El Pollo Loco Earnings 2020-09-23

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 23, 2020


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-36556

EL POLLO LOCO HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware		20-3563182
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3535 Harbor Blvd., Suite 100, Costa Mesa, California		92626
(Address of principal executive offices)		(Zip Code)

(714) 599-5000

(Registrant’s telephone number, including area code)

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
Common Stock, par value $0.01 per share	LOCO	The Nasdaq Stock Market LLC

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. ☒ Yes ☐ No

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). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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	☐	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). ☐ Yes ☒ No

As of October 23, 2020, there were 36,446,736 shares of the issuer’s common stock outstanding.

Table of Contents


Table of Contents		Page

PART I—FINANCIAL INFORMATION		3
Item 1. Financial Statements.		3
Condensed Consolidated Balance Sheets (Unaudited)		3
Condensed Consolidated Statements of Income (Unaudited)		4
Condensed Consolidated Statements of Comprehensive Income (Unaudited)		5
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)		6
Condensed Consolidated Statements of Cash Flows (Unaudited)		8
Notes to Condensed Consolidated Financial Statements (Unaudited)		9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.		32
Item 3. Quantitative and Qualitative Disclosures About Market Risk.		51
Item 4. Controls and Procedures.		51
PART II—OTHER INFORMATION		53
Item 1. Legal Proceedings.		53
Item 1A. Risk Factors.		53
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.		53
Item 3. Defaults of Senior Securities.		53
Item 4. Mine Safety Disclosures.		53
Item 5. Other Information.		53
Item 6. Exhibits.		54
Signatures		55

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

EL POLLO LOCO HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Amounts in thousands, except share data)


	September 23,		December 25,
	2020		2019
Assets
Current assets:
Cash and cash equivalents	$	29,529	$	8,070
Accounts and other receivables, net		10,842		8,505
Inventories		1,937		2,009
Prepaid expenses and other current assets		2,555		5,718
Income tax receivable		—		376
Total current assets		44,863		24,678
Property and equipment owned, net		80,545		91,778
Property and equipment held under finance lease, net		52		—
Property and equipment held under operating leases, net ("ROU asset")		180,781		192,395
Goodwill		248,674		248,674
Trademarks		61,888		61,888
Deferred tax assets		3,565		3,709
Other assets		1,280		1,630
Total assets	$	621,648	$	624,752
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of obligations under finance leases	$	50	$	34
Current portion of obligations under operating leases		19,847		16,406
Accounts payable		6,238		5,627
Accrued salaries and vacation		9,929		8,618
Accrued insurance		10,256		9,440
Accrued income taxes payable		1,888		—
Accrued interest		143		302
Current portion of income tax receivable agreement payable		5,160		4,935
Other accrued expenses and current liabilities		16,216		28,597
Total current liabilities		69,727		73,959
Revolver loan		83,800		97,000
Obligations under finance leases, net of current portion		94		83
Obligations under operating leases, net of current portion		182,753		197,492
Deferred taxes		1,325		1,672
Income tax receivable agreement payable, net of current portion		3,101		3,301
Other noncurrent liabilities		9,772		5,679
Total liabilities		350,572		379,186
Commitments and contingencies
Stockholders’ Equity
Preferred stock, $0.01 par value, 100,000,000 shares authorized; none issued or outstanding		—		—
Common stock, $0.01 par value, 200,000,000 shares authorized; 36,441,369 and 35,126,582 shares issued and outstanding		364		351
Additional paid-in-capital		338,622		330,950
Accumulated deficit		(66,969)		(85,988)
Accumulated other comprehensive (loss) income		(941)		253
Total stockholders’ equity		271,076		245,566
Total liabilities and stockholders’ equity	$	621,648	$	624,752

See notes to condensed consolidated financial statements (unaudited).

Table of Contents

EL POLLO LOCO HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Amounts in thousands, except share data)


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	September 23, 2020		September 25, 2019		September 23, 2020		September 25, 2019
Revenue
Company-operated restaurant revenue	$	97,276	$	99,052	$	277,617	$	296,341
Franchise revenue		7,781		7,273		21,562		21,635
Franchise advertising fee revenue		5,922		5,742		16,567		16,808
Total revenue		110,979		112,067		315,746		334,784
Cost of operations
Food and paper cost		24,922		27,512		73,357		82,550
Labor and related expenses		28,756		29,292		83,208		88,140
Occupancy and other operating expenses		23,836		23,844		67,867		70,103
Gain on recovery of insurance proceeds, lost profits		(2,000)		—		(2,000)		—
Company restaurant expenses		75,514		80,648		222,432		240,793
General and administrative expenses		9,803		9,539		29,599		30,235
Franchise expenses		7,572		7,006		21,110		20,692
Depreciation and amortization		4,092		4,343		12,629		13,558
Loss on disposal of assets		29		35		156		213
Recovery of securities lawsuits related legal expenses and other insurance claims		—		—		(123)		(10,000)
Impairment and closed-store reserves		1,776		367		4,615		1,241
Loss on disposition of restaurants		—		11		—		5,062
Total expenses		98,786		101,949		290,418		301,794
Income from operations		12,193		10,118		25,328		32,990
Interest expense, net		770		973		2,583		2,754
Income tax receivable agreement (income) expense		(144)		(197)		26		(120)
Income before provision for income taxes		11,567		9,342		22,719		30,356
Provision for income taxes		1,647		2,940		3,700		8,954
Net income	$	9,920	$	6,402	$	19,019	$	21,402
Net income per share
Basic	$	0.28	$	0.18	$	0.54	$	0.57
Diluted	$	0.28	$	0.18	$	0.53	$	0.56
Weighted-average shares used in computing net income per share
Basic		35,471,452		35,859,502		34,989,007		37,484,372
Diluted		36,064,559		36,397,368		35,609,320		38,173,097

