El Pollo Loco Holdings, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA EL POLLO LOCO HOLDINGS, INC. AND SUBSIDIARIES INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS ​ Audited Consolidated Financial Statements ​ Report of Independent Registered Public Accounting Firm (BDO USA, P.C.; Costa Mesa, California; PCAOB ID # 243 ) 55 Consolidated Balance Sheets – December 25, 2024 and December 27, 2023 57 Consolidated Statements of Income—For the years ended December 25, 2024, December 27, 2023, and December 28, 2022 58 Consolidated Statements of Comprehensive Income—For the years ended December 25, 2024, December 27, 2023, and December 28, 2022 59 Consolidated Statements of Changes in Stockholders’ Equity—For the years ended December 25, 2024, December 27, 2023, and December 28, 2022 60 Consolidated Statements of Cash Flows—For the years ended December 25, 2024, December 27, 2023, and December 28, 2022 61 Notes to Consolidated Financial Statements 62 ​ ​ ​ 54 Table of Contents Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors El Pollo Loco Holdings, Inc. Costa Mesa, California Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of El Pollo Loco Holdings, Inc . (the “Company”) as of December 25, 2024 and December 27, 2023, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 25, 202 4 , and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 25, 2024 and December 27, 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 25, 2024, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 25, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 7, 2025 expressed an unqualified opinion thereon. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. ​ Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Impairment of Restaurant Property and Equipment As discussed in Notes 2 and 4 to the consolidated financial statements, the Company reviews its long-lived assets related to restaurants held and used in the business, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The net balance of property and equipment was $86.1 million as of December 25, 2024. For certain restaurants, indicators of impairment of the related property and equipment were present. As such, for these restaurants, management compared the projected undiscounted cash flows to the carrying value to determine whether an impairment loss should be measured. 55 Table of Contents We identified the Company’s estimation of undiscounted future cash flows for certain restaurants to determine the recoverability of the carrying value of restaurant property and equipment as a critical audit matter. Auditing certain assumptions used in the estimation of the undiscounted future cash flows, including future revenue transaction growth rates, menu pricing changes, and restaurant operating margins, involved especially challenging and subjective auditor judgments due to the nature and extent of audit effort required to addresses these matters. The primary procedures we performed to address this critical audit matter included: ● Evaluating the reasonableness of management’s assumption over the future revenue transaction growth rates for certain restaurants by comparing them to historical financial information for both company-owned and franchised restaurants and industry data . ● Evaluating the reasonableness of management’s assumption over the menu pricing changes for certain restaurants by comparing them to historical financial information for company-owned restaurants and industry data. ● Evaluating the reasonableness of management’s assumption over the restaurant operating margins for certain restaurants by comparing them to historical financial information for those company-owned restaurants and industry data. ​ ​ ​ /s/ BDO USA, P.C. ​ We have served as the Company’s auditor since 2011. ​ Costa Mesa, California March 7, 2025 ​ 56 Table of Contents EL POLLO LOCO HOLDINGS, INC. ​ CONSOLIDATED BALANCE SHEETS ​ (Amounts in thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ December 25, December 27, ​ 2024 2023 Assets ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ Cash and cash equivalents ​ $ 2,484 ​ $ 7,288 Accounts and other receivables, net ​ 9,471 ​ 10,148 Inventories ​ 1,938 ​ 1,911 Prepaid expenses and other current assets ​ 5,509 ​ 5,634 Income tax receivable ​ 493 ​ 153 Total current assets ​ 19,895 ​ 25,134 Property and equipment, net ​ 86,149 ​ 84,027 Property and equipment held under finance lease, net ​ 1,499 ​ 1,528 Property and equipment held under operating leases, net ("ROU asset") ​ 170,494 ​ 168,007 Goodwill ​ 248,674 ​ 248,674 Trademarks ​ 61,888 ​ 61,888 Deferred tax assets ​ 336 ​ — Other assets ​ 3,079 ​ 3,043 Total assets ​ $ 592,014 ​ $ 592,301 Liabilities and Stockholders’ Equity ​ ​ Current liabilities: ​ ​ Current portion of obligations under finance leases ​ $ 170 ​ $ 140 Current portion of obligations under operating leases ​ 19,738 ​ 19,490 Accounts payable ​ 12,087 ​ 12,541 Accrued salaries and vacation ​ 13,926 ​ 9,332 Accrued insurance ​ 11,417 ​ 11,831 Accrued income taxes payable ​ 2,105 ​ 70 Accrued interest ​ 319 ​ 394 Current portion of income tax receivable agreement payable ​ — ​ 422 Other accrued expenses and current liabilities ​ 15,896 ​ 18,361 Total current liabilities ​ 75,658 ​ 72,581 Revolver loan ​ 71,000 ​ 84,000 Obligations under finance leases, net of current portion ​ 1,583 ​ 1,617 Obligations under operating leases, net of current portion ​ 170,529 ​ 168,084 Deferred tax liabilities, net ​ 6,357 ​ 8,878 Other noncurrent liabilities ​ 6,218 ​ 6,445 Total liabilities ​ 331,345 ​ 341,605 Commitments and contingencies (Note 14) ​ ​ Stockholders’ equity ​ ​ Preferred stock, $ 0.01 par value, 100,000,000 shares authorized; 100,000 shares designated as Series A Preferred Stock; none issued or outstanding ​ — ​ — Common stock, $ 0.01 par value, 200,000,000 shares authorized; 29,839,721 and 31,353,223 shares issued and outstanding as of December 25, 2024 and December 27, 2023, respectively ​ 298 ​ 313 Additional paid-in-capital ​ 241,462 ​ 236,421 Retained earnings ​ 18,909 ​ 13,962 Total stockholders’ equity ​ 260,669 ​ 250,696 Total liabilities and stockholders’ equity ​ $ 592,014 ​ $ 592,301 See notes to consolidated financial statements. 57 Table of Contents EL POLLO LOCO HOLDINGS, INC. ​ CONSOLIDATED STATEMENTS OF INCOME ​ (Amounts in thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Fiscal Years Ended ​ December 25, 2024 December 27, 2023 December 28, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenue ​ ​ ​ Company-operated restaurant revenue ​ $ 396,260 ​ $ 398,437 ​ $ 403,218 Franchise revenue ​ 45,561 ​ 41,002 ​ 38,225 Franchise advertising fee revenue ​ 31,187 ​ 29,225 ​ 28,516 Total revenue ​ 473,008 ​ 468,664 ​ 469,959 Cost of operations ​ ​ ​ Food and paper cost ​ 100,725 ​ 108,250 ​ 117,774 Labor and related expenses ​ 127,179 ​ 127,244 ​ 130,773 Occupancy and other operating expenses ​ 99,280 ​ 101,398 ​ 101,543 Gain on recovery of insurance proceeds, lost profits, net ​ ​ — ​ ​ ( 327 ) ​ ​ — Company restaurant expenses ​ 327,184 ​ 336,565 ​ 350,090 General and administrative expenses ​ 46,270 ​ 42,025 ​ 39,093 Franchise expenses ​ 42,307 ​ 38,404 ​ 36,169 Depreciation and amortization ​ 15,717 ​ 15,235 ​ 14,418 Loss on disposal of assets ​ 221 ​ 192 ​ 165 Gain on recovery of insurance proceeds, property, equipment and expenses ​ ( 41 ) ​ ( 247 ) ​ — Loss (gain) on disposition of restaurants ​ ​ 7 ​ ​ ( 5,034 ) ​ ​ ( 848 ) Impairment and closed-store reserves ​ 175 ​ 1,732 ​ 752 Total expenses ​ 431,840 ​ 428,872 ​ 439,839 Income from operations ​ 41,168 ​ 39,792 ​ 30,120 Interest expense, net ​ 5,899 ​ 4,811 ​ 1,677 Income tax receivable agreement (income) expense ​ ( 20 ) ​ 103 ​ ( 436 ) Income before provision for income taxes ​ 35,289 ​ 34,878 ​ 28,879 Provision for income taxes ​ 9,605 ​ 9,324 ​ 8,078 Net income ​ $ 25,684 ​ $ 25,554 ​ $ 20,801 Net income per share ​ ​ ​ Basic ​ $ 0.86 ​ $ 0.75 ​ $ 0.57 Diluted ​ $ 0.86 ​ $ 0.74 ​ $ 0.57 Weighted-average shares used in computing net income per share ​ ​ ​ Basic ​ 29,850,256 ​ 34,253,542 ​ 36,350,579 Diluted ​ 30,034,978 ​ 34,374,706 ​ 36,575,904 ​ See notes to consolidated financial statements. ​ 58 Table of Contents EL POLLO LOCO HOLDINGS, INC. ​ CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ​ (Amounts in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Fiscal Years Ended ​ ​ December 25, December 27, December 28, ​ ​ ​ 2024 ​ 2023 ​ 2022 Net income ​ ​ $ 25,684 ​ $ 25,554 ​ $ 20,801 ​ Other comprehensive (loss) income ​ ​ ​ ​ ​ Changes in derivative instruments ​ ​ ​ ​ ​ Unrealized net gains arising during the period from interest rate swap ​ ​ — ​ — ​ 862 ​ Reclassifications of loss into net income ​ ​ — ​ ( 170 ) ​ ( 296 ) ​ Income tax benefit (expenses) ​ ​ — ​ 44 ​ ( 150 ) ​ Other comprehensive (loss) income, net of taxes ​ ​ — ​ ( 126 ) ​ 416 ​ Comprehensive income ​ ​ $ 25,684 ​ $ 25,428 ​ $ 21,217 ​ ​ See notes to consolidated financial statements. ​ 59 Table of Contents EL POLLO LOCO HOLDINGS, INC. ​ CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY ​ (Amounts in thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Accumulated Accumulated ​ ​ ​ ​ ​ Additional Deficit) Other Total ​ ​ Common Stock ​ Paid-in ​ Retained ​ Comprehensive ​ Stockholders’ ​ Shares Amount Capital Earnings Income (Loss) Equity Balance, December 29, 2021 ​ 36,601,648 ​ $ 365 ​ $ 342,941 ​ $ ( 32,393 ) ​ $ ( 290 ) ​ $ 310,623 Stock-based compensation ​ — ​ — ​ 3,491 ​ — ​ — ​ 3,491 Issuance of common stock related to restricted shares, net ​ 356,610 ​ 4 ​ ( 4 ) ​ — ​ — ​ — Issuance of common stock upon exercise of stock options, net ​ 185,798 ​ 2 ​ 1,711 ​ — ​ — ​ 1,713 Shares repurchased for employee tax withholdings ​ ( 30,128 ) ​ — ​ ( 322 ) ​ — ​ — ​ ( 322 ) Forfeiture of common stock related to restricted shares ​ ( 105,867 ) ​ ( 1 ) ​ 1 ​ — ​ — ​ — Other comprehensive loss, net of income tax ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 416 ​ ​ 416 Common stock cash dividends ($ 1.50 per share) ​ — ​ ​ — ​ ​ ( 55,574 ) ​ ​ — ​ ​ — ​ ​ ( 55,574 ) Net income ​ — ​ — ​ — ​ 20,801 ​ — ​ 20,801 Balance, December 28, 2022 ​ 37,008,061 ​ 370 ​ 292,244 ​ ( 11,592 ) ​ 126 ​ 281,148 Stock-based compensation ​ — ​ — ​ 2,964 ​ — ​ — ​ 2,964 Issuance of common stock related to restricted shares, net ​ 454,081 ​ 5 ​ ( 5 ) ​ — ​ — ​ — Issuance of common stock upon exercise of stock options, net ​ 219,960 ​ 2 ​ 1,169 ​ — ​ — ​ 1,171 Shares repurchased for employee tax withholdings ​ ( 26,344 ) ​ — ​ ( 243 ) ​ — ​ — ​ ( 243 ) Repurchase of common stock ​ ( 6,030,850 ) ​ ​ ( 61 ) ​ ​ ( 59,155 ) ​ ​ — ​ ​ — ​ ​ ( 59,216 ) Repurchase of common stock - excise tax ​ — ​ ​ — ​ ​ ( 556 ) ​ ​ — ​ ​ — ​ ​ ( 556 ) Forfeiture of common stock related to restricted shares ​ ( 271,685 ) ​ ( 3 ) ​ 3 ​ — ​ — ​ — Other comprehensive income, net of income tax ​ — ​ — ​ — ​ — ​ ( 126 ) ​ ( 126 ) Net income ​ — ​ — ​ — ​ 25,554 ​ — ​ 25,554 Balance, December 27, 2023 ​ 31,353,223 ​ 313 ​ 236,421 ​ 13,962 ​ — ​ 250,696 Stock-based compensation ​ — ​ — ​ 3,931 ​ — ​ — ​ 3,931 Issuance of common stock related to restricted shares, net ​ 513,723 ​ 5 ​ ( 5 ) ​ — ​ — ​ — Issuance of common stock upon exercise of stock options, net ​ 163,696 ​ 2 ​ 1,554 ​ — ​ — ​ 1,556 Shares repurchased for employee tax withholdings ​ ( 36,689 ) ​ — ​ ( 440 ) ​ — ​ — ​ ( 440 ) Repurchase of common stock ​ ( 2,069,931 ) ​ ​ ( 21 ) ​ ​ — ​ ​ ( 20,563 ) ​ ​ — ​ ​ ( 20,584 ) Repurchase of common stock - excise tax ​ — ​ ​ — ​ ​ — ​ ​ ( 174 ) ​ ​ — ​ ​ ( 174 ) Forfeiture of common stock related to restricted shares ​ ( 84,301 ) ​ ( 1 ) ​ 1 ​ — ​ — ​ — Net income ​ — ​ — ​ — ​ 25,684 ​ — ​ 25,684 Balance, December 25, 2024 ​ 29,839,721 ​ $ 298 ​ $ 241,462 ​ $ 18,909 ​ $ — ​ $ 260,669 ​ See notes to consolidated financial statements. ​ 60 Table of Contents EL POLLO LOCO HOLDINGS, INC. ​ CONSOLIDATED STATEMENTS OF CASH FLOWS ​ (Amounts in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Fiscal Years Ended ​ December 25, December 27, December 28, ​ 2024 2023 2022 Cash flows from operating activities: ​ ​ ​ ​ ​ ​ Net income ​ $ 25,684 ​ $ 25,554 ​ $ 20,801 Adjustments to reconcile net income to net cash flows provided by operating activities: ​ ​ ​ Depreciation and amortization ​ 15,717 ​ 15,235 ​ 14,418 Stock-based compensation expense ​ 3,931 ​ 2,964 ​ 3,491 Income tax receivable agreement (income) expense ​ ( 20 ) ​ 103 ​ ( 436 ) Fire insurance proceeds for expenses paid and lost profit ​ ​ — ​ ​ 327 ​ ​ — Loss (gain) on disposition of restaurants ​ ​ 7 ​ ​ ( 5,034 ) ​ ​ ( 848 ) Loss on disposal of assets ​ 221 ​ 192 ​ 165 Gain on recovery of insurance proceeds, property, equipment and expenses, net ​ ​ ( 41 ) ​ ​ ( 247 ) ​ ​ — Impairment of property and equipment and ROU assets ​ 123 ​ 1,536 ​ 481 Amortization of deferred financing costs ​ 197 ​ 201 ​ 340 Deferred income taxes, net ​ ( 2,857 ) ​ 906 ​ 4,600 Changes in operating assets and liabilities: ​ ​ ​ Accounts and other receivables ​ 677 ​ ( 216 ) ​ 3,323 Inventories ​ ( 27 ) ​ 531 ​ ( 125 ) Prepaid expenses and other current assets ​ 125 ​ ( 1,972 ) ​ 71 Income taxes receivable/ payable ​ 1,695 ​ 838 ​ ( 1,657 ) Operating lease assets ​ ​ 19,133 ​ ​ 19,040 ​ ​ 19,427 Other assets ​ ( 232 ) ​ ( 309 ) ​ ( 240 ) Accounts payable ​ ( 544 ) ​ ( 3,965 ) ​ 3,977 Accrued salaries and vacation ​ 4,594 ​ 459 ​ ( 2,667 ) Accrued insurance ​ ( 414 ) ​ 711 ​ ( 73 ) Payment related to tax receivable agreement ​ ( 399 ) ​ ( 350 ) ​ ( 430 ) Operating lease liabilities ​ ​ ( 19,105 ) ​ ​ ( 19,120 ) ​ ​ ( 19,780 ) Other accrued expenses and liabilities ​ ( 1,684 ) ​ 3,304 ​ ( 6,289 ) Net cash flows provided by operating activities ​ 46,781 ​ 40,688 ​ 38,549 Cash flows from investing activities: ​ ​ ​ Proceeds from disposition of restaurants ​ 100 ​ 7,722 ​ 1,002 Proceeds from fire insurance for property and equipment ​ ​ 41 ​ ​ 163 ​ ​ — Purchase of property and equipment ​ ( 19,081 ) ​ ( 21,332 ) ​ ( 19,917 ) Net cash flows used in investing activities ​ ( 18,940 ) ​ ( 13,447 ) ​ ( 18,915 ) Cash flows from financing activities: ​ ​ ​ Proceeds from borrowings on revolver and swingline loans ​ 14,000 ​ 39,000 ​ 46,000 Payments on revolver and swingline loan ​ ​ ( 27,000 ) ​ ​ ( 21,000 ) ​ ​ ( 20,000 ) Minimum tax withholdings related to net share settlements ​ ​ ( 440 ) ​ ​ ( 243 ) ​ ​ ( 322 ) Common stock dividends paid ​ — ​ — ​ ( 55,574 ) Proceeds from issuance of common stock upon exercise of stock options, net of expenses ​ ​ 1,556 ​ ​ 1,171 ​ ​ 1,713 Payment of obligations under finance leases ​ ( 207 ) ​ ( 158 ) ​ ( 162 ) Deferred financing costs for revolver loan ​ — ​ — ​ ( 842 ) Repurchases of common stock ​ ( 20,554 ) ​ ( 59,216 ) ​ — Net cash flows used in financing activities ​ ( 32,645 ) ​ ( 40,446 ) ​ ( 29,187 ) Decrease in cash and cash equivalents ​ ( 4,804 ) ​ ( 13,205 ) ​ ( 9,553 ) Cash and cash equivalents, beginning of period ​ 7,288 ​ 20,493 ​ 30,046 Cash and cash equivalents, end of period ​ $ 2,484 ​ $ 7,288 ​ $ 20,493 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Fiscal Years Ended ​ December 25, December 27, December 28, ​ ​ 2024 2023 2022 Supplemental cash flow information ​ ​ ​ Cash paid during the period for interest ​ $ 5,890 ​ $ 4,819 ​ $ 1,450 Cash paid during the period for income taxes ​ $ 10,351 ​ $ 7,721 ​ $ 5,100 Unpaid purchases of property and equipment ​ $ 3,969 ​ $ 5,098 ​ $ 1,333 Unpaid repurchases of common stock and excise tax ​ $ 204 ​ $ — ​ $ — ​ ​ See notes to consolidated financial statements. ​ ​ ​ ​ ​ 61 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ 1. DESCRIPTION OF BUSINESS El Pollo Loco Holdings, Inc. (“Holdings”) is a Delaware corporation headquartered in Costa Mesa, California. Holdings and its direct and indirect subsidiaries are collectively referred to herein as the “Company.” The Company’s activities are conducted principally through its indirect wholly-owned subsidiary, El Pollo Loco, Inc. (“EPL”), which develops, franchises, licenses and operates quick-service restaurants under the name El Pollo Loco ®. The restaurants, which are located principally in California but also in Arizona, Nevada, Texas, Colorado, Utah and Louisiana, specialize in fire-grilling citrus-marinated chicken in a wide variety of contemporary Mexican and LA-inspired entrees, including specialty chicken burritos, chicken quesadillas, chicken tostada salads, chicken tortilla soup, variations on the Company’s Pollo Bowl®, Pollo Salads and Pollo Fit entrees. At December 25, 2024, the Company operated 173 ( 130 in the greater Los Angeles area) and franchised 325 ( 151 in the greater Los Angeles area) El Pollo Loco restaurants. In addition, as of December 25, 2024, the Company licensed 10 restaurants in the Philippines. Holdings has no material assets or operations. Holdings and Holdings’ direct subsidiary, EPL Intermediate, Inc. (“Intermediate”), guarantee EPL’s 2022 Revolver (see Note 7 “Long-Term Debt”) on a full and unconditional basis and Intermediate has no subsidiaries other than EPL. EPL is a separate and distinct legal entity, and has no obligation to make funds available to Intermediate. EPL and Intermediate may pay dividends to Intermediate and to Holdings, respectively. The Company operates in one operating segment. All significant revenues relate to retail sales of food and beverages through either company or franchised restaurants. ​ 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Liquidity The Company’s principal liquidity and capital requirements are new restaurants, existing restaurant capital investments (remodels and maintenance), interest payments on its debt, lease obligations and working capital and general corporate needs. At December 25, 2024, the Company’s total debt was $ 71.0 million. The Company’s ability to make payments on its indebtedness and to fund planned capital expenditures depends on available cash and its ability to generate adequate cash flows in the future, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond the Company’s control. Based on current operations, the Company believes that its cash flow from operations, available cash of $ 2.5 million at December 25, 2024, and the outstanding borrowing availability under the 2022 Revolver (as defined in Note 7 “Long-Term Debt”) will be adequate to meet the Company’s liquidity needs for the next twelve months from the issuance of the consolidated financial statements. Basis of Presentation The Company uses a 52- or 53-week fiscal year ending on the last Wednesday of each calendar year. Fiscal 2024, 2023, and 2022 ended on December 25, 2024, December 27, 2023 and December 28, 2022, respectively. In a 52-week fiscal year, each quarter includes 13 weeks of operations. In a 53-week fiscal year, the first, second and third quarters each include 13 weeks of operations and the fourth quarter includes 14 weeks of operations. Approximately every six or seven years a 53-week fiscal year occurs. Fiscal 2024, 2023 and 2022 were 52-week fiscal years. 53-week years may cause revenues, expenses, and other results of operations to be higher due to the additional week of operations. Certain prior year amounts in the accompanying consolidated financial statements have been reclassified to conform with the current year presentation. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Holdings and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. 62 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and revenue and expenses during the periods reported. Actual results could materially differ from those estimates. The Company’s significant estimates include estimates for impairment of goodwill, intangible assets and property and equipment, insurance reserves, lease accounting matters, contingent liabilities and income tax valuation allowances. Cash and Cash Equivalents The Company considers all liquid instruments with an original maturity of three months or less at the date of purchase to be cash equivalents. Concentration of Risk Cash and cash equivalents are maintained at financial institutions and, at times, these balances may exceed federally-insured limits. The Company has never experienced any losses related to these balances. The Company had one supplier for which amounts due at December 25, 2024 totaled 19.7 % of the Company’s accounts payable. As of December 27, 2023, the Company had one supplier for which the amount due totaled 15.1 % of the Company’s accounts payable. Purchases from the Company’s largest supplier totaled 24.1 % of the Company’s purchases for fiscal 2024, 26.6 % for fiscal 2023 and 28.5 % for fiscal 2022 with no amounts payable at December 25, 2024 or December 27, 2023. In fiscal 2024, 2023 and 2022, Company-operated and franchised restaurants in the greater Los Angeles area generated, in the aggregate, approximately 72.0 %, 71.3 %, and 71.2 %, respectively, of total revenue. One franchisee accounted for 28.4 % of total accounts receivable as of December 25, 2024, and one franchisee accounted for 11.4 % of total accounts receivable as of December 27, 2023. Management believes the loss of the significant supplier or franchisee could have a material adverse effect on the Company’s consolidated results of operations and financial condition. Accounts and Other Receivables, Net Accounts and other receivables consist primarily of royalties, advertising and sublease rent and related amounts receivable from franchisees. Such receivables are due on a monthly basis, which may differ from the Company’s fiscal month-end dates. Accounts and other receivables also include credit/debit card receivables. The need for an allowance for credit losses is reviewed on a specific identification basis and takes into consideration past due balances and the financial strength of the obligor. Inventories Inventories consist principally of food, beverages and supplies and are valued at the lower of average cost or net realizable value. Property and Equipment, Net Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the assets. Expenditures for reimbursements and improvements that significantly add to the productivity capacity or extend the useful life are capitalized, while expenditures for maintenance and repairs are expensed as incurred. Leasehold improvements and property held under finance leases are amortized over the shorter of their estimated useful lives or the remaining lease terms. For leases with renewal periods at the Company’s option, the Company generally 63 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS uses the original lease term, excluding the option periods, to determine estimated useful lives; if failure to exercise a renewal option imposes an economic penalty on the Company, such that management determines at the inception of the lease that renewal is reasonably assured, the Company may include the renewal option period in the determination of appropriate estimated useful lives. The estimated useful service lives are as follows: ​ ​ ​ ​ Buildings 20 years Land improvements 3 — 30 years Building improvements 3 — 10 years Restaurant equipment 3 — 10 years Other equipment 2 — 10 years Property/equipment held under finance leases ​ Shorter of useful life or lease term Leasehold improvements Shorter of useful life or lease term ​ The Company capitalizes certain directly attributable internal costs in conjunction with the acquisition, development and construction of future restaurants. The Company also capitalizes certain directly attributable costs, including interest, in conjunction with constructing new restaurants. These costs are included in property and amortized over the shorter of the life of the related buildings and leasehold improvements or the lease term. Costs related to abandoned sites and other site selection costs that cannot be identified with specific restaurants are charged to general and administrative expenses in the accompanying consolidated statements of income, and there were none for the year ended December 25, 2024, $ 0.2 million for the year ended December 27, 2023, and less than $ 0.1 million for the year ended December 28, 2022. The Company capitalized internal costs related to site selection and construction activities of $ 0.6 million, $ 1.8 million and $ 1.5 million for the years ended December 25, 2024, December 27, 2023 and December 28, 2022, respectively. Impairment of Property and Equipment and ROU Assets The Company reviews its property and equipment and right-of-use assets (“ROU assets”) for impairment on a restaurant-by-restaurant basis whenever events or changes in circumstances indicate that the carrying value of certain property and equipment and ROU assets may not be recoverable. The Company considers a triggering event, related to property and equipment assets or ROU assets in a net asset position, to have occurred related to a specific restaurant if the restaurant’s Average Unit Volume (“AUV”) for the last twelve months are less than a minimum threshold or if consistent levels of undiscounted cash flows for the remaining lease period are less than the carrying value of the restaurant’s assets. Additionally, the Company considers a triggering event, related to ROU assets, to have occurred related to a specific lease if the location has been closed or subleased and future estimated sublease income is less than current lease payments. As of December 25, 2024 and December 27, 2023, ROU assets related to closed or subleased restaurant locations totaled $ 39.1 million and $ 42.8 million, respectively. If the Company concludes that the carrying value of certain property and equipment and ROU assets will not be recovered based on expected undiscounted future cash flows, an impairment loss is recorded to reduce the property and equipment or ROU assets to their estimated fair value. The fair value is measured on a nonrecurring basis using unobservable (Level 3) inputs. There is uncertainty in the projected undiscounted future cash flows used in the Company’s impairment review analysis, which requires the use of estimates and assumptions. If actual performance does not achieve the projections, or if the assumptions used change in the future, the Company may be required to recognize impairment charges in future periods, and such charges could be material. The Company determined that triggering events occurred for certain stores during the year ended December 25, 2024 that required an impairment review of the Company’s property and equipment and ROU assets. Based on the results of this analysis, the Company recorded non-cash impairment charges of $ 0.1 million primarily related to the property and equipment assets of two restaurants in Nevada for the year ended December 25, 2024. In fiscal 2023, the Company recorded non-cash impairment charges of $ 1.5 million primarily related to the carrying value of the ROU assets of one restaurant in California and the property and equipment assets of one restaurant in Nevada. In fiscal 2022, the Company recorded a non-cash impairment charge of $ 0.5 million primarily related to the carrying value of the ROU assets of one restaurant in California that closed in 2021. Given the inherent uncertainty in projecting results for newer restaurants in newer markets, the Company is monitoring the recoverability of the carrying value of the assets of several restaurants on an ongoing basis. For these restaurants, if expected performance is not realized, an impairment charge may be recognized in future periods, and such charge could be material. 