What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-02 compared with 2024-05-03 · 196 added, 126 removed, 324 unchanged (50% of the section changed)

27 unchanged sentences

● adverse changes in the economic environment, including inflation and increased labor and supply costs, which may affect our franchisees, with adverse consequences to us;

● the impact of federal, state and local labors laws governing our relationships with our employees, including minimum wage laws, minimum standards for fast food workers or other similar laws;

● the impacts of the uncertainty regarding pandemics, epidemics or infectious disease outbreaks (such as the recent 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 operate their individual restaurants without disruption;

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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 segment.

We strive to offer food that integrates the culinary traditions of Mexico with the healthier lifestyle.” 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.

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 beef and shrimp.

We strive to offer food that integrates the culinary traditions of Mexico with the healthier lifestyle.

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.

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 beef and shrimp.

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.

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.

We believe that 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.

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Growth Strategies and Outlook

As of March 27, 2024, we had 495 locations in seven states.

As of June 26, 2024, we had 495 locations in seven states.

In fiscal 2023, we opened two new company-operated restaurants in Nevada, and our franchisees opened three new restaurants, one in California, one in Colorado and one in Utah.

Additionally, during fiscal 2023, we completed the sale of 18 restaurants within California, Utah and Texas to existing franchisees.

Additionally, we completed the sale of 18 restaurants within California, Utah and Texas to existing franchisees during fiscal 2023.

For the twenty-six weeks ended June 26, 2024, our franchisees opened one new restaurant in California.

Additionally, during the twenty-six weeks ended June 26, 2024, we completed the sale of one restaurant in California to existing franchisees.

We plan to continue to expand our business, drive restaurant sales growth, and enhance our competitive positioning, by executing the following five key strategies:

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Highlights and Trends

Revenue Overview

For the thirteen and twenty-six weeks ended June 26, 2024, our total revenue was $122.2 million and $238.3 million, respectively.

For the thirteen and twenty-six weeks ended June 26, 2024, our company-operated restaurant revenue was $102.3 million and $199.5 million, respectively, and our franchise and franchise advertising fee revenue was $19.9 million and $38.9 million, respectively.

Comparable Restaurant Sales

For the thirteen weeks ended March 27, 2024, system-wide comparable restaurant sales increased by 5.1% from the comparable period in the prior year.

For company-operated restaurants, comparable restaurant sales for the thirteen weeks ended March 27, 2024 increased by 3.8%.

For company-operated restaurants, the quarter’s change in comparable restaurant sales consisted of a 2.5% increase in average check size and a 1.2% increase in transactions.

For franchised restaurants, comparable restaurant sales increased 5.9% for the thirteen weeks ended March 27, 2024, respectively.

Refer to Comparable Restaurant Sales definition in “Key Performance Indicators” section below.

For the thirteen and twenty-six weeks ended June 26, 2024, system-wide comparable restaurant sales increased by 4.5% and 4.8%, respectively, from the comparable period in the prior year.

For company-operated restaurants, comparable restaurant sales for the thirteen and twenty-six weeks ended June 26, 2024 increased by 3.2% and 3.4%, respectively.

For company-operated restaurants, the quarter’s change in comparable restaurant sales consisted of an 8.8% increase in average check size, partially offset by a 5.2% decrease in transactions , and the year-to-date change in comparable restaurant sales consisted of a 5.7% increase in average check size, partially offset by a 2.1% decrease in transactions .

For franchised restaurants, comparable restaurant sales increased 5.3% and 5.6% for the thirteen and twenty-six weeks ended June 26, 2024, respectively.

Refer to “Comparable Restaurant Sales” definition in the section titled “Key Performance Indicators” below.

Restaurant Development

Our restaurant counts at the beginning and end of each of the last three fiscal years and the thirteen weeks ended March 27, 2024, were as follows:

Thirteen Weeks Ended

Our restaurant counts at the beginning and end of each of the last three fiscal years and the twenty-six weeks ended June 26, 2024, were as follows:

Twenty-Six Weeks Ended

Fiscal Year Ended

March 27, 2024

June 26, 2024

Company-operated restaurant activity (1) :

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Restaurants at end of period

(1) Our restaurant count above includes 495 domestic restaurants and excludes 10 licensed restaurants in the Philippines.

Restaurant Remodeling

During the thirteen weeks ended March 27, 2024, we completed three company-operated restaurant remodels and 11 franchise remodels.

During the twenty-six weeks ended June 26, 2024, we completed five company-operated restaurant remodels and 28 franchise remodels.

The cost of our restaurant remodels varies depending on the scope of the work required, but on average the investment is $0.3 million to $0.4 million per restaurant.

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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.

As of both March 27, 2024 and December 27, 2023, the revenue allocated to

loyalty points that had not been redeemed was $0.7 million, which is reflected in our accompanying condensed consolidated balance sheets within other accrued expenses and current liabilities.

We had over 3.8 million loyalty program members as of March 27, 2024.

As of June 26, 2024 and December 27, 2023, the revenue allocated to loyalty points that had not been redeemed was $0.8 million and $0.7 million, respectively, which is reflected in our accompanying condensed consolidated balance sheets within other accrued expenses and current liabilities.

We had over 3.9 million loyalty program members as of June 26, 2024.

