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Forward-looking statements discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business.
−Removed: You can identify forward-looking statements because they do not relate strictly to historical or current facts.
+Added: You can identify forward-looking statements because they do not relate strictly to historical
+Added: or current facts.
These statements may include words such as “aim,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “outlook,” “potential,” “project,” “projection,” “plan,” “intend,” “seek,” “may,” “could,” “would,” “will,” “should,” “can,” “can have,” “likely,” the negatives thereof and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.
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These factors include, but are not limited to:
−Removed: ● the impacts of the novel coronavirus (COVID-19) pandemic on our company, our employees, our customers, our partners, our industry and the economy as a whole, as well as our franchisees ability to maintain operations in their individual restaurants;
−Removed: ● the adverse impact of economic conditions on our (i) operating results and financial condition, (ii) ability to comply with the terms and covenants of our debt agreements, and (iii) ability to pay or refinance our existing debt or to obtain additional financing;
+Added: ● the impacts of the COVID-19 pandemic on our company, our employees, our customers, our partners, our industry and the economy as a whole, as well as our franchisees’ ability to maintain operations in their individual restaurants;
● our ability to open new restaurants in new and existing markets, including difficulty in finding sites and in negotiating acceptable leases;
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● vulnerability to changes in consumer preferences and economic conditions;
+Added: ● vulnerability to political and social factors, including regarding trade, immigration or customer preferences;
● vulnerability to conditions in the greater Los Angeles area;
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● our ability to effectively identify and secure appropriate new sites for restaurants;
+Added: ● the possibility that we may continue to incur significant impairment of certain of our assets, in particular in our new markets;
● changes to food and supply costs, especially for chicken;
−Removed: ● negative publicity, whether or not valid, and our ability to respond to and effectively manage the accelerated impact of social media;
+Added: ● social media and negative publicity, whether or not valid, and our ability to respond to and effectively manage the accelerated impact of social media;
● our ability to continue to expand our digital business, delivery orders and catering;
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● our ability to service our level of indebtedness;
+Added: ● uncertainty related to the success of our marketing programs, new menu items, advertising campaigns and restaurant designs and remodels;
● our reliance on our franchisees, who may incur financial hardships, lose access to credit, close restaurants, or declare bankruptcy, and our limited control over our franchisees and potential liability for their acts;
−Removed: ● the impact of any security breaches of confidential customer information in connection with our electronic process of credit and debit card transactions;
+Added: ● potential exposure to unexpected costs and losses from our self-insurance programs;
+Added: ● potential obligations under long-term and non-cancelable leases, and our ability to renew leases at the end of their terms;
● the impact of any failure of our information technology system or any breach of our network security;
−Removed: ● ability to protect our name and logo and other proprietary intellectual property;
−Removed: ● other risks set forth in our filings with the SEC from time to time, including under Item 1A, Risk Factors in our annual report on Form 10-K for the year ended December 25, 2019, under Item 1A, Risk Factors in our quarterly report on Form 10-Q for the quarter ended March 25, 2020 and under Item 1A, Risk Factors in our quarterly report on Form 10-Q for the quarter ended June 24, 2020, which such filings are available online at www.sec.gov , at www.elpolloloco.com or upon request from El Pollo Loco.
+Added: ● the impact of any security breaches of confidential customer data or personal information in connection with our electronic process of credit and debit card transactions;
+Added: ● our ability to enforce and maintain our trademarks and protect our other proprietary intellectual property;
+Added: ● risks related to government regulation and litigation, including employment and labor laws;
+Added: ● other risks set forth in our filings with the SEC from time to time, including under Item 1A, Risk Factors in our annual report on Form 10-K for the year ended December 30, 2020, which filings are available online at www.sec.gov .
We caution you that the important factors referenced above may not contain all of the factors that are important to you.
−Removed: In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences we anticipate or affect us or our operations in the ways that we expect.
+Added: In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences we anticipate or affect us or our operations in the ways
+Added: that we expect.
The forward-looking statements included in this report are made only as of the date hereof.
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We qualify all of our forward-looking statements by these cautionary statements.
−Removed: El Pollo Loco is a differentiated and growing restaurant concept that specializes in fire-grilling citrus-marinated chicken and operates in the limited service restaurant (“LSR”) segment.
−Removed: We strive to offer food that integrates the culinary traditions of Mexico with the healthier lifestyle of Los Angeles, a combination that we call “LA-Mex”.
−Removed: Our distinctive menu features our signature product--citrus-marinated fire-grilled chicken--and a variety of Mexican and LA-inspired entrees that we create from our chicken.
−Removed: We serve individual and family-sized chicken meals, a variety of Mexican and
−Removed: LA-inspired entrees, and sides, and, throughout the year, on a limited-time basis, additional proteins like shrimp.
−Removed: Our entrees include favorites such as our Chicken Avocado Burrito, Under 500 Calorie entrees, chicken tostada salads, and Pollo Bowls.
+Added: El Pollo Loco is a differentiated and growing restaurant concept that specializes in fire-grilling citrus-marinated chicken and operates in the LSR segment.
+Added: We strive to offer food that integrates the culinary traditions of Mexico with the healthier lifestyle of Los Angeles, a combination that we call “LA-Mex.” Our distinctive menu features our signature product--citrus-marinated fire-grilled chicken--and a variety of Mexican and LA-inspired entrees that we create from our chicken.
+Added: We serve individual and family-sized chicken meals, a variety of Mexican and LA-inspired entrees, and sides, and, throughout the year, on a limited-time basis, additional proteins like shrimp.
+Added: Our entrees include favorites such as our Chicken Avocado Burrito, Pollo Fit entrees, chicken tostada salads, and Pollo Bowls.
Our famous Creamy Cilantro dressings and salsas are prepared fresh daily, allowing our customers to create their favorite flavor profiles to enhance their culinary experience.
−Removed: Our distinctive menu with healthier alternatives appeals to consumers across a wide variety of socio-economic backgrounds and drives our balanced composition of sales throughout the day (our “day-part mix”), including at lunch and dinner.
+Added: Our distinctive menu with better for you and more affordable alternatives appeals to consumers across a wide variety of socio-economic backgrounds and drives our balanced composition of sales throughout the day (our “day-part mix”), including at lunch and dinner.
COVID-19 Impact
−Removed: On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus ("COVID-19") originating in Wuhan, China and the risks to the international community as the virus spreads globally beyond its point of origin.
−Removed: On March 11, 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.
The COVID-19 pandemic has significantly disrupted our restaurant operations.
−Removed: Following the pandemic declaration in March 2020, federal, state and local governments began to respond to the public health crisis by requiring social distancing, "stay at home"
−Removed: directives, and restaurant restrictions - including government-mandated dining room closures - that limited business to off-premise services only (take-out, drive-thru and delivery).
−Removed: Historically, approximately 20% of the Company’s sales are associated with dine-in service.
−Removed: In May 2020, the “stay at home” directive was temporarily modified in most areas in which the Company operates, allowing for the opening of lower-risk workplaces, including restaurants, but with restrictions such as limited capacity.
−Removed: However, in July a surge in the COVID-19 pandemic caused many state and local governments to re-implement certain additional restrictions to try and contain the spread of the virus.
−Removed: As of September 23, 2020 the majority of the Company’s restaurants were permitted to be open with limited capacity;
−Removed: however, while most of the Company’s markets outside of California have dining rooms open at a limited capacity, the majority of the Company’s restaurants in California are continuing to operate on a take-away, mobile pick-up and delivery basis, as well as maintaining drive-thru operations where available, in order to protect their employees and customers from the spread of the COVID-19 pandemic and to comply with the government mandates.
−Removed: Due to the impact of the COVID-19 pandemic, during the thirteen and thirty-nine weeks ended September 23, 2020, we temporarily closed 40 restaurants and 65 restaurants, respectively, of which all but three have reopened as of September 23, 2020.
−Removed: Similarly, during the thirteen and thirty-nine weeks ended September 23, 2020, franchisees temporarily closed 15 restaurants and 36 restaurants, respectively, of which all but three have reopened as of September 23, 2020.
−Removed: As of September 23, 2020, we have not permanently closed any restaurants due to the COVID-19 pandemic.
−Removed: Below is a summary of other actions we have taken to enhance financial and operating flexibility for the Company and for our franchisees, and to protect our employees and customers:
−Removed: ● As a precautionary measure, we initially bolstered our existing cash position by fully drawing down our $150 million 2018 Revolver, adding $34.5 million of cash to our balance sheet.
−Removed: However, subsequent to the initial drawdown, we paid down $57.7 million on our 2018 Revolver.
−Removed: See Note 4 to Item 1 above for further details regarding our current debt balances.
−Removed: Subsequent to September 23, 2020, we made an additional voluntary pre-payment of $28.0 million on the 2018 Revolver.