64 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Closed-Store Reserves When a restaurant is closed, the Company will evaluate the ROU asset for impairment, based on anticipated sublease recoveries. The remaining value of the ROU asset is amortized on a straight-line basis, with the expense recognized in closed-store reserves expense. Additionally, any property tax and common area maintenance (“CAM”) payments relating to closed restaurants are also included within closed-store reserves expense. During fiscal 2024, 2023 and 2022, the Company recognized $ 0.1 million, $ 0.2 million and $ 0.3 million, respectively, of closed-store reserves expense related to the amortization of ROU assets, property taxes and CAM payments for its closed locations. Goodwill and Indefinite-Lived Intangible Assets The Company’s indefinite-lived intangible assets consist of trademarks. Goodwill represents the excess of cost over fair value of net identified assets acquired in business combinations accounted for under the purchase method. The Company does not amortize its goodwill and indefinite-lived intangible assets. Goodwill resulted from the acquisition of certain franchise locations. Upon the sale or refranchising of a restaurant, the Company evaluates whether there is a decrement of goodwill. The amount of goodwill included in the cost basis of the asset sold is determined based on the relative fair value of the portion of the reporting unit disposed of compared to the fair value of the reporting unit retained. The Company reports as one reporting unit. The fair value of the portion of the reporting unit disposed of in a refranchising is determined by reference to the discounted value of the future cash flows expected to be generated by the restaurant and retained by the franchisee, which includes a deduction for the anticipated, future royalties the franchisee will pay the Company associated with the franchise agreement entered into simultaneously with the refranchising transition. The fair value of the reporting unit retained is based on the price a willing buyer would pay for the reporting unit and includes the value of franchise agreements. As such, the fair value of the reporting unit retained can include expected cash flows from future royalties from those restaurants currently being refranchised, future royalties from existing franchise businesses and company restaurant operations. The Company did no t record any decrement to goodwill related to the disposition of restaurants in fiscal 2024, 2023 and 2022. The Company performs an annual impairment test for goodwill during the fourth fiscal quarter of each year, or more frequently if impairment indicators arise. The Company reviews goodwill for impairment utilizing either a qualitative assessment or a fair value test by comparing the fair value of a reporting unit with its carrying amount. If the Company decides that it is appropriate to perform a qualitative assessment and concludes that the fair value of a reporting unit more likely than not exceeds its carrying value, no further evaluation is necessary. If the Company performs the fair value test, the Company will compare the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, the Company will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit. The Company performs an annual impairment test for indefinite-lived intangible assets during the fourth fiscal quarter of each year, or more frequently if impairment indicators arise. An impairment test consists of either a qualitative assessment or a comparison of the fair value of an intangible asset with its carrying amount. The excess of the carrying amount of an intangible asset over its fair value is recognized as an impairment loss. The assumptions used in the estimate of fair value are generally consistent with the past performance of the Company’s reporting segment and are also consistent with the projections and assumptions that are used in current operating plans. These assumptions are subject to change as a result of changing economic and competitive conditions. 65 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company determined that there were no indicators of potential impairment of its goodwill and indefinite-lived intangible assets during fiscal 2024. Accordingly, the Company did no t record any impairment to its goodwill or indefinite-lived intangible assets during the year ended December 25, 2024. Deferred Financing Costs Deferred financing costs are capitalized and amortized over the period of the loan on a straight-line basis. Included in other assets are deferred financing costs (net of accumulated amortization), related to the Company’s revolving credit facility, of $ 0.5 million and $ 0.7 million as of December 25, 2024 and December 27, 2023, respectively. Amortization expense for deferred financing costs was approximately $ 0.2 million for both of the years ended December 25, 2024 and December 27, 2023, and $ 0.3 million for the year ended December 28, 2022, and is reflected as a component of interest expense in the accompanying consolidated statements of income. Insurance Reserves The Company is responsible for workers’ compensation, general and health insurance claims up to a specified aggregate stop loss amount. The Company maintains a reserve for estimated claims both reported and incurred but not reported, based on historical claims experience and other assumptions. At December 25, 2024 and December 27, 2023, the Company had accrued $ 11.4 million and $ 11.8 million, respectively, and such amounts are reflected as accrued insurance in the accompanying consolidated balance sheets. The expense for such reserves for the years ended December 25, 2024, December 27, 2023 and December 28, 2022, totaled $ 9.9 million, $ 9.2 million, and $ 8.7 million, respectively. These amounts are included in labor and related expenses and general and administrative expenses on the accompanying consolidated statements of income. Restaurant Revenue Revenues from the operation of company-operated restaurants are recognized as food and beverage products are delivered to customers and payment is tendered at the time of sale. The Company presents revenue net of sales-related taxes and promotional allowances. Promotional allowances amounted to approximately $ 6.3 million, $ 8.7 million and $ 7.5 million during the years ended December 25, 2024, December 27, 2023 and December 28, 2022, respectively. The Company offers a loyalty rewards program, which awards a customer points for dollars spent. Customers earn points for each dollar spent and points can be redeemed for multiple redemption options. If a customer does not earn or use points within a one-year period, their account is deactivated and all points expire. When a customer is part of the rewards program, the obligation to provide future discounts related to points earned is considered a separate performance obligation, to which a portion of the transaction price is allocated. The performance obligation related to loyalty points is deemed to have been satisfied, and the amount deferred in the balance sheet is recognized as revenue, when the points are transferred to a reward and redeemed, the reward or points have expired, or the likelihood of redemption is remote. A portion of the transaction price is allocated to loyalty points, if necessary, on a pro-rata basis, based on stand-alone selling price, as determined by menu pricing and loyalty points terms. As of December 25, 2024 and December 27, 2023, the revenue allocated to loyalty points that have not been redeemed was $ 0.8 million and $ 0.7 million, respectively, which is reflected in the Company’s accompanying consolidated balance sheets within other accrued expenses and current liabilities. The Company expects the loyalty points to be redeemed and recognized over a one-year period. The Company sells gift cards to its customers in the restaurants and through selected third parties. The gift cards sold to customers have no stated expiration dates and are subject to actual and/or potential escheatment rights in several of the jurisdictions in which the Company operates. Furthermore, due to these escheatment rights, the Company does not recognize breakage related to the sale of gift cards due to the immateriality of the amount remaining after escheatment. The Company recognizes income from gift cards when redeemed by the customer. Unredeemed gift card balances are deferred and recorded as other accrued expenses on the accompanying consolidated balance sheets. 66 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Franchise Revenue Franchise revenue consists of franchise royalties, initial franchise fees, license fees due from franchisees, sublease income and IT support services. Rental income for subleases to franchisees are outside of the scope of the revenue standard and are within the scope of lease guidance. Franchise royalties are based upon a percentage of net sales of the franchisee and are recorded as income as such sales are earned by the franchisees. For franchise and development agreement fees, the initial franchise services, or exclusivity of the development agreements, are not distinct from the continuing rights or services offered during the term of the franchise agreement and are, therefore, treated as a single performance obligation. As such, initial franchise and development fees received, and subsequent renewal fees, are recognized over the franchise or renewal term, which is typically twenty years . As of December 25, 2024, the Company had executed development agreements that represent commitments to open 73 franchised restaurants at various dates through 2035. This revenue stream is made up of the following performance obligations: ● Franchise License – inclusive of advertising services, development agreements, training, access to restaurant development plans and help desk services; ● Discounted renewal option; and ● Hardware services. The Company satisfies the performance obligation related to the franchise license over the term of the franchise agreement, which is typically 20 years . Payment for the franchise license consists of three components, a fixed-fee related to the franchise/development agreement, a sales-based royalty fee and a sales-based advertising fee. The fixed fee, as determined by the signed development and/or franchise agreement, is due at the time the development agreement is entered into, and/or when the franchise agreement is signed, and does not include a finance component. The sales-based royalty fee and sales-based advertising fee are considered variable consideration and are recognized as revenue as such sales are earned by the franchisees. Both sales-based fees qualify under the royalty constraint exception, and do not require an estimate of future transaction price. Additionally, the Company is utilizing the practical expedient available under ASC Topic 606, “Revenue from Contracts with Customers” (“Topic 606”) regarding disclosure of the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied for sales-based royalties. In certain franchise agreements, the Company offers a discounted renewal to incentivize future renewals after the end of the initial franchise term. As this is considered a separate performance obligation, the Company allocated a portion of the initial franchise fee to this discounted renewal, on a pro-rata basis, assuming a 20 year renewal. This performance obligation is satisfied over the renewal term, which is typically 10 or 20 years , while payment is fixed and due at the time the renewal is signed. The Company purchases hardware, such as scanners, printers, cash registers, kiosks and tablets, from third-party vendors, which it then sells to franchisees. As the Company is considered the principal in this relationship, payment received for the hardware is considered revenue, and is received upon transfer of the goods from the Company to the franchisee. As of December 25, 2024, there were no performance obligations, related to hardware services that were unsatisfied or partially satisfied. Franchise Advertising Fee Revenue The Company presents advertising contributions received from franchisees as franchise advertising fee revenue and records all expenses of the advertising fund within franchise expenses. 67 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Advertising Costs Advertising expense is recorded as the obligation to contribute to the advertising fund and is accrued, generally when the associated revenue is recognized. Advertising expense, which is a component of occupancy and other operating expenses, was $ 16.1 million, $ 16.2 million and $ 16.4 million for the years ended December 25, 2024, December 27, 2023 and December 28, 2022, respectively. In addition, there was $ 31.2 million, $ 29.2 million and $ 28.5 million for the years ended December 25, 2024, December 27, 2023 and December 28, 2022, respectively, funded by the franchisees’ advertising fees. Franchisees pay a monthly fee to the Company that ranges from 4 % to 5 % of their restaurants’ net sales as reimbursement for advertising, public relations and promotional services the Company provides, which is included within franchise advertising fee revenue. Fees received in advance of provided services are included in other accrued expenses and current liabilities and were $ 1.2 million and $ 3.0 million at December 25, 2024 and December 27, 2023, respectively. Company-operated restaurants contribute to the advertising fund on the same basis as franchised restaurants. At December 25, 2024, the Company was obligated to spend $ 1.2 million more in future periods to comply with this requirement. Production costs of commercials, programming and other marketing activities are charged to the advertising funds when the advertising is first used for its intended purpose. Total contributions and other marketing expenses are included in general and administrative expenses in the accompanying consolidated statements of income. Preopening Costs Preopening costs incurred in connection with the opening of new restaurants are expensed as incurred. For each of the years ended December 25, 2024, December 27, 2023, and December 28, 2022, preopening costs, which are included in general and administrative expenses on the accompanying consolidated statements of income were $ 0.3 million. Leases The Company’s operations utilize property, facilities, equipment and vehicles. Buildings and facilities leased from others are primarily for restaurants and support facilities. Restaurants are operated under lease arrangements that generally provide for a fixed base rent and, in some instances, contingent rent based on a percentage of gross operating profit or net revenues more than a defined amount. Initial terms of land and restaurant building leases generally have terms of 20 years , exclusive of options to renew. ROU assets and operating and finance lease liabilities are recognized at the lease commencement date, which is the date the Company takes possession of the property. Operating and finance lease liabilities represent the present value of lease payments not yet paid. ROU assets represent the Company’s right to use an underlying asset and are based upon the operating and finance lease liabilities adjusted for prepayments or accrued lease payments, lease incentives, and impairment of ROU assets. To determine the present value of lease payments not yet paid, the Company estimates incremental borrowing rates corresponding to the lease term including reasonably certain renewal periods. The Company’s leases generally have escalating rents over the term of the lease, and are recorded on a straight-line basis over the expected lease term. Additionally, tenant incentives used to fund leasehold improvements are recognized when earned and reduce the right-of-use asset related to the lease. These are amortized through the operating lease asset as reductions of expense over the lease term. Operating and finance lease liabilities that are based on an index or rate are calculated using the prevailing index or rate at lease commencement. Subsequent escalations in the index or rate and contingent rental payments are recognized as variable lease expenses. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Leases of equipment primarily consist of restaurant equipment, computer systems and vehicles. The Company subleases facilities to certain franchisees and other non-related parties which are recorded on a straight-line basis. 68 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Gain on Recovery of Insurance Proceeds, Lost Profits, Net and Gain on Recovery of Insurance Proceeds, Property, Equipment and Expenses During fiscal 2023 and fiscal 2022, two of the Company’s restaurants incurred damage resulting from a fire. In fiscal 2023, the Company incurred costs directly related to the fire of less than $ 0.1 million. In fiscal 2023, the Company recognized gains of $ 0.2 million, related to the reimbursement of property and equipment and expenses incurred and $ 0.3 million related to the reimbursement of lost profits and in fiscal 2024, the Company recognized gains of less than $ 0.1 million related to the reimbursement of property and equipment and expenses. The gain on recovery of insurance proceeds and reimbursement of lost profits, net of the related costs, is included in the accompanying consolidated statements of income, for the year ended December 27, 2023, as a reduction of Company restaurant expenses. The Company received from the insurance company cash of $ 0.5 million, net of the insurance deductible, during fiscal 2023. Loss (Gain) on Disposition of Restaurants During fiscal 2024, the Company completed the sale of one restaurant within California to an existing franchisee due to an expiring lease term on April 30, 2024. During fiscal 2023, the Company completed the sale of 18 restaurants within California, Utah and Texas to existing franchisees. During fiscal 2022, the Company completed the sale of three company-operated restaurants within the Orange County area to an existing franchisee. The Company determined that these restaurant dispositions represented multiple element arrangements, and as a result, the cash consideration received was allocated to the separate elements based on their relative standalone selling price. Cash proceeds included upfront consideration for the sale of the restaurants and franchise fees, as well as future cash consideration for royalties. 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. The Company initially defers and subsequently recognizes the franchise fees over the term of the franchise agreement. Future royalty income is also recognized in revenue as earned. During 2024, the sale resulted in cash proceeds of $ 0.1 million and a net loss on sale of restaurant of less than $ 0.1 million. During 2023, these sales resulted in cash proceeds of $ 7.7 million and a net gain on sale of restaurant of $ 5.0 million. The Orange County sale during 2022 resulted in cash proceeds of $ 1.0 million and a net gain on sale of restaurants of $ 0.8 million for the year ended December 28, 2022. Since the date of sale, these restaurants are now included in the total number of franchised El Pollo Loco restaurants. Derivative Financial Instruments The Company used an interest rate swap, a derivative instrument, to hedge interest rate risk and not for trading purposes. The derivative contract was entered into with a financial institution. In connection with the Company’s entry into the 2022 Credit Agreement (as defined in Note 7 “Long-Term Debt”), it terminated the interest rate swap on July 28, 2022. The Company recorded the derivative instrument on its consolidated balance sheets at fair value. The derivative instrument qualified as a hedging instrument in a qualifying cash flow hedge relationship, and the gain or loss on the derivative instrument was reported as a component of Accumulated Other Comprehensive Income (“AOCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. For any derivative instruments not designated as hedging instruments, the gain or loss will be recognized in earnings immediately. Income Taxes The provision for income taxes, income taxes payable and deferred income taxes is determined using the asset and liability method. Deferred tax assets and liabilities are determined based on temporary differences between the financial carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which the temporary differences are expected to reverse. On a periodic basis, the Company assesses the probability that its net deferred tax assets, if any, will be recovered. If, after evaluating all of the positive and negative evidence, a conclusion is made that it is more likely than not that some portion or all of the net deferred tax assets will not be recovered, a valuation allowance is provided by charging to tax expense a reserve for the portion of deferred tax assets which are not expected to be realized. 69 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company reviews its filing positions for all open tax years in all U.S. federal and state jurisdictions where it is required to file. When there are uncertainties related to potential income tax benefits, in order to qualify for recognition, the position the Company takes has to have at least a “more likely than not” chance of being sustained (based on the position’s technical merits) upon challenge by the respective authorities. The term “more likely than not” means a likelihood of more than 50%. Otherwise, the Company may not recognize any of the potential tax benefit associated with the position. The Company recognizes a benefit for a tax position that meets the “more likely than not” criterion as the largest amount of tax benefit that is greater than 50% likely of being realized upon its effective resolution. Unrecognized tax benefits involve management’s judgment regarding the likelihood of the benefit being sustained. The final resolution of uncertain tax positions could result in adjustments to recorded amounts and may affect the Company’s results of operations, financial position and cash flows. The Company’s policy is to recognize interest or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties at December 25, 2024 or December 27, 2023. During fiscal 2024, fiscal 2023 and fiscal 2022, there were no material unrecognized tax benefits. Management believes no significant change to the amount of unrecognized tax benefits will occur within the next twelve months. On July 30, 2014, the Company entered into the income tax receivable agreement (the “TRA”), which calls for the Company to pay to its pre-IPO stockholders 85 % of the savings in cash that the Company realizes in its income taxes as a result of utilizing its net operating losses (“NOLs”) and other tax attributes attributable to preceding periods. For the years ended December 25, 2024, December 27, 2023 and December 28, 2022, income tax receivable agreement (income) expense consisted of the amortization of interest expense and changes in estimates for actual tax returns filed, related to the Company total expected TRA payments. On May 29, 2024, the Company 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 $ 0.4 million. As of December 25, 2024, there was no remaining obligations owed on the Company’s consolidated balance sheets. Additionally, the Company assessed its eligibility for the business relief provision under the CARES Act known as the Employee Retention Credit (“ERC”), a refundable payroll tax credit for 50% of qualified wages paid during 2020. The American Rescue Plan passed into law on March 11, 2021 extended the ERC through September 30, 2021, and the credit was increased to 70% of qualified wages paid from January 1, 2021 through September 30, 2021. During fiscal 2022, the Company received $ 3.1 million in ERC and the remaining $ 0.3 million was received and recorded during fiscal 2023. Fair Value Measurements Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories: ● Level 1: Quoted prices for identical instruments in active markets. ● Level 2: Observable prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs or significant value drivers are observable. ● Level 3: Unobservable inputs used when little or no market data is available. Certain assets and liabilities are measured at fair value on a nonrecurring basis. In other words, they are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). For the year ended December 25, 2024, the Company recorded non-cash impairment charges $ 0.1 million for certain property and equipment, which were measured at fair value on a nonrecurring basis. ​ 70 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following non-financial assets were measured at fair value, on a nonrecurring basis, as of and for the year ended December 27, 2023 reflecting certain property and equipment and ROU assets for which an impairment loss was recognized during the corresponding periods, as discussed above under "Impairment of Property and Equipment and ROU Assets" (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Level 1 Level 2 Level 3 Impairment Losses Certain property and equipment, net ​ $ — ​ $ — ​ $ — ​ $ — $ 1,497 Certain ROU assets, net ​ $ 244 ​ $ — ​ $ — ​ $ 244 ​ $ 39 ​ ​ The following non-financial assets were measured at fair value, on a nonrecurring basis, as of and for the year ended December 28, 2022 for which an impairment loss was recognized during the corresponding periods, as discussed above under "Impairment of Property and Equipment and ROU Assets" (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Level 1 Level 2 Level 3 Impairment Losses Certain property and equipment, net ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 442 Certain ROU assets, net ​ $ 327 ​ $ — ​ $ — ​ $ 327 ​ $ 39 ​ Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and certain accrued expenses approximate fair value due to their short-term maturities. The recorded value of the prior years’ TRA approximates fair value, based on borrowing rates currently available to the Company for debts with similar terms and remaining maturities (Level 3 measurement). Stock-Based Compensation Stock-based compensation expense is recognized using a fair-value based method for costs related to all share-based payments including stock options, restricted stock and performance-based stock units issued under the Company’s employee stock plans. The fair value of stock option awards is estimated on the date of grant using an option pricing model, which require the input of subjective assumptions. The Company is required to use judgment in estimating the amount of stock-based awards that are expected to be forfeited. If actual forfeitures differ significantly from the original estimate, stock-based compensation expense and the results of operations could be affected. The cost is recognized on a straight-line basis over the period during which an employee is required to provide service, usually the vesting period. For performance-based stock units, the Company estimates the probability that performance conditions will be achieved. Earnings per Share Earnings per share (“EPS”) is calculated using the weighted average number of common shares outstanding during each period. Diluted EPS assumes the conversion, exercise or issuance of all potential common stock equivalents unless the effect is to reduce a loss or increase the income per share. For purposes of this calculation, options and restricted stock awards are considered to be common stock equivalents and are only included in the calculation of diluted earnings per share when their effect is dilutive. The shares used to compute basic and diluted net income per share represent the weighted-average common shares outstanding. Recently Issued Accounting Pronouncements In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure.” The ASU updates reportable segment disclosure requirements, primarily through requiring enhanced disclosures about significant segment expenses and information used to assess segment performance. These disclosures are required quarterly. The ASU is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024, with early adoption permitted. It is required to be adopted retrospectively for all prior periods presented in the financial statements. The Company adopted this standard during the year ended December 25, 2024. See Note 17 below for the Company's updated segment disclosures. 