Critical Accounting Policies and Use of Estimates

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Labor and related expenses include wages, payroll taxes, workers’ compensation expense, benefits, and bonuses paid to our restaurant management teams.

Like other expense items, we expect labor costs to grow proportionately as our restaurant revenue grows.

Like other expense items, we expect labor costs to grow proportionately as our

restaurant revenue grows.

Factors that influence labor costs include minimum wage and payroll tax legislation, state labor laws (which, in California, may include AB 1228), overtime, wage inflation, the frequency and severity of workers’ compensation claims, health care costs, and the performance of our restaurants.

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Depreciation and amortization primarily consists of the depreciation of property and equipment, including leasehold improvements and equipment.

Loss on Disposal of Assets

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.

Loss (Gain) on Disposal of Assets

Loss (gain) on disposal of assets includes the loss or gain on disposal of assets related to retirements and replacement or write-off of leasehold improvements or equipment.

Impairment and Closed-Store Reserves

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Comparison of Results of Operations

Our operating results for the thirteen weeks ended March 27, 2024 and March 29, 2023 and expressed as percentages of total revenue, with the exception of cost of operations and company restaurant expenses, which are expressed as percentages of company-operated restaurant revenue, are compared in the tables below.

Our operating results for the thirteen and twenty-six weeks ended June 26, 2024 and June 28, 2023 are expressed as percentages of total revenue, with the exception of cost of operations and company restaurant expenses, which are expressed as percentages of company-operated restaurant revenue, and are compared in the tables below.

Thirteen Weeks Ended

March 27, 2024

March 29, 2023

June 26, 2024

June 28, 2023

Increase / (Decrease)

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Occupancy and other operating expenses (1)

Company restaurant expenses (1)

General and administrative expenses

Franchise expenses

Depreciation and amortization

Loss (gain) on disposal of assets

Loss on disposition of restaurants

Impairment and closed-store reserves

Total expenses

Income from operations

Interest expense, net of interest income

Income tax receivable agreement expense (income)

Income before provision for income taxes

Provision for income taxes

(1) Percentages for line items relating to cost of operations and company restaurant expenses are calculated with company-operated restaurant revenue as the denominator.

All other percentages use total revenue.

Twenty-Six Weeks Ended

June 26, 2024

June 28, 2023

Increase / (Decrease)

Statements of Income Data

Company-operated restaurant revenue

Franchise revenue

Franchise advertising fee revenue

Total revenue

Cost of operations

Food and paper costs (1)

Labor and related expenses (1)

Occupancy and other operating expenses (1)

Gain on recovery of insurance proceeds, lost profits, net (1)

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Depreciation and amortization

Loss on disposal of assets

Loss (gain) on disposal of assets

Gain on recovery of insurance proceeds, property, equipment and expenses

Gain on disposition of restaurants

Loss (gain) on disposition of restaurants

Impairment and closed-store reserves

8 unchanged sentences

Company-Operated Restaurant Revenue

For the quarter ended March 27, 2024, company-operated restaurant revenue decreased $0.7 million, or 0.7%, from the comparable period in the prior year.

The decrease in company-operated restaurant revenue was mainly due to a $5.0 million decrease in revenue primarily from the 18 company-operated restaurants sold by the Company to existing franchisees during the prior quarters and a $0.1 million decrease in revenue recognized for our loyalty points program .

For the quarter ended June 26, 2024, company-operated restaurant revenue decreased $1.6 million, or 1.5%, from the comparable period in the prior year.

The decrease in company-operated restaurant revenue was mainly due to a $5.4 million decrease related to the 19 company-operated restaurants sold by us to our existing franchisees during or subsequent to the second quarter of 2023.

This company-operated restaurant revenue decrease was partially offset by $0.7 million of additional sales from restaurants opened during or after the second quarter of 2023, as well as an increase in company-operated comparable restaurant revenue of $3.1 million, or 3.2%.

The company-operated comparable restaurant sales increase consisted of an 8.8% increase in average check size due to increases in menu prices, partially offset by a 5.2% decrease in transactions.

Year-to-date, company-operated restaurant revenue decreased $2.3 million, or 1.1%, from the comparable period in the prior year.

The decrease in company-operated restaurant revenue was mainly due to a $10.4 million decrease related to the 19 company-operated restaurants sold by us to our existing franchisees during or subsequent to the first quarter of 2023 and a $0.1 million increase in revenue recognized for our loyalty points program .

This company-operated restaurant revenue decrease was partially offset by $1.5 million of additional sales from restaurants opened during or after the first quarter of 2023 as well as an increase in company-operated comparable restaurant revenue of $6.6 million, or 3.4%.

The company-operated comparable restaurant sales increase consisted of a 2.5% increase in average check size due to increases in menu prices and an approximately 1.2% increase in transactions.

The company-operated comparable restaurant sales increase consisted of a 5.7% increase in average check size due to increases in menu prices, partially offset by a 2.1% decrease in transactions.

Franchise Revenue

For the quarter ended March 27, 2024, franchise revenue increased $1.7 million, or 17.3%, from the comparable period in the prior year.

This increase was primarily due to a franchise comparable restaurant sales increase of 5.9%, three franchise-operated restaurant openings and 18 company-operated restaurants sold by the Company to existing franchisees in each case, during the prior quarters.