−Removed: Refer to “Subsequent Events” in Note 1 to Item 1 above.
−Removed: ● We have temporarily suspended all share repurchase activity, significantly reduced capital spending, reevaluated essential support center general and administrative expenses, and fine-tuned our restaurant labor model based on indoor dining room restrictions, limited dining room capacity in restaurants located in geographies where indoor dining is permitted, dining room closures and fluctuating sales volume.
−Removed: ● For our franchisees, we deferred 50% of their April royalties until July 1, 2020, when such royalties began to be repaid in even monthly installments over the remainder of fiscal 2020.
−Removed: In addition, we deferred 100% of our franchisees’ 2020 remodel and new restaurant build requirements until 2021.
−Removed: We also established a support team to assist franchisees in accessing funds and benefits provided by the CARES Act legislation.
−Removed: ● For our employees, we continue to implement actions to help protect them from the coronavirus while working in our restaurants.
−Removed: These include implementing pre-shift health assessments, enhanced cleaning procedures in our restaurants, providing gloves and masks to all system restaurant employees, installing plexiglass shields at company restaurant cashier stations and initiating other social distancing measures.
−Removed: We are providing extended sick leave benefits to employees impacted by COVID-19, and we have granted two weeks paid leave for employees who are 65 or older.
−Removed: ● We have shifted our marketing to highlight our free delivery program;
−Removed: our Family Meals as a healthier and affordable option;
−Removed: and our meaningful value platform.
−Removed: Additionally, we have added curbside pick-up, enabling customers to pick-up their orders from the safety of their own cars.
−Removed: ● We delayed making April, May and June rent payments on the majority of our leased properties, and we have reached rent abatement and/or deferment agreements with our landlords for those properties.
−Removed: ● We have taken advantage of provisions available under the CARES Act.
−Removed: Specifically, we have deferred payment of employer Social Security taxes that are otherwise owed for wage payments.
−Removed: The full impact of the COVID-19 outbreak continues to evolve as of the date of this report.
−Removed: Management is continually evaluating the impact of the global crisis on its financial condition, liquidity, operations, suppliers, industry, and workforce and will take additional actions as necessary.
−Removed: The disruption in operations has led to us considering the impact of the COVID-19 pandemic on our liquidity, debt covenant compliance, and recoverability of long-lived and ROU assets, goodwill and intangible assets, among others.
−Removed: If these disruptions to our operations from COVID-19 pandemic continue, they may have a material negative impact on our financial results, future operations and liquidity.
−Removed: The extent of such negative impact will depend, in part, on the longevity and severity of the COVID-19 pandemic.
−Removed: Due to the rapid development and fluidity of this situation, we cannot determine the ultimate impact that the COVID-19 pandemic will have on our consolidated financial condition, liquidity, and future results of operations, and therefore any prediction as to the ultimate materiality of the adverse impact on our consolidated financial condition, liquidity, and future results of operations is uncertain.
+Added: Following the pandemic declaration in March 2020, federal, state and local governments began to respond to the public health crisis by requiring social distancing, “stay at home” directives, and restaurant restrictions - including government-mandated dining room closures - that limited business to off-premise services only (take-out, drive-thru and delivery).
+Added: Historically, approximately 20% of our sales are associated with dine-in service.
+Added: Many state and local governments continue to periodically implement certain restrictions to try and contain the spread of the virus.
+Added: As of March 31, 2021, the majority of our restaurants have dining rooms open at a limited capacity and continue to maintain take-away, mobile pick-up, delivery, and drive-thru operations where available.
+Added: During the last two months of 2020 and early 2021, the Los Angeles market was heavily impacted by an increase in COVID-19 cases.
+Added: Due to our high concentration of restaurants in this market, we were disproportionately impacted by this spike.
+Added: During the thirteen weeks ended March 31, 2021, we temporarily closed 45 restaurants, of which all have reopened as of March 31, 2021.
+Added: Similarly, during the thirteen weeks ended March 31, 2021, our franchisees temporarily closed 15 restaurants, of which all have reopened as of March 31, 2021.
+Added: For both franchise-operated and company-operated restaurants, this represents total temporary closures and may include more than one closure for the same restaurant.
+Added: These closures typically lasted from one to three days.
+Added: As of March 31, 2021, we had not permanently closed any restaurants due to the COVID-19 pandemic.
+Added: Subsequent to March 31, 2021, the Company has temporarily closed two restaurants, typically for one to three days, and franchisees have not temporarily closed any restaurants.
+Added: During the thirteen weeks ended March 31, 2021, we incurred 2.8 million in COVID-19 related expenses, primarily due to leaves of absence and overtime pay.
Growth Strategies and Outlook
−Removed: As of September 23, 2020, we had 478 locations in six states.
−Removed: In fiscal 2019, we opened two new company-operated and two new franchised restaurants all in California.
−Removed: For the thirty-nine weeks ended September 23, 2020, one new company-operated restaurant was opened in Nevada, which was in process prior to the COVID-19 pandemic, and two franchised restaurants were opened, one in California and one in Arizona.
−Removed: As a result of the COVID-19 crisis, we have suspended company-operated new unit development until the timing of the economic recovery and our business improvement becomes more clear.
−Removed: In addition, we are allowing franchisees to defer their 2020 new unit development obligations until 2021.
−Removed: As a result, we do not expect to open any additional company-operated or franchised restaurant during the remainder of 2020.
−Removed: It is our intention to return to the following long-term growth strategy after the impact of the COVID-19 pandemic subsides.
+Added: As of March 31, 2021, we had 481 locations in six states.
+Added: In fiscal 2020, we opened one new company-operated restaurant in Nevada, which was in process prior to the COVID-19 pandemic and our franchisees opened three new restaurants, two in California and one in Arizona.
+Added: For the thirteen weeks ended March 31, 2021, two new company-operated restaurants were opened, one in Nevada and one in California, and no new franchised restaurants were opened.
We plan to continue to expand our business, drive restaurant sales growth, and enhance our competitive positioning, by executing the following strategies:
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Comparable Restaurant Sales
−Removed: System-wide, for the thirteen and thirty-nine weeks ended September 23, 2020, comparable restaurant sales increased by 1.8% and decreased by 3.2%, respectively, from the comparable period in the prior year.
−Removed: For company-operated restaurants, comparable restaurant sales for the thirteen and thirty-nine weeks ended September 23, 2020 increased by 0.2% and decreased by 3.0%, respectively.
−Removed: For company-operated restaurants, the quarter’s change in comparable restaurant sales consisted of an approximately 18.1% increase in average check size, partially offset by a decline in transactions of 15.2%, and the year-to-date change in comparable restaurant sales consisted of a 15.2% decline in transactions, partially offset by a 14.4% increase in average check size.
−Removed: For franchised restaurants, comparable restaurant
−Removed: sales increased 3.0% and decreased 3.3% for the thirteen and thirty-nine weeks ended September 23, 2020, respectively.
−Removed: Refer to Comparable Restaurant Sales definition in "Key Performance Indicators"
−Removed: section below.
+Added: For the thirteen weeks ended March 31, 2021, system-wide comparable restaurant sales increased by 7.4%, from the comparable period in the prior year.
+Added: For company-operated restaurants, comparable restaurant sales for the thirteen weeks ended March 31, 2021 increased by 3.3%.
+Added: For company-operated restaurants, the quarter’s change in comparable restaurant sales consisted of an approximately 15.7% increase in average check size, partially offset by a decline in transactions of 10.7%.
+Added: For franchised restaurants, comparable restaurant sales increased 10.5% for the thirteen weeks ended March 31, 2021.
+Added: Refer to Comparable Restaurant Sales definition in “Key Performance Indicators” section below.
Restaurant Development
−Removed: Our restaurant counts at the beginning and end of each of the last three fiscal years and the thirty-nine weeks ended September 23, 2020, were as follows.
−Removed: Thirty-Nine Weeks Ended
+Added: Our restaurant counts at the beginning and end of each of the last three fiscal years and the thirteen weeks ended March 31, 2021, were as follows:
+Added: Thirteen Weeks Ended
Fiscal Year Ended
−Removed: September 23, 2020
+Added: March 31, 2021
Company-operated restaurant activity:
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Restaurant Remodeling
−Removed: As of September 23, 2020, together with our franchisees, we had remodeled 34 company-operated and 45 franchised restaurants using our newest Vision restaurant design.
−Removed: The Vision design elevates the brand image with exterior and interior features that embrace the brand’s authentic roots with warm textures, rustic elements and a focus on the signature open kitchen layout established in previous designs.
−Removed: As of September 23, 2020, including new builds and remodels, we had 120 restaurants open with the Vision design in our system.
−Removed: Remodeling is a use of cash and has implications for our net property and equipment owned and depreciation and amortization line items on our condensed consolidated balance sheets and consolidated statements of income, among others.
