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Operator: Hello and thank you for standing by. Welcome to Portillo’s First Fiscal First Quarter 2023 Conference Call and Webcast. I would now like to turn the call over to Barbara Noverini Director of Investor Relations at Portillo’s to begin.

Barbara Noverini: Thank you, operator. Good morning, everyone and welcome to our fiscal first quarter 2023 earnings call. You can read through the results we announced this morning in our earnings press release and supplemental presentation at investors.portillos.com. With me on the call today is Michael Osanloo, President and Chief Executive Officer; and Michelle Hook, Chief Financial Officer. Let’s begin with a reminder that any commentary made during this call about our future financial results and business conditions constitute forward-looking statements, which are based on management’s current business and market expectations and are not guarantees of future performance. We do not undertake to update these forward-looking statements unless required by law.

Our annual report on Form 10-K and our Form 10-Q both include discussions of risk factors that may cause our actual results to vary materially from these forward-looking statements. Today’s earnings call will make reference to non-GAAP financial measures. Any non-GAAP financial measures should not be considered as an alternative to GAAP measures. We direct you to the materials we released this morning for the reconciliations of these non-GAAP measures to the most comparable GAAP measures. Finally, after we deliver our prepared remarks, we will open the lines for your questions. Now, let me turn the call over to Michael Osanloo, President and Chief Executive Officer.

Michael Osanloo: Thank you, Barb and good morning everyone. We appreciate you joining for our first quarter 2023 earnings call. I am very happy with our first quarter performance. We grew total sales by 16% and grew restaurant level adjusted EBITDA by 24.4%. We also achieved restaurant level margins of 22.3%, which reflects both sequential and year-over-year improvement. And I am especially proud that we were able to do this even as we added 7 new restaurants, which tend to be margin dilutive since Q1 2022. Michelle will review our quarterly financial results in more detail later, but first let me describe why I think we are well positioned to sustain this positive momentum. First, the decision to invest in our guests throughout 2022 has given us some comp and traffic tailwind for 2023.

In the first quarter, same restaurant sales grew 9.1%. Our transaction count was positive and our entree count remained flat. But more importantly, we have sustained multiyear highs in key operational metrics like speed of service, accuracy and overall guest satisfaction. These leading indicators give us confidence that our performance is sustainable. Empowering our team members to prioritize the guest experience helps drive guest satisfaction. This in turn leads to higher traffic and throughput and improve margins. And when we are operationally on point and our guests are satisfied, we believe that creates pricing power. We anticipate staying course with our price laggard strategy in 2023 taking price only when necessary to combat higher commodity prices, ongoing wage inflation and other investments in our team members.

Keep in mind, in an environment with persistently low consumer sentiment, we are up in total sales, up in comp, up in traffic, and we have improved our restaurant level margin even as the economy continues to be uncertain, Portillo’s have been thriving. Moving on to development. Gilbert, Arizona is open and the class of ‘22 is complete. Although early, we are thrilled to see that the class of ‘22 is already exceeding its underwriting expectations. Portillo’s is a brand that travels. And if the lines at the Colony in Texas, which are moving quickly, aren’t proof enough than paying visits to Schererville, Indiana or Tucson or Gilbert, Arizona, where our teams are working hard to feed hungry Portillo’s hand. It gives us great confidence in the longer term ability of our national expansion strategy to generate attractive returns for our investors.

We remain committed to opening 9 new restaurants in 2023 and we have already announced the locations for 6 of them. We have exciting plans to build up the Dallas, Fort Worth area this year, including restaurants in Allen and Arlington and we recently announced our Queen Creek, Arizona location, which brings the Arizona market to 7 restaurants. You have also likely seen the announcement that we will open 3 Chicago land restaurants later this year. This includes traditional restaurants in Algonquin and [indiscernible] as well as our second Portillo’s pickup location in Rosemont, Illinois, a suburb of Chicago that borders O’Hare, Airport. This is a fantastic location that will benefit from both airport and entertainment traffic. This will be the second location to offer drive-through and pickup, no dining room.

