El Pollo Loco Holdings, Inc.

Welcome to the El Polo Loco First Quarter 2024 Earnings Conference Call. At this time, all participants have been placed in listen-only mode, and the lines will be open for your questions following the presentation. Please note that this conference is being recorded today, May 2, 2024. And now, I would like to turn the conference over to Ira Fields, the company's Chief Financial Officer. Please go ahead.

Thank you, Operator, and good afternoon. By now, everyone should have access to our first quarter 2024 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 growth opportunities, strategic operating initiatives, expectations regarding sales and margins, potential changes to our product platforms, capital expenditure plans, expectations regarding kiosk rollouts, the ability of our franchisees to drive growth, expectations regarding commodity and wage inflation, remodel plans, and our 2024 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 the year ended 2023 previously filed, as well as our Form 10-Q for the first quarter to be filed. 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 first quarter of 24 tomorrow. 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 or 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 CEO, Liz Williams.

Thank you, Ira, and good afternoon, everyone. I am thrilled to be speaking with you today on my first call as El Pollo Loco's new CEO. Since I joined El Pollo Loco at the beginning of March this year, I have been busy immersing myself in the business. From working the opening and closing shifts in our restaurant to marinating chicken and working the drive-through line, I've enjoyed spending time with team members and also our franchise partners as I've gained a comprehensive understanding of our operations. The more I become ingrained in our culture, the deeper my belief is that we have a truly unique brand with significant opportunities ahead of us. What attracted me to joining El Pollo Loco and what I believe to be the strength of our brand is our delicious, freshly prepared, high-quality food, and dedicated team members. My first few months at El Pollo Loco have only confirmed my excitement. Our food is cherished by our guests for taste, freshness, and quality. Our signature product, our fire-grilled citrus-marinated chicken, is prepared fresh daily in our restaurants for our customers. We are one of the few in the quick service restaurant category that can offer portable, craveable burritos and tacos alongside healthier options like tostada salads and pollo bowls. Next to our original chicken meal. In fact, consumer research shows that El Pollo Loco leads the quick service segment in our fresh, high-quality, healthy option offerings. This is an incredible equity in our world today and was clearly demonstrated by the success of our double Tostada LTO during the first quarter. Overall, I believe we have a tremendous opportunity to take this beloved brand to another level. In order to achieve that potential, I have focused the organization around five strategic pillars. First, a brand that wins. To be the flavorful, affordable, better for you chicken leader. Second, a hospitality mindset. Showing up consistently and with a hospitality mindset. Third, digital first. Become a digital first business in service of improving the customer experience. Fourth, deliver winning unit economics. And fifth, drive unit growth again with national expansion. So let's start with our first pillar, brand that wins. To broaden our reach with new customers, we need to sharpen our brand positioning by leaning heavily into key differentiators. Our citrus-marinated, fire-grilled chicken with our craveable flavors from Mexico and a menu of better-for-you offerings. El Pollo Loco sits at the intersection of chicken and Mexican, two of the fastest-growing categories. Over the next few months, we will focus on how we drive awareness that El Pollo Loco is the flavorful, affordable, better-for-you chicken brand. We are beloved for our high quality of ingredients, for our freshness and ability to customize, all for a good value and with the convenience of fast service, oftentimes through a drive-thru. We need to spend more time communicating these messages to an expanded consumer base across traditional and digital channels. We are also focused on simultaneously bringing thoughtful innovation and affordable options back to the brand. Bottom line, we have an incredible opportunity to position the brand for consistent long-term traffic gains. Next, Our second pillar, hospitality mindset. With any great brand, people are our greatest asset. And I am so impressed with the quality and commitment of our team members in our restaurant and the positive, inclusive culture we have built. As we revisit some of our standards, we are working closely with our operators and franchise partners to raise the bar and further our culture of accountability. Ultimately, our goal is to deliver speed and consistency in our operations. This starts with clear systems, process, tools, and best-in-class training programs. We know we have an opportunity for simplification and to continue to focus on priority labor initiatives to drive speed and to make the team member jobs easier, which will also enhance customer service. One example is the rollout of new equipment that will simplify the preparation of our freshly made salsa in the restaurant. Another example is the rollout of kiosks that enable customers to order more