−Removed: The cost of our Vision design restaurant remodels varied depending on the scope of work required, but on average, the investment was $0.3 million to $0.4 million per restaurant.
−Removed: We believe that our Vision design remodeling program resulted in higher restaurant revenue and a strengthened brand.
−Removed: In addition, we are currently working on a new asset design that we believe will clearly differentiate and communicate our brand, both on the exterior and interior.
−Removed: We believe that this new design will deliver improved unit volumes and cash on cash returns in both existing and new markets.
−Removed: We also believe that our remodels using this new design will result in higher restaurant revenue and a strengthened brand.
−Removed: If tests are successful, this new design will replace our “Vision” design, which was implemented in 2016.
−Removed: However, given the uncertainty surrounding the severity and longevity of the COVID-19 pandemic, as a precautionary measure we have significantly reduced capital spending in 2020 and plan to limit our remodels to two restaurants using the new design in the fourth quarter.
−Removed: We do not expect our franchisees to complete any remodels in 2020 as we have deferred their remodel requirements until 2021.
+Added: In 2020, we finalized a new restaurant design that we believe will clearly differentiate and communicate our brand, both on the exterior and interior.
+Added: We believe that our remodels using this new design will result in higher restaurant revenue and a strengthened brand.
+Added: As of March 31, 2021 we have completed five remodels using the new asset design.
+Added: In fiscal 2021, we plan to complete a total of 15 company and 40 franchise remodels using the new design.
During the second quarter of 2017, we introduced a new loyalty rewards points program in an effort to increase sales and loyalty among our customers, by offering rewards that incentivize customers to visit our restaurants more often each month.
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As points are available for redemption past the quarter earned, a portion of the revenue associated with the earned points will be deferred until redemption or expiration.
−Removed: As of both September 23, 2020 and December 25, 2019, the revenue allocated to loyalty points that have not been redeemed is $1.0 million and $1.1 million, respectively, which is reflected in the Company’s accompanying condensed consolidated balance sheets within other accrued expenses and current liabilities.
−Removed: The Company had almost 2.0 million loyalty program members as of September 23, 2020.
+Added: As of both March 31, 2021 and December 30, 2020, the revenue allocated to loyalty points that have not been redeemed is $0.7 million and $0.9 million, respectively, which is reflected in the Company’s accompanying condensed consolidated balance sheets within other accrued expenses and current liabilities.
+Added: The Company had over 2.2 million loyalty program members as of March 31, 2021.
Critical Accounting Policies and Use of Estimates
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Recent Accounting Pronouncements
−Removed: Recent accounting pronouncements are described in Note 1 to our condensed consolidated financial statements included in Item 1 above.
+Added: Recent accounting pronouncements are described in Note 1, “Basis of Presentation and Summary of Significant Accounting Policies” in the Notes to Condensed Consolidated Financial Statements above.
Key Financial Definitions
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company-operated restaurant revenue, franchise revenue, which is comprised primarily of franchise royalties and, to a lesser extent, franchise fees and sublease rental income, and franchise advertising fee revenue.
−Removed: See Note 10 to Item 1 above for further details regarding our revenue recognition policy.
+Added: See Note 10, “Revenue from Contracts with Customers” in the Notes to Condensed Consolidated Financial Statements above for further details regarding our revenue recognition policy.
Food and Paper Costs
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Occupancy Costs and Other Operating Expenses
−Removed: Occupancy costs include rent, common area maintenance, and real estate taxes.
+Added: Occupancy costs include rent, CAM, and real estate taxes.
Other restaurant operating expenses include the costs of utilities, advertising, credit card processing fees, restaurant supplies, repairs and maintenance, and other restaurant operating costs.
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When the Company closes a restaurant, it will evaluate the right-of-use (“ROU”) asset for impairment, based on anticipated sublease recoveries.
−Removed: The remaining value of the ROU asset is amortized on a straight-line basis, with the expense recognized in closed-store reserve expense, in addition to property tax and common area maintenance ("CAM") charges for closed restaurants.
+Added: The remaining value of the ROU asset is amortized on a straight-line basis, with the expense recognized in closed-store reserve expense, in addition to property tax and CAM charges for closed restaurants.
Interest Expense, Net
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Provision for income taxes consists of federal and state taxes on our income.
−Removed: Comparison of Results of Income
−Removed: Our operating results for the thirteen weeks ended September 23, 2020 and September 25, 2019 and expressed as percentages of total revenue, with the exception of cost of operations and company restaurant expenses, which are expressed as a percentage of company-operated restaurant revenue, are compared below.
+Added: Comparison of Results of Operations
+Added: Our operating results for the thirteen weeks ended March 31, 2021 and March 25, 2020 and expressed as percentages of total revenue, with the exception of cost of operations and company restaurant expenses, which are expressed as a percentage of company-operated restaurant revenue, are compared below.
Thirteen Weeks Ended
−Removed: September 23, 2020
−Removed: September 25, 2019
+Added: March 31, 2021
+Added: March 25, 2020
Increase / (Decrease)
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Occupancy and other operating expenses (1)
−Removed: Gain on recovery of insurance proceeds, lost profits (1)
Company restaurant expenses (1)
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Impairment and closed-store reserves
−Removed: Loss on disposition of restaurants
Total expenses
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All other percentages use total revenue.
−Removed: Our operating results for the thirty-nine weeks ended September 23, 2020 and September 25, 2019 and expressed as percentages of total revenue, with the exception of cost of operations and company restaurant expenses, which are expressed as a percentage of company-operated restaurant revenue, are compared below.
−Removed: Thirty-Nine Weeks Ended
−Removed: September 23, 2020
−Removed: September 25, 2019
−Removed: Increase / (Decrease)
−Removed: Statements of Income Data
Company-Operated Restaurant Revenue
−Removed: Franchise revenue
−Removed: Franchise advertising fee revenue
−Removed: Total revenue
−Removed: Cost of operations
−Removed: Food and paper costs(1)
−Removed: Labor and related expenses(1)
−Removed: Occupancy and other operating expenses(1)
−Removed: Gain on recovery of insurance proceeds, lost profits(1)
−Removed: Company restaurant expenses(1)
−Removed: General and administrative expenses
−Removed: Franchise expenses
−Removed: Depreciation and amortization
−Removed: Loss on disposal of assets
−Removed: Recovery of securities lawsuits related legal expenses and other insurance claims
−Removed: Impairment and closed-store reserves
−Removed: Loss on disposition of restaurants
−Removed: Total expenses
−Removed: Income from operations
−Removed: Interest expense, net of interest income
−Removed: Income tax receivable agreement expense (income)
−Removed: Income before provision for income taxes
−Removed: Provision for income taxes
−Removed: (1) Percentages for line items relating to cost of operations and company restaurant expenses are calculated with company-operated restaurant revenue as the denominator.
−Removed: All other percentages use total revenue.
−Removed: Company-Operated Restaurant Revenue
−Removed: For the quarter, company-operated restaurant revenue decreased $1.8 million, or 1.8%, from the comparable period in the prior year.
−Removed: The decline in company-operated restaurant sales was primarily due to a decrease in company-operated restaurant revenue of $1.9 million from the closure of two restaurants and the five company-operated restaurants sold by the Company to franchisees during or subsequent to the third quarter of 2019, a $0.6 million decrease due to temporary restaurant closures due to the COVID-19 pandemic and a $0.2 million decrease in revenue recognized for our loyalty points program.
−Removed: This company-operated restaurant sales decrease was partially offset by an increase of $0.7 million of non-comparable restaurant sales on restaurants that had not been open the fifteen months required to be included in comparable restaurant sales and an increase of $0.2 million due to a 0.2% increase in company-operated comparable restaurant sales.
+Added: For the quarter, company-operated restaurant revenue increased $1.5 million, or 1.6%, from the comparable period in the prior year.
+Added: The increase in company-operated restaurant sales was primarily due to a 3.3% increase in company-operated comparable restaurant sales and an increase of $0.5 million of non-comparable restaurant sales.
The company-operated comparable restaurant sales increase consisted of an approximately 15.7% increase in average check size, partially offset by a decline in transactions of 10.7%.
It is uncertain whether the increase in average check size will persist once the pandemic ends.
−Removed: Year-to-date, company-operated restaurant revenue decreased $18.7 million, or 6.3%, from the comparable period in the prior year.
−Removed: The decline in company-operated restaurant sales was primarily due to a $11.3 million decrease in revenue from the closure of four restaurants and the 16 company-operated restaurants sold by the Company to franchisees during or subsequent to the first quarter of 2019, a decrease in company-operated restaurant revenue of $8.5 million due to a 3.0% decrease in company-operated comparable restaurant sales, which we believe was primarily related to the impact of the COVID-19 pandemic, and a $1.0 million decrease due to temporary restaurant closures due to the COVID-19
+Added: This company-operated restaurant sales increase was partially offset by a $1.0 million decrease in revenue due to temporary restaurant closures resulting from the COVID-19 pandemic, and a less than $0.1 million decrease in revenue recognized for our loyalty points program.