For the quarter ended June 26, 2024, franchise revenue increased $1.5 million, or 15.1%, from the comparable period in the prior year.

This increase was primarily due to a franchise comparable restaurant sales increase of 5.3%, four franchise-operated restaurant openings and 19 company-operated restaurants sold by us to our existing franchisees in each case, during or subsequent to the second quarter of 2023.

Year-to-date, franchise revenue increased $3.2 million, or 16.2%, from the comparable period in the prior year.

This increase was primarily due to a franchise comparable restaurant sales increase of 5.6%, four franchise-operated restaurant openings and 19 company-operated restaurants sold by us to our existing franchisees in each case, during or subsequent to the first quarter of 2023.

Franchise Advertising Fee Revenue

For the quarter ended March 27, 2024, franchise advertising fee revenue increased $0.7 million, or 9.6%, from the comparable period in the prior year.

As advertising fee revenue is a percentage of franchisees’ revenue, the quarter-to-date period fluctuations were due to the increases and decreases noted in franchise revenue above.

For the quarter ended June 26, 2024, franchise advertising fee revenue increased $0.7 million, or 10.0%, from the comparable period in the prior year.

Year-to-date, franchise advertising fee revenue increased $1.4 million, or 9.8%, from the comparable period in the prior year.

As advertising fee revenue is a percentage of franchisees’ revenue, both the quarter and year-to-date period fluctuations were due to the increases and decreases noted in franchise revenue above.

Food and Paper Costs

For the quarter ended March 27, 2024, food and paper costs decreased $1.3 million, or 4.8%.

The decrease in food and paper costs for the quarter resulted primarily due to a $1.5 million reduction related to the sale of 18 company-operated locations to franchisees, partially offset by commodity inflation.

For the quarter ended June 26, 2024, food and paper costs decreased $2.7 million, or 9.6%.

Year-to-date, food and paper costs decreased $4.0 million, or 7.3%, from the comparable period in the prior year.

The decrease in food and paper costs for the quarter resulted primarily from a $1.5 million reduction related to the sale of 19 company-operated locations to franchisees, coupled with the decline in transactions referenced above, partially offset by commodity inflation.

For the quarter, food and paper costs as a percentage of company-operated restaurant revenue were 25.2%, down from 27.4% in the comparable period of the prior year.

The percentage decrease for the quarter was primarily due to an increase in pricing, partially offset by commodity inflation.

Year-to-date, food and paper costs as a percentage of company-operated restaurant revenue were 25.7%, down from 27.4% in the comparable period of the prior year.

The percentage decrease for both the quarter and year-to-date period was primarily due to an increase in menu pricing and lower discounting, partially offset by commodity inflation.

Labor and Related Expenses

For the quarter ended March 27, 2024, labor and related expenses decreased $1.0 million, or 3.0%, from the comparable period in the prior year.

The decrease in labor and related expenses for the quarter was primarily due to a $2.0 reduction in labor related costs resulting from the 18 company-operated restaurants sold by the Company to existing franchisees during the prior quarters.

The decrease in labor and related expenses for the quarter was partially offset by a $1.1 million increase primarily related to higher wage rates during fiscal 2024 and 2023 and other labor wage increases as a result of competitive pressure and legislated increases in the California minimum wage.

For the quarter ended March 27, 2024, labor and related expenses as a percentage of company-operated restaurant revenue were 31.5%, down from 32.2% in the comparable period in the prior year.

The percentage change for the quarter was driven by higher menu prices, partially offset by the cost increases highlighted above.

For the quarter ended June 26, 2024, labor and related expenses increased $0.6 million, or 1.8%, from the comparable period in the prior year.

The increase in labor and related expenses for the quarter was primarily due to a $3.9 million increase due to higher wage rates during fiscal 2024 and 2023 primarily as a result of legislative increases in the California state minimum wage, which became effective April 1, 2024, as well as a $0.4 million increase in worker’s compensation expense and vacation and sick pay.

The increase in labor and related expenses for the quarter ended June 26, 2024 from the comparable period in the prior year was partially offset by a $1.9 million reduction in labor-related costs resulting from the 19 company-operated restaurants sold by us to our existing franchisees during or subsequent to the second quarter of 2023 as well as $1.9 million reduction related to improved labor efficiencies.

Year-to-date, labor and related expenses decreased $0.4 million, or 0.6%, from the comparable period in the prior year.

The decrease for the year-to-date period was due primarily to a $3.9 million reduction in labor related costs resulting from the 19 company-operated restaurants sold by us to our existing franchisees during or subsequent to the first quarter of 2023 and as well as $2.3 million reduction related to improved labor efficiencies.

The decrease in labor and related expenses for the year was partially offset by a $5.0 million increase due to higher wage rates during fiscal 2024 and 2023 primarily as a result of legislative increases in the California state minimum wage, which became effective April 1, 2024, as well as a $0.8 million increase in other labor-related costs primarily related to worker’s compensation expense and vacation and sick pay.

For the quarter ended June 26, 2024, labor and related expenses as a percentage of company-operated restaurant revenue were 32.1%, up from 31.1% in the comparable period in the prior year.

The percentage change for the quarter was driven by the cost increases highlighted above, partially offset by higher menu prices.

