Press Release
Highlights for the first quarter ended
- Total revenue was
$105.2 million compared to$109.0 million . - System-wide comparable restaurant sales decreased 1.5%, including a 0.7% decrease for company-operated restaurants, and a 2.2% decrease for franchised restaurants.
- Net income was
$3.6 million , or $0.10 per diluted share, compared to net income of$0.9 million , or$0 .02 per diluted share in the prior year period. During the first quarter of 2020, the Company recognized a$1.9 million pre-tax expense related to the impairment of the right-of-use assets ("ROU assets") of one restaurant inTexas and the long-lived assets of three restaurants inCalifornia . The first quarter of 2019 includes a loss on assets held for sale of$4.1 million . - Pro forma net income(1) was
$5.6 million , or $0.16 per diluted share, compared to$5.9 million , or $0.15 per diluted share. - Adjusted EBITDA(1) was $13.4 million, compared to
$14.2 million .
(1) Pro forma net income and adjusted EBITDA are not presented in accordance with accounting principles generally accepted in
Acoca concluded, “I have never been more proud of a team than I am of my
COVID-19 Impact
As a result of the COVID-19 pandemic and in conjunction with government mandated restrictions,
Below is a summary of other actions we have taken, or plan to take to enhance financial and operating flexibility for the Company and for our franchisees, and to protect our employees and customers:
- As a precautionary measure, the Company bolstered its existing cash position by fully drawing down its
$150 million 2018 Revolver, adding$34.5 million of cash to the balance sheet. At current sales levels, the Company expects to be at least cash flow breakeven. - The Company has temporarily suspended all but essential capital spending and share repurchase activity, reevaluated essential support center general and administrative expenses, and fine-tuned its restaurant labor model based on dining room closures and sales volumes.
- For
El Pollo Loco franchisees, the Company is deferring 50% of April royalties untilJuly 1, 2020 , which will be repaid evenly over the remainder of fiscal 2020, and also suspending 100% of franchisee 2020 remodel and new build requirements until 2021. The Company has also established a support team to assist franchisees in accessing funds and benefits provided by the CARES Act legislation. - The Company continues to implement actions to help protect its employees from COVID-19 while working in
El Pollo Loco restaurants. These actions include implementing enhanced cleaning procedures in all restaurants, providing gloves and masks to all system restaurant employees, installing plexiglass shields at company restaurant cashier stations and initiating other social distancing measures. Additionally, the Company is providing extended sick leave benefits to employees impacted by COVID-19. - The Company has shifted its marketing to highlight a new free delivery program; Family Meals as a healthier and affordable option; and a meaningful value platform.
First Quarter 2020 Financial Results
Company-operated restaurant revenue in the first quarter of 2020 was
Comparable company-operated restaurant sales in the first quarter decreased 0.7%, driven by a 4.5% decrease in transactions, partially offset by a 3.8% increase in average check.
Franchise revenue in the first quarter of 2020 increased 9.6% to
Income from continuing operations in the first quarter of 2020 was
General and administrative expenses in the first quarter of 2020 were
During the first quarter of 2020, the Company recognized a
Net income for the first quarter of 2020 was $3.6 million, or $0.10 per diluted share, compared to net income of
2020 Outlook
As previously announced, due to the ongoing uncertainty around the duration and severity of the COVID-19 pandemic, the Company has withdrawn its 2020 financial guidance for the period ending
Key Financial Definitions
Comparable restaurant sales reflect the change in year-over-year sales for the comparable company, franchised and total system restaurant base. The comparable restaurant base is defined to include those restaurants open for 15 months or longer and excludes restaurants that were closed during the applicable period. At
Restaurant contribution and restaurant contribution margin are neither required by, nor presented in accordance with GAAP. Restaurant contribution is defined as company-operated restaurant revenue less company restaurant expenses, which are food and paper costs, labor and related expenses, and occupancy and other operating expenses. Restaurant contribution excludes certain costs, such as general and administrative expenses, depreciation and amortization, asset impairment and closed-store reserves, loss on sale of restaurants, recovery of securities lawsuits related legal expenses and other costs that are considered normal operating costs. Accordingly, restaurant contribution is not indicative of overall Company results and does not accrue directly to the benefit of shareholders because of the exclusion of certain corporate-level expenses. Restaurant contribution margin is defined as restaurant contribution as a percentage of net company-operated restaurant revenue. See also “Non-GAAP Financial Measures.”
EBITDA and adjusted EBITDA are neither required by, nor presented in accordance with, GAAP. EBITDA represents net income before interest expense, provision for income taxes, depreciation, and amortization, and adjusted EBITDA represents EBITDA before items that we do not consider representative of our ongoing operating performance, as identified in the GAAP reconciliation in the accompanying financial data. See also “Non-GAAP Financial Measures.”
Pro forma net income is neither required by, nor presented in accordance with, GAAP. Pro forma net income represents net income adjusted for (i) costs (or gains) related to loss (or gains) on disposal of assets or assets held for sale and asset impairment and closed store costs, (ii) amortization expense and other estimate adjustments (whether expense or income) incurred on the Tax Receivable Agreement completed at the time of our IPO, (iii) legal costs associated with securities class action litigation, (iv) legal settlement costs, (v) insurance proceeds received related to securities class action legal expenses, (vi) costs associated with the transition of our CEO and (vii) provision for income taxes at a normalized tax rate of 26.5% for the thirteen weeks ended
Conference Call
The Company will host a conference call to discuss financial results for the first quarter of 2020 today at
The conference call can be accessed live over the phone by dialing 855-327-6837 or for international callers by dialing 631-891-4304. A replay will be available after the call and can be accessed by dialing 844-512-2921 or for international callers by dialing 412-317-6671; the passcode is 10009259. The replay will be available until
About
Forward-Looking Statements
This press release contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this press release are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements because they do not relate strictly to historical or current facts. These statements may include words such as “aim,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “outlook,” “potential,” “project,” “projection,” “plan,” “intend,” “seek,” “may,” “could,” “would,” “will,” “should,” “can,” “can have,” “likely,” the negatives thereof and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. They appear in a number of places throughout this press release and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, sales levels, liquidity, prospects, growth, strategies and the industry in which we operate. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those that we expected.
While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this press release in the context of the risks and uncertainties that could cause outcomes to differ materially from our expectations. These factors include, but are not limited to: the impact of the COVID-19 pandemic on our company, our employees, our customers, our partners, our industry and the economy as a whole; our franchisees ability to maintain operations in their individual restaurants; our ability to open new restaurants in existing and new markets and to expand our franchise system, including difficulty in finding sites and in negotiating acceptable leases; our ability to compete successfully and the intense competition in the restaurant industry; the adverse impact of economic conditions on our (i) operating results and financial condition, (ii) ability to comply with the terms and covenants of our debt agreements, and (iii) ability to pay or refinance our existing debt or to obtain additional financing; vulnerability to changes in consumer preferences and economic conditions; political and social factors, including regarding trade, immigration and customer preferences; vulnerability to conditions in the greater
We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences we anticipate or affect us or our operations in the ways that we expect. The forward-looking statements included in this press release are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.
Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use non-GAAP financial measures which include supplemental measures of operating performance of our restaurants. Our calculations of supplemental measures and other non-GAAP financial measures indicated above may not be comparable to those reported by other companies. These measures have limitations as analytical tools, and are not intended to be considered in isolation or as substitutes for, or superior to, financial measures prepared and presented in accordance with GAAP. We use non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons and to evaluate our restaurants' financial performance against our competitors' performance. We believe that they provide useful information about operating results, enhance understanding of past performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making. These non-GAAP financial measures may also assist investors in evaluating our business and performance relative to industry peers and provide greater transparency with respect to the Company's financial condition and results of operation.
Investor Contact:
fitzhugh.taylor@icrinc.com
714-599-5200
Media Contact:
hannah.gray@edible-inc.com
323-202-1477
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
| Thirteen Weeks Ended | |||||||||||||
| $ | % | $ | % | ||||||||||
| Revenue: | |||||||||||||
| Company-operated restaurant revenue | $ | 92,634 | 88.1 | $ | 97,150 | 89.2 | |||||||
| Franchise revenue | 7,062 | 6.7 | 6,444 | 5.9 | |||||||||
| Franchise advertising fee revenue | 5,467 | 5.2 | 5,383 | 4.9 | |||||||||
| Total revenue | 105,163 | 100.0 | 108,977 | 100.0 | |||||||||
| Costs of operations: | |||||||||||||
| Food and paper cost (1) | 25,562 | 27.6 | 27,152 | 27.9 | |||||||||
| Labor and related expenses (1) | 28,693 | 31.0 | 29,576 | 30.4 | |||||||||
| Occupancy and other operating expenses (1) | 22,109 | 23.9 | 23,227 | 23.9 | |||||||||
| Company restaurant expenses (1) | 76,364 | 82.5 | 79,955 | 82.3 | |||||||||
| General and administrative expenses | 9,331 | 8.9 | 11,348 | 10.4 | |||||||||
| Franchise expenses | 6,911 | 6.6 | 6,144 | 5.6 | |||||||||
| Depreciation and amortization | 4,369 | 4.2 | 4,761 | 4.4 | |||||||||
| Loss on disposal of assets | 100 | 0.1 | 44 | 0.0 | |||||||||
| Loss on assets held for sale | — | — | 4,124 | 3.8 | |||||||||
| Impairment and closed-store reserves | 2,402 | 2.3 | 309 | 0.3 | |||||||||
| Total expenses | 99,477 | 94.6 | 106,685 | 97.9 | |||||||||
| Income from operations | 5,686 | 5.4 | 2,292 | 2.1 | |||||||||
| Interest expense, net of interest income | 905 | 0.9 | 859 | 0.8 | |||||||||
| Income tax receivable agreement income | (120 | ) | (0.1 | ) | 171 | 0.2 | |||||||
| Income before provision for income taxes | 4,901 | 4.7 | 1,262 | 1.2 | |||||||||
| Provision for income taxes | 1,301 | 1.2 | 349 | 0.3 | |||||||||
| Net income | $ | 3,600 | 3.4 | $ | 913 | 0.8 | |||||||
| Net income per share: | |||||||||||||
| Basic | $ | 0.10 | $ | 0.02 | |||||||||
| Diluted | $ | 0.10 | $ | 0.02 | |||||||||
| Weighted average shares used in computing net income per share: | |||||||||||||
| Basic | 34,659,160 | 38,653,702 | |||||||||||
| Diluted | 35,347,456 | 39,496,436 | |||||||||||
(1) Percentages for line items relating to cost of operations and company restaurant expenses are calculated with company-operated restaurant revenue as the denominator. All other percentages use total revenue.
UNAUDITED SELECTED BALANCE SHEETS AND SELECTED OPERATING DATA
(dollar amounts in thousands)
| As of | |||||||
| Selected Balance Sheet Data: | |||||||
| Cash and cash equivalents | $ | 43,404 | $ | 8,070 | |||
| Total assets | 653,499 | 624,752 | |||||
| Total debt | 141,500 | 97,000 | |||||
| Total liabilities | 404,894 | 379,186 | |||||
| Total stockholders’ equity | 248,605 | 245,566 | |||||
| Thirteen Weeks Ended | |||||||
| Selected Operating Data: | |||||||
| Company-operated restaurants at end of period | 195 | 211 | |||||
| Franchised restaurants at end of period | 284 | 273 | |||||
| Company-operated: | |||||||
| Comparable restaurant sales (decline) growth | (0.7 | )% | 1.5 | % | |||
| Restaurants in the comparable base | 191 | 200 | |||||
UNAUDITED RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA
(dollar amounts in thousands)
| Thirteen Weeks Ended | |||||||
| Adjusted EBITDA: | |||||||
| Net income, as reported | $ | 3,600 | $ | 913 | |||
| Provision for income taxes | 1,301 | 349 | |||||
| Interest expense, net | 905 | 859 | |||||
| Depreciation and amortization | 4,369 | 4,761 | |||||
| EBITDA | 10,175 | 6,882 | |||||
| Stock-based compensation expense (a) | 534 | 488 | |||||
| Loss on disposal of assets (b) | 100 | 44 | |||||
| Loss on assets held for sale (c) | — | 4,124 | |||||
| Impairment and closed-store reserves (d) | 2,402 | 309 | |||||
| Income tax receivable agreement (income) expense (e) | (120 | ) | 171 | ||||
| Securities class action legal expense (f) | 201 | 2,139 | |||||
| Legal settlements (g) | 67 | — | |||||
| Pre-opening costs (h) | 51 | — | |||||
| Executive transition costs (i) | — | 37 | |||||
| Adjusted EBITDA | $ | 13,410 | $ | 14,194 | |||
| (a) | Includes non-cash, stock-based compensation. |
| (b) | Loss on disposal of assets includes the loss on disposal of assets related to retirements and replacement or write-off of leasehold improvements or equipment. |
| (c) | During the thirteen weeks ended |
| (d) | Includes costs related to impairment of long-lived assets and closing restaurants. During the thirteen weeks ended When a restaurant is closed, we 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 reserve expense. Additionally, any property tax and CAM payments relating to closed restaurants are included within closed-store expense. During the thirteen weeks ended |
| (e) | On |
| (f) | Consists of costs related to the defense of securities lawsuits. |
| (g) | Includes amounts incurred related to the payment of the final settlement amounts for multiple wage and hour class action suits. |
| (h) | Pre-opening costs are a component of general and administrative expenses, and consist of costs directly associated with the opening of new restaurants and incurred prior to opening, including management labor costs, staff labor costs during training, food and supplies used during training, marketing costs, and other related pre-opening costs. These are generally incurred over the three to five months prior to opening. Pre-opening costs also include occupancy costs incurred between the date of possession and the opening date for a restaurant. |
| (i) | Includes costs associated with the transition of our CEO, such as CEO sign-on bonus. |
UNAUDITED RECONCILIATION OF NET INCOME TO PRO FORMA NET INCOME
(dollar amounts in thousands, except share data)
| Thirteen Weeks Ended | |||||||
| Pro forma net income: | |||||||
| Net income, as reported | $ | 3,600 | $ | 913 | |||
| Provision for taxes, as reported | 1,301 | 349 | |||||
| Income tax receivable agreement income | (120 | ) | 171 | ||||
| Loss on disposal of assets | 100 | 44 | |||||
| Loss on assets held for sale | — | 4,124 | |||||
| Impairment and closed-store reserves | 2,402 | 309 | |||||
| Securities lawsuits related legal expenses | 201 | 2,139 | |||||
| Legal settlements | 67 | — | |||||
| Executive transition costs | — | 37 | |||||
| Provision for income taxes | (2,001 | ) | (2,143 | ) | |||
| Pro forma net income | $ | 5,550 | $ | 5,943 | |||
| Pro forma weighted-average share and per share data: | |||||||
| Pro forma net income per share | |||||||
| Basic | $ | 0.16 | $ | 0.15 | |||
| Diluted | $ | 0.16 | $ | 0.15 | |||
| Weighted-average shares used in computing pro forma net income per share | |||||||
| Basic | 34,659,160 | 38,653,702 | |||||
| Diluted | 35,347,456 | 39,496,436 | |||||
UNAUDITED RECONCILIATION OF INCOME FROM OPERATIONS TO RESTAURANT CONTRIBUTION
(dollar amounts in thousands)
| Thirteen Weeks Ended | |||||||
| Restaurant contribution: | |||||||
| Income from operations | $ | 5,686 | $ | 2,292 | |||
| Add (less): | |||||||
| General and administrative expenses | 9,331 | 11,348 | |||||
| Franchise expenses | 6,911 | 6,144 | |||||
| Depreciation and amortization | 4,369 | 4,761 | |||||
| Loss gain on disposal of assets | 100 | 44 | |||||
| Loss on assets held for sale | — | 4,124 | |||||
| Franchise revenue | (7,062 | ) | (6,444 | ) | |||
| Franchise advertising fee revenue | (5,467 | ) | (5,383 | ) | |||
| Impairment and closed-store reserves | 2,402 | 309 | |||||
| Restaurant contribution | $ | 16,270 | $ | 17,195 | |||
| Company-operated restaurant revenue: | |||||||
| Total revenue | $ | 105,163 | $ | 108,977 | |||
| Less: | |||||||
| Franchise revenue | (7,062 | ) | (6,444 | ) | |||
| Franchise advertising fee revenue | (5,467 | ) | (5,383 | ) | |||
| Company-operated restaurant revenue | $ | 92,634 | $ | 97,150 | |||
| Restaurant contribution margin (%) | 17.6 | % | 17.7 | % | |||
Source: El Pollo Loco Holdings, Inc.