See above under “COVID-19 Impact” for additional information related to the impact of the COVID-19 pandemic on our business.
−Removed: This company-operated restaurant sales decrease was partially offset by an increase of $2.1 million of non-comparable restaurant sales on restaurants that had not been open the fifteen months required to be included in comparable restaurant sales.
−Removed: The company-operated comparable restaurant sales decrease consisted of a decline in transactions of 15.2%, partially offset by a 14.4% increase in average check size.
−Removed: It is uncertain whether the increase in average check size will persist once the pandemic ends.
Franchise Revenue
For the quarter, franchise revenue increased $0.6 million, or 7.8%, from the comparable period in the prior year.
−Removed: This increase was primarily due to a franchise comparable restaurant sales increase of 3.0%, the opening of two new franchised restaurants and revenue generated from five company-operated restaurants sold by the Company to franchisees during or subsequent to the third quarter of 2019, and revenue recognized related to franchise development agreements.
−Removed: This franchise revenue increase was partially offset by the closure of nine franchise locations during or subsequent to the third quarter of 2019.
−Removed: Year-to-date, franchise revenue decreased less than $0.1 million, or 0.3%, from the comparable period in the prior year.
−Removed: This decrease was primarily due to a franchise comparable restaurant sales decrease of 3.3%, which we believe was primarily due to the COVID-19 pandemic, the closure of nine franchise locations during or subsequent to the first quarter of 2019 and a decrease in fees received from franchised restaurants related to their use of our point-of-sales system.
−Removed: See above under “COVID-19 Impact” for additional information related to the impact of the COVID-19 pandemic on our business.
−Removed: This franchise revenue decrease was almost fully offset by the opening of four new franchised restaurants and revenue generated from 16 company-operated restaurants sold by the Company to franchisees during or subsequent to the first quarter of 2019.
+Added: This increase was primarily due to a franchise comparable restaurant sales increase of 10.5% and the opening of three units during or subsequent to the first quarter of 2020.
+Added: This franchise revenue increase was partially offset by the closure of seven franchise locations during or subsequent to the first quarter of 2020.
Franchise Advertising Fee Revenue
For the quarter, franchise advertising fee revenue increased $0.5 million, or 8.8%, from the comparable period in the prior year.
−Removed: Year-to-date, franchise advertising fee revenue decreased $0.2 million, or 1.4%, from the comparable period in the prior year.
−Removed: As advertising fee revenue is a percentage of franchisees’ revenue, both the quarter and year-to-date fluctuations were due to the increases and decreases noted in franchise revenue above.
+Added: As advertising fee revenue is a percentage of franchisees’ revenue, the quarter-to-date fluctuations were due to the increases and decreases noted in franchise revenue above.
Food and Paper Costs
−Removed: For the quarter, food and paper costs decreased $2.6 million, or 9.4%, from the comparable period in the prior year, primarily due to a $2.5 million decrease in food costs and a $0.1 million decrease in paper costs.
−Removed: Year-to-date, food and paper costs decreased $9.2 million, or 11.1%, from the comparable period in the prior year, due to a $8.1 million decrease in food costs and a $1.1 million decrease in paper costs.
−Removed: The decrease in food and paper costs, for the quarter and year-to-date periods, resulted primarily from lower company transactions, due to the COVID-19 pandemic, lower food waste and a vendor rebate received.
+Added: For the quarter, food and paper costs decreased $1.2 million, or 4.6%, from the comparable period in the prior year, primarily due to a $1.2 million decrease in food costs.
+Added: The decrease in food and paper costs for the quarter resulted primarily from lower company transactions and more effective waste management, partially offset by sales mix and commodity inflation.
For the quarter, food and paper costs as a percentage of company-operated restaurant revenue were 25.9%, down from 27.6% in the comparable period of the prior year.
−Removed: Year-to-date, food and paper costs as a percentage of company-operated restaurant revenue were 26.4%, down from 27.9% in the comparable period of the prior year.
−Removed: The percentage decrease for the quarter and year-to-date periods was due primarily to an increase in pricing, lower food usage, effective waste management and favorable sales mix, partially offset by commodity inflation.
+Added: The percentage decrease for the quarter was due primarily to an increase in pricing, lower food usage and effective waste management, partially offset by sales mix and commodity inflation.
Labor and Related Expenses
−Removed: For the quarter, labor and related expenses decreased $0.5 million, or 1.8%, from the comparable period in the prior year.
−Removed: Year-to-date, labor and related expenses decreased $4.9 million, or 5.6%, from the comparable period in the prior year.
−Removed: The decrease for the quarter and year-to-date periods was due primarily to a reduction in labor by restaurants closed or sold to franchisees, adjustments to the labor model based on dining room closures, operating hours and lower sales volumes and lower group insurance and workers compensation expense due to decreased claims activity.
−Removed: These decreases were partially offset by higher wages primarily due to minimum wage increases in California during fiscal 2019 and 2020, and labor costs associated with the COVID-19 pandemic.
+Added: For the quarter, labor and related expenses increased $2.0 million, or 7.1%, from the comparable period in the prior year.
+Added: The increase for the quarter was due to $2.8 million increase in labor costs associated with the COVID-19 pandemic and $0.5 million higher wages primarily due to minimum wage increases in California during fiscal 2020 and 2021.
+Added: These increases were partially offset by $1.0 million in labor efficiencies and $0.3 million decrease in workers compensation expense due to decreased claims activity.
For the quarter, labor and related expenses as a percentage of company-operated restaurant revenue were 32.6%, consistent with the comparable period in the prior year.
This percentage was impacted by wage increases in California and labor costs associated with the COVID-19 pandemic, offset by an increase in pricing and labor efficiencies.
−Removed: Year-to-date payroll and benefit expenses as a percentage of company-operated restaurant revenue were 30.0%, up from 29.7% in the comparable period in the prior year.
−Removed: The increase for the year-to-date period was due primarily to sales deleverage, wage increases in California, and labor costs associated with the COVID-19 pandemic.
−Removed: Partially offsetting these increases were the positive impacts of an increase in pricing and labor efficiencies.
Occupancy and Other Operating Expenses
−Removed: For the quarter, occupancy and other operating expenses was flat from the comparable period of the prior year.
−Removed: Fluctuations in occupancy and other expenses consisted primarily of a $0.6 million increase in customer order delivery fees payable to third parties due to an increase in delivery orders and a $0.2 million increase in other operating expenses.
−Removed: These increases were offset by a $0.3 million decrease in utilities costs, a $0.2 million decrease in occupancy costs, primarily related to a reduction in rent expense from restaurants closed or sold to franchisees, and a decrease in other operating expenses of $0.3 million.
−Removed: Year-to-date, occupancy and other operating expenses decreased $2.2 million, or 3.2%, from the comparable period of the prior year.
−Removed: The decrease was primarily due to a $1.0 million decrease in repair and maintenance costs, a $1.0 million decrease in utilities costs, a $0.9 million decrease in occupancy costs, primarily related to a reduction in rent expense from restaurants closed or sold to franchisees, a $0.8 million decrease in advertising expenses, a $0.4 million decrease in credit card fees primarily related to a decrease in rates and transactions and a $0.1 million decrease in other operating expenses.
−Removed: These decreases were partially offset by a $2.0 million increase in customer order delivery fees payable to third parties due to an increase in delivery orders.
+Added: For the quarter, occupancy and other operating expenses increased $1.7 million, or 7.8%, from the comparable period of the prior year.
+Added: Fluctuations in occupancy and other expenses consisted primarily of a $0.6 million increase in market place delivery fees, a $0.3 million increase in occupancy costs, primarily related to rent expense and higher general liability claims, a $0.3 million increase in repairs and maintenance costs, a $0.3 million increase in operating supplies, a $0.1 million increase in advertising fees, a $0.1 million increase in credit card charges and a $0.1 million increase in utilities.
+Added: These increases were partially offset by a $0.1 million decrease in other operating expenses.
For the quarter, occupancy and other operating expenses as a percentage of company-operated restaurant revenue were 25.3% up from 23.9% in the comparable period in the prior year.
−Removed: Year-to-date, occupancy and other operating expenses as a percentage of company-operated restaurant revenue were 24.4%, up from 23.7% in the comparable period of the prior year.
−Removed: The increases for the quarter and year-to-date periods resulted primarily from the increases noted above and sales deleverage.
−Removed: Gain on Recovery of Insurance Proceeds, Lost Profits
−Removed: During the thirteen and thirty-nine weeks ended September 23, 2020, we received business interruption insurance proceeds of $2.0 million, primarily related to restaurant sales losses and expenses related to the COVID-19 pandemic and resulting dining room closures.
+Added: The increases for the quarter resulted primarily from the increases noted above.