Year-to-date labor and related expenses as a percentage of company-operated restaurant revenue were 31.8%, up from 31.6% in the comparable period in the prior year primarily d ue to the cost increases highlighted above, partially offset by the increase in menu pricing and improved labor efficiencies.

Occupancy and Other Operating Expenses

For the quarter ended March 27, 2024, occupancy and other operating expenses decreased $1.0 million, or 4.1%, from the comparable period in the prior year.

The decrease was primarily due to a $0.5 million decrease in occupancy costs, a $0.2 million decrease in utility costs and a $0.2 million decrease in repairs and maintenance costs primarily driven by the sale of 18 company-operated locations to existing franchisees, partially offset by the two new company restaurant openings and increases in other operating expenses.

For the quarter ended March 27, 2024, occupancy and other operating expenses as a percentage of company-operated restaurant revenue were 24.6%, down from 25.4% in the comparable period in the prior year .

The decrease resulted from the cost decreases highlighted above.

For the quarter ended June 26, 2024, occupancy and other operating expenses decreased $0.9 million, or 3.6%, from the comparable period in the prior year.

The decrease was primarily due to a $0.7 million decrease in utilities, repairs and maintenance costs and other operating expense primarily driven by the sale of 19 company-operated locations to existing franchisee during or subsequent to the second quarter of 2023 and a $0.2 million decrease in other operating costs.

Year-to-date, occupancy and other operating expenses decreased $1.9 million, or 3.8%, from the comparable period in the prior year.

The decrease was primarily due to a $1.2 million decrease in utilities, repairs and maintenance costs and other operating expense primarily driven by the sale of 19 company-operated locations during or subsequent to the first quarter of 2023 to existing franchisee and a $0.7 million decrease in other operating costs.

For the quarter ended June 26, 2024, occupancy and other operating expenses as a percentage of company-operated restaurant revenue were 24.1%, down from 24.6% in the comparable period in the prior year .

Year-to-date, occupancy and other operating expenses as a percentage of company-operated restaurant revenue were 24.3%, down from 25.0% in the comparable period of the prior year.

Both the quarter and year-to-date period decreases resulted from the cost decreases highlighted above.

General and Administrative Expenses

For the quarter ended March 27, 2024, general and administrative expenses increased $0.7 million, or 6.5%, from the comparable period in the prior year.

The increase for the quarter was primarily due to a $0.5 million increase in restructuring costs related to certain positions in the organization and a $0.6 million increase in executive transition costs.

The increase in general and administrative expenses for the quarter was offset by a $0.3 million decrease in legal fees.

For the quarter ended March 27, 2024, general and administrative expenses as a percentage of total revenue were 10.3%, up from 9.8% in the comparable period of the prior year.

The percentage increase for the quarterly period is primarily due to the cost increases noted above.

Gain on Disposition of Restaurants

During the thirteen weeks ended March 29, 2023, we completed the sale of one restaurant within California to an existing franchisee.

We determined that this restaurant disposition represents multiple element arrangements, and as a result, the cash consideration received was allocated to the separate elements based on its relative standalone selling price.

For the quarter ended June 26, 2024, general and administrative expenses increased $0.7 million, or 6.1%, from the comparable period in the prior year.

The increase for the quarter was primarily due to a $0.6 million increase in labor- related costs, primarily related to an increase in estimated management bonus expense.

Year-to-date, general and administrative expenses increased $1.4 million, or 6.3%, from the comparable period in the prior year.

The increase for the year-to-date period was due primarily to a $0.6 million increase in labor-related costs, primarily related to an increase in estimated management bonus expense, a $0.6 million increase in executive transition costs and a $0.2 million increase in other general and administrative expenses.

For the quarter ended June 26, 2024, general and administrative expenses as a percentage of total revenue were 9.6%, up from 9.1% in the comparable period of the prior year.

Year-to-date, general and administrative expenses as a percentage of total revenue were 9.9%, up from 9.5% in the comparable period of the prior year.

The percentage increase for both the quarterly and year-to-date periods is primarily due to the cost increases discussed above.

Loss (Gain) on Disposition of Restaurants

During the thirteen and twenty-six weeks ended June 26, 2024, we completed the sale of one restaurant within California to an existing franchisee due to an expiring lease term on April 30, 2024.

During the twenty-six weeks ended June 28, 2023, we completed the sale of one restaurant within California to an existing franchisee.

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 its relative standalone selling price.

Cash proceeds included upfront consideration for the sale of the restaurant and franchise fees.

consideration per restaurant related to franchise fees is consistent with the amounts stated in the related franchise agreements, which are charged for separate standalone arrangements.

The cash consideration per restaurant related to franchise fees is consistent with the amounts stated in the related franchise agreements, which are charged for separate standalone arrangements.

We initially defer and subsequently recognize the franchise fees over the term of the franchise agreement.

This sale resulted in cash proceeds of $0.2 million and a net gain on sale of restaurant of $0.1 million for the thirteen weeks ended March 29, 2023.

This sale resulted in cash proceeds of $0.1 million and $0.2 million, respectively, and a net loss on sale of restaurant of less than $0.1 million and a net gain on sale of restaurant of $0.1 million for the twenty-six weeks ended June 26, 2024 and June 28, 2023, respectively.

Since the date of their sale, this restaurant is now included in the total number of franchised El Pollo Loco restaurants.

