Portillo's Inc.

Investor Day on Tuesday, November 8th, with management presentations beginning at 9 a.m. Eastern Time. You may register for the live webcast by visiting our Investor Relations website at investors.portillos.com. In addition to viewing our presentations, webcast participants are welcome to submit questions during the live Q&A session with our management teams. We look forward to continuing the conversation with you on November 8th. Let me also remind everyone that part of today's discussion will include forward-looking statements. These statements are not guarantees of future performance and should not be unduly relied upon. We do not undertake to update these forward-looking statements unless required by law and refer you to today's earnings press release and our SEC filings for more detailed discussion of the risks that could impact Portillo's future operating results and financial condition. Our remarks also include non-GAAP financial measures such as adjusted EBITDA and restaurant-level adjusted EBITDA. We direct you to our earnings release issued this morning, which is available on our website, for the reconciliations of these non-GAAP measures to the most comparable GAAP measure. Any non-GAAP financial measure should not be considered as an alternative to GAAP measures, such as net income or operating income, or any other gap measure of our liquidity or financial performance. Finally, after we deliver our prepared remarks, we will open the lines for your questions. Now let me turn the call over to Michael Asanlu, President and Chief Executive Officer.

Thank you, Barb. We are incredibly proud to share the results of another great quarter with you. Our dedicated team members prove time and again that delivering an exceptional guest experience drives our solid financial performance. We have some of the best team members in the industry, and I want to thank them for living our values and making operational excellence a top priority at Portillo's. In the third quarter of 2022, total sales increased 9.5% to $151.1 million. Same restaurant sales grew 5.8%, showing resilience in this macroeconomic backdrop. We ended the quarter with average unit volumes of $8.4 million per restaurant. Our throughput continues to show up in our restaurant level adjusted EBITDA margin, which was 22.6% for the quarter. Now, Michelle will go over our financial results in more detail, but let me discuss the underlying drivers of our performance in the quarter. First, our strong comps serve as evidence that our pricing approach is working. Our pricing philosophy is to slightly lag inflation and our competitors. Let me be clear. We do take price. We just aren't going to be the first to do so. That's the crux of our price laggard strategy. The power of our value proposition is especially apparent during times of economic uncertainty. Our guests expect a high-quality meal at a great price point. This is something we carefully protect. So we've surgically taken price across our menu to keep up with inflationary trends while ensuring our guests feel that relative value in the quality and abundance of our food. We have two solid indicators that suggest our tactics have been prudent. Guest survey data and our guest counts. So first, our guest satisfaction scores have continued to trend higher in Q3. One component of that is a relative value score, which captures guest sentiment with respect to our value proposition. Even in this inflationary period where consumers have undoubtedly felt pinched, we continue to score high with our guests. Our value scores are the highest they've been in three years. We've seen that inflation for food at home has outpaced food away from home year to date. And further, We've deliberately priced less aggressively than other restaurant companies. Our guests can feel that value, and we're thrilled that they continue to tell us exactly that. Second, our guest count, which we calculate as the number of sandwiches and entree salads sold in the quarter, ticked up slightly. In other words, we served more people in Q3. This is proof that our price strategy is working. Next, our team members handle unbelievable volumes on a daily basis, which drives our restaurant-level margins. It's the energy of our people and the consistency of our operating model that translate into the attractive margin profile we enjoy at Portillo's. We see high contribution margins from every incremental beef sandwich, every incremental fry, every incremental hot dog sold, and we wouldn't be able to do that without the incredible frontline team members who rock our busy shifts and handle our ridiculous volumes. Because focus on operational excellence matters, we implemented another round of pay increases in the quarter. For us, attracting and retaining engaged team members is key to our continued success. In an environment where talent is hard to come by, our staffing levels are now over 100%, and our turnover has consistently been 20 to 30 percentage points better than the industry average. Investing in our team members is consistent with our values-driven culture, and our team members in turn take care of our guests, who in turn take care of our investors. Finally, we're gearing up to open five new restaurants over the next few months. First of these openings will be in Cherville, Indiana. Cherville is our eighth restaurant in Indiana, a market in which we continue to build out local scale. We've already invited fans to get a sneak peek before the soft opening next week. We'll open four more restaurants across the Sunbelt. We're continuing to build out Central Florida with West Kissimmee, and we're also on track to open our first location at the Grantscape Development in the Colony in Texas. We will add two more restaurants in Arizona, in Tucson and Gilbert. We continue to face lengthy permitting processes, which were largely responsible for clustering these builds into the fourth quarter. Our teams have been preparing well in advance to open the last five restaurants, but there is a chance that one of them moves into 2023 by a few weeks. We already have line of sight toward opening at least nine additional restaurants in 2023. Preparations are underway for three to five new restaurants in Texas, three to four in Central Florida, one to two in Arizona, one to two in Chicagoland, and one to two in Michigan over this timeframe. We had a great third quarter, and we're excited about the future of Portillo's. As we grow, we remain committed to the strategies driving these strong financial results. We will continue to take great care of our team members, who we treat like family. We will continue to maintain our value proposition by serving abundant portions of our delicious food at a great price. We will continue to focus on operational excellence and we will continue to build beautiful restaurants in high-growth markets. With that, let me hand it off to Michelle to share a few more details of the quarter.

Great. Thank you, Michael, and good morning, everyone. Before we discuss our third quarter results, I want to briefly recap our recent secondary offering. This quarter, we completed the offering of approximately 8 million shares of the company's Class A common stock at an offering price of $23.75 per share. All of the shares sold in the offering represented Class A and B shares owned by pre-IPO members. The company did not receive any proceeds from the sale of shares of Class A common stock, but rather used the net proceeds to purchase Class A and B shares from the pre-IPO members. Total number of shares remain the same. To reiterate, this transaction did not dilute any existing PTLO shareholders. Now, turning to the results for Q3. Our third quarter results prove again that our dedicated team members are delivering an exceptional guest experience, which is driving our consistently high average unit volumes and strong restaurant level adjusted EBITDA margins. This shows that we are resilient in the face of a tough macroeconomic environment. Let's now dive into the details. Revenues were $151.1 million, reflecting an increase of $13.1 million or 9.5% compared to the third quarter of 2021. This increase was driven by the opening of two new restaurants in the third and fourth quarters of 2021 and two new restaurants in 2022 combined with a 5.8% increase in same restaurant sales. The same restaurant sales increase of 5.8% was driven by 6.3% increase in average check and a 2.8% benefit from the change in recording third-party delivery pricing. This was partially offset by a decline in transactions of 3.3%. The higher average check was driven by 8.2% increase in menu prices, partially offset by lower items sold per transaction. When you look at our third quarter comp on a three-year geometric basis, we grew 10.7%, which is in line with our long-term target of low single digit annual growth. Cost of goods sold as a percentage of revenues increased to 35.3% in the third quarter of 2022 from 32.1% in the third quarter of 2021. This increase was largely driven by 15.4% average increase across all commodities. We saw higher impacts in beef and chicken in the quarter. Additionally, cost of goods sold was negatively impacted by 1.8% resulting from the change in recording third-party delivery pricing. These increases were partially offset by the increase in our average check. The commodity market continues to remain volatile, and we have and are taking measures to mitigate our risk within key input categories. We have locked in pricing on approximately 57% of our commodity basket for the fourth quarter of 2022. We believe our commodity basket will increase at 15% for fiscal 2022, the higher end of our previously guided range. Now moving on to labor. Labor as a percentage of revenues decreased to 25.9% in the third quarter of 2022 from 26.8% in the third quarter of 2021. This decrease was primarily driven by the increase in our average check and operational efficiencies. Partially offsetting these favorable variances was labor inflation. We continue to invest in our incredible team members with additional hourly rate increases put in place at the beginning of the third quarter. Other operating expenses increased 1.3 million or 8.5% in the third quarter of 2022. Occupancy expenses increased 0.6 million or 9.2%. Both increases were largely the result of new restaurant openings in 2021 and 2022. Restaurant level adjusted EBITDA decreased 0.5% to $34.1 million in the third quarter of 2022 from $34.2 million in the third quarter of 2021. Restaurant level adjusted EBITDA margins were 22.6% in the third quarter of 2022 versus 24.8% in the third quarter of 2021. The decrease of 220 basis points was driven by the continued impact of increased commodity costs, and to a lesser extent, labor inflation. We are partially offsetting these expense increases through menu price increases and operational efficiencies. During the first and second quarters of 2022, we increased menu prices on certain items by approximately 1.5% and 3.5%. In mid-October, we increased menu prices on certain items by approximately 3%. These increases combined with pricing actions taken in 2021 resulted in an effective increase in price of approximately 8.2% in the third quarter of 2022 and 7.4% year to date. As Michael mentioned, our philosophy is to lag inflation and our competitors. By not taking aggressive pricing, we are preserving our value proposition. We will continue to monitor the current environment and remain flexible and strategic in our pricing approach moving forward. Our focus remains providing a great value for our guests. Our G&A expenses increased 6.3 million to 12.0% in the third quarter of 2022 from 8.5% in the third quarter of 2021. This increase was primarily driven by increases in equity-based compensation expense of 3.2 million, an increase in insurance of 0.7 million, and transaction fees related to her secondary offering of $0.6 million. Pre-opening expenses increased $0.4 million to 0.5% in the third quarter of 2022 from 0.3% in the third quarter of 2021. The increase was due to preparation for the planned restaurant openings in the fourth quarter. All this led to adjusted EBITDA of $21.6 million in the third quarter of 2022 versus $24.2 million in the third quarter of 2021, a decrease of 10.7%. Below the EBITDA line, interest expense was $7.1 million in the third quarter of 2022, a decrease of $3.6 million from the third quarter of 2021. This decrease was driven by the payoff of our second lean term loan in the fourth quarter of 2021 and lower outstanding borrowings under our first lean term loan. This decrease was partially offset by 0.9 million of additional interest expense on our current term loan due to an increased interest rate. As of the end of Q3, the effective interest rate on the term loan was 8.8%. Income tax expense was 1.0 million in the third quarter of 2022, and our effective tax rate for the quarter was 23.9%. We ended the quarter with 46.7 million in cash. We will be using our cash balance plus operating cash flow to support our continued growth in the near term and beyond. We remain focused on our strategy, which is driving our strong financial results. We care about our teams, who in turn care for our guests. We prioritize our value proposition through strategic price management. We focus on operational excellence. And we will continue to build beautiful restaurants. Thank you for your time, and with that, I'll turn it back to Michael.