store sales through July 27th increased 2.4%. We believe the softness at dinner is a combination of consumers pulling back due to economic uncertainties and a lack of value advertising for our dinner day part. We have not advertised family meals since December of 2021. With this in mind, we will be utilizing both TV and social media channels in the near term to promote more value-oriented messaging, starting with our family feast promotion, which includes eight pieces of chicken and a family-sized salad, two large sides, and churros for $24. Additionally, starting in August, we will advertise our fire-grilled value menu with a price point starting at $5. These meals include an entree with a choice of either a chicken and cheese quesadilla, original pollo bowl, classic chicken burrito, or tacos al carbon and comes with chips and a drink. To be clear, Neither the $24 family feast nor the $5 value menu are discount offerings, but rather they highlight our strong value proposition in what could be a challenging consumer environment. As we progress through the balance of year, we will continue to work on additional means of providing great value to our consumers without compromising our margins. While dealing with this challenging operating environment, we remain focused on executing our strategic priorities that are designed to strengthen our average unit volumes, improve our profitability, and in time, accelerate our store growth. Our marketing will continue to focus on those attributes that differentiate El Pollo Loco, including our flame-grilled chicken and freshly prepared food. As we've noted, social media would be a key medium for our messaging, and along those lines, we recently hired a vice president of digital marketing, to coordinate our digital and social media efforts. Accordingly, we are getting ready to completely revamp our mobile app and website, which we expect to complete in early 2023. This investment will enable us to significantly upgrade and unify the consumer experience on our website and app, as well as greatly enhance our loyalty program. In addition, as part of our strategy to become more relevant to younger consumers, we launched our Abuela Approved TikTok campaign in July. This campaign uses a series of short videos to tap into the growing popularity of abuelas or grandmothers. Napoleon Local recognizes that the generational gap is narrowing and there is a unique bond between grandparent and grandchild. In fact, the number of Americans living in a multi-generational household with three or more generations has nearly quadrupled over the past decade. Our content featuring Abuela is about acknowledging these dynamics and spreading joy and wisdom with a heavy dose of relatability. To date, the videos have been viewed over 3.5 million times on TikTok. Over time, we expect campaigns like Abuela Approved to attract younger consumers to our brand. Shifting to restaurant operations, which is another of our strategic priorities, We believe we have made significant progress during the quarter with regard to staffing, retention, processes, and routines at all operational levels. Beginning with staffing, applicant flow has increased significantly, and while a handful of our restaurants remain challenged, our overall staffing levels have improved tremendously. This combined with improved turnover has resulted in over 95% of company-owned restaurants being able to operate all channels at all hours every day. We've also made significant improvements in our four-wall execution, as demonstrated by the reduction of total drive-through times by approximately one minute and significant improvements across multiple consumer metrics. For example, our last visit excellence scores have improved by over 10 percentage points in company-operated restaurants since the first quarter of this year, and they're at the highest levels we've achieved since 2019. We believe these operational improvements enhance our consumer proposition and drive higher sales over time. Lastly, we continue to work on projects to simplify our restaurant operations. Since the launch of this initiative, we have implemented a number of changes that have reduced complexity as well as the labor hours required to complete various tasks. These include menu deletions, de-stemmed serrano peppers, pre-chopped cilantro, and revised tortilla packing procedures. In addition to these, we are testing a handful of initiatives, several of which we expect to implement in the near term, that could significantly reduce labor hours required in our back of house. These include new food processors for salsa, the use of soap tanks for cleaning grills, dishwashers, avocado slicers, and simplified onboarding procedures for new employees. These and other projects are part of a longer-term effort to streamline the daily work performed by employees, thereby improving their engagement and enhancing guest satisfaction through better execution in our restaurants. While our efforts to promote brand awareness and improve restaurant operations are key strategic initiatives, we believe it's equally important for Apoyo Loco to ingrain the right company culture. We've made significant progress in our restaurants, creating a servant-led leadership culture predicated on recognition while still maintaining accountability. This is clearly evident by the recognition boards we have in all of our restaurants, postings on Workplace by Facebook, and the engagement we are seeing amongst our teams. While these efforts will continue at our restaurants, we are also working to create a restaurant mindset within the support center. We want all support center employees to have a greater appreciation for the work our team members do to serve our customers. With that in mind, all new Support Center employees are now required to work two days in our restaurants as part of our onboarding process. In addition, all vice presidents and above are now required to spend one day per quarter visiting restaurants with either a senior company operator or a franchisee. And in August, we will be relaunching Day of Pollo, where all Support Center employees will work in a restaurant to show support for our restaurant team members. Finally, our support center employees will be given WOW pins to recognize team members who provide exceptional service when they visit one of our restaurants, either company operated or franchised. We believe these and additional initiatives will improve overall employee satisfaction, which will translate into a better experience for our customers. On the franchising front, I am very pleased that we recently signed a development agreement with a new franchisee for the Seattle area and are finalizing an agreement for Chico Redding, California and Southern Oregon. These, along with the opening of our first restaurant in Denver, scheduled for September, demonstrate that we are making progress in our efforts to develop in new markets with franchisees. In addition to these signings, we are in discussions with a number of other franchise candidates, which we hope to conclude with new development agreements over the balance of the year. As part of our franchising strategy, we are striving to put our restaurants in the hands of strong operators, and one way to accomplish that is to focus on expanded development opportunities with current franchise partners. To that end, one of our current franchisees with 12 restaurants in Phoenix and California has recently teamed up with a former company operator to purchase five restaurants in San Antonio and two restaurants in Louisiana from other franchisees. Both transactions include new development agreements six new restaurants in San Antonio, and four in Louisiana. In closing, while we are not immune to the softening trends the industry is seeing in the third quarter to date, we continue to make meaningful and tangible progress in our strategic initiatives, which will ultimately position the Apollo Local brand to better capture the opportunities ahead of us. I'd also like to thank our team members and franchise partners for their passion, commitment, and dedication to making this brand and this family truly special. With that, let me turn the call over to Ira for a more detailed discussion of our second quarter financial results.