Impairment and Closed-Store Reserves

During the thirteen weeks ended March 27, 2024, we did not record any non-cash impairment charges.

During the thirteen weeks ended March 29, 2023, we recorded non-cash impairment charges of less than $0.1 million, primarily related to the carrying value of the ROU assets of one restaurant in California .

During the thirteen and twenty-six weeks ended June 26, 2024, we did not record any non-cash impairment charges.

During the thirteen and twenty-six weeks ended June 28, 2023, we recorded non-cash impairment charges of less than $0.1 million, primarily related to the carrying value of the ROU assets of one restaurant in California .

Given the inherent uncertainty in projecting results for newer restaurants in newer markets, we are monitoring the recoverability of the carrying value of the assets of several restaurants on an ongoing basis.

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Additionally, any property tax and CAM payments relating to closed restaurants are included within closed-store expense.

During both the thirteen weeks ended March 27, 2024 and March 29, 2023, we recognized less than $0.1 million of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.

During both the thirteen and twenty-six weeks ended June 26, 2024 and June 28, 2023, we recognized less than $0.1 million of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.

Interest Expense, Net

For the quarter ended March 27, 2024, interest expense, net, increased $0.6 million from t he comparable period in the prior year.

The increase in interest expense was primarily related to the higher outstanding balances on our 2022 Revolver (as defined below) as well as the higher interest rates in the fiscal 2024 periods versus t he comparable periods in the prior year .

For the quarter ended June 26, 2024, interest expense, net, increased $0.6 million from t he comparable period in the prior year.

For the year-to-date period, interest expense, net, increased $1.1 million from the comparable period in the prior year .

Both the quarter and year-to-date period increase in interest expense was primarily related to the higher outstanding balances on our 2022 Revolver (as defined below) as well as the higher interest rates in the fiscal 2024 periods versus t he comparable periods in the prior year .

Income Tax Receivable Agreement

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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 (“NOLs”) and other tax attributes attributable to preceding periods.

For the thirteen weeks ended March 27, 2024, we did not record any income tax receivable agreement income or expense, and for the thirteen weeks ended March 29, 2023 we recorded income tax receivable agreement income of $0.1 million .

For the thirteen and twenty-six weeks ended June 26, 2024, we did not record any income tax receivable agreement income or expense, and for the thirteen and twenty-six weeks ended June 28, 2023, we recorded income tax receivable agreement expense of $0.1 million and income tax receivable agreement income of less than $0.1 million , respectively.

On May 29, 2024, we terminated most of the obligations under the TRA, with respect to any payments or obligations owed to the FS Equity Partners V, L.P.

and FS Affiliates V, L.P.

(together, the “Sellers”) thereunder in exchange for a payment to the Sellers of $398,896.

As of June 26, 2024, an immaterial amount of obligations owed remained outstanding on our condensed consolidated balance sheets.

Provision for Income Taxes

For the quarter ended March 27, 2024, we recorded an income tax provision of $2.2 million, reflecting an estimated effective tax rate of 27.1%.

For the quarter ended March 29, 2023, we recorded an income tax provision of $2.0 million, reflecting an estimated effective tax rate of approximately 28.4%.

The difference between the 21.0% statutory rate and our effective tax rate of 27.1% for the quarter ended March 27, 2024 is primarily a result of state taxes , a non-deductible executive compensation, partially offset by a Work Opportunity Tax Credit benefit .

For the quarter ended June 26, 2024, we recorded an income tax provision of $3.2 million, reflecting an estimated effective tax rate of 29.3%.

For the quarter ended June 28, 2023, we recorded an income tax provision of $2.7 million, reflecting an estimated effective tax rate of approximately 27.9%.

For the year-to-date period ended June 26, 2024, we recorded an income tax provision of $5.4 million, reflecting an estimated effective tax rate of approximately 28.4%.

For the year-to-date period ended June 28, 2023, we recorded an income tax provision of $4.7 million, reflecting an estimated effective tax rate of approximately 28.1%

The difference between the 21.0% statutory rate and our effective tax rate of 28.4% for the year-to-date period ended June 26, 2024 is primarily a result of state taxes , the impact of non-tax deductible executive compensation expense, a tax shortfall related to equity compensation deductible for tax as compared to the cumulative amount recorded as stock-based compensation expense, partially offset by a Work Opportunity Tax Credit benefit .

Key Performance Indicators

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System-wide sales are the sum of company-operated restaurant revenue and sales from franchised restaurants.

Our total revenue in our condensed

consolidated statements of income is limited to company-operated restaurant revenue and franchise revenue from our franchisees.

Our total revenue in our condensed consolidated statements of income is limited to company-operated restaurant revenue and franchise revenue from our franchisees.

Accordingly, system-wide sales should not be considered in isolation or as a substitute for our results as reported under GAAP.

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.

System-wide sales does not include the 10 licensed stores in the Philippines.

The following table reconciles system-wide sales to company-operated restaurant revenue and total revenue:

Thirteen Weeks

Thirteen Weeks Ended

Twenty-Six Weeks Ended

(Dollar amounts in thousands)

March 27, 2024

March 29, 2023

June 26, 2024

June 28, 2023

June 26, 2024

June 28, 2023

Company-operated restaurant revenue

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Comparable restaurant sales exclude restaurants closed during the applicable period.