71 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The ASU includes amendments requiring enhanced income tax disclosures, primarily related to standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The guidance is effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and should be applied prospectively with the option of retrospective application. The Company is currently evaluating the impact of adopting this ASU on its disclosures. ​ In November 2024, the FASB issued ASU No. 2024-03, “Income Statement Reporting Comprehensive Income/Expense Disaggregation Disclosures”. The ASU requires disaggregated disclosure of income statement expenses at interim and annual reporting periods. The ASU is effective for fiscal year beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted. The ASU can be adopted prospectively or retrospectively at the option of the Company. The Company is currently evaluating the impact of adopting this ASU on its disclosures. ​ The Company reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact to the consolidated financial statements. ​ 3. PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets consist of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ December 25, 2024 December 27, 2023 Prepaid insurance ​ $ 2,574 ​ $ 2,574 Prepaid service fees ​ 2,255 ​ 2,764 Other current assets ​ ​ 680 ​ ​ 296 Total prepaid expenses and other current assets ​ $ 5,509 ​ $ 5,634 ​ ​ ​ 4. PROPERTY AND EQUIPMENT The costs and related accumulated depreciation and amortization of major classes of property are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 25, 2024 December 27, 2023 Land ​ $ 12,323 ​ $ 12,323 Buildings and improvements ​ 152,410 ​ 148,259 Other property and equipment ​ 91,352 ​ 86,423 Construction in progress ​ 9,882 ​ 7,270 ​ ​ 265,967 ​ 254,275 Less: accumulated depreciation and amortization ​ ( 179,818 ) ​ ( 170,248 ) ​ ​ $ 86,149 ​ $ 84,027 ​ Depreciation and amortization expense was $ 15.7 million, $ 15.2 million and $ 14.4 million for the years ended December 25, 2024, December 27, 2023, and December 28, 2022, respectively. Based on the Company’s review of its property and equipment assets for impairment, the Company recorded non-cash impairment charges of $ 0.1 million, $ 1.5 million and $ 0.4 million for the years ended December 25, 2024, December 27, 2023, and December 28, 2022, respectively. See “Impairment of Property and Equipment and ROU Assets” in Note 2 “Summary of Significant Accounting Policies” for additional information. ​ 72 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. TRADEMARKS AND OTHER INTANGIBLE ASSETS Domestic trademarks consist of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 25, 2024 December 27, 2023 Cost ​ $ 120,700 ​ $ 120,700 Accumulated impairment charges ​ ( 58,812 ) ​ ( 58,812 ) Trademarks, net ​ $ 61,888 ​ $ 61,888 ​ ​ 6. LEASES Nature of leases The Company’s operations utilize property, facilities, equipment and vehicles leased from others. Additionally, the Company has various contracts with vendors that have been determined to contain an embedded lease in accordance with Topic 842. As of December 25, 2024 , the Company had no leases that it had entered into, but had not yet commenced. Building and facility leases The majority of the Company’s building and facilities leases are classified as operating leases; however, the Company currently has one facility and 24 equipment leases that are classified as finance leases. Restaurants are operated under lease arrangements that generally provide for a fixed base rent and, in some instances, contingent rent based on a percentage of gross operating profit or net revenues in excess of a defined amount. Additionally, a number of the Company’s leases have payments, which increase at pre-determined dates based on the change in the consumer price index. For all leases, the Company also reimburses the landlord for non-lease components, or items that are not considered components of a contract, such as CAM, property tax and insurance costs. While the Company determined not to separate lease and non-lease components, these payments are based on actual costs, making them variable consideration and excluding them from the calculations of the ROU asset and lease liability. The initial terms of land and restaurant building leases are generally 20 years , exclusive of options to renew. These leases typically have four 5-year renewal options , which have generally been excluded in the calculation of the ROU asset and lease liability, as they are not considered reasonably certain to be exercised, unless there have been significant leasehold improvements that have a useful life that extend past the original lease term. Furthermore, there are no residual value guarantees and no restrictions imposed by the lease. During the year ended December 25, 2024 and December 27, 2023, the Company reassessed the lease terms on 28 and 36 restaurants, respectively, due to certain triggering events, such as the addition of significant leasehold improvements with useful lives that extend past the current lease expiration, the decision to terminate a lease, or the decision to renew. As a result of the reassessment, an additional $ 20.5 million and $ 21.5 million, respectively, of ROU asset and lease liabilities were recognized for the year ended December 25, 2024 and December 27, 2023, and will be amortized over the new lease term. There were no reassessments that impacted the original lease classification during the year ended December 25, 2024 or December 27, 2023 . Additionally, as the Company adopted all practical expedients available under Topic 842, no reallocation between lease and non-lease components was necessary. The Company also subleases facilities to certain franchisees and other non-related parties which are also considered operating leases. Sublease income also includes contingent rental income based on net revenues. The vast majority of these leases have rights to extend terms via fixed rental increases. However, none of these leases have early termination rights, the right to purchase the premises or any residual value guarantees. The Company does not have any related party leases. 73 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During fiscal 2024, the Company did no t record any non-cash impairment charges. During fiscal 2023, the Company determined that the carrying value of an ROU assets at one restaurant was not recoverable. As a result, the Company recorded a less than $ 0.1 million non-cash impairment charge for the year ended December 27, 2023 related to one restaurant in California. During fiscal 2022, the Company determined that the carrying value of ROU assets at one restaurant were not recoverable. As a result, the Company recorded a less than $ 0.1 million non-cash impairment charge for the year ended December 28, 2022 related to one restaurant closed in California. Equipment Leases of equipment primarily consist of restaurant equipment, copiers and vehicles. These leases are fixed payments with no variable component. Additionally, no optional renewal periods have been included in the calculation of the ROU asset, there are no residual value guarantees and no restrictions imposed. Significant Assumptions and Judgments In applying the requirements of Topic 842, the Company made significant assumptions and judgments related to determination of whether a contract contains a lease and the discount rate used for the lease. In determining if any of the Company’s contracts contain a lease, the Company made assumptions and judgments related to its ability to direct the use of any assets stated in the contract and the likelihood of renewing any short-term contracts for a period extending past twelve months. The Company also made significant assumptions and judgments in determining an appropriate discount rate for property leases. These included using a consistent discount rate for a portfolio of leases entered into at varying dates, using the full 20-year term of the lease, excluding any options, and using the total minimum lease payments. The Company utilizes a third-party valuation firm in determining the discount rate, based on the above assumptions. For all other leases, the Company uses the discount rate implicit in the lease, or the Company’s incremental borrowing rate. As the Company has adopted the practical expedient not to separate lease and non-lease components, no significant assumptions or judgments were necessary in allocating consideration between these components, for all classes of underlying assets. 74 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents the Company’s total lease cost, disaggregated by underlying asset (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 25, 2024 ​ December 27, 2023 ​ December 28, 2022 ​ Property Equipment ​ ​ Property Equipment ​ ​ Property Equipment ​ ​ ​ ​ Leases ​ Leases ​ Total ​ Leases ​ Leases ​ Total ​ Leases ​ Leases ​ Total Finance lease cost: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortization of right-of-use assets ​ $ 76 ​ $ 100 ​ $ 176 ​ $ 73 ​ $ 2 ​ $ 75 ​ $ 73 ​ $ 2 ​ $ 75 Interest on lease liabilities ​ ​ 36 ​ ​ 18 ​ 54 ​ 40 ​ ​ 5 ​ 45 ​ ​ 42 ​ ​ 3 ​ ​ 45 Operating lease cost: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fixed rent cost ​ ​ 28,287 ​ 332 ​ 28,619 ​ 27,597 ​ 387 ​ 27,984 ​ 26,537 ​ 1,005 ​ 27,542 Short-term lease cost ​ — ​ 1 ​ 1 ​ — ​ 8 ​ 8 ​ — ​ 18 ​ 18 Variable lease cost ​ 553 ​ 1,344 ​ 1,897 ​ 546 ​ 1,279 ​ 1,825 ​ 597 ​ 677 ​ 1,274 Sublease income ​ ( 7,053 ) ​ — ​ ( 7,053 ) ​ ( 5,570 ) ​ — ​ ( 5,570 ) ​ ( 4,555 ) ​ — ​ ( 4,555 ) Total lease cost ​ $ 21,899 ​ $ 1,795 ​ $ 23,694 ​ $ 22,686 ​ $ 1,681 ​ $ 24,367 ​ $ 22,694 ​ $ 1,705 ​ $ 24,399 ​ The following table presents the Company’s total lease cost on the consolidated statement of income (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 25, 2024 December 27, 2023 December 28, 2022 Lease cost – Occupancy and other operating expenses ​ ​ $ 23,046 ​ $ 23,736 ​ $ 23,730 Lease cost – General & administrative ​ ​ 418 ​ ​ 492 ​ ​ 465 Lease cost – Depreciation and amortization ​ ​ 176 ​ ​ 75 ​ ​ 73 Lease cost – Interest expense ​ ​ 54 ​ ​ 45 ​ ​ 45 Lease cost – Closed-store reserve ​ ​ — ​ ​ 19 ​ ​ 86 Total lease cost ​ ​ $ 23,694 ​ $ 24,367 ​ $ 24,399 ​ 75 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company had the following cash and non-cash activities associated with its leases (dollar amounts in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 25, 2024 December 27, 2023 December 28, 2022 ​ ​ Property ​ Equipment ​ ​ ​ Property Equipment ​ ​ Property ​ Equipment ​ ​ ​ ​ ​ Leases ​ Leases ​ Total ​ Leases ​ Leases ​ Total ​ Leases ​ Leases ​ Total Cash paid for amounts included in the measurement of lease liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating cash flows used for operating leases ​ $ 28,376 ​ $ 310 $ 28,686 ​ $ 27,835 ​ $ 321 ​ $ 28,156 ​ $ 27,221 ​ $ 953 ​ $ 28,174 Financing cash flows used for finance leases ​ $ 93 ​ $ 114 $ 207 ​ $ 93 ​ $ 65 ​ $ 158 ​ $ 106 ​ $ 56 ​ $ 162 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-cash investing and financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating lease ROU assets obtained in exchange for lease liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating lease ROU assets ​ $ 20,504 ​ $ 1,294 $ 21,798 ​ $ 21,448 ​ $ 54 ​ $ 21,502 ​ $ 12,978 ​ $ 92 ​ $ 13,070 Finance lease ROU assets obtained in exchange for lease liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Finance lease ROU assets ​ $ — ​ $ 148 ​ $ 148 ​ $ — ​ $ 135 ​ $ 135 ​ $ — ​ $ 28 ​ $ 28 Derecognition of ROU assets due to terminations, impairment or modifications ​ $ — ​ $ — $ — ​ $ ( 40 ) ​ $ ( 4 ) ​ $ ( 44 ) ​ $ ( 39 ) ​ $ ( 35 ) ​ $ ( 74 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other Information ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average remaining years in lease term—finance leases ​ 15.88 ​ 3.24 ​ ​ ​ ​ 16.87 ​ ​ 3.15 ​ ​ ​ ​ ​ 17.87 ​ ​ 3.19 ​ ​ ​ Weighted-average remaining years in lease term—operating leases ​ 10.13 ​ 3.78 ​ ​ ​ ​ 10.42 ​ ​ 3.33 ​ ​ ​ ​ ​ 10.73 ​ ​ 1.73 ​ ​ ​ Weighted-average discount rate—finance leases ​ 2.57 % 6.49 % ​ ​ ​ 2.57 % ​ 5.68 % ​ ​ ​ ​ 2.57 % ​ 1.53 % ​ ​ Weighted-average discount rate—operating leases ​ 5.31 % 6.73 % ​ ​ ​ 5.00 % ​ 4.52 % ​ ​ ​ ​ 4.54 % ​ 3.80 % ​ ​ ​ Information regarding the Company’s minimum future lease obligations at December 25, 2024 is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Finance Leases ​ Operating Leases ​ Minimum Minimum Minimum ​ ​ Lease ​ Lease ​ Sublease For the Years Ending ​ Payments ​ Payments ​ Income December 31, 2025 ​ $ 224 ​ $ 29,262 ​ $ 5,033 December 30, 2026 ​ 191 ​ 28,160 ​ 4,728 December 29, 2027 ​ 180 ​ 26,846 ​ 4,676 December 27, 2028 ​ 134 ​ 24,917 ​ 4,387 December 26, 2029 ​ 118 ​ 21,820 ​ 3,743 Thereafter ​ 1,274 ​ 118,874 ​ 23,053 Total ​ $ 2,121 ​ $ 249,879 ​ $ 45,620 Less: imputed interest ( 2.57 % - 6.73 %) ​ ( 368 ) ​ ( 59,612 ) ​ Present value of lease obligations ​ 1,753 ​ 190,267 ​ Less: current maturities ​ ( 170 ) ​ ( 19,738 ) ​ Noncurrent portion ​ $ 1,583 ​ $ 170,529 ​ ​ Short-Term Leases The Company has multiple short-term leases, which have terms of less than 12 months, and thus were excluded from the recognition requirements of Topic 842. The Company has recognized these lease payments in its consolidated statement of income on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred. 76 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Lessor The Company is a lessor for certain property, facilities and equipment owned by the Company and leased to others, principally franchisees, under non-cancelable leases with initial terms ranging from 3 to 20 years . These lease agreements generally provide for a fixed base rent and, in some instances, contingent rent based on a percentage of gross operating profit or net revenues. All leases are considered operating leases. For the leases in which the Company is the lessor, there are options to extend the lease. However, there are no terms and conditions to terminate the lease, no right to purchase premises and no residual value guarantees. Additionally, there are no related party leases. For the years ended December 25, 2024, December 27, 2023, and December 28, 2022, the Company received $ 0.4 million, $ 0.3 million and $ 0.4 million, respectively, of lease income from company-owned locations. ​ 7. LONG-TERM DEBT On July 27, 2022, the Company refinanced pursuant to a credit agreement (the “2022 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 provides for a $ 150.0 million five-year senior secured revolving credit facility (the “2022 Revolver”). The 2022 Revolver includes a sub limit of $ 15.0 million for letters of credit and a sub limit of $ 15.0 million for swingline loans. The obligations under the 2022 Credit Agreement and related loan documents are guaranteed by Holdings and Intermediate. 