Laurance Roberts – Chief Financial Officer Stephen Sather - President and Chief Executive Officer Edward Valle - Chief Marketing Officer.

David Tarantino - Robert W. Baird Andy Barish - Jefferies Sharon Zackfia - William Blair Courtney Yakavonis - Morgan Stanley.

Good day ladies and gentlemen and thank you for standing by. Welcome to the El Pollo Loco Second 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, August 13, 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 second 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 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 second 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 and 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. Our second quarter results included pro forma earnings growth in excess of 20% in our 16th consecutive quarter of system-wide comparable sales growth.

For the quarter, we saw a 1.3% increase in system-wide comparable restaurant sales growth that consisted of a 50 basis point decrease for company operated restaurants and a 2.6% increase for franchise restaurants.

While comparable sales were below our target, the increase in system-wide comparable sales came on top of a 5.4% growth last year for a two year growth rate of 6.7% and a three year growth rate of 16.3%.

As we discussed in our last earnings call, our second quarter results were impacted by the combination of higher price offerings and a reduction of our value portion of our menu. Specifically we ran sequential promotions featuring premium entrees with shrimp and carne Asada, at the same time we are eliminating our $5 combo menu panel.

We believe this confluence of actions drove reduced business from some of our more value oriented customers. We remain confident that adding new proteins to our menu is an ongoing opportunity for us and in fact we’ve add shrimp to the menu permanently.

In the third quarter, we re-launched the $5 combo menu, which will remain in our restaurants full time to reinforce our value offering.

This allows us to return to our winning QSR+ strategy of introducing exciting new premium Mexican entrees like the new chicken and shrimp pliable that’s in restaurants now to a base of underlying value frequency drivers like our $5 combos. While, it’s early in the promotion we are encouraged with the results so far.

In addition to providing our guest with craveable food, as part of our QSR+ positioning, we are very focused on enhancing overall experience of our customers. To that end, we are currently working on a number of initiatives to improve our customer experience.

During the second quarter, we completed the rollout of two initiatives design to drive higher throughput and faster speed of service. We rolled out our pagers to all company restaurants and implemented peak labor our deployment.

In addition, we are currently developing simplified product builds, a new more efficient layout for our center line, streamline point of sale entry and enhanced training through a learning management system. We also expect to test a new back of house layout later this year.

These are all exciting initiatives design to further enable our employees to more effectively and efficiently deliver great food with great service. Switching to development, our pipeline continues to be robust and we are positioned for 8% to 10% unit growth over the long term.

Building on the success of our entry in the Houston, we’ve announced significant expansion plans to enter the Dallas market. To ensure continued success in our Texas expansion, we have recently added directors of operations and real estate, who will be responsible for company operations and new site selection in Texas.

During the second quarter, we open one company restaurant in Humble Texas and one franchise location open in Napa, California. We remain on track to open 16 company owned restaurants in 2015 representing over 9% growth in company owned stores. Our franchisees currently plan to open eight restaurants in 2015.

This is down slightly from our previous expectation of 11 as several franchise unit expected to open in late 2015 will likely slip into 2016. Supporting our move to Dallas, we’ve selected a Dallas-based franchisee to co-develop the market. This new franchisee will open a total of seven restaurants in the area over the next four years.

Combined company owned and franchise development is expected to result in the total of 20 to 30 El Pollo Loco restaurants to the Dallas market by 2019. In addition we continue to actively pursue company and franchise development in a number of western markets.

As you may have seen we recently announced a new development agreement with our largest franchise partner, WKS Restaurant Group, expanding their commitment to Utah with plans to open six new restaurants in Salt Lake City. This will bring the total Utah franchised pipeline to 12 restaurants.

We continue to hold active dialog regarding new unit development agreements with current franchisees across multiple markets and have a number of highly qualified franchise candidates looking to develop with us.

In addition to new unit development, we continue to remodel existing restaurant base with our Hacienda design which better reflects our elevated brand promise. Through the end of second quarter we have completed 243 remodels system-wide and over 270 restaurants are either new or remodel with Hacienda design, representing about 65% of the system.

With that I would now like to turn the call over to Larry for a detailed discussion of our second quarter results and 2015 guidance.

Larry?.

Thanks Steve. For the second quarter ended July 1, 2015, total revenue increased to $89.5 million of $86.9 million in the second quarter of 2014. The increase was largely driven by growth in company operated restaurant sales which rose 2.7% in the second quarter to 83.6 million.

The increase in company operated restaurant sales was due to the contribution of 13 new restaurants open during and sequent to the second quarter of 2014, partially offset by loss sales from six units sold to a franchisee and a comparable restaurant sales decline of 0.5%.