General and Administrative Expenses
For the quarter, general and administrative expenses increased $1.1 million, or 12.2%, from the comparable period in the prior year.
−Removed: The increase for the quarter was due primarily to a $0.8 million increase in labor related costs, primarily related to an increase in management bonus expense, and a $0.4 million increase in stock compensation expenses.
−Removed: This increase was partially offset by a $0.4 million decrease in legal expenses, a $0.2 million decrease in restaurant pre-opening costs, a $0.2 million decrease in recruiting costs and a $0.1 million decrease in other general and administrative expenses.
−Removed: Year-to-date, general and administrative expenses decreased $0.6 million, or 2.1%, from the comparable period in the prior year.
−Removed: The decrease for the year-to-date period was due primarily to a $0.6 million decrease in labor related costs, largely related to a decrease in management bonus expense, decrease in severance expense and lower group insurance costs.
−Removed: Additionally, there was a $0.1 million decrease in legal expenses related primarily to a decrease in securities class action litigation costs, partially offset by a $2.5 million legal settlement related to the resolution of the longstanding lawsuit involving a contract dispute with one of the Company’s franchisees concerning asserted territory rights.
−Removed: These decreases were partially offset by a $0.1 million increase in other general and administrative expenses.
+Added: The increase for the quarter was due primarily to a $0.6 million increase in labor related costs, primarily related to an increase in management bonus expense, a $0.3 million increase in legal and professional expenses, a $0.3 million increase in stock compensation expenses and a $0.1 million increase in restaurant pre-opening costs.
+Added: This increase was partially offset by $0.1 million decrease in recruiting costs and a $0.1 million decrease in other general and administrative expenses.
For the quarter, general and administrative expenses as a percentage of total revenue were 9.7%, up from 8.9% in the comparable period of the prior year.
−Removed: Year-to-date, general and administrative expenses as a percentage of total revenue were 9.4%, up from 9.0% in the comparable period of the prior year.
−Removed: The percentage increase for the quarter and year-to-date periods resulted primarily from the decline in revenue, as well as the cost increases discussed above.
−Removed: Recovery of Securities Class Action Legal Expenses and Other Insurance Claims
−Removed: During the thirty-nine weeks ended September 23, 2020, we received insurance proceeds of $0.1 million related to a property claim.
−Removed: During the thirty-nine weeks ended September 25, 2019, we received insurance proceeds of $10.0 million related to the settlement of the securities class action lawsuit.
−Removed: See Note 7, “Commitments and Contingencies, Legal Matters.”
−Removed: Loss on Disposition of Restaurants
−Removed: During the thirteen and thirty-nine weeks ended September 25, 2019, we completed the sale of four company-operated restaurants within the San Francisco area to an existing franchisee and seven company-operated restaurants in the Phoenix area to another existing franchisee.
−Removed: We determined that these restaurant dispositions represent multiple element arrangements, and as a result, the cash consideration received was allocated to the separate elements based on their relative selling price.
−Removed: Cash proceeds included upfront consideration for the sale of the restaurants and franchise fees, as well as future cash consideration for royalties and lease payments.
−Removed: We also considered the future lease payments in allocating the initial cash consideration received.
−Removed: The cash consideration per restaurant for franchise fees is consistent with the amounts stated in the related franchise agreements, which are charged for separate standalone arrangements.
−Removed: We initially defer and subsequently recognize the franchise fees over the term of the franchise agreement.
−Removed: Future royalty income is also recognized in revenue as earned.
−Removed: These sales resulted in cash proceeds of $4.8 million and a net loss on sale of restaurants of $5.1 million for the thirty-nine weeks ended September 25, 2019.
−Removed: These restaurants are included in the total number of franchised El Pollo Loco restaurants.
+Added: The percentage increase for the quarter-to-date period resulted primarily from the cost increases discussed above.
Impairment and Closed-Store Reserves
−Removed: During the thirteen and thirty-nine weeks ended September 23, 2020, we recognized a $1.5 million and $3.5 million non-cash impairment charge, respectively, primarily related to the carrying value of the ROU assets of one restaurant in Texas and the long-lived assets of four restaurants in California.
−Removed: During the thirteen and thirty-nine weeks ended September 25, 2019, we recorded a non-cash impairment charge of $0.1 million and $0.3 million, respectively, primarily related to the carrying value of the assets of one restaurant in California.
+Added: During the thirteen weeks ended March 31, 2021, we recorded non-cash impairment charges of $0.3 million, primarily related to the carrying value of the ROU assets of one restaurant in Texas closed in 2019 and the long-lived assets of three restaurants in California.
+Added: During the thirteen weeks ended March 25, 2020, we recorded a non-cash impairment charge of $1.9 million, primarily related to the carrying value of the assets of one restaurant in Texas and the long-lived assets of three restaurants in California.
Given the inherent uncertainty in projecting results for newer restaurants in newer markets, as well as the impact of the COVID-19 pandemic, the Company is monitoring the recoverability of the carrying value of the assets of several restaurants on an ongoing basis.
3 unchanged sentences
Additionally, any property tax and CAM payments relating to closed restaurants are included within closed-store expense.
−Removed: During the thirteen and thirty-nine weeks ended September 23, 2020, we recognized $0.3 million and $1.1 million, respectively, of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.
−Removed: During the thirty-nine weeks ended September 25, 2019, we closed one restaurant in California and one restaurant in Texas and recognized $0.3 million and $1.0 million of closed-store reserve expense for the thirteen and thirty-nine weeks ended September 25, 2019, respectively, primarily related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.
+Added: During the thirteen weeks ended March 31, 2021, we recognized $0.3 million of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.
+Added: During the thirteen weeks ended March 25, 2020, we recognized $0.5 million of closed-store reserve expense, primarily related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.
Interest Expense, Net
−Removed: For each of the quarter and year-to-date periods, interest expense, net, decreased $0.2 million from the comparable period in the prior year.
+Added: For the quarter, interest expense, net, decreased $0.4 million from the comparable period in the prior year.
The decrease is primarily related to lower interest rates and lower outstanding balances on our 2018 Revolver.
1 unchanged sentence
On July 30, 2014, we entered into the TRA.
−Removed: The TRA calls for us to pay to our pre-IPO stockholders 85% of the savings in cash that we realize in our taxes as a result of utilizing our net operating losses and other tax attributes attributable to preceding periods.
−Removed: For the thirteen and thirty-nine weeks ended September 23, 2020, we recorded income tax receivable
−Removed: agreement income of $0.1 million and income tax receivable expense of less than $0.1 million, respectively, and for the thirteen and thirty-nine weeks ended September 25, 2019 we recorded income tax receivable agreement income of $0.2 million and $0.1 million, respectively.
+Added: The TRA calls for us to pay to our pre-IPO stockholders 85% of the savings in cash that we realize in our taxes as a result of utilizing our NOLs and other tax attributes attributable to preceding periods.
+Added: For the thirteen weeks ended March 31, 2021, we recorded income tax receivable agreement income of less than $0.1 million, and for the thirteen weeks ended March 25, 2020 we recorded income tax receivable agreement income of $0.1 million.
Provision for Income Taxes
−Removed: For the quarter ended September 23, 2020, we recorded an income tax provision of $1.6 million, reflecting an estimated effective tax rate of 14.2%.
−Removed: For the quarter ended September 25, 2019, we recorded an income tax provision of $2.9 million, reflecting an estimated effective tax rate of approximately 31.5%.
−Removed: Year-to-date ended September 23, 2020, we recorded an income tax provision of $3.7 million, reflecting an estimated effective tax rate of approximately 16.3%.
−Removed: Year-to-date ended September 25, 2019, we recorded an income tax provision of $9.0 million, reflecting an estimated effective tax rate of approximately 29.5%.
−Removed: The difference between the 21.0% statutory rate and the Company’s effective tax rate of 16.3% for the year-to-date ended September 23, 2020 is primarily a result of state taxes, a Work Opportunity Tax Credit benefit, the change in valuation allowance against certain state credits as a result of future forecasted income apportioned to the state jurisdiction, non-deductible executive compensation, changes to total expected TRA payments due to changes in future forecasted taxable income and windfall tax benefit related to stock options exercised, recorded as a discrete item during the thirteen and thirty-nine weeks ended September 23, 2020.
+Added: For the quarter ended March 31, 2021, we recorded an income tax provision of $1.6 million, reflecting an estimated effective tax rate of 28.7%.
+Added: For the quarter ended March 25, 2020, we recorded an income tax provision of $1.3 million, reflecting an estimated effective tax rate of approximately 26.5%.
+Added: The difference between the 21.0% statutory rate and the Company’s effective tax rate of 28.7% for the quarter ended March 31, 2021 is primarily a result of state taxes, a Work Opportunity Tax Credit benefit, the change in valuation allowance against certain state credits, a windfall tax benefit related to stock options exercised and non-deductible executive compensation.