See notes to condensed consolidated financial statements (unaudited).

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EL POLLO LOCO HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Amounts in thousands)


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	September 23, 2020		September 25, 2019		September 23, 2020		September 25, 2019
Net income	$	9,920	$	6,402	$	19,019	$	21,402
Other comprehensive income (loss)
Changes in derivative instruments
Unrealized net (losses) gains arising during the period from interest rate swap		(36)		171		(1,791)		171
Reclassifications of losses (gains) into net income		114		(29)		156		(29)
Income tax (expense) benefit		(20)		(38)		441		(38)
Other comprehensive income (loss), net of taxes		58		104		(1,194)		104
Comprehensive income	$	9,978	$	6,506	$	17,825	$	21,506

Table of Contents

EL POLLO LOCO HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(Amounts in thousands, except share data)


	Thirteen Weeks Ended September 23, 2020
								Accumulated
				Additional				Other		Total
	Common Stock			Paid-in		Accumulated		Comprehensive		Stockholders’
	Shares	Amount		Capital		Deficit		(Loss) Income		Equity
Balance, June 24, 2020	35,854,122	$	359	$	334,088	$	(76,889)	$	(999)	$	256,559
Stock-based compensation	—		—		909		—		—		909
Issuance of common stock related to restricted stock	2,798		—		—		—		—		—
Issuance of common stock upon exercise of stock options	593,180		6		3,675		—		—		3,681
Shares repurchased for employee tax withholdings	(2,925)		—		(51)		—		—		(51)
Forfeiture of common stock related to restricted shares	(5,806)		(1)		1		—		—		—
Other comprehensive income, net of tax	—		—		—		—		58		58
Net income	—		—		—		9,920		—		9,920
Balance, September 23, 2020	36,441,369	$	364	$	338,622	$	(66,969)	$	(941)	$	271,076

	Thirteen Weeks Ended September 25, 2019
								Accumulated
				Additional				Other		Total
	Common Stock			Paid-in		Accumulated		Comprehensive		Stockholders’
	Shares	Amount		Capital		Deficit		Income		Equity
Balance, June 26, 2019	37,732,948	$	377	$	358,335	$	(95,888)	$	—		262,824
Stock-based compensation	—		—		668		—		—		668
Shares repurchased for employee tax withholdings	(4,176)		—		(46)		—		—		(46)
Forfeiture of common stock related to restricted shares	(9,160)				—
Repurchase of common stock	(2,825,896)		(28)		(29,910)		—		—		(29,938)
Other comprehensive income, net of tax	—		—		—		—		104		104
Net income	—		—		—		6,402		—		6,402
Balance, September 25, 2019	34,893,716	$	349	$	329,047	$	(89,486)	$	104	$	240,014

Table of Contents


	Thirty-Nine Weeks Ended September 23, 2020
								Accumulated
				Additional				Other		Total
	Common Stock			Paid-in		Accumulated		Comprehensive		Stockholders’
	Shares	Amount		Capital		Deficit		Income (Loss)		Equity
Balance, December 25, 2019	35,126,582	$	351	$	330,950	$	(85,988)	$	253	$	245,566
Stock-based compensation	—		—		2,170		—		—		2,170
Issuance of common stock related to restricted stock	439,061		4		(4)		—		—		—
Issuance of common stock upon exercise of stock options	965,736		10		5,836		—		—		5,846
Shares repurchased for employee tax withholdings	(23,118)		—		(331)		—		—		(331)
Forfeiture of common stock related to restricted shares	(66,892)		(1)		1		—		—		—
Other comprehensive loss, net of tax	—		—		—		—		(1,194)		(1,194)
Net income	—		—		—		19,019		—		19,019
Balance, September 23, 2020	36,441,369	$	364	$	338,622	$	(66,969)	$	(941)	$	271,076