The decline in comparable restaurant sales was comprised of a 3.9% decrease in traffic partially offset by increase in average check size of 3.4%. Franchise revenue increased 6% year-over-year to $5.9 million to provide comparable restaurant sales growth of 2.6% as well as contribution from new restaurants and higher franchise renewal fees.

Turning to expenses. Food and paper cost as a percentage of company restaurant sales increased by 50 basis points year-over-year to 32.4%. The increase was predominantly due to higher food costs associated with our shrimp and Carne Asada promotions.

For 2015, we continue to 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 and related expenses as the percentage of company restaurant sales increased 50 basis points year-over-year to 25.2%, the increase in labor expenses was driven primarily, a higher workers compensation and health insurance claims activity, excluding the higher workers compensation and medical claims activity labor cost were approximately flat year-over-year.

Occupancy and other operating expenses as a percentage of company restaurant sales were flat compared to the prior year second quarter, with both period coming in at 20.8%, the flat year-on-year performance was driven by lower utility rate offset by higher credit card fees.

General and administrative expenses decrease by $430,000 year-over-year in the second quarter to $6.4 million. As a percentage of total revenue, G&A expenses decreased 70 basis points to 7.2%.

The decrease was due primarily to the capitalization of $310,000 in internal development cost related to site selection and construction activities, a decrease in bonus accrual partially offset by increased in stock option and associated payroll tax expenses.

Depreciation and amortization expense increase to $3.2 million from $2.8 million in the second quarter last year. As a percentage of total revenue depreciation and amortization increased 40 basis points year-over-year. Increase was primarily due to our new store development as well as our 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 $4.7 million year-over-year to $1 million from $5.7 million in the second quarter of 2015.

The decrease is largely due to the pay off of our second leading credit facility and a proceeds of our IPO in July 2014, lower interest rates associated with our December 2014 refinancing of our credit facility, and to $30 million of payments on the revolver in the first half of 2015.

During the second quarter, we incurred a charge of $200,000 related 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 operating losses and other tax attributes.

We recorded provision for income taxes of $5.1 million in second quarter of 2015 reflecting an estimated effective tax rate of 41%. This compares to a provision of $570,000 in the prior year second quarter.

We reported net income of $7.2 million or $0.18 per diluted share in the second quarter compared to net income of $6.6 million or $0.22 per diluted share in the year ago period. Weighted average diluted shares outstanding were approximately 39.1 million shares for the second quarter of 2015 and 3.4 million shares 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 fiscal year 2013.

To arrive at pro forma net income, we’ve made adjustments for IPO and secondary operating expenses, credit facility interest expense, expenses associated with the tax receivable agreement, losses and disposable assets, asset impairment and close store costs. We have added back provision for income taxes and have applied a 41% 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 post IPO capital on cost structures. Accordingly pro forma net income for the quarter was $7.4 million as compared to $6.1 million in the second quarter of last year.

Pro forma diluted earnings per share were $0.19 for the second quarter this year, compared to $0.16 in the prior year period. We’ve used a diluted weighted average share count of 39.1 million shares for the second quarter of 2015 and 38.6 million shares for the year ago period which reflects our shares post IPO.

In terms of our liquidity and balance sheet, we had $6.4 million in cash and equivalents as of July 1, 2015 and 135.7 million in debt outstanding. For the foreseeable future we expect to finance our operations including new restaurant developments and maintenance capital through cash from operations and borrowing under our credit facility.

We still expect our capital expenditures to total $34 million to $37 million for the full year 2015.

Turning to our 2015 guidance, we are retaining our 2015 pro forma diluted net income per share expectation of $0.67 to $0.71, which now include a $0.02 per share benefit resulting from capitalizing development cost directly attributable to remodels and building new restaurants.

This compares to pro forma, diluted net income per share of $0.55 in 2014, which included estimated penny per share positive impact due to a 53rd week. Our pro forma and net income guidance for 2015 is based in part on the following updated annual assumptions.

System-wide comparable restaurant sales growth of approximately 3%, we expect to open 16 new company-owned restaurants and expect our franchisees to open 8 new restaurants. We expect restaurant contribution margin are between 21.2% to 21.5%. We expect G&A expenses of between 7.8% and 8.0% of total revenue.

We expect Adjusted EBITDA of between $65 million and $67.0 million and we are using a pro forma income tax rate of 41%. With that I’ll turn the call back over to Steve for closing remarks..