efficiently. I am excited with the focus and investment we are making in these two and other productivity areas and look forward to sharing more in the future. Quick, efficient, and consistent operations are critical to driving increased frequency and traffic gains. I am confident these initiatives will help us balance the rising labor costs while also keeping a focus on preparing quality food and enhancing our overall guest experience. Digital first is our next strategic pillar, unlocking a frictionless experience in our restaurants. To further differentiate our brand and reach customers for whom convenience and value are key decision factors, we have made several investments in consumer-facing technology, including our loyalty program, Loco Rewards, digital ordering through our website and mobile app, and our integrated delivery through third parties. We are also investing heavily in our digital experience, from digital menu boards to order confirmation boards, and now with the seamless adoption of our kiosks by our guests. When combined with a cash machine, our test restaurants have consistently been able to serve our guests more efficiently with less labor, especially at peak traffic periods. I'm pleased to say that we remain on track to complete the rollout of kiosks to all our company-owned restaurants later this summer. And our franchise partners are actively deploying these units as well. We are also exploring new digital technologies in the drive-through that enhance the customer experience and further automate ordering. We look forward to sharing more in upcoming calls as our test gets underway. Next, our fourth strategic pillar is deliver winning unit economics to further improve our restaurant profitability. Nothing replaces a strong business model and the flywheels that generates with growing the business and driving development. El Pollo Loco has historically had higher store-level margins, and we are focused on getting back in that range. In addition to the focus we have with labor productivity, we are closely reviewing everything from COGS, to R&M, utilities, and other controllable expenses. While still early in the process, we have identified several areas of improvement. But more importantly, we are doing this methodically to ensure it does not impact our high-quality food or the guest experience. Because we are still very early in the process, we have refrained from fully incorporating savings into the margin outlook that IRO will provide. But as we have greater insight into the timing and size of the potential savings, you can expect we will update future outlooks accordingly. Finally, we are pleased that the modernization of our store base through thoughtful remodeling is also showing improved sales and positive returns. In addition to welcoming our customers with an updated brand image, we are in the process of incorporating feedback from the recent remodel and further value engineering before full rollout. We remain optimistic about the continued remodeling plan for both company-owned and franchise restaurants. This leads to our last strategic pillar, driving unit growth. Partnering with world-class franchisees is key to our accelerated growth plan. I have been so impressed by the quality of our franchise system, the passion they have for the El Pollo Loco brand, and the collaborative partnership that has been built over many years. Building on the work that has been done over the last few months, I would like to share our focus going forward. Our first focus is to complete the work on updating our restaurant design and lowering build costs. Our current prototype costs about $2.2 million to build. Simply put, that is too expensive to drive consistent, long-term franchise growth. To remedy this, we are currently in the process of working with multiple partners to value engineer and reduce the cost of our prototype, while also making sure the image of the restaurant conveys our future brand image. We also recently launched a new development incentive for all of our franchise partners. We are excited about the combination of reducing the build cost, improving the unit level margins with our winning economic focus, together with a meaningful development incentive. Coupled with strong sales growth, we believe this formula will reinvigorate the pipeline over time. Finally, we are also thoughtfully evaluating our market entry strategy and existing market growth plans in addition to elevating our franchise recruitment process and support for new and existing franchise partners. We have recently reorganized to provide a higher level of support and continue to resource franchise operations. These initiatives, combined with more marketing and operational focus, on new markets will help ensure as new markets open, we have more success. There is still significant work ahead of us, but I firmly believe that El Pollo Loco should be and will be a national brand over time. That said, we need to get the right building blocks in place to ensure our long-term success. Let me conclude by saying I am optimistic about the future of El Pollo Loco and what we can accomplish as a team. I want to thank our over 4,300 team members and our franchise partners for their hard work and dedication every day. I am thrilled to work alongside you, and I look forward to nurturing our special culture and unlocking El Pollo Loco's long-term potential. With that, let me turn the call over to Ira for a more detailed discussion of our first quarter financial results.