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 subject to certain customary exceptions. 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. 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 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 2022 Revolver. Borrowings under the 2022 Credit Agreement (other than any swingline loans) bear interest, at the borrower’s option, at rates based upon either the secured overnight financing rate (“SOFR”) or a base rate, plus, for each rate, a margin determined in accordance with a lease-adjusted consolidated leverage ratio-based pricing grid. The base rate is calculated as the highest of (a) the federal funds rate plus 0.50 %, (b) the published Bank of America prime rate, or (c) Term SOFR with a term of one-month SOFR plus 1.00 %. For Term SOFR loans, the margin is in the range of 1.25 % to 2.25 %, and for base rate loans the margin is in a range of 0.25 % to 1.25 %. Borrowings under the 2022 Revolver may be repaid and reborrowed. For borrowings under the 2022 Revolver during fiscal 2024, the interest rate range was 5.7 % to 7.0 %. For borrowings under the 2022 Revolver during fiscal 2023, the interest rate range was 5.7 % to 7.0 %. The interest rate under the 2022 Revolver was 5.7 % at December 25, 2024 and 7.0 % at December 27, 2023. For the years ended December 25, 2024, December 27, 2023 and December 28, 2022, the Company had interest expense of $ 5.4 million, $ 4.4 million and $ 0.9 million, respectively, under the 2022 Revolver. 77 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The 2022 Credit Agreement contains certain financial covenants. The Company was in compliance with all such covenants at December 25, 2024. At December 25, 2024, $ 10.3 million of letters of credit and $ 71.0 million of borrowings were outstanding under the 2022 Revolver. The amount available under the 2022 Revolver was $ 68.7 million at December 25, 2024. At December 27, 2023, $ 9.8 million of letters of credit and $ 84.0 million of borrowings were outstanding under the 2022 Revolver. Maturities The 2022 Revolver and 2022 Credit Agreement will mature on July 27, 2027. During the year ended December 25, 2024, the Company borrowed $ 14.0 million and paid down $ 27.0 million on its 2022 Revolver. During the year ended December 27, 2023 , the Company borrowed $ 39.0 million and paid down $ 21.0 million on its 2022 Revolver. There are no required principal payments prior to maturity for the 2022 Revolver. Interest Rate Swap During the year ended December 25, 2019, the Company entered into a variable-to-fixed interest rate swap agreement with a notional amount of $ 40.0 million that matures in June 2023. The objective of the interest rate swap was to reduce the Company’s exposure to interest rate risk for a portion of its variable-rate interest payments on its borrowings under the previous credit agreement. The interest rate swap was designated as a cash flow hedge, as the changes in the future cash flows of the swap were expected to offset changes in expected future interest payments on the related variable-rate debt, in accordance with Accounting Standards Codification (“ASC”) 815 “Derivatives and Hedging.” In connection with the Company’s entry into the 2022 Credit Agreement, on July 28, 2022, the Company terminated the interest rate swap, which was previously used to hedge interest rate risk. Prior to the interest rate swap termination, the swap was a highly effective cash flow hedge. In settlement of this swap, the Company received approximately $ 0.6 million and derecognized the corresponding interest rate swap asset. The remaining amount in AOCI related to the hedging relationship was reclassified into earnings when the hedged forecasted transaction was reported in earnings. The following table summarizes the effect of the Company’s cash flow hedge accounting on the consolidated statements of income (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 27, 2023 December 28, 2022 Interest expense on hedged portion of debt ​ $ — ​ $ 439 Interest income on interest rate swap ​ ( 170 ) ​ ​ ( 296 ) Interest (income) expenses on debt and derivatives, net ​ $ ( 170 ) ​ $ 143 ​ The following table summarizes the effect of the Company’s cash flow hedge accounting on AOCI for the years ended December 27, 2023 and December 28, 2022 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gain Reclassified from ​ ​ ​ Net Gain Recognized in OCI ​ ​ AOCI into Interest Income ​ ​ December 27, 2023 December 28, 2022 December 27, 2023 December 28, 2022 Interest rate swap ​ $ — ​ $ 862 ​ $ ( 170 ) ​ $ ( 296 ) ​ ​ ​ ​ 78 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. OTHER ACCRUED EXPENSES AND CURRENT LIABILITIES Other accrued expenses and current liabilities consist of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 25, 2024 December 27, 2023 Accrued sales and property taxes ​ $ 5,349 ​ $ 5,229 Gift card liability ​ 5,100 ​ 4,877 Loyalty rewards program liability ​ ​ 844 ​ ​ 687 Accrued advertising ​ ​ 1,194 ​ ​ 3,010 Accrued legal settlements and professional fees ​ 463 ​ 720 Deferred franchise and development fees ​ 539 ​ 586 Other ​ 2,407 ​ 3,252 Total other accrued expenses and current liabilities ​ $ 15,896 ​ $ 18,361 ​ ​ 9. OTHER NONCURRENT LIABILITIES Other noncurrent liabilities consist of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 25, 2024 December 27, 2023 Deferred franchise and development fees ​ $ 6,191 ​ $ 6,411 Other ​ 27 ​ 34 Total other noncurrent liabilities ​ $ 6,218 ​ $ 6,445 ​ ​ 10. INCOME TAXES The provision for income taxes is based on the following components (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 25, December 27, December 28, For the Years Ended ​ 2024 ​ 2023 ​ 2022 Current income taxes: ​ ​ ​ Federal ​ $ 8,945 ​ $ 6,572 ​ $ 2,366 State ​ 3,517 ​ 1,846 ​ 1,112 Total current ​ 12,462 ​ 8,418 ​ 3,478 Deferred income taxes: ​ ​ ​ Federal ​ ( 2,105 ) ​ ( 29 ) ​ 2,958 State ​ ( 752 ) ​ 935 ​ 1,642 Total deferred ​ ( 2,857 ) ​ 906 ​ 4,600 Tax provision for income taxes ​ $ 9,605 ​ $ 9,324 ​ $ 8,078 ​ ​ The provision for income taxes differs from the amount computed by applying the federal income tax rate of 21.0 % for fiscal 2024, 2023 and 2022 as follows: 79 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 25, ​ December 27, ​ December 28, For the Years Ended 2024 2023 2022 Statutory federal income tax rate applied to earnings before income taxes and extraordinary items ​ 21.0 % ​ 21.0 % ​ 21.0 % State income tax expense (net of federal benefit) 6.1 ​ 6.4 ​ 7.7 ​ Change in valuation allowance — ​ ( 19.3 ) ​ — ​ State credit expiration ​ — ​ ​ 19.1 ​ ​ — ​ TRA expense (income) — ​ 0.1 ​ ( 0.3 ) ​ 162(m) ​ 0.7 ​ ​ 0.6 ​ ​ 0.5 ​ WOTC Credit ( 0.4 ) ​ ( 0.7 ) ​ ( 0.9 ) ​ Stock option exercises 0.1 ​ 0.1 ​ 0.3 ​ Deferred tax liability true up ​ — ​ ​ ( 1.1 ) ​ ​ — ​ Other ( 0.3 ) ​ 0.5 ​ ( 0.3 ) ​ Total 27.2 % ​ 26.7 % ​ 28.0 % ​ As of December 25, 2024, the Company had no federal and less than $ 0.1 million state NOL carryforwards. These State NOLs expire beginning 2029. The utilization of NOL carryforwards and state enterprise zone credits may be subject to limitation under section 382 of the Internal Revenue Code of 1986 (the “Code”) and similar state law provisions. Deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has evaluated the available evidence supporting the realization of its gross deferred tax assets. After evaluating all of the positive and negative evidence, including the Company’s continued income from operations, the Company concluded that it is more likely than not that its deferred tax assets except for certain state credits will be realized. As of December 25, 2024, the Company had no valuation allowance. During fiscal 2023, the Company released the corresponding valuation allowance since the ten-year carryover period for California Enterprise Zone credits expired at the end of fiscal 2023. In fiscal 2022, the Company recorded a valuation allowance of approximately $ 0.5 million, against its deferred tax asset resulting from certain tax credits that may not be realizable prior to the time the credits expire. On July 30, 2014, the Company entered into the TRA. The TRA calls for the Company to pay its pre-IPO stockholders 85 % of the cash savings that the Company realizes in its taxes as a result of utilizing its NOLs and other tax attributes attributable to preceding periods. The TRA charge expense (benefit) is a permanent add-back to the Company’s taxable income. In fiscal 2024, 2023 and 2022, TRA resulted in less than $ 0.1 million of income, $ 0.1 million of expense and $ 0.4 million of income, respectively, in each case as a result of the amortization of interest expense related to the total expected TRA payments and changes in estimates for actual tax returns filed and future forecasted taxable income . In fiscal 2023 and 2022, the Company paid $ 0.3 million and $ 0.4 million, respectively, to its pre-IPO stockholders under the TRA. Further, on May 29, 2024, the Company 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 $ 0.4 million. As of December 25, 2024, there was no remaining obligations owed on the Company’s consolidated balance sheets. ​ 80 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company’s deferred tax assets and liabilities as of December 25, 2024 and December 27, 2023 are summarized below. ​ ​ ​ ​ ​ ​ ​ ​ ​ December 25, December 27, ​ ​ 2024 ​ 2023 Deferred assets: ​ ​ Capital leases ​ $ 69 ​ $ 62 Accrued vacation ​ 466 ​ 470 Accrued workers’ compensation ​ 2,099 ​ 2,352 Accrued payroll ​ 5 ​ — Net operating losses ​ 5 ​ 5 Fixed assets ​ 2,981 ​ 2,705 ROU liabilities ​ 51,160 ​ 50,735 Other ​ 7,893 ​ 5,560 Total deferred tax assets ​ 64,678 ​ 61,889 Deferred liabilities: ​ ​ Goodwill ​ ( 5,961 ) ​ ( 5,938 ) Trademark ​ ( 16,808 ) ​ ( 16,740 ) Prepaid expense ​ ( 1,012 ) ​ ( 1,128 ) ROU assets ​ ( 45,790 ) ​ ( 45,445 ) Fixed assets ​ ​ ( 1,128 ) ​ ​ ( 1,470 ) Other ​ — ​ ( 46 ) Total deferred tax liabilities ​ ( 70,699 ) ​ ( 70,767 ) Net deferred tax liability ​ $ ( 6,021 ) ​ $ ( 8,878 ) ​ The net deferred tax asset/(liability) amounts above as of December 25, 2024 and December 27, 2023 have been classified in the accompanying consolidated balance sheets as noncurrent assets/(liabilities) and are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 25, December 27, ​ ​ 2024 ​ 2023 Noncurrent: ​ ​ ​ ​ ​ ​ Assets (Liabilities) - state ​ $ 336 ​ $ ( 416 ) Liabilities - federal ​ ( 6,357 ) ​ ( 8,462 ) ​ As of December 25, 2024 and December 27, 2023, the Company had no accrual for unrecognized tax benefits. Consequently, no interest or penalties have been accrued by the Company. The Company believes that no significant changes to the amount of unrecognized tax benefits will occur within the next twelve months. The Company is subject to taxation in the United States and in various state jurisdictions. The Company is no longer subject to U.S. examination for years before 2021 by the federal taxing authority, and for years before 2020 by state taxing authorities. ​ 11. EMPLOYEE BENEFIT PLANS The Company sponsors a defined contribution employee benefit plan that permits its employees, subject to certain eligibility requirements, to contribute up to 25 % of their qualified compensation to the plan. The Company matches 100 % of the employees’ contributions of the first 3 % of the employees’ annual qualified compensation, and 50 % of the employees’ contributions of the next 2 % of the employees’ annual qualified compensation. The Company’s matching contribution immediately fully vests. The Company’s contributions to the plan were $ 0.8 million for the years ended December 25, 2024, December 27, 2023 and December 28, 2022. ​ 81 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. STOCK-BASED COMPENSATION Pursuant to the 2018 Omnibus Equity Incentive Plan the Company grants stock options (“options”), restricted stock units, performance-based stock units and restricted stock. The Company has authorized 5,652,240 shares of common stock for issuance in connection with stock awards. On May 28, 2024, the Company’s stockholders approved amending the Equity Incentive Plan, formerly the 2018 Omnibus Equity Incentive Plan, under which the new aggregate share limit was increased by 1,250,000 shares. As of December 25, 2024, 1,011,980 shares were available for grant. During the years ended December 25, 2024, December 27, 2023 and December 28, 2022, the Company recognized stock-based compensation expense of $ 3.9 million, $ 3.0 million and $ 3.5 million, respectively. These expenses were included in general and administrative expenses consistent with the salary expense for the related optionees in the accompanying consolidated statements of income. Stock Options At December 25, 2024, options to purchase 1,098,320 shares of common stock of the Company were outstanding, including 319,049 vested and 779,271 unvested. Unvested options vest over time, or upon the Company’s achievement of annual financial goals. However, the compensation committee of the board of directors, as administrator of the Company’s Equity Incentive Plan, has the power to accelerate the vesting schedule of stock-based compensation, and, generally, in the event of an employee termination in connection with a change in control of the Company, any unvested portion of an award under the plan shall become fully vested. At December 25, 2024, there were no premium options that