Thank you, Larry. We continue to be excited about the long term opportunities to grow the El Pollo Loco brand. Our success to-date has been driven by our focus on delivering high quality food, compelling value, excellent service and warm and inviting atmosphere.

We believe our efforts to reengage the value customer along with our steadfast focus on these four pillars, position the brand for continued growth during increasing comparable restaurant sales, expanding the restaurant base and enhancing restaurant operations. Thank you for joining us today. We appreciate your interest in El Pollo Loco.

And we now would be happy to answer any questions that you might have, operator?.

Thank you. Ladies and gentlemen at this time we will be a conducting a question and answer session. [Operator Instructions] Our first question comes from the line of David Tarantino from Robert W. Baird. Please proceed with your question..

First question is about the comp churns that you saw in Q2 and perhaps if there is a comment on what you seeing in Q3, but Steve maybe could you elaborate on the factors that you think are weighing on the trend line and then, I know you mentioned removing the $5 panel and now bringing it back, is that one of the factors that giving you confidence that you could see better trends going forward? And then I have a follow-up.

Thanks..

Sure David, let me give you an overview and then I’ll have -- Ed talks specifically in some other things we’ve done in Q3.

First of all I think, it kind of refer to we kind of loss the value focus on the first half of 2015 as you know we employ a balance of a high-low pricing strategy and what I think happened is kind of we temporarily overweighed of this to the higher priced items to be more specific, we increased the prices on our $5 combo meal, we actually removed that panel from the menu board I think that was in February because of the higher pricing.

Also, we increased the prices on our value menu and specifically on another on-tray line on which was important, the 500-500 and we believe that really impacted our value customer.

When you then take on top of that we layered in the premium proteins, we first add shrimp then Carne Asada while we were happy with their performance we think that they really further drove that perceptional of higher prices with the non-focus of value and I like Ed comment on what we have done in the start of the third quarter to really counter that..

I think that’s exactly right. We launched the $5 combo, we have re-launched them to make—first of all to put that panel backup on the menu board, to make it more permanent and we’re seeing strong results from that. That $5 combo panel will remain for the balance of 2015.

We also re-launched the under 500 line which we spoke about briefly in the last call that we have giving customers more value in terms of not just verity, but also in terms of price range as well. It’s not back to its original level, but it showing very solid growth as we’re looking at it.

So we feel pretty good about it, moving to try and to stabilize the business and sort of reengage our value customer..

David, do you have another question?.

Yes. The follow-on to that, I guess it sounds like you alluded to it but you are starting to see the business respond to the changes you’re making and I guess from your history, have you dealt with this issue before in terms of losing that value customer and then winning them back, I guess some historical context there would be helpful..

Yes, I think in period seven [ph] first period of Q3, we actually have the $5 pollo bowls to launch there and then the next period $5 combos and the Chicken and Shrimp. And we saw the stabilization certainly bringing that a very popular a $5 Pollo bawls and now $5 combos on that sourcing.

That stabilization, quite frankly we had never taken something like that off the menu board before. They’ve been on, we’ve had a very, there is always being value portion either in $5 local menu or a number of what we call our snack items and we’ve taken some price on those.

So we think we’ve got the menu back inline seeing improvement and although transition Q3 and then building Q4..

Our next question comes from the line of Andy Barish from Jefferies. Please proceed with your question..

I guess wondering why you have been kept assuming menu pricing was about 3% in the 2Q or so.

So I just wondering why you didn’t get more menu mix from kind of promoting premium items and then in the back half you’re implying about a 3% system-wide comp I think this what gives you confidence in that number for the back half for the year?.

Andy as we mentioned, we’ve seen the immediate stabilization and return of the transaction with a launch of $5 Pollo Bowl and now the 500-500 calorie aligned we have got a revamped menu on that as well as, I just want to say that Shrimp and Stake also performed well on the consumer attre, we just thought we lost the whole aspect of the value.

So we are seeing a comeback, Ed do you want to add anything?.

Andy, I think people are managing track and I think that we are seeing some trade down for example on drinks and those types of things..

Our next question comes from the line of John Glass from Morgan Stanley. Please proceed with your question..

Hi this is Courtney on for John.

Just a quick question on G&A, it seems like asides from the 310k that you have capitalized, it was still down year-over-year? So if you can just give us a sense on how to model that going forward?.

Yes Courtney, the other big thing we did in the quarter was readjusted our bonus. We have got the ICP bonus and then it was adjusted downward given our year-to-date results. And so that was actually the bigger driver of the upside and even the capitalizations.

And then for the balance of the year, based on our forecast, we are also projecting G&A savings from that bonus adjustments..