	Thirty-Nine Weeks Ended September 25, 2019
								Accumulated
				Additional				Other		Total
	Common Stock			Paid-in		Accumulated		Comprehensive		Stockholders’
	Shares	Amount		Capital		Deficit		Income		Equity
Balance, December 26, 2018	39,009,451	$	390	$	375,734	$	(110,888)	$	—		265,236
Stock-based compensation	—		—		1,797		—		—		1,797
Issuance of common stock related to restricted shares	292,211		3		(3)		—		—		—
Issuance of common stock upon exercise of stock options	6,709		—		34		—		—		34
Shares repurchased for employee tax withholdings	(29,923)		(1)		(294)		—		—		(295)
Repurchase of common stock	(4,384,732)		(43)		(48,221)		—		—		(48,264)
Other comprehensive income, net of tax	—		—		—		—		104		104
Net income	—		—		—		21,402		—		21,402
Balance, September 25, 2019	34,893,716	$	349	$	329,047	$	(89,486)	$	104	$	240,014

Table of Contents

EL POLLO LOCO HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts in thousands)


	Thirty-Nine Weeks Ended
	September 23, 2020		September 25, 2019
Cash flows from operating activities:
Net income	$	19,019	$	21,402
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation and amortization		12,629		13,558
Bad debt expense		190		—
Stock-based compensation expense		2,170		1,797
Income tax receivable agreement expense (income)		26		(120)
Loss on disposition of restaurants		—		5,062
Loss on disposal of assets		156		213
Impairment of property and equipment		3,478		283
Amortization of deferred financing costs		189		189
Amortization of favorable and unfavorable leases, net		—		(362)
Deferred income taxes, net		(110)		8,583
Changes in operating assets and liabilities:
Accounts and other receivables, net		(2,527)		(1,257)
Inventories		72		261
Prepaid expenses and other current assets		3,163		868
Other assets		159		(118)
Accounts payable		476		(1,657)
Accrued salaries and vacation		1,311		2,259
Accrued insurance		816		1,863
Income taxes payable		2,264		102
Other accrued expenses and liabilities		(9,962)		(21,031)
Net cash flows provided by operating activities		33,519		31,895
Cash flows from investing activities:
Proceeds from disposition of restaurants		—		4,770
Purchase of property and equipment		(4,349)		(10,848)
Net cash flows used in investing activities		(4,349)		(6,078)
Cash flows from financing activities:
Minimum tax withholdings related to net share settlements		(331)		(341)
Payments on revolver and swingline loan		(65,700)		(15,000)
Borrowings on revolver and swingline loan		52,500		42,000
Proceeds from issuance of common stock upon exercise of stock options, net of expenses		5,846		80
Payment of obligations under finance leases		(26)		(61)
Stock buybacks

Price	15.24	EPS	1
Shares	35	P/E	21
MCap	535	P/FCF	15
Net Debt	89	EBIT	38
TEV	624	TEV/EBIT	16
TTM 2019-12-25, in MM, except price, ratios

10-Q	2020-09-23	Filed 2020-10-30
10-Q	2020-06-24	Filed 2020-07-31
10-Q	2020-03-25	Filed 2020-05-01
10-K	2019-12-25	Filed 2020-03-06
10-Q	2019-09-25	Filed 2019-11-01
10-Q	2019-06-26	Filed 2019-08-02
10-Q	2019-03-27	Filed 2019-05-03
10-K	2018-12-26	Filed 2019-03-08
10-Q	2018-09-26	Filed 2018-11-02
10-Q	2018-06-27	Filed 2018-08-03
10-Q	2018-03-28	Filed 2018-05-07
10-K	2017-12-27	Filed 2018-03-09
10-Q	2017-09-27	Filed 2017-11-03
10-Q	2017-06-28	Filed 2017-08-07
10-Q	2017-03-29	Filed 2017-05-05
10-K	2016-12-28	Filed 2017-03-10
10-Q	2016-09-28	Filed 2016-11-04
10-Q	2016-06-29	Filed 2016-08-05
10-Q	2016-03-30	Filed 2016-05-06
10-K	2015-12-30	Filed 2016-03-11
10-Q	2015-09-30	Filed 2015-11-13
10-Q	2015-07-01	Filed 2015-08-14
10-Q	2015-04-01	Filed 2015-05-15
10-K	2014-12-31	Filed 2015-03-17
S-1	2014-11-10	Public Filing
10-Q	2014-09-24	Filed 2014-11-07
10-Q	2014-06-25	Filed 2014-09-05
S-1	2014-06-24	Public Filing

8-K	2020-10-29
8-K	2020-07-30
8-K	2020-06-02
8-K	2020-04-30
8-K	2020-04-08
8-K	2020-03-18
8-K	2020-03-05
8-K	2019-10-31
8-K	2019-08-01
8-K	2019-06-04
8-K	2019-05-02
8-K	2019-03-29
8-K	2019-03-07
8-K	2019-01-22
8-K	2018-11-01
8-K	2018-08-31
8-K	2018-08-02
8-K	2018-06-28
8-K	2018-06-05
8-K	2018-05-03
8-K	2018-03-08
8-K	2018-02-15
8-K	2018-01-16
8-K	2018-01-03

EX-31.1	loco-20200923ex3112d14dd.htm
EX-31.2	loco-20200923ex312ba8948.htm
EX-32.1	loco-20200923ex3215c2f08.htm

LOCO 10Q Quarterly Report

El Pollo Loco Earnings 2020-09-23