El Pollo Loco Holdings, Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to El Pollo Loco's second quarter 2023 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 3rd, 2023. And now I would like to turn the conference over to Ira Filz, the company's chief financial officer. Thank you. Thank you, operator.

And good afternoon. By now, everyone should have access to our second quarter 2023 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 our strategic and operational initiatives expectations regarding cash flow, sales and margins, potential changes to our menu platforms, capital expenditure plans, future share repurchases, expectations regarding commodity and wage inflation, remodel plans, expected new store openings, franchise partnerships, and our 2023 guidance, 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 2023 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 reconciliations to comparable GAAP measures are available in our earnings release, which is available in the investor relations section of our website. With respect to the restaurant contribution margin outlook we will be providing on today's call, please note that we have not provided a reconciliation to the most directly comparable forward-looking GAAP financial measure because, without unreasonable efforts, we are unable to predict with reasonable certainty the amount of or timing of non-GAAP adjustments that are used to calculate income from operations and company-operated restaurant revenue on a forward-looking basis. Now, I would like to turn it over to our President and CEO, Larry Roberts.

Thanks, Ira, and good afternoon, everyone. I'd like to start by thanking our El Pollo Loco team members and our franchise partners for the hard work they put in every day to make this brand great. Without the dedication of everyone in the organization, we would not have been able to achieve the outstanding improvements we've seen across our operational metrics, including drive-through times, social media ratings, and customer complaints for both company and franchise restaurants. These efforts helped deliver restaurant contribution margin of 16.9%, an improvement of 190 basis points compared to last year's second quarter, and adjusted earnings per share of 23 cents. While our system-wide comparable restaurant sales decrease of 3.4% was below our expectations, primarily due to the lapping of our extremely successful beef dairy promotion last year. We are encouraged by the positive trend we've seen to start the third quarter, with system-wide comparable restaurant sales growth of 1.8% over the past four weeks ending July 26th. This includes comparable sales growth at company restaurants of 2.1% and a 0.4% decline in transactions. We believe that our improved sales performance is to some extent driven by refocusing on our famous fire grilled chicken through our current promotions, including our new double chicken chop salads and our new summer family meal that includes eight pieces of fire grilled chicken, three large sides, tortillas, and fresh salsa. Notably, guest feedback on our new chopped sals has been very strong, with quality, taste, healthy, and overall ratings among the highest we've seen for some time. Most importantly, the sals emphasize a major differentiator for Apoyo Loco relative to our competition, which is the freshness of our food and the healthier options we offer on our menu. This differentiation consistently shows up in our consumer research, and is highlighted by last week's recognition in the 2023 USA Today 10 Best Readers Choice Awards as we were voted by readers as a best restaurant for quick, healthy food. Going forward, we will continue developing products and advertising campaigns that drive this differentiation versus our competition. While we continue work to determine whether there is incremental opportunity for alternative proteins, including a carnitas promotion in the fourth quarter we will primarily focus on what makes El Pollo look unique, which is our fire-grilled citrus-marinated chicken and freshly prepared entrees that our guests crave. In addition to our promotional activities, with the launch of our double-chop salad promotion, we have reallocated media spend towards those channels that more effectively drive sales. This reallocation is based on a recently completed media effectiveness study and includes reducing spend on several digital channels while increasing it on more traditional channels like TV. We will continue to adjust our media allocation based on further analysis to ensure we are maximizing sales from our media spend. As we previously highlighted, we believe additional menu platforms are a significant opportunity for us to grow incremental sales, with the largest one being catering. Today, catering sales represent about 1% of our total system sales. Given how well our food travels, we believe catering can reach 5% of our system sales mix within the next one to two years. Over the past two months, our team has been hard at work revamping our catering program, including the development of a new catering menu that provides more options for customers in addition to our chicken-on-the-bone offerings. This work is largely completed, and we're now developing the market materials and training programs required to roll out the new program later in the third quarter. We're also evaluating partnerships with third-party catering delivery services that will further drive the program. After the initial rollout of the program, we will be testing the use of area catering managers to determine the impact they can have on growing our catering business. We are very excited about the potential of catering and believe it can become a $50 to $100 million sales layer for the Pollo Loco system over time. In addition to a catering platform, we continue to make progress on our menu board test, which includes several new menu items, the creation of an add-on panel, and potentially a new value menu. The goals of the new menu are to make it easier for consumers to navigate our menu and identify new items and platforms that will resonate with consumers to build sales over the long term. We're excited about the progress and expect to roll out a revised menu and menu board at the beginning of next year. Ultimately, growing comp sales depends on restaurants consistently delivering great food and service. Along these lines, I couldn't be more pleased with the operational improvements we made this year across both company and franchise restaurants. Drive-through times, customer complaints, and social media scores continue to improve in the second quarter and are at the best levels we have seen in years. As part of our efforts to continue improving the customer experience, we recently completed a recalibration process with each of our general managers to reiterate the importance of food quality and ensure consistency and continued availability of our fire grilled chicken across the system. In addition, we continue to make progress simplifying our operations. We expect to start rolling out new salsa processing equipment to the system later this year, and our kiosk test continues to yield positive results. We've begun expanding the task to 10 more restaurants with a number of franchisees participating. We believe these and other operational initiatives will further drive efficiencies and allow our teams to better serve our customers. With regards to our company culture, servant-led leadership continues to be the foundation with which we operate and what better way to demonstrate our familiar culture than providing greater support to the communities in which we operate. If you recall, back in November, we announced a new partnership with Feeding America with a goal to raise $400,000 for the Feeding America network of local food banks. I'm thrilled to report that through our limited time roundup campaign, our restaurant teams were able to raise over $474,000 as of June 30th, 2023, with our charitable organization, Apoyo Local Charities, matching the first 100,000 roundup transactions. Ninety percent of these donations are being distributed to food banks around our restaurants and the communities we serve. Lastly, let me provide an update on our unit expansions. In recent quarters, we've seen positive momentum in our franchising efforts as showcased by the development agreements we announced on our previous earnings call for Northern Colorado, New Mexico, and El Paso, Texas. That said, For 2023, we are reducing our unit guidance to two company-owned restaurants and three to four franchise restaurants. Similar to what you've heard from others in our industry, we continue to face permitting and construction delays outside of our control, as well as ongoing economic uncertainty causing franchisees to delay their development plans. Discussions on new development agreements continue with both existing and potential new franchisees, and we expect to make further progress during the balance of the year. In closing, we believe the initiatives we're executing against will drive same-store sales, increase restaurant margins over time to over 18 percent, and attract high-quality franchisees to a political system to drive new unit development. Moreover, we expect to continue being in a position to return cash to shareholders as we did in the second quarter through our share repurchase program. As we look to the back half of the year, we will continue to execute against our key strategies and position ourselves for sales and profit growth. Lastly, I'd like to once again thank our team members and franchise partners for the work they do each and every day to make Apoyo Loco a truly special brand. With that, let me turn the call over to Ira for a more detailed discussion of our second quarter financial results.