At March 27, 2024 and March 29, 2023, there were 478 and 468 comparable restaurants, 168 and 181 company-operated restaurants and 310 and 287 franchised restaurants, respectively.

At June 26, 2024 and June 28, 2023, there were 482 and 470 comparable restaurants, 168 and 182 company-operated restaurants and 314 and 288 franchised restaurants, respectively.

Comparable restaurant sales indicate the performance of existing restaurants, since new restaurants are excluded.

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Restaurant contribution and restaurant contribution margin have limitations as analytical tools, and you should not consider them in isolation, or superior to, or as substitutes for the analysis of our results as reported under GAAP.

Management uses restaurant contribution and restaurant contribution margin as key metrics to evaluate the profitability of incremental sales

at our restaurants, to evaluate our restaurant performance across periods, and to evaluate our restaurant financial performance compared with our competitors.

Management uses restaurant contribution and restaurant contribution margin as key metrics to evaluate the profitability of incremental sales at our restaurants, to evaluate our restaurant performance across periods, and to evaluate our restaurant financial performance compared with our competitors.

Management believes that restaurant contribution and restaurant contribution margin are important tools for investors, because they are widely-used metrics within the restaurant industry to evaluate restaurant-level productivity, efficiency, and performance.

Management further believes restaurant level operating is useful to investors to highlight trends in our core business that may not otherwise be apparent to investors when relying solely on GAAP financial measures.

Management further believes restaurant level

operating is useful to investors to highlight trends in our core business that may not otherwise be apparent to investors when relying solely on GAAP financial measures.

A reconciliation of restaurant contribution and restaurant contribution margin to company-operated restaurant revenue is provided below:

Thirteen Weeks Ended

Twenty-Six Weeks Ended

(Dollar amounts in thousands)

March 27, 2024

March 29, 2023

June 26, 2024

June 28, 2023

June 26, 2024

June 28, 2023

Restaurant contribution:

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Depreciation and amortization

Loss on disposal of assets

Loss (gain) on disposal of assets

Gain on recovery of insurance proceeds, property, equipment and expenses

2 unchanged sentences

Impairment and closed-store reserves

Gain on disposition of restaurants

Loss (gain) on disposition of restaurants

Restaurant contribution

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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.

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.

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

Our presentation of EBITDA and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.

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Thirteen Weeks Ended

Twenty-Six Weeks Ended

(Amounts in thousands)

March 27, 2024

March 29, 2023

June 26, 2024

June 28, 2023

June 26, 2024

June 28, 2023

Non-GAAP adjustments:

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Stock-based compensation expense (a)

Loss on disposal of assets (b)

Loss (gain) on disposal of assets (b)

Impairment and closed-store reserves (c)

Gain on disposition of restaurants (d)

Loss (gain) on disposition of restaurants (d)

Income tax receivable agreement expense (income) (e)

Special dividend (f)

Special legal expenses (g)

Gain on recovery of insurance proceeds (h)

Executive transition costs (i)

Restructuring charges (j)

Pre-opening costs (k)

Special other expenses (f)

Gain on recovery of insurance proceeds (g)

Executive transition costs (h)

Restructuring charges (i)

Pre-opening costs (j)

Adjusted EBITDA

(a) Includes non-cash, stock-based compensation.

(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.

(b) Loss (gain) on disposal of assets includes the loss or gain on disposal of assets related to retirements and replacement or write-off of leasehold improvements or equipment.

During the thirteen weeks ended March 27, 2024, we did not record any non-cash impairment charges.

(d) During the thirteen weeks ended March 29, 2023, we completed the sale of one restaurant within California to an existing franchisee.

This sale resulted in cash proceeds of $0.2 million during the thirteen weeks ended March 29, 2023 and a net gain on sale of restaurant of $0.1 million for the thirteen weeks ended March 29, 2023.

During the thirteen and twenty-six weeks ended June 26, 2024, we did not record any non-cash impairment charges.

thirteen and twenty-six weeks ended June 28, 2023, we recorded non-cash impairment charges of less than $0.1 million, primarily related to the carrying value of the ROU assets of one restaurant in California.

(d) During the twenty-six weeks ended June 26, 2024, we completed the sale of one restaurant within California to an existing franchisee due to an expiring lease term on April 30, 2024.

During the twenty-six weeks ended June 26, 2024 and June 28, 2023, we completed the sale of one restaurant within California to an existing franchisee.

These sales resulted in cash proceeds of $0.1 million and $0.2 million, respectively, during the twenty-six weeks ended June 26, 2024 and June 28, 2023, and a net loss on sale of restaurant of less than $0.1 million and a net gain on sale of restaurant of $0.1 million, respectively, for the twenty-six weeks ended June 26, 2024 and June 28, 2023.

(e) On July 30, 2014, we entered into the TRA.

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 NOLs and other tax attributes attributable to preceding periods.

For the thirteen weeks ended March 27, 2024, we did not record any income tax receivable agreement income or expense.

For the thirteen weeks ended March 29, 2023, income tax receivable agreement income consisted of the amortization of interest expense and changes in estimates for actual tax returns filed, related to our total expected TRA payments.

(f) During the thirteen weeks ended March 29, 2023, we encountered costs related to a special dividend declaration.

