UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) | (Zip Code) |
(
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N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | ☐ | ☒ | |
Non-accelerated Filer | ☐ | Smaller Reporting Company | |
Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of July 26, 2024, there were
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
EL POLLO LOCO HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except share and per share data)
| June 26, |
| December 27, | |||
| 2024 |
| 2023 | |||
Assets |
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Current assets: |
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Cash and cash equivalents | $ | | $ | | ||
Accounts and other receivables, net |
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Inventories |
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Prepaid expenses and other current assets |
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Income tax receivable |
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Total current assets |
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Property and equipment, net |
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Property and equipment held under finance lease, net |
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Property and equipment held under operating leases, net ("ROU asset") |
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Goodwill |
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Trademarks |
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Other assets |
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Total assets | $ | | $ | | ||
Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Current portion of obligations under finance leases | $ | | $ | | ||
Current portion of obligations under operating leases |
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Accounts payable |
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Accrued salaries and vacation |
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Accrued insurance |
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Accrued income taxes payable |
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Accrued interest |
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Current portion of income tax receivable agreement payable |
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Other accrued expenses and current liabilities |
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Total current liabilities |
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Revolver loan |
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Obligations under finance leases, net of current portion |
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Obligations under operating leases, net of current portion |
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Deferred taxes |
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Other noncurrent liabilities |
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Total liabilities |
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Commitments and contingencies (Note 7) |
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Stockholders’ equity |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in-capital |
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Retained earnings |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | |
See notes to condensed consolidated financial statements (unaudited).
3
EL POLLO LOCO HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Amounts in thousands, except share and per share data)
| Thirteen Weeks Ended |
| Twenty-Six Weeks Ended |
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June 26, 2024 | June 28, 2023 | June 26, 2024 | June 28, 2023 | ||||||||||
Revenue |
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Company-operated restaurant revenue | $ | | $ | | $ | | $ | | |||||
Franchise revenue |
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Franchise advertising fee revenue |
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Total revenue |
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Cost of operations |
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Food and paper cost |
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Labor and related expenses |
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Occupancy and other operating expenses |
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Gain on recovery of insurance proceeds, lost profits, net | — | — | — | ( | |||||||||
Company restaurant expenses |
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General and administrative expenses |
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Franchise expenses |
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Depreciation and amortization |
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Loss (gain) on disposal of assets |
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Gain on recovery of insurance proceeds, property, equipment and expenses |
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Loss (gain) on disposition of restaurants | | | | ( | |||||||||
Impairment and closed-store reserves |
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Total expenses |
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Income from operations |
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Interest expense, net |
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Income tax receivable agreement expense (income) |
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Income before provision for income taxes |
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Provision for income taxes |
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Net income | $ | | $ | | $ | | $ | | |||||
Net income per share |
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Basic | $ | | $ | | $ | | $ | | |||||
Diluted | $ | | $ | | $ | | $ | | |||||
Weighted-average shares used in computing net income per share |
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Basic |
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Diluted |
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See notes to condensed consolidated financial statements (unaudited).
4
EL POLLO LOCO HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Amounts in thousands)
| Thirteen Weeks Ended |
| Twenty-Six Weeks Ended |
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June 26, 2024 | June 28, 2023 | June 26, 2024 | June 28, 2023 |
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Net income | $ | | $ | | $ | | $ | | ||||||
Other comprehensive loss |
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Changes in derivative instruments |
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Reclassifications of loss into net income |
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Income tax benefit |
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Other comprehensive loss, net of taxes |
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Comprehensive income | $ | | $ | | $ | | $ | |
See notes to condensed consolidated financial statements (unaudited).
5
EL POLLO LOCO HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
(Amounts in thousands, except share data)
Thirteen Weeks Ended June 26, 2024 | |||||||||||||||||
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Common Stock | Paid-in | Retained | Comprehensive | Stockholders’ | |||||||||||||
| Shares |
| Amount |
| Capital |
| Earnings |
| (Loss) Income |
| Equity | ||||||
Balance, March 27, 2024 | | $ | | $ | | $ | | $ | — | $ | | ||||||
Stock-based compensation | — |
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Issuance of common stock related to restricted shares | | | ( | — | — | — | |||||||||||
Issuance of common stock upon exercise of stock options, net | | | | — | — | | |||||||||||
Shares repurchased for employee tax withholdings | ( | — | ( | — | — | ( | |||||||||||
Repurchase of common stock | ( | ( | ( | — | — | ( | |||||||||||
Repurchase of common stock - excise tax | — | — | ( | — | — | ( | |||||||||||
Forfeiture of common stock related to restricted shares | ( |
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Net income | — |
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Balance, June 26, 2024 | | $ | | $ | | $ | | $ | — | $ | | ||||||
Thirteen Weeks Ended June 28, 2023 | |||||||||||||||||
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Common Stock | Paid-in | Accumulated | Comprehensive | Stockholders’ | |||||||||||||
| Shares |
| Amount |
| Capital |
| Deficit |
| (Loss) Income |
| Equity | ||||||
Balance, March 29, 2023 | | $ | | $ | | $ | ( | $ | | $ | | ||||||
Stock-based compensation | — | — | | — | — | | |||||||||||
Issuance of common stock related to restricted shares | | | ( | — | — | — | |||||||||||
Issuance of common stock upon exercise of stock options, net | | | | — | — | | |||||||||||
Shares repurchased for employee tax withholdings | ( | — | ( | — | — | ( | |||||||||||
Repurchase of common stock | ( | ( | ( | — | — | ( | |||||||||||
Repurchase of common stock - excise tax | — | — | ( | — | — | ( | |||||||||||
Forfeiture of common stock related to restricted shares | ( | ( | | — | — | — | |||||||||||
Other comprehensive income, net of tax | — | — | — | — | ( | ( | |||||||||||
Net income | — | — | — | | — | | |||||||||||
Balance, June 28, 2023 | | $ | | $ | | $ | | $ | — | $ | |
6
Twenty-Six Weeks Ended June 26, 2024 | |||||||||||||||||
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Common Stock | Paid-in | Retained | Comprehensive | Stockholders’ | |||||||||||||
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| Earnings |
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Balance, December 27, 2023 | | $ | | $ | | $ | | $ | — | $ | | ||||||
Stock-based compensation | — |
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Issuance of common stock related to restricted shares | | | ( | — | — | — | |||||||||||
Issuance of common stock upon exercise of stock options, net | | | | — | — | | |||||||||||
Shares repurchased for employee tax withholdings | ( | — | ( | — | — | ( | |||||||||||
Repurchase of common stock | ( | ( | ( | — | — | ( | |||||||||||
Repurchase of common stock - excise tax | — | — | ( | — | — | ( | |||||||||||
Forfeiture of common stock related to restricted shares | ( | ( | | — | — | — | |||||||||||
Net income | — |
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Balance, June 26, 2024 | | $ | | $ | | $ | | $ | — | $ | | ||||||
Twenty-Six Weeks Ended June 28, 2023 | |||||||||||||||||
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Common Stock | Paid-in | Accumulated | Comprehensive | Stockholders’ | |||||||||||||
| Shares |
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| Capital |
| Deficit |
| (Loss) Income |
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Balance, December 28, 2022 | | $ | | $ | | $ | ( | $ | | $ | | ||||||
Stock-based compensation | — | — | | — | — | | |||||||||||
Issuance of common stock related to restricted shares | | | ( | — | — | — | |||||||||||
Issuance of common stock upon exercise of stock options, net | | | | — | — | | |||||||||||
Shares repurchased for employee tax withholdings | ( | — | ( | — | — | ( | |||||||||||
Repurchase of common stock | ( | ( | ( | — | — | ( | |||||||||||
Repurchase of common stock - excise tax | — | — | ( | — | — | ( | |||||||||||
Forfeiture of common stock related to restricted shares | ( | ( | | — | — | — | |||||||||||
Other comprehensive (loss) income, net of tax | — | — | — | — | ( | ( | |||||||||||
Net income | — | — | — | | — | | |||||||||||
Balance, June 28, 2023 | | $ | | $ | | $ | | $ | — | $ | |
See notes to condensed consolidated financial statements (unaudited).
7
EL POLLO LOCO HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
| Twenty-Six Weeks Ended |
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| June 26, 2024 | June 28, 2023 |
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Cash flows from operating activities: |
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Net income | $ | | $ | | |||
Adjustments to reconcile net income to net cash flows provided by operating activities: |
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Depreciation and amortization |
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Stock-based compensation expense |
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Income tax receivable agreement income |
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Fire insurance proceeds for expenses paid and lost profit | — | | |||||
Loss (gain) on disposition of restaurants | | ( | |||||
Loss (gain) on disposal of assets |
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Gain on recovery of insurance proceeds, property, equipment and expenses, net | ( | ( | |||||
Impairment of property and equipment |
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Amortization of deferred financing costs |
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Deferred income taxes, net |
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Changes in operating assets and liabilities: |
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Accounts and other receivables |
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Inventories |
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Prepaid expenses and other current assets |
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Income taxes payable |
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Other assets |
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Accounts payable |
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Accrued salaries and vacation |
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Accrued insurance |
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Payment related to tax receivable agreement |
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Other accrued expenses and liabilities |
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Net cash flows provided by operating activities |
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Cash flows from investing activities: |
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Proceeds from disposition of restaurants |
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Proceeds from fire insurance for property and equipment | | | |||||
Purchase of property and equipment |
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Net cash flows used in investing activities |
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Cash flows from financing activities: |
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Proceeds from borrowings on revolver and swingline loans |
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Payments on revolver and swingline loan |
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Minimum tax withholdings related to net share settlements |
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Proceeds from issuance of common stock upon exercise of stock options, net of expenses | | | |||||
Payment of obligations under finance leases |
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Repurchases of common stock |
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Net cash flows used in by financing activities |
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Increase (decrease) in cash and cash equivalents |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period | $ | | $ | |
| Twenty-Six Weeks Ended |
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June 26, 2024 | June 28, 2023 | ||||||
Supplemental cash flow information |
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Cash paid during the period for interest | $ | | $ | | |||
Cash paid during the period for income taxes | $ | | $ | | |||
Unpaid purchases of property and equipment | $ | | $ | | |||
Unpaid repurchases of common stock and excise tax | $ | | $ | |
See notes to condensed consolidated financial statements (unaudited).
8
EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Overview
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® and operates under
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair statement of the Company’s condensed consolidated financial position and results of operations and cash flows for the periods presented. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year. The condensed consolidated financial statements and related notes do not include all information and footnotes required by GAAP for annual reports. This quarterly report should be read in conjunction with the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 27, 2023.
The Company uses a 52- or 53-week fiscal year ending on the last Wednesday of the calendar year. 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. Every six or seven years, a 53-week fiscal year occurs. Fiscal 2024 and 2023 are both 52-week years, ending on December 25, 2024 and December 27, 2023, respectively. Revenues, expenses, and other financial and operational figures may be elevated in a 53-week year.
Holdings has no material assets or operations. Holdings and Holdings’ direct subsidiary, EPL Intermediate, Inc. (“Intermediate”), guarantee EPL’s 2022 Revolver (as defined in Note 4 below) on a full and unconditional basis (see Note 4, “Long-Term Debt”), 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, subject to the terms of the 2022 Revolver.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of Holdings and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with 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 condensed 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 and contingent liabilities.
9
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.
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 June 26, 2024, the Company’s total debt was $
Subsequent Events
Subsequent to the quarter-end, the Company paid down $
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
Company-operated and franchised restaurants in the greater Los Angeles area generated, in the aggregate, approximately
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
10
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.
The Company determined that there were no indicators of potential impairment of its goodwill and indefinite-lived intangible assets during the thirteen and twenty-six weeks ended June 26, 2024. Accordingly, the Company did
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, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments only in certain circumstances (e.g., when there is evidence of impairment).
11
There were no non-financial instruments measured at fair value on a nonrecurring basis as of and for the thirteen and twenty-six weeks ended June 26, 2024.
The following non-financial instruments were measured at fair value on a nonrecurring basis as of and for the thirteen and twenty-six weeks ended June 28, 2023, reflecting certain property and equipment assets and right of use (“ROU”) assets for which an impairment loss was recognized during the corresponding periods, as discussed immediately below under “Impairment of Property and Equipment and ROU Assets” (in thousands):
Thirteen Weeks | Twenty-Six Weeks | |||||||||||||||||
Fair Value Measurements at June 28, 2023 Using | Ended June 28, 2023 | Ended June 28, 2023 | ||||||||||||||||
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Impairment Losses |
| Impairment Losses | |||||||
Certain ROU assets, net | $ | | $ | | $ | | $ | | $ | | $ | |
Impairment of Property and Equipment and ROU Assets
The Company reviews its property and equipment and 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 for the last twelve months is 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 closed or been subleased and future estimated sublease income is less than lease payments under the head lease. 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 restaurants during the twenty-six weeks ended June 26, 2024 that required an impairment review of certain of the Company’s property and equipment and ROU assets. Based on the results of the analysis, the Company did
The Company recorded a non-cash impairment charge of less than $
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 reserve expense. Additionally, any property tax and common area maintenance (“CAM”) payments relating to closed restaurants are included within closed-store expense. During both the thirteen and twenty-six weeks ended June 26, 2024 and June 28, 2023, the Company recognized less than $
Gain on Recovery of Insurance Proceeds, Lost Profits
During fiscal 2022,
12
equipment and expenses and the reimbursement of lost profits, net of the related costs, is included in the accompanying condensed consolidated statements of income, for the twenty-six weeks ended June 28, 2023, as a reduction of company restaurant expenses.
Loss (Gain) on Disposition of Restaurants
During the thirteen and twenty-six weeks ended June 26, 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 the twenty-six weeks ended June 28, 2023, the Company completed the sale of
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.
The Company reviews its filing positions for all open tax years in all U.S. federal and state jurisdictions where the Company 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 percent. 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 at the largest amount of tax benefit that is greater than 50 percent 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 condensed consolidated financial position, results of operations, and cash flows.
The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. The Company had