were granted above the stock price at date of grant. In fiscal 2024, the Company granted 578,473 options, with an exercise price equal to the fair market value of the common stock on the date of grant. The options granted in fiscal 2024 had a four year vesting period. Stock options generally expire ten years from the date of grant. In fiscal 2023, the Company granted 562,344 options, with an exercise price equal to the fair market value of the common stock on the date of grant. The options granted in fiscal 2023 had a four year vesting period. Stock options generally expire 10 years from the date of grant . Changes in options for the years ended December 25, 2024 and December 27, 2023, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-Average Aggregate ​ ​ Weighted-Average Contractual Life Intrinsic Value ​ ​ Shares ​ Exercise Price Life (Years) (in thousands) Outstanding - December 28, 2022 1,068,179 ​ $ 9.92 ​ ​ ​ ​ ​ ​ Grants ​ 562,344 ​ ​ 9.15 ​ ​ ​ ​ ​ ​ Exercised ( 219,960 ) ​ ​ 5.32 ​ ​ ​ ​ ​ ​ Forfeited, cancelled or expired ( 567,243 ) ​ 10.63 ​ ​ ​ ​ ​ ​ Outstanding – December 27, 2023 843,320 ​ $ 10.13 ​ ​ ​ ​ ​ ​ Grants 578,473 ​ 10.53 ​ ​ ​ ​ ​ ​ Exercised ( 163,696 ) ​ ​ 9.50 ​ ​ ​ ​ ​ ​ Forfeited, cancelled or expired ( 159,777 ) ​ ​ 10.66 ​ ​ ​ ​ ​ ​ Outstanding – December 25, 2024 1,098,320 ​ $ 10.36 ​ ​ 7.72 ​ $ 1,774 Vested and expected to vest at December 25, 2024 1,084,553 ​ $ 10.36 ​ ​ 7.70 ​ $ 1,753 Exercisable at December 25, 2024 319,049 ​ $ 10.78 ​ ​ 4.23 ​ $ 485 ​ The intrinsic value of options exercised, calculated as the difference between the market value on the date of exercise and the exercise price, was $ 0.3 million, $ 0.9 million and $ 0.8 million for fiscal years 2024, 2023 and 2022, respectively. The Company measures and recognizes compensation expense for the estimated fair value of stock options for employees and non-employee directors and similar awards based on the grant-date fair value of the award. For options that are based on a service requirement, the cost is recognized on a straight-line basis over the requisite service period, usually the vesting period. For options that were based on performance requirements, costs were recognized over periods to which the performance criteria related. In order to calculate the Company’s stock options’ fair values and the associated compensation costs for share-based awards, the Company utilizes the Black–Scholes option pricing model and has developed estimates of various inputs including forfeiture rate, expected term, expected volatility, and risk-free 82 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS interest rate. The forfeiture rate is based on historical rates and reduces the compensation expense recognized. The expected term for options granted is derived using the “simplified” method, in accordance with SEC guidance. The Company calculates the risk-free interest rate using the implied yield for a U.S. Treasury security with constant maturity and a remaining term equal to the expected term of the Company’s employee stock options. The Company does not anticipate paying any cash dividends for the foreseeable future and therefore uses an expected dividend yield of zero for option valuation purposes. Expected volatility is based on the Company’s historical data. Volatility is calculated by taking the historical daily closing equity prices of the Company, prior to the grant date, over a period equal to the expected term. The weighted-average estimated fair value of employee stock options granted in fiscal 2024 and 2023 was $ 5.28 and $ 4.41 per share, respectively, using the Black–Scholes model with the following weighted-average assumptions used to value the option grants: ​ ​ ​ ​ ​ ​ ​ ​ December 25, 2024 December 27, 2023 Expected volatility ​ 44.1 % 43.8 % Risk-free interest rate 4.6 % 3.7 % Expected term (years) 6.25 6.20 ​ Expected dividends — — ​ ​ As of December 25, 2024, the Company had total unrecognized compensation expense of $ 3.3 million related to unvested stock options, which the Company expects to recognize over a weighted average period of 3.2 years. The above assumptions generally require judgment. If in the future the Company determines that another method is more reasonable, or if another method for calculating these input assumptions is prescribed by authoritative guidance, and, therefore, should be used to estimate volatility or expected term, the fair value calculated for the Company’s stock options could change significantly. Higher volatility and longer expected lives result in an increase to stock-based compensation expense determined at the date of grant. The Company estimates its forfeiture rate based on an analysis of its actual forfeitures and will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover behavior, and other factors. Changes in the estimated forfeiture rate can have a significant effect on reported stock-based compensation expense, as the cumulative effect of adjusting the rate for all expense amortization is recognized in the period the forfeiture estimate is changed. If a revised forfeiture rate is higher than the previously-estimated forfeiture rate, an adjustment is made that will result in a decrease to the stock-based compensation expense recognized in the financial statements. If a revised forfeiture rate is lower than the previously-estimated forfeiture rate, an adjustment is made that will result in an increase to the stock-based compensation expense recognized in the financial statements. The effect of forfeiture adjustments was insignificant in fiscal 2024, 2023 and 2022. The Company will continue to use judgment in evaluating the expected term, volatility, and forfeiture rate related to its stock-based compensation. Restricted Shares In fiscal 2024 and 2023, 513,723 and 454,081 restricted share awards were granted, respectively, at the fair market value on the date of grant. These grants vest based on continued service over one year for directors and four years for employees. 83 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Changes in restricted shares for the years ended December 25, 2024 and December 27, 2023, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-Average ​ ​ Shares ​ Fair Value Unvested shares at December 28, 2022 545,480 ​ $ 12.02 Granted 454,081 ​ $ 9.08 Released ( 190,415 ) ​ $ 12.25 Forfeited, cancelled, or expired ( 271,685 ) ​ $ 11.06 Unvested shares at December 27, 2023 537,461 ​ $ 9.94 Granted 513,723 ​ $ 10.36 Released ( 258,506 ) ​ $ 9.86 Forfeited and cancelled ( 84,301 ) ​ $ 10.91 Unvested shares at December 25, 2024 708,377 ​ $ 10.16 ​ As of December 25, 2024, there was total unrecognized compensation expense of $ 5.2 million related to unvested restricted share awards, which the Company expects to recognize over a weighted-average period of 2.77 years. ​ During fiscal 2024, the Company granted 41,537 restricted stock units subject to performance-based vesting conditions based on Adjusted EBITDA and restaurant contribution margin to certain officers. Each performance-based restricted stock unit ("PSU") has a grant date fair value of $ 9.63 and a vesting period from the grant date through the date the audit of the Company's fiscal 2024 financial results is expected to be completed. The fair value of each PSU is expensed based on management's current estimate of the level that the performance goal will be achieved. As of December 25, 2024, based on the target level of performance, the total unrecognized compensation expense related to unvested performance stock units was $ 0.3 million, which is expected to be recognized over a weighted-average period of 2.01 years . ​ ​ 13. EARNINGS PER SHARE Basic EPS is calculated using the weighted-average number of shares of common stock outstanding during the years ended December 25, 2024, December 27, 2023, and December 28, 2022. Diluted EPS is calculated using the weighted-average number of shares of common stock outstanding and potentially dilutive during the period, using the treasury stock method. ​ Below are basic and diluted EPS data for the periods indicated, which are in thousands except for per share data. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended ​ ​ December 25, ​ December 27, ​ December 28, ​ 2024 2023 2022 Numerator: ​ ​ ​ Net income ​ $ 25,684 ​ $ 25,554 ​ $ 20,801 Denominator: ​ ​ ​ Weighted-average shares outstanding—basic ​ 29,850,256 ​ 34,253,542 ​ 36,350,579 Weighted-average shares outstanding—diluted ​ 30,034,978 ​ 34,374,706 ​ 36,575,904 Net income per share—basic ​ $ 0.86 ​ $ 0.75 ​ $ 0.57 Net income per share—diluted ​ $ 0.86 ​ $ 0.74 ​ $ 0.57 Anti-dilutive securities not considered in diluted EPS calculation ​ 742,663 ​ 972,181 ​ 535,574 ​ Below is a reconciliation of basic and diluted share counts. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended ​ December 25, December 27, December 28, ​ ​ 2024 ​ 2023 ​ 2022 Weighted-average shares outstanding—basic 29,850,256 34,253,542 36,350,579 Dilutive effect of stock options and restricted shares 184,722 121,164 225,325 Weighted-average shares outstanding—diluted 30,034,978 34,374,706 36,575,904 ​ 84 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Share Repurchases ​ Share Repurchase Program ​ On November 2, 2023, the Company announced that the Board approved a share repurchase program (“Share Repurchase Program”) under which the Company is authorized to repurchase up to $ 20,000,000 of shares of the Company’s common stock. Under the Share Repurchase Program, the Company is permitted to repurchase its common stock from time to time, in amounts and at prices that the Company deemed appropriate, subject to market conditions and other considerations. Pursuant to the Share Repurchase Program, the Company is authorized to effect repurchases using open market purchases, including pursuant to Rule 10b5-1 trading plans, and/or through privately negotiated transactions. The repurchase program does not obligate the Company to acquire any particular number of shares. The repurchase program will terminate on March 31, 2025. Further, on December 4, 2023, the Company repurchased 1.5 million shares for a total purchase price of $ 12.6 million under the Stock Repurchase Agreement with the Sellers. Following completion of this repurchase, approximately $ 7.4 million of the Company’s common stock remained available for repurchase under the Share Repurchase Program at December 27, 2023. ​ For the year ended December 25, 2024, the Company repurchased 535,628 shares of common stock under the Share Repurchase Program, using open market purchases, for total consideration of approximately $ 5.6 million. Following the completion of these repurchases, approximately $ 1.8 million of our common stock remained available for repurchases under the Share Repurchase Program. Other Share Repurchases On August 7, 2023, the Company entered into a Stock Repurchase Agreement with the Sellers, as amended on August 4, 2024, pursuant to which the Company agreed to purchase an aggregate of 2,500,000 shares of the Company’s common stock from the Sellers at a price of $ 10.63 per share, representing the closing price of such shares as listed on Nasdaq on August 7, 2023, for a total purchase price of $ 26.6 million. The repurchase was completed in August 2023. ​ Further, on May 23, 2024, the Company entered into a new Stock Repurchase Agreement with the Sellers, pursuant to which the Company agreed to purchase an aggregate of 1,534,303 shares of its common stock from the Sellers at a price of $ 9.785 per share for a total purchase price of $ 15.0 million. The repurchase was completed in May 2024. ​ Prior to the repurchase, Freeman Spogli & Co. (“Freeman Spogli”), collectively with the Sellers and certain other funds managed by Freeman Spogli, was the Company’s largest stockholder. In addition, John Roth, a director of the Company until his resignation on August 16, 2023, is a general partner of Freeman Spogli and its chief executive officer. 14. COMMITMENTS AND CONTINGENCIES Legal Matters From time to time, the Company is involved in various claims such as wage and hour and other legal actions that arise in the ordinary course of business. The outcomes of these actions are not predictable but the Company does not believe that the ultimate resolution of these other actions will have a material adverse effect on its financial position, results of operations, liquidity, or capital resources. A significant increase in the number of claims, or an increase in amounts owing under successful claims, could materially and adversely affect its business, consolidated financial condition, results of operations, and cash flows. Purchase Commitments The Company has long-term beverage supply agreements with certain major beverage vendors. Pursuant to the terms of these arrangements, marketing rebates are provided to the Company and its franchisees from the beverage vendors based upon the dollar volume of purchases for system-wide restaurants which will vary according to their demand for beverage 85 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS syrup and fluctuations in the market rates for beverage syrup. These contracts have terms extending through the end of 2025. At December 25, 2024, the Company’s total estimated commitment to purchase chicken was $ 25.6 million. Contingent Lease Obligations As a result of assigning the Company’s interest in obligations under real estate leases in connection with the sale of company-operated restaurants to some of the Company’s franchisees, the Company is contingently liable on three lease agreements. These leases have various terms, the latest of which expires in 2038 . As of December 25, 2024, the potential amount of undiscounted payments the Company could be required to make in the event of non-payment by the primary lessee was $ 3.5 million. The present value of these potential payments discounted at the Company’s estimated pre-tax cost of debt at December 25, 2024 was $ 2.4 million. The Company’s franchisees are primarily liable on the leases. The Company has cross-default provisions with these franchisees that would put them in default of their franchise agreements in the event of non-payment under the leases. The Company believes that these cross-default provisions reduce the risk that payments will be required to be made under these leases. Employment Agreements As of December 25, 2024, the Company had employment agreements with three of the officers of the Company. These agreements provide for minimum salary levels, possible annual adjustments for cost-of-living changes, and incentive bonuses that are payable under certain business conditions. Indemnification Agreements The Company has entered into indemnification agreements with each of its current directors and officers. These agreements require the Company to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to the Company and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. The Company also intends to enter into indemnification agreements with future directors and officers. ​ 15. REVENUE FROM CONTRACTS WITH CUSTOMERS Revenue Recognition Nature of products and services The Company has two revenue streams, company-operated restaurant revenue and franchise related revenue. See Note 2 “Summary of Significant Accounting Policies” for a description of the revenue recognition policies. Franchise and franchise advertising fee revenue Franchise revenue consists of franchise royalties, initial franchise fees, license fees due from franchisees, IT support services, and rental income for subleases to franchisees. Franchise advertising fee revenue consists of advertising contributions received from franchisees. 