El Pollo Loco Holdings, Inc.

Hey, ladies and gentlemen, and thank you for standing by. Welcome to the El Pollo Loco third quarter 2022 earnings conference call. At this time, all participants have been placed in the listen-only mode, and the lines will be open for your questions following the presentation. Please note that this conference is being recorded today, November 3rd, 2022. And now I'd like to turn the conference over to Ira Fields, the company's chief financial officer.

Thank you, Operator, and good afternoon. By now, everyone should have access to our third quarter 2022 earnings release. If not, it can be found at www.elpoyoloco.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 impact of COVID-19 pandemic and macro environment on the business. as well as our marketing and new product initiatives, cash flow expectations, capital expenditure plans, remodel plans for new store openings, and expected income tax rate, 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 third 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 included in isolation or as a substitute for results prepared in accordance with GAAP and reconciliations to comparable GAAP measures are available in our earnings release. Now, I'd like to turn it over to Larry Roberts, Chief Executive Officer.

Thanks, Ira. And good afternoon, everyone. Before we get into the quarter, let me start by welcoming our new Chief Operating Officer, Maria Homsworth to the Apoyo Local family. As you may have seen from our press release, Maria joins us from Duncan, where she was Regional Vice President of Operations. Prior to Duncan, Maria spent over 20 years with Jack in the Box in numerous operating roles, including her most recent position as Vice President, Strategic Initiatives and Operations Services. With the recent addition of Ira Fields as CFO, and now Maria, I believe we have an outstanding leadership team that will provide the necessary skills and expertise to drive the continued expansion of El Pollo Loco. I'd also like to highlight that over the last 12 months, our system-wide sales exceeded $1 billion. This is a great accomplishment for El Pollo Loco and highlights the affinity people have for our brand and the huge growth opportunities we have ahead of us. Finally, As many of you have probably seen, on October 11th, we announced a declaration of a $1.50 special dividend and authorization to repurchase up to $20 million of our common stock. These programs underscore the strength of our balance sheet, and more importantly, the confidence we have in our business going forward. Turning to the third quarter, We're pleased with our continued top line momentum with system-wide comparable restaurant sales growth of 3.8%, including a 3.4% increase at company-owned restaurants and a 4.1% increase at franchise locations. Trends we saw towards the end of the second quarter continued into the third quarter, including the healthy growth of our lunch business year over year. I'm also pleased to add that our fourth quarter has started Similarly to the third, with system-wide same-store sales through October 26th increasing approximately 3.5%, including a 5.4% increase at company-owned restaurants and a 2.2% increase at franchise locations. Store-level margins during the third quarter continued to be pressured by wage, commodity, and utilities inflation. However, staffing levels improved throughout the quarter, and our company-operated restaurant teams made good progress managing their businesses resulting in pro forma earnings per share of 14 cents. We were very pleased with our Tostada promotion, which ran until mid-August. During several weeks of the promotion, Tostadas achieved an 18% menu mix, which was 400 base points higher than their previous peak, and they continue to make that over 14%, which is 200 base points higher than their pre-promotion mix. During the balance of the third quarter, we focused on value, marketing a family feast at $24 and a revised fire grill combo meals starting at $5. We believe these value offers are critical to attracting more value-conscious consumers. Looking ahead to November and the balance of year, we are very excited about our next promotion, overstuffed quesadillas, which includes a beef option that builds on the success of beef birria earlier this year. We believe this promotion will be highly appealing to younger consumers and a great fit for enhanced efforts in digital and social media with a particular focus on the use of TikTok. We'll also continue to promote our $24 family feast, which delivers great value for family and group gatherings. Looking ahead to next year, our 2023 marketing calendar will expand to six promotion modules from five this year. As a result of investments made in our product development process, These promotions will include the introduction of several new products that we believe will resonate with both new and existing consumers. More excitingly, we believe that several of these products have the potential to be permanent menu items that will broaden our appeal and drive increased frequency among current customers. Shifting to restaurant operations, I couldn't be more pleased with the progress we have made in our company operations. As I have previously noted, Our franchise partners have operated at very high levels throughout the last three years. After making this a key priority, service at our company-operated restaurants has dramatically improved over the past six months. Virtually all of our company-operated restaurants now operate full hours across all channels daily. While overtime staffing is still required in a number of locations, we expect to continue its downward trend given the applicant flow and our intensive focus on hiring and training. In addition to improved staffing levels, our focus on drive-through times, last visit excellence scores, and leadership training for area leaders is delivering outstanding results in company-operated restaurants. Drive-through times have continued to improve and are now the fastest they have been in almost two years. In addition to the hard work and dedication of our team members, our last visit excellence scores have improved by over 25 percentage points since March to the highest level they have ever been. More importantly, as our drive-through times and last visit excellence scores have improved, so have all our other key operating metrics, including our value scores, social media ratings, and customer complaints. I couldn't be prouder of our company-operated restaurant teams and restaurant leaders who have worked incredibly hard to improve their operations, as well as our franchise operators who have consistently delivered exceptional service through very challenging times. In conjunction with the improvements we made in our four-wall operations, we continued our efforts to simplify our restaurant operations during the quarter and are now very close to implementing several significant initiatives geared towards reducing operational complexity and improving product quality. These include the use of soap tanks to clean broilers and grill filters, revised onboarding processes that will cut the number of hours spent hiring and training new employees, and new salsa-making equipment that will further improve product quality and reduce preparation and cleaning time. We expect these to roll out to our system during the fourth quarter, enabling our team members to execute their daily duties more consistently and efficiently, thereby delivering an enhanced test experience. Turning to development, we opened two new company-owned and four new franchise restaurants during the quarter. In addition, we remodeled four company and two franchise restaurants. We are pleased to have recently finalized a five-unit development agreement for Chico Redding, California, and Southern Oregon that we spoke to last quarter. To date, we have signed four development agreements for a total of 17 restaurants, and we continue to have discussions with those existing and new franchisees to develop El Pollo Loco units in new markets. Our investments in franchise recruiting are clearly paying off as we continue to see a high level of interest from prospective partners, which gives us confidence in our expansion strategy and expect new unit growth to increase to 14 to 20 new restaurants in 2023. In closing, as we look ahead, the work we were doing this last year has us excited about 2023. First, our company-operated restaurant operations have improved significantly from where they were last year. With continued focus, they will improve even further, and the entire El Pollo Loco system will be providing service at very high levels as we enter the new year. Second, Utilizing our improved development process, we have a strong and exciting marketing calendar that includes new products, several of which could be permanent menu items capable of driving incremental traffic. Third, we continue to invest in and enhance our loyalty, digital and social media platforms. We will also be revamping our mobile app and website, which will enable the relaunch of our loyalty program with a brand new customer experience towards the end of the first quarter of 2023. And lastly, Our franchisee recruiting program continues to gain traction, and we look forward to bringing new partners into the Apoyo Loco family and introducing our great food to more cities across the United States. While it's very difficult to predict the future economic environment, we remain confident that the work we are doing this year is setting Apoyo Loco up for future growth and success. I'd like to thank our team members and franchise partners for the work they do every day to make Apoyo Loco an exceptional brand. With that, let me turn the call over to Ira for more detailed discussion of our third quarter financial results.