Key Performance Indicators
To evaluate the performance of our business, we utilize a variety of financial and performance measures.
−Removed: These key measures include company-operated restaurant revenue, comparable restaurant sales, company-operated average unit volumes, restaurant contribution, restaurant contribution margin, new restaurant openings, EBITDA, and Adjusted EBITDA.
+Added: These key measures include company-operated restaurant revenue, system-wide sales, comparable restaurant sales, restaurant contribution, restaurant contribution margin, new restaurant openings, EBITDA, and Adjusted EBITDA.
+Added: System-Wide Sales
+Added: System-wide sales are neither required by, nor presented in accordance with, accounting principles generally accepted in the United States of America (“GAAP”).
+Added: System-wide sales are the sum of company-operated restaurant revenue and sales from franchised restaurants.
+Added: Our total revenue in our consolidated statements of operations is limited to company-operated restaurant revenue and franchise revenue from our franchisees.
+Added: Accordingly, system-wide sales should not be
+Added: considered in isolation or as a substitute for our results as reported under GAAP.
+Added: Management believes that system-wide sales are an important figure for investors, because they are widely used in the restaurant industry, including by our management, to evaluate brand scale and market penetration.
+Added: The following table reconciles system-wide sales to company-operated restaurant revenue and total revenue:
+Added: Thirteen Weeks Ended
+Added: (Dollar amounts in thousands)
+Added: March 31, 2021
+Added: March 25, 2020
Company-operated restaurant revenue
+Added: Franchise revenue
+Added: Franchise advertising fee revenue
+Added: Total Revenue
+Added: Franchise revenue
+Added: Franchise advertising fee revenue
+Added: Sales from franchised restaurants
+Added: System-wide sales
+Added: Company-Operated Restaurant Revenue
Company-operated restaurant revenue consists of sales of food and beverages in company-operated restaurants net of promotional allowances, employee meals, and other discounts.
9 unchanged sentences
Comparable restaurant sales exclude restaurants closed during the applicable period.
−Removed: At September 23, 2020 and September 25, 2019, there were 468 and 462 comparable restaurants, 191 and 198 company-operated restaurants and 277 and 264 franchised restaurants, respectively.
+Added: At March 31, 2021 and March 25, 2020, there were 465 and 472 comparable restaurants, 191 and 191 company-operated restaurants and 274 and 281 franchised restaurants, respectively.
Comparable restaurant sales indicate the performance of existing restaurants, since new restaurants are excluded.
Comparable restaurant sales growth can be generated by an increase in the number of meals sold and/or by increases in the average check amount, resulting from a shift in menu mix and/or higher prices resulting from new products or price increases.
−Removed: Company-Operated Average Unit Volumes
−Removed: We measure company-operated average unit volumes (“AUVs”) on both a weekly and an annual basis.
−Removed: Weekly AUVs consist of comparable restaurant sales over a seven-day period from Thursday to Wednesday.
−Removed: Annual AUVs are
−Removed: calculated using the following methodology:
−Removed: First, we divide our total net sales for all company-operated restaurants for the fiscal year by the total number of restaurant operating weeks during the same period.
−Removed: Second, we annualize that average weekly per-restaurant sales figure by multiplying it by 52.
−Removed: An operating week is defined as a restaurant open for business over a seven-day period from Thursday to Wednesday.
−Removed: This measurement allows management to assess changes in consumer spending patterns at our restaurants and the overall performance of our restaurant base.
Restaurant Contribution and Restaurant Contribution Margin
10 unchanged sentences
Thirteen Weeks Ended
−Removed: Thirty-Nine Weeks Ended
(Dollar amounts in thousands)
−Removed: September 23, 2020
−Removed: September 25, 2019
−Removed: September 23, 2020
−Removed: September 25, 2019
+Added: March 31, 2021
+Added: March 25, 2020
Restaurant contribution:
6 unchanged sentences
Franchise advertising fee revenue
−Removed: Recovery of securities lawsuits related legal expenses and other insurance claims
Impairment and closed-store reserves
−Removed: Loss on sale of restaurants
Restaurant contribution
16 unchanged sentences
EBITDA and Adjusted EBITDA as presented in this report are supplemental measures of our performance that are neither required by, nor presented in accordance with, GAAP.
−Removed: EBITDA and Adjusted EBITDA are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income, operating income, or any other performance measures derived in accordance with GAAP, or as alternatives to cash flow from operating
−Removed: activities as a measure of our liquidity.
+Added: EBITDA and Adjusted EBITDA are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income, operating income, or any other performance measures derived in accordance with GAAP, or as alternatives to cash flow from operating activities as a measure of our liquidity.
In addition, in evaluating EBITDA and Adjusted EBITDA, you should be aware that in the future we will incur expenses or charges such as those added back to calculate EBITDA and Adjusted EBITDA.
5 unchanged sentences
We believe that EBITDA and Adjusted EBITDA facilitate operating performance comparisons from period to period by isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies.
−Removed: These potential differences may be caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense).
−Removed: We also present EBITDA and Adjusted EBITDA because (i) we believe that these measures are frequently used by securities analysts, investors and other interested parties to evaluate companies in our industry, (ii) we believe that investors will find these measures useful in assessing our ability to service or incur indebtedness, and (iii) we use EBITDA and Adjusted EBITDA internally for a number of benchmarks including to compare our performance to that of our competitors and for compensation performance benchmarks.
−Removed: The following table sets forth reconciliations of EBITDA and Adjusted EBITDA to our net income:
+Added: These potential differences may be caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or NOL) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense).
+Added: We also present EBITDA and Adjusted EBITDA because (i) we believe that these measures are frequently used by securities analysts, investors and other interested parties to evaluate companies in our industry, (ii) we believe that investors will find these measures useful in assessing our ability to service or incur indebtedness, and (iii) we use EBITDA and Adjusted EBITDA internally for a number of benchmarks including to compare our performance to that of our competitors.
+Added: The following table sets forth reconciliations of our net income to our EBITDA and Adjusted EBITDA:
Thirteen Weeks Ended
−Removed: Thirty-Nine Weeks Ended
(Amounts in thousands)
−Removed: September 23, 2020
−Removed: September 25, 2019
−Removed: September 23, 2020
−Removed: September 25, 2019
+Added: March 31, 2021
+Added: March 25, 2020
Non-GAAP adjustments:
4 unchanged sentences
Loss on disposal of assets (b)
−Removed: Recovery of securities lawsuits related legal expense and other insurance claims (c)
−Removed: Impairment and closed-store reserves (d)
−Removed: Loss on disposition of restaurants (e)
−Removed: Income tax receivable agreement (income) expense (f)
−Removed: Securities class action legal expense (g)
−Removed: Legal settlements (h)
−Removed: Pre-opening costs (i)
−Removed: Executive transition costs (j)
+Added: Impairment and closed-store reserves (c)
+Added: Income tax receivable agreement income (d)
+Added: Securities class action legal expense (e)
+Added: Legal settlements (f)
+Added: Pre-opening costs (g)
Adjusted EBITDA
1 unchanged sentence
(b) Loss on disposal of assets includes the loss on disposal of assets related to retirements and replacement or write-off of leasehold improvements or equipment.
−Removed: (c) During thirty-nine weeks ended September 23, 2020, we received insurance proceeds of $0.1 million related to a property claim.
−Removed: During the thirteen and thirty-nine weeks ended September 25, 2019, we received insurance proceeds of $10.0 million related to the settlement of the securities class action lawsuit.
−Removed: See Note 7, “Commitments and Contingencies, Legal Matters.”
−Removed: (d) Includes costs related to impairment of long-lived assets and closing restaurants.
−Removed: During the thirteen and thirty-nine weeks ended September 23, 2020, we recognized $1.5 million and a $3.5 million, respectively, non-cash impairment charge, primarily related to the carrying value of the ROU assets of one restaurant in Texas and the long-lived assets of four restaurants in California.
−Removed: During the thirteen and thirty-nine weeks ended September 25, 2019, we recorded a non-cash impairment charge of $0.1 million and $0.3 million, respectively, primarily related to the carrying value of the assets of one restaurant in California.
−Removed: Given the difficulty in projecting results for newer restaurants in newer markets, as well as the impact of the COVID-19 pandemic, we are monitoring the recoverability of the carrying value of the assets of several restaurants on an ongoing basis.
−Removed: For these restaurants, if expected performance is not realized, an impairment charge may be recognized in future periods, and such charge could be material.
−Removed: When a restaurant is closed, we will evaluate the ROU asset for impairment, based on anticipated sublease recoveries.
−Removed: The remaining value of the ROU asset is amortized on a straight-line basis, with the expense recognized in closed-store reserve expense.
−Removed: Additionally, any property tax and CAM payments relating to closed restaurants are included within closed-store expense.