And as happy as we are with the performance of our first Portillo’s pickup in Joliet, we have learned a ton over the past year about how to make that format and the operations of it even more efficient. We continue to believe the traditional restaurants are the primary means for our growth, but as an infill strategy Portillo’s pickup locations have the potential to drive standard sized restaurant revenue and margin dollars through a lower cost build. By the way, our ability to self-fund our development is an advantage in this environment. We are not dependent on the capital markets to finance our expansion and our restaurants generate cash flow immediately. EBITDA credit conditions continue to time and interest rates remain elevated, our cash flow gives us tremendous financial flexibility to achieve our growth.

So while we are happy with our recent performance, it’s important to remain focused on laying a solid foundation that delivers value for our three core constituents, our team members, our guests and our investors. We offer our team members exciting opportunities to grow with us as we expand across the nation. They in turn take great care of our guests by delivering delicious food at an unbeatable value. This in turn enables us to deliver a superior economic profile that generates healthy returns for our investors over both the near and long-term growth. With that, let me hand it off to Michelle to share a few more details on the quarter.

Michelle Hook: Great. Thank you, Michael and good morning everyone. Before we discuss our first quarter results, I want to recap our recent secondary offering. This quarter, we completed the offering of 8 million shares of the company’s Class A common stock at an offering price of $21.05 per share. Subsequent to the quarter end, the underwriter exercised its option to purchase an additional 620,000 shares of the company’s Class A common stock. All of the shares sold in the offering represented Class A and B shares owned by pre-IPO members. We used the proceeds to purchase shares primarily from Berkshire the private equity firm that acquired Portillo’s in 2014 and subsequently sponsored our IPO in 2021. As of April 5, 2023, Class A shares represent 75.9% and Class B shares represent the remaining 24.1%.

After these transactions, Berkshire Funds beneficially own approximately 30.8% of the company. Now turning to the results for Q1, where we saw strong top line growth. Revenues were $156.1 million, reflecting an increase of $21.6 million or 16% compared to the first quarter of 2022. This increase in revenues was primarily attributed to an increase in our same-restaurant sales and the opening of new restaurants in 2022 and 2023. Same-restaurant sales increased 9.1% during the first quarter, which was attributable to an increase in average check of 7% and a 2.1% increase in transactions. The higher average check was driven by an approximate 9.2% increase in certain menu prices partially offset by a change in mix. Cost of goods sold as a percentage of revenues was flat at 34.4% in the first quarter of 2023 compared to the first quarter of 2022.

This was primarily due to an 8.9% increase in commodity prices offset by the increase in our revenue and lower third-party delivery commissions. We continue to expect that overall commodity inflation will ease and are currently estimating mid single-digit commodity inflation for the full year. Labor as a percentage of revenues decreased to 25.9% in the first quarter of 2023 from 27.7% in the first quarter of 2022. This decrease was primarily driven by the increase in our revenue and operational efficiencies partially offset by incremental investments in our team members, including hourly rate increases. As of the end of the first quarter, our average hourly rate represents a 7% increase versus prior year and also represents a 28% increase versus 2020.

We feel really good about how we are taking care of our teams. We anticipate making continued wage investments in 2023 and remain committed to providing a compelling compensation and benefits package for our team members. Other operating expenses increased $3.5 million or 23.3% in the first quarter of 2023. This was primarily due to timing of repair and maintenance expenses, higher credit card fees as we transition to cashless drive-thrus, higher insurance and operating supplies expenses and the opening of new restaurants. Occupancy expenses increased $0.7 million or 9%, primarily driven by the opening of new restaurants in 2022 and 2023. As a percentage of revenues, occupancy expenses decreased 0.4% due primarily to an increase in our revenues.

