Laurance Roberts - CFO Stephen J. Sather - President and CEO Edward Valle - Chief Marketing Officer.

David Tarantino - Robert W. Baird John Glass - Morgan Stanley Andy Barish - Jefferies & Company Sharon Zackfia - William Blair.

Good day ladies and gentlemen and thank you for standing by. Welcome to the El Pollo Loco First Quarter 2015 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode and the lines will be open for your questions following the presentation. Please note that this conference is being recorded today, May 14, 2015.

On the call today we have Steve Sather, President and Chief Executive Officer of El Pollo Loco; Larry Roberts, Chief Financial Officer; and Ed Valle, Chief Marketing Officer. And now I would like to turn the conference over to Larry Roberts. .

Thank you, operator and good afternoon. By now everyone should have access to our first quarter 2015 earnings release, if not, it can be found at www.elpolloloco.com in the Investor Relations section. Before we begin our formal remarks, I need to remind everyone that our discussions today will include forward-looking statements.

These forward-looking statements are not guarantees of future performance and therefore, you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.

We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial conditions. We expect to file our 10-Q for the first quarter of 2015 tomorrow and encourage you to review that document at your earliest convenience.

During today’s call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance.

The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP and reconciliations to comparable GAAP measures are available in our earnings release. With that, I would like to turn the call over to Steve Sather..

Thanks, Larry. Good afternoon, everyone. And thank you for joining us on the call today. We are very pleased to report another quarter of strong sales results including year-over-year pro forma earnings growth of 40.1%.

Our results were driven by a solid combination of comparable sales growth and new unit growth as we continued our acceleration of new unit development in existing and new markets.

For the first quarter, we saw a 5.1% increase in system-wide comparable sales growth that consisted of a 3.5% increase for company operated restaurants and 6.2% increase for franchise restaurants.

The increase in comparable sales growth marked our 15th consecutive quarter of positive same store sales and came on top of a 7.2% growth last year for a strong two year growth rate of 12.3%.

We also added 17 units consisting of 12 new company owned restaurants and 5 new franchised El Pollo Loco restaurants opened during and subsequent to the first quarter of last year.

We believe our comp growth is continued evidence of the appeal of our brand driven by our fresh handcrafted Mexican inspired cuisine, compelling value proposition, and fast service.

Our menu allows us the flexibility to create new and unique menu items to complement our signature fire-grilled chicken and provide our customers with even more choices at a great value. During the first quarter, we featured Baja Shrimp and Tostadas, both are proven winners with our customers.

In line with our longer-term menu strategy, Shrimp is being offered across our menu throughout the end of May and continues to perform very well. In order to further test our multi protein strategy, we are currently promoting Carne Asada on top of our Shrimp offering.

Our Carne Asada is made from fresh USDA beef seasoned with the traditional marinate of citrus, salt and pepper to add flavor, and tenderize the meat.

It is then fire grilled, hand chopped for our five delicious Carne Asada entree items; the Burrito, the Tostada, the Taco, Quesadilla, and a Wet Burrito each offering a fresh take on El Pollo Loco menu classic. Similar to Shrimp, we currently plan to include Carne Asada on our menu for multiple modules.

While the Carne Asada promotion and underlay represents an incremental food cost investment, it represents the first time we showcased three different proteins on our menu at the same time.

While we are still in an extended test in assessing the overall impact on the menu and mix, we are optimistic about what we believe to be a long-term opportunity to expand our menu including the potential to include Shrimp and/or Carne Asada as full time menu items. At the end of the month, we’ll be rolling out our hand carved chicken salads.

Each of our four salad options; Southwest Bacon, Mango Avocado, Mexican Cesar, and Avocado Café [ph] will be prepared with delicious ingredients like fresh gourmet greens, hand sliced Avocados, couture cheese, and great tomatoes. The best part, however, will be the freshly grilled, freshly sliced, off the bones whole chicken breast on top.

Our hand carved salad is yet another example of the breadth and depth of our offerings. In addition to providing our guests with food that they are craving, we strive to provide them with an enjoyable experience whether they are dining in, taking out, or driving through.

As such we are implementing and testing a number of initiatives to enhance the customer experience and then share optimal efficiency and speed. At the end of April, we completed the roll out of our pagers to all company-owned restaurants. The pagers will notify dine in and take out customers when their orders are ready for pickup.

Not only do pagers improve our customers’ experience, but they also allow us to better monitor our store operations. In addition to pagers, we are testing several back of the house initiatives to drive efficiencies, higher throughput, and faster speed of service.

These include revised peak period labor deployment, simplified product builds, and a new layout for our centered line. All of these are in test now and expected to roll out in May and June. In an effort to go even further in driving efficiencies and service, we will be testing a new back of the house layout later this year.

These are all exciting initiatives designed to further enable our employees to deliver great food with great service. Switching to development, our pipeline continues to be robust and positions us for 8% to 10% unit growth over the long-term.

We opened one new company restaurant during the quarter and remain on track to open 16 company owned restaurants and 11 franchise restaurants for a total of 27 new restaurants during 2015.

Our restaurants in the Houston area have continued to perform very well and our initial success in Houston has further bolstered our confidence in our ability to drive outside or core southern California market.

In addition to the six to eight additional restaurants we plan to open in the Houston area this year, we assigned two LOI's in our next Texas market Dallas for restaurants to open in 2016. We are continuing to actively pursue company and franchise development in a number of other Western markets.

As many of you may have seen, during the first quarter, we signed a new franchise development deal for the Salt Lake City area. The development deal was made with three existing franchisees and one new franchise partner to open five restaurants by 2018 which will bring our Utah footprint to Southern restaurants.

Further, we continue to hold active dialogue with a number of existing and prospective franchisees regarding additional new unit development agreements. In fact, we reached an agreement in principle earlier this week with the prospective franchisee to develop with us in the Dallas market.

All of our new restaurants are opening with our Hacienda design, and we continue to remodel our existing restaurant base with the new design which showcases the more modern and inviting dining experience within our restaurant and is a better representation of our elevated brand positioning.

Through the end of the first quarter, we have completed 227 remodels system wide or roughly 55% of our restaurant base. We remain on track to have the entire system completed by 2018. With that I would like to now turn the call over to Larry for a detailed discussion of our first quarter results and our 2015 guidance.

Larry?.

Thanks Steve. For the first quarter ended April 1, 2015, total revenue increased 11.1% to $90.4 million from $81.4 million in the first quarter of 2014. The increase in revenue was largely a result of an increase in company owned restaurant sales which rose 11.2% in the first quarter to $84.7 million.

Our company owned sales growth in the first quarter resulted from the contribution of 12 new company owned restaurants opened during and subsequent to the first quarter of 2014 combined with a 3.5% increase in comparable restaurant sales.

The comparable restaurant sales growth was comprised of 3.4% increase in average check and 0.1% increase in traffic. Note that the comparable restaurant sales growth was negatively impacted by the timing of the nearest holiday which reduced same-store transaction and sales by approximately 60 basis points for the quarter.

Franchise revenue increased 9.2% year-over-year to $5.7 million, largely due to an increase at franchise comparable restaurant sales growth of 6.2%. Turning to expenses, food and paper cost as a percentage of company restaurant sales increased by 50 basis points year-over-year to 32%.

The increase was driven by higher commodity cost, partially offset by the price increases taken in the second half of 2014 and the first quarter of 2015. For 2015, we still expect overall food and paper inflation to run 2.5% to 3% as higher chicken prices which we have locked in for 2015 are partially offset by favorability and other commodities.

Labor related expenses as a percentage of company restaurant sales increased 20 basis points year-over-year to 25.5%. The increase in labor expenses was driven by higher worker's compensation and health insurance claims activity partially offset by leverage on management labor cost.

As we mentioned on the last call, we have unusually high number of group health insurance liability claims during the first quarter. As a result of these claims, we saw a $240,000 impact to the quarter in labor and related expenses and $110,000 to G&A. We anticipate the remaining $300,000 impact in the second quarter again but between and G&A.

Occupancy and other operating expenses, as a percentage of company restaurant sales improved by 90 basis points year-over-year to 20.2%. The improvement was driven by leverage in higher revenue partially offset by using advertising expenses, increased rent on new stores, and higher credit card fees due to higher credit card receipts.

General and administrative expenses increased by $900,000 year-over-year in the first quarter to $7.5 million. As a percentage of total revenue, G&A expenses increased 20 basis points to 8.3%.

The increase was driven by higher malleable cost due to the aforementioned higher malleable claims activity as well as by incremental public company cost partially offset by leverage on strong sales growth. Depreciation and amortization expense increased to $3.1 million from $2.6 million in the first quarter last year.

As a percentage of total revenue, depreciation and amortization increased 30 basis points year-over-year. The increase was primarily driven by our new store development as well as by our accelerated remodeling program. For the full year we continue to expect depreciation and amortization expense to be between 3.7% and 3.9% of company revenue.

Interest expense decreased by $4.4 million year-over-year to $1.2 million from $5.6 million in the first quarter of 2015.

The decrease is largely due to the pay off of our second leading credit facility for the proceeds of our IPO in July 2014, lower interest rates associated with our December 2014 refinancing of our credit facility, and a $15 million of payments on the revolver in the first quarter.

During the first quarter we incurred a charge of $300,000 relating to the present value of expected payments under our income tax receivable agreement which cost us to pay our pre IPO shareholders 85% of the tax savings realized as a result of utilizing our pre IPO net offering of losses and other tax attributes.

We recorded a provision for income taxes of $4.7 million in the first quarter of 2015 reflecting an estimated effective tax rate of 41%. This compares to a provision of $400,000 in the prior year first quarter.

We reported net income of $6.8 million or $0.17 per diluted share in the first quarter compared to a net income of $5.5 million or $0.18 per diluted share in the year ago period. Weight average food shares outstanding were approximately 38.9 million for the first quarter of 2015 and 30.2 million for the year ago period.

To account for our 2014 IPO and changes to our capital structure we have calculated pro forma results including net income and basic and diluted share count as if the IPO had occurred at the beginning of 2013.

To revise pro forma net income we had made adjustments for the elimination of management fees from our sponsor, credit facility interest expense, estimated ongoing public company cost, expenses associated with the tax receivable agreement, losses on disposable assets, asset impairment and close store costs.

We have added back provision for income taxes and have applied a 40.5% income tax rate. Included in our earnings release is a reconciliation of our GAAP results to our pro forma results. We believe that the pro forma results provide a useful view of our business and our closed IPO capital on cost structures.

Accordingly pro forma net income for the quarter was $7.1 million as compared to $5 million in the first quarter of last year. Pro forma diluted earnings per share were $0.18 for the first quarter this year compared to $0.13 in the prior year period.

We’ve used a diluted weighted average share count of 38.9 million shares for the first quarter of 2015 and 38.4 million shares for the year ago period which reflects our shares post IPO. In terms of our liquidity and balance sheet, we had $8.6 million in cash and equivalents as of April 1, 2015 and 150.8 million in debt outstanding.

For the foreseeable future we expect to finance our operations including new restaurant developments and maintenance capital through cash operations and borrowings under our credit facility. We expect our capital expenditures to total $34 million to $37 million for the full year 2015.

Turning to our 2015 guidance, we are reiterating our 2015 pro forma diluted net income per share expectation of $0.67 to $0.71. This compares to pro forma, diluted net income per share of $0.55 in 2014. Pro forma net income guidance for 2015 is based in parts on the following annual assumptions.

We continue to expect full year system wide comparable restaurant sales growth of 3% to 5%. That said we do not expect our comparable restaurant sales increases to be evenly split among the remaining three quarter of 2015.

During the second quarter we will be lapping a record high average unit volume quarter as a result of two of our most successful promotions while simultaneously conducting extended tests of alternative proteins. As a result we will expect our second quarter comparable sales to be closer to the low end of the range.

We expect to open 16 new company owned restaurants and expect our franchisees to open 11 new restaurants. We expect the restaurant contribution margin of between 21.7% and 22%. We expect G&A expense of between 8.2% and 8.4% of total revenue.

We expect adjusted EBITDA of between $66.5 million and $69.2 million and we are using pro forma income tax rate of 40.5%. With that I will turn the call back over to Steve for closing remarks. .

Thanks Larry. We are excited about our continued operating momentum and the long-term opportunities to bring freshly prepared Crazy You Can Taste entrees to an even wider audience. Our success to date is due to our focus on the four pillars of our brand; high quality food, compelling value, excellent service, and a warm and inviting atmosphere.

Our steadfast focus on these four pillars positions the brand well for the future supporting our continued growth through increasing comparable restaurant sales, expanding the restaurant base, and enhancing restaurant's operations.

Thank you for joining us today, and we appreciate your interest in El Pollo Loco and we would be happy to answer any questions that you might have. Operator you can now open it up for questions. .

Thank you. [Operator Instructions]. Our first question is coming from the line of David Tarantino with Robert W. Baird and Co. Your line is now open. You may proceed with your question. .

Hi, good afternoon. My question is on the comp trends that you saw in Q1 and that you are pointing to in Q2.

And while I realize it is still within the boundaries that you plan for the year, it is slower than what we have been used to seeing from you and we are just wondering if you could comment on why you think the trend line slowed versus what you saw in the prior quarters into Q1 and now in Q2?.

Right, well as Steve mentioned -- Larry mentioned actually, Q1 in 2015 all of our sales were strong. We had in Q1 our highest sales [ph] present given that we had January seasonality involved in that.

Drivers within the quarter David were really Shrimp and tostadas, and we saw those come in period 2 and period 3, and we began to see momentum build through the quarter with those.

I am going to think that weighed on the fourth quarter and the first quarter but as Larry has mentioned at New Year's Eve timing -- New Year's timing, where the gain fell into the [indiscernible] to this year. And as we mentioned, a 60 basis point hit on the comps for that.

So also kind of the under 500 line, we focused on our Shrimp, that moved away a little bit from the under 500 line, that was a little hit as well. We happen to be staging that line in June and we are -- we will hit backup strength that it has in the quarter of last year. Remember again how successful that volume was in Q1 of 2014. .

And I guess one clarification question on Q2, when you are saying that you expect comps towards the lower end of your full year plan, does that apply to system comps or is that company comps or both, could you help us understand that?.

That got to be system comp range. .

And would you expect company comps then to be below that level?.

It will get kind of a little below that. .

And the one thing David as we moved into, as Ed highlighted, we actually had growing momentum through Q1 with Shrimp and Tostadas. In Q2, things are starting out, they were looking pretty good and then we moved -- we decide to test the alternative proceeds. So we added Shrimp in.

We really want to get a feel for Carne Asada as we brought it in, and so we actually brought Carne Asada in a bit earlier and it will remain as an underlay through the next module. But what we saw was the higher price point of Carne Asada and Shrimp together. We think it may have had a bit of an impact on customers.

So really still we are evaluating it, between long-term, both the Shrimp and Carne Asada are players. I mean Shrimp was very, very strong. Carne Asada is mixing well but trying to figure out from a value pricing stand point the interplay of Carne Asada and Shrimp and the rest of the menu. .

So, right. I mean David based on the success of Shrimp we decided that we will move Carne Asada up. So they literally overlapped four or five week period of time, which means our menu skews a little bit more to check that in terms to transactions. But we are assessing the impact of that, we are still sort of in that second quarter.

But we’ll tell you that they both mix very, very well. You will see Shrimp back again in our module set which starts in July and we’ll also look to bring steak back in 2016. It’s really about when we look at this, this is really about sequencing and pacing these proteins as we bring them..

And David this is Steve, we also want to get a look like we did with Shrimp throughout the whole menu. We are going to do that with the Carne Asada in a couple of weeks, so it will go from an LTO to being offered on all the menu items and we need to see how that’s going to play out as well. We are excited about that in just a couple of weeks.

As well as I mentioned in my opening, the hand carved chicken salads which starts in a couple of weeks as well. .

Great, thank you very much. .

Thank you, David. .

Thank you. Our next question is coming from the line of John Glass with Morgan Stanley, your line is now open. You may proceed with your question. .

Thanks.

Could I just maybe just follow up on that and understand is there a dynamic you are seeing that there is some price resistance on the higher price points, maybe just remind us where the price points have I’ll say the Shrimp and the Carne are versus the Core Chicken products and is that the issue or is it more that people were just confused by the messages you are getting a couple of different LTOs at once and maybe that wasn’t generating as much increment to holiday?.

Well it’s more of the second one John. We would normally as we would face the event, we would speak with them overtime. We would feed the Shrimp, we would grow the Shrimp and then either 9 months to 12 months later, we would then bring the steak in after that. So I think it was a little bit more of -- they both kind of converged together.

As a result, the visibility of value on our menu is not as strong as it used to be, and at least for that five-week period of time. Our value score though is still high. .

Value score remain still one of our best attributes?.

You might see it phasing more like this, John, more like this would come back in marginal effect in the July period, and you might see the steak come back here somewhere maybe midyear of 2015. Midyear, second to third quarter of 2015..

The thing as Ed highlighted, the Shrimp promotion performed extremely well. Even as a brand under the menu as I call it we had a 7% Shrimp mix which was really our highest in the last year with 6.6% and 6.4% the prior year.

So we are very pleased with that and then really want to understand how we laid the steak on top of it and then coming up under the line we called it?.

It’s really like a marketing communication thing. It is not just the steak they are assessing the Shrimp and how we are going to express that, down that within our menu as we back into this year and in 2015..

And then just thinking about the back half, your comps are very strong in the back half, so when you talked about high volumes this quarter and last quarter, you are going to face even tougher year-over-year challenges, so are you changing the way you are thinking about how are you going to promote products to deal with those tougher laps or do you think this kind of just resolves itself when you stop having multiple messages?.

I think we moved to more focused messages as we come out of this the middle of this in the second quarter and we get more focused. I mean the reason why I am excited about the backend of our handcraft salads, our signature which will come out in some selling out as Steve said, our signature salad if you remember did extremely well last year.

I mean they are actually better salads and around the neighborhood of the same price points. In the handcraft salad we carve off the bone and we slice it and put it on the salads.

This was a whole new platform for us so we are going to watch how that works and you know how we test live, write down and test live, we understand how it performs in a five week window and then we bring it back in and we understand its role either in the back half of fifth calendar or into the 2015 calendar.

But the way that we do this check and this is a whole new platform for us and could literally extend to a bunch of different styles on the menu like bowls [ph]. .

If I can just sneak one in cost, Larry, the labor line I appreciate there was those cost, end time cost but we are not even backing that out or sort of flat year-over-year labor, is this just the way it is now and you have got the minimum wage increases now I guess in California but probably other states came in around the first of the year or was there anything else you played to this quarter around labor that made it less leveragable than it have been in the past?.

No, through the quarter I mean the labor -- I mean really to look year-on-year and if you strip out the group insurance it was flat year-on-year. So we did a nice job managing labor, it came in right where we expected, have sent the insurance within balance of the year.

We don’t expect to see any surprises on labor so we expect to come in just as planned. And again we have given the overall margin range of that 21.7 to 22 and we feel confident that we are going to be in that range. So feel good on labor and then just on food cost, obviously there is the three elements.

We had inflation, the pricing was let’s say was comparable inflation and we also did have on the calendar with Shrimp, and the mix on Shrimp that drove some of the food cost up. And as we are doing alternative proteins you’ll see those cost of goods sold bounce up a little bit.

But again we always plan our calendar on a full year basis and so back half of the year we expect those food costs come back in line and as for the full year we will be in good shape and again within that margin range. .

Okay, thanks very much. .

Thank you John..

Thank you. [Operator Instructions]. Our next question is coming from the line of Andy Barish with Jeffries. Your line is now open, you may proceed with your question. .

Hey guy’s couple of more, I guess comp questions.

Just calendar wise did we’ve earlier lent in season by a couple weeks impact the 1Q to turn to a discernible degree and then what was the realized price in your check average lift in the 1Q as well please?.

It was 2.7% and we took a lot of 1% increase in period 2 in February and that was on top of the balance grew 5% or so 2.70 balance is up..

And they impact….

Okay and then just looking at 2016 on pipeline real estate build, how comfortable are you there on kind of continuing to see this accelerating unit growth that you have been putting in place?.

Andy we feel very good about our 2016 pipeline especially confident on the company side. It is built very nicely especially in the Texas market both in Houston where we will open this year another six to eight units beyond the three that are open. Again Dallas we got two LOIs already signed.

We think we’ll have five to six openings in Dallas in the first half of next year. And also as I mentioned in my comments we’ve reached an agreement in principle with a franchise partner for a portion of Dallas as well.

So we feel very good on the company side and the franchise side is building nicely with both new franchisees like I just mentioned and the existing franchisees were impacting Salt Lake. We’ve added an existing group that’s going to take North Salt Lake and an existing group is looking at South Salt Lake as well.

So we feel confident on the pipeline especially on the company pipeline. .

Thank you. .

Thank you. Our next question is coming from the line of Sharon Zackfia with William Blair. Your line is now open, you may proceed with your question. .

Hi, good afternoon.

A follow up question on the dynamic so far in the second quarter, did you prior to rolling the sell system wide did you test Shrimps and Carne Asada concurrently prior to this?.

No, we had not tested it. We tested it last year but not -- we didn’t test them concurrently, so we ran in the labs here, this year we ran them as extended test which are now last 8 to 12 weeks.

Again they had done a success with the Shrimp, we decided that we would move that base and get a look at for a five week period and get a look at that steak over Shrimp and see what the impact is..

Okay, just trying to think through that because it was kind of my first in 15 years with following restaurants that is trying about two proteins together, kind of impacting sales.

And I mean, I don’t want to beat a dead horse but the presentation, I mean is there -- if you move forward and you are kind of moving to multi protein platform permanently over time, is there some way to present this to emphasize the value without kind of alarming the customer base?.

Yes, I definitely think there is. I mean, again a lot of this is putting out there what we see acceptance via mix. This is going to be a marketing communication story, not a product story and it is going to be big lengthening [ph] story.

So, when you put in Shrimp, you Shrimp out you are going to put out higher price point, you are going to want your consumers to sort of get used to that over a period of time. And really an expression of Shrimp this year on our menu versus what it will look like, you could factor that it will be a little bit different.

So, we will have more balance in here, with a different look on the menu. We will have more balancing in here for entry level price points which I think I squeezed a little bit when both of the proteins came out. .

Okay, and then on the, I guess shifting topics, unit productivity did look really healthy in the quarter.

Steve, anything you want to talk about in terms of the new units and what is going in there?.

On the productivity issue you said?.

Yeah..

You mean little P&L or break down labor etc. .

No, but on sales productivity.

So if you impute new unit productivity from a sales basis it looked like it was better than any of those remodeling, so anything you can talk about what the newer stores that are opening?.

I mean, if you look at the 2014 unit builds Sharon, I mean those are -- they are all performing -- I mean, the vast majority is performing very, very well and actually knows that maybe slightly below are actually still performing well. So, those are doing well, very happy with 2014 builds overall.

Like Steve highlighted Houston, again we continue to be very pleased with the performance. And then from a productivity standpoint on those 2014 builds, again we are pleased with like in the sales and the margins being generated overall across those units. .

It is what I call the class of 2014 was very good both on top line and how it is slowing, we feel good on that and we feel good on the line up that we have for 2015..

Yeah, great. Thank you. .

Thank you. Ladies and gentlemen at this time there are no further questions. I would like to turn the floor back over to our management team for any closing remarks. .

Thank you, operator. Thank you everybody for joining us today and we look forward to speaking with many of you in the coming months. Have a good evening. .

Thank you. Ladies and gentlemen this does conclude today's teleconference, you may disconnect your lines at this time. Thank you for your participation and have a wonderful day..