Okay. Got you.

And then just quickly, can you just comment on how the minimum wage hike thing helped in LA specifically have impacted the store per margins in those areas and then in aggregate?.

Sure. As of now, again just repeat what we have got to look forward is, the minimum wage hike in California, the initial one was last July basically 50 basis points or 0.5% and we did not really see much impact from that, we took some pricing and offset that.

No other minimum wage increases will take place until January 1, that's from the state of California goes from $9 to $10.

And we are working here to mitigate the impact of that through a number of initiatives, first of all really going through all the other costs in organization, really scrub and look for cost savings to mitigate that impact, we will also look through and see what things we can do to drive efficiencies in the back half, and number of other thing that we are doing operationally which has Steve have talked about in the call.

We will hopefully drive efficiencies.

And in the third element we will be then, okay let's take a look at what we are and then we will see where we need to take additional pricing and we will be much more sophisticated about how we take that pricing, get very focused on where those minimum wage impacting our margins, look at take pricing their and also we find outside company help us look through what, which items are elastics which ones are inelastic and much more sophisticated approach the pricing that will take if necessary to present this year..

[Operator Instructions] Our next question comes from the line of Sharon Zackfia from William Blair. Please proceed with your question..

Hi good afternoon. So I have a few questions.

I think if I am not mistaken, [indiscernible] must have worsen second quarter went on since you slightly missed your guidance, can you talk about what you saw what trends worsening in June? And then I think it will be really helpful to know what the quarter to-date trends are through the middle of August, and [indiscernible] things are approved through this on the return transactions that are known, but that means traffic is going to positive went on, but I think it’s important to follow this understand kind of where are the businesses now relative to the guidance?.

Sure Sharon. The trends, I guess Larry we can give the trends in the quarter in the Q2..

Yes, I mean the trading in Q2 was, it did weakened during the quarter as Carne Asada [indiscernible] and came on again, curtailing into the fact it was a high priced items and again we haven’t changed the value menu and the value panel until really into the quarter really third quarter..

And we saw those reverse almost immediately when we did on the transactions trends when we brought in the $5 Pollo Bowls in period seven and then the $5 combos on the menu and permanently in period eight, now..

So you are back to positive transactions?.

Well, we’re not yet back to positive, Sharon.

We are now improving from where we were during Q2 in the company restaurants and as we said, this value equation will fix itself over the time, it will take a little bit so we think Q3 will probably a little softer than Q4 as this re-launch of value and those initiatives take hold attraction and then we listen to a decent Q4..

Okay maybe asking just one question, along this like just trying to, equated again on the guidance, you still have a range to the full year but have a kind of pinpoint approximately 3% guidance range enough for comp, is that kind of plus or minus 50 basis points that you are thinking about so the approximately 3%?.

Yes, I think, it would be somewhere might be 50 basis points yes..

Okay. And another question on the franchise development side, so just thinking through and understandable restaurants may be into the next year.

Are you still put it comfortable on getting 8% development growth as early as next year or should we maybe think about watch that in data little bit in our models?.

Yes. We’re very comfortable on the company side and we’ve got good and improving on the franchise pipeline. As you know we just mentioned on the call that in the Utah we signed Roland Spongberg WKS along with United Loran which is the other franchisee, which we announced earlier this year that’s 12 units there.

And we’re going to into Dallas, we have that franchise agreement is signed. In fact that franchisees in training right now with us here in Southern California, so that will augment our Dallas.

And we have other existing franchisees looking to develop in the balance of the West as well as [indiscernible] and her group in the franchise side have generated a number of interest from larger franchisees that are outside of our current system. So we feel good about, very good in Texas both in Houston and in Dallas.

Utah now with those units will start to open up next year, we see probably five to six units opening up in Dallas full year, first units opening up in the first half..

And then last question.

When we are talking about getting more sophisticated if you may be check price again for the minimum wage particularly in California, are you doing that work on the price studies now, so that if you need to take price and order to compound a protective margins you’ll be in a position to do that?.

Yes. We started and I’ll turn it over to Ed. But we brought and company called Zoro Metrics [ph] on working with us and we’ve been working about, it’s on months right now analyzing all of our price aspects and Ed can you gives more specifics..

Yes. We have worked with them in the past, we brought them in and we’re actually working on the data right now, we claimed to have that all completed over the next timeframe next price increase. Now they really give us the science that we’re looking for here..

There are no other questions in the queue at this time. I’d like to hand it back over to management for closing comments..

All right. Well, thank you very much everybody for joining us today. And we look forward to next quarter. Thank you. .

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