On October 11, 2022, the Board of Directors declared a special dividend of $1.50 per share on the common stock of the Company.

The special dividend was paid on November 9, 2022, to stockholders of record, including holders of restricted stock, at the close of business on October 24, 2022.

(g) Consists of legal costs related to the share distribution by Trimaran Group of substantially all of the Company’s common stock held by Trimaran Group to its investors, members and limited partners, which occurred on March 28, 2023.

(h) During fiscal 2022, one of our restaurants incurred damage resulting from a fire.

For the thirteen and twenty-six weeks ended June 26, 2024, we did not record any income tax receivable agreement income or expense.

For the thirteen and twenty-six weeks ended June 28, 2023, income tax receivable agreement income consisted of the amortization of interest expense and changes in estimates for actual tax returns filed, related to our total expected TRA payments.

(f) Consists of (1) nominal costs and recoveries related to the defense of securities lawsuits, (2) $0.3 million in legal costs related to the share distribution by Trimaran Group of substantially all shares of our common stock held by Trimaran Group to its investors, members and limited partners, which occurred on March 28, 2023, and (3) for the twenty-six weeks ended June 28, 2023, $0.1 million in costs related to a special dividend declaration which was paid on November 9, 2022, to stockholders of record, including holders of restricted stock.

(g) During fiscal 2022, one of our restaurants incurred damage resulting from a fire.

In fiscal 2023, we incurred costs directly related to the fire of less than $0.1 million.

We recognized gains of $0.2 million, related to the reimbursement of property and equipment and expenses incurred and $0.2 million related to the reimbursement of lost profits.

The gain on recovery of insurance proceeds and reimbursement of lost profits, net of the related costs is included in the accompanying condensed consolidated statements of income, for the thirteen weeks ended March 29, 2023, as a reduction of company restaurant expenses.

We received from the insurance company cash of $0.4 million, net of the insurance deductible, during fiscal 2023.

(i) Includes costs associated with the transition of our former CEO, such as severance, executive recruiting costs and stock-based compensation costs.

(j) On March 8, 2024, the Company made the decision to eliminate and restructure certain positions in the organization, which resulted in one-time costs of approximately $0.5 million.

(k) 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.

We received $0.4 million in cash, net of the insurance deductible, from the insurance company during fiscal 2023, for which we recognized gains of $0.2 million, related to the reimbursement of property and equipment and expenses incurred and $0.2 million related to the reimbursement of lost profits.

The gain on recovery of insurance proceeds for the reimbursement of property and equipment and expenses and the reimbursement of lost profits, net of the related costs is included in the accompanying condensed consolidated statements of income, for the twenty-six weeks ended June 28, 2023, as a reduction of company restaurant expenses.

(h) Includes costs associated with the transition of our former CEO, such as severance, executive recruiting costs and stock-based compensation costs.

(i) On March 8, 2024, we made the decision to eliminate and restructure certain positions in the organization, which resulted in one-time costs of approximately $0.6 million.

(j) 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.

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The following table presents summary cash flow information for the periods indicated (in thousands):

Thirteen Weeks Ended

Twenty-Six Weeks Ended

(Amounts in thousands)

March 27, 2024

March 29, 2023

June 26, 2024

June 28, 2023

Net cash (used in) provided by

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Operating Activities

For the thirteen weeks ended March 27, 2024, net cash from operating activities increased by approximately $7.3 million from the comparable period of the prior year.

For the twenty-six weeks ended June 26, 2024, net cash from operating activities increased by approximately $6.3 million from the comparable period of the prior year.

This change was due to favorable working capital fluctuations and higher profitability compared to the same period in the prior year.

Investing Activities

For the thirteen weeks ended March 27, 2024, net cash used in investing activities decreased by $1.6 million from the comparable period of the prior year.

This change was due to a decrease in purchase of property and equipment mostly related to restaurant remodeling during the thirteen weeks ended March 27, 2024 when compared to the prior quarter.

For the twenty-six weeks ended June 26, 2024, net cash used in investing activities increased by $1.7 million from the comparable period of the prior year.

This change was due to an increase in purchase of property and equipment mostly related to restaurant remodeling during the twenty-six weeks ended June 26, 2024 when compared to the prior quarter.

Financing Activities

For the thirteen weeks ended March 27, 2024, net cash used in financing activities decreased by $8.6 million from the comparable period of the prior year.

The change was due primarily to a decrease of $4.7 million in repurchases of common stock coupled with $4.0 million decrease in net pay downs on the 2022 Revolver during the thirteen weeks ended March 27, 2024 compared to the repurchases of common stock and net pay-downs during the thirteen weeks ended March 29, 2023.

For the twenty-six weeks ended June 26, 2024, net cash used in financing activities changed by $8.8 million from the comparable period of the prior year.

The change was due primarily to a $3.0 million increase in net borrowings on the 2022 Revolver during the twenty-six weeks ended June 26, 2024 compared to the $6.0 million in net pay-downs during the twenty-six weeks ended June 28, 2023.

Debt and Other Obligations

The Company, as a guarantor, is a party to a credit agreement (the “2022 Credit Agreement”) among EPL, as borrower, Intermediate, as a guarantor, Bank of America, N.A., as administrative agent, swingline lender, and letter of credit issuer, the lenders party thereto, and the other parties thereto, which provides for a $150.0 million five-year senior secured revolving credit facility (the “2022 Revolver”).