86 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Disaggregated revenue The following table presents the Company’s revenues disaggregated by geographic market for the years ended December 25, 2024, December 27, 2023 and December 28, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 25, 2024 December 27, 2023 December 28, 2022 ​ Greater Los Angeles area market 72.0 % ​ 71.3 % ​ 71.2 % ​ ​ ​ Other markets 28.0 % ​ 28.7 % ​ 28.8 % ​ ​ ​ Total 100 % ​ 100 % ​ 100 % ​ ​ ​ ​ Contract balances The following table provides information about the change in the franchise contract liability balances during the year ended December 25, 2024 and December 27, 2023 (in thousands): ​ ​ ​ ​ ​ December 28, 2022 $ 6,377 Revenue recognized - beginning balance ​ ( 791 ) Additional contract liability ​ 1,411 December 27, 2023 ​ $ 6,997 Revenue recognized - beginning balance ​ ( 625 ) Additional contract liability ​ 358 December 25, 2024 ​ $ 6,730 ​ The Company’s franchise contract liability includes development fees, initial franchise and license fees, franchise renewal fees, lease subsidies and royalty discounts and is included within other accrued expenses and current liabilities and other noncurrent liabilities within the accompanying consolidated balance sheets. The Company receives area development fees from franchisees when they execute multi-unit area development agreements. Initial franchise and license fees, or franchise renewal fees, are received from franchisees upon the execution of, or renewal of, a franchise agreement. Revenue is recognized from these agreements as the underlying performance obligation is satisfied, which is over the term of the agreement. For the year ended December 27, 2023, there was an increase to the contract liability balance due to the Company’s completion of the sale of 18 company-operated restaurants within the California, Utah and Texas to an existing franchisee. This resulted in a net gain on sale of restaurant of $ 5.0 million including an additional contract liability of $ 0.3 million, relating to allocation of the transaction price to various performance obligations under the applicable contracts of the sale . The following table illustrates the estimated revenue to be recognized in the future related to performance obligations that are unsatisfied as of December 25, 2024 (in thousands): ​ ​ ​ ​ ​ Franchise revenues: ​ 2025 ​ $ 549 2026 ​ 527 2027 ​ 518 2028 ​ 491 2029 ​ 464 Thereafter ​ 4,181 Total ​ $ 6,730 ​ 87 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Changes in the loyalty rewards program liability included in other accrued expenses and current liabilities on the consolidated balance sheets were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 25, 2024 December 27, 2023 Loyalty rewards liability, beginning balance ​ $ 687 ​ $ 526 ​ Revenue deferred ​ 2,181 ​ 2,065 ​ Revenue recognized ​ ( 2,024 ) ​ ( 1,904 ) ​ Loyalty rewards liability, ending balance ​ $ 844 ​ $ 687 ​ ​ The Company expects all loyalty points revenue related to performance obligations unsatisfied as of December 25, 2024 to be recognized within one year . Gift Cards The gift card liability included in other accrued expenses and current liabilities on the consolidated balance sheets was as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 25, 2024 ​ December 27, 2023 Gift card liability ​ $ 5,100 ​ $ 4,877 ​ Revenue recognized from the redemption of gift cards that was included in other accrued expenses and current liabilities at the beginning of the year was as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 25, 2024 ​ December 27, 2023 ​ December 28, 2022 Revenue recognized from gift card liability balance at the beginning of the year $ 1,059 ​ $ 1,064 ​ $ 1,145 ​ Contract Costs The Company does not currently incur costs to obtain or fulfill a contract that would be considered contract assets under Topic 606. ​ ​ 16. SHAREHOLDER RIGHTS AGREEMENT On August 8, 2023, the Board declared a dividend of one preferred share purchase right (a “Right”) for each share of common stock, par value $ 0.01 per share, of the Company (the “Common Shares”) outstanding on August 18, 2023 to the stockholders of record on that date. In connection with the distribution of the Rights, the Company entered into a Rights Agreement (the “Rights Agreement”), dated as of August 8, 2023, between the Company and Equiniti Trust Company, LLC, as rights agent. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Preferred Stock, par value $ 0.01 per share, of the Company (the “Preferred Shares”) at a price of $ 53.75 per one one-thousandth of a Preferred Share represented by a Right, subject to adjustment. ​ On August 4, 2024, the Board approved and entered into an Amendment (the “Amendment”) to the Rights Agreement (together with the Agreement, the “Amended Rights Agreement”). Pursuant to the Amendment, the expiration date of the Rights has been extended until 11:59 p.m., Pacific Time, on the date that the votes of the stockholders of the Company with respect to the Company’s next annual meeting of stockholders in 2025 are certified, unless stockholders approve the further extension of the Amended Rights Agreement beyond that date. ​ The Rights Agreement was initially adopted in August 2023 (as initially adopted, the “Rights Agreement”) in response to a rapid and significant accumulation of Company stock by Biglari Capital Corp. (together with its affiliates, “Biglari Capital”). In adopting the original Rights Agreement, the Board noted that Biglari Capital has a track record of acquiring 88 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS substantial and sometimes controlling interests in public restaurant companies. Since that time, members of the Board and leadership team have met with Biglari Capital on multiple occasions. In approving the Amendment to extend the Rights Agreement, the Board considered, among other things, that during a recent meeting, a representative of Biglari Capital stated a desire to make substantial additional share accumulations in the public market if the Board terminated the Rights Agreement or allowed it to expire at the end of its initial term in August 2024. ​ The Amendment also amends the Rights Agreement to increase the Beneficial Ownership (as defined in the Amended Rights Agreement) triggering threshold for being deemed an Acquiring Person (as defined below), unless one of the enumerated exceptions is applicable, from 12.5 % to 15.0 %. In all other respects, the terms of the Rights Agreement remain unmodified and in full force and effect. ​ Under the Amended Rights Agreement, the Rights will generally be exercisable only in the event that a person or group of affiliated or associated persons (such person or group being an “Acquiring Person”), other than certain exempt persons, acquires (or commences a tender offer or exchange offer the consummation of which would result in) beneficial ownership of 15.0 % or more of the outstanding Common Shares. In such case (with certain limited exceptions), each holder of a Right (other than the Acquiring Person, whose Rights shall become void) will have the right to receive, upon exercise at the then current exercise price of the Right, Common Shares (or, if the Board so elects, cash, securities, or other property) having a value equal to two times (2x) the exercise price of the Right. ​ Right to Exchange At any time after any person or group becomes an Acquiring Person, the Board may exchange the Rights at an exchange ratio of one Common Share per Right (subject to adjustment). Flip-over Event If, at any time after a person or group becomes an Acquiring Person, (i) the Company engages in a consolidation or merger and, in connection there with all or part of the Common Shares are or will be changed into or exchanged for stock or other securities of any other person or cash or any other property; or (ii) 50 % or more of the Company’s consolidated assets or earning power are sold, then each holder of a Right will thereafter have the right to receive, upon exercise at the then current exercise price of the Right, that number of shares of common stock of the acquiring company having a market value of two times the exercise price of the Right. Redemption At any time prior to the time any person or group becomes an Acquiring Person, the Board may redeem the Rights at a price of $ 0.001 per Right (the “Redemption Price”). Immediately upon any redemption of the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. Rights of Holders Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. ​ ​ 17. SEGMENT REPORTING Operating segments are defined as components of a company that engage in business activities from which it may earn revenue and incur expenses, and for which separate financial information is available and is regularly reviewed by the chief operating decision maker ( " CODM " ) to assess the performance of the individual segments and make decisions about company resources such as personnel and working capital to be allocated to the segments. The Company derives revenue from three primary sources: (1) company-operated restaurant revenue, (2) franchise revenue, which is comprised primarily of franchise royalties and, to a lesser extent, franchise fees and sublease rental 89 Table of Contents EL POLLO LOCO HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS income, and (3) franchise advertising fee revenue. All significant revenues relate to retail sales of food and beverages through either company-operated or franchised restaurants. The Company determined that it has one operating segment and one reportable segment which is reflected in the Company’s current organizational and management structure. The accounting policies of the segment are the same as those described in Note 2 “Summary of Significant Accounting Policies.” The Company’s CODM is the Chief Executive Officer who manages the Company’s operations on a reportable segment basis. The Company’s CODM reviews its operations and financial performance at a consolidated level by comparing actual results to budgeted figures and prior year results. This approach allows the CODM to assess whether the Company’s operating segment is meeting its financial goals, identify trends and make more informed decisions about resource allocation and performance targets. When evaluating the Company’s financial performance, the CODM regularly reviews total revenues, segment expenses and consolidated net income as reported on the Consolidated Statements of Operations as well as non-GAAP measures such as restaurant contribution margin and Adjusted EBITDA to allocate Company resources and assess the performance of the Company. Segment asset information is not used by the CODM to assess performance and allocate resources. ​ The table below is a summary of the segment net income, including significant segment expenses for the years ended December 25, 2024, December 27, 2023 and December 28, 2022 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 25, 2024 ​ December 27, 2023 ​ December 28, 2022 Total revenue $ 473,008 ​ $ 468,664 ​ $ 469,959 Less: ​ ​ ​ ​ ​ ​ ​ ​ Food and paper costs ​ 100,725 ​ ​ 108,250 ​ ​ 117,774 Labor and related expenses ​ 127,179 ​ ​ 127,244 ​ ​ 130,773 General and administrative expenses ​ 46,270 ​ ​ 42,025 ​ ​ 39,093 Franchise expenses ​ 42,307 ​ ​ 38,404 ​ ​ 36,169 Occupancy expenses ​ 30,792 ​ ​ 31,318 ​ ​ 30,579 Other operating expenses (1) ​ 68,488 ​ ​ 69,753 ​ ​ 70,964 Depreciation and amortization ​ 15,717 ​ ​ 15,235 ​ ​ 14,418 Other segment expenses (2) ​ 362 ​ ​ ( 3,357 ) ​ ​ 69 Total operating expenses ​ 431,840 ​ ​ 428,872 ​ ​ 439,839 Income from operations ​ 41,168 ​ ​ 39,792 ​ ​ 30,120 Interest expenses, net ​ 5,899 ​ ​ 4,811 ​ ​ 1,677 Provision for income taxes ​ 9,605 ​ ​ 9,324 ​ ​ 8,078 Income tax receivable agreement (income) expenses ​ ( 20 ) ​ ​ 103 ​ ​ ( 436 ) Total segment net income $ 25,684 ​ $ 25,554 ​ $ 20,801 ​ (1) Other operating expenses are comprised of utilities, repairs and maintenance, advertising, credit card processing fees, delivery service provider fees, restaurant supplies and other restaurant operating costs. (2) Other segment expenses include loss (gain) on disposal of assets, gain on recovery of insurance proceeds, property, equipment and expenses, (gain) loss on disposition of restaurants and impairment and closed-store reserves. ​ ​ 90 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ​