PART I—FINANCIAL INFORMATION Financial Statements Unaudited condensed consolidated financial statements for El Pollo Loco Holdings, Inc. for Q2 2024, including balance sheets, income, and cash flows Condensed Consolidated Balance Sheets Total assets slightly increased to $593.8 million as of June 26, 2024, while total liabilities rose to $345.3 million, and stockholders' equity slightly decreased Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 26, 2024 | December 27, 2023 | | :--- | :--- | :--- | | Total Current Assets | $26,005 | $25,134 | | Total Assets | $593,846 | $592,301 | | Total Current Liabilities | $74,886 | $72,581 | | Revolver Loan | $87,000 | $84,000 | | Total Liabilities | $345,268 | $341,605 | | Total Stockholders' Equity | $248,578 | $250,696 | Condensed Consolidated Statements of Income For the thirteen weeks ended June 26, 2024, total revenue increased slightly to $122.2 million, net income rose to $7.6 million, and diluted EPS reached $0.25 Income Statement Summary (in thousands, except per share data) | Metric | Thirteen Weeks Ended June 26, 2024 | Thirteen Weeks Ended June 28, 2023 | Twenty-Six Weeks Ended June 26, 2024 | Twenty-Six Weeks Ended June 28, 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $122,176 | $121,492 | $238,329 | $236,018 | | Income from Operations | $12,318 | $10,888 | $21,997 | $18,639 | | Net Income | $7,633 | $7,056 | $13,545 | $11,974 | | Diluted EPS | $0.25 | $0.20 | $0.44 | $0.33 | Condensed Consolidated Statements of Cash Flows Net cash from operations increased to $28.1 million for the twenty-six weeks ended June 26, 2024, with significant cash used in investing and financing activities Cash Flow Summary (in thousands) | Cash Flow Activity | Twenty-Six Weeks Ended June 26, 2024 | Twenty-Six Weeks Ended June 28, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $28,117 | $21,796 | | Net cash used in investing activities | $(10,546) | $(8,899) | | Net cash used in financing activities | $(14,394) | $(23,207) | | Increase (decrease) in cash | $3,177 | $(10,310) | | Cash and cash equivalents, end of period | $10,465 | $10,183 | Notes to Condensed Consolidated Financial Statements Detailed explanations of accounting policies and financial figures, covering basis of presentation, property, debt, revenue, leases, and shareholder rights - The company operates 171 company-owned and 324 franchised restaurants in the United States as of June 26, 202427 - A significant concentration of risk exists, with restaurants in the greater Los Angeles area generating approximately 71.8% of total revenue for the thirteen weeks ended June 26, 202437 - On May 29, 2024, the Company terminated most of its obligations under the 2014 Tax Receivable Agreement (TRA) in exchange for a payment of $398,896 thousand63 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q2 2024 financial performance, highlighting a 4.5% increase in system-wide comparable sales, revenue drivers, cost fluctuations, and liquidity Market Trends and Uncertainties The company identifies market challenges including California's AB 1228, increasing minimum wage to $20/hour, and persistent inflationary pressures on costs - California's AB 1228, effective April 1, 2024, increased the minimum wage to $20/hour for fast food workers, expected to increase labor costs and adversely affect profitability168 - The company expects continued inflationary pressures in food, labor, construction, and other operating costs, partially offset by menu price increases and productivity improvements169 Highlights and Trends Q2 2024 system-wide comparable sales increased by 4.5%, with company-operated and franchised sales growing, and Loco Rewards reaching over 3.9 million members Comparable Restaurant Sales Growth (Q2 2024 vs Q2 2023) | Category | Comparable Sales Growth | | :--- | :--- | | System-wide | 4.5% | | Company-operated | 3.2% | | Franchised | 5.3% | - The 3.2% increase in company-operated comparable sales was composed of an 8.8% increase in average check size, partially offset by a 5.2% decrease in transactions176 - As of June 26, 2024, the Loco Rewards loyalty program had over 3.9 million members182 Comparison of Results of Operations In Q2 2024, company-operated revenue decreased due to refranchising, offset by comparable sales, while franchise revenue grew, and labor costs rose due to California wage increases - Company-operated restaurant revenue decreased by $1.6 million (1.5%) in Q2 2024, primarily due to a $5.4 million revenue loss from 19 restaurants sold to franchisees, partially offset by a $3.1 million (3.2%) increase in comparable restaurant sales206 - Franchise revenue increased by $1.5 million (15.1%) in Q2 2024, driven by a 5.3% increase in comparable sales and the addition of newly franchised restaurants208 Key Company Restaurant Expense Ratios (Q2 2024 vs Q2 2023) | Expense Category | % of Company Revenue (Q2 2024) | % of Company Revenue (Q2 2023) | | :--- | :--- | :--- | | Food and paper costs | 25.2% | 27.4% | | Labor and related expenses | 32.1% | 31.1% | | Occupancy and other operating expenses | 24.1% | 24.6% | Key Performance Indicators This section details non-GAAP metrics for Q2 2024, with system-wide sales at $285.6 million, improved restaurant contribution margin, and increased Adjusted EBITDA Key Performance Indicators (Thirteen Weeks Ended) | Metric (in thousands) | June 26, 2024 | June 28, 2023 | | :--- | :--- | :--- | | System-wide sales | $285,607 | $270,353 | | Restaurant contribution | $19,052 | $17,574 | | Adjusted EBITDA | $17,218 | $16,623 | - Restaurant contribution margin for company-operated restaurants increased to 18.6% for the thirteen weeks ended June 26, 2024, compared to 16.9% for the same period in 2023240 Liquidity and Capital Resources The company's liquidity sources include cash from operations and its $150.0 million revolving credit facility, with $87.0 million outstanding and significant share repurchases during the quarter - As of June 26, 2024, the company had $87.0 million outstanding on its 2022 Revolver, with $53.2 million in remaining borrowing availability266 - For the thirteen weeks ended June 26, 2024, the company repurchased 203,483 shares for approximately $2.0 million under its public Share Repurchase Program269 - On May 29, 2024, the company repurchased an additional 1,534,303 shares for a total of $15.0 million from FS Equity Partners V, L.P. and its affiliates271 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rate fluctuations on its variable-rate debt, inflation impacting costs, and commodity price volatility, particularly for chicken - The company is exposed to interest rate risk on its variable-rate debt; a hypothetical 1.0% increase on its $87.0 million of borrowings would increase annual pre-tax interest expense by $0.9 million272 - Inflation affects costs for food, paper, construction, utilities, and labor, which the company attempts to offset through menu price adjustments and productivity improvements274 - The company is exposed to commodity price fluctuations, particularly for chicken, and does not currently use financial instruments to hedge this risk275 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 26, 2024, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of June 26, 2024279 - No material changes in internal control over financial reporting occurred during the quarter ended June 26, 2024280 PART II—OTHER INFORMATION Legal Proceedings The company is involved in various ordinary course claims and legal actions but is not a party to any material legal proceedings - The company states that it is not party to any material legal proceedings, although it is involved in various ordinary course claims282 Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 27, 2023, have been reported - No material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 27, 2023, have been reported283 Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common stock repurchases during Q2 2024, totaling 1,752,080 shares, including repurchases under its public program and a separate agreement Share Repurchases (Quarter Ended June 26, 2024) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | March 28 - April 24, 2024 | 71,908 | $8.86 | | April 25 - May 22, 2024 | 79,369 | $10.00 | | May 23 - June 26, 2024 | 1,600,803 | $9.82 | | Total | 1,752,080 | N/A | - Of the total shares repurchased, 203,483 were under the public Share Repurchase Program, 14,294 were to satisfy employee tax withholdings, and 1,534,303 were under a separate agreement with FS Equity Partners286287 - Approximately $4.2 million remained available for repurchase under the publicly announced plan as of June 26, 2024285 Exhibits This section provides an index of exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - The exhibit index lists key corporate documents and required certifications, such as the CEO and CFO certifications under Section 302 and Section 906 of the Sarbanes-Oxley Act292293
El Pollo Loco(LOCO) - 2024 Q2 - Quarterly Report