Restaurant level adjusted EBITDA increased 24.4% to $34.8 million in the first quarter of 2023 from $28 million in the first quarter of 2022. Restaurant level adjusted EBITDA margins were 22.3% in the first quarter of 2023 versus 20.8% in the first quarter of 2022. Restaurant level adjusted EBITDA margin sequentially improved compared to the fourth quarter of 2022 and compared to the first quarter of 2022. Remember, this improvement versus Q1 of 2022 is on top of opening all of our new restaurants this past year, which all have a lower margin profile to start. We accomplished this through our continued efforts to elevate guest experiences, implement operational efficiencies and deploy strategic pricing initiatives. On pricing, in January, we increased menu prices by approximately 2%.

At the beginning of May, we increased menu prices by approximately 3%. These increases continue to combat inflationary cost pressures and progress towards our goal to improve restaurant-level adjusted EBITDA margins for fiscal 2023. We still believe we have pricing power we can use as necessary. We will continue to monitor the current environment and remain flexible and strategic in our pricing approach moving forward. Our focus remains providing a great value for our guests. Our G&A expenses increased $3.1 million to 12% in the first quarter of 2023 from 11.7% in the first quarter of 2022. This increase was primarily driven by an increase in salaries and wages and an increase in professional and software licensing fees. Pre-opening expenses increased $1.8 million to 1.5% in the first quarter of 2023 from 0.4% in the first quarter of 2022.

The increase was due to the timing and geographic location of activities related to our planned new restaurant openings. All this led to adjusted EBITDA of $19.6 million in the first quarter of 2023 versus $17.6 million in the first quarter of 2022, an increase of 11.4%. Below the EBITDA line, interest expense was $7.4 million in the first quarter of 2023, an increase of $1.3 million from the first quarter of 2022. This increase was primarily driven by the year-over-year rising interest rate environment, partially offset by the improved lending terms associated with our 2023 term loan and revolver facility. On February 2, we announced that we entered into a new 5-year $300 million term loan and $100 million new revolver facility. During the first quarter of 2023, we also recognized a $3.5 million loss on extinguishment of debt.

As of the end of the first quarter, the effective interest rate on the term loan was 8.09%. Income tax benefit was $0.6 million in the first quarter of 2023, a decrease of $0.7 million from the first quarter of 2022. Our effective tax rate for the quarter was 30.5% versus 16.6% in the first quarter of 2022. Our effective tax rate increased quarter-over-quarter due to an increase in our valuation allowance and an increase in Class A equity ownership, which increases our share of taxable income or loss. We ended the quarter with $14.6 million in cash. Our growth is self-funded by our operating cash flows and our available cash. We remain committed to delivering healthy top line and bottom-line growth in 2023 and beyond. Thank you for your time.

And with that, I will turn it back to Michael.

Michael Osanloo: Thanks, Michelle. In closing, I’d like to mention that we just celebrated our 60th anniversary. Most companies would be reaching the maturity part of the growth curve after six decades, but in many ways, we’re just getting started. We have a beloved brand that was built on delivering a delicious menu in an energetic atmosphere at a value-driven price point and we will continue to create decades worth of memories for new fans as we expand across the nation. Even after 60 years, we have so much opportunity to develop and grow our team members, enhance the Portillo’s experience for our guests and to create enduring value for our investors. Thank you. With that, let’s turn to Q&A, operator, please open the line for questions.

Operator: Thank you. [Operator Instructions] Our first question comes from Brian Harbor with Morgan Stanley. Please go ahead.

Operator: Our next question comes from Sharon Zackfia with William Blair. Please go ahead.

Operator: Our next question comes from David Tarantino with Baird. Please go ahead.

Operator: Our next question comes from Sara Senatore with Bank of America. Please go ahead.

Operator: Our next question comes from Dennis Geiger with UBS. Please go ahead.

Operator: Our next question comes from Andy Barish with Jefferies. Please go ahead.

Operator: Our next question comes from Gregory Francfort with Guggenheim Securities. Please go ahead.

Operator: Our next question comes from Chris O’Cull with Stifel. Please go ahead.

Operator: There are no further questions at this time. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.