We, as a guarantor, are a party to a credit agreement (the “2022 Credit Agreement”) among EPL, as borrower, Intermediate, as a guarantor, Bank of America, N.A., as administrative agent, swingline lender, and letter of credit issuer, the lenders party thereto, and the other parties thereto, which provides for a $150.0 million five-year senior secured revolving credit facility (the “2022 Revolver”).

The 2022 Revolver, which is available pursuant to the 2022 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.

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The obligations of Holdings, EPL and Intermediate under the 2022 Credit Agreement and related loan documents are secured by a first priority lien on substantially all of their respective assets.

The special dividend announced by the Company’s Board of Directors on October 11, 2022 was permitted under the terms of 2022 Revolver pursuant to both subclause (iii)(d) and (iii)(e) of the following sentence.

The special dividend announced by our Board of Directors on October 11, 2022 was permitted under the terms of 2022 Revolver pursuant to both subclause (iii)(d) and (iii)(e) of the following sentence.

Under the 2022 Revolver, Holdings is restricted from making 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 our past or present officers, directors, or employees (or their estates) 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 2022 Revolver.

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Borrowings under the 2022 Revolver may be repaid and reborrowed.

The interest rate range under the 2022 Revolver was 6.92% to 6.96% for the thirteen weeks ended March 27, 2024 and 5.69% to 6.30% for the thirteen weeks ended March 29, 2023.

The interest rate range under the 2022 Revolver was 6.67% and 6.96% and 6.67% to 6.94% for the thirteen and twenty-six weeks ended June 26, 2024 , respectively, and 6.22% to 8.50% and 5.69% to 8.50% for the thirteen and twenty-six weeks ended June 28, 2023, respectively.

The 2022 Credit Agreement contains certain customary financial covenants, subject to certain exceptions.

We were in compliance with the financial covenants as of March 27, 2024.

At March 27, 2024, we had $80.0 million in outstanding borrowings under the 2022 Revolver and one letter of credit in the amount of $9.8 million outstanding, and as a result, we had $60.2 million in borrowing availability.

During the year ended December 28, 2022, we refinanced and terminated our credit agreement (the “2018 Credit Agreement”) among EPL, as borrower, the Company and Intermediate, as guarantors, Bank of America, N.A., as administrative agent, swingline lender, and letter of credit issuer, the lenders party thereto, and the other parties thereto, which provided for a $150.0 million five-year senior secured revolving credit facility (the “2018 Revolver”) and entered into the 2022 Credit Agreement.

We were in compliance with the financial covenants as of June 26, 2024.

At June 26, 2024, we had $87.0 million in outstanding borrowings under the 2022 Revolver and one letter of credit in the amount of $9.8 million outstanding, and as a result, we had $53.2 million in borrowing availability.

During the year ended December 28, 2022, we refinanced and terminated our credit agreement (the “2018 Credit Agreement”) among EPL, as borrower, we and the Intermediate, as guarantors, Bank of America, N.A., as administrative agent, swingline lender, and letter of credit issuer, the lenders party thereto, and the other parties thereto, which provided for a $150.0 million five-year senior secured revolving credit facility (the “2018 Revolver”) and entered into the 2022 Credit Agreement.

See Note 4, “Long-term debt” for additional information.

Material Cash Requirements

Our material cash requirements as of March 27, 2024 have not changed materially since those disclosed under “Material Cash Requirements” in Part II, Item 7 of our annual report on Form 10-K for the year ended December 27, 2023.

Our material cash requirements as of June 26, 2024 have not changed materially since those disclosed under “Material Cash Requirements” in Part II, Item 7 of our annual report on Form 10-K for the year ended December 27, 2023.

Our material cash requirements relate mostly to future (i) debt payments, including expected interest expense, calculated based on current interest rates, (ii) restaurant operating lease payments, (iii) purchasing commitments for chicken, (iv) restaurant finance lease payments, and (v) capital expenditures .

Share Repurchases

Share Repurchase Program

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Following completion of this repurchase, approximately $7.4 million of our common stock remained available for repurchase under the share repurchase program at December 27, 2023.

For the thirteen weeks ended March 27, 2024, we repurchased 136,400 shares of common stock under the Share Repurchase Program, using open market purchases, for total consideration of approximately $1.2 million.

Following completion of these repurchases, approximately $6.2 million of our common stock remained available for repurchase under the Share Repurchase Program at March 27, 2024.

For the thirteen and twenty-six weeks ended June 26, 2024, we repurchased 203,483 and 339,883 shares of common stock, respectively, under the Share Repurchase Program, using open market purchases, for total consideration of approximately $2.0 million and $3.2 million, respectively.

Following completion of these repurchases, approximately $4.2 million of our common stock remained available for repurchase under the Share Repurchase Program at June 26, 2024.

Other Share Repurchases

In addition, on May 29, 2024, we repurchased 1,534,303 shares for a total purchase price of $15.0 million under the Stock Repurchase Agreement with FS Equity Partners V, L.P.

and FS Affiliates V, L.P.

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.

What changed 10-Q

Item 2. Management’s Discussion and Analysis