−Removed: During the thirteen and thirty-nine weeks ended September 23, 2020, we recognized $0.3 million and $1.1 million, respectively, of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.
−Removed: During the thirty-nine weeks ended September 25, 2019, we closed one restaurant in California and one restaurant in Texas, and recognized $0.3 million and $1.0 million of closed-store reserve expense for the thirteen and thirty-nine weeks ended September 25, 2019, respectively, primarily related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.
−Removed: (e) During the thirteen and thirty-nine weeks ended September 25, 2019, we completed the sale of four company-operated restaurants within the San Francisco area to an existing franchisee and seven company-operated restaurants in the Phoenix area to another existing franchisee.
−Removed: These sales resulted in cash proceeds of $4.8 million and a net loss on sale of restaurants of $0.9 million and $5.1 million for the thirteen and thirty-nine weeks ended September 25, 2019, respectively.
−Removed: These restaurants are now included in our franchised restaurant totals.
−Removed: (f) On July 30, 2014, we entered into the TRA.
−Removed: This agreement calls for us to pay to our pre-IPO stockholders 85% of the savings in cash that we realize in our taxes as a result of utilizing our net operating losses and other tax attributes attributable to preceding periods.
−Removed: For the thirteen and thirty-nine weeks ended September 23, 2020 and September 25, 2019, income tax receivable agreement (income) expense consisted of the amortization of interest expense and changes in estimates for actual tax returns filed, related to our total expected TRA payments.
−Removed: (g) Consists of costs related to the defense of securities lawsuits.
−Removed: See Note 7, “Commitments and Contingencies, Legal Matters."
−Removed: (h) Includes an expense related to resolution of the longstanding lawsuit involving a contract dispute with one of the Company’s franchisees concerning asserted territory rights, as well as amounts incurred related to the payment of the final settlement amounts for consolidated wage and hour class action lawsuits resolved in prior quarters.
−Removed: (i) Pre-opening costs are a component of general and administrative expenses, and consist of costs directly associated with the opening of new restaurants and incurred prior to opening, including management labor costs, staff labor costs during training, food and supplies used during training, marketing costs, and other related pre-opening costs.
+Added: (c) Includes costs related to impairment of long-lived and ROU assets and closing restaurants.
+Added: During the thirteen weeks ended March 31, 2021, we recorded non-cash impairment charges of $0.3 million, primarily related to the carrying value of the ROU assets of one restaurant in Texas closed in 2019 and the long-lived assets of three restaurants in California.
+Added: During the thirteen weeks ended March 25, 2020, we recorded a non-cash impairment charge of $1.9 million, primarily related to the carrying value of the ROU assets of one restaurant in Texas and the long-lived assets of three restaurants in California.
+Added: During the thirteen weeks ended March 31, 2021, we recognized $0.3 million of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.
+Added: During the thirteen weeks ended March 25, 2020, we recognized $0.5 million of closed-store reserve expense, primarily related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.
+Added: (d) On July 30, 2014, we entered into the TRA.
+Added: This agreement calls for us to pay to our pre-IPO stockholders 85% of the savings in cash that we realize in our taxes as a result of utilizing our NOL and other tax attributes attributable to preceding periods.
+Added: For the thirteen weeks ended March 31, 2021 and March 25, 2020, income tax receivable agreement (income) expense consisted of the amortization of interest expense and changes in estimates for actual tax returns filed, related to our total expected TRA payments.
+Added: (e) Consists of costs related to the defense of securities lawsuits.
+Added: See Note 7, “Commitments and Contingencies, Legal Matters” in the Notes to Condensed Consolidated Financial Statements above.
+Added: (f) Includes amounts incurred related to the payment of the final settlement amounts for multiple wage and hour class action suits.
+Added: (g) Pre-opening costs are a component of general and administrative expenses, and consist of costs directly associated with the opening of new restaurants and incurred prior to opening, including management labor costs, staff labor costs during training, food and supplies used during training, marketing costs, and other related pre-opening costs.
These are generally incurred over the three to five months prior to opening.
Pre-opening costs also include occupancy costs incurred between the date of possession and the opening date for a restaurant.
−Removed: (j) Includes costs associated with the transition of our CEO, such as CEO sign-on bonus.
Liquidity and Capital Resources
Our primary sources of liquidity and capital resources have been cash provided from operations, cash and cash equivalents, and the 2018 Revolver.
−Removed: Our primary requirements for liquidity and capital are new restaurants, existing restaurant capital investments (remodels and maintenance), interest payments on our debt, lease obligations, and working capital and general corporate needs.
−Removed: However, in light of the COVID-19 pandemic, we have temporarily suspended all new restaurants and capital investments.
+Added: Our primary requirements for liquidity and capital are new restaurants, existing restaurant capital investments (remodels and maintenance), legal defense costs, lease obligations, interest payments on our debt, working capital and general corporate needs.
Our working capital requirements are not significant, since our customers pay for their purchases in cash or by payment card (credit or debit) at the time of sale.
−Removed: Thus, we are able to sell many of our inventory items before we have to pay our suppliers for them.
−Removed: Our restaurants do not require significant inventories or
−Removed: We believe that our sources of liquidity and capital are sufficient to finance our continued operations for at least the next twelve months from the filing of the condensed consolidated financial statements.
−Removed: However, depending on the severity and longevity of the COVID-19 pandemic, the efforts taken to reduce its spread (including government-mandated closures of our dining rooms) and the possibility of a subsequent resurgence of the COVID-19 outbreak after the current outbreak subsides, our financial performance and liquidity could be further impacted and could impact our ability to meet certain financial covenants required in our 2018 Credit Agreement, specifically the lease-adjusted coverage ratio and fixed-charge coverage ratio.
+Added: Thus, we are able to sell many of our inventory items before we have to pay our suppliers.
+Added: Our restaurants do not require significant inventories or receivables.
+Added: We believe that these sources of liquidity and capital are sufficient to finance our continued operations for at least the next 12 months from the issuance of the consolidated financial statements.
+Added: However, depending on the severity and longevity of the COVID-19 pandemic, the efforts taken to reduce its spread and the possibility of a subsequent resurgence of the COVID-19 outbreak after the current outbreak subsides, our financial performance and liquidity could be further impacted and could impact our ability to meet certain financial covenants required in our 2018 Credit Agreement (as defined below), specifically the lease-adjusted coverage ratio and fixed-charge coverage ratio.
The following table presents summary cash flow information for the periods indicated.
−Removed: Thirty-Nine Weeks Ended
+Added: Thirteen Weeks Ended
(Amounts in thousands)
−Removed: September 23, 2020
−Removed: September 25, 2019
+Added: March 31, 2021
+Added: March 25, 2020
Net cash provided by (used in)
2 unchanged sentences
Financing activities
−Removed: Net increase in cash
+Added: Net increase (decrease) in cash
Operating Activities
−Removed: For the thirty-nine weeks ended September 23, 2020, net cash provided by operating activities increased by approximately $1.6 million from the comparable period of the prior year.
−Removed: This increase was due primarily to favorable working capital fluctuations, partially offset by a decline in profitability after non-cash items for the thirty-nine weeks ended September 23, 2020 compared to the prior year, which we believe related to the COVID-19 pandemic.
+Added: For the thirteen weeks ended March 31, 2021, net cash from operating activities changed by approximately $15.0 million from the comparable period of the prior year.
+Added: This change was due primarily to a $16.3 million payment made in the first quarter of 2020 related to our wage and hour class action settlements for the thirteen weeks ended March 25, 2020, slightly offset by unfavorable working capital fluctuations.
Investing Activities
−Removed: For the thirty-nine weeks ended September 23, 2020, net cash used in investing activities decreased by $1.7 million from the comparable period of the prior year.
−Removed: This was due primarily to purchases of property and equipment of $4.3 million in the thirty-nine weeks ended September 23, 2020 compared to $10.8 million in the thirty-nine weeks ended September 25, 2019.
−Removed: This was partially offset by cash proceeds of $4.8 million received during the thirty-nine weeks ended September 25, 2019 related to the sale of four company-operated restaurants within the San Francisco area to an existing franchisee and seven company-operated restaurants in the Phoenix area to another existing franchisee.
−Removed: Given the uncertainty surrounding the severity and longevity of the COVID-19 pandemic, as a precautionary measure we have significantly reduced capital spending.
+Added: For the thirteen weeks ended March 31, 2021, net cash used in investing activities increased by $3.7 million from the comparable period of the prior year.
+Added: This increase was due primarily to opening two new company-operated restaurant and remodeling three restaurants in the thirteen weeks ended March 31, 2021 compared to opening no new company-operated restaurants and completing no new remodels in the thirteen weeks ended March 25, 2020.
Financing Activities
−Removed: For the thirty-nine weeks ended September 23, 2020, net cash used in financing activities decreased by $13.0 million from the comparable period of the prior year.
−Removed: This decrease was due primarily to $47.4 million of cash outflow related to stock buybacks during the thirty-nine weeks ended September 25, 2019 and $5.8 million of proceeds received from the issuance of common stock upon exercise of stock options during the thirty-nine weeks ended September 23, 2020.
−Removed: This was partially offset by $13.2 million of net pay downs on the 2018 Revolver during the thirty-nine weeks ended September 23, 2020, compared to net borrowings of $27.0 million for the thirty-nine weeks ended September 25, 2019.
+Added: For the thirteen weeks ended March 31, 2021, net cash from in financing activities changed by $53.2 million from the comparable period of the prior year.
+Added: This change was due primarily to an increase in net borrowings of $44.5 million on the 2018 Revolver during the thirteen weeks ended March 25, 2020, primarily as a precautionary measure to bolster our existing cash position in light of the COVID-19 pandemic, as well as to provide for the $16.3 million litigation settlement payment.
+Added: In addition, during the thirteen weeks ended March 31, 2021, the Company paid down $9.0 million on the 2018 Revolver.
Debt and Other Obligations
−Removed: On July 13, 2018, the Company entered into the 2018 Credit Agreement, which provides for the 2018 Revolver to refinance the previous 2014 Revolver.
−Removed: The 2018 Revolver includes a sub limit of $15.0 million for letters of credit and a sub limit of $15.0 million for swingline loans.
+Added: The 2018 Revolver, which is available pursuant to the 2018 Credit Agreement, includes a sub limit of $15.0 million for letters of credit and a sub limit of $15.0 million for swingline loans.
The 2018 Revolver and 2018 Credit Agreement will mature on July 13, 2023.
1 unchanged sentence
The obligations of the Company, EPL and Intermediate under the 2018 Credit Agreement and related loan documents are secured by a first priority lien on substantially all of their respective assets.
−Removed: Under the 2018 Revolver, Holdings may not make certain payments such as cash dividends, except that it may, inter alia, (i) pay up to $1.0 million per year to repurchase or redeem qualified equity interests of Holdings held by past or present
−Removed: officers, directors, or employees (or their estates) of the Company upon death, disability, or termination of employment, (ii) pay under its TRA, and (iii) so long as no default or event of default has occurred and is continuing, (a) make non-cash repurchases of equity interests in connection with the exercise of stock options by directors, officers and management, provided that those equity interests represent a portion of the consideration of the exercise price of those stock options, (b) pay up to $0.5 million in any 12 month consecutive period to redeem, repurchase or otherwise acquire equity interests of any subsidiary that is not a wholly-owned subsidiary from any holder of equity interest in such subsidiary, (c) pay up to $2.5 million per year pursuant to stock option plans, employment agreements, or incentive plans, (d) make up to $5.0 million in other restricted payments per year, and (e) make other restricted payments, subject to its compliance, on a pro forma basis, with (x) a lease-adjusted consolidated leverage ratio not to exceed 4.25 times and (y) the financial covenants applicable to the 2018 Revolver.
+Added: Under the 2018 Revolver, Holdings may not make certain payments such as cash dividends, except that it may, inter alia, (i) pay up to $1.0 million per year to repurchase or redeem qualified equity interests of Holdings held by past or present officers, directors, or employees (or their estates) of the Company upon death, disability, or termination of employment, (ii) pay under its TRA, and (iii) so long as no default or event of default has occurred and is continuing, (a) make non-cash repurchases of equity interests in connection with the exercise of stock options by directors, officers and management, provided that those equity interests represent a portion of the consideration of the exercise price of those stock options, (b) pay up to $0.5 million in any 12 month consecutive period to redeem, repurchase or otherwise acquire equity interests of any subsidiary that is not a wholly-owned subsidiary from any holder of equity interest in such subsidiary, (c) pay up to $2.5 million per year pursuant to stock option plans, employment agreements, or incentive plans, (d) make up to $5.0 million in other restricted payments per year, and (e) make other restricted payments, subject to its compliance, on a pro forma basis, with (x) a lease-adjusted consolidated leverage ratio not to exceed 4.25 times and (y) the financial covenants applicable to the 2018 Revolver.
Borrowings under the 2018 Credit Agreement (other than any swingline loans) bear interest, at the borrower’s option, at rates based upon either LIBOR or a base rate, plus, for each rate, a margin determined in accordance with a lease-adjusted consolidated leverage ratio-based pricing grid.
2 unchanged sentences
Borrowings under the 2018 Revolver may be repaid and reborrowed.
−Removed: The interest rate range was 1.67% to 1.68% and 1.67% to 3.29% for the thirteen and thirty-nine weeks ended September 23, 2020, respectively, and 3.65% to 3.90% and 3.65% to 6.00% for the thirteen and thirty-nine weeks ended September 25, 2019, respectively.
+Added: The interest rate range was 1.36% to 1.65% for the thirteen weeks ended March 31, 2021, and 3.11% to 3.29% for the thirteen weeks ended March 25, 2020.
The 2018 Credit Agreement contains certain financial covenants.
−Removed: The Company was in compliance with the financial covenants as of September 23, 2020.
−Removed: However, depending on the severity and longevity of the COVID-19 pandemic, the efforts taken to reduce its spread and the possibility of a resurgence of the COVID-19 outbreak after the initial outbreak subside, the Company’s financial performance and liquidity could be further impacted and could impact the Company’s ability to comply with certain financial covenants required in our 2018 Credit Agreement, specifically the lease-adjusted coverage ratio and fixed-charge coverage ratio.
−Removed: At September 23, 2020, $8.4 million of letters of credit and $83.8 million of borrowings were outstanding under the 2018 Revolver.
−Removed: There were $57.8 million remaining borrowings available under the 2018 Revolver at September 23, 2020.
−Removed: Subsequent to September 23, 2020, the Company made a voluntary $28.0 million pre-payment on its 2018 Revolver.
−Removed: As of October 30, 2020, the Company had $55.8 million in outstanding borrowings under the 2018 Revolver and $85.8 million in borrowing availability.
+Added: The Company was in compliance with the financial covenants as of March 31, 2021.
+Added: However, depending on the severity and longevity of the COVID-19 pandemic, the efforts taken to reduce its spread and the possibility of a resurgence of the COVID-19 outbreak after the initial outbreak subside, the Company’s financial performance and liquidity could be further impacted and could impact the Company’s
+Added: ability to comply with certain financial covenants required in our 2018 Credit Agreement, specifically the lease-adjusted coverage ratio and fixed-charge coverage ratio.
+Added: At March 31, 2021, $8.4 million of letters of credit and $53.8 million of borrowings were outstanding under the 2018 Revolver.
+Added: There were $87.8 million remaining borrowings available under the 2018 Revolver at March 31, 2021.
During the year ended December 25, 2019, we entered into an interest rate swap with a notional amount of $40.0 million, related to the outstanding borrowings under our 2018 Revolver.
−Removed: The interest rate swap was designated as a cash flow hedge and effectively converted a portion of our outstanding borrowings to a fixed rate of 1.31%, plus the applicable margin spread, which is currently 1.5%.
+Added: The interest rate swap was designated as a cash flow hedge and effectively converted a portion of our outstanding borrowings to a fixed rate of 1.31%, plus the applicable margin spread, which was 1.5% for the thirteen weeks ended March 31, 2021.
The interest rate swap matures in June 2023.
Contractual Obligations
−Removed: Our contractual obligations outstanding on September 23, 2020 have not changed materially since those disclosed under “Debt and Other Obligations – Contractual Obligations” in Part II, Item 7 of our annual report on Form 10-K for the year ended December 25, 2019 other than (i) the impact of our delay in making April, May and June rent payments on the majority of our leased properties as discussed under to COVID-19 Impact in the "Overview"
−Removed: section above and (ii) subsequent borrowings and pre-payments under our 2018 Revolver as disclosed under Note 4, “Long-Term Debt” in Item 1 above.
+Added: Other than our paydown of $9.0 million on the 2018 Revolver during the thirteen weeks ended March 31, 2021 described above, our contractual obligations outstanding on March 31, 2021 have not changed materially since those disclosed under “Debt and Other Obligations – Contractual Obligations” in Part II, Item 7 of our annual report on Form 10-K for the year ended December 30, 2020.
Our contractual commitments relate to future (i) debt payments, including expected interest expense, calculated based on current interest rates, (ii) restaurant operating lease payments, (iii) income tax receivable agreement payments, and (iv) purchasing commitments for chicken.
Off-Balance Sheet and Other Arrangements
−Removed: As of September 23, 2020 and December 25, 2019, we were using $8.4 million of borrowing capacity on the 2018 Revolver for letters of credit in support of our insurance programs.
+Added: As of March 31, 2021 and December 25, 2020, we were using $8.4 million of borrowing capacity on the 2018 Revolver for letters of credit in support of our insurance programs.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.