El Pollo Loco 2016 Annual Report Download - page 38

New Restaurant Openings
Thenumberofrestaurantopeningsreflectsthenumberofnewrestaurantsopenedbyusandourfranchiseesduringaparticularreportingperiod.Beforeanew
restaurantopens,weandourfranchiseesincurpre-openingcosts,asdescribedbelow.Newrestaurantsoftenopenwithaninitialstart-upperiodofhigherthan
normalsalesvolumes,whichsubsequentlydecreasetostabilizedlevels.Newrestaurantstypicallyexperiencenormalinefficienciesintheformofhigherfoodand
paper,labor,andotherdirectoperatingexpensesand,asaresult,restaurantcontributionmarginsaregenerallylowerduringthestart-upperiodofoperation.The
averagestart-upperiodafterwhichournewrestaurants’revenueandexpensesnormalizeisapproximatelyfourteenweeks.Whenweenternewmarkets,wemaybe
exposedtostart-uptimesandrestaurantcontributionmarginsthatarelongerandlowerthanreflectedinouraveragehistoricalexperience.
EBITDA and Adjusted EBITDA
EBITDArepresentsnetincome(loss)beforeinterestexpense,benefit(provision)forincometaxes,depreciation,andamortization.AdjustedEBITDArepresents
netincome(loss)beforeinterestexpense,benefit(provision)forincometaxes,depreciation,amortization,anditemsthatwedonotconsiderrepresentativeofour
on-goingoperatingperformance,asidentifiedinthereconciliationtablebelow.
EBITDAandAdjustedEBITDAaspresentedinthisAnnualReportaresupplementalmeasuresofourperformancethatareneitherrequiredby,norpresentedin
accordancewith,GAAP.EBITDAandAdjustedEBITDAarenotmeasurementsofourfinancialperformanceunderGAAPandshouldnotbeconsideredas
alternativestonetincome(loss),operatingincome,oranyotherperformancemeasuresderivedinaccordancewithGAAP,orasalternativestocashflowfrom
operatingactivitiesasameasureofourliquidity.Inaddition,inevaluatingEBITDAandAdjustedEBITDA,youshouldbeawarethatinthefuturewewillincur
expensesorchargessuchasthoseaddedbacktocalculateEBITDAandAdjustedEBITDA.OurpresentationofEBITDAandAdjustedEBITDAshouldnotbe
construedasaninferencethatourfutureresultswillbeunaffectedbyunusualornonrecurringitems.
EBITDAandAdjustedEBITDAhavelimitationsasanalyticaltools,andyoushouldnotconsidertheminisolation,orassubstitutesforanalysisofourresultsas
reportedunderGAAP.Someoftheselimitationsare(i)theydonotreflectourcashexpenditures,orfuturerequirementsforcapitalexpendituresorcontractual
commitments,(ii)theydonotreflectchangesin,orcashrequirementsfor,ourworkingcapitalneeds,(iii)theydonotreflectthesignificantinterestexpense,orthe
cashrequirementsnecessarytoserviceinterestorprincipalpayments,onourdebt,(iv)althoughdepreciationandamortizationarenon-cashcharges,theassets
beingdepreciatedandamortizedwilloftenhavetobereplacedinthefuture,andEBITDAandAdjustedEBITDAdonotreflectanycashrequirementsforsuch
replacements,(v)theydonotadjustforallnon-cashincomeorexpenseitemsthatarereflectedinourstatementsofcashflows,(vi)theydonotreflecttheimpactof
earningsorchargesresultingfrommattersweconsidernottobeindicativeofouron-goingoperations,and(vii)othercompaniesinourindustrymaycalculate
thesemeasuresdifferentlythanwedo,limitingtheirusefulnessascomparativemeasures.
WecompensatefortheselimitationsbyprovidingspecificinformationregardingtheGAAPamountsexcludedfromsuchnon-GAAPfinancialmeasures.We
furthercompensateforthelimitationsinouruseofnon-GAAPfinancialmeasuresbypresentingcomparableGAAPmeasuresmoreprominently.
WebelievethatEBITDAandAdjustedEBITDAfacilitateoperatingperformancecomparisonsfromperiodtoperiodbyisolatingtheeffectsofsomeitemsthat
varyfromperiodtoperiodwithoutanycorrelationtocoreoperatingperformanceorthatvarywidelyamongsimilarcompanies.Thesepotentialdifferencesmaybe
causedbyvariationsincapitalstructures(affectinginterestexpense),taxpositions(suchastheimpactonperiodsorcompaniesofchangesineffectivetaxratesor
netoperatinglosses)andtheageandbookdepreciationoffacilitiesandequipment(affectingrelativedepreciationexpense).WealsopresentEBITDAand
AdjustedEBITDAbecause(i)webelievethatthesemeasuresarefrequentlyusedbysecuritiesanalysts,investorsandotherinterestedpartiestoevaluatecompanies
inourindustry,(ii)webelievethatinvestorswillfindthesemeasuresusefulinassessingourabilitytoserviceorincurindebtedness,and(iii)weuseEBITDAand
AdjustedEBITDAinternallyasbenchmarkstocompareourperformancetothatofourcompetitors.
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